What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-08-15 compared with 2024-08-21 · 71 added, 72 removed, 249 unchanged (36% of the section changed)

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and our wholly-owned subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

intercompany accounts and transactions have been eliminated in consolidation.

We have a 52 or 53 week fiscal year ending on the last Wednesday in June.

We utilize a 13 week accounting period for quarterly reporting purposes,

except in years containing 53 weeks when the fourth quarter contains 14 weeks.

We utilize a 13 week accounting period for quarterly reporting purposes, except in years containing 53 weeks when the fourth quarter contains 14 weeks.

Fiscal 2025, Fiscal 2024, and Fiscal 2023 which ended on June 25, 2025, June 26, 2024, and June 28, 2023, respectively, each contained 52 weeks.

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Refer to Part I, Item 1 - Business of this document for additional information about our business and operational strategies.

External Impacts to Our Operating Environment

Operating Environment

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

Geopolitical and other macroeconomic events have led, and in the future may lead to, 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.

Geopolitical and other macroeconomic events have led, and in the future may lead to, wage inflation, staffing challenges, product cost inflation and/or 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.

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Revenues are presented in two separate captions in the Consolidated Statements of Comprehensive Income 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 discount costs from third-party gift card sales.

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

• 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, delivery, gift card breakage, digital entertainment revenues, merchandise income and are net of gift card discount costs from third-party gift card sales.

• Franchise revenues include royalties, franchise advertising fees, franchise and development fees, and other service fees.

The following is a summary of the change in Total revenues:

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Restaurant openings 36.3 — 36.3

Restaurant acquisitions

Gift card discounts 0.4 0.2 0.6

Maggiano's banquet income — (0.3) (0.3)

Delivery service fee income (0.5) 0.4 (0.1)

Merchandise income (0.1) (0.1) (0.2)

Digital entertainment revenues (0.4) — (0.4)

Gift card breakage

(1.0) (0.1) (1.1)

Merchandise income 0.1 — 0.1

Digital entertainment revenues 2.1 — 2.1

Delivery service fee income 1.0 0.1 1.1

Restaurant closures (38.0) (1.3) (39.3)

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Fiscal year ended June 25, 2025 $ 4,882.9 $ 501.3 $ 5,384.2

(1) Comparable restaurant sales increased due to menu price increases and favorable menu item mix, partially offset by lower traffic.

(2) Gift card breakage decreased primarily due to a change in estimate related to a higher forecasted gift card redemption rates.

(3) Franchise revenues increased primarily due to higher franchise advertising fees.

(1) Comparable restaurant sales increased due to higher traffic, favorable menu item mix, and menu price increases.

(2) Franchise revenues increased primarily due to higher royalties.

Our Chili’s and Maggiano’s franchisees generated sales of approximately $967.4 million and $16.9 million respectively in fiscal 2025 compared to $856.2 million and $11.8 million respectively in fiscal 2024.

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As a percentage of Company sales:

• Food and beverage costs were favorable 2.7%, due to 2.1% from increased menu pricing, 0.4% of favorable commodity costs driven by lower poultry and meat costs, and 0.2% of favorable menu item mix.

• Restaurant labor was favorable 0.4%, due to 1.9% of sales leverage and 0.3% of lower other restaurant labor costs, partially offset by 1.1% of higher hourly labor driven by both wage rates and staffing levels, 0.4% of increased manager salaries, and 0.3% of higher manager bonus expense.

• Restaurant expenses were unfavorable 1.0%, due to 1.7% of higher advertising, 0.7% of higher repairs and maintenance, 0.2% of higher workers’ compensation and general liability insurance, and 0.5% of higher other restaurant expenses, partially offset by 1.3% of sales leverage and 0.8% of lower delivery fees and to-go supplies.

• Food and beverage costs were flat, due to 1.5% of favorable menu pricing, offset by 1.1% of unfavorable menu item mix and 0.4% of unfavorable commodity costs driven by poultry, meat, produce, and dairy.

• Restaurant labor was favorable 1.4%, due to 4.0% of sales leverage and 0.2% of lower other labor expenses, partially offset by 2.1% of higher hourly labor driven by increased staffing levels and wage rates, 0.4% of higher manager salaries, and 0.3% of higher manager bonus.

• Restaurant expenses were favorable 2.8%, due to 3.8% of sales leverage and 0.1% of lower other restaurant expenses, partially offset by 0.5% of higher repairs and maintenance, 0.4% of higher advertising, and 0.2% of higher rent.

Depreciation and amortization increased $35.8 million as follows:

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Additions for existing and new restaurant assets 28.0

Corporate assets 2.7

Finance leases (1)

Corporate assets 2.2

Retirements and fully depreciated restaurant assets (14.5)

Fiscal year ended June 25, 2025 $ 206.6

(1) Finance lease amortization increased primarily due to new tabletop and tablet devices in our restaurants.

(2) Other includes accelerated depreciation of certain equipment over the remaining expected useful life as a result of management’s decision to abandon and replace the equipment.

General and administrative expenses increased $38.3 million as follows:

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Fiscal year ended June 26, 2024 $ 183.7

Corporate technology initiatives (1)

Payroll expenses 7.4

Performance-based compensation

Stock-based compensation

Payroll expenses 2.5

Corporate technology initiatives 1.8

Recruiting (1.6)

Defined contribution plan employer expenses and other benefits 4.0

Professional fees

Fiscal year ended June 25, 2025 $ 222.0

(1) Performance-based compensation increased in fiscal 2024 due to higher business performance compared to targets in the current fiscal year.

(2) Stock-based compensation increased primarily due to an increase in expense related to the fiscal 2023 performance share grant, as business performance is expected to exceed the plan target.

Additionally, incremental expenses were incurred in fiscal 2024 related to the fiscal 2022 performance share grant as business performance above expectations resulted in achievement of the minimum performance target for the grant.

The cumulative expense for this grant was reversed in fiscal 2023 based on forecasted business performance being well below the minimum target.

(1) Corporate technology initiatives increased primarily due to ERP system subscription costs and amortization of software implementation costs.

Other (gains) and charges consisted of the following (for further details refer to Note 13 - Other Gains and Charges):

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June 25, 2025 June 26, 2024

Litigation & claims, net (1)

Enterprise system implementation costs 14.1 14.0

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Restaurant closure asset write-offs and charges 4.1 10.1

Litigation & claims, net 6.6 2.5

Severance and other benefit charges 2.4 0.5

Lease contingencies 1.7 0.8

Severance 0.5 3.7

Remodel-related asset write-offs 0.5 1.1

Gain on sale of assets, net (0.5) (2.7)

Loss from natural disasters, net (of insurance recoveries) (3.7) (0.4)

Lease modification gain, net (5.1) (0.3)

Other 1.8 2.3

$ 41.8 $ 43.2

Interest expenses increased $10.1 million primarily due to a higher interest rate on the 8.250% notes issued on June 27, 2023 , compared to the interest rate on the 3.875% notes which matured and were repaid on May 15, 2023, partially offset by the lower average revolver balance during fiscal 2024.

(1) Litigation & claims, net in the current year primarily relates to legal contingencies, inclusive of certain extraordinary one-time settlements related to employment and intellectual property claims, and alcohol service-related cases.

Interest expenses decreased $11.9 million primarily due to lower average outstanding debt balances, partially offset by higher interest on financed leased equipment.

Fiscal Years Ended

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Effective income tax rate 16.7 % 5.8 %

The change in the effective income tax rate from fiscal 2023 to fiscal 2024 is primarily due to higher Income before income taxes and the resulting deleverage of the FICA tip tax credit, which did not change significantly in fiscal 2024 compared to fiscal 2023.

The change in the effective income tax rate from fiscal 2024 to fiscal 2025 is primarily due to higher Income before income taxes and the resulting deleverage of the FICA tip tax credit.

Refer to Note 9 - Income Taxes for more information.

1., also known as the One Big Beautiful Bill Act (“OBBBA”), was enacted on July 4, 2025.

The legislation includes several provisions that may impact the timing and magnitude of certain tax deductions.

Key provisions include the permanent extension of several business tax benefits originally introduced under the 2017 Tax Cuts and Jobs Act.

We are currently evaluating the provisions of the OBBBA to assess their potential impact on our financial position, results of operations and cash flows.

Segment Results

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Total revenues $ 4,882.9 $ 3,919.3 $ 963.6 24.6 %

Chili’s Total revenues increased 7.5% primarily due to favorable comparable restaurant sales driven by increased menu pricing and favorable menu item mix, partially offset by lower traffic.

Chili’s Total revenues increased 24.6% primarily due to favorable comparable restaurant sales driven by higher traffic, favorable menu item mix, and menu pricing.

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

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As a percentage of Company sales:

• Chili’s Food and beverage costs were favorable 2.8%, due to 2.2% from increased menu pricing, 0.4% of lower commodity costs driven by poultry and meat, and 0.2% of favorable menu item mix.

• Chili’s Restaurant labor was favorable 0.4%, due to 2.2% of sales leverage and 0.3% of lower other restaurant labor costs, partially offset by 1.3% of higher restaurant hourly labor driven by both wage rates and staffing levels and 0.5% of higher manager salaries and 0.3% of higher manager bonus expenses.

• Chili’s Restaurant expenses were unfavorable 0.9%, due to 2.0% of higher advertising, 0.7% of higher repairs and maintenance, 0.2% of higher workers’ compensation and general liability insurance, and 0.2% of higher other restaurant expense, partially offset by 1.4% of sales leverage and 0.8% of lower delivery fees and to-go supplies.

• Chili’s Food and beverage costs were flat, due to 1.5% of favorable menu pricing, offset by 1.1% of unfavorable menu item mix, and 0.4% of unfavorable commodity costs driven by higher poultry, meat, produce, and dairy.

• Chili’s Restaurant labor was favorable 1.5%, due to 4.5% of sales leverage, partially offset by 2.3% of higher hourly labor driven by increased staffing levels and wage rates and 0.4% of higher manager salaries and 0.3% of higher manager bonus.

• Chili’s Restaurant expenses were favorable 3.1%, due to 4.2% of sales leverage, partially offset by 0.5% of higher repairs and maintenance, 0.4% of higher advertising, and 0.2% of higher rent.

Chili’s Depreciation and amortization increased $34.8 million as follows:

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Fiscal year ended June 25, 2025 $ 182.5

(1) Finance lease amortization increased primarily due to new tabletop and tablet devices in our restaurants.

(2) Other includes accelerated depreciation of certain equipment over the remaining expected useful life as a result of management’s decision to abandon and replace the equipment.

Chili’s General and administrative increased $7.6 million as follows:

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Performance-based compensation

Stock-based compensation 1.9

Defined contribution plan employer expenses and other benefits 1.9

Payroll expenses 1.4

Recruiting (1.0)

Stock-based compensation

Fiscal year ended June 25, 2025 $ 50.4

(1) Performance-based compensation increased in fiscal 2024 due to higher business performance compared to targets in the current fiscal year.

Chili’s Other (gains) and charges consisted of the following (for further details, refer to Note 13 - Other Gains and Charges):

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June 25, 2025 June 26, 2024

Litigation & claims, net $ 20.0 $ 6.2

Restaurant-level impairment charges 4.6 11.9

Restaurant closure asset write-offs and charges 3.6 10.1

Litigation & claims, net 6.2 2.0

Remodel-related asset write-offs — 1.1

Severance 0.1 1.9

Loss from natural disasters, net (of insurance recoveries) (3.5) (0.4)

Lease modification gain, net (1.6) (0.3)

Gain on sale of assets, net (0.5) (2.6)

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Total revenues $ 501.3 $ 495.8 $ 5.5 1.1 %

Maggiano’s Total revenues increased 1.8% primarily due to favorable comparable restaurant sales driven by increased menu pricing partially offset by lower traffic.

Maggiano’s Total revenues increased 1.1% primarily due to favorable comparable restaurant sales driven by increased menu pricing and favorable menu item mix, partially offset by lower traffic.

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

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As a percentage of Company sales:

• Maggiano’s Food and beverage costs were favorable 1.7%, due to 1.7% from increased menu pricing and 0.2% of favorable commodity pricing partially offset by 0.2% of unfavorable menu item mix.

• Maggiano’s Restaurant labor was favorable 0.3%, due to 0.4% of sales leverage and 0.1% of lower other restaurant labor costs, partially offset by 0.2% of higher manager bonus.

• Maggiano’s Restaurant expenses were unfavorable 1.3%, due to 0.8% of higher repairs and maintenance, 0.4% of higher supplies, 0.2% of higher workers’ compensation and general liability insurance, 0.2% of higher advertising, and 0.4% of higher other restaurant expenses partially offset by 0.4% of sales leverage and 0.3% of lower delivery fees and to-go supplies.

• Maggiano’s Food and beverage costs were favorable 0.1%, due to 1.3% of favorable menu pricing partially offset by 0.8% of unfavorable commodity costs driven by dairy and poultry and 0.4% of unfavorable menu item mix.

• Maggiano’s Restaurant labor was favorable 0.8%, due to 0.5% of lower hourly labor, 0.4% of lower manager bonus, 0.2% of sales leverage, and 0.1% of lower other labor expenses, partially offset by 0.4% of higher manager salaries.

• Maggiano’s Restaurant expenses were unfavorable 0.9%, due to 0.5% of higher advertising, 0.3% of higher repairs and maintenance, 0.3% higher rent, and 0.1% of higher other restaurant expenses, partially offset by 0.3% of sales leverage.

CRITICAL ACCOUNTING ESTIMATES

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Breakage revenues are recognized proportionate to the pattern of related gift card redemptions.

We recognize breakage income in Franchise revenues in the Consolidated Statements of Comprehensive Income.

We recognize breakage income in Company sales in the Consolidated Statements of Comprehensive Income.

We update our breakage rate estimate periodically and, if necessary, adjust the deferred revenues balance accordingly.

If actual redemption patterns vary from our estimate, actual gift card breakage income may differ from

the amounts recorded.

If actual redemption patterns vary from our estimate, actual gift card breakage income may differ from the amounts recorded.

Changing our breakage-rate assumption used to record breakage attributable to gift cards sold in fiscal 2025 by 50 basis points would result in an impact to the Consolidated Statements of Comprehensive Income of approximately $0.6 million on the current year.

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LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are net cash provided by operating activities and borrowings if any, under our $900.0 million revolving credit facility as further discussed below.

Our principal sources of liquidity are net cash provided by operating activities and borrowings if any, under our $1.0 billion revolving credit facility as further discussed below.

Our main requirements for liquidity are to support our working capital, capital expenditures for new and existing restaurants, obligations under our operating leases, and interest payments on our debt.

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Net cash provided by operating activities $ 679.0 $ 421.9 $ 257.1

Net cash provided by operating activities increased due to an increase in operating income and the timing of other operational receipts and payments, partially offset by an increase in the payment of income taxes in the current year.

Net cash provided by operating activities increased due to an increase in operating income partially offset by an increase in payments of income taxes and the timing of other operational receipts and payments.

Cash Flows from Investing Activities

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Net cash used in investing activities $ (263.4) $ (192.2) $ (71.2)

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

Increased spend on Chili’s capital maintenance, new equipment purchases and Maggiano’s remodels were partially offset by decreased spend on Chili’s remodels and construction of new restaurants.

Net cash used in investing activities increased primarily due to new equipment purchases and increased spend on Chili’s capital maintenance.

Cash Flows from Financing Activities

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Net cash used in financing activities $ (461.3) $ (180.2) $ (281.1)

Net cash used in financing activities increased primarily due to $161.3 million of net repayment activity in fiscal 2024 compared to $110.0 million of net repayment activity in fiscal 2023 on the revolving credit facility.

Additionally in fiscal 2023, proceeds from issuance of the $350.0 million 8.250% notes were partially offset by the payoff of the $300.0 million 3.875% notes.

On June 27, 2023, we issued $350.0 million of 8.250% senior notes due July 15, 2030 .

The 2030 Notes require semi-annual interest payments in arrears, on each January 15 and July 15.

Our $900.0 million revolving credit facility, as amended, matures on August 18, 2026 and bears interest at a rate of SOFR plus an applicable margin of 1.60% to 2.35% 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 June 26, 2024, there was $900.0 million of borrowing capacity under the revolving credit facility.

On October 1, 2024, our $350.0 million of 5.000% senior notes will mature.

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 on June 26, 2024.

As of June 26, 2024, 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.

Net cash used in financing activities increased primarily due to the payoff of the $350.0 million 5.00% notes and an increase in share repurchases in fiscal 2025 compared to net repayment activity on the revolving credit facility of $161.3 million in fiscal 2024.

On May 1, 2025, we amended our $900.0 million revolving credit facility to increase the capacity to $1.0 billion.

The Company incurred and capitalized $3.6 million of debt issuance costs associated with the revolving credit facility during fiscal 2025, which are included in Other assets in the Consolidated Balance Sheets.

The $1.0 billion revolving credit facility, as amended, matures on May 1, 2030 and bears interest at a rate of SOFR plus an applicable margin of 1.25% to 2.00% and an undrawn commitment fee of 0.20% to 0.30%, both based on a function of our debt-to-cash-flow ratio.

As of June 25, 2025, our interest rate was 5.82% consisting of SOFR of 4.32% plus the applicable margin and spread adjustment of 1.50%.

As of June 25, 2025, there were no amounts outstanding under the revolving credit facility.

Our $350.0 million 8.25% notes mature July 15, 2030, and require semi-annual interest payments in arrears, on each January 15 and July 15.

In October 2024, the $350.0 million of 5.00% senior notes matured and were repaid in full using borrowings under the revolving credit facility.

As of June 25, 2025, we were in compliance with our covenants pursuant to the $1.0 billion revolving credit facility and under the terms of the indentures governing our 8.25% notes.

Refer to Note 7 - Debt within Part II, Item 8 - Financial Statements and Supplementary Data 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.

The Company repurchased 0.7 million shares of our common stock for $21.0 million in fiscal 2024.

The Company did not repurchase any shares under the repurchase program in fiscal 2023.

On June 26, 2024, we had $183.0 million of authorized repurchases remaining under the share repurchase program.

As part of our share repurchase program, we repurchased 1.0 million shares of our common stock for $76.0 million in fiscal 2025 and 0.7 million shares of our common stock for $21.0 million in fiscal 2024.

As of June 25, 2025, we had $107.0 million of authorized repurchases remaining under the share repurchase program.

Subsequent to fiscal 2025 year end, our Board of Directors authorized an additional $400.0 million under our share repurchase program, allowing for a total available authority of $507.0 million.

Dividend Program

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Cash Flow Outlook

As a result of uncertainties in the near-term macro environment, including supply chain challenges, and commodity and labor inflation, we continue to focus on cash flow generation and maintaining a solid and flexible financial position to execute our long-term strategy of investing in our business.

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

In light of an unpredictable macroeconomy, including commodity and labor inflation and supply chain disruptions, we continue to focus on cash flow generation and maintaining a solid and flexible financial position to execute our

long-term strategy of investing in our business.

We continue to assess the macro environment and will adjust our overall approach to capital allocation, including share repurchases, based on market conditions and trends.

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, including the repayment of current debt obligations.

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21.5 22.1 2.5 — 46.1

(1) Long-term debt consists of principal amounts owed on the 5.000% and 8.250% notes and the revolving credit facility.

The $350.0 million 5.000% notes mature on October 1, 2024, and the $350.0 million 8.250% notes mature on July 15, 2030.

As of June 26, 2024, there was no outstanding balance on the $900.0 million credit facility.

(2) Interest consists of remaining interest payments on the 5.000% and 8.250% fixed rate notes totaling $196.5 million and remaining interest payments on the variable rate revolver totaling $46.0 million.

We have assumed that there will be no outstanding balance on the revolver until October 1, 2024 when the 5.000% notes will be paid using availability under the revolver, increasing the outstanding balance to $350.0 million until the maturity date of August 18, 2026 using our variable interest rate of 6.94% as of June 26, 2024.

(1) Long-term debt consists of principal amounts owed on the 8.25% notes which mature on July 15, 2030.

As of June 25, 2025, there was no outstanding balance on the $1.0 billion revolving credit facility.

(2) Interest consists of remaining interest payments on the 8.25% fixed rate notes.

(3) Finance leases and Operating leases total future lease payments represent the contractual obligations due under the lease agreements, including cancellable option periods where we are reasonably assured to exercise the options.

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and the approximate timing of the transaction.

Our purchase obligations primarily consist of long-term obligations for the purchase of fountain beverages, software and professional services contracts, as well as non-cancellable insurance premiums, and exclude agreements that are cancellable without significant penalty.

Our purchase obligations primarily consist of long-term obligations for software and professional services contracts, as well as non-cancellable insurance premiums, and exclude agreements that are cancellable without significant penalty.

Off -Balance Sheet Arrangements

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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 7. Management’s Discussion and Analysis