Bloomin' Brands Inc (BLMN) 2012 Q2 法說會逐字稿

Greetings and welcome to Bloomin' Brands' second quarter 2012 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Seymour, Vice President of Investor Relations. Thank you, Mr. Seymour, you may now begin.

Thank you, operator. Good morning, everyone, and thank you for joining us. With us on today's call is Liz Smith, our Chairman and CEO, and Dave Deno, Executive Vice President and CFO. By now you should have access to our second-quarter 2012 press release. It can also be found at www.bloominbrands.com in the Investor Relations Section.

Throughout this conference call we will be presenting non-GAAP financial measures including adjusted diluted earnings per share, adjusted operating income, and adjusted net income. This information is not calculated in accordance with GAAP and may be calculated differently than other companies' similarly titled non-GAAP information. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP measures appear in yesterday's press release, and on our website as previously described.

Before we would begin our formal remarks I need to remind everyone that part of our discussion today will include forward-looking statements including our discussion of growth strategies and financial guidance. Such forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. Some of these risks are mentioned in today's press release, others are discussed in the final prospectus filed on August 8, 2012 for our initial public offering which is available at www.SEC.gov.

For today's agenda we'll first provide a brief of view of the Company and discuss some of the key business metrics and growth drivers for our business. We will then provide you with an overview of our second-quarter results. Finally, we will wrap up with our full-year guidance for fiscal year 2012. Once we've completed our prepared remarks we will open up the call for questions. With that I'd now like to turn the call over to Liz Smith.

Thanks Mark, and welcome to all who are listening today. This is our first earnings call as a public company and we are very pleased with the results we are sharing today. As you can see from yesterday's earnings release, we had a good second quarter and delivered strong performance across many facets of our business. Because this is our first call after finalizing the offering, our prepared comments will run a little longer than they will in the future. But we would like to ensure that everyone is grounded in the Bloomin' Brands story. Please note that our public offering was completed in August so the second quarter results do not reflect the full cost of the IPO.

A few highlights from the second quarter include the following. Second-quarter adjusted earnings per diluted per share increased 20% to $0.18 compared to $0.15 for the same period in 2011. GAAP earnings per diluted share increased 23% to $0.16 compared to $0.13 for the second quarter of fiscal 2011. Our adjusted net income increased 18% to $19.3 million compared to $16.4 million for the same period in 2011. GAAP net income increased 24.5% to $17.4 million compared to $14 million for the quarter ended June 30, 2011.

Combined comparable restaurant sales at our Company owned domestic core concepts increased 2.4% as compared to the quarter ended June 30, 2011. The second quarter of 2012 represents nine or more consecutive quarters of positive same-store sales growth for each of our core US brands. Total revenues increased 2.7% to nearly $981 million, compared to approximately $956 million for the quarter ended June 30, 2011.

As background for those of you we didn't meet on the road show, we are one of the largest casual dining restaurant companies in the world with a portfolio of leading differentiated restaurant concepts. At the end of the second quarter of 2012, we owned and operated over 1,200 restaurants and had over 190 restaurants operating under franchise or joint venture arrangement across 49 states and 21 countries and territories. We operate five founder inspired concepts, and we refer to the following four as our core concepts or brands. Outback Steakhouse, which holds the number 1 US market position in the steak category. Carrabba's Italian Grill, which holds the number 2 US market position in the full-service Italian restaurant category. Bonefish Grill, which holds the number 2 US market position in the full-service seafood restaurant category. And Fleming's Prime Steakhouse and Wine Bar, which is the fourth-largest fine dining steakhouse brand in the US.

It's worth noting that Carrabba's and Bonefish hold the number 2 positions in their categories despite being largely regional brands at this time. In addition, under our Outback Steakhouse International Group we hold the number 1 casual dining position with our joint venture in Brazil. In South Korea, we hold the number 1 position among Western full service restaurants. Our concepts seek to provide a compelling customer experience combining great food, attentive service and lively and contemporary ambience at attractive prices. Our ingredients are carefully selected to offer a high degree of freshness and quality and maintain the authenticity of our recipes while keeping costs in line with our target pricing.

Over the last few years we have launched a number of strategic initiatives designed to improve productivity and drive sustainable sales and profit growth, while at the same time preserving our entrepreneurial culture at the operating level and always keeping the customer at the center of our decision-making. We have an established revitalization plan that focuses on a continuous productivity mentality to drive superior innovation. The four key tenets of this plan are as follows. First, we elevated organizational effectiveness by adding experienced senior executives from leading consumer and retail companies to complement our deep restaurant industry expertise at the operating level. We also added resources in key functional support areas to build an organization that can better leverage its scale. In addition, we instituted an enterprise-wide analytical approach to decision-making that relies on detailed consumer research and feedback, product testing and data analysis. This has improved visibility regarding consumer trends and provides a better basis for making product pricing and marketing decisions.

Second, we enhanced our brand and concept competitiveness. In food we have evolved our menus and supplemented our classic items with a greater variety of lighter dishes, strategically priced items, and enhanced bar and happy hour offerings. These initiatives are designed to broaden appeal, improve our value perception and increase traffic. In marketing, we shifted from brand awareness messages to traffic generating messages focused on quality, value, and limited time offers. In ambience we initiated a remodel program at Outback Steakhouse and Carrabba's to refresh the restaurant base. In service, we've improved execution on key aspects of the dining experience that matter most to our customers as indicated through ongoing customer surveys. We have strengthened our innovation capability across the board by increasing resources and implementing a process to develop, test and roll out new menu service and marketing initiatives. This allows us to introduce new initiatives at a faster pace. We believe the momentum of our revitalization plan enables us to continue to drive same-store sales growth over time.

The third major focus of our revitalization plan was the strengthening of our operating performance at the restaurant level. We enhanced our field management compensation model with new incentives to further reward our managing partners for above-plan performance and provide for retention of our best performers. In 2009 we implemented the detailed customer survey program to identify ways to further enhance the guest experience. We instituted comprehensive training programs to ensure that guest service is delivered consistently and at the highest level across all of our concepts.

Fourth and finally, we embedded a continuous productivity mindset. From 2008 through 2011, we have implemented a number of productivity and cost management initiatives. We estimate that these initiatives have saved over $200 million in the aggregate while simultaneously improving our customer ratings on quality and service. Many of these productivity initiatives are in their early stages, or have not yet been instituted, and will provide further cost savings in upcoming years. In addition, in 2010, we launched a multi year upgrade of our technology infrastructure to support our analytical focus and growth opportunities. Our investments include the completion of standardized point-of-sale systems across our concepts, a data warehouse to improve data accessibility, a real estate site selection system, and a new human resource information system. These upgraded systems coupled with the addition of key new senior management positions are an important part of our overall strategic plan. We invested ahead of growth in these areas, and we will be able to leverage the related costs as we move forward.

Now I'd like to discuss our growth strategy. Looking ahead, we believe we have significant opportunities to continue to drive sustainable sales and profit growth through the following three strategies. The first strategy is to continue to grow consistent, comparable restaurant sales. We believe we can achieve this by focusing on our ongoing remodel program at Outback Steakhouse and applying this knowledge as we implement a similar program to update our Carrabba's restaurants. Second, we will continue to improve our limited time offers and multimedia marketing campaigns. By promoting continuously evolving menu items at attractive prices, we seek to drive traffic and maintain brand relevance without sacrificing margins. And finally, with our broader menu variety and improved affordability, we are better positioned to expand beyond our strong share of weekend dinner occasions to more weekday and non-dinner occasions.

We realized traffic gains in 2011 and the first half of this year, through the introduction of happy hour menus at Bonefish Grill and Fleming's and our Sunday lunch expansion at Outback Steakhouse. In August we followed with a Saturday lunch rollout at all of our Outback locations. At Carrabba's, we are now open for Saturday and Sunday lunch at most locations. We are also evaluating the selective expansion of weekday lunch in markets where our analytics support doing so. We believe the demographics of our Outback Steakhouse and Carrabba's restaurant base will support weekday lunch at approximately 50% of our domestic company-owned locations for these concepts over the next five years. In addition, we are currently rolling out Sunday brunch to Bonefish Grill locations.

The second growth strategy is to pursue new domestic and international development with strong unit level economics. Bonefish Grill unit growth is our top domestic development priority. We believe we have the potential to at least double the Bonefish Grill concept over the coming years from an existing base of 162 units. The majority of Bonefish Grill restaurants are located in the southern and eastern US with significant geographic expansion potential in the top 100 US markets. We will open approximately 19 new restaurants in 2012. Those we've opened already this year have delivered strong sales and overall financial performance is well above expectations.

Additionally, we see significant opportunity to expand Carrabba's from an existing base of 231 restaurants. Approximately 14 to 17 new restaurants are planned to open over the next 2 years. Like Bonefish Grill, the majority of our Carrabba's restaurants are also located in the southern and eastern US with significant geographic expansion potential in the top 100 US markets. We are developing an updated restaurant design for Carrabba's and we plan to test this model in some of the units developed over the next two years. Based on the results of this test, we plan to accelerate new unit development.

International is another big opportunity. We believe we are well-positioned to expand internationally beyond our 196 restaurants located across 21 countries and territories. In 2012, our plan is to open 10 or more Company-owned or joint venture restaurants in South Korea and Brazil in total. We will approach growth in a disciplined manner focusing on growing existing markets such as South Korea, Brazil and Hong Kong, while expanding in strategically selected emerging and high-growth developed markets. We are focusing our new market Company-owned and joint venture growth in China, Mexico, and South America. We will utilize an ownership structure and market entry strategy that best fits the needs for a particular market, including Company-owned restaurants, joint ventures, and franchising. In markets with the most potential for unit growth, we expect to focus on Company-owned and joint venture arrangements, rather than franchising.

The third and final growth strategy is to increase our margins through continued productivity and increased fixed cost leverage as we grow comparable restaurant sales. We have developed a multi year productivity plan that focuses on high-value initiatives and cost savings across four categories, labor optimization, food cost reductions, supply chain efficiencies, and cost effective restaurant facilities. Most, if not all, of these productivity and cost savings initiatives have been successfully implemented in other organizations. And as a result, we feel comfortable targeting savings of approximately $50 million annually for 2012 through 2014. Moreover, the initiatives we have identified can be implemented in the near term and are not capital-intensive. These three strategies will drive our plans for future growth and we look forward to updating you on the progress over time. Now I'd like to turn the call over to Dave Deno to provide more detail on our second-quarter operating results as well as provide financial guidance for 2012. Dave?

Well, thank you, Liz. And hello, everyone. I would like to take a few minutes to walk through our sales and profit performance for the quarter and then give you a summary of what you can expect for 2012. When I speak to net income and EPS, I will be referring to adjusted numbers that exclude transaction-related costs such as those related to our debt refinancing. Please see our press release for reconciliations between GAAP net income and diluted EPS and adjusted net income and adjusted diluted EPS.

First, we'll cover sales. As Liz mentioned previously, total revenues increased 2.7% versus Q2 of 2011. The increase in restaurant sales was primarily attributable to a 2.4% increase in blended domestic comparable restaurant sales at our core concepts, which was primarily due to increases in customer traffic and modest menu price increases. The increase in customer traffic was primarily a result of promotions throughout our concepts, innovations in our menu, service and operations improvements, weekend lunch expansions at Outback Steakhouse and Carrabba's Italian Grill concepts, and renovations at additional Outback Steakhouse locations.

Let's talk now by concept. As comp store sales for Company-owned locations for the second quarter were as follows. Comp store sales were up 2.3% at Outback driven by strong traffic performance relative to last year and the segment. This growth was achieved by enhanced marketing efforts including a new three-course LPO at $11.99. This was our ninth straight quarter of same-store sales growth at Outback. Carrabba's comps were up 1.5% for the quarter driven primarily by our promotion of the $10 signature pasta meals. Guest counts increased as a result of this promotion, though as expected at a lower check average. This was Carrabba's 10th straight quarter of positive sales comps. Bonefish comps were up 2.1%, driven by increases in per person check average and favorable response to midweek promotional offers and other marketing efforts. This was Bonefish's 11th straight quarter of positive sales comps. Fleming's comps were up 6.8% for the quarter, once again outperforming the high-end steakhouse dining segment. The sales increase was the result of successful promotions as well as growth in private dining. This was Fleming's 10th straight quarter of positive sales comps.

Pasta sales increased slightly to the 32.5% of restaurant sales for the quarter, from 32.2% of restaurant sales from the same quarter of 2011. The increase was driven primarily by increases in beef, seafood and other commodity costs and by changes in our liquor, beer, wine mix, and product mix. This increase was mostly offset by productivity initiatives in food costs and modest price increases. Labor and other related expenses as a percentage of restaurant sales decreased 110 basis points for the quarter of 2012 as compared to the same period of 2011. Improved restaurant productivity and sales gains helped drive down labor costs.

General and administrative costs increased slightly in the second quarter of 2012 as compared to the same period in 2011 primarily due to increased costs associated with training and field support. In addition, costs were up due to the completion of the build out of the key support functions such as R&D and market research. Our effective tax rate was 16.1% for the quarter which compared to 20.3% for the quarter ended June 30, 2011. Totaling all of this up, adjusted net income was $19.3 million, up 18% over the second quarter of 2011, and adjusted earnings diluted per share was $0.18, up 20% over the same period of 2011.

On June 25, 2012, we announced the commencement of a tender offer for all of our outstanding senior notes. On August 13, 2012, we purchased $102 million in aggregate principal amount of our senior notes using a portion of the net proceeds from our initial public offering. In addition, we called the remaining notes for redemption on August 13, 2012, and we deposited the necessary funds with a trustee to affect the redemption using that remaining proceeds from the IPO and cash on hand. These notes will be redeemed on September 12, 2012. At that time, we have -- we will have retired the entire $248 million balance of our 10% senior notes. All of us at Bloomin' Brands say, hooray.

Now onto our outlook for 2012. Our guidance policy going forward will be to provide annual guidance in conjunction with our fourth-quarter earnings release for full-year expectations. As we move through this year, we'll update our full-year guidance to the extent necessary. From a same-store sales comp perspective, we see the industry as continuing to trend an average from slightly flat to slightly positive -- from flat to slightly positive or negative in the foreseeable future. For the fiscal year 2012, we anticipate full-year same-store sales to Bloomin' Brands of at least 3%. We believe this is an attributable through contributions from the expansion of our lunch occasion day part, pricing the neighborhood of 1% to 2%, further remodeling of the Outlook fleet, and continued innovation and limited time offer programs. Total company revenue for fiscal 2012 is expected to be at least 4% to nearly $4 billion. This will be driven by our new unit openings and same-store guidance of at least 3%. Our long-term goal is at least 7% annual revenue growth as our development pace accelerates.

Adjusted operating income is expected to be $229 million or better. As Liz mentioned before, we have invested ahead of our growth in various areas and we expect to get further leverage on those costs as we continue to grow our business. We're also providing guidance on adjusted net income. We anticipate that adjusted net income for 2012 will be at least $105 million. Based on this level of adjusted net income, we believe that consolidated adjusted diluted earnings per share will be at least $0.91. This assumes a full-year effective tax rate of between 18% and 20%. Also note that the share count used in calculation assumes the underwriters of our initial public offering will not exercise their option to purchase additional shares. Contractually, they have 30 days from the pricing date on August 7 to exercise this option. We estimate that if all 2.4 million shares available under this option are purchased, which includes 1.2 million shares from the Company, the impact could be a $0.01 reduction in diluted earnings per share for the year.

Now I'd like to touch on an item of importance that impact our net income and earnings per share in a little more depth. I know there's a lot of concern in the marketplace with respect to commodity costs and beef in particular. We believe that commodity costs will be up in the range of 2% to 3% in the back half of 2012. When combined with the first half rise in commodity costs of approximately 4.4%, that gives us a full-year increase of 3% to 4%. Embedded in this expectation is a 10% rise in the cost of beef. Beef represents roughly 30% of our total commodity purchases and is our largest commodity category. Other major categories include seafood, dairy, and produce, representing roughly one third of the total commodity spend. In these categories we anticipate very low inflation for the remainder of 2012. Finally, with respect to contracting we are currently locked in for 77% of our remaining purchases for the second half of the year.

I'll now turn to new restaurant and other capital spending. We expect that cash outlays will reach between $200 million and $220 million for capital spending in all of 2012. This full-year estimate includes restaurant development expectations of approximately 35 new locations in 2012. Finally, for those of you modeling out of the rest of the year, I have one final housekeeping comment related to Q3. We won't get in the habit of providing quarterly discussion for the upcoming quarters on future calls, but given the fact that many folks are new to the Bloomin' Brands story, we'd like to give some additional color for this quarter.

First, from a seasonality standpoint, Q3 is typically the low point for most casual dining companies and we are no different. Summer vacations are ending and back-to-school activities are in play. Moreover, we have a regional bias that favors the Southeast and Florida in particular. As such, our numbers can be easily sensitive because part of our population returns to their northern homes to escape the heat for much of the third quarter. We will also be impacted by the fact that much of our 2012 development is weighted heavily to the third quarter of this year. So pre-open expenses are expected to be fairly high in Q3. All of this adds up to Q3 being the least profitable quarter for the year, and this will be the case each year as we go forward.

In summary, 2012 really looks like a terrific year for our Company. It will be a good foundation to build on as our first year as a public Company and we feel very good about our trends. With that, we'll now open up the phone lines to questions and Liz will have some closing remarks when that segment is complete. Back to the operator.

Thank you very much, sir.

(Operator Instructions)

Joe Buckley, Bank of America Merrill Lynch.

A couple questions on same-store sales. The release mentions a trade-day variance of negative 0.6%. And I'd just like to learn a little bit more about that for the quarter. And then also, the full-year guidance implies roughly a 2% second-half same-store sales increase. And do you have any color on how you think that might be split between the third and the fourth quarter?

Hi, Joe. It's Dave. First of all, in answer to your second question, I want to make sure that we understand that we're talking to at least 3%. And we feel good about our trends. I want to mention that. So, we feel good about what we laid out to people, what our trends look like, and I want to stress that it's an at least 3% number for the year.

Secondly, on trading days, Joe, we've got a 60 basis point impact to our number because we do close on a calendar basis, so we do have some exchange of weekends and weekdays. That will vary from quarter to quarter. Were not on a 4-4-5 calendar, but there's 60 basis points negative impact on the quarter.

Dave, what drove that? It looked like you had the same number of Saturday's and Sunday's through the quarter, on a rough count. Is there anything special around that?

Basically the first part of the quarter, Saturdays and Sundays [are worth] a bit more than the back half of Saturdays and Sundays, Joe, looking at seasonality.

Okay. And is the lunch program, the Saturday lunch program at Outback you referenced, is that rolled out at this point?

Hi, Joe. It's Liz. Saturday and Sunday lunch are rolled out at Outback and Carrabba's. We just finished the rollout of Saturday lunch at Outback in August.

Very good. Thank you.

Thank you, Joe.

John Ivankoe, JPMorgan.

Hi, great, thank you. Actually, a follow-up on the Saturday lunch, if I may. With the full year of experience in terms of the contribution -- the incremental contribution from Sunday lunch, was hoping two things. One, how much did Sunday lunch add to your business on a net basis, if you were able to do that analysis? And secondly, in your opinion, is Saturday lunch -- is it potentially as much of a benefit as Sunday lunch was?

I'll take the first part to that, John. Sunday lunch did contribute to our overall traffic points. We do not get into that kind of detail in some of our disclosures, but it was a positive impact to our traffic for the quarter.

I will turn it over to Liz now for the other part of lunch.

As Dave said, we're not going to get in the habit of breaking down traffic by day part, but we're very pleased with the success of Sunday lunch. And I would tell you, John, that so far, that Saturday lunch is meeting or exceeding our expectations across the portfolio. And there are some differences between the two in terms of what you expect. But it has performed at or above our expectations where we've rolled it.

Great. Thank you. And if I'm still on -- Bonefish, you did mention that you're rolling out Sunday brunch; is that system-wide? When might it be system-wide? And could that also roll in -- I guess there's no such thing as Saturday brunch, but Saturday lunch, whatever you want to call it, could that be an opportunity there as well?

Sure. Sunday brunch is currently in about 60% of Bonefish's, and by the end of the year it will be in 75% for Sunday. And it's doing extremely well. It's an innovative menu, just what you'd expect from Bonefish, putting a new, fresh twist on the Sunday brunch occasion. We have not put forward any thoughts or plans on Saturday. You know we are in full-scale opening growth mode with Bonefish, so for now we're focusing on the Sunday brunch rollout.

Okay. Thank you.

Jason West, Deutsche Bank.

Thanks. Just a question on the cost savings, the $50 million number you talked about the next three years is obviously a very big number relative to your EBIT guidance for the year. Can you talk a bit about what kind of offsets there will be on the expense side to offset some of those savings? And do those offsets diminish over time so that you can see further flow-through on that savings over the next few years?

Hi, it's Dave. First of all, we are extremely bullish on our productivity initiatives. We've seen some good results. We've got good runway going forward that's identified, and as Liz mentioned, is not capital intensive. So, we're doing things that are available to our Company that other companies have done in the past. And we think we're doing a good job executing against that with a good runway.

We do see -- as we talked about, we do see some food cost inflation in the next few quarters. If that abates, we'll be able to take some more down to the bottom line, clearly. But as we manage the opportunity in our P&L, we've got opportunities in food cost savings, we've got opportunities in labor cost management, and we've got some opportunities in some of our other restaurant expenses. I think to answer your question, the major offset right now is the commodity inflation that I talked about.

Okay. And some of the investments you guys have been making in the last couple years around the infrastructure are starting to lap or wane a bit. So, you will see more flow-through going forward on cost savings then maybe you would have seen in the last year or so?

Yes, Jason, it's Liz. We have invested ahead of growth, and built out the infrastructure, so we will be getting G&A leverage as we continue to grow the business, absolutely.

Okay. Thank you.

Jeff Farmer, Wells Fargo.

Great, good morning, everyone. It looks like you guys remodeled approximately 200 Outback units in '11. I think you're pointing to another 160 or so in 2012. Can you provide some color on what type of traffic lift you've seen from that remodeling effort?

Yes. Just to clarify, this has been kind of a three-year journey of about 150 per year. So far this year, year-to-date we've done 85, and we expect to finish another 161. And what we're seeing is very consistent. We're seeing approximately a 3% traffic lift, which has been sustained over time. We started this program over a year ago. And at this point, we're more than halfway through the fleet that we're going to address. So, we feel terrific about the traffic lift that it's generated, and the stickiness of that traffic lift. We'll be completing the rollout at the end of next year of the fleet that we're going to address.

Okay. And then, you did provide some color, at least Dave did, on the commodity inflation outlook for '12. But as you look forward to 2013, what's the early read on commodity inflation, especially as it relates to beef right now for you guys?

Yes. We have laid out in our plans for 2013 an increase somewhere between around 4%, maybe a tick higher. Again, we see beef going up 10% -- that's about 30% of our spend. But I just want to remind everybody that we're also big purchasers in seafood, chicken, produce, and those look very, very good markets right now. So, we anticipate 4% to 5% increase in commodity costs, and we've got a conservative assumption on beef at 10% growth.

Just want to say -- I want to add one thing on the Outback remodel point, just to make sure it was clear. We've done 85 remodels year-to-date. And we're going to finish the year at 161. Just want to make sure that was clear.

And then just one final question. I think your own price-sensitivity studies showed that you have seen minimal traffic risk at the Outback concept pricing in that sort of 1% to 2% range. But if beef inflation, for whatever reason, were to get out of hand as we got into '13, do you think you have the potential to take more than 2% pricing without seeing material traffic pushback?

Yes. One of the things that we really believe at Bloomin' Brands is our 1% to 2% pricing model; it's served our traffic well, it serves our concept well. Like we mentioned earlier on the call, the productivity opportunity we have is large. We're making great progress on it. And we'll continue to pursue that primarily to offset any commodity costs beyond what may be in this relatively conservative number.

All right. Thank you.

Sharon Zackfia, William Blair.

Hi, good morning. I was hoping you could talk a little bit about the Bonefish openings that have happened so far this year. I know that you mentioned that they're at or well above plan. Can you give us any comments on where they are geographically -- if you are seeing any variance on how they do outside of the southeast, I think that would be helpful.

Yes. So, we have opened them scattered, so the concept has been proven out in such varied locations as New Jersey, Pennsylvania, Tennessee. So, this is just not just a continuing-to-grow-in-the-southeast strategy. This concept has proved its legs in broad geographies. And they have been opening well above our system average on AUV, so we're very encouraged by how they're performing, and the momentum, and how they're opening and continuing to perform. And again, we've moved to a variety of geographies where the concept is playing very well.

And then secondarily, as you accelerate the unit development not only at Bonefish but in some of the other concepts, can you comment, I know you keep saying you're investing ahead of the curve, are you fully staffed and ready to go to support that accelerated development? And both from a corporate and a restaurant level standpoint?

Yes. Sure. We have invested ahead of growth in that area. And significantly increased our development teams such that we are staffed to be able to handle a 5% per year unit increase, which is 70 to 90 restaurants per year. So, we absolutely invested ahead of growth. In terms of, in the development and the restaurant, we have a well-oiled machine of management and training, and folks coming up through the pipeline to be able to take advantage and place well-trained folks in those restaurants as we open. So, we feel that we are staffed at corporate to handle that acceleration, and we have a pipeline of very talented managers to put into these stores as they open.

Perfect. Thank you.

Andy Barish, Jefferies & Company.

Hi, guys. Can you give us a little more color on what you're seeing in a couple of your big international markets in terms of trends out there, and with some of the slowdown internationally, how is that kind of working into the thought process in terms of future partners or growth?

Yes. Andy, it's Dave. How are you? Couple things. Internationally, we feel very good about our trends. It's all part of our guidance. As Liz talked about, we have strong positions in Korea and Brazil. We anticipate to continue to develop those markets, and capitalize on our number-one position.

We also will be looking at opening up a restaurant in China either Q4 or Q1. And therefore, we have very, very strong trends in our international marketplaces, within our guidance. We feel good about where we stand, and we think we have a really targeted growth strategy. And we talked about this a bit on the road show. We really think in the casual dining space, this sets us up to be unique, with our infrastructure we have in place already in Korea and Brazil, our expansion opportunity in China and Mexico. So, we're very pleased by our international progress. We think we have very good runway, and the sales trends and profit trends that we have are contained in our annual guidance.

Just for perspective, Andy, every restaurant we continue to open in Brazil is over the $5 million AUV mark, so we're putting them up as fast as site availability appropriateness comes forward.

John Glass, Morgan Stanley.

Good morning. Are you willing to talk about specifics on -- in terms of pricing and traffic for the three big brands this quarter?

We would talk about, in general, John, on pricing and traffic, and happy to do that. We won't get into it on each particular brand. But to give you a sense of what it looked like for the quarter, we had 2.4% comps overall. The 60-day trading factor we talked -- 60 basis point trading factor we talked about gave us the trended 3-point comp. Traffic was up 3.4%. We had, like I talked about, we had some pricing, 1.4%, and then through promotions and product mix that did bring down guest check, so to get us to our 3% trended basis. And we did see good traffic growth in each of our brands. So, in aggregate we saw good traffic growth. At each of our brands we had good traffic growth.

That's very helpful. And then, last year in the third and fourth quarters, in particular the third quarter, you had very strong comps at Outback. Can you remind us, since you weren't public at the time, what was going on then? I think it was a steak giveaway, and there was the wood fire grill promotional tie-in. So, was that a disproportionately large amount of traffic? Was your traffic large and your comp then, and maybe thinking about how you cycle it this year, what kind of tactics do you think of using to overcome that year-over-year hurdle?

Sure. Hi, John. It's Liz. Last year in Q3, you're right, we had a very strong comp at Outback. We had a 6% comp last year. And that was reflective of the rollout of our wood fired grill cooking preparation. The first new cooking preparation in over 20 years at Outback, and we did support that with an innovative giveaway of the great steak giveaway. So, we had a very strong quarter that was very traffic-intensive, as well as we continue to take the 1% pricing mechanism, 1% to 2%, but primarily driving comp-store sales through traffic.

That philosophy continues into this year, as you just heard from Dave. And obviously, we knew that Q3 was a big quarter across the board to comp up against, and we planned our calendar accordingly. And we have a terrific program out there right now. The Outback four courses for $15, so we're continuing to use innovation, strong communication, and 360-degree messaging to drive traffic. It's the same playbook, but it's a new innovative program this year, which we feel really good about.

Thanks. And just lastly, labor productivity was extremely strong this quarter. I know it's been, if you look historically, it has also been, but the gains were greater than prior quarters. Was there a specific element to the labor productivity this quarter, something you implemented new for the first time that you saw greater gains, or was it just the leverage on the comp, I guess?

No. We continued to do comp gains, but also the labor scheduling piece in our restaurants helped us out quite a bit. So, between the productivity initiatives that Dirk Montgomery is leading, between labor scheduling, and some of our sales gains, I don't think we're going to see that kind of a big gain in labor year-over-year going forward. I do say that, but we do expect to see good, strong labor leverage as we do some of our very specific scheduling initiatives and other productivity initiatives in labor.

Okay. Thank you.

(Operator Instructions)

Mitch Speiser, Buckingham Research.

Great. Thanks very much. Can you discuss your LTO strategy at Outback, maybe in the context of how many LTOs you had in 2011? What that number is looking like in 2012, and do you expect to increase the number of LTOs going forward?

Yes, hi, this is Liz. We have our plan of five to seven LTOs per concept, and really that hasn't changed from 2011, and we'll repeat that this year in 2012. That is the right amount for us, both from a communications standpoint, an innovation standpoint, and an operations standpoint. So, you should see a continuation of that five to seven LTO strategy that's wrapped in a whole 360-degree marketing program. That is the right cadence for us across the brands, and seems to be the right cadence for us going forward as well.

Okay. Does the length of those promotions -- are they pretty much steady on a year-over-year basis as well?

Yes, they are. They are. They're pretty much steady on a year-over-year basis. Pretty much -- no more incremental.

Okay. Thanks.

And same amount of media weeks in Q3 on Outback's promotion as there was -- on Q2, on Outback's promotion as there was last year. So, it's a pretty steady cadence.

Okay. And on the comps guidance, is it safe to say that it's really traffic-driven with more pricing offset by lower mix, so the comp -- your comp kind of just primarily driven by traffic?

Hi, Mitch. It's Dave. Good to talk to you again. It is driven by traffic. And I want to stress to the question we got earlier, our guidance for the year is at least 3%, and we feel very good about our trends, so it is traffic. We feel great about our trends, and for our annual guidance.

Great. Thanks very much.

Yes.

Howard Penney, Hedgeye Risk Management.

Thanks very much. I have a couple questions, and maybe start with the bigger picture one, if I can. So, when do you see you getting to the 7% revenue growth?

Hi, Howard, how are you? It's at least 3% same-store sales growth, and then Howard, as we get going on accelerating our development, Liz talked about the 5% unit expansion, going forward we probably won't get all the way there in 2013, but beyond that we look in really, look in very good shape. And we talked about our growth drivers. We talked about Bonefish and Carrabba's being primarily part of -- regional parts of the US. And we talked about our international opportunities as well. So, we think we've got the runway to achieve that.

2014 is a regional -- a year that you think you can get to that?

Yes. We think that 2013 will certainly have a cycle up, and 2014 in that arena, in that area, will get to that level.

Okay. And then, you talked about analytical support around lunch. What is that? I assume the analysis of where you can have lunch and why you can have lunch and what you expect from lunch. Can you go through that for me?

Sure. It's Liz, Howard. We built an analytics team, a world-class analytics team down here that is a combination of what I'd call market research and data analytics. And so, when we evaluated the total lunch opportunity, we did it from a 360-degree perspective. So, we used analytics to determine exactly which of our stores had the customer base to support a Saturday lunch, a Sunday lunch, and a weekday lunch, and you can imagine that includes demographic analysis, foot traffic analysis, et cetera. We also used a lot of analytics in developing the menus to make sure that we had both the right mix of what people expected at Outback and Carrabba's, but also a reflection of how people eat differently at lunch. So, we spent a lot of time over the last two years getting the entire lunch equation right, before we rolled it out, both from a return on investment perspective, where they would be located, and what the optimal menu was to drive AUV.

Is there a big investment to get lunch?

No. No. Is there a big investment to get lunch?

There is some training upfront, but as far as capital, as far as incremental labor, as far as significant incremental labor, no, there's not. The lunch profitability is not as good as our dinner profitability, but it's better than our overall margins. And it's certainly better than leaving the box empty. So, we do have some training costs upfront, but we think that the flow-through going forward would be very favorable for our Company, and also from a comp standpoint.

Thank you for that, you just answered my next question. So, the margin at lunch is a little lower than dinner, but better than the overall?

Yes, sir.

Got you. And then, if you were to accomplish your cost savings by 2014, what does that equate to, to a percentage change in margin, by 2014? Where do you think -- where your margins are today, where they'll be by 2014?

Howard, we think, as we discussed on the road show, we think we have about a 300 basis point improvement opportunity in margins. And over the next few years, we'll be making -- versus our competition -- and over the next few years we'll be making progress on that each year, and we were pleased to see some margin improvement this quarter. So, we -- and if you think about it, we will have a movement to get to competitive margins over the next few years, and so we'll be pacing that through as we go forward, and productivity is a very, very big part of that. The other piece of our margin improvement, Howard, will be by having lunch in our equation.

Even though lunch is a lower-margin business?

It's higher than our overall margin.

Got it. You did say that, didn't you? Sorry, I wasn't privy to the road show data. So, if I was to look at that 300 basis points, is it primarily labor? Or is it food? Or -- and is that an EBIT margin? How do you break down that 300 basis points between labor, food, and supply chain?

It's an EBIT margin, and we think we've got opportunity in food, labor, the big two, like all restaurant companies do. We've got opportunity in overhead, and we've got opportunity in other restaurant costs. So, those are the areas that we will be attacking. We have leveraged our -- we've certainly leveraged our infrastructure that we have going forward. And we also will be -- so, we're leveraging infrastructure on our overhead. We'll be pursuing food cost initiatives; we'll be pursuing labor cost initiatives. And we'll be pursuing other restaurant costs, with the big two being the large part of our productivity increases.

I just want to say one thing -- on our road show, Howard, it was adjusted EBITDA margin, not EBIT. I apologize for that.

Adjusted EBITDA? Okay. So, just to go back again, you expect the bulk of it to be in your food and labor costs?

I'd say the majority of it, Howard, will come from -- a vast majority will come from food and labor, but we also have opportunities to leverage overhead. We also have opportunity to leverage other expenses.

There's a lot of productivity left across the supply chain.

Yes. So, there's costs you're taking out versus sales leverage, is what I'm reading.

You're getting both (multiple speakers). Yes, we're getting both. We're getting sales leverage and we're getting cost management opportunities. As Liz mentioned, it's not capital intensive, and it's things that other restaurant companies that you're familiar with have done in the past.

Right. Just lastly, and thank you for letting me ask these questions. When you hear a company talk about supply chain and food cost savings and whatnot, you often hear about changing specs or some of the initiatives that don't necessarily benefit the customer experience. So, can you give some examples of the food side, and how you are saving on the food cost without compromising the customer experience?

Yes.

And that, I promise, is my last question.

No. That's a great question. And I want you to know that is something we hold absolutely dear. So, we are not going to get to our productivity savings through quality reductions. In fact, I think you heard that we pulled $200 million out while improving quality and service. That is kind of a third rail for us. We're not going to be getting there by denigrating the quality of our food.

We were very early in the productivity journey. And so, we were able to do things, Howard, that other people have done, such as we were frankly buying our commodities separately across our concepts, okay? We were having slightly different specs. So, just from reducing the SKU, consolidating the purchases, bidding out the purchases, reducing food cost waste, introducing actual versus theoretical, these basic tools that have been out there in existence, we've taken advantage of, and we still continue to have a long runway forward. So, it is not going to come through spec denigration or anything like that. That is, as you know, one of our strengths in this category is that we are known for having high quality food at affordable prices. And we do not intend to mess with that equation.

Thank you.

Jeff Omohundro, Davenport & Company.

Thanks. Good morning, and congratulations on the completion of your IPO.

Thank you, Jeff.

My first question is a follow-up to Howard's on the 300 basis point margin goal. With a 10% expected beef inflation next year, do you see that being achieved linearly? Or do you see it coming in, in the out years a little bit more?

Yes. It will come -- each year, we have at least $50 million of opportunity. So, that's how we're looking at productivity each and every year, at least [building] $50 million worth of productivity. We think in that, about 50% of it will be from food cost management, 40% will be from labor cost management, and 10% will come from other operating costs or overhead. So, we look at it as $50 million a year opportunity year-after-year. As we mentioned earlier, if there are food cost inflation that is above our conservative assumption, we'll try and cycle that up rather than taking prices, but we think we've got a long runway there to achieve in our productivity targets.

Very good. My next question is, I think you mentioned that media spending in Q3 was pretty steady year-over-year. Just wondering, for the year, how the media spending looks. And how do you think about the components of your spending? For example, I see what looks like a pretty effective $15 four-course feast, that digital promo. How do you see the weighting between your digital efforts, and efforts such as national?

So, our media for the year is going to be pretty much commensurate with last year, with an increase on Carrabba's and an increase on Bonefish, but think of it as plus or minus in terms of the same amount of weeks on Outback. How we think about that, between national TV and other components is that on Carrabba's and on Outback, as you can imagine, given their footprint and their reach, a big part of the spending is on national advertising. But we absolutely have a large underpinning of in-store, digital, social -- I mean, one of the things that I'm most proud of the team is that Outback has been recognized as being a leader in casual dining in the use of social media and digital to expand on those marketing platforms. So, for those two, it's led primarily.

For Bonefish, it's the radio focus with digital underpinning that, and a lot of local marketing. And then of course, with Fleming's and Roy's, which is more targeted, you can use digital more. We don't do any national TV advertising. We use in-house lists, we use digital, and we use social media. So, each one is an important part of each brand, but the mix shift according to the demographic footprint of the brand.

Very good. Thanks so much.

Joe Buckley, Bank of America Merrill Lynch.

Thank you. I had just a couple quick ones, I think. The labor dollars of expense in this quarter were actually down a little bit year-over-year. I know you talked a little bit about it, but is there anything unusual behind the actual decline in dollars?

What we have, Joe, is when we talked about the productivity, but also we had, last year we had a payroll tax payment that we had to make one time of a relatively modest amount, but that also helped us from a dollar standpoint year-on-year. That was a one-time item. But overall, having said that, Joe, we still made significant -- had significant opportunity in labor management and how efficient we were in the restaurants. And we anticipate seeing that going forward.

Okay. And then, with the Saturday lunch program at Outback, is there a lunch menu involved as opposed to using the dinner menu like I think you did on the Sunday rollout?

Yes, there is, Joe. There's a fully developed separate lunch menu that is out there.

Okay. And then lastly, the CapEx guidance, $200 million to $220 million, I think skewed up a little bit from what we were expecting. So, could you talk about what's driving that?

I think it's been pretty much laid out, Joe. It's pretty consistent with what we've been talking about all along. I think it's going to be -- the $200 million to $220 million is probably the right range, probably closer to the bottom end of that range, Joe. But that's been pretty much what we've expected all along. There isn't really any acceleration in programs or anything like that out there.

Okay. Very good. Thank you.

At this time, I would like to turn the call back over to Liz Smith for any closing comments.

Thank you. In summary, we are excited to embark on this new phase in Bloomin' Brands' evolution as a public Company. We believe that we've put in place a strategic plan here at Bloomin' Brands that preserves the uniqueness of each of our founder-inspired brands, while ensuring that we continue to deliver the highest quality food and best overall guest experience in the industry. That's not going to change. While we believe that the casual dining and macroeconomic climate in general will continue to face challenges, and slower than desired recovery, we're confident that our plan serves as a solid foundation for strong performance this year, and more importantly, for long-term sustainable growth. So, we thank you all for joining us here today.

Thank you very much. Ladies and gentlemen, that will conclude the conference for today. We do thank you for your participation. You may now disconnect your lines at this time.