Bloomin' Brands Inc (BLMN) 2016 Q2 法說會逐字稿

Greetings and welcome to the Bloomin' Brands fiscal second quarter 2016 earnings conference call.

(Operator Instructions)

It is my pleasure to introduce your host Chris Meyer, Vice President of Investor Relations. Thank you Mr. Meyer, you may begin.

Thanks 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 second quarter 2016 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 our results on an adjusted basis. These non-GAAP financial measures are not calculated in accordance with US GAAP and may be calculated differently than similar non-GAAP information used by other companies. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP measures appear in our earnings release on our website as previously described.

Before we begin our formal remarks, I would like to remind everyone that part of our discussion today will include forward-looking statements, including our discussion of growth strategies and financial guidance. Such forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ in a material way 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 second quarter 2016, an overview of Company highlights, a discussion regarding progress on key strategic objectives an updated 2016 financial outlook. Once we've completed these remarks, we will open up the call for questions.

In addition, at several points in this presentation we will be referencing consumer data from NPD Group's CREST market research for the annual periods ending May 2006, 2010 and 2016. With that, I would now like to turn the call to Liz Smith.

Thanks Chris, and welcome to everyone listening today. As noted in this morning's earnings release, our adjusted second quarter diluted earnings per share was $0.30, up 7% from last year and US comp sales were down 2.3%. We continue to expect our comp sales performance to strengthen meaningfully in the second half versus the first half.

However, Q2 sales were somewhat softer than we anticipated. This quarter's performance reflects a combination of lower than expected traffic from our marketing programs, increased competitive activity, and industry traffic that has continued to soften. Before we drill down into the quarter, I wanted to provide our perspective on the casual dining operating environment.

For the last 11 years, casual dining traffic has declined. Price promotion, which ramped up in earnest during the recession, continues to increase but has not restored traffic growth. At the same time, additional capacity continues to come to market.

According to NPD CREST, in 2006, 16% of all casual dining occasions were deal driven. By 2010, when we exited the recession, that percentage had increased to 21%. Today, despite improving macroeconomic conditions, CDR discounting has increased further to now represent 22% of all occasions. This trend is unlikely to change, given the sluggish start to 2016.

Our segmentation studies show that approximately 25% of CDR customers are truly motivated more by price than brand preference. In our view, the industry, including our brands, has overspent chasing this group through discounting and price promotions. As a result, CDR Brands trade share back and forth among this subset of customers who are both less brand loyal and are less profitable. The unintended consequence of this is that we are unnecessarily subsidizing the majority of consumers who would have visited anyway and view value as unique and differentiated experiences at affordable prices.

As it relates to us, we have overallocated our spending towards this price-conscious messaging. In 2016, we began to pivot, and moving forward we will reduce the overallocation of dollars against traditional discounting and redirect those dollars towards innovating the core customer experience.

We have always defined value as total benefits divided by price, and our research suggests that our opportunity for growth lies in enhancing and differentiating our customer experiences versus further discounting prices. We will in effect be more focused on the numerator versus the denominator in driving brand value.

I want to be clear. This does not mean there will be an abrupt end to straight price discounts. They do have a role, and we will be sensitive to the macro environment. However, when we do value promotions, they will be executed in a more brand-differentiated and ownable way. We recognize that there will be some traffic volatility as we lessen the reliance on traditional discounting, but it should not meaningfully impact profitability and it is embedded in our revised 2016 guidance.

We have spent the past year understanding the impact of this approach. Our experience at Bonefish also gives us confidence that this portfolio strategy will restore high quality, more predictable traffic growth over the medium to long-term. Over the past year at Bonefish, we've reduced our reliance on discounting, simplified the menu, and returned to our polished casual roots of fresh grilled fish and superior service. Although it had a negative impact on traffic in the short term, it showed up quickly in strength and brand satisfaction, which is beginning to result in the return of healthy traffic.

You will see more investment of this kind across the portfolio in the form of enhanced food quality, differentiated service and ambience. In addition, we will be supporting two emerging opportunities. Our newly introduced Dine Rewards program and the promising off-premise dining occasion.

Firstly, as you may have seen, on July 19, we launched our first multibrand loyalty program called Dine Rewards. It has already received high marks for its simplicity and value relative to peer programs. Guests also appreciate the ability to enjoy the benefits across our portfolio of brands. 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. The program was just launched nationally two weeks ago and we now have over 800,000 members enrolled.

We also see significant opportunity in increasing off premise dining occasions for our brands. People want convenience and they want CDR food quality, but not always in the restaurant. We pioneered Curbside Dining over 20 years ago and believe that 2016 represents an inflection point to expand this opportunity even further. Our operated online ordering platform represents approximately 30% of to-go sales, an increase of 10% versus a year go. Importantly, the average check for online orders is 15% higher than phone-ins.

We will continue to promote and support bundled offers to meet the growing interest of our customers. In addition, there has been a lot of discussion about the potential of delivery for the casual dining industry. Our own research suggest this is a sizable and incremental sales layer and that this optimism is well-founded.

We're testing delivery in ten restaurants, and although it is very early, consumer acceptance is high and it is driving additional sales. We will be prudent and deliberate it in our approach to capturing this opportunity to ensure we deliver our customer expectations and that the benefits are incremental and profitable.

Now, turning to our brands in Q2. At Outback, we launched several initiatives, including the new center cut sirloin. It is the highest quality sirloin we have ever served. This investment will continue to reinforce our steak credentials.

In addition to the product enhancements, we're focused on improving service and execution in the restaurants. In Q2, we began to invest dollars into the labor model during peak hours to improve the experience for our guests. At the same time, we are simplifying the menu to improve execution. The product upgrades and labor investments demonstrate our commitment to elevate all aspects of the customer experience without raising prices to cover the cost of these investments.

This is an example of what we mean by offering sustainable value to our guests. Since the rollout of these initiatives, we have driven overall satisfaction to the highest recorded levels. This is very encouraging, and is a key part of the plan to drive future sales growth.

We also introduced a new marketing campaign and spokesman that represents our brand differentiation and moves us away from the LTO price promotion sea of sameness. The ad campaign features Australian celebrity chef Adrian Richardson and highlights our steak credentials and the unique spirited Aussie experience you can only get at Outback. We are very pleased with the initial success of the campaign, and will leverage Adrian to introduce new and innovative ideas in the second half of the year.

A great example of how this works is in our current Big Australia promotion. We are offering the loaded Bloomin' Onion, a twist on our signature item. It's generated a lot of buzz, interest and demand without detracting from sales of the traditional Bloomin' Onion.

Lastly, we are aggressively rolling out the Outback exterior remodel program. We expect to complete 150 renovations in 2016 with approximately 80% completed in the second half. The design contemporizes our restaurants with improved curb appeal and has driven 4% to 5% sales growth in these locations.

We will also continue to relocate Outback restaurants as quickly as higher quality sites become available. We expect these initiatives will build through the back half of the year. We are confident in the quality of the investment and anticipate a return to growth in the second half and more importantly, continued strengthening of the brand's health.

Turning to Bonefish, we saw positive same-store sales growth in Q2 as we execute the playbook to return the brand to its polished casual roots. Our efforts to simplify the execution of the experience has led to meaningful improvement and brand health metrics, including all-time high overall guest satisfaction scores in Q2. These positive leading indicators suggest we will continue to see sales momentum building over the back half of 2016 and beyond.

During the second quarter, we began a new marketing campaign to reengage the consumer in the Bonefish experience. This included the launch of the brand's first television advertisement in select markets. The television spots used our employees to highlight the brand strength in fresh fish expertise and innovative seasonal specials featuring the highest quality fish and fresh ingredients.

Bonefish remains a consumer favorite and we are back on track with this lifestyle brand. At Carrabba's we were disappointed in the second quarter performance. The new menu improved suitability for everyday dining and we spent meaningfully against this in Q1 to increase awareness and drive trials. We did not see this traffic sustain in the second quarter.

The average Carrabba guest visits the brand two to three times a year, so it will take some time to build, but the sales resulting Q2 were below our expectations. It is apparent the Italian category remains increasingly competitive with elevated levels of promotional activity in the market. According to NPD CREST, over the last year, 26% of all Italian dining occasions were deal driven, which is the highest level in segment history and well above the CDR average of 22%.

We will direct our efforts towards expanding occasions with brand-appropriate promotions. Carrabba's has a high brand regard, and we need to build opportunities for people to encounter that experience. We see a significant opportunity in the off-premise occasion, as people want the quality of Carrabba's and convenience with comes with eating at home.

To help address this opportunity, we launched Family Bundles in April, offering complete meals that feed a family of four at an attractive value. The early indications have been very positive. In the second half, we will product innovation that leverages our authentic Italian heritage.

Before we turn to international, I would like to announce that after more than 25 years with the Company and 11 years of passionate stewardship of our Outback brand, Jeff Smith has decided to retire from Bloomin' Brands. I want to take this opportunity to thank Jeff for all his efforts and the leadership that has made the brand so successful. I am pleased to announce that Greg Scarlet, our current president of Bonefish, will be moving over to Outback to lead the next phase of growth. Greg joined Outback more than 20 years ago and has held numerous leadership positions within the portfolio.

No one is better suited to lead Outback in this next era. Replacing Greg as President of Bonefish will be Dave Schmidt. Dave joined Bonefish in 2006 and has held numerous leadership positions within both operations and finance. He has been an integral part of the Bonefish revitalization over the past 18 months.

I'd like to turn now to the international business. This has been an important quarter in advancing our international growth strategy. First, we made the decision to franchise our restaurants in South Korea. This is a mature market, and we believe this new ownership structure will allow it to compete more effectively. Our focus is on developing the high-growth emerging markets in Asia and Latin America where CDR capacity is well below demand.

China represents an important long-term opportunity. We have been purposeful, patient, and deliberate in China for the past four years, employing a go slow to go fast strategy. This quarter we reached a significant milestone for the business. Our five Outback locations are seeing meaningful sales gains and in total, we achieved profitability at the restaurant level for the first time. This validates our consumer appeal and puts us in a position to accelerate expansion.

Turning to our largest market, Brazil continues to be resilient in a tough environment. The Outback restaurants are performing in line with our expectations, and we are on track to have over 80 restaurants by year end. In addition to Outback, we're also seeing success with Abbraccio. We have five restaurants open and sales have been similar to new Outbacks. This gives us conviction in the potential for Abbraccio.

As a reminder, Italian is the second largest segment in Brazil with no clear market leader, providing us with significant runway for future growth. Our brand strength, world class leadership team and the relative underpenetration of casual dining in Brazil gives us confidence that we can continue to invest capital in Brazil with high levels of return.

The international growth strategy is to have an ownership position in high-growth markets while partnering with experienced local franchisees to expand the brand in non-core countries. Building a growing and strong franchise business overseas is a priority for us. As you may have seen, we signed a multi country agreement with two partners in the Middle East. This agreement will add up to 26 Outback and Abbraccio locations as franchises over the next five years and reflect the portability, relevance and attractiveness of our leading brands. We will continue to pursue opportunities that balance risk and reward and speed to market.

Perhaps our strongest asset is the world-class team we have built, both at headquarters and on the ground, with experience developing brands in emerging markets. And finally, another major priority for us is maximizing total shareholder return. As we mentioned last quarter, we are making great progress monetizing our owned real estate assets. The real estate market remains attractive and we will balance speed and value through bulk and individual transactions.

The sale-leaseback progress, coupled with our significant free cash flow, enabled us to announce a new share repurchase authorization that increases our capacity to buy back shares to $300 million. These are just two aspects of the overall strategy to increase total shareholder return. Our significant cash flow enables us to do this while investing in incremental opportunities which include international expansion and off premise dining.

In summary, our top priority is restoring sales growth in the US. While the second quarter was softer than expected, we took significant steps to elevate the core guest expense. We are confident that this is the right area of focus and will return the domestic portfolio to growth over the back half of the year. Equally important, Q2 represented major progress against our other core strategies. We are in an even stronger position to expand our brands in Asia and Latin America, where casual dining is taking off. And finally, we are making significant progress in returning cash to shareholders and driving total shareholder return.

With that, I'll turn the call over to Dave Deno to provide more detail on Q2 and 2016 guidance. Dave?

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 results, I will be referring to adjusted numbers that exclude certain cost and benefits.

Please see the earnings release reconciliation between non-GAAP metrics and their most directly comparable US GAAP measures. We also provide a discussion of the nature of each adjustment. With that in mind, our second quarter financial results versus the prior year are as follows.

GAAP diluted earnings per share for the quarter was negative $0.08 versus $0.26 in 2015. Adjusted diluted earnings per share was $0.30 versus $0.28 last year. The primary difference between our GAAP and adjusted numbers in the second quarter was the sale of South Korea.

This includes $40 million of impairment charges and related costs, as well as $3.5 million of tax expense associated with the repatriation of proceeds from the sale. Total Bloomin' Brands revenues decreased 1.9% to $1.1 billion. This decrease was driven primarily by a 2.3% decrease in US comp sales and the unfavorable impact of foreign currency translation, which was partially offset by the net benefit of restaurant openings and closures.

Adjusted restaurant level operating margin was 15.5% this year versus 16.2% a year ago. The year-over-year decline in operating margin was driven primarily by higher labor expense, changes in product mix and higher commodity cost driven by both product enhancements at Outback and inflation in Brazil. These items were partially offset by the benefit of productivity savings and menu pricing.

It is also important to note that embedded in our Q2 restaurant margin is approximately $4 million of investments to enhance the guest experience, including the training and rollout of new center cut sirloin and adjusting the service model to optimize labor during peak hours. These are part of the $15 million of investments we're making into our business in 2016 as discussed on prior earnings calls. As a reminder, we are not raising prices to cover the cost of these investments.

As a relates to G&A, after removing all adjustments from Q2 2016 and Q2 2015, general and administrative costs were $68.3 million and $75.7 million respectively. The decrease was primarily related to the timing of our annual manager partners' conference, shifting from Q2 in 2015 to Q1 in 2016. There also was some favorability in deferred partner compensation and foreign exchange. Outside of key investment areas such as international and digital, we remain committed to zero overhead growth in G&A and will look for ways to continue to operate more efficiently.

Turning to reporting segments, international adjusted restaurant margin was 16.2% in Q2. This was down from last year, as we're experiencing double-digit inflation in Brazil and are not pricing at levels to fully offset these costs. Despite these added pressures, international margins are significantly higher than margins in the US. As we grow key equity markets internationally, our consolidated Bloomin' Brands margins will benefit from the success of our overseas investments.

On the development front we opened six system-wide locations in the second quarter consisting of two Outbacks, one Company-owned location and one franchise location, and four Company-owned international restaurants. As we've discussed on prior calls, we continue to monetize our owned real estate that is held in an entity we call PropCo. In Q2, we sold a total of 44 properties for $155 million, including the previously disclosed 41 property institutional deal at the end of March. We expect to close between 60 and 80 properties in Q3, which should provide between $205 million and $275 million of gross proceeds. Given this opportunity, we remain confident we can substantially complete the sale of available portfolio by early 2017.

The attractive real estate environment, combined with a high level demand for these properties, will unlock significant value for our shareholders once the expected transactions are completed. First, it enables us to delever our balance sheet as we pay off our bridge loan and second, we will use excess sale-leaseback proceeds to repurchase shares. As it relates to 2016 full year results, we expect the overall financial benefit of the sale-leaseback strategy to be limited, given the timing of the transaction.

Turning to our capital structure, we repurchased $65 million of stock in the second quarter. This left $110 million remaining on the existing $250 million authorization. Earlier this week, the Board of Directors canceled the $250 million authorization and approved a new $300 million authorization which will expire on January 26, 2018. This increase will allow us to use excess balance in cash as well as excess sale-leaseback proceeds to repurchase shares. Given current valuation levels, we will continue to be opportunistic with excess cash as well as future sale-leaseback proceeds to repurchase shares.

Also of note, in July the Board of Directors declared a cash dividend of $0.07 a share payable on August 25. As Liz discussed earlier, we refranchised the Outback business in South Korea for $50 million. These locations will operate as franchise locations moving forward, and we will collect a royalty from the new ownership.

This transaction is a big win for our Company as we focus our international efforts on high-growth areas such as Brazil and China. This sale also provides a great opportunity for this business to grow under the experienced leadership of their new ownership team.

In terms of the financial impact of the transaction, we expect Bloomin' Brands diluted earnings per share to be approximately $0.01 lower in the second half of 2016, excluding the impact of impairments, fees, and expenses related to the transaction. This transaction is dilutive in 2016 versus our original guidance, due to heavier sales and profits in the fourth quarter relative to the balance of the year. On a pro forma full-year basis, we do not expect this transaction to materially impact EPS.

The Korea sale brings a total number of international franchise locations to 126. Franchises now represent 57% of the total international portfolio. We will continue to build our franchise business overseas in geographies such as Southeast Asia, certain parts of Latin America and the Middle East.

I would now like to take you through our thoughts on 2016. We decided to update the financial outlook for the year, driven primarily by softer than expected sales trends, both in our brands and in the segment. We now expect US combined comp sales to be flat versus our previous guidance of positive. We still expect significant improvement in comp sales in the back half of the year, given the confidence in our growth levers and easier second half comparisons. However, given our Q2 performance and persistent industry headwinds, we believe it is prudent to modestly lower the full-year outlook.

We now expect adjusted EPS of at least $1.35. This is down from our previous expectations of at least $1.40. It is important to note that we lose $0.01 in the back half versus the original guidance from the sale of Korea. The remainder of the change in the guidance reflects our updated comp sales assumption. We expect adjusted operating margin to be flat.

This change is driven by the revision to comp sales. This does not factor in any increases in rent from sale-leaseback transactions that have not yet been closed. Their impact to 2016 margins will depend on the timing, size, and rent as we execute this strategy.

Based on the forward curve, we expect foreign exchange to represent a $3 million headwind for the year. This is better than the $6 million headwind we anticipated on the last call. While we are hopeful recent appreciation of the Brazilian real will continue, we remain cautious due to the volatile macro and political environment.

We also expect our adjusted tax rate to 25% to 26%. This is slightly lower than our original guidance, driven by lower expected pretax income. Original guidance on commodities, CapEx and new restaurants remain unchanged. In terms of productivity expectations, we are in excellent shape to deliver our goal of at least $50 million of productivity savings in 2016, with cost of sales representing approximately 50% of the overall benefit.

In summary, we believe a more cautious approach to 2016 sales is appropriate in this volatile operating environment. We remain confident that we are making the right and necessary investments, both 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. And with that, we will now open the call for questions.

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

Michael Gallo with CL King.

Hello, good morning.

Good morning.

My question is around core Outback. Obviously the guest count trends have been soft for a number of quarters? I know you are making changes to improve the overall guest experience, but I was wondering how you are going to -- how you are going to better bring the guest in to see those changes?

Do you plan to step up marketing in the back half? Do you plan to do things differently? I know you noted you want to get away from couponing. How do you plan to comprehensively bring the guest in so that they can see the experience because certainly the guest count trends have been soft?

Thank you.

Sure. Great question Michael, and what we had talked about last time is, when you are really making significant upgrades to the customer experience, that takes time to qualify those sales levers. But once we have them and we vetted them and they have driven all-time customer highs, we are going to be big and bold about talking about them and supporting them.

What gives us confidence is, one, we know historically every time we increased the 360-degree experience, we gain share and we drive volume. Whether that's our efforts from 2010 and 2014 to broaden the menu, improve service, woodfire grill, lunch was incremental -- we've qualified a whole other round of levers. We have significantly upgraded our steak and our sirloin, added portions. We have an impactful differentiated marketing program and voice that gets us out of a little bit of the sea of sameness that we were having and we have the exterior remodels.

We couple this with we are reducing our reliance on straight price couponing because we have much more important things and interesting things to talk about that actually bring the customer in. They are fatigued from straight coupons. So we will be directing some of those funds toward doing exactly what you said: putting our voice and our efforts behind talking about the innovations in store and the innovations on the plate.

You also saw Dine Rewards being launched. That, as well, will help drive their frequency. We feel very good about the pivot we have made, because we have qualified sales levers that have meaningful and sustainable value.

Thank you.

Joe Buckley with Bank of America.

Thank you, I have a couple questions.

Was the shift away from deal-oriented customer, is this something you have been doing all year, or is this something you are starting now? Does it represent a short-term risk to traffic? Maybe unprofitable traffic or less profitable traffic as you said, but as we think about the second half and even the next four quarters if you are just starting this, you've got a risk to what we're going to see traffic wise?

Yes, so Joe, we began this pivot in 2016 at the beginning of the year. So in Q2, we had a -- overall for the year, we're looking at about a 25% decrease in straight price offers, whether they're digital or FSI coupons. We are not going blank with that straight price promotion. And that reduction started in the beginning of 2016.

As we kind of qualified the levers and will continue. When you talk about the pivot away from the deal customer, we are still going to offer compelling value. It's what I talked about, which is total benefits divided by price.

We have a whole new upgraded experience that will drive healthier, stickier traffic than continuing to have price discounts. That, as we said, brings in less quality traffic, and frankly, subsidizes traffic that would have come in anyway. So while there's volatility in the traffic numbers, we have had the first six months to observe them, and know what to expect.

The good news is that the investments that we made were front half loaded with back half benefits. Whether it's the launch of the new advertising campaign which is doing very well, whether it's the steak upgrade and the exterior remodels, which are all back half loaded. So we feel good about the quality of our programming, and the quality of our sales in the second half, and we are willing to lose unprofitable traffic. Because it actually drags down the experience, changes the ambience in the restaurant and what people are looking for, and we will get PPA benefits from that as well.

One thing I would just say as we have a fabulous test case in giving us confidence with that in Bonefish. So there are two ways to go on Bonefish. There is $5 Bang, or there is what we have done now, which is gone back to the basics, strengthen the experience, put the customer back, and now we are able to do things like $50 Dine and Discover for two people, which has performed extremely well versus the $5 Bang. I want to be clear we are moving away from straight price promotions to more compelling differentiated offers that we have permission to do and we are going to be supporting them heavily. And we absolutely believe that will show up in higher quality sales.

Joe, I just want to add, like Liz mentioned in the prepared remarks, that's embedded in our guidance for the year and we've been studying this very hard. The things that Liz talked about is embedded in our guidance.

One more question if I can. The Dine Rewards program -- you mentioned the frequency at Carraba's? What is the frequency like at your other restaurants?

Will that take some time to kick in? You mentioned a 1% to 2% comp lift, but is that something that would happen several quarters out as opposed to perhaps the second half?

Typical CDR frequency is that three plus to four times a year. That's why, as I said, when we talk about when it reaches maturity. We do believe you will see, but this is not as I said, this is not a -- half-price off of entrees for the next month type of thing.

It will build when it reaches maturity, we have had it in market for three years. To be able to feel comfortable that this is a true baseline game changer that drives healthy traffic. And then we took our time to do it.

And so you will see that showing up over time. We already have 800,000 people that signed up and we launched this on July 19. I think that's an indication of appeal.

Also, if you look, we have gotten a lot of very positive press on the simplicity of our offer. And there is a lot of loyalty offers out there, some more successful than others, we took our time, we got it right, we leveraged our entire portfolio and it's very simple to use.

Okay, thank you.

John Glass with Morgan Stanley.

Thank you very much. Can you talk about how the guests did respond during the second quarter to the enhanced steak authority message and quality enhancements and service? I don't know how much of the second quarter it was in, but were there noticeable improvements in sales once that was in? Or is it just way too early to tell?

So it was really one month. So we had April, May, and then we went on air at the end of May with the center cut messaging, and the bulk of the messaging really has started in June and July behind Big Australia, which is out there. Which is celebrating the big, the bold, the new flavors.

We are really pleased with how Big Australia is being received and how that pivots toward celebrating what is unique about Outback, in a unique voice with a new spokesperson is very much resonating. We take a lot of optimism from the customer service feedback and the fact that we are recording, as we exited, record high overall satisfaction levels. That proved on Bonefish to be a nice early indicator of the return of healthy and strong traffic.

So again, we have been in diligence qualifying these new layers. But when you make real sticky changes to elevating the 360-degree experience, they take a little bit more time, but you will get out of this anniversarying of this or anniversarying of that. So we feel very good about it.

You can assume that what we have seen is embedded in our guidance for the back half of the year, and the fact that we've said that we expect to grow sales and grow momentum in the back half of the year. We have an easier base, but we also feel very good about the quality of the programs.

Two related follow-ups. Your comp guidance of the back half would assume 2% to get to flat. So are you suggesting since you've got two months of it now, including July, that is in fact where your sales are, at least directionally?

And Dave, the earnings in the back half is 30% growth versus down 5% in the first half, so some of that is probably the sales improvement -- maybe all of it is -- but is there anything else you would call out in terms of unusual cost benefits that would help you grow earnings that much faster in the back half?

Yes, share count, John, will be a part of it as well. So the EPS, if you do the math on the share count and stuff, that will be beneficial and frankly, like the sales side, John, the profit side was weaker in the back half last year. But the impact of our share repurchase program is part of it as well, so if you're modeling, factor that in.

And John, you know we don't give monthly guidance, as you know. So what I would say is that what we are seeing and the customer feedback associated with this pivot gives us confidence to -- as you said the implied back half of +2%, all of that thinking is in there. It is not just about -- when you look at what is building at Outback, it is not just about the back half but it's about the years to come then. So it's about higher-quality menu, portion upgrades.

You will see service upgrades. You see a more compelling and differentiated positioning that is resonating very well. You see the exterior remodel program. Let's not forget that 80% of the remodels are happening in the back half of the year, and it's 4% to 5% lift and that has been proven over and over again.

So the high-quality levers that we are pivoting into, its not just about benefiting from the second half base. It's about significantly elevating experience, which we know sticks, is sustainable and is a more profitable sale. And one thing I'd say is -- I'd point out with our portfolio is, we have some of the highest quality, highest rated brands.

That gives us the ability to innovate at the higher end. Let me give you a couple examples. One of our most successful programs this year, is we have introduced at Bonefish something called Dine and Discover. So every time that we introduce a new menu at Bonefish, which is every two weeks, fresh fish, tightly edited, we have an offer of a two-person meal for $50.

That is innovation at the high-end. We have put in place recently wine dinners at Carrabba's because we can command innovation at the high-end. That is a monthly wine dinner with a four course meal and a wine pairing for $40. So it is going to be a combination of those type of things that give us the comfort level in the back half. But more importantly, the go forward will be sticky.

Thank you.

Matthew DiFrisco with Guggenheim.

Thank you. Just a couple of bookkeeping items and then I just want to - I did have a question. Did you mention what your to-go sales percentage was?

No we do not. We don't typically provide that.

About 10% to 12%.

That is 10% to 12%, and then when you were referring to 30% of those right now are done online. That is up from 20% a year ago?

No, that is a ten percentage increase. Not a ten basis point increase.

So 27% were done online last year?

Yes. That's what 10% would imply, yes.

Okay. Percentage or -- got you. Looking at the sale-leaseback process and throughout 2016 and into 2017, it sounds like it is, on an annualized basis, going to be substantially accretive, or you are pretty certain that will be accretive? How will it affect the year as it -- given that it is a stub, would you have some issues and the timing of it? Could be possibly dilutive to 2016, as well?

Not dilutive to 2016, it will be accretive to 2017, then when we talk about 2017 guidance we will make sure we incorporate that. We talked about -- we've got some big plans in 2017, excuse me, we have big plans in the Q3 for it and we are very optimistic about our pipeline. It looks good.

Okay. And the last question, you obviously have a little but more of a negative tone, or at least the environment seems to have taken a step back from the last time you talked and the last time you provided guidance?

However, I think the one piece of guidance that didn't change was your plans for growth, in square footage growth? If you don't execute on the same-store sales optimism in the second half of the year, would that be something that could help maybe make you pivot towards revisiting your domestic growth plans and expansion plans to maybe even slow it further?

Yes. We have our capital is dedicated to remodels -- an overwhelming part of our capital is dedicated to remodels and relocations. We have a relatively small number of new unit builds in the US. We do have nice plans in Brazil where the business is doing incredibly well.

So that's where -- international is where most of our expansion takes place. We will continue with our relatively modest US growth, primarily at Outback. But our capital is really dedicated to exterior remodels and relocations.

And then last question? Was Florida weaker than the average that you reported for the brands in general? Some people have called that out as slower tourism, as well as the dinner business down there. Any insight on that region?

We have heard other people calling that out, but that has not been a reason that has stuck out for us. We've also done some nice incremental messaging in Florida, which is a core market for us. For example -- not discounting, messaging -- so for example we were able to go on radio with Bonefish and talk about day boat scallops and fresh catches, so we actually haven't seen that, as well.

Thank you.

John Ivankoe with JPMorgan.

Hi, thank you. I'm not completely clear on the traffic of down 5.9% at Outback in the second quarter? I think that will prove to be one of the lower same-store sales numbers and restaurants for the second quarter.

So can you -- comparing yourself relative to competition and we could name Texas Roadhouse and Longhorn as two of those -- what are other competition, like steak competition, doing right that you are not? And as we sit there and look at the second quarter, specifically why did the Outback brand perform worse than the broad casual dining average?

You are right. The broad casual dining was down 3.4%, and we were down two points more than that. And so while the whole industry was weak, there are certainly some factors that were specific to us that drove our performance.

Basically four or five things that I would point to. Last year was the national launch advertising support for Outback Lunch, so we were lapping a traffic spike because of national advertising on lunch. This does not mean that lunch, when you take a run rate, is not performing well. It is, but we have that spike up because Q2 was a national advertising launch of that.

We also, because of the timing of our promotions and where we want to spend our money, our number of weeks on air were down 15% in this quarter versus last year for Outback. Again we are not going to take a year over year anniversary approach.

We are keeping our powder dry as we rev up the 360-degree benefits that are more focused on the back half. Q2 discounting was also down about 10% across the portfolio. This was intentional.

I can't speak to other steak competitors. I would ask them the question about whether their discounting was up or down. I can't speak to them. The check average, though, for us was up 2.9% in Q2, which was moderate pricing, but reflecting fewer discounts.

So you do see the beginning of this increase in mix which reflects the preference of our core customers and higher quality traffic. It was 100 to 200 basis points worse than the industry. But we have a handle on some of the very specific things in Q2 that drove that.

And we are not going to do the quick-term things that would have driven more traffic and made that traffic number look better for you, but not really have done anything for the business in the long-term, and then we'd be talking about how we're lapping the fact that we had an 899 whatever out there. As a relates to competitors, I have a lot of admiration for our competitors. I think that they do an awful lot right.

I think we do too though, John. And I'd say we haven't in the last month. In the last year we've had a challenged plus and minus based on Outback. But from 2010 to 2014 we had healthy dinner growth.

We launched a successful lunch and now we're qualifying a whole new set of levers, so let's at least take a medium- to long-term look on this. I think we have a great plan. We need to prove that to you. But I think between having a new marketing platform, differentiated verse, more compelling in-store product news, bigger portions, service upgrades, exterior remodels -- these are some high-quality investments that are going to pay dividends and we will be having a different discussion I think next year.

But it's up to us to prove that out. And we always admire -- you've heard me say many times, we have two terrific competitors in the steak category and that should keep us sharp and make us continue to innovate.

And certainly if the second half does turn positive, it will be a different conversation. And then one separate question if I may? This is at least the second quarter in a row where international restaurant margins have declined year-over-year.

And maybe that surprises me a little bit with South Korea gone, as I would have thought some of those units could have been pulled out of that base. Could you highlight what's going on with the international store margins and when that decline might stop?

Sure. John, just as a reminder, we announced the sale of Korea after the quarter ended and it just closed this week. And I think the team did a magnificent job getting that done. It is well-positioned as a franchise market with a fantastic leadership team there. So it really sets us up for really strong success. Korea is in the numbers.

In Brazil, there is significant inflation. We've got a fabulous business there. It is -- same-store sales growth are strong, we are taking share. It is well-positioned, we are growing the business and we are not going to price to that level of inflation in the near-term.

Long-term we feel good about the margins, John, but very near-term on the inflation side, we don't want to price up to that level. Those are the two reasons behind the international piece.

Dave, but there was a $39.6 million impairment in Korea in the second quarter, so I would have thought that business had held for sale accounting, or do I not understand that correctly?

No, it did not.

Okay, thank you.

You're welcome.

Howard Penney with Hedgeye Risk Management.

Thank you so much, Liz thank you so much for the commentary on the casual dining industry. It was very refreshing to hear. My question is about the competitive response to your pivot and strategy in the sense that they're probably not going to do what you are going to do, in the sense that obviously you are taking a risk that the consumer behaves differently and you are going to lose, as people pointed out earlier in this call, some of your customers.

So what do you expect the competitive response to be? And is there a tolerance for pain that you have that says this is the right strategy and we are going to do this no matter what? We feel like this is the right long term strategy and power through down traffic for the next four quarters, or whatever it is.

Maybe you can put some context around what you think the competitive response is, how much tolerance for pain? And just lastly, the thing that has always confused me about the industry in general -- and I don't mean you and everybody else -- everybody raises price every year. And yet traffic continues to go down. Maybe you can put into context the strategy how you view raising price, because that obviously has an impact on what you are trying to do overall.

Thank you.

Sure, thank you, Howard.

So great questions, and let me talk strategically. As you know, because you know this industry, the casual dining industry is a highly fragmented $80 billion industry. And what we do to ourselves will impact us more. I would imagine, because I've great respect for all of our competitors, each one of us has a different brand value equation as told to us by our customers. So total benefits divided by price. Ours doesn't look the same for other competitors and theirs looks different from ours.

So I'm sure they are looking at their own equation and figuring out how to optimize us. So I think they will respond in the way that they -- their research says that they should do right for our portfolio. I'm not presumptuous enough to think they will follow our strategy, because our brands are very different.

But here's what I will say. I will say that traffic for the industry was down 3.4%. The macroeconomic environment since the recession has improved more discounting, more straight price offers. It's not working. So the reality is, and we have to -- ourselves, we're looking in the mirror -- we have to completely direct our attention towards innovating the 360-degree customer experience.

The definition of loyalty, particularly among Millennials is about surprise and delight experiences in the box. That's what they want. And so we can continue to go out there with a price off that are subsidizing and in fact, sending a separate message, or we can stop that.

I will tell you that we feel -- but you don't just stop it and say thank you very much, I want to be clear. This is not some strategy, they have their role and they have their meaning, but you've got to provide elevated experiences. So like the Big Australia promotion that we are out there now. I'm going to hype on that because it's the best way I can describe this pivot.

We've got a wonderful new campaign that is Aussie ownable, that speaks to Aussie generosity in this very fun, brand enhancing way. It's about Big Food at Outback, there's not a price point in the commercial, it's about twists on classics that you can only get at Outback, it is resonating. It is working.

It's exciting for people to hear and they want to come in and try it. That's much stickier traffic and better traffic than, here's another $5 e-mail from me telling you to come in or another coupon. And so I think when you say what will be our tolerance, our tolerance will be high because we know it's the right thing to do.

The other thing is I have the benefit of knowing from the experience at Bonefish, that it works. But you have to have the brand strength. We returned -- we got too much into discounting on Bonefish and started undermining the brand health, but we've stopped that.

We went cold turkey on that. We really did. And we restored the service in-store, we went back to completely fresh fish, a tightly edited menu. We have record high consumer satisfaction levels. You can see it on social and you are going to see it building throughout the year.

So -- and by the way, we don't break out our brands but it is on track to have its most profitable year ever. So I think for our us, we are going to be balanced, there is certainly a role in this category for providing compelling value, but it doesn't have to be this sea of sameness that we have participated in and heavy couponing. With respect to prices, for us, you are right.

We've invested a lot in this customer experience without raising prices. Because we believe that part of adding value is giving upgrades, giving more service, giving more on the plate, giving more excitement in-house, versus expecting to be able to raise prices just because macroeconomic conditions are turning favorable.

So I just go back to saying what I said before which is that it's not always going to be a quarter to quarter thing but when you move towards more healthy brand investments, you get away from that volatility -- but there might be some short-term volatility, but we are going to be patient and we are going to show the tolerance. I would also say that one of the advantages of having a portfolio, I know that hasn't always been in there, is that you have waves of breaking at different times.

So I look at international, and the progress we made in Q2, we are in a much -- we are in a stronger position and I feel more confident about what is happening in CDR in Asia and Latin America and our ability to capitalize that. And as you know, Howard, that's a higher-margin business for us, so that's also going to provide us some tailwind. So we are going to continue to focus on superior brand value and the top of the pyramid.

Thank you so much. Really appreciate it.

Jeff Farmer with Wells Fargo.

Thank you.

Dave, you touched on it but on the COGs line you have US basket deflation, menu pricing, productivity savings. All those things are working for you. And then you have menu grades, unfavorable product mix shifts in Brazil, basket deflation working against you.

A lot of moving pieces there. How should we be think about the COGs line? Either for the balance of the year for the full-year?

Cost of goods should continue to be beneficial for us. There are those different things you talked about, Jeff, but please don't forget the productivity initiatives we have going on. And that is providing -- 50% of that is within cost of goods sold. So that will continue to be a tailwind for us and benefit for us so we feel good where we stand on cost of goods sold this year, Jeff.

Quick modeling one.

40 to 50 net system unit restaurant openings, more than half international; but how should we be thinking about the -- I'm sorry new -- system restaurant openings internationally, how should we be think about the net number for 2016? Not the gross but the net number?

Our net, did we disclose that much? The growth will be 40 to 50 for us. We haven't gotten too much into the closures. I do want to say anything we do close, Jeff, really has no profitable impact on us. So the growth number is the number to focus on.

Okay and final one --

The closure will be normal course of business.

Okay, and I think you did touch on this, but G&A dollars for the full-year? Any commentary on stock-based compensation? How should we be thinking about those two? Again, for the full-year?

No change there. Nothing really major.

Okay thank you, Dave.

Yes.

Jeffrey Bernstein with Barclays.

Great, thank you very much. Just two questions. One following up on the US comp? It seems like the return to US growth in the second half is pivotal for the store?

So I'm wondering if you can offer some color as to the reasons you believe things will stabilize from here versus maybe a further deceleration in trend. Which seems like your guidance implies stabilization at least on a two-year basis at these levels? I don't know whether there is any confidence you have that things aren't going to get worse, maybe some sequential color through the second quarter to give us that comfort?

And then I had one follow-up.

Sure I am going to answer that two ways, Jeff. The first one is because the category itself has softened, and we participate in the category, so I think there is two things that I would say. When you look at -- I know there has been, oh are heading, is casual dining softness a harbinger of things to come?

Is it the canary in the coalmine? I think a lot of interesting discussion around that. Here's our perspective --on the casual dining consumer and why we have a 3.4%.

When you look at overall macroeconomic indicators out there, they are pretty solid. They do not suggest that we are heading into a difficult situation like we experienced six and seven years ago. But when you dig down underneath that and you look at the consumer confidence level, what you do see for the first time is you see a significant widening gap between the consumer confidence of older consumers and younger consumers.

For example, the most recent data suggests that folks under 35 are 20 points higher on the confidence index than folks 35 to 54, who are themselves 20 points higher than the folks that are 55 and older. So you see this widening gap. Now the reality is in CDR, boomers represent 35% of the customers, but only 23% of the US population.

And I do think there is a lot of merit, we happen to believe, to the discussion that many people have had, that we are in somewhat of an unprecedented time of negative and provocative rhetoric. And our hope is that the external environment will normalize and those confidence gap numbers will ride themselves out and start to revert to a more normal gap.

So that's a category comment that I would make that I think is a little bit of a -- we are a little bit of unprecedented times with the rhetoric swirling out there. What I would say is when we look at the second half, and what gives us confidence is, I will just go back to say that we are doing the right things for the businesses. And we are investing in things which elevate the guest experience and drive true loyalty.

Loyalty these days is defined by surprise and delight me with new experiences in the restaurants. It is all about experiences. And so, when I look at the things that we are investing in, and I think I've talked about that, whether it is the quality and portion upgrades at Outback, whether it is a really -- we found our voice on Outback.

We have found our voice with Adrian and the Australian campaign, whether it's the loyalty program and the ambience program, we're lifting that experience and that will continue to play out and continue to pay out for us. As I said before, I look at Bonefish, and it's played out exactly as we'd hoped. It was painful to drain that traffic from Bang Wednesday and half off, and all those coupons.

But we simplified the menu. We went back to four specials, fresh fish. The vast majority of our offering is fresh fish. We went on air with a TV campaign in select markets that didn't have a price point on it, but talked about our fish expertise and how we chose our fish.

What you saw was, first you saw the restoration to record high customer satisfaction levels. Then you saw the return of more healthy traffic. I indicated that one of our more successful things on Bonefish is this Dine and Discover two course for $50.

This is what I mean about providing brand appropriate value, which is not just cheap, it is a great experience at compelling price points. And we think that will continue to build with that return. And what it does is, the reality is, as I said before, we don't break this out but, even with those traffic declines, because of the return to health of the core business and core customer, Bonefish is going to have record profits this year for us. We are going to be patient, we are going to be deliberate. We know we are going to take our lumps, but we are going to get out of saying, we anniversaried Bang Wednesday, we anniversaried this. And I do want to reiterate though, you will continue to see compelling offers from us.

But they will be much more in a brand appropriate way. There is absolutely a place for value in this category. But it's been too much at the front.

There is an opportunity cost to overinvesting in that. It means you are not investing enough in the core experience.

Understood. Thank you.

Jason West with Credit Suisse.

Yes, sorry to beat the dead horse here on this transition you guys have been talking about. As you mentioned there, it has been a bit painful watching the Bonefish traffic and comp trend we have seen for the last couple years, and things really bottomed in a mid-single-digit negative as you went through this process.

What is different about Outback that you won't see a big negative or big deceleration in comps as you make this transition? And can you talk about how the margins held up at Bonefish -- if you are losing unprofitable or lower profitability customers, did you see margins stable during that process?

Thank you.

From a margin standpoint, we saw the benefits. And when you lose those kind of deeply discounted things that we were doing, and in some occasions at Bonefish, that profitability does come back, even though you're working through that traffic piece.

It's really a -- it was a good story at Bonefish and Liz talked about the benefits that we are seeing from that pivot at Bonefish as far as brand regard, sales and everything else. It may be some of the things we have to deal with on traffic, but from a profitability standpoint, much better shape.

While there are parallels to Bonefish and Outback, I want to be clear the degree of the pivot and restoration is not the same. With Bonefish we walked away from it and we needed to restore it. We call it back to the future here.

On Outback it is continually upping our game. It is recognizing that when we brought in the menu, back in 2010, 2011, 2012, when we did the interior remodels, when we launched woodfire grill, those were all experience-based things that elevated and drove and now we need to rotate into a next era of these things. I will be honest with you, one was more of a little bit of a turnaround to get back to where you were.

The other one is -- keep going. You've got to keep innovating and raising the bar up. It's not like we took our sirloin down and have restored it.

No, we have spent the last year pioneering the new cut that we are calling center cut that's the best sirloin that we have ever put out there. So I think on Outback, its continuing to up the bar and up the 360-degree experience versus put back what we took out. Because you've constantly got to provide new and differentiated surprise and delight in the box.

So for us it's going to be about how we express Aussie generosity in fun and brand enhancing ways in the most attractive box with some service wows that are out there. I think it's a very -- I think you can draw parallels from the fact that when you invest in your core experience, you get that loyalty. But this is not a turnaround situation.

But we need -- it's time to pivot to this new lever. Some similarities but not -- I just like to point out that Outback did gain share last year. We're not happy with where we are, but I think that -- I wouldn't say that this is a comparison.

That's helpful. Thank you.

Karen Holthouse with Goldman Sachs.

Hi, thanks for taking the question. Sort of a different tack on the turnaround strategy. You mentioned that overall profitability of Bonefish is up since the new strategy was executed, which is not necessarily the easiest thing? Seeing reported results, could you talk about a little more quantification of gross profit dollars or gross profit dollars per person you're seeing there?

And are there other any signs that you are already getting an early improvement in the customer base at Outback or Carrabba's? It is hard to see reported results with moving pieces around investments versus cost savings versus mix shift and what not?

Karen, we don't disclose in detail profitability for each of our brands. But I can give you a sense of it, think about a fuller, stronger sale at a particular brand like Bonefish, that doesn't have the discount embedded in the sale. The entire P&L, food cost, labor, everything else just -- improves.

I can't get into gross profit per person or deal here because we don't disclose brands in great detail. But I can tell you that when you have more healthy sales at a particular brand, that flows through the entire P&L, and that's what we have seen at Bonefish.

Thank you.

Andrew Strelzik with BMO Capital Markets.

Good morning everyone.

I appreciate that this runs counter to some of the messaging you've been giving around Outback, but as you are shifting away from some of the price point promotions, have you considered more permanently looking at or focusing on the entry-level price points? It seems like a way that you could retain some of those customers and smooth the volatility that you see with that trading back and forth that you mentioned?

We've seen some of your peers in the industry do that as well and it seems to have worked. Why is that not a good option is there something that I missing there?

Again, I want to make sure I'm clear on the strategy. We feel like we do have really good entry-level price points. What we are talking about when we say we are pulling back on is couponing and straight price-off impressions.

Things that have -- go after the consumer, with no other message other than take $5 off and the frequency and depth of that. So we are going to be dialing that back. And we are going to be repurposing those dollars to put it into compelling news at affordable and compelling price points.

We're not going to -- so it's a shift and I think what gives us confidence is the straight price-off promotions, they don't work. They're not driving traffic. They're catering to 25% of the industry that truly makes a decision on where they are going based on price only versus brand preference.

So it's almost like you are overspending to take that 25%, which by the way is going to go elsewhere, if somebody has a better deal the next quarter. Versus absolutely having compelling and strong superior brand value. But really making sure against that 75% of the population, particularly as a becomes more of a millennial world, that you are providing the best possible experience in that store that you can.

That's the imperative. I think in many ways, honestly, with the fact that price promotions have increased and it's not driving traffic, it's an opportunity for casual dining and we are holding our self responsible to enter a cusp of a new era of innovation.

I think there are two things going on. I think there's a recognition that you have to have a killer experience in the box and a differentiated experience, and the other part that we haven't talked about but that I do see as a structural game changer from the industry, is off premise. I been in this industry now for six or seven years and I have not seen what I call a sales layer that feels structurally incremental to the degree that off premise and delivery feels for this category.

And I think you see a lot of folks talk about it but that's going to build out. So we have compelling entry-level price points. You're going to continue to see compelling price promotions and offers for us.

This is not a strategy that other retailers have done in the past. The scorched earth -- that's not what this is. But it is an investment in true value.

So we feel good about our entry-level price points. In effect think of us as we are adding value because we are upgrading our portions. We are upgrading our steak, and we're not taking pricing. That is more for the same amount, which in effect is increase in value.

One thing I want to mention before we get to the next question. A question that John Ivankoe had, just want to clarify, we did have held-for-sale accounting in Q2, but the Korea results were consolidated in our business, so the full impact of the P&L was in Q2.

Just want to make sure I corrected that. My apologies but we did have held-for-sale in Q2, but the Korea business was completely consolidated into the P&L.

Sharon Zackfia with William Blair.

Hi. Good morning. Just two quick questions, hopefully.

On Bonefish, I know it's only been one quarter, but it sounds like you are pretty encouraged by where you are at this point. How long do you think you need to see better results there to take it off of the hiatus status for growth?

And secondarily, on delivery, I don't normally think of steak as something that travels particularly well, so when you look at your to-go mix, is that different than your dine-in mix, and does that affect anything from a margin standpoint as delivery ramps?

So let me take the Bonefish one first and then talk about the off premise. For Bonefish, I think the question --

New units at Bonefish. Yes, sure, we will, Sharon, and as you know we put a hiatus on new unit openings. We wanted to make sure that we saw the expansion take hold, and the profit building and everything else.

We would expand that brand when the time is right, but we are going to wait and see when the time is right. And our major focus is grow what we own, and upgrade our restaurants. So we will take some more time to see how we do on Bonefish, but we are very encouraged as you can tell, by what we are seeing out of Bonefish Grill.

And I would build on that by saying this industry continues to be overcapacity. And we have over 200 Bonefishes out there and it is time to upgrade that interior. We are out of the cycle that we used to have, so we are already upgrading non-interior.

We think that's where the real value is and where the real capital is. So every single store that we have out there has to be laid out and designed the way -- in a most compelling manner consistent with how people are dining today. That's got to be the priority. And so we do think that there is a time when we will be expanding more Bonefishes again, but our first priority is to make sure that every single Bonefish you go in there pays off on the fact that it is still very highly regarded as a lifestyle brand and experience.

In terms of off premise, the reality is that Outback pioneered off premise 20 years ago. And we do have a significant off premise business.

We don't see a different mix in our off premise. Steak actually -- I think fish is the most challenging thing. Steak actually travels pretty well. Does a travel as well as Italian? No. But you don't see a mix difference.

But you are seeing people absolutely want the quality of CDR delivered -- and sometimes they don't want to eat in the restaurant, but they want to have the ability to eat Outback in different places and at home. And you're going to see some innovation around enabling them to do that.

How we address that, that's all in front of us. So we think that's a real incremental opportunity for the total category, and we don't have a different mix with take out or a different repeat with take out on Outback.

Great, thank you.

Brian Vaccaro with Raymond James.

Two real quick ones for me. Dave, on the sale-leaseback proceeds, you said it was $155 million in the second quarter? Can you share what the after-tax proceeds were on that? And do you expect a similar tax impact on the rest of the portfolio?

Yes, Brian we don't get into that kind of detail, we prefer just to talk about the gross proceeds. We don't anticipate changes from quarter to quarter on what properties we pick, et cetera. We are not cherry picking properties, it's a very good representation of what's going on.

So we will just talk about growth proceeds right now and as you saw, we have a new share repurchase authorization. So that sale-leaseback program gives us confidence to be able to do that as we go forward. We are very enthused about the pipeline and what the economics look like.

Okay. And then second, just the impact of the P&L on the sale of South Korea? Just want to make sure we are on the same page from a modeling perspective?

What's the impact -- can you share the impact to the consolidated store margins or the international segment margins are? And what should we be penciling in terms of a royalty rate in South Korea?

Yes. We won't get into that granular level of detail because we stay primarily with the international segment. But we all know that the Brazil margins are really strong. But I don't want to get into the detail between Korea and Brazil and everything else.

Our royalty rates varies between 3% and 6% internationally. We are obviously going to, in the future narrow that range a bit. And the deal falls within that range.

One last one. Wanted to clarify the annual guidance and what it embeds in terms of the share repo assumption? Could you either provide a specific range, or if not, at least clarify what you have layered in? In terms of, have you layered in, and the benefit of the proceeds from South Korea and what degree you have layered in the proceeds, the excess proceeds from the sale-leaseback?

Are you assuming future, the third quarter, the 60% to 80%? Are you layering that into your share count assumption? Or is it only what's been closed thus far?

What we have done is we have layered in what we think is coming down the pike as far as Korea and other sale-leaseback stuff. I don't want to get into granular detail here. Because it all depends on th timing and how these things come together.

We've given you our best estimates so far as to what's coming down the pike, whether its the South Korea sale or future sale-leaseback. Have to leave it at that Brian.

Thank you.

There are no further questions at this time. I would like to turn the call back over to Ms. Liz Smith for any closing remarks.

Thank you, operator. We appreciate everybody for joining us today and we look forward to updating you on the portfolio progress on our Q3 call, which is on October 28. Thanks a lot.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.