Q2 2021 Bloomin' Brands Inc Earnings Call

[music].

Greetings and welcome to the Bloom and brands fiscal second quarter 2021 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, Fannie and <unk>.

You require operator assistance during the conference. Please press Star Zero on your telephone keypad as a reminder, this conference is being recorded.

My pleasure to introduce your host Mark Graff Senior Vice President of Investor Relations. Thank you Mr.

And maybe get.

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 second quarter 2020..1 earnings release. It can also be found on our website at Bloom and brands Dot.

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 appear in our earnings release on our website as previously described.

Before we begin for.

The graph because 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.

And <unk> 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 second quarter 2021 of discussion regarding current trends and select Q3.2021 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.

Thanks, Mark and welcome to everyone listening today, we are very pleased with the second quarter sales and profit performance our strategies are working and setting the company up for even more sustainable growth.

And the success is directly tied to the planning and hard work that has taken place and.

And of any over the last few years.

In 2019, we presented a comprehensive plan to build a stronger leaner operations centered company, 1 focused on providing even better service and food the customer.

This plan was designed to significantly improve total shareholder return.

Before we get into the details of the second quarter.

<unk> I wanted to take a few minutes to discuss the progress against the key 5 initiatives that underpin our 2019 plan.

The first grow in restaurant sales by improving service levels and food offerings and the restaurants over the last few years, we've made investments in these areas to elevate the customer experience across the portfolio, especially.

Especially at Outback as a result, we are taking market share versus the industry and the second quarter U S. Same store sales were up 12, 1% on a 2 year basis versus 2019. This was 890 basis points ahead of the industry.

We also made significant investments and our people.

Since the start of the pandemic, we have not furloughed any employees. This decision contributed to retention and employee engagement scores that are among the best and the industry.

With sales volumes exceeding 2019 levels. These actions provide a competitive advantage and retaining talent in this challenging environment.

Maintaining of motivated and well.

Employee base is critical to our long term success.

Second through our leading off premises business, we continue to capitalize on our strong off premise of capabilities during the pandemic and the high off premises retention levels in 2021 are contributing to sales outperformance during the second quarter.

Trained up and the generated over $275 million and off premises sales representing approximately 28% of total revenue.

Accordingly profit margins and the off premises channel are approaching the margins of the and restaurant business.

This was the result of initiatives that were completed the past few quarters.

And the company expect off premise is to remain a large and growing part of the business going forward.

Third rapidly approve operating margins by growing sales and reducing costs and our goal is to grow operating margins by nearly 300 basis points to 7.5% of revenue margins and the second quarter were well ahead of this long range goal.

<unk>, Chris will provide additional detail regarding future margin targets, we will leverage learnings from the pandemic, including efforts to further optimize how to run and support restaurants importantly, a number of technological and the equipment innovations are and tests that we hope to rollout and restaurants in the coming quarters. These innovations should improve customer service.

Reduce costs.

Fourth become and EBIT more digitally savvy company in Q2 digital sales represented approximately 20% of U S sales, a 318% increase over 2019 levels we.

We have made several investments to grow digital volumes and increase our capabilities throughout all aspects of the cash.

Company recently, we rolled out of new and improved Outback App that has significantly improved the off premises ordering process early data and consumer feedback has been very positive. The Apple later showcase substantial investments, we made to digitize and streamline the carryout experience. These new App features will be rolling out in the coming quarters.

<unk> and we expect them to accelerate our very attractive Carryout channel.

And finally build a much stronger balance sheet.

Given our very good year to date results, we generate a great deal of free cash flow and are paying down debt our credit metrics are improving each quarter and our goal is to be at 3 times lease.

Lease adjusted leverage by early next year.

This will give us the liquidity to withstand unforeseen shocks of.

Strong balance sheet also provides great flexibility to pursue business opportunities that will enhance shareholder value.

All of the initiatives above played a major part and producing and excellent second quarter.

Importantly, the sales momentum has carried forward into the third quarter through the first 4 weeks of Q3, 2 year U S count comp sales versus 2019 are up 15, 2%.

These results would not be have been possible without the talented and dedicated employees throughout the company.

And I would like to thank the hard working team members and the restaurants and at the restaurant support center your commitment to serving guests with the highest levels of service hospitality and experience is what makes our restaurants. So successful we intend to build on the progress. We've made against these major priorities and are excited about the potential ahead before concluding.

I would just like to add a couple of other priorities that youll be hearing more about in the future.

First we believe there is an opportunity to accelerate new unit growth of at Outback and Flemings.

Outback is the leading brand with substantial headroom for unit growth the.

Success of the Outback relocation program is a clear indicator of this demand and the past.

5 years, we've relocated approximately 50 restaurants with sales lifts of 35% and average unit volumes of $4.6 million.

The recently developed a new less expensive prototype that will enable meaningful restaurant growth with healthy returns.

We also have the opportunity to open additional fleming's and California and.

And our best performing markets Fleming's has a proven category leader by any measure and will be a source of growth for our company.

Second continuing to grow Brazil as it manages through the pandemic and resumes expansion sales and Brazil are bouncing back quickly case counts from the virus are dropping rapidly and there is a strong.

And Florida option of the vaccine and the country, we've already had category, leading brands and Brazil, and the company will be and even better positioned as we emerge from the pandemic as a reminder of Brazil is funding its own growth through internally generated cash.

In summary, Q2 was another terrific quarter, we remained very focused on executing against our.

Drawing initiatives, we are optimistic they will capture these opportunities and drive total shareholder return 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 second quarter of 2021, given the significant impact of Covid.

Key and the Q2.2020 results most of our discussion today, we will compare against the second quarter of 2019, which we believe provides better context to our underlying performance.

Total revenues in Q2 for $1.08 billion, which was up 5% from 2019, driven by and improved sales environment.

And in the U S.

Revenues in the U S segment were up 10% versus 2019. This increase was fueled by additional in restaurant volume of high level of off premises retention and increases in average check.

Total revenues and our international segment were down 37% on a 2 year basis.

The decline and international revenues was driven by Brazil, which had a significant headwind from COVID-19 related capacity constraints and Q2.

As I will discuss in a moment the sales trajectory for Brazil is much improved thus far in Q3.

Q2 U S comp sales finished up 12, 1% on a 2 year basis.

The average unit volumes were $75000 per week in Q2.

Geographically states in the southeast such as Texas, Georgia, and Tennessee continued to post outsize sales gains, while Florida posted a 14% increase over 2019, importantly states and the northeast and.

And have reopened and nearly every state within our portfolio posted positive comp sales gains relative to 2019.

Q2 sales gains were driven by a healthy combination of traffic and average check both of which were up 6% versus 2019 of.

Our increases and check average relative to 2019.

The mid web and by a 21% reduction and discounts increased menu mix and to a lesser degree 2019 pricing actions. As a reminder, we made menu price reductions at Outback and late 2020 to make some of our more indulgent menu items more accessible from a price point perspective, the trade into.

And to these higher priced items has validated our strategy and been a key contributor to the increases in average check.

Importantly, we have seen our sales momentum carry forward into the third quarter through the first 4 weeks of Q3, our 2 year U S comp sales have been plus 15, 2% and we have maintained.

We're just $71000 and weekly average unit volumes and what is traditionally a slower time of the year.

Turning to off premises. This business has proven to be very sticky even as in restaurant volumes have improved in Q2, we averaged $21000 per restaurant per week and off premise.

The sales off premise volumes were only down $2000 per week and Q2 from Q1, despite significantly higher in restaurant volumes in Q2.

All of premises is a large part of our ongoing success and will remain a key part of our growth strategy moving forward.

In terms of brand performance.

Early.

Outback Q2 comp sales were up 11, 3% and Carrabba's comp sales were up 16, 7% on a 2 year basis. The 2 year sales results at both brands were well ahead of major competitive benchmarks.

And in restaurant sales are building as we emerge from the pandemic.

And the continued high levels of off premises retention have enabled these brands to surpass 2019 volumes total Q2 off premises sales were 31% of revenues at Outback and 36% of revenue at Carrabba's.

At Bonefish Grill comp sales were up 4.2% and Q2 on.

The 2 year basis the.

The in restaurant experience and bar centric culture of Bonefish was more impacted by capacity restrictions than our other of casual dining brands. Despite this we have built an impressive off premises business at bonefish and it represented 19% of their sales in Q2.

Fleming's comps.

Both were up 24, 4% and Q2 on a 2 year basis and was nearly 1400 basis points above the Knapp high and Steakhouse category. Fleming's is differentiating itself in this competitive segment and is capitalizing on the reopening of California to drive outsized comp sales performance.

Comp sales of <unk> comp sales were down 36% versus 2019, Brazil Covid cases increased significantly in early March which was the start of Brazil's second quarter. The corresponding restrictions on restaurant capacity had a large impact on Brazil sales over the first 2 months of Q2 comp sales versus 2019.

<unk> were down 58% in March and 41% in April as the vaccination rate and Brazil increased and case counts began to moderate we saw an immediate increase in sales comp sales and may were only down 9% versus 2019.

This building momentum has continued into the third quarter despite ongoing.

<unk> capacity restrictions currently Sao Paulo, and Rio are operating at 60% capacity and 40% capacity respectively. Sales. However are now approaching 2019 levels with the most recent 3 weeks down 5% on average versus 2019, our team and Brazil continues to execute at an extremely.

And high level, and we are confident and their ability to navigate the current environment.

As it relates to other aspects of our Q2 financial performance GAAP diluted earnings per share for the quarter was <unk> 75 versus a $1.5 of diluted loss per share in 2020 adjusted diluted earnings per share.

Streamline 81.

Versus 74 of adjusted diluted loss per share last year adjusted operating income from the quarter was $118 million. This result exceeded our adjusted operating income from 2019 of $47 million this level of adjusted operating.

The income is the highest and blue and brands history.

Adjusted operating income margin was 11% and Q2 versus 4.6% and 2019. This improvement is driven by our strong sales recovery ongoing efforts to drive efficiency into our business and lower marketing expenses.

In terms of our.

<unk> adjusted performance by cost category Cogs was 150 basis points of favorable to 2019, driven primarily by waste reduction and increases in average check.

The Labor line was 200 basis points of favorable to 2019, the large change and average unit volumes for 2019 drove significant.

Q2 leverage on Labor and Q2. In addition, we also benefited from simplification efforts. This showed up in a permanent reduction in food prep hours of.

Operating expenses were 180 basis points of favorable to 2019, due primarily to a $20 million reduction in marketing expense and higher.

Higher average unit volumes. This favorability was offset by increases in to go supplies and third party delivery fees related to the growth and off premises.

On the G&A front Q2 was down for $4 million from 2019 net of adjustments. This includes the ongoing benefit of cost savings initiatives that.

We have detailed on prior calls.

In addition, Q2 contains additional incentive compensation given our strong performance expectations for 2021.

On the franchise front over the last several weeks, our California market has been averaging close to 21% comp sales on a 2 year basis, where.

And current royalties and have begun collecting on past due amounts as well our non California franchise locations, both domestically and internationally also continued to perform well.

Turning to our capital structure, our total debt at the end of the second quarter was $850 million, our trailing 12 month lease adjusted.

The leverage ratio is 3.8 times, we are making significant progress towards our targeted leverage ratio of 3 times net debt to adjusted EBITDAR. Once we reach our targeted ratio, we will evaluate further debt paydown or other uses of cash to enhance shareholder value.

Turning to our Q3 guidance.

We expect Q3 total revenues to be at least $1.015 billion. This outcome for total revenues assumes a weekly average sales volume of approximately $69000 for the room in the U S for the remaining 9 weeks of the quarter. This is a slight decrease from current Q3.

On the assumption that some traditional seasonality will resume as we moved throughout the quarter should this seasonality not materialize there will be upside to this outlook for perspective total revenues and the third quarter of 2019 were $967 million.

The volume, we expect adjusted EBITDA to be at least $115 million and we expect GAAP EPS to be at least 45 with adjusted EPS of at least 50.

These profitability measures for EBITDA and EPS would represent the highest levels our company has ever attained.

And a third quarter for perspective in 2019, our third quarter adjusted EPS was <unk> 10.

We believe our Q3 guidance reflects continued optimism for our current performance in the U S and a more bullish outlook on Brazil as they finish out their quarter.

In terms of full.

Full year 2000, and 'twenty 1 guidance, we do have a few items that need to be updated first we now expect commodity inflation to be approximately 1% versus our previous guidance of flat. Although we are locked on our largest commodities for the year such as beef are heavy sales volumes have required us to secure additional chicken and.

<unk> and supply outside of our contracted terms most of this inflation will impact the back half of the year and has been incorporated into our Q3 guidance.

And second G&A is now expected to be between $240 and $245 million for the year on an adjusted basis our.

The <unk> guidance was G&A of between 225 and $230 million. This.

Greece is largely driven by a change and incentive compensation expectations for the year given our strong performance half of this increase was embedded into our Q2 results the remainder will be spread equally across Q3 and Q4.

For despite this increase we are still on track to achieve the $40 million of transformational savings that we committed to and early 2020.

Finally, capex is expected to be between 140 and $150 million for the year the reduction from our prior guidance of between 170 and.

$185 million is driven by shortages and raw materials, particularly steel pushing some remodels relocations and new restaurants into 2022.

Finally, I wanted to give a little more perspective on the long term margin framework that we have discussed with investors over the last couple of quarters as a reminder.

And <unk> that framework suggested that 1 sales achieved 2019 levels. Our adjusted operating margin would be between 6.3% and 6.8%. We are also committed to a longer term framework to achieve 7.5% operating margins as sales improved over 2019 levels.

Given our <unk>.

Recent performance, we are more optimistic about the margins and the off premises business, new Outback menu and our marketing strategy and we were a few months ago. We now believe that we can achieve a longer term operating margin of 8%. There were a couple of reasons for this increase first we have continued to improve the efficiency and execution.

And of the off premises business. These efforts have resulted in higher off premise of this profit margins that are now approaching in restaurant margins.

We think much of the favorability and the average check will stick moving forward the new Outback menu is contributing to a more permanent increase in average check and we expect.

<unk>. In addition, we have found new ways to provide value to consumers beyond traditional discounting.

Although it is too early to discuss where 2022 may land at this point and time, we continue to have confidence and our margin improvement efforts. The levers I have outlined make us comfortable raising the bar on our long term framework by 50.

Basis points from 7.5% to 8% and.

In summary, this was another successful quarter for Bloom and brands and we are well on our way to becoming a better stronger operations focused company and with that we will open up the call for questions.

Thank you we will now be conducting.

The question and answer session and would like to ask a question. Please press star 1 on your telephone keypad the car.

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We ask that you please limit yourself to 1 question and 1 follow up question..1 moment. Please while we poll for your questions.

Okay.

Yeah.

Our first questions come from the line of Jeffrey Bernstein with Barclays. Please proceed with your questions.

Hey, guys.

This is actually Jeff pretty strong Jeff Bernstein. Thanks for the question.

Just on the margin and front, given the commodity environment and given that you go out and they're gonna have to.

By more commodity of outside of your contract terms on the spot market and you originally anticipated what are your thoughts on the restaurant margin and the second half and also what is your level of pricing.

And the menu right now.

And then I have 1 follow up yes.

Yes, so pricing is relatively benign it's in that low 1% range of lot of the change in average check that you saw in the third quarter is driven by sort of in the equal combination of discount reduction as well as menu mix with a less a smaller degree of average menu pricing I would.

Pricing look we gave guidance for the third quarter. So that should give you a pretty good indication of how we're feeling about margin certainly in Q3, I think to look beyond that into Q4 is probably a bit premature the did the the only dynamics that we've talked about publicly that we know for sure are going to impact us from a margin perspective in Q4 of the.

The commodity guidance that we gave obviously given the guidance being up to 1%, we had a relatively benign commodity environment and the front half. So the second half that implies somewhat of a 2% or 2% of so inflation and Q3, probably closer to 3% commodity inflation and Q4 and then on the wage front we have.

Say about the Florida minimum minimum wage increase kicking in in September that should cost us about $1 million a month relative to our run rate and.

Just to add a couple of things.

This is all of the context of of rapidly improving margin story for the company and Chris talked about the long term margin goals. So that's really great news and then secondly.

And secondly.

Our supply chain team has done a great job navigating commodities over the year as you saw our performance. This year you've seen the performance in the past and I'm very confident that we will do a good job going forward and managing commodity costs just as of.

A reminder, our Q3 adjusted operating margins were in 2019 were.

<unk>, 3%, our guidance would suggest and op margin closer to 7.5% for Q3, and op margins or of 500 basis point improvement relative to 2019.

Gotcha that makes complete sense and then just on the Capex guidance, you lowered of 30 to 35 million, noting for consumer.

Constraints on the raw materials of pushing some units and the remodel to 'twenty 2.

Your unit guidance is still for 2020.5 year notes can you just go for more color on the moving parts, there and kind of where the 30% to $35 million is actually coming out of.

It really just is the move from the higher end of our new unit guidance to the lower end of our new unit and guidance.

And as well Theres, probably 3 or 3 or so relocations that got pushed as well as some remodel expense. There's also some infrastructure projects shortage of chips and things like that that got pushed into early 2022.

Gotcha and then the last 1 for me just on off premise I think I've gone down from 35% of sales to about 28 of this quarter.

Where do you think that set of long term and then what portion of your customers do you believe you the brand for both the off premise and and restaurant and diner.

Well I think our long term mix and I think it's important to look at revenue.

Not necessarily mix because as in restaurant dining comes back.

It's natural that that will that mix will drop a bit so revenue dollars $275 million and revenue, we hope to grow that from there.

And we also hope that the in restaurant dining continues to improve so we want the the off premises volume to be a bit.

Part of of where we go as the company.

Importantly.

The third party delivery business is $100 million and that's growing right now.

Incremental that's clearly the incremental business for us So I would just wrap this up by saying we won't look at revenue dollars Mitch.

<unk>, who knows where it's going well and up a lot of that will depend on what perhaps with the in restaurant dining and the most.

Most important thing is that we have of multichannel business in the restaurant.

The carryout and delivery of its very strong and as Chris mentioned, the margins and the off premise business.

And is now pretty much equal to our in restaurant dining business, which is a very important development.

I appreciate it go and look up above.

Thank you. Our next question is coming from the line of Brett Levy with <unk> partners. Please proceed with your questions.

Right. Thanks for taking my question.

And you spoke a little bit about.

And some pretty significant market share gains can you give a little bit more granular detail and just you talked about the strength.

Inc. Across some of those the southeast regions, but how are you. How are you seeing your share gains in both the earliest markets and also some of the.

The more recently recovering markets and then just.

On the labor front.

You've obviously done a great job of retention.

Where are you right now in terms of your turnover or.

What percentage of the system still needs to supplement your labor force of thanks.

Yes, I think I think on the labor front, the ultra over to Chris on the sales you know we did let anybody go and read and furlough anybody who didn't let anybody go so of our initial starting point was much higher than.

Many of other than the industry and we.

We got tremendous employee engagement and retention so our turnover levels. We believe are among the best and the and the industry.

So our staffing levels are very strong there are pockets of opportunity no doubt, but our staffing levels are very strong and the other thing is we've done a really good job managing the labor model and we're not at.

In 19 of.

Our utilization, we're not at that level, we've been able to take some efficiencies and the restaurants to some equipment investments and some other things. So I think our payroll practices have been extremely important for us our retention and turnover.

<unk> are very good and I think we've got a good Sid.

2 types of staffing with some pockets of opportunity, but we're in pretty good shape and I'll turn over to the sales I'll turn it over to Chris Yeah in terms of the regional performance and the relative performance versus the industry I think I don't think it's unique in the industry to have pockets certainly in the southeast where we're seeing outsized same store sales performance I.

A lot of companies are also seeing a resurgence in California, I think that the relative comparison, though in terms of our outperformance for the industry I think that that's pretty across the board I don't think that there are a tremendous amount of pockets, where maybe we're underperforming relative to where the industry is so I think that's good news for us because it does suggest that our relative strength is pretty.

And pretty widespread.

And then just if you could talk a little bit of that your customer you had seen some you've retained strong.

Check.

What are you seeing in terms of the health of the customer and either.

States debt.

Kept the enhanced unemployment benefits longer or real.

Earlier.

Seeing anything within the the consumer cohort debt.

Gives you any economic varian.

Variances out there.

No we haven't seen any economic variances across the states, Chris just covered what are you seeing around the country.

We haven't seen any major economic variances and what we're seeing.

Seeing is with the Outback menu changes that we made and some of the pricing tweaks that we made and some of the other things that we did people are trading up we're getting a greater share of alcohol and with the attachment on the on the checks we're seeing greater appetizers were seeing trade up and stakes so its pretty healthy across the board.

Thank you.

Thank you our next questions come from the line of John <unk> with J P. Morgan. Please proceed with your question.

Yes, Hi E Commerce.

Out of these of up 1 and the labor inflation of about 3 to 3 and a half it seems to be ex.

Pressing of reality for.

For you, which is very different and what the rest of the industry is seeing and I wanted to go a couple of places with us.

The first thing and an industry, which is seeing according to government data the labor inflation somewhere and the high single digits.

And you can walk through all of the different factors of why you're of course arent that high and I guess why they won't be.

The high going forward as you know just the U.

You know higher industry pressure wage pressure basically puts pressure on everyone. So that's the first point.

Secondly, commodities are up 1 and I mean do you have some contracts that are so deeply favorable relative to current spot and 21 that that you are beginning to.

The worried or just sensitive at the at least in terms of what the <unk> 22 versus 21 costs are and you know Dave.

And I talked about.

The things that could potentially offset some higher costs to the extent that they come and regarding I think you said tech innovations that are in tests that will be rolled out in coming quarters.

Yes.

It sounds like you've decided on the rollout if you could give us more specifics in terms of what that is when the rollout will be and potential operational benefits that you would see from that.

Sure, there's quite a bit there John so if I Miss something.

And we'll come back to it and just remind us but.

So we.

On the commodities front, it's very early but I've learned of my over 30 years and this business John its very early to make of commodities call on 2022.

All you can do is look at our history and.

And what we've done and the spot market with long term contracts et cetera has put us in a very favorable position and.

<unk>, Inc. We can handle the 'twenty 'twenty, 2 but to make the call in July and something that's going to happen in 2020.2 is.

It's premature and we'll just see how it develops but I think our supply chain team is going to do a great job of that and you can look back over time, you've seen us do that that's number 1.

For 2 on the labor cost and I'll ask Chris to add anything else when I finish here.

Number 2 and the labor costs retention levels and lower turnover really really helps.

And we've got people that are engaged and our restaurants, we don't have to go out and recruit a whole bunch of people and stuff, we've got pockets of opportunity and no doubt we participate in the restaurant industry, but the retention and turnover levels are very strong and that.

We used and so many and so many ways.

If im missing something else there Chris can jump in when I finish on the technology and equipment front I'm not going to get into it for you know for competitive reasons, but we have spent an enormous amount of time and effort and capital on equipment and equip.

And opportunities and technology opportunities.

It helps us I think of it and digital teams are doing a great job. If you haven't downloaded the outback App I'd encourage you to do it because there's more developments coming coming forward. Our online ordering system has been very very well received so we can see more technology come into our restaurants, and you're going to see some equipment innovation and the back of the house, but I wont.

The third John if you don't mind, because we've got competing and environment. So that's what we plan on doing there and I'll turn over to Chris for anything else on labor no nothing really significant to add other than to say 1 of the things that we are benefiting from that some of our peers may not be able to is that we are seeing a relatively benign.

Stop ablation and environment in Brazil from a labor perspective, so that kind of helps the overall number of little bit.

Very helpful guys. Thank you.

Thank you. Our next question comes from the line of Jeff Farmer with Gordon Haskett. Please proceed with your question good.

Good morning, and thanks.

A couple of follow ups. So just following up on the off premise margins are what have you done to improve those 2 almost it sounds like the and restaurant margin levels. What are some of the drivers of you guys of a pursuit to improve the margins of that off premise business.

The menu offerings that we have.

The.

The mix of the menu offerings and the great relationships, we of our third party.

Users they can provide driver utilization that we cannot.

So that helps margins as well so I'd say, it's menu innovation and partnerships with third party providers are so helpful and the other thing is I think it's completely.

Underappreciated part of our business and Thats Carryout I mean, it's a gigantic part of our business margins are very high the customers arent control. They do some of the work the order off and so it's been and we've been doing this for a long time and it's a very very important part of our business. So that's a very attractive part of our business Jeff.

And then just to follow up on that specific question have you guys have taken a lot of your casual dining peers are beginning to do this taking some menu pricing premiums on the delivery part of it has not happened for you guys and to what level.

Well, we'll mix will mix of the third party some on price.

And we.

We will get to the levels, but we will we will manage our third party delivery, some but pricing hasn't been a big part of our success story, but we do we do do some of that yes, yes, I would say too if you look at our curbside and take out business. For example, our new online ordering platform is really good and it's led to enhance the add on sales so check average.

Average may just be up.

Naturally because of some of the technology enhancements some of the efficiencies that we built into that business and we try and use we have we try and use price as the last lever and we put that way and.

And just final question on Brazil, So I'm, just hoping you guys can help me frame free.

The frame out a little bit here with the consolidated restaurant.

And what level of margin and operating income margin would look like if Brazil sort of pick of performance level. If we go back to 2019, and Brazil was doing well.

Ultimately said more hopefully clearly I'm, just trying to figure out what magnitude of of either EPS or EBITDA drag.

Jean for from Brazil on 'twenty, and 'twenty, 1 and what the opportunity is in terms of of recapturing that EPS or EBITDA as we get out into 2020, 2 and 'twenty 'twenty 3 could be so order of magnitude in terms of the the Brazil economic drag on the business right now.

Well if you if you go.

Back in the history, the Brazil business was historically, 3% to 4 percentage points higher from a restaurant margin standpoint than our U S business. There's there's really no reason to expect or anticipate that they wouldn't be able to continue to get back to those levels of margins that they had prior to the start of the pandemic.

<unk> on a go forward basis. So again, when you think about the puts and takes of our margins, particularly as the balance of the year plays out some of these inflationary pressures that we've talked about and that Brazil business recovers you are going to start to see sort of an improvement and that international margin, which can help offset some of the inflationary pressures that you may have and the business.

Yes.

Jeff, Let's just also just step back and look at the market broadly.

We the number 1 restaurant brands for pandemic came in and 1 of the best brands and the country we.

We had a leading market share by a lot we think that about 30% of the restaurants in the not US 30 per cent of the restaurants down.

Clothes, we don't wish any elwell and any restaurant company anywhere, but the fact is about 30% of the restaurants of closed down there. So we are and a unique position to take a significant amount of share and.

Additionally, they've got and economic footprint that works really well theyre going to Covid.

We're going to continue to expand down there with their cash flow of not ours and their cash flow down there that they are.

And.

Lastly, they have built and off premise business that didn't exist prior to.

Prior to the pandemic. So all of these factors coming together lead to a <unk> and a very very attractive business model that had higher margins and the U S and and very good volumes.

Alright, thank you.

Generated.

Thank you. Our next question is coming from the line of Brian Mullan with Deutsche Bank. Please proceed with your questions.

Okay. Thank you.

Because with the EBITDA growth of your balance sheet deleveraging is happening pretty quickly you share that target of 3 turns we suggested early next year.

Of course, we'd be curious updated thoughts and the potential for for further deleverage and also of dividends versus buybacks. How you might incorporate the current valuation of the stock into that.

The process and then related and edition is there a scenario, where you might look to get acquisitive and you've got the company doing north of $4 billion of sales and I'm wondering.

And you might view that as a platform for additional brand growth overtime.

Yeah, So we feel.

We feel that long term target of 3 times leverage on a lease adjusted basis is a good target once we get to that target, which is candidly coming faster than I think we would have anticipated.

During it.

The early next year, we will reevaluate where we go from there we're not going to make any commitments at this time, we could decide to keep paying down debt to your point, where we could reintroduce a dividend or we can out of share repurchase program, we could or we could do some combination of those little early for us to make that call publicly but what I would say is honestly, it's just exciting.

For our company to be in a position to be able to make those kind of decisions given where we were a year ago.

And and just building on that we want to of a fortress balance sheet, we want the balance sheet that can withstand shocks.

And team are doing a great job getting us there and then it gives us opportunities going forward, Brian and and.

When you look at.

The capability of the company and you look at our operations capability and you look at the financial muscle we have look at the digital capability and it capability that we're building I talked earlier today about the strength, we havent supply chain I mean, those are all opportunities for us to potentially look at other things, but most importantly, most importantly.

We've got some fantastic brands and our portfolio, we talked about the chance to grow the outback footprint beyond where it stands today, the relocations and new you'll hear more of that from US we can expand that footprint by quite a bit and we have a new economic prototype that we think makes a lot of sense.

And that can enable us to do that and the number 2 the fleming's busy.

And I hope the investors and analysts pay some attention to it just crushing it and fine dining and the numbers the numbers the sales the operations of the profitability of that business has been truly remarkable and you look at the quarterly numbers are just great and we've got opportunities and our strong markets like California, and Florida and a couple of other places.

To expand net footprint, so we'll be doing that as well so yeah.

Yes, there are opportunities maybe to look at other things, but boy do we have some great brands that we can growth.

Okay. Thanks, and then that's a good segue to the follow up just on the unit growth you spoke to Outback and Flemings just as we think about the next phase and I'm wondering when you think women can be.

When you can be of consistent net unit growth in the U S, even and something like that 1 of the 2 per cent range is that.

Is that next year and then I'm also at Carrabba's, the part of that calculus to just given all of the use of gains which have been great. Thanks, yes.

I really believe next year, it's too early to lay out targets for 2022 and beyond.

But.

I think we've got some opportunities for unit expansion of lot of opportunities for you and the expansion I mean, we quoted the relocation.

Opportunities, we've had but also just flat out new units of such at Outback and Flemings and then the other pieces is.

And they have just been a spectacular performer.

During the pandemic if you look at the off premise of gains and everything else that they've done. The net team has done and it's just been wonderful and and maybe a little bit too early to talk about.

What we're doing from a standpoint of Carrabba's, but clearly that's gotten our attention given their performance and we're going to focus now and we have been focusing.

And on building our pipeline our development team is doing that and building our pipeline for new unit development Relocations, and then lastly, and Brazil, they've always been a big net new and add the funding of what their own cash flow and we've got the economic prototype down there that works really well too.

Thank you.

Thank you our next questions come from the line of share Sharon Zackfia with William Blair. Please proceed with your questions.

Hi, Good morning, a couple of questions I guess on the <unk>.

On premises business can you help us calibrate where traffic is now on premise, there's relative to 2019 and trying to figure out how much more of.

You might be able day to get into the restaurants at this point and then secondarily there there's a lot going on and cost of sales and that's been really a great you know see and at some 30 per cent for for 2 quarters in a row of its pretty notable concern and it used to be around 31 to 32 and can.

Can you help us kind of Dimensionalize the.

The benefits of reduced discounting and versus menu optimization of versus the waste reduction and help us understand kind of what part of that may be sustainable or what might.

And have some kind of give back as the odd premises returns.

Yeah, we're very pleased with what the.

Its management as well and.

Product simplification has clearly helped the new Outback menu has clearly helped us people and trade up and down you know higher cuts of steak and also added onto the appetizers and things waste management and the restaurants, because we're more simple in and how we do things Thats come way waste has come way down and the restaurants.

So all of these things are contributing are contributing to what what we are seeing and the restaurants and we think that's sustainable.

<unk> on the marketing front, and we'll see where the for the marketplace goes, but we hope debt.

And then we're not going to lead certainly lead the way and discounting and things like that and we like.

The core of the where we stand as a company and what we're doing.

On the restaurant side, we are seeing Ah Ah Ah.

The restaurant business is kind of still coming back and improving we still think theres of ways to go and there's an opportunity to go.

And in restaurant dining and we certainly hope to see that in the coming quarters.

Yeah. So some specifics so the in restaurant comp sales result in Q2 on a 2 year basis was down about 8%. So when you when you factor in and then check average depreciation of about 6%, you're down and that 14% or so range and traffic on a blended basis little bit of a little bit lower and outback.

Basically getting supported by resurgent in restaurant business at Fleming's, so kind of in that mid mid down 15% or so range and Q2, but that actually improve steadily as the quarter progressed, and we anticipate as people come back and the restaurants for that to continue to improve which we think could be potential upside for our business, yes, it's the tailwind yep.

Great and I just wanted to be clear too. It sounds like you don't think you're seeing any any impact at all from the increased media coverage of the Delta there yet can you just confirm how and how the trends of wire throughout July and seemed pretty consistent trends there.

Yeah, we laid out some very strong Q4 for Q3 to date.

Day results and.

That's pretty clear that we've got great trends.

Thanks.

Okay.

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

Hi, Thanks, and good morning, just a few questions on the margin.

And if I could.

Starting with labor and the U S. Specifically I think you said staffing levels were down versus 19 do you expect to add hours or do you see this of the sustainable level, where you can deliver of your targeted guest experience and can you help frame or quantify the impact of overtime.

Were outsized and training costs or other pandemic related costs kind of near term things like E and that item as well and then last 1 of labor is how do you expect second half labor costs to compare it to what we just saw and the second quarter.

I'll take the first piece about staffing and maybe Chris can provide some more details on some of the labor piece.

On the staffing front, Bryan and we've made some really good equipment investments and and some other things and our restaurants and we don't anticipate getting back to the staffing growth of 2019, and that's been a that's not a knee jerk reaction that's a long planned.

<unk>.

Oh, that's been planned for a long time for us so.

That is something that we're going to continue to do.

But we don't anticipate at all coming back to ex 2019 staff walls and.

And then just on the inflation side and and back half front half.

We've been I think at the low end of our inflation guidance through the second quarter. We're.

We're seeing higher inflation and.

So as I mentioned earlier offset by a relatively benign inflationary environment in Brazil. So it may tick up a little in Q3, and then of course it will be higher in Q4, as we of the Florida and minimum wage increase which starts in September.

Well you know I think we would say we back half we're trending to the higher end of the guidance range, but overall, we feel really good about where we stand.

From a labor perspective, and I think as you look at these kind of things, Brian and just I know you will just step back and look at our margin performance today and 2021 versus what it was in 2019 and prior years and you're seeing significant significant improvement.

Yep, Yep and circling back on off premise I think you mentioned.

Mentioned and some changes and third party and I know you were doing some self delivery as well have you stopped doing self delivery and most of your units and now just mostly leveraging third party and then Chris what was off premise sales mix sorry, if I missed it in the quarter to date period, and where is the current split between Carryout and third party delivery of these days.

And what are what we will be is on the.

On the.

Terry on the delivery business, we will be.

<unk> to do our own in store busy.

Business we.

And we need to have that capability just to provide some flexibility and we've got some restaurants that do.

Yeah, well and in store delivery with high volume. So we're going to continue to and we're going to continue to do that.

But we obviously like the partnership we have put our third party providers and what they can do so we will continue to have a mixed Brian.

Yes.

Year to date, we're at 25% of sales, but most of that change from where we were in Q2 is just the trade between the.

The real side business and the in restaurant and restaurant recovers interestingly enough. The third party business has stayed flat from a percentage of sales basis from Q2, even into Q3 again, just reinforcing the stickiness of the Incrementals city all of that of that business, which is pretty exciting.

Okay, that's great and then back to.

And the increase in your and your long term margin framework, what does that assume in terms of where your marketing spend settles out.

Well, yeah. So we've talked about the need to reinvest in marketing dollars from our sales building perspective, now and now obviously if sales stayed exactly where they were today without.

The current spend additional marketing expense that our long term framework would probably look a little different but our anticipation is is that over time, we're going to rebuild that marketing lever. We spent 1.3% of sales and marketing in the second quarter. So 1 of our long term framework that we laid out we talked about in 2019, we spent 3 and 5%.

The sales longer term, we think we can keep that below 3%, but certainly it's going to be elevated from where it is today so somewhere in the 2.5% to 3% range is kind of where we're the second and Brian 1 of the things that we did that we learned during the pandemic is just the digital marketing and the return on investments of different way to go to market.

The need to find customers more granularly all of those kind of things we're going to use all of those learnings and I think we're going to get a bigger bang for our marketing Buck with less cost and we'll see where we settle in but there has been significant capability digital marketing capability built within the company during the last 18 months.

Alright, Thats very helpful. And then just lastly on the Brazil.

Brazil business, great to hear that that's improving and where does the potential licensing of that business stand is that still a priority and have those conversations started up again, yet and then in your long term framework does it gives effect for any potential change and the ownership structure of Brazil. Thank you. So so we're going to enjoy.

And I did it back and Brazil.

It's a tremendous potential tailwind for us and 20 ramp out for 'twenty, 1 and into 'twenty, 2 and then we'll make some decisions after that.

But the great business it could be a significant tailwind for us in the next few quarters they come back quickly.

And it was not contemplated in our long term framework.

And that's contemplated to continue to own but that doesn't mean that we won't examine things but.

But the business the team down there has done a fantastic job, it's bouncing back very quickly and it could be a significant tailwind for us for the next few quarters.

Great. Thanks very much.

Thank.

And the current next questions come from the line of Alex Slagle with Jefferies. Please proceed with your questions.

And thank you good morning.

You mentioned, the improved performance and the California franchise business wondering if you could give some perspective on the expected cadence of the franchise revenue says.

And the royalty income comes.

For you.

Yes, so were effectively right now of collecting current royalties from from our franchisees, which is fantastic, but as you know we have a oh the amount to recoup from past due royalties. We are now recouping those as well so I would say of the past due amounts it's probably next 12.

Comes back and months Youll see those of those come back into our P&L. So that does mean that relative to where we were historically you can see upsized revenues out of the the franchise for the other revenue line moving forward.

Got it and second I just might have missed this but with the confidence to increase the long term margin target.

And to <unk> from 7.5% to 8% any reason and that does not also translated into higher near term outlook on that 6.3 to 6.8 when the volumes get back the 19 levels there.

Something.

The first the timing of how that plays out.

No nothing different there with all of it all.

The.

Rising tides lift all boats.

Got it.

Thanks, a lot.

Yep.

Thank you. Our next question is coming from the line of Lauren Silberman with Credit Suisse. Please proceed with your questions.

Thank you so just to follow up on the margin so talk to that.

5% operating margin about 2019 sales now at 18% given your kind of thing about 2019, how are you thinking about the timing and achieve the 8% and then any of the line items that you can call out and where you're seeing the additional leverage of our efficiencies or is it across the P&L.

Yeah, Yeah, it's mostly it's mostly of competence.

And our sales story I think if you look at the framework that we laid out a couple of quarters ago. All of the key tenants in terms of efficiencies and cost savings are still in place whether its cogs, we talked about upsize and Cogs, we talked about the labor efficiency, we talked about the marketing efficiency. We did refer referenced the fact that for my operating expense standpoint, we'd expect that to be a little higher just.

Of the increase in the off premises business. So all of that framework still exist is really does change and outlook going from the 7 and a half long term to 8% long term is really about the increasing confidence and the stickiness of some of these sales levers, particularly what we're seeing with the outback, new menu and our and the sort of the off premises business and the thriving.

Just because of that business. So that's the framework that's changed.

I would say in terms of just short term long term, we feel very good about where we think we're going to land in 2021 from a margin perspective. Obviously, we're ahead of schedule in terms of our long term expectations, but I think that the framework. We're trying to lay out here is.

But over the long term if we can fundamentally change the business, where we now have an 8% long term operating margin framework versus a 4.8% operating margin framework and 2019 the value that that creates for our shareholders is immense and so we are committed to that number.

<unk> net and we're going to hopefully take advantage of that in terms of.

And our long term shareholder value.

Great and <unk>.

And our award can you talk about where and you are with dine rewards members and how youre thinking about opportunities to leverage that program from here and then just sort of a brand perspective do you see greater utilization from customers.

<unk> for your brands more than others.

Yeah, Dan rewards continues to grow for us for over 12 million and we think there is.

Tremendous opportunity to leverage that program, especially with all of our digital marketing capability I'm not going to get into it but watch that space.

And I'm sorry.

The second part of the question again.

And you see any greater utilization of the.

The loyalty program at any 1 of your brands more than others.

And we'll just because of EBITDA ubiquity, it's outback, but it sort.

And what's available to all of our customers and we see trade trade between trade between customers and if thats, some hopefully something that will be able.

To take more advantage of going forward, but.

The more news coming on the loyalty program in the coming quarters.

That sounds great. Thank you guys.

Yeah.

Thank you our next questions come from the line of Jon Tower with Wells Fargo. Please proceed with your questions.

Hi, this is actually.

What's the San Holthaus on for John and just 1 quick clarification earlier and the call. You had mentioned about of 1 million dollar impact from the Florida minimum wage kicking in.

For the fourth quarter or how we should think about it on an annual day of huh.

It's it's $1 million of months impact.

Impact so it's $12 million annually it will be $3 million in Q$4.1 million in September.

And that's all baked in 1 of them and that's all baked into our guidance and that was baked into the Q3 guidance.

Okay.

And then on the Capex outlook, and we get to 2020.2.

2 and some of the proprietary and issues are all kind of worked through.

And there the potential for sort of catch up Capex and 2022 for sort of getting you know what would have been and the plan for 2022, and then also wrapping up what you were hoping to do on 2020.1.

And we've always talked about potentially.

Up to $200 million and capital spending.

That will ebb and flow, depending on timing and sites and everything else and as we build that balance sheet I talked about right.

We could we could uptick that but our development team is doing a great job building the pipeline and we can move very quickly and we'll just manage it appropriately we think we've got.

Lee of significant footprint expansion opportunity and market share opportunity.

Oh, thank you thank.

Thank you.

Thank you our next questions come from the line of Jared Garber with Goldman Sachs. Please proceed with your question.

Hi, This is Michael on for Jared Cup.

Couple of quick ones.

And as we've noted a little bit of and uptick in the number of limited time offers that you guys have had for outback, particularly any particular reason why you guys have started the kind of redeploy. These I guess that was more back in March and maybe they've continued to shift and.

Any certain lever you're looking to pull there. Thanks.

No we had no significant.

Difficult change and our marketing plans like I mentioned earlier.

We hope to continue this marketing effort as it is and certainly don't want to lead any way and discounting. So our sales trends are very strong and there's been no real change and limited time offers or any of that kind of stuff, we talked about the 20% or so discount reduction relative.

The first where we were in 19 and and I think if anything I think we've talked about how we can offer more indulgence to the consumer because this is the time when the consumer is looking for that and you saw that show up and our our average check increase and Q2, because that wasn't driven by menu pricing yeah.

Great. Thanks, a lot and then 1 other quick 1 or any.

<unk> dates on tender shack or Aussie grill or any of those initiatives. Just wondering if you guys have any and saw anything particular in the quarter, maybe as reopening and ramp.

Yes, no tender shack is not at the levels, we want to be quite yet.

<unk> got ways to go and that business.

And I think it is directly related to the rapid.

Any of very rapid growth back in the restaurant business. This past 6 months yourself. So that we debt we've dedicated efforts to that but we've got more work to do on Tinder Shack and we're looking at marketing and product opportunities there, but thats. The business will continue to pursue secondly at the grille and we hope to open up the 3 more of this year. The economics are good the.

And they are good and I think theyre just follow the money if we open it up for opening more of that means we like what we see we're spending more capex the team's done a really good job there.

With that concept and we think it could be a really big opportunity for us as we go forward.

Sales and there are no further questions at this time I'd like to hand, the call back over to management for any closing remarks.

Well, we appreciate everybody spending time with us today, and we look forward to updating you on the company in October and take care everyone.

Thank you for your participation and this does conclude today's.

The conference you may disconnect your lines at this time.

Have a great day.

Okay.

[music].

Yeah.

[music].

[music].

Greetings and welcome to the Bloom and brands fiscal second quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.

A brief question.

Per session will follow management's prepared remarks for anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded and theirs.

My pleasure to introduce your host Mark Graff Senior Vice President of Investor Relations. Thank you. Mr. Graff you may begin.

And 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 second quarter 2021 earnings release. It can also be found on our website at <unk> brands Dot com and the Investor 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 appear in our earnings release on our website as previously described before.

Before we begin formal remarks, I'd like to remind everyone that part of our discussion.

And.

It 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.

And today at Gov.

During today's call we will provide a brief recap of our financial performance for the fiscal second quarter 2021 of discussion regarding current trends and select Q3.2021 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.

Thanks, Mark and welcome to everyone listening today.

And we're very pleased with the second quarter sales and profit performance, our strategies are working and setting the company up for even more sustainable growth for.

Success is directly tied to the planning and hard work that has taken place and our company over the last few years.

And 2019.

We presented a comprehensive plan to build a stronger and leaner operations centered company and 1 focused on providing even better service and food the customer.

This plan was designed to significantly improve total shareholder return.

Before we get into the details of the second quarter I wanted to take a few minutes to discuss the progress against the key 5 initiatives.

Initiatives that underpin our 2019 plan.

First grow in restaurant sales by improving service levels and food offerings and the restaurants over the last few years, we've made investments in these areas to elevate the customer experience across the portfolio, especially at Outback.

As a result, we are taking market share versus.

And as the industry and the second quarter U S. Same store sales were up 12, 1% on a 2 year basis versus 2019 the.

This was 890 basis points ahead of the industry.

We also made significant investments and our people since the start of the pandemic, we have not furloughed any employees.

This decision and contribute to retention employee engagement scores that are among the best and the industry.

With sales volumes exceeding 2019 levels. These actions provide a competitive advantage and retaining talent in this challenging environment.

Maintaining of motivated and well trained employee base is critical to our long term success.

Second grow our leading off premises business, we continue to capitalize on our strong off premises capabilities during the pandemic and the high off premises retention levels. In 2021 are contributing to sales outperformance during the second quarter, the company generated over $275 million and off premises sales representing.

Approximately 28% of total revenue importantly profit margins and the off premises channel are approaching the margins of the and restaurant business.

And this was the result of initiatives that were completed the past few quarters. We expect off premise is to remain a large and growing part of the business going forward.

The third rapidly approve operating margins by growing sales and reducing costs and our goal is to grow operating margins by nearly 300 basis points to 7.5% of revenue margins and the second quarter were well ahead of this long range goal, Chris will provide additional detail regarding future margin targets, we will leverage learnings from the.

<unk>, including efforts to further optimize how to run and support restaurants importantly, a number of technological and the equipment innovations are and tests that we hope to rollout and restaurants in the coming quarters. These innovations should improve customer service and reduce costs.

<unk> become and EBIT more digitally savvy.

And Q2 digital sales represented approximately 20% of U S sales, a 318% increase over 2019 levels.

We have made several investments to grow digital volumes and increase our capabilities throughout all aspects of the company.

Recently, we rolled out of new and improved Outback app that is significantly improve.

Proved the off premises ordering process.

Early data and consumer feedback has been very positive. The Apple later showcase substantial investments, we made to digitize and streamline the carryout experience. These new App features will be rolling out in the coming quarters, and we expect them to accelerate our very attractive Carryout channel.

The comp and finally build a much stronger balance sheet.

Given our very good year to date results, we generate a great deal of free cash flow and are paying down debt our credit metrics are improving each quarter and our goal is to be at 3 times lease adjusted leverage by early next year. This will give us the liquidity to withstand.

Stand unforeseen shocks of Sta.

<unk> balance sheet also provides great flexibility to pursue business opportunities that will enhance shareholder value.

All of the initiatives above played a major part and producing an excellent second quarter importantly, the sales momentum has carried forward into the third quarter through.

The first 4 weeks of Q3, 2 year U S cash comp sales versus 2019 are up 15, 2%.

These results would not be it's been possible without the talented and dedicated employees throughout the company I would like to thank the hard working team members and the restaurants and at the restaurant support Center.

Our commitment to serving guests with the highest levels of service hospitality and experience.

What makes our restaurants and so successful.

We intend to build on the progress we've made against these major priorities and are excited about the potential ahead before concluding I would just like to add a couple of other priorities that youll be hearing more about in the future.

First we believe theres, an opportunity to accelerate new unit growth at Outback and Flemings.

Outback is a leading brand with substantial headroom for unit growth. The success of the Outback relocation program is a clear indicator of this demand and the past 5 years, we relocated approximately 50 restaurants with sales lifts of 35%.

And average unit volumes of $4.6 million.

We recently developed a new less expensive prototype that will enable meaningful restaurant growth with healthy returns.

We also have the opportunity to open additional Fleming's and California, and Florida, Our best performing markets Fleming's has a proven category leader by any.

Measure and will be a source of growth for our company.

Second continuing to grow Brazil, as it manages through the pandemic and resumes expansion.

And Brazil are bouncing back quickly case counts for the virus are dropping rapidly and theres a strong adoption of the vaccine and the country, we've already had category leading brands in Brazil.

Percent company will be and even better positioned as we emerge from the pandemic as a reminder of Brazil is funding its own growth through internally generated cash.

In summary, Q2 was another terrific quarter, we remained very focused on executing against our key initiatives. We are optimistic they will capture these opportunities and drive total shareholder.

And the churn 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 second quarter of 2021, given the significant impact of Covid on Q2.2020 results most of our discussion today, we will compare against the second.

Aldo of 2019, which we believe provides better context to our underlying performance.

Total revenues in Q2 for 1.08 billion, which was up 5% from 2019, driven by and improved sales environment and the U S. Total revenues and the U S segment were up 10% versus.

Corning team. This increase was fueled by additional in restaurant volume of high level of off premises retention and increases in average check.

Total revenues and our international segment were down 37% on a 2 year basis, the decline and international revenues was driven by Brazil, which had a significant headwind.

20, <unk> related capacity constraints and Q2.

As I will discuss in a moment the sales trajectory for Brazil is much improved thus far in Q3.

Q2 U S comp sales finished up 12, 1% on a 2 year basis average unit volumes were $75000 per week in Q2.

And geographically states in the southeast such as Texas, Georgia, and Tennessee continued to post outsize sales gains, while Florida posted a 14% increase over 2019, importantly states and the northeast and Midwest have reopened and nearly every state within our portfolio posted positive comp.

Sales gains relative to 2019 Q.

Q2 sales gains were driven by a healthy combination of traffic and average check both of which were up 6% versus 2019, our increases and check average relative to 2019 were driven by a 21% reduction and discounts increased menu mix.

And to a lesser degree 2019 pricing actions as a reminder, we made menu price reductions at Outback and late 2020 to make some of our more indulgent menu items more accessible from a price point perspective, the trade into these higher priced items has validated our strategy and been a key contributor to the.

Increases in average check.

Importantly, we have seen our sales momentum carry forward into the third quarter through the first 4 weeks of Q3, our 2 year U S comp sales have been plus 15, 2% and we have maintained nearly $71000 and weekly average unit volumes and what is traditionally.

Slower time of the year.

Turning to off premises. This business has proven to be very sticky even as in restaurant volumes have improved in Q2, we averaged $21000 per restaurant per week and off premise of sales off premise as volumes were only down $2000 per week and Q.

Italy from Q1, despite significantly higher in restaurant volumes in Q2.

Off premises is a large part of our ongoing success and will remain a key part of our growth strategy moving forward.

In terms of brand performance Outback Q2 comp sales were up 11, 3% and Carrabba's.

2 of sales were up 16, 7% on a 2 year basis. The 2 year sales results at both brands were well ahead of major competitive benchmarks.

In restaurants sales are building as we emerge from the pandemic and the continued high levels of off premises retention have enabled these brands to surpass.

<unk> <unk> thousand 19 volumes total Q2 off premises sales were 31% of revenues at Outback and 36% of revenue at Carrabba's.

At Bonefish Grill comp sales were up 4.2% and Q2 on a 2 year basis, the in restaurant experience and bar centric culture of Bonefish.

First 1 of more impacted by capacity restrictions than our other of casual dining brands. Despite this we have built an impressive off premises business at bonefish and it represented 19% of their sales in Q2.

Fleming's comp sales were up 24, 4% and Q2 on a 2 year basis and.

Was it really 1400 basis points above the Knapp high and Steakhouse category Fleming's is differentiating itself in this competitive segment and is capitalizing on the reopening of California to drive outsized comp sales performance.

Brazil comp sales were down 36% versus 2019, Brazil.

And was Nova cases increased significantly in early March which was the start of Brazil's second quarter. The corresponding restrictions on restaurant capacity had a large impact on Brazil sales over the first 2 months of Q2.

Comp sales versus 2019 were down 58% in March and 41% in April.

And the vaccination rate and Brazil increased and case counts began to moderate we saw an immediate increase in sales comp sales and may were only down 9% versus 2019.

This building momentum has continued into the third quarter. Despite ongoing capacity restrictions currently Sao Paulo and Rio are operating.

And at 60% capacity and 40% capacity respectively. Sales. However are now approaching 2019 levels with the most recent 3 weeks down 5% on average versus 2019, our team and Brazil continues to execute at an extremely high level and we are confident and their ability to navigate the current environment.

<unk> as it relates to other aspects of our Q2 financial performance GAAP diluted earnings per share for the quarter was <unk> 75 versus a $1.5 of diluted loss per share in 2020 adjusted diluted earnings per share was <unk> 81.

Versus 74 of adjusted diluted loss per share.

Last year adjusted operating income from the quarter was $118 million. This result exceeded our adjusted operating income from 2019 of $47 million. This level of adjusted operating income is the highest and bloom and brands history and.

Adjusted operating income margin was.

11% and Q2 versus 4.6% and 2019. This improvement is driven by our strong sales recovery ongoing efforts to drive efficiency into our business and lower marketing expenses in.

In terms of our Q2 adjusted performance by cost category Cogs was 150 basis points.

Favorable to 2019, driven primarily by waste reduction and increases in average check.

The Labor line was 200 basis points of favorable to 2019, the large change and average unit volumes for 2019 drove significant leverage on labor and Q2. In addition, we also benefited from simplification.

And effort just showed up in a permanent reduction in food prep hours.

Operating expenses were 180 basis points of favorable to 2019, due primarily to a $20 million reduction in marketing expense and higher average unit volumes. This favorability was offset by increases in to go supplies and third.

Delivery fees related to the growth and off premises.

On the G&A front Q2 was down for $4 million from 2019 net of adjustments. This includes the ongoing benefit of cost savings initiatives that we have detailed on prior calls.

In addition, Q2 contains additional incentive compensation.

Station, given our strong performance expectations for 2021.

On the franchise front over the last several weeks, our California market has been averaging close to 21% comp sales on a 2 year basis. We are collecting current royalties and have begun collecting on past due amounts as well our non California franchise.

<unk> locations, both domestically and internationally also continue to perform well.

Turning to our capital structure, our total debt at the end of the second quarter was $850 million. Our trailing 12 month lease adjusted leverage ratio is 3.8 times, we are making significant progress towards our targeted.

The ratio of 3 times net debt to adjusted EBITDAR. Once we reach our targeted ratio, we will evaluate further debt paydown or other uses of cash to enhance shareholder value.

Turning to our Q3 guidance.

We expect Q3 total revenues to be at least 1.0.

<unk> $5 billion. This outcome for total revenues assumes a weekly average sales volume of approximately $69000 for the room and the U S. For the remaining 9 weeks of the quarter. This is a slight decrease from current Q3 volumes on the assumption that some traditional seasonality will resume as we moved.

Levered out the quarter should this seasonality not materialize there will be upside to this outlook for perspective total revenues and the third quarter of 2019 were $967 million.

We expect adjusted EBITDA to be at least $115 million.

Move through and we expect GAAP EPS to be at least 45.

With adjusted EPS of at least 50.

These profitability measures for EBITDA and EPS would represent the highest levels our company has ever attained and a third quarter for perspective in 2019, our third quarter adjusted.

The EPS was <unk> <unk>.

We believe our Q3 guidance reflects continued optimism for our current performance in the U S and a more bullish outlook on Brazil as they finish out their quarter.

In terms of full year 2021 guidance, we do have a few items that need to be updated first.

Adjusted now expect commodity inflation to be approximately 1% versus our previous guidance of flat although were locked on our largest commodities for the year such as beef are heavy sales volumes have required us to secure additional chicken and seafood supply outside of our contracted terms most of this inflation will impact.

We and the back half of the year and has been incorporated into our Q3 guidance.

Second G&A is now expected to be between $240 and $245 million for the year on an adjusted basis. Our prior guidance was G&A of between $225 and $230 million.

<unk>. This increase is largely driven by a change and incentive compensation and expectations for the year given our strong performance half of this increase was embedded into our Q2 results. The remainder will be spread equally across Q3 and Q4. Despite this increase we are still on track to achieve the $40 million of.

Informational savings that we committed to and early 2020.

Finally, capex is expected to be between 140 and $150 million for the year the reduction from our prior guidance of between 170 and $185 million is driven by shortages and raw materials, particularly.

Clearly steel pushing some remodels relocations and new restaurants into 2022.

Finally, I wanted to give a little more perspective on the long term margin framework that we have discussed with investors over the last couple of quarters. As a reminder, that framework suggested that 1 sales achieved 2019 levels are and.

Adjusted operating margin would be between 6.3% and 6.8%. We are also committed to a longer term framework to achieve 7.5% operating margins as sales improved over 2019 levels. Given our recent performance we are more optimistic about the margins and the off premises business.

The new Outback menu and our marketing strategy and we were a few months ago. We now believe that we can achieve a longer term operating margin of 8%.

A couple of reasons for this increase for.

We have continued to improve the efficiency and execution of the off premises business. These efforts have resulted in higher off premises.

And the margins that are now approaching in restaurant margins.

We think much of the favorability and the average check will stick moving forward the new Outback menu is contributing to a more permanent increase in average check than we expected. In addition, we have found new ways to provide value to consumers beyond.

Traditional discounting.

Although it is too early to discuss where 2022 may land at this point and time, we continue to have confidence and our margin improvement efforts. The levers I have outlined make us comfortable raising the bar on our long term framework by 50 basis points from 7.5% to 8% and <unk>.

Summary, this was a another successful quarter for Bloom and brands and we are well on our way to becoming a better stronger operations focused company and with that we will open up the call for questions.

Thank you we will now be conducting a question and answer session I would like to ask a question. Please press star 1.

Your telephone keypad.

The information of tone will indicate your line is and the question queue.

And they press star 2 if you would like to remove your question from the queue.

And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

Ask that you please limit yourself to 1 question and 1 follow up.

Question, 1 moment, please while we poll for your questions.

Our first questions come from the line of Jeffrey Bernstein with Barclays. Please proceed with your questions.

Hey, guys. This is actually Jeff pretty strong Jeff Bernstein. Thanks for the question.

Just on the margin front, given the commodity environment and given that you guys are going to have to.

By more commodities outside of your contract terms on the spot market and you are originally anticipated what are your thoughts on the restaurant margin and the second half and also what is your level of pricing and the menu right now.

And then I have 1 follow up.

Yes, so pricing is relatively benign it's in that low 1% range of lot of the change in average check that you saw in the third quarter is driven by sort of and equal combination of discount reduction as well as menu mix with a less a smaller degree of average menu pricing I would say look we gave guidance for the third quarter. So that should give you a.

Pretty good indication of how we're feeling about margin certainly in Q3, I think to look beyond that into Q4 is probably a bit premature the did the the only dynamics that we've talked about publicly that we know for sure are going to impact us from a margin perspective in Q4 of the commodity guidance that we gave obviously given the guidance being.

Up to 1%, we had a relatively benign commodity environment and the front half. So the second half that implies somewhat of a 2% or 2% or so inflation and Q3, probably closer to 3% commodity inflation and Q4, and then on the wage front and we have talked about the Florida minimum minimum wage increase kicking in in.

Being of timber that should cost us about $1 million a month relative to our run rate and.

Just to add a couple of things.

This is all in the context of of rapidly improving margin story for the company and Chris talked about the long term margin goals. So that's really great news and then secondly.

And our supply chain team has done a great job navigating.

<unk> of commodities over the year as you saw our performance this year you've seen the performance in the past and I'm very confident that we will do a good job going forward and managing commodity costs. Just as a reminder, our Q3 adjusted operating margins were in 2019 were 2.3% our guidance would suggest and op margin closer to 7.

And Sep half percent for Q3, and op margin or a 500 basis point improvement relative to 2019.

Gotcha that makes complete for them and then just on the Capex guidance and Laura.

For the 30 to 35 million, noting.

Constraints on the raw materials of pushing some units and remodel for 'twenty 2.

7 and that your unit guidance and still for $20 to 25 year. Note can you just go for more color on the moving parts, there and kind of where the 30% to $35 million is actually coming out of.

Yeah. It really just as the move from the higher end of our new unit guidance to the lower end of our new unit guidance as well, there's probably 3 or 3 years or so relocations that.

As well as some remodel expense. There's also some infrastructure projects shortage of chips and things like that that got pushed into early 2022.

Got you and then the last 1 for me just on off premise I think it's gone down from 35% of sales to about 28 of this quarter, where do you think thats Fettle and long term and then what portion of your customers do you believe.

And we've used the brand for both the off premise and and restaurant and diner.

I think our our long term mix and I think it's important to look at revenue.

Not necessarily mix because as in restaurant dining comes back it's natural that debt will that mix will drop a bit so revenue dollars 2.

<unk> hundred $75 million and revenue, we hope to grow that from there.

And we also hope that the in restaurant dining continues to improve so we want the the off premises volume to be a big part of of where we go as a company.

<unk> the third party delivery business is of $100 million.

And that's growing right now Inc.

<unk>, that's clearly the incremental business for us So I would just wrap this up by saying we won't look at revenue dollars.

Mix, and who knows where it's going well and up a lot of that will depend on what perhaps with the in restaurant dining and the most important thing is that we have of multichannel business in restaurants.

Carryout and delivery of its very strong and as Chris mentioned, the margins and the off premise business is now pretty much equal to our in restaurant dining business, which is a very important development.

I appreciate it goes up and above.

Yeah.

Thank you our next question.

And I'm from the line of Brett Levy with the 10-K M Partners. Please proceed with your questions.

Great. Thanks for taking my question.

You spoke a little bit about.

And some pretty significant market share gains can you give a little bit more granular detail and just you talked about the strength that youre seeing the cross some of those.

The southeast regions, but how are you how are you seeing your share gains in both the earliest markets and also some of the.

The more recently recovering markets and then just.

On the labor front.

You've obviously done a great job of retention.

Where are you right.

In terms of your turnover or.

What percentage of the system still needs to supplement your labor force of thanks.

Yes, I think I think on the labor front I'll turn over to Chris on the sales you know we did let anybody go and read and furlough anybody who didn't let anybody go so of our initial starting point was much higher than many others and the industry.

Now and Tan already and then.

We got tremendous employee engagement and retention so our turnover levels. We believe are among the best in the and the industry.

So our staffing levels are very strong there are pockets of opportunity no doubt, but our staffing levels of very strong and the other thing is we've done a really good job managing the labor model and we're not at 2019.

Our utilization, we're not at that level, we've been able to take some efficiencies and the restaurants through some equipment investments and some other things. So I think our payroll practices have been extremely important for us our retention and turnover.

Levels are very good and I think we've got a good situation of our staffing with some pockets of opportunity.

But we're in pretty good shape and alternative sales I'll turn it over to Chris Yeah in terms of the regional performance and the relative performance versus the industry I think I don't think it's unique in the industry to have pockets certainly in the southeast where we're seeing outsized same store sales performance I think of lot of companies are also seeing of resurgence.

Opportunity in California, I think that the relative comparison, though in terms of our outperformance for the industry I think that thats pretty across the board I don't think that there are a tremendous amount of pockets, where maybe we're underperforming relative to where the industry is so I think that's good news for us because it does suggest that our relative strength is pretty pretty widespread.

And then just if you could talk a little bit of at your customer you've seen some you've retained strong.

Check.

What are you seeing in terms of the health of the customer and either.

States that kept the enhanced unemployment benefits longer or rolled them off earlier.

Surgeons are seeing anything in the the consumer cohort debt.

Gives you any economic.

<unk> of that.

No we haven't seen any economic variances across the states, Chris just covered what are you seeing around the country. We.

And we haven't seen any major economic variances and what we're seeing is with the outback menu.

Are you changes that we made and some of the pricing tweaks that we made and some of the other things that we did people are trading up we're getting a greater share of alcohol and with the attachment on the on the checks we're seeing greater appetizers were seeing trade up and stakes so its pretty healthy across the board.

Thank you.

Thank you our next questions come from the line of John of Banca with J P. Morgan. Please proceed with your question.

Yes, hi.

Commodities of up 1 and the labor inflation of about 3 to 3 and a half and it seems to be ex.

Pressing of reality for you, which is very different than what the rest of the industry is seeing.

I wanted to go a couple of places with the.

The first thing in and industry, which is seeing according the government data the labor inflation somewhere and the high single digits.

Walk and walk through all the different factors of why your costs arent that high and I guess why they won't be so high going forward is just the.

The.

The street pressure wage pressure basically puts pressure on everyone. So that's the first point.

And secondly, commodities are up 1 and I mean do you have some contracts that are so deeply favorable relative to current spot and.

'twenty 1 that that you are beginning to be worried or just sensitive at the at least in terms of what the.

Higher any 2 versus 21 costs are and Dave you kind of talked about.

And the number of things that could potentially offset some higher costs to the extent that they come in regarding I think he said tech innovations that are in tests that will be rolled out in coming quarters.

It sounds like you've decided on the rollout if you could give us.

1 of the civics and terms of what that is 1 of the rollout will be and potential operational benefits that you would see from that.

Sure.

Quite a bit there John so if I'm the he missed something.

Come back to it and just remind us but.

So we are on the commodities fronts, it's very.

No more fully what I've learned and my over 30 years and this business John its very early to make of commodities call on 2022.

All you can do is look at our history and what we've done and the spot market with long term contracts et cetera has put us in a very favorable position and we think we can handle 2022, but to make a call in July.

And something that's going to happen in 2022 is.

It's premature and we'll just see how it develops but think of supply chain team is going to do a great job of that and if you look back over time, you've seen us do that Thats number 1.

For 2 on the labor cost and I'll ask Chris to add anything else when I finish share number 2 and the labor costs retention levels and lower turnover.

For a really really helps and.

And we've got people that are engaged and our restaurants, we don't have to go out and recruit a whole bunch of people and stuff, we've got pockets of opportunity and no doubt we participate in the restaurant industry, but the retention and turnover levels are very strong and that helps us and so many and so many ways.

And if I'm missing something.

Elsewhere, Chris can jump in when I finish on the technology and equipment front I'm not going to get into it for you know for competitive reasons, but we have spent an enormous amount of time and effort and capital on equipment.

Equipment equipment opportunities and technology opportunities I think of it and digital teams are doing a great job.

<unk> average DAU.

Only the Outback App I'd encourage you to do it because there's more developments coming.

Moving forward our online ordering system has been very very well received so we can see more technology come into our restaurants, and you're going to see some equipment innovation and the back of the house, but I'll stop there John if you don't mind, because we've got competing and environment.

<unk>. So that's what we plan on doing there and I'll turn over to Chris for anything else on labor no nothing really significant to add other than to say 1 of the things that we are benefiting from that that some of our peers may not be able to is that we are seeing a relatively benign inflationary environment in Brazil from a labor perspective.

If you kind of helps the overall number of little bit.

Very helpful guys. Thank you.

Thank you. Our next question comes from the line of Jeff Farmer with Gordon Haskett. Please proceed with your question.

Good morning, and thanks a.

A couple of follow ups. So just following up on the off premise margins.

And what have you done to improve those 2 almost it sounds like the and restaurant margin levels. What are some of the drivers for you guys of a pursuit to improve the margins of that off premise business.

And the menu offerings that we have.

The mix of the menu offerings and the great relationships we of our.

Our third party.

Users they can provide driver utilization that we cannot so.

And so that helps margins as well so I'd say, it's menu innovation and partnerships with third party providers are so helpful and the other thing is I think it's completely underappreciated part of our business and Thats.

Yeah, I mean, it's a gigantic part of our business margins are very high the customers arent control and they do some of the work the order up and so it's been and we've been doing this for a long time and it's a very very important part of our business. So that's a very attractive part of our business Jeff.

And then just a follow up and that specific question.

Have you guys I think of a lot of your casual dining peers are beginning to do this taking some menu pricing premiums on the delivery part of it has not happened for you guys and to what level.

Well, we'll mix will mix of the third party some on price.

We will get to the levels, but we will.

And as care and manage our third party delivery, some but the pricing hasn't been a big part of our success story, but we do we do do some of that yes, yes, I would say too if you look at our curbside and take out business. For example of our new online ordering platform is really good and it's led to enhanced add on sales. So check average may just be up naturally because.

We will and technology enhancements some of the efficiencies that we built into that business, if we try and use.

Try and use price as the last lever and we put that way.

And then just final question on Brazil. So I'm, just hoping you guys can help me frame.

Frame out a little bit here with the consolidated restaurant level margin and operating income margin would look.

Of some of the.

If Brazil sort of pick the performance level. If we go back to 2019, and Brazil was doing well.

Ultimately said more hopefully clearly I'm, just trying to figure out what magnitude of of either EPS or EBITDA drag for you.

We're seeing for from Brazil on 2000.

And 'twenty, 1 and what the opportunity is in terms of of recapturing that EPS or EBITDA as we get out into 2020, 2 and 'twenty 'twenty 3 could be so order of magnitude in terms of the the Brazil economic drag on the business right now.

Well if you if you go back and history, the Brazil business was historically.

Look like 3 to 4 percentage points higher from a restaurant margin standpoint than our U S business Theres really no reason to expect or anticipate that they wouldn't be able to continue to get back to those levels of margins that they had prior to the start of the pandemic on a go forward basis. So.

And when you think about.

<unk> and takes of our margins, particularly as the balance of the year plays out some of these inflationary pressures that we've talked about as that Brazil business recovers you are going to start to see sort of an improvement and that international margin, which can help offset some of the inflationary pressures that you may have and the business. Yeah. Let's just let's just also is just.

Step back and look at the market broadly.

We did and everyone restaurant brands for pandemic came in 1 of the best brands and the country.

We had a leading market share by a lot and we think that about 30% of the restaurants in the not US 30 per cent of the restaurants down there of close we don't wish any ill will and any restaurant.

The company anywhere, but the fact is about 30% of the restaurants are closed down there. So we are and a unique position to take a significant amount of share. Additionally, they've got and economic footprint that works really well.

And we're going to continue to expand down there with their cash flow of not ours and their cash flow down there that theyre generating and lastly, they have built and.

Business that didn't exist prior to.

Prior to the pandemic. So all of these factors coming together lead to a and a very very attractive business model that had higher margins and the U S and and very good volumes.

Thank you.

Thank you. Our next question is coming from the line of Brian Mullan with Deutsche Bank. Please proceed with your questions.

Okay. Thank you.

Because with the EBITDA growth through balance sheet deleveraging is happening pretty quickly you share the target of 3 turns we suggested early next year.

Of course, we'd be curious updated thoughts and the.

The off premise for for further deleverage and also of dividends versus buybacks and how you might incorporate at the current valuation of the stock into that.

The process and then related and edition is there a scenario, where you might look and get acquisitive, you've got the company doing north of $4 billion of sales and I'm wondering if you might view that as a platform.

Potentiation of brand growth overtime.

Yes, so we feel.

We feel that long term target of 3 times leverage on a lease adjusted basis is a good target once we get to that target, which is candidly coming faster than I think we would have anticipated.

It could be early next year we.

For the evaluate where we go from there we're not going to make any commitments at this time, we could decide to keep paying down debt to your point, where we could reintroduce a dividend or we can out of share repurchase program, we could or we can do some combination of those little early for us to make that call publicly but what I would say is honestly, it's just exciting for our company to be in a position to be able to make.

We will read of decisions, given where we were a year ago.

And <unk>.

And just building on net we want to have a fortress balance sheet, we want the balance sheet that can withstand shocks.

Chris and team are doing a great job getting us there and then it gives us opportunities going forward, Brian and and.

When you look at the capability of the company and you look at our operation.

<unk> capability, you look at the financial muscle, we have looked at the digital capability and it capability that we're building I talked earlier today about the strength, we have and supply chain. I mean, those are all opportunities for us to potentially look at other things, but most importantly, most importantly, we've got some fantastic brands and our portfolio.

Those kind of and we talked about the chance to grow the outback footprint beyond where it stands today, the relocations and new you'll hear more of that from US we can expand net footprint by quite a bit and we have a new economic prototype that we think makes a lot of sense.

That can enable us to do that and the number 2 the fleming's business is and I hope the investors and analysts.

Pay some attention to it it's crushing it and fine dining and the numbers the numbers the sales the operations of the profitability of that business has been truly remarkable and you look at the quarterly numbers are just great and we've got opportunities and our strong markets like California, and Florida and a couple of other places to expand net footprint. So we'll be doing that as well.

Folio.

Yes, there are opportunities maybe to look at other things before do we have some great brands that we can growth.

Okay. Thanks, and then that's a good segue to the follow up just on the unit growth you spoke to Outback and Flemings just as we think about that next phase and I'm wondering when you think women can be of when you can be a consistent net unit.

Cell phone and the U S, even and something like that 1 of the 2 per cent range does that is that next year and then I'm also at Carrabba's. The part of that calculus to just given all of the are you the gains which have been great. Thanks, yes.

And I really believe next year, it's too early to lay out targets for 2022 and beyond but you know.

I think we've got some opportunities.

Unit growth of unit expansion of lot of opportunities for you and expansion and we quoted the relocation.

Opportunities, we've had but also just flat out new units of such at Outback and Flemings and then the other pieces.

Carrabba's and the they have just been a spectacular performer during the pandemic. If you look at the off premise.

And these gains and everything else that they've done the net team has done it's just been wonderful and and.

And maybe a little bit too early to talk about.

What we're doing from a standpoint of Carrabba's, but clearly that's gotten our attention given their performance and we're going to focus now and we have and focusing on building our pipeline our development team is doing.

Doing that and building our pipeline for new unit development Relocations, and then lastly, and Brazil, they've always been the big net unit at the funding of what their own cash flow and we've got the economic prototype down there that works really well too.

Thank you.

Thank you our and next.

<unk> come from the line of Sharon Sharon Zackfia with William Blair. Please proceed with your questions.

Hi, Good morning, a couple of questions I guess on the on premises business can you help us calibrate where traffic is now on premise sales relative to 2019 and trying to figure out how much more of in that day by day to.

Next question and the restaurants at this point and.

And then secondarily the Theres a lot going on and cost of sales for some really great.

And then 30 per cent for for 2 quarters in a row and it's pretty notable considering it used to be around 31 to 32.

Can you help us kind of Dimensionalize the.

The benefits of.

And reduce discount and versus menu optimization versus the waste reduction and help us understand kind of what part of that may be of sustainable or what might.

And you have some kind of again back as the on premises return.

Yeah.

Very pleased with the cost management as well.

The product simplification has clearly helped the new Outback menu has clearly helped us people of trade up and higher cuts of steak and also added onto the appetizers and things waste management and the restaurants, because we're more simple and how we do things Thats come way waste has come way down the restaurants. So all of these things are contributing.

<unk> are contributing to what what we are seeing and the restaurants and we think that's sustainable.

Obviously on the marketing front, and we'll see where the for the marketplace goes, but we hope that the.

We're not going to lead certainly lead the way and discounting and things like that and we like where the where we stand as a company and what we're doing.

On the restaurant side, we are seeing.

The restaurant business is still coming back and improving we still think theres of ways to go and listen the opportunity to go.

And in restaurant dining and we certainly hope to see that in the coming quarters, yes. So some specifics so.

<unk> in restaurant comp sales result in Q2 on a 2 year basis was down about 8%. So when you when you factor and then check average depreciation of about 6% youre down and that 14% or so range and traffic on a blended basis little bit of a little bit lower and outback, obviously getting supported by.

Research and in restaurant business at Fleming's, so kind of in that mid mid down 15% or so range and Q2, but that actually improve steadily as the quarter progressed, and we anticipate as people come back and the restaurants for that to continue to improve which we think could be potential upside for our business. It's a tailwind yet.

Great and I, just wanted to be clear too and it sounds like.

And you don't think you are seeing any any impact at all from the increased media coverage and of the Delta there yet can you just confirm how and how the terms of wire throughout July and seemed pretty consistent trends there.

And yeah, we laid out some very strong Q4 for Q3 to day results and.

That's pretty clear that we've got great trends.

Okay.

Okay.

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

Hi, Thanks, and good morning, just a few questions on the margins if I could I guess starting with labor.

U S. Specifically I think you said staffing levels were down versus 19, do you expect to add hours or do you see this as a sustainable level, where you can deliver of your targeted guest experience and can you help frame or quantify the impact of overtime or outsized training costs or other pandemic.

And <unk> related costs kind of near term.

Things at Waikiki in that item as well and then last 1 of the labor is how do you expect second half labor costs to compare it to what we just saw and the second quarter. Yeah I'll take the first piece about staffing and maybe Chris can provide some more details on some of the labor piece.

And the stack and front Brian.

And we've made some really good equipment investments and and some other things and our restaurants, and we don't anticipate getting back to the staffing growth of 2019, and that's been a that's not a knee jerk reaction. That's a long planned Oh, that's been planned for a long time for us. So that is something that we're going to continue to do.

But we don't anticipate it all coming back the 2019 staff walls.

And then just on the inflation side and in back half front half and so we've been I think at the low end of our inflation guidance through the second quarter.

We're seeing higher inflation and the U S. As I mentioned earlier offset by a relatively.

Do I and inflationary environment in Brazil, So it may tick up a little in Q3, and then of course it will be higher in Q4, as we of the Florida and minimum wage increase which starts in September.

Well you know I think we would say we back half for training to the higher end of the guidance range, but overall, we feel really good about where we stand from a labor perspective, and I think as you.

Look at these kind of things, Brian just I know you will just step back and look at our margin performance today in 2020, 1 versus what it was in 2019 and prior years and you're seeing significant significant improvement.

Yep, Yep, and and circling back on off premise and I think you mentioned some changes and third party and I know you were doing some cell.

The delivery as well have you stopped doing self delivery and most of your units and.

And I'll, just mostly leveraging third party and then Chris what was off premise sales mix sorry, if I missed it in the quarter to date period, and where is the current split between Carryout and third party delivery of these days.

And what are what we will be is.

Is on the on.

On the.

Carry on the delivery business, we will be.

<unk> to do our own in in store are.

The business.

Need to have that capability just to provide some flexibility and we've got some restaurants that do really well and in store delivery with high volume. So we're.

We're going to continue to you know we're going to continue to do that.

But we obviously like the partnership we have upped our third party providers and what they can do so we will continue to have a mixed Brian yes.

Yes.

To date, we're at 25 per cent of sales, but most of that change from where we were in Q2 is just the trade between the curbside business and the in restaurant and restaurant.

Recovers interestingly enough. The third party business has stayed flat from a percentage of sales basis from Q2, even into Q3 again, just reinforcing the stickiness of the Incrementals. The all of that of that business, which is pretty exciting.

Okay, that's great and then back to the increase in your and your long term margin framework.

What does that assume in terms of where your marketing spend settles out.

Well yeah.

And we've talked about the need to reinvest and marketing dollars from our sales building perspective, now and now obviously if sales stayed exactly where they were today without the need to spend additional marketing expense than our long.

And we would probably look a little different but our anticipation is is that over time, we're going to rebuild that marketing lever. We spent 1.3% of sales and marketing in the second quarter. So 1 of our long term framework that we laid out we talked about in 2019, we spent 3.5% of sales longer term, we think we can keep.

That below 3%, but certainly it's going to be elevated from where it is today so somewhere in the 2.5% to 3% range is kind of where we're thinking and Brian 1 of the things that we did that we learned during the pandemic is just the digital marketing the return on investments of different way to go to market to identify customers more granularly all of those kind of things.

Term phrase all of those learnings and I think we're going to get a bigger bang for our marketing Buck with less cost and we'll see where we settle in but there has been significant capability digital marketing capability built within the company during the last 18 months.

Alright, that's very helpful. And then just lastly on the Brazil business, great to hear that that's improving and.

Where does the potential licensing of that business stand is that still a priority and have those conversations started up again, yet and then in your long term framework does it gives effect for any potential change and the ownership structure of Brazil.

Yeah. So so we're going to enjoy the comeback and Brazil.

It's.

We're gonna Eva Mendes potential tailwind for us in 2000 and ramp out to 'twenty, 1 and into 'twenty, 2 and then we'll make some decisions after that.

But the great business it could be a significant tailwind for us and the next few quarters that come back quickly.

It was not contemplated in our long term framework, that's contemplated to continue to own but that doesn't mean.

Sure and examine things, but the business the team down there has done a fantastic job, it's bouncing back very quickly and it could be a significant tailwind for us for the next few quarters.

Great. Thanks very much.

Thank you our next questions come from the line of Alex Slagle.

And that we won't Jefferies. Please proceed with your questions.

And thank you good morning, and you mentioned the improved performance and the California franchise business wondering if you could give some perspective on the expected cadence of the franchise revenues.

Collection of the royalty income comes back.

Yes, so were.

Effectively right now of collecting current royalties from from our franchisees, which is fantastic, but as you know we have a oh the.

The amount of recouped from past due royalties, we are now recouping those as well so I would say of the past due amounts. It's probably next 12 to 18 months, you'll see those come back into our P&L.

So that does mean that relative to where we were historically you can see upsized revenues out of the the franchise for the other revenue line moving forward.

Got it and.

Second I may have missed this but with the confidence to increase the long term margin target from 7.5% to 8% any reason that does.

Also translated into higher near term outlook on that 6.3 to 6.8 when the the volumes get back and 19 levels or is there something different.

The timing of how all that plays out.

No nothing different with all of it at all and they would all of rising tides lift all boats.

Okay.

Does not.

Yes.

Thank you. Our next question is coming from the line of Lauren Silberman with Credit Suisse. Please proceed with your questions.

Thank you so just to follow up on the Mark.

Again, the talked about 7.5% operating margin of about 2019 sales.

Now at 18% given you're trending about 2019, how are you thinking about the timing and achieve the 8% and then and in line items that you can call out and where you're seeing the additional leverage or efficiencies or is it across the P&L.

Yes, it's mostly it's mostly of confidence and our sales story I think if you look at the framework that we laid out a couple of quarters.

Orders ago, all of the key tenants in terms of efficiencies and cost savings are still in place whether its cogs, we talked about upsize and Cogs, we talked about the labor efficiency, we talked about the marketing efficiency. We did refer referenced the fact that for my operating expense standpoint, we'd expect that to be a little higher just because of the increase in off premises business. So all.

All of that framework still exist is really this change and outlook going from the 7.5 long term debt to 8% long term is really about the increasing confidence and the stickiness of some of these sales levers, particularly what we're seeing with the outback, new menu and and the sort of the off premises business and the thriving nature of that business. So that's the framework that has changed.

<unk>.

I would say in terms of just short term long term, we feel very good about where we think we're going to land in 2021 from a margin perspective. Obviously, we're ahead of schedule in terms of our long term expectations, but I think that the framework for trying to lay out here is that over the long term if we can fundamentally change the business where.

Where we now have an 8% long term operating margin framework versus a 4.8% operating.

Operating margin framework and 2019 the V.

Value that that creates for our shareholders is immense and so we are committed to that number and we're going to hopefully take advantage of that in terms.

Our long term shareholder value.

Great and just on <unk>.

And rewards can you talk about where you are with dine rewards members and how youre thinking about opportunities to leverage that program from here and then just sort of a brand perspective do you see greater utilization from customers of any of your brands more than others.

Yes.

Dine rewards continues to grow for us were over 12 million and we think there is.

Tremendous opportunity to leverage that program, especially with all of our digital marketing capability I'm not going to get into it but watch that space.

And I'm sorry, what's the second part of the question again.

And you see any.

The greater utilization of the <unk>.

Royalty program at any 1 of your brands more than others will.

And just because of its ubiquity of its outback, but.

And it's available to all of our customers and we see trade trade between trade between customers and if thats. Some hopefully something that will be able to take more advantage of going forward, but.

More news.

Coming on the loyalty program in the coming quarters.

That sounds great. Thank you guys.

Thank you our next questions come from the line of Jon Tower with Wells Fargo. Please proceed with your questions.

Hi, This is actually Karen Holthaus on for John and just 1 quick clarify.

And earlier in the call you had mentioned about of 1 million dollar impact from the Florida minimum wage kicking in.

That's specific for the fourth quarter or how it and you should think about it on an annual basis.

It's $1 million of months impact so it's $12 million annually it will be.

$3 million in Q$4.1 million in September.

And Thats 1 of them, that's all baked into our guidance and that was baked into the Q3 guidance.

Okay.

And then on the Capex outlook, if we get to 2022 and some of the supply chain issues are kind of work.

Work through is there the potential for sort of catch up kind of capex in 2022 for sort of getting you know what would've been and the plan for 2022, and then also wrapping up what you were hoping to do in 2020.1.

Yeah, we've always talked about potentially up to $200 million and capital spending.

You.

And that will ebb and flow, depending on timing and sites and everything else and as we build debt balance sheet I talked about right.

And we could uptick that but our development team is doing a great job building the pipeline and we can move very quickly and we'll just manage it appropriately.

I think we've got.

The significant footprint expansion opportunity and market share opportunity.

And I. Thank you thank.

Thank you.

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

Hi, This is Michael on for Jared cut.

Couple of quick ones first we'd know the little bit of and uptick in the number of limited time offers that you guys.

<unk> had for Outback, particularly.

Any particular reason why you guys have started the kind of redeploy. These I guess that was more back in March and maybe they've continued to shift any certain lever you're looking to pull there.

No we've had no significant change and our marketing plans like I mentioned earlier.

We hope to.

To continue this marketing effort as it is and certainly don't want to lead any way and discounting. So our sales trends are very strong and there's been no real change and limited time offers or any of that kind of stuff, we talked about the 20% or so discount reduction relative to where we were in 19 and and I think if anything I think we've talked about how we can offer more.

Indulgence to the consumer because this is the time when the consumer is looking for that and you saw that show up and our our average check increase and Q2, because that wasn't driven by menu pricing.

Great. Thanks, a lot and then 1 other quick 1 any updates on tender shack of Rossi grill or any of those initiatives. Just wondering if you guys have any and.

And particularly in the quarter, maybe as the reopening has ramped.

No tender shack is not to the levels, we want to be quite yet.

We've got ways to go and that business.

And I think it is directly related to the rapid very rapid growth back in the restaurant business the.

The past 6 months or so.

And so on and that we that we have dedicated efforts to that but we've got more work to do on Tinder shack and we're looking at marketing and product opportunities there, but thats the business will continue to pursue.

At the grille, we hope the open up the 3 more of this year. The economics are good the sales are good and I think theyre just follow the money if we open it up for opening more of that means we like.

What we see we're spending more capex and the team's done a really good job there.

With that concept and we think it could be a really big opportunity for us as we go forward.

Thank you and there are no further questions at this time I'd like to hand, the call back over to management.

So we for any closing remarks.

Well, we appreciate everybody spending time with us today, and we look forward to updating you on the company in October and take care everyone.

Thank you for your participation and this does conclude today's teleconference. You may disconnect. Your lines at this time have of.

A great day.