Brinker International(EAT) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics - Brinker reported total revenues of $1.208 billion for Q4, with consolidated comp sales of positive 13.5$1.61, up from $1.39 last year [18] - Full-year adjusted EBITDA totaled$444 million, a 28% increase versus the prior year [23] - Chili's comp sales came in at positive 14.8%, driven by price (8.1%), positive mix (0.8%), and positive traffic (5.9%) [19] - Maggiano's reported 2.5% positive comp sales for Q4, driven by price (9.2%) and positive mix (2.2%), offset by negative traffic (-8.9%) [19] - Restaurant operating margin for Q4 was 15.2%, a 180 basis points improvement year-over-year [21] Business Line Performance - Chili's AUVs grew by $440,000 to$3.6 million over the past two fiscal years [5] - Chili's menu has 22% fewer items than two years ago, simplifying operations [5] - Core 4 menu items (margaritas, Chicken Crispers, burgers, and fajitas) have seen significant improvements, with margarita sales doubling over $10 price points [9] - Fajitas platform, a$200 million business, will be relaunched in Q4 with improved recipes and new menu merchandising [13] Market Performance - Chili's outperformed the industry in Q4 with 14.8% sales growth and 5.9% traffic growth, 15.6 points better than the industry on sales and 9.4 points better on traffic [12] - July sales for Chili's were in the high single digits, including positive traffic, maintaining a 13% gap to the casual dining industry in sales and 8% in traffic [24] Strategic Direction and Industry Competition - The company is focused on improving 4-wall economics through operational simplification, technology investments, and labor and facility improvements [4][6][7] - Brinker is leveraging a barbell pricing strategy to offer both value and premium options, maintaining a balance between low-price and high-price menu items [10][24] - The company plans to continue driving traffic through advertising, superior value, and food innovation, with a focus on the Big Smasher and fajitas relaunch in FY25 [13][16] Management Commentary on Operating Environment and Future Outlook - Management highlighted the success of the turnaround strategy, with significant improvements in guest experience and operational efficiency [4][8] - The company expects FY25 annual revenues in the range of $4.55 billion to$4.62 billion, with adjusted diluted EPS in the range of $4.35 to$4.75 [25] - Wage rate inflation is expected in the mid-single digits, and commodity inflation in the low-single digits [25] Other Important Information - The company has made significant investments in technology, including Ziosk pay-at-the-table technology and AI labor forecasting, which have improved reliability and reduced errors [7] - Brinker has also invested in labor and facilities, leading to record food grade scores and improved guest experience [8] - The company plans to remove curbside service by the end of Q1 to streamline off-premise business execution [15] Q&A Session Summary Question: Chris O'Cull (Stifel) - Margin pressure in FY25 guidance - The margin pressure is driven by wage rate inflation, commodity inflation, and incremental investments in labor ($15M-$20M) and media ($15M-$18M) [27] Question: Dennis Geiger (UBS) - Top line outlook for FY25 - The company expects mid-single-digit same-store sales growth, with pricing in the 4%-5% range and traffic flat to slightly positive [32] - The company has baked in a 4%-5% decline in industry traffic into its assumptions [33] Question: Jeffrey Bernstein (Barclays) - Competitive environment and consumer stickiness - The company is seeing new guests return, with 18% of guests eating on the $10.99 tier and 80$10.99 strategy - Restaurant repairs were up $16M year-over-year, and advertising was up$14M [47] - The company plans to refresh the 10.99 message with new product news in the back half of FY25 [50][52] Question: Andrew Strelzik (BMO) - Listening sessions and traffic growth - The company is focusing on empowering restaurant teams to raise the bar on performance and guest experience [54] - Traffic growth is broad-based across all demographics, with the company winning market share [57] Question: Jeff Farmer (Gordon Haskett) - Restaurant-level margin and G&A - The company expects 30-50 basis points of ROM improvement in FY25 [58] - G&A is expected to increase by 5M-$7M due to ERP system transition and team growth [59] Question: Brian Vaccaro (Raymond James) - TikTok and influencer marketing - The company attributes 60% of May's performance to advertising and 40% to TikTok going viral [63] - The company has increased investment in TikTok and influencer marketing, driving younger consumers to Chili's [66][68] Question: John Ivankoe (JPMorgan) - Advertising and CapEx - The company is increasing advertising spend but has baked in a 4%-5% industry traffic decline, which could limit profitability upside [71] - CapEx for FY25 will be similar to FY24, with a shift from R&M to reimage spending and new restaurant development [73] Question: Eric Gonzalez (KeyBanc) - Recent trends and capital allocation - The company did not delay marketing windows and saw a tail effect from previous advertising [78] - Capital allocation for FY25 will focus on investing in the business, paying down debt, and share buybacks to offset dilution [81] Question: Brian Mullan (Piper Sandler) - Development and Maggiano's priorities - The company plans to open 10-12 new Chili's restaurants in FY25, with potential to accelerate to 15 [83] - Maggiano's is focusing on simplifying operations and elevating the guest experience, with new food and beverage innovation coming in September [85][87]