Q1 2023 Bloomin’ Brands Inc Earnings Call

Speaker 1: The pect D seven.

Speaker 2: Greetings and welcome to the Blooming Brands physical first quarter 2023 earnings conference call. At this time all participants are in a listen only mode.

Speaker 2: Following a question and answer session, a question and answer session will follow management's prepared remarks. It is now my pleasure to introduce your host, Tammy Dean, Senior Director of Corporate Finance and Investor Relations. Thank you, Ms. Dean. You may begin.

Speaker 3: Thank you and good morning everyone. With me on today's call, our David Dino, 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 2023 earnings release.

Speaker 3: It can also be found on our website at Blumenbrands.com in the Investor section.

Speaker 3: Throughout this conference call, we will be presenting results on an adjusted basis.

Speaker 3: An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our earnings release and on our website as previously described. Before we begin formal remarks, I'd like to remind everyone that part of the

Speaker 3: our discussion today will include forward-looking statements, including a discussion of recent trends.

Speaker 3: These statements are subject to numerous risks and uncertainties that could cause actual results to differ in a material way from our forward-looking statements. Some of these risks are mentioned in our earnings release. These are discussed in our SEC filings.

Speaker 3: which are available at SEC.gov.

Speaker 3: During today's call, we will provide a brief recap of our financial performance for the fiscal first quarter of 2023, an overview of company highlights and current thoughts on 2023 guidance. Once we've completed these remarks, we'll open the call up for questions. With that, I'd now like to turn the call over to David Dino.

Speaker 4: Well, thank you Tammy and welcome to everyone listening today. As noted in this morning's Euron's release, adjusted Q1 2023 diluted earnings per share was 98 cents which compares to 80 cents in Q1 2022 up 23%.

Speaker 4: Q1 2023 marks the best quarterly diluted earnings per share in the company's history.

Speaker 4: Combine US comparable sales are of 5.1% with each brand having positive same-store sales.

Speaker 4: The first quarter results further validate the strategic and operational framework we outlined for the year and set us up to deliver our commitments.

Speaker 4: I will be giving an update on our plans in a minute. Before doing that, I would like to thank our teams and the restaurants and the restaurant support center for their unwavering commitment to serving our guests. Your dedication to great hospitality and service and experience is what makes our company so successful.

Speaker 4: As we look to build upon the momentum of the first quarter, we continue to remain focused on executing our plan to grow the business. As a reminder, our priorities include driving same-source sales growth.

Speaker 4: maintaining off-premises momentum, sustaining the progress in operating margins, becoming a more digitally savvy company, and increasing new restaurant openings.

Speaker 4: I'm now turn to our first priority, which is to grow sales in traffic in our restaurants.

Speaker 4: Growing sustainable traffic, especially at Outback, is our biggest priority.

Speaker 4: To achieve this goal, we are executing a number of initiatives.

Speaker 4: To start, let me provide a brief update on our use of technology to improve execution and consistency in the restaurants.

Speaker 4: The Handheld Technology Roll-Up R servers was completed at the end of Q4. The Outback team is now focused on optimizing the experience in the dining room to deliver a differentiated guest experience.

Speaker 4: The tablets allow our service to cover more tables or providing even better experience to our guests.

Speaker 4: Tablets are not replacing personal interaction. They are enhancing it as servers now spend more time with guests.

Speaker 4: In addition, we continue to roll out new cooking technology, including advanced grills and ovens.

Speaker 4: The rollout is on track to be completed in the third quarter. This cooking technology is improving product quality and meal pacing. Like handhelds, the kitchen investments are also improving the customer experience and productivity.

Speaker 4: The second part of building sales and traffic is a more targeted marketing designed to leverage our heritage, build brand equity and drive frequency.

Speaker 4: I'll back, rock back, that no rules just right platform at the beginning of Q1, but this is more than just marketing. It's an attitude.

Speaker 4: It's how we re-energize our restaurants with new food offerings, exceptional service, and most importantly, it ties back to our past. No rules just right, it's aimed at highlighting our great menu and the everyday values that we offer to our guests.

Speaker 4: In Q1, we leaned into our OOT routes with both food and beverage innovation.

Speaker 4: The third element to our sale of building strategy is the introduction of new layers at all of our brands. For example, during the first quarter, transplumings launched social hours.

Speaker 4: It captures our wonderful food and drink offerings during the early evening.

Speaker 4: We also continue to grow our event catering business within plumbing and look forward to the innovation that's coming from this business.

Speaker 4: Another sales layer is WINDAREZ a Carobus. WINDAREZ showcases the innovation and product quality Carobus is known for while providing a great value for the guests and a good return for the company.

Speaker 4: We will continue to provide updates and sales layers at all of our brands throughout the year.

Speaker 4: The final sales driving strategy is additional spending on remodels this year. We poth our remodel efforts during the pandemic and have since developed a variety of scopes that can be deployed based on varying needs of our restaurants.

Speaker 4: We are on track to remodel over 100 locations this year. This is the beginning of a multi-year effort to touch a large percentage of our business.

Speaker 4: Keeping our access looking their best is a key element of drawing traffic.

Speaker 4: All the initiatives I've just described are designed to build the sustainable traffic now and over the long term.

Speaker 4: Turning to our second priority, continuing the momentum in the off-premises business. The total off-premises business was 23% of US sales in Q1, and our third party delivery business continues to perform well.

Speaker 4: Importantly, off-premises profit margins are comparable to the margins of the in-restron business. In addition, catering is becoming an important and growing opportunity for brands. The Krabas team remains an industry leader in this space. Both outbacking philanthropists are also seeing momentum in catering. As a result of all the above, we expect off-premises to remain a large part of our business.

Speaker 4: Our third priority is to sustain the major projects we have made in operating margins over the last four years in a highly inflationary environment.

Speaker 4: Margin improvements start with growing healthy traps across the in restaurant and off-premises channels.

Speaker 4: We also reduced the relies on discounting and promotional LTOs and pivoted advertising spend towards more targeted higher return digital channels.

Speaker 4: Additionally, we remain disciplined in managing the mill of the P&L and are aggressively pursuing efficiencies in food, labor and overhead.

Speaker 4: As Chris will discuss, despite persistent inflation, we've been able to achieve our margins well above 2019.

Speaker 4: We remain committed to achieving 8% operating margins over the long term.

Speaker 4: The fourth priority is to capitalize on our progress to become a more digitally savvy company.

Speaker 4: In Q1, approximately 79% of total U.S. off-premises sales were through digital channels.

Speaker 4: The new online ordering system and mobile app have exceeded our expectations. The new app has 3 million users.

Speaker 4: You can expect to see further activity as we improve the functionality and features of our app and digital offerings.

Speaker 4: And the final priority is to build more new ref straps, especially at Outback, Fleming, and in Brazil. Each of these brands have strong sales and profit margins and offer great returns.

Speaker 4: I'll back at the opportunity to significantly expand its restaurant base.

Speaker 4: We will continue to invest in growth lending. We also have the ability to more than double our footprint in Brazil.

Speaker 4: In summary, we are off to a terrific start. We are focusing on achieving our 2023 goals while building a great business that will continue to thrive. And with that, I will now turn the call over to Chris.

Speaker 4: 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 2023. Total revenues in Q1 were $1.2 billion, which was up 9.1% from 2022, driven by a 5.1% increase in U.S. comparable restaurant sales.

Speaker 4: as well as a 14.3% CompSales increase in Brazil. In our US brand, traffic was down 70 basis points in Q1. This was a significant improvement from Q4, even after factoring in a 330 basis point favorable impact.

Speaker 5: on Q1 traffic from the laughing of Omicron and unfavorable weather.

Speaker 5: As we indicated in our last call, we began to see improvements in traffic in December , and these trends continued into the first quarter. Average check was up 5.8% in Q1 versus 2022. This is in line with what we discussed on last quarter's call. In terms of pricing, we would expect to see the impact of pricing slowly come down as the year progresses.

Speaker 5: There will be a larger step down towards the end of Q3 as we lap price changes from last year. We will consider taking some level of new pricing later in the year, but our goal is to take as little pricing as possible in this environment.

Speaker 5: At 23% of U.S. sales, Q1 off premises was down 100 basis points from Q4. Given the heavier volumes we tend to see in Q1, this change was expected and was primarily a migration from our curbside business to in-restaurant dining.

Speaker 5: In recent weeks, we have seen off-premises return to 24% of US sales. Importantly, the highly incremental third-party delivery business was flat from Q4 at roughly 12% of US sales.

Speaker 5: Third party has remained at approximately 12% over each of the past five quarters, even as in-restaurant dining has returned.

Speaker 5: In terms of brand performance, Alback total off-premises mix was 26% of sales and Carabas was 30% of sales. Off-premises remained sticky and is a large part of our ongoing success. And as Dave mentioned, it will be a key part of our growth strategy moving forward.

Speaker 5: And the final note on Q1 sales Brazil Q1 comps were up 14.3%. Brazil's first quarter reflected the lapping of COVID-related operating restrictions from early 2022.

Speaker 5: Q1 was the last quarter where favorable COVID laps will have a significant impact on year-over-year trends.

Speaker 5: Also, as a reminder, Brazil Comp Sale do not include the benefit from the Brazil Tax Exemption we discussed on last, the last earnings call.

Speaker 5: As it relates to other aspects of our Q1 financial performance, GAP diluted earnings per share for the quarter was 93 cents versus 73 cents of diluted earnings per share in 2022. Adjusted diluted earnings per share was 98 cents versus 80 cents of adjusted diluted earnings per share in 2022.

Speaker 5: The remaining income margin was 9.7% in Q1 versus 9.4% in 2022. Restaurant-level operating margins were 17.9% versus 17.1% last year. Margin's improved for a couple of reasons. First, international operating margins were up 770 basis points driven by Brazil as...

Speaker 5: Rest run operating expense inflation improved from Q4 but remained elevated at 9.4%. This was driven by higher utilities, R&M, and advertising.

Speaker 5: Overall, inflation in the first quarter was in line with expectations. Depreciation expense and general and administrative expense were both up in Q1 relative to last year in absolute dollars. This is consistent with our increased levels of capital spending and our investments in infrastructure to support growth.

Speaker 5: Overall, we feel good about our margins and we remain well above pre-pandemic levels. Also in Q1, our adjusted tax rate was 14 percent and includes the benefit from the Brazil tax exemption.

Speaker 5: Turning to our capital structure, total debt was $768 million at the end of Q1. This puts our current lease-adjusted leverage ratio below three times.

Speaker 5: In terms of sharey purchases, year-to-date we have repurchased 1.1 million shares of stock for $27 million. We still have $113 million remaining on the new authorization that the board approved on February 7th. The board also declared a quarterly dividend of $24 cents a share.

Speaker 5: First, we are reaffirming all aspects of our 2023 guidance previously provided on our February 16th earnings call. And second, as it relates to the second quarter, we expect U.S. comparable restaurant sales to be 0.5% to 1.5% and we expect Q2 adjusted earnings per share to be between 62 cents

Speaker 5: and 67 cents.

Speaker 5: Year-over-year comparisons will become more difficult in Q2 relative to Q1 as we will not have the same level of benefits either domestically or internationally from lapping COVID impacts in 2022. In addition, strong Q2 trends from last year make it our most challenging lap of the year.

Speaker 5: In summary, this was another successful quarter for Blumenbrands 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.

Speaker 2: Thank you. The floor is now open for questions. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue.

Speaker 2: If you would like to remove your question, please press star 2. In the interest of time we do ask that you please limit yourself to one question and one follow up.

Speaker 2: Again, that's Star 1 to register a question at this time.

Speaker 2: Today's first question is coming from Jeffrey Bernstein of Barclays. Please go ahead.

Speaker 6: Great. Thank you very much. One question, one follow-up. The question would be on the...

Speaker 6: The second quarter guidance, I think there's some industry and investor concerns of slowing comps, at least in April , although clearly choppy with the shifts and whatnot. But your guidance maybe corroborates that.

Speaker 6: I think Chris, you mentioned that the compares get tougher and no longer you have the Omicron benefit and whatnot. But can you just talk about maybe the exit rate you saw for the first quarter or maybe what you're running in April ? Any change in consumer behaviors you're seeing in any of these brands, just trying to get a sense for whether or not there's any validity to fears of most recent slowdown in the underlying. Thank you. And then one follow up.

Speaker 4: Yeah, hey Jeff, good morning. Look, our Q2 performance is tight, especially through what Chris guided so far for the quarter. So if you look at the trends in the quarter, that's incorporating our Q2 guidance. And as we mentioned, March, April and May are really our...

Speaker 4: our biggest overlaps of the year. So our trends still are good and our customers are hanging in there. So we feel good about where the guide looks and we feel good about the full year is we're entering our full year guide. Yeah and just to give you some some math behind the guide. So if you look at the guidance range of call it 50 basis points to 1.5 percent

Speaker 5: the Q1 result, it basically is flat from Q1 in terms of our overall traffic guide for the quarter. And then again, I know we tend to not like 2019 as much, but I know that some folks are still looking at 2019. If you look at 2019 results from Q1 to Q2, we've actually seen a tick up in both Compson traffic versus 2019. Pretty material.

Speaker 5: than our trends today.

Speaker 6: close to 6% average check. I'm just wondering specifically how much are you running in pricing in the first quarter? Maybe any resistance that you're seeing here today or what your expectations are for pricing as a move to the year. I feel like there's the most recent concern on.

Speaker 6: you know, taking new pricing as with food at home now falling below, food away from home, which seems to have been a nice level of protection for our restaurants for such a long time. Maybe there's reason to feel the need to be more cautious on the pricing going forward. Thank you. Yeah, a few things. So pricing was about seven and a half, like 7.6% in Q1. We would expect that to kick down as the year progresses. And look, I think we've done pretty much.

Speaker 5: We do have some pricing built into the back half of the year that we think can help given some of this persistent inflation, but it won't be near the amount that we took in Q3 or Q4 of last year. Our predisposition, as we said in the prepared remarks, is to take as little pricing as possible this year, and it just depends on how this year plays out. If we don't think we have the pricing power with the...

Speaker 6: you reiterated the full year guidance with the first quarter being such a healthy beat from at least an earnings perspective. The reason why there was perhaps no raise to that guidance is there anything particular going on that leaves you a little more cautious for the rest of the year or is that just you know prudency which I would think would be important in this environment? Thank you. Yeah, prudence is a good word. I think there's two things to that, right? So we feel we feel really good about our full year guide. Q1 was obviously a great start to the year.

Speaker 5: But there's a lot that can unfold in the next nine months, and it just feels a little bit early to be changing guidance. And I'd say one technical thing is what I just mentioned. I mean, to the point, to this point, the consumer seems to be doing pretty well. But again, I mean, there is some uncertainty out there, so we want to preserve the flexibility potentially to take as little pricing as possible in the back half of the year. And pricing can have a big impact on your financial results.

Speaker 5: but it also, you know, in terms of traffic can have longer term implications. So we want to reserve the right to take less pricing if we need to.

Speaker 2: Thank you. Thank you. Thank you. The next question is coming from Alex Lagle of Jeffries. Please go ahead.

Speaker 7: Good morning. On the cost of goods being 31.3 percent, I mean, I imagine Brazil tax benefit maybe helped to some degree, but other than, you know, the first quarter of 21, I don't think I've kind of seen it that low going back really ever. I mean, it seems like inflation and pricing outlooks.

Speaker 4: investments we're making in the restaurants and in the kitchen and everything else is paying off. And we're seeing that. And you see it not only in cost, but we hope to see it over the long term in customer satisfaction. But then I'll turn it over to Chris. Yeah, and we talked about the tax benefit maybe helping overall margins by like 30 basis points or so. So that isn't the big, big driver here in cost of goods sold. It goes back to a little bit of what Dave said. I mean, I think that the piece that we expected in Q1.

Speaker 5: Cost of sales performance was the pricing piece because that you know is pretty predictable But I think the piece that was you know Maybe a little bit of a surprise is how efficient we're running these restaurants and how smart we've gotten with this technology It's a really really good sign for us that the things that we're doing from an investment standpoint are gonna pay off big time for the company moving forward A follow-up in South

Speaker 4: and all financial hasn't JV markets. Yeah, we, through our whole company, we really see the opportunity to build restaurants and they'll be delivering care out and able, but we see the opportunity go beyond virtual kitchens.

Speaker 4: and build efficient, wonderful boxes that are in restaurant enabled and also can do delivery carryout and any virtual work at all. Our strategy is going up against our traditional development both here and overseas.

Speaker 8: Thank you.

Speaker 2: Thank you. The next question is coming from Lauren Silverman of Credit Suisse. Please go ahead. Thank you guys and congrats on the quarter. I want to talk more about what you're seeing with the consumer, any signs of changes in behavior check management, trade down, any differences you're seeing across brand. Thank you.

Speaker 4: Yeah, let me break the brand apart between fine dining and casual dining. Fine dining customers is really doing well and continues to do well. So that segments are strong. On casual dining, basically, we're seeing a customer hang tight overall. We're seeing our higher end customers come in. We're seeing our higher end customers come in.

Speaker 4: with similar frequency using our restructs, and we're especially seeing it around special occasions. We had the best week ever in our history on Valentine's Day, and we're hoping for a really wonderful Mother's Day. So we're seeing that piece of the consumer doing pretty well. On the lower end consumer, we are seeing continued frequency, but maybe a little bit of management on the guest check side.

Speaker 5: So we talked about pricing, so that does imply that mix was down like 180 basis points or so in the quarter. So it's probably important to provide some perspective on that. As Dave said, there is a piece of that that we think is consumer trade. Our app mix is lower, but the majority of that mix has to do with revenue centerships. So we know we got some of the areas where we are seeing some of our strongest growth also carry.

Speaker 5: LTOs have been very popular, right? And again, they carry a little bit lower check average. So there's a lot of things that I would call more engineered in terms of our check that we're seeing, our mix that we're seeing in Q1 and then continuing into Q2. But at the same time, it is fair to say there is a bit of check management. Super helpful, thank you. And then just to follow up on...

Speaker 5: Can you just break down what's embedded for operating margins, I guess the puts and takes relative to one queue? Is there anything outside of sales leverage? Thank you. No, it's mostly sales leverage. I think commodity, I think you might see a stitch lower commodity inflation.

Speaker 5: as well as labor inflation. I think just as we start to lap some of the areas from a year ago, those things will continue to get a little bit better in Q2, but it really is. I mean, honestly, if you look at the Q1 result in our Q2 guide and you just take the implied sales change and you do a flow through on that, that pretty much gets you close to our guide for the course.

Speaker 6: I want to ask a bigger picture question, then maybe some specifics around it. So, Dave, obviously, we're very experienced in this industry, and we've certainly seen customer bases change in this industry, use cases change, competition change. One of the things, and this is kind of industry expert commentary,

Speaker 6: out, you know, we're kind of hearing this secular argument of, you know, casual dining is in decline. It's a leaking bucket. It just depends how fast the bucket is leaking of, you know, basically traffic will be in perpetual decline. I mean, some years might be down two, some years might be down five, you know, see, I mean, those are the kind of comments, you know, that kind of come out.

Speaker 6: I want you to, I guess, you know, address that, you know, just in terms of, hey, this is, this is a good growing segment that can generate positive same store traffic, you know, through a cycle or, you know, if you just, you know, you say, you know what, this is, you know, this is something that you can still create value and this is an industry.

Speaker 4: So, it's a very broad question, I'll try and answer it as concisely as possible, but in my own background, I've got a lot of experience in QSR and a lot of experience in casual dining. I can tell you, I am thrilled to be in casual dining. It's an $80 billion category without a huge market share leader with a lot of chance to get familiar.

Speaker 4: to grow and take share. So is convenience more important? Absolutely, John . And we're seeing that in our delivery carryout business and our third party delivery continues to be very strong. Now, when what we saw in the pandemic,

Speaker 4: was when restaurants opened back up, people missed restaurants, and I even think those millennials will graduate into casual dining as they enjoy the experience. It's up to us to offer a fantastic occasion at great value. So that's part one of this. Part two is...

Speaker 4: John , we're seeing as we open new restaurants, especially at Outback, the volumes are way exceeding what our base is. And so we go into new territories with good assets, the customers are there. So I strongly reject the argument that casual dining is an industry that's fading away. It's got great opportunity. And I think importantly, look at some of our price points.wolf

Speaker 4: that we offer versus maybe other parts of the industry, you know, be it fast casual or QSR. We offer pretty good value, John , compared to some of those other players. So I think I'm very bullish on the casual dining industry, new development, new channels of distribution, carry out and delivery. The digital opportunity is there, it's big. We got to know our customers.

Speaker 4: and so I'm very bullish on casual dining.

Speaker 9: Some old friends of ours used to talk about earn the right to own and maybe related to that earn the right to grow. I want to ask this in the context of that Outback Unit Growth, if same-store traffic is down 5 and we're talking about growing units. I mean, those are things, again, looking at it-

Speaker 9: decision a little bit more the decision to open more units more outback US specifically and I do want you to address that there's any changes in the fiscal 23 cap X budget and what you think 24 will be higher or lower than 23 23 no major

Speaker 4: changes there John our cat backside but on the uh... on the uh... openings clearly we're seeing strong unit openings and we do we have heard the right to own and grow and i'm very familiar with that phrase

Speaker 4: So, and then used it my entire career. I think John , what Chris mentioned, we are looking at a point in time right now that we're lapping the strongest period from last year. We expect in our guide traffic trends to improve the balance of the year. And the industry itself will grow especially those strong players.

Speaker 4: But John , if you could see our new unit investment returns, where we're going in and how those units are performing, they're really, really terrific. In fact, we opened a new carabas just north of Tampa here that has among the highest volume in the entire system. So clearly there's an opportunity to grow these brands beyond where they are today.

Speaker 4: as we go forward. And I think the traffic trends, as you will see, as we begin to lap some of the wonkiness from last year, our traffic trends will improve, and I remain very bullish on the industry and our company. Yeah, and let me just add on that, John . If you look at the financial performance of, you know, Outback specifically relative to where it was pre-pandemic, it looks like a very different financial performance in the sense that the P&L is far more efficient.

Speaker 5: have not built all of that back into our traffic to this point. But again, we're okay with that at this point because the PNL is in much better shape. Now is the time to the point we keep raising to build back that healthy traffic into our base. 2023, 2024, as we layer in all these layers, that's when that's gonna start to seed in. We feel really good about new unit opportunities with the PNL that we have today.

Speaker 9: May. We'll talk to the discuss where we're going in 2024 with that and provide some more context coming up. But it's a little too early to talk about 24. Okay, understood. And this is related. I mean, obviously, very strong numbers out of Brazil. That's really been the case, pre-pandemic post-pandemic.

Speaker 9: Are there any lessons in what how have you solved the quote unquote customer issue or the secular issue in Brazil, you know, to have such strong performance? And are there any lessons? And I know you've obviously taken some of the kitchen technology from Brazil and brought it into the U.S. So that's back end stuff. Is there anything that you-

Speaker 9: you know, really, you know, in the last couple of decades.

Speaker 4: Yeah, no, I grew to John and with that I took our brand presence down to Brazil earlier this year and we talked that through in great detail, we talked about all the time. Two things that Brazil does really well that we're continuing to push in the US. Number one, innovation, proactivation, marketing innovation and you're seeing that down there and we're helping, we're talking more of each other and you can see more of that from us and I'm not going to get into that because we're competitive reasons.

Speaker 4: Number two, the use of technology and data. They've been fantastic down there. We're good here. We can do even better here. Now, in fairness to the Outback US team, it's a completely different competitive set down there. Outback is the only stakeout down there by far, and we own a great...

Speaker 4: position there and we leverage it like you can't believe and we're going to continue to grow it but There is really no major state competition down there other than outback But the innovation and the technologies to risk to risk there Thanks, Paula questions. Thanks guys. Thanks John

Speaker 2: Thank you. The next question is coming from Sharon Zecvia of William Blair. Please go ahead. Hi. Good morning. I have two questions. I'm curious whether you're seeing any changes in the competitive or promotional environment in the U.S. And then secondarily, how do you see

Speaker 9: I don't think I heard how labor turnover is trending, so if you could talk about that and any corollary benefits you might be seeing in order accuracy or table turns or customer satisfaction. Thanks. Yeah. We have long been a leader in retention in the industry. Our turnover rates are very good. The trends are good. We have long been a leader in retention in the industry.

Speaker 4: It's a managing partner that runs the restaurant, whether it's the manager, whether it's our team members. So I'll put our numbers up against anybody. It's really good. And Sharon, you see that in customer measures, right? You see it in service measures. You see it in.

Speaker 4: food measures and we're making remarkable progress against that and our measures are just as good, especially at Alphac and anywhere in the industry. So we're very pleased about that. On the customer side, we are seeing an uptick and discounting in the industry but not against the...

Speaker 4: folks that we directly compete with. And so, obviously, we can't control what the customer does, but we want to be very prudent with our discounting and promotions. We want to continue to offer things that we're great for the customer and also offer good returns for the company. That's one of the reasons why our margins.

Speaker 4: are hanging in there so well, but we want to build healthy traffic through sales layers. We don't want to participate in any big time discounting or promotion, even though we've seen it uptick in parts of the industry. I'd stress again, some of the things that we're offering, for instance the Surloin and lobster mac and cheese for $16.99 outback is really...

Speaker 4: in a terrific product. So that's where we tend to play, Sharon.

Speaker 4: That's where we tend to play, Sharon. Thank you. Thank you.

Speaker 6: Thank you. The next question is coming from Jeff Farmer of Gordon Haskett. Please go ahead. Great. Thanks. Good morning. Just really a couple of follow-up. So we touched on this, but a casual running impure attributed the lion's share of some of the April Sam Troucelle's choppiness to Easter holiday and spring break shifts.

Speaker 6: It sounds like you guys have sort of a similar view, but the question is, why are you so confident that the casual dining consumer is not changing behavior in what is increasingly looking like a more challenging consumer environment?

Speaker 4: Because, Jeff, we haven't, we've seen our trend hold up.

Speaker 4: And you know, you have to be really, if you look at restaurant industry, we've been talking about this ever since COVID and the emergence of COVID. You have to look at week to week and month to month trends. And the wantiness of last year is really gotta take into account. So like we said on this call, the trends we are seeing remain good.

Speaker 5: And we're just trying to provide our best thinking as far as what Q2 and the rest of the year looks like in our guides. Again, I'll just reiterate what I said earlier. If you look at the last five weeks or so of Q1 and the first five weeks or so of Q2, we've seen a pretty decent step up in terms of sales and traffic relative to 2019. And again, it's not always the best.

Speaker 5: litmus test because there's a lot in 2019 as well, but it is a little more consistent in terms of what we're seeing compared to last year, which did have quite a bit of, you know, up and down. Okay, and then second last question. I think you just said that pricing was 7.6% in Q1. Pricing in Q2 and Q3, can you just provide us with those numbers assuming no additional price increases are...

Speaker 4: reiterate what Chris said earlier, Jeff, when you look at pricing, you gotta look at the last three years. I mean, we've been very moderate in all three of our, you know, in our three year look on this, and that's what we're trying to do going forward.

Speaker 2: All right, appreciate it. Thank you. Thank you. The next question is coming from Sarah Sanatori of Bank of America. Please go ahead. Thank you very much. I just wanted to sort of go back to this idea when you talked about reduced discounting traffic and now you've got a new sort of more profitable base to build on.

Speaker 2: I'm trying to understand, I guess, a couple of things about that. One is, that's versus 2019. I'm curious how long that evolution took. We're three years plus into this. So is it just the case that it took a long time? Or as we think about building off a new base, I guess why now versus maybe in the last year or two?

Speaker 2: acknowledging that COVID was a little disruptive. And then related to that, could you talk a little bit about that, sort of how you think about that margin traffic trade off? Because as you said, you've done a really nice job with the margin. Traffic is still, I think, modestly negative and has been for a little while. So if we could just route a few more more ranges

Speaker 4: as we think through the outlook ahead, I understand you have a lot of sales layers, but if you're forced to make that trade-off, how would you approach it? Thanks. Well, first of all, we always want both. And there's a top line to Traffic 2, which is great service, product, and innovation. So that's the first part of it. You want to manage the traffic.

Speaker 4: and we get a little past the walkiness of 2022, but most importantly, the sales layers we talked about, right? The innovations in food, the no rules just right at Outback, the remodels, the investments in technology. Those are the things that we're driving against.

Speaker 4: to continue to make progress on traffic. And they have the ancillary benefit, especially with our technology investments to help with margins.

Speaker 4: So that's how we're trying to manage both. We don't have an interest in getting involved in deep discounting to drive sales. We want to offer great food and value at a fair price and continue to make progress on productivity to help protect margins.

Speaker 2: Okay, and then just in terms of those drivers that you talked about, are you able to give us, since it's like the magnitude as you think about the contributions, just again, in the context of QQ, I think the implied traffic is still not positive and so as you roll these things on, I guess, what does the build look like? Yeah, so basically what we're going to see is during the year.

Speaker 4: traffic will build from some of these sales layers. I'm not going to get into, you know, is it worth this much or is it worth this much or is it worth that much, but they will come together and build and you'll see as a result, especially as you look at our full year guide, improvement in traffic trends as the year goes along. So, it's those particular sales layers that we're trying to work through on the food side and the technology side and bring them in quarter by quarter by quarter. So, that's what we're trying to do.

Speaker 5: to help build traffic in our restaurants. And some of these are going to have a little bit longer tail as well, right? I mean, some of the technology investments we're making, again, it's hard to quantify an exact traffic lift from putting in new technology that makes you more efficient, but that's going to have a tail heading into 2024, not just from a productivity standpoint, but really from a sales standpoint as well. So, every one of these things is paste and see.

Speaker 4: multiple sustainable layers, not just LTOs and promotions, multiple sustainable sales layers to consistently grow the business. And that's what we're trying to do.

Speaker 10: Thank you. Thank you. The next question is coming from Brian Harbor of Morecans Family. Please go ahead. Thank you.

Speaker 11: Yeah, thank you. Good morning, guys. Chris, you talked about kind of the improved P&L at Outback units. How much does the build cost up on a new Outback? And so I'm curious as to what the returns are today, how you think about the hurdle rate on a new Outback, maybe also a remodel perhaps.

Speaker 5: Yeah, we're looking at 20% cash on cash returns at Outback for a new unit. I think the build cost is about 20%.

Speaker 4: basis. What have you been doing specifically to kind of continue to grow that channel? What else can you do to kind of continue to expand the delivery business? Yeah, the third-party delivery business continues to be strong for us. And it is a segment of our business that a younger customer base that continues to grow.

Speaker 4: and we're capturing that. And so what we're doing basically are two things, three things, excuse me. One, we're making sure our assets are in shape for delivery and they've got delivery rooms and enabled that way. Two, we've trained all of our people to work with our third-party providers to provide the delivery experience that they've really come to know and trust.

Speaker 4: Three, we have wonderful family offers, family bundled offers, especially at Carabas. That is tremendous food and tremendous value. And we're playing, you know, casual dining has the opportunity to play in the delivery space that for many years we didn't play in. And I think we have a chance to take share and grow as a result. And so we're seeing that in our business.

Speaker 10: Thank you. Thank you. The next question is coming from Brian Vicaro of Raymond James. Please go ahead.

Speaker 9: Hi, thanks and good morning. I just wanted to clarify some of the comments on recent sales trends just to make sure I interpreted them correctly. So first, did you say that quarter-to-date comps are in line with the Q2 guide of up 0.5 to 1.5% or did you embed an acceleration versus what you're seeing here in April ?

Speaker 9: And then second, Chris, did you say comms versus 19 started to accelerate in March and April ? If so, could you put some numbers around that? And I'm just curious what you think is driving that sequential improvement. Yeah, I'll take the first part and turn it over to Chris. So the guide that we gave to the quarter, our friends, our...

Speaker 4: consistent with that guide. They're not exactly that guide, but they're consistent, embedded in that guide. So that's how I wanna lay that out. And you'll see, I think, that piece come together nicely in Q2. For the improvement in versus 2019, it's the stuff we've been talking about, Brian , which is the sales layers, the operations of technology. And I'll throw it over to Chris for anything else that he'd like to add. Well, the only clarifying, so what I said was, if you look at,

Speaker 5: March and you look versus 2019 and then you look where we are over the first four or so weeks of our second quarter we have seen a step up in sales and traffic relative to 2019 So the step up didn't start occurring in March in fact the early part of Q1 as we said you know in our last call We had seen some pretty good trends heading into the first part of Q1

Speaker 5: And that slowed down a little bit on Nov. 19 over the back part of the quarter, but we've seen that kick back up again here early in Q2. Hopefully that provides perspective. And that's what gives us the. Folacious you're hearing on where we think sales attract are going for the longer term for the company. Okay, thank you and one thing I've been thinking about is just the increased advertising spend at Outback.

Speaker 4: Can you remind me, when did that begin? How has that impacted sales and are you pleased with the ROI you're seeing there and kind of how does it inform your future, your plan over the next few quarters? Yeah, we don't anticipate going back to the level of advertising we once had because we know so much about our customer and our digital efforts. But we have up ticked our, it's been out back the last few months.

Speaker 4: Not tremendously, because we're seeing the returns in the advertising that we expected. And we think we have a great platform with no rules just right to talk about that. And therefore we'll continue to watch our advertising and what the beauty of digital Brian is, you can plus it on or off very, very quickly. And we're not afraid to invest where we're getting the returns. But we don't anticipate going back to pre.

Speaker 4: COVID advertising spending of the percent of sales, but you'll see more from Outback around the no rules just right platform going forward. Alright, and then just last one for me, I just had two quick ones on the margins. Chris, your Q1 obviously came in well ahead of your guidance. I'm curious what drove that upside in the store margins versus your expectations? Sure, yeah, I think a few things. One, sales were better than we expected.

Speaker 5: in the press release, look at the international segment. It was up $16 million. Some of that was a little unexpected in the sense that if you look at Hong Kong, for example, that's a market that opened up much faster than we expected. They were basically shut down. We did not make a penny in Hong Kong last year in Q1.

Speaker 5: This year in Q1 we made like four million bucks. So that was a big improvement that was a little bit unexpected heading into the quarter. We also had some FX favorability that again was a little bit unexpected because the currency can be a little volatile. So look, there's a few things that drove that, but the biggest things are look, we overdelivered on sales and some of the efficiencies that we're seeing in our P&L were really, really strong. And we were able to do that.

Speaker 4: in a highly inflationary environment, which is really important, and that's part of our productivity as well as picking it. Great, and if you look at that second quarter guidance, it looks like, just quick math, it looks like it embeds store margins, maybe in the high 15s or 16% range or so. Could you confirm that's in the ballpark, and just some perspective on, I know Q2 is usually lower than Q1, but are there any specific cost dynamics in Q2 worth highlighting versus what we saw in Q1, or anything temporary?

Speaker 4: All right, that's great. I'll pass it along. Thank you.

Speaker 4: Thank you. Thanks, Brian .

Speaker 10: Thank you. The next question is coming from John Tower of Citigroup. Please go ahead. Thanks for taking the question. I'm just curious.

Speaker 6: You and a number of your competitors in the public market or chains that have talked about

Speaker 5: recently getting rid of, not getting rid of, but de-emphasizing discounting and trying to attract a more profitable transaction in their stores. It seems like it's a broadly held goal or effort across the industry and the chain side. I'm curious, one, if you think you can hang on to that if the environment...

Speaker 6: we have a chance to take care of it because some of the closures that happen. And also, the new restaurants coming into play, which we aren't seeing so much right now in the US, but we will see in years ahead. So there's some of that going on. I can't speak for competitors, John . I know where we stand, which is value is service plus food divided by price. And if we can offer consistent, noble,

Speaker 6: Value like some of the promotions at Outback or some of our other things that we're doing in other brands like crabas or bonefish

Speaker 12: items that outback or some of our other things that we're doing in other brands like croppas or bonefish, consumers respond.

Speaker 12: especially when you take a look at what the digital marketing environment provides by getting more specific with customers. If we can do that, speaking for our company, we don't have to rely on some of the deep discounting that was done before, you know, before the pandemic. And we want to stay focused particularly on this. And if some competitor in the very short term decides to do that, we'll continue to do what we do and go up against it. you

Speaker 12: and watch what's going on in the competitive marketplace, but we don't have an interest in doing that. We want to stay offering great value with the programs we have. Finally, at Outback, the combos we offer. Stake and lobsters, shake and shake it, stake and rip, tremendous value. Very few competitors offer it. Our customers love it. You look at the price points that we offer, there's a great value with those combos as well. So that's, John , how we're trying to attract our customers and move forward.

Speaker 6: Got it. In that circumstance, do you see yourselves potentially pulsing media a little bit higher than you have? I know you've cut back quite a bit in recent years, which made sense, but could we see a return back to pre-COVID levels?

Speaker 12: We have not to be back to pre-COVID levels, but media will follow the idea, follow the money. So if Outback has some tremendous innovation and we're seeing it with our customers, we're going, right? And you can turn that on and off like that with the digital efforts, right? So we will see that with our customers.

Speaker 5: Also, we talked earlier about our third-party delivery. We are watching that very carefully and how do we support that? So those are some of the things that are going on, John , as we manage the traffic and margin dynamics. Yeah, John , if you remember, we used to spend, you know, back prior to the pandemic, 3.5% of sales as a company on marketing. And then we laid out sort of our restaurant margin map to get where we needed to be. And at that point, Tom, we were saying, hey, look, we're just thinking about cutting, you know, marketing back.

Speaker 5: going back to the conversation about some of the closures in the marketplace, it does sound like the lending environment is certainly getting more challenging, and I would assume that's going to impact a handful of the independent or smaller regional chains out there. And I know you're still at the emerging part of getting the company to start growing new stores again, but in that respect, have you started to hear from landlords perhaps better deals than what you were even hearing about a few months ago?

Speaker 12: because the environment's getting more difficult for the competition to open new stores. We hope to, John , but it's still, we're looking at quality sites, and it's still a tough negotiation, not with landlords, but with competition to get the best sites, because that's really important for us, because when we look at our site placement, we get good sites in a great trade area, in a great market.

Speaker 12: The returns are in the sales area, terrific. So we're not going to go into C&D players, I'm not saying that's where independents are, we're not going to go to C&D sites, I'm not saying that's where independents are, but in the A and B locations there's still a fair amount of competition for that. But our attention clearly with our new restaurants is to take share. Got it, thanks for the time. Thank you. The next question is coming from Dennis Geiger of UBS, please go ahead.

Speaker 6: Thank you. Another one on advertising if I could, and I believe it's one of the more impactful drivers of traffic maybe this year. You talked about good ROIs, but as it relates to how well the marketing is resonating, anything you can share sort of on recent awareness levels, maybe relative to peers, how that's trending. I'm not sure if that's the best metric.

Speaker 12: necessarily, but is there anything to share on the awareness perhaps that's benefiting from some of the marketing? Yeah, I think awareness is hanging in there. There's nothing really trends that I can speak to quite yet, but I think as we continue to do this work, our awareness levels will improve. I'm also hoping that in some of our smaller brands like Carabas, we can continue to build awareness, but nothing I can really report yet on the awareness front that's really building for our company.

Speaker 5: And I would say one of the reasons why you do go on television as a medium, though, is to build up that awareness. So that's sort of the first part of the funnel that we're trying to build from a marketing perspective. We are back on TV. We know that that helps with awareness. And so you're going to see, you've probably seen us, but you're going to see us more on TV than maybe we have been in the last couple of years.

Speaker 6: Very helpful. And one more semi-related. Just some of the work you've done the last few years enhancing customer service, different things with menu, etc. Are you getting that credit from the customer yet, given how many times the customer comes a year? Or does that take time to build and you're still maybe not seeing the benefit from some of the work you've done over the last couple of years and that's kind of still on the come? Yeah, given casual dining is a relatively...

Speaker 12: light use occasion overall, we do have people that come frequently, it will take some time to build. But I am thrilled with the progress we're making in their customer measures in all of our brands. And where we stand versus competition, the progress we're making, and I've seen this in the industry over the years, we continue to make progress like this, it'll show up in our sales. But because of the relatively light frequency of casual dining, it's not gonna show up on a daily basis at astoplight.com, it'll still show up on our vendors Pilote creating what we call a for-profit use plan, and it's all available at our software// stated

Speaker 12: as quickly as maybe some other parts of the industry. But it's the things we've been talking about, it's the technology investments, and it's our retention levels are really helping us. Great, thank you. Thank you, we're showing time for one last question today. The final question will be coming from Andrew.

Speaker 6: Mr. Elzik of BMO, please go ahead. Hey, good morning. Thanks for squeezing me in here. I just had a question, another one on the value proposition over time, and I guess a couple quick things. Number one, do you think that grocery prices impact business trends for your business? And do you think about or how do you think about what gives you the confidence that if grocery prices were to reset lower?

Speaker 12: is something that informs us and we watch, but what drives our performance is what we do.

Speaker 12: Okay, on the value side and customer service side, obviously we've talked today a lot about not getting ahead of our skis on price increases. We've been very careful about that. We're watching what's going on with the grocery space. But boy, I tell you, you've come into Outback State, House of Crabbs and you've prepared me with great service and not have to cook. That's a huge value, huge value for our company. So that is what we're driving to grow our business. On the technology front, absolutely on the digital side, this is much more of an opportunity we know what firsthand this is,olla, and we want to do something positive that we import. the

Speaker 9: Well, thank you everybody for attending the call today. We appreciate it. We look forward to updating you on our second quarter results in July . Thanks everybody. Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time or log off the webcast and enjoy the rest of your day.

Speaker 1: I.

Speaker 10: and only mode. Following a question and answer session,

Speaker 10: A question and answer session will follow management's prepared remarks. It is now my pleasure to introduce your host, Tammy Dean, Senior Director of Corporate Finance and Investor Relations. Thank you, Ms. Dean. You may begin. Thank you and good morning, everyone. Please hit me on today's call.

Speaker 3: are David Dino, 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 2023 Earnings Release. It can also be found on our website at bloominbrands.com in the investor section.

Speaker 3: 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 and 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 in a material way from our forward-looking statements. Some of these risks are mentioned in our earnings release, others are discussed in our SEC filings andadalay weed

Speaker 3: 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 of 2023, an overview of company highlights, and current thoughts on 2023 guidance. Once we've completed these remarks, we'll open the call up for questions. With that, I'd now like to turn the call over to David Dino.

Speaker 12: Well, thank you, Tammy, and welcome to everyone listening today. As noted in this morning's earnings release, adjusted Q1 2023 diluted earnings per share was 98 cents, which compares to 80 cents in Q1 2022, up 23%. Q1 2023 marks the best quarterly diluted earnings per share in the company's history.

Speaker 12: Combined, US comparable sales are up 5.1% with each brand having positive same-store sales. The first quarter results further validate the strategic and operational framework we outlined for the year and set us up to deliver our commitments. I will be giving an update on our plans in a minute. Before doing that, I would like to thank our teams in the restaurants and restaurant support center for their unwavering commitment to serving our guests. Your dedication to great hospitality and service and experience is what makes our company so successful.

Speaker 12: As we look to build upon the momentum of the first quarter, we continue to remain focused on executing our plan to grow the business. As a reminder, our priorities include driving same-source sales growth, maintaining off-premises momentum, sustaining the progress in operating margins, becoming a more digitally savvy company, and increasing new restaurant openings. Let me now turn to our first priority, which is to grow sales and traffic in our restaurants.

Speaker 12: Growing sustainable traffic, especially at Outback, is our biggest priority. To achieve this goal, we are executing a number of initiatives. To start, let me provide a brief update on our use of technology to improve execution and consistency in the restaurants. The handheld technology rollout for our servers was completed at the end of Q4. The Outback team is now focused on optimizing the experience in the dining room to deliver a differentiated guest experience.

Speaker 12: The tablets allow our servers to cover more tables or providing an even better experience to our guests. Tablets are not replacing personal interaction. They are enhancing it as servers now spend more time with guests. In addition, we continue to roll out new cooking technology including advanced grills and ovens.

Speaker 12: The rollout is on track to be completed in the third quarter. This cooking technology is improving product quality and meal pacing. Like handhelds, the kitchen investments are also improving the customer experience and productivity.

Speaker 12: The second part of building sales and traffic is more targeted marketing designed to leverage our heritage, build brand equity, and drive frequency. Outback brought back the no rules just right platform at the beginning of Q1, but this is more than just marketing. It's an attitude.

Speaker 12: It's how we re-energize our restaurants with new food offerings, exceptional service, and most importantly, it ties back to our past. No Rules Just Right is aimed at highlighting our great menu and the everyday value that we offer to our guests.

Speaker 12: In Q1, we leaned into our Aussie roots with both food and beverage innovation. The third element to our sales building strategy is an introduction of new layers in all of our brands. For example, during the first quarter, Transflemming's launched Social Hour.

Speaker 12: It captures our wonderful food and drink offerings during the early evening. We also continue to grow our events and catering business within Flemings and look forward to the innovation that's coming from this business.