Brinker International Inc (EAT) 2016 Q2 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Brinker International fiscal 2016 Q2 earnings call. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, Joe Taylor. Sir, the floor is yours.

Thank you, Paul; and first, my apologies for my voice. Luckily it is only me. Good morning, everyone and welcome to Brinker International's second-quarter fiscal 2016 earnings call.

Leading our call this morning will be Wyman Roberts, Chief Executive Officer and President of Chile's, and Tom Edwards, Chief Financial Officer. On the call today Wyman discuss the brands' operating results for the quarter and provide an overview of the strategic initiatives designed to differentiate and grow our business. Tom will then provide a detailed review of our quarterly numbers as well as update near-term initiatives being implemented to improve overall operating performance. Following Tom's comments we will open the call to your questions.

Before beginning our comments, please let me remind everyone of our Safe Harbor regarding forward-looking statements. During our call management may discuss certain items 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 risks and uncertainties, which could cause actual results to differ from those anticipated. Such risks 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.

With that I will turn the call over to Wyman.

Thank you, Joe, and good morning, everyone. Thanks for joining us on the call today.

As you saw in our press release this morning, Brinker reported earnings per share of $0.78, an increase of 9.9% over prior year. Comp sales were down 2.6% for the quarter at our Company-owned restaurants and up 0.9% at franchise restaurants.

These results were in line with expectations for the quarter. While our top-line performance is not yet where it needs to be, we did show sequential improvement throughout the quarter as we made progress across key areas of our business. And despite the top-line challenges during the quarter, our business model remains strong, primarily due to three major drivers: the significant progress we're making on mix, our strong commitment to cost management, and a favorable commodity market.

It is important to note we saw considerably more regional variability during the quarter then we've seen traditionally. Some parts of the country performed significantly better than others, though none as strong as we'd like.

Chili's is deeply penetrated in areas like Texas and Louisiana that are dealing with economic pressures linked to declining oil prices. These are historically strong markets that are currently in a down-cycle. The current downturn may force some competitors to leave these markets, but we believe it is a cycle and we'll be there for our guests when it rebounds.

Across the industry, promotion and discounting remains high. We've created a strategy we believe will be more sustainable in the long term, balancing value with quality, without compromising our guest experience or our business model.

For example, we rolled out Endless Enchiladas last quarter, which is the first time we've done a limited-time offer in quite a while. We created a more moderate value offering using an existing product with strong margins and high guest ratings to minimize operational complexity and deliver a great experience at great value; and we supported the effort with national as well as digital media. We remain committed to TV advertising and digital marketing even as we've grown our loyalty program to over 4.4 million members.

Chili's global business continues to grow. Currently operating in 31 countries and two territories, we generated broad-based comp sales growth and opened restaurants at industry-leading rates. We're on track to open 25 to 30 new restaurants this year with both existing and new partners, and we still see tremendous upside in our global business as we actively pursue new partners in countries that Chili's brand has yet to develop.

At Maggiano's, the brand had another great holiday season, with delivery being the star of the show. Banquets were as strong as ever, but the delivery business grew nearly 10% over prior year, a real solid holiday season for Maggiano's. Not where we'd like to be from a comp sales perspective for the quarter, but we ended the quarter on a nice trajectory.

As we look at the bigger picture of our business, we've achieved all the objectives set in our strategic Plan to Win. And going forward, we're committed to achieving long-term earnings per share growth of 10% to 15%. That's our primary objective, and we've developed a new strategic plan called Vision 2020 that builds even more aggressively on our plans to innovate across Chili's food, service, and atmosphere to differentiate our brand and take the market share to deliver that earnings growth target.

It starts with culinary and our focus on renovating the core products we're known for today to make them even better, like burgers, ribs, and fajitas. At the same time, we'll continue to innovate across our menu by introducing new products that strengthen our Fresh Tex, Fresh Mex positioning.

For example, we launch a new Sizzling Steak this week. It's the start of a whole new line of steaks that renovates our existing steak platform, adds innovative new products that strengthen our Fresh Tex position, and brings value to the consumer in a platform not usually known for value. As we map out 2016, the food innovation pipeline is full of exciting new dishes.

In terms of atmosphere, with our reimages nearly complete we're turning our attention to the bar. We know the biggest differentiator between casual dining and fast casual is the bar, and it's a great opportunity for Chili's to return to its roots as a fun, casual hangout with a fresh, modern twist.

So we're looking at every aspect of our bar business, from the design of our bars to the products we offer and how we deliver service. We believe it's a huge opportunity for us.

From a service perspective we are more committed than ever to delivering our passion of making people feel special. Our operations leaders and frontline team members measure their effectiveness through the tremendous amount of guest feedback we receive, and then create action plans to exceed our guests' expectations. Our internal guest satisfaction results continue to improve.

And with our foundational technology infrastructure in place, we are taking our digital guest experience to the next level. We recently joined forces with Olo, the leader in digital ordering, to implement a new online ordering system expand our current capabilities, gives our guests greater control of their experience, and opens up tremendous potential for the future of our to-go business, including a more robust delivery opportunity.

We're also taking loyalty program to the next level by partnering with Plenti, a coalition of major national brands like ExxonMobil, AT&T, and Macy's. The integration of the My Chili's Reward program into Plenti allows us to recalibrate the rewards program to drive greater incrementality and profits. It gives us access to the Plenti population that is a multiple times larger than our 4.4 million members; and, as the new partner representing casual dining, Chili's is an attractive option for the total Plenti membership to redeem points, creating a new source of sales-driving traffic.

We expect to launch both these platforms later this summer, so we're excited about what this year on the digital front will bring to our business.

So we're continuing to make progress across every aspect of our business. We still have work to do, but that's nothing new for this team. We believe in both our short- and long-term plans for our brands and our ability to grow the business and deliver the growth targets we've outlined.

With that, I'll turn the call over to Tom to walk you through more details of the second quarter.

Thanks, Wyman; and good morning, everyone. Today I'd like to provide more details on our sales performance, including highlights from each of our key comp sales drivers. I'll cover restaurant operating margins, overall cost management, and capital allocation, then I'll end with direction on our Q3 outlook.

As Wyman noted, our Q2 results were in line with our expectations heading into the quarter. We delivered second-quarter earnings per share before special items of $0.78, a 10% increase over prior year.

Second-quarter revenues were $789 million, an increase of 6.2% over prior year, driven primarily by the inclusion of the Pepper Dining acquisition. Excluding the acquisition, restaurant capacity increased approximately 0.9%.

Total Company-owned comp restaurant sales decreased 2.6%, driven by a 3.9% decline in traffic, partially offset by a 1.2% increase in price and a 0.1% improvement in the mix. Looking more specifically at Chili's, the brand's comp restaurant sales decreased 2.8%, driven by a 4% decline in traffic, partially offset by a 0.8% increase in price and a 0.4% improvement in mix.

There are several key areas we're focused on that are driving Chili's recent comp sales performance: sales mix, loyalty program incrementality and costs, and traffic impacts related to industry and regional trends. We are pleased with the progress we've made on sales mix; we are moving forward with changes to improve our loyalty program performance; and we are rolling out compelling new food and marketing initiatives to bring guests into our restaurants.

Now let me provide some detail on each area. Starting with mix, we are now delivering positive mix and did so throughout the quarter. Mix performance was broad-based across alcoholic beverages, desserts, and appetizers.

Our mix improvement is a result of a comprehensive set of actions that starts with our amazing servers and operations teams that are driving performance day in and day out at the restaurant level. They were supported by an effective contest that combine in-restaurant merchandising with promotions and innovations around appetizers and beverages. We also benefited by a holistic marketing approach, leveraging our loyalty and email databases to communicate our new items, compelling price points, and promotions.

Moving on to loyalty, we've identified the direction to take the program that we expect will reduce costs while improving incrementality. As we've noted, the redemption of loyalty points shows up in our financials as a reduction in comp sales, much the same as coupon expense. So when you look at our overall Chili's price increase of 0.8% this quarter, it includes 1.5% of menu pricing partially offset by approximately 70 basis points of higher expense primarily related to points redemption. Thus, reducing loyalty costs will help improve future comp sales performance.

We have already implemented the following three actions to improve the program. First, we have reduced the richness of the base loyalty program to reduce costs that were not driving incrementality with our heavy users. Second, we've improved incrementality with our lighter users by moving to more targeted and time-bound promotional activity. And finally, we have reactivated our email database to direct market to all 7 million members across both My Chili's Rewards and the email database.

We are seeing progress and expect to reduce loyalty costs in Q3 and Q4 ahead of the transition to Plenti points, which is expected to help support our comp sales improvement in the second half of fiscal 2016. Our new partnership with Plenti builds on our current direction of driving incremental visits while reducing costs and improving engagement with our guests.

Plenti is a highly relevant coalition-based loyalty program that offers leading brands across multiple categories that our consumers engage with regularly, delivering value beyond just dining out. Chili's will be Plenti's new partner representing the casual dining restaurant sector, providing a great redemption option for consumers to use their Plenti points earned with other partners.

Plenti dramatically extends Chili's potential reach, with access to a large and growing number of members many times greater than Chili's 7 million loyalty and email database size. My Chili's Rewards program remains in place. Taken together, we believe we are marrying the best benefits of My Chili's Rewards with Plenti to create a leading loyalty program in the dining space. We're in process of implementing Plenti and expect it to be live Q1 of 2017.

With mix positive, price continuing to pass through, and plans developed to reduce loyalty costs, Chili's biggest challenge this quarter was traffic, which was negative 4% in Q2. One of the drivers of Chili's lower Q2 traffic was slower industry performance than we expected or liked and some regional trends for our business; but a large part is controllable and centers on our innovation and our loyalty program.

With regard to innovation we're rolling out a new Sizzling Steak platform in Q3 that builds on a great equity and puts solid value on the plate. Longer term, we plan to deliver it with our continued strategies to innovate across food, service, and atmosphere as Wyman discussed.

From a regional perspective, performance in oil markets was a headwind in the quarter. We looked at restaurants in markets with meaningful exposure to the energy industry, which are located in Texas, Louisiana, and Oklahoma. They comprise about 17% of our system, and their comp sales were down 6.6% for the quarter. This was approximately 470 basis points below the rest of our system and also represents a 2.5 sequential decline from Q1.

Despite these trends we ultimately expect these markets to stabilize, lap, and improve. In the mean time we're taking actions to strengthen our business in these areas so we emerge an even stronger brand as the energy markets lap and recover.

We launched a new Happy Hour promotion in Texas in Q2 which is being supported with local marketing. We've seen good results from this program and are working on additional programs designed for these markets.

In contrast, two of our largest states, California and Florida, performed relatively well for the quarter, as did our more Midwest-focused franchisees, highlighting some of the regional variability we have been seeing.

Now let me turn to our second-quarter margin performance. Overall restaurant operating margin decreased 30 basis points to 16.1%, reflecting the mix impact of the lower-margin Pepper Dining acquisition. Excluding Pepper Dining, our restaurant operating margin was up 10 basis points, with 50 basis points of improvement in cost of sales and 20 basis points of improvement in restaurant expense, partially offset by a 60 basis point increase in restaurant labor.

The 60 basis point increase in restaurant labor was largely the result of de-leverage. Excluding the impact of de-leverage, which includes the negative comp sales impact from higher loyalty costs, labor would have been up around 20 basis points.

For the quarter we saw wage rate increases of approximately 2% and lapped some health benefits from prior year, partially offset by lower incentive bonus and productivity initiatives. The 50 basis point cost of sales improvement reflects 40 basis points of favorable menu pricing and 30 basis points of favorable commodity pricing, partially offset by 20 basis points of negative mix.

Commodity pricing primarily benefited from lower burger meat, seafood, and cheese costs, partially offset by higher poultry and steak costs when compared to prior year. Currently 95% of our commodities are contracted through the end of fiscal Q3, and 87% are contracted through the end of fiscal 2016.

The 20 basis point improvement in restaurant expense was mainly driven by a combination of lower expenses for advertising, operation supervision, and workers comp, partially offset by higher maintenance expenses and de-leverage.

Depreciation expense increased $3 million to $39 million in the second quarter. This reflects our past investment in key capital initiatives such as our reimage program and includes incremental depreciation from the Pepper Dining acquisition. In addition, general and administrative expenses were $32 million, a $750,000 decrease versus prior year, primarily due to lower incentive-based compensation partially offset by the loss of transition services income previously received from franchise Pepper Dining. This level of spending is in line with expectations and consistent with the guidance communicated in our last earnings call.

Now I'd like to review our capital allocation for the quarter. Capital expenditures for the quarter were $28.5 million.

During the quarter we repurchased 1.9 million shares for $89 million. Since the end of the second quarter we've purchased an additional 1 million shares for $48 million, leaving an outstanding authorization of about $430 million.

Turning to Q3 and fiscal 2016, I'd like to provide some additional color related to revenue and earnings expectations. First, we are reaffirming our earnings per diluted share guidance range of $3.55 to $3.65 for the current fiscal year. For the third quarter we expect comp sales trends to improve closer to flat and total revenue to increase 6.5% to 7.5%. We expect Q3 EPS to increase in the mid-single digits.

In closing, we believe in the plans we have in place to maintain our profitability as we work to regain sales and traffic momentum. We're building the right foundation for our business through partnerships like Olo and Plenti, and we're confident on our long-term plans for the Company.

With that I'll open up the line for your questions, after which Wyman will end the call with a few closing thoughts.

(Operator Instructions) John Glass.

Thanks. It's Morgan Stanley. First, I just wanted to go back to clarify the third-quarter earnings commentary. I think you said mid-single digit improvement in earnings per share on a slightly greater revenue increase, and comps are better sequentially than you experienced. So can you maybe just -- if I have that straight, can you just explain why that would be the case? What would increase in cost from third quarter versus second?

John, you're asking about the increase in the middle of the P&L? Is that the question?

I thought you indicated that third-quarter earnings per share would increase in the mid-single digit range. Is that correct?

That is correct.

Okay; and your revenues are going to grow faster than that and your earnings grew faster than that last quarter. So I'm just wondering why that's the case, that comps are better sequentially.

Yes. When you look at our operating restaurant margin we're lapping some favorability last year in areas like workers comp and health that were fairly significant. The key thing to point out though, it's favorability we've been seeing over the course of many quarters; it was just a little bit stronger in that quarter.

It's related to programs we have in place to reduce workers comp experience and changes in healthcare benefits that are -- on an ongoing basis we expect to continue to see favorability over time. So it's just a little bit of timing in those areas.

Okay. Then just one follow-up, please. You talked about the oil states being weaker, and I presume -- if you would just verify -- they in fact got sequentially weaker versus the first quarter. Is there any sense of stability there yet, or is that continuing to erode throughout this quarter?

And I've heard some of your competitors talking about maybe it's states like Texas, but not always just in the oil regions. For example, Dallas has been a weak market versus Houston, and that's not related to energy, but overbuilding.

Do you have any sense if it's broader than oil markets and maybe it's capacity expansion? Or do you really believe it's very contained to the oil markets?

I think there were three questions there. Just starting with the first one, oil states were -- and when I say oil states I'm talking a little bit more about oil markets; we were looking at very specific markets that were more impacted by the oil industry in several states. And within those markets, between Q1 and Q2 they were weaker by about 2.5%.

So quarter over quarter they did decline. But we did see some stability starting to come in, in the quarter of Q2, but don't want to really discuss where we're at in this quarter currently, as we don't really talk about intra-period results.

In terms of variability, I think Dallas is not in oil market. It's not a market we'd be looking at from an oil perspective. So any challenges in Dallas we would view as being driven by other factors.

Okay. Thank you.

David Palmer.

Hi; it's Eric Gonzalez in for David Palmer at RBC. We want to ask you about the expectation for improved trends in the second half. Would you mind sharing additional detail about your upcoming initiatives?

And then the sequential improvement that you talked about this quarter, was that in part driven by the Endless Enchilada promo? And then what was the margin impact to the enchilada promo?

Okay, Eric. So a couple things; I'll just start with your first question about what's going to drive the change in the sales trends in the back half. Really a couple of things.

First and the thing that we're really excited about here that starts this week -- actually it starts this week with advertising in the playoffs -- is the new steak platform, so our Sizzling Steak. That message is very compelling. It's going to be offered on 2 for $20, so it's got a great value proposition and the advertising is, I think, going to resonate.

So a stronger, more effective marketing campaign is really one of the key things that we're looking forward to as we move into the second half. The headwind and the effectiveness of the loyalty program becomes easier as we lap the introduction, which was late third quarter, into the fourth quarter, which had a higher cost structure and a bigger drag on sales, with what we've got working for us now with the loyalty program. So those are two major things that are working in our favor as we move back.

Then just the comp hurdle, if you will, that we had last year in the back half was significantly lower than the comp hurdle we've just jumped over. Very strong second quarter last year and a little bit less of a strong quarter in the third and fourth. So those are the three things.

With regard to the effect of enchiladas, again it's hard to break out any one thing in the overall mix, but we felt the promotion did well for us and contributed o some of the positive momentum we saw with regard to the sales trends going through the quarter. The margin impact, as I mentioned, was relatively minimal, because we took a menu item that was priced to deliver strong margins, bumped it up a little bit and made it unlimited; and so that kept operational complexity fairly minimal and didn't create any pressure along the labor cost or other aspects of the business and kept the cost of sales in line. So very little impact to our overall cost structure, as you can tell by our cost of sales.

Would you mind commenting on the margin impact of the steak promo?

We'll wait and see. We don't anticipate it being a huge giveback; but we'll see how the mix plays out. We are giving a really good value on that.

And it's not really a promotion. It's really the relaunch of a platform for us. But the value proposition is solid, but it's not going to do huge damage to our margins.

Thank you.

Stephen Anderson.

Yes, from Maxim Group. I remember toward the end of the quarter there was some inclement weather during the week between Christmas and New Year's. and certainly that is a big week for gift card redemptions. Wanted to see if you have any comments on any weather impacts that you saw in the quarter, particularly in some of the markets like Central and Southern US where we have a high exposure.

Sure, Stephen. It's Tom here. That weather was really in our Q3 as opposed to Q2, just based on when our fiscal quarter ends. So we look at weather, and as Wyman noted in Q3 there was a little bit more weather in the prior year overall, but we certainly -- there were some unfortunate weather events at the very beginning of our quarter. But we didn't see it and it was not of course embedded in the Q2 results just due to that timing.

All right. Thank you.

David Carlson.

David Carlson with KeyBanc. A couple quick questions. Wyman, you said I think at the top of your comments that you guys showed sequential improvement throughout the quarter. You particularly pointed out Maggiano's is exiting the quarter with a nice trajectory.

Is it safe to say that you also saw a sequential improvement monthly throughout the quarter at Chili's?

Correct.

Okay. Fair enough. Then, Tom, on the guidance, you guys are tracking ahead of things like depreciation, but below things like I think G&A, interest expense. CapEx is below plan at this point.

Any updates directionally on any of these components? And if not, can you please remind us of some of the G&A investments you have planned for the second half of the year that would cause you to see a, I think it was $3 million to $6 million increase for the full year?

Sure. We don't have any particular updates on any particular components; really just wanted to reiterate our full EPS guidance for the year. So if they're -- and our policy is, unless there are material changes in anything we will not update it.

But more specifically to your question about back half, we'll be making investments as we roll our platforms like Olo. We look at the loyalty platform, to integrate it with the Plenti points and to get that ready to roll out at the beginning of our next fiscal year.

We'll be investing in those areas. So those are a lot of the focuses that we're working on.

Thank you.

John Ivankoe.

Hi; thank you. The question is on debt and buyback, if I may. That's obviously been an important part of the story.

Especially with, I think, the 1 million additional shares bought since the end of the second quarter, how much noncommitted availability do you have on the current facility, which I think is $750 million, just as we think about buybacks in the future?

We have around a couple hundred million uncommitted on that facility. I think the broader point is, within our investment grade rating that we're comfortable where we're at on a leverage basis, so we're really using that as the guidepost.

There's not a limiting factor related to our debt capacity. That's not a constraint.

Okay; thank you. Just as you look at your fixed and floating components of the debt, is there any thought to lock up some of the floating part of your debt, albeit at a higher interest rate? Is that something in your consideration at this point?

John, we're always looking at and optimized -- both the capital structure as well as the interest rates. Right now we don't have any news to share on that. But looking at interest rates and certainly looking at the current interest rate environment I can see where the question comes from.

Also see days like today where interest rates start to come down again or yields start to come down again. So we're actively monitoring that, and we'll continue to do so.

One final one, if I may also, on the capital side. As you I guess begin to look at bar remodels for Chili's, do you have a decent enough sample size at this point that you know what the cost of those will be, what the potential benefit from a sales perspective that could be? And if there's any initial thinking in terms of fiscal 2017 CapEx, which may include some of those bar remodels.

Hey, John; Wyman. No, we aren't far enough along right now with the bar initiative to give you specifics. We obviously have an overall capital strategy that we're looking at.

One of the things that I would just put out there is that investments that we were going to make in certain aspects of the business may shift to a bar strategy if that's where we think we've got the chance to produce a better return. So I don't know if it would have to be totally incremental if there was an initiative that we were going to roll out there. We look at all of the capital we spend and we allocate it to where we think we get the highest yield.

Thank you.

Andrew Strelzik.

Thanks for taking the question. You mentioned your commitment to advertising, but this is the second quarter in a row where the advertising declined. So is there any efficiency or timing in there that you're seeing that's creating that?

Could you maybe talk about the different buckets of advertising where you're seeing the decline? And is traditional advertising maybe another lever that you might be able to pull going forward?

Hey, Andrew; Wyman. Yes, the amount of decrease in our advertising really in the first half has been fairly minimal. The weight levels are very consistent, and so not -- again, consistent with what we've been saying. We're a national TV advertiser; we understand the importance of being a national TV advertiser and leveraging that.

And as we look at the back half and we see opportunities to leverage our national scale and our ability to use network advertising to get the message out to power our sales, we'll do that when it makes sense.

Great. Thank you.

Karen Holthouse.

This is Karen Holthouse from Goldman Sachs. Moving to using Plenti as a partner from the rewards program seems like a pretty big change in a program that's only about a year old. If you could maybe walk through some of the particular benefits you see.

It's a larger user base. Are there other partners or other people Plenti is partnered with that have seen a substantial benefit versus an internally done rewards program? Does it help with the fight for screen space? Just helping us understand how you got from Point A to Point B.

Sure, Karen; it's Tom here. First, we're building on our current program, so My Chili's Rewards will continue to exist and we'll be using that as the base going forward. We'll be changing the rewards points that we provide to Plenti Rewards, so that we have access to a much greater both group of people, consumers, to talk to as well as partners in various industry verticals.

When we looked at it, we said this is a perfect fit for we're headed with our loyalty program. We want to reduce the cost of the base program -- and Plenti fits extremely well with that -- and improve the promotional and the direct marketing capabilities, which we're already on a path to do; Plenti allows us to do that even more.

So when we look at it, the sum is it's a great consumer value proposition. It offers a lot more to guests across a bigger platform.

It helps us manage our base. It helps us move in the direction we were headed on the promotional side. And it gives us access to a significantly large number of potential My Chili's Rewards members -- or if not members, Chili's guests who would get incent to come into the restaurant and visit with us.

So we feel it's a great fit and a great set of brands and a great organization to partner with.

Great. Thank you.

Joe Buckley.

Just a follow-up on Plenti. Is there a way -- how will you manage the costs of Plenti? Are there limits in terms of other partners' points being redeemed at Chili's? How are you sure this doesn't present a different set of cost issues?

Joe, it's really interesting, because normally if you were to issue a coupon and it was redeemed at your restaurant there's an expense related to that. Here we hope everyone would come in and redeem their Plenti points, because when they are redeemed actually it's a revenue source to us, because it's a third-party, the whole Plenti organization, and a coalition of companies that fund the points.

When they are redeemed in any establishment or for any purpose, it's a cash inflow. So for us that's a great situation as we anticipate that we'll be a net redeemer and use of points for consumers and our guests.

Okay. Are the points redeemable like My Chili's Rewards, for certain items or meals or whatever it may be depending on the number of points being redeemed?

Yes, they would be redeemable for any product that would be on our menu. As we get closer towards the launch of the program we'll provide a whole lot more details on the structure and how we see it rolling out.

Okay. But presumably then you exchange those points back to Plenti for cash?

Yes, that's exactly it. If someone redeemed 100 points, that value we would get back as a cash income.

Okay. Then just a clarification, when you're talking about the oil markets you said it was 17% of the system. I think last call we were talking about 30% of the Company restaurants. Are those both -- both those numbers accurate for the oil market exposure?

(multiple speakers) accurate but we just refined our focus this quarter. What we were referring to last quarter was oil states, and that does include markets that are not really impacted as much by oil. So we just refined the discussion to looking at specific market areas where restaurants and the whole area is more impacted by the oil and energy economy. So a little bit different basis, but the sequential numbers I gave you were on this consistent basis.

All right; got it. Then maybe one more and I have a follow-up. Just on the investment-grade rating, do you have a sense from the rating agencies how much more room you have on the debt to maintain the investment-grade rating, or your current rating?

Yes, we do understand exactly where we stand with all three agencies and where our metrics are, related to the ranges for a BBB- investment-grade credit. We're basically pretty comfortable with where we're at in that range.

Okay. Thank you.

Nicole Miller.

Thanks; good morning. Two quick things. When you look at the comps down 6.6% in Texas, Oklahoma, Louisiana, where did that go? Did that go to a casual dining [buy like] competitor that was discounting? Did that go to legacy QSR? Or did that go to people eating at home?

Hey, Nicole; Wyman. Again, a lot of it just stayed home. Again, these markets are under a little bit more economic pressure, so we don't think -- we don't have total visibility like we would on a national scale; but based on just anecdotal and what we're seeing in those markets the primary shift wasn't to a competitor. Because we also have visibility into the whole casual dining performance in these markets, and all casual diners were down.

So it really is a pullback from the consumer perspective just because of the impact that some of those bigger economic issues are having on the community.

Then as you execute the bar plan as a part of the 2020 plan, are you trying to make it an entertainment sports-like experience, or an adult-gathering experience?

Definitely not. If you're thinking of the traditional sports bar that's not where we would be heading. That's not core to Chili's equities.

But more of a gathering place, more of a place where people could connect, and again just bringing a little more energy and life to that. That's really back to the history of the brand and how it really got started.

Thanks. If I could sneak in, how did Maggiano's do in private dining, alcohol, and regional trends? Then I will hop off; thanks.

Well, Maggiano's had a great quarter towards the end. A great holiday season.

What was really encouraging about the Maggiano's business, -- and as you know Maggiano's is, because of their location in malls primarily, holiday season and their banquet space usage, it's a big part of their year. And they had a really strong holiday season.

Banquets were solid, and as I mentioned their delivery business was also really a bright spot, up double digits. So that was -- it was a great holiday season for Maggiano's and regionally, again, pretty much performed across the board very well.

Thank you.

Stephen Anderson.

Just another question on the Plenti program. You said that you would look to reduce the cost of the base My Chili's Rewards program. But are there any incremental costs for you to join the Plenti program?

Thanks, Stephen. There are some, but they are pretty nominal in the grand scheme of the program. There's a small participation fee and some normal, frankly, fees related to marketing that we'd be performing or paying anyway, just to other providers.

So it's really the cost of points we'd be issuing and then the benefit of the redemptions.

Okay. Thank you.

Jeffrey Bernstein.

Great; thank you very much. Two questions. One, Wyman, I'm wondering if you could just talk bigger-picture about the health of the brand. Obviously, the Company-operated stores have some regional pressures and what would seem to be, I guess, more loyalty rollout pressures relative to the franchisees.

I'm wondering whether that's the biggest driver of confidence that the brand hasn't deteriorated recently, is just that gap between the Company and the franchise. Or what other metrics can give you comfort that, again, the oil and the loyalty were the biggest drivers versus something other -- other driver?

Sure. Yes, Jeff; thanks. We track our brand, well, obviously internally with some of the best guest metrics in the industry, but also externally through syndicated but also through some proprietary tracking that we have out there and research that we do ourselves. And all of the data is coming back telling us that the brand is in as good a shape if not better than it's ever been, at least in the last five years.

So we continue to monitor, looking especially close at how our food scores and how our value proposition is holding up. The value proposition especially in these times.

And we're not just measuring ourselves; we're measuring the competitive set and some benchmark competitors that we think set the standard in some of these aspects of the business. So that is what is at the base of our thinking that the challenges we're faced with right now really are probably more on the more tactical aspect of the business and then dealing again with some of these regional things.

I think that when you compare, like you just did, to the franchise community, which has not rolled loyalty and has not got some of the regional headwinds that we've talked about, you get a pretty good sense for what the difference could be. Obviously, we see that in some of our own markets, as Tom mentioned, California, Florida. Now all of them need to close the gap to the industry and perform better, but the absolute difference is encouraging and really, I think, speaks to the strength of the brand.

Got it. Then the other question was just on the directional trend of the comp. I think last quarter you acknowledged or thought that the biggest driver of the weakness was more just the regional pressure on the Company-operated stores. One, just to clarify, I wasn't sure if you said something about whether or not -- I know it got worse in the second quarter -- but whether you were seeing any signs of stabilization.

And other than that, you mentioned in the release something about you're expecting improved sales during the remainder of the fiscal year. Has that trend continued this far into this quarter at least, the sequential trend that you saw improve for the fiscal second quarter?

We don't talk about intra-period results, so won't really talk about what the trends are so far in the third quarter. But what we have reiterated is as we think about what it's going to take to turn sales trends around in the back half, we've got those more compelling marketing message, less of a headwind with regard to loyalty -- actually some tailwind pushing us through -- and easier comps to lap over. So those are probably the three primary things.

We also think some of the regional opportunities are going to be less. That we've been dealing with them now for a while and some of those will start to lap.

Got you. Just to make sure I understood that, Tom, you mentioned the fiscal third-quarter earnings per share up mid single-digit. Seems like when you talk about the full-year guidance of up 15% to 18%, that's all off of the non-GAAP number, is that right? So presumably the third quarter you're talking about up mid single-digit off of the $0.94 in the third quarter last year.

It would be off of the adjusted EPS number, yes. That's correct.

Got it. Thank you.

Thank you. There are currently no more questions in the queue.

All right. Well, we want to thank you for taking time to be on the call with us today.

We've got some work ahead of us, but we have the utmost confidence in our brands. We've proven time and time again that these brands are powerful and that they can deliver the kind of results that we have in the past and that we're projecting to deliver in the future, specifically our new target with our Vision 2020 of 10% to 15% earnings per share growth through the next few years. So we're excited about [accounts] seeing those results for our shareholders and we also look forward to talking to you again on our next call in April. So, thank you very much.

Thank you, Paul and that is it. We'll talk to everybody on April 19. Thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.