Bloomin' Brands Inc (BLMN) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Bloomin' Brands Fiscal Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) It is now my pleasure to introduce your host, Mark Graff, Vice President of Investor Relations. Thank you, Mr. Graff. You may begin.

Thank you, and good morning, everyone. 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 2017 earnings release. It can also be found in our website at bloominbrands.com in the Investors section. Throughout this conference call, we will be presenting results on an adjusted basis. An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear on our earnings release on our website, as previously described. Before we begin our formal remarks, I'd like to remind everyone that part of our discussion today will include forward-looking statements, including a discussion of growth strategies and financial guidance. 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 sec.gov.

During today's call, we'll provide a recap of our financial performance for the fiscal fourth quarter 2017, an overview of company highlights, a discussion regarding progress on key strategic objectives and an update on 2018 guidance. Once we have completed these remarks, we'll open the call up for questions.

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

Thanks, Mark, and welcome to everyone listening today. As noted in this morning's earnings release, adjusted fourth quarter diluted earnings per share was $0.41, up 41% from last year. For the total year, we achieved adjusted EPS of $1.36, which was an increase of 9%.

Our fourth quarter and 2017 results are very encouraging. With combined U.S. comp sales up 3.3% in Q4, we'll significantly outperformed the industry by 270 basis points. This marked the fourth consecutive quarter of sales outperformance versus the industry. Even more impressive was Outback's Q4 comp of 4.7%, with traffic up 4.3%, reflecting the strength of this brand. In addition, we are pleased with how our brands are performing so far in early 2018, particularly at Outback where sales momentum continues. This further validates our strategy that the investments we are making to elevate the core experience are paying off.

We began this pivot 18 months ago and have made substantial progress against our strategy to reallocate spending away from discounting while concurrently reinvesting back into the customer experience. These investments were prioritized towards customer-facing improvements, including food quality and portion enhancements, service upgrades and improved ambience. The benefits of this strategy were first reflected in strengthening brand health measures. What followed was improving traffic trends that continued to build throughout the year, culminating in our strongest quarterly performance since Q1 of 2013.

In addition to investing in the customer experience, we are focused on building incremental sales layers to accelerate the sales momentum over the medium and long term. These include data personalization capabilities, the Dine Rewards loyalty program and the rapidly growing off-premise business. The Dine Rewards loyalty program is performing well and now has over 5.5 million members. The program is attracting a healthier consumer, and achieved an approximately 2% traffic lift. We will continue to evolve the program and look to further leverage the existing data and insights received from our customers. We recently hired Ramin Eivaz as Head of Digital Marketing, Analytics and CRM to help us determine how to best optimize our data to more efficiently engage and market to consumers in a more personalized manner.

Also, the off-premise business has made great progress. This business represents a significant and incremental structural tailwind for the industry. Our research suggests this is an even bigger opportunity than we originally thought it would be. Over time, off-premise has the potential to reach 25% of total restaurant sales. We currently have 240 restaurants that offer delivery and are fine-tuning the staffing and operations to ensure that the off-premise experience exceeds expectations.

In addition, the first express locations opened, combining Outback and Carrabba's offerings in the delivery and take-out-only format. This smaller footprint concept will be utilized to expand our reach into both new and fill-in trade areas. These locations will help inform our go-forward off-premise development strategy. We currently have 3 open, and expect to have 8 by the end of the year. And although it is early, initial results are promising. Now turning to the brands.

In Q4, Outback's comp sales were up an impressive 4.7% and outperformed the industry by 410 basis points. The investments we are making to elevate the customer experience continue to drive improved traffic. Outback's fourth quarter traffic was up 4.3% and represented the highest traffic quarter since 2011. As a reminder, these investments include enhancements in steak preparation and portion sizing, reducing complexity within the restaurant and improved ambience through the exterior remodels that contemporize our design.

All year long, we have been very pleased with the positive momentum and signs of restored health of the brand. We saw year-over-year increases across key social trends, including food, service, portions as well as price value. These measures are indicators of underlying business momentum.

We have also substantially completed the multiyear rollout of the Outback exterior remodel program and are relocating Outback restaurants as quickly as quality sites become available. There were 145 remodels and 18 relocations completed in 2017.

Looking ahead to 2018, our focus will shift to interior remodels, particularly those that have not had an update since 2010. Given the strength of our pipeline, we also expect to relocate another 14 restaurants. Outback's encouraging performance leaves us well positioned to further take market share.

At Carrabba's, Q4 comp sales were up 1.3% despite a 14% reduction in advertising. We were pleased with this performance as Carrabba's has refocused its efforts in 2017 to ensure that it is the restaurant of choice for authentic Italian dining. This is highlighted through the celebration of the service, experience and heritage of Italian cooking. In addition, we have shifted the marketing strategy from more complicated LTOs towards excellent execution of the core menu and special occasions. Carrabba's remains a strong brand, and we'll pursue the same strategy in 2018 while also focusing on expanding its growing off-premise business via Family Bundles and delivery platforms.

Turning to Bonefish. Q4 comp sales were up 0.6% despite a 27% reduction in advertising. We continue to enjoy high brand health and consumer satisfaction scores that reflect a return to the lifestyle brand it's known for, offering fresh fish with superior service. To accomplish this, we have pivoted away from mass marketing to invest in the customer experience. This strategy is expected to restore the core business to healthy traffic growth. We are returning to our partnership roots and giving more decision rights to the restaurants. For example, partners will once again have the ability to choose the local fresh fish for their restaurant. This is the philosophy that defined Bonefish as the unchained chain.

In Q4, Fleming's comp sales were up 3.1%, with negative traffic. Fleming's was the last of our domestic brands to begin the portfolio strategy of reducing our reliance on discounting in 2017. In the first quarter, discounting was down year-over-year. Moving forward, Fleming's will work on differentiating the brand from the traditional high-end steakhouse through localized menu selection and customer segmentation.

Now turning to International. Brazil posted another strong quarter with comps up 4.9%. The Outback restaurants are performing in line with our high expectations. Our Italian concept, Abbraccio, is also seeing success. As a reminder, Italian is the second largest segment in Brazil with no clear market leader, providing us with significant runway for future growth. We intend to further expand our leading market share in 2018 with these great brands.

We continue to view China as a long-term opportunity for International. To accelerate growth in this market and become more nimble, we are speaking with potential partners to pursue a different go-to-market strategy. We have an established and successful business in Hong Kong. However, China has not maintained the same level of sales consistency. Our belief is that a strategic partner in China could assist in optimizing unit-level economics that will help us realize the potential opportunity in this market.

In summary, 2017 was an important year as we aggressively spent behind our key priorities and growth initiatives to drive healthy, sustainable traffic over the medium and long term. We look to capitalize on the momentum in 2018, and have a defined strategy to achieve our objectives. The first priority will be to grow healthy sales and profitability in the U.S. behind investments in food, service and ambience in our restaurants as we pivot to interior remodels. The benefits from these strategic investments have gained momentum and built over time.

In addition, data personalization will help us engage more efficiently and effectively with consumers across each sales layer, including the Dine Rewards loyalty program. Besides remodels, we also believe we have very attractive opportunity for new restaurants at Outback and Fleming's, and are building the pipeline that will be pursued in a disciplined manner. The 4 Fleming's that have opened in the past 18 months have exceeded their business case with volumes that are significantly above the system average.

Outback remodels continue to drive the expected sales lift, and we will focus on quantifying the potential for express units as we go forward. We have growing confidence that this strategy will drive healthier, sustained growth in 2018 and beyond.

Our second priority is executing and investing behind the growing off-premise opportunity. We are optimizing the existing 240 delivery restaurants and building the infrastructure to support the elevated sales volume. In addition, learnings from the express units will help us enhance our off-premise opportunity.

Third, we will continue to invest capital to maximize the international growth opportunity. This includes leveraging the success in Brazil with Outback and Abbraccio. In addition, we will pursue the growing franchise opportunities in Latin America and Asia with our portfolio of brands.

And our final priority is to maximize total shareholder return. We remain committed to reviewing all potential opportunities and we'll evaluate them through the lens of maximizing shareholder value. Since the beginning 2015, $850 million have been returned to shareholders in the form of dividends and share repurchases. In 2018, we expect to substantially complete the sale of our remaining real estate asset. This, coupled with our strong cash flow, will represent another strong year of returning cash to shareholders. We are excited about the prospects ahead and look forward to updating you as the year progresses.

Lastly, I want to say a big thank you to all of the operators in the field for an exceptional year of mentoring and developing their teams and putting our customers first. It's paying off.

And with that, I'll turn the call over to Dave Deno to provide more details on Q4. Dave?

Well, thank you, Liz, and good morning, everyone. I'll kick off with discussion around sales and profit performance for the quarter. As a reminder, when I speak to results, I'll be referring to adjusted numbers that exclude certain costs and benefits. Please see the earnings release for reconciliations between non-GAAP metrics and their most directly comparable U.S. GAAP measures. We also provide a discussion of the nature of each adjustment.

With that in mind, our fourth quarter financial results versus prior year were as follows. GAAP diluted earnings per share for the quarter was $0.17 versus negative $0.04 in 2016. Adjusted diluted earnings per share was $0.41 versus $0.29 last year. GAAP earnings were lower than adjusted earnings in the fourth quarter of 2017, primarily due to severance costs connected to our organizational restructuring that we discussed on the last call as well as impairment costs related to our China business.

Total revenues increased 8.3% to $1.1 billion in the fourth quarter. This increase was driven primarily by an additional $80.4 million of revenue from our 53rd week, higher comp sales and an increase in franchise and other revenues. This is partially offset by our selective refranchising both domestically and internationally, and the net decline from restaurant closures and openings. I would now like to briefly discuss our overall comp sales results for Q4. Keep in mind that our Q4 comp included the 14 weeks that ended December 31, 2017, versus the comparable 14 weeks a year ago. So it is an apples-to-apples comparison of our sales performance for the quarter.

Our combined U.S. comp sales finished Q4 up 3.3%, with traffic up 1.8%. Liz went through the comps by concepts, so I'll turn to other elements of our Q4 performance.

Adjusted operating income margin was 5.3% in Q4 versus 5.5% a year ago. The largest contributor to this decline was an increase in incentive compensation expense, driven by improved sales and profit performance. In Q4 2017, we recorded $15.3 million of incentive compensation expense as compared to $9 million reversal of incentive compensation expense in Q4 2016. This resulted in a $24.3 million change in year-over-year incentive compensation expense. This change had over a 200 basis point impact on operating margin in the quarter, and was the largest driver in our year-over-year change in G&A expense. In addition to incentive comp, our margins continued to be negatively impacted by increased labor costs. These items were largely offset by the benefit of adding the 53rd week as well as productivity savings and lower advertising expense.

As it relates to the 53rd week, we estimate that the benefit from the extra week was worth $0.11 of diluted EPS to our 2017 results. This week between Christmas and New Year's include many of our busiest days of the year. This is reflected on the large EPS impact from this week. The operating margin for the 53rd week was higher than our normal operating margin because some of our fixed expenses, such as rents and depreciation, are recorded on a monthly basis and did not have an accounting impact on our 53rd week.

On the development front, we opened 7 systemwide locations in the fourth quarter, including 4 International locations, 1 Fleming's, 1 Outback and 1 express location.

Turning to our capital structure. During the fourth quarter, we amended and extended our credit facility. The new facility allows for financing of up to $1.5 billion and consists of a $500 million term loan A and a $1 billion revolving credit facility.

In addition, due to our strong financial metrics, we were able to lower our interest-rate spread over LIBOR by an average of 25 basis points. This will help us offset some of the anticipated increases in interest rates over the upcoming year. Importantly, we extended the maturity for our new credit facility to the end of 2022. We continue to receive tremendous support from our banking partners, and we appreciate the confidence they've shown in our company.

Before I discuss 2018 guidance, it's important to reflect on some of the key accomplishments in 2017. First, our U.S. business finished with comp sales up 0.5% driven by a 1.8% comp at Outback. Outback also finished the year with positive traffic, significantly outpacing the casual dining industry. And it is clear our investments are paying off.

Second, excluding the impact of Hurricane Irma, which was $0.04 a share, we would've finished the year within our original guidance range for adjusted EPS.

Third, our Brazil -- our business in Brazil continues to perform at a very high level and finished the year with a 6.3% sales comp. This performance gives us confidence that we can capitalize on additional growth opportunities in this important market.

Fourth, we made additional progress in our very successful sales leaseback initiative. We now have less than 30 properties remaining to be sold, and thus far have received over $650 million in gross proceeds. In total, we expect over $700 million in proceeds once the program is completed.

Finally, in 2017, we repurchased 13.8 million shares of stock. Since the inception of our share repurchase program in 2015, we have repurchased over $750 million of stock. At last week's meeting, the Board of Directors approved another authorization of $150 million. Our share repurchase program has been a big win for our shareholders. Our strong performance has given us the financial flexibility to balance returning cash to shareholders with prudently managing our capital structure and credit metrics.

2017 was a strong year for our company and has set us up for continued success in 2018. With that in mind, I'll now take you through our 2018 guidance.

We expect GAAP EPS to be between $1.28 and $1.35, and we expect adjusted EPS to be between $1.38 and $1.45. If you exclude the $0.11 of the 53rd week from 2017 results, our adjusted EPS would've been $1.25. On that basis, our 2018 adjusted EPS guidance range represents an 11% to 16% growth.

We expect our 2018 GAAP effective income tax rate to be between 9% and 10%, and the adjusted effective income tax rate to be between 11% to 12%. This represents an 800 and 900 basis point decrease from our 2017 adjusted tax rate of 20%.

We intend to reinvest approximately 50% of our tax savings back to our employees. These reinvestments will come in the form of additional field compensation, enhancements to our health benefits, a larger 401(K) match as well as leadership development training.

As it relates to other aspects of our guidance, we expect U.S. comp sales to be up 1% to 2% on a comparable calendar basis.

On the cost of sales line, we are seeing demand outpace production across several key commodity categories. Commodities are expected to be up 3% to 3.5% in 2018, as compared to a slightly deflationary finish in 2017. Labor will continue to be a headwind in 2018. Persistent labor pressures have been a reality in the industry for several years. Approximately 4% labor inflations is expected in 2018. Given these ongoing inflation pressures, food and labor cost productivity will be an important part of our model.

In addition, we will build out our capabilities in off-premise and digital to provide top line growth to complement the sales momentum in our Outback business.

Capital spending is expected to be $200 million, or 25% less than 2017. We will continue to make investments in high-return areas such as Brazil and our Outback fleet through our interior remodel and relocation programs. Outside these areas and ongoing maintenance, we will be disciplined in our approach to capital spending. We opened approximately 20 restaurants with the majority being International.

Finally, the 53rd week in 2017 creates some complexity comparing year-over-year results both for the full year and by quarter. Each fiscal quarter of 2018 will be comparing to a fiscal quarter from 2017 that includes a 1-week shift. Please refer to the fiscal and comparable calendar days table provided in our earnings release this morning to help you better understand our 2018 calendar. This calendar shift impacts results in our first fiscal quarter and our fiscal fourth quarter in particular.

In Q1 of 2018, we expect a negative $0.03 impact to EPS, and in Q4 of 2018, we expect a negative $0.08 impact to year-over-year EPS. For the full year, we will lose $0.11 of EPS from lapping the 53rd week.

In addition to losing the 53rd week, we estimate there will be another $0.02 to $0.03 of calendar and holiday shifts in our 2018 results. For example, 2018 excludes New Year's Eve in our fiscal year which is a very strong sales day. These impacts have already been included in our 2018 adjusted EPS guidance of $1.38 to $1.45.

As indicated in our earnings release, our 2018 financial outlook does not include any potential impact from the adoption of a new revenue recognition standard. We are still in the process of finalizing the estimated impact of this change. Once the work is complete, we will restate our 2017 results, either on or before our Q1 earnings call to provide better insight into the impact of these changes. We do not expect any of these changes from our adoption of the new revenue recognition standard to impact our 2018 guidance of 11% to 16% adjusted EPS growth.

In summary, Q4 was a fantastic finish to a very strong year for the company. Importantly, we are seeing sales momentum continue into the first quarter. We remain confident that we are making the right and necessary investments to support long-term growth. We remain disciplined stewards of capital, and our improving capital structure provides increased flexibility to return cash to shareholders.

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

(Operator Instructions) Our first question is coming from Jeffrey Bernstein of Barclays.

Great. One question, 1 follow-up. My question relates to the comp trends, I mean better than expected at all brands. But I guess, just focusing on the Outback U.S. brand. If you can give any color in terms of trends through the quarter and into the first quarter? I know you mentioned that the momentum continues into '18, especially at Outback. I don't know if that means we should be assuming a similar absolute level, which would be in that 4% range. Obviously, that would be even more impressive considering, I think, the compares are 600 basis points harder. So any color in terms of the sequential trends through the quarter and into 1Q? And whether or not you meant, on an absolute basis, that momentum has continued? Because, again, the comparison swing is significant. And then I had one follow-up.

Jeff, it's Liz. You know I would love to be more granular, and we try to give as much as possible. So I'm just going to reiterate that the sales momentum -- we feel very good about the category, about our brands in our portfolio. And the sales momentum at Outback has continued at an impressive level. And that's where I'm going to leave it. And we look forward to updating you on that more on the next call.

Got you. And then, just in terms of the 2018 guidance. If you excluded the 50% of the tax reform benefit that it sounds like you're flowing through to EPS, which we estimate would be maybe $0.10 or so, the adjusted EPS guidance would be closer to $1.30 versus -- at the midpoint versus $1.40-ish that you're guiding to now. But that would only be modestly above the adjusted $1.25 in '17 if you excluded the 53rd week tax benefit, so -- or 53rd week benefit, I should say. I just want to make sure, am I reading that right, that we should be assuming very modest EPS growth ex the tax benefit despite the positive comp? Maybe you could give some color. I'm assuming the commodity and the labor is just so overwhelming to some of the other things, and how much pricing do you plan on taking in '18 to mitigate that?

Yes, Jeff. I think our 10% to 15% guide is extremely appropriate. It's a holistic guide. We've got about $0.07 coming through to the bottom line to EPS through the Tax Act and in $0.07 we're spending. I must say, it's 11% to 16% -- I'm sorry, I misspoke there. But also, if you remember, in my prepared remarks, we've got some holiday shift headwind, for instance, of no New Year's Eve this year in our company. That's a big day. So there's approximately $0.03 there. So we think the 11% to 16% guide is very appropriate. It's holistic, it includes the tax reform, it's about $0.07 benefit to our EPS this year and we're spending about $0.07. So we think that's well within the guide that we provide in the past. And it's a holistic guide that includes commodities, labor and also that holiday shift, which is important.

And the pricing you think, if you're running -- I know you said 3% commodity inflation, 4% labor. How should we think about pricing and is it there, that $50 million-plus productivity offset that you guys often talk about?

Yes, we've got another great year productivity plan, and we try to keep within the 2%-ish range on pricing.

Our next question is coming from John Ivankoe of JPMorgan.

Two questions, if I may; neither is a follow-up. Firstly, on CapEx, I mean that number has actually come down quite a lot. I think at one point in '17, you guided to $260 to $280 million, and now you're planning $218 million. So I guess the question is -- I mean if we were to kind of look in the past and then just try to understand what's happening in the future, I mean, that $60 million to $80 million is quite a lot of money for a company of your size. I mean, what kind of projects were you going to do and how much of that CapEx, that lower CapEx that you're planning in '18 is deferred? Or is $200 million kind of the right run rate of a business for your size, or do you have an opportunity to even take it lower than that if business conditions dictate?

Yes. Two things, John. First of all, as you know, as you followed our company, we had to do a lot of catch-up. I mean, we had to -- we had -- some of our assets were older and had not gotten the attention that they needed. And we did that. Outback exterior remodels is an excellent example of that. That's number one, so that reflects the lower CapEx guide for this year. And then secondly, we are extremely focused on where we're investing our money. And the follow-ups we do are very tight. And so it would be in Brazil or be it continuing to invest behind the Outback business, that's really where we're going with our capital. We're trying to really identify opportunities and pursue them with gusto. So in past years, we had to do some catch-up, but we think right now the $200 million spend is appropriate.

And the only other thing I'd add, John, is that we obviously look at the capital budgets and capital plans that are submitted on return on investment of those dollars. And so now that the big "bringing our fleet to current standards" is behind us, we do see the -- the reduction in CapEx spending isn't a reflection of a reduction in our optimism. Quite the opposite. It's a relief that we've caught the fleet up and it's a commitment going forward to never get behind. But at the same time, you heard me mention, we see opportunistic opening potentials in -- domestically, and whether it's in Fleming's, whether it's an Outback or an express. And we're going to pursue those in a disciplined fashion. So that's the cadence for this year. But the big spending has been catch-up to the fleet which, as you know, needed to happen.

Okay. Now this is the follow-up. Certainly, we understand that China never got to scale. But a year ago, maybe I wouldn't have expected that the company Outback Brazil development would've been so little in '17. I mean, what should we be interpreting from that? I mean, is that a business that you think, at least in the near or medium term, has hit the maturity? Do you think that can reaccelerate at some point? Just give us some color on that market because your development doesn't necessarily coincide with your enthusiasm that we've heard.

Yes. No -- we remain extremely enthusiastic about Brazil, John. In the past, we may have had a few more openings, but we still think it's up to 100 new -- 100 restaurants in total available in Brazil. We're in the -- we're getting close to that number. We still think that the Outback investment warrants a lot of attention. We're just being extremely selective in our opening as that market matures. And also, Liz has mentioned Abbraccio for us, and that's a market we're also looking at. So we remain enthusiastic about Brazil. We may not be opening at quite the same rate as we have in prior years because the market was not quite as mature, but we still see the opportunity there to open up new restaurants.

Yes. I mean with -- the bulk of the 20 is going to be in Brazil, and sometimes it has to do with, honestly, with real estate opportunities. I mean, we're as excited as we have been about Outback. So I'm glad you brought that up because I want to clarify that and the runway there. And then Abbraccio, as Dave said, we have 9 and we're opening another 4, so that's a 50% increase, and those are performing extraordinarily well. And so I really feel great about the Brazil businesses and how we're kind of pushing another trademark down there that's being extremely well received.

And maybe on the same theme. Obviously, you run a number of different brands, company operated, in the U.S. Several of these brands also have company-operated international exposure as well. How should we, the investment community, best benchmark your G&A? I know it's a pretty complicated question, I mean, we can do it from the analyst side very easily on a sheet of paper. But what do you think the best benchmark are for us to determine that your G&A spend is right from an efficiency and an effectiveness point of view given what your current growth plans are?

Sure. Well, look, I think every -- I'll answer this and I'll let Dave chime in. I think every company has, right, as you pointed out, different structures. What I can tell you is that our G&A spend per store is very much in line with our competition domestically. Now we have different AUVs, right? Which you know from a historical basis, Bonefish still doesn't have lunch in it, lunch is not in all of our -- so it's really -- when you think about the G&A as a percentage, it's the denominator that affects that. But when you look at the actual amount per store, we're very much in line with the industry. I think that's always the best way to look at it because, as you know, if you get too thin in a store, then your service suffers, right? And the most important thing is to have excellent service in the restaurant. So we're right in line with our competitors on G&A per store. And we expect, as we continue to grow the volumes, you're going to see that as a percentage come down because we've got all these growth levers, whether it's off-premise, which is growing significantly, delivery -- lunch, which is -- still has a lot of legs and in fact is growing. So that will improve just by the fact that our AUVs are improving through the restaurant. Dave, I don't think if there's anything you want to add.

Yes. The other thing I'd add, John, as you know since we've gone public, we've been very appropriate in managing our overhead structure and making the organization changes that we need to make. We just made some changes last -- in the fourth quarter on -- primarily on the administrative side. So that's really important for us. So I think that, that is something that we will continue to look at. And Liz talked a lot about their overhead growth; in fact, even better than that. The other thing to take a look at, which I encourage all investors to take a look at, is the company ownership versus franchise ownership. Because company level of operations require more overhead support. So those are the things that we look at, along with Liz's remarks, when we're looking at overhead.

Our next question is coming from John Glass of Morgan Stanley.

If I could follow up on G&A, just maybe more specifically. So in the fourth quarter, I understand there was a bonus accrual versus a reversal last year. So you said this year, $260 million, plus $18 million in comp reload, that will get you to $280 million. So you ended up at $307 million for the year. So was there an above-target payment this year? And I guess the real question ultimately is -- in '18, is this the right base level to use? Or did you overspend in G&A in '18 -- '17 because of that, and '18 could be, therefore, lower or similar on a dollar basis?

Yes. No, we didn't overspend in G&A but we had a fantastic fourth quarter and we had to accrue up the incentive payment. And we did overachieve our target. So I mean, there is -- our 2018 number is appropriate. And we did spend our goal long-term. And every year, it could be flat in overhead, but invest in key areas of growth like digital and other places. But we think that's an appropriate number for us.

I'm sorry, what did you say -- maybe I missed it -- did you say what your 2018 target is for G&A?

We did not say what our 2018 target is, but our target is to be -- our goal is to be flat each year.

Flat in percent?

Dollars spent.

Dollars spent. Okay. And you can use that -- is the 2017 is a good baseline to use on that dollar spend for '18 -- that was my question. Is that true?

You could use that if you'd like, yes.

Okay. Well, I'm hoping you like it, too. The -- Liz, on your strategic priorities that you listed out, you really are focusing on the Outback brand and of course some of the accelerants on that. You didn't talk about the second brands, the secondary brands that you own. Is your thoughts evolving on that, or did you leave them out just because they're not -- they weren't in the top 4 -- how did you think about those brands in the portfolio going forward?

Sure. Well, I did cover them in terms of 2017, they each got their own section. I think -- here's the headline, what I hopefully communicated in those sections is that as you saw from the Q4 performance, the work that we've done on those brands, which is moving away from what I call, mass marketing, more CDR, and returning to the authentic in-restaurant execution experience, and reallocating the dollars accordingly as well from mass marketing to mass personalization, that, that work is -- happened across all 3 of the brands. And I think you saw in Q4 the results of that shift. And we're really very, very pleased with that. You saw comp sales growing despite having reduced marketing and advertising spend 10% to 20%. So I think that's pretty good validation that returning those brands to their roots of, what I'd call, kind of quiet authenticity but not unsupported authenticity -- so moving off of TV, you can bet they're a big part of our digital. You can bet they're a big part of our data personalization and effort. We get a much higher ROI with all the investments we're making in data science and data personalization. You can bet they do really well on off-premise. And you can also bet that they do really well on Dine Rewards. And so I think that the pivot has been away from, what I'd call, louder more overt marketing, has served those brands very well. Because they've all really done well as the unchained chain in their category. And we've returned the marketing to be that. So didn't mean to short cut them. I wanted to say that we're going to continue the strategy behind them, which is increasingly successful in '17 through '18.

Our next question is coming from Gregory Francfort of Bank of America.

It's actually [John Michael] on for Greg. I just wanted to follow up on the earlier unit growth question. I just want to confirm that, that 20 target is a gross number. And also, it's a bit of a reduction over previous years, just wondering if you're just going to be dialing back in international markets and where specifically, that would be so?

Yes. It's a gross number. It's typically just our portfolio build timing. We still believe we have Outback new opportunities in the U.S. We've been really thrilled with, like Liz mentioned, the -- some of our new Flemings' opening. So it's just how we're building our portfolio. I do want to mention that we have 14 or 15 relocations planned at Outback, and that continues to do extremely well. But a majority of our openings this year is International.

Yes. And I would just add that we've had so much success in our development sites and relocations under the leadership of (inaudible), and we're kind of ruthless about not accepting anything but a quality site. So that number, I mean, candidly would probably be more under past lenses that may have existed here, but we're only going for the absolute best sites, and the results are showing that. And if we have to be more patient, we're going to be more patient.

Our next question is coming from Jeff Farmer of Wells Fargo.

The 3% to 3.5% commodity inflation is the highest level you've seen since 2015, I think. I'm just curious if that elevated level of inflation will impact any of your promotional or product strategies. Anything that helped to drive that pretty meaningful jump in traffic that you saw over the last 2 quarters?

Yes. Jeff, no, the commodity situation, -- we'd all love to have a deflationary environment again like next year, but that 3% to 3.5% is not going to change our marketing program or LTO program or support. We really -- I just really want to stress Outback's success and momentum is not kind of a one leg of the stool thing, right? So the strong performance and improving health metrics, you don't get that quarter-after-quarter without everything working, right? So we're not overly dependent on a beef LTO that we may or may not have to change. That's going to continue. As is the interior remodels pivot now. As are the digital, the CRM and the mass personalization capabilities. The Dine Rewards is performing so well for that brand. And then the growing off-premise, which we really haven't spent much time on, for us, it's about how do we accommodate what we know the demand and volume is in the restaurant in a way that grows. So nothing about the commodities, other than I wish they were flat again this year, is going to change any of our programming on Outback.

If I may add something, Jeff. We've talked a lot about the investments in our business over the last 18 to 24 months. Clearly, from a financial standpoint, look at the traffic trends and everything else, they're paying off. And Liz talked about each of them but financially, when you run the numbers, it looks very strong.

Okay. And then unrelated, I believe you mentioned 4% wage inflation in '18. Just out of curiosity, what level of inflation did you see in '17?

About the same.

Our next question is coming from Karen Holthouse of Goldman Sachs.

Just a quick question on the loyalty program. You mentioned a 2% traffic lift from it. Just trying to understand what that metric is. Does that mean overall spend in the program or overall transactions in the program were up 2%, overall transactions on a per member basis were up 2%? How are you quantifying that benefit?

Yes. So we spent, as you know, Karen, 2 years in test with it. So we had pretty good data and analytics models as well as what I'd call holdouts. And basically, what it is, is that the Dine Rewards program is providing 200 basis points in traffic lift across our portfolio, across all of the brands, similar to when we say an exterior remodel provides us 300% lift, right? It's pure -- if we hadn't done the program to -- now that we are, and that 200 basis points is across every brand. That's a portfolio number.

And then I guess within that, are there brands that are overindexing or underindexing to that?

Not wildly. Yes. There's no like, "Oh, gosh, one is at 3 and the rest are lagging along." No. They've all -- and I think you see that -- frankly, I think you see that in Q4 performance, right? So the other thing that's really kind of great news is that we're -- and that really comes with the benefits of having a tightly edited portfolio, to be honest with you. Because what we're seeing is a lot of cross-fertilization, right, of people acquiring their points at Outback, and then redeeming them and discovering Carrabba's and discovering Bonefish for the first time. Fleming's is performing really well in the program, and we were curious about how that would do. And with Fleming's where you get $40 off your visit after you -- finishes 3 qualified visits, we find a lot of new people, that's a significant amount, are now coming to Fleming's. And so honestly, the program is working exactly as we hoped it to. And as we get smarter and smarter with that 5.5 million, we'd be able to tailor our offers to individual customers because we're learning so much about them.

And then another question on the slower guidance for gross unit opens this year. Just from a higher level, the thought process behind that, was that more of a financial decision in terms of wanting more flexibility with your free cash flow? Or should we think of that as more driven by site availability, return -- your expected returns on potential sites and that sort of thing?

Timing and pipeline, making sure we've got the best sites available, like Liz mentioned, and building the pipeline. And I just want to reiterate the -- we also look at the 14 relocations at Outback as a big part of our number and our capital strategy.

(Operator Instructions) Our next question is coming from Michael Gallo of CL King & Associates.

My question is just on investments at Outback. Obviously, you've made a lot of investments in the menu, product quality, et cetera, over the last couple of years. Do you feel you're at a point where that starts to be behind you? Are there additional investments that you have contemplated in 2018? And at what point do you think the lines cross where we start to harvest this in better margins; obviously, better sales go a long way, if you could sustain the pace that you had. But I was wondering how we should think about those investments from a returns standpoint?

Sure, Michael. So I'll answer, and then I'll ask Dave to chime in, as always. You're right, we have been on a multiyear journey. And we're always going to be investing in customer-facing things to stay current and never get behind. So we have more investment going in. But I would say the bulk of the let's restore some of the quality and the quantity, we made those investments in earnest in 2016 and 2017. And a little bit like my capital comment, now that we've kind of closed the gap, we're going to continue to innovate and invest in the customer. But probably certainly not at that same run rate. What we are going to continue to invest in, which pays very high ROIs, is the data capability, data marketing and data personalization. So that, in itself, will pay for itself. And I do -- I'll let Dave talk about it, but we do feel like we are at, I think he mentioned, an important inflection point where the investments we've made ahead of growth are bearing fruit, and you are going to see that in some margin performance next year. So Dave, I don't if you want to comment on that.

Yes, we'll see operating margin expansion, we'll see continued progress in productivity. We'll make the investments that we're making. And when you look at a 40% flow-through on incremental traffic dollar, that's a really strong part of improving margin. And I'll also remind everybody that we've got a very high-margin International business that helps as well. So we expect to see that expansion to happen in '18 and beyond, and the elements that we just talked about will be a key part of it.

Okay, great. And then, just a follow-up, Dave. Is it possible to give us some more detail on what you have planned for productivity initiatives this year?

Yes. We have a very good productivity pipeline. We've put the tools in place in both labor and food cost management. We expect another really strong year in productivity. And that will be primarily in labor management, food cost management and also -- and working up to our supply chain and on distribution costs. So we also will be looking very much at our SKU rationalization in trying to just reduce the number of SKUs that we have. And lastly, we have a chance to continue to do a good job managing our facilities and the expenses that flow through there, like utilities and other places. So we have a multitier opportunity in productivity that we'll be pursuing this year and going forward.

Our next question is coming from Matthew DiFrisco of Guggenheim Securities.

Can you just discuss the -- or quantify the off-premise infrastructure investments you're making?

We're not going to get into great detail on it, but we have tremendous leaders with delivery experience. So we've got the capability on the people. We've got the expansions that we're doing at our restaurants, like in our to-go rooms to make that happen. We've got some of the express restaurants that Liz talked about. So when you look at building the capability on the leadership side from delivery, with experienced off-premise delivery leaders, when you look at the to-go rooms that we have and look at express, those are the kinds of investments that we're making.

Okay. And can you just quantify the percentage of sales of off-premise in 4Q as well as the partners you are using currently?

We would prefer not to get in that kind of detail just from a competitive standpoint.

Well, in terms of partners that we're using, I just want to also clarify. In 240 of our restaurants, as you know, we are doing it ourselves. And we have really focused on them to get this exactly right, because the volumes are such that you've got to make sure that you nail the in-store and also the delivery expectations on timing. We feel like we're getting really good at that and so we anticipate rolling it -- starting rolling it into more the back half of the year. But those will be our own delivery system. We are opportunistically working with other third-party delivery. But we do think there's a role for those, but that would exist in a hybrid system.

And is there a big gap in the kind of profitability from the third-party or you're doing the delivery yourself?

I'm sure you can imagine, anytime you have a longer supply chain -- or delivery and distribution chain that there is a different profitability than when you go direct yourself. And this is -- it's all that way and no different in our industry as well.

Yes. And the other thing about doing it direct is we have all the data, the customer information and everything else. That's key.

That's key. That's where the relationship -- that's a great point. That's where the -- what you want to do is own your customer and your relationship. And so now even with delivery, we're seeing exactly what our customers want. What messages we send them by customer elevates incremental purchases. I mean that's the kind of -- having your customer data is just critical.

And in the 240 store test, is there a specific criteria in the markets you're using or focusing on?

Well, we wanted to get a cross-representation, right, so that it was expandable to the total universe of our stores. So we have a really good data group and market research group so the clusters that we pick are projectable to the total U.S., right? Because you're trying to get a read of, hey, what does this thing look like? How many things would I fill in for off-premise? Where could express go? So think of it as we tried to start in an area and construct in an area that was representative.

At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Thank you, and thank you all for joining us. We look forward to updating you on our progress on the Q1 call. Take care.

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time and have a wonderful day.