Bloomin' Brands, Inc.

Greetings and welcome to the Bloomin' Brands Fiscal Third Quarter 2020 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's now my pleasure to introduce your host, Mark McGrath, Group Vice President of Investor Relations. Thank you. Mr. McGrath, you may begin.

Thank you and good morning, everyone. With me on today's call are David Dino, our Chief Executive Officer, and Chris Meyer, Executive Vice President and Chief Financial Officer. By now you should have access to our fiscal third quarter 2020 earnings release. It can also be found on our website at bloomandbrands.com in the investor 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 third quarter 2020 and a discussion regarding current trends. Once we've completed these remarks, we'll open up the call for questions. With that, I'd now like to turn the call over to David Dino.

Well, thank you, Mark, and welcome to everyone listening today. Since the beginning of the pandemic, our priorities have remained unchanged. We are focused on taking care of our people and serving food in an environment that protects both team members and customers. Maintaining a motivated, well-trained and engaged employee base that has committed to providing a safe dining experience is critical to our long-term success. The decision not to furlough any employees during the pandemic reinforced this principle, and it enabled us to retain a very engaged workforce. This is paying off and has been a big part of our success in driving results ahead of the restaurant industry throughout the pandemic. It is clear that customers want to come back to restaurants, and they are confident in our ability to provide a safe and welcoming dining experience. Our dining rooms across the country continue to maintain elevated safety measures, including additional sanitation and disinfecting practices, as well as contactless payment options for consumers. This hard work has been recognized by our customers and in several reports. In August, Black Box released the Restaurant Get Satisfaction Snapshot, where Fleming's Prime Steakhouse is ranked number one in food and number one in service. In addition, three of our restaurant concepts were ranked in the top five in intent to return. And a recent Newsweek magazine survey recognized the best customer service in casual dining. Bonefish Grill was ranked first, and Outback was ranked fifth in the same survey. We do not take this recognition for granted, and I appreciate the hard work our operators do each and every day to earn it. I would also like to thank everyone in the Restaurant Support Center. Each of you do a great job supporting our award-winning restaurants. Across the U.S. portfolio, we experienced consistent weekly sales momentum throughout the third quarter. In-restaurant sales continued to improve each week as consumers become more comfortable dining in restaurants. In addition, our off-premises business remains robust and we are retaining approximately 50% of the incremental volume achieved while dining rooms were closed. As a result, U.S. comp sales outperformed the industry by over 850 basis points in the third quarter. Importantly, we continue to outperform the industry in the fourth quarter. A large part of the success is due to the progress made behind our investments over the past several years to enhance the customer experience and pursue the rapidly emerging off-premises business. These strong sales trends results combined with disciplined cost management enable us to significantly outperform margin and profit expectations in the quarter. The pandemic provided an opportunity to look at our business differently and reassess the operating model. This holistic review has identified efficiencies to further optimize how we run and support our restaurants. For example, we simplified our menus and reduced limited time offer discounts. Importantly, these efforts have contributed to reduced complexity, improved consistency, and increased profitability across revenue channels. We are leveraging these learnings to drive more efficiencies going forward. We made great progress across the following key priorities during the quarter that will enable us to become a stronger and more efficient restaurant company. Let me now spend a few minutes discussing how we are doing versus each of our objectives. First, we are retaining a large share of our industry-leading off-premises business, even as dining rooms reopen. The pandemic has proved the importance of this channel and the role convenience plays for consumers. Over the past few years, we made the investments in operations, channels, and culture to build and grow a strong off-premises business. We will leverage our strong capabilities to capitalize on this growing opportunity. Of particular interest, Carrabba's is especially seeing a lot of success. We believe delivery and carryout will be an important growth catalyst for Carrabba's moving forward. Second, we continue to make progress on managing expenses and improving margins. Our efforts to reduce costs were in place well before the pandemic. This past year, we learned even more about the business and made additional improvements to how we manage expenses, including labor, advertising, and overhead. These learned efficiencies provide optimism about the ability to grow margins once we exit the pandemic. Third, our improved sales trends coupled with disciplined cost management enabled us to generate positive cash flow in the quarter while paying down debt. We currently have over $550 million of available liquidity, providing us with increased stability and significant financial flexibility to capitalize on future opportunities. Fourth, the Brazil business has seen significant improvement in sales and profit trends. All of the Outback restaurants in Brazil have safely reopened with limited in-restaurant dining. In September, Brazil Outback comp sales were down 23%, and over the last couple of weeks, sales in Brazil have been down 5 to 10%. This is a major improvement versus prior trends and is an indication of the strength of the Outback brand in Brazil. The country continues to ease capacity restrictions and effective capacity is approximately 50% in most cities. Delivery remains a strong contributor to sales and we are retaining a large portion of this business. The team has been actively managing costs while leveraging learning from the pandemic to drive additional efficiencies. As a result of this great work, Brazil generated positive cash flow for the quarter. Outback remains resilient and one of the highest regarded brands by consumers in Brazil. And finally, we've been able to accomplish these results while strengthening the value proposition and customer experience at Outback Steakhouse. In early September, we launched a new menu at Outback Designed to reinforce our steak leadership through more accessible premium cuts and larger portions while also lowering menu prices. The menu is performing even better than what we saw on test. We are seeing strong customer feedback on value and guests are trading up to larger and better cuts of steak. Our attachment rate on appetizers is growing and alcohol mix is improving as well. All of this helps grow sales and profitability while improving guest satisfaction. In addition, this efficient menu design reduces complexity, which improves execution and consistency that results in an improved customer experience. Before I turn the call over to Chris for a deeper look at our third quarter financial results, I want to elaborate on two growth channels we are testing that complement our dine-in and off-premises business. The first test is a fast casual brand called Aussie Grill. For those of you who may not be familiar with the concept, Aussie Grill was originally created for international franchisees who wanted to expand more aggressively with a smaller footprint. After we saw our success internationally, we quickly brought this brand to the U.S. The differentiator for Aussie Grill is a menu of bold flavors. They serve steak, burgers, chicken, ribs, and salad with fast, casual convenience. Their first few locations in the U.S. have been promising, and we opened the first freestanding Aussie Grill in Tampa in May. Consumers can eat in, carry out, use the drive-thru, or have their order delivered. The financial returns from Aussie Grill are very promising and initial sales and profits are above expectations. As a result, we are expanding the concept and plan to open more Aussie Grills in 2021. The second growth channel is a virtual brand called Tender Shack. This virtual brand leverages the kitchens of our existing restaurants for cooking and delivery. Last month, we launched the brand in the Tampa Bay area. Like Aussie Grill, consumer response has been strong and sales are ahead of expectations. As a result, we have now expanded the test to Texas, Oklahoma, Kansas, and Missouri. Tender Shack offers a high quality, very limited menu featuring chicken tenders, fries, cookies, and drinks. The brand promises and delivers on casual dining quality at a fast food price. The chicken segment is a large and rapidly growing category. We have the assets and talent to take advantage of this significant opportunity. It's clear the consumer wants great food in a convenient format. With Aussie Grill and Tender Shack, we believe we have an opportunity to create incremental growth channels that consumers will love, are perfect for today's environment, offers attractive economics, and will remain relevant as dining habits have changed. Blumen Branch has the right people, assets, and capability to meet the needs of today's consumer to capture the opportunity in front of us and beyond. In summary, we were very pleased with our third quarter performance. We exceeded our objectives, rolled out key growth initiatives, and gained market share. Finally, as a result of our current momentum, we are in an even stronger position to take advantage of the opportunities ahead of us in this evolving landscape. And with that, I will now turn the call over to Chris.