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Bloomin' Brands (BLMN) Q1 2019 Earnings Call Transcript

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Bloomin' Brands (NASDAQ: BLMN)
Q1 2019 Earnings Call
April 26, 2019 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator 

Greetings, and welcome to the Bloomin' Brands fiscal first-quarter 2019 earnings conference call. [Operator instructions] It is now my pleasure to introduce your host, Mark Graff , vice president of investor relations. Mr. Graff, you may begin.

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Mark Graff -- Vice President of Investor Relations

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'll 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 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 up the call for questions. And with that, I'd now like to turn the call over to Dave Deno.

Dave Deno -- Chief Executive Officer

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 represents the sixth consecutive quarter of positive U.S.

comp sales. All U.S. concepts finished with positive comp 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 the 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 would also like to thank my colleagues in the restaurant support center who 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 no. 1 priority remains driving healthy, profitable sales growth across the portfolio. Over the past three years, we invested over $50 million back into the 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 were prioritized toward customer-facing improvements. This included $30 million in food quality, portion enhancements 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 have taken notice as we have seen 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 that the business is reaching scale, we will begin augmenting existing local marketing efforts with additional tactics to drive awareness. We remain very excited about the incremental opportunity it 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 the risk 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 to theme dinners like Carrabba's Carnevale event.

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

The market is still under penetrated, and we have a potential to build another 50 Outbacks for a total of 150 Outbacks in Brazil. New restaurants continue to generate among the highest returns in the 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 believe there's a potential for at least 50 locations. The second is the 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 help fortify the core business and expand our reach to new and existing customers. We will continue to leverage our scale, portfolio of 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 through the levers we just discussed and tightly managing costs while monetizing our investments.

We are already seeing the benefit of this 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 and differentiator for the brand as Outback remains focused on creating memorable dining experiences for its consumers every day. We remain committed to refreshing our assets.

Outback is testing multiple interior remodel prototypes. The new designs modernize the look while expanding the off-premise room to handle the 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 relocations are generating sales lifts 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 Fleming's in a moment, but let me briefly summarize what we are trying to accomplish across these brands. No. 1, 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, continue to opportunistically remove unprofitable discounting; 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.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Thanks, Dave, and good morning, everyone. I'll kick off with 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 exclude 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 that 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 standard, we no longer recognize these deferred gains in our financial statements. If you exclude this $0.03 impact of the new lease accounting standard from our 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 remain confident in our ability to grow traffic in 2019 on a combined U.S. portfolio basis. As it relates to our concepts, 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 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 in increased check average. Finally, our delivery rollout continues 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 continue 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 3-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 the decision at Bonefish to reduce the number of gift cards sold through discount channels. Some of these 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 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 has strong consumer appeal and is well-positioned for growth as the 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 on 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 was 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 systemwide 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, Q1 was a solid start to the year for Bloomin' Brands. We had healthy sales growth, and strong management of our restaurant expenses has 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. 

Questions and Answers:

Operator

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

Jeffrey Bernstein -- Barclays -- Analyst

Great. Thank you very much. Two things. One, just on the comp outlook.

I mean, it looks like, from a growth perspective, 2019, you're 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 Outbacks. I'm just wondering if you could 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.

Dave Deno -- Chief Executive Officer

Sure. Thanks, Jeff. I'm happy to see the sales we had in the first quarter. The comps were above the industry average as was traffic.

And as Chris mentioned, although the traffic was a little bit lighter than we expected, but we're quite pleased with what the quarter turned in and also what the rest of the year looks like. So 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 comped year over year at 2.2% positive traffic benefit in Q1, so that was something to consider.

We had about 30 basis points of unfavorable weather in Q1 results, and we did 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 in the balance of the year. In fact, we expect the results to improve. And then, finally, as Chris mentioned in his remarks, discounts at Outback were down 17% in 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 that we 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 in customer experience are really paying off in brand health measures and other things. And that's in food and service. Second, we've got the off-premise business that we've worked so hard to build, and we're so happy to have our channel.

Third, we 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 and 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.

Chris Meyer -- Executive Vice President and Chief Financial Officer

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.

Jeffrey Bernstein -- Barclays -- Analyst

Gotcha. And then my one other clarification or question. I know you reiterated all key components of guidance for '19. Just specific to the commodity outlook, I think it was a 2% basket.

Wondering if you could talk a little bit about this in terms of whatever you're willing to share in terms of percent locked and whether that's up or down. It seems that there's been a lot more talk lately about pressure potentially from African 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.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yes. No, Jeff, we're in pretty good shape as it relates to beef for this year. Our overall commodity basket -- I'm not going to give specific to beef, 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 that seafood has been the biggest driver of our inflation this year.

Jeffrey Bernstein -- Barclays -- Analyst

Great. Thank you.

Operator

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

Jeff Farmer -- Gordon Haskett -- Analyst

Thank you. At the analyst day, you pointed to 50 direct delivery units that have already seen off-premise exceed. I think it was 20% of sales mix. So just curious what are the common characteristics of those units that have delivered that outsized off-premise sales mix growth? Do you guys think that there's opportunities to see a large part of the system delivery at a similar level of off-premise sales mix?

Dave Deno -- Chief Executive Officer

Yes. The main thing of anything on delivery is obviously the trade area is important, but the talent engagement and operations of the restaurant partner is so important. And we see restaurants that have incredible dine-in business also do an absolutely incredible delivery business. And I just want to say thanks to the restaurant 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 levels. I'm not going to get into each one and how quickly and things like that, 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, it's -- the common element is just the talent and leadership of our managing partners out there.

Jeff Farmer -- Gordon Haskett -- Analyst

And then just as a follow-up, I'd like to drill down on that margin opportunity a little bit more. So going back to at least 2012, the IPO, Bloomin' has been guiding this $50 million in annual cost savings. I know there's a lot of moving pieces there. But as you look forward to '19, '20, '21, what are still some of the lower-hanging opportunities you see in terms of pursuing cost savings moving forward?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yes. So we still -- in Q1, we did really well with our food waste opportunity. We also saw benefits on our distribution network, energy, R&M, DWL. 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 these 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 of goods sold and in restaurant operating expenses.

Dave Deno -- Chief Executive Officer

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 costs and distribution costs so well, the group that -- the work the technology group is doing, we're learning more and more about digital every day and the ROIs that come from that. So I like the capability we have also within our company to achieve these results.

Jeff Farmer -- Gordon Haskett -- Analyst

Thank you.

Operator

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

John Ivankoe -- J.P. Morgan -- Analyst

Hi. First, thank you. Just a clarification. There is 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 there is two-year and three-year comparisons, which do vary quite widely, especially in 2017, that you do view the first quarter of '19 as having the most difficult traffic comparison and that because of that comparison, we should expect an acceleration, plus all the other initiatives that you expect to drive sales in that regard.

Dave Deno -- Chief Executive Officer

Yes, John. I think if you look at it, correct me if I'm wrong, Chris, but the first quarter of 2019 had the big --

Chris Meyer -- Executive Vice President and Chief Financial Officer

2018.

Dave Deno -- Chief Executive Officer

Sorry, first quarter of 2018, the quarter we just left, has the biggest traffic level.

John Ivankoe -- J.P. Morgan -- Analyst

Yes. That's true. And I asked the question, even going back to 2017, that we started the year in 2017 with traffic of down 2.1% and ended the year in the fourth quarter '17 with traffic about 4.3%. So there is that very, very -- we saw this major acceleration in traffic in 2017.

Some of that was actually explained by 2016 that, 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.

Dave Deno -- Chief Executive Officer

Yes. We absolutely look at our trends. But more importantly, John, we look at what we're doing in our restaurants, right? We look at the service that Gregg Scarlett and team, his -- under his leadership at Outback, what we're doing on food and service and what's all the hip, great things they're doing there and the different levers that we talked about, be it delivery, be it loyalty, be it the remodels, etc. Yes, of course, we look at the trends.

But also, we -- what's very important is what we're doing for ourselves with our brand in our restaurants as we continue to grow that business.

John Ivankoe -- J.P. Morgan -- Analyst

OK. Great. That's what I was hoping to hear. Just a couple more, if I may.

Are there any tactical changes that we might expect with the Dine Rewards program? Obviously, there's a pretty considerable benefit that the consumer gets. And there might even be some arbitrage that exists between brands of you're kind of earning points at one and redeeming at another. I mean, 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?

Dave Deno -- Chief Executive Officer

Sure. With 8.5 million members, we're really pleased with 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. And we think it's one of the best programs in all of the restaurant business.

So each brand is participating. Return on investment is improving, and we really look forward to now 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.

John Ivankoe -- J.P. Morgan -- Analyst

And then a final one. I mean -- and this is from the analyst day. I mean, I think you guys discussed a dine-in average ticket of $54 but a delivery ticket of $42, if 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 could kind of shrink that gap and that loss of profit from beverage sales in the delivery transaction versus the dine-in transaction to where we don't have to worry about the profitability of those transactions going forward if incrementality over time proves to be a little bit less than what it is today?

Dave Deno -- Chief Executive Officer

Yes. I think, John, I think, first of all, you hit it. The incrementality piece is important for us, and we're seeing the incrementality in that business. Secondly, I think how we market it, how we service it, using e-commerce to help grow that guest check because what we see when people order stuff online as opposed to calling, they build the gap check.

And so as we offer more service, better service, better marketing, we can certainly hope to grow that guest check in delivery.

Chris Meyer -- Executive Vice President and Chief Financial Officer

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, and we can make changes that can enhance profit ability, enhance the experience for our guests. That is one of the advantages we have with having our own drivers.

John Ivankoe -- J.P. Morgan -- Analyst

Thank you.

Operator

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

John Glass -- Morgan Stanley -- Analyst

Thanks very much, and good morning.

Dave Deno -- Chief Executive Officer

Good morning.

John Glass -- Morgan Stanley -- Analyst

Can you just drill down a little on the restaurant-level operating margin improvement this quarter? A 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 leaseback benefits. So I think the improvement there is even more pronounced. Is that a function primarily of reduction in advertising? And can you just help us quantify this? It sounded like this quarter in particular, you removed some advertising and maybe that was -- or discount.

I don't know if that's reflected in the advertising line or not. Could you help us understand what are the drivers for that improvement? I mean, if it's a reduction in, say, media spend, how much that may have been.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yes. So I'll give you the broader context, and then I'll 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. And I would say that's the largest contributor to that line item specifically, secondly, we have -- we do have success with our productivity initiatives in the areas of food waste, but I also mentioned areas like energy and utilities, 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. So -- and 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.

Dave Deno -- Chief Executive Officer

Yes. And I think, too, John, as we look at it, this is -- 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 -- we're cutting advertising. We're going to manage advertising. We see great ideas and great ROI.

We're going to continue to manage that line item. So it will -- 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 when we talk 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 comes into our consolidated results and played 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, it is part of the margin story.

John Glass -- Morgan Stanley -- Analyst

That's very helpful. And can you kind of -- 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 there so we can just understand what contribution that has to the total comp growth.

Dave Deno -- Chief Executive Officer

Sure. So if you look -- I'll talk to what the impact is to Outback and Carrabba's because Fleming's and Bonefish have a relatively small business when it comes to off-premise. But it was 14% of our business, and that's the total off-premise, which is carryout and delivery. It's 14% of our business in Q1 and 19% growth in Carrabba's and Outback, OK?

Chris Meyer -- Executive Vice President and Chief Financial Officer

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

Dave Deno -- Chief Executive Officer

Right.

John Glass -- Morgan Stanley -- Analyst

OK. And you did close some express units this quarter I think, and you -- those are relatively recent openings. Is that a shift in how you think about how you want to approach off-premise? Or what was the rationale behind that, if that is correct, that you closed them?

Dave Deno -- Chief Executive Officer

Yes. No. Those are R&D labs. 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'll continue to work on these opportunities.

John Glass -- Morgan Stanley -- Analyst

OK. Thank you.

Operator

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

Andrew Strelzik -- BMO Capital Markets -- Analyst

Hey, good morning. 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, it has to be more than comps. And 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 on 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?

Dave Deno -- Chief Executive Officer

Are we -- so that question was specifically around international, right, Andrew?

Andrew Strelzik -- BMO Capital Markets -- Analyst

Correct.

Dave Deno -- Chief Executive Officer

OK. So Brazil has the same opportunities in productivity and management that our U.S. business has, and Pierre 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 margin expansion, and we'll never lose sight of that.

But that doesn't mean we don't manage our expenses and pursue our opportunities. So Pierre has taken opportunities in food costs. He did a fantastic job managing labor down there and in other parts of his P&L. And the other thing that is exciting about Brazil, we talked a lot about delivery here in the U.S., Brazil was also pursuing their delivery opportunity.

They're doing it with a third party because we're still 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 and we really enjoy. And Chris mentioned it in his opening remarks.

We bought the business in 2013. 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 it, but that's the power of that business down there and the opportunity that represents in both sales and margin expansion.

Andrew Strelzik -- BMO Capital Markets -- Analyst

Great. 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 you're really serving where traffic might be understating that?

Dave Deno -- Chief Executive Officer

I'll try to -- I think I understand the question. If I missed it, let me know. But we do look at the different types of delivery out there by restaurant. So we have catering.

And we look at that mix, which is really a great opportunity, especially at Carrabba's Italian Grill. We look at that opportunity. A large part is catering. We look at the number of deliveries.

We look at our off-premise business, so we can segment it quite well by restaurant to understand where the opportunities are within our company. And believe me, we're pursuing them.

Chris Meyer -- Executive Vice President and Chief Financial Officer

And by channel, right, as well?

Dave Deno -- Chief Executive Officer

Yes, sure.

Chris Meyer -- Executive Vice President and Chief Financial Officer

And by channel meaning whether we do an online order, they call in orders, so there's a lot of different metrics we look at.

Andrew Strelzik -- BMO Capital Markets -- Analyst

OK. Great. Thank you.

Operator

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

Brian Vaccaro -- Raymond James -- Analyst

Thanks, and good morning. 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 comparison that we should just be mindful of as we think about Q2 through Q4?

Chris Meyer -- Executive Vice President and Chief Financial Officer

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 in the marketing line as well. Everything else is kind of cats and mice, and there's 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 and the labor line.

Brian Vaccaro -- Raymond James -- Analyst

OK. And thinking about the Q1 comps and I guess Outback specifically. You mentioned weather, a 30-bps bad guy. But were there also any calendar shifts worth noting, whether it be New Year's Eve or the Easter and spring break shifts? So anything worth calling out there?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yes, absolutely. So weather was 30 basis points. Holiday shift was positive 20 basis points for us, 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 us, and then you had Easter toward 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 holiday, it was pretty, pretty immaterial. I guess the holiday shift we kind of knew about coming into the quarter. The weather, we didn't know.

Dave Deno -- Chief Executive Officer

And the other thing, Brian, I just want to add and Chris talked about earlier was we made a really good conscious decision to manage our discounting down a bit at Outback. And so it was about 100 and -- that was about 17% down in discounts, so it had impact as well on traffic. So that was all -- but it's all planned. That was all part of our planning, and it's certainly embedded in our guidance.

Brian Vaccaro -- Raymond James -- Analyst

OK. 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?

Dave Deno -- Chief Executive Officer

Yes. It will -- at Outback, it will normalize, but we're 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 focus on other parts of the business. But we'll always look at where we stand within the company and making investments behind digital marketing and things like that.

So -- and I'm not -- obviously, for competitive reasons, not going to get into that. But we'll continue our path on trying to remove unprofitable discounting, growing healthy traffic, but we'll always be looking at how we go to market.

Chris Meyer -- Executive Vice President and Chief Financial Officer

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

Brian Vaccaro -- Raymond James -- Analyst

All right. That's great. And then just last one for me. On free cash flow, I think 2018 around $80 million, if memory serves.

I think it was suppressed by a few unusual items and timing, etc. 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, maybe a range on '19 free cash flow?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yes. So as you look at 2018 -- and $80 million is the right context if you're looking at it from an 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 31 and then changes as the year -- as we work toward 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 all 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.

Brian Vaccaro -- Raymond James -- Analyst

All right. Thank you.

Operator

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

Gregory Francfort -- Bank of America -- Analyst

Hey, guys. Thanks for the question. The first one was just is there any shift in the timing of Easter that impacts your business or spring break holidays? And then the second one was, as I look at tax rate through the year, and I know the full-year guidance has been, I think, at 7% to 8%. Is that supposed to be relatively steady? Or would you expect some volatility in that line?

Chris Meyer -- Executive Vice President and Chief Financial Officer

The tax rate, we should -- we would expect to be fairly steady, I would think, as the year progresses. There's always going to be discrete items within quarters that can make that thing ebb and flow up and down. As it relates to Easter shift, I would say when we call -- we talked about the holiday shift being positive 20. The New Year's Eve shift to 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 did see some negative Easter impact, spring break shift timing. Q1 is always a little noisy because of those things.

Gregory Francfort -- Bank of America -- Analyst

And then maybe just one on the discounting. What's been the overall customer response? I guess you guys see internal metrics that we can't see. And what has been the big changes that that's had on your customer either perception or customer behavior just generally in the Bloomin' business?

Dave Deno -- Chief Executive Officer

Yes. We track brand health measures very carefully. They're improving as a direct result of the investments we've made in service, in food and everything else and removing the unprofitable discounting. So as we've 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, but it's a really important part of our business and will be going forward.

Gregory Francfort -- Bank of America -- Analyst

Thank you.

Operator

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

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Thank you. My question is with respect to the Carrabba's refranchising. 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 this -- is there opportunity for both the Bonefish brand or Carrabba's brand domestically to potentially refranchise more of some of the lower-margin market that could also help aid your aggregate corporate margins?

Dave Deno -- Chief Executive Officer

Yes. It -- we had -- refranchising was de minimis on our financials. There's 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. I mean, the guy is remarkable that bought these restaurants. We know him well. He's going to do a fantastic job, and so we'll always look -- as we talked in the past, Matt, we'll always be looking at how we go to market around the U.S.

But we see our core competency as owning and operating restaurants. It doesn't mean that we won't refranchise here and there and look at things. It won't mean that we'll maybe expand more Bonefish into certain key areas as company owned and things. We'll be looking at all of those things as we go forward.

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

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Has the benefit though -- I know you said it's not that large, but is it in the G&A line? If you could just quantify if there was a benefit to that.

Chris Meyer -- Executive Vice President and Chief Financial Officer

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

Dave Deno -- Chief Executive Officer

Yes. It's a small amount.

Matthew DiFrisco -- Guggenheim Securities -- Analyst

All right, guys. Thank you.

Operator

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

Jon Tower -- Wells Fargo Securities -- Analyst

Hey, thanks. So you've been pulling back on unprofitable discounting across the portfolio for a few years now, and it has resulted in a bit of traffic headwind across the business. But -- and 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?

Dave Deno -- Chief Executive Officer

Well, Jon, if we look at how we're running our company, it's 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 in becoming a more efficient company as well. So we're going to start there. Then when you look at -- we have a really good sense of our discounting and our advertising investments and what kind of returns we get on those.

And so as the casual dining market fluctuates up and down, we'll be able to make some decisions as to what we want to do. And we have a great deal of knowledge on 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 a really good pulse of what the customer is doing, what it means for advertising, what we do for our promotions as we go forward.

Operator

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.

Dave Deno -- Chief Executive Officer

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 where you're going to get some great food and service. I want to thank everybody again for being on the call.

Have a great day.

Operator

[Operator signoff]

Duration: 47 minutes

Call Participants:

Mark Graff -- Vice President of Investor Relations

Dave Deno -- Chief Executive Officer

Chris Meyer -- Executive Vice President and Chief Financial Officer

Jeffrey Bernstein -- Barclays -- Analyst

Jeff Farmer -- Gordon Haskett -- Analyst

John Ivankoe -- J.P. Morgan -- Analyst

John Glass -- Morgan Stanley -- Analyst

Andrew Strelzik -- BMO Capital Markets -- Analyst

Dave Deno -- Chief Executive Officer

Brian Vaccaro -- Raymond James -- Analyst

Gregory Francfort -- Bank of America -- Analyst

Matthew DiFrisco -- Guggenheim Securities -- Analyst

Jon Tower -- Wells Fargo Securities -- Analyst

More BLMN analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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