Brinker International, Inc.

Good day and welcome to the Brinker International's Q3 F25 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 Hochman, President and Chief Executive Officer and President of Chilis, and Micah Ware, Chief Financial Officer. Results for our third 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 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 in the third quarter. Chile's delivered another strong quarter with same restaurant sales up 31.6 percent and traffic up 21 percent. Sales leverage and simplification continue to drive improved four-wall economics which allowed us to deliver an 18.9 percent restaurant operating margin for the quarter. These results were achieved by our continued focus on the fundamentals of casual dining, food, service, and atmosphere. Our Q3 sales performance significantly outpaced the industry which is especially encouraging given we launched no new food or value news, remained on the same big smasher campaign, we continued reducing our menu and pantry skews, and we were still able to weather the increase in competitive promotional offers. These results further demonstrate the operational muscle we continue to build is accelerating performance. Marketing is driving guests in and operations is bringing guests back. I'd like to recognize the marketing team led by George Felix and our field operations team led by Doug Cummings and his VPOs for just exceptional teamwork that is driving our industry-leading results. Our restaurant support center and our field restaurant teams are operating as one team with the common goal of improving the guest and team member experience. Now let's talk about the operational improvements we completed in the third quarter. It starts with menu simplification as we removed three menu items as well as four lower mixing wing sauces. Eliminating those sauces helped simplify Zone 1, our fry station, which also has gotten much busier with the increased volumes. This sauce reduction also allowed us to eliminate the sauce station and small players which freed up much needed space for our cooks and reduced the amount of Zone 1 equipment they need to clean daily. We also made three key operational improvements during the quarter. The first ops initiative was a renewed focus on burger mastery in preparation for our Big QP launch in Q4. Burger mastery training and coaching involves making sure every burger is properly smashed, properly seasoned, and the flat top grill is properly maintained so we deliver a tasty, juicy, perfectly cooked burger every time. The second ops initiative was adding an all-day button to our kitchen display systems which summarized the counts on high mixing items for our cooks. Prior to this enhancement, cooks would have to scroll through several pages of screens and count how many crispers to fry or how many burgers to drop on the flat top. Now our cooks can easily see a running total of what to cook which will reduce both response time and total ticket times during busy shifts. No more scrolling, no more adding in their heads so they can focus on making great food faster every time. The third Big Q3 ops initiative was making significant improvements to win with our dishwashers, one of our most important roles in our restaurants and it's a high turnover position in the heart of house. We held listening sessions to understand what would make their jobs easier and more enjoyable, particularly given how much busier they are with our sustained higher volumes. We then made the changes that were most important to them that were rolled out in Q3. We believe this continued focus on operational improvements and making team members' jobs easier sets us up for more sustainable success in the outquarters. Now I want to give an update on marketing and menu innovation. Two weeks ago at the start of Q4 we launched the Big QP, a burger packed with 85% more beef than a quarter pound burger. It's topped with two slices of American cheese, ketchup, mustard, pickles and onions. It joins the big smasher on the 3 for me menu at the 10.99 price point. As consumers' frustration with high prices and shrinkflation continues, we're continuing Chili's better than fast food campaign to demonstrate our unbeatable value. To launch the Big QP, Jesse Johnson, our Vice President of Marketing and our amazing PR team opened up fast food financing, a limited time pop-up experience in the heart of Manhattan. This successful event generated more impressions than the Big Smasher launch did in both creating awareness of the Big QP and further strengthening our position as a great value our guests can count on. Our world class marketing team also continues to find new ways to insert the brand into pop culture and differentiate Chili's from its casual dining peers. This is what we call building the brand over time and is a way to separate ourselves from the sea of casual dining competitors. On April 7th we opened our Chili's Scranton branch, a new restaurant that pays homage to Chili's on-screen moments from one of the most famous television comedies of all time. This special location features 2005 decor seen in the famous Chili's episode, a booth for guests to recreate the scene for social media and is now the only Chili's in the world to serve the awesome blossom which was prominently featured in the episode. We surrounded the launch with ads featuring popular actors from the show which appealed to both long time viewers of the show's first run in addition to a younger generation that now streams the library of episodes. Chili's Scranton branch is yet another way to reignite Chili's brand history in a modern relevant way that no other casual dining brand could do. Fans are raving about this move and this initiative has generated over 9 billion impressions for Chili's and now the Scranton branch is a place where super fans of the show can pilgrimage and be a part of the Chili's story. We have also recently launched three initiatives designed to reinforce Chili's as the number one seller of margaritas and bring us to the top of the consideration set when consumers are craving a mark. First we partnered with Lifetime Television to premiere Chili's first ever movie in celebration of National Margarita Day. The 15 minute original film titled I'll Be Home for National Margarita Day starred Maria Juanudos and Taye Diggs and leveraged Lifetime fans' love of holiday movies to bring top of mind awareness for Chili's and margaritas. We've also partnered with the JM&D agency to make Chili's first ever music video entitled Ride the Dent Day as a way to drive awareness of our famous Presidente Margarita with NASCAR fans and activate our sponsorship of the number 77 Spire Motorsports car driven by Carson Posivar. And starting May 1st, our new Margarita of the Month will tap into the 90s nostalgia with the Radical Rita featuring 90s pop TV icon Tiffany Thiessen. The marketing team has leveled up their Margarita of the Month strategy and is leading a record breaking Margarita of the Month sales that both help protect alcohol incidents as well as give Chili's fans exciting new drinks to come try at a hot price point. Food news, drink news, culture pops of strategic marketing are all a part of our marketing team's plan to drive sales every night as well as the brand over time. Now let's do an update on Maggiano's. The team continues to follow the Chili's playbook to bring the magic back to Maggiano's by simplifying and elevating the menu with innovation, removing discounting from the business, improving service levels, refreshing atmosphere to drive more sustainable traffic over time. Much like Chili's early round turnaround days, we're doing the hard work in the gym to simplify operational complexity and invest in improving the fundamentals of food, service, and atmosphere. We're also stopping unprofitable discounting that's not consistent with the Maggiano's brand that has been embedded in the business for years. During the third quarter, the team launched a new menu with four significantly upgraded core dishes including the Grand Chicken Parm, a new Fettuccine Alfredo, a new lasagna bolognese, and a Snake River Farms Wagyu meatballs that are available both as an appetizer and part of our spaghetti and meatballs entree. These upgraded dishes along with four previously upgraded core recipes that President Dominic Bertolone and VP of Culinary Anthony Amoroso have brought to the menu now represent 50% of the entree mix. And I firmly believe the more mix we get into these new and renovated, modern and delicious menu items, the more loyalty we will drive with Maggiano's guests over time. To enable the restaurant teams to execute these elevated dishes consistently, the Maggiano's menu has now been reduced by 20% over the last year. And we continue to simplify our cooks jobs by consolidating ingredients and removing process that does not add value for guests. During Q3, we removed eight lower mixing menu items, 10 pantry skews, and 17 prep recipes from the business. We have also removed the remaining deep discounts that were in the business including Double Your Portion, which gave as much as a 50% discount across our digital channels, Marco's Meal, which was a significantly discounted meal for two, and discounted carryout meals. We are getting out of the discounts that were originally installed to drive sales in the short term and reinvesting those resources in the more sustainable long-term business building activities that will upgrade the food, service, and atmosphere, similar to the Chili's Playbook in year one. And just like Chili's in the early days of the turnaround, we expect to see traffic choppiness over the next four quarters as we build a stronger Maggiano's brand for the long term. I continue to be encouraged by our business momentum and I am just so proud of our team. Our focus on the fundamentals has been at the core of the turnaround and we believe it will continue to allow us to push through the macro pressures the industry is now experiencing. Guests are pulling back the number of trips across restaurants in the industry and are choosing those brands they trust to have a great experience. So those brands delivering on superior fundamentals will grow market share and we believe Chili's is well positioned to be one of those winning share and Maggiano's has now started the journey too. Now I'll hand the call over to Micah to walk you through the third quarter numbers and more updated guidance. Go ahead Micah.

Thank you Kevin and good morning everyone. Brinker delivered another double digit same store sales growth quarter which is a direct result of our focus on improving the fundamentals of food, service, and atmosphere. It's exciting to see our multi-layered marketing strategy driving trials and our ongoing operational improvements bringing guests back. These results give us confidence that our investor growth strategy continues to deliver and we're excited by the opportunities ahead to grow the base business. For the third quarter Brinker reported total revenues of ,000,000 with consolidated comp sales of positive 28.2%. Our adjusted diluted EPS for the quarter was $2.66 up from $1.24 last year. Both brands reported top line sales growth with Chili's comps coming in at positive .6% driven by positive traffic of 20.9%, positive mix of 6.3%, and price of 4.4%. The Chili's team delivered these sales results against the backdrop of industry and macro headwinds from weather and consumer economic uncertainty. Except for a slight dip in both sales and traffic in February due to weather, Chili's delivered consistent results every period of the quarter and has maintained this momentum into April. We now believe more than ever consumers will continue to reward Chili's as a brand that consistently provides great food, service, and atmosphere at an exceptional value. Turning to Maggiano's, the brand reported comp sales for the quarter of positive .4% driven by .3% price, positive .3% mix, partially offset by negative .2% traffic, of which .2% was weather related. As Kevin mentioned, Maggiano's is still in the early stages of its turnaround strategy. Dom and the team continue to follow the Chili's playbook by eliminating discounting and simplifying operations to improve the menu, service, and atmosphere. Like the early days in Chili's turnaround, we expect some traffic headwinds in the near term, but I'm proud of the team for doing what it takes to grow the business for the long term. At the brinker level, we saw continued strong flow through this quarter with restaurant operating margin coming in at 18.9%, a 470 basis points improvement year over year, primarily driven by sales leverage from top line growth. This resulted in favorability in all categories of food and beverage costs, labor, and restaurant expense. Food and beverage costs for the quarter were favorable 10 basis points year over year, with pricing offsetting .8% of commodity inflation. We're also pleased with the mix and profitability of our 1099 3ForMe value platform, which continues to perform as expected. It offers a compelling price point for guest-seeking value while remaining cost effective for us, allowing us to maintain margin profitability. Labor for the quarter was favorable 140 basis points year over year. Top line sales growth offset additional investments in labor and wage rate inflation of approximately 4.5%. Advertising spend for the third quarter was .9% of sales and increased 40 basis points year over year. Our marketing team continues to do an excellent job bringing Chili's back into the cultural conversation and making the brand relevant again, which is helping drive traffic. G&A for the quarter came in at .1% of total revenues, with year over year sales leverage offset by increases in performance-based compensation and ERP system cost. Our second quarter adjusted EBITDA was approximately $221 million, an 80% increase from prior year. Capital expenditures for the quarter were approximately $80 million, driven by accelerated investments in kitchen equipment and capital maintenance. During the quarter, we repaid approximately $125 million in funded debt, leaving only $90 million remaining on our revolver from the $350 million notes that matured in October, bringing our overall lease adjusted leverage ratio to 1.9 times. Our current $900 million revolver expires in August of 2026. We are on track to close the refinance of the revolver during Q4, locking in ample liquidity to continue to support all of our disciplined capital allocation strategy, which is to invest in the business, pay down debt, and return excess cash to the shareholders. In terms of our expectations for the balance of the year, as noted in this morning's press release, we're raising our fiscal 2025 full-year guidance to include the following. Annual revenues in the range of $5.33 billion to $5.35 billion. Adjusted diluted EPS in the range of $8.50 to $8.75. Capital expenditures in the range of $265 million to $275 million. Weighted average shares in the range of $46 million to $46.5 million. Assumptions underlying this guidance include consideration of the macro environment, planned commodity inflation in the low single digits, wage rate inflation in the mid single digits, and a tax rate in the high teens. We've seen a step change in our business over the past year as we remain committed to improving the fundamentals of food, service, and atmosphere. With world-class marketing making us relevant and our restaurant teams providing a great experience, we are back in the consideration set and a destination of choice for consumers. I'm so proud of what the team has accomplished and I'm confident that by sticking to our strategy and making smart investments, we'll continue to drive long-term success. Now, with our comments complete, I will turn the call back over to Holly to moderate questions. Holly?

Thank you. 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 from David Palmer with Evercore ISI.

Thanks, Kevin and Mike. As you can imagine, people are really thinking a lot about same-store sales and sustainability of same-store sales growth. Obviously, they're looking at your comparisons and they get a lot tougher coming into fiscal 2Q the December quarter. So people are looking at that as a big mountain that you're going to have to climb. I know you take your comparisons seriously and you are thinking about your initiatives and you have things lined up. But people look at multi-year trends. They look at the two-year trend. They look at your growth versus 2019. I think people are mixed. Some people think things might be slightly negative by that quarter and things might be slightly positive. But there's concern out there. People wonder about did you have brand lightning in a bottle last year that's tough to replicate? So on the other hand, I know there's a significant number of polls that see you as having initiatives too. So I'm just wondering if you wanted to sort of lean into that debate where people are really arguing about climbing that mountain and what gives you confidence in the metrics you see and what are the most important initiatives that you're doing that gives you confidence that you'll be able to sustain positive comps. And thank you.

Hey, David. It's Kevin. Good morning. This is a discussion that we have internally all the time, right? Because we are doing things that don't necessarily give you this new initiative or these 50 new buildings that we're going to build that you can guarantee and take to the bank. We're building it based on the fundamentals of casual dining, which is improved food, improved service levels, improved atmosphere. And our belief is we'll continue to comp the comp if we continue to do that. And we're honest with ourselves on the improvements on that. Now, here's what I would tell you. I think even if we go and comp the 31 in October, November, December, it'll be whatever the next big mountain is. And so the only thing I can point to is we were, this quarter that we're in right now, last year we were a plus 15. And I think at that point everybody was asking the exact same questions, which is how the heck are they going to comp a plus 15 in Q4? I think we're generally over that mountain. Our trends have been quite good heading into April. We see very similar to trends that we saw in March with great traffic and great sales results. So we've been able to go over this first hurdle. We're going to have another hurdle two quarters from now. And after we figure that one out, there will be another hurdle in the future. Because if you're going to be focused on improving same store sales versus really laser focused on system sales, it's going to be harder to look at that and go, I have 100% confidence this is going to happen. So this is not something that we know is new to us. What I will tell you is what I focus on with our team is on food service and atmosphere. Are we going to be significantly better this year versus last year? If the answer is yes, we have a lot of confidence we're going to continue to grow the comp. So that's how we think about it. I know it's very, very hard to go put that in a mathematical model and feel really confident. But we're going to continue to do that because that continues to work.

Thank you. Your next question is from Dennis Geiger with UBS.

Great. Thanks, guys, and congratulations. I just wanted to ask if you're seeing any notable shift in sort of the biggest contributors to the momentum that you're seeing in recent quarters, in thinking maybe about three for me utilization, triple dipper utilization, marketing benefits, et cetera, any observations there, or has it been pretty steady and consistent, any kind of call-outs or observations? I'd be curious. Thank you.

Hi, Dennis. It's Micah. You know what, really, as Kevin said, our momentum has been very sustainable moving from Q3 into Q4. A couple things I'll note is in Q4, we will roll off a little bit of price. We will be lacking some of the initial triple dipper ramp up, so we'll probably most likely roll off a point or so of mix. But traffic continues to be really strong year over year, and we've not seen that momentum slow down at all.

Thanks, Micah. Appreciate it.

Your next question for today is from Chris O'Cull with Stiefel.

Hey, good morning, guys. Micah, just a quick clarification on that last comment. You mentioned Chile's maintained momentum in April. Just given the step up in the lap, I was hoping you could clarify, is that maintained momentum on a one-year basis, or should we be thinking about the comp trend maintaining on a two-year basis?

It's really very similar trends to Q3. April has, so on the one year, it is maintaining. And in a two-year, I would say traffic has stepped up slightly because we are lacking harder numbers in April.

Okay, that's great. And then the capex guidance was a noticeable step up this quarter. Can you give us a little more detail what changed there? I'm assuming some of it may be the acceleration of a replacement, but I was hoping you could confirm that and then detail any other items that drove the increase and maybe just help us ballpark what you're thinking for the next fiscal year.

Okay. No, great. So you nailed it on the head. So one of the largest increases was the new turbo chef ovens that we spoke about last quarter. So we do have a one-time write-off. That will happen in, part of it happened in Q3. The other half of it will happen in Q4 as we write off the old ovens and install the new ovens. So that did contribute to the step up in depreciation as well as the cost of the new equipment. Just equipment in general is the other driver in maintenance capital. As we continue to invest in our buildings and our atmosphere, as sales remain elevated, we continue to take that opportunity to make sure that we have the absolute best and most updated assets that we can.

Okay, great. Thanks.

Your next question is from Jeff Farmer with Gordon Haskett.

Good morning. Thanks. How should we be thinking about your ability to either hold or grow restaurant-level margins moving into FY26? I know there's a lot of moving pieces there, but again, sort of your confidence in continuing to have that margin expansion roll into 26.

Hi, Jeff. Yes, no, great question. I do expect restaurant margins to maintain or continue to grow into the future. So a couple things. First of all, we're going to continue to invest in the business so we maintain our pricing power, and by doing that, that allows us to protect our margins. Longer term, I'll reserve the right to invest in labor, but as the teams continue to increase in their tenure, they get more productive, we get more used to these higher levels of traffic that all the teams are experiencing. I think that we'll have some productivity opportunities there. And then, as Kevin said, we expect to grow this business for the long term. So the largest thing for us is to continue to increase our AABs, and we'll be able to leverage those fixed cost and grow margins as we move forward. So that's worked really well for us, and we continue to plan to do that as we move forward in the future.

Okay, thank you.

Your next question for today is from Christine Cho with Goldman Sachs.

Yes, thank you. I was wondering how we should think about kind of the estimated tariff impact on cost of sales, mainly in tequila and avocado, et cetera. I know there's a lot of uncertainty at the moment, but could you help us kind of size the exposure and whether you have any flexibility in the supply chain to help offset some of that incremental pressure, and any changes to your thinking around pricing if the inflationary pressures end up escalating more meaningfully? Thank you. All right,

hi, Christine. Great question. First of all, so let me go through a lot of different parts of that. So obviously the tariff situation continues to be fluid, but we have thought about it a lot. So first of all, over 80% of our supply chain basket is sourced domestically, so that's a great thing. Of the balance that's left, at least a third of that comes from Mexico and Canada, and we've had some opportunity there that we won't have as much tariff, or as of right this minute. And then we've looked at the rest of the world, and we do have flexibility in our supply chain to move to different countries or do whatever we can to control the cost. I will say in the grand scheme of things, when we have quantified the impact, we have over a billion dollars of food and beverage costs, so it's relatively small to the whole spend that we have in that bucket. So we do think with our current pricing strategy that we can absorb any tariffs that come our way really just within the current strategy that we have. With our pricing strategy, one of the most important things for us will be to continue to protect those opening price points and that industry-leading value for the guests that need it, and then we're going to continue to invest in the business so that we can improve our pricing power and keep leaning into that barbell strategy so that we can price and make sure we protect margins and face any inflation that comes our way.

Thank you so much, and congrats. Oh, thanks, Christine.

Your next question is from Jeffrey Bernstein with Barclays.

Hi, good morning. Thanks. This is product on for Jeff. Kevin, you spoke in your prepared remarks about simplification and removing some of those menu items that are more complex and not maybe mixing as well as you'd like, but I wanted to ask maybe the opposite side of that. Just anything in the pipeline that you're excited about in terms of upgrading the platform, I think fajitas has not necessarily gone through a major overhaul of late, but just anything you're thinking about going forward to kind of enhance the menu. Thanks.

Yeah, thanks for the question. So as I said last quarter, we have been working very diligently on redoing our ribs in our Smokehouse platform. That will launch in Q1. That will feature a significantly upgraded rib recipe and process in making that rib. You'll get a much crustier, more smoky, delicious rib. We're also going to be upgrading sides as part of the Smokehouse combo and redoing the merchandising similar to what we did with Chicken Crisper's a few years ago where we saw explosive growth. Today the Chicken Crisper's business is up 66%, even though it's a more simplified lineup. So we expect very big things out of the rib platform. We're known for ribs. It's a part of our equity. It's only 3% of our sales. So huge upside to improve that product and improve that platform going forward. We've also got some appetizer upgrades coming in Q1, so we're going to have an all new queso. We have two quesos today, and we have an opportunity to have one really great queso. That's going to allow us to reinvent our nachos today. Our nachos are made almost like a testada style, and most people when they order nachos expect to get trashcan style. That's going to allow us some pricing power as well as a much upgraded nacho that's more consistent with what guests would want. The nacho that I've tasted I think is unbeatable in the market right now, so I'm very excited about Q1. That's going to all launch before football season when ribs, nachos, and queso is going to be very much in vogue. And then in the back half of that fiscal year, we're looking at upgrading our steak program as well as our salad program. And then there's more things in the following fiscal. So we've got, I always say there's way more opportunities ahead of us than are behind us. Now, I know we feel really good about the Core 4 upgrades and the 5 to drive, but quite frankly we've got a lot more things on the menu that we can make even stronger and better, and that both gives us pricing power as well as continues to allow us to drive traffic when we have craveable items that you can only get at Chili's. So I'm very, very bullish about the innovation moving forward.

Sounds very exciting. Thank you so much for the call.

Your next question is from Andrew Strelzic with BMO.

Hey, good morning. Thanks for taking the question. I wanted to ask about investments moving forward. And, you know, Mikey, you talked about reserving the right to invest in labor and having listening sessions with some of the dishwashers. How is the conversation evolving with operators in terms of what they're asking for to keep up with the traffic growth? Where are you seeing kind of maybe some of the biggest opportunities and how do we think about the timing of those things? Thanks.

Hi, Andrew. Yes, so great question. You know, it is a journey for us. So as the – we had a huge step change in the business that started in October with traffic trends really increasing at a significant amount. And I'm really proud of how the operators have stepped up and made sure that we were prepared and had the labor that we needed to take care of the guests. So that was step one is we just had to make sure that we're staffed and we're ready for the new guests that are trying out Chili's and the guests that are coming back to make sure they have an -this-world experience and that they come back. And so that was job one. I do think over time that the operators will work closely to make sure where we are investing more hours that it's strategic and that we know what the return is and that we are improving the guest or team member experience in some form or fashion to continue to drive traffic in the long term. So I do think there's opportunity as, you know, we get – we build those muscles and we can improve some productivity, but we may identify, like Kevin said, some other places that we need to continue to invest to make sure that we grow this thing for the long term. One other thing is guest metrics continue to improve year over year, and that's something we watch really closely. So we're going to continue to keep an eye on that, but right now we feel really good about those investments that we've made, and we're going to work together to make sure we continue to make smart investments as we move forward.

Yeah, and this is Kevin Andrews. The other thing I would add is – and we've been consistent since, you know, I started three years ago – is that the investments that we make, we know we're tying them to growing the overall business. So if you actually look at our – all the investments and then compare that to, you know, the ROM results that we've had, the EBITDA results we have, I think we've got a track record now where we primarily invest in things that grow the business and improve the four-wall economics of owning Chiles. And so I don't anticipate that changing. I will tell you we are literally this week with our Vice President of Operations and my leadership team, and we are looking at next fiscal's plan. We understand our pricing assumptions. We understand our traffic assumptions. We're looking at the headwinds that are there, things like tariffs, to make sure that we can cover them, like Micah talked about. And then we're looking at potential investments, and we're going to all hold hands together as a field and home office team to decide which things that we think are needed to continue to accelerate the business and which things maybe we need to pause on based on what we're, you know, everybody's seeing in the macro until we have a little bit more visibility about what's happening. And so if you look at the track record of what we've done with investments, and I think taking it to the next level where we're partnering with the field team as one team to figure out which investments are going to make the most sense to accelerate the business, I'm very confident we're going to make the right choices.

Great. Thank you very much.

Your next question for today is from John Tower with Citi.

Great. Thanks for taking the question. Maybe first a modeling one and then just an actual question. On the modeling side, for the fourth quarter, can you give us a range for where you think G&A and DNA will settle out? And then the question is, on the Chili's business itself, traffic has been exceptionally impressive. So I'm curious if maybe you could speak to the breakdown between an increase in frequency with existing guests versus new guests coming in the door for the first time, or perhaps lapsed users to the brand coming back in the doors. And just curious if you could kind of suss out the distinction between them.

Okay. Hi, John. So first of all, to start with your first question, depreciation in G&A from maybe an absolute dollar amount, those will be very similar from what you saw in Q3 and Q4. So I'll just guide you guys that way for the modeling question. As far as traffic goes, really when you have traffic trends like ours, when they're up over 20%, it's really coming from all places. So again, we're growing all income levels, all age groups. It's new guests that are coming back, and it's current vests that are coming back more frequently. So it's really hard to break it down when everybody is coming more often to Chili's. What we do know, again, is that that guest experience continues to improve and that we know people are coming to Chili's or having a great experience and are coming back. And over time, we think we're going to continue to drive that frequency number.

Thank you. Your next question is from Brian Vaccaro with Raymond James. Hi, Brian. Uh-oh. Brian? I wonder if you're on mute, Brian. Sorry

about that. Yep, I'm here. Sorry about that. So thanks and good morning. So just a couple of clarifications, if I could. On Chili's -on-year pricing, is that still expected to moderate sort of into that .5% to 3% range as we move into the fourth quarter? And do you view that as sort of a sustainable range from here? And you made a comment on mixed as well that you might, I think, roll off a point. But I just wanted to clarify, you still expect mixed to be up, call it mid-singles, somewhere in that range, but you're just rolling off a point? Was that what you were saying there, Micah?

Yes, yes. Thank you, Brian. So yes, you got it exactly right. So we're going to roll off a little bit of price. So I would say price will be in that 2% to 3% in the fourth quarter. I think longer term, our price should probably live in that 3% to 5% range. You know, we always reserve the right to, you know, move that up or down, depending on what's happening in the macro environment. But that's kind of an earmark I would use now for a longer-term place. As far as mixed goes, again, triple-dipper is driving a lot of mixed. And then you got that right. Well, I said we'd roll over about a point or so as we start lacking those higher mixed numbers from last year when triple-dipper really took off.

All right. Thank you. And sorry if I missed it, but what was the total -for-me mix in the quarter and the split between the 1099 and the higher tiers? And do you also have the sales mix on the triple-dipper handy?

Yes. So as far as the -for-me, we've done a really great job of keeping it very consistent. So it's been in that 18 to 19% range, and it stayed right there in Q3. Nothing changed. And then as far as the 1099 level, it's right at that 56%. Again, no change Q2 to Q3. So we're managing it exactly as expected. Triple-dipper sales for the quarter, I think we talked about that being about the increases up. I think it's about 1%. So total sales, it went from like I think 11 to 12. Is that right, Jen? Yeah, actually the menu mix went from

11 to 12.

Okay. Yeah. And dollar sales are at 15%. Exactly. So up a point. Okay.

Dollar sales up a point to 15%. Okay. Very helpful. Last one, if I could just ask on the margins real quick. Can you level set us on your advertising spend expectations in the fourth quarter? And then I think we're lacking the outsized repair and maintenance from last fourth quarter. Any guardrails on kind of repair and maintenance? I'm obviously mindful of the investments you're making in the business, given your very, very healthy traffic. But just if you could level set your thinking on those two items. Thanks so much.

Yep. So advertising, as I talked about last time, will be up in the fourth quarter. That's where we have some of our increased spend. It will probably be closer to 3% of sales where it was a little bit less than that in the third quarter. So you will see an increase there. And then RNM, it is planned to be favorable year over year. I would expect the run rate to be about the same as the third quarter though.

Thank you very much.

You're welcome. Your next question is from Eric Gonzalez with KeyBank.

Hi. Thanks for the question and congrats on the really strong results. You know, the step up in April in terms of two-year traffic, can you discuss whether that was a reaction to the Big QP promotion or perhaps it's just momentum in addition to some other factors such as weather or macros? And in terms of the performance of the Big QP, how does that compare to the Big Smasher in terms of menu incidents?

Yeah, so it's Kevin. Hey, Eric. So the momentum is all the above. So when we saw the Big Smasher a year ago really take off, we thought, hey, we need to make sure we have really, really strong plans a year from now so we can continue the momentum going. And that was why the Big QP was designed. It was designed to keep momentum going. We are selling more Big QPs than we did Big Smashers at launch, so we feel very bullish. We've also had more media impressions or PR impressions for the Big QP, probably because we have more of an audience now about value based on our track record of value. So we feel very good about the ability of the Big QP to continue the acceleration of the business. I also think just in general as we continue to improve service levels and food grade scores, I think that's why you're seeing the business continue to have momentum. Like that's what we've always maintained is we've got to continue to improve the experience for the guests if we expect to continue to grow comps on top of growing comps. And that's exactly what we're doing right now. So the net of it is Big QP is doing what it's been designed to do, which is to continue the momentum on value. And then the things that we're doing outside of a promotion, working on the fundamentals of casual dining, we can continue to work to continue to accelerate our business. Thanks.

Your next question for today is from Sarah Senator with Bank of America.

Hi. Thanks for the question. Isaiah Austin on for Sarah. Just a quick question just speaking about value perception. How would you say that the value environment promotional intensity has trended just throughout the quarter and going into April? And if you can just give broader comments on the demand environment as a whole, that would be appreciated and have a quick follow up.

OK, for us, the three for me, the demand on our 1099 has been very stable, very steady. So we didn't see any increases from Q3 into April. It's been right at that 19 percent. And then a little bit over half of that is what's on the 1099 value. You know,

competitively, you guys see what we see, right? Obviously, the environment's gotten more and more competitive. It got more competitive last quarter that reported on in Q2. It's obviously gotten more competitive this quarter. It doesn't seem to be making a dent in what we're doing. And once again, I don't think that the value equation is just about the lowest price. I think we've proven now it's about both the price as well as what you get and the experience that you have. And I think what you're seeing in the industry is the guys that are growing market share right now, they're the ones that have generally better experience. And so it's not just about the lowest price point. We're pretty confident that as long as we keep our experience levels high and keep our food scores high with a 1099 price point, we think that's pretty difficult to beat in the industry. And we're well positioned even if the macro were to continue to soften. But we're seeing exactly what you guys are seeing, intense promotional activity. We're seeing all the same things about where the consumer sentiment is. But as far as our business results, they don't seem to be that impacted by what's going on right now, I think given where we're positioned.

Got it. Makes sense. Thank you. And just really quickly, it looks like operating leverage was slightly lower year over year versus 2Q, despite like similar same store sales growth. Could you talk about kind of the underlying dynamic that may have shifted quarter over quarter there?

Yeah, so really it was labor. And so I talked about in Q2 that we were understaffed in October. And so we staffed up throughout that quarter. And then you saw that momentum continue with the staffing up into Q3. So we over earned a touch in labor in Q2 and then that normalized in Q3. So that's where you saw that change.

Thank you. You're welcome.

Your next question is from Jim Sanderson with North Coast Research.

Thanks for the question. Congratulations on a great quarter. I was wondering, given the many changes you've made, how has the capacity of an average Chile improved in terms of weekly in-store traffic and off-premises traffic? And then what constraints, capacity constraints are you trying to resolve going forward? Hey, Jim, it's

Kevin. So that's a great question. And it's something we're working on. We have a team that we put together. We call it the North of Six team. So there's over 100 restaurants today that do more than $6 million AUBs. Our brand average is closer to 4, 3, 4, 5 right now. So these are restaurants that they're not any bigger than a normal Chile's. For some reason, they're able to handle huge capacities, right? And what we're learning is they do some things differently than the corporate structure. And we're learning from them to then reapply that to the other parts of the system. So we don't think there's any capacity constraint in terms of the equipment or the size of the boxes given we have a sizable number of restaurants that are doing upwards. Some of them do $9, $10 million AUBs. It's really about learning from them to understand what are the different things that we need to do to make sure we get the most out of our boxes. The other thing that Micah referred to earlier is our teams are starting to get used to the higher volumes. So it was probably easier for a team that was doing, let's say, $5 million AUBs and it's gone up to $7 million. That's much easier for that team because they're used to having high volumes versus a team that maybe was doing $3 million AUBs that is doing $4.5 million. And so the teams are getting more and more used to how they deal with the volumes. They're sharing learnings across the system. And we're just getting stronger about higher volume and higher traffic. So our traffic is now back to where it was over a decade ago in terms of 2015 levels. So we're going to continue to get stronger and stronger. And I love this North of Six team using the best operators in the system working on the highest volume restaurants to start teaching the lower volume restaurants as well as what are the things that we need to do differently corporately to be able to handle increased traffic.

All right. And a quick follow up. Could you update us on what the off-premises mix is, delivery and pickup?

Yeah, so off-premise for both brands keeps, it still hovers around that 24, 25 percent. And then the delivery for Chili's is half of that. So it's still about a half and a half split between carryout and delivery.

All right. Thank you very much.

You're

welcome.

Your next question for today is from Raul Crow with JP Morgan.

Good morning, guys. You have a significantly delivered balance sheet now and a strong free cash flow trajectory. How should we think about the levels of future capex, especially considering the ramp of Chili's remodels and Maggiano's growth, if you can elaborate some detail there? And further down the line, would M&A reenter the picture for Brinker at all?

All right. So, you know, moving forward, we did talk about that our capex could ramp up with the re-images. And so we'll get into more specifics on what our capex budget will be in the future next quarter when we wrap it up and kind of guide for next year. But again, we will continue to utilize this cash that we're generating to invest in the business and grow the business long term. You know, other than that, I've said invest in the business, pay down our debt. That'll be significantly done by the end of this fiscal year. So the third priority would be return cash to the shareholders. We've mentioned that we would probably do that in the form of a share of purchase program next on the list. So we'll see as the time happens on that. As far as M&A goes, obviously there is nothing that is on the radar right now. We always look at opportunities in the future, but nothing that we're doing or considering right now. We're going to lean into Modgiano's. We have a small brand that we're very proud of that we're in the midst of turning around. And we think that brand has a lot of growth opportunities. So we're going to lean into that opportunity first. Thank you.

You're welcome. We have reached the end of the question and answer session. And I would now like to turn the floor back to Kim Sanders for closing comments.

Thank you, Holly. That concludes our call for today. We appreciate everyone joining us and look forward to updating you on our fourth quarter results in August. Have a wonderful day.

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.