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Edited Transcript of BLMN earnings conference call or presentation 18-Feb-20 1:30pm GMT

Q4 2019 Bloomin' Brands Inc Earnings Call

Tampa Feb 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Bloomin' Brands Inc earnings conference call or presentation Tuesday, February 18, 2020 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher Adkins Meyer

Bloomin' Brands, Inc. - Executive VP & CFO

* David J. Deno

Bloomin' Brands, Inc. - CEO & Director

* Mark Graff

Bloomin' Brands, Inc. - VP of IR and Corporate Finance

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Conference Call Participants

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* Alexander Russell Slagle

Jefferies LLC, Research Division - Equity Analyst

* Andrew Strelzik

BMO Capital Markets Equity Research - Restaurants Analyst

* Brett Saul Levy

MKM Partners LLC, Research Division - Executive Director

* Brian M. Vaccaro

Raymond James & Associates, Inc., Research Division - VP

* Gregory Ryan Francfort

BofA Merrill Lynch, Research Division - Associate

* Jared Garber

Goldman Sachs Group Inc., Research Division - Business Analyst

* Jeffrey Andrew Bernstein

Barclays Bank PLC, Research Division - Director & Senior Equity Research Analyst

* Jeffrey Daniel Farmer

Gordon Haskett Research Advisors - MD & Senior Analyst of Restaurants

* John Stephenson Glass

Morgan Stanley, Research Division - MD

* John William Ivankoe

JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst

* Jon Michael Tower

Wells Fargo Securities, LLC, Research Division - Senior Analyst

* Matthew James DiFrisco

Guggenheim Securities, LLC, Research Division - Director and Senior Equity Analyst

* Sharon Zackfia

William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer

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Presentation

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Operator [1]

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Greetings, and welcome to the Bloomin' Brands Fiscal Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) It is now my pleasure to introduce your host, Mark Graff, Group Vice President of Investor Relations. Thank you, Mr. Graff. You may begin.

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Mark Graff, Bloomin' Brands, Inc. - VP of IR and Corporate Finance [2]

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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 2019 earnings release. It can also be found on our website at bloominbrands.com in the Investors section.

Throughout this conference call, we will be presenting results on an adjusted basis. An explanation of our use of non-GAAP financial measures and 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 fourth quarter 2019, an overview of company highlights, a discussion regarding progress on key strategic objectives, an update on our review of strategic alternatives and 2020 financial guidance. Once we've completed these remarks, we'll open up the call for questions.

With that, I'd now like to turn the call over to Dave Deno.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [3]

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Well, thank you, Mark, and welcome to everyone listening today.

We have 2 objectives for the call. First, Chris and I will cover Q4 and 2019 results and 2020 priorities. Once that is finished, we will provide an update on the exploration of our strategic alternatives.

As noted in this morning's earnings release, adjusted Q4 2019 diluted earnings per share was $0.32, representing a 19% increase on a comparable adjusted basis versus last year. Combined U.S. comp sales were up 1.9%, with positive comp sales across all concepts. Importantly, traffic was up 90 basis points and significantly outperformed the industry. We have intentionally tempered our average check increases to further strengthen value relative to competition. As a result, Q4 traffic outperformed the industry by 380 basis points with a modest average guest check increase.

We will continue this strategy of prudent menu pricing into 2020. This, combined with traffic momentum from our strategic investments in areas such as digital, loyalty and off-premise, gives us confidence about maintaining top line momentum entering the new year.

For the total year, all U.S. concepts finished with positive comp sales, including another strong year at Outback, where comps were up 2%. We combine good top line performance with solid productivity and cost management to grow adjusted operating margins by 60 basis points for the year. And Q4 represents the fifth consecutive quarter of comparable operating margin expansion. In addition, adjusted 2019 EPS grew 10% on a comparable basis, which was in line with our initial guidance expectations for the year.

Overall, this was a very good year for our company. We've built on the platforms and investments that were implemented over the last several years to improve execution in our restaurants and unlock new growth opportunities across the portfolio. None of this would be possible without the dedication and commitment of our over 90,000 team members. They exemplify our principles and beliefs every day and bring to life the hospitality, service and experience that make our restaurants so successful. Thanks to all of you for your hard work.

As you look forward, we will further capitalize on the success of 2019. Specifically, our focus will be on executing against the following key priorities to deliver sustainable top line growth. First, driving healthy, profitable sales across the portfolio remains our top priority, especially at Outback. Over the past 3 years, we've invested over $50 million into food quality and portion enhancements, service and labor investments and efforts to reduce complexity in the restaurant. We will always explore ways to further enhance the experience for our guests, but the large upfront investment is behind us. In addition, we continue to upgrade our asset base. Investments in remodels are offering good returns, and relocations at Outback are providing outsized sales lifts.

Our second priority is to offer compelling and brand-appropriate marketing activities that resonates with consumers. We remain very focused on product innovation and modernizing how we communicate with customers. We are investing in new marketing channels and technologies that will allow us to more efficiently and effectively reach our new and existing high-value customers. In addition, the Dine Rewards loyalty program now has over 10.2 million members.

Third, we have made the decision to pivot towards a more tempered pricing approach. Over time, as we reduce the reliance on pricing, it will further enhance our value equation relative to peers. We remain focused on building healthy, quality traffic while also reducing unprofitable discounts.

Fourth, we continue to capitalize on the rapidly growing off-premise business. In the fourth quarter, we saw 20% growth at Outback and 32% at Carrabba's. The DoorDash partnership, which launched in September, continues to perform well and highlights the incremental nature of this channel. We are excited about the continued potential as it complements our existing in-house delivery platform.

And fifth, we will continue to accelerate growth in our rapidly expanding international business. This includes leveraging the success in Brazil with Outback and Abbraccio. The underlying fundamentals of the Brazil business remains strong. Our new units continue to open well above expectations. The market remains underpenetrated, and the future growth potential of this business is tremendous. In addition, we will pursue franchise opportunities in Latin America, the Middle East and Asia with a portfolio of brands.

In parallel to ensuring sustainable comp growth, we will continue to look at all other levers to maximize returns. We remain committed to reviewing all potential opportunities, and we'll evaluate them through the lens of maximizing shareholder value. We continue to be thoughtful in our allocation of free cash and expect 2020 to represent another strong year of returning cash to shareholders.

In summary, 2019 was a very good year.

I will now turn the call over to Chris, and will be back with details about some of the major changes we are making in 2020 and beyond.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [4]

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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 will be referring to adjusted numbers that exclude certain costs and benefits. Please see the earnings release for reconciliations between non-GAAP metrics and their most directly comparable U.S. GAAP measures. We also provided a discussion of the nature of each adjustment.

With that in mind, our fourth quarter financial results versus the prior year were as follows. GAAP diluted earnings per share for the quarter was $0.32 versus $0.12 in 2018. Adjusted diluted earnings per share was $0.32 versus $0.27 last year on a comparable basis after adjusting for the new lease accounting standard. Total revenues increased 0.9% to $1 billion in the fourth quarter. Total revenue increases were primarily due to higher comp sales and the net impact of restaurant openings and closures. These increases were partially offset by lower revenues from the refranchising of 18 Carrabba's locations earlier this year and foreign currency translation.

U.S. comp sales were up 1.9%. This was driven by a 0.9% increase in traffic and a 1% increase in average check. Q4 traffic growth was our best result since Q4 2017 and was 380 basis points ahead of the industry. As we discussed on our last call, we benefited from a strong start to the quarter, driven by a promotional lineup, which included our popular steak and lobster promotion at Outback. Our traffic slowed some over the holiday season, but was still well in excess of the industry. Importantly, 2020 has started with strong traffic growth that is ahead of competitive benchmarks.

Our Q4 average check benefit of 1% was similar to Q3 and as we have indicated on prior calls, we are comfortable maintaining a lower level of menu price increases in our results. We are confident that this will provide more value to our customers and unlock healthier traffic. It is also worth noting that Q4 discounting was relatively flat from Q4 of 2018. For the full year, however, we were down 7% for the portfolio and 14% for Outback as we opportunistically reduce the discounting in the portfolio.

Overall, we are pleased with our comp sales performance, and we continue to meaningfully outperform the industry and have started out 2020 with good momentum. We believe the investments in food and service, relatively low menu price increases and growth in our delivery platform will allow us to continue to outperform the industry on traffic.

On to our concepts. Outback's comp sales were up 2.7%, and they posted their 12th consecutive quarter of comp sales growth and outperformance versus the industry. Additionally, Outback traffic exceeded the industry by 350 basis points.

Outback's Q4 results were driven by a few things. First, our third-party delivery partnership with DoorDash rolled out in September. DoorDash is now in 574 locations and this helps bring off-premise sales to 15% of Q4 revenues at Outback. Total off-premise sales were up 20% year-over-year. Delivery is proving to be a highly incremental occasion, and third-party delivery has had little cannibalization to our own delivery network. The economics are compelling, and this business offers attractive margins. We expect third-party delivery to be a strong contributor to 2020 results. Second, the steak and lobster promotion performed well over the first half of Q4, lifting both traffic and average check. And third, the impact of our growth investments continue to strengthen the guest experience, and we are building momentum in our dinner business.

Carrabba's comp sales were up 1.4%. Carrabba's made the decision to utilize multiple third-party delivery partners to complement our own delivery network. Like Outback, this rollout was completed in October. Overall, Carrabba's off-premise was 21% of sales in Q4. This was up 32% versus Q4 of 2018. The Carrabba's team has embraced the off-premise occasion and in addition to delivery, is seeing traffic growth in both catering and our bring home made home program.

Bonefish Grill comps were up 0.5%. This was a significant improvement from Q3, and we saw momentum in our dinner business from platforms such as our 3-course dinners.

Comp sales at Fleming's were up 0.9%, representing the eighth quarter of positive comp sales over the last 9 quarters. Our new locations continue to perform well and provide optimism for additional unit -- new unit opportunities. This includes a new site in Anaheim that is opening in September.

On the international front, Brazil comp sales were up 4.9%, with traffic up 8.2%. Traffic growth was driven by a successful promotion called All Stars that featured Outback favorites at an accessible price point. Brazil finished the year up 5.8% in comp sales and now has posted 5 consecutive quarters of comp sales growth following the trucker strike in 2018. We are pleased with how this business is performing, led by our strong management team.

Adjusted operating income margin was 4.2% in Q4. This was up 20 basis points after adjusting 2018 for the impact of the lease accounting change. This favorability was driven by improvements in G&A and was partially offset by increases in operating expenses. Operating expense was higher due to operating supply costs as we grow our off-premise business as well as increases in R&M and general liability expense. Importantly, Q4 represented the fifth consecutive quarter of margin growth, and we finished 2019 with 60 basis points of adjusted operating margin expansion for the year on a comparable basis. We remain committed to closing the margin gap to our peers.

Moving to tax. Our 2019 adjusted tax rate finished at 6%. This result was modestly better than our expectations heading into the year.

In summary, we feel good about both the fourth quarter results and where we finished 2019. The domestic business is on strong footing, and our Brazil business is performing at an extremely high level.

Before I give 2020 guidance, I will now turn the call back over to Dave to provide an update on strategic alternatives.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [5]

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Well, thank you, Chris.

Back in November, we announced the exploration of alternatives to maximize value for shareholders, including a possible sale of the company. Since then, management has been actively working with the Board and our financial and legal advisers to evaluate various alternatives, including analyzing all aspects of how we operate and go-to-market with our business, including a review of our cost structure; evaluating portfolio composition, including our business in Brazil and U.S. concepts; assessing capital allocation and use of free cash flow; as well sale of the entire company.

At this point in time, nothing compelling has materialized in terms of an outright sale of the company. However, one area within our portfolio that has received significant interest is our business in Brazil. Although we're under no obligation to sell this business, discussions with interested parties are ongoing.

One fact remains clear. This is a great business with an outstanding management team that has significant runway for future growth. We will provide updates on Brazil as events warm.

Independent of the strategic review and potential outcomes, the company developed a plan that accelerates growth and transforms us into an operation-centric company that can thrive the public marketplace. We believe this plan, coupled with investments in off-premise, remodels and improving the guest experience, will provide an attractive return for shareholders.

The following major initiatives represent the key tenets of this plan and are included in the guidance that Chris will be presenting shortly.

First, we aligned leadership, resources and structure to prioritize growth, efficiency and scale. Specifically, the casual dining brands will now report directly to Gregg Scarlett, our new Chief Operating Officer of Casual Dining. Organizing Outback, Bonefish and Carrabba's under our casual dining portfolio will allow us to improve operations and leverage expertise between these 3 brands, while still providing a differentiated guest experience within each concept. Given his success at Outback, there is no one better than Gregg to lead these brands moving forward.

Second, we simplified corporate support functions to enable a more agile and operations-focused organization. We made significant investment in infrastructure over the last few years, particularly in the areas of technology and digital marketing. With these critical building blocks now in place and working, we are able to streamline these functions while concurrently monetizing the benefits.

Third, the financial benefits of these changes will further enhance our already strong free cash flow. Over the last 5 years, we returned over $1 billion to shareholders in the form of dividends and share repurchases while modestly paying down debt.

Going forward, we will have a more balanced approach to allocation of free cash flow, which will include continued share repurchases, paying down debt and a meaningful increase in our dividend. We are doubling the annual dividend from $0.40 to $0.80 per share. This represents an approximately 4% yield at current prices. This is an attractive return of cash to shareholders and reflects our commitment to long-term investors.

Over the past few years, we have limited ourselves to mandatory debt paydown requirements. Moving forward, we expect to make additional level of discretionary debt paydowns as part of a more balanced capital allocation strategy.

Finally, we will continue to opportunistically buy back shares depending on the relative valuation and to offset dilution. We are confident these actions, coupled with our ongoing focus on driving sustainable, healthy sales growth in our restaurants, will allow us to deliver outsized total return in 2020 and beyond.

A tremendous amount of work is already completed. Our Board of Directors continues to focus on reviewing strategic alternatives that will benefit our shareholders. Regardless of the outcome of the strategic review, one thing is clear. Bloomin' Brands will be a transformed company.

And now I'll turn it back -- the call back over to Chris to provide more details on what to expect for the coming year.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [6]

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Thanks, Dave.

With that context, I will now take you through our thoughts on 2020 guidance. Starting with EPS, we expect GAAP diluted earnings per share to be between $1.63 and $1.68. We expect adjusted diluted earnings per share to be between $1.85 and $1.90. This is a growth rate of 20% to 23% over 2019. For additional context, this guidance includes the first $20 million of additional cost savings related to our restructuring efforts. The benefits of these savings will increase profitability while also improving efficiencies and decision-making in our organization. These cost savings will benefit EPS by $0.17 in 2020 and will be largely split across Q2 through Q4, with little benefit occurring in the first quarter. Most of the impact from these savings will be in the G&A line, which we expect will be significantly below 2019. Our GAAP EPS will be impacted by one-time costs related to this restructuring.

We expect U.S. comp sales growth to be between 1% and 1.5%. We expect comp sales to be driven by a modest level of check average increase throughout the year of approximately 1%, continued momentum from our investments to improve the guest experience and ongoing benefits from the growth in our off-premise business. We recognize the importance of maintaining healthy sales growth, particularly in Outback, and we'll utilize our many levers to continue to take share.

On the cost of sales line, commodities are expected to be up approximately 2% in 2020. Beef inflation is expected to be in line with 2019. Seafood, which represents approximately 20% of our food basket, is going to experience higher inflation, particularly in lobster and is the primary reason we expect our 2020 guidance to be higher than 2019.

Persistent labor pressures have been a reality in the industry for several years, and we are expecting hourly wage inflation to be approximately 3.5% in 2020. Restaurant operating expenses will be a bit higher this year, driven by increased operating supplies, as we grow our off-premise business.

Consistent with prior years, productivity savings will be an important part of our 2020 financial model. We continue to find opportunities in the areas of food waste, labor management and menu simplification. We expect these savings will help offset some of our inflationary pressures.

As I indicated, we intend to make significant progress on reducing our G&A costs in 2020. After removing the impact of any adjustments that might impact G&A, we would expect G&A expense to be between $240 million and $245 million in 2020. This would be a reduction of approximately $22 million to $27 million versus 2019. This includes the impact of our $20 million of cost savings we discussed, plus some additional upsides we expect in 2020.

When you combine our sales growth, productivity efforts and cost savings initiatives, we do anticipate meaningful operating margin expansion in 2020. We expect adjusted operating income margin to be between 5.5% and 5.6%, which is an increase of 70 to 80 basis points from 2019. Keep in mind that similar to 2019, this level of margin expansion will be realized without the benefit of significant menu pricing actions.

We expect the 2019 GAAP effective income tax rate to be between 9% and 10% and the adjusted effective income tax rate to be between 11% and 12%. As our operating income grows year-over-year, we expect our tax rate to continue to increase as well.

Turning to cash flow. Capital spending is expected to be between $175 million and $190 million. This will include approximately 25 new locations with the majority of those being in Brazil. Other discretionary capital will primarily be focused on Outback. We will be more aggressive in accelerating Outback new restaurant growth. In addition, we expect to relocate 9 restaurants and continue to see sales lifts in excess of our 30% target, which is a strong endorsement of the health of this brand. These efforts will be complemented by investment in a new round of interior remodels at Outback.

In terms of the remaining allocation of free cash flow, as Dave discussed, we are targeting a dividend payout ratio of 50%, which equates to an approximately 4% dividend yield at our current valuation. When combined with our adjusted EPS growth guidance of 20% to 23%, this implies a total shareholder return in 2020 of between 24% and 27%. It is also important to note that before the inclusion of our $20 million of cost savings or the increase in the dividend, our 2020 total shareholder return is within our long-term framework of 10% to 15%.

In the future, there will be a more concerted effort to reduce leverage with discretionary cash. Share repurchases will also continue to be a part of free cash flow usage, but not at the levels seen over the past several years.

I also wanted to provide some context for the quarterly cadence of our earnings given the following moving pieces within the year. First, the $20 million of cost savings will be largely realized over the last 3 quarters of the year. Second, our higher expectations for operating income in 2020 will lead to significant increase in tax rate in each quarter of the year. This will have an outsized negative impact on first quarter earnings growth. Third, we are cautious about the impact that the 2020 election could have on casual dining. Although it is impossible to predict consumer sentiment around the time of the election, it is important to remember that over the last 4 years, Q4 2016 was the low point for comp sales in our industry. We are hopeful that Q4 2020 will be better, but we have built our plan anticipating a tougher fourth quarter sales environment. Finally, we will be lapping the rollout of our third-party delivery partnership with DoorDash this upcoming September. And although we expect this business to continue to grow, the level of year-over-year growth should moderate some.

With that context, we would expect adjusted EPS of between $0.79 and $0.81 in Q1. This will be our lowest growth quarter of the year, given less benefit from cost savings, coupled with a higher tax rate. In addition, unfavorable foreign exchange translation will likely cost us $0.02 of EPS versus last year. Q2 and Q3 should be very strong in terms of year-over-year EPS growth. Q4 EPS should be higher than last year, given our cost savings opportunities, but our sales outlook for the quarter prudently builds in some conservatism based on what we experienced in Q4 of 2016.

We recognize there are a lot of moving pieces related to our quarterly earnings flow, and we will provide updates as the year progresses.

I also want to provide some context for our business beyond 2020. As we have discussed in prior calls, our operating margins lag our peer set by approximately 200 basis points. Our 2020 guidance will close that gap considerably, but there is still more work to be done.

Looking ahead to 2021, we have identified an additional $20 million of savings to facilitate further profit and margin growth. This combined $40 million of cost savings in 2020 and 2021 will enable us to make significant progress on increasing margins over the next 2 years.

In summary, we remain focused on growing same-store sales while making the necessary changes to our cost structure to achieve outsized profit growth in 2020 and 2021. We hope that our call today has provided context for how we plan to achieve those goals, not just in 2020, but by building a sustainable level of performance that will allow us to succeed over the long term. We have a strong company that we intend to make even stronger through a more focused, agile approach that emphasizes TSR growth.

And with that, I'll open up the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is coming from Jeffrey Bernstein of Barclays.

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Jeffrey Andrew Bernstein, Barclays Bank PLC, Research Division - Director & Senior Equity Research Analyst [2]

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So one question, one follow-up. The question on -- first question is just on comps. I'm just wondering, as we think about 2020, I think you said 1% to 1.5% with a 1% check. I'm just wondering how you're thinking about that relative to the industry. And I know you mentioned that you have a strong start and good momentum in the year. I'm just wondering, directionally, how that compares to the 1% to 1.5% that you are seemingly expecting for full year '20. And then I had one follow-up.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [3]

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Sure. Jeff, we're off to a good start. We've seen it -- trends move up with the industry. And as Chris mentioned in his prepared remarks, our traffic trends really look great. We're just calling a 1% to 1.5%. We feel that's where the industry is going. If the things improve and continue to be strong, obviously, our guidance will change up. Importantly, we have a 1% PPA change in our guidance, and we talked about the importance of being very careful about value as we go forward. And then, obviously, we'll be prudent on Q4 to see what impact the election has, and we'll provide updates during the year.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [4]

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Yes, Jeff, that certainly would imply positive traffic for the year for us.

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Jeffrey Andrew Bernstein, Barclays Bank PLC, Research Division - Director & Senior Equity Research Analyst [5]

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Got it. But you're assuming the industry relatively similar to yourself. Is that 1% to 1.5%? Or would the industry be below that?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [6]

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Our hope is to beat the industry, but we'll see. Like I said before, the industry is off to a good start so far this quarter.

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Jeffrey Andrew Bernstein, Barclays Bank PLC, Research Division - Director & Senior Equity Research Analyst [7]

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Got it. And then my follow-up was just on cash usage, and I'm just wondering if you can give any color on the Board's thought process. It seems like you're leaning heavily on the dividend versus repo. I know in the past, you've talked about your view that your shares are meaningfully undervalued. So I'm just wondering how the Board thinks about that. And if there's any separate color on -- just on the commentary around Brazil. I know in the past, you talked about maybe selling it, but collecting royalties and maintaining ownership, but I'm just wondering now if it sounds like maybe you're considering full separation.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [8]

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Jeff, again, I think on the cash usage, what we want to do is to provide some terrific returns for our long-term shareholders. We looked at carefully, had long discussions with our Board and felt that a doubling of the dividend to a 4% yield at today's prices was a really smart thing to do. Obviously, we have -- with our free cash flow power, we have opportunity to continue to buy back shares and continue to believe our company is undervalued. And so we'll continue to look at that as we go forward. And we also want to pay down some debt as well as part of an overall balanced approach to our business. On Brazil, more to follow. One thing we know for sure, we've got a fantastic business down there. Comps for the year were terrific. We had margin expansion for the year. There's a lot of interest in the business. I don't have any more updates on it, but as things transpire, we'll be happy to provide more color.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [9]

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Yes. And Jeff, the only thing I'd add, in terms of the cash flow usage, we do expect our EBITDA to continue to grow as well. And that provides us even more flexibility. The bottom line is the free cash flow is a strength of this company, and our shift reflects that.

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Operator [10]

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Our next question is coming from Jeff Farmer of Gordon Haskett.

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Jeffrey Daniel Farmer, Gordon Haskett Research Advisors - MD & Senior Analyst of Restaurants [11]

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Could you guys just provide a little bit more color on the interaction between DoorDash, your internal delivery infrastructure, and then what you've been doing with to-go sales, how all of those 3 methods are working together?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [12]

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Yes, Jeff. We've been very pleased with it. We've seen incrementality in each channel. We have our own networks which we set up, which we worked so hard to set up. We've seen the third party come together and provide incrementality in our sales. We see margins on the third parties that's favorable to us. So when you look at what our to-go business overall is looking like for both Carrabba's and Outback, it's very, very strong. And we're very pleased with the -- where our parties -- where our third-party partnerships are going.

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Jeffrey Daniel Farmer, Gordon Haskett Research Advisors - MD & Senior Analyst of Restaurants [13]

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That's helpful. And just one unrelated follow-up. Over the last several months, obviously, we've been getting a lot of inbound questions on the Brazil business. Is there anything you can share in terms of specifics as it relates to G&A from Brazil, D&A Brazil, the CapEx number in Brazil? Anything like that, that helps investors better understand the cash inflows and outflows of that business?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [14]

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Well, we provide segment information. We haven't provided a detailed guide on international, but I think a couple of things that I just -- investors need to take a look at. Number one, we've had very strong sales growth, both PPA change and traffic. Number two, we had margin expansion during the year. Number three, our new unit openings continue to be well ahead of our expectations, and there's a lot of opportunity for growth there. Number four, it's a free cash flow positive business, so they fund all of their spending. So when you take them together -- and with a really strong management team led by Pierre, you take them together, we've got a really very attractive business down there. And we're going to be very thoughtful about how we go forward with that business.

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Operator [15]

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Our next question is coming from John Glass of Morgan Stanley.

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John Stephenson Glass, Morgan Stanley, Research Division - MD [16]

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First, David, could you just clarify where you are in the strategic review process, holding Brazil aside, which I think you were clear on? Does the fact that you've changed your capital allocation strategy and you've announced some of these restructurings, does that mean you've completed the review of the rest of the business? Or is there still rest of the business review ongoing?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [17]

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We are ongoing, John. I'm not going to put a time line on it per se, but we continue to examine our alternatives. Like I mentioned in my prepared remarks, we haven't seen any compelling offers come our way. But we have really taken a deep look at our business, as you can tell. We've been very, very, very busy since we talked to everybody in November, and you've seen some really strong actions as part of it. But we made the actions independent of the strategic review because we want to create a stronger company to go forward. And if something comes our way, we'll obviously update everybody, but -- that we aren't to complete, shall we say.

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John Stephenson Glass, Morgan Stanley, Research Division - MD [18]

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Okay. And my follow-up is, first, where do you think restaurant margins land specifically? I know you gave pieces of it, although you didn't maybe address the specific restaurant margin in 2020. And where does the incremental cost cuts in the G&A beyond the $20 million that you identified, where do those come from? And where do you think the $20 million in '21 comes from specifically?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [19]

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Yes, a couple of things, and then I'll turn it over to Chris for some of the details. On restaurant margin, I think one thing that I want to make sure everybody's aware of. We're only still looking at a 1% change in PPA. So a lot of our margin expansion is going to come from costs outside the restaurant. And importantly, regarding those costs outside the restaurant, decisions have already been taken, past tense. So we have a very, very clear runway to where those cost reductions are coming. So I'll turn it over to Chris now to talk a little bit more about some of the details.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [20]

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Yes. So as it relates to restaurant margins, you're right, John. We don't provide specific guidance on that line, but I can give you some perspective by bucket in terms of how we're thinking about it for 2020. On COGS, I would say we expect some favorability year-over-year as we make progress on our waste initiatives. Labor will likely be a tad unfavorable due to wage inflation, and then restaurant operating expense would likely be a little unfavorable due to higher operating supplies from the rollout of our delivery business and probably some insurance as well. But I think it's important to remind everybody that all of this includes the assumption of a 1% benefit of average check versus closer to a 2% in 2019. And that's going to put some pressure on restaurant margins, but that's why the cost savings are so important in our ability to prove that -- improve our overall operating margins of the business. And again, I guess, finally, I think on restaurant margins, let's say, the good news is we have another year of productivity to help us with our margins in 2020.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [21]

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On the cost saves themselves, it's mainly in our infrastructure costs here in the restaurant support center in how we address that. And we were able to do that because we made a lot of really smart and significant investments in our company over the last few years. And as a result now, we've been able to monetize that. And those of you that have been following our company the last few quarters, we've talked about that at conferences and stuff, the ability to monetize these cost saves. Now some of them going to 2021 because of some timing and as we pay to sequence some of these things. But most importantly, John, the decisions have been made, and the runway for cost reduction is there.

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Operator [22]

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Our next question is coming from Alex Slagle of Jefferies.

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Alexander Russell Slagle, Jefferies LLC, Research Division - Equity Analyst [23]

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You talked about some of the drivers behind same-store sales outlook for 2020. But in terms of the brand performance, do you still expect Outback to dominate? Or should we expect some of the other brands to see an improvement in coming quarters? And if there's any specific initiatives you want to call out that might help drive the inflection in comp there.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [24]

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Yes, sure. We expect all of our brands to do well in -- during the year. But we know that Outback is our largest brand and most important brand in the portfolio. And so we've talked about some of the customer-facing initiatives we've done, the investments in food, our remodel programs, our relocation program and just tremendous operations that we expect to continue to improve under our leadership of our new President, Brett Patterson and with Gregg Scarlett, being our COO of Casual Dining. So I think at Outback, you're going to see more of the same. And also, I want to stress that if we are prudent in our change in PPA, we think over the long term, we'll continue to see our traffic get better. And we're seeing that as we talked time and time again about our traffic trends in our company. They're very good versus the industry.

Carrabba's has -- continues to pursue gains in restaurant traffic, but the customer clearly is voting that off-premise at Carrabba's is really important. And we are really pursuing that with our third-party initiative, our to-go room and our own independent delivery platform at Carrabba's. Bonefish has long had a strong product offering. They'll continue to innovate around their menu. The 3-course dinners and things like that continue to do well at Bonefish. And Fleming's, they had 8 out of 9 positive same-store sales growth. They do very well in the fine dining area. New restaurant openings are happening, and they're above expectations. And Beth Scott and her team continue to upgrade the look of their restaurants, and we're finding that bar dining is a more and more important part of fine dining. So that's a real quick look at some of the initiatives in our brands.

And then, obviously, in Brazil, we've got the #1 position by far. They'll continue to offer great product at a great price point with tremendous operations. And we are well ahead of our opening plan there. And the new restaurants, like you mentioned earlier, continue to open well above expectations.

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Alexander Russell Slagle, Jefferies LLC, Research Division - Equity Analyst [25]

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That's great. And then on development, I may have missed it, if you could just provide some of the details on how many you expected in Brazil and at each brand.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [26]

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Yes. It was 25 overall for the company. I'd say the majority of those will end up being in Brazil. There'll be a handful of Outback Steakhouse locations and then a much, much smaller number at the other brands. And that we know for sure, there'll be a couple of Fleming's. 1 to 2.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [27]

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I think one of the things, too, that we've seen, and Chris mentioned it in his prepared remarks, is there's more room opportunity for Outback Steakhouse, new units. And we're pursuing that. We think we can take share and expand that business even more. And then relocation is just flat out a function of finding great sites. The returns are terrific, well above 30% in sales gains. And it's really a testament to the power of that brand. So you'll see a step-up in Outback new units in the coming years as well.

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Operator [28]

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Our next question is coming from Katherine Fogertey of Goldman Sachs.

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Jared Garber, Goldman Sachs Group Inc., Research Division - Business Analyst [29]

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This is actually Jared on for Katie. Can you guys just talk about some of the quarter-to-date trends you've seen maybe in January? We know January was pretty strong, whether it was weather or customers trading up. So just what are you seeing in the industry and kind of how you're thinking about that playing out the rest of the quarter?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [30]

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The industry was -- has shown a rebound in January. We participated in that rebound, and our traffic trends continue to outpace the industry, which we're very pleased with. Where it goes from here, we'll see, but we participate in the increases in the industry.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [31]

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Yes. I think as other folks have noted out there, weather was certainly more mild up north in the Midwest, and we think that benefited industry results. Given our footprint in the south, we get a little less of a benefit from that. But we really did start out the quarter pretty strong.

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Jared Garber, Goldman Sachs Group Inc., Research Division - Business Analyst [32]

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Great. And if I could just have one quick follow-up. You guys talked a little bit about some of the capital allocation strategy. Are you guys targeting a specific leverage ratio with the debt paydowns? And also, if you were to sell the Brazil business, as you've noted is sort of being discussed, how are you thinking about uses of cash there?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [33]

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Yes. On Brazil, we still need to come to a final decision as to what we're going to be doing there. Like I said, there's a bunch of interests in that business. And we're working on -- working through that. How we allocate the proceeds between debt paydown and share repurchases is yet to come. But there'll be some sort of mix. But let's focus on what a fantastic business we have there. And Chris, I'll turn it over to you for the other piece.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [34]

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Yes. So 3x net debt-to-EBITDAR is the metric that we've targeted. And we've talked about getting down to 3x as a goal here. And it's a multiyear process, but certainly a healthy combination of EBITDA growth and more focus, as we noted in the prepared remarks, on debt reduction will allow us to make progress more rapidly than perhaps we have over the last several years.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [35]

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And one of the things is just with our growth in operating earnings last year in '19 and our forecast for '20 and '21, Chris mentioned this, I mean, it just gives us more and more free cash flow to provide to shareholders and to debt holders. So that's the reason why we're looking at things as we are.

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Operator [36]

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Our next question is coming from John Ivankoe of JP Morgan.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [37]

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I wanted to talk about some of the cost savings a little bit more. Obviously, we saw the changes at the leadership level at Carrabba's and Bonefish, but we really are talking about very big numbers for -- relative to your overall G&A base. So I was hoping we could talk more specifically about what you're cutting, how a smaller organization actually becomes a better organization, how those '20 cuts roll into '21 where you find another $20 million of cuts. And Dave, I'll ask the question directly. I mean, there is a point where cuts can go too far. As we know, you're actually not very high on a per-store basis. So how do we look at this business pay? There really is stat in the business, and you can be kind of a leaner, meaner company that's more effective versus you're actually putting the organization at risk and you're digging too deep into some of the muscle and bone that is necessary for all organizations.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [38]

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Sure. First of all, John, as you know, and you and I have been working together on various things for over 20 years, I've got 30 years plus in the restaurant business and a very good sense of what the support needs to look like and where our opportunities are. So that's number one. Number two is, as I mentioned, we made some pretty significant investments in infrastructure over time. We're reaping the benefits of that through digitization, through automation, through all the things. I mean, just a shout-out to Phil Pace in our control department, who's just done a great job managing costs, working through it. And we're seeing that -- seeing to automate some of those functions in the control area. And then Michael Stutts has come in and over the last year, has done a really great job. And he runs our digital and IT organization, and he's helped us identify opportunities in the company.

So I think, John, our back-of-the-house infrastructure is the very first place that we're going. And I think we have made significant progress in that area. Secondly, we took a really careful look at the management of some of our smaller brands. We think leveraging Gregg Scarlett and all of his experience in casual dining will help us reap some efficiencies in training, HR, how we go to market, et cetera, in some of our overhead costs. Three, the reason why you're seeing some of that going to 2021 is just pacing and sequencing here, right? As you put in new systems and new infrastructure, you've got to pace and sequence this stuff. So I think, John, we've taken a really, really, really hard look at our infrastructure costs. And you know from our time together, last fall, we talked about the cost cuts that were coming and a monetization of that, and I think our guide for 2020 and 2021 reflects that. G&A, as a percentage of sales, was high versus competition. And we needed to address that, and we've done that.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [39]

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Specifically on kind of the tech and the data side, I mean, I think most companies are finding, whether in CapEx or in OpEx, it's actually more than what they thought a couple of years ago. And given there's kind of different ways to define efficiency, it's like they're finding more opportunities to spend money, not less. Could you focus on cost efficiency, specifically on the tech side of why you're actually able to reduce your net spend and you don't find it necessary to maintain it?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [40]

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Yes. Well, first of all, we're investing behind consumer-facing technology. So that continues. But John, it's the infrastructure, the systems, the networks, et cetera, that we had in our company and the people managing them that we've been able to address. And we've done that. And so it's back-of-the-house infrastructure cost that customer doesn't see. We will continue to invest in digital, consumer-facing things, whether it's a new POS device, whatever, we're going to continue to invest in that. But when you looked at what we were spending and where it was being spent and the infrastructure behind it and the investments that we made over the years and the enhancements we made to our systems, I talked earlier about the enhancements we made in our common control function, for instance. That's all paying dividends now, and we are monetizing that in 2020 and 2021. That's what's happening.

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Operator [41]

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Our next question is coming from Gregory Francfort of Bank of America.

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Gregory Ryan Francfort, BofA Merrill Lynch, Research Division - Associate [42]

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Can you maybe kind of give the detail of where you're expecting the debt levels to go? But maybe the change in philosophy there, kind of what drove the reason to maybe step down the targeted leverage? And then I have a second question.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [43]

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Yes. We've had a 3.0 ratio target in place for quite some time. We'll continue now that our -- especially now that our operating income is growing. And we're going to be able to, over time, as Chris said, over a period of years, achieve that target. So I don't really see a broad change in philosophy. One of the things that is happening is we did lean more heavily into our dividend and double that. That was a change that was made. And we'll still have money over -- left over to do some share repurchases. That has to do -- all of that has to do with the free cash flow coming out of the company as we grow earnings.

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Gregory Ryan Francfort, BofA Merrill Lynch, Research Division - Associate [44]

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Got it. And then have the smaller brands this quarter had kind of better performance than they've been having for a little while? Kind of any reason for maybe why both Carrabba's and Bonefish saw a little bit of an inflection and kind of your expectation on that continuing?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [45]

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Yes. We -- like I mentioned, we expect the smaller brands to continue. Fleming's as well. Beth Scott and her team do a great job in fine dining. So we expect the fine dining brand to grow. We are focused at Carrabba's on growing our dinner traffic, but you also have to go where the customer's going. And Carrabba's is all over off-premise doing a fantastic job. And Bonefish, I think if we continue to offer -- they offer such a unique and terrific set of products and continue to offer that at an attractive price point, not discounts, but just be really careful about menu price increases and stuff, and continue our operations focus, I think we'll continue to see same-store sales gains out of that brand as well.

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Operator [46]

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Our next question is coming from Brett Levy of MKM Partners.

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Brett Saul Levy, MKM Partners LLC, Research Division - Executive Director [47]

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I guess, we could start -- just one clarification. You've talked about on the strategic side that you're continuing to evaluate. Is there anything that is off the table?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [48]

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No. I will always -- since we've started as a public company, we look at all the alternatives in our company. We certainly know where the value drivers are, and we've talked about some of those today. But we don't take anything off the table. We try and look at things across our company very carefully and aggressively.

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Brett Saul Levy, MKM Partners LLC, Research Division - Executive Director [49]

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And then just one theoretical strategic kind of question. Given that you've gotten to north of 10 million on your loyalty and you're growing your off-premise, but you're also now starting to go outside of your original customer cohort, what are you seeing and learning about how your most loyal customers are using your product? Are you seeing -- like are you seeing cross permutations with how they are inside your box off-premise? And also any cross usage of the third-party aggregator?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [50]

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Yes. Loyalty is a big weapon for us. I'm really glad we invested behind it. We've got the database. It was really smart to do. We will continue to look at it and work it. We're seeing our very loyal customers use us in all channels. And we're seeing our very loyal customers use us for all of our brands. And it's something that we're very pleased with, that we need to continue to look at how we optimize it and modernize it and move it forward. And Michael Stutts and team, we talked earlier about some of the investments we're making in consumer-facing technology and things. Their team will be working on that as we go forward.

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Operator [51]

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Our next question is coming from Matt DiFrisco of Guggenheim Securities.

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Matthew James DiFrisco, Guggenheim Securities, LLC, Research Division - Director and Senior Equity Analyst [52]

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Most of my questions were answered and asked, but I just had a couple of follow-ups regarding relocations. I think you guys said 9 for 2020. How many did you do in -- was it 11 you did in 2019? If you can confirm that?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [53]

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Yes, that sounds right. We'll confirm for you though.

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Matthew James DiFrisco, Guggenheim Securities, LLC, Research Division - Director and Senior Equity Analyst [54]

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And then, also, when I look at the -- I think you said something about interior remodels. How many will be sort of timing? Is this -- what inning are we in on that as far as how many left to be done and how many will be sort of at that same level of the most contemporary interiors?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [55]

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Yes, it's early days on our next wave of remodels with Outback. We find that every 7 or 8 years, you need to refresh inside the restaurant. And last time we did it was 7 or 8 years ago. So it's early days, Matt. We'll be rolling forward over the next couple of years or so on our remodel program, and we're still finalizing the scope and stuff. I mean, I imagine we'll have a high, medium, low scope is how we'll work it based on the restaurants, but that's something you can see from Outback Steakhouse over the next couple of years.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [56]

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And 11 is the correct number for relos.

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Matthew James DiFrisco, Guggenheim Securities, LLC, Research Division - Director and Senior Equity Analyst [57]

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Got it. And then my last question, with respect to off-premise has obviously been a large part of your business. And I think when you think back over your history of the brand, most casual diners really didn't give off-premise that much of a consideration when they model their same-store sales. Have you changed at all? Like the brands like Cracker Barrels have adjusted how they account for traffic and check, has there been anything there, where now that off-premise has so much more of your sales, you've -- have you changed the methodology, switched from maybe ticket to entrée? Has there been any difference there as far as how you're calculating traffic versus check when you look at your comp?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [58]

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Yes, no real change. We've always used entrée counts at our -- at most of our casual brands for counting traffic. So there's been no change there as it relates to our off-premise business.

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Operator [59]

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Our next question is coming from Sharon Zackfia of William Blair.

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Sharon Zackfia, William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer [60]

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Just a clarification on the 2021 cost savings, should we assume that those are flowing through to the bottom line? Or will there be reinvestment? And then secondarily, Brazil's margins in the quarter were a little softer than we had expected, and we're down quite a bit year-over-year. If you could give any color on what happened there.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [61]

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Yes, sure. They -- Brazil ran a very successful value promotion called All Star, which featured some of our great products and a couple of menu extensions there. We saw an 8% increase in traffic, 8.9% increase in traffic with a 3.3% drop in PPA. And so we had some commensurate margin pressures. But clearly, it was part of our overall strategy. It was part of our overall performance. And for the year, Brazil margins were up 80 basis points. So we're talking about the International segment there, but Brazil's a large part of that. But -- so great comp performance, great traffic performance. And I think you'll see continued comp and margin expansion from Brazil and our International segment in 2020.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [62]

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Yes. And I'd say on the cost savings, we're not going to provide 2021 guidance and thoughts on that at this point. But I guess the thought I would leave you with is the savings are real, and we do expect to benefit from those savings in our P&L in 2021.

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Operator [63]

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Our next question is coming from Andrew Strelzik of BMO Capital Markets.

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Andrew Strelzik, BMO Capital Markets Equity Research - Restaurants Analyst [64]

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Two questions from me. I believe you noted the discounting was flat in the quarter. And I guess, it seems from your PPA comments for 2020 that there isn't expected to be a big delta there this year either. I just wanted to confirm that, that was the case. Or is there more room to kind of move that lower?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [65]

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Yes. Look, I would say that you're correct. We don't go into the year 2020 with an assumption that we're going to have a dramatic shift in the way we think about discounting. But what I would say, consistent with what we've always said, is that we will be opportunistic. If there is an opportunity to reduce discounting, whether it's via a particular promotion we're doing or what have you, we will keep -- we will reserve the right to do that as the year progresses. But there's no stated strategy entering the year.

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Andrew Strelzik, BMO Capital Markets Equity Research - Restaurants Analyst [66]

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Okay. And my second question is on the decision to consolidate the leadership of the casual dining brands. It's obviously a change from the strategy that you've employed as well as some of the other kind of multi-brand portfolios from other companies in terms of the strategy. So my question is, in making that change, what gives you the confidence, taking aside the cost savings, and clearly, you sound optimistic on the sales side, but what gives you the confidence that, that won't have some sort of adverse impact or create some disruption from a top line perspective?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [67]

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Well, we've got one of the best operations, restaurant leaders in the business running it in Gregg Scarlett. So I couldn't ask for a better partner. And that gives me a great deal of confidence. Number two is we have tremendous brand leaders at Carrabba's and Bonefish on the operations side working through that, and will provide -- continue to provide distinctive brand operations go-to-market experience. Number three is, we have some terrific people that are supporting the Carrabba's and Bonefish brands, and our Outback team has always been really, really strong. Number four, we've got Brett Patterson running Outback. Those of you that know Brett in the industry, he's got deep experience. And he and Gregg will be terrific partners as they work on the Outback brand. The last piece is we will continue to reinvest in these brands, pursue our opportunities and grow the sales, as we've talked about. So you can expect additional reinvestment in those brands. But most importantly, we've got the people, the bench, the talent to make this work. And I'm really pleased with how this came together.

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Operator [68]

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Our next question is coming from Brian Vaccaro of Raymond James.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [69]

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Brian Vaccaro, Raymond James. Just on the cost savings side and the G&A line. In the low 240S, is that the right level that you see as an appropriate level of infrastructure support for the business? Or is there some sort of targeted percent of sales or other target that you're looking at over the next few years?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [70]

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Yes, Brian, there will be more, like Chris talked about, in 2021. And we want our overhead as a percent of revenue to be in line with our competitors and yet still provide a fantastic service to our customers and our partners in the field and everything. And we're -- we have the to do that.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [71]

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Okay. And the productivity savings that you talked about at the store level, I know it's something that you've been focused on for a while, could you help frame the opportunity that's still there on the food waste? And you said many simplification. Any more color there? And I guess, where are you on improving efficiency of the labor model as you look at 2020 or even into 2021 leveraging technology and the like?

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [72]

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Yes, I think you hit the nail on the head with the last comment. I think that when we think about productivity, it has shifted to some degree. We are more focused on the technologies now that can unlock further productivity savings down the line. Whether it's simplification in the kitchen with kitchen equipment that can be utilized to better prepare and to more efficiently prepare the food, those are the types of things that I think are still ahead of us, Brian. But pivoting right really quickly back to the COGS and the cost of goods sold line, we made really good progress, as you guys saw in the cost of goods sold line throughout the year on food waste in 2019. But there is more work to be done. So I would say the opportunity for cost of goods sold, and I mentioned this a little bit, and as it relates to 2020, we still feel like cost of goods sold can come down as a percentage of sales went. And it will be driven by some of these opportunities that we've talked about.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [73]

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That's great. And last one for me. Just on the commodity outlook, Chris, the 2%. I just wanted to make sure I heard correctly, you said beef costs are expected to be flat versus '19. Did I hear that right?

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [74]

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Yes, at the same level of inflation as it was in 2019, sort of in the 1.5% to 2% range.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [75]

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Okay. And how much are you contracted on beef for the overall basket at this time?

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [76]

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Beef, we're in really good shape. We feel real confident. I think for the overall basket, we're probably in the 80% range. Typical things like produce are -- and some seafood baskets are not fully locked at this point. But we're in really good shape on 2020.

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Operator [77]

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We're showing time for one final question today. Our final question will be coming from Jon Tower of Wells Fargo.

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Jon Michael Tower, Wells Fargo Securities, LLC, Research Division - Senior Analyst [78]

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Just a quick clarification, and then a question on -- I believe your international CapEx is about 17.5% of your total Capex. And I just want to confirm the majority of that is coming from Brazil, and that was referencing 2018 numbers. And then the question -- Dave, you mentioned earlier in your remarks, the idea that there's an opportunity to grow the Outback unit base in the U.S. over time. But that's down about 30 stores over the past 5 years. And I know traffic's improved, but you're also going through a relocation program right now and some remodel programs. So realistically, looking at the store base of 724 stores, where do you think that can go over time? And when can we start thinking about that unit growth actually ticking higher?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [79]

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We like to get in our 50. And once we get in our 50, we'll look at doing some more. The brand has done extremely well. Outback, we think with the changing -- improving demographics in some of the key markets that we participate in -- like in Florida, for instance, we have a chance for infill new locations. It's a brand that can expand more, and we're going to do it. And we're seeing the returns, and we're going to do relocations as fast as great sites become available. We're not going to push it and have bad openings. But when you have 30-plus percent of sales increases, it shows the power of the brand. So the performance of Outback over time, the relocation gains that we've seen and the new unit performance for the few that we've done in Outback give us confidence we can get to at least 50 more.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [80]

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Yes. On the CapEx question, right now, International, we're targeting close to $40 million -- I think of our total CapEx spend will be international. Now of course, that's subject to foreign currency fluctuations, but $40 million, which is about 18% if you're using the $190 million on the high end of the range.

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Operator [81]

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

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [82]

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Well, thank you, everyone, for listening today. We are -- look forward to talking to you in April and updating you on our progress for 2020 and beyond. Thanks again.

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Operator [83]

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Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may disconnect your lines at this time, and have a wonderful day.