Brinker International, Inc. (EAT) Earnings

Management highlights

### Brand Performance & Turnaround Progress - Chili's marked its 21st consecutive quarter of positive same-store sales growth, with a 3-year cumulative comp of 50%, and solidified its position as the number one casual dining traffic brand in the U.S. - The Chili's turnaround strategy focuses on long-term sustainable growth via reinvestment in food quality, guest experience, atmosphere, and team member experience, paired with everyday value leadership that maintains a $3-$4 lower average per-person spend than competitors. - Maggiano's turnaround is progressing slower than planned, with some operational and culinary improvements offset by losses among core guests from prior strategy shifts, though the business remains on the right overall strategic track. ### Product & Marketing Highlights - The Big Crispy Chicken Sandwich launch (4 months post-launch at quarter end) exceeded all internal expectations: daily sales per restaurant increased 175% from 20 pre-launch to 55 at end of Q4, outperforming the prior successful Big Smasher and Big QP launches, and growth continues to accelerate in the current quarter. - Q4 marketing successes included the Big Crispy launch, a remake of the iconic 1985 Baby Back Ribs jingle featuring Lizzo, and the ongoing Margarita of the Month program; third-party data recorded Q4 as Chili's highest ever brand buzz level across all consumer cohorts, sustaining momentum from the 2024 viral cheese pull campaign. ### Operational Improvement Initiatives - Simplified bi-daily manager shift line checks from 8 pages to 1 page, freeing 30 minutes of manager time per day (equivalent to 22 years of cumulative manager time annually across the system) to focus on team coaching and guest interaction. - Upgraded labor scheduling tools to simplify proper shift staffing, and redesigned loyalty reward redemption to be automatic at checkout (similar to supermarket programs), reducing manager check-resolution time and speeding table turns. - For FY27, operations VPs added profit improvement as a second core obsession metric (alongside the multi-year focus on traffic) and increased the share of profit in restaurant leadership bonus structures to build stronger expense ownership culture. - Human resources results: ~80% of Chili's General Managers earned more than $100,000 in FY26, manager turnover is already well ahead of industry averages, and hourly turnover has now also moved ahead of the industry.

Guidance

- **Fiscal 27 Full-Year Guidance**: Total revenues are projected between $6.15 billion and $6.27 billion, adjusted diluted EPS between $12.60 and $13.40, weighted average outstanding shares between 42 million and 43 million, and capital expenditures between $265 million and $285 million. - The 53rd operating week in FY27 Q4 is expected to add approximately 2% to total annual revenues and $0.70 in incremental adjusted EPS. - Built-in assumptions for guidance: low single-digit commodity and wage inflation (with higher commodity inflation in Q1 that moderates through the year), a 19% effective tax rate, 3 net new company-owned restaurant openings, and the planned acquisition of 12 franchised Chili's locations in Alabama and Mississippi. - Restaurant-level margin improvement guidance is 20 to 40 basis points on a 52-week basis; the 53rd week could push total year-over-year margin improvement up to 50 basis points. - Chili's same-store sales guidance assumes mid-single-digit growth and positive traffic for the full year, with just over 3% total annual price increase and flattish overall mix. Inflation assumptions are conservative to avoid overpricing guests and protect long-term traffic growth. - Chili's reimaging program: 60 to 80 locations will be reimaged in FY27, with a planned annual cadence of 10% of the total fleet starting in FY28. Modest new unit growth is expected in FY27, with a significant ramp-up starting in FY28 and a sustained higher new unit run rate in place by FY29.

Segment performance

Chili's: Accounted for 92% of total company revenue in Q4 FY26. Delivered positive 5.6% same-store sales growth, consisting of 4.3% price growth, 1.5% positive traffic, and a 0.2% negative mix offset. Average annual unit volumes for Chili's increased to $5 million, up from just over $4.5 million at the end of FY25. Maggiano's: Represented 8% of total company revenue in Q4 FY26, with an expected FY27 profit contribution that will be surpassed by international licensed Chili's (projected at 4% of FY27 profits). Reported negative 2.5% same-store sales growth, consisting of 2.9% price growth, 5.3% negative traffic, and a 0.1% negative mix offset. Consolidated Brinker: Total Q4 FY26 revenues were $1.536 billion, with consolidated same-store sales up 5% overall. Consolidated restaurant operating margins were 18%, a 20 basis point improvement year-over-year.

Risks & headwinds

- Ongoing macroeconomic headwinds impacting the casual dining industry, including broad-based inflation across commodities, labor, rent, insurance, utilities, and other operating expenses. - Temporary commodity price volatility: Q4 FY26 saw an 80 basis point increase in food and beverage costs driven by 4.4% commodity inflation, including elevated beef costs and an extended temporary spike in tomato prices from a Florida late freeze (though tomato prices have normalized and will not impact FY27 Q1 costs). - Broad industry pressure on alcohol category sales that has impacted Maggiano's and impacted alcohol mix at Chili's, partially offset by market share gains for Chili's in the category. - Maggiano's slower-than-planned turnaround progress, with core guest losses from prior strategy offsetting recent operational and culinary improvements.

Analyst Q&A

• Q: What is driving the July and August sales acceleration at Chili's, and which components are not sustainable? /

  A: Management attributes the acceleration to a combination of sustained operational improvements and successful new product launches. The Big Crispy Chicken Sandwich continues to build daily sales volume, the July Bombshell Margarita of the Month attracted younger guests, and the consumer-driven molten chocolate skillet cookie upgrade has reversed a long-term decline in dessert incidence. Small operational friction-reduction initiatives (like simplified loyalty redemption) compound to increase throughput and enable higher weekend traffic. Management notes that this pattern of sustained, cumulative growth on top of prior comps is consistent with the turnaround's trajectory to date, with no major non-sustainable drivers identified.

• Q: Why is 20-40 basis points the right starting margin expansion guidance after the compensation structure change that is expected to improve flow-through? /

  A: Management built conservative guidance to protect the brand's value proposition and avoid overpricing guests, which is prioritized over short-term margin expansion to drive long-term traffic growth. Inflation is modeled at 4% in Q1, 3% in Q2, 2% in Q3, and 1% in Q4, with early-year commodity pressure creating incremental cost headwinds that are baked into guidance. After over 600 basis points of margin improvement during the core turnaround phase, margin growth will moderate as the company reinvests incremental top-line gains into guest and team member experience rather than flowing all gains to the bottom line. If sales exceed expectations or inflation cools faster than projected, there is clear opportunity to outperform the guidance range.

• Q: What menu innovation is planned for the near term, beyond the Big Crispy? /

  A: In FY27, the brand will continue to market and operationally support the Big Crispy all year. It will also roll out a revamped kids' menu (with a return of grilled chicken tenders, premium ice cream upgrades, and new kid-friendly options), an updated pasta platform with improved preparation processes, and multiple dessert upgrades including the molten-topped skillet cookie and a return of cheesecake. Salads, steak, and a refresh of the Guiltless Grill platform are pushed to FY28, with salads launching in the first half and steaks/Guiltless Grill planned for the second half.

• Q: What is the long-term runway for cycle time and throughput improvements, and what areas are targeted beyond FY27? /

  A: Management estimates at least three years of additional runway for cycle time improvements, as small incremental changes compound to deliver meaningful gains. Near-term FY27 priorities include host stand process improvements to better manage wait times and speed table seating/busing, and resolving soft drink station bottlenecks. The next major frontier after these dining room improvements is off-premise (to-go) business, which makes up 25% of sales. Management plans to improve the digital app experience, streamline pickup processes, and improve packout accuracy over the next two years, positioning Chili's to capture more quick takeout meal demand aligned with its better-than-fast-food positioning.