Kevin Hochman: Brian, I’ll take the first half, and I’ll let Mika take the pricing question in the back end of your question. So our 3 For Me tier — so I’m going to give you a couple of data points just you understand what’s happening with value. Our 3 For Me tier is about 16.1% up from 15.5%, so that was that 0.5 point I was referring to earlier. That’s a P100. So in other words, every 100 orders, that’s how many that are being ordered. 47% of those 3 For Mes are coming in the $10.99 tier and then more than half which 53% is coming into the $14.99 and the $16.99 tier. So even though we’re advertising $10.99, more than half of the actual transactions off the value menu are coming at significantly higher price points. And then as far as a number of checks on deal, it was roughly 31% in Q2, and it’s roughly 31% in Q3. So we saw a little bit of an uptick from Q1 to Q2, but it’s basically been flat from Q2 to Q3.
Joseph Taylor: And Brian, as it relates to pricing, I’m going to pick that 1 up, too. So we did drop a menu yesterday that had a pricing action right around 3%. So our pricing strategy is pretty much unfolding as we’ve talked about over the course of really the most of the fiscal year. First and foremost, we’re going to protect critical prices like our $10.99 price point. So we think that’s very effective. Obviously, as it plays into our advertising campaigns and our ability to service a guest looking for that heightened level of value, and we’re going to do everything we can to protect that as we kind of move forward. At the same time, we’ve been able to find opportunities throughout the menu, particularly as it relates to areas that guests may be willing to pay up a little bit more to take some price and move that in.
But as we’ve always said, we would start to moderate pricing as we kind of move forward, and this last action demonstrates that moderation at around 3%. Obviously, as you get into the August call, you’ll get more detail from Mika as to what ’25 looks like. But right now, I think we’re pretty well set for the foreseeable future on what pricing actions need to be taken as we kind of move forward and they can be a little bit more judicious and plan out over the course of next fiscal year, some lower levels of pricing that makes sense since we’ve accomplished a lot of what we wanted to accomplish with getting our price levels and our barbell price points back to where we think they can be effective.
Brian Vaccaro: Okay. Joe, and are my notes right that, that would result in your fiscal fourth quarter pricing being somewhere in the low 7s or maybe that changed a little bit?
Joseph Taylor: I think it moved up just a little bit because we actually were able to — this menu went out about a month earlier than we originally contemplated. So you get a little bit more effectiveness on the quarterly price points. So it’s high 7s.
Mika Ware: Yes. No, it will be high 7s, almost 8. We took a little incremental price in California as well when we saw the opportunity there. So that’s what bumped it up.
Operator: Your next question is from Andrew Strelzik with BMO.
Andrew Strelzik: I wanted to revisit the margin conversation. And now that you’ve lapped some of the labor investments, lapping some of the ad investment. I know that’s going to continue to go up. But the inflation environment has kind of normalized. Is there a way to think about a durable or sustainable level of restaurant margin expansion going forward? And I know several quarters ago or over time, you’ve kind of talked about a mid-teens 15% restaurant margin as achievable. Is your view or the visibility to that changing at all?
Joseph Taylor: Yes. I think — so a couple of things there. One is 15%, visible, yes, it is, very much so from a quarterly standpoint. You have to remember, we have — traditionally, you have higher ROM levels in your third and fourth quarter. So the 14.2% is nice to get over the 14% hurdle for that third quarter, and we have our sights ahead of us on how we can continue to move that forward in the fourth quarter. I think you’ll see some nice continued moves up on the ROM side of the equation. I think on a go-forward basis, what we’ve talked about is an ability to leverage top line growth into steady, but kind of that 20, 30, 40 basis point increase in annual margins as you go forward. So in essence, they’ll play out a little differently in every quarter based on some of the seasonality and some of the volumes there.
But we do envision an upward trajectory as you kind of go both year-over-year and the different quarters and obviously, the annual level kind of in that 20 to 40 basis points range.
Andrew Strelzik: Okay. Great. And my second question, I was just hoping you could remind us kind of the virtual brand help you’re expecting in the fourth quarter from a traffic perspective? And then just more broadly, as it relates to off-premise, if you could just touch on what you’re seeing there, the split of the business, how that’s evolving?
Mika Ware: Okay. So the virtual brand headwind will be similar into the fourth quarter. It’s going to stay around that 2% to 2.5%. And then as far as the off-premise goes, that is about 26%, 27% for Chili’s and about half of that still is third-party delivery versus to go.
Operator: Your next question for today is from Jon Tower with Citi.
Karen Holthouse: It’s actually Karen, on for John today. Just two for me. One, I’m not asking for fiscal ’25 guidance, I know we’re going to have to wait a quarter for that. But is there anything you would sort of call out in terms of sort of chunkiness or unique items in 2024 we would want to consider kind of thinking about fitting ’24 and ’25 into that longer-term algorithm you’ve laid out?
Joseph Taylor: Karen, really no. I think we’re pretty much in around the railroads and continue to run the railroads at a faster pace kind of mode right now. So I don’t anticipate — obviously, at year-end, there’s always review of various sundry accruals. You want to make sure your insurance positioning is correct. You can obviously have adjustments to items like incentive compensation, things of that nature that kind of play out. Those are typical year-end reviews, but there’s nothing that I really view as systemic that needs any kind of major change to it.
Karen Holthouse: And then about a little bit since we’ve talked about some of the kind of future product simplifications and improvements and one point I think talked about [indiscernible] as a 2025 initiative with the burger kind of in the rear view, is that how we should be thinking about it? Or are there other things that you’re going to maybe focus on before that?
Kevin Hochman: Yes. You’re thinking about that right. So right now, we’ve launched this new big smasher burger. Whenever we roll a new item out, we try to roll operational improvements, either simplification and/or reinforcing the right behaviors with the teams to get whatever that segment is to make it perfect. So currently, like we’ve rerolled out burger fundamentals, which is the smash, the sear, and the cook time. So the big smasher uses our base 7.5-ounce burger that we use on all of our entree burgers, making sure they grill it at the right temperature, proper bun toasting and proper bun buttering, and then we have a new fry procedure we rolled out a little over a year ago to make sure our fries are hot, fresh and crispy and properly seasoned every time.
So we relaunched all of those procedures to make sure that we’re making all burgers properly as we launched the big smasher. And then as part of the big smasher, we eliminated the skinny 3.6-ounce lunch patty and then roll that into the 7.5-ounce patty. So that’s the kind of burgers is the way to think about for the next, call it, 3 to 6 months is going to be our focus. And then we also rolled out a new simplified chicken sandwich, which I talked about the simplification. We’ll likely put that on air in a value proposition in late summer or early fall. And then the core 4 segment that will go next after burgers will be fajitas. And our plan is that, that should come in later in Q2 of ’25. So that would be, call it, November, December timing.
That is a pretty large project. Fajitas is over a $200 million business for us. So there’s huge upside, both in terms of improving the quality of the product to get some pricing power as well as some of the mix driving that we can do, like we did when we relaunched our Chicken crispers lineup. So we’re very bullish on a large business that we think could get a whole lot bigger and more profitable. That is a major project because we are upgrading the protein, we’re upgrading the tortilla that the Fajita is served with. We’re upgrading the presentation of the vegetable bowl so that’s fresher and more delicious. So it’s a pretty big undertaking. We started that project about 6 months ago. And so it’s going to be over a year in the making by the time it gets to the market.
But we’re very, very encouraged by it. And hopefully, by the next earnings call, we’ll have the test market results in to be able to share with all of you and give you a confirmation of when that’s actually going along.
Operator: Next question is from Katherine Griffin with Bank of America.
Katherine Griffin: First, I wanted to ask about the mix dynamics at Chili’s in the quarter? It seems like with mix a little bit less negative sequentially, the menu merchandising was successful in terms of our expectation to reverse the impact of the negative mix. But then I think you would also caution you might see some softening in the mix, given where the consumer is. So if you could just help me understand how much of the mix in the third quarter was kind of in your control from the menu merchandising versus maybe seeing some softening in the consumer?
Joseph Taylor: Katherine, it’s Joe. Thanks for the question. Actually, we’re real pleased with the direction and the improvements we saw in mix once we dropped that menu. So obviously, we dropped the menu right at the end of July — January. I’m getting — I’m already getting ahead of myself. At the end of January, and we — it performed how we wanted it to perform. And again, when you move merchandising around on the menus, we have a pretty good understanding of how that can be impactful. So we saw improvements in the mix as we moved through the rest of the quarter. It’s not as apparent in the quarterly numbers because again, you still had January under the old menu side of the equation. And we’re continuing to see that improvement move.
So I would anticipate as we kind of move forward from here a more neutral mix kind of environment. But we’re seeing the results from the steps we’ve taken. And then we’ve continued to then layer in some additional opportunities. We launched the Espresso Martini just a couple of weeks ago. That’s an opportunity particularly from a weekend perspective to add some mix into the equation, and we’ll continue to look at those different opportunities, how we merchandise both in the restaurant and on the menu. But we course corrected and course corrected pretty effectively.
Katherine Griffin: Okay. Great. And then just another question on restaurant margins. What — how did commodities inflation play out in the quarter relative to your expectations? And then what are your expectations embedded in the next upcoming quarter?
Mika Ware: Katherine, actually, our commodity inflation was a little bit better than we expected. So we were basically flat in the third quarter. And then in the fourth quarter, we do expect that to tick up a little bit, probably in that 2% range.
Operator: There appear to be no further questions in queue. I would like to turn the floor over to Joe Taylor for closing remarks.
