Greetings, and welcome to Bloomin' Brands Fiscal Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow management's prepared remarks. [Operator Instructions]. As a remainder, this conference is being recorded. It is now my pleasure to introduce your host, Mark Graff, Senior Vice President of Investor Relations. Thank you. Mr. Graff, you may begin.

Thank you, and good morning, everyone. With me on today's call are David Deno, our Chief Executive Officer; and Chris Meyer, Executive Vice President and Chief Financial Officer. By now you should have access to our fiscal second quarter 2021 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 recent trends. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from our forward-looking statements. Some of these risks are mentioned in our earnings release, others are discussed in our SEC filings, which are available at sec.gov. During today's call, we'll provide a brief recap of our financial performance for the fiscal second quarter 2021, a discussion regarding current trends, and select Q3 2021 guidance metrics. Once we've completed these remarks, we'll open up the call for questions. And with that, I'd now like to turn the call over to David Deno.

Thanks Mark, and welcome to everyone listening today. We are very pleased with the second quarter sales and profit performance. Our strategies are working and setting the company up for even more sustainable growth. The success is directly tied to the planning and hard work that has taken place in our company over the last few years. In 2019, we presented a comprehensive plan to build a stronger and leaner operations centered company, one focused on providing even better service and food to customer. This plan was designed to significantly improve total shareholder return. Before we get into the details of the second quarter, I wanted to take a few minutes to discuss the progress against the key five initiatives that underpin our 2019 plan. First, grow in-restaurant sales by improving service levels and food offerings in the restaurants. Over the last few years, we've made investments in these areas to elevate the customer experience across the portfolio, especially at Outback. As a result we are taking market share versus the industry. In the second quarter U.S. same-store sales were up 12.1% on a two-year basis versus 2019. This was 890 basis points ahead of the industry. We also made significant investments in our people. Since the start of the pandemic we have not furloughed any employees. This decision contributed to retention employee engagement scores that are among the best in the industry. With sales volumes exceeding 2019 levels these action provide a competitive advantage in retaining talent in this challenging environment. Maintaining a motivated and well-trained employee base is critical to our long-term success. Second, grow our leading off-premises business. We continue to capitalize on our strong off-premises capabilities during the pandemic and the high off-premises retention levels in 2021 are contributing to sales outperformance. During the second quarter,…

Thanks, Dave, and good morning everyone. I would like to start by providing a recap of our financial performance for the fiscal second quarter of 2021. Given the significant impact of COVID on Q2 2020 results, most of our discussion today will compare against the second quarter of 2019, which we believe provides better context to our underlying performance. Total revenues in Q2 were $1.08 billion, which was up 5% from 2019, driven by an improved sales environment in the U.S. Total revenues in the U.S. segment were up 10% versus 2019. This increase was fueled by additional in-restaurant volume, a high-level of off-premises retention, and increases in average check. Total revenues in our International segment were down 37% on a two-year basis. The decline in international revenues was driven by Brazil, which had a significant headwind from COVID-related capacity constraints in Q2. As I will discuss in a moment, the sales trajectory for Brazil is much improved thus far in Q3. Q2 U.S. comp sales finished up 12.1% on a two-year basis. Average unit volumes were $75,000 per week in Q2. Geographically, states in the Southeast such as Texas, Georgia and Tennessee continue to post outside sales gains, while Florida posted a 14% increase over 2019. Importantly, states in the Northeast and Midwest have reopened and nearly every state within our portfolio posted positive comp sales gains relative to 2019. Q2 sales gains were driven by a healthy combination of traffic and average check, both of which were up 6% versus 2019. Our increases in check average relative to 2019 were driven by a 21% reduction in discounts, increased menu mix, and to a lesser degree 2019 pricing actions. As a reminder, we made menu price reductions at Outback in late 2020 to make some of our more indulgent…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first question is coming from the line of Jeffrey Bernstein with Barclays. Please proceed with your question.

Hey guys, this is actually Jeff Priester on for Jeff Bernstein. Thanks for the question. Just on the margin front, given the commodity environment and given that you guys are going to have to find more commodities outside of your contract terms on the spot market than you're originally anticipated. What are your thoughts on the restaurant margin in the second half? And also what is your level of pricing in the menu right now? And then I have one follow-up.

Yes. So pricing is relatively benign. It's in that low 1% range. A lot of the change in average check that you saw in the third quarter is driven by sort of an equal combination of discount reduction, as well as menu mix with a less smaller degree of average menu pricing. I would say, look, we gave guidance for the third quarter. So that should give you a pretty good indication of how we're feeling about margin certainly in Q3. I think the look beyond that into Q4 is probably a bit premature. The only dynamics that we've talked about publicly that we know for sure are going to impact us from a margin perspective in Q4 are the commodity guidance that we gave. Obviously, given the guidance being up to 1%, we had a relatively benign commodity environment in the front half. So the second half that implies somewhat of a 2% or so inflation in Q3, probably closer to 3% commodity inflation in Q4. And then on the wage front, we have talked about the Florida minimum wage increase kicking in, in September, that should cost us about a million dollars a month relative to our run rate.

Yes, just to add a couple things. This is all in the context of a rapidly improving margin story for the company. And Chris talked about the long-term margin goals. So that's really great news. And then, secondly, our supply chain team has done a great job navigating commodities over the years, as you saw our performance this year. You've seen performance in the past, and I'm very confident that we will do a good job going forward on managing commodity costs.

Yes. Just as a reminder, our Q3 adjusted operating margins were -- in 2019 were 2.3%. Our guidance would suggest an op margin closer to 7.5% for Q3 in op margins, or a 500 basis point improvement relative to 2019.

Got you. That makes complete sense. And then just on the CapEx guidance. You lowered $30 million to $35 million noting the constraints on raw materials are pushing some units and remodel to 2022. Your unit guidance were still for 20 to 25 units. Can you just give some more color on the moving parts there and kind of where that $30 million to $35 million is actually coming out of?

Yes. It really just as a move from the higher end of our new unit guidance to the lower end of our new unit guidance, as well, there's probably three or so relocations that got pushed as well as some remodel expense. There's also some infrastructure projects, shortage of chips and things like that that got pushed into early 2022.

Got you. And then the last one for me just on off-premise. I think it's gone down from 35% of sales to about 28% this quarter. Where do you think that's settled long-term and then what portion of your customers do you believe use the brand for both off-premise and in-restaurant dining?

Our long-term mix and I think it's important to look at revenue dollars not necessarily mix, because as in-restaurant dining comes back, it's natural that that will -- that mix will drop a bit. So revenue dollars $275 million in revenue, we hope to grow that from there. And we also hope that the in-restaurant dining continues to improve. So we want the off-premises volume to be a big part of where we go as a company. Importantly, the third-party delivery of business is $100 million and that's growing right now incremental, that's clearly the incremental business for us. So I would just wrap this up by saying, we want to look at revenue dollars, mix, who knows where it's going to end up, a lot of that will depend on what happens with in-restaurant dining. And the most important thing is that we have a multi-channel business, in-restaurant carryout and delivery is very strong. And as Chris mentioned, the margins in the off-premise business is now pretty much equal to our in-restaurant dining business, which is a very important development.

Thank you. Our next question comes from the line of Brett Levy with MKM Partners. Please proceed with your question.

Great, thanks for taking my question. You spoke a little bit about some pretty significant market share gains. Can you give a little bit more granular detail and just you talked about the strength that you're seeing across some of those the Southeast regions, but how are you seeing your share gains in both the earliest markets and also some of the more recently recovering markets? And then, just on the labor front, you've obviously done a great job of retention. Where are you right now in terms of your turnover or what percentage of your system still needs to supplement your labor force? Thanks.

Yes, I think on the labor front, I'll turn over to Chris on the sales. We didn't let anybody go and we didn't furlough anybody. We didn't let anybody go. So our initial starting point was much higher than many others in the industry. And are we heading, we got tremendous employee engagement and retention. So our turnover levels we believe are among the best in the industry. So our staffing levels are very strong, you have pockets of opportunity, no doubt, but our staffing levels are very strong. And the other thing is, we've done a really good job managing the labor model, and we're not at 2019, our utilization, we're not at that level, we've been able to take some efficiencies in the restaurant through some equipment investments and some other things. So I think our payroll practices have been extremely important for us. Our retention and turnover levels are very good. And I think we've got a good situation, our staffing with some pockets of opportunity, but we're in pretty good shape. And in terms of sales; I'll turn over to Chris.

Yes, in terms of the regional performance and the relative performance versus the industry, I think -- I don't think it's unique in the industry to have pockets, certainly in the Southeast where we're seeing outside same-store sales performance. I think a lot of companies are also seeing a resurgence in California. I think that the relative comparison, though in terms of our outperformance for the industry, I think that that's pretty across the board. I don't think that there are a tremendous amount of pockets where maybe we're underperforming, relative to where the industry is. So I think that's good news for us because it does suggest that our relative strength is pretty widespread.

And then just if you could talk a little bit about your customer, you've seen some, you've retained strong check. What are you seeing in terms of the health of the customer in either states that kept the enhanced unemployment benefits longer or wrote them off earlier? Are you seeing anything within the consumer cohort that gives you any economic variances out there?

No, we haven't seen any economic variances across the states. Chris just covered what he's seeing around the country. We haven't seen any major economic variances. What we're seeing is, with the Outback menu changes that we've made and some of the pricing tweaks that we made and some of the other things that we did, people are trading up, we're getting a greater share of alcohol with the attachment on the checks, we're seeing greater appetizers, we're seeing trade-up in steaks. So it's pretty healthy across the board.

Thank you. Our next question comes from the line of John Ivankoe with JPMorgan. Please proceed with your question.

Yes, hi. Commodities of up one and labor inflation of up three to three-and-a-half seems to be expressing a reality for you which is very different than what the rest of the industry is seeing and I want to go a couple places with this. Firstly, in an industry which is seeing according to government data, labor inflation somewhere in the high-single-digits, walk through all the different factors of why your costs aren't that high. And I guess why they won't be so high going forward as just higher industry pressure or wage pressure basically puts pressure on everyone. So that's the first point. Secondly, commodities that one may do you have some contracts that are so deeply favorable relative to current spot in 2021 that you're beginning to be worried or just sensitive, at least in terms of what the 2022 versus 2021 costs are? And Dave, you kind of talked about a number of things that can potentially offset some higher costs to the extent that they come in, regarding I think you said tech innovations that are in test that will be rolled out in coming quarters, it sounds like you've decided on the rollout if you could give us more specifics in terms of what that is when the rollout will be, and potential operational benefits that you would see from that?

Sure. There's quite a bit there, John. So if I -- if we miss something, let's we'll come back to it and just remind us. But so we on the commodities front, it's very early, but I've learned in my over 30 years in this business, John, it's very early to make a commodities call on 2022. All you can do is look at our history. And what we've done in the spot market with long-term contracts, et cetera has put us in a very favorable position. And we think we can handle 2022. But to make a call in July and something that's going to happen in 2022 is premature, and we'll just see how it develops. But I think our supply chain team is going to do a great job with that. And if you look back over time, you've seen us do that. That's number one. Number two on the labor costs and I'll ask Chris to add anything else when I finish here, number two on the labor costs, retention levels, and lower turnover really, really helps. And we've got people that are gates in our restaurants, we don't have to go out and recruit a whole bunch of people and stuff, we've got pockets of opportunity, no doubt we participate in the restaurant industry. But the retention and turnover levels are very strong and that helps us in so many ways. If I'm missing something else, Chris can jump in when I finish. On the technology and equipment front, I'm not going to get into it for competitive reasons. But we've spent an enormous amount of time and effort and capital on equipment opportunities, and technology opportunities. I think our IT and digital teams are doing a great job. If you haven't downloaded the Outback app, I'd encourage you to do it, because there's more developments coming forward, online ordering system has been very, very well received. So you could see more technology come into our restaurants, and you can see some equipment innovation in the back of the house. But I want to stop there, John, if you don't mind because we've got to compete in an environment. So that's what we plan on doing there. And I'll turn over to Chris for anything else on labor.

No, nothing really significant to add, other than to say one of the things that we are benefiting from that, that some of our peers may not be able to is that we are seeing a relatively benign inflationary environment in Brazil from a labor perspective. So that kind of helps the overall number a little bit.

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

Hi, good morning, and thanks. Couple of follow-ups. So just following up on the off-premise margins, what have you done to improve those to almost, it sounds like the in-restaurant margin levels, what are some of the drivers you guys have pursued to improve the margins of that off-premise business?

The menu offerings that we have the mix of the menu offerings, the great relationships, we have our third-party users, they can provide driver utilization that we cannot. So that helps margins as well. So I'd say, it's menu innovation, and partnerships with our third-party providers are so helpful. And the other thing is, I think it's a completely underappreciated part of our business. And that's carryout. I mean, it's a gigantic part of our business, margins are very high. The customers are in control, they do some of the work, they order off. And so it's been and we've been doing this for a long time, and it's a very, very important part of our business. So that's a very attractive part of our business, Jeff.

And then just to follow-up on that specific question, have you guys I think a lot of your casual dining peers are beginning to do this taking some menu pricing premiums on the delivery part of it, has that happened for you guys, and to what level?

We will mix third-party some on price, we'll get into the levels but we will manage our third-party delivery some but pricing hasn’t been a big part of our success story. But we do -- we do to some of that, yes.

Yes, I would say too, if you look at our curbside and takeout business, for example, our new online ordering platform is really good. And it's led to enhance add-on sales. So check average may just be up naturally, because of some of the technology enhancements, some of the efficiencies that we built into that business.

We try and use price as the last lever, let me put that way.

And then just final question on Brazil. So I'm just hoping you guys can help me frame out a little bit here what the consolidated restaurant level margin and operating income margin would look like. If Brazil, sort of pick up performance level, if we go back to 2019 and Brazil was doing well. Ultimately, so more hopefully, clearly, I'm just trying to figure out what magnitude of either EPS or EBITDA drag you're seeing from Brazil on 2021. And what the opportunity is, in terms of recapturing that EPS or EBITDA as we get out into 2022 and 2023 could be? So order of magnitude in terms of the Brazil economic drag on the business right now?

Well, if you go back in history, the Brazil business was historically three to four percentage points higher from a restaurant margin standpoint than our U.S. business. There's really no reason to expect or anticipate that they wouldn't be able to continue to get back to those levels of margins that they had, prior to the start of the pandemic on a go-forward basis. So again, when you think about the puts and takes of our margins, particularly as the balance of the year plays out some of these inflationary pressures that we've talked about as that Brazil business recovers, you are going to start to see sort of an improvement in that international margin, which can help offset some of the inflationary pressures that you may have in the business.

Yes, let's -- Jeff, let's just also just step back and look at the market broadly. We're the number one restaurant brand before pandemic came in, one best brands in the country. We had a leading market share by a lot. We think that about 30% of the restaurants in the -- not us 30% of the restaurants down there have closed. We don't wish any ill will on any restaurant company anywhere. But the fact is about 30% of the restaurants have closed down there. So we are in a unique position to take a significant amount of share. Additionally, they've got an economic footprint that works really well. We're going to continue to expand down there with their cash flow, not ours, their cash flow down there that they're generating. And lastly, they have built an off-premise business that didn’t exist prior to the pandemic. So all these factors coming together lead to a -- and a very, very attractive business model that had higher margins in the U.S. and very good volumes.

Thank you. Our next question is coming from the line of Brian Mullan with Deutsche Bank. Please proceed with your question.

Hey, thank you. Because with the EBITDA growth your balance sheet deleveraging is happening pretty quickly, you share the target of three turns we suggested early next year. Chris would be curious updated thoughts on the potential for further deleverage, and also dividends versus buybacks, how you might incorporate the current valuation of the stock into that thought process. And then related in addition, is there a scenario where you might look to get acquisitive, and you got a company doing north of $4 billion in sales. And I'm wondering if you might view that as a platform for additional brand growth over time?

Yes. So we feel -- we feel that long-term target of three times leverage on a lease adjusted basis is a good target. Once we get to that target, which is candidly coming faster than I think we would have anticipated, could be early next year, we will reevaluate where we go from there. We're not going to make any commitments at this time. We could decide to keep paying down debt to your point, or we could reintroduce a dividend or we could add a share repurchase program or we could do some combination of those little early for us to make that call publicly. But what I would say is, honestly, it's just exciting for our company to be in a position to be able to make those kind of decisions given where we were a year ago.

Yes. And just building on that. We want to have a fortress balance sheet; we want to have a balance sheet that withstand shocks. Chris and team are doing a great job getting us there. And then it gives us opportunities going forward, Brian, and when you look at the capability of the company. You look at our operations capability, you look at the financial muscle we have, look at the digital capability and IT capability that we're building. I talked earlier today about the strengths we have in supply chain. I mean, those are all opportunities for us to potentially look at other things. But most importantly -- most importantly, we've got some fantastic brands in our portfolio. We talked about the chance to grow the Outback footprint beyond where it stands today through relocations and new, you'll hear more of that from us, we can expand that footprint by quite a bit. And we have a new economic prototype that we think makes a lot of sense that can enable us to do that. And then number two, the Fleming's business is, and I hope that investors and analysts pay some attention to it, it's crushing it in fine dining, the numbers, the sales, the operations, the profitability of that business, has been truly remarkable. And you look at the quarterly numbers are just great. And we've got opportunities in our strong markets like California and Florida and a couple other places to expand that footprint. So we'll be doing that as well. So yes, there are opportunities, maybe to look at other things before we do, we have some great brands that we can grow.

Okay, thanks. And that's a good segway to the follow-up, just on the unit growth. You spoke to Outback and Fleming's, just as we think about the next phase, I'm wondering, when you think Bloomin' can be, when you can be a consistent net unit grower in the U.S. even in something like that 1% to 2% range? Is that next year and then I'm also is Carrabba is part of that calculus to just given all of the AUV gains which have been great, thanks.

Yes. I -- I really believe next year, it's too early to lay out targets for 2022 and beyond. But I think we've got some opportunities for unit expansion, a lot of opportunities for unit expansion, and I think we quoted the relocation opportunities we've had, but also just flat out new units of budget, Outback and Fleming's. And then the other pieces is, Carrabba’s I mean, they have just been a spectacular performer during the pandemic, if you look at the off-premises gains and everything else that that they've done, and that team has done. It's just been wonderful. And it may be a little bit too early to talk about what we're doing from a standpoint of Carrabba's. But clearly that's gotten our attention, given their performance. And we're going to focus now, and we have been focusing on building our pipeline, our development team is doing that and building our pipeline for new unit development relocations. And then lastly, in Brazil, they've always been a big net unit add, they're funding with their own cash flow, and we've got the economic prototype down there that works really well, too.

Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.

Hi, good morning. A couple of questions, I guess, on the on-premises business, can you help us calibrate where traffic is now on-premises relative to 2019 and trying to figure out how much more you might be able to get into the restaurants at this point? And then secondarily, there's a lot going on in cost of sales. It's been really great. You know seeing it sub-30% for two quarters in a row is pretty notable, because there used to be around 31% to 32%. Can you help us kind of dimensionalize the benefits of reduced discounting versus menu optimization versus waste reduction and help us understand kind of what part of that may be sustainable, or what might have some kind of give back as on-premises return?

Yes. We're very pleased with the cost management as well. Product simplification has clearly helped, the new Outback menu has clearly helped as people have improved up and down higher cuts of steak and also added on to the appetizers and things, waste management in the restaurants because we're more simple in how we do things has come, waste has come way down in the restaurants. So all of these things are contributing to what we're seeing in the restaurants and we think that's sustainable. Obviously, on the marketing front, we'll see where the marketplace goes. But we hope that we're not going to lead certainly, lead the way in discounting and things like that, we like where we stand as a company, and what we're doing. On the restaurant side, we are seeing restaurant businesses come -- still coming back and improving. We still think there is ways to go and there's an opportunity to go in restaurant dining, and we certainly hope to see that in the coming quarters.

Yes. So some specifics, so the in-restaurant comp sales result in Q2 on a two-year basis was down about 8%. So when you factor in then, check average appreciation of about 6%, you're down in that 14% or so range in traffic on a blended basis little bit lower than Outback obviously getting supported by resurgence in restaurant business at Fleming's, so kind of in that mid -- mid down 15% or so range in Q2, but that actually improved steadily as the quarter progressed.

And we anticipate as people come back in the restaurants for that to continue to improve, which we think could be a potential upside to our business.

Yes, it's a tailwind.

Yes.

Great. And I just want to be clear too, it sounds like you don't think you're seeing any impact at all from the increased media coverage of the Delta variants, can you just confirm how the trends were throughout July, it seemed pretty consistent trends there?

Yes, we laid out some very strong Q4 -- Q3 to-date results and that's pretty clear that we've got great trends.

Thank you. Our next question is coming from the line of Brian Vaccaro with Raymond James. Please proceed with your question.

Hi, thanks and good morning. Just a few questions on the margins if I could, I guess starting with labor in the U.S., specifically; I think you said staffing levels were down versus 2019. Do you expect to add hours or do you see this as a sustainable level where you can deliver your targeted guest experience? And can you help frame or quantify the impact of over time or outsized training costs or other pandemic-related costs kind of near-term things that weigh in, in that item as well? And then last one on labor is how do you expect second half labor costs to compare to what we just saw in the second quarter?

Yes, I'll take the first piece about staffing and maybe Chris can provide some more details on some of the labor piece. On the staffing front, Brian, we've made some really good equipment investments and some other things in our restaurants; we don't anticipate getting back to staffing levels of 2019. And that's been a, that's not a knee jerk reaction. That's a long planned, this been planned for a long time for us. So that is something that we're going to continue to do. But we don't anticipate at all coming back to 2019 staff levels.

And then just on the inflation side and back half, front half. This is -- so we've been I think at the low-end of our inflation guidance through the second quarter, we're seeing higher inflation in the U.S., as I mentioned earlier offset by a relatively benign inflationary environment in Brazil. So it may tick up a little in Q3. And then of course, it will be higher in Q4, as we have the Florida minimum wage increase, which starts in September. I think we would say back half, we're trading to the higher end of the guidance range. But overall, we feel really good about where we stand from a labor perspective.

Yes. And I think as you look at these kinds of things, Brian, just I know you will just step back and look at our margin performance today in 2021 versus what it was in 2019 and prior years, you're seeing significant, significant improvement.

Yes, yes and circling back on off-premise. I think you mentioned some changes in third-party and I know you were doing some self-delivery as well, have you stopped doing self-delivery in most of your units, and now just mostly leveraging third-party. And then Chris, what was off-premise sales mix, sorry, if I missed it in the quarter-to-date period. And where's this current split between carryout and third-party delivery these days?

Yes. And what we will be is on the -- on the carry -- on the delivery business, we will be continuing to do our own in-store business. We need to have that capability just to provide some flexibility. And we've got some restaurants that do really well in in-store delivery with high volume. So we're going to continue to -- we're going to continue to do that. But we obviously like the partnership we have with our third-party providers and what they can do. So we'll continue to have a mix, Brian.

Quarter-to-date, we're at 25% of sales. But most of that change from where we were in Q2 is just a trade between the curbside business and the in-restaurant as in-restaurant recovers. Interestingly enough, the third-party business has stayed flat from a percentage of sales basis from Q2, even into Q3 again just reinforcing the stickiness, the incrementality, all of that of that business, which is pretty exciting.

Okay, that's great. And then back to the increase in your long-term margin framework. What does that assume in terms of where your marketing spend settles out?

Well, yes, so we've talked about the need to reinvest in marketing dollars from a sales building perspective. Now, obviously if sales stayed exactly where they were today without the need to spend additional marketing expense, then our long-term framework would probably look a little different. But our anticipation is that over time, we're going to rebuild that marketing lever. We spent 1.3% of sales in marketing in the second quarter. So our long-term framework that we laid out, we talked about in 2019, we spent 3.5% of sales, longer-term; we think we can keep that below 3%. But certainly it's going to be elevated from where it is today. So somewhere in the 2.5% to 3% range is kind of what we're thinking.

And Brian one of the things that we did that that we learned during the pandemic is just the digital marketing, return on investments, a different way to go-to-market to identify customers more granularly, all those kind of things. We're going to use all those learnings. And I think we're going to get a bigger bang for our marketing bucks with less costs and we'll see what we settled in. But there has been significant capability -- digital marketing capability built within the company during the last 18 months.

All right. That’s very helpful. And then just lastly, on the Brazil business, great to hear that that’s improving. Where does the potential licensing of that business stand? Is that still a priority and have those conversations started up again yet? And then in your long-term framework, does it give effect for any potential change in the ownership structure of Brazil? Thank you.

So we're going to enjoy the comeback in Brazil. It's a tremendous potential tailwind for us in 2020 roundabout to 2021 and into 2022. And then we'll make some decisions after that. But it's a great business. It could be a significant tailwind for us in next few quarters. They've come back quickly. It was not contemplated in our long-term framework that's kind of play we continue to own. But that doesn't mean that we won't examine things. But the business -- the team down there has done a fantastic job. It's bouncing back very quickly and it could be a significant tailwind for us for the next few quarters.

Thank you. Our next question is coming from the line of Alex Slagle with Jefferies. Please proceed with your question.

Thank you. Good morning. You mentioned the improved performance in the California franchise business. Wondered if you could give some perspective on the expected cadence of the franchise revenues as collection of royalty income comes back?

Yes. So we're -- we're effectively right now collecting current royalties from our franchisees which is fantastic. But as you know, we have an amount to recoup from past due royalties we are now recouping those as well. So I would say that the past due amounts, it's probably next 12 to 18 months; you'll see those come back into our P&L. So that does mean that relative to where we were historically, you can see upsized revenues out of the franchise the other revenue line moving forward.

Got it. And second, I just may have missed this, but with the confidence to increase the long-term margin target from 7.5% to 8% any reason that does not also translate into higher near-term outlook on that 6.3% to 6.8% when the volumes get back to 2019 levels or just something different the timing of how that plays out?

No, nothing different. It would all -- it would all -- they would all rising tide to lift all boats.

Thank you. Our next question is coming from the line of Lauren Silberman with Credit Suisse. Please proceed with your question.

Thank you. So just a follow-up on the margins. So you've talked about 7.5% operating margins, you talked about 2019 sales now at 18%. Given you're trending above 2019, how are you thinking about the timing to achieve the 8%? And then any line items that you can call out on where you're seeing the additional leverage or efficiencies or is it across the P&L?

Yes. It's mostly a confidence in our sales story. I think if you look at the framework that we laid out a couple quarters ago, all of the key tenants in terms of efficiencies and cost savings are still in place, whether it's COGS. We talked about upsize in COGS, we talked about the labor efficiency, we talked about the marketing efficiency. We did refer -- reference the fact that's from an operating expense standpoint, we'd expect that to be a little higher just because of the increase in off-premises business. So all that framework still exists, it's really this change in outlook going from the 7.5% long-term to 8% long-term is really about the increasing confidence and the stickiness of some of these sales levers, particularly what we’re seeing with the Outback new menu, and the sort of the off-premises business and the thriving nature of that business.. So that's the framework that's changed. I would say, in terms of just short-term, long-term, we feel very good about where we think we're going to land in 2021 from a margin perspective. Obviously, we're ahead of schedule, in terms of our long-term expectations. But I think that the framework we're trying to lay out here is that over the long-term, if we can fundamentally change the business, where we now have an 8% long-term operating margin framework versus a 4.8% operating margin framework in 2019, the value that that creates for our shareholders is immense. And so we are committed to that number. And we're going to hopefully take advantage of that in terms of our long-term shareholder value.

Great. And on Dine Rewards, can you talk about where you are with Dine Rewards in members and how you're thinking about opportunities to leverage that program from here. And then just from a brand perspective do you see greater utilization from customers at any of your brands more than others?

Yes. We're -- Dine Rewards continue to grow for us. We're over 12 million. We think there is tremendous opportunity to leverage that program, especially with all of our digital marketing capability. I'm not going to get into it, but watch that space. And I'm sorry, what's the second part of the question again?

Do you see any greater utilization of the loyalty program at any one of your brands more than others?

Well, just because of its ubiquity, it's Outback, but it's available to all of our customers. And we see trade between customers. And if that's some -- hopefully, something that we'll be able to take more advantage of going forward. But more news coming on the loyalty program in the coming quarters.

Thank you. Our next question is coming from the line of Jon Tower with Wells Fargo. Please proceed with your question.

Hi, this is actually Karen Holthouse on for Jon. And just one quick clarification. Earlier in the call, you had mentioned about a $1 million impact from the Florida minimum wage kicking in. Was that specific to the fourth quarter, or how we should think about it on an annual basis?

It's $1 million a month impact. So it's $12 million annually, it will be $3 million in Q4, $1 million in September.

And then --

And that's all baked -- and that's all baked into our guidance.

And that was baked into the Q3 guidance.

Okay. And then on the CapEx outlook, if we get to 2022 and some of these supply chain issues are kind of worked through. Is there the potential for sort of catch-up CapEx in 2022, for sort of getting what would have been in the plan for 2022. And then also wrapping up what you were hoping to do in 2021?

Yes. We've always talked about potentially up to $200 million in capital spending that will ebb and flow depending on timing, insights, and everything else. And as we build that balance sheet I talked about, right. We could uptick that. But our development team is doing a great job building the pipeline, and we can move very quickly, and we'll just manage it appropriately. We think we've got a significant footprint expansion opportunity and market share opportunity.

Thank you. Our next question is coming from the line of Jared Garber with Goldman Sachs. Please proceed with your questions.

Hi, this is Michael on for Jared. A couple quick ones. First, we’ve note a little bit of an uptick in the number of limited time offers that you guys have had for Outback particularly. Any particular reason why you guys have started to kind of redeploy these, I guess that was more back in March, and maybe they've continued to shift any certain leverage you're looking to pull there? Thanks.

No. We've had no significant change in our marketing plans. Like I mentioned earlier, we hope to continue this marketing effort as it is, and certainly don't want to lead any way in discounting. So our sales trends are very strong and it's -- there's been no real change in limited time offers or any of that kind of stuff.

Yes. We talked about the 20% or so discount reduction relative to where we were in 2019. And I think, if anything, I think we've talked about how we can offer more intelligence to the consumer, because this is the time when the consumer is looking for that. And you saw that show up in our average check increase in Q2, because that wasn't driven by menu pricing, yes.

Great. Thanks a lot. And then one other quick one, any updates on Tender Shack or Aussie Grill or any of those initiatives. Just wondering if you guys have any insight on anything particular in the quarter, maybe as re-openings ramped?

Yes, no Tender Shack is not at to the levels, we want to be quite yet. We've got ways to go in that business. And I think it's directly related to the rapid, very rapid growth back in the restaurant business this past six months or so. So we definitely dedicated reference to that. But we've got more work to do on Tender Shack. We're looking at marketing and product opportunities there, but that's a business we will continue to pursue. Secondly, Aussie grill, we hope they'll open up three more this year. The economics are good, the sales are good. And I think they're just follow the money. If we -- for opening more that means we like what we see. We're spending more CapEx. The team has done a really good job there with that concept, and we think it could be a really big opportunity for us as we go-forward.

Thank you. There are no further questions at this time. I'd like to hand the call back over to management for any closing remarks.

Well, we appreciate everybody spending time with us today and we look forward to updating you on the company in October. Take care everyone.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.