Good morning, ladies and gentlemen, and welcome to the Brinker International Fiscal 2018 Q1 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Joe Taylor, Chief Financial Officer. Sir, the floor is yours.

Thank you, Kate, and good morning, everyone. We appreciate you joining us today for the first quarter earnings call. Joining me here in Dallas is our CEO, Wyman Roberts. And before we jump into the prepared comments I want to take the opportunity to introduce the newest member of the Brinker finance team Mika Ware, our new VP Finance and Investor Relations. While Mika is new to this position, she is a very long time Chili head who has served the last seven years as VP Finance for Chili’s. She brings an incredible wealth of knowledge to her new position. I know you’ll be getting to know her in a very short while. I am very pleased and very privileged to have her working directly with me in this important role. And with that introduction I am going to turn the call over to Mika for her first run of our Safe Harbor statements.

Thank you Joe and good morning. I look forward to meeting and working with all of you. Results for the quarter were released earlier this morning and are available on our website at brinker.com. Wyman Roberts, Chief Executive Officer and President, and Joe Taylor, Chief Financial Officer; join me this morning here in Dallas. As is our practice, Wyman and Joe will first make prepared comments related to our operating performance and strategic initiatives underway at the Company. We will then open the call for your questions. Before beginning our comments, please let me 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 risk and uncertainties, which could cause actual results to differ from those anticipated. Such risk 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 Wyman.

Thanks, Mika. Good morning, everyone, and thanks for joining us today as we recap first quarter, share our insights from the launch of our Chili's turnaround strategy and how we'll build on that momentum going forward. As you saw on the press release, Brinker delivered earnings per share of $0.42 for the quarter and when you adjust for the impact of hurricanes, which we believe is about $0.03, we actually performed ahead of expectations. Joe will provide more detail in a moment. First quarter did present the most significant weather events our Company has ever seen. I'm pleased to share all our company-owned restaurants that were impacted by the hurricanes are back up and running and we took care of our Brinker family during this time of crisis with relief pay, temporary housing and emergency supplies. We also continue to work closely with our franchise partner in Puerto Rico to provide ongoing support during their recovery efforts and to help them reopen their remaining two restaurants, which we anticipate will open within the next few weeks. Hurricanes aside, our plans for the year is playing out as we designed it. First quarter was all about finalizing our turnaround strategy for Chili's, and training and preparing our teams for the new menu launch. For the balance of the year, we're focused on marketing and operational execution that will bring guests in, increase future visits and capture market share. And to make that happen, everyone on our team is aligned and committed to improving the guest experience while offering higher quality food, and more compelling price points, and delivering it faster and hotter. Our strategy started with the new menu. We reduced the menu by 40% and improved quality across signature items that present the biggest opportunity to move our business forward,…

Great, thanks Wyman. And good morning again to everybody. During our last call in August, we indicated the first quarter of this fiscal year would be weaker than last year, primarily due to the timing of our new menu and marketing initiatives. And that was the case as we reported adjusted earnings per share of $0.42 for the quarter. What we did not anticipate was the meaningful impact from Harvey and Irma in our South Texas and Florida markets. During the course of the two storms, 202 restaurants were impacted, resulting in almost 850 closed days of operations. Let me provide some insights as to the effect of the storms on the numbers we reported this morning. I would note, we are including both the lost sales resulting from the storms and the positive bounce back sales seen in those markets as to provide you with a net impact to our numbers. We estimate Brinker's comp sales for the quarter were reduced by 70 basis points due to the storms with Chili's and Maggiano's impacted by approximately 60 and 130 basis points, respectively. The hurricanes negatively impacted our adjusted earnings per share by approximately $0.03. When adding back in the hurricane impact, our adjusted earnings performance for the quarter would have been $0.45, several cents above our internal plan and Street expectations. The process of determining insurance recoverability including business interruption for lost sales is ongoing. Insurance recoveries, if any, will be accounted for in future quarters as that process unfolds. Now, looking at first quarter performance compared to last year. It's important to note our new menu launch and marketing campaign were both timed to meaningfully impact the last three quarters of the fiscal year. As such, this year's first quarter or at the quarter from a year ago…

Thank you. [Operator Instructions] Our first question today is coming from Chris O’Cull. Please announce your affiliation, then post your question.

Hi this is John [ph], on for Chris. Wyman, are you considering any additional changes in menu you guys introduced in mid-September? And was this based on guest feedback or margin implication?

Hi, John. The team is definitely working hard to move forward of the menu that was rolled out late first quarter, but in line with our strategy to really own burgers, ribs and fajitas, so we're not – so innovation hasn't stopped with this menu. The team is working very hard up. We've got an amazing culinary team that's just bringing us a bunch of really interesting and exciting ideas all the time. I'd say the difference between kind of what we're doing now and what we may have been doing more of in the past is we are so much more focused on the category that we think are going to drive the business forward. So yes, there will be innovation to continue, and it'll be along the lines of both recipe as well as value propositions and how we bring even stronger, more compelling value offers to our guests.

Do you have any early indications on what some of those value items might be? I know you highlighted the burger, but where else could you go from there?

Well I wouldn’t want to share too much of that detail right now, but again, it'll be around these core equities, burgers, ribs and fajitas, around dayparts, around some of the more specific parts of the business like take-out. Again, looking at the business and segmenting, but focusing on burgers, ribs and fajitas.

Okay great, thank you very much.

Thank you. Our next question today is coming from Gregory Francfort. Please announce your affiliation, then post your question.

Hi guys this is Greg from Bank of America. I just have two questions. The first one's on the marketing plan as we move throughout this year and the cadence. Given the menu launches, you expect it to be sort of more weighted to 2Q than it was last year? And then the second question is just on value scores, and speed of service scores and I guess around the new menu. Have you seen either of those change and kind of what was the magnitude of the change?

Hi Greg. Yeah, the marketing as we said, the first quarter, we had pulled back on marketing as we just kind of set the organization up for the rollout of the new menu and the speed in operational initiatives. Marketing now throughout the rest of the year will be more aligned with prior years and there'll be opportunities where we may be a little heavier, but a much more consistent kind of marketing plan to what we have historically run. With regard to the guest feedback on the menu, it's been strong. Whenever you take away 40% of the items that are on your menu, there's a chance that you're going to have some pushback from guests because you may have touched one of their favorites. So that's been the biggest challenge with reducing menus and we've gone through that as well as we ever have. I think the work that's been done in the field and with the marketing group, the culinary group has been exceptional in getting us through that first phase of hey, where's my favorite? Or the item I used to eat, and now we're getting good feedback on both, especially on the speed of service. Those improvements that I mentioned in my prepared remarks are showing up in the guest comments and we're confident that the other aspects of the menu are going to play themselves out as well.

Are value scores up, I guess? I see the mix and check numbers in the quarter, but I think you guys are reinvesting a lot back in the quality. I guess I'm wondering if the customers are recognizing that quality improvement and you're seeing improvement on the value side.

On the things that we are – like the $6.99 burger and the burger category specifically, we're seeing the guest react and respond to that very positively. So, yes.

Thank you.

Thank you. Our next question today is coming from Greg Badishkanian. Please announce your affiliation, then post your question.

Hi guys this is actually Fred Wightman on for Greg from Citi. I know that you mentioned, when you're talking about the hurricane impacts, you guys had netted out some of the bounce backs following the reopening. Could you just talk a bit more about what you saw there? I mean are things sort of back to normal, broadly speaking?

Hi, Fred good morning. I would say, generally say that we're back to a more normal situation. Obviously, we have launched the menu and launched the marketing afterwards too, so you're going to have some impact. Generally speaking, Florida bounced back in a more traditional manner. You always do see a bounce back from these kinds of events, maybe a little bit slightly longer bounce back in Texas, but we're back into what we consider to be a much more normal cadence at this point, but we did want to make sure that we didn't overstate the impact of those hurricanes by giving you that net approach.

Makes sense, if we look, I would assume, I know marketing was down in the quarter, but I would assume you sort of pulled back on marketing in Texas and Florida, following the storms as well. I mean, is it fair to assume a bit more of a delayed response as you look moving forward from the new marketing program too?

No Fred. You know most of our marketing is national and so we don't do a whole lot of local marketing. So from that perspective, those markets were getting the messaging just as everyone else would.

Perfect thank you.

Thank you. Our next question today is coming from Brian Vaccaro. Please announce your affiliation, then post your question.

Good morning and thank you. Wyman you said that you have seen a shift in the traffic after the menu and advertising launch. And we've heard that industry trends seem to have improved a bit sequentially in October. Would you be willing to qualify or provide some more context on the list and how much you think is sort of industry stability versus maybe attributed to the new menu and your repositioning?

Hi, Brian. As is our policy, we're not going to provide specific details. I can confirm kind of what you've seen as well that the industry have performed a little better here in October. Some of that's related to some weather rafts last year that kind of helped us a little bit early as an industry in the early part of the month, but it does feel like, and we're optimistic that may be the industry and the economy are going to start to perform at a little bit more positive level than they had kind of going through the summer so we'll continue to watch that. We know our trend change relative to the industry is positive so again, when we say we've started to see the traffic trends turn, and start turning into the direction we need them to move that's above and beyond kind of what we've seen with the industry.

And Brian, just to remind you, when we talk about the year performance, we did not build into the guidance we provided, much industry lift at all from that so just want to again, make sure we're level set on that issue. I mean our effort is designed to capture market share in whatever the condition the industry throws at us.

Okay, that is helpful and a question on the Chili's average check growth specifically, if I could. Could you provide some additional color just on the mix dynamic that played out in the quarter, pretty significant lift there, but how you expect that mix dynamic to play out moving forward? And also just confirm that you continue to expect a more normal level of menu pricing starting in the second half of your fiscal year.

Yes, let me checkout first, the mix in the first quarter was driven primarily by an in-restaurant feature card merchandising of our smokehouse combos. So again, a very popular guest item and does mix and move makes up a little bit on that quarter. And particularly, in the context if you weren't doing heavy marketing weights outside of that effort. I would anticipate if you kind of move forward as we bring the new menu further along and to hear us talk about incremental opportunity within the value space that, that will have an impact on the mix too as we move forward, such as the $6.99 OTC burger that we have on the menu right now and there we will go from that as it relates to value. The pricing dynamics are the same as we had kind of talked about the last quarter. We will remain elevated in our pricing position through the end of this calendar year so this last quarter, we then lap some of our larger price increases from last year as we move into the month of December. So you will see the pricing levels come back down into our 1% to 2% range as we move into the third and fourth quarters and our intent is to stay well within that range.

Okay, that's very helpful. And then just last one for me Joe, I just wanted to make sure I heard correctly. In terms of your annual store margin guidance, you expect to see labor costs up a little bit less than they were for the year compared to fiscal first quarter. You expect some modest pressure I think on the food cost line for all the reasons, you've described. Can you maybe provide a little more color on the other operating cost there that would seem to be a pretty meaningful source of offset to those pressure points? Thank you.

You did hear correctly that we put the display back is the message. Our operating costs within the restaurant operating margin are tracking pretty much along the line of our planned and expectations and you will, again, see that level of pressure on the labor line, a small increase in cost of sales and benefits coming to us from the restaurant expense line and we're still within the guidance we provided you for the overall restaurant operating margin.

Thank you. Our next question today is coming from Sara Senatore [Bernstein]. Please announce your affiliation then post your question.

Good morning, this is actually Anna Papp representing Sara from Bernstein.

Good morning, Anna.

Good morning, first as we think about where this traffic is coming from and response to the new menu, can you tell where it might be coming from? Is it other bar and grill restaurants or maybe from the QSR burger category where you might have lost some traffic to trade down? Thank you.

Anna, it's a little early to kind of talk about shifts in traffic from segments. What we do know is we're seeing some lighter users and we can get an earlier read on who's coming to the restaurant from the advertising and the messaging and the changes. And so we are seeing an increase in guests that haven't been to Chili’s in a while, which is encouraging to us and exciting from the standpoint of getting to introduce some folks that haven't been in for a while to the new menu and the faster, hotter food.

Okay, thank you. And then just a quick follow-up, please. Given pricing and lower advertising, it looks like there's a pretty clear margin versus sales trade-off. As you increase marketing spend then perhaps moderate pricing, what type of comp increase do you need to hold margins?

Again, we will – we continue to guide to that flat to up 1% for the year on comps so you would obviously expect to see a sequential move upward from the first quarter within this comp sales. Again, from a long-term business model standpoint, we've typically talked about comps in that same range that flat to positive 1% is a stability to margin kind of driver. So I don't think that the business model dynamics have changed in that regard, Anna, so we've kind of move down the pipe, but yes, the annual guidance would suggest a built-in comps as we move through the next couple of quarters.

Thank you. Our next question today is coming from Will Slabaugh [Stephens]. Please announce your affiliation then post your question.

Thanks. With Stephens. I had a question around the new menu rollout, and if you follow just a little bit more on kind of in terms of what you're seeing, what you're expecting in terms of sales impact either early on from potentially guest not finding what they want or hearing that what they used to get is not there. And if you're expecting any sort of sales dislocation before, loyalty likely improves as execution improves, quality improves et cetera. How you're kind of thinking about that playing out over – throughout I guess the end of 2017 and through 2018?

Hey, Will. Wyman, yes, good question. As I mentioned, any time you make that magnitude of a change to a menu there, is that risk. That's why it was important for us to put it in a test market or two, and get a pretty good read on guest response before we rolled it out last month. And looking at that test market, we anticipated a little bit of a pushback and you always did when you make the changes, but that it was at a very low level especially given the magnitude of the change and that we will quickly come through that curve. So there's always a little bit of a pushback when you make a change like this, but it's been fairly minimal and we're confident that we're going to be on the upside of that and moving to the traffic trend that will build from there.

Got you. And also just around the new menu and the impact that you've seen so far or I guess that you saw on the test market as well. Should we think about that as being a benefit to check over time? Just considering that as you focus a little bit more on proteins, maybe it hits your cost of sales margin, but the dollar profit could be a little better or am I taking a big jump there?

Yes, I mean, I think we didn't build the new menu with the expectation of growing margins, right. So there's some categories in there that are margin enhancing, the fajita category is a strong category for us from a margin and check standpoint. But at the same time, we really want to create those value platforms within the menu that work to drive those more value conscious consumers in. So again, burger category is a good example. Overall, there's an opportunity there with margin potential, but then we bring in the $6.99 price point to give that value proposition the kind of foundation it needs in the category. So net-net, we're where we want to be with margin and mix right now. It gives us a great foundation to build off of.

Got it, thank you.

Thank you.

Thank you. Our next question today is coming from Howard Penney [Hedgeye Risk Management]. Please announce your affiliation then post your question.

Hi, thank you very much. Two questions, if that's okay. First one on the menu change, Wyman. So trying to be all things to all people, sort of got you into the trouble, I guess, if I could use that phrase so eliminating some of those things, is going to eliminate some customers that to be born who cares I guess is the kind of the question because if you're going to drive traffic, you're going to give us some people that maybe didn't want to be there in the first place. So can you just short of address that issue of losing customers versus gaining traffic and how you expect to see that play out? And then I have a follow-up.

Yes, I think I mean, not that we are ever, kind of take anyone that comes into our restaurant for granted, Howard, but I do think you have to make some tough calls and we had – with kind of losing some of the focus on what the brand really stands for and how we can compete them most effectively, we may have been chasing some customers that just weren't necessarily worth the trade-off. And so you'll lose some of those guys early, but we think the trade-off obviously with owning the burgers, ribs and fajitas group, which we can own much – is a much better place to be. And so we'll see that, again, in this menu change, we think getting through that cycle is going to be fairly quick exercise relative to the magnitude of the changes we've made.

So losing customers was essentially a good thing. I mean not that you want to lose any customers, but it's ultimately a good thing to a certain degree.

I'd put it more as trading, trading off and the other thing that's happening a lot is when guests come in and they say, hey, where's my whatever, pick the item that we don't have any more. Our operators are doing a great job of saying, hey, listen, you should try this new burger though. If you haven't had a burger in a while you can, what we've done was half-pound, smashed, the new bun and you really should give it a shot. And again, we're seeing significant improvements in guest satisfaction on our burger category, for example.

So being blunt on the menu side in terms of losing guests because I’m going to try to relate that to the labor piece as well. So the casual dining industry, 20 years ago, at $5 a labor was operating at a different model than today at $10 a labor or $9 a labor. So are there aspects of the labor that you have that you're providing customers that you don't necessarily need to provide customers because you're not getting paid for it. And I'm going to throw out the perception or so the hostess, maybe you don't need a hostess anymore with the technology going away. So I'm just kind of curious if you're taking the evolution of the menu to the labor as well knowing what's happening with labor cost and where that's going? Thanks.

Yes, I think the teams have done a great job of analyzing and evaluating every dollar that we spend or invest in the labor, in the labor component of business to make sure that is there a payback for it? Do the guests appreciate it? We believe that it's service and hospitality and casual dining is important, and then the labor component that has to be involved in that. And it's a little more in our model than obviously some other models. But that we can't afford to not evaluate and scrutinize kind of how that's being invested. I'd say right now, an example would be with the handhelds that we've rolled out in California, we're really evaluating, okay, what's the best way, the most effective way to deliver hospitality and speed and quality food most efficiently. And that’s within so technology enhancements that are enablers to doing that efficiently that still creates a connection for guests and allows you to make them feel special, is one way to get to what you're kind of hitting on. So we're looking at it across the board on all aspects of labor, both front/back, management it's just too big a category for us to not continue to look at alternative ways to deliver a great experience as efficiently as possible.

And if I could just throw in one last one and if you said this, I apologize. Is there a cost savings aspect to the lower number reduced menu items in terms of the supply chain and what you're bringing into the back to the house?

Not so much with supply chain. There's some efficiency obviously with labor and back of the house, because your SKUs go down. Your – theoretically, we should be able to manage waste better, theoretically we should be able to manage labor better because it's not doing as many things, and that should make you more efficient as well. So those are some byproducts of the simpler menu that we anticipate taking some advantage of, or once the menu gets established then the teams are just kind of very comfortable with it.

Thank you, Wyman.

All right, Howard, good talking to you.

Thank you. Our next question today is coming from Robert Derrington [Telsey Advisory]. Please announce your affiliation then post your question.

Yes, thank you, Telsey Advisory. A couple of questions, if I may, specifically, Joe, on the drag on the store level margins from the hurricanes, can you quantify that or is this simple as adding back the cost you broke out within your filing, the hurricane-related cost, the store level margins?

Yes, Bob, I think that's the most straightforward way to do it. Clearly, when we indicated – as we indicated, revenues were impacted by roughly $5.5 million – $2.4 million, there's obviously good leverage across a number of aspects at the restaurant operating margin that comes from that, that’s the 20 to 30 basis points of the deleverage that went into it. We also – from a cash flow perspective, we felt it's very appropriate to do some things like the release pay for our team members. And so we were willing to do that while restaurants were closed. We obviously did dial that into other gains and charges, but another piece of the equation. So I think, thinking about that 20 to 30 basis points is probably applicable. You would have had probably a little more favorable margin perspective on the restaurant expenses because you would have been able to leverage some of those items slightly, but not adjusting significantly off that 20 to 30 basis points.

Okay, that's helpful. Wyman, on the company has historically been pretty forward-looking, pretty aggressive around investing within ways to find efficiencies, technology-related and we know that you've done a pretty fair amount, a pretty heavy amount of that over the last year or so. Is there some time in the not-too-distant future, we'll begin to see some benefit or can you kind of update us on how those begin to come into fruition potentially maybe helping sales trends?

Yes, Bob. I think the investments in technology, obviously use the Olo investment in our curbside application in our app, is an investment we've made over time to provide us now with what we think is industry-leading to go process, where you can go to our app, order, pay, pull up, hit a button and we'll run it out to you. It's those kinds of things now that are in place that investments we've made really over years and by the way now, we have the back and the system that allow us to really communicate with you ongoing, create a relationship, put you into our databases and create an ongoing dialogue with you that's kind of again, I think industry-leading. So those things pay off now as we are – we're now able to start communicating those and marketing those more aggressively. So yes, that's one example of technology investments we've made over the years that is now kind of maturing and allowing us to push it more aggressively and separate ourselves from others out there that we don't think have quite the same level of sophistication.

Just recently – just in the last couple of weeks, our rating and within the restaurant industries, of those companies that are viewed as being the leadership team from a technology standpoint. Looking at everything from how you price digital marketing to mobile applications, it's just really the broad utilization of technology drive the business. And we were the leading casual dining company and in the top five, and when you say top five, you're talking about Starbucks, Domino's, Panera, those folks that are typically cited significantly for driving their business with technology and we're right there with them. So I think, again, we have set ourselves up well to use all of those points to drive business off of this fundamental change we've made in approaching Chili's.

That's super helpful. And the reason I think its interesting is because as you lowered some of the prices for example, for the burger, does the new curbside program, does that allow you to get more aggressive at lunchtime with some of the offers that are in the marketplace from the fast food chains?

Sure.

Sure. Absolutely.

Okay. And then lastly, within – I know the company has looked at testing some tablets. Can you give us any kind of an update on where that stands and ultimately, how you view that across the business over the course of this year?

Sure. We've rolled out the handhelds in all of California and the work that's been done to understand how can we leverage this technology to provide a better guest experience. Is there an opportunity to become more efficient? All of those things are kind of just being evaluated now, getting the technology in the restaurant, right. When you move to a handheld technology, you have to make sure your WiFi system is up and running at 100% all the time. So there's a learning curve here that we're going through, but we've continued to make these investments because we do see opportunity especially in high wage states where we can become deliver a great guest experience and maybe do it a little more efficiently. And so those are – so we're happy with what we've seen so far. We're not announcing that we're going to roll it company-wide yet as we continue to evaluate and determine the appropriateness for this technology throughout the restaurants.

Got you, thank you very much.

Yes, thanks, Bob.

Thank you. Our next question today is coming from Jeff Farmer [Wells Fargo]. Please announce your affiliation then post your question.

Thank you, Wells Fargo. So just following up on some of the earlier questions, I understand the cost efficiency that could come with that new menu or the rollout of the new menu, but are you guys actively pursuing cost control opportunities either at the restaurant level or the corporate level, above and beyond some of the efficiencies that you might get with that new menu?

Jeff, yes. We're always looking at those opportunities. I think historically, we have proven to be an effective and efficient operator. We'll continue to look at that whether it is how we utilize technology that we just discussed, how we look at the managerial structures of the restaurants, how we look at supply chain opportunities, it is across the board. So it is efficiency. It's always front and center as long as it's in the context of a guest-driven hospitality-centric model that works within our restaurants.

Yes, I’ll just add, Jeff. One of the things that, kind of I'm most proud of is the work that the marketing team's done over the last six months. Steve and Kelli has done a great job, just looking at that marketing budget and finding ways to take costs out of it, not that we would necessarily drive us to the bottom line that we can put a more aggressive marketing plan in place or that we could invest in margins on the menu. And so literally tens of millions of dollars, of what we would consider non-working dollars, non-media dollars, that they've been able to kind of squeeze out of the system that we aren't necessarily flowing to the bottom line, that we're investing in other parts of the business whether it's through additional media weights or working dollars or into the menu in terms of helping support some of the margin improvements to the menu. So that's probably the best example, but may not be as obvious as some of the things we've done in the past, where – it’s a G&A, rightsizing, where you see those things kind of fall to the floor.

Okay, that’s helpful. And then just one more somewhat unrelated. You touched on it, but when did you officially introduced the Curbside-To-Go platform? And what have been some of the early results, I mean, things like off-premise, some exchange? Anything you guys can provide color on would be helpful.

We have been a little bit slow to market it. It's been company-wide now for the quarter, but our whole franchise system is getting up to speed and so again, doing national efforts has not been – we haven't been able to push it nationally yet. Now we're almost there, we almost have the whole franchise organization up and running, and so we'll quickly start to be pushing curbside more aggressively and we started that kind of really in the last few weeks and we're seeing some positive results with growth in to-go, and we think there's just a lot of upside still. And we'll do more innovation around to-go. Now that we've got the infrastructure again, we've kind of talked about the strategy, and let's get the infrastructure in place, and the foundation of things right, and then we can innovate off that and that's where actually I’d like to go now. We've got the model right now. Now we can start to market it and innovate against it much more aggressively.

All right. Thank you.

All right, Jeff.

Thank you. Our next question today is coming from Stephen Anderson [Maxim Group]. Please announce your affiliation then post your question.

Yes. From Maxim Group. I know most of the questions today has focused on Chili's turnaround, but wanted to discuss Maggiano's briefly and I want to talk about the results, 2.5% comp decline in the quarter, while that higher than – higher exposure to Harvey and Irma, but I wanted to talk about the second quarter, is that going specifically into comp, but I want to see what you're seeing in terms of how they're booking trends and other business-related spending as it relates to Maggiano's?

Yes, Stephen, it's a great question. It's nice to have you guys ask a question about Maggiano's. I appreciate it. It's a great concept. A little bit of a tough quarter for them and – but the good news is again, with the hurricanes that hit them a little bit harder, and some additional softness in some of the banquet business early in the summer, but things have brewed down nicely. The team has gotten much more kind of aggressive and they've got some great tactical strategies, if you will, around or some tactics that they're putting against their strategy to grow the banquet business that are really resonating well. Their to-go and delivery has gotten much stronger, and we're really optimistic kind of how they're walking into the holiday season, which again, for Maggiano's, the holiday season is significantly more important to them than to Chili's, for example, and they're walking and feeling much better about kind of how the trends are looking.

I also want to ask about your – the Saturday brunch, how that's been doing as well since you rolled that out.

Good. It's really – bunch is available all week, but we really pushed it on the weekends with a more expanded menu, and we're continuing to see positive comps and great guest satisfaction. The team's looking at how to continue to keep it fresh and address any kind of opportunities they have to push that daypart so it's been a nice addition to the Maggiano's kind of business model.

Thank you.

Yes.

Thank you. Our next question today is coming from Jeffery Bernstein [Barclays]. Please announce your affiliation then post your question.

Great. Thank you. From Barclays. Two questions. Just one, Wyman, maybe just a clarification. I know you mentioned in recent weeks or maybe in the last month that you thought you were – what you were able to confirm that the casual dining industry comp has reaccelerated, which I'm assuming is beyond just what you believe the hurricane bounce back just to be clear. But I think you've mentioned Chili's as well and that maybe you went from lagging to leading that industry. I just wanted to make sure I understood the trajectory of both the industry and where Chili's fits within that even if it's just qualitative and whether you attribute that entirely to the new menu, most recently, and then I have one follow-up.

Hey, Jeff. Yes, I know, I mean just to clarify, we're not giving specifics, but we – what I was just confirming was that both the industry has seen some better results and Chili's has seen some better results and it wasn't making any comparison to the relative movement.

Got you. Okay. So both you and the industry are seeing improvement, but you weren't commenting on whether you've now passed the industry or lagging or whatnot, just both have improved.

Correct.

Got it. And then, well, I know, Joe, last quarter you gave color to the first quarter in terms of the nuances of earnings and whatnot. Should we assume that for the rest of the year, I mean, just based on your comp guidance, it seems like we should see comp accelerate sequentially rest of the year and that EPS is more stable, maybe modest growth in the fourth quarter, is there anything unusual to recognize in terms of the comp or EPS growth for the rest of the year?

I don't think there's anything unusual. I would add that the color that obviously, as we move through the rest of this quarter, we will lap some issues that we talked about over the course of last year. If you think about the commentary around both November with the PR incident and some of the softness we saw on the retail side of the equation in December, so there is some opportunities we view there as we lap through this quarter in particular, but yes, our guidance for the year is very much intact.

Got it. And then just lastly, Joe, I know you've had some time in the new suite I figured I’d just ask on the franchise mix. I didn't know whether you gave or whether you give ongoing or further consideration, obviously, you're very familiar with the franchise model. I think you can provide some cost-cutting benefits and return of cash, I'm just wondering how you think about that mix and what might be the reasons why you wouldn't consider significantly increasing your franchise mix over the coming years?

Well, Jeff, I think as we've said previously, we would consider it in the right circumstances. Again, we like the mix. We have particularly in the environment of driving some of the improvements and changes that we have been making in the business model and obviously, from a corporate perspective, you can drive more heavily in that regard. But we do look at opportunities and we'll continue to consider that kind of as we move forward. Who you are partnering with is a very important aspect of that simply, which is really the bigger driver beyond just what the mix numbers look like. So we have great franchise partners today and we would look to continue that piece as we would evaluate opportunities, I do believe we’ll present themselves.

Great. Thank you.

Thank you. Our next question today is coming from John Ivankoe [JPMorgan]. Please announce your affiliation then post your question.

Great. And just a clarification on Jeff’s last question so I want to make sure I heard it correctly as well. Wyman, you did say an answer to one of the questions, the trend change versus the industry is positive. I think if I got that quote right, does that just mean that your same-store traffic, second quarter has improved more in the first quarter than the industry's traffic has improved second quarter versus first quarter or one could interpret that your same-store traffic is actually outperforming the industry based on that answer.

Yes, John. I think what I was confirming without getting into specifics for the second quarter was that what we all have seen in the public data is that industry has gotten better in October. Again, some of that is the lap of a hurricane last year so there were a couple of days early in the quarter that or early in the month that we’re benefited from that. But overall, we're optimistic about what we're seeing in the industry trends relative to how the industry performed in the first quarter. It's early so we're not counting on a big industry turnaround. And then what we've said is that we are – we have seen our traffic trends turn. They're starting to – they're turning and we're going to move that momentum to continue to focus on building traffic at Chili's.

And I'm so sorry to belabor this point. I mean, is turning meaning it's less negative or it's actually positive?

We're not giving specific details so.

Okay. All right. No, I understand. It's one of those, we get very into semantics with things, with comments like that, so I do apologize, but I understand. And then secondly, could you remind us what kind of – or tell us what the average check-ins at Chili's in the first quarter of 2018 especially on that 5.3% increase in ticket, which obviously we understand is above average pricing. And also, the promotion of the smokehouse combo and store, and whether you think that's the right average ticket for the brand going forward or you do want to see it come down?

John, for the first quarter, we were ticking up right around $15.70 from a PPA standpoint, again, driven very heavily off of that smokehouse combo promotion. I think the opportunity, as we discussed, is going to be how we lean more aggressively into the value messaging, similar to what you're seeing from the $6.99 burger and how we layer incremental value on top of that. So I would think that will have – these are more meaningful driver to PPA as we move forward.

Thank you. And then the final question or point, I guess, is on loyalty. And I know last year is a little bit noisy in terms of the shift from My Chili's Rewards to Plenti, and you started off with some very strong rewards that ended up getting dialed back to some extent. So how much – just remind us some of the history there, but how much are some of the change in loyalty and maybe it sounds like a less dependence on it, actually benefits the margins in 2018 versus 2017 because that might shed some light on your expectations of margins.

I think, John, from a loyalty perspective, obviously, it's been a process and we've kind of gone through the spectrum really going from a high cost, but high engagement program to a very low-cost, less engagement environment, these last several months. I think our belief is – I mean, loyalty is definitely a piece of the equation that will be really part of our – central piece of our direct marketing program as we go forward. We are understanding I think balancing those costs better than we have in the past. It'll be a component of what we do. We'll think about in the context of the broader marketing efforts. But I think we are getting through the learnings of the last, really 18 months, two years. We're getting to a point where we really understand what is the right level of cost to drive the right level of engagement from our loyal guests. The incrementality we can drive from that and how we look at the return of that cost, is I think much better understood internally now so, but it has been a journey.

But John, I wouldn't anticipate seeing huge margin improvement based on becoming more efficient with loyalty. We'll probably – I think we've got the efficiency piece of that pretty well under control now. It's more about how heavy do we want to lean into that, how much do we want to turn that dial-up, if you will, to drive traffic is what we're – those are decisions the team is working on now.

Thank you.

All right. Thanks, John.

Thank you. Our next question today is coming from Andrew Strelzik [BMO]. Please announce your affiliation then post your question.

BMO. Thanks for taking the questions. I have two things. First, I think originally, if I recall correctly, the marketing campaign was not intended to have a price point promotion and obviously, it did with the burger promo and you've referenced that as kind of a model going forward. I guess, can you just give us a background, what went into the change in the philosophy there to look at price points more aggressively? Was it something in the market, something in test, I just wanted to better understand that change.

Hi, Andrew. No change, so I don't know if we communicated something to you, but there was never – our expectation that we wouldn't go out with a compelling value component to the new menu. We've made these improvements and we wanted to drive people in with a mix, right. So multiple messages were used to communicate the change in the menu, various spots. The $6.99 burger spot was in the rotation, had a pretty good mix, but less than half of the rotation. And so it was always meant to be a combination of tell the message and then provide some compelling reasons to come in quickly to see.

Okay. I appreciate the clarification there and I apologize for misunderstanding that. The other question I had was just on the pace of the repo, was a little bit stronger than we had anticipated for the quarter. You mentioned a little bit of – using a little bit of the balance sheet to facilitate that and now we're talking about leverage coming down. So I guess I'm wondering, does that necessarily mean that the pace of repo might slow for the rest of the year or you might shift some of that capital to paying down debt? What are the implications then for the repo? Thanks a lot.

Yes. Actually, no, I would take the opposite stance. We understood the value that we saw in the stock price, and we're aware of that. We are changing necessary the guidance for the year, for the amount spent on share repurchase, but we definitely took advantage of our – both our cash flows and our balance sheet capabilities to expedite in the first quarter and you will see a subsequent event comment in our Q when it's filed later this week that we continue that in the month of October with an incremental $30 million of share repurchase activity. So we want to take advantage of value when we see it and we have moved to do that. And again, we will see the – we do anticipate seeing the leverage ratio move back below 3.75 in the second half of the fiscal year.

Great. Thank you very much.

Thank you. Our final questioner today is John Glass [Morgan Stanley]. Please announce your affiliation then post your question.

Thanks very much. It’s Morgan Stanley. My question is just on timing in terms of incremental value items in the menu. Is this the kind of situation where you'd like the current menu to sit for a while and then you're thinking about adding value items later in the year or do you think at any time, you'll put some new value offers into the market? And maybe just related to that, how do you think about December, caught the industry by surprise last year. I know it looks like an easy lap, but if it's driven by retail traffic, maybe it's not a very easy lap and how do you think about having to be more vocal in that particular period of time to make sure that it doesn't repeat itself?

All right. Good question, John. The first one is probably a little bit easier because we control that, so it's the work that's being done on the new menu from an innovation and a value perspective, is both short- and long-term. So I think in the short-term, there are obviously some marketing approaches that we can use to provide some value offers whether they're one at a time or whether they're through a channel, if you will, to our database and our direct market audience or whether we go with advertisement. I think those will be relatively manageable in the next period of time, but then there's continued work on a broader or more comprehensive next step to the menu that would include additional value levers and platforms. So we're doing some short-term and some longer-term work in the brand to kind of address that. So the answer is yes, there'll be some shorter-term, but there's also some longer-term work that's being done as well. With regard to the holidays, again, it's a great question. I haven't seen anything that would indicate that we would see the kind of drop off we saw last year. It seems to be a more stable environment and we're anticipating that, but again, that something we don't control as much so you probably have as good insight as I do because we're all looking at kind of secondary consumer data.

Yes, I'm looking at the fact that e-commerce takes a greater share of retail sales and fall in every year, goes further down and evolve. So that was my only comment. Joe, just as sort of a more wonky modeling question, your tax rate was higher because I think of the stock option expensing or the way that accounting changed. So are you guiding the year still the 27% to 28% tax rate and you'll back out any exceptions to that or was it – how are you thinking about this tax rate relative to the year? Was it higher than you anticipated even given that accounting change? And are we just supposed to back out that change? I think others don't back out that change, I'm just understanding how you treat that.

Yes, we back it out from an investors earnings standpoint because you could – I mean, that's the type of tax driven change that you could see some volatility and depending on where the stock price is go quarter-to-quarter so that's typically an expense that is going to be more stilted to the first quarter because that's when investing takes place, which drives – which actually drives that number. So we're going to a take a stance of backing that out on an ongoing basis. Yes, we are very much still guiding to that tax rate for the year.

But without that – without those changes, you're just saying that you're going to back…

From an adjusted earnings perspective.

Thank you.

Thank you. That’s all the time we have for questions today. Gentlemen, do you have any closing comments?

Yes. Just again, we'd like to thank everybody for joining us this morning. We look forward to talking again early on in calendar 2018, about the current second quarter. And with that, everybody, have a good day, and a good rest of the week. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.