Q1 2022 Bloomin' Brands Inc Earnings Call

April 29, 2022

Greetings and welcome to the Bloom and brands fiscal first quarter 2022 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow management's prepared remarks. It is now my pleasure to introduce your host Mark Graff senior.

Vice President of Investor Relations. Thank you Mr. Graff, you may begin your presentation.

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 first quarter 2022 earnings release. It can also be found on our website at Bloom brand Dot com in the investors section.

Throughout this conference call, we will be presenting results on an adjusted basis, an explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our earnings release on our website as previously described.

Before we begin formal remarks, I'd like to remind everyone that part of our discussion today will include forward looking statements, including a discussion of recent trends. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from our forward looking statements. Some of these risks are mentioned in our earnings release.

Others are discussed in our SEC filings, which are available at SEC Gov.

During today's call we will provide a brief recap of our financial performance for the fiscal first quarter 2020 to an overview of company highlights and an update to 2022 guidance. Once we've completed these remarks, we'll open up the call for questions and with that I'd now like to turn the call over to David Deno.

Well, thank you Mark and welcome to everyone listening today as noted in this morning's earnings release adjusted Q1 2022 diluted earnings per share was <unk> 80 versus 72 in Q1 2021 up 11%. We also saw good sales growth in Q1 with positive comp sales across all concepts. This momentum is.

Directly tied to the planning and hard work that has taken place in the company over the last few years.

Third a comprehensive plan to build a stronger leaner operation centric company, one focused on providing even better food and service to customers. It's clear our strategies are working and reaffirm our ability to deliver on our key commitments and drive even more sustainable growth.

These results would not have been possible without the talented and dedicated employees in our restaurants and the restaurant support center your commitment to providing guests the highest level of service and hospitality is what makes our restaurants so successful.

As we build upon the momentum from the first quarter, we remain focused on executing against the following key priorities to deliver sustainable growth.

First grow in restaurant sales by improving service levels and food offerings. The investments made over the past years to elevate the customer experience are showing up in improved social in customer scores, especially at outback as part of this effort. We continue to look for ways to simplify the business to improve execution and consistency this income.

<unk> is rolling out several innovations such as new cooking technology, including advanced grills, and ovens to improve food quality and productivity.

We also are deploying kitchen display system for meal pacing and handheld technology for our servers. These innovation should reduce costs and further improve customer service.

While all this is going on we continue to upgrade our asset base investments in Remodels are offering good returns in recent relocations at Outback are providing outsized sales lifts and volumes exceeding $4 5 million.

Second grow our leading off premises business, we capitalize on our strong carryout and delivery capabilities. During the pandemic U S off premise sales were over $1 billion in fiscal 2021 retention levels held steady with Q4 and are contributing to sales outperformance importantly profit margins in this channel are.

<unk> the margins of the in restaurant business.

This was the result of initiatives that were completed the past few quarters. We are also pursuing catering opportunities as people continue returning to offices.

Offer significant value through our bundled platforms, which includes group platters for large parties and our individual box options, we expect off premises to remain a large and growing part of the business going forward.

Third leverage operating margin gains by growing sales and reducing costs. This starts by growing healthy traffic across the in restaurant and off premise channels.

Also reduced reliance on discounting and promotional <unk> and pivoted advertising spend sprint towards more targeted higher return digital channels. In addition, we remained disciplined in managing the mill the P&L and are aggressively pursuing efficiencies in food labor and overhead as Chris will discuss despite large increases in food and labor inflation.

We've been able to achieve our margin objectives.

And finally, becoming even more digitally savvy company in Q1, approximately 79% of total U S off premises sales were through digital channels.

Last year, we implemented a new online ordering system and mobile App support our digital business. These technology initiatives are aimed at creating a frictionless customer experience, while also enhancing customer engagement.

Both have outperformed expectations and our new App has over $1 8 million downloads you can expect to see more activity as we improve the functionality and features of our App and digital offerings.

These priorities will be our guide for 2022 and beyond because of the momentum we have in so many areas in a much stronger balance sheet. We're in a position to begin growing our restaurant base in a meaningful way once again.

I will now turn the call over to Mark Graf, who has recently taken over responsibility for business development to provide additional details on our new unit plans.

Thanks, Steve I'm excited about the opportunity to discuss our strategy to accelerate new unit development, particularly in the U S. The improvements made over the past several years to enhance the customer experience simplify execution and capture the off premise business has strengthened the economic model in parallel we've been patiently designing a smaller.

Less expensive Outback prototype that we believe will enable more meaningful restaurant growth with healthy returns. These smaller units provide fill in opportunities in markets as we're able to pursue new trade areas when combining the growth initiatives, we see across the portfolio. We believe we can achieve 3% unit growth each year in the near term.

With attractive Rois.

We are prioritizing these efforts domestically without back. Additionally, we will focus on Fleming's and internationally with Brazil, Let me provide some more perspective on each of these opportunities.

Outback is a leading brand and remains a category leader with significant opportunity for unit growth. The success of the Outback relocation location program is a clear indicator of this demand and brand strength in the past five years, we've relocated approximately 50 restaurants with sales lifts of over 35% and recent average unit volumes.

A $4 $6 million, we believe we have the opportunity to relocate an additional 100 restaurants recent new Alpex are also opening about $4 million.

We believe the smaller prototype asset helps us capture the opportunity in key markets in Florida, Texas and other states in the South this can be done one of two ways first by building, new restaurants and rapidly growing market and second by building additional restaurants in major metro areas that provide fill in opportunities.

The new design incorporates the following aspects in the restaurant.

We reduced the overall size of the building by 16% to around 5000 square feet. We accomplished this by simplifying the configuration of the restaurant. This included redesigning the back of the house and optimizing the layout of the dining room.

Certainly we did this without compromising the guest experience or the number of tables guests will notice a brighter ambiance, a redesigned bar and a new decor package that contemporary rises the look and feel of highlighting our Aussie heritage.

The new prototype integrates the new back in front of house technology enhancements this improve speed consistency and execution, while strengthening the personal guest experience people expect at Outback. These elements are critical to support $4 million to $5 million volumes.

Third we are incorporating the current learnings from our strong off premises business into our design with off premises volumes, averaging approximately 30% of sales we added space to better accommodate this important sales channel.

We're also leveraging the benefits of simplification and efficiency efforts that translated into enhanced profitability.

And finally, we reduced the overall cost of the build by approximately 20%.

This combined with our enhanced profitability provides attractive new unit level returns.

We plan to open six Outback this year and are actively building the pipeline for expected 2023 growth. We currently have 23 sites under contract and expect to double our Outback development in 2023.

At Fleming's, we have the opportunity to open additional units in California, Texas, and Florida three of our top markets Fleming's has a proven category leader and we will be a source of growth for the company recent new unit volumes have averaged $6 million and profitability measures are among the highest in our portfolio. We are actively building the pipeline.

For growth and look forward to discussing this in the coming quarters.

Internationally.

We've always been bullish on growth, particularly in Brazil, given the strength of the market that optimism remains today and we've never been better positioned for expansion, our new units continue to open well above expectations. We expect 16, new Opex. This year and continue to build a strong pipeline for growth the market remains underpenetrated and the few.

Potential of this business is tremendous we have 126 Outback is open today and believe we can grow to approximately 240 opex over time.

In addition, we will also continue to innovate with non traditional formats as well such as all of the grille virtual kitchens and airport locations.

While we're in the early stages these provide incremental opportunities to reach new consumers and expand our growth pipeline. We will also leverage the learnings from the smaller prototype and apply them to the rest of the portfolio. This includes Opportunistically building Carrabba's and bonefish in our core geographies.

This growth plan creates excitement and opportunities for our employees and company, while providing outstanding returns to shareholders.

I'll now turn the call back to Dave.

Thanks, Mark for providing an update on this critical initiative in summary, Q1 was another terrific quarter and this sets us up well to achieve our 2022 goals.

Given the momentum we are seeing we remain bullish on the business and we have raised full year guidance and with that I'll now turn the call over to Chris who will provide more detail on Q1 and thoughts on 2022.

Thanks, Dave and good morning, everyone I would like to start by providing a recap of our financial performance for the fiscal first quarter of 2022 total.

Total revenues in Q1 were 114 billion.

Which was up 15, 5% from 2021, driven by a 14% increase in U S. Comparable restaurant sales. Our same store sales results consisted of a five 6% increase in pricing a six 9% increase in mix and a one 5% increase in traffic.

This increase in traffic came despite an approximate 300 basis point impact from the omicron variant and unfavorable weather that we discussed on our last earnings call.

The increase in mix was driven by two factors first there was significant trade in the higher priced menu items and additional sales of appetizers and beverages. In addition in restaurant dining carries a higher check average than off premises signing off premises was 35% of U S revenues in Q1 of last.

At year end was 26% of U S revenues in Q1 of this year. This shift in revenue channel also helped drive menu mix higher year over year.

At 26% of U S revenues off premises was flat from where it was in Q4 importantly, the highly incremental third party delivery business continues to grow and was 12% of U S revenues in Q1 versus 11% in Q4 in terms of concept performance Outback was 29% of sales and Carrabba's was 30.

4% of sales off premises remained sticky is a large part of our ongoing success and will remain a key part of our growth strategy moving forward.

And a final note on Q1 sales, Brazil, Q1 comps were up 36% Brazil's first quarter reflected the combination of strong execution and the lapping of Covid related operating restrictions.

As it relates to other aspects of our Q1 financial performance.

GAAP diluted earnings per share for the quarter was 73%.

Versus 63 in 2021.

Adjusted diluted earnings per share was <unk> 80 <unk>.

Versus 72 <unk> of adjusted diluted earnings per share in 2021. This performance represented a first quarter record for the company.

Operating income margin was nine 4% in Q1 versus nine 2% in 2021, our increase in same store sales drove significant leverage on the quarter. In addition, we continue to benefit from efforts to drive efficiency into our business.

These benefits helped to offset what continues to be a highly inflationary environment.

The inflation was up 15% in Q1 and labor inflation was up 10% as we indicated on our last earnings call. We expect spec, both commodity and labor inflation to be higher in the first half of the year and should ease some in Q3 and Q4 of this year as we lap elevated inflation.

From the back half of 2021.

Also marketing expenses were up $8 million from 2021, although we remain well below 2019 spending levels. We are reinvesting some marketing into higher ROI vehicles to both build awareness and drive frequency.

In terms of our capital structure. This week, we completed a transaction that allowed us to upsize, our revolver capacity from $800 million to $1 billion. We can currently used this additional capacity on the revolver to retire our existing term loan a debt this leverage neutral transaction.

Has similar terms as our previous credit facility, but did allow us to convert from LIBOR to the new Sofa standard. It also provides additional liquidity and financial flexibility.

In addition, we have repurchased $26 million of stock through April 27th and have $99 million remaining on our existing authorization. The board also declared a cash dividend of <unk> 14.

Turning to our 2022 guidance, we now expect total revenues to be between 435 and $4 4 billion.

This is up from our prior guidance of between four three and $4 $35 billion.

This is a reflection of strong Q1 sales as well as the traffic benefits of additional marketing investment.

We expect EBITDA to be between 505 and $525 million. This is up from our prior guidance of between 495 and $515 million. This is primarily a product of higher sales, partially offset by some infrastructure investment we plan to make.

In the back half of the year.

We expect a slight increase in our effective income tax rate to be between 16, 5% and 17, 5%.

And we now expect GAAP EPS to be between $2 23, and $2 32, with adjusted EPS of between $2 45.

And $2 55 this.

This is a 10% increase to our previous EPS guidance ranges similar to EBITDA. This increase was driven primarily by our increase in sales expectations for the year also as a reminder, the difference between our GAAP and adjusted EPS relates to the accounting treatment of share count from our convertible.

<unk>, we are reaffirming all other aspects of our prior guidance, including our expectations on commodity and labor inflation as well as Capex now.

Now turning to our second quarter guidance, we expect Q2 revenues to be between one one and $113 billion and we expect adjusted EPS to be between 60% and 65.

This guidance reflects a continuation of strong performance in the U S and the year over year benefits from Brazil's recovery in.

In summary, this was another successful quarter for Blue 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.

At this time, we'll be conducting a question and answer session. Please limit yourself to one question and one follow up if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two to remove your question.

From the queue for participants using speaker equipment. It may be necessary for you to pick up your handset before pressing the star keys, one moment, while we poll for questions.

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

Great. Thank you very much.

Two questions one just on the menu pricing.

I think you said five 6% in the first quarter.

I'm just wondering how much you would expect as we move through the rest of the year.

Maybe whether there is any concern about elevated pricing in what appears to be a slowing macro I'm just wondering how you're maybe 10.

To gauge and formulate so you don't see too much negatively impact the traffic momentum that you seem to be building.

Hi, Jeff Good morning.

Yes, we are very very aware of our pricing actions and we look at it competitively very closely and we.

We've been watching what others are doing and what our customer loss and we believe were at or below our competition, which is very important so managing its margin calculus, along with the consumer and pricing and everything else.

What we're trying to do now the good news is too is we have a lot of dry powder as far as how we can go to market with various programs. Our intention is not to do.

Large scale discounting and things like that but we learned a lot during the pandemic about how to go to market with digital with different offers we've invested a lot in our service and our food platforms. So thats, how we can maybe address some of the potential slowing consumer although right now we see the consumers still be pretty healthy in our space. So I'll turn over to Chris I'll talk.

The price details yes.

Jeff and so in terms of the go forward thinking right now of Q2, Q3, probably a stitch higher than what we saw in Q1 simply because we did take some mid quarter menu pricing, but definitely below 6% I think is the idea. So 55758 somewhere in that range and then I think when you get to Q4, that's when we want to just reassess because thats when you.

You start to lap the pricing that we took in 2021 and I think we're just going to make an assessment of where the consumer is where we are as a company where our margins are and then we'll make a call on what we want to do with pricing in Q4.

Understood and then just the follow up.

And Dave went to oversee four brands in the U S. It seems like you're reaching across the entire consumer landscape I'm. Just wondering maybe you can give your sense on the.

The current U S macro I know you just mentioned that the consumer still seems pretty healthy but.

Is there any change in behavior that you see.

Of your brands to demonstrate a change in the economy or maybe what do you look at your business as a leading indicator maybe what you've seen in years past to demonstrate that maybe the macro is slowing because obviously casual dining is more vulnerable being a higher price checks.

Upon your economist hat for a second and see if there's anything you're seeing or what you'd be looking for to demonstrate a slowing macro.

Well, thanks, Jeff and trained as an undergraduate as an economist, it's it's something I enjoy talking about but.

We get information everyday and we the consumer for US is looking good.

And we feel good about where we stand we feel good about what the what the current trends look like.

We feel good about our channels.

If you look at our off premises business and look at our in restaurant business of people coming back into the restaurant business. The off premises business is certainly hanging in there, especially third party. So we look at channels look at the health of the consumer and then lastly.

The high end continues to do very well you see it in the Flemings numbers.

Not only the flemings number strong, but fleming's was outperforming the marketplace and then lastly.

We have a large business in Brazil, and that business is doing extremely well and we talked about what the future potential looks like as far as the number of units in Brazil, and we look at the marketplace. You see same store sales growing as it is so we have to talk about that one as well. So we have four domestic brands within our brands and in Brazil. So so Jeff.

Rounding out the question our trends continue to be good.

So when you say current trends.

Right.

A comment related to April that I guess momentum has sustained itself and there hasnt been a slowdown of late right.

And you see we're very pleased to give everybody a quarterly guidance. We gave you second quarter guidance, it's very clear we've got the full year, there, which we raised.

April trends are incorporated in that guidance and we feel good about where we stand.

Great. Thank you very much.

Yes.

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

Sharon Zackfia with William Blair You May proceed with your question.

Hi, Good morning, just a clarification on the mix I think you mentioned that consumers on premises are switching up higher.

Thank you Adam.

I don't know if I understood that correctly understood. The difference between on Prem versus off from an attach there but are you seeing consumers spend more.

Or trade up when they are in the box when is it noticeable at one concept versus others and then.

As shown on Brazil, I may have missed this but did you give any color on kind of how Brazil, it's trending so far in the second quarter.

And how is the inflationary dynamic in Brazil kind of comparator.

Sure. Let me answer the Brazil question first and then I'll turn it over to Chris to handle the other stuff.

<unk>.

The Brazil trends are very good.

In April as well just like in the U S. The inflation environment is something that that country is very used to.

On top of pricing, we're on top of our margins and if you look at our segment reporting you'll see very strong results Sharon and <unk>.

So for that marketplace, we clearly have a very good momentum.

Before I turn over to Chris that gives us the confidence to continue to expand the business and we talked about.

When we first bought this business, we talked about having potentially 100 opex. There someday. We now think we can have 240, <unk> and that has to do with the economics of the business the growth of the country.

Innovations, we're making and how we build the box those kind of things. So that's an indication of where that country is going I'll turn over to Chris answered. The other question, Yes, Hey, Sharon.

The mixed component, we talked about mix being 7% of sales or so or 7% lift in Q2 Q1 versus last year. Its basically two components, one of which I think we would call a little surprising and one of which was not such a surprise the piece that was not such a surprise was the fact that they have.

Larger percentage of customers returned to in restaurant dining this year versus last year and the fact that that in restaurant consumer carries a higher average check relative to the off premise as consumer drove some change in mix that was probably half of the mix benefit. The other half was a little more surprising is just the consumer.

<unk> appears to be pretty good and we've seen trade up into additional appetizer sales additional alcoholic beverage sales things like that I think carried the day on the other side of the mix components. So it was a bit of a tale of two cities on that one.

Just wanted to add one other thing too we're seeing the benefit of the investments we made in customer service and food over the years and customers are noticing that and thats, what our offering some of the trade ups for us because of the enhanced service and the food and we're seeing it in our restaurants and our operating scores by third parties are improving nicely.

Thank you.

Our next question comes from the line of.

Alex Slagle with Jefferies. You May proceed with your question.

Thanks, Good morning Congrats.

Question on the the off premise talked about the margins being comparable to dine in and I don't know if that's a step up from the previous comment that it was approaching that of dine in but.

Maybe you can just talk about the dynamics of what's driving the help there whether it's pricing or sizable shift in digital which was a pretty big jump.

And.

Seeing this happen even with delivery mix growing just kind of curious.

Your analysis there.

Well, so a couple of things one.

What we lose in average check we make up for in lower labor costs. For example, so you were able to maintain some parity there.

In terms of third party, yes, there is a pricing component to third party that we have that's above what we would have in restaurant.

But again, the fact that that third party mix continues to increase in an environment, where off premise mix is shifting from curbside to in restaurant. It just speaks I think loudly to the increments Howdy this business and the success that we're having driving third party through our box.

I had a follow up on the marketing opportunities and leveraging digital and loyalty I mean, it feels like you've made really good headway on the digital front through the pandemic.

Leveraging a bunch of the investments and improvements building out that platform and the analytics.

And sort of the more efficient deployment of the marketing spend and kind of curious where you see the next phase of this going in.

As you have more tools and insights at your disposable sort of what that opportunity looks like.

Yes, the single biggest opportunity is continuing to development of our various apps and our concepts.

We're making great progress and for competitive reasons, I don't want to get into it but the consumer is noticing I mean, if you look at the percent of.

Occasions that people are using our app youll get to what we're used what how people are accessing us.

We're making significant progress and that was a lot of work done over the past couple of years by our team during the pandemic and we're now reaping the benefits of that.

For instance, if you like favorites at Outback, because now favorites button just boom you can they didn't go with it.

We can make that ease of ordering and the ease.

Great.

We have converted to a new dine rewards program, that's point space that will give us more opportunity to access even more customers because they have a chance to use the points more frequently that can allow us partnerships et cetera, so asking them to give us a chance for even more engagement and more consumer data, which is going to be really terrific and then and then <unk>.

Lastly, I think theyre going to continue to see operations enhancements that go along with the App enhancements in the restaurants to make off premises and ordering ahead very easy and seamless for our customer finally on the marketing side, yes, we have.

And a lot about the digital opportunities with various partners and Thats, primarily how are we going to market now and we know exactly so it gives us a lot of flexibility and we know what the returns look like as we go forward and we've been investing behind that.

From a capability standpoint, and a marketing spend standpoint.

Great. Thank you very much.

Welcome.

Our next question comes from the line of John <unk> with Jpmorgan. You May proceed with your question.

Hi, Thank you.

Looking at the Outback $24 average ticket Theres, obviously, a lot of ways consumers can spend around that higher but also lower obviously as well can you talk about with all the new data that you have can you talk about exactly who your customer is.

Middle income it doesn't skew higher is there a sizable amount of lower income consumers like you.

In particular want to protect.

The extent that they do cut back in some of your more discretionary occasions, yes.

Yes sure a.

Couple of things on the guest check John Chris talked about the trade ups I mean, the Outback team did a really smart thing 18 months ago and changed around some of their menu items made appetizers more accessible and thanks for the attachment rates are stronger so that's helping a lot secondly, we arent discounting as much.

So some of those customers have walked away. So we've got.

Guest check build off of that but we still are seeing importantly, we are still seeing the middle income consumer use us that's a very important point because they have price certainty and they know what theyre getting both from food and service and as I talked about earlier, we've tried to moderate our pricing as much as possible.

And as we look at competition. So we're trying to manage that the check that way the PPA that way, but.

Like you said theres different ways to access our company at the low end or the higher end as well.

And this might be too proprietary or a question, but if you would answer that would be great. I mean, what percentage of the outback customers are below the American.

Household income average I mean, what percent I mean, just kind of what you are picking just a number but you can obviously say whatever you'd like.

Yeah.

Yes, I think John we'd like to keep that to ourselves if we could.

Because that's pretty proprietary and especially as we have.

Okay. So I, usually like to answer your questions directly but other than that.

I took a shot on that one I didn't think I'd get it but you never know okay. So let me switch to the technology side I mean.

Few minutes late on the call and I apologize if I missed this.

KBS handheld grills, where are we in terms of the supply chain where are we in terms of.

Getting some of these projects implemented in the store.

I guess, how excited argue that we could see some material benefit from both the customer and employees.

Employees and margins.

Or might there be tweaks necessary to.

The projects as they come in relative to expectations.

No tweaks expected John is spot on versus the last time, we talked on the call.

Kgs and the restaurants being rolled out as we speak handheld will be done in Q3, the backhouse equipment, specifically the clamshell grills will be rolled out over the next few quarters exactly like we talked about it.

It's on time, and we're very pleased to see that and the other thing John which I think you'd appreciate as well.

Some of these clamshell ovens in some of our highest volume restaurants and they are responding we didn't want to just put it in a bunch of average restaurant, we want to put it in a bunch of high high volume restaurants.

One is kind of down the street from you and Port Charlotte.

And and.

Thanks Pat.

We are seeing some really great results.

Turn over to Chris to talk about the financials, Let me talk let's talk about the customer.

We're looking at.

An opportunity here to really address one of our biggest issues, which is nice.

Steak accuracy.

And we're seeing that improvement and we're going to see with that will come higher guest satisfaction at higher track.

Secondly, Peter.

Speed of service throughput really great.

And lastly, with our handheld there'll be a lot easier too.

For our front of house employees to engage with customers. So those are the three things from the customer side that we really see no I don't think we're getting a great detail on some of the financials for proprietary reasons, but I'll turn over to Chris to talk about a few of the financial benefits, we're going to see well I guess, all I would add to what Dave said is the fact that when you talk about our long term March.

Target of 8% operating margin one of the key catalyst to allow us to continue to drive efficiencies in the box from a productivity standpoint is going to be the technology. So this is this is clearly about service is clearly about execution, but there is also an efficiency benefit.

Certainly in the front of the house with the server handheld technology, but also in the back of the house in the kitchen as it relates to the grilling technology et cetera. So again I would just say that it's part of the calculus that when you look out longer term allows us to think more broadly about this 8% margin target and lastly, Jon the.

Goal here is to we're also technology to enhance customer service that is a big part of what we're trying to do here to enhance customer service and our food quality offerings.

Clear thank you.

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

Thanks, and good morning all.

Chris just on your comments on the second quarter can you can you and I'm thinking about the Outback brand in particular.

It will be very tough lap it from the second quarter of last year can you comp positively against that I think consensus doesn't have it as positive.

Is your view in your revenue guidance and earnings guidance assumes positive comps in the second quarter for the Outback brand.

Positive well, what I would say is look the positive comps for the portfolio absolutely we're striving to get positive comps across all of our restaurant brands for sure right Youre spot on though John It is a it's a tough lap given the success that we had last year all.

All those thoughts are embedded in the guidance as well as a pretty strong recovery in Brazil.

Okay. Thank you.

You didn't update or change your commodity guidance, you've thought it was going to be higher.

Many restaurants have already updated their commodity guidance. This quarter a lot has changed since you issued your guidance last time in the commodity world. So do you have more visibility than others more contracting maybe you could talk about the contracting rate in 'twenty. Two it gives you that percentage youll see some declines in the back half and maybe anything that is going on in the beef.

Market, specifically that may be benefits, you that doesn't benefit.

For example.

Yeah look I don't think that anything has really changed we're right now we're 78% locked on our 2022, and we're obviously pursuing spot and contract strategies for the remainder of the year.

But look I think it's pretty consistent to say that the overall landscape in commodities hasn't improved much and there really hasnt been any sustained positive news in the commodity category, but that was all really embedded in our thinking when we gave our guidance originally.

So.

Think that.

Nothing has really changed on our end, but obviously, it's a highly inflationary environment now in terms of as you look at the year progression from an inflation standpoint, I would say, it's far more a product of the fact that we're starting to lap higher commodity periods from a year ago versus any big sea change in our expectations for the commodity landscape in 2022.

And beef specifically is there any any update on what the beef market is doing.

The curve of beef is somewhat.

Representative of what you would typically see for the beef cycle at this point in time, it's just elevated at that in other words. The curve is the same but it's elevated from where it would be historically, but again, we're locked in so we don't have that kind of volatility in our pricing.

Thank you.

Our next question comes from the line.

Lauren Silberman with credit Suisse. You May proceed with your question.

Hi, Thanks, so much.

Wanted to ask about unit growth. So you talked about the 3%.

Our net unit growth number and then is this a 2023 call.

Yes, good morning, it'll be a bill will provide more details on the 2023 guidance, obviously as CEO of the company I am interested to try and get to that build as quickly as possible, but I've got to be realistic about it with working with mark and team, but it is a it's an expansion number total we anticipate very few.

<unk> closures going forward, we will always look at it.

But the 3% is in a sense a gross number if any closures happened because we've done a lot of work as you're following our company over the years addressing our asset base, but the 3% is what we look to achieve on a gross basis.

Great specific to Outback is the largest stay concept by units how are you thinking about the total unit potential in the U S. And then beyond Outback and just broader portfolio I. Appreciate all the color on the reduced costs better unit economics at the prototypes are there any other changes you've made to the development approach.

<unk> confidence in the acceleration I guess part of it is the closures to airplanes.

Yeah.

The big the Big thing frankly is.

Even though we were.

Were very sad to see what came out in the restaurant industry. During Covid, we came out in a much stronger place. So our unit growth opportunity now is pretty good very good and if you look at cities like were really strong in the south they're filling opportunities or new unit expansion opportunities. So we're looking at.

At 75 to 100, new Outback in the U S and hopefully as time goes by we can continue to make progress on that.

Beyond that but we between the smaller building prototype that Mark talked about is delivery and carryout enabled.

We have strong holds in really fast growing markets in the south we think that the opex piece is available to us and the economics are really much better and our finance team led by Chris Meyer.

It looks at the returns very carefully to make sure we're not making any mistakes. So we have that that.

Tool as well available to us so 75 to 100 more restaurants now let me add a couple more things real quick.

We've seen a step change in Carrabba's and Bonefish performance step change.

And I think we can now look at in our stronghold markets selectively expanding those two markets. Those teams have done a great job addressing that that marketplace. Lastly, the high end like I talked about earlier is extremely strong high plumbing is performing really well in that environment, we're looking to expand our fleming's.

And also we're really strong and in key markets in Florida, California, and Texas is upgrading our assets because we're seeing returns there as well.

And finally.

We talked about Brazil, and what the opportunities look like there.

And everybody that it's about $1 million a box in cash with wonderful returns and we think we've got expansion opportunities there as well. So that's kind of how you build up to 3%.

Fantastic. Thanks, so much.

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

Thank you just wanted to follow up on a couple of things first would be John's commodity questions.

Can you guys share your top five commodity exposures I think you said that you are roughly 78% covered are contracted for the year, but in addition to those top five exposures, which commodities are more or less contracted as we stand right now.

Yes. So obviously beef is the biggest I would say from there it goes to.

More like seafood.

There is food other which is a potpourri of things dairy oil those kind of things and then less exposed but still a reasonable number for chicken. The rest of it is pretty small so I would say.

Produce as well, yes, so I'm, sorry, I misread it so its produce dairy oil beef.

Beef being the largest seafood being the second largest and then poultry would be the five and and look I think that it's just a mixed bag in terms of what we're locked in and what we're not obviously with some of those things like produce for example, you really don't lock in for extended periods of time, but with beef you've got we're fully locked on beef and the rest of it is pretty much.

In the middle so 50% locked on a lot of those categories Alright, that's helpful and just one other quick follow up which is on the off premise business.

Obviously, a lot of moving pieces with this business across both of your core concepts Outback and Carrabba's, but I'm just looking for you to help us sort of size up the business and the opportunities. So you have delivery to go the virtual brand mean tender shock and catering which is it looks like an increasing focus for.

For the management team I'm curious with the largest piece of off premise is now and where you see the greatest opportunity moving forward yes.

Yeah, So I'll talk about the future of the business and Chris can give some of the pieces parts, we're going to grow this off premise business.

Piloted long long ago, we start carry out long ago, we've been doing delivery for a number of years.

Got a specific management team dedicated to growing it looking at packaging pricing products all of those things to make it come together so.

What are we seeing Jeff that.

That is.

Pretty interesting.

Carryout that Kris talked about is a big part of our business and has good profitability third party as I mentioned earlier continues to grow for us and we've got great partnerships there.

And then finally on the catering piece.

<unk>.

<unk> has led the way on that.

Outback has to follow so we're seeing some good gains on that as well in the off premise occasion.

Nearly all of our concepts problems has the food form and the capability to have the highest mix of the best growth.

If those are going to call. It if you've had it you know what I'm talking about it really delivered well from a service and food standpoint, so over to Chris well. If you go back to 2019, and you think about where our mix was of our off premise dining we were in I think we finished 2019 at 12% was our total off premise mix and 9% of that 12.

Percent was curbside or to go you fast forward to where we were in Q1 for example, and Youre curbside and your delivery are basically at parity.

And in almost all of that delivery is now third party delivery. So I think you've just seen that fundamental shift like I said I think that the third party delivery is something that will take all day long just given its increments of <unk> and our ability to execute at a high level.

Those have been the biggest shifts from.

What was what used to be and what is now and then closing Jeff I think what we've learned in the last few years from a customer standpoint is.

Consumers are seeing the fact that our products deliver really well and it can be in their solution set where in the past maybe they thought about just other service specific food forms theyre seeing that what we offer works really well.

Alright I appreciate it thank you.

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

Alright, thanks, and good morning.

Wanted to ask about the recovery in the dine in business and I guess I'll ask about outback, but it's really a broader category question and I guess the quick math on Outback in Q1 is that average weekly sales for dine in or still down somewhere in the teens low to mid teens.

Versus pre Covid I would assume that's improved more recently exiting omicron, but I'd love to get your perspective on why traffic with in that category is still down as much, particularly given industry closures and if you dig into your data are there big regional differences you see are there any new thoughts on how incremental off premise might be.

Versus the dine in occasion, just any insights you have there would be helpful.

Yes sure.

As consumers begin to have there have there.

Habits change and come back to the dining occasion in restaurants, and we're going to see more and more of that and Thats an opportunity for our company.

And especially as we keep the off premises business going.

Secondly, Brian until because of the <unk> until March we really Didnt turn our in restaurant marketing back on and Thats, an opportunity for us because I've talked about that in the digital space. So youll see more of that from our brands as we go forward. The goal is to continue to have dine in sales.

Sales come back and with the off premise is staying the same. So those are two really important pieces. Then we talked about the importance of some of the investments we're making in the back of the house and the front of the house that's been improved traffic.

Shell grills, the handhelds throughput, that's all going to improve as a result, so those are the three or four things that we see.

Coming forward for the company in the future quarters, and we see it as an upside for us as we move forward.

But I guess, if I could how big of a range do you see across regions in terms of the magnitude of dine in recovery you've seen can you give us any sense of that.

Yes, we're still.

Getting better and stronger as we look at the regional maps, obviously, the northeast and the upper Midwest were little slower to come back, but they're coming back and we've seen that in our results and the south continues to do well. So I think as the northern environment, especially with some are coming back and everything else and outdoor dining in.

We've got a chance now to build on this and that could be a nice opportunity for us.

Alright, Thank you and I appreciate the Q2 data of course, but could you give us a sense of maybe where average weekly sales trends recovered at outback and carrabba's towards the end of Q1, perhaps ballpark where you are.

To date and also remind us just have the normal seasonality plays out moving through May and June .

Yes margins are really strong.

<unk> for us in terms of average weekly sales and then traditional seasonality would suggest from an average weekly sales standpoint, you do take a step down in April certainly at our concept. So if outback was outback was averaging in call. It if im looking at this year outback was averaging sort of in the <unk>.

<unk> youre going to be in the mid to high <unk> kind of in an April standpoint, and Thats just seasonality that has nothing to do with.

Any kind of change in trajectory. That's just what you would typically see at this time of year.

Okay, Okay and in Brazil, obviously, a strong recovery that you've seen take hold there.

Was there any calendar shifts to be mindful of I think carnival moved around a little bit, but anything there to be mindful of or to think about what we're seeing in the numbers you just reported versus the true underlying trend.

No. The two underlying trend Brian is very strong they are doing great and you talked about the U S.

Some companies come out of the pandemic strong you can only imagine what a category leading business like outback looks like in Brazil coming out of the pandemic very strong.

Okay, and then last one for me just on catering can you remind us what percent of sales that channel was.

For Outback and Carrabba's pre COVID-19 .

Tiny.

Yes. It was it was it was a very small number.

And there are some new initiatives around that I think I saw an announcement in recent weeks, there's sort of a broad strategic plan within that.

<unk> sales channel that you are moving forward with exiting the pandemic.

Yes, not so much at Carrabba's, because thats been in place for a while but it all factor was quite a bit of coverage on that which we were happy to see.

Alright, I'll pass along thank you.

Yes.

Our next question comes from the line of Brett Levy with MK Partners. You May proceed with your question.

Great. Thanks for taking my question.

I guess.

Taking are taking an opportunity to.

Further on the regional.

Question, but also a little bit on the margin.

We heard from.

An indirect competitor yesterday, just about their labor challenges.

Can you unpack a little bit more what youre seeing either regionally or by courthouse or quintiles.

How you are in terms of a static level of staffing productivity.

What's your what's your unit level margins are.

Or at least how they're trending just give us a little bit of sense of what kind of range as we're seeing out there.

As you.

Continue your venture towards full recovery.

Yes, I'll take the product question on staffing and I will turn over to Chris any financial updates you'd like to provide but.

I am not to make this too long, but I'll try and make it relatively soon.

We had a long history of a strong culture and strong people measures in our restaurants.

That was only enhanced during the pandemic and how we treat as our people.

And we're benefiting from that we didn't let anybody go.

The people who were retained and if you look at our turnover levels and our retention levels. They are among the best in the industry.

Our their staffing challenges out there of course, there are but we started at a much much much better spot than others did in the industry.

First of all second of all the staffing environment has improved even though it is challenging in certain spots.

<unk>, what you would expect parts of the Midwestern parts of the northeast, but the staffing environment has improved so our strong culture is paying off in a big way, we've got very good retention and turnover levels and that enables us to.

Keep our customer satisfaction high and it cuts down on training costs, and just churn costs in the restaurants, so but for that I will turn it over to Chris for anything else well I've just I would just add Theres no question that there is.

There is a price to that in terms of inflation and we're seeing that across the industry. We're seeing it internally our inflation being up 10% in Q1.

But the good news again is when you look at the way Q1 came together. The fact that we had such strong average unit volumes and we have these efficiencies in our labor model.

We were able to offset the inflation that we saw in the period and we actually had some leverage year over year in the labor line.

Great Thanks, and just.

I know you.

Gave some color on this but.

Can you give a little bit more clarity in terms of.

What is implied within the new $1, one to 1.13 guidance for <unk> in terms of.

New unit productivity, how much that's contributing as well.

Thanks.

Yes, I think just to go back to the comp question again, we've said positive.

We have positive same store sales through through April that would be embedded in our guidance and then the other piece that is easy to Miss but we tried to bring it up time and time again is that Brazil's recovery, especially when you consider that they were they were largely they had a lot of.

Covid related closures last year that year over year recovery is going to be built into that number as well so.

How you get to the one one to one three.

In terms of the margins and how that came together from a profitability standpoint again I think it's pretty straightforward. We are just flowing through the sales.

And that's led to our increase for the full year, our full year guidance going up by call. It $50 million some of Thats coming into Q2, and Thats again, a product of the fact that we are expecting to see some of this check average appreciation that we had in Q1 to continue into the second quarter now probably not as much year over year as we saw in Q1.

And that's more of just a product of the fact that Q1 was unique in the terms of the in restaurant recovery was so strong relative to the off premises business. You don't have quite that same dynamic in the second quarter. So the check average benefit that we saw in Q1, probably isn't going to be as strong in Q2 as it was in the first quarter those are the probably the.

Pieces parts I would call out.

Thank you very helpful.

Our next question comes from the line of Brad.

Ion Marlin with Deutsche Bank You May proceed with your question.

Thank you just a question on the outstanding convertible notes I guess number one can you remind us when you have the right to redeem those and to Chris you mentioned on the last call, but are you still considering or is there a scenario where you would.

Do something before then in the open market or in negotiation with current holders.

Maybe what scenario would that makes sense for women to do that versus waiting yes.

Yes. So may of May of 2023 is when we have our first rate. However, you can negotiate your way through these these converts prior to that date and look I think we're doing the math, but the challenges is there is a premium that you have to pay not just to the holders, but also because we have warrants in place there's a premium.

But the warrants as well and so we just have to run the calculus as to whether or not the premium that we would have to pay to exit gives.

It gives us outsized benefit relative to paying off that debt I would tell you. That's the reason why we are strongly considering some of that is because there is a share overhang associated with the convert and I think that just psychologically that creates a lot of challenges from a communication standpoint, but also the math has to make some sense too. So we're going to it's going to be sort of a dual pronged kind of conversation does.

The math makes sense and as we're leaving that overhang from the convert give us any breathing space in terms of our ability <unk> ability to be able to communicate our story and and I think that should those two make sense. Then we're going to explore something this year if possible.

Okay. Thanks for that and then just bring it back to the development topic. It's helpful to hear about how many additional opex do you think the U S.

I'm just wondering if you could give that same type of commentary.

Flemming, how many you think there could be over the longer term just trying to get a sense of the magnitude of the opportunity you see for that brand.

Yes, there is two opportunities at Fleming's one is we think theres additional 15 that we could do and given their average unit volumes that's significant.

The other opportunity is we've got some great restaurants, and some really strong trade areas.

That can we know given what we've done in other restaurants by expanding the bar, making the inside a little more modern shall we say.

And those kind of things to make big improvements on our sales. So we will be doing both of those will be.

Enhancing and improving existing restaurants, and strong trade areas and adding up to 15 more fleming's.

Thank you.

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

Alright, Thanks for the question excellent sort of all time.

On some of that commentary.

On the Remodels.

But specifically as it relates to our back and talk about that new product and new asset.

Design changes.

In terms of ambiance and customer appeal.

Okay.

New units in that new assets or are you contemplating.

Sort of going back and remodeling and refreshing some of the.

The older existing opex in the portfolio to match this updated design. Thanks.

Yes.

We will do both.

There's a cadence to our remodels, our interior remodels and we're going across the country and refreshing those restaurants as we speak it's embedded in our it's embedded in our.

Our guidance and we will continue to do that in the coming years and so.

Between that and the new units, we think we can have a elevated brand from where it stands today and then obviously two we're making technology investments to enhance the customer experience in the restaurant in the back of the house.

Thanks, and do you have maybe a way to frame sort of what percentage, but what percentage of the portfolio you feel sort of comfortable with in terms of the asset design now and maybe how many more there are left to go.

50, now I'm, just sort of curious as we think about the upside opportunity from those redesign three malls.

Yes.

We're always refreshing.

We've got.

We've been doing Remodels, all along I don't think Jarrod.

Never really I don't mean to Dodge the question, but theres ever really endpoint per se as we build more restaurants relocate more restaurants and continuing to refresh the restaurants, they will always be an opportunity to move forward and there'll be a continuous loop for us.

As we grow the business because by the time you finish one iteration you start over again.

But obviously with up to a 100 more restaurants will be brand new that we can build with our relocation program that we've had underway.

Those assets are immediately updated and then will continue over time to refresh restaurants, each year, each and every year.

Our last question comes from the line of Jon Tower with Citi. You May proceed with your question.

Awesome. Thanks for sneaking me in here.

Mostly follow ups I think you hit on some of these topics throughout the call, but I just wanted to make sure that it kind of nail them down in terms of looking at the first quarter. It looks like the traffic for outback slipped a little bit versus.

Pre COVID-19 levels.

And I Didnt hear you mentioned it too much on the call, but I'm, assuming omicron might have weighed on some of the in store traffic.

Or just traffic in general during the periods at first.

Could you maybe explain why the traffic versus 2019 was a little bit weaker.

During the first quarter.

Yes versus 2021, correct and versus 19, yes.

And but I'm trying to hit 300 basis points impact on the traffic levels I mean that was and we called out in our last Q1 call in.

And we expected that and we talked about some of the things we're doing at outback to move it forward.

Got it. Thank you I appreciate that and then just in terms of thinking about the marketing spend and the idea and I think.

David you've hit on this a little bit earlier in the commentary, but what spurred the decision to take that up.

Sequentially.

Was it brought on by.

Something that youre seeing in the data or staffing levels coming back to two a M.

Area, where you felt like the in store environment could handle or the in store staffing could handle incremental demand or were you seeing something in your own data.

On the traffic side, where you just felt we didn't need to go to market remind customers that the brands out there and offering some good things.

When we talked earlier about how in March we turned some marketing back on.

And when you have something like Omicron, it's not always wise to spend it on in restaurant marketing is likely spend on off premise with marketing and Thats exactly.

Are the things that we did.

Now as I mentioned earlier, John we've got a really good sense of what.

Projects marketing initiative et cetera work, so we're going to be investing behind those and looking at those returns specifically in the digital space and specifically around products and specifically around in restaurant dining so youll see more of that from us.

We go forward our intention is not to engage in deep discounting or anything like that but we believe we have the ideas to move this business forward and we have a good sense of the returns that they offer and we have a very good sense of the vehicles that we can use to make that work and hopefully with some of the pandemic related issues, who knows for sure if it's behind us but have.

Police returned to in restaurant dining, it's an opportunity for our company and we're going to capitalize on that with our marketing.

Got it. Thank you and then just lastly on the unit growth piece of it.

For all the details so far I am curious just to learn a little bit more about how youre thinking about citing these stores versus the existing store base, specifically when you think about customer demographics or even the market sizes at these stores today, and even thinking about specifically getting it down to the pad.

How are you thinking about co locating with other brands on platforms any different than what you've done in the past maybe mall versus non mall.

Is the philosophy that much different than what we've seen before obviously the footprints are but I'm curious to learn more.

Well, we talked at length about the footprint in all the great work, we've done there secondly, we talked about the <unk>.

Fact that our mark our stronghold markets are very advantaged demographic and economic areas. We are very strong in the south and we intend to capture that third we are seeing infill opportunities in quick growing major metro areas, Nashville, Austin, Miami et cetera that we may not have contemplated.

In years past as all cities are just growing rapidly.

Third those cities are also growing rapidly in new areas and that in that particular trade area. So new developing areas. We were just in Dallas for instance, and I think the team was very amazed at how how much of that city has grown and what the opportunities look like.

Those are the things that we're looking at as far as our unit expansion opportunity and then kind of the extra which we talked about for the first time today in our core markets. That's also where bonefish and carrabba's generally tend to be strong. So we will be looking at that as well not to the extent that we're looking at outback, but can we do something.

With those those restaurants and some of our core trade areas. So in summary, we've got the asset we've got the team to pick the sites were in metropolitan areas that are growing rapidly and geographies are growing rapidly and we're going to and we're in a much stronger position competitively versus the pen that when the pandemic started and all of those things are coming together to really.

Provide us a development opportunity.

Great. Thank you I appreciate it.

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

Well. Thank you for attending today, everybody and we appreciate your questions and your interest in our company and we look forward to updating you in July on our second quarter call.

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

Okay.

[music].

Okay.

[music].

Yes.

[music].

Vice President of Investor Relations. Thank you Mr. Graff, you may begin your presentation.

Throughout this conference call, we will be presenting results on an adjusted basis.

Explanations 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.

Others are discussed in our SEC filings, which are available at SEC Gov.

During today's call, we'll provide a brief recap of our financial performance for the fiscal first quarter 2020 to an overview of company highlights and an update to 2022 guidance. 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.

Momentum is directly tied to the planning and hard work that has taken place in the company over the last few years, we prepared a comprehensive plan to build a stronger and leaner operation centric company, one focused on providing even better food and service to customers. It's clear our strategies are working and reaffirm our ability to deliver on our key commitments in <unk>.

Drive even more sustainable growth.

These results would not have been possible without the talented and dedicated employees in our restaurants and the restaurant support center.

Commitment to providing guests the highest level of service and hospitality is what makes our restaurants so successful.

As we built upon the momentum from the first quarter, we remain focused on executing against the following key priorities to deliver sustainable growth.

<unk> is rolling out several innovations such as new cooking technology, including advanced grills, and ovens to improve food quality and productivity.

We also are deploying kitchen display system for meal pacing and handheld technology for our servers. These innovation should reduce costs and further improve customer service.

Second grow our leading off premises business, we capitalize on our strong carryout and delivery capabilities. During the pandemic U S off premise sales were over $1 billion in fiscal 2021.

Retention levels held steady with Q4 and are contributing to sales outperformance importantly profit margins in this channel are comparable the margins of the in restaurant business.

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

We are also pursuing catering opportunities as people continue returning to offices.

Offer significant value through our bundled platforms, which includes group platters for large parties and our individual box options. We expect off premise is to remain a large and growing part of the business going forward.

Third leverage operating margin gains by growing sales and reducing costs. This starts by growing healthy traffic across the in restaurant and off premise channels. We also reduced reliance on discounting and promotional <unk> and pivoted advertising spend sprint towards more targeted higher return digital channels. In addition, you.

Remained disciplined in managing the mill, the P&L and are aggressively pursuing efficiencies in food labor and overhead as Chris will discuss despite large increases in food and labor inflation, we've been able to achieve our margin objectives.

And finally, becoming even more digitally savvy company in Q1, approximately 79% of total U S off premises sales were through digital channels.

Both have outperformed expectations and our new App has over $1 8 million downloads you can expect to see more activity as we improve the functionality and features of our App and digital offerings.

These priorities will be our guide for 2022 and beyond because of the momentum we have in so many areas in a much stronger balance sheet. We are in a position to begin growing our restaurant base in a meaningful way once again.

I will now turn the call over to Mark Graf, who has recently taken over responsibility for business development to provide additional details on our new unit plants.

Thanks, Steve I'm excited about the opportunity to discuss our strategy to accelerate new unit development, particularly in the U S. The improvements made over the past several years to enhance the customer experience simplify execution and capture the off premise business have strengthened the economic model in parallel we've been patiently designing a smaller.

The less expensive Outback prototype that we believe will enable more meaningful restaurant growth with healthy returns. These smaller units provide fill in opportunities in markets as we're able to pursue new trade areas when combining the growth initiatives, we see across the portfolio. We believe we can achieve 3% unit growth each year in the near term.

With attractive Rois.

<unk> of $4 $6 million, we believe we have the opportunity to relocate an additional 100 restaurants.

<unk> New Alpex are also opening about $4 million.

The new design incorporates the following aspects in the restaurant.

Guests will notice a brighter ambiance, a redesigned bar and a new decor package that contemporaries as the look and feel of highlighting our Aussie heritage.

The new prototype integrates the new back in front of house technology enhancements this improved speed consistency and execution, while strengthening the personal guest experience people expect at Outback.

These elements are critical to support $4 million to $5 million volumes.

Fourth we're also leveraging the benefits of simplification and efficiency efforts that translated into enhanced profitability.

And finally, we reduced the overall cost of the build by approximately 20%. This combined with our enhanced profitability provides attractive new unit level returns.

We plan to open six Outback this year and are actively building the pipeline for expected 2023 growth. We currently have 23 sites under contract and expect to double our Outback development in 2023.

And for growth and look forward to discussing this in the coming quarters.

Internationally, we've always been bullish on growth, particularly in Brazil, given the strength of the market that optimism remains today and we've never been better positioned for expansion, our new units continue to open well above expectations. We expect 16, new Opex this year and continue to build a strong pipeline for growth the market.

Underpenetrated and the future potential of this business is tremendous we have 126 Outback is open today and believe we can grow to approximately 240 opex over time.

In addition, we will also continue to innovate with non traditional formats as well such as Aussie Grill virtual kitchens and airport locations. While we're in the early stages. These provide incremental opportunities to reach new consumers and expand our growth pipeline. We will also leverage the learnings from the smaller prototype and apply them to the rest of the portfolio.

So this includes Opportunistically building carrabba's and bonefish in our core geographies.

This growth plan creates excitement and opportunities for our employees and company, while providing outstanding returns to shareholders.

And I will now turn the call back to Dave.

Thanks, Mark for providing an update on this critical initiative in summary, Q1 was another terrific quarter and this sets us up well to achieve our 2022 goals given the momentum we are seeing we remain bullish on the business and we have raised full year guidance and with that I'll now turn the call over to Chris who will provide more detail.

On Q1 and thoughts on 2022.

Thanks, Dave and good morning, everyone I would like to start by providing a recap of our financial performance for the fiscal first quarter of 2022.

Total revenues in Q1 were 114 billion.

This increase in traffic came despite an approximate 300 basis point impact from the omicron variant and unfavorable weather that we discussed on our last earnings call.

The increase in mix was driven by two factors first there was significant trade in the higher priced menu items and additional sales of appetizers and beverages. In addition in restaurant dining carries a higher check average than off premises dining off premises was 35% of U S revenues in Q1 of last.

At year end was 26% of U S revenues in Q1 of this year. This shift in revenue channel also helped drive menu mix higher year over year.

At 26% of U S revenues off premises was flat from where it was in Q4 importantly, the highly incremental third party delivery business continues to grow and was 12% of the U S revenues in Q1 versus 11% in Q4 in terms of concept performance Outback was 29% of sales and Carrabba's was 30.

4% of sales off premises remained sticky as a large part of our ongoing success and will remain a key part of our growth strategy moving forward.

And a final note on Q1 sales, Brazil, Q1 comps were up 36% Brazil's first quarter reflected the combination of strong execution and the lapping of Covid related operating restrictions.

As it relates to other aspects of our Q1 financial performance.

GAAP diluted earnings per share for the quarter was 73%.

Versus 63 in 2021 adjusted diluted earnings per share was <unk> 80 <unk>.

Versus 72 <unk> of adjusted diluted earnings per share in 2021. This performance represented a first quarter record for the company.

These benefits helped to offset what continues to be a highly inflationary environment commodity inflation was up 15% in Q1 and labor inflation was up 10% as we indicated on our last earnings call. We expect spec, both commodity and labor inflation to be higher in the first half of the year.

And should ease some in Q3 and Q4 of this year as we lap elevated inflation from the back half of 2021.

<unk> has similar terms as our previous credit facility, but did allow us to convert from LIBOR to the new Sofa standard. It also provides additional liquidity and financial flexibility.

In addition, we have repurchased $26 million of stock through April 27th and have $99 million remaining on our existing authorization. The board also declared a cash dividend of <unk> 14.

Turning to our 2022 guidance, we now expect total revenues to be between 435 and $4 4 billion. This is up from our prior guidance of between four three and $4 $35 billion.

This is a reflection of strong Q1 sales as well as the traffic benefits of additional marketing investment.

In the back half of the year.

We expect a slight increase in our effective income tax rate to be between 16, 5% and 17, 5%.

And we now expect GAAP EPS to be between $2 23, and $2 32, with adjusted EPS of between $2 45 and.

And $2 55 this.

<unk>, we are reaffirming all other aspects of our prior guidance, including our expectations on commodity and labor inflation as well as Capex now.

Now turning to our second quarter guidance, we expect Q2 revenues to be between one one and $113 billion and we expect adjusted EPS to be between 60% and 65.

This guidance reflects a continuation of strong performance in the U S and the year over year benefits from Brazil's recovery. In summary, this was another successful quarter for Blue 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 <unk>.

<unk>.

At this time, we'll be conducting a question and answer session.

Limit yourself to one question and one follow up if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two Jerome will be a question from the queue for participants using speaker equipment. It may be necessary for you to pick up your hands.

Before pressing the star keys.

While we poll for questions.

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

Great. Thank you very much.

Two questions one just on the menu pricing.

I think you said five 6% in the first quarter.

Wondering how much you would expect as we move through the rest of the year.

And maybe whether there's any concern about elevated pricing in what appears to be a slowing macro I'm just wondering how you're maybe tests to gauge and formulate so you don't see too much negatively impact the traffic momentum that you seem to be building.

Hi, Jeff Good morning.

Yes, we are very very aware of our pricing actions and we look at it competitively very closely and we've been watching what others are doing and what our customer wants and we believe were at or below our competition, which is very important so managing margin calculus, along with the consumer and pricing and everything else.

Is what we're trying to do now is the good news is too is we have a lot of dry powder as far as how we can go to market with various programs. Our intention is not to do large scale discounting and things like that but we learned a lot during the pandemic about how to go to market with digital with different offers we've invested a lot in our <unk>.

Service and our food platforms. So thats, how we can maybe address some of the potential slowing consumer although right now we see the consumers still be pretty healthy in our space. So I'll turn over to Chris and I will talk about the price details, yes, Hey, hey, good.

Understood and then just the follow up.

Dave will oversee four brands in the U S. It seems like you're reaching across the entire consumer landscape I'm. Just wondering maybe you can give your sense on that.

The current U S macro I know you just mentioned that the consumer still seems pretty healthy but.

Is there any change in behavior that you see.

Of your brands to demonstrate a change in the economy or maybe what do you look at your business as a leading indicator of maybe what you've seen in years past to demonstrate that maybe the macro is slowing because obviously casual dining is more vulnerable being a higher price checks.

Yes.

Kind of a test for a second and see if there's anything you're seeing or what you'd be looking for to demonstrate a slowing macro.

Well, thanks, Jeff and trained as an undergraduate as an economist, it's it's something I enjoy talking about but.

We get information everyday and we the consumer for US is looking good.

And we feel good about where we stand we feel good about what the what the current trends look like.

We feel good about our channels.

If you look at our off premises business and look at our in restaurant business is people coming back into the restaurant business. The off premises business is certainly hanging in there, especially third party. So we look at channels look at the health of the consumer and then lastly.

The high end continues to do very well you see it in the Flemings numbers.

Not only the flemings number strong what funds are outperforming the marketplace and then lastly.

Sure.

We have a large business in Brazil.

That business is doing extremely well and we talked about what the future potential looks like as far as the number of units in Brazil, and we look at the marketplace. You see same store sales growing as it is so we have to talk about that one as well. So we have four domestic brands within our brands and in Brazil. So so Jeff Brown rounding out the question our trends continue to be good.

So when you say current trends.

Yes.

A comment related to April that I guess momentum has sustained itself and there hasnt been a slowdown of late.

And you see we were very pleased to give everybody a quarterly guidance. We gave you second quarter guidance, it's very clear we've got the full year, there, which we raised.

April trends are incorporated in that guidance and we feel good about where we stand.

Great. Thank you very much.

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

Hi, Good morning, just a clarification on the mix I think you mentioned that consumers on premises are switching up higher.

Thank you Adam.

I don't know if I understood that correctly understood. The difference between on Prem versus off Graham and attach there, but are you seeing consumers spend more.

Our trade up when they are in the box when is it noticeable at one concept versus others and then.

As shown on Brazil, I may have missed this but did you give any color on kind of how Brazil, it's trending so far in the second quarter and call. It the inflationary dynamic in Brazil kind of comparatively.

Sure. Let me answer the Brazil question first and then I'll turn it over to Chris to handle the other stuff.

<unk>.

The Brazil trends are very good.

In April as well just like in the U S. The inflation environment is something that that countries very used to.

We are on top of pricing on top of our margins and if you look at our segment reporting you'll see very strong results Sharon and <unk>.

So for that marketplace, we clearly have a very good momentum.

I turn over to Chris that gives us the confidence to continue to expand the business and we talked about.

When we first bought this business, we talked about having potentially 100 opex. There someday. We now think we can add 240, <unk> and that has to do with the economics of the business a growth of the country.

Innovations, we're making and how we build the box those kind of things. So that's an indication of where that country is going and I'll turn over to Chris answered. The other question, Yes, Hey, Sharon so the mixed component, we talked about mix being 7% of sales or so or 7% lift in Q2 Q1 versus last year. Its basically two components, one of which I think we would call a.

A little surprising and one of which was not such a surprise the piece that was not such a surprise was the fact that a larger percentage of customers return to in restaurant dining this year versus last year and the fact that that in restaurant consumer carries a higher average check relative to the off premise as consumer drove some change.

In mix that was probably half of the mix benefit the other half was a little more surprising is just the.

Consumer health appears to be pretty good and we've seen trade up into additional appetizer sales additional alcoholic beverage sales things like that I think carried the day on the other side of the mixed component. So it was a bit of a tale of two cities on that one.

I wanted to add one other thing too we're seeing the benefit of the investments we made in customer service and food over the years and customers are noticing that and thats, what our offerings. Some of the trade ups for us because of the enhanced service and the food and we're seeing it in our restaurants and our operating scores by third parties are improving nicely.

Thank you.

Our next question comes from the line of.

Alex Slagle with Jefferies. You May proceed with your question.

Thanks, Good morning Congrats.

Question on the the off premise talked about the margins being comparable to dine in and I don't know if thats.

Step up from the previous comment.

It was approaching that of dine in but.

Maybe you can just talk about the dynamics of what's driving the help there whether it's pricing or the sizable shift in digital which was a pretty big jump.

And.

Seeing this happening even with delivery mix growing just kind of curious.

Your analysis there.

Well so couple of things one.

It depends on the channel when you are talking off premises, we've talked historically that youre curbside business is basically at parity from a margin profile of your in restaurant dining experience, what we lose in average check we make up for in lower labor costs. For example, so youre able to maintain some parity there.

In terms of third party, yes, there is a pricing component to third party that we have that's above what we would have in restaurant.

I had a follow up on the marketing opportunities in leveraging digital and loyalty I mean, it feels like you've made really good headway on the digital front through the pandemic and leveraging a bunch of the investments and improvements building out that platform and the analytics.

And yes, sorry, the more efficient deployment of the marketing spend and kind of curious where you see the next phase of this going in.

As you have more tools and insight that youre disposable sort of what that opportunity looks like.

The single biggest opportunity is continuing development of our various apps and our concepts.

We're making great progress and for competitive reasons, I don't want to get into it but the consumer is noticing if you look at the percent of.

Occasions that people are using our app youll get the what were used what how people are accessing us.

We're making significant progress and that was a lot of work done over the past couple of years by our team during the pandemic and we're now reaping the benefits of that.

For instance, if you like favorites at Outback, because now favorites button just boom you can it didn't go with it.

We're going to make that ease of ordering and the ease.

Great.

We have converted to a new dine rewards program Thats point space now will give us more opportunity to access even more customers because they have a chance to use the points more frequently that can allow us partnerships et cetera, so asking them to give us a chance for even more engagement more consumer data, which is going to be really terrific and then and then lack.

<unk> I think youre going to continue to see operations enhancements that go along with the App enhancements in the restaurants to make off premises and ordering ahead very easy and seamless for our customer finally on the marketing side, yes, we have.

Learned a lot about the digital opportunities with various partners and Thats, primarily how are we going to market now and we know exactly so it gives us a lot of flexibility and we know what the returns look like as we go forward and we've been investing behind that both from an it capability standpoint, and a marketing spend standpoint.

Great. Thank you very much.

Youre welcome.

Our next question comes from the line of John <unk> with Jpmorgan. You May proceed with your question Hi.

Hi, Thank you just looking at the Outback and $24 average ticket Theres, obviously, a lot of ways consumers can spend around that higher but also lower obviously as well.

Can you talk about with all the new data that you have can you talk about exactly who your customer is.

Middle income it doesn't skew higher is there a sizable amount of lower income consumers that you in particular want to protect you to the extent that they do cut back on some of their more discretionary rotations.

Yes sure couple.

A couple of things on the guest check John Chris talk about the trade ups I mean, the Outback team did a really smart thing 18 months ago and changed around some of their menu items made appetizers more accessible and thanks for the attachment rates are stronger so that's helping a lot secondly, we arent discounting as much.

So some of those customers have walked away. So we've got.

Guest check build off of that but we still are seeing importantly, we are still seeing the middle income consumer use us and that's a very important point because they have price certainty and they know what theyre getting both from food and service and as I talked about earlier, we've tried to moderate our pricing as much as possible.

And as we look at competition. So we're trying to manage that the check that way the PPA that way, but.

You said theres different ways to access our company at the low end or the higher end as well.

Okay.

This might be too proprietary you have a question, but if you would answer it would be great I mean, what percentage of the outback customers are below the American household income average I mean, what I mean, just kind of what youre picking just a number but you can obviously say whatever you'd like.

Yes, I think John we'd like to keep that to ourselves if we could.

Because that's pretty proprietary and especially as you have.

Okay. So I, usually like to answer your questions directly but that one out.

I took a shot on that one I didn't think I'd get it but you never know okay. So let me.

Switch to the technology side I mean.

Minutes later in the call.

Paul does if I missed this.

<unk> handhelds grills, the where are we in terms of the supply chain where are we in terms of.

Getting some of these projects implemented in the store and you I mean.

I guess, how excited argue that we could see some material benefit from both the both the customer and.

The employees and margins.

Or might there be tweaks necessary to.

The projects as they come in relative to expectations.

No tweaks expected John is spot on versus the last time, we talked on the call.

Caveats in the restaurants being rolled out as we speak handheld will be done in Q3, the backhouse equipment, specifically the clamshell grills will be rolled out over the next few quarters exactly like we talked about it.

It's on time, and we're very pleased to see that and the other thing John which I think you depreciate it.

Some of these clamshell ovens in some of our highest volume restaurants, and they are responding we didn't want to put it in a bunch of average restaurant, we want to put it in a bunch of high high volume restaurants.

One is kind of down the street from you import Charlotte.

And and.

Thanks Pat.

We are seeing some really great results.

Turn over to Chris to talk about the financials, let's talk let's talk about the customer.

We're looking at.

An opportunity here to really address one of our biggest issues which is.

Steak accuracy cooking, and we're seeing that improvement and we're going to see with that will come higher guest satisfaction and higher traffic.

Speed of service throughput really great and.

Lastly, with our handheld there'll be a lot easier to.

For our front of house employees to engage with customers. So those are the three things from the customer side that we really see no I don't think were getting a great detail on some of the financials for proprietary reasons, but I'll turn over to Chris to talk about a few of the financial benefits, we're going to see well I guess, all I would add to what Dave said is the fact that when you talk about our long term.

Margin target of 8% operating margin.

One of the key catalyst to allow us to continue to drive efficiencies in the box from a productivity standpoint is going to be the technology. So this is this is clearly about service is clearly about execution, but there is also an efficiency benefit certainly in the front of the house with the the server handheld technology, but also in the back of the house.

In the kitchen as it relates to the grilling technology et cetera. So again I would just say that it's part of the calculus that when you look out longer term allows us to think more broadly about this 8% margin target and lastly, Jon the goal here is to where all the technology to enhance customer service.

That is a big part of what we're trying to do here to enhance customer service and our food quality offerings.

That's clear thank you.

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

Thanks, and good morning, Chris.

Chris just on your comments on the second quarter can you can you and I'm thinking about the Outback brand in particular.

It was a very tough lap it from the second quarter of last year can you comp positively against that I think consensus doesn't have it as positive are you or is your view in your revenue guidance and earnings guidance assumes positive comps in the second quarter for the Outback brand.

Positive well, what I would say is look the positive comps for the portfolio, absolutely and that we're striving to get positive comps across all of our restaurant brands for sure right Youre spot on though John It is a it's a tough lap given the success that we had last year.

All those thoughts are embedded in the guidance as well as a pretty strong recovery in Brazil.

Okay. Thank you.

You didn't update or change your commodity guidance you thought it was going to be higher.

Many restaurants have already updated their commodity guidance. This quarter a lot has changed since you issued your guidance last time in the commodity world. So do you have more visibility than others more contracted maybe you could talk about the contracting rate in 'twenty. Two it gives you that percentage you'll see some declines in the back half and maybe anything thats going on in the beef.

Market, specifically that may be benefits you that doesn't benefit there is for example.

Yes look I don't think that anything has really changed.

Right now were 78% locked on our 2022, and we're obviously pursuing spot and contract strategies for the remainder of the year, but look I think it's pretty consistent to say that the overall landscape in commodities hasn't improved much and there really hasnt been any sustained positive news in the commodity category, but.

It was all really embedded in our thinking when we gave our guidance originally.

So I think that nothing has really changed on our end, but obviously, it's a highly inflationary environment now in terms of as you look at the year progression from an inflation standpoint, I would say, it's far more a product of the fact that we're starting to lap higher commodity periods from a year ago versus any big sea change in our expectations for the commodity.

The landscape in 2022.

And specifically is there any update on what the beef market is doing.

The curve of beef is somewhat.

Got it thank you.

Our next question comes from the line of.

Lauren Silberman with credit Suisse. You May proceed with your question.

Hi, Thanks, so much.

Wanted to ask about unit growth. So you talked about the 3% is that a net unit growth number and then is this a 2023 goal.

Spansion number total we anticipate very few closures going forward, we will always look at it but.

But the 3% is in a sense a gross number if any closures happened because we've done a lot of work is following our company over the years addressing our asset base, but the 3% is what we look to achieve on a gross basis.

Great specific to Outback is the largest stay concept.

How are you thinking about the total unit potential in the U S. And then beyond the Outback and just broader portfolio I. Appreciate all the color on the reduced costs better unit economics at the prototypes are there any other changes you've made with development approach.

Confidence in the acceleration I guess part of it is the closures to your point yes.

Yes.

The big the Big thing frankly is <unk>.

Even though we.

We are very sad to see what came out in the restaurant industry. During Covid, we came out in a much stronger place. So our unit growth opportunity now is pretty good very good and if you look at cities like were really strong in the south there is fill in opportunities or new unit expansion opportunities. So we're looking.

At 75 to 100, new Outback in the U S and hopefully as time goes by we can continue to make progress on that.

On that but we between the smaller building prototype that Mark talked about is delivery and carryout enabled.

We have strong holds in really fast growing markets in the south we think that the outback piece is available to us and the economics are really much better.

And our finance team led by Chris Meyer.

It looks the returns very carefully to make sure we're not making any mistake. So we have that that.

Tool as well available to us so 75 to 100 more restaurants now let me add a couple more things real quick.

We've seen a step change in Carrabba's and Bonefish performance step change and I think we can now look at in our stronghold markets.

Selectively expanding those two markets those teams have done a great job addressing.

That marketplace lastly, the high end like I talked about earlier is extremely strong high plumbing is performing really well in that environment. We're looking to expand our plumbing business and also we were really strong and in key markets in Florida, California, and Texas is upgrading our assets because we're seeing returns there as well.

And finally.

We talked about Brazil, and what the opportunities look like there.

A mind everybody that it's about $1 million a box in cash with wonderful returns and we think we've got expansion opportunities there as well so thats kind of how you build up to 3%.

Fantastic. Thanks, so much.

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

Thank you just wanted to follow up on a couple of things first would be John's commodity questions can.

Can you guys share your top five commodity exposures I think you said that you are roughly 78%.

Covered are contracted for the year, but.

In addition to those top five exposures, which commodities are more or less contracted as we stand right now.

Yes. So obviously beef is the biggest I would say from there it goes to.

More like seafood.

There is food other which is a potpourri of things dairy oil those kinds of things and then less exposed but still a reasonable number for chicken. The rest of it is pretty small so I would say.

Produce as well, yes, so I'm, sorry, I misspoke, so its produce dairy oil beef.

Beef being the largest seafood being the second largest and then poultry would be the five and and look I think that it is just a mixed bag in terms of what we're locked in and what we're not obviously with some of those things like produce for example, you really don't lock in for extended periods of time, but with beef you've got we're fully locked on beef and the rest of it is pretty much in.

In the middle so 50% locked on a lot of those categories Alright, that's helpful and just one other quick follow up which is on the off premise business.

Obviously, a lot of moving pieces with this business across both of your core concepts Outback and Carrabba's, but I'm just looking for you to help us sort of size up the business and the opportunity. So you have delivery to go the virtual brand, meaning tender shock and catering which is it looks like an increasing focus for.

For the management team I'm curious with the largest piece of off premise is now and where you see the greatest opportunity moving forward yes.

Yes, so I'll talk about the future of the business and Chris can give some of the pieces parts, we're going to grow this off premise business.

Piloted long long ago, we start carry out long ago, we have been doing delivery for a number of years.

<unk> got a specific management team dedicated to growing it looking at packaging pricing products.

All of those things to make it come together so what are we seeing Jeff that.

That is.

Pretty interesting.

Carryout that Kris talked about is a big part of our business and has good profitability third party as I mentioned earlier continues to grow for us and we've got great partnerships there.

And then finally on the catering piece.

Carrabba's led the way on that.

Outback has to follow so we're seeing some good gains on that as well in the off premise occasion clearly of all of our concepts profits has the food form and the capability to have the highest mix and best growth.

If those are going to call. It if you had it you know what I'm talking about it really delivered well from a service and food standpoint, so over to Chris.

Well if you go back to 2019, and you think about where our mix was of our off premise dining we were in I think we finished 2019 at 12% was our total off premise mix and 9% of that 12% was curbside or to go you fast forward to where we were in Q1 for example, and Youre curbside and your delivery are basic.

<unk> at parity.

And almost all of that delivery is now third party delivery. So I think you've just seen that fundamental shift like I said I think that the third party delivery is something that will take all day long just given its incrementally and our ability to execute at a high level, but those have been the biggest shifts from a.

What was what used to be and what is now and then closing Jeff I think what we've learned in the last few years from a customer standpoint is <unk>.

Consumers are seeing the fact that our products deliver really well and it could be in their solution set where in the past maybe they thought about just other service specific food for them. If they are seeing that what we offer works really well.

Alright I appreciate it thank you.

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

Thanks, and good morning.

To ask about the recovery in the dine in business and I guess I'll ask about outback, but it's really a broader category question and I guess the quick math on Outback in Q1 is that average weekly sales for dine in or still down somewhere in the teens low to mid teens.

Versus pre Covid and I'd assume that's improved and more recently exiting omicron, but I'd love to get your perspective on why traffic with in that category is still down as much, particularly given industry closures and if you dig into your data are there big regional differences you see are there new thoughts on how incremental off premise might be.

Versus the dine in occasion, just any insight you have there would be helpful.

Yes sure.

As consumers begin to have there have there.

Habits change and come back to the dining occasion in restaurants, and we're going to see more and more of that and Thats an opportunity for our company.

And especially as we keep the off premises business going second.

Clamshell grills the handheld the throughput thats all going to improve as a result, so those are the three or four things that we see.

Coming forward for the company in the future quarters, and we see it as an upside for us as we move forward.

But I guess, if I could how big of a range do you see across regions in terms of the magnitude of dine in recover you seen can you give us any sense of that.

Yes, we're still.

It's getting better and stronger as we look at the regional maps, obviously, the northeast and the upper Midwest were little slower to come back, but they're coming back and we're seeing that in our results and the south continues to do well. So I think as the northern environment as both of them some are coming back and everything else and outdoor dining in.

Everything we've got a chance now to build on this and that could be a nice opportunity for us.

Alright, Thank you and I appreciate the Q2 guide of course, but could you give us a sense of maybe where average weekly sales trends recovered at outback and carrabba's towards the end of Q1, perhaps ballpark where you are.

Quarter to date and also remind us just have the normal seasonality plays out moving through May and June .

Yes margins are really strong.

<unk> for us in terms of average weekly sales and then traditional seasonality would suggest from an average weekly sales standpoint, you do take a step down in April certainly at our concept. So if outback was outback was averaging in call. It if I'm looking at this year Outback was averaging sort of in the early.

Low eighty's youre going to be in the mid.

Mid to high <unk> kind of in an April standpoint, and Thats just seasonality that has nothing to do with.

Any kind of change in trajectory. That's just what you would typically see at this time of year.

Okay, Okay and in Brazil, obviously, a strong recovery.

You can take hold there.

No. The two underlying trends, Brian is very strong and they're doing great and you talked about the U S.

Some companies come out of the pandemic strong you can only imagine what a category leading business like outback looks like in Brazil coming out of the pandemic very strong.

Okay, and then last one for me just on catering can you remind us what percent of sales that channel was.

For Outback and Carrabba's pre COVID-19 .

Tiny.

Yes. It was it was it was a very small number.

And there are some new initiatives around that I think I saw an announcement in recent weeks there is sort of a broad strategic plan within that.

Within that sales channel that youre moving forward with exiting the pandemic.

Yeah, not so much at Carrabba's, because thats been in place for a while but at Outback there was quite a bit of coverage on that which we were happy to see.

Alright, I'll pass along thank you.

Yes.

Our next question comes from the line of Brett Levy with <unk> Partners. You May proceed with your question.

Great. Thanks for taking my question.

I guess.

Taking are taking an opportunity to just further on the regional question, but also a little bit on the margin.

We heard from.

An indirect competitor yesterday, just about their labor challenges.

Can you unpack a little bit more what youre seeing either regionally or by quartile as our Quintiles. How you are in terms of a static level of staffing productivity.

What's your what's your unit level margins are.

Or at least how they're trending just give us a little bit of sense of what kind of range as we're seeing out there.

As you can.

Continue your venture towards full recovery.

Yes, I'll take the broader question on staffing and ill turn over to Chris any financial updates you'd like to provide but.

I am not to make this too long, but I'll try and make it relatively sick.

We had a long history of a strong culture and strong people measures in our restaurants.

That was wholly enhanced during the pandemic and how we treated our people.

And we're benefiting from that we didn't let anybody go.

The people who were retained and if you look at our turnover levels and our retention levels. There are among the best in the industry.

Our their staffing challenges out there of course, there are but we start in a much much much better spot than others in the industry.

First of all second of all the staffing environment has improved even though it is challenging in certain spots.

<unk>, what you would expect parts of the Midwest and parts of the northeast, but the staffing environment has improved so our strong culture is paying off in a big way, we've got very good retention and turnover levels and that enables us to.

Keep our customer satisfaction high and it cuts down on training cost and just churn costs in the restaurants, so but for that I will turn it over to Chris or anything else.

There's no question that there is.

There is a price to that in terms of inflation and we're seeing that across the industry. We're seeing it internally our inflation being up 10% in Q1.

But the good news again is when you look at the way Q1 came together. The fact that we had such strong average unit volumes and we have these efficiencies in our labor model.

We were able to offset the inflation that we saw in the period and we actually had some leverage year over year in the labor line.

Great Thanks, and just.

I know you.

Gave some color on this but.

Can you give a little bit more clarity in terms of.

What is implied within the new $1, one to $1 three guidance for <unk>.

New unit productivity, how much that's contributing as well.

Thanks.

Yes, I think just to go back to the comp question again, we've said positive.

We have positive same store sales through through April that would be embedded in our guidance and then the other piece that it's easy to Miss but we try to bring it up time and time again is that Brazil's recovery, especially when you consider that they were they were largely they had a lot of.

Covid related closures last year that year over year recovery is going to be built into that number as well. So that's how you get to the one one to one three.

In terms of the margins and how that came together from a profitability standpoint again I think it's pretty straightforward. We are just flowing through the sales.

And that's.

We led to our increase for the full year, our full year guidance going up by call. It $50 million some of Thats coming into Q2, and Thats again, a product of the fact that we are expecting to see some of this check average.

Appreciation that we had in Q1 to continue into the second quarter now probably not as much year over year as we saw in Q1 and Thats more of just a product of the fact that Q1 was unique in the terms of the in restaurant recovery was so strong relative to the off premises business. You don't have quite that same dynamic in the second quarter. So the check.

Average benefit that we saw in Q1, probably isn't going to be as strong in Q2 as it was in the first quarter. Those are the probably the pieces parts I would call out.

Thank you very helpful.

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

Thank you. This question on the outstanding convertible notes I guess number one can you just remind us when you have the right to redeem those and to Chris you mentioned on the last call, but are you still considering or is there a scenario where you would do.

Do something before then in the open market or in negotiation with current holders.

Maybe what scenario would that make sense for women to do that versus waiting.

Yes. Some may of May of 2023 is when we have our first rate. However, you can negotiate your way through these these converts prior to that date and look I think we're doing the math, but the challenges is there is a premium that you have to pay not just to the holders, but also because we have warrants in place there is a premium.

With the warrants as well and so we just have to run the calculus as to whether or not the premium that we would have to pay to exit.

This outsized benefit relative to paying off that debt I would tell you that the reason why we are strongly considering some of that is because there is a share overhang associated with the convert and I think that just psychologically that creates a lot of challenges from a communication standpoint, but also the math has to make some sense too. So we're going to it's going to be sort of a dual pronged kind of conversation does the <unk>.

Makes sense and as we're leaving that overhang from the convert give us any breathing space in terms of our ability <unk> ability to be able to communicate our story and and I think that should those two makes sense. Then we're going to explore something this year if possible.

Okay. Thanks for that and then just bring it back to the development topic. It's helpful to hear about how many additional opex do you think the U S. I'm just wondering if you could give that same type of commentary.

How many do you think there could be over the longer term just trying to get a sense of the magnitude of the opportunity you see for that brand.

Yes, there is two opportunities at Fleming's. One is we think there is additional 15 that we could do and given their average unit volumes that's significant.

The other opportunity is we've got some great restaurants, and some really strong trade areas.

Is that can we know given what we've done in other restaurants by expanding the bar, making the inside a little more modern shall we say.

Kind of think to make big improvements on our sales. So we will be doing both of those will be.

Enhancing and improving existing restaurants, and strong trade areas and adding up to 15 more fleming's.

Thank you.

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

Alright, Thanks for the question excellent sort of all time.

On some of that commentary.

On the Remodels that you just asked.

But specifically as it relates to our back and talk about that new product or is that new asset.

Thank you James.

In terms of ambiance and customer feel just wondering.

Okay.

The units and as new assets or are you contemplating.

Sort of going back and remodeling and refreshing some of the.

The older existing opex in the portfolio to match this updated design. Thanks.

Yes.

We will do both.

Cadence to our Remodels, our interior remodels, and we're going across the country and refreshing those restaurants as we speak it's embedded in our it's embedded in our.

Our guidance and we'll continue to do that in the coming years and so.

Thanks.

Maybe a way to frame sort of what percentage, but what percentage of the portfolio you feel sort of comfortable with in terms of the asset design now and maybe how many more there are left to go or is it 50 50 now.

Sort of curious as we think about the upside opportunity from those redesign three malls.

Yes.

We're always refreshing.

We've got.

We've been doing Remodels, all along I don't think jarrod ever really I don't mean to Dodge the question, but theres ever really endpoint per se.

We build more restaurants relocate more restaurants and continuing to refresh the restaurants, there will always be an opportunity to move forward and there'll be a continuous loop for us.

As we grow the business because by the time you finish one iteration you start over again.

But obviously with up to a 100 more restaurants will be brand new that we can build with our relocation program that we've announced are underway. Those assets are immediately updated and then will continue over time.

To refresh restaurants, each year, each and every year.

Our last question comes from the line of Jon Tower with Citi. You May proceed with your question.

Awesome. Thanks for sneaking me in here.

The pre COVID-19 levels.

I Didnt hear you mentioned it too much on the call, but I am assuming omicron might have weighed on some of the in store traffic.

Or just traffic in general during the period so first.

Could you maybe explain.

Why the traffic versus 2019 was a little bit weaker.

During the first quarter.

Yes versus 2021, correct and versus 19.

And but I'm, probably has 300 basis points impact on the traffic levels I mean that was and we called out in our last Q1 call in.

And we expected that and we talked about some of the things we're doing at Opex to move it forward.

Got it. Thank you I appreciate that and then just in terms of thinking about the marketing spend and the idea and I think.

David you had hit on this a little bit earlier in the commentary, but what spurred the decision to take that up.

Sequentially.

Was it brought on by.

Something that youre seeing in the data or staffing levels coming back to <unk> to <unk>.

Area, where you felt like the in store environment could handle or the in store staffing could handle incremental demand.

Or are you seeing something in your own data.

On the traffic side, where you just felt we didn't need to go to market remind customers that the brands out there and offering some good things.

Yes, when we talked earlier about how in March we turned some marketing back on.

And when you have something like Omicron, it's not always wise to spend it on in restaurant marketing likes us and on off premise with market and Thats exactly.

Some of the things that we did.

As I mentioned earlier, John we've got a really good sense of what.

But we believe we have the ideas to move this business forward and we have a good sense of the returns that they offer and we have a very good sense of the vehicles that we can use to make that work and hopefully with some of the pandemic related issues, who knows for sure if it's behind us, but habits and beliefs returned to in restaurant dining, it's an opportunity for our company and we're going to capital.

On that with our marketing.

Got it. Thank you and then just lastly on the unit growth piece of it. Thank you for all the details so far I am curious just to learn a little bit more about how youre thinking about citing these stores versus the existing store base, specifically when you think about customer demographics or even the market sizes at these stores today, and even thinking about specifically getting it down to the <unk>.

Pad.

Are you thinking about co locating with other brands on platforms and EBIT different than what you've done in the past maybe mall versus non mall.

Is the philosophy that much different than what we've seen before obviously the footprints are but I'm curious to learn more.

Well, we talked at length about the footprint and all the great work. We've done there secondly, we talked about the fact that our stronghold markets are very advantaged demographic and economic areas. We are very strong in the south and we intend to capture that third we are seeing infill.

<unk> and quick growing major metro areas, Nashville, Austin, Miami et cetera that we may not have contemplated in years past as all cities are just growing rapidly.

Third those cities are also growing rapidly in new areas in that in that particular trade area. So new developing areas. We were just in Dallas for instance, and I think the team was very amazed at how how much that city has grown and what the opportunities look like.

Those are the things that we're looking at.

As far as our unit expansion opportunity and then kind of the extra which we talked about for the first time today in our core markets. That's also where bonefish and carrabba's generally tend to be strong. So we will be looking at that as well not to the extent that we're looking at outback, but can we do some things with those those restaurants and some of.

Mark for trade areas. So in summary, we've got the asset we've got teams to pick the sites were in metropolitan areas that are growing rapidly and geographies that are growing rapidly and we're going to and we're in a much stronger position competitively versus the pandemic when the pandemic started and all those things are coming together to really provides a development opportunity.

Great. Thank you appreciate it.

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

Well. Thank you for attending today, everybody and we appreciate your questions and your interest in our company and we look forward to updating you in July on our second quarter call.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation during the rest of your day.

Q1 2022 Bloomin' Brands Inc Earnings Call

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