Brinker International Earnings Call: Chili’s Leads the Charge

Brinker International ((EAT)) has held its Q2 earnings call. Read on for the main highlights of the call.

Brinker International Leans on Chili’s Strength as It Raises Long-Term Targets

Brinker International’s latest earnings call painted a broadly upbeat picture, anchored by exceptional momentum at Chili’s and reinforced by solid revenue, EPS, and cash generation. Management highlighted sustained traffic growth, improved guest satisfaction, and strong returns from menu and marketing initiatives, which together are more than offsetting pressures from commodity inflation, wage and insurance costs, and underperformance at Maggiano’s. While Winter Storm Fern will clip near-term revenue and earnings, the tone remained confident, with raised long-term guidance, accelerated reimage plans, and continued buybacks underscoring management’s belief that the current operating trajectory is durable.

Chili’s Same-Store Sales Keep Outpacing Casual Dining Peers

Chili’s once again delivered standout same-store sales, with Q2 comps up 8.6%, outstripping the broader casual dining category by roughly 680 basis points. The chain has now logged 19 consecutive quarters of comp growth, and the multi-year momentum is striking: cumulative two-year comps of 43%, three-year comps of 50%, and four-year comps of 62%. This sustained comp stack signals that Chili’s gains are not simply one-off promotions, but a structural improvement in the brand’s relevance and execution, giving Brinker a powerful growth engine in a still-choppy casual dining landscape.

Revenue and EPS Grow as the Top Line Accelerates

At the consolidated level, Brinker reported Q2 revenues of $1.45 billion, a 7% year-over-year increase, supported by a 7.5% rise in comp sales across the system. Adjusted diluted EPS climbed to $2.87 from $2.80 a year ago, reflecting solid operational performance despite cost pressures and weather disruptions. The combination of robust comp growth and rising earnings demonstrates that the company is successfully converting top-line strength into bottom-line progress, even as it invests for future growth.

Profitability and Cash Flow Strengthen Despite Modest Margin Compression

Profitability continued to move in the right direction, with adjusted EBITDA rising 3.6% year-over-year to roughly $223.5 million. Company-wide restaurant operating margin landed at 18.8%; while that’s a 30-basis-point decline from last year’s 19.1%, Chili’s restaurant-level margin actually expanded by about 40 basis points. Management reiterated an expectation to grow restaurant-level margins by about 30–40 basis points for the full year, indicating confidence that scale efficiencies, mix upgrades, and operational improvements will more than counterbalance inflationary pressures over time.

Marketing and Menu Innovation Fuel Traffic and Sales Mix

Chili’s growth is not just price-driven. In Q2, the brand’s top-line result was supported by a balanced mix of price (+4.4%), traffic (+2.7%), and mix (+1.5%). Marketing and product innovation are clearly resonating: the margarita program has been a breakout success, with one promotion alone adding roughly 1.5 million incremental drinks in November. A new chicken sandwich tested in about 200 restaurants posted strong results, setting the stage for a national launch in April. These initiatives are helping Chili’s attract more guests while nudging them toward higher-margin items, a favorable combination for investors watching both volume and profitability.

High-Impact Menu Renovations Drive Upsell and Simplify Operations

Brinker’s targeted menu renovations are delivering outsized performance gains. The reintroduced skillet queso is running about 20% above the prior queso lineup, relaunched nachos are up an impressive 170% versus previous versions, and the upgraded bacon cheeseburger is generating roughly 30–43% higher sales than the burger it replaced. At the same time, the company has eliminated six menu items, simplifying kitchen execution and potentially lowering waste. This approach—fewer, better items—appears to be boosting both guest excitement and operational efficiency, a key lever for sustaining margin expansion.

Guest Experience Metrics Mark a Step-Change in Brand Health

Operational and guest satisfaction metrics show meaningful improvement, supporting the view that Chili’s momentum is not only promotional but experiential. The percentage of guests reporting a problem (GWAP) dropped to 2.1% from 2.9% a year ago and from roughly 5% three years ago, indicating much better execution at the restaurant level. Food grade scores rose from 68% to 74%, and “intent to return” strengthened from about 72% to 78%. Third-party syndicated measures now place Chili’s in the top three across seven key metrics, suggesting that external benchmarks are confirming the internal data: Chili’s is winning in the eyes of consumers.

Capital Allocation: Buybacks, Investments, and Higher Long-Term Targets

Brinker is leaning into its improved financial position with an active capital allocation strategy. The company repurchased $100 million of common stock in the quarter, signaling confidence in intrinsic value and underpinning EPS growth. Strong free cash flow is funding both shareholder returns and reinvestment in the business, including higher capital expenditures for remodels and new units. Management also raised fiscal 2026 guidance, now calling for revenues between $5.76 billion and $5.83 billion and adjusted diluted EPS of $10.45 to $10.85, supported by CapEx of $250–$260 million. For investors, this combination of buybacks, growth investment, and upgraded long-term guidance reinforces the narrative of a company shifting into a more durable growth and cash generation phase.

Reimage Strategy and Unit Growth Lay Out a Multi-Year Roadmap

Brinker is beginning to translate Chili’s brand strength into a more modern physical footprint and a clearer growth roadmap. The company has completed the first four Chili’s reimages and plans to finish another 8–10 in the current fiscal year. That pace will accelerate significantly, with management targeting about 60–80 reimages in fiscal 2027 and a broader rollout coupled with an expanded new-unit program into fiscal 2028. The goal is to reimage roughly 10% of the system—over 100 restaurants—by fiscal 2028. This remodel cadence should support further traffic gains and pricing power, while new units add incremental revenue growth on top of same-store performance.

Maggiano’s Remains a Drag on Sales and Profit

While Chili’s is firing on all cylinders, Maggiano’s is a clear soft spot. The Italian concept posted Q2 same-store sales down 2.4%, and it now accounts for about 8% of Brinker’s total sales but only around 3% of profit. Management acknowledged that the brand continues to be a drag on overall performance as the company works on service, atmosphere, and culture improvements. The underperformance at Maggiano’s is contributing to margin pressure and sales deleverage, and investors will be watching closely for signs that turnaround efforts begin to show up in comp trends over the coming quarters.

Margin Pressure from Costs and Deleverage, Despite Operational Gains

Despite improving operations at Chili’s, company-level margins remain under some pressure. The slight 30-basis-point year-over-year decline in restaurant operating margin to 18.8% reflects the combined effect of Maggiano’s deleverage and higher costs across the P&L. Food and beverage costs were about 20 basis points unfavorable year-over-year, while G&A and depreciation & amortization rose around 20 basis points and 30 basis points, respectively, as a percentage of revenue. In other words, the company is feeling the impact of higher overhead and investment-driven expenses, even as it aims to offset them with sales growth and productivity gains.

Commodity Inflation, Especially Beef, Looms as a Second-Half Headwind

Commodity costs are a key watch item. While there has been some relief—such as the removal of tariffs on Brazilian ground beef and more favorable poultry and dairy pricing—management is bracing for mid-single-digit commodity inflation in the back half of the year, driven mainly by rising beef prices. For the full year, commodity inflation is expected to land in the low single digits, but the second-half ramp could squeeze margins if not fully offset by pricing, mix, or efficiency. This dynamic will be important for investors to monitor, given the high beef exposure in casual dining menus like Chili’s.

Storm-Related Disruption Adds Volatility to Near-Term Results

Winter Storm Fern has introduced an additional short-term headwind. The company’s outlook incorporates an estimated $20 million hit to revenues and roughly $0.15 reduction in adjusted diluted EPS due to temporary restaurant closures and repair costs. Management noted that the timing of any sales “bounce-back” is uncertain, meaning that some of the lost revenue may not be fully recaptured. While this is a one-off weather event, it adds volatility to upcoming quarterly comparisons and modestly tempers what would otherwise be even stronger near-term results.

Wage Inflation and Insurance Costs Partially Offset Labor Efficiencies

Labor remains a mixed picture: operationally, Brinker is seeing better throughput and efficiencies, with labor actually 30 basis points favorable year-over-year on a flow-through basis. However, wage rate inflation of about 3.3%, alongside higher health and workers’ compensation insurance costs tied to increased restaurant headcount, has eaten into some of those gains. This environment suggests that while the company can still drive labor productivity, elevated wage and benefit costs are likely to remain a structural component of the cost base, requiring continued pricing and efficiency measures to defend margins.

Maggiano’s Expected to Remain a Headwind in the Second Half

Looking ahead, management does not expect a quick rebound at Maggiano’s. The company anticipates same-store sales at the concept will remain in the negative mid-single-digit range in the back half of the year, implying ongoing sales deleverage and margin pressure. While Maggiano’s is a relatively small portion of overall sales and profit, its negative trajectory will continue to weigh on consolidated results until turnaround initiatives in service, atmosphere, and culture begin to translate into sustained traffic and sales growth.

Guidance and Outlook Point to Sustained Growth with Manageable Headwinds

Brinker’s forward-looking guidance remains constructive and was notably raised for fiscal 2026, signaling confidence in the trajectory of the business despite cost and weather-related pressures. The company now expects annual revenues between $5.76 billion and $5.83 billion and adjusted diluted EPS in the $10.45–$10.85 range, with capital expenditures of $250–$260 million and a share base of roughly 44.7–45.2 million. The outlook assumes Chili’s comps settle back to the more sustainable mid-single-digit range in the back half after the outsized 8.6% Q2 gain, but still deliver a fifth consecutive year of comp growth fueled by continued traffic gains. Management is planning for wage inflation in the low single digits, a tax rate around 19%, and full-year commodity inflation in the low single digits, albeit with beef-driven mid-single-digit pressure in the second half. The company reiterated its capital deployment playbook: ongoing reimages (another 8–10 in the current fiscal year, ramping to 60–80 in fiscal 2027 and around 10% of the system by 2028), disciplined new-store growth, and continued share repurchases, all while absorbing the estimated revenue and EPS impact of Winter Storm Fern within its long-term targets.

Brinker International’s earnings call ultimately showcased a company leaning on a powerful Chili’s engine to drive growth, while tackling pockets of weakness and cost inflation head-on. Investors heard a story of robust same-store sales, rising guest satisfaction, disciplined menu innovation, and a clear capital deployment and reimage strategy, offset by ongoing challenges at Maggiano’s, higher commodities—especially beef—and storm-related disruption. With raised long-term guidance and an aggressive remodel and growth roadmap, Brinker positioned itself as a casual dining operator with both momentum and a credible plan to sustain it, a combination that will likely keep the stock squarely on the radar of growth- and value-focused investors alike.