Brinker International Inc (EAT) 2023 Q3 法說會逐字稿

Good day, and welcome to the Brinker International Q3 F '23 Earnings Call. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, Mika Ware, Vice President of Finance and Investor Relations. Ma'am, the floor is yours.

Thank you, Holly, and good morning, everyone, and thank you for participating on today's call. Joining me today on the call are Kevin Hochman, our Chief Executive Officer and President; and Joe Taylor, our Chief Financial Officer.

Results for the quarter were released earlier this morning and are available on our website at brinker.com. As usual, Kevin and Joe will first make prepared comments related to our strategic initiatives and operating performance. Then, we will open the call for your questions.

Before beginning our comments, I would like to 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.

And of course, 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.

And with that said, I will turn the call over to Kevin.

Thanks, Mika, and good morning, everyone. Thank you for joining us as we share insights into our third quarter results and the continued progress we're making on our strategy.

In the third quarter, we continued to improve our operational, financial and guest metrics. In the last month of the quarter, we turned on our first national advertising campaign in over 3 years that both significantly narrowed our traffic gap versus the industry as well as accelerated market share growth versus the industry.

Operationally, we continue to make improvements through ongoing simplification as well as reinvesting into our labor model. And the key guest metrics we look at to understand whether these changes are working, intend to return food grade, server attentiveness and guests experiencing a problem, have all made significant improvements. This is good progress toward our longer-term vision of improved sustainable performance through a better guest experience.

We've also made some improvements in driving traffic. The past 6 months of promotional and merchandising strategy shifts have funded the start of return to national advertising. As a result, we're seeing incremental improvements in traffic trends versus the industry as well as margin improvement from the reduction of discounting and promotionally comping food.

And while we know -- we all know we have lots more work ahead of us, the progress we are seeing so far is very encouraging that we're on the right track. In addition to the progress in these key financial metrics, we are also encouraged by the positive momentum we are seeing with our restaurant teams.

We're wrapping up a season of town halls with Chili operators all over the country, and I thought it would be helpful to share with you what we did and what we're hearing from the teams in the field.

At these meetings, our executive leadership team and company officers spend time introducing managers to our Chili's North Star and are hosting listening sessions with our restaurant team leaders. Our senior officers asked about how the past year of changes have improved the efficiency of our restaurant operations and what else we can do to continue to make it easier, more fun and rewarding for their teams to better serve our guests.

We're hearing some very encouraging stories. Our heart-of-house team members are consistently telling us the job is easier than it was 1 year ago. We're also hearing appreciation for listening to our operators' ideas and quickly enacting them.

They are seeing their ideas show up in restaurant. They are seeing the improvements, and they are excited about being more in control of their future and more control of their results. I've had several managers seek me out at these town halls to let me know they feel heard, they see the change and they now intend to stay with Chili's because they believe in the direction of the brand.

This culture shift is translating to improvements in our managerial turnover levels, which are now lower than pre-pandemic, back to being better than the industry and continuing to trend in the right direction. Hourly team member turnover is also turning in the right direction now, too.

The progress we're seeing today lets us know that our strategy is working. We believe that the hard work and investments we're making to improve the team member and the guest experience will ultimately deliver higher traffic and guest frequency over time.

As I mentioned last quarter, we're also working to optimize our labor model to further improve the guest and team member experience. In December, we layered in some investments that have been well received by both team members and guests, like additional cook hours and a quality assurance role, to make sure that the food is hot, fresh and the orders are right.

While we still have work to do, especially in the front of the house, these changes have delivered significant improvements in guest and team member scores.

In addition to the progress on guest experience, I know everyone is eager to hear about the results of our first TV advertising since the pandemic started more than 3 years ago. We launched a new campaign at the end of February and continued that campaign through all of March.

The strategy for advertising was simple. With more and more guests looking for great value given the macroenvironment, we believe we could drive traffic through hard-hitting food spots that showcased our leadership value. We [hero'ed] our Chili's 3 for Me Oldtimer with cheese $10.99 meal, which includes nearly a 0.5 pound premium cheeseburger with all the fixings, endless chips and salsa and a bottomless soft drink.

We believe that offers superior value, not just in full-service restaurants, but also versus fast casual and fast food. The abundance and quality of that meal is unbeatable, but it had been a while since we told customers about it. During the campaign, we aired as with high-impact spots for high visibility, Prime Time TV, March Madness and the major streaming sites like Hulu and Paramount Plus.

Basically, if you watch the screen, it would be hard to miss us, and the results are very encouraging. Our data show the campaigns have more frequency with existing guests as well as brought some last guests back in the Chili's. This drove a significant narrowing of the traffic gap and a significant acceleration in Chili's market share growth versus casual dining. And that market share acceleration has continued throughout April.

Our team members love the ad too, and we often heard from guests that the food we are serving looks just like the commercial. We're executing better than we have in a long time, delivering abundant value with high quality at sharp price points. That's going to win with guests every time.

It's also important to note that we made significant changes to our in-restaurant merchandising strategy versus the last time we ran national TV ads with the objective of minimizing trade down, and those results are encouraging as well. While we did grow the $10.99 3 for Me mix, we also drove trade-up in the $13.99 and $15.99 value bundles.

Said in simpler terms, we got more traffic than we had banked on, and we got less trade down than we had budgeted for, which means more sales and more profits from being on TV versus when we used to advertise. Again, very good progress. Based on those results, we plan to leverage this model going forward and next fiscal year, I expect more regular burst of national advertising to accelerate traffic growth.

But TV advertising isn't the only tool we have to drive traffic. We know that most -- our most powerful traffic-driving tools have to work together to supplement our national ad windows. For us, that's an effective CRM program and digital advertising that drives frequency through targeted relevant messaging.

We need more out of our CRM program to accelerate progress that during the quarter. I made structural changes to consolidate our marketing team. Now our social media, digital and national marketing teams are all working together to drive traffic and frequency under the leadership of Chief Marketing Officer, George Felix. We'll have more to share about George and the team's initial thinking on CRM and direct marketing channels at our Investor Day next month.

Now, I'd like to spend a few minutes on our food and drink pillar progress. One of the main reasons we're so committed to ongoing simplification of our operations and menu is so we can reinvest our energy and our resources into what we call Core 4, the products that differentiate Chili's in the market, burgers, fajitas, chicken crispers and margaritas. We know that we execute these products with excellence every time. Nobody can do them better than Chili's. Every quarter, we plan to share the progress we're making on our Core 4 segments.

On margaritas during the third quarter, we soft-rolled the Sangria Swirl Margarita on our bar happy hour menu and it's performed well enough to now earn a spot on the Margarita lab with our new menu drop at the end of this month. We also introduced a premium Hennessy Margarita that quickly became a top seller, earning the #5 spot in March, and from a food standpoint, the third quarter was our first full quarter after eliminating the lower mixing original tempura batter from our crisper menu.

If you recall, we've historically had 2 breading recipes for our chicken tenders: the Original Crisper, which is a tempura batter; and our Crispy Crisper, which outsells the tempura batter 4 to 1. We eliminated the tempura batter in October to free up operational capacity as we prepare for our relaunch with our updated crisper menu in May.

While there were concerns we might lose business from eliminating the tempura crisper, I'm pleased to share the opposite has happened. Crisper mix is now 3% higher versus when we had 2 different types of breading, which would suggest eliminating the Original Crisper has been a [non-event]. Simplifying down, the one crisper batter enables moving to a bulk breading procedure in preparation to the launch of our new menu later this month.

And that new menu will heavily feature crispers with additional sauces, a new Mac and Cheese and new merchandising with 4, 5 and 6 count crisper platters, which in test drove significant dollars in profit. We're excited to have you taste this product in-person for those of you that are here, for Investor Day next month.

Fewer SKUs, less to train and maintain more business, and we're now set up to relaunch this important menu category. Again, we're seeing continued progress. The key takeaway for all of you is that while we're continuing to have lots to do, our strategy is working. I'm excited to see our metrics moving in the right direction. I'm excited there's a lot more upside to continue getting after for the long-term growth of the business.

We're looking forward to hosting many of you next month at our Investor Day, at our restaurant support center here in Dallas, where the leadership team will give you a deeper dive into how we're accelerating improvements to the guest experience, our plans to drive traffic and trial and updates on how we expect that will impact the business over time.

Now, I'll hand the call over to Joe, who will walk you through the numbers. Go ahead, Joe.

Thank you, Kevin, and good morning to everyone joining us. The results reported in this morning's press release represent another step in the right direction for Brinker and better define our ability to implement the strategies and initiatives we have previously reviewed. The results reflect the impact of our ongoing attempt to -- intent to move away from aggressive promotion, our ability to more appropriately price and provide premium trade-up opportunities in order to create a powerful price mix support for overall sales growth.

It also marks the beginning of much needed investment back into our restaurant operations to meaningfully improve our guest experience, as well as our initial foray back into our broad-based marketing campaign to generate trial into the restaurants and improve brand awareness and relevancy over time.

More specifically, for the third quarter of fiscal 2023, Brinker reported total revenues of $1.83 billion with consolidated comp sales of positive 10.8%. Our adjusted diluted EPS for the quarter was $1.23, up 34% from last year. Both brands reported meaningful top line sales growth with Chili's coming in at a positive 9.6% for the quarter, driven by price of 9.8% and positive mix of 5.6%, a powerful combination that significantly outweighs the lost traffic from discontinued promotional activity and reduced reliance on our virtual brands.

As part of simplifying our restaurant operations and in recognition of less demand for virtual brands in the post-COVID environment, we are systematically phasing out the Maggiano's, Italian classics brand, a process we will complete by fiscal year end. In the third quarter, this removal negatively impacted year-over-year traffic by approximately 60 basis points.

On the positive side of traffic, Chili's dining room traffic was positive year-over-year throughout the quarter. An important trend is guests return to our most profitable channel. This also represents a good opportunity to drive top line growth through effective menu strategy, additional check add-ons and an improved guest experience. Maggiano's also reported a solid quarter, with comp sales up 21.6%, driven by the positive trifecta of price of 8.3%, mix of 3.8% and traffic of 9.5%.

Now turning to margins. Improvement is evident in the middle of our P&L with our consolidated restaurant operating margin growing in the quarter, both sequentially from the second quarter and importantly, year-over-year. Third quarter consolidated operating margin was 13.4% versus 13.1% 1 year ago.

Our food and beverage expense was favorable, 100 basis points as compared to last year's third quarter, our largest favorable impact to restaurant margin, driven by higher price and favorable menu mix, offset by higher commodity costs. We experienced approximately 9% commodity inflation led by year-over-year increases in poultry, beef and produce. Labor expense as a percent of company sales was favorable 30 basis points compared to prior year.

Top line growth offset wage rate inflation of approximately 5%. One thing to note, the additional hours we invested into the Chili's labor model to improve both our guest and team member experiences, impacted our overall labor expense by approximately 65 basis points for the quarter. The incremental hours are making a difference. Our new labor model, combined with operational simplification efforts are helping improve turnover in both the manager and hourly ranks and supporting guest metrics in the dining room now exceeding pre-pandemic levels.

Restaurant expense in the quarter was unfavorable year-over-year by 100 basis points due to our return to broad-based advertising and incremental repair and maintenance investment. Inflation was also impactful as costs were up across a number of restaurant expense lines, such as utilities, credit card fees, property tax and rent.

Overall, the inflationary environment, particularly in food and beverage, has and should continue to improve as we move forward through the remainder of our fiscal year. That being said, it still remains present in the system and will create a level of expense we need to cover with our ongoing price mix construct.

From a cash flow perspective, the quarter saw a return to a more normalized level of cash generation. Consolidated operating cash flow totaled $133 million and EBITDA totaled $113 million, bringing our year-to-date totals to $201 million of operating cash flow and $231 million of EBITDA.

Our capital expenditures as of the end of the third quarter totaled $137 million. Overall capital spend is proceeding at a somewhat higher pace as we are taking advantage of improved supply chains to close the gap on outstanding equipment needs and increasing our investment in necessary restaurant level improvements. We expect our full year CapEx spend to reach the high-end of our previously guided range, which is $180 million.

Another important component of our capital spend is new restaurant development which continues to be a bright spot for the Chili's brand. We opened 3 new Chili's this past quarter, all opening very strongly with sales above our brand average weekly sales.

During this fourth quarter, our plan is to open an additional 6 to 7 Chili's, which will bring us to 14 new restaurant openings for the fiscal year. The response to our new locations is great to see, and is a clear testament to the relevancy and drawing power of our iconic brand. As to our previously provided annual financial guidance, we are affirming all aspects as we head into our final quarter.

In close, our third quarter was successful from not just a financial perspective, but also enabled us to move forward in strengthening our business to provide sustained growth for the future. I am confident we are investing in the right things to improve the guest and team member experience over time to earn improved pricing and mix power to help drive top line results and establish a dining experience will allow meaningful development for both our brands in the years ahead.

While this morning provides a snapshot of how that is coming together, we look forward to a more fulsome discussion around our strategic initiatives next month during our Investor Day.

And with my comments now complete, I will turn the call back over to Holly, to moderate questions.

(Operator Instructions) Your first question for today is coming from David Palmer at Evercore ISI.

A question on the labor front, how much were labor hours up in Chili's restaurants year-over-year?

David, I think what we gave you was impacted about 65 basis points within that labor line item. So I don't have the number of specific hours in front of me, but it was about a 65 basis points impact.

I guess -- well, shifting gears. I'm wondering, is your price -- outpaces perhaps wage inflation and food inflation? If it does, particularly, I think, on food that seems likely, how will you think about your reinvestment? What's that list look like? What's your best reinvestment going forward, whether that be in the marketing side or perhaps some more on the labor hours front?

Yes. So this is kind of the prioritization of how we're thinking about it. And then, I'll defer to Joe, if he wants to provide any more context on actual numbers. So number one, we are very focused on R&M and accelerating some improvements there based on the deferred maintenance we had over the last 3 years during COVID, and so incremental investments are going into there.

Number 2 was labor. Although I don't anticipate us having to spend a whole lot more in labor based on some of the changes that we made in Q1, so those investments are in, but now they just have to flow through for a full year.

And then thirdly is -- advertising is a big one, right, where we did our first foray into -- getting back into national TV advertising in March. Incredible success, we are very excited about it. We plan to do it more often next year, and that will be baked into our fiscal year '24 plan. So, that's the way we're thinking about the order of prioritization of investments.

Your next question is coming from John Ivankoe at JPMorgan.

The question is on, how you guys are kind of doing with the generation -- even thinking about the promotion -- advertised promotion of a $10.99 Oldtimer burger and some other products, is that resonating with a younger consumer? Obviously, much of the younger consumer has been trained to get some high-quality products at QSR and fast casual.

I mean, really in the 3 segments that you're in, Mexican, burgers, chicken crispers, do you kind of feel that you have an opportunity to really break through and drive share with that younger segment? And really, is it a price decision? Is it a quality decision? Is it a variety decision? How do you think we can best generate resonance, with the customer base that presumably you want to grow for yourself?

I think what you're seeing -- and you've seen it, it's not just in the last few years, but probably a trend in the last 5 to 10 years is that, customers are really willing to pay for high-quality products, right? And you get what you pay for. And what you get at Chili's on the core items is an incredible value, right? So it's almost 0.5 pound burger, and I'd encourage you to go try it yourself. It is -- I think it's unbeatable in all of the different restaurant categories.

But you also get great fries. You get endless chips and also that are freshly fried and the sauces made daily in the morning and a bottomless drink. And I mean that is a very, very high quality and abundant meal and I think that's why we saw significant market share acceleration when we turn that advertising on in late February, throughout March. And then even throughout April when we turned off the advertising, we saw repeat guests coming in for that offer.

If you talk to our team members and what they were experiencing when we put the advertising on, were either guests that they hadn't seen in a while, or new guests. And the comment that they got frequently was like, wow, the food that you're serving me actually looks like the food in the advertising. And so they're having an amazing experience.

And I think some of these investments that we're making in labor and then simplifying the heart-of-house to make sure that we have a consistent experience every time, I think you're starting to see that pay back. And we are seeing a pretty significant acceleration in market share both in March and throughout April.

Yes. And John, I would just add in that, again, we're playing in the right spaces. So when you look at across any demographic, our major core equities are where folks are dining. And so that gives you the breadth of the opportunity. I think it also speaks to the need and our move towards a broader-based marketing campaign that can touch demographics differently as to how they absorb media.

So whether or not it's a very effective on air campaign, which we saw in the March, April time frame or the ability to do very, very relevant social aspects or hit people from a digital streaming standpoint, that broad-based campaign that George and his team are putting together is designed to not only speak to the things that people want to be spoken to about, but also hit them in the spaces which -- where they're consuming those different media channels. So, I think those go very well together.

Yes. I mean, an example of that is on the original ad that we launched in social only. We had 15 million views on TikTok. So, I mean it's clearly resonating with people of all ages. But at the end of the day are we growing market share? Are we driving sales? Are we driving traffic? The answer is yes.

Your next question for today is coming from Chris O'Cull at Stifel.

Kevin, many restaurant companies are planning to take less pricing or they said they're not going to take any additional pricing later this year. I know Chili started raising menu prices later in the cycle than many of its competitors. So just curious how this shapes your thinking about additional price increases or even maybe the need to be more promotional to address some of the traffic challenges?

Yes. So let me share you our thinking on that right now. And then -- I don't know Joe has anything to add. Feel free to, Joe. So we did get ahead of the pricing, and I think that was a good move. I think that's allowed us to put some needed investments back in the business. We've also protected core price points like $10.99 that John just asked about. So we definitely have a barbell strategy for that customer that only has a certain amount of money to be able to come into our restaurants. They're able to enjoy that, but we've also taken some pricing just based on missing a whole lot of pricing over the last 3 years.

I would say going forward, I think we're looking at it very closely. Most of the pricing that we have that we can see is based on innovation right now. So for example, we have a whole new crispers lineup that's coming out later this month with the new menu drop. You'll be able to get it into a 4, 5, 6 count. We have a bunch of new sauces that are coming in the restaurant. We're upgrading our side from corn on the cob to a premium Mac and Cheese. So we feel like those are things that the guest is going to be willing to pay a whole lot more for and we're not really taking much pricing even within that initiative.

So the key thing is that we continue to move the needle on value and that we're showing up as value leaders in the market. And so far, when you look at the market share data, when you look at the improvements in traffic and then if you look at some of the plain guest metrics like value ratings and having food grade scores, these are all headed in the right direction, which would tell us the moves that we're making on the barbell strategy and our pricing strategy have worked.

Yes. And Chris, I would just add in that as we kind of move forward from this point, we'll start to definitely moderate the incremental amount of pricing that flows through our new menus. And there'll be -- we'll have a fairly systematic process of when new menus come 2 to 3 times a year. I expect those -- the incremental pricing as we move into that, to come down pretty much in lower single-digit range. We'll definitely moderate that.

I think we'll also get to be a little more surgical now in how we think about price and really look at different components on the menu and making sure that we're understanding where those areas lie that have some more pricing optionality around them. So yes, we'll carry a higher level of price than maybe some other folks as we kind of move through the rest of this fiscal year into the earlier part of next fiscal year as we kind of lapped through those moves from last year, but the incremental price, which I think is the -- more important to the consumer will definitely start to moderate as we move through F '24.

And then, Joe, I know the company has been deemphasizing the virtual brands. I was just wondering if you could quantify maybe what the impact has been on comp sales from more of a focus on the core business?

Yes. The -- I would put it in total, Chris, between 1% and 2% on the traffic side of the equation. Specifically, the mix side of the equation was 60 within the quarter, you'll see that grow a little bit as you get towards the end of that removal in the next quarter. But again, focusing the promotional activity, in particular around the Chili's side of the equation has more than offset that trade for where we were promoting before.

Yes. Like it's important to note, like -- for example, like the Chili's average ticket is a little over $40. You take Maggiano's, a time classic that we're essentially discontinuing by the end of June, that's $28. And then if you look at the margins, like there's no comparison. So as we think about shifting our marketing dollars and our focus from things like MIC over to Chili's, you're going to see also margin help in addition to sales help just because it's a bigger brand. It's a lot more profitable.

Your next question for today is coming from Andrew Strelzik at BMO.

My first one is around your comments on labor. You said -- I guess my understanding was that there was going to be a second round of labor investments at some point that you were testing. And I think in the answer to one of the previous questions you said you thought that you were kind of done there. Is that a change? Are you not expecting to make that? Or are those different types of labor investments?

I think what Kevin was referring to is we started the labor investments really in this last quarter. So they'll be new on a quarterly basis as you go through the next couple of quarters. So I think we're pretty fulsome. We'll continue to look at labor and there could be possible treats. But I think the major investments, Andrew, are in the system and that we'll just annualize them as we kind of go forward.

And then my other question is on -- with all the progress that you're seeing on the labor side in terms of your metrics and the improvements in the performance, can you just talk about labor? It sounded like last time -- last quarter you were in a much better place from a manager perspective and wanted to see some progress on hourly. So just anything you can share with respect to that would be great.

Hourly turnover has continued to improve. It's still not all the way to bright to where we want it to be versus pre-pandemic. So we're continuing to work on that. Part of that is the -- simplifying the restaurant is helping. There's other challenges that we've got to work through as we add more labor, does that impact server earnings and things like that. So I wouldn't say we're all the way to bright on where we want to be on hourly turnover, although it's continuing to trend in the right direction.

From a guest metric and how is that labor performing, if you look at it versus Q2 and if you look at it versus 1 year ago, all of the key metrics that we look at have dramatically improved food grade, intensive return, server attentive and guests experiencing a problem. And that's encouraging. So it's not just versus 1 year ago, it's also versus quarterly. And so that just tells you you're headed significantly in the right direction.

In Q3, as you know it's usually a high traffic time for us, so typically, that would be a headwind to a lot of those metrics and we just haven't seen it. So it's very clear there's -- like there's some sea change that's going on in terms of the culture inside the restaurant and the improvement levels from a guest experience standpoint, and I think over time, that's going to be a nice tailwind for our business.

Your next question for today is coming from Dennis Geiger at UBS.

Thanks for the color on a lot of the traffic drivers and the share improvement commentary. Wondering if you could share a little bit more on sort of what you view, Kevin, as the most impactful of the drivers over the coming quarters as it relates to traffic, recognizing a lot of these things work in tandem? But just kind of how you're thinking about it? And maybe a quick reminder on the timing of some of the benefits flowing through? And I know you've seen a lot of the benefits already. But as we just think about the operational stuff, the menu, the marketing, anything more that's kind of on the comments here, if you could just kind of give a quick refresh on that?

So look, there's 2 ways to think about the traffic driving. One is like acute traffic drivers that like, we make an intervention with dollars and we see the business move. And so, that's exactly what we saw when we introduced the new campaign, right? So the week that we started the advertising, I think we started in digital. We saw some movement. And then we put the TV on and we saw a significant movement, right? And that continued even beyond the 4 weeks of TV advertising. So after the TV was over, we continue to see that traffic gap versus the industry be where we want it to be, right?

So when you put that kind of money into the market, we expect to see significant movement in both traffic and sales than we did, right? And so, the way to think about that for next fiscal is -- so that was -- we had one slug of a Media Campaign. Right now, we're planning between 3 and 4 next year. The exact timing I can't share with you, because it's competitive, right? But we'll give you more -- if you're here for Investor Day, we'll give you more details on how we're thinking about each of those bursts. And how do we think about the traffic driving of those things. And what do we expect to get out of those?

Secondly, you've got -- and so things like TV -- when we fix the CRM program and make it more focused on profitable traffic driving, that will also be acute traffic drivers, maybe not to the extent of TV, just because the dollars aren't as much, right? But those are things you put in place and you would expect to see immediate traffic growth behind that, right?

Over time -- things like food grade, intent to return, server attentiveness, guests experiencing a problem, over time, those things should also be a tailwind. It's very hard to pinpoint, hey, on this week, we saw x% growth because of the experience improvement.

You just see over time both the TV shots that you put in, you typically would see a higher lift from those. And then, you would see the long tail -- after you turn off the TV, you keep more of that volume, right? So, you have more trial and then you have more repeat because the guests when they came in, had a better experience.

That's very hard to give you guys an estimate on how we think about how this experience directly correlates to the amount of traffic. But I think everybody in the industry knows the better you experience it, long-term brand building and the long-term traffic driving you're going to get from that. So I know that's kind of fresh betting, because it's hard to put that in the model. But I think everybody in the industry knows that's true and those are the things that we need to work on for the long-term growth of the business.

And just one more. I know you talked about sort of seeing increased frequency in some instances and some new customers coming in as it related to some of the platforms. Anything else to share sort of on what you're seeing from your customer behavior? Anything with lower income -- I don't know if you mentioned that -- lower income customers' or sort of trade out of the brand versus trade into? any additional commentary on that, particularly given all the changes that you've made to the brand?

Yes. We haven't seen any change -- like we had mentioned in previous quarters, and it's been going on for a while now, probably almost over 1 year where some of that low-end customer had fallen off. It started with the guest prices in Q4 of last year, so, call it, May and June. We haven't really seen them come back. So it's kind of -- been the same kind of trend that we've seen for 1 year on the low-end guest.

We are seeing what you guys are seeing in the industry, right? So there was certainly in March, and it really started around when the banking news came out. We saw the industry pullback. We didn't see that in our numbers because we were growing share pretty significantly. So, just like I said, March felt really good. That share growth continued throughout April.

And so, while we are seeing the industry numbers that we're seeing, we didn't see that same pullback, but part of that is because I think the advertising really helps us grow share and then the experience helped us keep some of those share gains even after the TV came off. So that's the best I can tell you. We haven't seen a market change in the customer other than we're seeing the industry change, but we haven't seen it in our numbers yet.

Your next question for today is coming from Jon Tower at Citi.

This is Karen Holthouse on for Jon Tower. Just digging a little bit more into some of the off-premise stuff. Could you -- maybe I missed this in the prepared comments, but just what the overall off-premise mix for the quarter was? And then virtual brands are going to play a role, but just qualitatively maybe how to think about the delivery versus order ahead and pickup channels and if any sort of macro weakness might be impacting the delivery channel?

So Karen, the off-premise for Chili's was around 29% and off-premise for Maggiano's was 25%, so both hanging in there pretty steady. And the breakout is still about 50-50 between delivery and to-go.

And then, one -- sorry for maybe beating a dead horse here on some of the labor changes. At this point, do you think you're where you -- it was mentioned in the prepared comments about maybe needing some more investments at front of house. So could you maybe talk about where you've kind of gotten to in terms of tables per server and where you -- if you think that's where it needs to be? And is the idea that, that might still grind lower, but just because of tip wages, there's really not that many dollars attached to it?

Yes. I think the way to think about it is there are -- we are going to be making some changes, but they're going to be self-funded changes, right? So when we look at the simplification that we're doing is getting up hours to reinvest back into the business, but I don't anticipate us needing to put additional dollars at this point in the labor model. I do think there are some changes that we need to make to the front of the house to get it -- to get the improvements as strong as we've seen in the heart-of-house.

So if you go into the restaurants, you can feel a palpable difference in the kitchens, right? It's just easier to run. And we think we're seeing in our food grade scores. Our speed scores are better. Pretty much everything in the restaurant is better based on the heart-of-house improvements. We've seen some improvements in the front of house, but it hasn't been all the way to bright. So for example, server attentiveness is much better, and that's leading to better -- the lower guests having a problem, which is the key metric that we look at every day in and day out, right?

But when you actually talk to the restaurant teams, in the front of the house, it doesn't feel as easier like it does in the heart-of-house. So I'm just being really candid and transparent with you guys about what we're working on. But I don't anticipate the need to actually put more dollars into the front of house. It's going to be about shuffling roles and making sure people are clear on responsibilities.

Your next question for today is coming from Brian Vaccaro at Raymond James.

I wanted to circle back on Chili's traffic performance, and I know you said it improved through the quarter, but just so we're on the same page, would you be willing to provide some quantification here, either Chili's monthly traffic reflected in the down 5.8% for the quarter or the magnitude of the improvement you've seen relative to the industry in recent months?

Well, I can share that relative versus the industry, I think that's pretty consistent with what's out there. So, in January, we were a little over 7 points versus the industry. In February, it was 6 and then in March, it was 2. And then we've seen continued improvement in April. So a pretty dramatic shift in the gap versus the industry trend on traffic.

And then if you think about the pricing and mix improvements that we've made in the business, you can imagine what market share has been doing. So especially in March and April, we've just seen very, very significant improvements behind the advertising campaign.

Yes. And Brian, those were the traffic -- the negative traffic gaps to the industry that Kevin just walked through.

And is that versus Blackbox you're comparing to?

Yes. I'm sharing Blackbox numbers, yes.

On margins, Joe, last quarter, you provided some helpful guideposts as it relates to some of the store margin dynamics that were embedded in your second half guide. I was wondering if you could run us through a couple of the key dynamics in Q4, perhaps kind of what level of commodity inflation you expect? Do you still expect around 100 bps of pressure on other OpEx? And much move in either direction on labor?

Yes. I think what you -- what I would expect to see as we kind of moved through this quarter, Brian, is continued improvement relative as a percent of company sales on the food and beverage side of the equation. Our expectation is you'll probably have a commodity inflation rate down in the lower single-digit range, kind of, let's say, that 3% to 5% range. The continued improvement there, that will have a positive impact on the margin as it relates to food and beverage.

And then frankly, the other 2 categories, my expectation is they probably are fairly stable as you may get a tweak here and there 10, 20 basis points, but I expect them to be fairly stable relative to their performance in this quarter as a percent of company sales. So there's some good guideposts for you.

And then, Kevin, I wanted to just ask you on the value platforms and several quarters ago now, maybe even 1 year, we were talking about those value platforms may be constituting -- I think it was 37% of sales, if you were to include 3 for Me e-mails and perhaps some other offers. But where has that percentage declined to in recent months? And I'm curious on 3 for Me specifically, what type of mix are you currently seeing between the $10.99 and higher tiers?

So it's a great question. And so last quarter -- so if you recall, last quarter, we talked about it being about 30% from 37% when I first started. This quarter, we're sub-30, we're in the mid-29s. So you'd say, okay, is that continued improvement. It is given -- we went on air with obviously a promotional value in March and with heavy TV and digital. As far as the mix within the tiers, so we were at 1/3 $10.99, 2/3 the $13.99 and $15.99 tier.

That's changed a little bit just based on the TV advertising that we did. So I think we went from 33% to about 38% at the $10.99 tier, so not that significant. And then the balance, which is 62% is in the higher $13.99 and $15.99 tiers. And that's a really encouraging thing because we have a very different merchandising strategy this time around with TV advertising than we had when we last advertised , which is we don't plaster all of the great values everywhere in the restaurant.

You can certainly find them if you come in after seeing the ad -- you can certainly find the $10.99 deal is very clear on the menu. But we're not putting it on all of the windows and all the table tents and shouting [from the rafters] because we want folks that were going to come into buy a fajita or anything full price to be able to get that, but those that came in for the deal to make sure that you're able to find it, right, but not just put it in front of them.

So that's really yielded a much better profitable result from the advertising, and it's really exceeded our expectations, not just from top line but also the bottom line.

Your next question is coming from Chris Carril at RBC Capital Markets.

So Kevin, you touched on it, I think, briefly in your prepared remarks, but could you explain maybe a bit more on what you're seeing in your bar business? I know that's been a focus area for you. But curious as to what you're seeing in terms of mix that you're getting from that part of the business? And maybe to what extent any change there has aided margin?

Yes. So certainly, the attention to the bar, we're seeing incremental mix both PPA -- so check as well as the percentage of sales coming from the bar. What's also helping is dine-in traffic was up pretty significantly this quarter versus 1 year ago. So that obviously helps with alcohol mix because any dine-in traffic is going to be -- have way more attachment to alcohol than to go a virtual brand, right. Our virtual brand doesn't have any alcohol mix. But -- so that's all headed in the right direction.

I will say with the Me menu update, we have pretty significant alcohol innovation coming, a whole new margarita lineup. The front page of the menu is going to be about premium margarita as well as we'll still have the margarita of the month that you can get for $6 or $7, depending on the margarita. We're bringing innovation also into a promotional strategy. So if you were in our Chili's last month, we had a Petron market of the month for $7.

For those of you familiar with Tequila, it's a very premium tequila. We're also going to be bringing in the Casamigos brand as main going forward, which is super exciting because we know some guests, they're willing to pay up more for something that's super premium.

And you're going to see things -- like a skinny margarita hit the menu where some customers want 100-calorie Margarita and it's been made with a very premium, The Rock's Tequila which is Teremana Blanco. So we've got a lot of exciting things coming to the bar and so we're seeing some good progress with alcohol mix and PPA, but I think bringing some excitement and innovation into the bar, I think is going to help accelerate that.

And then Joe, you touched on, I think, 4Q labor margin a couple of minutes ago. But could you expand maybe a bit more on kind of what you're thinking from a wage inflation outlook perspective maybe in the 4Q and just kind of trend beyond there?

Yes. I think it's going to remain pretty steady in that 5% range, give or take a little, Chris. And going forward, I'll give you that kind of thought process as we head into our 2024 guidance. But seeing on a macro level, what I see is continued slight improvement being lower wage rate inflation. I think that is going to work its way into the restaurant systems as we kind of go forward. But staying right now kind of continuing in that 5% range.

Your next question is coming from Fred Wightman at Wolfe Research.

I just want to follow-up maybe on the Chili's dine-in comment. I think you said that, that was positive throughout the quarter. I'm wondering if that followed sort of a similar pattern or similar cadence to the market share stats that you guys shared? Was there a pretty big inflection in March as well?

It was pretty consistent across the quarter. So we actually started to see that improvement and more guests coming back in to the diner rooms at the beginning in the quarter and remain with a small up-tick. As we kind of headed through the March, you would expect, obviously, the campaign impact across all of our channels, and it did. So, -- but it wasn't driven solely by the campaign. It pre-dated the beginning of the campaign. So that's good to see. That's our --that's where we want guests coming.

And then, I think last quarter, you had said that you were expecting to exit the year at around 8% on price. Is that still a reasonable estimate? Or has that changed?

I think we'll be probably a little bit closer to 9% as we kind of exit looking at the data right now.

All right. And that concludes our call for today. We appreciate everyone joining us. And look forward to seeing many of you at our Investor Day on June 7.

Great. Thanks, everybody.

Thank you.

Thank you.

Thank you. This concludes today's conference call. You may disconnect your phone lines at this time. And have a wonderful day. Thank you for your participation.