Q4 2020 Bloomin' Brands Inc Earnings Call

February 18, 2021

All participants are in a listen only mode. A brief question and answer session will follow management's prepared remarks. It is now my pleasure to introduce your host Mr. Mark Graff Group Vice President of Investor Relations. Thank you. Mr. Graff you may begin the floor is yours.

Thank you and good morning, everyone with me on today's call are David Deno, Our Chief Executive Officer, and Chris Meyer Executive Vice President and Chief Financial Officer by now you should have access to our fiscal fourth quarter of 2020 earnings release. It can also be found on our website at bloom and brands Dot com and the investors section.

This conference call, we will be presenting results on an adjusted basis and 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 at SEC Gov. During today's call. We will provide a brief recap of our financial performance for the fiscal fourth quarter 2020 of discussion regarding current trends and select 2000, and 'twenty one guidance metrics. Once we've completed these remarks, we'll open up the.

Call for questions and with that I'd now like to turn the call over to David Deno.

Well, thank you Mark and welcome to everyone listening today since the beginning of the pandemic. Our priorities have remained unchanged. We are focused on taking care of our people and serving great food and an environment to predict both team members and customers.

Maintaining of motivated well trained and engaged employee base that is committed to providing a safe dining experience is critical to our long term success.

The fourth quarter once again showed our resilience and navigating through and ever changing landscape. Our teams had to adapt to rapidly evolving rules regulations and in restaurant dining restrictions at the state and local level I would like to thank everyone and the restaurants and the restaurant support center for doing such a great job managing through this crisis you are dead.

Acacia to providing hospitality service and experience every day.

Our restaurant so successful.

The strategic and financial plans, we laid out and our February 2024th quarter earnings call remain in fact, their learnings developed through the pandemic have put us and even better positioned to capture these opportunities to drive total shareholder return.

Over the past year, we have seen robust performance and our off premise of this business convenience continues to play an important role with consumers and we are leveraging the strength of our to go and delivery capabilities to meet this growing demand during.

During the fourth quarter off premises represent 37% of U S. Sales importantly, this momentum continues into the first quarter. We are maintaining high off premise was volume even as dining rooms reopen.

Carrabba's in particular has capitalized on the sales channel with its family bundles platform that provides convenience and attractive price point. This offering provides a fully prepared meal for five people starting at $34 99 with eight different options to choose from.

We believe off premises will be an important growth catalyst for carrabba's and all of our brands moving forward.

2021, and start off stronger than expected, we experienced an acceleration sales trends due to an easing of in restaurant dining restrictions pent up consumer demand and continued strength and our off premises sales at.

As a result U S comparable sales were down 12, 9% through the first seven weeks of the fiscal year.

We continue to outperform the industry and takes share it is clear customers want to come back to restaurants and are confident and our ability to provide a safe and welcoming dining experience.

The new menu at Outback launched in September 2020 is performing even better than the test markets. This includes an increase and guest satisfaction and improvement and positive sentiment across all key factors such as price value service and portion size as well as food and beverage we designed the menu to reinforce our steak leadership.

Through more accessible premium cuts and larger portions while also lowering menu prices. We are seeing strong customer preference as guests are trading up to larger cuts of steak enjoying larger portions and increasing their attachment rate and appetizers and addition, the efficient menu design reduces complexity, which improves execution and consistency.

This results in an improved customer experience.

Chris will speak to more of this and a bit but our focus on margin improvement continues last year, we outlined actions to simplify our overhead structure. This is resulting in $40 million and and estimated savings over a two year period, we are making great progress against these initiatives and are ahead of schedule and realizing these benefits.

In addition, the pandemic provided an opportunity to look at this business differently and reassess the operating model. This.

And this review has identified efficiencies to further optimize how to run and support restaurants. For example, simplified menus have resulted in record low levels of waste over the back half of the year. We will continue to look for ways to reduce complexity improve consistency and increased profitability across revenue channels.

Our performance improvement, resulting opportunities are not limited to the United States.

The Brazil business experienced significant improvement and sales and profit trends and the fourth quarter. During Q4, we saw and easing of in restaurant dining restrictions that helped drive effective capacity to approximately 50% and most cities.

This contributed to a steady sequential increase and comp sales performance, where they ended the quarter down 14, 8% Dilip.

Delivery remains a strong contributor to sales and we are retaining a large portion of this business.

And the team has also been actively managing cost while leveraging learnings from the pandemic to drive additional efficiencies Outback remains a highly regarded brands with strong consumer appeal and we are well positioned in this important market.

Turning back to the U S sales growth will also help drive profitability and margins, we are confident and our ability to continue to take market share over the long term, we will accomplish this by leveraging existing opportunities to grow healthy organic traffic, including.

The new menu at Outback that enhances price value as previously mentioned.

Sustaining the off premises volume, we achieved amid the pandemic, while building and restaurant traffic.

Expanding the pipeline of the successful relocation program at Outback, where we believe we still have lots of opportunity.

Accelerating digital capabilities to attract and retain guests and a more targeted and personalized manner with improved rois.

Leveraging our dine rewards loyalty platform, which is driving strong engagement across the portfolio. We are using the rich data we have collected over the years to attract convert and retain customers.

Pursuing the virtual brand opportunity with a concept like tender shack.

Tender share provides incremental sales of attractive margins and requires zero capital investment.

And finally, investing and new store development and the U S with Outback Fleming's and off the grill and internationally and Brazil, given our brand regard with high consumer demand and attractive margin profile.

As we move into 2021, we are prepared to adapt to the changing landscape to deliver an exceptional experience for our guests whether in restaurant or the convenience of their own home.

To fully capture the off premise of this opportunity today, we are announcing the national rollout of our virtual chicken brand tender share. This.

This is yet another lever and our very successful off premises business.

As I mentioned earlier, 37% of our revenue is currently off premises.

Our goal is to maintain and improve service levels. So we can continue to grow this channel.

We recently introduced tender share across the country and 725 locations, primarily in Outback and Carrabba's restaurants, we have terrific geographic coverage given our national footprint. As a reminder, this virtual brand leverages, the kitchens of our existing restaurants for cooking and delivery.

It offers of high quality very limited menu, featuring chicken tenders fries cookies and drinks as.

And as we rollout tender shack and test markets. It was clear we had of winter.

The brand exceeded all of our sales profit guests and operating metrics. Our goal is to achieve $75 million and incremental sales on an annualized basis.

The chicken segment is a large and rapidly growing category and we look forward to expand and this opportunity for years to come.

We expect our off premises business to continue to be strong as in restaurant dining trends improve we are making significant progress against key initiatives to enhance the customer experience simplify operations and optimize our cost structure all in a safe environment.

We are confident we will emerge of better stronger operations focused company.

<unk> brands has the right people assets and capability to meet the needs of today's consumer and capture the opportunities in front of us and beyond and with that I'll turn the call over to Chris.

Thanks, Dave and good morning, everyone I would like to start by providing a recap of our financial performance for the fiscal fourth quarter of 2020 Q.

Q4 U S comp sales finished down 17, 7%. This was down sequentially from the third quarter, driven primarily by additional capacity restrictions that went into effect in late November.

These restrictions necessitated switching back to and off premise of this only business model and approximately 15% of our company owned portfolio.

As a result of these dining room closures, we did not see the typical improvement in average unit volumes that we would seasonally expect in December.

Importantly, many of the closed dining rooms have reopened and January and we have seen significant improvement and both volumes and U S comp sales, thus far and Q1 I will touch more on that and a moment.

And as it relates to brand performance Outback comp sales were down, 15% and Q4 and Carrabba's comp sales were down 11% net sales results at both brands were ahead of the major competitive benchmarks.

As has been the case since the onset of the pandemic. These brands relied heavily on our strong off premises business total Q4 off premises sales were 40% and 46% of revenue at Outback and Carrabba's respectively.

At Bonefish Grill comp sales were down 27% and Q4, the in restaurant experience and bar centric culture of Bonefish has been impacted more by capacity restrictions than our other casual dining brands. Despite this we have built an impressive off premises business at bonefish and at represented 27%.

<unk> of their sales in Q4.

<unk> Q4 comp sales were down 30% given their large, California presence, 28% of Fleming's locations were closed for in restaurant dining since mid November.

Turning now to other aspects of our Q4 financial performance.

Total revenues decreased 21% versus last year to $813 million.

GAAP diluted loss per share for the quarter was 16.

<unk> 32 of diluted earnings per share in 2019.

Adjusted diluted earnings per share was <unk> <unk> versus 32 of adjusted diluted earnings per share last year.

Adjusted operating income margin was one three.

And 3% in Q4 versus four 2% and 2019. This result was a 260 basis point improvement from Q3, the sequential improvement was driven by a few factors.

And the international segment increased its adjusted operating income by $13 million from Q3 to Q4, driven by improved operating results in Brazil.

Brazil comps were down, 15% and Q4 versus being down 55% in Q3.

And the first quarter quarter to date, Brazil comps are down 20% as Sao Paulo imposed additional dining restrictions through the month of January given the strength of this business, we expect sales to rebound as restrictions are lifted.

Second domestic adjusted operating margins improved 70 basis points from Q3 to Q4 on relatively flat sales between the two quarters. This improvement was driven by our ongoing efforts to drive efficiency into our business through simplification.

We will continue to benefit from this efficiency in 2021 as our country emerges from the pandemic.

In terms of our Q4 adjusted performance by cost category Cogs was 60 basis points favorable year over year, driven by waste reduction. This favorability came despite some commodity on favorability driven by higher than expected produce prices.

The labor line was 55 basis points unfavorable year over year, driven by sales deleveraging similar to Cogs. However, we also benefited from simplification efforts. This showed up and a reduction and food prep hours. We are also finding efficiencies and off premises labor as that business continues to grow.

Operating expenses were 150 basis points unfavorable due to sales deleveraging and increases and to go supplies. These increases were offset by a $22 million reduction and domestic marketing expense year over year.

Despite the significant sales deleveraging I mentioned, our focus on managing our expenses allowed us to generate a 12, 4% adjusted restaurant margin in Q4.

On the G&A front Q4 was down 11 $6 million from last year and 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 $5 million benefit from reduced travel and training expenses related to <unk>.

Covid.

For the year, we finished 2020 with $219 million of G&A net of adjustments for perspective in 2018, we spent $276 million on G&A.

Even though we do expect some of the pre COVID-19 travel and training expenses to return to our cost structure. We have made significant progress to reduce our spending on overhead.

Turning to 2021 throughout January we have seen many of our closed dining rooms reopen as of today. We currently have 99% of our U S portfolio opened for some level of in restaurant dining.

Thus far and Q1, we have seen a meaningful increase and U S comp sales through the first seven weeks of the quarter were down 12, 9% with significantly higher volumes than December.

There are several factors likely contributing to this momentum, including the reopening of dining rooms, and the benefits from government stimulus and most importantly momentum behind our growth initiatives. These initiatives include the new Outback menu the national rollout of tender shack and maintaining our off premise of volumes as in restaurant.

Dining sales have improved.

Before I get into our 2021 guidance expectations. There are a couple of other items I wanted to discuss.

On the liquidity front as of today, our total domestic liquidity position is $675 million. Our total debt is just over $1 billion, which is effectively in line with our total debt levels at the start of the pandemic.

For the foreseeable future, we will use excess free cash flow to pay down debt as we make progress towards a three times lease adjusted net debt to EBITDAR target.

As you May recall, we amended our credit agreement given the significant impact of pandemic had on our financial results. Among the important terms. Our total net leverage covenant was waived over the last three quarters of 2020.

This total net leverage test returns and Q1 with a modified formula based on our quarter to date results, we expect to be comfortably in compliance with this covenant.

Also of note. We recently entered into an agreement with one of our franchise partners that operates 93 outback locations primarily in California.

This agreement allows for certain concessions to support this franchisee and this particularly hard at area of the country among.

Among the key items and this agreement, we will reduce our marketing fees and defer certain royalties until such time as the business recovers as we discussed last quarter, we will only record revenue for amounts owed for these locations when the cash is received.

In 2021, we do expect to begin collection of future and past due amounts as sales recover and excess cash is available more information on this agreement will be available and our 10-K.

Our non California franchise locations, both domestically and internationally continue to perform well and we expect to collect revenue from these locations in 2021 based on the sales they generate.

In terms of overall 2021 guidance given the ongoing nature of the pandemic, we are not going to provide comp sales guidance or EPS guidance. At this time. However, there are some key areas of our performance that we are prepared to discuss we.

We expect 2021 commodity inflation to be flat, we expect favorability in beef and seafood costs, which will be offset by higher freight poultry and produce expenses.

Labor inflation is expected to be 3% to three 5%. This inflation estimate only contemplates wage legislation impacts that have already been passed into law.

G&A expenses expected to be between $225 million and $230 million and 2021. This is a modest increase from 2020. This was primarily due to higher travel and training costs. In addition, we will also face higher compensation expense to our area operating partners as performance.

Improves and these will be offset by additional transformational savings in 2021.

Depreciation expense is expected to be approximately $165 million to $175 million the decreased level of capital spending over the last several years has contributed to the decline and depreciation expense for perspective in 2019 depreciation expense was 194 million.

Yeah.

Capital expenditures are expected to be between $170 million and $185 million. This includes $48 million of spend from projects deferred in 2020, as we manage through covenant restrictions on our overall capital spending.

Finally, we expect to open between 20 to 25 system wide locations most of the new locations will be in Brazil. We also expect for new restaurants, and six relocations at Outback. There will also be for new Aussie grille units as we expand that test within the Florida market.

Before I complete my prepared remarks, I wanted to provide some perspective on our margin improvement opportunity.

In 2019, our adjusted operating margins were four 8% on $4 1 billion of total revenues our learnings during this pandemic combined with $40 million of previously identified cost savings and give us confidence we can achieve 150 to 200 basis points of operating margin.

Pension at 2019 sales levels. These improvements will come from a number of areas within our cost structure.

First as it relates to the $40 million of transformational savings I mentioned, we realized approximately $25 million of these savings in 2020 with most of that benefit impacting the G&A line.

In 2021, we will realize another $15 million of savings. This cumulative total represents approximately 100 basis points of operating margin improvement from 2019.

Second in 2019, our food and beverage cost was 31, 4% since that time simplified operations and optimized menu offerings have resulted in increased efficiency and record low waste going forward, we expect sustained benefits from these efforts.

Similar to food and beverage costs, our learnings can be applied to the labor line as well, we have seen a reduction and prep hours and the kitchen and better throughput and service labor. This gives us confidence that we can more than offset near term inflationary headwinds.

And restaurant operating expense, we will continue to see higher expenditures and to go supplies and third party fees, given our growth and the important off premise channel.

These increases will be partially offset by a reduction and marketing expense marketing expense will be significantly lower than 2019, given our pivot to digital channels that deliver higher rois.

Depreciation will also play a role and our operating margin improvement going forward as our current level of expense represents upside from 2019 levels.

These collective actions would allow us to achieve and adjusted operating margin of between six 3% and six 8% once sales fully returned to 2019 levels. This represents significant progress towards achieving the seven 5% operating margin goal.

We outlined at our last Investor day, we expect to close the remaining GAAP by improving average unit volumes and realizing further efficiencies at both the restaurant level and and G&A.

Margin improvement is a key pillar and our strategy to maximize total shareholder return.

In closing, even though head has been at challenging year. We are proud of the progress. We have made moving forward. Our focus is on emerging as a stronger more efficient restaurant operating company.

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

At this time, we'll be conducting a question and answer session at <unk>.

I would like to ask a question. Please press star one.

Telephone keypad at confirmation from will indicate your line is and the question queue. You May Press Star two if you would like Joe of your question from the queue for participants using speaker equipment and may be necessary to pick up of your handset before pressing the starkey.

Please limit yourself to one question and one follow up thank you one moment, while at pool for questions.

Yes.

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

Great. Thank you very much.

One question and one follow up.

And the question relates to the.

To go business.

Yourselves and your peers are seemingly very excited about the opportunity to retain the <unk>.

<unk> sales when Youre dining rooms, reopen I think you said, 37% of your sales are to go this past quarter.

I'm just wondering how you measure.

And the opportunity to achieve that whether how you look at incremental at <unk> versus cannibalization.

It would seem difficult to imagine that.

Much of the industry of a bit of retain that level without having a serious change and the dynamic of the industry.

So just your thoughts in terms of the retention of that and maybe people and compare your average check and margins for the to go versus and restaurant and then I had one follow up.

Sure good morning.

And have built over the number of years of very strong off premises business well before the pandemic, both carryout and delivery and we see it as a largely incremental business and we track that very carefully and just measure for US is mix is important but total revenue per channel is really important and our.

Goal, which we are seeing and the first quarter by the way as restaurants reopen our goal is to keep that revenue profitable revenue and grow it from there so and we think about these channels entirely differently. So in restaurant experience and you have a carry out of experience and delivery experience, we talked today about tender shaft. So these all come to.

And to provide the customer experience and because it's a.

Largely incremental business, it's a per.

Profitable business that flow through to us and we are very very very.

Mindful of the consumer measures also that our success drive success like delivery times customer satisfaction accuracy. So at some of them I'll turn it over Kristen and I'll talk about margins.

Hey, good morning, Jeff.

Yes look the healthiest flow through and our business is always going to be that traditional and restaurant consumer but it certainly is when you think about the off premise channels curbside is nearly as good as and restaurant in terms of margin profile given that we don't have service labor, nor do we have to pay of delivery driver or a feat of the third party to offset the lower check average.

Now when you think about the delivery opportunity, it's going to be a little lower than curbside and terms of overall margin and flow through.

And to give for competitive reasons, I'm not going to give specificity of those numbers, but.

Importantly, the flow through on our on our to go our delivery business is still very healthy and the incremental nature of the third party transaction.

It makes at a really important channel for us moving forward and.

The one thing I would say just to follow up of that too is that at.

And we're constantly working to further improve the economics of all of these channels to make sure that we can have a margin profile that makes it really difficult for us to trade out that business for in restaurant and so we're constantly working on that and Jeff.

Jeff just one more thing.

And that's how we're going to grow the business. Obviously, our job is to take share from competitors. I think people are seeing net casual diners can be a very viable.

Part of our business and also we're making significant investments and the digital business to make it easier for people to order.

Through third parties and at our restaurants.

Understood and then the follow up just as you mentioned and the incremental sales and you talk about the virtual brands.

Starting to hear I guess officially today youre launching tender shack nationwide I think you said $75 million and annual sales, which if I think about your roughly $3 billion for the system for the year. So maybe youre talking about of 2% to 3% sales of comp lift and I'm. Just wondering if you could offer any color in terms of whether that's what you've seen and test of whether you're assuming and uptick.

Presumably more advertising same question, how you measure of incremental sales and what the margins might be thank you.

At this business is very incremental and we can tell that by the customer base, we have and everything else at the <unk>.

And if and ordering pattern and different time of day.

We're seeing we just rolled it out we're seeing and restaurants, achieving those levels of sales.

And your restaurants doing over 500 of week, we havent gone to ex but just and with door at Ash, we havent gone to any extra channels, we haven't done much advertising our operators love it customers love It so and at these numbers do not include our franchise partners or Brazil. So we have very good line of sight, Jeff to the 75.

And volume and a very.

Incremental flow through of $35, 40% for the for the brand.

Okay.

Great. Thank you very much.

Our next question comes from the line of Brian Mullan with Deutsche Bank. You May proceed with your question.

Okay. Thank you Chris Thanks for the color on the operating margins being better than 19 by up to 100.

50, and 200 basis points and normalizing here.

Obviously, that's a function of in restaurant and at a restaurant efficiencies that you've laid out so we could just zero in on the low labor expense piece, the only experience about.

50 basis points of deleverage in the quarter pretty notable of accounts you reported.

You folks have been in the prepared remarks, but could you just discussed at any specific initiatives that were put in place that are driving this and could you clarify and some of those only go and place more recently like in the back half of 2020, whether it's menu menu reduction initiatives or otherwise.

Yes, a lot of this and thanks for the question a lot of it is things are things that we've put in place over the back half of 2020.

Largely in response to Covid, but at the same time, we've taken those learnings and we're now applying those to our business moving forward and look there.

And Theres a ton of examples I'll give you I'll give you. One example in terms of labor and.

In terms of simplification of the overall model, we used to have six menus on the table at Outback Steakhouse and things like our drink menu and LTM menu of core menu of happy hour menu and just sort of the list goes on and on the amount of time that it took a server to articulate all of these menus was inefficient and so simple.

And things like that honestly, Brian they add up and a redefined service model that we think can be far more efficient moving forward than it was coming into this and that's just the front of the house again, there are savings and the back of the house in terms of the simplified menu that we intend to sort of carry on with moving forward to a large degree that will allow us.

And to reduce prep hours and the kitchen and the back so look I think labor like I said, if you would ask me coming into the pandemic is labor aligned given the persistent headwinds that you would anticipate being able to leverage I would have said.

Not but now I feel like Thats, absolutely aligned that we can we can grow going forward.

Thank you and then just a quick clarification does your operating margin framework that you provided does that require $75 million and sales from tender share or is that independent of now getting at.

And the whole thing is like I said at it as a framework and the whole idea behind that honestly is that is just getting back to 2019 sales levels. However, they come now you would expect that where we are now and where we're going to come if were getting incremental traffic that's going to flow through at normal levels right. It's really just a framework and the reason why we did that and so that we could really simple.

Five of the conversation.

And focus in on the efficiencies not just the things we've learned during the pandemic, but the $40 million of cost saves and so that we can give you a real perspective on what we have learned and what we're committing to above and beyond any leverage conversation. We wanted to take leverage just out of this completely so it's not a tender shack com and its really just back of 2019 sales levels.

Okay. Thank you.

Our next question comes from the line of Alex.

Laidlaw with Jefferies. You May proceed with your question.

Thanks, Good morning.

I wanted to follow up on that previous question. If you could provide some more color on the current run rate and restaurant level margins at current sales at I'm not sure if I missed it or if you have any.

Visibility or color from how we modeled the first half.

Yes look I think that the.

Anything thats within the first half is tricky, but this is what I would tell you. If you think about that 150 to 200 basis point opportunity that we talked about the short answer is is that if you take out the sales deleveraging. We're seeing we're seeing restaurant margin levels that are approaching that today.

If you look at Q4 as an example, we were 150 basis points unfavorable and restaurant margins year over year, and we probably had close to 300 basis points of deleveraging and that number now as you think about kind of going forward as.

As you exit the pandemic youre, probably going to give some of that back and marketing and in our off premise mix as we've talked about may change a little bit, but think about 2021, you're still going to have a year's worth of transformational savings that are going to build into our numbers over the course of the year. So there's a lot of moving pieces and that's why we framed at the way that we did.

Because of the shorter term, there's just a lot of volatility it's much easier for us to look into the future at a time when we'll have a more normalized environment and determined what are you going to look like from a margin perspective, when the dust settles and for us at.

It really remains to be seen but we're kind of thinking of that normalize. These probably more of of 2020, a few thoughts.

Got it and then just a question on that and elaborate sort of historically and you talked about comfort with the at three times adjusted debt to EBITDA and leverage.

Yeah look yeah, and I think.

Good day.

Well, yes, I think that we're comfort I think we still feel like the three times leverage on a lease adjusted basis is a good balanced level of debt right now of that implies $200 million of $400 million of debt pay down from current levels, depending on what you believe about EBITDA moving forward. So.

In 2021, we're going to use all of our excess cash flow to pay down debt at the end of the year, we're going to see where we are and then we'll make a call that about reintroducing things like the dividend and when that might makes sense. We do believe that of healthy dividend is a key pillar and our <unk> strategy, but it's going to take a.

Backseats of debt pay down for a while.

Great. Thank you.

Our next question comes from the line of John <unk>.

And then Carl with Jpmorgan you May proceed with your question Hi, Thank you.

Two unrelated questions and I guess I'll just ask the first one first.

What type of disparity and markets are you seeing I think the last call you guys were pretty helpful and talking about certain markets and Florida, Texas, Tennessee, what have you and what are maybe Georgia will throw in whats the experience and some of these earlier markets and specifically at.

And if possible kind of talk about how those markets have performed so far quarter to date.

Obviously, contrasting those relative to the California experience.

Sure.

So far we've seen some continuing to see some variability.

In markets, like Georgia, Tennessee, Texas, and Alabama, we've had positive comparable sales and those markets have been open we're doing really well.

Florida.

Of a tale of two states and a sense Orlando, we have some weakness and the tourist areas, and then and Tampa and Jacksonville, especially where positive offsetting that is Michigan, Illinois, Minnesota, California, where we have had some.

Weakness because of the restrictions now I will say one thing about California, though so let me touch of huge footprint there as you know and last week and.

For Fleming's overall.

If you put that in at 2019 context, even with only outdoor dining in California, Fleming's would have hedged third best week of 2019. So you can see the consumer coming back John and it varies by market what the restrictions look like but we're we're seeing positive same store sales and some of those markets I mentioned at all.

Right that's cool.

Excuse me for that number.

Thank you. Thank you for that color and then secondly.

As you guys have previously talked about Brazil, I mean, I actually forget where we are in terms of.

Strategic review process.

And it kind of been discussed either formally or informally for that market. What's your current thinking.

Debt Paydown is obviously an important part of the story I understand you would lose the EBITDA from it but.

Is that of market as you kind of look at business values and that country specifically towards something.

Could make sense.

And the relatively near or medium term.

Sure John first and foremost as you know and you have and appreciation for that business because you've been down there.

It's a fabulous business and they've had some variation and their sales level, because they've had decrease come out of their government.

<unk> Paulo, and other places that have said.

You got closed down some dining so that's why you see some variability and their sales, but their market share positions their growth their profitability of the cash flow. All is very strong. So you have to sit back and say all right. What do we do at this business.

Tremendous management team it.

It could potentially be attractive to another buyer, we will see John.

We will always take a look at to see what's best.

You can do all of the market down there, but we're under no rush, but we will certainly examine all of our options and we have a great business down and Thats why I would leave you with Enbrel will examine all alternatives that we have and as we have and the past.

Thank you.

Our next question comes from the line of John Glass of Morgan Stanley. You May proceed with your question.

Thanks, Good morning, first just Chris I appreciate the incremental color on the margin targets, both kind of the near term and the long term on.

On the seven 5% margin target can you just remind us what are the conditions necessary to get there and I presume, it's volume driven but is there a contemplation that volumes are some percentage higher than they are today that gets you there.

Does that include a full of the load of marketing or do you think that marketing is just sort of structurally maybe lower and in the future.

And I think at your Investor Day, you talked about 200 to 250 basis points and so this will be the high end of that or are you just more competent now and the high end or at that 202 hundred 50 is still in play and you're just talking about the higher end no I think it's a sign of confidence that what we've learned and the pandemic has given us more optimism on our margin journey than we had coming into it and then.

And to back up before I talk a little bit about the seven five and the March to the seven and half to give you a perspective on marketing. So we spent in 2019 for perspective of three five percentage of sales on marketing expense now obviously right now, it's and the low twos some quarters, depending on volumes, even high of 115% of 2% range.

And that's not sustainable for us moving forward, there's going to be marketing expense that comes back into it but it's not going to come back to that three 5% number.

As we talk about it internally.

And our thinking could change, but we're thinking and that 3% range of approaching that 3% range is a more realistic number for us on a long term basis, then going back up at that three 5% of sales range.

As it relates to this march towards the seven and a half I think this is the way I would frame it and we're hopeful that at 2022 is that first clean year that we don't have sales pressures. So if that if that is how it plays out then it would be reasonable to expect that our operating margin would be and that six.

5% range by the end of 2022 on top of that the path to the seven 5%, it's going to be driven by a couple of things. There are further efficiencies in labor. There are further efficiencies in G&A that we can pursue so the cost opportunities. There are still things that we believe in the future can be identified.

<unk> to drive additional efficiencies there is a piece, though that on top of that is driven by higher average unit volumes, but to go from six 5% of seven five youre talking and I think what we would think is 50 basis points of year, which would get you to the end of 2024, when you're at that seven 5% number and the sales what you have to believe from.

And <unk> be growth perspective to go from that six 5% to seven and a half coupled with some of the cost savings opportunities that we still think of would be ahead of us it's not a herculean ask it's 1% of year kind of thought process.

And obviously as we're thinking longer term, we'd like to do better than that the other piece too is that when we think about this we're going to approach. This from a pricing perspective of taking as little pricing as we possibly can.

Within these numbers on a go forward basis to address some of the price value things.

Things that we've been talking about in terms of approach and they can be more approachable for our guests. So that's how I would frame of seven 5% opportunity what the role of sales would play and the margin aspect of that and just a couple of things I'd like to add on the confidence side John.

Number one we've learned a lot about digital and a return on marketing spend et cetera, very flexible and we can really get a great understanding of what our marketing spend gets us and will.

Flex up and down depending on those returns, but Chris was overall framework certainly works and number two it's kind of been hidden and the sales changes during the pandemic, but we've done a lot of this cost takeout work already and volumes return you will see that flow through our P&L. The work has been a lot of that work's been done so thats.

What gives us the confidence John.

And that's Super helpful. Both of you. Thank you Dave can I, just ask you about branding and virtual and virtual brands.

And you think about marketing this brand is at only going to live and door dash or at your thought about and learn from others that we need to co brand with your brands that you could tag it and your own advertising I'm thinking about how one creates and brand out of Easter If you will right now and at <unk>.

As an opportunity to leverage euro and marketing spend more than just store rather than just using door at Athens.

Channels.

And I think one of the things that we're learning is marketing these type of brands and just kind of gorilla marketing using the experience that we have and the channels that we have is really really important we don't expect to do any.

Co branding, John saying, I know tagging Outback commercial book door Dash and this can live on its own and and this digital environment. There is all kinds of great things that we can do and I think the other thing too is we've got a really really strong partnership with door at ash and they're very helpful to us and and.

Have been during this journey and so that coupled with the improving operations and everything and as you know John Theres, No no greater marketing and great operations and great product, but we will be a very strong gorilla marketer on this as we go forward.

Thank you.

Hmm.

Our next question comes from the line of Jeff Farmer with Gordon Haskett. You May proceed with your question.

Great. Thank you.

You guys currently of restaurants operating at really the full spectrum of indoor capacity sort of 170, 550% capacities of question is what are the off premise sales volumes look like for those group of restaurants that are at a full 100% capacity versus those that are only at 50%.

Theres still good.

Jeff and our goal is to keep them at that revenue level as we go forward. So.

They still are moving forward and a good way and.

It's an opportunity for us to keep that revenue going forward, yes. The only thing I would add to that is that if you just look at the month of January and this idea of preserving off premises volumes.

Our average unit weekly sales volumes, if you take out kind of the first week and then the Valentine's day week, because they were holiday driven and they were they were higher volumes were in that $23000 of week.

Sales range for off premises across our portfolio, which is actually a step up from where it was in Q4, when we had more of our restaurants.

And that had more capacity restriction. So we are seeing volume growth and off premises and January which is really encouraging.

Alright, that's helpful and just one of the follow up so.

Any color you guys can provide on the deferred royalties.

Whether or not we will see some of that begin to roll back onto the revenue line in 'twenty and 'twenty, one and if so sort of what timing across the year.

Yes.

Our goal certainly is to see that happen, Jeff it depends on the revenue curve and how the marketplace ex out in California, I got to tell.

One of the things Thats come out of this is we really have a strong partnership with this franchise group and their board and we're working very closely together to bring backs at California marketplace. So I don't mean to be.

Dodgy on that I think Jeff it depends on the revenue curve coming out of California.

Our revenue curve, we see will be collecting some deferred royalties this year, how much and how fast it will be mainly the back half of the year, but how much and how fast will depend on what the revenue looks like and California, alright. Thank you.

Our next question comes from the line of Brian Vaccaro with Raymond James You May proceed with your question.

Your line is now live.

Sorry, still getting used to the mute button on.

After all these years.

Sorry about that good morning.

And I wanted to zero in on the quarter to date sales improvement that Youre seeing and I know you said outback was down around 11%, but you've kept your help level set sort of the average weekly sales volumes that youre seeing at Outback, specifically, it's a little difficult given historical seasonality with the bigger Q1 et cetera. So just wanted to make.

Sure I'm on the same page there.

Yeah, I'll give you some perspective on that Bryan I'll talk in terms of the total portfolio and then I'll narrow it and on Outback, just because I have the total portfolio more on top of head.

So if you go back to early December sort of the pre Christmas our average unit volumes for the portfolio were in that $55000 of week range.

And that's when we had 15% of our U S portfolio closed for and restaurant dining and.

In mid January we talked we've talked about seeing the easing of restrictions and now we have 99% as we talked about of our portfolio open with some level of in restaurant dining with really the only exception being fleming's locations in California. So in terms of year to date volumes, you've got to remember we have two holidays two big holidays.

The first week contained the week between Christmas and new year's and the most recent week contained Valentine's day and traditionally these are going to be two of your busiest weeks of the year. So if you exclude those to try and get a sense of that run rate on the non holiday weeks. Our average weekly sales volumes are in that 60000 to $62000 of week range.

Across the portfolio and obviously, that's much higher than it was in December but it does show that our volumes continue to be pretty resilient and that.

That would be the blended comps on that or and that down 9% range outside of those big holiday weeks, and we obviously are a little worse and comps and those big holiday weeks, given what we're lapping from the previous year Outback volumes in that same time period, they're going to be a little higher just because the bonefish and is a little lower just given the more important.

<unk> by the pandemic, but the outback of average at weekly volume is going a little higher than the system average.

Alright, that's super helpful and I appreciate all of the color on tender Shack I was wondering if you could also give a quick update on Aussie Grill I know, it's still very early but we've seen that offered I think as of virtual brand and a couple of markets and maybe even and opening and Hong Kong. So just maybe an update on the latest thinking on the opportunity there.

Ryan and I congratulate you do your homework so yes.

At the grille is of virtual brand.

And Brazil.

And Hong Kong.

And it is being tested and New York.

Let's see if that broader menu is more interesting and tender shack, because we always like to test and different markets.

And so.

And then we're opening up new Oxy grills, and Hong Kong, Saudi Arabia.

And then we.

We'll be opening of our four more here in the Tampa Bay area, maybe one and Gulf South of here.

And obviously, we are opening up because we like the volumes and profitability, we see out of that business.

Now we have 19.

Oxy Grill virtual businesses in Brazil, our hope is to have 50, and it's very similar and thinking and marketing and style is tender share.

Alright, that's helpful. I'll pass it along thank you. Thank you.

Our next question comes from the line of Brett Levy with MK and.

And partners you May proceed with your question.

Great. Thanks, I appreciate taking the call.

Well, it's it's snowing up here in New York, but you guys have spring training down in Florida, So I guess going through the.

And the baseball analogy, if you could give us a rundown.

Of where you think you are and some of them across some of the areas and what kind of opportunities are still still exists. If you think about it at the unit level.

Yeah.

And when we think about the puts and takes on G&A and just how should we think about the layering on of each of these initiatives in terms of your prioritization and the timing and then you've obviously given us the virtual but thinking across operations virtual expansion digital and I'll, let you digest that thanks sure.

I'll try and answer it as best I can and relatively brief and a lot of time, because thats a broad question, but al so.

First of all we talked about the sale of different parts of the country with the states and.

I think you can realize that and some of these states we're back to where we have been.

Some states still have capacity to open back up from an operation standpoint, and restaurant. Our first priority has always been to offer great service and project safe environment that continues and as of restaurants reopen we are able to do that quite.

And importantly <unk>.

Flawlessly and the other thing that's really helped US is our retention levels are really high and our turnover rates are really low as we do this so that is that's a big part of it. So that's kind of the sales side of things from a digital standpoint, I talked earlier about the journey that we're on.

And we have had continued to have record online ordering and performance in our restaurants and Thats really helped drive some of our off premise of sales and we continue to make large investments in digital.

We have more to do we're not as far along there probably is and the operations and sales side and our restaurants, but I am very enthusiastic about the opportunities we have here and we're studying other companies and working with other companies to improve our own performance as we look across the landscape.

From a development standpoint, we believe that Outback steakhouse in particular has an opportunity to expand its footprint greatly and we are testing a smaller footprint building.

Done at in Brazil, with Great success, we've got a little bit here and the U S and we think a delivery enabled smaller box at Outback makes a lot of sense that can help enable growth and we think we have opportunities and with flemings Prime steakhouse, and our stronghold markets of California, Arizona, Nevada, and Florida. So that's all.

And the that's on the <unk>.

Development side and on the margin side I'll turn it over to Chris to just walk through anything else on his mind, well I think we've talked about most of it what I would say is that the margin mindset and the things that we've put in place a lot of that is already in place, but again when we talk about the transformational savings for example impacting G&A.

That's something that will layer in throughout the course of 2021, that's why I really wanted to make sure that everyone had a perspective of that once we get back to 2019 sales, which again could be and 2022 were in position to have that six 5% operating margin in place that we can build off of towards our long term goal.

<unk>.

Thank you.

Our next question comes from the line of.

Greg Frankfurt with Bank of America, You May proceed with your question.

Hey, Thanks, a quick question just Chris I think you made a comment and an earlier answer about keeping pricing pretty low the next couple of years and.

And I guess I'm surprised because I would think with capacity coming out of the industry and competitors may be closing up shop there.

And there might be and opportunity for that to be higher can you just maybe expand on that a little bit on your pricing thoughts. Thanks, yes.

At this day.

And I'll take it first I'll turn it over to Chris.

We want to do.

And we want to take share.

We want to continue to offer great service and convenience to our customers.

We think we of the cost structure enable us to do this and.

And a pricing we would take would be very <unk>.

Competitive based and we would try and pursue our opportunities other ways when Chris I'm, sorry on the profit side or on the.

Yeah, I would say, we've always talked about this idea of pricing plus productivity offsetting inflation and obviously, we're outlining our strategy here, where we have a lot of productivity and cost opportunities that we've identified that allow us to not have to take as much price.

<unk> to offset the inflationary headwinds and I'll look we're going to continue to monitor this as we go but that's our mindset. If we can we can improve the price value equation at our brands and it gives us that opportunity to take share. So that's our mindset.

Yes, and thank you I appreciate it.

Yeah.

Our next question comes from the line of Lauren Silberman with Credit Suisse. You May proceed with your question.

Thanks, and good morning, So just a follow up on tender.

Building off of Johns question, how are consumers using tender shock relative to delivery of your other brands and how does demand differ from time of day or evening and overall customer demographic and then given the low barriers to entry of launch of virtual brands can you share your thoughts on and medium to long term strategy, so well that brand and that's totally and marketplaces.

Do you plan to supplement that with its own direct digital channel and just leverage marketplace sales of <unk>.

Delivery and is there a world where tenders and can be added to the diner ward.

Yes to all of those.

We will take a look at how it fits within our company. We don't know for instance of Diamond Awards, we would do that or not but that would be something we've looked at.

Interestingly, 80% of the tender shack customer has never ordered from our brands.

So that's a really fascinating statistic and you can see at and who's ordering at what time of day et cetera, and so.

We believe that this business can certainly stand on its own and we can grow at from there.

<unk> is at very large category, it's growing rapidly.

Happily we are of great product and our goal is to maximize this virtual brands, that's what we're thinking about totally here.

Great. That's really helpful. And then just on labor a lot of discussion around labor of farm and <unk>.

Elimination of the tip credit can you give some color on your staffing level and then what portion of your hourly employees, our kit versus non tech and then in markets, where there is notes at minimum wage like California, how does the margin structure differ relative to market.

Or tip credit.

I'll handle the first part and I'll turn it over a day of for any additional color. So if you think about there's a difference obviously between the hours and the restaurant and the pay and the total pay and what that represents and its kind of inverted and post situations. So if you look at the average hours and our restaurant at 67 or call. It two thirds tipped one third non tipped but then if you look at.

At the pay it's more of a 35% tips.

65% non tipped kind of dynamic when you think about the composition of those restaurants and I'll turn it up at a day for any additional color yeah, and I think if you look at the markets that have higher minimum wage cash.

<unk>, Minnesota other places Youll.

And Youll see more technology and the restaurant with the servers too.

Span their coverage and Thats basically how we do at.

Fantastic. Thank you so much sure.

Our next question comes from the line of Andrew So all day with BMO capital markets and proceed with your question.

Hey, good morning, guys at actually Dan on for Andrew today. Thanks for taking the question David I think last quarter, you mentioned and you guys hadn't seen a whole lot of competitive closures, yet, but I'm wondering whether that's starting to play out more and some of your markets. Since we last spoke if youre starting to see maybe any sort of uptick and real estate availability of that could be attractive is that of newbuild to relocations.

Have you or at that level of closures has stayed relatively muted over the last few months.

Yeah, it's still a little early but I think everybody has seen the 5% 10%.

Closures.

Lot of them are independents, there have been some smaller change that of close, but we're seeing 5% to 10%.

Supply come out of the business and.

And obviously the hopefully the PPP help some of our independent operators, but I think all of US are seeing independent operator of closures last night for instance, one of my favorite restaurants, and Minneapolis of really great Steakhouse closing and.

So youre going to see some of that stuff come out right, but right now.

And we could see something of the tune of.

Somewhere between five and 15% of restaurants close and.

And obviously monitoring that very carefully we don't wish any ill will on any restaurant operator, but I think you can imagine this has enabled real estate opportunities for us for relocations at Outback, new restaurants et cetera, and we are prepared to and we have the muscle to go in and do that.

Okay. Thanks, that's helpful. I appreciate the color there and then just one quick follow up.

We see commodity sort of broadly ticking higher over the past several weeks and spot markets and I know you guys of forecasting flat commodity inflation for the year and you talked about some of the puts and takes there and the prepared remarks, but can you just talk about maybe how long you are and the basket for this year and where there might be exposure. If there is any.

Yes, we're about 80% locked if you think about it and that's very consistent with how we would typically be at this period of time. The good news is is that we.

And on the beef side, we're pretty much done theres very little beef exposure for 2021. The areas that are on locked at this point of the same ones that they typically would be seafood produce areas like that and thats, where youre going to see the volatility and our basket, but being 80% locked is something we feel pretty good about that that gives us a little more.

Certainty at the year progressed.

Great. Thanks for taking the questions.

Our next question comes from the line of Sharon Zackfia with William Blair. You May proceed with your question Hi.

Hi, good morning.

I think and I've heard you talk about multi brand delivery and the Pos and and I guess tender shack and the 80% kind of new customers makes me wonder about that again and the opportunity you might have to deliberate tender shack with outback product or outback with Carrabba's and I know you had some.

Delivery only locations and test at one point and does that and opportunity of that that makes sense or do you find that customers really just want a silo of their orders rather than order from multiple brands and lines.

Yes, we typically find because of the 80%.

8% unique order I talked about tender shack, we typically find of Siloed and we are I think Sharon.

Always looking at different asset types to deliver product to our customers and we will continue to examine delivery only restaurants are of different asset configurations, and our sit down restaurants or the virtual brand opportunity with tender check all of those things are part of our overall asset portfolio.

Thanks, and then just one follow up I may have missed this but did you break out quarter to day comp store locations that it had gone and versus those that haven't.

Yeah. So.

If you look at at quarter to date with everybody people are and in restaurant dining, it's down seven and a half at outback down four and a half at Carrabba's.

<unk> <unk> six at Bonefish and down 11 at Fleming's.

Thank you.

Uh-huh.

Our next question comes from the line of Jared Garber with Goldman Sachs and they proceed with your question.

Good morning, Thanks for taking the question can you just walk us through that and the unit growth guidance for a moment just want to make sure I'm understanding correctly, 20% to 25, you said primarily in Brazil outside of four Outback opens and the U S and for Oxy grow oaken and certainly assume at the balance of that 2000 and.

At 25 is Brazil, and then can you also talk about.

How youre thinking about the Outback relocation program restarting here and and what your outlook is and how many restaurants, you have and that group that you can can be relocated.

Yes, there'll be there'll be another and it'll be at Fleming's, but <unk> got at largely correct.

Bulk of that will be in Brazil, and then outback and honestly growth for each and then there'll be at Fleming's and that mix as well and I'll turn it over to day for the balance Yeah. I mean, I think we've done what 50 ish Outback reloads I mean, they are really strong performers over $5 million and revenue with good profitability.

<unk> and cash flow. So we stay at say at the outset, we have opportunity for up for up to 100 that number of expanded.

Especially with the smaller footprint building, we're looking at so this is something that we will aggressively pursue because of the sales and returns were getting when you have restaurants doing well over $5 million.

Clear that the brand is very highly regarded and we were just real estate disadvantage certain cases, and we're trying to correct that.

Thanks, and just one follow up on that the smaller footprint stores and if you're thinking about that as part of the relocation program should we be still thinking about those at <unk>.

$5 million level, even though they're smaller footprint given the off premise acceleration.

How are you thinking about that opportunity yes.

Yes, we are and the reason why we have confidence is because we tested it and Brazil, where volumes are incredibly high and youre not know and youre not youre not sacrificing a ton of seats, either and that and that configuration, it's more of kitchen design and things of that nature.

Thank you.

Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Dave for closing remarks.

Well. Thank you everybody. We appreciate your interest and our company and we look forward to talking to more about it and look forward to the earnings call in April and have a great day.

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

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Greetings and welcome to Bloom and brands fiscal fourth quarter, 'twenty and 'twenty 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 is now my pleasure to introduce your host Mr. Mark Graff group.

Vice President of Investor Relations. Thank you. Mr. <unk> you may begin the floor is yours.

Thank you and good morning, everyone with me on today's call are David Deno, Our Chief Executive Officer, and Chris Meyer Executive Vice President and Chief Financial Officer by now you should have access to our fiscal fourth quarter 2020 earnings release. It can also be found on our website at bloom and brands Dot com and the investors section.

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

And our earnings release on our website as previously described.

Some of these risks are mentioned in our earnings release, others are discussed in our SEC filings, which are available at SEC Dot Gov. During today's call. We will provide a brief recap of our financial performance for the fiscal fourth quarter 2020 of discussion regarding current trends and select 2021 guidance metrics. Once we've completed these remarks, we'll open up.

The call for questions and with that I'd now like to turn the call over to David Deno.

Dining experience is critical to our long term success.

Dedication to providing hospitality service and experience every day is what makes our restaurant so successful.

Over the past year, we have seen robust performance and our off premises business <unk>.

Convenience continues to play an important role with consumers and we are leveraging the strength of our to go and delivery capabilities to meet this growing demand.

We believe off premises will be an important growth catalyst for carrabba's and all of our brands moving forward.

2021 has started off stronger than expected, we experienced an acceleration sales trends due to an easing of in restaurant dining restrictions pent up consumer demand and continued strength and our off premises sales at.

As a result U S comparable sales were down 12, 9% through the first seven weeks of the fiscal year.

We continue to outperform the industry and take share. It is clear customers want to come back to restaurants and are confident and our ability to provide a safe and welcoming dining experience.

Through more accessible premium cuts and larger portions while also lowering menu prices. We are seeing strong customer preference as guests are trading up to larger cuts of steak enjoying larger portions and increasing their attachment rate on appetizers and addition, the efficient menu design reduces complexity, which improves execution and consistency.

This resulted in improved customer experience.

In addition, the pandemic provided an opportunity to look at this business differently and reassess the operating model. This.

Our performance improvement, resulting opportunities are not limited to the United States.

And this contributed to a steady sequential increase and comp sales performance, where they ended the quarter down 14, 8% deliver.

Delivery remains a strong contributor to sales and we are retaining a large portion of this business.

The new menu at Outback that enhance the price value as previously mentioned.