What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-01 compared with 2022-11-02 · 246 added, 121 removed, 193 unchanged (66% of the section changed)

1 unchanged sentence

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 week periods ended September 28, 2022 and September 29, 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.

For an understanding of the significant factors that influenced our performance during the thirteen and twenty-six week periods ended December 28, 2022 and December 29, 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.

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 ® .

As of September 28, 2022, we owned, operated or franchised 1,645 restaurants, consisting of 1,182 Company-owned restaurants and 463 franchised restaurants, located in the United States, 28 countries and two United States territories.

As of December 28, 2022, we owned, operated or franchised 1,648 restaurants, consisting of 1,182 Company-owned restaurants and 466 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

The number of open dining rooms and the dining room capacity restrictions fluctuated over the course of the COVID-19 pandemic based on state and local mandates and resulted in significant adverse impacts to our guest traffic and sales primarily in fiscal 2021.

Starting in fiscal 2022, we 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.

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.

Impact of Inflation

During the first quarter of fiscal 2023, inflation did have a material impact on our operations.

Increasing inflation could have a severe impact on the United States or global economies and have an adverse impact on our business, financial condition and results of operations.

If commodity pricing and labor costs increase significantly, we may not be able to adjust menu prices to sufficiently offset the effect of the various cost increases without negatively impacting consumer demand.

COVID-19 Pandemic and Other Impacts to Our Operating Environment

During fiscal 2022, increasing COVID-19 cases in the United States, including the Omicron variant, significantly impacted our guest traffic and sales.

Many of our restaurants had face mask requirements and some of our restaurants had proof of vaccination requirements, for our customers, team members or both.

During fiscal 2022 and fiscal 2023, our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and food and beverage costs.

The ongoing effects of COVID-19 and its variants, along with other geopolitical and macroeconomic events could lead to further capacity restrictions, mask and vaccine mandates, wage inflation, staffing challenges, product cost inflation and disruptions in the supply chain that impact our restaurants’ ability to obtain the products needed to support their operation.

Such events could also negatively affect consumer spending potentially reducing guest traffic and/or reducing the average amount guests spend in our restaurants.

Operations Strategy

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Our strategies and culture are intended to strengthen our position in casual dining and grow our core business over time.

Our primary brand strategy is to make our guests feel special through a fun atmosphere, delicious food and drinks, with quality service so that our guests return to our restaurants.

Our primary brand 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.

During fiscal 2022, we expanded partnerships with third-party delivery companies, and Chili’s, Maggiano’s, and It’s Just Wings brands are currently available on DoorDash, Uber Eats, and Grubhub.

We expanded partnerships with third-party delivery companies, and Chili’s, Maggiano’s, and It’s Just Wings brands are currently available on DoorDash, Uber Eats, and Grubhub.

Orders to these third-party delivery companies are sent directly into our point of sale system, creating efficiencies and a system that allows us to better serve our guests.

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Chili’s - Chili’s strategy is to differentiate from our competitors with a flexible platform of value offerings at both lunch and dinner and we are committed to offering consistent, quality products at a price point that is compelling to our guests.

During fiscal 2022, we discontinued the 3 for $10.99 platform and replaced it with 3 for Me, a flexible value bundle providing guests an unbeatable everyday value, while allowing us to be more flexible in terms of pricing, in light of the inflationary challenges.

We discontinued the 3 for $10.99 platform during the fourth quarter of fiscal 2022 and replaced it with 3 for Me, a flexible value bundle providing guests an unbeatable everyday value, while allowing us to be more flexible in terms of pricing, in light of the inflationary challenges.

Guests can order customized meals inclusive of a non-alcoholic drink, appetizer and entrée starting at just $10.99.

The bundle can be augmented with a premium appetizer, dessert, or alcoholic beverage, each for just $2.49 extra.

Additionally, we have continued our Margarita of the Month

promotion that features a premium-liquor margarita every month at an every-day value price.

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.

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Our virtual brands have enabled 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 at the end of fiscal 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.

It’s Just Wings, 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 inspired by the 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.

These brands are available for purchase through our third party service providers 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.

Franchise Partnerships - Our franchisees continue to grow our brands around the world, opening three restaurants for the thirteen week period ended September 28, 2022.

Franchise Partnerships - Our franchisees continue to grow our brands around the world, opening nine restaurants for the twenty-six week period ended December 28, 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.

Company Development - The following table details the number of restaurant openings during the thirteen week periods ended September 28, 2022 and September 29, 2021, respectively, total full year projected openings in fiscal 2023 and the total restaurants open at each period end:

Openings During the Full Year Projected Openings

Thirteen Week Periods Ended Total Open Restaurants at

September 28, 2022 September 29, 2021 Fiscal 2023 September 28, 2022 September 29, 2021

Company Development - The following table details the number of restaurant openings during the thirteen and twenty-six week periods ended December 28, 2022 and December 29, 2021, respectively, total full year projected openings in fiscal 2023 and the total restaurants open at each period end:

Openings During the Openings During the Full Year Projected Openings

Thirteen Week Periods Ended Twenty-Six Week Periods Ended Total Open Restaurants at

December 28, 2022 December 29, 2021 December 28, 2022 December 29, 2021 Fiscal 2023 December 28, 2022 December 29, 2021

Company-owned restaurants

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Relocations are not included in the table above.

We plan to relocate one Chili’s domestic Company-owned restaurant during the remainder of fiscal 2023.

At September 28, 2022, we own property for 51 of the 1,182 Company-owned restaurants and two closed restaurants.

We relocated one Chili’s domestic Company-owned restaurant during the second quarter of fiscal 2023.

At December 28, 2022, we own property for 51 of the 1,182 Company-owned restaurants and two closed restaurants.

The net book values associated with these restaurants included land of $43.4 million and buildings of $13.6 million.

Thirteen Week Period Ended September 28, 2022 compared to September 29, 2021

Thirteen and Twenty-Six Week Periods Ended December 28, 2022 compared to December 29, 2021

Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive (Loss) Income (Unaudited) to provide more clarity around Company-owned restaurant revenues and operating expenses trends:

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Chili’s Maggiano’s Total Revenues

Thirteen Week Period Ended September 29, 2021 $ 787.6 $ 88.8 $ 876.4

Thirteen Week Period Ended December 29, 2021 $ 808.2 $ 117.6 $ 925.8

Comparable restaurant sales 60.4 23.2 83.6

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Digital entertainment revenues 0.7 — 0.7

Merchandise income 0.1 — 0.1

Delivery service fee income (1.0) 0.3 (0.7)

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(0.4) — (0.4)

Thirteen Week Period Ended September 28, 2022 $ 849.9 $ 105.6 $ 955.5

Thirteen Week Period Ended December 28, 2022 $ 878.7 $ 140.3 $ 1,019.0

Total Revenues

Chili’s Maggiano’s Total Revenues

Twenty-Six Week Period Ended December 29, 2021 $ 1,595.8 $ 206.4 $ 1,802.2

Comparable restaurant sales 88.9 38.5 127.4

Restaurant acquisitions (1)

Restaurant openings 7.0 — 7.0

Maggiano's banquet income — 2.8 2.8

Gift card discount costs 0.7 0.2 0.9

Gift card breakage (2.0) (0.3) (2.3)

Merchandise income 0.1 — 0.1

Digital entertainment revenues 1.1 — 1.1

Delivery service fee income (1.9) 0.4 (1.5)

Restaurant closures (4.9) (2.1) (7.0)

Company sales 134.6 39.5 174.1

Franchise revenues (2)

(1.8) — (1.8)

Twenty-Six Week Period Ended December 28, 2022 $ 1,728.6 $ 245.9 $ 1,974.5

(1) We acquired 23 Chili’s restaurants on September 2, 2021, 37 Chili’s restaurants on October 31, 2021, six Chili’s restaurants on February 1, 2022 and two Chili’s restaurants on May 5, 2022 from three franchisees.

The revenues generated by these restaurants since the date of the acquisitions are included in Company sales for the thirteen week period ended September 28, 2022.

(2) Our Chili’s and Maggiano’s franchisees generated sales of approximately $203.3 million and $2.4 million respectively for the thirteen week period ended September 28, 2022 compared to $211.9 million and $1.9 million respectively in sales for the thirteen week period ended September 29, 2021.

The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen week period ended September 28, 2022 compared to September 29, 2021:

Percentage Change in the Thirteen Week Period Ended September 28, 2022 versus September 29, 2021

The revenues generated by these restaurants since the date of the acquisitions are included in Company

sales for the thirteen and twenty-six week periods ended December 28, 2022.

(2) Our Chili’s and Maggiano’s franchisees generated sales of approximately $213.4 million and $2.6 million and $419.0 million and $5.0 million respectively for the thirteen and twenty-six week periods ended December 28, 2022 compared to $201.8 million and $2.2 million and $415.1 million and $4.2 million respectively in sales for the thirteen and twenty-six week periods ended December 29, 2021.

Franchise revenues decreased primarily because of lower royalties due to variance in royalty rates, and lower franchise advertising fees.

The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen and twenty-six week periods ended December 28, 2022 compared to December 29, 2021:

Percentage Change in the Thirteen Week Period Ended December 28, 2022 versus December 29, 2021

Comparable Restaurant Sales (1)

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System-wide (6)

Percentage Change in the Twenty-Six Week Period Ended December 28, 2022 versus December 29, 2021

Comparable Restaurant Sales (1)

Price Impact Mix-Shift Impact (2)

Traffic Impact Restaurant Capacity (3)

Company-owned 7.6 % 8.5 % 4.3 % (5.2) % 3.0 %

Chili’s 5.9 % 8.7 % 4.3 % (7.1) % 3.2 %

Maggiano’s 19.9 % 6.9 % 4.2 % 8.8 % (1.0) %

Franchise (4)

International 8.9 %

Chili’s domestic (5)

System-wide (6)

(1) Comparable Restaurant Sales include all restaurants that have been in operation for more than 18 months.

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Costs and Expenses

Thirteen Week Period Ended September 28, 2022 compared to September 29, 2021

Thirteen Week Period Ended December 28, 2022 compared to December 29, 2021

The following is a summary of the changes in Costs and Expenses:

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 28, 2022 September 29, 2021

December 28, 2022 December 29, 2021

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

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As a percentage of Company sales:

• Food and beverage costs increased 3.6%, including 5.9% of higher poultry, meat and other commodity costs due to supply chain constraints and inflationary pressures, partially offset by 2.1% of increased menu pricing and 0.2% of favorable menu item mix.

• Restaurant labor decreased 0.3%, including 1.7% of sales leverage, partially offset by 0.7% of increased manager salaries rates and headcount and 0.7% of increased hourly wage rates.

• Restaurant expenses increased 1.7%, driven by 0.8% of higher delivery fee expenses, 0.5% of higher utilities expenses, 0.5% of higher repairs and maintenance expenses, 0.2% of higher rent expenses, 0.2% of higher workers’ compensation and general liability insurance, 0.2% of higher supplies and 0.5% of higher other restaurant expenses, These increases were partially offset by 1.0% of sales leverage and 0.2% of lower advertising expenses.

• Food and beverage costs increased 1.1%, including 4.6% of higher meat, poultry and other commodity costs due to inflationary pressures, partially offset by 2.7% of increased menu pricing 0.8% of favorable menu item mix.

• Restaurant labor decreased 1.3%, including 2.7% of sales leverage and 0.4% of lower other labor expenses, partially offset by 0.8% of higher hourly labor expenses primarily due to increased wage rates and staffing levels, 0.6% of higher manager expenses due to increased manager salaries and headcount, and 0.4% of higher manager bonus.

• Restaurant expenses increased 0.7%, including 0.8% of higher repairs and maintenance expenses, 0.4% of higher delivery fees due to increased volume and promotions, 0.2% of higher utilities expenses, 0.2% of higher workers’ compensation and general liability expenses, 0.2% of higher rent and 0.5% of higher other restaurant expenses, partially offset by 1.6% of sales leverage.

Depreciation and amortization increased $0.2 million as follows:

Depreciation and Amortization

Thirteen Week Period Ended September 29, 2021 $ 39.3

Thirteen Week Period Ended December 29, 2021 $ 41.6

Additions for new and existing restaurant assets 5.0

Acquisition of Chili’s restaurants (1)

Corporate assets 0.5

Retirements and fully depreciated restaurant assets (4.7)

Finance leases (1.3)

Thirteen Week Period Ended December 28, 2022 $ 41.8

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 45 Chili’s restaurants acquired subsequent to the first quarter of fiscal 2022.

General and administrative expen ses increased $2.5 million as follows:

General and Administrative

Thirteen Week Period Ended December 29, 2021 $ 33.1

Performance-based compensation 6.2

Defined contribution plan employer expenses 0.6

Payroll expenses 0.3

Stock-based compensation (1)

Professional fees (0.3)

Travel and entertainment expenses (0.1)

Thirteen Week Period Ended December 28, 2022 $ 35.6

(1) Stock-based compensation decreased due to the reversal of performance-based award expense as certain performance targets are no longer expected to be achieved.

Other (gains) and charges consisted of the following (for further details, refer to Note 3 - Other Gains and Charges):

Thirteen Week Periods Ended

2022 December 29,

Restaurant closure charges $ 3.3 $ 0.3

Severance and other benefit charges 2.4 —

Loss from natural disasters, net of (insurance recoveries) 1.1 0.2

Enterprise system implementation costs 1.0 0.3

Remodel-related costs 0.2 1.6

Lease contingencies — 2.9

Other 0.5 1.1

Interest expenses increased $2.7 million due to higher interest rates on our revolving credit facility in fiscal 2023 compared to fiscal 2022.

Twenty-Six Week Period Ended December 28, 2022 compared to December 29, 2021

The following is a summary of the changes in Costs and Expenses:

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

December 28, 2022 December 29, 2021

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

Food and beverage costs $ 578.9 29.6 % $ 487.1 27.3 % $ (91.8) (2.3) %

Restaurant labor 665.2 34.0 % 620.3 34.8 % (44.9) 0.8 %

Restaurant expenses 537.2 27.5 % 468.0 26.3 % (69.2) (1.2) %

Depreciation and amortization 83.7 80.9 (2.8)

General and administrative 75.1 69.6 (5.5)

Other (gains) and charges 13.5 10.9 (2.6)

Interest expenses 26.2 23.7 (2.5)

Other income, net (0.7) (0.8) (0.1)

As a percentage of Company sales:

• Food and beverage costs increased 2.3%, including 5.5% of higher poultry, meat, produce, and other commodity costs due to inflationary pressures, partially offset by 2.3% of increased menu pricing and 0.9% of favorable menu item mix.

• Restaurant labor decreased 0.8%, including 2.2% of sales leverage, partially offset by 0.9% of higher hourly labor expenses primarily due to increased wage rates and staffing levels, 0.6% of increased manager salaries and headcount, 0.3% of increased manager bonus, and 0.4% of higher other labor expenses.

• Restaurant expenses increased 1.2%, driven by 0.7% of higher repairs and maintenance expenses, 0.7% of higher delivery fee expenses, 0.4% of higher utilities expenses, 0.2% of higher rent expenses, 0.2% of higher workers’ compensation and general liability expenses, and 0.4% of higher other restaurant expenses, These increases were partially offset by 1.4% of sales leverage.

Depreciation and amortization increased $2.8 million as follows:

Depreciation and Amortization

Twenty-Six Week Period Ended December 29, 2021 $ 80.9

Additions for existing and new restaurant assets 10.3

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Finance leases (1.8)

Thirteen Week Period Ended September 28, 2022 $ 41.9

Twenty-Six Week Period Ended December 28, 2022 $ 83.7

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 68 Chili’s restaurants acquired in fiscal 2022.

General and administrative expe nses increased $3.0 million as follows:

General and administrative expenses increased $5.5 million as follows:

General and Administrative

Thirteen Week Period Ended September 29, 2021 $ 36.5

Twenty-Six Week Period Ended December 29, 2021 $ 69.6

Performance-based compensation 7.2

Payroll-related expenses 0.9

Payroll expenses 1.2

Recruiting 0.4

Stock-based compensation (1)

Professional fees (1.4)

Thirteen Week Period Ended September 28, 2022 $ 39.5

Twenty-Six Week Period Ended December 28, 2022 $ 75.1

(1) Stock-based compensation decreased due to the reversal of performance-based award expense as certain performance targets are no longer expected to be achieved.

Other (gains) and charges consisted of the following (for further details, refer to Note 3 - Other Gains and Charges):

Thirteen Week Periods Ended

September 28,

2022 September 29,

Twenty-Six Week Periods Ended

2022 December 29,

Restaurant closure charges $ 4.8 $ 0.5

Severance and other benefit charges 2.9 —

Enterprise system implementation costs 2.0 0.9

Loss from natural disasters, net of (insurance recoveries) 0.9 0.8

Remodel-related costs 1.0 3.1

Lease modification gain, net (0.7) —

Lease contingencies — 2.9

Other 1.9 2.7

Thirteen Week Periods Ended

September 28,

2022 September 29,

$ 13.5 $ 10.9

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2022 December 29,

2021 December 28,

2022 December 29,

Effective income tax rate (3.0) % 5.2 % 50.0 % 4.0 %

The federal statutory tax rate was 21.0% for the thirteen week periods ended September 28, 2022 and September 29, 2021.

The effective income tax rate in the thirteen week period ended September 28, 2022 increased compared to the thirteen week period ended September 29, 2021 creating a tax benefit due to negative Income before income taxes.

The increase in benefit is primarily due to the more favorable impact from the FICA tip tax credit, partially offset by the excess tax shortfalls associated with stock-based compensation.

The federal statutory tax rate was 21.0% for the thirteen and twenty-six week periods ended December 28, 2022 and December 29, 2021.

The change in the effective income tax rate in the thirteen week period ended December 28, 2022 to the thirteen week period ended December 29, 2021, is primarily due to the favorable impact from the FICA tip tax credit, partially offset by the excess tax shortfalls associated with stock-based compensation.

The change in the effective income tax rate in the twenty-six week period ended December 28, 2022 to the twenty-six week period ended December 29, 2021, is primarily due to lower Income before income taxes and leverage of the FICA tip credit, partially offset by the excess tax shortfalls associated with stock-based compensation.

Segment Results

Chili’s Segment

Thirteen Week Period Ended September 28, 2022 compared to September 29, 2021

Thirteen Week Period Ended December 28, 2022 compared to December 29, 2021

Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage

September 28,

2022 September 29,

2022 December 29,

Company sales $ 869.3 $ 798.4 $ 70.9 8.9 %

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Total revenues $ 878.7 $ 808.2 $ 70.5 8.7 %

Chili’s Total revenues increased 7.9% primarily due to price increases, favorable mix, the acquisition of 68 Chili’s restaurants in fiscal 2022 and four new restaurant openings, partially offset by lower traffic.

Chili’s Total revenues increased by 8.7% primarily due to menu price increases, favorable menu item mix, the acquisition of 45 Chili’s restaurants subsequent to the first quarter of fiscal 2022, and seven restaurant openings, partially offset by lower traffic.

Refer to “Revenues” section above for further details about Chili’s revenues changes.

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Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 28, 2022 September 29, 2021

December 28, 2022 December 29, 2021

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

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As a percentage of Company sales

• Chili’s Food and beverage costs increased 3.5%, including 5.9% of higher poultry, meat and other commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 2.1% of increased menu pricing and 0.3% of favorable menu item mix.

• Chili’s Restaurant labor decreased 0.2%, including 1.2% of sales leverage and 0.3% of lower other restaurant labor costs, partially offset by 0.9% of increased manager salary rates, headcount and bonus and 0.4% of increased hourly wage rates.

• Chili’s Restaurant expenses increased 1.9%, including 0.9% of higher delivery fee expenses, 0.5% of higher utilities expenses, 0.5% of higher repairs and maintenance expenses, 0.2% of higher rent expenses and 0.4% of higher other restaurant expenses, partially offset by 0.6% of sales leverage.

• Chili’s Food and beverage costs increased 1.0%, including 4.9% of higher poultry, meat, produce and other commodity costs due to inflationary pressures, partially offset by 2.8% of increased menu pricing and 1.1% of favorable menu item mix.

• Chili’s Restaurant labor decreased 1.2%, including 2.4% of sales leverage, 0.3% of lower health insurance expenses and 0.1% of other labor expenses, partially offset by 0.8% of increased manager salary rates, headcount and bonus and 0.8% of higher hourly labor driven by increased hourly wage rates and staffing levels.

• Chili’s Restaurant expenses increased 1.3%, including 1.1% of higher repairs and maintenance expenses, 0.5% of higher rent expenses, 0.4% of higher delivery fee expenses, 0.4% of higher utilities expenses, 0.2% of higher workers’ compensation and general liability expenses, 0.7% of higher other restaurant expenses, partially offset by 2.0% of sales leverage.

Chili’s Depreciation and amortization increased $0.6 million as follows:

Depreciation and Amortization

Thirteen Week Period Ended September 29, 2021 $ 33.0

Thirteen Week Period Ended December 29, 2021 $ 35.4

Additions for new and existing restaurant assets 4.7

Acquisition of Chili’s restaurants (1)

Finance leases (1.2)

Retirements and fully depreciated restaurant assets (3.6)

Thirteen Week Period Ended December 28, 2022 $ 36.0

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 45 Chili’s restaurants acquired subsequent to the first quarter of fiscal 2022.

Chili’s General and administrative increased $1.3 million as follows:

General and Administrative

Thirteen Week Period Ended December 29, 2021 $ 7.2

Performance-based compensation 1.6

Payroll expenses 0.3

Defined contribution plan employer expenses 0.1

Stock-based compensation (0.6)

Thirteen Week Period Ended December 28, 2022 $ 8.5

Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 3 - Other Gains and Charges):

Thirteen Week Periods Ended

2022 December 29,

Restaurant closure charges $ 3.1 $ 0.3

Loss from natural disasters, net of (insurance recoveries) 1.1 0.2

Severance and other benefit charges 1.0 —

Remodel-related costs 0.2 1.6

Other 0.3 0.1

Twenty-Six Week Period Ended December 28, 2022 compared to December 29, 2021

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage

2022 December 29,

Company sales $ 1,709.9 $ 1,575.3 $ 134.6 8.5 %

Franchise revenues 18.7 20.5 (1.8) (8.8) %

Total revenues $ 1,728.6 $ 1,595.8 $ 132.8 8.3 %

Chili’s Total revenues increased 8.3% primarily due to price increases, favorable menu item mix, the acquisition of 68 Chili’s restaurants in fiscal 2022 and seven restaurant openings, partially offset by lower traffic.

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:

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

December 28, 2022 December 29, 2021

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

Food and beverage costs $ 514.6 30.1 % $ 438.2 27.8 % $ (76.4) (2.3) %

Restaurant labor 586.7 34.3 % 551.1 35.0 % (35.6) 0.7 %

Restaurant expenses 471.0 27.6 % 409.6 26.0 % (61.4) (1.6) %

Depreciation and amortization 72.0 68.4 (3.6)

General and administrative 18.0 15.2 (2.8)

Other (gains) and charges 8.7 5.0 (3.7)

As a percentage of Company sales:

• Chili’s Food and beverage costs increased 2.3%, including 5.8% of higher poultry, meat, poultry and other commodity costs resulting from inflationary pressures, partially offset by 2.4% of increased menu pricing and 1.1% of favorable menu item mix.

• Chili’s Restaurant labor decreased 0.7%, including 1.7% of sales leverage and 0.3% of lower other restaurant labor costs, partially offset by 0.8% of increased manager salaries, headcount and bonus and 0.5% of higher hourly labor expenses primarily due to increased wage rates and staffing levels.

• Chili’s Restaurant expenses increased 1.6%, including 0.7% of higher repairs and maintenance expenses, 0.7% of higher delivery fee expenses, 0.4% of higher utilities expenses, 0.2% of higher rent expenses, and 0.4% of higher other restaurant expenses, partially offset by 0.8% of sales leverage.

Chili’s Depreciation and amortization increased $3.6 million as follows:

Depreciation and Amortization

Twenty-Six Week Period Ended December 29, 2021 $ 68.4

Additions for existing and new restaurant assets 9.6

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Finance leases (1.7)

Thirteen Week Period Ended September 28, 2022 $ 36.0

Twenty-Six Week Period Ended December 28, 2022 $ 72.0

(1) Represents the incremental depreciation and amortization of the assets and finance leases of the 68 Chili’s restaurants acquired in fiscal 2022.

1 unchanged sentence

General and Administrative

Thirteen Week Period Ended September 29, 2021 $ 8.0

Payroll-related expenses 0.5

Twenty-Six Week Period Ended December 29, 2021 $ 15.2

Performance-based compensation 2.0

Payroll expenses 0.8

Recruiting 0.5

Stock-based compensation (0.8)

Thirteen Week Period Ended September 28, 2022 $ 9.5

Twenty-Six Week Period Ended December 28, 2022 $ 18.0

Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 3 - Other Gains and Charges):

Thirteen Week Periods Ended

September 28,

2022 September 29,

Twenty-Six Week Periods Ended

2022 December 29,

Restaurant closure charges $ 4.2 $ 0.5

Loss from natural disasters, net of (insurance recoveries) 0.9 0.8

Severance and other benefit charges 1.4 —

Remodel-related costs 1.0 3.0

Lease modification gain, net (0.7) —

Other 1.2 0.7

Maggiano’s Segment

Thirteen Week Period Ended September 28, 2022 compared to September 29, 2021

Thirteen Week Period Ended December 28, 2022 compared to December 29, 2021

Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as a percentage

September 28,

2022 September 29,

2022 December 29,

Company sales $ 140.1 $ 117.4 $ 22.7 19.3 %

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Total revenues $ 140.3 $ 117.6 $ 22.7 19.3 %

Maggiano’s Total revenues increased 18.9% primarily due to higher dining and banquet room traffic and increased menu pricing.

Maggiano’s Total revenues increased 19.3% primarily due to higher dining room and banquet traffic and increased menu pricing.

Refer to “Revenues” section above for further details about Maggiano’s revenues changes.

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Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 28, 2022 September 29, 2021

December 28, 2022 December 29, 2021

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

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As a percentage of Company sales:

• Maggiano’s Food and beverage costs increased 3.5%, including 4.6% of higher seafood and other commodity costs resulting from supply chain constraints and inflationary pressures, partially offset by 0.9% of increased menu pricing and 0.2% of favorable menu item mix.

• Maggiano’s Restaurant labor decreased 1.1%, including 1.8% of sales leverage, 0.3% of lower manager bonus expenses and 0.2% of lower manager training, partially offset by 1.2% of higher manager salaries.

• Maggiano’s Restaurant expenses increased 0.1%, driven by higher expenses including 0.8% of delivery fees, 0.6% of utilities, 0.5% of repairs and maintenance expenses, 0.3% of supervision expenses and 1.6% of other restaurant expenses, partially offset by 3.7% of sales leverage.

• Maggiano’s Food and beverage costs increased 1.6%, including 2.6% of higher dairy, poultry and other commodity costs resulting from inflationary pressures and 0.9% of unfavorable menu item mix, partially offset by 1.7% of increased menu pricing.

• Maggiano’s Restaurant labor decreased 2.0%, including 5.0% of sales leverage, 0.3% of lower manager training, and 0.2% of lower manager bonus, partially offset by 2.8% of higher hourly labor costs due primarily to an increase in hourly wage rates, and 0.7% of higher manager salaries.

• Maggiano’s Restaurant expenses decreased 2.4%, including 2.7% of sales leverage, 0.3% of lower rent expenses, and 0.3% of lower other restaurant expenses, partially offset by 0.5% of higher delivery fees and 0.4% of higher repairs and maintenance expenses.

Twenty-Six Week Period Ended December 28, 2022 compared to December 29, 2021

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance Variance as a percentage

2022 December 29,

Company sales $ 245.6 $ 206.1 $ 39.5 19.2 %

Franchise revenues 0.3 0.3 — — %

Total revenues $ 245.9 $ 206.4 $ 39.5 19.1 %

Maggiano’s Total revenues increased 19.1% primarily due to higher dining room and banquet traffic and increased menu pricing.

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:

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

December 28, 2022 December 29, 2021

Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales

Food and beverage costs $ 64.3 26.2 % $ 48.9 23.7 % $ (15.4) (2.5) %

Restaurant labor 78.5 32.0 % 69.2 33.6 % (9.3) 1.6 %

Restaurant expenses 65.9 26.8 % 58.1 28.2 % (7.8) 1.4 %

Depreciation and amortization 6.5 6.8 0.3

General and administrative 4.0 3.9 (0.1)

Other (gains) and charges 0.8 0.2 (0.6)

As a percentage of Company sales:

• Maggiano’s Food and beverage costs increased 2.5%, including 3.4% of higher poultry, dairy and other commodity costs resulting from inflationary pressures, 0.6% of unfavorable menu item mix, partially offset by 1.3% of increased menu pricing.

• Maggiano’s Restaurant labor decreased 1.6%, including 5.3% of sales leverage, 0.3% of lower manager bonus, and 0.3% of lower manager training, partially offset by 3.2% of higher hourly labor costs due primarily to an increase in hourly wage rates, 0.9% of higher manager salaries, and 0.2% of higher other labor expenses.

• Maggiano’s Restaurant expenses decreased 1.4%, including 3.0% of sales leverage, partially offset by 0.7% of higher delivery fees, 0.4% of higher repairs and maintenance expenses, 0.3% of higher utilities expenses, and 0.2% of higher other restaurant expenses.

Liquidity and Capital Resources

Cash Flows from Operating Activities

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 28,

2022 September 29,

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

2022 December 29,

Net cash provided by operating activities $ 68.0 $ 107.4 $ (39.4)

Net cash provided by operating activities decreased due to a decrease in net income, partially offset by a decrease in payments of performance based compensation and bonuses in the current year and the timing of operational receipts and payments.

Cash Flows from Investing Activities

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 28,

2022 September 29,

Net cash provided by operating activities decreased due to a decrease in net income and an increase in income tax payments, net of refunds received, partially offset by a decrease in payments of performance-based compensation and manager bonuses in the current year and the timing of operational receipts and payments.

Cash Flows from Investing Activities

Payments for property and equipment $ (46.7) $ (37.3) $ (9.4)

Proceeds from note receivable 1.1 — 1.1

Payments for franchise restaurant acquisitions — (47.5) 47.5

Proceeds from sale leaseback transactions, net of related expenses — 20.5 (20.5)

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

2022 December 29,

Net cash used in investing activities $ (93.2) $ (158.1) $ 64.9

Net cash used in investing activities decreased primarily due to $47.5 million of cash consideration paid in the prior year for the purchase of 23 Chili’s restaurants purchased from a former franchisee, partially offset by proceeds of

$20.5 million received from the sale leaseback transactions on six of the acquired restaurants.

Net cash used in investing activities decreased primarily due to $104.5 million of cash consideration paid for the purchase of 60 Chili’s restaurants in the first and second quarters of fiscal 2022, 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 2023 primarily for the construction of new restaurants.

Cash Flows from Financing Activities

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 28,

2022 September 29,

Cash flows from financing activities

Borrowings on revolving credit facility $ 135.0 $ 285.0 $ (150.0)

Payments on revolving credit facility (100.0) (205.0) 105.0

Payments on long-term debt (5.8) (5.5) (0.3)

Purchases of treasury stock (2.0) (39.6) 37.6

Payments of dividends (0.2) (0.8) 0.6

Payments for debt issuance costs — (3.0) 3.0

Proceeds from issuance of treasury stock 0.0 0.3 (0.3)

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

2022 December 29,

Net cash provided by financing activities $ 26.4 $ 42.4 $ (16.0)

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Revolving Credit Facility

Net borrowings of $35.0 million were drawn during the thirteen week period ended September 28, 2022 on the revolving credit facility.

As of September 28, 2022, $493.7 million of credit was available under the revolving credit facility.

Net borrowings of $40.0 million were drawn during the twenty-six week period ended December 28, 2022 on the revolving credit facility.

As of December 28, 2022, $488.7 million of credit was available under the 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 September 28, 2022, our interest rate was 4.875% consisting of LIBOR of 3.125% plus the applicable margin of 1.750%.

As of September 28, 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.

As of December 28, 2022, our interest rate was 6.438% consisting of LIBOR of 4.438% plus the applicable margin of 2.000%.

As of December 28, 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.

Our $300.0 million 3.875% notes mature in May 2023 and are expected to be paid using availability under the revolving credit facility.

As a result of our intent and ability to refinance these notes through our existing revolving credit facility, the notes are classified as long-term debt in the Consolidated Balance Sheets (Unaudited) on December 28, 2022.

Refer to Note 9 - Debt for further information about our notes and revolving credit facility.

Share Repurchase Program

Our Board of Directors approved a $300.0 million share repurchase program during fiscal 2022.

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 August 2021, our Board of Directors reinstated our share repurchase program, allowing for a total available repurchase authority of $300.0 million.

In the thirteen week period ended September 28, 2022, we repurchased 0.1 million shares of our common stock for $2.0 million, all of which were purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares.

As of September 28, 2022, approximately $204.0 million was available under our share repurchase authorizations.

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 thirteen week periods ended September 28, 2022 and September 29, 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.

In the twenty-six week period ended December 28, 2022, we repurchased 0.1 million shares of our common stock for $2.1 million, all of which were purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares.

These withheld shares of common stock are not considered common stock repurchases under our authorized common stock repurchase plan.

As of December 28, 2022, approximately $204.0 million of share repurchase authorization remains under the current share repurchase program.

Cash Flow Outlook

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Off-Balance Sheet Arrangements

We have entered into certain pre-commencement leases as disclosed in Note 8 - Leases and have obligations for guarantees on certain lease agreements and letters of credit as disclosed in Note 13 - 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.

We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, sales, costs or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Estimates

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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.

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 29, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis