Q2 2023 Bloomin' Brands Inc Earnings Call

August 1, 2023

As it relates to other aspects of our Q2 financial performance GAAP diluted earnings per share for the quarter was 70 <unk> versus negative <unk> 72 of diluted earnings per share in 2022 adjusted diluted earnings per share was <unk> 74.

Versus 68 of adjusted diluted earnings per share in 2022.

The difference between our GAAP and adjusted results in 2022 was almost entirely driven by the required accounting treatment for the Q2 2022 repurchase of a large portion of our convertible notes.

Restaurant level operating margins were 16, 4% versus 15, 5% last year domestically the benefits from our pricing and productivity initiatives continued to offset inflation.

Technology, we are putting into our restaurants is having an increasingly positive impact on our margins.

As it relates to inflation commodity inflation was up two 8% in Q2, we had favorability in dairy and produce which helped to lower the overall inflation levels. We do expect commodities to be higher in the back half, particularly Q4 as we lap some 2020 to be favorability that we are able to realize.

We still expect total year inflation to be mid single digits.

Labor inflation was up five 6%. This was in line with our full year guidance expectations of mid single digits restaurant operating expense inflation remained elevated at seven 6%. This was driven by higher advertising R&M and utilities.

Also worth noting as it relates to restaurant margins International segment restaurant margins were up 280 basis points. This was driven by the continued growth in our Brazil business as well as the Brazil tax exemption benefit.

Total company operating income margin was seven 8% in Q2 flat from last year depreciation expense was up in Q2, consistent with our increased levels of capital spending and our investments in infrastructure to support growth overall.

Overall, we feel good about our margins and we remain well above pre pandemic levels.

Turning to our capital structure total debt was $770 million at the end of Q2, our current lease adjusted leverage ratio remains below three times in.

In terms of share repurchases year to date, we have repurchased one 8 million shares of stock for $43 million, we still have $97 million remaining on the new authorization that the board approved on February 7th.

Board also declared a quarterly dividend of <unk> 24, a share payable on August 25.

We are pleased with our balanced deployment of free cash flow and we'll continue to deploy dollars against additional debt paydown share repurchases and our dividend.

Before I turn to our guidance I wanted to provide an update on the latest developments in Brazil as it relates to our eligibility for the Brazil tax exemption. We discussed in our February earnings call. During our February call I mentioned that Brazilian government enacted legislation that introduced a zero percent rate for both corporate income taxes as well.

As certain federal gross revenue taxes for a period of five years, a Brazilian court order reinforced our eligibility for this exemption and we began to realize this benefit in our financial results recently.

Recently, the Brazilian legislature unexpectedly passed a new law that eliminated the ability for many businesses to benefit from this tax exemption impacting many restaurant companies, including our business in Brazil. This change will have the following impacts on our financial statements.

We had a $4 million one time tax benefit to our Q2 financial statements as we had to revalue certain Brazil deferred tax assets second we will now be subject to Brazil gross revenue taxes, beginning in the fourth quarter of this year. This will reduce our fourth quarter operating income by approximately <unk> <unk>.

$6 million.

Given the impact of the Q2 tax upside in the Q4 tax downside largely offset this new legislation should not impact our ability to attain our 2023 full year EPS guidance.

Finally, beginning in 2020 for Brazil will once again be subject to paying full corporate income tax at an approximate 34% rate.

Although we are disappointed with this latest development we remain on track to receive an approximate 25 EPS benefit from this tax exemption in our 2023 income statement, representing significant cash tax savings.

Now turning to our 2023 in Q3 guidance first we are reaffirming all aspects of our full year 2023 guidance previously reported on our February 16th earnings call Aside from a change in our tax rate assumption given the one time tax benefit we received in the second quarter, we have lowered our full year tax rate assumption to be.

Between 12% and 13% and second as it relates to the third quarter, we expect U S comparable restaurant sales to be 0.5% to one 5% and we expect Q3 adjusted earnings per share to be between 41 and 46 cents.

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

Yeah.

Thank you.

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One moment, while the polling for questions.

Our first question from Jeff Bernstein Barclays. Please go ahead.

Great. Thank you very much.

Two questions first one just thinking more broadly about the consumer.

It seems like your comp trends were pretty much in line with expectation.

The industry, just wondering if youre seeing any changes in behavior.

You would apply any or all of your brands.

Presumably any kind of softening.

And then I had one follow up.

Sure Good morning, Jeff.

We just see the consumer hanging in there and if you look at the economic reports when you look at everything else about.

The economy, we're seeing that as well.

And the high end is doing well and our casual dining brands as we see the consumer hanging in there.

Got it so there's been no noticeable over the past few months change in trajectory, whether its traffic or mix or anything like that it seems like it's relatively stable.

Yes.

If you look at the mix line I think like we said like middle of Q4 of last year, we turned negative in mix and we are.

A couple of hundred basis points in Q1 and mix still down a couple of hundred basis points in Q2, I expect that negative mix trend to be somewhat consistent as we head throughout the year until we start to lap it kind of in the middle of Q4. So look it's still negative I think a lot of that on our part we believe is engineered but there probably is some small element of consumer trade.

Inherent in that mix number but other than that no I think that look I mean, our guide actually implies if you look at Q3, a tick up in traffic from where we were in Q2. If you look at Q4, you can imply another tick up in traffic in Q4. So there is an expectation that the consumer continues to hang in there that our trends continue to improve as we do the things we need to do to improve our trends.

Yeah.

Understood.

And then just the follow up related to your commodity.

Pricing commentary I think from commodities, you said pretty much.

So mid single digit inflation.

I'm just wondering what your thoughts are specific the beef, which seems to go on our outsize attention whether you expect any.

The change I think you're pretty well protected for this year, but as you start to think about 'twenty four and on the flip of that I think you said that your pricing won't be as aggressive in the second half of 'twenty three so maybe just.

Clarify what the pricing will be third and fourth quarter.

To mitigate those inflationary pressures thank you.

Yes, sure well I think the good news is a couple of things one from a from a beef standpoint, youre right. I mean, we've done a excellent job this year and mitigating exposure to beef I think the one thing that I called out last quarter that would continue to call out is that because we did have beef upside in the back half, particularly the fourth quarter of last year.

And we were able to take advantage of some of that favorability. We do have a more challenging lap from a commodity perspective into Q4. So our commodities in Q4 will be a little more elevated than that 7% to 8% range versus the 3% to 8% you saw here in Q2, so that's something to keep in mind for the balance of the year, but it's way too early to be.

And about 2024, we obviously see the same things that you do as it relates to commodities, but I think the one thing our performance. This year has shown us that we find a way to navigate uncertain environments and the commodity landscape and we feel pretty good about that in terms of pricing if you look at.

Look like I said I would expect let's just start with check average.

Worked through your way through the balance of the year I would expect check average to kind of continue to tick down if you saw it in Q1, our average check was kind of in that 6% range Q2, it's in the 5% range wouldn't surprise me at Q3 and landed in that 4% range and then even closer a little bit lower than that but within the 3% range or so in Q4.

I would expect that check average to continue to tick down and I think thats driven largely by menu pricing I think our menu pricing was pretty consistent in that seven to seven 5% range over the first half of the year I think it would tick down a little bit in Q3, and then it would kick down even farther in Q4, we would probably exit the year again, we're trying to prove.

Optionality as it relates to pricing so we're not going to marry ourselves to a pricing number in the fourth quarter, but if we were to do nothing additional for the balance of the year you would exit the year in that four to four 5% range pricing, but again, because we've had such success with productivity and because we've been able to navigate the commodity <unk>.

Environment, So effectively our intention is to not take additional pricing for the balance of the year, which is one of the reasons why were worth being pretty pretty.

We're sticking to the guidance that we've laid out for the full year.

Thank you.

Okay.

Our next question from Alex <unk> from Jefferies. Please Sir go ahead.

Hi, Thank you good morning, I wanted to ask on the development plan and your expectations for the years ahead. It sounds like still looking for a material increase in 'twenty four and the comments on Brazil getting near 300 units by 28 are there any.

Changes.

Altering your view at all on where that growth is coming from the next few years by brand or region or is that still kind of in line.

Any comments on the Remodels accelerating further.

24 in years ahead.

Altered at all.

Yes sure.

On a future call.

In the coming months, we will provide greater visibility into our development plan, but is very similar to what we talked about on prior calls we will see a meaningful step up in development next year.

And we're seeing it in outback and Flemings, and which we're very excited about because both brands have a lot of white space ahead of them, especially in core markets. So it will continue with our remodel plans in the U S. As we upgrade our restaurant so the growth Youll see.

New unit development will be something we haven't provided to investors in quite some time and we've got the pipeline to prove it and the returns as well. So that's number one number two I can't say enough about the Brazil business.

The sales the margins.

At one point, we thought we could get to 100 Opex in Brazil. We now think we can get to 300, it's got at unprecedented market position down there and importantly, theyre doing with their own cash flow.

They are generating the cash to build a new business. It's primarily led by Outback, we do have Italian business down there we call. It <unk>, but outback has a lion's share of development down in Brazil. So that business just continues to perform extremely well and then lastly.

I think we can do all of this and yet still maintain our long term cash distributions strategy on paying down debt returning cash to shareholders and spend capital within those plans I just talked about but more to follow in future calls.

Thanks.

A follow up to that the international operating margin I mean, it was up.

Year over year like $15 million in the first quarter, another $6 million year over year here in the second quarter and.

There is some of the Brazil tax exemption benefit that I mean, it seems like the underlying margin trend is really strong and I don't know if you could break that down a bit further and just sort of a read through of how the margins are doing they're just one.

Base basis.

Yes, no. They continue even if you pulled out the tax benefit and again, it's going to be outsized. If you look at the international segment the tax benefit from the tax exemption benefit that we've been receiving is certainly having a pretty material positive impact on their margins, but to your point outside of that the benefits that we're getting from.

Check average and from traffic in that business are really driving the day as it relates to the margin upside, particularly when you look at the lines like cost of goods sold where we've been pretty pretty favorable over the last call. It several quarters I think that you are still seeing inflation or inflation is somewhat in line with kind of the same inflationary trends that we've been seeing.

Here in the U S, but again, given the volumes that those businesses generate and the ability for them to generate.

High sales volumes and traffic growth, that's really what's carrying the day as it relates to the Brazil business.

Thank you.

Thank you. Our next question is scheme throne.

Joan inbound.

J P. Morgan please Sir go ahead.

A couple if I may 1st.

Question on Cogs, you guys, obviously showed a 200 basis point decline in the second quarter, which is that's a really big number year over year for a restaurant company and yet at least in the U S. Same store traffic is negative how do you. When you think about gross margin ability to maybe reinvest.

Some of that gross margin to drive traffic.

New menu I understand Jeff.

No rules just write it starts with <unk> hundred $99, if thats kind of the right price point, but just philosophically how do we.

Kind of balance that expanding gross margin with declining same store sales were declining same store traffic, yes, well first of all our traffic trends outperformed industry. So I want to make sure we're clear on that but yes, I completely agree John .

<unk> the margin traffic tradeoff is so important and the beautiful thing about when you have strong margin performance you can reinvest that back in the business as you know so well and so we ask yourself why are we seeing some of this.

Cost of sales improvement, while it's the productivity initiatives, we've talked about with the ovens and other things that we've got going on in our business. So and the supply chain team has done a great job managing cost of sales. So that's why we're seeing it John but I can assure you as we think about traffic building initiatives and Chris talked about how we expect traffic to build the rest of the year, we're going to do.

Use some of those margin dollars to reinvest back in the business and some of our offerings I don't want to get into the details, but that's our philosophy.

Okay Alright.

Secondly.

Versus 2019, Brazil, actually look pretty consistent between the first quarter and second quarter, but obviously there was a pretty big one year falloff between the first quarter in the second quarter just over 4% is 4%.

Or that you are happy with in Brazil, I mean does that what does that kind of mean to traffic and how is the Brazil consumer overall and how is the Brazil consumer absorbing your expansion in the market.

Brazil consumer is doing well.

And each time, we build a new restaurant, John our development team down there because they are projections that they give us they blow them away. So every new restaurant, we build is exceed.

Exceeding expectations and then the other thing is as we've seen in other businesses and other markets. When you start going into some smaller towns outside the big cities. When you are the main player. You also have development opportunities that you didn't think were possible we saw that in other businesses. So.

Capital returned to our strong cash flow is strong and the Brazilian consumers in good shape, yes, and the only housekeeping item on that John the only housekeeping item on that is that obviously last year, Brazil had a different COVID-19 pattern than we saw here in the U S and so they are Q2 is kind of the first quarter, where there absent some of those big Covid lapse.

That we maybe saw in the first quarter, so thats going to be at a little more normalized trend moving forward.

Is there a ticket comment you can make on Brazil.

We know that.

Pricing.

I don't have it off the top of my head I'm sorry.

But we can get that we can certainly get that to investors.

That's fine and then the final point and it's a follow up to Alex's question about.

Development Remodels can you at least kind of give us a sense I think the guidance for this year and Capex is $2 40 to $2 60, Directionally. What you. If you don't want to give us a specific number I understand at this point, but directionally. What you think capex will be 23 to 24.

It should be in the ballpark, John I think one of the things as we uptick our remodels, we might see a slight increase but we're not sure quite yet, but one of the things to think about as we.

We had a lot of it spending this year because of the ovens and the brand.

Health and that's coming that's coming off so I think.

It will be in that range, we might see a slight uptick but it's.

Too early to call.

Okay. Thank you.

Yeah.

Thank you. Our next question came from Sharon Zackfia William Blair. Please go ahead.

Okay.

Yeah.

But I recall prior to the pandemic.

Looking into potentially selling the Brazilian business I'm, just wondering kind of philosophically, where you are keep several strategic alternatives for Brazil.

Yes.

Really isn't a market for an IPO or sale right now in Brazil.

And we are as you heard from last prior comments, Sharon we're thrilled with the direction, but.

It's more market based and we will always keep our optionality open about that business.

But right now our.

Our goal is to grow it as rapidly as possible, but there is no market for it right now.

Okay. Thank you and then the second question and the second half of the year and I know you don't normally talk about concepts, but it sounds like you have different things planned in the first half we saw kind of carrabba's lead in plumbing Laggan <unk>.

Alan Simpson Outback in between domestically from a comp perspective is that kind of how you would expect the second half of the year to progress or is there anything initiative wise, where you would expect one concept to strengthen or another to maybe taper off.

So let me talk about a couple of concepts.

First of all Fleming's trends are very strong even though they were negative in the quarter. That's because we had very high spending in fine dining in the category last year and Fleming's outperformed the fine dining category. So if you look at their trends week to week.

We see that business to be very strong and we also see a nice add to that business, which I didn't talk about in the script is the private dining business. We have high hopes for that as people come back to work, we'll come back to the office and done other things so.

So fleming for.

For us is something that we will continue to see.

That moving along so.

That's the first piece of the business that I think we would see some change in trend.

The balance of the year as far as comps go but remember you have to think about overlapping second one is our carrabba's.

They continue to just a terrific job and in restaurant dining other catering business and in off premise and I think the main thing I want to stress is they've just introduced the lineup.

<unk> heritage sandwiches that reflects the <unk> brand is doing extremely well and we think we have opportunity beyond beyond catering with that business and those sandwiches sandwiches are terrific and I would encourage our investors to get something because it really great. So I would say Sharon what I'll call out right now is up Carrabba's and Fleming.

Okay. Thank you.

Yes.

Next question came from Jeff Farmer Gordon Haskett. Please go ahead, great. Thanks, Good morning, just focusing on the Brazil tax legislation.

Street estimates as you guys know across revenue operating income.

Yes, basically every line item does reflect the guidance that you guys provided in early February as it relates to two that legislation.

So this was strongly implied in terms of not only their release and once you guys just said, but.

Bottom line is should we be essentially unwinding, a 100% of those impacts in our models in 2024 and beyond at this point.

Yes, So let me I'll give you a little more context on that that is correct. So in 2024, we would resume paying full taxes back in Brazil.

So the way that it works. This year is that the value added tax portion of that is what goes away starting in the fourth quarter. So for the first three quarters of 2024, you would have call. It a $30 million reduction in sales over the first three quarters split relatively.

Evenly and then the corresponding call it $15 million reduction in operating profit over the first three quarters as well then if you look at taxes youre going to have call. It a $10 million to $12 million increase in tax expense spread out basically all of our all four quarters.

Next year, it's a little bit lumpy, but not not worth calling out in any more specificity.

So that's how it would unwind starting next year, Alright, Thats helpful and just one follow up.

So you gave us a little bit of color on the operating expense inflation looks like it's come down a little bit I think you said <unk>.

Seven 6%.

I might've missed it but how are you guys thinking about operating expense inflation in the back half of the year.

Operating expense inflation should start to mitigate right. So more in that mid single digits. It's been it's been more elevated in the front half of the year because youre lapping some.

The utilities kind of took off a little bit and so as you start to lap that it should improve as you get to the back half of the year lower than we're kind of in that 7% to 8% range now it'll probably be more mid single digits to maybe lower low to mid single digits in the back half, but it will skew a little step down from Q3 to Q4 five I appreciate it.

Our next question.

Our next question games film.

Got it thank you all for America.

Alright. Thank you I wanted to ask about I guess, the second and your traffic talked about intensely reducing.

Reliance on discounting and perhaps reducing traffic from consumers who might be solely interested in those kind of price point offerings.

I'm trying to understand sort of where how you replace that traffic as you.

Move towards the goal of having positive traffic growth does that more visits from your core customers is it is it bringing in new customers and I guess in that context, if you could talk about the advertising strategy.

Yeah, typically I think of traditional advertising is having a broader reach so as you make so many changes to outback in particular, and presumably trying to reach new new customers.

How you're thinking about your ability to do that with the digital advertising that you're you're kind of pivoting to you.

Sure.

Yes, Youre right, we did remove our some of our discounting and a lot of our discounting and promotions and we got the customers that new excuse me use that.

Stop coming to our restaurants, but that was planned.

So how are we going to replace that or how are we replacing it right now and that was just gets back to what I talked about earlier with our margin performance, we can reinvest in our products and our service and you saw that with the Acs high ratings at Outback number one that will be sustainable traffic moving forward. So that's what we're trying to do.

Do as we invest behind our business now we've got to be as Chris talked about was going to be very prudent on our pricing. So so rather than price up in discount back, we'd rather try and be prudent in our pricing and make sure that value comes to the consumer that way along with great food and Great service now we learned a lot.

As we talked about with the pant during the pandemic about advertising, yes, you can reach a broad group of people with broadcast advertising.

And a thing we'll continue to do some of that at the top of the funnel, but we really learned a lot about the digital space and that's where we're spending our marketing dollars to target those consumers, we want to bring back the loyal consumers more and we want to reach continue to reach for new customers as we build traffic, but the key is going to be to <unk>.

Take some of those margin dollars and reinvest back in the business and we may see some of that with additional advertising spend as we go forward, especially to outback.

Okay understood and then just on that in terms of what you are already seeing.

An increase in tech ops, Oh, sorry about that thank you Helen.

Our membership arms.

And increase.

Frequency is there.

And then kind of leading indicators.

Suggest again, maybe where that traffic is coming from whether it's higher frequency new gas.

Yes, Sir.

Yes.

Hey, Matt envision improved traffic from your how we should think about that.

Proof frequency from our dining guests to carry out guest and more reach from our third party delivery, which is an incremental occasion, that's where we're seeing the traffic gains.

Thank you.

Our next question came from Brian <unk> from Morgan Stanley . Please Sir go ahead.

Chris we can kind of see what you're implying for the fourth quarter from an EPS perspective as well.

Is.

Any pressure here just about the Brazil change.

Or was it you alluded to just commodities being there being more pressure in the fourth quarter.

Any other drivers of kind of <unk>. So as we start to think about what youre implying.

So yes, you lose the $6 million is sort of we talked about the benefit from the tax exemptions being somewhat neutral for the overall full year guidance, but obviously there is a bit of an interplay between Q2 and Q4. So that is a change in fact patterns from where we were a few months ago in terms of how you should think about our <unk>.

Fourth quarter.

But yes, I think that the commodity piece is probably the other piece that maybe some folks hadn't fully realized in terms of the piece and the building blocks for the fourth quarter. Those are the two big pieces. The one other thing I would point out for Q4, just overall on the same page there is a little bit of a housekeeping is the way. It is a 53 week year. So just.

Make it clear we're going to report our comp sales result for the fourth quarter on a 14 week basis, and we will be able to provide.

Provide a 13 week basis as well the challenge with the way that the holiday shift. This year is that if we were to report on a 13 week basis, we'd have one extra operating day in the 13 week.

Because of the timing of Christmas. So we were going to report on a 14 week basis. So that you have the same number of operating days in both both years and that makes the comp a little more normalized for you, but just a little housekeeping there, but those are the only two pieces I would point out Brian in terms of how Q4 would come together, okay got it. Thank you.

And then just some of the things around like new ovens, new Grilles handhelds et cetera.

Is that.

Are we starting to see that to some extent in.

Are we starting to see them in labor cost or are we seeing starting to see in food cost maybe in the form of reduced waste do you think most of that is actually more in front of you like how should we actually kind of see that impact in your in your P&L.

Yes, we're seeing it right now and that's why the margins look so good.

The reasons why the margins look so good and I think we've got some more in front of us because we are still rolling out the ovens that'll be done this quarter. So as we think about 2024, it's way too early to talk about 2024, but we will see some of that overlap into 2024 as well, but these investments in handhelds and ovens had been a big part of our productivity this year and the margin benefit.

Right.

Thanks.

Our next question comes from Brian Vaccaro Raymond James. Please go ahead.

Yes, Thanks, and good morning, I, just wanted to circle back on the new Tech and equipment package. How many of the of your unit had that package in place at the end of Q2 and I guess My question also is just on the stores that have had it in place for say six to nine months and I would assume have reached some.

The level of efficiency on it could you quantify even if its a range just just any of the benefits youre seeing in key operating metrics thinking about percent of stake sent back or average ticket time or the waster labor savings if any.

Any ballpark that you could provide there.

So we are.

About three quarters of the way through.

Kevin Yes, we were about 460 out backs and then heading into the quarter, we had 100 or so remaining so we're pretty much through the outback system will be done Brian .

During that time.

For competitive reasons, I don't want to get into the pieces parts of.

Where we're seeing it but here's so here's brought very Brian you'll see in the P&L, we're seeing an improved food cost as we manage that we're seeing it in.

<unk>, we're seeing it in.

Labor efficiency in the P&L. So all three of those line items on the P&L, we're seeing demonstrable improvement in the most important thing we can talk about the P&L, but the most important thing is the customer get better service with handheld we get the table turns we see we can.

Managed we don't want to go too fast Okay. We're almost like we got to make sure. We don't go too fast, but we're seeing the customer sees that our table turns we're seeing better product, which will lead to greater traffic and theyre getting better service. So those it's a customer side. This is the most important thing and then on the P&L side, it's in food cost labor and.

In.

Some of the <unk> and things that we don't have to do anymore. So those those are the areas broadly that we see and then I would just add on top of that as you look into 2024 and the reason why we're optimistic that there can be some tail on some of these productivity initiatives.

I think the one thing that this new equipment does is it gives us optionality to really look at the labor model and how we configure the kitchen and things like that so there is opportunity for us to continue to tweak and enhance and provide value.

To the overall operating model moving forward and then lastly, I don't think I am getting too far ahead here, but you would expect us out of the CEO .

It's obvious I walk over to Carrabba's, and I say well look with Outback is done is there opportunity in the Carrabba's business to do similar things it's way too early to talk about that but we've learned a lot at outback that we can apply to other brands.

Alright, that's helpful and David you also noted some significant improvements in the Outback guest satisfaction score and go up from number six to number one.

Not sure what level that survey what level of detail that survey provides but I'm curious what areas.

Within that survey what areas of the guest experience improve the most is there any of that stood out if you have that level of detail.

We have our own level details, well, Brian and Thats steak accuracy and customer satisfaction and growing our cooking, our steaks and his service attentiveness.

In response to our customers.

You want to see I want to see our managing partners out in the restaurants talking to customers and we wanted our service to engage both through our own internal data, we see the steak accuracy and the service levels are improving.

Alright, and then just two quick numbers questions Chris.

Chris on other Opex.

Sure and what was the advertising spend in the second quarter, maybe remind us how that compared to last year and then what does your guidance embed in terms of the second half spend.

Yes. So if you look at advertising in Q2, we spend call it $27 million in total, including international and last year, we spent $23 million. So we had about a $4 million pick.

Pick up and I would say that youre going to see you're going to see year over year increases in advertising.

I don't know, we're still TBD on kind of the level of that but I think that you can expect to be up year over year in Q3 and Q4.

Okay, and then just on pricing you talked about it earlier, but I just wanted to confirm your second half guidance assumes you take no additional pricing from here and then can you remind us also of any pricing actions that you took in the second quarter or the first half of the year yes.

Yes, we took a little bit in the second quarter. So that takes away some of the need to take pricing in the third Q3 or Q4. It was obviously pretty low low levels of pricing.

I think that in Q3 or Q4, we're still going to kind of retain the right to change our minds in terms of how we take or think about pricing, but certainly in the guidance that we provided yes, we're not contemplating material.

Material levels of increased pricing at all over the back half of the year from this point.

Alright, Thank you very much.

Hey, Brian .

Okay.

Our next question James film Danielle.

For UBS.

Thank you I wanted to ask another one on the expected improvement in traffic trends and the strengthen the esthetic satisfaction scores that you spoke to.

Just on the on the on the strength of that survey curious if you could touch a little bit on improving satisfaction and then sort of how you think about converting that to visits what kind of lag there might be based on a number of times that your customers visit per year, you're probably starting to see some of that but just curious if you could provide a little more color on that on that.

And the timing perhaps of that.

Yes.

That will build because we're not a business that has.

People come every month.

20 times, a year something like that they come a few times a year our frequent users come more often so obviously the lcs, but this is something that's sustainably will build with this kind of improvement and when you put on top of it improve the ambiance with Remodels right. This this is going to have a sustainable improvement in our traffic trends.

And the good thing about it is we're going to be able to see it because we are remodeling by sections of the country. So we're starting in Florida will be able to see what how that looks and so we'll be able to adjust our strategy. Accordingly, but this is something that's going to build over time because of the guest frequency of our business.

Very helpful. Thank you and then just one more a lot of good things going on within the restaurant, but can you talk a little bit more about the off premise and delivery opportunities from here solid results in the quarter.

But just curious how youre thinking about those opportunities going forward and sort of how you're sort of looking to capitalize on the opportunity that's still out there for you.

The consumer wants convenience.

And we've built we've built our capital strategy around providing that convenience in our to go rooms in our.

And our delivery room and through our technology, we're continuing to make significant progress in our technology to ease ordering for our customers and so therefore with that business between Carryout and in restaurant. There is a lot of overlap rate the customers either comes into heat or does carryout, but in delivery, especially third party delivery.

That's an incremental occasion, and we will continue to invest heavily in that and because that's a customer opportunity for us and then finally, we're seeing that.

The consumer loves our catering business again, it's an off premise opportunity.

Carrabba's is leading the way in that and they just developed a line of sandwiches that I'm not going to get into details on it but boy, it's being customers responding and we think we've got opportunity beyond catering.

In our restaurants. So this is a great example of how an off premise business can help it in restaurant business and the innovation. We can use in other places in our business, it's clear the customer likes convenience and we're there to deliver it.

Great. Thank you.

Our next questions came with Ngos.

From BMO capital markets. Please go ahead.

Great. Good morning, Thank you very much.

My first question is about Carrabba's development.

Within your.

Kind of optimistic unit growth outlook that you've talked about over the coming years, it's really outback and flemings, driven which has been very consistent.

Take for Carrabba's can play a more meaningful role, especially given the off premise.

Catering kind of in the optimism you talked around there I would think maybe new formats or markets I don't know if you think.

There is more of an opportunity there or any color would be great.

Yes, there is an opportunity to carrabba's.

I generally don't like to go public or anything because we have a pipeline built and I can talk about some more but there is an opportunity with <unk> was clearly the performance has been terrific.

He is doing a great job, but until we build the pipeline a little further it's something that continue to hold back on a little bit, but certainly we're looking at it and thinking about it.

Said that the pipeline at Fleming's, Brazil in Outback is filling up everyday and looks very strong so more to come on development, but <unk> certainly earn the right to more expansion.

Okay great.

My other question was just on competitive activity within the category and what are you seeing does it feel still pretty rational and I guess with most expecting pricing to roll off any concern that.

There might be more kind of overt traffic driving efforts across the category and what that might mean.

Yes.

In the categories. We plan, it's been very rational and we certainly don't want to.

Do any discounting and things like that we intend to build value other ways like we've talked about on this call, but it's been a very rational environment in our in our section of the business. Other parts I don't really I don't want to comment on.

Because we don't really play in those areas, but what's been a very rational.

We are about growing the business.

Great. Thank you very much thank you.

Yeah.

Yes.

There is no further question at this time I should like to turn the floor back over to Mr. Deno for closing comments. Please Sir go ahead.

Thank you everybody for listening in.

And your interest in our business and we look forward to talking to you in October in our Q3 call take care.

This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation have a nice day.

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Yes.

Greetings and welcome to blooming brands fiscal second quarter 2023 earnings Conference call.

At this time all participants are in a listen only mode. A brief question and this especially following management's prepared remarks.

It is now my pleasure to introduce your host Sara <unk>, Vice President corporate finance and Investor Relations.

This is Kieran you might begin.

Thank you and good morning, everyone with me on today's call are David Deno, Our Chief Executive Officer, and Chris Meyer Executive Vice President and Chief Financial Officer by now you should have access to our fiscal second quarter 2023 earnings release. It can also be.

Found on our website at Www Dot Lehman brand Dot com in the investors section.

During this conference call, we will be presenting results on an adjusted basis, an explanation of our use of non-GAAP finished 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 in a material way from our forward looking statements. Some of these risks are.

And in our earnings release, others are discussed in our SEC filings, which are available at www Dot SEC Doctor.

During today's call we will provide a brief recap of our financial performance for the fiscal second quarter 2023.

An overview of company highlights and current thoughts on the 2023 guidance. Once we've completed these remarks, we'll open the call up for questions with that I would like I would now like to turn the call over to David Deno.

Well, thank you Tara and welcome to everyone listening today as noted in this morning's earnings release adjusted Q2 2023 diluted earnings per share was <unk> 74, which compares to 68 since last year up 9% combined U S. Comparable sales were up 80 basis points with each of our casual dining brands having positive.

Same store sales importantly, this reflected a 110 basis points outperformance on traffic versus the industry in Q2.

I am pleased with our U S results as they continue to validate the strategic and operational framework, we outlined for the year. This includes leveraging our leading off premises business. The addition of sales layers growing digital capabilities and improving operational effectiveness and efficiencies.

Turning to our international business simply put we had an exceptional quarter. This was led by our Brazil business Q2 revenues were up 17% due to new unit openings, the Brazil tax benefit and strong same store sales growth. Additionally, operating profits and margins were up significantly versus a year ago, our international businesses.

Strong lots of growth ahead for us International is a unique asset in casual dining.

I'd like to thank our teams in the restaurants and the restaurant support center for their continued commitment to serving our guests your dedication to great hospitality service and experience is what makes our company so successful.

As you look ahead to the rest of the year, we are focused on achieving our full year guidance and objectives. We continue to have confidence in our strategy to elevate the customer experience, while achieving sustainable sales and profit growth.

As a reminder, our key strategic priorities are to drive same store sales growth maintain off premises momentum become a more digitally driven company sustaining the progress we've made in operating margins and increase new restaurant openings.

Improving same store sales growth is a multifaceted approach sustainable traffic growth, especially at Outback continues to be the primary focus we have several initiatives in process to achieve our goal as I mentioned last quarter we are.

<unk> innovative technology to improve execution and consistency in our restaurants.

Opex service now use handheld technology, which allows them to spend more time with guests and deliver a differentiated guest experience.

Our new cooking technology in the back of the house, including advanced Railton ovens is on track to be completely rolled out in the third quarter, our guests will experience improved product quality and overall meal pacing.

Recently, the annual ACM Psi restaurants study of customer satisfaction was released and Outback Steakhouse has emerged as the industry leader in casual dining moving from number six in 2022 to number one in 2023. This is a tremendous accomplishment. The investments we are making are clearly paying dividends our guests recognize the actions we are.

Taking to improve the overall guest experience over the long term, we expect this to drive sustainable traffic growth.

Complementing our restaurant operations as more targeted marketing designed to drive guest frequency leverage our heritage and build brand equity.

Earlier this year Outback brought back that no rules just write platform leaning into our Aussie routes. This is an add to that goes beyond just marketing is how we reenergize, our restaurants with new food offerings and exceptional service and importantly, it ties back to our past no rules just right highlights our great menu and everyday value for example, our current seasonal offerings feature.

New menu innovation that start and accessible $16 99 price points.

The third element to our sales building strategy is to introduce is introducing additional sales layers. For example, Fleming's launched social hour earlier. This year. This captures our creative food and drink offerings. During the early evening at Carrabba's to have reintroduced our successful wine dinners. These highlight the quality and great value of that crowd is known for.

And bonefish is enhance their weekend brunch and introduced our social hour.

The response to these offerings has been positive and we are seeing early success.

The final sales driving strategies, improving our asset base. We spent the last two years developing different scopes that can now be deployed dependent on our restaurants need. This is the beginning of a multi year effort to touch a large percentage of our restaurants. We are on track to remodel over 100 locations. This year and will accelerate our remodel pace in years to come.

All the initiatives I. Just described are designed to build sustainable sales and traffic growth now and over the long term.

Turning to our second priority continue to capitalize on our leading off premises business total off premises was 24% of U S sales in Q2, and our third party delivery business continues to perform well importantly off premise was profit margins are comparable to margins of the in restaurant business catering continues to be a growing opportunity for our brands.

The Carrabba's team as an industry leader in this space. We recently launched Carrabba's Bistro, which is a lunch focused catering option featuring a wide variety of sandwiches that represents Carrabba's Italian heritage we.

We are very excited by the early results and believe this could represent growth opportunities beyond catering.

We're also very pleased by the strong momentum we are seeing catering at both Outback and bonefish as a result of all of the above we expect off premise is to remain a large part of our business.

The third priority is to capitalize on our progress to become a more digitally driven company.

System with Q1, approximately 79% of Q2 total U S off premises sales were through digital channels. This compares to approximately 75% of total U S off premises sales in Q2 last year.

We continue to see positive results with our new online ordering system and mobile App, which has 3 million users.

Our fourth priority is to maintain a significant progress in operating margins over the last four years in a highly inflationary environment.

During this time, we grew our adjusted operating margin from four 6% in Q2 2019 to seven 8% today.

To start with growing healthy traffic across our in restaurant and off premise channels. We.

We reduced our reliance on discounting and promotional LTE OS and reallocate advertising spend to more targeted high return digital channels.

Remain disciplined in managing the middle of the P&L and are aggressively pursuing efficiencies in commodity labor and overhead.

And the final priority is to build more new restaurants, especially at Outback Fleming's and in Brazil.

We have strong sales and profit margins and offer great returns domestically outback and flemings have significant growth opportunity in core geographies in Brazil, we can more than double our footprint today, we have 148, Opex and we expect to have nearly 300 opex in Brazil by 2028.

More to come on new unit development on future calls, but we expect to have a meaningful increase in new restaurant development in 2024 and.

In summary, we are pleased with the success in our business for the first two quarters of 2023, we are focused on achieving our annual goals while building a great business. It will continue to thrive for many years to come.

And with that I will now turn the call over to Chris who will provide more detail on Q2 and thoughts for the remainder of 2023.

Thanks, Dave and good morning, everyone I would like to start by providing a recap of our financial performance for the fiscal second quarter of 2023.

Total revenues in Q2 were 115 billion, which was up 2% from 2022, driven by a <unk>, 8% increase in U S comparable restaurant sales as well as a four 1% comp sales increase in Brazil in our U S brands traffic was down four 2% in Q2. This is in line with <unk>.

Expectations and importantly, we outperformed the industry by 110 basis points average check was up 5% in Q2 versus 2022 benefit from average check will continue to move a little lower as the year progresses as menu pricing rolls off we do not intend to replicate the same level of menu pricing. This year as we took in 2000.

'twenty two.

At 24% of U S sales Q2 off premises increased 100 basis points from Q1 importantly, the highly incremental third party delivery business remains healthy and was 12% of U S sales in Q2.

In terms of brand performance.

<unk> total off premise mix was 26% of sales and Carrabba's was 33% of sales.

Carrabba's already strong off premises business has been supported by consistent growth in catering catering was over 5% of <unk> sales. In Q2. We are also seeing success in catering at our other brands and we'll continue to emphasize this sales layer across our portfolio moving forward.

As it relates to other aspects of our Q2 financial performance GAAP diluted earnings per share for the quarter was 70 <unk> versus negative <unk> 72 of diluted earnings per share in 2022.

Adjusted diluted earnings per share was <unk> 74.

Versus 68 of adjusted diluted earnings per share in 2022.

The difference between our GAAP and adjusted results in 2022 was almost entirely driven by the required accounting treatment for the Q2 2022 repurchase of a large portion of our convertible notes.

Restaurant level operating margins were 16, 4% versus 15, 5% last year domestically the benefits from our pricing and productivity initiatives continue to offset inflation.

Technology, we are putting into our restaurants is having an increasingly positive impact on our margins.

We still expect total year inflation to be mid single digits.

Overall, we feel good about our margins and we remain well above pre pandemic levels.

Turning to our capital structure total debt was $770 million at the end of Q2, our current lease adjusted leverage ratio remains below three times in.

<unk> also declared a quarterly dividend of 24, a share payable on August 25.

We are pleased with our balanced deployment of free cash flow and we'll continue to deploy dollars against additional debt paydown share repurchases and our dividend.

We had a $4 million one time tax benefit to our Q2 financial statements as we had to revalue certain Brazil deferred tax assets.

We will now be subject to Brazil gross revenue taxes, beginning in the fourth quarter of this year. This will reduce our fourth quarter operating income by approximately $6 million.

Given the impact of the Q2 tax upside in the Q4 tax downside largely offset this new legislation should not impact our ability to attain our 2023 full year EPS guidance.

Finally, beginning in 2020 for Brazil will once again be subject to paying full corporate income tax at an approximate 34% rate.

Thank you.

We will now be conducting a question and then they sort of shape.

If he would like to ask a question. Please press star one on your telephone to keep that a confirmation.

Gated.

Your line is in the.

Question.

You May press star two weeks who'd like to remove your question from the queue.

For participants using speaker equipment, it might be necessary to pick up your handset before pressing.

At this time.

One moment, while the fully <unk> question.

Our first question games from Jeffrey Bernstein Barclays. Please go ahead.

Great. Thank you very much.

Two questions first one just thinking more broadly about the consumer.

It seems like your comp trends were pretty much inline with expectation.

The industry I'm, just wondering if youre seeing any changes in behavior.

Applied any or all of your brands.

Presumably any kind of softening.

And then I had one follow up.

Sure Good morning, Jeff.

Yeah.

We just see the consumer hanging in there and if you look at the economic reports when you look at everything else about.

If the economy were seeing that as well.

And the high end is doing well and our casual dining brands as we see the consumer hanging in there.

Got it so theres been no noticeable over the past few months change in trajectory, whether its traffic or mix or anything like that it seems like it's relatively stable.

Yes.

If you look at the mix line I think like we said like the middle of Q4 of last year, we turned negative in mix and we are.

A couple of hundred basis points in Q1 and mix still down a couple hundred basis points in Q2, I expect that negative mix trend to be somewhat consistent as we head throughout the year until we start to lap it kind of in the middle of Q4. So look it's still negative I think a lot of that on our part we believe is engineered but there probably is some small element of consumer trade.

Inherent in that mix number but other than that no I think that look I mean, our guide actually implies if you look at Q3, a tick up in traffic from where we were in Q2. If you look at Q4, you could imply another tick up in traffic in Q4. So there is an expectation that the consumer continues to hang in there that our trends continue to improve as we do the things we need to do to improve our trends.

Understood.

Then just the follow up related to your commodity and.

Pricing commentary I think from commodities, you said pretty much still mid single digit inflation.

Just wondering what your thoughts are specific the beef, which seems to go on to outsize attention.

Whether you expect.

Any change I think you're pretty well protected for this year, but as we start to think about 'twenty four and on the flip of that I think you said that your pricing won't be as aggressive in the second half of 'twenty. Three so if you could just clarify what the pricing will be in the third and fourth quarter.

To mitigate those inflationary pressures thank you.

And we were able to take advantage of some of that favorability. We do have a more challenging lack from a commodity perspective in Q4. So our commodities in Q4 will be a little more elevated than that 7% to 8% range versus the 3% to 8% that you saw here in Q2, So that's something to keep in mind for the balance of the year, but it's way too early to be too.

And about 2024, we obviously see the same things that you do as it relates to commodities, but I think if one thing our performance. This year has shown us that we find a way to navigate uncertain environments and the commodity landscape and we feel pretty good about that in terms of pricing if you look at.

Look like I said I would expect let's just start with check average.

<unk> worked through your way through the balance of the year I would expect check average to kind of continue to tick down if you saw it in Q1, our average check was kind of in that 6% range Q2, it's in the 5% range wouldn't surprise me at Q3 and landed in that 4% range and then even closer a little bit lower than that wasn't in the 3% range or so in Q4.

Optionality as it relates to pricing so we're not going to marry ourselves to a pricing number in the fourth quarter, but if we were to do nothing additional for the balance of the year you'd exit the year in that four to four 5% range pricing, but again, because we've had such success with productivity and because we've been able to navigate the commodity <unk>.

Environment, So effectively our intention is to not take additional pricing for the balance of the year, which is one of the reasons why we are being pretty pretty.

It does.

Sticking to the guidance that we've laid out for the full year.

Thank you.

Our next question came from Alex <unk> from <unk>. Please Sir go ahead.

Hi, Thank you good morning.

Wanted to ask on the development plan and your expectations for the years ahead. It sounds like still looking for a material increase in <unk>.

24, and the comments on Brazil, getting near 300 units by 28 are there any.

Changes are altering.

Altering your view at all on where that growth is coming from the next few years by brand or region or is that still kind of in line and then.

Just any comments on the Remodels accelerating further in.

<unk> 24 in years ahead.

Sort of altered at all.

Yes, sure we'll in a future call.

It will be a new unit development would be something we haven't provided to investors in quite some time and we've got the pipeline to prove it and the returns as well. So that's number one number two I can't say enough about the Brazil business.

Sales the margins.

At one point, we thought we could get to 100 Opex in Brazil, We now think we can get to 300.

Got it unprecedented market position down there and <unk>.

Importantly, they are doing with their own cash flow.

So theyre generating the cash to build a new business, it's primarily led by Outback, we do have.

Alien business down there we call it <unk>, but outback has a lion's share of development down in Brazil. So that business just continues to perform extremely well and then lastly.

Thanks.

A follow up to that the international operating margin I mean, it was up year over year like $15 million in the first quarter, another $6 million year over year here in the second quarter and.

There is some of the Brazil tax exemption benefit.

It seems like the underlying margin trends really strong and I don't know if you could break that down a bit further and just sort of a read through of how the margins are doing there.

Base basis.

Check average and from traffic in that business are really driving the day as it relates to the margin upside, particularly when you look at the lines like cost of goods sold where we've been pretty pretty favorable over the last call. It several quarters I think that you are still seeing inflation. There inflation is somewhat in line with kind of the same inflationary trends that we've been.

Being here in the U S, but again, given the volumes that those businesses generate and the ability for them to generate.

High sales volumes and traffic growth, that's really what's carrying the day as it relates to the Brazil business.

Thank you.

Our next question is scheme throne.

Joan <unk> J P. Morgan please Sir go ahead.

A couple if I may 1st.

Some of that gross margin to drive traffic.

New menu I understand just rule.

No rules just right its starts a $60 99, if that's kind of the right price point, but just philosophically how do we.

Kind of balance that expanding gross margin with declining same store sales were declining same store traffic yes.

Yes, well first of all our traffic trends outperformed industry. So I want to make sure we're clear on that.

I completely agree John .

Managing the margin traffic tradeoff is so important and the beautiful thing about when you have strong margin performance you can reinvest that back in the business as you know so well and so we ask yourself why are we seeing some of this.

Use some of those margin dollars to reinvest back in the business and some of our offerings into the details, but that's our philosophy.

Okay, Okay, alright understood secondly.

What does that kind of mean to traffic.

How is it Brazil consumer overall, and how is the Brazil consumer absorbing your expansion in the market.

Brazil consumer is doing well.

And each time, we build a new restaurant, John our development team down there because they are projections that they give us they blow them away. So every new restaurant, we built.

Is exceeding expectations and then the other thing is as we've seen in other businesses and other markets. When you start going into some smaller towns outside the big cities. When you are the main player. You also have development opportunities that you didn't think were possible we saw that in other businesses. So.

Capital returns our strong cash flow is strong and the Brazilian consumers in good shape, yes, and the only housekeeping item on that John the only housekeeping item on that is that obviously last year, Brazil had a different COVID-19 pattern than we saw here in the U S and so they are Q2 is kind of the first quarter, where there absent some of those big Covid lapsed.

That we maybe saw in the first quarter. So that's going to be at a little more normalized trend moving forward.

And is there a ticket comment you can make on Brazil, just so we know that.

Pricing.

I don't have it off the top of my head I am sorry, but.

But we can get that we can certainly get back to invest okay no.

That's fine and then the final point and it's a follow up to Alex's question about.

Development Remodels can you at least kind of give us a sense I think the guidance for this year and capex of $2 40 to $2 60.

Directionally what you if you don't want to give us a specific number I understand at this point, but directionally. What you think capex will be 23 to 24.

It should be in the ballpark, John I think one of the things as we uptick our remodels, we might see a slight increase but we're not sure quite yet, but one of the things to think about us.

We had a lot of it spending this year because of the ovens and the brand health and that's coming that's coming off so I think.

It will be in that range, we might see a slight uptick but it's.

Too early to call.

Okay. Thank you.

Thank you. Our next question came from Sharon Zackfia William Blair.

<unk> go ahead.

But I recall prior to the pandemic.

It sounds like some of the Brazilian business I'm, just wondering kind of philosophically, where you are on T.

<unk> strategic alternatives for Brazil.

Yes.

Isn't a market for an IPO or sale right now in Brazil, and we are as you heard from last prior comments, Sharon we're thrilled with the direction, but.

It's more market based and we will always keep our optionality open about that business.

But right now our goal is to grow it as rapidly as possible, but there is no market for it right now.

Okay. Thank you and then second question in the second half of the year and I know you don't normally talk about concepts, but it sounds like you have different things planned in the first half we saw kind of carrabba's lead in plumbing log in one kind of bonefish and outback in between domestically from a comp perspective is that kind of how you would expect the second half of.

The year to progress or is there anything initiative wise, where you would expect.

One concept to strengthen or another that maybe taper off.

Let me talk about a couple of concepts.

First of all Fleming's trends are very strong even though they were negative in the quarter, that's because we had.

Hi, spending in fine dining in the in the category last year and Fleming's outperformed the fine dining category. So if you look at their trends week to week.

We see that business to be very strong and we also see.

Nice add to that business, which I didn't talk about in the script is the private dining business. We have high hopes for that as people come back to work will come back to the office and done other things so.

So <unk> for US is something that we will continue to see.

That moving along so.

That's the first piece of the business that I think we would see some change in trend.

The balance of the year as far as comps go but remember you have to think about what we're lapping second one is carrabba's.

They continue to just a terrific job and in restaurant dining other catering business and in off premise and I think the main thing I want to stress as they just introduced a line of <unk>.

<unk> heritage sandwiches that reflect the <unk> brand and its doing extremely well and we think we have opportunity beyond beyond catering with that business and those sandwiches sandwiches are terrific and I would encourage our investors to get something because it really great. So I would say Sharon what I'll call out right now is.

Carrabba's and Fleming.

Okay. Thank you.

Next question came from Jeff Farmer Gordon Haskett. Please go ahead, great. Thanks, Good morning, just focusing on the Brazil tax legislation.

Street estimates as you guys know across revenue operating income.

Yes, basically every line item does reflect the guidance that you guys provided in early February as it relates to two that legislation.

So this was strongly implied in terms of not only the release once you guys have said, but.

Bottom line is should we be essentially unwinding, a 100% of those impacts in our models in 2024 and beyond at this point.

Yes, So let me I'll give you a little more context on that that is correct. So in 2024, we would resume paying full taxes back in Brazil.

Next year, it's a little bit lumpy, but not not worth calling out in any more specificity.

So that's how it would unwind starting next year, Alright, Thats helpful and just one follow up.

So you gave us a little bit of color on the operating expense inflation. It looks like it's come down a little bit I think you said <unk>.

Seven 6%.

I might have missed it but how are you guys thinking about operating expense inflation in the back half of the year.

Operating expense inflation should start to mitigate right. So more in that mid single digits. It's been it's been more elevated in the front half of the year because you are lapping some.

The utilities kind of took off a little bit so as you start to lap that it should improve as you get to the back half of the year lower than we're kind of in that 7% to 8% range now it'll probably be more mid single digits to maybe lower low to mid single digits in the back half.

It will step down from Q3 to Q4 I appreciate it.

Our next question.

Our next question games film.

Senator <unk> Bank of America.

Alright. Thank you I wanted to ask about I guess, the second and your traffic you talked about potentially reducing.

Reliance on discounting and perhaps reducing traffic from consumers who might be solely interested in those kind of price point offerings.

I'm trying to understand sort of where how you replace that traffic as you.

Move towards.

The goal of having positive traffic growth does that more visits from our core customers is it is it bringing in new customers and I guess in that context, if you could talk about the advertising strategy.

Typically I think of traditional advertising is having a broader reach so as you make some of these changes to outback in particular.

Presumably trying to reach new new customers.

How you're thinking about the ability to do that.

Digital advertising.

Youre kind of pivoting to you.

Sure.

Yes, Youre right, we did remove our some of our discounting and a lot of our discounting and promotions and we got the customers that new excuse me use that.

Stop coming to our restaurants, but that was planned.

So how are we going to replace that or how are we replacing it right now and that will shift back to what I talked about earlier with our margin performance, we can reinvest in our products and our service and you saw that with the Acs high ratings at Outback number one that will be sustainable traffic moving forward. So that's what we're trying to.

As we talked about with the pad during the pandemic about advertising, yes, you can reach a.

A broad group of people with broadcast advertising and that kind of thing we'll continue to do some of that at the top of the funnel, but we really learned a lot about the digital space and that's where we're spending our marketing dollars to target those consumers, we want to bring back the loyal consumers more and we want to reach continuing to reach for new <unk>.

Customers as we build traffic, but the key is going to be to take some of those margin dollars and reinvest back in the business and we may see some of that with additional advertising spend as we go forward, especially to outback.

Okay understood and then just on the in terms of what you are already seeing.

Do you see an increase in tech ops.

Yes. Thank you.

Alan.

Our membership are you seeing an increase.

<unk> frequency is there.

Any kind of leading indicators.

Suggest again, maybe where that traffic is coming from whether it's higher frequency.

Yes, Sir.

Yes.

Hey, Matt envision improved traffic from Europe .

Think about that.

Proof frequency from our dining guests to carry out guest and more reach from our third party delivery, which is an incremental occasion, that's where we're seeing the traffic gains.

Thank you.

Our next question came from Brian <unk> from Morgan Stanley . Please Sir go ahead.

Chris So you can kind of see what you're implying for the fourth quarter from an EPS perspective as well.

As you know.

Any pressure here just about the Brazil change.

Or was it you alluded to just commodity as being there being more pressure in the fourth quarter.

Any other drivers of kind of <unk>. So as we start to think about what youre implying.

Quarter.

Make it clear we're going to report our comp sales result for the fourth quarter on a 14 week basis, and we will be able to provide a 13 week basis as well the challenge with the way that the holiday shift. This year is that if we were to report on a 13 week basis, we'd have one extra operating day in the 13 week.

And then just some of the things around like new ovens, new Grilles handhelds et cetera.

Is that.

Are we starting to see that to some extent in.

Are we starting to see in labor cost or are we seeing starting to see in food cost maybe in the form of reduced waste do you think most of that is actually more in front of you how like how should we actually kind of see that impact in your in your P&L.

Yes, we're seeing it right now and that's why the margins look so good and one of the reasons why the margins look so good and I think we've got some more in front of us because we are still rolling out the ovens that'll be done this quarter. So as we think about 2024, it's way too early to talk about 2024, but we will see some of that overlap into 2024 as well, but these investments in handhelds and.

<unk> had been a big part of our productivity this year and the margin benefit.

Thanks.

Our next question comes from Brian Vaccaro Raymond James. Please go ahead.

The level of efficiency on it could you quantify even if its a range just any of the benefits youre seeing in key operating metrics thinking about percent of stake sent back or average ticket time or in the waste or labor savings if any.

Any ballpark you could provide there.

So we are.

About three quarters of the way through the ovens, Yes, we were about 460 out backs and then heading into the quarter. We had 100 or so remaining so we're pretty much through the outback system will be done Brian .

During that time.

For competitive reasons, I don't want to get into the pieces parts, where we're seeing it but here's so here's brought very Brian you'll see in the P&L, we're seeing an improved food cost as we manage that we're seeing it in.

<unk>, we're seeing it in.

Labor efficiency in the P&L. So all three of those line items on the P&L, we're seeing demonstrable improvement in the most important thing we can talk about the P&L, but the most important thing is the customer gets better service with handhelds, we get the table turns we see we can.

Managed we don't want to go too fast Okay. We're almost like we got because we don't go too fast, but we're seeing the customers seeing better table turns they're seeing better product, which will lead to greater traffic and theyre getting better service. So those it's a customer side. That's the most important thing and then on the on the P&L side, it's in food cost labor.

In.

Some of the re <unk> some things that we don't have to do anymore. So those those are the areas broadly that we see and then I would just add on top of that as you look into 2024 and the reason why we're optimistic that there can be some tail on some of these productivity initiatives.

So the overall operating model moving forward and then lastly, I don't think I am getting too far ahead here, but you would expect us out of the CEO .

Alright, Thats helpful and Dave you also noted some significant improvements in the Outback guest satisfaction score and go up from number six to number one.

Not sure what level that survey what level of detail that survey provides but I'm curious what areas.

Within that survey what areas of the guest experience improve the most is there any of that stood out if you have that level of detail and we have our own level details well, Brian and Thats steak accuracy and customer satisfaction and growing our cooking, our steaks and its service attentiveness.

In response to our customers.

We want to see I want to see our managing partners out in the restaurants talking to customers and we wanted our service to engage but through our own internal data, we see the steak accuracy and the service levels are improving.

Alright, and then just two quick numbers questions.

Chris on other Opex.

What was the advertising spend in the second quarter, maybe you can remind us how that compared to last year and then what does your guidance embed in terms of the second half spend.

Yes. So if you look at advertising in Q2, we spend call it $27 million in total, including international and last year, we spent $23 million. So we had about a $4 million pick.

Pick up.

And I would say that youre going to see you're going to see year over year increases in advertising.

No we're still TBD on kind of the level of that but I think that you can expect to be up year over year in Q3 and Q4.

Yes, we took a little bit in in the second quarter. So that takes away some of the need to take pricing in the third Q3 or Q4. It was obviously pretty low low levels of pricing.

Material levels of increased pricing at all over the back half of the year from this point.

Alright, Thank you very much.

Thank you Brian .

Okay.

Our next question James film Danielle.

For UBS.

Thank you I wanted to ask another one on the expected improvement in traffic trends and the strength of the esthetic satisfaction scores that you spoke to.

Based on the strength of that survey curious if you could touch a little bit on improving satisfaction and sort of how you think about converting that to visits what kind of lag there might be based on the number of times that your customers visit per year.

Starting to see some of that but just curious if you could provide a little more color on that on that benefit and the timing perhaps of that.

Yes.

That will build because we're not a business that has.

People come every month or two times, a year something like that they come a few times a year our frequent users come more often so obviously they'll see it but this is something that is sustainably will build with this kind of improvement and when you put on top of it improve the MBS with Remodels right. This this is going to have a sustained.

Improvement in our traffic trends and.

The good thing about it is we're going to be able to see it because we are remodeling by sections of the country. So we're starting in Florida, we will be able to see what how that looks and so it will be able to adjust our strategy. Accordingly, but this is something that's going to build over time because of the guest frequency of our business.

Just curious how youre thinking about those opportunities going forward and sort of how you're sort of looking to capitalize on the opportunity that's still out there for you.

The consumer wants convenience.

And we've built we've built our capital strategy around providing that convenience in our to go rooms in our NR.

Our delivery room and through our technology, we're continuing to make significant progress in our technology to ease ordering for our customers and so therefore with that business.

Between Carryout and in restaurant there is a lot of overlap rate the customers either comes into heat or does carryout, but in delivery, especially third party delivery, that's an incremental occasion, and we will continue to invest heavily in that and because that's a customer opportunity for us and then finally.

Seeing that there.

The consumer loves our catering business again, it's an off premise opportunity.

In our restaurants. So this is a great example of how an off premise business Kent can help it in restaurant business and the innovation. We can use in other places in our business. It is clear the customer like convenience and we're there to deliver it.

Great. Thank you.

Our next questions can be and those two zinc from BMO capital markets. Please go ahead.

Great. Good morning, Thank you very much.

My first question is about Carrabba's development within your.

Kind of optimistic unit growth outlook that you've talked about over the coming years, it's really outback and flemings, driven which has been very consistent.

Take for Carrabba's can play a more meaningful role, especially given the off premise.

Catering kind of in the optimism you talked around there I would think maybe new formats or markets I don't know if you think.

There's more of an opportunity there or any color would be great.

Yes, there is an opportunity in carrabba's.

I generally don't like to go public or anything because we have a pipeline built and I can talk about some more but there is an opportunity with <unk> is clearly the performance has been terrific.

Team is doing a great job.

But until we build the pipeline a little further it is something that will continue to hold back on a little bit, but certainly we're looking at it and thinking about it having said that the pipeline at Fleming's, Brazil in Outback is filling up everyday it looks very strong so more to come on development, but <unk> certainly earn the right to more expansion.

Okay, Great and my other question was just on competitive activity within the category and what are you seeing does it feel still pretty rational and I guess with most expecting pricing to roll off any concern that.

There might be more kind of overall traffic driving efforts across the category and what that might be.

Yes.

In the categories. We play in it's been very rational and we certainly don't want to.

Because we don't really play in those areas, but what's been a very rational.

Way about going to business.

Great. Thank you very much.

There is no further question at this time I should like to turn the floor back over to Mr. Deno for closing comments. Please Sir go ahead.

Thank you everybody for listening and your interest in our business and we look forward to talking to you in October in our Q3 call take care.

This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation have a nice day.

Q2 2023 Bloomin' Brands Inc Earnings Call

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