Chris Meyer - Elizabeth A. Smith - Chairman, Chief Executive Officer and President David J. Deno - Chief Financial & Administrative Officer and Executive Vice President.

Andrew Michael Charles - BofA Merrill Lynch, Research Division John S. Glass - Morgan Stanley, Research Division John W. Ivankoe - JP Morgan Chase & Co, Research Division Jeffrey Andrew Bernstein - Barclays Capital, Research Division Jeffrey D.

Farmer - Wells Fargo Securities, LLC, Research Division Jason West - Deutsche Bank AG, Research Division Bryan C. Elliott - Raymond James & Associates, Inc., Research Division Andrew M. Barish - Jefferies LLC, Research Division Matthew J. DiFrisco - The Buckingham Research Group Incorporated Michael W.

Gallo - CL King & Associates, Inc., Research Division.

Good day, and welcome to the Bloomin' Brands Second Quarter 2014 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Chris Meyer, Vice President of Investor Relations. Please go ahead..

Thanks, Heather. Good morning, everyone, and thank you for joining us. With me on today's call are Liz Smith, our CEO; and David Deno, Executive Vice President and Chief Financial & Administrative Officer. By now, you should have access to our fiscal second quarter 2014 earnings release.

It can also be found on our website at www.bloominbrands.com in the Investors section. Throughout this conference call, we will be presenting non-GAAP financial measures, including adjusted income from operations, adjusted net income and adjusted diluted earnings per share. This information is not calculated in accordance with U.S.

GAAP and may be calculated differently than other companies' similar non-GAAP information. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP measures appear in our earnings release on our website, as previously described.

Before we begin our formal remarks, I'd like to remind everyone that part of our discussion today will include forward-looking statements, including our discussion of growth strategies and financial guidance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them.

These statements are subject to numerous risks and uncertainties that could cause actual results to differ from our forward-looking statements. Some of these risks are mentioned in our earnings release. Others are discussed in our Form 10-K filed with the SEC on March 3, 2014, and subsequent filings, which are available at www.sec.gov.

During today's call, we'll provide a recap of our financial performance for the second fiscal quarter 2014, an overview of company highlights, a discussion regarding progress on key strategic objectives and an update on annual guidance. Once we've completed these remarks, we'll open up the call for questions.

With that, I would like to turn the call over to Liz Smith..

First, we will continue to invest ahead of growth while aggressively managing our cost structure, given domestic sales headwinds.

For example, we are supporting our international growth strategy by hiring some great leaders, such as Pat Murtha, President of International; Suk Singh, Head of Global Development; and Juan Guerrero, who now leads our global supply chain organization.

Each of them have had an immediate and positive impact on our company, building out our capability and infrastructure to support our expansion. Second, we will continue to be disciplined stewards of capital. We will accelerate investment in areas such as Brazil that provide high return.

In addition, we will reduce spending in areas where our expectations are not being met. In closing, despite the challenges we are seeing in 2014, we continue to gain share and make progress on our key strategies.

Also, I am pleased to announce that we will be having an Analyst and Investor Day in late Q4, and at that meeting, we will provide you with more detail and an update on our growth plans and future priorities. We look forward to seeing you in Tampa.

And with that, I'll turn the call over to Dave Deno to provide more detail on our second quarter operating results and our updated guidance.

Dave?.

First, our comp sales results in the second quarter were between 100 basis points and 150 basis points lower than expected due to softness at dinner. Although we have begun to implement plans to drive this business, we do not believe it is prudent to expect a meaningful recovery to take place in 2014.

Our assumptions for the balance of the year reflect this. Should trends in our dinner business improve, it would be an upside to this forecast. As a result, we are lowering our domestic comp sales expectation for the year to flat to up 1% from the previous guidance of 1% to 2%.

Second, in Korea, the casual dining market has not shown signs of improvement heading out of the second quarter. Although we are working very hard to change these trends, our updated guidance does not assume any material recovery in the Korean business for the balance of the year.

Should trends improve in Korea, that would be an upside to our current forecast. These 2 items make up effectively all of our revised expectations for the year. Now I will take you through the specifics of our updated guidance. Total company revenue is now expected to be between $4.4 billion and $4.45 billion for the year.

Adjusted EBITDA for the year is expected to be between $459 million and $470 million. Adjusted net income for the year is expected to be between $135 million and $141 million. Adjusted diluted EPS for the year is expected to be between $1.05 and $1.10.

I just want to remind everyone that our conversion to a 52-53 week reporting calendar lowered our EPS expectations by $0.06 in 2014, and this is reflected in this guidance. GAAP net income for the year is expected to be between $120 million and $126 million, and GAAP diluted EPS is expected to be between $0.93 and $0.98.

Commodity inflation is expected to be between 2.5% and 3.5%, reflecting the great work that our supply chain team has been doing. We expect foreign exchange to represent a $3.5 million drag on a year-over-year basis. General and administrative expenses are expected to be between $280 million and $290 million.

Most of the favorability to our previous guidance is driven by reduced incentive compensation. This range for G&A does not include the impact of any items that have been excluded from our adjusted results.

We still anticipate an adjusted effective income tax rate in the range of 27% to 29% and systemwide new restaurant development in between 55 and 60 units. Capital expenditures will be between $250 million and $270 million for the year. Now we'd like to comment briefly on Q3. Our stated policy is to only provide annual guidance.

However, there are a few items expected to have a material impact on our Q3 financials that are appropriate to mention. First, we expect to have a timing shift in our marketing expenses into the third quarter from the fourth quarter to support promotional activity at Outback.

In addition, similar to our Carrabba's menu rollout in the first quarter, we will incur additional marketing, operating supplies and menu printing costs for our rollout of the new Bonefish Grill menu. Finally, we will incur additional general and administrative expenses related to the development of Carrabba's in Brazil.

All of these items are incorporated into our full year guidance, but they'll impact the timing of those earnings between the third and fourth quarters. In conclusion, our updated guidance reflects a prudent outlook, given the headwinds of 2014.

However, we remain very positive about the long-term prospects for our business, and we look forward to sharing those plans with you in more detail in Q4. And with that, I'll now open it up for questions..

[Operator Instructions] And we'll take our first question from Joseph Buckley, Bank of America Merrill Lynch..

It's Andrew Charles filling in for Joe. Liz, at Carrabba's, the new menu increased the variety and affordability of menu items, but it didn't seem like it was enough. So maybe talk about what you think was lacking and why the upcoming additions will be more effective..

Yes, so Andrew, you're right. And the additions that we put in are resonating very well among existing, but they didn't go far enough to drive incremental traffic. And I think some of that is we have such strong Italian credentials.

There was perhaps an overabundance of caution in further increasing the number of items that were lighter, more affordable price points, more affordable varieties, sections which played to the way consumers are dining and eating during the everyday occasion.

You are going to see the next evolution of the menu push back further, and we think, from all the work that we've done, that, that is going to continue -- further accelerate every day of the week dining, when people eat more different. The only other thing I'd say is we're not just going to wait for the permanent menu enhancements.

We're out there right now with an LTO that is doing that for us..

Okay.

And Dave, looking at your margins, are you able to parse out how much the lower profitability of lunch is offsetting your productivity savings?.

Yes, there are really -- lunch is part of that, but I'd also say that some of the dinner sales softness, our comp sales softness was part of that, and then our Korea business was part of that.

But I do want to stress that our productivity trends are entirely on track, with at least $50 million of productivity savings this year through better management of our supply-chain and rolling out our back-of-the-house and front-of-the-house labor tool, which is coming together quite well, and you've seen that in the lower labor cost year-on-year.

So lunch is part of it, but also the consolidation of our Korean business and also some of our sales softness versus expectations..

John Glass with Morgan Stanley..

If I could just go, Dave, to the guidance for a moment. One is, can you parse out or isolate the Korean impact on the lower guidance versus, say, the core domestic business change? And more broadly, I'm still trying to understand, you've lowered your comp expectations by 1%.

That's like $40 million, and yet your G&A is cut by almost that amount, about $30 million, and your -- I'm sorry, your EBITDA is $30 million, and your G&A is lower. Your food costs are coming in, in plan.

So are you spending more marketing? Is there some like incremental expense in the back half? Or is this simply just delevering on the other lines that you aren't saving on?.

Sure. Let me answer the Korean question first. There were 2 major changes that we talked about in our forecast, and that was the change in comps from 1% to 2% and down to 0% to 1%, so that's part of it; and also, John, as you mentioned, the lunch piece is a little bit margin degradation versus dinner.

But importantly, the Korean business, as we've called out, is an important change -- part of our change in guidance. The Korean business by itself is not a large business, but the change in profit performance year-to-year has impacted our results.

And if you look at -- if you isolate and you say, if Korea had made pretty much what they made last year, John, we would be at or near our guidance of $1.21 for the year. So importantly, the Korean business had a major change this year.

It is not a large business, and in 2015 and beyond, it won't have a big impact on our results, but this particular year, it's been part of it..

And then maybe just finally on unit development, and you've kept that as well, but I mean, year-to-date, you haven't grown many units, and I know there's been some closures in there.

But what gives you the confidence? Why stick with that if you're -- and what gives you the confidence you can actually hit the 55 to 60 units this year, given we're halfway through the year and you're much -- you're, I don't know, only at -- net up only a handful of units?.

Yes, our 55 to 60, John, is a gross number, first of all. Secondly, in casual dining, you have a really good visibility in your pipeline. And so given the long lead times of development, we have the pipeline identified. In a lot of cases, construction's already underway. So our pipeline is robust and identified.

So we feel very good about the 55 to 60 number for the year..

And I'll just add, John, as you know, in the years past, we have been more back-half loaded. So if you look at the cadence of this year, it reflects the cadence of our openings in 2013 and 2012. We continue to push to smooth the pipeline, but we do have good visibility, and we feel very good about the -- meeting that target..

John Ivankoe with JP Morgan..

The question is on your softness in dinner. So what kind of intelligence do you have, at this point, that lunch is not cannibalizing dinner, whether it's just attention for the customer or attention for marketing, what have you, that you're kind of pursuing a lower average ticket at the sake of a higher average ticket.

And I do ask that question in the context of, for example, a Texas Roadhouse that actually did have a dinner-only business, a good second quarter and a pretty strong start to July. So if you could kind of juxtapose what's happening maybe within the dinner segment but, I think, more specifically lunch versus dinner at Outback..

Sure. So John, lunch is coming in, from an analytic standpoint, right in line with where we thought the cannibalization would be, at kind of 10% to 15%, which has about a 0.5 drag on dinner comps, okay? So that was always in the analytics in the business plan. And that is where it's coming in.

What gives us comfort that it's not a trade-off is all of the analytics that we've done.

But also, if you look at the -- even in-store, if you look at the SMG scores in stores with lunch and without lunch, high SMG scores in each so that there's not a distraction, if you will, that's impacting dinner service in restaurants with lunch and without lunch.

And so we feel very good that we have a handle on how lunch is playing out and its incrementality. The dinner momentum, as I said in my prepared remarks, we had an impact on the dinner momentum, as did everybody else, in Q1 with the weather and -- because most of it hit on the weekend.

We, interestingly, saw that trend continue, and if you look at the NPD CREST data, which is really the only measure that breaks out industry, weekday to weekend, and you look at the most recent period for March, April and May, interestingly, traffic for casual dining was down 4% on the weekend and up 1% on the weekday.

As you know, we skew towards the weekend, even more than the casual dining average. So we're looking at that dynamic. But I've always said what we do to ourselves impacts us most of all. And we have very clear action plans to restore the dinner momentum. On Outback, we did a great job broadening and driving variety.

Now it's time to double down on steak credentials and really play up. You talked about our competitors. They have done a very good job being single-minded about steak and going after steak.

And we have done a great job in addressing the major issue we had with the veto vote, and now we need to go back and balance that by reminding people that we are actually best at steak, consumer choice at steak. And we will be doing that aggressively in the back half of the year. And I think about -- I talked about Carrabba's dinner business.

It's a bit of the opposite, where we stayed a little bit too care and cautious in not moving away from that Italian cuisine to drive us even further away from the weekend and special occasion and into the every day. And on Bonefish, I'll just tell you, it's a weekend to the new menu, but we feel terrific.

So each, we have a very good handle on what's going on with our dinner businesses since the momentum slowed in H1 of this year and what we need to do to restore it. And it's going to take a little bit of time, but I feel confident about it..

Jeffrey Bernstein, Barclays..

Two follow-ups, I guess. The first, Dave, you mentioned Korea. And I think you said, if your profit dollars were flat this year with last year, you would be close to that $1.21 versus you're now at $1.05 to $1.10. So it does seem like the reduction in guidance is being driven almost entirely by that.

So I'm just wondering whether you were assuming, at the start of the year, that Korea would be flat, and therefore Korea is the lion's share, or how to separate those 2 components of what you described as the guidance reduction. And then I had a follow-up..

Yes, Korea is a big part of the guidance change. I mean, the comp sales as well, we went from 1% to 2% to 0% to 1%.

But I just want to stress that the Korean piece is a big part of the guidance change, and I just want to reiterate, Jeff, I hope you don't mind, that the Korea changes here is large in our business -- large to our business, but the size of the business in our portfolio is not very large.

So 2015 and beyond, we should be in good shape on the business..

And then the Bonefish refresh, which I think you said the new menu kind of kicked in or finalized the rollout last week or so. Just wondering where we stand on that. I know with the Carrabba's in the first half, there was some noise around the rollout, and maybe it didn't achieve the results you wanted that you saw in test.

As we look at Bonefish now, I mean, should we expect to notice a little improvement in trends in coming months or quarters? Or have the results at Carrabba's led you to believe that maybe early days of any of these rollouts just doesn't gain the traction that perhaps you had seen in tests?.

over 35 new beverage and food items; 3 new platforms, whole new platforms, which are whole new platforms surrounding bowls, steak and chops, premium sides. And the one thing I want to stress on Bonefish is we got behind in the innovation cycle, but we're not finished with the core menu. Coming right up on the heels of that will be a bar menu refresh.

We'll then move into seasonal menus. And so we really have a fully loaded pipeline on Bonefish to keep the food exploration going. So I'm feeling very good that we have restored our mojo on innovation to Bonefish. And I think it's clear what we need to do on Carrabba's. So I think the new dinner menus will perform very differently..

Got it. And then just to clarify one last thing. Did you say -- I know the unit openings, you're still targeting gross 55 to 60 but, you said, with the pipeline visibility pretty good.

Should we assume that next year we're still on target to see that number go up, at least directionally? I know you don't have those exact numbers, but is there any change in strategy, where that number might go down next year because of the struggles you're seeing today?.

Yes, no, there's no change in strategy on the numbers down, for sure. But at the same time, it's a little early to lay out, Jeff, what we expect next year to be. But no, no change in strategy on the downside..

Jeff Farmer, Wells Fargo..

A question for you, Dave. And I know that you said you would probably dive a little bit deeper into this at the Analyst Day, but still, going back a couple of years to the IPO, company guiding to along the lines of 7% revenue growth, 13% operating in growth -- operating income growth, 20% net income growth.

I realize there's a lot of moving pieces here across both concepts and geographies, but -- again, realizing it's early and you're going to give us more information.

But how should we be thinking about this financial model over the next, let's call it, 2 to 3 years? Do you think that we need to sort of dial this down a little bit? Or do you think that we can get back up to that 7%, 13%, 20% longer-term guidance range?.

one, the persistent headwinds in the casual dining business; having said that, we have outpaced, since we went public, traffic trends by 600 basis points. So that's been very good for the company. We're just facing a little more headwinds in the U.S. than we thought were -- we had before.

And we have a bigger opportunity internationally than we thought at the IPO..

Yes, and the only thing I would just draw a little more color around, Jeff, is that if you looked at the traffic trend in 2012 for KNAPP, it was still challenged because we know traffic in this category has been declining for 8 years, but it was down 1.5%.

In the 2 years since we've gone public, that trend has decelebrated -- decelerated rather significantly. It was down 2.8% in 2013, and calendar year-to-date, its stem is down about a 300.

So that's the 600-basis-point decline that Dave's referring to versus when we went public, and we were very clear -- and we were thought to be conservative at the time, when we said that we felt that casual dining would be flat to plus or minus 1%. Well, in fact, casual dining has not been flat to plus or minus 1%.

It's been about a 3% decline per year. So I think, the domestic business, we continue to take share, but it's off of a lower base. And as Dave said, we feel very bullish about the mix into international, so that we see the 20% on a longer term, but the persistent headwinds have kind of put up a harbinger up over the last 2 years..

And then just one more quick follow-up. I apologize, I dropped off for about 5 minutes accidentally. So I might've missed this, and you can just completely skip over the question.

But acknowledging that South Korea, what's going on there, is an unusual environment right now, but even having said that, as you look at that segment and that business and the roughly 110 units you have there, what are some of the strong pros and cons of maintaining equity ownership in that country? And again, if you've already answered that, you can just skip right over it..

No, we have a very good position there in Korea. We think we have plans in place, that Liz mentioned, to address the situation in Korea with the menu refresh, the product refresh. And we also, in Korea, that's different than the U.S., is lease terms are relatively short there. So we have flexibility on our assets.

So we're going to bring some of the things that we had talked about earlier at Outback in 5, 6 years ago to -- the menu refresh, the marketing work, some of their asset work to Korea and change these trends. We just felt, from a forecasting standpoint for this year, it was prudent to continue with the forecast that we have, the trends that we have.

Also, importantly, we have a new leader there who's steeped in Korea, In-Soo Cho, and we have a new marketing head there too. So we're upgrading our management team. So our plans for Korea are unfolding, but we want to maintain our business there, certainly..

The only thing I'd add to that is we have a #1 position, and so this year has been very tough in Korea, kind of an anomaly, in some respects, on a year-over-year basis versus what we've seen of late, but that we think that kind of surrounding it, as well as the government stimulus plans over there, we're looking to get the market back on track..

Jason West, Deutsche Bank..

Just going back to your back-half outlook. Do you guys assume that you're going to maintain this strong gap to the industry that had been 300 basis points? I guess it was more like 150 this quarter.

Are you assuming you maintain that gap, or are you assuming you guys are going to start performing more in line with the industry going forward?.

No, we absolutely expect to kind of maintain the gap to KNAPP and be in a position across all of our brands or -- because Carrabba's -- to actually be a net share gainer at the end of the year and post our fifth consecutive year on the portfolio of share gains.

It's just that, as you said, that the gap has narrowed a bit, but it was at still 250 basis points on traffic, which was consistent with Q1, and it was 150 basis points on sales off of the 1 9 [ph] in Q1. So we anticipate that.

But again, I think I spoke to the headwinds that casual dining is facing, and we are going in the face of more persistent headwinds, and so we believe it's prudent to have that outlook for the back half of the year..

Okay. And just to follow up on that, does the outlook assume that you're going to have to make more investments in -- whether it's pricing or promotional dollars or marketing. I think you talked about pulling some marketing forward in the third quarter at Outback.

But even beyond that, does the guidance contemplate some margin pressure around the desire to improve traffic at dinner?.

No. Everything that we have on the margin side, everything that we have done in the past and discussed in this forecast, is consistent with our past trend. The only difference is the timing I talked about in Q3 and Q4..

And the only thing I would add to that is that we are committed -- because of our passion and belief and optimism around the long-term growth of this, we are committed to not cutting long-term investment for the sake of short-term results, and we continue to invest ahead of growth. So that's -- you saw that in infrastructure.

You see the step-up in digital and technology. You see investing ahead of growth in China as we ready Carrabba's for Brazil. And you see us continuing to invest ahead of growth to get lunch out there. And I want to reiterate that -- I'll take Carrabba's.

It's an intense competitive discounting environment out there, okay? The number of FSIs in the Italian category, I think, has almost doubled year-to-date from the competition versus it was a year ago. We are not going to use discounting to drive traffic. A 2% lift in traffic that has not a margin benefit is not where we're heading with this.

We know what we need to do to pump up Carrabba's, which the Italian segment has been challenged. Most of the Italian competitors are down mid to low single digits. And so we are not going to chase discounting to counteract what we see as an accelerated discounting environment.

We have always defined value as total benefit divided by price, and we're going to continue to do that..

Bryan Elliott with Raymond James..

Dave, a couple of clarifications.

You talked about gross openings, but have you guided to net openings for this year?.

No. We've not guided to net openings this year, Bryan..

Well, then how many units would you expect to close?.

I don't -- do we have that? Very, very few, Bryan..

As you remember, we already did a big wave, and so I think that, that's not going to be a....

So second half, a couple, if that. Okay..

Yes, it's very, very small. We've done a great job so far pruning our portfolio over time. We'll always do that, Bryan, as you know. But relatively speaking, a pretty small back half..

Okay, so for you to say 25, you've done 22. We can model to that. Okay..

Yes, you can..

marketing shift, Bonefish rollout, marketing and menu and additional G&A for Brazil. It's nice to know that, but it's kind of useless to us if you don't give us some sense of, for example, what's -- some quantification of the timing shift in marketing, for example, and some range on those 3 things.

Otherwise, it's nice to know, but it's absolutely useless to us..

$5 million-ish, Bryan..

For all 3?.

Yes..

Okay. That's helpful. Last question on Korea. You've talked about it being a small business, but obviously, it's having a big impact on overall profitability this year. The magnitude of the guidance change is pretty substantial for a small business, but not to worry about it '15 and beyond.

What's to prevent another 20% drop in casual dining demand and another significant reduction in contribution from Korea in '15?.

one, given the plans that we know we have in place and the people that we have in place there, Bryan, is number one; two, we have tremendous flexibility in our assets in Korea, so we can make the moves that we need to make; and three, the -- candidly, the profit amount is relatively small now.

And those 3 things coming together, it was pretty good comp -- very good comp that this year is an anomaly year, a 1-year year in Korea. And going forward, we'll be in good shape. But I don't -- certainly don't sense that this will be something that we'll have to talk about year-on-year next year at this time..

I'm sorry, Bryan, go ahead..

I was just going to ask for some help for those of us that don't have much insight into what's going on in Korea. I mean, a 20% decline in casual dining, I mean, that's pretty staggering for what seems like an economy that's reached first-world status.

What's really happening to the consumer over there? And why such a substantial decline?.

Yes, basically, what's happening, Bryan, is -- in the entire restaurant segment is the disposable income for the Korean consumer, given increases in housing costs and debt levels, are being squeezed significantly, and discretionary spending has dropped off.

And you see that in the food and take -- and food away from home business, and we're participating in that economy right now and seeing that. So that's the main reason why..

The other thing I would add is that if you look at the -- where the growth is happening in the economy, it's at the very, very top of the income distribution, okay? So it's even more skewed. It's even more of a high-end growth story in Korea that is not trickling down.

And in fact, the government, I think last week, announced another stimulus package to try to get this -- to try to assist the vast majority of folks that are seeing a pretty significant crunch on disposable income versus the top x percent, which are really driving that growth. It's an even -- it's a bigger skew than you even have in the U.S..

Next, Andy Barish, Jefferies..

Can you give us a little more color on the beef side of things within your overall inflation outlook for this year? And kind of how does that set up -- I know it's early, but how does that set up for 2015 in terms of your outlook on that particular commodity?.

Sure, Andy. Beef has been good for us this year, relatively speaking. It's a single digit-ish part of our comp -- or excuse me, commodity portfolio. It hasn't been too much of a drag on our results. And that's why we can hang with a 2.5% to 3% increase. Beef, for us, is about 1/3 of our total company spend on all of our buys.

It's slightly more than half of our commodities spend because we are, obviously, big seafood buyers. So the supply chain team has done a great job locking up this year and giving us plenty of flexibility as we go into next year.

So we're beginning -- given the high beef costs, we're beginning to think about making some purchases for next year at this time. And certainly, for competitive reasons, we don't want to get into our strategy. But we have the flexibility to address the beef cost piece in 2015.

Now again, I just want to remind everybody, beef is slightly more than 1/2 in our proteins, and it is about 1/3 of our overall company spend..

Matt DiFrisco with Buckingham Research..

I had 2 follow-up questions as well. Just looking at the -- I guess, to get more comfortable about the control of cannibalization from lunch, potentially, domestically.

Have you seen then -- or did you say before that the markets that have had lunch rolled out, that you've seen proportionate dinner drop-off in line with markets that don't have lunch rolled out? Or have you seen a meaningful difference in the dinner drop-off there, in context with that data you gave as far as the 4% drop-off on weekends? I'm just wondering if you tangibly see that difference..

Yes, so the first thing is cannibalization is coming in exactly in line with our modeled expectations.

And so that means that restaurants that have lunch, right, where we see where the lunch business is, it has about a point -- 50-basis-point impact on the systemwide and a 1-basis-point impact in the exact restaurant, right? So where we've rolled out lunch has probably been 50 basis points of headwind on the dinner business across the system.

In the restaurants where lunch is, it's about a 100-basis-point headwind, but that's entirely where our model said it would be, at that kind of 10% to 15% level. So that was built into our expectations. So as we said, the dinner business momentum became challenging in H1 of this year, and we know what we have to do to address it.

We've been rolling out lunch for multi years, and the dynamic of lunch and dinner hasn't changed at all..

And I want to remind folks that -- there was some concern about this when we first started rolling out lunch. Comps in our lunch business that have had lunch at least a year are favorable and growing. So that's a very important point..

Okay. And then just as another follow-up here, I know you're not giving 2015 guidance, but you mentioned a lot of incremental costs, both somewhat internationally -- with the introduction of Carrabba's in the back half of this year, it looks like there's some upfront G&A cost associated with the getting into Brazil.

You talk now, I think you've at least had 2 concepts with menu -- significant menu redos. I'm just trying to think of the model, how it works in '15.

Are these costs that will continue to be top line drivers and required in the model, or are we looking at a -- as far as operating cost investment year in '15 maybe being a little less when you take a look at the menu introductions that, that investment cost had, as well as the -- what is required to get Carrabba's, the footprint going in Brazil, what that will be to the '15 look.

Because it looks like you're investing a lot now and there could be an inflection point in '15..

Yes, we are investing a lot this year. It's too early to say if that number will come down year-on-year. But what we can tell you is, given the dynamics of the restaurant business and what we see internationally, we will continue to invest in those markets.

Now I'm not calling for an increase or a decrease, but just as you model these things out, when we see progress in China, we're going to continue to invest in China. If we see progress in Carrabba's in Brazil, we're going to continue to invest there. Certainly, we've stepped up the investments this year, in 2014.

Those could continue into 2015 of a similar magnitude. I don't think you're going to see a drop-off, but what you will see is some of our investments starting to take root in more restaurants, higher volumes and things like that as we go forward in some of these markets.

We're especially excited about the opportunity with Carrabba's in Brazil, given the #2 -- Italian is #2, we've got a fantastic business there, a great leadership team and it's tested -- Carrabba's business tested out, from a market research standpoint, very well. So these investments we're seeing, going to paying off..

What about the menu side of it and the domestic level of investment? Would that be -- is it appropriate to think that you're spending more now in '14 than you potentially might be in '15, when you look at the level of the menu innovation and changing in the menu? Or is that something that is a 12-month cycle now?.

Yes, no, I think that's fair. I think it's fair. With the Carrabba's, we just -- we will be coming out with another enhancement on Carrabba's. But we had the big Bonefish relaunch at the start of last week. I just want to stress kind of continuous innovation, though, is really pretty critical.

And so we just launched $4 Finds on Outback, which is going to get the bar business going. We like how that's going. We think that there's a big opportunity -- we know there's a big opportunity to get to drive the bar business with a new bar menu at Bonefish, which has a 25% alcohol mix, which is very unusual.

So yes, we're not going to have the number of new product launches, but we're always going to invest behind innovation, and that's an ongoing thing..

Michael Gallo with CL King..

A couple of follow-up questions. I wanted to delve in a little bit more into Korea. I know you noted that the size of the business, from a profitability standpoint, is pretty low.

Should we think about the business, if you can improve trends, that you might shrink it meaningfully? And do you have a number of stores there that are now not profitable?.

Yes, we will continue, as part of our work, to optimize the asset base. Like I mentioned earlier, one of the really good things about the Korea business is these leases are short-term. So we can move assets around pretty easily.

So we will do a lot of work around the assets, where they are, the number of them and everything else as we go -- and right now and as we go forward, so we have the flexibility. It's too early to say if we'll shrink the business meaningfully or anything like that.

But I can tell you that we'll do a lot of asset work to make sure that, as these leases expire and things, we move these assets into better locations or different formats. So that's probably the biggest thing that'll be going on in Korea from an asset standpoint..

Okay, great. And then I had a question, I'm not sure if you hit it or not.

But the actual versus theoretical food system, is that still going to go into the fourth quarter this year?.

It will be -- it's -- part of it's in now. There will be more of it going into the fourth quarter, and we'll be moving into it into the first part of next year. Just want to remind everybody, just like the labor system, when we turn it on, we have to train people and everything else, so there'll be a learning curve.

But we'll be working towards that at the balance of this year and into early next as we go forward. It will be a big part of our productivity plan..

And our final question comes from Michael Halin [ph], Bloomberg Intelligence..

How will the pricing of new lighter-menu entrées at Bonefish and Carrabba's compare to the price of the traditional entrées already found on the menu?.

Yes, so let me just stress that it's not going to be just lighter items, right? It's going to be variety and affordable price points, and so we will do the menu engineering so that the return to net on the menu is healthy and intact, okay? So the Bonefish that just rolled had a number of lighter, it had a number of variety of price points.

But the return to net, in itself, is intact because the menu is designed that way..

Great.

And can you give any insight into what you think the impact of the World Cup could be on the third quarter results?.

That was pretty -- for us, there wasn't much there. The only thing we did see is we know Brazilians love football, and they watched it. The games they played, our restaurants were pretty quiet that day. But overall, trends hadn't changed..

And it appears there are no further questions at this time. Ms. Smith, I'd like to turn the conference back to you for any additional or closing remarks..

Thank you. We appreciate everybody for joining us today. We look forward to updating you on our Q3 progress as well as seeing you down here in Tampa in Q4. Thank you..

This concludes today's conference. Thank you for your participation..