Chili's Is Winning on Value, Yet Its Parent Company's Stock Still Looks Cheap
Key Points
The cost of a meal at Chili's now rivals that of fast-casual chains, and consumers are responding.
Three years of operational improvements doubled the profit each Chili's produces.
Its parent company Brinker trades well below casual-dining peers Darden and Texas Roadhouse.
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Chili's is the main brand inside Brinker International (NYSE: EAT), and management has turned it into one of casual dining's strongest operators. More than 90% of Chili's restaurants in the U.S. are company-owned, which means management controls everything from menu changes to kitchen upgrades.
Before the turnaround, the average Chili's generated around $370,000 in restaurant-level profit. At the end of fiscal 2025, that figure stood at $790,000. Despite the underlying progress, the stock still trades at a below-market multiple.
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3 For Me
Chili's was repositioned at exactly the right time. In recent years, quick-service and fast-casual chains pushed prices so high that consumers started looking elsewhere for value.
Chili's already had its 3 For Me menu in place, starting at $10.99 for a full-service meal at a discount to most fast-food joints. The result was traffic-led growth, with same-store visits (comps) up 16.3% in 2025.
That strength carried into the new fiscal year. Brinker reported second-quarter 2026 results on Jan. 28, with comps growing 8.6% and traffic up 2.7%. That's on top of 31% comps growth in the year-ago quarter.
When a sit-down meal at Chili's costs about the same as a Chipotle bowl, consumers are choosing table service. That's how Brinker fills the seats. The pricing strategy is disciplined, too. The $10.99 promotion accounts for under 8% of total sales.
Twice the profit, same discount
The risk is straightforward. Chili's is now lapping comps growth of 31.6% from the year-ago quarter. The rate of increase is moderating, and that's what investors are worried about in the near term. Management guided for comps growth in each quarter of fiscal 2026 and has delivered through the second, but this quarter is the toughest comparison yet.
Profitability tells a similar story. Restaurant-level margins have expanded from 11.9% in 2022 to 19.1% in the most recent quarter, but the gains are getting tougher to come by. Over the same period, free cash flow grew at an average annual rate of 60% (recalculated through the second quarter of 2026), even as management reinvested heavily in store redesigns and kitchen upgrades.
Brinker is refreshing about 10% of its restaurants each year with updated kitchens and dining rooms and plans to start growing Chili's net store count in fiscal 2027. With the higher restaurant-level profitability today, the return on those new builds should be greater than ever before.
At roughly 14 times forward earnings, Brinker trades at a significant discount to peers Darden Restaurants and Texas Roadhouse, which trade at 20 and 28 times, respectively. That looks reasonable for a business that keeps delivering. Comps could go flat tomorrow, and you would still own twice the restaurant.
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Bryan White has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Texas Roadhouse. The Motley Fool recommends the following options: short March 2026 $42.50 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
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