Brinker International, Inc.

Good day and welcome to Brinker International's Q2F25 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 President of Chili's, and Micah Ware, Chief Financial Officer. Results for our second 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 entirely based 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 turn the call over to Kevin.

Thank you, Kim, and good morning, everyone. Thank you for joining us as we discuss our financial and operating performance for the second quarter, as well as our outlook on the remainder of fiscal 25. Before I start, I want to share that our thoughts are those that are impacted by the Los Angeles area wildfires, and I want to thank the first responders on the ground there. I also want to recognize our Chili's VP of operations, Dale Bellotta, and his restaurant teams in California. We're working hard to support the first responders with meals as well as taking care of our team members who have been impacted by the wildfires. I'm proud of how our chili heads show up for each other in our communities during times like these. Now let's give an update on the business. Chili's delivered another positive quarter in our turnaround and significantly outperformed the industry with same restaurant sales up 31% versus a year ago. We're pleased with our sustained momentum, the strength of the operational muscle we've built, and our significantly improved Chili's guest experience. Throughout Q2, increased competitive promotional activity, pressure trying to undercut our value, tested our guest experience improvements, and the results are clear. Chili's turnaround has taken hold, and it is sustainable. Our growth continues to be well-balanced, driven by the introduction of a new generation to the Chili brand and by existing guests coming more often. The investments we have been making over the last three years are working. Marketing is doing a great job of bringing guests in, and putting Chili's back in culture again. Operation simplification, investments in labor, and facility improvements are working to get guests to return. In short, Chili's is broadly relevant again in delivering a guest experience that has restored its leadership position in casual dining. The most recent Sarkana Crest traffic share data shows Chili's is now the number one casual dining chain in the industry for 2024, and we don't plan to give that title up. Congratulations to Doug Cummings, his Vice President of Operations, and their restaurant team who selected traffic as their obsession metric for this fiscal, and to George Felix's marketing team who has supported them with literally world-class marketing. These sustained results have been driven by continued operational improvements, which have guests coming back, so I'd like to start with an update on operations. We are encouraged with our ability to accelerate sales results while we also continue to trim the menu. This year to date, we've been able to remove 13 menu items, 12 pantry SKUs, and several prep sets, and we've reinvested time into doing fewer things a whole lot better. From a food standpoint, we've successfully moved to a higher quality chicken breast on every entree, as well as guacamole made fresh in-house every day. We also upgraded our recipes for boning chicken wings and bacon to make them crispier. These recipe improvements continue to make a positive impact on guest satisfaction scores. Fewer things to prepare, more care executing our core menu, and continually upgrading ingredients is resulting in better tasting food, which is a key piece in accelerating our results. Next on the upgrade list is fajitas in Q4 and ribs in Q1. We also continue to challenge our processes to simplify and make the job easier for our team members. The installation of our new kitchen display systems is now complete, which has not only eliminated hundreds of pages of reference finders in the kitchen and made it easier to find recipes, It also has enabled slightly faster ticket times, even with the dramatic increases in traffic. And we have just completed the KDS's first upgrade, adding all-day counters across all three cook zones, which will be a game-changer for cooks to get better visibility on what they need to prepare during the busiest of shifts. Three other impactful operational changes we've made recently include the use of steak weights to trim cook time up to 40%, the elimination of chicken portioning, and the removal of the itch-just wing station tower in the fry area zone 1, which frees up space and time cleaning for the Zone 1 cooks. While we still offer the It's Just Wings virtual brand, we have removed enough complexity that allows us to dismantle this specific station that was simply too much space allocated for what is now just 1% of the business. Removing the Wings station seems small, but it has a big impact that is important to our operation. Less items to prep, less equipment to clean, and more free space up in Zone 1. where much of the incremental volume driving our business is hitting the kitchen with high-growth items like triple dippers and crispers. To wrap up our operations, I did want to share news of an investment we have decided to accelerate to convert the balance of our restaurants to turbo chefs, which are ovens that use a combination of modern cooking methods to rapidly accelerate cooking versus conventional ovens. Today, the majority of our system uses conveyor belt ovens that cook a variety of menu items like ribs, chicken, and quesadillas. We've been testing Turbo Chefs in restaurants and slowly expanding them for the past three years with very positive feedback from the operators. They cook the food much faster and much more evenly. They put out less heat, making the kitchen more comfortable for our team members. They create superior tasting products like crispier quesadillas and ribs with a delicious crust. They save a lot of kitchen space, which helps with kitchen capacity in the future. They are much easier to clean, and they are much more reliable than the current conveyor belt ovens. We've been slowly replacing end-of-life conveyor belt ovens when they need repairs, and now with the sustained traffic increases, the time is right to upgrade the balance of our system to a piece of equipment that can properly handle our new increased volumes. Now let's switch gears and talk about marketing and menu innovation. We saw traffic and guest counts accelerate behind a continuation of our Better Than Fast Food TV campaign and the Triple Dipper social media campaign. As the operation gets stronger and stronger, It amplifies the return on our marketing investments through more frequent guest visitation. So while competitors can certainly price the lower 3 for me offer, it is very difficult for them to replicate the total value proposition given the amount of time and investment we have put into improving the experience. We have a multi-year head start in the industry. Our accelerated QT results in the face of hotter competitive offers are a solid proof point that replicating our chili success will be difficult for competitors to do in the near term. We also have big food innovation news coming in Q4 to bring excitement to the three for me platform within our better than fast food campaign. Like the tremendously successful Big Smasher, the Q4 launch will feature a famous, very familiar taste profile. But with the high quality, great taste, and hot price point, you can only get from Chili's. I can't wait to be able to talk about it at our next earnings call as we expect a new menu item to help us grow traffic versus a year ago as we lapped a Big Smasher launch from Q4 last year. In addition to our industry-leading Value3ForMe platform, the marketing team has done an excellent job driving the Triple Dipper social media campaign that started in April 2024. In Q2, they brought news to the campaign by partnering with social media personalities Beauty Perfect, who challenged fans to create the perfect Triple Dipper trick shot. And later in Q2, the marketing team launched a Triple Dipper-themed holiday bedspread collection that sold out in less than a week. Through YouGov data, we can now see how these efforts positively impact buzz with younger guests and are introducing the next generations to Chili's. We also brought food innovation to Triple Dipper in Q2 to keep the momentum going. As a follow-up to the wildly successful natural hot version of our famous mozzarella sticks, the food team launched honey chipotle mock sticks. They have also driven social media excitement around the Triple Dipper. The results behind the campaign are exceptional, with Triple Dipper now representing 14% of total sales in Q2, a three-point acceleration versus Q1, and an important driver of the total business results. The campaign is bringing in a younger guest, it's driving a higher check average, and guests who purchase a Triple Dipper are coming back more frequently than those who don't. New guests, higher ticket, and more frequency. I'd call that a Triple Dipper win for the business. Now I'd like to give an update on Magianos. We've got an established playbook with the successful Chili's turnaround, and we started deploying elements to Maggiano's with the Bring the Magic Back plan, and it focuses on simplifying operations while accelerating improvements to the guest and team member experience. Maggiano's president, Dominique Bertolone, has built a strong leadership team to lead the transformation. We previously announced Anthony Amoroso as vice president of innovation and growth, a Michelin-starred chef and Iron Chef winner who knows food and he knows how to elevate experience. Now I'm pleased to announce two additional strong leaders to round up the Maggiano's leadership team. Ernest Perez is our new vice president of Maggiano's operations. Ernest was a Chili's operations leader for 13 years before transitioning to Maggiano's in 2020, and I couldn't be more pleased to announce his promotion. He's a true servant leader who is working closely with the team to simplify operations and drive business growth. I'm also pleased to announce Mike Wesley, has joined the team as vice president of Maggiano's Marketing. Mike spent the last 14 years as a marketing executive at Young Brands, and I had the pleasure of working with him the entire time I spent at Young. Before that, Mike learned leadership and brand management at the Procter & Gamble company. He has a strong track record delivering on the fundamentals of restaurant marketing and innovation, as well as bringing big teams along for the journey. He loves the Maggiano's brand, and he's excited to partner to bring Dom's vision to life. The Maggiano's team has started the journey of simplifications. We eliminated $6 take-home pasta and seven other menu items, which was 13% of the menu. We've also eliminated 17 prep steps that don't improve the guest experience, such as pounding chicken and pre-portioning pasta. This has enabled us to reallocate around 80 hours of labor every week from the heart of house so our executive chefs and their teams can focus on executing the core menu with excellence. And Chef Amoroso is beginning to put a stamp on elevating the menu, starting with core items that represent over a third of the business to make the biggest impact. Two recent upgrades are our Maggiano Caesar salad that now features scratch-made dressing, fresh-baked croutons, and freshly cut romaine, as well as our meat sauce, which has been upgraded to a far more delicious beef and sausage bolognese served with a superior pasta noodle. Next on our upgrade list is what we think is the most delicious fettuccine Alfredo our guests will have ever tasted, an elevated crispier chicken parmesan topped with fresh mozzarella, a 30-layer meat and sausage lasagna, and and our new meatball recipe that is made with American Wagyu beef to elevate spaghetti and meatballs as well as other dishes. In addition to operations and food innovation, the new Magiana leadership team is working on big initiatives to improve speed of service and re-imaging their estate, both of which I look forward to updating you on in the future. I do want to remind everyone that while we started growing sales immediately during the Chili's turnaround, it did take five quarters to start turning traffic trends, and it took seven quarters to turn positive on traffic, so that should give you some type of guide on what we're expecting from Maggiana's. In closing, I continue to be encouraged by our business momentum. Our Q2 results demonstrate we're working on the right things the right way to drive long-term growth. What's even more encouraging about our turnaround is there's still so much more runway ahead of us for improvements and growth. My executive leadership team just finished our annual strategy planning meetings, and we have a clear line of sight into our future growth plans. While we've made great strides in areas such as food grade scores and service, we still have a lot more opportunity. Our ultimate goal is best-in-class casual dining guest experience. We see a lot more upside by staying focused on improving the business fundamentals, which includes continued upgrades to menu, service, and atmosphere, while also continuing to make our team members' jobs easier, more fun, and more rewarding. I look forward to sharing even bigger initiatives anchored on improving the fundamentals in quarters to come. Now, I'll hand the call over to Micah to walk you through our second quarter numbers and our updated guidance. Go ahead, Micah.