Chili’s CEO on what’s next for investors after $10.99 burger and fries deal

A bizarrely cold reception.

Shares of Chili’s and Maggiano’s owner Brinker International ( EAT ) were anything but sparkling Wednesday after fiscal fourth-quarter earnings. The stock was down 10.7% by the close of trade.

Former KFC marketing maestro turned Brinker CEO Kevin Hochman said Mr. Market got it wrong and he was falling asleep with his comeback story.

“We see our competitors reporting and having low traffic – we just haven’t seen that in our business. So we know things are tough out there, but we have industry-leading value,” Hochman said in Yahoo Finance’s Morning Brief (video above).

Investors appeared to buy into Brinker’s below-consensus profit outlook for the full fiscal year as the company ramps up marketing around a relaunch of fajitas and new restaurant equipment. The company estimated full-year earnings per share of $4.35 to $4.75, below estimates of $4.68.

Coupled with high expectations for the quarter – the stock is up 55% year-to-date ahead of the results – and any disappointment was inevitably punished.

A $0.07 loss for the quarter didn’t help. There is a feeling on the Street that the estimates may have gone too far.

But lost in the sauce are the stunning sales gains at Chili’s, Brinker’s largest unit. The chain can gain traction in an environment where consumers are trading down.

Last quarter, sales at Chili’s exploded 14.8% (compared with estimates of 6.3%) as the chain struggled with customers looking for value away from fast-food giants like McDonald’s ( MCD ), offering a new $10.99 “Big Smasher” burger. For $10.99, before tax, diners can grab a half-pound burger, fries and a drink.

McDonald’s US same-store sales fell 0.7% in the most recent quarter. Hochman’s former employer, Yum! Brands ( YUM ), Taco Bell’s same-store sales rose 5% and KFC’s U.S. sales fell 5%. Wendy’s ( WEN ) second-quarter same-store sales rose 0.6%.

Brinker shares rebounded Thursday, up 6 percent in early trading.

“We view the initial guidance for FY25 as conservative and recommend investors to buy shares on pullback. Underlying compensation trends remain solid ((with a high figure) in July, stronger in August year to date) and we believe the effectiveness of the company’s marketing efforts is providing optionality on when to launch new products, which should allow company to continue to drive positive compensation momentum and outperform the industry,” Stifel analyst Chris O’Cull said in a note to clients.

Hochman keeps his foot on the gas when it comes to value messaging and menu item renewal. The company will relaunch its fajitas offering in a few months, with a focus on improved fajita shells and other ingredients.

The story continues

Fajitas are a $200 million a year business for Chili’s.

“This is a great example of our recovery. We’re taking the staples that we sell a lot and that Americans think of, and we’re just making them that much better and more valuable for guests,” Hochman said. of the fajitas reboot.

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Brian Sozzi is the executive editor of Yahoo Finance. Follow Sozzi on X @BrianSozzi and further LinkedIn. Advice on deals, mergers, activist situations or anything else? Email [email protected].

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