Greetings, and welcome to the Bloomin’ Brands Fiscal First Quarter 2022 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. It is now my pleasure to introduce your host, Mark Graff, Senior Vice President of Investor Relations. Thank you, Mr. Graff. You may begin your presentation.

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 first quarter 2022 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 first quarter 2022, an overview of company highlights, and an update to 2022 guidance. 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.

Well, thank you Mark and welcome to everyone listening today. As noted in this morning's earnings release, adjusted Q1 2022 diluted earnings per share was $0.80 versus $0.72 in Q1 2021, up 11%. We also saw good sales growth in Q1 with positive comp sales across all concepts. This momentum is directly tied to the planning and hard work that has taken place in the company over the last few years. We prepared a comprehensive plan to build a stronger, leaner, operation-centric company, one focused on providing even better food and service for our customers. It's clear our strategies are working and reaffirm our ability to deliver on key commitments and drive even more sustainable growth. These results would not have been possible without the talented and dedicated employees in our restaurants and the restaurant support center. Your commitment to providing guests the highest level of service and hospitality is what makes our restaurants so successful. As we build upon the momentum from the first quarter, we remain focused on executing against the following key priorities to deliver sustainable growth. First, grow in-restaurant sales by improving service levels and food offerings. The investments made over the past years to elevate the customer experience are showing up in improved social and customer scores, especially at Outback. As part of this effort, we continue to look for ways to simplify the business to improve execution and consistency. This includes rolling out several innovations such as new cooking technology, including advanced grills and ovens, to improve food quality and productivity. We are also deploying kitchen display systems for meal pacing and handheld technology for our servers. These innovations should reduce costs and further improve customer service. While all this is going on, we continue to upgrade our asset base. Investments in remodels are offering good returns and recent relocations at Outback are providing outsized sales lifts and volumes exceeding $4.5 million. Second, we are leading in the off-premises business. We capitalized on our strong carryout and delivery capabilities during the pandemic. US off-premises sales were over $1 billion in fiscal 2021. Retention levels held steady with Q4 and are contributing to sales outperformance. Importantly, profit margins in this channel are comparable to margins of the in-restaurant business. This is the result of initiatives that were completed in the past two quarters. We are also pursuing catering opportunities as people continue returning to offices. We offer significant value through our bundled platforms, which includes group platters for large parties and/or individual box options. We expect off-premises to remain a large and growing part of the business going forward. Third, leverage operating margin gains by growing sales and reducing costs. This starts by growing healthy traffic across in-restaurant and off-premises channels. It also requires reducing reliance on discounting and promotional limited-time offers, and pivoting advertising spend towards more targeted higher return digital channels. In addition, we remain disciplined in managing the middle of the P&L and are aggressively pursuing efficiencies in food labor and overhead. As Chris will discuss, despite large increases in food and labor inflation, we've been able to achieve our margin objectives. And finally, become an even more digitally-savvy company. In Q1, approximately 79% of total US off-premises sales were through digital channels. Last year we implemented a new online ordering system and mobile app to support our digital business. These technology initiatives are aimed at creating a frictionless customer experience while also enhancing customer engagement. Both have outperformed expectations and the new app has over 1.8 million downloads. You can expect to see more activity as we improve the functionality and features of our app and digital offerings. These priorities will be our guide for 2022 and beyond. Because of the momentum we have in so many areas and a much stronger balance sheet, we are in a position to begin growing our restaurant base in a meaningful way once again. I will now turn the call over to Mark Graff, who has recently taken over responsibility for business development to provide additional details on our new unit plans.

Thanks, Dave. I'm excited about the opportunity to discuss our strategy to accelerate new unit development particularly in the US. The improvements made over the past several years to enhance the customer experience, simplify execution and capture the off-premise business have strengthened the economic model. In parallel, we've been patiently designing a smaller, less expensive Outback prototype that we believe will enable more meaningful restaurant growth with healthy returns. These smaller units provide fill-in opportunities in markets as we're able to pursue new trade areas. When combining the growth initiatives we see across the portfolio, we believe we can achieve 3% unit growth each year in the near term with attractive ROIs. We are prioritizing these efforts domestically with Outback. Additionally, we'll focus on Fleming's and internationally with Brazil. Let me provide some more perspective on each of these opportunities. Outback is a leading brand and remains a category leader with significant opportunity for unit growth. The success of the Outback relocation program is a clear indicator of this demand and brand strength. In the past five years, we've relocated approximately 50 restaurants with sales lifts of over 35% and recent average unit volumes of $4.6 million. We believe we have the opportunity to relocate an additional 100 restaurants. Recent new Outbacks are also opening at about $4 million. We believe the smaller prototype asset helps us capture the opportunity in key markets in Florida, Texas, and other states in the South. This can be done in one of two ways: first by building new restaurants in rapidly growing markets; and second, by building additional restaurants in major metro areas that still have opportunities. The new design incorporates several aspects in the restaurant. We reduced the overall size of the building by 16% to around 5,000 square feet. We accomplished this by simplifying the configuration of the restaurant. This included redesigning the back of the house and optimizing the layout of the dining room. Importantly, we did this without compromising the guest experience or the number of tables. Guests will notice a brighter ambiance, a redesigned bar, and a new decor package that contemporizes the look and feel while highlighting our Aussie heritage. Second, the new prototype integrates the new back and front of house technology enhancements. This improves speed, consistency, and execution while strengthening the personal guest experience that people expect at Outback. These elements are critical to supporting $4 million to $5 million volumes. Third, we are incorporating the current learnings from our strong off-premises business into our design. With off-premises volumes averaging approximately 30% of sales, we added space to better accommodate this important sales channel. Fourth, we're also leveraging the benefits of simplification and efficiency efforts that translated into enhanced profitability. Finally, we reduced the overall cost of the build by approximately 20%. This, combined with our enhanced profitability, provides attractive new unit level returns. We plan to open six Outbacks this year and are actively building the pipeline for expected 2023 growth. We currently have 23 sites under contract and expect to double our Outback development in 2023. At Fleming's, we have the opportunity to open additional units in California, Texas, and Florida, three of our top markets. Fleming's is a proven category leader and will be a source of growth for the company. Recent new unit volumes have averaged $6 million and profitability measures are among the highest in the portfolio. We are actively building the pipeline for growth and look forward to discussing this in the coming quarters. Internationally, we've always been bullish on growth, particularly in Brazil given the strength of the market. That optimism remains today and we've never been better positioned for expansion. Our new units continue to open well above expectations. We expect 16 new Outbacks this year and continue to build a strong pipeline for growth. The market remains underpenetrated and the future potential of this business is tremendous. We have 126 Outbacks opened today and believe we can grow to approximately 240 Outbacks over time. In addition, we'll also continue to innovate with non-traditional formats as well such as Aussie Grill, virtual kitchens, and airport locations. While we're in the early stages, these provide incremental opportunities to reach new consumers and expand our growth pipeline. We will also leverage the learnings from the smaller prototypes and apply them to the rest of the portfolio. This includes opportunistically building Carrabba's and Bonefish in our core geographies. This growth plan creates excitement and opportunities for our employees and company while providing outstanding returns to shareholders. And I'll now turn the call back to Dave.

Thanks Mark, for providing an update on this critical initiative. In summary, Q1 was another terrific quarter and this sets us up well to achieve our 2022 goal. Given the momentum we are seeing, we remain bullish on the business and we have raised full-year guidance. And with that I'll now turn the call over to Chris who will provide more detail on Q1 and thoughts on 2022.

Thanks Dave and good morning everyone. I would like to start by providing a recap of our financial performance for the fiscal first quarter of 2022. Total revenues in Q1 were $1.14 billion which was up 15.5% from 2021, driven by a 14% increase in U.S. comparable restaurant sales. Our same-store sales results consisted of a 5.6% increase in pricing, a 6.9% increase in mix, and a 1.5% increase in traffic. This increase in traffic came despite an approximate 300 basis point impact from the Omicron variant and unfavorable weather that we discussed on our last earnings call. The increase in mix was driven by two factors. First, there was significant trade-up in the higher-priced menu items and additional sales of appetizers and beverages. In addition, in-restaurant dining carries a higher check average than off-premise dining. Off-premises was 35% of US revenues in Q1 of last year and was 26% of US revenues in Q1 of this year. This shift in revenue channel also helped drive menu mix higher year-over-year. At 26% of US revenues off-premises was flat from where it was in Q4. Importantly, the highly incremental third-party delivery business continues to grow and was 12% of U.S. revenues in Q1 versus 11% in Q4. In terms of concept performance, Outback was 29% of sales and Carrabba's was 34% of sales. Off-premises remains sticky, is a large part of our ongoing success, and will remain a key part of our growth strategy moving forward. A final note, on Q1 sales. Brazil Q1 comps were up 36%. Brazil's first quarter reflected the combination of strong execution and the lapping of COVID-related operating restrictions. As it relates to other aspects of our Q1 financial performance, GAAP diluted earnings per share for the quarter was $0.73 versus $0.63 in 2021. Adjusted diluted earnings per share was $0.80 versus $0.72 of adjusted diluted earnings per share in 2021. This performance represented a first quarter record for the company. Operating income margin was 9.4% in Q1, versus 9.2% in 2021. Our increase in same-store sales drove significant leverage on the quarter. In addition, we continue to benefit from efforts to drive efficiency into our business. These benefits helped offset what continues to be a highly inflationary environment. Commodity inflation was up 15% in Q1, and labor inflation was up 10%. As we indicated on our last earnings call, we expect both commodity and labor inflation to be higher in the first half of the year and should ease some in Q3 and Q4 of this year, as we lap elevated inflation from the back half of 2021. Also, marketing expenses were up $8 million from 2021. Although we remain well below 2019 spending levels we are reinvesting some marketing into higher ROI vehicles to both build awareness and drive frequency. In terms of our capital structure, this week we completed transactions that allowed us to upsize our revolver capacity from $800 million to $1 billion. We can currently use this additional capacity on the revolver to retire our existing Term Loan A debt. This leverage-neutral transaction has similar terms as our previous credit facility, but did allow us to convert from LIBOR to the new SOFR standard. It also provides additional liquidity and financial flexibility. In addition, we have repurchased $26 million of stock through April 27th and have $99 million remaining on our existing authorization. The Board also declared a cash dividend of $0.14. Turning to our 2022 guidance, we now expect total revenues to be between $4.35 billion and $4.4 billion. This is up from our prior guidance of between $4.3 billion and $4.35 billion. This is a reflection of strong Q1 as well as the traffic benefits of additional marketing investment. We expect EBITDA to be between $505 million and $525 million. This is up from our prior guidance of between $495 million and $515 million. This is primarily a product of higher sales partially offset by some IT infrastructure investment we plan to make in the back half of the year. We expect a slight increase in our effective income tax rate to be between 16.5% and 17.5%. We now expect GAAP EPS to be between $2.23 and $2.32 with adjusted EPS of between $2.45 and $2.55. This is a $0.10 increase to our previous EPS guidance ranges. Similar to EBITDA, this increase is driven primarily by our increase in sales expectations for the year. Also, as a reminder, the difference between our GAAP and adjusted EPS relates to the accounting treatment of share count from our convertible bonds. We are reaffirming all other aspects of our prior guidance including our expectations on commodity and labor inflation, as well as CapEx. Now, turning to our second quarter guidance. We expect Q2 revenues to be between $1.1 billion and $1.13 billion and we expect adjusted EPS to be between $0.60 and $0.65. This guidance reflects a continuation of strong performance in the US and the year-over-year benefits from Brazil's recovery. In summary, this was another successful quarter for Bloomin’ Brands and we are well on our way to becoming a better, stronger operations-focused company. And with that, we will open up the call for questions.

At this time, we will be conducting a question-and-answer session. Please limit yourself to one question and one follow-up. Our first question comes from the line of Jeffrey Bernstein with Barclays. You may proceed with your question.

Great. Thank you very much. Two questions. One just on the menu pricing. I think you said 5.6% in the first quarter. I'm just wondering how much you would expect as we move through the rest of the year? And maybe whether there's any concern about elevated pricing and what appears to be a slowing macro. Just wondering how you maybe test to gauge and formulate so you don't take too much and negatively impact the traffic momentum that you seem to be building?

Hi, Jeff. Good morning. Yes, we are very, very aware of our pricing actions and we look at it competitively very closely and we've been watching what others are doing and what our customer wants. We believe we're at or below our competition, which is very important. So managing this margin calculus along with the consumer and pricing and everything else is what we're trying to do. The good news is too is we have a lot of dry powder as far as how we can go to market with various programs. Our intention is not to do large-scale discounting and things like that, but we learned a lot during the pandemic about how to go to market with digital, with different offers. We invest a lot in our service and food platforms. So that's how we can maybe address some of the potential slowing consumer. Although, right now, we see the consumers still being pretty healthy in our space. So I'll turn it over to Chris now, to talk about the price details.

Yes. Hey, good morning, Jeff. So, in terms of the go-forward thinking right now, Q2-Q3, probably a stitch higher than what we saw in Q1, simply because we did take some mid-quarter menu pricing, but definitely below 6%, I think is the idea. So 5.7%, 5.8%, somewhere in that range. And then, I think, when you get to Q4, that's when we want to just reassess, because that's when you start to lap the pricing that we took in 2021. I think we're just going to make an assessment of where the consumer is, where we are as a company, where our margins are, and then we'll make a call on what we want to do with pricing in Q4.

Understood. And then, just the follow-up. Indeed, when you oversee four brands in the US, it seems like you're reaching across the entire consumer landscape. I'm just wondering, maybe you can give your sense on the current US macro. I know you just mentioned that the consumer still seems pretty healthy. But is there any change in behavior that you see at any of your brands to demonstrate a change in the economy? Or maybe, what do you look at your business as a leading indicator, maybe what you've seen in years past to demonstrate that maybe the macro is slowing, because obviously casual dining is more vulnerable being a higher-priced check. So just asking you to put on your comments hat for a second and see if there's anything you're seeing or what you'd be looking for to demonstrate a slower macro?

Well, thanks Jeff, and trend is an undergraduate in economics, so it's something I enjoy talking about. But we get information every day. The consumer for us is looking good and we feel good about where we stand. We feel good about what the current trends look like. We feel good about our channels. As we look at our off-premises business and look at our in-restaurant business, as people come back into the in-restaurant business, the off-premises business is certainly hanging in there, especially third party. So we look at channels, look at the health of the consumer. And then lastly, the high end continues to do very well. You see it in the Fleming's numbers. Not only are the Fleming's numbers strong, but Fleming's is outperforming the marketplace. And lastly, we have a large business in Brazil. That business is doing extremely well. And we talked about what the future potential looks like as far as the number of units in Brazil. So, we have to talk about that one as well. So, we have four domestic brands and then our brands in Brazil. Rounding out the question, our trends continue to be good.

So when you say current trends, is that a comment related to April that I guess momentum has sustained itself and there hasn't been a slowdown of late?

Right. And we're very pleased to give everybody a quarterly guidance. We gave the second quarter guidance. It's very clear. We've got full year there which we raised. April trends are incorporated in that guidance and we feel good about where we stand.

Great. Thank you very much.

Our next question comes from the line of Sharon Zackfia with William Blair. You may proceed with your question.

Hi. Good morning. Just a clarification on the mix. I think you mentioned that consumers in on-premises are switching up to higher ticket menu items. I don't know if I understood that correctly. I understood the difference between on-prem vs off-prem and attach payer. But are you seeing consumers actually spend more or trade up when they're in the box? And is it noticeable at one concept versus others? And then a question on Brazil. I may have missed this, but did you give any color on kind of how Brazil is trending so far in the second quarter? And how is the inflationary dynamic in Brazil compared to what you've seen in the US?

Sure. Let me answer the Brazil question first and then I'll turn it over to Chris to handle the other stuff. The Brazil trends are very good in April as well just like in the US. The inflation environment is something that that country is very used to. We are on top of pricing. We're on top of our margins. If you look at our segment reporting, you'll see very strong results, Sharon. For that marketplace, we clearly have very good momentum. Before I turn it over to Chris, that gives us the confidence to continue to expand the business. We talked about when we first bought this business, we talked about having potentially 100 Outbacks there someday. We now think we can have 240. That has to do with the economics of the business, the growth of the country, the innovations we're making, and how we build the box, those kinds of things. So that's an indication of where that country is going. And I'll turn over to Chris to answer the other question.

Yes. Hi, Sharon. So the mix component, we talked about mix being 7% of sales or so or 7% lift in Q1 versus last year. It's basically two components, one which I think we would call a little surprising and one which was not such a surprise. The piece that was not such a surprise was the fact that a larger percentage of customers returned to in-restaurant dining this year versus last year. The fact that that in-restaurant consumer carries a higher average check relative to the off-premise consumer drove some change in mix. That was probably half of the mix benefit. The other half was a little more surprising. It's just that consumer health appears to be pretty good. We've seen trade up into additional appetizer sales, additional alcoholic beverage sales, and things like that I think carried the day on the other side of the mix components. So it was a bit of a tale of two cities on that one.

Yes. I just want to add one other thing too. We're seeing the benefit of the investments we made in customer service and food over the years. Customers are noticing that and that's what's offering some of the trade-up for us because of the enhanced service and food, and we're seeing it in our restaurants, and our operating scores by third parties are improving nicely.

Thank you.

Our next question comes from the line of Alex Slagle with Jefferies.

Thanks. Good morning and congrats. I had a question on the off-premise. You talked about the margins being comparable to dining. I don't know if that's a step-up from the previous comments that it was approaching that of dine-in, but maybe you could just talk about the dynamics of what's driving the help there whether it's pricing or the sizable shift in digital, which was a pretty big jump? And have seen this happen even with delivery mix growing. Just kind of curious your analysis there?

Well, so a couple of things. One, it depends on the channel when you're talking off-premises. We've talked historically that your curbside business is basically at parity from a margin profile with your in-restaurant dining experience. What we lose in average check we make up for in lower labor costs for example, so you're able to maintain some parity there. In terms of third party, yes, there is a pricing component to third party that we have that's above what we would have in-restaurant. But again, the fact that party mix continues to increase in an environment where off-premises mix is shifting from curbside to in-restaurant, it just speaks, I think loudly to the incrementality of this business and the success that we're having driving third party through our box.

I had a follow-up on the marketing opportunities and leveraging digital and loyalty. It feels like you've had really good headway on the digital front through the pandemic and leveraging a bunch of the investments and improvements building out that platform and the analytics and sort of the more efficient deployment of the marketing spend and kind of curious where you see the next phase of this going? And as you have more tools and insights at your disposal, sort of what that opportunity looks like?

Yes. The single biggest opportunity is the continued development of our various apps in our concepts. We're making great progress. And for competitive reasons, I don't want to get into it. But the consumer is noticing. If you look at the percent of occasions that people are using our apps, you'll see how people are accessing us, we're making significant progress. That was a lot of work done over the past couple of years by our IT team during the pandemic and we're now reaping the benefit of that. For instance, if you like favorites at Outback, now there's a favorites button you can hit, and it really enhances ease of ordering. Secondly, we have converted to a new Dine Rewards program that's points-based, which will give us more opportunity to access even more customers because they have a chance to use the points more frequently, that can allow us partnerships, et cetera. So that's going to give us a chance for even more engagement and more consumer data, which is going to be really terrific. Lastly, I think you're going to continue to see operations enhancements that go along with the app enhancements in the restaurants to make off-premises and ordering ahead very easy and seamless for our customers. Finally, on the marketing side, yes, we have learned a lot about the digital opportunities with various partners, and that's primarily how we go to market now. We know exactly what the returns look like as we go forward and we've been investing behind that both from an IT capability standpoint and a marketing spend standpoint.

Thank you very much.

Our next question comes from the line of John Ivankoe with JPMorgan.

Hi. Thank you. Just looking at the Outback $24 average ticket, there's obviously a lot of ways consumers can spend around that higher but also lower obviously as well. Can you talk about with all the new data that you have? Can you talk about exactly, who your customer is? Does it skew middle income? Or is there a sizable amount of lower income consumers that you in particular want to protect to the extent that they do cut back in some of the more discretionary occasions?

Yes, sure. A couple of things on the guest check, John. Chris talked about the trade-ups. I mean the Outback team did a really smart thing 18 months ago and changed around some of their menu items and made appetizers more accessible and things so the tack rates are stronger. So that's helping a lot. Secondly, we aren't discounting as much, so some of those customers have locked away. So we've got a guest check build-off of that. We still are seeing, importantly, we are still seeing the middle-income consumer use us. That's a very important point because they have price certainty, and they know what they're getting both from food and service. And as I talked about earlier, we've tried to moderate our pricing as much as possible and as we look at competition. So, we're trying to manage the check that way the PPA that way.

It may be too sensitive to ask, but I would appreciate your insight on what percentage of Outback's customers fall below the average American household income. I'm just throwing out a number, so feel free to respond as you see fit.

Yes. I think we'd prefer to keep that information private, as it's quite proprietary and especially given the circumstances. I usually like to answer your questions directly, but I can't this time.

I’m not certain. I took a chance on that when I didn't expect to, but you never know. Let me shift to the technology side. I was a few minutes late to the call, and I apologize if I missed anything. Regarding the KDS handheld grills, what is the current status of the supply chain, and how are we progressing with implementing these projects in the store? Also, how optimistic are you about potentially seeing significant benefits for both customer and employee margins, or will there be adjustments needed as these projects come in compared to expectations?

No adjustments are anticipated, John, as everything aligns with our last discussion on the call. The KDS in the restaurants is currently being implemented. The handhelds will be completed in the third quarter. The backhouse equipment, particularly the clamshell grills, will be rolled out over the next few quarters as we discussed. Everything is on schedule, and we are very pleased with the progress. Additionally, as you might appreciate, we are deploying some of these systems in our highest volume restaurants, and the response has been positive. We aimed to install them in high-traffic locations rather than just average restaurants. One of these locations is near you in Charlotte, and we are witnessing outstanding results. Now, I'll hand it over to Chris to cover the financials. Regarding our customers, we see an opportunity to tackle one of our major challenges, which is ensuring accurate cooking of steaks, and we are observing improvements in this area. We believe this will lead to increased guest satisfaction and higher traffic. Furthermore, our speed of service throughput is performing very well. Lastly, with our handheld devices, it will be much easier for our front-of-house staff to connect with customers. Those are the three key areas from the customer perspective that we are focused on. While we won't go into extensive details about the financials for proprietary reasons, I'll pass it to Chris to explain some of the financial advantages we anticipate.

Well, I guess all I would add to what Dave said is the fact that when you talk about our long-term margin target of 8% operating margin, one of the key catalysts to allow us to continue to drive efficiencies in the box from a productivity standpoint is going to be the technology. So this is clearly about service. It's clearly about execution, but there is also an efficiency benefit certainly in the front of the house with the server handheld technology, but also in the back of the house in the kitchen as it relates to the grilling technology, etc. So again, I would just say that it's part of the calculus that when you look out longer term allows us to think more broadly about this 8% margin target.

And lastly, John, the goal here is to roll out the technology to enhance customer service. That is a big part of what we're trying to do here is enhance customer service and our food quality offerings.

That’s clear. Thank you.

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

Thanks and good morning everyone. Chris, regarding your comments on the second quarter, specifically about the Outback brand, it's a challenging comparison to last year's second quarter. Can you achieve positive comparisons against that? I believe consensus doesn’t see it as positive. Does your outlook on revenue and earnings guidance incorporate positive comparisons for the Outback brand in the second quarter?

Positive. Well, what I would say is look, we're positive comps for the portfolio absolutely. And we're striving to get positive comps across all of our restaurant brands for sure, right? You're spot on though, John. It's a tough lap given the success that we had last year all those thoughts are embedded in the guidance, as well as a pretty strong recovery in Brazil.

Okay. Thank you. And you didn't update or change your commodity guidance you thought it was going to be higher. Many restaurants have already updated their commodity guidance this quarter. A lot has changed since you issued your guidance last time in the commodity world. So do you have more visibility than others, more contracting? Maybe you could talk about the contracting rate in 2022 that gives you that sense that you'll see some declines in the back half? And maybe anything that's going on in the beef market specifically that maybe benefits you that doesn't benefit others for example?

Yeah. Look, I don't think that anything has really changed. We're right now 78% locked on our 2022, and we're obviously pursuing spot and contract strategies for the remainder of the year. But look, I think it's pretty consistent to say that overall landscape in commodities hasn't improved much, and there really hasn't been any sustained positive news in the commodity category, but that was all really embedded in our thinking when we gave our guidance originally. So I think that nothing's really changed on our end but obviously it's a highly inflationary environment. Now in terms of, as you look at the year progression from an inflation standpoint, I would say, it's far more a product of the fact that we're starting to lap higher commodity periods from a year ago versus any big sea change in our expectations for the commodity landscape in 2022.

Okay. And beef specifically, is there any update on what the beef market is doing?

The curve of beef is somewhat representative of what you would typically see for beef cycle at this point in time. It's just elevated at that. In other words, the curve is the same, but it's elevated from where it would be historically. But again, we're locked in. So, we don't have that kind of volatility in our pricing.

Yeah. Thank you.

Our next question comes from the line of Lauren Silberman with Credit Suisse. You may proceed with your question.

Hi. Thanks so much. I wanted to ask about unit growth. So, you talked about the 3%. Is that a net unit growth number? And then, is this a 2023 goal?

Yeah. Good morning. It will be a bill. We'll provide more details on the 2023 guidance. Obviously, as CEO of the company, I'm interested to try and get to that build as quickly as possible, but I've got to be realistic about it in working with the market team. But it's an expansion number total. We anticipate very few closures going forward. We'll always look at it. But the 3% is in a sense a gross number, if any closures happen, because we've done a lot of work following our company over the years addressing our asset base, but the 3% is what we look to achieve on a gross basis.

Great. Specific to Outback as the largest state concept by units, how are you thinking about the total unit potential in the US? And then, beyond Outback and just looking at the broader portfolio, I appreciate all the color on the reduced cost, but our unit economics of the prototypes. Are there any other changes you've made to the development approach supporting confidence in the acceleration, I guess part of it is closures to your point?

The main point is that despite the challenges the restaurant industry faced during COVID, we emerged in a stronger position. Our potential for unit growth is very promising. In the South, where we have a strong presence, there are still opportunities for expansion, with plans for 75 to 100 new Outback locations in the US. We aim to make continuous progress on this. With our smaller building prototype that includes delivery and carryout options, we are well-positioned in fast-growing southern markets. The financial outlook is much improved, and our finance team is carefully analyzing returns to avoid any missteps. Additionally, we've observed a significant improvement in the performance of Carrabba's and Bonefish, which opens up selective expansion opportunities in our stronghold markets. The high-end segment, especially Fleming's, is performing exceptionally well, and we plan to expand that business while also upgrading our assets in key markets like Florida, California, and Texas. Furthermore, we see promising expansion opportunities in Brazil, generating about $1 million in cash with great returns. This perspective helps us build our growth strategy.

Fantastic. Thanks so much.

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

Thank you. Just wanted to follow up on a couple of things. First would be John's questions. Can you guys share your top five commodity exposures? I think you said that you're roughly 78% covered or contracted for the year. But in addition to those top five exposures, which commodities are more or less contracted as we stand right now?

Yes. Clearly, beef is the largest category. Following that is seafood. Then we have a variety of other foods which include dairy and oil. Chickens have less exposure, but still represent a notable portion. I also almost forgot about produce. So to summarize, the largest category is beef, followed by seafood, and then poultry. The overall situation is quite varied regarding what we have secured and what we haven't, especially with items like produce where it's difficult to lock in for long periods. However, we are fully committed to beef, and the rest of our commodities are somewhat in between, with about 50% secured in many of these categories.

All right. That's helpful. And just one other quick follow-up which is on the off-premise business. Obviously, a lot of moving pieces with this business across both of your core concepts Outback and Carrabba's. But I'm just looking for you to help us sort of size up the business and the opportunity. So, you have delivery to go the virtual brand meaning tender shock and catering which looks like an increasing focus for the management team. I'm curious what the largest piece of off-premise is now and where you see the greatest opportunity moving forward?

Yes. So, I'll talk about the future of the business and Chris can give some of the pieces parts. We're going to grow this off-premise business. We piloted long ago. We started carryout long ago. We've been doing delivery for a number of years. We've got a specific management team dedicated to growing it, looking at packaging pricing products, all those things to make it come together. What are we seeing Jeff that is pretty interesting. Carryout, that Chris talked about, is a big part of our business and has good profitability. Third-party, as I mentioned earlier, continues to grow for us, and we've got great partnerships there. Finally, on the catering piece, Carrabba's has led the way on that and Outback is to follow. So, we're seeing some good gains in that as well in the off-premises occasion. Clearly, if all of our concepts, Carrabba's has the food form and the capability to have the highest mix and best growth. If those of you on the call, if you've had it, you know what I'm talking about, it delivers really well from a service and food standpoint. Over to you Chris.

If you look back to 2019, our off-premises dining mix was at 12%, with 9% of that being curbside or to-go. Fast forward to Q1, and our curbside and delivery are almost equal. Most of the delivery now comes from third-party services. We've witnessed a significant shift in this area. Third-party delivery continues to grow due to its incremental nature and our capability to execute effectively. These represent the most notable changes from the past to now.

In closing, Jeff, I think what we've learned in the last few years from a customer standpoint is that consumers are seeing the fact that our products deliver really well. It can be in their solution set where in the past maybe they thought about just other service-specific food forms. They're seeing that what we offer works really well.

All right. Appreciate it. Thank you.

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

Thanks and good morning. I wanted to ask about the recovery in the dine-in business. And I guess I'll ask about Outback, but it's really a broader category question. The quick Outback in Q1 is that average weekly sales for dine-in are still down somewhere in the teens low to mid-teens versus pre-COVID. And I'd assume that's improved more recently exiting Omicron. But I'd love to get your perspective on why traffic within that category is still down as much, particularly given industry closures. And if you dig into your data are there big regional differences you see? Are there new thoughts on how incremental off-premise might be versus the dine-in occasion? Just any insights you have there might be helpful.

Yes, sure. As consumers begin to have their habits change and come back to the dine-in occasion in restaurants, we're going to see more and more of that and that's an opportunity for our company. Especially as we keep the off-premises business going. Secondly, Brian, because of Omicron, until March we really didn't turn our in-restaurant marketing back on and that's an opportunity for us because I've talked about that in the digital space. You'll see more of that from our brands as we go forward. The goal is to continue to have dine-in sales come back and for off-premise to stay the same. Those are two really important pieces. As we talked about the importance of some of the investments we're making in the back of the house and the front of the house, that's going to improve traffic. The clamshell grills, the handhelds throughput, that's all going to improve as a result. So those are the three or four things that we see coming forward for the company in the future quarters, and we see it as an upside for us as we move forward.

But I guess if I could, how big of a range do you see across regions in terms of the magnitude of dine-in recovery you've seen? Can you give us any sense of that?

We’re seeing improvement in different regions. The Northeast and the upper Midwest were slower to recover, but they are making progress. Our results reflect this. The South continues to perform well. As the northern regions recover, especially with summer approaching and outdoor dining options available, we have an opportunity to build on this momentum, which could be beneficial for us.

All right. Thank you. And I appreciate the Q2 guide of course, but could you give us a sense of maybe where average weekly sales trends recovered at Outback and Carrabba's towards the end of Q1, perhaps ballpark where you are quarter-to-date? And also remind us just how the normal seasonality plays out moving through May and June?

Yeah. March is a really strong month for us in terms of average weekly sales. Then traditional seasonality would suggest from an average weekly sales standpoint, you do take a step down in April certainly at our concept. So if Outback was averaging in call it, if I'm looking at this year Outback was averaging sort of in the low-80s, you're going to be in the mid- to high-70s in April. That’s just seasonality. That has nothing to do with any change in trajectory. That's just what you would typically see at this time of the year.

In Brazil, there's clearly been a strong recovery. Were there any calendar shifts we should consider? I know Carnival was rescheduled, but is there anything else to be aware of regarding the numbers you just reported compared to the actual underlying trend?

No. The true underlying trend, Brian, is very strong.

They're doing great.

You talked about the U.S., some companies come out of the pandemic strong. You can only imagine what a category-leading business like Outback looks like in Brazil coming out of a pandemic - very strong.

Okay. And then last one for me. Just on catering. Can you remind us what percent of sales that channel was for Outback and Carrabba's pre-COVID?

Tiny.

Yes, it was a very small number.

And there are some new initiatives around that. I think I saw an announcement in recent weeks. There's sort of a broad strategic plan within that sales channel that you're moving forward with exiting the pandemic?

Yes, not so much at Carrabba's, because that's been in place for a while. But at Outback there's quite a bit of coverage on that which we were happy to see.

All right. I’ll pass along. Thank you.

Our next question comes from the line of Brett Levy with MKM Partners. You may proceed with your question.

Great. Thanks for taking my question. I guess, taking an opportunity to just further on the regional question, but also a little bit on the margin. We heard from an indirect competitor yesterday just about their labor challenges. Can you unpack a little bit more what you're seeing either regionally or by quartiles or quintiles? How you are in terms of staffing levels, staffing productivity, what your unit level margins are, or at least how they're trending? Just give us a little bit of a sense of what kind of ranges we're seeing out there as you continue your venture towards a full recovery?

Yes. I'll take the broader question on staffing, I'll turn it over to Chris on financial updates, he'd like to provide. I'm not going to make this too long, but I'll try and make it relatively succinct. We had a long history of strong culture and strong people measures in our restaurants. That was only enhanced during the pandemic and how we treated our people, and we're benefiting from that. We didn't let anybody go. The people that were retained. If you look at our turnover levels and our retention levels, they're among the best in the industry. Are there staffing challenges out there? Of course, there are. We started in a much, much, much better spot than others did in the industry, first of all. Second of all, the staffing environment has improved even though it is challenging in certain spots; the spots are what you'd expect of parts of the Midwest and parts of the Northeast, but the staffing environment has improved. So our strong culture is paying off in a big way. We've got very good retention and turnover levels and that enables us to keep our customer satisfaction high and it cuts down on training costs and just churn costs in the restaurant. I'll turn it over to Chris for anything else.

Well, I would just add, there's no question that there's a price to that in terms of inflation. We're seeing that across the industry. We're seeing it internally, our inflation being up 10% in Q1. The good news again is that when you look at how Q1 came together, the fact that we had such strong average unit volumes and we have these efficiencies in our labor model. We were able to offset the inflation that we saw in the period, and we actually had some leverage year-over-year in the labor line.

Great. Thanks. And just – I know you gave some color on this, but can you give a little bit more clarity in terms of what is implied within the new 1.1 to 1.13 guidance for Q2 in terms of like new unit productivity and how much that's contributing as well as the comps? Thanks.

To address the question about comparable sales, we have observed positive same-store sales through April, which is factored into our guidance. It's important to note Brazil's recovery, particularly given the extensive COVID-related closures last year, will also contribute to that figure. That leads us to our projected range of 1.1 to 1.3. Regarding margins and profitability, it's quite straightforward; our sales growth has driven the increase in our full year guidance by approximately $50 million, some of which will reflect in Q2. We anticipate that the check average increase we saw in Q1 will carry into Q2, although it likely won't be as pronounced year-over-year due to the unique strength of in-restaurant recovery in Q1 compared to the off-premises sector. As a result, the benefit from check averages in Q2 may not be as significant as it was in the first quarter. These are the main points I wanted to highlight.

Thank you. Very helpful.

Our next question comes from the line of Brian Mullan with Deutsche Bank. You may proceed with your question.

Thank you. Just a question on the outstanding convertible notes. I guess number one, can you just remind when you have the right to redeem those? And two, Chris you mentioned on the last call but are you still considering, or is there a scenario where you would do something before then in the open market or in negotiation with cardholders? I just maybe, what scenario would that make sense for to do that versus waiting?

May 2023 is when we have our first right to redeem those convertible notes. However, we can negotiate with the note holders before that date. We are evaluating the situation, but there is a premium we need to pay not just to the holders but also because we have warrants involved, which also carry a premium. We need to consider whether the cost to exit provides a significant benefit compared to simply paying off the debt. One reason we are seriously considering this option is due to the share overhang linked with the convertibles, which creates communication challenges. The financial aspects must also make sense. Therefore, it's going to be a twofold discussion: does the financial logic hold up, and will reducing the overhang help us communicate our story better? If both conditions are favorable, we will look into the possibility of taking action this year.

Okay. Thanks for that. And then just bringing back to the development topic. It's helpful to hear about how many additional Outbacks you think you can support. I'm just wondering if you could give that same type of commentary for Fleming's, how many you think there could be over the longer term? Just trying to get a sense of the magnitude of the opportunity you see for that brand?

Yes. There's two opportunities at Fleming's. One is we think there are an additional 15 that we could do. Given their average unit volumes, that's significant. Second, the other opportunity is we've got some great restaurants in really strong trade areas that can we know given what we've done in other restaurants by expanding the bar and making the inside a little more modern, shall we say, can make big improvements in our sales. So we'll be doing both of those. We'll be enhancing and improving existing restaurants in strong trade areas and adding up to 15 more Fleming's.

Thank you.

Our last question comes from the line of Jared Garber with Goldman Sachs. You may proceed with your question.

Hi. Thank you for the question. I’d like to follow up on the discussion regarding the remodels you mentioned. Specifically concerning Outback, can you share details about the new product and supply asset, as well as any changes to the ambience and overall customer experience? I'm curious if this pertains solely to new units and the new asset, or if there are plans to remodel and refresh some of the older Outback locations in the portfolio to align with the updated design.

Yes. We will do both. There's a cadence to our remodels, our interior remodels, and we're going across the country and refreshing those restaurants as we speak. It's embedded in our guidance and we'll continue to do that in the coming years. Between that and the new units, we think we can have an elevated brand from where it stands today. We're making technology investments to enhance the customer experience in the restaurant and the back of the house.

Thanks. Can you share what percentage of the portfolio you feel comfortable with regarding asset design now? Also, how many more redesigns do you have left to complete? Are you at a 50-50 balance right now? I'm interested in the potential upside from those redesigns and remodels.

Yes, we are continuously refreshing our restaurants. We have been remodeling consistently, and there isn't really a definitive endpoint. As we open and relocate more restaurants, we will always have opportunities to improve. This will be an ongoing process as we expand the business. Each time we complete one round of updates, we’ll begin again. With up to 100 new restaurants planned through our relocation program, those will be modernized immediately, and we will keep updating our existing restaurants annually.

Our last question comes from the line of Jon Tower with Citi. You may proceed with your question.

Thank you for including me. I have a few follow-up questions. I know you've touched on some of these topics during the call, but I want to clarify them. Regarding the first quarter, it seems that Outback's traffic has decreased compared to pre-COVID levels. I didn’t hear you mention this much during the call, but I’m assuming that Omicron may have impacted some of the in-store traffic or overall traffic during that time. Can you explain why the traffic compared to 2019 was somewhat weaker in the first quarter?

Yes, versus 2021 correct?

And versus 2019. Yes.

Yes. Omicron negatively affected traffic levels by 300 basis points. We anticipated this, as mentioned in our previous Q1 call, and discussed the initiatives we have planned for Outback moving forward.

Got it. Thank you. I appreciate that. And then, just in terms of thinking about the marketing spend and the idea, and I think David, you had hit on this a little bit earlier in the commentary. But what spurred the decision to take that up sequentially? And was it brought on by something that you're seeing in the data or staffing levels coming back to an area where you felt like the in-store environment could handle or the in-store staffing could handle incremental demand, or were you seeing something in your own data on the traffic side where you just felt that you needed to go to market and remind customers that the brands out there are offering some good things?

Yes. We talked earlier about how in March we turned some marketing back on. When you have something like Omicron, it's not always wise to spend in-restaurant marketing. It's wise to spend on off-premise marketing and that's exactly some of the things that we did. Now, as I mentioned earlier Jon, we've got a really good sense of what projects marketing initiative etc. work. So we're going to be investing behind those and looking at those returns specifically in the digital space and around products and in-restaurant dining. You'll see more of that from us as we go forward. Our intention is not to engage in deep discounting or anything like that, but we believe we have the ideas to move this business forward and we have a good sense of returns that they offer. We have a very good sense of the vehicles that we can use to make that work. Hopefully, with some of the pandemic-related issues behind us, habits return to in-restaurant dining. It's an opportunity for our company, and we're going to capitalize on that with our marketing.

Got it. Thank you. And then just lastly on the unit growth piece of it. Thank you for all the details so far. I am curious just to learn a little bit more about how you're thinking about siting these stores versus the existing store base, specifically when you think about customer demographics or even the market sizes of these stores today and even thinking about specifically getting it down to the pad. How are you thinking about co-locating with other brands on platforms? Is it any bit different than what you've done in the past, maybe mall versus non-mall? Is the philosophy that much different than what we've seen before? Obviously, the footprints are, but I'm curious a little more.

Well, we talked at length about the footprint and all the freight work we've done there. Secondly, we talked about the fact that our stronghold markets are in very advantageous demographic and economic areas. We are strong in the South and we intend to capture that. Third, we are seeing infill opportunities in quickly growing major metro areas like Nashville, Austin, Miami, etc., that we may not have contemplated in years past as little cities are just growing rapidly. Those cities are also growing rapidly in new areas in that particular trade area. We were just in Dallas for instance. I think the team was very amazed at how much that city has grown and what the opportunities look like. Those are the things that we're looking at as far as our unit expansion opportunity. And the extra, which we talked about for the first time today, in our core markets, that's also where Bonefish and Carrabba's generally tend to be strong. We’re looking at that as well, not to the extent that we're looking at Outback, but can we do some things with those restaurants in some of our core trade areas. In summary, we've got the asset and the team to pick the sites. We're in metropolitan areas that are growing rapidly and geographies that are growing rapidly. We're in a much stronger position competitively versus when the pandemic started, and all those things are coming together to really provide us a development opportunity.

Great. Thank you. Appreciate it.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Dave Deno for closing remarks.

Thank you for attending today everybody and we appreciate your questions and your interest in our company and we look forward to updating you in July on our second quarter call.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, enjoy the rest of your day.