Q3 2025 Brinker International Inc Earnings Call
Good day and welcome to the Brinker International Q3 F. 'twenty five 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.
Sanders: <unk> Sanders, Vice President of Investor Relations Ma'am the floor is yours.
Speaker Change: Thank you Holly and good morning, everyone and thank you for joining us on today's call here with me today are Kevin Hoffman, President and Chief Executive Officer, and President of Chili's, and micro Ware, Chief Financial Officer.
Speaker Change: For our third quarter were released earlier this morning and are available on our website at Brinker Dot com as usual, Kevin and Micah 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.
Speaker Change: Any such items should be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Speaker Change: All such statements are subject to risks and uncertainties, which could cause actual results to differ materially 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 and.
Speaker Change: 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.
Kevin Hoffman: Thank you Kim and good morning, everyone. Thank you for joining us as we discuss our financial and operating performance in the third quarter Chili's delivered another strong quarter with same restaurant sales up 31, 6% and traffic up 21% sales leverage and simplification continued to drive improved four wall economics, which allowed us to.
Kevin Hoffman: To deliver a 18, 9% restaurant operating margin for the quarter. These results were achieved by our continued focus on the fundamentals of casual dining foodservice and atmosphere. Our Q3 sales performance significantly outpaced the industry, which is especially encouraging given we launched no new food or value news we remain.
Kevin Hoffman: On the same big Smasher campaign, we continued reducing our menu and pantry Skus and we were still able to weather the increase in competitive promotional offers these results further demonstrate the operational muscle we continue to build is accelerating performance.
Kevin Hoffman: Marketing is driving guessing in operations is bringing guests back I'd like to recognize the marketing team led by George Helix and our field operations team led by Doug Cummings and as EPS for just exceptional teamwork that is driving our industry leading results our restaurant support center and our field restaurant teams are operating as one team with a common goal of improving.
Kevin Hoffman: The guest and team member experience.
Kevin Hoffman: Now, let's talk about the operational improvements we completed in the third quarter. It starts with menu simplification as we removed three menu items as well as for lower mixing wings sauces, eliminating those sources helps simplify zone one our price station, which also has gotten much busier with the increased volumes. This source reduction also allowed us to eliminate the source station in small.
Kevin Hoffman: Players, which freed up much needed space for our cooks and reduce the amount of zone, one equipment they need to clean daily. We also made three key operational improvements during the quarter. The first ops initiative was a renewed focused on burger mastery in preparation for a big <unk> launch in Q4, Burger Masters training and coaching and involves making sure every burger.
Kevin Hoffman: It's properly smashed properly seasoned and the flat top grill is properly maintained so we deliver a tasty juicy perfectly cooked Burger every time, the second ops initiative with adding an all day button to our kitchen display systems, which summarized accounts on high mixing items for our cooks prior to this enhancement cooks wood after school through several pages of script.
Kevin Hoffman: <unk> and <unk>, Chris Brewster prior or how many burgers to drop on the flat top now our coast could easily see a running total of what to Cook, which will reduce both response time in total ticket times during busy shifts no Morris growing no more adding in their heads. So they can focus on making great food faster every time.
Speaker Change: The third Big Q3 Ops initiative was making significant improvements to win with our dishwashers one of our most important roles in our restaurants and it's a high turnover position in the heart of house, we held listening sessions to understand what would make their jobs easier and more enjoyable, particularly given how much busier. They are with our sustained higher volumes. We then made the changes that were most important.
Speaker Change: Them that were rolled out in Q3, we believe this continued focus on operational improvements and making team members' jobs easier sets us up for more sustainable success in the out quarters.
Speaker Change: Now I want to give an update on marketing and menu innovation two weeks ago at the start of Q4, we launched the big QP, a burger packed with 85% more beef in a quarter pound Burger, it's tough with two slices of American cheese, ketchup mustard, pickles and onions. It joins the big Smasher on a three for me menu at the 10 99 price point as.
Speaker Change: As consumers' frustration with high prices and translation continues we're continuing chili's better than fast food campaign to demonstrate our unbeatable value to lots of big QP, Jesse Johnson, our vice President of marketing and our amazing PR team opened up fast food financing of limited time pop of experience at the heart of Manhattan. This successful event generated more than <unk>.
Speaker Change: <unk> and the Big Smasher launch did in both creating awareness of the big QP and further strengthening our position as a great value our guests can count on.
Speaker Change: Our World Class marketing team also continues to find new ways to insert the brand into pop culture and differentiate chilis from its casual dining peers. This is what we call building the brand over time and as a way to separate ourselves from the sea of casual dining competitors on April 7th we opened our Chile Scranton branch, a new restaurant that pays homage.
Speaker Change: To chili's onscreen moments from one of the most famous television comedies of all time. The special location features 2500 of course and the famous Chili's episode, a blip for guests to recreate the scene for social media and is now the only chili's in the world to serve the awesome Blossom, which was prominently featured in the episode we surrounded the launch with ads featuring popular actor.
Speaker Change: From the show, which appeal to both longtime viewers of the show's first run in addition to a younger generation that now streams. The library of episodes Chili's screen branches, yet another way to reignite Chili's brand history in a modern relevant way that no. Other casual dining brand could do fans are raving about this move and this initiative has generated over 9 billion impressions for chili's.
Speaker Change: And now the Scranton branches, a place where super fans of the show can pilgrimage and be a part of the Chili's story.
Speaker Change: We have also recently launched three initiatives designed to reinforce chili's as the number one seller of Margarita has and bring us to the top of the consideration set when consumers are creating a mark first we partner with lifetime TV to Premier Chile's first ever movie in celebration of National Margarita Day. The 15 minute original film titled I'll be home for National Margarita.
Speaker Change: They start <unk>, and <unk> and leverage lifetime fans love of holiday movies to bring top of mind awareness for Chili's and Margarita.
Speaker Change: We've also partnered with the JM indie agency to make Chile's first ever music music video entitled Ride the that day as a way to drive awareness of our famous Presidente Margarita with NASCAR fans and activate our sponsorship of the number 77 spy our Motorsports car driven by Carson post the var and starting may 1st our new Margarita of the month.
Speaker Change: <unk> will tap into the Ninety's, Mr. Alger with a radical Rita featuring 90 pop TV icon Tiffany season, the marketing team is level up there Margaret the month strategy and is leading our record breaking market amongst sales to help both help protect alcohol incidents as well as give chili's fans exciting new drinks to come try at a hot price point food news strict news.
Speaker Change: <unk> culture Pops of strategic marketing are all part of our marketing teams plan to drive sales overnight as well as the brand over time.
Speaker Change: Now, let's do an update on <unk>. The team continues to follow the Chili's playbook to bring the magic back the marciano by simplifying and elevating the menu with innovation, removing discounting from the business improving service levels refreshing atmosphere to drive more sustainable traffic over time.
Speaker Change: Much like Chili's early around turnaround days, we're doing the hard work and the agenda simplify operational complexity and invest in improving the fundamentals of foodservice and atmosphere. We're also stopping unprofitable discounting that's not consistent with the <unk> brand that has been embedded in the business for years during the third quarter. The team launched a new menu with for Siggi.
Speaker Change: Typically upgraded core dishes, including the Grand Chicken Parm, and new Fettuccine, Alfredo a new lasagna Bolognese and a snake River farms wagyu meat balls that are available both as an appetizer and part of our spaghetti and meatballs Entre. These upgraded dishes along with four previously upgraded core recipes that president Dominic brought alone and VP of culinary Anthony <unk>.
Speaker Change: So have brought to the menu now represent 50% of the entre mix and I firmly believe the more mix, we get into these new and renovated moderate and delicious menu items. The more loyalty will drive the margin of those guests over time.
Speaker Change: To enable the restaurant teams to execute these elevated dishes consistently the monsanto's menu has now been reduced by 20% over the last year and we continue to simplify our cooks jobs by consolidating ingredients and removing process that does not add value for guests. During Q3, we removed eight lower mixing menu items 10, pantry Skus and 17.
Speaker Change: Prep recipes from the business.
Speaker Change: We have also removed the remaining deep discounts that were in the business, including double your portion, which gave us much as a 50% discount across our digital channels Marco's meal, which was a significantly discounted meal for two and discounted carryout meals were getting out of the discounts that were originally installed to drive sales in the short term and reinvesting.
Speaker Change: Those resources in a more sustainable long term business building activities that will upgrade the food service and atmosphere similar to the Chili's playbook in year, one and just like Chili's in the early stages of the turnaround we expect to see traffic choppiness over the next four quarters as we build a stronger margin as brand for the long term.
Speaker Change: I continue to be encouraged by our business momentum and I am just so proud of our team our focus on the fundamentals has been at the core of the turnaround and we believe it will continue to allow us to push through the macro pressures. The industry is now experiencing guests are pulling back the number of chips across restaurants in the industry and are choosing those brands. They trust to have a great experience. So those brands.
Speaker Change: <unk> on superior fundamentals will grow market share and we believe chili's is well positioned to be one of those winning share and modulus has now started the journey II.
Speaker Change: Now I'll hand, the call over to Micah to walk you through the third quarter numbers and our updated guidance go ahead Micah.
Micah: Thank you, Kevin and good morning, everyone.
Micah: Brinker delivered another double digit same store sales growth quarter, which is a direct result of our focus on improving the fundamentals of food service and atmosphere is.
Micah: Exciting to see our multi layered marketing strategy driving trial and our ongoing operational improvements, bringing guests back. These results give us confidence that our investor growth strategy continues to deliver and we're excited by the opportunities ahead to grow that base business.
For the third quarter Brinker reported total revenues of $1 $425 million.
Micah: <unk> comp sales are positive 28, 2%, our adjusted diluted EPS for the quarter with $2 66.
Micah: From $1 24 last year.
Micah: Both brands reported topline sales growth with Chili's comps coming in at positive 31, 6% driven by positive traffic at 29% positive mix of six 3% and priced at four 4%.
Micah: The Tilly's team delivered these sales results against the backdrop of industry and macro headwinds from weather and consumer economic uncertainty, except for a slight dip in both sales and traffic in February due to weather Chili's delivered consistent results every period of the quarter and has maintained this momentum into April.
Micah: We now believe more than ever consumers will continue to reward Chile as a brand that consistently provides great food service and atmosphere at an exceptional value.
Turning to <unk> the brand reported comp sales for the quarter at positive <unk>, 4% driven by seven 3% price positive one 3% net partially offset by negative eight 2% traffic of which one 2% was weather related.
Speaker Change: As Kevin mentioned my Jonathan is still in the early stages of its turnaround strategy dominant team continue to follow the chili's platelet by eliminating discounting and simplifying operations to improve the menu service and atmosphere like the early days and Chili's turnaround, we expect some traffic headwinds in the near term, but I'm proud of that.
Micah: Team for doing what it takes to grow the business for the long term at.
Micah: At the Brinker level, we saw continued strong flow through this quarter with restaurant operating margin coming in at 18, 9%, a 470 basis points improvement year over year, primarily driven by sales leverage from topline growth.
Micah: This resulted in favorability in all categories of food and beverage costs labor and restaurant expense.
Micah: Food and beverage costs for the quarter were favorable 10 basis points year over year with pricing offsetting one 8% of commodity inflation.
Micah: We're also pleased with the mix and profitability of our $10 99, three for me value platform, which continues to perform as expected. It offers a compelling price point for guests seeking value, while remaining cost effective for us, allowing us to maintain margin profitability.
Micah: Labor for the quarter was favorable 140 basis points year over year topline sales growth offset additional investments in labor and wage rate inflation of approximately four 5%.
Micah: Advertising spend for the third quarter was two 9% of sales and increased 40 basis points year over year, our marketing team continues to do an excellent job, bringing chili's back into the cultural conversation and making the brand relevant again, which is helping drive traffic.
Micah: G&A for the quarter came in at four 1% of total revenues with year over year sales leverage offset by increases in performance based compensation and ERP system cost.
Micah: Our second quarter adjusted EBITDA was approximately $221 million, an 80% increase from prior year.
Micah: Capital expenditures for the quarter were approximately $80 million driven by accelerated investments in kitchen equipment and capital maintenance.
Micah: During the quarter, we repaid approximately $125 million and funded debt, leaving only $90 million remaining on our revolver from the $350 million notes that matured in October, bringing our overall lease adjusted leverage ratio to one nine times.
Micah: Our current $900 million revolver expires in August of 2026, we are on track to close the refinance of the revolver during Q4 locking in ample liquidity to continue to support all of our disciplined capital allocation strategy, which is to invest in the business pay down debt and return.
Micah: Excess cash to the shareholders.
Micah: In terms of our expectations for the balance of the year as noted in this morning's press release, we are raising our fiscal 2025 full year guidance to include the following.
Micah: Annual revenue in the range of $5 33 billion to 535 billion.
Micah: Adjusted diluted EPS in the range of $8 50 to $8 75.
Micah: Capital expenditures in the range of $265 million.
Micah: To $275 million.
Micah: Weighted average shares in the range of 46 million to $46 5 million.
Micah: Assumptions underlying this guidance include consideration of the macro environment.
Micah: And commodity inflation in the low single digit wage rate inflation in the mid single digits and a tax rate in the high teens.
Micah: We've seen a step change in our business over the past year as we remain committed to improving the fundamentals of food service and atmosphere with world class marketing, making us relevant and our restaurant teams, providing a great guest experience. We are back in the consideration set and a destination of choice for consumers.
Micah: I am so proud of what the team has accomplished and I'm confident that by sticking to our strategy and making smart investment will continue to drive long term success now with our comments complete I will turn the call back over to Holli to moderate questions.
Micah: Ali.
Holli: Thank you 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 we're posing your question you. Please pickup your handset if listening on speaker phone to provide optimum sound quality. Please.
Micah: Please hold while we poll for questions.
David Palmer: Your first question for today is from David Palmer with Evercore ISI.
David Palmer: Thanks, Ken.
Speaker Change: Kevin and Mike.
Speaker Change: As you can imagine people are really thinking a lot about same store sales and sustainability of same store sales growth.
Speaker Change: Obviously theyre looking at your comparisons and they get a lot tougher coming into fiscal <unk>. The December quarter. So people are looking at that as a big mountain.
Speaker Change: Youre going to have to climb and I know you've been that you take your comparison seriously and you you were thinking about your initiatives in.
Speaker Change: And you have things lined up but.
Speaker Change: People are look they look at multiyear trends. So you look at the two year trend they look at compare it to your growth versus 2019.
Speaker Change: I think people are mixed some people think.
Speaker Change: Things might be slightly negative buyback quarter and things might be slightly positive, but there is this concern out there people wonder about did you have brand lightning in a bottle last year, that's tough to replicate and and so.
Speaker Change: And the other hand, I know there is significant number of balls that are that see you as having initiatives too. So I'm. Just wondering if you wanted to sort of lean into that debate, where people are really arguing about climbing that mountain and what gives you confidence in the metrics you see and what.
Speaker Change: What are the most important initiatives that youre doing that gives you confidence that you'll be able to sustain positive comps and thank you.
Kevin Hoffman: Yeah, Hey, David it's Kevin.
David Palmer: Good morning.
David Palmer: This is a discussion that we have internally all the time right because we are doing things.
David Palmer: Don't necessarily give you that this new initiative or these 50, new buildings that we're going to build that you could guarantee and take to the bank. We are building it based on the fundamentals of casual dining which is improved in <unk>.
David Palmer: Improved food improved service levels.
David Palmer: Improved atmosphere and our belief is we'll continue to comp the comp if we continue to do that and we're honest with ourselves on the improvements on that now.
Here's what I would tell you I think even if we go in comps to 31.
David Palmer: In October November December it will be whatever the next big Mountain is and so the only thing I can point to is we were this quarter that we're in right now last year, we were plus 15 and I think at that point everybody was asking the exact same questions, which is how the heck are they going to comp of plus 15, and Q4 I think we're generally over that mountain <unk>.
David Palmer: <unk> have been quite good heading into April we see very similar to trends that we saw in March with great traffic and great sales results. So we've been able to go over this first hurdle, we're going to have another hurdle two quarters from now and after we figure that one out there'll be another hurdles in the future because if youre going to be focused on improving same store sales.
David Palmer: Versus really laser focused on system sales, it's going to be harder to look at that and go I have 100% confident this is going to happen. So this is not something that we know is new to us what I will tell you is what I focus on with our team is on food service and atmosphere are are we going to be significantly better this year versus last year and if the answer is yes, we have a lot of confidence where in the <unk>.
David Palmer: To grow the comp so that's how we think about it I know, it's very very hard to put that in a mathematical model and feel really confident but we're going to continue to do that because that continues to work.
David Palmer: Thank you.
David Palmer: Your next question is from Dennis Geiger with UBS.
Dennis Geiger: Great. Thanks, guys and congratulations I just wanted to ask if you're seeing any notable shift in sort of the biggest contributors to the momentum that youre seeing in recent quarters.
David Palmer: Maybe about.
David Palmer: Three for me utilization triple dip or utilization marketing benefits et cetera, any observations there or has it been pretty steady and consistent any any kind of call out your observations.
David Palmer: I'd be curious thank you.
David Palmer: Hi, Dennis this is micah.
Speaker Change: It really as Kevin said, our momentum has been very sustainable moving from Q through Q3 into Q4.
Speaker Change: A couple of things I will know is in Q4, we will roll off a little bit of price we.
Speaker Change: We'll be lapping some of the initial triple different ramp ups that will probably most likely roll off a point or so of mix that traffic continues to be really strong year over year, and we've not seen that momentum slowed down at all.
Speaker Change: Thanks, Mike appreciate it.
Speaker Change: Your next question for today is from Chris O'connell with Stifel.
Chris O'connell: Hey, good morning, guys.
Speaker Change: Mike just a quick clarification on that last comment you mentioned chili's maintained momentum in April, but just given the step up in the lab I was hoping you could clarify is that maintained momentum on a one year basis or should we be thinking about the comp trend maintaining on a two year basis.
Speaker Change: It's really very similar trends to Q3 April has so on the one year. It is maintaining and in a two year I would say traffic has stepped up slightly because we are lapping harder numbers in April.
Speaker Change: Okay. That's great and then the Capex guidance was the noticed noticeable step up this quarter can you can you give us a little more detail what changed there I'm assuming some of it may be the acceleration of our replacement, but I was hoping you could confirm that and then detail any other items that drove the increase and maybe just help us ballpark what youre thinking for.
Speaker Change: The next fiscal year.
Speaker Change: Okay now.
Speaker Change: You nailed it on the head so one of the largest increases but the new turbo chef ovens that we spoke about last quarter. So we do have a one time write off that will happen and happened part of it happened in Q3, the other half of that will happen in Q4, as we write off the old oven and install the new oven.
Speaker Change: So that did contribute to the step up in depreciation as well as the cost of the new equipment.
Speaker Change: Just equipment in general is the other driver in maintenance capital as we continue to invest in our building and our atmosphere as sales remain elevated we continue to take that opportunity to make sure that we have the absolute best and updated asset that we can.
Speaker Change: Okay, great. Thanks.
Speaker Change: Your next question is from Jeff Farmer with Gordon Haskett.
Jeff Farmer: Hi, good morning. Thanks.
Jeff Farmer: How should we be thinking about your ability to either hold or grow restaurant level margins moving into FY 'twenty six I know theres a lot of moving pieces, there, but again sort of your confidence in continuing to have that margin expansion roll into 'twenty six.
Jeff Farmer: Hi, Jeff Yes, no great question, I do expect restaurant margins to maintain or <unk>.
Jeff Farmer: Continue to grow into the future. So a couple of things.
Jeff Farmer: First of all we're going to continue to invest in the business that we maintain our pricing power and by doing that that allows us to protect our margins.
Jeff Farmer: Longer term I will reserve the right to invest in labor, but as the teams continue to increase in their 10 years, they get more productive we get more use of these higher level of traffic that all the teams are experiencing I think that will have some productivity opportunities there and then as Kevin said we.
Jeff Farmer: To grow this business for the long term. So the largest thing for US is to continue to increase our <unk> and we will be able to leverage those fixed costs and grow margins as we move forward. So that's worked really well for us and we continue to plan to do that as we move forward in the future.
Speaker Change: Okay. Thank you.
Christine Cho: Your next question for today is from Christine Cho with Goldman Sachs.
Christine Cho: Yes. Thank you I was wondering how we should think about kind of the estimated tariff impact on cost of sales.
Christine Cho: Tequila, and avocado et cetera, I know theres not a lot.
Christine Cho:
Speaker Change: Uncertainties at the moment, but could you help us kind of size exposure and whether you have any flexibility in the supply chain to help offset some of that incremental pressure.
Speaker Change: And any changes to your thinking around pricing is the inflationary pressures that that mix escalating more meaningfully. Thank you.
Christine Cho: Alright, Hi, Christine Great question.
Christine Cho: First of all so let me go through a lot of different parts of that so obviously the tariff situation continues to be fluid.
Christine Cho: But we have thought about it a lot. So first of all over 80% of our supply chain basket is sourced domestically so.
Christine Cho: That's a great thing.
Of the balance Thats left at least a third of that comes from Mexico, and Canada, and we've had some some opportunity there that we won't have as much tariff or as of right. This minute and then we've looked at the rest of the world and we do have flexibility in our supply chain to move to different countries or do whatever we can to control.
Christine Cho: The cost I will say in the Grand scheme of things when we had quantified the impact we have over a $1 billion of food and beverage costs. So it's relatively small to the to the <unk>.
Christine Cho: <unk> spend that we have in that bucket. So we do think with our current pricing strategy that we can absorb.
Christine Cho: Any tourists that come our way really just within the current strategy that we have.
Christine Cho: With our pricing strategy one of the most important things for us will be to continue to protect those opening price points in that industry, leading value for the guests that need it and then we're going to continue to invest in the business. So that we can improve our pricing power and keep leaning into that barbell strategy. So that we can price and make sure we protect margins and <unk>.
Christine Cho: Any inflation that comes our way.
Speaker Change: Thank you so much and congrats.
Christine Cho: Thanks Christine.
Christine Cho: Your next question is from Jeffrey Bernstein with Barclays.
Hi, Good morning. Thanks, This is product on for Jeff.
Kevin Hoffman: Kevin you spoke in your prepared remarks about simplification.
Kevin Hoffman: Moving some of those menu items that are more complex and not maybe mixing as well as you'd like but just wanted to ask maybe the opposite side of that just anything in the pipeline that you're excited about.
Kevin Hoffman: In terms of upgrading the platform I think fajitas have not necessarily gone through a major overhaul.
Kevin Hoffman: But just anything you're thinking about going forward.
Kevin Hoffman: So kind of enhanced the menu.
Kevin Hoffman: Yes. Thanks for the question. So as I said last quarter, we have been working very diligently on redoing, our rigs and our smokehouse platform.
Kevin Hoffman: That will launching in Q1 that will feature a significantly upgraded.
Kevin Hoffman: <unk> recipe and process and making that revenue youll get a much crusty or more smoky delicious rib.
Kevin Hoffman: We're also going to be upgrading sides as part of the smokehouse combo and redoing the merchandising similar to what we did.
Kevin Hoffman: With chicken Christopher's, a few years ago, where we saw explosive growth of today, the chicken christopher's businesses up 66%, even though its a more simplified lineup. So we expect very big things out of the rib platform. We're known for ribs. It's a part of our equity it's only 3% of our sales so huge upside to improve that product in <unk>.
Kevin Hoffman: Prove that platform going forward. We've also got some appetizer upgrades coming in Q1. So we're going to have all new case. So we have two cases today and we have an opportunity to have one really great queso, that's going to allow us to reinvent our nachos today or nachos are made almost like a test out of style and most people when they order not just expect to get trashcan style.
Kevin Hoffman: That's going to allow us some pricing power as well as a much upgraded nacho thats more consistent with what guests with one.
Kevin Hoffman: Not sure that I pace that I think is unbeatable in the market right now so I'm very excited about Q1, thats going to ball launch before football season, when ribs nachos and queso.
Kevin Hoffman: It would be very much in vogue and in the back half of our fiscal year, we're looking at upgrading our state program as well as our salad program. So and then there's more things in the following fiscal so we've got.
Kevin Hoffman: I always say, there's way more opportunities ahead of us and are behind US now I know, we feel really good about the core for upgrades and <unk> to drive, but quite frankly, we've got a lot more things on the menu that we can make it even stronger and better and that both gives us pricing power as well as continues to allow us to drive traffic and we are craveable items that you can only get a chilly so.
Kevin Hoffman: I'm very very bullish about the innovation moving forward.
Kevin Hoffman: I'm very exciting. Thank you so much for the color.
Andrew: Your next question is from Andrew <unk> with BMO.
Andrew: Hey, good morning, Thanks for taking the question.
Andrew: Wanted to ask about investments moving forward.
Speaker Change: Mike you talked about reserving the right to invest in labor.
Speaker Change: Having the listening sessions with some of the dishwashers, how is the conversation evolving with operators in terms of what they're asking.
Speaker Change: For to keep up with the traffic growth where are you seeing kind of maybe some of the biggest opportunities and how do we think about the timing of those things.
Speaker Change: Hi, Andrew.
Speaker Change: Great question.
Speaker Change: It is a journey for us so as the we had a huge step change in the business that started in October with traffic trends really.
Speaker Change: Increasing and it's significant amount and I'm really proud of how the app operators have stepped up and made sure that we were prepared and had the labor that we needed to take care of the guests. So that was step one as we just had to make sure that we're staffed and we're ready for the new guests that are trying out chili's and the guests that are coming back to make sure. They have an out of this world experience.
Speaker Change: And as I come back and so that was job one I do think over time that the operators will work closely to make sure where we are investing more hours that is strategic and that we know what the return is and that we are improving the guest or team member experience in some form or fashion to continue to drive traffic in the long term. So I do think theres.
Speaker Change: <unk> as we get we build those muscles and we can we can improve some productivity, but we may identify like Kevin said, some other places that we need to continue to invest to make sure that we grow this thing for the long term one other thing as guest guest metrics continued to improve year over year and Thats something we watch really closely so we're going to continue to keep an eye.
Speaker Change: On that but right now we feel really good about those investments that we've made and we're going to work together to make sure. We continue to make smart investments as we move forward.
Kevin Andrew: It's Kevin Andrew the other thing I would add is and we've been consistent since I started three years ago is that the investments that we make we know we're tying them to growing the overall business. So if you actually look at our all the investments and then compare that to.
Kevin Andrew: The raw results that we've had the EBIT results. We have I think we've got a track record now where we primarily invest in things that grow the business and improve the four wall economics of owning chili's and so I don't anticipate that changing I will tell you. We are literally this week with our vice president of operations and my leadership team and we're looking at next fiscal plan.
Kevin Andrew: We understand our pricing assumptions, we understand our traffic assumptions, we're looking at the headwinds that are there things like tariffs to make sure that we can cover them like Mike talked about and then we're looking at potential investments and we're going to all hold hands together as a field and home office team to decide which things that we think are needed to continue to accelerate the business and which things.
Kevin Andrew: Maybe we need to pause on based on what everybody is seeing in the macro until we have a little bit more visibility about whats happening and so if you look at the track record what we've done with investments and I think taking it to the next level, where we're partnering.
Partnering with the field team as one team to figure out which investments are going to make the most sense to accelerate the business I'm very confident we're going to make the right choices.
Kevin Andrew: Great. Thank you very much.
Speaker Change: Your next question for today is from Jon Tower with Citi.
Speaker Change: Great. Thanks for taking the question maybe first.
Speaker Change: <unk> one and then just the natural question on the modeling side for the fourth quarter can you give us a range for where you think G&A DNA all settle out and then the question is on the Chili's business itself traffic's been exceptionally impressive. So I'm curious if maybe you could speak to the breakdown between an increase in frequency with existing guests versus new guests coming in the door.
Speaker Change: <unk> for the first time or perhaps lapsed users to the brand.
Speaker Change: Coming back in the doors and just curious if you could kind of stuff out there.
Speaker Change: The distinction between them.
John: Okay, Hi, John.
John: So first of all just to start with your first question <expletive>.
Speaker Change: Depreciation and G&A.
Speaker Change: Maybe in absolute dollar amount, though it will be very similar from what you saw in Q3 and Q4. So I'll just guide you guys that way for the modeling question as.
As far as traffic goes really when you have traffic trends like ours when they are up.
Speaker Change: Over 20%, it's really coming from from all places. So again, we're growing all income levels our age group.
Speaker Change: It's new it's new guests that are coming back in its current investors are coming back more frequently so it's really hard to break it down when everybody is coming more often at chili's, what we do know.
Speaker Change: Again is it that guest experience continues to improve and that we know people are coming to chili's are having a great experience and are coming back and over time, we think we're going to continue to drive that frequency number.
Speaker Change: Got it thank you.
Speaker Change: Your next.
Speaker Change: <unk> is from Brian Vaccaro with Raymond James.
Speaker Change: Okay.
Hi, Brian.
Speaker Change: Brian I Wonder if youre on mute Brian.
Speaker Change: Sorry about that.
Speaker Change: Sorry about that.
Speaker Change: Thanks, and good morning.
Speaker Change: So just a couple of clarifications if I could.
Speaker Change: Until these year on year pricing is that still expected a moderate sort of into that 2.5% to 3% range as we move into the fourth quarter and do you view that as sort of a sustainable range from here and you made a comment on mix.
Speaker Change: As well.
Speaker Change: Thanks.
Speaker Change: I think roll off a point, but just wanted to clarify you still expect mix to be up call. It mid single somewhere in that range, but you are just rolling off a point that was that what you were saying there micah.
Speaker Change: Yes, yes, thank you Brian so.
Speaker Change: Yes, you got it exactly right. So we're going to roll off a little bit of price I would say price will be in that 2% to 3% in the fourth quarter I think longer term our price should probably live in that 3% to 5% range, We always reserve the right to.
Speaker Change: Move that up or down depending on what's happening in the macro environment that that that's kind of an earmark I would use now for a longer term play.
Speaker Change: As far as mix goes again triple differ is driving a lot of mix and then you got that right well I said, we dropped we've rollover about a point or so as we start lapping those higher mix numbers from last year when triple dip a really took off.
Speaker Change: Alright, Thank you and sorry, if I missed it but what was the total three for me mix in the quarter and the split between the $2 99 in the higher tiers do you also have the sales mix on the triple differ handy.
Speaker Change: Yes, so as far as the three for me we've done a really great job of keeping it very consistent so it's been in that 18%, 19% range and it stayed right. There in Q3, nothing changed and then as far as the $2 99 level, it's right at that 56% again, no change Q2 to Q3.
Speaker Change: So we're managing it exactly as expected.
Speaker Change: Triple defer sales for the quarter I think we've talked about that being.
Speaker Change: About the increases you have to think its about women.
Speaker Change: One.
Speaker Change: Our up 1%, yes. So a total sales that went from like I think 11 to 12 is that right, yes that actually the menu mix. The mix went from 11 to 12 okay.
Speaker Change: Net sales dollar sales are 15%.
Speaker Change: At the point now.
Speaker Change: Okay dollar sales up a point to 15% Okay very helpful. Last one if I could just ask on the margins real quick can.
Speaker Change: Can you level set us on your advertising spend expectations in the fourth quarter and then I think we are lapping the outsized repair and maintenance from last fourth quarter any guardrails on kind of repair and maintenance. Some obviously mindful of the investments youre, making in the business.
Speaker Change: Given your very very healthy traffic, but just if you could level set your thinking on those two items. Thanks, so much.
Speaker Change: Yes, so advertising as I talked about last time will be up in the fourth quarter, that's where we have some of our increased spend it will probably be closer to 3% of sales where it was a little bit less than that in the third quarter. So you will see an increase there and then R&M. It is planned to be favorable year over year I would expect the run rate to be about the same as the third quarter.
Speaker Change: Though.
Speaker Change: Thank you very much.
Speaker Change: Youre welcome.
Speaker Change: Your next.
Speaker Change: Question is from Eric Gonzalez with Keybanc.
Eric Gonzalez: Hi, Thanks for the question and congrats on the really strong results.
Speaker Change: Up in April in terms of two year traffic can you discuss whether that was a reaction to the big QP promotion or perhaps is just momentum. In addition to some other factors such as weather or macros and in terms of the performance of the big QP, how does that compare the big smash or in terms of menu incidents.
Kevin: Yes, so it's Kevin.
Speaker Change: Hey, Eric.
Speaker Change: So the momentum is all of the above so when we saw the big Smash a year ago really take off.
Speaker Change: We thought hey, we need to make sure we have really really strong plans a year from now so we can continue the momentum going and that was why the big <unk> was designed it was designed to keep momentum going we are selling more <unk> than we did big Smashers at launch. So we feel very bullish we also have more media impressions or PR impressions for the <unk>.
Speaker Change: <unk>, probably because we have more of an audience now about value based on our track record of value. So we feel very good about the ability of the <unk> to continue.
Speaker Change: The acceleration of the business.
Speaker Change: Also think just in general as we continue to improve service levels and food grade scores I think thats why youre seeing the business continue to have momentum like that's what we've always maintained is we've got to continue to improve the experience for the guests. If we expect to continue to grow comps on top of growing comps and thats exactly what were doing right now so the net of it is <unk> is doing.
Speaker Change: It's been designed to do which is to continue the momentum on value.
Speaker Change: Then the things that we're doing outside of a promotion working on the fundamentals of casual dining we can continue to work to continue to accelerate our business.
Speaker Change: Thanks.
Speaker Change: Your next question for today is from Sara Senatore with Bank of America.
Speaker Change: Alright, thanks for the question.
Speaker Change: And on for Sarah just a quick question just speaking about value perception, how would you say that the value environment promotional intensity has trended throughout the quarter and going into April and if you can just give broader comments on the demand environment as a whole are that would be appreciated and I have a quick follow up.
Speaker Change: Okay.
Speaker Change: The three for me the demand on our to 99 has been very stable very steady. So we didn't see any increases from Q3 into April it's.
Speaker Change: Right at that 19% and then a little bit over half of that is what's on the 10 99 value competitively you guys see what we see right. Obviously, the environment has gotten more and more competitive it got more competitive last quarter.
Speaker Change: Ported on in Q2, it's obviously gotten more competitive this quarter it doesn't seem to be making a debt and what we're doing and once again I don't think that the value equation is just about the lowest price I think we've proven now it's about both the price as well as what you get and the experience that you have and I think what youre seeing in the industry as the guys that are growing market share right now.
Speaker Change: The other ones that have generally better experience and so it's not just about the lowest price point, we're pretty confident that as long as we keep our experience levels high and keep our food or food scores high with a 10 99 price point, we think that's pretty difficult to beat in the industry and we're well positioned even if the macro were to continue to soften so but we're seeing that.
Speaker Change: You guys are seeing in test <unk>.
Speaker Change: <unk> activity were seeing all the same things about where the consumer sentiment is but as far as our business results that they don't seem to be that impacted by what's going on right now I think given where we're positioned.
Speaker Change: Got it makes sense. Thank you.
Speaker Change: Really quickly.
Speaker Change: It looks like operating leverage was slightly lower year over year versus Q. Despite like similar same store sales growth could you talk about kind of the underlying dynamic that may have shifted quarter over quarter there.
Speaker Change: Yes, so really it was labor and so I've talked about in Q2 that we were understaffed in October and so we staffed up throughout that quarter and then you saw that momentum continue with the staffing up into Q3. So we over earned at the touch on labor in Q2, and then that normalized in Q3, So thats, where you saw that.
Speaker Change: <unk> change.
Speaker Change: Thank you.
Speaker Change: Youre welcome.
Speaker Change: Your next question is from Jim Sanderson with Northcoast research.
Jim Sanderson: Thanks for the question and congratulations on a great quarter I was wondering given the many changes you've made how has the capacity of an average chilis improved in terms of weekly in store traffic and off premises traffic and then what constraints capacity constraints, you're trying to resolve.
Kevin Hoffman: Yeah, Hey, Jim it's Kevin.
Speaker Change: So thats a great question, it's something we're working on we have a team that we've put together we call it the north of <unk>. So.
Speaker Change: There's over 100 restaurants today that do more than $6 billion <unk>. Our brand average is closer to 40 345 right. Now. So these are these are restaurants that they are not any bigger than a normal chili's for some reason they are able to handle huge capacities and what we're learning as they do some things differently than.
Speaker Change: And then the corporate structure and we're learning from them to then re apply that to the other parts of the system. So.
Speaker Change: We don't think theres any capacity constraints in terms of the equipment or the size of the boxes. Given we have a sizable number of restaurants that are doing upwards some of them do $910 million <unk>.
Speaker Change: <unk>, it's really about learning from them to understand.
Speaker Change: What are the different things that we need to do to make sure we get the most out of our boxes. The other thing that Michael referred to earlier is our teams are starting to get used to the higher volume. So it was probably easier for a team that was doing let's say $5 million and it has gone up to $7 million that's much easier for that team because they are used to having high volumes versus a team that maybe it was doing $3 million avs.
Speaker Change: I was doing $4 5 million and so the teams are getting more and more used to how they deal with the volumes. They are sharing learnings across the system and we're just getting stronger about higher volume and higher traffic. So our traffic is now back to where it was over a decade ago in terms of 2015 levels. So we're going to continue to get stronger and stronger and I loved us nor.
Speaker Change: <unk> 16, using the best operators in the system working on the highest volume restaurants to start teaching the lower volume restaurants, as well as one of the things that we needed to differently corporately to be able to handle the increased traffic.
Speaker Change: Alright, and a quick follow up could you update us on what the off premises mixes delivery and pickup.
Speaker Change: Yes, so off premise for both brands keep it still hovers around that 24, 25% and then the delivery for Chili's is half of that so it's still about half and half split between Carryout and delivery.
Speaker Change: Alright, Thank you very much.
Speaker Change: Youre welcome.
Speaker Change: Your next question for today is from Russell Crowe with J P. Morgan.
Russell Crowe: Good morning, guys.
Russell Crowe: How does significantly de Levered balance sheet now under strong free cash flow trajectory, how should we think about the levels of future capex, especially considering the ramp of chili's remodels on <unk> growth. If you can elaborate some detail there aren't further down the line would eminent.
Russell Crowe: We entered the picture for Brinker recall.
Russell Crowe: Alright so.
Russell Crowe: Moving forward, we did talk about that our capex.
Russell Crowe: <unk> ramp up with their re images and so we will get into more specifics on what our capex budget will be in the future on next quarter. When we wrap it up and kind of guide for next year, but again, we will continue to utilize this cash that we're generating to invest in the business and grow the business long term.
Russell Crowe: Other than that I've said invest in the business pay down our debt that'll be significantly.
Russell Crowe: Done by the end of this fiscal year. So the third party would be return cash to the shareholders.
Russell Crowe: You've mentioned that we would probably do that.
Russell Crowe: In the form of a share repurchase program next on the list. So we'll see as the time happens on that.
Russell Crowe: As far as M&A goes obviously there is nothing that is on the radar right now we always look at opportunities in the future, but nothing that we're doing are considering right now where we're going to lean into my John is we have a small brand that we're very proud of that we are in the midst of turning around and we think that brand has a lot of growth opportunities.
Russell Crowe: So we're going to lean into that opportunity.
Russell Crowe: Thank you.
Russell Crowe: Youre welcome.
Russell Crowe: We have reached the end of the question and answer session and I would now like to turn the floor back to Ken Sanders for closing comments.
Ken Sanders: Thank you Holly that concludes our call for today, we appreciate everyone joining us and look forward to updating you on our fourth quarter results in August have a wonderful day.
Ken Sanders: 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.
Ken Sanders: [music].
Ken Sanders: [music].