Q3 2019 Earnings Call
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Hello.
Hello.
I am calling for the.
Sorry, one second the Bloomin brands earnings call pin number 100 079 factory.
Okay May have you first and last one please sir.
Sure first lien, Michael last name, which VI CH.
He is a Victor CH.
Yes.
Thank you may have a company you're calling for multiples.
Era spelled AI E.R.A.
Okay.
Thank you.
I will provide a recap of our financial performance for the fiscal third quarter 2019, an overview of company highlights and a discussion regarding progress on key strategic objectives. Once we've completed these remarks, well open up the call for questions with that I'd now like to turn the call over to Dave Dino.
Thank you Mark and welcome to everyone listening today.
Before beginning formal remarks in the third quarter I want to provide additional context on the company's announcement. This morning that we are exploring strategic alternatives.
During the past four years, we've made a number of important decisions some for the long term health.
And Bob.
You shortly.
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Successfully pursuing emerging off premise business.
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Three miles to contemporize our brands.
Thanks.
And.
At a path.
Welcome to the Conference Center.
Great into this year.
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By 100.
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Fourth consecutive.
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We have at least 60 basis.
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Essentially.
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And.
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Our to.
Conference Center.
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It's all remain confident in our trends and long term.
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Mark.
To the conference Center.
Potential strategic alternative.
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Stockholder value.
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An important next step for continued success, while we execute against our business plan.
Now turning to the quarter.
Adjusted Q3 2019 diluted earnings per share was 10 cents, representing an increase of 25% on a comparable adjusted basis versus last year combined us comp sales were flat with traffic significantly outperforming the industry.
We have intentionally moderated our average guest check increases to further strengthen value relative to competition.
As a.
Q3 traffic up.
From an industry by 210 basis.
At this point.
Okay.
The modest average check increase up 80 basis.
At this point.
Thanks.
This pricing discipline combined with sales momentum from investments in the customer.
And off premise is building.
With strong October trends.
Thanks.
In October .
The U.S. comp sales were up 3.6.
Yes.
With traffic.
2.1%.
Yes.
A large part of the sustained momentum is due to the progress maybe Henry.
Strategic Investor.
Relentless focus on core execution in the rest.
During the start of Q3, we experienced softer sales.
Consistent with the industry.
Okay.
In addition, we had shifted our promotional calendar that impact of traffic.
Particularly in August .
Okay.
However, our sales performance improved considerably in September .
And as I mentioned into Q4.
We believe is improving trends are driven by the following.
First the investments made to elevate the customer.
Experience are contributing towards healthy sales.
Okay.
As a reminder, these investments for prioritize towards customer facing.
Since.
Loss from quality.
Okay.
Unfortunately.
Service upgrades.
Yes.
Yes.
The benefits of these investments are showing up in.
An.
Yes.
Customer health.
Okay.
We are offering compelling.
In brand appropriate marketing.
That continues to resonate.
With.
Yes.
This included Opex always popular steak and lobster promotion that offers customers the ability.
As a fair.
Their stake with lobster prepared three separate ways at a compelling.
Thanks.
In addition.
Yes.
And the dire awards loyalty program now has over 9.7 million.
Yes.
Yes, we continue to leverage the rich data, we have collected to enhance the customer segmentation.
Yes.
Our investments in CRM strengthened engagements through customer centric.
And while providing a higher.
So.
And from.
Excellent.
Okay.
We made a conscious decision to pivot towards a more tempered.
Our approach.
Okay.
You saw this in the third quarter as the growth in average check was a.
At this.
Over time as a reduced reliance on.
Okay.
I will further enhance our value equation relative to peers.
We remain focused on building.
The quality traffic.
Yes.
While also reducing unprofitable.
Finally, we continue to capitalize on the rapidly growing off.
This business in September .
We now.
The third party.
The board ash delivery through door to assets not completely rolled out to over 550 Outback.
We are excited about the potential.
This new channel as a complement.
Our existing in house.
Yes.
Our research suggests this is a different type of.
Consumer with.
The state purchasing.
Okay.
And it continues to be highly incremental.
Despite the door to ask rollout our direct delivery business has remained strong with little to no cannibalization.
So.
This further validates our omni.
Approach.
Okay.
Just underscore once again.
Yes.
And our recent sales momentum as a combination of all the above.
Okay.
Not just.
For the success of the door to.
Thanks.
For example.
Okay.
In.
Dinner traffic strengthen in October .
As we continued to take share.
Moving to international.
Okay.
Brazil comp sales increased 11%.
Yes.
With traffic up 10%.
In the.
Okay.
After these results reflect.
The strength of our brand.
Okay.
And outstanding.
Yes.
Innovative mark.
Yes.
We also benefited from a more normalized sales environment.
As we lap the lingering effects of the trucker strike.
Okay.
Right.
Last.
Yes.
The underlying fundamentals of the Brazil business remains robust.
October sales performed.
Oh.
In addition, new restaurants continue to generate the highest returns in the portfolio.
Yes.
The sales well above.
Yes.
At the market remains Underpenetrated and we are capturing this opportunity.
Yes.
The vitality and future growth potential.
This business.
This is.
Yes.
In summary.
Our portfolio is in a strong.
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We have various sales levers at our disposal and are making.
And significant progress to become a more efficient.
And restaurant.
Right.
During the third quarter adjusted operating income was.
30.
5%.
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Adjusted operating income margins were up 60 basis.
At this point.
With year over year.
On a comparable basis this.
Yes.
Before.
Consecutive quarter.
We have significant margin growth implement.
Yes.
We remain on track to deliver our operating margin.
In 2019.
Okay.
In addition to expected sales growth in 2020.
Okay.
We are continually pursuing opportunities to optimize our overhead.
These savings will represent a nice down payment to sustain margin growth in 2020 and beyond.
Okay.
While we take less overall pricing.
We anticipate a strong finish to the year.
Yeah.
Thanks to deliver on our 2019.
And as Mark.
Thanks.
And finally before turning over to.
Okay.
I.
Thank you over 90000 team members.
Okay.
In.
In the field.
Who bring to life the hospitality.
The service and expense.
Once that make our restaurant.
So.
Okay.
I'd also like to thank my colleagues in the restaurant support center.
Provide great service to our.
Your enthusiasm and dedication to always putting the customer.
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First is making a.
Yes.
For each and every day.
Yes.
And with that.
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Now I'll turn the call to Chris Meyer.
Ill provide more detail.
Q3.
Right.
Thanks, Dave and good morning.
Right.
I'll kick off a discussion around our sales.
And profit performance.
Okay.
Once.
Are there.
I'd like to remind everyone.
When I.
I see to.
Now I will.
Referring to adjusted numbers that.
Sleuth certain costs and.
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Please see the earnings release for.
Runs between non-GAAP .
Okay and their most directly comparable us GAAP.
Yes.
We also provided.
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Section of the nature of each.
With that in.
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Our third quarter financial results versus.
The prior year.
As.
Yes.
Diluted earnings per share for the quarter was 11 cents.
As for sense in 2018.
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Adjusted diluted earnings.
Earnings per share.
It was 10 cents.
10 cents last.
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When evaluating our.
It is important to keep in mind.
And that our 10 cents from Q2 2018.
Yes.
I mean.
And did a two cents benefit.
Okay.
The amortization of.
Deferred gains from sale.
Leaseback.
Yes.
On adoption of the new lease accounting stand.
Yes.
Third we no longer recognize these.
Deferred gains in our.
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Yes.
Exclude this two cents impact of the new lease accounting standards from Q2 2018 result.
Our adjusted.
I would have been.
Yes.
Total revenues.
Just 0.2%.
On to $967 million.
Third quarter.
Total revenue increases.
Were primarily due.
Okay.
Do higher comp sales in Brazil.
Yes.
And the net impact of restaurant openings and closures.
Yes.
These increases were partially offset.
By lower revenues from the Refranchising of 18 crop as.
Since earlier this year.
Yes.
US comp sales were down.
Europe , 0.2%.
Pardon me this is the operator.
In average check of zero.
Hi, there.
Yeah.
Offset by a 1% decline in.
Pardon me this is the operator.
Average check benefit was a little below our expectations driven by changes in product mix. Overall, however, the relatively modest level of average check increase in the quarter is consistent with our strategy to ratchet down the level of menu price increases in our results. We're confident that this strategy will provide more value for customers.
And unlock healthier.
Yes.
You asked traffic was down 1% in Q3.
Okay.
While we outperformed the industry and traffic by 210 basis.
Yes.
Okay.
The result was lower than.
As expected.
Yes.
This was driven by a couple of key.
Yes.
Yes, one.
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Overall category traffic was down over 3%.
Yes.
This was a 90 basis.
Yes. Thanks.
The sequential decline.
From due to to.
Okay.
Sure.
We did see an impact from.
This category softness in our Q3.
Yes.
Yes.
As Dave mentioned.
And we had timing shifts in our promotional calendar it out there.
That.
Good.
Eric more than we.
Yes.
It is also worth noting.
We continue to opportunistically reduced discounting in our portfolio.
Particularly at Outback.
Where we are down 11% in Q3.
And are now down 17% year to date.
Okay.
Although traffic was softer than expected in Q3.
We meaningfully outperformed the industry.
Yes.
And we are pleased by the momentum we are seeing so far in Q4.
We believe the investments.
And food and service.
As well as the lift from our new delivery.
Pro will allow us to.
From the industry on.
Okay.
Onto our concepts outback posted their 11th consecutive.
Give quarter of comp sales growth an.
Since versus the industry. Additionally.
Okay.
Outback traffic exceeded industry benchmarks by.
Over 200 basis.
Since this result comes.
Despite the shift in our promotional calendar that I just discussed.
Yes.
We estimate this shift had an approximate 120 basis.
At this point.
You can.
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Back to Alpex traffic in Q3.
Okay.
Our third party delivery partnership with door dash rolled out in late September .
Okay.
The growth.
The third party delivery is in line with our.
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Hi this.
It is proving to be a highly incremental.
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As there has been little cannibalization of our own delivery net.
Economics are compelling and.
This business.
This is.
As profitable we.
Third party delivery to be a strong contributor to.
In Q.
Before and into 2000.
Anthony.
Thanks.
Tom sales were up 0.1% at.
We are having success with our $10 bring homemade home program and our off premise busy.
In this continues to grow.
So.
Rob has made the decision to utilize multiple third party delivery providers.
As to complement our own delivery.
Like Outback this rollout was completed in September .
Okay.
Overall crop is off premise.
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This was 17% of sales in Q3.
As 14.
At this time last.
Thanks.
Bonefish Grill comps were down 220.
His line, we tried a new marketing vehicle early.
In the quarter that underperformed.
Okay.
Yes, and trends have sense.
Okay, and we believe.
<unk> differentiated looks occasions such as.
Our three course.
Okay.
As will allow us to continue that momentum into the.
Fourth.
Okay.
Comp sales at Fleming's were up.
0.4%, representing the seventh quarter of positive comp sales over the last eight quarters. We're pleased with how Fleming's is differentiating itself in the competitive high end Steakhouse category in particular, our private dining business has become a standout performer and represents an opportunity for driving incremental business heading into the important Holly.
Hey season.
Adjusted operating income margin was 2.3% in Q3 as Dave indicated this was up 60 basis points. After adjusting 2018 for the impact of the lease accounting change. This represented the fourth consecutive quarter of significant margin gross is particularly impressive that we were able to show this improvement.
Margins without any large benefit from increases in average check.
Our high margin International business continues to grow and we're maximizing our opportunities and overhead and productivity, we're comfortable with our full year adjusted operating income margin expectations of between 4.8% and 5% we remain committed to grow margins with moderated pricing walk closing the margin gap to our peers.
Moving to tax our Q3 adjusted tax rate was negative 2% Q3 is seasonally the lowest income quarter of the year to the rate can be volatile in terms of absolute tax dollars. This result was modestly better than expectations.
I will now take you through the various aspects of our updated full year guidance first as it relates to our comp sales guidance given our performance in Q3 and the ongoing category softness we believe it is prudent to lower our us comp sales guidance for the year to a proximately, 1.5%. This is down from 2%.
To 2.5% as Dave mentioned, we're off to a good starting October with comp sales up 3.6%. We hope to maintain this early Q4 momentum as we approach the important holiday time period.
Second we now expect commodity inflation to be approximately 1.5% down from a product approximately 2%, although our seafood category remains inflationary it is coming in better than expected.
Third our GAAP and adjusted tax rates are coming down slightly our GAAP tax rate is now expected to be between 5% and 6%. Our adjusted tax rate is now expected to be between 6% and 7%.
Fourth our Capex is now expected to be approximately 175 million, which is at the low end of our prior guidance range of 175 million to 200 million.
We also continue to make progress in reducing overhead costs and expect to be down in gene a for the year.
Our strong controls around costs make us comfortable reiterating our full year adjusted EPS guidance, despite lower expectations for comp sales.
We will provide detailed guidance on 2020 in our February earnings call. However, given some of the noise surrounding the commodity landscape is worth noting that we currently expect commodities to be in the 2% to 2.5% range in 2020 beef inflation is expected to be roughly in line with 2019 seafood, which.
Represents approximately 20% of our food basket is going to experience higher inflation and is the primary reason, we expect our 2020 guidance to be higher than 2019.
In summary, we feel good about both our third quarter results and where we stand moving forward. Our domestic business is on strong footing and our Brazil business is performing at an extremely high level, we have a profitable third party delivery partnership and we continue to make significant progress on improving our operating margins we remain very confident.
Our long term plan for growth I look forward to updating you on our progress next February and with that we will now open up the call for questions.
Thank you Sir we will now begin the question and answer session to join the question Q You May Press Star one on your telephone keypad, you will hear a tone acknowledging your request if you're using a speakerphone. Please pick up your handset before pressing any keith.
Withdraw your question. Please press star too, we will pause for a moment as colors join the queue.
[noise].
Our first question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you very much.
Two questions I'm guessing you guys aren't offering anymore color on the strategic alternatives. So I will look to the fundamentals.
The first question was us on the sales trends you talked about.
Just seems like big swings at least at the Outback I know the traffic was down more than a person in the third quarter Nice thing, it's up over 2% in the fourth quarter.
Besides comparisons, which I guess going a little easier I'm just wondering that's a huge swings just wondering.
What you think or the the drivers of that whether it's more outback specific or anything in particularly good 0.2 in the industry that would explain that type of that type of swing.
Yes, sure good morning, Jeff.
First of all we're real pleased with the momentum we as I mentioned, we saw it into September and October and you know the industry. We think is an is in pretty good shape. It remains choppy I mean, you see it always look at the industry metrics, but more importantly, it's an opportunity to take share in the marketplace. I mean, you look at the change in France has actually come up.
Across our portfolio, we're very pleased with what's happened it all back lets come across our portfolio and if you look at the investments that we've made in our food and service. If you look at the rolling out the door to ask partnership and our own delivery opportunity. If you look at the some of the pricing that we've been very careful about while we're moving unprofitable discounting.
All these things are coming together, we believe including better improve service at our restaurants. All these things are coming together to build momentum in the company.
As we as we sit here today. So these things it's not just the door Dash partnership. It's all these things coming together and we've seen in restaurant trends traffic trends improve during the September October timeframe. So were we feel very good about where we're going as as a company. Yes, we have a really really strong Ltd.
Oh lineup in Q4, it out back that we're getting the benefit from as well and we'll continue to get the benefit from as the quarter progress.
Understood and my second question when it's on the operating margin I know as we entered 19, you talked about I guess maniacal focus on margin expansion would now three quarters completed I think you mentioned 60 basis points of expansion over the past four quarters, just wonder as we think going into 2020.
Do you think it's possible to sustain that rate of expansion.
And if so what are the biggest pockets of opportunity I wasn't sure. If it's your initial benefit and then it would fade I know you mentioned about maximizing overhead structure I wasn't sure. If that's a new potential cost saving opportunity that might help support the expansion 20, but any directional thoughts on the magnitude of operating margin expansion at the 20 would be great. Thank you Sir.
This as we talked about our Investor Conference in March. This is a multiyear movement forward and we are very committed to margin expansion. Once again in 2020, if you look at that areas of opportunity.
Continue to manage our productivity well, we are making significant improvement in our cost structure above the restaurant, so an overhead and so we're seeing a significant down payment on that you'll see that go into 2020, and you'll see continued healthy traffic growth as we continue to.
Mitigate our discounting and that allows us to be careful on price increases as we go forward in this value environment. So Jeff it's a multiyear role and we've got good visibility in into that as we go forward and we'll provide more.
Guidance in February call yen, and one thing I'd add to that Jeff is this strategically speaking this is playing out exactly how we laid it out at our Investor day, and the one area to that that Dave Didnt mentioned that I think is really important to note as our international business, particularly in Brazil. We are our overall company margins get a real tremendous halo from that international.
As a net that continues to grow youre going to continue to see strength in margins and I think the good part about this is that we've talked about less reliance on menu pricing moving forward as you saw in our third quarter results. We can make this formula works with moderated levels of average check growth.
Thank you.
[noise].
Our next question comes from that Levy with MKM partners. Please go ahead.
Great. Thanks for the thanks for the time.
I know you're not going to talk much on the strategic but I guess.
Is there anything that's off the table whether that's.
Tearing down the portfolio or Refranchising aside from just the other strategic moves and potential sale and also.
When you talk just a clarification on the on the on the trends you had said you lost 120 basis points of traffic in the third quarter is that a shift into fourq you or is that just something that loft and then.
Just lost within third quarter and just.
How aggressive do you think you can or need to be in terms of.
The value contract and then I'll leave it for the queue. Thank you.
Yes, sure first of all it there is some shift between quarters, that's helping US and then had did have an impact on on Q3, but that's a small part 100 basis points of our trend improvement.
So that's the first part secondly, I'm not going to give some more details on the strategic review that we announced today, but as we said in the past we always look at the opportunity to improve shareholder value and so we're looking at all different alternatives for our company, which it would potentially would include a sale the company, but we're going to be looking with us.
Lands towards.
Improving shareholder value because we think there is a very large disconnect between what we're producing each and every quarter and versus the value of the company. So and we'll provide more information to the marketplace. If we go forward on the on the pricing piece, we're going to continue to manage our unprofitable discounting and we're going to be very careful about.
Our price increases going forward every manager manage our value equation.
Our next question is from John Glass with Morgan Stanley . Please go ahead.
Thanks, and good morning, just going back to the change in your promote your price I guess.
It was this something contemplated earlier in the year in we're just seeing it now or is this something you sort of a pivot you decided to do during the quarter as you saw traffic weakening.
And is this the right level of price mix for let's say the OPEC brand is it stable or were you in transition.
During the quarter.
It's it's something John Weve been contemplating during the year.
And it's not something that we we've two or tried to combat traffic.
They cause of concern strategy in our part as we go forward and.
Im not going to get into details on pricing as we go forward our goal certainly a suppressed price less than inflation and we're going to be very careful about our price increases as we move forward it out back in all of our brands.
And then on I understand the trends improved in September in here in October and you've cited a lot of things you've been talking about really for a couple of years now in terms of elevated experience and and loyalty et cetera, but the real change has been delivery I think can you just maybe dimensionalize how much delivery.
Is contributing or maybe as you think about expectations, what's a reasonable expectation for near term delivery mix help us sort of gauge where you think that goes.
Yeah, we're extremely pleased with our door at ash.
Partnership it worked very well we rolled it out during the month of September and deliveries about 100 5200 basis points, Chris of our warehouse right now, yes about 200 basis points of the overall comp.
Okay and that is when it as of October which is that what's your is that what you're referencing.
Consistent it's been consistent but you got to remember that the door dash thing rolled out mid September so we didnt get as much of a benefit in Q3 is that we would expect moving forward. So it will ramp up overtime, we would expect yes, and just to reiterate what I mentioned earlier, John it's a mixture of everything coming together in restaurant traffic delivery off premise and also.
No I mean I'd be remiss right now if I didn't call out the tremendous sales growth in Brazil in Q3, and Chris talked about the margins in the in the business and Brazil continues to do really well into Q4.
Got it okay. Thank you. Thank you.
Our next question is from John Ivan call with JP Morgan. Please go ahead.
Hi, Thank you I am going I'll take a couple of questions about kind of the strategic review and maximizing shareholder value. If I cannot I think I'll keep them general enough just just from your perspective, I mean, what kind of changes between.
Today, when the announcement was made and yesterday and in the previous quarters, where.
I know you as a management team and you as a board of directors has always focused on maximizing shareholder value. So yes. This is the public announcement of hey, everyone come and talk to US and you know and then you make recommendations of what you think as possible.
Is there formation of a special committee that we should be aware of and who is leading that special committee just want to get you kind of your sense in terms of what's different you know today versus the past couple of months you know in terms of.
The way you run the company looked at your stock price and always considered I think things that you could do to maximize shareholder.
A shareholder value and I have several follow ups as well well, we will try to keep the follow up John Fair to say all you know its is a lateral but I'm happy to answer the question.
You know you've noticed for a long time.
And you know ever since we've been a public company under loses leadership in our CFO , we always talked about.
On maximizing shareholder value and we took a lot of steps you know still asked us to do that.
We've been a public company for eight years and if you look at what we've tried to do as a company. We've had allowed success. We've had some issues we've addressed but if you look at it you know 13 on past 14 quarters. We've made every P. S. The only quarter. We missed was the hurricane room a quarter. We've got innovation in the company's we just talked about the door to ask partnership we've got margin expansion.
Got high quality brands, we've got good cash flow and we've got to international business. A frankly is under appreciated not by you John but underappreciated under appreciated. So given this persistent disconnect we decided working with the board to step back in the US fundamental question, what's the best capital structure to go forward.
And so we view this.
Opportunity to look at strategic alternatives no. We're not responding to things were taking action here, we've decided to work with our board to look at various various options. There is no special committee, we're moving forward with various alternatives for our company working and working with the today and we just felt that given where we're at right now the time is right to up to do.
What.
Okay, all right I understood. Thank you for that Special Committee comment. So so let me ask you about Brazil, I mean, it's it's still not that big of a percentage of your overall operating income which is probably why you know kind of gets you don't meet can you met mix to more or less in the middle and doesn't get specific attention. So let's talk about four exam.
Well, how you could you maximize.
Value in that business overall, I mean does it make sense you have to prop sell that business to refranchise that business and the question that I'm going to ask you as what I think a lot of US has seen a U.S. based people don't understand is.
What the financing market is in Brazil and is there is there a financing environment. That's in place in that country with other operators. Some place for you in that country are there multiples that are being paid for operating businesses in your opinion that could be value accretive to you to bloom and shareholders and again out then I have one more follow up after that one.
Our.
First of all you get great value by Great leadership, and a great Brent and Lehman Peter Rodenbeck really did a great job finding that business in period as management team have taken a forward and you've seen the results I don't need to repeat them their numbers they've done a time after time after time again, and so you create optionality with.
With great performance now what's happening is we're opening up more and more restaurants, we always felt we get to 100 Opex, we see a a growth platform there well beyond 100 at OPEC. We've now introduced Abbraccio, which is our version of crops. So so now we've got Optionality on new development and.
Worse as we open up new restaurants, they are beating their capex or targets by quite a bit, which which opens up more and more opportunity. So we love that business is growing very rapidly.
We're trying to communicate that to shareholders as best we can and there's a lot of optionality John on that business, whether it's a company owned Orbitz franchise Theres a lot of interest in the complete in Brazil, and most importantly, we have a fantastic management team down there that could run the business and continues to grow the portfolio. So what we offer.
Shareholders is tremendous business in Brazil with great Optionality.
That's great. Thank you final one for me.
On paper, where your cost structure does seem to be high relative to peers on a percentage of sales basis is gionee. One would think that that would be the biggest part of your your margin expansion plan over the next couple of years. So can we talk about where we are in that process. I mean, you've mentioned on this call I mentioned that other times that you expect.
2020 to kind of be a big down payment towards achieving your margin goal. So how far we you kind of in this DNA process and you know you David CEO and sitting in the seat I mean do you think you have in a fairly major efficiency opportunities that that as an organization you have it yet realize that may or may be allowed by but potentially a new.
Structure different reporting lines what have you.
Yeah, I think we can make or are we can make our progress and overhead by not having new reporting lines are structures and stuff like that.
We are well along.
In in making progress on addressing our overhead and you've seen some of that and this year I already as Chris mentioned, we're lowering our DNA spend guide for the year you less than last year. So that's number one number two is there still is additional opportunity that we're working within the company there's robotics opportunities there's.
Opportunities.
The two to continue to maximize our our I see opportunities that we have to automate things. Our company has been really responsive to what we're trying to do then the good news is John we're not starting today, we've been working on this over the last six months and made significant progress on it and there's more to come right you can't do it all at once.
More to come and it will be a significant down payments in our margin expansion for next year.
Thank you.
Our next question is from Jeff Farmer with Gordon Haskett. Please go ahead.
Thank you can you guys provide some color on the interplay between that and house delivery infrastructure that you guys to build over the last couple of years.
Versus the third party delivery providers. Once both went live in late September just curious how they they both sort of worked hand in hand with one another.
Yeah, I got to tell you, Jeff I'm, so proud of our team Yeah, OPEC ends Rob and I know voltage just thinking about things as well.
And by the way, it's not just US internationally, Brazil has a really great delivery business that they're rolling out, but the one thing that this able with enabled us to do and we've been working on this for a number of years. This isn't a fly by night, there we had but we put the infrastructure in place we put the culture in place we put that.
Team leadership in place, we put the processes and systems in place to build our own delivery network that is crucial.
I spent.
12 years, I think associated with the Pizza hut brand for years and operations. There are a bunch of us in the building I understood delivered really well. So we have that infrastructure in the culture and that got going what got us going.
The delivery business in house is profitable, which is really great then under Michael starts his leadership in our brand presence leadership, we put together a really compelling door to ash partnership, which we're very pleased with their partnership with them has been fantastic.
And what that's been able us to do is to seamlessly integrate that into our culture processing systems. We were starting from ground zero that was really import.
As we rolled it out during September what we're seeing is the door dashed business comes in.
The do it yourself delivery business remains and we are not seeing a drop off in do it yourself delivery, which really emphasizes the omni channel approach, which we've been talking buffer quite some time. So this is the kind of thing that the innovation that we've been thinking button, our company and a platform for growth as we go forward.
That's helpful. And then just final question some of your casual dining peers are provided some high level data, but the located on the last on average check orders per day Incrementality is or anything like that you can share with us for the indoor Das partnership.
It is a.
Different customer it tends to come later in the day and it's a little slightly less check with party size, but particularly ties into the omni channel approach that we're talking about and that's bought a far as I'd like to go but when you look at the various opportunities and do it yourself delivery and door.
At Ash it is a bit of a different customer which would make the so excited as we go forward.
Okay. Thank you.
Thank you.
Our next question is from Brian Vaccaro with Raymond James. Please go ahead.
Hi, Thanks to the morning, I, just circling back on delivery I think you said it delivery is about 2% of comp sales mix just wanted to be clear that specifically third party sales mix that you're referencing there.
No. That's that's all that's all delivered thats the entire delivery contribution to same store sales in the third quarter.
Okay in the third quarter, specifically, okay rat.
Okay, and alright, and would you be willing to comment on what that looks like October .
No we're not going again, I mean, obviously, it's 11 I'd put it this way it's not it's not significant growth to level than it would impact our thoughts around the the benefits of the in restaurant dinner traffic that we're seeing it's not significantly higher yeah. I just want to underscore. This is the change we see is across our restaurant.
Business not you have now more than happy about yes, Alex is the whole thing yeah, yeah that Brian it's important to remember that the delivery, even though we've talked a lot about it it is still a relatively small over our overall part of our sales mix.
Yes, I understand okay, and that's a good segue into my next question I wanted to go back to the monthly comp cadence you referenced in the third quarter, obviously, october's encouraging but September improvement could be particularly interesting given the industry didn't improve all that much <unk> provide some more color on what you think drove the sequential improvement in September .
And maybe also elaborate on that marketing and promo mismatch, but that is specific promotion that moved out of Q3 into Q4 or something else, what's going on there that you can elaborate out yeah. If you look at Q3 Q4, Brian by month, it's just choppy and under thing the main thing is.
We ran backed by softer demand Q3 last year running at right now we talked about the impact on our on our sales at Opex, but I want to underscore all of our brands are seeing the trend change and that we talked about but it's just underscores Brian the choppiness of the industry and most importantly, what we do for ourselves to grow the business and take care.
There is is what we're trying to focus on.
All right and could you also then what was the impact of Dorian to the quarter.
No. It was very small very small okay. One last one from me on the other Opex line I noticed that that was up I think nine you bet on an adjusted basis up mid single digits are weak on our rough Matt could you touch on the moving pieces within that line.
Yeah sure I think generally speaking productivity and the benefits of increases in average check offset the inflation, but there were a couple of things in play there one arent m. moves around a little but that was about 40 basis points higher than a year ago, and then operating supplies as we ramp up this delivery.
Engine I was about 40 basis points over last year. So those are the big outliers in terms of you know that dynamic.
And one thing I'd like to add yes, I did mentioned earlier, our do it yourself delivery platform was profitable in our door to act delivery platform is profitable.
Okay and last call, Dave you you'd mentioned on that at that third party delivery rollout that you might reconsider some of the units where you rolled out a the self executed delivery previously have you started to pair that back at all on the south executed that.
Not yet because what we're seeing is the incrementality I talked about which is very very interesting.
All right. Thank you.
Thanks Ryan.
Our next question is from Matt Difrisco with Guggenheim Securities. Please go ahead.
Thank you one.
A follow up question or bookkeeping question with guidance when I had a question with respect to the GE and I think you said, it's going to be lower in the fourth quarter, how much of that is a sustainable and just efficiency and cuts versus.
Maybe a change in compensation, because just lower same store sales and then with respect to sort of the the comments made about strategic alternatives, how about I mean, what hasn't been discussed much is the outback brand. It's obviously your flagship brands are number one asset yet your peers over the last five to six years whether its.
Longhorn or Texas Roadhouse of all consistently opened stores and grown in the category has not really been weak it's been relatively strong category stake.
It is there what's strategic alternatives include ramping up the growth and focusing on your strongest assets, whether that's company or franchise development that seems to walk the last couple of years.
Sure on overhead it's sustainable.
The down payment.
Continue going forward and we're making great progress.
On a openings, Matt you're exactly right, we have an opportunity to open we believe at least 50 more opex, we need to cycle add up.
We've talked about that in the past relocations continued to do very well, we've got great pipeline there.
At Rodriguez and the real estate team really have done a nice job building a pipeline there, though on the opening sided outback steakhouse and.
And relocations I really really have an opportunity and obviously I talked about Brazil, we're going we thought we could get to 100 opex were going to go well beyond that and we're examining Jimmy gold some smaller cities with a smaller footprint with the Outback names and we expand Abbraccio you know, there's a big big opportunity.
I'd down there and finally I'd be remiss, we're really pleased with the new unit openings the plumbing Prime Steakhouse and we continue to take a look at where we can expand expand that very profitable brand.
Why though I mean, how about revisiting the number domestically for a while back and.
Somewhat of a maybe a fortress thing method, where the 750 number or so or you could get beyond 800 domestic stores potentially I'm on the Outback brand. If it were is there something in the model that just doesn't allow it to be that I mean, you do have lunch now it's not as though.
It's just a dinner house, what's the limitation there that you wouldn't maybe revisit to see if that target could be higher.
Yeah, Matt I'm, sorry, if I wasn't clear, but we see for for Opex take out at least 50, new restaurants in the U.S.
For the Brazil common to secondary and we continue with our relocation program. So we agree with you. We think there's expansion opportunity for Opex Steakhouse, and we're looking at our international opportunities well.
Excellent. Thank you.
Mhm.
Our next question is from John Power with Wells Fargo. Please go ahead.
Great just a few clarification and a question first the off premise mix in the quarter I don't think I. If you had it I missed it earlier I apologize second a and this one seemed a little bit off the table, but I want to to make sure when you're speaking about strategic alternatives I would assume you're not including the idea of building on the portfolio or the number.
Brands under a bloomin, but just wanted to clarify that with you.
And then my question goes to the discounting piece, it's obviously.
Bend down nicely I think you mentioned during the quarter that out back was down 11% year over year and yet traffic still continue to outperform the category and has improved in the fourth quarter. So can you talk about how much more room you have for reducing these discounts before you you, perhaps a material and materially impact traffic.
Increase here every year <unk>, 17% and that's a 22% increase here every year.
<unk>, yeah on the strategic alternative.
I guess, the best thing John right now just to say the borders examining alternatives.
And I'll leave it at that and and I think it'd be just a piece park things wouldn't be wouldn't be something that we would want to do we haven't been ended acquisitive mode, but you know I'm not going to take anything off the table, but the we're really looking at you know all aspects of our company you know as we go forward because we do think there's a signal.
Can you know disconnect between between our evaluation and what we're accomplishing at the as a group on discounting we made a lot of progress.
We are getting towards the end of it you know the opportunity.
Are always going to look okay. We're always look at opportunities. We've got a really really talented marketing and digital team that really look hard and into that and so we're we're trying to make sure that we you know manage that appropriately you know as we go forward, but a lot of the progress that we've been made is is.
Is is pretty much behind us.
Great. Thank you.
Hmm.
Our next question comes from Gregory Frank Fart like Bank of America. Please go ahead.
Guys. Thanks. Thanks for the question I I just had to the first is in terms of the the new third party platform <unk> do you get the same customer data are there any differences on that front in terms of what you collect in terms of customer spending patterns from them versus when it's happening on your own platform and then the second question I had was labor was very strong this quarter.
And it seems like that's been a a common theme discerning season across a few of the restaurant chains in terms of maybe wage growth tempering, a little bit cursive you could talk about the drivers of labor. This quarter in terms of how much that was from maybe more benign wages versus better turnover versus Brazil sales leverage or greater efficiency.
Anywhere helping to frame that up I think we'll get it with the q., but would be helpful. Thanks.
Yeah on a with with door dash, we get very rich operational data, but we get no P.I., which we think is appropriate and then I labor for it drove the Chris one of the things that we are.
Really in fact, our costs that we're really proud of as a company is our retention levels are fantastic or turn over levels are very well managed and you can imagine that reduces training costs and things like that so from an operating standpoint. Our teams are brands have done a great job you know managing through that so that that the key part of it.
Altering the rest over Chris Yeah, just more specific on labor.
Labor to your point had been kind of a margin headwinds this year and she'll Q3. So we're very pleased with progress here. The actual wage inflation is still in that 3.5% to 4% range. So it was a little bit less this year or this quarter relative deprived borders, but I think the the main best that we're seeing there as we did have a a real real favor ability health insurance.
You three relative to where it had been so that that's the primary driver of the the labor favor buildings.
Great. Thanks for the thoughts appreciate it.
Once again, if you have a question please press star one.
Our next question comes from Sharon Zackfia with William Blair. Please go ahead.
Hi, Good morning, a just a follow up on that last comment I'm on the health insurance favorability.
Can you quantify what that was in the quarter and remind US is that are you self insurance was that just kind of more lumpy on ongoing basis, and then secondarily just curious I don't know if I recall you commented on before on kind of if door dash and that relationship impacts your ability to kind of grow margins at the pace you add.
Alluded to earlier this year at the analyst day.
So if you could comment at all on the terms, there and whether or not I'm, that's kind of roughly neutral or how you think about the profitability there.
Sure, Chris will take labor versus yes that help insurance it was a $1.3 million favorable year over year and health insurance. So yes. It is gonna be a little lumpy from a self insurance aspect.
But the team continues to really do a great job managing that than it's been a priority of ours because you on this business here and on top that kind of stuff. It really is.
As is can come in coming via costing you don't expect so hats off the team for doing such a great job on that.
And then on the the door to ask piece like I said, it's profitable, it's not going to impede our margin expansion goals.
We're going to be able to continue to grow this and leverages as we go forward, we're very satisfied with the contract a great partners and we don't see this being an impediment to our overall.
Margin goals as we March forward at the company in 2020 and beyond.
I guess, just a follow up on that though is there any kind of line item.
Noise that we should be aware of is jordache grows I mean should we expect more pressure on another restaurant operating cost or anything like that to be offset somewhere else and the PML just any any kind of direction there would be helpful.
No I think just as we grow as we grow without the use of the operating supplies for for delivery will grow so that'll that'll put some pressure on restaurant operating expense and and sharing and one thing that you remind us to which we talked we talk to people talk to our investors. This is where the customer is going.
And to be on top of this in moving forward with it and attacking it is really really great. So it's a profitable occasion for us we're going to leverage it and we're on top of a customer trends that we're very pleased about.
And then my last question, maybe too early but is there any difference and customer satisfaction, whether you deliver or whether it comes the adored asked.
No there hasn't been any anything that we see it's early but there is something we're on top of all the time, it's early and.
Our team continues to do a great job in all channels there.
Okay, great. Thank you.
Sure.
Our next question is from Andrew Strelzik with B M. <unk> capital markets. Please go ahead.
Hey, Good morning, this is actually a dan on for Andrew today.
I had a question on a comp trends quarter to date. So it sounds like the average check increases are actually up a little more so far in October compared to Threeq you based on those figures you gave earlier.
I guess I'm, just wondering what's driving that given the potential moderating of average check was it mostly just due to mix or compares or something else and I know, you're not committing yourself to any sort of pricing level moving forward, but is it fair to expect something around that October level of average check for the full quarter or should we expect that to kind of moderate as we move through Fourq you.
Yes, so I'll answer the first part of this.
As it relates to the trends we're seeing in October it has to do it with the LTL timing that we talked about.
Backed by popular demand has a higher PPA associated with it. So that's driving this mix related as opposed to pricing related.
And then on pricing itself for competitive reasons, we're not going to get into it I think you've heard today what are what some are brought plans are and we're going to continue to fall through on that.
Great. That's helpful. And then maybe just one follow up you know I'm just thinking about the third party delivery and maybe just some more color on why.
Vision to get inside now I know you kind of outlined how the economics have become more favorable last quarter I guess I'm just trying understand what was that really the predominant reasoning for it or did you just feel like it was another incremental channel that you couldn't sit out any longer and and given the success of the direct delivery channel, which is you know obviously still performing strongly in its own right I guess just trying to.
To better understand what the main driver was to get into third party.
The completely different consumer we're seeing our numbers, we're not seeing cannibalization of our do it yourself or see an incremental opportunity with ore to ash, which we are are you know, which we're very pleased about so that's why we got into it and we also have a wonderful partner with door dash and very good.
You know very good you know very good economics there.
Great. Thank you.
Our next question is from Brian Vaccaro with Raymond James. Please go ahead.
Oh, Thanks, just one follow up on the DNA line I think you've talked about a multiyear opportunity to find around 100 basis points that you narrow that differential versus peers and I guess often times. The street TV streamlining initiatives are our front end loaded and just trying to triangulate around that a bit is it reasonable that gionee could be down you know 10.
Maybe more million dollars year on year in 2020 on that down payment that you referenced or are there maybe some investments or other moving pieces, we should keep in mind.
Brian we're not going to get into detail on that we don't plan Friday detailed guidance for 2020, right now, but I can tell you and you've seen our results our cost structure in our and our opportunities there to reduce.
Our cost structure is providing a significant down payment as we go forward and we're already seeing some of the benefits of that how much that is and everything else will come as we provide guiding for 2020, but the team here has done a great job identifying new opportunities.
Hi, fair enough and on the commodity outlook. The 2020 outlet you mentioned, a you think beef inflation will be similar to what you saw in 19 could you remind me what that was in 19 and then you also comment on your confidence level in that outlook. How much you have contracted on the overall basket or your core protein business at this point in time. Thank you.
[noise], yeah, beef and the 2% to 2.5% range and so I I would say we have a large degree of confidence Brian . We're we're basically at locked this year as we have been historically at this point in time, a lot more to come but we feel pretty pretty good about where we are yeah. It out in a in closing I just want to thank the supply chain team.
For doing such a great job, leading us through that in and Michael Healy and his team so I.
I I just want to thank thank you thank everybody for a.
For the call today, operator are there any more questions.
There are no <unk> questions at this time.
Okay. Thank you everybody we look forward to updating you on our Q4 results have a great day.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
Uh huh.
Oh.
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