Pepper inside is the original brand Brinker International (NYSE: EAT )and management has turned it into one of the strongest casual dining operators. More than 90% of Chili’s restaurants in the U.S. are company-owned, meaning management controls everything from menu changes to kitchen upgrades.
Before the change, Chili’s averaged about $370,000 in profits at the restaurant level. By the end of fiscal year 2025, that number will rise to $790,000. Despite the fundamental improvement, the stock is still trading in the below-market range.
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Pepper was placed at the right time. In recent years, quick-service and fast-casual chains have pushed prices up so much that consumers are looking elsewhere for value.
Chili’s already had 3 menus in place for me starting at $10.99 for a full service meal at a discount for most fast food recipes. The result was traffic-led growth, with same-store visits (comps) increasing by 16.3% in 2025.
This force was carried out in the new financial year. Brinker reported second quarter 2026 results on January 28, with comps growing 8.6% and traffic 2.7%. That’s on top of 31% comps growth in the year-ago quarter.
When sitting in Chile the price of food is the same chipotle Bag, customers prefer table service. This is how Brinker fills the seat. Pricing strategy is also a discipline. The $10.99 promotion makes up less than 8% of total sales.
The danger is direct. Chile is now experiencing PC growth growth of 31.6% in the year-ago quarter. The rate of increase is modest, and that is what investors are concerned about in the near term. Management guided for compound growth in each quarter of fiscal 2026 and delivered the second quarter, but this quarter is still the toughest to compare.
Profits tell a similar story. Restaurant-level margins widened from 11.9% in 2022 to 19.1% in the latest quarter, but gains have been tight. During the same period, free cash flow grew at an average annual rate of 60% (recalculated in the second quarter of 2026), even as management invested heavily in store redesigns and kitchen upgrades.
Brinker updates about 10% of its restaurants each year with new kitchens and dining rooms and plans to grow Chili’s net store count in fiscal 2027. With today’s high restaurant level profitability, the returns on these new buildings should be greater than ever.
