Brinker International, Inc.

Good day and welcome to the Brinker International's Q4F24 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, Kim Sanders, Vice President of Investor Relations. Ma'am, the floor is yours.

Thank you, Holly, and good morning, everyone. And thank you for joining us on today's call. Here with me today are Kevin Hoffman, President and Chief Executive Officer, and Micah Ware, our new Chief Financial Officer. Results for our fourth quarter were released earlier this morning and are available on our website at Brinker.com. As usual, Kevin and Micah 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 risks and uncertainties which could cause actual results to differ materially from those anticipated. Such risks 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 return the call over to Kevin.

Thank you, Kim, and thank you for your 26 years of leadership on the Brinker Finance team. We are very excited to have you in this role. Good morning, everyone, and thank you for joining us as we wrap up our fiscal year and share our plans for fiscal 25. Fiscal 24 marked the second full year of our turnaround, and we're very pleased with our progress and momentum. It was a year we delivered both big growth and major operational improvements, which sets us up for continued profitable and sustainable long-term growth. The vision we introduced two years ago was to improve our restaurant's four-wall economics through focusing on the fundamentals of casual dining, a differentiated brand with craveable menu items, served with great hospitality, and a fun and friendly atmosphere. And while we still have lots more work to do, we're well on our way to achieving that vision. Over the past two fiscal years, we've grown Chili's restaurant AUVs by $440,000 to $3.6 million, and we've grown drinkers adjusted EBITDA by 25%. This is excellent progress on our four-wall economics. The biggest driver of these results are the significant improvements we've made to the guest experience. On the operations front, we conducted listening sessions with our field restaurant leaders all over the country to better understand what we could do to reduce or eliminate to make our restaurant jobs easier and more rewarding. Today, the Chili's menu has 22% less items than it did two years ago. We've eliminated many prep steps and pantry ingredients. reduced administrative tasks like how often we count inventory, and other complexity that reduces team member morale and gets in the way of great execution. I'm proud to say we still do these listening sessions, and they are still led by myself and other members of our executive team. We now have a cross-functional simplification team personally led by our chief operating officer, Doug Cummings, which is where we get most of the simplification ideas. Co-designing our operational programs by intently listening to our restaurant team's ideas is is the new way of doing business at Brinker International. In addition to simplification, we're making our technology more reliable, which also reduces friction for team member and guests. We've made investments to bring CEOPS pay-at-the-table technology to replace the prior system, which has increased reliability and usage. We've also reduced server handheld ordering tablet errors from 5% two years ago to less than 1% today. And we are on track to finish the replacement of an end-of-life kitchen display system by October. We recently rolled out AI labor forecasting, which is reducing the amount of time our general managers need to write labor schedules, as well as making their forecast more accurate. With a renewed focus on our fundamentals, technology is now working harder than ever for our Chili's managers, with lots more room for upside. In addition to improved technology over the last two years, we've also made investments in labor and facilities, which is improving the overall experience. Labor investments include more hours for QA, cooks, and most recently, bussers, which are all helping deliver record food grade scores. Our facilities investments have helped us catch up on deferred maintenance during the COVID years and is creating a better environment for both team members and guests. Simplification, stabilization of restaurant technology, and labor and facility investments have delivered dramatic improvements in the guest experience, with our daily track dine-in metric guests with a problem dropping from 5% two years ago to just 2.7% today. And that's the lowest sustained score we've seen tracking that measure. And even with the surge in traffic over the past few months, our Google ratings for the past 90 days have also improved to a whole timeline of 4.1. We've also made good progress over the last two years in improving our core four menu, margaritas, chicken crispers, burgers, and fajitas. We now have a clear good, better, best lineup of margaritas with entry price points of $3.99 and $6 for those guests looking for lower price points but still wanting great taste. And those low-priced margaritas include premium tequilas like Espolon Reposado and Patron. But in addition to making our entry-point margaritas stronger, we also now have super premium offerings like Casamigos and Termita Blanco, which have allowed us to double the number of margaritas sold over $10 price points. We've learned that some guests love a great price point with great tequila, and others are willing to spend a little more for that super premium brand. Our job is to make sure we offer items for all Having a balance of price points allows us to deliver great everyday value while continuing to keep food costs low and to grow operating margin. We have made similar moves with Innovation and Burgers and Moses Fried Chicken to create improved offerings and deliver barbell pricing in those core four segments. Fajitas will be the last of the core four to be upgraded, with improvements starting in Q2 and a full relaunch coming in Q4. We also have successfully restarted our marketing after several years off air, with hard-hitting advertising placed in shows where people are watching, live sports, premium cable, primetime, streaming, and digital channels. Thanks to our CMO, George Felix, and his leaders, Jesse Johnson and Steve Kelly, and their marketing team, Chili's has never been more relevant with TV, streaming, and social media working very hard to put us back in the cultural conversation. And being back in the cultural conversation gets us back in the consumer's consideration set, which ultimately leads to more traffic. And even with all these significant investments we've put into the business, we've made good progress on our ultimate goal of improving unit economics, delivering 3.3% breaker restaurant operating margins in fiscal 24, a 210 basis points improvement from the prior year. Before I talk about what's coming in fiscal 25, let me give a little more context of what we saw in Q4. With the launch of our Big Smasher and our Triple Dipper going viral on TikTok, we experienced a step change in our business, delivering 14.8% sales growth and 5.9% traffic growth versus a year ago. To put in context, this was 15.6 points better than the industry on sales and 9.4 points better than the industry on traffic. A majority of the incremental guests were new to Chili's, so we responded quickly by adding labor to ensure we could handle the increased volume. Our restaurant experience would normally be very challenged with such a sudden influx of traffic. But with the operational simplification over the past two years and labor investments that we made in Q4, we were able to maintain our record guest metrics throughout May and now into June and July. Now, let me spend a few minutes on what's to come in fiscal 25. For the front half, we'll continue to drive the Big Smasher as it's been successful in driving traffic and tapping into the cultural conversation about fast food prices. An almost half-pound burger, bottle-less chips and salsa, and bottle-less drink at 10.99 continues to be an industry-leading value that we believe it to be, and it continues to work. During the back half of the year, our plan is to refresh the 10.99 message with new product news and superior value in a large fast-food segment. We will commercialize this new news using the successful Better Values in Fast Food campaign we created during the successful Big Smasher launch last May. In Q4, our plan is to relaunch the Fajitas platform, which is currently a $200 million business. The new fajita lineup will feature improved chicken, guacamole and pico de gallo recipes, and upgraded soft tortillas. We're also incorporating new dippable add-ons and a completely new menu merchandising designed to drive bigger fajita bundles. We believe strengthening the core and expanding offerings like we've done in other core four segments will also work on fajitas and drive a significant lift in the business. And throughout the year, we have beverage innovation at both the opening price point and premium tiers to create excitement for our guests to return. It's going to be an exciting year of food and drink innovation. In addition to strong food innovation throughout the year, we'll continue to make strides to reduce pantry skews and simplify operational processes. At our annual general manager conference last week here in Dallas, we rolled out the first wave of fiscal 25 simplification, which included simplified avocado prep that will also mean a fresher product for guests. reduction in time spent porching brisket, a new bulk breading chicken crisper procedure, and the introduction of a new process that reduces the time required to grill steaks. These changes were met with a lot of excitement from our managers because the ideas all came from them. We also have a plan to improve our off-premise business execution by streamlining operational process to improve order accuracy, eliminating curbside to remove friction for team members, and improving packaging to ensure our food arrives hot and fresh. The first of these changes, curbside removal, will roll out by the end of Q1. Now I'd like to spend a little time sharing our operations obsession metric for fiscal 25. If you recall, our obsession metric for fiscal 23 was manager turnover, for fiscal 24 was hourly turnover, both of which we made significant progress on. For fiscal 25, the obsession metric our vice presidents of operations chose is growing traffic. We now have a joint business plan with our operations leadership to continue to accelerate traffic ahead of the industry which includes an additional simplification as well as an incremental $15 to $20 million investment in labor. We rolled up a new traffic obsession metric at last week's annual general manager conference with the theme, Making Every Guest Count, with content and labor investments focused on driving sustainable traffic growth. To close, the past two years of our Chili's turnaround was all about improving the guest experience and creating a traffic driving model to build sustainable momentum in our business. The next two years will be continuing more of the same, driving our differentiated brand with advertising, superior value, and food innovation with barbell pricing strategy, simplifying the operation and removing friction to improve the guest experience, and creating a fun and inviting environment for our guests and teams. We will continue to bring new and fresh ideas to the business and leverage technology to help, but they will still be focused on those key casual dining fundamentals that are proven to deliver long-term, profitable, and sustainable results. And with that, I want to turn it over to our new Chief Financial Officer, Micah Ware. Micah brings 36 years of experience at Brinker to the role. She's basically done every finance role at the company, and before that, she started her career at Chili's and Brinker, working in the restaurants. I can't think of a leader in our company who knows more about our Chili's business, and her passion for people and winning will help take Brinker through its next wave of profitable growth. And with that, please take it away, Micah.