Brinker International, Inc. (EAT) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
Despite strong sales growth, positive traffic metrics, and a successful product strategy, the outlook is tempered by challenges like commodity inflation, margin pressure, and mixed signals in the casual dining segment. The company's guidance remains steady, but management's reluctance to provide specifics on certain initiatives and the negative outlook for Maggiano's affect the sentiment. The market cap suggests moderate volatility, leading to a neutral prediction.
Key Financial Performance
Chili's same-store sales 8.6% increase year-over-year, outpacing the casual dining industry by 680 basis points. This was driven by world-class marketing, brand building, and improvements in food service and atmosphere.
Chili's 2-year cumulative comp 43% increase, rolling at plus 31% from last year.
Chili's 3-year cumulative comp 50% increase.
Chili's 4-year cumulative comp 62% increase.
Brinker total revenues $1.45 billion, a 7% increase over the prior year, driven by Chili's top-line sales growth.
Adjusted diluted EPS $2.87, up from $2.80 last year, driven by sales growth and operational improvements.
Chili's top-line sales growth Driven by price increase of 4.4%, positive traffic of 2.7%, and positive mix of 1.5%.
Maggiano's comp sales Negative 2.4%, with sequential improvement due to the 'back to Maggiano's' strategy focusing on value, service, and atmosphere.
Restaurant operating margin (Brinker level) 18.8%, a 30 basis points decrease year-over-year, mainly due to Maggiano's sales deleverage and additional investments.
Restaurant operating margin (Chili's) 40 basis points increase year-over-year, driven by sales leverage, partially offset by labor and advertising investments.
Food and beverage costs Unfavorable by 20 basis points year-over-year due to unfavorable menu mix and 0.8% commodity inflation offset by price.
Labor costs Favorable by 30 basis points year-over-year, with top-line sales growth offsetting wage rate inflation of approximately 3.3% and higher health insurance costs.
Advertising expenses 2.9% of sales, a 40 basis points increase year-over-year due to additional weeks on TV.
Adjusted EBITDA Approximately $223.5 million, a 3.6% increase from prior year.
Adjusted tax rate 18.8%, driven by higher profits increasing at a greater rate than the offset generated by the FICA tax Tip Credit.
Capital expenditures Approximately $63.7 million, driven by capital maintenance spend and the start of the Chili's reimage program.
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Operating Highlights
Skillet Queso Reintroduction: Reintroduced based on guest feedback, leading to a 20% increase in sales of Southwestern Queso and original Skillet Queso.
Nachos Relaunch: New nachos lineup featuring Chicken Bacon and House-Made Ranch saw a 170% increase in business compared to the previous version.
Bacon Cheeseburger Upgrade: Upgraded to triple the bacon, resulting in a 43% increase in sales.
Super Premium Chicken Sandwich Lineup: Launching chain-wide in April with a major advertising campaign, targeting a large market segment with over 80% of people buying chicken sandwiches last year.
Chili's Market Position: Chili's has become the #1 traffic brand in casual dining for 2025, with a per-person check average $3 less than direct competitors and $4 less than the casual dining average.
Maggiano's Turnaround: Progress made with menu updates and portion increases, leading to improved value scores and sequential sales improvement.
Menu Simplification: Eliminated 6 menu items to streamline operations and improve food consistency.
Guest Experience Metrics: Improved 'guests with a problem' metric to 2.1% from 2.9% last year, showing consistent progress over three years.
Reimage Program: Initiated reimage program for Chili's, with plans to scale up to 60-80 reimages annually by fiscal 2027.
Value Leadership: Repositioned Chili's as a value leader in casual dining, improving operating margins from 11% to 18% over three years.
Capital Allocation: Repurchased $100 million in common stock and maintained a disciplined capital allocation strategy.
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Risk or Challenges
Winter Storm Fern impact: The storm caused approximately $20 million in reduced revenues and a decrease of $0.15 in adjusted diluted EPS. It also required significant efforts to reopen restaurants safely and quickly, as well as repairs and support for affected locations.
Maggiano's performance challenges: Maggiano's reported a negative 2.4% comp sales for the quarter, with sales deleverage and additional investments needed to improve the business. The brand faces challenges in service, atmosphere, and team culture, which are critical for its turnaround.
Commodity price inflation: Rising beef prices are expected to result in mid-single-digit inflation for the back half of the year, despite some relief from other commodities like poultry and dairy.
Health and workers' compensation insurance costs: Higher health and workers' compensation insurance costs due to increased restaurant headcount have impacted labor expenses.
Advertising expenses: Advertising expenses increased by 40 basis points year-over-year, driven by additional weeks on TV, which adds to operational costs.
Reimage and new unit growth strategy: The reimage program for Chili's is in its early stages, with only 4 reimages completed so far. The program is expected to ramp up significantly in fiscal 2027, requiring substantial capital investment.
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Guidance & Outlook
Revenue Expectations: Annual revenues are expected to range between $5.76 billion and $5.83 billion for fiscal 2026.
Earnings Per Share (EPS): Adjusted diluted EPS is projected to be in the range of $10.45 to $10.85 for fiscal 2026.
Capital Expenditures: Capital expenditures are anticipated to range between $250 million and $260 million for fiscal 2026.
Same-Store Sales Growth: Chili's same-store sales are expected to return to the mid-single-digit range after the negative impacts of Winter Storm Fern.
Commodity Inflation: Commodity inflation is anticipated to be in the low single digits for the fiscal year, with mid-single-digit inflation expected in the back half of the year due to rising beef prices.
Reimage and New Unit Growth Strategy: The company plans to complete 8 to 10 Chili's reimages in fiscal 2026, ramping up to 60 to 80 reimages in fiscal 2027, with full rollout expected in fiscal 2028.
Maggiano's Strategy: Focus areas include guest-facing repairs and maintenance and a smaller scope reimage program to improve the brand's 4-wall economics.
Chicken Sandwich Launch: A new super premium chicken sandwich lineup will launch chain-wide in April 2026, supported by a substantial advertising campaign.
Market Share and Growth: Chili's is positioned for continued market share gains and a long run of profitable growth, supported by value leadership and operational improvements.
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Shareholder Return Plan
Share Repurchase Program: In the second quarter, the company repurchased an additional $100 million of common stock under its share repurchase program to support its ongoing commitment to returning capital to shareholders.
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Key Q&A
Q:What contributed to the strong traffic and sales growth in the quarter beyond the Margarita campaign?
A:The strong traffic and sales growth were driven by stable pricing in the 3%-5% range, the success of the Margarita of the Month, continued strong performance of Triple Dippers, and new appetizer sales like Quesos. Traffic remained positive throughout the quarter, and internal metrics such as food grade scores and intent to return improved significantly.
Q:What are the expectations for the back half of the year in terms of revenue and comps?
A:The company expects solid mid-single-digit comps for the back half of the year. Traffic may face slight pressure in Q3 due to a storm and holiday flip but is expected to be positive in Q4. Mix may moderate slightly as the company laps big Triple Dipper numbers.
Q:Can you elaborate on the comp cadence embedded into the back half of the year guidance?
A:The comp cadence is expected to be steady, with mid-single-digit growth. January may be impacted by the storm and holiday flip, but the quarters are expected to be similar to each other.
Q:How does the company plan to prevent the $10.99 price point from becoming a structural ceiling on pricing power?
A:The company employs a barbell strategy with good, better, and best price tiers to cater to different guest preferences. They plan to continue innovating at higher price tiers, such as premium chicken sandwiches and ribs, to maintain a balanced mix and avoid over-reliance on the $10.99 price point.
Q:What are the learnings from the reimaging prototypes being tested?
A:The reimaging prototypes have been well-received by guests and team members. The company is learning to focus on impactful, cost-effective changes, such as enhancing the bar area and avoiding unnecessary elements. Operational learnings include better construction practices and adjustments to materials like tile tables.
Q:What is the company's read on casual dining segment trends in December and January?
A:December was tougher for the industry, while January showed improvement before being disrupted by weather. The company sees mixed signals and plans to focus on controllable factors like food, service, and atmosphere to win market share.
Q:What are the expectations for restaurant-level margin and G&A as a percentage of revenue for fiscal '26?
A:Restaurant-level margins are expected to decrease slightly in the back half of the year compared to Q2 but remain strong. G&A is expected to stay consistent at around 4.1% of total revenues.
Q:What are the plans for remodels and new unit development in fiscal '27 and beyond?
A:The company plans to remodel 60-80 units in fiscal '27 and over 100 units in fiscal '28, aiming for 10% of the system. New unit growth is expected to accelerate in fiscal '28, with low single-digit growth anticipated.
Q:What changes are being made to the chicken sandwich platform, and how does it fit into the company's strategy?
A:The chicken sandwich platform is being revamped with a good, better, best tiering system, including premium options. The launch is planned for late April with TV advertising, aiming to drive traffic and enhance the menu's appeal.
Q:What is the company's approach to store-level employee incentives?
A:The company is focusing on training managers to own their P&L and understand the business before changing incentive structures. They aim to align incentives with ownership principles but are at least 1-2 years away from implementing changes.
Q:What is the company's outlook on commodity costs and food investments?
A:Commodity costs are expected to remain in the mid-single-digit range in the back half of the year. Investments in higher-quality ingredients like ribs, bacon, and chicken are contributing to higher food costs but are seen as necessary for maintaining quality.
Q:What is the company's marketing strategy for the chicken sandwich launch?
A:The chicken sandwich launch will be supported by TV advertising in late April, emphasizing unbeatable value and abundance. The company believes high prices remain a relevant consumer concern and plans to leverage this in its marketing.
Q:What is the company's perspective on the casual dining value perception compared to QSR pricing?
A:The company believes it offers industry-leading value with a $3-$4 lower per person average compared to casual dining competitors. They are confident in their positioning and do not see QSR pricing as a significant threat.
Q:What are the expectations for Maggiano's performance in the back half of the year?
A:Maggiano's same-store sales are expected to be in the negative mid-single-digit range for the back half of the year, with continued margin pressure.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the sales lift from reimaging prototypes, citing it as too early to declare victory. They also did not provide a clear timeline or specifics on the potential TAM (total addressable market) for Chili's new unit growth, stating that more details would be shared at a future Investor Day.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Bacon Cheeseburger
Black Box
Box person
Butter Cake
Cake Meat
Cheeseburger upgrade
Chili Ware
Chili brand
atmosphere guest
attention
bacon burger
bottom
challenge
chicken sandwich
dish
economics brand
effort core
field
gain
guest feedback
nacho
offering
perspective
portion
progress
restaurant support
restaurant team
sandwich lineup
segment
set
signature
storm
support center
wall economics
EAT Transcript
Brinker International, Inc. (EAT) Q2 2026 Earnings Call Transcript
Unknown1-28
Despite strong sales growth, positive traffic metrics, and a successful product strategy, the outlook is tempered by challenges like commodity inflation, margin pressure, and mixed signals in the casual dining segment. The company's guidance remains steady, but management's reluctance to provide specifics on certain initiatives and the negative outlook for Maggiano's affect the sentiment. The market cap suggests moderate volatility, leading to a neutral prediction.
Brinker International, Inc. (EAT) Q1 2026 Earnings Call Transcript
Positive10-29
The earnings call summary indicates strong financial performance with significant EPS growth, improved margins, and a positive EBITDA increase. Despite challenges at Maggiano's, Chili's has strategic plans to boost sales through menu renovations, value promotions, and Gen Z engagement. The Q&A section highlights innovative strategies like tokenized consumer data, although some management responses were vague. Overall, the positive financial metrics and strategic initiatives suggest a positive stock price reaction, with a market cap of $3.3 billion indicating a moderate but not extreme sensitivity to earnings announcements.
Brinker International, Inc. (EAT) Q4 2025 Earnings Call Transcript
Positive8-13
The earnings call reflects strong financial performance with significant debt reduction and margin improvements. The Q&A session highlights positive sentiment with plans for expansion, marketing innovation, and operational improvements. However, management's lack of specifics on some plans introduces slight uncertainty. Overall, the positive growth outlook, strategic investments, and operational efficiencies indicate a favorable stock price movement in the short term, especially given the company's market cap.
Brinker International, Inc. (NYSE:EAT) Q3 2025 Earnings Call Transcript
Positive4-30
The earnings call summary and Q&A reveal strong financial performance with a 29.5% revenue increase and 114% EPS growth. Positive same-store sales growth and improved margins further support a positive outlook. While labor cost increases and unclear responses on tariffs and CapEx pose risks, they are mitigated by strong operational performance and strategic investments. The company’s market cap suggests moderate sensitivity to these factors, leading to a positive stock price prediction.
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