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Item 1A. Risk Factors

2023-08-23 compared with 2022-08-26 · 39 added, 34 removed, 229 unchanged (24% of the section changed)

We caution you that our business, financial condition and results of operations are subject to a number of risks and uncertainties that make an investment in our securities risky.

The risk factors listed below could cause actual results to differ materially from our historical results or from those projected in forward-looking statements contained in this report, our other filings with the SEC, our news releases, or our other verbal or written communications.

In addition to the effects of the COVID-19 pandemic and resulting disruptions on our business and operations and in the risk factors below, additional risks and uncertainties that are currently not known or believed by us to be immaterial may also have a material negative impact on our business, financial condition and results of operations.

In any such event, the trading price of our securities could decline and you could lose all or part of your investment.

Various risks and uncertainties could affect our business.

In addition to the information contained elsewhere in this report and other filings that we make with the SEC, the risk factors described below could have a material impact on

our business, financial condition, results of operation, cash flows or the trading price of our common stock.

It is not possible to identify all risk factors.

Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.

Strategic and Operational Risks

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The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins.

Unfavorable publicity relating to one or more of our restaurants in a particular brand may taint public perception of the brand.

Unfavorable publicity relating to one or more of our restaurants in a particular brand may affect public perception of the brand.

Multi-unit restaurant businesses can be adversely affected by publicity resulting from poor food quality, customer complaints, litigation, illness or health concerns or other issues stemming from one or a limited number of restaurants, regardless of whether such events have a factual basis.

In particular, since we depend heavily on the Chili’s brand for a majority of our revenues, unfavorable publicity relating to one or more Chili’s restaurants could have a material adverse effect on the Chili’s brand, and consequently on our business, financial condition and results of operations.

The speed at which negative publicity (whether or not accurate) can be disseminated has increased dramatically with the capabilities of the internet.

The speed at which negative publicity (whether or not accurate) can be disseminated has increased dramatically with the capabilities of social media and the internet.

If we are unable to quickly and effectively respond to such reports, we may suffer declines in guest traffic which could materially impact our financial performance.

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Our sales may also be adversely impacted if there is a shortage of drivers that are willing and available to make deliveries from our restaurants.

If the third-party aggregators that we utilize for delivery cease or curtail their operations, fail to maintain sufficient labor

force to satisfy demand, materially change fees, access or visibility to our products or give greater priority or promotions on their platforms to our competitors, our business may be negatively impacted.

If the third-party aggregators that we utilize for delivery cease or curtail their operations, fail to maintain sufficient labor force to satisfy demand, materially change fees, access or visibility to our products or give greater priority or promotions on their platforms to our competitors, our business may be negatively impacted.

Loss of key management personnel could hurt our business and limit our ability to operate and grow successfully.

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Our guests may be dissatisfied and our sales may decline if we fail to recruit, train and retain managers and team members that effectively implement our business strategy and provide high quality guest service.

There is active competition for quality management personnel and hourly team members.

There is active

competition for quality management personnel and hourly team members.

We are experiencing and may continue to experience challenges in recruiting and retaining team members in various locations as we are experiencing an increasingly tight and competitive labor market.

These challenges may continue to result in higher labor costs (such as increased overtime to meet demand and increased wages to attract and retain team members), increased turnover and a shortage of adequate management personnel and hourly team members required for operations and for future growth, which can lead to lower guest satisfaction and decreased profitability.

Our results can be adversely affected by events, such as adverse weather conditions, natural disasters, climate change, pandemics such as the COVID-19 pandemic or other catastrophic events.

Our results can be adversely affected by events, such as adverse weather conditions, natural disasters, climate change, pandemics or other catastrophic events.

Adverse weather conditions, natural disasters, climate change or catastrophic events, such as terrorist acts, can adversely impact restaurant sales.

Natural disasters such as earthquakes, hurricanes, and severe adverse weather conditions, climate change and health pandemics (such as COVID-19) whether occurring in the United States or abroad, can keep customers in the affected area from dining out, adversely affect consumer spending and confidence levels and supply availability and costs, cause damage to or closure of restaurants and result in lost opportunities for our restaurants.

Natural disasters such as earthquakes, hurricanes, and severe adverse weather conditions, climate change and health pandemics, whether occurring in the United States or abroad, can keep customers in the affected area from dining out, adversely affect consumer spending and confidence levels and supply availability and costs, cause damage to or closure of restaurants and result in lost opportunities for our restaurants.

Our receipt of proceeds under any insurance we maintain with respect to some of these risks may be delayed or the proceeds may be insufficient to cover our losses fully.

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Negative publicity, local economic conditions, health epidemics or pandemics (such as COVID-19), local strikes, energy shortages or extreme fluctuations in energy prices, droughts, earthquakes, fires or other natural disasters in regions where our restaurants are highly concentrated could have a material adverse effect on our business and operations.

For example, declines in oil prices may increase levels of unemployment and cause other economic pressures that result in lower sales and profits at our restaurants in oil market regions of Texas and surrounding areas.

The success of our franchisees is important to our future growth.

We have a significant percentage of system-wide restaurants owned and operated by our franchisees.

While our franchise agreements are designed to require our franchisees to maintain brand consistency, the franchise relationship reduces our direct day-to-day oversight of these restaurants and may expose us to risks not otherwise encountered if we maintained ownership and control.

The operational success of our franchise system is important to our business and future international growth.

A significant percentage of system-wide restaurants are owned and operated by our franchisees.

Our franchise related revenue is not material to our total revenues;

however, franchise agreements are designed to require our franchisees to maintain brand consistency and the franchise relationship reduces our direct day-to-day oversight of these restaurants and may expose us to risks not otherwise encountered if we maintained ownership and control.

Our international restaurants are substantially all franchised and our ability to grow internationally is largely dependent on the success of our franchise partners in developing and maintaining new restaurants.

Our reputation and financial results may be negatively impacted by:

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limitations on our ability to enforce franchise obligations due to bankruptcy proceedings or differences in legal remedies in international markets;

franchisee failures to

participate in business strategy changes due to financial constraints;

franchisee failures to participate in business strategy changes due to financial constraints;

franchisee failures to meet obligations to pay employees;

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Increased focus and activism related to ESG may also result in investors reconsidering their investment decisions as a result of their assessment of a company’s ESG practices.

Further, concern over climate change and other environmental sustainability matters, has and may in the future result in new or increased legal and regulatory requirements to reduce or mitigate impacts to the environment, including greenhouse gas emissions regulations, alternative energy policies, and sustainability

If we fail to achieve any goals, targets, or objectives we may set with respect to ESG matters, if we do not meet or comply with new regulations or evolving consumer, investor, industry, or stakeholder expectations and standards, including those related to reporting, or if we are perceived to have not responded appropriately to the growing concern for ESG matters, we may face legal or regulatory actions, the imposition of fines, penalties, or other sanctions, adverse publicity, and decreased demand from consumers, or the price of our common shares could decline, any of which could materially harm our reputation or have a material adverse effect on our business, financial condition, or operating results.

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The restaurant business is highly competitive as to price, service, restaurant location, convenience, and type and quality of food.

We compete within each market with locally-owned restaurants as well as national and regional restaurant chains.

The casual dining segment of the restaurant industry has not seen significant growth in customer traffic in recent years and saw a significant decrease as a result of the COVID-19 pandemic, from which a full recovery has not yet been made.

We compete within each market with locally-owned restaurants as well as national and regional

restaurant chains.

The casual dining segment of the restaurant industry has not seen significant growth in customer traffic in recent years.

If these trends continue, our ability to grow customer traffic at our restaurants (including through off-premise) will depend on our ability to increase our market share within the casual dining segment.

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The restaurant industry is dependent upon consumer discretionary spending, which is negatively affected by global and domestic economic conditions, such as:

fluctuations in disposable income and changes in consumer confidence, the price of gasoline, slow or negative growth, unemployment, credit conditions and availability, volatility in financial markets, inflationary pressures, weakness in the housing market, tariffs and trade barriers, pandemics or public health concerns, and changes in government and central bank monetary policies.

fluctuations in disposable income and changes in consumer confidence, the price of gasoline, slow or negative growth, unemployment, credit conditions and availability, volatility in financial markets, inflationary pressures, weakness in the housing market, tariffs and trade barriers, wars or conflict in certain regions, pandemics or public health concerns, and changes in government and central bank monetary policies.

When economic conditions negatively affect consumer spending, discretionary spending for restaurant visits will be challenged, our guest traffic may deteriorate and the average amount guests spend in our restaurants may be reduced.

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We have been adversely impacted by, and may continue to be adversely impacted by, ongoing macroeconomic challenges in the U.S.

and other regions of the world where our franchisees operate arising in connection with the COVID-19 pandemic, including recent labor, commodity, transportation and other inflationary pressures, supply chain disruptions, military conflict and impacts arising from governmental restrictions implemented in certain regions to mitigate against the pandemic.

and other regions of the world where our franchisees operate, including recent labor, commodity, transportation and other inflationary pressures, supply chain disruptions, military conflict and impacts arising from governmental restrictions implemented in certain regions to mitigate against the pandemic.

General economic conditions, including inflation and fluctuations in energy costs, may continue to increase our operating expenses.

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natural disasters such as floods, droughts and hurricanes;

health epidemics or pandemics (such as COVID-19);

health epidemics or pandemics;

shortages in the availability of truck drivers;

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For example, the Company experienced a cyber security incident at some Chili’s locations in fiscal 2018.

As with many public companies, our defenses are under attack regularly.

There have been and will be minor intrusions from time-to-time.

As a result of the incident, we have taken certain additional preventative measures to reduce cyber risks.

However, we cannot provide assurance that our security frameworks and measures will be successful in preventing future cyber-attacks or data loss.

However, we cannot provide assurance that our security frameworks and measures will be successful in preventing future significant cyber-attacks or data loss.

We are dependent on information technology and any material failure in the operation or security of that technology or our ability to execute a comprehensive business continuity plan could impair our ability to efficiently operate our business.

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Additionally, our corporate systems and processes and corporate support for our restaurant operations are handled primarily at our restaurant support center.

We have disaster recovery procedures and business continuity plans in

place to address most events of a crisis nature, including tornadoes and other natural disasters, and back up and off-site locations for recovery of electronic and other forms of data and information.

We have disaster recovery procedures and business continuity plans in place to address most events of a crisis nature, including tornadoes and other natural disasters, and back up and off-site locations for recovery of electronic and other forms of data and information.

However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operation and exposure to administrative and other legal claims.

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This assessment is predicated on our ability to continue to operate dining and banquet rooms and generate off-premise sales at our restaurants.

Management’s judgment about the short and long term impacts of the COVID-19 pandemic could change as additional facts become known and therefore affect these conclusions.

We will continue to monitor and evaluate our results and evaluate the likelihood of any potential impairment charges at our reporting units.

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An impairment charge is required when the carrying value of the asset exceeds the estimated fair value.

For example, in fiscal 2022, we recognized $8.3 million of long-lived asset and lease asset impairment charges as a result of decreased cash flows, and it is possible that we may incur similar charges in greater amounts in the future.

For example, in fiscal 2023, we recognized

$12.0 million of long-lived asset and lease asset impairment charges as a result of decreased cash flows, and it is possible that we may incur similar charges in greater amounts in the future.

Refer to Note 1 - Nature of Operations and Summary of Significant Accounting Policies within Part II, Item 8 - Financial Statements and Supplementary Data, Notes to Consolidated Financial Statements for more information.

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Employment and labor laws and regulations may increase the cost of labor for our restaurants.

We are subject to various federal, state and local employment and labor laws and regulations that govern employment and labor matters, including, employment discrimination, minimum wages, work scheduling, overtime, tip credits, tax reporting, working conditions, safety standards, family leave and immigration status.

with these laws and regulations can be costly, and a failure or perceived failure to comply with these laws could result in negative publicity or litigation.

Compliance with these laws and regulations can be costly, and a failure or perceived failure to comply with these laws could result in negative publicity or litigation.

We have been and are under investigation for compliance periodically, and we have been and will be fined for alleged violations of these regulations.

Some states and localities have, and many others are contemplating, increases to their minimum wage and tip credit wage, and such increases can have a significant impact on our labor costs.

In addition, new employment or labor laws may mandate additional benefits for employees or impose additional obligations that may adversely impact the costs of labor, the availability of labor and our business operations.

In addition, our suppliers may be affected by higher minimum wage standards or availability of labor, which may increase the price of goods and services they supply to us.

In addition, our suppliers may be affected by higher

minimum wage standards or availability of labor, which may increase the price of goods and services they supply to us.

There are no assurances that a combination of cost management and price increases can offset all of the costs associated with compliance.

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In particular, we are affected by the impact of changes to tax laws or policy or related authoritative interpretations.

We are also impacted by settlements of pending or any future adjustments proposed by taxing and governmental authorities inside and outside of the United

States in connection with our tax audits, all of which will depend on their timing, nature and scope.

We are also impacted by settlements of pending or any future adjustments proposed by taxing and governmental authorities inside and outside of the United States in connection with our tax audits, all of which will depend on their timing, nature and scope.

Any significant increases in income tax rates, changes in income tax laws or unfavorable resolution of tax matters could have a material adverse impact on our financial results.

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increased health care costs;

health epidemics or pandemics (such as COVID-19) or the prospects of these events;

health epidemics or pandemics or the prospects of these events;

changes in consumer behaviors;

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union organization;

wars or conflicts in certain regions;

terrorist acts;

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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-K

Item 1A. Risk Factors