What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2023-02-01 · 145 added, 146 removed, 293 unchanged (50% 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 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.

For an understanding of the significant factors that influenced our performance during the thirteen and thirty-nine week periods ended March 29, 2023 and March 30, 2022, 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 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.

As of March 29, 2023, we owned, operated or franchised 1,654 restaurants, consisting of 1,184 Company-owned restaurants and 470 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.

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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.

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.

Guest Engagement Through Technology - We have invested in our technology and off-premise options as guest preferences change, and we have expanded partnerships with third-party delivery companies, including DoorDash, Uber Eats, and Grubhub.

Third-party delivery orders for our Chili’s, Maggiano’s, and It’s Just Wings brands 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.

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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 have invested 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.

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, 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 and the brand-specific websites itsjustwings.com and maggianosclassics.com.

Virtual Brands - Our virtual brands provide restaurant-like menu offerings that are only available for purchase digitally.

It’s Just Wings primarily offers chicken wings available with a variety of different sauces and rubs.

Maggiano’s Italian Classics offers a select group of items inspired by the menu of Maggiano’s Little Italy.

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 nine restaurants for the twenty-six week period ended December 28, 2022.

During fiscal 2023, we began reducing the number of restaurants offering Maggiano’s Italian Classics and plan to remove the virtual brand entirely by the end of fiscal 2023.

Franchise Partnerships - Our franchisees continue to grow our brands around the world, opening 16 restaurants for the thirty-nine week period ended March 29, 2023.

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 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:

Company Development - The following table details the number of restaurant openings during the thirteen and thirty-nine week periods ended March 29, 2023 and March 30, 2022, 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

Thirteen Week Periods Ended Thirty-Nine Week Periods Ended Total Open Restaurants at

March 29, 2023 March 30, 2022 March 29, 2023 March 30, 2022 Fiscal 2023 March 29, 2023 March 30, 2022

Company-owned restaurants

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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 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:

• Company sales include revenues generated by the operation of Company-owned restaurants including food and beverage sales, net of discounts, Maggiano’s banquet service charge income, gift card breakage, delivery income, digital entertainment revenues, merchandise income and gift card discount costs from third-party gift card sales.

At March 29, 2023, we own property for 50 of the 1,184 Company-owned restaurants and three closed restaurants The net book values associated with these restaurants included land of $43.4 million and buildings of $13.1 million.

Thirteen and Thirty-Nine Week Periods Ended March 29, 2023 compared to March 30, 2022

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 food and beverage sales, net of discounts, gift card breakage, Maggiano’s banquet service charge income,

delivery, digital entertainment revenues, merchandise income and gift card discount costs from third-party gift card sales.

• Franchise revenues include royalties, franchise advertising fees, franchise and development fees and gift card equalization.

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Chili’s Maggiano’s Total Revenues

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

Thirteen Week Period Ended March 30, 2022 $ 879.6 $ 100.8 $ 980.4

Comparable restaurant sales 77.3 20.2 97.5

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Franchise revenues (2)

(0.4) — (0.4)

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

Thirteen Week Period Ended March 29, 2023 $ 963.4 $ 119.8 $ 1,083.2

Total Revenues

Chili’s Maggiano’s Total Revenues

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

Thirty-Nine Week Period Ended March 30, 2022 $ 2,475.4 $ 307.2 $ 2,782.6

Comparable restaurant sales 166.2 58.7 224.9

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(1.0) — (1.0)

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

Thirty-Nine Week Period Ended March 29, 2023 $ 2,692.0 $ 365.7 $ 3,057.7

(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 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

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 29, 2023.

(2) Our Chili’s and Maggiano’s franchisees generated sales of approximately $213.6 million and $2.5 million and $639.9 million and $7.5 million respectively for the thirteen and thirty-nine week periods ended March 29, 2023 compared to $190.4 million and $1.9 million and $603.7 million and $6.0 million respectively in sales for the thirteen and thirty-nine week periods ended March 30, 2022.

Franchise revenues decreased in the thirty-nine week period ended March 29, 2023 compared to March 30, 2022 primarily because of lower franchise and development fees and lower franchise advertising fees.

The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen and thirty-nine week periods ended March 29, 2023 compared to March 30, 2022:

Percentage Change in the Thirteen Week Period Ended March 29, 2023 versus March 30, 2022

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

Percentage Change in the Thirty-Nine Week Period Ended March 29, 2023 versus March 30, 2022

Comparable Restaurant Sales (1)

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System-wide (6)

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

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

Restaurants temporarily closed 14 days or more are excluded from Comparable Restaurant Sales.

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(3) Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year, including the effect of the acquisitions completed during 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 (Loss) Income (Unaudited);

(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.

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Costs and Expenses

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

Thirteen Week Period Ended March 29, 2023 compared to March 30, 2022

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

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

December 28, 2022 December 29, 2021

March 29, 2023 March 30, 2022

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 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.

• Food and beverage costs decreased 1.0%, including 2.6% of increased menu pricing 0.8% of favorable menu item mix, partially offset by 2.4% of higher poultry, meat, and other commodity costs resulting from inflationary pressures.

• Restaurant labor decreased 0.3%, including 3.2% of sales leverage, partially offset by 1.8% of higher hourly labor expenses primarily due to increased staffing levels and wage rates, 0.6% of higher manager salaries, and 0.6% of higher manager bonus.

• Restaurant expenses increased 1.0%, including 1.2% of higher advertising, 0.8% of higher repairs and maintenance expenses, 0.3% of higher utilities, 0.2% of higher rent and 0.3% of higher other restaurant expenses, partially offset by 1.8% of sales leverage.

Depreciation and amortization increased $0.3 million as follows:

Depreciation and Amortization

Thirteen Week Period Ended December 29, 2021 $ 41.6

Thirteen Week Period Ended March 30, 2022 $ 42.2

Additions for new and existing restaurant assets 5.6

Acquisition of Chili’s restaurants (1)

Corporate assets 0.5

Retirements and fully depreciated restaurant assets (4.7)

Acquisition of Chili’s restaurants 0.3

Finance leases (1.0)

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.

Retirements and fully depreciated restaurant assets (4.8)

Thirteen Week Period Ended March 29, 2023 $ 42.5

General and administrative expen ses increased $1.4 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

Thirteen Week Period Ended March 30, 2022 $ 39.2

Defined contribution plan employer expenses and other benefits 1.0

Payroll expenses 0.5

Stock-based compensation (1)

Professional fees 0.2

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.

Recruiting (0.6)

Stock-based compensation (0.9)

Thirteen Week Period Ended March 29, 2023 $ 40.6

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,

2023 March 30,

Lease contingencies $ 2.0 $ —

Restaurant closure charges 1.8 1.2

Severance and other benefit charges 2.4 —

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

Enterprise system implementation costs 1.3 0.5

Severance and other benefit charges 1.0 —

Remodel-related costs 0.1 0.9

Lease contingencies — 2.9

Acquisition-related costs, net — 0.6

Loss from natural disasters, net of (insurance recoveries) (0.1) —

Other 0.2 2.9

Interest expenses increased $3.1 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

Thirty-Nine Week Period Ended March 29, 2023 compared to March 30, 2022

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

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

March 29, 2023 March 30, 2022

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 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.

• Food and beverage costs increased 1.1%, including 4.1% of higher poultry, meat, produce, dairy and other commodity costs resulting from inflationary pressures, partially offset by 2.3% of increased menu pricing and 0.7% of favorable menu item mix.

• Restaurant labor decreased 0.6%, including 3.1% of sales leverage, partially offset by 1.4% of higher hourly labor expenses primarily due to increased staffing levels and wage rates, 0.8% of higher manager salaries and 0.4% of higher manager bonus.

• Restaurant expenses increased 1.1%, driven by 0.8% of higher repairs and maintenance expenses, 0.4% of higher utilities, 0.3% of higher advertising, 0.3% of higher delivery fee expenses, 0.3% of higher rent, 0.2% of higher self-insurance expenses, and 0.5% of higher other restaurant expenses.

These increases were partially offset by 1.7% of sales leverage.

Depreciation and amortization increased $3.1 million as follows:

Depreciation and Amortization

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

Thirty-Nine Week Period Ended March 30, 2022 $ 123.1

Additions for existing and new restaurant assets 15.9

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Corporate assets 1.5

Retirements and fully depreciated restaurant assets (9.7)

Finance leases (2.8)

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

Retirements and fully depreciated restaurant assets (14.5)

Thirty-Nine Week Period Ended March 29, 2023 $ 126.2

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

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General and Administrative

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

Thirty-Nine Week Period Ended March 30, 2022 $ 108.8

Performance-based compensation 7.0

Defined contribution plan employer expenses and other benefits 2.2

Payroll expenses 1.7

Recruiting 0.4

Stock-based compensation (1)

Professional fees (1.2)

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.

Stock-based compensation (1)

Thirty-Nine Week Period Ended March 29, 2023 $ 115.7

(1) Stock-based compensation decreased primarily due to the reversal in the second quarter of fiscal 2023 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):

Twenty-Six Week Periods Ended

2022 December 29,

Thirty-Nine Week Periods Ended

2023 March 30,

Restaurant closure charges $ 6.6 $ 1.7

1 unchanged sentence

Enterprise system implementation costs 3.3 1.4

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

Remodel-related costs 1.0 3.1

Lease contingencies 2.0 2.9

Remodel-related costs 1.1 4.0

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

Acquisition-related costs, net 0.2 1.5

Other 1.9 4.7

$ 19.8 $ 17.0

Thirteen Week Periods Ended Twenty-Six Week Periods Ended

2022 December 29,

2021 December 28,

2022 December 29,

Thirteen Week Periods Ended Thirty-Nine Week Periods Ended

2023 March 30,

2022 March 29,

2023 March 30,

Effective income tax rate (0.2) % 5.4 % (5.2) % 4.7 %

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.

The federal statutory tax rate was 21.0% for the thirteen and thirty-nine week periods ended March 29, 2023 and March 30, 2022.

The change in the effective income tax rate in the thirteen week period ended March 29, 2023 to the thirteen week period ended March 30, 2022, 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 thirty-nine week period ended March 29, 2023 to the thirty-nine week period ended March 30, 2022, 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 December 28, 2022 compared to December 29, 2021

Thirteen Week Period Ended March 29, 2023 compared to March 30, 2022

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

2022 December 29,

2023 March 30,

Company sales $ 953.2 $ 870.2 $ 83.0 9.5 %

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Total revenues $ 963.4 $ 879.6 $ 83.8 9.5 %

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.

Chili’s Total revenues increased by 9.5% primarily due to menu price increases, favorable menu item mix and higher dine-in traffic, partially offset by lower off-premise traffic.

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

1 unchanged sentence

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

December 28, 2022 December 29, 2021

March 29, 2023 March 30, 2022

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 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 Food and beverage costs decreased 1.2%, including 2.7% of increased menu pricing and 1.1% of favorable menu item mix, partially offset by 2.6% of higher poultry, meat, produce and other commodity costs resulting from inflationary pressures.

• Chili’s Restaurant labor decreased 0.1%, primarily due to 2.8% of sales leverage, offset by 1.6% of higher hourly labor driven by both increased staffing levels and hourly wage rates and 1.2% of increased manager salary and bonus.

• Chili’s Restaurant expenses increased 1.2%, including 1.3% of higher advertising, 0.8% of higher repairs and maintenance expenses, 0.3% of higher rent and 0.3% of higher utilities, partially offset by 1.6% of sales leverage.

Chili’s Depreciation and amortization increased $0.8 million as follows:

Depreciation and Amortization

Thirteen Week Period Ended December 29, 2021 $ 35.4

Thirteen Week Period Ended March 30, 2022 $ 35.9

Additions for new and existing restaurant assets 5.1

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Retirements and fully depreciated restaurant assets (3.7)

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:

Thirteen Week Period Ended March 29, 2023 $ 36.7

Chili’s General and administrative decreased $0.7 million as follows:

General and Administrative

Thirteen Week Period Ended December 29, 2021 $ 7.2

Performance-based compensation 1.6

Thirteen Week Period Ended March 30, 2022 $ 9.5

Payroll expenses 0.3

Defined contribution plan employer expenses 0.1

Stock-based compensation (0.3)

Thirteen Week Period Ended December 28, 2022 $ 8.5

Recruiting (0.8)

Thirteen Week Period Ended March 29, 2023 $ 8.8

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,

2023 March 30,

Restaurant closure charges $ 1.5 $ 1.2

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

Severance and other benefit charges 0.5 —

Remodel-related costs 0.1 0.9

Acquisition of franchise restaurants-related costs — 0.6

Other 0.1 2.5

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,

Thirty-Nine Week Period Ended March 29, 2023 compared to March 30, 2022

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage

2023 March 30,

Company sales $ 2,663.1 $ 2,445.5 $ 217.6 8.9 %

1 unchanged sentence

Total revenues $ 2,692.0 $ 2,475.4 $ 216.6 8.8 %

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.

Chili’s Total revenues increased 8.8% primarily due to menu price increases, favorable menu item mix, and the acquisition of 68 Chili’s restaurants in fiscal 2022, partially offset by lower off-premise 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

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

March 29, 2023 March 30, 2022

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

6 unchanged sentences

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 Food and beverage costs increased 1.0%, including 4.3% of higher poultry, meat, produce and other commodity costs resulting from inflationary pressures, partially offset by 2.5% of increased menu pricing and 0.8% of favorable menu item mix.

• Chili’s Restaurant labor decreased 0.5%, including 2.6% of sales leverage, offset by 1.2% of increased manager salaries and bonus and 1.2% of higher hourly labor expenses due to increased staffing levels and wage rates.

• Chili’s Restaurant expenses increased 1.5%, including 0.8% of higher repairs and maintenance expenses, 0.5% of higher advertising, 0.4% of higher utilities, 0.3% of higher rent, 0.2% of higher workers’ compensation and general liability expenses, 0.2% of higher delivery expenses, and 0.7% of higher other restaurant expenses, partially offset by 1.6% of sales leverage.

Chili’s Depreciation and amortization increased $4.4 million as follows:

Depreciation and Amortization

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

Thirty-Nine Week Period Ended March 30, 2022 $ 104.3

Additions for existing and new restaurant assets 14.7

Acquisition of Chili’s restaurants (1)

Retirements and fully depreciated restaurant assets (7.3)

Finance leases (2.6)

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

Retirements and fully depreciated restaurant assets (11.0)

Thirty-Nine Week Period Ended March 29, 2023 $ 108.7

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

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General and Administrative

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

Thirty-Nine Week Period Ended March 30, 2022 $ 24.7

Performance-based compensation 1.9

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Stock-based compensation (1.1)

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

Thirty-Nine Week Period Ended March 29, 2023 $ 26.8

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

Twenty-Six Week Periods Ended

2022 December 29,

Thirty-Nine Week Periods Ended

2023 March 30,

Restaurant closure charges $ 5.7 $ 1.7

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

Severance and other benefit charges 1.9 —

Remodel-related costs 1.1 3.9

Acquisition of franchise restaurants-related costs 0.2 1.5

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

Other 1.2 2.3

$ 10.9 $ 10.2

Maggiano’s Segment

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

Thirteen Week Period Ended March 29, 2023 compared to March 30, 2022

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

2022 December 29,

2023 March 30,

Company sales $ 119.7 $ 100.7 $ 19.0 18.9 %

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Total revenues $ 119.8 $ 100.8 $ 19.0 18.8 %

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

Maggiano’s Total revenues increased 18.8% primarily due to higher dining room and banquet traffic, increased menu pricing and favorable menu item mix.

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

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Thirteen Week Periods Ended Favorable (Unfavorable) Variance

December 28, 2022 December 29, 2021

March 29, 2023 March 30, 2022

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

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• Maggiano’s Food and beverage costs increased 0.2%, including 1.0% of higher dairy, poultry and other commodity costs resulting from inflationary pressures and 0.6% of unfavorable menu item mix, partially offset by 1.4% 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,

• Maggiano’s Restaurant labor decreased 1.2%, including 5.2% of sales leverage, 0.3% of lower manager training, and 0.1% of lower manager bonus, partially offset by 3.8% of higher hourly labor costs due to an increase in hourly wage rates and staffing levels, and 0.6% of higher manager salaries.

• Maggiano’s Restaurant expenses decreased 0.8%, including 3.1% of sales leverage, partially offset by 0.5% of higher delivery fees and 0.5% of higher repairs and maintenance expenses, 0.4% of higher property taxes, 0.3% of higher utilities, and 0.6% of higher other restaurant expenses.

Thirty-Nine Week Period Ended March 29, 2023 compared to March 30, 2022

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance Variance as a percentage

2023 March 30,

Company sales $ 365.3 $ 306.8 $ 58.5 19.1 %

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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

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

March 29, 2023 March 30, 2022

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

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• Maggiano’s Food and beverage costs increased 1.7%, including 2.6% of higher poultry, dairy and other commodity costs resulting from inflationary pressures, 0.2% of unfavorable menu item mix, partially offset by 1.1% 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.

• Maggiano’s Restaurant labor decreased 1.5%, including 5.3% of sales leverage, 0.3% of lower manager training and, 0.2% of lower manager bonus, partially offset by 3.5% of higher hourly labor costs due primarily to an increase in hourly wage rates and staffing levels, and 0.7% of higher manager salaries.

• Maggiano’s Restaurant expenses decreased 1.2%, including 3.2% of sales leverage, partially offset by 0.6% of higher delivery fees, 0.5% of higher repairs and maintenance expenses, 0.3% of higher utilities, and 0.6% of higher other restaurant expenses.

Liquidity and Capital Resources

Cash Flows from Operating Activities

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

2022 December 29,

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

2023 March 30,

Net cash provided by operating activities $ 200.8 $ 211.6 $ (10.8)

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.

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

Cash Flows from Investing Activities

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

2022 December 29,

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

2023 March 30,

Net cash used in investing activities $ (133.3) $ (193.4) $ 60.1

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.

Net cash used in investing activities decreased primarily due to $106.0 million of cash consideration paid for the purchase of 66 Chili’s restaurants in the first three quarters of fiscal 2022, partially offset by proceeds of $20.5 million received from the sale leaseback transactions on six of the acquired restaurants in the first three quarters of fiscal 2022.

Additionally, capital expenditures increased $27.6 million in fiscal 2023 primarily for the construction of new restaurants.

Cash Flows from Financing Activities

Twenty-Six Week Periods Ended Favorable (Unfavorable) Variance

2022 December 29,

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

Net cash provided by financing activities decreased primarily due to $40.0 million of net borrowing activity in fiscal 2023 compared to $132.5 million of net borrowing activity in fiscal 2022 on the revolving credit facility, partially offset by a decrease in share repurchases in fiscal 2023.

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

2023 March 30,

Net cash used in financing activities $ (67.2) $ (29.2) $ (38.0)

Net cash used in financing activities increased primarily due to $50.0 million of net repayment activity in fiscal 2023 compared to $93.0 million of net borrowing activity in fiscal 2022 on the revolving credit facility, partially offset by a decrease in share repurchases in fiscal 2023 of $98.6 million.

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.

Net repayments of $50.0 million were made during the thirty-nine week period ended March 29, 2023 on the revolving credit facility.

As of March 29, 2023, $578.7 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 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.

As of March 29, 2023, our interest rate was 6.875% consisting of LIBOR of 4.875% plus the applicable margin of 2.000%.

As of March 29, 2023, 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.

On May 2, 2023, we amended our $800.0 million revolving credit facility to increase the capacity to $900.0 million and to adopt SOFR as the new benchmark rate, replacing LIBOR.

We do not expect the adoption of SOFR to have a material impact on our Consolidated Financial Statements (Unaudited).

Additionally, there were no other material changes to the terms and conditions of the revolving credit facility.

Our $300.0 million 3.875% notes mature on May 15, 2023 and are expected to be paid using availability under the revolving credit facility.

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

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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.

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.

In the thirty-nine week period ended March 29, 2023, we repurchased 0.1 million shares of our common stock for $2.2 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.

As of March 29, 2023, approximately $204.0 million of share repurchase authorization remains under the current share repurchase program.

Cash Flow Outlook

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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