Bloomin' Brands Inc (BLMN) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Bloomin' Brands first-quarter 2013 earnings conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session with instructions provided.

(Operator Instructions)

I would like to remind everyone that today's conference is being recorded. I will now turn the presentation over to Mark Seymour, Vice President of Investor Relations. Please go ahead, sir.

Thank you, John. 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 first-quarter 2013 earnings 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, adjusted diluted earnings per share, and adjusted diluted earnings per pro forma share. This information is not calculated in accordance with US 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 and on our website, as previously described.

Before we begin our formal remarks, I would 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 earnings release. Others are discussed in our Form 10-K filed with the SEC on March 04, 2013, which is available at www.sec.gov.

During today's call, we'll provide a brief assessment of the business, including financial performance for the first quarter of 2013, as well as an overview of highlights and discussion regarding how we performed against some of our key strategic objectives. Once we've completed these remarks, we'll open up the call for questions. With that, I'd now like to turn the call over to Liz Smith.

Thank you, Mark. Good morning and welcome to everyone listening today. We're happy to share with you the results for the first quarter of 2013 and related Company highlights. As you can see from yesterday's earnings release, our reported first-quarter core domestic comp sales growth was 1.6%, which included a traffic increase of 2.2%. If you exclude the trading-day impact associated with Leap Day in 2012, our core comps would have been 2.4%. Adjusted diluted earnings per pro forma share were $0.50, a $0.02 increase over the prior year. From a comp perspective, we were very pleased with how we closed the quarter.

We had strong execution against our three growth strategies, which are -- first, the continued growth in comparable restaurant sales. Second, the pursuit of new domestic and international development with strong unit-level economics. And third, the expansion of our margins through continued productivity and increased fixed-cost leverage.

As you will recall, we struck a cautious tone on our last call with regard to where we thought Q1 comps would land. There were indications at the time that a convergence of various factors, such as the payroll tax increase, delayed federal tax refunds, and spiking gas prices had impacted consumer spending in the casual-dining segment. In addition, we were leaping the first quarter of 20 -- lapping the first quarter 2012, which had the benefits of Leap Day and unusually mild weather. However, we believe that our guests would return once they adjusted, and that is exactly what happened in the back half of the quarter.

As for our individual concepts, at Outback, comp-store sales continued to significantly outperform the segment with 2.5% growth in the first quarter. Excluding the trading-day impact, the comps were 3.5%, driven by a very strong traffic growth of 3.2%. This marked the 12th consecutive quarter of positive comps for the Outback brand. The strength in sales this quarter was driven by further expansion of the lunch day part at our restaurants, and ongoing menu and marketing innovation efforts. Fleming's finished the quarter with comps up 5%, performing in line with the KNAPP-TRACK high-end steak-house dining segment, which also came in at 5% for the quarter. Excluding the trading-day impact, the first-quarter comp sales were ahead of the segment at 5.4%. On a traffic basis, Fleming's also outperformed the high-end segment, coming in at 3% versus 2.3% as measured by KNAPP. This represents Fleming's 13th consecutive quarter of positive comps.

Bonefish grow comps were up 0.5% for the quarter. Excluding the trading-day impact, the first-quarter comp sales were up 1.1%. I will also point out that this was Bonefish's 14th consecutive quarter of comp growth. As we mentioned in our last call, we continue to work on Bonefish's first major core menu update since 2008, and testing is expected to begin in August. Finally, Carrabba's comps were down 1.7 for the quarter, and excluding the trading-day impact, they were down 0.9%.

We are making good progress on our efforts to strengthen the entire 360-degree experience, including upgrading the facilities, refreshing the menu, and improving value perceptions. In deploying the same play book we used with Outback, we will implement the Carrabba's revitalization plan using a measured approach. We will we will begin piloting the program in June. After that, we will work through the feedback we receive and analyze the data for several periods. The key to a successful program is taking the time to get all of the elements right before going Company-wide with an initiative. As we saw when we used the same play book with Outback, we expect that it will be several quarters before the impact of this revitalization is fully reflected in our numbers. Carrabba's is a strong brand with high customer satisfaction scores, and this revitalization will drive its momentum.

On the US restaurant-development front, we opened seven new Bonefish grills and one new Outback during the first quarter. We are pleased with how these new units are performing. Turning to international, we continue to make progress against our strategy of accelerating international growth. In South Korea, we opened two new Company-owned restaurants. This serves to further build on our leadership position in this important market. Elsewhere in Asia, our new restaurant in China is doing well, and we are very happy with its performance. We will be opening our second restaurant in Shanghai this summer, and a third is planned for Q4. Finally, with respect to our business in Brazil, the 41 restaurants we have there continue to perform very well with total revenue growth of more than 13% in US dollars versus the first quarter of 2012.

The 10 new units so far for the year are in line with our expectation to open 45 to 55 new units during 2013. We also continue to make progress on our restaurant-renovation programs. Outback completed 15 remodels during the quarter and is on track to reach its target of 80 remodels for the year. In addition, we successfully kicked off Carrabba's remodel plan. We have the final model in hand and began the rollout this quarter. We remain comfortable with our goal to complete 50 to 60 remodels in 2013.

Now I would like to take a moment to talk about a new program we have decided to pursue. We have previously mentioned we believe there is a sizable restaurant-relocation opportunity for Bloomin' Brands, mainly at the Outback brand. In the past, the Company's real-estate strategy was one of utilizing less expensive B- and C-grade locations. This strategy worked well for us in the '90s and early 2000's, but with changes in the fundamental dynamics of the casual-dining industry, we believe that some of these locations put us at a competitive disadvantage. Last year, we relocated five Outback restaurants to test this notion. While we are still monitoring results of these moves, we have found that the average sales lift from these relocations is approximately 40%. This lift is coming from both dinner-occasion growth and the addition of weekday lunch.

We believe that as many as 100 restaurants are potential candidates for future relocation. To that end, we have decided to accelerate this effort and expect to begin relocating 10 to 20 restaurants in 2013. Completion for some of these new locations will carry over into 2014. This will be a multi-year program and will serve as another lever in our push to drive sustainable comp growth, along with the other efforts, such as day-part expansion and remodeling. Dave will provide further color around the 2013 numbers related to this program in a few minutes.

In closing, we are very pleased with the way the quarter ended after a challenging start to the year for the industry. By remaining focused on delivering a superior 360-degree experience, we continue to take share in a highly competitive marketplace. We will sustain the momentum that we've generated through further innovation in all aspects of our business. With that, I will turn the call over to Dave Deno to provide more detail on our first-quarter operating results. Dave.

Thank you, Liz, and good morning, everyone. I will first take a few minutes to walk through our sales and profit performance for the quarter. When I speak to net income and EPS, I will be referring to adjusted numbers that exclude certain costs. Please see yesterday's press release for reconciliations between our adjusted metrics and their most directly comparable US GAAP measures. You'll note that the first quarter this year contained no adjustments, unlike Q1 of 2012. We think it is important to point this out for comparison purposes. In addition, please note that we have provided a new adjusted diluted EPS metric for 2012. In order to provide a better comparison of the Company's results in the first quarter of last year to the first quarter of this year, a pro forma diluted share count and EPS figure is being presented. These adjustments reflect the shares issued in the IPO as if they were all outstanding on January 1, 2012. With that, let's dive into Q1.

Our first-quarter highlights include the following, adjusted diluted per pro forma share increase of 2% to $0.50 per share, compared to $0.49 for Q1 2012. GAAP diluted earnings per share for the quarter increased 6.4% to $0.50 versus $0.47 for the first quarter of 2012. Adjusted net income increased to $63.2 million compared to $59.6 million versus the first quarter a year ago. GAAP net income for the quarter was $63.2 million versus $50 million for Q1 2012. Comparable restaurant sales growth at our core concept was 1.6%. This includes a traffic increase of 2.2% for the quarter, driven by day-part additions and promotions across the portfolio. Please note, ex the trading-day impact associated with Leap Day in 2012, our comps would have been an even more impressive 2.4% for the quarter. We continue to perform well above the industry average, which excluding the trading-day impact, saw a positive GAAP to the KNAPP-TRACK of 330 basis points for comp sales and 440 basis points for traffic.

And finally, total revenues increased 3.5% in the first quarter of 2013 to approximately $1.1 billion. Restaurant-level operating margins as a percentage of restaurant sales for Q1 were 18.4% this year versus 18.9% a year ago. So let's break that down into its components parts. First, cost of sales increased to 32.3% of restaurant sales for the quarter from 32.1% of restaurant sales for the same quarter of 2012. The increase was driven primarily by increases in beef and alcoholic-beverage mix, which were nearly offset by productivity initiatives and modest menu-price increases.

On the labor side, we had favorability as labor expenses as a percentage of restaurant sales improved by 40 basis points to 27.7% for the first quarter of 2013, as compared to 28% for the same period in 2012. This improvement was driven primarily by AUB leveraging, further implementation of productivity initiatives at the restaurant level, and favorability related to the deferred compensation plans for our partner programs. The deferred comp-plan favorability this quarter was driven by the shift of our managing partners from our old PEP plan to the new POA plan due to the expiration of their contracts. We expect the conversion of these plans to be complete by 2015. The savings in labor were partially offset by anticipated additional training expense related to new day-part rollouts and new restaurant openings and general wage-rate inflation.

Finally, restaurant operating expenses for the quarter were 70 basis points unfavorable versus the prior year, going from 20.9% of restaurant sales in Q1 to 21.6% in Q1 of 2013. This increase as a percentage of sales was mainly driven by higher advertising expense and incremental rent related to the sale-leaseback transaction of last year, partially offset by productivity improvements in AUB leveraging. After incorporating the related non-GAAP adjustments outlined in the press release, general and administrative costs increased 7.6% from $67.4 million in Q1 last year to $72.5 million in the first quarter of 2013. The adjustments for 2012 include the add-back of transaction-related expenses related to the [CMBC] debt refinancing and management fees.

The overall rise in G&A for Q1 2013 was mainly attributable to approximately $4 million of expense associated with our annual managing partner conference. As mentioned in our last call, the conference moved from Q2 in 2012 to Q1 this year. GAAP general and administrative costs saw improvement from $76 million in Q1 of 2012 to $72.5 million in Q1 2013. This was primarily driven by the transaction-related expenses related to the CMBS debt refinancing and management fees present in 2012. Adjusted operating income margin decreased 50 basis points to 8.9% in Q1 of 2013 versus 9.4% last year. The decrease resulted mainly from the decline in the restaurant operating margins and the rise in G&A primarily due to the timing of the managing partner conference. Offsetting this favorability was a 20-basis-point improvement in impairment and store-closing expense. Alternatively, the GAAP operating income margin improved 30 basis points from 8.6% in 2012 to 8.9% in the first quarter of this year.

And finally, adjusted diluted pro forma EPS for the first quarter was $0.50 per share versus $0.49 per share for the same quarter of 2012, and GAAP diluted EPS was $0.50 per share versus $0.47 per share from the first quarter of last year. For the first quarter, our adjusted effective income tax rate was approximately 14.1%, compared to 19.2% for Q1 of 2012. You will note this difference from our full-year adjusted tax-rate guidance of 20% to 22%. We still anticipate our full-year adjusted tax rate to be between 20% and 22%, and this assumes the potential release of our deferred tax asset valuation allowance during 2013. At 14.1%, the first-quarter provision drove approximately $0.03 of the adjusted diluted EPS [beat] the consensus.

The tax favorability was all timing and will likely reverse in the second quarter. We believe that the deferred tax asset valuation allowance may release during 2013. We expect the positive benefits the valuation allowance release to be at least $40 million. We are deducting this credit to the income statement in our guidance for the adjusted-diluted EPS. The adjusted tax rate will temporarily increase in the quarter of the release and then will normalize in any subsequent periods to get back to a full-year estimate of 20% to 22%.

Now I would like to comment briefly on the rest of the year and our revised expectations. As you know, our year has gotten off to a very good start. As indicated in our earnings release, we are raising guidance for adjusted diluted EPS from at least $1.06 per share -- excuse me, from at least $1.06 per share to at least $1.10. I would now like to take you through some of the factors that are driving this up side. First, I will address two new exciting opportunities for our Company.

I know everyone saw the announcement we made on April 10 regarding the repricing of our debt. This was another great effort by our Treasury group and drove further improvement in the already favorable debt terms established in last year's refinancing. The repricing reduced the applicable spread on outstanding debt by 100 basis points and reduced the floor by 25 basis points. In total, this provides us with 125 basis points in annual interest savings at current interest rates. Given the current outstanding balance of $975 million, this translates to approximately $12 million in cash interest expense reduction annually, assuming constant market interest rates. For 2013, the impact will be approximately a $9-million reduction in our cash interest expense.

This leads to us our second big initiative, which, as Liz mentioned earlier, is to move forward with and accelerate our restaurant-relocation program. This program relates primarily to Outback restaurants, and we have seen meaningful sales increases in the relocations completed to date. As a part of this plan, we intend to start the relocation process in approximately 10 to 20 restaurants this year. This will generate approximately a $4 million to $8 million in additional non-cash expenses, which may include impairment and depreciation expense during 2013. The dollars incurred this year are offset by the savings generated by the term loan repricing.

Now, let me turn to some of the -- some other key measures for 2013. First, we are maintaining our comp guidance of at least 2% with positive traffic. Total revenues will be approximately $4.2 billion. Next, we are raising guidance for the following financial metrics, adjusted net income from at least $136 million to at least $141 million, GAAP net income from at least $136 million to at least $165 million. GAAP net income assumes the potential release of valuation allowance on deferred tax assets of at least $40 million during 2013, and a $14 million to $17-million charge associated with the repricing of the Company's senior-secured term loan B facility. Adjusted diluted EPS guidance increases from at least $1.06 to at least $1.10. And GAAP diluted-EPS guidance increases from at least $1.06 to at least $1.28.

We are also providing initial guidance with respect to Q2. Given the increase in full-year guidance to at least $1.10, we believe that Q2 adjusted diluted EPS will be at least $0.21 per share. An EPS estimate of $0.21 translates to adjusted net income growth of 40% for Q2. We don't typically provide quarterly guidance, but given the changes generated by the repricing, relocations, and assumed taxes, we think it is prudent for this period. We remain on track to open 45 to 55 new restaurants for the year and still expect to remodel 150 or more locations. In addition, we are still expecting at least $50 million in productivity savings. These savings will be weighted to the back half of the year.

In closing, we are very pleased with the way we finished the first quarter. In spite of significant headwinds to begin the year, we focused on the continued execution of the Bloomin' Brands play book and were able to once again meaningfully outperform the segments and over deliver on our initial expectations.

We'll now turn the call over for questions.

Thank you.

(Operator Instructions)

Your first question today comes from Joe Buckley, Bank of America Merrill Lynch. Please go ahead.

Couple questions on sales. The Saturday lunch program I think you rolled out towards the end of the summer. Can you talk about how many restaurants have that and what kind of impact that's having on comps?

Sure, Joe. Let me go through that again. I will take it first for Outback and then for Carrabba's. Okay? So the Saturday lunch for Outback started in Q2 of 2012, and it finished in Q3 of 2012. So it's at 100%, plus or minus, of our system. On Carrabba's, Saturday lunch started Q2 of 2011, and it finished Q1 of 2012. So that's been in our basis -- these have been in the base for some time now. And our focus this year, as you know, is the -- and a multi-year effort is the rollout of weekday lunch where it makes sense and where it's appropriate in our system.

Joe, it's Dave. If I could just add, the piece I want to mention is lunch is part of our overall sales growth plan. And we typically do not break out the sales gains on various components. So it's just another page of our play book.

And can you say, as you've gotten more experience with lunch, how the margins on that business look? Any surprises from an expense standpoint?

Yes, we've been extremely pleased, Joe, about lunch on all of our measures. One of the things that we talk about the rollout, but we certainly expect our lunch business to grow. So once we lap it, it's going to grow as people know more about it and see it. We expect margins to get better as our restaurant managers get used to it, so this is more than just a one-year rollout type of thing. We expect to do this over many years, and we expect the lunch business to grow as we go forward.

And then just one more if I can. Just on Carrabba's, as you approach the brand with the 360-degree approach, will that defer plans to expand Carrabba's?

Yes. No, absolutely not. This is a strong, healthy brand with industry-leading customer-satisfaction scores, and the boxes that we put up are above our system average. So, no that will certainly not defer. And I just want to put Carrabba's performance in perspective, because I think we laid the groundwork over the last two calls on what we're doing. Last quarter, Carrabba's was a negative 0.9% when you adjust for trading day. So it performed at market. So it certainly didn't lose share.

But we have been on an ongoing revitalization program, that continual innovation, and we're very pleased with where we are right now. So we have a new menu; we have the ambiance nailed. We're going to be rolling that all together into a core of stores in the summertime. We expect, from everything we've seen so far, to have a very positive result from that test, and then we are planning to roll into 50 to 60 restaurants in the back half of the year, this new 360-degree experience that touches ambiance. It touches menu. It touches service. It's the Bloomin' Brands play book.

So feeling good about the boxes we're putting up. We had an at-market performance in Q1. Feel really good about the 360 revitalization to come, but it is going to take several quarters for those impacts to be fully realized.

Your next question on the line comes from Jeff Farmer with Wells Fargo. Please go ahead.

Following up on that question, trying to dig down a little deeper, so really can you give us a little bit more color on how you are executing the weekday lunch rollout? Meaning is it done in the market by market basis? How are you making that decision? How many units per quarter? What's the promotional strategy once you get it rolled out? How do you tackle all of those things? Any info would be very helpful.

Sure, Jeff. We have, as you know, we ended last year with, on Outback, I'm going to talk about Outback first and then Carrabba's. We ended last year on Outback with approximately 25% of the fleet serving weekday lunch. And we have -- as we said at the outset, we think that approximately 50% of the existing fleet lends itself and will support a healthy day-of-the-week lunch business. So we ended the year at 25%.

This is going to be a very staged, very thoughtful roll. We expect to end the year at 34%, and just like we said, we're going to build to that 50%. How we choose it and what markets has to do with demographics, a convergence of where we can build out and also get bang for our buck on a marketing-communication front. And so there's a couple different factors that come in, and we have that all mapped out over the next two years. Obviously for competitive purposes I don't think we want to get into what store, what quarter. But we will build to that 50%, and we're expecting to go from 25% on the Outback fleet to 34%.

Using the same methodology, we ended the year last year on weekday lunch at Carrabba's at 9% of our fleet. We're very pleased with how it's going. We expect to end this year with 26% of the fleet serving weekday lunch. And again, we believe that, that builds to that 50% of the fleet, all the analytics suggest will support a healthy weekday lunch. So it's going to be a staged, measured build.

Got it, and then one more question. Based on a lot of the units you already have on the ground, the test units, how long does it take for these restaurants to approach that targeted sales run rate that you think makes sense for the weekday day part? How long is the buildup to get to a mature weekday lunch day-part volume?

We find the lunch business cycles up a bit. It takes matter of months. It doesn't take a very long time, and so we expect a quarter or two for the business to build and continue to grow. And then what we're finding is as people get used to it, they know our locations, margins improve, sales improve, and we just get better and better at it. It's not a very long build.

Michael Kelter with Goldman Sachs, please go ahead.

I know you guys don't like to generally talk about the monthly cadence within a quarter or trends post-quarter close. But in this particular case, given the mid-quarter swing that caused you to change your guidance previously, I thought it might be helpful so that we better understand your underlying business. You mentioned in the prepared remarks that customers returned in the back half of the quarter.

Can you help us understand, for example, what that means, what March-April looked like? Part of the reason I ask is that even with these customers returning, you didn't raise your same-store sales guidance back to the 3%-plus level that it sat at before the wobble.

Michael, you're right, and I appreciate you starting on that. We don't and we stay away from short-term sales guidance, mainly because we honestly don't think it's instructive, right? So an April number that we give you would have the benefit of an Easter shift. We think that the best way to manage the business, given it is early and it's choppy, we think it's appropriate to maintain our at least 2% objective. Obviously our objective is to beat that, but it was an early and choppy start to the year. We did make that exception in the last call, as I said in my script, and give an indication.

Because I think you saw the whole CDR industry have a real structural shift in February, it looked like, with that big dip that was reported in KNAPP. And we felt that we couldn't remain silent on that. So that was a big structural change in February, which as you saw for KNAPP and certainly for us, came back. So we were really pleased with how we finished the quarter. I don't think you have those type of industry-leading two-four comps with two-two traffic adjusted without feeling like you're driving a healthy mix across the business.

So we're going to continue with our strategy of not talking about the business on a monthly basis. We feel very good where we ended the quarter. We feel very good about our plans this year. We just think it's prudent to maintain the at least guidance of 2%, because it's still early in the year, and, let's face it, it has been a choppy three or four months to the start to the quarter for the industry.

And then you mentioned restaurant operating expenses were up from higher advertising. Was that planned, or is in that in response to the slower sales earlier in the quarter? And will it persist through the year, or did you spend more than is typical of your budget in the first quarter?

Sure. So what we had was we had it planned. It was around our Carrabba's business in the month. And as we continued to build out the business, now obviously, January-February was weaker for us. As we finish the quarter stronger at the back half of the quarter, so some of that advertising did help the business out during the quarter. But it was primarily around our Carrabba's business, and it was planned.

And then one last one. You mentioned the $50 million of productivity savings this year would be back-half weighted. I was actually surprised by that. I was wondering why it feels like a little bit of a delay? Because in prior comments you guys have made, it seemed like you had a solid two or three years worth of very specific projects that were already firmly in the pipeline.

Yes, and we've got one in the pipeline that we rolled out April 1, which is scheduling in our restaurants for labor on a very granular and detailed basis, front of the house, back of the house, rolled throughout our system April 1. And we expect to see very good performance on that. If you look at our labor number, Michael, in Q1 you did see some improvement year on year. So we saw some improvement in labor Q1 year on year. And with the rollout of the labor scheduling in April 1 and beyond, we will really see benefits from that. And this is what we've talked about before. We have these productivity initiatives lined up in our business as we go forward, and this is just one of them.

John Ivankoe, JPMorgan.

Thank you. A few questions, if I may. First one actually may be, to some extent, a follow-up on the previous question. There were a couple departures on the executive side, Value Chain Officer and Chief Marketing Officer. I just wanted to get a sense of how you felt about the organization, whether those were big rolls that should be replaced with external people, internal people. Whether it's something that can be handled within responsibilities of the current executive staff. And if there are any -- is this implications at all that we should think about those roles currently being vacant? Then I have a follow-up as well.

Sure, John, it's Liz. So as we talked about before, I believe that -- and we have the highest performing team in the industry. We have terrific talent. When you have terrific talent such as, I'll talk about Jody first, our Brand President. When you have terrific talent, they attract opportunities. So Jody had the opportunity to go to a $45 billion business as Chief Consumer Officer in an industry -- healthcare, that she felt passionately about it. We were very sorry to see her leave, but the great news is that one of our key focuses here is building a strong bench and developing leaders.

Dave Pace joined me here at Bloomin' Brands three years ago, and all throughout the organization, we have very strong players and very strong bench. So while it was difficult to see Jody go, because she had such a wonderful impact on the business, I got to tell you, the CMOs beneath her on the brands are just terrific. Now, in terms of that spot, that is a permanent spot for us, the Brand President spot. The good news is we have strong internal talent to look at, and we also have gotten a lot of external interest from some really impressive players. So that is a permanent spot for us that we will be replacing.

On the Chief Value Officer front, as you know during his time here, Dirk did a terrific job helping with that efficiency and effectiveness and that productivity mind-set that we really have pushed. And we established the productivity office 3.5 years ago. He had an opportunity to return to an industry that he grew up in, as a CFO, and did he that. Our current plans on that role is not to replace the Chief Value Officer role. We are blessed with having a CFO that was also a Chief Operating Officer, and is world-class in supply-chain management, productivity management.

And so those leadership groups, supply chain, productivity, and IT have moved over very seamlessly to Dave. So that is not a role that we are currently thinking is a go-forward role in the organization. In general, we have a very, very strong team. And the good news is, is that all of our leaders put an awful lot of effort into developing the bench behind them, so while it's hard to lose people of Judy's -- of Jody's caliber, I look around the table and I feel terrific about where we are with the organization.

Yes, and it does -- you certainly seem like, especially in the near term, like all the plans were already in place for '13 if maybe not even '14. But your answer, Liz, was loud and clear.

John, could I just interrupt for a second? I want to put one financial metric out here. We did talk about the back half of the year on productivity, but we achieved over 20% of our annual productivity targets in Q1. This is not like we had a small achievement here. So it is more weighted toward the back half of the year, but we're talking over 20% in the quarter. So just want to say that. Sorry, John.

Thank you for that clarification. Secondly, if I may, on Bonefish, I also don't want to focus too micro on the comp. But it is in a segment, especially to a consumer base, that should be comping -- or is comping very well like in the fourth quarter of '12, first quarter of '13. At least according to my notes, Sunday lunch at Bonefish is still relatively new, which should be an incremental part of your business. Could you shed a little bit more light on maybe the past two quarters of Bonefish comps, and why that might turn around to sustained out-performance in the near and medium term?

Sure. Just the levels that -- we've had 14 quarters of share gains of significantly outperforming the industry. So when you adjust for the trading day in Q1, Bonefish outperformed the industry and took share. So I really want to start from that base. As you also know, Q1 we were lapping a very high base from last year. Q1 of 2012 was a 6.2% comp for Bonefish. Q2 will be a 2.1% comp. So you always have to look at the year-over-year comparisons. We have, in many ways, only just begun to optimize the AUV potential of this box. We will be lapping the rollout of Sunday lunch in August, so we'll be completing that.

But as we look at all of the levers of Bonefish, we're extremely optimistic. We have the menu refresh coming in the back half of this year. It will go in test in August. It's the first refresh since 2008. We also have a lot of levers on AUV all in front of us. So we started with brunch, but we're also going to have a slow rollout and evaluate where lunch makes sense over time. We also have a terrific bar business. We're going to optimize the bar business. We haven't even touched the late-at-night business.

Private dining is something that we get asked about all the time. It's just something we haven't had a chance to get to. That's in front of us as well. And then on curb side, we don't really promote that on Bonefish, because we have a lot of other things to do. So as I look out at Bonefish, I feel very good about where the base business is, still taking share. I feel great that we're doing the continuous innovation with the menu refresh. And then I look at all the levers on this box when you combine that with the fact that it's best in class on consumer satisfaction, and it really gives us a lot of confidence in the path forward.

But if I may add, John, the other thing that gives us a lot of extreme confidence about the brand is the new restaurant openings are opening above the system average and meeting our expectations. So if you look at all those things Liz talked about along with the performance of our new restaurants, we feel very good about the brand.

John Glass, Morgan Stanley.

Just back to the margins for a moment, I appreciate the fact that 20% of the cost savings were done this quarter, but restaurant margins were still down year-over-year. So I think many of us believed that the $50 million would be drop to the bottom line, maybe not all of it, but you would expect overall margin expansion for the year. A broad basis, is that still your understanding, your belief, too that restaurant-level margins should expand year-over-year?

Yes. John, one of the things, just to give you some confidence on it, it's, first of all, our productivity initiatives that we talked about. But this will be the last quarter that we lap the increased rent due to sale and leaseback, which was 40 basis points in our restaurant costs. We did have, like I mentioned, the uptick in Carrabba's advertising in Q1. So when you combine the fact of our cost of sales was done very well; it was managed very well. Our labor costs were lower, and we had some one-time things that happened in the quarter. We feel really good about where we stand.

Now let's also remember that last year up in the Northern US, we didn't have a winter. We don't talk about weather, but it was a very, very strong quarter last year. As you look at how the business is going to perform the balance of the year, we feel really good about the initiatives we have in productivity and the fact that we had a couple of unusual things hit our restaurant margins this quarter.

To that point, the second quarter you mentioned the labor scheduling. This would seem to me like one of your big ideas; it's one of the big areas that you have real opportunity. So how do you frame this within the other opportunities you have for savings? How would you rank this one first of all? Secondly, how well has it gone so far? Is there a learning curve? Should we expect to get some benefit second quarter, but more even in third and fourth, or does it happen almost immediately with the redone schedules?

It's our biggest idea for the year. And let me take my CFO hat off for a second and put my old Chief Operating Officer hat back on. When you introduce a labor tool, day one, you don't get 100% of the benefit. People learn over time. We've incurred all the training costs, all the rollouts, everything else. It's all rolled through our system April 1. Like any other tool, though, when you are dealing with thousands of people, you've got to seed it in. They learn from it. They grow from it and things, and so it will build during the year.

In my experience, running thousands of restaurants, that's how we look at these things, and that's how they will continue to grow and help out our Company. But labor optimization is our biggest opportunity. We certainly have more opportunity in our supply-chain efficiencies and some food-waste management, and we also are work on some energy management things in our restaurant facilities. So we've got a whole bunch of different things we're working on in productivity in our Company.

One last one, you mentioned there was a transition from the PEP plan to the POA plan. I think that's all in the restaurant-labor line, if it is. Is this the first quarter we've seen that transition or has this been ongoing, and this is the first time I've heard you call it out?

It's the first time I've really called it out, but it's an ongoing system that will be going on, like I mentioned in the script, to 2015.

Jason West, Deutsche Bank.

One on the relocation strategy, if you guys could talk a bit about how you are going to choose those sides. I know you've done a lot of remodeling across most of the Outback systems. So would you only relocate stores that haven't already been invested in with remodeling? Or are some of those stores now you need to go back and think about the relocation? And also how does this impact the CapEx guidance? Dave, I don't know if you had updated that for the year.

Jason, I'll just talk about the remodel and relo selection process, and I'll turn it the over to Dave to comment on capital. So as with everything, we use a ton of analytics to determine where we're going to relo and the same thing, where we're going to remodel. So we didn't remodel restaurants. They weren't at the front of the list that we felt were competitively disadvantaged from a relocation. So you can -- there's not going to be a lot of those, if any, that we're going to be having remodeled and then relocated. So we had in mind when you do that, you look at what is the best return on investment for the remodel, et cetera. So the remodel program made out, paid out, and made sense as it went. So that's not going to be money poorly spent, because we're then relo-ing, because we put that in priority order.

On the re-lo, we're looking at all the analytics. We have to combine that too with the lease remaining on it. So it's a convergence between, wow, here's a site that we know will go to pick up a 40% lift. Let's look at our cost structure and see when the lease is. And it's that convergence of the two that drives the timing in the pipeline development. We have line of sight into about 100 that we plan on doing, and we'll pay some out. I'll let Dave discuss the capital and locations and add anything else.

Sure, thank you, Liz. Looking at this investment, Outback, in first quarter, it had 3.2% traffic lift. And it's just a remarkable performance by the Company. And we all have -- we all know about the Outbacks out there that could be in a better location and get even better returns. When you compare Outback versus some of the competitors on traffic, we're really doing really well. This was another way to grow that business. And so what we've done is, like Liz talked about, is identify those restaurant that we feel not only will grow the dinner business, but will be better positioned for lunch.

So fortunately, and through very good planning, we are not increasing our capital guidance. What we've done is take a look at different investments in our portfolio, primarily in our corporate center. We are not take anything away from the restaurants. We are taking -- we took a look at some efficiencies we could get in our capital spending, and we are maintaining our guidance for capital this year. It's really, in all respects, it's a win-win program, and it's a multi-year program. It's a multi-year program, one that we will pursue. And Liz talked about up to 100 restaurants potentially.

Okay, that's helpful, thank you. If I could, one follow-up. Around the topic of lunch at Outback, it sounds like you guys, even though you have rolled out now the weekend and that's going to start to lap in the third quarter, it sounds like you don't expect any cliff, slowdown, or deceleration as you lap that rollout. Because it is a fairly significant addition to the day-part schedule. So just want to get your thoughts. We shouldn't think about it that way, and you're very confident that the underlying trend can hold up, even as you lap the weekend lunch.

Yes, if you look at any new initiative, not only in our businesses, but in the restaurant business overall, as people -- as you have a successful initiative, it gets stronger over time, stronger sales, stronger margins. We talked about our partners getting more used to it and better at it. We see continued upside out of lunch and other day-part expansion opportunities at Outback and all of our other brands.

Yes, I would just build on that. You know that lunch is a $24 billion opportunity, and at many of our competitors, it ranges from 25% to 40% of their business. These are the best brands in the industry on customer satisfaction. So we see as awareness grows, we see, as Dave said, real upside to continue to grow that occasion.

Bryan Elliott, Raymond James.

I need some help, I think, others will, on honing in on the second-quarter guidance some. What tax rate assumption is in the $0.21?

It's basically the $0.03 that we saw help us in Q1 would fall into Q2.

So I should take the 20% to 22% range for the year, calculate what $0.03 EPS is in hard dollars, and add to that my 21% midpoint times whatever my pretax estimate is?

Yes, sure, and I think Bryan, the big thing is on tax in any company, you can give full-year guidance. Tax tends to be a bit lumpy quarter to quarter, but that's how we've thought about it.

Okay. Then does the lower interest kick in the day of the press release?

No, it kicked in when we closed the business -- closed the deal on April, whatever that was, April 10.

April 10, okay. Then the advertising, I missed a little bit of the discussion, I'm sorry. So we spent a little more in Q1, and we're going to get that back through the balance of the year?

We'll be managing our advertising appropriately during the balance of the year, and we expect it to be pretty much within our plans and forecasts.

Will there be a -- the offset be weighted into Q2, or should we level it off?

We'll manage it during the year.

Andy Barish, Jefferies & Company.

Just wanted to get a sense from you guys on the negative mix. Let's think about the Outback business. The changes, we know lunch; we know value -- value, price-point offerings have increased. Can you give us a little color on maybe the weighting of each? And do you -- and then taking that thought to margins, does the margin impact start to lessen as you lap lunch, I would assume, in the back half of the year?

Yes, first of all, let me mention that the margins, as we talked earlier about lunch, will continue to get better and better as time goes by. Secondly, Outback's advertising year on year was roughly -- just a little bit less than last year, number one. Number two, you asked about discounting, Andy, we built guest check at Outback during the quarter on the dinner business. So I want to make sure that, that's very clear to everybody. So from a margin-impact standpoint, Outback continues to do really well. We don't disclose margins by brand, but if you look at our advertising spend, if you look at how we've built the dinner guest check, if you look at lunch pulling in and things, we just continue to feel really great about the brand.

Thank you. That's helpful. I meant just more price-point advertising. It seems like you've lapped those efforts, and going forward, it seems to be the cadence will be fairly similar. Is that accurate?

Yes, as you know, we tend to do 5 to 7 LTOs a year. That will continue. The most important thing is continuous innovation in our messaging. I think just to reiterate what Dave said, we had a 3.5% comp when you take out the noise of trading days, it was redriven by 3.2% in traffic. Within that, we grew the dinner check. We rolled out lunch. We did all that with actually one week less in advertising in the first quarter for Outback, because our advertising is lumpy according to when the LTOs go. So might be higher in one quarter for Carrabba's, but in fact it was a week lower in the first quarter for Outback. So this is a business driven by a 360-communication through LTOs, and that's going to continue.

We actually, if you look at the NPD CREST data, which is our only level playing-field measure of CDR for the period, they announced, which is I think December, January, and February, our discounting on Outback looked like it was around 11% versus a CDR industry average of 22%. So again, we think it's a really healthy mix of using all the levers at our disposal to continue to drive those way above market-traffic performance.

Operator, we have time for one more question.

Thank you. Sharon Zackfia, William Blair.

Most of my questions were answered, but I think it would be helpful maybe to get some more quantifiable information on the tax rate for the second quarter versus the back half of the year. I think that is very confusing for people this morning. Secondarily, on G&A for the full year, is that something where you're still expecting that to roughly grow at about 50% the rate of overall revenue growth?

We expect to keep the G&A growth very modest, 50% of revenue growth. And then that will, that, we continue to call forward the balance of the year. And then, like I mentioned to Bryan, we expect about $0.03 of the tax that we got in Q1 to come into Q2 in our effective rate.

What do you consider your normalized rate in the back half of the year?

It will be closer to the 20% to 22%.

That concludes our question-and-answer session. I will now turn the call back over to Ms. Smith for closing remarks.

Thank you all for joining us this quarter. We look forward to catching up again next quarter. Have a great day.

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation. You may now disconnect your lines.