Bloomin' Brands Inc (BLMN) 2012 Q3 法說會逐字稿

Good morning. My name is Shira and I will be your conference Operator today. At this time, I would like to welcome everyone to the Bloomin' Brands third-quarter 2012 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer session.

(Operator Instructions)

I will now turn the conference over to Mr. Mark Seymour, Vice President of Investor Relations. Sir, you may begin.

Thank you, Operator. Good morning, everyone and thank you for joining us. With me on today's call are Liz Smith, our CEO and Chairman, and Dave Deno, Executive Vice President and CFO. By now you should have access to our third-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 income from operations, adjusted net income and adjusted diluted earnings per share. 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 earnings release and on our website as previously described.

Before we begin our formal remarks, I'd like 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 yesterday's 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, Liz will first provide a brief overview of key highlights for the quarter and discuss how we performed against some of our key strategic initiatives. Dave will then provide an overview of our third-quarter operating results. He will then wrap up with some facts related to other recent financial events and provide an update to our guidance for fiscal year 2012 and a little background for fiscal year 2013. Once we've completed our prepared remarks, we will open up the call for questions. With that, I would now like to turn the call over to Liz Smith.

Thanks, Mark, and welcome to everyone listing today. Before we get started, we understand the difficult circumstances many still face in the aftermath of Hurricane Sandy and we thank you for joining us today. I'm pleased to report another very good quarter for Bloomin' Brands. As you can see from yesterday's earnings release, our third-quarter results show continued strength and improvements in many of our key metrics. As a reminder, our public offering was completed in August, so this quarter's results bear the full cost of the IPO.

A few highlights from the third quarter include the following, third quarter adjusted diluted earnings per share increased to $0.08, compared to $0.02 for the same period in 2011. GAAP loss per diluted share was a loss of $0.31, compared to earnings of $0.01 per share for the third quarter of fiscal 2011. Our adjusted net income increased to $9.3 million, compared to $2.7 million for the same period in 2011. GAAP net loss for the quarter was $35.9 million versus net income of approximately $600,000 for the third quarter of 2011. Combined, comparable restaurant sales at our Company-owned domestic core concepts increased 3.6% as compared to the quarter ended September 30, 2011. Importantly, our traffic was up 2.5%.

The third quarter of 2012 represents 10 or more consecutive quarters of positive same-store sales growth for each of our core US brands and we continue to perform well above the industry average which, according to Knapp Track, was up 0.5% in Q3 for same-store sales and down 1.6% for traffic. Our total revenue increased 2.7% to nearly $953 million, compared to approximately $928 million for the quarter ended September 30, 2011. I'd like to frame these results in the context of our plan for sustainable growth.

As outlined in our last call, we have three primary strategies in our growth plan. First, to continue to grow comparable restaurant sales. Second, to presume new domestic and International development with strong unit level economics. And third, to increase our margins through continued productivity and increased fixed cost leverage as we grow comparable restaurant sales. With these strategies in mind, I'd like to expand a little on each.

First, I will touch on our comps because they really illustrate the story of how we have been succeeding at Bloomin' Brands. By concept, comp store sales for our Company owned, core domestic locations for the third quarter were as follows. Comp store sales were up 4.5% at Outback, driven by strong traffic performance relative to last year in the segment. This growth was achieved by additional launch rollout, enhanced marketing efforts and promotions, including our new Outback four course meal priced at $15. This LTO consisted of a soup, salad and a choice of six different entrees and a dessert and has performed very well, which was important for us given that we were up against The Great Aussie Steak Out and accompanying wood fire grill introduction in Q3 of 2011. We knew we were lapping a very tough comparison of 6% in Q3 201,1 which makes the 4.5% that much more impressive.

Carrabba's comps were up 1% for the quarter, driven primarily by an increase in per person check average. National promotional messaging included a price fix offer and several new Cucina Casuale menu options. This last promotion didn't turn out to be as compelling as we had hoped and, as a result, traffic was generally flat for the quarter. That said, Carrabba's still out paced the casual dining segment for the quarter.

Bonefish Grill comps were up 3.5%, driven by increases in traffic and our marketing efforts, including summer fresh catch and a lobster promotion that performed very well. The continued rollout of brunch also contributed to the increase. Fleming's comp were up 4.1% for the quarter, once again outperforming the high-end steak house dining segment. The comp sales increase was led by the summer loving steak and sangria price fix offer, which drove increased guest counts at a lower check average which was expected.

This quarter represents the 10th consecutive quarter of positive comp growth for Outback, the 11th consecutive positive quarter for Carrabba's and Fleming's, and the 12th consecutive quarter of growth for Bonefish Grill. From an industry comparison perspective, Outback, Carrabba's and Bonefish Grill have now out paced the Knapp Track casual dining index for at least 9 of the last 11 quarters, and Fleming's has exceeded the Knapp Track high-end steak house index for 10 of the last 11 quarters. This demonstrates how we are continuing to take share in a highly fragmented and competitive market and speaks to the drivers we have put in place to grow the right way, by driving increased traffic.

While the blended sales comp growth for our core domestic owned restaurant base was 3.6%, 2.5% of this growth was attributable to increased traffic. This reflects our commitment to provide superior brand value to our guests. We define this as a compelling 360-degree customer experience driven by menu innovation, attractive ambience and world-class service at affordable prices. We are committed to defining value through this customer lens that goes beyond price. In addition, we continue to make progress on a renovation program, completing 54 Outback remodels this quarter and 139 for the year through the end of September. We also made strides with respect to the second strategy of our growth plan, the pursuit of new domestic and International growth.

During the quarter we opened five new Bonefish Grill and two new Carrabba's restaurants. We have now opened 12 new domestic restaurants so far this year. When coupled with our current pipeline, this puts us on track to open a total of 21 new domestic locations this year. This will fall just short of our earlier projections of 24 for the year. Construction on these three Bonefish restaurants is essentially complete; however, we have decided to move their opening to January after the busy holiday season. Importantly, we continue to be on track for our long-term new restaurant development targets.

From an International perspective, we opened one restaurant in Hong Kong and one restaurant in South Korea during the quarter. This brings our total International new unit growth count to six for the nine months ended September 30. In addition, one new franchise location in Jakarta, Indonesia opened in Q3. At this pace and given our expectations for Q4, we expect to end the year with 12 new International Company-owned and joint venture restaurant openings, and 2 new franchise restaurants for a total of 14 openings, which is 3 more than we originally anticipated. So in total, although we are a little short on the domestic development, we will still hit the 35 restaurant opening mark that we planned for this year.

Speaking of our International business, our Brazilian joint venture continues to excel. The returns in this market have repeatedly out paced expectations and they are really a model for how we want our International operations to perform, especially those in the rest of Latin America. We have 36 restaurants that generated over $230 million in sales during the 12 months ended September 30, 2012. We intend to grow Brazil very rapidly and it will provide a strong base for our Latin American operations. Dave and I will be in Brazil next week and will share any additional perspectives with you on our next call.

With respect to our third major strategy, productivity, and increased fixed cost leverage, we continue to make good progress. Our goal for the year is $50 million in productivity savings and, through the third quarter of 2012, we estimate the savings from these initiatives was approximately $47 million. This leaves us just $3 million shy of our 2012 full-year goal with one quarter remaining. We feel very good about our ability to meet or beat this goal by the end of the year.

Based on what we've seen so far, the lion share of the savings, or about 50%, have come on the cost of sales line. The second largest category is labor at around 30%. And other restaurant operating expenses follow at approximately 20% of the overall savings. We will continue to aim for $50 million a year in savings for 2013 and 2014.

I'd also like to point out that on October 26 we wrapped up the refinancing of our senior secured credit facility. To put this properly in perspective, completing this refinancing means that, since the beginning of 2012, we have now successfully either refinanced or retired all of our significant debt obligations. When coupled with our IPO, we have completely revamped our entire capital structure in the span of seven months.

As part of this effort, we removed over $530 million of debt from our balance sheet and received a meaningful ratings upgrade from Standard and Poor's. In addition, we extended the maturities on all of our long-term debt instruments to 2017 and beyond. My thanks to all of the team members at Bloomin' Brands and our external partners who assisted in this major accomplishment.

Finally, I'd like to wrap up by highlighting some awards that we recently received and people news that I'm proud to share. First, the annual Zagat ratings for 2012 just came out, and once again our concepts rated highly. Outback was ranked number one in the full-service category for best steak for the fourth year in a row. And Carrabba's took number one for top overall cuisine in the full-service Italian category.

Also, Nations Restaurant News announced in July that John Cooper, our President of Bonefish Grill, was selected as one of five recipients of the 2012 Golden Chain Awards. This award annually honors a few multi-unit food service executives that have made market strides in the improvement of their business' overall performance. In addition to the Golden Chain recognition, John was then selected from these five and recognized as operator of the year for 2012 at the annual must sell awards banquet on October 1. This honor reflects John's strong leadership and the world-class team he has built at Bonefish Grill.

Now I would like to turn the call over to Dave Deno to provide more detail on our third-quarter operating results. Dave?

Thank you, Liz, and good morning, everybody. I will first take a few minutes to walk through our sales and profit performance for the quarter and will then speak to a number of other areas of interest. Please remember that when I refer to net income and EPS, I will be referring to adjusted numbers that exclude transaction related costs such as those related to our IPO and debt refinancing. Please see our press release for reconciliations between our adjusted metrics and their most directly comparable GAAP measures.

Liz has already gone through comps by brand, so I will start with revenues. Total revenues increased 2.7% to $953 million versus $928 million in Q3 of 2011. The increase in restaurant sales was primarily attributable to a 3.6% increase in blended domestic comparable restaurant sales at our core concepts, modest menu price increases, and new restaurant openings.

The increase in comps was offset by the following, first, in October 2011, we sold our Japanese business which consisted of nine restaurants. This had an approximately 80 basis point impact on our revenue growth. Second, we experienced negative sales comps in Korea in the quarter. We were lapping a wildly successful promotion and 27% comp growth in the third quarter of 2011. On a two-year basis, our third quarter Korean comps are approximately 16%, which is still very strong. The drag in our comps is getting behind us and we expect to see continued success in the Korean market. Restaurant operating margins were 13.5% versus 13.7% a year ago. We are pleased with our overall progress in restaurant margins. We would have seen margins increased to 14.2% for the quarter, were up 70 basis point, if not for an anomaly in our deferred comp plans for our restaurant managing partners and I'll talk about more than that in just a minute.

Let's walk through each line item impacting restaurant margins. Cost of sales increased slightly to 32.8% of restaurant sales for the quarter, from 32.7% of restaurant sales for the same quarter in 2011. The increase was driven primarily by increases in beef and by changes in our liquor, beer and wine mix and product mix. This increase was mostly offset by productivity initiatives and modest menu price increases. Liz laid out the terrific progress we are making on productivity.

Labor and other related expenses as a percentage of restaurant sales increased 10 basis points for the quarter of 2012, as compared to the same period in 2011. Improved restaurant productivity and AUV leveraging helped to offset additional expense driven by our deferred comp expenses for our partner programs and some back of house labor inflation. With respect to the unfavorable deferred comp expense, our partner equity plan and deferred compensation programs are backed by accounts that are tied to stock market activity. When the market goes up, expense increases and vice versa. Q3 of last year saw a significant market decline, whereas we had an improved market this year. In all, this led to approximately 70 basis points of unfavorable labor expense this quarter.

Without this lift in the stock market, we would of seen meaningful improvement in restaurant operating margin this quarter. It is also worth noting that the investments that serve to hedge the partner equity in deferred comp accounts. The losses or gains on these assets are part of our G&A line. Thus, while the program did degrade our restaurant operating margins, it nets, for the most part, on the bottom line. Also, in the labor line, the unfavorability for back of house labor was associated with training tied to the rollout of brunch at Bonefish Grill and lunch at Outback, and that was no surprise. We do not expect these to be ongoing costs.

Restaurant operating expenses for the quarter reflect to the prior year with increases in pre-opening expenses and incremental rent to the recent sale lease back offset by productivity improvements. Adjusted general administrative costs were $64.7 million versus $74.4 million a year ago. This was a 13% decrease in overhead expenses versus Q3 of last year. The decrease in adjusted G&A expense was mainly driven by increases in the partner equity plan and deferred compensation investments, as mentioned before, and a gain on the settlement of a lawsuit related to one of our restaurant properties.

On a GAAP basis, G&A increased to $111.6 million from $76.9 million in the third quarter of last year. Included in the total GAAP G&A was approximately $47 million of IPO related costs, a fee for the termination of our management agreement, and transaction costs associated with our debt refinancing. These are all non-recurring costs and came in as expected. Our effective income tax rate was 18.8% for the quarter, compared to 14.6% for the quarter ended September 30, 2011. Adjusted net income was $9.3 million versus $2.71 for the third quarter of 2011. This figure for Q3 2012 includes $2 million of expense timing favorably that will reverse in Q4. Adjusted earnings per diluted share was $0.08 versus $0.02 for the same quarter of 2011.

As Liz mentioned earlier, this has been a very busy quarter from a capital structure standpoint. Our IPO was closed on August 13 in which 16 million shares of our common stock were sold to the public. On September 7, our underwriters exercised the over allotment to purchase an additional 2.4 million shares at the IPO price. On October 26, we completed the refinancing of our senior secured credit facilities. We replaced our $1.3 billion term loan B, which had $1 billion outstanding at close, with a new term loan B. In addition, we replaced $150 million working capital and $100 million pre-funded revolvers with a single $225 million revolver.

The term loan was fully drawn at close, matures in 2019, seven years from now, and bears interest at rates ranging from 225 to 250 basis points over base rate with the floor of 225 basis points, or 325 to 350 basis points over a year currency rate with a floor of 125 basis points. The revolver had $45 million drawn at close and back stopped approximately $66 million in credit. If bears interest rates ranging from 200 to 250 basis points over the base rate, or 300 to 350 basis points over the euro currency rate and matures five years from now in 2017. The new interest rates are higher than our previous facilities, so we can expect to see additional pre-tax cash interest expense of approximately $21.5 million given the current balances outstanding. That said, we were pleased with the outcome of this transaction and the fact that, due to strong demand, it priced tighter than where it had been launched.

For additional background on this transaction, please review our press release dated October 29, 2012, or the 8-K we filed with the Securities and Exchange Commission on October 31, 2012. In addition, I would like to remind everyone that we paid off $248 million of 10% interest notes using the proceeds from the IPO. The payoff of the 10% notes, along with the new credit facility, is part of our long-term plan and is incorporated in our long-term financial goals.

Now that we have successfully revamped our entire capital structure, we can turn our focus to other areas of the business. As part of the refinancing process, our ratings were placed under review by both Moody's and S&P. S&P upgraded our corporate credit rating from B to B plus. Moody's will report the results of their review shortly and we expect good news. Our goal is to continue to drive toward investment-grade and these steps demonstrate positive progress on that path.

Now let's turn to commodities. As everyone is probably aware, commodities in general continued to be a mixed bag with some categories favorable, such as seafood and dairy, while other areas had represented headwinds, such as beef and chicken. At this point, we are contracted on approximately 96% of our remaining buys for 2012.

We believe that when the year closes out, full 2012 commodity inflation will come in roughly at 4%, which is consistent with the range that we previously communicated. We continue to be very pleased with our management of commodity costs this year and going forward.

Now let's discuss what you can expect to see for the rest of the year. As mentioned in our earnings release, we raised our outlook for 2012 based on the results of our third quarter and our expectations for the fourth. We believe that we will end the year with blended domestic comparable restaurant sales growth in excess of 3% and will see an increase in total Company revenue of approximate 4% to nearly $4 billion. Our comp sales continue to consistently outperform the industry and our expectations for the fourth quarter are no different.

We are raising adjusted operating income from at least $229 million to at least $239 million, adjusted net income from at least $105 million to at least $110 million, and adjusted per diluted share from at least $0.91 to at least $0.95. Included in this guidance is approximately $2 million to $3 million of additional interest expense associated with the very favorable debt refinancing we just completed ahead of schedule and approximately $1 million to $2 million of the aforementioned expense timings on favorability in the third quarter. We are not feeling notably different about the fourth quarter than we were the last time we talked to you with the exception of the two discrete items mentioned above in our P&L.

Now turning to capital spending. We were estimating the full 2012 capital expenditures would come in between $200 million and $220 million. Our latest review indicates that capital spending will probably come closer to the low end of the range. As mentioned earlier, we pushed back a few restaurant openings to January. In addition, we continue to do a very good job of managing our capital projects. As previously noted, our policy is to provide annual guidance in conjunction with our fourth-quarter earnings release for the following year expectations.

With that said, we do want to provide you with some type line guidance regarding 2013 expectations. First, from a same-store sales comp perspective, we anticipate full-year same-store sales comparisons of at least 3% driven by continued menu and promotional innovations. From a total company revenue standpoint, we expect of it at least 5% increase in revenue to approximately $4.2 billion. This will primarily be driven by new unit openings, the continued rollout of the lunch day part and the previously mentioned same-store sales guidance of at least 3%. We will continue to make progress on our objective of achieving at least 7% revenue growth as we focus on opening more restaurants and building our new unit pipeline.

As 2013 comes more sharply into focus, we are reiterating our belief that our full-year 2013 commodity inflation will come in roughly to the 3% to 5% range. All of the above is part of our long-term goal of at least 3% in same-store sales comps, at least 7% in total revenues, at least 13% growth in operating income, and at least 20% in net income. These goals were presented at a recent brand conference and the related deck was filed with the SEC in an 8-K on October 11. In summary, we are very pleased with the results for the third quarter. With favorable operating results, progress in key strategic areas and the finalization of our capital structure, we consider it a very productive quarter. We look forward to talking to you after the new year when we report our 2012 results.

And with that, we will open up the phone lines for questions and Liz has some closing remarks when our question segment is complete. Operator?

(Operator Instructions)

John Glass.

First, Liz, maybe you could talk about the traffic specifically at Outback. I know you said that traffic was positive during the quarter for them, maybe if you could be more specific. And how much of that came from the four for $15, how much of that came from lunch? It seems like those were two discrete items that you might be able to tease out.

John, as we talked about last time, we don't want to get in the habit of parsing down the traffic into occasion promotion, that's level of granularity that, as you can understand, as promotions and advertising timing will vary over time so we don't intend to provide that level of detail. I will tell you that the performance obviously of Outback in Q3 at 4.5% was strong across all of the 360-degree elements, the rollout of lunch, as you pointed out the successful four course promotion, everything went very nicely. And as you know, we were up against a 6% comp so I think strength across all elements is what drove the 4.5%.

Would you be able to say was there one element, without quantifying it, that had a disproportionate impact though? For example, was the four for $15 the dominant driver versus lunch or were they all sort of equal contributors?

Yes, I would say that they all came in very nicely. So they were all contributors. It wasn't one dominant and two that I'm just throwing in for color. They all performed very well, the promotion lunch, the remodels, let's not forget the continued ongoing rollout of the remodels. We shared with you the fact that we attacked these brands from a 360-degree angle and insist on innovation across all elements and really that's been the key to the Outback story.

And just one more. Dave, for you, the [pep] in the deferred comp, it is all bringing back old memories now and I'm just wondering is this a unique quarter because of the IPO and there was some mark-to-market going on of your own stock? Or is this the way it is going to be that there's going to be fluctuations in investment accounts and we just have to expect that we're going to see a plus and minus in the labor line most orders and that is going to get offset in G&A?

John, there's nothing unique about the IPO. We've got the investment laid out. You are going to see it from time to time to market through the restaurant labor line in the P&L and you'll see the corresponding offset in overhead. It is, frankly, P&L geographies according to GAAP. We've got it well-managed.

Got you. All right, thank you.

Michael Kelter, Goldman Sachs.

As it relates to 3% to 5% cost inflation in '13, can you talk about your willingness to take price in the current environment of soft industry traffic and to what extent you might absorb some of that into your P&L as opposed to pass it on?

Yes, first of all, as Liz mentioned before, we have a lot of productivity opportunity and it has been very successful this year and we just finished a management offsite where we identified a very good pipeline for productivity initiatives for the next couple years and going forward. So our plan with that is to continue our focus on modest price increases, around 1% to 2%, probably closer to 2%, and also productivity offsetting that and, of course, traffic growth. That has been a play book that has worked very well for us the last two years and we continue to take that -- we will be making that play book happen going forward.

Then on a different point, can you talk about your approach to free cash flow deployment as a public company? It seems like you'll have enough beyond growth CapEx and remodel CapEx driven to eventually introduce a dividend or start buying back stock. I was hoping you could talk about that in the context of your prepared remarks where you talked about working towards investment-grade.

Yes, sure. We are in the very good position now of having our capital structure tied up for five to seven years. So that gives us a lot of flexibility and if you look at our free cash flow after capital spending, it is pretty substantial. So now we will be looking at reducing our debt and as we make more progress on our leverage ratios, we will begin to think about when the time is right to take a look at can we return some money to shareholders versus dividends and share repurchases. It is early days for that. We are not prepared to have that discussion yet, but as we continue to make progress in reducing our debt, I think that is something we can revisit in the years ahead as we look at the performance of our company.

Lastly, maybe one quick one. The G&A in the quarter around $65 million was lower than you had previously talked about and that sounds like that was from the offset from the deferred comp hit in the labor line. I was running through some math, it looks like it was running, ex that adjustment, $70 million to $72 million, which is in line with the run rate for the first half of the year, is that the number we should be thinking about for the fourth quarter, $70 million, $72 million, or are there things we should be considering?

Also running through the G&A line, as I said in my script, was the small gain from the settlement of a lawsuit related to a piece of property that we were involved with. That also helped out there. But I'm not going to get into fourth-quarter quarterly guidance on G&A. That's something we typically don't do.

But just know overall, we are very committed, as we talked about in our road show and in our prior call in September, that G&A management overhead -- management of that overhead is a big focus for us. As we continue to go forward as a company, it is a line we will be looking at managing very carefully because we have the infrastructure in place to grow this business and continue to make things happen for our company going forward. So it's a chance now to manage our overhead.

Thank you very much, guys.

You're welcome.

Thanks, Michael.

Andy Barish, Jefferies.

One quick clarification. I missed the quantification of the interest expense increased number that you said in the prepared remarks and I'm assuming that's an annualized number?

Yes, Andy, it is an annualized number and I'd also -- if you look at things, know that we've got the 10% pay off of the notes that have happened and we also have some good opportunity for us to take a look at what the cash flow management opportunities. So I mentioned in the remarks, Andy, it was $21.5 million on an annualized basis and I think we've got some opportunities to continue to manage our cash flow to help mitigate that, but that's how we feel about the number right now.

Okay, thanks. And then can you just give us your thoughts, I assume you are not baking in much, if any, change to kind of the big picture sector transfer '13 and just kind of -- a little bit of your visibility on the promotional line up for 2013. Are there any shifts in balance of value versus premium or marketing weights or anything like that just to give us a little color on your confidence for next year's comp numbers?

Hi, Andy. As we've been talking about and dialoguing with you guys, we see 2013 continuing for the CDR industry to have some challenging macro trends. So I think we've said all along that our near to medium term outlook is for flat and that will fluctuate into positive some, negative some others. We definitely continue to see it being a share game in the casual dining industry. As a result, we have a play book that says continuous innovation fueled by that continuous productivity. It served us very well over the last three years and in 2013, we will continue that thought of providing menu innovation, ambience, successful promotions, occasion expansion, that's been a very successful play book for us.

It makes sure that we keep all elements of the 360-degree experience sharp at each of our four core domestic concepts and so we're just going to continue to execute that play book. That demands continuous innovation so that thought of always having something to surprise and delight the customer is key. For those reasons, I don't want to get more granular on our 2013 results for competitive reasons, but we anticipate that the macros are going to continue.

Andy, it is Dave. I'd also like to add, as you've seen with our Outback business, we continue to upgrade and remodel our restaurants. That is providing a nice lift. We have the same opportunity at Carrabba's, we are testing 11 restaurants right now, getting ready to roll that through. As we talked about earlier in the call, we have our balance sheet lined up now. We've got our debt facility lined up, we've got free cash flow. So we've got the resource to continue the programs that we need to put in place.

As we've talked, the only other thing I would throw in as well is the continued occasion expansion, the thoughtful, paced rollout of lunch during the weekday where it make sense on Outback and Carrabba's. I think we have, to the extent possible in this environment, a pretty good line of sight into our 2013 levers.

Thank you very much.

Jason West, Deutsche Bank.

Dave, can you quantify the lawsuit gain for the quarter?

Yes, it was around $3 million. A little bit more than, that but around $3 million.

Okay, great. And can you guys give us a little more color on how the lunch on Saturday rolled out through this year? I've seen some press releases recently that talk about it was now fully rolled out. I don't know if you had that fully rolled out throughout the full third quarter or any color on how that paced as that rolled?

Hi, Jason, so for Saturday and Sunday lunch at both Outback and Carrabba's, we are fully rolled out for Saturday and Sunday, but the end of Q2 we were pretty much fully rolled out as well with the last piece being Saturday lunch at Outback. So Saturday and Sunday are fully rolled out and performing well at our expectations.

Okay. Perfect. And then just one other on the commodity outlook. If you guys have any color on beef, if you've done any hedging there, contracts or the overall basket if you can talk about that at all?

We have a strategy that's worked very well for us and that's to make appropriate long-term buys on beef when it is appropriate and then continue to play in the market in the short-term basis when it is appropriate. I think for competitive reasons, we won't go beyond that as to when we buy long and when we buy short and those kind of things, but it is very, very good that we have that in there. Now for next year we expect as part of the 3% to 5% increase in commodity costs, we are looking at beef between 10% and 12% next year. Offsetting that, of course, is the very favorable seafood market.

Okay. Makes since. Thanks.

Jeff Farmer, Wells Fargo.

Just based on your experience, the Sunday lunch units have been open the longest, how many quarters of build out do you see before these things essentially hit what you call longer term run rate on volumes? So meaning that taking this to August and the lunch introduction in August, on Saturday, how many quarters are we away from those units sort of reaching a full run rate on the volume contribution from that lunch business?

Yes, it takes, as you said, a ramp up and what we are seeing and thinking is four quarters. As you hopefully noticed, in the third quarter, we started recently tagging our advertising on Outback, announcing that we're open for weekend lunch. So first you get it all rolled out, then you go on air with some messaging and so we are anticipating kind of that figure, four quarters equals a little bit of maturity run rate.

Okay, and then taking another stab at going back to John Glass' question earlier, just trying to understand what actually happened in intra quarter. When you guys reported in early September, the industry was just beginning to soften fairly materially so the bar was definitely falling, but with the introduction of lunch in August, just again in terms of what -- any detail you can provide would be helpful in terms of looking at July, August and September. Did the same store sales in the quarter materially pick up after the lunch introduction, is that fair to say?

Yes, so we do not want to get into a discussion of monthly comps because we don't think it helps explain how the business is doing. We look at the three-month cut and we also don't want to cherry pick months and say -- so for example, as you pointed out, in September, we were reporting our Q2 comps of 2.4% and we had line of sight at that point that July and August were going to be -- were already better than that, but we chose not to discuss it.

So for us, we do feel confident that we have line of sight into the levers that contribute to that, at least, 3% or in excess of 3% comp store sales growth. And what I would say to you is that those levers and those pathways, which we've talked about which are the occasion expansion, the remodels, the innovation and promotion, those continue to deliver for us and don't become a month-to-month story but a brand building story and that's what we've seen and that's really how it has played out. There's been nothing that we've seen, as I think Dave said, that has changed our feeling on that for the balance of the year. So that's the Bloomin' Brands play book and it continues to be executing well.

I just want to add something if I may. Those of you that know me know that I've had the privilege of being in the restaurant business a long time and having levers to grow comp sales is really important and we've got a lot. You look at lunch, you look at menu innovation, you look at what we're doing on remodels. All these things are coming together to drive above sector performance and we continue to press those levers going forward. So that's the reason for our continued success.

Okay, and then just to be clear, it looks like from media wave perspective, Q3 '12 versus Q3 '11, that was fairly even year-over-year, is that fair to say?

Yes, fairly even. There was 12 weeks of media on Outback in 2011, 12 weeks of media for Outback in 2012. That's where we spend the bulk of our media.

Okay. Thank you.

John Ivankoe, JPMorgan.

Thanks. Can I get back to the interest expense for a couple minutes? On your $21.5 million, that's a big number relative to your share count as you know so what interest expense base are you using in 2012 just so I make sure I have the right numbers?

We will be up slightly -- in 2012 we will be at 80 -- sorry, just a second, we'll be at $86 million. So we expect to be up modestly in 2013 but we will have much more detail on that in our guidance for the full-year.

This is what I might be missing. Are you not up $21.5 million in '13; did I misunderstand that?

You've got -- we have interest expense payoff, don't forget, for the $248 million notes

Which is the point of my question. I don't want to misinterpret that as just when we look interest expense in 2013, what you are saying is that we're only going to be up slightly versus 2012?

Correct.

Okay. All right, so one piece of the interest is up $21.5 million and it's offset by, to your point, bonds that are coming off?

Correct. In my prepared remarks you heard that there was the interest expense increase offset by the bonds that we paid off, and also we will make some progress in our debt pay down in the upcoming year. So our interest expense will be up modestly year-on-year.

Okay, great. Thank you for much of that. Secondly, on the unit growth side as we look into 2013, 3% comp, I think 5% revenue. Just as we look into the pipeline in 2013, what's the ramp in unit openings going to be? At what point, what year and maybe it is 2014, do you think you can really begin to materially take-up the unit growth if it is not quite happening in 2013, at least according to these numbers. Thanks.

Sure, John. Thanks. We will be giving more firm guidance on the 2013 outlook obviously with our planned discussion in Q1. The revenue growth is at least 5%. Next year we will provide some more guidance on what our opening plan looks like, but you will see an increase in new unit development next year and I think by 2014 we will be at that at least 7% number that we've talked about in other meetings and conferences. So we are making very, very good progress in our new unit development and I think we will take a real close look at that revenue number as we provide '13 guidance in February.

Thank you very much.

I would just add that as you know, John, we talk about the fact that we built an infrastructure to support at least 5% new unit openings, which is 70% to 90% run rate. And as Dave said, we are making measurable strides ramping up to that and 2013 will be measurable strides.

I also want to add, the reason why we feel that way is because the returns for our new restaurants, especially our Bonefish restaurants, are very good. So on that, we've talked about the before and that continues.

Understood. Thank you.

Sharon Zackfia, William Blair.

Hi, good morning. I just wanted to elaborate on the last question. As you are starting to accelerate the growth with the expansion, what are you learning, what's working, what's not working? Because you had been on hiatus for a while so maybe it would be a very interesting dynamic to talk about.

Yes, hi. Let's talk about -- I will focus on Bonefish because and then I will give a little color on the two Carrabba's that we opened. For Bonefish, the good news is that as we expand this, the concept is playing across all geographies. So we are building in Georgia, in North Carolina, Texas, Pennsylvania, Nevada, Florida, New York, you get the picture, California, Connecticut. And what we are finding, reassuringly, is that the concept has legs across all of these different markets and it is performing extremely well. So our basket of openings this year for 2012 is outperforming our expectations and continues to go strong.

What we're finding is that this brand has relevance outside of the typical, what people call, seafood markets. It is just a wonderful dining experience. We continue to see a very vibrant crowd. We continue to see a strong liquor mix. The Bloomin' Brands as a Bonefish concept is playing very well geographically and broadly. We are now opening with brunch in the new ones and that's going well as well.

On the Carrabba's front, we've opened one in New Jersey and we've opened one in Georgia. So again, we are taking this Zagat's rated number one full-service Italian concept to two very different markets and it continues to get very high customer scores on food quality and service. So that also is really resonating. So both of these concepts are travelling outside their core geographies and performing very well.

Okay, perfect. Thank you.

(Operator Instructions)

Jeff Omohundro, Davenport and Company.

Thanks, just a question on Carrabba's. Given the comp in the quarter and the recent trending comps there and acknowledging that it is outperforming the sector. I was wondering if you could maybe talk more specifically about the levers you have to drive comps in a sector that seems to be getting a bit more promotional, a bit more price driven, more buy one get one activity and mid scale casual. Perhaps you could elaborate a little bit on the comp strategy going forward? Thanks.

Sure. So let me talk about the Italian sector to begin with and I'm just going to look at the -- if you look at the [MPB crest] data, which is always a month behind, so I think this is for July, June, July and August, the most recently available. The Italian sector is actually performing pretty well relative to the different components of the CDR industry. So I think it is only behind in terms of traffic performance, steak and pizza. So we see that the Italian segment is performing well and there is no secular issues but as you said, there's a lot of competition. The key thing to remember though is there's absolutely a lot of competition but there's also tremendous fragmentation, which also allows the strong brands to get stronger.

And on Carrabba's, here's where we are in the Carrabba's kind of revitalization lifecycle. We've made some really good progress on what I'd call the menu and we've always had top-tier service and more impactful promotions and we've enjoyed growth from that. We've also made a lot of progress on value and affordability. But we still have some work in front of us that we are ongoing. So when you think about the Bloomin' Brands play book on Outback, we are a couple cycles behind that on Carrabba's.

We have, as you know, our remodels in 11 markets. They are doing really well, 11 stores, they are doing really well. We have to finish the read and then it is our intention to roll those remodels out, think of it as kind of a one third, one third, one third starting in 2013 across, but so far it looks very good on the upgrade and the ambience. We also have continued work that we are doing on the menu so we've made great progress and great strides. We continue to believe that there's opportunity to broaden the appeal of our menu to continue to make it more affordable and lighter. We are optimizing our lunch and so that's another lever for us.

For Carrabba's, it starts as a very strong brand in a category that is holding up and doing well in the context of casual dining, and then it is about the levers that we have to continue to work on in front of us. It is the ambience, which hasn't been rolled out, it is the continued menu integration and it is the optimization of lunch. So we still have some work to do in front of us but as you pointed out, we are outperforming [Knapp] but we still have some levers to go on Carrabba's.

And then another question, really housekeeping matter I suppose. In the guidance and the shift in unit development, domestic, International, is there an embedded shift in pre-opening associated with that?

No, because, as we mentioned, we had everything set to go and we will be opening them at our Bonefish restaurants very early January so the expenses are there. We have everybody trained. It's the training, as you know, to open up the restaurants and everything, that's all happening. So it is just a matter of timing of the restaurant openings.

So the bulk of the pre-opening still hits Q4?

Correct.

Okay, thank you very much.

Bryan Elliott, Raymond James.

Hi, Bryan.

A couple questions. Liz, the industry landscape obviously is pretty hazy and seems to be trending downward and taxes are uncertain and a lot of risks to demand in '13. You're very confident about the absolute number of 3% in the context of a shrinking casual dining market of magnitude. Do you still think you can get to that kind of a number i.e., really widen the rate of your market share gains significantly?

Yes. Bryan, as you pointed out and I think you said hazy and I think that's the right term, I would also use the term choppy, none of us have a crystal ball, we think it is going to be continued as we said a challenging macro. And it is going to be plus or minus on the month on the quarter so we don't want to give any impression that we think there's going to be a market change in the consumer sentiment or the CDR industry.

I would go back -- so we anticipate that we, like everybody else, will be facing those headwinds. I'm going to go back to what we can control and focus on. And that's three things, that's really continuing to provide best in class innovation and service. And there's no question that in this industry consumers want and demand innovation and increased service. I think the whole industry has stepped up its game in response to -- so I think you are seeing a lot more innovation and promotion and we welcome that. It is good for the industry, it is ultimately good for the consumer, but we know we've got to continue to raise the bar every year on the continuous innovation and continuous productivity front.

The second area for us is, as we talked about on the long call, is lunch. We have been a portfolio that has not fully participated in the $24 billion lunch segment and these are brands that have extremely strong consumer ratings and consumer appeal and so when we bring them to the lunch format, we are getting positive results. And we will act appropriately and prudently as we roll out weekday lunch because, as I said on the last call, it is not appropriate everywhere. It is not -- we are estimating 40% to 50% of the fleet, but that will continue to be something that we will roll out.

The other piece is that we will benefit across the portfolio of continued upgrades in our ambience. We have the next wave of Outback remodels coming into '13 which will essentially complete the program, but that's a significant trunk and I think you know we've been seeing 3% traffic lift on a sustained basis as we -- that's holding up as we are finishing out our second year of the program this year. And then we have the remodel work in front of us on Carrabba's. Carrabba's has wonderful food and service and does really well, but as you've seen in a lot of the stores, they are in need of contemporization and much the same way Outback was.

On the Bonefish front, we just need to make sure we continue to deliver that vibrant, appealing experience that is Bonefish. And what I would say along with that line is that our ongoing focus on every six to eight weeks, news and fresh fish in the store and building on the excitement and leveraging that on the radio, and nailing brunch, those are things that are incumbent upon us to execute and within our control.

So you're absolutely right, nobody has a crystal ball, but I have a lot of confidence in the brands and more importantly, I have a lot of confidence in the team to kind of do what we need to do. That being said, we cannot control the macroeconomic environment and we will certainly be facing headwinds like everybody else.

Very helpful. Thank you.

I would now like to turn the call over to Ms. Smith for closing remarks.

Thank you. In conclusion, we are very pleased with our results for the third quarter. They demonstrate that by focusing on our strategic plan and our goal of putting the customer at the center of every decision we make, we can continue to make solid progress towards sustainable growth. We thank you all again to everyone for joining us today, and for your continued support of Bloomin' Brands. Thanks.

This concludes today's conference call. You may now disconnect.