Q3 2023 Bloomin' Brands Inc Earnings Call

November 3, 2023

Good morning, and welcome to the Bloom and brands, Inc. Third quarter 2023 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your tongue.

Phone keypad.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.

I'd now like to turn the conference over to Tara Durian, Vice President corporate Finance and Investor Relations. Please go ahead.

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 third quarter 'twenty two 'twenty three earnings release. It can also be found on our website at Ww.

W Dot Lehman brands Dot com in the investors section.

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

Before we begin formal remarks, I'd like to remind everyone that part of our discussion today will include forward looking statements, including a discussion of recent trends. These statements are subject to numerous risks and uncertainties that could cause actual results to differ 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, which are available at www Dot F E C Dot Gov.

During today's call we will provide a brief recap of our financial performance for the fiscal third quarter 'twenty. Two 'twenty three an overview of company highlights and current thoughts on Q4 and fiscal 2023 guidance. Once we've completed these remarks, we'll open the call up for questions.

With that I would like to now 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 Q3 2023 diluted earnings per share was <unk> 44. This compares to 35 cents in Q3, 2022, reflecting a growth of 26% year over year combined U S comp sales were down 50 basis points and traffic was <unk>.

60 basis points behind the industry.

Following labor day sales trends in the casual dining industry softened from August to September there was nearly a 300 basis point decline in comparable sales trends our brands experienced a similar change in trend. Despite these top line headwinds, we had 90 basis points of restaurant margin expansion versus last year, driven by our productivity initiatives as a result, our.

Q3 profitability remains strong.

Moving forward, although the industry landscape has changed from earlier this year, we expect U S comp sales to improve sequentially in Q4 from Q3, we have already seen an improvement in October and this is incorporated within our Q4 guidance and the long term. We are committed to the strategic priorities that are making us a stronger leaner operation centric company.

These priorities include first driving in restaurant same store sales growth and this is our top priority.

Second increasing new restaurant openings, while refreshing our existing assets third maintaining our off premise was momentum fourth becoming a more digitally driven company and finally investing in technology to drive growth while preserving margins.

Since 2019, we have made great progress on improving our operating model through simplification efforts and by leveraging investments to improve efficiency. The efforts have resulted in strong margin gains at a sustained despite record inflation.

These achievements also provides a strong foundation for the exciting growth ahead, and we have confidence that these priorities will enable us to drive sustainable long term sales and profit growth. In addition, our investments in the customer experience in both restaurant technology and operational simplification allow us to provide a differentiated guest experience that strengthens our value proposition.

Many of these investments have been made across the entire portfolio, but the primary focus has been at Outback was a strong operating foundation and healthy margins improving in restaurant sales and traffic is our top priority.

As the economic and consumer landscape continues to evolve we are making sure. We continue to evolve with it. This includes doing the work to ensure we exceed the needs of our existing and future customers. This ongoing effort is always being done through the lens of the consumer and customer analytics.

A few quarters ago, we discussed our no rules just right campaign that built on Opex brand equity and heritage, but this was more than just marketing. It's an attitude is how we reenergize our restaurants and bring back that you referenced at Outback is known for.

Spending more on marketing and advertising in Q4 as well as 2024, although we do not intend to return to pre pandemic levels. We do believe a higher level of advertising spend is warranted moving forward.

Utilizing a blend of TV and high return digital tactics, we believe our increased marketing presence can help build track, we will leverage a combination of new product innovation, highlighting our already accessible price points. For example, our current L. T O at Outback mistaken mates $16 99 combo offering provides a great value to the guest and an attractive return.

Recognizing the short term that driving traffic growth, maybe challenge that the consumers more careful with their discretionary spending we will be thoughtful about our approach to discounting in this environment.

Catalysts for growth are the investments, we are making to enhance our operations at out back at the end of the third quarter. We completed the rollout of our server handheld technology and the advanced Grilles in up these investments are proving our consistency overall meal pacing and guest satisfaction, while also providing a cost saving opportunity for the company.

Now our focus is leveraging this technology to further improve the guest experience. This will lead to increased intent to return metrics, which drive additional guest frequency and traffic growth. We are confident in our strategy to outback and are making the necessary decisions to set up the brand for the long term, we'll remain disciplined in our response to this environment and look forward to updating you on our progress in the future.

As it relates to the broader strategic priority for the company. Let me first talk about development, we are upgrading our assets to remodeling relocating and opening new restaurants, especially outback on our remodeling efforts. We are at the beginning of a multiyear effort and remain on track for 100 Remodels. This year in terms of relocations at Outback, we continue to see outsized sales lift with avid.

Volumes exceeding $4 $7 million per year.

The success of our relocation program reinforces the broad consumer appeal of Outback and there is still another 50 relocation opportunities remaining.

The new restaurant pipeline continues to build at Outback and across the portfolio and we are seeing good returns on new units our development efforts to provide the runway for future growth and are a critical part of our strategy.

Complementing this strategy is our leading off premises channel this business more than doubled since 2019, and currently represents 25% of our U S sales as pioneers in to go we continue to have robust demand and are maintaining strength in third party delivery. This is a highly incremental occasion and is differentiated offer that is profitable and addition.

The success of our catering business, particularly at Carrabba's provides a runway for future growth.

Before I turn it over to Chris I want to comment a couple of specific businesses that are doing very well.

First probably had another excellent quarter with comp sales up 3%.

Off premises and catering channels are proving to be very robust.

Premises was 34% of property sales, which includes a strong contribution from our growing catering business problems.

Problems has the perfect may need to meet the demands of this important and growing channel.

We launched Carrabba's Bestir earlier, this year, which is a lunch focused catering option featuring a wide variety of sandwiches that represent Carrabba's Italian heritage. This continues to outperform our expectations off premises will continue to remain a large part of the company in the future.

Additionally, kratos continues to offer innovative product offerings, such as the wine dinners and seasonal specials, which highlight the great value and experience that this brand is known for the strong sales of crop was combined with productivity initiatives and cost management. Our financial returns continue to get stronger Carrabba's has earned the right to grow and we started to build out a pipeline for future.

Restaurant openings.

Next our international operations, but it's driven by our market leading business in Brazil, Brazil had another outstanding quarter with significant growth in sales and profits. The Brazil team offers amazing food and exceptional service and we continue to rapidly expand the business throughout the country. We look forward to capitalizing on our leading position and double our restaurant footprint in the coming years.

Importantly, the sales growth initiatives I described are supported by a solid foundation with healthy margins robust cash flow and a strong balance sheet.

This strength gives us the ability to invest in new unit development technology enhancements and asset improvements while meeting our commitments.

We remain dedicated to delivering great food and experience for our guests while building a strong business that will continue to thrive for many years to come.

Finally, our results would not be possible without our great teams in our restaurants and our restaurant support center.

You for delivering an outstanding hospitality and service to our guests.

And with that I'll now turn the call over to Chris will provide more detail on Q3, and our thoughts on Q4.

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

Total revenues in Q3 were $1.08 billion, which was up 2% from 2022. This was primarily driven by revenue generated from net restaurant openings, the Brazil tax exemption as well as favorable foreign exchange translation consistent.

Consistent with the broader casual dining industry, we saw a sizeable change in traffic trends coming out of Labor day, and September was softer than expectations as such U S. Comparable restaurant sales were down 50 basis points in Q3.

Average check was up four 2% in Q3 versus 2022, as we mentioned on our last call menu pricing is rolling off which is translating into lower average check as we move throughout the year. This will continue in Q4 as we do not intend to take significant additional pricing for the remainder of the year the softer industry backdrop.

Suggest we must remain disciplined on future pricing actions to maintain proper balance on our price value equation.

At approximately 25% of the U S sales Q3 off premises increased 70 basis points from Q2 importantly, the highly incremental third party delivery business remains healthy and was flat at 12% of U S sales.

As it relates to other aspects of our Q3 financial performance GAAP diluted earnings per share for the quarter was 45 cents versus 34 cents of diluted earnings per share in 2022 adjusted diluted earnings per share was 44 cents versus 35 of adjusted diluted earnings per share in 2022.

Adjusted restaurant level operating margins were 14% versus 13, 1% last year domestically the benefits from our pricing and productivity initiatives continue to offset inflation.

Technology, we are putting into our restaurants as having an increasingly positive impact on our margins and the overall levels of inflation moderated somewhat in Q3 versus the second quarter.

As it relates to inflation commodity inflation was up 2% in Q3, we had favorability in produce dairy and seafood, which helped to lower the overall inflation levels. We do expect commodities to be closer to 6% in Q4 as we lap some 2020 to be favorability that we were able to realize we still expect total year <unk>.

<unk> to be mid single digits.

Labor inflation was up four 9% labor continues to be in line with our full year guidance expectations of mid single digits restaurant operating expense inflation was five 2%. This is consistent with our expectations for the year.

Also worth noting as it relates to restaurant margins International segment restaurant margins were up 130 basis points. This was driven by the continued growth in our Brazil business. Despite a softer consumer environment. We also continue to benefit from the Brazil tax exemption in Q3, but as a reminder, the Brazil tax benefit will go away starting in.

In the fourth quarter.

Total company adjusted operating income margin was five 3% in Q3 compared to four 9% in 2022.

Depreciation expense was up in Q3, consistent with our increased levels of capital spending and our investments in infrastructure to support growth.

Overall, we remain focused on maintaining the mark the progress we have made in margin since 2019 in Q3, we were 300 basis points above our Q3 2019 adjusted operating income margin.

Turning to our capital structure total debt was $795 million at the end of Q3, our current balance sheet net leverage ratio was one three times and our current lease adjusted leverage ratio remains below three times.

In terms of share repurchases year to date, we have repurchased two 4 million shares of stock for $61 million through the end of October we still have $79 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 payable on November 29th.

We believe our free cash flow allocation is balanced and we'll continue to deploy dollars against additional debt paydown share repurchases and our dividend.

Now turning to our 2023 and Q4 guidance.

First we are adjusting our full year 2023 guidance to account for the softer industry backdrop, we expect full year U S comparable restaurant sales to be approximately one 5% to 2%. This is on a 53 week comparable basis.

Adjusted earnings per share are expected to be $2 80 to $2 90.

This change in guidance is primarily driven by the reduction in U S comp sales.

We are lowering our full year tax rate assumption in conjunction with the lowered earnings to be between 10% and 11%.

Capital expenditures are now expected to be between $260 million and $280 million as we've been able to pull forward costs associated with 2024 projects.

All other metrics remain the same as we communicated during our February 16th earnings release as it relates to the fourth quarter trends in October have improved from the September softness as such we expect U S comparable restaurant sales to be flat to 1%. This reflects a 14 week to 14 week comparison we.

Expect Q4 adjusted earnings per share to be between 64 cents and 74.

In summary, we successfully navigated a challenging environment in Q3, we will remain disciplined in executing against our strategy in Q4, and we will emerge a better stronger operations focused company.

And with that we'll open up the call for questions.

Yes.

We will now begin the question and answer session.

Ask any question you May Press Star then one on your telephone keypad.

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At this time, we will pause momentarily to assemble our roster.

The first question comes from Jeffrey Bernstein with Barclays. Please go ahead.

Great. Thank you very much.

Two questions the first one.

Dave you mentioned.

Comp slowdown I guess post labor day.

But perhaps maybe a little bit of a bounce back in October I'm, just wondering if you could maybe.

Assess what you attribute that to I feel like we've.

I heard three different theories one just be the consumer headwinds that are finally, taking hold which perhaps led to that slowdown in September but then the <unk>.

Bounce back being a return to more <unk>.

Seasonality.

Versus just the fact that everyone's lapping price and therefore, the comps optically slow and so I'm just wondering how you think about that slow down and then modest recovery is it really the consumers a lot weaker now or would you attribute it more to seasonality and therefore, we're in a better place with the consumer still are in.

In relatively good shape.

Yeah, Hi, good morning.

We view of primarily of seasonality as we look at just the history.

Obviously, we've got to keep track of various macro headwinds that are out there you know student loan repayments interest rates et cetera, but there is some seasonality there, but also importantly, what we're doing as a company right and the offers that we have and what we're doing and we talked about the uptick in September and we feel good about November and December as well and that's in our guidance.

So we think the consumer is in a decent spot, but we think it's primarily a return to seasonality is looked at historically.

Got it so when you say the softer industry backdrop to close the year.

Not so much the consumer for sale, though you're watching it but it was just more like seasonality that led to that dip in September rather than some sort of consumer weakness.

We're watching the consumer very closely but certainly seasonality in September is what we primarily think and as we look at going forward for the rest of the quarter, we feel good about what our programs and where we're going to stand and we've tried to incorporate that in our guidance that bounce back.

Understood.

Directionally look out to.

So next year I think Chris you said that.

Sure.

Guidance for commodities and labor and restaurant expenses. This year were all kind of mid single digits and you.

It took some some pricing to mitigate that but how do you think about that going into <unk>.

So next year, one would you expect inflation to maybe moderate across those lines. Even if you don't have specific guidance.

How do you think of that relative to to menu pricing because if there is a slowing consumer backdrop. Some would say don't take enough price to fully offset the inflation, maybe take a hit to margin, but preserve traffic. So how do you think about that theoretically in terms of directional inflation for next year and how you think about price will offset the inflation or let it hit the margin in the short term yes.

Yes.

Morning, Jeff at conceptually, our Formula is pricing plus productivity offset inflation. So I think that candidly, it's probably a little early to speculate on where inflation is going to level out next year. You know obviously, we don't we've talked about this pipe prior years, we don't finalize our beef outlook until December so, it's probably too early to give us a.

Our read on 2024 commodities, but look anecdotally outside of beef things are looking pretty rational across the basket, which I think is a good sign beef is a little bit of an unknown. We're still seeing the same information as everyone else out there overall beef production remains a challenge, but other than that you know there isn't too much to say at this point other than we as a company have repeatedly shown.

Our ability to navigate these markets as good as anyone else out there. So we'll monitor that we'll be sure that we have productivity initiatives in place because we do have a good amount of rollover from a productivity that we put in place this year and we've got a lot of new ideas for next year potentially as well that can help offset and what that does is that does reduce the need to take it.

As much pricing as you would normally need to take to offset that inflation because we're like we're obviously, we're pretty mindful of where the consumer is and we do believe that going in with a mindset to keep the pricing as low as possible is the right place to be now in terms of labor and how that plays in labor has been pretty consistently inflationary for a number of years now.

Now look it's come down a little bit as the year progressed I think every quarter, it's come down a little bit from where it was certainly where it was last year, but look it wouldn't surprise me at all if we're still talking in that.

Low single to mid single digit kind of inflation range, just sort of into perpetuity.

Jeff just one thing I want to add.

We've been really careful about our price increases and if you look at our comp breakdown and we got a 4% change in PPA in Q3 and that's.

Pretty disciplined versus what's going on elsewhere in the industry. So I think we're really trying to make sure that our price value equation as we continue to improve service and food, especially Outback comes together to help grow track well and just to piggyback off of that if you look at our Q4 guide that does imply that your check average is going to be in.

That two and a half to call it 3% range, which again as we've indicated we do expect that check average to tick down as the year progresses, and we're going to see that again in Q4.

Understood. Thank you.

The next question comes from Alex Slagle with Jefferies. Please go ahead.

Alright. Thanks, Good morning, as you look across your brands and think about what it really takes to win market share in casual dining and drive traffic outperformance Carrabba's performance really stands out and I'm curious how much of that is related to the specific category dynamics versus more.

Our fundamental execution elements.

To the degree there are execution all aspects that are driving that success are there bigger more impactful actions do you need to take it out back to deliver the kind of experience that translates into more visit more traffic share gains I know some of that will come still with the equipment and technology recently deployed but.

Just interested in your thoughts there.

Yes.

Morning, I'll start with Outback, we will move to Carrabba's you know.

If you look at Outback in traffic there are three or four things that are crucial and the very first thing, which is our top priority is our restaurant operations and restaurant operations and leveraging our technology investment and providing that great customer experience with very interesting food and and in service. So that's that's job one.

Our operating metrics are improving and we're leveraging our technology and we'll continue to stay razor focused because that's a big weight of growing sales at Outback, we are going to spend more on media because we've got some really great ideas that we like and you'll see that in Q4, and we'll see that going into 2024, and Chris has talked about our initiatives in pro.

Activity to help pay for some of that as we look to do the magic of the and grow traffic and preserve margins.

We want to make sure that we remodel and update our outback restaurants to make sure that the.

Consumers getting that type of experience, we talked about our remodel program and then finally as we talked earlier about our.

Price value equation, and being very mindful about our price increase and then we've got a really great off premises business that we've got to continue to to grow and leverage.

Travis is just doing extremely well on the off premises business, especially but also in some of the in restaurant experiences their margins are improving and like I mentioned in the script. They earn the right to grow and we're looking to build that pipeline as we move forward. So <unk> has done a great job and I think what's helped them also as they have a really strong off premises.

That doesn't mean that they're not folks to get in restaurant dining, but they have a really strong off premises business that theyre continuing to leverage.

Thanks.

Follow up on the other restaurant operating expense line was up quite a bit this quarter and it feels like it's the one place that has seen less of a relative improvement over the years versus the peers and relative to the big boys.

Made in food and labor.

Much of this has to do with your ability to drive volumes and leverage here, but.

There are opportunities to explore and be more efficient or to better leverage our scale here.

Yeah, No I think I think absolutely.

Certainly the productivity initiatives that we have in place. This year have been highly focused on cost of goods sold and labor not as much focused on the restaurant operating expense line, but I think that areas such as to go packaging suppliers things like that or areas, where you could tap into potentially get more efficiency on the restaurant line and then again I think that to your point this quarter in <unk>.

Particular, it was more of just a product that we didn't have the same level of productivity in that line as you saw in Cogs and labor and that's why we weren't able to leverage that line as effectively as we where they otherwise and you also had a tick up a little bit in marketing.

Got it thanks.

The next question comes from Sharon Zackfia with William Blair.

Please go ahead.

Hey, good morning.

I know you've been seeing negative mix shift.

A number of reasons, but I'm curious if you started to see that our base or our mobile apps.

Third quarter or into the fourth quarter, and then as Youre thinking about guidance for this quarter I know you didn't quantify how October is doing but.

Very cognizant of view on lapping Elliot later in the quarter. So does the guidance take into account kind of.

That potential uplift as you lap Elliot are you just kind of putting guidance out there that.

Similar to where the current triangles.

Yeah, So I'll start with the mix piece and then we'll move on to the traffic assumptions for Q4.

Menu mix was down as you start with Q3 was down over a little over 2% in the quarter.

Pretty consistent with what we saw in Q2.

There is a piece of that we've talked about we think is consumer trades at mix and alcohol mix or a bit lower but the majority of that negative mix has to do with revenue center shifts which have been engineered right. So we know these areas have such as catering et cetera. They carry a lower check average which has been highly influencing the mix in our numbers now the good.

Is that you start to transition to Q4, we get the benefit of starting to lap some of the negative mix trends that we started to experience late last year. So as such I do think we expect mix to moderate some in Q4, it will still be down, but probably down closer to the one to one 5% range versus the 2% range that you've seen the last couple of quarters.

Now as it relates to traffic and the traffic assumptions and what would be embedded in the guide I think look so the way to think about it is first we have seen the improved trends in October from where we were in September that's built in.

We're lapping a fairly soft November from last year, which we did call out in our Q4 call. We do get the benefit of lapping that so that is built into the guidance as well third there is an increased marketing presence that Dave talked about.

Not going to give the exact dollar amount for competitive reasons, but that is also built into the guide and there is a favorable holiday shift right from the timing of Christmas holiday. It works in our favor and why that's a little more impactful for us than maybe some others is that our brands do tend to skew a little more special occasion. So that is going to have a little more of a positive impact in Q4 than maybe it might.

For some others.

In terms of the winter storm Elliot I think our approach is we can't really predict weather.

So we know we're going to be lapping.

Winter Storm Elliot.

In Q4, but that's.

It's really not contemplated extensively in the guide because it's just as likely that youre going to have some things go the other way as well.

All hope for a good winter.

The next question comes from John <unk> with Jpmorgan. Please go ahead.

Hi, Thank you I you know there is I guess a lot of discussion about you know kind of taking outback.

Brand back to its maybe its peak, which we could argue maybe was in the early to mid nineties. I mean, we're really wasn't very different brand very high average unit volumes dinner only in some cases three hours kind of lot lines. I mean, it was a concept that really had a lot of excitement.

And just like the American populace, including your own staff.

Obviously, no rules just right as kind of part of that and I understand that you kind of want to bring outback back to some of that energy and even bring the outback U S business.

Maybe back to what you know what what Brazil is today and presumably will continue to be so long setup to the questions now I, maybe I'm embarrassed to say, but I do remember that in the mid nineties.

<unk> as an associate and.

Outback was always a transaction driven model at that point in other words. The money was not really made our margin. It was just made on pure customer counts as the exceptional value that was given to customers and being dinner only of course, the PPA with higher and higher alcohol mix and some other things in there with a higher margin business.

And then being for lines. So the question that I'm asking.

We now is do we have an opportunity to kind of get back to that transaction driven model and if so might major price investments kind of be made.

You know at the Outback business is you basically sacrifice gross margin and your sacrifice.

Kind of your prime costs in order to just bring more customers to get back into the store over time in other words do we have an opportunity for maybe doing kind of a major brand and price reset I've just kind of reestablishing outback.

Outback more from a perception of value for the customer that arguably it was 25 years ago.

And hopefully that will take question, Dave Thank you Beth.

Clearly John we agree with you one on getting the reference fund service into the business and we're working very hard to do just that and we talked about on prior calls that one of our leading executive in Brazil is here and to help with our marketing efforts and he is going to you know he's doing a fabulous job here. So that's part one part.

To us it's the service and food elements that are going to win the day for us and so making sure. Our service metrics are you've seen the investment in our food John we're investing in Remodels, we're going to be very very very conscious of price changes at outback.

We talked about earlier on the call today, so getting that price value back.

In price value is not just price, it's the value provided to customers and service and food, while being very thoughtful about the type of price increases you take now if you look at within the menu itself. There are some really attractive price points like combo meals and like the offer we're doing right now our stake in <unk> com.

So I think if we bring it back to funding near reference as we continue to do that continue to improve our service levels. We've invested in the food we've invested in technology, we're investing in our assets. We can move forward and push forward with transactions now as far as launch goes that's a very.

Important part of our business and I think we'll continue to offer that but.

But on the dinner occasion, that's exactly where we're going.

Thanks for that Dave.

Yes, Thank you John.

The next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.

Great Great great great great.

Great.

Thanks, Mike.

Thanks.

Okay.

Thank you for your question, Yes, we are we will go to Sara Senatore from Bank of America. Please go ahead, sorry about that.

Hi.

So Katherine Griffin on for Sarah Thanks for the question.

First I wanted to ask just about the kind of casual dining maybe Italian category, specifically and as it relates to Carrabba's just can you talk about.

Any sort of additional sales layers, whether it's day parts menu items that you are contemplating in order to catch up with some of the public company peers that seem to be outpacing the brand. Thank you.

Well I think crop was doing quite well so I'll take that if you don't mind a little exception.

But.

I think we have a lot of white space for development.

<unk>.

We.

We got to be careful about.

Adding menu items and complexity in the restaurants, because we want to continue to drive the service and drive it forward, but we think there is white space in development, there's a chance to continue to improve our operating metrics. It was a very strong off premises business. There. There's another sales layer in our catering business, which is very easy to do because we can prepare that food in the morning.

And get that ready to go for our lunch business. So that sales layers. There continued innovation in the restaurants with provinces there our off premises business, which is doing so well is there and then our new our new units.

And white space that we have it with debt with Carrabba's is going to be also an opportunity for us. So it really is performing well and it is a growth vehicle for us going forward.

Okay. Thank you and then I guess, maybe just a follow up then on Carrabba's just as we think about sort of the return to normal seasonality trends what does that mean in terms of your expectation for carrabba's catering business.

This holiday season.

That is certainly our hope.

We've tried to incorporate that in our guidance, but we are.

We are very without getting ahead of my skis here, where we're very bullish on what the catering business and what the off premises. It looks like at Carrabba's and we've seen sales levels that they are just terrific. So it's early days I don't want got ahead of it but the team has done a great job growing that business.

Thank you.

Again, if you have a question. Please press Star then one.

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

Hi, Thanks, and good morning.

I guess I wanted to start on Outback specifically.

Seems like the branch traffic relative to industry trends softened a bit in the third quarter I guess it depends on what indices you want to compare to but would you agree with that assessment and if so I guess curious what you would attribute that to and can you also just clarify on October it seems.

The year on year casual dining comps have improved by say roughly 300 basis points or so versus September is outback seen a similar level of sequential improvement versus September yes to answer. The second question, we don't want to get into monthly comp per se, but again, we have seen a nice trend change in October and it's incorporated in our.

Guidance.

As far as Outback those they do overlap and this is where we've really got to be careful in managing this brand for the long term. They do overlap with some competitors that have had some pretty significant discounting and promotions and we do not want to offer some of those deep discounts to drive traffic, we'd rather get back.

Some of the things we talked about earlier in the call and driving Great service, great food at a great price point and we want to offer some very interesting <unk> like the one we have right now but at the same time to go into some deep discounting Brian I think for the short term.

Make some short term goals would not make a lot of sense. So we're going to focus on the things that we talked about today.

Okay, Alright, thank you for that.

And Chris on the marketing spend what was the marketing spend in the third quarter and could you ballpark the level of spend you embedded in your fourth quarter guidance.

Yeah. So if you look at those marketing was up about I think $2 5 million Bucks in Q3 put us at about $31 million on the quarter.

Q4, we're not going to quantify the amount that we are going to increase the spend but I think the base for Q4 is about $24 million from last year.

Okay, and the $2 5 million is that up year on year.

Yes year on year accumulate too.

Primarily in the U S. Brian.

And there's actually an additional up theres additional increase in Brazil, but $2 million of the two and a half that we see here in the U S. In terms of increased marketing spend is outback and then there is another couple of million dollars in Q3 that Brazil was actually up year on year.

Okay. Thank you for that and.

Dave you just sort of you mentioned it for but.

But more broadly I think you've increased the spend through the year at outback.

You just said in the quarter and even maybe in Q2, but you've increased the spread the spend and the traffic doesn't seem to yet be responding. So I guess, what gives you confidence that a higher level of spend can breakthrough so to speak and I understand you don't want to get into too.

Deep discounts, but is part of the answer that you need some price levels on certain Lps to move a little lower to gain traction in this current environment. It seems like your LCR is maintained upper teens, if not into the <unk> and is that just too high of a price point in the current environment.

Yes, great steak offer right now for $6 99, which we think holds a lot of promise and has been tested well in research well and we want we have other ideas like that that we want to spend behind and.

When you put the importantly, importantly, when you couple that with the food investments. We've made in the service that we're going to continue to drive service improves we're going to continue to direct which we're seeing that will help drive traffic, but over the long term, but we have taken a look at some of our <unk> Bryan and gotten to those that kind of price point I'm talking about yes, the only thing I would add to that.

Just in terms of deep discounts and again, you can still use LTE OS and you can use price points in <unk>, but I don't think we believe that that deep discounting is where outback plays in the spectrum of casual dining it's a steak centric model higher price points. It doesn't lend itself necessarily to pursuing our customer cohort that's heavily heavily motor.

Bye bye bye heavily motivated by couponing.

We will use the <unk> strategy like Dave said to keep value front and center some windows may be more aggressive than others, but as a general strategy. We're focused on maximizing the price value equation like Dave said through exceptional foodservice and ambiance that at a price point that our guests are comfortable with.

Alright, Great and then last one for me just on the new Tech and equipment package rollout I wanted to confirm is that now rolled out to all outback is at this point and could you elaborate on how it is benefiting operations and maybe quantify any of the important metrics like ticket times table turns cost savings you are seeing in some of the stores.

That are fully ramped on it and efficient.

Yes, I will talk about some of the service elements and then Chris if you want to call it but anything on the financial side.

Excited about the financial benefits of the of the equipment, but for me and for our company. It's the service and food that's really going to help.

And so like steak accuracy rate that's the number one thing in the restaurant in the steak category proofing steak accuracy for our customers and the grille, certainly help with that and that's been that's been embedded rolled out and we're seeing improvements there.

<unk> service attentiveness, because we have the servers on the floor at all times, because you have to toggle back and forth to to enter the enter the information. That's also extremely important and another measure that we're looking at very carefully. So those are just two examples Bryan from an operating standpoint that we're looking at obviously table turns will help too, but we want we don't want to push it.

Customer too fast.

But the service the measure and the steak accuracy measure is extremely important for us and ill turn over to Chris for any other financial comments well, yes. The only thing I would say is when we started this year, we targeted by $50 million of productivity benefits for the year, we've actually had to increase that number we're up closer to $55 million for the full year and a lot of that increase.

Due to the fact that we're seeing very strong effectiveness of the technology that we're putting into the restaurants in terms of benefits again, a lot of the $50 million is incorporated in that you certainly are seeing improved ratios of servers to two two.

Tables in terms of the front of house technology, Thats driving benefit financially in the back of the house, we've effectively reduced the amount of re cooks.

That.

So very very record low number our food waste is now at a record low number. So look this whole package really works it really helps.

Benefit the entire P&L, but importantly, looking just beyond just the productivity aspect of this Brian.

Do believe that again, when we talk about building a business that is maximizing the price value equation with exceptional food service ambiance et cetera. All of these investments are not just layers to drive productivity, but they are also layers to drive future guest frequency. When you have a great. It's not this business as we learn and time and time again.

Not that terribly complicated when you provide excellent service at a great value to our guests they want to come back and that's what this technology really at its core is designed to do it does take time to see given the kind of the amount of frequency that our guests come into the restaurant that takes time to show up in traffic, but boy I'll tell you. It's certainly is something that we're confident that we'll build.

Rafik over the long term.

Alright, Thank you very much I'll turn it back over.

Okay.

Those are all the questions. We have for today I would like to turn the conference back over to David Deno for any closing remarks.

Thank you everyone. Thank.

Thanks for taking the call today, and we look forward to talking to you on our Q4 call have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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Now I'd like to turn the conference over to Tara Durian, Vice President corporate Finance and Investor Relations. Please go ahead.

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 third quarter 2023 earnings release. It can also be found on our website at Ww.

W Dot Lehman brands Dot com in the investors section.

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

Some of these risks are mentioned in our earnings release, others are discussed in our SEC filings, which are available at www Dot SEC Dot Gov.

During today's call we will provide a brief recap of our financial performance for the fiscal third quarter 2023, an overview of company highlights and current thoughts on Q4 and fiscal 2023 guidance. Once we've completed these remarks, we'll open the call up for questions.

That I would like to now 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 Q3 2023 diluted earnings per share was <unk> 44.

This compares to 35 in Q3 2022, reflecting a growth of 26% year over year combined U S comp sales were down 50 basis points and traffic was 60 basis points behind the industry.

Q3 profitability remained strong.

These priorities include first driving in restaurant same store sales growth and this is our top priority.

Second increasing new restaurant openings, while refreshing our existing assets third maintaining our off premises momentum fourth becoming a more digitally driven company and finally investing in technology to drive growth, while preserving margins. Since 2019, we have made great progress on improving our operating model through.

Acacia efforts and by leveraging investments to improve efficiency the.

The efforts have resulted in strong margin gains at a sustained despite record inflation.

These achievements also provide a strong foundation for the exciting growth ahead, and we are confident that these priorities will enable us to drive sustainable long term sales and profit growth.

In addition, our investments in the customer experience in both restaurant technology and operational simplification allow us to provide differentiated guest experience that strengthens our value proposition.

Many of these investments have been made across the entire portfolio, but the primary focus has been at outback with a strong operating foundation and healthy margins improving in restaurant sales and traffic is our top priority is.

A few quarters ago, we discussed our no rules just right campaign that built on Outback brand equity inherited but this was more than just marketing it's an attitude.

It's how we reenergize, our restaurants and bring back that you referenced that outback are known for we will be spending more on marketing and advertising in Q4 as well as 2024, although we do not intend to return to pre pandemic levels. We do believe a higher level of advertising spend is warranted moving forward.

Utilizing a blend of TV and high return digital tactics, we believe our increased marketing presence can help build traffic, we will leverage a combination of new product innovation, highlighting our already accessible price points. For example, our current <unk> at Outback mistaken made $16 99 combo offering provides a great value to the guest and an attractive return.

Recognizing the short term that driving traffic growth may be challenged that the consumers more careful with their discretionary spending we will be thoughtful about our approach to discounting in this environment.

Another catalyst for growth are the investments, we are making to enhance our operations at outback at the end of the third quarter. We completed the rollout of our server handheld technology and the advanced grills and these investments are proving our consistency overall meal pacing and guest satisfaction, while also providing a cost saving opportunity for the company.

Volumes exceeding $4 $7 million per year.

The success of our relocation program reinforces the broad consumer appeal of Outback and there is still another 50 relocation opportunities remaining.

The new restaurant pipeline continues to build at Outback and across the portfolio and we're seeing good returns on new units our development efforts to provide a runway for future growth and are a critical part of our strategy.

The success of our catering business, particularly at Carrabba's provides a runway for future growth.

Before I turn it over to Chris I want to comment on a couple of specific businesses are doing very well.

Province had another excellent quarter with comp sales up 3% the off premises and catering channels are proving to be very robust off premises is 34% of <unk> sales, which includes a strong contribution from our growing catering business Carrabba's has the perfect menu to meet the demands of this important and growing channel.

We launched <unk> earlier, this year, which is a lunch focused catering option featuring a wide variety of sandwiches that represent Carrabba's Italian heritage. This continues to outperform our expectations off premises will continue to remain a large part of the company in the future.

Additionally, <unk> continues to offer innovative product offerings, such as the wine dinners and seasonal specials, which highlight the great value of experience at this brand is known for the strong sales of <unk> combined with productivity initiatives and cost management, our financial returns continue to get stronger Carrabba's has earned the right to grow and we start to build out a pipeline for future.

Restaurant openings.

Next our international operations, but driven by our market leading business in Brazil, Brazil had another outstanding quarter with significant growth in sales and profits. The Brazil team offers amazing food and exceptional service and we continue to rapidly expand the business throughout the country. We look forward to capitalizing on our leading position and double our restaurant footprint in the coming years.

Importantly, the sales growth initiatives I described are supported by a solid foundation with healthy margins robust cash flow and a strong balance sheet.

This strength gives us the ability to invest in new unit development technology enhancements and asset improvements while meeting our commitments.

We remain dedicated to delivering great food and experience for our guests while building a strong business that will continue to thrive for many years to come.

Finally, our results would not be possible without our great teams in the restaurants and in our restaurant support center. Thank you for delivering an outstanding hospitality and service to our guests.

And with that I'll now turn the call over to Chris will provide more detail on Q3, and our thoughts on Q4. Thanks.

Thanks, Dave and good morning, everyone I would like to start by providing a recap of our financial performance for the fiscal third quarter of 2023 total revenues in Q3 were 1.08 billion, which was up 2% from 2022. This was primarily driven by revenue generated from net restaurant openings, the Brazil tax exemption.

As well as favorable foreign exchange translation.

Jess we must remain disciplined on future pricing actions to maintain proper balance on our price value equation.

At approximately 25% of the U S sales Q3 off premises increased 70 basis points from Q2, and importantly, the highly incremental third party delivery business remains healthy and was flat at 12% of U S sales.

As it relates to other aspects of our Q3 financial performance GAAP diluted earnings per share for the quarter was 45.

Versus 34 of diluted earnings per share in 2022, adjusted diluted earnings per share was <unk> 44 versus <unk> 35 of adjusted diluted earnings per share in 2022.

Adjusted restaurant level operating margins were 14% versus 13, 1% last year domestically the benefits from our pricing and productivity initiatives continue to offset inflation.

The technology, we are putting into our restaurants as having an increasingly positive impact on our margins and the overall levels of inflation moderated somewhat in Q3 versus the second quarter.

<unk> to be mid single digits.

In the fourth quarter.

Total company adjusted operating income margin was five 3% in Q3 compared to four 9% in 2022 depreciation expense was up in Q3, consistent with our increased levels of capital spending and our investments in infrastructure to support growth.

Overall, we remain focused on maintaining the mark the progress we have made in margin since 2019 in Q3, we were 300 basis points above our Q3 2019 adjusted operating income margin.

The board also declared a quarterly dividend of 24, a share payable on November 29th.

We believe our free cash flow allocation is balanced and we'll continue to deploy dollars against additional debt paydown share repurchases and our dividend now.

Now turning to our 2023 and Q4 guidance.

Adjusted earnings per share are expected to be $2 80 to $2 90.

This change in guidance is primarily driven by the reduction in U S comp sales.

We are lowering our full year tax rate assumption in conjunction with our lowered earnings to be between 10% and 11%.

Capital expenditures are now expected to be between $260 million and $280 million as we've been able to pull forward costs associated with 2024 projects.

Expect Q4 adjusted earnings per share to be between 64 and.

74.

And with that we'll open up the call for questions.

Yes.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If you are using a speakerphone please pick up your handset before pressing the keys.

Any time your question has been addressed and you would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Jeffrey Bernstein with Barclays. Please go ahead.

Great. Thank you very much.

Two questions the first one.

Dave you mentioned.

Comp slowdown I guess post labor day.

But perhaps maybe a little bit of a bounce back in October I'm, just wondering if you could maybe.

Assess what you attribute that to I feel like we have.

Herd.

Three different theories one just be the consumer headwinds that are finally, taking hold which perhaps led to that slowdown in September but then.

The bounce back being a return to more.

Seasonality.

Versus just the fact that everyone's lapping price and therefore, the comps optically slow and so I'm just wondering how you think about that slowdown and then modest recovery is it really the consumers a lot weaker now or would you attribute it more to seasonality and therefore, we're in a better place with the consumer still.

In relatively good shape.

Yes, hi, good morning, we view of primarily of seasonality as we look at just the history. Obviously, we've got to keep track of various macro headwinds that are out there student loan repayments interest rates et cetera, but there is some seasonality there, but also importantly, what we're doing as a company right and the offers that we have and what we're doing and.

We talked about the uptick in September and we feel good about November and December as well and that's in our guidance. So we think the consumer is in a decent spot, but we think it is primarily a return to seasonality is look at historically.

Got it so when you say the softer industry backdrop to close the year.

Not so much the consumer for sale that you're watching it but it was just more like seasonality that led to that dip in September rather than some sort of consumer weakness.

Understood.

Directionally look out to <unk>.

Next year I think.

Chris You said that you are guiding.

Guidance for commodities and labor and restaurant expenses. This year were all kind of mid single digit.

It took some some pricing to mitigate that but how do you think about that going into next.

And next year, one or would you expect inflation to maybe moderate across those lines. Even if you don't have specific guidance.

How do you think of that relative to to menu pricing because if there is a slowing consumer backdrop. Some would say don't take enough price to fully offset the inflation, maybe take a hit to margin preserve traffic. So how do you think about that theoretically in terms of directional inflation for next year and how you think about price will offset the inflation or let it hit the margins in the short term yes.

Good morning, Jeff that conceptually, our formula is pricing plus productivity offset inflation. So I think that candidly, it's probably a little early to speculate on where inflation is going to level out next year. Obviously, we don't we've talked about this pipe prior years, we don't finalize our beef outlook until December so, it's probably too early to give.

As a read on 2024 commodities, but look anecdotally outside of beef things are looking pretty rational across the basket, which I think is a good sign beef is a little bit of an unknown. We're still seeing the same information as everyone else out there overall beef production remains a challenge, but other than that there isn't too much to say at this point other than we as a company have repeat.

<unk> shown the ability to navigate these markets as good as anyone else out there. So we'll monitor that we'll be sure that we have productivity initiatives in place because we do have a good amount of rollover from a productivity that we put in place this year and we've got a lot of new ideas for next year potentially as well that can help offset and what that does is that does reduce the need to take.

As much pricing as you would normally need to take to offset that inflation. Because we're look we're obviously, we're pretty mindful of where the consumer is and we do believe that going in with a mindset to keep the pricing as low as possible is the right place to be now in terms of labor and how that plays in labor has been pretty consistently inflationary for a number.

Of years now now look its come down a little bit as the year progressed I think every quarter, it's come down a little bit from where it was certainly where it was last year, but look it wouldn't surprise me at all if we're still talking in that.

Low single to mid single digit kind of inflation range, just sort of into perpetuity.

Jeff just one thing I want to add.

We've been really careful about our price increases and if you look at our comp breakdown and we've got a 4% change in PPA in Q3.

Fifth pretty disciplined versus what's going on elsewhere in the industry. So I think we're really trying to make sure that our price value equation as we continue to improve service and food, especially Outback comes together to help grow track well and just to piggyback off of that if you look at our Q4 guide that does imply that youre checking.

Average is going to be in that two five to call it 3% range, which again as we've indicated we do expect that check average to tick down as the year progresses, and we're going to see that again in Q4.

Understood. Thank you.

The next question comes from Alex Slagle with Jefferies. Please go ahead.

Alright, Thanks, good morning Angie.

When you look across your brands and think about what it really takes to win market share in casual dining and drive traffic outperformance Carrabba's performance really stands out and I'm curious how much of that is related to this specific category dynamics versus more fundamental execution elements.

To the degree there are execution aspects that are driving that success are there bigger more impactful actions that you think you need to take it out back to deliver the kind of experience that translates into the more visible traffic share gains I know some of that will come still with the equipment and technology recently deployed but.

Just interested in your thoughts there.

Yes, good morning, I'll start with Outback, we will move to Carrabba's.

If you look at Outback in traffic there are three or four things that are crucial and the very first thing which is our top priority is <unk>.

Restaurant operations and restaurant operations, and leveraging our technology investment and providing that great customer experience with very interesting food and an in service. So thats thats job one our operating metrics are improving and we're leveraging our technology and we'll continue to stay razor focused because that's a big way.

Of growing sales at Outback, we are going to spend more on media because we've got some really great ideas that we like and you'll see that in Q4, and we'll see that going into 2024, and Chris has talked about our initiatives and productivity to help pay for some of that as we look to do the magic of the and grow traffic and preserve margins.

We want to make sure that we remodel and update our outback restaurants to make sure that the.

Consumer is getting that type of experience, we talked about our remodel program and then finally as we talked earlier about our.

Price value equation, and being very mindful about our price increase and then we've got a really great off premises business that we've got to continue to to grow and leverage.

Rob is just.

Doing extremely well on the off premises business, especially but also in some of their in restaurant experiences their margins are improving and like I mentioned in the script. They earn the right to grow and we're looking to build that pipeline as we move forward. So carrabba's has done a great job and I think what's helped them also as they have a really strong off premises business that doesn't mean that they're not.

Folks to get in restaurant dining, but they have a really strong off premises business that theyre continuing to leverage.

Thanks.

Follow up on the other restaurant operating expense line is up quite a bit this quarter and it feels like it's the one place that has seen less of a relative improvement over the years versus peers and relative to the bank.

Made in food labor.

Unrealized.

Has to do with your ability to drive volumes and leverage here, but.

There are opportunities to explore that need more efficient or to better leverage our scale here.

Yes, no I think I think absolutely.

<unk>. It was more of just a product that we didn't have the same level of productivity in that line as you saw in Cogs and labor and Thats, why we weren't able to leverage that line as effectively as we where they otherwise and you also had a tick up a little bit in marketing.

Got it thanks.

The next question comes from Sharon Zackfia with William Blair. Please go ahead.

Hey, good morning.

No you've been seeing a negative mix shift.

For a number of reasons, but I'm curious if you started to see that abate or level of ops in the third quarter or into the fourth quarter and then as Youre thinking about guidance for this quarter. I know you didn't quantify how October is doing but I'm very cognizant of view on lapping Elliot later in the quarter.

So does the guidance take into account kind of.

That potential uplift as you lap Elliot are you just kind of putting guidance out there that.

Similar to where the current trends.

Yeah, So I'll start with the mix piece and then we'll move on to the traffic assumptions for Q4.

Menu mix was down as you start with Q3 was down a little over 2% in the quarter.

Pretty consistent with what we saw in Q2.

News is is that you start to transition to Q4, we get the benefit of starting to lap some of the negative mix trends that we started to experience late last year. So as such I do think we expect mix to moderate some in Q4, it will still be down, but probably down closer to the one to one 5% range versus the 2% range that you've seen in the last couple of quarters.

<unk>.

Now as it relates to traffic and the traffic assumptions and what would be embedded in the guide I think look.

The way to think about it is first we have seen the improved trends in October from where we were in September that's built in second we're lapping a fairly soft November from last year, which we did call out in our Q4 call. We do get the benefit of lapping that so thats built into the guidance as well third there is an increased marketing presence that Dave talked about.

We're not going to give the exact dollar amount for competitive reasons, but that is also built into the guide and there is a favorable holiday shift right from the timing of Christmas holiday. It works in our favor and why that's a little more impactful for us than maybe some others is that our brands do tend to skew a little more special occasion, so that is going to have a little more of a positive impact in Q4.

Maybe it might for some others.

In terms of the winter storm Elliot I think our approach is we can't really predict weather.

So we know we're going to be lapping winter storm Elliot.

In Q4, but thats.

It's really not contemplated extensively in the guide because it's just as likely that youre going to have some things go the other way as well.

Yes that all hope for a good winter.

The next question comes from John <unk> with Jpmorgan. Please go ahead.

Hi, Thank you.

There is I guess, a lot of discussion about kind of taking outback as.

The brand back to its maybe its peak, which we could argue maybe it was in the early to mid nineties. I mean, we're really wasn't very different brand very high average unit volumes dinner only in some cases three hours kind of lot lines. I mean, it was a concept that really had a lot of excitement.

And then just like the American populace, including your own staff.

Obviously, no rules just right as kind of part of that and I understand that you kind of want to bring outback back to some of that energy and even bring the outback U S business, maybe back to what.

But Brazil is today and presumably will continue to be so long setup to the questions now I, maybe I'm embarrassed to say, but I do remember that in the mid nineties, starting as an associate and.

Outback was always a transaction driven model at that point in other words. The money was not really made our margin. It was just made on pure customer accounts is the exceptional value that was given to customers and being dinner only of course, the PPA with higher and higher alcohol mix and some other things and it was a higher margin business.

Then being for a line so the question that I'm asking.

Is do we have an opportunity to kind of get back to that transaction driven model and if so might major price investments kind of be made.

At the Outback business is you basically sacrifice gross margin and your sacrifice.

Outback more from a perception of value for the customer that arguably it was 25 years ago.

And hopefully take question, Dave Thank you for that client.

Clearly John we agree with you one on getting the referenced fund service into the business and we're working very hard to do just that and we talked about on prior calls that one of our leading executive in Brazil is here and to help with our marketing efforts and he is going to he's doing a fabulous job here. So that's part one part.

We talked about earlier on the call today, so getting that price value back.

In price value is not just price it's the <unk>.

<unk> provide the customers and service and food, while being very thoughtful about the type of price increases you take now if you look at within the menu itself. There are some really attractive price points like combo meals and like the offer we're doing right now our stake in <unk> combo. So I think if we bring it back to funding their reference as we.

To do that continue to improve our service levels. We've invested in the food we've invested in technology, we're investing in our assets. We can move forward and push forward with transactions now as far as launch goes that's a very.

Important part of our business and I think we'll continue to offer that but.

But on the dinner occasion, that's exactly where we're going.

Thanks for that Dave.

Yes, Thank you John.

The next question comes from Jeff Farmer with Gordon Haskett. Please go ahead.

Great Great great great great great great great great.

Please go ahead.

Okay.

Thank you for your question, Yes, we are we will go to Sara Senatore from Bank of America. Please go ahead, sorry about that.

Hi. Thank you this is Katherine Griffin on for Sarah Thanks for the question.

First I wanted to ask just about the kind of casual dining maybe Italian category specifically.

And as it relates to Carrabba's just can you talk about.

Well I think crop was doing quite well so I'll take that if you don't mind, a little exception on that but.

So I think we have a lot of white space for development and I think we.

We got to be careful about adding menu items and complexity in the restaurants, because we want to continue to drive the service and drive it forward, but we think there is white space in development. There is a chance to continue to improve our operating metrics. There is a very strong off premises business. There. There's another sales layer in our catering business.

Which is very easy to do because we can prepare that food in the morning, and get that ready to go for our lunch business. So that sales layers. There continued innovation in the restaurants with provinces there.

Our off premises business, which is doing so well is there and then our new our new units.

And white space that we have with that with Carrabba's is going to be and also an opportunity for us. So it really is performing well and it.

As a growth vehicle for us going forward.

Okay. Thank you and then I guess, maybe just a follow up then on Carrabba's just as we think about sort of the return to a normal seasonality trends what does that mean in terms of your expectations.

Our carrabba's catering business.

This holiday season.

That is certainly our hope.

Tried to incorporate that in our guidance, but we are.

We are very without getting ahead of my skis here.

Very bullish on what the catering business and what the off premises it looks like at Carrabba's and we've seen sales levels that they are just terrific. So it's early days I don't want got ahead of it but the team has done a great job growing that business.

Thank you.

Again, if you have a question. Please press Star then one.

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

Hi, Thanks, and good morning.

I guess I wanted to start on Outback specifically.

Seems like the branch traffic relative to industry trends softened a bit in the third quarter I guess it depends on what industry you want to compare to but would you agree with that assessment and if so I guess curious what you would attribute that to and can you also just clarify on October it seems.

The year on year casual dining comps have improved by say roughly 300 basis points or so versus September is outback seen a similar level of sequential improvement versus September yes, I'd answer. The second question, we don't want to get into monthly comp per se, but again, we have seen a nice trend change in October and it's incorporated in our.

Guidance.

Make some short term goals would not make a lot of sense. So we're going to focus on the things that we talked about today.

Okay, Alright, thank you for that.

And Chris on the marketing spend what was the marketing spend in the third quarter and could you ballpark the level of spend you embedded in your fourth quarter guidance.

Yeah. So if you look at those marketing was up about I think $2 5 million Bucks in Q3 put us at about $31 million on the quarter.

Q4, we're not going to quantify the amount that we are going to increase the spend but I think the base for Q4 is about $24 million from last year.

Okay, and the $2 5 million is that up year on year.

Yes year on year accumulate too.

Primarily in the U S. Brian.

And there is actually an additional up theres additional increase in Brazil, but $2 million of the two and a half that we see here in the U S. In terms of increased marketing spend is outback and then there is another couple of million dollars in Q3 that Brazil was actually up year on year.

Okay. Thank you for that and.

Dave you just sort of you mentioned it for but.

But more broadly I think you've increased the spend through the year at outback.

You just said in the quarter and even maybe in Q2, but you've increased the spread the spend and the traffic it doesn't seem to yet be responding. So I guess, what gives you confidence that a higher level of spend can breakthrough so to speak and I understand you don't want to get into deep discounts, but is part of the answer that you need.

Some price levels on certain Lps to move a little lower to gain traction in this current environment. It seems like you're helping us.

Maintained upper teens, if not into the <unk> and is that just too high of a price point in the current environment.

Yes, great steak offer right now for $6 99, which we think holds a lot of promise and has been tested well in research well and we want we have other ideas like that that's been what's been behind and.

When you put the importantly, importantly, when you couple that with the food investments. We've made in the service that we're going to continue to drive service improvements, we're going to continue to drive, which we're seeing that will help drive traffic, but over the long term, but we have taken a look at some of our <unk> Bryan and gotten to those that kind of price point I'm talking about yes.

The only thing I would add to that is it just in terms of deep discounts and again you can still use <unk> and you can use price points in <unk>, but I don't think we believe that the deep discounting is where outback plays in the spectrum of casual dining it's a steak centric model higher price points. It doesn't lend itself necessarily to pursuing our customer cohort thats.

Heavily heavily motivated.

Heavily motivated by couponing will.

We will use the <unk> strategy like Dave said to keep value front and center some windows may be more aggressive than others, but as a general strategy. We're focused on maximizing the price value equation like Dave said through exceptional foodservice and ambiance. It at a price point that our guests are comfortable with.

The stores that are fully ramped on it and efficient.

Yes, I will talk about some of the service elements and then Chris if you want to call it but anything on the financial side.

Excited about the financial benefits of the of the equipment, but for me and for our company. It's the service and food that's really going to help.

And so like steak accuracy rate that's the number one thing in the restaurant the steak category proofing steak accuracy for our customers and the grille, certainly help with that and that's been that's been embedded rolled out and we're seeing improvements there.

<unk> service attentiveness, because we had the servers on the floor at all times, because we don't have to toggle back and forth to to enter the enter the information that also extremely important and another measure that we're looking at very carefully. So those are just two examples Bryan from an operating standpoint that we're looking at obviously table turns will help too, but we want we don't want to push it.

Customer too fast.

But but the service the measure in the steak accuracy measure is extremely important for us and ill turn over to Chris for any other financial comments well, yes. The only thing I would say is when we started this year, we targeted by $50 million of productivity benefits for the year, we've actually had to increase that number we're up closer to $55 million for the full year and a lot of that.

The increase is due to the fact that we're seeing very strong effectiveness of the technology that we're putting into the restaurants in terms of benefits again, a lot of the $50 million is incorporated in that you certainly are seeing improved ratios of servers too.

Tables in terms of the front of house technology, Thats driving benefit financially in the back of the house, we've effectively reduced the amount of <unk>.

That.

So very very record low number our food waste is now at a record low number. So it look this whole package really works it really helps.

Benefit the entire P&L, but importantly, looking just beyond just the productivity aspect of this Bryan I do believe that again, when we talk about building a business that is maximizing the price value equation with exceptional food service ambiance et cetera. All of these investments are not just layers to drive productivity, but they are.

We're also layers to drive future guest frequency when you have a great. It's not this business as we learn and time and time again, it's not that terribly complicated when you provide excellent service at a great value to our guests they want to come back and Thats. What this technology really at its core is designed to do it does take time to see given the kind of the amount of frequency that are.

<unk> come into the restaurant that takes time to show up in traffic, but boy I'll tell you. It's certainly is something that we're confident that we'll build traffic over the long term.

Alright, Thank you very much I'll turn it back over.

Okay.

Those are all the questions. We have for today I would like to turn the conference back over to David Deno for any closing remarks.

Thank you everyone.

For taking the call today, and we look forward to talking to you on our Q4 call have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Q3 2023 Bloomin' Brands Inc Earnings Call

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