Apr 14, 2022 | Report Announcements

Chili’s is the 5th largest casual player by sales with core menu equity around bold, kicked-up American favorites (inspired by Texas) like big mouth burgers, full-on sizzling fajitas, baby back ribs and hand-shaken Margaritas. Brand positioning elements also include: good value for the money; a fun, laid-back Chilihead culture; and a great bar atmosphere. Also, the chain seeks to position as a tech-forward brand which leverages a cost-effective digital marketing strategy devoid of expensive TV ads. A digital marketing emphasis helps Chili’s: better target a younger demo; support off-premise & digital orders; and promote It’s just Wings virtual brand. Digital media effectiveness (1-to-1 marketing) is fueled by consumer insight gleaned from: 8MM loyalty members & 2.6MM email database; and tabletop devices & app orders. Chili’s total off-premise mix of 45% – 47% has remained fairly stable as has the total off-premise mix split between DoorDash delivery (1/3) and Curbside-To-Go (2/3). Chili’s enjoys the highest value score in casual dining, reflecting strong everyday value platforms for both lunch & dinner. Notably, the chain incents through direct & digital as opposed to operationally complex LTOs and its value positioning also benefits from limited menu price increases. Healthy recent sales benefit from: a rebound in dine-in (helping to restore high margin alcohol sales); off-premise stickiness; incremental sales generated by It’s Just Wings virtual brand; and recent menu price increases. However, while Chili’s store-level EBITDAR margin is at its highest level since 2017, it remains lower than the 2015 high. Further, while Chili’s EBITDAR margin outperforms, its EBITDAR on an absolute dollar basis underperforms the segment consistent with a low AUV. In conclusion, Chili’s recent sales strength reflects its ability to distinguish itself in a crowded FSR space with an attractive Tex-Mex menu, fun experience, leading value and digital strength which looks like a winning formula in the casual segment which is otherwise challenged by a stressed consumer in pursuit of a discretionary purchase.

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