Q3 2020 Bloomin' Brands Inc Earnings Call

October 23, 2020

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Greetings and welcome to the Bloomin brands fiscal third quarter 2020, <unk> earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow management's prepared remarks.

It's now my pleasure to introduce your host Mark Mcgrath Group, Vice President of Investor Relations. Thank you Mr. Mcgrath you may begin.

Thank you and good morning, everyone with me on today's call are David do you know, our Chief Executive Officer, and Chris Meyers Executive Vice President and Chief Financial Officer.

By now you should have access to our fiscal third quarter 2020 earnings release.

It can also be found on our website at Bloomin brands Dot com in the Investor section.

Throughout this conference call, we will be presenting results on an adjusted basis, an explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures.

Appear 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 recent trends. 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 in our earnings release, others are discussed in our SEC filings, which are available FCC dot Gov.

During today's call, we'll provide a brief recap of our financial performance for the fiscal third quarter 2020, and a discussion regarding current trends. 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 David Dina.

Well, thank you Marc and welcome to everyone listening today since a bit.

Since the beginning of the pandemic our priorities remain unchanged. We are focused on taking care of our people and serving food and an environment to protect both team members and customers maintaining a motivated well trained and engaged employee base that has committed to providing a safe dining experience was critical to our long term success the day.

So should not to furlough 80 employees during the pandemic reinforces principal and enabled us to retain a very engaged workforce. This is paying off and has been a big part of our success in driving results ahead of the restaurant industry throughout the pandemic.

It is clear that customers want to come back to restaurants, and they are confident in our ability to provide a safe and welcoming dining experience our dining rooms across the country continue to maintain elevated safety measures, including additional sanitation and disinfecting practices as well as contact with payments options for consumers. This hard work.

He has been recognized by our customers and in several reports in.

In August Blackbox released the restaurant guest satisfaction snapshot, we're fleming's prime steak houses ranked number one in food and number one in service. In addition, three of our restaurant concepts are ranked in the top five and intend to return.

And the recent Newsweek magazine survey recognize the best customer service in casual dining Bonefish Grill is ranked first and Outback was ranked fifth in the same survey.

We do not take this recognition for granted and I appreciate the hard work our operators do each and every day to earn it I would also.

I would also like to thank everyone on the restaurant support center each of you do a great job supporting our award winning restaurants.

Across the U.S. portfolio, we experienced consistent weekly sales momentum throughout the third quarter in.

In restaurant sales continue to improve each week as consumers become more comfortable dining in restaurants. In addition, our off premises business remains robust and we are retaining approximately 50% of the incremental volume achieved while dining rooms were closed.

As a result us comp sales outperformed the industry by over 850 basis points in the third quarter.

Importantly, we continue to outperform the industry in the fourth quarter a large.

A large part of the success is due to the progress made behind our investments over the past several years to enhance the customer experience and pursue the rapidly emerging off premises business.

These strong sales trends results combined with disciplined cost management enable us to significantly outperform margin and profit expectations in the quarter that.

The pandemic provided an opportunity to look at our business differently and reassess the operating model. This holistic review was identified efficiencies to further optimize how we run and support our restaurants. For example, we simplified our menus and reduce limited time offer discounts importantly, these efforts have contributed to reduce complexity and.

Proved consistency and increase profitability across revenue channels, we are leveraging these learnings to drive more efficiencies going forward.

We made great progress across the following key priorities during the quarter that will enable us to become a stronger and more efficient restaurant company.

Let me now spend a few minutes discussing how we are doing versus east of our objectives.

First we are retaining a large share of our industry, leading off premises business, even as dining rooms reopened the.

The pandemic has proved the importance of the channel and the role convenient place for consumers or.

Over the past few years, we made the investments and operations channels and culture to build and grow a strong off premises business.

We will leverage our strong capabilities to capitalize on this growing opportunity of particular interest crowd was especially seeing a lot of success.

We believe delivery and carry out will be an important growth catalyst for crop us moving forward.

Second we continue to make progress on managing expenses and improving margins our efforts to reduce costs were in place well before the pandemic. This past year, we learn even more about the business and made additional improvements to how we manage expenses, including labor advertising and overhead.

He's learned efficiencies provide optimism about the ability to grow margins once we exit the pandemic.

Third our improved sales trends, coupled with disciplined cost management enabled us to generate positive cash flow in the quarter, while paying down debt. We currently have over $550 million of available liquidity, providing us with increased stability and significant financial flexibility to capitalize on future opportunities.

Fourth the Brazil business has seen significant improvement in sales and profit trends all.

All of the Outback restaurants in Brazil have safer reopened with limited in restaurant dining in September Brazil, OPEC comp sales were down 23% and over the last couple of weeks sales in Brazil has been down 5% to 10%.

This is a major improvement versus prior trends and is an indication of the strength of the Outback brand in Brazil the.

The country continues to ease capacity restrictions and effective capacity is approximately 50% in most cities.

Deliberately remains a strong contributor to sales and we are retaining a large portion of this business. The team has been actively managing costs, while leveraging learning from the pandemic to drive additional efficiencies.

As a result, this great work, Brazil generated positive cash flow for the quarter Outback.

Outback remains resilient in one of the highest regarded brands by consumers in Brazil and.

And finally, we have been able to accomplish these results while strengthening the value proposition and customer experience at Opex Steakhouse in.

In early September we launched a new menu to outback designed to reinforce our stake leadership through more accessible premium cuts and larger portions while also lowering menu prices.

The menu is performing even better than what we saw in test we are seeing strong customer feedback on value and guests are trading up to larger and better couple of stake.

Our tax rate on appetizers is growing and alcohol mix is improving as well all of this helps grow sales and profitability, while improving guest satisfaction and.

In addition, this efficient menu design reduces complexity, which improved execution and consistency that result in an improved customer experience.

Before I turn the call over to Chris for a deeper look at our third quarter financial results I want to elaborate on two growth channels. We are testing that complement our dine in and off premises business.

The first test as a fast casual brand called off the grill for those of you who may not be familiar with the concept Aussie grows originally created for international franchisees, who want to expand more aggressively with a smaller footprint.

After we saw our success internationally, we quickly brought this brand to the U.S.

The differentiator for us the grille is a menu of bold flavors, they serve steak burgers chicken ribs, and salad with fast casual convenience there first.

The first few locations in the us have been promising and we opened the first freestanding oxy grille in Tampa in May consumers can eat in carry out used the drive through or have their order delivered that.

The financial returns Maastricht girl are very promising and initial sales and profits are above expectations. As a result, we are expanding the concept and plan to open more Aussie grills in 2021.

The second growth channel to the virtual brand called tender Shack. This virtual brand leverages, the kitchens of our existing restaurants for cooking and delivery.

Last month, we launched the brand in the Tampa Bay area like Aussie Grill consumer response has been strong and sales are ahead of expectations. As a result, we've now expanded the test the Texas, Oklahoma, Kansas and Missouri.

Tender Shack offers a high quality very limited menu, featuring chicken tenders price cookies and drinks.

The brand promises and delivers on casual dining quality at a fast food price. The chicken segment is a large and rapidly growing category, we have the assets and talent to take advantage of the significant opportunity.

It's clear the consumer wants great food and convenient format with Aussie grilling tender shack, we believe we have an opportunity to create an incremental growth channels that consumers will love are perfect for today's environment offers attractive economics and will remain relevant as dining habits have changed.

Bloomin brands has the right people assets and capabilities to meet the needs of today's consumer to capture the opportunity in front of us and beyond.

In summary, we were very pleased with our third quarter performance, we exceeded our objectives rolled out key growth initiatives and gain market share finally, as a result of our current momentum we aren't even stronger position to take advantage of the opportunities ahead of us in this evolving landscape and why.

And with that I will now turn the call over to Chris.

Thanks, Dave and good morning, everyone before I discuss our Q3 results I want to provide some perspective on recent sales trends on how we are successfully navigating the current environment we.

We began the process of reopening our dining rooms in early may in accordance with state and local guidelines as of yesterday, 99% of our company operated restaurants have dining rooms opened some with a level of reduced seating capacity. This is up from 92% at the time of our last earnings call in July as Dave mentioned earlier.

We are continuing to employ elevated safety measures in the restaurants to ensure our consumers feel welcome and safe.

Restaurant capacity continued to increase during the third quarter and we have seen varying results across the country. For example in Florida restaurant capacity was recently increased to 100% and as of this time, we have not seen a commensurate increase in sales in certain parts of the state Tampa and Jacksonville.

All are responding well and seeing weekly volume increases while more tourist centric areas like Orlando and South Florida are relatively soft Conversely, we're seeing good sales gains in states, such as Georgia, Tennessee, and Texas, where we have a large presence we will continue to closely monitor these key markets as the year.

Progresses.

In terms of overall sales performance us comp sales were down 12.8% and have improved steadily over the past several months for perspective us comp sales in September were down 7.9% versus down 24.3% in June this positive momentum was driven by.

In restaurant sales growth, while maintaining strong retention of our off premise business.

At Outback comparable restaurant sales were down 10.4% in the third quarter and experienced sequential sales improvement every month with comparable restaurant sales down 7% in September.

For us concepts saw similar monthly progress on sales results. We are pleased with the continued momentum in overall sales trends.

One thing I wanted to point out about our sales moving forward, although comp sales remain a key measure for performance. We are increasingly more focused on building absolute sales volumes week to week and gaining market share comp sales comparisons have the potential to become less informative as we enter the holiday season, especially if there are still significant risk.

Frictions on capacity that limit our ability to grow in restaurant volumes. It is difficult to predict where capacity constraints and the consumer mindset will be in December as a result, it may be challenging to dramatically increase our in restaurant volumes. During December if we maintain current capacity levels. However.

We are extremely confident that between our rigorous safety protocols in restaurant and our strong off premises business, we will be well positioned to maximize our sales in these critical weeks and months ahead.

Turning now to other aspects of our Q3 financial performance total revenues decreased 20% to $771 million GAAP diluted loss per share for the quarter was 20 cents versus 11 cents of diluted earnings per share in 2019 Ajay.

Adjusted diluted loss per share was 12 cents versus 10 cents of adjusted diluted earnings per share last year as it were.

As it relates to our operating expenses there were a few areas worth calling out.

Since the onset of this pandemic, we have been focused on simplification efforts to improve efficiency and lower costs. This has had a positive impact on several areas on our PML in Q3, food and beverage costs were 150 basis points favorable to last year, driven by record low waste as our streamlined.

Menus continue to demonstrate the benefits of our simplification efforts even more.

Even with the introduction of the new Outback menu, we continue to see waste favorable to pre coded levels. We are also seeing benefits from reduced discounting, which is showing up in higher overall check averages.

The Labor line was 190 basis points unfavorable as we had significant deleveraging on this line from sales being down year over year similar to Cogs. However, we also benefited from simplification efforts. This showed up in a reduction in food prep hours. We are also continuing to find efficiencies in.

Off premises labor as that business continues to grow.

All operating expenses were 170 basis points unfavorable due to sales deleveraging increases into go supplies and menu printing costs for the outback new menu.

These increases were offset by a 20 million dollar reduction in marketing expense within the quarter.

Despite the de leveraging in RTL from lower sales our focus on expense controls allowed us to generate a 10.7% restaurant margin in Q3 more impressively. Our you asked restaurant margins were positive 11.4% in Q3, which was only 10 basis points below last year. Despite.

Significantly lower sales volumes.

Moving forward, we will be very thoughtful about how we introduce expenses back into our business and as we emerge from the pandemic, we remain committed to achieving the margin improvement goals, we shared with investors back in February.

On the DNA front Q3 was down $11 million from last year net of adjustments. This included a $5 million benefit related to cost savings initiatives that we discussed in our February earnings call. In addition, we had another $4 million benefit from reduced travel and training expenses related to coated.

Our adjusted tax rate for the quarter was 58.6%. This is a product of our negative pre tax income as well as additional tax credits such as our FICA tip credit.

One other TNL item worth, noting is our franchise and other revenues category. This was down $11 million year over year due to lower royalties and marketing contributions from franchisees. This decline was driven in part by deferred royalties and lower sales on our west coast restaurants. These locations have been more impact.

Active by the pandemic that our company owned footprint as sales and profit trends improve we would expect specked an increase in royalty and marketing contributions as well as the plans collection of our deferred royalties.

Turning to our balance sheet since our last update on July 24th we have improved our total domestic liquidity position to $551 million, which includes $103 million of domestic cash and $448 million of availability on our revolving credit facility our.

Our strengthening sales performance combined with disciplined cost management has enabled us to tightly manage cash enhance liquidity and allow for continued financial flexibility.

In closing, although this situation has been challenging our performance throughout this pandemic has enabled us to continue to improve our operating model and deliver strong results and with that we will open up the call for questions.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad a confirmation Tom Landry. Your line is in the question queue any prestart too if you like to remove your question from Kim for participants using speaker equipment. It may be necessary to pick up your home.

Before person Starkey.

In the interest of time, we ask that you each keep to one question and one follow up.

Our first question comes from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.

Great. Thank you very much.

My question is on more recent trends and the.

I think you mentioned day is that.

You still outpacing the industry, thus far in October after what was certain Cadeight hundred 50 basis points in the third quarter.

It just sounds like.

Peers talk about the industry as well maybe the concern about the onset of colder weather and the recent spike of Covance infections, and just on either around the elections I'm. Just wondering if you can give any kind of color.

We will grow and I wasn't sure exactly what you meant when you talked about your comments around the December period, but just wondering whether you see further opportunity to improve sales from here.

Prior to a prior to a vaccine and then I had one follow up.

Sure Yeah. Good morning, Yes, we do see the opportunity to improve sales.

Balance of the quarter.

And as I mentioned, our sales so far in Q4 of outpace industry and our revenues are building. Each week why is that more people are coming in the dining room, and we're holding on to our off premises.

Sales, which has been very very helpful. So we're going to continue to try to obviously, it's our objective to do that as we move forward.

And then when we get to the really really high Christmas holiday season, we would like to fill the box up as well within a proper safety in regulation environments right, but we've got different dayparts different days, a week and we've got a really great off premises business and catering business that we hope to use as well Jeff to build our sales week.

A two week to week, the only thing that I think Chris mentioned was his last couple of weeks when we have a really high holiday season, you've got the comp lap there, but again our job and our goal is to continue to build revenues week to week, Yeah, Jeff and I would just add to that in a typical year weekly volumes really step up the last three weeks of the call.

Ordered it particularly in December.

In our restaurants get pretty full but it's important to keep in mind, we still have fewer seats in our restaurants now than we did pre pandemic. So that just creates some sort of artificial limit to in restaurant volumes and so we just think it's much more constructive to pay attention to absolute volume changes because comp sales results and the percentage change.

Change can get a little bit they get a little bit different difficult to to to assess the other thing I would add you mentioned the winter season in the winter weather. It is important when you talk about things like outdoor dining it is not a material driver of our overall comp story and you know the majority of our outdoor seating is located in the southern part of the.

Not as states and the the cooler weather actually helps outdoor seating and the majority of our restaurants.

So I think that we feel good about the levers we have in place heading into the holiday season, we just want to make sure people are aware of just some of the inherent constraints that we have.

Understood and then my follow up was just you know you're talking about the challenges of the broader industry turn this pandemic think.

I think a lot of gold and talking about independent closures.

As maybe a net positive for the larger trends like yourself, allowing for market share gains.

So with that said I was wondering if you're seeing any of that yet maybe you can offer any kind of color of magnitude in terms of closures one of your peers talked about how they expire.

How they expected big real estate opportunity to play out with great Asaps, becoming available and yet they mentioned not really seeing that yet not seeing the favorable lease terms yet. So just wondering if you can comment on the independent closures and the real estate and rental markets. Most recently thank you.

Yeah sure. So first of all let me say bye.

We were really big before the restaurant industry, we don't wish any deal will and the independent durney chain, but yes, there have been independents that have struggled and yes. There have been some chains that have struggled and we are very well positioned to gain share to pickup sites, we havent seen a whole lot of that yet, but we are well prepared.

On a market by market basis to move forward and we would intend to take share and come out an even stronger position and when you look at it you look at our off premises business and our dine in business. Both are very well positioned for the for us for the future.

Great. Thank you.

Okay.

Thank you. Our next question comes from the line of Brett Levy with MKM Partners. Please proceed with your question.

Great. Thank you thanks for taking the call.

If you could just last quarter, you gave us a little bit of color in terms of how well your portfolio is doing in terms of number of units that are that are generated positive comps. If you wouldn't mind going a little bit further into how you're doing.

How youre doing the variances by state.

Those that have higher capacity versus those that are still challenged and.

Do you have any sense as to where you are right now in terms of total capacity and where you think it could be.

Whether it based on its state stay where they are just the efficiencies you can do with partitioning and moving tables around thanks.

Yeah sure first of all we've captured a lot of efficiencies or outdoor swimming outdoor dining work weve done, which Chris talked about the partitions, we built et cetera, and Chris can get in some of the capacity and things if we need to follow up on that but.

It varies a little bit by state I mean, clearly you know, Georgia, Texas, Tennessee, et cetera are doing really well and.

And we're seeing good results out of those markets.

And then our like I mentioned before off premises business is continuing to do really well as we are holding on that incrementality so vote.

We are prepared to operate in a very safe environment and take advantage of capacity as things expand.

Yes, just a couple of stats.

Brett So in Q3, we had 159 of our locations that posted positive same store sales results in September that number jumped up to 271 locations with positive comps.

That actually included 42% of our crop as locations posted positive comps in September so very strong performance.

Great. Thank you.

And.

I know you I know, Jeff at assets can you give us.

Can you give an order of magnitude at least in terms of what kind of market share you've taken because obviously.

850 basis points in the third quarter is as a solid number but theres theres a lot of room between.

Positive and taking share and 850 basis points. Thanks.

Yeah, Brett we don't have particular share data I mean, I think 850 basis points is a very good number.

And we're very proud of it and we're continuing to outperform the market in Q4. So we don't have share data, but I can tell you. We are very well positioned to capitalize on current trends and trends going forward as a company, yeah, and even though we didnt provide direct context as it relates to our performance. It is worth reiterating that.

Our weekly volumes have posted increases from where they were in September.

Thank you very much.

Thank you. Our next question comes from the line of John I didn't go with deep I'm, sorry, JP Morgan. Please proceed with your question.

Hey, guys first I mean I've been asked this question very directly maybe you can give a direct yes, no or answer or just tell us what the number is can you quote in October US company system number for us I mean ever what were you guys have obviously.

I have had to start this because of like you because of Kobe then.

I do understand kind of the sequential increases in average an average weekly sales should we is it a number better than September can you provide us a hard number before I ask and Thats next question.

Don will stay with giving our practice of not getting too much details, especially as we move forward as a company will stay with the fact that we're outperforming the industry as we have been during the third quarter.

Okay, Alright, and then did you want to quote with whatever industry number that back because you have these numbers aren't actually publicly reported the quote unquote industry numbers can you tell us what that industry number is that your benchmarking against the well known.

Industry numbers that black box et cetera, well.

Well well, that's what day and that's why I'm asking you that one that one those are two different data sets and secondly, you have more updated numbers than we do so that's why I just wanted to make sure that we were on the same page there as we set off critical fourth quarter expectations were.

We're on the same Asian, we're ahead of both Okay. All right that the Guy that's fine and then Dave obviously, we.

And I apologize.

Wasting might make wasting my words on that question.

We've obviously talked a lot about kind of.

Kind of costs over time, and how you know the overall organization you know, it's kind of evolving but from an overhead perspective from a data from a technology various various types of support can you kind of give us a not necessarily good quantitative, but you're kind of qualitative view of how that's going and specifically talk about how.

How you might be able to make better decisions faster or are you going forward.

Yes, sure. We started this journey well ahead of the pandemic. If you recall if im following our story, we were addressing our cost structure in the restaurant and an overhead for quite some time and made some moves in the organization earlier this year and we've become a leaner faster moving company I mean take a look at what we've done with.

Oxy drilling tender shack, I mean boom the outback menu and we've also learned a lot about our days data in digital business and so.

Those kind of things we are moving very very quickly we're moving within weeks of these decisions like tender track et cetera. So.

That has helped US a lot John and as we go forward as Chris mentioned at the restaurant level clearly we've done we had a good done a very good job managing various line items and we see that opportunity moving forward because we've learned a lot and we've also learned a lot about our organization as we have mentioned and you can see it in our numbers how are.

Our overhead costs of DNA costs have come down sequentially year on year. So we think we have a leaner organization or more rapidly moving organization a more efficient organization any more effective organization as we've gone through this year.

And at this point have all those changes didn't need or might we be looking for more as we get into 21 in other words, what where are we on that journey in terms of what's been put in place I think we've done a fantastic job, putting virtually everything in place and we get to enjoy that for the balance of this year and into next year.

Okay and do it thanks guys.

Thank you John.

Thank you. Our next question comes from the line of John Glass with Morgan Stanley. Please proceed with your question.

Thanks, and good morning, everyone I wanted to follow up on that one.

Why do I think investors and maybe other companies are trying to frame. This is to think about when sales do return to normalized levels, what either the restaurant level margin or maybe more importantly, just the enterprise level margin could be right. You said those cost savings are in place and so no sales are going to come back can you quantify what you think the retention of those cost saves could be and therefore what.

The enterprise margin could be given that you laid out some causing fabric would you. Please learn more since then.

Can you quantify that for us.

I'll speak to a broadly then I'll turn it over to Chris.

Again for those who have followed our company we talked about a 200 to 250 basis point opportunity in our company before the pandemic and we made a lot of moves prior the pandemic is the set ourselves up and I think John you are familiar with some of those and we also believe that is.

Certain line items are PNM and I'll turn it over to Chris to provide some more examples that provide some opportunity for us as we grow this business, but this journey started well before the pandemic and we've learned a fair amount during the pandemic.

Yeah and not to overly.

Repeat date, what Dave said, but to give you a little more quantification and specificity you know we felt good about our ability to grow margins coming into this year pre cove and not.

Not only because of what we learn this isn't just because of what we learned during the pandemic. We had talked about the $20 million of identified cost savings heading into 2020, and we called out with that an 80 basis point improvement in operating margins in our original 2020 guidance and then we called out another $20 million of cost savings for 2021 that had been identified.

So obviously the original plan for 2020 was put on hold due to the pandemic, but that $40 million of cost savings is still intact now on top of that as Dave said, we've learned how to be more efficient our operating model when it. So if you kind of go line by line I'll give you a little bit of perspective on how to think about some of those things. It's all going to start with sales for us where we are general.

Adding say our sales with less discounts that showing up in check average we've not needed. This discounts in this environment to drive traffic and that is proof that is improving the margins and the flow through I think there is learnings there for us moving forward cost of goods sold clearly is the biggest area, where we've seen improvement in terms of our margin structure at the restaurant level and a lot of that is driven by waste.

Production waste was a major priority preprint priest pre pandemic, but due to the simplification efforts that we're seeing in the better execution. The less re cooks all that we are absolutely confident that that level of that's going to continue.

Labor is the biggest area of reduction in terms of the biggest or a reduction labor is in terms of prep hours, which is again a product of the simplified menu now ours.

Hours are going to come back into the restaurant as we see increases in sales, but we feel good about our ability to hold on to some level of this benefit and then we have a large opportunity in marketing during the pandemic.

A reduction in marketing expenses has made sense given the capacity constraints, but once we get past the pandemic, we have tools that will allow us to deploy the most efficient marketing programs and that gives us an opportunity to reduce marketing spending without losing effectiveness in terms of driving traffic and then Dave has talked about the DNA savings now we've seen some increase.

Not some we've seen quite a bit of incremental DNA savings in travel and training as a result of the pandemic. We do expect a lot of that to come back into the PNM will after over in the hospitality business and you know that personal connection is going to be important. However, we've learned to be more efficient in our use of online communication and we're hopeful we can lever.

Marriage.

Some of this to save some additional DNA dollars moving forward. So look not an exact quantification, but the some of it is is that entering the year. We felt good about closing the margin gap to our peers. After the learnings from the pandemic, we feel even better about that ability.

That's very helpful. Just one follow up on the on the international margins. The U.S. was essentially flat year over year. Your comps were down low double digits does that.

Relationship holds for international that as you say as Brazil is improving too I think down high single save or whatever the number you quoted could you see the same kind of order of magnitude that you could get close to last year's margin on the current sales in Brazil as as.

As as they improve that Theres no reason why they couldn't do that absolutely in fact, our volumes are even a bigger at their overall average unit volumes of the restaurants are an even bigger advantage in that respect and I.

And I just want to call out the Brazil team.

I am going to bounce back weve seen they've done a fantastic job and they generate positive cash flow in the quarter. So really pleased with its going on down there.

Thank you.

Thank you. Our next question comes from the line of Alex Slagle with Jefferies. Please proceed with your question.

Thanks. Good morning, a question on the margins that is first on cost of goods to dive a little deeper on the leverage seen there may never seen at that level or just thoughts on how much of that's sustainable or should be viewed as the low point and then just any context on the current run rate restaurant level margins at current sales.

Levels and how we should think about that heading into the fourth quarter.

Yeah. So it's funny you mentioned that the 30.1% cost of goods sold that we posted this quarter. We are trying to go back into our history books vis vis we think is the lowest cost of good sales number that we have ever posted in the history of our company in a quarter.

And it has a lot to do with the fact that decision between the simplistic first of all the efforts that I talked about the things that we were doing pre pandemic in terms of reduction of waste and then the additional learnings from the simplification efforts and the menu that's driving a significant amount of favorability and then the other thing that I did briefly mention is that we are seeing higher check averages and.

A lot of that is reduction in discounting. We're just I know we've been on this journey for discounting for a while but the reality is is that we still had some level of discounts on our system and right. Now we're just not doing discounting aside from just the discounts that you'd see through our dine rewards program. So.

So on top of that those two big positive variables.

Only downside really is just a slight unfair.

A slight unfavorability from commodity inflation, but it's been pretty mitigated as well we've been pretty we've been running more favorable in commodities.

The last couple of quarters than we thought we were going to coming into the year. So just that perfect storm of great execution by our teams in the field as well as disciplined here in the restaurant support.

Restaurant support center has has driven that number to that level.

And you had another question outflows. It on just also on that front.

Yes current run rate yes.

Yes, I think the way to think about that is that as as it should volumes continue to improve obviously there is a there is a pickup there when you get the restaurant margins, but it is entirely dependent on the level of volumes and volumes continuing to accrete throughout the quarter.

Got it thank you.

Thank you. Our next question comes from the line of Brian Vaccaro with Raymond James. Please proceed with your question.

Thanks, and good morning, just a couple of questions on store margins, starting with the U.S. could you give us a sense of how margins trended through the period, maybe some color on September versus July and with comps continuing to improve would you expect us store margins to be up year on year in the fourth quarter.

Yeah, we're probably not going to give that direct level of guidance was as it relates to our expectations for Q4 margins. There's just too much uncertainty in terms of the environment to make that kind of declared a statement, but but I guess what I can tell you is if you think about June margins for versus September they were actually fairly flat and what I would tell you about.

June versus September restaurant margins as we did roll out the new Outback menu in September and there were one time costs associated with that as the as it relates to extra training hours that we rolled in menu printing costs. We've done a lot of work to simplify the menu take off some of that excess collateral. So we had to reprint new menus. So.

Those costs fell into September and if you took those out then we would have shown pretty solid improvement in our restaurant margin level from June now, obviously as the quarter progressed restaurant margins continue to improve but because September was a five week period versus a four week period in our July and August there is a little bit of a disconnect. There in terms of how.

You think about progress and to the five week period, and Jim was that yeah, that's why I'm comparing to June period as well.

And and you had said Gen. Five week period I'm trying to remember I think you said it was in the mid Thirteens. If memory serves store margins engine, that's right that's right, Brian 13.5%, Okay, Okay and.

And on Brazil could you provide some more context, just sort of on what you're seeing in terms of the environment down there what are some of the primary factors that have allowed sales to improve to the degree they have and I guess with comps I think you said comps were down five to 10 in October could you give us a sense of where store level EBITDA is more recently.

So we won't get into restaurant level EBITDA by month, I mean, that's probably a little too granular for.

That type of guidance, but let me just say Brian.

It's a clear indication of how strong the brand is down there, it's the leading casual dining business by far and it's one of the best brands in the country. So as things open up people Miss Outback. The second thing is.

Much like the U.S. and some of our businesses, we really didnt have much of an off premise business in Brazil, and they introduced it and were hanging on to it as the dining rooms reopened nothings been also been extremely helpful.

We generated positive cash flow in Q3, there is no reason to think why we want them to generate positive cash flow in Q4. So.

We're just really pleased with what the team's doing down there.

Okay, and then last one for me back to sales.

I understand it's all about absolute sales volumes in a coded world I guess thinking about the seasonality that you mentioned moving through the fourth quarter just to make sure. We're on the same page from a comp perspective since a lot of investors are focused on that metric.

You know if you held October a W apps at Outback through the quarter could you give us a sense what would that sort of translate into in terms of December comps or maybe how much higher last year as December average weekly sales volumes compared to October just to frame the seasonality.

Sure what we are going to.

Okay. We can say is our goal and we as we have seen is are we don't want our volumes to hold on a weekly basis, we want them to absolutely absolutely build and as Chris mentioned, the last two or three weeks from a seasonality standpoint, that's the holiday season, and we want to take advantage of catering and off premise and things like that to to build the restaurant build a restaurant volumes up Chris.

Is there anything else you want to add well I would I would just give you some perspective on last year volumes.

So if you look at the beginning of the quarter last year. The the U.S. portfolio was running $65 million of sales are so weak and then you get to the last couple of weeks and that bumps up to you know call. It $75 million of sales. So I think that's the kind of progression you're looking at from a last year a year ago base.

And again look we hope that we can continue to progress and that there is.

Our ability to grow volumes in the box in the last few weeks of December but we just wanted to make sure that everyone understood kind of how that worked that played out last year. So whether its various day parts, whether it's different times of the week, whether it's off premise whether its catering would assign and we will be prepared to grow those volumes and just to reiterate again I mean, we have seen volumes increase in our.

To over from where they were in September which is progress.

Yep Yep, all right and then just last one on tender shack, obviously encouraging to see the test expanded anything until the consumer response in the sales have been strong could you give us a sense just ballpark on an average orders a day or any context on the contribution that you are saying.

It's early Brian I really don't want to get into that kind of detail quite yet just that we expanded to the nude new markets, but I think you know us pretty well.

Good expectations for the brand, we're beating those expectations from a customer sales margin operation standpoint, and we would not be expanding to test unless we felt that we had something there that were pretty.

That we're pretty excited about.

Typically laci grill freestanding location in Tampa were our plan is to build up the pipeline here in Florida and begin to do that so I think what you're hearing from our company is multichannel convenience, great food and we're going to capture as much of that as we as we possibly can.

Fair enough. Thank you.

Thank you. Our next question comes from the line of Jeff Farmer with Gordon Haskett. Please proceed with your question Hi, Good morning, and thank you two questions for you guys. So when we heard from you in late July and then again today you did highlight sort of a handful of initiatives that were meant to increase capacity you talked about plexiglass.

Increasing table turnover outdoor dining space Screeners, who launched the question I have for you is if we look across all of those initiatives, which do you feel have proved most effective in delivering capacity gains and as we look forward.

Which would you expect to be most effective and delivering future capacity gains.

Yeah, well stepping back Jeff.

When we tried to get this volume gains through every single channel outdoor dining off premises, which we feel very good about it.

In restaurants dining all those things have come together for us, but let me just step back for a minute and talk about the things that you can expect from our company over the next few.

Few quarters as we drive traffic.

And sales we talked in the script about the new menu at Outback Steakhouse, if you havent been yet I really would encourage you to go.

We've captured the value opportunity we've captured the abundance opportunity we've got combos and we're very very pleased with that so that's a big catalyst for in restaurant dining second we our goal is to achieve at least 50% of the gains where we started in March to where we are today it off of in off premises at.

And we think we have a best in class off premises in casual dining and we won't be able to serve our consumers at home or in the restaurant and off premises enables us to do that.

We talked earlier about our.

Opportunities to relocate and build sites, we are going to be capturing that as the as the world changes.

Then we look at Brazil, we talked about Brazil, the gains that they're making that's a big part of our growth as well.

I'm really pleased with what Theyre doing there then there are a couple of new.

New ideas that can be part of our growth equation and thats tender shack in Aussie grille, we've got that going within our company and then finally, we talked earlier on the call Jeff.

About capacity coming out of the restaurant business, it's too early to tell exactly how thats going to look but it's not too early to tell that we are going to be very well positioned to capture those opportunities as we go forward.

So each of those multi channel multi concept opportunities for us.

Our a big opportunity I, just want to say, one more thing and I'll turn it back.

And I'm really pleased with what crop as is doing an off premises.

That could be a piece of business for us that that will be permanent and structural and carry out delivery. The customer has really responded to that or.

To that offering so it's really great to see all right. Thank you for that Dave and just one other follow up. So this is really another crack I I had an earlier question on the cost side of this business. So.

In February you guys did point out an opportunity to build to deliver an additional $20 million in cost savings and 21.

Obviously, a lot of moving pieces in terms of the covert backdrop, you've accelerated some of those efforts, but when the dust settles and we're looking at the opportunity for cost savings in 2021, Chris you highlighted this a little bit but in terms of thinking about.

Sort of a net cost savings.

Cost saving benefit and Twentytwenty, one that remains relative to everything that you've done in 2020 can you put a number on that for us.

Just clarifying that I wasn't sure. If you had pulled forward some of those potential cost saves or maybe uncovered some additional cost saves. So you answered. The question. The question $20 million is still a good number to use as we move forward to 2021, yes, and I would say, it's not I'd say, just one thing to keep in mind as you're thinking about modeling and things like that this year a lot of that was GE in AG.

Vast majority that was gene a next year it might be a little more split between restaurants, and and the and the DNA structure and Jeff Nonfinancial comment to that is I think.

I think he knows about just never going to stop and we've learned a lot about digital marketing and how we can grow the business more efficiently. There's all kinds of different things and Chris has talked about a few of those already that we can use going forward and we're just never going to stop so we feel great about what we've done already and what we can do in 2021, and we're just to keep moving.

All right. Thank you.

Thank you. Our next question comes from the line of line fill them with credit Suisse. Please proceed with your question.

Thank you you talked about better managing cost some of the changes you've made to the business pre pandemic in recent months.

Simplification marketing labor. So can you talk about your confidence that these cost saving initiatives Brian.

You said negatively or that the cost of debt capital and I come back to the market get market.

Sure.

One of the things we've tried to do during the pandemic is serve food and.

Ill provide great service.

To our customers and we think Weve reached.

Level of cost and service that we're we're quite proud of.

Newsweek just came out with the best customer service in 2020, and Bonefish outback or in the top five black Fox CMO Theres surveyed fleming's as number one in in in two key measures and Bonefish and Fleming's are in the top five and intend to return if we look at the measures the consumer measures that were looking at.

In the pandemic after the costs have have come out we are making significant progress and thats because our operators are focused on our two key priorities serving great food and.

And taking care of our customers and our people in a safe environment. So we are really trying to make sure that these.

These things stick going forward.

As far as costs, Chris talked about cost, we're going to be very careful about what we add back that we've learned a lot and as we look at marketing spending or overhead spending or what we spend on labor I think we've got a really seasoned management team that knows what the return on investments look like and what we're going to be adding back and win while taking care of the customer and our employee.

Please.

Great. Thanks, and just to clarify on further sales improvement from here it sounds like the lifting of capacity or protect them more.

The more meaningful than even now and is that.

Is that fair and their combination to further thousand permits and then turned across three then you called out the frankly thats hard on strength in markets that reopening earlier, but have you seen sell dollar any volatility in training in market that in certain cases.

We have need we have seen no impact from this any cases resurgence in markets.

Our goal is to say.

Safely serve customers ask as dining capacity expands in markets and we talked earlier about achieving our day part opportunity, our our channel opportunity delivery carry out and dine in and our day of the week opportunity. So we're going to pursue all that so its capacity expansion. We also can compete.

Role and learn and grow from different channels as well.

Great. Thanks, so much.

Yes.

Thank you. Our next question comes in line of Don Tower with Wells Fargo. Please proceed with your question.

Great Thanks for taking them.

A few follow ups on the tender shack opportunity can you just talk about the strategy. So far with respect to rollout in terms of where that virtual brand is being homed sticky.

Sticking in the grabens brand across the country to date and perhaps how we should think about that going forward is it going to be multi branded even though it's going to obviously stay at the tender Shack online and then another question after that.

Sure. The most important thing for us are the markets and we anticipate all of our restaurants to participate in the tender shack rollout should we go that far but.

The crop is team as I mentioned earlier has been doing a fantastic job one off premises. The outback team was rolling out a new menu and therefore, we felt that the crop. This team was the best place to start and we want to pick markets that were very well represented and get a good read going forward, but we're like I said earlier, we're very pleased with the results.

Okay, and just going back to.

The discounting question earlier in some of the markets margin questions as well how much does the new menu at Outback help solve for some of the lower discounting that you're doing I mean, it sounds like it's constructed in such a way that you're going to see some cost and labor savings. However at the same time, the lower some prices on some key items. So.

Maybe if you could talk through that a little bit I'd I'd appreciate it.

Yes, the team did a great job.

We basically want to address the value equation that opex steakhouse through permanent menu changes. So let me just talk about a few of those if you.

If you love the blooming onion, it's $2 less expensive the lavaca cheese prices less expensive and you get more if you love our ribs, you get more if you want to trade up to our bigger stakes. So reliant and I was also higher cuts of meat you get the gap between the base and the and the.

A higher cuts is cloud is closed more.

How did we how did we do this and why we saw.

Optimistic about everything one it addresses consumer need the value equation OPEC food at a great price. That's number one number two is the team did a great job identifying cost to take out of the business because of simplification.

That.

Where enable us to pay for these changes without large if any traffic increase.

But what's happening is we also added combos to the menu what's happening a cap.

Attachment rate of appetizers are going up.

Beer liquor wind mixes going up the mud.

Among a number of states that are being ordered at the higher end of the menu is going up.

Our PPA is looks really great per person.

Yes check is looking really great. So when you combine the cost savings with the sales opportunity with the simplification and what the customer gets out of this we feel very good job about what.

What that addresses from a valuation standpoint, what to rely on discounting all the time, but also is good economically for us that's the purpose of the menu.

And thank you for that I appreciate it and then just quickly turning to the balance sheet and uses of cash obviously sounds like reinvestment back in the business is going to be a top priority but.

But I am curious your debt levels are obviously higher than they were pre pandemic and I am curious to hear how quickly you think you can start paying down debt or perhaps your priorities in terms of debt pay down relative to read.

Reintroducing the dividend.

At some point in time.

And or.

Reintroducing a buyback.

Yes, so what I would tell you is that every tenant of the strategy that we laid out in February as it relates to our long term thinking about how to drive total shareholder return is still in place in my mind, It's just been delayed by the pandemic and it's just really comes down to a question of when we can get back on that job.

Journey, which to your point included a a heavier dose of debt pay down to get our credit metrics, where we are comfortable with them. It involved increasing the dividend there were a lot of tends to that that we felt really strongly about and obviously investors agree with that as well the way that the shares performed after we announced that so look it's about getting back to that now to your point. There is a there is a.

Pacing and sequencing to get to that we are in a situation now where we're going to focus on debt pay down in the short term beef and get the debt levels to an area at a comfortable level before we turn back on a dividend don't know the timing of that I mean again that is largely dependent on the length and duration of the pandemic and but but our focus.

And again, we've been generating positive cash we have been paying down debt as we've been carrying cash flow coming into the business. So that has been the priority. Thus far now and we also keep in mind, we do have because of the the revisions to our credit agreement, we have a capital expenditure restriction through Q1 of next year.

At that point in time, I would expect us to reinvest a little more in capex, but not look we're not going to go back to spending capital like we were three or four years ago, where is like $250 million to $300 million that those days are behind us. So what I can tell you, though is we're going to be opportunistic if there are opportunities with real estate or what have you were going to be armed and ready to take it take advantage there.

His opportunities, but I think that going back to the at that the large levels of capital spending are behind us the focus will be on debt pay down ultimately we will we will look we would love to get that dividend back in place as well.

Awesome. Thank you.

Thank you. Our next question comes from the line of Greg Frank Frank part with Bank of America. Please proceed with your question.

Hey, Thanks for the question, maybe just one quick follow up to that last Monday.

I think it's it's probably it's very difficult to figure out the timing of when you can get your leverage down but is there a number or a target you have in mind for where.

For where that would go to then the other question I had was can you talk a little about the off premise mix I may have missed it but.

Any quantification for weight, where you stand.

Recently in terms of off premise mixer delivery mix and how that business is going thanks.

Yes ill start with the first one.

So we've always talked about a three times lease adjusted leverage ratio being our target that we think it makes a lot of sense for the company. Obviously, we're not at that right now.

But over time, that's kind of where we would sort of shoot for too to get for the long term and then I'll, let Dave answer. The other question. Yes. If you look at our off premise BREP mix, which is carry out delivery, it's up 39% of the business with the.

In Q3, with the outback and crop as being a bit higher than that bonefish and fleming's being lower.

And like I've mentioned, many times, we're very pleased what we see both within our own delivery channel and our third party partnership.

Got it and maybe one last follow up on I mean, you talked a little that sort of.

You talked a little that some of the food efficiency did you guys have been doing and.

And any quantification on how much the fee.

You'd waste is come down or how much.

Sort of gains or efficiencies you down there is I'm just trying to think of.

How much of this has been inflation or deflation in commodities versus.

Officials you guys have had taken out on the food waste. Thanks.

Yes, it's a big number I think just to give you perspective on ways. We always talk about waste in that you know as a percentage of sales historically in the 3% two and a half 3%, sometimes higher or lower depending on the concept we.

We've we've got that down below below 2% and they are at record low levels, which is fantastic I would tell you is that if you translate that to the TNL improvement that we saw in Q3 in cost of goods sold its probably worth 80 basis points.

The waste factor alone.

Thank you appreciate it.

Thank you. Our next question comes from the line of Andrew struggling with BMO capital markets. Please proceed with your question.

Great. Thank you and good morning. My first question is on tender shack in Aussie Grill I'm, just curious how you're thinking about resourcing. None at the corporate level is that really a reallocation or or you know is there maybe some incremental spend there obviously within the context of the broader margin improvement.

Our Trinity and kind of how that trends over time, if and when these grand scale and if you could share at all I know you don't want to talk about the sales and margin side, but.

You could just share kind of how the customer for those brands compares to some of the legacy brands.

Okay.

So on the organization front, we've always had our best success when we have people dedicated to.

To that effort will that Aussie grill, and we've got a team dedicated to that tender shack. We've got two terrific leaders in our company. They are leading the way on it for us that own it and they are working closely with the estimates interject case, especially working closely with the brands. So.

We and it's all within the context of the numbers. We've seen so you know we've got we've got our DNA and we've been able to introduce these two new opportunities and it's been really good to see it as an opportunity for us and will over the long term.

As far as the as far as the customer goes.

We think it will be a a younger crowd at.

And somebody that we've seen people order single and we've seen people we offer two large groups. We've seen both so early days, but we see a large.

Attractive customer base to it and different types of occasions.

Great. That's helpful. And then my other question is just on the labor environment can you talk a little bit about what you're seeing in terms of retention and turnover and.

In the event that we get an increase in minimum wage kind of what the implications and levers to offset some of that would be.

Sure.

Our retention and turnover levels have are really really good and we have a very experienced and engaged employee base.

I think the decision that this management team made to not.

Furlough or let people go has really paid off as Britain restaurant dining came back we.

We were prepared and ready to go and our team has been very grateful for what we've done and you can see in our turnover levels at all levels of the company.

Managing partner managers team member of et cetera on minimum wage I think there's one thing we don't know what the policy is going to go there is one thing that I think we've demonstrated during this time as we're a very fluid flexible organization will be ready for whatever comes to comes to fruition.

Very large majority of our employees make above $15 an hour so.

So we'll be ready and we will.

And we'll be ready to to address it and move forward.

Great. Thank you very much.

Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Hi, Good morning, I, just two questions on international what would be the breakeven Tom after that business to inflect back into profitability and then secondarily just curious on dine rewards.

How has that been trending during the pandemic and have you seen any kind of uptick on darn rewards members as a percent of the transactions yourself.

Yes ill turn over to Chris in a minute on the international piece and maybe Thats more of a Brazil question anything else, but because that's where we have our operations but.

It's a dime awards up to 11.5 million members to extremely valuable.

[music].

Entity for us.

Our customers are diamond where customers are doing you know.

Our coming in that are loyal we are marketing to them. They are a great source of information and like I said before we've learned a lot in our digital marketing and Dime awards as part of that and that's something we're going to continue to work with as we go forward, especially as we source more revenue. It's been a really terrific program. We introduced a few years ago, that's been very helpful. During.

This time.

Yeah, and I'd just on the on the Brazil question.

I would say look we talked about the U.S. business, a couple of quarters ago in terms of the breakeven where we needed to be and it was like in that 20% sales range.

20% down sales range I I can't imagine a beep too much different.

Then then than that in Brazil, maybe even a little better than that they could do a little better than that number in Brazil, just given their volumes and again there are already generating positive cash flow, which is which is fantastic.

Thank you. Our next question comes from the line of Jared Garber with Goldman Sachs. Please proceed with your question.

Good morning, Thanks for taking the questions just two quick ones for me I wanted to get a sense of what you guys are staying in the carpet business and why that why the results could be have been so strong there and what makes it.

Sort of more applicable with the off premise side of the business and then a follow up on.

Additionally, Fleming's and bonefish is that somewhere where we could see maybe some either more pressure or potentially less acceleration as we move into the fourth quarter, just given the sort of the dynamics of the business related and potentially more bid.

Our business travel or holiday gatherings. Thanks.

Sure.

I'll I'll take both of those on crop was.

Hats off to the team I mean, they've done a great job on off premise, obviously, they have a food form and pasta and other things that travel well, but having been in the pizza delivery business myself for many years. It's also a mindset in a culture that they've built and they've done a great job with that and we think that this brand is going to benefit.

More than any other one as far as the off premise opportunity. So it's up.

Thats. The reason why I mean, I think it's got affordable price points on off premise, it's got the food forms et cetera.

On Bonefish in Fleming's like the other brands were seeing growth in restaurant dining the Fleming's team, especially is doing a great job and.

We see the consumer coming back.

Into the restaurants at Fleming's on obviously, we don't have some of the private dining and some of the business travel that we had before but if you look at some of our sales trends during the week. There are days that you know in a safe environment or just doing really really really well and we have high hopes during the holiday season, we can provide bonefish and flow.

Coming to the customer in their home or at the restaurant.

Really great way so that.

Thats part of our sales revenue build that we've seen so far this quarter and we expect in those two brands to continue to grow that business and then when the when the customer the business traveler comes back that will be a layer business. The fleming's doesn't have today that they're going to be able to add back on but fleming's has done a great job during this time.

Providing a customer so we are servicing great food and we're seeing it in the numbers.

Thanks, so much.

Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Mr. Dino for any final comments.

Well. Thank you everybody. We appreciate you for joining us today, and we look forward to updating you in February with our Q4 results take care.

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

[music].

Greetings and welcome to the Bloomin brands fiscal third quarter 2020 earnings Conference call.

At this time all participants are in a listen only mode. A brief question and answer session will follow management's prepared remarks.

It's now my pleasure to introduce your host Mark Mcgrath Vice President of it.

Vice President of Investor Relations. Thank you Mr. Mcgrath you may begin.

Thank you and good morning, everyone with me on today's call are David.

<unk> Executive Officer, and Chris Meyers Executive Vice President and Chief Financial Officer by now you should have access to our fiscal third quarter 2020 earnings release.

It can also be found on our website at Bloomin brands Dot com in the Investor section.

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 recent trends. These statements are subject to numerous risks and uncertainties that could.

<unk> actual results to differ materially from our forward looking statements.

Some of these risks are mentioned in our earnings release, others are discussed in our SEC filings, which are available at <unk>.

Got it.

Well, thank you Marc and welcome to everyone listening today since.

Since the beginning of the pandemic our priorities remain unchanged. We are focused on taking care of our people and serving food in an environment to protect both team members and customers made.

Maintaining a motivated well trained and engage employee base, that's committed to providing a safe dining experience was critical to our long term success.

The decision not to furlough 80 employees during the pandemic reinforces principal and enabled us to retain a very engaged workforce.

This is paying off and has been a big part of our success in driving results ahead of the restaurant industry throughout the pandemic.

Work has been recognized by our customers and in several reports in August Black box released the restaurant guest satisfaction snapshot, we're fleming's Prime steak houses ranked number one in food and number one in service. In addition, three of our restaurant concepts were ranked in the top five in attempt to return.

The recent Newsweek magazine survey recognize the best customer service in casual dining Bonefish Grill is ranked first and Outback was ranked fifth in the same survey.

We do not take this recognition for granted and I appreciate the hard work our operators to each and every day to earn it.

I also like to thank everyone on the restaurant support center. Each if you do a great job supporting our award winning restaurants.

Across the U.S. portfolio, we experienced consistent weekly sales momentum throughout the third quarter in resi.

In restaurants sales continue to improve each week as consumers become more comfortable dining restaurants. In addition, our off premise business remains robust and we are retaining approximately 50% of the incremental volume achieved while dining rooms were closed.

As a result, U.S. comp sales outperformed the industry by over 850 basis points in the third quarter.

Importantly, we continue to outperform the industry in the fourth quarter.

A large part of the success is due to the progress made behind our investment over the past several years to enhance the customer experience and pursue the rapidly emerging off premises business.

These strong sales trends results combined with disciplined cost management enable us to significantly outperform margin and profit expectations in the quarter.

The pandemic provided an opportunity to look at our business differently and reassess the operating model.

Holistic review was identified efficiencies to further optimize how we run and support our restaurants.

For example, we simplified our menus and reduce limited time offer discounts.

Importantly, these efforts have contributed to reduced complexity improve consistency and increased profitability across revenue channels. We're leveraging these learnings to drive more efficiencies going forward.

We made great progress across the following key priorities during the quarter that will enable us to become a stronger and more efficient restaurant company, let me now.

Let me now spend a few minutes discussing how we are doing versus east of our objectives.

First we are retaining a large share of our industry, leading off premises business, even as dining rooms reopened.

The pandemic has proved the importance of the channel and the role convenience place for consumers.

Over the past few years, we made the investments in operations channels and culture to build and grow a strong off premises business we.

We will leverage our strong capabilities to capitalize on this growing opportunity of particular interest provinces, especially seeing a lot of success.

We believe delivery and carry out will be an important growth catalyst for crop as moving forward.

He's learned efficiencies provide optimism about the ability to grow margins once we exit the pandemic.

Fourth the Brazil business has seen significant improvement in sales and profit trends all.

This is a major improvement versus prior trends and as an indication of the strength of the Outback brand in Brazil.

Country continues to ease capacity restrictions and effective capacity is approximately 50% in most cities delay.

As a result, this great work, Brazil generated positive cash flow for the quarter Outback.

Outback remains resilient in one of the highest regarded brands by consumers in Brazil and.

And finally, we've been able to accomplish these results while strengthening the value proposition and customer experience in Opex steakhouse.

In early September we launched a new menu to outback designed to reinforce our stake leadership through more accessible premium cuts and larger portions while also lowering menu prices.

The menu is performing even better than what we saw in test we are seeing strong customer feedback on value and guests are trading up to larger and better couple of stake.

Our attachment rate on appetizers is growing and alcohol mix is improving as well all of this helps grow sales and profitability, while improving guest satisfaction.

Addition, this efficient menu design reduces complexity, which improves execution and consistency that result in an improved customer experience.

The first half to the fast casual brand called off the grill for those of you who may not be familiar with the concept Aussie Groves originally created for international franchisees, who want to expand more aggressively with a smaller footprint.

We saw our success internationally, we quickly brought this brand of the us that.

The differentiator for us to grill, the menu bold flavors, they serve steak burgers chicken rip and salad with fast casual convenience there first.

The first three locations in the us have been promising and we opened the first freestanding ought to grow in Tampa in May consume.

North Kent in carry out use the drive through or have their order delivered.

Financial returns from object girl are very promising and initial sales and profits are above expectations. As a result, we are expanding the concept and plan to open more off the grilles in 2021.

The second growth channels as a virtual brand called tender share. This virtual brand leverages, the kitchens of our existing restaurants for cooking and delivery.

Last month, we launched the brand in the Tampa Bay area like Basi Grill consumer response has been strong and sales are ahead of expectations.

As a result, we've now expanded the test the Texas, Oklahoma, Kansas and Missouri.

Tender Shack offers a high quality very limited menu, featuring chicken tenders price cookies and drinks.

It's clear the consumer wants great move to Nick and convenient format with ought to grill and tender Shack. We believe we have an opportunity to create an incremental growth channels that consumers will love are perfect for today's environment offers attractive economics and will remain relevant as dining habits have changed.

Bloomin brands has the right people assets and capability to meet the needs of today's consumer to capture the opportunity in front of us and beyond.

In summary, we were very pleased with our third quarter performance.

We exceeded our objectives rolled out key growth initiative and gain market share finally, as a result of our current momentum we are even stronger position to take advantage of the opportunities ahead of us in this evolving landscape.

And with that I will now turn the call over to Chris.

Thanks, Dave and good morning, everyone before I discuss our Q3 results I want to provide some perspective on recent sales trends on how we are successfully navigating the current environment.

Earlier, we are continuing to employ elevated safety measures in the restaurants to ensure our consumers feel welcome and safe.

And bill are responding well and seeing weekly volume increases while more tourist centric areas like Orlando and South Florida are relatively soft.

Firstly, we are seeing good sales gains in states, such as Georgia, Tennessee, and Texas, where we have a large presence we will continue to closely monitor these key markets as the year progresses.

Restaurant sales growth, while maintaining strong retention of our off premises business.

And Outback comparable restaurant sales were down 10.4% in the third quarter and experienced sequential sales improvement every month with comparable restaurant sales down 7% in September.

For us concepts and saw similar monthly progress and sales results. We are pleased with the continued momentum in overall sales trends.

Comp sales comparisons have the potential to become less informative as we enter the holiday season, especially if there are still significant restrictions on capacity that limit our ability to grow in restaurant volumes.

It's difficult to predict where capacity constraints and the consumer mindset will be in December as a result, it may be challenging to dramatically increase our in restaurant volumes. During December if we maintain current capacity levels. However, we are extremely confident that between our rigorous safety protocols in restaurant.

And our strong off premises business, we will be well positioned to maximize our sales in these critical weeks and months ahead.

Adjusted diluted loss per share was 12 cents versus 10 cents of adjusted diluted earnings per share last year.

As it relates to our operating expenses there were a few areas worth calling out.

Menus continue to demonstrate the benefits of our simplification efforts even.

Even with the introduction of the new Outback menu, we continue to see waste favorable to pre Cove at levels. We are also seeing benefits from reduced discounting, which is showing up in higher overall check averages.

Premises labor as that business continues to grow.

All operating expenses were 170 basis points unfavorable due to sales deleveraging increases and to go supplies and many printing cost for the outback new menu.

These increases were offset by a $20 million reduction in marketing expense within the quarter.

Despite the de leveraging and RPL from lower sales our focus on expense controls allowed us to generate a 10.7% restaurant margin in Q3 more impressively our U.S. restaurant margins were positive 11.4% in Q3, which was only 10 basis points below last year. Despite.

Significantly lower sales volumes.

Our adjusted tax rate for the quarter was 58.6%. This is a product of our negative pre tax income as well as additional tax credits such as our FICA tip credit.

One other item worth noting is our franchise and other revenues category. This was down $11 million year over year due to lower royalties and marketing contributions from franchisees. This decline was driven in part by deferred royalties and lower sales on our west coast restaurants. These locations have been.

More impacted by the pandemic that our company owned footprint as.

As sales and profit trends improve we would expect specked, an increase in royalty and marketing contributions as well as the plans collection of our deferred royalties.

Sales performance combined with disciplined cost management has enabled us to tightly manage cash enhance liquidity and allow for continued financial flexibility.

Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one telephone keypad a confirmation Tom Landry. Your line is in the question queue.

We first start to if you like to remove your question from Mccann.

Participants using speaker equipment and may be necessary to pick up your handset before pressing the star key.

In the interest of time, we ask that you keep.

To one question and one follow up.

Our first question comes from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.

Great. Thank you very much.

My question is on more recent trends.

I think you mentioned Dave.

Still outpacing the industry, thus far in October as to what was I think you said 850 basis points in the third quarter.

It just sounds like.

Its peers talk about the industry as well maybe the concern about the onset of colder weather and the.

Recent spike of Covance infections, and just on either around the election. So I'm just wondering if you can give any kind of color.

Little throw and I wasn't sure exactly what you meant when you talked about your comments around the December period, but just wondering whether you see further opportunity to improve sales from here.

Prior to a prior to a vaccine and then I had one follow up.

Sure Yeah. Good morning, Yes, we do see the opportunity to improve sales.

Balance of the quarter.

And as I mentioned, our sales so far in Q4 of outpace industry in our revenues are building. Each week why is that more people are coming in the dining room, and we're holding onto our off premises.

Sales, which has been very very helpful. So we're going to continue to try to obviously, it's our objective to to do that as we move forward.

And then when we get to the really really high Christmas holiday season, we would like to fill the box up as well within a proper safety in regulation environments right, but we've got different dayparts different days of the week and we've got a really great off premises business and catering business that we hope to use as well Jeff to build our sales week.

Two a week to week the only thing that I think Chris mentioned was last couple of weeks. When you have a really high holiday season, you've got the comp lap there, but again our job and our goal is to continue to build revenues week to week, Yeah, Jeff and I would just add to that in a typical year weekly volumes really step up the last three weeks of the call.

Ordered it particularly in December.

In our restaurants get pretty full but it's important to keep in mind, we still have fewer seats in our restaurants now than we did pre pandemic. So that does create some sort of artificial limit to in restaurant volumes and so we just think it's much more constructive to pay attention to absolute volume changes because comp sales results and the percentage change.

Range can get a little bit they get a little bit different difficult to to to assess the other thing I would add you mentioned the winter season in the winter weather. It is important when you talk about things like outdoor dining it is not a material driver of our overall comp story and you know the majority.

The majority of our outdoor seating is located in the southern part of the United States and the the cooler weather actually helps outdoor seating in the majority of our restaurants. So.

So I think that we feel good about the levers we have in place heading into the holiday season. We just wanted to make sure people are aware of just some of the inherent constraints that we have.

Understood and then my follow up was just talking about.

Talk about the challenges of the broader industry turn this pandemic.

I think a lot of govan talking about independent closures as maybe.

As maybe a net positive for the larger trains like yourself, allowing for market share gains.

So with that said I was wondering if you're seeing any of that yet maybe you can offer any kind of color of magnitude in terms of the closures one of your peers talked about how.

How they expected big real estate opportunity to play out with great sites, becoming available and yet they mentioned not really seeing that yet not seeing the favorable lease terms yet. So just wondering if you can comment on the independent closures.

The real estate and rental markets. Most recently thank you.

Sure. So first of all let me say bye.

We were really big supporter of the restaurant industry, we don't want much any deal will in any independent or any change, but yes. There have been independents that have struggled and yes. There have been some chains that have struggled and we are very well positioned to gain share to pick up sites, we havent seen a whole lot of that yet, but we are well prepared.

Market by market basis to move forward, and we intend to take share and come out an even stronger position and when you look at it you look at our off premises business and our dine in business, both are very well positioned for that for us for the future.

Great. Thank you.

Okay.

Thank you. Our next question comes from the line of Brett Levy with MKM Partners. Please proceed with your question.

Great. Thank you thanks for taking the call.

If you could just.

Last quarter, you gave us a little bit of color in terms of.

How well your portfolio is doing in terms of number of units that are that are generated positive comps you wouldn't mind going a little bit further into how.

How youre doing the variances by state.

Those that have higher capacity versus those that are still challenged and.

Do you have any sense as to where you are right now in terms of total capacity and where you think you could be.

Whether based on its base stay where they are just the efficiencies you can do with partitioning and moving tables around thanks.

Yes, sure first of all we've captured a lot of the efficiencies throughout or some of the outdoor dining work weve done, which Chris talked about the partitions, we've built et cetera, and Chris can get in some of the capacity and things if we need to follow up on that but.

It varies a little bit by state I mean, clearly you know George.

Georgia, Texas, Tennessee, et cetera are doing really well.

And we're seeing good results are those markets.

And then like I mentioned before off premises business is continuing to do really well, we're holding on that incrementality. So.

We are prepared to operate in a very safe environment and take advantage of capacity as things expand.

Yes, just a couple of stats.

So in Q3, we had 159 of our locations that posted positive same store sales results in September that number jumped up to 271 locations with positive comps and that actually included 42% of our crop as locations posted positive comps in September so very strong performance.

Great. Thank you.

And.

I know you I know, Jeff it at that.

Can you give an order of magnitude at least in terms of what kind of market share you've taken because obviously.

850 basis points in the third quarters as a solid number but there's there's a lot of.

We're in between.

Positive and taking share and 850 basis points. Thanks.

Yes, Brett we don't have particular share data I mean, I think 850 basis points is a very good number.

And we're very proud of it and we are continuing to outperform the market in Q4. So we don't have share data, but I can tell you. We are very well positioned to capitalize on current trends and trends going forward as a company and even though we didnt provide direct context as it relates to our performance. It is worth reiterating that.

Our weekly volumes have posted increases from where they were in September.

Thank you very much.

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

I am sorry, JP Morgan. Please proceed with your question.

Hey, guys first and then ask this question very directly maybe you can give a direct yes, no or answer or just tell us what the numbers can you quote in October US company system number for us I mean ever what were you guys are obviously.

I've had to start this because of because of Kobe then.

I do understand the sequential increases in average average weekly sales should we is it a number better than September can you provide a hard number before I asked and Thats next question.

Don will stay with giving our practice of not doing too much details, especially as we move forward as a company will stay with the fact that we're outperforming the industry as we have been during the third quarter.

Okay, all right and do you want to quote with whatever industry number that because the summers aren't actually publicly reported the quote unquote industry numbers can you tell us what that industry number is that you are benchmarking against so well known.

Industry numbers that black box et cetera, well.

Well, that's what day and that's why I'm asking you that one that one there are two different data sets and secondly, you have more updated numbers than we do said that's why I just wanted to make sure that we're on the same page there as we said.

Thats critical fourth quarter expectations were on.

We're on the same page and we're ahead of both Okay. All right Thats the Thats fine and then Dave obviously, we.

And I apologize.

Wasting might make wasting my words on that question.

We've obviously talked a lot about kind of.

Kind of costs over time, and how the overall organization. It was kind of evolving but from an overhead perspective from a data from a technology various various types of support can you kind of give us.

Not necessarily good quantitative, but kind of qualitative view of how that's going and specifically talk about how how.

How you might be able to make better decisions faster going forward.

Yes sure.

We started this journey well ahead of the pandemic if you recall being following our story, we were addressing our cost structure in the restaurant and an overhead for quite some.

Quite some time and made some moves in the organization earlier this year and we've become a leaner faster moving company I mean take a look at what we've done with oxy drilling tender shack I mean, both the outback menu.

And we've also learned a lot about our data and digital business and so those kind of things. We are moving very very quickly. We're moving within weeks of these decisions like tender fact et cetera. So that's.

That has helped US a lot John and as we go forward as Chris mentioned at the restaurant level.

Clearly, we Didnt, we had a good done a very good job managing various line items and we see that opportunity moving forward because we've learned a lot and we've also learned a lot about our organization as we match it and you can see that our numbers, how our overhead costs of DNA costs have come down sequentially year on year. So we think we have a leaner organization.

Question on more rapidly moving organization, a more efficient organization any more effective organization as we've gone through this year.

And at this point have all those changes been made or might we be looking for more as we get into 21 in other words, where are we on that journey in terms of what's been put in place I think we've done a fantastic job, putting virtually everything in place and we get to enjoy that for the balance of this year and into next year.

Okay enjoy thanks guys.

Thank you John.

Thank you. Our next question comes from the line of John Glass with Morgan Stanley. Please proceed with your question.

Thanks, and good morning, everyone I wanted to follow up on that one would think investors and maybe other companies are trying to frame. This is to think about when sales do returned to normalized levels, what either the restaurant level margin a little bit more importantly, just the enterprise level margin could be right. You said those cost savings are in place and so no sales are going to come back can you.

Quantify what you think the retention of those cost saves could be and therefore, what the enterprise margin could be given that you laid out some positive fabric occupies and learn more since then can you quantify that for us.

I think to a broadly then I'll turn it over to Chris.

Again for those who have followed our company we talked about a 200 to 250 basis point opportunity in our company before the pandemic and we made a lot of moves prior to the pandemic to set ourselves up and I think John you are familiar with some of those and we also believe that.

No certain line items RPN Allen I'll turn over to Chris to provide some more examples that provide some opportunity for us as we grow this business, but this journey started well before the pandemic and we've learned a fair amount during the pandemic.

Yeah, and not to overly repeat.

Repeat date, what Dave said, but to give you a little more quantification of specificity you know.

We felt good about our ability to grow margins coming into this year pre covance nano.

Not only because of what we learn this isn't just because of what we learned during the pandemic. We had talked about the $20 million of identified cost savings heading into 2020, and we called out with that an 80 basis point improvement in operating margins in our original 2020 guidance and then we called out another 20 million of cost savings for 2021 that had been identified.

I would say our sales with less discounts that's showing up in check average we've not needed. This discounts in this environment to drive traffic and that has proved that is improving the margins and the flow through I think there is learnings there for us moving forward cost of goods sold clearly is the biggest area, where we've seen improvement in terms of our margin structure at the restaurant level and a lot of that is driven by waste.

Production waste was a major priority preprint pre pre pandemic, but due to the simplification efforts that we're seeing in the better execution. The less re cooks all that we are absolutely confident that that level of that's going to continue.

Labor is the biggest area of reduction in terms of the biggest area production labor is in terms of prep hours, which is again a product of the simplified menu now ours.

Not some we've seen quite a bit of incremental DNA savings in travel and training as a result of the pandemic. We do expect a lot of that to come back into the PML after over in the hospitality business and that personal connection is going to be important. However, we've learned to be more efficient in our use of online communication and we're hopeful we can lever.

Bridge some of this to save some additional DNA dollars moving forward. So look not an exact quantification, but some of it is is that entering the year. We felt good about closing the margin gap to our peers. After the learnings from the pandemic, we feel even better about that ability.

That's very helpful. Just one follow up on the on the international margins. The US was essentially flat year over year. Your comps were down low double digits does that.

As as they improve that Theres no reason why they couldn't do that absolutely affect their volumes are even a bigger at their overall average unit volumes of the restaurants are an even bigger advantage in that respect.

I just want to call out the Brazil team.

Bounced back Weve seen they've done a fantastic job and they generate positive cash flow in the quarter. So really pleased with what's going on down there.

Thank you.

Thank you. Our next question comes from the line of Alex Slagle with Jefferies. Please proceed with your question.

Thanks. Good morning question on the margins that is first on cost of goods. If you could dive a little deeper on the leverage seen there may never seen it that well just thoughts on how much of that is sustainable or should be viewed as a low point and then just any context on the current run rate restaurant level margins at current sales.

Levels and how we should think about that heading into the fourth quarter.

Yes, so I'd say, it's funny, you mentioned that the 30.1% cost of goods sold that we posted this quarter. We are trying to go back into our history books vis vis we think is the lowest cost of good sales number that we have ever posted in the history of our company in a quarter.

And it has a lot to do with the fact that some between the simplistic first of all the efforts that I talked about the things that we were doing pre pandemic in terms of reduction of waste and then the additional learning from the simplification efforts and the menu that's driving a significant amount of favorability and then the other thing that I did briefly mentioned is that we are seeing higher check average is that a lot.

A lot of that is production and discounting. We're just I know we've been on this journey for discounting for a while but the reality is is that we still had some level of discounts on our system and right. Now we're just not doing discounting aside from just the discounts that you'd see through our dine rewards program.

So on top of that those two big positive variables.

Only downside really is just a slow.

A slight unfavorability from commodity inflation, but it's been pretty mitigated as well we've been pretty we've been running more favorable in commodities.

Restaurant support center has driven that number to that level.

And you had another question outflows. It on just also on that yes.

Yep Yep current run rate yes.

Yes, I think that.

The way to think about that is that as as it should volumes continue to improve obviously there is a there is a pickup there when you get the restaurant margins, but it is entirely dependent on the level of volumes.

Volumes continuing to accrete throughout the quarter.

Got it thank you.

Thank you. Our next question comes from the line of Brian Vaccaro with Raymond James. Please proceed with your question.

Thanks, and good morning, just a couple of questions on store margins, starting with the U.S. could you give us a sense of how margins trended through the period, maybe some color on September versus July and the comps continuing to improve would you expect us store margins to be up year on year in the fourth quarter.

Yes, we're probably not going to give that direct level of guidance was as it relates to our expectations for Q4 margins. There is just too much uncertainty in terms of the environment to make that kind of declared of statement, but but I guess what I can tell you is if you think about June margins for versus September they were actually fairly flat and what I would tell you about.

June versus September restaurant margins as we did roll out the new Outback menu in September and there were one time costs associated with that as a as it relates to extra training hours that we rolled in menu printing costs. We've done a lot of work to simplify the menu take off some of that excess collateral. So we had to reprint new menus. So.

Tempur was a five week period versus a four week period in July.

July and August there is a little bit of a disconnect. There in terms of how you think about the progression into the five week period and Jim was up yeah, that's why I'm comparing it to Jim Ryan.

Third as well, yeah, and and you had said Gen. Five week period I'm trying to remember I think you said it was in the mid Thirteens, if memory serves store margins and Jan.

That's right that's right, Brian 13.5%, Okay, Okay and on Brazil could you provide some more context, just sort of on what you're seeing in terms of the environment down there what are some of the primary factors that have allowed sales to improve to the degree they have and I guess with comps I think you said comps were down five dependent October could you give us a sense.

So where store level EBITDA is more recently.

So we won't get into restaurant level EBITDA by month, I mean, that's probably a little too granular for.

That type of guidance, but let me just say Brian.

It's like the U.S. and some of our businesses, we really didnt have much of an off premise business in Brazil, and they introduced it and were hanging on to it as the dining rooms reopened that's expenses also been extremely helpful.

We generated positive cash flow in Q3, there is no reason to think why we want them to generate positive cash flow in Q4. So we're.

We're just really pleased with what the team's doing down there.

Okay, and then last one for me back to sales I understand it's all about absolute sales volumes in a coded world I guess thinking about the seasonality that you mentioned moving through the fourth quarter just to make sure. We're on the same page from a comp perspective since a lot of investors are focused on that metric.

Yes, if you held October a W apps at Outback through the quarter could you give us a sense what would that sort of translate into in terms of December comps or maybe how much higher last year December average weekly sales volumes compared to October just to frame the seasonality.

Sure what we are going to what we think we can say is our goal and we as we have seen is are we don't want our volumes to hold on a weekly basis, we want them to absolutely absolutely build and as Chris mentioned, the last two or three weeks from a seasonality standpoint, that's the holiday season, and we want to take advantage of catering and off premise and things like that to to build the rest are.

The build the restaurant volumes up Chris is there anything else you want to add well I would I would just give you some perspective on last year volumes.

So if you look at the beginning of the quarter last year. The the U.S. portfolio was running $65 million of sales are so weak and then you get to the last couple of weeks and that bumps up to you know call. It $75 million of sales. So I think that that's the kind of progression you're looking at from a last year a year ago base.

And again look we hope that we can continue to progress and that there is ability to.

Ability to grow volumes in the box in the last few weeks of December but we just wanted to make sure that everyone understood kind of how that word that played out last year, whether its various day parts, whether it's different times of the week, whether it's off premise whether its catering would have signed and we will be prepared to grow those volumes and just to reiterate again I mean, we have seen volumes increase and not.

Over from where they were in September which is progress.

Yep Yep, all right and then just last one on tender shack, obviously encouraging to see the test expanded and you said till the consumer response in the sales have been strong could you give us a sense just ballpark kind of average orders a day or any context on the contribution that you are saying.

It's early Brian I really don't want to get into that kind of detail quite yet just that we expanded to the nude new markets, but I think you know it's pretty well.

We had expectations for the brand repeating those expectations from a customer sales margin operation standpoint, and we would not be expanding the test unless we felt that we had something there.

We're pretty excited about.

Laci Grill freestanding location and Tampa were our plan is to build up the pipeline here in Florida and begin to do that so I think what you're hearing from our company is multi.

Multichannel convenience, great food and we're going to capture as much of that as we as we possibly can.

Fair enough. Thank you.

You did highlight sort of a handful of initiatives that were meant to increase capacity you talked about plexiglass, increasing cable turnover outdoor dining space reintroducing lunch. The question I have for you is if we look across all of those initiatives, which do you feel have proved most effective in delivering capacity gains.

And as we look forward.

Which would you expect to be most effective and delivering future capacity gains.

Yes, well stepping back Jeff again, we tried to get this volume gains through every single channel outdoor dining off premises, which we feel very good about.

In restaurants dining all those things have come together for us, but let me just step back from it and talk about the things that you can expect from our company over the next.

Few quarters as we drive traffic.

And sales we talked in the script about the new menu at Outback Steakhouse, if you havent been yet I really would encourage you to go.

In the off premises and we think we have a best in class off premises in casual dining and we want to be able to serve our consumers at home or in the restaurant and off premises enables us to do that.

We talked earlier about.

Opportunities to relocate and build sites, we are going to be capturing that as the as the world changes.

Then we look at Brazil, we talked about Brazil, the gains that they're making thats, a big part of our growth as well and I'm really pleased with what they're doing there then.

Then there are a couple of.

New ideas that can be a part of our growth equation and thats tender shack in Aussie grille, we've got that going within our company and then finally, we talked earlier on the call Jeff about capacity coming out of the restaurant business. It's too early to tell exactly how that's going to look but it's not too early to tell that we are going to be very well positioned.

To capture those opportunities as we go forward.

So each of those multi channel multi concept opportunities for us.

Our a big opportunity I, just want to say, one more thing and I'll turn it back.

I've been really pleased with what crop as is doing an off premises.

That could be a piece of business for us that that will be permanent and structural and carry out delivery to customer has really responded to that.

To that offering so it's really great to see all right. Thank you for that Dave and just one other follow up. So this is really another crack at an earlier question on the cost side of this business. So.

In February you guys did point out an opportunity to to deliver an additional $20 million in cost savings and 21.

Sort of the net cash.

Cost savings benefit and Twentytwenty, one that remains relative to everything that you've done in 2020 can you put a number on that for us.

In terms of trying to understand the question. So we have the 20 million. This year, we have another $20 million next year, you're talking we feel I guess I would just say we feel really good about our ability to deliver on both of those numbers. Okay. The I was just clarifying that I wasn't sure. If you had pulled forward some of those potential cost saves or maybe.

Uncovered some additional cost saves so you answered the question. The question $20 million is still a good number to use as we move forward to 2021, yes, and I would tell you its not I'd say, just one thing to keep in mind as you're thinking about modeling and things like that this year a lot of that was Gina. The vast majority that was DNA next year it might be a little more split between restaurants and and the.

And the DNA structure, and Jeff Nonfinancial comment to that is I think.

I think you know most of US just never going to stop and we've learned a lot about digital marketing and how we can grow the business more efficiently. There's all kinds of different things Chris has talked about a few of those already that we can use going forward and we're just never going to stop so we feel great about what we've done already and what we can do in 2021, and we're just to keep moving.

Thank you.

Thank you. Our next question comes from the line of Lauren.

Please proceed with your question.

Thank you you talked about better managing cost some of the changes you've made to the business pre pandemic in recent months.

Jason marketing labor. So can you talk about your confidence that the cost saving initiatives Brian.

You should negatively or that the cost of debt capital and that the comp.

Back when the market gets more competitive.

Sure.

One of the things we've tried to do during the pandemic is serve food and.

Ill provide great service.

To our customers and we think Weve reached.

Level of cost and service that we're we're quite proud of.

Newsweek just came out with the best customer service in 2020, and Bonefish Outback on the top five.

Black Fox came out their surveyed fleming's as number one in into key measures and bonefish and Fleming's are in the top five in attempt to return.

We look to measure the consumer measures that were looking at.

In the pandemic after the costs have have come out we are making significant progress and thats because our operators are focused on our two key priorities serving great food and.

And taking care of our customers and our people in a safe environment. So we are really trying to make sure that these.

These things stick going forward.

As far as costs, Chris talked about cost, we're going to be very careful about what we add back because we've learned a lot and as we look at marketing spending or overhead spending or what we spend on labor I think we've got a really seasoned management team that knows what the return on investments look like and what we're going to be adding back and win while taking care of the customer and our employee.

Please.

Great. Thanks, and just to clarify on further sales improvement from here it sounds like the lifting of capacity or protect them.

More meaningful then given is that fair and their combination.

Further sales agreements and then trends across three then you called out the Prince within Florida and strength in markets that reopened earlier, but have you seen sales dollar any volatility in training and markets.

Cases.

We have need we have seen no impact from this any cases resurgence in markets.

Our goal is to.

Full and learn and grow from different channels as well.

Great. Thanks, so much.

Yes.

Thank you. Our next question comes in line of Don Tower with Wells Fargo. Please proceed with your question.

Great Thanks for taking them.

A few follow ups on the tender shack opportunity can you just talk about the strategy. So far with respect to rollout in terms of where that virtual brand is being homed stick.

Sticking in the crop as brand across the country to date and perhaps how we should think about that going forward is it going to be multi branded even though it's going to obviously stay at the tender Shack online and then another question after that.

Sure the most.

The most important thing for us are the markets and we anticipate all of our restaurants to participate in the tender shack rollout should we go that far the crowd.

The crop is team as I mentioned earlier has been doing a fantastic job an off premises. The outback team was rolling out a new menu and therefore, we felt that the crop is team was the best place to start and we wanted to pick markets that we're very well represented and get a good read going forward, but we're like I said earlier, we're very pleased with the results.

Okay, and just going back to kind of the discounting question earlier in some of the markets margin questions as well how much does the new menu at Outback help solve for some of the lower discounting that you're doing I mean, it sounds like it's constructed in such a way that you're going to see some costs and labor saving.

However, at the same time, the lower some prices on some key items. So maybe if you could talk through that a little bit.

I appreciate it.

Yes, the team did a great job.

We basically want to address the value equation that opex steakhouse through permanent menu changes. So let me just talk about a few of those if you.

If you love the blooming onion, it's $2 less expensive the lavaca cheese prices less expensive and you get more if you love our ribs, you get more if you want to trade up to our bigger Stakes are aligned and I was also higher cuts of meat you get the gap between the base and the and the.

Higher cuts.

It's close more.

How did we how did we do it and why we saw.

Optimistic about everything one it addresses consumer needs the value equation OPEC food at a great price. That's number one number two is the team did a great job identifying cost to take out of the business because of simplification.

That.

Where enable us to pay for these changes without large if any traffic increase.

But what's happening is we also added combo as to the menu what's happening.

Thats great of appetizers are going up.

Beer liquor wind mix is going up.

The number of states that are being ordered at the higher end of the menu is going up.

Our PPA is looks really great per person.

Yes check is looking really great. So when you combine the cost savings with the sales opportunity with the simplification and what the customer gets out of this.

We feel very good about what.

What that addresses from a valuation standpoint, what to rely on discounting all time, but also is good economically for us that's the purpose of the menu.

And thank you for that I appreciate it and then just quickly turning to the balance sheet and uses of cash obviously sounds like reinvestment back in the business is going to be a top priority.

Reintroducing the dividend at some.

At some point in time.

And or.

Reintroducing a buyback.

Journey, which to your point included a a heavier dose of debt pay down to get our credit metrics, where we are comfortable with them involved increasing the dividend. There were a lot of tends to that that we feel really strongly about and obviously investors agree with that as well the way that the shares performed after we announce that so look it's about getting back to that now to your point. There is a there is a.

Pacing and sequencing to get to that we are in a situation now where we are going to focus on debt pay down in the short term b and get the debt levels to an area at a comfortable level before we turn back on a dividend don't know the timing of that I mean again that is largely dependent on the length and duration of the pandemic and but but our focus.

We do have because of the the revisions to our credit agreement, we have capital expenditure restriction through Q1 of next year at that point in time, I would expect us to reinvest a little more in capex, but not look we're not going to go back to spending capital like we were three or four years ago, where is like $250 million to $300 million that those days are behind.

Yes, so what I can tell you, though is we're going to be opportunistic if there are opportunities with real estate or what have you were going to be armed and ready to take it take advantage of those opportunities, but I think that going back to the at that the large levels of capital spending are behind us the focus will be on debt pay down ultimately we will we will look we would love to get that dividend back in place as well.

Awesome. Thank you.

Thank you. Our next question comes from the line of Greg Francfort with Bank of America. Please proceed with your question.

Hey, Thanks for the question, maybe just one quick follow up to that last Monday.

I think it's probably it's very difficult to figure out the timing of when you can get your leverage down but is there a number or a target you have in mind.

Where that would go to then the other question I had was can you talk a little about the off premise mix I may have missed it but.

Any quantification for where you stand.

Recently in terms of off premise mixer delivery mix and how that business is going thanks.

Yes ill start with the first one so.

So we've always talked about a three times lease adjusted leverage ratio being our target that we think it makes a lot of sense for the company. Obviously, we're not at that right now.

But over time, that's kind of where we would sort of shoot for too to get for the long term and then I'll, let Dave answer. The other question, Yes, if you look at our off premise Brett Mick.

Mix, which is carryout and delivery, it's up 39% of the business with.

In Q3, with outback and crop as being a bit higher than that and bonefish and fleming's being lower.

And like I've mentioned, many times, we're very pleased what we see both within our own delivery channel and our third party partnership.

Got it and maybe one last follow up on I mean, you talked a little bit.

You talked a little that sort of the food efficiency could you guys doing.

Any quantification on how much the fee.

Wood waste is come down or how much.

Sort of gains or efficiencies you down there is I am just trying to think of.

How much of this has been inflation or deflation in commodities versus.

Efficiencies you guys have taken out of the food waste. Thanks.

Yes, it's a big number I think just to give you perspective on waste, we always talked about waste in the <unk> as a percentage of sales historically in the 3% two and a half, 3%, sometimes higher or lower depending on the concept.

We've we've got that down below below 2% and they are at record low levels, which is fantastic I would tell you that.

If you translate that to the TNL improvement that we saw in Q3 and cost of goods sold its probably worth 80 basis points the way.

The waste factor alone.

Thank you appreciate it.

Thank you. Our next question comes from the line of Andrew struggling with BMO capital markets. Please proceed with your question.

Great. Thank you and good morning. My first question is on tenders shack in Aussie Grill I'm, just curious how you're thinking about resourcing. None at the corporate level is that really a reallocation or or is there maybe some incremental spend there obviously within the context of the broader margin improvement.

Opportunity and kind of how that trends over time, if and when these grand scale and if you could share at all I know you don't want to talk about the sales margin side, but.

If you could just share kind of how the customers are those brands compares to some of the legacy brands.

So on the organization front, we've always had our best success when we have people dedicated to.

To that effort that Aussie grill, and we've got a team dedicated to that tender shack. We've got two terrific leaders in our company. They are leading the way on it for us that on it and they are working closely with the tenure tracked case, especially working closely with the brands. So.

We and it's all within the context of the numbers you've seen so far.

We've done we've got our DNA and we've been able to introduce these two new opportunities and it's been really good to see it as an opportunity for us and will over the long term.

As far as the as far as the customer goes.

We think it'll be a younger crowd.

And somebody that we've seen people order single and we've seen people we offer two large groups we've seen both so early days, but.

We see a large try.

Attractive customer base to it and different types of occasions.

Great. That's helpful. And then my other question is just on the labor environment can you talk a little bit about what you're seeing in terms of retention and turnover and.

In the event that we get an increase in minimum wage kind of what the implications and levers to offset some of that would be.

Sure.

Our retention and turnover levels have are really really good and we have a very experienced and engaged employee base.

I think the decision that this management team made to not.

Furlough or let people go has really paid off as Britain restaurant dining came back we.

We were prepared and ready to go and our team has been very grateful for what we've done and you can see in our turnover levels I'll level The company man.

Managing partner managers team members et cetera on minimum wage.

Minimum wage I think there is one thing we don't know what the policy is going to go there is one thing that I think we've demonstrated during his time as we're a very fluid flexible organization will be ready for whatever comes to comes to fruition.

Very large majority of our employees make above $15 an hour so.

So we'll be ready and we will.

And we'll be ready to to address it and move forward.

Great. Thank you very much.

Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Hi, Good morning, just two questions on international what would be the breakeven for that business.

For that business to inflect back into profitability and then secondarily just curious on dine rewards.

How has that been trending during the pandemic and have you seen any kind of uptick on Don rewards member.

Members as a percent of the transactions are still out.

Yes ill turn over to Chris in a minute on the international piece and maybe Thats more of a Brazil question anything else, but because thats, where we have our operations but.

It's a dime awards up to 11.5 million members is extremely valuable.

Entity for us.

Our customers are diving, where customers are doing are.

This time.

Yes, just on the on the Brazil question.

I would say look we talked about the U.S. business, a couple of quarters ago in terms of the breakeven where we needed to be and it was like in that 20% sales range.

20% down sales range I can't imagine that beat too much different.

Thank you. Our next question comes from the line of Jared Garber with Goldman Sachs. Please proceed with your question.

Good morning, Thanks for taking the questions. Just two quick ones from me I wanted to get a sense of what you guys are staying in the carpet business and why that why the results maybe have been so strong there and what makes it.

Sort of more applicable with the off premise side of the business and then a follow up on.

Additionally, Fleming's bonefish is that somewhere where we could see maybe some more pressure or potentially less acceleration as we move into the fourth quarter, just given the sort of the dynamics of the business related to potentially more bid.

Our business travel or holiday gatherings. Thanks.

Sure.

I'll I'll take both of those on crop was.

Hats off to the team I mean, they've done a great job on off premise, obviously, they have a food form and pasta and other things that travel well, but having been in the pizza delivery business myself for many years. It's also a mindset and culture that they've built and they've done a great job with that and we think that this brand is going to benefit.

More than any other one as far as the off premise opportunity. So it's up.

Thats. The reason why I mean, I think it's got affordable price points on off premise, it's got the food forms et cetera.

Bonefish in fundings like the other brands were seeing growth in restaurant dining the fleming's team, especially is doing a great job and.

We see the consumer coming back.

Into the restaurants at Fleming's now obviously, we don't have some of the private dining and some of the business travel that we had before but if you look at some of our sales trends during the week. There are days that in a safe environment, just doing really really really well and we have high hopes during the holiday season, we can provide bonefish.

And fleming's to the customer in their home or at the restaurant.

Really great way so.

That's part of our sales revenue build that we've seen so far this quarter and we expect and that's both two brands to continue to grow that business and then when the when the customer the business traveler comes back that will be a layer of business that fleming's doesn't have today that they're going to be able to add back on but fleming's has done a great job during this time.

Providing a customer so we are servicing great food and we're seeing it in the numbers.

Thanks, so much.

Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Mr. Dino for any final comments.

Well. Thank you everybody. We appreciate you for joining us today, and we look forward to updating you in February with our Q4 results take care.

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

Q3 2020 Bloomin' Brands Inc Earnings Call

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