Greetings, and welcome to the Bloomin' Brands Fiscal Fourth Quarter 2022 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, Senior 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 David Deno, our Chief Executive Officer; and Chris Meyer, Executive Vice President and Chief Financial Officer. By now you should have access to our fiscal fourth quarter 2022 earnings release. It can also be found on our Web site 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 reconciliations to the most directly comparable GAAP measures appear in our earnings release on our Web site 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 recent trends. 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 will provide a brief recap of our financial performance for the fiscal fourth quarter 2022, an overview of company highlights, and an update to 2023 guidance.

Once we've completed these remarks, we will open up the call for questions. And with that, I'd now like to turn the call over to David Deno..

Well, thank you, Mark, and welcome to everyone listening today. As noted in this morning's earnings release, adjusted Q4 2022 diluted earnings per share was $0.68 which compares to $0.60 in Q4 2021, up 13%. This is also more than double our 2019 results.

Combined U.S comparable sales were up 1.4% with each brand having positive same-store sales, despite challenges from weather events at both the beginning and the end of the quarter. We were pleased with our Q4 results and it was the culmination of a year where we successfully navigated significant inflation.

During 2022, we made the decision to preserve our value equation and not raise prices to fully offset inflation. While the consumer has remained resilient to date, we believe the short-term decision will have long-term benefits for our customers. In terms of 2022 performance, I would especially like to recognize Fleming’s in Brazil.

In 2022, Fleming's comparable same-store sales were up an impressive 12%. This is the second consecutive year of double-digit comp sales growth for Fleming's. Brazil sales were up 38% for the year. Finally, our 2022 results would not have been possible without the talented and dedicated employees at our restaurants and restaurant support center.

Your commitment to serving guests with the highest levels of hospitality experience is what makes our restaurants so successful. As we look forward, we will further capitalize on the success of 2022. As you'll see from our guidance for the year and the quarter, we are off to a good start in 2023.

To achieve our objectives, these will be our key priorities. First and foremost, drive healthy sales and traffic.

We will accomplish this by improving execution and consistency through technology, leveraging proven marketing platform to drive frequency, introducing new products and new sales layers, and finally wrapping up the remodeling of our restaurants. Let me first talk about the investments we made to improve execution and consistency.

We've completed the rollout of handheld technology for our servers. In addition, we continue to roll out new cooking technology including advanced grills and ovens. We will complete the rollout of the new technology in the third quarter. These innovations will further improve guest experience leading to increasing customer preference and frequency.

This benefit is in addition to the productivity dollars embedded in our 2023 plan. The second part of building sales and traffic is more targeted marketing designed to build brand equity and drive frequency.

Starting in 2023, Outback is bringing back the "No Rules, Just Right" platform, and we are deploying additional marketing dollars to support the launch. But this is more than just marketing. It's an attitude. It's how we reenergize our restaurants with new food offerings, exceptional service, and most importantly, it ties back to our heritage.

"No Rules, Just Right" is aimed at highlighting our great menu and the everyday value that we offer to our guests. The third element to our sales building strategy will be the introduction of new sales layers at all of our brands to complement the work being done at Outback.

One example is the introduction of social [indiscernible] Fleming's which caters our wonderful food and drink offerings during the early evening. We also continue to grow our events and catering business within Fleming's and look forward to the innovation that's coming from this piece of business. Another example is brunch is returning to Bonefish.

It is a very successful day part and we brought back with even better food offerings while providing a good financial return for the company. We'll provide more details and additional sales layers at all of our brands as the year progresses. The final sales driving strategy I want to highlight is the additional emphasis on remodels in 2023.

We paused our remodel efforts during the pandemic and have since developed a variety of scopes that we can deploy based on varying needs of our restaurants. We intend to remodel over 100 locations this year as the beginning of a multiyear effort to touch a large percentage of our business.

We know keeping our assets looking at their best along with our ongoing relocation program is a key element to growing traffic. All this is about bringing in restaurant traffic back to pre-pandemic levels. Importantly, these layers are platform to deliver growth in 2023 and beyond.

Second priority for 2023 is to continue expanding our off-premises business which is performing very well. We'll capitalize on our strong carry out and delivery capabilities. Importantly, the profit margins in this channel are comparable to margins of the in-restaurant business. Catering will remain an important and growing lever for our brands.

The Carrabba’s team remains an industry leader in this space and has done a fantastic job. We expect to see more progress out of Outback and Bonefish, knowing both can do a great job in catering. Lastly, we offer significant value through our bundles platform, we expect off-premises to remain a large and growing part of our business.

The third priority is to maintain the major progress we have made in operating margin over the last 3 years and with a highly inflationary environment. As discussed, margin improvement start with growing healthy traffic across the in-restaurant and off-premises channels.

We also reduced reliance on discounting of promotional LTOs and pivoted advertising spend towards more targeted high return digital channels. In addition, we remain disciplined in managing the middle of the P&L and are aggressively pursuing efficiencies in food, labor and overhead.

As Chris will discuss, despite persistent inflation, we've been able to achieve our margins well above 2019. We remain committed to growing to 8% operating margins over the long-term. Our fourth priority is to capitalize our progress to become a more digitally savvy company.

In Q4 approximately 76% of total U.S off-premises sales were through digital channels. In the past year, we implemented a new online ordering system and mobile app to support our digital business. Both have outperformed expectations and the new half has over 2 million downloads.

You can expect to see more activity as we improve the functionality and features of our app and digital offerings. And the final priority is to build more restaurants, especially in Outback, Fleming's and in Brazil. Each of these brands have strong sales and profit margins and offer great returns.

We see major expansion opportunities at Outback where our goal is to significantly grow our U.S restaurant base. We intend to grow Fleming's from 65 to 100, and plan for more than double our footprint in Brazil. And finally, keep an eye on Carrabba’s.

Before turning over to Chris, I just want to say this kind of expansion would not be possible without major progress on our balance sheet. We significantly reduced debt and our credit ratios are much improved.

And today we announced a 71% dividend increase and a new $125 million share repurchase authorization, highlighting the power of our cash flow generation. In summary, 2022 was a good year for our company. We are focused on achieving our 2023 goals, while building a great business that will continue to thrive.

And with that, I'll now turn the call over to Chris, who will provide more detail on Q4 and the full year 2023..

Thanks, Dave, and good morning, everyone. I would like to start by providing a recap of our financial performance for the fiscal fourth quarter of 2022.

Total revenues in Q4 were $1.1 billion, which was up 4.6% from 2021, driven by $33 million increase in international revenue primarily in Brazil as well as a 1.4% increase in U.S comparable restaurant sales. In our U.S brands, traffic was down 7.3% in Q4, relatively consistent with Q3.

Traffic was lowest in November before improving materially in the first 3 weeks of December. Winter storm Elliott hit in the last week of our fiscal 2022 and it had an approximate 1% impact on our fourth quarter comp sales. Despite the softer sales trends, our traffic was consistently better than the industry in December.

Importantly, our traffic trend has improved significantly over the first 7 weeks of 2023. Average check was up 8.7% in Q4 versus 2021. This consisted of 9.5% menu price increase and a 0.8% decrease in menu mix. Our menu pricing was in line with what we discussed on last quarter's call, but the mix change was lower-than-anticipated.

This change was a product of our LTO activity mixing higher-than-expected, changes in our appetizer offerings and strength in our catering business which carries a lower per person check average. At 24% of U.S sales, Q4 off-premises was slightly lower than Q3.

Given the emphasis on special occasions we tend to see in Q4 and Q1, this change was expected and was primarily a migration from our curbside business to in-restaurant dining. Importantly, the highly incremental third-party delivery business was flat from Q3 at roughly 12% of U.S sales.

In terms of brand performance, Outback total off-premises mix was 27% of sales, and Carrabba’s was 33% of sales. Off-premises remain sticky and is a large part of our ongoing success. It will be a key part of our growth strategy moving forward. And a final note on Q4 sales. Brazil Q4 comps were up 15.3% versus 2021.

Brazil's fourth quarter reflected the lapping of COVID-related operating restrictions from 2021. Importantly, comp sales were up 26% versus 2019 levels. Brazil's fourth quarter result was a key component of our success in Q4.

As it relates to other aspects of our Q4 financial performance, GAAP diluted earnings per share for the quarter was $0.61 versus $0.59 of diluted earnings per share in 2021. Adjusted diluted earnings per share was $0.68, versus $0.60 of adjusted diluted earnings per share in 2021.

It is worth noting that our Q4 result was more than doubled our 2019 adjusted EPS of $0.32. This represented the most profitable fourth quarter in our company's history.

The primary difference between our GAAP and adjusted results was Q4 2021 restructuring-related charges and an adjustment for certain collective wage and hour legal cases in Q4 of 2022. Adjusted operating income margin was 8.2% in Q4 versus 7.8% in 2021.

Margins improved year-over-year as inflation levels mitigated from the historically high levels earlier in 2022. Commodity inflation was 10% in Q4, driven by some favorability in our beef contracting, while labor inflation was 8%, which was 90 basis points better than it was in Q3.

In addition, we had benefits from pricing, productivity and incentive compensation. These benefits more than offset the unfavorable impacts from inflation. Overall, our controls on costs remain tight. Our operating margin was 400 basis points better than it was in Q4 of 2019. Our Q4 restaurant margin of 16.8% was 290 basis points better than 2019.

We continue to benefit from simplified menus and operations, growth in our international business efficiencies and overhead as well as increased average check. Depreciation expense and general and administrative expense were both up in Q4 relative to last year.

This is consistent with our increased levels of capital spending and our investments in infrastructure to support growth. Also in Q4, our adjusted tax rate was 15%. Turning to our capital structure, total debt was $833 million at the end of the year, and as of today, we are down to total debt of $760 million.

This puts our current lease adjusted leverage ratio below 3x. We have made tremendous progress on reducing our debt since 2019. For perspective, our debt balance at the end of 2018 was $1.1 billion. In terms of share repurchases, we repurchased 5.4 million shares in 2022 for a total of $110 million.

We have repurchased another $14 million of stock year-to-date, and our Board has approved another $125 million authorization that we expect to make significant progress on in 2023. We have also increased our quarterly dividend from $0.14 a share to $0.24 a share.

This 71% increase in our dividend provides a very attractive yield to our investors and is a strong signal about our confidence in the strength of our free cash flow. We expect 2023 to mark the second consecutive year where we have returned approximately $150 million to shareholders.

Returning cash to shareholders is an important part of our story in 2023 and beyond. Importantly, we're able to increase the dividend, buyback stock, pay down debt and have ample cash available to either invest in our growth initiatives or invest back into our people.

Before I turn to our guidance, I wanted to spend a minute discussing a legislative action in Brazil that has a unique impact on our company. In 2022, the Brazilian government enacted legislation that introduced a 0% rate for both corporate income taxes as well as certain federal gross revenue taxes known as PIS and COFINS.

This benefit will last for a period of 5 years. This exemption is intended to provide relief for industries most severely impacted by the COVID-19 pandemic. Through a favorable ruling, the courts in Brazil determined that our Brazilian business is eligible for this exemption.

As we've discussed on prior calls, our Brazilian business had a 2-year period of significant negative impacts from COVID-19. The material benefits from this tax exemption will start to impact our earnings this year, and we estimate that this exemption will provide an approximate $0.25 benefit to our 2023 earnings per share.

As I indicated, this benefit will manifest in two distinct ways in our Brazilian financial results. First, we assessed revenue taxes on certain goods and services known as PIS and COFINS taxes. We will be exempt from paying PIS and COFINS taxes for a period of 5 years.

The benefit to operating income is expected to be approximately $17 million, with an approximate $40 million increase in revenue offset by $23 million of expense, primarily lost tax credits split equally between COGS, labor and operating expenses. This operating income benefit is exempt from corporate income tax in Brazil.

Second, we will also have a 0% corporate tax rate on the income generated by our Brazilian business. This 5-year exemption from corporate income tax in Brazil will be partially offset by minimum taxes required by the U.S on multinational companies.

In total, this corporate tax exemption is expected to generate an additional $6 million of benefit in 2023. The combined benefit of the $17 million of PIS and COFINS exemption and the $6 million of corporate tax benefit will represent an approximate $23 million increase in our net income or $0.25 of earnings per share.

This exemption is not a one-time benefit. These impacts will be embedded in our financial statements each of the next 5 years. As such, they will be included in both our GAAP and adjusted results.

Should the Brazilian government or court system alter this legislation or our eligibility for it in the future, we will be sure to properly disclose the corresponding impacts. In our earnings release, we provided a reconciliation of our earnings per share guidance both before and after the benefits of this exemption.

In addition, keep in mind that for Bloomin' Brands fiscal 2023 will be a 53-week year. The 53rd week will be December 25, 2023 through December 31, 2023. Although we are closed on Christmas, the remaining 6 days in this 53rd week are very high volume sales days. We expect the impact of the 53rd week to be approximately $0.14 of EPS.

Now turning to our 2023 guidance. First, we expect U.S comparable restaurant sales to be between 2% and 4% on a 52-week basis. This includes a full year check average benefit of approximately 5% with traffic reflecting a more uncertain view on the macro environment.

Should the consumer behave more like what we have seen earlier this year, there could be a better outcome on traffic in 2023. Next, we expect GAAP diluted earnings per share to be between $2.80 and $2.89. And we expect adjusted diluted earnings per share to be between $2.91 and $3.

Our EPS guidance includes the benefits from the Brazil tax exemption and the 53rd week. Modeling and labor inflation are expected to be in the mid single digits range. We are currently 60% locked on our overall commodity basket. Oil, dairy, produce and grains are expected to be the most inflationary categories.

Beef is 100% locked, and we expect beef inflation to be in line with our mid single digits broader commodity range. Lobster, chicken and pork are expected to be deflationary this year.

We've seen year-over-year wage inflation slowly come down and we would expect that to continue in 2023 with the second half of the year better than the first half of the year. Our inflation estimates would make 2023 the second most inflationary year in the history of our company.

For this reason, we have spent significant time identifying productivity opportunities in our restaurants. From the technology enhancements at Outback to product utilization and sourcing ideas in our supply chain, we're targeting $50 million of productivity benefits in 2023.

We also expect the benefits from these initiatives to build as the year progresses and provide ongoing incremental benefit into 2024. Given the benefits of check average and productivity as well as the new benefits from both the Brazil tax legislation and the 53rd week, 2023 should be a year of operating margin expansion from 2022.

This expectation comes despite persistent levels of inflation. Our effective income tax rate is expected to be between 13% and 15%. Capital expenditures are expected to be between $240 million and $260 million. This is an increase from our 2022 spend of $220 million due to additional dollars allocated towards new restaurants and remodels.

Finally, we expect to open 30 to 35 system wide restaurants. We began ramping up our domestic new restaurant capabilities in mid 2022 with an emphasis on Outback and Fleming's to complement our already strong growth in Brazil.

Our new restaurant pipeline continues to fill and we expect 2024 to be when we see a material jump in the number of restaurants opens. As it relates to the first quarter, we expect U.S comparable restaurant sales to be up between 3% and 5%.

Through 7 weeks of Q1, we have seen traffic favorability greater than what the lapping benefits from Omicron and unfavorable weather in 2022 would have suggested. We do expect our sales to level out some to finish Q1 as we begin to lap sales strength from last year, beginning with Valentine's Day. This has been contemplated in our guidance.

We expect Q1 adjusted earnings per share to be between $0.85 and $0.90. This guidance and future guidance will include the benefits from the tax exemption in Brazil. One final note before I open up the call for questions. For the past 8 years, Mark Graff has been my partner in communicating our strategy to investors.

He has been an excellent ambassador for Bloomin' Brands. As many of you know, last year, Mark was promoted to Senior Vice President of Business Development and is charged with igniting our development engine. As that task gains traction, it is time for Mark to step aside from his IR responsibilities.

I am pleased to announce that Tammy Dean will now lead our day-to-day investor relations efforts. As Senior Director of Investor Relations and Corporate Finance, Tammy brings over 15 years of experience at Bloomin' Brands to the role.

She has held finance positions at all of our casual dining brands, and is the perfect choice to lead our IR function moving forward. Mark will be introducing Tammy to our coverage analysts over the next several weeks. Congratulations to both Mark and Tammy.

So in summary, this was another successful year for Bloomin' Brands and we are well on our way to becoming a better stronger operations focused company. And with that, we will open up the call for questions..

[Operator Instructions] The first question today is coming from Jeffrey Bernstein of Barclays. Please go ahead..

Great. Thank you very much and congrats to Mark and Tammy. My initial question is just on comps. For the fourth quarter, it looks like Outback, you had pricing up close to 10, you had traffic down 9, hence the 1% positive comp that was below seemingly what the street was looking for and I think what you guys had even implied for the fourth quarter.

I know you mentioned weather was a one point headwind, but it would seem like there was a shortfall even beyond that.

So I'm just wondering if you could talk about why the shortfall, whether it was a conscious decision on your part to kind of weed out value and lower end consumers who perhaps weren't as profitable or whether there was further disruption. Obviously, trends did accelerate thus far this year, but that we know has a lot to do with the lapse.

I'm just wondering if you can provide some context around the comp shortfall and traffic being down like 9%. And then I had one follow-up..

Yes, yes, sure. Jeff, this is Chris. Good morning. So as it relates to Q4, as you know, our brands tend to skew special occasion. And we do have a disproportionate impact from weather in that last week of the fourth quarter. So that winter storm Elliott was a 1% negative impact on our Q4 sales.

And obviously that wasn't contemplated when we prepared our guidance. In addition, I'd say the check average, that mix that with the positive menu mix that we've been running positive for most of the year, certainly into October, that turned negative in November.

But as I said in the prepared remarks, I think that was probably more a byproduct of our push, strong push into catering as well as some of the LTO activity mixing better than expected. But certainly the mix change going from positive to negative was something that we hadn't expected to manifest.

And then, look, finally, I'd say traffic was softer in November. But importantly, as it relates to our overall trend and the trajectory we we're on, it improved pretty significantly in December. We put some -- a number of initiatives in place in November to drive traffic, those initiatives were taking hold.

We had positive trends in December, and then of course, that last week of weather hit. But the good news is, even from that momentum we were building in December, that had further expanded in January, and our momentum got even better. So, look, I think we feel pretty good about the trajectory we're on.

But hopefully that gives some context on how the Q4 comp came together..

And Jeff speaking to Q1, the traffic trends are better. The improvements are better than what Omicron and weather would suggest. So I think the things, the layers that we talked about in the prepared remarks are certainly coming together in all of our brands. And our traffic trends are very good and we feel terrific about it.

So -- and that's embedded in the guide. So the momentum that we start seeing in December certainly is carry through to January and February, and the traffic increases are beyond just lapping a softer last year because Omicron and the weather..

Understood. And then my follow-up was just on the commodity outlook. In the last quarter, I think you said you thought maybe mid single-digit to high single-digit for full year '23. Now you've tempered that to mid single-digit, which understand most commodities are easing. But beef was the surprise, at least to us.

I know you mentioned, I think you're 100% locked on beef. And that's coming in mid single-digit right in line with your overall basket. Just wondering if you could provide any context around that.

I know, there's lots of expectation in the industry, that beef while easing short-term is likely to accelerate meaningfully into inflation later this year and into next year with supply chain issues and whatnot.

So I'm just wondering how you were able to secure that 100% in mid single-digit? And what your thoughts are, as we move towards the end of '23 and into '24, whether that would be a year where therefore you would likely see an acceleration in that inflation. Thank you..

Sure. Yes. So I'll give you some context on the commodity guide, and where we think we are overall on beef. We are locked, as we said, 60% on the overall basket. Typically, we would probably be a little more locked at this point in time.

And look, the reality is, is we do see that there could be certain upsides in certain areas as the year progresses, and we want to be able to take advantage of those. But to your point, we are 100% locked on beef. And as I said in the prepared remarks, that beef inflation is in line with sort of the mid single digits broader commodity range.

Look, the beef market is moving just like we thought. We talked about this last time, hey, look, there's going to be sort of a supply imbalance, you're going to see less product available in the marketplace, that's going to put pressure on pricing. You've seen it in the spot markets as prices have started doing increase in December and into January.

So that movements been exactly like we thought. Like we tell you guys, in November, we started having conversations about locking in on beef. We feel like we have an excellent supply chain team. We feel like locking in mid single digits is a great place to land. It gives us price assurance, it gives us supply assurance.

And look, I think in this marketplace, that's a pretty good place to be. In terms of the other market, basket commodities, I think bread, grains, certainly those will be challenged this year. Cooking oils, soybean oil, that's all inflationary. But we're pretty open on things like cooking oil.

So, hopefully we can have some upside on that as well as the year progresses. Produce is going to be very weather dependent. So that's going to ebb and flow. And freight should be better as well. So it isn't just a beef story as it relates to our basket.

But certainly when you look at that mid single-digit number, we're pretty pleased with the work we've done..

Understood. Thanks very much..

Thank you. The next question is coming from Alex Slagle of Jefferies. Please go ahead..

Thanks. Good morning and congrats..

Thank you..

Just wanted to dig into some of the future productivity opportunities, you called out an opportunity for $50 million in savings in '23, which is pretty significant. Just wanted to see if you could kind of talk to a couple of the bigger initiatives there and highlight a few for us..

Yes, I'll give some of the broader strokes, and turn it over to Chris to talk with some of the financials. But we talked for a while now about our technology initiatives and they have come together on time, as expected. So the handhelds and Outback are rolled out.

The ovens and the cooking technology and the grills in Outback [indiscernible] happen, finished in the middle of the third quarter. So that has really come together for us and has led to more productivity for us.

And the supply chain team, of course, has continued to do a great job, in our food supply and productivity there without compromising food quality, very importantly. So I will turn it over to Chris for any other context on the financials..

Well, the only context I'd add above and beyond that, as we have talked about these technology initiatives, and they would provide a financial return.

And so if you think about our productivity this year, this $50 million target, that's pretty much doubled, what we did from a productivity perspective in 2022 and the biggest chunk of that increase is coming from this technology initiative that we put in place both in the front of the house and in the back of the house.

And importantly, another thing to keep in mind as it relates to this is that it's not just a 2023 thing. We're not going to have all this equipment in place until the middle of the year. So there is going to be a pretty good tail going into 2024 as well in terms of productivity. So we're in pretty good shape.

And the last thing I would add is, and the Outback team certainly knows this is, we expect sales gains as a result of this as well over time. As we have as our recooks [ph] diminish and our customer service improves, as our table turns improve, that will boost sales and it boosts our operating metrics.

So it's more than just a financial productivity upside for us in the P&L. It's also a sales building activity that we expect to capture..

Got it. Thank you..

Thank you. The next question is coming from Lauren Silberman of Credit Suisse. Please go ahead..

Thank you very much. Just on the first one for operating margins, you talked about 2023 being a year of margin expansion.

Can you just walk through the puts and takes of the guide to get there?.

Yes, sure. So, well, let me do this. Let's talk about margins on an apples-to-apples basis for a minute. So exclude the benefit of this Brazilian tax exemption and exclude the benefit of the 53rd week. So it makes it more clear. First, the bad news.

So even with inflation coming off of last year's record levels, as I said, it's still shaping up to be really inflationary this year. If 2022 had, call it, $300 million of inflationary headwinds, 2023 we'll have like $200 million. So it's still pretty, pretty high. That's close to 500 basis points of margin pressure just from inflation alone.

But on the flip side, right, you have an estimated 5% increase in average check that we discussed as well as the $50 million of productivity that should be largely able to offset inflation. And then from there, the margin story is pretty simple. It's all going to come down to traffic, right.

Now we built a negative track assumption into our 2023 plan, driven largely by an uncertain macro environment, that would lead to a slightly negative outcome on op margin this year versus 2022 on an apples-to-apples basis.

Now, if that negative traffic doesn't manifest, and we've talked about how we started the year, I could have a better margin outcome this year, compared to where we were last year. Importantly, though, at the restaurant level, I feel pretty good about keeping my restaurant margin flat to slightly positive versus last year.

Now I'm going to lose a little bit on depreciation and perhaps a small amount on G&A. And that's why the op margin might be a little more challenged than my restaurant margin this year.

But, again, and I think that it's important to not just provide context for '23, if you're kind of looking fast forwarding and say, okay, what about 2024, a couple things are going to change, right? First, inflation should be less. And second, we're going to have a decent amount of rollover from these productivity initiatives.

So as Dave indicated in the prepared remarks, marching back closer to that 8% target seems far more in reach. Now, it is important, though, also to keep in mind that the 53rd week as well as this Brazilian tax exemption are both margin accretive.

So it is reasonable to expect when you include those that you're going to have operating margin expansion in 2023..

And I just want to provide a longer term context to it is we've had sustainable margin gains since 2019. If you look back in our history, and we expect to continue that going forward, like Chris laid out so eloquently.

So it's all there for us, we're committed to the 8% margin long-term, and it's a huge increase, which is where we were as a company a few years ago..

Great. Thank you. Incredibly helpful. And then just a follow-up on that traffic piece and the expectation for negative traffic.

Given the macro, what opportunities or levers exist that are in your control on the traffic side that you are considering? Or that you’re implementing?.

Yes, we talked about in the prepared remarks there's a few things that we have learned during the pandemic and also in 2022. And that is sales layers for us are extremely important.

So whether it's a whole new layer and thinking about "No Rules, Just Right" at Outback or on marketing, and it's more than just marketing, its operations, its products associated with it, that whole attitude in the restaurants, that's number one.

Number two, we've got it -- reinvigorated a new social [indiscernible] Fleming's that we're putting in the restaurants as early evening, that’s a nice sales layer for us that we're seeing. We've got brunch coming back at Bonefish. We've got a wine, a big time, wine opportunity at Carrabba's.

All of these are layers in our sales that we can control -- that’s within our control. Secondly, we have not priced up to inflation, and as much as some of our competitors. And we think that for the long-term will be very helpful for us as we look at our traffic trends.

And then third, we've learned a few things about offering consumers some price surety, dine and discover at Bonefish for a certain price. Outback has some things going on right now that are very attractive at a certain price point. So those are the things that we have control over to help drive traffic.

And as Chris mentioned, if the macro environment is not quite as bad as some people fear, we think there could be some upside to our traffic guide, but we'll see..

Well, and just to piggyback off of that, importantly, when you're talking about specific price points on offerings, that doesn't necessarily have to mean it's a deeply discounted offer. In fact, we're able to do those offers at a price point that can be at a minimum sort of hold margin steady..

Thank you very much. Very helpful..

Thank you. The next question is coming from John Ivankoe with JPMorgan. Please go ahead..

Hi. Thank you very much. It's interesting to hear about "No Rules, Just Right" I mean, just kind of like the return of that, I guess, brand promise.

So, I mean, a big part of the margin expansion for the entire industry versus 2019 was the reduction of advertising, reduction of menu items, simplification, kind of in the kitchen that allowed for a much more efficient operation overall.

Are we now kind of entering the point where it makes sense to bring back LTO, bring back some new news in the kitchen, bring back advertising? I mean, is it -- are we kind of at the start, if you will, of a slippery [indiscernible] to where cost need to be add back to the business because others are doing that as well?.

Yes, a couple of things, John. "No Rules, Just Right" can be executed with the continued menu simplification that we've had. So we don't anticipate a whole bunch of new product offerings and complexity in the kitchen. And as you know with the new grills and things at Outback that simplifies our kitchen even more. So that's number one.

And "No Rules, Just Right" is more than a marketing slogan. It's about how we run our restaurants. So that's number one. Number two, yes, we are increasing our marketing spend. But it's not going to be anywhere near what it was in 2019.

So we've learned a lot during the pandemic, how to access our customers, the digital opportunity, how to target customers. So that margin opportunity and advertising is going to remain as we build sales. So the fundamental benchmarks that we learned during pandemic, John, are not going away.

We're just going back to a heritage and a slogan that was so popular works so well for us at Outback. So that's how we're trying to build this thing..

And let me ask about remodels. I think you said you're doing 100, which is actually a pretty big percent of the U.S Outback system. I mean, it's been said in the past that you don't get credit for an interior remodel unless you do an exterior remodel. And of course, an exterior remodel costs, especially in 2023 a lot of money and takes a lot of time.

So you talk about what the remodels will look like, what kind of gain that you're expecting and if these projects are going to be a really attract people to come back and dine in the restaurant, which is obviously where you have the most capacity or potential to add people..

Yes. First of all, it's 50 at Outback and 50 the other two casual dining brands plus Fleming's. So that gets to the 100, okay. So -- but we really sculpt out a light touch, a medium touch and a heavy touch in our remodel. So we know keeping that interior restaurant fresh is so important.

And, John, as we do the interiors, we will do some exterior work to touch it up to make sure people know. Plus, what we have is a digital marketing piece that we can talk about as we go into these markets and do the remodel. So it's freshening up the restaurant. On an interior basis, we have three separate scopes.

We certainly have the capital and cash flow to do this and it involves all of our brands with 50 at Outback. And any financial measures, I'll turn it over to Chris to talk about..

Well, I just add that, yes, look, you're right. You're not expecting a Herculean amount of sales lift when you do an interior remodel. But if you can get a 2% to 3% lift, that's a pretty good lift for us. But more important probably, as Dave said, it's more about -- I don't think of as maintenance per se.

but if you don't keep your assets current, you could be on a slippery slope from a same-store sales perspective. So I think that keeping the assets current is going to be a critical part of what we do not just this year, but moving forward..

And, John, it's a holistic effort, its operations, its marketing, its remodels, it all comes together holistically. And that's what we're trying to talk about with the sales layers..

I got it. Thank you..

Thank you. The next question is coming from Jeff Farmer of Gordon Haskett. Please go ahead..

Great. Thanks.

I might have missed it, but did you guys provide any specifics on G&A or interest expense dollars for full year 2023?.

We didn't. But I can give you a little bit of context.

And you're looking G&A and D&A, is that what you said?.

G&A and interest expense..

G&A and interest, okay, yes. So, yes, G&A is going to be up, it'll be up probably $10 million to $15 million in '23 IN terms of dollars. That's probably flat as a percentage of sales, though, a couple of reasons. We made some investments in IT and our development team that we will have a full run rate for in '23.

We made some additional investments back into our people, which we thought was very important. And we had a number of vacancies in the year that are now filled. And so -- and we also had some incentive comp reload. So there's a few things going on in G&A that will make it go up this year.

Touch on D&A, while we're here, D&A will be up this year, largely consistent with our increasing capital spending. And then interest expense should be slightly down actually flat to slightly down. I think that we do -- although the interest rate has gone up, we did get to retire some of these hedges last year.

And so that was kind of a benefit heading into 2023. But obviously, a lot of that benefits been eaten up by the rising rate environment. But we would think interest expense would be flat to slightly down..

That's helpful. And then just one additional one, which is, you guys did touch on it.

But as a consumer backdrop has become more challenging, just a little bit more strained for some of the discretionary spending, are you seeing shifts in relative same-store sales performance across your multiple channels? Meaning the in-restaurant to go and delivery channels seen any sort of shifting of behaviors amongst those three channels?.

Well, this is what I would say, it's a little tough read. But we -- because we skew special occasion, when you're really busy in Q4 and Q1, you do see a decline in sort of your off-premises mix. And we've seen that a little bit here in the first quarter.

Overall, we think that's mostly just trade between our curbside business back into the in-restaurant piece.

But no real commentary on kind of the consumer or third-party business, which is a slightly different consumer from an off-premises perspective is hanging in there, it's a little down in Q1 versus where it was in Q4, but it's still pretty steady. And that is a different kind of consumer.

So overall, the shifting between channels isn't really driving a significant amount of what we think is reflective of kind of where the consumer is. It feels more just like engineered channel movement..

And Jeff, the high-end continues to do really well. And Fleming's continues to do really well within that high-end. And so that's a consumer that we're going to continue to pursue. And I talked about some of the sales layers there..

Got it. Thank you..

Thank you. Our next question is coming from Sara [technical difficulty]. Please go ahead..

Hi. I think, Sara Senatore [ph], just want to make sure. I am just curious if I could ask a few follow-up and then a quick question.

The follow-up is, if you could just talk about January, I think widely, the industry seems to have improved trends, are you still maintaining your traffic gap that you talked about? Or is this sort of kind of a rising tide? So any insight onto relative performance, given how robust it's been for you, but I think also some trends we're seeing across the board.

And then I wanted to ask about kind of your thoughts on pricing. It sounds like pricing will be pretty much in line with inflation in 2023, after having run, I think, behind inflation in 2022.

So I guess, do you have sort of a philosophy about where those two sit? Would you use that as an opportunity to whether reinvest in the quality or the quantity of food? Just how are you thinking about that sort of more normalized relationship between price and inflation? Thank you..

Yes, sure. I'll take the first part. I'm not going to comment in detail on weekly trends in February. But I can say overall, for the quarter, we remain very happy with how we stand in our traffic trends for our company and versus the industry. So I'll leave it at that for now. And I'll turn the second part over to Chris..

Yes, look, I think that you're right in your commentary, it's a much more balanced equation this year in terms of our pricing and our inflation that we see. But look, I think that we are very sensitive to the price value equation, and how we think about that moving forward is really, really important part of the calculus that we go through.

We don't feel like we have the ability to take a tremendous amount more pricing in a year like this moving forward. We want to be very thoughtful. And look, the good news is, is that we didn't take any pricing in 2020. We took very little pricing in 2021. Given the way we've been buying our commodities have tended to be advantageous.

So relative to kind of where we were in -- go back to even to 2019, our check average is below were the industry is on that same metric. So we feel like we put ourselves in an advantageous position, while still being able to offset the inflationary environment.

And I just think that equation is something that instead of reinvesting those dollars back in, I think that we feel like that's going to start to pay dividends from a traffic standpoint, as we move throughout the year and into next year. So we're just going to be a little more guarded as it relates to our pricing.

Now we do have pricing that falls off this year that we took in Q3 and Q4, and I think we're just going to take kind of a wait and see approach as it relates to the whether we replicate some of that pricing in the balance of the year or not. We'd love to not have to take it to be honest with you..

And the last thing I'd add is there's another way to get value to our customer and we talked about this with each of our brands, and that's continued to improve our service levels in our restaurants, we're seeing very good trends there.

And so providing value to our customers as our service levels improve, and the technology that we've invested to make that happen is an important part of our value equation going forward..

Understood. Thank you very much..

Thank you. The next question is coming from Jon Tower of Citigroup. Please go ahead..

Great. Thanks for taking the questions. Clarifications, questions.

So first clarification, the $50 million in productivity gains, is that run rate? Or should we expect to see that all hit in '23?.

No, that's all in 2023. Ramp up -- it'll ramp up a bit as the year progresses, because we don't have all of the kitchen equipment in yet at Outback that will be done into the -- early into the third quarter there. And so it'll ramp up as the year progresses. But it'll all be -- it will be $50 million this year..

Got it. And then I'm just trying to wrap my head around the traffic at Outback in particular, it sounds like this year, you're guiding for a fairly conservative outlook on traffic, because of the macro backdrop. At the same time, you've got a lot going on with the brand.

And frankly, the company from productivity gains and/or initiatives at the store level to improve throughput, as well as incremental marketing, including the "No Rules, Just Right".

So, I guess I'm just trying to understand, are you guys trying to layer in a level of conservatism or in your guidance for traffic? Or is there something you've seen in your business that's fundamentally altered kind of the traffic cadence for the customer? And you feel like it's going to be difficult to get back to the pre-COVID levels of traffic?.

No, I don't think that it's difficult at all. I think we are being prudent in our guidance, given the macro environment. We feel very good, Jon, about what we can control and we laid that out very clearly today and what we're trying to get done. And we've also not priced as some of our competitors have done.

So that's why the traffic piece for us is so -- we're so optimistic about it. But we've got pacing and sequencing, we've got the macro environment, et cetera. We don't want to get ahead of our skis [ph]. But we -- that's not a sense of us in being any less optimistic, We just got to recognize the macroeconomic environment that we're in.

But we feel very good about the layers and what we've done on the pricing side as we go forward..

Yes, and look, if you look at our traffic guide, or implied traffic guide this year relative to where we were last year, it does suggest a pretty decent increase from where traffic was in 2022..

Got it. And then just lastly, on David, I was hoping maybe you can speak to the Board's decision around upping the dividend, rather than say increasing the buyback even further, the numbers are pretty big today. So I'm curious to learn what the discussions were..

The main thing is return cash to shareholders, and invest in our growth opportunities and pay down debt. That just shows the power of the cash flow of our company. So as we talked about it, we looked at various levers. If you look back, prior the pandemic, we are basically a little bit less than this level.

This dividend increase gets us back to where we were prior to the pandemic. And we feel that the surety of dividends, and what it looks like for our shareholders, is really an attractive thing, as we continue to have a share -- new share repurchase authorization and we pay down debt.

And I'll turn over Chris, for any other thoughts on that, since he's been such a big architect of this issue..

Well, I just think that we're able to -- with the dividend, we're able to offer an attractive yield, and still what is a relatively low payout ratio and that gives us a lot of flexibility. So it's not a question of like, either or, we're able to do not just the dividend, but we're also able to put in place a robust share repurchase program.

We believe we can pay down additional debt this year. So there's -- especially with the rising interest rate environment, paying down debt makes sense as well. So there's a lot of things that we can do with the flexibility.

It just really, again -- we always say this, but I do think looking at our free cash flow story is really, really important for investors..

Got it. Thank you very much..

Thank you. The next question is coming from Dennis Geiger of USB. Please go ahead..

Thank you. Dave and Chris, I wanted to come back to the discounting promo activity commentary that you made.

Is there anything more that you can share on latest thoughts on discounting activity, or the lack of discounting? How you're thinking about discounts in '23 relative to last year, and depending on how traffic trends progress through the year?.

Yes, we don't feel that we need to rely on discounting to drive traffic trends, first and foremost. We play in a category -- we participate a category that we haven't seen a lot of that, and we continue to make those plans accordingly.

Because -- and importantly because some of our base menu offerings are such a good offer for our customers without offering a lot of discounts and with some price surety. So you won't see a bloom of random push to the discounting lever to grow the traffic that we're talking about..

Great. I appreciate that. And then just one more.

As you talk about continuing to improve service levels, can you talk a little bit about where kind of staffing, team continuity and training are right now and sort of overall where you are from an operations perspective? And really how much of an opportunity operations and the service enhancements can be as we think about traffic and sales? Thank you..

Yes, we are blessed with a very tenured team with turnover trends less than the industry. Now part of that was the conscious decision that our company made during the pandemic not to let people go. So we had a trained group of people ready to go when the restaurants reopened.

And so we intend to capitalize on that tenure and leadership and lack of turnover relatively speaking in the industry, excuse me, in our company. Now is -- are there some staffing challenges in pockets? Yes, but not nearly what it was a year ago or 2 years ago.

So our goal is to improve service levels through investments in technology, and capitalize on the tenure and leadership and training in our restaurants..

Sounds good. I appreciate it. Thank you..

Thank you. Our next question is coming from Andrew Strelzik of BMO Capital Markets. Please go ahead..

Hey, good morning. Thanks for taking the question. I actually wanted to ask one on Brazil.

And I was -- obviously it was a nice contributor in the quarter, I was just hoping you can give us a little bit of an update on the operating environment there? What you're seeing in terms of consumer behaviors, inflation, supply, maybe coming online or not and ultimately, I'm trying to kind of build to -- love to hear your perspective on how you think about the margin potential of that business over time as we build towards kind of the longer term targets that you've talked about? Thanks..

Sure. Our Brazil team and a lot of businesses went through a lot during COVID. And they've come back in a very good way. The restaurant sales were good in the quarter, the operating margins were good in the quarter. And we have a really strong management team down there, and they've come through it in a very good way.

But as we look at the operating environment going forward, hopefully the election is behind us and we can move forward in the country and continue to grow our business and as we recover, and other businesses recover from what we experienced during COVID.

So we do feel good about our business down there, and the growth and the cash flow and the sales it provides..

Thank you. Our last question today is coming from Brian Vaccaro of Raymond James. Please go ahead..

Hi. Thanks and good morning.

I wanted to go back to the productivity, and can you remind us of how many units have the full equipment package today across the server handhelds, KDS and the cooking equipment? And then could you provide some more color and maybe even quantify some of the benefits you expect to yield from it? Is there any way you can ballpark labor or waste [ph] savings, or perhaps it's mostly a throughput or sales benefit, you expect to see?.

Sure. I -- all the handhelds are in at Outback. KDS was in and were in about half the restaurants on the cooking equipment, and they'll be done in Q3. Like I -- before [indiscernible] the financials and Chris will talk about some of the productivity opportunities there.

I just want to underscore once again, it'll go long-term with greater service levels and more accurate cooking that, especially the grills provide. We expect to build sales and traffic in our restaurants at Outback. And I'll turn over to Chris..

Yes, and I'd say if you look at the productivity numbers, it's probably -- look and again, we've said we went from, call it, $25 million to $50 million, this year. The $25 million increase, a chunk of that supply chain, but that most of that is going to be driven by technology improvements in our restaurants.

And so if you think about where that plays out, where it lives on the P&L, it's going to live in the cost of sales line, it's -- but I think a little bit more is going to live in the labor line, right.

And particularly as it relates to the front of the house technology we're putting in into the restaurants, there will be though, to your point when we have less recooks, those complimentary meals show up as a kind of a reduction of sales. So you will have an increase in sales associated with this.

Now it's probably not going to be material enough to show up in your comp sales assumptions, but it is meaningful. It's going to be millions of dollars. And so that's going to be something that we'll see it in overtime as well. I think the best part about this technology is that it does provide long-term benefits.

It's not something that you put in day one and immediately you're humming on all cylinders, it does feed in over time, and that's really encouraging. And the good news is that the units that have had it for a while now are hitting on all cylinders. So we like where we are..

All right. That's helpful. And back to pricing, I heard you say I think average check around 5% is embedded in your guidance.

Could you just level set, when was the last pricing -- last time you took pricing? And if you take no additional pricing, what the quarterly cadence would look like over the next few quarters across the business?.

Yes, we'd like to be in a position now where we don't have to take any more pricing from here until the end of the year. And then even that is like we want to have optionality on that. But if you think about it, we should be over 7% or so at least through the first couple of quarters.

And then we have the big price increases we took in Q3 of last year that we would lap and we have to make a decision, then how much do you want to place in those numbers. And again, right now in our current guidance, we're assuming, call it, a 6% annual price increase with negative mix of maybe call it a point to get you to that 5% overall.

And that does assume that there's going to be some level of pricing taken in the back half of the year, but we could actually have a little bit less pricing if we don't need it, and like I talked about earlier..

All right. Thanks very much..

Thank you. At this time, I'd like to turn the floor back over to Mr. Deno for closing comments..

Yes, I want to thank everybody for calling in today. We appreciate it. And I want to welcome Tammy to the Investor Relations team. She's going to be a good partner, and [indiscernible] good partner to all of you. And I want to say how important that the new unit opportunity for us is in the company.

And I'm fortunate that we have such a great leader Mark Graff to make that happen. So more to fall in this space and we'll be talking to you over the coming weeks. Thanks, everybody..

Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines at this time and enjoy the rest of your day..