Q3 2024 Brinker International Inc Earnings Call

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Good day and welcome to the Brinker Internationals Q3 F. 'twenty for earnings call. At this time, all participants have been placed on a listen only mode. The floor 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 relation.

Mika Ware: Ma'am the floor is yours.

Mika Ware: Thank you Holly and good morning, everyone and thank you for joining us.

Mika Ware: Here with me today are Kevin Hoffman, our Chief Executive Officer, and President and Joe Taylor, Our Chief Financial Officer.

Mika Ware: Results for our third 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.

Mika Ware: Regarding forward looking statements during our call management may discuss certain items, which are not based entirely on historical facts.

Mika Ware: Any such items should be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95, all such statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated.

Mika Ware: Such risks and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC and of course on the call. We may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations and with that said I will turn the call over to <unk>.

Mika Ware: Evan Thanks, Mike and good morning, everyone. Thank you for joining us as we share results from another quarter of strong progress.

Evan: The last time, we spoke in January the industry was experiencing challenging weather. We were pleased to see our business immediately bounce back and perform well in February and March and Chili's with chili's, beating the industry sales by more than 7% and traffic by nearly 4% for the entire quarter.

Evan: These strong results are driven by the strategy we've been working on for almost two years now to improve the guest and team member experience, while launching profitable and sustainable traffic driving initiatives.

Evan: And what's very encouraging from the Q3 results is that in February when we werent on TV, we continued to outperform the industry and again in March.

Evan: When we effectively increased media from last year, our traffic driving initiatives combined with real operational improvements are creating tailwind for the business.

Evan: I am so proud of our operators for their focus on the guest experience and the progress they are making our main kpis dining guests with a problem or dine in <unk> dropped to three 3% this quarter, which is our lowest on record since we began tracking the metric.

Operator: Patients. Please stay on the line, and we'll be back in a moment. Music Thank you for holding. We look forward to talking with you soon. Please hold the line and we'll be right back with you. Music, Good day and welcome to Brinker International's Q3F24 earnings call. At this time, all participants have been placed in a listen-only mode.

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

Evan: I want to recognize our 12 operations regional Vice presidents, who have been leading this work from the front they delivered another quarter of industry, leading manager turnover as well as significant progress on hourly turnover.

Evan: We know we still have work to do to make sure we deliver consistently great food and hospitality to every guest as well as to continue to make our team members' jobs easier more fun and more rewarding.

Mika Ware: Thank you, Holly. And good morning, everyone. And thank you for joining us. Here with me today are Kevin Hochman, our Chief Executive Officer and President, and Joe Taylor, our Chief Financial Officer. Results for our third 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.

Evan: Those areas will remain a focus for us during the fourth quarter and into next fiscal year. We are encouraged by the progress, but we are also motivated by the opportunity ahead of us to raise our bar on the team member and guest experiences.

Evan: Get to that top tier of tile of casual dining restaurant performance.

Evan: Next I'd like to talk about progress on our menu and marketing let's.

Mika Ware: 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 item should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risk and uncertainties, which could cause actual results to differ from those anticipated.

Evan: Let's start with the Burger segment, which is both which has both new product news as well as important simplification initiatives hitting the restaurants now just yesterday, we launched a new Burger the big Smasher, it's nearly a half pound Burger with thousand island dressing lettuce cheese, pickles and red onions on our delicious brioche bun.

Evan: This new Burger lives on our regular menu, but for a limited time will be available for 10, 99% and three for me as we bring fresh news to our everyday value platform to drive awareness and incremental traffic, we have a fresh way to talk about chili's unbeatable value our social media team has been watching the conversation that the consumer is frustrated by fast food prices through a series.

Mika Ware: Such risks and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC. And, of course, in the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations. And with that said, I will turn the call over to Mika. Thanks, Mika, and good morning, everyone. Thank you for joining us as we share results from another quarter of Strong Progress. The last time we spoke in January, the industry was experiencing challenging weather.

Evan: A hard hitting an entertaining ads, we tap into that insight and use fast food as a foil to demonstrate chili's superior value and those ads literally have started yesterday.

Evan: I'm also excited about to simplification initiatives that have been bundled for our restaurant teams with the big Smasher launch. The first one is eliminating our secret sauce Burger offer a value menu, which helps us manage three for me mix and remove a SaaS skew from the pantry. The second simplification is the removal of the double lunch Burger, which eliminated the skinny Burger.

Kevin D. Hochman: We were pleased to see our business immediately bounce back and perform well in February and March. And Chili's, with Chili's beating the industry in sales by more than 7% and traffic by nearly 4% for the entire quarter. These strong results are driven by the strategy we've been working on for almost two years now to improve the guest and team member experience while launching profitable and sustainable traffic driving initiatives. And what's very encouraging from the Q3 results is that in February, when we weren't on TV, we continued to outperform the industry, and again in March, when we effectively increased our media spend from last year.

Evan: Audi SKU, we replaced this with a lunch Burger that features our existing seven five ounce Patty SKU.

Evan: This move gives the guests more meat, it's slightly lowers our food cost and it simplifies operations and now instead of having to manage inventory and Cook two different Burger patties specs operators are perfecting Burger execution with one product. So they are consistently great for every guest.

Kevin D. Hochman: Our traffic driving initiatives combined with real operational improvements are creating tailwinds for the business. I'm so proud of our operators for their focus on the guest experience and the progress they're making. Our main KPI, Dine and Guest with a problem, or Dine and GWOP, dropped to 3.3% this quarter, which is our lowest on record since we began tracking the metric.

Evan: Another initiative, we continue to be encouraged by is the strength of our advertising and its ability to drive traffic.

Evan: I want to recognize George Felix our Chili's, Chief marketing officer for recently being named the 2024 Nations restaurant news powerless.

Evan: The award recognizes George consumer centric leadership of our advertising and our innovation as well as the work he and his team are leading to increased the relevance of chili's and.

Kevin D. Hochman: I want to recognize our 12 Operations Regional Vice Presidents who have been leading this work from the front. They delivered another quarter of industry-leading manager turnover, as well as significant progress on hourly turnover. We know we still have work to do to make sure we deliver consistently great food and hospitality to every guest, as well as to continue to make our team members' jobs easier, more fun, and more rewarding. Those areas will remain a focus for us during the fourth quarter and into next fiscal year.

Evan: In addition to our national advertising efforts. The team continues to find ways for Chili's to show up in unexpected ways and reach new audiences are reaching our recent NASCAR sponsorship is a great example, NASCAR fans are chili's fans and sponsoring properly driver correlate Joyce card during the Daytona 500 complete with every one of our general managers.

Evan: <unk> running on with Cory on the car's Hood was a big win for our team in Korea NASCAR fan base.

Kevin D. Hochman: We are encouraged by the progress, but we are also motivated by the opportunity ahead of us to raise our bar on the team member and guest experiences to get to that top tertile of casual dining restaurant performance. Next, I'd like to talk about progress on our menu and market. Let's start with the burger segment, which has both new product news and important simplification initiatives hitting the restaurants now. Just yesterday, we launched a new burger, the Big Smasher. It's nearly a half-pound burger with Thousand Island dressing, lettuce, cheese, pickles, and red onions on our delicious brioche bun.

Evan: While the marketing team drives traffic into our restaurants, our operations team continues to raise the bar and bringing guests back this week as part of our fiscal 'twenty five planning season, we're meeting with our vice president of operations to finalize our strategic priorities and choose the fiscal 'twenty five obsession goal based on what I've seen over the past two years when this powerful team gets after it.

Evan: I have complete confidence will move the needle on whatever they set their focus on.

Evan: To close it's been a great year, so far the ongoing momentum in our business encourages us that our strategy is working and the investments we're making are strengthening the core business setting us up for long term sustainable growth.

Kevin D. Hochman: This new burger lives on our regular menu but, for a limited time, will be available for $10.99 on 3 For Me as we bring fresh news to our everyday value platform. To drive awareness and incremental traffic, we have a fresh way to talk about Chili's unbeatable value. Our social media team has been watching the conversation that the consumer is frustrated by fast food prices. Through a series of hard-hitting and entertaining ads, we tap into that insight and use fast food as a foil to demonstrate Chili's superior value, and those ads literally started yesterday.

Evan: Before I hand, the call over I wanted to say a big Thank you to Jo Taylor as this will be his last earnings call as Breakers, Chief Financial Officer, and we have something here I will go a little off script here, we have something here at brinker called above the line recognition, we do that for people that go above and beyond to drive our strategy and our priorities and so just bear with me for 30 seconds, but.

Evan: <unk> been with us for over 20 years. So he deserves it so here's to you Joe Taylor for making every guest count and being accountable Joe. Thank you for your nearly 25 years of leadership and service to this company for your guidance in patients as I learned this business and for grooming such a strong leader and Mike as she takes over the reins in June.

Kevin D. Hochman: I'm also excited about two simplification initiatives that have been bundled for our restaurant teams with the Big Smasher launch. The first one is eliminating our secret sauce burger from our value menu, which helps us manage the three-for-me mix and remove a sauce skew from the pantry. The second simplification is the removal of the double lunch burger, which eliminated the skinny burger patty skew. We replaced this with a lunch burger that features our existing 7.5-ounce patty skew.

Evan: We have a stronger financial position with an incredibly talented finance organization and thanks to <unk> leadership <unk> Best days are ahead of US Cheers to you Joe Taylor for leaving a legacy of impact on our business and on a card. It here says you've helped bring back guests engage team members grow sales and increase profits and we all stand in cloud for Joe So.

Kevin D. Hochman: This move gives the guests more meat, it slightly lowers our food cost, and it simplifies operations. And now, instead of having to manage inventory and cook two different burger patty specifications, operators are perfecting burger execution with one product, so they're consistently great for every guest. Another initiative we continue to be encouraged by is the strength of our advertising and its ability to drive traffic. I want to recognize George Felix, our Chili's Chief Marketing Officer, for recently being named to the 2020 Four Nations Restaurant News Power List.

Evan: Yes.

Evan: Yes.

Evan: And I know many of you on the call have worked with Joe for many years that just thought it was important to do it in front of all of you. So thank you for giving me the 30, <unk> and with that I'm going to turn it over to Joe well. Thank you, Kevin and I appreciate it.

Joseph G. Taylor: The comments and so great to have the last call will be such a good call Tuesday.

Joseph G. Taylor: Good morning to everyone.

Joseph G. Taylor: The results reported in this morning's press release reflect the continued positive progression of our brand's performance and further solidify our belief in the long term sustainability of our strategy. This.

Kevin D. Hochman: The award recognizes George's consumer-centric leadership in our advertising and our innovation, as well as the work he and his team are leading to increase the relevance of Chili. In addition to our national advertising efforts, the team continues to find ways for Chili's to show up in unexpected ways and reach new audiences. Our recent NASCAR sponsorship is a great example. NASCAR fans are Chili's fans, and sponsoring popular driver Cory LeJoy's car during the Daytona 500, complete with every one of our general managers' names riding on with Cory on the car's hood, was a big win for our team and Cory's NASCAR fan base.

Evan: This quarter included solid year over year top line growth comp sales well above industry averages and nicely improved restaurant operating margin.

Evan: In terms of the specific results for the third quarter of fiscal 2020 for Brinker reported total revenues of $1 billion $120 million with consolidated comp sales are positive three 3%.

Evan: Our adjusted diluted EPS for the quarter was $1 and 24.

Evan: Both brands reported topline sales growth with Chili's comps coming in at positive three 5% for the quarter with price, partially offset by negative mix and traffic.

Kevin D. Hochman: While the marketing team drives traffic into our restaurants, our operations team continues to raise the bar and bring guests back. This week, as part of our fiscal 25 planning season, we're meeting with our vice presidents of operations to finalize our strategic priorities and choose the fiscal 25 obsession goal. Based on what I've seen over the past two years, when this powerful team gets after it, I have complete confidence we'll move the needle on whatever they set their focus on. To close, it's been a great year so far.

Evan: A particular note chili's delivered positive dine in traffic for the quarter. Our continued move to deemphasize virtual brand and redirect dollars to better support our core operations negatively impacted chili's traffic by approximately two 5% for the quarter and.

Evan: In addition, weather had an estimated one 1% negative impact.

Kevin D. Hochman: The ongoing momentum in our business encourages us that our strategy is working, and the investments we're making are strengthening the core business, setting us up for long-term sustainable growth. Before I hand the call over, I wanted to say a big thank you to Joe Taylor, as this will be his last earnings call as Brinker's Chief Financial Officer. And we have something here, I'm going to go a little off script here, we have something here at Brinker called Above the Line Recognition.

Evan: <unk> reported one 7% comp sales driven by positive price and mix, partially offset by negative traffic.

Evan: Dominique and his team are making great progress in developing the guest experience and menu offerings that are focused on improving traffic and mix, particularly in the dining room, we look forward to sharing more details in future calls.

Evan: Now turning to margins.

Kevin D. Hochman: We do that for people that go above and beyond to drive our strategy and our priorities. And so, just bear with me for 30 seconds, but Joe's been with us for over 20 years, so he deserves this.

Evan: Third quarter saw another meaningful expansion of restaurant operating margin, primarily driven by topline growth and an improved year over year food and beverage cost environment restaurant operating margin for the quarter was 14, 2%, an 80 basis point improvement year over year.

Kevin D. Hochman: So cheers to you, Joe Taylor, for making every guest count and being accountable. Joe, thank you for your nearly 25 years of leadership and service to this company, for your guidance and patience as I learned this business, and for grooming such a strong leader in Mika as she takes over the reins in June. Today, we have a stronger financial position with an incredibly talented finance organization. And thanks to your leadership, Brinker's best days are ahead of us.

Evan: Our food and beverage expense was favorable 170 basis points as compared to last year's third quarter, driven by higher price and menu mix.

Evan: Labor expense as a percent of company sales was favorable 20 basis points compared to prior year topline growth offset wage rate inflation of approximately three 7%.

Kevin D. Hochman: Cheers to you, Joe Taylor, for leaving a legacy of impact on our business. And on a card here, it says you've helped bring back guests, engage team members, grow sales, and increase profits. And we all stand and clap for Joe, so

Evan: We continue to invest in the business during the quarter reflected by an increase in restaurant expense of 120 basis points versus prior year.

Kevin D. Hochman: And I know many of you on the call have worked with Joe for many years, and I just thought it was important to do it in front of all of you. So, thank you for giving me these 30 seconds, and with that, I'm going to turn it over to Joe. Well, thank you, Kevin. I appreciate the comments, and it's so great to have the last call been such a good call, too. So, good morning to everyone.

Evan: An increase in advertising and greater levels of R&M spend where the two largest additions to this component of Rob.

Evan: The improved operating performance also positively impacted the cash flow for the quarter.

Joseph G. Taylor: The results reported in this morning's press release reflect the continued positive progression of our brand's performance and further solidify our belief in the long-term sustainability of our strategy. This quarter included solid year-over-year top-line growth, comp sales well above industry averages, and nicely improved restaurant operations. In terms of the specific results, for the third quarter of fiscal 2024, Brinker reported total revenues of $1,120,000,000, and consolidated comp sales of positive 3.3 percent. Our adjusted diluted EPS for the quarter was $1.24.

Evan: Third quarter, EBITDA was $122 million, bringing our year to date level up 31% to $302 million.

Evan: Our significantly improved cash flow generation gives us more flexibility to reinvest in our brands, while also reducing leverage to strengthen our balance sheet and manage borrowing costs.

Joseph G. Taylor: Both brands reported top-line sales growth with Chili's comps coming in at positive 3.5% for the quarter, with price partially offset by a negative mix in traffic. Of particular note, Chili's delivered positive dine-in traffic for the quarter. Our continued move to de-emphasize virtual brands and redirect dollars to better support our core operations negatively impacted Chili's traffic by approximately 2.5% for the quarter. In addition, weather had an estimated 1.1% negative impact.

Evan: For the quarter, we recorded approximately $50 million of capital expenditures with a focus on capital improvements to existing restaurants updating our it systems re images at both brands and new restaurant development.

Evan: We opened two new restaurants during the quarter, both of which are off to a great start averaging more than $100000 in weekly sales nicely above Tilly's brand average these along with our new openings earlier in the fiscal year continue to demonstrate good guest appetite for chili's coming to their specific market.

Evan: We further repaid $85 million of revolving credit outstandings during the quarter, our funded debt to EBITDA ratio improved to 195 times at quarter end.

Evan: In this morning's press release, we updated specific pieces of our previously provided annual guidance.

Evan: Franco Breakers annual total revenues for the current fiscal year are now expected to be in the range of $4 billion $330 million and $4 billion $350 million.

Joseph G. Taylor: Maggiano's reported 1.7% comp sales driven by positive price and mix, partially offset by negative traffic. Dominique and his team are making great progress in developing the guest experience and menu offerings that are focused on improving traffic and mix, particularly in the dining room. We look forward to sharing more details on future calls. Now, turning to Margin. The third quarter saw another meaningful expansion of restaurant operating margin, primarily driven by top-line growth and an improved year-over-year food and beverage cost environment. Restaurant operating margin for the quarter was 14.2%, an 80 basis point improvement year-over-year.

Evan: Capital expenditures are currently on pace to be between $185 million to $195 million for the fiscal year.

Evan: And our estimate for annual adjusted earnings per share is increased to a range of $3 80.

Joseph G. Taylor: Our food and beverage expense was favorable 170 basis points as compared to last year's third quarter, driven by higher price and menu mix. Labor expense is a percent of company sales, with a favorable 20 basis points compared to prior year. Top line growth offset wage rate inflation of approximately 3.7%. We continue to invest in the business during the quarter, reflected by an increase in restaurant expense of 120 basis points versus prior year.

Evan: So and even $4.

Evan: And close our third quarter was successful from not just a financial perspective, but also demonstrate our ability to leverage improved restaurant operations broad based marketing and excellent value across a variety of price points to consistently outperform the casual dining sector.

Evan: Note. The first period of our fourth quarter, which ends tomorrow is shaping up as a very strong continuation of these themes.

Evan: We're carrying excellent momentum into the last quarter of our fiscal year and intend to leverage this operating performance and the plant is being developed for fiscal year 'twenty five.

Evan: I genuinely believe there are exciting times ahead for our team members and our guests that will translate to excellent results for our brand.

Joseph G. Taylor: An increase in advertising and greater levels of R&M spend were the two largest additions to this component of ROM. The improved operating performance also positively impacted cash flow for the quarter. Third quarter EBITDA was $122 million, bringing our year-to-date level up 31% to $302 million.

Evan: And with our comments now complete I will turn the call back to Holly to moderate questions that you might have.

Holly: I'll, let you take it away.

Holly: Certainly 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 pickup your handset if listening on speaker phone to provide optimum sound quality. Please.

Joseph G. Taylor: Our significantly improved cash flow generation gives us more flexibility to reinvest in our brands while also reducing leverage to strengthen our balance sheet and manage borrowing costs. For the quarter, we recorded approximately $50 million in capital expenditures, with a focus on capital improvements to existing restaurants, updating IT systems, re-images at both brands, and new restaurant development. We opened two new restaurants during the quarter, both of which are off to great starts, averaging more than $100,000 in weekly sales, nicely above Chili's brand average. These, along with the new openings earlier in the fiscal year, continue to demonstrate good guest appetite for chili coming to their specific market. We further repaid $85 million of revolving credit outstandings during the quarter.

Holly: Please hold while we poll for questions.

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

Christopher Emilio Carril: Good morning, and thank you, Joe Congratulations and best wishes on the next chapter.

Chris: Thank you. Thank you.

Chris: Kevin I know Chili's has seen its unaided brand awareness levels improve but do you have the data at this point to know what consumer groups are starting to recall the brand more often.

Kevin D. Hochman: Yes, we don't have that level of data, we do know that we're growing in all income demographics right now so when you look at across.

Chris: All income profiles, they're all.

Chris: Spending more at Chili's, So we feel really good about that from an advertising standpoint.

Joseph G. Taylor: Our funded debt-to-EBITDA ratio improved to 1.95 times at quarter end. In this morning's press release, we updated specific pieces of our previously provided annual guidance. Brinker's annual total revenues for the current fiscal year are now expected to be in the range of $4,330,000,000 and $4,350,000,000, and capital expenditures are currently on pace to be between $185 to $195 million for the fiscal year.

Chris: We continue to see good progress on unaided awareness the bigger thing this quarter that we were excited about is we had our highest level of.

Chris: What's called Buzz that we've seen basically since we started tracking this thats when we ask guests is through third party.

Chris: Name a brand that you've heard good things about in the past few weeks in dining.

Chris: They are saying Chile's more often than they ever have so thats always thats very encouraging that people are thinking of us in a good light I think a big part of it is what's happening with the dialogue on value.

Joseph G. Taylor: And our estimate for annual adjusted earnings per share is increased to a range of $3.80 to an even $4.00. In closing, our third quarter was successful from not just a financial perspective but also demonstrated our ability to leverage improved restaurant operations, broad-based marketing, and excellent value across a variety of price points to consistently outperform the casual dining sector. I would note that the first period of our fourth quarter, which ends tomorrow, is shaping up as a very strong continuation of these themes.

Chris: Okay.

Chris: I think you are hearing from some of our competitors and we're showing up really strong and its superior value complete meal.

Chris: We're delivering a better experience and I think we ever have and I think thats why youre seeing all income demographics grow because I think everybody wants great value and great service. So.

Chris: That's what I can tell you right now I think we're going to learn more as we continue to token is our data and we're going to get.

Chris: Better data to understand more specifics, but thats, what I can share right now.

Joseph G. Taylor: We are carrying excellent momentum into the last quarter of our fiscal year and intend to leverage this operating performance in the plans being developed for fiscal year 25. I genuinely believe there are exciting times ahead for our team members and our guests that will translate to excellent results for our brand. And with our comments now complete, I will turn the call back to Holly to moderate questions that you might have. Holly, take it away.

Chris: And then the new AD campaign, clearly draw a direct comparison of the three for me to the fast food offerings in.

Chris: Based on this morning's conference call it sounds like Mcdonald's, maybe more aggressive with national value platforms. Our promotions in the coming months do you think the three for me is going to be sufficient as a value message to drive traffic or will you be able to utilize other means like maybe digital to be more targeted with consumers with deals or do you think thats something that you may need.

Operator: Certainly. At this time, we will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while asking your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality.

Chris: To look at.

Speaker Change: Well I think the answer is yes. So I think we got to start with just making sure TV will still we will still be the number one driver of immediate building awareness and I think most marketers know that and so we need to continue to stay on TV, we need to continue to keep that message fresh so.

Operator: Please hold while we poll for questions. Your first question for today is from Chris Ocol with Stiefel. Good morning and thank you, Joe. Congratulations and best wishes on the next chapter. Thank you. Thank you. Kevin, I know Chili's has seen its unaided brand awareness levels improve, but do you have the data at this point to know what consumer groups are starting to recall the brand more often? Yeah, we don't have that level of data.

Speaker Change: What we launched yesterday, which was.

Speaker Change: <unk> park harder hitting value messaging, we're using fast food as a foil mainly because everybody is familiar with the fast food experience in the pricing and so it's an easy boiler to used to give you relative value.

Speaker Change: <unk> is actually a different occasion.

Speaker Change: And then fast food people are trying to.

Speaker Change: Have an hour out of their day, where they are having a better experience and theyre getting weighted on and it's a little bit of different occasion, but but when you can deliver all of that service levels and do it at a more attractive price point with superior.

Kevin D. Hochman: We do know that we're growing in all income demographics right now. So when you look across all income profiles, they're all, www.larryweaver.com. You know, we continue to see, you know, good progress on unaided awareness. The bigger thing this quarter that we were excited about is we had our highest level of... What's called buzz that we've seen, basically, since we started tracking this, that's when we ask guests, this is a third party, you know, name a brand that you've heard good things about in the past few weeks, you know, in dining. They're saying Chili's more often than they ever have. So that's very encouraging that, you know, people are thinking of us in a good light.

Speaker Change: <unk> value and better food.

Speaker Change: That gets very that's gets very exciting for the guests. So that's the that's kind of the intent behind that campaign, and we think thats going to keep our value fresh and then we're going to bring value news to that lineup. So.

Speaker Change: I think you are referring to the big Smash Burger that we talked about earlier.

Speaker Change: That is almost a half full.

Speaker Change: Fully dressed Burger comes with unlimited chips, and salsa unlimited drink and fries for 10, 99, Thats pretty much unbeatable I think.

Speaker Change: In fast food and casual dining and we're going to continue to drive that with some new news and then we have a new chicken sandwich.

Speaker Change: We kind of just re engineered to make both easier to make and make a juice year four.

Speaker Change: And more delicious for the guest and we'll plan to amortize that in late summer as a way to continue to bring news to three for me. So that's kind of 0.1 is like I think we've got to continue to drive.

Kevin D. Hochman: I think a big part of it is what's happening with the dialogue on value that I think you're hearing from some of our competitors, and we're showing up really strong at a superior value, complete meal. We're delivering, you know, a better experience than I think we ever have. And I think that's why you're seeing all income demographics grow because I think everybody wants, you know, great value and great service. That's what I can tell you right now.

Speaker Change: The number one the number one driver of awareness is going to be TV, and we need to keep that messaging fresh and we need to keep bringing some innovation into that.

Speaker Change: Number two to your point was can we get after more customized offers and that's exactly what we're trying to do with our CRM program. So we.

Kevin D. Hochman: I think we're going to learn more as we continue to tokenize our data, and we're going to get better data, and understand more specifics, but that's what I can share right now. Okay, and then the new ad campaign clearly draws a direct comparison of the three for me to the fast food offerings. Based on this morning's conference call, it sounds like McDonald's may be more aggressive with national value platforms or promotions in the coming months.

Speaker Change: We finished the back 18 months organization, which we talked about last quarter. Now we are building out our database going forward with new tokens. So what that means is.

Kevin D. Hochman: Do you think the three for me is going to be sufficient as a value message to drive traffic? Or will you be able to utilize other means, like maybe digital, to be more targeted with consumers with deals? Or do you think that's something that you may need to look at?

Speaker Change: New guest that comes in or a guest that is come in.

Speaker Change: Most recently, we start our building we are building out their behavior profiles and then we're matching up with the previous 18 months of token Ais data, we're able to do that in restaurants that have the <unk> platform and about two thirds of our restaurants now have geos we.

Speaker Change: We expect to finish that rollout by the end of this fiscal so the next two months and so then we will have all of our restaurants be getting getting future token Ais data. So we can build out these profiles the deeper these profiles get and the more guest we have with deeper profile. The easier it is going to be the customized offers and sometimes it could just be communication based on what we learn about their behavior.

Kevin D. Hochman: Well, I think the answer is yes. So I think we have to start with just making sure that, you know, TV will still be the number one driver of immediate building of awareness. I think most marketers know that. And so we need to continue to stay on TV; we need to continue to keep that message fresh. So what we launched yesterday, which was much harder hitting value messaging, where you're using fast food as a foil, mainly because everybody is familiar with the fast food experience and the pricing. And so it's an easy foil to use for them to give you relative value.

Speaker Change: So I.

Speaker Change: I couldn't agree more I think thats, a pretty awesome tool to have.

Speaker Change: Nine to 10 million guests with a full profile that we're able to <unk>.

Speaker Change: Market too at a relatively minimal cost.

Speaker Change: Versus paid advertising and I think youre going to see more of that as the quarters go on.

Speaker Change: Great. Thanks, I'll pass it on.

Speaker Change: Your next question for today is from Jeff Farmer with Gordon Haskett.

Jeffrey Daniel Farmer: Thank you.

Jeffrey Daniel Farmer: And definitely a big congratulations to Joe you will you will be missed.

Jeffrey Daniel Farmer: As it relates to the question. So your bottom line outperformance continues to outpace your topline outperformance.

Jeffrey Daniel Farmer: I'm just curious if you could point to maybe a couple of drivers that are that are that are responsible for that greater than expected.

Jeffrey Daniel Farmer: Profit flow through you've seen over the last couple of quarters.

Speaker Change: Yes couple of things, Jeff first I think the top line is one of the first drivers I would point to it creates some nice leverage ability as you work your way down through the middle of the P&L both within the restaurant operating margin and then against some of the items as you move further that so it is definitely contributing that topline growth.

Jeffrey Daniel Farmer: To the flow through but.

Kevin D. Hochman: And then we have a new chicken sandwich that we kind of just re-engineered to make both easier to make and make it juicier and more delicious for the guests. And we'll plan to advertise that in late summer as a way to continue to bring news to Three For Me. So that's kind of point number one is, like, I think we've got to continue to drive.

Jeffrey Daniel Farmer: Throughout the P&L I think.

Jeffrey Daniel Farmer: We've just become better operators back basically returning back to the good operators I think we had really pre COVID-19.

Jeffrey Daniel Farmer: Labor.

Jeffrey Daniel Farmer: Despite being able to invest hours into.

Jeffrey Daniel Farmer: The process is getting more efficient and when you would see that as turnover levels come down to the levels. They are coming the muscle memory being built with that helps us just run more efficient operations. So even without even in this last quarter you saw.

Kevin D. Hochman: The number one driver of awareness is going to be TV, and we need to keep that messaging fresh, and we need to keep bringing some innovation into that. Number two, to your point, was, you know, can we get after more customized offers? That's exactly what we're trying to do with our CRM program.

Jeffrey Daniel Farmer: Some leverage ability if you want to think of it on our hourly side of the equation, we have restaurants that can maintain higher volumes, while using the same amount of labor. They have been using obviously hit tipping points as you kind of move up those volume scales and at different points, you add some labor into the equation, but theres capacity against the existing labor model within this.

Kevin D. Hochman: So, you know, we finished the back 18-month tokenization, which we talked about last quarter. Now we're building out our database going forward with new tokens. So what that means is a new guest that comes in, or a guest that has come in most recently, we start building out their behavior profiles, and then we're matching it up with the previous 18 months of tokenized data. We're able to do that in restaurants that have the Xeos platform.

Jeffrey Daniel Farmer: System that we're starting to see come to fruition too so.

Jeffrey Daniel Farmer: There's any number of different areas to that we've just gotten more efficient and productive and we are working away through and you're seeing some inflation levels start to normalize back to <unk>.

Kevin D. Hochman: We're in about two-thirds of our restaurants now have Xeos. We expect to finish that rollout by the end of this fiscal year, so the next two months, and then we'll have all of our restaurants beginning getting future tokenized data so we can build out these profiles. The deeper these profiles get and the more guests we have with deeper profiles, the easier it's going to be to customize offers, and sometimes it might just be communication based on what we learn about their behavior.

Jeffrey Daniel Farmer: More traditional levels are I think I mentioned in my script that.

Jeffrey Daniel Farmer: Our hourly wage inflation this last quarter was about 3.7.

Jeffrey Daniel Farmer: 7%, so that's down nicely from the 5% to 6%. So we had been running in the year a couple of years before that and getting back.

Jeffrey Daniel Farmer: Closer to that more normal 3%, 4% range.

Kevin D. Hochman: So I couldn't agree more. I think that's a pretty awesome tool to have 9 to 10 million guests with a full profile that we're able to market to at a relatively minimal cost versus paid advertising, and I think you're going to see more of that as the quarters go on. Thanks, I'll pass it on.

Jeffrey Daniel Farmer: We kind of view as is more typical inflation. So those are a.

Jeffrey Daniel Farmer: A couple of the bigger things that I would highlight for you.

Speaker Change: All helpful. And then one follow up to that so anything that you can share as it relates to how the big Smash Your Burger performed in test and then in terms of additional upgrades, we might see on the Burger platform.

Jeffrey Daniel Farmer: Your next question for today is from Jeff Farmer with Gordon. Thank you, good morning, and definitely a big congratulations to Joe. You will be missed. As it relates to the question, your bottom line outperformance continues to outpace your top line outperformance. I'm just curious if you could point to maybe a couple of drivers that are responsible for that greater than expected.

Speaker Change: In coming months.

Speaker Change: Yes, we did not test the big Smasher like in a formal market test we tested for operations to make sure we knew how to make it.

Speaker Change: Do a lot of them fast.

Jeffrey Daniel Farmer: We don't have any data to share with you on that what I can tell you is we're incredibly encouraged.

Jeffrey Daniel Farmer: By the Buzz that we're hearing from the PR that you guys are probably seeing in social media.

Jeffrey Daniel Farmer: We think that both the value discussion has amped up for example yesterday.

Joseph G. Taylor: Profit flow through as you've seen over the last couple quarters. A couple of things, Jeff. First, I think the top line is one of the first drivers I would point to. It creates some nice leverageability as you work your way down through the middle of the P&L, both within the restaurant operating margin and then against some of the items as you move further down. So it is definitely contributing to that top line growth.

Jeffrey Daniel Farmer: Our launch in the morning, we were the number one.

Jeffrey Daniel Farmer: Trending topic on Twitter the.

Jeffrey Daniel Farmer: The Chili's three for me Smasher Burger so that gets very exciting that we know where we know we're on a topic that is very <unk>.

Jeffrey Daniel Farmer: Top of mind for guests and we have.

Jeffrey Daniel Farmer: Incredible value proposition that we're bringing additional news to flavor profile that I think most customers are used to but in a much bigger burger format. So.

Joseph G. Taylor: But throughout the P&L, I think we've just become better operators, basically returning back to the good operators we had really pre-COVID. Labor, despite being able to invest hours into the process, is becoming more efficient.

Jeffrey Daniel Farmer: We're very encouraged by that.

Jeffrey Daniel Farmer: We think we have the exact rate item at the exact right time at the exact right price point with.

Jeffrey Daniel Farmer: Loaded marketing plan to get after it over the next five weeks. So we expect big things from the Big Smasher.

Joseph G. Taylor: And when you see those turnover levels come down to the levels that are coming, the muscle memory being built with that helps us just run more efficient operations. So even in this last quarter, you saw some leverageability, if you want to think of it on the hourly side of the equation. We have restaurants that can maintain higher volumes while using the same amounts of labor they've been using. You actually hit tipping points as you kind of move up those volume scales.

Jeffrey Daniel Farmer: And then the important thing is we've got to continue to bring news to the value platform.

Jeffrey Daniel Farmer: Well as continue to manage the mix on value and one of the things I'm. Most proud of is when you look at our three for <unk> with all the.

Jeffrey Daniel Farmer: What youre seeing with the economy and the macro and the consumer.

Jeffrey Daniel Farmer: <unk> has only increased a half a point I mean, its been very modest and Thats why youre seeing such.

Jeffrey Daniel Farmer: Such incredible gains on the bottom line from the earlier question. When you look at our margins right. So we're able to manage that mix really effectively with proper menu merchandising taking items off as we bring items on and that seems to be having the right impact on traffic, while creating sustainable growth and expanding margins alright.

Joseph G. Taylor: And at different points, you add some labor into the equation. But there's capacity against the existing labor model within the system that we're starting to see come to fruition too. So there are any number of different areas too that we've just gotten more efficient and productive in working our way through. And you've seen some inflation levels start to normalize back to more traditional levels. I think I mentioned in my script that our hourly wage inflation this last quarter was about 3.7%.

Speaker Change: Alright I appreciate it thank you.

Jeffrey Daniel Farmer: Your next question is from David Palmer with Evercore ISI.

Jeffrey Daniel Farmer: Hi, it's John calling in for David.

John: We're just curious on labor expense in the quarter. Despite all the investments.

Joseph G. Taylor: So that's down nicely from the 5% to 6% we had been running for a couple of years before that and getting back closer to that more normal 3%, 4% range that we kind of view as more typical inflation. So those are a couple of the bigger things that I would highlight for you. I hope that you find them helpful.

John: Going into the company you leverage labor in the quarter with units per dollar up only two 5% year over year, how should we think about labor costs going forward.

Jeffrey Daniel Farmer: Hi, John It's Mike. So one major reason that we were able to leverage our labor as we've now lapped that initial investment where we had all those incremental hours and so now that is built into the base. So really it's just about that wage rate pressure that is now starting to come down a little bit and then as Joe said.

Kevin D. Hochman: And then one follow-up to that. So anything that you can share as relates to how the big smasher burger performed in the tests and then in terms of additional upgrades we might see on the burger platform in the coming months? Yeah, you know, we did not test the Big Smasher, like in a formal market test; we tested it for operations to make sure we knew how to make it, and we could do a lot of them fast. So we don't have any data to share with you on that.

Kevin D. Hochman: What I can tell you is, you know, we're incredibly encouraged by the buzz that we're hearing from the PR that you guys are probably seeing on social media. We think that both the value discussion and the competition for talent have ampped up. For example, yesterday, during our launch, in the morning, we were the number one trending topic on Twitter for the Chili's 3 For Me Smasher Burger. So, I mean, that gets very exciting that we know we're on, you know, we know we're on a topic that is very top of mind for guests.

Jeffrey Daniel Farmer: Our turnover continues to improve and so our team members are a lot more productive so all of those different dynamics.

Jeffrey Daniel Farmer: Including the PPA are helping us to leverage our labor cost and we will continue to do that into the fourth quarter. So I think youll see some similar improvements year over year in the fourth quarter.

Speaker Change: Thank you.

Jeffrey Daniel Farmer: Okay.

Jeffrey Daniel Farmer: Your next question for today is from Brian Vaccaro with Raymond James.

Jeffrey Daniel Farmer: Yes.

Brian Michael Vaccaro: Hi, Thanks, and good morning, and Joe Congrats on your career, it's been a real pleasure working with you over the years.

Kevin D. Hochman: And we have, you know, an incredible value proposition that we're bringing additional news to, you know, in a flavor profile that I think most customers are used to, but in a much bigger burger format. So, you know, we're very encouraged by that. We think we have the exact right item at the exact right time at the exact right price point with, you know, a loaded marketing plan to get after it over the next five weeks. So we expect big things from The Big Smasher.

Brian Michael Vaccaro: Thank you Brian.

Brian Michael Vaccaro: I just wanted to follow up on an earlier question maybe to kick it off just sort of a quick follow up but given how important muscle memory and having the right teams in places would you be willing to level set sort of where your hourly and also store manager turnover.

Brian Michael Vaccaro: Is currently running.

Speaker Change: Yes, so actually our manager turnover on a rolling three month.

Speaker Change: Is right around I believe 5% percent, yes, and then the hourly number which I'm getting too has its only 2% above the industry at this point so the rolling three.

Brian Michael Vaccaro: Is at.

Brian Michael Vaccaro: Just about 25% almost 26%.

Speaker Change: Okay, great. Thank you and my other question I want to ask about is just chili's comp outperformance that has sustained outperforming the industry. Despite the industry. The softer industry backdrop could you just put some more context on how chili's gap to the industry trends this quarter through the quarter end in March.

Kevin D. Hochman: And then, you know, the important thing is we got to continue to bring news to the value platform, as well as continue to manage the mix on value. So we're able to manage that mix really effectively with proper menu merchandising, taking items off as we bring items on, and that seems to be having the right impact on traffic while creating sustainable growth and expanding margins. I appreciate it.

Speaker Change: Specifically when you started to lap the initial return to television advertising last year and you've also talked about seeing these longer tail periods, when you're off air perhaps maybe tie in what's driving those longer tails and how that plays into your thinking about sustaining market share gains through calendar 'twenty four.

David Sterling Palmer: Thank you. Your next question is from David Palmer with Evercore ISD. Hi, it's John calling in for David.

Mika Ware: You know, we're just curious about labor expense in the quarter, despite all the investment, uh... going into the company, do you leverage labor in the quarter with units, Unknown Speaker. Thank you. Thank you. Thank you. Hi, John. It's Mika.

Speaker Change: Yes so.

Speaker Change: So Brian so the sales gap by months.

Brian Michael Vaccaro: Yeah.

Brian Michael Vaccaro: Was we were.

Brian Michael Vaccaro: Six eight in January.

Brian Michael Vaccaro: And that was.

Brian Michael Vaccaro: That was advertising.

Brian Michael Vaccaro: That was not rolling advertising and.

Brian Michael Vaccaro: In February we had no advertising.

Mika Ware: So one major reason that we were able to leverage our labor is that we have now lapped that initial investment, where we had all those incremental hours built in. So now that is built into the base. So really, it's just about that wage rate pressure that is now starting to come down a little bit. And then, as Joe said, our turnover continues to improve. And so our team members are a lot more productive. So all those different dynamics, including the PPA, are helping us to leverage our labor costs. And we'll continue to do that into the fourth quarter.

Brian Michael Vaccaro: This year or the previous year, and we were eight 5% gapping the industry.

Brian Michael Vaccaro: And then in March we were at six 6% capping that versus the industry.

Brian Michael Vaccaro: Okay.

Brian Michael Vaccaro: Very helpful and I guess on those tails, Kevin maybe just refresh us on what's driving the longer tails. If you will maybe this snowball effect I imagine its the improvements in the guest experience you've made reduced guests with a problem et cetera, but maybe just if you could elaborate a little bit on that.

Kevin D. Hochman: Yes, we're seeing better list with the advertising and we're seeing longer tails meeting as we turn to advertising off we continue to see gapping versus the industry.

Brian Michael Vaccaro: So I think you'll see some similar improvements year over year in the fourth quarter. Your next question for today is from Brian Vaccaro with Raymond J. Hi, thanks and good morning. And Joe, congratulations on your career. It's been a real pleasure working with you over the years. Thank you, Brian.

Kevin D. Hochman: To the positive for Chili's, we think it is just the continued simplification in the restaurants and you talk to the managers about the changes that we're making quarter. After quarter of these are essentially continuing to be their ideas that we're rolling out. The most recent ones have been with the Burger launch and the new chicken sandwich launch so on chicken sandwiches.

Joseph G. Taylor: But I just wanted to follow up on an earlier question, maybe to kick it off, just sort of a quick follow-up. But given how important muscle memory and having the right teams in place is, would you be willing to level set sort of where your hourly and also store manager turnover is currently running? Yes, so actually, our manager turnover on a rolling three-month is right around, I believe, 5%.

Speaker Change: You're a great. Examples we don't we're not pounding the chicken anymore that is like one of the worst jobs ever in the restaurant is to sit there and pound raw chicken and we actually found the chicken sandwiches juice here and more tasty you don't pound it.

Speaker Change: And then the second thing we did was we moved the sandwich build off of the <unk> zone, which is where we bread with freshly bread and we freshly fried that delay.

Kevin D. Hochman: Yep. And then the hourly number, which I'm getting to, is only 2% above the industry at this point. So the rolling three is at just about 25%, almost 26%. Okay, great.

Speaker Change: <unk> used to actually have to make the sandwich now we actually have it being built where the with the burgers are being built and that takes a lot of pressure off the <unk> zones. So that they are willing to make a whole lot more fried chicken sandwiches. That's a big win another one that we talked about on the call earlier was the lunch Burger So lunch Burger is a whole another.

Kevin D. Hochman: Thank you. And, you know, my other question I want to ask is just Chili's comp outperformance that has sustained, you know, outperforming the industry despite the industry, the software industry backdrop. Could you just put some more context on how Chili's gap to the industry trended through the quarter, through the quarter and in March, specifically, when you started to lap the initial return to TV advertising last year. And you've also talked about seeing these longer tail periods when you're off air, perhaps maybe tie in what's driving those longer tails, and how that plays into your thinking about sustaining market share gains through calendar 24. Yeah, so.

Speaker Change: Rob beef SKU that we have to manage the inventory on literally every day right. So you've got to cook the projections.

Speaker Change: Make sure you have the right amount of <unk> ready to projections. If you don't have the right amount either you run out or you have too many that you might have to throw away and so just eliminating that double SKU.

Speaker Change: SKU, which were $3 eight six ounce patties, which is $7 two ounces of beef and replacing that with a seven five single Patty, which we already use on all of our other burgers, it's one less.

Speaker Change: Pain in the neck for that for that team member to manage <unk>.

Speaker Change: Aside the cooler.

Speaker Change: A bunch of waste that goes away because you no longer have been Patty waste and it actually the guest gets a little bit more meat and then because we have all of our volume going into that seven five ounce Patty we actually save money on that from a Cogs standpoint. So these are examples where it's like these little things that keep rolling out every month. It makes the restaurants, so much more easy to operate.

Kevin D. Hochman: So, Brian, the sales gap by month was, we were 6.8 in January, and that was advertising that was not rolling advertising. In February, we had no advertising either this year or the previous year, and we were 8.5% gapping the industry.

Speaker Change: And so that's showing up in both the team member turnover metrics and then as importantly, it's showing up with food grade scores intent to return and service level. So I would anticipate that momentum continuing as long as we continue to put simplification into the business both for the manager and the team member as well as continued to move friction for the guests I don't know why we wouldn't continue to see that.

Kevin D. Hochman: And then in March, we were at 6.6% capping versus the industry. Okay, that's, that's very helpful. And, and I guess on those tails, Kevin, maybe just refresh us on what's driving the longer tails, if you will, maybe this snowball effect, I imagine it's the improvements in the guest experience you've made, reduced guests for the problem, etc. But maybe just if you could elaborate a little bit on that.

Speaker Change: Scores both of the team members and the guest experience continue to improve.

Speaker Change: Alright, Thats very helpful. Thank you for that and last one I just wanted to ask about was on the topic of pricing and value in the current environment could you level set what percentage of the sales run some sort of value in the period and within three for me sort of the mix between the $2 99 versus the higher tiers, and then I believe the new new.

Kevin D. Hochman: Yeah, we're seeing better lists with the advertising. And we're seeing longer tails, meaning as we turn the advertising off, we continue to see gapping versus the industry on the positive side for Chili's. You know, we think it's just the continued simplification in the restaurants, and you talk to the managers about the changes that we're making quarter after quarter. These are essentially continuing to be their ideas that we're rolling out. You know, the most recent ones have been with the burger launch and the new chicken sandwich launch.

Speaker Change: Menu launching in this current quarter, what's your latest thinking on how much pricing will be in that venue at chili's and maybe you could help level set the cadence of Chile's pricing. The next few quarters. Thanks very much.

Speaker Change: Hey, Brian I will take the first half and I'll, let Mike take the pricing question in the back.

Mike: On the back end of your question so.

Mike: So so.

Kevin D. Hochman: So on chicken sandwiches, you know, I'll give you a great example. We don't we don't have pounding the chicken anymore. That is like one of the worst jobs ever in the restaurant, to sit there and pound raw chicken.

Mike: Our three from each year, so I'm going to give you a couple of data points. This you understand what's happening with value or three for me here.

Mike: Is about 16, 1% up from 15, 5%. So that was a half a point I was referring to earlier Thats a <unk> 100. So in other words every hundred orders that's how many that are being ordered 47%.

Mike: Of those three for me are coming into 2000, 1990 year, and then more than half, which 53% is coming into the 14, 99% to $6 99 tier.

Kevin D. Hochman: And we actually found the chicken sandwich is juicier and more tasty when you don't pound it. And then the second thing we did was we moved the sandwich build off of the fry zone, which is where we breaded, we freshly breaded, and we freshly fried that filet. That zone used to actually have to make the sandwich.

Mike: So even though we're advertising 10 99 more than half of the actual transactions off the value menu are coming in significantly higher price points, and then as far as number of checks on deal.

Kevin D. Hochman: Now we actually have it built where the burgers are being built. And that takes a lot of pressure off the fry zone so that they're willing to make a whole lot more, you know, fried chicken sandwiches. That's a big win.

Mike: Was.

Speaker Change: Roughly 31% in Q2, and it's roughly 31% in Q3, so we saw a little bit of an uptick from Q1 to Q2.

Speaker Change: Basically been flat from Q2 to Q3.

Speaker Change: And Brian as it relates to pricing pricing I'm going to pick that one up to.

Brian Michael Vaccaro: So we did drop a menu yesterday that had a pricing action right around 3%. So our pricing strategy is pretty much unfolding as we've talked about over the course of really the most of the fiscal year first and foremost we're going to protect.

Kevin D. Hochman: You know, another one that we talked about on the call earlier was the lunch burger. So the lunch burger is a whole another, you know, raw beef skewer that we have to manage the inventory on literally every day, right? So you got to cook the projections and make sure you have the right amount of patties ready to projections. If you don't have the right amount, either you run out, or you have too many that you might have to throw away.

Kevin D. Hochman: And so just eliminating that double, you know, patty skew, which were 3.86 ounce patties, which is 7.8 ounces of beef, and replacing that with a 7.5 single patty, which we already use on all of our other burgers, it's one less pin in the neck for that team member to manage, you know, inside the cooler. It's a bunch of waste that goes away because you no longer have thin patty waste, and actually, the guest gets a little bit more meat, and then, because we have all of our volume going into that 7.5 ounce patty, we actually save money on that, you know, from a cost standpoint.

Speaker Change: Critical prices like our $2 99 price point, so we think thats very effective.

Speaker Change: Obviously as it plays into our advertising campaigns and our ability to service our guests looking for that heightened level of value and we're going to do everything we can to protect that as we kind of move forward at the same time, we've been able to find opportunities throughout the menu, particularly as it relates to.

Kevin D. Hochman: So these are examples of little things that keep rolling out every month. It makes the restaurant so much easier to operate, and so that's showing up in both the team member turnover metrics and then, you know, as importantly, it's showing up with food grade scores, intent to return, and service level. So, you know, I would anticipate that momentum continuing as long as we continue to put simplifications into the business, both for the manager and the team member, as well as continue to reduce friction for the guest. I don't know why we wouldn't continue to see those scores both for the team members and the guest experience continue to improve. All right, that's very helpful.

Kevin D. Hochman: Thank you for that. And the last one I just wanted to ask about was on the topic of pricing and value in the current environment. Could you please level set what percentage of the sales were on some sort of value in the period?

Speaker Change: Areas that guests might be willing to pay up a little bit more to take some price and move that in the next week.

Speaker Change: <unk> always said, we would start to moderate.

Speaker Change: Pricing as we kind of move forward in this last acts in depth demonstrates that moderation at around 3%.

Speaker Change: Obviously as we get into the August call, you'll get more detail for Micah as to what 25 looks like but.

Speaker Change: Right now I think.

Kevin D. Hochman: And within three, for me, sort of the mix between the 1099 versus the higher tiers. And then I believe you have a new menu launching this current quarter. What's your latest thinking on how much pricing will be on that menu at Chili's? And maybe you could help level set the cadence of Chili's pricing for the next few quarters. Thanks very much.

Speaker Change: We're pretty well set in the fourth and for the foreseeable future on what pricing actions need to be taken as we kind of move forward and they can be a little bit more judicious and plan out.

Speaker Change: Over the course of next fiscal year, some lower levels of pricing that makes sense. Since we've accomplished a lot of what we wanted to accomplish with getting our price levels and our barbell price points back to where we think they can be effective.

Speaker Change: Okay, Joe and my notes right that would result in your fiscal fourth quarter pricing being somewhere in the low sevens.

Kevin D. Hochman: Okay, Brian, I'll take the first half. I'm gonna let Mika take the pricing question on the back end of your question. So, so we, our three for me tier.

Joseph G. Taylor: Or maybe that changed a little bit.

Joseph G. Taylor: I think it moved up just a little bit because we actually were able to this menu went out about a month earlier than we originally contemplated so you get a little bit more effectiveness on the quarterly price points. So it's.

Kevin D. Hochman: So I'm going to give you a couple of data points so you understand what's happening with value. Our three for me tier is about 16.1%, up from 15.5%. So that was that half a point I was referring to earlier; that's a P 100. So in other words, every 100 orders, that's how many that are being ordered. 47% of those three for me are coming in at the 1099 tier, and then more than half, or 53%, are coming in at the 1499 and the 1699 tiers.

Joseph G. Taylor: Yes, it'll be it'll be.

Joseph G. Taylor: Hi, Sam it's almost eight we took a little incremental price in California as well when we saw the opportunity there. So that's what bumped it up yes.

Speaker Change: Alright, great ill pass it along thanks very much.

Joseph G. Taylor: Your next question is from Andrew <unk> with BMO.

Kevin D. Hochman: So, even though we're advertising $10.99, more than half of the actual transactions off the value menu are coming at significantly higher price points. And then as far as the number of checks on deals goes, it was roughly 31% in Q2, and it's roughly 31% in Q3, so we saw a little bit of an uptick from Q1 to Q2, but it's basically been flat from Q2 to Q3. And Brian, as it relates to pricing, I'm going to pick that one up too.

Andrew: Hey, good morning, Thanks for taking the questions.

Andrew: I wanted to revisit the margin conversation and now that you've lapped some of the labor investments lapping some of the <unk> investment I know thats going to continue to go up but.

Andrew: The inflation environment is kind of normalized or is there a way to think about it.

Andrew: Durable or sustainable level of restaurant margin expansion going forward and I know.

Kevin D. Hochman: So we did drop a menu yesterday that had a pricing action right around 3%. So our pricing strategy is pretty much unfolding as we've talked about over the course of really most of the fiscal year. First and foremost, we're going to protect prices like our 1099 price point. So we think that's very effective, you know, obviously, as it plays into our advertising campaigns and our ability to service a guest looking for that heightened level of value. And we're going to do everything we can to protect that as we kind of move forward.

Andrew: Several quarters ago or over time, you've kind of talked about a mid teens, 15% restaurant margin is achievable as your view, where the visibility to that changing at all.

Speaker Change: Yes, I think.

Speaker Change: So a couple of things there one is 15%.

Speaker Change: A visible yes. It is very much though from a quarterly standpoint have to remember we have traditionally you have higher ROM levels in your third and fourth quarter. So the <unk> two it's nice to get over the 2014 hurdle for that third quarter end.

Speaker Change: We have our sites ahead of us and how we can continue to move that forward.

Joseph G. Taylor: At the same time, we've been able to find opportunities throughout the menu, particularly as it relates to areas that guests may be willing to pay up a little bit more to take some of the price and move that in. But, as we've always said, we would start to moderate pricing as we kind of move forward. And this last action demonstrates that moderation at around 3%. Obviously, as we get into the August call, you'll get more detail from Mika as to what 25 looks like.

Andrew: In the fourth quarter, I think youll see some nice continued moves up and on the wrong side of the equation.

Andrew: I think on a go forward basis, what we've talked about is an ability to leverage top line growth into steady, but kind of that 20%, 30% 40 basis points.

Andrew: Increase in annual margins as you go forward so.

Joseph G. Taylor: But right now, I think we're pretty well set for the foreseeable future on what pricing actions need to be taken as we kind of move forward. And they can be a little bit more judicious and plan out over the course of next fiscal year some lower levels of pricing that make sense since we've accomplished a lot of what we wanted to accomplish with getting our price levels and our barbell price points back to where we think they can be effective. Okay, Joe, and are my notes right that that would result in your fiscal fourth quarter pricing being somewhere in the low sevens? Or maybe that changed a little bit?

Andrew: In essence, the play it a little differently in every quarter based on some of the seasonality and some of the volumes there, but we do envision an upward trajectory.

Andrew: Go both year over year in the different quarters, and obviously the annual level kind of in that 20 to 40 basis points range.

Speaker Change: Okay great.

Speaker Change: My second question I was just hoping you could remind us kind of the virtual brand headwind you are expecting in the fourth quarter from a traffic perspective, and then just more broadly as it relates to off premise. If you could just touch on what Youre seeing there the split of the business how that's evolved.

Joseph G. Taylor: I think it moved up just a little bit because we actually were able to, this menu went out about a month earlier than we originally contemplated, so you get a little bit more effectiveness on the quarterly price point, so it's the high seven. Yes, no, it'll be, it'll be, you know. All right, great. I'll pass it along.

Speaker Change: Okay. So that virtual brand headwind will be similar into the fourth quarter, it's going to stay around that that two to two 5%.

Speaker Change: And then as far as the off premise goes that is about 26, 27% for chili's and about half of that still is.

Speaker Change: Third party delivery versus to go.

Speaker Change: Great. Thank you very much.

Speaker Change: Youre welcome.

Speaker Change: Your next question for today is from Jon Tower with Citi.

Joseph G. Taylor: Thanks very much. Your next question is from Andrew Strelzik with BMO. Hey, good morning.

Andrew Strelzik: Thanks for taking the questions. I wanted to revisit the margin conversation. And, you know, now that you've left some of the labor investments lapping some of the ad investment, I know that's going to continue to go up, but the inflation environment is kind of normalized. Is there a way to think about a durable or sustainable level of restaurant margin expansion going forward? And and I know, you know, several quarters ago, over time, you've kind of talked about a mid-team 50% restaurant margin as achievable as your, You are the visibility to that, changing it all. I think so a couple things there. One is 15%.

Speaker Change: It's actually Karen on for.

Karen: John today.

Karen: Just two for me one.

Karen: Not asking for fiscal 'twenty guidance I don't work would have to wait a quarter for that.

Karen: Is there anything you would sort of call out in terms sort of.

Karen: <unk> enhanced our unique.

Karen: In 2024, we would want to consider are kind of thinking about setting 24, and 25 into that longer term algorithm you've laid out.

Karen: Kevin really now I think we're pretty much in run the railroads and continuing to run the railroad at a faster pace kind of mode right now so I don't I don't anticipate.

Joseph G. Taylor: You know, a visible Yes, it is very much so from a quarterly standpoint. But remember, we traditionally have higher ROM levels in your third and fourth quarter. So the 14.2 is nice to get over the 14 hurdle for that third quarter.

Karen: Paid obviously at year end there is always.

Karen: A review of various and sundry accruals you wanted to make sure. Your insurance positioning is correct you can obviously have adjustments to.

Karen: Items like incentive compensation things of that nature that kind of play out.

Karen: Those are typical.

Karen: Year end reviews, but theres nothing.

Joseph G. Taylor: And we have our sights ahead of us on how we can continue to move that forward in the fourth quarter. I think you'll see some nice continued moves up on the ROM side of the equation. I think on a going forward basis, what we've talked about is an ability to leverage top line growth into steady, but kind of that 20, 30, 40 basis point increase in annual margins as you go forward.

Karen: That I really view is systemic that needs.

Karen: The kind of major change to it.

Karen: And then.

Karen: Hi.

Karen: Little bit since we've talked about some of the kind of future.

Karen: Product simplification and improvements at one point I think talked about.

Karen: 2025 initiative.

Karen: <unk> kind of in the rearview is that how we should be thinking about it or are there other things that youre going to maybe focus on before that.

Joseph G. Taylor: In essence, they'll play out a little differently in every quarter based on some of the seasonality and some of the volumes there, but we do envision an upward trajectory as you kind of go both year over year in the different quarters and, obviously, the annual level kind of in that 20 to 40 basis points range. Okay, great.

Speaker Change: Youre thinking about that right. So right now we've launched this new big Smash Burger when we.

Speaker Change: Whenever we roll a new item out we try to roll operational improvements either simplification <unk> reinforcing the right behaviors with the teams to get whatever that segment is to make it perfect. So.

Joseph G. Taylor: And my second question, I was just hoping you could remind us kind of the virtual brand head when you're expecting in the fourth quarter from a traffic perspective, and then, more broadly, as it relates to off premise, you just touch on, you know, what you're seeing there, the split of the business, how that's evolving. Thanks. Okay, so the virtual brand headwind will be similar in the fourth quarter; it's going to stay around that two to two and a half percent.

Speaker Change: So currently like we rolled out Burger fundamentals, which is the smash the senior and the Cook times. So the biggest match or uses our base seven five ounce Burger that we use on all of our entre burgers, making sure. The grille is at the right temperature proper bunch hosting and proper bun buttering.

Karen: And then we have a new Fry procedure, we rolled out a little over a year ago to make sure our fries are.

Karen: Hot fresh and crispy and properly seasoned every time. So we do we relaunched all of those procedures to make sure that we're making all burgers properly as we launched the big Smasher and then as part of the biggest master we eliminated that.

Joseph G. Taylor: And then as far as the off-premise goes, that is about 26, 27 percent for Chili's, and about half of that still is third-party delivery versus take-out. Great, thank you very much. Your next question for today is from Jon Tower with Citi. Hey, it's Karen on for John today.

Karen: <unk> $3 six ounce lunch Patty.

Karen: And then rolled out into the seven five ounce Patty.

Karen: So kind of burgers as the way to think about for the next.

Karen: Call. It three to six months is going to be our focus and then.

Karen: We also rolled out a new simplified chicken sandwich, which I talked about the simplification.

Jon Michael Tower: Just two for me, one, you know, I'm not asking for fiscal 25 guidance, I know we're gonna have to wait a quarter for that. But is there anything you would sort of call out in terms of sort of chunkiness or unique items in 2024 that we would want to consider kind of thinking about fitting 24 and 25 into that longer-term algorithm you've laid out? Karen, really, no.

Karen: We will likely.

Karen: Put that on air and a value proposition.

Karen: In late summer early fall and then the.

Karen: The core four segment that we'll go next after burgers will be fajitas and our plan is that should come in.

Karen: Later in Q2 of 25, so that would be call. It November December timing.

Karen: That is a pretty large project fajitas is over $200 million business for us. So there is huge upside both in terms of improving the quality.

Joseph G. Taylor: I think we're pretty much in a run the railroads and continue to run the railroads at a faster pace kind of mode right now. So I don't anticipate, obviously, at year end, there's always a review of various in the summary accruals. You want to make sure your insurance positioning is correct.

Karen: Of the product to get some pricing power as well as some of the mix driving that we can do like we did when we relaunched our chicken Christopher's lineup. So we're very bullish on.

Joseph G. Taylor: You can obviously have adjustments to items like incentive compensation, things of that nature that kind of play out. Those are typical year-end reviews, but there's nothing that I really view as systemic that needs any kind of major change to it. And then about a little bit since we've talked about some of the future products, your simplifications and improvements. And one point I think we talked about fajitas as a 2025 initiative, with the burger kind of in the rear view. Is that how we should be thinking about it? Or are there other things that you're going to maybe focus on before that?

Karen: A large business that we think could get a whole lot bigger and more profitable that is a major product project because we are upgrading the protein.

Karen: We're upgrading the tortilla that the fajita has served with.

Karen: Upgrading the presentation of the vegetable both so that's fresher and more delicious.

Karen: So it's a pretty big undertaking we've been we started that project about six months ago.

Karen: So it's gonna be over a year into making by the time it gets to the market, but we're very very encouraged by it and hopefully by the next earnings call.

Karen: We will have the test market results and to be able to share with all of you and give you confirmation of when thats actually going alone.

Speaker Change: Okay. Thank you.

Speaker Change: All for me.

Kevin D. Hochman: You're thinking about that right. So right now, we've launched this new Big Smasher burger. Whenever we roll a new item out, we try to roll operational improvements, either simplification and or reinforcing the right behaviors with the teams to get whatever that segment is and make it perfect. So currently, we have rerolled out burger fundamentals, which is the smash, the sear, and the cook time. So the Big Smasher uses our base 7.5 ounce burger that we use on all of our entree burgers, making sure the grill is at the right temperature, proper bun toasting, and proper bun buttering.

Speaker Change: Your next question is from Katherine Griffin with Bank of America.

Katherine Anne Griffin: Hi, Thank you.

Katherine Anne Griffin: First I wanted to ask about the mix dynamics at Chili's in the quarter it seems like.

Katherine Anne Griffin: With mix, a little bit less negative sequentially. The menu merchandising was successful in terms of your expectation to reverse the impact of the negative mix, but then I think you would also caution you might see some softening in the next given where the consumer is so.

Kevin D. Hochman: And then we have a new fry procedure we rolled out a little over a year ago to make sure our fries are hot, fresh, and crispy, and properly seasoned every time. So we relaunched all of those procedures to make sure that we're making all burgers properly as we launched the Big Smasher. And then, as part of the Big Smasher, we eliminated the skinny 3.6 ounce lunch patty and rolled that into the 7.5 ounce patty.

Katherine Anne Griffin: If you could just help me understand how much of the mix in the third quarter. It was kind of in your control.

Katherine Anne Griffin: From the menu merchandising versus maybe seeing things.

Katherine Anne Griffin: Seeing some softening.

Catherine: Hey, Catherine.

Catherine: Thanks for the question.

Catherine: We're real pleased with the direction and the improvements we saw.

In mix once we drop that menu. So obviously, we dropped the menu right at the end of July January excuse me I'm kidding I'm already getting ahead of myself.

Kevin D. Hochman: So that's the kind of burgers we should think about for the next, call it three to six months is going to be our focus. And then we also rolled out a new simplified chicken sandwich, which I talked about simplifying. We'll likely put that on air in a value proposition in late summer or early fall.

Catherine: At the end of January.

Catherine: And.

Catherine: It performed how we wanted it to perform again when you move.

Katherine Anne Griffin: Merchandising around on the menu as we have a pretty good understanding of how that can be impactful. So we saw improvements in the mix as we moved through the rest of the quarter, it's not as apparent in the quarterly numbers. Because again you still had January under the old menu side of the equation and we're continuing to see that improvement booth. So.

Kevin D. Hochman: And then the core four segment that will go next after burgers will be fajitas, and our plan is that that should come in later in Q2 of twenty five. So that would be called the November, December timing. That is a pretty large project. Fajitas is over a two hundred million dollar business for us, so there's huge upside, both in terms of improving the quality of the product to get some pricing power, as well as some of the mixed driving that we can do, like we did when we relaunched our chicken crispers lineup.

Kevin D. Hochman: I would anticipate as we kind of move forward from here, a more neutral mix kind of environment.

Kevin D. Hochman: But what we're seeing.

Katherine Anne Griffin: The results from the from the steps we've taken and then we've continued then layer in some additional opportunities we launched the express a martini just a couple of weeks ago Thats, an opportunity, particularly from a weekend perspective to add some some mix into the equation and we will continue to look at those those different opportunities how we merchandise both in.

Kevin D. Hochman: So we're very bullish on a large business that could get a whole lot bigger and more profitable. That is a major product project because we are upgrading the protein. We are upgrading the tortilla that the fajita is served on. We are upgrading the presentation of the vegetable boats, so that's fresher and more delicious.

Kevin Hochman: In the restaurant and on the menu but.

Kevin D. Hochman: We course corrected and course corrected pretty effectively.

Speaker Change: Okay, Great and then just another question on restaurant margins.

Kevin D. Hochman: So it's a pretty big undertaking. We started that project about six months ago, and so it's going to be over a year in the making by the time it gets to the market. But we're very, very encouraged by it.

Kevin D. Hochman: What how did commodities inflation play out in the quarter relative to your expectations and then what are your expectations embedded in that.

Kevin D. Hochman: And hopefully, by the next earnings call, we'll have the test market results in to be able to share with all of you and give you confirmation of when that's actually going to launch. Great. Thank you. That's all for me.

Speaker Change: Next upcoming quarter.

Kevin D. Hochman: Catherine actually our commodity inflation was a little bit better than we expected and we were basically flat in the third quarter and then in the fourth quarter, we do expect that to tick up a little bit probably in that 2% range.

Katherine Anne Griffin: Your next question is from Katherine Griffin with Bank of America. Hey, thank you. First, I wanted to ask about the mix dynamics at Chili's in the quarter. It seems like, you know, with mix a little bit less negative sequentially, the, you know, menu merchandising was successful in terms of, you know, expectation to reverse the impact of the negative mix. But then, I think you would also caution that you might see some softening in the mix given where the consumer is.

Catherine: Okay. Thank you.

Joseph G. Taylor: So if you could just help me understand how much of the mix in the third quarter was kind of in your control, you know, from the menu merchandising versus, you know, maybe seeing some softening in the direction and the improvements we saw in MIX once we dropped that menu. So, obviously, we dropped the menu right at the end of January.

Katherine Anne Griffin: There appear to be no further questions in queue I would like to turn the floor over to Joe Taylor for closing remarks.

Speaker Change: Thanks, Holly and as this is my last time to to get the mic or the speaker phone in this case as Kevin Kevin mentioned earlier. This is my last earnings call prior to passing on the CFO position at the end of our fiscal year in late June. So a couple of remarks, and thank you to wrap things up.

Joseph G. Taylor: First I am thrilled to pass the Baton along to Mike who is such a key leader for the company and brings a depth of knowledge and a passion for our business to her new position. She is very well prepared and will be terrific terrific in the role.

Joseph G. Taylor: I'm already getting ahead of myself at the end of January. And it performed how we wanted it to perform. And again, when you move merchandise around on the menus, we have a pretty good understanding of how that can be impactful. So, we saw improvements in the MIX as we moved through the rest of the quarter. It's not as apparent in the quarterly numbers because, again, you still had January under the old menu size equation.

Joseph G. Taylor: And next to all of our coverage analysts on the call. It has really been a pleasure working with you over the past decade, and I'll continue to value the relationships developed over the years. Thank you for your time spent getting to know us your insights both good and sometimes ones that were tougher to here and for bringing a high degree of professionalism to that relationship.

Speaker Change: If your travels bring you through Dallas don't hesitate to reach out as I am sure. There are stories, we can retail meals that can be shared and possibly even some rounds to be played hopefully our paths will have the occasion to cross in the years ahead.

Joseph G. Taylor: And we're continuing to see that improvement. So, I would anticipate, as we kind of move forward from here, a more neutral MIX kind of environment. But we're seeing results from the steps we've taken, and we continue to layer in some additional opportunities. We launched the Espresso Martini just a couple of weeks ago. That's an opportunity, particularly from a weekend perspective, to add some MIX into the equation. And we'll continue to look at those different opportunities, how we merchandise both in the restaurant and on the menu. But we, of course, corrected it, and, of course, corrected it pretty effectively. Okay, great.

Joseph G. Taylor: And lastly, it is tough to express the high degree of Thankfulness I have towards my teammates both here at Trc and in our restaurants that have made this such a special place for me and my family over two decades.

Joseph G. Taylor: As I start my next I, particularly take with me a special appreciation for all the teammates who work tirelessly to lead and staff our restaurants each day.

Joseph G. Taylor: Our vps does gms and thousands of Chile heads and pasta heads.

Speaker Change: Sure you have made this past and future guests feel very special.

Speaker Change: It has been an honor to tell the stories of your accomplishments in the calls such as this over the years. Thank you for each all of what you do each and every day.

Joseph G. Taylor: 25 years brings many experiences lifelong relationships and great memories and will always be part of my next ventures. It has been a true privilege and blessing to be a small part of the history of such a great company.

Katherine Anne Griffin: And then just another question on restaurant margins: how did commodity inflation play out in the quarter relative to your expectations? And then what are your expectations embedded in the next upcoming quarter? Katherine, actually, our commodity inflation was a little bit better than we expected, so we were basically flat in the third quarter. And then in the fourth quarter, we do expect that to tick up a little bit, probably in that 2 percent range. Okay, thank you. There appear to be no further questions in queue.

Katherine Anne Griffin: Forward with eagerness to watching and sharing on the many successes that are ahead for all of the members of the Brinker team.

Speaker Change: And with that we are a journey and I wish you all a very good day. Thank.

Katherine Anne Griffin: Thanks.

Katherine Anne Griffin: Sure.

Speaker Change: Goodbye everyone. Thank you so much.

Katherine Anne Griffin: Okay.

Speaker Change: 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.

Joseph G. Taylor: I would like to turn the floor over to Joe Taylor for closing remarks. And thanks, Holly. And this is my last time to use the mic or speakerphone in this case.

Joseph G. Taylor: As Kevin mentioned earlier, this is my last earnings call prior to passing on the CFO position at the end of our fiscal year in late June. So, a couple of remarks and a thank you to wrap things up. First, I'm thrilled to pass the baton along to Mika, who is such a key leader for the company and brings a depth of knowledge and a passion for our business to her new position. She is very well prepared and will be terrific in the role.

Joseph G. Taylor: And next, to all of our coverage analysts on the call, it has really been a pleasure working with you over the past decade, and I will continue to value the relationships developed over the years. Thank you for your time spent getting to know us, your insights, both good and sometimes ones that were tougher to hear, and for bringing a high degree of professionalism to the relationship. If your travels bring you through Dallas, don't hesitate to reach out as I'm sure there are stories we can retell, meals that can be shared, and possibly even some rounds to be played. Hopefully, our paths will have the occasion to cross again in the years ahead.

Joseph G. Taylor: And lastly, it is tough to express the high degree of thankfulness I have towards my teammates, both here at the RFC and in our restaurants, who have made this such a special place for me and my family over two decades. As I start my next career, I particularly take with me a special appreciation. For all the teammates who work tirelessly to lead and staff our restaurants each day. Our VPOs, DOs, GMs, and thousands of chili heads and pasta heads.

Joseph G. Taylor: I assure you that you have made past and future guests feel very special. It has been an honor to tell the stories of your accomplishments in a cause such as this over the years. Thank you for all of what you do each and every day.

Joseph G. Taylor: 25 years brings many experiences, lifelong relationships, and great memories that will always be part of my next ventures. It has been a true privilege and blessing to be a small part of the history of such a great company. I look forward with eagerness to watching and cheering on the many successes that are ahead for all the members of the Brinker team. And with that, we are adjourned, and I wish you all a very good day. Thank you. Goodbye, everyone.

Joseph G. Taylor: [music].

Joseph G. Taylor: [music].

Joseph G. Taylor: Good day and welcome to the Brinker Internationals Q3 F. 'twenty for earnings call. At this time, all participants have been placed on listen only mode. The floor 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.

Speaker Change: Ma'am the floor is yours.

Speaker Change: Thank you Holly and good morning, everyone and thank you for joining us.

Speaker Change: Here with me today are Kevin Hochman, our Chief Executive Officer, and President and Joe Taylor, Our Chief Financial Officer.

Joseph G. Taylor: Results for our third quarter were released earlier this morning and are available on our website at Brinker Dotcom 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.

Speaker Change: 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.

Joseph G. Taylor: Any such items should be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, all such statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated such risks and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC.

Joseph G. Taylor: And of course on the call we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations and with that said I will turn the call over to Kevin Thanks, Mike and good morning, everyone. Thank you for joining us as we share results from another quarter of strong.

Joseph G. Taylor: Progress.

Joseph G. Taylor: Last time, we spoke in January the industry was experiencing challenging weather, we were pleased to see our business immediately bounce back and perform well in February and March and Chili's with chili's, beating the industry sales by more than 7% and traffic by nearly 4% for the entire quarter. These.

Joseph G. Taylor: These strong results are driven by the strategy, we've been working on it for almost two years now to improve the guest and team member experience, while launching profitable and sustainable traffic driving initiatives.

Joseph G. Taylor: And what's very encouraging from the Q3 results is that in February when we werent on TV, we continued to outperform the industry and again in March when we effectively left increased media from last year, our traffic driving initiatives combined with real operational improvements are creating tailwind for the business.

Joseph G. Taylor: I am so proud of our operators for their focus on the guest experience and the progress, they're making our main kpis dining guests.

Operator: Thank you so much. Thank you. Thank you. Thank you. Thank you. 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.

Operator: With a problem or dine in <unk> dropped to three 3% this quarter, which is our lowest on record since we began tracking the metric.

Operator: ... Good day, and welcome to Brinker International's Q3F24 earnings call. At this time, all participants have been placed on a listen-only mode.

Mika Ware: The floor will be open for questions and comments following the presentation. 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.

Speaker Change: Want to recognize our 12 operations regional Vice Presidents, who have been leading this work from the front they delivered another quarter of industry, leading manager turnover as well as significant progress on hourly turnover.

Mika Ware: We know we still have work to do to make sure we deliver consistently great food and hospitality to every guest as well as to continue to make our team members' jobs easier more fun and more rewarding those areas will remain a focus for us during the fourth quarter and into next fiscal year. We are encouraged by the progress, but we are also motivated by the opportunity.

Mika Ware: Thank you, Holly, and good morning, everyone, and thank you for joining us. Here with me today are Kevin Hochman, our Chief Executive Officer and President, and Joe Taylor, our Chief Financial Officer. Results for our third quarter were released earlier this morning and are available on our website at Brinker.com. As usual, Kevin and Joe will make prepared comments related to our strategic initiatives and operating performance. Then we will open the call for your questions.

Mika Ware: Ahead of us to raise our bar on the team member and guest experiences to get to that top chart tile of casual dining restaurant performance.

Mika Ware: 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 item should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risk and uncertainties, which could cause actual results to be different from those anticipated.

Speaker Change: Next I'd like to talk about progress on our menu and marketing.

Mika Ware: Let's start with the Burger segment, which is both which has both new product news as well as important simplification initiatives hitting their restaurants now just yesterday, we launched a new Burger the big Smasher, it's nearly a half pound Burger with thousand island dressing lettuce cheese, pickles and red onions on our delicious brioche bun.

Mika Ware: This new Burger lives on our regular menu, but for a limited time will be available for 10 $99. Three for me as we bring fresh news to our everyday value platform to drive awareness of incremental traffic, we have a fresh way to talk about chili's unbeatable value our social media team has been watching the conversation that the consumer is frustrated by fast food prices through a series.

Mika Ware: Such risks and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC. And, of course, in the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations. And with that said, I will turn the call over to Mika. Thanks, Mika, and good morning, everyone. Thank you for joining us as we share results from another quarter of Strong Progress. The last time we spoke in January, the industry was experiencing challenging weather.

Mika Ware: The hard hitting an entertaining ads, we tap into that insight and use fast food as a foil to demonstrate chili's superior value and those ads literally have started yesterday.

Mika Ware: I'm also excited about to simplification initiatives that have been bundled for our restaurant teams with the big Smasher launch. The first one is eliminating our secret sauce Burger offer a value menu, which helps us manage three for me mix and remove a soft skew from the pantry. The second simplification is the removal of the double lunch Burger, which eliminated the skinny Burger.

Kevin D. Hochman: We were pleased to see our business immediately bounce back and perform well in February and March. And Chili's, with Chili's beating the industry in sales by more than 7% and traffic by nearly 4% for the entire quarter. These strong results are driven by the strategy we've been working on for almost two years now to improve the guest and team member experience while launching profitable and sustainable traffic driving initiatives. And what's very encouraging from the Q3 results is that in February, when we weren't on TV, we continued to outperform the industry.

Kevin D. Hochman: Audi SKU, we replaced this with a lunch Burger that features our existing seven five ounce Patty SKU.

Kevin D. Hochman: This move gives the guests more meat, it's slightly lowers our food costs and it simplifies operations and now instead of having to manage inventory and cook two different Burger Patty specs operators are protecting burger execution with one product so they're consistently great for every guest.

Kevin D. Hochman: And again, in March, when we effectively increased media from last year, our traffic-driving initiatives combined with real operational improvements are creating tailwinds for the business. I'm so proud of our operators for their focus on the guest experience and the progress they're making. Our main KPI, Dine and Guest with a problem, or Dine and GWOP, dropped to 3.3% this quarter, which is our lowest on record since we began tracking the metric.

Kevin D. Hochman: Another initiative, we continue to be encouraged by is the strength of our advertising and its ability to drive traffic.

Kevin D. Hochman: I want to recognize George Felix our Chili's, Chief marketing officer for recently being named the 2024 Nations restaurant news powerless.

Kevin D. Hochman: The award recognizes Georgia consumer centric leadership of our advertising and our innovation as well as the work he and his team are leading to increase the relevance of Chili's and.

Kevin D. Hochman: I want to recognize our 12 Operations Regional Vice Presidents who have been leading this work from the front. They delivered another quarter of industry-leading manager turnover, as well as significant progress on hourly turnover. We know we still have work to do to make sure we deliver consistently great food and hospitality to every guest, as well as to continue to make our team members' jobs easier, more fun, and more rewarding. Those areas will remain a focus for us during the fourth quarter and into next fiscal year.

Kevin D. Hochman: In addition to our national advertising efforts. The team continues to find ways for Chili's to show up in unexpected ways and reach new audiences are reaching our recent NASCAR sponsorship is a great example, NASCAR fans are chili's fans and sponsoring properly driver correlate Joyce card during the Daytona 500 complete with every one of our general manager.

Kevin D. Hochman: <unk> running on with Cory on the car's Hood was a big win for our team in Coreys NASCAR fan base.

Kevin D. Hochman: We are encouraged by the progress, but we are also motivated by the opportunity ahead of us to raise our bar on the team member and guest experiences to get to that top tertile of casual dining restaurant performance. Next, I'd like to talk about progress on our menu and market. Let's start with the burger segment, which has both new product news as well as important simplification initiatives hitting the restaurants now. Just yesterday, we launched a new burger, the Big Smasher. It's nearly a half-pound burger with thousand-olive dressing, lettuce, cheese, pickles, and red onions on our delicious brioche bun.

Kevin D. Hochman: While the marketing team drives traffic into our restaurants, our operations team continues to raise the bar and bringing guests back this week as part of our fiscal 'twenty five planning season, we're meeting with our vice president of operations to finalize our strategic priorities and choose the fiscal 'twenty five obsession goal based on what I've seen over the past two years when this powerful team gets after it.

Kevin D. Hochman: I have complete confidence will move the needle on whatever they set their focus on.

Kevin D. Hochman: To close it's been a great year, so far the ongoing momentum in our business encourages us that our strategy is working and the investments we're making are strengthening the core business setting us up for long term sustainable growth.

Kevin D. Hochman: This new burger lives on our regular menu but, for a limited time, will be available for $10.99 on 3 For Me as we bring fresh news to our everyday value platform. To drive awareness and incremental traffic, we have a fresh way to talk about Chili's unbeatable value. Our social media team has been watching the conversation that the consumer is frustrated by fast food prices. Through a series of hard-hitting and entertaining ads, we tap into that insight and use fast food as a foil to demonstrate Chili's superior value, and those ads literally started yesterday.

Speaker Change: Before I hand, the call over I wanted to say a big Thank you to Jo Taylor as this will be his last earnings call as <unk>, Chief Financial Officer, and we have something here I'm going to go off script here, we have something here at brinker called above the line recognition, we do that for people that go above and beyond to drive our strategy and our priorities and so just bear with me for 30 seconds, but.

Kevin D. Hochman: <unk> been with us for over 20 years. So he deserves it so here's to you Joe Taylor for making every guest count and being accountable Joe. Thank you for your nearly 25 years of leadership and service to this company for your guidance in patients as I learned this business and for grooming such a strong leader and Mike as she takes over the reins in June.

Kevin D. Hochman: I'm also excited about two simplification initiatives that have been bundled for our restaurant teams with the Big Smasher launch. The first one is eliminating our secret sauce burger from our value menu, which helps us manage the three-for-me mix and remove a sauce skew from the pantry. The second simplification is the removal of the double lunch burger, which eliminated the skinny burger patty skew. We replaced this with a lunch burger that features our existing 7.5-ounce patty skew.

Kevin D. Hochman: We have a stronger financial position with an incredibly talented finance organization and thanks to <unk> leadership <unk> Best days are ahead of US Cheers to you Joe Taylor for leaving a legacy of impact on our business and in on a card here says you've helped bring back guests engaged team members gross sales and increased profits and we all stand in cloud for gel. So.

Kevin D. Hochman: This move gives the guests more meat, it slightly lowers our food cost, and it simplifies operations. And now, instead of having to manage inventory and cook two different burger patty specifications, operators are perfecting burger execution with one product, so they're consistently great for every guest. Another initiative we continue to be encouraged by is the strength of our advertising and its ability to drive traffic. I want to recognize George Felix, our Chili's Chief Marketing Officer, for recently being named to the 2020 Four Nations Restaurant News Power List.

Kevin D. Hochman: Yes.

Kevin D. Hochman: Yes.

Kevin D. Hochman: And I know many of you on the call have worked with Joe for many years that just thought it was important to do it in front of all of you. So thank you for giving me the 30, <unk> and with that I'm going to turn it over to Joe well. Thank you, Kevin and I appreciate it.

Kevin D. Hochman: The comments and so great to have the last call will be such a good call Tuesday.

Speaker Change: Good morning to everyone.

Kevin D. Hochman: The results reported in this morning's press release to reflect the continued positive progression of our brand's performance and further solidify our belief in the long term sustainability of our strategy with.

Kevin D. Hochman: The award recognizes George's consumer-centric leadership in our advertising and our innovation, as well as the work he and his team are leading to increase the relevance of Chili. In addition to our national advertising efforts, the team continues to find ways for Chili's to show up in unexpected ways and reach new audiences. Our recent NASCAR sponsorship is a great example. NASCAR fans are Chili's fans, and sponsoring popular driver Cory LeJoy's car during the Daytona 500, complete with every one of our general managers' names riding on with Cory on the car's hood, was a big win for our team and Cory's NASCAR fan base.

Kevin D. Hochman: This quarter included solid year over year topline growth comp sales well above industry averages and nicely improved restaurant operating margin.

Kevin D. Hochman: In terms of the specific results for the third quarter of fiscal 2020 for Brinker reported total revenues of $1 billion $120 million with consolidated comp sales are positive three 3%.

Kevin D. Hochman: Our adjusted diluted EPS for the quarter was $1 24.

Kevin D. Hochman: Both brands reported topline sales growth with Chili's comps coming in at positive three 5% for the quarter with price, partially offset by negative mix and traffic of particular note chili's delivered positive dine in traffic for the quarter, our continued move to deemphasize virtual brands and redirect.

Kevin D. Hochman: While the marketing team drives traffic into our restaurants, our operations team continues to raise the bar and bring guests back. This week, as part of our Fiscal 25 planning season, we're meeting with our Vice Presidents of Operations to finalize our strategic priorities and choose the Fiscal 25 Obsession Goal. Based on what I've seen over the past two years, when this powerful team gets after it, I have complete confidence we'll move the needle on whatever they set their focus on. To close, it's been a great year so far.

Kevin D. Hochman: To better support our core operations negatively impacted chili's traffic by approximately two 5% for the quarter.

Kevin D. Hochman: In addition, weather had an estimated one 1% negative impact.

Kevin D. Hochman: The ongoing momentum in our business encourages us that our strategy is working, and the investments we're making are strengthening the core business, setting us up for long-term sustainable growth. Before I hand the call over, I wanted to say a big thank you to Joe Taylor, as this will be his last earnings call as Brinker's Chief Financial Officer. And we have something here, I'm going to go a little off script here, we have something here at Brinker called Above the Line Recognition.

Kevin D. Hochman: <unk> reported one 7% comp sales driven by positive price and mix, partially offset by negative traffic.

Kevin D. Hochman: Dominic and his team are making great progress in developing the guest experience and menu offerings that are focused on improving traffic and mix, particularly in the dining room, we look forward to sharing more details in future calls.

Kevin D. Hochman: We do that for people that go above and beyond to drive our strategy and our priorities. And so, just bear with me for 30 seconds, but Joe's been with us for over 20 years, so he deserves this.

Kevin D. Hochman: Now turning to margins the third quarter saw another meaningful expansion of restaurant operating margin, primarily driven by topline growth and an improved year over year food and beverage cost environment restaurant operating margin for the quarter was 14, 2%, an 80 basis point improvement year over year.

Kevin D. Hochman: So cheers to you, Joe Taylor, for making every guest count and being accountable. Joe, thank you for your nearly 25 years of leadership and service to this company, for your guidance and patience as I learned this business, and for grooming such a strong leader in Mika as she takes over the reins in June. Today, we have a stronger financial position with an incredibly talented finance organization. And thanks to your leadership, Brinker's best days are ahead of us.

Kevin D. Hochman: Our food and beverage expense was favorable 170 basis points as compared to last year's third quarter, driven by higher price and menu mix.

Kevin D. Hochman: Labor expense as a percent of company sales was favorable 20 basis points compared to prior year topline growth offset wage rate inflation of approximately three 7%.

Kevin D. Hochman: Cheers to you, Joe Taylor, for leaving a legacy of impact on our business. And on a card here, it says you've helped bring back guests, engage team members, grow sales, and increase profits. And we all stand and clap for Joe.

Kevin D. Hochman: We continue to invest in the business during the quarter reflected by an increase in restaurant expense of 120 basis points versus prior year and.

Kevin D. Hochman: I know many of you on the call have worked with Joe for many years, and I just thought it was important to do it in front of all of you. So, thank you for giving me those 30 seconds. And with that, I'm going to turn it over to Joe. Well, thank you, Kevin. I appreciate the comments. And it's so great to have the last call be such a good call, too. So, good morning to everyone.

Joe: An increase in advertising and greater levels of R&M spend where the two largest additions to this component of Rob.

Joe: The improved operating performance also positively impacted the cash flow for the quarter.

Joseph G. Taylor: The results reported in this morning's press release reflect the continued positive progression of our brand's performance and further solidify our belief in the long-term sustainability of our strategy. This quarter included solid year-over-year top-line growth, comp sales well above industry averages, and nicely improved restaurant operations. In terms of the specific results, for the third quarter of fiscal 2024, Brinker reported total revenues of $1,120,000,000, and consolidated comp sales of positive 3.3 percent. Our adjusted diluted EPS for the quarter was $1.24.

Joe: Third quarter, EBITDA was $122 million, bringing our year to date level up 31% to $310 million.

Joseph G. Taylor: Both brands reported top-line sales growth with Chili's comps coming in at positive 3.5% for the quarter, with price partially offset by a negative mix in traffic. Of particular note, Chili's delivered positive dine-in traffic for the quarter. Our continued move to de-emphasize virtual brands and redirect dollars to better support our core operations negatively impacted Chili's traffic by approximately 2.5% for the quarter. In addition, weather had an estimated 1.1% negative

Joseph G. Taylor: Our significantly improved cash flow generation gives us more flexibility to reinvest in our brands, while also reducing leverage to strengthen our balance sheet and manage borrowing costs.

Joseph G. Taylor: For the quarter, we recorded approximately $50 million of capital expenditures with a focus on capital improvements to existing restaurants updating our it systems re images at both brands and new restaurant development.

Joseph G. Taylor: We opened two new restaurants during the quarter, both of which are off to great starts averaging more than $100000 in weekly sales nicely above Chili's brand average.

Joseph G. Taylor: These along with our new openings earlier in the fiscal year continue to demonstrate good guest appetite for chili's coming to their specific market.

Joseph G. Taylor: We further repaid $85 million of revolving credit outstandings during the quarter, our funded debt to EBITDA ratio improved to 195 times at quarter end.

Joseph G. Taylor: Right.

Joseph G. Taylor: In this morning's press release, we updated specific pieces of our previously provided annual guidance.

Joseph G. Taylor: Branco Breakers annual total revenues for the current fiscal year are now expected to be in the range of $4 billion $330 million and $4 billion $350 million.

Joseph G. Taylor: Maggiano's reported 1.7% comp sales driven by positive price and mix, partially offset by negative traffic. Dominique and his team are making great progress in developing the guest experience and menu offerings that are focused on improving traffic and mix, particularly in the dining room. We look forward to sharing more details in future calls. Now, we turn to Margin.

Joseph G. Taylor: Capital expenditures are currently on pace to be between $185 million to $195 million for the fiscal year.

Margin: And our estimate for annual adjusted earnings per share is increased to a range of $3 82.

Joseph G. Taylor: The third quarter saw another meaningful expansion of restaurant operating margin, primarily driven by top-line growth and an improved year-over-year food and beverage cost environment. Restaurant operating margin for the quarter was 14.2%, an 80 basis point improvement year over year. Our food and beverage expense was favorable 170 basis points as compared to last year's third quarter, driven by higher price and menu mix. Labor expense is a percent of company sales, and it was a favorable 20 basis points compared to the prior year.

Joseph G. Taylor: So and even $4.

Joseph G. Taylor: And close our third quarter was successful from not just a financial perspective, but also demonstrate our ability to leverage improved restaurant operations broad based marketing and excellent value across a variety of price points to consistently outperform the casual dining sector.

Joseph G. Taylor: Note. The first period of our fourth quarter, which ends tomorrow is shaping up as a very strong continuation of these theme.

Joseph G. Taylor: We're carrying excellent momentum into the last quarter of our fiscal year and intend to leverage this operating performance and the plan is being developed for fiscal year 'twenty five <unk>.

Joseph G. Taylor: Top line growth offset wage rate inflation of approximately 3.7%. We continue to invest in the business during the quarter, reflected by an increase in restaurant expense of 120 basis points versus the prior year. An increase in advertising and greater levels of R&M spend were the two largest additions to this component of ROM. The improved operating performance also positively impacted the cash flow for the quarter. Third quarter EBITDA was $122 million, bringing our year-to-date level up 31% to $302 million.

Joseph G. Taylor: I genuinely believe there are exciting times ahead for our team members and our guests that will translate to excellent results for our brand.

Joseph G. Taylor: And with our comments now complete I will turn the call back to Holly to moderate questions that you might have.

Speaker Change: I'll, let <unk> take it away.

Joseph G. Taylor: Sure.

Speaker Change: 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. Please pickup your handset if listening on speaker phone to provide optimum sound quality. Please.

Joseph G. Taylor: Our significantly improved cash flow generation gives us more flexibility to reinvest in our brands while also reducing leverage to strengthen our balance sheet and manage borrowing costs. For the quarter, we recorded approximately $50 million in capital expenditures, with a focus on capital improvements to existing restaurants, updating IT systems, re-images at both brands, and new restaurant development. We opened two new restaurants during the quarter, both of which are off to great starts, averaging more than $100,000 in weekly sales, nicely above Chili's brand average. These, along with the new openings earlier in the fiscal year, continue to demonstrate good guest appetite for Chili's coming to their specific market. We further repaid $85 million of revolving credit outstandings during the quarter.

Speaker Change: Please hold while we poll for questions.

Joseph G. Taylor: Your first question for today is from Chris I'll call with Stifel.

Speaker Change: Good morning, and thank you and Joe Congratulations and best wishes on the next chapter.

Speaker Change: Thank you. Thank you.

Joseph G. Taylor: Kevin I know Chili's has seen its unaided brand awareness levels improve but do you have the data at this point to know what consumer groups are starting to recall the brand more often.

Speaker Change: Yes, we don't have that level of data, we do know that we're growing in all income demographics right now so when you look at across.

Joseph G. Taylor: All income profiles, they're all.

Joseph G. Taylor: Spending more at Chili's, So we feel really good about that from an advertising standpoint.

Joseph G. Taylor: Our funded debt-to-EBITDA ratio improved to 1.95 times at quarter end. In this morning's press release, we updated specific pieces of our previously provided annual guidance. Brinker's annual total revenues for the current fiscal year are now expected to be in the range of $4,330,000,000 and $4,350,000,000, and capital expenditures are currently on pace to be between $185 to $195 million for the fiscal year.

Joseph G. Taylor: We continue to see good progress on unaided awareness that the bigger thing this quarter that we were excited about is we had our highest level of.

Joseph G. Taylor: What's called Buzz that we've seen basically since we started tracking this thats when we ask guests this through third party.

Joseph G. Taylor: Name a brand that you've heard good things about in the past few weeks in dining.

Joseph G. Taylor: They are saying Chile's more often than they ever have so thats always thats very encouraging that people are thinking of us in a good light I think a big part of it is what's happening with the dialogue on value.

Joseph G. Taylor: And our estimate for annual adjusted earnings per share is increased to a range of $3.80 to an even $4.00. In closing, our third quarter was successful from not just a financial perspective but also demonstrated our ability to leverage improved restaurant operations, broad-based marketing, and excellent value across a variety of price points to consistently outperform the casual dining sector. I would note that the first period of our fourth quarter, which ends tomorrow, is shaping up as a very strong continuation of these themes.

Joseph G. Taylor: Okay.

Speaker Change: I think youre hearing from some of our competitors and we're showing up really strong at a superior value complete meal.

Joseph G. Taylor: We're delivering a better experience that I think we ever have and I think thats why youre seeing all income.

Joseph G. Taylor: <unk> grow because I think everybody wants great value and great service so.

Joseph G. Taylor: That's what I can tell you right now I think we're going to learn more as we continue to <unk>, our data and we're going to get.

Joseph G. Taylor: Data to understand more specifics, but thats, what I can share right now.

Joseph G. Taylor: We are carrying excellent momentum into the last quarter of our fiscal year and intend to leverage this operating performance in the plans being developed for fiscal year 25. I genuinely believe there are exciting times ahead for our team members and our guests that will translate to excellent results for our brand. And with our comments now complete, I will turn the call back to Holly to moderate questions that you might have. Holly, take it away.

Speaker Change: Okay, and then the new AD campaign, clearly draws a direct comparison of the three for me to the fast food offerings.

Holly: Based on this morning's conference call it sounds like Mcdonald's, maybe more aggressive with national value platforms or promotions in the coming months do you think the three for me is going to be sufficient as a value message to drive traffic or will you be able to utilize other means like maybe digital to be more targeted with consumers with deals or do you think thats something that you may have.

Operator: Certainly. At this time, we will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality.

Holly: To look at.

Holly: Well I think the answer is yes. So I think we've got to start with just making sure TV will still will still be the number one driver of of immediate building awareness and I think most marketers know that and so.

Speaker Change: We need to continue to stay on TV, we need to continue to keep that message fresh so.

Operator: Please hold while we poll for questions. Your first question for today is from Chris Okol with Stiefel. Good morning and thank you, Joe.

Chris Okol: What we launched yesterday, which was.

Chris Okol: <unk> Carter hitting value messaging, we're using fast food as a foil mainly because everybody is familiar with the fast food experience in the pricing and so it's a it's an easy foil to us but to give you relative value.

Chris Okol: Congratulations and best wishes on the next chapter. Thank you. Thank you. Kevin, I know Chili's has seen its unaided brand awareness levels improve, but do you have the data at this point to know what consumer groups are starting to recall the brand more often? Yeah, we don't have that level of data.

Chris Okol: <unk> is actually a different occasion than.

Chris Okol: And then fast food people are trying to.

Chris Okol: Have an hour out of their day, where theyre, having a better experience and theyre getting weighted on and it's a little bit of different occasion, but but when you can deliver all of that service levels and do it at a more attractive price point with superior.

Kevin D. Hochman: We do know that we're growing in all income demographics right now. So when you look across all income profiles, they're all spending more at Chili's, so we feel really good about that. From an advertising standpoint, we continue to see, you know, good progress on unaided awareness. The bigger thing this quarter that we were excited about is we had our highest level of... What's called buzz that we've seen, basically, since we started tracking this, that's when we ask guests, this is a third party, you know, name a brand that you've heard good things about in the past few weeks in dining. They're saying Chili's more often than they ever have, so that's very encouraging that, you know, people are thinking of us in a good light.

Kevin D. Hochman: Superior value and better food that gets very that's gets very exciting for the guests. So that's the that's kind of the intent behind that campaign and we think that's going to keep our value fresh and then we're going to bring value news to that lineup. So.

Kevin D. Hochman: I think you're referring to the big Smash a burger that we talked about earlier.

Kevin D. Hochman: That is almost a half pound meet fully dressed burger comes with unlimited chips, and salsa unlimited drink and fries for 10, 99, Thats pretty much unbeatable I think.

Kevin D. Hochman: In fast food and casual dining and we're going to continue to drive that was the new news and then we have.

Kevin D. Hochman: Our new chicken sandwich.

Kevin D. Hochman: That we kind of just re engineered to make both easier to make and make a juice year.

Kevin D. Hochman: For the end more delicious for the guest and we will plan to amortize that in late summer as a way to continue to bring news to three for me. So that's kind of 0.1 is like I think we've got to continue to drive the.

Kevin D. Hochman: I think a big part of it is what's happening with the dialogue on value that I think you're hearing from some of our competitors, and we're showing up really strong at a superior value, complete meal. We're delivering, you know, a better experience than I think we ever have. And I think that's why you're seeing all income demographics grow because I think everybody wants, you know, great value and great service. That's what I can tell you right now.

Kevin D. Hochman: Number one the number one driver of awareness is going to be TV, and we need to keep that messaging fresh and we need to keep bringing some innovation into that.

Kevin D. Hochman: Two to your point was can we get after more customized offers that's exactly what we're trying to do with our CRM program. So.

Kevin D. Hochman: I think we're going to learn more as we continue to tokenize our data, and we're going to get better data, and understand more specifics, but that's what I can share right now. Okay, and then the new ad campaign clearly draws a direct comparison of the three for me to the fast food offerings. Based on this morning's conference call, it sounds like McDonald's may be more aggressive with national value platforms or promotions in the coming months.

Kevin D. Hochman: We finished the back 18 months to organizations, we talked about last quarter now we're building out our database going forward with new tokens. So what that means is.

Kevin D. Hochman: Do you think the three for me is going to be sufficient as a value message to drive traffic? Or will you be able to utilize other means, like maybe digital, to be more targeted with consumers with deals? Or do you think that's something that you may need to look at?

Kevin D. Hochman: New guest that comes in or a guest that is come in.

Kevin D. Hochman: Most recently, we start our building we are building out their behavior profiles and then we're matching up with the previous 18 months of token is data, we're able to do that in restaurants that have the <unk> platform and about two thirds of our restaurants now have Z us we.

Kevin D. Hochman: We expect to finish that rollout by the end of this fiscal so the next two months and so then we'll have all of our restaurants be getting getting future token Ais data. So we can build out these profiles. The depot these profiles get and the more guests we have with deeper profiled the easier it is going to be to the customized offers and sometimes that means you might just be communication based on what we learn about their behavior.

Kevin D. Hochman: Well, I think the answer is yes. So I think we got to start with just making sure that, you know, TV will still be the number one driver of immediate building of awareness. I think most marketers know that. And so we need to continue to stay on TV; we need to continue to keep that message fresh. So what we launched yesterday, which was much harder hitting value messaging, where you're using fast food as a foil, mainly because everybody is familiar with the fast food experience and the pricing.

Kevin D. Hochman: So I.

Speaker Change: I couldn't agree more I think thats, a pretty awesome tool to have.

Kevin D. Hochman: Nine to 10 million guests with a full profile that we're able to <unk>.

Kevin D. Hochman: Market too at a relatively minimal cost.

Kevin D. Hochman: Versus paid advertising and I think youre going to see more of that as the quarters go on.

Kevin D. Hochman: And so it's an easy foil to use for them to give you relative value. Casual dining is actually a different occasion than fast food. People are trying to have an hour out of their day where they're having a better experience, and they're getting waited on. And it's a little bit of a different occasion.

Speaker Change: Great. Thanks, I'll pass it on.

Kevin D. Hochman: Your next question for today is from Jeff Farmer with Gordon Haskett.

Speaker Change: Thank you.

Kevin D. Hochman: And definitely a big congratulations to Joe you will you will be missed.

Kevin D. Hochman: As it relates to the question. So your bottom line outperformance continues to outpace your topline outperformance.

Speaker Change: I'm just curious if you could point to maybe a couple of drivers that are that are that are responsible for that greater than expected.

Kevin D. Hochman: But when you can deliver all that service level and do it at a more attractive price point with superior, superior value and better food, that gets very, very exciting for the guests. So that's the intent behind that campaign. And we think that's going to keep our value fresh. And then we're going to bring some value news to that lineup. So I think you're referring to the Big Smasher burger that we talked about earlier.

Kevin D. Hochman: Profit flow through you've seen over the last couple of quarters.

Speaker Change: Yes couple of things, Jeff first I think the top line is one of the first drivers I would point to it create some nice leverage ability as you work your way down through the middle of the P&L both within the restaurant operating margin and then against some of the items as you move further that so it is definitely contributing that topline growth.

Kevin D. Hochman: To the flow through but.

Kevin D. Hochman: Throughout the P&L I think.

Kevin D. Hochman: We've just become better operators back basically returning back to the good operators I think we had really pre COVID-19.

Kevin D. Hochman: That is almost a half pound of meat, fully dressed burger comes with unlimited chips and salt, unlimited drinks, and fries for 1099. That's pretty much unbeatable, I think, in fast food and in casual dining. And we're going to continue to drive that with some new news. And then we have a new chicken sandwich that we kind of just reengineered to make both easier to make and make it juicier for the end, more delicious for the guests. And we'll plan to advertise that in late summer as a way to continue to bring news to three for me.

Kevin D. Hochman: Labor.

Kevin D. Hochman: Despite being able to invest hours into the process is getting more efficient and when you would see that as turnover levels come down to the levels. They are coming the muscle memory being built with that helps us is around more efficient operations.

Kevin D. Hochman: So that's kind of point one: I think we have to continue to drive. The number one driver of awareness is going to be TV, and we need to keep that messaging fresh, and we need to keep bringing some innovation into that. Number two, to your point, was, you know, can we get after more customized offers? That's exactly what we're trying to do with our CRM program.

Kevin D. Hochman: Even in this last quarter you saw.

Kevin D. Hochman: Some leverage ability if you want to think of it in that on our hourly side of the equation. We have restaurants that can maintain higher volumes, while using the same amount of labor. They have been using <unk>, obviously hit tipping points as you kind of move up those volume scales and at different points, you add some labor into the equation, but theres capacity against the existing labor model within this.

Kevin D. Hochman: So, you know, we finished the back 18-month tokenization, which we talked about last quarter. Now we're building out our database going forward with new tokens. So what that means is a new guest that comes in or a guest that has come in most recently, we're building out their behavior profiles, and then we're matching them up with the previous 18 months of tokenized data. We're able to do that in restaurants that have the ZOS platform.

Kevin D. Hochman: System that we're starting to see come to fruition too so.

Kevin D. Hochman: There's any number of different areas to that we've just gotten more efficient and productive and we are working away through and you've seen some inflation levels start to normalize back to <unk>.

Kevin D. Hochman: We're in about two-thirds of our restaurants now have ZOS. We expect to finish that rollout by the end of this fiscal year, so the next two months. And then we'll have all of our restaurants be getting future tokenized data so we can build out these profiles. The deeper these profiles get, and the more guests we have with deeper profiles, the easier it's going to be to customize offers. And sometimes it might just be communication based on what we learn about their behavior.

Kevin D. Hochman: More traditional levels are I think I mentioned in my script that.

Kevin D. Hochman: Our hourly wage inflation this last quarter was about 3.7.

Kevin D. Hochman: 7%, so that's down nicely from the 5% to 6%. So we had been running in the year a couple of years before that and getting back.

Kevin D. Hochman: Closer to that more normal 34% range.

Kevin D. Hochman: So I couldn't agree more. I think that's a pretty awesome tool to have, you know, 9 to 10 million guests with a full profile that we're able to market to at a relatively minimal cost versus paid advertising. And I think you're going to see more of that as the quarters go on. Great, thanks. I'll pass it on.

Speaker Change: We kind of view is it's more typical inflation. So those are a.

Speaker Change: A couple of the bigger things that I would highlight for you.

Speaker Change: All helpful. And then one follow up to that so anything that you can share as it relates to how the big Smash Burger.

Speaker Change: Performed in test and then in terms of additional upgrades, we might see on the Burger platform.

Jeffrey Daniel Farmer: Your next question for today is from Jeff Farmer with Gordon. Thank you, good morning, and definitely a big congratulations to Joe. You will be missed. As it relates to the question, your bottom line outperformance continues to outpace your top line outperformance. I'm just curious if you could point to maybe a couple of drivers that are responsible for that greater than expected. The profit flow-through you've seen over the last couple quarters. A couple of things, Jeff.

Speaker Change: In coming months.

Jeffrey Daniel Farmer: Yes, we did not test the big Smasher like in a formal market test we tested it for operations to make sure we knew how to make it.

Jeffrey Daniel Farmer: Do a lot of them fast.

Jeffrey Daniel Farmer: We don't have any data to share with you on that what I can tell you is we're incredibly encouraged.

Jeffrey Daniel Farmer: By the Buzz that we're hearing from the PR that you guys are probably seeing in social media.

Jeffrey Daniel Farmer: We think that both the value discussion has amped up for example yesterday.

Jeffrey Daniel Farmer: Our launch in the morning, we were the number one.

Jeffrey Daniel Farmer: First, I think the top line is one of the first drivers I would point to. It creates some nice leverageability as you work your way down through the middle of the P&L, both within the restaurant operating margin and then against some of the items as you move further down. So it is definitely contributing that top-line growth to the flow-through. But throughout the P&L, I think we've just become better operators, basically returning back to the good operators we had really pre-COVID. Labor, despite being able to invest hours into the process, is getting more efficient.

Jeffrey Daniel Farmer: Trending topic on Twitter.

Jeffrey Daniel Farmer: The Chili's three for me Smasher Burger so that gets very exciting that we know where we know we are on a topic that is very <unk>.

Jeffrey Daniel Farmer: Top of mind for guests and we have.

Jeffrey Daniel Farmer: Incredible value proposition that we're bringing additional news too and our flavor profile that I think most customers are used to but in a much bigger burger format. So.

Jeffrey Daniel Farmer: We're very encouraged by that.

Jeffrey Daniel Farmer: We think we have the exact right item at the exact right time at the exact right price point with.

Jeffrey Daniel Farmer: Loaded marketing plan to get after it over the next five weeks. So we expect big things from the Big Smasher.

Joseph G. Taylor: And when you see those turnover levels come down to the levels that are coming, the muscle memory being built with that helps us just run more efficient operations. So even in this last quarter, you saw some leverageability, if you want to think of it on the hourly side of the equation. We have restaurants that can maintain higher volumes while using the same amounts of labor they've been using. You obviously hit tipping points as you kind of move up those volume scales. And at different points, you can add some labor to the equation.

Joseph G. Taylor: And then the important thing is we've got to continue to bring news to the value platform.

Joseph G. Taylor: Well continue to manage the mix on value and then one of the things I'm. Most proud of is when you look at our three for me mix with all the.

Joseph G. Taylor: What youre seeing with the economy and the macro and the consumer.

Joseph G. Taylor: <unk> has only increased a half a point I mean, its been very modest and Thats why youre seeing such.

Joseph G. Taylor: Such incredible gains on the on the bottom line from the earlier question. When you look at our margins right. So we're able to manage that mix really effectively with proper menu merchandising taking items off as we bring items on and that seems to be having the right impact on traffic, while creating sustainable growth and expanding margins alright.

Joseph G. Taylor: But there's capacity against the existing labor model within the system that we're starting to see come to fruition, too. So there's any number of different areas, too, that we've just gotten more efficient and productive and are working our way through. And you've seen some inflation levels start to normalize back to more traditional levels. I think I mentioned in my script that our hourly wage inflation this last quarter was about 3.7%. So that's down nicely from the 5% to 6% we had been running for the year and a couple of years before that, and getting back closer to that more normal 3%, 4% range that we kind of view as more typical inflation. So those are a couple of the bigger things that I would highlight for you. All very helpful.

Speaker Change: Alright I appreciate it thank you.

Joseph G. Taylor: Your next question is from David Palmer with Evercore ISI.

Joseph G. Taylor: Hi, it's John calling in for David.

Speaker Change: We're just curious on labor expense in the quarter. Despite all the investments.

Joseph G. Taylor: Going into the company you leverage labor in the quarter with units.

Joseph G. Taylor: Her dollar up only two 5% year over year, how should we think about labor costs going forward.

Joseph G. Taylor: And then one follow-up to that. So anything that you can share as relates to how the big smasher burger performed in the tests and then in terms of additional upgrades we might see on the burger platform in the coming months? Yeah, you know, we did not test the Big Smasher, like in a formal market test; we tested it for operations to make sure we knew how to make it, and we could do a lot of them fast. So we don't have any data to share with you on that.

Mike: Hi, John its Mike.

Speaker Change: One major reason that we were able to leverage our labor as we've now lapped that initial investment where we had all those incremental hour. Then so now that is built into the base. So really it's just about that wage rate pressure that is now starting to come down a little bit and then as Joe said.

Kevin D. Hochman: What I can tell you is, you know, we're incredibly encouraged by the buzz that we're hearing from the PR that you guys are probably seeing on social media. We think that both the value discussion and the competition for talent have ampped up. For example, yesterday, during our launch, in the morning, we were the number one trending topic on Twitter for the Chili's Three for Me Smasher Burger. So I mean, that gets very exciting that we know we're on, you know, we know we're on a topic that is very top of mind for guests.

Kevin D. Hochman: Our turnover continues to improve and sell our team members are a lot more productive so all of those different dynamics.

Kevin D. Hochman: Including the PPA are helping us to leverage our labor costs, and we will continue to do that into the fourth quarter. So I think youll see some similar improvements year over year in the fourth quarter.

Speaker Change: Thank you.

Kevin D. Hochman: Okay.

Kevin D. Hochman: Your next question for today is from Brian Vaccaro with Raymond James.

Kevin D. Hochman: Sure.

Kevin D. Hochman: And we have, you know, an incredible value proposition that we're bringing additional news to, you know, in a flavor profile that I think most customers are used to, but in a much bigger burger format. So, you know, we're very encouraged by that.

Speaker Change: Hi, Thanks, and good morning, and Joe Congrats on your career, it's been a real pleasure working with you over the years.

Speaker Change: Thank you Brian.

Speaker Change: I just wanted to follow up on an earlier question maybe to kick it off just sort of a quick follow up but given how important.

Kevin D. Hochman: Muscle memory and having the right teams in places would you be willing to level set sort of where your hourly and also store manager turnover.

Kevin D. Hochman: Currently running.

Kevin D. Hochman: Yes, so actually our manager turnover on a rolling three month.

Kevin D. Hochman: We think we have the exact right item at the exact right time, at the exact right price. Point with, you know, a loaded marketing plan to get after it over the next five weeks. So we expect big things from the Big Smasher.

Kevin D. Hochman: Is right around I believe 5% percent, yes, and then the hourly number which I'm getting too has its only 2% above the industry at this point.

Kevin D. Hochman: The rolling three.

Kevin D. Hochman: And then, you know, the important thing is we have to continue to bring news to the value platform as well as continue to manage the mix on value. You know, one of the things I'm most proud of is when you look at our Three for Me mix with all the, what you're seeing with the economy and the macro and the consumer, you know, our Three for Me mix has only increased by, you know, a half a point. I mean, it's been very modest.

Kevin D. Hochman: Is at.

Kevin D. Hochman: Just about 25% almost 26%.

Speaker Change: Okay, great. Thank you.

Speaker Change: My other question I wanted to ask about is just chili's comp outperformance that has sustained outperforming the industry. Despite the industry. The softer industry backdrop could you just put some more context on how chili's gap to the industry trends through the quarter through the quarter and in March specifically when you started to lap the initial return to television.

Kevin D. Hochman: <unk> last year and you've also talked about seeing these longer tail periods, when you're off air perhaps maybe tie in what's driving those longer tails and how that plays into your thinking about sustaining market share gains through calendar 'twenty four.

Kevin D. Hochman: And that's why you're seeing such incredible gains on the bottom line, you know, from the earlier question, when you look at our margins, right? So we're able to manage that mix really effectively with proper menu merchandising, taking items off as we bring items on. And that seems to be having the right impact on traffic while creating sustainable growth and expanding margins. I appreciate it. Thank you. Your next question is from David Palmer with Evercore ISD. Hi, it's John calling in on behalf of David.

David Sterling Palmer: You know, we're just curious about labor expense in the quarter, despite all the investment, uh... going into the company, how you leverage labor in the quarter with units. Hi, John, it's Mika. So one major reason that we were able to leverage our labor is that we have now lapped that initial investment, where we had all those incremental hours in. So now that is built into the base.

John: Yes so.

Mika Ware: So Brian so the sales gap by months.

David Sterling Palmer: Yeah.

Mika Ware: Was we were.

Mika Ware: Six eight in January.

Mika Ware: And that was.

Mika Ware: That was advertising.

Mika Ware: That was not rolling advertising and.

Mika Ware: In February we had no advertising.

Mika Ware: So really, it's just about that wage rate pressure that is now starting to come down a little bit. And then, as Joe said, our turnover continues to improve, and so our team members are a lot more productive. So all those different dynamics, including the PPA, are helping us to leverage our labor costs. And we'll continue to do that into the fourth quarter.

Mika Ware: This year or the previous year, and we were eight 5% gapping the industry.

Speaker Change: And then in March we were at six 6% capping that versus the industry.

Mika Ware: Okay.

Mika Ware: Very helpful and I guess on those tails, Kevin maybe just refresh us on what's driving the longer tails. If you will maybe the snowball effect I imagine its the improvements in the guest experience you've made reduced guests with the problem et cetera, but maybe just if you could elaborate a little bit on that.

Speaker Change: Yes, we're seeing better list with the advertising and we're seeing longer tails, meaning as we turn to advertising off we continue to see gapping versus the industry.

Brian Michael Vaccaro: So I think you'll see some similar improvements year over year in the fourth quarter. Your next question for today is from Brian Vaccaro with Raymond James. Hi, thanks, and good morning.

Brian Michael Vaccaro: To the positive for Chili's, we think it is just the continued simplification in the restaurants and you talk to the managers about the changes that we're making quarter. After quarter of these are essentially continuing to be their ideas that we're rolling out. The most recent ones have been with the Burger launch and the new chicken sandwich launch so on chicken sandwiches.

Joseph G. Taylor: And Joe, congratulations on your career. It's been a real pleasure working with you over the years. Thank you, Brian, but I just wanted to follow up on an earlier question, maybe to kick it off to sort of a quick follow-up, but given how important muscle memory and having the right teams in place is, would you be willing to level set sort of where your hourly and also store manager turnover is currently running? Yes, so actually, our manager turnover on a rolling three-month basis is right around, I believe, five percent. Five percent.

Kevin D. Hochman: Yep. And then the hourly number, which I'm getting to, is only two percent above the industry at this point. So the rolling three is at just about 25 percent, almost 26 percent. Okay, great.

Joseph G. Taylor: You're a great. Examples we don't we're not pounding the chicken anymore that is like one of the worst jobs ever in the restaurant is to sit there and pound raw chicken and we actually found the chicken sandwiches juice here and more tasty you don't pounded.

Kevin D. Hochman: And then the second thing we did was we moved the sandwich build off of the Fries zone, which is where we bread, we freshly bread and we freshly fried that fillet.

Kevin D. Hochman: Zoned used to actually have to make the sandwich now we actually have it being built where the with the burgers are being built and that takes a lot of pressure off the <unk> zone. So that they are willing to make a whole lot more fried chicken sandwiches thats a big win another one that we talked about on the call earlier was the lunch burgers. So lunch Burger is a whole another.

Kevin D. Hochman: Thank you. And, you know, my other question I want to ask is just Chili's comp outperformance that has sustained, you know, outperforming the industry despite the industry, the software industry backdrop. Could you just put some more context on how Chili's gap to the industry trended through the quarter, through the quarter and in March, specifically, when you started to lap the initial return to TV advertising last year. And you've also talked about seeing these longer tail periods when you're off air, perhaps maybe tie in what's driving those longer tails, and how that plays into your thinking about sustaining market share gains through calendar 24.

Kevin D. Hochman: Rob beef SKU that we have to manage the inventory on literally every day right. So you've got to Cook the projections are and make sure you have the right amount of <unk> ready to projections.

Kevin D. Hochman: Don't have the right amount either you run out or you have too many that you might have to throw away and so just eliminating that double SKU, which was Q3 eight six ounce patties, which is $7 two ounces of beef and replacing that with a seven five single Patty, which we already use on all of our other burgers, it's one less pain.

Kevin D. Hochman: Pain in the neck for that for that team member to manage.

Kevin D. Hochman: Side the cooler.

Kevin D. Hochman: A bunch of waste that goes away because you don't longer have been Patty waste and it actually the guest gets a little bit more meat and then because we have all of our volume going into that seven five ounce Patty we actually save money on that from a Cogs standpoint. So these are examples where it's like these little things that keep rolling out every month. It makes the restaurants, so much more easy to operate.

Kevin D. Hochman: Yeah, so Brian, so the sales gap by month was, we were 6.8 in January, and that was advertising that was not rolling advertising. In February, we had no advertising either this year or the previous year, and we were 8.5% gapping the industry.

Kevin D. Hochman: And so that's showing up in both the team member turnover metrics and then as importantly, it's showing up with food grade scores intent to return and service level. So I would anticipate that momentum continuing as long as we continue to put simplifications into the business both for the manager and the team member as well as continuing to move friction for the guest I don't know why we wouldn't continue to see that.

Kevin D. Hochman: And then in March, we were at 6.6% capping versus the industry. Okay, that's, that's very helpful. And, and I guess on those tails, Kevin, maybe just refresh us on what's driving the longer tails, if you will, maybe this snowball effect, I imagine it's the improvements in the guest experience you've made, reduced guests for the problem, etc. But maybe just if you could elaborate a little bit on that.

Kevin D. Hochman: Scores both for the team members and the guest experience continue to improve.

Speaker Change: Alright, Thats very helpful. Thank you for that and last one I just wanted to ask about was on the topic of pricing and value in the current environment could you level set what percentage of the sales were on some sort of value in the period and within three for me sort of the mix between the $2 99 versus the higher tiers and then I believe the new you have a new <unk>.

Kevin D. Hochman: Yeah, we're seeing better lists with the advertising, and we're seeing longer tails, meaning as we turn the advertising off, we continue to see gapping versus the industry for Chili's. You know, we think it's just the continued simplification in the restaurants. And you talk to the managers about the changes that we're making quarter after quarter. These are essentially continuing to be their ideas that we're rolling out. You know, the most recent ones have been with the burger launch and the new chicken sandwich launch.

Kevin D. Hochman: Menu launching in this current quarter, what's your latest thinking on how much pricing will be in that venue at chili's and maybe you could help level set the cadence of Chile's pricing in the next few quarters. Thanks very much.

Speaker Change: Hey, Brian I'll take the first half and I'll, let Mike take the pricing.

Kevin D. Hochman: In the back.

Kevin D. Hochman: So, on chicken sandwiches, you know, I'll give you a great example. We don't, we're not pounding the chicken anymore. That is like, one of the worst jobs ever in the restaurant is to sit there and pound raw chicken.

Speaker Change: And to your question so.

Kevin D. Hochman: So so.

Speaker Change: Our three from each year, so im going to give you a couple of data points. This you understand what's happening with value or three for me here.

Kevin D. Hochman: And we actually found the chicken sandwich is juicier and more tasty when you don't pound it. And then the second thing we did was we moved the sandwich build off of the fry zone, which is where we breaded it freshly.

Kevin D. Hochman: Is about 16, 1% up from 15, 5%. So that was a half a point I was referring to earlier Thats a <unk> hundred so in other words every hundred orders that's how many that are being ordered 47%.

Kevin D. Hochman: We freshly fried that fillet. That zone used to actually have to make the sandwich. Now we actually have it being built where the burgers are being built. And I think it takes a lot of pressure off the fry zone so that they're willing to make a whole lot more fried chicken sandwiches. That's a big win.

Kevin D. Hochman: Of those three for me are coming in at 10, 99 tier and then more than half, which 53% is coming into the 14, 99% to $6 99 tier.

Kevin D. Hochman: So even though we're advertising 10 99 more than half of the actual transactions off the value menu are coming in significantly higher price points, and then as far as number of checks on deal.

Kevin D. Hochman: You know, another one that we talked about on the call earlier was the lunch burgers. The lunch burger is another raw beef skew that we have to manage the inventory on literally every day. Right? So, you gotta cook the projections and make sure you have the right amount of patties ready to projections. If you don't have the right amount, either you run out, or you have too many that you might have to throw away.

Kevin D. Hochman: Was.

Kevin D. Hochman: And so just eliminating that double skew, which were three point six ounce patties, which is seven point two ounces of beef, and replacing that with a seven point five single patty, which we already use on all of our other burgers. It's one less. You know, pin in the neck for that team member to manage, you know, inside the cooler. It's a bunch of waste that goes away because you no longer have thin patty waste, and actually, the guest gets a little bit more meat, and then because we have all of our volume going into that 7.5-ounce patty, we actually save money on that, you know, from a cost standpoint.

Kevin D. Hochman: Roughly 31% in Q2, and it's roughly 31% in Q3, so we saw a little bit of an uptick from Q1 to Q2, but it's basically been flat from Q2 to Q3.

Speaker Change: And Brian as it relates to pricing pricing I'm going to pick that one up to.

Kevin D. Hochman: So we did drop a menu yesterday that had a pricing action right around 3% as our pricing strategy is pretty much unfolding as we've talked about over the course of really the most of the fiscal year first and foremost we're going to protect.

Kevin D. Hochman: Critical prices like our $10 99 price point, so we think thats very effective.

Kevin D. Hochman: Is it plays into our advertising campaigns and our ability to service our guests looking for that heightened level of value and we're going to do everything we can to protect that as we kind of move forward at the same time, we've been able to find opportunities throughout the menu, particularly as it relates to.

Kevin D. Hochman: So these are examples of little things that keep rolling out every month. It makes the restaurant so much easier to operate, and so that's showing up in both the team member turnover metrics, and then, you know, as importantly, it's showing up with food grade scores, intent to return, and service level. So, you know, I would anticipate that momentum continuing, as long as we continue to put simplifications into the business, both for the manager and the team member, as well as continue to reduce friction for the guest. I don't know why we wouldn't continue to see those scores, both for the team members and the guest experience, continue to improve.

Kevin D. Hochman: Areas that guests might be willing to pay up a little bit more to take some price and move that in and as we've always said, we would start to moderate.

Kevin D. Hochman: <unk> as we kind of move forward in this last acts and Deb demonstrates that moderation at around 3%, obviously as we get into the August call, you'll get more detail for Micah as to what 25 looks like but.

Kevin D. Hochman: Right now I think we're pretty well set in the fourth and for the foreseeable future on what pricing actions.

Kevin D. Hochman: All right, that's very helpful. Thank you for that. And the last one I just wanted to ask about pricing and value in the current environment. Could you please level set what percentage of the sales were on some sort of value in the period?

Speaker Change: Need to be taken as we kind of move forward and they can be a little bit more judicious and plan out.

Speaker Change: Over the course of next fiscal year, some lower levels of pricing that makes sense. Since we've accomplished a lot of what we wanted to accomplish with getting our our price levels and our barbell price points back to where we think that can be effective.

Speaker Change: Okay, Joe and my notes right that would result in your fiscal fourth quarter pricing being somewhere in the low sevens.

Kevin D. Hochman: And within three for me, sort of the mix between the 1099 versus the higher tiers. And then I believe the new, you have a new menu launching this current quarter. What's your latest thinking on how much pricing will be on that menu at Chili's? And maybe you could help level set the cadence of Chili's pricing for the next few quarters. Thanks very much. Okay, Brian, I'll take the first half.

Speaker Change: Or maybe that changed a little bit.

Kevin D. Hochman: I think it moved up just a little bit because we actually were able to this menu went out about a month earlier than we originally contemplated so you get a little bit more effectiveness on the quarterly price points. So it's.

Kevin D. Hochman: I'm gonna let Mika take the pricing question on the back end of your question. So, so we, our three-for-me tier, so I'm going to give you a couple of data points just so you understand what's happening with value. Our three-for-me tier is about 16.1% up from 15.5%, so that was that half a point I was referring to earlier. That's a P100, so in other words, every 100 orders, that's how many are being ordered.

Mika Ware: Yes, it'll be it'll be.

Mika Ware: Hi, <unk> almost eight we took a little incremental price in California as well when we saw the opportunity there. So that's what bumped it up yes.

Kevin D. Hochman: 47% of those three-for-mes are coming in at the 1099 tier, and then more than half, which is 53%, are coming in at the 1499 and the 1699 tiers. So, even though we're advertising $10.99, more than half of the actual transactions off the value menu are coming at significantly higher price points. And then as far as the number of checks on deals goes, it was roughly 31% in Q2, and it's roughly 31% in Q3. So, we saw a little bit of an uptick from Q1 to Q2, but it's basically been flat from Q2 to Q3.

Speaker Change: Alright, great ill pass it along thanks very much.

Kevin D. Hochman: Your next question is from Andrew <unk> with BMO.

Speaker Change: Hey, good morning, Thanks for taking the questions.

Speaker Change: I wanted to revisit the margin conversation and now that you've lapped some of the labor investments lapping some of the <unk> investment I know thats going to continue to go up but.

Kevin D. Hochman: The inflation environment is kind of normalized or is there a way to think about.

Kevin D. Hochman: Durable or sustainable level of restaurant margin expansion going forward and I know.

Kevin D. Hochman: And Brian, as it relates to pricing, I'm going to pick that one up too. So we did drop a menu yesterday that had a pricing action right around 3%. So our pricing strategy is pretty much unfolding, as we've talked about over the course of really most of the fiscal year. First and foremost, we're going to protect. We've had some critical prices, like our $10.99 price point, so we think that's very effective, obviously, as it plays into our advertising campaigns and our ability to service a guest looking for that heightened level of value.

Speaker Change: Several quarters ago or over time, you've kind of talked about a mid teens, 15% restaurant margin as achievable as your view of the visibility to that changing at all.

Speaker Change: Yes, I think.

Kevin D. Hochman: So a couple of things there one is 15%.

Kevin D. Hochman: A visible yes. It is very much though from a quarterly standpoint.

Kevin D. Hochman: We have traditionally you have higher ROM levels in your third and fourth quarter. So the.

Kevin D. Hochman: 2014 to its nice to get over the 2014 hurdle for that third quarter end.

Joseph G. Taylor: And we're going to do everything we can to protect that as we move forward. At the same time, we've been able to find opportunities throughout the menu, particularly as it relates to areas that guests may be willing to pay up a little bit more to take some of the price and move that in. But as we've always said, we would start to moderate prices as we kind of move forward, and this last action demonstrates that moderation at around 3%.

Joseph G. Taylor: We have our sites ahead of us and how we can continue to move that.

Joseph G. Taylor: Forward in the fourth quarter, I think youll see some nice continued moves up and on the wrong side of the equation.

Joseph G. Taylor:

Joseph G. Taylor: I think on a go forward basis.

Joseph G. Taylor: Talked about is an ability to leverage top line growth into steady, but kind of that 20%, 30% 40 basis points.

Joseph G. Taylor: Obviously, as we get into the August call, you'll get more detail from Mika as to what 25 looks like, but right now, I think we're pretty well set for the foreseeable future on what pricing actions need to be taken as we kind of move forward, and they can be a little bit more judicious and plan out over the course of next fiscal year some lower levels of pricing that make sense, since we've accomplished a lot of Okay, Joe, and are my notes right that that would result in your fiscal fourth quarter pricing being somewhere in the low sevens? Or maybe that changed a little bit?

Joseph G. Taylor: Increase in annual margins as you go forward so.

Joseph G. Taylor: In essence, the play it a little differently in every quarter based on some of the seasonality and some of the volumes there, but we do envision an upward trajectory.

Joseph G. Taylor: As you kind of go both year over year in the different quarters, and obviously the annual level kind of in that 20 to 40 basis points range.

Speaker Change: Okay, Great and my second question I was just hoping you could remind us kind of the virtual brand headwind you are expecting in the fourth quarter from a traffic perspective, and then just more broadly as it relates to off premise. If you could just touch on what Youre seeing there the split of the business how that's evolving.

Joseph G. Taylor: I think it moved up just a little bit because we actually were able to, this menu went out about a month earlier than we originally contemplated, so you get a little bit more effectiveness on the quarterly price point, so it's the high seven. Yes, no, it'll be, you know. We took a little incremental price in California as well when we saw the opportunity there, so that's what bumped it up. All right, great. I'll pass it along.

Speaker Change: Okay. So that virtual brand headwind will be similar into the fourth quarter, it's going to stay around that that two to two 5% and then as far as the off premise goes that is about 26, 27% for chili's and about half of that still is.

Joseph G. Taylor: Third party delivery versus to go.

Speaker Change: Great. Thank you very much.

Speaker Change: Youre welcome.

Andrew Strelzik: Thanks very much. Your next question is from Andrew Strelzik with BMO. Hey, good morning.

Joseph G. Taylor: Your next question for today is from Jon Tower with Citi.

Joseph G. Taylor: Thanks for taking the questions. I wanted to revisit the margin conversation. And, you know, now that you've left some of the labor investments lapping some of the ad investment, I know that's going to continue to go up, but come on, the inflation environment is kind of normalized. Is there a way to think about a durable or sustainable level of restaurant margin expansion going forward? And and I know, you know, several quarters ago, over time, you've kind of talked about a mid-team 50% restaurant margin as achievable as your, You are the visibility to that, changing it all. Yeah, I think so a couple things there. One is 15%.

Karen: Hi, its actually Karen.

Speaker Change: For John today.

Joseph G. Taylor: Just two for me one.

Joseph G. Taylor: Not asking for fiscal 'twenty guidance, I don't we're going to have to wait a quarter for that.

Joseph G. Taylor: Is there anything you would sort of call out in terms of sort of.

Joseph G. Taylor: Chunky enhanced our unique.

Joseph G. Taylor: In 2024, we would want to consider are kind of thinking about setting 'twenty four and 'twenty five into that longer term algorithm you've laid out.

Joseph G. Taylor: Kevin really now I think we're pretty much in run the railroads and continuing to run the railroad at a faster pace kind of mode right now so I don't I don't.

Joseph G. Taylor: You know, a visible Yes, it is very much so from a quarterly standpoint. But remember, we traditionally have higher ROM levels in your third and fourth quarter. So the 14.2 is nice to get over the 14 hurdle for that third quarter.

Joseph G. Taylor: Anticipate obviously at year end there is always.

Joseph G. Taylor: A review of various and sundry accruals you want to make sure. Your insurance positioning is correct you can obviously have adjustments to.

Joseph G. Taylor: Items like incentive compensation and things of that nature that kind of play out.

Joseph G. Taylor: Those are typical.

Joseph G. Taylor: Year end reviews, but theres nothing.

Joseph G. Taylor: And we have our sights ahead of us on how we can continue to move that forward in the fourth quarter. I think you'll see some nice continued moves up on the ROM side of the equation. I think on a going forward basis, what we've talked about is an ability to leverage top line growth into steady, but kind of that 20, 30, 40 basis point increase in annual margins as you go forward.

Joseph G. Taylor: That I really view of systemic that needs.

Joseph G. Taylor: Any kind of major change to it.

Joseph G. Taylor: And then.

Joseph G. Taylor: Yes.

Joseph G. Taylor: Little bit since we've talked about some of the kind of future.

Joseph G. Taylor: Product simplification and improvements at one point I think talked about.

Joseph G. Taylor: 2025 initiative.

Joseph G. Taylor: Burger kind of in the rearview is that how we should be thinking about it or are there other things that youre going to maybe focus on before that.

Joseph G. Taylor: In essence, they'll play out a little differently in every quarter based on some of the seasonality and some of the volumes there, but we do envision an upward trajectory as you kind of go both year over year in the different quarters and, obviously, the annual level kind of in that 20 to 40 basis points range. Okay, great.

Speaker Change: Youre thinking about that right. So right now we've launched this new big Smash Burger when we whenever we roll a new item out we try to roll operational improvements either simplification <unk> reinforcing the right behaviors with the teams to get whatever that segment is to make it perfect. So.

Joseph G. Taylor: And my second question, I was just hoping you could remind us kind of the virtual brand head when you're expecting in the fourth quarter from a traffic perspective, and then, more broadly, as it relates to off premise, you just touch on, you know, what you're seeing there, the split of the business, how that's evolving. Thanks. Okay, so the virtual brand headwind will be similar in the fourth quarter. It's going to stay around that two to two and a half percent.

Joseph G. Taylor: So currently like we've re rolled out Burger fundamentals, which is the smash the senior and the Cook time. So the biggest match or uses our base seven five ounce Burger that we use on all of our entre burgers, making sure. The grille is at the right temperature proper bunch hosting and proper bun buttering.

Joseph G. Taylor: And then we have a new Fry procedure, we rolled out a little over a year ago to make sure our fries are.

Joseph G. Taylor: Hot fresh and crispy and properly seasoned every time. So we do we relaunched all of those procedures to make sure that we're making all burgers properly as we launched the big Smasher and then as part of the big Smash or were eliminated.

Joseph G. Taylor: And then as far as the off-premise goes, that is about 26, 27 percent for Chili's, and about half of that still is third-party delivery versus take-out. Great, thank you very much. Your next question for today is from Jon Tower with Citi. Hey, it's Karen on for John today.

Karen: <unk> $3 six ounce lunch Patty.

Joseph G. Taylor: And then rolled out into the seven five ounce Patty.

Karen: So kind of burgers as the way to think about for the next.

Karen: Call. It three to six months is going to be our focus and then.

Karen: We also rolled out a new simplified chicken sandwich, which I talked about the simplification.

Jon Michael Tower: Just two for me, one, you know, I'm not asking for fiscal 25 guidance, I know we're gonna have to wait a quarter for that. But is there anything you would sort of call out in terms of sort of chunkiness or unique items in 2024 that we would want to consider kind of thinking about fitting 24 and 25 into that longer-term algorithm you've laid out? Karen, really, no.

Speaker Change: We will likely.

Jon Michael Tower: Put that on air and our value proposition.

Jon Michael Tower: In late summer early fall and then the.

Jon Michael Tower: The core four segment that we'll go next after burgers will be fajitas and our plan is that should come in.

Jon Michael Tower: Later in Q2 of 25, so that would be call. It November December timing.

Jon Michael Tower: That is a pretty large project fajitas is over a $200 million business for us. So there is huge upside both in terms of improving the quality.

Joseph G. Taylor: I think we're pretty much in a run the railroads and continue to run the railroads at a faster pace kind of mode right now. So, I don't anticipate. Obviously, at year end, there's always a review of various in the summary accruals. You want to make sure your insurance positioning is correct.

Joseph G. Taylor: Of the product to get some pricing power as well as some of the mix driving that we can do like we did when we relaunched our chicken Christopher's lineup. So we're very bullish on.

Joseph G. Taylor: You can obviously have adjustments to items like incentive compensation, things of that nature that kind of play out. Those are typical year-end reviews, but there's nothing that I really view as systemic that needs any kind of major change to it. And then a little bit since we've talked about some of the kind of future products, your simplifications and improvements, and one point I think talked about the heaters as a 2025 initiative with the burger kind of in the rear view. Is that how we should be thinking about it?

Joseph G. Taylor: A large business that we think could get a whole lot bigger and more profitable that is a major product project because we are upgrading the protein.

Joseph G. Taylor: We're upgrading the tortilla that the fajita has served with.

Joseph G. Taylor: Upgrading the presentation of the vegetable both so that's fresher and more delicious.

Joseph G. Taylor: So it's a pretty big undertaking we've been we started that project about six months ago.

Joseph G. Taylor: So it's gonna be over a year into making by the time it gets to the market, but we're very very encouraged by it and hopefully by the next earnings call.

Joseph G. Taylor: We will have the test market results and to be able to share with all of you and give you confirmation of when thats actually going alone.

Speaker Change: Great. Thank you.

Speaker Change: All for me.

Kevin D. Hochman: Or are there other things that you're going to maybe focus on before that? Yeah, you're thinking about that right. So right now, we've launched this new Big Smasher burger. Whenever we roll out a new item, we try to make operational improvements, either simplification or reinforcing the right behaviors with the teams to get whatever that segment is and make it perfect. So currently, we re-rolled out burger fundamentals, which is the smash, the sear, and the cook time. So the Big Smasher uses our base 7.5 ounce burger that we use on all of our entree burgers, making sure the grill is at the right temperature, proper bun toasting, and proper bun buttering.

Joseph G. Taylor: Your next question is from Katherine Griffin with Bank of America.

Speaker Change: Hi, Thank you.

Kevin D. Hochman: First I wanted to ask about the mix dynamic that chili's in the quarter it seems like.

Kevin D. Hochman: With mix, a little bit less negative sequentially. The menu merchandising was successful in terms of our expectation to reverse the impact of the negative mix, but then I think you would also caution you might see some softening in the next given where the consumer is so.

Kevin D. Hochman: If you could just help me understand how much of the mix in the third quarter. It was kind of in your control.

Kevin D. Hochman: And then we have a new fry procedure we rolled out a little over a year ago to make sure our fries are hot, fresh, and crispy and properly seasoned every time. So we relaunched all of those procedures to make sure that we're making all burgers properly as we launched the Big Smasher. And then, as part of the Big Smasher, we eliminated the skinny 3.6 ounce lunch patty and rolled that into the 7.5 ounce patty.

Kevin D. Hochman: From the menu merchandising versus maybe seeing things.

Kevin D. Hochman: Seeing some softening.

Catherine: Hey, Catherine.

Speaker Change: Thanks for the question.

Kevin D. Hochman: Actually we're real pleased with the direction and the improvements we saw.

Kevin D. Hochman: In mix once we drop that menu. So obviously, we dropped the menu right at the end of July January excuse me I'm getting I'm already getting ahead of myself.

Kevin D. Hochman: So that's the kind of burgers we should think about for the next. Call it three to six months is going to be our focus. And then we also rolled out a new simplified chicken sandwich, which I talked about simplifying. We'll likely put that on air in a value proposition in late summer or early fall.

Kevin D. Hochman: The end of January.

Kevin D. Hochman: And we.

Kevin D. Hochman: It performed how we wanted it to perform again when you move.

Kevin D. Hochman: Merchandising around on the menu as we have a pretty good understanding of how that can be impactful. So we saw improvements in the mix as we moved through the rest of the quarter, it's not as apparent in the quarterly numbers because again you still had January under the old menu side of the equation.

Kevin D. Hochman: And then the core four segment that will go next after burgers will be fajitas, and our plan is that that should come in later in Q2 of twenty five. So that would be called the November, December timing. That is a pretty large project. Fajitas is over a two hundred million dollar business for us, so there's huge upside, both in terms of improving the quality of the product to get some pricing power, as well as some of the mixed driving that we can do, like we did when we relaunched our chicken crispers lineup.

Kevin D. Hochman: We're continuing to see that improvement move so.

Kevin D. Hochman: I would anticipate as we kind of move forward from here, a more neutral mix kind of environment.

Kevin D. Hochman: But what we're seeing.

Kevin D. Hochman: The results from the from the steps we've taken and then we've continued then layer in some additional opportunities we launched the express a martini just a couple of weeks ago Thats, an opportunity, particularly from a weekend perspective to add some some mix into the equation and we will continue to look at those those different opportunities how we merchandise both in.

Kevin D. Hochman: So we're very bullish on a large business that could get a whole lot bigger and more profitable. That is a major product project because we are upgrading the protein. We are upgrading the tortilla that the fajita is served on. We are upgrading the presentation of the vegetable boat, so that's fresher and more delicious.

Kevin D. Hochman: In the restaurant and on the menu but.

Kevin D. Hochman: We course corrected and course corrected pretty effectively.

Speaker Change: Okay, Great and then just another question on restaurant margins.

Kevin D. Hochman: So it's a pretty big undertaking. We started that project about six months ago, and so it's going to be over a year in the making by the time it gets to the market.

Kevin D. Hochman: What how did commodities inflation play out in the quarter relative to your expectations and then what are your expectations embedded in that.

Kevin D. Hochman: But we're very, very encouraged by it. And hopefully, by the next earnings call, we'll have the test market results in to be able to share with all of you and give you confirmation of when that's actually going to launch. Great. Thank you. That's all for me.

Kevin D. Hochman: Next upcoming quarter.

Kevin D. Hochman: Catherine actually our commodity inflation was a little bit better than we expected and we are basically flat in the third quarter and then in the fourth quarter, we do expect that could tick up a little bit probably in that 2% range.

Katherine Anne Griffin: Your next question is from Katherine Griffin with Bank of America. Hey, thank you. First, I wanted to ask about the mix dynamics at Chili's in the quarter. It seems like, you know, with mix a little bit less negative sequentially, the, you know, menu merchandising was successful in terms of, you know, expectation to reverse the impact of the negative mix. But then, I think you would also caution: you might see some softening in the mix, given where the consumer is.

Speaker Change: Okay. Thank you.

Joseph G. Taylor: So if you could just help me understand how much of the mix in the third quarter was kind of in your control, you know, from the menu merchandising versus, you know, maybe seeing some softening and the improvements we saw in MIX once we dropped that menu. So obviously, we dropped the menu right at the end of July and beginning of January. Excuse me, I'm already getting ahead of myself. You know, at the end of January and we, it performed how we wanted it to perform.

Katherine Anne Griffin: There appear to be no further questions in queue I would like to turn the floor over to Joe Taylor for closing remarks.

Speaker Change: Thanks, Holly and as this is my last time to to get the mic or speaker phone in this case as Kevin Kevin mentioned earlier. This is my last earnings call prior to passing on the CFO position at the end of our fiscal year in late June. So a couple of remarks, and thank you to wrap things up.

Joseph G. Taylor: First I'm thrilled to pass the Baton along to Mike who is such a key leader for the company and brings a depth of knowledge and a passion for our business to her new position. She is very well prepared and will be terrific terrific in the role.

Joseph G. Taylor: And next to all of our coverage analysts on the call. It has really been a pleasure working with you over the past decade, and I'll continue to value the relationships developed over the years. Thank you for your time spent getting to know us your insights both good and sometimes ones that were tougher to here and for bringing a high degree of professionalism to you that relationship.

Joseph G. Taylor: Again, when you move merchandise around on the menus, we have a pretty good understanding of how that can be impactful. So we saw improvements in the MIX as we moved through the rest of the quarter. It's not as apparent in the quarterly numbers because, again, you still had January under the old menu size equation.

Joseph G. Taylor: If your travels bring you through Dallas don't hesitate to reach out as I am sure. There are stories, we can retail meals that can be shared and possibly even some rounds to be played hopefully our paths will have the occasion to cross in the years ahead.

Joseph G. Taylor: And we're continuing to see that improvement. So I would anticipate as we kind of move forward from here a more neutral MIX kind of environment, but we're seeing results from the steps we've taken. And then we've continued to layer in some additional opportunities. We launched the Espresso Martini just a couple of weeks ago. That's an opportunity, particularly from a weekend perspective, to add some MIX into the equation, and we'll continue to look at those different opportunities, how we merchandise both in the restaurant and on the menu. But we course corrected, and we course corrected pretty effectively.

Speaker Change: And lastly, it is tough to express the high degree of Thankfulness I have towards my teammates both here at Trc and in our restaurants that have made this such a special place for me and my family over two decades.

Joseph G. Taylor: As I start my next I, particularly take with me a special appreciation for all the teammates who work tirelessly to lead and staff our restaurants each day.

Joseph G. Taylor: Our vps, DFS, Gms and thousands of Chile heads and pasta heads.

Joseph G. Taylor: Sure you have made this past and future guests feel very special.

Joseph G. Taylor: It has been an honor to tell the stories of your accomplishments in the calls such as this over the years. Thank you for each all of what you do each and every day.

Joseph G. Taylor: 25 years brings many experiences lifelong relationships and great memories and will always be part of my next ventures. It has been a true privilege and blessing to be a small part of the history of such a great company.

Joseph G. Taylor: Okay, great. And then just another question on restaurant margins. How did commodities inflation, you know, play out in the quarter relative to your expectations? And then what are your expectations embedded in the, you know, next upcoming quarter? Katherine, actually, our commodity inflation was a little bit better than we expected, so we were basically flat in the third quarter, and then in the fourth quarter, we do expect that to tick up a little bit, probably in that 2% range.

Speaker Change: Forward with eagerness to watching and sharing on the many successes that are ahead for all of the members of the Brinker team.

Speaker Change: And with that we are a journey and I wish you all a very good day. Thank.

Speaker Change: Thank you.

Joseph G. Taylor: Sure.

Joseph G. Taylor: Yes.

Joseph G. Taylor: Yes.

Speaker Change: Goodbye everyone. Thank you so much.

Speaker Change: 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.

Katherine Anne Griffin: Okay, thank you. There appear to be no further questions in queue. I would like to turn the floor over to Joe Taylor for closing remarks. And thanks, Holly. And this is my last time to use the mic or speakerphone in this case.

Joseph G. Taylor: As Kevin mentioned earlier, this is my last earnings call prior to passing on the CFO position at the end of our fiscal year in late June. So, a couple of remarks and a thank you to wrap things up. First, I'm thrilled to pass the baton along to Mika, who is such a key leader for the company and brings a depth of knowledge and a passion for our business to her new position. She is very well prepared and will be terrific in the role.

Joseph G. Taylor: And next, to all of our coverage analysts on the call, it has really been a pleasure working with you over the past decade, and I will continue to value the relationships developed over the years. Thank you for your time spent getting to know us, your insights, both good and sometimes ones that were tougher to hear, and for bringing a high degree of professionalism to the relationship. If your travels bring you through Dallas, don't hesitate to reach out as I'm sure there are stories we can retell, meals that can be shared, and possibly even some rounds to be played. Hopefully, our paths will have the occasion to cross again in the years ahead.

Joseph G. Taylor: And lastly, it is tough to express the high degree of thankfulness I have towards my teammates, both here at the RSC and in our restaurants, who have made this such a special place for me and my family over two decades. As I start my next career, I particularly take with me a special appreciation. For all the teammates who work tirelessly to lead and staff our restaurants each day. Our VPOs, DOs, GMs, and thousands of chili heads and pasta heads.

Joseph G. Taylor: I assure you that you have made past and future guests feel very special. It has been an honor to tell the stories of your accomplishments in causes such as this over the years. Thank you for all of what you do each and every day. 25 years brings many experiences, lifelong relationships, and great memories that will always be part of my next ventures. It has been a true privilege and blessing to be a small part of the history of such a great company.

Joseph G. Taylor: I look forward with eagerness to watching and cheering on the many successes that are ahead for all the members of the Brinker team. And with that, we are adjourned, and I wish you all a very good day. 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.