Release Date: April 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Brinker International Inc (EAT, Financial) reported strong quarterly results with consolidated comp sales of positive 3.3% and an adjusted diluted EPS of $1.24.
- Chili's outperformed the industry in sales by more than 7% and traffic by nearly 4% for the entire quarter, demonstrating effective strategic initiatives and operational improvements.
- Restaurant operating margin improved by 80 basis points year-over-year to 14.2%, driven by top line growth and better food and beverage cost management.
- Significant progress in reducing manager and hourly turnover rates, contributing to more efficient operations and improved service levels.
- Continued innovation in menu offerings, such as the launch of the new 'big smasher' burger, and marketing strategies, including a fresh advertising campaign highlighting Chili's value compared to fast food.
Negative Points
- Despite overall positive results, Chili's experienced some negative mix in traffic, partially offset by price increases.
- The company continues to face challenges from weather conditions, which had an estimated negative impact of 1.1% on sales.
- Brinker International Inc (EAT) is still in the process of deemphasizing virtual brands, which negatively impacted Chili's traffic by approximately 2.5% for the quarter.
- Labor costs remain a concern, with wage rate inflation noted at approximately 3.7%, although it has moderated compared to previous periods.
- The company anticipates a need for ongoing investments in restaurant expenses, including advertising and maintenance, which increased by 120 basis points versus the prior year.
Q & A Highlights
Q: Kevin, I know Chili's has seen its unaided brand awareness levels improve. But do you have the data at this point to know what consumer groups are starting to recall the brand more often?
A: Kevin D. Hochman - President, CEO & Director: We're growing in all income demographics right now, spending more at Chili's. We continue to see good progress on unaided awareness and have our highest level of buzz. We're showing up strong at a superior value, which is appealing across all income demographics.
Q: The new ad campaign clearly draws a direct comparison of the 3 For Me to fast food offerings. Given McDonald's upcoming aggressive promotions, do you think the 3 For Me is sufficient to drive traffic?
A: Kevin D. Hochman - President, CEO & Director: Yes, TV remains the #1 driver of awareness, and we're using fast food as a foil to demonstrate Chili's value. We're also enhancing our CRM program to offer more customized deals based on consumer behavior profiles, which should help in targeting consumers effectively.
Q: Your bottom line outperformance continues to outpace your top line outperformance. Can you point to a couple of drivers responsible for this greater-than-expected profit flow-through?
A: Joseph G. Taylor - Executive VP & CFO: The top line growth creates leveragability, and we've become better operators, returning to pre-COVID efficiency levels. Labor, despite investments, is getting more efficient, and we're seeing leveragability on our hourly side due to higher volumes managed with existing labor models.
Q: How did the big smasher burger perform in test, and what upgrades might we see on the burger platform in coming months?
A: Kevin D. Hochman - President, CEO & Director: The big smasher burger wasn't formally market tested but tested for operations. We're encouraged by the buzz and social media traction. We plan to continue driving value with new items like a reengineered chicken sandwich and maintain focus on operational simplifications.
Q: With labor expense leveraged in the quarter despite investments, how should we think about labor costs going forward?
A: Mika Ware - VP of Finance, IR & Restaurant Development: We've lapped the initial labor investment, which is now built into the base, helping us leverage our labor costs. With wage rate pressure starting to decrease and improved team member productivity, we expect similar improvements in labor costs in the fourth quarter.
Q: Given the importance of muscle memory and having the right teams, where is your hourly and store manager turnover currently running?
A: Mika Ware - VP of Finance, IR & Restaurant Development: Our manager turnover is around 5%, and hourly turnover is just 2% above the industry at about 25-26%. These improvements in turnover are contributing to our operational efficiencies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.