EAT Q3 Deep Dive: Value-Driven Growth and Margin Pressures Shape Outlook

Casual restaurant chain Brinker International (NYSE:EAT) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 18.5% year on year to $1.35 billion. On the other hand, the company’s full-year revenue guidance of $5.65 billion at the midpoint came in 1.2% below analysts’ estimates. Its non-GAAP profit of $1.93 per share was 8.8% above analysts’ consensus estimates.

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StockStory’s Take

Brinker International’s third quarter saw strong sales growth and margin expansion, yet the market reacted negatively to the results. Management pointed to Chili’s continued momentum, driven by increases in guest traffic and successful menu and marketing initiatives. CEO Kevin Hochman highlighted the effectiveness of value-based promotions and product upgrades, such as the ribs and Margaritas platforms, as key contributors. However, challenges at Maggiano’s and ongoing cost pressures prevented more favorable sentiment among investors.

Looking ahead, management’s guidance reflects confidence in Chili’s ability to sustain above-industry sales and traffic, backed by ongoing value offerings and menu innovation. Still, leadership flagged headwinds including higher commodity costs, tariffs, and added investments to stabilize Maggiano’s. CFO Mika Ware emphasized that while Chili’s remains on track to outperform, softer results at Maggiano’s and increased cost pressures will dampen overall profit expansion. Ware noted, “Assumptions underlying our guidance largely remain unchanged, except we now anticipate commodity inflation, inclusive of tariffs, in the mid-single digits.”

Key Insights from Management’s Remarks

Management attributed the quarter’s outperformance to Chili’s strong traffic growth, menu upgrades, and effective value marketing, while acknowledging profit headwinds from Maggiano’s and rising costs.

• Chili’s traffic leads industry: Chili’s posted its eighth consecutive quarter of industry-leading guest traffic, with management citing consistent value-focused marketing and improved guest experiences as primary drivers.
• Menu innovation drives return visits: Upgrades like the ribs platform and new frozen Margarita offerings not only boosted sales but also improved guest feedback and frequency, according to CEO Hochman.
• Digital data fuels retention: The company has begun leveraging tokenized guest data to track cohorts and measure retention, revealing stable repeat rates and supporting the sustainability of recent traffic gains.
• Maggiano’s turnaround underway: Leadership launched a “Back to Maggiano’s” plan centered on menu simplification, service improvements, and refreshed facilities, but acknowledged that progress will be gradual due to the brand’s smaller scale and limited marketing reach.
• Margin expansion offset by costs: Restaurant-level margin improvement was driven by Chili’s operational leverage and labor efficiency, but was partially offset by unfavorable commodity inflation, particularly in beef, and investments in Maggiano’s repairs and maintenance.

Drivers of Future Performance

Management expects Chili’s ongoing brand investments and menu innovation to drive growth, but rising input costs and efforts to stabilize Maggiano’s will weigh on margins.

• Commodity inflation and tariffs: Ware indicated higher-than-anticipated commodity inflation, especially in beef and shrimp, due to tariffs, will pressure margins and require additional pricing actions throughout the year.
• Maggiano’s stabilization remains a drag: The company’s plan to revitalize Maggiano’s involves increased spending on repairs, service enhancements, and menu changes, which are expected to impact consolidated profitability in the coming quarters.
• Menu and marketing refresh: Management plans to refresh Chili’s value messaging and launch new menu innovations, including an expanded chicken sandwich platform and the return of popular items, aiming to maintain relevance with younger consumers and sustain guest frequency.

Catalysts in Upcoming Quarters

Looking ahead, our team will focus on (1) the rollout and guest response to Chili’s upcoming menu innovations and refreshed value messaging, (2) the pace and effectiveness of the Maggiano’s turnaround efforts, and (3) management’s ability to offset rising commodity and labor costs with pricing strategies and operational efficiencies. Continued progress on digital data utilization and new unit growth plans will also be important signposts.

Brinker International currently trades at $114.80, down from $124.26 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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