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Text: As many of you know, we pre-released limited results for the first quarter, ahead of our investor day hosted here in Dallas on October 20.
During our call, management may discuss certain items which are not based entirely on historical facts.
And of course, on the call, we may refer to certain non-GAAP financial measures that management uses in its review of the business and believes will provide insight into the company's ongoing operations.
It's good to be back with you all again.
It was great seeing some of you in Dallas and many of you virtually during our investor day a couple of weeks ago.
What you should have taken away from that was this, we're very optimistic about where the business is going.
We're managing for long-term success and we're confident in the strength of our brands and the levers we have yet to pull to continue to grow the business.
From a top-line perspective, we're sitting in a good spot.
Sales numbers are solid and traffic numbers are extremely good.
Our near-term challenge is not creating demand but rather it's working through the latest pandemic-driven staffing and supply chain issues that are impacting our cost structure.
As you know, there are -- these are the same challenges impacting the industry as well as much as the economy.
But after 40 years in this business, I'll take managing costs over searching for sales and traffic any day.
Those are good problems to solve because they're largely within our control.
Our operators are working extremely hard every day to train our new team members, deliver great guest experiences and tying up the middle of the P&L.
We've taken some additional price during the quarter to help offset our structural labor and cost of sales increases.
As I mentioned during investor day, we're not going to price to buy a quarter.
But as we closely monitor the issues, we've layered in incremental pricing to offset what we believe are the structural labor and cost of sales increases.
And Joe will give you more detail on that.
Moving forward, if we discover that what we thought was transitory, it turns out to be more structural, we'll deal with that from a pricing perspective with a disciplined approach that protects our traffic performance and keeps our brands strong.
We know we have pricing power if we need it, particularly in the delivery in virtual brand channels and we're committed to maintaining our margins and our business model.
And that's what we wanted you to hear.
We're also working hard to remove transitory costs from the system with full recognition that the headwinds are notable and persistent, especially around labor.
And while it takes some time, we're confident with the progress we're making and we will significantly reduce these costs by the back half of the year.
The spike in turnover we experienced during the quarter created short-term pressure on the business as we trained our new team members to run our systems.
The good news is we are quickly building staff and have as many team members now as we did pre-COVID, though there are markets that are still not fully staffed, which is limiting their capacity.
This is particularly true in the Midwest, where it's taking longer to reach these optimum levels.
The impact of these staffing challenges cost us 3% to 4% in first quarter in sales, which we view as upside as we -- as we get those restaurants staffed and trained over the coming months.
Our top talent is engaged in these markets to solve these issues as quickly as possible.
Meanwhile, the base business is strong, especially where dining rooms are fully open.
When we look at the totality of the business, Chili's is running positive sales and traffic and maintaining a sizable traffic gap to the industry, most recently at 9% on a two-year look as measured by NAFTrack.
And we've got sales leverage around virtual brands and deliveries that we're holding in reserve until our operations teams are stabilized and fully trained.
And while the last quarter was more challenging than we expected, we're making great progress and my expectation is we will end the year strong.
And as we shared with you during investor day, we've got exciting initiatives and innovation we're working on and we're confident in our future growth opportunities.
Let me continue our prepared comments by providing some additional insight to the first quarter results and then share some guidance on our current expectations for the balance of fiscal year 2022.
During first quarter, top-line sales performed well and outpaced pre-COVID levels by a very respectable amount despite COVID-related constraints.
For the first quarter, Brinker reported total revenues of $860 million with consolidated comp sales of 17%.
Keeping with our ongoing strategy, the majority of these sales were driven by traffic up 11% for the quarter, a 9% beat versus the industry on a two year look.
The top-line increase resulted in an adjusted earnings per share of $0.34, up from $0.28 in the previous fiscal year.
It will come as no surprise, our most significant challenge during the quarter came in the form of industrywide headwinds from both commodity costs and labor-related spend, which negatively impacted our margins and bottom-line flow through.
We experienced commodity inflation in the mid-single-digit range, with significant price from pork and chicken driving the increase.
As Wyman mentioned, with a greater-than-normal influx of new team members, we experienced outsized costs in training and overtime.
We do consider the portion of these costs above our normal operating levels to be transitory, approximately 130 basis points in the quarter, 60 of which are incremental training and overtime costs.
I Anticipate these costs working their way out of the system over the course of the next couple of quarters.
In the near term, I expect a significant portion of these transitory costs to remain in the system for the second quarter.
We are taking thoughtful incremental price increases to help offset these higher costs.
Our third price action of this fiscal year is scheduled with our next Chili's menu update in two weeks.
Following this increase, Chili's will be carrying a total of 3% of incremental price compared to last year.
Of course, the mid-quarter price action will not fully impact the total price reported for the quarter.
Due to the timing of price actions and the fact that Maggiano's will evaluate its menu pricing after the holiday season, we expect the second quarter blended Brinker price to be closer to 2%.
Our cash flow for the first quarter remained strong, with cash from operating activities of $40 million and EBITDA of $69 million.
When compared to first quarter last year, our strength in operating performance and lower level of outstanding debt have combined to improve our balance sheet and leverage position.
Our total funded debt leverage was 2.6 times and our lease-adjusted leverage ended the quarter at 3.7 times.
As indicated during our recent investor day, we are targeting to move these leverage ratios below two times and three times respectively over the course of the next two years.
Now, turning to our outlook for fiscal year '22.
We provided some guidance metrics for certain items during our last call and we are reiterating those levels as of this report.
Specifically, annual revenues between $3.75 billion and $3.85 billion and annual adjusted earnings per share between $3.50 and $3.80.
This incorporates our current view of the casual dining operating environment, which assumes continuing challenges in the near term, especially related to supply chain and labor issues.
This guidance, both reiterated and new, assumes no additional meaningful top-line COVID-related disruptions.
While guidance is for our fiscal year performance, I can provide some directional thoughts related to the second quarter.
With the exception of banquet sales at Maggiano's, we expect sales to exhibit closer to normal holiday seasonality, although impacted by labor shortage constraints in certain markets.
As mentioned earlier in my comments, restaurant operating margins for the second quarter will again be impacted by higher food and beverage and labor costs.
We do expect restaurant operating margin to improve when compared to both the recently completed first quarter as well as the second quarter of last year, ending the quarter at a level comparable to the pre-COVID second quarter of fiscal year '20.
Clearly, these are unique times for our industry, creating a variety of short-term challenges to work through.
Challenges we can and will solve.
We firmly believe our strategic initiatives focused on driving traffic in organic top-line growth will differentiate our performance over time with the overall benefit to our team members, our guests, and importantly, our shareholders.

user
sees fy earnings per share $3.50 to $3.80 excluding items.
q1 earnings per share $0.34 excluding items.
q1 gaap earnings per share $0.28.
sees fy revenue about $3.75 billion to $3.85 billion.
sees fy total revenues approximately $3.75 billion to $3.85 billion.
sees fy net income per diluted share excluding special items, in range of $3.50 and $3.80.

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