Bloomin' Brands Inc (BLMN) 2012 Q4 法說會逐字稿

Good morning. My name is Keisha and I will be your conference operator today. At this time, I would like to welcome everyone to the Bloomin' Brands Q4 2012 earnings 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)

Thank you. Mr. Mark Seymour, Vice President of Investor Relations, you may begin your conference.

Thanks Keisha.

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

During today's call, we will provide a brief assessment of the business, including performance for the fourth quarter and fiscal 2012, an overview of key highlights and discussion regarding how we performed against some of our key strategic objectives, and finally, guidance for fiscal year 2013. Once we've completed these remarks, we will open up the call for questions.

With that, I'd now like to turn the call over to Liz Smith. Liz?

Thanks, Mark and welcome to everyone listening today.

I'm pleased to report another very strong quarter and exceptional year for Bloomin' Brands. As you can see from yesterday's earnings release, our fourth quarter and fiscal 2012 results show continued strength in improvement in many of our key metrics. I will take a moment to discuss some of the highlights for the full year and Dave will take you through the fourth quarter details.

Our fiscal year 2012 highlights included an increase in full-year adjusted diluted earnings per share to $0.99 compared to $0.81 for 2011. GAAP diluted earnings per share for the year was $0.44 versus $0.94 for 2011. An increase in adjusted net income to $114 million compared to $86.5 million last year. GAAP net income for the year was $50 million versus $100 million for 2011. Combined comparable restaurant sales growth at our Company-owned domestic core concepts was 3.7%, and importantly traffic was up 2.7% for the full year.

We continue to perform well above the industry average, which according to Knapp Track, saw same-store sales up 0.6% in 2012 and traffic down 1.5%. Finally, an increase in total revenues for the full-year 2012, up 3.8% to approximately $4 billion compared to approximately $3.8 billion for 2011. Excluding the sale of Japan in 2011, the increase in total revenues would have been 4.5%.

Before we share details on our performance by brand, I think it's helpful as a backdrop to begin with our thoughts surrounding the macro environment, consumer sentiment, and how we view the casual dining industry. So let's take it in that order. First, with respect to the macro environment and consumer sentiment, there continues to be both positive and negative signs. While we've put the fiscal cliff somewhat behind us, there are still some lingering political issues, such as sequestration, that we believe are creating uncertainty in the marketplace. Housing indicators are showing signs of improvement, but gas prices now seem to be rising.

In addition, the payroll tax increase and inflation in other categories represent real headwinds for consumer disposable income. As a result, consumer confidence has been trending downward. We think that in this environment, value and innovation will remain the consumer's primary focus.

As for the casual dining segment, we are approaching 2013 with a bit more caution than we did in 2012. Overall, we believe that index comparisons for the industry such as Knapp and Black Box will continue to move along in a choppy manner and the traffic for the industry on the whole will end the year down between 1 and 2 points. We also believe that you'll see the larger chains continue to leverage this scale through marketing purchasing and innovation and thus, take additional share at the expense of the smaller chains and independents.

I know there been a lot of comments recently of enhanced pricing competition in the segment and we've received many questions about how we intend to react. As you know, we've been operating in a highly competitive environment for some time. We have seen some uptick in promotional activity but dealing is not new in the space. So I would like to take a step back and reiterate the Bloomin' Brands philosophy on driving superior total brand value.

In 2013, the consumer will remain focused on value. But in our minds, value is not solely determined by price. We view the value equation as the entire 360-degree experience divided by price. This experience consists of multiple consumer touch points including menu offerings and food quality, promotional efforts, customer service and ambience.

Our number one goal is to continuously innovate around these touch points in order to provide the most compelling experience possible with an affordable and attractive offering. We've engineered our menu to include price points that satisfy the spectrum of customers out there. What we won't do is denigrate our brands through extreme promotions. By focusing on this broad definition of brand value, we believe that we will continue to outperform the segment in 2013.

Now I'd like to spend a few minutes talking about our platform for sustainable growth. 2012 was really an exceptional year for our Company as we made measurable progress on all three of our primary growth strategies. Our first strategy is to continue to grow comparable restaurant sales. As can be expected with any true portfolio, we did have some variability across our concepts.

However, we are happy to report that this quarter represents the 11th consecutive quarter of positive comps for Outback, the 12th consecutive positive quarter for Fleming's, and the 13th consecutive quarter of growth for Bonefish Grill. For an industry comparison, Outback, Carrabba's and Bonefish Grill have now outpaced the Knapp Track Casual Dining Index for at least 10 of the last 12 quarters, and Fleming's has exceeded the Knapp Track High-End Steakhouse Index for 11 of the last 12 quarters.

As for the individual concepts, at Outback, comp store sales continued to significantly outperform the segment, with 5.3% growth in the fourth quarter and 4.4% growth for the year. I've mentioned this before, but Outback is really executing well in all aspects of the Bloomin' Brands label. THe 4.4% lift in 2012 comps was driven by healthy traffic growth of 3% and demonstrates the strength of our business model once it has been fully implemented. New menu offerings innovative marketing and promotional efforts, additional lunch rollouts and remodels all played a part in driving this year's results.

Fleming's also closed the year strong with comps up 4% for the quarter and 5.1% for the year. Fleming's, once again, outperformed the Knapp Track High-End Steakhouse Dining Segment, which came in at 2% and 3.3% for the quarter and year, respectively.

Bonefish Grill comps were up 1% for the quarter and 3.2% for the year. These figures are more impressive when you consider the fact that we are lapping 5.9% for the fourth quarter and 8.3% for the full year 2011. We are pleased with how Bonefish is performing and are optimistic about the ongoing growth of this concept. We will continue to evolve our menu in restaurants to keep pace with changing consumer tastes and preferences. To that end, we are currently working on a menu refresh that will be in test at the end of the second quarter. This will be the first major core menu update since 2008.

Finally, Carrabba's comps were down 0.4% for the quarter but up 1.7% for the full year. These results are well ahead of the segment for the full year and the resulting Q4 sequentially improved after a poor performing LTO with transition to a more compelling offer. Moreover, after adjusting for the negative trading day impact for the quarter Carrabba's sales comps were slightly positive. With that as context, we recognize that we have the opportunity to strengthen Carrabba's assets menu and value equation. As we mentioned on our last call, Carrabba's is a cycle or two behind Outback in executing the Bloomin' Brands label that I've discussed.

So with that as background, I will walk through some of the details on how we are working to strengthen the Carrabba's 360-degree experience. First, we are finalizing the new remodeled design and expect to roll it out to approximately 50 to 60 restaurants in 2013. Second, we've spent considerable time evaluating the menu. I won't get into the specifics here but our main goal is to make it more accessible and better suited to a wider variety of occasions. The revised menu will go into test this summer. We have also updated key service elements to contemporize the brand. In addition, we will continue the expansion of Carrabba's dayparts with the rollout of weekday lunch to additional locations in 2013, as well as enhancing our lunch offerings.

Finally, we've also made two leadership moves that we are excited about. First, we created a new position, Senior Vice President of Casual Dining Restaurant Operations to implement operational best practices across Outback, Bonefish and Carrabba's. Gregg Scarlett, a 30-year industry veteran, is assuming this role. As VP of Outback operations, Gregg has been instrumental in leading the renaissance that has taken place at that brand over the last few years. We look forward to bringing that same focus to Carrabba's. In addition, after a lengthy search, we recently hired a new VP of Marketing at Carrabba's, Danielle Vona and expect that she will help further drive innovation.

The Carrabba's brand recorded 11 straight quarters of positive comp growth prior to the fourth quarter. Our market research reaffirms that the brand remains very appealing to the consumer. They appreciate the authentic, fresh Italian food that is cooked in front of them in our exhibition kitchen and table service consistently scores high in customer surveys. Once we've completed our menu, service and facilities work, we believe we'll start to see an uptick in overall performance. This is a strong brand and these changes will only make it stronger.

Our next key growth strategy is the pursuit of new domestic and international restaurant development. During 2012, in the United States, we opened 17 new Bonefish Grill and four new Carrabba's restaurants, as well as one new Fleming's location. On the international front, we opened 15 new restaurants in total, five Company-owned, seven joint venture locations, and three new franchise restaurants. This puts us at 37 new units for the year, which exceeded our initial estimate of 35, but with a somewhat different mix between domestic and international. Dave will discuss our expectations for 2013 development in a few minutes.

Staying with international for moment, and as mentioned on our last call, we visited some of our Brazilian restaurants at the beginning of the fourth quarter. This joint venture continues to outperform in all aspects of their business. Outback Brazil delivered approximately $250 million in net revenue for the year. The average unit volumes far exceed their domestic counterparts because they are delivering a great Outback experience across every daypart, from lunch and happy hour to dinner and late night, it's common to find a lengthy wait when you arrive at one of our Brazilian locations. We have a great partner and seasoned operators down there and they are executing extremely well. We remain excited about the additional growth potential and the future of the Outback brand in Brazil.

Moving to Asia you may have seen our press release in December announcing the opening of our first Company-owned restaurant in mainland China. This new location in Shanghai is part of our ongoing strategy to leverage geographic operational knowledge into high-growth surrounding areas. In this case, lessons learned in South Korea, Hong Kong and Japan, are all being applied to China. Given that we own approximately 88% of the joint venture, it falls in line with our desire to be the primary operating entity in what we believe could be a key piece of our future international footprint. While it is too early to determine the viability of a full-scale rollout in China, we are pleased with what we have seen thus far and results are in line with our expectations. We expect to open two more Outback restaurants in China this coming year.

Our third and final strategy for growth is to increase margins through continued productivity and increased fixed cost leverage. We've made measurable strides here, as well. Adjusted operating income margin increased 80 basis points from 5.1% to 5.9% in 2012. We accomplished this in spite of headwinds from food inflation, increased rent resulting from the sale leaseback transaction and additional pre-opening expense investments. This increase was driven primarily by our productivity efforts and through AUV leveraging. As stated in our original guidance two quarters ago, our goal for the year was $50 million in productivity savings. We finished 2012 with total savings of approximately $59 million.

Looking to the future, we will continue to aim for $50 million a year in savings for 2013 and 2014. We have a solid pipeline of ideas and new initiatives that are in various phases of qualification of testing and are showing a lot of promise. I know everyone saw the news regarding the recent departure of our Chief Value Chain Officer, Dirk Montgomery. While we are going to miss Dirk and the many contributions he made to Bloomin' Brands over the years, we have built a deep and talented team in the supply chain, IT and productivity departments. Dave Deno will oversee these groups and I'm confident that he will be able to maintain the momentum that Dirk helped create. As you know, Dave brings a very strong background in these areas.

In closing, as we put what was a very busy and successful 2012 behind us, we have now turned our full attention to 2013. You will see us continue to align around our core strategies while emphasizing everything that is special about our authentic founder-inspired brand. Innovation in everything we do and a relentless focus on enhancing the guest experience will help us to sustain the momentum that we've generated and gained further share in a challenging marketplace. And with that, I'll turn the call over to Dave Deno to provide more detail on our fourth quarter and year ending operating results and what you can expect for 2013.

Dave?

Thank you, Liz and good morning, everyone.

I'll first take a few minutes to walk through our sales and profit performance for the quarter. I'll then dive into our guidance for 2013. Please remember that when I refer to net income and EPS, I will be referring to adjusted numbers that exclude certain costs, most significantly the transaction-related costs, such as those related to our IPO and debt modification and refinancing. Please see yesterday's press release for reconciliations between our adjusted metrics and the most directly comparable GAAP measures.

Liz already went through comps by brand, so from a consolidated standpoint, blended domestic comparable restaurant sales at our core concepts grew by 3.5% during the fourth quarter, an increase that included a healthy 2.2% rise in traffic. This lift was driven by continued innovation in our menu, service, and operations, renovations at additional Outback locations and a pick-up from this year's holiday shift. This was offset by Hurricane Sandy and the Nor'easter that swept through early in the fourth quarter.

Total revenues increased to $998 million in Q4 of 2012 versus $956 million in the fourth quarter of 2011, driven primarily by the comp growth previously mentioned and new restaurant development. Restaurant operating margins, as a percentage of restaurant sales for Q4, were mostly flat at 15.4% this year versus 15.6% a year ago.

So let's break that down into its component parts. First, cost of sales increased to 32.4% of restaurant sales for the quarter from 32.1% of restaurant sales for the same quarter in 2011. The increase was driven primarily by increases in beef and other commodities as well as changes in our product mix. This increase was also mostly offset by productivity initiatives and modest menu price increases.

On the labor side, we had some good news as labor expenses, as a percentage of restaurant sales, improved by 40 basis points to 28.6% for the fourth quarter of 2012 as opposed to 29% for the same period in 2011. This improvement was driven by further implementation of productivity initiatives at the restaurant level, AUV leveraging and favorability related to investment gains associated with the deferred compensation plans for our partner programs. This was offset, in part, by anticipated additional training expense related to new daypart rollouts and new restaurant openings and health insurance expense.

Finally, restaurant operating margins for the quarter were essentially flat with a 10% -- 10 basis point increase over the prior year, going from 23.4% of restaurant sales in Q4 2011 to 23.5% in Q4 2012. The increase was mainly driven by higher pre-opening expense, incremental related to our recent sale leaseback, and additional insurance expense offset by productivity improvements and AUV leveraging.

I would also like to take a moment to discuss some abnormal items in the fourth quarter. As you know, we are self-insured, and as a result, there is always a possibility for some quarterly variation due to claims activity. In Q4, restaurant margins were negatively impacted by about 40 basis points due to the timing of certain health and general liability claims. Absent these, we would have restaurant margin favorability in Q4.

So with all that said, I think the key takeaway is that although we encountered some variability in the quarters, we still saw 30 basis points of improvement in restaurant operating margin as a percent of restaurant sales in 2012. We did this while funding incremental rent from the sale leaseback and investment in pre-opening expense. This demonstrates that our initiatives and focus on executing the strategic plan is producing results.

After incorporating the related non-GAAP adjustments outlined in the press release, general and administrative costs decreased 6.3% from $74 million in Q4 of 2011 to $69 million in the fourth quarter of 2012. These adjustments included the add back of transaction-related expenses, management fees, and deduction of the gain related to the collection of proceeds associated with the 2009 sale of the Cheeseburger In Paradise concepts that we previously reserved.

GAAP general and administrative costs were $67 million versus $83 million in Q4 2011. The decrease of approximately 20% was mainly driven by a reduction in severance pay, the termination of the management agreement, loss on sales of Japan in Q4 2011, and collection of the promissory note and related amounts associated with the 2009 sale of Cheeseburger in Paradise concepts.

Adjusted operating income margin increased 120 basis points to 5.1% in Q4 of 2012 from 3.9% in the fourth quarter of 2011. For the full year, our adjusted operating income margin increased from 5.1% in 2011 to 5.9% in 2012, an 80 basis point increase. These measures resulted mainly from successfully implementing our productivity measures and effectively leveraging increases in average unit volumes. One of the great things about this is that it will provide us the opportunity to reinvest these savings into other areas of the Company and continue our drive for long-term sustainable growth.

While we don't anticipate another 80 basis point improvement in 2013, we look forward to making more progress on our stated goal to deliver a total of 300 basis points in operating income improvement. Finally, adjusted diluted EPS for the fourth quarter of 2012 was $0.20 per share versus $0.10 per share for the same quarter of 2011. GAAP EPS was $0.15 a share versus $0.20 a share for 2011.

For the full year, our effective income tax rate was relatively flat at 16.5% compared to 16.6% for 2011. Our tax favorability in the fourth quarter in relation to our original expectations was the result from upsides in our state tax positions. Importantly, on a net basis, this tax favorability offsets the abnormal insurance claim activity we mentioned previously.

From a balance sheet perspective, everyone is aware that 2012 was an extremely active year for us from a capital structure standpoint. To briefly recap, we successfully refinanced our CMBS term and revolving debt, repaid the balance of our senior notes, engaged in a sale leaseback transaction of 67 properties and completed an IPO of our common stock. We are very proud of the progress we've made in the this area over the course of 2012 and are happy to put it behind us so that we can turn our attention to executing our strategic plan in growing the business.

Altogether, we removed approximately $600 million in debt from our balance sheet in 2012. As a result, our net to EBITDAR ratio, which capitalizes our lease obligations, decreased by over a full turn, going from 5.5 times at the end of 2011 to 4.4 times at the end of 2012. Our long-term goal is to get to a ratio of approximately 3 times. At that point, we will set the best use of our free cash, including, but not limited to further debt paydown, dividends or share buyback.

I'll turn to 2013 and our expectations for the coming year. We expect our blended same restaurant sales comps for our core domestic brands to grow by at least 2%. This increase is based on ongoing menu and promotional innovations, continued lunch expansion and additional restaurant remodels. We also note this is 1% below what we previously communicated in our preliminary guidance on our Q3 call and reflects the current industry-wide trends that we are all seeing, which we believe necessitates a more cautious outlook. I will speak to our Q1 comp expectations in just a moment.

We believe that total Company revenue will increase by approximately 4.5% to $4.2 billion. This will be driven by the growth in comps and planned new restaurant development. We will continue to work to expand our revenue growth to the 7% long-term target as we further build out our new restaurant pipeline.

Consistent to what we've said previously, we believe that full year 2013 commodity inflation will come in roughly around the 3% to 5% range. This includes expected beef inflation in the range of 10% to 12%, which should be offset, in part, by favorable pricing on seafoods. We are currently contracted for approximately 72% of our total buy for 2013, which is consistent with where we typically stand at this time of year.

We also anticipate that we will gain further margin leverage from our productivity initiatives. As in previous years and mentioned by Liz earlier, our goal for productivity in 2013 will be $50 million. We expect that this breakdown will be similar to 2012 -- 40% to 50% in supply chain and food waste management, 40% to 45% from labor and 10% to 20% from other operating expenses and G&A. We believe we have a solid pipeline of successfully tested ideas in this area. I have been and will continue to work closely with our productivity team to realize these savings.

Adjusted and GAAP net income for the year is expected to be at least $136 million. Included in this guidance is a reduction of approximately $2 million in interest expense as it compared to 2012. This decrease is primarily due to the very favorable debt refinancing that we completed ahead of schedule. We have also made payments on outstanding principal, including a $20 million voluntary loan prepayment made in January. In addition, we anticipate an adjusted effective income tax rate in the range of 20% to 22% which assumes the release of our deferred tax valuation allowance.

We believe that adjusted and GAAP diluted EPS will be at least $1.06 per share. Just as a reminder, diluted EPS does not grow as quickly as net income due to an expected increase in share count. This is mainly due to the difference in the weighted average share count in 2013 versus 2012 which was driven by the timing of the IPO. We estimate that 2013 full year capital expenditures will be between $220 million and $250 million. Systemwide new restaurant development in 2013 is expected to be in the 45 to 55 unit range, with approximately 60% in the US and 40% in international. Bonefish Grill will continue to be our lead development vehicle in the US.

In addition to new locations, we plan to remodel over 150 restaurants, including 80 Outback locations, 50 to 60 Carrabba's locations, over 20 Company-owned international locations, and a few other domestic sites on an opportunistic basis. Renovating our restaurants is a key element of our strategy for increasing comp growth. The 150-plus remodels we have planned for this year demonstrates that we remain committed to upgrading the ambience at our restaurants and providing our customers with the most pleasing casual dining environment possible.

Now let me talk briefly about Q1. Our stated policy is only to provide annual guidance. However, we believe there are a few current themes that have had a greater impact than expected on the first quarter thus far and require further discussion. It appears that Q1 will be a difficult quarter for casual dining and you've seen this in reported indices. For January, the Knapp Track Casual Dining Index was down 0.6% for sales comps and negative 2.2% for traffic. We believe that the combination of macroeconomic factors, payroll tax hike and increased health insurance costs, combined with bad weather have put pressure on sales.

With this in mind, it would translate into blended core domestic comp sales for Bloomin' Brands in Q1 ranging between flat to up 1%. Importantly, we believe our traffic will also be 0% to 1% positive in the quarter. This guidance includes a negative trading day impact of 80 basis points due to the impact from leap day in 2012. On a trended basis, our comp sales would be up 1% to 2%. As you all know, we have maintained a GAAP to Knapp of at least 300 basis points in comps and 400 basis points in traffic in 2010, 2011, 2012, and this outperformance has strengthened in 2013.

Finally, one other important item, our annual partner conference that costs about $4 million is moving from the second quarter in 2012 to the first quarter of 2013. In closing, we were very pleased with the way we finished the fourth quarter of 2012. With favorable operating results, major progress in key strategic areas, and the completion of our near-term capital structure needs we consider it to be a very successful quarter and end to our first fiscal year.

We look forward to another fiscal year in 2013. We will now open up the call to take your questions.

(Operator Instructions)

Jeff Farmer with Wells Fargo.

You have a broad spectrum of concepts and price points, which provides you probably one of the better reads on how the consumer is reacting to things that you mentioned, the payroll tax, delayed tax refunds, higher gas prices, et cetera. So as you watch your results come in over the last four weeks, five weeks, what are some of the takeaway you can share with us in terms of how consumer spending habits are changing in this environment? Have you seen weaker mid-week sales, fewer appetizers, fewer desserts? How has it manifested itself in your top line?

As Dave talked about and the indices indicated has been a choppy start to the year for the whole casual dining industry. I would say, honestly, between timing of weather and shifts, that it's -- there is no discernible differences or trends that have been emerging in terms of weekday versus weekend, patterns that we would call out that indicate that they were different than a year ago. It's just been an overall, as we said, choppy and tough start to the year for the industry.

Jeff, I'd just like to add, as you know, we provide annual guidance. We decided to provide quarterly guidance this time around for Q1 and we believe that we've taken into effect take the factors that Liz just mentioned. You can use that as your guidance for Q1.

And then just final question and I don't think you'll be able to give me too much detail, but Walmart and some other restaurant companies have alluded to the fact that once you got to, really, February 15, February 16, you did begin to see some bounce back albeit even small. But can you confirm or deny that, that consumers did look like get a little bit more relaxed with the spending again, once we got past mid-February?

Again, as you said, Jeff, I -- we don't typically comment on quarterly. We did, but we definitely don't comment on weekly or daily, because I just don't think that it helps provide any perspective or trend. I think what we are comfortable reiterating, as Dave said, is that calendar year-to-date, this out performance versus Knapp that we've seen in comp sales and in traffic, historically, has widened for us. So I think we are comfortable giving that perspective and the Q1 perspective of 0% to 1% positive on both comps and traffic and that, of course, takes into account what we've seen year to date.

Jason West with Deutsche Bank.

One more on that topic. If you look at the individual brands, could you say if Outback continues to outperform Bonefish and Carrabba's here in the first quarter despite the choppiness we've seen broadly?

Yes, it's Dave. I think we don't really get into guidance in the quarter by brand, so we will stick with the overall guidance we've given you. You've seen our Q4 numbers for the various brands and what we've got there. So we're very pleased with Q4 results and we're very pleased with where we stand relative to the industry in Q1.

Okay, and if could I ask just a broader question on Outback. If you guys could talk a bit more about the impact of a lunch rollout, first of all, how that's going in year two on a Sunday lunch? Are you still seeing growth and improvement in profitability on Sunday? Then, with Saturday rolling out mid-year in 2012, can you talk about the contribution from lunch at Outback in the 2012 comps? How much of that you think carries forward into 2013?

Yes. We don't provide lunch comps guidance. We've been very pleased with the Outback lunch rollouts. We continue to move across the system on that. We've seen good sales performance. We've seen the sales build over time. Everything that we've seen is very, very good. I don't know if -- Liz, do you want to add anything else to that?

Yes, Jason, it's been a measured roll. As you know, for Outback, 2011, we rolled Sunday and pretty much 2012, we rolled Saturday and now we're taking that staged approach to weekday rollout. We ended the year on weekday rollout at about 25% across the system. So that's going to be a multi-year rollout, the weekday lunch. So again, happy with what we saw in 2011 on Sunday, happy with what we saw in 2012 on Saturday, staged rollout on weekday. It's just been performing, as we'd hoped, and we're very encouraged by it.

John Glass, Morgan Stanley.

I wanted to ask about operating margin expansion in '13 and also maybe just perspective on the fourth quarter. I think there's maybe a mismatch of expectations given that your -- the ongoing savings produces 100 to 120 basis points of benefit, and obviously, there's been more offsets in the current business. So, one, can you talk about what the operating margin expansion goal is for '13? You said it was going to be less than '12. And what are some of the offsets in there? Because we would have assumed that all is equal, the positive comp of two to three hold operating margins, ex the savings, and the savings would build on top of that. But it doesn't quite seem like it's -- that dynamic is quite occurring.

Yes, we're going to see probably 40 to 50 basis points of operating margin, John, in 2013. I think we'll see commodity price increases offset by productivity. We're going to see, obviously, labor productivity, which is a big part for us. And one of the labor productivity things that we're doing is we're looking at our front-of-house labor scheduling and some of our table side POS devices for ordering and payment. So, we've got some labor scheduling opportunity in our restaurants and we've got some POS device opportunities. So I think we're going to see between 40 and 50 basis points and I -- similar to last year when we had this initial goal of $50 million, we're going to try and beat that to get even more. I think we have some plans in place to try and accomplish that but I think again, you'll see 40 to 50 basis points expansion in operating margins.

What -- you may have said this before but I don't recall. What is the time horizon to achieve this 300 basis points? Then are we -- is 50 basis points here the right pace so this is a six-year journey or is it that you expect accelerated margin benefits in the out years?

I think, John, first of all, we're really pleased about the 80 basis points. That's this past year and that's a big pay down on the 300 basis points target. So, I would expect another three or four more years, John, as we go through this. We've got to make sure, as we do this, that we pace and sequence what we're doing in the restaurants and make sure we keep our operations strong. Because we have some things that we can introduce in the restaurants to really help expand margins that a lot of other restaurant companies already do. It's just a matter of pacing and sequencing. So I'd say another three to four years.

And then just one last question, more maybe modeling oriented. When you guide units for '12 and for '13, are you talking about the gross number and there's a net number of closures? If there is, if the 45 to 55 is gross, what do you think the net number is?

We've always -- from the IP road show on, we've always guided to a gross number and each year, we have a handful of closures, nothing major. So 45 to 55 is a gross number and we will continue to guide against that.

But just so we can understand the modeling, that was at five a year as the closure? What's the right rate of closures, roughly, historically?

Three to five.

Joe Buckley with BofA Merrill Lynch.

Just a couple questions on Carrabba's. First, the Olive Garden is out with some pretty careful numbers this morning, yet Carrabba's is slightly negative in the fourth quarter. Is there something going on in the Italian category, do you think, that is unique to the category? And then secondly, does the performance at Carrabba's or the slowdown in Carrabba's, does it influence you what's on how quickly you accelerate the expansion of the brand?

Sure, Joe, let me take that in your two parts. So The Italian casual, as you know, was $15 billion, and our share in it is 4.5%. Olive Garden is, obviously, a big, big share at, I think, probably 23%, 24%. So their performance is going to have an outsized impact on the Italian segment, if you would. We've seen nothing structurally in the Italian segment to suggest that it is challenged. If you actually look at the quarters, you go back a couple quarters and it was one of the -- pizza and Italian and steak were one of the top performing ones, right? So we don't see any signs structurally in the consumer to suggest that there is an Italian market situation.

It is $15 billion, there's a lot of independents. We have a 4.5% share, we think it's an excellent share, getting opportunity for Carrabba's. We were down 0.4%, I think as Dave said. When you adjusted for the impact of the trading day, we were actually positive. That being said, I think I went through some detail on how we're even further strengthening the Carrabba's experience. But keep in mind, Carrabba's units are very profitable and very successful. Our average AUV last year at Carrabba's was $3 million. So, the economics of that box are attractive and we're going to continue the expansion of that. We think we have industry-leading quality, industry-leading service, and a very healthy proposition in the box. So, the fourth quarter certainly doesn't diminish our belief or expectations that Carrabba's is a brand that can go well beyond 240 units.

Okay, and maybe just a follow-up on Carrabba's. Could you tell us where Carrabba's is on lunch? Your weekday presence in the day part?

Sure. So Carrabba's is fully rolled out, as you know, for Saturday and Sunday. For weekday, we ended the year in 2012 with 9% of the fleet serving weekday lunch versus 25% for Outback that I quoted earlier. Again, this is a measured multi-year rollout across these businesses. Because we are introducing a lot of innovation, we have a lot of things going on, we want to make sure that lunch goes in without missing a beat and that's what people expect from Carrabba's. So we ended the year at 9% in 2012.

Michael Kelter with Goldman Sachs.

First off, I wanted to just follow-up on John Glass' question. I was hoping you could talk about how we should think about leverage versus deleverage in light of lower same-store sales in the first quarter and what I'd consider to be somewhat limited visibility thereafter. If you exclude the discrete cost cuts, what comp for your business do you need to lever your rent and labor and other fixed costs at the restaurant level?

I think we're comfortable with 2%, Michael. I think we have good visibility on sales going forward with the programs that Liz talked about being our remodels, be it our new menu innovations, occasion expansions, those kinds of things. I think we feel good about that. I think 2% can certainly help us get there and when you layer in the productivity opportunities that we talked about earlier, I think we have a pretty good opportunity for operating margin expansion during the year.

And then on a separate topic, Bonefish unit openings missed your prior expectations. Can you talk about what drove that? How we should think about it going forward and especially in light of what seems like a little bit lower US unit guidance for 2013?

Yes, so Michael, on the Bonefish front, we continue to be very pleased with our new unit openings on Bonefish. They're performing very well. Frankly, it's a supply issue versus a demand issue. The demand for Bonefish Grill is vibrant. It has proven itself in geographies all across the country. It's been a pipeline fill issue. We are opening them up as quickly as we can as a Bone worth quality -- Bonefish quality sites become available. So there is no diminishing in our prospects for Bonefish Grill. It's been a supply issue versus a demand issue. We feel really good about all the investments we've put into our development team under Mike Nolan. So we have a lot of faith in the go forward, but frankly, we will put up Bonefish Grills as fast as we can because the demand is there.

Very encouraging. And then one last one. Carrabba's changes that you talked about in the prepared remarks, they seem pretty meaningful. It almost feels like you perceive some elements of it as broken even though it's consistently beating Knapp and taking share. So my question is, why are you making such significant changes at that brand?

Our philosophy, which we have talked to you guys a lot, is relentless innovation, continual innovation. We're not going to change what is absolutely core and successful at Carrabba's. You're right and we indicated we have industry-leading rankings across service, across food and across everything. So, we're not going to mess with the secret sauce, no pun intended, that has made Carrabba's so successful. However, we do have an opportunity to continue to broaden the menu that allows you to broaden the occasions, and we see that. We've successfully done that with $10 pasta, we put Cucina Casuale. But we can go further. We're always talking with our consumers and they would like some broader, lighter, different menu items, be able to enjoy Carrabba's in broader and different ways.

We also, on the Carrabba's front, we really needed to upgrade the assets. You and I, we've talked about the road on renovation on Outback. Well, the Carrabba's needs to have the same road. When you look at the ambience, it is really in need of contemporization and updating. That's what the new remodel does. We're really pleased with the reaction that we're seeing to that. It goes back to Bloomin' Brands playbook, Carrabba's is a healthy, strong brand, as I said, but these changes are going to make it stronger. We're not talking about messing with the Carrabba's essence.

John Ivankoe, JPMorgan.

Looking at the Outback comp, in particular, there seems to be some discussion that most, if not all of the out performance relative to your peers has, because of the additional day parts that you've put in, incremental year-over-year whether it's Saturday lunch or weekday lunch. So just wanted to get your comments on just how your existing day part business is doing relative to your new day part business?

Yes, hi, John. We are seeing growth in all aspects of our business so we've seen growth out of the remodels, we are seeing growth out of lunch. We are seeing some very impactful menu items and marketing ideas at Outback. So when you look what Liz talked about, the Bloomin' Brands playbook, between lunch, remodels, our marketing and innovation and everything else has really come together to continue to drive that brand forward. We don't get in the habit of breaking apart comps by day part and things like that, but I think the pieces that are coming together for Outback that are working so well are what we've talked about, which is the remodel piece, the menu innovation and marketing and the day part expansion.

So is it fair to say, therefore, that there's been little to no cannibalization of lunch to the dinner business?

That is fair to say. It's a very different occasion, as we have talked about in the past, and we haven't seen that.

Just one more on this topic, if I may. Thinking about the margin contribution from some of these new businesses beyond the training around the new menus, lunch on Saturday and midweek. Is it all-in a positive margin business as you're leveraging the existing fixed cost in the business or not necessarily as the average ticket is lower and the productivity is lower during those day parts relative to --(multiple speakers)?

Yes, it will help our -- especially our operating income margins, John. We do have some training and things at the restaurant level that we have to do to do this. But it will increase our overall profitability and help increase our overall operating margins. We will have some investments in training and labor to make this happen.

Okay and just -- this is a housekeeping item. The shares outstanding, I think in the fourth quarter, were 125.8 million. How did we get to 128 million for the year in 2013? Why is there such a jump from the fourth quarter, which I thought was all-in post-IPO to 128 and of course, the question then becomes -- is that type of 2 million share a year increase going to happen longer term each year, unless you buy back stock?

Hi John, this is Mark. Actually, that's just a function of that weighted average calculation on your dilution in terms -- for the most part, in terms of the IPO happened in August of 2012. So, you've got that impact and then you just have normal options and whatnot over the course of the year.

Okay, but you do appreciate my question? It is jumping quite a lot from the fourth quarter of 2012 into 2013.

Yes, it's the weighted-average that Mark talked about, but also John, I want to make sure that you know that we don't see that expansion going forward. So it's just the math behind it and we will be happy to take you through it in some of the modeling we have.

Sharon Zackfia, William Blair.

But just one quick one. I think you mentioned that Bonefish's comp bounced back after an LTO that didn't quite work. Can you give us some more color around that? What was the LTO? What do you think didn't work about it? Where were comps after that? And then secondly, Dave, you said something was moving, I think, $4 million was moving from the second to the first quarter in some sort of expense. I just missed what that was.

Hi, Sharon. First, I want to clarify it was Carrabba's that we talked about, the LTO being disappointing and not Bonefish.

Sorry.

No problem. The LTO was around new items in our Cucina Casuale line and it was centered around two Paninis, which wasn't moving the needle and probably as newsworthy as we could. We transitioned that to our Q4 holiday messaging, and that started performing very strongly for us. As you know, on Carrabba's, we go out with a very strong Q4 item. Last year, it was treasured recipes highlighting Chicken Bryan Ravioli and Sirloin. So we transitioned out of an offer on Paninis into our stronger Q4 programming around the holidays.

I don't want to get into the daily upticks or anything like that, but we did want to provide some color that when we rotated off of that and we did that and back to our more traditional Q4, we did see it strengthening through the quarter as we exited. I think your second question was just something that Dave mentioned? We have our annual partners conference every year, and that costs $4 million for us. Last year, it was in Q2 of 2012. This year, it's in Q1 in March and so the $4 million expense falls in Q1 of this year.

Marc Riddick, Williams Capital.

I was wondering if you could share some thoughts as far as the promotional cadence that you see going forward for the year, both in messaging and LTOs? I was wondering if any of the overall general macroeconomic consumer weakness that we've seen, and particularly behind overall traffic, both restaurant and retail, if that had any impact on a pre-existing plan as far as marketing, messaging, things of that nature?

So we typically do five to seven LTOs a year around -- across our core businesses and that's supported complete 360, in-store table [tent], social media, advertising, the full complement around that, and it is paced throughout the year. This year, we've talked a lot about the consumer sentiment, but as we talked, this has been a challenging environment for many years, where superior offerings for affordable prices has been absolutely necessary.

So, we haven't had to shift our plans or change our perspectives given the start to the year, but rather, we feel very good about that relentless innovation, continuous innovation. What we have coming out that we think leverages, what's special about our restaurants, our cooking techniques and our platforms. Of course, that will be done and has to be done at affordable, attractive pricing. So no, we haven't gone back given the start to the industry and had to revamp. It's that relentless focus that I talked about in my prepared remarks, that relentless focus on making it the strongest, superior brand equation out there.

Okay, excellent. I was wondering if, from -- in a way, it's a two-part combo question. Compared to last year, would you say that there's any major differences shifting or changes as far as how you're getting your messaging out there? Do you foresee any greater increases on TV versus radio versus Internet, that type of thing or if that mix is about the same? And then following up on that, would you say that there's -- what do you see as far as getting the bang for your buck this year versus the last. Obviously, last year, you're dealing with a quadrennial event and that might have had more of an impact on the marketing pricing than what we should see this year. Thank you.

Sure. So we have -- back to the comment of the strength of our marketing program, is exactly what you said, that we attack it from many different levers. So, we don't just have a TV. We have a TV component, we have a heavy digital component and in-store component, a managing partner component. That formula has worked for us, and it remains in place with the messaging and the platforms varying to bring in the news. We continue to enjoy a lot of success in our digital outreach and our social media. You're going to continue to see innovation for us in that area, and around the Outback brand, that's something that's done very well for us. That's probably up a little bit versus a year ago and we will continue to trend up but the whole basket of support will continue to be across that. Can you repeat your second piece?

The other part was bang for buck as far as marketing spend this year versus last?

Well, there was -- as is the media market, there was inflation this year as well as last year. So, we always do innovative things. I think you guys know we built a pretty hard-core analytics team and they're constantly re-cranking the ROIs and we're nimble with our money in moving it around to capture those ROIs. So I'm really pleased with how we attack our marketing efficiency and the bang for the buck. For competitive reasons, I want to stop there on any changes that we would be doing.

Well, I got my Ocean Mixed Grill Dinner For Two e-mail so I'm certainly looking forward to that. Thank you very much.

Thank you. There's our social digital media at work for you.

There are no further questions. Ms. Smith, are there any closing remarks?

Well, we thank everybody for joining us. It's been a very productive and strong close to 2004 [sic - see press release "Q4, 2012"] and we really look forward to 2013 and look forward to speaking to you all on the next call. Thanks for joining us.

This does conclude today's conference call. Thanks for your participation. You may now disconnect.