Brinker CEO: Falling restaurant traffic offset by sales jump

Shares of Brinker International slightly in the green this morning. The restaurant operator, which owns Chili's and Maggiano's, topped estimates for earnings as revenue came in line with the street's expectations. Higher menu prices boosted sales at both Chili's and Maggiano's, though both chains saw a decrease in traffic compared to the year prior. Brinker International's CEO and president Kevin Hochman joins us alongside Yahoo Finance executive editor Brian Sozzi. A big welcome to you both. So as we look at this earnings season, as we look at some of the data here, closing and overcoming that traffic gap versus the rest of the industry, what is the plan there?

Yeah, we're excited. Our turnaround is well underway. We're seeing guest metrics significantly improve. We're laying down the investments into the business in order to start growing that traffic. Fiscal '23 for us was about level-setting that guest experience, getting us on the upward trajectory, and improving restaurant operating margins. Fiscal year '24 is going to be all about reinvesting back into the business to drive traffic. We've announced on the call $55 to $60 million incremental this fiscal in advertising that's going to drive traffic. The first waves of advertising that we did in '23 did a really good job of driving traffic and closing that gap. That's one of the reasons why we're seeing accelerated sales growth versus the industry now, because that gap continues to close. So we're very bullish about our current fiscal and the investments that we have in place to drive traffic.

Kevin, this is Brian here. Good to see you. It's been a weird week in all things consumer land. Walmart, good earnings. Target, not so good earnings. You guys did pretty well. Why do you think consumers are paying more for experiences and services like going out to restaurants and not buying more stuff for their home?

Yeah, it's interesting. What we're seeing is the people that are coming to the restaurants, they're excited to pay more. They're buying bigger bundles, they're buying more drinks. We're certainly seeing that in our mix numbers. You shared earlier that the traffic was down but the sales were considerably up. What that tells you is the people that are coming are spending for experiences and they're spending for more premium things. I think it's a function of coming out of the pandemic. People want to have more experiences, they want to be back together. That's one of the reasons why we're seeing dining room traffic up, and that's really helping our business because dining room traffic is much more profitable than off-premise. So I think it's going to continue. I think you're going to see experiential and experiences continue to be valued, and we're going to be there to service that guest. And let's be frank, we're trying to have that margarita too, Kevin.

Promotions at the end of the day, though, that is a traffic driver, especially for a company such as yours. When you think about those traffic drivers, how long do promotions need to remain in place in order for you to see that full customer lifetime value over the timeline of a relationship there?

Yeah, thanks for that question, Brad. The way we think about pricing is we call it a barbell strategy. We want to make sure we have unbeatable value, no matter how much money you're willing to spend to come into casual dining. We want you to be able to service that Chili's with a great experience. So we always talk about our $10.99 three for me. That is the focus of our advertising for this fiscal because we think that is unbeatable value across any restaurant chain, not just casual dining. But we also have things that we know Brian loves, like our $6 margarita of the month. This month it's the Tequila Trifecta, which has three different kinds of tequilas. It's a delicious margarita that I know Brian would love, but it's only $6. That is unbeatable anywhere. So that's the example. As long as we have price points that any customer can access, we know that we'll be able to win in this environment.

Yeah, Kev, I'm definitely down for four or five of those. No, no, no. Absolutely. But let me ask you this in terms of operations. There's a lot of folks right now in the restaurant space on improving operations. I'm sure you see your competitor, Bloomin' Brands, has a new activist investor kicking the tires. I think he wants to improve the operations of that company. I look at Chipotle installing faster ovens so they can improve their throughput or just get people out the door quicker. What are you looking at next year in terms of Maggiano's and Chili's to just improve the profitability of your chains?

Yes. So the way I approached the business, I started a little over a year ago, was just to go out and listen to the restaurant teams to understand what are things that we can do to get out of your way so that you can better delight the guests, make it easier to do your job, and make it more fun and more rewarding. So we've been literally every quarter deploying those ideas to the restaurants, and things are getting a lot easier. In fact, last week we had our manager conference here in Dallas. All of our general managers came in for an annual conference, and I got to tell you, the excitement that they had for the business right now was incredible. Because they know not only is it getting easier and more fun to work in our restaurants, but they are a big part of why that's happening because it's all of their ideas. And what I told them, and they know this, is that simplification isn't a one-time thing. It's just our new way of doing business together. So we showcased another like 12 different simplifications that were coming out in the next three months, and all these people had their phones up taking pictures of it. There was cheering because they know that we're going to continue to be focused on taking their ideas and deploying them to the restaurants to make that guest experience better.

And we know that the consumer is still hanging in there as we saw from July's retail sales. But on the call, we did hear CFO Joe Taylor talking about some skittishness in the consumer, at least at the beginning of the quarter. Do you expect that to become something that we see dotted throughout the rest of the year?

You know, we don't know exactly how that's going to play out. What I've talked to my team is that regardless of what happens with the macro, the most important thing that we can do is to have the best guest experience that we can possibly provide, because we're going to win market share in that scenario. What we know is that if the customer does pull back and they make fewer trips to restaurants, they're going to choose the ones they know they're going to have an amazing experience. So what's the indicated action on that? Have the best experience on the block. And when we see our guest scores like server attendance, food grade, intent to return all going in the right direction at all-time highs for the last decade, that gets us super excited about what's going to happen even if the macro does go a little bit negative. We know we're going to win market share, and that's what's happening right now. We continue to see market share growth, separation from the industry. I think if we stay the course, let's focus on the things that we can control so that we can win market share over time. And then as the macro gets better, obviously that will create explosive growth for our business.

And Kevin, you really have an incredible background in all things marketing, thinking back to your KFC days. And now you look at Chili's, they have a really great storied history in marketing. Do you have to market specifically to, let's say, college students that are now going to have to start paying back their loans? Do you have to say, hey, if you have a loan, if you have $20,000 in debt, come on into Chili's, you get some free fries? Are you thinking about these things?

Well, you've just given me a brief for the marketer, so I'm going to go back to George Felix and hand them that brief. But it's a great point. The fact that we have unbeatable value, especially for a younger guest, that's something we've got to make sure that we're telling that story. One of the things that's exciting about getting back on TV again is we know that that's how you're going to reach some younger people, and we have a message that will talk to them. When you have the $6 margaritas of the month or you have that $10.99 complete meal, they know that they're not going to get nickel and dimed at Chili's. They're always going to get an incredible meal at a high quality and something that they're excited about coming back for. We can win on that. So I think the more we can tell that story, the more we're going to see separation and the closure of that traffic gap that we talked about earlier.

Kevin, you see an activist investor like Starboard Value take a chair or a stake in one of your competitors in Bloomin' Brands. How do you keep activist investors out of Brinker?

Yeah, the thing that we're focused on is just improving our operations and making sure that we're growing restaurant operating margins, making sure we lower managing your alternate, all the things that are going to make us as strong a business as possible. And if we can continue to make progress in this turnaround, improve restaurant operating margins, improve the guest experience, continue to drive sales, and deliver the growth targets that everybody expects of us, I think we're going to be fine. But I think we just got to stay focused on the guest and stay focused on the team member, and that's how we're going to have a stronger business going forward.

Kevin, I'll tell you what, you keep the new margaritas on your desk like Wheel of Fortune posts or something because we've seen a bunch of them at this point. You could definitely create a game out of that. That would be dangerous. So that's one.

You got to have me to the studio so we can actually serve you these margaritas. The door is always open, Kevin. It's right there, and we're pretty sure it's open right now.

Thanks so much, Kevin. We appreciate the time as always. That's Kevin Hochman, Brinker International CEO, taking the time as always. Thanks.

Thanks so much.