Brinker International (EAT) Q4 2026 earnings call transcript

It is now my pleasure to turn the floor over to your host, Kim Sanders, Vice President of Investor Relations. Ma'am, the floor is yours. Thank you, Holly, and good morning, everyone, and thank you for joining us on today's call. Here with me today are Kevin Hochman, Chief Executive Officer, and President of Brinker International and President of Chili's, and Michael Ware, Chief Financial Officer.

Results for our fourth quarter were released earlier this morning and are available on our website at Brinker. 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. Before beginning our comments, I would like to remind everyone of our safe harbor regarding forward-looking statements.

During our call, management may discuss certain items which are not based entirely on historical facts. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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, of course, on the call, we may refer to certain non-gap financial measures that management uses in its review of the business, and believes will provide insight into the company's ongoing operations.

And with that said, I will turn the call over to Kevin.

Thank you, Kim, and good morning, everyone. Thank you for joining us as we discuss our financial and operating performance for the fourth quarter, as well as provide guidance for fiscal 27. Q4 Chile's same-store sales of plus six marked our 21st consecutive quarter of same-store sales growth and, again, significantly outpaced the industry. This strong result was rolling a plus 24 from last year and a plus 15% from two years ago for a three-year cumulative comp of 50%. There are lots of different ways to look at our results, but the key conclusion is that Chile's turnaround is real. This bill 26 saw this brand increase its lead as the number one casual dining traffic brand, and the results are sustaining year after year.

It's important to note in this difficult operating environment that instead of using precious resource and investments on initiatives to drive short-term sales, we at Chile's focus are resource for long-term sustainable growth, improving food, service, and atmosphere, and the team-member experience, as well as positioning our brand to be more relevant, easy, and distinctive. These experience improvements, coupled with our everyday value leadership, represented by a per-person average spend that has $3 to $4 below competition, are supporting a powerful flywheel of traffic, sales growth, margin expansion, and then reinvestment into our business.

And this study approaches why the business will continue to win. The American consumer demands experience and great value, and they are showing up for those brands who consistently deliver that. Third-party syndicated data confirms Chile's continues to be ranked in the top tier across key measures like value, quality, service, and overall experience. We still have room to improve, but our progress gives us confidence that we will sustain traffic gains and repeat business.

We are very appreciative and proud that Chile's is one of the small handful of brands, the American consumer trusts, and we're willing to increase their visits too. And we will work hard for our guests to maintain both our value leadership and improving our guest experience year after year.

Now I'll give some updates on the Chile's business. We're now four months post-Big Crispy launch, and we can share some more detail on how it's performing. The launch has been a success over delivering on our lofty estimates going in. We were selling 20 chicken sandwiches per restaurant per day, pre-Big Crispy launch. By the end of Q4, we were selling 55 sandwiches per restaurant per day, an increase of 175%. And that number continues to build in the current quarter.

For perspective, the Big Crispy is bigger than the 24 Big Smasher launch and the 25 Big QP launch. And as you all know, those were two very successful launches. The customer reviews and social media comments have been excellent, declaring Chile's victorious for size, price, value, and taste versus fast food. The Big Crispy is now a signature sandwich, and another important chapter in our Better Than Fast Food story that will continue to position Chile's uniquely as a restaurant destination.

In addition to culinary upgrades, our team continues to deliver world-class marketing and drive traffic. Q4 highlights include the successful Big Crispy launch, the remake of our famous 1985 Babybacks Ribs jingle commercial featuring pop star Lizzo, and a continued success with our Margarita of the Month program. As a reminder, our marketing strategy is driving sales overnight and brand over time. It's clear the marketing is driving sales, but they are also doing an amazing job of strengthening the brand's positioning over time.

We are two and a half years removed from the initial viral cheese pull in early 24, and YouGov's third party data reported that Q4 was Chile's highest level of buzz across all cohorts ever recorded. Chile's is everywhere. It continues to be America's hottest restaurant brand, and the sustained relevance of the brand proves this repositioning has led to one social event.

Now let's talk about operations. We continue to focus our efforts on both removing friction as well as improving restaurant throughput, as this is a key piece of our sustainable growth flywheel. In addition to listening to our managers ideas of how to make operations easier, we now have the North to six team, our highest volume restaurant leaders to formally source ideas from too.

I think the important thing to note is North of six leaders typically have the additional perspective of increasing throughput because of their incredibly high volumes. We recently made some very significant changes to free up managers' time to coach teams to be with guests on the floor. The first is the ruthless simplification of our shift line checks. A set of tasks the manager is mandated to perform to know their team is ready to take on guests.

We have taken that bidelly process down from eight pages to one page and freed up 30 minutes of manager time per day. Think about that as 22 years of manager time freed up annually across our system, and that's time much better spent side by side coaching their teams and in the dining room with our guests. A second important change we made is upgrading hot schedules. Our tool manager is used to schedule labor to make it easier to schedule the right number of team members per shift.

We know the number one thing that can set up a shift for success is properly written labor schedules, and anything that makes the task easier to do correctly is a big win for our managers and improves our ability to take on more and more traffic. And lastly, the VPs of operations have chosen their obsession metric for fiscal year 27.

This year they have chosen traffic for a third year in a row, but have added a second metric profit improvement. They chose a second to begin developing a stronger ownership culture on restaurant expense with things like R&M. We recently made profits a bigger percentage of their bonus structure, so it is even more important to field leadership to nail the flow through of all the incremental sales.

Before I close out Chili's commentary, I do want to touch on one more important thing. Last quarter I talked about a new initiative we have started with the objective of speeding up restaurant cycle time, meaning looking at everything that goes into the total time of kitchen prep and the dining experience and finding ways to remove time to serve as another traffic building block. Most cycle time improvements may seem small, but will continue to compound and make meaningful impacts, as well as improve the guests and team member experience.

Remember, this is about attacking anything that gets in the way of a smooth dining experience, which should also improve overall guest satisfaction. The first of these issues have now been successfully rolled out, super market simple for loyalty reward reduction. In the newly rolled out system, the guest simply puts the rewards telephone number into the ZOSC, and at the end of the meal, the discount that is available, like free chips and salsa, is automatically removed from the check.

Then the ZOS tells the guests how much they save by being a remords member, kind of like what happens when you put your loyalty number in at the supermarket. The ZOS software upgrade will reduce the manager time needed to resolve check issues, deliver faster table terms, and more importantly, improve the guest dining experience.

To summarize, Chili's long-term growth year after year is a result of a deliberate set of choices we make to deploy resource and capital to improve the guest and team member experience, while driving same store sales now and over time. The traffic growth reinvestment flywheel continues to spin and creates sustainable profitable growth.

Now I'll give a short update on Magianos. A reminder that given the success we've had focusing on Chili's, Magianos now only represents 8% of sales for perspective. Chili's outside of the U. S. , which is a licensed model, is expected to live 4% of Bricker profits this fiscal, and that will actually surpass Magianos profit contribution. While we are seeing some green shoots with financial results improvement and guest value scores, the turnaround at Magianos has been mixed. We've made progress on operational and culinary improvements, but some of that progress has been offset by losses with our core guests from our prior strategy.

So we're headed in the right direction, the turnaround is happening slower than what we had planned. We think we're on the right strategy, but we need to be more focused on delivering a few important changes that can make the biggest impacts. These updates are all contemplated in the Fiscal 27 Bricker Gardens we have provided today.

Before I close, I want to share two weeks ago we had our annual General Manager's Conference in Arlington, Texas. To summarize the event, the restaurant leaders are proud of their results, excited about the plans for Fiscal 27, and ready to lead their teams for another year of growth significantly ahead of the industry. Because of their leadership and their success, almost 80% of GMs now earn more than $100,000 this past fiscal, and that number keeps growing annually.

Our stated goal to those GMs four years ago was to make their jobs more fun, easier, and more rewarding, and you could sure feel that in the room that we have collectively delivered on that commitment. Manager turnover has been well ahead of the industry for years now, and now hourly turnover recently moved ahead of the industry too.

We also recognized our GM of the year, PJ Tremblay, leader of the East Fort Myers-Chillies, and our above restaurant leader of the year, Dale Belada. The VPU leads our California region. I also want to recognize Dale's colleague, the legendary vice president in the northeast region, Todd Pierce, who was inducted into our Chillies Hall of Fame, along with 35-year Director of Operations in South Florida, Tony Viola. Congratulations to all four of these amazing leaders, and thank you for your years of making guests feel special, and leading our restaurant team.

To close, Chillies delivered another strong quarter, rolling very big numbers from the prior two years. The macrohead once the industry is experiencing are still there, but Chillies is positioned to continue winning in this environment with improvements in food, service, and atmosphere, coupled with our industry leading value. That formula has proven quarter after quarter to be resilient in driving traffic, and outperforming the industry.

And with all of the initiatives we have planned for fiscal 27 that continue improving the fundamentals, we are poised to have another year of profitable growth that significantly outpaces the industry.

Now I'll hand a call over to Micah to walk you through fiscal 26 fourth quarter numbers. Go ahead, Micah.

Thank you, Kevin, and good morning. As we close fiscal 2026, today's results highlight major milestones in Chilly's growth journey. The completion of five consecutive years of same-store sales growth, positively laughing all four quarters of double-digit same-store sales growth this past fiscal year, including two quarters that were above 30%, two consecutive years of traffic gains, and average annual unit volumes increasing from just over 4.5 million at the end of last fiscal year to $5 million this year.

Together, these results demonstrate the continued momentum and sustainability of our focus on the fundamental strategy. For the year, we reported total revenue growth of 7.9%, restaurant operating margin improvement of 30 basis points, and adjusted EPS growth of 20.6%.

Turning to the fourth quarter, we continue to see strong year rear top line growth, traffic well above industry averages, and restaurant margin expansion at Chilly's. Rinker reported total revenues of $1,536 million with consolidated comp sales of positive 5%.

Our adjusted diluted EPS for the quarter was $3.07, up from $2.49 last year, a 23% increase. Chilly's comps were positive 5.6% in the quarter, driven by price of 4.3% and positive traffic of 1.5%, partially offset by negative mix of 0.2%. Chilly's continues to gain momentum through its strong everyday value platform, led by the success of the Big Smasher, the Big QP, and now the Big Crispy Chicken Sandwich. July sales and traffic have significantly accelerated versus the fourth quarter, further widening our lead over the casual dining industry.

For Majano's, the brand reported comp sales for the quarter of negative 2.5%, with negative 5.3% traffic, negative 0.1% of mix, partially offset by price of 2.9%. At the Brinker level, restaurant operating margins were 18%, a 20 basis points improvement year-to-year, primarily driven by sales leverage, partially offset by unfavorable food and beverage costs, as well as higher advertising and insurance costs.

Food and beverage costs for the quarter increased by 80 basis points, driven by 4.4% commodity inflation, primarily from higher beef costs and a temporary spike in tomato prices following a late freeze in Florida. Tomato costs remained elevated longer than expected, but have since normalized and will not impact Q1 cost.

Labor for the quarter was favorable 90 basis points year-to-year. Top line sales growth offset wage rate inflation of approximately 3.1%, additional investments in labor and higher health insurance costs. Restaurant expenses for the quarter were favorable 10 basis points year-to-year with sales leverage and lower repairs and maintenance costs, partially offset by higher advertising costs, and general inflation impacting expenses such as utilities, rent, to go supplies, and delivery fees.

Advertising expenses for the fourth quarter were 3% of sales and increased 20 basis points year-to-year to help support the rollout of the big crispy chicken sandwich campaign. GNA for the quarter came in at 3.9% of total revenues, 10 basis points favorable to prior year due to sales leverage, and lower performance bonus accruals, partially offset by an increase in restaurant center support resources.

Depreciation and amateurization for the quarter came in at 3.6% of total revenues and decreased 40 basis points year-to-year due to sales leverage and the lapping of accelerated depreciation from the prior year due to the retirement of the CTX and PINGER ovens. Fourth quarter adjusted EBITDA was approximately $228 million, a 7.1% increase from prior year. Our adjusted tax rate declined year-to-year to 17.6% from 19.5%, primarily due to a benefit from our state income tax filing adjustments and a higher benefit from the FICA tip credit.

Capital expenditures for the quarter were approximately $58.3 million, driven by capital maintenance spend. In our new Chili's Reimage program, we completed a total of 11 re-images in fiscal 2026. Based on the learnings from these restaurants, we plan to complete another 60 to 80 during fiscal 27. In fiscal 28, we will start a planned cadence of 10% of the fleet annually.

Regarding new unit growth plans, our growth will be modest in fiscal 27, but we already have sites in the pipeline to ramp up significantly in fiscal 28, with expectations for our new run rate to be in place for fiscal 29. We expect to share more details on our strategy and plans at our September 17th investor day. Our strong free cash flow provides sufficient liquidity to maintain our disciplined capital allocation strategy, allowing us to invest in our restaurants, keep debt levels low, and return excess cash to shareholders.

We continue to support this approach by repurchasing $100 million of common stock under our share of purchase program in the fourth quarter, bringing our total for the year to almost $400 million. In support of our capital allocation strategy, our Brinker Board of Directors authorized additional amounts under our current share repurchase program in August, bringing the total amount available to $750 million.

Subsequent to year end, we redeemed our outstanding $350 million 8.25% bond using the liquidity on our $1 billion revolver, which will provide interest expense savings in fiscal 2027. And the flexibility to continue to reduce leverage if we choose.

In this morning's press release, we shared that fiscal 27 guidance includes a 53rd operating week in the fourth quarter. We estimate the impact of the additional operating week to be an increase of approximately 2% in total revenues and 70 cents in incremental earnings per share.

Regarding the guidance, we expect F 27 annual revenues in the range of $6.15 billion to $6.27 billion. Adjusted diluted EPS in the range of $12.60 to $13.40. Weighted average shares in the range of $42 million to $43 million. And capital expenditures in the range of $265 million to $285 million. Assumptions underlying this guidance include playing commodity and wage inflation in a low single digit with commodity inflation higher in the first quarter before moderating as the year progresses. A tax rate of approximately 19% and three net new company owned restaurant openings.

Guidance also contemplates the planned acquisition of 12 Chili's franchise restaurants located in Alabama and Mississippi, including the real estate of six of the locations. The transaction is expected to close at the end of August. As previously mentioned, fiscal 27 is off to a strong start in July and August. And we are confident our plans will enable us to continue to significantly outperform the industry in both sales and traffic while delivering another consecutive years of same store sales growth.

Before I wrap up, I'll just say this. The results we delivered this year give us a lot of confidence in where Chili's is headed. The strategy is working and we believe there's still plenty of runway ahead. We'll keep building on the momentum by bringing in new guests, giving them more reasons to come back and saying focused on the things that matter most. Strong execution in our restaurants, great value and world-class marketing and innovation.

I look forward to providing further details at our upcoming investor day scheduled in Dallas for Thursday, September 17th. With our comments now complete, I'll turn the call back to Holly to moderate questions. Holly?

Sure. Hi, Dennis. So what we've done and what's implied in this guidance is we've built in a little bit of upside for July, but basically for the remainder of the year, we have assumed mid single digit same store sales and positive traffic for chilies. So we feel really confident that we can continue to deliver those results. If this momentum continues that we started in the beginning of this fiscal year, there's absolutely opportunity to exceed those expectations, but that is what we have built into the guidance.

As far as the margins go and the flow through, we are very protective of our value proposition. We've been very mindful of that. We are very aware of driving positive traffic over time. So we have built in inflation. I talked about the inflation for commodities and for labor. There's also some inflation and some other pieces of the P&L.

For example, we have some inflation in rent. We have some inflation in advertising, inflation or insurance costs. So we've been just really mindful of baking in all those expenses and making sure that we're not putting too much pressure on the guest and the pricing strategy on the top line. So we feel really good about the numbers that we've built in. I think we've been very conservative about the inflation that we've put in. So we feel good about delivering the results in the double digit EPS that we promised.

Thank you, Dennis.

Yeah, so we know we've seen this like this in the past during this turnaround. David and like what we seem to be is we bring people in and then he just kind of becomes their habit and we just don't look back. So, you know, to answer your question more specifically about what we think is driving it right now. Number one is chicken sandwich. So the chicken sandwich continues to build. It's doing everything that we thought it would do. It was part of our plan to continue the better than fast food campaign, continue to drive our value leadership and industry. But most importantly, continue to give the guest unbelievable abundant value that tastes great. And that's exactly what it's doing.

We've had a couple of other things that happened from a social standpoint. So we had some pretty good success with our bombshell mark, which was the mark of the month in July that we saw some younger guests come in for. And then we also seized upon a social media thing that we did not do. So guests started asking for molten on top of skillet cookies.

The marketing team wanted to get after it immediately. We said, hey, let's make sure we're operationally ready to do that before we turn that on. So we were hard at work making sure we had the proper supplies on cookies and molten and ice cream. And then we recently put that into the business allowing the service to have keys to ring it up properly as well as train the teams on how to make it consistently versus just looking at social media and how to make it. And that's also been very successful. It's actually reversed our incidents to client on desserts between that and then also upgrading a couple about other desserts. So we feel like it's just a collection and then obviously the continued operational initiative is on removing friction and improving throughput.

They're very hard things to pinpoint because like I said in my prepared comments, the throughput stuff is a collection of small things that add up. But like for example, when you make the reduction of our loyalty reward supermarket simple and it reduces the number of times the manager has to come and change checks, that turns tables faster. And we know, especially on the weekend, turning tables is traffic in the tail. So it's a collection of all the things that we're doing. And we've been relatively consistent continuing to deliver prompts on top of comps on top of comps. And it's because our strategy is built to just continue to plow through all this.

Michael, what is your expectation for the restaurant level margin in 27? And how should we be thinking about the benefit from the 53rd week? That's a great question. So what I would say on a 52 week basis, I'm going to expect 20 to 40 basis points of margin improvement. You know, depending on where it falls on that range, the 53rd week could get you up to 50 basis points of margin improvement year over year. So that's where we are now, Jeff.

And then just one more quick one as relates to the sounds like you guys made the change in the compensation structure for the restaurant level manager.

How are you guys thinking about the impact that would have on the business? Yeah, so a couple of things to answer that question, Gordon. So I'm sorry, Jeff.

So number one, you know, we're trying to simplify the amount of reports and the measurements that the managers use so that they can focus more on the behaviors, which is terms of coaching the team members as well as being in the dining room with the guests. So they're still going to have access to the GWOP metric and they'll be able to see it like on a weekly basis and they'll be able to get verbatim from guests comments.

And we're going to use AI to help cultivate that for them so they don't have to go through all of the verbatim. But we're not going to give them GWOP per shift on a daily basis because we found that they were kind of overly consumed with the daily metric. They were using that more often with their teams, posting them up and the team members didn't feel great about it. And so even though we've been making incredible progress on GWOP, the guests were the problem, we felt like it was taking them away from the things that we wanted to do. So we're not going to have them look at it on a daily basis. We removed that from the bonus.

The bonus is totally focused now on sales and profits. We did co-design this with them. We started with our vice-president operations and we trickled it down. And overall, the feedback's been incredibly positive. It's like, hey, we can focus on the behaviors that we need to focus on and we don't necessarily have to look at this thing and be consumed with reports. We also dramatically simplified the reports that they get on a daily basis. We got kind of this laundry list of reports down to two main reports that help them with throughput, labor scheduling, and some other key things like guest metrics that they need to be able to see. So I feel like that that change is going to make them focused, number one, most importantly on the behaviors to deliver a great guest experience.

And then number two, because profits are a higher percentage of their total bonus, we think that's going to help us with that middle of the P&L to be able to flow through more of the dollars that we get with incremental sales. And it doesn't mean we're not going to continue to invest in the business. So like I talked about that in our prepared comments, but we feel like this is just a continuation of dramatic simplification in order to allow the restaurant teams to do their job, which is making guests feel special.

So Andrew, I'll start with that. Making so you know, our pricing strategy had been three to 5%. We're on the lower end of that. And we actually have just a lot of inflationary pressure. So I talked about the commodities, even though they're in the low single digits, that's going to start at the beginning of the year. Probably I'm going to give you some nice round numbers where commodities will probably be 4% in Q1, 3% inflation in Q2, 2% inflation in Q3 and 1% in Q4. That's what we're modeling now. So we do have a little bit of earlier pressure on that.

Also, we've had some inflation in some other areas such as insurance, such as delivery fees, things like that. We built in that we're not necessarily passing all the way through to the guest. So we've been very mindful of driving long-term traffic over time. When I take a step back and just look at the whole model, we know if we deliver mid-single digits, same-store sales over time. We deliver 20 to 40 basis points of margin improvement. And we deliver double-digit EPS growth that we're going to deliver significant earnings and growth to the shareholders, and if we can deliver those consistently over time. So we're not as concerned. We don't want to over pressure the guests in the short term.

You've heard a lot of our competitors have that same mindset where you don't want to overprice the guests right now. We have a lot of inflation that we're facing. So we're being more conservative in those assumptions. Now, as your progress is out, if our sales exceed our expectations or some of those inflation assumptions are a little bit less, I think we have the opportunity to outperform those metrics. But that's what we have guided in and worked in the model for now to start the year.

You know what, Andrew? That is also an excellent point that I should have made too. So as you called out, we had since this turnaround started over 600 basis points of margin improvement over time. So we've significantly improved the margin profile of this business. Now, that is a reason why, because we have an investor growth strategy that as we move forward, you're going to see the margin growth moderate a little bit. And really what that means is we're not trying to flow through every dollar. We're trying to make sure that we're mindful to invest back in food service and atmosphere. What that means is we are investing back in the guest experience, the team member experience, and we don't want to overprice the guest.

And we want to make sure we continue to make that value proposition as strong as it can be, because we know that as a secret to driving positive traffic over time.

There's not a cap. So I said all of that. You did say is there a cap. We do think if we can see to grow the top line in the AUVs, we still think we can expand it. It's just not going to be as material as it has been during this turnaround. So there will be a point as the AUVs grow. But right now we still have plenty of capacity. Our restaurants are only at 80% capacity of our historical guest counts. We have plenty of capacity to continue to grow traffic and grow some margins. One thing I would add is when we first started this turnaround, what I told the leadership team was, boy, we were at $3 million AUVs.

We just get to $4 million AUVs. We'll have enough labor to service the guests. We'll have better restaurant margins. We'll have enough money to pull back into the business. Now we're at $5 million now. You just get more of that. At the end of the day, when we study these six restaurants, they have dramatically higher margins than the balance of the system. As long as they continue to invest in the business and grow those AUVs and delight the guests, good things will happen with margin. Every year we start out the year with a reasonable guidance on our margin growth.

But then we've blown through it. I don't know why we would change that approach. I would expect that if we deliver on the upside on sales, based on the acceleration that we've seen in the first part of the year, I would expect to see that also expand on restaurant margin.

Is that the right number to assume going forward as well with normal type of inflation? So, John, that's a number that we're still finalizing right now. But what I will tell you is we have taken our capital guidance up. The majority of that increase year over year is due to the re-images. And we said we're going to do between 60 and 80. So you'll get an estimate there. We're continuing to refine that number. We're going to talk about it on investor day and give some more details around it then. But I'm pretty happy with the number. The first 250 are probably a little bit elevated because we talked about those being some of the 911 restaurants that probably need a little bit of extra love.

They also have a lot of those are older prototypes. And some of the early re-images, if they have the lower ceilings in the bar, we do an extra step where we open the bar and actually remove a wall. So that also has an incremental cost. So over time, I think this number is going to continue to evolve and come down as we get more scale.

And then we kind of work through the balance of the system.

So can you kind of talk about any major menu categories that could be addressed in the near term and could lead to future sales growth beyond 27? Yeah, we have shuffled a little bit of our priorities in 27 based on just what's happening in the zeitgeist.

So let me just tell you what food innovation will be for 27. And then I'll share with you what we're planning for 28. So number one, we're going to continue to ride the chicken sandwich all year. So that was certainly up in the air as we were launching. The plan was, if it does well, we're going to continue to drive it. And so that's the plan from an out-of-store marketing standpoint. And then we're going to continue each quarter to remind the teams on how to make the best sandwiches. It's not an easy thing to make a hand-breaded sandwich, so we're going to stay focused that operationally.

Secondly, we're in process of revamping the kids' menu, so we've launched the new kids' menu. And this is about how do we just continue to get young families into chilies. You know, we know that kids are talking about chilies. There's a very common thing we see in social media where if a kids' team wins X, they want to all go to chilies. So we think this is the time is right to go after the kids' menu. So we have a new kids' menu. We brought back grilled chicken tenders, which is a parent and kid favorite.

And then next quarter, we're going to be adding mini Boltons back to that lineup, as well as cheese quesadillas. And then we've recently launched new floats with our new Blue Bell ice cream. So we've upgraded our ice cream to a much more premium ice cream. And then we've also added, you know, a top cocktail for kids, a Shirley Temple, it's made with Sprite. So the new kids' menu, part of that has happened now, and the rest of it will be finished next quarter.

We've finished renovating our pasta platform, so we've added sausage as a protein. We are hearing our chicken and sausage in our Q2 menu. And then we retrained teams on what we call pasta perfection. We did that last quarter.

So the pasta is now going to be featured in Q2 in a bigger way. And then we also have a new cooking process to make it a little bit hotter. And then on a dessert standpoint, we've got a couple things coming, which we haven't done in a while. We just recently upgraded our skillet cookie. So if you go in a restaurant now, you'll probably see it being advertised in our little table tent. It's been upgraded with more premium ingredients, chocolate, brown sugar, and butter to make them uyur and gooeyur. We obviously upgraded the ice cream, which I talked about earlier, to blue bell ice cream.

And then lastly, we added this social media phenomenon, the molten on top of the cookie. And that is now something that we're selling in the restaurants. And then next quarter, we're actually going to bring back cheesecake as a non-chocolate option for folks at one dessert. The other thing I would tell you about desserts that we're learning operationally is a lot of times in casual dining, servers don't sell dessert because they want to turn the tables on a busy Friday or Saturday. And we think we have an unlock on that one. The feedback that we've been getting from the servers is like, hey, when I get to dessert, it goes to the bottom of the kitchen display system on zone three.

That's where we make desserts. And so it might take 15 minutes to make a dessert. So I really don't want to sell a dessert. It's going to take 15 minutes. And so what we're doing is we're going to start, we're going to test it first. Bump the desserts for the top of the screen so that the desserts get priority so we actually can get that sale. So there's a lot of good things happening on the menu. In 28, that's when we're going to launch into fun half. We're going to launch salads. So we push that out a little bit based on what's happening.

And then we'll have steaks and getless grill, hopefully in the back half of 28 also.

Micah, just a quick clarification. So is it correct that you expect to run roughly 3% price through this year? And then do you have any kind of directional call run and mix impact that you're expecting? Yes. So what I would say is far as price goes, like I said, for the full year, it's going to be on the lower end, maybe just over 3%. If you're thinking about the cadence by quarter, it's going to be a little elevated in Q1. So I would model, again, nice round numbers, 4, 3, 3, 3, if you want to do some general numbers on how the pricing will go at Chili's.

As far as mix goes, like we said, it was slightly negative in Q4. We had the . 2 that was driven by alcohol and appetizers. For the full year of the assumption, I would say it's basically flatish. So we see Kevin talk, we've had a little momentum in the dessert category. But really our strategy this year is to focus on driving traffic. We've talked about that a little bit with the flow through, but it's really about the chicken sandwich. The chicken sandwich is designed to drive traffic. And we've built up all these other businesses over the years, and those are all built into the run rate. And now we're really leaning into this one to drive traffic, and that's exactly what it's doing.

So flatish mix for the year. You got the price just over 3% and the balance of your sales will be from traffic.

Yep, sure. So Brian, what I'll say and what I said in my prepared comments is that we did significantly accelerate in July and August. And so if Chili's was six percent in Q4, that means it's higher than that in Q1. So I'm happy to talk about all of that when the when the quarter ends won't go over, you know, all of the results in quarter one. But we're just really, really pleased with the strong start to the year and the traffic drivers. And so again, like Kevin said, the chicken sandwiches outperforming, the margarita month has been fantastic, continues to help us drive traffic. And the triple dipper, I wanted to mention that, that the triple dipper is something that has grown our business year after year after year and continues to grow today and is up even in, you know, Q1 year over year.

So we're happy with that. That's also built into our everyday value proposition. So that is the first thing. The second thing you just asked is on the three for me mix. And I'm very pleased to say that it's very stable. So in Q3, it was just under 21% and in Q4, it's just over 21% of our guests are opting in on the total platform for three for me. And of that, 21%, about 40% of the people are opting into the 1099 tier, which is very stable. That's what we reported, you know, every quarter. So the takeaway would be three for me continues to be very stable. We are very pleased that the chicken sandwich and before that, the QP and the Smasher, they drive in new guests.

But the guests, some guests opt into the 1099 that want it, but the majority of the guests then eat all over the menu and enjoy, you know, anything else they upgrade to whatever they want on the premium options. So that strategy continues to play out and we're very, very pleased with it.

So any, you know, early thoughts on the TAM in the U. S. that you could be thinking about? Yeah, what I'll tell you about is we do think there's an opportunity to build to definitely build more chilies. We talked about kind of the new unit growth as a percent of revenues ramping up. So we're going to share all those details again. We got to save something for investor day. But what I will tell you, Brian, is that what I really love about it is we still have opportunity to expand in our three biggest states, California, Texas, and Florida.

And so there's a lot of markets where we can continue to build out chilies in just kind of those gray areas that we haven't built yet. There's a little bit of white space still in the Pacific Northwest where we know we have opportunity there. So we have a great opportunity. I think we're going to be able to grow units over many, many years at chilies and have a nice growth rate to build into our growth algorithm and a nice lever to pull for years to come. So we are excited about, you know, the total opportunity for chilies.

So what I would tell you is at a very high level, this is how we did it. And we'll continue to refine that as the year goes on, but it's just an incremental week of sale. So you'll look at what our sales volumes are at the end of the year. And it's just a flow through assumption. It's going to be, you know, probably at restaurant level, restaurant level margins is probably going to be in that, you know, 30 to 35% range, and at the net income, it'll probably be in the 20 to 25% range. So it's just a flow through assumption on that final week of sales.

Okay. And then the other piece is how do the impact of the 12 store franchise acquisition, how does that impact EPS guidance? And if you'd also provide the purchase price, you guys are paying for that as well. It'd be helpful.

So let me tell you how it impacted the guidance. And so I'm glad you asked that. So I could clarify. So we did have, we did get the 12 restaurants back. They are, they are a little bit lower performing than the brand average. And also remember, we have to net out the royalties we were already getting. So the incremental revenues from those restaurants is probably around $30 million year over year.

And then it's going to have a flat impact to EPS basically, because it's a very small acquisition. And, you know, with the opportunity of share purchasers buying those back, it's probably a flat EPS impact. I don't know if I'm going to share all the price on that. I think we'll give some more details as it comes, but, you know, we didn't put it in now, but we got a really great price on those restaurants and we're really happy to welcome them back.

So really our approach to growing chilies in the future is going to be that we're open. Now, I will tell you the majority of the opportunities are going to be to continue to lease our locations and have operating leases, which is what we're going to continue to do. But I guess what I would signal is if there's an opportunity that we could purchase a land, if it makes sense, we're not against that. If it helps us to continue to grow chilies and it makes sense in certain areas.

When we did the deal with Valente, they own that real estate and we were happy to take it back. We'll continue to hold it. We'll look at it to see what we think the long term is. I don't know that we have a lot of sell lease backs in our future. We prefer probably just to, you know, to hold the real estate.

Some of these are older units. We don't want to burden them with some, you know, really high and long rents on there. So that's not going to be a big strategy moving forward. But what I would say is primarily we're going to lease if the opportunity comes to buy, we're not against it, but we're not overhauling our strategy to be an all-by strategy by any means.

Yeah. So as we move forward on mix, I think because the chicken sandwich is just going so great, we're just really, again, we're just modeling, I would say, flatish for the next year. The negative point, too, was just a continuation of, like we said, a little bit of check management with alcohol and appetizers. Also, Kevin talked about desserts. Those are hanging in there a little bit better. So we feel good about mix. And again, I like to remind everyone that we've spent so many years building the mix up. When we built up the crisper business, we built up the triple different business of the heat of the ribs. And all those are maintaining, which is wonderful.

And so that's why we're back to this flatish. But there is a little bit of check management, but it's very, very small. As far as Marjiano's goes, I'll give you some high-level assumptions. And what we've done is we've basically assumed in this guidance that Marjiano's going to have flat revenues and flat profits year over year. That just gives us a little bit of room so that we've seen some green shoots, like Kevin said, so that we just have room to have Marjiano's to be able to kind of have the pressure off of them or they can just really focus on improving their food, service, and atmosphere, and they can get that traffic rolling again. But those are the assumptions that high-level built in for Marjiano's.

Thank you.

And Kevin, you gave us some detail around the number of chicken sandwiches sold per day and how that's continuing to build. So can you talk maybe about how like advertising and awareness drove that growth versus maybe other factors and how the trajectory of chicken sandwich compares to what you saw with Big Smash or Big QP? Thanks. I'll start with the three for me question on the chicken sandwich. So, you know, we're very mindful about maintaining our 1099 level of the three for me. So when something new comes in, the other one moves out. And so in this case, the Big Smash removed up to 1299, and the Big Crispy moved in at 1099 and Big QP.

Like I said, those levels have stayed very similar. So as far as the three for me goes, we're selling about a similar amount as we did before of the Big QP and the Big Smasher. The rest of the chicken sandwiches and the increases that Kevin talked about are really on the base menu because we have all the soft versions. We have the premium, the deluxe. And so that's where we're selling the bulk of our incremental chicken sandwiches are on, I would say, the base menu.

Yeah. And then as far as like the driving trial and awareness, the curve, when you look at the curve, it looks almost exactly like the QP and the Smasher curve just higher. So like it started off at a certain level, and then it kind of, a few months in, it starts to accelerate, which is what we saw on the others too. So that makes it feel good that it's kind of behaving like the other two.

So that's why we'll just continue to drive advertising on it. Like, I mean, a lot of folks have seen it quite a few times and like in the investment community or in our walls, our four walls, but like the reality is the vast majority of our guests, you know, having the scene of Chili's head, I hate to tell the marketing team. So as they continue to drive and build the awareness of it with a very similar campaign, that awareness will compound over time. So that's why we stay on these things. We don't, you know, do it for four weeks and then move on to something else. That's had incredible success for us since we've started the Three for Me campaign.

So we don't plan to change that as long as the item is the customer's responding wall to the item, which is what it appears to be on the Big Crispy. You know, we're going to continue to drive that and then we'll reassess whether in year two of Big Crispy, do we continue to advertise that? Or do we bring new news to Big Crispy or do we move to another item on 1099? But we do that. We've done the same thing every year for the last almost four years now, and we've had success, so we don't plan on changing that formula. We think that is creating value certainty for the guests and really re-positioning us in the market.

I'm just trying to get an idea of how long this runway is for you to kind of continue to improve the cycle times. Yeah, you know, I think there's two areas. I think that we will continue to work on that we're going to learn about, which is like the actual dining experience. And so in that one, I think there's a ton of upside just because it's a big part of the business and we continue to uncover basically places where things bottleneck. And so we're just going to continue to walk through those things. So, for example, you know, host stands a big one. That is a major initiative for us. But like, we also know that the order time is a little bit of a blockage.

And so when we were finally finishing rolling out the new UX for the order tablets, that's going to speed up ordering. And, you know, what we're learning at the soft drink station, the fact that it's harder to get refills as fast, and that's going to speed up time. And then this idea of dessert bottlenecks. And so when people do order dessert, it ends up being a long time. That's going to improve cycle time, but it's also going to improve the server being more willing to sell desserts, right? So I think we're just going to continue to uncover things from a dining room standpoint. And I think we got at least three years of runway on that one.

The other one, which we haven't even scratched the surface on, is to go. It's 25% of our business. And we have a huge opportunity to figure out how to get friction out of that to make it seamless. When you look at the players in QSR that win on digital, meaning they create habits of their guests that they can rely on to get a quick take-home meal, it's all about a fast app, a seamless pickup experience, and accurate packouts. And we think those three things, we can go nail over the next couple of years, and we think that we're uniquely positioned in casual dining to go after those transactions.

Because if you look at the things that we're winning with, it's all around the better than fast food campaign. So these are things that people think about when they think about take-home meals. So burgers, and chicken sandwiches, and chicken tenders, and some of our Tex-Mex offerings. Like these are all things that we think are positioning ourselves well. But we've got to figure out that operation. I think that's a huge task. We're going to talk a little bit more about it when you guys come in for Investor Day. But that's the next big frontier I'm excited about. Because there's so many more transactions in QSR that we could go after it with the off-premise occasion.

Awesome. Thank you for that. I guess one more follow-up. I guess I've asked this question before in previous calls. I'm curious if you have any data behind it now in terms of the guest behavior. A lot of those guests that had been lapsed and now have come back to Chili's over the years, how they're using the brand perhaps differently than maybe you thought or maybe they're using the brand or the menu as you had expected. I'm curious if you've got that customer journey, how they've been coming back in.

So a little bit more than half of the tokens that we see each month are new. And then when we track them, now we can do it within nine months. We can understand what their repeat behavior is and it looks a lot like existing guests. So that's basically what we know. We have some broad things on younger guests, the 10 to order more triple dippers, older guests, 10 to order more of the three for me. So we have some of that, but I don't have the data to answer your specific question of how our last users, when they come back to the brand using the brand differently, we don't have it to that level.

You know what, John, but what we do know is we continue to draw in new guests every quarter. And then we talk about how three for me is pretty stable. So we're not seeing like an over index to value. And all of the categories are, they've grown over time, but then they're all pretty stable. And so we're not seeing any huge mix shifts in the menu with new guests. It's kind of like we said, you know, we're tracking new guests in and they quickly fall and look like existing guests over time and then just keep coming back. But they're utilizing the menu basically the same. We're not seeing any big changes in the run rates of all the different particular categories or like a run up in three for me.

And then the second part, I just want to ask, since you guys launched the Margarita of the Month Club earlier this year, have you seen any sort of sequential improvement in alcohol incidents? Thank you. Thanks for the question, Margaret. So you know what the great thing is about chilies and about burgers and chicken sandwiches. Everybody loves them. So our traffic's been up and we're growing all. We're growing all income levels, low, medium, high. We're growing all of our different demographics. And so historically we had a little pop in our younger guests with the initial success of the triple-dipper. We've maintained that and we continue to grow and attract all the different demographics and cohorts. So we're really pleased.

The chicken sandwich, again, has behaved just like the burgers. It's a huge segment and it's broadly appealing to everyone. And so we're not seeing one particular group drive the traffic. It's all the groups, which we love because it's not very specific to one group. It's very broadly appealing. As far as the Margarita of the Month Club goes, it's been a huge success for us just in general as an everyday value platform for us. So I know our guests really appreciate that $6 Margarita. It's fun. It's colorful.

They enjoy seeing what's next. It's culturally relevant. The one we had in July, Kevin mentioned it. It was really successful. So I would say overall, the Margarita of the Month have been very successful. They're driving Margarita incidents. They're driving traffic. Now, if you take a bigger step back and look at the whole alcohol category, we're feeling a little pressure like everybody else as the whole category for the category as a whole. We continue to sell market share. We're talking market share, but we're feeling a little bit of that macro pressure like everyone else is. But Margarita of the Month specifically, great value in helping us drive traffic.

One other thing I would add is I think maybe five years ago, the prior team viewed Margarita the Month as just like a, you know, how do we get more drink attachment? And it does play a great role to do that still does. So, you know, we tested it years ago when I first got here, which I took it off the table, and it was a mistake. So we know that it drives drink attachment, even if the broader macro trends are against, you know, against alcohol attachment and what's going on with gas prices. So, but the second thing I think that is important to note is the new marketing team has done a phenomenal job of figuring out what are different Margarita the Month we can use to drive traffic.

You know, we saw that in last November with our which themed marks. We saw it with the most recent bombshell mark in July. And so I think they're doing a better job. Not every month going to be this big traffic creating Margarita. These guys are very planful about which ones they're going to do and how they're going to surround it with advertising and social, but they've done an exceptional job of creating a second growth level on Margarita Month. So it's not just about attachment and entry price point, but it's also now about traffic driving for certain marks.

And I think that's going to continue. When I look at the innovations they have planned, I think it's not going to be every month, but often they're going to be looking at things that are actually going to drive the total box traffic, not just alcohol attachment.

I will now turn the call over to Kim Sanders for closing remarks. Thank you, Holly. That concludes our call for today. We appreciate everyone joining us and look forward to presenting an update on our long term growth plans that are upcoming investor day in September and updating you on our first quarter fiscal year 2027 results in October.

Have a wonderful day. Thank you. We'll see you in the next one. Bye.