Brinker International, Inc. (EAT) Q3 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects a positive outlook with robust growth strategies, including new product launches, restaurant reimages, and operational improvements. Despite some concerns about consumer behavior and inflation, the company is confident in its ability to manage these challenges. The market's response is likely to be positive due to optimistic guidance, strategic initiatives, and a focus on sustainable growth. However, the lack of specific details on certain initiatives and potential risks like inflation could temper the overall enthusiasm, resulting in a moderate positive impact on the stock price.
Key Financial Performance
Chili's same-store sales growth 4% growth year-over-year, marking the 20th consecutive quarter of same-store sales growth. This growth outpaced the casual dining industry by 420 basis points. The growth was attributed to improvements in food service, atmosphere, and everyday value leadership.
Brinker International total revenues $1.47 billion, an increase of 3.2% over the prior year. The growth was driven by Chili's top-line sales growth, which included price increases of 4.6% and positive mix of 0.6%, offset by negative traffic of 1.2%.
Adjusted diluted EPS $2.90, up from $2.66 last year. This increase reflects strong business momentum and operational improvements.
Chili's comparable restaurant sales Increased by 5.9% in February and March, with positive traffic. This reflects the underlying strength and momentum in the business.
Maggiano's comparable restaurant sales Negative 4.6% year-over-year, with negative 10.4% traffic. The decline was partially offset by positive mix of 0.6% and price increases of 5.2%. Weather and a holiday shift negatively impacted sales and traffic by approximately 2.1%.
Restaurant operating margins 18.4% for the quarter, compared to 18.9% in the prior year. The decline was due to higher food and beverage costs and higher restaurant expenses, partially offset by sales leverage.
Food and beverage costs Unfavorable by 60 basis points year-over-year due to unfavorable menu mix and 4.6% commodity inflation, mainly due to beef, offset by price increases.
Labor costs Favorable by 60 basis points year-over-year. Top-line sales growth offset wage rate inflation of approximately 3.4%, additional investments in labor, and higher health insurance costs.
Adjusted EBITDA $223.7 million, a 1.4% increase from the prior year. This reflects strong operational performance and sales leverage.
Capital expenditures $51.2 million for the quarter, driven by capital maintenance spend and reimage projects at Chili's.
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Operating Highlights
Chicken Sandwich Platform Launch: Chili's launched a new chicken sandwich platform on April 14, featuring multiple sandwich options at competitive prices. The platform is part of the 'Better Than Fast Food' campaign, emphasizing value and portion size. Initial results show a 161% increase in sandwich sales compared to prelaunch.
Chili's Market Position: Chili's is now the #2 casual dining brand for sales and #1 for traffic in the casual dining industry. The brand has achieved 20 consecutive quarters of same-store sales growth, with a 4% growth in Q3 FY26, outpacing the industry by 560 basis points in April.
Operational Improvements: Chili's focused on improving food quality, service, and atmosphere, including retraining staff on chicken breading and cooking. Operational metrics such as 'Guests With A Problem' declined to 1.9%, and 'Intent to Return' reached an all-time high of 79%.
North of 6 Initiative: Efforts to simplify operations and reduce cycle times are underway to handle increased traffic and improve efficiency. This includes studying bottlenecks in the dining experience and implementing changes to reduce wait times.
Reimage and Expansion Plans: Chili's plans to reimage 60-80 restaurants in FY27 and 10% of its fleet annually starting in FY28. New unit growth is expected to ramp up by FY29.
Maggiano's Turnaround: Maggiano's is undergoing a turnaround strategy focusing on food quality, service, and atmosphere improvements. Sequential progress has been noted, although the brand contributes only 8% of company sales.
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Risk or Challenges
Commodity Inflation: The company experienced 4.6% commodity inflation, particularly in beef, which negatively impacted food and beverage costs.
Weather and Holiday Shifts: Adverse weather conditions and holiday shifts negatively impacted sales and traffic at both Chili's and Maggiano's by approximately 2.1% during the quarter.
Traffic Decline at Maggiano's: Maggiano's reported a 10.4% decline in traffic, which contributed to a 4.6% decline in comparable sales.
Higher Operating Costs: Restaurant operating margins decreased due to higher food and beverage costs, repair and maintenance expenses, and general inflation affecting utilities, rent, and delivery fees.
Labor Costs: Labor costs increased due to wage rate inflation of approximately 3.4%, additional investments in labor, and higher health insurance costs.
Supply Chain and Shrinkflation: The company highlighted consumer frustration with shrinkflation, which could impact customer perceptions and demand if not addressed effectively.
Capacity Constraints: Some restaurants face capacity constraints during peak times, with average wait times of 15-20 minutes, which could limit traffic growth.
Maggiano's Turnaround Challenges: Maggiano's turnaround is ongoing, with opportunities to improve service and reduce non-value-added processes to enhance dine-in times.
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Guidance & Outlook
Revenue Expectations: Annual revenues are expected to range between $5.78 billion and $5.82 billion for fiscal 2026.
Earnings Per Share (EPS): Adjusted diluted EPS is projected to be in the range of $10.60 to $10.85 for fiscal 2026.
Capital Expenditures: Capital expenditures are anticipated to range between $240 million and $250 million for fiscal 2026.
Sales Growth: Chili's expects mid-single-digit sales growth and positive traffic for the remainder of fiscal 2026.
Market Share: Chili's sales growth has consistently outpaced the industry, with an acceleration in outperformance to 560 basis points in April 2026.
New Unit Growth: Plans to ramp up new unit growth to a steady run rate by fiscal 2029, with more details to be shared at the upcoming Investor Day.
Reimage Strategy: Chili's plans to reimage 8 to 10 units during the remainder of fiscal 2026, 60 to 80 units in fiscal 2027, and 10% of the fleet annually starting in 2028.
Debt Management: The company plans to call $350 million of 8.25% bonds early in fiscal 2027, using liquidity from its $1 billion revolver, to achieve interest expense savings.
Commodity and Wage Inflation: Guidance assumes low single-digit inflation for wages and commodities for the remainder of fiscal 2026.
Tax Rate: A tax rate of approximately 19% is expected for fiscal 2026.
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Shareholder Return Plan
Share Repurchase Program: We continue to support this approach by repurchasing $108 million of common stock under our share repurchase program in the third quarter.
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Key Q&A
Q:What are the initial results and feedback on the new chicken sandwich launch?
A:The chicken sandwich launch has shown promising results with a 161% increase in sales compared to pre-launch levels. Feedback has been mostly positive, with customers appreciating the size and value of the sandwich. However, it is too early to declare success as more data on repeat rates and long-term performance will take a few quarters to gather.
Q:What are the key growth drivers for Chili's as it approaches $5 million in AUV?
A:Key growth drivers include continued focus on food, service, and atmosphere. Initiatives include menu renovations, improving cycle times for better throughput, and reimaging restaurants to optimize investments. The company is also leveraging marketing to attract new guests and sustain growth.
Q:Has there been any impact on consumer behavior due to recent volatility in consumer sentiment?
A:There has been some check management observed, particularly in desserts and alcohol sales. Despite this, traffic has accelerated due to the chicken sandwich launch. The company remains focused on controlling what it can, such as staffing, food quality, and service, to maintain market share.
Q:What is the outlook for margin flow-through in the fourth quarter and beyond?
A:Margins in Q4 are expected to be similar to Q3, with food and beverage costs potentially increasing due to a beef contract. However, labor leverage is expected to offset these increases. The company remains confident in achieving 30-40 basis points of margin growth year-over-year.
Q:What are the drivers of momentum beyond the chicken sandwich?
A:Momentum is driven by improving fundamentals such as food, service, and atmosphere. The company focuses on long-term traffic growth through sustainable initiatives rather than relying on limited-time offers. Metrics like guest satisfaction and intent to return are key indicators of success.
Q:What is the strategy for new unit growth and the addressable market for Chili's?
A:The company is ramping up new unit growth with a focus on optimizing restaurant design for higher volumes. While continuing to build in key states like California, Texas, and Florida, the company sees opportunities in other markets. The goal is to reach a steady growth run rate by fiscal 2029.
Q:What is the status of the Maggiano's turnaround and its role in the portfolio?
A:Maggiano's is undergoing a turnaround focused on improving kitchen throughput and unifying systems with Chili's. The brand serves as a test case for the company's ability to manage multiple brands. The company is not considering adding a third brand until Maggiano's turnaround is proven successful.
Q:What are the plans for operational and service improvements?
A:Operational improvements include technology upgrades like a new kitchen display system, team member handheld devices, and reducing friction in payment processes. Service improvements focus on reducing cycle times and optimizing labor deployment to enhance throughput and guest experience.
Q:What is the progress and outlook for the restaurant reimage program?
A:The reimage program is in early stages, with 4 restaurants completed and 8-10 more planned. Initial results show sales lifts even at lower spend levels. The program focuses on optimizing investments and will expand significantly in fiscal 2028.
Q:What is the company's approach to managing food inflation and pricing?
A:The company expects mid-single-digit food inflation, particularly in beef, and plans to manage this by protecting its value proposition. Pricing will be on the lower end of the stated range to maintain affordability while balancing inflationary pressures.
Q:What are the trends and opportunities in the off-premise channel?
A:Off-premise sales remain steady at 23-24% of total sales. The company sees opportunities to improve the guest experience in this channel by reducing friction in order pickup and enhancing packaging. These improvements are expected to drive better throughput and customer satisfaction.
Q:What is the advertising spend outlook for fiscal 2027?
A:Advertising spend is expected to remain similar as a percentage of sales, with some inflationary increases in dollar terms. The company will provide more detailed guidance on quarterly spending in the next fiscal year.
Q:What are the company's plans for improving margins beyond sales leverage?
A:Margin improvements will come from sales leverage, better labor productivity, and more efficient spending in areas like maintenance. The company is also exploring opportunities to optimize expenses as teams stabilize and turnover decreases.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the expected sales lift and return on investment for the restaurant reimage program, citing the need for more data from a larger test group. Additionally, they did not provide a clear timeline or specifics on the potential addition of a third brand, emphasizing the need to first prove the success of the Maggiano's turnaround.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Big Crispy
Chilihead
Marketing
Signature
Spire
Sunday
area
award
calendar
capacity
casual dining
chicken sandwich
cycle
dining experience
example
filet
food restaurant
guest restaurant
improvement food
industry basis
industry recognition
initiative
kitchen
list
north restaurant
outperformance
portion
progress turnaround
restaurant chain
restaurant guest
restaurant simplification
restaurant wait
sandwich launch
sandwich platform
scale
shrinkflation
standpoint
test
time
EAT Transcript
Brinker International, Inc. (EAT) Q3 2026 Earnings Call Transcript
Positive4-29
The earnings call reflects a positive outlook with robust growth strategies, including new product launches, restaurant reimages, and operational improvements. Despite some concerns about consumer behavior and inflation, the company is confident in its ability to manage these challenges. The market's response is likely to be positive due to optimistic guidance, strategic initiatives, and a focus on sustainable growth. However, the lack of specific details on certain initiatives and potential risks like inflation could temper the overall enthusiasm, resulting in a moderate positive impact on the stock price.
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.
EAT Slides
EAT Report
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