An advertising campaign targeting fast-food chains and a viral snack on TikTok helped Chili's same-store sales rise nearly 15% in its latest quarter.
But Kevin Hochman, CEO of the parent company Brinker Internationaltold CNBC that the chain's strong performance is just one sign that customers are finally taking notice of the chain's two-year recovery.
Brinker shares have risen 53% this year, boosting its market value to $2.99 billion. However, the stock closed 10.7% lower on Wednesday after the company disappointed analysts with weaker-than-expected earnings and a conservative outlook for its fiscal year 2025.
The stock rose 7% in afternoon trading Thursday, recovering from what BMO Capital Markets called an “overreaction” by investors. KeyBanc Capital Markets also upgraded the stock Thursday, saying its quarterly results were misinterpreted.
Forecasts aside, Chili's made even StreetAccount's same-store sales estimates of 8.6% growth look cautious. Its 14.8% same-store sales growth puts it in rare company, joining Chipotle and Wing stop Chili's is one of the few public restaurants reporting strong traffic and same-store sales growth at a time when many consumers are cutting back on spending, putting pressure on the industry. Chili's casual dining rivals like Applebee's, owned by Dine Brandsand Flourishing brands Outback Steakhouse reported declining same-store sales during its latest quarters.
“This is another big change in the business,” Hochman said. “I think this brand has no boundaries.”
According to Hochman, about 60% of Chili's growth in its most recent quarter came from its $10.99 Big Smasher menu. The chain promoted the deal by taking aim at its fast-food rivals in television ads.
“We had picked up on the information we had seen on social media months earlier, that customers were upset about rising fast food prices,” Hochman said. “The advertising clearly struck a chord with that.”
Another popular item on Chili's menu this quarter is the Triple Dipper, which allows diners to choose from three appetizers and sauces. The dish went viral on TikTok in May. Hochman estimates the Triple Dipper accounted for about 40% of the chain's sales growth.
But the popularity of both the Triple Dipper and the Big Smasher created new problems for Chili's. Its restaurants have to be prepared to handle the influx of customers, many of whom were trying Chili's for the first time or returning after a long time away. Hochman said Chili's has been investing in labor over the past two years, from hiring busboys to adding more cooks, but those moves put pressure on its bottom line this quarter.
According to Hochman, Chili's turnaround has affected more than just its workforce.
Under his leadership, the company has spent the past two years trying to profitably grow sales. Chili's has pared back its menu, eliminating about 22% of items.
Brinker has also ended some less profitable strategies to attract customers. Chili's is no longer offering as many coupons as it once did, and Brinker has canceled its Maggiano's Italian Classics virtual brand.
At the same time, Chili's also leaned into value over competitors, which are now launching their own offerings. But Hochman is confident Chili's can maintain its lead and the new customers that TikTok and TV ads have brought.
“We've been advertising our value for almost 18 months, and a lot of people come in late to the game, and sometimes it's a more aggressive value, and they just don't have the knowledge that we have, because we've been at this for a while,” he said.
But as Brinker heads into a new fiscal year, retaining his new customers could prove difficult. A host of restaurants, from McDonald's to Outback Steakhouse, have introduced value menus aimed at attracting diners looking for discounts. And customers may continue to cut back on restaurant visits to save money. Prices for eating out, which have risen 4.1% over the past 12 months, have remained relatively flat.
For fiscal 2025, which began in July, Brinker sees earnings per share of $4.35 to $4.75 and revenue growth of 3% to 4.6%. Investors had expected a stronger growth outlook, given Chili’s recent success. But Brinker is playing it safe in case the economy worsens.
“It's important for our team to set goals that we believe are achievable,” Hochman said.
“[The economy] “It has certainly gotten worse in the last three or four months,” he added.
