Bloomin' Brands Inc (BLMN) 2015 Q4 法說會逐字稿

Greetings and welcome to the Bloomin' Brands fourth-quarter 2015 results conference call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Chris Meyer, Vice President, Investor Relations for Bloomin' Brands. Please go ahead, sir.

Thank you, operator. 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 2015 earnings release. It can also be found on our website at www.BloominBrands.com in the investors section.

Throughout this conference call will be presenting our results on adjusted basis. These non-GAAP financial measures are 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 the most directly comparable GAAP measures appear in our earnings release on our website as previously described.

Before 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 SEC 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 2015, an overview of company highlights, a discussion regarding progress on key strategic objectives, and an update on 2016 guidance. Once we've completed these remarks, we will open up the call for questions.

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

Thanks, Chris, and welcome to everyone listening today. As noted in this morning's earnings release, our adjusted fourth-quarter diluted earnings per share was $0.30, up 7%. We achieved our total year adjusted EPS goal of $1.27, up 15%. This represents 22% adjusted EPS growth on a constant currency basis.

As it relates to Q4, we benefited from strong performance in our international business. We also had a strong finish to the year in productivity, which helped us increase Q4 and full-year adjusted restaurant margins by 80 basis points and 60 basis points, respectively.

On the sales front, fourth-quarter US comp sales were down 2.8%. We knew that our back-half trends would be challenged given three factors. First, our 2014 comp sales improved by 350 basis points from the first half to the second half. Second, there was a negative 90 basis point impact from holiday shifts for Halloween and Christmas. Finally, we reduced advertising spend across our portfolio to gear up for 2016 brand initiatives beyond quarterly LCO.

Our number one priority in 2016 is to grow domestic sales. To support this effort, we will be making the necessary investments to elevate all aspects of the customer experience. Specifically, you will see significant investment in areas such as menu innovation, product upgrades, portions, staffing levels, as well as capital improvements that we expect will return us to sustainable growth across our portfolio. Along with our domestic investment opportunities, we will continue to execute against our broader portfolio strategies, including investing behind international and returning cash to shareholders.

Also of note, we are pleased to announce the completion of a $300 million bridge loan that was used to extinguish our CMBS loan. The lower interest rate will save us over $12 million in 2016. This is the first step to monetize our real estate, consistent with our ongoing commitment to maximize total shareholder return.

Now I would like to take you through fourth-quarter performance and 2016 plans by concept.

Although Outback's Q4 comps were down 2.2%, they finished the year with a positive 1.8% comp, the sixth consecutive year of comp sales growth at the brand. This was Outback's most difficult sales comparison of the year, having posted a 6.4% comp in the fourth quarter of 2014.

Our LTL in Q4 featured a four-course meal starting at $14.99. This offer performed well in the heavy promotional period leading up to the holidays. In 2016 we plan to capitalize on the work we have been doing over the last two years to elevate our steak experience. We began this work with a pivot to steak authority messaging and LTOs, which helped drive our annual comp growth in 2014 and 2015.

Concurrently, we have been developing the next phase of steak authority initiatives that touch the core steakhouse experience. These include multiple levers which represent an opportunity for comp sales growth.

First, we will be launching new menu innovations throughout 2016 that will focus on new cuts, presentation, and toppings for steak. The first LTO this year, our handcarved roasted sirloin, is a good example of this strategy. This is a new steak offering for Outback that starts at an accessible $10.99 price point and is mixing well. This combination of steak news at affordable prices will be a consistent feature of our product innovation this year.

Second, we will be investing significant dollars back into existing products. Our consumers have consistently praised the quality of the food we serve. We will continue to enhance our food offering through a combination of product upgrades and increased portions without raising prices to cover this investment.

Third, we will be investing dollars back into our labor model and kitchen display systems to improve service and execution. Over the past two years we have been rolling out a labor scheduling tool which has allowed us to achieve greater labor efficiency, but also identified areas to invest back into our service model.

Fourth, as we've discussed previously, we plan to release the new Outback app at the end of the first quarter. The new app will allow guests to control their experience from the beginning to end, including the ability to pay at the table.

Fifth, our lunch business continues to grow and comp positive in locations that have had lunch for over a year. In 2016 we will use advertising tags and social media to build awareness on our way to attaining our fair share of the $25 billion lunch segment.

Finally, we've begun an aggressive multiyear rollout of the Outback exterior remodel program and expect to complete at least 150 in 2016. The design contemporizes our restaurants with improved curb appeal and has driven approximately 5% sales growth in 33 test locations. We will also continue to relocate Outback restaurants as quickly as quality sites become available.

These initiatives will be implemented over the course of the year. This is a strong brand with great consumer appeal, and given our many levers, we are confident that Outback will continue to grow in 2016.

At Carrabba's, comp sales were down 4% in the quarter. Over the back half of the year we significantly reduced advertising spend on a year-over-year basis as we geared up for our new menu launch. Advertising for the new menu launched on January 11. Although it's early, consumers response to the menu has been positive and we will continue to update our progress as we build awareness throughout the year.

The focus in 2016 will be on using the new menu to increase frequency and drive dinner traffic. Given that our current average guest only visits a few times a year, it will take some time to build, but traffic will be the key measure of success. The menu was designed to drive everyday dining so we expect some decrease in check average.

In addition to the new menu, our work to contemporize the ambience in the restaurant continued with our remodel program. Carrabba's remains the undisputed quality leader and consumer preference for authentic Italian dining. The menu and design work will allow us to capitalize on this preference to increase guest frequency and continue to differentiate ourselves in the Italian category.

Finally, Dave Pace, our Carrabba's President for the past two years, has decided to leave the Company to pursue his goal of becoming the CEO of a public company. I am very grateful to Dave for his passion, vision, and leadership as he led Carrabba's through a defining moment for the brand. He will be missed.

I'm excited to announce that Mike Kappitt, our Chief Marketing Officer, will replace Dave as President of Carrabba's. Over the past four years, Mike has a proven track record of brand building and I'm confident that he is the right person to lead Carrabba's through its next stage of growth.

Turning to Bonefish, Q4 comp sales were down 5.4%, consistent with our expectations, as we returned Bonefish to its polished casual roots. Overall guest satisfaction is up significantly since the first quarter of 2015 and we have seen sizable increases in areas such as value and taste of food. 135 recipes have been removed from the system to simplify execution and enable us to greatly increase the number of fresh fish offerings.

We will be launching a major marketing effort in the second quarter to reengage the consumer in the Bonefish experience. We are confident in the future of Bonefish, as it remains a consumer favorite in the CDR segment across a variety of measures and service.

Fleming's finished Q4 down 0.3% with total year comp sales up 1.3%, the sixth consecutive year of comp sales growth at the brand. In 2016 we will accelerate growth with menu innovations that balances value and indulgence, highlights seasonal ingredients, and pairs food with wine and cocktail experiences.

I want to announce the launch of another key part of the strategy to drive comps across the portfolio. In July, we will begin the national launch of our first multibrand loyalty program called Dine Rewards. The concept is simple, after three visits to any of our brands, customers earn up to 50% off their next visit.

This program has been in tests since 2013 and has proven to be an effective means to drive frequency and increase sales. When it reaches maturity, we expect Dine Rewards to drive a 1% to 2% lift in sales consistent with what we have received in six test markets.

Turning now to the international business, Brazil posted a comp of 7.3% in the fourth quarter despite lapping a 4.2% comp in Q4 of 2014. There are challenges in the economy in Brazil, but our restaurants have proven to be quite resilient and performing in line with our high expectations. Our brand strength, world-class leadership team, and the relative underpenetration of casual dining in Brazil gives us the confidence that we can aggressively invest capital into Brazil with high levels of return.

Recent Outback openings continue to perform above their business plan. In addition, the investment in Abbraccio is already paying dividends. We have three restaurants opened and sales results have been similar to new Outbacks, validating our market opportunity and consumer appeal. Italian dining is the number two segment in Brazil, providing us with significant runway for growth.

We are scheduled to open the first Fleming's franchise in Sao Paulo at the end of the first quarter. The expectations for Fleming's are high and we have confidence in our proven ability to build brands in this market.

I think it's important to step back and look beyond yet another successful quarter in Brazil to appreciate the world-class business we have built there over the past five years. Since 2010, in local currencies, revenues have more than tripled and profit has increased by 250%. This performance was driven by Outback's growth, which will continue, but will now be supplemented by Abbraccio and Fleming's over the next five years.

Among the top 10 economies in the world, Euromonitor projects Brazil will be the fastest growing food service market.

Shifting to Asia, Korea comps were flat. The efforts to stabilize this business have been successful. As we look forward to 2016, the focus in Asia will be on investing in both our successful business in Hong Kong as well as our growing business in China.

The approach with China has always been "go slow to go fast" as we continue to customize the outback experience for the Chinese consumer. We expect to slowly ramp up development in 2016.

2015 was a year of great progress on multiple fronts internationally. We expect the international business to again represent over half of our new unit openings this year. The focus will be on equity development in key growth countries. We will expand franchise capabilities to grow markets where we are not investing capital.

And, finally, our strengthening balance sheet and free cash flow generation have positioned us to be more aggressive in returning cash to shareholders in 2016. We have a new share repurchase authorization that increases our capacity to buy shares to $250 million.

Looking back on 2015, we were pleased with our ability to deliver our earnings objectives, but it's clear that in 2016 and beyond we must do more to maximize total shareholder returns. To achieve this goal, the first priority will be to grow sales in the US.

As mentioned earlier, we're making significant investments in enhancing food quality, service, and ambience in our restaurants. Dave will lay out the financial impact of these investments on 2016. We are confident that these are the right areas of focus and we have detailed plans to capture these opportunities.

Secondly, we will continue to invest in our rapidly growing international business. Brazil continues to perform at an extremely high level and we have industry-leading brands. We will also invest in growth in the rest of Latin America and Asia.

And, finally, our capital structure provides major opportunities to maximize total shareholder return. As we just announced, the interest savings related to the new bridge loan is the first step to capture value and monetize our real estate assets. Dave will layout in more detail the future plan we have for these properties.

In summary, our confidence in the vitality of our tightly-edited portfolio remains strong. We are excited about 2016 and are investing behind new levers of growth across all of our brands. We will aggressively invest behind these opportunities and our decisions will be made with a lens of maximizing total shareholder return for our investors.

With that, I will turn the call over to Dave Deno to provide more detail on Q4 and 2016 guidance. Dave?

Thank you, Liz, and good morning, everyone. I will 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 our most directly comparable US GAAP measures. We also provided 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 of $0.30 versus $0.28 in 2014. GAAP diluted earnings per share for the quarter was $0.14 versus $0.17 last year.

Adjusted net income was $36.6 million versus $35.5 million for the fourth quarter a year ago. GAAP net income was $17.7 million versus $22.4 million in 2014.

Total Bloomin' Brands revenues decreased 5.3% to $1 billion. Excluding the impact of foreign exchange translation, total revenues would have been down 1.8% for the quarter. Adjusted restaurant-level operating margin was 16.5% this year versus 15.7% a year ago.

The impressive 80 basis point improvement was driven by sustained benefits from productivity initiatives such as our actual versus theoretical tool and our labor scheduling tools. Margins are also improved because of planned reductions in advertising spend and strong international performance.

GAAP restaurant-level operating margin was 16.1% this year versus 16.3% a year ago. The difference between adjusted restaurant margin and GAAP restaurant margin was driven by certain legal matters that impacted both Q4 2015 as well as Q4 2014.

Turning to G&A. After removing all the adjustments from Q4 2015 and Q4 2014, general and administrative costs were $67.4 million and $75.6 million, respectively. This decrease was primarily driven by lower compensation expenses and the impact of foreign currency translation.

Total foreign currency related unfavorability on adjusted results was 44 million and $13 million in Q4 and full year, respectively. When we entered the year we expected a $9 million drag on profit from foreign exchange, but the continued devaluation of the Brazilian reai had a much larger impact on our results than anticipated.

However, Q4 is a strong finish to another great year in productivity. We finished the year with $70 million in productivity savings, the best year since 2009. We are making major progress on removing waste in our restaurants and continue to see the benefits from our labor scheduling tools.

Turning to our reporting segments, international adjusted restaurant margin was 20% in Q4. This is significantly higher than margins in the US. As we grow in our key equity markets internationally, our consolidated Bloomin' Brands margins should benefit from the success of overseas investments.

On the development front, we opened 11 systemwide locations in the fourth quarter consisting of one US Outback, two Bonefish Grills, seven company-owned international restaurants including four Outbacks in Brazil, and one international franchise location. We reviewed our assets as part of the Bonefish revitalization plan and announced the intention to close 14 underperforming locations.

In connection with these closures we incurred approximately $24 million of pretax impairments in the fourth quarter. These charges have been excluded from adjusted results.

I will now provide details on the strategy to monetize our real estate that is held in an entity we call propco. After consultation with the Board, we approved a strategy for propco that involved two key steps.

First, we extinguished our $460 million CMBS facility prior to its scheduled April 2017 maturity and refinanced this debt at more attractive rates. In December, we began to position ourselves to accomplish this by upsizing our term loan A by $150 million.

Next, we closed on a $300 million bridge loan last Thursday. This loan carries an interest rate of LIBOR plus 2.50%. Then last Friday we used the $450 million of proceeds, plus excess balance sheet cash, to pay off the $460 million CMBS facility. In addition, we also paid off transaction fees and the cost for early exit of the facility.

This is a big win for our company. We are paying a blended interest rate of 6.3% of the CMBS facility. Interest-rate savings in 2016, net of additional borrowings, will be approximately $12 million.

Second, now that the CMBS is paid off, there's more flexibility with the remaining 258 properties. We do not intend to own these properties long term. Given the attractive real estate environment, our intention is to pursue sale-leaseback transactions to maximize shareholder value. This will be done through a combination of individual transactions as well as larger institutional transactions.

The key will be to balance the potential value opportunity presented in individual transactions with the benefits of speed provided by larger deals. In addition, 15% of these properties will be held out for potential relocation opportunities.

These sale-leasebacks will have the following implications on our financials. First, as we execute the sales, rent expense will increase, which will have an impact on margins. Once the sale-leaseback strategy is fully executed, restaurant margins should decrease depending on future rent payments.

Second, we are required to use a percentage of any sale-leaseback proceeds to pay off the bridge loan. Interest expense will decrease as the bridge loan is paid off. Third, depreciation will decrease as the properties are sold and the assets will no longer be on our book. Finally, our intent is to buy back shares with any excess proceeds from sale-leaseback transactions.

The financial benefit of the sale-leaseback strategy will be limited in 2016 given the timing of the transaction. Moving into 2017, however, these transactions will likely have a larger impact on our share count. Expect updates on the progress during the year.

Turning to our capital structure, the company repurchased $10 million of stock in the fourth quarter; leaving $30 million remaining on the existing $100 million share repurchase authorization. Last week the Board of Directors canceled this $100 million authorization and approved a new $250 million authorization. The authorization will expire on August 12, 2017, and brings the total potential buyback of shares to $250 million. This increase enables us to use excess balance sheet cash as well as sale-leaseback proceeds to repurchase shares.

Also of note, in February our Board of Directors declared a cash dividend of $0.07 a share, payable on March 10.

I would now like to take you through our 2016 guidance.

We expect adjusted EPS growth of at least 10%. This guidance is consistent with our long-term growth target of 10% to 15% and includes an expectation of continued FX headwinds. The most recent forward curve suggests another $10 million FX impact on our results in 2016 versus 2015. This represents approximately $0.04 of EPS or 3 percentage points of growth.

On a constant currency basis, our 2016 EPS growth guidance would be at least 13%. The anticipated $12 million interest expense benefit from propco refinancing will help offset the expected $10 million impact from FX, and this benefit is included in our at least 10% EPS growth guidance.

In addition, expectations for 2016 commodity inflation have improved since our initial thoughts in November 2015. Instead of inflation in the 1% range, we now expect inflation to be approximately 0.5%. This represents a benefit of approximately $7 million.

This commodity benefit should provide the additional funds necessary to pursue the investments that Liz discussed earlier to drive US sales growth. These 2016 investments are about $15 million higher than 2015. A majority of these dollars will go towards upgrading food offerings through product enhancements and increased portions as well as service initiatives. Importantly, this can be done without raising prices to cover this investment.

We are optimistic that given the upsides to our plans in the form of propco and commodities, we can offset the persistent FX environment and fund our investments and still achieve our at least 10% EPS growth target. Furthermore, these investments are expected to set us up to build same-store sales and continue to deliver on our long-term objectives.

Turning to other elements of our guidance. We are expecting to deliver positive comparable US restaurant sales. There will be some differences in how these comps will likely flow throughout the year and I will discuss that in a moment.

We expect to see operating margin expansion again in 2016 as we continue to make progress towards closing the gap to our peer group. This does not factor in any increases in rent from sale-leaseback transactions. Their impact to 2016 margins will depend on the timing, size, and rent as we execute this strategy.

In addition, on the G&A line we will need to reload approximately $12 million in incentive compensation due to our 2015 performance against objectives. Other than this item, we remain committed to zero overhead growth in G&A.

As discussed, commodities are expected to be up 50 basis points versus 2015. Our domestic inflation will likely be closer to flat, while international is higher this year driven by Brazil. We expect our adjusted tax rate to be in the range of 26% to 28%. We plan to open between 40 to 50 new restaurants, over half being international.

Finally, CapEx will be between $235 million and $255 million. The composition will shift towards upgrading domestic assets and expanding international units.

Now I would like to turn to the cadence of sales and earnings during the year. As we compare the quarterly performance in 2016, there are some important aspects of note regarding the timing and sequencing of sales and earnings.

First, US comp sales were 500 basis points higher in the first half of 2015 than they were in the second half. This was primarily driven by the strength of OpEx as they reinforced our steak authority messaging. Although this messaging continues to resonate with consumers, we expect that the first-half comp sales will be lower than the second-half comp sales as we lap this elevated level of performance.

Second, as we make our investments, we expect the benefits to build during the year with most of the upside coming in the back half. Third, we expect foreign exchange headwinds of approximately $10 million based on the forward curve. Most of this impact will occur in the first half of 2016.

Lastly, the timing of our annual managing partner conference falls in the first quarter this year versus the second quarter a year ago, shifting approximately $3 million into Q1 that were in Q2 in 2015. As a result of the above, we expect comps and earnings to be stronger in the second half of the year versus the first half of the year and we expect Q1 EPS to be less than a year ago.

In summary, we look forward to capitalizing on the opportunities in front of us in 2016. We are confident we are making the right and necessary investments both to domestically and internationally to support long-term growth. We remain disciplined stewards of capital and our improving capital structure provides us increased flexibility to return cash to shareholders.

With that we will now open up the call for questions.

(Operator Instructions) Karen Holthouse, Goldman Sachs.

Thinking about the change or the timing of (inaudible) for last year pulling back and this year investing more, what should we think of that starting to hit during the year? And is that something that is also in the category of investments where there's incremental spending even versus the catch-up from last year?

Karen, the timing of the add spend last year was, as you know, kind of the pullback in the second half as we readied for Carrabba's and then also as we doubled down on fixing the Bonefish experience in the restaurant. We have restored those advertising spends behind the programs that we have for 2016, which we feel really good about that, and you will see that building throughout the year.

In terms of year-over-year investments, we do have an increase in advertising year over year, but that is not part of the $15 million reinvestment that Dave talked about. That's reinvestment in the core 360-degree experience.

Okay, thank you.

Jeff Farmer, Wells Fargo.

Great, thanks. Over the last couple of quarters you have pointed to an increased level of promotional discounting from the peer group as one of the bigger same-store sales headwinds for Outback. Just assuming the competitive environment is going to remain little unchanged in 2016, do you think your efforts to accelerate product innovation and elevate food quality will be enough to slow the share loss for Outback? I'm just curious if you think that's enough levers to pull to get the job done.

So, Jeff, last year Outback had a challenging fourth quarter, which we knew it would. It was going over a 6.4% comp, which was its largest comp since the last seven or eight years on a quarterly basis. But for the year, Outback did have a share-growing situation. It had a 1.8% comp for the year last year so it did continue to gain share.

And, yes, the promotional market is and will continue to be challenging. That's the nature of the casual dining industry and kind of the growth.

I will just say I feel completely confident in the renewed set of levers that we have on Outback going forward in 2016. We have had a cycle of success on this brand, but it has been decelerating last year as we vetted and qualified new levers for growth that have been tested and that we rollout with confidence. There are strong levers for growth and there are numerous levers for growth.

So the new menu innovation is true innovation against cuts, presentations, and toppings. I think I said in my remarks we've already started that in Q1 and we like the way it's mixing. Secondarily, we are investing back into existing products, so you have this combination of product upgrades, increased portions without raising price.

Third, I think you're going to see investments back into our labor model that surprise and delight in terms of customer service. We continue to expand lunch and, most importantly, we are shifting from the success we had in interior remodels to an aggressive rollout of exterior remodels which have been in tests and have proven to have a 5% lift. Now we're going to get 150 of them this year, more if we can, and we are looking to complete that within three years.

And then finally, I would say some of the investments that we have been talking about -- investing ahead of growth in the technology front -- the results are finally rolling off the conveyor line. So we now have the Outback launch -- Outback app to launch. We know what that does. We have loyalty that we have been testing for two years, because loyalty you really have to understand how it works and what incremental traffic it's driving. That goes out in July; that will be across the portfolio.

So I feel very confident in this new set of playbook growth levers for how it sets us up for growth in 2016, but even more importantly in 2017 and 2018 and beyond.

Just one quick follow-up on that as it relates to the labor. What was your data telling you about reduced labor staffing levels and the impact on sales? What was going on there? Why the emphasis on stocking up on labor?

I'm going to let Dave answer that, but one thing I will tell you: if you go back to his past comments, we've said about of our labor tool that it showed us where we could be more efficient. But we have always said it also showed us where we could add staffing hours. So we have capitalized on the efficiency and now we're in a great place to be able to add some additional, what I would call, service, surprise, and delights back in.

For competitive purposes, we are not going to get too deep into what we are doing on that front or on the product spec front, but I will let Dave comment more, too.

I think it's consistent with what we have been talking about, which is we get the efficiencies from the labor total because we were -- in off-hours we were a little heavy and at other times the experience during the day we might need more labor. And Liz talked about the surprise and delight aspect of it. So having a labor tool that gets down to that level of granularity really helps us understand where we can add and also where we can be more efficient. It's a direct result of the labor tool we rolled out.

All right, thank you.

The other thing I would say, Jeff, just to put your mind at ease about the efficiencies, is that we didn't see any reduction in our customer service metrics related with service as we achieved these efficiencies. That's not what this is about.

Okay, thank you, guys.

Jason West, Credit Suisse.

Thanks. I guess you guys mentioned that you are making these investments, but you are not taking price to cover those costs. So is the plan then to not have any incremental pricing as you move through 2016? Is that the plan across all your major brands?

And can you talk about where you are running on price today and what that means for pricing over the rest of the year? Thanks.

We were consistent with our long-term goal of 2% to 2.5%. And what we mentioned there specifically is we're not going above the 2% and 2.5% range to pay for these particular investments. So there will be pricing next year, per our usual model, but the point there is we're not pricing beyond that to pay for these incremental investments in the business.

Okay. Then just a follow-up on the margins again. The productivity savings; you guys have targeted $50 million every year. Is that still the plan as well in 2016? Doesn't feel like much of that is flowing to the bottom line, but I guess maybe it's offsetting some other areas. Is that still the goal for 2016?

We had an 80 basis point improvement in margins in Q4. That was very, very good for us and then also, if you look, we didn't price up to commodity inflation. We're not going to do that.

And so as a result, the A versus T work helped us maintain food cost percentage of sales during the year. And it's also our labor scheduling tools helped us offset any wage rate pressures that we were facing.

Now, secondly, going forward we expect at least $50 million a year of productivity. Hopefully, more than that, because we have had some good success for it. And we continue to make progress up against our competitors on overall operating margin.

So, yes, the productivity piece has been a big part of that, Jeff. It has helped us offset some cost pressures and we are seeing gains in our operating margin each year.

Thank you.

John Ivankoe, JPMorgan.

Thank you. I think [I've got] a follow-up to several questions that have been asked.

Obviously you've taken a lot of credit for the margins that you achieved in 2015: A versus T being part of that reason, labor scheduling being part of that reason. And it just seems from the outside that you are reinvesting some of the costs that you saved from 2015 into 2016. Again, that's just kind of what it looks on the surface, like what you cut in 2015 you're adding back in 2016. So shed a little bit more light on that.

Then, secondly, and to Jason's question, can you help us understand exactly what that at least $50 million of cost savings is going to be in 2016 and give us confidence that that doesn't influence the customer or the organization in some negative way where again a reinvestment may be necessary?

I think I will turn it over to Liz to talk about the reinvestment piece, because that's a very specific group of things we have decided to do. It's not to restore some the things we did on productivity at all.

But let me talk about going forward at least $50 million we expect, John, will continue to be primarily as we continue to work A versus T in our food cost initiative. But also we are getting some good results out of cutting back on some of our distribution costs as we work with some of our distributors.

So we will see more and more things outside of the restaurant as we continue to make this journey on productivity. Some IT savings, some distribution cost savings, some other savings up the supply chain along with continued work on our waste management systems and also getting even better labor scheduling. But that's the makeup of the productivity piece going forward, and what is really good is that more and more of it is coming outside the restaurant as we work up the supply chain in different areas.

Let me address the other question, because I want to be really clear about what the investment is. The investment is not putting back money that we took out of product specs or service specs that we now have to put back. It is investment in enhancing where we are now and taking those up, because there's two ways to drive brand value.

It's total benefits and experience divided by price, and we are moving away from -- because we've taken a lot of time to qualify these medium and long-term more brand-enhancing pillars. We're moving away from a quarterly cadence of LTO and did you lapse that and did you --? And we've got some great results in our tests by enhancing food quality, going into kind of more provocative, interesting cuts, and also having some retail payment, if you will, in the restaurants.

So really it's very important for me to draw the distinction of we're not putting back what we took out. What we took out is working. Our customer satisfaction levels have stayed strong. These are enhancements because to grow the brands and continue we want more brand-enduring pillars that drive for 2016 but also 2017 and 2018. So we are not saying, ghee, we had a really good buy this, get this and we didn't lap that.

These are investments back into the business that we have been vetting for two years and I think very much our patience will pay off in these areas.

Thank you.

Andy Barish, Jefferies.

Just wanted to see on the Outback business given some of the investment and the changes to come, the recent sort of two-year stacks on same-store sales have been in that 4% to 5% range. Is that how we should continue to think about the near-term comps? I'm just having a little trouble getting to the positive for the full year, given the compares in the first half are still challenging.

Andy, it's definitely a first-half/second-half story. As we tried to lay out, it's 500 basis point difference between first half and second half. And then we talked about the things that we will be building during the year, our investments and other things that Liz has talked about, give us a great deal of confidence in the same-store sales for the year.

But it is a first-half/second-half story if you look at the cadence of comps from last year.

But when the investments start out in Q1 and Q2 and the messaging starts out in Q1 and Q2, and I think I would just say, yes, the cadence -- Dave has been crystal clear and transparent about the cadence. But I would also say, in general, it's a very strong bundle of levers that we are starting investing in in day one.

So those 150 restaurants are -- we're fully down the pike in renovating them. It's a really strong Outback plan, both for 2016, but for 2017 and 2018.

Thank you, helpful.

Matthew DiFrisco, Guggenheim Securities.

Just wanted to get a little color on two things and then ask you a marketing question. Did you say then that the rewards program starting in July in those six test markets was 100 to 200 basis points of same-store sales lift?

Then I also wanted to know if you did anything on -- if you could give us any color on to-go. Have you -- has that been an area that -- some of your competitors that have picked up their to-go business, have you ceded some share there or is that a softer part of the business?

Let me take that in two parts. Yes to your first question that -- where we have loyalty in in six markets over the past 18 months it has driven a 100 to 200 basis point lift. So just wanted to confirm that.

Again, we've tested that now for 18 months, because with loyalty programs and the cadence of frequency in casual dining you really want to make sure that you are getting that incremental visit. So we feel very good about that and we will be rolling that nationally in July.

On the to-go business we know there's been a lot of publicity and a lot of folks talking about to-go. Our to-go business has always been strong, so what was an opportunity for some people to grow their curbside was a lever that for us was well-developed.

We haven't ceded share in that area. We do have innovation plans in that area, but I don't want to talk about them for competitive purposes. You see a lot of press releases about various places getting in to delivery and building -- we will build our off-premise business, but we will do it like we do everything else, which is to qualify and test first so that when we go national we know that it's sustainable and doable.

It's definitely an area that will be an opportunity for CDR and we intend to continue to participate in that heavily, but we're going to keep our plans to ourselves until we launch them nationally.

The other thing I want to add is we have a lot of capability in our company with people that have worked in delivery businesses before, and so we have people that could help us as we go forward.

But as far as a comp, did that perform, the to-go business, in line with the negative?

We did not see degradation beyond what we would expect, so, yes, there was not any additional accelerated impact on the to-go business. To-go business I think has actually has been pretty stable for us. It's about 15% of sales at Outback and we saw no trend change in that.

Okay. Then just a question with respect to the limited time offer, that $10.99. Can you remind us the last time you did an LTO at that price point?

And then how does that sort of --? Is that going to get marketing support heavily behind it? And from your experience with Bonefish, it seems like you're trying to take Bonefish back up.

Are you concerned that the Outback brand, you could be taking it down to a level that might -- have you tested this out? It sounds like it's at a pretty low price point that you might be at risk of further diminishing or reversing some of the gains you made in your steak authority and making it look like a little bit of a bar-and-grill discount almost.

Two things. The first thing is prior to -- in 2014 it was all about $9.99 steaks and that was from us and our competitors, so this is certainly not a new price point for the category. If we were taking our existing steak and discounting it to $10.99, that's a different thing. This isn't a discount.

This is an LTO. It's a new cut of beef and it has been engineered from the outset, over the last year, to be able to deliver a really nice return and a really nice plate presence at an accessible price point of $10.99. You see some bar-and-grill offers out there, as we expected, featuring steak at $8.99 because of the benign steak environment this year. You also see the number one competitor in the category; their steak starting price point is significantly below that.

We feel like we're in very good territory with a $10.99 steak price point in a meal that was engineered to show both innovation and have a nice return to net.

Okay, thank you.

Karen Short, Deutsche Bank.

Just on the philosophy on reducing the, I guess, reliance on limited time offers. I guess I understand that that's the right strategy longer term in terms of going to market, but it also seems like it's kind of a painful strategy to go through initially in terms of weaning the customer off of the addiction. So can you maybe just talk about that?

And then I had another question on Bonefish.

Yes, so LTOs are always going to be an important part of bringing news to the category, so I don't want to suggest that we are not -- we're out of the limited time offer business. We are going to be focusing them, though, on innovation and we're going to be taking dollars and have already started taking dollars from what is more discounting and putting that into brand-building programs such as loyalty.

So we will continue the cadence of bringing news to the category on Outback. I think we have probably the same amount, plus or minus, of innovation news offered. It's the type of innovation. You're going to see -- back to the prior question -- it's not all going to be the same price innovation. You're going to see greater cuts and more interesting things commanding more interesting price points.

So I just want to reassure you that the news and innovation will continue, but a lot of the work in investing in the product is the core product upgrade. That is more where the investment has gone versus stripping it all out of LTOs. But we are going to be very thoughtful and mindful about making sure it's true steak innovation that we go on-air with.

Okay. Then just on Bonefish, can you just maybe give some color on the closures; how much of a drag they might have been on the comp? But then also you talked about increasing customer satisfaction and I think you specifically called out value and taste of food as metrics that have improved. Maybe do you have some color on how those ratings are now versus a year ago, and then maybe what else you actually still need to work on in terms of the customer satisfaction scores?

On the closures, we aren't going to get into the kind detail to break apart Bonefish comps in quite that much granularity, but I can say it was a modest, but not very large, drag on comp. I think we took a concerted effort to look at where we weren't successful in those 14 restaurants and moved quickly to address it as part of our overall restructuring plan.

Then the customer satisfaction piece, we had said that the first thing we had to do when Greg Scarlet returned to the brand a year ago was, literally, return the Bonefish experience, which continues to be among the most highly rated. And so customer satisfaction scores from last year in Q1 versus this year in Q1 are dimensionally higher.

And we don't give out our customer satisfaction scores, but we returned to our previous highs on Bonefish of late. One of the best ways for you guys to get a sense of that is go on social media and see what they are saying about Bonefish and the experience and how that has been restored.

First we had to do that, right? So we said we got to restore the core experience, the core service, we got to rip out the complexity. We got to get back to doing what we do best, and we've done that. And so now we feel confident to reengage with the customer and bring them back into the restaurant because the Bonefish way is back.

And so that's when we're going to be -- in Q2 of this year. You can imagine we've been working on a pretty fun and cool program that we will come out with in Q2 to reengage folks, because now we feel confident when they walk through the door of Bonefish it's going to be the Bonefish that they know and love and highly rate. So that's the planned cadence for that.

Okay, that's helpful. Thanks.

Jeffrey Bernstein, Barclays.

Two questions, just one of the cost side of things. You mentioned commodity inflation a little bit less than you were previously thinking. I'm just wondering how much is still floating that could impact that guidance. I think you mentioned it got $7 million better just from that 50 basis point reduction.

And then the same question on labor. I don't think you quantified specifically what type of labor inflation you're expecting across the P&L in 2016. And then I had one follow-up.

Sure. We have much of what we -- our commodities are locked. We don't get into the details because of competitive reasons and it's so crucial that our supply chain team continues to operate with the levers they have. But we're in really good shape on commodities this year.

I think one thing to mention: the overall guidance we gave on 0.5% for commodities does include our international business where commodity costs are going up this year more than in the US. So I want to make sure that's out there.

On commodity -- on wage rate inflation, we're looking around 3.3%, 3.5%, something like that for the year. We are not in some of the high minimum wage states that some of our competitors are in. But it's something we're watching very carefully because it's a big part of our P&L, but we also want great people. So that's our assumption for wage rate inflation, Jeff.

Got it. Then just on the Bonefish and Carrabba's, I think with Carrabba's the new menu kicked in last month and with Bonefish I think you said the inflection point is hopefully in the second quarter of 2016 with some new marketing. I'm just wondering is that -- I'm not sure how long those things you would think would kick in. I think you said visitation is not that frequent, so it might take a while.

But at what point do you more seriously contemplate other alternatives for those brands? Maybe at what point would you expect those initiatives to really kick in? Should we expect a change in trend line in the back half of 2016 or are we now thinking that it's more like 2017 before we see improvement at those former growth brands?

No. Let me say, we're certainly not expecting 2017. We are expecting 2016 to see the improvement in those trendlines of those brands, absolutely.

Bonefish has performed in the second half as we expected it to perform. Now we feel confident in saying that growth is returning and it will continue -- the trendline will continue to build as we go through the year. But that is not going to be something that we say, oh, come back in 2017. We had told you guys the early indicators looked good and now the rest will follow.

On Carrabba's, we kicked off the new menu on January 11 and so you are going to see that continue to build because of the frequency. We feel good about how it went in. We like our new advertising campaign and now it's about driving that everyday dining during the week occasion that Carrabba's hasn't enjoyed as much penetration on.

That will continue to build and the frequency will continue to build, but this is not a 2017 story for either brand. This is definitely a 2016 story off kind of renewed pivots, renewed investment in the brands.

Jeff, it plays into the first-half/second-half comp guidance that I gave, so that's part of it as well.

Thank you.

Andrew Strelzik, BMO Capital Markets.

Good morning, everyone. I just wanted to ask -- I guess I was a little bit confused by some of the commentary. It sounds like, particularly at Outback and Carrabba's, the comp composition this year is going to be maybe more traffic-focused at the expense of mix I guess. Is that right?

And then, what is your willingness to use some of those interesting price points to drive traffic? Is that, in your mind, a sustainable strategy over time?

The only one that we commented on on price and mix was Carrabba's and that was intentionally done. We kind of talked about that for the last year that we were going to be driving everyday dining. And everyday dining has a lower average check than special occasion on the weekends, but that's definitely a strategy that we've been talking about for the last year.

Now it's in-market and so on that front, as I said in my prepared remarks, you are going to be looking at traffic with some planned reductions in PPA because you are driving a daypart that has a lower check. That was always kind of the strategy with that. That comment doesn't hold for the other brands.

When we talk about the $10.99 price point, that's just not a low price point for us on steak, particularly if you look back over the last several years. What it is, though, is that it's a new cut at a lower price and we're going to have innovation across all spectrums of the -- I don't want to get too heavy into revealing our hand -- across all spectrums of price points.

It was great to start the year out with the roasted sirloin and the new cut at an accessible price point, but you are going to see innovation. And then that innovation commands the price point it commands and it's not going to be one-size-fits-all. So I think you will see some pretty cool innovation, which will be able to command some interesting price points from Outback as you go through the year.

But again, we are starting the year off and I don't think we want to kind of open the kimono completely on the plan coming down the pike. So hopefully you understand that.

I appreciate that. And then if I could just squeeze one more in and I apologize if you already mentioned this. But the Bonefish closures, is that process complete in terms of looking at the asset base there or is that ongoing?

And is there anything that you identified specifically with those units? I understand the return profile, but whether it was real estate or markets or anything like that that you're taking away from that review.

No, this is the end of that particular Bonefish review. There was no smoking gun, shall we say, or any pattern that we saw in markets or types of things that I could call out. But we just wanted to go through where are some of the restaurants that were underperforming.

And we always -- any good restaurant company you always looking at your portfolio. It's part of just the whole total of shareholder return metric looking at your asset base, but this is the specific thing that we did on Bonefish.

Great, thank you very much.

Sharon Zackfia, William Blair.

Good morning. I guess on the initiatives around Outback I think you talked about portion sizes, staffing levels, innovation, ambience, kind of a host of things.

Liz, I'm interested in what your customer satisfaction scores say on those different elements. Have you seen any deterioration in any or all of those? I'm kind of wondering is it a catch-up investment you are making and you've seen the deterioration or if this is more proactive investing to just keep up with the Joneses.

Great question, Sharon. This is, as I said, not putting back what was taken out; this is upping our game. We are the number one steakhouse. We need to continue to invest and behave like that and lead in innovation and lead in new and sexy cuts and lead in product news.

And so that's kind of -- it's taking the reassertion of our steak authority through the supply chain. And that took longer, frankly, than changing the message. You can change marketing in a year, but if you're going to work your way all the way back through the supply chain, it just takes longer. So now we are able to have that work that we've been doing, to use the analogy, roll off the end of the conveyor belt.

We think it's going to up the whole -- not just up our game, but bring a lot of fun and innovation to the category, which is where we started this journey 26 years ago. So I just wanted to -- just to clarify that.

In terms of some of the other investments on customer satisfaction, we haven't seen -- nothing is being motivated defensively on Outback, but it is about pivoting to those new levers that we have been qualifying painstakingly. And our patience will pay off this year, because they are brand-enhancing, they have been tested, and they have been vetted.

And so when you look at the exterior remodels, no, there's been no change in customer satisfaction, but you can imagine we feel really confident -- and I know, Sharon, you've seen them -- in touching the 150 of those and the from two is pretty dramatic. And so that 5% lift is pretty much consistent.

This is about pivoting to a new levers of growth that we have been meticulously testing and vetting, recognizing that the last four or five years have been successful, but you saw decelerating comps because it was time to move on to the next playbook. And so we really move into 2016 with a lot of confidence.

Okay, great. Thank you.

Michael Gallo, CL King.

Good morning, thanks for sneaking me in here at the end of the call. I guess just two follow ups.

Dave, I was wondering if you could parse out how much the year-over-year drag has been from the weakness in Carrabba's and Bonefish on a combined basis to operating profit. And then also on the 14 stores that are being closed at Bonefish, how much of a drag those stores were. Thanks.

Michael, I hope you appreciate we don't breakout profitability by concept, so I really can't talk to that. I can say that our US business had a really nice year in total and some of those brands contributed to that. But I can't get into the details as to what they provided. That's the first thing.

Secondly, the drag on profitability on those store closures was pretty minor. Again, I won't break that out and get into any of that kind of detail. It's going to -- there will be some pick up in profitability but not very much, not enough really to call out.

In terms of your comfort with the rest of the portfolio at Bonefish, at this point and what you are doing in terms of being able to get it to be a growing brand, I know 2016 is more about kind of stabilization. But just help us parse out again what gives you the confidence that this is it in terms of the closures? Thanks.

The teams, Michael, did a great job going through it. We went through in great detail; I'm very confident that they picked the right restaurants and they moved on it quickly.

Just one thing I do want to mention and then maybe Liz will want to comment some more, but Outback Brazil did a 7.3% comp in Q4 of 2015. That business continues to perform spectacularly well. And Liz laid out in her prepared remarks the growth of the business over the last five years, the operating profit that we have seen, just how wonderful Abbraccio has come in and now Fleming's. That is a big part of our growth story and so just another really great comp in Q4 of 2015 for Brazil.

What I would say about Bonefish, what gives us confidence is that it continues to be in every consumer survey, in every consumer rating among -- in the top five or top three. And kind of pick your survey.

We needed to strip out the complexity that had impacted the core service to get back to what wasn't broken that we complicated. And we've done that. I think the beauty of the portfolio is that it allows us, with many levers, to deliver our earnings objectives of 10% -- 13% I'd remind you with constant currency -- while doing the right things for the business in the short term, medium, and long term.

And that is what we did to Bonefish. We said we are going to get back to basics. We know we're going to take our lumps in the short term, but we know this is right.

And so we restored the leadership team. We restored customer service satisfaction levels. We restored the supply chain back to having that simplicity and that fresh fish mix. And now we feel the confidence to turn on to the advertising to get everyone back in, but we weren't going to do that until we had completely restored and gotten where we wanted to be on that business.

I have a lot of confidence in the Bonefish business. I think it's important in these businesses to look beyond quarter to quarter, particularly as we will continue to be transparent about what we did and didn't do. But it's going to be a strengthening and a momentum story for Bonefish as we move through the year and I look forward to updating you guys on it.

Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to Liz Smith for any further or closing comments.

Thank you all. We appreciate everyone for joining us today and look forward to updating you on the portfolio on our Q1 call in April. Thanks a lot.

Thank you, that does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.