Bloomin' Brands Inc (BLMN) 2014 Q4 法說會逐字稿

Good day and welcome to the Bloomin' Brands, Inc., fourth-quarter 2014 results conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chris Meyer, Vice President of Investor Relations. Please, go ahead, sir.

Thanks, Rachell. Good morning, everyone and thank you for joining us. With me on today's call are Liz Smith, our CEO; and Dave Deno, Executive Vice President and Chief Financial and Administrative Officer. By now you should have access to our fiscal fourth-quarter 2014 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 restaurant-level operating margin, adjusted income from operations, adjusted net income, and adjusted diluted earnings per share. This information is not calculated in accordance with US GAAP and may be calculated differently than other companies' similar non-GAAP information. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP measures appear in our earnings release 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 from our forward-looking statements. Some of these risks are mentioned in our earnings release. Others are discussed in our Form 10-K, filed with the SEC on March 3, 2014, and subsequent filings which are available at www.SEC.gov.

During today's call, we will provide a recap of our financial performance for the fiscal fourth quarter 2014, an overview of Company highlights, a discussion regarding progress on key strategic objectives, and an update on 2015 guidance. Once we've completed these remarks, we will open up the call for questions.

With that, I would now like to turn the call over to Liz Smith.

Thanks, Chris. Welcome to everyone listening today.

We are pleased to share with you our results for the fourth quarter and full year 2014, as well as our thoughts for 2015. As noticed in this morning's earnings release, our adjusted fourth-quarter diluted earnings per share was $0.28, and our reported fourth-quarter core domestic comp sales were up 4.2%. This represents a 240 basis point sales over delivery versus a casual dining segment that strengthened over the fourth quarter. Traffic for the quarter was up 1%, which was 140 basis points better than the segment. This marks the 21st and 22nd consecutive quarters that we have meaningfully outperformed the industry in sales and traffic respectively, as we continue to gain share in the CDR category. In addition, all four of our core domestic concepts posted positive comps in the quarter, and we continue to see sequential improvement in our dinner traffic.

Q4 was also a strong finish to a great year on the productivity front. We finished 2014 with $65 million in productivity savings, which was our best year since 2009. Overall, we were very pleased with our results this quarter. And more importantly, we have strong momentum heading into 2015.

A view of Q4 performance by concept is as follows: at Outback, comp sales grew 6.4% in the fourth quarter. This was an impressive 460 basis points better than Knapp. Our efforts to reinforce our steak authority are gaining traction, and our dinner traffic trends have improved since last quarter. In addition, our steak-centric messaging has also increased our guest check average, as we are seeing higher guest preference for steak entrees and steak-focused LTOs. We also continue to balance steak innovation and exploration with platforms to broaden occasions, with ideas like the $4 Finds menu.

Overall, Outback continues to perform very well across all metrics. Their performance is even more impressive when you consider that 2014 marks the fifth straight year of CDR share gains, a time span that also saw our two national steak competitors increase their footprint by nearly 40%.

At Carrabba's, we were pleased with our positive comp sales of 0.3% in Q4, given continued headwinds in the Italian category, which is down 3% for the three months ending November 2014, as measured by [NPT CREST]. As we have discussed, we are working on the next iteration of our core menu that will expand lighter options, increase variety, and provide a better range of affordable price plans, to drive frequency that complements special occasions with more everyday dining. This menu was slated for the back half of 2015. However, it may be later if testing determines we need more time to optimize it.

That said, food innovation will still be present throughout the year with LTOs that reflect our new positioning. This will be complimented by the ongoing work underway to contemporize our restaurants, and enhance the overall dining experience. With these initiatives largely in front of us, we remain confident in the vitality of this brand.

Bonefish Grill's Q4 comp sales were 0.7%. Bonefish is returning to its polished casual roots, with a re-invigorated commitment to our brand equity pillars of culinary-forward cuisine and continuous innovation. As we execute on this strategy, we will unwind some of our promotional activities that drove traffic, but were more appropriate for traditional CDR competitors. Some of this promotional unwind was reflected in our Q4 results. But we are confident that the pivot back to our polished casual roots is the right direction for the brand. We remain encouraged with the early results from our new core menu, launched in Q3 2014.

Our return to continuous innovation is reflected in a robust new product pipeline. In January, we launched a new bar menu called In and On Bar Bites that offers small plates paired with our handcrafted cocktails. Moving forward, we will have seasonal menu changes that will feature new dishes that correspond to the fishing seasons. These efforts ensure that we provide food exploration opportunities that Bonefish customers love and expect from the brand.

Fleming's continues to perform at a high level. Q4 comps were 3.4%. This is the 20th consecutive quarter that Fleming's has had positive comps. Fleming's is at the forefront in providing new incremental platforms for fine dining, with the latest being 8-9-10. This office is focused on capturing the late night meal occasion, targeting millennials, where we offer eight items, or eight drinks and cocktails, for $9 until 10.00 PM This has been well-received by our consumers and has been one of the many reasons why Fleming's has been able to distinguish itself in the competitive high-end steak category.

Overall, the improvement at dinner was complimented by a continued success with our weekday lunch rollout. At the end of the fourth quarter, approximately 61% of Outback locations, and 55% of Carrabba's locations, were offering weekday lunch. This is up from 59% for Outback and 54% for Carrabba's in Q3. In addition, we will be launching nationwide support for Outback lunch in Q2 2015. Although lunch sales continue to grow in restaurants that have had lunch for more than one year, the advent of national advertising will drive awareness and accelerate sales growth.

Turning to our international business. Brazil continues to perform at a very high level. Comp sales remain strong and cash flow is growing at existing locations. Even though there are concerns about a volatile economy in Brazil, our restaurants are performing in line with our high expectations. Demand for Outback is strong, as the CDR market in Brazil is highly fragmented, and demand for our restaurants exceeds supply. We will grow Outback as fast as we can and expect to have 100 restaurants within the next three years.

We remain on track to open our first Carrabba's in March. As we unveiled at our analyst and investor day, we will be using the name Abbraccio in the Brazilian market. Italian dining is the number two segment in Brazil, and no clear category leader exists, providing us with significant runway for growth.

On the development front, we opened 18 system-wide locations in the fourth quarter, consisting of five Bonefish Grills, one Carrabba's, eight Company-owned international Outback restaurants -- five in Brazil, two in South Korea and one in Hong Kong -- and four franchise international Outback restaurants. These openings brought our 2014 total to 57 locations, in line with our expectations.

Overall, we had a strong finish to the year. The casual dining business saw continued momentum, in the fourth quarter, driven by an improving macroeconomic backdrop. We will remain cautious on extrapolating these trends, until we see a meaningful increase in our targets consumers' disposable income, and move pass the impacts from weather events in 2014. Regardless of the industry performance, we remain committed to our annual goal of outperforming Knapp by at least 200 basis points.

Before I turn it over to Dave to provide more color on Q4, I would like to share with you my thoughts on 2015. When we emerged as a public company in 2012, we shared with you our platforms for sustainable growth. This plan is focused on three key areas for success. First and foremost, we will increase comp sales with relentless focus on growing what we already own. Second, we will capture our domestic new-unit expansion opportunities. And third, we will accelerate growth internationally. We are pleased with our progress on all three fronts. Our growth strategy is coupled with a continuous productivity mindset to fund investment while we build scale, infrastructure, and systems. We will, as always, evaluate our investments through our lens of disciplined capital allocations.

Now I would like to update you on our 2015 plans against these three platforms. First, to drive comp store sales performance, we will focus on ongoing innovation. Outback will create new menu items that continue to reinforce our best at steak messaging. Bonefish will launch culinary-forward offerings with the new bar menu and seasonal menu changes. And finally, there will be a new core menu at Carrabba's, designed to broaden occasions. We expect these initiatives to drive traffic for our brands. We will also focus on LTOs in advertising that balance our strong value proposition with our consumers' desire for innovation and indulgence.

As noted, we are significantly expanding our investment in digital and mobile marketing platforms that include website upgrades and online ordering and payment. We have additional tests in market to determine where technology can further enhance the customer experience, and expect to launch some of these ideas throughout the year. With regards to occasion expansion, we will further expand weekday lunch at Outback and Carrabba's. In addition, we will be launching national advertising support for Outback lunch in Q2 2015, that will help drive awareness and increase sales.

As it relates to remodels, 2015 will mark the third year of Carrabba's remodel program, as we update both the interior and exterior of our restaurants. In addition, we will expand Outback's promising exterior remodel test and upgrade new and existing Bonefish sites. Finally, we will pursue Outback relocations, since we are seeing 20% to 40% sales increases at restaurants that we have relocated. We will execute this strategy as quickly as A-quality sites become available. Our 2015 sales growth strategy has many levers, and extends from lunch through the evening dining experience, and is centered around the customer.

Our second platform is domestic new-unit growth. Bonefish grill remains our primary domestic growth vehicle. We are expanding this brand as fast as we are able to find quality real estate. We will also invest opportunistically in new Outback and Fleming's locations. We believe we can scale Fleming's to 100 locations over time.

Our third platform is the acceleration of our international business. First, we will grow our Company-owned or majority joint-venture markets, and leverage the infrastructure and end-market capability investments that we have built over the years. Our Brazilian business executes at a very high level, and expansion in this country in 2015 and beyond, is a key priority. We are also building the infrastructure to support the launch of our second concept, Abbraccio, in March.

In addition to Brazil, we are focused on growth opportunities in China. We will be opening three new locations in 2015. China represents one of the largest market opportunities for CDR brands, given the highly fragmented market and increasing levels of disposable income.

Secondly, we are confident that we have stabilized our business in Korea. We have reduced the footprint and optimized the infrastructure. We will continue to revitalize the smaller fleet of stronger restaurants, and leverage our economies of scale and consumer awareness to return it to growth.

Lastly, we will selectively franchise, in markets that we don't want to own and operate, such as the Middle East and Southeast Asia. In total, we expect to open 40 to 50 new system-wide restaurants globally in 2015, with international representing at least 50% of the openings. This percentage will increase as we accelerate our international growth strategy.

Productivity efforts have been a core part of our strategy for several years, and will continue to fund a portion of our investments in 2015, and close the gap on margins relative to our peer group. We will take advantage of our improving balance sheet to continue to pay down debt. Finally, I'm pleased to announce that our board authorized the payment of our first quarterly dividend. This is a key step in our balanced strategy to pay down debt and return cash to our shareholders through dividends and share repurchases.

In summary, we are confident in our plan and optimistic that we will continue to meaningfully outperform the industry in sales in 2015. We have a tightly edited portfolio of differentiated brands that are well-positioned to capture on incremental expansion opportunities and gain share. In 2015, we will be entering the sixth year of our sustainable growth plan. Our confidence in the vitality of our portfolio and it's long-term prospects remains strong.

With that, I will turn the call over to Dave Deno to provide more detail on the fourth-quarter operating results, and what you can expect for 2015. Dave?

Thank you, Liz. Good morning, everyone.

I will kick off with discussion around the sales and profit performance for the quarter. As a reminder, when I speak to net income and EPS, I will be referring to adjusted numbers that exclude certain costs and benefits. Please see our earnings release for reconciliations between our adjusted non-GAAP metrics, and their most directly comparable US GAAP measures. We also provide a discussion of the nature of each adjustment.

With that in mind, our fourth quarter financial results versus the prior year, are as follows. Adjusted diluted earnings per share were $0.28, versus $0.27 in 2013. GAAP diluted earnings per share for the quarter were $0.17 versus $0.46 last year. As a reminder, our 2014 fourth-quarter results had one less operating day, due to our change to a 52-53 week fiscal year. This conversion lowered our Q4 adjusted EPS results by $0.05. And so on a comparable basis, we are up $0.06 versus a year ago.

Overall, we were very pleased with our Q4 performance, and it was a strong finish to 2014. This put us at $1.10 of adjusted EPS for the year, which was at the top end of our guided range of $1.05 and $1.10. These results came in despite some significant headwinds in the form of health care claim activity, additional incentives expense, and FX-related unfavorability. On the other hand, we did have some tax favorability as well. I will provide additional context around these matters in a few minutes. Adjusted net income was $35.5 million, versus $34.2 million for the fourth quarter a year ago. GAAP net income was $22.4 million versus $59 million in 2013.

Comparable domestic restaurant sales at our core domestic concepts were up 4.2%, while traffic increased 1%. All four of our core domestic concepts posted positive comp sales in Q4. At Outback, comps were up an impressive 6.4%, with traffic up 1.3%. At Carrabba's, comps were up 0.3%, with traffic up 1%. At Bonefish, comps were up 0.7%, with traffic down 0.7%. And at Fleming's, comps were up 3.4%, with traffic up 1.6%. Although we do not break out comp sales between lunch and dinner, we saw continued sales growth in lunch from restaurants that have served lunch for at least a year. In addition, we saw an improvement in our dinner trends from last quarter, which helped drive strong comp trends in Q4.

Total revenues increased 5.5% to $1.1 billion. The majority of this increase was due to additional revenues from consolidation of Brazil, new restaurant openings, and higher domestic comp sales. These results were partially offset by the loss of one operating day, due to the Company's change to a 52-53 week fiscal year, previously announced restaurant closures, and sales softness in Korea. As we indicated last quarter, we believe we have significantly reduced our operating risks in Korea. And despite being negative, Korea sales trends did show improvement as Q4 progressed.

Adjusted restaurant-level operating margins were 15.7% this year versus 15.9% a year ago. It is important to note that we had incremental $5 million of health insurance expense in the fourth quarter that cost us 50 basis points of restaurant margin. This was primarily related to a higher than normal amount of claims in the quarter. Although health care claims ebb and flow from quarter to quarter, this was an unusually high quarter for us. Aside from this expense, our Q4 margins benefited from our productivity initiatives and the impact of higher average unit volumes. These were offset by lunch expansion rollouts and commodity inflation.

Our GAAP restaurant-level operating margins were 16.3% this year, versus 14.8% a year ago. The primary difference between our adjusted restaurant margins and our GAAP restaurant margins was driven by the lapping of a payroll tax audit expense from 2013, and a favorable legal settlement in 2014.

Now on to the details. First, cost of sales decreased to 32.2%, from 32.7% in 2013. This change was primarily driven by productivity initiatives and menu price increases. This was partially offset by increases in seafood, dairy, and beef inflation; costs associated with the rollout of lunch; and changes in product sales mix. On an adjusted basis, labor and other related expenses increased to 28.1% this year from 27.6% a year ago. This increase was due to higher costs associated with the weekday lunch rollouts, health care claims that I just discussed, and field compensation expenses. These were offset by productivity savings from the new labor model and higher average unit volumes. On a GAAP basis, labor and other related expenses decreased to 28.1%, from 28.8% in 2013. If you recall in 2013, we had a $12 million expense related to the IRS payroll tax audit, and benefit from lapping its expense, in 2014.

Finally, adjusted restaurant operating expenses increased to 24% versus 23.7% a year ago. This increase was primarily driven by higher operating costs associated with weekday lunch rollouts, and higher general liability insurance expenses. This was partially offset by higher domestic unit volumes and productivity initiatives. On a GAAP basis, restaurant operating expenses decreased 23.4%, from 23.7% in 2013. This decrease was driven by a $6 million favorable legal settlement. This benefit was the reason our adjusted restaurant operating expenses differed from our GAAP results.

Turning to G&A, after removing $4.8 million of adjustments, which were primarily related to severance, general and administrative costs were $75.6 million in Q4, versus $67.3 million a year ago. The increase was primarily driven by the inclusion of Brazil's G&A in our consolidated results. Also in Q4, we had foreign exchange-related unfavorability of $1.9 million, most of it relating to our business in Brazil.

As Liz mentioned earlier, Q4 was a strong finish to a great year on productivity. We finished the year with $65 million in productivity savings, which was our best year since 2009. We are making progress on removing costs from our supply chain, and are seeing the benefits from the front of the house and back of the house labor tools.

And finally, our fiscal 2014 tax rate was 24.8% on an adjusted basis. This was lower than our guided range of 27% to 29%. The lower tax rate was driven by unplanned tax benefits, such as the extension of the work opportunity tax credit. This occurred at the end of December, and was not built into our guidance. We also benefited from changes in the mix of income across our domestic and international portfolio, as each country has a different statutory tax rate. Our GAAP effective to income tax rate for 2014 was 20%.

Now that we have finished talking about the quarter, let me spend a minute on what has changed since we were together at our Analyst Day in mid-December. As you recall, we indicated that we were at the midpoint or above our adjusted EPS range of $1.05 to $1.10. This was approximately $1.08. Since then, a few things have happened, and let me walk you through them.

First, we had the unexpected tax upside for the fourth quarter, which was worth about $0.04 adjusted EPS. As I indicated earlier, however, there were some offsets to this upside in our Q4 results. First, our excellent results this quarter triggered the payout of additional incentive compensation. This was worth about $0.02. Secondly, health care claim costs came in even higher than we expected, and that was worth about $0.01. Finally, the impact of our conversion to a 52-53 fiscal year, cost us $0.01 more than we had originally projected. So in total, the upsides and the downsides of the changes since we last met, basically offset each other. Also, this dynamic of lower taxes and higher operating expense, helps to explain why our adjusted EBITDA came in lower than our guidance.

And now, a quick update on our capital structure. We have discussed our intent to improve our debt metrics and strengthen our balance sheet. I am pleased to announce that we paid down $75 million of debt in the fourth quarter, bringing our net debt to adjusted EBITDAR down to about four times. We are committed to getting this metric closer to three times.

In December, we discussed the upgrade we received from S&P in our debt, and we are pleased that the rating agencies recognized our improving credit profile. In addition to this morning's earnings release, we will note that our Board of Directors has declared our first quarterly cash dividend of $0.06 a share. We view this as a key step in our efforts to balance our debt paydown with returning cash to shareholders. We've also announced a $100 million share repurchase program that is effective through the middle of 2016.

All in all, Q4 was a very strong finish to the year in many ways. I would now like to take you through our thoughts on 2015. Before I begin with guidance, it's important to discuss two important items related to our financial reporting in 2015. First, in 2014, we changed our financial reporting from a calendar year basis to a 52-53 week fiscal year. Due to this change, FY15 includes 364 days, versus 362 days in 2014, resulting in two additional days in Q1.

The addition of these two high volume days is expected to have the following impact on the 2015 results: total revenues will increase by approximately $25 million, and diluted earnings per share will be higher by approximately $0.04. Secondly, as we accelerate growth in our International business, we want to provide more visibility into the performance and long-term growth opportunity than it represents. Beginning in Q1 2015, we are revising our segment reporting to reflect two reporting segments: a US segment and an International segment. Going forward, we will also provide comp sales and AUVs for Korea and Brazil.

Now, on to specific 2015 guidance. Total Company revenue is expected to be least $4.49 billion. This will be driven by international expansion, growth in comp sales, as well as planned new restaurant development. Please note that a revenue toll reflects the impact of the previously disclosed international restaurant closure initiative, as well as the sale of the Roy's concept. The estimated impact of these two items will reduce revenue by roughly $140 million in 2015.

Adjusted diluted EPS for the year will be at least $1.27. This is an increase of at least 15% from 2014. GAAP diluted EPS will be at least $1.14. The primary difference between the adjusted and GAAP metric is the anticipated $9 million to $12 million of remaining restaurant closing costs, from our international closure initiative.

We expect blended core domestic comparable sales of at least 1.5%. This increase is based on ongoing menu and promotional innovation, continued lunch expansion, and additional restaurant remodels. We are not relying on a meaningful improvement in the segment trends to lift our 2015 results. As Liz mentioned earlier, our goal is to outperform the Knapp-Track by at least 200 basis points on an annual basis.

Turning to commodities, we expect inflation will come in between 4% and 6%. This includes beef inflation of at least 10%. We expect to see improvement in other proteins, such as seafood, which will help offset these pressures. We are currently contracted for approximately 73% of our total buy for 2015, which is consistent with where we typically stand at this time of year. The only exception to this is beef, where we are 99% contracted.

Our productivity goal in 2014 is once again at least $50 million, with approximately 50% coming from cost of sales, as we deploy our actual versus theoretical food costs solution. Also, at our Analyst and Investor Day we discussed having to reload between $10 million and $15 million of additional incentive compensation expense, based on our expected results at the time. As a result of our strong Q4, we were able to fund additional incentive compensation and are now expecting to be slightly below the low end of our range of $10 million to $15 million.

In addition, we still expect about $9 million of foreign currency headwind in 2015 from the weakening of the Brazilian real. As it relates to taxes, we anticipate an effective income tax rate in the range of 25% to 27%. This rate should increase slightly from 2014, given the one-time nature of some of the items from the fourth quarter. We estimate that 2015 full-year capital expenditures will be between $235 million and $255 million.

System-wide, new restaurant development in 2015 is expected to be in the range of 40 units to 50 units, with at least 50% of the units coming internationally. Bonefish Grill will continue to be our lead development vehicle in the US and Brazil. And Brazil will represent the majority of our international development.

Lastly, as Liz mentioned, we will continue to be good stewards of capital. We are committed to improving our capital structure to provide us with flexibility going forward. This enables us to both delever the balance sheet, while also returning cash to shareholders in the form of dividends and share repurchases.

In summary, we are very pleased with the way we finished 2014, with strong sales performance and continued progress and productivity. We have a robust plan to continue to grow our business. We have many unique levers to further drive profitability and earnings growth for our shareholders, in 2015.

And with that, we will now open up the call for questions.

Thank you.

(Operator Instructions)

Our first question, we will hear from John Glass with Morgan Stanley.

Hi, thanks, good morning. Just, first David, on the margins, what is the right base year, or base number, percentage margin, adjusted for 2014, that we should think about 2015 for, I think you provided in the fourth quarter? And what are the dynamics in 2015 that are at work, specifically as you roll out lunch nationally, or have the national advertising?

Is there incremental pressure from that, as sales accelerate? Maybe you can give it -- quantify what you think the incremental pressure from lunch might be in 2015.

Yes, John. We don't see any big incremental pressure from lunch in 2015. The biggest piece of our productivity opportunities in 2015 is the actual versus theoretical rollout that we are doing now. It has been rolled out to the marketplace.

The second thing is, we have seen some improvement in labor, during the year. We will continue to see that as we go forward. But, those are the two big pieces that we will see.

Now, the one thing I do want to mention, when we look at 2014, John, we had about a 70 basis point hit for Korea. We will claw some of that back in 2015. So, from a normalized basis, if you look at the operating margins, you have to look at the 70 basis point hit that we got this year, from Korea. Wrapping it up, productivity is going to come from actual versus theoretical rollouts, labor margins and we will have the national launch at Outback, but I think we have got that appropriately planned in the guidance.

So, on an adjusted basis, restaurant margins are up in 2015? And can you quantify it? I think you didn't talk specifically about that. Where do you think those come out? Or, roughly, what's the gain in restaurant margin in 2015?

Yes. We won't provide a gain specifically, John, for restaurant margins in 2015. We do expect to certainly see an increase. Over the next three years, our goal is to approach our competitors in productivity gains. And one of the things that I want to mention too is, when I use the word approach, we do put more food on the plate than some competitors, and we have more freshness in our supply chain. But over the next three years, even though we don't provide specific guidance to 2015, we will continue to make progress in operating margins.

Okay. One last one. Liz, your GAAP to the industry is still positive, but it did shrink a little bit, particularly in traffic, relative to what you had been running. What do you make of that? Is that just because, as everyone gets better, it's harder to maintain that larger gap? Or is there some other dynamic at work?

Yes. So, our GAAP, as you pointed out John, in Q4, was, on total comp, was 240 basis points. And then on traffic, it was 140 basis points. If you look within quarters though, and over the past, you have quarterly variability. And, so, that's why. When we always say our GAAP to Knapp, we quote it on an annual basis.

When we look by brand, I would say for Outback, we were very pleased with the comp. But more of that came, which we anticipated and planned for, in the form of price mix appreciation. Because, we did that intentional pivot back to steak centric, to really capture and reinforce our steak. So, you saw a higher mix average coming in there. You still saw traffic growth, but we knew that we would, with that pivot, pick it up more in back end.

So, really, the concepts performed consistent with our brand strategies. And we were pleased with the traffic growth, obviously pleased with the total comp growth. But again, things are going to vary, brand to brand and quarter to quarter. But we do see that outperformance continuing, on an annual basis. If you look at the past, quarterly, we have kind of been over or under, on traffic. It really ebbs and flows.

One thing I would also like to add, John. Liz mentioned this in the script. And that is, we are making a concerted effort to move Bonefish to more of its polished, casual roots. Therefore, there is some traffic that we will give up in doing that.

We saw some of that in Q4, and also saw a little bit of that in Fleming's, as we pulled back at some of the discounts. So, that -- you asked specifically, one of the things that happened in traffic, during Q4. Those are two strategies that we pursued.

Thank you.

Next, we will move on to Joseph Buckley with Bank of America.

Thank you. Dave, could I ask you to talk about the revenue guidance for 2015, at least $4.49 billion? You reported $4.442 billion for 2014. And I think you referenced some of it, you mentioned $140 million maybe, from the absence of Roy's and some store closures.

What do you think -- for FX, I think you said $9 million. I assuming that's an operating income number, could you verify that? And then, maybe talk about the FX impact on the top line, that is in that guidance, which is a pretty modest increase?

Yes. Well, first of all Joe, the revenue guidance that we have, reflects our comps and our new unit development that we built up, during the 2015. So, that's the first thing.

Secondly, $140 million of revenue reduction comes from Roy's and the Korea closures. Lastly, we have $9 million of translation changes. And that's a revenue number, and basically a profit number. So, between the $9 million of translation in Brazil, and then the other pieces I talked about, are where we stand.

Okay. Maybe just a question, just kind of a broad question, you gave us a lot of detail. But, with that kind of sales growth and sales increase in Outback, I would have expected to see better restaurant margins. Can you talk a little bit about that? That was a great comp number, but the margins were a little bit disappointing.

Sure. I got it. I think we were very pleased, Joe, with the margin standpoint. A couple of key things I want to talk about. First of all, we talked about the tax change, which was worth $0.04 a share. But that did not hit pretax margins. When you take a look at, Joe, incentive compensation worth $0.02, at higher than healthcare claims, which was another $0.01, and then, the impact of our calendar conversion.

Those are all pretax margin items in the quarter. If you look, Joe, at the reduction in food costs, and the fact that labor costs was basically flat year on year. When you take a look at -- remove the healthcare costs, we made two of some very nice increases in margins, during the quarter.

Lastly, there are a couple of things from our sales standpoint that did impact, it did limit the upside in our margins and our profitability. First, the mix of sales domestically across our concepts, at an important point of year, was different than we had forecasted. They're not quite as margin accretive.

And secondly, sales in Brazil were very strong. Traffic was higher. But our PPA was a bit lower than we had expected, and a bit lower than trend. This PPA did impact our profitability. It did impact margins a bit.

But I want to go back to our margin performance during the year. Take a look at the labor line, take a look at the food cost line, and we've made very nice progress during the year, in restaurant margins.

Okay. That's helpful. Thank you.

Next, we move to Jeff Farmer with Wells Fargo.

Great, thanks.

Liz, just going back to an earlier question. You were clear with your comments, that we need to look at it on an annual basis. But having said that, with the casual-dining same-store sales index up more than 5% or so, through the first six weeks of 2015, how should we think about your confidence in outpacing the index by 200 basis points in an environment like that, where we are looking at mid single-digit same-store growth from your peers? Can we assume that you are putting up something close to that? Or potentially, even outpacing that?

Well Jeff, as you know, we have a long-standing history of not getting into monthly comps or commenting on the quarter in progress. What I can tell you is that, we are really pleased with how our brands are performing and how they all exited the fourth quarter. All with positive comps.

And we do continue, because we have four core brands and there's four quarters, you are going to see quarterly variability. And you have seen that every single year. However, we believe our brands have the health, the buzz, the consumer programming, on an annual basis, to have that at least 200 basis point comp sales beat, versus Knapp.

Now, you are going to have months and quarters that ebb and flow. But I would just tell you, overall, that we feel very confident in that, as well.

A quick followup on that. In reference to the at least 1.5% same-store sales guidance. I am very aware of the fact that we're just, whatever it is, 49 days into the year. But, anything we should make of that at all?

Yes. I mean, Jeff, as you know, we keep in mind that, even though we saw some positive and were delighted, strengthening in Knapp in the second half of last year, the reality is that, last year marked the ninth consecutive year of traffic declines for the casual-dining industry.

And so as we said at investor and analyst day, we are cautiously optimistic about green shoots that we actually feel are finally appearing. Whether it's improved job prospects, disposable income, some of that's coming due. Whether it's 30% lower gas prices, all of that. But we think we absolutely need to get past, what I'll call the weather-benefited Q4 of 2014 comparisons, before we can call a trend change.

So, we have been consistently saying, we like what we are seeing. But at the same time, we've had false positives in the past. Let's get through the second quarter and look at whether Knapp is able to sustain this two-quarter recent momentum. Even though the fourth quarter was good for Knapp, it still had negative traffic, right?

So, I think it will serve us well, as we always do, to take a prudent approach to the industry, and not assume a rising tide is going to lift all boats. But that we have the programs and brands to continue to meaning outperform the industry. And if tail winds should persist and this should prove, then we will all benefit.

Thank you.

Next, we move on to Jeffrey Bernstein with Barclays.

Great, thank you very much.

Two questions; one's a followup on the last one. At least as of now, if the comp guidance is for 1.5% for full year 2015, just wondering if you can offer color in terms of the components? I think you talked about pricing being above that, and therefore, is it safe to assume that your guidance of 1.5%, as of now, assumes negative traffic? Or, how should we think about the components? I think you mentioned the commodity inflation is still 4% to 6%, but pricing of north of 1.5%?

Yes, Jeff, one key piece there is, on pricing, don't forget the mix. So, we will have positive traffic of 1.5% overall, at least 1.5% overall comps. And then we will have some mix there, as well. We don't get into that kind of detail in our guidance, but we will have positive traffic in 2015.

Then just, can you talk about the lunch versus dinner? I think that you've told us, in the past couple of quarters, you've flexed your muscle around the dinner. I'm just wondering, if you could just offer a little bit more color? I think you said it improved, versus Q3.

Can you talk about lunch? You know the concern, I guess, is when you flex the marketing push around dinner, maybe it has an impact on lunch. So, any metrics you can give around the lunch day part. Obviously, it sounds like you are excited that, during the second quarter, you should get some big support from national advertising. But, your confidence in sustaining both, with your existing marketing budget. Or any sign of shift, when you shift the marketing spend between the two?

Great question. Let's talk about -- we are really pleased. I'm going to talk about the first part of your question, about dinner. We are very pleased with the improvements that we have seen in our dinner trend, behind our reinvigorated brand strategy efforts. As a reminder, they are to reinforce best in steak at Outback.

On Carrabba's, it is to get more variety and affordable price points. On Bonefish, it's the return to polished, casual roots. And on Fleming's, it's continuing to be the contemporary steak house. And so, we're very pleased with how they've taken contraction, and our dinner trends have responded. We're also seeing nice performance in our lunch stores that have been open, and are still growing, on a year over year basis.

But, we are very excited about getting to that 70% level in Q2, and turning on national advertising. Our restaurant lunch is growing and performing well, despite having no national awareness or presence. So, we think that's going to be very, very well received, and will accelerate sales at the lunch time.

We have been at this lunch game for a long time. And I will tell you that every metric, and we look at it constantly, in terms of cannibalization, and we have had markets with and without support, so we are always testing, lunch continues to come in within our expected range of about 15% cannibalization.

So, they are different occasions. And the thought process and decision point is not typically a tradeoff between the two. So we are confident that, when we turn on the advertising, that that relationship, which you have seen now for four and five years, will remain.

Now, let me talk about the incremental investment nature. We are not looking to incrementally take up. We feel very good about our share of voice on Outback. It's a very strong share of voice. This isn't over and above that. We intend to tag some of our national advertising. We are open for lunch, is a very simple message that can be delivered.

At the same time, we will have specific lunch copy that will run in place of some dinner copy. So, we have a very healthy share of voice. We have a very healthy dinner business on Outback right now. And a lot of opportunity in lunch. So, we feel very good about how that's all going to play out for us.

Understood. Thank you.

And John Ivankoe with JP Morgan will have our next question.

Hi. Thank you. Two if I may. The comp, and this is the second quarter in a row that it's happened, was very unusual, in that the Outback comp was 6.4%, traffic was 1.3%. So, obviously, the math there is, average ticket was up 510 basis points, which is almost unprecedented, in terms of a year on year increase. I ask this question, of course, considering that 61% of stores had lunch this year, and 35% did last year.

If we didn't know any better, we would think that the traffic gain would actually be very high, and the average ticket gain would be very low, just considering that the lunch ticket and lunch traffic is different than the dinner traffic.

Can you -- and I think you kind of talked about more steak this year, versus not last year. But can you try to illuminate a little bit further, that statistic? If you kind of agree that it does look very unusual, given kind of what you are doing with your business between lunch and dinner?

Yes. So, we talked about, on the last calls, about how we were really happy with Outback's performance. But that it was very clear, in from the first half, we begin to see signs that, we needed -- we had pivoted too far, in highlighting this broadened occasion, affordable price points, and moved away from steak.

And we saw that in the mix, John. It was very clear from the consumers that, we needed to pivot back and reinforce our steak authority. We are Outback Steakhouse. We've got a little too broad in our messaging. And that had driven P mix down.

We need to double back, reassert our authority, Outback Steakhouse. We did that in terms of new advertising, new in store material that celebrated steaks, new cuts. A reminder that we have higher cuts. Two cooking platforms, all of that. And we turned that on, in earnest. And what you saw in Q3 and Q4 is that shift back to steak, and steak centric, which carries a higher price point.

So, we were absolutely expecting, and very happy, by what we saw. It carries a higher price point. But we also, underneath the layers that you are not seeing, we saw dinner traffic. Because most big steak meals are brought at dinner, we saw dinner traffic perform and improve nicely.

Now, just as a reminder, if you look at MPD CREST, whish is really the only way that we can pull out what the industry is doing for dinner and for lunch, dinner was down and lunch was up in Q4, for the 13 weeks ended November.

And so, actually, our relative performance on dinner, we were quite pleased with. I think MPD CREST has dinner down 2% for the industry last year. So, lunch is performing well. But, when you look at a 6.4% and the 1.3%, the story there was a very intentional pivot back to our roots, which played out in a nice increase in P mix. And, frankly, as you can imagine, all our brand equity measures have responded nicely along with that.

Okay. And maybe -- It's certainly, you have at least another two quarters where you can kind of continue that average ticket gain. But, do you think you can continue to get above average ticket gains, once some of those initiatives are lapped in the third quarter and fourth quarter of 2015.

It's always a game of lapping. I'm going to go back to what our commitment is, which is continuous innovation. I think, if you continue to ride one horse too long, without planting other seeds to sprout, then our job is to continuously innovate. So, the pivot back to steak is not --I'm going to say, reinforcing our steak authority is not a trend. It is what we are, and we are not going to walk away from that again. I think that has legs continually.

As I look out in the pipeline, how we've really doubled-down on steak exploration and innovation, I feel really good that that's going to continue. At the same time, we're liking what we are seeing from the launch of $4 Finds. We are liking what we are seeing when we take lunch nationally. It continues to be a story of having multiple levers on Outback.

We also, as you know, love what we see with the reloads. We are putting those out there as fast as possible. Outback is performing so well that we also have -- as we announced at analyst day, we think there is 50 more new-unit opportunities for Outback over the next years. And so, what I'd say is that, I wouldn't focus on any one thing, other than to say that Outback has a fully loaded, 360-degree experienced pipeline under the LRP that is going to keep this brand moving.

That's great, thank you. And I think this is just a really easy one. Could you help us with what the dollar G&A target is for 2015? I know in the last quarter, there was a lot of confusion of cuts. And then investments and bonuses and then you have to put currency in there, as well. Is there a way to give, especially relative to the fourth quarter, which is a little bit higher, give us an easy number to focus on for 2015?

Yes, John. We don't provide guidance in 2015. But, like I mentioned before. At analyst day, we talked about a 5% increase in 2015 G&A spend. It will be a touch lower than that, because of the incentive stuff. But, we anticipate that G&A will be up slightly in 2015, although we're not giving specific guidance. And we will continue, by the way, to reinvestment in our growth opportunities that we have in technology and international.

One thing I want to mention, I didn't answer Joe Buckley's question about revenue, completely. On the revenue side, the guidance for 2015 is $9 million in FX translation in profit, and $59 million in revenue. So, we have $140 million in revenue and $59 million from the Roy's and Korea change, and $59 million in revenue. So, I'm sorry if I didn't answer that completely. But that's what the guidance for revenue looks like for 2015.

Thanks.

Next, we move on to Sharon Zackfia with William Blair.

Hey, Dave.

I think you actually confused me more with your clarification on the revenue. So, maybe if you could repeat that. And then, on Korea, since we are on the topic, you mentioned that it was a 70 basis point hit last year, to margin. Can you tell us what line items that hit in 2014?

It was spread pretty much, like any other P&L, spread throughout the P&L. If you just look at the food cost component, the labor, et cetera. That is what that would look like, from a Korean margin standpoint. So, that's Korea, it's about a 70 basis point hit.

If you look at revenue in Brazil from FX, it will be about a $59 million impact from Brazil. So, if you take a look at $140 million from Roy's and Korea, and about $59 million in Brazil. That's how the two numbers come together, in our $4.49 billion guidance.

And then, on the cadence of Korea, I tried to block Korea out of my memory. But, the cadence, it felt like it was worse in the first half of 2014, than in the back half. Or maybe it was just better handicapped than the back half of last year. How do we think about that, as you lap Korea?

Q1, Q2 and into Q3 were tough quarters for us. It got a little bit better -- It got better, not little, but it got better in Q4. So, Q2 was our worst quarter. But Q1, Q2 and Q3 were the quarters that were negative for us, in a pretty significant way.

Okay, great, thank you.

Next we will move on tore Alton Stump with Longbow Research.

Good morning.

Good morning.

You know, to followup on the mixed benefit for Outback in the fourth quarter, obviously, which was huge. And touching in detail, Liz, what drove that? Was there increased motions behind steak? Just with the success ahead in the fourth quarter, can you talk about what your program is for a couple quarters? And how it's going to play in your national advertising launch coming here in Q2? If you continue to promote your authority in the steak area or not?

Sure. I'm going to go back and reinforce, Alton, thanks for the question, that Outback is firing on all cylinders. It is not just one thing here. So, we did a great job over four years, attacking what was the key problem in 2009, which is that we were only steak. We hadn't changed the menu in 20 years. We needed to broaden the occasion. And so, we spent four years broadening the occasions, lighter, second best in seafood. And that all did well.

What we found though, is that we had taken for granted that people knew that we had the number one ranked steak. That we had two cooking platforms, versus one. And on balance, we had higher quality cuts of beef. It was time to pivot back and remind them, that we are number one in steak.

But as I said in the script, we're also going to continue to couple that with innovations like $4 Finds. So, it's not going to be an either or. It's going to be continuing on the steak messaging. Reminding them of what we are great at, while surprising and delighting them with occasion expansions around lunch, LTOs and then the new bar menu.

So, for example, we are on air right now. When you look at us in Q1, our first LTO for the year, which started in mid-January, was celebrating our Wood-Fire Grill platform, and talking about the new steak innovation. If you go into the store, if you look at our advertising, you will see a celebration of all things steak. That will resonate throughout the 360-degree experience.

We will also, at the same time, be launching, as we've said, lunch nationally with advertising in Q2. Lunch represents 29%. It's a $25 billion category; it represents 29% of CDR sales. And we think taking our superior brand into that, and celebrating that, is going to be a growth lever on top of that. And so, I think the story with Outback is, multiple occasion expansion opportunities, multiple opportunities to engage the consumer with reloads.

The other thing that we have in our arsenal, as Dave mentioned, we have 33 exterior remodels and tests. We really like what we are seeing. It's a big from to with the exterior. And so, we will be providing more detail when that test is complete. So, I think the notion is, with all of our brands, which all had positive comps, is continuing to elevate the 360-degree experience across them.

That's helpful, thanks. One quick followup, if I may. Obviously, as great as the quarter was, on account for Outback, Fleming's was a bit lower than what I had modeled.

I think it's one of the lighter growth, for the quarter, for that concept, over the last couple of years. Any color on, you know, if they have any plans to improve with traffic and/or pricing mix for that concept as well, this year?

Yes. No, Fleming's continues to perform really well. As I mentioned earlier, we did take some decisions to reduce the amount of discounting promotions in the quarter, which is very consistent with the brand. So, I mean, our traffic is still up 1.6%. So, it's very consistent with where we are trying to take the brand. The brand continues to innovate, very well. Liz talked about 8-9-10, and we are continuing with our innovation there. We feel very good about Fleming's in Q4, and the strategy they are following, and going into 2015.

Great, thank you.

Next, we will move to Michael Gallo with CL King.

Hi. Good morning.

Morning.

Just some followup on Carrabba's. Obviously, this was the first positive comp you've had in that concept, in some time. I was wondering whether you saw that as, really just the improvement in the industry? Or some of the initiatives around menu, and some of the other things you have been working on? Do you feel like you are finally starting to get some traction there, thanks?

Yes, thanks for the question. I always need to go back and remind people that Carrabba's slow growth just started last year. I think we've had -- so, if you look at Carrabba's, last year, on an annual basis, we were down 1% on an annual basis, which was pretty much in line with Knapp, okay? But we also had, in Q4, when you talk about the comps, we had a 0.2% comp, but we had a 1% traffic increase, which was 140 basis points better than Knapp.

So I always feel like I'm first reminding people that Carrabba's is actually a very healthy brand. If you look at the brand metrics, number 3 rated. I don't know if you saw in Huffington Post last week, they repeated the daily mail, who did a test of the top rated, not just casual-dining, but top rated chain-Italian, included polished. Carrabba's was number one.

So, we're starting with a very healthy brand. But, we do, obviously, look at Knapp measures, right? And so, we are pleased with the performance that we had in Q4, and as a reminder, for the total year on Carrabba's, you know, we were down 1%, right?

We are not happy with that. But that's down 1%. When you look at total Italian, total Italian was down 3%. Italian needs to reinvent itself in the US, away from just special occasion and indulgence towards lighter variety to drive more every day dining.

We started to do that in Q4. And so, yes. I think the traffic being up 1%, while comp sales were up 0.3%, you saw us doing the opposite of what we needed to do on Outback, which was drive the more every day occasion and more every day price point, which is why you see higher traffic, than higher comp store sales performance.

So, absolutely. Some of the menu and LTO work we did around lighter, more affordable price points, took hold and helped drive that performance. We continue to innovate around this. And the key with Carrabba's is, not losing that number one rating and alienating your heavy customer, while expanding the menu and occasions to bring in that lighter user, that wants to dine a little differently every day.

So, it's that delicate balance that we continue to kind of tweak, and make sure we get exactly right. Because this is a really important brand for us, that has very, very, strong house measures. So, saw some performance gains in Q4. More work to do in 2015, but we know the work that we have to do. I'm not pleased with being the tallest kindergartner in Italian dining, but I also want to keep us in perspective, when we say Carrabba's has been challenged.

Great. Then just to followup on Bonefish. I was wondering, any early read on the Bar Bites menu, whether that's driving a different customer? Or whether that's helping drive more midweek business? Or just some thoughts about how you see the consumers using the new menu, thanks?

Yes. Thanks for asking. It has only been two weeks, two or three weeks, since we launched it. The buzz is very positive but, you know, and we like what we are seeing in social media and talking about it. But it is just, definitely too early. It does do exactly what you said, which is, we have got over a 25% liquor mix at Carrabba's. So, it definitely appeals to that kind of younger bar scene.

We like what we are seeing. And I think the message on Bonefish is, we won't get behind again, either at the bar, at the core menu or the LTOs. It's very early, but we like what we see and we are not going to stop there. We are going to continue to add.

Thank you.

Next, we will move on to Andrew Strelzik with BMO Capital Markets.

Good morning, everyone.

Morning.

I just want to make sure I'm understanding correctly. Since you gave the guidance initially, industry comps have gotten better. And, I understand you don't want to bake those in yet, but industry comps have gotten better. The incentive comp headwind is going to be less, and the tax rate is going to be lower, as well. Is there anything that's actually worse than in December, when you originally gave that guidance?

No, I think the biggest thing that we have to take a look at is, just for FX and what's going on in the external marketplace. That's something that w have to watch. We did, to your point, have G&A ladders not quite as high to climb. The tax rate is pretty much as expected, for next year. I think the biggest thing for us, as we look at our guidance for the long term, is the FX piece. That is about the only thing that's really changed so far.

I think that, as we talk about it, we are 49 days into the year. Our focus is on continuing to, you know, do the right thing by the brands. And commit it to our goal of annually outperforming, no matter where the Knapp comes in. We believe we have the portfolio to outperform it by that goal of 200 basis points.

Let's get past this weather-enabled Q4. We all remember how awful Q1 of 2014 was. So, this coming out of the gate strong, for Knapp I think, had to be expected, given the weather last year, right? So we are cautiously optimistic. Let's see how it plays out.

One last thing, that's why we provide our guidance in at least, terms. We have at least 15% EPS growth and we'll see how the year goes through it.

Right, that 1.5% -- good point, when we say at least 1.5%, that provides what, in effect, we think is the floor, for what we could be.

And if I could ask a second one, in terms of the productivity, historically you've said $50 million was the annual target. And obviously this year, you did well above that. Do you feel like you are building momentum there, where the $50 million becomes a floor, as well? Or how do you think about that, with the evolution of the productivity?

A couple of things. One, we are very pleased with our pipeline. We've rolled out A versus T. In our business, our people have been trained. You saw some of that benefit in food costs in Q4, which was important.

Productivity, like some of our other guidance, was at least $50 million. If we have additional productivity beyond the $50 million, we will do one of three things. Either bring more to the bottom line, not price quite as much, or reinvest in some really exciting growth initiatives. So, we got good pipeline productivity. We're pursuing it, and it gives us some flexibility as we go forward in 2015, and beyond.

Great, thank you.

That will conclude the Question and answer session. I would now like to turn the call back over to Liz Smith for any additional or closing remarks.

Thank you, and thanks to everyone for joining us. We look forward to updating you on the portfolio during our Q1 call in May. Take care.

That will conclude today's call. We thank you for your participation.