Q1 2027 Brinker International Earnings Conference Call - BRINKER INTERNATIONAL INC

Financial Performance:

• Total revenues reached $1.476 billion, with consolidated same-store sales (SSS) growth of 9.1%.
• Adjusted diluted EPS was $2.77, representing a 44% year-over-year increase from $1.93.
• Chili's SSS grew 10.1%, driven by a 6.4% traffic increase and 3.7% price/mix, while Maggiano's SSS declined 3.4% due to a 5.3% mix decrease.
• Restaurant operating margins improved to 17.7%, a 150 basis point year-over-year increase, supported by sales leverage despite commodity inflation (+3.3%) and higher labor costs (+2.6% wage rate).
• Adjusted EBITDA rose 21.3% to $209.1 million.
• Free cash flow was strong enough to support $63.4 million in capital expenditures (primarily maintenance) and $125 million in share repurchases.

Guidance and Future Outlook:

• Updated Fiscal 2027 full-year guidance: Revenues of $6.23–$6.33 billion; Adjusted EPS of $13.30–$13.90; Weighted average shares of 42–43 million; CapEx of $265–$285 million.
• Expects to significantly outperform the industry in sales and traffic for Fiscal 2027.
• Anticipates Q1 as the strongest on a SSS basis, with moderate mid-single-digit growth in subsequent quarters due to tougher prior-year comparisons.
• Projecting full-year restaurant-level margin improvement of 70–90 basis points.
• Targeting 2–3% annual unit growth by Fiscal 2029, with a ramp-up in Fiscal 28 and over 300 identified potential trade areas.
• Plan to complete 60–80 Chili's reimages in Fiscal 2027, establishing a cadence of 10% of the fleet annually starting Fiscal 28.

Business Segments and Product Lines:

• Chili's: Q1 traffic outpaced the industry for 12 consecutive quarters; Google ratings hit an all-time high of 4.3. Key product driver is the $10.99 Big Crispy Chicken Sandwich (55 units/day/restaurant). Menu upgrades included Blue Bell ice cream, sausage pasta, cheesecake, and an expanded Kids Pepper Pals menu.
• Maggiano's: Banquet sales increased 11% following a cross-functional turnaround program; currently rolling out Chili's KDS (Kitchen Display System) to improve ticket times and food quality.
• Off-Premise: Represents ~25% of business (12.5% delivery, 12.5% carryout); launching a multi-year initiative to improve ordering ease, accurate time estimates, and pickup experience.
• Throughput Initiatives: Rolling out "North of Six" staffing practices, host stand role redefinition (Meter, Seeder, Greeter), and new handheld interfaces to reduce order times and eliminate "false waits."

Market and Competitive Landscape:

• Chili's SSS outperformed the casual dining industry by 720 basis points in Q1.
• Company believes the "consumer under pressure" macro environment favors market share growth for strong operators offering everyday value.
• Acknowledged industry-wide check management trends (consumers reducing alcohol/dessert spend), but noted Chili's traffic gains are compensating for any mix softness.
• Confirmed via third-party data (Black Box Intelligence) that Chili's per-person average remains below the competition, with a narrower differential than previously quoted.

Risks and Challenges:

• Inflationary pressures on commodities (3.3% inflation) and labor are factored into guidance, with roughly $7 million of freight/oil cost impacts expected to hit restaurant expenses.
• Potential for consumer check slippage due to gas prices and interest rates, though managed via value positioning.
• Operational complexity in running 1,000+ restaurants; CEO noted that despite improvements, the back-of-house remains difficult to manage and requires high manager retention.
• Early-stage reimage program results need more time to fully validate sales lift and ROI (current estimate 3–5% lift at $500k–$600k cost per unit).

Management Commentary and Tone:

• Tone was highly confident and optimistic, emphasizing the sustainability of double-digit comp growth and the "powerful flywheel" of traffic, sales, and margins.
• CEO Kevin Hoffman stressed a disciplined focus on fundamentals (food quality, hospitality) over short-term tactical promotions, describing their strategy as "marketing brings them in, operations bring them back."
• Management highlighted a shift from distraction-heavy metrics (e.g., GWAP in bonuses) to focused operational behaviors and "fewer, bigger" strategic swings.
• Confidence expressed in the ability to continue comping despite high prior-year bases, citing a strategy built on converting new guests into regulars.

Analyst Questions and Answers:

• Consumer & Inflation: Management confirmed consumer pressure is real but manageable; inflation costs (freight/oil) are fully baked into guidance.
• Big Crispy Launch: Sales were slightly below initial expectations (2/day) due to lack of in-restaurant merchandising; expected to accelerate after November 1st when table tents are deployed.
• Remodel ROI: Early results show 3–5% sales lifts; management aims to reduce remodel costs from $600k to $500k over time while maintaining quality.
• Banquet Strategy: Success in banquets (11% growth) proves cross-functional focus works; now leveraging this for marketing to new guests.
• Throughput: Detailed plans for host stand retraining and new handheld tech to reduce bottlenecks; no significant ticket time improvement yet reported, but optimism for Q4 visibility.
• Marketing Cadence: No fixed 6-month cycle for celebrity collabs; initiatives are driven by specific product launch priorities and content needs.
• Dessert Innovation: Testing "bumping" desserts to the top of the kitchen screen to drive mix without slowing table turnover; testing is ongoing.

Other Key Points:

• CEO worked hourly shifts at two Chili's locations to identify operational friction points, concluding that retaining tenured managers is critical for success.
• The "Big Crispy" marketing strategy involves a mix of linear TV, connected TV, and social media, with future content (like Big Crispy Parm) used as digital/social PR plays rather than broad TV spend.
• A "Heart of House" AI-driven ERP system is being developed for the back-of-house to automate forecasting, inventory, and scheduling, expected to take 2–3 years.
• The "North of Six" restaurant model (high-performing units) continues to outcompete the brand average, validating the training and staffing initiatives.