What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-01 compared with 2023-05-03 · 118 added, 288 removed, 150 unchanged (73% 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 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.

For an understanding of the significant factors that influenced our performance during the thirteen week periods ended September 27, 2023 and September 28, 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 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.

The Company is 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 September 27, 2023, we owned, operated or franchised 1,651 restaurants, consisting of 1,181 Company-owned restaurants and 470 franchised restaurants, located in the United States, 29 other 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.

External Impacts to Our Operating Environment

Our operating results were impacted by geopolitical and other macroeconomic events, leading to higher than usual inflation on wages and food and beverage costs during fiscal 2023 and to a lesser extent during the first quarter of fiscal 2024.

Operations Strategy

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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 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.

Chili’s - Our strategy is to make everyone feel special through a fun atmosphere, delicious food and drinks and our Chili’s hospitality.

We are making work at Chili’s easier, more fun and more rewarding for our team members so that they are more engaged and provide a better experience for our guests.

One way we have done this is by eliminating tasks that were unnecessary and did not add value to our guests.

We have also simplified our menu to focus on core equities we believe can help grow sales—burgers, fajitas, Chicken Crispers ® , and margaritas, as well as other classic favorites.

Our team members can make our core menu items better and more consistently because we have fewer menu items that need to be perfected.

We have a flexible platform of value offerings at both lunch and dinner that we believe is compelling to our guests.

Our “3 for Me” platform, a flexible value bundle provides our guests an unbeatable everyday value, while allowing us to be more flexible in terms of pricing, in light of the inflationary challenges.

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.

In dining rooms, we use tabletop devices to engage our guests at the table.

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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.

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.

Our servers use handheld tablets to place orders for our guests, increasing the efficiency of our team members and allowing orders to reach our kitchen quicker for better service to our guests.

Third-party delivery orders for our restaurants are sent directly into our point of sale system, creating efficiencies and a system that allows us to better serve our guests.

The operating results for our virtual brand, It’s Just Wings ® , are included in the results of our Chili’s brand, based on the restaurants that prepared and processed the food orders.

Maggiano’s - At Maggiano’s, we are focused making our guests feel special.

This warm and generous hospitality creates an environment where guests come together to celebrate birthdays, weddings and many more special occasions.

While our dining rooms support the majority of our business, we have focused on increasing our carry-out and delivery business in recent years, including through partnerships with delivery service providers that have made our restaurants more accessible to guests and helped create an additional significant revenue channel.

Our restaurants also have banquet rooms to host large party events and we have a begun to renovate these banquet rooms in certain restaurants to provide a better experience for this profitable revenue channel, particularly during the holiday season in the second and third quarters of the fiscal year.

Franchise Partnerships - Our franchisees continue to grow our brands around the world, opening 3 restaurants for the thirteen week period ended September 27, 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 Development - The following table details the number of restaurant openings during the thirteen week periods ended September 27, 2023 and September 28, 2022, respectively, total full year projected openings in fiscal 2024 and the total restaurants open at each period end:

Openings During the Full Year Projected Openings

Thirteen Week Periods Ended Total Open Restaurants at

September 27, 2023 September 28, 2022 Fiscal 2024 September 27, 2023 September 28, 2022

Company-owned restaurants

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Total 3 3 30-36 1,651 1,645

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.

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.

At September 27, 2023, we own property for 49 of the 1,181 Company-owned restaurants and one closed restaurant and one future restaurant.

The net book values associated with these restaurants included land of $42.4 million and buildings of $12.1 million.

Thirteen Week Period Ended September 27, 2023 compared to September 28, 2022

Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive Income (Loss) (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, digital entertainment revenues, merchandise income and are net of gift card discounts 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 March 30, 2022 $ 879.6 $ 100.8 $ 980.4

Comparable restaurant sales 77.3 20.2 97.5

Restaurant acquisitions (1)

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)

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

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

Comparable restaurant sales 50.7 2.6 53.3

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Restaurant openings 13.1 — 13.1

Maggiano's banquet income — 3.9 3.9

Gift card discount costs 0.9 0.2 1.1

Gift card discounts (0.1) — (0.1)

Gift card breakage 0.2 — 0.2

Merchandise income 0.2 — 0.2

Digital entertainment revenues 0.1 — 0.1

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Franchise revenues (1)

(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.

(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)

International 12.5 %

Chili’s domestic (5)

System-wide (6)

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

Thirteen Week Period Ended September 27, 2023 $ 908.1 $ 104.4 $ 1,012.5

(1) Franchise revenues increased in the thirteen week period ended September 27, 2023 compared to September 28, 2022 primarily because of higher franchise advertising fees.

Our Chili’s and Maggiano’s franchisees generated sales of approximately $202.8 million and $2.4 million respectively for the thirteen week period ended September 27, 2023 compared to $203.3 million and $2.4 million respectively in sales for the thirteen week period ended September 28, 2022.

The table below presents the percentage change in comparable restaurant sales and restaurant capacity for the thirteen week period ended September 27, 2023 compared to September 28, 2022:

Percentage Change in the Thirteen Week Period Ended September 27, 2023 versus September 28, 2022

Comparable Restaurant Sales (1)

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(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);

(3) Restaurant Capacity is measured by sales weeks and is calculated based on comparable periods year-over-year.

(4) Chili’s and Maggiano’s franchise sales generated by franchisees are not included in Total revenues in the Consolidated Statements of Comprehensive Income (Loss) (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 March 29, 2023 compared to March 30, 2022

Thirteen Week Period Ended September 27, 2023 compared to September 28, 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

September 27, 2023 September 28, 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 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:

• Food and beverage costs were favorable 4.9%, due to 2.5% from increased menu pricing, 1.4% of favorable menu item mix, and 1.0% of favorable commodity costs driven primarily by lower poultry costs, partially offset by higher beverages costs.

• Restaurant labor was favorable 0.1%, due to 1.8% of sales leverage and 0.2% of lower manager training, partially offset by 1.2% of higher hourly labor expenses due to increased staffing levels and wage rates, 0.5% of higher manager salaries, and 0.2% of higher manager bonus.

• Restaurant expenses were unfavorable 0.6%, due to 2.0% of higher advertising, 0.5% of higher repairs and maintenance, 0.4% of higher workers’ compensation and general liability insurance, and 0.2% of higher other restaurant expenses, partially offset by 1.3% of sales leverage and 1.2% of lower delivery fees and to-go supplies.

Depreciation and amortization remained unchanged as follows:

Depreciation and Amortization

Thirteen Week Period Ended March 30, 2022 $ 42.2

Thirteen Week Period Ended September 28, 2022 $ 41.9

Additions for new and existing restaurant assets 6.5

Corporate assets 0.6

Acquisition of Chili’s restaurants 0.3

Finance leases (1.9)

Retirements and fully depreciated restaurant assets (5.1)

Thirteen Week Period Ended March 29, 2023 $ 42.5

Thirteen Week Period Ended September 27, 2023 $ 41.9

General and administrative expen ses increased $2.9 million as follows:

General and Administrative

Thirteen Week Period Ended March 30, 2022 $ 39.2

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)

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

2023 March 30,

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

Interest expenses increased $3.1 million due to higher interest rates on our revolving credit facility in fiscal 2023 compared to fiscal 2022.

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

Additions for existing and new restaurant assets 15.9

Acquisition of Chili’s restaurants (1)

Corporate assets 1.5

Finance leases (2.8)

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.

General and administrative expenses increased $6.9 million as follows:

General and Administrative

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

Thirteen Week Period Ended September 28, 2022 $ 39.5

Performance-based compensation 1.3

Defined contribution plan employer expenses and other benefits 2.2

Payroll expenses 1.7

Professional fees (1.2)

Stock-based compensation 0.9

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.

Defined contribution plan employer expenses and other benefits 0.3

Thirteen Week Period Ended September 27, 2023 $ 42.4

Other (gains) and charges consisted of the following (for further details, refer to Note 11 - Other Gains and Charges):

Thirty-Nine Week Periods Ended

2023 March 30,

Restaurant closure charges $ 6.6 $ 1.7

Severance and other benefit charges 3.9 —

Thirteen Week Periods Ended

September 27,

2023 September 28,

Litigation & claims, net $ 2.2 $ 0.5

Enterprise system implementation costs 2.0 1.0

Restaurant closure asset write-offs and charges 0.6 1.5

Lease contingencies 0.5 —

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

Remodel-related asset write-offs 0.2 0.8

Other 0.8 1.2

$ 19.8 $ 17.0

Thirteen Week Periods Ended Thirty-Nine Week Periods Ended

2023 March 30,

2022 March 29,

2023 March 30,

Interest expenses increased $4.7 million due to higher interest rates on the 8.250% notes and revolving credit facility slightly offset by lower long-term debt outstanding.

Thirteen Week Periods Ended

September 27,

2023 September 28,

Effective income tax rate — % 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.

The federal statutory tax rate was 21.0% for the thirteen week periods ended September 27, 2023 and September 28, 2022.

The effective income tax rate in the thirteen week period ended September 27, 2023 decreased compared to the thirteen week period ended September 28, 2022.

The decrease is primarily due to a less favorable impact from the FICA tip tax credit against higher Income before income taxes.

Segment Results

Chili’s Segment

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

Thirteen Week Period Ended September 27, 2023 compared to September 28, 2022

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

2023 March 30,

September 27,

2023 September 28,

Company sales $ 897.8 $ 840.6 $ 57.2 6.8 %

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Total revenues $ 908.1 $ 849.9 $ 58.2 6.8 %

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.

Chili’s Total revenues increased by 6.8% primarily due to menu price increases and favorable menu item mix, partially offset by lower traffic.

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

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Thirteen Week Periods Ended Favorable (Unfavorable) Variance

March 29, 2023 March 30, 2022

September 27, 2023 September 28, 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 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 Food and beverage costs were favorable 5.0%, due to 2.7% from increased menu pricing, 1.3% of favorable menu item mix, and 1.0% of favorable commodity costs driven primarily by lower poultry costs, partially offset by higher beverages costs.

• Chili’s Restaurant labor was favorable 0.4%, due to 2.0% of sales leverage and 0.2% of lower manager training, partially offset by 1.3% of higher hourly labor driven by both increased staffing levels and wage rates and 0.5% of increased manager salary.

• Chili’s Restaurant expenses were unfavorable 0.6%, due to 2.2% of higher advertising, 0.5% of higher repairs and maintenance, 0.4% of higher workers’ compensation and general liability insurance, 0.3% of higher rent, and 0.1% of higher other restaurant expenses, partially offset by 1.5% of sales leverage and 1.4% lower delivery fees and to-go supplies.

Chili’s Depreciation and amortization increased $0.2 million as follows:

Depreciation and Amortization

Thirteen Week Period Ended March 30, 2022 $ 35.9

Thirteen Week Period Ended September 28, 2022 $ 36.0

Additions for new and existing restaurant assets 5.8

Acquisition of Chili’s restaurants 0.3

Finance leases (1.8)

Retirements and fully depreciated restaurant assets (3.9)

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

Payroll expenses 0.3

Stock-based compensation (0.3)

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

2023 March 30,

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

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 %

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.

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

Additions for existing and new restaurant assets 14.7

Acquisition of Chili’s restaurants (1)

Finance leases (2.6)

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.

Thirteen Week Period Ended September 27, 2023 $ 36.2

Chili’s General and administrative increased $0.5 million as follows:

General and Administrative

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

Thirteen Week Period Ended September 28, 2022 $ 9.5

Defined contribution plan employer expenses and other benefits 0.5

Performance-based compensation 0.3

Payroll expenses 1.1

Recruiting (0.3)

Stock-based compensation (1.1)

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

Thirteen Week Period Ended September 27, 2023 $ 10.0

Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 11 - Other Gains and Charges):

Thirty-Nine Week Periods Ended

2023 March 30,

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

Thirteen Week Periods Ended

September 27,

2023 September 28,

Litigation & claims, net $ 2.2 $ 0.3

Restaurant closure asset write-offs and charges 0.6 1.1

Remodel-related asset write-offs — 0.8

Other 0.9 0.8

$ 10.9 $ 10.2

Maggiano’s Segment

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

Thirteen Week Period Ended September 27, 2023 compared to September 28, 2022

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

2023 March 30,

September 27,

2023 September 28,

Company sales $ 104.2 $ 105.5 $ (1.3) (1.2) %

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Total revenues $ 104.4 $ 105.6 $ (1.2) (1.1) %

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

Maggiano’s Total revenues decreased 1.1% primarily due to restaurant closures in fiscal 2023, offset slightly by favorable comparable restaurant sales due to increased menu pricing, partially offset by lower traffic and unfavorable 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

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

2023 March 30,

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.

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

September 27, 2023 September 28, 2022

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

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As a percentage of Company sales:

• Maggiano’s Food and beverage costs increased 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.

• Maggiano’s Food and beverage costs were favorable 2.4%, due to 1.9% from increased menu pricing and 1.1% of favorable commodity costs driven primarily by lower poultry and dairy costs, partially offset by higher bread and beverages costs, and 0.6% of unfavorable menu item mix.

• Maggiano’s Restaurant labor was unfavorable 1.3%, due to 0.4% of sales deleverage, 0.4% of higher hourly labor costs, 0.3% of higher manager bonus, and 0.2% of higher manager salaries.

• Maggiano’s Restaurant expenses were unfavorable 0.8%, due to 0.7% higher supervision, 0.6% of higher repairs and maintenance, 0.3% of sales deleverage, 0.3% of higher workers’ compensation and general liability insurance, partially offset by 0.3% of lower delivery fees and to-go supplies, 0.3% of lower utilities, and 0.5% of lower other restaurant expenses.

Liquidity and Capital Resources

Cash Flows from Operating Activities

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

2023 March 30,

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 27,

2023 September 28,

Net cash provided by operating activities $ 59.1 $ 24.6 $ 34.5

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.

Net cash provided by operating activities increased due to an increase in operating income and the timing of operational receipts and payments, partially offset by an increase in payments of performance-based compensation in the current year.

Cash Flows from Investing Activities

Thirty-Nine Week Periods Ended Favorable (Unfavorable) Variance

2023 March 30,

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 27,

2023 September 28,

Net cash used in investing activities $ (45.6) $ (45.6) $ —

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.

Net cash used in investing activities was flat compared to the prior year.

Increased Chili’s capital maintenance and spend on Maggiano’s remodels were offset by decreased spend on Chili’s remodels and new restaurant construction.

Cash Flows from Financing Activities

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 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.

Thirteen Week Periods Ended Favorable (Unfavorable) Variance

September 27,

2023 September 28,

Net cash (used in) provided by financing activities $ (14.2) $ 27.0 $ (41.2)

Net cash (used in) provided by financing activities increased primarily due to an increase in share repurchases in fiscal 2024 of $22.7 million and a decrease of $21.0 million in net borrowing activity on the revolving credit facility in fiscal 2024 compared to fiscal 2023.

Net borrowings of $14.0 million were drawn during the thirteen week period ended September 27, 2023 on the revolving credit facility.

As of September 27, 2023, $724.7 million of credit was available under the revolving credit facility.

The $900.0 million revolving credit facility matures on August 18, 2026 and bears interest of SOFR plus an applicable margin of 1.50% to 2.25% and an undrawn commitment fee of 0.25% to 0.35%, both based on a function of our debt-to-cash-flow ratio.

As of September 27, 2023, our interest rate was 7.17% consisting of SOFR of 5.32% plus the applicable margin and spread adjustment of 1.85%.

As of September 27, 2023, we were in compliance with our covenants pursuant to the $900.0 million revolving credit facility and under the terms of the indentures governing our 5.000% and 8.250% notes.

We expect to remain in compliance with our covenants during the remainder of fiscal 2024.

We intend to refinance our 5.000% notes, which will mature in October 2024, through our existing revolving credit facility.

Refer to Note 6 - 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 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.

In the thirteen week period ended September 27, 2023, we repurchased 0.8 million shares of our common stock for $24.7 million, including 0.7 million shares purchased for $21.0 million as part of our share repurchase program and 0.1 million shares purchased from team members to satisfy tax withholding obligations on the vesting of restricted shares.

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.

As of September 27, 2023, approximately $183.0 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.

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.

Cash flow from operations typically provides the company with a significant source of liquidity.

Additionally, during fiscal 2023, we increased the capacity under our revolving credit facility by $100.0 million and issued new $350.0 million senior notes that mature in 2030.

Based on the current level of operations, we believe that our current cash and cash equivalents, coupled with cash generated from operations and availability under our existing revolving credit facility will be adequate to meet our capital expenditure and working capital needs for at least the next twelve months.

We continue to monitor the macro environment and will adjust our overall approach to capital allocation, including share repurchases, as events and macroeconomic trends unfold.

Critical Accounting Estimates

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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