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Edited Transcript of BLMN earnings conference call or presentation 6-Nov-19 2:00pm GMT

Q3 2019 Bloomin' Brands Inc Earnings Call

Tampa Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Bloomin' Brands Inc earnings conference call or presentation Wednesday, November 6, 2019 at 2:00:00pm 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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* 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

* 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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Welcome to the Bloomin' Brands, Inc. Third Quarter 2019 Results Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions) I would now like to turn the conference over to Mark Graff, Vice President of Investor Relations. Please go ahead, sir

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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 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 third 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 will be providing a recap of our financial performance for the fiscal third 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.

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. Before beginning formal remarks on the third quarter, I want to provide additional context on the company's announcement this morning that we are exploring strategic alternatives.

During the past 4 years, we made a number of important decisions to improve the long-term health and profitability of the business. These included $50 million investments in food and service enhancements to improve the customer experience, successfully pursuing the emerging off-premise business, establishing a world-class loyalty program and accelerating the growth in a rapidly expanding International business.

We also spent $400 million in remodels to contemporize our brand and improve curb appeal. As a result of these initiatives and a focus on core execution, we've been able to consistently take market share over the past 2 years on both sales and traffic. This momentum carried into this year as we are outperforming the industry on sales and traffic by 100 and 130 basis points, respectively, year-to-date through October.

Concurrent with the top line sales momentum, we also continue to improve the profitability of the restaurants as we leverage and monetize the benefits of these investments across the portfolio. Q3 marks the fourth consecutive quarter of at least 60 basis points of adjusted operating margin expansion. In addition, we generated significant free cash flow, which provides increased flexibility for investing across our brands, while deleveraging the balance sheet and returning any excess cash to shareholders. Since 2015, we returned over $1.1 billion to shareholders in the form of dividends and share repurchases.

While we remain confident in our trends and long-term strategy, we do not believe that company's current market value appropriately reflects the company's sales performance, strong record of cash flow generation and intrinsic value. Given the meaningful and ongoing valuation disconnect in the public markets, we are exploring potential strategic alternatives focused on maximizing shareholder value. As part of this review, we have retained BofA Securities as our financial adviser. The Board of Directors and management team are committed to enhancing value for our stockholders. This review is an important next step for our continued success while we execute against our business plan.

Now turning to the quarter. Adjusted Q3 2019 diluted earnings per share was $0.10, representing an increase of 25% on a comparable adjusted basis versus last year. Combined U.S. comp sales were flat with traffic significantly outperforming the industry. We have intentionally moderated our average guest check increases to further strengthen value relative to competition. As a result, Q3 traffic outperformed the industry by 210 basis points with a modest average check increase of 80 basis points.

This pricing discipline combined with sales momentum from investments in the customer experience and off-premise is building with strong October trends. In October, U.S. comp sales were up 3.6% with traffic up 2.1%. A large part of the sustainable momentum is due to the progress made behind our strategic investments and relentless focus on core execution in the restaurant.

During the start of Q3, we experienced softer sales trends consistent with the industry. In addition, we had shifted our promotional calendar and impact of traffic, particularly in August. However, our sales performance improved considerably in September and as I mentioned, into Q4.

We believe these improving trends are driven by the following factors. First, the investments made to elevate the customer experience are contributing towards healthy sales growth. As a reminder, these investments were prioritized towards customer-facing improvements across food quality, portion enhancements, service upgrades and improved ambience. The benefits of these investments are showing up in improved customer health metrics.

Second, we are offering compelling and brand-appropriate marketing activities that continue to resonate with consumers. This included Outback always-popular steak and lobster promotions that offers customers the ability to pair their steak with lobster, prepared 3 separate ways at a compelling price point. In addition, the Dine Rewards loyalty program now has over 9.7 million members. We continue to leverage the rich data we have collected to enhance the customer segmentation opportunities. Our investments in CRM strengthen engagement through customer-centric communication, while providing a higher return from marketing spend.

Third, we made the conscious decision to pivot towards a more temperate pricing approach. You saw this in the third quarter as the growth in average check was a modest 80 basis points.

Over time, as we reduce our 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.

Finally, we continue to capitalize on the rapidly growing off-premise business. In September, we announced the third-party partnership with DoorDash. Delivery through DoorDash is now completely rolled out to over 550 Outback restaurants. We are excited about the potential of this new channel as it complements our existing in-house delivery platform.

Our research suggests, this is a different type of delivery consumer with distinct purchasing patterns and continues to be highly incremental. Despite the DoorDash rollout, our direct delivery business has remained strong, with little to no cannibalization. This further validates our omni-channel approach.

Just to underscore, once again, our recent sales momentum is a combination of all the above, not just the success of the DoorDash deal. For example, in-restaurant dinner traffic strengthened in October as we continued to take share.

Moving to International. Brazil comp sales increased 11% with traffic up 10% in the quarter. These results reflect the strength of our brand positioning, outstanding operations and innovative marketing programs. We also benefited from a more normalized sales environment as we lap the lingering effects of the trucker strike last year.

The underlying fundamentals of the Brazil business remains robust. October sales performed well. In addition, new restaurants continue to generate the highest returns in the portfolio with sales well above expectations. The market remains underpenetrated, and we are capturing this opportunity. The vitality and future growth potential of this business is tremendous.

In summary, our portfolio is in a strong position. We have various sales levers at our disposal and are making significant progress to become a more efficient restaurant company.

During the third quarter, adjusted operating income was up 35%, and adjusted operating income margins were up 60 basis points year-over-year on a comparable basis. This represents the fourth consecutive quarter of significant margin growth of Bloomin' Brands. We remain on track to deliver our operating margin commitments in 2019.

In addition to expected sales growth in 2020, we are continually pursuing opportunities to optimize our overhead structure. These savings will represent a nice down payment to sustain margin growth in 2020 and beyond while we take less overall pricing.

We anticipate a strong finish to the year and expect to deliver on our 2019 earnings targets.

And finally, before turning over to Chris, 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.

And with that, I'll turn the call over to Chris Meyer to provide more detail on Q3

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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 a 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 third quarter financial results versus the prior year were as follows. GAAP diluted earnings per share for the quarter was $0.11 versus $0.04 in 2018. Adjusted diluted earnings per share was $0.10 versus $0.10 last year. When evaluating our results, it is important to keep in mind that our $0.10 from Q2 2018 included a $0.02 benefit for the amortization of deferred gains from 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 $0.02 impact of the new lease accounting standard from Q2 2018 results, our adjusted EPS would have been $0.08.

Total revenues increased 0.2% to $967 million in the third quarter. Total revenue increases were primarily due to higher comp sales in Brazil 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.

U.S. comp sales were down 0.2%. This was driven by an increase in average check of 0.8% offset by a 1% decline in traffic. Our Q3 average check benefit was a little below our expectations driven by changes in product mix. Overall, however, the relatively modest level of average check increase in the quarter is consistent with our strategy to ratchet down the level of menu price increases in our results. We are confident that this strategy will provide more value to our customers and unlock healthier traffic.

U.S. traffic was down 1% in Q3. While we outperformed the industry in traffic by 210 basis points, the result was lower than expected. This was driven by a couple of key factors. First, overall category traffic was down over 3%. This was a 90 basis points sequential decline from Q2 to Q3. We did see an impact from this category softness in our Q3 traffic.

Second, as Dave mentioned, we had timing shifts in our promotional calendar at Outback that impacted traffic more than we expected.

It is also worth noting that we continue to opportunistically reduce discounting in our portfolio, particularly at Outback, where we are down 11% in Q3 and are now down 17% year-to-date.

Although, traffic was softer than expected in Q3, it meaningfully outperformed the industry, and we are pleased by the momentum we are seeing so far in Q4.

We believe the investments in food and service as well as the lift from our new delivery partnership will allow us to outperform the industry on traffic.

Onto our concepts. Outback posted their 11th consecutive quarter of comp sales growth and outperformance versus the industry. Additionally, Outback traffic exceeded industry benchmarks by over 200 basis points. This result comes despite the shift in our promotional calendar that I just discussed. We estimate this shift had an approximate 120 basis point impact to Outback's traffic in Q3. Our third-party delivery partnership with DoorDash rolled out in late September. The growth of third-party delivery is in line with our expectations. This is proving to be a highly incremental occasion as there has been little cannibalization of our own delivery network.

The economics are compelling, and this business is profitable. We expect third-party delivery to be a strong contributor to results in Q4 and into 2020.

Comp sales were up 0.1% at Carrabba's. We are having success with our $10 Bring Homemade Home program and our off-premise business continues to grow. Carrabba's made the decision to utilize multiple third-party delivery providers to complement our own delivery network. Like Outback, this rollout was completed in September. Overall, Carrabba's off-premise was 17% of sales in Q3 versus 14% at this time last year.

Bonefish Grill comps were down 220 basis points. We tried a new marketing vehicle early in the quarter that underperformed expectations. Trends have since improved, and we believe that differentiated occasions, such as our 3-course dinners will allow us to continue that momentum into the fourth quarter.

Comp sales at Fleming's were up 0.4%, representing the seventh quarter of positive comp sales over the last 8 quarters. We are pleased with how Fleming's is differentiating itself in the competitive high-end steakhouse category. In particular, our private dining business has become a standout performer and represents an opportunity for driving incremental business heading into the important holiday season.

Adjusted operating income margin was 2.3% in Q3. As Dave indicated, this was up 60 basis points after adjusting 2018 for the impact of the lease accounting change. This represented the fourth consecutive quarter of significant margin growth.

It is particularly impressive that we were able to show this improvement in margins without a large benefit from increases in average check.

Our high-margin International business continues to grow, and we are maximizing our opportunities in overhead and productivity. We are comfortable with our full year adjusted operating income margin expectations of between 4.8% and 5%. We remain committed to grow margins with moderated pricing while closing the margin gap to our peers.

Moving to tax. Our Q3 adjusted tax rate was negative 2%. Q3 is seasonally the lowest-income quarter of the year so the rate can be volatile. In terms of absolute tax dollars, this result was modestly better than expectations.

I will now take you through the various aspects of our updated full year guidance. First, as it relates to our comp sales guidance, given our performance in Q3 and the ongoing category softness, we believe it is prudent to lower our U.S. comp sales guidance for the year to approximately 1.5%. This is down from 2% to 2.5%. As Dave mentioned, we are off to a good start in October with comp sales up 3.6%. We hope to maintain this early Q4 momentum as we approach the important holiday time period.

Second, we now expect commodity inflation to be approximately 1.5%, down from approximately 2%. Although, our seafood category remains inflationary, it is coming in better than expected.

Third, our GAAP and adjusted tax rates are coming down slightly. Our GAAP tax rate is now expected to be between 5% and 6%. Our adjusted tax rate is now expected to be between 6% and 7%.

Fourth, our CapEx is now expected to be approximately $175 million, which is at the low end of our prior guidance range of $175 million to $200 million. We also continue to make progress in reducing overhead costs and expect to be down in G&A for the year.

Our strong controls around cost make us comfortable reiterating our full year adjusted EPS guidance, despite lower expectations for comp sales.

We will provide detailed guidance on 2020 in our February earnings call. However, given some of the noise surrounding the commodity landscape, it is worth noting that we currently expect commodities to be in the 2% to 2.5% range in 2020. These inflations are expected to be roughly in line with 2019. Seafood, which represents approximately 20% of our food basket, is going to experience higher inflation and is the primary reason we expect our 2020 guidance to be higher than 2019.

In summary, we feel good about both our third quarter results and where we stand moving forward. Our domestic businesses is on strong footing, and our Brazil business is performing at an extremely high level. We have a profitable third-party delivery partnership, and we continue to make significant progress on improving our operating margins. We remain very confident in our long-term plan for growth and look forward to updating you on our progress next February.

And with that, we will now 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 comes from Jeffrey Bernstein with Barclays.

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

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Two questions, and I'm guessing you guys aren't offering anymore color on the strategic alternatives so I will look to the fundamentals. The first question was just on the sales trends you talked about. Just seems like big swings at least at the Outback. I know the traffic was down more than 1% in the third quarter and now you're saying it's up over 2% in the fourth quarter. Besides comparisons, which I guess get a little easier, I'm just wondering, that's a huge swing. I was just wondering what you think are the drivers of that. Whether it's more Outback-specific or anything in particular you can point to in the industry that would explain that type of swing?

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

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Yes, sure. Good morning, Jeff. First of all, we're real pleased with the momentum. We -- as I mentioned, we saw it into September and into October. And the industry we think is in pretty good shape. It remains choppy and when you see it -- as you look at the industry metrics. But more importantly, it's an opportunity to take share in the marketplace. And when you look at the change in trends have actually come across our portfolio. We're very pleased with what's happening at Outback that's come across our portfolio. And if you look at the investments that we've made in our food and service, if you look at the rolling out the DoorDash partnership and our own delivery opportunity, if you look at the -- some of the pricing that we've been very careful about while removing unprofitable discounting, all of these things are coming together, we believe, including better -- improved service at our restaurants, all these things are coming together to build momentum in the company as we sit here today.

So these things -- and it's not just the DoorDash partnership, it's all these things coming together. And we've seen, in restaurant trends, traffic trends improve during the September, October time frame. So we're -- we feel very good about where we're going as a company.

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

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Yes. And we have a really, really strong LTO lineup in Q4 at Outback that we're getting the benefit from as well and we'll continue to get the benefit from as the quarter progresses.

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

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Understood. And my second question was just on the operating margin. I know as we entered '19, you talked about I guess a maniacal focus on margin expansion with now 3 quarters complete, and I think you mentioned 60 basis points of expansion over the past 4 quarters. Just wondering as we think going into 2020, do you think it's possible to sustain that rate of expansion. And if so, what are the biggest buckets of opportunity? I wasn't sure if it's your initial benefit and then it would fade. I know you mentioned something about maximizing the overhead structure. I wasn't sure if that's a new potential cost saving opportunity that might help support the expansion in '20. But any directional thoughts on the magnitude of operating margin expansion into '20 would be great?

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

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Sure. This -- as we talked about at our investor conference in March, this is a multiyear movement forward and we are very committed to margin expansion, once again, in 2020. If you look at the areas of opportunity, we continue to manage our productivity well. We are making significant improvement in our cost structure above the restaurant, so on overhead. And so we're seeing a significant down payment on that. You'll see that go into 2020. And you'll see continued healthy traffic growth as we continue to mitigate our discounting. And that allows us to be careful on price increases as we go forward in this value environment. So Jeff, it's a multiyear roll, and we've got good visibility into that as we go forward. And we'll provide more guidance in the February call.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [7]

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Yes. And one thing I'd add to that, Jeff, is that strategically speaking, this is playing out exactly how we laid it out at our Investor Day. And the one area, too, that Dave didn't mention that I think is really important to note is our International business, particularly in Brazil, we -- our overall company margins get a real tremendous halo from that International business. And that -- as that continues to grow, you're going to continue to see strengthened margins. And I think the good part about this is that we've talk about less reliance on menu pricing moving forward. As you saw in our third quarter results, we can make this formula work with moderated levels of average check growth.

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Operator [8]

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Our next question comes from Brett Levy with MKM Partners.

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Brett Saul Levy, MKM Partners LLC, Research Division - Executive Director [9]

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I know you're not going to talk much on the strategic, but I guess, is there anything that's off the table whether that's paring down the portfolio or refranchising, aside from just the other strategic moves and a potential sale? And also, when you talk it -- just a clarification on the trends. You had said, you lost 120 basis points of traffic in the third quarter. Is that a shift into 4Q? Or is that just something that's lost and then -- just lost within third quarter? And just how aggressive do you think you can or need to be in terms of the value construct?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [10]

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Yes, sure. First of all, there is some shift between quarters that's helping us, and then we had -- did have an impact on Q3, but that's a small part, 102 basis points of our trend improvement. So that's the first part. Secondly, I'm not going to get into more details on the strategic review that we announced today. But as we've said in the past, we always look at the opportunity to improve shareholder value. And so we're looking at all the different alternatives for our company, which potentially would include a sale of the company. But we're going to be looking with the lens towards improving shareholder value because we think there is a very large disconnect between what we're producing each and every quarter versus the value of the company. So -- and we'll provide more information to the marketplace as we go forward. On the pricing piece, we're going to continue to manage out unprofitable discounting, and we're going to be very careful about our price increases going forward as we manage our value equation.

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Operator [11]

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Our next question is from John Glass with Morgan Stanley.

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John Stephenson Glass, Morgan Stanley, Research Division - MD [12]

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Just going back to the change in your promote -- your price, I guess, was this something contemplated earlier in the year and we're just seeing it now? Or is this something you -- sort of a pivot you decided to do during the quarter as you saw traffic weakening? And is this the right level of price/mix for, let's say, the Outback brand? Is it stable? Or are you -- were you in transition during the quarter?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [13]

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It's something, John, we've been contemplating during the year. And it's not something that we weave to or -- to try to come back traffic. It's a conservative strategy on our part as we go forward. And I'm not going to get into details on pricing as we go forward. Our goal certainly is to press -- price less than inflation. And we're going to be very careful about our price increases as we move forward at Outback and in all of our brands.

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John Stephenson Glass, Morgan Stanley, Research Division - MD [14]

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And then on -- I understand that trends improved in September and here in October and you've cited a lot of things you've been talking about really for a couple of years now in terms of experience and loyalty, et cetera, but the real change has been delivery I think. Can you just maybe dimensionalize mention how much delivery is contributing? Or maybe as you think about expectations, what's a reasonable expectation for near-term delivery mix to help us sort of gauge where you think that goes?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [15]

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Yes. We're extremely pleased with our DoorDash partnership. It worked really well. We rolled it during the month of September. And delivery is about 150, 200 basis points, Chris, of our comp?

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [16]

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Right now, I guess, about 200 basis points of the overall comp.

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John Stephenson Glass, Morgan Stanley, Research Division - MD [17]

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Okay. And that is when? End of October? Is that what you're referencing?

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [18]

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It's consistent -- it's inconsistent. You're going to remember that the DoorDash thing rolled out mid-September, so we didn't get as much of a benefit in Q3 as we would expect moving forward. So it will ramp up over time, we would expect.

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

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Yes. And just to reiterate what I mentioned earlier, John, it's a mixture of everything coming together: in-restaurant traffic, delivery, off-premise. And also -- I mean I'd be remiss right now if I didn't call out the tremendous sales growth in Brazil in Q3. And Chris talked about the margins in the business. And Brazil continues to do really well into Q4.

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Operator [20]

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Our next question is from John Ivankoe from JP Morgan.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [21]

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I am going to ask a couple of questions about kind of the strategic review and the maximizing shareholder value, if I can. And I think I'll keep them general enough. Just from your perspective, I mean what kind of changes between today, when the announcement was made, and yesterday and the previous quarters where I know you as a management team, and you as the Board of Directors has always focused on maximizing shareholder value. So is this just a public announcement of, hey, everyone come and talk to us and then make recommendations of what you think is possible? Is there a formation of a special committee that we should be aware of and who is leading that special committee? Just want to get kind of your sense in terms of what's different today versus the past couple of months in terms of the way you've run the company and looked at your stock price and always considered I think things that you could do to maximize shareholder value. And I have a -- several follow-ups as well.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [22]

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Well, we'll try to keep the follow-ups, John, in fairness to all. It's by the rules, but I'm happy to answer the question. You've known us for a long time, and ever since we've been a public company under Liz's leadership when I was CFO, we always talked about maximizing shareholder value. And we took a lot of steps to do that. We've been a public company for 8 years. And if you look at what we try to do as a company, we've had a lot of success, we've had some issues we've addressed. But if you look at it, 13 out of the past 14 quarters, we've made our EPS. The only quarter we missed was the Hurricane Irma quarter. We've got innovation in the company as we just talked about the DoorDash partnership. We've got margin expansion, we've got high-quality brands, we've got good cash flow. And we've got an International business that frankly is underappreciated, not by you, John, but underappreciated. So given this persistent disconnect, we decided working with the Board to step back and ask fundamental question, what's the best capital structure to go forward? And so we've used this opportunity to look at strategic alternatives. No, we're not responding to things. We're taking action here. We've decided to work with our Board to look at various options. There's no special committee. We're moving forward with various alternatives for our company working with BofA. And we just felt that, given where we're at right now, the time is right to do it.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [23]

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Okay. All right. Understood. So let me ask you about Brazil. I mean it's still not that big of a percentage of your overall operating income, which is probably why it kind of gets mixed more or less in the middle and doesn't specific attention. So let's talk about, for example, how you could maximize value in that business overall? I mean does it make sense to probably sell that business or refranchise that business? And the question that I'm going to ask you is what I think a lot of us, as U.S.-based people don't understand is, what the financing market is in Brazil? And is there a financing environment that's in place in that country? Are there operators in place for -- in that country? Are there multiples that are being paid for operating businesses? In your opinion, that could be value accretive to Bloomin' shareholders. And again, I have more and more follow-up after that one.

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

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Sure. First fall, you get great value by great leadership and a great brand. And Salim Maroun and Peter Rodenbeck really did a great job founding that business and Pierre and his management team have taken it forward. And you've seen the results. I don't need to repeat them. They're in our numbers. They've done it time after time after time again. And so you create optionality with great performance. Now what's happening is we're opening up more and more restaurants. We always felt we can get to 100 Outbacks. We see a growth platform there well beyond 100 at Outback. We've now introduced a broad show, which is our version of Carrabba's. So now we've got optionality on new development. And we're -- as we open up new restaurants, they're beating their CapEx targets by quite a bit, which opens up more and more opportunity. So we love that business. It's growing very rapidly. We're trying to communicate that to shareholders as best we can. And there's a lot of optionality, John, on that business, whether it's company-owned or if it's franchised, there's a lot of interest in the company in Brazil. And most importantly, we have a fantastic management team down there that can run the business and continues to grow the portfolio. So what we've offered shareholders is tremendous business in Brazil with great optionality.

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John William Ivankoe, JP Morgan Chase & Co, Research Division - Senior Restaurant Analyst [25]

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That's great. Final one for me. On paper, where your cost structure does seem to be high relative to peers on a percentage of sales basis is G&A. One, we think that that would be the biggest part of your margin expansion plan over the next couple of years. So can we talk about where we are in that process? I mean you've mentioned on this call and mentioned at other times that you expect 2020 to kind of be a big down payment towards achieving your margin goals. So how far are we kind of in this G&A process? And you, Dave, as CEO and sitting in the seat, I mean, do you think you have fairly major efficiency opportunities that as an organization you haven't yet realized that may be allowed by potentially a new structure, different reporting lines, what have you?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [26]

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Yes. I think we can make our progress in overhead by not having new reporting lines or structures and stuff like that. We are well along in making progress on addressing our overhead. And you've seen some of that in this year already. As Chris mentioned, we're lowering our G&A expense guide for the year to be less the last year. So that's number one. Number two is, there still is additional opportunity that we're working within the company. There's robotics opportunities, there's opportunities in IT to continue to maximize our IT opportunities that we have to automate things. Our company has been really responsive to what we're trying to do. And the good news is, John, we're not starting today. We've been working on this over the last 6 months and made significant progress on it. And there's more to come, right? You can't do it all at once. There's more to come. And it will be a significant down payment in our margin expansion for next year.

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Operator [27]

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Our next question is from Jeff Farmer with Gordon Haskett.

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Jeffrey Daniel Farmer, Gordon Haskett Research Advisors - MD & Senior Analyst of Restaurants [28]

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Can you guys provide some color on the interplay between that in-house delivery infrastructure that you guys have built over the last couple of years versus the third-party delivery providers once both went live in late September? Just curious how they both sort of worked hand in hand with one another.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [29]

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Yes. I got to tell you, Jeff, I was so proud of our team, Outback and Carrabba's. And I know Bonefish is thinking about things as well. And -- by the way, it's not just U.S. Brazil has a really great delivery business that they're rolling out. But the one thing that enables us to do and we've been working on this for a number of years. This isn't a fly-by-night thing. We have been -- we put the infrastructure in place. We put the culture in place. We put that team leadership in place. We put the processes and systems in place to build our own delivery network. That is crucial. I spent 12 years, I think, associated with the Pizza Hut brand, 4 years in operations. There were a bunch of us in the building that understood delivery really well. So we have that infrastructure in the culture and that got going -- got us going. The delivery business in-house is profitable, which is really great. Then under Michael Stutts' leadership and our brand President's leadership, we put together a really compelling DoorDash partnership, which we're very pleased with. Their partnership with them has been fantastic. And what that's enabled us to do is to seamlessly integrate that into our culture, process and system. We weren't starting from ground zero. That was really important as we rolled it out during September. What we're seeing is the DoorDash business comes in, the do-it-yourself delivery business remains, and we are not seeing a drop off in do-it-yourself delivery, which really emphasizes the omni-channel approach, which we've been talking about for quite some time. So this is the kind of thing that -- the innovation that we've been thinking about in our company and a platform for growth as we go forward.

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Jeffrey Daniel Farmer, Gordon Haskett Research Advisors - MD & Senior Analyst of Restaurants [30]

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All right. That's helpful. And then just a final question. Some of your casual dining peers have provided some high-level data, but data nonetheless, on average check, orders per day, incrementality. Is there anything like that you can share with us for the DoorDash partnership?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [31]

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It is a different customer. It tends to come later in the day. And it's a little -- slightly less check of party size. But that particular ties into the omni-channel approach that we're talking about. And that's as far as I'd like to go. But when you look at the various opportunities in do-it-yourself delivery and DoorDash, it is a bit of a different customer, which makes us so excited as we go forward.

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Operator [32]

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Our next question is from Brian Vaccaro with Raymond James.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [33]

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Just trickling back on delivery. I think you said that the delivery is about 2% of comp sales mix. Just wanted to be clear. That's specifically third-party sales mix that you're referencing there?

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

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No. That's all -- that's the entire delivery contribution to same-store sales in the third quarter.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [35]

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Okay. In the third quarter, specifically? Okay. All right. And would you be willing to comment on what that looks like in October?

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [36]

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No. We're not going to get it. I mean obviously, it's -- let me put it this way. It's not significant growth to a level that would impact our thoughts around the benefits of the in-restaurant dinner traffic that we're seeing. It's not significantly higher.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [37]

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Yes. I just want to underscore. This is -- the change we've seen is across our restaurant business, not just DoorDash that we're happy about it. So it's just the whole thing.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [38]

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Yes. Brian, it's important to remember that delivery, even though we've talked a lot about it, it is still a relatively small overall part of our sales mix.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [39]

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Yes. Understood. Okay. And that's a good segue into my next question. I wanted to go back to the monthly comp cadence you referenced in the third quarter. Obviously, October is encouraging but the September improvement could be particularly interesting given the industry didn't improve all that much. Could you provide some more color on what you think drove the sequential improvement in September? And maybe also elaborate on that marketing and promo mismatch? Was that a specific promotion that moved out of Q3 into Q4? Or something else is going on there that you can elaborate on?

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

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Yes. If you look at Q3 and Q4, Brian, by month, it's just choppy. And I think, the main thing is we were in Back By Popular Demand Q3 last year. We're earning it right now. We talked about the impact on our sales at Outback. But I want to underscore all of our brands are seeing the trend change and -- that we talked about. But it just underscores, Brian, the choppiness of the industry. And most importantly, what we do for our sales to grow our business and take share is what we're trying to focus on.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [41]

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All right. And could you also -- what was the impact of Dorian to the quarter?

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [42]

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It was very small.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [43]

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Very small? Okay. One last one for me. On the other OpEx line, I noticed that that was up I think 90 bps on an adjusted basis, mid-single digits per week on our rough math. Could you touch on the moving pieces within that line?

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [44]

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Yes. Sure. I think generally speaking, productivity and the benefits of increases in average check offset the inflation. But there were a couple of other things that -- in play there. One, R&M moves around a little, but that was about 40 basis points higher than a year ago. And then operating supplies, as we ramp up this delivery engine, it was about 40 basis points over last year. So those were the big outliers in terms of that dynamic.

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

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And one thing I'd like to add if I didn't mention it earlier, our do-it-yourself delivery platform is profitable and our DoorDash delivery platform is profitable.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [46]

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Okay. And in the last call, Dave, you had mentioned on that -- at that third-party delivery rollout that you might reconsider some of the units where you've rolled out the self-executed delivery previously. Have you started to pare that back at all on the self-executed side?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [47]

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Not yet because what we're seeing is the incrementality I talked about, which is very, very interesting.

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Operator [48]

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Our next question is from Matt DiFrisco with Guggenheim Securities.

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Matthew James DiFrisco, Guggenheim Securities, LLC, Research Division - Director and Senior Equity Analyst [49]

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One follow-up question or a bookkeeping question with guidance and then I had a question. With respect to the G&A, I think you said, it's going to be lower in the fourth quarter. How much of that is sustainable? And just efficiency and cuts versus maybe a change in compensation because of just lower same-store sales? And then with respect to sort of the comments made about strategic alternatives, how about -- I mean what hasn't been discussed much is the Outback brand. It's obviously your flagship brand and it's your #1 asset, yet your peers over the last 5 to 6 years, whether it's a LongHorn or a Texas Roadhouse have all consistently opened stores and grown and the category has not really been weak. It's been a relatively strong category, steak. Is there -- would strategic alternatives include ramping up the growth and focusing on your strongest asset, whether that's company or franchise development? That seemed to have lacked in the last couple of years.

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

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Sure. On overhead, it's sustainable. The down payment, continue going forward, and we're making great progress. On openings, Matt, you are exactly right. We have an opportunity to open, we believe, at least 50 more Outbacks. We need to cycle that up. We've talked about that in the past. Relocations continue to do very well. We've got a great pipeline there. Annette Rodriguez and the real estate team really have done a nice job building a pipeline there. So on the opening side at Outback Steakhouse and relocations, I really, really have an opportunity. And obviously, I talked about Brazil where we're going -- we thought we could get to 100 Outbacks. We're going to go well beyond that. And we're examining, can we go into some smaller cities with a smaller footprint with the Outback name, can we expand Abbraccio. There is a big, big opportunity down there. And finally, I'd be remiss, we're really pleased with the new unit opening to Fleming's Prime Steakhouse, and we continue to take a look at where we can expend -- expand that very profitable brand.

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Matthew James DiFrisco, Guggenheim Securities, LLC, Research Division - Director and Senior Equity Analyst [51]

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Why though -- I mean, how about revisiting that number domestically for Outback? And is it somewhat of a fortressing method where the 750 number or so where you could get beyond 800 domestic stores potentially on the Outback brand if it were. Is there something in the model that just doesn't allow it to be that? I mean you do have lunch now. It's not as though it's just a dinner house. What's the limitation there that you wouldn't maybe revisit to see if that target could be higher?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [52]

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Yes, Matt. I will I'm sorry if I wasn't clear. But we see for Outback Steakhouse at least 50 new restaurants in the U.S., with the Brazil comp under secondary. And we continue with our relocation program. So we agree with you. We think there is expansion opportunities for Outback Steakhouse, and we are looking at our International opportunity as well.

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Operator [53]

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Our next question is from Jon Tower with Wells Fargo.

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Jon Michael Tower, Wells Fargo Securities, LLC, Research Division - Senior Analyst [54]

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Just a few clarifications and a question. First, the off-premise mix in the quarter, I don't think I -- if you had it, I missed it earlier. I apologize. Second, and this one seems a little bit off the table but I wanted to make sure, when you're speaking about strategic alternatives, I would assume you're not including the idea of building on the portfolio or the number of brands under Bloomin' but just want to clarify that with you. And then my question goes to the discounting piece. It's obviously been down nicely. I think you mentioned during the quarter that Outback was down 11% year-over-year and yet traffic still continued to outperform the category and has improved into the fourth quarter. So can you talk about how much more room you have for reducing these discounts before you perhaps materially impact traffic?

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [55]

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Yes. I -- John, I'll start with the off-premise mix and I'll turn it over to Dave. So the 2 big brands that have it. Outback is at 14%. That's 13% increase year-over-year. Carrabba's is at 17%. And that's a 22%, increase year-over-year. All right. Dave?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [56]

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Yes. On the strategic alternatives, well, I guess the best thing, John, right now is just to say the Board is examining all alternatives, and I'll leave it at that. And I think it'd be just a piece part things wouldn't be something that we would want to do. We haven't been in the acquisitive mode, but I'm not going to take anything off the table. But the -- we're really looking at all aspects of our company as we go forward because we do think there is a significant disconnect between our valuation and what we're accomplishing as a group. On discounting, we've made a lot of progress. We are getting towards the end of it, the opportunity. We are always going to look, okay, we're always going to look at the opportunities. We've got a really talented marketing and digital team that really looks hard into that. And so we're trying to make sure that we manage that appropriately as we go forward. But a lot of the progress that we've made is pretty much behind us.

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Operator [57]

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Our next question comes from Gregory Francfort with Bank of America.

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Gregory Ryan Francfort, BofA Merrill Lynch, Research Division - Associate [58]

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I just had 2. The first is in terms of the new third-party platform, DoorDash, do you get the same customer data? Or are there any differences on that front in terms of what you collect in terms of customer spending patterns from them versus when it's happening on your own platform? And the second question I had was, labor was very strong this quarter, and it seems like that's been a common theme this earning season across a few of the restaurant chains in terms of maybe wage growth tempering a little bit. And I'm curious if you could talk about the drivers of labor this quarter in terms of how much that was from maybe more benign wages versus better turnover versus Brazil sales leverage or greater efficiency. Any help we get to frame that up, I think we'll get it with the Q but -- would be helpful?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [59]

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Yes. On -- with DoorDash, we get very rich operational data, but we get no PII, which we think is appropriate. And then on labor portion over to Chris. One of the things that we are -- that really impacts our costs that we're really proud of as a company is our retention levels are fantastic. Our turnover levels are very well managed. And you can imagine that reduces training costs and things like that. So from an operating standpoint, our teams, our brands have done a great job managing through that. So that's a key part of it. I'll turn the rest over to Chris.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [60]

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Yes. Just more specific on labor. Labor, to your point, had been a kind of margin headwind this year until Q3. So we're very pleased with the progress there. The actual wage inflation is still in that 3.5% to 4% range. So it was a little bit less this year -- or this quarter relative to prior quarters. But I think that the main bet that we're seeing there is we did have real favorability in health insurance in Q3 relative to where it had been. So that's the primary driver of the labor favorability.

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Operator [61]

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(Operator Instructions) Our next question comes from Sharon Zackfia with William Blair.

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Sharon Zackfia, William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer [62]

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Just a follow-up on that last comment. On the health insurance favorability, can you quantify what that was in the quarter and remind us is that -- are you self-insured? So is that just kind of more lumpy on an ongoing basis? And then secondarily, just curious, I don't know if I recall you commenting before on kind of if DoorDash and that relationship impacts your ability to kind of grow margins at the pace you had alluded to earlier this year at the Analyst Day. So if you could comment at all on the terms there. And whether or not that's kind of roughly neutral? Or how you think about the profitability there?

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [63]

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Sure. Chris, do you want to take the later one first and then...

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [64]

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Yes. That health insurance, it was $1.3 million favorable year-over-year in health insurance. So yes, it is going to be a little lumpy from a self-insurance aspect.

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

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But the team continues to really good do a great job managing that, and it's been a priority of ours because in this business, if you're not on top of that kind of stuff, it really is -- can come and be a cost that we don't expect. So hats off to the team for doing such a great job on that. And then on the -- the DoorDash piece, like I said, it's profitable. It's not going to impede our margin expansion goals. We're going to be able to continue to grow this and leverage this as we go forward. We're very satisfied with the contract. They're great partners. And we don't see this being an impediment to our overall margin goals as we march forward as a company in 2020 and beyond.

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Sharon Zackfia, William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer [66]

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I guess just a follow-up on that, though, is there any kind of line item noise that we should be aware of as DoorDash grows? I mean should we expect more pressure in other restaurant operating costs or anything like that to be offset somewhere else in the P&L? Just any kind of direction there would be helpful.

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [67]

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No. I think just as we grow that, the use of the operating supplies for delivery will grow. So that'll put some pressure on restaurant operating expense.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [68]

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And, Sharon, and one thing that you reminded us, too, we talk to people and talk to our investors. This is where the customer is going. And to be on top of this and moving forward with it and attacking it is really, really great. So it's a profitable occasion for us. We're going to leverage it, and we're on top of the customer trends that we're very pleased about.

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Sharon Zackfia, William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer [69]

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And then my last question, maybe too early, but is there any difference in customer satisfaction, whether you deliver or whether it comes via DoorDash?

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

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No. There hasn't been anything that we've seen. It's early, but there -- it's something we're on top of all the time. It's early, and our team continues to do a great job in all channels there.

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Operator [71]

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Our next question is from Andrew Strelzik with BMO Capital Markets.

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Unidentified Analyst, [72]

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This actually Dan on for Andrew today. I just had a question on the comp trends quarter-to-date. So it sounds like the average check increases are actually up a little more so far in October compared to 3Q based on those figures you give earlier. I guess I'm just wondering what's driving that given the intentional moderating of average check. Was it mostly due to mix or comparatives or something else? And I know you're not committing yourself to any sort of pricing level moving forward. But is it fair to expect something around that October level of average check for the full quarter? Or should we expect that to kind of moderate as we move through 4Q?

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [73]

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Yes. So I'll answer the first part of this. As it relates to the trends we're seeing in October, it has to do with the BLTO timing that we talked about. The Back By Popular Demand has a higher PPA associated with it. So that's driving. It's mix related as opposed to pricing related.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [74]

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And then on pricing itself, for competitive reasons, we're not going to get into it. I think you've heard today what our -- what some of our broad plans are and we're going to continue to follow through on that.

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Unidentified Analyst, [75]

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Great. That's helpful. And then maybe just one follow-up. I'm just thinking about the third-party delivery and maybe just some more color on why the decision to get into that now. I know you've kind of outlined how the economics have become more favorable last quarter. I guess I'm just trying to understand was that really the predominant reasoning for it. Or did you just feel like it was another incremental channel that you couldn't sit out any longer? And given the success of the direct delivery channel, which is obviously still performing strongly in its own right, I guess just trying to better understand what the main driver was to get into third party.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [76]

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That's a completely different consumer. We're seeing in our numbers. We're not seeing cannibalization on do-it-yourself. We're seeing an incremental opportunity with DoorDash, which we're very pleased about. So that's how we got into it, and we also have a wonderful partner with DoorDash and very good economics there.

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Operator [77]

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Our next question is from Brian Vaccaro with Raymond James.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [78]

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Just one follow-up. On the G&A line, I think you've talked about a multiyear opportunity to fund her at a 100 basis points as you near that differential versus peers. And I guess oftentimes, these streamlining initiatives are front-end loaded. And just trying to triangulate around that a bit. Is it reasonable that G&A could be down $10 million, maybe more million dollars year-on-year in 2020 on that down payment that you referenced? Or are there maybe some investments or other moving pieces we should keep in mind?

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

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Brian, we're not going to get into detail on that. We don't plan on providing any detailed guidance for 2020 right now. But I can tell you and you've seen our results, our cost structure and our opportunities there to reduce those -- our cost structure is providing a significant down payment as we go forward. And we're already seeing some of the benefits of that. How much that is and everything else will come as we provide guidance for 2020. But the team here has done a great job identifying the opportunities.

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Brian M. Vaccaro, Raymond James & Associates, Inc., Research Division - VP [80]

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All right. Fair enough. And on the commodity outlook, the 2020 outlook, you mentioned you think deep inflation will be similar to what you saw in '19. Could you remind me what that was in '19? And then could you also comment on your confidence level in that outlook? How much do you have contracted on the overall basket or your core pro teams at this point in time?

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Christopher Adkins Meyer, Bloomin' Brands, Inc. - Executive VP & CFO [81]

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Yes, at least in the 2% to 2.5% range. And so I would say, we have a large degree of confidence, Brian. We're basically as locked this year as we have been historically at this point in time. A lot more to come, but we feel pretty good about where we are.

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

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And I -- and in closing, I just want to thank the supply chain team for doing such a great job, leading us through that and Michael Healy and his team. So I just want to thank everybody for the call today. Operator, are there any more questions?

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Operator [83]

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There are no more questions at this time.

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David J. Deno, Bloomin' Brands, Inc. - CEO & Director [84]

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Okay. Thank you, everybody. We look forward to updating you on our Q4 results. Have a great day.

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Operator [85]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.