Q1 2022 Brinker International Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to the Brinker International Q1 F. 'twenty two earnings call. At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Michael Ware, Vice President of financial and then.
Investor Relations.
Sir 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, Our Chief Financial Officer.
As many of you know we pre released limited results for the first quarter ahead of our Investor Day hosted here in Dallas on October 20th.
We released full results for the quarter earlier, this morning, which are available on our website at Brinker Dot com.
Since we have recently shared details regarding the first quarter Wyman and Joe will make prepared comments related to our operating performance and then we will open the call and jump straight to 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 morning's press release and the company's filing 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 the call over to Wyman, Okay. Thanks, Michael.
It's good to be back with you all again it was great seeing some of you in Dallas and many of you virtually during our Investor day, a couple of weeks ago.
Thank you for making time to get an in depth look into our business. What you should have taken away from that was this we're very optimistic about where the business is going we're managing for long term success and we're confident in the strength of our brands and the levers we have yet to pull to continue to grow the business from a top line perspective, we're seeing.
Good spas sales numbers are solid and traffic numbers are extremely good our near term challenge is.
Not creating demand, but rather it's working through the path the latest pandemic driven staffing and supply chain issues that are impacting our cost structure.
You know there. These are the same challenges impacting the industry as well as much of the economy, but after 40 years in this business I'll take managing costs of researching for sales and traffic any day.
Good problems to solve because they are largely within our control. Our operators are working extremely hard every day to train our new team members deliver great guest experiences and tighten up the middle of the P&L. We've taken some additional price during the quarter to help offset our structural labor and cost of sales increases.
As I mentioned during Investor day, we're not going to priced by a quarter, but.
But as we closely monitor the issues, we've layered in incremental pricing to offset what we believe are the structural labor and cost of sales increases and Joe will give you more detail on that.
Moving forward, if we discover that what we thought was transitory turns out to be more structural we'll deal with that from a pricing perspective with a disciplined approach that protects our traffic performance and keeps our brand is strong.
We know we have pricing power, if we need it, particularly in the delivery and virtual brand channels.
And we're committed to maintaining our margins and our business model and Thats, what we wanted to adhere.
We're also working hard to remove transitory costs from the system with full recognition that the headwinds are notable and persistent especially around labor and while it takes some time, we're confident with the progress, we're making and we will significantly reduce these costs by the back half of the year.
The spike in turnover, we experienced during the quarter created short term pressure on the business as we trained our new team members to run our systems. The good news is we are quickly building staff and have as many team members now as we did pre COVID-19.
So there are markets that are still not fully staffed which is limiting their capacity.
This is particularly true in the Midwest, where it's taking longer to reach these optimum levels.
The impact of these staffing challenges cost is 3% to 4% in first quarter and sales, which we view is upside as we.
As we get those restaurants staffed and trained over the coming months.
Our top talent is engaged in these markets to solve these issues as quickly as possible.
Meanwhile, the base business is strong, especially where dining rooms are fully open when we look at the totality of the business Chili's is running positive sales and traffic and maintaining the sizable traffic gap to the industry. Most recently at 9% on a two year look as measured by Knapp track.
And we've got sales leverage around virtual brands and deliveries that were holding in reserve until our operations teams are stabilized and fully trained.
And while the last quarter was more challenging than we expected, we're making great progress and my expectation is we will end the year strong.
And as we shared with you during Investor Day, we've got exciting initiatives and innovation, we're working on and we're confident in our future growth opportunities now I will turn the call over to Joe to share more insight into the quarter and guidance for the year, Joe. Thanks, Wyman and good morning, everyone. Let me continue our prepared comments by providing some additional insight to the first quarter results and then <unk>.
Sure some guidance on our current expectations for the balance of fiscal year 2022.
During first quarter topline sales performed well and outpaced pre COVID-19 levels by a very respectable amount despite COVID-19 related constraints.
For the first quarter Brinker reported total revenues of $860 million with consolidated comp sales of 17%.
Keeping with our ongoing strategy. The majority of these sales were driven by traffic up 11% for the quarter, a 9% beat versus the industry on a two year look.
The topline increase resulted in an adjusted earnings per share of 34.
Up from 28 in the previous fiscal year.
It will come as no surprise, our most significant challenge during the quarter came in the form of industry wide headwinds from both commodity costs and labor related spend which negatively impacted our margins and bottom line flow through.
We experienced commodity inflation in the mid single digit range with significant price from pork and chicken driving the increase as.
As Wyman mentioned with a greater than normal influx of new team members, we experienced outsized cost and training and overtime. We do consider the portion of these costs above our normal operating levels to be transitory approximately 130 basis points in the quarter 60 of which are incremental training and overtime costs.
Anticipate these costs working their way out of the system over the course of the next couple of quarters.
In the near term I expect a significant portion of these transitory costs to remain in the system for the second quarter.
We are taking thoughtful incremental price increases to help offset these higher costs are third price action of this fiscal year as scheduled with our next chili's menu update in two weeks.
Following this increase chili's will be carrying a total of 3% of incremental price compared to last year.
Of course, the mid quarter price action will not fully impact the total price reported for the quarter due to the timing of price actions and the fact that <unk> will evaluate evaluate its menu pricing. After the holiday season, we expect the second quarter blended brinker price to be closer to 2%.
Our cash flow for the first quarter remained strong with cash from operating activities of $40 million and EBITDA of $69 million.
When compared to first quarter last year, our strengthened operating performance and lower level of outstanding debt have combined to improve our balance sheet and leverage position.
Our total funded debt leverage was two six times and our lease adjusted leverage ended the quarter at three seven times.
As indicated during our recent Investor day, we are targeting to move these leverage ratios below two times and three times, respectively over the course of the next two years.
Now turning to our outlook for fiscal year 'twenty two.
We provided some guidance metrics for certain items during our last call and we are reiterating those levels as of this report.
In addition, this mornings press release included incremental guidance for both <unk> annual revenues and annual adjusted earnings per share specifically.
Annual revenues between $3 billion at $750 million and $3.850 billion.
And annual adjusted earnings per share between $3 50.
And $3 80.
This incorporates our current view of the casual dining operating environment, which assumes continuing challenges in the near term, especially related to supply chain and labor issues.
This guidance, both reiterated and new assumes no additional meaningful topline COVID-19 related disruptions.
While guidance is for our fiscal year performance I can provide some directional thoughts related to the second quarter.
With the exception of banquet sales at <unk>, we expect sales to exhibit closer to normal holiday seasonality, although impacted by labor shortage constraints in certain markets.
As mentioned earlier in my comments restaurant operating margins for the second quarter will again be impacted by higher food and beverage and labor costs. We.
We do expect restaurant operating margin to improve when compared to both the recently completed first quarter.
As well as the second quarter of last year.
Ending the quarter at a level comparable to the pre COVID-19 second quarter of fiscal year 'twenty.
Clearly these are unique times for our industry, creating a variety of short term challenges to work through challenges, we can and will solve.
We firmly believe our strategic initiatives focused on driving traffic and organic top line growth will differentiate our performance over time with the overall benefit to our team members our guests and importantly, our shareholders.
With my comments now complete let's turn it back to Kate and move on to any questions.
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 you May press star Q to leave the Q we do.
Ask that if you are listening via speaker phone that you. Please pickup your handset for optimum sound quality. Once again, if you have any questions or comments. Please press star one on your phone at this time.
Our first question today is coming from Nicole Miller at Piper Sandler. Your line is live you may begin.
Thank you good morning.
Two quick questions I wanted to start with the Big picture on Labor and appreciate the update there.
Thank you one of the ride share.
Had reported earlier this week as well and they talked about.
Stimulus is easing off theyre seeing more employees come back into the driving pool and I'm wondering if that suggest to you that restaurant workers are going somewhere else.
Or that you too are sharing and that labor pool coming back to work.
Hey, Nicole Wyman Yeah, Great question, we absolutely are seeing.
Uh huh.
Better response to.
To recruiting back into the restaurant as a matter of fact as I mentioned, we are back to pre pandemic levels of staffing in the system. We've got these hotspots still but but we've been adding averaging.
About 1000, new team members a week over the last month.
So we're absolutely.
Some some better success than we had earlier in the quarter at recruiting and having Africans.
Applicants show up at the restaurants and joined the team and now we're in that process of just getting them trained up and and proficient at the work.
And just a second and last question I think we all understand the price now you know how it is being dictated how and when it will flow through but remind us of how you get there how.
How much of it is an algorithm or third party science combined with the art of your experience as an operator.
Again, a really good question.
We are a little bit more deliberate around pricing and making sure as best we can.
There's no guarantee when you take a price that you'll understand the full impact across all of your guests.
But especially when we start to price in what we would consider our value propositions and where there may be some more value sensitive guests to get a look at it.
And to get a response and whether that we use multiple ways of.
Testing that out if you will some of them end markets some of them through research to just understand the sensitivity to this pricing. The good news is the pricing that we're taking.
<unk> has been tested both.
From a consumer perspective, conceptually, but also in market and we're feeling really good about the responses and the strength of the value propositions post price.
And that gives us a lot of confidence that we can continue to the traffic momentum that we have post the price increase that.
Joe had mentioned is coming here in the next couple of days.
Yeah, Nicole and I would add to the equation as we broadened into multi channels I mean again, when you think about pricing experiences where you were.
Typically taking them broad based menu oriented.
Price there was probably a lot more clarity around realizing that price. So it's it's one thing to take a price action.
More important thing is to realize as much as you can have that price action and theres, probably some greater sensitivities when you start thinking about price in different channels for geared towards specific products.
Where consumers can move within channels or they can move.
From one product and other.
More readily.
So we want to make sure that theres as much certainty around realizing the price is there is two.
Picking the amount of price, we're going to do at any one period of time.
Thanks again for the update thanks for taking my questions.
Thanks Nicole.
Yes.
Thank you. Our next question today is coming from Jared Garber at Goldman Sachs. Your line is live you may begin.
Hi, This is Michael on for Jared just a couple quick ones for me first in terms of Cogs for this year, you know definitely gonna be elevated you touched on that and definitely the next quarter, how should we expect that to kind of progress throughout the rest of the fiscal year, and then kind of into the start of 'twenty three as we think about some of your longer term guidance you gave a couple of weeks ago. Thanks.
Yes.
Our expectation is obviously, we're going to see a increase in Cogs COO.
<unk> and impact of the Cogs margin versus the sales level, we were in that kind of three and a 5% to 4% inflation range for the first quarter.
And that's going to move up into the higher.
Single digits as we progress into the second half of the year I think we've been talking about this year, we've been pretty clear that we expected more cogs inflation to hit the system in the second half as you roll through some of the contracts we have in place and we're very comfortable that is still the situation.
The guidance, we have provided you incorporates all that so our line of sight to the.
Our expectations are around food and beverage cost I think is pretty pretty tight right now.
We are seeing again, some markets that are extremely high levels compared to historical norms pork in particular chicken being the other one.
We are anticipating high levels, but there is also probably.
Some opportunity as those markets make may normalize. The question is the timing around when they do normalize over the course of the next year, but again I'm feeling good about what we have embedded from a.
Cost of sales perspective into our thoughts around the fiscal year.
Thanks appreciate that and then another quick one in terms of comp dynamic within the current quarter. What are you guys seeing in terms of versus the number you gave quarter to date may.
Chili's, but my channels as well at your Investor Day, and then the update you gave today you know a little maybe a little bit of acceleration there what drove that and how you expect that to change, especially on a traffic basis. Thanks.
Yeah.
You know I hate to be talking about week to week traffic and sales changes.
But because we did give you two data points, there's really not much in that we see the business pretty stable. There has been some shifts based on some holiday timing and it has probably a little bit more to do with what happened for a couple of weeks back in 2020 than it has anything to do with what's going on today. So we anticipate and we are.
Seeing pretty much consistent.
Sales and traffic trends and.
So nothing nothing to really report there in terms of a deceleration or anything related data point. We gave you a couple of weeks ago was that average weekly sales.
And showing how they can start to move back up again in October and that that situations very much still in play and in place.
Thanks.
Okay.
Thank you. Our next question today is coming from Eric Gonzalez of Keybanc. Your line is live you may begin.
Hey, Thanks for taking the question.
Can you, perhaps clarify that restaurant margin comment you made towards the end of the prepared remarks, I think you mentioned fiscal <unk> would be comparable to the second quarter of <unk> 19, which if my model is correct. Its about 12, 7% and also I think you've discussed a lot more inflation will hit the P&L in the second half, but perhaps some of the transitory costs roll off at that time.
So should we assume that the the restaurant level margin for the year is roughly flat to 19.
You've got this three to five year outlook, which calls for 50 basis points on top of the 19 Eric.
Yes, Eric.
To clarify the big one for you, it's not 19, I said 'twenty so.
So you need to look at second quarter 'twenty.
As a guide post that I gave you. So I think I sure think I gave I think I gave you enough yeah. So I'll just refer you back to my comments that.
Again.
Moving up from what we saw in the first quarter and above what we saw.
Last year, which is fiscal 'twenty one.
And then comparable to that F 'twenty number.
Sure.
You look at the second half of the year with with some of that more inflation coming on but also the transitory costs rolling off should we assume that the margin is maybe flat too.
How should we think about that versus the 13, 2% baseline you established at the analyst day.
No I think I think there is.
Assuming that does those two events.
And the normal seasonality, we have remember third and fourth quarters are our higher volume quarters.
I think there is leverage ability and upside to those margins as we move through the rest of the fiscal year on a quarterly basis, where you know, we're not going to get into that specific level, but.
I would expect to see normal seasonality patterns play in those quarters.
Okay. Thanks.
Thanks, Eric.
Thank you. Our next question today is coming from John <unk> at J P. Morgan. Your line is live you may begin.
Yes, Hi, I wanted to get a sense of how you guys thought you were staffed for.
Kind of between Christmas and new year. So I mean, I know you've talked about the number of people that you're hiring on a weekly basis, but do you have.
The staff on average and also the staff on a store by store basis to basically.
You'll be able to serve this industrial wave of demand that the industry normally sees in the month of December or might just be a more a particularly capacity constrained.
<unk>.
The scenario that we actually might see in December relative to some previous months that you've talked about.
Yeah, Great question, John There are really two.
The two brands are significantly different.
With regard to what happens during the holiday and traffic at Chili's, our traffic patterns. During the holidays are elevated but theyre not extreme but it really is more about those specific days you have some.
Just have a couple of bigger days, if you will a few more weekend days during the week almost as one way to think about it at Chili's and we absolutely have feel.
Feel good about as I mentioned, where we're moving with regard to staffing we still got those hotspots. You know we've mentioned the Midwest is really really kind of the biggest challenge for US right now in terms of if you wanted to talk about Regionalisation.
Of labor and the constraint, but for the most part we feel pretty good about being able to be staffed and ready for the holiday that chili's Marciano.
Again bigger issue, especially if if we see the kind of historic demand for banquet business in large groups, which we think we're feeling pretty good about right now but.
But again time will tell as we get closer to the date.
And they're working aggressively.
Aggressively to staff up and that that may be a little bit more of a headwind, but I think there they're going to be fully staffed.
To handle the business, we expect now whether the.
If the environment is overheated, we may not be able to take all of the potential business that we could have gotten if if it just becomes a really kind of a gangbuster kind of holiday season, but they've got plenty of.
Staff and management now in place to handle what we anticipate.
A solid holiday, probably not a record setting holiday.
That's helpful. Good to know thank you and then secondly, I was hoping for you kind of I guess, the real time education of what Youre seeing in the chicken market I mean, we as an industry you kind of you saw stable boneless skinless breast prices for years I mean, they kind of you know we're in a fairly tight range and obviously were very.
Elevated now when you talk to your suppliers.
Kind of just you talked to the people that are really in that market how much of those costs.
<unk> is transitory versus versus structural.
And as you're kind of thinking about the chicken contract because that comes up for renewal I mean, I guess how much.
<unk> do you think there could be that.
It will be looking at fiscal 'twenty three versus 22 as another escalated year of commodity increases.
Yes.
John it's tough to pinpoint.
But what I'd say to be transitory and structural there I think it's a high level.
Transitory again.
What we're hearing is obviously, it's not an issue of number of chickens theirs.
And this is pretty consistent across a lot of the the protein commodity basis is that there is there is.
There is enough supply to production Kinks that really.
Is throwing some wrenches into the system and creating that incremental cost. So I think over time, we do have a strong belief that that is going to correct itself and we're hearing anecdotally from partners that they are seeing better hiring rates very similar kinds of patterns that as they work through some of the systems.
We would expect to see greater production capacities, which should definitely impact the price as you go forward, our chicken contract runs well into the well runs into the fourth quarter into the <unk>.
April timeframe, so you know.
Why you start those conversations in real time as to what that will look like we're going to watch that very closely.
As we move through the next several months and start moving more towards data that you might traditionally commit for new contracts and keep our options as broad as we can.
Therefore as long as we can we've got good partners to work with.
In this regard and we will work it actively as we kind of move towards that April kind of timeframe.
But youre right John there is there's nothing you know.
If you just look at that market over the last really almost 10 years, there's nothing structurally that's changed.
Besides maybe some some of the labor component costs.
That you know that arent going to that wouldnt support that kind of potential inflation. That's out there now so we think it's going to mitigate to some degree and we will we will make some bets based on that thinking going forward.
Okay.
You there.
Alright, thanks, guys.
Take care.
Alright, John talk to you later.
Thank you.
Our next question today is coming from David Palmer at Evercore ISI. Your line is live you may begin.
Great. Thanks first a question on labor are you still thinking the mid 30 fours there for as a percent of sales for fiscal 'twenty, two and if so how are you breaking that down in terms of labor hours per unit versus the previous year and versus pre Covid and are you anticipating any sort of.
It changed there from handhelds and the new service model and lastly, what sort of wage increases are you anticipating also in this guidance on a one year basis.
Yeah from this guidance, David almost taking those in reverse from a.
Average wage we expect that to be an elevated as to what we've seen in the last several years, but in that upper mid single digit range. So if you're thinking 67% that's been a fairly consistent.
<unk> as of late and we're incorporating that into our thinking for this fiscal year.
We've talked a lot about the opportunities we see around deploying TSA.
And most of the system and we're getting close really within the next several weeks of getting that fully deployed.
We like it as in as a labor operating system in the front of the house because one we think it's the best guest service model. We can we can deploy its also has great return of value and the fact that one of the things you quickly see as.
Average earnings or servers going up from that model. So we like the ability to.
Lean into that.
This current model. It obviously has a runner system involved with it says the hours.
Aren't that dissimilar, but maybe but are deployed across some different functions different than what you might see here. So we're not anticipating a.
A step change in any way shape or form and number of hours, having to flowback and you will get hours in the second half of the year.
Naturally from the seasonality standpoint, so from this point I think volumes will dictate the amount of hours flowing into the system and we would expect to see greater hours.
As we have success on the top line.
In Q3, and four that we normally would expect to see.
And then I wanted to ask you a question that we talked about during the Cowen David by the way, yes in that and the number for the fiscal year.
The target we talked about at Investor Day is still still definitely in play that mid 30 fours.
Okay. Thank you and then.
Well I mean, we've talked about this this pricing strategy for off premise versus the on premise.
It feels like the incremental margin for off premise has been well below the incremental margin for on premise and I know.
You're effectively when it get these virtual brands launched and Theres been a lot of of outsized inflation, perhaps and wings and.
But delivery fees, there's a lot of players out there pricing this along.
As long as the consumer and the consumer seems to be taking it because they're willing to pay up for convenience. So I'm wondering is that on the table that you could do a step change in pricing for that for that business.
Sumit, you're taking your pricing right now for off premises similar to your on premise is that on the table as something of a price lever and I'll pass it on it as David and just to remind you.
There are certain things, we don't do in delivery like.
The value proposition.
That is three for $10 three for $10 99.
We just don't offer that so one of the ways. We address some of the issues Youre talking about there is additional price. So we're already pricing at a premium and we will continue to look at at how.
How much more of a premium we need to get to make that channel.
<unk>.
Carry its weight if you will but we also have and we just don't put some of the some of the offers out there that are more value and maybe not carrying as is greater.
And so between those two things between the mix and the price we will continue to make sure that the delivery.
Uh huh.
Channel is carrying its weight and delivering good returns.
Thank you.
Yes, Thanks, Dave.
Sure.
Thank you. Our next question today is coming from Chris <unk> at Stifel. Your line is live you may begin.
Hey, guys. This is Patrick on for Chris. My first question was just for the quarter I was curious if there was any step change in your promotion of the three for 10 platform in the base Chili's business and if so what role that played in driving traffic in the quarter, but maybe also what additional pressure that might have added to the cost of goods in the quarter.
No no no real change there Patrick.
Okay. That's helpful. And then I also wanted to ask about the planned expansion to the third party Aggregators that you discussed during your Investor Day, just as you initiate those new partnerships does your door dash agreement actually allow for that or should we be thinking about there being a change in the economics in that agreement as you add on additional partners.
Without getting into details.
We continue to appreciate.
Our partnership with door Dash and as we look to expand channels.
With other third parties and other ways to grow the business like our own websites.
We'll continue to evaluate the relationship we have with door dash, but nothing specific to announce today.
Okay, great. Thanks, guys.
Alright. Thanks.
Thank you. Our next question today is coming from Brian Mullan at Deutsche Bank. Your line is live you may begin.
Hey, Thanks, I just have one clarification item on the guidance and the follow up.
Joe I'm, just wondering if the if the at least $400 million of EBITDA comment that you.
Made at the Investor Day does that still stand for fiscal 'twenty. Two that's just a clarification question.
Yes, it does.
Okay. Thank you and then as a thought at the Investor Day, you shared it and it's just wings P&L. It showed marketing expense at about 9% of sales. So could you just discuss the degree of confidence in that marketing spend level holding firm at around 9% as you seek to grow that revenue over the next couple of years.
I ask because you talked about driving direct traffic SCO and SCM keywords search Google food ordering.
When you look at other consumer spending categories that have shifted and these can be expensive and competitive.
So just any thoughts of that 9% is a firm number and is there a marketing percentage of sales threshold or a ceiling, we're investing to drive that business direct gets less attractive from an ROI perspective. Thank you.
Hey, Brian It's Wyman, Yeah, I think what Youre seeing there is an elevated investment level with introduction of a brand new brand right. So obviously, we're very excited about our two virtual brands, we're going to spend up on them as we establish those brands in the marketplace.
But to your point.
The beauty of how we market. These brands as its very attractive <unk>. We we have a pretty good line of sight as to the return we're getting on these marketing investments and I will say again in the first year year and a half.
We've made some decisions that haven't paid out as well.
We now understand where we're getting the best Bang for the Buck in the marketing programs and how to push these brands forward.
And build them in the various channels that we're now moving towards so I'd say, that's a number that's probably on the high end, it's an introductory brand kind of investment.
And as we and we establish these brands establish their customers.
Through the loyalty specific loyalty programs, we are building around them.
There, we will see that number come.
Down.
Thank you.
Yep. Thanks.
Thank you. Our next question today is coming from Brett Levy at MKS Partners. Your line is live you may begin now.
Great. Thanks for taking the question.
First clarification, you've said on the margin I know you've answered it twice now, but you said going back to fiscal 'twenty did you mean going back to fiscal 'twenty or back to fiscal second quarter 'twenty when we're talking about the.
The absolute restaurant level margin.
Yes.
Yeah.
Bret actually we meant to say it'll be similar to Q1 F. 'twenty, yes, yes.
Okay <unk> got you.
Second when you think about pricing, you've obviously stepped up the levels and.
<unk> had a greater frequency of adding price to the menu.
How long or how quickly do you need to see.
Prices maintain or pullback before you start to think about.
The next tranche of pricing.
Do you think there is.
Our maximum gap you need to keep versus your peers.
When you look at pricing because obviously you are in line with some but short of others.
Yes, we're not.
We tend to not benchmark against peers, we tend to want to stay closer to our customers and our guests and understand how is the pricing affecting.
Their ability to and desire to continue to engage with these brands and our value.
As our value proposition holding up and so that's what that's what we really kind of benchmark against so we're.
We're kind of daily monitoring that through through our guest feedback loops.
We will continue to watch that and I guess the biggest question, we have and what we've reiterated to the group here is what we see as structural we feel pretty good about having that covered but.
But we do have a fairly significant transitory bucket. If you will that were working down and if for some reason the changes in the environment that have been really primarily COVID-19 related if those tend to be more structural now than then we will have to take some more pricing as we as we move forward and we can do that.
<unk> relatively quickly, but we always like to be.
Connected to the gas and diligent about what the impact is going to be as best we can.
And then just finally are there any promotional.
Promotional mismatches, we should think about over the next.
Two to five months.
Now the beauty of <unk>.
What we've been doing really prior to the pandemic as well.
We haven't been we Werent in L. T O promo driven concept, we kind of got off that care so years ago and so we that's why our value propositions in the base business is so important to us.
Because that's what we that's what we drive this business from.
We don't want to be kind of.
Uh huh.
Bound by you know limited time offers or other gimmicky kind of things that have to drive traffic, we'd much rather be working off a stable day in day out proposition for guests.
That we know resonates well so nothing there.
I appreciate the color.
Thank you.
Thank you. This concludes our question and answer session I will now return the floor for any closing comments.
Thank you everyone. We look forward to answering any questions on here for you and have a wonderful day. Thank you. Thanks everybody.
Thank you ladies and gentlemen. This does concludes today's event you may disconnect at this time in house.
Thank you for your participation.
[music].
[music].
Good morning, ladies and gentlemen, and welcome to the Brinker International Q1 F. 'twenty two earnings call. At this time, all participants have been placed on a listen only mode and the floor will be opened for questions and comments. After the presentation. It is now my pleasure to turn the floor over to your host Michael Ware Vice.
Didn't have financial and Investor Relations.
Sir 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, Our Chief Financial Officer.
As many of you know we pre released limited results for the first quarter ahead of our Investor Day hosted here in Dallas on October 20th we released full results for the quarter earlier. This morning, which are available on our website at Brinker Dot com.
Since we have recently shared details regarding the first quarter Wyman and Joe will make prepared comments related to our operating performance and then we will open the call and jump straight to 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 morning's press release and the company's filing 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 the call over to Wyman, Okay. Thanks, Mike.
It's good to be back with you all again it was great seeing some of you in Dallas and many of you virtually during our Investor day, a couple of weeks ago.
Thank you for making time to get an in depth look into our business. What you should have taken away from that was this we're very optimistic about where the business is going we're managing for long term success and we're confident in the strength of our brands and the levers we have yet to pull to continue to grow the business.
From a topline perspective, we're seeing a good spot sales numbers are solid traffic numbers are extremely good our near term challenge is not creating demand, but rather it's working through the the latest pandemic driven staffing and supply chain issues that are impacting our cost structure.
You know there. These are the same challenges impacting the industry as well as much of the economy, but after 40 years in this business I'll take managing costs of researching for sales and traffic any day.
It's a good problem to solve because they are largely within our control. Our operators are working extremely hard every day to train our new team members deliver great guest experiences and tighten up the middle of the P&L. We've taken some additional price during the quarter to help offset our structural labor and cost of sales increases.
As I mentioned during Investor day, we're not going to price to buy a quarter, but.
But as we closely monitor the issues, we've layered in incremental pricing to offset what we believe are the structural labor and cost of sales increases and Joe will give you more detail on that.
Moving forward, if we discover that what we thought was transitory turns out to be more structural we'll deal with that from a pricing perspective with a disciplined approach that protects our traffic performance and keeps our brand is strong.
We know we have pricing power, if we need it, particularly in the delivery and virtual brand channels.
And we're committed to maintaining our margins and our business model and Thats, what we wanted to adhere.
We're also working hard to remove transitory costs from the system with full recognition that the headwinds are notable and persistent especially around labor and while it takes some time, we're confident with the progress, we're making and we will significantly reduce these costs by the back half of the year.
The spike in turnover, we experienced during the quarter created short term pressure on the business as we trained our new team members to run our systems. The good news is we are quickly building staff and have as many team members now as we did pre COVID-19.
So there are markets that are still not fully staffed which is limiting their capacity.
This is particularly true in the Midwest, where it's taking longer to reach these optimum levels.
The impact of these staffing challenges cost is 3% to 4% in first quarter and sales, which we view is upside as we.
As we get those restaurants staffed and trained over the coming months.
Our top talent is engaged in these markets to solve these issues as quickly as possible.
Meanwhile, the base business is strong, especially our dining rooms are fully open when we look at the totality of the business Chili's is running positive sales and traffic and maintaining the sizable traffic gap to the industry. Most recently at 9% on a two year look as measured by Knapp track.
And we've got sales leverage around virtual brands and deliveries that were holding in reserve until our operations teams are stabilized and fully trained.
And while the last quarter was more challenging than we expected, we're making great progress and my expectation is we will end the year strong.
And as we shared with you during Investor Day, we've got exciting initiatives and innovation, we're working on and we're confident in our future growth opportunities now I'll turn the call over to Joan to share more insight into the quarter and guidance for the year Joe.
Wyman and good morning, everyone. Let me continue our prepared comments by providing some additional insight to the first quarter results and then share some guidance on our current expectations for the balance of fiscal year 2022.
During first quarter topline sales performed well and outpaced pre COVID-19 levels by a very respectable amount despite COVID-19 related constraints.
For the first quarter Brinker reported total revenues of $860 million with consolidated comp sales of 17%.
Keeping with our ongoing strategy. The majority of these sales were driven by traffic up 11% for the quarter, a 9% beat versus the industry on a two year look.
The topline increase resulted in an adjusted earnings per share of <unk> 34.
Up from 28 in the previous fiscal year.
It will come as no surprise, our most significant challenge during the quarter came in the form of industry wide headwinds from both commodity costs and labor related spend which negatively impacted our margins and bottom line flow through.
We experienced commodity inflation in the mid single digit range with significant price from pork and chicken driving the increase as.
As Wyman mentioned with a greater than normal influx of new team members, we experienced outsized cost and training and overtime. We do consider the portion of these costs above our normal operating levels to be transitory approximately 130 basis points in the quarter 60 of which are incremental training and overtime costs.
Anticipate these costs are working their way out of the system over the course of the next couple of quarters.
In the near term I expect a significant portion of these transitory costs to remain in the system for the second quarter.
We are taking thoughtful incremental price increases to help offset these higher costs are third price action of this fiscal year as scheduled with our next chili's menu update in two weeks.
Following this increase chili's will be carrying a total of 3% of incremental price compared to last year.
Of course, the mid quarter price action will not fully impact the total price reported for the quarter due to the timing of price actions and the fact that <unk> will evaluate evaluate its menu pricing. After the holiday season, we expect the second quarter blended brinker price to be closer to 2%.
Our cash flow for the first quarter remained strong with cash from operating activities of $40 million and EBITDA of $69 million with.
When compared to first quarter last year, our strengthened operating performance and lower level of outstanding debt have combined to improve our balance sheet and leverage position.
Our total funded debt leverage was two six times and our lease adjusted leverage ended the quarter at three seven times.
As indicated during our recent Investor day, we are targeting to move these leverage ratios below two times and three times, respectively over the course of the next two years.
Now turning to our outlook for fiscal year 'twenty two.
We provided some guidance metrics for certain items during our last call and we are reiterating those levels as of this report.
In addition, this mornings press release included incremental guidance for both Banker's annual revenues and annual adjusted earnings per share specifically.
Annual revenues between $3 billion at $750 million and $3.850 billion.
And annual adjusted earnings per share between $3 50.
And $3 80.
This incorporates our current view of the casual dining operating environment, which assumes continuing challenges in the near term, especially related to supply chain and labor issues.
This guidance, both reiterated and new assumes no additional meaningful topline COVID-19 related disruptions.
While guidance is for our fiscal year performance I can provide some directional thoughts related to the second quarter with.
With the exception of banquet sales at <unk>, we expect sales to exhibit closer to normal holiday seasonality, although impacted by labor shortage constraints in certain markets.
As mentioned earlier in my comments restaurant operating margins for the second quarter will again be impacted by higher food and beverage and labor costs.
We do expect restaurant operating margin to improve when compared to both the recently completed first quarter.
As well as the second quarter of last year.
Ending the quarter at a level comparable to the pre COVID-19 second quarter of fiscal year 'twenty.
Clearly these are unique times for our industry, creating a variety of short term challenges to work through challenges, we can and will fall.
We firmly believe our strategic initiatives focused on driving traffic and organic top line growth will differentiate our performance over time with the overall benefit to our team members our guests and importantly, our shareholders.
With my comments now complete let's turn it back to Kate and move on to any questions.
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 you May press star two to leave the Q, we do ask that if you.
We're listening via speaker phone that you. Please pick up your handset for optimum sound quality. Once again, if you have any questions or comments. Please press star one on your phone at this time.
Our first question today is coming from Nicole Miller at Piper Sandler. Your line is live you may begin.
Thank you good morning.
Two quick questions I wanted to start with the Big picture on Labor and appreciate the update there.
Thank you one of the ride share apps.
Had reported earlier this week as well and they talked about.
This easing off Theyre seeing more.
Employees come back into the driving pool and I'm wondering if that suggest to you that restaurant workers are going somewhere else.
Or that you too are sharing in that labor pool coming back to work.
Hey, Nicole Wyman Yeah, Great question, we absolutely are seeing.
Uh huh.
Better response to two.
To recruiting back into the restaurant as a matter of fact as I mentioned, we are back to pre pandemic levels of staffing in the system. We've got these hotspots still but we've been adding averaging.
About 1000, new team members a week over the last months.
So we're absolutely have.
Some some better success than we had earlier in the quarter at recruiting and having Africans.
Applicants show up at the restaurants and joined the team and now we are in that process of just getting them trained up and and proficient at to work.
And then just a second and last question I think we all understand the price now you know how it is being dictated how and when it will flow through but remind us of how you get there.
How much of it is an algorithm or third party science combined with the art of your experience as an operator.
Again, a really good question.
We are a little bit more deliberate around pricing and making sure as best we can.
There's no guarantee when you take a price that you'll understand the full impact across all of your guests.
But especially when we start to price in what we would consider our value propositions and where there may be some more value sensitive guests to get a look at it.
Get a response and whether that we use multiple ways of.
Of testing that out if you will some of them end markets some of them.
Through research to just understand the sensitivity to this pricing the good news is the pricing that we're taking.
Has been tested both.
From a consumer perspective, conceptually, but also in market and we're feeling really good about the responses and the strength of the value propositions post price.
And that gives us a lot of confidence that we can continue to the traffic momentum that we have post the price increase that.
Joe had mentioned is coming here in the next couple of days.
Yeah, Nicole and I would add to the equation as we broadened into multi channels I mean again, when you think about pricing experiences where you were.
Typically taking in broad based menu oriented.
Price there was probably a lot more clarity around realizing that price. So it's it's one thing to take a price action.
A more important thing is to realize as much as you can have that price action and theres, probably some greater sensitivities when you start thinking about price in different channels for geared toward specific products.
Where consumers can move within channels or they can move.
From one product and other.
More readily.
So we want to make sure that there's as much certainty around realizing the price is there is two.
Picking the amount of price, we're going to do at any one period of time.
Thanks again for the update thanks for taking my questions.
Thanks Nicole.
Yeah.
Okay.
Thank you. Our next question today is coming from Jared Garber at Goldman Sachs. Your line is live you may begin.
Hi, This is Michael on for Jared just a couple quick ones for me first in terms of Cogs for for this year, you know definitely going to be elevated you touched on that and definitely the next quarter, how should we expect that to kind of progress throughout the rest of the fiscal year, and then kind of into the start of 'twenty three as we think about some of your longer term guidance you gave a couple of weeks ago. Thanks.
Yes.
Our expectation is obviously, we're going to see a increase in Cogs COO.
<unk> and impact of the Cogs margin versus the sales level, we were in that kind of three and a 5% to 4% inflation range for the first quarter.
And that's going to move up into the higher.
Single digits as we progress into the second half of the year I think we've been talking about this year, we've been pretty clear that we expected more cogs inflation to hit the system in the second half as you roll through some of the contracts we have in place and we're very comfortable that is still the situation.
The guidance, we have provided you incorporates all that so our line of sight to the.
Our expectations are around food and beverage costs, I think it's pretty pretty tight right now.
We are seeing again, some markets at extremely high levels compared to historical norms pork in particular chicken being the other one.
We are anticipating high levels, but theres also probably.
Some opportunity as those markets make may normalize. The question is the timing around when they do normalize over the course of the next year, but again I am feeling good about what we have embedded from a.
Cost of sales perspective into our thoughts around the fiscal year.
Thanks appreciate that and then another quick one in terms of comps dynamic within the current quarter. What are you guys seeing in terms of versus the number you gave quarter to date.
Chili's, but my channels as well at your Investor Day, and then the update you gave today, a little maybe a little bit of acceleration there what drove that and how do you expect that to change.
Change, especially on a traffic basis. Thanks.
Yeah.
You know I hate to be talking about week to week traffic and sales changes.
But because we did give you two data points, there's really not much in that we see the business pretty stable. There's been some shifts based on some holiday timing and it has probably been a little bit more to do with what happened for a couple of weeks back in 2020 than it has anything to do with what's going on today. So we anticipate.
And we're seeing pretty much consistent.
Sales and traffic trends and.
And so nothing nothing to really report there in terms of a deceleration or anything related data points. We gave you a couple of weeks ago was that average weekly sales.
And showing how they can start to move back up again in October and that that situation is very much still in play and in place.
Thanks.
Okay.
Thank you. Our next question today is coming from Eric Gonzalez of Keybanc. Your line is live you may begin.
Hey, Thanks for taking the question.
Can you, perhaps clarify that restaurant margin comment you made towards the end of the prepared remarks, I think you mentioned fiscal <unk> will be comparable to the second quarter of 19, which if my model is correct is about 12, 7% and also I think you've discussed a lot more inflation will hit the P&L in the second half, but perhaps some of the transitory costs roll off at that time.
So should we assume that the restaurant level margin for the year is roughly flat to 19 I know you've got this three to five year outlook, which calls for 50 basis points on top of the 19 Eric.
Yes, Eric.
To clarify the big one for you, it's not 19, I said 'twenty so.
So you need to look at second quarter 'twenty.
As a guide poised post that I gave you.
Sure I think I gave I think I gave you enough, yes, I would just refer you back to my comments that.
Again.
Moving up from what we saw in the first quarter and above what we saw.
Last year, which is fiscal 'twenty one.
And then comparable to that F 'twenty number.
Sure. So then as you look at the second half of the year with some of that more inflation coming on but also the transitory costs rolling off should we assume that the margin is maybe flat too.
How should we think about that versus the 13, 2% baseline you established at the analyst day.
I think that I think there is.
Assuming that does.
Those two events.
And the normal seasonality, we have remembered third and fourth quarters are our higher volume quarters.
I think there is leverage ability and upside to those margins as we move through the rest of the fiscal year on a quarterly basis now, we're not going to get into that specific level, but.
I would expect to see normal seasonality patterns play in those quarters.
Okay. Thanks.
Thanks, Eric.
Thank you. Our next question today is coming from John <unk> at J P. Morgan. Your line is live you may begin.
Yes, Hi, I wanted to get a sense of how you guys thought you were kind of staffed for.
Kind of between Christmas and new year. So I mean, I know you've talked about the number of people that you're hiring on a weekly basis, but do you have.
The staff on average in <unk> and also the staff on a store by store basis basically.
Basically.
You'll be able to serve this industrial wave of demand that the industry normally sees in the month of December or might just be a more a particularly capacity constrained.
So a scenario that we actually might see in December relative to some previous months that you've talked about.
Yeah, Great question, John There are really two.
The two brands are significantly different.
With regard to what happens during the holiday and traffic at Chili's.
Our traffic patterns during the holidays are elevated but theyre not extreme and it really is more about those specific days you have some.
Have a couple of bigger days, if you will do more weekend days during the week almost as one way to think about it at Chili's and we absolutely have.
So good about as I mentioned, where we're moving with regard to staffing we still got those hotspots you know we'd mentioned in the Midwest is really really kind of the biggest challenge for US right now in terms of if you wanted to talk about Regionalisation.
Of labor and the constraint, but for the most part we feel pretty good about being able to be staffed and ready for the holidays at Chili's Marciano.
Again bigger issue, especially if if we see the kind of historic demand for banquet business in large groups, which we think we're feeling pretty good about right now.
But again time will tell as we get closer to the date.
And they are working.
Aggressively to staff up and that may be a little bit more of a headwind, but I think there they're going to be fully staffed.
Handle the business, we expect now whether the.
If the environment is overheated, we may not be able to take all of the potential business that we could have gotten if if if.
It just becomes a really kind of a gangbuster kind of holiday season, but they've got plenty of.
Our staff and management now in place to handle what we anticipate.
A solid holiday, probably not a record setting holiday.
Okay.
That's helpful. Good to know thank you and then secondly, I was hoping for you kind of a I guess, a real time education of what Youre seeing in the chicken market I mean, we as an industry you kind of you saw stable boneless skinless breast prices for years I mean, they kind of you know we're in a fairly tight range and obviously are very elevated now when you talk.
To your suppliers.
Kind of just you talked to the people that are really in that market how much of those costs.
<unk> is transitory versus versus structural.
And as Youre kind of thinking about the chicken contract as that comes up for renewal I mean, I guess how much.
Risks do you think there could be.
We will be looking at fiscal 'twenty three versus 22 as another escalated year of commodity increases.
Yes.
John it's tough to pinpoint.
What I'd say to be transitory and structural there I think it is a high level.
Transitory again.
What we're hearing is obviously, it's not an issue of number of chickens.
And this is pretty consistent across a lot of the the protein commodity basis is that there is there is.
There is enough supply, it's a production kinks that really.
As throwing some wrenches into the system and creating that incremental cost. So I think over time, we do have a strong belief that that is going to correct itself and we are hearing anecdotally from partners that they are seeing better hiring rates very similar kinds of patterns that as they work through some of the systems.
We would expect to see greater production capacities, which should definitely impact the price as you go forward, our chicken contract runs well into the well runs into the fourth quarter into the <unk>.
April timeframe so.
Why are you start those conversations in real time as to what that will look like we're going to watch that very closely.
As we move through the next several months and start moving more towards dates that you might traditionally commit for new contracts and keep our options as broad as we can.
Therefore as long as we can we've got good partners to work with.
In this regard and we will work it actively as we kind of move towards.
That April kind of Timeframes.
But youre right John there is there's nothing you know.
If you just look at that market over the last.
Really almost 10 years, there's nothing structurally that's changed.
<unk>.
Besides maybe some some of the labor component costs.
That that arent going to that wouldnt support that kind of potential inflation. That's out there now so we think it's going to mitigate to some degree and we will we will make some bets based on that thinking going forward.
Yes.
You there.
Alright, thanks, guys.
Take care thanks.
Thanks, Alright, John talk to you later.
Thank you.
Our next question today is coming from David Palmer at Evercore ISI. Your line is live you may begin.
Great. Thanks first a question on labor are you still thinking the mid 30 fours there for as a percent of sales for fiscal 'twenty, two and if so how are you breaking that down in terms of labor hours per unit versus the previous year and versus pre Covid and are you anticipating any sort of.
Change there from handhelds and the new service model and lastly, what sort of wage increases are you anticipating also in this guidance on a one year basis.
Yes from this guidance, David almost taking those in reverse from a.
Average wage we expect that to be an elevated as to what we've seen in the last several years, but in that upper mid single digit range. So if you're thinking 67% that's been a fairly consistent rate.
As of late and we're incorporating that into our thinking for this fiscal year, obviously, we've talked a lot about the opportunities we see around deploying TSA.
And most of the system and we're getting close really within the next several weeks of getting that fully deployed.
We like it as in as a labor operating system in the front of the house because one we think it's the best guest service model. We can we can deploy its also has great return of value and the fact that one of the things you can quickly see us.
Average earnings for servers going up from that model. So we like the ability to.
Lean into that.
This current model. It obviously has a runner system involved with it says the hours.
Aren't that dissimilar, but maybe but are deployed across some different functions.
And what you might see here, so we're not anticipating a.
A step change in any way shape or form a number of hours, having to flowback and you will get hours in the second half of the year.
Naturally from a seasonality standpoint.
From this point I think volumes will dictate the amount of hours flowing into the system and we would expect to see greater hours as we have success on the topline.
In Q3, and four that we normally would expect to see.
And then I wanted to ask you a question that we talked about during the Cowen.
David by the way, yes in that and the number for the fiscal year.
The target we talked about at Investor Day is still still detriment in play that mid 30 fours.
Okay. Thank you and then.
Well I mean, we've talked about this this pricing strategy for off premise versus the on premise.
It feels like the incremental margin for off premise has been well below the incremental margin for on premise.
No.
You're effectively when it get these virtual brands launched and Theres been a lot of of outsized inflation, perhaps and wings and.
But delivery fees, there's a lot of players out there pricing this along.
Along to the consumer and the consumer seems to be taking it because they're willing to pay up for convenience. So I'm wondering is that on the table that you could do a step change in pricing for that for that business.
You're taking your pricing right now for off premise is similar to your on premise is that on the table as something of a price lever and I'll pass it on it as David and just to remind you.
There are certain things, we don't do in delivery like.
The value proposition.
That is three for $10 three for $10 99.
We just don't offer that so one of the ways. We address some of the issues Youre talking about there is additional price. So we are already pricing at a premium and we will continue to look at at how.
How much more of a premium we need to get to make that channel.
<unk>.
Carry its weight if you will but we also have and we just don't put some of the some of the offers out there that are more value and maybe not carrying us greater margin. So between those two things between the mix and the price we will continue to make sure that the.
The delivery.
Channel is carrying its weight and delivering good returns.
Thank you.
Yes, Thanks, Dave.
Thank you. Our next question today is coming from Chris <unk> at Stifel. Your line is live you may begin.
Hey, guys. This is Patrick on for Chris. My first question was just for the quarter I was curious if there was any step change in your promotion of the three for 10 platform in the base Chili's business and if so what role that played in driving traffic in the quarter, but maybe also what additional pressure that might have added to the cost of goods in the quarter.
No no no real change there Patrick.
Okay. That's helpful. And then I also wanted to ask about the planned expansion to the third party Aggregators that you discussed during your Investor Day, just as you initiate those new partnerships does your door dash agreement actually allow for that or should we be thinking about there being a change in the economics in that agreement as you add on additional partners.
Without getting into details we continue to appreciate our partnership with door dash and as we look to expand channels.
With other third parties and other ways to grow the business like our own websites.
We'll continue to evaluate the relationship we have with door dash, but nothing specific to announce today.
Okay, great. Thanks, guys.
Thanks.
Thank you. Our next question today is coming from Brian Mullan at Deutsche Bank. Your line is live you may begin.
I think I just have one clarification item on the guidance and the follow up.
So I'm just wondering if that if the at least $400 million of EBITDA comment that you made at the Investor Day does that still stand for fiscal 'twenty. Two that's just a clarification question.
Yes, it does.
Okay. Thank you and then as a follow up at the Investor Day, you shared it and it's just wings P&L. It showed marketing expense at about 9% of sales. So could you just discuss the degree of confidence in that marketing spend level holding firm at around 9% as you seek to grow that revenue over the next couple of years.
I ask because you talked about driving direct traffic SCO and SCM keywords search Google food ordering.
When you look at other consumer spending categories that have shifted lenders can be expensive and competitive activity. So just any thoughts of that 9% is a firm number and is there a marketing percentage of sales threshold or a ceiling.
We're investing to drive that business correct gets less attractive from an ROI perspective. Thank you.
Hey, Brian It's Wyman, Yeah, I think what Youre seeing there is an elevated investment level with introduction of a brand new brand right. So obviously, we're very excited about our two virtual brands, we're going to spend up on them as we establish those brands in the marketplace.
But to your point.
The beauty of how we market. These brands is very attractive.
We have a pretty good line of sight as to the return we're getting on these marketing investments and I will say again in the first year year and a half.
We've made some decisions that haven't paid out as well, but we now understand where we're getting the best Bang for the Buck in the marketing programs and how to push these brands forward.
And build them in the various channels that we're now moving towards so I'd say, that's a number that's probably on the high end, it's an introductory brand kind of investment.
As we re establish these brands establish their customers.
Through the loyalty specific loyalty programs, we are building around them.
There, we will see that number come down.
Thank you.
Yes. Thanks.
Thank you. Our next question today is coming from Brett Levy at MKS Partners. Your line is live you may begin down.
Great. Thanks for taking the question.
First clarification, you've said on the margin I know you've answered it twice now, but you said going back to fiscal 'twenty did you mean going back to fiscal 'twenty or back at fiscal second quarter 'twenty. When we're talking about the absolute restaurant level margin.
And Bret actually we meant to say it'll be similar to Q1 F. 'twenty one yes, yes.
Okay <unk> gotcha.
Second when you think about pricing you have obviously stepped up your levels and.
<unk> had a greater frequency of adding price to the menu.
How long or how quickly do you need to see.
<unk> maintain or pull back before you start to think about.
The next tranche of pricing.
Do you think there is.
Our maximum gap you need to keep versus your peers.
When you look at pricing because obviously you are in line with some but short of others.
Yes, we're not.
We tend to not benchmark against peers, we tend to want to stay closer to our customers and our guests and understand how is the pricing affecting.
Their ability to and desire to continue to engage with these brands and our value.
As our value proposition holding up and so that's what that's what we really kind of benchmark against so we're.
We're kind of daily monitoring that through through our guest feedback loops.
We will continue to watch that and I guess the biggest question, we have and what we've reiterated to the group here is what we see as structural we feel pretty good about having that covered but.
But we do have a fairly significant transitory bucket. If you will that were working down and if for some reason the changes in the environment that have been really primarily COVID-19 related if those tend to be more structural now then we will have to take some more pricing as we as we move forward and we can do that.
<unk> relatively quickly, but we always like to be.
Connected to the gas and diligent about what the impact is going to be as best we can.
And then just finally are there any promotional.
Promotional mismatches, we should think about over the next.
Two to five months.
Now the beauty of the.
What we've been doing really prior to the pandemic as we.
We haven't been we werent in LTE O promo driven concept, we kind of got off that carousel of years ago and so.
That's why our value propositions in the base business is so important to us.
Because that's what we that's what we drive this business from we don't we don't want to be kind of a.
<unk>.
Bound by.
Limited time offers or other gimmicky kinds of things that have to drive traffic, we would much rather be working off a stable day in day out proposition for guests.
That we know resonates well so nothing there.
Thank you I appreciate the color.
Thank you.
Yes.
Thank you. This concludes our question and answer session I will now return the floor for any closing comments.
Thank you everyone. We look forward to answering any questions on here for you and have a wonderful day. Thank you. Thanks everybody.
Thank you ladies and gentlemen, this does conclude todays event you may disconnect at this time and have a wonderful day. Thank you for your participation.