Greetings, and welcome to the Bloomin' Brands Fiscal First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow management’s prepared remarks. It is now my pleasure to introduce your host, Mark Graff, Vice President of Investor Relations. Thank you, Mr. Graff.

You may begin..

Thank you, and good morning, everyone. With me on today’s call are Dave Deno, Our Chief Executive Officer; and Chris Meyer, Executive Vice President and Chief Financial Officer. By now you should have access to our fiscal first quarter 2019 earnings release. It can also be found on our website at bloominbrands.com in the Investors section.

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

Before we begin formal remarks, I’d like to remind everyone that part of our discussion today will include forward-looking statements, including a discussion of growth strategies and financial guidance.

These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially 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 sec.gov.

During today’s call, we’ll provide a recap of our financial performance for the fiscal first quarter 2019, an overview of company highlights and a discussion regarding progress on key strategic objectives. Once we’ve completed these remarks, we’ll open the call up for questions. And with that, I’d now like to turn the call over to Dave Deno..

Well, thank you, Mark, and welcome to everyone listening today. As noted in this morning’s earnings release, adjusted first quarter diluted earnings per share was $0.75 and combined U.S. comp sales were up 2.4%. This was a terrific start to the year, and represented the sixth consecutive quarter of positive U.S. comp sales. All U.S.

concepts finished with positive comps sales, including an impressive 3.5% at Outback. In addition, adjusted operating margins grew 70 basis points year-over-year on a comparable basis.

Our strong first quarter results reflect a continued focus on core execution in the restaurant and ongoing monetization of the strategic investments made over the past three years. We are well-positioned to achieve our 2019 financial objectives.

I want to thank the over 90,000 team members in the field who bring to life the hospitality service and experience that make our restaurants so successful. I'd also like to thank my colleagues in the restaurant support center to provide great service to our partners.

Your enthusiasm and dedication to always putting the customer first is making a difference each and every day. As discussed at Investor Day, our number one priority remained driving healthy, profitable sales growth across the portfolio. Over the past three years, we invested over $50 million back into customer experience.

At the same time, we pursued incremental levers to accelerate growth across the digital loyalty off-premise and international. Importantly, each of these key platforms are contributing to our sustained success and continued ability to take market share.

First, the investments to fortify the core experience are prioritized towards customer facing improvements. This included $30 million in food quality, portion enhancement and reduced complexity, and $20 million in service, training and labor. In addition, we invested over $400 million in remodels to contemporize our brand and improve curb appeal.

Customers are taking notice as we are seeing strengthening brand health measures. Second, the off-premise business continues to perform very well. Delivery is now available in over 550 locations across Outback and Carrabba's as of the end of Q1.

These locations are exceeding benchmarks against several key metrics, including delivery time; and we are pleased with the pace of the delivery ramp up. Importantly, this business is profitable. Now this business is reaching scale, we will begin augmenting existing local marketing efforts with additional tactics to drive awareness.

We remained very excited about the incremental opportunity represents as we capitalize on the growing consumer demand for enjoying restaurant meals at home. Third, the successful Dine Rewards loyalty program now has over 8.5 million members. The program is driving strong engagement across the portfolio.

We are leveraging rich data we have collected over the years to enhance the customer segmentation opportunities. Our investments in IT and CRM enable more customer centric communications such as Dine Rewards, member-only invitations, the theme dinners like Carrabba's Carnaval event.

This reallocation of marketing expense was more digital provides a higher ROI, while reducing overall advertising spends. Lastly, the international business continues to exceed our expectations, especially in Brazil. Comp sales were up 3.7% with significant margin expansion. We enjoy high brand regard in consumer engagement.

The market is still under-penetrated and we have the potential to build another 50 Outbacks for a total of 150 Outbacks in Brazil. New restaurants continue to generate among the highest returns on portfolio providing increased confidence in the plan. In addition, we have two emerging opportunities in Brazil.

The first is Abbraccio with growing sales and economics. We currently have 12 locations and believer of the potential for at least 50 locations. The second is a rapidly growing delivery business. We have a great local partner and currently have delivery in 12 locations with the opportunity to add many more.

A large incremental sales opportunity exists with delivery and customer feedback is extremely high. These investments in key platforms helped fortify the core business and expand our reach to new and existing customers. We will continue to leverage our scale, portfolio brands and data analytics to enhance engagement and drive increased profitability.

We are clearly going to become an even better and more efficient restaurant company. This starts by growing sales to the levers we just discussed and tightly managing costs, while monetizing our investments.

We are already seeing the benefit of the focus as adjusted operating margins expanded by 70 basis points on a comparable basis in the first quarter. Now turning to Outback. Outback comp sales were up 3.5% in the first quarter on top of an already strong 4.3% increase in Q1, 2018. This is Outback's ninth consecutive quarter of positive comp sales.

We are benefiting from the ongoing returns from the investments in customer experience. In addition, we are seeing success with enhancements to the service model to strengthen customer engagement.

Service represents a key priority in differentiator for the brand as Outback remains focused on creating memorable dining experiences for consumers every day. We remained committed to refreshing our assets. Outback is testing multiple interior remodel prototypes.

The new designs, modernized look, while expanding the off-premise room to handle a higher expected order volume. We are also relocating Outback restaurants as quickly as quality sites become available. This relocation program continues to deliver impressive results and recent re-locations are generating sales lift in excess of 30%.

Outback remains well-positioned to take further market share. Chris will provide more detail on the quarterly sales performance at Carrabba’s, Bonefish and Flemington in a moment. But let me briefly summarize what we are trying to accomplish across these brands. Number one, invest behind and simplify operations to enhance the core guest experience.

Two, offer unique and brand appropriate programs such as wine dinners at Carrabba’s to drive frequency. Three, continued to opportunistically remove unprofitable discount and four invest in our people to continue to lower turnover and increase engagement.

Importantly, every brand posted positive comp sales and experienced margin expansion in the first quarter. In summary, the first quarter was an excellent start to the year. We are excited about the prospects ahead, and look forward to updating you as the year progresses.

And with that, I'll turn the call over to Chris Meyer to provide more detail on Q1..

Thanks Dave, and good morning, everyone. I'll kick off the discussion around our sales and profit performance for the quarter. I'd like to remind everyone that when I speak to results, I'll be referring to adjusted numbers that excludes certain costs and benefits.

Please see the earnings release for reconciliations between non-GAAP metrics and the most directly comparable U.S. GAAP measures. We also provided a discussion of the nature of each adjustment. With that in mind, our first quarter financial results versus the prior year were as follows.

GAAP diluted earnings per share for the quarter was $0.69 versus $0.68 in 2018. Adjusted diluted earnings per share was $0.75 versus $0.71 last year. When evaluating our results, it is important to keep in mind our $0.71 from Q1 2018 included a $0.03 benefit for the amortization of deferred gains from our sale leaseback transactions.

Upon adoption of the new lease accounting standards, we no longer recognize these deferred gains in our financial statements. If you exclude this $0.03 impact of the new lease accounting standards from Q1 2018 results, our adjusted EPS would have been $0.68. On that basis, our Q1 2019 adjusted EPS grew 10% from $0.68 last year to $0.75 in 2019.

This growth is in line with our full year guidance. The primary difference between our first quarter GAAP and adjusted EPS is related to certain restructuring, relocation and restaurant closing costs excluded from the 2019 and 2018 first quarter results. Total revenues increased 1% to $1.1 billion in the first quarter and U.S.

comp sales were up 2.4% in line with our full year guidance of 2% to 2.5%. This marks the sixth consecutive quarter of positive comp sales for the combined U.S. portfolio. U.S. traffic was down 90 basis points.

This was a little lower than expected due to an estimated 30 basis points of unfavorable weather, a larger reduction in discounts than originally planned at Outback and pockets of category softness in Florida and Texas where we index high. We do not expect this regional softness to continue in the back half of the year.

In addition, keep in mind that Outback's Q1, 2018 traffic of 2.2% was the highest we posted all last year. Given this and the many levers Dave discussed, we remained confident in our ability to grow traffic in 2019 on a combined U.S. portfolio basis. As it relates to our concept Outback comps were up 3.5%.

This is Outback's ninth consecutive quarter of positive comp sales. We continue to benefit from the ongoing monetization of our investments in the food quality and portion enhancements.

In addition, improved ROIs in our marketing programs and the growth of our loyalty platform allowed us to opportunistically reduce traditional discounting in Q1 by 17% relative to last year. This benefit showed up an increased check average. Finally, our delivery rollout continued to go smoothly and we are seeing growth against several key metrics.

Carrabba’s comp sales were up 30 basis points. We are seeing growth in our off-premise business through catering; delivery and our family bundle take home meals. We also continued to focus on operational simplification as well as proprietary programs such as Amore Monday to drive dinner traffic.

Bonefish Grill comps were up 1.9%, driven by the success of our ocean mixed grill and three course lobster dinner promotions. These differentiated offerings helped both traffic as well as check average in Q1. In the fourth quarter of last year, we made a decision at Bonefish to reduce the number of gift cards sold through discount channels.

Some of the channels charge higher fees, and it made financial sense to reduce our reliance on these types of discounts. This reduction negatively impacted Q1 traffic by an estimated 150 basis points, since most holiday gift cards are redeemed in the first quarter. This change did have a positive impact on profitability and margins.

That being said, we are excited about the future growth potential of Bonefish Grill as we continue to revitalize this strong lifestyle brand. Comp sales at Fleming’s were up 60 basis points. Of all of our brands Fleming’s was the most impacted by unfavorable weather, which we estimated lowered their Q1 comp sales by 110 basis points.

In addition, as we have discussed previously, in Q2 of 2018, we made the conscious decision at Fleming's to move away from the legacy value offerings such as our 567 bar menu. While these actions have a short-term negative impact on traffic, they have had a positive impact on check average and profitability. Comp sales in Brazil were up 3.7%.

We were pleased with this result, and as a reminder, Brazil has had positive comp sales since the acquisition aside from two quarters where we faced unprecedented economic and political turmoil. This business had strong consumer appeal and is well positioned for growth as a country emerges from the political and economic challenges faced in 2018.

Adjusted operating income margin was 7.8% in Q1. This was up an impressive 70 basis points after adjusting 2018 for the impact of the lease accounting change. There are a few key drivers of this improvement in operating margin. First, our 2.4% combined U.S. sales comp was driven by improved check average and fewer discounts.

Second, our margins benefited significantly from ongoing productivity efforts, particularly in the area of food waste. Third, we continue to find efficiencies in our marketing spend as we pivot away from mass marketing to higher ROI digital spend.

Finally, in our international segment, adjusted operating margins went from 8.7% in Q1 of 2018 to 12.3% in Q1 of 2019, an improvement of 360 basis points year-over-year. Our Brazil business continues to perform at a high level. And as we grow this market, it will have increased visibility in our consolidated Bloomin' Brands' margins.

Overall, this is a very strong start to the year in demonstrating our ability to grow margins. As we indicated at Investor Day, the quarterly contribution of each of our levers may vary, but they will all play a key role in closing the margin gap to our peers. Moving to tax, our Q1 adjusted tax rate was approximately 8%.

This was in line with our expectations. On the development front, we opened six system-wide locations in the first quarter, including five international locations and one domestic Outback location. Finally, we are reconfirming all aspects of our guidance, including our expectations for comp sales, margin growth and EPS for the year.

In summary, Q1was a solid start to the year for Bloomin' Brands. We had healthy sales growth and strong management of our restaurant expenses that led to significant margin improvement in the quarter. Our strong start has positioned us well to deliver on our 2019 objectives. And with that, we will now open up the call for questions..

[Operator Instructions] Our first question comes from the line of Jeffrey Bernstein with Barclays. Please proceed with your question..

one, just on the comp outlook. It looks like from a growth perspective of 2019, you are still expecting positive traffic across the portfolio yet they seem to be down in terms of traffic in the first quarter. So on the flip side, the average check was, as you mentioned, up significantly at the Outback.

I was wondering if you can talk about the balance of why you expect maybe the traffic to improve and or maybe the average check to ease as we think about Outback and the broader portfolio through the year. And then I had one follow-up..

Sure. Thanks Jeff. Good morning. I'm happy to see the sales we had in the first quarter. The comps were above the industry average as well traffic. And as Chris mentioned, all of the traffic was a little bit larger than we expected, but we're quite pleased with what quarter turned in and also what the rest of year looks like.

Let me just talk about the quarter, and then we can talk about the -- I can talk about the balance of the year, and Chris can turn to guest check average. First of all, Outback comps year-over-year at 2.2% positive traffic benefits in Q1. So that was something to consider. We had about 30 basis points of unfavorable weather in Q1 results.

And we did we see pockets of category softness in Florida and Texas where we do have a lot of restaurants. We expect this mainly due to the bounce back from the hurricane last year. So we don't expect the traffic trends in Florida and Texas to be a challenge the balance of the year. In fact, we expect the results to improve.

And then finally, as Chris mentioned in his remarks, discounted Outback were down 17% Q1 as we moved away from some things that we've always been looking at. And Bonefish did some stuff with their gift cards through a discount channel, let me thought would be better off somewhere else and we didn't want to go through that discount channel.

Now as it relates to the balance of the year, first of all, our ongoing benefits from our investments and customer experience are really paying off and brand health measures and other things, and that's in food and service. Second, we got the off premise business that we've worked so hard to build. And we're so happy to have at our channel.

Third, we have talked about our loyalty program that has 8.5 million members. We're learning more and more about marketing each and every day on the digital side and what we can do there an increasing return on investment and also managing our spending. And lastly, we've got our relocation and remodel programs.

So Jeff, as we look at the balance of the year, these are the levers that we're going to continue to use as we go forward. So I'll turn it over to Chris now to talk about PPA..

Yes. And as it relates to check average, Jeff, I think that we would anticipate check average to ease as the year progresses. As we stated at Investor Day, we expect to be very prudent in our thoughts around menu pricing moving forward. So we would expect pricing to ratchet down as the year progresses.

And concurrent with that as Dave mentioned, we would expect traffic to start to ratchet up. So it's all within the context of our 2% to 2.5% sales guidance that we gave out for the year..

And then my one of the clarification questions, I know you reiterated all key components of guidance for '19. Just specific to the commodity outlook, I think it was 2% basket. Wondering if you could talk a little bit about these in terms of whatever your long-term share in terms of percent locked, and whether that’s up or down.

There has been a lot more talk lately about pressure potentially from Africans swine fever.

I’m just wondering how you guys are positioned and where you think the commodity basket will play out as we move through the year?.

Yes, Jeff, we're in a pretty good shape as it relates to beef for this year. Our overall commodity basket, I’m not going to give specific to be, but our overall commodity basket is actually a bit more locked at this point in time than it was last year at this point in time.

For us, as we look at commodity headwinds, I think the sea food has been the biggest drive of our inflation this year..

Our next question comes from the line of Jeff Farmer with Gordon Haskett. Please proceed with your question..

At the Analyst Day you pointed that 50 direct delivery units that have already seen off-premise exceed, I think it was 20% of sales mix.

Just curious what are the common characteristics of those units that have delivered that outsized off-premise sales and mix growth? And do you guys think there are opportunities to see a large part of the system deliver a similar level of off-premise sales mix?.

Yes, the main thing of our anything on delivery is, obviously, the trade area is important. But the talent, engagement and operations of that restaurant partner is so important. And we see restaurants that have incredible dine-in business also do a naturally incredible deliver business.

And I just want to say thanks to the restaurants partners out there that have really done a fantastic job on delivery for us as we built the system, and they’re just doing a great job. And we're going to see more and more of these -- number of restaurants achieving these sales levers, up levers.

I’m not going to get into each one and how quickly and things like. But it's just been so gratifying to see people get after this and look at our off-premise opportunity both from a carryout and a delivery standpoint. So Jeff, if the common element is just the talent and leadership of our managing partners out there..

And then just as a follow-up, I would like to drill down on that margin opportunities little bit more. So going back to least 2012, the IPO, Bloomin' guiding the $50 million of annual cost savings.

I know there is a lot of moving pieces there, but as you look forward '19, '20, '21 what is still some of the lower hanging opportunities you see in terms of pursuing cost savings moving forward..

Yes, we still -- in Q1, we did really well with our food waste opportunity. We also saw benefits in our distribution network, energy, R&M, BWL. So it's pretty wide ranging. We still have runway left over the next few years as we continue to execute against these opportunities in areas such as waste and even in labor.

Opportunities remain outside the restaurant with optimizing our supply chain logistics, distribution activities. We're working on a pipeline of ideas that can serve us well in the future as well such as incorporating technology into our restaurants, leveraging high-performance kitchens, KDS systems.

Technology will be a big part of our leverage of productivity in the years to come. This year though there are still a lot of low hanging fruit as it relates to opportunities in cost to goods sold and in restaurant operating expenses..

And Jeff, what I like about it is, if you look at the capability of our organization to achieve this, I've already talked about the restaurant managing partners doing a great job on this. But if you look at a very talented supply chain organization that manages food cost and distribution costs so well.

But the group -- the work that technology group is doing, we're learning more and more about digital everyday and ROI to come from that. So I like the capability we have also within our company to achieve these results..

Our next question comes from the line of John Ivankoe with JP Morgan. Please proceed with your question..

First, thank you just for clarification. There are so many moving pieces in your same-store traffic from 2016 to 2018 at the Outback brand.

I just wanted to kind of verify given those two-year and three-year comparisons, which do very quite widely, especially in 2017 that you do view the first quarter of '19 is having the most difficult traffic comparison in that, because of that comparison, we should expect acceleration, plus all the other initiatives that you expect to drive sales in that regard..

Yes, John, I think if you look at it, correct me if I'm wrong, Chris. But the first quarter of 2019 had a bigger traffic in..

2018..

Sorry. First quarter of 2018, the quarter we just lapped has the biggest traffic loss..

Yes, that's true. And I asked a question even going back to 2017 that we started the year in 2017, traffic of down 21, and end of the year, in the fourth quarter of '17, the traffic above 43. So there is that very, very -- we saw this major acceleration in traffic in 2017. Some of that was actually explained by 2016.

In other words, this is more than just a one-year phenomenon. And I'm just asking that, we're thinking about those two-year and three-year trends now I suppose kind of acknowledging those in the future..

Yes. We absolutely look at our trends. But more importantly, John, we look at what we are doing in our restaurant, right.

If you look at the service that Greg Scarlett and team, under his leadership at Outback, what they're doing on food and service and what all the great things are doing there, and the different levers that we talked about, be it delivery, be it loyalty, be it the remodels et cetera.

Yes, of course, we look at the trends, but also we look very important what we're doing for ourselves with our brands in our restaurants as we continue to grow that business..

That's what I was hoping here. Here just a couple of more, if I may.

Are there any tactical changes that we might expect with Dine Rewards programming? And obviously, there is a pretty considerable benefit that the consumer gets and there might even be some arbitrage that exists between the brands of kind of earnings points at one and redeeming at another.

Are there any changes that you see that could potentially optimize either one kind of the customer response to the program or secondly the profitability from this program?.

With 8.5 million members are really pleased where we're at, all brands are participating, we really like what each brands are seeing, the return on investment is there and growing. Of course, we'll always look at how we can make the program better for our customers, for our company and everything else.

But we don't expect any major changes to it, but we'll always be looking at how we can make it better and better and better. We think it's one of the best programs at the restaurant business. So each brand is participating, return on investment is improving. And we really look forward to not really using that database we have. That's what people forget.

We have a database that we can use to help market to our key customers. So that's a big part of this..

And then the final one, I mean, and this is from the Analyst Day. And I think you guys discussed a dine-in average ticket of 54, but a delivery ticket of 42, I'm remembering that correctly with most of that gap being beverages, which is obviously a very, very high margin ticket.

I mean, is there anything that you can do that you could kind of shrink that gap, that loss of profit from beverage sales that the delivery transaction versus the dine-in transaction where we don't have to worry about the profitability of those transactions going forward, the incrementality over time proves to be a little bit less than what it is today..

I think, John, I think, first of all, I hit it, the incrementality piece is important for us. And we're seeing the incrementality in that business.

Secondly, I think that how we market it, how we services it using e-commerce to help grow that guest check because what we see when people order stuff online is suppose to calling, they bill the gift check. And so as we offer more service, better service, better marketing, we can certainly hope to grow that guest check in delivery..

Yes. And one thing I would add John is that one of the advantages of having your own delivery network is that you have the ability to tweak the operating model as you see fit. We can make changes. They can enhance profitability and enhance the experience for our guests. That is one of the advantages we have without having our own drivers..

Our next question comes from the line of John Glass with Morgan Stanley. Please proceed with your question..

Can you just grill down a little on the restaurant level operating margin improvement this quarter? Lot of it came from the other operating expense line. And if I look from last year, I think that’s even where you got some of the sales lease type benefits. So I think the improvement there is even more pronounced.

Is that a function primarily of reduction in advertising? Can you just quantify this? It sounded like this quarter, in particular, you had removed some advertising, maybe that was already discounted. I don't know if that's reflected in the advertising or not.

Could you help us understand what are the drivers for that improvement? If it’s a reduction and say media spend, how much that may have been?.

Yes, so I will give you the broader context, and then I will specifically go into restaurant operating expenses. So if you think about broadly our improvement in restaurant margin, we have always said the most important component of this margin journey is sales growth. So the 2.4% combined U.S. comp sales was a key driver of margin expansion.

And that did have an impact on restaurant operating expenses. I would say that’s the largest contributor to that line item, specifically. Secondly, we have success with our productivity initiatives in the areas and food waste, but also mention areas like energy and utility things like that. So that impacted restaurant operating expenses as well.

And then finally, as it relates to the U.S. business there was that shift in more dollars to digital marketing. So we did see efficiencies in our overall marketing expenses. John, that was probably 20 to 30 basis points of the improvement in the restaurant operating expense line. Hopefully that gives you a little more context..

And I think too, John. As we look at it. That’s a really important point. Because as we look at return on investment on those advertising dollars, it doesn’t necessarily mean that the advertising piece of cutting advertising. We're going to manage advertising. We see great ideas and great ROIs, we're going to continue to manage that line item.

So it will flux. And as Chris mentioned in his remarks, each of these line items will have an impact on our restaurant profitability. Let me just add one more thing, because I think it gets overlooked we talked about margins. And that is the remarkable performance in Brazil this quarter.

I mean you saw our international segment up significantly in margins. And that plays that something to our consolidated results and plays a piece in it. So when you see sales growth like that, margin growth -- significant margin growth and our new units going up that are so successful.

I just want to highlight that business one last time is part of margin story..

Can you -- maybe some metrics on the off-premise and total growth this quarter, what the growth of the off-premise business was? What the contribution -- the percentage of sales and the growth is? So we can just understand what contribution that is to the total comp growth?.

Sure. So if you look at Outback to -- what the impact is that Outback and Carrabba's, because Fleming's and Bonefish have a relatively small business when it comes off-premise. But it was 14% of our business. And so total off-premise, which is carryout and deliveries 14% of our business in Q1 and 19% growth in Carrabba’s and Outback..

Yes. Just to be clear, Dave, when we say 14%, that's 14% of the total business at Outback and Carrabba's..

Correct..

Okay. And you did close some express units this quarter. I think, and those are relatively recent openings.

Is that a shift in how you think about, how you won approach off-premise? Or what was the rationale behind that if that is correct that you close them?.

Yes. No. Those are [indiscernible]. So we still have some that are open. They are doing well. And we're going to continue to work that business hard because we think it is part of our portfolio. But as we do these experimental R&D type restaurants, we'll have openings and closures and stuff.

And I'm just glad to be the leader of a company that's so agile and willing to do these things. And we will continue to work on these opportunities..

Our next question comes from the line of Andrew Strelzik with BMO Capital Markets. Please proceed with your question..

So I was wondering if you could dig in a little bit more on the international margin expansion. Most of the dynamics that you called out, some were U.S.-centric. So I'm wondering what specifically was driving it on the international side. It seems like given the magnitude has to be more than comps in.

Importantly, as you're going to be lapping bigger margin declines over the next couple of quarters from last year, and kind of softer operating performance in the top line as well, is this kind of a repeatable type of margin expansion in the international segment for the next couple of quarters?.

So that question is specifically around international, right, Andrew?.

Correct..

Okay. So, Brazil has the same opportunities and productivity and management that our U.S. business has. And Peter and his team have just done a great job pursuing that. So when you take the volumes that they have, and you layer on sales growth, like Chris said earlier, sales growth is first and foremost in the margin expansion.

And we will never lose sight of that. But that doesn't mean we don't manage our expenses and pursue opportunities. So Peter has taken opportunities in food costs. He did a fantastic job managing labor down there and in other parts of this P&L. And the other thing that is exciting about Brazil, we talked a lot about delivery here in the U.S.

Brazil is also pursuing their delivery opportunities. They are doing it with the third party because it was so mall-based there and the third party has good access to malls and things, but they're really doing a fantastic job on taking that opportunity in Brazil.

So I think we can certainly see continued margin improvement in Brazil and see the sales that we have really enjoy. And Chris mentioned in his opening remarks, that we bought the business in 2013.

And we've had positive same-store sales growth in that business every quarter except for the two that had some economic and political turmoil associated with that. But that's the power of that business down there and the opportunity that represents in both sales and margin expansion..

And one other one if I could, with the growth of the off-premise business and maybe more group orders and things like that, I know you called out some of the traffic dynamics this quarter at Outback.

But I guess, I'm just wondering, is there another maybe internal metric that you look at that might better judge what the number of customers that are really serving where traffic might be understating that?.

I'm trying -- I think understand the question if I missed it, let me know. But we do look at the different types of delivery out there by restaurants, so you have catering, and we'll look at that mix, which is really great opportunity, especially at Carrabba's Italian Grill. We look at that opportunity, a large part of catering.

We look at the number of deliveries. We look at off-premise business. So we get segment it quite well by restaurant to understand where the opportunities are within our company, and believe me we're pursuing them..

And by channel right as well..

Yes, sure..

And by channel meaning whether we do it online order, they call and order. So there is a lot of different metrics we look at..

Our next question comes from the line of Brian Vaccaro with Raymond James. Please proceed with your question..

Just a quick follow up on the other OpEx line this quarter. I’m curious was the component of the year-on-year leverage that you saw related to lapping investments or outsized other cost inflation that might have occurred in the first quarter last year? And are there any lumpy comparisons that we just be mindful of as we think about Q2 through Q4..

Nothing that jumps out at me, Brian, in terms of lumpy comparisons moving forward. Restaurant operating expense line, like I said in Q1, had a lot to do with average unit volume appreciation initiatives in the productivity line and then the marketing line as well.

Everything else is kind of cats and mice, and there is not a whole lot of other things to talk about. There was, obviously some inflation, but it was pretty minimal. Most of our inflation is isolated to the cost of goods sold in the labor line..

And thinking about the Q1 comps, and now I guess, Outback, specifically, you mentioned whether a 30-bips bad guy.

But were there also any calendar shifts worth noting whether it would be New Year's Eve or the Easter and spring break shifts, anything more calling out there?.

Yes, absolutely. So whether it was 30 basis points, holiday shift was positive 20 basis points for it, but there were two components to that, right? So we had the New Year's Eve shift at the beginning of the year that was favorable to it. And then you had Easter towards the back end of the quarter that was slightly unfavorable.

The net of those two things was a positive 20 basis points. So all-in-all between weather and between holidays was pretty material, I guess, the holiday shift we kind knew about coming in end of the quarter the weather we didn’t know..

And the other thing, Brian, I just want to add and Chris talked about earlier was, we made a really good and conscious decision to manage our discounting down a bit at Outback. That was about 17% down in discount. So it had impact us well on traffic. But that’s all planned as a part of our planning. And it certainly embedded in our guidance..

And on the discount topic and thinking about year-on-year rest of the year, how do those comparisons look? Does that start to normalize in Q2?.

At Outback, it will normalize, but we are always -- we're always going to be looking at how we come to market and things like that. But as you followed our story for so long, you know that we've been trying to remove discounting of our portfolio and really focused on other parts of the business.

But we will always look at where we stand within the company and making investments behind digital marketing and things like that.

So I’m not obviously comparative reasons not going to get into that, but we will continue our path on trying to remove on profitable discounting, growing healthy traffic, but we will always be looking at how we go to market..

Yes, and I think that the improvement that we're seeing in some of the digital spend, the ROI that they improve. It gives us a lot more flexibility to make these kind of decisions..

And then just last one for me. On free cash flow, I think 2018 around 18 mil with memory serves, I think it was suppressed by a few unusual items and timing et cetera.

Could you walk through a couple of those items for us? And then maybe as you think about your 2019, what does your '19 guidance sort of result in from a free cash flow perspective? May be a range on '19 free cash flow..

Yes. So as you look at 2018, and $80 million is the right context, if you look at it from a operating cash flow minus CapEx perspective. I would say that you had the 53rd week dynamic, which was huge. We did make a pretty opportunistic commodity buy, which was north of $30 million at the end of last year.

So there were some shifts, certainly in working capital. And one of the tricky things about our year-end is because our year-end is December 31st, and then changes as the year -- as we work towards another 53rd week, you do have this gift card timing.

We do all these gift card sales right at the end of the year, and then when you receive payment can have a huge impact on working capital. So those shifts at the end of the year can get a little bit noisy. But what I can tell you is moving forward, and we did have this context, we're not going to give specific cash flow guidance for 2019.

However, we do expect cash flow to be well in excess of the $100 million that we discussed at Analyst Day. And again, we feel really good about the levers we have to grow margin, sales as well as cash flow. And I think the most important aspect of the cash flow conversation is that we have sufficient cash flow to meet all of our business needs.

And we will have excess funds available to return cash to shareholders..

Our next question comes from the line of Gregory Francfort with Bank of America. Please proceed with your question..

The first one is just is there any shift in the timing of the Easter that impacts your business or spring break holidays? And then second one was as I look at tax rate through the year, and I know your full year guidance has been, I think, it's 70%.

Is that mostly relatively steady or would you expect some volatility in that line?.

The tax rate we would expect to be fairly steady, I would think as the year progresses. There is always going to be discrete items within quarters they can make that thing ebb and flow, up and down.

As it relates to Easter shift, I would say, when we talked about holiday shift being positive 20, the New Year's Eve shift at the beginning of the quarter was probably 40 basis points positive. Easter was probably 20 basis points negative. So those things largely offset.

But we could see some negative Easter impact, spring break shift time, and Q1 is always a little noisy because of those things..

And then maybe just one on the discounting, what's been the overall customer response? And I guess, you guys see internal metrics that we can't see.

And what has been the big changes that that had on your customer either perception or customer behavior, and just generally in the Bloomin' business?.

Yes, we track client health measures very carefully. They're improving into the direct result of the investments we made in service and food and everything else, and removing the unprofitable discounting.

So as we have gone through this journey, every week, every month, we track it by brand and look at our brand health measures that I think everybody is familiar with. I won't mention all those are. But it's a really important part of our business and will be going forward..

Our next question comes from the line of Matthew DiFrisco with Guggenheim Securities. Please proceed with your question..

My questions with respect to the Carrabba’s re-franchising, was there any benefit I can't necessarily pull that out of the income statement in your earnings or your EBITDA? And then also a follow-up to that, I'm just curious.

Is there opportunity for both -- the Bonefish brand or Carrabba's brand domestically to potentially re-franchise more of some of the lower margins markets that could also help aid your aggregate corporate margins?.

Yes, we had a refranchising with diminimus on our financials, is not much there at all. It is more about how we go to market in certain periods. And also we really have a great franchise partner, and the guys remarkable that bought these restaurants. We know them well. We can do a fantastic job.

And so, we will always look as we talked in the past that we will always be looking at how we go to market around the U.S. but we see our core competency of owning and operating restaurants.

Does it mean that we won't re-franchised here and there and look at things? It won't mean that maybe expand more bonefish into certain key areas of company-owned and things. We will be looking at all of those things as we go forward.

But we want to make sure that we bring the brand to market that are best ability and also with the best possible return for our shareholders and that’s with the kind of work that we try and do, each quarter..

As the benefit though, I know, you sort of -- it's not that large.

But is it imaging in line, if you could just quantify if there was a benefit to that?.

There wasn't any benefit this quarter. And frankly it's only a handful of restaurants. It’s a small amount..

Our next question comes from the line of Jon Tower with Wells Fargo. Please proceed with your question..

So you've been pulling back on the profitable discounting across the portfolio for few years now. And it has resulted in bit traffic headwinds across the business, but it's also been in the context of the best casual dining environment in well over three years now.

So can you talk about how you plan to use this discounting lever in future periods, particularly if and when the overall industry slows down..

Well, Jon, if we look at how we are running our company, its clearly, we will invest in the customer experience and become an even better restaurant operating company. That’s the first and foremost thing we can do and become a more efficient company as well. So we're going to start to there.

Then when you look at -- we had a really good sense of our discounting in our advertising investment and what kind of returns we get on those. And so as the casual dining market fluctuates up and down, we will be able to make some decisions as to what we want to do, and we have a great deal of knowledge in that.

I’m just glad that we've gone on this journey over the last couple of years to attack unprofitable discounting and to reinvest in the customer experience. For competitive reasons, I’m not going to get into what our future plans look like.

But I can assure you that we have really good pulse of what the customer doing what it means for our advertising, what we do for our promotions as we go forward..

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Dave Deno for closing remarks..

Well, we appreciate everybody joining us today. We look forward to talking about our company in July on our second quarter earnings release. And I hope in the meantime everybody has a chance to visit our restaurants. We're going to get some great food and service. Thanks everybody again for being on the call. Have a great day..

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation..