An ad campaign targeting fast-food chains and appetizers that went viral on TikTok helped Chili's store sales increase about 15% in the last quarter.
But Kevin Hochman, CEO of the parent company, Brinker InternationalThe chain's strong performance is just a sign that customers are finally recognizing the transformation the chain has undergone over the past two years, the CEO of Café Shop & Roll told CNBC.
Brinker shares have risen 53% this year, giving it a market value of $2.99 billion. However, the stock closed down 10.7% on Wednesday after the company disappointed analysts with weaker-than-expected earnings and a conservative outlook for fiscal 2025.
The company’s shares rose 7% in afternoon trading Thursday, recovering from what BMO Capital Markets called an “overreaction” by investors. KeyBank Capital Markets also upgraded the stock on Thursday, saying its quarterly results were misunderstood.
Regardless of expectations, Chili’s made even StreetAccount’s estimate of 8.6% same-store sales growth look cautious. Same-store sales growth of 14.8% puts it in a rare league, joining Chipotle and Wingstop The few general restaurants that have reported strong traffic and same-store sales growth at a time when many consumers are cutting back on their spending are putting pressure on the industry. Chili's competitors in the casual dining space, such as Applebee's, owned by Dine Brandsand Blooming Brands Outback Steakhouse reported lower same-store sales in its most recent quarters.
“This is another whole step towards change in the business,” Hochman said. “I think the sky is the limit for this brand.”
About 60% of Chili’s growth in the last quarter came from its $10.99 Big Smasher meal, according to Hochman. The chain promoted the deal by targeting its fast-food rivals in TV ads.
“We were taking advantage of this insight we saw on social media months ago, that customers were upset about the trend in fast food prices,” Hochman said. “The advertising clearly had an impact on that.”
Another hit on the Chili’s menu this quarter was the Triple Dipper, which allows diners to choose three toppings and sauces. The item went viral on TikTok in May. Hochman estimates that the Triple Dipper was responsible for about 40% of the chain’s sales growth.
But the popularity of both the Triple Dipper and the Big Smasher has created new problems for Chili’s. Its restaurants have had to prepare to serve an influx of customers, many of whom are trying Chili’s for the first time or returning after a long absence. Chili’s has been investing in staff over the past two years — from hiring delivery workers to adding more chefs — but those moves weighed on its bottom line this quarter, Hochman said.
According to Hochman, the transformation at Chile has not been limited to its workforce.
Under his leadership, the company has spent the past two years trying to profitably increase sales. Chili's has trimmed its menu, eliminating about 22% of items.
Brinker has also discontinued some less profitable strategies for attracting customers. Chili’s no longer offers as many coupons as it once did, and Brinker has discontinued its Maggiano’s virtual brand of classic Italian food.
Meanwhile, Chili’s has also moved toward value ahead of competitors, who are now rolling out their own deals. But Hochman is confident that Chili’s can maintain its lead — and the new customers brought by TikTok and TV ads.
“We've been announcing our value for about 18 months, and a lot of people come in late to the game, and sometimes the value is more aggressive, and they don't have the awareness that we have, because we've been in this business for a long time,” he said.
But as Brinker enters a new fiscal year, it may be tough to retain its new customers. A slew of restaurants, from McDonald’s to Outback Steakhouse, have unveiled value meals aimed at luring customers looking for discounts. Customers may continue to cut back on their restaurant visits to save money. Eating out prices, up 4.1% over the past 12 months, have remained relatively flat.
For Brinker’s fiscal 2025, which began in July, the company expects earnings per share between $4.35 and $4.75 and revenue growth between 3% and 4.6%. Investors had expected stronger growth prospects, given Chili’s recent success. But Brinker is playing it safe in case the economy deteriorates.
“It's important for our team to set goals that we believe are achievable,” Hochman said.
“The economy has definitely taken a turn for the worse over the last three or four months,” he added.
