Q4 2024 Earnings Summary
- Brinker International is investing significantly in marketing and labor for fiscal 2025, with an incremental $15 million to $20 million investment in labor and an additional $15 million to $18 million in the media plan. These investments are aimed at driving sustainable traffic growth and enhancing the guest experience, which could lead to increased sales and profitability. , , ,
- The company demonstrated strong performance in Q4 2024, with Chili's achieving 14.8% same-store sales growth and 5.9% traffic growth, outperforming the casual dining industry by 15.6 points in sales and 9.4 points in traffic. This suggests the company's strategies are effective in gaining market share and driving top-line growth. , ,
- The successful turnaround strategies implemented at Chili's are being applied to Maggiano's, including simplifying operations, focusing on guest experience, and introducing innovative food and beverage offerings. With new leadership and a focus on elevating the brand, Maggiano's has potential for significant growth and profitability improvements.
- Margin pressure due to rising costs and investments: The company's earnings guidance for fiscal 2025 suggests margin pressure caused by commodity inflation in the low-single digits and wage rate inflation in the mid-single digits, as well as incremental investments of $15-20 million in labor and $15-18 million in media. This results in earnings guidance below their targeted range.
- Macroeconomic headwinds and anticipated decline in industry traffic: The company is projecting a 4-5% decline in industry traffic for fiscal 2025, which could negatively impact their sales and traffic despite their own strong performance, reflecting potential vulnerability to broader economic conditions. ,
- Increased operating expenses and potential volatility in traffic trends: In the fourth quarter, restaurant expenses increased by 17% per unit, driven by a $16 million increase in repair and maintenance, a $14 million increase in advertising, and higher incentive-based compensation. Additionally, there was some softness in July traffic, suggesting potential volatility in trends. ,
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Margin Outlook
Q: What's causing next year's margin pressure?
A: Margin pressure is driven by wage rate inflation and commodity inflation. Additionally, they plan incremental investments of $15–$20 million in labor and $15–$18 million in the media plan for fiscal '25. -
Fiscal '25 Guidance
Q: What's embedded in your top-line outlook for '25?
A: They expect same-store sales growth in the mid-single digits, with pricing at 4%–5% and traffic flat to slightly positive. They've built in a 4%–5% industry traffic decline into their assumptions, so there could be upside if the macro environment is better. -
CapEx Allocation
Q: How are you shifting CapEx priorities in '25?
A: CapEx spending will be similar to fiscal '24. They're shifting funds from R&M equipment replacement to the reimage bucket, aiming to start a reimage program. They'll build about 10 new Chili's restaurants, similar to last year, and are accelerating development of Maggiano's with new units on the horizon. -
Capital Allocation Strategy
Q: Any changes to capital allocation plans?
A: They will continue to invest in the business, pay down debt, and buy back shares to offset dilution in fiscal '25. A $350 million bond due in October will be moved to their revolver, and they plan to pay down debt at similar levels as this year. -
Menu Pricing Strategy
Q: What's your pricing outlook for fiscal '25?
A: Pricing will step down from 8% in Q4 to mid-single digits for fiscal '25. They plan no price increases in the first half and have optionality for minimal increases in the back half. They feel confident in their barbell strategy, with no evidence of pushback from guests. -
G&A Expenses Outlook
Q: How will G&A expenses change in '25?
A: G&A is expected to increase by $5–$7 million due to costs from transitioning to a new ERP system and increased payroll expenses from team growth. -
Restaurant Margin Guidance
Q: What's your restaurant margin expectation for '25?
A: They expect a 30–50 basis points improvement in restaurant operating margin year over year, despite inflation and incremental investments. -
R&M Expense Reduction
Q: Will R&M expenses decrease next year?
A: Yes, R&M expenses peaked this year and are planned to be lower by $8–$10 million in fiscal '25. Moving from reactive to proactive maintenance should help lower costs. -
Traffic Growth Source
Q: Where is your traffic growth coming from?
A: Traffic growth is broad-based across all demographics and income levels. They're gaining market share due to increased relevance, being top of mind through advertising and social media. -
TikTok Impact
Q: How does TikTok influence your traffic and guidance?
A: In May, about 40% of the performance was due to a viral TikTok on mozzarella sticks, with 60% attributed to advertising and the Big Smasher. Investments in facilities and labor aimed to retain new guests. The business remains strong, potentially offering upside to guidance.