Chris Meyer - Group Vice President-Investor Relations & Finance Elizabeth A. Smith - Chairman of the Board of Directors and Chief Executive Officer David Deno - EVP, Chief Financial and Administrative Officer.

Michael W. Gallo - C.L. King & Associates, Inc. Joseph Terrence Buckley - Bank of America Merrill Lynch Karen Holthouse - Goldman Sachs & Co. Jeff D. Farmer - Wells Fargo Securities LLC John Glass - Morgan Stanley & Co. LLC John William Ivankoe - JPMorgan Securities LLC Brett Levy - Deutsche Bank Securities, Inc.

Matthew DiFrisco - Guggenheim Securities LLC Jeffrey Bernstein - Barclays Capital, Inc. Jason West - Credit Suisse Securities (USA) LLC (Broker) Andrew Strelzik - BMO Capital Markets (United States) Sharon M. Zackfia - William Blair & Co. LLC.

Greetings and welcome to the Bloomin' Brands First Quarter 2016 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Chris Meyer, Vice President of Investor Relations for Bloomin' Brands. Please go ahead, sir..

Thank you and good morning, everyone. 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 first quarter 2016 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 U.S. GAAP and may be calculated differently than similar non-GAAP information used by other companies.

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 SEC filings, which are available at www.sec.gov.

During today's call, we'll provide a recap of our financial performance for the fiscal first quarter 2016, an overview of company highlights and a discussion regarding progress on key strategic objectives. 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..

quality fresh fish cooked to perfection over a wood-fire grill. In addition, this campaign pivots away from the more discount-driven messaging that had been part of Bonefish over the past two years. We are confident in the future of Bonefish as it remains a consumer-favorite in the CDR segment across a variety of measures and surveys.

Last month, Bonefish was voted the top overall seafood restaurant and third overall in casual dining in the annual Nation's Restaurant News consumer survey. Fleming's finished Q1 up 1.3%.

We expect Fleming's will continue to grow driven by menu innovation that balances value and indulgence, highlights seasonal ingredients and pairs food with wine and cocktail experiences. We remain on track to launch our first multi-brand loyalty program called Dine Rewards in July.

This program has been in test since 2013 and has proven to be an effective means to drive frequency and increase sales. When it reaches maturity, we expect Dine Rewards to drive a 1% to 2% lift in sales, consistent with what we have received in six test markets.

Turning now to the international business, Brazil posted a comp of 8.8% in the first quarter despite lapping a 6.2% comp in Q1 of 2015. There are challenges in the economy in Brazil and we are closely following the political uncertainties surrounding the president.

But our restaurants continue to be resilient and are performing in line with our expectations. In addition to the successful Outback business, the investment in Abbraccio is paying dividends. Sales results in our three locations have been similar to new Outbacks, validating the market opportunity and consumer appeal.

Italian dining is the number two segment in Brazil providing us with significant runway for growth. The first Fleming's franchise opened in São Paulo at the end of the first quarter. The addition of Fleming's gives us a third brand in Brazil.

The combination of a world-class leadership team and an underpenetrated casual dining market that Euromonitor still projects will be among the fastest growing in global food service give us the confidence that we can continue to invest in this market and generate high returns. In summary, our top priority is restoring sales growth in the U.S.

We are making progress on the necessary investments to enhance food quality, service and ambiance in our restaurants. We are confident that these are the right areas of focus, and we anticipate sales to grow as these investments take hold over the back half of the year. Our second area of focus is investing in our growing international business.

Brazil continues to perform very well, and we have growing opportunities in China and Latin America. And finally, our capital structure provides major opportunities to maximize total shareholder return, and the success of our first large sale-leaseback transaction is a great start.

We made progress on all three of these areas of focus in the first quarter. And we are well positioned to achieve our sales and earnings guidance for the year. Before I turn the call over to Dave, I am pleased to announce a new addition to our leadership team.

Chris Brad (13:39) is joining Bloomin' Brands as Executive Vice President and Chief Brand Officer. Chris (13:45) is a proven brand builder with a deep background in successful marketing campaigns and product launches in the food service and retail sectors. We're excited to add Chris' (13:56) strategic focus on our team.

And with that, I'll turn the call over to Dave Deno to provide more detail on Q1 and 2016 guidance.

Dave?.

Well, thank you, Liz, and good morning, everyone. I'll kick off with a discussion around sales and profit performance for the quarter. Please also note that we now incorporate a breakdown of the comp sales contribution between traffic and average guest check in tables 10 and 11 of our earnings release.

As a reminder, when I speak to results, I'll be referring to adjusted numbers that exclude certain costs and benefits. Please see the earnings release for reconciliations between non-GAAP metrics and our most directly comparable U.S. GAAP measures. We also provide a discussion of the nature of each adjustment.

With that in mind, our first quarter financial results versus the prior year are as follows. Adjusted diluted earnings per share was $0.47 versus $0.54 in 2015. GAAP diluted earnings per share for the quarter was $0.29 versus $0.47 last year. Total Bloomin' Brands revenues decreased 3.2% to $1.2 billion.

Excluding the impact of foreign exchange translation, total revenues would have been flat for the quarter. Adjusted restaurant level operating margins was 17.7% this year versus 18.3% a year ago.

The year-over-year decline was driven primarily by higher wage inflation and unfavorable product mix with the introduction of Carrabba's new menu, partially offset by productivity savings and menu pricing. GAAP restaurant level operating margin was 17.8% this year versus 18.4% a year ago.

The difference between adjusted restaurant margin and GAAP restaurant margin was driven by certain adjustments related to the Bonefish restructuring in 2016 and an international restaurant closing initiative in 2015.

Turning to G&A, after removing all adjustments from Q1 2016 and Q1 2015, general and administrative costs were $72.4 million and $71.6 million respectively. Outside of key investment areas such as international and digital, we remain committed to zero overhead growth in G&A and we look for ways to continue to operate more efficiently.

Total foreign currency-related unfavorability on adjusted results was $4 million in Q1. When we entered the year, we expected a $10 million drag on profit from foreign exchange. Based on the current forward curve, we expect foreign exchange represent a $6 million headwind for the year.

While we are hopeful recent appreciation of the Brazilian real will continue, we are cautious to the volatile macro and political environment. In terms of productivity, we are in excellent shape to deliver on our goal of at least $50 million of productivity savings in 2016.

On a cost of sales line, we are making major progress removing waste in the restaurants through the actual versus theoretical food cost initiative. We expect cost of sales to represent approximately 50% of overall productivity savings in 2016. In addition, we also identified savings outside the restaurant to help achieve productivity goals.

This includes opportunities to optimize and unbundle costs from our supply chain network. We do expect to see margin improvement in 2016 and continue to work on closing the gap in margins to our peers. Turning to reporting segments, international adjusted restaurant margin was 19.5% in Q1.

This was down from last year as we're experiencing double-digit inflation in Brazil and are not pricing at levels to fully offset these costs. Despite these added pressures, these margins are significantly higher than margins in the U.S.

As we grow key equity markets internationally, our consolidated Bloomin' Brands margins will benefit from the success of overseas investments.

On the development front, we opened eight system-wide locations in the first quarter consisting of two Bonefish Grills, one company-owned location and one franchise location, five company-owned international restaurants including two Outbacks in Brazil and one international franchise location.

I will now provide an update to our strategy to monetize real estate that is held in the entity we call PropCo. On March 31, the company entered into a sale-leaseback transaction to sell 41 properties for $141 million. This represents an important step in maximizing value for shareholders.

Given the attractive real estate environment and the high level demand for these properties, we intend to pursue additional sale-leaseback deals through a combination of individual as well as larger institutional transactions.

The key will be to balance the potential value opportunity presented in individual transactions with the benefit of speed provided by larger deals. As it relates to 2016 full-year results, we expect the overall financial benefit of the sale-leaseback transaction to be limited in 2016 given the timing of the transactions.

Going forward, we currently have 215 owned properties remaining in the portfolio with approximately 40 of these properties held up for potential relocation opportunities. Given the current pipeline, we expect to substantially complete the sale of the available portfolio by early 2017.

We believe the expected transaction will unlock significant value for shareholders once completed. Turning to our capital structure, the company repurchased $75 million of stock in the first quarter, leaving $175 million remaining on the existing $250 million authorization.

Given current valuation levels, we will continue to be opportunistic with excess cash as well as future sale-leaseback proceeds to repurchase shares. Also of note, in the April board of directors meeting, we declared a cash dividend of $0.07 a share payable on May 19.

As noted in the release this morning, we are reaffirming our full-year guidance including the expectation of at least 10% adjusted EPS growth and positive U.S. comp sales.

As it relates to the cadence of sales and earnings during the balance of the year, there are some important aspects of note regarding the timing and sequencing of sales and earnings. Before I get into the details, I want to remind everyone this is a first half/second half story. First, we expect to deliver positive comparable U.S.

restaurant sales for the year. However, there'll be some differences on how these comps will flow throughout the year. U.S. comp sales were 500 basis points higher in the first half of 2015 than they were in the second half. This was primarily driven by the strength of Outback as they reinforced their steak authority messaging.

Although this messaging continues to resonate with consumers, we expect that the first half comp sales to be lower than the second half comp sales as we lap this elevated level of performance. As Liz mentioned, we're also launching Dine Rewards loyalty program in July.

When it reaches maturity, we expect this program to drive a 1% to 2% sales lift consistent of what we've seen in the six test markets. Second, in support of efforts to drive U.S. comp sales, we committed to investing $15 million to further enhance the 360-degree customer experience.

Majority of these dollars go towards upgrading food offerings through product enhancements and increased portions, as well as service initiatives. Importantly, this can be done without raising prices to cover this investment.

As we are investing ahead of growth, many of these initiatives have not had their corresponding sales benefit due to the timing of the investments and program initiatives across the portfolio. We expect a gradual build through the year with most of the upside coming in the second half.

Third, we are actively accelerating Outback remodel program to modernize assets and improve the curb appeal. We received positive feedback from consumers and have seen a 5% sales lift in test locations. We expect to complete at least 150 this year with approximately 80% weighted towards the second half.

Fourth, productivity remains a key opportunity for us. We are on track to deliver the $50 million target again this year. We continue to gain efficiencies from the rollout of the actual versus theoretical and labor scheduling tools. We've also identified savings outside the restaurant to help achieve our productivity goal for 2016.

One of the primary areas in 2016 is optimizing the supply chain logistics and distribution activities through unbundling initiatives. We've made upfront investments in the software and tools to track these opportunities and expect to see increased savings as the year progresses.

Fifth, as part of the strategy to drive total shareholder value, we are capitalizing on an improved credit profile to return cash to shareholders through a combination of dividend and share repurchases. The financial flexibility complements our organic growth to provide a consistent earnings model.

The combination of strong key free cash flow with sale-leaseback proceeds will increase share repurchases. The overall financial benefit from our sale-leaseback transactions will be small in 2016; will have a margin impact on earnings in 2017. Finally, this guidance includes an expectation of continued FX headwinds.

Most of this impact will occur in the first half of 2016. As a result of these initiatives, we expect comps and earnings to be stronger in the second half of the year versus the first half of the year. This change reflects the investments we have made behind balancing the short, medium and long term priorities.

In summary, we look forward to capitalizing on the opportunities in front of us in 2016. We are confident that we're making the right and necessary investments both domestically and internationally to support long-term growth.

We remain disciplined stewards of capital and our improving capital structure provides increased flexibility to return cash to shareholders. And with that, we will now open up the call for questions..

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question today is coming from Michael Gallo from C.L. King. Please proceed with your question..

Hi. Good morning..

Good morning, Michael..

Just one question and one follow-up. I was wondering, on the $15 million of investment that you plan to make, how much of that you made in Q1 and how the cadence of that will be through the year, whether you expect it to be relatively even or whether that's going to be front-end loaded.

And then just a follow-up for Dave as to whether the proceeds per restaurant that you saw in the sale-leaseback is a good proxy for what we should expect for the overall portfolio. Thanks..

Sure. I'll take the first one. The $15 million is mainly related to what we had talked about, which is investment in the products and investment in innovation, as well as some service initiatives. So, it is front-half loaded. But as it relates to increases in product quality and additional size, that'll obviously flow through the year as well..

And then on the sale-leaseback, Michael, one of the things that the buyers ask is that we not get into cap rates and all that kind of stuff. So, we're going to stay silent on that in this call. But we were very pleased with the deal, and we'll see how the rest of the transactions go.

And hopefully, we'll be well within that range and maybe even a little bit better. So, we're very pleased with that large-scale transaction and it's creating a lot of shareholder value for us..

Thank you. Our next question is coming from Joseph Buckley from Bank of America. Please proceed with your question..

Hi. Thank you. Two questions as well. First, on the Outback brand, talk about how you think you're positioned versus the competition at this point. Darden has talked about taking LongHorn up a bit. Texas Roadhouse has always been a low-end player.

Are you kind of straddling both a value and a premium positioning for the brand? How do you see it competitively positioned and going forward?.

Sure, Joe. So, we definitely – I think it's very clear that Texas Roadhouse has staked out that bottom territory. What we see ourselves is the intersection between quality and affordability, but also having that kind of all is welcome Aussie good time. It's a positioning that is resonating. It's not one that leaves you "stuck in the middle".

I think to complement that you have to have the investments in food, you have to have the investments in service, and you have to have quality and innovation both at the higher end as well as news at the lower end. So, I'll use Q1 as an example. We had innovation in the hand-carved roasted sirloin, which was a new cut for us at $10.99.

But then we had the brand authority to follow that up with the bone-in ribeye, which we went on TV with, which had no price point, which did well on the restaurant at $26. So, I think it's about executing on that entire experience of best-in-class steak with a fun environment that has resonated for us and will continue to resonate for us.

And those are the investments we're going to be making to make sure we deliver them every day..

And then Joe, the other thing we realized that this design is so important and that's why we're moving ahead with our exterior remodels like we are because consumers want a wonderful asset experience and we're very pleased with what the tests we've seen so far in our Outback exterior remodels. We'll do at least 150 this year.

And so the design element as well will really come into play here..

Okay. And then going in a different direction, a question on the sale-leaseback deal and eventually subsequent deals, walk through how you see this enhancing shareholder value? How much flexibility do you have on the funds? I see a chunk of it in this release being used to pay down debt.

Talk about how you see this enhancing shareholder value over the next year or so..

Sure. First thing that happened, Joe, as you'll recall, is we got a really fantastic bridge loan transaction that offered us lower interest rates versus what was on the – interest rate on the mortgage financing. That's the first thing.

Second thing is we do have to pay that loan back over a three years' timeframe and we made progress on that this quarter. And then the excess cash flow from the sale-leaseback will go to share repurchases. And we've all seen the value of our company and what the opportunity that these share repurchases provide.

So, between our operating cash flow, between the sale-leaseback funds that we have, Joe, we can easily pay down the bridge loan, which was really a fantastic rate. And then we can use the balance for share repurchases. And that case will continue over time as we complete these transactions over the next year..

Okay. Thank you..

Thank you. Our next question today is coming from Karen Holthouse from Goldman Sachs. Please proceed with your question..

Hi. Actually a few questions on Carrabba's, about I guess at this point, close to three months into relaunching the menu and already talking about tweaking some things. I'm curious what the timeline of those tweaks might be.

And then also, if we are to look at the first quarter, understanding how much of the check pressure might have just been the upfront promotional activity versus the more sort of ongoing run rate and then any sort of reader data you have on consumers who tried the new menu, the intent – willingness to come back, how that improved, that sort of thing.

Thanks..

Sure, Karen. So, the first one, I want to just really reiterate, minor tweaks, right? I'm going to use that word again, minor. So, I think those will probably roll-in probably in the next quarter, but it's not going to be anything substantial. I really want to reiterate that. And in terms of how the menu is performing, you saw the traffic was up 1.5%.

We want to get that frequency, that everyday frequency. And that everyday occasion and everyday dining is at a lower price point than the weekend and special occasion. So when you looked at the PPA change in the first quarter, you're exactly right.

Some of it was driven by the planned launched cost and the introductory activities, but another piece of it was driven by the planned reduction in some of our categories of the starting price point. So we really introduced anchor price points of around $13.99 from $16.99 in important categories such as seafood, steaks and chops.

That was a real opportunity for us and it was something we needed to do to encourage that everyday dining. With respect to encouraging that everyday dining, the preliminary indications on the menu look really good; the customer satisfaction and the small place, everything we'd hope to do.

But I just want to remind you that the purchase frequency of Carrabba's is three to four times a year, right. So we are going to be patient in letting this menu take hold and patient in letting it do that what it needs to do, and we'll continue to report back to you on the year.

As you know, the Italian category also continues to be aggressive, and so this is just a step for us and what our opportunity is which is every day of the week dining and we feel good about it..

Great. Thank you..

Thank you. Our next question today is coming from Jeff Farmer from Wells Fargo. Please proceed with your question..

Thanks. So with the restaurant level margins down in Q1 and it sounds like investments in new products, portion size, staffing, all those other things are accelerating in Q2, should we expect greater restaurant level margin pressure in Q2? And I know you're going to see likely better same-store sales in the back half of 2016.

But could we potentially see margins be pressured in the back half of 2016 as well?.

Yes. First of all, Jeff, as we said in our guidance, we're holding to the margin increase year-on-year. And really, from a margin standpoint, it's a first-half, second-half story like we talked about in the script. So let me just talk about some of the things that happened in the first quarter.

So in the first quarter, Liz just talked about the investments in Carrabba's and those investments we spent on. And our food cost was flat year-on-year and given some of the work we're doing on productivity and also a benign commodity cost environment, we would've seen typically food cost come down year-on-year.

But we made some investments in the Carrabba's menu, much of it one-time, like Liz talked about, in the first quarter. And we are doing some minor menu tweaks going forward. So that happened in the first quarter. We have started some of our investments in Q1. And they'll continue to cycle through the balance of the year.

But we expect the timing of our productivity improvements, especially the savings outside of restaurant, to improve. Obviously, the comp sales in the second half of the year will help us out. And one thing we have to do is just make sure we stay on top of labor costs.

They're running about 3.5% of sales – or, excuse me, 3.5% increase during the quarter. So we've got to make sure that we stay on top of that as well. So first-half, second-half story on sales and margins, we had some investments unique in the quarter, especially around Carrabba's.

We'll see improved productivity, we'll see improved sales in the second half, and we'll see continued work on our overall productivity and opportunities to help raise margins..

All right. Thank you for that. And just a quick follow up. A lot of moving pieces on the same-store sales front.

So I'm just curious, and you alluded to some of this, but did any of the concepts outperform or underperform your expectations based on not only what's going on with the casual dining segment trends that are out there right now, but also sort of the promotional product efforts that you've already put in place? Any big surprises across any of the concept portfolio on the same-store sales front?.

Yes. So I would say that we're pleased with the progress certainly of the initiatives as they go in. But we said, Jeff, these are going to be long-term brand-enhancing initiatives, right. So product upgrades, increasing portions, those are all long-term health things are going to continue to pay dividends.

As it relates to the quarter, it was pretty much in line with where we expected it to be. And not to reiterate, but we have talked about the first half, second half, we feel very good about the levers that are in play as we move into and throughout the year continuing to pay dividends on that front.

So I would say that the portfolio performed pretty much in line with our expectations in Q1..

Thank you..

And I would just like to – Liz mentioned on the script, but just the continued progress with Bonefish brand....

Yes..

...has been really, really good. And Liz talked about some of the progress we're making in things..

Yes. That's a good point. An early indication that you're doing the right things by the brand and strengthening brand health is customer satisfaction. And we have the highest recorded customer satisfaction levels on our brands on both Outback, as well as Bonefish since we started keeping track in 2010.

That's a really good sign of long-term health on what's to come, we believe..

All right. Thank you, guys..

Thank you. Our next question today is coming from John Glass from Morgan Stanley. Please proceed with your question..

Thanks very much. Just going back to sort of the productivity and the investments, where historically productivity, part of it was reinvested in the business just keeping prices more reasonable or whatever it was, offsetting labor inflation.

How do you see that now? For example, does all that productivity need to go toward that plus these investments in the business, so we shouldn't think of that as being the margin driver, that's sort of keeping it neutral, and you get sales lift? Or how does productivity I guess tie back to the investments you're making and how do those net out?.

Yeah. Sure. First of all, when we look at it, we look at the productivity piece and the opportunity that exist as separate from the investments that we're making, I especially want to call out the improvements we're making in our cost of our distribution system.

So, John, we look at, we sit back, and we tell, okay, what opportunities do we have in managing our food waste, what manage – opportunities we have in our supply chain, et cetera, and that continues as it has been to be a part of our profit equation. So, we will use productivity to reinvest back in the business and expand margins.

And then we sit back and we look at, okay, what aspects of the business we want to invest behind to improve the customer 360 degree experience? That's a big part of how we look at things as well. So, John, no real changes there. We will still use productivity to help reinvest back behind our business and to improve margins.

But I want to iterate – reiterate that it's two separate different things that we look at as we go forward..

And on the Dine Rewards program, you talked about at full strength that could add 1 point to 2 points to comps, how long did it take in those test markets to reach that full strength of 1% to 2% lift..

It's took a while. It's been in test for 2013. So, it was in six test markets. So you have – go back to the 3 and 4 occasion purchase frequency. So, we looked at it over a year. And so – but these aren't insignificant markets. We're talking about Boston. We're talking about Chicago. We're talking about Phoenix, Georgia.

We – so, we have very good reads on it. One of the things that we've said is that we're going to be patient with our investments.

We invested ahead of growth in technology and we've invested ahead of growth in infrastructure and we feel very good about the launch of this because we have literally gone through exactly what it gets us any unintended consequences. And so, that's the 1% to 2% when it reaches maturity that we expect..

So we should think about this though in terms of quarters, not immediate benefits or really a 2017 driver to comp?.

Yeah. I think loyalty is by definition not a promotion that happens in a quarter. It's a really strong brand strengthening thing that draws a moat around your brands and drives long term performance..

Okay. And then just lastly on the leverage, Dave, you talked about using some of the proceeds to pay off the bridge loan from the sales leasebacks.

What is the current thinking on the target leverage for the business?.

Well, our goal remains the same, and that is to get a lease-adjusted debt to EBITDAR of 3.0. And we believe we can get that over the next couple, three years, and just as the other business are moving and growing.

And having a really good and improving balance sheet has helped us make some of the moves that we've made, and it's been a big part of our success..

Okay. Thank you..

Thank you. Our next question today is coming from John Ivankoe from JPMorgan. Please proceed with your question..

Great. Yes. Thank you. Well, first, I just wanted to ask a public question about second quarter earnings. Dave, you did give us at least some directional guide for the first quarter.

But with your comments that you made about sales, are we looking at another down quarter in the second quarter or whatever comments you can make from an earnings perspective?.

John, first quarter was fairly unique. And so we wanted to call that out, so we're just going to stay silent, stay consistent with our policy of not providing any quarterly guidance. So if there's anything that's unusual happens in the quarter, we'll call something out, but we have a policy of providing quarterly – not providing quarterly guidance.

One thing, I will tell you....

Yeah..

– I want to mention just again is the first half, second half nature of our comps and earnings. But nothing I want to call out on Q2..

This quarter is unique..

Yeah..

Okay. And secondly, obviously, there is a lot of conversation about commodity cost and that you guys see kind of the cattle curve where it's heading.

I mean, when you kind of balance out the – your commodities, supply chain, reinvestments and COGS, what's kind of the outlook for COGS in 2016? I mean, is that still a line that you think you can get printed leverage in for the year or is that the line that we should expect the most amount of reinvestment in?.

Yeah. No. John, our commodity outlook is very good. It's completely unchanged. I have to say, while some were maybe got ahead of their skis a little bit about some of the beef cost opportunities in the year, I think, we pretty much nailed that one and the team nailed it once again.

And so, with the forecast we gave last time with flattish to up modestly commodities in the U.S. really is coming to hold and really helped us plan our business appropriately. And we've got the proper coverage for this time of year to manage our business. Secondly, I do want to say international is a different story with Brazil.

We do see inflation there, obviously, but – and we don't price to inflation, but we still got really great comp as you saw. But internationally, the commodity outlook will be a little bit higher than flat in the U.S., flat to up modestly in the U.S.

But the team again did a really good job surrounding the beef situation, not getting out ahead of themselves..

And finally, if I may. It is kind of something striking in your press release, and I think this happens often. We're looking at domestic versus international store margins versus operating margin, international store margins are 200 basis points higher, but operating margins are 200 basis points lower.

Can you remind us what the reason for that is and whether we can – you're seeing more profitability coming out of the international business in a relatively near term from an operating margin perspective?.

Yeah, sure. What it is, John, is the investments that we talk about especially in China. As we continue to get our business setup there for the longer term. So, the China investment for us is a big part of that. And also, Liz talked about the Abbraccio business, which is – been – we've been very pleased with that. We've got the infrastructure.

We've got the supply chain. We've got people. I think, the – one of the biggest differences for us, John, is we're going into these things, be it China, or be it Abbraccio, and we put boots on the ground, we put capability upfront, and that leads us to some more successes. So, that's where the investment is..

And do you still philosophically want to have company operations in Asia. Obviously, South Korea is comping negative and the world is kind of shifting to de-risking China, not adding risk in China.

I mean, what's the philosophy of Bloomin' having company operations both in South America and Asia?.

Yeah, you have to really decouple Asia, John, between China and South Korea. I mean, South Korea is a mature market. We have – it's a very, very challenged market. And as Liz mentioned, we've always been looking at alternatives throughout our business. In China, it's a huge market. It's growing.

It's – we want to make sure that we own company operations in large markets, and to help set the bar there. But obviously, in a place as big as China, John, you can always look at different ways of going to market. But right now, we've chosen to go with equity. But we really got to decouple China, South Korea, from the rest of Asia..

Thank you..

And also other thing that I would add is that we've talked a lot, John, about having a hybrid strategy internationally. And we are kind of open to – there is definitely not a one size fits all strategy as you enter different markets.

So, we have kind of four core large markets, where we think that there's a real benefit towards owning and operating or at least having majority position. And then we want to use franchise partners to grow in other markets. I'd also say that not all brands are equal.

You saw us in Brazil, Abbraccio is – the stores are opening at the same level as the new Outbacks out there. So that just is – we're very hopeful that our thesis that that's an Italian Outback is playing out. On the other hand, we brought Fleming's down there in a franchise situation.

So, I think, the thing that we are always going to be is very nimble and agile, and making sure we're making the right decision that balances operating risk with really opportunity for the company..

Thanks..

Thank you. Our next question today is coming from Brett Levy from Deutsche Bank. Please proceed with your question..

Good morning. If you could do us a favor and provide us a little bit more thoughts on the labor situations going on there right now.

Do you think your scheduling is going to be enough to offset the wage rate inflation? What are you seeing in terms of turnover and retention? And how are you thinking about possible impacts on the overtime ruling, and how it might impact your overall business? Thanks..

Sure. A few things; productivity continues in our restaurants. The labor scheduling tool has really helped us identify where some of the opportunities are in our scheduling, but also where we need to put some more labor hours in. So that's been extremely helpful. Labor market – like I mentioned, labor costs are up about 3.5%.

We think that labor might modestly be up this year as a percent of sales, but we'll see. And also, as we work through the overtime hour situation and managing that, it is too early; the regulations still aren't complete yet, so I can't really say for sure what that impact will be to our company.

But as we look at a more vibrant labor market, as we look at about a 3.5% increase in labor this year, I think that's one area that we will continue to monitor. And when you look at some of the indicators are, our turnover is up just a little bit in a couple of our concepts. And so, that's just an indication of a labor market that's getting stronger.

So, labor – to wrap it up, labor is a line item we need to watch. The market is getting a little bit more frothy, but we've got the tools in place to manage it and we'll continue to watch it – on regulations for the balance of the year, but it's too early to call out right now what the overtime rules will say..

Do you have any sense as to percentage of your store base that might be impacted by that?.

Too soon to tell, Brett. We'll provide updates as warranted during the year..

Thank you..

Thank you. Our next question today is coming from Matthew DiFrisco from Guggenheim. Please proceed with your question..

Thank you. I had a question with respect to the comp sales, and I guess, if I look at your aggregate Outback down 1.3%, and then I think you mentioned in your prepared remarks that Lunch was positive.

Could you put that into context? I remember a little over a year ago when – before you began the steak authority initiative or reestablishing your steak authority, you were somewhat frustrated or called out that you identified you're losing some momentum in Dinner – or share.

Looking at your Knapp peers and looking at Black Box, can you tell us how the Dinner daypart – should we read into that that the Dinner daypart is performing in line though negative with the industry, and obviously below the 1.3% that was reported by the Outback brand?.

Well, let me talk generally about it because we don't pull out the comps between Lunch and Dinner, but I will tell you that the investment back in the business, the investment back in service, the core, the – everything is aimed at elevating the experience. And our core experience is Dinner. I mean, we're growing in Lunch.

We're really happy about Lunch. We have really high customer satisfaction scores with Lunch, but our number one daypart is Dinner and it's weekend Dinner.

And so, those investments that we're making are aimed at elevating that and we – and I don't want to go into what we're doing for competitive purposes, but I'll go back to, we're at record customer satisfaction scores in our restaurant, and that impacts us most at dinner.

So, we feel very good that we're on the right track to continue to drive momentum in the Dinner business, which has, as you mentioned, if you look at Black Box, been challenged for the category, but we know that we're doing the right things by our business..

I guess – well, you did mention that the same-store sales for Lunch was positive. Could you give us – I guess, how close are you to your – you've called out somewhat of goals to get Lunch to be as a percentage of sales.

Can you say what Lunch sits at now and how we are getting closer to that goal?.

Yeah. Hey, Matt. We've always said we want our fair share of the $25 billion Lunch business. So, to lay out markers or goals and things about Lunch in percent of this or – we just know it's a big opportunity for us, and we're continuing – it's off to a great start. We've been with it now for a while. We feel great about it.

But to set aside any markers or goals or anything like that, I don't think would be productive..

Okay. And then just a follow-up question on the Carrabba's menu. You mentioned it did miss, though your average check was – went down more than you had anticipated. How much of that was discounting to drive the traffic versus the customer consciously just disproportionally choosing more of the lower priced items than you had planned.

So, how much was it you had to discount to keep the traffic alive versus the consumers' behavior trending him towards those lower price points?.

Yeah. So, we've built the launch plan, right? So, the launch plan anticipated those upfront spending and costs to drive trial. So, I wouldn't say – nothing deviated from the launch plan that we had. But interestingly, the mix as we rolled it was slightly different than what we saw in our test markets.

And I really want to state this again, we're talking about minor tweaks. Overall, the menu is behaving as we had hoped and anticipated. We're seeing traction with the lower anchor price points in those categories I talked about. And then we have some other – the small plates and other would be (49:31) more lightly.

So, not to kind of overextend it, the minor tweaks will be just that, minor..

No. I wasn't necessarily asking about the minor tweaks. I was thinking, looking in reverse what you were doing in the quarter, and what the consumer's behavior was.

Were they choosing more of the lower priced items, is what drove the miss on the average check rather than you purposely discounting?.

Well, as we indicated, the menu that we put in was going to drive PPA down. The PPA was down as we expected and it was down a little bit more than what we had seen for the six months to seven months in the test market. The discounting that we talked about was part of the promotional platform and that was as planned.

So, I would say that we saw a bit higher of a trade down in mix towards the lower anchor prices than the tests were showing, but nothing that changes the story or alarming about how it was received..

Thank you. Okay..

Thank you. Our next question today is coming from Jeffrey Bernstein from Barclays. Please proceed with your question..

Great. Thank you. Two questions. Just one, how did you think about the steak category? Maybe to follow-up to the earlier question.

But the Outback comp, while it is negative, and when you flesh out the tougher compares, it does seem like the two-year and maybe even the broader steak category is just further demonstrating outperformance relative to casual dining as a whole.

So, I'm just wondering, at the data you look at, is there anything you see that demonstrate otherwise or any concern with regards to easing in the steak category? I know people have been talking about easing beef costs and the supermarkets maybe having a negative impact.

I'm just wondering how you see the steak category as a whole trending now and your expectation over the next few quarters. And then I had one follow up..

Yes. So, as you have said, steak have been a pretty resilient category. And Outback, this year, when we deliver positive comps, will be our seventh year, consecutive year of positive comps.

And so, we think the steak category will continue to be one of the stronger spots in casual dining, particularly as it relates to the chain steak houses, okay? I think some of the more pressures being felt on more of the independents in the steak category. With respect to pricing and retail, you always see a little bit of that on the margins.

But I would just go back to that we have really found that what we do to ourselves and how we invest in the business is the number one driver of how we perform at Outback. And I think you have three very strong steak competitors nationally. And that's driven the category and that's driven innovation and that's driven traffic.

So, we don't see any change in the vitality of steak. We are excited about the investments that we're making in our business as we pivot kind of to a new era of levers that look good. And one of the best indications of whether you're on the right track is customer satisfaction. And we talked about what we're seeing.

So, I think more to come and it'll continue to be a good area in the category..

Got it. And then just to kind of simplify the Bonefish and Carrabba's hopeful return to strength, and it seems like both are highlighting a new menu, a new ad campaign. I think it's safe to say both of them beat comp expectations or at least Street expectation this quarter.

Just wondering as you size up progress on both of them, which would you say is showing earlier signs of traction versus which would you say is battling more of a structural change that will take some time? I mean, it seems like Carrabba's had a little bit of a check issue, but nothing major.

I'm just wondering as you look at the two over the next few quarters, which would you say is the easier versus the harder to overcome and return to strength?.

So I'll answer two separately because you're absolutely right. They are different situations.

What I'd say about Bonefish is, I feel really terrific about the back to basics, about what we have done and the patience we've showed over the last year in ripping out all the complexity and non-core innovation that we put in the destabilized service and took away from the core experience. So we have gotten rid of the complexity.

We are back to basics. It's not a new menu. It's actually return to the basic menu of grilled fish, fresh fish, simple fish, less menu items. I think we pulled out hundreds of recipes and put it back to the basics.

And so that journey back to what we do best which is served simple grilled fish, wonderful hand-crafted cocktails in an informal environment with world-class service, that's back.

And we have said all along that we're not going to use promotional levers to drive people back into the restaurants because that is going to work contrary to polished casual. And so, the television spot that you saw went on is kind of a rare television spot that you won't see these days. It's a little bit documentary style.

It just let's our anglers tell the story. There's no offer, there's no price point, there's just highlighting fresh fish and fish authorities.

So every indication that you'd want to see of brand health for Bonefish is exactly where we'd hoped it would be and we're going to continue to let the traffic come back in as it does best, which is word of mouth and appropriate support. So, I feel very good about that. Carrabba's is a different thing.

Carrabba's is in a really competitive category called Italian that's been declining for five years. And Carrabba's issue was that we had – we owned special occasion. Everyone acknowledged the authority that we had in terms of Italian dining. But we weren't getting that day of the week dining progress.

And our menu was needed to change to be a little bit lighter with deeper anchor price points to drive day of the week dining. That driving day of the week dining and bringing on a new consumer behavior and a new attitude takes more time. It just does.

If you've always known Carrabba's and used Carrabba's as a weekend, you're getting used to the idea that, hey, this is a weekday dining occasion, too, now with that menu. And that takes time and it takes time to build and you have to be more patient with it. So, I think, two very different situations.

For Bonefish it was going back to basics and we're clearly there. And for Carrabba's, it was about moving us into another occasion, and that takes a little more time with a three visit to four visit per year average cycle..

Great. Thank you..

Thank you. Our next question today is coming from Jason West from Credit Suisse. Please proceed with your question..

Yes. Thanks. Just couple topics. One, on the sale-leasebacks, Dave, did you provide a net proceeds number? I saw the $87 million debt pay down but I'm not sure if that was indicative of the full net proceeds.

And can you talk a bit about why you think it'll take into 2017 to get these executed? It feels like the demand is still pretty strong out there for these types of assets, Just didn't if there's a particular reason why it would take into the next year to get this done..

Sure. No, Jason, we're not going to provide a net number, but I can assure you it's far better than $87 million. But to get more details on that I think would be productive, but it was a very, very good transaction for us; proceeds, the whole thing. So, that was really great. On the timing, we're balancing institutional deal versus individual deals.

And we're going to maximize the proceeds to our company. We have a terrific leader and Suk Singh leading this effort and his team. And they're really, really knowledgeable of the market, and we hope to get it done, and that we will get it done in the timeframe I talked about.

And we're going to be balancing individual deals with institutional deals, which will end up with a better situation we think than if we'd just went really fast with institutional deals. So, I think the economics of the company will be stronger if we do it this way..

Okay. And just a follow up maybe for Liz on the industry again. Obviously, you guys talked a lot about second half recovery in your business. A lot of that's internally driven it sounds like.

But are you also expecting as the industry itself faces some easier comparisons that the overall category will provide a little less pressure as you move into the back half, or how are you thinking about the industry and sort of your spread to that as you move into the second half? Thanks..

Sure. So, as you know, we've talked a lot about it. The casual dining industry has been challenged and had declining traffic for over 10 years. And we've always said that this is an industry that quarterly is going to be choppy and is going to be very variable. And I think there's a couple of reasons why that has been kind of structurally for 10 years.

The first one is that capacity doesn't really come out of this industry in an efficient way. So that you don't have maybe your highest most innovative brands on your best pad sites, and that's going to inhibit growth in the category, and I think that that comes out and changes over time.

But I think that's what you're seeing in the 10 years that we've been over capacity, right. It's not as an efficient market. But what I will tell you is that the quarterly variability is about the most constant thing you could map out if you were to look at the category. So, first quarter challenge on traffic, we see that variability continue.

It was a very frothy competitive environment. But I'd go back to that I think what drives traffic and what drives any category and casual dining isn't any different. It's really about news. It's really about innovation. It's about the customer experience in the box.

And so, what we do to ourselves to elevate that experience, is the best predictor of our outcome in a category that I think is going to continue for some time to be just about taking share..

Thank you..

Thank you. Our next question today is coming from Andrew Strelzik from BMO Capital Markets. Please proceed with your question..

Hi. Good morning. Two questions. First, I know it's early, but any learnings from the launch of the Outback app, how it's being used, table turn times, that type of thing. Any color commentary would be helpful.

And second, I understand that the pricing objective at Outback is to remain relatively muted, but it's been somewhat more choppy here quarter-to-quarter. So, any commentary on the trajectory of pricing at Outback would be helpful too. Thank you..

Sure. So, the first thing I'd say is we're very pleased with the app. I'll give a little shout out for our team is that we have a 4.5 rating out of 5 ratings which is among the leaders in the food and drink category rating. I think we have about 200,000 downloads, et cetera.

The way that they're in seven weeks – and that's pretty darn good, the way they're using the app is pretty much as you expected. They're kind of viewing the menu, they're viewing offers. A large portion are using – the same amount are using them to get on the wait list in advance as they are now to pay at the check.

So, we're solving both of our consumer pain points which is I don't want to wait, and then, I don't want to wait to pay the check. So, I think we feel really good about how it's performing in the first seven weeks. And as I said, you get real live active feedback with reviews and they've been very positive.

As it relates to Outback's pricing, we've always said that we're going to be taking pricing of approximately 2% across the portfolio on average. And that's going to vary by quarter. As we invest in innovation, some of our interesting price points are going to be higher, and some of them are going to be lower.

But you shouldn't expect anything out of what you've seen for us for the past five-plus years as kind of annual pricing around the 2% level..

Great. Thanks a lot..

Thank you. Our next question today is coming from Sharon Zackfia from William Blair. Please proceed with your question..

I think most of my questions were answered. I guess I just had a question about what's going on competitively in Brazil. So, I know you haven't been taking price to offset the food inflation.

But I'm wondering if you think competitors are and whether that might be helping you if you're kind of under pricing relative to the market?.

Well, Sharon, I think we have such brand strength in Brazil that it's very hard for competitors in this challenging environment to gain traction on us. Brazil is just a really hard tough market, I was just down there.

And we are not sanguine and we're watching this thing every day, and every day something challenging pops up for the Brazilian consumer. But it's really hard for me to identify a competitor, a true competitor to Outback that we feel vulnerable.

We're just continuing to grow because our value proposition and our service and our restaurant is so strong down there. Number two brand as we talked about in Brazil, not just in the food and beverage category, but in terms of consumer regard. And I think that's how you succeed in very difficult times and that's been the formula..

Great. Thank you..

Thanks..

Thank you. We have reached the end of our question-and-answer session. Let's turn the floor back to over to Ms. Smith for any further or closing comments..

We thank all of you for joining us today and we look forward to updating you on our portfolio progress during our Q2 call. Thanks again..

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today..