Q1 2021 Brinker International Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to the Brinker International Q1 F 21 earnings call at.
At this time, all participants have been placed on a listen only mode and the floor will be open for questions and comments after the presentation.
It is now my pleasure to turn the floor over to your host Mike aware ma'am the floor is yours.
Thank you Kate and good morning, everyone.
With me on today's call are Wyman Roberts, Chief Executive Officer, and President and Joe Taylor Chief Financial Officer.
Results for the quarter were released earlier this morning and are and are available on our website at Brinker Dot com as usual Wyman and Joe will first make prepared comments related to our operating performance and strategic initiatives. We will then open the call for your questions before beginning our comments. It is my job to remind everyone of our safe Harbor.
Regarding forward looking statements during our call management may discuss certain items, which are not based entirely on historical facts any such items should be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
All such statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated such risks and uncertainties include factors more completely described in this mornings press release and the company's filings with the SEC and of course on the call. We may refer to certain non-GAAP financial measures that management uses.
In its review of the business and believes will provide insight into the company's ongoing operations and with that said I will turn call over to Wyman.
Thanks, Mike.
Thanks, everyone for joining us this morning to review, our first quarter performance and share highlights what we see for the future of our business looking.
Looking broadly at the quarter encouraged by the continued improvement in the environment, the consumers' increasing engagement with the category and we hope to see those trends continue.
No there are still challenges out there, especially with independence get Brinker continues its strong recovery posting a better than expected first quarter and delivered earnings of 28 cents a share.
Both brands increased their progression from last quarter with Chili's reporting comp sales of negative, 7.2% and Maggianos negative 38.6.
And both brands delivered solid sequential improvement throughout the quarter with Chili's ending September down just 1.4% and Maggianos down 32.5.
Polished casual is obviously a more challenged segment, that's facing greater headwinds, but the maggianos team is doing a great job managing their cost structure and flow through.
We feel good about where maggianos is from a relative perspective, and we're excited about the bold strategy, Steve Pro and the team are putting in place to build the business.
The Chili's brand continues to exceed expectations from both a relative and absolute perspective.
The month of September marked our return to positive traffic and Thats pretty impressive given there are still major states like California, and New Jersey, not yet near full dining room capacity. This.
This brand continues its nearly three year streak of outperforming other casual dining chains in navtrak driving of 16 point gap in sales and 23 points and traffic this quarter.
When we broaden our view of the category to include independence, our gap widened significantly.
Current credit card data shows a whole category down, 30%, which reflects the ongoing impact of this pandemic and the reality of what is likely to be a meaningful shift in the competitive landscape.
In this tough environment I couldn't be prouder of the resilience and agility of our operations team.
For the quarter, they improved restaurant operating margin 60 basis points year over year.
When the pandemic hit back in March the market drove us all to dramatically cut costs. Since then weve judiciously evaluated every cost within our piano and we've been diligent about reestablishing our media.
Our spending levels.
In many cases, we're comfortable maintaining a level of spend below pre pandemic levels.
One of the biggest changes we made was to rethink our marketing spend we significantly reduce traditional television advertising. So we could invest more aggressively in digital and direct channels that work harder for us like my Chili's rewards.
And with the increased desire for convenience, we're shifting to support all our brands more aggressively with delivery, resulting in higher third party delivery fees and promotional expenses.
Based on where we're tracking with sales and the efficiency of our PML, we feel really good about these decisions.
Our top priority has been and remains the safety of our team members and guests we're committed to supporting our team that's working so hard to take care of our guests.
We've now brought back most of our hourly team members and we've been able to help them maintain their hourly wage levels.
We've also kept our management structure intact, we know how critical their leadership is to our guests and our business and we're proud that the that we've been able to bonus our managers close to target.
Nobody could have predicted this pandemic back in the spring and we're thankful, we didnt have to change strategies when it hit instead, we leaned into the same strategies that have been helping us take share for the last three years and they've been even more effective since the pandemic.
But even before that our challenge was to prove to ourselves and to you that we could create a growth model out of a legacy business in a category that seen meaningful declines in traffic over the years.
We have always believed growth is available in this category. If you do the right things by delivering a better guest experience a strong value proposition and more effective marketing, we unlock sustainable organic growth growth within our base business.
Our results demonstrate we are doing the right thing.
Our improvements to the base enabled us to introduce our first virtual brand. It's just wings, an incremental growth vehicle that offers convenience and value in a way no one else is positioned to do.
Theres been a lot of discussion about what a virtual brand is it's just wings is not a disposable vehicle. We're committed to this brand for the long haul.
There are barriers to entry and doing virtual brands, well and Brinker is uniquely positioned to do it right.
We have the scale the asset ownership available capacity in our well equipped kitchens, the right technology and unbelievably strong operators, who can focus and deliver consistently.
When we rolled out it's just wings overnight to more than 1000 restaurants, now that's easy to say, but tremendously hard to do so.
So I know everyone's curious about how it's going so far we're excited with how the brand is already performing and we're well on track to meet our first year target of more than $150 million in sales.
We're encouraged by what door dash seized with regard to consumer data. The brand is already generating high satisfaction scores and strong repeat usage.
It's really resonating with consumers, which we know is critical to the health and long term success of any brand.
Going forward, our focus is to ensure we're executing at the highest level possible and we're maximizing the brands growth potential.
It's just swings started as a virtual brand as we wire in execution and accelerate growth. It may take different trajectories were evaluating internal and external opportunities to increase awareness levels and expand access to consumers. This.
This is just phase one for its just wings.
We also believe we have capacity to expand our virtual brand portfolio. We're testing a few ideas to better understand consumer demand and ensure that we can execute at a high level.
We'll have more to say on that in the not too distant future.
Obviously, we see a lot of upside for virtual brands.
Listen with the uncertainty surrounding Cove and the economy, we anticipate some volatility ahead.
Like the rest of our country and the world, we're hoping and planning for vaccine and an end to the sickness and death from this virus, we are hoping and planning for economic stability and continued recovery in the post election environment.
But despite the things no. One can know here is what we do know we.
We will keep running our own race and working our strategy, we will stay flexible and agile and will take care of each other and our guests. We will continue to manage our PNM on our balance sheet with disciplined to create an even more stable model for our shareholders and we will boldly grow. These brands. So we can continue to be a great place for our team members to work and our shareholders too.
Invest and with that I'll turn it over to Joe.
Joe.
Hey, Thanks, Wyman and good morning, everyone.
As you just heard we began our fiscal year 2021 with momentum on the top and bottom line. We continued our recovery by delivering adjusted diluted EPS of positive 28 cents, marking our return to profitability. After just a one quarter hiatus.
Now for the quarter Linkers total revenues were $740 million and consolidated reported netcom sales were negative 10.9%.
Importantly, comps sales materially improved as the quarter progressed with September consolidated comp sales down only 5.2%.
Chili's will continue to lead the casual dining sector ranking as the number one brand in the Knapp track index each month in the quarter and as Wyman indicated by significant margins in both sales and traffic.
In September Chili's achieved another important milestone in its recovery posting positive traffic for the brand of 2.2%.
Another way to see Chili's impressive progression is to look at our netcom sales results, excluding those restaurants and markets not fully open for indoor dining during the quarter, such as California, and New Jersey.
These restaurants represent approximately 86% of the chili system and they were only negative 1.3% for the quarter.
And positive 3.6% for September.
Now turning to margins restaurant operating margin for the first quarter was 11.6% and noteworthy 60 basis points improvement versus prior year.
Food and beverage expenses were favorable 10 basis points versus prior year due to the favorable menu mix offset by low level of commodity inflation.
Labor was favorable 120 basis points versus prior year.
Several items contributed to this improved performance first labor expense relative to prior year benefited from the shift in sales from dine in to off premise in the quarter.
Second favorability was also Boyd by the fact, some of our higher labor cost stayed three opened at a slower pace during the recovery benefit that will diminish as we move forward of course naturally will take the sales that go with adding that labor back into the equation.
And finally labor expense benefited from the ability to seamlessly integrate our it's just wings brand into the existing labor model a point of leverage we plan to sustain.
The labor favorable favorability was partially offset by the increase in restaurant expenses, which was up 70 basis points for the first quarter versus prior year.
Sales to leverage higher delivery related fees and packaging expense were the primary increases while lower advertising and repairs and maintenance expenses helped mitigate the overall increase.
Generating positive cash flow is an important part of our recovery process with the business improving we generated operating cash flow of $83 million.
After capital expenditures of approximately $14 million, our free cash flow for the quarter totaled more than $69 million.
Our first priority for cash generation is to invest back in the business.
I actually have resumed both restaurant Reimages and new restaurant development, we have increased our capex budget for the year and now expect to spend approximately $100 million during this fiscal year.
As Wyman reiterated strengthening the balance sheet is also a key area of focus as such our second cash priority is to pay down debt and we executed against this strategy during the quarter, reducing our long term debt by approximately $50 million we.
We will continue to lower leverage as we move forward from here targeting an adjusted debt level of three and a half times EBITDAR.
Now turning to our current second quarter.
Let me provide some color as to our expectations for the quarter and then some specific guidance metrics for the quarter.
Today marks the end of our October period, and it appears we will continue the positive progression of comps sales established during the first quarter.
We expect chili's to further build its positive traffic performance. This period getting the second quarter off to a very fine start.
While we anticipate year over year improvements in Chile's operating performance in the second quarter, our consolidated performance will likely reflect a more difficult holiday environment for the Maggianos Brad.
With that being said, let me provide some specific specifics for breakers performance in the second quarter.
We expect consolidated comp store sales to be down in the mid single digit range.
We believe drinkers restaurant operating margins will be relatively similar to prior year.
Adjusted earnings per diluted share are estimated to be in the range of 40 cents to 60 cents.
The weighted average diluted shares are estimated to be in the 45 to 46 million share range.
I would also note we have a holiday flip in the second quarter with Christmas Eve and Christmas day, moving into the third quarter as.
This holiday shift will have a positive impact to second quarter comp sales it will be offset in the first period of Q3.
Despite the ongoing challenges in our operating environment, we continued to demonstrate strength and resilience. Our first quarter performance is a testament to our ability to deliver results.
While operating in a pandemic environment comes with some uncertainties. There is no doubt we will continue to execute our share gaining strategy take care of our guests and team members and be a leader in the restaurant industry for the short and long term.
And with that let's move to your questions Kate I'll turn the call over to you to moderate.
Thank you.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time, we ask that while posing your question you. Please pick up your handset listening on speaker phone to provide optimum sound quality.
In order to facilitate as many participant questions as possible. Please limit questions to no more than two per person pcls moment, while we poll for questions.
And our first question today is coming from Chris Ocull. Please announce your affiliation then pose your question.
Hi, it's Stifel. Good morning, guys.
Why don't you mentioned the opportunity for additional virtual brands. Mike. One question is how many virtual concepts do you think a typical chili's restaurant could support and what are the limiting factors for that.
It's a great question Chris.
It's not.
It's not so much about how many it's how much volume and so ideally you'd you'd like as few as possible that do large volume right. So we think it's just wings is nowhere near its the end of its potential growth and so we'll continue to grow that that brand from you know what we're saying now is that.
Just $150 million brand to some higher level.
And the constraint is really you know, it's your kitchen capacity I.
I think there so.
Certain limitations that just come with the current set up.
That you then would have to start to modify.
It's not a large number it's not we're not talking into the you know this is a single digit low single digit a fair you know whether it's one two or three I'm just kind of depends on how it plays itself out and kind of how we work, but there's also the opportunity when you when you have as many points of distribution, which really the virtue.
Cool brand game is about points of distribution.
In years as penetrated as we are in a lot of markets you don't necessarily put every brand in every distribution point you know not every kitchen has to carry every to still get you coverage for those guests that are looking for a delivery.
Options. So there's a couple of variables that we're continuing to learn and test as we as we build it out but it's not it's a it's a relatively small number.
Men, it's all about sales growth. The good news is we know in our rest we have $5 million chili's that do that kind of volume even though our average is three so we know we have a lot of capacity to to put more food out of that kitchen than our average and that's what we're and so we're optimistic that we've got plenty of room to grow the virtual brand business.
Because of that.
That's helpful. And then just one other question Joe could you break down how much of the margin improvement at the restaurant level was driven by the incremental flow through of the it's just swings business versus fundamental changes that have been made in restaurant.
Yes, it was definitely additive to the equation a growing that top line and virtual brands. As an example of how we're going to do that but also growing the topline as we bring.
Dining rooms, more fully back on as potent piece of that equation.
It was you know in the 40 basis points range.
When you look at it from a from an all in standpoint.
Chris.
Okay very helpful. Thanks, guys.
Thanks, Chris.
Thank you. Our next question today is coming from Andrew Strelzik. Please announce your affiliation and pose your question.
Yeah, Hey, good morning, guys. My question is around the corner on the margins you talked about twoq being kind of in line with year ago and.
Excuse me mentioned labor and and advertising as benefits it will dissipate over time. So when you think about going from up year over year <unk> kind of flattish what are the dynamics at play in Twoq that we should be aware of specifically so that quarter and then more broadly you know, we're looking really comps being down.
And margins in line to better than year ago. How are you thinking about whether it's back at 100% capacity plus its just wins or whatever you want to frame. How are you thinking about how much better margins could ultimately be in this business you know kind of in a post open environment. Thanks.
Yeah, Andrew I think they are always when you start thinking about the Delta is Q1 to Q2.
The unique difference basically is going to be driven off of.
The maggianos side of the equation.
I would say maggianos.
Historically has always had an extremely strong second quarter built along a route a lot around the the banquet special events and celebratory in nature of the holidays and and our anticipation right now if you want to see.
Yeah that same similar environment playing out so.
While it typically has an oversized contribution.
To the consolidated equation in the.
Second quarter, you're going to see a little bit more of a of a headwind to that coming out of.
Coming out of the Marciano side I anticipate as we look at the Chili's brand to continue to see actually growth in the margins from that piece of the business, but it's just the relative contribution out of Maggianos that you would typically get buy in the second quarter I think of that as a very second quarter specific kind.
Kind of thought process.
And then far as Jay understanding on a long term basis again, I think that if we go back again to growing that top line. So I think as I as I mentioned within the Labour discussion when you.
Look at the virtual brands and their ability to impact.
Margins its very Leveragable I mean again, we bought we abroad. It's.
It's just wings into the equation with very very little change to the labor model within the restaurant Abhi.
Obviously as you bring incremental.
Gross to the equation either through its just wings or an additional virtual brand to continue to look at at at at that model, but generally speaking you're going to get high leverage ability coming out of that piece equation and then again dining rooms are still coming back online and you'll get further leverage ability.
As we as we grow that base piece of the business too, which is a very important part of the question I know, we focus a lot on virtual brands, but this.
The sequential improvement we've seen in the dining rooms, they've come back on over the quarter as is.
Just if not more important to to the equation. So again there are pieces of the business from a modeling from a margin standpoint said, we're very comfortable weve improved and that's improving after off of a fairly efficient model that already existed we're not where we were looking at a lot of low hanging fruit from a.
Margin efficiency standpoint, but we've been able to find some.
And then then Wyman again talked about some of the changes, we're making and how we think about the business drivers such as media and delivery platforms and things of that nature.
That's very helpful. Thank you very much.
Andrew Thanks.
Thank you. Our next question today is coming from David Palmer. Please announce your affiliation and pose your question.
Ah Thanks Evercore ISI.
Good morning, you, Joe you mentioned that the restaurant margins would be about flat I think you said year over year in the fiscal second quarter, how much of a drag is maggianos projected to be in that quarter.
In in and how much might that be a greater drag from the first quarter and I have a follow up.
Yes, again with a you know without getting into into the brand level specifics you know, it's it's probably you know.
Again, if I look at where I expect chili's.
To go I would see further improvement in the margins on their side of the equation. So so so that improvement is is going to be somewhat offset is going to be mainly offset by the maggianos drag. This is.
Very outsized earnings quarter for that Maggianos piece to the equation again, that's specific to the second quarter. So.
As we move further into the year that tends to mitigate itself. So.
You know I'm greatly.
Yes, I'm pleased to see where we continued to drive the chili's business and that's the sustainability of where I would expect to see margins going a longer period of time.
And then just a follow up on on to go and delivery looking longer term.
This is seems to be something that an area of upside for you are.
Are there clues about the most reopened markets, where you've had a chance to have that on premise business mature up and does that provide a clue to you that you could share with us about how sticky at a higher level. This to go and delivery business can be any statistics, there would be very helpful. Thanks.
Yeah, well, David it's interesting right so when.
You got to kind of start with what we know about consumers are and there's still a large group of consumers who are not going out to restaurants.
Right. So then or whatever server you look at its 30% or or more of the population is just not going to go out, though they'll do dine in or they'll do take out but not go out. So what we do know is in restaurants that are seen volumes get back to pre pandemic level. So we are in the dining room. So we are even with that headwind we have restaurants that are getting.
Close to you know 80.
80%, 90% of their pre pandemic sales levels in the dining room, and we're seeing very solid 30% mix in there.
35, 30, 35% mix of taken delivery. So it looks right now to be fairly sticky UBS.
Again, I think post pandemic and a vaccine what that present the population as Dan says, Okay. Now I'll go back into restaurants, what that does to the mix, but we feel very optimistic are very comfortable that.
The the convenience experienced by the broad.
Market now isn't going to revert back to where it was pre pandemic, we're going to we're going to see significantly higher takeout and delivery and that without virtual brands. So obviously as we said the virtual brands into the mix that that adds to that mix. So so that's kind of how we're looking at it.
Thank you.
Yeah, good talking to.
Thank you. Our next question today is coming from Greg Francfort. Please announce your affiliation and pose your question.
Hey, it's a it's bank of America I had two questions.
The first was just the math question on the second quarter and when I. When I look we're plugged down mid single digit comp and the margins I know my model I'm.
I'm getting higher EPS than the guidance and I'm just curious if there's something on DNA DNA that I'm missing or.
First off on on something and then and then the second question I had was for one and you made a comment you made a comment in the prepared remarks about what she's wings could evolve to over time and it seems like there's a few options for that but but I'm curious how you're thinking about what those options are is that is it standalone concept is that pushing harder into third.
Party goes kitchens, just just what you meant by that comment thanks.
<unk>.
And again.
Yeah without getting into too detailed for modeling discussion on this call or it.
It could be a matter of the again the maggianos outsized drag in the second quarter relative to how you're you're thinking about or the model, there's going to be a little bit of a.
DNA was was slightly beneficial in the second innings.
And excuse me in the first quarter compared to prior year, so that normalizes, a little bit more you know the second quarter relative to last year's second quarter, so not quite as a a bigger benefit there you could probably had about a 2 million dollar oversized benefit in the first quarter, which really relates to the treatment of it.
Based compensation.
This year versus last year, so that normalizes, a little bit in that regard. So you may want to make some adjustments there, but you know what I'm going to make the assumption that it's probably the relativity treatment of Maggianos.
Got it.
Greg without you know again, we're not going to share a lot of our future growth ideas on on the call just from a competitive standpoint, but suffice it to say we're excited about the potential to produce.
Other things with this brand it's a it's a very strong brand is getting great consumer acceptance and appeal, our partnership and our learning with our partners a door dash on how to position it how to market it more effectively and the team that's working on it is excited about other.
Ways to to to put this product out to a broader consumer base and Ah. So we're looking at several ideas that we think could significantly grow off of the base we've talked about.
And as we kind of execute and test those little share we'll share those results.
Thanks Glenn.
Yep. Thanks, Rick.
Thank you. Our next question today is coming from Nicole Miller, Please announce your affiliation and pose your question.
Hi, first Sandler Thank you and good morning.
The first question is probably pretty.
Understandable, why you're comfortable with lots of marketing, but I want to understand the change in message or Tony are you comfortable with less discounting and is that something that you.
Do you think you could carrying forward.
Hey, Nicole a again a good question we are.
Because we have such strong built in value propositions in the menu I mean, when you look at value scores across the category Chili's has some of the highest if not the highest in casual dining so.
Where our values built in every day and and it's been out there long enough. It's got really strong awareness levels. We will continue to incent through direct and digital so it's not like we're not so we're not going to do a limited time promotions and you know in the.
Historic sense right. That's just not a we did first we don't see their effectiveness I mean, it really is about effectiveness not like we have any we're just trying to grow the business. The the best way possible and then as we evaluate our effectiveness with those and really the company competitions. We just don't see them being that effective and so we're we're moving to what we saw.
I think and what we can measure are much more effective marketing channels and the team's done a great job building our database the operators have done a great job executing against more direct.
Ah vehicles as consumers and our guest come in.
So we're very comfortable that that that's how we can continue to if we need to and sent folks to come in above and beyond whats out there on the basement.
Okay and then just the last question I'm, just doing clearly nothing incremental in terms of sales and margins.
And then you talked about that and how many months ago. It was my email sunsetted almost every single day.
<unk> thing so how do you ensure that your marketplace partner.
Definitely line the same support to your peers, and especially you know given the data that they do have not that they would use your data and you by name specifically, but nonetheless they happen.
You know we have a great relationship with door Dash, it's you.
You know any partnership is built on trust, we trust them.
To do the right thing, we know they're treating us they're treating their other customers confidential Kent confidentially with us and so we assume that's the same way they run their business I have absolutely no concerns about that there Tony is a is a very ethical guy. So we have no concerns at that they're doing.
In their business, the right way and we're partnering with them to grow the business in a very you know transparent way, but how do we how do we partner better to market through there.
Side to be more effective to get the brands awareness levels up.
And Nicole together very I go back to that I don't even want that out there, but you're just you're basically you're paying say help other people give exact same thing I mean, I guess, you're just saying there's enough room in this category and there is enough capacity and I've tried to do that's exactly the point.
Well again I don't think that's unusual to any any channel at all and in the industry. There was going to be competitive forces at play regardless, if it's on premise or off premise I think the fact that we can do it had such a large scale national footprint is definitely the differentiating factor there as opposed to ABR.
And you might get an email on that's doing it in a small regional set up so that yeah. That's a big difference nickel enough I misunderstood nickel I think the.
Scale matters I mean, its points of distribution did to put out a thousand restaurants. It's just wings overnight. That's really what makes this a big idea you know and and that's unique to US people just don't have that many restaurants that they own that they can generate the kind of sales and flows through incrementally in Q.
It's the kind of potential profit. So it is a unique and that have kitchens that have some capacity and then to do this and the capability to pull it off so it's easy it's an easier said than done thing to create a virtual brand and especially needed to sustain one. So I think some folks are kind of looking at doing virtual or almost.
Pop ups that they'll use to help get them through.
Cove, it but that's not our strategy. This definitely long term growth vehicle and when we see working well for us going forward.
I appreciate that thank you very much.
Thanks, Michael.
Thank you. Our next question today is coming from Jeff Farmer. Please announce your affiliation and pose your question Oh. Thank you Gordon Haskett and two questions as well. So just sticking with it's just swings you guys made the point that 3 million in system sales are generated in the last week of July.
I'm just curious if you can share any information in terms of how that's progressed are you seeing any type of growth from that 3 million.
System sales level in July.
Jeff, We're just kinda, but we don't want to get into that.
The nitty gritty like every week kind of projecting or or or sharing data. We're comfortable with the 150 million plus potential for this brand. It's not a it's not a growth potentially get there were in those levels now and we're very comfortable about how it how the brands performing and our ability to grow from there.
Okay. That's helpful. But unfortunately I have one more nitty gritty question for you which is on.
You did share that Chile central sales I believe were down 1.4% exiting the month of September that's impressive but in terms of any commentary on October and Chili's anything you can share with us.
Yeah, and Jeff I think I'd and let me reiterate some of the comments in the in the in my script again, we we expect until it was also positive 2.2% and September and traffic, we expect that to grow that will grow in the month of October and we're going to continue to see.
On a further positive progression off of that September number you know I'm not going to not not not going to give you a specific back to you know positive or anything of that nature, but we're definitely going to be moving.
Closer in that direction as we finish up.
This period. So so it's a positive on both of those traffic and and comp sales from a progression standpoint is our our expectation.
Thank you.
Thanks, Jeff.
Thank you. Our next question today is coming from Brian Vaccaro. Please announce your affiliation and pose your question.
Oh, Thank you Raymond James Good morning, everyone I.
Wanted to just start on Chile sales trajectory in some of the dynamics. There. One you noted in your prepared remarks, the ongoing industry pressures and especially on the independents and I'm curious how that showing up in your performance across markets are you seeing outsized gains in smaller markets versus mid to larger size markets where.
Perhaps there is a more meaningful supply reduction.
No brand the big the Big difference still with regard to market performance is is covert response. So again in these markets, California, New Jersey, Wisconsin, where they're more extreme you know dining room constraints you know that's why.
Or you're seeing.
Tighter Oh, obviously less sales and the share gains you know again looking through the data with the various sources that we can we.
We see pretty consistent share gains across markets. So I think the strategies. We're using are broad based there working across the.
The country, and we're seeing fairly consistent share gains that way and and it really has more to do with again, what's going on in specific states like California, where were we may not be as aggressive in California, with putting out outdoor dining as some folks have and so we may not be taking as much.
Air and in that state as some others that have put out a much bigger patios and gotten more all in on an external a kind of a dining experience.
All right that's helpful and sorry, if I missed it but what was the off premise sales mix at Chili's in the quarter and then could you help frame, where you are on effective capacity and perhaps remind us kind of way are enrolling partitions and other initiatives to maximize your dining capacity.
Yeah, Brian in for that for the quarter and again you saw progression of this as you move through the quarter, but for the quarter you were in that upper Fortys 47, 48%.
<unk> percent off premises converse lazy or the low fiftys on the on on the dining room side of the equation and again that was.
If you remember we talked kind of a 50 50 mix coming out of the prior quarter. So you can tend to see is as dining rooms come back open to a shift in that progression.
Yeah and running at capacity Yeah. Sorry go ahead, yeah. So with regard to capacity were you know again. It is it's been very hard Brian Im not trying to be this year. It's just every markets different every I can't even give you a state number because its county by county, but in general.
There's there's always going to be the six foot.
You know with regard to distance social distancing that we we're we're sticking with and so that puts I'd just say that keeps you at least at 25%.
Or the most you could get was 75%. If you just said hey, we're going to open it up and just do social distancing.
And you put that partitions and we we aren't there. So I'd say, we're probably closer to 50%. If I would just give you a number somewhere around 50% in high volume restaurants, we are looking to be a little more aggressive with putting in simplex C to allow us to get a little bit more you know to get more.
Greater utilization of tables, but.
We're somewhere in that 50 to 75 range.
And again some markets a lot less because some markets are are mandating 25. So it just it really is a.
Market by market story.
Yeah understood. Okay. Thank you I'll pass it along.
Yep.
Thank you. Our next question is coming from John I think how please announce your affiliation and pose your question high.
Hi, Thank you <unk>, there's obviously some kind of discussion about you know holiday in general, perhaps being I guess a risk for the industry. Overall as you people you do have you know whether its office parties were just family gatherings are friends gatherings. You know what have you is you know just that they can you know the one whether those are going to happen and secondly, whether the restaurant.
Thank God you know that were previously very busy during the month can you can you kind of accommodate oh.
Yeah, I'd be but basically you accommodate these people with some of the capacity restrictions that we just talked about so yeah. How are you thinking about that.
It's implicit in your comp guidance, you know the <unk> Thanksgiving to Christmas timeframe, I guess, it's kind of the first point do you think you know there's any kind of risk at Chili's I mean, just chili's over index with larger table sizes. For example, during that month and you know if you could remind US you know for maggianos for the quarter.
What percentage of the December quarter businesses.
Banquets and in larger parties as you can measure it.
Hey, John I'll take the first one on Chili's and let Joe can I give you a where we can on on the Maggianos mix. It really is not as big an issue for chili's.
Chili's, if you look at our Chile sales trends over the years no second quarter is a relatively consistent quarter for us we have some higher days, obviously and we have a couple of you know, we're close Thanksgiving and Christmas those mitigate some of those higher days, but it's it's nowhere near the seasonal holiday impact that you see it much.
Yes, I mean, obviously or or other brands were not necessarily the celebration destination place, it's where people do come in when there you know that our shopping. So there is there there's hires some higher usage, but it's nowhere near as great as you would see in other brands and including our brand Mark.
Yeah. So we don't see that we think the way we look at it and again, we're we're just speculating like everybody else, but as we look at the data and we see what's going on a kind of through this first quarter we.
We know there's going to be some changing habits, obviously, there will be less travel they'll be less shopping more online, but we also know they still don't want to Cook. You know these consumers are not gonna Wanna cookies meals are not going to they're going to want to have food.
Prepared for them and whether or not they're out and then we deliver it to them or whether they do come in and any we think we're we're going to see similar kind of trends at chili's and we have the capacity unless something happens with with outside our control with the virus. We think we'll have the capacity to kind of deliver.
Kinda trends were currently seeing.
Okay, Yeah, and and John the one other thing I'll remind you and as it relates to chili's in the in the quarter again, we do and it's because both brands. So we do have the benefit of the holiday shift for Christmas, which is to close day for us and.
The second quarter shifts into there. So you do have some underlying support to coming out of that of that piece, it's probably about a 1% you know lift fish in that range to the.
To the quarters I, just want to get to the reporting of the second quarter I want to make sure everybody is a is aware of that system that will be benefit or not from a maggianos standpoint. The holidays. He I think the best barometer. Historically is the banquet sided equation, which typically would make of about 20% of their their business story.
And Ah this quarter, that's one and that's also a nice driver from a margin standpoint, so when I talk about the the headwinds that are unique to the second quarter as it relates to you know you.
You know margins that that's driving a big piece of that equation again, we're contemplating that that's built in to to the perspective, we get that we've given you as it relates to the quarter. So you know we'll see.
See how the environment plays out over the next day.
In two months.
And just to make it a little bit of a joke why I mean, I think plenty of people could have predicted the pandemic adds of the spring I got a cycle and that as it prepared remarks as I was kind of thinking about April is we're kind of in the middle of everything but anyway, hopefully that sub debt.
That that joke is well received or or not but anyway. It's it's good to hear you guys and I'm glad everything's going so well.
Thanks, John actually I'm talking to you.
Thank you. Our next question today is coming from Jeffrey Bernstein. Please announce your affiliation and pose your question.
Thank you very much from Barclays. Two questions first just on the broader Chile sales outlook.
Wyman it does seem like consumers want to go back to restaurants, I know you mentioned, 30% have not yet entered.
But it does seem like sales should continue to improve as capacity restriction is further which seems like the biggest headwind, but if you put increased capacity aside it does seem like local peers have mentioned, maybe not assuming any further sales improvement from here part.
Prior to a vaccine, especially with the cobot spikes in the colder weather in a recession a potentially upon us so.
Thinking sort of the chilis, whether you anticipate further sales improvement near term I mean, it sounds like the chili's comp is still modestly negative.
Or whether you do believe you can still see some significant further re acceleration that trend over the next few months and then how to follow.
Hey, Jeff I think the.
It's a complicated question right in terms of.
Because you have some major markets like California that is reacting and responding significantly different than let's take a major market like Texas to the same back to the same virus. So you know if California starts to.
It is willing and starts to feel like they can then open up their market even in a cold at world similar to other states then we'll see growth in in Chile's overall sales. We know there are significant drag to our number right now Joe mentioned that if you take that what is a 14% of the restaurant that aren't open.
And in a covert world like kind of like the rest of the country and we we we see significant improvement to the numbers. We've shared with you. So so that's just yeah in a co bid world. If everyone. Kinda can can can run at opened dining rooms at limited capacity, we still have growth potential in a covert world and.
And obviously the big the big upside comes when coven moves away so.
And that's.
That's an interesting you know again, given that 30% of the population, saying, they're not going to two restaurants until there is a vaccine you know that that tells you. There's some pent up demand out there now they're you know, they're using takeout and delivery, but but that tells you our dining rooms have a lot of potential to get very busy.
Once there is about.
That helps a lot.
And then my follow up is just you know it was mentioned.
About independence and the challenges they're facing.
So the pandemics difficult for all but seems like many are talking about significant independent closures as a silver lining for the large chains, allowing for some market share gains and wondering whether you're seeing that yet and there are a couple of industry.
Industry sources that said you know what we're just not seeing it to the same magnitude that maybe was expected. Initially so just with you a thousand plus restaurants across the country. So you'd have a pretty good gauge on you know to what magnitude are we really seeing independent store closures at this point. Thank you.
You know again first were.
We absolutely are.
Our sympathetic to the to the impact of Pandemics, having on on on others are in the in this space and.
We aren't tracking independent closures and we based on the previous question, we haven't seen any noticeable correlation to that again. The results are all being influenced by so many factors you know guests not willing to go to dining rooms.
The response to the communities and the and the governments in that space and then and then what's going on competitively so very hard to kind of tease that element out, but we know that is going to be there. Obviously, there there's going to be some shift.
ER.
In the landscape of restaurants, when and it's already happening, but I think it's just very hard to tell now because you've got consumer behavior that doesn't line up to normal. So once we once we get that in the mix and the and the demand starts to.
Replicate what it historically had and then then you'll get a better sense for what that looks like.
Understood. Thank you.
Thanks, Jeff.
Thank you. Our next question today is coming from Alex Slagle. Please announce your affiliation and pose your question.
Thanks Jefferies. Good morning, I had a question on the other virtual brand tests, you're doing and you know what these tests it looked like relative to what you experienced with it's just swings and.
You know what you're doing different.
As you know how you evaluate your options here.
Yeah, Alex So we don't you know just like we didnt share a whole lot. What do you have anything about its just wings before we roll that through a thousand restaurants, we we don't really like to talk about what we're testing for obvious reasons, but worksite I'll just tell you that I I don't think I think there are other big ideas out there like its just wings.
You know we will we have to test. The first two things were were destined in evaluating is demand is that a big idea can we generate the kind of sales potential that gets us excited like in its just wings does and then can we execute you know and and those are the two things that I think are are critical to the long term viability of a virtual.
Brendan and and making it worth the effort and and you know we we think there could be a couple of those ideas out there and we're aggressively learning.
Thanks for that and then on the development greenstone belt outlook slightly is it a function more sites available or better visibility on getting construction resources and activities in the ocean.
Any thoughts on the expected cadence of those openings.
Yes, it's a combination of that that Alex and again I think it was important to get the process going because development is a longer term process. So I.
I mean, we've already opened six new restaurants, so far.
This fiscal year I'm, a couple more to go to round out the year instead of the the work being done now will actually have a bigger benefit really what do you think about the second half of 22 went into 23 again I'd like to get that level develop and backup into where you're really looking at you know.
You know, one or 2% of net capacity.
Passenger growth from then on the new development side of the equation. So all the efforts are going into making sure. We can build that pipeline feedback were getting you know again of where it's difficult to as Wyman said before they are kind of really parse out you know impact of independence, we do see that to some degree a when you work with.
The development side of the equation when you think about the site opportunity both de novo and possibly going into sites that that.
Become available as you kind of go through this as the situation. So there are an increasing number of those out there that that may or may lead to sign some opportunities, but again, where we have the resources now in place and and the pipeline.
Developments starting to take off that will build that that new restaurant development and I'll just add you know opening restaurants in a pandemic is.
Something that were nervous about and and these six restaurants that we've opened have all performed very very well.
You can kind of above expectations in an absolute.
Perspective, so that gives us a lot of confidence is as we get more aggressive with our our development plans.
Great. Thank you.
Thanks, Jeff.
Thank you. Our next question is coming from John Glass. Please announce your affiliation and pose your question.
Thanks. Good morning, It's it's Morgan Stanley. My question is on the wages in with the election no close by the conversation is about whether we have a round of minimum wage increases at the federal level and holding aside part of prognostications is whether that will or won't happen can you maybe just frame how different your store margins are in.
States, where you already have a much higher minimum wage state mandated minimum wage maybe closer to what is federal would be or said another way were asked a different way you know what's the average wage rate today and your business. Just so we can sort of frame, where you are versus what may potentially come.
Yeah, I don't I don't know John if we want to go into that level of detail what I can tell you is.
First.
There's a lot of rhetoric and there always is especially pre election around these topics.
We just talked about the that's very difficult environment, that's facing restaurant industry, right, now, especially independence and that that there's going to be legislation that puts even more pressure on this industry.
That that gets done I think is going to be a very interesting conversation when it really gets time to do that in your more in your state to your restaurant tours of the people that are employing that are right now facing millions of unemployed restaurant workers.
It's just there's it's a very interesting conversation win win win the reality actually comes to the table and what that does to the industry that said what we're proud of is that our average server makes over $20 an hour our average.
The heart of the house team members are making well over minimum wage so.
You don't have you know our members are making good wages and we'll work on and deal with kinda legislation as it comes I will say this is where scale and size helps you know again, if anyone's going to be able to navigate through this and continue to offer value propositions.
That we offer Threed for 10 in California.
Tells you that you know, we we have figured out how to be as efficient as possible in the highest wage states still deliver great value propositions and make money. So.
We'll figure it out.
Just a follow up in states like <unk> or use. Your example of California, our restaurant margins lower than the chain average orders volume offset it is there any way to sort of frame, where Steve where wages are much higher or restaurant, how much lower our restaurant margins.
Well I'm not going to give you the specific numbers on that obviously the percentages are lower but the volumes are higher and that's where again because you've got the ability to bring scale to play to do things to leverage technology and do the things that allow us to be more efficient. It just puts more pressure on on the smaller guys that don't have it.
Those resources, so from a competitive standpoint. It you know it may actually make more sense for us to see that we don't we don't wish that on on the industry. It's just not a good thing and again our servers.
And are making over $20 an hour and that's what we're proud of.
Thank you.
Thanks, John.
Thank you. Our next question today is coming from Eric Gonzalez. Please announce your affiliation and pose your question.
Hey, Thanks, it's it's keybanc.
I appreciate the detail on on wings earlier, maybe this part was danced around a little bit, but I'm going to ask it directly what was that the same store sales lift for Mitch just wings in in the quarter and then separately can you talk about the marketing strategy Curry meter year like how important new innovation or new menu news will be in the months ahead.
It seems like it's a big focus now, but you know, perhaps that's due to capacity being more of a constraint, but do you think that that you know that changes in the months ahead and maybe your marketing strategy shifting to digital do you think could bring back from TV going forward. Thanks.
There's a lot in there yeah, we're not going to give you the numbers are broken out, but it's pretty simple math I mean, we keep saying where it was 150 million dollar plus brand and that is on that trajectory now. So if you just do the basic math and you can you have our total sales you'll you'll get in the ballpark. So that's a fair that's a fair number.
The though.
The response to the marketing again, I think you have to from our perspective, what a lot of people did during the pandemic was reduced menus simplify down we didnt do that we've kept everything out there so from our consumers perspective, we feel good that the things they love about chili's.
Are still there they have been there through the whole time period, and and that's what they're they know and love about the brand innovation right now is not a top priority for US we continue to innovate we still have our Margaret in the month. If you didn't get the Spider bite you better hurry I think I've got a couple of days before that market really goes away and we will be.
Bring out the next one so we are still innovating and we're using digital and direct and all our channels to two convey those messages, but oh, we are leaning heavily into that or the quality of the food that we deliver everyday and the value propositions are built into our menu every day and they seem to be doing fairly well for us.
And they started marketing mix.
Oh, I'm sure well with regard to marketing mix in the future Eric will see.
No again I started in this industry are 36 years ago and as the market are doing limited time promotions and on national television. So.
I know very well how effective they have been I, just don't think that's necessarily the world today and we'll continue to.
To our marketing team is going to continue to do that and tries to more effective approach to driving brand awareness and building the brands and driving traffic and if that doesn't work, we'll shift back around and we will reflects both an agile.
Thanks, just on the on the mix comment before you know and I think you made a comment that it was in the high Fortys that your channel mix would you be able to maybe tease out.
Liberty versus takeout.
Break down.
It's still maintaining about it a two to one ratio on the way to go to delivery to go being the higher piece of that equation well.
We will need to move on art. Thank.
Thank you good.
Thank you. Our next question today is coming from Dennis Geiger. Please announce your affiliation and pose your question.
Thank you at CBS wanting just a quick follow up to to Jeff Bernstein question. Just if you could talk about further sales gains from here.
Yeah, Steve restrictions don't change and I apologize if I missed it but just maybe given whatever existing capacity you still you may have in the dining rooms right now maybe for you know driving a further step up in in off Prem you know if its independent and small chain struggle a bit more more this winter can you kind of been.
Greece those gains within the current state restrictions right now do you think.
Yeah, I think we you know we are getting we're doing some things with regard to additional adding making that.
Increasing our capacity within the current Conns constraints, so again use a flexi and things like that that still provide a very safe environment for our guests, but allow us to open up a few more tables. So there are some of those offers options out there and were moving down that path again, the big opportunity within the Cobot World is just.
To to get to the point, where some of these more constrained states cities and counties start to open up dining rooms to even the.
The 50% level right I mean, that's that's where there's some some bigger opportunity in the cobot world and and that's a very fluid things. The good news I mean I know its a.
You know half empty half full kind of proposition as we see cobot kind of move up in some cases, but the good news is that I don't.
It's going to get managed Oh, yeah, there'll be pockets and then we'll address it and we'll move through it and we've seen that really now several times through in certain markets. So we don't anticipate a major retraction or reduction in traffic based on Cobra cases, it will be more pocket.
Got it and that's that's something we can work through and and so that that's just how we see the business and again, we'll address that on a market by market basis.
Got it and then if I could just on the development opportunity Joe that I think you just highlighted just wondering if there's anything more to share. There I understand this is looking out a little bit but is it it company stores or will it be in the franchisees size of store is there anything you know beyond what Youve said that you can share you obviously the business is it.
It is strong and the skill does feel like an opportunity to to accelerate that just anything if there is incremental anything incremental there at this point Joe. Thank you.
It definitely is an opportunity and and and what I'm, referring to getting to that you know one or 2% capacity grows from new development. That's that's for company out again, we've got we're going to be that the more aggressive or a player in that development opportunity and I think the development a it's also.
Hi base I mean, we're looking throughout the country.
Thank you.
Thank you. Our next question today is coming from Chris Carroll. Please announce your affiliation and pose your question.
Thanks, Good morning, it's RBC capital markets. So I just wanted to ask first specifically about digital sales and I'm curious to hear if you have any early observations from whatever presumably you're growing digital sales mix on the back of the it's just wings launch and then just how sticky those sales are relative to your expectations.
[noise] [noise], we're running a where we had an hour.
Where do you yeah. So we're we're in the Fortys and again as this is one of those things, where we want dining rooms to open up more and as we see that will you know we shift from from a more digital world to go back to the real World and.
Dining rooms that we that we actually want to see more but we're we're in that 40% range right now and and the stickiness, especially around it's just we've is very good and again based on benchmarks are.
That were made aware of or we're in we're in very good shape with regard to how both Chile and the it's just wings brand or are kind of connecting with the digital users, yeah, and Chris from a relative standpoint, that's a bad well that's more than twice the level, we had really going into coated.
So nice spike there and and stickiness at a much higher level, so no normal being said.
Got it got it. Thank you and then just on the mix component of the comp I mean, presumably off premise is creating a significant portion of that drag but is there any impact from its just wings, specifically on the mix and how do you see mix playing out as presumably on premise and overall sales continue to trend in the right direction.
Yeah.
It's a great question, Chris and I think again something people may not be picking up as much.
First we haven't price right and again I think you're seeing when you just look at the our differential between traffic and sales.
You can tell that theres, some mix and pricing issues going on within our brand, but also within with response from others. So we're being very cautious about pricing right. Now we think we have Oh, we're really not planning on a lot of price right now and so that future potential for us and then the mix hit from Prime.
Married alcohol lots of alcohol sales when you move it's not it's not an it's just wings issue with an alcohol issue. It's when you move consumers out of the dining room and into a takeout environment use alcohol sales at a fairly good clip and we're doing everything we can to get a alcohol sales out into the takeout world, but it it's still a significant mix shift.
And that will come back as dining rooms, you know as dining rooms come back our percent alcohol mix for the guests that are back in the dining room is actually up and so it's just the mix of guests that are in takeout versus dine in is creating that a major drag and as we open up the time, that's that significant opportunity.
It will just come back organically as they come back and they will drink and we've seen that so again that progression of openings you do see the the mix improving in those restaurants as they get more dining capacity.
Got it thanks very much.
Thank you all right and my final question for today.
All right, we run out of time, but thank you everyone. We appreciate you joining us on the call today and look forward to updating you on our second quarter results in January however, today, guys, Hey, thanks, everybody.
<unk>.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
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