Brinker FYQ22 (Chili’s)

Aug 31, 2022 | Bubble Monitor, No Bull Economics

Executive Summary: After Chili’s reported financial results for its latest quarter ending 6/29/22, its stock fell off -5% for the day. Stressed results reflect the chain’s inability to pass along its inflated input costs to a cash-strapped low-income consumer. Resultantly, Chili’s operating income fell to 4.4% for the quarter down from 10% during FY4Q21.

Fiscal 4Q22 system comps increased +0.1% (+8.7% on a 3-year stacked basis) and +0.3% company store comps reflected +5.2% price/+0.8% mix/-5.7% traffic. De-accelerating traffic during the quarter reflected increasing low-income demo consumer weakness, especially during periods of elevated gas prices.

While traffic improved sequentially into August, it remains in the mid-single-digit negative territory, and corporate noted a dimmer economic outlook marked by a worried consumer & cash-strapped low-income guests.

The strategy is to move away from frequent & deep core discounting (including giveaways on its My Chili’s Rewards program) while continuing to offer everyday value to customers that need it. Currently, 37% of checks include some form of discount. Notably, its customer base does not over-index low-income or high-income.

Margins were hard hit by: a 3.1% y/y increase in COGs (food costs) driven by discounting & +15% commodity inflation; and +6% to +7% wage inflation with further labor cost pressure driven by a return of dine-in demand and elevated training costs associated with turnover rates which remain higher than pre-covid levels.

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