BRINKER INTERNATIONAL, INC 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help you understand our Company, our operations and our current operating environment. For an understanding of the significant factors that influenced our performance during the thirteen and thirty-nine week periods ended March 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. 20 Table of Contents Overview We are principally engaged in the ownership, operation, development and franchising of the Chili’s ® Grill & Bar (“Chili’s”) and Maggiano’s Little Italy ® (“Maggiano’s”) restaurant brands. As 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. 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 We are committed to strategies and a Company culture that we believe will grow sales, increase profits, bring back guests and engage team members. 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 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 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. We plan to continue investments in our technology systems to support our To-Go and delivery capabilities. In dining rooms, we use tabletop devices to engage our guests at the table. These devices provide functionality for guests to pay at the table, order or re-order, engage in digital entertainment, to provide guest feedback and interact with our My Chili’s Rewards program. Our My Chili’s Rewards loyalty program offers free chips and salsa or a non-alcoholic beverage to members based on their visit frequency. We customize offerings for these guests based on their purchase behavior. 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. 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. Most of our value propositions are available for guests to enjoy in our dining rooms or off-premise. Maggiano’s - At Maggiano’s, we believe our focus on operating fundamentals and technology provide the foundation for future efficiencies and growth. For example, Maggiano’s partnerships with delivery service providers make third party delivery more sustainable and efficient for the brand to operate. In addition, our guests have the ability to order delivery directly through the Maggiano’s website. Maggiano’s historically hosts a significant portion of its banquets in the holiday season during the second and third quarters of the fiscal year. 21 Table of Contents 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. 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 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 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 Chili’s domestic 3 1 7 3 14 1,129 1,130 Chili’s international — — — — — 5 5 Maggiano’s domestic — — — — — 50 52 Total Company-owned 3 1 7 3 14 1,184 1,187 Franchise restaurants Chili’s domestic 1 — 2 1 1 102 103 Chili’s international 6 1 14 9 16-20 366 358 Maggiano’s domestic — — — — — 2 2 Total franchise 7 1 16 10 17-21 470 463 Total restaurants Chili’s domestic 4 1 9 4 15 1,231 1,233 Chili’s international 6 1 14 9 16-20 371 363 Maggiano’s domestic — — — — — 52 54 Total 10 2 23 13 31-35 1,654 1,650 Relocations are not included in the table above. We relocated one Chili’s domestic Company-owned restaurant during the second quarter of fiscal 2023. 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. Revenues 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, 22 Table of Contents 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. The following is a summary of the change in Total revenues: Total Revenues Chili’s Maggiano’s Total Revenues Thirteen Week Period Ended March 30, 2022 $ 879.6 $ 100.8 $ 980.4 Change from: Comparable restaurant sales 77.3 20.2 97.5 Restaurant acquisitions (1) 5.3 — 5.3 Restaurant openings 8.6 — 8.6 Maggiano's banquet income — 1.1 1.1 Gift card discount costs 0.2 — 0.2 Gift card breakage (2.9) (0.4) (3.3) Digital entertainment revenues 0.9 — 0.9 Merchandise income 0.1 — 0.1 Delivery service fee income (0.8) 0.1 (0.7) Restaurant closures (5.7) (2.0) (7.7) Company sales 83.0 19.0 102.0 Franchise revenues (2) 0.8 — 0.8 Thirteen Week Period Ended March 29, 2023 $ 963.4 $ 119.8 $ 1,083.2 Total Revenues Chili’s Maggiano’s Total Revenues Thirty-Nine Week Period Ended March 30, 2022 $ 2,475.4 $ 307.2 $ 2,782.6 Change from: Comparable restaurant sales 166.2 58.7 224.9 Restaurant acquisitions (1) 50.9 — 50.9 Restaurant openings 15.6 — 15.6 Maggiano's banquet income — 3.9 3.9 Gift card discount costs 0.9 0.2 1.1 Gift card breakage (4.9) (0.7) (5.6) Merchandise income 0.2 — 0.2 Digital entertainment revenues 2.0 — 2.0 Delivery service fee income (2.7) 0.5 (2.2) Restaurant closures (10.6) (4.1) (14.7) Company sales 217.6 58.5 276.1 Franchise revenues (2) (1.0) — (1.0) 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 thirty-nine week periods ended March 29, 2023. 23 Table of Contents (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) Price Impact Mix-Shift Impact (2) Traffic Impact Restaurant Capacity (3) Company-owned 10.8 % 9.6 % 5.3 % (4.1) % (0.4) % Chili’s 9.6 % 9.8 % 5.6 % (5.8) % (0.3) % Maggiano’s 21.6 % 8.3 % 3.8 % 9.5 % (2.7) % Franchise (4) 9.9 % U.S. 5.6 % International 12.5 % Chili’s domestic (5) 9.1 % System-wide (6) 10.7 % Percentage Change in the Thirty-Nine Week Period Ended March 29, 2023 versus March 30, 2022 Comparable Restaurant Sales (1) Price Impact Mix-Shift Impact (2) Traffic Impact Restaurant Capacity (3) Company-owned 8.6 % 8.9 % 4.6 % (4.9) % 1.9 % Chili’s 7.2 % 9.1 % 4.8 % (6.7) % 2.1 % Maggiano’s 20.4 % 7.3 % 4.1 % 9.0 % (1.5) % Franchise (4) 7.8 % U.S. 3.2 % International 10.5 % Chili’s domestic (5) 6.7 % System-wide (6) 8.5 % (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. Percentage amounts are calculated based on the comparable periods year-over-year. (2) Mix-Shift is calculated as the year-over-year percentage change in Company sales resulting from the change in menu items ordered by guests. (3) Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year, including the effect of the 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 Income (Unaudited); however, we generate royalty revenues and advertising fees based on franchisee revenues, where applicable. We believe presenting Franchise Comparable Restaurant Sales provides investors relevant information regarding total brand performance. (5) Chili’s domestic Comparable Restaurant Sales percentages are derived from sales generated by Company-owned and franchise-operated Chili’s restaurants in the United States. (6) System-wide Comparable Restaurant Sales are derived from sales generated by Chili’s and Maggiano’s Company-owned and franchise-operated restaurants. 24 Table of Contents Costs and Expenses 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 March 29, 2023 March 30, 2022 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 287.5 26.8 % $ 270.3 27.8 % $ (17.2) 1.0 % Restaurant labor 361.2 33.6 % 329.1 33.9 % (32.1) 0.3 % Restaurant expenses 280.9 26.2 % 244.1 25.2 % (36.8) (1.0) % Depreciation and amortization 42.5 42.2 (0.3) General and administrative 40.6 39.2 (1.4) Other (gains) and charges 6.3 6.1 (0.2) Interest expenses 14.2 11.1 (3.1) Other income, net (0.6) (0.4) 0.2 As a percentage of Company sales: • 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 March 30, 2022 $ 42.2 Change from: Additions for new and existing restaurant assets 5.6 Corporate assets 0.5 Acquisition of Chili’s restaurants 0.3 Finance leases (1.0) Retirements and fully depreciated restaurant assets (4.8) Other (0.3) Thirteen Week Period Ended March 29, 2023 $ 42.5 25 Table of Contents General and administrative expen ses increased $1.4 million as follows: General and Administrative Thirteen Week Period Ended March 30, 2022 $ 39.2 Change from: Defined contribution plan employer expenses and other benefits 1.0 Payroll expenses 0.5 Professional fees 0.2 Recruiting (0.6) Stock-based compensation (0.9) Other 1.2 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 March 29, 2023 March 30, 2022 Lease contingencies $ 2.0 $ — Restaurant closure charges 1.8 1.2 Enterprise system implementation costs 1.3 0.5 Severance and other benefit charges 1.0 — Remodel-related costs 0.1 0.9 Acquisition-related costs, net — 0.6 Loss from natural disasters, net of (insurance recoveries) (0.1) — Other 0.2 2.9 $ 6.3 $ 6.1 Interest expenses increased $3.1 million due to higher interest rates on our revolving credit facility in fiscal 2023 compared to fiscal 2022. 26 Table of Contents 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: 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 Food and beverage costs $ 866.4 28.6 % $ 757.4 27.5 % $ (109.0) (1.1) % Restaurant labor 1,026.4 33.9 % 949.4 34.5 % (77.0) 0.6 % Restaurant expenses 818.1 27.0 % 712.1 25.9 % (106.0) (1.1) % Depreciation and amortization 126.2 123.1 (3.1) General and administrative 115.7 108.8 (6.9) Other (gains) and charges 19.8 17.0 (2.8) Interest expenses 40.4 34.8 (5.6) Other income, net (1.3) (1.2) 0.1 As a percentage of Company sales: • 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 Thirty-Nine Week Period Ended March 30, 2022 $ 123.1 Change from: Additions for existing and new restaurant assets 15.9 Acquisition of Chili’s restaurants (1) 3.4 Corporate assets 1.5 Finance leases (2.8) Retirements and fully depreciated restaurant assets (14.5) Other (0.4) 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. 27 Table of Contents General and administrative expenses increased $6.9 million as follows: General and Administrative Thirty-Nine Week Period Ended March 30, 2022 $ 108.8 Change from: Performance-based compensation 7.0 Defined contribution plan employer expenses and other benefits 2.2 Payroll expenses 1.7 Professional fees (1.2) Stock-based compensation (1) (5.0) Other 2.2 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): Thirty-Nine Week Periods Ended March 29, 2023 March 30, 2022 Restaurant closure charges $ 6.6 $ 1.7 Severance and other benefit charges 3.9 — Enterprise system implementation costs 3.3 1.4 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 Income Taxes Thirteen Week Periods Ended Thirty-Nine Week Periods Ended March 29, 2023 March 30, 2022 March 29, 2023 March 30, 2022 Effective income tax rate (0.2) % 5.4 % (5.2) % 4.7 % 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. 28 Table of Contents Segment Results Chili’s Segment Thirteen Week Period Ended March 29, 2023 compared to March 30, 2022 Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage March 29, 2023 March 30, 2022 Company sales $ 953.2 $ 870.2 $ 83.0 9.5 % Franchise revenues 10.2 9.4 0.8 8.5 % Total revenues $ 963.4 $ 879.6 $ 83.8 9.5 % 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. The following is a summary of the changes in Chili’s operating costs and expenses: Thirteen Week Periods Ended Favorable (Unfavorable) Variance March 29, 2023 March 30, 2022 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 257.9 27.0 % $ 245.6 28.2 % $ (12.3) 1.2 % Restaurant labor 322.0 33.8 % 295.0 33.9 % (27.0) 0.1 % Restaurant expenses 247.5 26.0 % 215.2 24.8 % (32.3) (1.2) % Depreciation and amortization 36.7 35.9 (0.8) General and administrative 8.8 9.5 0.7 Other (gains) and charges 2.2 5.2 3.0 As a percentage of Company sales • 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. 29 Table of Contents Chili’s Depreciation and amortization increased $0.8 million as follows: Depreciation and Amortization Thirteen Week Period Ended March 30, 2022 $ 35.9 Change from: Additions for new and existing restaurant assets 5.1 Acquisition of Chili’s restaurants 0.3 Finance leases (0.9) Retirements and fully depreciated restaurant assets (3.7) 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 March 30, 2022 $ 9.5 Change from: Payroll expenses 0.3 Stock-based compensation (0.3) Recruiting (0.8) Other 0.1 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 March 29, 2023 March 30, 2022 Restaurant closure charges $ 1.5 $ 1.2 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 $ 2.2 $ 5.2 Thirty-Nine Week Period Ended March 29, 2023 compared to March 30, 2022 Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance Variance as percentage March 29, 2023 March 30, 2022 Company sales $ 2,663.1 $ 2,445.5 $ 217.6 8.9 % Franchise revenues 28.9 29.9 (1.0) (3.3) % Total revenues $ 2,692.0 $ 2,475.4 $ 216.6 8.8 % 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. 30 Table of Contents The following is a summary of the changes in Chili’s operating costs and expenses: 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 Food and beverage costs $ 772.5 29.0 % $ 683.8 28.0 % $ (88.7) (1.0) % Restaurant labor 908.7 34.1 % 846.1 34.6 % (62.6) 0.5 % Restaurant expenses 718.5 27.0 % 624.8 25.5 % (93.7) (1.5) % Depreciation and amortization 108.7 104.3 (4.4) General and administrative 26.8 24.7 (2.1) Other (gains) and charges 10.9 10.2 (0.7) As a percentage of Company sales: • 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 Thirty-Nine Week Period Ended March 30, 2022 $ 104.3 Change from: Additions for existing and new restaurant assets 14.7 Acquisition of Chili’s restaurants (1) 3.4 Finance leases (2.6) Retirements and fully depreciated restaurant assets (11.0) Other (0.1) 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. 31 Table of Contents Chili’s General and administrative increased $2.1 million as follows: General and Administrative Thirty-Nine Week Period Ended March 30, 2022 $ 24.7 Change from: Performance-based compensation 1.9 Payroll expenses 1.1 Recruiting (0.3) Stock-based compensation (1.1) Other 0.5 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): Thirty-Nine Week Periods Ended March 29, 2023 March 30, 2022 Restaurant closure charges $ 5.7 $ 1.7 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 32 Table of Contents Maggiano’s Segment Thirteen Week Period Ended March 29, 2023 compared to March 30, 2022 Thirteen Week Periods Ended Favorable (Unfavorable) Variance Variance as a percentage March 29, 2023 March 30, 2022 Company sales $ 119.7 $ 100.7 $ 19.0 18.9 % Franchise revenues 0.1 0.1 — — % Total revenues $ 119.8 $ 100.8 $ 19.0 18.8 % 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. The following is a summary of the changes in Maggiano’s operating costs and expenses: Thirteen Week Periods Ended Favorable (Unfavorable) Variance March 29, 2023 March 30, 2022 Dollars % of Company Sales Dollars % of Company Sales Dollars % of Company Sales Food and beverage costs $ 29.6 24.7 % $ 24.7 24.5 % $ (4.9) (0.2) % Restaurant labor 39.2 32.7 % 34.1 33.9 % (5.1) 1.2 % Restaurant expenses 33.1 27.7 % 28.7 28.5 % (4.4) 0.8 % Depreciation and amortization 3.3 3.4 0.1 General and administrative 2.0 2.3 0.3 Other (gains) and charges 0.4 — (0.4) As a percentage of Company sales: • 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 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 March 29, 2023 March 30, 2022 Company sales $ 365.3 $ 306.8 $ 58.5 19.1 % Franchise revenues 0.4 0.4 — — % Total revenues $ 365.7 $ 307.2 $ 58.5 19.0 % Maggiano’s Total revenues increased 19.0% 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. 33 Table of Contents The following is a summary of the changes in Maggiano’s operating costs and expenses: 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 Food and beverage costs $ 93.9 25.7 % $ 73.6 24.0 % $ (20.3) (1.7) % Restaurant labor 117.7 32.2 % 103.3 33.7 % (14.4) 1.5 % Restaurant expenses 99.0 27.1 % 86.8 28.3 % (12.2) 1.2 % Depreciation and amortization 9.8 10.2 0.4 General and administrative 6.0 6.2 0.2 Other (gains) and charges 1.2 0.2 (1.0) As a percentage of Company sales: • 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 1.5%, 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 Cash Flows from Operating Activities Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance March 29, 2023 March 30, 2022 Net cash provided by operating activities $ 200.8 $ 211.6 $ (10.8) 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 Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance March 29, 2023 March 30, 2022 Net cash used in investing activities $ (133.3) $ (193.4) $ 60.1 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. 34 Table of Contents Cash Flows from Financing Activities Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance March 29, 2023 March 30, 2022 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 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 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. 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 March 29, 2023. 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. 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 March 29, 2023, approximately $204.0 million of share repurchase authorization remains under the current share repurchase program. Cash Flow Outlook We believe that our various sources of capital, including future cash flow from operating activities and availability under our existing credit facility are adequate to finance operations as well as the repayment of current debt obligations within the next year. We continue to serve guests at all of our locations through our dining rooms and off-premise offerings, and have resumed normal business operations in accordance with state and local mandates. 35 Table of Contents We are not aware of any other event or trend that would potentially materially affect our liquidity. In the event such a trend develops, we believe that there are sufficient funds available under our credit facility and from our internal cash generating capabilities to adequately manage our ongoing business. Off-Balance Sheet Arrangements 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 The preparation of the financial statements in conformity with GAAP requires us to make estimates and assumptions for the reporting periods covered by the financial statements. These estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities. Actual results could differ from these estimates. Our critical accounting estimates have not changed materially from those previously reported in our Annual Report on Form 10-K for the fiscal year ended June 29, 2022. Recent Accounting Pronouncements The impact of recent accounting pronouncements can be found at Note 1 - Basis of Presentation in the Notes to Consolidated Financial Statements (Unaudited) set forth in Part I, Item 1 of this Form 10-Q report.