Chris Meyer - Group Vice President, IR & Finance Elizabeth Smith - Chairman and Chief Executive Officer David Deno - EVP, Chief Financial and Administrative Officer.

Joseph Buckley - Bank of America Merrill Lynch John Glass - Morgan Stanley Karen Holthouse - Goldman Sachs Jeffrey Bernstein - Barclays Capital Karen Short - Deutsche Bank Howard Penney - Hedgeye Risk Management Michael Gallo - CL King John Ivankoe - JPMorgan Jeff Farmer - Wells Fargo Jason West - Credit Suisse Sharon Zackfia - William Blair Andrew Strelzik - BMO Capital Markets Matthew Kirschner - Guggenheim Partners.

Good day everyone and welcome to the Bloomin’ Brands, Inc. Second Quarter 2015 Results Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the call over to today’s host, Mr. Chris Meyer, Vice President of Investor Relations. Please go ahead, sir..

Thanks, Alan. Good morning, everyone, and thank you for joining us. With me on today’s call are Liz Smith, our CEO; and Dave Deno, Executive Vice President and Chief Financial and Administrative Officer. By now, you should have access to our fiscal second quarter 2015 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 our results on an adjusted basis. These non-GAAP financial measures are not calculated in accordance with US 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 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 February 24, 2015, 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 of 2015, an overview of company highlights, a discussion regarding progress on key strategic objectives and an update on 2015 guidance. Once we’ve completed these remarks, we’ll open up the call for questions.

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

Thanks, Chris, and welcome to everyone listening today. We’re pleased to share with you our results for the second quarter of 2015. As noted in this morning’s earnings release, our adjusted second quarter diluted earnings per share was $0.28 and our second quarter US comp sales were up 2%.

Overall, we’re pleased the results this quarter, as the portfolio delivered solid results, despite sales at Bonefish that were below our expectations. Outback and Fleming’s continued their strong performance. Carrabba’s maintained its positive momentum and Brazil is performing in line with our high expectations, despite a difficult economy.

In addition, our productivity efforts remain robust, enabling us to expand restaurant margins. Importantly, we remain on track to deliver our EPS results for the year.

The advantage of having a focused portfolio is that the strength of our other brands allow us to take a long-term view at Bonefish Grill and implement the necessary actions to return to our polished casual roots. Now, I’ll take you through the second quarter performance by concept. At Outback, comp sales grew 4% in the second quarter.

This is another strong result as our focus on reinforcing steak authority continues to resonate with consumers. The steak-centric messaging also increased our guest check average as we are seeing higher guest preference for steak entrees and steak-focused LTOs that are unique to Outback.

This past quarter, we successfully launched National Advertising for Lunch. This was a critical step in our multi-year effort to capitalize on the $25 billion lunch segment. We received a strong endorsement from our consumers and are seeing a meaningful lift since the advertising began.

While we will not exclusively advertise lunch again this year, we will maintain support to this day part to advertising tags and digital media to help build awareness. We’re excited about the long-term growth opportunity at lunch, given our current penetration levels relative to the industry.

In Q2, we saw a softening in dinner trends at Outback as we lapped the highly promotional LTO calendar from 2014 that we chose not to replicate because of the success of our steak authority messaging. Dinner remains our number one priority and we’re excited about the initiatives in place for the remainder of the year.

At Carrabba’s, we had positive comp sales of 0.9% in the quarter. This included a 1.4% increase in traffic. This marked the third consecutive quarter of sales and traffic gains as we continue to leverage LTOs that focus on value and frequency to drive that frequency.

Over the past couple of months, we conducted extensive consumer research and testing on the next iteration of our core menu. We’re very pleased with the results and are in a position to launch the new menu in Q4 of this year. This will be followed by a full media and advertising support in Q1 2016.

You will see a number of significant enhancements to the core menu, including a more contemporary and attractive menu design. Our unique wood fire grill and wood-burning oven allow us to expand our selection of lighter options to provide more variety for everyday dining.

We will introduce a number of appetizers, small plates, entrees, pizzas and desserts that balance a more Mediterranean style with traditional Italian flavors. And we will, of course, keep popular classic dishes that Carrabba’s has been known for years.

The new menu will be complemented by the ongoing work underway to contemporize our restaurants and enhance the overall dining experience. Carrabba’s remains the undisputed quality leader and consumer preference for authentic Italian dining.

The menu and design work will allow us to capitalize on this preference to increase guest frequency and continue to differentiate ourselves in the Italian category. Bonefish Grill’s Q2 comp sales were down 4.6%.

This was driven by two root causes related to Bonefish’s return to its polished casual heritage and its brand equity pillars of culinary forward cuisine and fish expertise in the restaurant. First, as we’ve discussed on previous calls, we’re winding some of the more CDR-like promotional activities that drove traffic.

Although we anticipated that this move would pressure comp sales, the negative impact exceeded our expectations. Second, we added too much complexity in the restaurant. We have an innovation gap at Bonefish which was addressed by the July 2014 core menu relaunch.

As a reminder, this refresh was our first new menu in six years and was well received by guests and performed in line with expectations. We then initiated rotating seasonal menus and introduced a bar menu at the beginning of the year. These subsequent innovations were positively received at test markets.

However, when executed at scale, they bought a level of complexity that compromised our ability to deliver our core dining experience and service suffered. We saw a meaningful decline in customer satisfaction scores in early 2015.

In March, Gregg Scarlett, who is instrumental in the resurgence of both Outback and Carrabba’s, returned to Bonefish Grill as President. He was with Bonefish for seven years, including three as VP of Operations and no one knows this brand better.

In his short time back with the brand, we have removed significant complexity, reengaged the field, and have already seen customer satisfaction improve significantly. Going forward, our focus is to reengage with less [indiscernible] but this will take time.

We’re not going to accelerate this process by using promotional tactics that are not consistent with the brand. As a result, we now expect Bonefish comp sales to remain down at least 5% over the balance of the year. In addition, until there is an improvement in our sales, we will pause on new restaurant development as we did with Carrabba’s.

Over the past five years, we have consistently said our priority is always to grow what we own. When we see sustainable growth return to existing Bonefish locations, we will once again open new restaurants. In the interim, we will continue to invest in our promising remodel program.

We are confident we’re making the right decisions for the long term health of this brand. The good news is that we have a strong base to build on. Bonefish was once again chosen by consumers as the number one seafood restaurant and number four overall in the total CDR category as rated by Nation’s Restaurant News.

Fleming’s finished the quarter with comp sales growth of 3.2%. This is the 22nd consecutive quarter that Fleming’s has had positive comps. We expanded weekday occasion to our Prime Mondays Program that offers a customizable three course meal at an attractive entry level point.

By combining unique value offerings like this with our more indulgent offerings, Fleming’s continues to take share. Turning to our international business, Brazil posted a comp of 3.4% in the second quarter. This result was particularly impressive given they were lapping a 12.2% comp in Q2 of 2014.

Although there remains concerns about the economy of Brazil, our restaurants are performing in line with our high expectations. Demand for our restaurant well exceeds supply, so we remain somewhat insulated despite a slowing economy. In Q2, we successfully opened our first two Abbraccio’s in Brazil.

While it’s still early, we’ve received strong consumer feedback and we’re very pleased with the initial performance. Italian dining is the number two segment in Brazil and no clear category leader exists, providing us with significant runway for growth. Shifting to Asia, Korea comps were down 11.8%.

These results were meaningfully impacted by the Middle East respiratory syndrome, or MERS virus, that struck the country in late May and June. Despite the sharp decline in sales over this period, our efforts to ring fence the business coupled with the quick response from our local team helped to minimize the overall profit impact.

The current business environment has since improved and recent sales trends have surpassed pre-MERS levels. On the development front, we opened 14 system-wide locations in the second quarter, consisting of; three Bonefish Grill’s; two U.S.

Outbacks; seven company-owned international Outback restaurants, five in Brazil, two in South Korea; and two company-owned international Abbraccio’s restaurants. In summary, we’re pleased with our second quarter results.

We have remained nimble and agile with the portfolio as we successfully navigated through a variety of headwinds domestically and internationally such as double digit beef inflation, significant current risk, currency risk and an outbreak of MERS in Korea.

However, despite these challenges, the levers conferred by a focused portfolio allow us to expand restaurant margins and deliver our EPS goals. Our productivity pipeline remains robust and we continue to see progress on eliminating waste.

We’re investing ahead of growth internationally and our promising remodel programs domestically; we’re capitalizing on day part expansion with lunch; and are enhancing our engagement with our consumers through various digital initiatives; and of course, underpinning all of this is the best operations team in the business.

Our confidence in the vitality of our portfolio remains strong. And with that, I’ll turn the call over to Dave Deno to provide more detail on our second quarter operating results.

Dave?.

Well, thank you, Liz, and good morning, everyone. I’ll kick off with discussion around our sales and profit performance for the quarter. As a reminder, when I speak to net income and EPS, I’ll be referring to adjusted numbers that exclude certain costs and benefits.

Please see our earnings release for reconciliations between our non-GAAP metrics and their most directly [comparable] US GAAP measures. We also have provided a discussion of the nature of each adjustment. With that in mind, our second quarter financial results versus the prior year are as follows.

Adjusted diluted earnings per share was $0.28 versus $0.27 in 2014. GAAP diluted earnings per share for the quarter was $0.26 versus $0.21 last year. Adjusted net income was $35.1 million versus $34.2 million for the second quarter a year ago. GAAP net income was $32.2 million versus $26.4 million in 2014.

This performance was in line with our expectations and puts us in an excellent position to deliver on our EPS guidance for the year. Comparable US restaurant sales were up 2%, while traffic decreased 1.1%. For domestic concepts, our comp sales results are as follows. At Outback, comps were up 4%, with traffic down 0.8%.

At Carrabba’s, comps were up 0.9%, with traffic up 1.4%. At Bonefish, comps were down 4.6%, with traffic down 7.8%. And at Fleming’s, comps were up 3.2%, with traffic up 3.1%. We were pleased with our Q2 comp sales at Outback and Fleming’s as well as with the continued sales momentum at Carrabba’s.

At Bonefish, as Liz mentioned, we’re taking steps to return the concept to its polished casual roots and restore growth. Turning to our international business, Q2 comp sales were up 3.4% in our Outback restaurants in Brazil.

Traffic was down 1.1% in the second quarter, due in part to the timing of the Carnival holiday which shifted from Q2 last year to Q1 this year. As a reminder, we report Brazil results on a one-month lag, so our second quarter results include March 2015 to May 2015.

This business is performing well across all measures despite concerns about the Brazilian economy. In Korea, Q2 comps were down 11.8% with traffic down 12.6%. Although this result is down sequentially from the first quarter, it was heavily impacted by the MERS virus that affected the country in late May and June.

Due to the severity of this virus, many people avoided public places and they had a significant impact on an already troubled Korean economy. As it relates to our business, despite the negative impact on sales, the impact to profitability was limited to approximately $950,000 in Q2.

Our efforts to ring fence this business over the past nine months have made us more agile in responding to challenges such as MERS. We have a strong dedicated team in Korea and they did a fantastic job of dealing with this difficult situation.

The good news is that it appears the virus has been contained and Korea is returning back to where it had been prior to the outbreak.

Although it is our policy not to provide inter-quarter sales updates, we thought it would be appropriate to let you know that our restaurants have responded well to the improving situation and finished July up 1.6% in comp sales. Turning back to our financial update, total Bloomin’ Brands revenues decreased 1% to $1.1 billion.

$28 million of this decrease was due to foreign currency translation as the Brazilian real continued to depreciate against the US dollar. In addition, revenues were negatively impacted by restaurant closures and the sale of our Roy’s business. These results were partially offset by new restaurant openings and higher US comp sales.

Adjusted restaurant level operating margin was 16.2% this year versus 16.1% a year ago. Our Q2 margins benefited from the impact of productivity initiatives and higher US average unit volumes. These were offset by commodity and wage inflations. Our GAAP restaurant level operating margins was 16.5% this year versus 16.1% a year ago.

The difference between adjusted restaurant margin and GAAP restaurant margin was driven by a favorable resolution to our 2011 payroll tax audit. Now onto the details, first, cost of sales increased 32.7% from 32.5% in 2014.

This change was primarily driven by commodity inflation and unfavorable product mix resulting from Outback’s $14.99 steak and lobster promotion that ran in Q2. This popular promotion had a positive impact on check average and profitability, but it did carry with it a higher cost effect than prior LTLs we ran in 2014.

These items were partially offset by productivity initiatives and menu price increases. On an adjusted basis, labor and other related expenses increased to 27.8% from 27.4% in 2014. The change was primarily due to wage inflation, higher field management compensation and continued higher health insurance expenses.

It is important to note that the increase in field management compensation was worth 40 basis points. This was largely due to a lapping in Q2 2014 of the benefit when we lowered our performance expectations for the full year and reversed some of our accrued incentive compensation.

This was offset by higher US average unit volumes and productivity initiatives. On a GAAP basis, labor and other related expenses increased to 27.5% from 27.4% in 2014. The labor line benefited by $2.7 million from the favorable resolution of the 2011 IRF payroll tax audit. This item was excluded from our adjusted results.

Finally, restaurant operating expenses decreased to 23.3% versus 24% a year ago. This decrease was primarily driven by higher US average unit volumes, favorable market expenses and productivity initiatives. This was partially offset by higher R&M, operating supplies and general liability insurance expenses.

Turning to G&A, Q2 general and administrative expenses were $76 million versus $72.3 million a year ago. This increase was primarily driven by $6.1 million of higher incentive and stock compensation expenses. On our last call in May, we discussed that in Q2 2014 we had lower incentive compensation expenses due to our performance against objective.

This favorability in 2014 represented a headwind in Q2 of 2015. And finally, our Q2 tax rate was 26.6% on an adjusted basis and our GAAP effective income tax rate for Q2 was 29.9%. In terms of productivity, we are in excellent shape to deliver on our goal of at least $50 million of productivity savings in 2015.

On the cost of sales line, we made great progress on the implementation of our actual versus theoretical food cost initiative and do expect to improve our cost of goods sold in the back half of the year and into 2016. We expect cost of sales to represents 50% of our overall productivity savings in 2015.

In addition, we are seeing incremental benefits in the labor line, as we become more proficient at using our labor scheduling tools. These efforts will help us offset the increased pressure on wage inflation that we are seeing this year.

We do expect to see margin improvement in 2015 and continuing to work on closing the gap in margins versus our peers. In terms of our reporting segments, I would like to point out a couple of items of note from our international segment. As I mentioned earlier, we continue to be negatively impacted by foreign currency translation.

In Q2, FX translation negatively impacted our adjusted operating income by $2.4 million, most of it relating to our international business. In terms of margin performance, restaurant margins continue to be higher internationally than in the US, given the strength of our international business.

In Q2, however, we had an increased impact from our investment in Abbraccio’s. This should be less of an impact as the year progresses and we expect international restaurant margins to be favorable versus last year in the back half of 2015. Turning to our capital structure, we repurchased $30 million of stock in the second quarter.

This completed our initial $100 million share repurchase program. Yesterday, our Board of Directors authorized another $100 million of share repurchases that will run through January of 2017. Also of note, last week our Board of Directors declared a cash dividend of $0.06 a share payable on August 28.

In addition, we’re pleased to announce that Moody’s has upgraded our Corporate Family Rating to Ba2. This places us just two notches away from investment grade with both Moody’s and S&P. This is a great accomplishment for us given how far we’ve come in terms of proving our capital structure since our days as a private company.

Our goal is to achieve investment grade status. We continue to make progress on our balance sheet, while being more aggressive in returning cash to shareholders. One other item of note is the April 2017 maturity of our CMBS property financial vehicle called PropCo. There is currently $464 million outstanding on this loan. PropCo owns 258 properties.

We’re currently engaging a banking partner to help us explore strategic options for this real estate and we’ll report back to you on our progress. Now, I’d like to discuss a few key items related to our 2015 guidance. First, we’re reaffirming our full year EPS guidance of at least $1.27. We now expect commodity inflation to be between 3.5% and 4%.

This is an improvement over our prior guidance of 4% to 6%, primarily due to seafood and dairy. And might I say, it’s been tremendous work by our purchasing and supply chain team. We’ve also updated our full year comp sales guidance of at least 1.5% to approximately 1.5%. This change is due to lower sales expectations at Bonefish.

Total revenues are expected to be approximately $4.3 billion versus prior guidance of at least $4.43 billion. The final change to our guidance is in capital expenditures. We now expect CapEx to be between $225 million and $235 million in 2015.

We remain disciplined stewards to capital as we focus on delivering on our long term goals and driving shareholder value. This means reprioritizing our investment as appropriate.

For now, we will focus our investments on our international opportunities, the successful Outback relocation initiative, new units at Outback and Fleming’s and our remodel program [indiscernible] up to date. As Liz indicated, we will resume Bonefish units development when the core business returns to growth.

In addition to our updated guidance, it’s important to call out a few things related to the back half of 2015. First, we had a very challenging second half of 2014 in both general liability and health insurance. We are self-insured, so claim expense can be difficult to predict.

But given the unusually higher level of expenses in the back half of 2014, we should see some favorability this year. Secondly, as a reminder, our US comp sales were 350 basis points higher in the second half of 2014 than they were in the first half as we successfully pivoted our messaging at Outback to reclaim our steak authority.

Although this messaging continues to resonate effectively, second half comp sales will be lower than we saw in the first half of the year as we lap this elevated level of performance. This has always been accounted for in our guidance, but it is worth reiterating.

In addition, we now expect full year G&A expenses to be flat to slightly above 2014, excluding any adjustments. We’ve found ways to be more efficient with our cost structure, while continuing to fund our growth investments.

And finally, through the second quarter, we’ve experienced $4 million of FX and looking at the forward curve, we expect $8 million more of FX risk for the balance of the year. This is baked into our least $1.27 EPS guidance for 2015. In conclusion, the strength of our portfolio was evident in our Q2 performance.

We successfully addressed our challenges and we remain well positioned to deliver on our EPS commitment for the year. And with that, I’ll open it up for any questions. .

[Operator Instructions] And we will take our first question from Joseph Buckley with Bank of America..

Could you walk us through the Outback domestic comp, the 4% number, very strong versus Knapp-Track, you’re back to more than a 200 basis point, walk us through the check-in traffic numbers again and how that works between lunch and dinner.

I think in your opening remarks you mentioned dinner traffic being negative, so maybe if you could put some more color on that versus what you saw at lunch as you turned advertising on please?.

I’ll take the numbers piece and I’ll turn it over to Liz. Our Outback comps in Q2 were 4% and our traffic was down 0.8%..

So just some color on that, the first one is that we did see some diminishing in the dinner trend Q1 to Q2, which was driven by our purposeful focus on steak authority and moving away.

If you remember last year, we had two really promotional non-steak centric promotions, at $11.99 and $10.99, which drove traffic last year, but was not consistent with the steak authority messaging.

This year, we had our steak and lobster for $14.99, which performed very well, but we knew it wouldn’t have the same traffic impact, much higher quality dinner contribution though. Lunch, we were delighted with the performance. Lunch just continues to grow in Outback and we continue to get a lot of positive feedback.

And return on the advertising, we saw that lift go exactly where we hoped it would and we see this continuing to grow on a year over year basis as awareness grows.

So again, as we look towards to the back half of the year on Outback, it’s about going hard against that steak authority messaging which is working so well; it’s about continuing the momentum on lunch; it’s about re-los and remodels; and our digital investment, which is we’re going to be launching our Outback app in Q4, which we’re really excited about.

So lots to come to keep both dinner and lunch going..

Could you quantify traffic decline at dinner? Was that down several percentage points?.

We don’t break out lunch and dinner, but what I will tell you is we felt that it was worth mentioning that Q1 to Q2, but that was as expected.

So really what I’d say is that the dinner trend at Outback, we continue to see it positive respond to steak authority, but we knew when we moved off these very promotional price points in Q2 you would see that. As we look at the category, we’re always looking for information on how the category performs.

As you’d probably have seen with NPD Crest, which is the only way to break out category, what it had for the period of March, April and May, it had dinner down 4% and it had lunch up 4%. So we’re not sure if that’s a category dynamic, we certainly knew what we were expecting and saw our dinner performance in line with our expectations..

I would say, Joe, just adding one thing, as we rolled in lunch, as we talked about in prior calls, we rolled through a lot of different test scenarios which is up and lunch performed as we expected. So lunch did well and the dinner comp was as we expected. So I don’t really see too much of a change here as we go forward..

And we will take our next question from John Glass with Morgan Stanley..

I want to first start by following-up on the comp, the dynamic at Outback. Is this a competitive issue with dinner, in other words, have things got more competitive at dinner? I know it’s always been competitive so that’s sort of an understanding.

Can you talk about the back half, you’ve had big check lists and that’s because of these more compelling offers.

How do you expect the trade-off between check and traffic to work in the back half? Is it the inverse of what you see in the first half? Can you talk a little bit about generically your plans and how you drive the business in the back half given tougher compares?.

So we’re very happy with the 4% comp. Q1 was 5%, Q2 was 4% and the balance between dinner and lunch will continue to ebb and flow through the year depending on the promotion that we run.

So I do want to clarify that the dinner traffic was consistent with our expectation, because we were purposely moving off of that, $10.99, Moonshine barbecue last year $11.99 and more towards that appropriate $14.99 steak and lobster promotion, which performed very well.

So we’re not unhappy with the dinner trends, but it was in line with our expectation as we moved Outback highly promotional price point. Lunch continues to grow and continues to perform well and get very good feedback. So as we look into the back half of the year, we see both trends maintaining their momentum.

On dinner specifically, you’re going to see some very exciting steak centric and steak authority messaging. Tomorrow, we start with a very successful steak promotion, I don’t want to tip out hand that will run for about 13 weeks and then we’ll be back with additional steak innovation and messaging. So that’s working and it continue to work.

And as we indicated before, steak authority reassertion is not something you lap, right. We’re seeing in all of our inventory and our brands strengthening, our brand raising, so we know that we’re back where we needed to be and that dinner is resonating.

On the lunch front, we’re going to continue support lunch, the awareness keeps growing, the satisfaction levels with lunch are very high. So that will continue to happen. Our digital investment on Outback kicks in in Q4, we’ve been working on this app for a long time and we’re very excited about it.

It’s going to solve a lot of pain points, it’s going to allow you to virtually check in to see where you are in the waitlist, to pay at the table and go and we’re going to have some support for that as well. And then as always, you know that the reload continue to perform well and remodels are performing well.

And we’ll be back to you guys next year, but the exterior remodel tests are looking very promising. So we feel very good about what’s happening the first half on Outback and what’s to come, but it is true as Dave said that it’s more about 2014 base that drives our H1 versus H2 compares this year..

If I could just follow-up, two unrelated questions. One is the Bonefish development, does that stop right away or is there a glide path and you’re going to still continue to the back half and you are thinking more pausing in 2016.

How does that actually happen? And then Dave, you talked a little bit about real estate in your asset backed securities, is there something that prevents you from refinancing that prior to 2017 or are you thinking about what you do after 2017? You’re just doing the ground work now..

I’ll answer the first one here. On the Bonefish side, we do have sites in pipeline. We feel great about the sites. We’ve really focused hard on the sites. They will play itself out over the balance of 2015, there might be a couple going to 2016, because they sites with commitments. But the pause is in place until we see base sales get better at Bonefish.

And we talked about what’s been working so well for us, Outback new, Outback relocations, restarting the Fleming’s development in international. So that’s how we’re balancing our capital spending, John, with some of the details on the Bonefish piece. On our mortgage financing, on the property, we are doing work as we speak.

The biggest thing that we have to decide is there is a prepayment penalty and we have to decide is it worth to pay the prepayment penalty or is it better to wait until a little bit later on, but we’ve got some really, really sharp people helping us with that and we’re being very proactive on this opportunity. More to come as we know more..

And we will take our next question from Karen Holthouse with Goldman Sachs..

Thinking about the G&A controls in the quarter, as we look out in – the annual guidance, as we look out for the next couple of years, shall we change how we are thinking about the ability to leverage that cost basis going forward, is there an element of pulling forward from efficiencies in that?.

Liz and I have talked many times, our goal is to be as efficient as possible in managing our overhead structure and there is a magic at that end, and investing ahead of growth in our key initiatives such as digital.

So we’re always looking at, Karen, making sure we’re as efficient, as effective as possible in our overhead, in our G&A and then making sure that we properly resource what we need to do to grow the business going forward, whether it’s our new international markets or whether it’s our digital markets, but the team has responded well for initiatives on G&A and that’s why you’ve seen some of the performance that we have..

The only thing that I’d add is just that relentless focus on zero overhead growth, as Dave said, which allows us to have invest ahead of growth opportunities in those two core categories..

And we will take our next question from Jeffrey Bernstein with Barclays Capital..

Just two questions. One on the commodity front, I mean the lowering of guidance, seems like it’s coming from non-beef. You previously told us beef was 99% locked-up double digits. I’m assuming that hasn’t changed.

Can you talk about the outlook, maybe what you are hearing? Now that we’re in the summer of 2015 in terms of initial thoughts on beef in 2016, presumably not up double digits, but directionally what you are hearing both internally and externally? And then my second question was on Brazil. There is obviously limited historical comp data.

It sounded like in your prepared remarks that we should really attribute the comp acceleration to the more difficult compares.

If that was really the case, I guess the comp should re-accelerate in the third and fourth quarter or whether or not you thought there was some other drivers? I got the sense from your prepared remarks that maybe the economy comments – maybe you are seemingly a bit more cautious than perhaps you were in the past.

So any directional color on Brazil’s projections for that back half and whatnot, that’d be great..

Jeff, first of all, on the Brazil piece, let me answer that first and then go to commodities. No, we’re not more cautious than we have in the past. We did 3.4% of comp on top of a 12.2% comp last year and that comp last year had Carnival and it didn’t have it this year.

As we look the business and we look at new unit development, as we look at how our restaurants are responding and how they’re doing, we have a great sense of confidence in Brazil. And we are building a stronger and stronger business each and every quarter as we go forward. So we’re on track to deliver our results.

And so Brazil, there is no caution there. Our trends have been very, very strong. Turning to commodities, yes, we are 99% locked up on beef and this gives us the time now to look at next year. It’s too early to say some sort of speculation on our beef cost for next year, we’re doing our work as we speak.

We’ll make some decisions a little bit later on here, but I don’t want to give any more details on that. I will say though we hope back half of 2016 and that is a hope, that beef cost begin to come down a little bit as far as the rate of increase go. but that is not built into any of our numbers yet, we’ll see what happens.

But most importantly, because of the great work by our purchasing and supply chain team, we have the time to sit back and look and make some decisions on where we want to go with beef going forward, because we’re 99% locked. And then secondly, it is seafood and dairy that has been a benefit to us, the back half of the year.

So that’s the Brazil and the commodity answers..

David, just to clarify modeling question, you mentioned something about G&A and margins for this year. I think G&A you said flat to slightly above adjusted 14%. I was wondering what that number is so we’re on the same page.

And when he said that margin was going to expand, are we talking about the restaurant margin or the operating margin?.

Restaurant margin and operating margin and G&A is flat to up slightly..

Are those adjusted numbers?.

$290 million-ish on an adjusted basis. We will be flat up slightly versus that number..

And we will take our next question from Karen Short with Deutsche Bank..

Turning to Bonefish, Liz, you gave some fairly big comments or thoughts on how you can help turn that around.

I’m wondering if you could maybe given little bit more concrete details in terms of what you think can happen over the next, I guess, the back half of the year and into next year to help reverse the trend?.

Let me talk about that in a lot of detail. Where I want to jump off is a reminder that once again, Bonefish Grill leads the pack in consumer preference. Number one in seafood, number four overall. So we’re talking about a healthy, on trend brand.

Let me talk specifically about what’s happened, which is, we strayed too far from our polished casual roots and used more of what I would say last year CDR appropriate promotional elements to bridge an innovation gap and we’re doing two things.

We are actively stopping those CDR promotional things, so we started to talk about this a couple quarters ago, and unwinding that. And that absolutely had an impact on traffic, so a number of discount impressions are down. We shifted our Tuesday program from a $7.90 price point last year to a $14.90 price point this year. We’re not doing any bogos.

So that traffic which wasn’t as profitable and wasn’t consistent with the brand polished casual is coming out. Importantly, at the same time as we pivot back, we are focused relentlessly on restoring service and fish expertise at the restaurant level.

And that got a bit eroded, because we had a very successful launch of our core menu in July, but then we added too much complexity to the restaurant with seasonal menu changes and a bar menu that compromised the core service.

What you saw in Q1 is you saw the core dinner consumer satisfaction take a hit from the complexity which undermined service in the restaurant. We have taken that complexity back out, we are now ruthlessly focusing on delivering the Bonefish Grill polished casual experience.

I can tell you the great news is that we have seen customer satisfaction respond significantly in that short period of time. But we are not going to do any accelerators to bring in lapsed users back.

We’re going to keep it consistent with polished casual and so it is going to take some time to reengage those users as we continue to focus on delivering the Bonefish way in-house. I feel very fortunate that we have Greg Scarlett at the helm of that because frankly no one knows the Bonefish way better. So we’re back on the path.

We absolutely see Bonefish Grill returning to its growth trajectory next year, but we are actively managing that traffic out this year..

I have a question on the app, when it does roll out, will it have full functionality, meaning pay at the table and all the elements that you mentioned in the initial rollouts? Will it have full functionality? And then will it continue to evolve in terms of functionality and will you work in your Dine Rewards in the app?.

The first one is it will have full functionality. Release one will have the click-through seating, where am I on the waitlist, is my table ready and the ability to pay at the table.

Released two, which will come upon after that we will have some even cooler things that I don’t want to get into for competitive purposes on that, so that should be terrific. In terms of the loyalty program, as you know, we have been really far ahead on this. That is really one of the advantages of our portfolio.

We really like what we see with our Dine Rewards program. Having four brands allows us to have a loyalty program that people don’t get tired with because they can dine across the four brands. We’ve expanded into Georgia this year, out of its five test markets. And that is going to be a piece of the go-forward strategy when we complete that task.

But so far we really like what we are seeing. And any app that we would come out with in the future would dovetail really nicely with the loyalty program..

And we would take our next question from Howard Penney with Hedgeye Risk Management..

The answer to that question falls into mine, which gets to the portfolio. I’ve heard you say number of times the benefit of having a portfolio of brands. But just the fact that you had to spend so much time talking about Bonefish being, the issues with Bonefish and having it to be fixed, and last quarter or two quarters ago it was Carrabba’s.

I don’t understand the benefits of having multiple brands.

Can you go through the arguments of why multiple brands are better than focusing on the Outback concept in driving your growth from one concept?.

We very much view our tightly edited portfolio with four brands that is in scale to $1 billon as an advantage. Let me go through a couple reasons.

The first one, it’s just exactly what you said, which is in a volatile economy and marketplaces and commodities, we really see diversification in huge segments of CDR as being a real advantage in volatile times.

This quarter is a great example, because you had really strong performance on three of our brands, which helped us do the medium to long-term pivot on Bonefish. And so they really work in concert having that diversification.

You also see it on the commodities, right? Some years we’re talking about early mortality syndrome with shrimp, and other years we’re talking about the beef cycle. We feel like this tightly edited portfolio and diversification really helps us do the right thing by the brands in the short, medium and the long-term.

The second thing that I would say is that there really is scale leverage and that is so important in this competitive environment. There’s no question that we benefit. You saw that in our revised commodity guidance from leveraging our procurement capability.

We also are able to leverage our infrastructure investment, and you see a little bit of that in loyalty. But when we make an investment, we are able to benefit and push that through for. A loyalty program is a great example of that.

There’s a lot of wear out with loyalty, because you go back to the same restaurant, with our Dine Rewards you can pivot around the portfolio. The third thing I will tell you is that we have a pretty significant internal competition for capital. You’ve heard me say that before.

We think it really makes us sharper stewards of capital, because you have to earn – there’s a fierce competition for the last dollar. And then lastly, I would say – and probably most importantly, it allows us to have world-class resources.

There is no way I could have the level of market research and analytics that we have built here, that we have benefited from, or have the supply chain and R&D innovation, without this ability to leverage these $4 billion brands.

And I think it’s that combination which has allowed us to gain share over the past 22, 23 quarters, which is very consistent. We will always remain very nimble and agile in evaluating our portfolio structure. That’s the name of the game in this volatile environment. And you saw us sell Roy’s and you see us focus.

We’re always going to remain nimble and agile in evaluating the best go to market strategy as well. I want to reassure you that in addition to seeing these benefits, we couple that with a real bias for nimbleness and agility..

And we will take our next question from Michael Gallo with CL King..

Just a couple questions. I wanted to delve in a little bit on Bonefish. I know you’ve talked about some of the technology initiatives and some of the things that you could do in the back of the house. I know you’re having test and things like kitchen display. You mentioned that you have increased complexity a lot.

I was wondering whether, with that, you think about accelerating perhaps the roll-out of those initiatives and what the plan is on that front as we head to 2016?.

Liz addressed some of the menu complexity things that occurred. Let me talk about high performance kitchen, because it relates not only to Bonefish, but relates to all of our brands as we bring it across the portfolio. Our initial objectives in productivity for this year and into next is continuing the labor cost management and food cost management.

We are beginning to work on the high-performance kitchen as we speak. We will be rolling that into our brands across the portfolio. And we’re seeing very positive results from that as we de-complicate some things. You can expect to hear more from us as we go further into test.

But it is a priority for us to work through the high-performance kitchen, not only in Bonefish, but in each of our brands, how it applies specifically to that brand..

And then a follow up question, I’m not sure if you can answer this yet or not.

Can you talk at least through the range of options you might be looking at to replace the CMBS? Is it with a more traditional financing alternative, perhaps doing something with the real estate properties or is it all of the above and just stay tuned? What are some of the options that you are looking at, because back in the envelope, it looks like your all in interest rate on that is in the low 6’s.

It seemed like you to do better than that with traditional financing, given where the balance sheet is?.

We are looking at all alternatives except owning the property. We’re looking at all different structures in the financing and the sale and lease-back, who we do it with and we are well ahead of this, we will pursue the best economic alternative for us. Yes, more to come.

It is too early to say exactly which structure we will be choosing, but I can guarantee you and our investors and analysts that we are well ahead of this and examining all different kinds of alternatives. Yes, we believe we can do better on the interest rate, but I’ll leave it at that..

And we will take our next question from John Ivankoe with JPMorgan..

I have a bunch of follow-ups at this point. Let’s start with that CMBS. The balance, which was approximately $468 million, Dave, you mentioned that you would like to be an investment-grade company.

Should we automatically assume that notional amount is fully refinanced? Does it have an opportunity to go up or would you even look at an opportunity to take the CMBS down in terms of debt and make a more concerted effort to be investment grade sooner rather than later? So how should we be thinking about that refinancing in terms of the next notional value of the security?.

John, like I said before, I can’t get more detailed, because we haven’t done enough work yet. But we will be examining all options. Whether we take it and refinance it, whether we do something on the equity side, whether we do something with our debt. It’s too early, John, but I am very pleased to say that we are getting out ahead of this.

There’s lots of economic alternatives here and something we will be pursuing. So it’s a little too early to speculate that is going to be this or that or we are going to spend on this, but more to come with investors and analysts as we go forward..

In slowing of fiscal 2015 CapEx, it actually, you’re still opening Bonefish in fiscal 2015, and you’ll be open very few Bonefish fiscal 2015. So what should we be interpreting about fiscal 2016 CapEx? Obviously you’re are going to spending a lot less in Bonefish, but maybe you’re going to be spending a lot more in things like exterior remodels.

Any initial read that we can have in that very important spending number would be great..

On the CapEx side, we will not provide any 2016 guidance until November. Our November call to start, then we will provide more later on. Let me talk about – go back priorities John. The Outback new relocation programs are coming along nicely and that will be a priority. We are testing exterior remodels right now. And we like what we see.

We will be announcing something shortly, but hopefully we can roll something into 2016. We are starting modestly, the Fleming’s new, because those are AAA sites, and we are excited about the Fleming’s new. And we continue to be very enthusiastic about our international opportunities as we look at that business.

Additionally, we know we can never fall behind again on remodels. So we will be continuing to update all of our concepts, Bonefish, Carrabba’s, Outback, everybody as we go along here, to make sure our concepts are as fresh-looking as possible. So those are the buckets of capital, John, that we will be looking at 2016..

I really don’t mean to put words in your mouth, but it sounds like 2016 might be something at least in the ballpark of 2015, because we obviously have to choose something for a number for next year..

John?.

Okay. I tried my best..

We have worked together a long time, more to follow..

Let me ask another 2016 question. Dave, you’re very clear about $50 million of the structural cost savings in 2015. You are going to have some actual versus theoretical spill-over from 2015 into 2016. So that’s going to give us a little bit of a tailwind in 2016.

Assuming that the high performance kitchen isn’t going to be ready for 2016, and I don’t think that will be from what I remember, do you have other costs, you don’t have to say what they are necessarily, but do you have the full $50 million identified at this point for 2016?.

Yes, we do. It is very robust. We have more actual versus theoretical opportunity in front of us. As we talked about before, turning these systems on is like getting to a higher and higher and higher level as time goes by. So we do have a lapping opportunity in 2016 on the actual versus theoretical. That will be a big part of our productivity plan.

Secondly, we still have labor scheduling opportunities. We have made a lot of progress this year. Labor costs were in very good shape in Q2. Especially, if you remember my early remarks about 40 basis points of headwind from the incentive reversal last year in labor, so basically our labor costs were flat year on year.

We still have opportunities in labor cost management. We still have a lot of opportunity in actual versus theoretical. We have opportunity in other line items of our P&L, which I really don’t wanted get into for competitive reasons.

And then lastly we do think back half of late 2016 and certainly into 2017 we’re going to see some of the benefits from the high performance kitchen work..

We’ve used a baseball analogy, John and what I would say is it is market proven initiatives that are out there. We still very much see ourselves in the middle innings of stuff that’s already out there in the market place that we are catching up to. So we feel very good about our pipeline..

Just as a final one, obviously, at Outback you are lapping a very big change in the average ticket in the second half of 2014 versus the first half of 2014. We are hearing companies obviously talking about wage rate inflation or just an increase in wage costs also driven by turnover.

So to what extent will you use straight pricing as a tool going forward? Is that something that could materially tick up for the brand? And is there anything to discuss near-term, maybe in terms of how second half pricing will be different year-over-year than first half pricing?.

John, our philosophy on pricing is that you have to provide superior Brown value which is of total benefits divided by price. You just can’t pass along and take pricing because your wages are up. So we’re going to continue with that mentality of very responsible, appropriate pricing and not take a cost-plus basis and never return to that.

That’s been our policy consistent with the five years. So I would call it responsible pricing that you’ve seen with us over the last five years, coupled with a lot of innovation and service improvements. And that notion of value will always be front and center and will never be behind any type of cost-plus situation..

If I could just add John, tying that question to your first question, that’s why the productivity initiatives are so important, because if you look at our next pricing in Q2, it wasn’t anywhere near the commodity cost increases that we had.

So we get a lot of questions about when am I going to see some of that on the bottom line? Well you will, and we have been providing it. At the same time, it allows us the opportunity to not necessarily take pricing all the way up to commodities..

And we will take our next question from Jeff Farmer with Wells Fargo..

Just a couple quick follow-ups. An earlier question, you lowered your commodity-inflation guidance to a range of 3.5% to 4% for the full year.

But I was just looking for you to put that in context for us, so what levels of inflation did you see in the first half of the year? What are you expecting to see in the back half of the year, Dave?.

We have seen around of upward of lower 4’s, and we’ll see a little bit less than that in the back half of the year. Primarily because of the seafood and dairy piece I talked about..

And you and John were just talking about this, but on the productivity savings, $65 million last year, at least $50 million this year. You made it clear that you do reinvest some of that into offset food inflation, some restaurant, to fund investment and technology and things like that.

But is there a rule of thumb we should be thinking about in terms of the profit flow through on those productivity saving initiatives? How much of that actually gets to the bottom line?.

No. It will vary quarter by quarter because of some of the commodity cost changes and also some of the investment ahead of growth that we make. That stuff is not linear. We can tell you that our commitment is at least $50 million a year, which we have a very productive pipeline on. Those two things.

I think the other piece is we just want to continue to close the margin gap versus our peers as we go forward. We see that opportunity, and as I talk about my prepared remarks, we expect some margin improvement back half of the year both in US and international as we go forward. And that’s a result of some of our productivity efforts.

So there is no specific flow through I can give you. I can tell you that it’s a big time funder of investing ahead of growth and it’s also helped us mitigate some of the commodity cost changes that happen from quarter to quarter..

And we will take our next question from Jason West with Credit Suisse..

Just a couple of follow-ups.

On the pricing, Dave, I don’t know if you gave the pricing at Outback for the quarter, just so we can understand the mix on the comps?.

Our US net pricing was 2% in the quarter and Outback was 2.6%..

2.6%.

and is that net of changes in the promotional strategy or is that like just the actual pricing inflation?.

That is net pricing, so it’d have the promotional piece with it..

And then just a quick one on the wage question. You guys have mentioned that’s picking up. We’re hearing that from a lot of folks.

Can you give any sense of magnitude on what you are seeing in wage inflation, percentage that you had been running and what you are running now on that item?.

We expected to start the year with about 2%-ish in wage inflation to the 2.5%. We’re now looking at 3% to 3.5%..

And we would take our next question from Sharon Zackfia with William Blair..

Most my questions were answered, but a few more. Guidance implies flattish comps for the back half of the year. And I know there are some holiday shifts in the fourth quarter.

so I don’t know if you can give us any commentary on how you think cadence might be in the back half and how the move and Christmas or Halloween might impact you in the fourth quarter?.

There is a trading day impact because Christmas is on a Friday or Saturday. So that would impact us in the fourth quarter. I don’t have the number off the top of my head, but it is a bid of a headwind the back half of the year. I think Liz laid out some of the matters on our guidance for the back half of the year.

We did have a stronger back half last year than we did the first half, especially at Outback. That is in our guidance. And then secondly, Liz talked about our efforts at Bonefish Grill to return to polished casual. That is in our guidance as well. Those are the two factors that make our guidance for the back half of the year on comps..

I think as we talked about Sharon, we think that’s a prudent way to look at it as we lay out the back half..

Liz I had a question, too, on Carrabba’s and Bonefish.

Can you talk about, first as you’re going through the Carrabba’s menu launch, what you’ve learned from the Bonefish menu launch, so that we don’t run into a complexity issue with Carrabba’s when that comes out? And then secondarily, when you’re starting and stopping the development process for Carrabba’s or Bonefish, can you talk about what, if any, disruption that puts in your system? And if you decided to restart what the lag would be, before we would start to see the development start again?.

Sharon, the lessons learned for Bonefish on Carrabba’s, the Bonefish Grill menu innovation, which was in July 2014, that was a big menu redo that we hadn’t had a core menu renovation in six years, performed well and in line with our expectations.

It was the subsequent churn of moving to seasonal menus and a bar menu that created the complexity that backed up on the core dining experience. We’re not doing that at Carrabba’s. It is a core menu refresh.

And so where innovation is really key and critical, we overloaded the system at Bonefish with ancillary innovation that backed up on the core experience. Now the good news is we’ve taken those menus out. We’re returning to focus on the core execution and you’re seeing customer satisfaction levels return to the high level.

But reengaging lapped users will take time. On Carrabba’s, there are no plans and haven’t been any plans to launch any type of seasonal menu or subsequent menu. So we’ve taken our time to get this next core menu update right, and we feel really good about it.

Dave, do you want to comment on the second part?.

Yes, that ties Liz’s discussion early about the portfolio. We have a US development team that’s extremely strong and we just basically will shift them to some of our other opportunities, especially Outback New and Outback relocations. So that’s the advantage of having a group that covers the entire company.

From a timing standpoint, we will continue to be on the lookout for Bonefish sites. We’re not going to be signing any, but it will take about a year or so to get geared back up. But it will not be a standing start, it might be a walking start as we start it. So that’s our plans for Bonefish.

The benefits of having a strong US and international development team allows us to shift to our priorities..

Dave, I was also thinking about the talent side though, as you are recruiting people that want to move up through the ranks, if you’re stopping development it seems like there would be less opportunity for people at the restaurant level to move up.

I’m not aware that folks move between Carrabba’s and Bonefish and Outback, maybe they do, is there repercussion for developing talent or the right talent to move up to the ranks?.

Yes, from a development standpoint, they could certainly move around. And then secondly on an operations standpoint, yes, we do have people that move across brands from partner level to a JVP or something. But that’s something we take a look at our people planning very carefully..

And the one thing I would build on that, Sharon is that, you know our partners program and how successful that is at rewarding growing what you own and growing same-store sales.

A couple years ago, we put on top of that a really unique incentive program called the Presidents’ Club which has outsized opportunity in addition to our partners program for delivering same-store sales above target in the restaurant. And so you see a significant portion of the compensation being aligned with our goal of number one, grow what we own.

And number two, there will continue to be domestic opportunities for that and then for opening new stores. We are always going to have that critical lens on it. And then the international speaks for itself in terms of the success we’ve seen there to date.

So I just want to reiterate that those – compensation is always focused on our first priority of grow what you own and that’s been successful for us..

And we would take our next question from Andrew Strelzik with BMO Capital Markets..

When I’m thinking about the commentary you’re making on Bonefish and having to return to the roots of the concept, it sounds very much like what you did a couple quarters ago with Outback in the US.

So I’m wondering as I think about coming out of this weaker period is there any reason that parallel does not hold?.

I would think with Outback, we had 22 consecutive quarters on Outback. For Outback, it was a balancing act. It was we had to become broader in our appeal and we needed to better balance it with steak authority. So you didn’t see the magnitude of the pivot that we’re making on Bonefish.

I think you saw steak authority end and so that’s why Outback continued to grow comp store sales and traffic all through that period as we changed our emphasis. So I think the pivot back on Bonefish is probably more dramatic, because it is a polished casual and we were engaging in more casual dining methods that we’re taking out.

We feel we are actively managing those more promotional elements out. We’re putting back the polished casual elements. It is being very well received. It’s showing up in customer satisfaction, it’s the top ranked brand. And we are restoring this to brand health. But I would say it is different because of the pivot..

And I just wanted to ask a quick question again on beef or maybe just your approach to beef in 2016, obviously you locked up the double digits for 2015. And it seems like maybe the underlying beef fundamentals are not as – or the increase for the back half of the year maybe won’t be as great, at least as I was previously expecting.

So I’m wondering if you are not able to lock in for 2016 at levels that you like, are you willing to let beef float or will you definitely be locking in?.

We pursue a hybrid strategy depending what the market looks like in front of us. I think the team did a great job last year locking us in when things looked at least somewhat favorable. But we’re pursuing a hybrid strategy that would be a lock or floating in market.

We will make that decision in the coming months and obviously for competitive reasons I won’t go any further than that..

And we would take our final question from Matt DiFrisco with Guggenheim..

This is Matt Kirschner on for Matt.

If you can just back to the lunch break out for Outback, is there any clarity on the percentage of sales related to lunch now?.

It’s been our practice not to typically break out lunch and dinner sales. I can say that the lunch launch, like I mentioned earlier, exceeded our expectations. It’s something we’re going to be going back to in future quarters. It has done well for us..

I think it continues to grow, as awareness builds..

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

Great, thank you, Andy. We appreciate everyone for joining us today and we look forward to updating you on our portfolio on our Q3 call in November. Thanks a lot..

Ladies and gentlemen, that does conclude today’s conference. We like to thank everyone for their participation. You may now disconnect..