Bloomin' Brands Inc (BLMN) 2015 Q1 法說會逐字稿

Good day and welcome to the Bloomin' Brands, Inc . first quarter 2015 results conference call. Today's conference is being recorded. At this time I will turn the conference over to Chris Meyer, Vice President of Investors Relations. Please go ahead, sir.

Thanks, Audra. 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 first quarter 2015 earnings release. It can also be found on our website at www.bloominbrands.com in the investors 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, adjusted diluted earnings per share, adjusted restaurant segment restaurant level operating margins and adjusted segment income from operations. 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 and on our website as previously described. Before we begin our formal remarks, I would like to remind everyone that part of our discussion today will include forward-looking statements including our discussion of growth strategies and financial guidance. Such forward-looking statements are not guarantees of future performance and therefore you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ 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 February 24, 2015 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 first quarter 2015, 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'll open up the call for questions. With that, I would now like to turn the call over to Liz Smith.

Thanks, Chris, and welcome to everyone listening today. We're pleased to share with you our results for the first quarter of 2015. As noted in this morning's earnings release, our adjusted first quarter diluted earnings per share was $0.54 and our first quarter reported US comp sales were up 3.6%. US traffic for the quarter was up 70 basis points. This represents a 150 basis point sales and traffic over delivery versus the casual dining segment. Q1 marked the 22nd and 23rd consecutive quarters that we have outperformed the industry in sales and traffic respectively.

We were pleased with these results' they reflect strong sales performance as well as margin improvements at both the restaurant and operating levels. Our Q1 results have set us up well to achieve our 2015 goals. As it relates to industry performance, we were encouraged by the strong sales result in Q1. This was the strongest sales quarter for casual dining in over six years. However, it was difficult to gauge the true underlying health of the segment given the noise from weather.

So, consistent with what we said in the past, we do not believe there's enough evidence yet to suggest a meaningful trend change based on Q1 results. So for now we are reiterating our guidance of at least 1.5% comp sales in the US in 2015. Q2 should be a better barometer for the state of the industry and we will update our forecast as the year moves on. Now, I'll take you through our Q1 performance by concept.

At Outback, comp sales grew 5% in the first quarter and continue to perform very well across all metrics. Our focus on reinforcing steak authority which began in Q3, 2014, is resonating with consumers. The steak-centric messaging also increased our guest check average as we are seeing higher gas preference for steak entries and steak-focused LTOs that are unique to Outback. We have experienced strong success behind our multi-year week day lunch roll out and we are taking our support to the next level. This past week, we launched national advertising for lunch. We are featuring our lunch menu that offers variety and affordability with over 70 combinations starting at $6.99.

We are using multiple mediums behind this launch including television and social media. This will drive awareness among consumers and accelerate our share gains in the $25 billion lunch segment. At Carrabba's, we had positive comp sales of 1.9% in the quarter. This included an impressive 3.3% increase in traffic as we focus on affordability in our marketing. We continue to leverage LTOs that reflect our new positioning with a focus on variety and value to drive frequency while we progress the next iteration of our core menu. The new menu remains on track to roll out in either late 2015 or early 2016. Ongoing testing will determine the ideal timing of this roll out.

We are also pleased to announce the Carrabba's was recently voted No. 1 Italian restaurant as rated by consumers in the nations restaurant news annual survey for the second year in a row. Carrabba's remains the undisputed quality leader and consumer preference for authentic Italian dining. Bonefish Grill's Q1 comp sales were 0.9%. Bonefish is returning to its polished casual roots and its brand equity pillars of culinary former cuisine and continuous innovations. We said that as we execute this strategy, we will unwind some of the promotional activities that drove traffic.

This type of traffic is less sticky and tends to come out more quickly. This is reflected in our Q1 results and Bonefish sales performance will remain challenged for the balance of the year. Moving forward, our focus is on making sure Bonefish Grill's customer experience is the best in the business with consistent execution. Our continuous innovation will focus on the core dinner experience to delight customers without adding complexity. Bonefish Grill is a strong brand that once again was chosen as the No. 1 seafood restaurant and the No. 4 overall in the CDR category as rated by the nation's restaurant news survey. Recently, we announced that Greg Scarlet had been named president of Bonefish Grill.

Greg is a 20-year veteran of our Company and has played a key role in improving our operations at both Outback and Carrabba's. Prior to that he spent several successful years at Bonefish in various capacities including Vice President of Operations. He adds the right balance between innovation and operational excellence and is the perfect fit to guide Bonefish Grill through its next phase of growth. Fleming's finished the quarter with comp sales growth of 3%. This is the 21st consecutive quarter that Fleming's has had positive comps.

Fleming's has consistently brought a high level of innovation and food exploration to the table. Our 8/9/10 promotion has been very successful and has provided an opportunity for us to drive frequency to a differentiated occasion. By combining unique value offerings like this with our more indulgent offerings, Fleming's continues to take share and has really distinguished itself in the competitive high-end steak category. Turning to our international business, Brazil is performing at a high level. Although GDP growth has slowed and there remains ongoing concerns about the economy, our restaurants are performing in line with our high expectations. Demand for our restaurants well exceeds supply so we remain somewhat insulated despite a slowing economy. We also recently opened our first two [Abratio's] in Brazil.

I just returned from a visit there and was truly impressed with the level of detail, service and hospitality that the team brought in localizing the concept while keeping the core DNA of Carrabba's and while it's still early, we're very pleased with the initial performance. Italian dining is the No. 2 segment in Brazil and no clear category leader exists providing us with significant runway for growth. We believe we have an opportunity to open at least 50 locations over the next five years. In addition, I am pleased to announce that we are bringing Fleming's to Brazil. We believe there will be strong demand for the Fleming's experience as there's currently no dominant brand in the upscale steak house segment.

We have a disciplined focus on building out our Outback and Abratio's businesses so Fleming's will not be Company owned in Brazil. Instead we have chosen to enter the market as a franchiser and minority partner. This strategy is consistent with our desire to stay nimble and agile as we build out our international business. The first opening is expected in Q1, 2016. Shifting to Asia, we were pleased with our Q1 performance in Korea where comps were down 3%.

This is a significant improvement in our trends versus the past 18 months and reflects our focus on restoring momentum in the business. On the development front, we opened 14 system wide locations in the first quarter consisting of four Bonefish Grills, three Carrabba's, two Company owned and one franchise, one US Outback, four Company owned international Outback restaurants, one in Brazil, two in South Korea and one in China, and two franchise international Outback restaurants. Finally, I also wanted to highlight that Bing capital sold its last remaining shares in the quarter ending a successful 8-year partnership. We thank them for their guidance and stewardship.

In summary, we are pleased with our first quarter results and it was a great start to the year. We will continue to capitalize on our unique mix of levers across our portfolio to further drive sales and profit growth. Our confidence in the vitality of our portfolio and its long-term prospects remain strong. And with that I'll turn the call over to Dave Deno to provide more on our first quarter operating results. Dave?

Well, thank you, Liz, and good morning, everyone. I'll kick off with discussion around our 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 non-GAAP metrics and their most directly comparable US GAAP measures. We also provided discussion of the nature of each adjustment. With that in mind, our first quarter financial results versus the prior year are as follows; Adjusted diluted earnings per share were $0.54 versus $0.46 in 2014. GAAP diluted earnings per share for the quarter with a $0.47 versus $0.42 last year. As a reminder, our 2015 first quarter results included two additional operating days due to our change to a 53 week year fiscal year in 2014.

This convergent increased our Q1 adjusted EPS results by $0.04 so on a comparable bases, we're up $0.04 versus a year ago. Adjusted net income was $69.7 million versus $58.5 million for the first quarter a year ago. GAAP net income was $60.6 million versus $53.7 million in 2014. Overall, we were very pleased with our Q1 performance. Sales results were strong, particularly at Outback. In addition, margins improved as a result of our ongoing productivity efforts. These results came despite some significant head-winds in the form of commodity and wage inflation as well as additional FX related unfavorability. Comparable US restaurant sales were up 3.6% while traffic increased 0.7%. As reminder, our comp sales results for the quarter do not include the impact of two additional days at the beginning of the quarter. These two days represented an additional $24.3 million of sales across our portfolio.

All four of our US concepts posted positive comp sales in Q1. At Outback, comps were up an impressive 5% while traffic was up 0.5%. At Carrabba's, comps were up 1.9% with traffic up 3.3%. At Bonefish, comps were up 0.9% with traffic down 1.8%, and a Flemings' comps were up 3% with traffic up 0.7%. Total revenues increased 3.8% to $1.2 billion. The majority of this increase was due to new restaurant openings, higher US comp sales, and additional revenues from the two additional days in Q1. These results were partially offset by the impact of restaurant closures, lost revenues from the sales of our Roy's business and the $12.4 million impact on revenue from foreign currency translation.

Adjusted restaurant level operating margins were 18.3% this year versus 18% a year ago. Our Q1 margins benefited from the impact of our productivity initiatives and higher US average unit volumes. These were offset by commodity inflation and wage inflation. Our GAAP restaurant (inaudible) restaurant operating margins were 18.4% this year versus 18.2% a year ago. The primary difference between the change in adjusted restaurant margins and the change in GAAP restaurant margins was driven by adjustments related to our domestic restaurant closure initiatives.

Now, onto the details. First, cost of sales decreased to 32.4% from 32.5% in 2014. This change was primarily driven by productivity initiatives and menu price increases. This was partially offset by commodity inflation, particularly beef. Our ability to bring down cost of sales in a quarter with high commodity costs, especially beef, is a good indication of how our productivity initiatives are really paying off. We are currently contracted for 78% of our total 2015 buy and as indicated last quarter, we are 99% contracted on beef. Labor and other related expenses were 27.1%. This was flat versus a year ago. Higher US average unit volumes and productivity initiatives were offset by wage inflation and continued higher health insurance and workers compensation expenses.

One note on labor costs, we are seeing higher than expected wage inflation and that is built into our 2015 guidance. Finally, adjusted restaurant operating expenses decreased to 22.1% versus 22.5% a year ago. This decrease was primarily driven by higher US average unit volumes, favorable marketing expenses, and productivity initiatives. This was partially offset by higher general liability expenses, R&M and operating supplies. On a GAAP basis restaurant operating expenses decreased to 22.1% from 22.3% in 2014. The primary difference between our adjusted restaurant operating expense and our GAAP restaurant operating expense was driven by expenses in 2014 related to our domestic restaurant closure initiative.

Turning to G&A, Q1 general and administrative expenses were $73.2 million versus $74.1 million a year ago. This decrease was primarily driven by lower compensation expenses due to our organizational realignment in the second half of 2014. And finally, our Q1 tax rate was 25.9% on an adjusted basis and our GAAP effective income tax rate for Q1 was 25.5%. In terms of productivity, we are in excellent shape to deliver on our goal of at least $50 million of productivity savings in 2015. On the cost of sales line, our actual versus theoretical food cost initiative has been rolled out and as the year progresses, we expect to continue to see the benefits in our food costs.

We expect cost of sales to represent 50% of our overall productivity savings in 2015. In addition, we are seeing incremental benefits in the labor line as we become more proficient at using our labor scheduling tools. These efforts will help us offset the inflation we are seeing in both commodities and wages. We do expect to see margin improvement in 2015 and continue on closing the margin gap versus our peers. In Q1 2015 we revised our segment reporting to increase visibility into our results, particularly as it relates to our growing international business. In our segment reporting we have included comp sales, revenues, restaurant operating margin and operating income margin for the US segment as well as the international segment.

We will include this information on both the US GAAP and adjusted basis. Operating expenses not included in either the US or international segment will be included in an unallocated corporate expense bucket. These unallocated expenses relate primarily to corporate overhead and certain restaurant operating expense such as insurance which we (inaudible) centrally. We will provide the segment information in our earnings release in our quarterly SEC filings. In addition, we have also provided historical 2014 data by quarter for these segments at the back of this mornings' release.

In terms of the first quarter I would like to point out a couple of items of note from our international segment. Q1 comp sales were up 6.2% at our Outback restaurants in Brazil with traffic up 1.2%. This result represents continued momentum in Brazil business following 2014 where comp sales finished an impressive 7.6%. This business is performing well across all measures despite ongoing concerns about the Brazilian economy. In Korea, Q1 comps were down 3% with traffic down 4.6%. This is much improved from 2014 where we finished the year down 17.7%. The casual dining environment in Korea remains challenged and sales results will be choppy but we are pleased with the progress we have made to stabilize this business. In terms of margin performance, restaurant margins will be higher internationally than in the US given the strength of our international business. And we certainly saw that this quarter and is a good indication of why we are investing overseas.

The choppiness in Korea and our desire to invest ahead of growth lead to some volatility in our restaurant margins quarter to quarter but, as I mentioned, we expect international restaurant margins to be very favorable. Turning to operating margins, the international operating margins will be better but a bit closer to the US for two reasons. First, we continue to make significant growth investments in China and Brazil. These investments typically show up in G&A within our international segment. And secondly, our international business has fully staffed teams in our key countries. These markets are smaller than the US and we expect to leverage our in-country G&A expenses as we grow. One final note on international. In Q1, foreign currency translation negatively impacted our results by $2 million, most of it relating to our international business.

Turning to our capital structure, as Liz mentioned Bing Capital sold their remaining shares in the first quarter and Bloomin' Brands purchased $70 million of shares as part of that transition. This transaction was completed as part of the our 100 million share repurchase program. We currently have $30 million remaining in our share authorization that runs through the middle of 2016. Also of note, last week our Board of Directors declared a cash dividend of $0.06 per share payable on May 27. Before turning to Q&A it is important to discuss a few key items regarding our 2015 guidance. First, all aspects of our 2015 guidance remain intact except for our total revenue guidance. Given the continued pressure on the Brazilian real we have lowered our total revenue guidance to at least $4.43 billion, this is down from at least $4.49 billion.

Second, in our guidance we have embedded an additional $3 million of foreign exchange translation risk for the year. We had originally expected to face $9 million for its downside in 2015. We now expect to see $12 million of downside. We're able to keep our at least $1.27 guidance for 2015 EPS despite this additional $3 million headwind. Third, even though it's not our practice to give poor lead guidance, I do want to remind everyone of some fairly significant events that impacted Q2 last year. In our Q2 call last year we indicated that we had approximately $7 million of lower incentive compensation expenses due to performance against objectives. We do not anticipate this recurring in 2015.

In addition, although 2014 turned out to be a difficult year for health insurance, we did have $1.2 million of favorability in last years Q2 results that we do not expect to repeat in 2015. Last year we delivered $0.20 of adjusted diluted EPS in Q2. If you adjust for these two items just mentioned, our EPS would have been approximately $0.05 lower. That would give us a comparable base in 2014 of $0.22 per share. Please keep this in mind when assessing our Q2 performance this year. Our expectations for Q2 are consistent with the guidance we have provided of at least $1.27 for the year. And as Liz said, we are an off to a very good start for the year and feel good about our commitments. And with that, I'll open the call for questions.

Thank you. (Operator Instructions). And, we'll go first to John Glass, with Morgan Stanley.

Thanks. A few, if you could. Just, first, Liz on the top line the GAAP to the Knapp which is still positive, about 150 basis points. It's been narrowing, this quarter at least, versus the prior two quarters. How do you explain that? Particularly because the steak category has led the industry for the last several quarters so why is it is it now less than it was? If that's an answerable question.

Sure. No, sure, so John, let me give you my live perspective on that. We feel very good about our performance in Q1. And we also feel very good about Knapp's performance in Q1. It was the strongest performance Knapp had in six years. That's a good thing. So a good thing would be if we see that Knapp strong performance continuing throughout the year and our performance continuing above that, even if the GAAP narrowed to 150, if Knapp was in a positive environment, that would be a very strong outcome and something we feel very comfortable with. What we are committed to is constantly outperforming Knapp and meaningfully taking share and we will be net share takers.

Now you have seen the quarterly Knapp jump around on us in the past as well but we really do like the composition of Q1 and how that was. And as I said, if Knapp stays positive which, you know, let's wait until we get through Q2. I've been consistent on this. Then we think that that would be a positive environment even if it meant that our GAAP narrowed to 150. As it relates to the steak segment, yes, a great segment, and you saw that Outback posted a 5% comp and that's the third really impressive comp in a row and we think that business and the category had some great momentum, so we really agree.

Okay. And then two questions on the expenses. One, Dave, on the G&A, I think you had said originally it was going to grow 5% this year so you were making some investments and that was one of the conversations we had about guidance this year. It was down. Is that just an adjustment issue or do you think now G&A will grow less robustly given other offsets like currencies and stuff? How do you assess that now?

Yeah, sure. No, John, we will be making our technology investments and continuing to make our international investments as the year goes along so I do think you'll see a bit of an uptick on those investment like we had talked about last year when we set out guidance. It's just a matter of timing right now. You'll see more of that uptick in Q2 and Q3 and Q4 as we continue to invest behind technology especially.

Just on your second quarter guidance, I understand the offsets you got some benefits last year you didn't get but you also had this huge headwind from Korea last year. Can you quantify what that was, now that we're breaking out the segments, and maybe understand how that fits in the context of what you talked about in the second quarter?

Yeah, sure. John, we don't really break out country level detail. If you look at our international segment year on year, you'll see how the quarter performed and we're happy to talk to you more offline about that. But we really don't want to get into any kind of country level stuff beyond what's reported in our international segment.

Thank you.

We'll go next to Joseph Buckley, at Bank of America.

Thank you. A couple questions as well. Dave, I think you had said the few extra days kicked in about $0.04 and I think at the beginning of quarter you were thinking more like $0.05 to $0.06. So, just reconcile those two if you can.

Joe, frankly it's our very best estimate that we could give. There wasn't anything I can do beyond that other than it was our best estimate, it's $0.01. So, I really can't go beyond that.

Okay. And then just kind of run through G&A again. I'm sort of confused why it was down in the first quarter. You mentioned some of these investments behind IT and international and did those not flow rateably in the first quarter? Was that part of the first quarter G&A performance?

Yes. It didn't flow rateably in the first quarter. And as I mentioned on the earlier question, Joe, you'll see some additional spending going on, balance of the year, especially around technology and some of our international investments.

Okay. And lastly just on Outback. Can you just talk about the percentage (inaudible) with line share. Are you up to that 70% threshold that you had talked about to advertise? And then there's always questions on the composition of the Outback (inaudible) sales increase. 5% is a great number. You talk about the check versus the traffic. I know you gave us those numbers but we always get questions on the lunch contribution to the traffic, for example.

Sure, Joe. So Outback ended Q4 2014 at 61%, and we ended Q1 2015 at 71% which is exactly, as you said, what we're targeting as we turn on the national advertising associated with lunch. Let me go ahead and quickly give you those figures for Carrabba's, too, because I know we have in the past. So Carrabba's ended Q1 2015 with 56% of the fleet open for week day lunch versus 55% of the fleet where it closed Q4 2014. So, just a bit of housekeeping there. As it relates to the composition of the Outback, the great thing about Outback and why this has been now entering its sixth year of out performance is that it's got so many levers in front of it. So, we feel great about the appreciation and check.

That's what we wanted to do as we pivoted towards a steak centric messages and reasserted our steak authority and we're seeing that in our dinner traffic. We haven't taken the pricing as the people are coming in and showing a preference for these steak innovations for these steak LTOs and they're trading up. So we feel really good about that. That's performing as we had hoped. What you're going to see for us in Q2, we just launched lunch nationally because we really like what we're going to see on that. And so, I think for Q2, the Outback story or the momentum, will be a lot of focus on lunch and growing our share in that $25 billion segment with lunch that has already been very successful but hasn't had national advertising awareness. So, the amount of levers that we have and the ability to flex those is really the story on Outback on what allows us to have that quarter after quarter performance. So, you know, we're pleased with how the comp came in and how the brand is performing across all metrics.

Okay. That will be all for now. Thank you.

Thanks.

And we'll take our next question from Michael Gallo, at CL King.

Hi, good morning. My question is just on the national roll out of lunch at Outback. I was wondering if you plan to spend incremental marketing against that in the second quarter. And then if not, how you will plan to make sure that you don't cannibalize dinner as you push that roll out on air. Thanks.

Sure, thanks, Michael. So let me take the two parts. We are not spending incremental advertising. We have a really healthy share of voice on Outback. We repurposed some of the media and then we will move into, it's a very simple message. It's kind of lunch at last. Everything you love with about the No. 1 steak house, now you can get at lunch. It's a very simple message that will then move into tags across our core dinner business. In terms of the cannibalization, we test everything here and so we are very comfortable that with the roll out of national advertising, that we will continue to observe the same relationship that we have observed between lunch and dinner which means that about 15% of lunch sales will come out of the dinner. Why do we feel comfortable with that?

Well, last year we actually put that into test. We had a group of markets with lunch advertising and we had a group of markets without and that relationship held. So that gives us an awful lot of confidence that the national advertising is going to do what we saw it do in tests last year which is to really grow the lunch business and maintain that relationship with dinner.

Thanks very much.

We'll take our next question from Jeff Farmer, at Wells Fargo.

Thanks. It looks like you guys are three quarters into your strategy for heightening the product and promotional focus on steak, for lack of a better wording. I'm just curious if that shift in strategy is maintaining momentum as the same store sales driver? I know you moved there I think last year. I'm sure there was a lot of sort of incremental demand related to the move to that shift of steak, but have you maintained that level of consumer interest in your efforts, and do you expect that to continue once you lap the roll out from last year?

Sure, Jeff. So yes, that momentum has continued and we don't break out but dinner traffic has continued to strengthen so I'm very happy with that. You know, in terms of lapping, I'm going to go back to the leverage thing. We had a job to do on Outback which is to broaden the experience and we did that so well for four years. That as we said, we kind of got away from reminding people, hey, we're No. 1 at steak. So it's not a matter, to be honest, of lapping. It was just reminding them of what we had. We didn't take prices down. We didn't change anything. We were, like, hey, remember us, we are the steak authorities. We have the best cuts, we have two cooking preparations and we're No. 1 rated. So, we're just committed to balancing that news and the levers and never letting people forget or assume that they remember and it's top of mind that we're best at steak. So, that momentum has continued. It will continue because it's fact based in what we offer consumers and what they experience in the restaurant.

Okay. And just a quick follow-up. You literally just touched on this but with the plan to provide (inaudible) support for Outback's lunch business, you alluded to there being some tests for I guess advertising lunch. Is there anything you can share in terms of what that meant to sort of mix out lunch, price points, anything, that would help?

Yes. I mean what I can share with you is that it drove awareness and it drove the business and it didn't change the dynamic with dinner. So it was kind of all green lights which gave us the kind of enthusiasm and confidence to go on air nationally and tell people about lunch and that's what we started to do about nine days ago.

So just meaning, so collectively, that restaurant across all day parts, any restaurant that received sort of the lunch media theoretically saw an elevated level of same store sales relative to sort of the test cases, is that fair?

Yes. The advertising worked. It drove awareness which drove lunch, and when you go in, which I hope you have, and have the Outback lunch, the team has done great job on executing the lunch environment. So yes, that's a fair characterization.

Thank you.

And we'll take our next question from John Ivankoe, from JPMorgan. And it looks like Mr. Ivankoe has disconnected. We will move next to Alton Stump, at Longbow Research.

Thank you, good morning.

Good morning.

Just a quick question. You know, it just happened that the Bonefish Grill is here down the street from where I work and has been offering lunch for the last couple quarters and it seems like traffic, just based on my own experience, has been picking up at lunch. You know, we'll presume that it's just a test but how widespread is that test if you talk about it and, you know, is it something on your mind to potentially launch lunch with the overall Bonefish as well, or is that something that you think is far off into the future at this point?

Yes. You're absolutely right. Similar to Carrabba's and Outback in the past, which did have lunch locations that were open for 7 day a week lunch before we kind of formally had a program, we do have Bonefish open for lunch in different locations where we think it makes sense. In terms of having a focus on lunch at Bonefish, that is not a priority for us. Our priority at Bonefish is dinner, dinner, dinner. And, you know, that's where the innovation has gone against. We were really psyched with the core menu innovation. We got recognized for menu masters but really is about continuing to make sure that it's that polished casual great experience for that $23 to $24 price point at dinner and that will continue to be our focus.

Makes sense, thanks. And one quick follow up by Outback. Obviously, you've done a great job sort of refocusing your efforts back on your steak platform. How much longer does that continue? Is it something that you would hope to sustain or is it now time to go back to some other portions of your menu at Outback and focus on that now?

Yeah. I mean it's a great question. The thing that I always love about Outback is that we just have a riches of levers, if you will. But one thing that we can never do is walk away from reminding and asserting our steak authority, right?

And it's kind of, first, let's remember we're No. 1 at steak. I hate to sound repetitive but you can't say it enough. We have the in general the highest quality cuts. We have took cooking preparations methods. We are a No. 1 rated, etc, etc. So, always reminding and then talking about the great broadening efforts that have been so successful whether it's kind of, the new menu, the $4 finds or the evolving menu, and then now what you see is a really great lunch menu that has performed really well and an opportunity to talk of that. So, I think it's that combination leverage. You add on to that, you know how reloads have been doing. You know that we have a big pipeline ahead of reloads. You also know that we, as we talked about at analyst day, we see 50 more new Outback's out there. And then we have the exterior remodel that is in test and doing very well. So, I think the notion with Outback is constant relevance, constant top of mind, constant best in class.

Makes sense. Thanks so much.

(Operator Instructions). We'll back to John Ivankoe, of JPMorgan.

Hi, thank you. Sorry about that. Telephones hang up on people, I guess. Two completely unrelated questions. The first is on Outback lunch. As you said, Liz, 71% of the system this year, or it was actually 45%, if my notes are right, in the first quarter of 2014. So that's a very big jump year-over-year and then you saw a similar jump like that in 2014. You know, as you mentioned, you're kind of at that 70% threshold so the roll out of lunch is going to slow down very significantly, if it doesn't end. So have you kind of gone back, and there's some mention of this in the 10K, but have you gone back and really understood what the one-time costs were around the roll out of lunch? You know, in terms of just the inefficiencies around the training, around the roll out costs that you saw presumably in 2014 and the first quarter of 2015, that you might not see going forward but could actually swing to be a benefit? And then I have a follow-up.

Yes, it's Dave, John. On that question we saw an Outback about 50 basis points spread between primarily food and labor in our business at Outback for lunch. That was, you know, rolling it out, training it and everything else. Once we get through that, hopefully we'll continue and we'll be able to leverage lunch. As importantly, though, restaurants that have lunch at least for a year continue to grow their lunch comp sales. So that could be an upside as well for us as we go forward. So two big keys for our lunch business. And then as we grow our lunch sales beyond, well beyond break even, the flow through begins to get closer to our dinner business. So, we are really hopeful about what our lunch innovation can bring.

So I don't want that number to be taken out of context. So that 50 bases points is the total margin cost of lunch, it's not just a roll out cost of lunch or the training cost of lunch?

Yes. It's the total cost for Outback for lunch, yes.

Okay. Secondly, you obviously still have a big number of units Korea. I was actually surprised to see comp down 3 versus what I think was down 18.8 last year, especially with the closures and there was at least some thinking that there would be some reverse cannibalization of sales that transferred from closed units to units that remained open. Can you just kind of put some more context around that number? Is it pure economic? Is it pure segment or is there something that you're doing that you need do better there?

Yes. So John, we're very pleased with the 3%. And kind of what I can see is the market there continues to be extremely challenged. The market hasn't seen that change in trend that we've seen. So we are now in the position of outperforming the casual dining market there with that negative 3.3% and so I think we feel really good about how the entire plan is working at of ring fencing. We have a shut down the right restaurants. We are investing and revitalizing. We have a great team in place. We feel very good about with Korea. I don't know, Dave if you want to add anything on to that.

No. I think John, the only thing I would say is we put together our guidance for the year. We did not expect a heroic turnaround in Korea because of the difficulty in the marketplace. And to have a change of trend that big quarter to quarter is really helpful for us and we feel that we have great hope for the market. Now, it will be choppy from quarter to quarter, but we have made a significant change in trend which we're very happy with.

So John, I just want to provide context nor that three even more. The market was down 20% in Korea in casual dining so just to give perspective on what that down three is for you.

It was down 20% in the first quarter, 2015. I think you said last year it was down 20 or 25. So that's, it's pretty remarkable to hear. But we'll take your word on that.

I'm looking at TNS tracker which to be honest, that's kind of the Knapp that we get from there. That's the best information that we get from there. And they just reported that for Korea CDR market sales, it was down 20% in Q1. It worsened from Q4 into Q1. The market.

Okay. I understand. And then since I have you, are you doing a minority interest in Fleming's in Brazil? Contrast that doing a fully owned Abratio's. What's different between the two and why not do a Company owned strategy with that concept as well?

We have always said, and I think what the strengths is, is that one size isn't going to fit all and we're going to be nimble and agile. And Outback is performing extremely well in Brazil. We just launched Abratio's. That has a really significant runway for growth but I've committed to you guys is that we will never get spread too thin again. So that's our focus. However, there's a huge focus, or a huge opportunity, we believe in the high end stakes down there because there's no dominant player. So we don't want to see first mover advantage.

But at the same time, it's not appropriate for us given our focus and what we have, the growth opportunity on our plate, to take that on. So, we have joined with the partner that we know well and that we admire in much the same way Outback was launched in 1996, and we know that we will do Fleming's right as well as kind of capture that first mover advantage we think of western steak house dining. And that was the thought process that went into that which is kind of remaining focused on the opportunities without spreading ourselves too thin. But also being open to what we've said is a hybrid strategy to franchise when it makes sense.

Yes, John. And I really think it's the first indication of the franchise interest of our brands overseas. And so, you know, we've got a great partner here and we think we've got a pretty nice franchising opportunity overseas and let's get started.

Okay. Thank you.

Thanks.

We'll move next to Jeffrey Bernstein with Barclay's.

Great. Thank you very much. A couple of questions. One, Liz, you commented on Knapp track's strength in the first quarter. It seemed like based on monthly data it was more driven by January and then things kind of eased. Hopefully it's still positive in February and March. I'm just wondering whether you can talk sequentially, maybe not given the granular detail month by month, but is it fair to say that the Outback brand at least saw a similar trend and then stabilized at a lower level to close the first quarter or maybe into the second quarter?

Yes, so Jeff as you know we are boringly consistent in saying in saying that we don't talk about monthly trends and the reason we don't is that we don't think they're instructive about the overall health of the business. But certainly, and so when a lot of folks were talking about January, you know, we said let's get through Q1. Let's look at the business on Q1. There's no question that the casual dining industry benefited from what was a horrible January last year and we're a member of the casual dining industry. But we knew that. We knew that was the case so there was no surprise for us in how our comp store sales came in over Q1, and we were actually really delighted with the performance kind of throughout the quarter. And it really is I think a good example of why we just don't give monthly guidance. We don't think it's instructive on how the health of the business is performing.

Got it. Maybe just a follow-up. It seems like the Outback brand specifically, the traffic was up maybe 50 bps in the first quarter, I know lunch is now contributing. So at this point, it seems like, could you give the specific traffic number within that Outback comp?

Yes. It was 50 basis points.

You're exactly right.

Yeah, so then just to clarify I guess. If traffic was up 50 and the pricing was up, I'm just trying to figure out the lunch versus dinner. I know that gets talked about a lot but it would seem like the lunch traffic is a big positive driver and therefore maybe the dinner traffic, I know you're talking about reasserting your excellence at steak at dinner but it would seem like the dinner traffic is still kind of the hindrance. Is that fair to say, or am I reading that wrong?

We were pleased with our dinner traffic because it strengthened. So we're seeing the positive benefit of our dinner strategy. The roll out of lunch was really, I'll be honest with you, a soft roll out in terms of we didn't talk about it. We're getting ready for the big national advertising bang that's going to be happening what started in Q2. So there was a big jump from quarter to quarter. But it was a bit of a soft roll to get ourselves sped up for this. So what I would say to you is we're happy with how the lunch business is responding to, the dinner business, is responding to our pivot back. It's strengthening. Overall, if you look at the category it's measured by NPD Crest for the consecutive quarter, you see that dinner for the industry for the period of December, January, February was softer than lunch, so that's kind of an industry wide comment. But for us, again, strengthening dinner, responding to the message and I think you're right, we just turned the advertising on in Q2 and now you're going to see that awareness and traffic at lunch build behind our efforts.

Got it. And my last question is just on the steak component and the price, I should say the cost perspective. I know we're 99% locked and it's locked it up in double digits but being locked is obviously comforting. As you look at 2016, and obviously you're talking to more suppliers and whatnot than we are, but there seems to be some modest level of excitement building that in 2016 we could see much more modest inflation if not neutral or at some point turning the other way. Do you have any insight at least directionally how things would play out 2016 versus 2015 from a beef cost perspective?

Yes, sure. Best thing to say right now because we're just beginning to look pretty seriously at 2016, Jeff. We're hopeful, but it's still a little too early. It's been a tough beef market the last couple of years. We are extremely pleased to be where we're at with our buy and have it locked and the team has done a fantastic job on that and continues to do a fantastic job and now we have the opportunity to turn our attention to 2016. But let's just wait a little bit and see, but we're hopeful, but let's see how things play out.

Great. Thank you.

And we'll go next to Andrew Strelzick, at BMO Capital Markets.

Hey, thanks for taking the question. I just wanted to ask about Carrabba's. It seems like the menu continues to be delayed a little bit but at the same time we're seeing some nice encouraging signs on the traffic front. Can you talk about what you're seeing in terms of the menu testing No. 1, and No. 2, where you were saw some of the successes in terms of the quarter on the traffic side?

Sure. So, you know, as we said on I think on the last call, Andrew. The menu that we launched in 2014, the goal was to go into more variety, lighter and more affordability and we definitely made strides there but we didn't go far enough. And what I said on the last call, which is, we are not going to roll out the second iteration of this until it is 100% locked and loaded in where we are. We like what we're seeing in the test. And very much like what we're seeing in the test and so that's going to govern when we've kind of finished that assessment whether it's going to be late H2 of this year or Q1 of next year. But I feel very good about what we're seeing.

We're going far enough, we're taking it all the way to bright. But what we said at the time is that's not going to stop from us implementing the play book. Carrabba's is a beloved brand. No. 1 in the Italian segment, No. 5 choice overall among in casual dining. But the whole Italian category needs to re-invent itself to have that crave-ability but also lighter more approachable. And we said we would start right away on that and so what you saw was in our advertising and messaging, a focus on that value and that variety and that affordability and that's really resonating and our LTOs were constructed against that, and so what you're seeing for us is some wood grilled favorites.

You're seeing, the Dino, the Lighter. We also were on air with an entire program that said 15% off. We're out there with our no worries, I'm sorry, with our Amore Monday which is a price fix that has a great value that's driving that frequency during the week. So I think, you know, what we said is we're not going to wait to implement the play-book, we know what the issue is and you're seeing people responding to that marketing and to that whole effort. And it will be taken even further when we roll out the core menu. And again, I just can't give you an exact date whether it's going to be late this year or early next year.

Okay, thanks. And then if I could will asks on the Brazil, Outback Brazil comps. I was a little bit surprised by the composition between price and traffic. I just wanted to get your sense for the comfort that you have in carrying that, 6%, 7% pricing going forward, and if you could also give what the first quarter pricing was? That would be helpful, thank you.

What I would say is, and we've said this, the restaurants are full. There's lines. If we had more seats, we could grow traffic more. Right? So that's why we're putting up in Outback's as quickly as we can because you're still having these waits. And so, I've said to you guys before that they have made an art of the pioneering new day parts to try to shift demand into periods that don't wait. But there is a limit on what we can do when you a multi-hour wait at lunch or dinner. Honestly, that's been the governor of traffic growth. But the good news is that we're putting them up as fast as we can and if I just look at 2014, the stores that we put up are performing above the business case.

So it just speaking to kind of providing another funnel for that pent up demand. In terms of pricing, I think it's been very consistent with how we've approached pricing over the last several years, really kind of in line with the market. So despite a lot of concern about the Brazil economy and we watch it very closely, I would just say that the demand for the concept well exceeds the supply and we're addressing the supply issue by building them as prudently and as fast as possible.

I will just add to Liz's point. We're adding to the supply and we're getting traffic growth in the existing restaurants. I mean that's terrific. So we are very pleased with we're at in Brazil and that's an indication where we're at in the marketplace especially on Outback. And Abratio's started out very well. So, very good performance out of Brazil.

Great. That's very helpful, thank you.

And we'll go next to Sharon Zackfia at William Blair.

Hi, good morning. Two quick questions, I guess. First, David, I think in the press release there was something about $4.9 million in insurance and unallocated corporate year-over-year that was most of the increase. Can you talk about that, or did you mention that?

Sure. There are three parts. One we had a very favorable worker's comp trend last year. We have normalized workers comp trend this year. No. 2 we had some healthcare claims this quarter, not as difficult and it was in Q4 but we did have some versus a year ago. And No. three, we had some increases in what we call general liability which is basically customer slips and falls in the restaurant. So those three things came together, weighted about equally. We're all over it. It's in our forecast. We don't anticipating it being a big problem this year but it was a call-out.

Okay. And then secondarily, any comments on KDS and kind of where you are on that test and how that might or might not be rolled out?

Yes. The first thing that we're doing right now is making sure our labor initiatives and actual versus theoretical food cost initiatives we're all over that, and making sure that we get the opportunities that we're pursuing to flow through the restaurants and flow through the P&L. That's our main focus this year is that. We're continuing to test KDS in high performance kitchens. That probably won't be something we will see until 2016, maybe back half. It's too early to say but we continue to test it right now and it will be put in our productivity queue when it's ready. Right now we are focusing on our initiatives that are right ahead of us which is food cost manage and labor cost management.

Great, thank you.

And that does conclude today's question and answer session. At this time I would like to turn the conference back over to Liz Smith for any closing remarks.

Thank you. We appreciate everyone for joining us today and we look forward to updating you on the portfolio on our Q2 call in August. Thanks again, and have a great day.

And that does conclude today's conference. Again, thank you for your participation.