Bloomin' Brands Inc (BLMN) 2018 Q4 法說會逐字稿

Greetings, and welcome to the Bloomin' Brands Fiscal Fourth Quarter 2018 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 2018 earnings release. It can be also found on our website at bloominbrands.com in the Investor Section. Throughout this conference call, we'll be presenting results on an adjusted basis. An explantation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our earnings release on our website as previously described. Before we begin 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 materially from our forward-looking statements. Some of these risks are mentioned on 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 2018, an overview of company highlights, a discussion regarding progress on key strategic objectives and 2019 guidance. Once we've completed these remarks, we'll open up the call 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 $0.30 and combined U.S. comp sales were up 1.6%. This was a terrific quarter and represented the fifth consecutive quarter of positive U.S. comp sales. For the total year, all U.S. comps sets finished with positive comps, including an impressive 4% at Outback. This represented Outback's highest annual comp sales result in 6 years. In addition, adjusted EPS grew 25% on a comparable 52-week basis in 2018, which was well above our initial guidance expectations for the year. This overall performance was a successful culmination of a multiyear effort aimed at strengthening our differentiations, improving brand health and setting the brands up for success over the next 3 to 5 years. These results were also a testament to our extraordinary team who demonstrate our principles and beliefs and show the enthusiasm and dedication in always putting the customer first. I want to thank everyone for making a difference each and every day. Our #1 priority remains driving healthy profitable sales growth across the portfolio beginning in 2016, which is the necessary steps to reduce discounting while also investing in incremental levers to accelerate growth. This includes $50 million of food and service enhancements; shifting media spend from mass marketing to digital personalization; the Dine Rewards loyalty program; and the rapidly growing off-premise business. These investments have helped fortify the core business and expand our reach to new and existing customers. We will continue to leverage our scale, portfolio of brands and data analytics to enhance engagement with higher returns. Importantly, the significant upfront investments that we have made in the 360-degree customer experience are largely behind us. We are now beginning to fully monetize the benefits of these efforts. Our patience has paid off, and as we enter 2019, we are confident this momentum will lead to sales growth and meaningful margin expansion.

Now turning to the brands. Outback comp sales were up 2.9% in the fourth quarter on top of an already strong 4.7% increase in Q4 2017. This is Outback's eighth consecutive quarter of positive comp sale

(technical difficulty)

investments we have made to elevate the customer experience are driving healthy sales growth. As a reminder, we have made customer-facing improvements across food quality and portion enhancement, service upgrades and improved ambiance. Last year, we also made significant investments back into our people as the war for talent remains high. These actions have resulted in increased partner engagement, higher satisfaction and helped contribute to the lowest turnover levels of the brand in the past 10 years.

Ensuring our assets are current remain a top priority. We completed the multiyear rollout of the Outback exterior remodel program and have now shifted to interior remodels. Outback is testing multiple design prototypes that incorporate new design elements to modernize our look while expanding the off-premise room to handle the higher expected order volume. We are also relocating Outback restaurants as quickly as quality sites become available.

We completed 14 relocations in 2018. Looking ahead to 2019, we expect to relocate another 11 restaurants given the strength of the pipeline. This relocation program continues to deliver impressive results and recent relocations are generating sales lists well in excess of 30%. We are very bullish about Outback, and the brand is well positioned to further take market share. At Bonefish, Q4 comp sales were down 1.1%, largely driven by a 10% reduction in discounting. We have now largely cycled through our deliberate plan to reduce discounting. Going forward, Bonefish will focus on driving healthy traffic by leveraging its strength with fresh fish, innovative cocktails and superior service. We continue to see success with the specials board, which offers local fresh fish and seafood entrées that are selected by our partners. In addition, we have migrated our marketing resources away from national towards more impactful local programs. This local philosophy helped define Bonefish as the unchained chain and is paying off as the brand achieved record profitability in 2018.

At Carrabba's, comp sales were up 80 basis points in the quarter. Carrabba's remains focused on driving healthy sales and providing a great, authentic, Italian meal at affordable prices. We continue to simplify the core execution while investing back into experience with larger portions and service enhancements. We are also targeting more proprietary programs such as our successful wine dinners and Amore Mondays. In addition, our growing off-premise business via Family Bundles, catering and delivery platforms represents a significant incremental opportunity in 2019.

In Q4, Fleming's comp sales were down 0.4%, driven by a planned 20% reduction in discounting. We made the conscious decision at Fleming's to move away from legacy value offerings such as our 567 bar menu and non-holiday gift card distributions. While these actions have a short-term negative impact on traffic, they have had a positive impact on profitability.

Moving forward, Fleming's will work on differentiating the brand from the traditional high-end steakhouses through localized menu selections and customer segmentation. The successful Dine Rewards loyalty program now has 8 million members. This program is performing very well and driving strong engagement across the portfolio. We will evolve the program to further leverage the customer segmentation opportunities provided by the rich data we have collected over the years. Our investments in CRM strengthen engagement through more customer-centric communication while providing a higher return from marketing spending. For perspective, these investments have enabled us to reduce advertising spend by $25 million over the past few years while improving return on investment.

Turning to off-premise. In Q4, we completed the rollout of an additional 200 delivery locations across Outback and Carrabba's. Delivery is now available in over 450 locations as of the end of the year. We are very pleased with the progress, and these locations continue to perform well against several key metrics, including delivery time and deliveries per location. This continues to give us confidence in the potential and expect to complete the rollout to the remaining delivery locations by the end of 2019. We are very excited about the incremental opportunity it represents as we capitalize the growing consumer demand for enjoying restaurant meals at home.

Moving to International. Brazil comp sales were up 2.4% in the quarter. We are very pleased about these results as the country experienced a difficult environment last year. This reaffirms our belief that the events of Q2 and Q3 were temporary and not indicative of long-term fundamentals. The economy in Brazil is beginning to see signs of stabilization since the presidential election and underlying health indicators are improving. GDP is said to have its strongest performance in 4 years and reduced inflation and interest rates are having a positive impact on consumer demand and disposable income.

We remain optimistic about the long-term potential of the market. The demand and love for our restaurants remains high, and we are well-positioned to continue to grow and take share in an underpenetrated casual dining market.

In summary, 2018 was an excellent year as our multiyear effort of investing behind the consumer is paying off in the form of healthy underlying traffic and margin expansion. The incremental sales layers we have qualified across loyalty, digital and off-premise will position us to capitalize on the continued sales momentum and monetize the benefits of these investments as we enter 2019 and beyond. Our long-term strategies remain intact, and you can expect the following priorities in 2019. The first priority is to grow quality sales and profitability in the U.S. The benefits of our strategic investments have gained momentum over time. Data personalization will help us engage more efficiently and effectively with consumers across each sales layer, including the Dine Rewards loyalty program. In addition to remodels and relocations, we also believe we have a very attractive opportunity for domestic new unit growth at Outback and Fleming's and are building the pipeline that will be pursued in a disciplined manner. Our second priority is executing against the growing off-premise opportunity. We believe off-premise represents a structural tailwind for the category and has the potential to reach 25% of total sales in our restaurants over time.

Given this potential, we have built the infrastructure, technology and capabilities to support these elevated sales volumes. We are offering delivery in over 450 restaurants today and expect to fully complete the rollout in 2019. Third, we will continue to allocate 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 then we'll evaluate them through the lens of maximizing shareholder value. Since the beginning of 2015, we have returned nearly $1 billion to shareholders in the form of dividends and share repurchases. Given our cash flow, we expect 2019 to represent another strong year of returning cash to shareholders. We are excited about the prospects ahead as we have transitioned to a strong differentiated growth model and look forward to providing more details at our March 11 Investor Day. And with that, I'll turn the call over to Dave Deno, to provide more detail on Q4 and 2019. Dave?

Well, thank you, Liz, and good morning, everyone. I'll kick off with discussion around our sales and profit performance for the quarter. I'd like to remind everyone that 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. Before I begin, it is important to note that our Q4 2017 results included 14 weeks versus Q4 2018, which had 13 weeks. The additional week in 2017 fell between Christmas and New Year's and includes many of the busiest days of the year. This week had the following impacts to our fourth quarter 2017 reported results. Total revenues improved by $80 million. Fourth quarter GAAP and adjusted EPS improved by $0.12, and GAAP and adjusted operating margins benefited by 190 and 170 basis points, respectively. For purposes of today's call, when I refer to fourth quarter 2017 results, I'll be referring to a comparable 13-week results that remove the impact of the additional week for my discussion. For additional reference, both the reported and the comparable financial metrics for revenues, EPS and operating margin are included in the Q4 earnings release issued this morning.

With that in mind, our fourth quarter financial results versus the prior year were as follows: GAAP diluted earnings per share for the quarter was $0.12 versus $0.01 in 2017; adjusted diluted earnings per share was $0.30 versus $0.18 last year. This represents an impressive 67% year-over-year increase. The primary difference between our GAAP and adjusted EPS is related to certain impairment, restaurant closing costs and severance excluded from the 2018 and 2017 fourth quarter results. Total revenues increased 1.7% to $1 billion in the fourth quarter, and U.S. comp sales were up 1.6%. This marks the fifth consecutive quarter of positive comp sales for our company. Adjusted operating income margin was 4.3% in Q4 versus 2.2% in the comparable period a year ago. This was primarily driven by increases in U.S. comp sales. The investments in customer experience are driving higher quality sales, which is improving margins. In addition, our margins continue to benefit from the ongoing productivity efforts to help offset inflation. In 2018, we made great progress in reducing food waste and optimizing the labor model. Ongoing productivity efforts will play a role in 2019 margin expansion efforts.

Also, we had a $5 million favorable change in year-over-year Q4 incentive compensation. This change had a 50 basis point positive impact on our Q4 2018 margins as compared to last year. In our International segment, adjusted operating margins improved from 10% in Q4 of 2017 to 12.2% in Q4 of 2018. This was driven by a strong margin quarter in Brazil as they rebounded from the truckers strike and political uncertainties that negatively impacted their second and third quarter results.

Q4 adjusted tax rate was 7.8%. This was lower than expected due primarily to the benefit of certain tax items. This had a $0.02 favorable EPS impact versus our expectations. On the development front, we opened 5 system-wide locations in the fourth quarter, including 4 international locations and one domestic Outback franchise location. Before I discuss 2019, it is important to reflect on some of the key accomplishments in 2018. First, as Liz mentioned, the U.S. business finished the comp sales up 2.5% for the year, with positive comps at all U.S. brands. Outback posted a 4% comp for the year, significantly outpacing the casual dining industry. Our eighth consecutive quarter of positive comps underscores our confidence in the sustainability of their growth trajectory.

Second, we finished 2018 up 25% in adjusted EPS, well above our original guidance of 11% to 16% on a comparable calendar basis. Third, we finished the year with positive year-over-year operating margins on a comparable calendar basis. Our efforts to drive healthier traffic through higher ROI marketing activities, such as digital, are working and have set itself to make significant improvement in operating margins going forward. Fourth, our business in Brazil has proved to be extremely resilient. The fourth quarter comp sales result of positive 2.4% came after 2 quarters of uncertainty of leading up to the October presidential election. There is renewed optimism in the country, and the Brazilian consumers love of Outback remains strong. Finally, in 2018, we repurchased 5.1 million shares of common stock for a total of $114 million. Since 2015, we returned nearly $1 billion to our shareholders through dividends and share repurchases. At our most recent meeting, the board of directors approved another share repurchase authorization of $150 million. The 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. 2018 was a strong year for our company and has set us up for continued success in 2019.

Before we discuss 2019 guidance, I want to briefly review the impact that the adoption of the new lease accounting standard will have on our business. Beginning in Q1 2019, this standard will be reflected in our results. Among its impacts, we will no longer recognize gains on sale/leaseback transactions in our financial statements, and as you may recall, in 2017, we largely completed a very successful sale/leaseback initiative that generated nearly $700 million in growth proceeds. We used the net proceeds to pay down $300 million of debt and repurchased over $300 million of stock. These transactions did have a negative impact on operating income as we had to record the rent expense from these new leases. We were able to offset a portion of the additional rent expense with deferred gains, realizing the sale of these properties. Both the rent expense and the amortization of the deferred gain were included in the other operating expense line in our income statement.

Under the new lease accounting standard, we will no longer be able to recognize the deferred gain in our financial statements. This accounting change will have the following impacts on our 2019 results: first, there'll be a noncash, $12.3 million increase in other restaurant operating expenses in 2019; second, this represents a $0.10 reduction in EPS for the fiscal year; third, it represents a 30 basis point reduction in our operating income margin for the year. With that context, I will now discuss our 2019 guidance. Keep in mind, we have provided a table in the earnings release to help with the discussion. As it relates to EPS, we expect GAAP EPS to be between $1.44 and $1.52. We expect adjusted EPS to be between $1.53 and $1.61. If you exclude the $0.10 impact of the new lease accounting standard on 2018 results, our adjusted EPS would have been approximately $1.40. On that basis, our 2019 adjusted EPS guidance range represents 10% to 15% growth.

We expect the 2019 GAAP effective income tax rate to be between 6% and 7% and the adjusted income -- effective income tax rate to be between 7% and 8%. As we relate to other aspects of our guidance, we expect U.S. comp sales to be up 2% to 2.5%. We will leverage our numerous sales layers such as off-premise, remodels, relocations, loyalty and digital marketing to continue our momentum from 2018. On the cost of sales line, we are seeing some inflation across several key commodity categories, including beef and seafood. We also have increased transportation cost driven by a tight labor market and high demand. Commodities are expected to be up approximately 2% in 2019 as compared to approximately 3% in 2018. Labor will continue to be a headwind in 2019. Persistent labor pressures had been a reality in the industry for several years. Approximately 4% labor inflation is expected in 2019.

Given these ongoing inflation pressures, food and labor cost productivity will be an important part of our 2019 financial model. With our sales growth and these productivity efforts, we do anticipate meaningful margin expansion in 2019. We expect adjusted operating income margin to be between 4.8% to 5%, which is an increase of 20 to 40 basis points from 2018. If you exclude the 30 basis point impact of the new lease accounting standard from our 2018 results, our adjusted operating income margin would have been 4.3%. On that basis, this is a 50 to 70 basis point improvement in adjusted operating income margins from 2018.

In 2019, we are confident the margin benefits associated with our prior investments will accelerate. Capital spending is expected to be between $175 million and $200 million. We will continue to make high return investments in areas such as [New Year's] in Brazil and renovating the Outback fleet through our interior remodel and relocation programs. We will open approximately 20 restaurants with the majority being international.

In summary, Q4 was a fantastic finish to a very strong year for Bloomin' Brands. Clearly, our investments in the core customer experience are paying off, and we are -- have entered a new growth cycle. 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 comes from the line of Michael Gallo with CL King.

Yes. I just wanted to delve in a little bit on the margin guidance. Yes, obviously, you're guiding to a significant improvement again in margin despite meaningful labor and other headwinds. So I was wondering if you can give us some more color on what some of the bigger buckets of productivity initiatives are? And as you look beyond 2019, how we should think about further productivity opportunities, all things being equal, to move that operating margin up.

Sure. First of all, we were very pleased with the operating margin expansion in Q4 of 210 basis points. It's something we had pointed to during the year, and it came through in a big way. So we see that momentum continuing on into 2019. First and foremost, we're -- as Liz has mentioned in her remarks, that we're going to be driving traffic at a nice margin, so that's going to be #1 because we've invested in the core experience and a lot of those investments are behind us, and it's important now to monetize those investments. We see off-premise growth at Outback and Carrabba's, our loyalty program and some of our CRM engagement to help us build sales. So as I mentioned earlier, we're now past a lot of our large-cycle investments, and we see margin expansion coming forward. But besides sales, the productivity piece is a big part of it, and we expect at least $50 million of productivity this year, and we'll see that in the years ahead. How are we doing that? By simplifying -- continuing to simplify our operations, we are making the investments in technology, we're doing a really great job in improving our management of our actual versus theoretical food cost management program. We have an opportunity that we're continuing to work with our suppliers, and that's been coming through for us. We have opportunity in managing our beer, wine and liquor business. Labor costs have been good for us in a tough labor market because our turnover, especially at Outback, is among the lowest it's ever been, and it's just a hats off to the Outback team in accomplishing that. So -- and then we also have opportunity on the facility side in our restaurants, which was a big opportunity for us in Q4. Liz has mentioned the advertising piece, which we've gotten higher ROIs with lower spending, especially on digital. And finally, we continue to be dedicated to holding flat on our overhead structure as we go forward. And then lastly, as you saw -- that was the U.S., and lastly as you saw, 220 basis point expansion, I believe, in our operating margin in Brazil, and that's a higher margin business for us, and they had a really great fourth quarter, and we expect that to continue on this year. So those are the components of our margin piece for 2019 and beyond.

Our next question comes from the line of Jeffrey Bernstein with Barclays.

Looking more at the top line, looking at 2019, you guide 2% to 2.5%. I'm wondering if you can maybe prioritize what you think of the biggest sustainable drivers? Just wondering where you think the industry compares to that 2% to 2.5%? And then if you could maybe give an update, I know you mentioned qualitatively the off-premise and the Dine Rewards and remodels, but can you just quantify where we stand in terms of mix of off-premise and contribution for Dine Rewards and delivery?

Sure. So just to kind of unpack that. On the industry front, we see the industry environment as being a comfortable environment for the consumer. You see all the metrics that we see. So low unemployment, there's high disposable income, so we think there'll be a positive macro environment. However, we do expect to see negative traffic in the industry again, and we expect to have positive traffic across our portfolio. So we -- and what gives us that confidence? Well, it's exactly what you said. We have spent the last 2.5 years removing discounting and qualifying significant incremental sales layers, and that large investment is behind us, and we're seeing the momentum, and we're able to monetize that. Number one, you always have to go with, how are we executing in the core experience in a box, and all the $50 million that we have spent, you're going to see more -- we'll talk to you at -- during the Analyst Day about other food and investment qualities, but you're going to see the elevated customer experience is driving really healthy traffic in the box. And we certainly have seen the in-dining experience traffic strengthen significantly, and that's going to continue. The second is, is that we have qualified incremental layers that differentiate us. We're really pleased with how our off-premise business is doing. We are on track for that 25% to 30% of sales. In Q4, the off-premise business grew about 18% for us, okay? And a total of 11.2%, we see that continuing. All the investments we've made to build our database infrastructure and shift from what I call mass marketing, which is less efficient, to more mass personalization is really driving high return on investments on our advertising, and we've built a pretty formidable database and infrastructure now to be able to monetize and speak directly and continue to raise that ROI. You see that reflected in the ongoing gains that we record quarter after quarter in the Dine Rewards program, which has really succeeded at the top-end of our expectations. We're in the first quarter there. Now that we have those data and those profiles, we can monetize and speak directly to them so kind of more on that to come. So I think it's this confidence in the core business, confidence in the incremental sales layers that we've done and confidence in the overall platform that we've built to support it.

Our next question comes from the line of Jeff Farmer with Gordon Haskett.

Just have a follow-up and then a question on the follow-up. You touched on this but advertising as a percent of sales in 2018, and where do you think that number can go in 2019?

Yes. We don't disclose in great detail as far as what advertising as a percent of sales will be, but we expect that, as a percent of sales, to continue to move downward a bit, much like it has the last few years. We're really pleased with the return on investments, Jeff, that we're getting on the digital piece and also helping us to manage our advertising costs.

And then similar [domain], but again, you hit on this with Bonefish with some color, but where do you stand at Outback in terms of reduced marketing levels after reduced discounting and couponing? And again, what's that expectation as you move into 2019 for those things?

Sure. So across the portfolio, and Outback was on that journey as well, we have reduced discounting over the last 2 years by 25%, which is a huge amount over the past 2 years. We believe that journey is completed in 2018, and now we have the ability to lap and monetize that plus the investments as we go forward, so we don't see that reduction continuing. We took the difficult but right decision over the last 2 years. It's behind us, and now we can enjoy the healthy traffic benefits and high-margin benefits that come through healthy traffic growth.

Our next question comes from the line of John Glass with Morgan Stanley.

Liz, can you talk a little bit about, specifically, the benefits you're seeing right now from Dine Rewards in the quarter, if you're willing to quantify kind of what benefit you think to the portfolio or Outback that's contributing to comps? And secondly, you mentioned off-premise, but can you maybe provide some detail on specific to delivery of those units that have delivery, what kind of sales lift you're getting from those at this point? I've got one follow-up.

Sure. So the benefits of Dine Reward (sic) [Dine Rewards] and again, John, we'll -- what I'm really excited about is the ability to go in even more detail when we have time on March 11 to really unpack kind of what it means that be on this data journey that we've been on and the benefits that accrue to that. So I'll answer that, and then I'll turn it over to Dave to talk about the delivery question. We currently have $8 million customers. We are reaching new and existing users with that. We are introducing and cross-fertilizing customers across our brands, so the portfolio is working beautifully, and we're introducing people to our other brands, we're increasing existing customer's frequencies. We're seeing our lifts off the program, as we said, it's the high end of any of our expectations, don't want to break that out. We also see ourselves very much in the first inning of this, and what do I mean by that? Well, we now have 21 million customer profiles, and we know what they like, when they like and how they like it. That gives us the ability now to market directly to them on one-on-one in a personalized manner, and we'll start doing that this year. And it -- we'll be able to drive enhancements to the loyalty program, which -- make it continue to keep it building, so it's been a terrific program for us over the last 2.5 years. We've got a lot of growth ahead of it. Same thing on off-promise, which I'll turn to Dave, an incremental high-growth business, and he can talk the particulars.

Sure. We had 18% growth in off-premise in Q4. We have delivery in 488 restaurants, it's now 14% of our business. We saw good growth in the restaurants -- in restaurants that have delivery just like in restaurants that don't have delivery, so we feel very good about the incrementality, we've been talking about the 80% to 85% range now for quite some time. So like I said, we have a very good feel for what's going on with delivery and expect to grow that business as we go forward.

And then just unpacking the margin comments about '19. You mentioned [the anniversary number] of your investments you made in '18. You were getting healthy traffic that helps margins. Are there any offsetting investments that you're making? I mean, in other words, is there -- is the $50 million, is that a net number, and you've got some investments to make particularly in delivery? Or do you think a lot of those investments are now behind you and in the base of the margins?

Yes. The real big investments that we made in the restaurants over the last few years are behind us, but we'll always -- to help grow traffic, we'll always use some of the productivity and some of the traffic to continue to grow our business. But our margin expansion guide includes that, but the big investments are behind us, John, so we will continue to do that. And also embedded in our guidance is very prudent pricing. We want to make sure that we give the customer great value, and so that will be part of our -- that's part of our guide as well, so the big investments are behind us. We will always look to improve the customer experience, and productivity is a big part of that along with traffic and prudent pricing.

Our next question comes from the line of John Ivankoe with JPMorgan.

Two different ones if I may. First, Dave, you mentioned an answer to a previous question about margins beyond fiscal '19. And maybe a little bit of a preview on the March 11 Analyst Day because I think it's a question a lot of us want answered. What do you think -- I mean, at this point -- I mean, as you see the current cycle and your overall best outlook, what in annual margin gain expectation for Bloomin' should be longer term? And I'll ask that question, should we get it from the store level? Should we get it through G&A leverage? Should we really expect it to be top line driven? So -- I mean, are you beginning to think about -- you're kind of -- maybe an annual basis point increase? Is there a longer-term margin increase via -- or a margin term -- a longer-term level, excuse me, that you're targeting? When might that level be achieved, whether in 3 or 5 years? So really just asking at this point to help us think a little bit longer-term because that's obviously -- be a very key part of your story at this point.

Absolutely. And as we've mentioned, we felt that we've had a 200 basis point opportunity in margins, and we'll lay out all that in great detail on March 11, [then let me] just talk a little bit about how we're looking at today. And that is, first of all, healthy traffic at the restaurants as we made our investments and continuing to improve service is a big part of it, but [that is] also, John, is productivity. So your question about be coming out of the restaurant, P&L? Absolutely. It will come out of the restaurant P&L as well, especially as we look at facility management, energy management, food cost management, all [things] that I talked about earlier is an important part of it. And then we also are working very hard and have worked very hard to continue to manage our overhead cost, so we will see leverage on our -- maintaining our overhead flat going forward. And the teams here in the non-customer facing business are really, really, really -- it's really important, so that will be part of the overall -- overhead management as well. And then I -- oftentimes, we don't get questions about this. Let me just add, Brazil is a big part of our company, and they've got high margins in growth, and that mix will continue to help us. So it's restaurant margins, overhead, Brazil as we move forward over the next few years. And I think you saw a major down payment on that in Q4 and as we go forward into 2019.

That's great. And do you think -- so just holding on to that 200 basis point number -- I mean, are you willing to say, at this point -- I mean, is that a 5-year type of expectation, 10-year expectation, "medium or long-term?" I mean, is there -- I mean, is this point of time frame that you're willing to give us a heads up on?

I'd say, medium-term, John. I don't think it's going to take 5 years.

Okay, all right. And in terms of business composition or portfolio management, obviously, Brazil kind of being in the place that it is and hopefully benefit from some stability in that economy. I'm going to ask the question about Bonefish. I mean, at least -- I mean, it wasn't -- from our perspective, it wasn't necessarily clear that, that was going to remain a long-term part of your portfolio, but there are some earlier comments that were made. Fiscal '18, I think, was a record profit year for the brand, and you've obviously just made a very high-profile hiring Jeff Carcara. So can you talk about what you think -- what the opportunity is for that brand? And maybe what Jeff can bring with his exposure to not -- that level of dining and even higher level than Bonefish dining might mean for that brand over the next couple of years?

Sure. So Bonefish had a terrific year. We knew the traffic was going to be down. We planned for that, it was anticipated all year long in our guidance because we were really pulling that discounting out and getting back to our roots of being the unchained chain, shifting to all fresh fish, returning rights to the local markets, getting out of national, giving the menu and fish-buying rights back to the managing partner and returning to its roots of fresh fish served at really, really attractive prices. What's -- a heart and soul of Bonefish has always been the ambiance and the vibe, and we are really excited to have Jeff join us. We think he'll be a wonderful addition to the team. We've made great strides in the experience and simplification, but Jeff will continue to elevate that in-restaurant experience as he's proven through his career most recently, as you know, as head of Barteca, and so I think the vibe, the energy, it's all coming back. He certainly is tremendously excited about the opportunity and the potential. We're looking for positive traffic and positive growth from Bonefish this year and excited about that. We have -- we're blessed to have versatile leaders across the organization, and so after having a record year at Bonefish, driven by our -- Dave Schmidt, our President of Bonefish, we've been able now to ask Dave to go over and be CFO of Outback and apply his deep operational and financial expertise on that, on our largest brand. And so all around, we're feeling really good about the portfolio, having the right people in the right seats at the right time. So we're very bullish.

Yes. And we also had a -- the CFO at Outback, we had a retirement in the supply chain, and we have a really talented executive going down there to lead that function. So it really is a combination of talented people coming together.

Our next question comes from the line of Brian Vaccaro with Raymond James.

I just wanted to circle back to the margins and maybe we can level set a bit starting with '18. And could you quantify or be a little more specific on the savings that you realized in '18 and sort of across the P&L? And on labors, could you give a few examples of where you found some efficiencies in that line?

Yes. On labor, I mentioned earlier, it's been a big, robust labor market, but one of the things that our teams have done, especially at Outback, is our turnover is really, really down. They're doing a great job managing the teams and everything and moving forward, and that saves on training costs and other things like in a big way, and so not only are we able to pay our people and incent our people, but we've experienced some talented people remaining with our company. And that's a big impact, Brian, on the P&L.

Yes. Understood. Would you be able to quantify where hourly turnover is these days at Outback?

It's below the industry.

Well below.

Well below. We prefer not to get into that, given it's a competitive advantage, but it's well below the industry.

All right, fair enough. And as I think about the opportunities in '19, sticking with the productivity. [A versus T] has been a source of savings for a couple of years. How much is left there? And I guess as we're thinking about simplifying ops further, you mentioned there's an initiative in '19. Maybe just a couple of examples there?

Yes. I think for us, we're looking at putting a new POS device, for instance, and that will help simplify operations in our restaurants. Carrabba's just did a fantastic job putting in a new kitchen line that really simplified operations and helped out productivity. I think on the food cost management. Not only with our suppliers, Brian, but also managing our actual versus theoretical food waste management but also beer, wine and liquor. We have, frankly, over tens of millions of dollars left to go. I mean, that's a big part of our $50 million a year productivity, is managing suppliers, working with our suppliers, managing beer, wine and liquor and continuing to manage our food cost. I'm not going to get into details by year and those kind of things because, again, it's proprietary. But it's a big part of our $50 million of productivity we're committing to.

All right. That's helpful. And then last one, Dave, you said on the G&A front, goal to keep overhead flat. Just want to confirm that means dollars you're talking about, sort of dollars similar in '19 to '18 and a lot of moving pieces in G&A. What's the adjusted base we should be thinking about in '18 that you're comparing that to?

We will be in dollars flat, not percent of revenue flat, dollars flat. And we're looking at $276 million.

Our next question comes from the line of Alex Slagle with Jefferies.

You talked about some of the drivers behind the same-store sales outlook for '19. But in terms of the brand performance, do you still expect Outback to dominate? Or should we expect this to balance out more in '19? And perhaps, if there's one other brand you see having the best opportunity for a near-term inflection?

Yes. Great question. So we see continued strength on Outback, but the other brands, we are -- we see comp store growth and traffic gains across the portfolio as we have now finished the journey of removing discounting, which has tough traffic results over '17 and '18, and are able to monetize those investments. So we're looking for growth across all the brands and traffic growth across the portfolio. And again, we've talked about the things: the elevated experience, the healthier traffic, Dine Rewards, the data personalization, the strong local marketing, feeling really good about the portfolio as we enter '19 and the prospects for each brand. Do I have one course that I think will have a breakout? Well, they'd get mad at me if I picked one because I think they're all enthusiastic about the year, and I think you're going to see strength across the portfolio.

Great. And one question on delivery. If you could just sort of talk about your confidence in the ability to operationally manage all this incremental traffic? I guess some of it at peak and maybe a little bit more about the changes you plan to make with the interior remodels?

Sure. The good news is we're doing it, and it's interesting. Some of our highest-volume restaurants also have the highest-volume delivery because there were some concern with the high-volume restaurants be able to take it, and it's just so great to see. And when we look at our interior and exterior remodel programs, we'll make sure we have the room available for -- to our partners to be able to -- in their pump out rooms for off-premise, to be able to execute the concept. That's a big part of our remodel program. So it's across the portfolio, and we already are doing it, and we track speed of service, we track all those kind of things, customer satisfaction. And we're pleased to say that we're continuing to make progress each and every quarter on all those key measures.

And if you've ordered just -- if you've ordered our delivery, I think you can see the leaps and bounds, improvements in technology and efficiency and kind of where we're going, and that's driving momentum across all of the stores. So I'm really proud of the team.

Our next question comes from the line of Gregory Francfort with Bank of America.

I have two questions. The first is just, where have you been running on blended pricing either in the fourth quarter or the full year of '18? And then my other question is, it seems like a lot of the messaging is that the margin expansion is going to come from the store level expenses. And I guess I would've thought maybe more of it was going to come from G&A. And why are you at the gap you are to the industry on G&A, and why isn't there may be more opportunity on that line?

Sure. We will see significant leverage in G&A as we go forward, and that's a big part of our productivity. So if I was not clear on that, my apologies, but that's a big part of our opportunities in G&A, especially as we manage the non-facing cost. So that's a big part of our program and one that we will continue to work through. That's #1. On -- I'm sorry, the other part of your question?

Pricing at end of the fourth quarter.

We disclosed the change that -- the overall change in check, includes mix and pricing. We do not get into the pricing detail, but I can tell you, as we go forward, we will be having moderate pricing increases below inflation because we want to make sure the customer experience is top-notch.

Got it. And maybe if I can do just one follow-up on Dine Rewards. Where have you been seeing the benefits? Are those in customers coming to the brands that are going to more frequently? Or are you seeing them sort of trial across brands more than you have in the past? I guess, as you have looked at the data, I guess we're going to get more information on this in a couple of weeks. But where are you seeing the benefits on that line?

Yes. Both, and I think that's what's really exciting. We're seeing our existing customers experience our other brands and so increase their entire frequency and visit rate across our ecosystem. And we're also seeing kind of new users come in and experience the brands, and so we've introduced a lot of folks to Fleming's, for example, and now they're choosing Fleming's to go for their annual celebration of X or Y. And so it's just working across the portfolio that's made it kind of that 1 plus 1 equals 3. And that will be something that we'll talk in more detail about in March.

Our next question comes from the line of Sharon Zackfia with William Blair.

For a number of different reasons, revenue growth has lagged comp growth over the last 3 or 4 years. I'm just wondering, is this the year where we see revenue growth kind of at least keep pace with comp growth, if not exceed the rate of comp growth? And then how do you think about that revenue growth longer term? Is it more optimizing and averaging your productivity with Dine Rewards and delivery on off-premises? Or do you think there will be more expansion opportunity with one of your other brands domestically going forward?

Yes. We see expansion opportunity. Liz has mentioned we see expansion opportunities for Outback in the U.S. where we think we have at least 50 more incremental sites. We think we have -- we've talked about Brazil getting to 100 Outbacks. We now believe it's an opportunity for us to expand beyond that, and we're doing that work right now. The last 4 out of the 5 -- 4 or 5 of the last Fleming's we opened have been really, really strong. And so we feel good about the Fleming's opportunity going forward. I think, Sharon, too, the other thing is, when you look at revenue growth, Liz has mentioned that we're always looking at our portfolio and from time to time, we will refranchise restaurants. And so that will, in itself, reduce revenue because we're not getting the company sales anymore, but absent that, the comp growth and the expansion opportunities that I just talked about, I think, are a chance for us to grow revenue. But also take a look in your modeling, if we do any refranchising, now that will diminish revenue growth, even though it might be a better way to go to market in that particular geography.

Yes. The only other thing I'd add is that, we have always been very disciplined about new unit growth and saying across all of our brands, you have to earn the right to grow. We're feeling increasingly enthusiastic about Bonefish and Carrabba's, and we'll continue to fill that box and drive that productivity. But their -- we're open to there coming a point, given how well we believe those brands are going to do, to taking kind of these top-rated brands and going prudently with -- into new units if it makes sense. We've proven ourselves to be disciplined stewards of capital, but we do see that on the horizon because we are very confident in driving the average unit productivity.

And I may have missed this, but did you give any update on how the off-premises-only locations are kind of faring? And whether that's an opportunity for growth?

Yes. It's an opportunity for growth. It continues to be a test for us. We have some that are working quite well, some that aren't doing as well as we had hoped. But it is an opportunity, especially as the industry moves forward, and we're looking to refine that with further menu reductions and all sorts of more systems work. But right now, it's a test for us, and we're continuing to learn as we go forward.

Our next question comes from the line of Andrew Strelzik with BMO Capital Markets.

I have a couple of questions on delivery. When you talk about completing the rollout fully in 2019 across Outback and Carrabba's, how many units are you thinking that ultimately gets to? Is it the full system across the 2 brands domestically? And also, as you're now ramping that back up and looking for a significant margin expansion, can you talk at all about the delivery economics and how that layers in to that margin expansion?

Okay. On delivery because we're seeing incrementality, the margin is very helpful to us. We won't have as high a margin because we're not delivering alcohol and beverage as an in-restaurant experience, but given the incrementality of the business, it helps us. But also, we're growing the business that we already have, the 480 we have are growing year-on-year. We expect to have around 600 restaurants when we're done. Yes, we'll see, and it could be higher than that depending on where we end up, but that would be our guess right now. And we look to finish that in 2019.

Great. And if I could squeeze one more in. I'm just wondering about the check growth that you're thinking about at Outback in 2019, I mean, it's been running close to 4%, you're not going to be taking much price. And I recognize the delivery investments are kind of through at this point. So are there going to be other efforts to improve the mix at Outback? Or are you going to kind of pull back on that in an effort to continue to have the traffic pick up the slack?

We'll continue that -- We don't want it for competitive reasons, obviously, to get into any kind of detail, but we'll continue to manage the comp through traffic and mix as we always do. But the one thing I want to assure you is, on the pricing side, we'll continue to watch that carefully like I've mentioned previously in the call.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Liz Smith for closing remarks.

We appreciate all of you joining us today, and we're really looking forward to updating you on our portfolio at our Investor Day on March 11. Thanks all.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.