Q3 2025 Earnings Summary
- Sustained Same-Store Sales Growth & Operational Improvements: Chili’s delivered +31.6% comps and improved restaurant operating margins (18.9%), reflecting effective initiatives around food, service, and atmosphere that are driving strong and sustainable performance.
- Disciplined Capital Allocation & Strategic CapEx Investments: The company’s plan to ramp up CapEx—including significant technology upgrades like the new TurboChef ovens—and its deleveraged balance sheet with robust free cash flow support long-term growth and shareholder returns.
- Innovative Marketing & Brand Enhancement: Aggressive and creative marketing initiatives (e.g., the Big QP launch and related pop-up events) have generated strong media impressions and enhanced brand relevance, driving customer traffic and reinforcing the value proposition.
- Sustainability of same-store sales growth: Concerns remain that today's high comp trends—such as achieving 31% comps in peak periods—might not be sustainable long-term, with management acknowledging that each new peak presents a fresh "mountain" to climb.
- Rising capital expenditures (CapEx) and associated costs: The planned acceleration in remodeling, equipment upgrades (notably TurboChef ovens), and additional maintenance investments may pressure margins and reduce profitability.
- Tariff and supply chain uncertainties: Although most sourcing is domestic, exposure to tariffs on key inputs like tequila and avocados introduces additional cost pressures, especially if inflationary pressures escalate.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +27% (from $1,120.3M to $1,425.1M) | Robust revenue growth driven by strong company sales and comparable restaurant performance. This increase builds on previous initiatives that enhanced traffic and menu pricing strategies, reflecting a consistent pattern of top-line expansion. |
Operating Income | +124% (from $69.90M to $156.90M) | Operating income more than doubled due to marked improvements in operational efficiency and margin expansion. This success is attributed to cost moderation initiatives and sales leverage that had begun in previous periods, resulting in a significant boost in profitability. |
Net Income | +144% (from $48.70M to $119.10M) | A dramatic increase in net income is the result of higher revenues and improved cost control measures. The operational enhancements, including lower expenses relative to sales and effective pricing, built upon earlier gains, amplified bottom-line performance significantly. |
Company Sales | +27% (from $1,108.90M to $1,413.00M) | Company sales surged in line with overall revenue growth, driven by higher comparable restaurant sales, increased traffic, and strategic marketing efforts. These improvements, rooted in initiatives from prior periods, reinforced a continued top-line expansion. |
Operating Cash Flow | +63% (from $130.10M to $212.00M) | Operating cash flow improved significantly as a result of higher operating income and effective working capital management. The better conversion of earnings to cash was consistent with prior period trends and highlighted the company’s strengthened liquidity position. |
Long-term Debt & Finance Leases | –37% (from $818.5M to $518.3M) | A substantial reduction in debt reflects aggressive deleveraging and refinancing strategies. The company repaid and managed its debt more efficiently in Q3 2025, building on previous period efforts to reduce leverage and improve balance sheet strength. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Annual Revenues | FY 2025 | $5.1 billion to $5.25 billion | $5.33 billion to $5.35 billion | raised |
Adjusted Diluted EPS | FY 2025 | $7.50 to $8 | $8.50 to $8.75 | raised |
Capital Expenditures | FY 2025 | $240 million to $260 million | $265 million to $275 million | raised |
Weighted Average Shares | FY 2025 | no specific numbers provided | 46 million to 46.5 million | no prior guidance |
Tax Rate | FY 2025 | mid-double digits | high-teens | raised |
Commodity Inflation | FY 2025 | low single digits | low-single-digits | no change |
Wage Rate Inflation | FY 2025 | mid-single digits | mid-single-digits | no change |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Same-store Sales Growth & Sustainability Concerns | Prior calls (Q2 2025, Q1 2025, Q4 2024) highlighted record growth numbers, strong comps, and a belief in the fundamentals driving sustainability | Q3 2025 emphasized concerns about sustaining same-store sales due to tougher comparisons, even as fundamentals (food, service, atmosphere) continue to be highlighted | Consistent focus but with a shift toward a more cautious outlook on sustainability. |
Operational Improvements and Margin Dynamics | Across Q2 2025, Q1 2025, and Q4 2024, there were numerous mentions of menu simplification, efficiency improvements, training, and significant gains in operating margins | Q3 2025 continued this trend with additional initiatives—menu simplification, streamlined kitchen operations, and favorable margin improvements (e.g. 18.9% margin, labor cost gains) | Steady, positive emphasis; sentiment remains upbeat with ongoing refinements to operations. |
Capital Allocation, Strategic CapEx, and Technology Upgrades (TurboChef Ovens) | Q2 2025 and Q1 2025 detailed plans for accelerating TurboChef oven rollouts, refinancing debt, and reimaging investments; Q4 2024 focused on capital allocation without specific tech mentions | Q3 2025 reaffirmed robust capital allocation with debt repayment progress, increased CapEx (including TurboChef oven upgrades), and strategic refinancing | Consistent modernization focus with a slight boost in capital optimization and technology investments. |
Marketing Initiatives, Brand Enhancement, and Rising Advertising Costs | Q2 2025, Q1 2025, and Q4 2024 underscored a multi-channel marketing strategy, emphasis on social media, value campaigns (e.g. 3 For Me), and planned ad spend increases | Q3 2025 launched new initiatives (Big QP, pop culture integration, margarita promotions) with rising ad spend (2.9% of sales, set to increase in Q4) to bolster brand relevance | A consistent strategy to enhance brand positioning, with a continued and measured increase in advertising expenditures. |
Supply Chain Challenges and Tariff Uncertainties | Not mentioned in Q2 2025, Q1 2025, or Q4 2024 | Q3 2025 introduced a discussion emphasizing that over 80% of sourcing is domestic, with flexibility to adjust sourcing to mitigate tariff impacts | New topic in Q3 2025, highlighting heightened attention to external cost pressures through proactive supply chain management. |
Competitive Pricing Pressure and Market Dynamics | Q2 2025, Q1 2025, and Q4 2024 discussed strategic pricing (e.g. barbell pricing, $10.99 value offerings) to counter competitive pressures and promotional discounting | Q3 2025 continued to highlight competitive dynamics with an emphasis on maintaining the $10.99 value proposition and navigating increased promotional activities | The focus on competitive pricing remains steady with a positive sentiment regarding the company’s value proposition amidst market dynamics. |
Restaurant Turnaround Strategies and Discontinuation of Underperforming Locations | Q1 2025 explicitly mentioned discontinuing underperforming locations along with turnaround strategies, while Q2 2025 and Q4 2024 focused on operational simplification and brand repositioning | Q3 2025 concentrated on turnaround strategies (menu, operational improvements, marketing focus) without explicitly discussing closures | A subtle shift from discussing closures to emphasizing ongoing operational turnaround and portfolio optimization. |
Macroeconomic Headwinds and Industry Traffic Decline | Q4 2024 acknowledged macro headwinds and anticipated an industry-wide traffic decline; Q1 2025 indirectly referenced challenges, while Q2 2025 did not mention these topics | Q3 2025 addressed headwinds (e.g. economic uncertainty, weather impacts) but noted that Chili’s outpaced industry trends through strong traffic growth | Themes remain consistent—with external pressures recognized yet managed effectively through strong operational execution. |
Rising Operating Expenses and Inflationary Cost Pressures | Q1 2025, Q2 2025, and Q4 2024 discussed commodity and wage inflation, rising labor and maintenance costs, but also highlighted favorable cost offset by sales growth and margin improvements | Q3 2025 continued to manage inflationary pressures by citing labor staffing adjustments, commodity inflation offset by pricing, and controlled advertising/maintenance expenses | Persistent concerns that are effectively managed; strategies remain in place to protect margins despite cost pressures. |
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Margin Outlook
Q: Will restaurant margins hold/grow into FY26?
A: Management expects margins to remain solid and even improve through disciplined pricing and better labor efficiency, which they believe will drive stable restaurant margins in the future. -
CapEx & M&A
Q: What are upcoming CapEx and M&A plans?
A: They plan to ramp up CapEx for remodeling and equipment upgrades—highlighting a one‐time write‐off for new TurboChef ovens—with no current plans for M&A, focusing on growth and returning excess cash. -
Menu Mix & Pricing
Q: How are mix percentages and pricing trending?
A: The 3 For Me mix is steady at 18–19%, with the $10.99 share holding at 56%, while pricing in Q4 is expected to be between 2% and 3%, with a slight rollback in mix by about one point. -
Advertising & R&M
Q: What are Q4 ad spend and repair strategy?
A: Advertising is set to increase to about 3% of sales in Q4 and repair and maintenance costs are expected to remain at Q3 levels, reflecting a consistent expense approach. -
Operating Leverage
Q: Why did operating leverage change quarter-to-quarter?
A: A temporary dip resulted from overstaffing in Q2; staffing normalized in Q3, aligning operating leverage with improved labor productivity. -
Tariff Impact
Q: How will tariffs affect cost of sales?
A: With over 80% of the supply chain domestically sourced and flexibility to adjust globally, any tariff impact is limited and manageable within current pricing strategies. -
Labor Investments
Q: How are labor investments evolving?
A: They are selectively investing in labor enhancements based on team feedback and staffing needs, aiming to support growing traffic and improve the guest experience. -
Capacity & Off-Premises
Q: What improvements in capacity and off-premises are noted?
A: Top-performing restaurants are handling higher volumes without physical constraints, and off-premises business remains solid at around 24–25%, with delivery making up roughly half. -
Modeling & Traffic
Q: What are current G&A/D&A and traffic trends?
A: G&A and depreciation are expected to mirror Q3 levels, and traffic growth is broad-based—reflecting both new guest visits and increased frequency among existing customers. -
Promotion Impact
Q: What recently boosted Big QP performance?
A: The Big QP promotion has generated strong momentum—outperforming initial Big Smasher results—with significant media impressions adding to its value appeal. -
Menu Innovation
Q: Any upcoming menu or platform upgrades?
A: Plans include revitalizing the rib and appetizer platforms, along with upcoming enhancements in the steak and salad offerings to drive further guest appeal.
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