Consumers may be dealing with a lot right now. But they’re still going to Chili’s.
Same-store sales soared 21.4% at the casual-dining chain last quarter, its sixth straight quarter of double-digit same-store sales growth. It came on top of a 14% increase a year ago, and included 13.1% higher traffic. And it outpaced the broader casual-dining segment by 1,650 basis points. Restaurant-level margins jumped by 270 basis points as a result, to 16.2%.
The performance was driven by growth across every customer income level, but particularly among lower-earning consumers. Households making less than $60,000 a year are Chili’s fastest-growing cohort, said Kevin Hochman, CEO of Chili’s parent Brinker International.
That group has generally been pulling back on their restaurant visits amid a tough economy. But they are making an exception for Chili’s, which has staked out a strong position on value with $10.99 combo meals that it argues are a better deal than fast food.
“It's clear that the ‘Better than fast food’ campaign we've been hammering over the past two years has positioned Chili's as an important value leader in the industry,” Hochman said during an earnings call Wednesday. “And we are gaining market share with low income households while others are reporting softness with that group.”
Value is not the only thing driving growth for Chili’s. The chain’s revamped baby-back ribs have been a hit, as have new frozen margaritas. Rib sales rose 35% in the quarter and were 29% more profitable, Hochman said, and food scores were also up for the new product, which was reformulated with a crispier exterior and a more tender inside. Frozen margs, meanwhile, are selling twice as fast as the old ones, despite a higher price point.
Next up on the menu, Chili’s plans to highlight its crispy chicken sandwiches, which Hochman hinted will be incorporated into the $10.99 3 for Me meal platform and backed by an ad campaign. The brand sees a big opportunity for chicken, which has seen growing demand in the restaurant industry in recent years.
“It should be a much bigger percentage of our business because boneless fried chicken is one of the top five things that Americans eat,” said Hochman, the onetime president of KFC. “And it's been growing every year for several decades now. So that's why we're very bullish about the chicken sandwich platform.”
Chili’s acknowledged a small misstep during the period: The replacement of its Skillet Queso with a new Southwestern version. Fans of the old queso let the chain have it on social media, and earlier this week, Chili's said it will bring back the old option alongside the new one.
“We are very confident that with the two quesos, it's going to be a significantly bigger business than it was with the old,” Hochman said. “So at the end of the day, it's going to be a good thing for our sales.”
The chain will need all the help it can get to stimulate growth as it heads into a challenging new year, when Chili’s toughest competitor will likely be itself: It has to top an incredible run over the past four quarters if it wants to continue generating same-store sales growth.
New products and marketing will play a big role in that, as will Chili’s ongoing effort to simplify its operations and improve service.
Still, the chain expects same-store sales to moderate into the mid-single digits in the coming quarters. Mix and traffic, meanwhile, could be “more in a neutral-ish zone,” said CFO Mika Ware.
In the current quarter, which is proving to be a bad one for the industry at large, Chili’s same-store sales are running in the high single digits. “Q2 is off to a great start,” Ware said, referring to Brinker’s fiscal second quarter. The company left its guidance for the fiscal year unchanged.
The only major blemish on Brinker's most recent quarter was Maggiano’s, where same-store sales declined 6.4%. The company is working to turn around the brand in a similar fashion as it did with Chili’s, with a focus on its menu and service model. The balance of the chain’s 51 restaurants will also get a full reimaging, Hochman said.
“I don't think it's going to be as fast or as dramatic as Chili's just because we don't have this shot in the arm to get a bunch of traffic for guests to experience the new Maggiano's as it continues to evolve,” he said. “But I think over time, I think we'll see it stabilize and start to grow.”
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