Bloomin' Brands, Inc. (BLMN) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Bloomin' Brands Inc. Third Quarter 2013 Results Conference Call. [Operator Instructions] I'd now like to turn the call over to Mr. Mark Seymour, Vice President, Investor Relations. Please go ahead, sir.

Thanks, Matt. Good morning, everyone, and thanks for joining us. With me on today's call are Liz Smith, our Chairman and CEO; and Dave Deno, Executive Vice President and CFO. By now, you should have access to our third quarter 2013 earnings release. It can also be found on our website at www.bloominbrands.com in the Investors section. Throughout this conference call, we will be presenting non-GAAP financial measures, including adjusted income from operations, adjusted net income, adjusted diluted earnings per share and adjusted diluted earnings per pro forma share. This information is not calculated in accordance with U.S. GAAP and may be calculated differently than other companies' similarly titled non-GAAP information. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP measures appear in yesterday's earnings release and on our website as previously described. Before we begin our formal remarks, I'd like to remind everyone that part of our discussion today will include forward-looking statements, including our discussion of growth strategies and financial guidance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. 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 yesterday's earnings release. Others are discussed in our Form 10-K filed with the SEC on March 4, 2013, which is available at www.sec.gov. During today's call, we'll provide a brief recap of our financial performance for the third quarter of 2013, an overview of highlights for the quarter and 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 Liz Smith.

Thanks, Mark, and welcome to everyone listening today. We're pleased to share with you the results for the third quarter of 2013 and related company highlights. As noted in yesterday's earnings release, our adjusted diluted earnings per pro forma share were $0.10, an approximate increase of 43% over the prior year. Our reported third quarter core domestic comp sales declined by 0.3%, which included a traffic increase of 0.2%. However, if you exclude the trading day impact, our core comp sales were positive 0.4%. While this summer proved to be challenging for casual dining, our brands continued to meaningfully outperform the segment. The core business significantly outpaced the KNAPP Casual Dining index for sales and traffic by approximately 210 and 400 basis points, respectively. When factoring in the trading day impact, we beat the segment on sales by 280 basis points. While industry sales volatility is an ongoing issue, we're encouraged by the fact that we continue to take share and remain confident in the health of our brands, and we were able to deliver earnings that keep us on track to meet our previously stated EPS goals for the year. During the IPO process over a year ago, our management team was very candid about our cautious outlook for casual dining. Our view is that until there is a meaningful improvement in consumer disposable income, the segment will continue to be flat on average, with some periods slightly positive and others slightly negative. While the third quarter trended worse than this, we still believe this thesis remains intact. Despite the difficult environment, we believe the highly fragmented nature of casual dining, coupled with our sales driving initiatives, provide us with significant opportunities to further grow our brands and gain share. We exited Q3 with strength, which continues, and expect all 4 of our concepts to positively contribute to make Q4 our strongest core domestic comp of the year. We will continue to manage the business and make decisions that balance strong annual returns with long-term success. Our commitment to ongoing innovation and investment reflects this. The casual dining industry continues to be aggressively promotional, and many customers are value-focused right now. Our goal is to strike a balance between driving traffic and satisfying broad customer spending range while maintaining the standards of high quality that define us. In addition, we continue to elevate our work around the other consumer touch points in the 300-degree experience beyond just price to ensure that our customers remain motivated by our overall value proposition. Now I'd like to share the details by concept for Q3. At Outback, reported comp store sales were down 0.3%, but plus 0.4% net of trading day. This represents a 210 basis point gap to KNAPP on a reported basis, while traffic was positive at 0.1% or 390 basis points better than KNAPP. Net of the negative 0.7 trading day impact, the sales gap to KNAPP expands to 280 basis points. The ongoing outperformance versus the industry demonstrates that the brand's relevance remains strong even in challenging conditions. We had 2 primary LTOs in the quarter for Outback: Great Barrier Eats and Steak & Unlimited Shrimp. Great Barrier Eats was a repeat from 2012 that did not perform on par with last year. This promotion ran for 8 weeks ending Labor Day and did not break through in Q3's challenging macro environment. We rebounded nicely with a new LTO, Steak & Unlimited Shrimp, which was very successful. Fleming's finished the quarter with comp growth of 4.2%, significantly outpacing the KNAPP-TRACK High-End Steakhouse Dining Index, which came in at 1.9%. On a traffic basis, Fleming's also outperformed the high-end segment, coming in at 3.3% versus 1.1%, as measured by KNAPP. This represents Fleming's 15th consecutive quarter of positive comps. Also of note, our Palo Alto relocation opening was delayed, resulting in the loss of 38 operating days at one of our most profitable restaurants. Absent this delay, comps for Fleming's would have been a full point higher at 5.2% in Q3. At Carrabba's, comps were flat for the quarter and excluding the trading day impact, were up 0.8%. Carrabba's consistently outperformed the industry throughout the entire quarter. Carrabba's business is strengthening behind ongoing image, menu and marketing innovation that we believe will have positive long-term benefits. Promotionally, our Q3 offers, Summer Dining and Trio D'Italia, both starting at $15, performed well. In addition, we are making good progress on the overall brand refresh that we've outlined on previous calls. We completed 21 remodels this quarter and are at a total of 37 year-to-date. In addition, our new menu testing continues in multiple locations and remains on track. Overall, Carrabba's' implementation of the Bloomin' Brands playbook is on plan and meeting expectations. Finally, Bonefish Grill comps were down 2.7% for the quarter on a traffic decline of 3.2%. This was clearly a disappointing quarter for Bonefish. However, we remain confident in the appeal of this brand and continue to view it as our leading domestic growth vehicle. All consumer perception and brand health metrics remain at the top of the industry, and new restaurants continue to open with strength. The slowdown this quarter was mostly self-inflicted. It was driven by a gap in both food innovation and compelling LTO marketing programs. In previous calls, we've talked about the core menu refresh coming in 2014, over a year later than optimal given our last refresh was in 2008. We have also worked to strengthen our marketing platforms and are rebounding in Q4 behind strong programs such as Tuesday Tales, which features a lobster-centric menu. This program is performing very well, driving traffic and elevating the brand's credentials. You will see stronger innovation continue through 2014. Now I'd like to discuss a very exciting development in the evolution of our company and support of our global growth strategy. As noted in our announcement last Friday, we completed the acquisition of 80% of our Brazilian joint venture partner's 50% stake on November 1. This brings our ownership in the Brazilian operation to 90% and underscores our strategy to company-own those geographies that we feel have the greatest potential for growth and success. Brazil is one of the strongest consumer markets in the world, and this transaction provides us with the opportunity to more fully leverage our portfolio there. In addition, by maintaining an ongoing ownership interest, our joint venture partner will remain vested and meaningfully engaged. We think this is important for operational continuity and gives us the potential to bring other concepts to the market with a seasoned management team already in place. As previously discussed, the Brazilian restaurants continue to perform very well, with AUVs approaching twice that of our domestic locations. This is a thriving business by all measures. It has been in operation for over 15 years and employs over 5,000 Outbackers. We believe that the size of this business can double in the next 5 years to at least 100 restaurants. We currently have 47 restaurants, with 3 additional openings planned for the balance of the year. Later, Dave will provide some color around what this acquisition means to us in the near term financially. As for our other strategic initiatives, we continue rolling out weekday lunch at Outback and Carrabba's. As of the end of this quarter, approximately 26% of Outback locations and 28% of Carrabba's locations were offering weekday lunch. This is up from 25% for Outback and 21% for Carrabba's in Q2 and is consistent with our measured approach to introducing this daypart. On the productivity front, we've made solid progress towards our 2013 goal of at least $50 million in savings. In Q3, the total amount saved was approximately $16 million. This puts our year-to-date total at approximately $42 million. Most of the savings thus far have come on the cost of sales line, where we have benefited from the consolidation of vendor logistics and distribution initiatives. On the labor side, the new scheduling tool continues to gain traction as we drive management familiarity and engagement. We expect further savings from this initiative in the fourth quarter. With respect to new unit development, the third quarter of 2013 saw an expanded opening calendar, as we expected. Specifically, we opened 14 new systemwide locations, including 6 Bonefish Grills; 3 Carrabba's; 1 domestic Outback; 2 international Outbacks, 1 each in South Korea and Mexico; 1 new Brazilian location; and 1 international franchise restaurant. The fourth quarter will see even more robust growth, and we anticipate coming in at the low end of our target range of 45 to 55 new openings for the year. As we have discussed, development for 2013 has been slower than we expected, with the competition for A sites remaining intense. We are confident in our domestic and international development opportunities and look forward to expanding our presence with our highly regarded portfolio. We will provide further color on our Q4 call with respect to 2014 new unit openings, but expect it will be well in excess of what you saw in 2013. Remodeling is another significant initiative for Bloomin' Brands, and it remains on track. In addition to the 21 remodeled Carrabba's locations this quarter, 23 Outback restaurants were remodeled for a total of 55 for the year. Our Q4 goals are to finalize 4 additional Carrabba locations and 30 more Outbacks to reach a total of 41 and 85, respectively, for 2013. In summary, I would characterize Bloomin' Brands' third quarter as a solid performance in a tough environment. We believe that we operate an advantaged portfolio of founder-inspired brands that have significant long-term growth runway and unique occasion expansion opportunities. While the casual dining segment continues to be choppy, our fundamentals remain intact, and our strategy has, once again, driven meaningful outperformance versus the industry. And with that, I'll turn the call over to Dave Deno to provide more detail on our third quarter operating results. Dave?

Thanks, Liz, and good morning, everybody. I'll kick off with a discussion around our sales and profit performance for the quarter. As a reminder, when I speak to net income and EPS, I'll be referring to adjusted numbers that exclude certain costs and benefits. Please see yesterday's press release for reconciliations between our adjusted metrics and their most directly comparable U.S. GAAP measures. I'll also provide a discussion of the nature of each adjustment. With that said, our third quarter financial highlights included the following. Adjusted diluted earnings per pro forma share were $0.10 versus $0.07 for Q3 2012, an increase of nearly 43%. GAAP diluted earnings per share for the quarter increased to $0.09 versus a $0.31 loss last year. This significant increase in GAAP diluted EPS is mainly due to transaction costs associated with our IPO in Q3 of 2012. Adjusted net income increased to $13.2 million versus $9.3 million for the third quarter a year ago. GAAP net income for the quarter was $11.3 million versus a net loss of $35.9 million for Q3 2012. Comparable domestic restaurant sales at our core domestic concepts declined 0.3%. This included a traffic increase of 0.2% for the quarter, driven by daypart expansion and promotions across the portfolio. Please note, x trading day, our core comps were up 0.4% for the quarter. As mentioned earlier, we maintained a positive gap to the KNAPP-TRACK, with an estimated 280 basis point beat for GAAP comp sales net of trading day and a 400 basis point beat on traffic. This represents the 15th consecutive quarter in which our core-blended domestic traffic has outpaced this index. And finally, total revenues increased 1.5% for third quarter of 2013 to $968 million. Restaurant level operating margins for Q3 were 12.5% this year versus 13.5% a year ago. On an adjusted basis, Q3 restaurant level operating margins were 13% for Q3 versus 13.5% for the same quarter in 2012. So let's break that down by line item. First, cost of sales increased to 33.2% of sales for the quarter from 32.8% of restaurant sales for the same quarter in 2012. The increase was primarily driven by increases in beef and shrimp costs and a change in product sales mix. This increase was partially offset by productivity initiatives. Labor and other related expenses were 28.6%, which is the same as a year ago. The changes in labor costs included favorability on health insurance due to lower claims activity, productivity savings from the new labor model and reduced expense associated with our managing partner deferred comp programs. This was offset by higher kitchen and service labor and a charge recorded in relation to a payroll tax audit that was approximately 50 basis points. The purpose of this audit was to evaluate the unreported cash tips received by employees during 2010 and determine our share of related FICA taxes. We are currently working with tax authorities to resolve this matter. Given the audit period and non-operating nature of this item, we have added it back for adjusted metric purposes. This is similar to how we handle other out-of-period matters, both positive or negative, that are unusual in nature. Finally, restaurant operating expenses for the quarter increased from 25.1% of restaurant sales in Q3 2012 to 25.7% in Q3 this year. The change was mainly driven by higher supplies expenses, utility charges, repair and maintenance costs and AUV deleveraging. This was partially offset by lower general liability insurance claim activity and productivity improvement. It is worth noting that approximately 30 basis points of the unfavorability in operating expenses is due to printing gift cards in Q3 of this year versus Q4 in 2012. Now let's turn to G&A. After incorporating the related non-GAAP adjustments outlined in the press release, G&A was $60.9 million in Q3 versus $64.7 million a year ago. This was a decrease of 6%. The decline was primarily driven by lower corporate and field-related compensation and lower professional fees. These decreases were partially offset by a gain from the settlement of a lawsuit in the third quarter of 2012. GAAP general administrative costs were $61.8 million in Q3 versus $111.6 million last year. This decrease was primarily due to the items I just mentioned, transaction costs associated with our IPO last August and management fees that were being incurred in 2012 and ceased upon going public. Although adjusted operating income margin for Q3 was flat at 3.7%, we still expect meaningful margin expansion of 30 to 50 basis points for the full year. Q3's outcome was a result of reduced restaurant level operating margins, offset by the noted reduction in G&A. On a GAAP basis, operating income margin improved by 430 basis points from the negative 1.2% in Q3 2012 to 3% in the third quarter of this year. For the third quarter, our adjusted effective income tax rate was approximately 22% compared to 19.1% for Q3 of last year. The normalized rate of 22% used in the current quarter does not include the tax benefit for the release of the valuation allowance in Q2. We have some very positive developments on the capital structure front. After recent reviews by rating agencies, we received 1 notch upgrade from both S&P and Moody's. This is due to strengthening business and improved debt metrics and demonstrates our commitment to building a strong balance sheet. Now I'd like to talk about the great news that Liz mentioned earlier. As stated in the 8-K that was filed on Monday, we now own a controlling 90% interest in our Brazilian operations. This was a very important transaction for Bloomin' Brands as we believe it allows us to more fully participate in the ongoing and significant growth opportunities we see in South America and further cements our position as a leader in the international space for casual dining. The total purchase price was USD 111 million, which was funded with $100 million from our revolving credit facility and $11 million of balance sheet cash. If the T-Bird acquisition is not consummated, we anticipate repaying the revolver by year end with available cash. The purchase price represents an approximate multiple of 7x trailing 12-month EBITDA as of September 30, 2013. In addition, the purchase agreement provides for both call and put option for the buyer and seller, respectively, for the remaining 10% interest held by our joint venture partner, either exercisable beginning in 2015. As a result of this acquisition, you will see some changes to our financial statements going forward. We will now be consolidating this entity and will no longer simply show a single amount under the Investments in and Advances to Unconsolidated Affiliates caption. Instead, we will be capturing the assets and liabilities in the respective line items throughout the balance sheet. This includes transaction-related goodwill and other intangible assets established in purchase accounting. On the income statement, we will also capture all of the related revenues and expenses spread across the related line items as opposed to a single amount under the Income from Operations of Unconsolidated Affiliates caption. We believe that there will be no material net impact to our net EPS from Brazil for the remainder of 2013 and for 2014. We are still working through purchase accounting, but it appears that the noncash amortization of new intangibles will serve to offset the pickup of any additional income for this year and next. That said, and most importantly, this acquisition will be measurably accretive to our EBITDA and will be positive to our cash EPS. In addition, we will recognize a onetime, noncash gain in Q4 in the range of $70 million to $90 million as a result of this transaction. This gain will be deducted from adjusted net income and EPS. Another item of note relates to the timing of reporting for Brazil. Concurrent with the acquisition, we have made a policy election to report Brazilian operating results on a 1-month lag. Similar to other entities with operations in Brazil, we have determined that the efforts required to comply in a timely basis with the complex statutory requirements and to effectively manage the consolidation and auditing processes will necessitate the use of a reporting lag. As a result of implementing this lag, we will only report 1 month of results for the acquired business in 2013. The month of December will not be captured as part of Q4 and 2013. The lag is expected to generate a reduction of approximately $0.02 in our EPS and is included in the full year 2013 guidance, which I will now go through. We are revising core domestic comp sales expectations to reflect Q3 performance. We now believe comps for the year will be at least 1.5%. In keeping with this comp reduction, we now expect total revenues to be approximately $4.1 billion. We still expect adjusted net income will be at least $141 million and that adjusted diluted earnings per pro forma share will be at least $1.10. In keeping with our stated policy, annual guidance for 2014 will be provided in conjunction with our fourth quarter earnings release. However, consistent with prior year, we do want to provide you with some top line guidance regarding 2014 expectations. We anticipate full year same-store sales of at least 2% with positive traffic. This will be driven by continued menu and promotional innovation, further daypart expansion and ongoing remodeling and relocation efforts. In addition, we expect 2014 total revenues to approximate $4.6 billion. This is due to the impact of the Brazil acquisition, new unit openings and the previously mentioned same-store sales guidance of at least 2%. Finally, one last item. Our Vice President of Investor Relations, Mark Seymour, will be moving to be the Chief Financial Officer of our Korean business. Many of you know and have interacted with Mark as he was a big part of the IPO effort. Mark has worked closely with investors and analysts to communicate the Bloomin' Brands story. Chris Meyer will now be leading our Investor Relations efforts. Chris has been with the company for 10 years, serving in various finance capacities, most recently as CFO of Bonefish Grill. We are confident that Chris will pick up where Mark left off, and we won't skip a beat in our interaction with the capital markets. We wish Mark the best in his exciting new role. Our international business is a tremendous opportunity for our company, and asking Mark to assume this position demonstrates our commitment to maintaining and increasing our leadership position. We'll begin introducing Chris to you in the next few weeks and months. In summary, we were pleased with our results for the third quarter. Our brands held up well in a difficult environment, and we remain on track to reach our financial goals for the year. We look forward to talking to you after the new year, when we report our full year 2013 results. And with that, we'll now open up the phone line for questions, and Liz will have some closing remarks when that segment is complete.

[Operator Instructions] Your first question comes from the line of Jeff Farmer of Wells Fargo.

As you continue to roll out weekend lunch, what are you learning in terms of things like rates of sales bills and margin trends? And I guess more importantly for me, what's the annualized incremental sales lift that you're sort of consistently, time and time again, seeing from these additions of weekday lunch in these restaurants on an annualized basis?

Thanks, Jeff. First of all, we're very pleased with lunch, and very importantly, we are seeing comp store sales gains in lunch restaurants that have been open at least a year for the lunch segment. So this program continues to have legs as we roll out more restaurants and as we grow the business going forward. Now that comes from better operations, better local restaurant marketing and as we get to know how to run this business. So it's a big part of our business. We do not, as I think you guys know, break out lunch comp and dinner comps involved in our business. It's just one of the levers that we use at Bloomin' Brands to grow the business. But again, we are very pleased with the rollout so far, and lunch same-store sales are growing once they're open at least 13 months. I'm sorry, Jeff, one last thing. On the margin piece, we continue to make progress on the margins, but I do want to remind everybody that even though it's better than not having the restaurant open at all for lunch, it is not high-margin as our dinner business, primarily from the guest check and some of the alcohol mix, but the margins are getting better as we roll this thing forward.

I understood the comps or the commentary on comps and margins. I guess just more specifically, I'm trying to understand if this sort of a -- if you're seeing $400,000, $500,000, $600,000 lift consistently from this rollout, what you guys are seeing. If there's anything you can share there, it would be helpful.

Sure. Well, I would just say in general, if you look at the industry, lunch represents 25% of the industry, 30% of the industry. So it's a $25 billion opportunity. And I think what Dave said is that this is a multiyear growth vehicle because as -- we're continuing to see it build, and we expect it to build over the years as awareness that these restaurants that people have loved to frequent for dinner, are now open for lunch. But that's going to take time. So it's not like when we open a new Outback and we can open it with lunch at the same time, you can get that kind of wonderful proportionality of a 25% lunch and 75% dinner. This will be a slower build year-over-year over time as awareness grows and as the buzz around our lunch, which is performing very well, continues to build. So there's a bit of a different dynamic when you're putting lunch in after 10, 15 years of not having it. But importantly, as Dave said, we're seeing that year-over-year build. And we're delighted with the reception of both the weekend menu and the weekday menu.

Your next question comes from the line of Mr. John Glass with Morgan Stanley.

Just first, more broadly, you've talked about confidence that the fourth quarter is going to be your best from a same-store sales perspective. Are you reflecting on just sort of what you've seen to date, and we've seen some industry lifts? Or is there a larger amount of promotional activity in the fourth quarter that you're depending on, so things maybe haven't happened yet, but you anticipate them happening? What gives you the confidence that it's going to be a much better quarter than the third?

Sure, John. Well, as we indicated, this is a choppy environment, and we exited Q3 with real strength, which has continued through Q4. And we're very, very pleased. And that's continued across all of our concepts. As we look at Q4, we feel very good about what we're seeing and the levers at our disposal. So we're going to have the ongoing occasion expansion. That's weekday lunch. But it's also -- we just launched a program called $4 Finds at Outback, which is really driving the happy hour business. We have really strong LTOs across all of our brands that are out there right now that are performing well. We have back by popular demand on Outback. We have a fire-finished platform that really celebrates the uniqueness of Carrabba's wood-fire grill that's resonating. And as I said, Tuesday Tales and the wonderful culinary-forward lobster-centric menu is doing great. So as we look out quarter-to-date and what's in front of us, our levers are performing very well, and we feel very good about the broad strength that we're seeing across our efforts.

And this is the quarter you lapped, I think, the most number of lunch rollouts from last year. Saturday lunch rollouts. You went from 25% of your system in the second quarter of last year to 75% this quarter. So is that specific daypart comping positive as you roll over that big lump?

Yes. I mentioned, John, the lunch daypart is comping positive. So we feel very good about where we stand at lunch.

But to your point now, we fully anniversary-ed any weekend lunches on both of the businesses.

Okay. And then just lastly, where does the margin improvement come from in the fourth quarter? Is that at the restaurant level, or are you suggesting that there's better G&A leverage? Because if you just hold your food cost trends and your labor trends, you would actually potentially see a downtick in margin. So is there something worth calling out in the restaurant level for the fourth quarter, or is this more about G&A and D&A leverage in the fourth quarter that gets you to the better margins year-on-year?

No, John, it's a function of -- Liz talked about the strengthening trends in the comps so far. I mean, we had modestly positive comps in Q3, so that will help. Our labor tool will continue to get stronger, and the programs that we have that we've talked about are very helpful. And then I would just say that, as we continue to roll the productivity together, both on the labor side and the food cost side, and some of the -- and you see our sales guidance for the year, those things coming together provide a good margin story in Q4.

Your next question comes from the line of John Ivankoe of JPMorgan. John W. Ivankoe - JP Morgan Chase & Co, Research Division: I'd like to talk about Brazil a little bit, and I think you said you had 47 units, and you're doubling that over 5 years with, I guess, round numbers, 10 units a year. I mean, could you talk about the market overall? I think you have most of your locations in malls. Correct me if I'm wrong. And how many properties that you see that exist today, the quality of those mall locations that could support the average unit volumes of the 47 units that you currently have? And then I have some follow-ups.

Yes. So John, we are in both shopping centers, but we also have kind of freestanding units. And your question about how quickly, how fast, it's appropriate to talk about the infrastructure build in Brazil because we are putting up restaurants as fast as the mall development and A locations are going. We are kind of the go-to tenant. So the good news is that with the World Cup coming and with the Olympics coming, you've seen this big uptick in infrastructure build throughout the country that is really accelerating the development of these locations. And when these locations and lifestyle centers go up, we get kind of the premium positioning in them. So we're really pleased as we look out to see how the infrastructure is developing, the pipeline and line of sight that we have. As you know, we're not just in Sao Paolo and Rio. We're in all of the top 10 markets that are in Brazil that are also growing, the second and third-tier markets that are also growing, as the whole middle class rises. So that 50 going to 100, we see a lot of geographic runway within Brazil, and we also see being able to take advantage of the increase in infrastructure build as it kind of penetrates not just Sao Paolo and Rio but those outer markets. We also -- what's exciting about Brazil is now that we have the 90% control and wonderful, wonderful team on the ground, it really gives us the opportunity to look at our portfolio and take other world-class brands down there into a management team that's been on the ground for 15 years and has 5,000 committed Bloomin' Brand Outbackers. So you can then think about, yes, continue taking Outback from 50 to 100, absolutely, but then the potential for the other brands in our portfolio, to leverage that seasoned management team and that vibrant consumer environment. John W. Ivankoe - JP Morgan Chase & Co, Research Division: And certainly, Liz, having been, those stores are incredibly well run. So from a margin perspective, I mean, you're kind of talking about margins in the fourth quarter of '13 and then there'll be some expectation in '14, but how additive will the consolidation of the Brazilian operations be to your consolidated company store margins?

We will provide more color commentary on that, John, as we go forward in 2014. I do want to say, instruct again, that on an EBITDA basis, this will be accretive. And then when you look at the volumes in the restaurants and what we have margin-wise there, it is better than the U.S. business. So we'll provide a more fulsome look at that, but it will be accretive on a margin basis, it will be accretive to EBITDA and will be accretive to average unit volumes. John W. Ivankoe - JP Morgan Chase & Co, Research Division: And if I may, just trying to pencil out '14 a little bit, a lot less beef inflation but maybe higher shrimp and some other seafood inflation. What are you guys seeing in terms of your overall portfolio at this point?

Yes. We talked about 3% to 5% this year. We're coming at the low end of that range. We don't see anything changing in that aggregate number. Beef increases are moderating, and shrimp costs, as you know, are higher for next year. We'll provide more color commentary in Q4 but -- or in the Q4 call, but the trends that we've talked about this year, we see continuing on in an aggregate basis next year going forward.

Your next question comes from the line of Mr. Joseph Buckley of Bank of America.

Maybe just 1 or 2 on Brazil as well. Dave, I missed what you were saying about the fourth quarter. I got the part that you'll just pick up 1 month, the month of November, but did you indicate that'll be a $0.02 hit to EPS in the fourth quarter somehow?

Yes. Because we have 1 less month, Joe. And Brazil, as you know, is a profitable operation, so it'll be a $0.02 impact to our business, but that's included in our $1.10 guidance. Okay? That $0.02 shortfall is included in the $1.10 guidance. So we're not coming off the guidance to $1.08, for instance. It's included in the $1.10.

Okay. And so just to clarify, that's because you're just picking up -- I guess the month of October, we had a 50% stake. The month of November, we would have an 80% stake, and a year ago, you had 3 months of the 50% stake. Is that the way to look at it?

Correct. That's correct. So next year it'll be a December through November reporting calendar.

Okay, got it. And then just a comment on the mix impact on cost of goods sold. Could you talk a little bit about whether that's lunch or is that the unlimited shrimp promotion? It sounded like it was very effective, but maybe you had higher food costs. Or maybe the combination of the 2 or something else?

Yes. Joe, it was a combination of few things. One is the Steak & Unlimited Shrimp. It's the lunch -- continued lunch rollout. It's a bit on beef pricing, less extent on the seafood pricing, with significant productivity in there. So those combinations came together for the quarter.

Okay. And then just one last one. So the FICA issue on tips, I think you said was for 2010. Is that likely or possible that it extends for 2011, 2012 at some point?

Yes, we don't -- Joe, we've been working with the Service on that. We don't think so.

Your next question comes from the line of Mr. Jason West from Deutsche Bank.

Just one more on the margin side. G&A came in quite a bit lower than where we had been modeling for the quarter. I don't know if we should think about kind of down G&A on a go-forward basis or this is a good run rate, or were there some one-offs that sort of helped in the quarter. If you can talk a little bit about that.

Yes, sure. A couple of things. We have continued to manage G&A very tightly in the quarter, as we have all year. A couple of things did come to light in the quarter that helped us out. We've had favorable health benefits. That's in the P&L under labor, I'm sorry. But we've had some incentive compensation, a decrease in the exempt compensation expense due to the fact that we lowered our sales guidance for the year. And then secondly, we have had tight management of professional fees and headcount addition. That has driven the G&A. Is it sustainable at this level for quarters to come, probably not quite this level, although Liz and I continue to be very judicious in managing our overhead.

Okay. And then just separate question on the T-Bird put option. You mentioned that if that doesn't go through, how the financing would work on the Brazil deal. But is there any reason that, that deal may not go through? And if it does go through, how do you plan to handle the financing for that?

Yes. We have plenty of debt capacity if that deal goes through either on our revolver and current cash. If we have to do anything on a term loan, that's certainly possible to do, but we don't anticipate that. That's the first thing. Secondly, at this point, we don't know for sure if the T-Bird transaction will happen or not. The matter will come to a close at the end of November, when the deal either will be consummated or not.

Okay. My understanding is the only thing that sort of would hold that up would be around the stock price and how that trades, or are there other factors that could cause that not to go through?

Yes, it's at his discretion and his right. So it's entirely his determination. The way the language reads is based on the average of October stock price, et cetera. So he's got to come to a determination what he wants to do at that point. It is, though, a right that expires whether the transaction happens or doesn't happen or closes or doesn't close, by November 28.

Your next question comes from the line of Mr. Jeffrey Bernstein of Barclays.

So 2 questions. First is on Bonefish. The comp acceleration, I guess, was somewhat surprising. It seemed like it was a surprise to you as well. I know you mentioned it was, perhaps, self-inflicted. So I'm just wondering -- because it seemed like it was somewhat sharp in the quarter. I don't know if there were any common themes you saw on that, why would it have kind of upticked this quarter. And then does that change at all? I know you said you're still confident of the growth vehicle, but as we look to '14, does it change your kind of unit opening plan or give you a reason to pause at all?

Sure. So let me talk about Bonefish. I think on the last call, we talked about how -- candidly, there -- and this is a very culinary-forward brand. We had an innovation gap in 2008. And so the softness that we saw beginning in Q2 accelerated in Q3, with the comps being down and the traffic being down. So I want to start first with all of our brand health measures. All of our consumer and customer satisfaction, all surveys of hot brands and what brands like, the brand health of this business continues to be very, very strong. We see that also in new geographies where we're opening. So no, this hasn't changed at all our appetite for doubling the size of this footprint. We're putting them up as quickly as we can get the A sites, and they are opening with strength. In fact, I'm going to be visiting our first Bonefish that will open next week in California, which we're really excited about. So our appetite on opening up Bonefishes remains strong, and they continue to open strong. It really was an issue with an innovation gap in existing markets. And we've talked about how the core menu refresh, which will be out next year and it'll be a significant refresh, will be the first significant menu refresh since 2008. That's too long. It was exacerbated this quarter in Q3 by weak marketing platforms because our LTOs were also not as innovative as they have been in the past. And so why is this the case? Well, we talked about we got behind maybe with the amount on our plate, but we also frankly had some transitions on the team, some key transitions that also can be disruptive. Transitions in the head of marketing, transitions in the head of R&D. That has settled down. We have, no pun intended, our sea leg's back, and we're really pleased with how the brand is responding and reacting. Because when you take a really healthy brand and you give it the marketing and the innovation it deserves, it really responds well. And that's what we're seeing with Tuesday Tales. And that's going to continue through 2014. So we feel very good about Bonefish. Not pleased with the deceleration in comps this quarter but understand and own the deceleration. And the good news about that is that you then move forward. We also -- remember, with Bonefish, we are really in the third inning of occasion expansion on filling this box, right? So we still have only Sunday open for lunch. We still have opportunity to drive the bar business, private dining. We don't even have the ability yet to order online. So lots of opportunities ahead of us even for the existing stores.

Understood. And then just -- well, you mentioned the refresh significant in '14. Should we expect that new menu to kick in, in the first quarter of '14?

No, it'll be closer to the midpoint second half. Now on Carrabba's, the brand refresh will come in the first quarter, but then the marketing will start after that.

Got you. And then the other question was just more on balance sheet. And I know you mentioned you're pleased to get the upgrades at S&P and Moody's and the strengthening balance sheet position. I was wondering if you can give us an update in terms of -- well, I think your debt now may be approaching more your target level. When do you expect that to hit that target? And at that point in time, where should we expect maybe cash being returned? Do you have a preference for -- flexible share repurchase versus a set dividend, kind of the timing and how you'd think about deploying that cash when it does happen?

Yes, sure. Our debt levels continue to -- our measures continue to improve each and every quarter. We're not at the levels that we want to be yet, which is an adjusted debt-to-LTM EBITDAR which would capitalize leases, right now, we're 4.6. We'd like to get in the 3s and closer to the lower end of the 3s. It'll take us a couple, 3 more years to do just that. But as we approach that, we'll look at potentially returning cash to shareholders, but I think strengthening the balance sheet is something we'll continue to do at the company. We will make some investments as they come up, much like we've done in Brazil, and we will eventually be able to return cash to shareholders. As far as debt -- or excuse me, dividends or share repurchases, personally, I believe in both, and I would anticipate that we have some sort of mix going forward.

Okay. But there's no reason to believe that's going to happen over the next couple of years.

I think it'll take us a couple of years to get to the level that we want to do.

Your next question comes from the line of Michael Gallo of CL King. Michael W. Gallo - CL King & Associates, Inc., Research Division: Just a question on international. Obviously, new head of international, you're consolidating in the Brazilian joint venture. As we look out the next 3 to 5 years, what should we think about in terms of what kind of levels of unit growth you can get internationally, whether you see Brazil or what you're doing in Brazil in terms of how you open with all the dayparts as a template for other markets? And just your view on the company versus franchise approach internationally and how you plan to leverage that.

Sure. So your first question, we are delighted to have Pat Murtha join us. It just adds another wonderful depth of international talent and expertise to our lineup. And as you know, Pat has significant experience, over 20 -- approximately 20 years in the international arena in restaurants. So we're delighted to have him joining us because we do, as you said, we do see significant opportunity in the international business. And when we look out -- I think we've said in the past, when we look out in these next 3 to 5 years, we would expect it to become a much larger percent of our portfolio. If it's 8% of revenue now before the consolidation, you can see it ramping up significantly and really doubling the size of the revenue contribution and playing it out. Our core geographies and our core focus, we will remain very focused, it will be Latin America and Asia. Latin America includes Brazil, obviously, but also a lot of potential, we believe, in the Andean cluster. We see Mexico as a core market. When you turn to Asia, China is a market that we are committed to. We just doubled our footprint in China from 1 store to 2 stores, but we see that as a market with a lot of opportunity. And as you know, we've stated that in markets that we think as strategic with significant opportunity, our ownership structure preference is company-owned or JV, with a controlling interest or a path to ownership. And so those 4 core markets that we talked about, Brazil, the rest of Latin America, China, Korea, those will maintain that. Now we will engage in opportunistic and have engaged and have some healthy franchises in opportunistic markets that are not part of that, that we believe that our core competency would not be managing. So I think we've talked a lot about the doubling of this business and the opportunity. We're building the management team to be able to -- you asked about replicating the Brazilian experience in Latin America. We think that is absolutely something that is on the horizon for us. And we're building infrastructure and people as quickly as we can. So great long runway, management team in place and a very focused development strategy.

I just want to add that I've had the privilege of knowing Pat for a long time, almost 20 years. He's a true internationalist. He's lived in Hong Kong. He's spent time in Asia. Deep international experience, deep operating experience, tremendous addition to the team. And we're really building like a wonderful international experienced team here at Bloomin' Brands, and Pat's a great addition.

We have time for one last question from the line of Mr. Michael Kelter of Goldman Sachs.

I guess maybe first, I just wanted to check on the same-store sales rebound you're experiencing of late. Is that possibly driven by reduced ad spending last year, when the election temporarily crowded out your advertising? Now you have a full slate of advertising, and so it's somewhat an easy compare just for a month or so against the election, or is that not a factor at all?

Yes, so Michael, there are certainly things in October that we all were lapping versus a year ago that were expected. So whether it was the election, Sandy, unfortunately, turned out as a benefit this year and also the debates. But those were not big impacts or big drivers last year of our comp, nor are they enabling the outside performance. This is being driven by strong performance that we're seeing against our 360-degree levers. We certainly, as I said, have some of those year-over-year benefits but they won't be the story on comps in Q3 -- in Q4 for us.

And then switching gears, the cost of sales line, it's now going the wrong way, and that's despite the comment you made about the cost savings initiatives mostly benefiting that line in itself. So what's the philosophy on pricing at this point given that trend? Are you going to take some meaningful price at some point, or are you just going to absorb this in the P&L given all the other positive drivers you have?

Yes. Well, first of all, Michael, I think, like we mentioned earlier on a question, we'll see the cost of sales trends improve, first of all. Second of all, we believe in the combination of productivity and pricing. We do not want to price ahead of ourselves. We've got terrific traffic gains versus the rest of the industry, gaining share. We don't want to lose that momentum. So that, for us, is extremely important. So we will stay on top of that as we go forward and be careful not to get out ahead on pricing, and we really expect our productivity initiatives to help us out. And if you guys don't mind me saying one other thing, one business that we don't talk enough about that's really, really, really doing well is Fleming's. And they had terrific same-store sales growth again this quarter. The business is doing very well across all measures, and it's a business that we would recommend to continue to get some attention as it continues to perform so well.

And then on the cost savings, can you talk a bit about your pipeline for projects as we head into '14? What are some of the big projects, the big buckets, that we should be expecting? And are they in the cost of sales line again, or might there be more in labor given that the labor tools -- what should we expect there?

Yes. First of all, I want to mention that the labor line this quarter was really well managed, and that's the result of the rollout of the labor tools that we started out in April. We've talked about that in prior calls. That rollout will continue along with other labor tools that exist in our restaurants -- excuse me, that can exist in our restaurants that other restaurant companies have. So number one is the labor line for next year. Number two is as we continue to manage our food cost, we are rolling through our actual versus theoretical costing in the restaurants. Again, a lot of restaurant companies have that. We'll layer that into our cost management system during 2014, primarily the back half of 2014. That will be another major initiative that we have for next year. We'll continue our work on supply chain and food cost efficiencies. The team has done a wonderful job this year helping to identify some of those opportunities. And then lastly, we've got some energy management systems in our restaurants. Again, a lot of restaurant companies have this. We're putting those energy management systems into place, they'll help us with productivity. We feel good about our productivity targets for this year. On the 2014 -- Q4 call, we'll talk about 2014. We'll lay out what we think about productivity for next year. So the pipeline is robust, we're training people, and we're working to capture those productivity opportunities.

And then maybe lastly, I know it's very early, but can you talk about how the brand has been perceived or received in China? What the unit volume looks like at that first store that's now been open a while, what profitability looks like given the differing cost of labor and other things in China? And then maybe also on that point, I mean, how many China units should we be thinking about 3 to 5 years to go? What's your pace of growth that you guys are thinking about internally?

Yes. Michael, first of all, we will not get into at this early days about average unit volumes and things like that in China. Having said that, we're very pleased with the performance of the business. We have more work to do to continue to market the business well. We have more work to do to manage the food costs, et cetera. But we are working to get that going in the marketplace. So we have 2 there now. We'll open up another one in the first quarter of 2014. And as far as 3 to 5 years from now, I guess one of the things I learned, Michael, in working with Yum!, when we rolled out China, is not to get too far ahead of our skis. Once we get a few more restaurants on the ground and understand where it stands, we'll have a better understanding of where we are going with China over the next 3 to 5 years. But we expect to open a meaningful number of restaurants next year, and we'll talk about that in the Q4 call. So we've landed the restaurants, more work to do, clearly, more work to do, but we've landed them, and the restaurants are performing about as we expected.

Ms. Smith, there are no further questions at this time. Please continue with your closing remarks.

Thank you, operator, and thanks to all of you for joining us today. We look forward to updating you on our portfolio on our Q4 call in February. Good-bye.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may now disconnect your lines.