Q4 2024 Bloomin' Brands Inc Earnings Call
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Speaker Change: Greetings, and welcome to the Blumenbrands Fiscal Fourth Quarter 2024 Earnings Conference Call.
Speaker Change: At this time, all participants are in a listen-only mode. A brief question and answer session will follow management's prepared remarks. Today's event is being recorded. It's now my pleasure to introduce your host, Carol Kurian, Vice President, Corporate Finance at Investor Relations. Thank you. Ms. Kurian, you may begin.
Speaker Change: and many more. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Thank you and good morning everyone. With me on today's call are Mike Spanos, our Chief Executive Officer, and Michael Healy, Chief Financial Officer and Executive Vice President. By now you should have access to our fiscal fourth quarter 2024 earnings release and our investor presentation slides, both of which can be found on our website at www.BloomandBrands.com in the investor section.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: During today's call, we'll provide a brief recap of our financial performance for the fiscal fourth quarter 2024, an overview of company highlights and current thoughts on fiscal 2025 guidance. Once we've completed these remarks, we'll open the call up for questions.
Mike Spanos: With that, I would now like to turn the call over to Mike Spanos.
Speaker Change: Thanks, Tara, and good morning, everyone. Thank you for joining our fourth quarter earnings call.
Mike Spanos: On today's call, I will discuss my observations of the business and steps we are taking to improve business results in 2025.
Speaker Change: In my first six months, I have become even more excited about the future potential of our business.
Mike Spanos: We have started the holistic strategy work and will be transparent on our findings as part of our earnings calls in the coming quarters.
Mike Spanos: What we know at this stage is consumers love our brands and they want us to succeed. We are actively implementing key actions to improve operations and deliver a better guest experience.
Mike Spanos: Michael will discuss our financial performance, including how to understand our company and our financials now that the Brazil transaction closed on December 30, 2024.
Mike Spanos: As I've spent time with our teams in the restaurants, it is clear to me that we have empowered and energized team members that want to win. Our principles and beliefs state that the success of a restaurant is measured by its growth in sales and profits and is the result of taking care of our people, our guests, supplier partners, and communities.
Mike Spanos: Our teams want to deliver an outstanding guest experience and want to win. It is our job to work with our team to make it easier for them to deliver outstanding experiences.
Mike Spanos: We have iconic brands that have a strong right to succeed in on-trend, large-scale categories. I have even more confidence in the long-term success of the company as we have ample cash flow and a good balance sheet in order to make any strategic investments.
However, the reality is that we are currently not succeeding.
Mike Spanos: As noted in the release this morning, although our fourth quarter results were within our expected guidance range.
Mike Spanos: We underperformed the industry and lost share as defined by black box by 260 basis points on sales and 410 basis points on traffic
Mike Spanos: We are not pleased with our performance and acknowledge that we need to change the trajectory of the business. Our results are also not in any way indicative of the hard work of our team members or the foundational strength of our brands.
Mike Spanos: In working with my leadership team and listening to our partners in the field, it's clear that there are immediate actions we can take to address our near-term business results. We are focused on building sustainable traffic.
Mike Spanos: and profitable comparable restaurant sales growth the right way by improving quality value and the guest experience
Mike Spanos: As we move forward we are focusing on three operating priorities. First is to simplify the agenda.
Mike Spanos: Second is deliver a great guest experience. Third is a turnaround of Outback. I will discuss each of these areas and actions we are taking now to improve our results.
Mike Spanos: First, simplify the agenda. We have become too complex as an organization.
Mike Spanos: We need to simplify the agenda for both our people in the restaurant support center and in our restaurants. When we simplify the agenda and focus the team on fewer things that are the most important, we serve our people so that they can take care of our guests.
Mike Spanos: We started this effort by re-franchising our Brazil operations. We have a tremendous partner in Vinci and look forward to growing that business together. We have retained a 33% ownership of the business and can sell the remaining portion in 2028.
Mike Spanos: Importantly, having a partner for Brazil that is based in Brazil and entirely focused on Brazil gives our management team in the U.S. the capacity to focus on growing our domestic company-owned business and support our international franchisees.
Mike Spanos: This partnership also de-risks our business model. Going forward, over 30% of our total restaurants will operate as franchisees with a steady royalty stream and less earnings volatility. We continue to believe that our international franchise business is strong and can continue to grow new units and comparable restaurant sales.
Mike Spanos: We've also taken actions to become a more operation-centric and simple organization at our restaurant support center.
Mike Spanos: We have implemented an organizational structure that is more cost-efficient and more effective in speed of decision-making By flattening layers and empowering our brand presidents with the resources and dedicated teams to drive their business
Mike Spanos: Previously centralized functions of marketing, training, culinary, off-premises, and domestic franchisee leadership are now housed inside the brand teams for an integrated approach.
Mike Spanos: We have maintained resources within the Restaurant Support Center that deliver more capability and efficiency to support the brands. Our long-term G&A goal will continue to be 5% as a percentage of revenue.
Mike Spanos: I want to acknowledge and thank our team members that exited the organization this past week due to our organizational restructuring. While it was difficult, it is essential we streamline the organization, and I know that our team is excited about the future and our growth potential.
Mike Spanos: We will also simplify the agenda inside the restaurants. I've heard it loud and clear coming from our restaurants. We need to make it simpler for our operators to execute all aspects of the guest and team member experience.
Mike Spanos: We need to make fewer items, but make those much better. We are reducing our menu items in all brands by 10 to 20% in 2025.
Mike Spanos: We are removing low satisfaction and low mixed menu items based on guest feedback and prep labor complexity.
Mike Spanos: We are moving away from our LTO strategy that included non-core menu items with discounts presented every 10 to 12 weeks. We will transition to abundant value that is featured as part of our everyday menu offering.
Mike Spanos: We've started with the OFSI III course at Outback and are currently testing simplified menus and everyday value in both carabas and bonefish. We will measure success based on the guests' intent to return, building frequency of visitation, and gross profit dollars.
Mike Spanos: Our second operating priority is to consistently deliver a great guest experience. We know we win with a quality meal at a great value, attentive and engaging service, and an excellent guest experience.
Mike Spanos: We started by reassessing the menu satisfaction of all items, both on and off-premises.
Mike Spanos: We are approving, eliminating, or replacing menu items that our guests consider subpar. We are retraining our standards to recipes and reevaluating cooking procedures to consistently provide the quality and flavor our guests expect from us.
Mike Spanos: We are also working with our supplier partners to enhance our product specifications. We will roll out these improved specifications throughout the balance of the year and continue to improve our center-of-the-plate quality and abundance.
Mike Spanos: In our off-premises channel, we are removing menu items that have low satisfaction, do not travel well, or create complexity for our operators. It is critical that hot food is hot and cold food is cold in all channels. Eliminating these items will improve operational execution and guest satisfaction.
Mike Spanos: Additionally, we are evaluating our technology capabilities to better support our operators in managing demand both in-restaurant and off-premises during peak dinner hours to ensure a great in-restaurant experience.
Mike Spanos: We will now have immediate guest feedback at Outback through our partnership with Ziosk. We can measure guest satisfaction by restaurant and by shift.
Mike Spanos: With features like pay-at-the-table, have-to-pay with mobile wallet, and entertainment, Outback is offering guests a faster and simpler experience. We will have the rollout completed by the end of April, and are already seeing efficiencies with our staff, as well as an improved guest experience in those restaurants.
Mike Spanos: In our test restaurants, approximately 80% of our guests are using Zosk pay-at-the-table.
Mike Spanos: At Outback, we have focused on traffic generation through large-scale campaigns like Stakemas or Stakation.
Mike Spanos: both from a marketing standpoint and promotional offer standpoint. We were featuring items in short promotional periods that created complexity for our operators, and we failed to drive value in our core, high-equity menu items with compelling food quality and brand impressions.
Mike Spanos: We are shifting our approach to provide clear messaging that highlights craveable food, abundant everyday value, and a reverent fun.
Mike Spanos: Outback's Aussie 3 course was our strongest performing promotion in 2024. It resonated with our guests and our operators could easily execute it. Many guests traded up to the premium entrees and dessert options.
Mike Spanos: Our third priority is to focus on the turnaround at Outback Steakhouse. Outback is our largest and most important brand, and I will spend the majority of my time focused on that business.
Mike Spanos: Last year we had many elements and tests at an incubation restaurant with a focus on quality, value, and the guest experience.
Mike Spanos: We are excited by the results seen in that lab restaurant, and have now moved to test phase. As of the end of February, we will have 14 restaurants and tests.
Mike Spanos: We are measuring success by traffic lift, guest intent to return, outback or employee engagement, and profitability. We have been leveraging Xeos to provide real-time feedback.
Mike Spanos: I have been personally involved in the test restaurants with our teams, and I am highly encouraged by the improvements. Seeing the impact in these restaurants has been infectious for our people and their belief in the future growth of the brand.
Mike Spanos: The passion that we see from our Outbackers and the enjoyment that we see from our guests is reminiscent of Outback at its best. Our plan is to continue to monitor test restaurants as we learn in order to be ready for brand-wide expansion.
Mike Spanos: We will be able to share more on the net investments, test results, and specific actions in the upcoming quarters. While we have an urgency to move fast, the most important thing for us is to get it right and ensure that all investments we make have a compelling return.
Mike Spanos: We need to invest in the quality and condition of our existing asset base at Outback.
Mike Spanos: Beginning in 2026, we are slowing down our new unit pipeline. We will continue to open new restaurants, but at a much slower pace. We will shift our focus to taking care of our existing restaurants and earn the right to open new restaurants again.
Mike Spanos: We have a repair and maintenance survey underway that is evaluating the current state of each restaurant. It will be completed by the end of Q2, which will help inform our analysis on remodel scopes.
Mike Spanos: Additionally, our goal will be to remodel more restaurants using prudently lower spend, higher impact scopes, yielding better returns driven by improved traffic.
Mike Spanos: Remodel activity will begin in earnest in the latter half of this year and will take more of the capital dollars moving forward. Michael will give additional details on the financials with our capital expenditure.
Mike Spanos: We need to reinforce an operational mindset at Outback, and that starts with leadership. I'm very excited that Pat Hafner has been promoted to the president of Outback starting mid-January. He's a 29-year veteran of the Outback brand and a true guest-centric operator.
Mike Spanos: He started as a cook at Outback and has progressed through each role including managing partner and VP of operations.
Mike Spanos: He most recently served as the president of Kravis. Pat's high energy and bias for action, coupled with strong leadership to develop high performance teams, will serve him well as he returns to lead our Outbackers.
Mike Spanos: I'm very pleased to announce Kila Bazeal has been promoted to president of Karabas, backfilling Pat. Kila is another exceptional operator, starting as an hourly employee at Taco Bell.
Mike Spanos: After a successful 28-year career at YUM, including regional operational roles, she joined Carabas as a joint venture partner in 2012, served as Carabas' Vice President of Operations, and most recently as the Vice President of Operations for Bonefish Grill.
Mike Spanos: Her deep operating experience, from the cash register to her current role, her passion for people and serious food, her high standards for execution, and her proven track record of maintaining high operation standards makes her an ideal leader for this role.
Mike Spanos: Lastly, before I turn it over to Michael, I would like to provide an update on our capital allocation.
Michael Healy: Our priorities are reinvesting back into our restaurants, reducing our debt leverage post the Brazil transaction, and returning capital to our shareholders.
Michael Healy: We are committed to getting our leverage back to below a 3.0 lease adjusted net leverage.
Michael Healy: We received the first installment of the Brazil proceeds on December 30, 2024, and applied the proceeds to our revolver balance. We intend to use the second installment to be received at the end of December this year towards our revolver as well.
Michael Healy: As it relates to our dividend, this is our first quarter post the Brazil transaction.
Michael Healy: We are therefore adjusting our dividends such that our dividend payout ratio will be more in line with our historical payout ratio based on the earnings of the business post the Brazil transaction. Our new annual dividend will be $0.60 per share compared to $0.96 per share previously.
Michael Healy: I want to be clear that we know we need to take actions to improve our results. We are focused on driving everyday value within our casual dining brands while also delivering a great guest experience. Our work will take time and we will be transparent along the way. We know that we have hard work to do but the team and I believe in the future.
Michael Healy: As I committed to you on my first earnings call, my team and I will be strategic and grounded in our operations and decisions we need to make. I will communicate our path and progress in a transparent way, and I will hold my team and myself accountable for delivering strong results.
Michael Healy: With that, I would like to now turn the call over to Michael to review our financial performance.
Thank you, Mike, and hello, everyone.
Michael Healy: I would like to start by providing a recap of our consolidated financial performance for the fiscal fourth quarter of 2024, and then I will provide additional detail on the Brazil transaction and how to think about our financials and guidance under continuing operations moving forward.
Michael Healy: On a consolidated basis, total revenues in Q4 were $1.1 billion, which is down 8% from 2023. This was almost entirely driven by lapping the 53rd week from last year, which was $83.5 million in sales, as well as the net effect of restaurant openings and closures.
Michael Healy: U.S. comparable restaurant sales were negative 110 basis points and traffic was negative 510 basis points, which was below the casual dining industry.
Michael Healy: Average check was up 4% in Q4 versus 2023 for our U.S. business, in line with our expectations.
Michael Healy: Our Q4 adjusted diluted earnings per share was $0.38 versus $0.56 in 2023.
Michael Healy: The primary difference between GAAP and adjusted diluted earnings per share is due to adjustments from the sale of Brazil including
Michael Healy: 68 million for the impairment of Brazil assets held for sale related to the FX erosion since acquiring the majority interest in 2013, as well as 34 million in deferred tax expense from the transaction.
Michael Healy: Additionally, there was a $31 million impairment charge primarily related to 41 older, underperforming domestic restaurants in Q4.
Michael Healy: These impairments were partially offset by a $16 million gain in connection with the foreign currency forward contracts that we entered into to partially offset the risk associated with the installments on the Brazil transaction.
Q4 adjusted operating margins were 4.4% versus 7.5% last year.
Michael Healy: The 53rd week is a highly profitable week and reflected 120 basis points on the quarter in 2023. The remaining 190 basis point difference between this year and last year was driven by overall restaurant level margin declined by 130 basis points.
Fogged inflation was 2% in line with our expectations.
Michael Healy: Labor inflation was 3.2% as we continue to experience inflationary pressure on wages.
Michael Healy: Restaurant operating expense inflation was low single digits with additional costs from higher insurance and legal expenses.
Michael Healy: Impairment expenses related to previously closed restaurants and other inventory related expenses.
Michael Healy: Turning to our capital structure, total debt net of cash was $957 billion at the end of Q4. Subsequent to the transaction closing, we received $104 million from the first installment of the Brazil refranchising transaction and applied these proceeds to our revolver balance in the first quarter.
Michael Healy: Our leverage metrics are currently above our targeted range. As Mike mentioned, reducing our debt leverage is a primary component of our capital allocation and we are committed to a lease-adjusted leverage of less than three times.
Michael Healy: We anticipate the next installment of Brazil proceeds to be received at the end of December this year to be approximately $96 million and intend to apply it to the revolver balance.
Michael Healy: Here today, we have repurchased a total of 10.1 million shares for approximately $266 million.
Michael Healy: This included shares issued in connection with the repurchase in March of a portion of our convertible notes.
Michael Healy: We have $97 million dollars remaining under our Share Authorization Program.
Mike Spanos: As Mike mentioned, we are updating our dividend to reflect the reduced earnings from the sale of Brazil and setting the payout ratio in line with our historical average. Board declared a quarterly dividend of $0.15 a share that is payable on March 26, 2025.
Michael Healy: Now turning to continuing and discontinued operations and then our guidance for the upcoming year and first quarter.
Michael Healy: As it relates to Brazil, we have transitioned to a franchise model where 100% of the royalty revenues will be recorded in the franchise line, consistent with our other third-party franchisees.
Michael Healy: This reflects a more stable revenue stream, which is good for our company in the long term.
Michael Healy: Going forward, we will present the company's 2024 performance in terms of continuing operations, which has Brazil removed as an equity market and the royalty revenue recognized in the franchise line.
on a continuing operations basis for the full year 2024.
Michael Healy: Total revenue was $3.950 billion, adjusted restaurant margin was 13.3%, adjusted operating income margin was 5.0%, and adjusted diluted earnings per share was $1.45.
Michael Healy: Brazil, within discontinued operations, contributed 0.9% in adjusted restaurant margin, 0.2% of adjusted operating margin, and $0.34 in adjusted diluted earnings per share.
Michael Healy: We had historically received a 5% intercompany royalty for approximately $26 million in 2024, which was eliminated in consolidation in our historical financial results.
Michael Healy: This royalty revenue remains in continuing operations for historical periods per GAAP standards within the Franchise Revenues Line.
Michael Healy: The Brazil tax legislation benefit is included within discontinued operations and was worth 21 million in total revenue, approximately 10 million in operating income, and approximately 14 cents of adjusted diluted earnings per share.
Michael Healy: Our retained 33% ownership will be recognized using equity method investment accounting. Work is still underway to determine income flow-through of our remaining equity ownership, including fair value accounting considerations in Brazil. However, we do not anticipate that the post-tax contribution will produce a meaningful contribution to our net income in 2025.
Michael Healy: As we think about our go-forward guidance, please compare to continuing operations. We expect the full-year U.S. comparable restaurant sales to be down 2% to flat.
Michael Healy: Adjusted diluted earnings per share are expected to be between $1.20 and $1.40.
Michael Healy: We expect commodity inflation to be between 2.5% and 3.5% driven in large part by beef inflation.
We expect labor inflation to be between 4% and 5%.
Michael Healy: We expect our full year tax rate assumption to be close to 0% driven by our FICA TIP credits.
Michael Healy: Brazil royalty revenue will be lower than our historical intercompany royalty rate and is on the lower end of our published range of 2.75% to 5%.
Michael Healy: This will create an approximate $10 million headwind comparing future royalties to historical continuing operations due to GAAP accounting requirements that were previously mentioned.
Michael Healy: Additionally, our earnings per share guidance includes approximately $10 million in investment in CEOSK, product enhancements, and IT infrastructure.
Michael Healy: We expect total G&A to be approximately $225 million for 2025, which includes approximately $12 million from reloading compensation and approximately $10 million of IT and infrastructure investments.
Michael Healy: We will earn interest income on second payment from the Brazil transaction, which will lower our net interest expense for the year.
Michael Healy: Capital expenditures are expected to be between $190 and $210 million. We are shifting our focus from new restaurant development to investing in our base business through maintenance and remodels so that we can create more value from our existing operations.
Michael Healy: We believe there is unit growth opportunity for our brands, but particularly for Outback, we need to focus on getting the guest experience right before we earn the right to grow units.
Michael Healy: We expect our franchise partner in Brazil to open approximately 17 new units with 15 new units from other franchise partners.
Michael Healy: As it relates to the first quarter of 2025, similar to the rest of the industry, we experienced negative impacts from weather in the start of this year, offset by holiday shifts from New Year's and Valentine's Day. Combined, these represent approximately negative 100 basis point comparable sales impact on the quarter and has been included in our comparable sales guidance.
Michael Healy: We expect U.S. comparable restaurant sales to be between negative 50 basis points and negative 150 basis points.
Michael Healy: We expect Q1 adjusted diluted earnings per share to be between $0.55 and $0.60, which includes approximately $0.04 negative net impact from weather and holiday shifts.
Michael Healy: And with that, we will open up the call for questions.
Speaker Change: Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please recover your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw it, please press star to do. At this time, we will pause momentarily to assemble the roster.
And the first question comes from Alex Stegall with Jefferies.
Speaker Change: I'm sure they can do their jobs well and enjoy everything and Help the guests. I guess you highlighted a number of plan changes on this front I just want to get kind of get a sense of the timeline For these actions and if there's any other big changes you want to look at to get kind of where you want to be
Alex: Yeah, hey, Alex, just to be clear, you're talking about org structure around simplifying the agenda. Just so I'm clear on your question. Yeah. Sorry about that. Simplifying the agenda.
Alex: Yeah, got it. So, I'd say, obviously, with an operational mindset, I think we've started with that quickly with the changes with Pat and Kiela from a leadership standpoint.
Alex: Second, Brazil, we moved very quickly on that to de-risk and simplify the business. That's done. The York structure, it was a tough week for us, but we moved and have moved on that, and a lot of that was done.
Alex: to de-layer the organization, empower and put the resources at the brand level for speeded decision-making.
Alex: On the menu front, three of the brands will have approximately a 10-15% reduction by May.
Alex: Outback will be a higher number, that will push towards that 20% number, but as we're doing the work on the base menu and looking at our test stores, we'll be thoughtful and deliberate in getting that right as we move along.
Thank you.
Alex: You know, the only other two things I'd mention is ZASC, as I stated, that'll be done and in place by the end of April. I feel really good about our pace week to week.
Alex: In terms of the LTO's abundant everyday value, we're rolling right now with our C3 course. The big benefit of that will probably be more in the second half, just given some of the calendar lapse.
Alex: But that kicked off right after Valentine's Day. The other two casual dine brands, Bonefish, Carrabba's, they're currently in test and are rolling out abundant value as well.
Alex: And Fleming's is all about elevation of the execution, so we won't be doing anything beyond what we typically do today with a Tomahawk Tuesday and other day-to-day offers.
Speaker Change: Got it. That's helpful and a follow-up in thinking about the blended teams for sales range for the first quarter. Should we consider similar trends by brand as we saw in the fourth quarter? Is there a reason to think a different trajectory for certain brands?
Speaker Change: Yeah, Alex, I think your takeaway is right, meaning what you saw in the fourth quarter in terms of trend by brand and also Outback, you should assume that's consistent in the first quarter, similar trends.
Thank you.
Speaker Change: Thank you. And the next question comes from Jeffery Bernstein with Barclays.
Thank you. Bye.
Speaker Change: I think you talked about in the first quarter that the...
Speaker Change: The impacts of weather and holiday shifts is 100 basis points to the full quarter.
Speaker Change: But do you get a sense, are there any underlying changes in consumer spending beyond just weather and holiday shifts? I know most are questioning whether the consumer is perhaps a little bit more conservative or cautious in their spending.
Speaker Change: And within that if you could just share You know the components you're assuming in that comp for both the first quarter and the year and then I had one follow-up
Speaker Change: We are definitely seeing some impact on weather, geopolitical issues, calendar shifts, we saw that in the fourth quarter with the shift on Thanksgiving. Q1 we saw that with the Valentine's shift moving from a Wednesday to a Friday.
Speaker Change: So I start there, as far as the choosiness of the consumer, what we're seeing, we are seeing some check management with especially those households under about $100,000. We saw that in terms of appetizer mix, beverage attachments, and desserts that were a little bit lower than the fourth quarter.
Speaker Change: As far as the long-term trends, I still feel really good about it. We saw really robust sales.
Speaker Change: that Thursday, Friday, Saturday, Valentine's Day. And what we are finding is when we meet the consumer where they're at with the right abundant value they will make the visit and they'll visit more frequently. I continue to be very bullish on away from home, the long-term trends are there.
Speaker Change: So, what we're doing is we're controlling what we're controlling, whereas I said we're meeting the consumer where they're at to engage them, and I think that's where we're at. The last part of your question, I think that was implied.
Speaker Change: This is included in our guide. When you think about Q1, you think about the full year, we've assumed this choppiness in those numbers.
Speaker Change: Just to clarify, the components that you're assuming within the first quarter and full year comp in terms of traffic versus pricing?
Speaker Change: Yeah, so for the first quarter, Q1, we're assuming, if you look at comp sales, we're assuming a down 1.5% to a down 50 basis points.
Speaker Change: That would assume that the traffic is probably running between a negative 4 to a negative 5. Pricing, approximately in the 4% range, that would yield an average check between 3 and 4% as you deal with some of the mix.
Speaker Change: As Michael said, we're seeing commodities for the first quarter being pretty good, probably a little bit above the 1% range, labor about 4% for the quarter.
Thank you. Bye.
Speaker Change: bigger picture leadership and discussion with the activists. Just wondering your early relationship with the board and activists whether you think everyone's got kind of similar vision and priorities?
Speaker Change: Maybe whether there are other strategic initiatives to focus on besides, like you said, you already spun out Brazil.
Speaker Change: Besides the Outback experience, how we think about oversight of the brand, current management team, anything you want to share on there. Thank you.
Speaker Change: Yeah, you bet. The board, in terms of, you mentioned the activists, in terms of Starboard, fully aligned across the board.
Speaker Change: very constructive, very collaborative and the board is pushing me and the management team the right way they're making us better, we're all focused on doing the right things that drives sales, the right thing that drives profit, and the right thing that drives sustainable traffic growth
Thank you very much.
Brian Harbour: Thank you and the next question comes from Brian Harbour with Morgan Stanley.
Yeah, thanks. Good morning, guys.
Brian Harbour: When you talk about kind of a great guest experience, I guess, what has feedback suggested is the main opportunity there? Or where do you think is sort of the biggest gap today on guest experience?
Thank you.
It's inconsistency of execution.
Thank you.
Speaker Change: okay got it and specifically if you want me to double click on that
Quality, value.
guest experience as a component.
Brian Harbour: And what that means is, what I care about, is when that guest leaves the restaurant.
Brian Harbour: That's what matters. I also, with that, that means our team members feel really good about that experience as well. And what that means is we should be getting traffic growth out of that. We should be getting good satisfaction out of that. We should be getting great gross profit dollars out of that.
Okay.
If, um...
Brian Harbour: you're going to be if you're going to be focusing on
sort of re-imaging, putting capital into existing stores,
Thank you. Bye.
Speaker Change: Is there a certain cohort of stores we're talking about? Do you think that the majority need...
Speaker Change: some investment, is there sort of, you know, just a broader re-image cycle? What would you expect that to look like? And, you know, anything on timing?
Speaker Change: Yeah we're assuming approximately 50% will be touched across the stores and we would want to complete those that work in terms of remodels in the next two to three years with the predominant focus being on Outback.
Okay, thank you guys.
Speaker Change: Thank you and the next question comes from Johnny Ivanko with J.P. Morgan
Johnny Ivanko: Hi, thank you. The question is really on your average ticket, and certainly I understand what the percent menu price increases have been over the past.
Johnny Ivanko: a couple of years, but I really want to look in terms of where we've landed.
Johnny Ivanko: on an absolute level in terms of the variety of items that your customers are ordering. So the first question is, you know, do you think the average ticket is right for the brand?
Johnny Ivanko: Might there be an opportunity to lower the average ticket to drive sales, which I understand is very difficult to drive sales and profitability
Speaker Change: Yeah, John, thanks. I think it's a very good question, and it's the heart of revenue management, and it's the heart of how we set up the menu. The first thing I would say is we do need to meet the guests where they're at, and I believe we need to have abundant everyday value in all three of the casual dine brands.
Speaker Change: and what we found, especially what we found in our OC3 course, we're able to accomplish that with a healthy mix.
Speaker Change: A healthy mix in terms of what the guest engages with and a healthy mix in terms of how we think about our PPA and how that flows through into the P&L. And we like that. It also assumes that we're also going to have to be thoughtful in terms of the craveable innovation and we're also going to have to be thoughtful about affordable opening price points for the guest.
Speaker Change: And what that orients us to is thinking about the business in terms of gross profit dollars because there's going to be trade-offs, to your point. And we know what that negative mix will be on the year as we invest in value, and that's embedded in our guidance and assumptions.
Speaker Change: Okay, thank you. And are there any initial tests, you know, various packages of remodels that you think, you know, kind of make sense?
Speaker Change: You know, for the brand, I don't know if we're talking, you know, half a million dollars a box, a million a box, you know, something more than that, and, you know, what type of, you know, investment to sales lift, you know, ratio should at least we be, you know, kind of conceptually penciling in the model over 26, 27?
Speaker Change: Yeah, hey John, what we're finding is, as Michael said first of all, I think we need to earn the right.
Speaker Change: before we start putting out new stores. And I'd say that especially is relevant to Outback.
Speaker Change: And what we're finding is we can do lower spend, higher touch, and a better bang for the buck with really thoughtful spending. And we're seeing that in terms of the guest satisfaction experience. We're seeing that with traffic returns, and that's going to be the orientation.
Speaker Change: You know, kind of a broad stroke in terms of, or a broad brush in terms of what level of remodel capex that we should expect per unit for the 50% that you want to touch.
Speaker Change: Yeah John, so I think what we'll see is we'll see the pulldown in new units and those dollars you know roughly you call it you know 40 million dollars will shift into remodels as we get into 26 going forward.
Okay, thank you.
Lauren Silverman: Thank you. And the next question comes from Lauren Silverman with Deutsche Bank.
Lauren Silverman: Thanks so much. I want to go back to the check management. Can you unpack that a little bit more in terms of what's driving the trade down, lower price items, attachment, alcohol mix, and how much different that is versus what you've been seeing in recent quarters?
movement from Q4 to Q1. We think that's definitely short-term.
Lauren Silverman: We're also making moves in terms of our beer and alcohol, wine, liquor, etc., as well as our appetizers and desserts to meet the guests where they're at. What we are finding is we're going to need to innovate in those areas. We've already done that with mocktails across our beverage portfolio, and we're doing it across the other attachments as well.
Lauren Silverman: Great, thanks. And then I just wanted to also ask about the beef out, how you're thinking about that, how much is locked in. I know you mentioned commodities a little bit above 1% and 1Q. Can you just help us think through what you're embedding for the rest of the year? Thank you.
Lauren Silverman: Yeah, I come out of these awards for the full year.
Lauren Silverman: Yes, and specifically on the beef as well. Yeah, I got it. I got it. Just I didn't hear you for a minute. Yeah, so commodities we're assuming, Michael said, between two and a half to three and a half percent.
Lauren Silverman: We're locked in approximately about 76% range in that area. We expect beef, specifically, to be definitely in the mid-single digits. That's all included in our guide and in our forecast.
Thank you very much.
Speaker Change: Thank you. And the next question comes from Jeff Farmer with Gordon Haskett.
Jeff Farmer: Thanks, you guys certainly touched on a lot of things today, but bigger picture, specifically with Outback, what do you see as sort of the greatest untapped opportunity to drive traffic in the near term at that core Outback concept?
Speaker Change: It's consistency of execution. It really is. And I'll speak to this. I
Speaker Change: I think Outback, so it's consisting of execution, but maybe the broader point where you're going is
Speaker Change: We've got to address the quality, we've got to address the value, we've got to address the guest experience. Outback is a great business, it is a great brand.
Speaker Change: We've got a great team. It's very on trend in terms of the category. It is a very fixable business.
Speaker Change: I'm highly confident we can and we will fix this business. It is going to take some time.
Speaker Change: As we change the cultural focus of the organization, we know where we want to go, we're fine-tuning and articulating the elements of the plan and the business model. We're moving fast, but it's important we get it right.
Speaker Change: And I want to stress that. We need to get it right. We're going to continue to give clarity on our plan as we move forward. There's definitely more work to be done.
Speaker Change: But I feel it's a really good business with sound fundamentals, and it's a business I know we can turn around, and I know the team feels that way.
A couple questions here, so what does that assume about
Speaker Change: casual dining segment traffic as a whole just how that does and then you touched on this so in addition to that your ability to actually win market share
Speaker Change: Sort of going up against a casual dining peer group that's aggressively promoting value and doing some of the same things you guys are doing so
Speaker Change: A lot of questions there, but ultimately, what does your 2025 sales guidance assume about what the casual dining segment traffic looks like in 2025 and your ability to win share?
Speaker Change: I'd say we're expecting casual dying traffic to be down about three.
Speaker Change: and obviously we'll see as we come out of this choppiness period if that improves and where it goes. As far as winning share, it's about consistent execution. It's being really sharp on our value every day to drive good traffic and that is frequency of visitation. It's again, quality, value, experience.
Speaker Change: The other thing I like is we go to Aussie 3 Course or other abundant everyday value. I just think that's going to help us in brand trust and that's going to continue to foot into share as we move forward.
Thank you.
Sarah Senatore: Thank you. And the next question comes from Sarah Senatore with Bank of America.
Speaker Change: Oh great, thank you. Just a clarification and maybe let's start with the question. The first is
Sarah Senatore: He talked about focusing on remodels. I think previously the thought was that
Sarah Senatore: There needed to be relocations, and I guess my interpretation of what you're saying is that maybe the trade areas are fine, the locations are fine. It's more about the physical.
Sarah Senatore: You know, the estate, and maybe you could just sort of confirm, the issue is less about not being in optimal locations, you know, because of maybe an artifact of the historical approach.
Sarah Senatore: It sounds like, so I guess that's the first question, if you're okay with the locations and this sort of relocation strategy maybe get set aside. And then I do have a quick question about margins.
Speaker Change: and many more. I hope you enjoyed this video. If you did, please leave a like and subscribe to my channel. I'll see you in the next video.
Sure, you want me to answer the first one?
Speaker Change: Relocations are still very much part of the program. We like relos, it's just the reality of getting them done and how many we can get done. So it is relocations plus remodels.
Speaker Change: Okay, and then on the margins, I guess the question I had was, you know, you talked about value and the strength of the Aussie three course, but if I look at the margin complexion, it looks like, you know, cost of goods were actually quite a bit lower than we expected. So
Speaker Change: going forward, should we think about the complexion of the restaurant level margins perhaps is changing with maybe higher cost for sales, but you know ideally leverage on labor and other
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Thank you.
Speaker Change: Okay, but you wouldn't expect over time that maybe your cost of goods need to be structurally lower, you know, as you reinvest in value. Or structurally, I should say, structurally higher as a percentage of revenues across the goods line.
Speaker Change: No, I don't think so. I mean, I think ultimately, you know, we'll be able to drive traffic with that value. There's certainly some cost components there, but we also pick up other ancillary costs, plus our productivity, like I said, sort of supports our cogs.
Great. Thank you.
Speaker Change: Thank you and the next question comes from Ryan Vaccaro with Raymond James
Speaker Change: Thanks and good morning. My question was on the 2025 guidance and obviously a lot of moving pieces here but I was hoping you could provide some guardrails on your store margin expectations for the year and could you just clarify to what what level of investment did you embed in your guidance as part of the turnaround?
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Speaker Change: I'll start with the first part, which is the investment piece.
Speaker Change: What I would say is that that's the purpose of the test that that's why we're doing it Well, what I can also tell you is anything we do there is going to have compelling returns
Speaker Change: And as you've seen, what we've already started this year is we can self-fund through productivity.
Speaker Change: And we're going to be very sharp in our measures between traffic, guest satisfaction, intent to return, the engagement of the outbacker, and our gross profit dollars. And as we work through the tests, we'll absolutely go ahead and keep everyone posted.
Speaker Change: And anything I'd add there is our restaurant level margins will have pressure from labor and and other restaurant operating inflation as we think about going forward.
Speaker Change: Just some more on that. What's proving to be most promising? I know it's still early days, but just curious on that.
Speaker Change: Yeah, I'm not going to get into details for competitive reasons, and as I said, we're in test.
Speaker Change: But what I will tell you is this, we are dialing into the quality, we're dialing into the value, and we're dialing into the guest experience.
Speaker Change: What gets me really excited is what I've seen in the initial results are very encouraging, especially on traffic and especially on frequency of visitation from our loyals. They are coming more often.
Speaker Change: And what I know is our Outbackers are really pumped about this. Our guests are very excited as they leave the restaurant. And that's why we're moving into test phase. And as we learn more, we'll be transparent in our results at the right time.
Speaker Change: Okay, and then one last one if I could. You talked about menu satisfaction and you know investing in higher quality specs I think in your prepared remarks. Can you speak specifically to where, or do you have line of sight, where is get where are guest perceptions on the core steak category and are there changes you're making on steak specifically that you'd highlight?
Speaker Change: So we're good. We feel good about our stake accuracy, our stake consistency, but we're always working with our supplier partners.
Speaker Change: the size of cows specifically, what that means, and the size of loins, and therefore what does that mean in terms of the specs and the tolerances, and therefore how do we then translate that into how we cook, the platform, everything, the seasoning, the cooking standards, and we got to meet guest expectations. I just think that's a very constant perfecting the known and getting better every time. That's what we're doing,
We do that by protein type.
Speaker Change: Okay, sorry Mike, just one more quick one. Just on the GNA guidance, I think you said $225 million.
Speaker Change: for the year. Correct me if I'm wrong on that, but just walking through that, so you have savings from Brazil and then you have savings from the workforce reductions, but that's partially being offset by reloading bonuses and then $10 million of IT investment. Did I get all that right?
Speaker Change: That's correct. So there's $12 million of the bonus reload, there's $10 million of IT infrastructure investments, some of that is ZOSC, and then there's offset by the $17 million savings from the org design.
Perfect. Thank you.
Thank you.
Speaker Change: Thank you and the next question comes from Ryan Mullen with Piper Sandler
Speaker Change: Okay, thanks. Just to follow up on that GNA question, you know, I believe that would probably put you north of 5% of sales.
Speaker Change: this year. So one, do we have that right? And then two, you know, if that's right, how would you plan to get down to that 5% of sales goal you referenced? Is that going to be entirely through revenue growth or is there perhaps more dollars you can take out from here after you've had some more time doing all of your strategic work?
Speaker Change: Yeah, you got it right. I mean the goal is 5%. We're not there now. We're probably in about a five and a half to 5.8% range this year.
Speaker Change: And to get it right, you've got to tack it both ways. The best way is to drive profitable sales and just become more efficient and leverage the assets.
Speaker Change: But we're always going to be more productive and we're going to be really prudent in our spending and thoughtful in our investments.
Speaker Change: Okay, thanks. And then question on capital allocation, you know, in regards to the dividend change.
Speaker Change: If I'm understanding right, you frame that as mostly related to the Brazil sale and maintaining a payout ratio, I think, more than anything else. My question is, as you look forward,
Speaker Change: and also try to execute on remodels and reducing balance sheet leverage. Is further reducing the dividend on the table or should we think about this dividend, this is permanent now?
Thank you.
Speaker Change: Yeah, so it's part of our holistic strategy in terms of capital allocation. As Michael said, and we talked about it, one, we're going to focus on the base business.
Speaker Change: that's number one. Two, we're going to go at the debt to get to that 3.0 lease leverage ratio. And then the third is we're going to return cash to shareholders. And we thought the dividend, we think the dividend, is the most reliable, predictive, consistent way to bring cash back to shareholders.
Speaker Change: And we're going to stay at that, and if that changes, we'll let you know.
Thank you.
Speaker Change: Thank you. And the next question comes from Dennis Geiger with UBS.
Dennis Geiger: Great, thanks guys. I just wanted to ask another one on how you're envisioning the Outback Value Strategy.
Dennis Geiger: As you move away from the LTO strategy and transition to that abundant value with the Aussie three-course seemingly as the answer there, is there anything else to add sort of on what you've been seeing from that promotion of late, you know, maybe how incidence levels are trending there? Any other kind of customer feedback or behavior around?
Dennis Geiger: the offer, and I guess related to that, just if anything more on how the three core sort of addresses how you and your customer envisions Outback's value position and maybe the value shortfall in recent years. Thanks guys.
Thank you.
Dennis Geiger: Yeah, I got it. So, I think it's all about brand trust, and it's all about frequency of visitation, getting one more visit out of our guests. What we're finding with Aussie 3 Course, and I found this with...
Dennis Geiger: abundant everyday value over many years you just create better guest trust and they're visiting more often.
Dennis Geiger: And especially in the short term, we're meeting the guests where they're at right now, especially in this period of choppiness.
Dennis Geiger: Well, although we're leading with that $14.99, we are seeing a significant amount of guests trading up to that 6-ounce sirloin at the $17.99 or the 8-ounce sirloin at the $20.99, and that works really well on the P&L. The other thing we're seeing is, in terms of dessert, I mean, we offer the New York-style cheesecake, but we are seeing a significant amount of guests.
Dennis Geiger: Trading Ops spend another three bucks to get a Choc-A-Thunder or the dessert they want and to me what it shows is
Dennis Geiger: The price-benefit equation of value works with gas and when you execute it works. This is the other thing that's important
Dennis Geiger: Get it they can get the groove in the back of the house and execute it and know they're going to execute it really Well and deliver a great guest experience
Dennis Geiger: Instead of creating the complexity of bringing in a new item every 10 to 12 weeks, it creates more prep labor, it becomes frustrating for our teams in the back of the house, and it's confusing for our guests as well.
Dennis Geiger: So, I feel really good about it. We'll obviously need to continue to monitor it, like any offer. I think there's always going to be the right periods of innovation we bring in, whether it's opening price points or craveable items, but I do think you need these hero items, traffic driving items that work, and we're finding right now it works for the team, it works for the guests, and it works on our P&L.
Helpful. Thanks Mike.
Speaker Change: Thank you. And the next press conference is Christine Cho with Goldman Sachs.
Christine Cho: Yes, thank you for the opportunity. So firstly, I was wondering how you're baking in the impact of the 10 to 15 percent menu reduction into the full year guidance. And I think more importantly, how are you thinking about kind of balancing that kind of simplification of operations and including the menu reduction with that kind of renewing traffic momentum and maintaining a compelling value proposition?
Christine Cho: across labor, marketing, and tech to achieve that goal. Thank you.
Christine Cho: Well, Christine, what I found and what we found across the board is, simplifying the menu...
Christine Cho: You start one, you start with the guest. If it's a low-mix item and it's perceived by the guest to be a subpar item,
Christine Cho: We don't want it on the menu. If it's then creating complexity, increasing our prep labor costs.
Speaker Change: Thank you. And the next question comes from John Tower with Citi.
Speaker Change: Yeah, great. Maybe dovetailing on to that question, in terms of how you're thinking about investment into the business, do you feel like the stores, particularly Outback, have the equipment in place that is necessary to pull off some of this menu transformation? And do you see yourselves needing to spend more money on training in the near term to get employees up to snuff to provide that guest experience you're looking for?
Speaker Change: We have the absolutely have the equipment in restaurant we need
Speaker Change: to deliver a great guest experience and support the Outbackers. We're obviously always looking at technology that helps them to do their jobs.
Speaker Change: Simpler, faster, easier, that also delivers a great guest experience and that, as an example, that was Zask as well. We also have found, remember, this is an important point about LTOs.
Speaker Change: There's a lot of training costs that go into driving LTOs.
Speaker Change: because you've got to ramp everybody up for 10 to 12 weeks.
Speaker Change: So when you're at this everyday value, abundant, you get in a groove, you're just...
Speaker Change: Nail and execution, you're consistent in execution and you can repurpose those training dollars. We're also the leaders, we got operational leaders and that means our leaders are going to be in the restaurants, they're going to be doing mid shifts, they're going to be doing them on Fridays and Saturdays because coaching and leading, that's a free dividend of training and we're going to be all about that as well.
Speaker Change: Okay, maybe just kind of following up on that point of the LTOs here throughout the year, do you feel like with that you'll be able to perhaps even cut back on your marketing spend? Or I guess maybe flipping that around a little bit, how are you going to communicate that everyday abundance value to consumers on a consistent basis without the message necessarily growing stale?
Speaker Change: Consumers get far less tired with offers before, usually, company folks get tired with the offer.
Speaker Change: With LTOs, you've got all that non-working, you're doing creative, you're putting out a new message. It just drives costs there. So the beauty there is we can decide, are we going to reinvest that back into more marketing with great returns that drives profitable traffic? And if we don't feel good about that, we don't spend the money there.
And that's going to be across all the brands.
Got it, thanks for taking the questions.
and David Deno. Thank you. Thank you.
Speaker Change: Thank you and the next question comes from Andrew Stozik with the BMO
Andrew Stozik: Hey, thanks for taking the questions. I had two. You touched on remodels and relocations, but I'm just curious, as you kind of dug into the existing store base,
Andrew Stozik: How we should think about closures, you know, whether that's in 25 or beyond. And then the second question, you know, based on the timeline of some of the initiatives taking place in the first half of the year, it seems like you'd be set up for a better back half.
Andrew Stozik: at least from a top-line perspective, from a comp perspective, but if I just use the midpoints of the one-cue guide...
Andrew Stozik: and the annual guide, it doesn't really reflect that. So, you know, am I just getting caught up in ranges there? Are you implicitly assuming a better back half or are there some offsets to that that you're assuming? Thanks.
Andrew Stozik: We're not feeling good about that, then we've got to decide if we're going to renew leases or not.
Andrew Stozik: So that's the first piece on the remodels and some of the underperforming stores.
Andrew Stozik: Secondly, I think your point is around guide and your point around the second half. We feel we're guiding appropriately given the recent trends, but as I said, we do believe Aussie III course is going to give us more momentum the second half.
Andrew Stozik: And as I said earlier, we are assuming the short-term choppiness we've seen the latter part of Q4 and Q1.
Andrew Stozik: is there throughout the year. If that choppiness subsides, we get better momentum, which I'm hopeful we will. And I'll see three course, and by the way.
Andrew Stozik: The other abundant everyday value that is going into bonefish and crabbas as well, I'm hopeful that really gains traction and then hopefully there's more to be had, and we'll keep you posted on that.
Great, thank you.
Speaker Change: Thank you. And this concludes our question and answer session. I would like to turn the conference back over to Mike Spanos, CEO, for any closing remarks.
Speaker Change: Thanks again for your time and we really appreciate the engagement. We look forward to further updates on our next earnings call. Have a great day.
Speaker Change: Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.
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