Behind Chili's Historic Comeback

• Foot traffic surged nearly 20%, driving a 31% increase in comparable sales at Chili’s, far exceeding analyst expectations.

• Brinker posted 177% annual EPS growth, with $1.36 billion in revenue, marking its highest annual growth in 14 quarters.

• CEO Kevin Hochman’s remarks and another upwardly revision paint an optimistic picture for 2025

  
  

Brinker's Excellent Quarterly Results

Brinker International has been one of The Benjamin Fund’s strongest performers, and its excellent turnaround story has become more apparent than ever before. The company, which owns Chili's and Maggiano's, recently reported one of the greatest quarters we’ve ever seen.

Foot traffic, likely the single most important KPI going into this quarter’s results, grew by just under 20%. Management cited that new customers were giving the chain a try, but more importantly, existing guests were returning—and doing so more frequently. This traffic growth is largely due to the company's hugely successful marketing campaigns.

On Wednesday’s earnings call, Chief Executive Kevin Hochman told analysts, “Marketing is doing a great job of bringing guests in and putting Chili’s back in the culture again.” He noted that Chili’s took the top spot in casual dining for 2024. The higher traffic drove a 31% surge in comparable sales at Chili’s. Expectations were already high, with analysts at FactSet forecasting a 20% increase, so the substantial beat was enough to drive shares up 16%.

Strong sales significantly improved Brinker's margins, despite the company increasing employee wages and investing in technology initiatives. Brinker has once again raised full-year guidance, now expecting $5.15 billion to $5.25 billion in revenue, up from $4.7 billion to $4.75 billion, and $7.50 to $8 adjusted EPS, up from $5.20 to $5.50 for the full fiscal year.

For the company's fiscal second quarter, which ended on Christmas Day, Brinker posted a profit of $118.5 million, or $2.61 per share, reflecting annual EPS growth of 177%, beating consensus estimates by nearly 50%. Revenue grew 26% year-over-year to $1.36 billion, also surpassing analysts' expectations of $1.25 billion. In fact, this quarter marked the highest annual revenue growth for Brinker in 14 quarters, dating back to 2021, when the company reopened several locations following the pandemic’s fade.

A Comeback For The History Books

In late 2022, when CEO Kevin Hochman first arrived, Brinker was in rough shape. Despite surviving prolonged closures from the pandemic, the franchise had begun to fall out of favor with consumers, while inflationary pressures and high interest rates posed significant threats. Declining revenues and the rising cost of borrowing painted a grim picture for the restaurant chain. By the end of 2022, the company had closed 80 Chili's locations, with another 40 closures in 2023. While these moves seemed to signal a shrinking business, the genius of Hochman’s strategy soon became clear.

Brinker emerged from these strategic closures with a significantly leaner cost structure. The company streamlined operations by eliminating underperforming locations, reducing overhead, and improving margins. Management also prioritized employee retention, particularly at the middle management level, to reduce turnover and onboarding costs while keeping experienced talent.

To revitalize the brand and drive traffic, the company introduced the wildly successful $10.99 "3 For Me" deal. This value-oriented offering was especially crucial in an environment where many businesses were raising prices to combat inflation. The deal quickly became a customer favorite, drawing in traffic. Once customers were in the restaurant, they often spent more on additional menu items—including those with price increases. This effective combination fueled rapid sales growth, both organically and through higher average ticket sizes.

The 3 For Me deal wasn’t the only menu item making waves. Chili's classic “Triple Dipper” platter, which allows customers to choose three appetizers for under $20, went viral on TikTok after the company launched targeted social media campaigns. Videos of influencers enjoying Chili's extra-cheesy mozzarella sticks garnered tens of millions of views, creating widespread awareness of Chili's resurgence in a highly cost-effective way.

In fact, the success of Chili's value-focused meals and the resulting traffic growth encouraged other brands to launch their own value offerings. Applebee's recently introduced its $9.99 “Really Big Meal Deal”—a dollar less than Chili's meal deal. When asked whether he was concerned about competitors attempting to undercut Chili's, CEO Kevin Hochman stated that good value is about more than just low prices and emphasized that other restaurants can’t replicate the Chili's experience, which he believes is a major factor in the brand’s growing popularity.

Risks and Tailwinds For 2025

A running risk that Brinker continues to face is their lofty debt levels. The company currently sits at a Debt-to-Equity ratio of around 14. Against an economy displaying a strong labor market and moderate inflation, rates are likely to remain elevated for the time being. High rates coupled with Brinker's sub-prime rating has led to interest becoming one of the largest expenses on Brinker's income statement.

Despite this, the incredible quarter just posted is likely to prompt ratings agencies to reassess the company's rating. Brinker has also begun a diligent plan to reduce their debt load, and with it their interest expense, creating a strong set up for accelerated EPS growth. In this most recent quarter alone the company paid off a net $297 million dollars of debt.

Source: Stock Analysis, Brinker Int. 5 Year Net Debt Repayment

Management has ambitious plans for Chili's and expects strong performance to continue throughout 2025, as reflected in Brinker's upwardly revised guidance. Hochman intends to revamp select locations and further enhance the casual dining experience—a strategy that has been central to Chili's resurgence.

Brinker remains one of the largest holdings in The Benjamin Fund and MoneyTalk Fund, and we anticipate it will continue to be a key driver of the funds’ success. To learn more about the equities inside The Benjamin Fund and the stocks we believe will outperform in 2025, check out this year’s Annual Report on our reports page.