BRINKER INTERNATIONAL, INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our Company, our operations and our current operating environment. For an understanding of the significant factors that influenced our performance during the thirteen and thirty-nine week periods ended March 30, 2022 and March 24, 2021, the MD&A should be read in conjunction with the Consolidated Financial Statements (Unaudited) and related Notes to Consolidated Financial Statements (Unaudited) included in this quarterly report. All amounts within the MD&A are presented in millions unless otherwise specified. 24 Table of Contents Overview We are principally engaged in the ownership, operation, development and franchising of the Chili’s ® Grill & Bar (“Chili’s”) and Maggiano’s Little Italy ® (“Maggiano’s”) restaurant brands, as well as virtual brands including It’s Just Wings ® and Maggiano’s Italian Classics™. At March 30, 2022, we owned, operated or franchised 1,650 restaurants, consisting of 1,187 Company-owned restaurants and 463 franchised restaurants, located in the United States, 28 countries and two United States territories. Our restaurant brands, Chili’s and Maggiano’s, are both operating segments and reporting units. Impact of COVID-19 Pandemic In March 2020, a novel strain of coronavirus (“COVID-19”) was declared a global pandemic and a National Public Health Emergency. The spread of COVID-19 has prompted changes in consumer behavior and social distancing preferences as well as dining room closures and dining room capacity restrictions mandated or encouraged by federal, state and local governments. The number of open dining rooms and the dining room capacity restrictions have fluctuated over the course of the pandemic based on state and local mandates, and has resulted in significant adverse impacts to our guest traffic and sales primarily in fiscal 2021. In fiscal 2022, we have experienced limited product shortages and service disruptions in our supply chain, limited availability of labor to operate our restaurants due to a tight labor market, and an increase in employee turnover. It is possible that supply chain and labor shortages or disruptions could continue or increase in future periods if demand for goods, transportation and labor remains high. The future impact of the COVID-19 pandemic cannot be reasonably estimated due to the uncertainty about the extent and duration of the spread of the virus, the availability, acceptance and efficacy of preventative vaccines, the emergence and impact of new COVID-19 variants and changing government restrictions. Additional impacts to the business may arise that we are not aware of currently. We will continue to closely monitor and adapt to the evolving situation. Operations Strategy We are committed to strategies and a Company culture that we believe will improve guest traffic, grow sales and profits, and engage team members. Our strategies and culture are intended to differentiate our brands from the competition and to focus on the guest experience. We are effectively and efficiently managing our restaurants to establish a lasting presence for our brands in key markets around the world. Our primary strategy is to make our guests feel special through great food and quality service so that they return to our restaurants. Guest Engagement Through Technology - We have invested in our technology and off-premise options as more guests are opting for To-Go and delivery. Chili’s partnerships with delivery service providers have been instrumental in growing our off-premise business and offering our guests continued service during the COVID-19 pandemic. We leveraged technology so that delivery service provider orders are sent directly into our point of sale system, creating efficiencies and a system that allows us to better serve our guests. We believe that guests will continue to prefer convenience and off-premise options. We plan to continue investments in our technology systems to support our To-Go and delivery capabilities. In dining rooms, we use tabletop devices to engage our guests at the table. These devices provide functionality for guests to pay at the table, to order or re-order, to engage in digital entertainment, to provide guest feedback and to interact with our My Chili’s Rewards program. Our My Chili’s Rewards loyalty program offers free chips and salsa or a non-alcoholic beverage to members based on their visit frequency. We customize offerings for these guests based on their purchase behavior, and we continue to shift more of our overall marketing spend to these customized channels and promotions. We believe this strategy gives us a sustained competitive advantage over independent restaurants and the majority of our competitors. Chili’s - Chili’s strategy is to differentiate from our competitors with a flexible platform of value offerings at both lunch and dinner and to connect with our guests through our My Chili’s Rewards loyalty program. We are committed to offering consistent, quality products at a price point that is compelling to our guests. Our value 25 Table of Contents platforms allow guests to mix and match select menu items at a discounted price as part of the every-day base menu. Additionally, we have continued our Margarita of the Month promotion that features a premium-liquor margarita every month at an every-day value price. Most of our value propositions are available for guests to enjoy in our dining rooms or off-premise. Chili’s off-premise dining options, including our virtual brands, are also a critical part of our strategy. In the thirty-nine week period ended March 30, 2022, Chili’s off-premise sales, including both To-go and delivery, were approximately 35% of Company sales, with approximately 52% coming from To-Go and 48% from delivery. In the thirty-nine week period ended March 24, 2021, Chili’s off-premise sales, including both To-go and delivery, were approximately 45% of Company sales, with approximately 59% coming from To-Go and 41% from delivery. We regularly evaluate our processes and menu at Chili’s to identify opportunities where we can improve our service quality and food. We continually focus on guest satisfaction by improving our operational execution and standards. Maggiano’s - At Maggiano’s, we believe our focus on operating fundamentals and technology provide the foundation for future efficiencies and growth. For example, Maggiano’s partnerships with delivery service providers make third party delivery more sustainable and efficient for the brand to operate. In addition, our guests have the ability to order delivery directly through the Maggiano’s website. During the pandemic, Maggiano’s has leveraged off-premise dining options to sustain revenues. Maggiano’s historically hosts a significant portion of its banquets in the holiday season during the second and third quarters of the fiscal year. Virtual Brands - We are investing in virtual brands, restaurant-like menu offerings that are only available for purchase digitally, to drive restaurant traffic and sales growth at both Chili’s and Maggiano’s. We expect that our virtual brands will enable us to capitalize on the growth in off-premise dining and to leverage excess kitchen capacity in our existing restaurant infrastructure, while adding minimal complexity in our restaurants’ kitchens. It’s Just Wings, launched on June 23, 2020, is an offering consisting of chicken wings available in a variety of different sauces and rubs, curly fries, ranch dressing and hand pies for a value price. Maggiano’s Italian Classics offers a select group of items from the full menu of Maggiano’s Little Italy including several appetizers, salads, pastas, entrées, mac & cheese and hand pies. These brands are available for purchase through our third party service providers including DoorDash, UberEats, Google Food Ordering and the brand-specific websites itsjustwings.com and maggianosclassics.com. The operating results for the virtual brands are included in the results of our Chili’s and Maggiano’s brands, based on the restaurants that prepared and processed the food orders. We plan to continue to test and strategically launch additional virtual brands in the future to further drive our growth. Franchise Partnerships - Our franchisees continue to grow our brands around the world, opening ten restaurants and entering into two new development agreement for the thirty-nine week period ended March 30, 2022. We plan to strategically pursue expansion of Chili’s internationally through development agreements with new and existing franchise partners. We are also supporting our franchise partners with opportunities to expand sales through our virtual brand offerings. 26 Table of Contents Company Development - The following table details the number of restaurant openings during the thirteen and thirty-nine week periods ended March 30, 2022 and March 24, 2021, respectively, total full year projected openings in fiscal 2022 and the total restaurants open at each period end: Openings During the Openings During the Full Year Projected Openings Thirteen Week Periods Ended Thirty-Nine Week Periods Ended Total Open Restaurants at March 30, 2022 March 24, 2021 March 30, 2022 March 24, 2021 Fiscal 2022 March 30, 2022 March 24, 2021 Company-owned restaurants Chili’s domestic 1 2 3 6 5 1,130 1,063 Chili’s international — — — — — 5 5 Maggiano’s domestic — — — — — 52 52 Total Company-owned 1 2 3 6 5 1,187 1,120 Franchise restaurants Chili’s domestic — 2 1 3 1 103 172 Chili’s international 1 2 9 6 13-15 358 363 Maggiano’s domestic — — — 1 — 2 2 Total franchise 1 4 10 10 14-16 463 537 Total restaurants Chili’s domestic 1 4 4 9 6 1,233 1,235 Chili’s international 1 2 9 6 13-15 363 368 Maggiano’s domestic — — — 1 — 54 54 Total 2 6 13 16 19-21 1,650 1,657 During the thirty-nine week period ended March 30, 2022, we acquired 66 Chili’s restaurants previously owned by three former franchisees. The acquisition of these restaurants is not reflected in Openings during the thirty-nine week period ended March 30, 2022 or Full Year Projected Openings total as they are existing restaurant locations transitioning ownership. These acquired restaurants are included in Total Open Restaurants at March 30, 2022 within the total for Company-owned restaurants Chili’s domestic. At March 30, 2022, we own property for 52 of the 1,187 Company-owned restaurants. The net book values associated with these restaurants included land of $43.4 million and buildings of $15.7 million. Revenues Thirteen and Thirty-Nine Week Periods Ended March 30, 2022 compared to March 24, 2021 Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive Income (Unaudited) to provide more clarity around Company-owned restaurant revenues and operating expenses trends: • Company sales include revenues generated by the operation of Company-owned restaurants including gift card redemptions and revenues from our virtual brands. • Franchise and other revenues include royalties, gift card breakage, delivery income, Maggiano’s banquet service charge income, digital entertainment revenue, franchise advertising fees, franchise and development fees, gift card equalization and gift card discount costs from third-party gift card sales. 27 Table of Contents The following is a summary of the change in Total revenues: Total Revenues Chili’s Maggiano’s Total Revenues Thirteen Week Period Ended March 24, 2021 $ 763.0 $ 65.4 $ 828.4 Change from: Comparable restaurant sales 73.0 32.6 105.6 Restaurant acquisitions (1) 38.1 — 38.1 Restaurant openings 2.8 — 2.8 Restaurant closures (2) 0.4 — 0.4 Company sales 114.3 32.6 146.9 Royalties (3) 0.1 0.1 0.2 Franchise fees and other revenues 2.2 2.7 4.9 Franchise and other revenues 2.3 2.8 5.1 Thirteen Week Period Ended March 30, 2022 $ 879.6 $ 100.8 $ 980.4 Total Revenues Chili’s Maggiano’s Total Revenues Thirty-Nine Week Period Ended March 24, 2021 $ 2,145.9 $ 183.3 $ 2,329.2 Change from: Comparable restaurant sales 239.2 115.1 354.3 Restaurant acquisitions (1) 69.2 — 69.2 Restaurant openings 11.4 — 11.4 Restaurant closures (2) 1.2 — 1.2 Restaurant relocations 0.5 — 0.5 Company sales 321.5 115.1 436.6 Royalties (3) 3.5 0.2 3.7 Franchise fees and other revenues 4.5 8.6 13.1 Franchise and other revenues 8.0 8.8 16.8 Thirty-Nine Week Period Ended March 30, 2022 $ 2,475.4 $ 307.2 $ 2,782.6 (1) We acquired 23 Chili’s restaurants on September 2, 2021, 37 Chili’s restaurants on October 31, 2021 and six Chili’s restaurants on February 1, 2022 from three franchisees. The revenues generated by these restaurants since the date of the acquisitions are included in Company sales for the thirteen and thirty-nine week periods ended March 30, 2022. (2) Restaurant closures primarily represents the increase in Company sales in fiscal 2022 related to restaurants temporarily closed in fiscal 2021 due to the pandemic. (3) Our franchisees generated sales of approximately $192.3 million and $609.7 million for the thirteen and thirty-nine week periods ended March 30, 2022 compared to $190.8 million and $543.7 million in sales for the thirteen and thirty-nine week periods ended March 24, 2021. 28 Table of Contents The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen and thirty-nine week periods ended March 30, 2022 compared to March 24, 2021: Percentage Change in the Thirteen Week Period Ended March 30, 2022 versus March 24, 2021 Comparable Restaurant Sales (1) Price Impact Mix-Shift Impact (2) Traffic Impact Restaurant Capacity (3) Company-owned 13.5 % 4.3 % 5.7 % 3.5 % 6.2 % Chili’s 10.3 % 4.3 % 3.9 % 2.1 % 6.5 % Maggiano’s 50.5 % 4.8 % 16.8 % 28.9 % 0.0 % Franchise (4) 20.3 % U.S. 9.0 % International 28.4 % Chili’s domestic (5) 9.9 % Maggiano’s domestic (5) 50.7 % System-wide (6) 14.5 % Percentage Change in the Thirty-Nine Week Period Ended March 30, 2022 versus March 24, 2021 Comparable Restaurant Sales (1) Price Impact Mix-Shift Impact (2) Traffic Impact Restaurant Capacity (3) Company-owned 16.0 % 2.4 % 6.0 % 7.6 % 6.1 % Chili’s 11.9 % 2.5 % 3.6 % 5.8 % 6.4 % Maggiano’s 63.7 % 1.8 % 21.5 % 40.4 % 0.0 % Franchise (4) 20.3 % U.S. 11.2 % International 29.5 % Chili’s domestic (5) 11.7 % Maggiano’s domestic (5) 63.7 % System-wide (6) 16.6 % (1) Comparable Restaurant Sales include all restaurants that have been in operation for more than 18 months except acquired restaurants which are included after 12 months of ownership. Restaurants temporarily closed 14 days or more are excluded from Comparable Restaurant Sales. Percentage amounts are calculated based on the comparable periods year-over-year. (2) Mix-Shift is calculated as the year-over-year percentage change in Company sales resulting from the change in menu items ordered by guests. (3) Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year, including the effect of the acquisition of 23 Chili’s restaurants in the first quarter of fiscal 2022, 37 Chili’s restaurants in the second quarter of fiscal 2022 and six Chili’s restaurants in the third quarter of fiscal 2022. (4) Chili’s and Maggiano’s franchise sales generated by franchisees are not included in Total revenues in the Consolidated Statements of Comprehensive Income (Unaudited); however, we generate royalty revenues and advertising fees based on franchisee revenues, where applicable. We believe presenting Franchise Comparable Restaurant Sales provides investors relevant information regarding total brand performance. (5) Chili’s and Maggiano’s domestic Comparable Restaurant Sales percentages are derived from sales generated by Company-owned and franchise-operated Chili’s and Maggiano’s restaurants in the United States. Beginning in the third quarter of fiscal 2022, the Maggiano’s franchise restaurant has been in operation for more than 18 months and is therefore included in the calculation of Comparable Restaurant Sales. 29 Table of Contents (6) System-wide Comparable Restaurant Sales are derived from sales generated by Chili’s and Maggiano’s Company-owned and franchise-operated restaurants. Costs and Expenses Thirteen Week Period Ended March 30, 2022 compared to March 24, 2021 The following is a summary of the changes in Costs and Expenses: Thirteen Week Periods Ended Favorable (Unfavorable) Variance March 30, 2022 March 24, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 270.3 28.1 % $ 213.9 26.3 % $ (56.4) (1.8) % Restaurant labor 329.1 34.3 % 270.8 33.3 % (58.3) (1.0) % Restaurant expenses 244.1 25.4 % 216.1 26.5 % (28.0) 1.1 % Depreciation and amortization 42.2 37.4 (4.8) General and administrative 39.2 33.7 (5.5) Other (gains) and charges 6.1 4.3 (1.8) Interest expenses 11.1 14.1 3.0 Other income, net (0.4) (0.3) 0.1 As a percentage of Company sales: • Food and beverage costs increased 1.8%, including 2.9% of higher meat, poultry and other commodity costs due to supply chain constraints and inflationary pressures, partially offset by 1.1% of increased menu pricing. • Restaurant labor increased 1.0%, including 2.0% of higher hourly labor expenses due to increased wage rates, training and overtime, 0.8% of higher manager expenses for merit increases and manager training due to greater than normal manager turnover, partially offset by 1.3% of sales leverage and 0.5% of lower other labor expenses. • Restaurant expenses decreased 1.1%, including 2.2% of sales leverage and 0.5% of lower delivery fee expenses due to changes in sales channel mix, partially offset by 0.4% of higher utilities, 0.3% of higher supervision costs, 0.3% of higher repairs and maintenance expenses, 0.2% of higher workers’ compensation and general liability expenses and 0.4% of higher other restaurant expenses. Depreciation and amortization increased $4.8 million as follows: Depreciation and Amortization Thirteen Week Period Ended March 24, 2021 $ 37.4 Change from: Additions for new and existing restaurant assets 5.7 Acquisition of Chili’s restaurants (1) 2.0 Finance leases 1.5 Corporate assets 0.6 Retirements and fully depreciated restaurant assets (5.0) Thirteen Week Period Ended March 30, 2022 $ 42.2 (1) Represents the incremental depreciation and amortization of the assets and finance leases of the 66 Chili’s restaurants acquired in the first three quarters of fiscal 2022. 30 Table of Contents General and administrative expen ses increased $5.5 million as follows: General and Administrative Thirteen Week Period Ended March 24, 2021 $ 33.7 Change from: Recruiting 1.1 Defined contribution plan employer expenses 1.0 Payroll-related expenses 1.0 Professional fees 0.6 Stock-based compensation 0.5 Travel and entertainment expenses 0.5 Performance-based compensation 0.3 Other 0.5 Thirteen Week Period Ended March 30, 2022 $ 39.2 Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges): Thirteen Week Periods Ended March 30, 2022 March 24, 2021 Restaurant closure charges $ 1.2 $ 0.3 Remodel-related costs 0.9 0.9 COVID-19 related charges 0.7 0.9 Enterprise system implementation costs 0.5 — Acquisition-related costs, net 0.6 — Loss from natural disasters, net of (insurance recoveries) — 1.8 Other 2.2 0.4 $ 6.1 $ 4.3 Interest expenses decreased $3.0 million due to lower interest rates and average borrowing balances on our revolving credit facility in fiscal 2022. 31 Table of Contents Thirty-Nine Week Period Ended March 30, 2022 compared to March 24, 2021 The following is a summary of the changes in Costs and Expenses: Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance March 30, 2022 March 24, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 757.4 27.8 % $ 606.3 26.5 % $ (151.1) (1.3) % Restaurant labor 949.4 34.9 % 774.6 33.9 % (174.8) (1.0) % Restaurant expenses 712.1 26.1 % 629.9 27.5 % (82.2) 1.4 % Depreciation and amortization 123.1 112.0 (11.1) General and administrative 108.8 94.2 (14.6) Other (gains) and charges 17.0 13.5 (3.5) Interest expenses 34.8 43.1 8.3 Other income, net (1.2) (1.2) — As a percentage of Company sales: • Food and beverage costs increased 1.3%, including 2.0% of higher poultry, meat and other commodity costs due to supply chain constraints and inflationary pressures, partially offset by 0.7% of favorable menu pricing. • Restaurant labor increased 1.0%, including 1.9% of higher hourly restaurant labor costs primarily including wage rates, training and overtime and 0.8% of higher manager salaries and training resulting from merit increases and greater than normal manager turnover, partially offset by 1.6% of sales leverage and 0.1% of lower other restaurant labor expenses. • Restaurant expenses decreased 1.4%, driven by 2.7% of sales leverage and 0.6% of lower delivery fee expenses due to changes in sales channel mix, partially offset by 0.7% of higher repairs and maintenance expenses, 0.4% of higher utilities expenses, 0.2% of higher supervision costs, 0.2% of higher workers’ compensation and general liability expenses, 0.2% of higher advertising expenses and 0.2% of higher other restaurant expenses. Depreciation and amortization increased $11.1 million as follows: Depreciation and Amortization Thirty-Nine Week Period Ended March 24, 2021 $ 112.0 Change from: Additions for existing and new restaurant assets 14.6 Finance leases 4.8 Acquisition of Chili’s restaurants (1) 3.7 Corporate assets 1.4 Retirements and fully depreciated restaurant assets (13.6) Other 0.2 Thirty-Nine Week Period Ended March 30, 2022 $ 123.1 (1) Represents the incremental depreciation and amortization of the assets and finance leases of the 66 Chili’s restaurants acquired in the first three quarters of fiscal 2022. 32 Table of Contents General and administrative expe nses increased $14.6 million as follows: General and Administrative Thirty-Nine Week Period Ended March 24, 2021 $ 94.2 Change from: Defined contribution plan employer expenses (1) 6.6 Payroll-related expenses 3.0 Stock-based compensation 2.9 Professional fees 2.9 Recruiting 2.1 Travel and entertainment expenses 1.3 Performance-based compensation (5.9) Other 1.7 Thirty-Nine Week Period Ended March 30, 2022 $ 108.8 (1) Defined contribution plan employer expenses increased due to the reinstatement of employer matching contributions related to the Company’s 401(k) plan that were temporarily suspended from May 2020 through December 2020. Employer matching contributions were reinstated beginning January 1, 2021. Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges): Thirty-Nine Week Periods Ended March 30, 2022 March 24, 2021 Remodel-related costs $ 4.0 $ 1.8 Lease contingencies 2.9 — Restaurant closure charges 1.7 2.2 Acquisition-related costs, net 1.5 — Enterprise system implementation costs 1.4 — Loss from natural disasters, net of (insurance recoveries) 0.8 2.0 COVID-19 related charges 0.2 3.1 Restaurant impairment charges — 2.5 Other 4.5 1.9 $ 17.0 $ 13.5 Interest expenses decreased $8.3 million due to lower interest rates and average borrowing balances on our revolving credit facility in fiscal 2022. Income Taxes Thirteen Week Periods Ended Thirty-Nine Week Periods Ended March 30, 2022 March 24, 2021 Favorable / (Unfavorable) March 30, 2022 March 24, 2021 Favorable / (Unfavorable) Variance Effective income tax rate 5.4 % 11.7 % 6.3 % 4.7 % 0.4 % (4.3) % The federal statutory tax rate was 21.0% for the thirteen and thirty-nine week periods ended March 30, 2022 and March 24, 2021. The effective income tax rate in the thirteen week period ended March 30, 2022 decreased compared to the thirteen week period ended March 24, 2021 primarily due to the more favorable impact from the FICA tip tax credit, 33 Table of Contents partially offset by the reduced favorable impact from the excess tax benefits associated with stock-based compensation. The effective income tax rate in the thirty-nine week period ended March 30, 2022 increased compared to the thirty-nine week period ended March 24, 2021 primarily due to the reduced favorable impact from the FICA tip tax credit and the excess tax benefits associated with stock-based compensation. Segment Results Chili’s Segment Thirteen Week Period Ended March 30, 2022 compared to March 24, 2021 Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage March 30, 2022 March 24, 2021 Company sales $ 863.3 $ 749.0 $ 114.3 15.3 % Royalties 7.8 7.7 0.1 1.3 % Franchise fees and other revenues 8.5 6.3 2.2 34.9 % Franchise and other revenues 16.3 14.0 2.3 16.4 % Total revenues $ 879.6 $ 763.0 $ 116.6 15.3 % Chili’s Total revenues increased by 15.3% primarily due to dining room sales growth from higher traffic, price increases, favorable mix, the acquisition of 66 Chili’s restaurants from three former franchisees and five new restaurant openings, partially offset by decreased To-Go sales. Refer to “Revenues” section above for further details about Chili’s revenues changes. The following is a summary of the changes in Chili’s operating costs and expenses: Thirteen Week Periods Ended Favorable (Unfavorable) Variance March 30, 2022 March 24, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 245.6 28.4 % $ 198.7 26.6 % $ (46.9) (1.8) % Restaurant labor 295.0 34.2 % 248.7 33.2 % (46.3) (1.0) % Restaurant expenses 215.2 24.9 % 194.2 25.9 % (21.0) 1.0 % Depreciation and amortization 35.9 31.0 (4.9) General and administrative 9.5 7.0 (2.5) Other (gains) and charges 5.2 3.1 (2.1) As a percentage of Company sales • Chili’s Food and beverage costs increased 1.8%, including 3.0% of higher meat, poultry and other commodity costs due to supply chain constraints and inflationary pressures, partially offset by 1.2% of increased menu pricing. • Chili’s Restaurant labor increased 1.0%, including 1.8% of restaurant labor costs including wage rates, training and overtime, 0.7% of higher manager salaries and training due to merit increases and greater than normal manager turnover and 0.1% of higher other labor expenses, partially offset by 1.1% of sales leverage and 0.5% of lower manager bonus expenses. • Chili’s Restaurant expenses decreased 1.0%, including 2.6% of sales leverage and 0.4% of lower delivery fee expenses due to changes in sales channel mix, partially offset by 0.7% of higher utilities expenses, 0.5% of higher rent expenses, 0.5% of higher repairs and maintenance expenses and 0.3% of higher other restaurant expenses. 34 Table of Contents Chili’s Depreciation and amortization increased $4.9 million as follows: Depreciation and Amortization Thirteen Week Period Ended March 24, 2021 $ 31.0 Change from: Additions for new and existing restaurant assets 5.3 Acquisition of Chili’s restaurants (1) 2.0 Finance leases 1.4 Retirements and fully depreciated restaurant assets (3.8) Thirteen Week Period Ended March 30, 2022 $ 35.9 (1) Represents the incremental depreciation and amortization of the assets and finance leases of the 66 Chili’s restaurants acquired in the first three quarters of fiscal 2022. Chili’s General and administrative increased $2.5 million as follows: General and Administrative Thirteen Week Period Ended March 24, 2021 $ 7.0 Change from: Recruiting 1.0 Defined contribution plan employer expenses 0.6 Payroll-related expenses 0.4 Performance-based compensation 0.1 Other 0.4 Thirteen Week Period Ended March 30, 2022 $ 9.5 Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges): Thirteen Week Periods Ended March 30, 2022 March 24, 2021 Restaurant closure charges $ 1.2 $ 0.3 Remodel-related costs 0.9 0.9 Acquisition of franchise restaurants-related costs 0.6 — COVID-19 related charges 0.5 0.8 Loss from natural disasters, net of (insurance recoveries) — 1.1 Other 2.0 — $ 5.2 $ 3.1 35 Table of Contents Thirty-Nine Week Period Ended March 30, 2022 compared to March 24, 2021 Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage March 30, 2022 March 24, 2021 Company sales $ 2,428.5 $ 2,107.0 $ 321.5 15.3 % Royalties 25.4 21.9 3.5 16.0 % Franchise fees and other revenues 21.5 17.0 4.5 26.5 % Franchise and other revenues 46.9 38.9 8.0 20.6 % Total revenues $ 2,475.4 $ 2,145.9 $ 329.5 15.4 % Chili’s Total revenues increased 15.4% primarily due to dining room sales growth from higher traffic, favorable mix, price increases, the acquisition of 66 Chili’s restaurants from three former franchisees and five new restaurant openings, partially offset by decreased To-Go sales. Refer to “Revenues” section above for further details about Chili’s revenues changes. The following is a summary of the changes in Chili’s operating costs and expenses: Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance March 30, 2022 March 24, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 683.8 28.2 % $ 563.2 26.7 % $ (120.6) (1.5) % Restaurant labor 846.1 34.8 % 710.3 33.7 % (135.8) (1.1) % Restaurant expenses 624.8 25.7 % 564.6 26.8 % (60.2) 1.1 % Depreciation and amortization 104.3 92.4 (11.9) General and administrative 24.7 17.8 (6.9) Other (gains) and charges 10.2 11.1 0.9 As a percentage of Company sales: • Chili’s Food and beverage costs increased 1.5%, including 2.1% of higher poultry, meat and other commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 0.6% of increased menu pricing. • Chili’s Restaurant labor increased 1.1%, including 2.0% of higher restaurant hourly labor costs primarily including wage rates, training and overtime and 0.7% of higher manager salaries and training due to merit increases and greater than normal manager turnover, partially offset by 1.2% of sales leverage and 0.4% of lower manager bonus expenses. • Chili’s Restaurant expenses decreased 1.1%, including 2.1% of sales leverage and 0.6% of lower delivery fee expenses due to changes in sales channel mix, partially offset by 0.5% of higher repairs and maintenance expenses, 0.4% of higher utilities expenses, 0.4% of higher rent expenses and 0.3% of higher other restaurant expenses. 36 Table of Contents Chili’s Depreciation and amortization increased $11.9 million as follows: Depreciation and Amortization Thirty-Nine Week Period Ended March 24, 2021 $ 92.4 Change from: Additions for existing and new restaurant assets 13.9 Finance leases 4.5 Acquisition of Chili’s restaurants (1) 3.7 Retirements and fully depreciated restaurant assets (10.3) Other 0.1 Thirty-Nine Week Period Ended March 30, 2022 $ 104.3 (1) Represents the incremental depreciation and amortization of the assets and finance leases of the 66 Chili’s restaurants acquired in the first three quarters of fiscal 2022. Chili’s General and administrative increased $6.9 million as follows: General and Administrative Thirty-Nine Week Period Ended March 24, 2021 $ 17.8 Change from: Defined contribution plan employer expenses (1) 4.9 Recruiting 1.5 Travel and entertainment expenses 0.6 Payroll-related expenses 0.5 Stock-based compensation 0.5 Performance-based compensation (1.6) Other 0.5 Thirty-Nine Week Period Ended March 30, 2022 $ 24.7 (1) Defined contribution plan employer expenses increased due to the reinstatement of employer matching contributions related to the Company’s 401(k) plan from May 2020 through December 2020. Employer matching contributions were reinstated beginning January 1, 2021. Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 4 - Other Gains and Charges): Thirty-Nine Week Periods Ended March 30, 2022 March 24, 2021 Remodel-related costs $ 3.9 $ 1.8 Restaurant closure charges 1.7 2.1 Acquisition of franchise restaurants-related costs 1.5 — Loss from natural disasters, net of (insurance recoveries) 0.8 1.3 Restaurant impairment charges — 2.1 COVID-19 related charges — 2.9 Other 2.3 0.9 $ 10.2 $ 11.1 37 Table of Contents Maggiano’s Segment Thirteen Week Period Ended March 30, 2022 compared to March 24, 2021 Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as a percentage March 30, 2022 March 24, 2021 Company sales $ 97.3 $ 64.7 $ 32.6 50.4 % Royalties 0.1 0.0 0.1 100.0 % Franchise fees and other revenues 3.4 0.7 2.7 385.7 % Franchise and other revenues 3.5 0.7 2.8 400.0 % Total revenues $ 100.8 $ 65.4 $ 35.4 54.1 % Maggiano’s Total revenues increased 54.1% primarily due to higher dining and banquet room sales and traffic. Refer to “Revenues” section above for further details about Maggiano’s revenues changes. The following is a summary of the changes in Maggiano’s operating costs and expenses: Thirteen Week Periods Ended Favorable (Unfavorable) Variance March 30, 2022 March 24, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 24.7 25.4 % $ 15.2 23.5 % $ (9.5) (1.9) % Restaurant labor 34.1 35.0 % 22.1 34.2 % (12.0) (0.8) % Restaurant expenses 28.7 29.5 % 21.7 33.5 % (7.0) 4.0 % Depreciation and amortization 3.4 3.4 — General and administrative 2.3 1.3 (1.0) Other (gains) and charges 0.0 0.3 0.3 As a percentage of Company sales: • Maggiano’s Food and beverage costs increased 1.9%, including 2.7% of higher seafood, dairy and other commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 0.7% of increased menu pricing and 0.1% of favorable menu item mix. • Maggiano’s Restaurant labor increased 0.8%, including 4.2% of higher restaurant hourly labor costs primarily including wage rates, training and overtime, 1.5% of higher manager salaries and training and 0.5% of higher manager bonus expenses, partially offset by 5.0% of sales leverage and 0.4% of lower other labor expense. • Maggiano’s Restaurant expenses decreased 4.0%, driven by 9.8% of sales leverage, partially offset by higher expenses including 1.8% of repairs and maintenance expenses, 1.7% of supervision expenses, 1.0% of advertising expenses, 0.7% of higher rent expenses, 0.4% of credit card fees and 0.2% of other restaurant expenses. 38 Table of Contents Thirty-Nine Week Period Ended March 30, 2022 compared to March 24, 2021 Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance Variance as a percentage March 30, 2022 March 24, 2021 Company sales $ 296.2 $ 181.1 $ 115.1 63.6 % Royalties 0.3 0.1 0.2 200.0 % Franchise fees and other revenues 10.7 2.1 8.6 409.5 % Franchise and other revenues 11.0 2.2 8.8 400.0 % Total revenues $ 307.2 $ 183.3 $ 123.9 67.6 % Maggiano’s Total revenues increased 67.6% primarily due to higher dining and banquet room sales and traffic. Refer to “Revenues” section above for further details about Maggiano’s revenues changes. The following is a summary of the changes in Maggiano’s operating costs and expenses: Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance March 30, 2022 March 24, 2021 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 73.6 24.8 % $ 43.1 23.8 % $ (30.5) (1.0) % Restaurant labor 103.3 34.9 % 64.3 35.5 % (39.0) 0.6 % Restaurant expenses 86.8 29.3 % 64.6 35.7 % (22.2) 6.4 % Depreciation and amortization 10.2 10.4 0.2 General and administrative 6.2 3.9 (2.3) Other (gains) and charges 0.2 1.2 1.0 As a percentage of Company sales: • Maggiano’s Food and beverage costs increased 1.0%, including 1.5% of higher seafood and other commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 0.3% of increased menu pricing and 0.2% of favorable menu item mix. • Maggiano’s Restaurant labor decreased 0.6%, including 6.1% of sales leverage and 0.3% of lower other labor expenses, partially offset by 3.3% of higher restaurant hourly labor costs primarily including wage rates, training and overtime, 1.3% of higher manager salaries and training and 1.2% of higher manager bonus expenses. • Maggiano’s Restaurant expenses decreased 6.4%, driven by 11.7% of sales leverage, partially offset by higher expenses including 1.7% of repairs and maintenance expenses, 1.5% of supervision expenses, 1.2% of higher advertising expenses, 0.7% of higher utilities and 0.2% of other restaurant expenses. Liquidity and Capital Resources COVID-19 Impact on Liquidity Cash flows generated from operating activities are our principal source of liquidity, which we use to finance capital expenditures, such as remodels, maintaining existing restaurants and constructing new restaurants, to pay dividends or repurchase shares of our common stock when authorized. Our strategic decision to enhance our off-premise business has enabled us to conveniently serve a significantly higher volume of off-premise guests during this pandemic compared to other industry competitors. At the outset of the COVID-19 pandemic in fiscal 2020 and into early fiscal 2021, we took proactive precautionary measures to preserve liquidity, reduce costs and pause non-critical projects that did not significantly impact our current operations. In the second half of fiscal 2021, our operational results and liquidity returned to pre-pandemic levels. 39 Table of Contents Beginning in the first quarter of fiscal 2022, we took or plan to take the following actions: • Revised our revolving credit facility during the first quarter of fiscal 2022 to extend the maturity date and provide additional flexibility; • Resumed the Chili’s and Maggiano’s remodel program and construction of new restaurants; • Selectively increased marketing spend; • Reinstated the share repurchase program; and • Repaid the first installment of $27.2 million of payroll taxes deferred in accordance with the CARES Act in the second quarter of fiscal 2022 and will repay the remaining $27.2 million that is due on December 31, 2022. Cash Flows Cash Flows from Operating Activities Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance March 30, 2022 March 24, 2021 Net cash provided by operating activities $ 211.6 $ 268.6 $ (57.0) Net cash provided by operating activities decreased primarily due to the repayment of the first installment of $27.2 million of payroll taxes that were previously deferred under the CARES Act, as well as an increase in payments of performance based compensation and bonuses in the current year, partially offset by improved operating performance in the first three quarters of fiscal 2022 compared to the prior year and the timing of operational receipts and payments. Cash Flows from Investing Activities Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance March 30, 2022 March 24, 2021 Cash flows from investing activities Payments for property and equipment $ (109.0) $ (62.4) $ (46.6) Payments for franchise restaurant acquisitions (106.0) — (106.0) Proceeds from sale leaseback transactions, net of related expenses 20.5 — 20.5 Proceeds from note receivable 1.0 1.5 (0.5) Proceeds from sale of assets 0.1 1.6 (1.5) Net cash used in investing activities $ (193.4) $ (59.3) $ (134.1) Net cash used in investing activities increased primarily due to $106.0 million of cash consideration paid for the purchase of 66 Chili’s restaurants from three franchisees, partially offset by proceeds of $20.5 million received from the sale leaseback transactions on six of the acquired restaurants. Additionally, capital expenditures increased in fiscal 2022 primarily for equipment purchases and an increase in the pace of the Chili’s remodel initiative. 40 Table of Contents Cash Flows from Financing Activities Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance March 30, 2022 March 24, 2021 Cash flows from financing activities Borrowings on revolving credit facility $ 595.5 $ 28.4 $ 567.1 Payments on revolving credit facility (502.5) (210.0) (292.5) Purchases of treasury stock (100.8) (4.1) (96.7) Payments on long-term debt (17.6) (14.3) (3.3) Payments for debt issuance costs (3.1) (2.2) (0.9) Payments of dividends (1.1) (1.5) 0.4 Proceeds from issuance of treasury stock 0.4 14.1 (13.7) Net cash used in financing activities $ (29.2) $ (189.6) $ 160.4 Net cash used in financing activities decreased primarily due to $93.0 million of net borrowing activity in fiscal 2022 compared to $181.6 million of net repayment activity in fiscal 2021 on the revolving credit facility, partially offset by an increase in share repurchases following the reinstatement of the share repurchase program in August 2021. Revolving Credit Facility On August 18, 2021, we revised our existing $1.0 billion revolving credit facility to an $800.0 million revolving credit facility. Net borrowings of $93.0 million were drawn during the thirty-nine week period ended March 30, 2022 on the revolving credit facility. As of March 30, 2022, $535.7 million of credit was available under the new revolving credit facility. The $800.0 million revolving credit facility matures on August 18, 2026 and bears interest of LIBOR plus an applicable margin of 1.500% to 2.250% and an undrawn commitment fee of 0.250% to 0.350%, both based on a function of our debt-to-cash-flow ratio. As of March 30, 2022, our interest rate was 2.250% consisting of LIBOR of 0.500% plus the applicable margin of 1.750%. In the thirty-nine week period ended March 30, 2022, we incurred and capitalized $3.1 million of debt issuance costs associated with the new revolver, which are included in Other assets in the Consolidated Balance Sheets (Unaudited). As of March 30, 2022, we were in compliance with our covenants pursuant to the $800.0 million revolving credit facility and under the terms of the indentures governing our 3.875% notes and 5.000% notes. Refer to Note 10 - Debt for further information about our notes and revolving credit facility. Share Repurchase Program Our share repurchase program is used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. We evaluate potential share repurchases under our plan based on several factors, including our cash position, share price, operational liquidity, proceeds from divestitures, borrowings and planned investment and financing needs. Repurchased shares are reflected as an increase in Treasury stock within Shareholders’ deficit in the Consolidated Balance Sheets (Unaudited). In the fourth quarter of fiscal 2020, our share repurchase program was suspended in response to the business downturn caused by the COVID-19 pandemic. In August 2021, our Board of Directors reinstated the share repurchase program, allowing for a total available repurchase authority of $300.0 million. In the thirty-nine week period ended March 30, 2022, we repurchased 2.4 million shares of our common stock for $100.8 million, including 2.3 million shares purchased as part of our share repurchase program and 0.1 million shares purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares. As of March 30, 2022, approximately $204.0 million was available under our share repurchase authorizations. 41 Table of Contents Dividend Program In the fourth quarter of fiscal 2020, our Board of Directors voted to suspend the quarterly cash dividend in response to the liquidity needs created by the COVID-19 pandemic. In the thirty-nine week periods ended March 30, 2022 and March 24, 2021, dividends paid were solely related to the previously accrued dividends for restricted share awards that were granted prior to the suspension and vested in the period. Restricted share award dividends are accrued in Other accrued liabilities for the current portion to vest within 12 months, and Other liabilities for the portion that will vest after one year. Cash Flow Outlook We believe that our various sources of capital, including future cash flow from operating activities and availability under our existing credit facility are adequate to finance operations as well as the repayment of current debt obligations within the next year. We continue to serve guests at all of our locations through our dining rooms and off-premise offerings, and have resumed normal business operations in accordance with state and local mandates. We are not aware of any other event or trend that would potentially materially affect our liquidity. In the event such a trend develops, we believe that there are sufficient funds available under our credit facility and from our internal cash generating capabilities to adequately manage our ongoing business. Off-Balance Sheet Arrangements An off-balance sheet arrangement is any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which the Company has: (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging or research and development arrangements with us. We have entered into certain pre-commencement leases as disclosed in Note 9 - Leases and have obligations for guarantees on certain lease agreements and letters of credit as disclosed in Note 14 - Contingencies, in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report. Other than these items, we do not have any off-balance sheet arrangements. Recent Accounting Pronouncements The impact of recent accounting pronouncements can be found at Note 1 - Basis of Presentation in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in our quantitative and qualitative market risks set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.