Bloomin' Brands Inc (BLMN) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Bloomin' Brands, Inc. 2013 results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions and instructions will be given at that time. (Operator Instructions).

I would now like to turn the call over to Mr. Mark Seymour, Vice President, Investor Relations. Go ahead, sir.

Thanks, Joe. Good morning everyone, andyou 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 second quarter 2013 earnings release.

It can also be found on our website at www.bloominbrands.com, in the Investor section. Throughoutthis 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 earnings per pro forma share. This informationis 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 the directly comparable GAAP measures appear in yesterday's press release and on our website, as previously described. Before we begin our formal remarks, I'd like to remind everyone that part of our discussion today will include forward-looking statements including our discussion of growth strategies and financial guidance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them.

These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. Some of these risks are mentioned in yesterday's earning release. Others Others are discussed in our Form 10-K, filed with the SEC on March 4, 2013, which is available at www.SEC.gov.

During today's call, we'll provide a brief assessment of the current casual dining segment and our financial performance for the second quarter of 2013, as well as overview of highlights for the quarter and discussion regarding [daypart] expansion and other 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.

Thanks, Mark, and welcome to everyone listening today. We are pleased to share with you the results for the second quarter of 2013 and related company highlights. As you can see from yesterday's earnings release, our reported second quarter core domestic comp sales growth was 2%, which included a traffic increase of 1.2%.

If you excluded the trading day impact, our core comps were 2.2%. Adjusted diluted earnings per pro forma share were $0.25, a 56% increase over the prior year. These results represent continued outperformance of our portfolio with an estimated 260 basis point GAAP to Knapp Casual Dining Index for both sales and traffic.

Our growth strategies are delivering share gains across the brands in a challenging and choppy CDR segment. As widely reported, CDR sales trends have softened and consumer metrics are giving mixed signals. We've alsonoticed acceleration in promotional activity for casual dining in 2013. So, affordabilityis certainly a key component of the value equation in this environment, but other factors such as menu and food quality, marketing innovation, ambiance and exceptional service are just as important and our results bear this out.

Our success in this environment is driven by elevating all elements of the 360 experience. This means relentless innovation around the menu offering compelling new dishes at a variety of price points to engage a broad spectrum of guests. Ongoing attention to the ambience and appeal of our restaurants, enhancing our marketing efforts with creative promotions and media mix, and continuing to improve all facets of customer service, which are highly ranked across all of our concept.

Our attention to these details led to the following results by concept for Q2. At Outback, comp store sales continued to significantly outperform the segment with 2.8% growth in the second quarter. Excluding the trading day impact, the comps were 3.1% driven by traffic growth of 1.6%.

This marks the 13th consecutive quarter of positive comps for the Outback brand. The strengthin sales was driven by further expansion of the lunch day park at our restaurants and ongoing menu and marketing innovation efforts. Fleming's finished the quarter with comps up 3.8% surpassing the Knapp-Track high-end steak house citing index which came in at 3.6%.

Excluding the impact of trading days, second quarter comp sales were even further ahead of the segment at 4.2%. On a traffic basis, Fleming's also outperformed the high-end segment coming in at 2.6% versus 0.8% as measured by Knapp.

The strength of Fleming's was driven by a successful fillet and lobster offer, and a great turnout for Mothers' and Fathers' Day. This represents Fleming's 14th consecutive quarter of positive comps. Bonefish Grill comps wereup 0.2% forthe quarter, which marks their 15th consecutive quarter of comp growth. After adjusting for trading Bonefish is up 0.3%.

Bonefish Grill continues to be among the top ranked brands in various consumer and industry polls, and is our main vehicle for domestic restaurant unit growth. As we discussed on the last call, we are moving ahead with the core menu refresh. We will go into tests in Q3 and expect to roll the new menu out in 2014. Finally, Carrabba's comps were 0.3% for the quarter, and excluding the trading day impact up 0.5%.

Our Pasta Seconds promotion resonated with value conscious consumers. We are making good progress on the overall brand refresh that was detailed on our last call. 17 remodels were completed this quarter with another 15 underway. In addition our new menu is in test in select locations.

Overall, Carrabba's implementation of the Bloomin' Brands play book is progressing well. Increasing our participation in the $20 billion lunch segment is a key comp sales growth strategy for Bloomin' Brands. Since we get so many questions around this platform, I thought it might be helpful to do a deeper dive on it this quarter. We continue to focus on the lunch opportunity in 2010. After rigorous testing we confirmed the viability of this day [part], and began a very thoughtful and measured roll out.

There were several aspects we had to consider for successful day part expansion. First, we spent a good deal of time revealing our portfolio to identify those locations that could support this occasion from a traffic perspective. Then we performed the necessary work around the menu to ensure that we were providing our guests with items they wanted at price points that work.

Finally, we built a training regimen to ensure that our team could deliver an experience that exhibits the same level of quality and freshness that we are known within the appropriate lunchtime constraints. We continued the roll out of lunch across Outback and Carrabba's in 2012. At the end of this quarter, approximately 25% of Outback locations, and 21% of Carrabba's, offer weekday lunch.

According to (inaudible) year-over-year, CDR lunch traffic trends outperformed dinner traffic trends by approximately 100 basis points for the 12 months ending March 31. Bloomin' Brands will continue to increase participation in weekday lunch, and leverage assets that, for the most part, previously provided no sales contribution from 11.00 to 4.00. In addition, we are seeing lunch sales growth in restaurants where lunch has been in place for more than one year.

Customers becoming more aware their local Outback and Carrabba's is open for lunch and are adding us to their consideration set. Another significant driver for comp sales growth is the remodeling of our restaurants, and we continue to make progress in this area. Outback completed 14 remodels in the quarter.

This puts us at 34 the year to date, and caves us on track to reach the target of 80 remodels for 2013. In addition, the Carrabba's effort is underway with 17 renovations completed in Q2. Now that we are further into the project, our completion phase suggests that wewill finish closer to 40 Carrabba's renovations this year.

Based on CDR segment trends, we recognize our growth will continue to come from share [gains] driven by excellent execution of what we can control, a superior customer experience in our restaurants and ongoing occasion expansion. We have many levers at our disposal that we will use in an appropriate and measured manner to drive sustainable growth. We are confident in our long-term growth potential.

An environment like this also highlights the value of a strong portfolio. The ability to leverage scale is the most obvious benefit, but as various commodity prices move and consumer preferences shift, the category diversification of our brand provides us with the ability to take advantage of trends as they arrive. The steakcategory has been strong over the last couple quarters but we've seen a bit of a pullback in Italian. Having a portfolio that spans steak, Italian, seafood and high end puts us in a strong position to weather any variability in category demand.

In addition, we have an expanding opportunity, internationally, where casual dining is growing. For the trailing 12 months ended June 30, approximately 8% of our total revenues, and approximately 20% of our adjusted profits came from 210 international locations. Given our size and operational capability, we believe we are uniquely positioned to capture this global opportunity.

To further illustrate this point, I would draw your attention to our business in Brazil. With two openings this quarter, our total number of Brazilian units now stands at 43. This 50/50 joint-venture is a thriving business by any measure. Average unit volumes are nearly twice that of their domestic counterparts and they excel at delivery across day part.

Lunch, happy hour, dinner and late night are all strongly represented in their operations. We are on track to open nine restaurants this year, and believe this can be, at least, a 100 unit chain in the next five years. This company owned or joint-venture approached international operations continues to be a point of differentiation for Bloomin' Brands, and one we intend to capitalize on and expand.

The second key pillar of our growth strategy is new unit development. In Q2 we opened seven new restaurants. One domestic Bonefish Grill location, one Outback South Korea, three new international Outback Steakhouse franchise locations and two new joint-venture Outback Steakhouse restaurants in Brazil, as previously mentioned. This was in line with expectations for the second quarter, and we continue to target a total of 45 to 55 new restaurants for the year.

The final element of our growth strategy is to improve productivity and expand margins. We've reached approximately $28 million in productivity savings through June 30th, and we are still targeting at least $50 million for the year. We completed the company-wide implementation of the labor scheduling software in April, and continue to refine its use. We have already realized savings from this tool in relation to front-of-the-house labor, and expect added benefits as our operators become more comfortable with it.

The next step lies in applying this tool to back-of-the-house labor. Separately,we continue to roll out new energy management systems in our restaurants to reduce energy costs. In summary, we were pleased with our performance in Q2. We made good progress against our three growth strategies.

To grow comp sales at existing restaurants, to develop new restaurant units and to expand our operating income margin. While the segment continues to face headwind, we remain confident in the Bloomin' Brands playbook, and our ability to meaningfully outperform the industry. With that, I'll turn the call over to Dave Deno to provide more on our second quarter operating results. Dave?

Thanks, Liz, and good morning, everyone. I'll kick off our discussion around sales and profit performance for the quarter. As a reminder, when I speak net income and EPS, I'll be referring to adjusted numbers that exclude certain costs and benefits.

Please see yesterday's press release for reconciliation between our adjusted metrics and our most directly comparable US GAAP measures. Also provided is a discussion of the nature of each adjustment. With that said, our second quarter financial highlights included the following.

Adjusted diluted earnings per pro forma share were $0.25 versus $0.16 for Q2 of 2012. That's an increase of 56%. The absolute in earnings per share for the quarter increased to $0.58 versus $0.16for the second quarter of 2012.

The significant increase in GAAP diluted EPS is related to the release of a tax valuation allowance, which we will discuss later. Adjusted net income increased to $31.8 million versus $19.3 million for the second quarter a year ago.

GAAP net income for the quarter was $74.9 million versus $17.4 million Q2, 2012. Comparable domestic restaurant sales growth at our core domestic concepts was 2%.

This included a traffic increase of 1.2% for the quarter, driven by day part expansion and promotions across the portfolio. All four of our core domestic concepts had positive in sales traffic in Q2. Please note, at trading day our comps were 2.2% for the quarter.

As mentioned earlier, we maintained a positive GAAP Knapp-Track with an estimated 260 basis point beat for both comp sales and traffic in the second quarter. This represents the 14th consecutive quarter in which our blended core domestic comp have outpaced this index. And [old]finally revenues increased 3.9% for the quarter of 2013 to just over $1 billion.

Restaurant operating margins for Q2 were 16% this year versus 15.7% a year ago. Let's breakthat down by line item. First office sales decreased to 32.3% of restaurant sales for the quarter from 32.5% of restaurant sales for the same quarter in 2012.

The decrease was primarily driven by productivity initiatives, menu price increases and reduced seafood costs. The decrease was partially offset by increases in beef costs and a change in our alcoholic beverage mix. (Inaudible) at the percentage of restaurant sales 28.2% in Q2versus 28% a year ago. The increase in labor cost was primarily driven by higher kitchen service and management labor.

This was the result of planned trained additional training expenses associated with day part expansion and new restaurant openings. The increase in labor expenses was partially offset by AUB leveraging and further implementation of productivity initiatives at the restaurant level. As Liz mentioned earlier, our new scheduling tool [fully] rolled out in April. We've realized the benefit from the its use.

We expect that the savings will continue to grow as our associates in the field become more comfortable with this new tool and its expandeds include backup house labor scheduling as well. Finally, restaurant operating expenses for the quarter were 20 basis points favorable versus the prior year, decreasing from of restaurant sales in Q2 to 23.6% of restaurant sales in Q2 of this year.

The favorability was mainly driven by AUB leveraging and productivity improvement, partially offset by higher supplies expenses and repair maintenance costs. After incorporating the related non-GAAP adjusts outlined in the press release, G&A was $64.4 million in Q2 versus $69.9 milliona year ago. This was a decrease of nearly 8%.

The decline was driven, primarily, by the shift of approximately $4 million of expense associated with our annual managing partner conference that moved from Q2 last year to Q1 this year, as well as reductions in insurance costs. GAAP general administrative costs were $65.1 million in Q2 versus $72.2 million last year. This decrease was primarily related to the items I just mentioned and management fees that were being incurred in 2012 and ceased at the ITO last August.

In total, adjusted operating income margin increased by a very healthy 150 basis points to 6.7% compared to 5.2% in 2012. The increase -- this increase resulted mainly from improved restaurant level operating margins, reduction in G&A and a $4 million decline in impairment and restaurant [closings].

On a GAAP basis, operating income margin improved 170 basis points from 5% in Q2, 2012 to 6.7% in the second quarter of this year. Our secondquarter adjusted effective income tax rate was approximately 33.8% compared to 18.6%of Q2 last year.

The rate of 33.8% does not include the tax benefit for the relief of the valuation allowance. We perform ongoing assessments regarding recoverability of our deferred net income tax assets, which have valuation. Allowances. We As part of this process, we determined this quarter that the is now more likely than not.

As a result, we recorded $67.7 million reduction of the valuation allowance associated with our US net deferred income tax asset. Of this amount, $52 millionWould record as a tax -- income tax benefit and $15.7 million wasrecorded as it increased to additional paid-in capital

As it relates to $52 million of income tax benefit, $44.8 millionwas released as a discrete event, and the balance is realized over the course of the year through estimated annual effective income tax rate. The benefit of the deferred tax valuation allowance release is set aside as a deduct, and not included in our adjusted operating income earnings.

Also in yesterday's release, we'll find in the footnote to our non-GAAP table regarding the application of a normalized tax rate. The normalized rate removes the affect of the valuation allowance release. We did this to bring the rate more in line with the expected income tax rate. We anticipate our full year adjusted tax rate will be 22%. Returning to ourguidance for the full year, our guidance for the full year remains unchanged.

We believe that we previously communicated, as part of our first quarter earnings release, still applies. Included in that release were expectations for blended [toward] domestic comp sales to be up at least 2%, and adjusted diluted earnings per pro forma share to be at least $1.10. In addition, while we don't provide quarterly guidance, we do like to provide color that we think may be helpful when modelling our projected earnings.

To that end, I would like to point out that based on our estimates, the fourth quarter will be among the strongest of the year, while the third quarter will likely be our most challenging quarter of the year. In closing, we are pleased with the results of the second quarter. While there continues to be pressure on the segment our brands are well-positioned to gain share.

Ongoing innovation around the 360 experience, and a focus on flawless execution of our restaurants will be the keys to maintaining gap to the industry and achieving the goals we set for ourselves. And with that, we'll now take your questions.

Thank you, sir. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from the line of Joe Buckley with Bank of America Merrill Lynch. Go ahead.

Thanks for the rundown on the businesses. Could you talk about day part sales experience, particularly at Outback. Away from lunch, what else you saw during the quarter, and curious if you have a point of view on the softness in casual dining the last month or so, the potential drivers of that might be.

So Joe, it's Liz. Let me take those in two parts. In terms of the day part experience across the portfolio, and specifically at Outback, as you know we have many levers which drive our comps, and day part expansion and lunch expansion is one of them. We don't pull those two comps, the lunch contribution apart. We are very pleased with how lunch is performing, and how the businesses are performing, in general, on a comp sales basis in a challenge category. So, forOutback, we completed the roll out of weekend lunch in 2012.

We're doing a very measured roll of weekday. We like how it's going in, and so, in general, the two are interacting well together. What we did talk about was we look at all the same information pieces you do to make sense of what is happening in the casual dining industry, and as you look out over the last 12 months ending March 31st, the lunch segment, in general, has held up better than the dinner segment.

You have all these pieces of information that's feeding into. Okay, so what's going on with the consumer, which is the second part of the question. And there's a lot of, obviously, mixed signals out there about what is going on with the consumer and the reported softness that's been observed in casual dining. I think it's accumulation of many different inputs, that's how we are thinking about it. It's not one particular thing. On the one hand, consumer confidence is rebounding, July took a bit of a step back, but, in general,it's higher than it's been. Not back to pre recession levels, but then you have the issue there's no question that discretionary income for our target group is down.

I saw a statistic where wages were up 0.6%, but inflation is up about a point and a half, andso you have this pressure on discretionary income. You -- peopletalk about the spike in gas prices. So, I think it's many different things that are coming together, and what's been interesting about the consumer behavior this year is that it's been choppy. This has been a choppy environment for us and for everybody. It's not prudent to draw conclusions on a monthly basis, but certainly informative about what's happening. And so we use all of those inputs to really come to a point of view on the impact of consumer and the headwinds.

Okay. Thank you.

And our next question, Michael Kelter with Goldman Sachs. Go ahead.

Maybe you can elaborate a little more on the slowdown in industry trends. While you guys do, obviously, you continue to outperform, it would be helpful to maybe hear how the recent change in the dynamic in the industry has manifested itself with your particular customers. Any change in weekday versus weekend or day parts or changes in ordering patterns like drinker dessert add-ons, differences by region? Anything to help us understand would be great.

Sure, Michael. You always want the silver bullet and we do, too. Right? Because it's always great when youcan say, "Its X, and therefore, we can design a program around X." And so ongoing to go back to my prior comment, which I think an accumulation of things that are building up, and then you have a reaction on a monthly basis that we haven't maybe seen, typically. The one thing I can tell you, and I alluded to in my script, that we have seen and NPD CREST get a bead on what is happening within the industry, is that the lunch occasion over the last 12 months, and again, we like to look at a longer period because we know monthly is quiet variable, the lunch occasion of the last 12 months has held up better than the dinner occasion. I think you can play that out into the ongoing and accelerated demand for value and the choiceful selection of where people are going to put their discretionary income.

Now every measure that we have and that we've seen continues to indicate that value, but that broader definition of value is not becoming less important. It's just more important, and so you have to be firing on all cylinders to win in this environment. So I think the headline is that it's been a choppy consumer environment because theirs have been various signals coming in and out and the customer, but the thing that remains is the customer's insistence on the best experience for the most affordable price and that's how they are looking at value. So as we think about that, that's the lens we look at through the environment through.

And maybe more company specific. You have kept your guidance of 2% plus same store sales for the year even though you are a little bit below that year-to-date, just a bit, but it, still assumes an acceleration for you in the back half. And that means the two year same-store run rate would have to get better from this point forward. Is there any reason why you have such confidence against the choppy backdrop? Is it, you know, oryour recent trends going to be a little better? Do you have majorinitiatives coming, or is there something else we should be thinking about on same-store sales for the rest of the year?

Hi, Michael. I think that we continue to be very optimistic about the leverage we have. When you look at the remodels; when you look at (inaudible) innovation. When you look at day part expansion, look at all those things that are going on, we believe we've got a very good story, and we believe the at least 2% same-store sales growth. The plans are in place to achieve that for this year. So, I think whatmakes us a bit unique, Michael, is the number of levers that we have, and if you look back, going back to Joe Buckley's question for a second, as well.

I mean Outbacktraffic was up 1.2% in the quarter. That's a nice move and it all goes into the various levers Outback remodels, day part expansion. All those kind of things are just really, really, really strong. I think that we have a good look going out, going forward. And I dowant to correct one thing. I did make a mistake. Outback traffic was up 1.6%, so I apologize for that. We are very pleased with the levers that we have, Michael, and the balance of the year that we have planned.

And if I could one last. I mean did I hear you right earlier that all four of the concepts had positive traffic? And the reason I ask is if that's, true it, presumably, means that check, right now, negative at both Bonefish and Carrabba's, and I wanted to understand that dynamic a bit better.

Yes. We don't comment on traffic. Did we call out the traffic by concept? I don't think we did. And so we can talk about the pieces across the portfolio of total comp. We had comp adjusted for trading days of 2.2% for the quarter, and 1.2% traffic, so we had some pricing realization coming through. So you had, for the quarter you had,some growth in dinner check, which was planned but that -- and you had that, to some degree, offset by the growing lunch mix but very healthy traffic. We are actually pleased with the health of the comp store sales, because we saw pricing realization, prudent, on the dinner check. We mixed through the lunch occasion, and broke we traffic in an environment that there was not a lot of traffic being driven. That's how I think you can think about the mix of our comps.

Did you guys say, I thought, David, you said all four had positive traffic for the quarter. Did I get that wrong?

They did.

They do have. All four brands of positive traffic in the quarter, and Liz talked to the pieces of the mix when you, look at lunch, look at dinner --

On a portfolio basis

On a portfolio basis. And the one thing I want to stress is that our dinner guest check grew in the quarter. So, lunch is playing a piece in here during the quarter.

Thank you very much.

Yes.

Andy Barish with Jefferies. Go ahead.

Hey, guys. One other sales question, and then an expense question. Just on the sales side, are there -- I think we all understand the template that's been put in place at the Outback business and now kind of moving to other brands. Are there, particularly in regard to Outback,, That are there short-term things you we don't necessarily see, kind of behind the scenes you are able to implement on or other things that may be quick hits in response to the environment. And then secondly, on the labor side of things, did you still have some of the change in compensation on the labor line that? I think it helps labor and hurts G&A. I was just wondering if you can quantify that.

Sure. I'm going to take the first part and then I'm going to turn to Dave to talk about the expense part. On the Outback side, we talked a lot about the fact this is a really nimble, agile team, who has many levers at their disposal. So, youare absolutely right. The digital and what I'd call kind of cutting edge promotions have been really the forte of this team. We've pretty significantly increased our digital spending over the last call with, you know, several years and that continues to be an area of growth for us and innovation for us. For competitive reasons, I don't want to talk about some of the things that we've done going forward, but that's increasingly creative use of media mix and growing focus on digital is absolutely something that Outback team has been pushing and that you're going to continue to see more of us.

I think, you know, inthis environment what they have done, and continue to do so well, is to be nimble and be agile and to take advantage of trends as they arrive. So, you'll continue to see that from us. I don't want to tip our hand, but that is something you'll continue to see from Outback.

And then, Andy, on labor, a couple things. First of all, the force of our labor, we were very pleased about the improvement in our cost of sales this quarter. Very good. And the productivity addition is there, really sticking in. On labor, they are kicking in, as well. Acouple things. There is no, to your question, there is no shift in the compensation piece that's driving the change in labor. Just acouple things -- one, productivity is the head of our pace. We talked about, at least, $20 million, $28 million this quarter, so we are very happy in that achievement.

Secondly, in the labor line we have the training for lunch, and we have the training for new restaurants that we anticipate to pick up new restaurant development in this back half of the year. And thenlastly, I just want to remind everybody, as we have more lunch restaurants, the labor component of lunch is a bit higher than our dinner business. So you will see a tick up in labor as we work through the lunch business. Now that may hurt the lunch, excuse me, the labor margin in aggregate, but overall, for our Company, its a significant sales and profit driver.

I'm speaking specifically to lunch here. In your models take that into account. So productivity is helping us manage the labor number, and we've got some additional expenses for training, and then we've got, as lunch comes in, we may have a little bit more in labor cost there to manage the lunch business, but it's a significant boost to our bottom line in sales.

Thank you.

John Glass with Morgan Stanley.

Hi. It's Courtney on for John Glass. Am I on, right now? I

Yes.

Sorry. I just wanted to get a quick update on the relocations. I know you hadsaid you were planning to do 10 to 20 this year, and just wanted to get an update there if that's still the goal, and if you are still seeing (inaudible) a 40% lift. And then maybe if you can also talk about margin progress and the $50 in savings. I thought you had said it was going to be more back half loaded, so I was wondering if you're expecting to get more in the second half and [try to do] $20 million.

Sure. Our relocations, the 10 to 20 for the year, are still expectations. We may not complete all those this year, because the time it takes but we will sign the leases, make the arrangements for lease into 20, and that's consistent with prior discussions in our expense flow is considered with our prior expectations. Yes, we are seeing the same sales lift, and we are very pleased to see it's a combination of the dinner business growing because the new locations, and our lunch business growing because of the new locations.

So the relocation program, primarily at Outback, is underway and we are very pleased with it. On productivity, we also had a good quarter, as Liz mentioned. So far, this year we achieved at least $28 million in productivity savings. We achieved too. Weachieved $28 million in productivity savings through the first half of the year. We expect at least $50 million of savings. We feel that most of that will come in the second and third quarter, and we certainly achieved that in the second quarter. And we will continue to push very hard to achieve our productivity savings, while improving customer service and never degrading food quality. So it's avery good quarter on productivity for us. We are very pleased.

And if you could follow up on the labor scheduling. You -- I think you said you are starting to see the benefits of that now. Can you quantify that?

Certainly We don't get to that detail. It's part of the $50 million of savings. It's that, you know, it's a big part. We'vetalked about the savings before. And I think whatinvestors can see is as our people get used to it, and we can expanded to other day parts, and we continue to manage it going forward. We should see a bigger and bigger pickup in the quarters ahead, but we reallydon't want to get into that granularity, but it is part of our, certainly, our $50 million, at least $50 million, productivity save.

Okay. Great. Thank you.

John Ivankoe with JPMorgan.

Yes. Just clarifications and a question, if I may. Firstly, , could you remind us what the targeted system wide roll outs are for mid week lunch for Outback and Carrabba's, 2013 and fiscal 2014?

Certainly. John, for Outback, by year end, we expect to have 29% of the system open for week day lunch, and for Carrabba's by year end, we expect to have 35% of the country open for lunch.

Okay. Obviously, still a lot of work there. Have you updated the 2014 forecast?

No. This is Dave. Not yet, and I would like to add one thing, and Liz mentioned in her script, this is -- but I want to emphasize it. We are finding that, as we talked about before, lunch, restaurants that had lunch, that have been open at least a year, that lunch business is growing. And so we have an opportunity to roll out more lunch, more restaurants that have lunch, and we have an opportunity to grow the lunch business. I want to stress both of those levers are available to us as we go forward.

Dave, you mentioned, right at the tail end of your prepared remarks, about, I think, you know, 3Q being the low point of the year. And, certainly, that would make sense from an earnings perspective. Did you also mean that from a comp perspective?

I mean, it's just about -- we don't give broad, you know, we don't give detailed comp guidance, John. When we look at our overall business performance, third quarter will be the most challenging.

Okay. And then the, I guess,the question, if I may, is on Bonefish. I want to ask, I suppose, in terms of the rate of development and the same-store sales there. I mean, certainly, I think the vast majority of uswould see this as your most obvious unit growth, perhaps even comp growth opportunity, in the US given what the penetration of that brand has been. So just hoping in this form where we can get an update on both of those important metrics at the brand.

Sure, John. Let me start, first with kind of your question on kind of the comp and then will talk about the [numerous] development. Bonefish had a comp of pointsreadjusted for trading days, which is a deceleration. Although, still,as you know, outperforming the industry comfortably on both a sales and traffic basis. So I want to start there, but the 0.3is a deceleration and on top of a deceleration that we saw in Q1. I want to start out by saying, first, that we -- I don't -- have no structural concerns on brand health and appeals of this concept. It continues to drive among the highest customer satisfaction scores in the industry. Among top in any consumer or industry poll, and our new units are traveling well beyond the core geography. Unbalanced our new units are opening above system average, so this is a concept whose appeal is traveling well and continues to resonate.

That being said, you know, I've talked a lot about this notion of continuous innovation, and that what we do, ourselves, is the most meaningful driver. And candidly, as we have talked, I think, in the last call in the call before that, we have not refreshed this menu since 2008. We have a very innovative menu in test in Q3 will roll it out in 2014, but candidly, we have an innovation gap that's pressuring our comps and it's somewhat self-inflicted. You have to have that relentless, continuous innovation, and we went too long in this area. The good news is I'm very pleased and excited about the menu that is in test. And this is not a long-term brand health issue. However, it just continues to highlight that in this environment you have got to have that continuous, relentless innovation. On the new unit development front, we feel very good about how the new units are opening. We only opened one Bonefish unit this quarter; however, we are on track.

That means that our pipeline is back half loaded. We have to do a better job of smoothing the pipeline. However, we are absolutely on track with our communicated 45 to 55. It just means that it's more back half loaded than we would like, and that's just a matter of completion and pacing. So just in summary, recognize the deceleration, own the innovation gap, feel good about how we are progressing, and as we look long-term, the brand is traveling very well and the levers for long-term growth remain intact, whether lunch expansion, late night bar business, private dining, online ordering, these are all [AUV] opportunities that are in front of us.

And regarding that menu innovation, do you think it's necessary to introduce many new, lower-priced? Do you think it became an absolute price point issue for consumers today, where maybe the average ticket needs to come down or maybe you are just talking about new and different and differentiated things that really only Bonefish can sell.

Yeah. John, I'm really glad you asked that question. It's the latter. We are known for -- so, we have a $23 check average, and have to continue to provide price points all along the spectrum. And certainly this menu refresh will have. What we are known for is exciting twists. That's what you'll see when the new menu comes out keeping the core things that sell, but also updating that innovation and culinary forwardness that we bring the polish casual. It's morethe surprise and delight aspect that we let get too stale versus a value issue. Although, to everyone, value is important to have that range of price points, and we will have that in the new menu, as well.

Thank you.

Jeff Farmer with Wells Fargo.

Just following up on Joe's first question from a long time ago, the beginning of the call, but [one impression] we had in the conversation with investors is that there's been, probably, too much focus on the demand side of the equation, meaning the prettymaterial acceleration in both chain and independent restaurant (inaudible) over the last 12, 18, 24 months, is at least partially to blame for decelerating traffic in signature sales. I just be interestedThat to get your thoughts on the topic enforce order beginning to go down that path, again, in the industry.

Yes. Certainly we believe, and we've talked about this for a long time, you know, there's winners and losers in the segment. And what we do in our own business, and how we manage our business, and the things Liz just mentioned, for instance, and driving the business at Bonefish or Outback and everything else has a much, much, much bigger impact than the supply side, the demand side and everything else. So, we -- it'sa fragmented industry. We think there's a lot of opportunity to take share. If you've seen our results, we are taking share, and we believe what we do with our brands presents us enormous opportunity to continue to make progress. We believe that the sales trends, what we do with our brands, will be the main thing going forward in the scheduled dining industry.

Understood. But just anecdotally,if you look left and right at, really, you know, the mall developments, wherever you are opening your restaurants or choosing to compete, do you get the sense that pace of development has picked up materially, or is that, perhaps, overstated on my part.

Well, I think -- so I haven't let me just say, materially we have seen and we've talked about the demand for a quality sites being intense. Right? So , part of our pipeline,, and we've is said this before it's not the demand for Bonefish it's been the supply of sites that has also put -- dictated the speed of our roll out. We are seeing competition for a quality sites. Whether I can tell you that's a material uptick, no, I can't say it's material upset, but there's a real demand for a quality sites. But I think today's point, you know, this is still an industry that has real estate tied up in brands that aren't performing as well, right. So Consumer part of the industry, you have to have some of that less productive supply shakeout, while some of the brands that have a national expansion program supported by trends are rolling out. I think you see both happening.

That's helpful. And just one more unrelated question, if I may. Thinking about your promotional strategy and actually your second quarter at Outback was a little bit of a good case study here. You had two things going on. You had some new food news with the steak flights, and brought back the four course for $15. My question for you is in this environment, which of those really proves to be a more effective traffic driver, meaning sort of the new food news or value? What do you think consumers are finding more appealing right now?

Well, Jeff, you've heard us say a lot, that is the entire 360. You cannot pull it apart, and that's what the consumers told us. They want great food at affordable prices, and that is how we construct our LTO. When we brought back Outback four, there are still dishes and innovation within that. And then the steak flights was in a important celebration of our award-winning steak credentials. So it's that superior brand value as divided by the best benefits, divided by price. And what the consumer is telling us, "You better deliver both."

Okay. Helpful. Thank you.

Sharon Zackfia with William Blair.

Two questions, I guess. One for David, first. The third quarter commentary that you made, is that a change from your initial thought process? Have you thought the third quarter might be the most challenging, because of pace of initiatives or what have you. And then, secondarily, for Liz, there seems to be a lot of concern with investors that you're lapping over weekend lunch and how you sustain these above average comps. Could you give us kind of some insight into your visibility into the future and the initiative you have laid out. And kind of about that time line where you are really confident in achieving well above average same-store sales within the space?

Hey, Sharon. Dave. The quarterly split, as you know we don't give quarterly splits during the year. Really, no news for us. We justAnd everything that felt looking at the modelling that out there it warranted commentary. As we looked at our quarterly splits, we knew Q3 was going to be the most challenging quarter for us. No newnews there. I just felt that it needed to riseto the occasion given what we saw in some of the modelling out there.

Okay.

Yes. So, Sharon, on this continual outperformance in the industry going forward. The first thing I would say is we love our brands. We like how we are positioned, and we like the portfolio of levers that we have in front of us. Okay? And we are going to roll those out in a measured manner. Let me talk, specifically, about your question about lapping weekend lunch, and then will talk about that. The reality is that we lapped weekend lunch. It started on Outback Sunday in Q1 of 2011 and finished in Q2 of 2011. So, we'vewell lapped that, and I think Dave has already indicated those that occasions continue to grow. This is not a matter of, G, once you anniversary lunch, boy, you better -- what else are you going to do. Those weekend lunch legacies they are growing. So, we feel very good about that because, you know, think about it.

As customers become more and more aware that we are open for weekend lunch that occasion is growing for us. We see that playing out across weekend lunch on Saturday and Sunday for Outback and Carrabba's. And we finished the roll of weekend lunch in Q1 of 2012 on Saturday for Carrabba's, and Q3 of 2012 on Saturday for Outback. Okay. And those continue to grow. So, Ijust first wanted to clarify that.

In terms of levers in front of us, we've talked a lot about the measured stage roll of weekday lunch, and I think we've given you guys specific targets on how that's going to flow. , In year end, we are going to be, I mentioned, earlier where will be at year end. And long-term we said 50% to 60% of the fleet could support that. Continue to feel very good about that assumes. We've talked about the remodel program, and we're finishing that up on Outback this year, and we talked about the fact that we've got the Carrabba's remold.

You just heard that we had 17 finished, 15 in progress. Feel very good good about what we are seeing there. And then are going to do this three-year roll out of that. And we kind of have (inaudible) insight into what that gets us. Onthe menu work, you know, you've got to put that in test, but theculinary expertise we have here it gives me great confidence that we'll continue to innovate. These That are staged and measured levers we are going to pace so we do them right and that they go in right.

All of that happens against the back drop of a consumer environment that , as you know, has been very choppy and has had a lot of headwind. Ifeel very good about what we can control. What I don't have is a crystal ball that tells me how the macro and customer sentiment landscape is going to unfold. That is how we think about our outperformance by the industry, and that's what gives us that confidence that that's going to be an ongoing story for us.

For, Can I ask you a follow-up? I mean Josh given the initiatives coming up at Carrabba's and Bonefish, obviously the comps led by Outback in the last several years in a strong way. And is therea point over the next two years where you think that's what's (inaudible) and Carrabba's and Bonefish are leading the same-store sales for the company?

Well, you know, I guess, I would just first take a little bit of exception with that. We are entering our 13th, 14th and 15th quarter of, you Carrabba'shad a bit of a decline, but all of these concepts have been outperforming the industry, right. Bonefish It's we've talked about the deceleration, but still was positive and had a meaningful outperformance versus the industry. I would say the journey over the last four years, we have felt very, very good about how all of our brands have performed. Fleming's continues to outperform the industry, you know, meaningfully, quarter after quarter. The portfolio is in good shape. This is not a story of Outback driving along three laggards. We feel very good about the brand health across the portfolio.

That being said, each brand has to deliver against that 360 experience. Marketing, menu innovation, it's an $88 billion category. We're a very small share. We think there are share opportunity across all of the brands, not just Outback.

Okay. Thank you.

And I just want to add, and Liz mentioned this in her script, international is close to 10% of our revenue, and approximately 20% of our profits. We talked about the (inaudible) business. (Inaudible) is doing extremely wellfor adding restaurants. It's an important part of our portfolio. International becoming an increasingly important part of our portfolio going forward. As you look at the investors and analysts look at our business, it's a global business, and we will continue to capture that opportunity.

Thank you.

Jeff Omohundro with Davenport & Company.

Thanks. Wonder if we could dig in more on Carrabba's. Covered , Bonefish and Outback, pretty extensively, but Carrabba's is facing a sector that appears to be experiencing some more significant promo and value initiatives competitively. When Is there you think about this 360 approach to the business, and think about casual and Italian, certainly positive seconds as delivered for you, but do you think it's time to look at other levers, and if so is value or other options at this point? Thanks.

Sure. Let me talk about Carrabba's. I think on the last call, you know, you're absolutely right. There's manylevers. And so, that we said on the last call we were up a couple chapters behind implementing Bloomin' Brands playbook on Carrabba's that we did on Outback. As You know, we have a new menu. That is in test and that pending, what we so far looks like a very positive read, we will be rolling out at the end of this year. We have a new design, which has done extremely well. We have new ambience and service, and all of that has gone into a test, and we anticipate starting to roll that out at the end of the year.

So, we are upgrading the entire Carrabba's 360 experience, very similar to what we did with Outback. Specifically, on the menu, the menu innovation work is going to keep what is unbelievable quality and cravable, but it's also going to expand the menu into a larger variety. Whether it's a variety of price points, whether it's having the wonderful Italian things, but also ways to eat lighter, ways to eat more informally, you know. That menu refresh will address all that. We feel good about the 360 upgrades we are making on Carrabba's, and as you know, Carrabba's continues to take share in the Italian segment.

You know, before -- theItalian segment has seen a decline over the last year, call it, a couple points in our data from NPD CREST a couple points below the industry. The reality is, though, this has been a year phenomena, it's and a $15 billion industry and we're a very small share. So we continue to see Carrabba's share growth in front of us, and the levers that we've talked about and detailed are progressing nicely. And we anticipate beginning that roll at the end of this year.

Thank you.

Michael Gallow with CL King.

Good morning. Congratulations on the good results. I just had a question, a bigger picture question with regards to Outback. So, you beenable to roll out weekend and then, you know, starting to roll out weekday lunch without cannibalizing the dinner business. It's still a, relatively small percentage of sales certainly relative to the casual dining category. I guess when I look at your performance in Brazil, your ability to hit really four day parts, and the volumes, obviously, significantly, above the averages, I was wondering plan you think longer term, bigger picture, with Outback whether Brazil can become a template for really becoming a much more significant player across some of those other day parts, even aspirationally. And whether we should think about potential for the longer term volumes at domestic Outback to be much higher than they are today. Thank you.

Yes. So we're not going to get ahead of our scheme, but we think Brazil is a wonderful example of how you utilize all the day parts. And, you know, you've heard me talk a lot about the levers, but the need to do it in a measured paste fashion. I also, you know, -- so do we think that there is an opportunity to grow additional occasions and expand in Outback? Yes, we do. We are focused on the lunch piece now, and executing that and doing that very well. But that doesn't mean we are not thinking about innovating around the other day part occasions on Outback that, frankly, we, as you pointed out, we haven't really gone after.

That's all I really want to say for now, for competitive reasons, but I think there's no question that we have a lot of optimism for what opportunities there could be in the future to fill the box. The other thing I would say is that, you know, or reload program, obviously, enhances that ability because you also have to have the right location to support those other occasions too. Right? So, that plays into it, as well, and the two converge well.

Thanks, very much.

And that concludes the question and answer session. I will now turn the call back to Miss Smith for any closing remarks.

Yes. We thank all of you for joining us this morning, and we look forward to catching up with you for the next quarter'scall. Take care.

Ladies and gentlemen, this concludes the Bloomin' Brands, second quarter, 2013, results conference call. Thank you for your participation. You may now disconnect.