Q1 2024 Brinker International Inc Earnings Call

Thanks for holding we appreciate your time and patience. Please stay on the line and we'll be back in just a moment.

[music].

Good day and welcome to the Q1 F. 'twenty four earnings call. At this time, all participants have been placed on a listen only mode.

Or will be opened for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host Michael Ware, Vice President of Finance and Investor Relations Ma'am the floor is yours.

Thank you Holly and good morning, everyone and thank you for joining us on today's call.

Joining me today are Kevin Hoffman, our Chief Executive Officer, and President and Joe Taylor, Our Chief Financial Officer results for our first quarter were released earlier. This morning and are available on our website at Brinker Dot com as usual, Kevin and Joe will first make prepared comments related to our strategic initiatives and operating performance.

Then we will open the call for your questions before beginning our comments I would like 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.

From $19 95.

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 being said I will turn the call over to Kevin Thanks, Mike and good morning, everyone. Thank you for joining us as we recap another quarter of progress against our long term strategy for the first quarter, we delivered a 6% comp sales growth, which is chile's fourth consecutive quarter of outperformance versus the casual dining industry, our focus on improving the.

Guests and team member experience, while launching profitable and sustainable traffic driving initiatives.

To increase momentum on our business and importantly, our traffic gap versus the industry narrowed throughout the quarter. Despite the discontinuation of <unk> Italian classics virtual brand and cycling through the deep discounting on the remaining virtual brand. Its just wings. This traffic progress demonstrates the improving strength of our core chili's business.

Our investments both in the guest experience and marketing are working according to plan. Our data shows we have steadily gained share of wallet over the past four quarters across all day parts, particularly dinner and across all income groups with higher income households, growing the fastest.

As we move further into the fiscal year, we anticipate delivering sustained traffic growth ahead of the industry.

Currently were on air with our third wave of advertising since restarting campaigns in March and we continue to be encouraged by the sales results were on air where people are watching and consumers are responding well to our unbeatable 10, 99 platform, which delivers a complete value that gives us a competitive edge in the current consumer environment as.

As we moved into October we accelerated traffic growth versus the industry and delivered positive chili's traffic for the month.

Operator: Thanks for holding. We appreciate your time and patience.

Operator: Please stay on the line and we'll be back in just a moment Good day and welcome to the Q1 F-24 earnings call. At this time all participants have been placed on a listenly mode.

We believe advertising superior value delivering an improved guest experience and continuing simplification is the best plan to deal with any economic headwinds.

We continue to monitor it closely and make sure we have the best possible plan to sustainably grow market share.

Now, let's talk about menu progress last quarter I'll give you an early update on our chicken crisper relaunch one of our core four platforms. Since then we also introduced our Nashville Hot Crisper and with the new lineup in market for over a quarter, we have a better line of sight towards performance through recipe simplifications, selling larger piece counts and pricing behind.

Improved sauce inside innovation, the average CRISPR food cost as a percentage of sales has moved from 23% to 20% and we are now selling 40% more CRISPR is a much bigger business with lower food cost or better margins is a great result, it shows what this business can do with a focus on core innovation and this initiative is a big <unk>.

Operator: The caller will be open for questions and comments following the presentation.

Mika Ware: It is now my pleasure to turn the floor over to your host, Mika Ware, Vice President of Finance and Investor Relations. Ma'am, the floor is yours. Thank you, Holly and good morning everyone and thank you for joining us on today's call. Joining me today are Kevin Hotman, our Chief Executive Officer and President and Joe Taylor, our Chief Financial Officer. Results for our first quarter were released earlier this morning and are available on our website at Brinker.com. As usual, Kevin and Joe will first make prepared comments related to our strategic initiatives and operating performance. Then we will open the call for your questions.

Ever of our improved financial performance this quarter.

Last quarter. We also give you an update on the new bar menu launched in late August which featured new premium Margarita has introduced or it's just wings brand to the chili's bar and dining room.

While it's still early the results are promising we're seeing mixed move into the new premium Margarita is and we are seeing guest trade out of three for me and into full price wings, and CRISPR, which is improving both sales and margins were hard at work at that next wave of core for improvements and we look forward to sharing more details in the coming quarters.

Mika Ware: Before we're beginning our comments, I would like 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 meeting of the private security's litigation reform after 1995. All such statements are subject to risk and uncertainties which could cause actual results to differ from those anticipated. Such risk 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-gap financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations.

The momentum in our results doesn't happen without strong stable leadership in our restaurants through our efforts to simplify the menu and operations, we've made significant progress, making our operator's jobs easier and more rewarding as a result, we've lowered our 12 month manager turnover now to 24%, which is 14 points better than the industry when you improve manage.

Your turnover you would expect hourly turnover to start to improve too and I am pleased to report we are starting to see improvements in hourly turnover, which is down 44% on an annual basis.

Looking back and looking to the back half of the year. We have made the decision based on the results of the advertising campaign and a stronger base business in place to add an additional four weeks of advertising during the third quarter. This will increase our weeks on air from 21% to 25% during fiscal 'twenty, four which will help us continue to accelerate sales and traffic growth.

Kevin Hochman: And with that being said, I will turn the call over to Kevin. Thanks Micah and good morning everyone. Thank you for joining us as we recap another quarter of progress against our long-term strategy.

Throughout the fiscal year as we build a guide path to drive sustainable long term sales and traffic growth over the next few years. This commercial plan along with continued simplification will continue to accelerate our business results.

Pleased with the continued progress against our long term strategy. It's clear the changes we are making to the service model, while increasing our voice with advertise value as a winning plan. We are rebuilding the chili's business the right way and we're encouraged by the growth we're seeing in sales and traffic as well as improvements to restaurant operating margins now I'll hand over the call to Joe to walk you.

Kevin Hochman: Despite the discontinuation of Modjana's Italian Classics virtual brand and slightly through the deep discounting on the remaining virtual brand, it's just wings. This traffic progress demonstrates the improving strength of our core Chile's business. Our investments both in the guest experience and marketing are working according to plan. Our data shows we've steadily gained share of wallet over the past four quarters across all day parts, particularly dinner and across all income groups with higher income households growing the fastest. As we move further into the fiscal year, we anticipate delivering sustained traffic growth ahead of the industry.

Through the numbers and share guidance for fiscal 'twenty. Four go ahead, Joe Hey, Thank you Kevin and good morning, everyone. The results. We reported this morning represent a solid start to our fiscal year and provide good indications our strategy to focus and simplify operations improve the guest experience and importantly, once again to speak with the latter voice about all tilly's has.

To offer is gaining traction.

First half of the quarter benefited from an effective marketing window supporting comp sales gains for the quarter above industry average as we move through the quarter, we realized improvement in key P&L areas led by food and beverage costs, which on a combined basis nicely exceeded our expectations.

Kevin Hochman: History. Currently we're on air with our third wave of advertising since restarting campaigns in March, and we continue to be encouraged by the sales results. We're on air where people are watching and consumers are responding well to our unbeatable 1099 platform, which delivers a complete value that gives us a competitive edge in the current consumer environment. As we moved in October, we accelerated traffic growth versus the industry and delivered positive Chili's traffic for the month. We believe advertising superior value delivering an improved guest experience and continuing simplification is the best plan to deal with any economic headwinds.

Specific to the financial results reported Brinker as consolidated revenues for the quarter totaled $1 billion and $12 million with consolidated comp sales growth of positive five 8%.

Our adjusted diluted EPS for the quarter was 28.

Our adjusted EBITDA for the quarter was $72 million.

At the brand level <unk> reported fiscal first quarter comp sales of two 6% composed of nine 5% price, partially offset by negative mix and traffic of one 2% and five 7% respectively.

Kevin Hochman: We'll continue to monitor it closely and make sure we have the best possible plan to sustainably grow market share.

Kevin Hochman: Now let's talk about menu progress. Last quarter, I gave you an early update on our chicken crisper relaunch, one of our core four platforms. Since then, we also introduced our national hot crisper, and with the new lineup and market for over a quarter, we have a better lineup site to its performance. Through recipe simplification, selling larger piece counts, and pricing behind improved sauce and side innovation, the average crisper food cost as a percentage of sales has moved from 23% to 20%, and we are now selling 40% more crispers.

Chili's reported comp sales growth of six 1% for the quarter driven by price of eight 8% and positive mix of three 1%, partially offset by negative traffic of five 8%.

To provide a little more insight into the quarterly traffic performance, our strategic decision last year to deemphasize the virtual brands contributed approximately 4% of the overall traffic loss.

Kevin Hochman: A much bigger business with lower food costs and better margins is a great result. It shows what this business can do with a focus on core innovation, and this initiative is a big driver of our improved financial performance this quarter. Last quarter, we also gave you an update on the new bar menu launched in late August, which featured new premium margaritas and introduced our Itch Just Wings brand to the Chili's bar and dining room.

The remaining negative traffic of less than 2% can be attributed to the base Chili's business a level. We feel is indicative of the progress we are making improving traffic for the brand.

Pricing levels for the quarter remained elevated above more historical norms, but are also are contributing nicely to improving our restaurant economics and restoring operating margins as we move through the rest of the fiscal year, we will take less price with planned menu launches and we will see year over year price levels drop further.

Kevin Hochman: While still early, the results are promising. We're seeing mix moving to the new premium margaritas, and we are seeing guest trade out of three for me and into full price wings and crispers, which is improving both sales and margins.

While we believe we still have dry powder going forward, we plan to be more strategic in meeting the consumer where they are willing to spend.

Kevin Hochman: We're hard at work at the next wave of core four improvements, and we look forward to sharing more details in the coming quarters.

Now turning to margins, we have seen significant year over year improvement in our restaurant operating margin, reaching 10, 4% for the quarter up from 6% last year.

Kevin Hochman: The momentum in our results doesn't happen without strong stable leadership in our restaurants. Through our efforts to simplify the menu and operations, we've made significant progress making our operators jobs easier and more rewarding. As a result, we've lowered our 12-month manager turnover now to 24%, which is 14 points better than the industry. When you improve manager turnover, you would expect hourly turnover to start to improve too. And on police report, we are starting to see improvements in hourly turnover, which is now down 44% on an annual basis.

Sales leverage from our improved price mix positioning a continuing shift of guest traffic into dining rooms improved commodity markets and manage our labor cost improvements all contributed to the quarterly gain.

Our first quarter food and beverage expense was favorable 490 basis points when compared to last year.

This key expense area recorded significant benefit from pricing actions during the past year in.

Kevin Hochman: Looking back, looking to the back half of the year, we have made a decision based on the results of the advertising campaign and a stronger base business in place to add an additional four weeks of advertising during the third quarter. This will increase our weeks on air from 21 to 25 during fiscal 24, which will help us continue to accelerate sales and traffic growth throughout the fiscal year as we build a guide path to drive sustainable long-term sales and traffic growth over the next few years. This commercial plan, along with continued simplification, will continue to accelerate our business results.

In addition, lower and more stable chicken prices and the increase in chicken mix from our successful CRISPR merchandising further improved year over year performance.

Dairy and pork markets were also favorable and contributed to an overall deflationary market for a comparable commodity basket.

Based on current market conditions and contract positioning we expect the second quarter to also experienced commodity basket deflation and then move to a lower single digit inflationary environment for the second half of the fiscal year.

Kevin Hochman: I'm pleased with the continued progress against our long-term strategy. It's clear the changes we are making to the service model while increasing our voice with advertised value is a winning plan. We are rebuilding the Chili's business the right way, and we're encouraged by the growth we are seeing in sales and traffic, as well as improvements to restaurant operating margins.

Labor expense as a percent of company sales was favorable 10 basis points compared to prior year manager turnover, returning to lower industry, leading levels and sales leverage against fixed labor costs are the driving factors to the year over year improvement.

Hourly labor was comparatively stable for the quarter with the emergence of an improving trend in turnover wage rate inflation remains elevated relative to historical norms in the mid single digit range, but appears to have stabilized. We believe our improved labor model is creating a more supportive environment for our hourly team members and helping to keep overall labor.

Joseph Taylor: Now I'll hand over the call to Joe to walk you through the numbers and share guidance for fiscal 24. Go ahead, Joe. Hey, thank you, Kevin, and good morning, everyone.

Joseph Taylor: The results we reported this morning represent a solid start to our fiscal year and provide good indications our strategy to focus and simplify operations, improve the guest experience, and importantly, once again, speak with a louder voice about all Chili's has to offer is gaining traction. First half of the quarter benefited from an effective marketing window, supporting sales gains for the quarter above industry average. As we move through the quarter, we realized improvement in key P&L areas led by food and beverage costs, which on a combined basis nicely exceeded our expectations.

Expenses in line with company sales growth.

As expected restaurant expense in the quarter was 60 basis points higher year over year, primarily due to our planned increases in advertising and repair and maintenance spend.

Again, we experienced a favorable impact of sales leveraged against fixed restaurant expenses as well as improvements in several other area of restaurant expense line items, particularly off premise related expenses and utility costs that helped offset some of the planned expense growth in this component of Rob.

Joseph Taylor: Communications. Specific to the financial results reported, Brinker's consolidated revenues for the quarter totaled $1 billion and $12 million, with consolidated comp sales growth of positive 5.8%. Our adjusted deluded EPS for the quarter was $0.28, and our adjusted EBITDA for the quarter was $72 million. At the brand level, Magianos reported fiscal first quarter comp sales of 2.6%, composed of 9.5% price, partially offset by negative mix and traffic of 1.2% and 5.7% respectively.

Moving further down the P&L interest expense was $4 $7 million higher year over year due to the current rate environment and the refinancing of one of our bond offerings earlier this year.

<unk> increased due to higher performance compensation expenses, greater 401, K participation and increased it related costs.

The improvement in operating performance and subsequent stronger levels of cash flow further improved our leverage positioning with funded debt to EBITDA at the end of the quarter at two three times, we continue to forecast further reductions in our leverage ratio both from improved cash flow and the pay down of revolving credit borrowings targeting year end leverage ratio.

Joseph Taylor: Chile's report of sales growth of 6.1% for the quarter, driven by price of 8.8%, and positive mix of 3.1%, partially offset by negative traffic of 5.8%. To provide a little more insight into the quarterly traffic performance, our strategic decision last year to deemphasize the virtual brands contributed approximately 4% to the overall traffic loss. The remaining negative traffic of less than 2% can be attributed to the base Chile's business. A level we feel is indicative of the progress we are making improving traffic for the brand.

Of two times.

This mornings press release included an increase in our guidance for fiscal year, EPS and reiteration of the other points of guidance provided last earnings call.

Based on our first quarter performance and improved restaurant economics, we are increasing full year EPS guidance to a range of $3 35.

To $3 65.

Joseph Taylor: Pricing levels for the quarter remain elevated above more historical norms, but are also contributing nicely to improving our restaurant economics and restoring operating margin. As we move through the rest of the fiscal year, we will take less price with planned menu launches, and we'll see year-over-year price levels drop further. While we believe we still have dry powder going forward, we plan to be more strategic in meeting the consumer where they're willing to spend.

And finally as it relates to our current second quarter, let me provide some insight for two important expense categories to help educate your quarterly sequencing of performance in your models now.

Now that we have a better line of sight into timing ever F. 'twenty four marketing activities. We currently expect Q2 advertising expense to be elevated to between two and $3 million compared to an even spread of the expense throughout the year.

Additionally, our Q2 G&A expense is anticipated to be similar to slightly above the $42 million recorded in Q1, primarily driven by an increase in incentive compensation due to improved operating performance.

Joseph Taylor: Turning to margins, we've seen significant year-over-year improvement in our restaurant operating margin, reaching 10.4% for the quarter, up from 6% last year. Failed leverage from our improved price mix positioning, a continuing shift of guest traffic into dinier rooms, improved commodity markets, and manager labor cost improvements all contributed to the quarterly gain. Our first quarter food and beverage expense was favorable 490 basis points when compared to last year. This key expense area recorded significant benefit from pricing actions during the past year.

Anticipated Q2, G&A expense also impacts full year G&A now expected to increase 13% to 15, 13% to $14 million compared to prior year.

As I said at the beginning of my comments, we're off to a good start to the year and are gaining increasing confidence in the execution and possibilities afforded our brands from our strategies, while cognizant of potential economic challenges. We are encouraged as to how guests are responding to our messaging the benefits we're seeing from improvements in the guest experience.

Joseph Taylor: In addition, lower and more stable chicken prices, and the increase in chicken mix from our successful CRISPR merchandising, further improved year-over-year performance. Dairy and pork markets were also favorable and contributed to an overall deflationary market for a comparable commodity basket. Based on current market conditions and contract positioning, we expect a second quarter to also experience commodity basket deflation, and then move to a lower single-digit inflationary environment for the second half of the fiscal year.

<unk> turned to improved restaurant operating margins, we look forward to sharing further progress as we move through our upcoming quarters.

And with my comments now complete I'll turn the call back to Holly.

To moderate questions Holly, it's all yours.

Thank you at this time, we will be conducting a question and answer session.

Have any questions or comments. Please press star one on your phone at this time.

Joseph Taylor: Labor expense as a percent of company sales was favorable 10 basis points compared to prior year. Manager turnover returning to lower industry leading levels and sales leverage against fixed labor costs were the driving factors of the year-over-year improvement. Our early labor was comparatively stable for the quarter, with the emergence of an improving trend in turnover. Wage rate inflation remains elevated relative to historical norms in the mid-single-digit range, but appears to have stabilized.

We ask that while posing your question. Please pickup your handset if listening on speaker phone to provide optimum sound quality. Please hold while we poll for questions.

Yes.

Your first question for today is coming from Chris I'll call with Stifel.

Hey, Thanks, good morning, guys.

Joseph Taylor: We believe our improved labor model is creating a more supportive environment for our hourly team members and helping to keep overall labor expenses in line with company sales growth. As expected, restaurant expense in the quarter was 60 basis points higher year-over-year, primarily due to our planned increases in advertising and repair and maintenance spend. Again, we experience the favorable impact of sales leverage against fixed restaurant expenses, as well as improvements in several other areas of restaurant expense line items, particularly off-premise-related expenses and utility costs that helped offset some of the planned expense growth in this component of ROM.

I guess my first question, Kevin The company went back to the three for me Burger commercial this quarter, which I believe it was the same spud earlier. This year do you believe low price value messages will need to remain the hero I guess for the foreseeable future and I'm just wondering how that affects chili's ability to kind of feature of these new chicken crisp.

Bruce as a hero and some of the spuds.

Yes, good morning, Chris.

Yes.

We did make the decision actually to pivot from away from chicken crisper advertising, where we didn't have a sharper price point on the everyday menu went to that 10, 99, burgers, but that you're referring to.

Joseph Taylor: Moving further down the P&L, interest expense was $4.7 million higher year-over-year due to the current rate and volume and the refinancing of one of our bond offerings earlier this year. G&A increased due to higher performance compensation expenses, greater 401k participation and increased IT-related costs. The improvement in operating performance and subsequent stronger levels of cash flow further improved our leverage positioning with funded debt to EBITDA at the end of the quarter at 2.3 times. We continue to forecast further reductions in the leverage ratio, both from improved cash flow and the paydown of revolving credit borrowings, targeting year-end leverage ratio of two times.

We saw along with the industry.

Call. It in early September right around Labor day.

Some softness and so it made us rethink our advertising plans and that's why we put that in the market. It appears that it's really worked I mean, we've had.

By far our biggest lifts with this last round of advertising.

Versus the other two slugs that we did.

Both in July and then previously in March.

And it tells us the consumer was definitely responding to that I will say, if you actually look at the mix with it.

Within the box <unk> overall, it's still down versus what versus the previous couple of quarters I think a big part of that is how much we've driven the CRISPR business.

Many of those CRISPR three for me bundles have moved to the full price menu, which we feel really good about.

Joseph Taylor: This morning's press release included an increase in our guidance for fiscal year EPS and reiteration of the other points of guidance provided last earnings calls. Based on our first quarter performance and improved restaurant economics, we are increasing full-year EPS guidance to a range of $3.35 to $3.65.

Even when we put the advertising on most recently, we saw a couple of points of mix shift from the higher the higher tiers of fee for me down to the 10 99.

But nothing that was really significant so we feel like we're doing a really good job with our menu merchandising to be able to maintain that margin growth that youre seeing in the business results and I don't anticipate that changing obviously, we're going to monitor it very closely but for the foreseeable future based on the results that we have with this past advertising campaign and I would expect to see more of that.

Joseph Taylor: And finally, as it relates to our current second quarter, let me provide some insight for two important expense categories to help educate your quarterly sequencing of performance in your models. Now that we have a better line of sight in the timing of our F-24 marketing activities, we currently expect Q2 advertising expense to be elevated between $2 and $3 million compared to an even spread of the expense throughout the year. Additionally, our Q2 G&A expense is anticipated to be similar to slightly above the $42 million recorded in Q1, primarily driven by an increase in incentive compensation due to improved operating performance. Anticipated Q2 G&A expense also impacts full-year G&A, now expected to increase $13 to $13 to $14 million compared to prior year.

Great and then I know the company hired Gail to support Chili's with digital marketing can you describe what that might look like and when we might start to see programs or campaigns from that from that group.

Yes, so they are on full time now.

We're currently building back.

Kind of the infrastructure that's required to be a modern CRM.

Crem marketer, which means the <unk> of our guests meeting we can identify our guests no matter, how they transact with us and then be able to better target them with the right messaging and the right offers if there is an offer so that's going to take about six months to fully complete we would expect to see.

Joseph Taylor: As I said at the beginning of my comments, we are off to a good start to the year, gaining increasing confidence in the execution and possibilities afforded our brands from our strategies. While cognizant of potential economic challenges, we encourage us to how guests are responding to our messaging, the benefits we are seeing from improvements in the guest experience, and are a turn to improve restaurant operating margins.

Some significant changes the customer would see by Q3, so that would be in January.

And then over the next six months past January I think youll see that ramp up even more but it's going to take some time to build that infrastructure. They are teaching us a lot about what it means to be a modern direct marketer and I think we're going to be in a much better place coming out of that.

Great. Thanks, guys.

Joseph Taylor: We look forward to sharing further progress as we move through our upcoming quarters.

Your next question is coming from Andrew <unk> with BMO capital markets.

Operator: And with my comments not complete, I'll turn the call back to Holly to moderate questions.

Hi, guys. This is Gerald Lozinski on for Andrew <unk>. Thank you for taking the question. So I was hoping that you could expand a little bit more on the hourly turnover improvements.

Operator: Holly, it's all yours. Thank you.

Operator: At this time, we will be conducting a question and answer session. 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 if listening on speakerphone to provide optimum sound quality. Kennedy, please hold while we pull for questions.

Kind of some of the puts and takes of what youre going to be focusing on to try and drive that back to below pre pandemic levels as we look forward to.

24.

Yeah. So so we've made incredible progress on managerial turnover and we feel like it's where it needs to be it's well ahead of the industry hourly turnover is improving but it's still behind the industry.

Chris O'Call: Your first question for today is coming from Chris O'Call with Steeple. Hey, thanks. Good morning, guys. I guess my first question, Kevin, the company, you know, went back to the three-for-me burger commercial this quarter, which I believe was the same spot earlier this year. Did you believe low-price value messages will need to remain the hero, I guess, for the foreseeable future? And I'm just wondering how that affects Chili's ability to kind of feature these new chicken crispers as a hero in some of the spots?

The number that I quoted on the call was improvement of 44%. So that was from our 188% turn it over to 144%. So it is an improvement but it was.

Still have a long way to go there is a couple of things that we're focused on one is the labor model now it doesn't mean, putting investments in the labor model, but what we're finding is that there's so many different.

Elements of the job that our shared.

We're thinking that we need to get more focused on having individual jobs for folks. So for example, adding back the bus or position.

Chris O'Call: Yeah, good morning, Chris. Yeah, we did make the decision to actually tip it away from chicken crisp or advertising where we didn't have a sharper price point on the everyday menu and went to that $10.99 burger spot that you're referring to. We saw along with the industry called an early September, right around Labor Day, some softness, and so it made us rethink our advertising plans and that's why we put that in the market.

So that <unk> not shared across multiple customers I'm, sorry multiple team members.

We're also looking at making sure that we continue the simplification that we really focus more on the heart of house, which is our kitchen and bringing that to the front of house, which is our servers are host position and our bar tenders and so that's really the primary focus we're actually meeting with our.

All of our regional VP Vice presidents of operations in two weeks, where basically most of that meeting is going to be about creating action plans against our lease to.

Chris O'Call: It appears that it's really worked. I mean, we've had by far our biggest lifts with this last round of advertising versus the other two slugs that we did, both in July and then previously in March, and it tells us the consumer was definitely responding to that. I will say if you actually look at the mix within within the box, three-for-me mix overall is still down versus the previous couple of quarters. I think a big part of that is how much we've driven the CRISPR business.

The progress because while it's been good we need to get a whole lot better to get to where we want and eventually if we get to the place where we're we have stabilized hourly turnover too.

Continue to see those guest metrics improve so.

So the net net of it is good improvement, we're still behind where we want to be and I think we're going to have a really good action plan to share at the next earnings call Post. These vice president meetings that I think is going to be very exciting.

Chris O'Call: Many of those CRISPR, three-for-me bundles have moved to the full price menu, which we feel really good about. And even when we put the advertising on most recently, we saw a couple of points of mix shift from the higher tiers of three-for-me down to the $10.99, but nothing that was really significant. So we feel like we're doing a really good job with our menu merchandising to be able to maintain that margin growth that you're seeing in the business results, and I don't anticipate that changing.

Great. Thank you for that and then just one follow up so I believe you called out the de emphasis of the virtual brands.

<unk>, 4% of the overall five 8% traffic decline I am just curious how we should be thinking about that.

That headwind as we move forward in 2024, thank you.

Yes.

Joe will start to see it taper off primarily in the second half of the year. When you look at where the lapsed took place, particularly their removal lapse of.

Kevin Hochman: Obviously, we're going to monitor it very closely, but for the foreseeable future, based on the results that we had with this past advertising campaign, I would expect to see more of that.

<unk> Italian classics, so second quarter it will be impacted.

Chris O'Call: Very, and then I know the company hired Gail to support Chili's with digital marketing.

Slightly less but fairly similar amount and then you'll start to see it run off towards the end of the fiscal year, we kind of the final removals of.

Kevin Hochman: Can you describe what that might look like and when we might start to see programs or campaigns from that group? Yeah, so they're on full time now. We're currently building back the kind of the infrastructure that's required to be a modern CRM marketer, which means the tokenization of our gas, meaning we can identify a gas no matter how they transact with us, and then be able to better target them with the right messaging and the right offers if there is an offer.

Mick as you're really moved into that last ended the last quarter of last year. So.

It will all be gone by.

Obviously end of fiscal year, but more and more less of an impact in the second half.

Great. Thank you.

Kevin Hochman: So that's going to take about six months to fully complete. We would expect to see some significant changes that the customer would see by Q3, so that would be in January. And then over the next six months past January, I think you'll see that ramp up even more, but it's going to take some time to build that infrastructure. They're teaching us a lot about what it means to be a modern direct marketer, and I think we're going to be in a much better place coming out of that.

Your next question is coming from David Palmer with Evercore ISI.

Chris O'Call: Great. Thanks guys.

Thanks, Good morning.

Trying to think about.

How I can be helpful. Here.

And sort of disentangle ing, what is clearly some really positive stuff that youre getting from the marketing and obviously there was timing benefits to October from the advertising. So the advertising is clearly working.

Might be doing 10, 99, but they are having the CRISPR, which is doing a good job for your margins.

Andrew Stralsic: Your next question is coming from Andrew Stralsic with BMO Capital, markets. Hi guys, this is Jared Hludzinski on for Andrew Strelzik. Thank you for taking the question.

So I guess, maybe first question is how do you disentangle, maybe what are some benefits you are having from some of the customer satisfaction driving long term stuff versus the advertising.

Kevin Hochman: So I was hoping that you could expand a little bit more on the hourly turnover improvements and kind of some of the puts and takes of what you're going to be focusing on to try and drive that back to below pre pandemic levels as we look forward in 2024. Yeah, so so we made incredible progress on managerial turnover and we feel like it's where it needs to be. It's well ahead of the industry hourly turnover is improving, but it's still behind the industry.

<unk>.

How do you think about what your traffic might be for this quarter when youre starting off so strongly.

What is a good all in traffic expectation, we should be having in the near and medium term.

Chili's.

Well, let me start off with the first part of the question.

What do we think we're getting from the guest experience improvements.

We can do some theoretical calculations and in fact, we have it.

Kevin Hochman: The number that I quoted on the call was improvement of 44% so that was from 188% turnover to 144%. So it's an improvement, but we still have a long way to go. There's a couple of things that were focused on one is the labor model. Now it doesn't mean putting investments in the labor model, but we're finding is that there's so many different elements of the job that are shared and we're thinking that we need to get more focused on having individual jobs for folks.

To understand like every point reduction in what we call guest with a problem we call. It <unk>, what does that mean to annual sales and so I'd.

Im really hesitant to quote that because it's a multiple variant regression and who knows how how accurate it could be but.

So we do have some internal estimates that we look at to say this is what we think the size of the prizes I think everybody knows in the restaurant industry that you need to have a great and consistent guest experience is exactly what I shared.

Kevin Hochman: So, for example, adding back to bus or position so that it's not shared across multiple, sorry, multiple team members. We're also looking at making sure that we continue this simplification that we really focus more on the heart of house, which is our kitchen and bringing that to the front of house, which is our servers, our host position, and our bartender. And so that's really the primary focus. We're actually meeting with all of our regional VP vice presidents of operations in two weeks where basically most of that meeting is going to be about creating action plans against hourlies to continue the progress because while it's been good, we need to get a whole lot better to get to where we want. And eventually if we get to the place where we have stabilized hourly turnover to continue to see those guest metrics improved. So the net of it is good improvement.

And our team shared during Investor day, and the brand that we want to be is one that regardless of what Chili's you go into what time of day you go.

What your order, you're always going to have a consistent amazing friendly experience.

And that's the journey that we're on and if you look at the guest metrics and they continue to improve we feel like every quarter, we're making progress. So we're talking about things like intent to return food grade scores guests.

That's where the problem G Wap, which I talked about earlier server attentiveness Theyre all continue to head in the right direction.

And so we believe that over time, but we continue to do that we're going to get even better returns from our advertising because when guests come to try us for the first time or they haven't been in a long time to get an improved experience versus the last time, they were there or versus the competitors right. So.

Andrew Stralsic: We're still behind where we want to be and I think we're going to have a really good action plan to share at the next earnings call post these vice president meetings that I think is going to be very exciting. Great. Thank you for that. And then just one follow up.

It's very hard to tease out.

As Youre aware, David Untangle, the benefits of the advertising versus the experience, but the reality is theyre going to travel together going forward as long as we continue to make improvements on the guest experience.

Joseph Taylor: So I believe you called out the emphasis of the virtual brands, contributing 4% of the overall 5.8% traffic decline. I'm just curious how we should be thinking about that head one as we move forward in 2024. Thank you. Yeah, this Joe, we'll start to see it taper off primarily in the second half of the year when you look at where the laps took place, particularly the removal. Lapse of magenta time classic so second quarter, it'll be impacted slightly less, but fairly similar amount and then you will start to see it run off towards the end of the fiscal year.

And then David I think as it relates to the traffic piece of the question, Yes, we definitely youre going to get outsized traffic performance from from the marketing Windows. We go and that's one of the reasons, we're adding marketing window into January because of the benefits.

We're seeing not only from traffic, but just from the entire business model.

Yes.

The work we have to do is how do we create the improved traffic connectivity between our marketing windows.

It's not to say that October's results will replicate themselves as you kind of go forward the rest of the quarter because you're obviously you won't be on air during that period of time, but we're going to be looking at.

Joseph Taylor: We kind of did the final removals of Mick as you really moved into that last end of the last quarter of last year or so. It'll all be gone by obviously the end of fiscal year, but more and more less of an impact in the second half. Great. Thank you.

And when you look to.

To improve traffic again, our first.

Goalpost here is to move steadily above the industry and remain above the industry from a traffic perception and then we'll work on how do you get consistently back above.

Positive traffic going forward I think all the different initiatives.

David Palmer: Your next question is coming from David Palmer with Evercore ISI. Thanks.

We will start to come together to move us in that direction. There are promising for the current fiscal year from our absolute level of traffic, but we will look to continue to improve our traffic situation on a quarterly basis as we move forward.

David Palmer: Good morning. I'm trying to think about how I can be helpful here in sort of disentangling what is clearly some really positive stuff that you're getting from the marketing, and obviously there was timing benefits to October from the advertising. So the advertising is clearly working. You might be doing $10.99 but they're having the CRISPRs, which is doing a good job for your margins.

Okay I'm, just just looking back at that.

Last quarter the September quarter.

Same store sales growth gap to the industry narrowed a bit.

I think it narrowed by a couple of points in the quarter.

Sequentially.

Why do you think that was is there any insight to be gained from that.

Kevin Hochman: So I guess maybe a first question is, you know, how do you disentangle maybe what are some benefits you're having from some of the customer satisfaction driving long-term stuff versus the advertising and you know, how do you think about what your traffic might be for this quarter when you're starting off so strongly, you know, what is a good all-in traffic expectation we should be having in the near and medium term from Chili's? Well, let me start off with the first part of the question on what do we think we're getting from the guest experience improvements.

We look forward.

Hey, David.

Again, I think youre going to have ebbs and flows depending on what people are doing from a marketing standpoint at any given time. The databases can give you some different results depending on which database you are looking at we've seen.

And one broad database they continue to remain stable and actually got a little bit better as we move towards the end. So I think there is some different.

Different results coming depending on what the databases that youre looking at but.

Again, we're trying to do this for the long haul over multiple quarters and as I said, we've now seen four straight quarters of Chili's.

Kevin Hochman: You know, we can do some theoretical calculations and in the fact we have, to understand like every point reduction in what we call guest with a problem, we call GWOP. What does that mean to annual sales? And so, you know, I really has it into quote that because it's, you know, it's a multiple variant regression and who knows, you know, how accurate it could be. But, you know, so we do have some internal estimates that we look at to say this is what we think the size of prizes.

Exceed the industry. So we're going to keep building that building that street, because we kind of go forward.

Thanks.

Your next question is coming from John <unk> with J P. Morgan.

Hi, Thank you.

<unk> is also an advertising and historically presidential election year, So, which obviously we should have a have a doozy next year.

Kevin Hochman: I think everybody knows in the restaurant industry that you need to have a great and consistent guest experience is exactly what I shared and our team shared during investor day. And the brand that we want to be is one that, you know, regardless of what Chili's you go and know what time of day you go, you know, what you order, you're always going to have a consistent, amazing, friendly experience. And that's the journey that we're on.

Really Ken and oftentimes do crowd out attention and media and actually in some cases can actually pull customers out of restaurants. So I wonder if there is a change or a pivot as you kind of think about the success that you've had so far in fiscal 'twenty four largely calendar 'twenty three as we think about cash.

Kevin Hochman: And if you look at the guest metrics and they continue to improve, we feel like every quarter we're making progress. So, we're talking about things like intent to return, food grade scores, guests with a problem GWOP, which I talked about earlier, server attendance, you know, they're all continued ahead in the right direction. And so we believe that over time, if we continue to do that, that we're going to get even better returns from our advertising because when guests come to try us for the first time or if they haven't been in a long time, they get an improved experience versus the last time they were there or versus competitors, right?

<unk> 24, just even if it's tactically how you approach to getting mind share might change in an increasingly crowded type of intention environment.

Yes, John.

You're a lot closer to the marketing that I think most are because you are right in electric gear tends to get more competitive for.

Kevin Hochman: So it's very hard to, you know, to tease out, you know, the we use your word, David, untangle, you know, the benefits of the advertising versus the experience. But the reality is they're going to travel together going forward as long as we continue to make improvements on the guest experience.

Trp's TRP costs can go up.

I think.

I think there is a lot of different ways that we can go to market and to get those trp's. So I'm going to leave it up to the to the marketers to figure out how to best deploy the dollars I think that will probably change during an election year in terms of rates and we've got to be a little bit smarter about that but like I don't I don't see I don't see like an election year changing.

Kevin Hochman: And then David, I think it's a relates to the traffic piece of the question. Yeah, we definitely are going to get outsized traffic performance from the marketing windows we go. And that's one of the reasons we're adding a marketing window into January because of the benefits we're seeing not only from traffic, but just from the entire business model. You know, the work we have to do is how do we create the improved traffic connectivity between our marketing windows.

Our commercial strategy in any way.

So that's just a mckinsey to answer.

Canada is good and secondly, the <unk>.

Or for that Youre that youre focusing on.

Do you think that it's.

I mean, I understand that the four kind of right, but do you think.

The amount of customization variety that you currently have is kind of appropriate for the customer and I understand that.

Equally we're kind of rebuilding the chili's brand, what youre kind of focused on but.

Kevin Hochman: It's not to say that October's results will replicate themselves as you kind of go forward the rest of the quarter because obviously you won't be on air during that period of time. But we're going to be continuing to look to, you know, to improve traffic. Again, our first, you know, goalpost here is to move steadily above the industry and remain above the industry from a traffic perception. And then we'll work on how do you get, you know, consistently back above positive traffic going forward. I think all the different initiatives. You know, we'll start to come together to move us in that direction, the promising for the current fiscal year from an absolute level of traffic.

Due to the operations of the brand maybe around a little bit more complexity to comment that just with.

With consumers more options to die don't excuse me more often.

David Palmer: But we will look to continue to improve our traffic situation on a quarterly basis as we move forward, and just looking back at that little of the last quarter, the September quarter, if the same-shore sales growth gap to the industry narrowed a bit. I think it narrowed by a couple points in the quarter sequentially. Why do you think that was? Is there any insight to be gained from that as we look forward?

Well the answer is yes, I mean, I think we need to make sure. We have the we have the variety that to meet the modern customers' needs and the first thing that we're doing on a go forward is just making sure that the core of the business is strong so.

So we've done Margarita is.

We've done CRISPR.

Hopefully I'll have some news to share with you at the next quarter on burgers, which I think could take us to a whole another level. There and then the last one will be in the beginning of 'twenty five fiscal 'twenty five.

Is the relaunch of the fajita business, which is improvement in protein improvement in tortilla improvement in sides.

Ed.

Once we get there then it's like where do we want to go next.

The teams are already.

Working through the stage gate process on ideation for what's next in Burgers, What's next and CRISPR is what's next and fajitas because ultimately we've got to continue to.

To continue to innovate so that we stay relevant to today's guests right. So just because we talk about core four doesn't mean, you can't innovate into new spaces with the core four but the first the first job is to make sure that each of those will number one are as good a product as they can possibly be and that we're really competitive in the marketplace and to that we have our barbell strategy covered within there.

David Palmer: David, again, I think you're going to have ebbs in the flows depending on what people are doing from a marketing standpointer than to give in time. On the databases can give you some different results to depend on which database you're looking at. We've seen in one broad database, it continues to remain stable and actually got a little bit better as we move towards the end. So I think there's some different, you know, different results coming depending on what the database is that you're looking at.

For them right, which is good better best and making sure that we have the lower price tiers figured out as well as allow guests to trade up and have premium so.

David Palmer: But, you know, again, we're trying to do this for the long haul over multiple quarters. And as we said, we've now seen four straight quarters of chilies. You know, exceed the industry so we're going to keep building that, building that streak as we kind of go forward.

We're probably about 12 to 15 months away from really completing that and then I think youll see more of the variety of that I think that you're hinting at.

David Palmer: Thanks.

That will that will.

Innovate off of the core four.

That's perfect. Thank you.

John Ivankoe: Your next question is coming from John Ivanko with JP Morgan. Hi, thank you. The question is also on advertising and historically presidential election years of which, you know, obviously we should have a, you know, have a doozy next year. You know, really can and oftentimes do, you know, crowd out attention and media and actually in some cases can actually pull customers out of restaurants. So I wonder if there is a change or a pivot as we kind of think about the success that you've had, you know, so far in fiscal 24, largely calendar 23 as we think about, you know, calendar 24 just, you know, even if it's tactically, you know, how you approach to getting mindshare might change an increasingly crowded type of intention environment.

Your next question for today is coming from Brian Vaccaro with Raymond James.

Hi, Thanks, and good morning, I was hoping we could circle back on Chili's relative traffic performance in could you be a little more specific on how that gap trended through the fiscal first quarter and then I think you said traffic was positive year on year in October just curious what that gap looks like in October.

Hi, Brian it's Mike so.

Our traffic gap has continued to narrow and actually is positive in October.

Versus the industry.

Okay. So traffic was positive year on year and it was also a positive gap versus the industry in October.

Yes, it was.

Okay. Thank you and then just brand awareness, Kevin I think back at the June Analyst Day, you showed a noticeable gap versus large chain competitors I think it might've been applebees in olive garden, if memory serves but I'm not sure how often you get those type of metrics or statistics, but do you have any update on it.

John Ivankoe: Yeah, John, I mean, I, you're a lot closer to the marketing that I think most aren't because you're right that an electric year tends to get more competitive for TRP's, TRP costs can go up. You know, I think, I think there's a lot of different ways that we can go to market and to get those TRP's. So, you know, I'm going to leave it up to the, to the marketers to figure out how to best deploy the dollars.

And by how much that awareness gap has narrowed in recent months.

Yes, so we will so we won't get like the current advertising campaigns impact on awareness.

John Ivankoe: I think we'll probably change during election year in terms of rates and we got to be a little bit smarter about that, but like I don't, I don't, I don't see, I don't see like an election year changing our commercial strategy in any way.

Until a few months after so.

So I don't have anything like the most recent report I mean, I would assume based on I think you guys, probably see chili's everywhere to I would assume that metric has significantly improved in the last in the last couple of months I will say.

Kevin Hochman: So that's just the candid answer. Okay, why can't it is good? And secondly, you know, the core four of that, you know, that you're focusing on, do you think it's, I mean, I understand that the four are kind of right. But, you know, do you think, you know, the amount of customization variety that you currently have is kind of appropriate, you know, for the customer. And I understand that you've, you're basically kind of rebuilding the choice brand of what you're kind of focused on, but you know, do your operations as a brand.

And the previous July advertising flight, we really didn't see much movement in awareness. So that was very low TRP weights.

Versus the March window in the current window that we have today. So it's not like we saw any kind of significant regression or anything it was basically flat.

But I would expect that to continue to close the gap versus our key competitors that spend more.

Kevin Hochman: You'd be allowed a little bit more, you know, complexity to come in that just gives consumers more options to die, dying, excuse me, more often. Well, the answer is yes. I mean, I think we need to make sure we have the, we are, we have the variety that to meet up the modern customers needs. And the first thing that we're doing on the core four is just making sure that the core of the business is strong.

During this quarter just based on the sales results and the fact that the quality of the buy.

Okay. Thank you and then also just I wanted to ask about average check at Chili's and Joe what's a reasonable cadence to expect pricing to moderate over the next few quarters and then I think the lack of reduced discounts happens pretty soon versus late calendar 'twenty. Two just curious where you see Mitch.

Kevin Hochman: So, so we've done margaritas, where we've done crispers, hopefully, awesome news to share with you at the next quarter on burgers, which I think could take us to a whole other level there. And then the last one will be in the beginning of 25 fiscal 25 is the relaunch of the fajita business, which is improvement in protein, improvement in tortilla. And, you know, I think once we get there, then it's like, where do we want to go next?

Settling out.

Yes, so from a cadence standpoint again, we would expect to see price moderate right now we just lapped over one of the bigger pricing increases.

From last year, So we're now down.

We will exit the current quarter in the mid fives now if you look at the back half of the fiscal year, we have a menu.

Kevin Hochman: And the teams are already working through the stage gate process on ideation for what's next in burgers, what's next in crispers, what's next in fajitas. Because ultimately, we got to continue to, we got to continue to innovate so that we stay relevant to today's guests, right? So, just because we talk about core four doesn't mean you can't innovate in a new spaces with the core four. But the first, the first job is to make sure that each of those, number one, are as good as products as they can possibly be, and that we're really competitive in the marketplace.

That will come in February and then one right at the end of the fiscal year, so somewhat dependent on the pricing decisions, we make if we.

Kevin Hochman: And two, that we have our barbell strategy covered within those four, right? Which is good, better, best, making sure that we have the lower price tiers figured out as well as allow guests to trade up and have premiums. So, we're probably about 12 to 15 months away from really completing that, and then I think you'll see more of the variety that I think that you're hinting at that will innovate off of the core, for.

The pricing.

If we make any pricing decisions there is going to be at a very low level. So youre, probably looking at pricing that is in the low single digit ranges. If we move on those two menu. So that will help to continue to moderate as we kind of go through the lapse will be down in that mid for the year will be down in that mid single.

Kevin Hochman: That's perfect.

Brian Vaccaro: Thank you.

Digit range by year end, most of which is influenced by prior year action. So.

If you think through the the sequencing of that those pricing moves they'll start to bring pricing even further down as we kind of go into F 'twenty five and lap through.

Earlier actions of this year, so that would be how I would anticipate pricing to move from.

From a mix standpoint, it's going to depend a lot on what we do the decisions, we make around marketing and some of the merchandising we still feel like we can.

Brian Vaccaro: Your next question for today is coming from Brian Vaccaro with Raymond James. Hi, thanks a good morning. Let's open we could circle back on Chili's relative traffic performance. And could you be a little more specific on how that gap trended through the fiscal first quarter. And then I think he said traffic was positive year on year in October. Just curious what that gap looks like in October. Hi, Brian, it's Mika. So our traffic gap has continued and actually is positive in October versus industry. Okay, so your traffic was positive year on year and it was also a positive gap versus the industry in October. Yes, it was.

Maintaining a low level of mix positivity as we go through.

But if we have opportunities to grab traffic.

And as you think about the effectiveness of the marketing campaigns, we have been doing will take that.

We'll take traffic too.

So I expect and again mix to stay in that neutral to slightly positive range, but kind of bounce around that neutral level as we kind of move forward.

Okay, and just to clarify I think you said five 5% is that exiting the second quarter.

Senior higher than that.

Effective pricing in this current quarter, we're about to go into or that we're in would be maybe somewhere in the sevens.

Kevin Hochman: Okay, okay, thank you. And then I'll just got a brand awareness Kevin. I think back at the June analyst day, you showed a noticeable gap versus large chain competitors. I think it might have been Applebee's and all of garden memory serves. But I'm not sure how often you get those type of metrics or statistics. But do you have any update on if and by how much that awareness gap has narrowed in recent months?

It'll be a little bit higher than that.

It'll be between 6% and 7% again you had we lapped really is we very recently, so you have a higher level of price.

This impacting in October and a more moderate level in the rest of the quarter, but youre going to for the quarter Youll come out in that that mid six range.

Kevin Hochman: Yeah, so we won't so we won't get like the current advertising campaign impact on on awareness until a few months after. So so I don't have anything to like most recent report. I mean, I would assume based on I think you guys probably see Chili's everywhere too. I would assume that metric has significantly improved in the last in the last couple months. I advertising flight. We really didn't see much movement in awareness.

Okay, Great and then just last one for me the advertising spend what was that in dollars in the current quarter just to make sure on the same page there.

Yes, so for the first quarter I'm, Brian that was just over $28 million and that's where I was trying to clarify in him in his script.

<unk>.

Instead in the past where we.

We split that are we evenly spread at our advertising expense is now going to be more reflective of our actual spend.

Kevin Hochman: Now that was very low TRP weights versus the March window and the current window that we have today. So it's not like we saw any kind of significant regression or anything. It was basically flat. But I would expect that to continue to close the gap versus our key competitors that spend more during this quarter just based on the sales results and the fact that the quality of the buy.

So the second quarter will be closer a little over <unk>.

Kevin Hochman: Okay, thank you.

$32 million.

Alright, very helpful. I'll pass it along thank you.

Yes.

Your next question for today is coming from Brian <unk>.

With Piper Sandler.

Okay. Thank you just a question on Marciano is wondering if you can provide some early thoughts on the upcoming holiday season, maybe if you have any early indicators you can speak to and then remind us how did last year go around the holidays is there anything unusual you might be lapping either positive or negative would.

Joseph Taylor: And then also just I wanted to ask about average check at Chili's. And Joe, what's the reasonable cadence to expect pricing to moderate over the next few quarters? And then I think the lap of reduced discount happens pretty soon versus late calendar 22. Just curious where you see mix settling out. Yeah, so from a cadence standpoint, again, we would expect to see price, you know, moderate, you know, right now we just laughed over one of the bigger pricing increases from last year.

It would be helpful too.

Yes.

No like.

There is no like big swings that we expect in the holidays.

See continued growth.

And the recovery of the banquet.

The bookings have looked fine so.

I mean, theres nothing Theres, no outlier, one way or the other that we're seeing.

Feel good about where we are we're prepared for the holiday season, obviously, it's a really important quarter for <unk> based on the amount of sales and profits that we generate but we feel very good about heading into the holiday season.

Joseph Taylor: So we're now down. You know, we'll exit the the current quarter in the mid fives. Now, if you look at the back half of the fiscal year, we have a menu that will come in in February and then one right at the end of the fiscal year. So some will depend on the pricing decisions we make. If we the pricing, if we make any pricing decisions there is going to be at a very low level.

Joseph Taylor: I mean, so you're probably looking at pricing that is in the low single digit ranges, you know, if we move on those two menus, so that will help to continue to moderate as we kind of go through the laps. We'll be down in that mid for the year. We'll be down in that mid, you know, single digit range by year and most of which is influenced by prior year actions. So you'll, if you think through the the sequencing of that price, those pricing moves will start to pricing even further down as we kind of go into f 25 and lap through earlier actions of this year.

Okay. Thanks, and just a follow up balance sheet capital allocation. Once you once you get to two turns traditional net leverage by the end of the fiscal year.

Whats the plan for beyond that would you look to Delever further or Conversely should we be looking for maybe more capital return while you maintain that two turns of leverage just any color on your current thinking would be great.

Yes, Brian Thats, obviously, a discussion we'll continue to have with the board don't have anything specific to say on any changes I think the good news is we'll have optionality around that.

Just on the improved cash flow generating.

Capabilities.

The company so.

It's a point that we think is the right time to have some of those discussions and then we'll come back to you with any updates as to where what we'll be doing from a capital allocation standpoint.

Joseph Taylor: So that would be how I'd anticipate pricing to move. You know, from a mixed standpoint, it's going to depend a lot on what we do. The decisions we make around marketing and some of the merchandising, we, you know, we still feel like we can, you know, maintain a low level of mixed, you know, positivities we go through. But if we have opportunities to grab traffic, and if you think about the effectiveness of the marketing campaigns we've been doing, you know, we'll take that, you know, we'll take traffic too.

Okay. Thank you.

Your next question is coming from Jeff Farmer with Gordon Haskett.

Good morning, and thanks, just following up on a handful of the earlier traffic question. So chili's did see that positive traffic in October, but what can you share with us as it relates to what that implies for Chili's October same store sales number.

Joseph Taylor: So I expect again, mixed to stay in that neutral to slightly positive range would kind of bounce around that neutral level as we kind of move forward. Okay, and just to clarify, I think it's a five and a half percent, was that exiting the second quarter? I assume you're higher than that. So effective pricing in this current quarter we're about to go into, or that we're in, would be somewhere in the seven.

It's going to from an October standpoint, it's going to be very strong.

Comp sales.

And I think youre going to see growth.

Positivity coming on all three components again, I've already talked a little bit about the pricing dynamics when you when you shift the dip.

Positive traffic into the equation that is going to be a strong <unk>.

Strong period for comp sales.

Okay and then.

As it relates to that October traffic result, did that meet or exceed your internal expectations that you had set sort of going into that new round of advertising.

Joseph Taylor: It'll be a little bit more than that. It'll be built between six and seven percent. Again, you had, we laughed really as we very recently. So you have a higher level of price impacting in October and a more moderate level in the rest of the quarter, but you're going to, for the quarter you'll come out in that mid six range. Okay, great.

I think we've.

Seeded our expectations we were expecting.

Based on that.

The level of the by the quality of the by the fact that we're on the shows that people are watching for a good result, and it performed above that.

Joseph Taylor: And then just last one for me, the advertising spend what was that in dollars in the current quarter, just to make sure we're on the same page there. Yes, so for the first quarter, Brian, that was just over 28 million, and that's where Joe was trying to clarify in his script that instead in the past where we split that or we evenly spread it, our advertising expense is now going to be more reflective of our actual spend. So the second quarter will be closer a little over 32 million. All right, very helpful.

Basically modeled the March window, because there were similar weights.

And we got a better result in the March window and.

We think there is two potential drivers one is the service levels continue to improve which is great.

And then the second is the consumer more open to this message today than they were six months ago, probably a little bit of both.

Okay, and just one other quick one on the labor lines, so that was.

A favorable year over year, but I think even sort of more Sonya was the fact, it was 40 basis points better than what we the street were looking for so in terms of thinking about labor as a percent of revenue and just favorability year over year do you expect that to continue in coming quarters or sort of that.

Brian Mullan: I'll pass the law. Thank you.

Brian Mullan: Your next question for today is coming from Brian Milan with Piper Sammler. Thank you. Just a question on my Giannos, you know, wondering if you could provide some early thoughts on the upcoming holiday season, maybe if you've any early indicators you could speak to and then remind us, how did last year go around the holidays or anything unusual? Well, you might be laughing either positive or negative would be helpful too. Yeah, I mean, there's there's no like there's no like big swings that we expect in the holidays.

That.

Favorability, we saw in the first quarter, maybe as good as it gets.

Yeah.

Brian Mullan: You know, we see continued growth and recovery of the bank with the, you know, the booking that looks fine. So there's, I mean, there's no outlier, you know, one way or the other that we're seeing. Feel good about where we are or prepare for the holiday season.

Jeff This is Mike so in the first quarter, we really had some things moving our way with a favorable price and mix really helped to offset those investments into the hourly labor model.

And we also saw some favorability in overtime, because as Kevin said, our turnover continues to decrease.

As we move into the second quarter and Joe just talked about the cadence of our price. So it may not we may not be able to have a year over year improvement, so, especially because that second quarter is going to have.

The last quarter that we have those investments to the early model in there. So I think you might see some deleverage next quarter alright. Thank you everyone.

Brian Mullan: Obviously, it's a really important quarter for for my Giannos, based on the max sales and profits that we generate, but we feel very good about heading into the holiday season.

Yeah.

Your next question is coming from Jeffrey Bernstein with Barclays.

Brian Mullan: Okay, thanks.

Joseph Taylor: And just to solve your balance sheet cap location, you know, once you once you get to two turns, traditional net leverage by the end of the fiscal year, you know, what's the plan for beyond that? Would you look to be lever further or conversely, should we be looking for maybe more capital return while you maintain that two turns leverage just any color on your current thinking would be great. Yeah, Brian, that's obviously discussion will continue to have with the board don't have anything specific to say and any changes.

Yes.

Great. Thank you very much.

Two questions. The first one just.

Quarter industry thought.

Kevin It seems like the industry may be or casual dining industry is seeing a slowdown of late I'm. Just wondering as you size. It up and obviously you are just one piece within that so congratulations on moving counter to that but just wondering as you think about the industry.

Joseph Taylor: I think the good news is we'll have optionality around that based on the improved cashflow generating. You know, capabilities of the company. So it's a point that we think is the right time to have some of those discussions, and then we'll come back to you with any updates as to what we'll be doing from a cap allocation standpoint.

And then how much of it that you think is just.

Consumer had been finally, taking hold versus some I've talked about a return to seasonality.

We talk about pricing.

Pricing so it seems like the three components within there I'm just wondering how you think about it for the broader industry that you compete.

Yeah.

Yes, the seasonality thing I think it was probably real if you look in hindsight.

The return to the returned at back to school seasonality that we typically saw as the casual dining segment pre pandemic.

Jeffrey Farmer: Thank you. Your next question is coming from Jeff farmer with Gordon. Craig Amornian, thanks. Just following up on a handful of the earlier traffic questions. So Chili's did see that positive traffic in October, but what can you share with us as it relates to what that implies for Chili's October, same for sales number? It's going to, from a October standpoint, it's going to be very strong. Comp sales, you know, I think you're going to see growth positivity coming on all three components.

So we think that was real it's probably what we saw late August early September.

As far as like why do we think we're reversing the trend versus what we're seeing in the industry I do think that the value is helping right like we have a very.

We've been talking about it for a year now.

About having unbeatable value regardless of the channel of restaurant that you've that you compete in I saw a tweet the other day they were comparing it versus the big guys in <unk>.

Theyre combo meals versus our number.

Jeffrey Farmer: Again, I've already talked a little bit about the pricing dynamics. When you shift the positive traffic into the equation, it's going to be a strong period for Comp sales. Okay, and then as it relates to that October traffic result, did that meet or exceed your internal expectations that you had set sort of going into that new round of advertising? I think we've exceeded our expectations. We were expecting, you know, based on the level of the buy, the quality of the buy, the fact that we're on the shows of people watching for a good result, and it performed above that.

Our 10 99, and that's kind of what we've been talking about the last year and so maybe the improved performance of the advertising part of that is driven by where the customer is.

Never know for sure.

Certainly have not seen it in our data that the customers tailed off we've seen just the opposite.

But that could be a function of what we have in market and we had talked about if there was a downturn what are the things that we're going to do it's the same things that we're going to do whether there is a downturn or not which is continue to improve the customer experience improve the core four and then get back on air with advertising with.

With outstanding value.

I still believe because of weather.

Macro headwinds or not that's going to be the course of action for us. If we want if we want to continue to complete our resurgence as a brand so.

Jeffrey Farmer: We basically modeled the March window because there were similar weights, and we got a better result than the March window. And there's two, we think there's two potential drivers. One is the service levels continue to improve, which is great. And then the second is a consumer more open to this message today than they were six months ago, probably a little bit above.

It's hard for me to like comment about what Theyre doing versus what we're doing what I do know is what we're doing because of what the macro is the right thing to do and I think over the last cut.

A couple of months has really paid some dividends for our business.

Got it as we think about profitability for the business.

Micah Ware: Okay, just one other quick one on the labor line. So that was a favorable year over a year, but I think even sort of more of January was the fact it was 40 basis points better than what we, the street we're looking for. So in terms of thinking about labor as a center revenue and just your availability year year, do you expect that to continue on coming quarters or sort of that, that favorability saw in the first quarter maybe as good as it gets?

You had 400 or so basis points of margin expansion in the first quarter I'm assuming that.

An anomaly based on comparisons and whatnot, but.

What are you thinking for full year 'twenty four I think last quarter you said.

Youre going to see margin expansion beyond the normal target you would have would be 20 to 30 basis points. So I'm wondering how you think about that or what's the implied within your your.

Micah Ware: Yeah, Jeff, this is Micah. So in the first quarter, we really had some things moving our way with the favorable price and mix, really helped to offset those investments into the hourly labor model. And we move, and we also saw some favorability and overtime because as Kevin said, our turnover continues to decrease. As we move into the second quarter, and Joe just talked about the cadence of our price. So it may not, we may not be able to have a year over year improvement. So especially because that second quarter is going to have the, it's the last quarter that we have those investments to the hourly model in there. So I think you might see some D leverage next quarter.

Fiscal 'twenty for guidance.

Micah Ware: All right. Thank you, everyone.

You mentioned you might be willing to take incremental pricing in the next couple of menu Rollouts later this fiscal year. So I'm just wondering how you think about the.

The connectivity between the margin and you have a willingness to take price.

Yes, I think that one we do continue to expect the year over year raw number to exceed that expectation as we kind of gave you from a long term factor obviously, the first quarter impacts that nicely, but I would expect to see year over year.

Gains in ROM and each of the quarters as we kind of move forward.

From here.

Price is a factor in that but obviously as we continue to improve our traffic scenarios, we think that will.

Also contribute to some sales leverage as we move through and the reason we raised guidance today was really a middle of the P&L improvement story as much as anything.

Jeffrey Bernstein: Your next question is coming from Jeffrey Bernstein with Barclays. Great. Thank you very much.

Our ability to sustain some of our improved economics I think is real.

Joseph Taylor: Two questions. The first one just quarter industry thoughts. Kevin seems like the industry maybe our casual abouting industry is seeing a slowdown of late. Just wondering as you size it up, and obviously you're just one piece within that. So congratulations on moving counter to that. But just wondering as you think about the industry, I mean, how much of it do you think is just consumer had been finally taking hold versus some of talked about a return to seasonality.

Cree to our benefit as we kind of move through the year from a pricing standpoint.

We're just going to get.

Better and more educated it how to price we've actually been spending a lot of time with Deloitte consulting working on our revenue growth management and a big piece of that is.

How do we do pricing at a more.

Find and restaurant level basis, and I think.

Joseph Taylor: Obviously, we talk about laughing pricing. So it seems like there's three components within them. I'm just wondering, how do you think about it for the broader industry that you compete? Yeah, you know, the seasonality thing, I think it was probably real, if you look in hindsight, so that the return to return to back the school seasonality that we typically saw as a casual dining segment pre-pandemic. So we think that was real.

Thats.

Understanding elasticities on a restaurant level basis understanding where you have those opportunities.

Price and where it can be a little bit more judicious, so as opposed to approaching price from kind of spread the peanut butter.

Across the brand, it's going to be very granular and very tactical and I think that's going to give us some real opportunities. So.

Joseph Taylor: It's probably what we saw in late August, early September. As far as like, why do we think we're reversing the trend versus what we're seeing in the industry? I do think that the value is helping. We've been talking about it for a year now, and about having unbeatable value, regardless of the channel of restaurant that you compete in. I saw it tweet the other day. They were comparing us versus the big guys in QSR and their combo of meals versus our number, our 1099.

We're cognizant of.

Careful on pricing as we kind of move forward, particularly depending on economic environments.

But if we see opportunities at very low elasticity to gain price in certain markets. I think we will take that and we'll just see how that plays out from a <unk>.

Combined basis as we kind of go forward again I don't expect.

Anything above low single digit levels, but I think thats there for the.

For the taking and we will look at it closely.

Got it and Joe just to clarify I know you mentioned that your guidance raise was for the most part response to middle of the P&L success, presumably in the first quarter.

Joseph Taylor: That's kind of what we've been talking about the last year, and so maybe they improved performance of the advertising part of that driven by where the customer is. You never know for sure. We certainly have not seen it in our data that the customers tailed off. We've seen just the opposite, but that could be a function of what we have in market. We had talked about if there was a downturn, what are the things that we're going to do?

Just curious because looking from the outside it.

It looks like you raised your earnings guidance by 15 cents at the midpoint.

This first quarter you beat the street by 20, plus cents, but I realize the street is irrelevant and it's more about what you were thinking the first quarter, we're going to be so I'm just wondering.

Joseph Taylor: It's the same things that we're going to do whether there's a downturn or not, which is continue to improve the customer experience, improve the core four, and then get back on air with advertising without standing value. I still believe, regardless of whether there's the continued macrohead wins or not, that's going to be the course of action for us if we want to continue to complete our resurgence as a brand. It's hard for me to comment about what they're doing versus what we're doing.

How did the first quarter compare to what your initial target was.

As your fiscal 'twenty Springs is purely the <unk> flow through are you assuming further upside the rest of the year versus the initial guidance. Thank you.

Probably and Jeff Scott Great question, we had obviously a little bit more insight as to where we saw that quarter gaiam, particularly as it.

Progress so.

It did exceed our expectations without a doubt I think we got more traction faster in some of the areas on the expect expense items. They were all areas, we were focused on and working on to get that traction.

Joseph Taylor: What I do know is what we're doing, regardless of what the macro is, is the right thing to do. I think over the last couple of months has really paid some dividends for our business. As we think about profitability for the business, you know, you had 400 or so basis points of rest of the margin expansion in the first quarter. I'm assuming that's an anomaly based on comparisons and whatnot. But what are you thinking for full year, 24?

And we got to bright in several areas a little bit faster than we would have anticipated.

But yes, we had a higher level of belief around the quarter, probably then and you'll also youre seeing a little bit of trade offs and again at this point.

We're one quarter into the year.

Joseph Taylor: I think less, quote, you said, you know, you're going to see margin expansion beyond the normal target you would have would be 20 to 30 basis points. I'm wondering how you think about that or what's the implied within your fiscal 24 guidance. And then you mentioned you might be willing to take incremental pricing. I mean, next couple of men you relax later this fiscal year. So just wondering how you think about the connectivity between the margin and your willingness to take price.

I want to be a little cautious and again understanding of.

The noise that you hear about even though we're not seeing it in our numbers, you're obviously theres a lot out there about the economic condition. So we're going to we're going to take it one step at a time as we kind of move through the fiscal year.

Understood. Thank you.

Your next question is coming from Eric Gonzalez with Keybanc.

Joseph Taylor: Yeah, I think that one we do continue to expect the year over year. Rom number to exceed that that expectations we kind of gave you from a long term factor. Obviously the first quarter impacts that nicely, but I would expect to see year every year gains in ROM in each of the quarters as we kind of move forward from here. Price is a factor in that, but obviously as we continue to improve our traffic, you know, scenarios, we think that will also contribute to some sales leverage as we move through.

Hi, Good morning, I was just wondering about the advertising strategy specifically the additional four weeks of marketing that you're adding this year would you tie that back to your revenue guidance. It looks like expect to see much of a jump in sales. So my reading that the right way. If you still expect mid single digit comp for the year, maybe youre being where maybe you're being conservative based on that.

Consumer environment, and then Relatedly the baseline assumption for industry traffic is still down about 4% to 5% for the year.

Joseph Taylor: And the reason, you know, we raised guidance today was really a middle of the PNL improvement story as much as anything. The ability to sustain some of our improved economics, I think, is real and a credo our benefit is we kind of move through the year. And from a pricing standpoint, we're just going to get, and better and more educated at how to price. We've actually been spending a lot of time with Deloitte Consulting, working on our revenue growth management.

The.

So we do expect revenue benefit from that incremental.

Four weeks its again its a smaller window. It's four weeks is not it's not going to be comparable to the October window. We're in from a buy standpoint, but I think it will be added to the equation. We gave you a pretty large.

<unk>.

Range for revenue so, yes, do I expect the revenues to move up higher in the range.

Yes, as we kind of move through those windows.

Joseph Taylor: And a big piece of that is that how do we do pricing at a more refined and restaurant level basis? And I think that's, you know, understanding elasticity on a restaurant level basis, understanding where you have those opportunities to price. And where you can be a little bit more judicious. So as opposed to approaching price from kind of spread the peanut butter across the bread, it's going to be very granular and very tactical.

We're we're adding the window from an opportunistic standpoint, not a defensive standpoint, if I could put it in that way.

Got it and then just two if I can ask about the off premise business I apologize if I missed it but did you provide the off premise mix.

Maybe you could speak to how that channel fared during the quarter, specifically, whether youre seeing the delivery channel falloff as it is a more expensive way to access the brand.

Hi, Eric it's Mike our off premise business at Chili's analog channels was really relatively stable quarter to quarter. So it was 28% off premise at chili's and 25% off premise at my honest Sam.

Joseph Taylor: And I think that's going to give us some moral opportunities. So, you know, we're cognizant of being careful on pricing as you kind of move forward, particularly depending on economic environment. But if we see opportunities at very low elasticity to gain price in certain markets, I think we'll take that and we'll just see how that plays out from a combined basis as we kind of go forward. Again, I don't expect anything above low single digit levels.

We're seeing them hold in there.

Anything to call out on the delivery versus Carryout breakdown.

Not really no I think it's all pretty steady.

Great. Thank you.

Your next question for today is coming from Alex Slagle with Jefferies.

Hey, Thanks, and congrats on the momentum so.

Joseph Taylor: But I think that's there for the, you know, for the taking in and we'll look at it closely. Got it. And Joe, just to clarify, I know you mentioned that your guidance raised was for the most part in response to middle of the PNL success presumably in the first quarter. Just curious because looking from the outside looks like you raised your earnings guidance by 15 cents at the midpoint. I know this first core you beat the street by 20 plus cents, but I realize the street is irrelevant.

Along the lines of planes smart on price your cost of goods was down <unk>.

We substantially 25, 8% of sales and you have to go back to 2017 to see anything that low and expected leverage but it seems like the dynamics here, we're more powerful so just trying to get a sense of.

Joseph Taylor: And it's more about what you were thinking the first quarter was going to be. So I'm just wondering. How did the first core compare to what your initial target was? You know, was your physical points bring truly the one to flow through? Are you assuming further up to the rest of the year versus initial guidance? Thank you. Yeah, we probably in Jeff's very great question. We got obviously a little bit more insight as to where we saw that quarter going, particularly as a progress.

How much of this is concentrated in the <unk> and the relative pricing and mix dynamics in that specific quarter.

<unk> seen <unk> marks the low for cost of goods in May we expect it to tick up a little bit higher into the 26 plus percent mid 26, or so for the rest of the year, but.

Color there would be great.

Hey, Alex Thanks.

Joseph Taylor: So it did exceed our expectations without a doubt. I think we got more traction faster in some of the areas on the expect. Expense items. They were all areas we were focused on and working on to get that traction. And we got to brighten in several areas a little bit faster than we would have anticipated. But yeah, we had a higher level of belief around the quarter, probably than you also you're seeing a little bit of trade off.

Yes, there is definitely going to be year over year and outsized improvement in the first quarter coming off of last year, but I actually expect it to be a fairly stable environment from a percentage of the company's sales as we kind of move through the year. So.

We continue to get some of the pricing benefits.

Price moves slowly down as you kind of move through the year.

The price mix.

Mixed benefit.

Joseph Taylor: And again, at this point, you know, we're one quarter into the year. You know, I want to be a little cautious and under and again, understanding of, you know, the noise that you hear about, even though we're not seeing it in our numbers, you obviously, there's a lot out there about economic conditions. We're going to take it one step at a time as we kind of move through the fiscal year. Understood.

We will continue to accrue throughout and I expect a fairly stable margin.

Jeffrey Bernstein: Thank you.

Great and Rick.

Maintenance stop how far along are we on sort of getting all the new equipment into the restaurants fixing broken things and refreshes in.

You think youre sort of getting close to where you want to be with the assets.

I think we're getting close to where we want to be with the ongoing spend level, we still have a lot.

In the pipeline, we've made great progress on the equipment side of the equation, so I'm not I'm.

Eric Gonzalez: Your next question is coming from Eric Gonzalez with key bank. Hi, good morning. I'm just wondering about the advertising strategy, specifically the additional four weeks of marketing that you're adding this year. If you tie that back to your revenue guidance, it looks like you don't expect to see much of a jump in sales. So my reading that the right way if you still expect mid single digit comp for the year, maybe you're being a bit, maybe you're being a bit too conservative based on the consumer environment.

Im not as concerned as you would have been a year ago or 18 months ago on an equipment supply chain is making equipment available to us and obviously you update that as quickly as it possibly can.

Done a lot of work around the.

The fleet and understanding where the opportunities lie we have a great plan in place.

Our teams are executing against it it's going to be a progress over over an extended period of time 18 months 24 months.

Eric Gonzalez: And it really leads a baseline assumption for industry traffic still down about four to five percent for the year. The, so we do expect, you know, revenue benefit, you know, from that incremental, you know, four weeks. It's, again, it's a smaller window. It's four weeks. It's not, it's not going to be comparable to, to the October window we're in from by sample. But I think it will be added to the equation. We gave you a pretty large, you know, range for revenue. You know, so yes. Do I expect the revenues to move up higher in the range? Yes, as we kind of move through those windows.

But I like the spend levels, we've we've built into the plan and the ongoing progress, we're making against it and we're really.

Youre capturing the the the.

The real high and.

Hi, net need areas quickly and we'll continue to do that.

Got it thank you.

Okay.

Your next question is coming from Jon Tower with Citi.

Great. Thanks for taking the question.

Eric Gonzalez: That's, you know, we're adding the window from an opportunistic standpoint, not a defensive standpoint, if I could put it in that way. Got it.

Run through quite a bit already but.

Maybe I guess to start going back to the advertising conversation I appreciate the color around moving to 25 weeks from 'twenty. One previously just can you maybe help us think through a reasonable range of outcomes in terms of where that could go over time, meaning 25 weeks. The level you feel is kind of optimal.

Micah Ware: And then just if I can ask about the off-premise business, I apologize I missed it, but did you drive the off-premise mix? And maybe you could speak to how that channel's fair during the quarter specifically, whether you're seeing the delivery channel fall off as it is more expensive way to access the brand. Hi, Eric. It's Micah. Our off-premise business at Chili's and Lajanos was really relatively stable quarter to quarter. So it was 28% off-premise at Chili's and 25% off-premise at Lajanos. So we're seeing them hold in there. Anything to call out from the delivery versus carryout breakdown? Not really. No, I think it's all pretty steady. First, thank you.

For this brand or do you see that potentially flexing higher as we move into out years, depending upon consumer response et cetera.

Yes.

The bigger question is is how do we sustain traffic over time, that's the that's what we're laser focused on as a leadership team and it starts with continuing to improve the guest experience, while we drive while we do these traffic driving initiatives like advertising. Your CRM. So we're looking at all three of those things isn't potential investments to me.

Take.

Creating sustainable traffic for.

Alexander Slagle: Your next question for today is coming from Alex Slagel with Jeffries. Thanks. Congrats on the momentum. So long lines of playing smart on price. Your cost of goods is down. We substantially 25.8% of sales and they have to go back to 2017 to see anything that low and expected leverage, but it seems like the dynamics here were more powerful. So just trying to get a sense of how much of this is concentrated in the one queue and the relative pricing and mixed dynamics of that specific quarter.

Chili's in the long term I do think in the <unk>.

Advertising so answer to your question more directly on the advertising component I would see adding weeks.

Over the over the next few years being the likely the likelihood of one.

One component of increasing traffic over time.

<unk> is when we get the CRM, the new CRM program up and running.

I think that is going to be a avenue for sustainable traffic growth overtime, and then obviously as we continue to improve the guest experience that will become more meaningful.

Traffic builder over time like you've seen some other concepts that don't advertise as much right. So.

Alexander Slagle: And it would seem one queue marks below for cost of goods and maybe expect it to tick up a little bit higher into the 26% plus percent. The 26% are so for the rest of the year, but any color there would be great. Alex, yeah, there's definitely going to be year-to-year and outsides improvement in the first quarter coming off of last year, but I actually expected to be a fairly stable environment from a percentage of the company sales as we kind of moved through the year. So you'll continue to get some of the pricing benefits. That price moves slowly down as you kind of move through the year. So the price, you know, mixed benefit, you know, will continue to career throughout.

For sure we would see that 25 weeks is not our <unk>.

Final number and really how fast we build on top of that really will depend on the returns that we're getting as well as the alternative investments that we can make in CRM and the experience.

Got it okay. Thank you I appreciate that and then maybe Joe just to follow up on the value conversation earlier can you provide where that settled out as a percentage mix for chili's during the period.

Kevin Hochman: I expect a fairly stable margin. Great.

Values and again very stable.

Of that 20% to 30% of total check.

And have a value component to it the three for me again also remained very stable in that 16% to 17% range. So we're.

We're seeing responsiveness from the gas, but we're seeing very good stability in the levels of value we have in the in the mix.

Kevin Hochman: And repair maintenance stuff. How far along are we on sort of getting all the new equipment into the restaurant, fixing broken things and refreshes and you think you're sort of getting close to where you want to be with the assets. I think we're getting close to where we want to be with the ongoing spend level. We still have a lot in the pipeline. We've made great progress on the equipment side of the equation.

Alright awesome all for me. Thank you.

Your next question is coming from Chris <unk> with RBC capital markets.

Hi, Good morning. Thanks for the question I guess following up on mix can you maybe expand a bit more on what you could potentially do to drive that sustainable benefit from that component of the comp. It seems like there's a lot in your control around price and traffic.

Kevin Hochman: So I'm not as concerned as you would have been a year ago or 18 months ago on equipment. The supply chain is making equipment available to us and obviously you update that as quickly as possible. We've done a lot of work around the fleet and understanding where the opportunities lie. We have a great plan in place and our teams are executing against it. It's going to be a progress over really an extended period of time, 18 months, 24 months.

Curious how you could potentially further drive mix just like you have with the with <unk>.

Yes, the biggest opportunity is with innovation, so that could be either premium tithing the core four.

Or or just creating bigger benefit spaces that consumers are willing to pay more for so fajita is really the next big one where I can see us doing like a crisper type of innovation. So.

Kevin Hochman: But I like to spend levels. We've built into the plan and the ongoing progress we're making against it. And we're really, you know, you're capturing the real hind that need areas quickly and we'll continue to do that. Thank you.

Innovation on the protein both the quality of the protein as well as the volume of quoting that you can get.

Innovation on different proteins that we have today and that could drive more premium position similar to what you might see.

Other Mexican concepts that you guys track.

That could provide a source of mix.

As well as just overall driving fajitas, because once we have a new thing to talk about what fajitas and we're going to go on air with that that is going to drive more mix into fajitas than other parts of the business and thats up considerably higher.

Jon Tower: Your next question is coming from Jon Tower with City. Thanks for taking a question. I'm through quite a bit already, but maybe I guess to start going back to the advertising conversation, I appreciate the color around moving to 25 weeks from 21 previously. Can you maybe help us think through a reasonable range of outcomes in terms of where that could go over time? Meaning as 25 weeks, the level you feel is kind of optimal for this brand or do you see that potentially flexing higher as we move it out years, depending upon consumer response, etc.

Sales and profit driver for the business than call. It CRISPR is a burger. So that's the big obvious one theres. Some theres. Some other things that we can do with menu merchandising as we bring.

New benefits spaces into apps desserts drinks right. So for example, if you looked at our menu today.

Two a year ago. The first page of our menu today to cover is all premium Marguerite as like cost Amigos intermodal block go and Thats why we are seeing.

Kevin Hochman: The bigger question is how do we sustain traffic over time? That's what our laser focused on as a leadership team, and it starts with continuing to improve the guest experience. While we do these traffic driving initiatives like advertising or CRM, so we're looking at all three of those things as potential investments to make in creating sustainable traffic for chilies in the long term. I do think in the advertiser to answer your question more directly on the advertising component, I would see adding weeks over the next few years, being the likelihood of one component of increasing traffic over time.

Alcohol PPA continue to grow.

Simply because we're just driving that from a merchandising standpoint, so I think that's going to be a thing that we're going to continue to do going forward. It's not really a tool that we've looked at in the past.

But it is an obvious thing, especially if you're innovating, it's going to be a lot easier to.

To potentially drive to move that mix needle than if you weren't innovating.

And to give customers things that they actually want to buy right. So.

Made up for so to me that that's probably the biggest couple of things and then there's probably some literally things like as we get the CRM program up and running do we have to do is the level of discounting that we're doing today, we've already removed some of it what.

Kevin Hochman: Another big component is when we get the CRM, the new CRM program up and running, I think that is going to be an avenue for sustainable traffic growth over time. And obviously as we continue to improve the guest experience, that will become a more meaningful traffic builder over time, like you see in some other concepts that don't advertise as much. For sure, we would see that 25 weeks is not our final number, and really how fast will we build on top of that? We'll depend on the returns that we're getting, as well as the alternative investments that we can make in CRM in the experience. Got it. Okay. Thank you. Appreciate that.

What we moved actually hurt traffic, which we talked about in the previous 12 months, but going forward as we get really smarter and know more about our guests and token is the guest.

Likelihood of the level of discounting that we do is probably probably a little pull back some of that.

And that would show up in mix also not price so.

Hope that answers your question.

Yes that was very helpful.

And then.

For my follow up you mentioned, gaining wallet share across income cohorts I think with the fastest growth with <unk>.

Higher income households, can you expand maybe a bit more on that and specifically what youre seeing with middle and lower income guests.

Joseph Taylor: And then maybe Joe just a follow up on on the value conversation earlier. Can you provide word that settled out as a percentage mix for chilies during the period? Values and again, very stable. It's in that 28 to 30% of total check and have a value component to it. The three for me, again, also remain very stable and that, you know, that 16, 17% range. And so, you know, we're, we're seeing responsiveness from the guests, but we're seeing very good stability and the levels of value we have in the in the mix. Great. Awesome. All for me. Thank you.

We see continued spending across all across all of the household so all households, we've grown while it's Sharon.

The higher income household we certainly have grown faster in the way I explain it to my team and one of the really good things about getting out of the kind of the deep discount game is that over time.

It becomes a little bit more affluent and a little bit less.

Elastic to price right. So you look at the brands that are kind of.

Reverse some of that discounting trend.

And really.

We went to more of an everyday low price strategy or an everyday value strategy.

You typically tend to see that.

The guest the guest move to more middle income and higher income and over time, you become a little bit less.

Christopher Carril: Your next question is coming from Chris Carill with RBC capital markets. Hi. Good morning. Thanks for the question. I guess following up on mix, can you maybe expand a bit more on what you could potentially do to drive that sustainable benefit from that component of the top? It seems like there's a lot in your control around price and traffic, but, you know, curious how you could potentially further drive mix, just like you have with with Chris versus.

Reliant on deep discounting because those guests that doesn't matter as much to them right. So it should over time make us a stronger brand.

And be able to weather, if we have to take pricing because of wage rates or cogs inflation in the future to have a more affluent customer base is always going to give.

To give you a little bit more insurance and one that's not.

And I think we're seeing that a little bit now and we're a year into removing a lot of the big needles out of the business the discount needles and some of those guests are leaving and that is why you saw that traffic headwind that we talked about but what ends up you end up having at the end of that is a stronger guest base that is a.

Christopher Carril: Yeah, you know, the biggest opportunity is with innovation. So that could be the prioritizing the core for or, or just creating, you know, bigger benefits, bases that consumers are willing to pay more for. So, you know, fajita is really the big one where I can see us doing like a crisper type and innovation. So, innovation on the protein, both the quality of the protein as well as the volume of protein that you can get.

A little bit less price elastic that can handle some of these things.

Great. Thanks, so much.

Your next question for today is coming from Katherine Griffin with Bank of America.

Christopher Carril: Innovation on different proteins that we have today that could drive more premiumization similar to what you might see in other Mexican concepts that you guys track that can provide a source of mix. As well as just overall driving fajitas because, you know, once we have a new thing to talk about with fajitas and we're going to go on air with that, that is going to drive more mix in the fajitas than other parts of the business and that's a considerably higher.

Hi, Thank you I was wondering if you could help just frame how much the restaurant margin was helped by the emphasis the virtual brands.

The lower packaging and delivery costs.

There was some benefit it wasn't an oversized benefit.

To the overall.

Christopher Carril: Both sales and profit driver for the business, then, you know, call it crispers or burgers. So that's the big obvious one. There's some other, there's some other things that we can do with menu merchandising as we bring. New benefits, bases in the apps, desserts, drinks, right. So, for example, if you looked at our menu today and compared it to a year ago, the first page of our menu today, the cover is all premium margaritas like Kasa Migos and Termado Blanco.

ROM expense I don't have a dollar figure for you the off premise.

Savings.

Coming from less less packaging costs less bad debt things of that nature was real it was a contributory factor I think it's one of those areas that will continue to contributor was.

Kind of go forward.

Again, it wasn't as oversized as you would have seen from the price mix dynamics, the improvement in food and beverage and things of that nature. So it's down the pecking order, but it was there.

Christopher Carril: And that's why we're seeing alcohol PBA continue to grow simply because we're just driving that from a merchandising standpoint. So, I think that's going to be a thing that we're going to continue to go up going forward. It's not really a tool that we looked at in the past, but it's an obvious thing, especially if you're innovating. It's going to be a lot easier to potentially drive to move that mix needle than if you weren't innovating and to give customer things that they actually want to buy, right.

Yes.

Could you just have to remember Catherine its a very small amount of mix to begin with so even though there is improvements in margin versus.

Yeah.

We see improvements when we drive the dine in business at Chili's versus like Marciano virtual brand.

Starting at such a low mix, it's not going to have a huge impact on the overall restaurant operating margin.

Christopher Carril: So, and trade up for. So, to me, that's probably the biggest couple of things. There's probably some literal of things like as we get the CRM program up and running. Do we have to do with the level of discounting that we're doing today? We've already removed some of it. That what we removed, actually, you know, hurt traffic, which we talked about in the previous 12 months. But going forward as we get really smarter and know more about our guests and tokenize the guests, likelihood of the level of discounting that we do is probably going to pull back some of that. And that would show up in mix also, not price. I hope that answers your question.

Okay. Thank you.

And I'm also just curious if you're seeing anything at <unk> that would suggest any pullback among higher income consumers, whether that's like tech management through alcohol mix.

No I mean, maybe just a tad, but the bigger the bigger there's two big not big challenges, but the two challenges that we saw in <unk>. This quarter, one was removed J W. It's business too.

Which was.

About 40% of what you saw in the numbers.

Kevin Hochman: Yeah, no, that was very helpful. And then, I guess for my follow-up, you mentioned gaining wallet share across income cohorts, I think with the fastest growth with higher income households. Can you expand maybe a bit more on this and specifically what you're seeing with middle and lower income guests? Yeah, you know, we see continued spending across all the households, so all households we've grown wallet share in. The higher income households we certainly have grown faster.

Versus I think what the street was expecting on traffic.

And then and then the Delta was we reduced the focus of the $6.

Cost of the go.

<unk> tried to focus more on the experience and.

That's a little bit of an impact on the business that I know the team is working on right now to figure out so but there was no like gigantic macro thing that we were.

Concern us at least at this point.

I would say there is some big pullback.

Kevin Hochman: And you know, the way I explained it to my team, and one of the really good things about getting out of like kind of the deep discount game is that over time, your guest becomes a little bit more affluent and a little bit less elastic to price, right? So you look at the brands that have kind of reversed some of that discounting trend and really what's the more of an everyday low-price strategy or an everyday value strategy, you typically tend to see that the guests move to more middle income and higher income, and over time you become a little bit less reliant on deep discounting because those guests, that doesn't matter as much to them, right?

Okay. Thanks, Kevin.

Alright, so that concludes our call for the day and we appreciate everyones question.

Goodbye.

Thanks, everybody.

Thank you. This concludes today's conference call you may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Kevin Hochman: So it should over time make us a stronger brand and be able to weather if we have to take pricing because of wage rates or cost inflation in the future to have a more affluent customer base is always going to give you a little bit more insurance than one that's not. And I think we're seeing that a little bit now. We're a year end up removing a lot of the big needles out of the business, the discount needles, and some of those guests are leaving and that's why you saw that traffic headwind that we talked about, but what's end up having at the end of that is a stronger guest base that is a little bit less-price elastic that could handle some of these things.

Katherine Griffin: Great, thanks so much.

Katherine Griffin: Your next question for today is coming from Catherine Griffin with Bank of America. Hi, thank you. I was wondering if you could help just frame how much the restaurant margin was helped by the emphasis of the virtual brands, the lower packaging and delivery costs. There was some benefit. It wasn't an oversized benefit to the overall rhomic spans. I don't have a dollar figure for you. The off-premise savings coming from less packaging costs, less bad things of that nature was real.

Katherine Griffin: It was a contributory factor. I think it's one of those areas that will continue to contribute as we go forward. Again, it wasn't as oversized as you would have seen from the price mix dynamics, the improvement in food and beverage and things of that nature. So it's down the pecking order, but it was there. You just have to remember Catherine. It's a very small amount of mix to begin with. So even though there is improvements in margin versus we see improvements when we drive the dining business at Chili's versus like Magiana's virtual brand, you're starting at such a low mix. It's not going to have a huge impact on the overall restaurant operating. Margin.

Joseph Taylor: Okay, thank you. And I'm also just curious if you're seeing anything at Marjana's that would suggest any pullback among higher income consumers, whether that's like check management through alcohol mix. No, I mean, maybe just a tad, the bigger, the bigger, there's two big, not big challenges, but the two challenges that we saw on Marjana's this quarter, one was we removed IJW out of its business too, which was about 40% of what you saw in the numbers versus I think what the street was expecting on traffic.

Joseph Taylor: And then the Delta was, we reduced the focus of the $6 cost of the go as a try to focus more on the experience, and that's how a little bit of an impact on the business that I know the team is working on right now to figure out. So, but there was no like gigantic macro thing that we were, at its concern is at least at this point that would say there's some big pullback.

Kevin Hochman: Okay, thanks, Kevin.

Operator: All right, so that concludes our call for the day. We appreciate everyone's questions.

Operator: Goodbye. Thanks, everybody. Thank you.

Operator: This concludes today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation. Thank you. . John Ivankoe, Christopher Carril, James Sanderson, David Palmer, Eric Gonzalez, Christopher Carril, James Sanderson, David Palmer, Eric Gonzalez[inaudible] David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez,[inaudible] David Palmer, Eric Gonzalez, David Palmer, Eric Gonzalez,[inaudible]

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