Good morning, ladies and gentlemen, and welcome to the Brinker International Q2 Earnings Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Joe Taylor. Sir, the floor is yours.

Well, thank you, Kate. Good morning, everyone. This is Joe Taylor, Vice President of Investor Relations and welcome to the earnings call for Brinker International's Second Quarter Fiscal Year 2017. Results for the second quarter were released earlier this morning and are available on our website at brinker.com. Wyman Roberts, Chief Executive Officer and President and Tom Edwards, Chief Financial Officer are joining me this morning here in Dallas. During the comments portion of the call, Wyman and Tom will provide a more detailed overview of the second quarter and will update the progress of several strategic efforts designed to capture market share. We will also review the update to our annual fiscal year guidance included in this morning’s release. Of course, 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 risks and uncertainties which could cause actual results to differ from those anticipated. Such risks and uncertainties include factors more completely described in this morning's press release and the Company's filings with the SEC. Additionally, 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 formality, I will turn the call over to Wyman.

Thanks, Joe. Good morning, everyone, and thanks for joining us today to review the second quarter and to talk about the company’s future. While our second quarter results are not where we want them to be, we are working to build share in the short-term to ensure the long-term health of our brands and we remain confident that our strategic initiatives are on track to do just that. Second quarter was really a mix bag for us. We started off fairly strong and when we talked to you back in October we were kind of pretty good. Then the brand experienced a situation that one of our Chili's restaurants on Veteran’s Day that played out extensively on social media followed by a couple of very tough weeks where we saw our business gap to the category dropped to a level we hadn’t seen in quite a while. We dealt with that situation by taking the necessary corrective actions as quickly as we could and we closed that gap after about three weeks. Unfortunately, in December, lower category really started to get soft. We believe that’s largely driven by the shift in holiday retail traffic to online, which is starting to impact how holiday shopping patterns play out. And based on this year’s activity, some of the assumptions we’ve made that we’ve used regarding how to market during this time a year will have to be reevaluated. So, Q2 was kind of a tale of three cities. It started strong in October and then we had a finger event at Chili’s in November and then industry-wide challenge in December that created a unique quarter for us. Maggiano's had a solid quarter, primarily driven by strong holiday delivery and take up business, dining rooms did well and together with delivery and take…

Thanks, Wyman, and good morning everyone. Today, I’ll provide more details on our second quarter performance and share our updated outlook for Q3 and full year fiscal 2017. Our second quarter adjusted earnings per share before special items was $0.71, a 9% decrease compared to prior year. These results were primarily driven by lower comp sales reflecting weaker category performance compared to our outlook entering the quarter. Our total Q2 revenues were $771 million, a decrease of 2.2% over prior year. This includes lower comp sales of 2.9%, partially offset by increased restaurant capacity of about 0.5%. For the casual dining category, Q2 comp sales were well below our expectations, particularly in the back half of the quarter. We believe the primary driver of this was the near-term impact of lower holiday retail sales traffic and the ongoing headwinds from lower food at home pricing. Despite the category softness, we remain encouraged by the performance of our initiatives both in market and in test and their potential to contribute to comp sales growth over the longer-term. Chili’s comp restaurant sales declined 3.3% reflecting a 6.5% decline in traffic, partially offset by a 1.8% increase in price and a 1.4% improvement in mix. Looking at the overall quarter, Chili’s comp sales gap to the casual dining category was approximately even despite the few challenging weeks in November after Investors Day. Chili’s gap was positive for a majority of weeks during this quarter. One of Chili’s in-restaurant initiatives that continues to deliver its execution of add-on sales that are improving our check average. In Q2, Chili’s continued to deliver positive mix of 1.4% reflecting strong guest engagement with our Craft Beer and Happy Hour rollout, as well as successful in-restaurant contest in merchandise. From a price perspective, Chili’s increase of 1.8% reflects…

Kate, we’ll be happy to take questions.

Thank you. [Operator Instructions] Our first question today is coming from Greg Francfort. Please announce your affiliation and then pose your question.

Hey guys. It’s Greg Frank from Bank of America. Just two questions. One on the high quarter cuts. Can you talk about what positions those were and what the thinking is behind the cuts?

Sure, Greg. I am not going to get specifics, but we basically reduced 70 headcount, kind of an equal mix in the field and at the restaurant support center. So, in the field, we eliminated a level from our operational structure and executive level and extended our area directors span of control reducing some area directors. We also then at the restaurant support center made opportunistic decisions on where we want to focus the business. So there wasn’t a – it was an individual kind of decision, kind of market-by-market or department-by-department as we went through the opportunities that we saw here.

Got it. Thank you. And then just, I know you talked about the To-Go business and technology. Can you may be discuss the new online platform you’ve got a little bit more and what gives you confidence in the double-digit growth in that platform?

Well, I mean, what gives us confidence in the category is just as we continue to monitor consumers demand for convenience and their desire to get food where they want it. So and To-Go is a great opportunity. It’s always been an important part of our business as this becomes more and more important. The platform allows us, the OLO-based system allows us more flexibility is giving us a couple of additional consumer opportunities with pay on online that we didn’t have before which again makes the opportunity more compelling for our guests and as we now have all of the company restaurants on that platform, we are quickly converting our franchise system over and we should have that done shortly and then we are able to then think about ways we can augment the To-Go experience with this more robust platform that will even make it more compelling and allow us – now that will have it nationally market it more aggressively and that’s what’s got excited about the future, so.

Thank you.

Thank you. Our next question today is coming from Carla Casella. Please announce your affiliation, then pose your question.

Hi, it’s Carla Casella with JP Morgan. One clarification question, when you were talking about third quarter comps and the EPS, did you said the EPS would be down year-over-year a little more than your full year guidance or a little less than?

A little more than the full year guidance, Carla.

Okay.

We will be still be investing in the quarter.

Right, that’s what it sounded like. Okay, great. And then, on the minimum wage increases that we are seeing across the country, can you just talk about the – kind of how that phases through your numbers when we should see the greatest impact recognizing that you are not paying minimum wage, but is it forcing you to change your structure at all?

It’s not forcing us to change our structure, although I talk about some programs that we are doing to help offset that, but to answer your question, it’s relatively evenly spread. There are number of states that have implemented minimum wage increases and they are starting at different times. So, this year, it’s really California, New York and just in the most recent election, Arizona and Colorado. So, it’s fairly evenly spread across our quarters and going forward we expect similar levels in the future. Now, in terms of how we are working to potentially offset it, we are working and talked about handheld technologies for our servers and have tested that out and are beginning to roll that out in California markets where minimum wage for servers are high and growing. So we look to use some technology that will not just help manage the cost structure but also deliver better guest experience.

Okay, great. And now that you’ve gotten to finish the share buyback, do you have a leverage range where you have to keep your leverage?

This level that we talked about around 3.6 plus, minus is a level that we were looking forward to keeping it at. That while we are not targeting a particular rating is roughly equivalent to that double B plus and gives us ample room to implement our capital allocation strategy going forward.

Okay, great. Thank you.

Thank you. Our next question today is coming from Joshua Long. Please announce your affiliation, then pose your question.

Great thank you. Piper Jaffray. Wanted to circle back to the focus on value for the year, first question was on that third of guest dining on the value platform is that the right number for now? Do you have a direction for that, it’s a helpful point, but just curious if you also have some sort of color or commentary in terms of where you’d like that to be or how you’d like us to think about your ability to execute on the value initiative as we go forward on the rest of the year?

Hey, Joshua. I think, that’s about where we think we need to be, to be providing those guests with a heightened desire for value at price points somewhere in that 25% to 30% is probably where you can feel comfortable that you’ve got options out there for that segment of the environment without doing – without sacrificing too much margin from it and so I think that’s kind of the sweet spot that we are targeting.

Understood. That’s helpful and then thinking about just maybe, taking a step back on the initiatives about giving more focus at Chili’s around convenience, the innovation on the menu side and then the value. Are those – there is a lot to each of those I imagine. Can you execute on all three of those concurrently, do you feel like you are going to focus on more and more than the other as you go through the course of the year? And maybe any – focus on any one of those and the investments that you talked about in 3Q?

Well, I think the – as we talk about – with To-Go for example, we’ve still got a little bit of work to do getting in the franchise system up on the platform. So there will be a little bit of an opportunity for us to take advantage of that a little later in the year. Once we get everybody on OLO and then we get that initiative to kind of wind up around the new enhancements we are working on. But the value and the innovation are parallel. The work that’s being done at Chili’s around food innovation is coupled with the work that’s being done around value platforms and value innovation and they go hand-in-hand and that’s also kind of working in conjunction with a simplified opportunity to reduce some of the complexity in the menu now and really focus on those menu offerings that are core to the brand and really compelling to our guest.

Understood. Thank you.

Thanks.

Thank you. Our next question today is coming from John Glass. Please announce your affiliation, then pose your question.

Thank you. It’s Morgan Stanley. Wyman, can you just first talk a little bit more about how the quarter progressed? I know, I understand qualitatively, but for example in December which I think was the worst month at least industry-wide. Were you in line with the industry at that point from a comp perspective or did you find that that gap existed during that period as well?

No, we are actually better, John, in December. So we had a – again a very unique quarter for us, started off outperforming the category. Had a situation in November that kind of took a little bit of the wind out of our sales. We addressed it. We got ourselves back on track, but that couple of weeks in November kind of was what impacted our trends relative to the category. Beyond that, we were at or better than the category for the better part of the quarter. But we kind of felt that set back in November.

And you raised the issue of holiday traffic may have impacted the industry overall. When you looked at to your own business did you noted that mall area or mall in or around mall stores were worse? I mean, is that a general comment that is see your people out and about or did you actually see stores that had the closer affiliation with direct retail trade getting worse? And maybe you can just generally about how mall expose the brand does?

Well, I think, it’s not – Chili’s is not as mall exposed as let’s say Maggiano’s for example. But we did see some correlation, softer traffic in more mall-centric locations. But I do think it’s also just a broader industry phenomenon that we are experiencing and as we’ve historically gone to this time a year, the holidays from our perspective and this is how I looked at the holidays as long as I’ve been in the industry now, a time where you didn’t necessarily have to put as much pressure out there to generate traffic. People are out and about, they were shopping and were busy times in the restaurants. And you could pay higher margins and less value promotions and actually it’s the time where if you were going to take a hiatus week from a media perspective, this would be a good time to do it and we do this year as well as prior year. These are quarters where we take a little bit more of a break from the heavy media ways. And so, I mean, those assumptions are all going to have to be reevaluated now in an environment where consumers may not be just out and about as much. It doesn’t mean they are not going to dine, but you may need to be – maybe more typical environment and how you address and what you talk to them about during this time may need to change.

And then just quickly, was there a calendar shift, because of the extra week that a store closure or a difference in days this second quarter versus last year’s second quarter was meaningful?

John, there was a small calendar shift. It was just a timing of Christmas. So it’s worth 30 basis points of a little drag in the quarter that will move into Q3.

Okay, thank you.

Thank you. Our next question today is coming from Sara Harkavy Senatore. Please announce your affiliation, then pose your question.

Bernstein. Thank you. And I have two questions. One is, just one the outlook you had said that your gap was actually better in December. So when you think about the expectations for improvement in the comps, is it a function of a better industry trend? I think you had said January looks like some of that was resolved but so soft or a widening gap or some combination of the two. So, maybe just a sense of where that improvement is going to come from? That was the first question. And then, my second question was about off-premise and we hear a lot of concepts talk about how their food is or is not well positioned through off-premise for delivery. And I guess, do you have any data from customers that would tell you whether Chili’s, whether you are the type of food you service appropriate or whether there is any kind of limitation based on what kind of menu items you have? Thank you.

Hi, Sara. It’s Tom here. I’ll handle the first question on outlook and drivers of improvement. There are couple things that I think will impact this. First is the category and ultimately food, Away From Home versus Food At Home pricing coming a little closer together as the commodity outlook normalizes and the category as we already noted, numbers play an anomaly versus where it would be longer-term. The other for us is a normalization of oil stakes. They have still the negative more than the overall performance of our brand and that was consistent in Q2. But the most important thing is really our initiatives and where they are rolling out. Wyman touched on it a couple of them, but craft beers were completed in December, although it was launched for us at our company stores and will be then rolled out to franchisees in the second half and plenty have also rolled out in the November timeframe. So as we get traction build on this with the menu innovation and value where we continue to test and evolve “3 for Me” that will help us build our gap with the industry.

So, Sara, with regard to Chili’s food and it’s kind of appeal as the takeout product, I mean, I guess, first is just the numbers kind of speak for themselves in terms of the – pushing over 10% and towards the 11% of our total sales now and it’s growing. Guests are telling they want our food and they want it in the restaurants and they want to take it home. So I think there is a desire to have the menu at home. I think what we are learning now as we embrace this even more so than ever, is there are things we can do to make the food first off travel as effectively as possible. So we are putting a lot of energy and effort into how we package and how we bring it to the guest and then how we offer it. And so there are opportunities obviously with the To-Go business where we can do more family style options party platter kind of business that not only addresses the needs of a takeout consumer better potentially, but also addresses some of the functionality and puts the product in a position and in a package that’s going to deliver the best experience possible. And our experience with Maggiano’s is invaluable, right. Maggiano’s has got a great delivery and takeout business and we’ve learned a lot through them as to how to continue to evolve that business at Chili’s.

Thanks.

Thank you.

Thank you. Our next question today is coming from Chris O'Cull. Please announce your affiliation, then pose your question.

Thanks. I am with KeyBanc. Wyman, the company cost of sales has probably been the lowest in its history or it’s been a while – percentage of sales. Has there been any consideration to reinvesting in food quality?

It’s a good question, Chris. I don’t think from a food quality standpoint, we have been investing back in food quality. I could list the things we’ve done, but in general, the menu has over the last few years has done nothing but improved the quality of the product in there. So I think the opportunity that we have is to continue to determine hey, where is the value proposition and are we – is there – is the portion size for the price are probably bigger questions for us than quality of the product. I mean, I feel really good about the quality of the products that we serve at Chili’s. And I think the team has done a great job listening to guests feedback, understanding where the opportunities are and addressing those. And so, the bigger question on cost of sales I think for us is, are we giving a competitive value proposition out there that in the phase of – a lot of folks out there from fast food on really lowering prices and giving bigger portions potentially. So that’s where we are more focused not the quality isn’t critical, we just always had said that, I think the bigger question for us now is, do we have the right value proposition to be compelling for all segments of the business at all dayparts, right, so, lunch, dinner, those snacks occasions.

Is that a change that you are considering this fiscal year?

We are doing some of that. I mean, you will see it in our – like our Thursday Margarita Night, where we have absolutely at a $5 Margarita has taken some margin hit there and invested back in on a value proposition on a quality product that we feel good about. Our Happy Hour menu is another example. I mean, part of the – what you are experiencing and when you look at the cost to sales favorability isn’t us doing anything to enhance or derogate the experience with lower quality of lower products, it’s just lower cost of products. Right, this is the issue Tom was talking with commodities. I know you are well aware of, but there is just been some real favorability in some commodity products, primarily in the beef world. And we are just getting some of the benefit of that. We have – a good example this quarter was with avocados. The avocado market exploded this quarter and we saw significant increases and we chose not to reduce portion, not to reduce quality. We basically aid millions of dollars in increased avocado cost to continue to keep the quality product on our menus and to give our guests the same products, same prices even though we are experiencing significant headwinds there. So, some of this is just a function of margins getting better because of lower cost products.

And to that point, last year, Chris, commodities for us were down for our basket around 3% and this year it’s approaching 2% deflation across our basket. Virtually that’s by beef and poultry that’s what this takes us here.

Okay, great. And then, Tom, you mentioned third quarter earnings. I think you said the decline would be at a greater rate than the full year guidance because of continued investment. Could you help us understand the magnitude of these investments? And maybe what - how some of these…

Speaking a little bit about advertising, that we will continue to be focused on the brand. So we will be – as we mentioned before, we’ve increased advertising for the year, but that will be a key item there.

Okay, great. Thanks.

Thanks, Chris.

Thank you. Our next question today is coming from John Ivankoe. Please announce your affiliation, then pose your question.

Hi, thank you. With JPMorgan. It looks like your CapEx was $60 million in the first half. I think you guided to the year at $110 million to $120 million. So, is there any symbolism in being kind of at the higher end of the CapEx range, and at this point, I think it’s on - would be nice to have some view in the fiscal 2018 if there is anything major that you are planning to do on the remodel or retrofit side in fiscal 2018 that would lead to materially different CapEx than what we are seeing in 2017.

Sure John. When we look at this year, the $60 million year-to-date is really more a function of the project we implemented and one of them was the craft beer rollout timing was all in the first half as was a build out of little less around 17 restaurants that we were testing out at our bar configuration. And then we have the normal spend on maintenance new restaurants. So it’s a little bit more just idiosyncratic that the timing of a couple of projects that are not necessarily be that into the full year as to where we might end up in the range. We are still in that range. We haven’t adjusted that or updated that particular guidance. And then for 2018, this year we made investment in craft beer as well as Margarita on tap. And to the extent that there are opportunities to make investments that pay out, we’ll do that. But we are not in a position right now to talk through that. We’ve just finished those - test of our configuration. So we will be reading that over the next several months and incorporating that into our 2018 thinking as we get closer to the year.

And could you give us just a sense of what you – I haven't seen one of those 17 restaurants. I am sorry to say, but, what did you accomplish in those 17 restaurants? What - is there kind of an investment that you think might make sense and did it actually achieved our right sales lifts?

Well, it’s too early, John, to give you a total kind of assessment of the investment and the impact. We feel good about what we’ve done in these restaurants. It’s a combination of some exterior work that we think again freshens the brand, gives us a more contemporary and relevant look and then, most of the energy on the inside was around the bar space. So, opening it up, creating a little bit more energy if you will and a little bit of a different kind of pallet from where we sit today which again we think is more relevant and contemporary. And so, all of the feedback qualitatively has been great, guests really enjoy it. We are now doing a little bit of marketing behind it. We are working with the operations team to bring it to life to the next level and I think by the time we get together next quarter, we will have a pretty good sense for how we see it playing in our future then we’ll be able to give you little more sense for what – where we are going with that as we think about 2018 and beyond.

Thank you.

All right.

Thank you. Our next question today is coming from Karen Holthouse. Please announce your affiliation, then pose your question.

Hi, thank you. One housekeeping and then an actual question. Housekeeping on this comment for fiscal third quarter EPS being somewhat or moderately below the full year range. Is that on a 52 week or a 53 week basis for the full year guidance? And then on G&A, we had obviously, we had the cost cuts that are coming in partially this year partially next year, also then – but, guidance or G&A guidance came in outside that. So just trying to understand is that incentive comp related? Is that other sort of ongoing cost cuts or timing? I know that there was some investments this year. Did any of that end up getting pushed to 2018, just trying to think about what sort of a share-based model – model off into 2018 would be?

Hi, Karen, it’s Tom here. Great question on the Q3, it’s off a 53 week basis. So it’s just reported adjusted EPS as we’ve reported on a 53 last year to a 52 week this year. And on G&A, we haven’t obviously incorporated the savings in the G&A target. The other savings are a combination of the reduction in incentive comp for this year up to some degree and other savings in other G&A line items.

And then, in sort of the investments that were originally planned this year, is all of that still happening or has any of that gotten pushed out?

All the investments that we are making and I talked about CapEx and investments in the business are still on track and in plan.

All right. Thank you.

Thank you. Our next question today is coming from Andrew Strelzik. Please announce your affiliation, then pose your question.

BMO Capital Markets. Thank you. So, I have two questions. The first one, I'm wondering what gives you the confidence that the headcount reductions, particularly at the field level won't impact operations or the guest experience? And then secondarily, you've mentioned several times the investments that you are making in the business, but if you look at the CapEx, it's relatively low relative to peers. You look at the G&A, same thing, and I know you mentioned or you've already addressed on the COGS side, but I am just wondering, do you feel like the level of investment within the strategic plan is at the right level? Or have you considered stepping those up to try to turnaround the same-store sales growth trajectory? Just any thoughts around the level of investment will be very helpful. Thank you.

Sure, Andrew. Let me just talk about the field and why we are confident. Actually, we think that this new structure will actually deliver a better guest experience. Two things, one is, we are just closer to the field now. So we take a layer out and the commitment from the Chili’s operations leadership and all the folks at Chili’s is that with this effort, more energy and more effort will be focused at the restaurant and less throughout kind of the above restaurant organizational structure. And so, the focus is that, 100% on the restaurant and the commitment from the RSC or the Restaurant Sport Center to keep those operators to allow those operators to stay engaged at the restaurant level by supporting them here with some of the work that they had been taking on in the past. So at that area director level, kind of take some of the more administrative, I’ll say burden off of them, so they can stay in the restaurant focus on the guests. And then frankly, unfortunately with these things, you have to make some tough calls, but we obviously kept our best and strongest people, the folks that we have absolutely the utmost confidence that they can lead and take on a little bit more responsibility, we give them a little bit more support. And so, those are the two things that have us confidence at the change in the field structure is going to deliver not just the same, but even a better guest experience going forward. With regard to investment, I’ll let Tom talk about it in detail, but I will say I know our capital structure and we are not investing in new restaurants, so we have lot of other folks. I think you want to look at apples-to-apples what are they spending the money on. So, we are not opening a lot of restaurants. So when we look at what we are spending on maintenance, I feel very good that we are keeping our restaurants in shape. We monitor our guest feedback on quality of the experience as it relates to the operation and then as we just talked about, we are evaluating alternative investments in the business from a atmosphere standpoint, so if we find something that really is compelling that moves the brand forward in a powerful way, we will not hesitate to invest in that experience. And we’ve also made really good investments I think and smart investments over the years on technology, but again, I don’t think everyone else in the category is doing. So, it would be interesting to see when you broke out new restaurant capital spending versus investments back into the brand, how that all stacks up, because obviously in a category like ours that’s saturated, those other investments I think are not as – not paying out as well as they used to.

And some details around that is, last year, for Chili’s for instance opened around 14 restaurants. This year we’ve pulled that back to opening and building 8. So we took that extra flex and invested in things that we believe are going to drive the business and that includes OLO, that includes Plenti integration into all of our systems and rollout and food, the beer tap. So we are looking at different ways to move the overall business through that and then of course other investments in the P&L which advertising being the largest and clearest example, but that’s there throughout the P&L and areas that Wyman mentioned, we’ve done or considering in terms of the true value in other areas. We feel like we are looking at the appropriate way to invest to drive the business.

I appreciate the thoughts. Thank you.

Thanks, Andrew.

Thank you. Our next question today is coming from Jeffrey Bernstein. Please announce your affiliation, then pose your question. Q – Jeffrey Bernstein: Great, thank you. I am from Barclays. Two questions, just one following up on the value discussion from earlier and it does seem like the value dynamics has been a little bit more extreme lately. I know you guys are running the - effectively the 3 for Me for $10, I know your largest bar and grill competitor is also pushing a $10 offer. So I am just wondering and I think you said, we are now seeing a third of your customers on value versus the 25% to maybe 30% sweet spots. So it seems like it's even above where you would hope it to be. I am just wondering how you think about the risk of degrading the brand longer-term and maybe where you are seeing the greatest bang for the buck in terms of that $10 offer. And then I had one follow-up.

Jeff, I don’t think the – in this environment, the denegation of the brand, I think the key there is what are you giving the guest and making sure that the quality of the product and the quality of the overall experience isn’t being compromised. And we are all over that and the team is keenly aware of the guest don’t need price points. The quality food that we provide them and they – in an atmosphere and with the service mode that that we have to deliver on. So, I think that’s the key to making sure we are not doing damage to the brand. It’s offering a great value for those guests that are more compelled to shop for or more price-centric. We have to have some of those alternatives for them, for those that aren’t, we offer them value at all price points and that all centers off of a quality experience in everything we do. And so that’s the answer there I think. Q – Jeffrey Bernstein: Got it. And then, just as it relates to the – I know with the reorganization made things timely, and I know you continually examine the model and you are reacting to changes in the environment. It seems like we are seeing some constructural shifts in that environment. You acknowledged the retail headwinds at the malls and the fast casual kind of taking more share. So I am just wondering, when you do your periodic store-by-store assessments, like, what do you consider when you evaluate potential for closures in what seems like obviously a very challenged category, I think you said it’s a saturated category? Do you ever say, you know what, maybe 900 plus Chili's is too many and we’d be better off with some net closures or whatnot? Just wondering how you think about it on a store-by-store basis? And whether that's a possibility in coming quarters or years to see some kind of broad brush closures?

It’s a business model for us, Jeff. So, if we were constantly evaluating every restaurant as a standalone business and how it’s performing and what it’s generating with regard to returns and cash flow and obviously if it’s a good investment, we keep them open and our portfolio is very strong. We don’t have a lot of – we don’t have a lot of restaurants that aren’t doing well in terms of delivering the kind of returns you would expect or at least positive returns that make them a candidate for closure. The other thing thought that we do look at in an concept of pushing over 40 years old, we have had some restaurants that we built decades ago, they are great restaurants that the market has just moved on and the trade areas changed and the competitive set and the asset just doesn’t represent the brand as well as we’d like it to. And so we are even in the few openings that we have this year, several of those are relocations where we are closing a restaurant and just moving it basically down the street and some of these restaurants are actually, they are not on a closure list. It’s not like they aren’t producing a return. We just think the opportunity from a financial perspective to make more money, but more importantly from a brand perspective to put the brand in a better place, in a better place in the market with a better look and feel and delivery is critical. And so, several of the investments we are making now in new restaurants are really relocations and probably a third of the 25% to a third of the new restaurants we open are relocations this year. Q – Jeffrey Bernstein: Got it. Tom, just to avoid any confusion, I just wanted to clarify one thing. Everyone is asking the question about that fiscal third quarter earnings. To be clear, your guidance this year is $3.05 to $3.15, which would seem to be down 11% to 14% versus I believe everyone is using is the $3.55 last year. I just want to make sure because, I know when you first gave the guidance for fiscal 2017 there was talk about $0.40 plus of unusuals and the apples-to-apples growth might be different. So, is there any way you could provide kind of a range in terms of dollars and cents you are talking about of the quarter? Or am I right to assume that the growth you are saying is going to be down a little bit more than 11% to 14% for the third quarter?

Your assumptions are correct. So to keep things simple, we are just benchmarking that off of the $3.55 ex the adjustments because we haven’t provided those last year on a quarterly basis. So, it’s a little more straightforward to just look at the year-over-year with our new range to being as you noted down 11% to 14% off of that $3.55. Q – Jeffrey Bernstein: Understood. Thank you.

Thanks.

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

Raymond James. Thank you. The question might have been asked, but just a couple clarifications on the comps and guidance. On the comps, I wanted to clarify your December comments relative to the industry. Did you say that you outperformed on both the COGS and traffic perspectives in December?

No, just sales.

Just sales. Okay. And it's probably difficult, but are you able to quantify the impact of the Veterans Day situation on the quarter for Chili's?

No, we can’t quantify it specifically, something like that’s a little bit qualitative but it did take our trends from above to below for those few weeks. Right, so for those three weeks, we went from consistently, outperforming the category to underperforming for the category for several weeks.

Okay. All right, fair enough. And last one just on the comp, you mentioned the continued softness in energy-related markets. Can you quantify the drag that that was on your fiscal second quarter results?

Sure, Brian. Our energy-related markets that still that 17% of our markets, they were down 6.1% in the quarter and that compares to prior quarter down for what? So, they were down a little bit more, but I have to say it, it’s above the exact same pattern as our overall sales within October, that was significantly better than the 4.1% and then, weakness towards the back half of the quarter from mid-November on.

Okay, that's helpful. Thanks Tom. And then last one, I wanted to just circle back on the SG&A and the incentive comp discussion. Obviously, it's down this year. But, can you quantify how much remains in your SG&A guidance from an incentive comp perspective or alternatively, how the updated accrual compares to what a full accrual would be if you had hit your targets?

Brian, I’d say that, we have a good portion left. I don’t want to give the specific amount, but it’s a very good portion unlike last year in Q3, where it really came down significantly. We are not in that situation at this point. So, we are still targeting to continue to pay out incentive comp this year.

Okay. Thank you.

Thank you. Our next question today is coming from Will Slabaugh. Please announce your affiliation, then pose your question.

With Stephens. Thanks. I was wondering if we could try to exclude the tough environment for a minute and wonder, kind of on the positive and negative side in the quarter, it sounds like you are pretty happy with the To-Go business, the beer launch. I am wondering what other parts of the menu recent launches, et cetera, where you feel like the consumers are gravitating toward or maybe given the softness where you have seen more opportunity to improve? So, just really your take on sort of positives and negatives, if you are able to parse that away from what's happening externally?

Yes, I think, we are actually very excited as I mentioned in my comments about some of the new foods that was rolled out with the smoke house menu option. So, that’s more innovation. We are still – we are seeing preference for those products and customer satisfaction on those items, they are just very encouraging. So there is some new innovation in terms of products that we are excited about there. We are also – again the 3 for Me platform is a value platform with some of this food integrated into it, that’s also got us encouraged and continuing to assess how to best address consumers’ need for value and create some energy and some excitement. So those are a couple of areas where we are seeing positive results along with, as you mentioned the takeout business. I’d say the lunch business is still an area where we are continuing to address the challenge that we see both kind of from a macro as well as from a competitive environment, that we are focused on now and looking for some opportunities to better strengthen that business.

Got it. That's helpful. And as a follow-up there on the industry, you mentioned you are expecting to continue to remain weak and maybe not where they were in December, but still a pretty tough throughout the year. So, with that being the baseline assumption, I am wondering, is there sort of a pie-in-the-sky scenario where you can think about things turning positive for Chili's by year-end - by fiscal year-end and what that might entail? So what is the scenario where we do comp positively and what works to get us there?

Well, it’s Tom here. A couple of things. Industry improve, oil markets are improving and traction on some of the initiatives that we’ve talked about as we’ve been rolling them out throughout the second half of the year. So those are the things that we are actively working on. Those are the last items or the ones we control and we are real focused on and making them as impactful as possible.

Thank you.

All right, thanks, Will.

Thank you. Our next question today is coming from Jeff Farmer. Please announce your affiliation, then pose your question.

Thank you and Wells Fargo. Do the last four quarters of casual dining segment same-store sales and traffic change your thinking in any way about the company's long-term earnings model, which I think you guys are pointing to 10% to 15% annual EPS growth?

Jeff, at this point made any update to that model and we still believe that we are on track to getting back to growth on Chili’s and that Maggiano’s is generating great results and a great gap. So we feel good about where we are headed and I think that’s where we are going to create a lot of value.

And then one more sort of related question, so it looks like share repurchase has materially outpaced free cash flow over the last five plus years. I am just curious, based on the current leverage levels and your updated free cash flow guidance and just the general free cash flow trends, do you think you can continue to outpace your free cash flow in terms of your level of repurchase or repurchase level outpace your free cash flow pace?

We are just buying out this year, we had a recapitalization, so we did increased leverage to a new level that we’ll be maintaining going forward. So that’s a one-time step-up to a more optimal capital structure and with that, it does provide more leverage as to grow earnings to increase our debt level and maintain the same absolute leverage now to allow us new – as we go through our capital allocation process of investing in the business, paying a dividend and then using to buyback shares could put us in that position. So we think we are positioned to be able to perform and continue to work our capital allocation process in a similar manner.

But obviously, this year, Jeff, with the recapitalization it is a big one-time bump that’s not going to happen again. So, it won’t be at that pace.

And then just to be clear, I think you guys – the top-end of the adjusted debt-to-EBITDA, it’s 4.25 or I think you already mentioned that. How high would you take your leverage ratio?

That we mentioned – that was the top-end of our covenants.

Okay.

That is not the top end of where we would be going. We were targeting above a half a turn. Our target was 3.25 to 3.75.

Okay.

Broadly speaking and we ended the quarter around 3.6.

Okay. Thank you very much.

Welcome.

Thank you. Our next question today is coming from Peter Saleh. Please announce your affiliation, then pose your question.

Yes, thanks. BTIG. I know there is a lot of discussion around the To-Go business. But I just want to be clear here on the strategy. Is small order delivery at Chili's part of the To-Go strategy for this year and going forward?

Hey, Peter, Wyman. The delivery model for us at Chili’s is kind of being developed, kind of as we speak we’ve got several different tests in place with – well, we’ve always had third-party deliveries of our food at Chili’s in markets. But obviously, as you are aware that that business model is being pushed aggressively by new bigger players and we are in test with those players and we are kind of evaluating that business from a third-party perspective. From an independent or from a delivery – from the perspective of should we deliver our own product, and at what price points or what check averages that’s also kind of being evaluated. At Maggiano’s we have a full in-house delivery system with vehicles and so we got a lot of history there. We have some restaurants within the Chili’s system that’s due delivery of the product themselves and so we are evaluating the delivery aspects and options aggressively this year and I think they will trail the takeout business initiatives that we’ve talked about because we think those are actually bigger and more fully developed and lead. But they are going to be closely following them as we really address this whole consumer convenience and out of restaurant phenomenon.

Great, and then one more point of clarification. If you do move forward more aggressively on delivery at Chili's, it will be with a third-party provider, right, not your own employees?

No, I think that’s what I was just kind of mentioning. We have all of those kind of alternatives in some restaurants. So we have restaurants that are delivering from our own employees and we have third-parties of various different companies delivering our product and we are evaluating the viability of all of that. And again, we got a really good in-house delivery model at Maggiano’s that we also have the ability to learn from. So, over the next six months, I think we’ll see the back half of this year, we will continue to see how these all play out will especially take a big interest in – how some of these bigger aggregators, the Postmates, the Ubers the Amazons, how those guys are all coming to market and what they are bringing with regard to viable business models and how well they deliver our products to see if that’s really the best way to go or not.

Great and lastly, I think there was one brief mention of the Plenti program. Any other comments you guys care to make on how that program is performing as it’s integrated into your loyalty program?

Peter, we feel good that Plenti is going to perform as we expected over the course of this fiscal year. As you recall, it was just launched in November. So there is a build as we transition people into it and the primary short-term benefit was to reduce the expense related to the loyalty program, which we do expect to see and then longer-term as we build the number of members in it, we will use that platform along with email and other digital marketing to build up our presence and drive traffic. So that’s a little longer-term.

Great. Thank you very much.

Welcome.

Thank you. Our next question today is coming from Bob Derrington. Please announce your affiliation, then pose your question.

Yes, thank you. Telsey Advisory. Wyman, when we step back and look at the company's business back to 2007, the annual traffic trends have been pretty torturous, that's not new news, averaging about a 3% decline each year since then. As you look at the numbers, as you think about those things, you've spent a lot of money updating restaurants, remodeling stores, making changes to the menu, all of those things are somewhat evolutionary. Is it time to kind of take a look at the company's business and look to be more revolutionary? Is there a thought that maybe this - the evolution that you've been making on an annual basis, maybe you need to take a more dramatic step than that?

Bob, I think it’s – we try and make sure that we’re doing both. I am trying to understand – where is the – what’s the future will look like and are we addressing it significantly enough to be a viable constant moving forward and obviously the traffic patterns, as you said have been a challenge, but the business model continues to play itself out in a very strong way and so, we want to make sure that we are doing the right things for our shareholders with regard to the investments that we have made in this business. So, to answer your question, we do look aggressively at hey, what would an alternative model look like, but we also understand that the real valuable brand is the business model and the category that’s got sustainability and so we just want to – we are always kind of balancing that out. These ideas, whether they are concept tested or whether they are tested in restaurants, those are things we do all the time. We don’t always talk about some of the things we are doing that are a little bit may be more on the revolutionary end is your word, but it’s not like we don’t have those things been evaluated.

Given the fact that, certainly a strong percentage of your consumers really look to you for value, is there an opportunity to kind of take that a step further, and maybe back away from some of the capital initiatives? I am just trying to think about your business.

I mean, again, everything is up for grabs from our perspective. We are always evaluating where to invest for the best return and for the long-term viability of the business and the brands. So, whether it’s a capital investment or not, but whether it goes back into kind of an expense category on the menu, we are constantly making those decisions relative to how they impact the long-term viability of the business and the brands.

Gotcha. All right, thank you very much.

Thanks, Bob.

Thank you. Our next question today is coming from Steve Anderson. Please announce your affiliation, then pose your question.

Yes, from Maxim Group. The domestic side of the business has been - I think well covered, but I wanted to focus on the international business. You noticed, seeing that comps are down about 4% and given that a significant percentage of those are in the Middle East. Have you given any thought to maybe looking at your pace of new unit development overseas and where you want to target unit developments?

Steve, it’s Tom here. First, in the Middle East, we are lapping some co-op marketing from prior year and some of those countries are also doing some of their own pullbacks related to those consistent lower oil pricing. So there are some things that are impacting them very specifically, but it really hasn’t affected where we want to grow, there is still real strong interest in the Middle East and we are opening, our partners are opening restaurants. There is also extremely strong interest in Asia and in a couple of new countries that we’ll be excited to talk about in the very near-term. And we continue to build with new partners and with existing partners in Latin America. So Chili’s is a concept that resonates really well in different cultures, in different countries, the flavor profile, the menu resonates and it’s a great economic model. So we think we can grow in all different geographies and that’s what we are pursuing.

All right, thank you.

Thanks, Steve.

Thank you. Our final question today is coming from David Palmer. Please announce your affiliation, then pose your question.

Thanks. RBC. Good morning guys. Just seeing the consumer data you see and I assume you see stuff from the Ziosks and external surveys. Where do you think there is an opportunity to improve or to drive better share versus NAB? Whether it be on the labor or the food side? Is there perhaps a need to reinvest?

Well, I think, again, there we’ve got opportunities to create a compelling value proposition in the environment that we are in, right. So we think that the value proposition that we’ve got out there is solid. We know our value scores are some of the best to your point, we get a lot of consumer data. But in this environment, there is always that need to keep things fresh. And so, between the value proposition providing the innovation necessary to address consumers’ desires for new food, and better food, and then execution I think, again, the commitment from Chili’s and the operations teams to make sure that every guest experience is a great experience and when we talk about big data, we don’t lose track that we are in the hospitality business and the data is just a way for us to become better hospitalitarian. It is about how do we perform the basic function of the restaurant business better and having that insight from our guest that, hey, this restaurant, this daypart, this menu item isn’t quite filling the promise that we needed to. We have that information and the operations teams are embracing that and using that to create a better guest experience every day. So, I think those are – it’s not a simple one silver bullet solution to how do you win in this category. It really crosses all aspects of the business from what you are doing from a marketing and a culinary standpoint, but at the end of the day, how well you execute in the restaurants day in, day out.

The one reason I mentioned that, some of that is, because, grill and bar these days, there are some players that are really struggling. You have the best AUVs in the business in that segment and perhaps, strategically, there is a reason - very good reason, long-term, to reinvest and make sure you drive that separation and value to the consumer at a time like this.

No, we would agree. I think we are seeing – the pressure of the category will have a bigger impact on those that are closer to the edge and having the high restaurant level volumes helps us. We are not – we understand that position and we want to use our position and strengths to continue to separate ourselves from others and hopefully some of that will create some thinning out in the market.

Thank you very much.

All right. Thanks.

Okay, thank you, Kate, and thanks to everyone for participating on the call this morning. I would like to note that our third quarter earnings call is scheduled for the morning of April 25, 2017, a couple of months from now. And with that, everybody, have a great day. Appreciate it.

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.