Release Date: August 14, 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 year-over-year top-line growth with consolidated comp sales of positive 13.5%.
- Chili's comps came in at positive 14.8%, driven by price of 8.1%, positive mix of 0.8%, and positive traffic of 5.9%.
- The company experienced a significant improvement in restaurant operating margin, with a 210 basis point increase year-over-year.
- Brinker International Inc (EAT) has successfully implemented operational simplifications, reducing the Chili's menu by 22% and improving technology reliability.
- The company has made substantial investments in labor and facilities, leading to record food grade scores and improved guest experiences.
Negative Points
- Maggiano's reported a negative 8.9% traffic growth, despite positive comp sales driven by price and mix.
- The company anticipates wage rate inflation and commodity inflation, which could impact margins.
- Incremental planned investments in labor ($15 million to $20 million) and media ($15 million to $18 million) may pressure margins.
- Restaurant repairs and maintenance expenses were significantly higher, up $16 million year-over-year in the fourth quarter.
- The company is mindful of potential macroeconomic softness, which could impact traffic and sales trends.
Q & A Highlights
Q: Mika, the midpoint of the earnings guidance suggests a rate below the 3-year targeted range. Given the revenue guidance was roughly in line with the 3% to 5% growth target, can you help us understand what's driving the relative margin pressure for next year?
A: (Kevin Hochman, CEO) There are two main factors. First, wage rate inflation and commodity inflation. Second, we have incremental planned investments into the F'25 plan, including $15 million to $20 million in labor and approximately $15 million to $18 million more in media.
Q: Kevin, can you provide an update on the GALE partnership and any progress around standing up the required infrastructure to keep customers refreshed with current data?
A: (Kevin Hochman, CEO) We are enhancing our direct marketing and optimizing segmentation with targeted emails using real-time data from the Ziosk rollout. We are also working on our loyalty program to simplify it and make it more frictionless at the point of purchase.
Q: Can you elaborate on the top line outlook for '25 and any embedded macro softness that might impact trends through the year?
A: (Mika Ware, CFO) The guidance includes same-store sales in the mid-single-digit range, with pricing in the 4% to 5% range for the year, flat to slightly positive traffic, and flat to slightly negative mix. We built in a 4% to 5% decline in the industry traffic as a macro assumption.
Q: How do you measure the stickiness of consumers attracted by the $10.99 deal, and what are your learnings about their behavior?
A: (Kevin Hochman, CEO) We use anecdotal data from restaurant teams and are building out capabilities to use tokens for more finite numerical data. We've been running the value message for almost 18 months, and it continues to resonate with guests. Only 18% of guests are eating on the $10.99 tier, with the majority still opting for full-price menu items.
Q: What are your thoughts on menu pricing for the fiscal first quarter and full year, given the 8% increase in the fourth quarter?
A: (Mika Ware, CFO) Pricing for F'25 should be in the mid-single-digit range. We are not planning on taking any price in the first half of the fiscal year but have optionality to take a little price in the back half. We expect about a 2% step down in price each quarter in the first half.
Q: Can you break out the restaurant expenses for fiscal 4Q and provide insight into how these line items will trend in fiscal '25?
A: (Mika Ware, CFO) Restaurant repairs were up $16 million year-over-year, advertising was up $14 million, and incentive-based compensation was up $13 million. We also had about $5 million of incremental labor. For fiscal '25, we expect lower R&M expenses, moving from reactive to proactive maintenance.
Q: How do you think about the stickiness of the TikTok consumer and its impact on your fiscal '25 guide?
A: (Kevin Hochman, CEO) About 40% of the May spike was due to TikTok. We invested in labor and facilities to maintain new guests. The business remains strong, and we believe the TikTok consumer is similar to those converted through TV. The focus is on providing a great experience to encourage repeat visits.
Q: What are the strategic financial choices you will continue to make to maintain strong performance in fiscal 2025?
A: (Mika Ware, CFO) We will continue with our barbell pricing strategy, focus on menu management, and improve the guest experience. We expect annual revenues in the range of $4.55 billion to $4.62 billion, adjusted diluted EPS in the range of $4.35 to $4.75, and capital expenditures in the range of $195 million to $215 million.
Q: Can you provide a range for the restaurant-level margin for FY '25 versus '24?
A: (Mika Ware, CFO) We expect a 30 to 50 basis points improvement year over year, despite inflation and incremental investments. We are pleased to still expand our restaurant operating margin while investing in the business.
Q: What are the most important priorities for Maggiano's leadership in fiscal '25?
A: (Kevin Hochman, CEO) The focus is on elevating the brand by simplifying operations to reinvest in guest experience and innovation. This includes improving speed of service, reducing prep steps, and introducing new food and beverage innovations to make Maggiano's more relevant and exciting.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
