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spk23: Good day, and welcome to the Q4F23 earnings call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Micah Ware, Vice President of Finance and Investor Relations. Ma'am, the floor is yours.
spk24: Thank you, Holly, and good morning, everyone, and thank you for participating on today's call. Joining me on the call are Kevin Hockman, our Chief Executive Officer and President, and Joe Taylor, our Chief Financial Officer. Results for the quarter were released earlier this morning and are available on our website at brinker.com. As usual, Kevin and Joe will first make prepared comments related to our strategic initiatives and operating performance. Then we will open the call for your questions. Before beginning our comments, I would like to remind everyone of our safe harbor regarding forward-looking statements. During our call, management may discuss certain items which are not based entirely on historical facts. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risk and uncertainties which could cause actual results to differ from those anticipated. Such risk and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC. And, of course, on the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations. And with that said, I will turn the call over to Kevin.
spk06: Thanks, Micah, and good morning, everyone. Thank you for joining us as we recap the progress made during Fiscal 23 and and highlight our plans to build on this momentum and drive traffic in fiscal 24. During fiscal 23, we made significant shifts to our strategy to drive our core dine-in channel business and help us drive margin improvement over time. We pulled back on deep discounting. We reduced our focus on investment in virtual brands and started the pricing to recover inflation while still maintaining best-in-class value. We acted on our restaurant team's ideas to simplify operations. We invested in our labor model to improve our food grade scores and service. and we returned to national advertising for the first time in more than three years. And we saw very good progress in our results. We are now significantly outpacing industry sales growth since the middle of February, which is being driven by improved food scores, improved service scores, and a return to traffic-driving advertising. Our traffic gap versus the industry is also beginning to narrow, even though we continue to strategically shed the unprofitable Maggiano's virtual brand sales and some chili sales that were driven by deep discounting as we continue to reduce our reliance on coupons. From a retention standpoint, we significantly improved managerial turnover, and we are now better than pre-pandemic levels. A year ago, we challenged our vice presidents of operations to get after one obsession metric. They chose manager turnover, and the results have been exceptional. We are now beating the industry. This year, they have chosen the obsession goal of hourly team member turnover, and I'm confident the team will deliver improvements there, too. All in all, good progress in one year that has set the business up for a longer run of sustainable, profitable growth. Before we shift our focus to fiscal 24, I'd like to share an update on the relaunch of our chicken crispers, the first of our core four improvements, as an example of how our strategy is creating value. Our goal was to make it easier for operators to execute higher volumes, improve the recipes on chicken and fries, bring in new mac and cheese and new dipping sauces, and lastly, merchandise crispers in a more relevant way that would drive bigger piece counts. We launched this platform at the end of May, and we've already seen some very positive results, including over 40% more crisper volume. The best part is these results came before we turned on advertising next month in conjunction with the start of football season. We'll also be featuring this improved platform more prominently on our new bar menu rolling out in September, and we'll also introduce a new and incredibly delicious flavor, that uses the existing operational procedures and adds no new complexity to the kitchen. Guest feedback on the new crispers, fries, and mac and cheese has been phenomenal and has confirmed moving to one type of breading to both improve the recipe and allow teams to produce much higher quantities consistently has been the right choice. The end result, a much bigger and margin accretive crisper business driven by both higher pricing, higher piece counts, and better taste with less complexity because we eliminated the low mixing original crisper. and our restaurant teams love the changes. More sales with less complexity is a big win. In fiscal 2024, our goal is to accelerate this momentum by focusing on two key areas. Number one, we'll continue to improve the team member and the guest experience through service levels and atmosphere while driving the core four through improved operations and innovation. The core four now represents 43% of our sales, We took many of you through those plans on improving guest and team member experiences when you attended the Investor Day here in Dallas last quarter. Number two, we're laying several strategic initiatives to drive incremental traffic and accelerate our sales even more versus the industry, and I'll detail them here. So let's dive a little deeper into those initiatives, starting with our advertising strategy. Last quarter, I shared the encouraging results of our Three for Me TV campaign, This was our first national advertising window in more than three years, which helped narrow our traffic gap and accelerate Chili's market share growth. This year, we'll follow that same strategy, but increase from four weeks on TV to 21 weeks. That advertising will focus on value and core four menu items. We will use offers and innovation to bring guests in and then use menu merchandising to drive check. We'll supplement these ad windows with a social media and digital strategy to drive awareness and continue to increase the brand's relevance. The marketing team is doing a great job getting Chili's back in the cultural conversation and engaging with customers through these channels. For example, over the past six months, we've been a top trending topic on the platform formerly known as Twitter four times. Finally, we're building a more sophisticated CRM program to drive frequency. I'm excited to announce our partnership with Gale, the award-winning digital and CRM agency who is known as best in class in the restaurant industry. We'll continue reducing CRM discounts and redeploy those dollars to more effective and sustainable communication that delivers relevant targeted messaging to reduce time between visits. I'm so pleased to have the caliber of the Gale team working on our business and look forward to bringing you more updates on this program throughout the year. The other area of the business we're leaning to drive incremental traffic is the bar. With last year's Raise the Bar initiative, we are now selling more premium margaritas and our bars are more profitable. Building on that success, we're launching an updated bar menu later this month in conjunction with football. That includes compelling happy hour specials, premium drinks like our Casa Amigos Rita and our new Terra Mana Tropical Rita, as well as a completely new food lineup with an emphasis on crispers and wings. In addition to featuring our premium burgers and chicken crispers on that new bar menu, I'm pleased to share we'll be graduating the virtual brand It's Just Wings to the real world, where they will now have the marketing power and distribution of Chili's Grill & Bar. It's Just Wings is one of the largest, if not the largest, virtual brand in the world and and it's likely to get a lot bigger in the for real restaurant world. We see an opportunity to leverage It's Just Wings brand as a trip driver for bar visits and providing credibility to Chili's as a wing player. We'll start with football season and drive the wings business throughout the year, leveraging relevant sports viewing occasions to drive traffic. It's Just Wings will also appear on the everyday dining room menu, and we expect it to drive add-ons and trade-ups in the appetizer section. In summary, we expect these multiple traffic driving initiatives to improve traffic trends. We also expect the negative traffic impact of our CRM deep discounts reduction and Maggiano's virtual brand removal to have less of a drag on traffic as we move through this fiscal year and we cycle those impacts out. We're excited about our plans to continue growing the Chili's business in fiscal 24, and we expect to continue to significantly outpace the industry on sales. and we expect our traffic driving initiatives to improve traffic trends versus the industry, which will continue to accelerate market share growth throughout fiscal 24. Now let's move on to Maggiano's. The Maggiano's team has delivered impressive results during fiscal 23, as the recovery from the pandemic is now complete, finishing the year with an impressive $9.5 million AUV. I'm encouraged by the progress the Maggiano's leadership team is making clarifying their brand positioning. The team is currently working plans based on this positioning to modernize this iconic brand and accelerate growth on top of this past year of impressive results. I did want to take a moment to recognize Maggiano's president, Steve Probost, who is retiring at the end of this month. Steve has made many contributions to our business during his 14 years at Brinker. He started at Maggiano's brand and served as the president for many years. When the company needed him to jump into Chili's, he did so, acting as the chief marketing and innovation officer. And in that role, Steve created and launched It's Just Wings brand during the pandemic, which is a big help to the business during a very tough time. And now Steve has finished his career leading Magianos for the second time, and Steve's done a great job leading the brand through the pandemic, thoughtfully supporting managers and teammates, and ultimately creating a stronger Magianos post-pandemic. We're grateful for the many hats Steve has worn here at Brinker, and we'll miss his infectious energy and passion for the business and the people. Chief Concept Officer Larry Konecki and I are co-leading the brand as we search for the right leader to grow the business in the long term. I wanted to close with a brief update on what we experienced at our annual manager conference here last week in Dallas. Our chief people officer, Aaron White, and chief operating officer, Doug Cummings, hosted all of our Chili's restaurant general managers at our annual conference. There we shared our fiscal 24 plans. It was incredibly encouraging to hear the managers' alignment and see their energy about the new Chili's direction. The job continues to get easier. The job continues to be more fun. and more rewarding for them and their teams. They feel like they're being heard and a big part of shaping the future of Chili's, and they love winning again and growing faster in the industry. So the teams are really fired up and they're ready to deliver another year with accelerated growth and profitability. Net, we have confidence in the plans, we have the enthusiasm of our field restaurant teams, and we have the alignment to what's important across our entire organization that will allow us to deliver stronger results this fiscal year. Now I'll hand it over to Joe, and he'll walk you through the numbers and share guidance for fiscal 24. Go ahead, Joe.
spk04: Well, thank you, Kevin, and good morning, everyone. The results reported in this morning's press release represent the completion of a successful fiscal year in which we turned the overall direction of our brands, created a stronger foundation for growth, and built operational momentum heading into the current fiscal year. For fiscal 23, Brinker's annual revenue was $4,133,000,000, and our adjusted EPS was $2.83. Let me start my comments with several financial highlights for the fiscal year, followed by an overview of the fourth quarter performance before ending with comments and specific guidance for fiscal 24. During the recently completed fiscal year, we initiated investments into the Chili's brand through greater labor and maintenance spend that are bearing fruit by supporting an improved guest experience. While incorporating these necessary costs into the Chili's business model, we still realized improved restaurant-level economics as we moved through the year. Operational simplification, more aggressive and appropriate use of price mix, and cost of sales improvement were the primary contributors to the change. Maggiano's moved fully out of its post-pandemic recovery mode and delivered record pre-tax profits for the brand, with particular success in solidifying their off-premise channels. Brinker delivered top and bottom line results that strengthened through the year and finished well within the guidance ranges updated at mid-year. Overall, we are proud of the work our team members delivered and the progress made through the year, particularly around initiatives to improve team member and guest experiences, efforts that will lead to greater guest engagement as we move into a more robust traffic driving phase of our strategy. And moving to an overview of fourth quarter financial highlights. For the fourth quarter of fiscal 2023, Brinker reported total revenues of $1,075,000,000 with consolidated comp sales of positive 6.6%. Our adjusted diluted EPS for the quarter was $1.39, an increase of 21% from fourth quarter last fiscal year. Both brands reported meaningful top line sales growth with Chili's coming in at a positive 6.3% for the quarter, driven by price of 9.4% and positive mix of 4.6%, partially offset by negative traffic of 7.7%. Comp sales and traffic improved as we moved through the quarter, and the brand's positive gap to the industry widened. Importantly, dining room traffic for the quarter was positive when compared to the fourth quarter of fiscal 22. I would note Chili's is maintaining strong sales momentum in the beginning of this fiscal year, as well as further widening their comp sales gap to the sector. Maggiana's also recorded a solid fourth quarter, with comp sales up 9.1%, driven by positive price of 9.5%, partially offset by slightly negative mix in traffic. As mentioned earlier, we improved our restaurant operating margin with a fourth quarter consolidated ROM of 13.4%, up 90 basis points from the comparable quarter of the prior fiscal year. The improvement was primarily driven by sales leverage from greater price mix in the quarter and year-over-year improvement in cost of sales. Commodity markets moved in the right direction with inflation just over 4% for the quarter. Our investment into incremental labor hours to improve operational performance and wage rate inflation firmly in the 5% range were the primary drivers of increased labor expense for the quarter. The third component of ROM, restaurant expense, was impacted year-over-year by our strategy to increase both advertising and repair and maintenance spend, both of which we believe will positively impact our brand awareness and guest engagement. In addition, we recorded a year-end adjustment to increase our reserve for workers' comp and GL insurance liabilities that reduced adjusted EPS by approximately 5 cents. Our adjusted EBITDA for the fourth quarter and fiscal year was $114 million and $345 million, respectively. This level of performance allowed us to reinvest in our restaurants while also paying down $87 million of debt over the course of the year. At year end, our funded debt leverage ratio declined to 2.6 times and our lease adjusted leverage declined to 3.8 times. We will continue to utilize free cash flow to reduce outstanding debt with a target of reducing our funded debt leverage ratio to two times, a target we believe achievable before the end of calendar 24. During the quarter, we opened seven new Chili's restaurants, bringing our fiscal year openings to 14. Our recent openings continue to be a source of strength for Chili's, with three of the openings this quarter setting back to back to back opening sales records, showing the continued relevancy of the Chili's brand. Now to fiscal 2024. Company sales for the current fiscal year will continue to benefit from favorable price-mix dynamics, although at a reduced level from the low teens combination of fiscal 23. For the current fiscal year, we expect consolidated comp sales growth in the mid single digit range. As it relates to labor costs, we expect wage rate inflation remaining sticky in the mid single digit range. The first half of the year will also be impacted by the incremental labor hours we built into our model during the middle of last fiscal year. As indicated at our recent investor day, we expect this to be approximately $20 million of incremental spend during the first half of the fiscal year. One of the more meaningful changes when compared to fiscal 23 should be food and beverage inflation. In the category of what a difference a year makes, we expect commodity inflation for the fiscal year 24 to be approximately 1%. When compared to the respective quarters of last year, We expect commodity price to be deflationary for the first two quarters with a low single-digit inflation the last two quarters. Enhanced marketing will be a key driver for Chili's in this fiscal year. We expect to spend approximately $55 to $60 million more in marketing expense during fiscal 24 when compared to fiscal 23. And finally, restaurant development has 12 new openings scheduled in the fiscal year. In this morning's press release, we included some specific guidance for certain reportable items. This incorporates our existing view with the macro casual dining industry, our strategy to drive positive performance at both brands, and our capital allocation priorities. For the fiscal year, we are currently forecasting total revenues between $4.27 and $4.35 billion, adjusted earnings per share in a range of $3.15 to $3.55, capital expenditures between $175 and $195 million, and weighted average shares in a range of 45 to 46 million shares. In close, we are proud of the progress we've made and are continuing to make in building a solid foundation for future growth. We owe many thanks to our team members, both in the field and at our Restaurant Support Center, who are hard at work improving the business on a day-to-day basis. Their efforts have created strong momentum that we are confident will drive the business forward as we move through the fiscal year. And with my comments now complete, I'm going to turn the call back over to Holly to moderate questions.
spk23: Certainly. At this time, we will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Dennis Geiger at UBS.
spk09: Great. Thank you. And thanks for all the color on the market share. Maybe we could start there. As it relates to market share, through the quarter. Any comments on how that traffic market share trended through the quarter? And then, Joe, I wasn't sure if you made a comment on starting the new fiscal year or not, but any comments on how that has looked into the beginning of the year?
spk04: Yeah, sure, Dennis, and good morning. Yeah, the traffic dynamic, comps and traffic dynamics improved as we moved throughout the quarter. Being in the quarter, and I think you heard some of the similar commentary from others in the And the sector was a little bit below expectations in kind of that April, early May kind of timeframe, but definitely improved. So both traffic getting better, gap getting better, and overall comps getting better as we move. So some nice momentum coming out of the quarter, which we have definitely maintained. Very excited about what we're seeing in the first really seven weeks of the current fiscal year, maintaining that momentum. momentum both on comp sales, traffic, and continuing to widen our gap to the industry.
spk09: That's great, Joe. Thank you. And then just one more. A lot of initiatives clearly in progress and resonating. Just curious on customer behaviors, if you're able to kind of parse out any changes behavior-wise, purchase intent-wise that you're seeing within different customer cohorts or anything notable from that perspective as you move through the quarter. Thank you, guys.
spk06: From a macro standpoint, our internal metrics continue to improve. So when I say internal metrics, I talk about server attentive, intent to return, food grade scores. They're all headed in the right direction. From a cohort standpoint, the low-end customer is hanging in there. We haven't seen any change in frequency quarter to quarter. The high-end customers, so the higher-income customer, is actually coming more often. And in that middle ground, we've seen a little bit of fall-off. but all three of those cohorts are actually spending more than they were a year ago. So the net of it is it's a little bit mixed, right? You've got a higher-income customer that actually is coming more often. The lowest-income customer is about the same in that middle ground. We've seen a little bit of drop-up, but yet all three cohorts are spending more.
spk17: Great. Thank you, guys. Appreciate it.
spk23: Your next question is coming from David Palmer at Evercore ISI.
spk08: Thanks. Good morning. I'm just wondering how you're thinking about, I think I know the answer to this, but the thing about how you're sort of targeting key metrics, your guidance implies 100 to 150-ish restaurant margin basis point expansion in 24. I mean, you can correct me if I'm wrong on that rough math, but... you know, that's both good and it's a fairly tight window. In other words, you know, you get a lot of leverage on your business model. Are you targeting price according to really target the right margin? And I wonder when and how you'll think about when you start targeting traffic as a key metric. And I guess maybe related to all this is, should we assume that you're not going to be taking more price than the carryover four points of price going into fiscal 24. Thanks.
spk04: David, this is Joe. Let me deal with the price piece of the equation, then we can segue into trial. We're going to be targeting both. The year will, on the pricing in particular, the year is going to benefit obviously from pricing actions we took throughout this year. I think we're very comfortable with where we stand relative to the industry from a pricing standpoint. I do think that there is some more price available to us. We're actually also in the early stages of working with a third-party consultant on even becoming more sophisticated in our ability to apply price throughout our various markets. But I think we'll take a little bit of incremental price, probably mid-single digits here in the first half of the year later on in this quarter. and then move into a low level of pricing impact in the back half of the year. We'll maintain that optionality, you know, if price is available at that time, but not embedding the plan to have a lot of incremental price in the second half of the year. You'll see the impact of price on a quarterly basis kind of decrease as we move through the fiscal year, kind of starting most of this from carryover and a little bit of incremental price we're taking in our next menu. You're going to see that move from the kind of high single digits down to the mid-single digits as you work your way through the year on a quarterly basis.
spk06: And then from a traffic standpoint, David, here's how we're thinking about it. So if fiscal year 23 was kind of a reset year where we're getting the investments in the right places, taking some pricing to build up some dollars to reinvest back into the business, getting out of unprofitable sales, I would characterize fiscal year 24 as now we're reinvesting in the business to grow traffic. And so the biggest change, we talked about several of the traffic initiatives that we're driving in 24. The biggest one I think that would be important for all of you to know is going into the deep end on how much money we're going to invest in advertising. So we're going to move from four weeks of advertising last fiscal to 21 weeks, which is 17 more weeks And Joe kind of articulated in terms of the dollar amount of 55 to $60 million incremental. Why we feel very confident about that is that first four-week blast that we did back in March, we saw the first compression of traffic versus the industry trends, even though we're cycling through getting out of those unprofitable sales and that unprofitable traffic. So we saw sequential improvement versus the industry. And so we're very confident that that will continue throughout the year and then accelerate as we cycle out of the things that we're doing to remove the bad traffic. So there's going to be two things happening through the fiscal. One is this influx of an additional $55 to $60 million of TV spend, which we now have proven that will grow traffic and shrink that gap versus the industry. And then the second piece will be as we start rolling off the things that we've been purposely doing in the business strategically, I think you're going to see a sequential acceleration both in market share and in traffic trends.
spk18: That's great. Thank you.
spk23: Your next question is coming from John Ivanco with JP Morgan.
spk28: Hi, thank you. A question on advertising, especially as you bring it up. For you to be doing 21 weeks of advertising, obviously that's not 40 or it's not 52, and you are competing, especially on the QSR side and the better performing QSR side, brands that really do dominate the airways in some cases of you know, with burgers and, you know, chicken. And, you know, we've talked about before, you know, you have a lot of, you know, competition that's going very rapidly in the chicken category, particularly, you know, kind of all around you. Is there any sense or worry? And listen, I understand, you know, 24 is a different environment than what we had in 19. But is there a fear or, you know, or a worry that, you know, just advertising is just going to be a cost of business going forward? In other words, as opposed to it actually driving you a positive ROI, it kind of prevents you just from sales from declining. In other words, how do we see that it's a positive as opposed to just avoiding a negative at this point?
spk06: Yeah, I have zero worry about that. The way I think about advertising, and I've thought about this throughout my career, there's three things that determine whether your advertising is going to be impactful or not. The first one is what are you advertising? Like, you know, if you advertise something that's poor, it doesn't matter how good the ad is, it's not going to drive your business. And we've got unbeatable value with three for me, and we've got some awesome innovation coming in our core four that I'm very confident about, both the quality of those products, how they look on screen, and how they will drive traffic inside our restaurants. The second piece of it is, is the advertising any good? And we've built a world-class team with George Felix and Jesse Johnson and We've just hired a new VP that I want to release right now, but that's exciting too. And then we're bringing these world-class agencies into our business. And so these guys know how to do advertising, and they know how to do food advertising and drive people into the restaurants. And then the third is, do you have enough money set aside to get to the weights, to get to the TRPs that are required to move the needle in the business? And we saw that the first slug of advertising that we did last fiscal was We were very encouraged by what we saw based on the level of spend and the quality of advertising. And the reality is we're going to do that, you know, another four times next year or this year. So I'm very confident that's going to continue to close the traffic gap. That's what we've seen in the numbers. So there's nothing that we haven't seen based on what we put in market that would say that strategy is not working. And we'll continue to do that and continue to build on it because right now it is closing the traffic gap versus the industry and accelerating our market share.
spk28: That's a perfect answer. Thank you so much for that. And secondly, one of the challenges in this model is these mixed gains that you really don't normally see or really ever see in casual dining, and especially bar and grill, offset by negative traffic. And at least in this most recent quarter and several of the quarters in 2023, that was actually a greater negative than the mix was a positive. So You know, kind of balancing out those two numbers, you know, is an essential part, you know, to the model in 24. Do you have a quarter, you know, kind of in mind or do you think, you know, is there a quarter, you know, where we will see, you know, mix being greater than traffic in some capacity, however you want to add those two numbers? Where is that inflection point where the net negative becomes a positive in your mind?
spk04: I think you'll get them closer together as you kind of move towards the second half of the year. I'm not going to commit one way or the other on mix relative to traffic. I think, again, we see mix as a continued opportunity in the component of what we're trying to do. When Kevin's talking about the work around the core four and then the ability to market against things like the new CRISPR platforms and things of that nature, that will generate some mix opportunities. I think one of the bigger, you know, we're going to continue to benefit on Mix from lapping of removal of discounting as you go through the year, but I think you're also going to be shifting into the opportunity of Mix through, you know, innovation and incremental platforms and upsell merchandising within the restaurant. So again, not going to give you a kind of Mix versus traffic specifics, but I definitely see those two getting closer together as we move through the year.
spk02: That's perfect. Thank you, Joe.
spk23: Your next question for today is coming from Brian Vaccaro with Raymond James.
spk15: Thanks, and good morning. I just wanted to circle back on the market share discussion. And just so we're on the same page, Joe, and there's a lot of different industry benchmarks that are out there, would you be willing to provide any quantification of Chile's relative traffic performance moving through fiscal fourth quarter and what you've seen quarter to date?
spk04: Again, what I'll reiterate is we saw improvements in traffic as we move through the fourth quarter. That momentum is continuing as we move into the first seven weeks here of the end of the seventh week of our fiscal year. During that time, we've also seen a reduction in the negative traffic gap to the industry. which has also continued into. So the overall comp positive gap to the industry continues to widen, much of that driven by a shrinkage of the negative gap to the industry on traffic.
spk15: Okay, and on the fiscal fourth quarter, the traffic at Chili's, I think last quarter you had said the Maggiano's Classics, removing that and discontinuing that, what was a 60 basis point headwind to traffic. Could you help us frame how much of an impact that was here in the fourth quarter now that it's totally out of the system?
spk24: So we, Brian, it's Micah. So we closed the MIT brand at the very last day of the fiscal year, but we had closed some before that. So it's still about a, you know, 50 to 100 basis points negative impact on the quarter.
spk15: Okay, great. Thank you for that. And just a couple questions on the guidance, if I could. The, I think, Joe, I think you said 12 openings, gross openings for the year. Should we expect relatively flat on a net basis, given kind of continued modest closures and relocations and that sort of thing? Yeah, that's a good way to think about it. Okay. And then I guess on the EPS guidance, could you level set us on what tax rate is embedded in your guidance and any directional guide on what you expect on general and administrative costs?
spk04: Yes, on both of those two. We're expecting a mid-single digit, 5%, 6% kind of tax rate at this point. Obviously, you look at that and adjust it based on the flow of your credits. We had some really strong... FICA and WOTC credit activity this last year, driven a lot by dining room traffic coming back in and increased overall check, which actually drives up tips, so good credit components there. But we think we'll be in that mid-single-digit range for the fiscal year. That's what is implied currently in our guidance. And from a G&A perspective, I expect G&A to be up year over year, probably in the $10 million to $11 million range. Most of that is driven by various adjustments on comp-related items from stock comp to payroll to 401k participation. And then there's $2 million to $3 million of incremental spend from an IT perspective that makes up that differential.
spk16: All right. Thanks very much. I'll pass it along. Thanks, Brian.
spk23: Your next question is coming from Brian Harbor with Morgan Stanley.
spk26: Yeah, thank you. Good morning. Maybe just kind of a bigger picture question on sales. You've seen kind of this improving trend more recently. I think some of your peers have as well. Are you assuming in your guidance that that holds up? Do you think there's anything that's helped here kind of at the at the end of the summer, just as we start to think about the next couple of quarters, I realize that maybe there's a tougher lap in the calendar first quarter as well. Could you talk about how you think about that?
spk04: Yeah, again, the momentum we're seeing in the business, we think, is sustainable. I mean, it's being driven by the initiatives and the strategies. Again, I'm not going to suggest that July or August performance is going to be the exact performance as you go forward. The first quarter will have the largest and easiest lap year over year, kind of up and down the P&L, which we'll be very happy to see the anniversaring of last year's first quarter. And as you move into the second half of the year, you do have a little bit higher hurdles and laps to get over, but we're very comfortable that we have the strategies and initiatives in place to get over those hurdles as we move forward. and very comfortable and confident in the guidance we provided you today.
spk26: Okay, thanks. Joe, can you maybe also just talk about labor costs? I know we still have kind of the investment coming in the first half. Do you think that some of the initiatives you're doing on retention could be somewhat of an offset to that? Or on the flip side, do you think there's still other investments that need to be made?
spk04: So almost taking those in reverse, I think we're very comfortable that we've made the investments that needed to be made. They mentioned that incremental $20 million of spend is the first two, the impact of the first two quarters is based on those investments that have already been put into the labor model. So a good line of sight as to that. Again, you know, I do think the initiatives on turnover are helpful. They do reduce, you know, a lot of costs related to overtime and training and things of that nature. and major shout out to our operators who are doing a great job in moving those specific numbers where we want to see them move as we go through the fiscal year. Again, I see some nice upside opportunities there if we can continue to work that middle of the P&L as well as they are working the middle of the P&L right now. The wage rate you know, embedded in our thought process I talked about is kind of that mid-single-digit. So that's, that'll be the interesting one to watch as you continue to see, you know, year-over-year wage rates, if they stay in that, you know, mid-single-digit range or if you start to see any kind of benefit coming out of that.
spk18: Thank you.
spk23: Your next question is coming from Chris Ockel with Stiefel.
spk14: Thanks. Good morning, guys. Kevin, I was curious to get your thoughts on re-imaging existing assets. I'm just curious what can be done at existing units to create a more modern environment that matches up to the look and feel you've created with the new menu and marketing campaign?
spk06: Good morning, Chris. What we're focused right now is we're still focused primarily on repairs and maintenance of the existing fleet. making sure that the equipment is in good working order, that the facilities are clean and well maintained. And so we're spending the majority of those dollars on that. We are doing some re-imaging of older assets where we tend to get a better return. So these are ones that haven't been touched in a long, long time. But it's right now, just to be candid, it's not as big a priority as making sure the equipment is in good working order and the facility, from a dining room standpoint, looks where it needs to be for guests. I think over time, as we continue to deliver results and accelerate progress, I think we're going to re-look at that, but I don't view that as the biggest pressing opportunity right now based on where we could be putting our investments in terms of driving traffic. The labor investments, they'll complete by the end of this year, the ones that we talked about last year, and then the repairs and maintenance. So it's just not as big a priority as some of these other things, but I would anticipate revisiting that discussion probably a year from now, assuming we have the results that we expect to have.
spk14: Okay, that's helpful. And then, Joe, I had a question on the guidance. The revenue growth guidance was roughly in line with the multi-year target you guys provided at Investor Day, but The earnings per share range implied growth that was much wider than that 13% to 17% range. Can you give us a little detail as to what's causing the range to be wider from a bottom line standpoint and maybe what assumptions get you to the low and the high end?
spk04: Again, we did widen the range a little bit relative to the target, the longer term targets. I guess we'll obviously be able to give you more perspective on that as we move through the year, but Again, macro is probably the biggest issue as it relates to, you know, the lower end of the guidance and as we kind of work our way through what the economic realities will be. We expect relatively stable, but you still have a sector that is, you know, functioning from a negative traffic standpoint. So we want to be respectful of that on the low end for this initial guidance range. And then the high end is going to be – incremental success as it relates to some of our initiatives, particularly the traffic driving initiatives, you know, from an advertising standpoint, coupled with the ability for the operators to manage the P&L a little bit tighter as they kind of get more muscle memory into the system as we kind of go forward. So those are really the two biggest things that will drive those two ends of the spectrum there.
spk16: Okay, great. Thanks, guys.
spk23: Your next question is coming from Andrew Strelzyk with BMO.
spk17: Hey, good morning. Thanks for taking the questions.
spk13: My first one, kind of revisiting a topic that was brought up earlier, as you're ramping the advertising spending with a focus on the value messaging, what gives you the confidence that you'll be able to use the in-store merchandising to drive the check and not lean too much into the value side of the equation? Is there any texture or incidence metrics you can share kind of so far, what you've seen on that front?
spk06: Yeah, I mean, that's been a real big bright spot, the way we've structured menu merchandising and POP inside the restaurant since kind of we started the new strategy. So number one, it's about making sure that the customer that comes in for three for me or whatever that value message is, they can find it somewhere on the menu. But we don't want to make it so obvious where the guest that didn't come in for that trades down from a fajita or any of our other items that would drive more check and provide a better experience for that guest at a higher price. So the results of what we've seen on that is that the three-for-me mix has come down pretty significantly, even as we've taken pricing. So typically, when you take pricing and you do a couple waves of it, you typically would expect to see more mix start to shift into the value parts of the menu. We haven't seen that. In fact, we've seen just the opposite, where Three for Me over time has actually gone down from when we started this journey. It looks like it's about flattened out now, so it's not like we're seeing a bunch of folks now as we've seen the macro change a little bit. We don't see customers trading into the Three for Me, and I think it's part of it's because of the way we're orchestrating the menu merchandising. The one area I think we can do a little bit better job of actually providing some more presence on value inside the restaurant is our Margarita of the Month, where We've seen overall margarita sales increase because of the premium margaritas, but we feel like we can get better incidents by just driving a little bit more menu merchandising of Margarita of the Month at the point of purchase to make sure we get that incidence with all guests. But overall, when you just look at the mix of three for me, which is the primary value message inside of our restaurants, the direction that it's gone in the last 12 months has been so positive. And oh, by the way, When they are in three for me and more than half of them are not going, starting at that 1099, they're trading up. So we feel like we have a recipe for success on that. And this is, you know, this is a page out of the QSR playbook where you use great value to drive traffic and then, you know, execute menu merchandising for the guest that doesn't see that ad. And I think we'll continue to do that. I think it's been relatively successful in closing traffic gaps versus the industry, but continuing to drive menu mix in our business.
spk13: Okay, that's great. Thank you. And then just a quick one on lowering the hourly turnover. What do you think is really the key or the unlock there? I mean, you've talked about the progress you made on the manager side, but from an hourly perspective with some, you know, as you're increasingly engaging some of the folks in the restaurants, I mean, what, does something change in terms of that focus or how do you think about that unlock?
spk06: Yeah, you know, we're working on that right now. The, you know, I tell you the managerial side was a lot clearer because The restaurants are just so significantly easier to work in now. I mean, we just had our manager conference last week. I was just kind of blown away by how many managers personally gave me the feedback that it's like night and day different. And that's helping with team member turnover. So we've seen team member turnover start to come down, but it's not where we need it to be. We want to be ahead of the industry, not average or slightly behind. And so that's why we're putting together our best vice presidents of operations minds to come up with what are some disparate solutions that would allow us to make more progress faster on that. Andrew, I wish I knew the exact answer or we would have employed it this past year. So while we've seen improvement, it's just not where we want it to be. And I'm very confident that with the vice presidents making that their obsession metric in 24, we're going to make progress on it. And so I'm excited to be able to share with you what that plan is at the next quarterly update. But that team is working on it right now.
spk18: Great. I look forward to that. Thank you very much.
spk23: Your next question for today is coming from Jeff Farmer at Gordon Haskett.
spk21: Good morning, and thank you. We know your plan on advertising, but can you share your thoughts on what you're seeing from the promotional and advertising environment from your casual dining peers? Are they sort of following suit with you guys in terms of getting a little bit more aggressive as it relates to a return to TV advertising or advertising in general?
spk06: Yeah, we saw a little bit of activity that we typically don't see in July, but nothing is really seen out of place. So, like, you know, the usual characters are kind of doing their usual messaging, so that's not – we haven't seen any really difference in the behaviors or the weights. I do think that our move in fiscal 24 will be significantly different than we've done in previous years. The discounts aren't any deeper, but the shouting of them will be obviously a lot more when you move from four weeks to 21 weeks. Now, we'll continue to monitor that very closely. I do think when I look at the offers that I've seen from competition and I compare them to ours, I'm really confident about ours. I mean, I think if a guest is cash-strapped to get a complete meal, and an abundant complete meal that's very high quality, and to do that at a price point, and then you know that you can get it for that price point when you come into the restaurant, I think it's very, very competitive, versus like doing an offer on a part of a meal or something that you'd have to buy other full-priced items to complete a meal. So I don't anticipate needing to change that offer. and I'm excited to see what 21 weeks will do for our business versus four based on what we've learned, what four did for our business. So I'm very confident that that plan is going to work, and, you know, we'll continue to monitor it. We don't want to be naive about what the competitors do, but I do feel like we're in a place, we're in a very good place right now to continue to close that traffic gap.
spk21: Okay. That's very, very helpful. And just one quick follow-up. So you shared a bunch of information in terms of your pricing expectations for 2020 or 2024. in terms of maybe some early incremental pricing in the year, then some rollover pricing. But if you put all the pieces together based on what you know right now, what would you expect your FY24 menu pricing number to be?
spk04: Jeff, for the year, we'll be in that mid-single-digit range. Again, starting, you'd expect to see the first quarter, you're going to have a little bit higher up in the upper single-digit range, just thinking about price, working its way down into the mid single digits as you go through the quarters and exiting the year at that level too.
spk21: Okay, thank you guys.
spk23: Your next question is coming from Jeffrey Bernstein with Barclays.
spk17: Great, thank you. Two questions.
spk13: The first one, if I just think about this past quarter, following up on that pricing comment you know you were running nine points of price the traffic was down eight um and looking ahead it sounds like you said the cop for the full year is expected to be mid single digit positive with pricing mid single digits so that's assuming again unless there's big moves and mix relatively flat as traffic but relative to the current down eight percent it just seems like a major move and the industry we know hasn't seen flat to positive traffic in 15 years. I'm just wondering, Kevin, I know you mentioned the three drivers as to what effective advertising does, but any concern or anything that would derail that where the traffic could fall short of that return to flattish? Again, it just seems like a big move from traffic down eight with the current macro uncertainty so large. I'm going to add one follow-up.
spk24: Okay. Hi, Jeff. It's Micah. So, There's some nuances in those numbers when we're speaking in ranges. So I don't think that we're planning to go flat on traffic. So we still know that the industry has been negative, and we have that factored into our expectations for F24. There's really some movement, or there's some latitude in your price and mix assumptions to make all that work.
spk13: Okay. And then I think last quarter you mentioned that the consumer was maybe more discerning and skittish, and they were, I think you said, episodic pullbacks. I'm just wondering, has that changed over the past three months? Do you think maybe that's eased a little bit? And then, I mean, I assume that your response would be, you know, your value offers. I'm just wondering, what is the current mix, however you define value, that Chili's is at today versus maybe where it was, you know, a year or two ago? Thank you.
spk04: Yeah. When we look at value in totality, it's been relatively stable the last couple quarters. It's up a little bit relative to a couple years ago, but again, we're still in that 30% range that we've talked about in the past. I think it's relative to your comments on the consumer behavior. I think we've talked about in the past is there's been some episodic times that you see some skittishness driven. It could be gas prices last year obviously had a period of time. the general macroeconomic commentary that goes on. I think we saw a little bit of that in the beginning of the quarter when you think about the commentary in the April-May timeframe, and I've heard other folks talk to that. But the resiliency of the consumer is definitely still there. So whenever we've seen these short periods of possible skittishness, if you want to refer to that, we see a comeback, and we've definitely seen that happen as you move through this last fourth quarter. and into the current fiscal year. So again, generally speaking, the consumer seems to be, or the consumer is hanging in there. As Kevin said, we're seeing continued traffic from the different cohorts we look at. We're seeing increased spend from a number of those cohorts. And it is interesting to see the upper income visits start to head up. So clearly, You know, whether that's trading into the brand or not, or just reaction to the marketing we're doing, I think that's a real positive to see too. But right now the consumer environment is there.
spk13: I mean, the fact that the first seven weeks have been as much momentum is an incredible testament to the resilience. So hopefully that holds up.
spk18: Thank you. Yep.
spk23: Your next question for today is coming from Eric Gonzalez with KeyBank.
spk07: Hey, thanks for the question. I'm curious about one of the drivers you mentioned, the prepared remarks. Can you give us some more detail on how you're going to bring IJW into the real world? I'm wondering if you see that as a traffic driver or more of a check driver? And then, you know, do you have a sufficient brand awareness such that it would draw customers into the restaurants, or is it something you might put advertising resources behind?
spk06: Yeah, so the way to think about it, just from what the customer is actually going to see when they come inside of Chili's, it will show up in two areas. So one will be the new bar menus that will be placed on the bars and in the bar area, and there will be a prominent page on that menu that just talks about IJW and Chili's collaborating on this, basically a lineup that would be, it's just wings. So it will be boneless and bone-in wings, different piece counts, you know, all the sauces that are available and it's just wings. And so that will be very prominent at the bar because we know that wings and boneless wings are a big thing that people eat at the bar, especially when they're watching sporting occasions. We will also have a smaller section on the dining room menu in the appetizer section because that would either be an add-on to an existing meal or a trade-up from appetizers given the pricing of wings. So So those are the two areas that will show up for the guest. From outside the restaurant, because that's when we talk about driving traffic, it's really about what are we going to be talking about to guests to get them to come in for these wings. Primarily, it will start with our CRM program. So as I mentioned, we have this new CRM agency coming online. And if you look at some of the wing competitors, a big part of their traffic driving program is making sure that they are top of mind aware during sporting occasions when you're in the market for wings, whether they are to-go wings, an off-premise occasion, or coming into a sports bar to watch sports and eat wings. And so we'll have a heavy dose of that to start. And then eventually, because it's now a part of Chili's, in theory, we could eventually put that into TV advertising. We have no plans right now to put it in TV advertising. We want to see what happens when we put IJW into the business. And, you know, does it have some offtake to the fact that it would make sense to put on air? but we do think it's going to drive the business at a minimum a little bit, but it could be a bigger thing depending on what we see with the CRM program results. At a minimum, it's going to be a trade-up, but we do think it could eventually drive some traffic, especially during the sports viewing season, which really starts at the start of football.
spk04: One of the things I really like about the change, too, is going to be the awareness of IJW that it's going to bring to the table. That's a brand that, while it from a virtual brand standpoint, did well. Awareness basically existed on your third-party platforms. And so now you're going to start to have some brand awareness being front and center to the Chili's population as we kind of move forward. So it's a nice way to expand that awareness without the cost associated of marketing on a third-party platform.
spk06: Yeah, I mean, the best way to describe it would be if you took like an upstart brand and said, okay, you can now have the distribution of Chili's and you can have access to You know, our over 11 million CRM members, like, is that something you'd be excited about? And the answer would be yes. Like, that is a huge amount of scale that you're bringing to a brand that is relatively small in the grand scope of food, right, that we think that could have some significant impact to the HGS Wings business.
spk07: Got it. And then maybe just on the off-premise business, I apologize if I missed it, but did you talk about what the mix was in the quarter? And maybe if you could talk about the breakdown between carryout and delivery and whether you've seen any shifts there.
spk24: Hi, Eric. It's Micah. Yeah, we're still hanging in that same range as last quarter, you know, 28%, 30% for the brand. And we have about an even split between carryout and third-party delivery.
spk07: Got it. Thank you.
spk23: Your next question for today is coming from John Tower with Citi.
spk11: Great. Thanks for taking the question. Just curious if you can get into the thinking behind you know, on the one hand, you've got a lot of initiatives going on at the company to drive some traffic. But on the other hand, you know, you've got food cost deflation running through or deflation at the moment. And I guess for the year settling out at about 1% or so and mid single digit or so wage rate inflation. So can you talk about what the inputs are on your end in thinking about taking the pricing of that, you know, high single at the start of the year kind of flattening out or settling out at about mid single digit it just seems that at this point in time it'd be great a great period for you to lean into you know kind of that value offering that that Chili's has for the consumer and an opportunity to take price or to take take some traffic from competitors but instead you're taking a little bit more pricing so how do you balance that I guess
spk06: Well, the way we're thinking about it is we missed a lot of price during the pandemic. We've caught up a little bit versus the industry, but based on the competitors that you cover, I think you can figure out how much we missed over a three-year period. So part of this is we've got to get an equilibrium in our business so that we can make the necessary investments both in the facility labor and advertising to have a growth business going forward. Part of that is that we've missed a lot. The second piece I would say is I think we're going to make sure that we're really sticking to our guns on advertising value so that we get credit for value. And value comes in two ways. One is you crack the price points for three for me and talking about the abundance of food. The other way you deliver value is with much better experience. And we're seeing that. So the labor investments that we're putting in, the simplification that we're not scraping the labor from, that we're reinvesting that labor back into the business, is having a significant impact on food grade and server attentive and ultimately intent to return. So I believe we're going to continue to have the best value in the industry, even with the pricing that Joe described, because we're going to continue to elevate the experience. And then if you look at like-for-like pricing versus our competitors, we're either beneath them significantly or at parity with them. So it's not like I feel like we're getting out of whack in anything. If you look at fajitas and burgers and crispers and we're either right in line or below what you see in all of our markets. So there's nothing like that's alarming to me. As long as we continue to improve the experience, put those investments back into the business, to me it's about a long-term turnaround, and I think we're well on our way. And based on the results that we're seeing, it's encouraging that we're making the right moves on that.
spk11: Okay. I appreciate that. And pivoting on you a little bit, can you just maybe drill into how we should expect the cadence of the advertising spend to look throughout the year? I know it's 21 versus four weeks, but, you know, is it going to be chunky around, say, the football season or evenly spread throughout the year?
spk06: Yeah, so our team believes in, I'll borrow your term, chunky. So you'll see blasts once a quarter where we have high weights that you'll be able to see around, we call them tentpole events. Could be sporting occasions, could be other things that are happening in the TV marketplace. And then in between those four tentpole events, You'll see kind of an always-on strategy with digital and social advertising, and then there'll be pops, what the team's calling culture pops, which are kind of events or stunts that will just keep Chili's in the news between those big tentpole TV programs. So to answer your question, it would be more chunky, once a quarter, and then you'll see it supplemented with social and digital throughout the year, as well as kind of these PR events just to keep Chili's top of mind.
spk17: Cool. Awesome. Thanks for taking the questions.
spk23: Your next question for today is coming from Chris Carril with RBC Capital Markets.
spk10: Hi, thanks, and good morning. So maybe tying together some of the previous responses and just following up on restaurant margins, obviously a lot of moving pieces, just given the commodity outlook you provided, the run rate of higher labor hours and R&M expense in the first half of the year, of course, advertising. But generally, how should we think about the cadence of margins over the course of the year? I know, Joe, you had called out, obviously, favorable lap in the 1Q, but just trying to think about the potential for margin improvement in the 2Q and beyond.
spk04: Yeah, Chris, let me give you a little color on that. And obviously, we think from an annual perspective, there's some nice upside to the restaurant operating margin for the year. I think that will definitely... meaningfully exceed the 30, 40 basis points annual targets we talked about at the investor day for obvious reasons on what's happening in particularly the commodity markets. I think you're going to see an oversized gain in Q1. It's going to be an increase of a couple percentage points or more in Q1. So that's the largest year-over-year gain that you're going to see. And then I would expect to see improvement As we move through the rest of the quarters, the improvement I would anticipate will get narrow, you know, in the Q3 and Q4, you know, as you get laps that are more year-over-year normalized. So, again, nice opportunity to move forward on ROM for the whole fiscal year, that outsized lap in Q1. and kind of narrowing as you get down through Q4.
spk10: Okay, great. Thanks for that. And then I guess just drilling down in the commodity outlook specifically, can you maybe unpack what items specifically are driving that outlook? And I don't know if you disclosed it, but how much you have locked in for the year? Thank you.
spk24: Hi, Chris. It's Micah. So for F24, Obviously, Joe talked about deflation in the first half, and then we'll have some slight inflation in the back half. Obviously, poultry is going to be a good guy. That's really driving that favorability in the first half with commodity pricing and with mix because we're selling a lot more chicken, which is great. Beef is something that is inflationary throughout the year. As far as contracting goes, we have a lot of the stakes locked up really through the fiscal year. Our ground beef is still on the market a little bit. As far as contracting goes, looking into next year, the first quarter, we have a good line of sight, really probably over 90% were locked in on that. It goes a little bit down as the fiscal year progresses, but we'll continue to take advantage of the market and opportunities and ensure that as we get through the fiscal year.
spk10: Great. Thanks so much.
spk00: You're welcome.
spk20: your next question is coming from alex slagle with jeffries hey thanks i just wanted to ask a little more on rewards and the crm efforts new agency and i realized the revamp will take place over a couple years but just curious there's some initial changes underway that could help drive trafficking profitability in 24 and sounds like it from the talks on uh it's just wings but um i don't know if that step up is more coming in 25, or if we do see some of that in 24, and maybe just any commentary on where we are on discounting relative to 2019?
spk06: Yeah, so the agency is literally onboarding in the next few weeks, so, you know, we don't have the new strategy laid out yet. You know, what I can tell you is it's going to be continued less discounting, so we removed some discounting last year, a significant amount. We're going to continue to remove discounting, probably at a slower pace. Probably don't need to do it as dramatic as we did last year. But we're going to replace those emails with more relevant emails and more of the relevant emails so that on a per email basis, you'll have a lower redemption because you're not giving away as much value. But because you're able to send more emails out and they're more relevant, over time, you would expect to get more traffic from those, not less. It just wouldn't cost you as much. So So, for example, a lot more emails around sporting occasions where we know that the guest either wants to come inside a restaurant or a bar or be able to carry out food to consume at home and watch the sporting event. You'll see more of that. You'll see more relevance around other occasions like weekday dinner and making sure that we're driving our carryout business. We just weren't doing those things in the old CRM program. It was really about what you could get for free from us versus, like, here's how Chili's fits in your life based on these occasions, whether it's, you know, going out to eat or easy home or replacement at home. So I expect that will be the strategy. Now, how Gale brings it to life, I think, you know, I think you can look at some other restaurant brands that they've worked with. Part of the reason why we're so excited about them coming on is we've seen them, you know, really transform another – restaurant programs or CRM program, and we think that we want exactly that. So that'll give you some more insight about how we're thinking about transforming our CRM program over time.
spk04: Yeah, and Alex, one thing I would say from an in-the-year, for-the-year kind of standpoint, that step change and the upside opportunity is not embedded into our thinking or our plan for this fiscal year. So looking forward to see what Gail is going to bring to the table, but we're not We're not relying on it for this year to drive the numbers.
spk19: Got it. It's helpful. Thank you.
spk23: Your final question for today is from Catherine Griffin with BOA.
spk25: Hi. Thanks for fitting me in. So I wanted to ask a question on check management just, you know, in the event that the consumer does start to pull back sort of contemplating the lower end of the guidance, Can you talk about how you think about the sequencing of how consumers might manage their check? Would you expect to see it at the bar first and then on sides or starting down with trade down on the plate? I think that would be helpful.
spk06: Yeah, I mean, I think what you just said is probably right, is you'd see it first at alcohol attachment, both in terms of incidence and trade down. And then eventually you'd either see it in lower app attachment. My guess is you'd probably see more people trade in the three for me just because it comes with an appetizer and it's a relatively low price. But we just haven't seen that yet. So, for example, quarter on quarter, the three-for-me mix basically is unchanged. The number of checks on deal was basically unchanged. And then we've seen overall higher mix, significantly higher mix in this quarter. And we don't expect that to change, at least in the near term. But I do think that's the type of things that you would see, and so likely what you would do is make sure that things like the margarita of the month is more prominent so that guests know they can get a $5 or $6 margarita, as well as potentially looking at making sure that they understand there's three for me there if we feel like there's a pullback. So far we haven't seen it, but I think you're thinking about it right, is that those were the first places that you'd see. Okay.
spk25: Okay, thank you. And then I wanted to ask a question on labor. So, you know, either in terms of retention or in terms of, you know, labor availability as you're hiring, I was wondering if you're seeing sort of any, like, demographically specific success in terms of, you know, which groups, younger, older, you're seeing more success with retention or hiring?
spk06: Yeah, I mean, I don't have that data. I haven't seen it cut by demos, but it's certainly something we can look into. There's an insight in that question that we should take a look at, but I don't have that answer, Catherine.
spk25: Okay, great.
spk24: Thank you very much. Well, thank you, everybody. That concludes our call, and we look forward to our next one in early, early November.
spk03: Thank you, everybody. Everybody have a good day.
spk23: Thank you. This concludes today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation. you Bye. Bye. Thank you. you Good day, and welcome to the Q4F23 earnings call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Micah Ware, Vice President of Finance and Investor Relations. Ma'am, the floor is yours.
spk24: Thank you, Holly, and good morning, everyone, and thank you for participating on today's call. Joining me on the call are Kevin Hockman, our Chief Executive Officer and President, and Joe Taylor, our Chief Financial Officer. Results for the quarter were released earlier this morning and are available on our website at Brinker.com. As usual, Kevin and Joe will first make prepared comments related to our strategic initiatives and operating performance. Then we will open the call for your questions. Before beginning our comments, I would like to remind everyone of our safe harbor regarding forward looking statements. During our call, management may discuss certain items which are not based entirely on historical facts. Any such items should be considered forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risk and uncertainties which could cause actual results to differ from those anticipated. Such risk and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC. And, of course, on the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations. And with that said, I will turn the call over to Kevin.
spk06: Thanks, Micah, and good morning, everyone. Thank you for joining us as we recap the progress made during Fiscal 23. and highlight our plans to build on this momentum and drive traffic in fiscal 24. During fiscal 23, we made significant shifts to our strategy to drive our core dine-in channel business and help us drive margin improvement over time. We pulled back on deep discounting. We reduced our focus on investment in virtual brands and started the pricing to recover inflation while still maintaining best-in-class value. We acted on our restaurant team's ideas to simplify operations. We invested in our labor model to improve our food grade scores and service. and we returned to national advertising for the first time in more than three years. And we saw very good progress in our results. We are now significantly outpacing industry sales growth since the middle of February, which is being driven by improved food scores, improved service scores, and a return to traffic-driving advertising. Our traffic gap versus the industry is also beginning to narrow, even though we continue to strategically shed the unprofitable Maggiano's virtual brand sales and some chili sales that were driven by deep discounting as we continue to reduce our reliance on coupons. From a retention standpoint, we significantly improved managerial turnover, and we are now better than pre-pandemic levels. A year ago, we challenged our vice presidents of operations to get after one obsession metric. They chose manager turnover, and the results have been exceptional. We are now beating the industry. This year, they have chosen the obsession goal of hourly team member turnover, and I'm confident the team will deliver improvements there, too. All in all, good progress in one year that has set the business up for a longer run of sustainable, profitable growth. Before we shift our focus to fiscal 24, I'd like to share an update on the relaunch of our chicken crispers, the first of our core four improvements, as an example of how our strategy is creating value. Our goal was to make it easier for operators to execute higher volumes, improve the recipes on chicken and fries, bring in new mac and cheese and new dipping sauces, and lastly, merchandise crispers in a more relevant way that would drive bigger piece counts. We launched this platform at the end of May, and we've already seen some very positive results, including over 40% more crisper volume. The best part is these results came before we turned on advertising next month in conjunction with the start of football season. We'll also be featuring this improved platform more prominently on our new bar menu rolling out in September, and we'll also introduce a new and incredibly delicious flavor that uses the existing operational procedures and adds no new complexity to the kitchen. Guest feedback on the new crispers, fries, and mac and cheese has been phenomenal and has confirmed moving to one type of breading to both improve the recipe and allow teams to produce much higher quantities consistently has been the right choice. The end results, a much bigger and margin accretive crisper business driven by both higher pricing, higher piece counts, and better taste with less complexity because we eliminated the low mixing original crisper. and our restaurant teams love the changes. More sales with less complexity is a big win. In fiscal 2024, our goal is to accelerate this momentum by focusing on two key areas. Number one, we'll continue to improve the team member and the guest experience through service levels and atmosphere while driving the core four through improved operations and innovation. The core four now represents 43% of our sales, We took many of you through those plans on improving guest and team member experiences when you attended the Investor Day here in Dallas last quarter. Number two, we're laying several strategic initiatives to drive incremental traffic and accelerate our sales even more versus the industry, and I'll detail them here. So let's dive a little deeper into those initiatives, starting with our advertising strategy. Last quarter, I shared the encouraging results of our Three for Me TV campaign. This was our first national advertising window in more than three years, which helped narrow our traffic gap and accelerate Chili's market share growth. This year, we'll follow that same strategy, but increase from four weeks on TV to 21 weeks. That advertising will focus on value and core four menu items. We will use offers and innovation to bring guests in and then use menu merchandising to drive check. We'll supplement these ad windows with a social media and digital strategy to drive awareness and continue to increase the brand's relevance. The marketing team is doing a great job getting Chili's back in the cultural conversation and engaging with customers through these channels. For example, over the past six months, we've been a top trending topic on the platform formerly known as Twitter four times. Finally, we're building a more sophisticated CRM program to drive frequency. I'm excited to announce our partnership with Gale, the award-winning digital and CRM agency who is known as best in class in the restaurant industry. We'll continue reducing CRM discounts and redeploy those dollars to more effective and sustainable communication that delivers relevant targeted messaging to reduce time between visits. I'm so pleased to have the caliber of the Gale team working on our business and look forward to bringing you more updates on this program throughout the year. The other area of the business we're leaning to drive incremental traffic is the bar. With last year's Raise the Bar initiative, we are now selling more premium margaritas and our bars are more profitable. Building on that success, we're launching an updated bar menu later this month in conjunction with football. That includes compelling happy hour specials, premium drinks like our Casa Amigos Rita and our new Terra Mana Tropical Rita, as well as a completely new food lineup with an emphasis on crispers and wings. In addition to featuring our premium burgers and chicken crispers on that new bar menu, I'm pleased to share we'll be graduating the virtual brand It's Just Wings to the real world, where they will now have the marketing power and distribution of Chili's Grill & Bar. It's Just Wings is one of the largest, if not the largest, virtual brand in the world and and it's likely to get a lot bigger in the for real restaurant world. We see an opportunity to leverage It's Just Wings brand as a trip driver for bar visits and providing credibility to Chili's as a wing player. We'll start with football season and drive the wings business throughout the year, leveraging relevant sports viewing occasions to drive traffic. It's Just Wings will also appear on the everyday dining room menu, and we expect it to drive add-ons and trade-ups in the appetizer section. In summary, we expect these multiple traffic driving initiatives to improve traffic trends. We also expect the negative traffic impact of our CRM deep discounts reduction and Maggiano's virtual brand removal to have less of a drag on traffic as we move through this fiscal year and we cycle those impacts out. We're excited about our plans to continue growing the Chili's business in fiscal 24, and we expect to continue to significantly outpace the industry on sales. and we expect our traffic driving initiatives to improve traffic trends versus the industry, which will continue to accelerate market share growth throughout fiscal 24. Now let's move on to Maggiano's. The Maggiano's team has delivered impressive results during fiscal 23, as the recovery from the pandemic is now complete, finishing the year with an impressive $9.5 million AUV. I'm encouraged by the progress the Maggiano's leadership team is making clarifying their brand positioning. The team is currently working plans based on this positioning to modernize this iconic brand and accelerate growth on top of this past year of impressive results. I did want to take a moment to recognize Maggiano's president, Steve Probost, who is retiring at the end of this month. Steve has made many contributions to our business during his 14 years at Brinker. He started at Maggiano's brand and served as the president for many years. When the company needed him to jump in the Chili's, he did so, acting as the chief marketing and innovation officer. And in that role, Steve created and launched It's Just Wings brand during the pandemic, which is a big help to the business during a very tough time. And now Steve has finished his career leading Magianos for the second time, and Steve's done a great job leading the brand through the pandemic, thoughtfully supporting managers and teammates, and ultimately creating a stronger Magianos post-pandemic. We're grateful for the many hats Steve has worn here at Brinker, and we'll miss his infectious energy and passion for the business and the people. Chief Concept Officer Larry Canecci and I are co-leading the brand as we search for the right leader to grow the business in the long term. I wanted to close with a brief update on what we experienced at our annual manager conference here last week in Dallas. Our chief people officer, Aaron White, and chief operating officer, Doug Cummings, hosted all of our Chili's restaurant general managers at our annual conference. There we shared our fiscal 24 plans. It was incredibly encouraging to hear the managers' alignment and see their energy about the new Chili's direction. The job continues to get easier. The job continues to be more fun. and more rewarding for them and their teams. They feel like they're being heard and a big part of shaping the future of Chili's, and they love winning again and growing faster in the industry. So the teams are really fired up, and they're ready to deliver another year with accelerated growth and profitability. Net, we have confidence in the plans, we have the enthusiasm of our field restaurant teams, and we have the alignment to what's important across our entire organization that will allow us to deliver stronger results this fiscal year. Now I'll hand it over to Joe, and he'll walk you through the numbers and share guidance for fiscal 24. Go ahead, Joe.
spk04: Well, thank you, Kevin, and good morning, everyone. The results reported in this morning's press release represent the completion of a successful fiscal year in which we turned the overall direction of our brands, created a stronger foundation for growth, and built operational momentum heading into the current fiscal year. For fiscal 23, Brinker's annual revenue was $4,133,000,000, and our adjusted EPS with $2.83. Let me start my comments with several financial highlights for the fiscal year, followed by an overview of the fourth quarter performance before ending with comments and specific guidance for fiscal 24. During the recently completed fiscal year, we initiated investments into the Chili's brand through greater labor and maintenance spend that are bearing fruit by supporting an improved guest experience. While incorporating these necessary costs into the Chili's business model, we still realized improved restaurant-level economics as we moved through the year. Operational simplification, more aggressive and appropriate use of price mix, and cost of sales improvement were the primary contributors to the change. Maggiano's moved fully out of its post-pandemic recovery mode and delivered record pre-tax profits for the brand, with particular success in solidifying their off-premise channel. Brinker delivered top and bottom line results that strengthened through the year and finished well within the guidance ranges updated at mid-year. Overall, we are proud of the work our team members delivered and the progress made through the year, particularly around initiatives to improve team member and guest experiences, efforts that will lead to greater guest engagement as we move into a more robust traffic driving phase of our strategy. And moving to an overview of fourth quarter financial highlights. For the fourth quarter of fiscal 2023, Brinker reported total revenues of $1.75 billion, with consolidated comp sales of positive 6.6%. Our adjusted diluted EPS for the quarter was $1.39, an increase of 21% from fourth quarter last fiscal year. Both brands reported meaningful top-line sales growth, with Chili's coming in at a positive 6.3% for the quarter, driven by price of 9.4%, and positive mix of 4.6%, partially offset by negative traffic of 7.7%. Comp sales and traffic improved as we moved through the quarter, and the brand's positive gap to the industry widened. Importantly, dining room traffic for the quarter was positive when compared to the fourth quarter of fiscal 22. I would note Chili's is maintaining strong sales momentum in the beginning of this fiscal year, as well as further widening their comp sales gap to the sector. Maggiana's also recorded a solid fourth quarter, with comp sales up 9.1%, driven by positive price of 9.5%, partially offset by slightly negative mix in traffic. As mentioned earlier, we improved our restaurant operating margin with a fourth quarter consolidated ROM of 13.4%, up 90 basis points from the comparable quarter of the prior fiscal year. The improvement was primarily driven by sales leverage from greater price mix in the quarter and year-over-year improvement in cost of sales. Commodity markets moved in the right direction with inflation just over 4% for the quarter. Our investment into incremental labor hours to improve operational performance and wage rate inflation firmly in the 5% range were the primary drivers of increased labor expense for the quarter. The third component of ROM, restaurant expense, was impacted year-over-year by our strategy to increase both advertising and repair and maintenance spend, both of which we believe will positively impact our brand awareness and guest engagement. In addition, we recorded a year-end adjustment to increase our reserve for workers' comp and GL insurance liabilities that reduced adjusted EPS by approximately five cents. Our adjusted EBITDA for the fourth quarter and fiscal year was $114 million and $345 million, respectively. This level of performance allowed us to reinvest in our restaurants while also paying down $87 million of debt over the course of the year. At year end, our funded debt leverage ratio declined to 2.6 times and our lease adjusted leverage declined to 3.8 times. We will continue to utilize free cash flow to reduce outstanding debt with a target of reducing our funded debt leverage ratio to two times, a target we believe achievable before the end of calendar 24. During the quarter, we opened seven new Chili's restaurants, bringing our fiscal year openings to 14. Our recent openings continue to be a source of strength for Chili's, with three of the openings this quarter setting back-to-back-to-back opening sales records, showing the continued relevancy of the Chili's brand. Now to fiscal 2024. Company sales for the current fiscal year will continue to benefit from favorable price mix dynamics, although at a reduced level from the low teens combination of fiscal 23. For the current fiscal year, we expect consolidated comp sales growth in the mid single digit range. As it relates to labor costs, we expect wage rate inflation remaining sticky in the mid single digit range. The first half of the year will also be impacted by the incremental labor hours we built into our model during the middle of last fiscal year. As indicated at our recent investor day, we expect this to be approximately $20 million of incremental spend during the first half of the fiscal year. One of the more meaningful changes when compared to fiscal 23 should be food and beverage inflation. In the category of what a difference a year makes, we expect commodity inflation for the fiscal year 24 to be approximately 1%. When compared to the respective quarters of last year, We expect commodity price to be deflationary for the first two quarters with a low single-digit inflation the last two quarters. Enhanced marketing will be a key driver for Chili's in this fiscal year. We expect to spend approximately $55 to $60 million more in marketing expense during fiscal 24 when compared to fiscal 23. And finally, restaurant development has 12 new openings scheduled in the fiscal year. In this morning's press release, we included some specific guidance for certain reportable items. This incorporates our existing view of the macro casual dining industry, our strategy to drive positive performance at both brands, and our capital allocation priorities. For the fiscal year, we are currently forecasting total revenues between $4.27 and $4.35 billion, adjusted earnings per share in a range of $3.15 to $3.55. capital expenditures between $175 and $195 million, and weighted average shares in a range of 45 to 46 million shares. In close, we are proud of the progress we've made and are continuing to make in building a solid foundation for future growth. We owe many thanks to our team members, both in the field and at our Restaurant Support Center, who are hard at work improving the business on a day-to-day basis. Their efforts have created strong momentum that we are confident will drive the business forward as we move through the fiscal year. And with my comments now complete, I'm going to turn the call back over to Holly to moderate questions.
spk23: Certainly. At this time, we will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is coming from Dennis Geiger at UBS.
spk09: Great. Thank you. And thanks for all the color on the market share. Maybe we could start there. As it relates to market share, through the quarter. Any comments on how that traffic market share trended through the quarter? And then, Joe, I wasn't sure if you made a comment on starting the new fiscal year or not, but any comments on how that has looked into the beginning of the year?
spk04: Yeah, sure, Dennis, and good morning. Yeah, the traffic dynamic, comps and traffic dynamics improved as we moved throughout the quarter. Being in the quarter, and I think you heard some of the similar commentary from others in the And the sector was a little bit below expectations in kind of that April, early May kind of timeframe, but definitely improved. So both traffic getting better, gap getting better, and overall comps getting better as we move. So some nice momentum coming out of the quarter, which we have definitely maintained. Very excited about what we're seeing in the first really seven weeks of the current fiscal year, maintaining that momentum. momentum both on comp sales, traffic, and continuing to widen our gap to the industry.
spk09: That's great, Joe. Thank you. And then just one more. A lot of initiatives clearly in progress and resonating. Just curious on customer behaviors, if you're able to kind of parse out any changes behavior-wise, purchase intent-wise that you're seeing within different customer cohorts or anything notable from that perspective as you move through the quarter. Thank you, guys.
spk06: From a macro standpoint, our internal metrics continue to improve. So when I say internal metrics, I talk about server attentive, intent to return, food grade scores. They're all headed in the right direction. From a cohort standpoint, the low-end customer is hanging in there. We haven't seen any change in frequency quarter to quarter. The high-end customers, so the higher-income customer, is actually coming more often. And in that middle ground, we've seen a little bit of fall-off. but all three of those cohorts are actually spending more than they were a year ago. So the net of it is it's a little bit mixed, right? You've got a higher-income customer that actually is coming more often. The lowest-income customer is about the same in that middle ground. We've seen a little bit of drop-off, but yet all three cohorts are spending more.
spk17: Great. Thank you, guys. Appreciate it.
spk23: Your next question is coming from David Palmer at Evercore ISI.
spk08: Thanks. Good morning. I'm just wondering how you're thinking about, I think I know the answer to this, but the thing about how you're sort of targeting key metrics, your guidance implies 100 to 150-ish restaurant margin basis point expansion in 24, I mean, you can correct me if I'm wrong on that rough math, you know, that's both good and it's a fairly tight window. In other words, you know, you get a lot of leverage on your business model. Are you targeting price according to really target the right margin? And I wonder when and how you'll think about when you start targeting traffic as a key metric. And I guess maybe related to all this is, should we assume that you're not going to be taking more price than the carryover four points of price going into fiscal 24. Thanks.
spk04: David, this is Joe. Let me deal with the price piece of the equation, then we can segue into trial. We're going to be targeting both. The year will, on the pricing in particular, the year is going to benefit obviously from pricing actions we took throughout this year. I think we're very comfortable with where we stand relative to the industry from a pricing standpoint. I do think that there is some more price available to us. We're actually also in the early stages of working with a third-party consultant on even becoming more sophisticated in our ability to apply price throughout our various markets. But I think we'll take a little bit of incremental price, probably mid-single digits here in the first half of the year, later on in this quarter. and then move into a low level of pricing impact in the back half of the year. We'll maintain that optionality, you know, if price is available at that time, but not embedding the plan to have a lot of incremental price in the second half of the year. You'll see the impact of price on a quarterly basis kind of decrease as we move through the fiscal year, kind of starting most of this from carryover. and a little bit of incremental price we're taking in our next menu. You're going to see that move from the kind of high single digits down to the mid single digits as you work your way through the year on a quarterly basis.
spk06: And then from a traffic standpoint, David, here's how we're thinking about it. So if fiscal year 23 was kind of a reset year where we're getting the investments in the right places, taking some pricing to build up some dollars to reinvest back into the business, getting out of unprofitable sales, I would characterize fiscal year 24 as now we're reinvesting in the business to grow traffic. And so the biggest change, we talked about several of the traffic initiatives that we're driving in 24. The biggest one I think that would be important for all of you to know is going into the deep end on how much money we're going to invest in advertising. So we're going to move from four weeks of advertising last fiscal to 21 weeks, which is 17 more weeks And Joe kind of articulated in terms of dollar amount of 55 to $60 million incremental. Why we feel very confident about that is that first four week blast that we did back in March, we saw the first compression of traffic versus the industry trends, even though we're cycling through getting out of those unprofitable sales and that unprofitable traffic, right? So we saw sequential improvement versus the industry. And so we're very confident that that will continue throughout the year and then accelerate as we cycle out of the things that we're doing to remove the bad traffic. So there's going to be two things happening through the fiscal. One is this influx of an additional $55 to $60 million of TV spend, which we now have proven that will grow traffic and shrink that gap versus the industry. And then the second piece will be as we start rolling off the things that we've been purposely doing in the business strategically, I think you're going to see a sequential acceleration both in market share and in traffic trends.
spk18: That's great. Thank you.
spk23: Your next question is coming from John Ivanco with JP Morgan.
spk28: Hi, thank you. A question on advertising, especially as you bring it up. For you to be doing 21 weeks of advertising, obviously that's not 40 or it's not 52, and you are competing, especially on the QSR side and the better performing QSR side, brands that really do dominate the airways in some cases of you know, with burgers and, you know, chicken. And, you know, we've talked about before, you know, you have a lot of, you know, competition that's going very rapidly in the chicken category, particularly, you know, kind of all around you. Is there any sense or worry? And listen, I understand, you know, 24 is a different environment than what we had in 19. But is there a fear or, you know, or a worry that, you know, just advertising is just going to be a cost of business going forward? In other words, as opposed to it actually driving you a positive ROI, it kind of prevents you just from sales from declining. In other words, how do we see that it's a positive as opposed to just avoiding a negative at this point?
spk06: Yeah, I have zero worry about that. The way I think about advertising, and I've thought about this throughout my career, there's three things that determine whether your advertising is going to be impactful or not. The first one is what are you advertising? Like, you know, if you advertise something that's poor, it doesn't matter how good the ad is, it's not going to drive your business. And we've got unbeatable value with three for me, and we've got some awesome innovation coming in our core four that I'm very confident about, both the quality of those products, how they look on screen, and how they will drive traffic inside our restaurants. The second piece of it is, is the advertising any good? And we've built a world-class team with George Felix and Jesse Johnson and We've just hired a new VP that I want to release right now, but that's exciting too. And then we're bringing these world-class agencies into our business. And so these guys know how to do advertising, and they know how to do food advertising and drive people into the restaurants. And then the third is, do you have enough money set aside to get to the weights, to get to the TRPs that are required to move the needle in the business? And we saw that the first slug of advertising that we did last fiscal was We were very encouraged by what we saw based on the level of spend and the quality of advertising. And the reality is we're going to do that, you know, another four times next year or this year. So I'm very confident that's going to continue to close the traffic gap. That's what we've seen in the numbers. So there's nothing that we haven't seen based on what we put in market that would say that strategy is not working. And we'll continue to do that and continue to build on it because right now it is closing the traffic gap versus the industry and accelerating our market share.
spk28: That's a perfect answer. Thank you so much for that. And secondly, one of the challenges in this model is these mixed gains that you really don't normally see or really ever see in casual dining and especially bar and grill offset by negative traffic. And at least in this most recent quarter and several of the quarters in 2023, that was actually a greater negative than the mix was a positive. So Kind of balancing out those two numbers is an essential part to the model in 24. Do you have a quarter kind of in mind, or do you think is there a quarter where we will see mix being greater than traffic in some capacity, however you want to add those two numbers? Where is that inflection point where the net negative becomes a positive in your mind?
spk04: I think you'll get them closer together as you kind of move towards the second half of the year. I'm not going to commit one way or the other on mix relative to traffic. I think, again, we see mix as a continued opportunity in the component of what we're trying to do. When Kevin's talking about the work around the core four and then the ability to market against things like the new CRISPR platforms and things of that nature, that will generate some mix opportunities. I think one of the bigger, you know, we're going to continue to benefit on Mix from lapping of removal of discounting as you go through the year, but I think you're also going to be shifting into the opportunity of Mix through, you know, innovation and incremental platforms and upsell merchandising within the restaurant. So, again, not going to give you a kind of Mix versus traffic specifics, but I definitely see those two getting closer together as we move through the year.
spk02: That's perfect. Thank you, Joe.
spk23: Your next question for today is coming from Brian Vaccaro with Raymond James.
spk15: Thanks, and good morning. I just wanted to circle back on the market share discussion. And just so we're on the same page, Joe, and there's a lot of different industry benchmarks that are out there, would you be willing to provide any quantification of Chile's relative traffic performance moving through fiscal fourth quarter and what you've seen quarter to date?
spk04: Again, what I'll reiterate is we saw improvements in traffic as we move through the fourth quarter. That momentum is continuing as we move into the first seven weeks here of the end of the seventh week of our fiscal year. During that time, we've also seen a reduction in the negative traffic gap to the industry. which has also continued into. So the overall comp positive gap to the industry continues to widen, much of that driven by a shrinkage of the negative gap to the industry on traffic.
spk15: Okay, and on the fiscal fourth quarter, the traffic at Chili's, I think last quarter you had said the Maggiano's Classics were moving that and discontinuing that, what was a 60 basis point headwind to traffic. Could you help us frame how much of an impact that was here in the fourth quarter now that it's totally out of the system?
spk24: So we, Brian, it's Micah. So we closed the MIT brand at the very last day of the fiscal year, but we had closed some before that. So it's still about a 50 to 100 basis points negative impact on the quarter.
spk15: Okay, great. Thank you for that. And just a couple questions on the guidance, if I could. The, I think, Joe, I think you said 12 openings, gross openings for the year. Should we expect relatively flat on a net basis, given kind of continued modest closures and relocations and that sort of thing?
spk04: Yeah, that's a good way to think about it.
spk15: Okay. And then I guess on the EPS guidance, could you level set us on what tax rate is embedded in your guidance and any directional guide on what you expect on general and administrative costs?
spk04: Yes, on both of those two. We're expecting a mid-single-digit 5%, 6% kind of tax rate at this point. Obviously, you look at that and adjust it based on the flow of your credits. We had some really strong, FICA and WASI credit activity this last year driven a lot by dining room traffic coming back in and increased overall check, which actually drives up tips, so good credit components there. But we think we'll be in that mid-single-digit range for the fiscal year. That's what is implied currently in our guidance. And from a G&A perspective, I expect G&A to be up year over year, probably in the $10 to $11 million range. Most of that is driven by various adjustments on comp-related items from stock comp to payroll to 401k participation. And then there's $2 to $3 million of incremental spend from an IT perspective that makes up that differential.
spk16: All right. Thanks very much. I'll pass it along. Thanks, Brian.
spk23: Your next question is coming from Brian Harbor with Morgan Stanley.
spk26: Yeah, thank you. Good morning. Maybe just kind of a bigger picture question on sales. You've seen kind of this improving trend more recently. I think some of your peers have as well. Are you assuming in your guidance that that holds up? Do you think there's anything that's helped here kind of at the at the end of the summer, just as we start to think about the next couple of quarters, I realize that maybe there's a tougher lap in the calendar first quarter as well. Could you talk about how you think about that?
spk04: Yeah, again, the momentum we're seeing in the business, we think, is sustainable. I mean, it's being driven by the initiatives and the strategies. Again, I'm not going to suggest that July or August performance is going to be the exact performance as you go forward. You do get in, you know, the first quarter will have the largest and easiest lap year over year, kind of up and down the P&L, which we'll be very happy to see the anniversary of last year's first quarter. And as you move into the second half of the year, you do have a little bit higher hurdles and laps to get over, but we're very comfortable that we have the strategies and initiatives in place to get over those hurdles as we move forward. and very comfortable and confident in the guidance we provided you today.
spk26: Okay, thanks. Joe, can you maybe also just talk about labor costs? I know we still have kind of the investment coming in the first half. Do you think that some of the initiatives you're doing on retention could be somewhat of an offset to that? Or, you know, on the flip side, do you think there's still other investments that need to be made?
spk04: So almost taking those in reverse, I think we're very comfortable that we've made the investments that needed to be made. I mentioned that incremental $20 million of spend is the first two, the impact of the first two quarters is based on those investments that have already been put into the labor model. So a good line of sight as to that. Again, you know, I do think the initiatives on turnover are helpful. They do reduce, you know, a lot of costs related to overtime and training and things of that nature. and major shout out to our operators who are doing a great job in moving those specific numbers where we want to see them move as we go through the fiscal year. So again, I see some nice upside opportunities there if we can continue to work that middle of the P&L as well as they are working in the middle of the P&L right now. The wage rate, you know, embedded in our thought process that I talked about is kind of that mid-single digit. So that's, that'll be the interesting one to watch as you continue to see, you know, year-over-year wage rates, if they stay in that, you know, mid-single digit range or if you start to see any kind of benefit coming out of that.
spk18: Thank you.
spk23: Your next question is coming from Chris Ockel with Stiefel.
spk14: Thanks. Good morning, guys. Kevin, I was curious to get your thoughts on re-imaging existing assets. I'm just curious what can be done at existing units to kind of create a more modern environment that kind of matches up to the look and feel you've created with the new menu and marketing campaign?
spk06: Good morning, Chris. So what we're focused right now is we're still focused primarily on repairs and maintenance of the existing fleet. making sure that the equipment is in good working order, that the facilities are clean and well maintained. And so we're spending the majority of those dollars on that. We are doing some re-imaging of older assets where we tend to get a better return. So these are ones that haven't been touched in a long, long time. But it's right now, just to be candid, it's not as big a priority as making sure the equipment is in good working order and the facility, from a dining room standpoint, looks where it needs to be for guests. I think over time, as we continue to deliver results and accelerate progress, I think we're going to re-look at that, but I don't view that as the biggest pressing opportunity right now based on where we could be putting our investments in terms of driving traffic. The labor investments, they'll complete by the end of this year, the ones that we talked about last year, and then the repairs and maintenance. So it's just not as big a priority as some of these other things, but I would anticipate revisiting that discussion probably a year from now, assuming we have the results that we expect to have.
spk14: Okay, that's helpful. And then, Joe, I had a question on the guidance. The revenue growth guidance was roughly in line with the multi-year targets you guys provided at Investor Day, but The earnings per share range implied growth that was much wider than that 13% to 17% range. Can you give us a little detail as to what's causing the range to be wider from a bottom line standpoint and maybe what assumptions get you to the low and the high end?
spk04: Again, we did widen the range a little bit relative to the target, the longer term targets. I guess we'll obviously be able to give you more perspective on that as we move through the year, but Again, macro is probably the biggest issue as it relates to, you know, the lower end of the guidance and as we kind of work our way through what the economic realities will be. We expect relatively stable, but you still have a sector that is, you know, functioning from a negative traffic standpoint. So we want to be respectful of that on the low end for this initial guidance range. And then the high end is going to be – incremental success as it relates to some of our initiatives, particularly the traffic driving initiatives, you know, from an advertising standpoint, coupled with the ability for the manager, you know, those operators to manage the P&L a little bit tighter as they kind of get more muscle memory into the system as we kind of go forward. So those are really the two biggest things that will drive those two ends of the spectrum there.
spk16: Okay, great. Thanks, guys.
spk23: Your next question is coming from Andrew Strelzyk with BMO.
spk13: Hey, good morning. Thanks for taking the questions. My first one, kind of revisiting a topic that was brought up earlier, as you're ramping the advertising spending with a focus on the value messaging, what gives you the confidence that you'll be able to use the in-store merchandising to drive the check and not lean too much into the value side of the equation? Is there any texture or Incidence metrics you can share kind of so far, what do you see on that front?
spk06: Yeah, I mean, that's been a real big bright spot, the way we've structured menu merchandising and POP inside the restaurant since kind of we started the new strategy. So number one, it's about making sure that the customer that comes in for three for me or whatever that value message is, they can find it somewhere on the menu. But we don't want to make it so obvious where the guest that didn't come in for that trades down from a fajita any of our other items that would drive more check and provide a better experience for that guest at a higher price. So the results of what we've seen on that is that the three-for-me mix has come down pretty significantly, even as we've taken pricing. So typically, when you take pricing and you do a couple waves of it, you typically would expect to see more mix start to shift into the value parts of the menu. We haven't seen that. In fact, we've seen just the opposite, where Three for Me over time has actually gone down from when we started this journey. It looks like it's about flattened out now, so it's not like we're seeing a bunch of folks now as we've seen the macro change a little bit. We don't see customers trading into the Three for Me, and I think it's part of it's because of the way we're orchestrating the menu merchandising. The one area I think we can do a little bit better job of actually providing some more presence on value inside the restaurant is our Margarita of the Month, where We've seen overall margarita sales increase because of the premium margaritas, but we feel like we can get better incidents by just driving a little bit more menu merchandising of margarita of the month at the point of purchase to make sure we get that incidence with all guests. But overall, when you just look at the mix of three for me, which is the primary value message inside of our restaurants, the direction that it's gone in the last 12 months has been so positive. And oh, by the way, When they are in three for me and more than half of them are not going, starting at that 1099, they're trading up. So we feel like we have a recipe for success on that. And this is, you know, this is a page out of the QSR playbook where you use great value to drive traffic and then, you know, execute menu merchandising for the guest that doesn't see that ad. And I think we'll continue to do that. I think it's been relatively successful in closing traffic gaps versus the industry, but continuing to drive menu mix in our business.
spk13: Okay, that's great. Thank you. And then just a quick one on lowering the hourly turnover. What do you think is really the key or the unlock there? I mean, you've talked about the progress you made on the manager side, but from an hourly perspective with some, you know, as you're increasingly engaging some of the folks in the restaurants, I mean, what, does something change in terms of that focus? Or how do you think about that unlock? Thanks.
spk06: Yeah, you know, we're working on that right now. The, you know, I tell you, the managerial side was a lot clearer because The restaurants are just so significantly easier to work in now. I mean, we just had our manager conference last week. I was just kind of blown away by how many managers personally gave me the feedback that it's like night and day different. And that's helping with team member turnover. So we've seen team member turnover start to come down, but it's not where we need it to be. We want to be ahead of the industry, not average or slightly behind. And so that's why we're putting together, you know, our best vice presidents of operations minds to come up with, you know, what are some disparate solutions that would allow us to make more progress faster on that? You know, Andrew, I wish I knew the exact answer or we would have employed it this past year. So while we've seen improvement, it's just not where we want it to be. And I'm very confident that with the vice presidents making that their obsession metric in 24, we're going to make progress on it. And so I'm excited to be able to share with you what that plan is at the next quarterly update. But that team is working on it right now.
spk18: Great. I look forward to that. Thank you very much.
spk23: Your next question for today is coming from Jeff Farmer at Gordon Haskett.
spk21: Good morning, and thank you. We know your plan on advertising, but can you share your thoughts on what you're seeing from the promotional and advertising environment from your casual dining peers? Are they sort of following suit with you guys in terms of getting a little bit more aggressive as it relates to a return to TV advertising or advertising in general?
spk06: Yeah, we saw a little bit of activity that we typically don't see in July, but nothing is really seen out of place. So, like, you know, the usual characters are kind of doing their usual messaging, so that's not – we haven't seen any really difference in the behaviors or the weights. I do think that our move in fiscal 24 will be significantly different than we've done in previous years. The discounts aren't any deeper, but the shouting of them will be obviously a lot more when you move from four weeks to 21 weeks. We'll continue to monitor that very closely. I do think when I look at the offers that I've seen from competition and I compare them to ours, I'm really confident about ours. I think if a guest is cash-strapped, to get a complete meal and an abundant complete meal that's very high quality and to do that at a price point and then you know that you can get it for that price point when you come into the restaurant, I think it's very, very competitive versus like, you know, doing an offer on a part of a meal or something that you'd have to buy other full priced items to complete a meal. So I don't anticipate needing to change that offer. and I'm excited to see what 21 weeks will do for our business versus four based on what we've learned what four did for our business. So I'm very confident that that plan is going to work, and, you know, we'll continue to monitor it. We don't want to be naive about what the competitors do, but I do feel like we're in a place, we're in a very good place right now to continue to close that traffic gap.
spk21: Okay. That's very, very helpful. And just one quick follow-up. So you shared a bunch of information in terms of your pricing expectations for 2020 or 2024. in terms of maybe some early incremental pricing in the year, then some rollover pricing. But if you put all the pieces together based on what you know right now, what would you expect your FOI 24 menu pricing number to be?
spk04: Jeff, for the year, we'll be in that mid-single-digit range. Again, starting, you'd expect to see the first quarter, you're going to have a little bit higher up in the upper single-digit range, just thinking about price, working its way down into the mid single digits as you go through the quarters and exiting the year at that level too.
spk21: Okay. Thank you, guys.
spk23: Your next question is coming from Jeffrey Bernstein with Barclays.
spk13: Great. Thank you. Two questions. The first one, if I just think about this past quarter, following up on that pricing comment you know you were running nine points of price the traffic was down eight um and looking ahead it sounds like you said the cop for the full year is expected to be mid single digit positive with pricing mid single digits so that's assuming again unless there's big moves in mix relatively flat as traffic but relative to the current down eight percent it just seems like a major move and the industry we know hasn't seen flat to positive traffic in 15 years. I'm just wondering, Kevin, I know you mentioned the three drivers as to what effective advertising does, but any concern or anything that would derail that where the traffic could fall short of that return to flattish? Again, it just seems like a big move from traffic down eight with the current macro uncertainty so large. And then I had one follow-up.
spk24: Okay. Hi, Jeff. It's Micah. So, There's some nuances in those numbers when we're speaking in ranges. So I don't think that we're planning to go flat on traffic. So we still know that the industry has been negative and we have that factored into our expectations for F24. There's really some movement or there's some latitude in your price and mix assumptions to make all that work.
spk13: Okay. And then I think last quarter you mentioned that the consumer was maybe more discerning and skittish, and they were, I think you said, episodic pullbacks. I'm just wondering, has that changed over the past three months? Do you think maybe that's eased a little bit? And then, I mean, I assume that your response would be, you know, your value offers. I'm just wondering, what is the current mix, however you define value, that Chili's is at today versus maybe where it was, you know, a year or two ago? Thank you.
spk12: Yeah.
spk04: Yeah. When we look at value in totality, it's been relatively stable the last couple quarters. It's up a little bit relative to a couple years ago, but again, we're still in that 30% range that we've talked about in the past. I think as relative to your comments on the consumer behavior, I think we've talked about in the past is there's been some episodic times that you see some skittishness driven. It could be gas prices last year obviously had a period of time. the general macroeconomic commentary that goes on. I think we saw a little bit of that in the beginning of the quarter when you think about the commentary in the April-May timeframe, and I've heard other folks talk to that. But the resiliency of the consumer is definitely still there. So whenever we've seen these short periods of possible skittishness, if you want to refer to that, we see a comeback, and we've definitely seen that happen as you move through this last fourth quarter. and into the current fiscal year. So again, generally speaking, the consumer seems to be, or the consumer is hanging in there. As Kevin said, we're seeing continued traffic from the different cohorts we look at. We're seeing increased spend from a number of those cohorts. And it is interesting to see the upper income visits start to head up. So clearly, whether that's trading into the brand or not, or just reaction to the marketing we're doing. I think that's a real positive to see, too. But right now, the consumer environment is there.
spk13: I mean, the fact that the first seven weeks have been as much momentum is an incredible testament to the resilience. So hopefully that holds up.
spk18: Thank you. Yep.
spk23: Your next question for today is coming from Eric Gonzalez with KeyBank.
spk07: Hey, thanks for the question. I'm curious about one of the drivers you mentioned, the prepared remarks. Can you give us some more detail on how you're going to bring IJW into the real world? I'm wondering if you see that as a traffic driver or more of a check driver. And then, you know, do you have the sufficient brand awareness such that it would draw customers into the restaurants, or is it something you might put advertising resources behind?
spk06: Yeah, so the way to think about it, just from what the customer is actually going to see when they come inside of Chili's, it will show up in two areas. So one will be the new bar menus that will be placed on the bars and in the bar area, and there will be a prominent page on that menu that just talks about IJW and Chili's collaborating on this, basically a lineup that would be, it's just wings. So it will be boneless and bone-in wings, different piece counts, you know, all the sauces that are available and it's just wings. And so that will be very prominent at the bar because we know that wings and boneless wings are a big thing that people eat at the bar, especially when they're watching sporting occasions. We will also have a smaller section on the dining room menu in the appetizer section because that would either be an add-on to an existing meal or a trade-up from appetizers given the pricing of wings. So those are the two areas that will show up for the guest. From outside the restaurant, because that's when we talk about driving traffic, it's really about what are we going to be talking about to guests to get them to come in for these wings. Primarily, it will start with our CRM program. So as I mentioned, we have this new CRM agency coming online. And if you look at some of the wing competitors, a big part of their traffic driving program is making sure that they are top of mind aware during sporting occasions when you're in the market for wings, whether they are to-go wings, an off-premise occasion, or coming into a sports bar to watch sports and eat wings. And so we'll have a heavy dose of that to start. And then eventually, because it's now a part of Chili's, in theory, we could eventually put that into TV advertising. We have no plans right now to put it in TV advertising. We want to see what happens when we put IJW into the business. And, you know, does it have some offtake to the fact that it would make sense to put on air? but we do think it's going to drive the business at a minimum a little bit, but it could be a bigger thing depending on what we see with the CRM program results. At a minimum, it's going to be a trade-up, but we do think it could eventually drive some traffic, especially during the sports viewing season, which really starts at the start of football.
spk04: One of the things I really like about the change, too, is going to be the awareness of IJW that it's going to bring to the table. That's a brand that, while it from a virtual brand standpoint, did well. Awareness basically existed on your third-party platforms. And so now you're going to start to have some brand awareness being front and center to the Chili's population as we kind of move forward. So it's a nice way to expand that awareness without the cost associated of marketing on a third-party platform.
spk06: Yeah, I mean, the best way to describe it would be if you took like an upstart brand and said, okay, you can now have the distribution of Chili's and you can have access to You know, our over 11 million CRM members, like, is that something you'd be excited about? And the answer would be yes. Like, that is a huge amount of scale that you're bringing to a brand that is relatively small in the grand scope of food, right, that we think that could have some significant impact to the HGS Wings business.
spk07: Got it. And then maybe just on the off-premise business, I apologize if I missed it, but did you talk about what the mix was in the quarter? And maybe if you could talk about the breakdown between carryout and delivery and whether you've seen any shifts there.
spk24: Hi, Eric. It's Micah. Yeah, we're still hanging in that same range as last quarter, you know, 28%, 30% for the brand. And we have about an even split between carryout and third-party delivery.
spk07: Got it. Thank you.
spk23: Your next question for today is coming from John Tower with Citi.
spk11: Great. Thanks for taking the question. Just curious if you can get into the thinking behind you know, on the one hand, you've got a lot of initiatives going on at the company to drive some traffic. But on the other hand, you know, you've got food cost deflation running through or deflation at the moment. And I guess for the year settling out at about 1% or so and mid single digit or so wage rate inflation. So can you talk about what the inputs are on your end in thinking about taking the pricing of that, you know, high single at the start of the year kind of flattening out or settling out at about mid single digits it seems that at this point in time it'd be great a great period for you to lean into you know kind of that value offering that that Chili's has for the consumer and an opportunity to take price or to take take some traffic from competitors but instead you're taking a little bit more pricing so how do you balance that I guess
spk06: Well, the way we're thinking about it is we missed a lot of price during the pandemic. We've caught up a little bit versus the industry, but based on the competitors that you cover, I think you can figure out how much we missed over a three-year period. So part of this is we've got to get an equilibrium in our business so that we can make the necessary investments both in the facility labor and advertising to have a growth business going forward. Part of that is that we've missed a lot. The second piece I would say is I think we're going to make sure that we're really sticking to our guns on advertising value so that we get credit for value. And value comes in two ways. One is you crack the price points for three for me and talking about the abundance of food. The other way you deliver value is with much better experience. And we're seeing that. So the labor investments that we're putting in, the simplification that we're not scraping the labor from, that we're reinvesting that labor back into the business, is having a significant impact on food grade and server attentive and ultimately intent to return. So I believe we're going to continue to have the best value in the industry, even with the pricing that Joe described, because we're going to continue to elevate the experience. And then if you look at like-for-like pricing versus our competitors, we're either beneath them significantly or a parity with them. So it's not like I feel like we're getting out of whack in anything. If you look at fajitas and burgers and crispers and we're either right in line or below what you see in all of our markets. So there's nothing like that's alarming to me. As long as we continue to improve the experience, put those investments back into the business, to me it's about a long-term turnaround, and I think we're well on our way. And based on the results that we're seeing, it's encouraging that we're making the right moves on that.
spk11: Okay. I appreciate that. And pivoting on you a little bit, can you just maybe drill into how we should expect the cadence of the advertising spend to look throughout the year? I know it's 21 versus four weeks, but you know, is it going to be chunky around say the football season or evenly spread throughout the year?
spk06: Yeah. So we, so the, um, our team believes in, um, of our, your term chunky. So, um, you'll see blast once a quarter, um, where we have highways that you'll be able to see around 10, we call them 10 pole events could be sporting occasions, could be other things that are happening in the TV marketplace. Um, and then in between those four, 10 pole events, You'll see kind of an always-on strategy with digital and social advertising, and then there'll be pops, what the team's calling culture pops, which are kind of events or stunts that will just keep Chili's in the news between those big tentpole TV programs. So to answer your question, it would be more chunky, once a quarter, and then you'll see it supplemented with social and digital throughout the year, as well as kind of these PR events just to keep Chili's top of mind.
spk11: Cool. Awesome. Thanks for taking the questions.
spk10: your next question for today is coming from chris carril with rbc capital markets hi uh thanks and good morning so maybe tying together some of the previous responses uh and just following up on restaurant margins obviously a lot of moving pieces just given the commodity outlook you provided the run rate of higher labor hours and r m expense in the first half of the year of course advertising But generally, how should we think about the cadence of margins over the course of the year? I know, Joe, you had called out, obviously, favorable LAP in the 1Q, but just trying to think about the potential for margin improvement in the 2Q and beyond.
spk04: Yeah. Chris, let me give you a little color on that. And obviously, we think from an annual perspective, there's some nice upside to the restaurant operating margin for the year. I think that will definitely – meaningfully exceed the 30, 40 basis points annual targets we talked about at the investor day for obvious reasons on what's happening in particularly the commodity markets. I think you're going to see an oversized gain in Q1. It's going to be an increase of a couple percentage points or more in Q1. So that's the largest year-over-year gain that you're going to see. And then I would expect to see improvement As we move to the rest of the quarters, the improvement I would anticipate will get narrow, you know, in the Q3 and Q4, you know, as you get laps that are more year-over-year normalized. So, again, nice opportunity to move forward on ROM for the whole fiscal year, that outsized lap in Q1. and kind of narrowing as you get down through Q4.
spk10: Okay, great. Thanks for that. And then I guess just drilling down in the commodity outlook specifically, can you maybe unpack what items specifically are driving that outlook? And I don't know if you disclosed it, but how much you have locked in for the year? Thank you.
spk24: Hi, Chris. It's Micah. So, for F24, Obviously Joe talked about deflation in the first half and then we'll have some slight inflation in the back half. Obviously poultry is going to be a good guy. That's really driving that favorability in the first half with commodity pricing and with mix because we're selling a lot more chicken, which is great. Beef is something that is inflationary throughout the year. As far as contracting goes, we have a lot of the stakes locked up really through the fiscal year. Our ground beef is still on the market a little bit. As far as contracting goes, looking into next year, the first quarter, we have a good line of sight, really probably over 90% were locked in on that. It goes a little bit down as the fiscal year progresses, but we'll continue to take advantage of the market and opportunities and ensure that as we get through the fiscal year.
spk10: Great. Thanks so much.
spk00: You're welcome.
spk23: Your next question is coming from Alex Slagle with Jefferies.
spk20: Hey, thanks. I just wanted to ask a little more on rewards and the CRM efforts with the new agency. And I realize the revamp will take place over a couple of years, but just curious if there are some initial changes underway that could help drive traffic and profitability in 24. And it sounds like it from the talks on it's just wings, but I don't know if that step up is more coming in 25 or if we do see some of that in 24 and maybe just any commentary on where we are on discounting relative to 2019?
spk06: Yeah, so the agency is literally onboarding in the next few weeks. So, you know, we don't have the new strategy laid out yet. You know, what I can tell you is it's going to be continued less discounting. So we removed some discounting last year, a significant amount. We're going to continue to remove discounting, probably at a slower pace. Probably don't need to do it as dramatic as we did last year. But we're going to replace those emails with more relevant emails and more of the relevant emails so that on a per email basis, you'll have a lower redemption because you're not giving away as much value. But because you're able to send more emails out and they're more relevant, over time, you would expect to get more traffic from those, not less. It just wouldn't cost you as much. So So, for example, you know, a lot more emails around sporting occasions where we know that the guest either wants to come inside a restaurant or a bar or be able to carry out food to consume at home and watch the sporting event. You'll see more of that. You'll see more relevance around other occasions like, you know, weekday dinner and making sure that we're driving our carryout business. We just weren't doing those things in the old CRM program. It was really about what you could get for free from us versus, like, here's how Chili's fits in your life based on these occasions, whether it's, you know, going out to eat or easy home or replacement at home. So I expect that will be the strategy. Now, how Gale brings it to life, I think, you know, I think you can look at some other restaurant brands that they've worked with. Part of the reason why we're so excited about them coming on is we've seen them, you know, really transform another – restaurant programs or CRM program, and we think that we want exactly that. So that'll give you some more insight about how we're thinking about transforming our CRM program over time.
spk04: Yeah, and Alex, one thing I would say from an in-the-year, for-the-year kind of standpoint, that step change and the upside opportunity is not embedded into our thinking or our plan for this fiscal year. So looking forward to see what Gail is going to bring to the table, but we're not We're not relying on it for this year to drive the numbers.
spk19: Got it. It's helpful. Thank you.
spk23: Your final question for today is from Catherine Griffin with BOA.
spk25: Hi, thanks for fitting me in. So I wanted to ask a question on check management. Just, you know, in the event that the consumer does start to pull back, sort of contemplating the lower end of the guidance, can you talk about how you think about the sequencing of how consumers might manage their check? Would you expect to see it at the bar first and then on sides or starting down with trade down on the plate? I think that would be helpful.
spk06: Yeah, I mean, I think what you just said is probably right, is you'd see it first at alcohol attachment, both in terms of incidence and trade down. And then eventually you'd either see it in lower app attachment. My guess is you'd probably see more people trade in the three for me, just because it comes with an appetizer and is a relatively low price. But we just haven't seen that yet. So, for example, quarter on quarter, the three for me mix basically is unchanged. The number of checks on deal was basically unchanged. And then we've seen overall higher mix, significantly higher mix, you know, in this quarter. And, you know, we don't expect that to change, at least in the near term. So, but I do think that's the type of things that you would see. And so, likely what you would do is make sure that things like the Margarita of the Month is more prominent so that guests know they can get, you know, a $5 or $6 margarita, as well as, you know, potentially looking at making sure that they understand there's three for me there if we feel like there's a pullback. But, So far we haven't seen it, but I think you're thinking about it right, is that those were the first places that you'd see.
spk25: Okay, thank you. And then I wanted to ask a question on labor. So, you know, either in terms of retention or in terms of, you know, labor availability as you're hiring, I was wondering if you're seeing sort of any, like, demographically specific success in terms of, you know, which groups, younger, older, you're seeing more success with retention or hiring?
spk06: Yeah, I mean, I don't have that data. I haven't seen it cut by demos, but it's certainly something we can look into. There's an insight in that question that we should take a look at, but I don't have that answer, Catherine.
spk24: Okay, great. Thank you very much. Well, thank you, everybody. That concludes our call, and we look forward to our next one in early, early November.
spk03: Thank you, everybody. Everybody have a good day.
spk23: Thank you. This concludes today's conference call. You may disconnect your phone lines at this time and have a wonderful day.
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