Brinker International, Inc. (EAT) Earnings Call Transcript

Good day, and welcome to the Brinker Q4 F '26 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Kim Sanders, Vice President of Investor Relations. Ma'am, the floor is yours.

Thank you, Holly, and good morning, everyone, and thank you for joining us on today's call. Here with me today are Kevin Hochman, Chief Executive Officer and President of Brinker International and President of Chili's; and Mika Ware, Chief Financial Officer. Results for our fourth quarter were released earlier this morning and are available on our website at brinker.com. As usual, Kevin and Mika will first make prepared comments related to our strategic initiatives and operating performance. Then we will open the call for your questions. Before beginning our comments, I would like to remind everyone of our safe harbor regarding forward-looking statements. During our call, management may discuss certain items, which are not based entirely on historical facts. Any such items should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such risks and uncertainties include factors more completely described in this morning's press release and the company's filings with the SEC. 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. And with that said, I will turn the call over to Kevin.

Thank you, Kim, and good morning, everyone. Thank you for joining us as we discuss our financial and operating performance for the fourth quarter, as well as provide guidance for fiscal '27. Q4 Chili's same-store sales of plus 6% marked our 21st consecutive quarter of same-store sales growth and again significantly outpaced the industry. This strong result was rolling a plus 24% from last year and a plus 15% from 2 years ago for a 3-year cumulative comp of 50%. There are lots of different ways to look at our results, but the key conclusion is that Chili's turnaround is real. Fiscal '26 saw this brand increase its lead as the #1 casual dining traffic brand, and the results are sustaining year-after-year. It's important to note in this difficult operating environment that instead of using precious resource and investments on initiatives to drive short-term sales, we at Chili's focus our resource for long-term sustainable growth, improving food service and atmosphere and the team member experience, as well as positioning our brand to be more relevant, easy and distinctive. These experience improvements, coupled with our everyday value leadership represented by a per person average spend that is $3 to $4 below competition, are supporting a powerful flywheel of traffic, sales growth, margin expansion and then reinvestment into our business. And this steady approach is why the business will continue to win. The American consumer demands experience and great value, and they are showing up for those brands who consistently deliver that. Third-party syndicated data confirms Chili's continues to be ranked in the top tier across key measures, like value, quality, service and overall experience. We still have room to improve, but our progress gives us confidence that we will sustain traffic gains and repeat business. We are very appreciative and proud that Chili's is one of the small handful of brands the American consumer trusts, and we're willing to increase their visits to. And we will work hard for our guests to maintain both our value leadership and improving our guest experience year-after-year. Now I'll give some updates on the Chili's business. We're now 4 months post-Big Crispy launch, and we can share some more detail on how it's performing. The launch has been a success, overdelivering on our lofty estimates going in. We were selling 20 chicken sandwiches per restaurant per day pre-Big Crispy launch. By the end of Q4, we were selling 55 sandwiches per restaurant per day, an increase of 175%, and that number continues to build in the current quarter. For perspective, the Big Crispy is bigger than the '24 Big Smasher launch and the '25 Big QP launch. And as you all know, those were 2 very successful launches. The customer reviews and social media comments have been excellent, declaring Chili's victorious for size, price, value and taste versus fast food. The Big Crispy is now a signature sandwich and another important chapter in our Better Than Fast Food story that will continue to position Chili's uniquely as a restaurant destination. In addition to culinary upgrades, our team continues to deliver world-class marketing to drive traffic. Q4 highlights include the successful Big Crispy launch, the remake of our famous 1985 Baby Back Ribs Jingle commercial featuring Popstar Lizzo, and a continued success with our Margarita of the Month program. As a reminder, our marketing strategy is driving sales overnight and brand overtime. It's clear the marketing is driving sales, but they are also doing an amazing job of strengthening the brand's positioning over time. We are 2.5 years removed from the initial viral cheese pull in early '24, and YouGov's third-party data reported that Q4 was Chili's highest level of buzz across all cohorts ever recorded. Chili's is everywhere. It continues to be America's hottest restaurant brand and the sustained relevance of the brand proves this repositioning has legs beyond one social event. Now let's talk about operations. We continue to focus our efforts on both removing friction as well as improving restaurant throughput as this is a key piece of our sustainable growth flywheel. In addition to listening to our managers' ideas on how to make operations easier, we now have the North of 6 team, our highest volume restaurant leaders to formally source ideas from 2. I think the important thing to note is North of 6 leaders typically have the additional perspective of increasing throughput because of their incredibly high volumes. We recently made some very significant changes to free up managers' time to coach teams to be with guests on the floor. The first is the ruthless simplification of our shift line checks, a set of tasks the manager is mandated to perform to know their team is ready to take on guests. We have taken that by daily process down from 8 pages to 1 page and freed up 30 minutes of manager time per day. Think about that as 22 years of manager time freed up annually across our system, and that's time much better spent side-by-side coaching their teams and in the dining room with our guests. A second important change we made is upgrading hot schedules. Our tool managers used to schedule labor to make it easier to schedule the right number of team members per shift. We know the #1 thing that can set up a shift for success is properly written labor schedules and anything that makes the task easier to do correctly is a big win for our managers and improves our ability to take on more and more traffic. And lastly, the VPs of operations have chosen their obsession metric for fiscal year '27. This year, they have chosen traffic for a third year in a row, but have added a second metric, profit improvement. They chose a second to begin developing a stronger ownership culture on restaurant expense with things like R&M. We recently made profits a bigger percentage of their bonus structure, so it is even more important to field leadership to nail the flow-through of all the incremental sales. Before I close out Chili's commentary, I do want to touch on one more important thing. Last quarter, I talked about a new initiative we have started with the objective of speeding up restaurant cycle time, meaning looking at everything that goes into the total time of kitchen prep and the dining experience and finding ways to remove time to serve as another traffic building block. Most cycle time improvements may seem small, but will continue to compound to make meaningful impacts as well as improve the guest and team member experience. Remember, this is about attacking anything that gets in the way of a smooth dining experience, which should also improve overall guest satisfaction. The first of these initiatives have now been successfully rolled out. Supermarket simple for loyalty reward redemption. In the newly rolled out system, the guest simply puts the rewards telephone number into the Ziosk. And at the end of the meal, the discount that is available like free chips and salad is automatically removed from the check. Then the Ziosk tells the guests how much they save by being a rewards member, kind of like what happens when you put your loyalty number into the supermarket. The Ziosk software upgrade will reduce the manager time needed to resolve check issues, deliver faster table turns and more importantly, improve the guest dining experience. To summarize, Chili's long-term growth year-after-year is a result of deliberate set of choices we make to deploy resource and capital to improve the guest and team member experience while driving same-store sales now and over time. The traffic growth reinvestment flywheel continues to spin and create sustainable profitable growth. Now I'll give a short update on Maggiano's. A reminder that given the success we've had focusing on Chili's, Maggiano's now only represents 8% of sales. For perspective, Chili's outside of the U.S., which is a licensed model is expected to deliver 4% of Brinker profits this fiscal, and that will actually surpass Maggiano's profit contribution. While we are seeing some green shoots with financial results improvement and guest value scores, the turnaround at Maggiano's has been mixed. We've made progress on operational and culinary improvements, but some of that progress has been offset by losses with our core guests from our prior strategy. So while we're headed in the right direction, the turnaround is happening slower than we had planned. We think we're on the right strategy, but we need to be more focused on delivering a few important changes that can make the biggest impact. These updates are all contemplated in the fiscal '27 Brinker guidance we have provided today. Before I close, I want to share 2 weeks ago, we had our Annual General Managers Conference in Arlington, Texas. To summarize the event, the restaurant leaders are proud of their results, excited about the plans for fiscal '27 and ready to lead their teams for another year of growth significantly ahead of the industry. Because of their leadership and their success, almost 80% of GMs now earn more than $100,000 this past fiscal, and that number keeps growing annually. Our stated goal to those GMs 4 years ago was to make their jobs more fun, easier and more rewarding, and you could sure feel that in the room that we have collectively delivered on that commitment. Manager turnover has been well ahead of the industry for years now, and now hourly turnover recently moved ahead of the industry, too. We also recognized our GM of the Year, P.J. Tremblay, leader of the East Fort Myers Chili's and our Above Restaurant Leader of the Year, Dale Bullotta, the VP who leads our California region. I also want to recognize Dale's colleague, the legendary Vice President in the Northeast region, Todd Pierce, who was inducted into our Chili's Hall of Fame along with 35-year Director of Operations in South Florida, Tony Viola. Congratulations to all 4 of these amazing leaders, and thank you for your years of making guests feel special and leading our restaurant teams. To close, Chili's delivered another strong quarter, rolling very big numbers from the prior 2 years. The macro headwinds the industry is experiencing are still there, but Chili's is positioned to continue winning in this environment with improvements in food service and atmosphere, coupled with our industry-leading value. That formula has proven quarter-after-quarter to be resilient in driving traffic and outperforming the industry. And with all of the initiatives we have planned for fiscal '27 to continue improving the fundamentals, we are poised to have another year of profitable growth that significantly outpaces the industry. Now I'll hand the call over to Mika to walk you through fiscal '26 fourth quarter numbers. Go ahead, Mika.

Thank you, Kevin, and good morning. As we close fiscal 2026, today's results highlight major milestones in Chili's growth journey. The completion of 5 consecutive years of same-store sales growth, positively lapping all 4 quarters of double-digit same-store sales growth this past fiscal year, including 2 quarters that were above 30%, 2 consecutive years of traffic gains and average annual unit volumes increasing from just over $4.5 million at the end of last fiscal year to $5 million this year. Together, these results demonstrate the continued momentum and sustainability of our focus on the fundamental strategy. For the year, we reported total revenue growth of 7.9%, restaurant operating margin improvement of 30 basis points and adjusted EPS growth of 20.6%. Turning to the fourth quarter. We continue to see strong year-over-year top line growth, traffic well above industry averages and restaurant margin expansion at Chili's. Brinker reported total revenues of $1.536 billion with consolidated comp sales of positive 5%. Our adjusted diluted EPS for the quarter was $3.07, up from $2.49 last year, a 23% increase. Chili's comps were positive 5.6% in the quarter, driven by price of 4.3% and positive traffic of 1.5%, partially offset by negative mix of 0.2%. Chili's continues to gain momentum through its strong everyday value platform, led by the success of the Big Smasher, the Big QP, and now the Big Crispy Chicken Sandwich. July sales and traffic have significantly accelerated versus the fourth quarter, further widening our lead over the casual dining industry. For Maggiano's, the brand reported comp sales for the quarter of negative 2.5% with negative 5.3% traffic, negative 0.1% of mix, partially offset by price of 2.9%. At the Brinker level, restaurant operating margins were 18%, a 20 basis points improvement year-over-year, primarily driven by sales leverage, partially offset by unfavorable food and beverage costs as well as higher advertising and insurance costs. Food and beverage costs for the quarter increased by 80 basis points, driven by 4.4% commodity inflation, primarily from higher beef cost, and a temporary spike in tomato prices following a late freeze in Florida. Tomato costs remained elevated longer than expected, but have since normalized and will not impact Q1 cost. Labor for the quarter was favorable 90 basis points year-over-year. Top line sales growth offset wage rate inflation of approximately 3.1%, additional investments in labor and higher health insurance costs. Restaurant expenses for the quarter were favorable 10 basis points year-over-year with sales leverage and lower repairs and maintenance costs, partially offset by higher advertising costs and general inflation impacting expenses such as utilities, rent, to-go supplies and delivery fees. Advertising expenses for the fourth quarter were 3% of sales and increased 20 basis points year-over-year to help support the rollout of the Big Crispy Chicken Sandwich campaign. G&A for the quarter came in at 3.9% of total revenues, 10 basis points favorable to prior year due to sales leverage and lower performance bonus accruals, partially offset by an increase in restaurant center support resources. Depreciation and amortization for the quarter came in at 3.6% of total revenues and decreased 40 basis points year-over-year due to sales leverage and the lapping of accelerated depreciation from the prior year due to the retirement of the CTX and Impinger ovens. Fourth quarter adjusted EBITDA was approximately $228 million, a 7.1% increase from prior year. Our adjusted tax rate declined year-over-year to 17.6% from 19.5%, primarily due to a benefit from our state income tax filing adjustments and a higher benefit from the FICA tip credit. Capital expenditures for the quarter were approximately $58.3 million, driven by capital maintenance spend. In our new Chili's reimage program, we completed a total of 11 reimages in fiscal 2026. Based on the learnings from these restaurants, we plan to complete another 60 to 80 during fiscal '27. In fiscal '28, we will start a planned cadence of 10% of the fleet annually. Regarding new unit growth plans, our growth will be modest in fiscal '27, but we already have sites in the pipeline to ramp up significantly in fiscal '28, with expectations for our new run rate to be in place for fiscal '29. We expect to share more details on our strategy and plans at our September 17 Investor Day. Our strong free cash flow provides sufficient liquidity to maintain our disciplined capital allocation strategy, allowing us to invest in our restaurants, keep debt levels low and return excess cash to shareholders. We continue to support this approach by repurchasing $100 million of common stock under our share repurchase program in the fourth quarter, bringing our total for the year to almost $400 million. In support of our capital allocation strategy, our Brinker Board of Directors authorized additional amounts under our current share repurchase program in August, bringing the total amount available to $750 million. Subsequent to year-end, we redeemed our outstanding $350 million, 8.25% bonds using the liquidity on our $1 billion revolver, which will provide interest expense savings in fiscal 2027 and the flexibility to continue to reduce leverage, if we choose. In this morning's press release, we shared that fiscal '27 guidance includes a 53rd operating week in the fourth quarter. We estimate the impact of the additional operating week to be an increase of approximately 2% in total revenues and $0.70 in incremental earnings per share. Regarding the guidance, we expect F '27 annual revenues in the range of $6.15 billion to $6.27 billion, adjusted diluted EPS in the range of $12.60 to $13.40, weighted average shares in the range of 42 million to 43 million, and capital expenditures in the range of $265 million to $285 million. Assumptions underlying this guidance include planned commodity and wage inflation in the low-single digits, with commodity inflation higher in the first quarter before moderating as the year progresses, a tax rate of approximately 19% and 3 net new company-owned restaurant openings. Guidance also contemplates the planned acquisition of 12 Chili's franchise restaurants located in Alabama and Mississippi, including the real estate of 6 of the locations. The transaction is expected to close at the end of August. As previously mentioned, fiscal '27 is off to a strong start in July and August, and we are confident our plans will enable us to continue to significantly outperform the industry in both sales and traffic while delivering another consecutive year of same-store sales growth. Before I wrap up, I'll just say this. The results we delivered this year give us a lot of confidence in where Chili's is headed. The strategy is working, and we believe there's still plenty of runway ahead. We'll keep building on the momentum by bringing in new guests, giving them more reasons to come back and staying focused on the things that matter most, strong execution in our restaurants, great value and world-class marketing and innovation. I look forward to providing further details at our upcoming Investor Day scheduled in Dallas for Thursday, September 17. With our comments now complete, I'll turn the call back to Holly to moderate questions. Holly?

[Operator Instructions] Your first question for today is from Dennis Geiger with UBS.

Congrats on another great quarter and year, guys. I wanted to ask a bit more on fiscal '27 guidance. I know we can back into select items, but anything more to share on specific assumptions for Chili's same-store sales for the year? And then just shifting over to margins and earnings flow-through, helpful with the inflation, but anything more on some of the key pieces there as far as reinvestment opportunities go maybe versus prior years?

Sure. So what we've done and what's implied in this guidance is we built in a little bit of upside for July. But basically, for the remainder of the year, we have assumed mid-single digit same-store sales and positive traffic for Chili's. So we feel really confident that we can continue to deliver those results. If this momentum continues that we started in the beginning of this fiscal year, there's absolutely opportunity to exceed those expectations, but that is what we have built into the guidance. As far as the margins go and the flow-through, we are very protective of our value proposition. We've been very mindful of that. We are very aware of driving positive traffic over time. So we have built in inflation. I talked about the inflation for commodities and for labor. There's also some inflation in some other pieces of the P&L. For example, we have some inflation in rent. We have some inflation in advertising, inflation in our insurance costs. So we've been just really mindful of baking in all those expenses and making sure that we're not putting too much pressure on the guest and the pricing strategy on the top line. So we feel really good about the numbers that we've built in. I think we've been very, very conservative about the inflation that we put in. So we feel good about delivering the results in the double-digit EPS that we promised.

Your next question is from David Palmer with Evercore ISI.

Congrats on the accelerating sales. I had a question about that. I wonder what reasons you would give for this pretty big acceleration you're seeing in July and August. I've heard a lot of theories, but would love your analysis. And what part or parts do you think are more clearly not sustainable in your mind?

Yes. So we've seen lifts like this in the past during this turnaround, David. And like what we've seen to be is we bring people in and then it just kind of becomes their habit, and we just don't look back. So to answer your question more specifically about what we think is driving it right now, number one is chicken sandwich. So the chicken sandwich continues to build. It's doing everything that we thought it would do. It was part of our plan to continue the better than fast food campaign, continue to drive our value leadership in the industry, but most importantly, continue to give the guest unbelievable abundant value that tastes great, and that's exactly what it's doing. We've had a couple of other things that happened from a social standpoint. So we had some pretty good success with our Bombshell Marg, which was the Margarita of The Month in July that we saw some younger guests come in for. And then we also seized upon a social media thing that we did not do. So guests started asking for Molten's on top of skillet cookies. The marketing team wanted to get after it immediately and we said, hey, let's make sure we're operationally ready to do that before we turn that on. So we were hard at work making sure we had the proper supplies on cookies and Molten's and ice cream. And then we recently put that into the business, allowing the service have keys to ring it up properly as well as train the teams on how to make it consistently versus just looking at social media and how to make it. And that's also been very successful. It's actually reversed our incidence decline on desserts between that and then also upgrading a couple of our other desserts. So we feel like it's just a collection and then obviously, the continued operational initiatives on removing friction and improving throughput. They're very hard things to pinpoint because like I said in my prepared comments, the throughput stuff is a collection of small things that add up. But like, for example, when you make the reduction of our loyalty rewards supermarket simple and it reduces the number of times the manager has to come and change checks, that turns tables faster. And we know, especially on the weekend, turning tables is traffic in the till. So it's a collection of all the things that we're doing. And we've been relatively consistent continuing to deliver comps on top of comps on top of comps and it's because our strategy is built to just continue to plow through all of this.

Your next question for today is from Jeff Farmer with Gordon Haskett.

Mika, what is your expectation for the restaurant level margin in '27? And how should we be thinking about the benefit from the 53rd week?

That's a great question. So what I would say on a 52-week basis, I'm going to expect 20 to 40 basis points of margin improvement. Depending on where it falls in that range, the 53rd week could get you up to 50 basis points of margin improvement year-over-year. So that's where we are now, Jeff.

Okay. And then just one more quick one. As it relates to the -- it sounds like you guys have made the change in the compensation structure for the restaurant level manager. How are you guys thinking about the impact that would have on the business?

Yes. So a couple of things to answer that question, Gordon. So -- I'm sorry, Jeff. So number one, we're trying to simplify the amount of reports and the measurements that the managers use so that they can focus more on the behaviors, which is in terms of coaching the team members as well as being in the dining room with the guests. So they're still going to have access to the GWOP metric, and they'll be able to see it like on a weekly basis, and they'll be able to get verbatims from guest comments. And we're going to use AI to help cultivate that for them so they don't have to go through all of the verbatims. But we're not going to give them GWOP per shift on a daily basis because we found that they were kind of overly consumed with the daily metric. They were using that more often with their teams, posting them up and the team members didn't feel great about it. And so even though we've been making incredible progress on GWOP, the guests with the problem, we felt like it was taking them away from the things that we wanted to do. So we're not going to have them look at it on a daily basis. We removed that from the bonus. The bonus is totally focused now on sales and profits. We did codesign this with them. We started with our Vice President of Operations, and we trickled it down. And overall, the feedback has been incredibly positive. It's like, hey, we can focus on the behaviors that we need to focus on and we don't necessarily have to look at this thing and be consumed with reporting. We also dramatically simplify the reports that they get on a daily basis. We've got kind of this laundry list of reports down to 2 main reports that help them with throughput, labor scheduling and some other key things like guest metrics that they need to be able to see. So I feel like that, that change is going to make them focus, number one, most importantly, on the behaviors to deliver a great guest experience. And then number two, because profits are a higher percentage of their total bonus, we think that's going to help us with that middle of the P&L to be able to flow through more of the dollars that we get with incremental sales. And it doesn't mean we're not going to continue to invest in the business. So Mika talked about that in the prepared comments, but we feel like this is just a continuation of dramatic simplification in order to allow the restaurant teams to do their job, which is making guests feel special.

Your next question is from Andrew Strelzik with BMO.

And maybe following up on that last answer. If you feel like you're going to be able to get more flow-through because of the change in the compensation structure, why is 20 to 40 basis points still the right starting point for margin expansion?

So Andrew, I'll start with that. So like I said, 20 to 40 basis points is what we have built in the model. And again, we've been very mindful of how much price we're taking. So our pricing strategy had been 3% to 5%. We're on the lower end of that. And we actually have just a lot of inflationary pressure. So I talked about the commodities even though they're in the low-single digits, that's going to start at the beginning of the year. Probably I'm going to give you some nice round numbers where commodities will probably be 4% in Q1, 3% inflation in Q2, 2% inflation in Q3 and 1% in Q4. That's what we're modeling now. So we do have a little bit of earlier pressure on that. Also we've had some inflation in some other areas such as insurance, such as delivery fees, things like that, we've built in that we're not necessarily passing all the way through to the guest. So we've been very mindful of driving long-term traffic over time. When I take a step back and just look at the whole model, we know if we deliver mid-single digit same-store sales over time, we delivered 20 to 40 basis points of margin improvement and we deliver double-digit EPS growth that we're going to deliver significant earnings and growth to the shareholders and if we can deliver those consistently over time. So we're not as concerned. We don't want to overpressure the guest in the short term. You've heard a lot of our competitors have that same mindset where you don't want to overprice the guest right now. We have a lot of inflation that we're facing. So we're being more conservative in those assumptions. Now as the year progresses out, if our sales exceed our expectations or some of those inflation assumptions are a little bit less, I think we have the opportunity to outperform those metrics. But that's what we have guided in and worked in the model for now to start the year.

Got it. Okay. That makes sense. And maybe if I zoom out on the margins, obviously, you transformed the restaurant level margins of the business. Is there a level at which you think about kind of shifting how much flows through versus how much you reinvest kind of like a ceiling on restaurant margins for this business over time as you kind of continue to make these continuous improvements, how you think about that?

Andrew, that is also an excellent point that I should have made, too. So as you called out, we had, since this turnaround started, over 600 basis points of margin improvement over time. So we've significantly improved the margin profile of this business. Now that is a reason why because we have an investor growth strategy that as we move forward, you're going to see the margin growth moderate a little bit. And really, what that means is, we're not trying to flow through every dollar. We're trying to make sure that we're mindful to invest back in food service and atmosphere. What that means is, we are investing back in the guest experience, the team member experience, and we don't want to overprice the guest, and we want to make sure we continue to make that value proposition as strong as it can be because we know that is the secret to driving positive traffic over time. There's not a cap. I said all that, and you did say is there a cap. We do think if we continue to grow the top line in the AUVs, we still think we can expand it. It's just not going to be as material as it has been during this turnaround. So there will be a point as the AUVs grow. But right now, we still have plenty of capacity. Our restaurants are only at 80% capacity of our historical guest count. So we have plenty of capacity to continue to grow traffic and grow some margin.

And just one thing I would add is like when we first started this turnaround, what I told the leadership team was, boy, we were like at $3 million AUVs, like we just get the $4 million AUVs, like we'll have enough labor to service the guests. We'll have better restaurant margins, like we'll have enough money to pull back into the business and that happened. And now we're getting to -- we're at $5 million now. And you just get more of that. And at the end of the day, when we study these North of 6 restaurants, they have dramatically higher margins than the balance of the system. So as long as we continue to invest in the business and grow those AUVs and delight the guests, good things will happen with margin. And every year, we start out the year with a pretty reasonable guidance on our margin growth, but then we've blown through it. We've blown through it because we keep delivering on the top line because we're winning with the guests. So I don't know why we would change that approach. And I would expect that, if we deliver on the upside on sales based on the acceleration that we've seen in the first part of the year, then I would expect to see that also expand on restaurant margin.

Your next question for today is from John Ivankoe with JPMorgan.

The first, I think, housekeeping and the second may be a little bit more important. In terms of the remodels at 60 to 80 units, I know you've looked at a number of different packages in terms of what you would spend per unit. Where are we kind of landing in '27 on a per remodel basis? And is that the right number to assume going forward as well with normal type of inflation?

So John, that's a number that we're still finalizing right now. But what I will tell you is we have taken our capital guidance up. The majority of that increase year-over-year is due to the reimages, and we said we're going to do between $60 million and $80 million. So you'll get an estimate there. We're continuing to refine that number. We're going to talk about it on Investor Day and give some more details around it then. But I'm pretty happy with the number. The first 250 are probably a little bit elevated because we've talked about those being some of the 911 restaurants that probably need a little bit of extra love. They also have -- a lot of those are older prototypes. And some of the early reimages, if they have the lower ceilings in the bar, we do an extra step where we open up the bar and actually remove a wall. So that also has an incremental cost. So over time, I think this number is going to continue to evolve and come down as we get more scale and then we kind of work through the balance of the system. But again, more details on Investor Day, but the bulk of that increase in the year-over-year CapEx is for the reimage.

Well, we're definitely looking forward to the 17th. Okay. So let me ask another question on the menu. We've talked in the past about maybe opportunity, maybe today wouldn't be the time, but we talked about the opportunity to kind of relaunch salads, bowls, maybe improving steak to kind of take another modern re-hit at the Guiltless Grill for how people are eating today. So can you kind of talk about any major menu categories that could be addressed in the near term and could lead to future sales growth beyond '27?

Yes. We have shuffled a little bit of our priorities in '27 based on just what's happening in the zeitgeist. So let me just tell you what food innovation will be for '27, and then I'll share with you what we're planning for '28. So number one, we're going to continue to ride the chicken sandwich all year. So that was certainly up in the air as we were launching. The plan was if it does well, we're going to continue to drive it. And so that's the plan from an out-of-store marketing standpoint. And then, we're going to continue each quarter to remind the teams on how to make the best sandwiches. It's not an easy thing to make a hand breaded sandwich. So we're going to stay focused on that operationally. Secondly, we're in process of revamping the kids menu. So we've launched the new kids menu, and this is about how do we just continue to get young families into Chili's. We know that kids are talking about Chili's. We see -- there's a very common thing we see in social media where if a kids team wins X, they want to all go to Chili's. So we think this is the time is right to go after the kids menu. So we have a new kids menu. We brought back Grilled Chicken Tenders, which is a parent and kid favorite. And then next quarter, we're going to be adding mini Moltens back to that lineup as well as cheese quesadillas. And then we've recently launched new floats with our new Blue Bell ice cream. So we've upgraded our ice cream to a much more premium ice cream. And then we've also added a mocktail for kids, a Shirley Temple that's made with Sprite. So -- the new kids menu, a part of that has happened now and the rest of it will be finished next quarter. We finished renovating our pasta platform. So we've added sausage as a protein. We are hearing our chicken and sausage in our Q2 menu. And then we retrained teams on what we call pasta perfection. We did that last quarter. So the pasta is now going to be featured in Q2 in a bigger way. And then we also have a new cooking process to make it a little bit hotter. And then on a dessert standpoint, we've got a couple of things coming, which we haven't done in a while. We just recently upgraded our skill of cookies. So if you go in the restaurant now, you'll probably see it being advertised on our little table tent. It's been to upgrade with more premium ingredients, chocolate, brown sugar and butter to make them oozier and gooier. We've obviously upgraded the ice cream, which I talked about earlier to Blue Bell Ice cream. And then lastly, we added this social media phenomenon, the Molten on top of the cookie, and that is now something that we're selling in the restaurants. And then next quarter, we're actually going to bring back Cheesecake as a non-chocolate option for folks that want dessert. The other thing I would tell you about desserts that we're learning operationally is a lot of times in casual dining, servers don't sell dessert because they want to turn the tables on a busy Friday or Saturday. And we think we have an unlock on that one. The feedback that we've been getting from the servers is like, hey, when I get the dessert, it goes to the bottom of the kitchen display system on Zone 3, that's where we make desserts. And so it might take 15 minutes to make a dessert. So I really don't want to sell dessert, it's going to take 15 minutes. And so what we're doing is we're going to start -- we're going to test it first, bump the desserts to the top of the screen so the desserts get priority, so we actually can get that sale. So there's a lot of good things happening on the menu. In '28, that's when we're going to launch in the front half, we're going to launch salads. So we push that out a little bit based on what's happening. And then we'll have steaks and Guiltless Grill, hopefully, in the back half of '28 also.

Your next question is from Brian Harbour with Morgan Stanley.

Mika, just a quick clarification. So is it correct that you expect to run like roughly 3% price through this year? And then do you have any kind of directional color on like mix impact that you're expecting?

Yes. So what I would say as far as price goes, like I said, for the full year, it's going to be on the lower end, maybe just over 3%. If you're thinking about the cadence by quarter, it's going to be a little elevated in Q1. So I would model, again, nice round numbers, 4, 3, 3, if you wanted, just some general numbers on how the pricing will go at Chili's. As far as mix goes, like we said, it was slightly negative in Q4. We had the 0.2 that was driven by alcohol and appetizers. For the full year, the assumption, I would say it's basically flattish. So we see -- Kevin talked, we've had a little momentum in the dessert category. But really, our strategy this year is to focus on driving traffic. We've talked about that a little bit with the flow-through, but it's really about the chicken sandwich. The chicken sandwich is designed to drive traffic. We've built up all these other businesses over the years, and those are all built into the run rate, and now we're really leaning into this one to drive traffic, and that's exactly what it's doing. So flattish mix for the year. You got the price just over 3% and the balance of your sales will be from traffic.

Okay. Got it. Maybe talk about this next month, but I guess, any of the like North of 6 initiatives that you'd expect to see visibly this fiscal year? I guess, like any of those that you're kind of giving yourself credit for sooner at this point?

Well, let me tell you one thing we've done. So really, we look at North of 6 to really study their throughput. And so, as traffic continues to increase, we want to capture all that traffic. We just talked about, we're really excited about the start of the fiscal year. And when we think about the labor model, that's the main place that we're learning from them. So for example, in Q4, we just talked about that flow-through was a little bit challenged. I talked about tomatoes. We saw that food and beverage is up a little bit and also beef. But in our labor model, I will say, hey, we thought that labor would be a little bit more efficient. We have been telling our operators to staff for the sales they want. So we did have a little bit of -- let's say, they weren't as efficient as we wanted in labor, but thank goodness we did that because traffic ramped up so quickly in July and August that they were all ready for it and they're capturing it. So we have actually built in a lot of that where they exceeded the labor model last year. We built that into the model this year. Now a lot of it was built in the year-over-year already because they overspent, but we learned all that again from where are they leaning into this labor model. We're working on getting the base labor model exactly how we have it. I mean, it's a great problem to have that every year, we're growing the business so quickly that we're adjusting that labor model to make sure that we can capture all the guests and have the throughput improve. But that's kind of where we're focused on.

Yes. The -- and like, I said in my prepared comments, there's a lot of little initiatives that help with throughput. The major one, I think, that we're mostly focused on in the front half is going to be host stand. So this is this idea that like when we're on a weight, the average weight of our guest is 15 to 20 minutes. And even if we can't reduce that, we're going to try to reduce that, even if we couldn't reduce that, even just managing the host stand better makes a huge difference for that guest. Like, there's very different ways you can experience 15 to 20 minutes. And one way it can be a delighter and another way, it can be just the opposite. So we're going to focus on how they use the software to seat guests and manage the seating of the restaurant, retraining the host on how to better work with the guest on waits. We're obviously going to work on how do we get tables seated faster, how do we get tables bused faster. So there's a whole host of initiative coming in Q2. And then there's going to be just things throughout the year. So for example, one of the pieces of feedback we've been getting from North of 6 restaurants is some have tried to put in a second soda machine, but the reality is we just have a bottleneck on refills because we give a lot of free refills to our guests. And so, during a busy Friday, Saturday night, that can get -- that station can get clogged with both servers and food runners trying to get drinks. And so, we've got some initiatives that will help us with the KDS to unclog that. So there's a lot of little things like that, that are going to improve throughput. But it's very clear that those North of 6 restaurants that take on so much more traffic than our rest of our restaurants, they have the similar sized boxes, but they do things differently, and we're going to continue to roll those things out, plus take new ideas from those North of 6 restaurants and what we need to work on from a system standpoint.