Brinker International Inc (EAT) 2015 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Brinker International's second-quarter fiscal 2015 earnings release conference call. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Jill Cuthbertson. Madam, the floor is yours.

Thank you, Dave. Good morning, everyone, and welcome to Brinker International's second-quarter fiscal 2015 earnings call, which is also being broadcast live over the Internet. Before turning the call over, let me quickly remind you of our Safe Harbor regarding forward-looking statements.

During our management comments and in our responses to your questions, certain items may be discussed 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 risk and uncertainties, which could cause actual results to differ from those anticipated. Such risk and uncertainties include factors more completely described in this morning's press release and the Company's filings with the SEC.

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. Reconciliations are provided in the tables in the press release and on Brinker's website under the Financials section of the Investor tab.

Consistent with prior practice, we will be silent on inter-period sales or other key operating results yet to be reported as the data may not accurately reflect the final results of the quarter referenced.

On our call today, you will hear from Wyman Roberts, Chief Executive Officer and President, Brinker International, and Marie Perry, Interim CFO, Controller and Treasurer. Following their remarks, we will take your questions.

Now I will turn the call over to Wyman.

Thank you, Jill, and good morning, everyone. We appreciate you joining us on the call today. As you saw from our press release this morning, Brinker reported first-quarter earnings per share before special items of $0.71, representing a 20.3% increase over the same quarter last year. We delivered positive comp sales of 3.7%, primarily driven by a 2% lift in traffic before we adjust for the holiday shift. This shift allowed us to benefit from an extra day in the quarter, or about 110 basis points in sales and traffic, since Christmas moved into the third quarter this year. As a reminder, we'll give this good guy back next quarter.

Nonetheless, another solid quarter behind us. We are optimistic about continuing our positive momentum, as we've seen our traffic-driving strategies take hold and produce results.

First, let's talk about Chili's results for the quarter and the progress we've made on our strategic initiatives. Chili's delivered positive comp sales of 4%, with positive traffic of 2.1%. And even as we've seen the industry strengthen over the last couple of quarters, Chili's has continued to significantly outperform our peers, as measured by KnappTrack and Black Box. We're now in our fourth consecutive year of outperforming the industry.

Key to our continued success is creating a more competitive and differentiated brand. We are on a journey to evolve Chili's food, service and atmosphere to a relevant experience that we call New School by executing on five strategic pillars.

First, we are implementing a long-term culinary vision that capitalizes on the brand's heritage and aligns with the wants and needs of New School consumers.

Second, we're leveraging technology to engage consumers and enable them to make their own choice about how they want to connect with the brand.

Third, we're raising the bar on our service by creating more experiences that make our guests feel special.

Fourth, we are communicating with consumers outside our restaurants in a more relevant and compelling way so that they realize this is a fresh, contemporary New-School Chili's.

And our fifth and final pillar, leveraging our scale to generate additional revenue streams like retail and gaming revenue to enhance and strengthen our business model.

These five strategies are delivering solid results from both a top- and bottom-line perspective.

First, let's look at culinary. As you know, earlier in the quarter we introduced our new Craft Burger category, and we are pleased with the results. We've seen burger preference increase 60%, and guest satisfaction has risen significantly with the improvements to this foundational category.

Looking longer term, our culinary vision is comprised of two core platforms: Fresh Mex and Fresh Tex, which lean into our heritage as a brand and convey a distinct point of view that is authentically Chili's. We rolled out Fresh Mex last year with items like mix-and-match fajitas, Fresh Mex bowls, enchiladas and tableside guacamole.

Fresh Tex takes the legacy of the brand and puts a fresh twist on it. Chili's was born in Texas, and there is a unique culinary heritage that comes along with that: big, bold, smoky flavors, with proteins taking center stage -- things like ribs, steaks and burgers. Two weeks ago, we introduced Fresh Tex, with a new menu featuring ribs with Texas flavors like Dr Pepper and a local craft beer called Rahr. We also introduced some really bold sides like smoked potato wedges, grilled asparagus and skillet jalapeno cornbread. The culinary pipeline is full of innovative Fresh Mex and Fresh Tex offerings as we continue our journey towards a New School Chili's.

So let's turn our attention to technology now. During the quarter, our domestic franchise partners completed the rollout of our tabletop technology from Ziosk. Now every table in every Chili's restaurant across the country features a tabletop device. Going forward, we are taking this technology to the next level by integrating our loyalty program with the device.

We've been working for almost two years to build the infrastructure that will engage consumers and enable them to cultivate their own connections with us, without needing a server or manager to intervene for them. The data we are able to mine from this system allows us to create tailored experiences that make our guests feel special and to generate incremental visits that build sales and traffic.

Yet, even as we offer our guests ways of becoming more independent and self-sufficient in their dining experience, we also have a strong belief that the most powerful tool we have to make our guests feel special is our team members. At the end of the day, nothing will take the place of how another human being can connect with and take care of you. That will always differentiate us from QSR and fast-casual brands.

And our team believes in our vision for Chili's. We continue to achieve best-in-class team-member engagement and turnover numbers, which gives us permission to raise the bar on the caliber of talent in our restaurants and ensure every team member shares our passion for making people feel special.

So all of this work, all of this strategy and effort to create New School experiences in our food, service and atmosphere is really only as effective as our marketing's ability is to convert consumers who currently don't even consider Chili's, based on past experiences. The operations team has done a remarkable job changing the experiences inside our restaurants. And now we're working on telling our story to consumers outside the restaurant. So that's why we're sharing the story that things are different at Chili's today.

You've seen this in the most recent advertising campaign, Fresh Is Happening Now; our commitment to changing consumers' mindsets around the brand, which is a much more effective and sustainable strategy for us than leaning into a promotional or discounting strategy to drive traffic.

Our fifth and final strategic pillar is leveraging the scale of the Chili's brand to generate additional revenue streams that enhance and strengthen our business model. It's because of the tabletop gaming revenue and retail revenue that you are seeing our Other revenue line on the P&L growing at double-digit rates.

Just before the beginning of the fiscal year, we introduced our retail line with 30 SKUs at Walmart and other retailers, and it's paying off. To date, our retail products are featured in more than 13,000 stores across the US.

We feel really good about the Chili's performance domestically, as well as the future of the brand. We have the best operations team in the business, working together to execute our strategy, and the continued innovations coming out of our restaurant support center team are second to none, all of which are helping us become a more relevant and differentiated brand.

On the international front, our strategy to draft off the success of the US is definitely at play. For example, now one-third of the international restaurants have rolled out Kitchen of the Future, and so they are able to benefit from the culinary innovation using this new equipment.

But as you can imagine, we are facing some challenging headwinds internationally. Many of the international economies are experiencing greater volatility than we are here in the US. It's a tougher global environment than we've seen recently, and we're experiencing more challenges from a sales perspective.

But we are confident about the future of the international franchise system. Our partners are embracing our sales-driving strategies and our business model, and they are putting new, more relevant marketing plans in place to support those efforts.

Turning to Maggiano's, the team delivered a very strong quarter, with positive comp sales of 2.3% and positive traffic of 1.6%, marking our 20th consecutive quarter of comp-store sales growth. During the holiday season, we set new records for our delivery business and for banquet sales, breaking the previous highs set back in 2008, prerecession.

We also introduced a new simplified menu that eliminated low-selling items, as well as unique ingredients, which helped the team improve both operational execution and cost of sales, further strengthening our business model. And from a development perspective, five of the smaller, more efficient restaurants are now open and delivering on our profit expectations.

We'll open more Maggiano's next year, and we're optimistic about the long-term growth potential of the Maggiano's brand.

Finally, let's touch on our capital strategy, which is a significant portion of the Brinker earnings growth story. We remain committed to our strategy to invest in the business, manage our debt levels, keep some cash on hand, and return the remaining cash to shareholders through dividends and share repurchase.

Our dividend payout increased 17% year over year, and this quarter we bought back 1.1 million shares for about $60 million. And over the last five years, we've returned $1.6 billion to our shareholders, significantly outpacing our competition.

So in summary, another solid quarter for Brinker. We feel great about the work being done across the brands. And now I'll turn the call over to Marie to walk you through the details of the financials.

Thanks, Wyman. As you just heard, our second-quarter earnings per share before special items was $0.71, representing 20.3% increase over the same quarter last year. Second-quarter revenues were $743 million, an increase of 5.3% over prior year.

Overall, comp sales increased over prior year by 3.7%, with 2% coming from traffic, 1.5% from price, and 0.2% from improvement in mix. These results included 110 basis points of benefit due to the movement of Christmas out of the second quarter into the third quarter this year. And capacity was up 0.8% from new Company-owned restaurant development.

Franchise and other revenue were $25.1 million, an increase of $3.9 million over prior year, driven by the impact of tabletop gaming, royalties from our new Chili's retail food products, and an increase in franchise revenue, stemming primarily from an increase in US franchise comp restaurant sales of 4.9%, coupled with a net 25 franchise openings in the past 12 months. These favorable factors were slightly offset by a decrease in international franchise comp restaurant sales of 0.5%.

After four years of positive comp sales, we are experiencing negative impact of the economic volatility within our global markets. But as Wyman mentioned, our partners are working hard to mitigate these challenging headwinds.

Cost of sales improved 10 basis points from prior year to 27%, driven by 50 basis points of menu price impact and 30 basis points of favorable mix associated with menu changes and lower oil usage related to new fryers, partially offset by 70 basis points of unfavorable commodity pricing stemming from greater-than-anticipated increase in the price of burger meat, cheese and avocados, which are market based and noncontracted, as well as higher salmon costs.

Currently 67% of commodities are contracted through the end of fiscal 2015. With continued commodity pressure and the impact of the promotional mix, we face a tough third-quarter cost-of-sales lap over prior year, before improving in the fourth quarter.

Restaurant labor decreased 40 basis points to 31.7%, largely resulting from leverage on higher sales and an adjustment to lower employee health insurance expense associated with recent claims experience, partially offset by an increase in restaurant manager compensation and the impact of minimum wage increases.

Restaurant expense was $178.9 million or 10 basis points lower than prior year, mainly as a result of leverage on higher sales, partially offset by tabletop device rental and credit card fees and higher preopening costs from our new restaurants.

Depreciation expense increased $2.5 million to $36.1 million, consistent with our recent spend and ongoing investments in key capital initiatives, partially offset by an increase in fully depreciated assets.

General and administrative expense were $32.7 million, an increase of $2.3 million versus prior year, driven primarily by higher performance-based compensation expense.

Other games and charges for the second quarter included $5.8 million to adjust our settlement estimate made at the end of fiscal 2014 related to the home bond litigation. We received court approval and expect to fund settlement in February.

The tax rate before special charges was 30.7% versus 31.3% in the prior year, driven by an increase in FICA tip credit, partially offset by increased earnings.

Capital expenditures for the quarter were $39.3 million, and year-to-date cash flow from operation at $162.5 million.

To date, our Chili's reimage program is about 95% complete, and we are still on track to reimage the rest of the Company-owned Chili's systems by the end of the fiscal year.

During the quarter, we bought back 1.1 million shares for $59.5 million. We ended the quarter with $78.4 million of available cash on the balance sheet. Since the end of the second quarter, we repurchased another 600,000 shares for $36.2 million, leaving an outstanding authorization of about $518 million.

With that, I'll turn the call back over to Wyman to share final comments before we open up the line.

Thanks, Marie. So it's a competitive environment out there, but we believe with the work our teams are doing to evolve and grow our nearly 40-year-old flagship brand both domestically and internationally, along with the growth potential from Maggiano's, we've built a strong business with a bright future. We are confident we'll continue to take share and reach our target of a $4 EPS by fiscal 2017.

And with that, we'll open the line up for questions.

Operator:

(Operator Instructions) Jeffrey Bernstein.

From Barclays. Two questions. First, just on the fiscal 2015 guidance, I know your practice is not to update the annual unless it's meaningfully different from where it was. But looks like your comps, at least at Chili's, are now running north of 3%, relative to your 1% to 2% guide. I'm just wondering why, perhaps, not increase that, whether it's just because of the difficult -- more difficult compares or the Christmas shift working against you. Just wondering what's in the back half. And I guess the same thing applies to earnings, where you're -- I think you're guided 11% to 16%, but you're running a very high teens in the first half. So, just wondering, second-half versus first-half comparison, and then I had one follow-up.

Hey Jeff, this is Marie. In terms of guidance, you are -- your statement was correct. We adjust guidance when there is a material difference. And so when you look at even just our EPS, the 11% to 16%, or the $3 to $3.15, when we were kind of projecting out, we feel comfortable with that guidance to date.

Got it. And then just as a follow-up in terms of the comp trends, I know you don't give much color in terms of sequential trends. I'm wondering, any color you can provide in terms of directionally how it went through the quarter, whether things accelerated and what you would give credit to, if anything, in terms of gas prices and the favorable weather compares upcoming, whether there's any way to quantify or provide any kind of directional color on what those might be helping? Thanks.

Hey, Jeff. Wyman. Yes, I don't think we want to get back into the month-to-month thing, just because of all the challenges that creates, and we spend more time trying to -- reconciling small differences. But just in general, we do think there is some better news out there, right? So there's lower gas prices, there's better consumer confidence, and there's more jobs. And the industry has seen some better results in the last couple of quarters, and we think that's played a role in that. So, some better -- so maybe even tailwinds with that or less headwinds than we've seen in the past.

That said, disposable income is a key. And income levels for much of the country are still below where they peaked prior to the recession. So it's still going to be a tough road ahead, we think, but not as bad as it's been the last few years. But at the end of the day, we think it's about winners and losers and the position of the brands. We see it kind of playing out in fast casual that way fairly clearly.

And then just what I will tell you about -- we are optimistic, I guess, to give you some color, is just that we feel good about where we are at and the progress we're making and our plans for the future. So that's about all we will give in terms of just specific color about the business.

Did you mention anything about regionality? I know people are talking about Texas, maybe, with the fall in oil prices, or anything?

Yes, there's a lot of -- there seems to be a lot of concern about that. I mean, the way we look at it is I'm sure there's going to be some negative impact with these lower oil prices in what I would consider some of these boom towns that just showed up with the big increase in the energy boom. But in most of the cities where we operate, especially in Texas, where we're very familiar, energy is a driver, but it's not the driver of this state. So many other things going on in Texas.

So we didn't ride the boom up significantly, and we don't expect it to have a large negative impact, as it kind of slows down here a little bit. So we don't anticipate it having a big impact on us regionally.

Great, thank you.

Sara Senatore.

Thanks, I'm with Bernstein. I just wanted to ask a quick question about the margin and just to understand a little bit how we should think about some of these leverage points, because, obviously, very good comps, and I'm just trying to understand. So should we expect, if comps stay like this, that incentive comp or management comp will sort of offset some of the upside?

And then in terms of the restaurant expenses, is this a question of just lapping the tabletop tablets in the sense of this is now the second quarter with a very good comp, but no real leverage on that line item? So should we look forward to kind of easier compares ahead and getting back to a point where you can lever that? Thanks.

I'll start off with your last question first, and I'm kind of on restaurant expense. And so, yes, as sales continued, we continue to drive sales. We will leverage that, and we did provide the insight about the device rental in restaurant expense. So, our overall guidance of 25 to 50 basis points of restaurant-level operating margin, kind of that restaurant expense line plays slightly into that.

And then we provided additional color on cost of sales, which does have volatility within the quarter, but again, within the fourth quarter, expecting favorabilities related to both commodity and promotional mix.

Right, yes, I understand. So I'm really asking about the line items that should lever -- not cost of goods; I understand the volatility there. But to the extent that devices are in there, is that something that will, lap or is that just something that keeps going up with the revenues from the devices?

So restaurant expense will lever as sales increase.

Okay, thank you.

John Glass.

Thanks very much. Marie, maybe just following up on first on that question, at what point in the year this year do you fully lap? Because I think it was a phase-in as the tabletop devices got put in last year, right? So is it this quarter or the third quarter where you're going to, year on year, that equalizes and you get more leverage, or is it more like the fourth quarter?

It's more toward the fourth quarter. The IT team, ops team, did a phenomenal job of getting them in. We did have some in the third quarter, but the majority of the rollout occurred in the fourth quarter.

And the expense, therefore, year on year should be relatively constant, therefore, going forward after you sort of just lap that? That I guess was the last question, was just when do you get normalized margin leverage again on that line, ex that item?

Right, after the fourth quarter.

Okay. And then just you mentioned there was going to be a tough food cost lap in the third quarter, and there was -- how much of that was in your initial plan versus how much is that new? And how much is that driven by commodities? You cited a few in the release and in your comments. And how much is it -- you said there was a promotional mix? I don't know -- was that the new menu? Is there some cost to rolling out the new menu, or does it have an unfavorable margin, for example?

So two components to your point. I mean, on the promotional mix, last year, if you recall, third quarter we launched Fresh Mex. That has favorability to cost of sales. And then as it relates to commodity pressures, we've mentioned this on many occasions. Just with the market-based uncontracted items, we did see some pressures that were unexpected.

But as we kind of look at the main drivers for commodity beef, as we mentioned, in the second quarter, had a significant impact, and we do not expect favorability in beef prices, specifically hamburger meat, for some time. And I'm sure that's kind of a consistent message.

Cheese, we did have pressure in the second quarter, as much driven by kind of our own internal contracts. But as the market improves, we will see improvement in that going forward. And then the overall market, like the produce basket, if you recall last year, produce is really when you started seeing some hits to produce. And so we'll lap the increase in produce fourth quarter with this fourth quarter.

So just summing all that up, would you say you are still within the full-year view of where your food cost was going to end up at the beginning of the year? Are you still within that same thought? Or did you have to increase your food inflation view, and therefore that's one of the reasons why better comps don't necessarily get you better, higher earnings?

Hey, John, Wyman. No, we absolutely were surprised by some commodity costs, as I think everyone in the industry was, primarily in the first half. So going into the summer, where the beef market was and where the dairy market -- where the beef market hit and where the dairy market went to really surprised everybody, right?

So we have seen some mitigation in those things. And as they roll through, those lower prices start to roll through, we will see some better results. But those have been headwinds to our forecast through the first half. And again, so the results we're delivering, which we're happy with, have been in spite of some tougher commodity prices than we had anticipated.

They start to become less of an issue especially as we get into the fourth quarter, as Marie said. So we are optimistic by fourth quarter we will be much more aligned with what we thought going in. And so the potential there is to get commodity prices and cost of sales closer to where we had anticipated going into the year.

Okay. Thank you very much.

Jeff Farmer.

Great, thank you, and Wells Fargo. As the core Chili's customer grows more confident with his or her personal financial situation, given everything that's going on out there, gas prices, etc., how has that historically played out in your restaurants? And I guess what I mean by that is shifts or increased weeknight business, lunch traffic, increased appetizer or alcohol mix -- anything like that, any color would be appreciated.

Hey Jeff, Wyman. You know, it's a very interesting kind of dynamic that we are looking at today, and it's unique, right? So we've never seen gas prices drop to the level they've dropped as quickly, right? So historically, though, I can just tell you this. Historically, the key driver and the variable that's most highly correlated to driving business in the restaurant space has been jobs. And so -- jobs and disposable income. And so we're actually more focused on the jobs story and then the disposable or the household income that comes along with that.

And so we're seeing a better jobs story, still not the household income story we'd like in terms of prerecession levels, but those are more favorable. So we would anticipate those would translate into some bigger demand for restaurant visitation.

The gas thing is really -- we're learning as we go. Obviously, we don't think it can be a negative. It's going to have some influence. But what we are seeing out there, and several people have this belief that the consumer is allocating. You know, they are not taking on more debt even as they find themselves in a better mindset. So this cash is getting put into their pocket and they're making decisions on purchases and allocating around.

So it's what we saw in the car industry late last year, where double-digit growth in car sales. That could be where a lot of consumers have decided to put some of that extra cash, is in a higher car payment. So that would not give us as much optimism that it would translate into the restaurant business. But, overall, we believe that more cash in their pockets will translate; we just can't tell you exactly how right now.

And then, just a quick follow-up. You touched on it, but just a little bit more detail on the impact a stronger US dollar could have on the income statement.

We don't have -- from an FX standpoint or the impact we are exposed to with dollar strengthening is not a significant issue for us.

Okay, thank you.

David Palmer. (Operator Instructions)

Thanks. RBC. Hey, Wyman, you've noted that Chili's will not be the first to have a loyalty program, and I think you know that some programs out there have boosted sales and others have not.

Why do you think that Chili's loyalty program will be more incremental than perhaps the competition? Is it the leveraging of the Ziosk, your national TV advertising weight that you'll throw behind it? Any thoughts would be helpful.

Hey, David. Well, without giving away too much, I'll just say we've spent years kind of thinking about and investing in an infrastructure that allows us to put together what I think is a loyalty program that's different from others.

And obviously, with the investment we've made and the commitment we've made to tabletop devices and our ability to use that as a way to engage consumers, we think that separates us, really, from everybody at this point in time. And one of the major stumbling blocks with loyalty is just getting consumers to engage with it and just understand the value of it.

And if you're counting on team members, 50,000 of them, to carry that message and to consistently execute against that, there is high variability in that. And bringing it through a technological solution eliminates a lot of that. And so, we're confident some of the challenges that loyalty has just with getting engagement, we'll overcome with technology.

And then with the data that we have about our guests, we are able to more customize the offer, if you will, to compel them to come back. And so that's how we are going to focus on making it compelling, to drive incremental visits and frequency. And then we're also making sure that it's not -- that there are some timeframes involved that force frequency. You're just not going to be able to use the loyalty program on your standard kind of operating mode. You're going to have to get the benefit out of it. You're going to have to engage with the brand at a higher level.

And just a quick follow-up. Just looking at your Company store base, your Company restaurant base, coming into these two quarters, both the fiscal second quarter and the third quarter, do you think the weather comparisons were roughly equal -- equally easy, so to speak? In other words, do you feel like the setup from a weather comparison standpoint is going to be roughly the same heading into this next fiscal quarter?

We probably have more upside in the third. There was -- again, this is speaking to you as much of the country is digging out of a pretty tough storm right now, so you never want to bet on weather. But last year was pretty rough. So we think we have probably more upside to weather in the third quarter than we saw in the second.

Thank you.

Greg Badishkanian.

Great. Thanks. Greg from Citigroup. So you have a lot of, I think, really nice initiatives to drive sales. In order to maintain the gap to Knapp, is there one or two that you think are really going to be critical for that over the next few quarters?

Hey, Greg. I think the culinary vision that we talked about and then the loyalty program, which will roll out in the fourth quarter, are big initiatives for us. And we're excited about the potential they have to drive traffic. But really, we also just -- there's a lot of upside in the service initiative that I mentioned. So all five of those pillars are key to our continuing to take share and grow the business at Chili's.

Great. And also with Ziosk, was there anything that was surprising now that you have some time under your belt, either on the positive or the negative side that really kind of stands out to you?

Well, again, it's not a -- proprietary things; I don't want to share too much. I will just tell you, as with all technology, there's a learning curve, and then there's the opportunity to then leverage that technology in ways you never even thought about before you got it in your house and you started to understand it better. So, we are continuing to just evolve our level of engagement with our consumers through that technology and incorporate it into other technologies that we've brought to bear.

So, yes, without getting specific, yes, there's been a lot of learning that's happened over the last year or more, because we've really had it in restaurants -- at Chili's now, we're going on three years that we've had some exposure to this technology. But over the last year, we've really got much more targeted around how do we leverage it and how do we bring it to life.

And I would say we are just starting. The last year has been really about getting it in restaurant and making sure that the infrastructure is there to support it. And then going forward now, we're going to really maximize our efforts to leverage it to drive traffic.

Great, thank you.

(Operator Instructions) Chris O'Cull.

KeyBanc. Can you help with expectations for how quickly the loyalty program would affect traffic and check? Have you gotten a read yet on the signups and the rate of redemptions in some of the test markets?

Sure. Yes, I think our expectation is when we roll it that it rolls fairly quickly. We get to leverage a fairly extensive email database that we have built over the last four years. And I'd venture to say we have one of the bigger direct marketing databases out there through the emails that our guests have shared with us.

So we'll get to -- so we're not going to start from square one with regard to recruitment. We have literally thousands of names per restaurant that have already had a relationship with us. And now we'll just take it to this next level.

So we know we get to start from -- so we ramp up fairly quickly in terms of just scale. And then the system's in place, and it's testing very well. So we think it's going to be -- we'll see results in the first quarter -- late fourth quarter, but really as we start next fiscal year, it'll be a driver.

Is the intent to try to get folks back within a certain period of time? And is there dates or expiration dates on the incentives to do that?

Yes.

Okay. And then one other question. G&A spend is trending below the full-year guidance. Should we expect that expense to pick up in the third and fourth quarters? Or are you all not spending as much as you had expected on some of these initiatives?

Hello, Chris. In terms of G&A expenses, as we guided, really that increase is twofold. One is kind of just to kind of trail profit-sharing, and then the other one was the IT initiatives that were going to drive revenue. So those are to still occur in the back half of the year.

Okay, great. Thanks, guys.

Thanks, Chris.

John Ivankoe.

Hi, thank you, with JPMorgan. Yes, let me ask about the COGS question in a slightly different way. Marie, I think you were very clear that COGS would be up versus the third quarter of 2014. Were you alluding maybe to something relative to the second quarter of 2015? In other words, might that 27% in the second quarter of 2015 carry forward to the third quarter of 2015, if I can ask that specifically?

Wait, say that again, John. I'm sorry.

I apologize. So, cost of goods sold, at least what I'm looking at, as a percentage of Company sales is 27% in the second quarter of 2015. In the third quarter of 2014, it was 26.4%.

So, I think you were very clear that COGS would be up relative to the third quarter of 2014. But have you looked at it sequentially relative to the second quarter of 2015 in terms of what it might be in the third quarter of 2015? I'm sorry for all those numbers. It probably sounds crazy on the phone. (laughter)

It is a combination, John, of getting the -- so the baseline is what you just mentioned, right, what we finished the second quarter in?

27%.

Right. And historically, we see some better cost of sales numbers as we move through. And so we'll see some, but probably not to the magnitude we saw last year in the third quarter, because we are still dealing with some of these higher costs with dairy that haven't kind of gotten themselves rolled all the way through, which will kind of work their way through the system more in the fourth quarter.

And then we had last year's rollout of Fresh Mex, which had a bigger impact quarter to quarter -- you're looking at it sequentially -- than what we've got going on right now, which is going to be more consistent.

Okay, that's very clear, thank you. And then secondly, and just to Chris's previous question, your G&A dollars was actually basically flat in the first half of 2015 relative to the first half of 2014. So could you kind of quantify in dollars what you think it's going to be up in the second half of 2015 versus 2014? Because it does look like there's a pretty big change from the first half to the second half, if your guidance holds true.

No, and that is what we are anticipating. And so when we guided, the expectation was that the costs were going to be probably a little bit more spread. But it is back-end loaded. And so we have not changed our guidance for G&A either.

Okay, and I heard the reasons you gave Chris earlier, so thank you for that. And then the final quick one: Do you expect any change in franchise international development? And is there at least the risk of some closures in terms of what you were talking about from an international perspective, or are the economics of that still a long ways away?

Yes, no. I think, again, a 0.5% negative sales -- so it's not dramatic. Again, some markets are experiencing some tougher headwinds than others, but that's not uncommon with the international marketplace, right?

We've been in -- we are in the Middle East, and over the last few years we've seen some pretty volatile swings in the business. And they tend to recover. And they tend to be a little more resilient and understanding of that. And so it's just kind of much more the nature of the business in some of these markets that you are going to see some of the swings. They don't necessarily generate closures.

We're actually seeing our opening schedule continue to play out as we had planned. And we're opening quite a few new international restaurants this year.

And just since I'm on it, if it's appropriate, the early read on fiscal 2016 COGS, if you're kind of getting a sense in terms of where some of the bigger pieces are falling together, and also if you have it, maybe an update on fiscal 2016 CapEx?

It's probably too early, John, right now. So we're optimistic about our plans, but we are not that optimistic to kind of like lay out a guidance number or give you too much guidance right now.

And on that CapEx, Wyman, we've talked a lot about if you had other initiatives that might come in to allow that -- the number should be more than $100 million; it would be more than $100 million. Have you identified projects like that, or do you think $100 million or under $100 million is still the right number for 2016?

In that ballpark. We haven't changed our guidance kind of moving out. So, again, if we come up with a big idea that's going to require some capital, we'd obviously give you some warning on that.

Joe Buckley.

Bank of America-Merrill Lynch. Thank you. Just a question on the Ziosks. You know, coming off ICR and watching the Ziosk presentation down there again, they talk a big story on the check increase. And while your check is up, it's nothing -- it's actually up pretty modestly on the mix side. So I guess I'm curious if you could talk a little bit about that.

And then if you are comfortable, maybe talk about how Ziosk is affecting the income statement. If you could give dollar amounts, that would be helpful. Are you still seeing the game revenues offset the expense, would be one specific question?

Hey, Joe. We've been very consistent in our message. And so, again, from our perspective, how we use Ziosk and how we see it, it's got some positive check impact, but it's not the big driver. It's not about a big efficiency play for us at this point anyway. And it really is about the revenue that we get from the gaming experience, which really drives better interaction with our guests and a better guest experience. That revenue does offset the cost, so it's a positive investment for us from that standpoint. And then just the opportunity we have to leverage the technology to better connect with guests through some of the initiatives we've shared.

That's why we are excited about tabletop. But it is -- it can be leveraged by different brands and different businesses in different ways, I guess. That's really how we are focused on it.

Are you expanding the ways the customer can use it? Can the customer do their full order on the Ziosk? Are you testing that at all?

We're not testing that at this time.

Okay, thank you.

Steve Anderson.

Miller Tabak. You mentioned on the international front some of the volatility that's going on in the Middle East. But I'd like to get your color also on some of your other markets, like in Latin America, where you have been growing as well. Thank you.

Yes, so again, we don't want to get too specific. We're in 30-something markets, so we could spend a lot of time. But our Latin America markets and Mexico are doing fine. We mentioned last call that Puerto Rico, which is an important market for us, with what's going on in the Puerto Rican economy, it's been a softer market. It's really been a standout market for us over the years. We kind of own that market. And they're just wrestling with some pretty tough economic headwinds. And so that one has softened a bit this year. But overall, everything else is in pretty good shape.

Great, thank you.

Andrew Strelzik.

Thank you. BMO Capital Markets. Just wanted to ask you a question on the innovation. Based on some of the data we've seen recently, Fresh Mex continues to be very incremental in terms of driving traffic. But it doesn't look like the burgers have been nearly as incremental. So I'm wondering, number one, is that consistent with what you're seeing?

And number two, are you finding it more difficult to drive that incremental traffic and really differentiate outside of Fresh Mex, where some of your competitors can compete more effectively?

Andrew, actually, we feel the opposite is true. Well, not the opposite on the first question. We agree with you that we thought Fresh Mex has done a nice job allowing us to continue to take market share and drive traffic.

You've seen our results in the second quarter, when we were talking about burgers, so we don't see any evidence that the burger message isn't a compelling message for Chili's. And again, we are not focused on a promotional strategy. So, we are less inclined to get too worked up over whether or not the six- or nine-week or five-week promotion popped the business.

We are working off a fundamental and a foundational strategy to say this is what is core with Chili's and this is what differentiates the brand. And Chili's got a lot of power in the brand's core. So what we stand for with the Mexican profile, what we stand for with regard to Fresh Tex and the ability to create a category that has very compelling product in it, as well as flavor profiles that are really unique and differentiated by us.

So when you think about who has the ability to sell this product, there aren't a lot of folks that can. So they may have more of a desire and more of a flexible promotional strategy, where they can go in and out, but we own a couple of categories that are very compelling to consumers and perfectly aligned with the brand.

Great, thanks for taking the question.

We'll take the last question today from Joshua Long.

Great, thank you. Piper Jaffray. My question was on the Chili's at Home line of products. And I want to see if you might be able to recap how many SKUs there are now and throughout how many doors. And then thinking longer term, is there an opportunity at some point to leverage the Fresh Mex and Fresh Tex kind of monikers into that line of products, or should we expect to see those remain relatively separate to kind of protect those core distribution points, being the restaurant separately from the CPG aisle?

Yes, Josh, and I think that's a great point. So, first, so there are 30 SKUs out there today in over 13,000 stores around the country.

That said, our focus with retail has been not to replicate what we do in the restaurant in the retail space, but to leverage the heritage of the Chili's what we call flavor DNA and the profile of Chili's in products that make sense in retail for consumers. And so we're not replicating the menu that we have in our restaurants in our retail freezer case. We're really replicating the flavor profiles in items that consumers are looking for at home. And that's resonating very well.

And we think there are more opportunities. And our partners are very excited about the results they've gotten so far and about the innovation that they are working on to continue to build this platform for them and us.

Great, thanks so much.

Thank you very much, ladies and gentlemen. I would like to now turn the floor back to your host, Jill.

Thank you for joining us on the call today, and thanks for your continued interest in Brinker. We look forward to speaking to you again in April, when we report our third-quarter results. Thanks.

Thank you very much ladies, and gentlemen. This concludes today's presentation. You may disconnect your lines, and have a wonderful day. Thank you for your participation.