Executive Summary / Key Takeaways

• Brinker International's flagship Chili's brand continues its impressive turnaround, delivering industry-leading comparable sales and traffic growth driven by operational excellence, compelling value offerings, and world-class marketing.
• The company has achieved significant financial improvements, including robust revenue growth, expanded restaurant operating margins, and strong free cash flow generation, enabling disciplined capital allocation towards business investment, debt reduction, and shareholder returns.
• Strategic technological investments in kitchen equipment, digital platforms, and data analytics are foundational to enhancing the guest experience, improving operational efficiency, and solidifying Brinker's competitive advantage.
• Maggiano's Little Italy is embarking on its own turnaround, leveraging the successful Chili's playbook to simplify operations, elevate its menu, and eliminate unprofitable discounting, with management anticipating near-term traffic adjustments for long-term growth.
• Despite macroeconomic headwinds, including commodity inflation and tariffs, Brinker's fiscal 2026 guidance reflects confidence in sustained positive sales and traffic at Chili's, supported by ongoing strategic initiatives and a strengthened balance sheet.

A Casual Dining Powerhouse Reinvents Itself

Brinker International, Inc. (EAT), established in 1975, has evolved into a prominent player in the casual dining sector, primarily through its Chili's Grill & Bar and Maggiano's Little Italy brands. As of September 24, 2025, the company's footprint spanned 1,630 restaurants, comprising 1,161 company-owned and 469 franchised locations across the United States and internationally. The company's overarching "Invest to Grow" strategy, initiated around fiscal 2022, has been instrumental in revitalizing its core business by focusing on the fundamental pillars of food, service, and atmosphere.

The casual dining industry currently operates within a challenging macroeconomic environment, marked by wage inflation, product cost inflation (including tariffs), and potential disruptions in the supply chain. These factors could influence consumer spending, potentially reducing guest traffic and average spend. Despite these headwinds, Brinker has strategically positioned Chili's as a value leader, directly competing with and outperforming rivals like Darden Restaurants (DRI), Yum! Brands (YUM), Dine Brands Global (DIN), and Bloomin' Brands (BLMN). While Darden, Yum!, and Dine Brands often leverage broader portfolios or asset-light franchise models, Chili's differentiates itself through a focus on consistent quality, a fun atmosphere, and compelling value propositions. This approach has allowed Chili's to gain market share, particularly among lower-income households, even as other industry players report softness in this demographic.

The Technological Edge: Fueling Operational Excellence

Brinker's strategic investments in technology are a cornerstone of its competitive moat, driving both operational efficiency and an enhanced guest experience. A significant technological differentiator is the ongoing conversion of all Chili's restaurants to TurboChef ovens. These advanced ovens utilize a combination of modern cooking methods to rapidly accelerate cooking times compared to conventional ovens. The tangible benefits are substantial: TurboChefs cook food faster and more evenly, emit less heat in the kitchen, create superior-tasting products like crisper quesadillas and ribs with a delicious crust, save kitchen space, are easier to clean, and are more reliable. This upgrade is expected to improve throughput, particularly for high-volume items like Triple Dippers and Crispers, and enhance the overall quality of core menu items.

Further enhancing operational efficiency, the company has completed the installation of new Kitchen Display Systems (KDS) across its Chili's fleet. These systems have eliminated hundreds of pages of physical reference materials, simplified recipe access, and enabled faster ticket times. A recent upgrade to the KDS added "all-day counters" for high-mixing items, providing cooks with better visibility on preparation needs during busy shifts, thereby reducing response and total ticket times.

For front-of-house operations, Chili's servers utilize handheld tablets for order placement. A dramatic simplification of the iPad application is underway, featuring a more intuitive design, the removal of over 700 no-longer-sold SKUs, and faster paths to create orders. This initiative is projected to result in hundreds of millions fewer taps annually for servers, less scrolling, improved accuracy, and faster order taking, which is also expected to help reduce server turnover. The new app will also include a seamless offline mode and easier split-check capability.

Underpinning these digital advancements is a comprehensive upgrade to the Internet and WiFi infrastructure across the restaurant estate, expected to be completed by calendar year-end. This upgrade introduces cellular backup for network outages, higher-speed internet for older technology restaurants, and improved WiFi coverage through the installation of over 5,000 new access points. These foundational upgrades are critical given the increasing reliance on internet connectivity for operations.

Finally, Brinker is leveraging tokenized data to gain deeper consumer insights. This capability allows the company to track monthly customer cohorts, understanding guest visitation and purchase behavior over time. This data provides a better understanding of the sustainability of guest traffic, indicating that the restaurant experience is effectively retaining new and regular guests. For investors, these technological advancements translate into a stronger competitive moat, improved operational efficiency, enhanced guest satisfaction, and ultimately, a more resilient business model capable of sustaining growth and expanding margins.

Chili's: A Resurgent Flagship Driving Market Share

The Chili's brand has undergone a remarkable transformation, becoming the primary engine of Brinker's success. The turnaround, rooted in menu simplification, saw the elimination of over 25% of the menu to focus on "5 to Drive" core segments: burgers, crispers, fajitas, margaritas, and the Triple Dipper. This strategic focus, coupled with continuous ingredient upgrades (e.g., higher-quality chicken breast, fresh guacamole, crispier wings and bacon), has led to consistently higher food grade scores.

Chili's delivered exceptional performance in the first quarter of fiscal 2026, with comparable restaurant sales increasing by 21.4%, significantly outpacing the casual dining industry by 1,650 basis points. This growth was primarily driven by a 13.1% increase in traffic, complemented by a 4.3% positive mix-shift and a 4.0% price impact. This marks Chili's 18th consecutive quarter of positive same-store sales growth and its eighth consecutive quarter of outperforming the industry in traffic.

Operational initiatives have been key to this sustained momentum. The upgraded ribs platform, launched in Q4 FY25, has seen a 35% increase in sales and a 29% improvement in profitability for the ribs business. The new frozen Patrón Margaritas platform, featuring premium ingredients and new Taylor machines, is selling twice the units of the old platform despite a higher price point. The "3 for Me" value platform, offering a drink, appetizer, and entrée starting at $10.99, remains a powerful traffic driver, with its overall mix holding steady at approximately 18%. The Triple Dipper, a social media sensation, now accounts for about 15% of total sales.

Chili's commitment to operational excellence extends to its "North of 6" initiatives, which aim to replicate best practices from high-volume restaurants (those generating over $6 million in AUVs) across the entire system to improve throughput and efficiency. Guest satisfaction metrics, such as "Guest with a Problem" (GWAP) scores, have reached an all-time low of 2.1%, reflecting a significantly improved guest experience.

The brand's marketing prowess has been widely recognized, with Chili's being named Ad Age's 2025 Brand of the Year. Campaigns like "Better Than Fast Food" and the Triple Dipper social media push have effectively driven traffic and introduced a new generation of guests to the brand. The opening of the Chili's Scranton Branch, a themed restaurant paying homage to "The Office," generated over 9 billion impressions, further cementing Chili's relevance in pop culture. These efforts underscore Chili's strong competitive positioning as a value leader that consistently delivers on its brand promise.

Maggiano's: Charting a Course for Revival

While Chili's shines, Maggiano's Little Italy is in the early stages of its own "Back to Maggiano's" turnaround plan. In the first quarter of fiscal 2026, Maggiano's reported a -6.4% comparable restaurant sales decline, primarily due to a -12.8% traffic impact, partially offset by a +5.9% price impact and a +0.5% mix-shift. This performance reflects the challenges inherent in revitalizing a brand and is anticipated to result in near-term traffic choppiness, similar to Chili's early turnaround days.

The "Back to Maggiano's" strategy, now under the interim leadership of Kevin Hochman and new COO Rich Kitzel, focuses on four key pillars:

• Returning to classic, scratch-made Italian American favorites with abundant portions.
• Improving service levels and speed through new labor deployment and simplification.
• Focusing repairs and maintenance on guest-facing areas while reimaging the estate.
• Fostering pride in ownership among management teams.

Initial steps have included simplifying the menu by reducing items and prep steps, and eliminating unprofitable deep discounts that were not aligned with the brand's premium casual positioning. The team has also introduced upgraded core dishes, now representing 50% of the entrée mix, and plans for further menu elevation. These initiatives aim to rebuild Maggiano's foundational strengths and drive sustainable long-term growth.

Financial Fortitude and Capital Discipline

Brinker International's robust operational performance has translated into significant financial strength. For the thirteen-week period ended September 24, 2025, total revenues reached $1,349.2 million, an 18.5% increase from the prior year. Net income for the quarter was $99.5 million, a substantial increase from $38.5 million in the same period last year. Basic net income per share rose to $2.23 from $0.86.

Profitability metrics demonstrate strong leverage from increased sales. The consolidated restaurant operating margin improved by 270 basis points year-over-year to 16.2% in Q1 FY26. This was primarily driven by sales leverage, despite unfavorable food and beverage costs (due to menu mix and commodity inflation) and higher wage rates. The company's TTM Gross Profit Margin stands at 32.60%, Operating Profit Margin at 10.25%, and Net Profit Margin at 7.94%.

Cash flow generation remains strong, with net cash provided by operating activities increasing to $120.8 million in Q1 FY26 from $62.8 million in the prior year. This robust operating cash flow supports the company's capital allocation strategy. Brinker has significantly strengthened its balance sheet, reducing its lease-adjusted leverage ratio to 1.7x by the end of fiscal 2025. As of September 24, 2025, the company had $90 million outstanding on its $1 billion revolving credit facility, with $910 million available, providing ample liquidity.

The company's disciplined capital allocation prioritizes investing in the business, paying down debt, and returning excess cash to shareholders. In August 2025, the Board approved a $400 million increase in the share repurchase program, bringing the total available authorization to $507 million. In Q1 FY26, Brinker repurchased 0.90 million shares for $134.5 million. These actions underscore management's confidence in the business's ability to generate sustainable value.

Outlook and Risks: Powering Through Macroeconomic Currents

Brinker International has reiterated its fiscal 2026 guidance, projecting continued positive performance for Chili's, though acknowledging that gains will likely be offset by softer results and necessary investments at Maggiano's. The company anticipates Chili's same-store sales to normalize in the mid-single-digit range for the balance of the fiscal year, with positive sales and traffic expected each quarter. Pricing for Chili's is expected to be around 4% for the year, with mix and traffic in a more neutral zone.

However, the outlook is not without its challenges. Management now anticipates commodity inflation, inclusive of tariffs, in the mid-single digits for fiscal 2026, an upward revision from earlier low single-digit projections. This is primarily driven by higher tariffs on commodities like beef and shrimp, alongside increased inflation in workers' compensation and health insurance claims. Consequently, Brinker's consolidated restaurant operating margins are now expected to be flat to slightly positive for fiscal 2026, a moderation from previous expectations of 30-40 basis points of expansion. The second quarter of fiscal 2026 is specifically projected to experience year-on-year margin compression due to the timing of Chili's expenses and Maggiano's impact.

Key strategic initiatives for fiscal 2026 include queso and nacho upgrades, a major relaunch of the chicken sandwich platform in the back half of the year, and continued investment in base ingredients. The company plans to strategically pursue international expansion for Chili's and aims to remodel 10% of the Chili's fleet annually starting in calendar 2027. Maggiano's turnaround efforts, while necessary for long-term health, are expected to contribute to near-term choppiness in traffic and profitability. The company expects to remain in compliance with its debt covenants throughout fiscal 2026.

Conclusion

Brinker International stands at a pivotal juncture, with its Chili's brand demonstrating exceptional resilience and growth in a competitive casual dining landscape. The sustained momentum, fueled by a relentless focus on operational fundamentals, compelling value, and strategic technological investments, positions Chili's as a market share leader. While Maggiano's embarks on its own turnaround journey, leveraging a proven playbook, the company's disciplined capital allocation and strengthened balance sheet provide a solid foundation for future growth. Investors should recognize Brinker's ability to consistently deliver a superior guest experience, which, combined with its technological roadmap and strategic initiatives, underpins a compelling long-term investment thesis despite the prevailing macroeconomic uncertainties and competitive pressures. The path ahead involves navigating commodity inflation and ensuring successful execution of the Maggiano's revival, but Brinker's demonstrated operational prowess and strategic clarity suggest a continued trajectory of market outperformance.