Bloomin' Brands, Inc.

Greetings and welcome to the Blumenbrand's Fiscal Third 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. 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 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 2021 earnings release. It can also be found on our website at blumenbrands.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 2021, a discussion regarding current trends, and select Q4 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 Dino.

Well, thank you, Mark, and welcome to everyone listening today. As noted in this morning's earnings release, adjusted Q3 2021 diluted earnings per share was 57 cents in comparison to 10 cents in Q3 2019. This significant profit improvement represents a third quarter record for the company. Our strategies are working and reaffirm our ability to deliver on key commitments and drive even more sustainable growth. This 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, leaner, operation-centered company, one focused on providing even better service and food to customers. This plan is designed to significantly improve total shareholder return. Before we get into the details of the third quarter, I want to take a few minutes to review the initiatives from the 2019 plan, which are the driving force behind the strength of our results. First, grow in-restaurant sales by improving service levels and food offerings. Over the last few years, we have made investments in these areas to elevate the customer experience across the portfolio, especially at Outback. As a result, we are taking market share. In the third quarter, U.S. same-store sales were up 9.5% on a two-year basis versus 2019. This was 600 basis points ahead of the industry. Second, for our leading off-premises business, we capitalized 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 third quarter, the company generated over $236 million in U.S. off-premises sales, representing approximately 27% of total U.S. sales. Importantly, profit margins in the off-premises channel are approaching the margins of the in-restaurant business. This is the result of initiatives that were completed the last few quarters. We expect off-premises to remain a large and growing part of the business going forward. Third, rapidly approve operating margins by growing sales and reducing costs. We've established a detailed margin framework to grow operating margins to 8% of revenue, representing a nearly 350 basis point improvement from 2019 levels. This starts by growing healthy traffic across the in-restaurant and off-premises channels. We also reduce reliance on discounting and promotional LTOs and pivoted advertising spend towards more targeted, higher ROI digital initiatives. In addition, we remain disciplined in managing the middle of the P&L and are aggressively pursuing efficiencies in food, labor, and overhead. Importantly, several technological and equipment innovations are in test that we intend to roll out to the restaurants in the coming quarters. These innovations should further improve customer service and reduce costs. Margins in the third quarter were ahead of this long-range goal. We remain steadfast in our efforts to achieve the margin framework we committed to and will continue leveraging recent learnings to more efficiently run and support restaurants. Fourth, become an even more digitally savvy company. In Q3, approximately 70% of total U.S. off-premises sales were through digital channels, a 251% increase over 2019 levels. Over the past year, we have implemented a new online ordering system and mobile app to support our digital business. Both of these have outperformed expectations. You can expect to see more activity on these fronts in the coming quarters. And finally, build a much stronger balance sheet. Given the very good year-to-date results, we have generated a great deal of free cash flow and are paying down debt. Our credit metrics are improving each quarter and we remain on track to achieve the goal of three times lease adjusted leverage by early next year. A healthy balance sheet also provides great flexibility to return cash to shareholders through share buybacks and dividends, as well as pursue business opportunities that will enhance shareholder value. One of the areas that we are excited about accelerating is new unit growth at Outback and Fleming's. Outback is a leading brand with substantial opportunity for unit growth. The success of the Outback relocation program is a clear indicator of this demand. In the past five years, we have relocated approximately 50 restaurants with sales lifts of 35%, and average unit volumes of $4.6 million. We recently developed a new, less expensive prototype that will enable more meaningful restaurant growth with healthy returns. Importantly, new Outbacks are also opening above $4 million in average unit volumes. We also have the opportunity to open additional Fleming's in California and Florida, two of our best performing markets. Fleming's is a proven category leader and will be a source of growth for the company. We are actively building the pipeline for growth and look forward to discussing this in the coming quarters. In February, we will outline a new restaurant development plan for a meaningful increase in unit growth in the coming years. Now turning to Q3 and current business trends. Recently, there have been some discussions regarding product shortages in the restaurant industry. Fortunately, because of the strength of the relationship with our suppliers and the hard work of our supply chain team, we have not encountered any major shortages. We continue to actively manage our network to ensure the restaurants are appropriately supplied with product to meet the growing consumer demand. There's also been discussion in the industry around staffing challenges. While we are not immune to these issues, we have made significant investments in our people. For instance, during the pandemic, we did not have any layoffs or furloughs. This decision has contributed to the retention and employee engagement scores that are among the best in the industry. In addition, our turnover is better than industry averages. This has enabled us to better serve our guests and deliver the hospitality that our customers expect. Now for a sales update. Combined U.S. comp sales were up 9.5% in Q3 versus 2019. The quarter started out strong through July. However, in August, we saw some moderation from the resumption of traditional seasonality and concerns over the Delta variant. Additionally, we made the decision not to replicate significant promotional activity that ran in 2019 at Outback Steakhouse. The offers we chose not to repeat include the steak and lobster promotion for $16.99, steak and unlimited shrimp at a discounted price, and offers tied to the launch of our third-party delivery channel. These programs started in early August of 2019 and and had a collective traffic impact of approximately 10 percentage points over the last eight weeks of Q3 2019. Although there were merits to this activity, repeating its promotions in 2021 did not make sense for our company in the current environment. While there was a negative traffic impact in Q3, it did have a positive impact on profitability. In Q3 2021, U.S. adjusted restaurant-level operating margins grew by 430 basis points, over 2019. Through the first four weeks of the fourth quarter, U.S. comp sales are up 5% versus 2019. The impact of our decision not to replicate 2019 promotional activities has carried into the fourth quarter. We should be done lapping this heavy promotional spend in mid-November. Importantly, our sales continue to outperform the industry, which gives us confidence in the momentum of the business. These results would not have been possible without the talented and dedicated employees throughout our companies. I'd like to thank the hardworking team members in the restaurants and at the Restaurant Support Center. Your commitment to serving guests with the highest levels of service, hospitality, and experience is what makes our restaurants so successful. In summary, Q3 was another terrific quarter. We remain ruthlessly focused on executing against our key initiatives. We are optimistic about our ability to continue to capitalize on these opportunities and drive total shareholder return. And with that, I will now turn the call over to Chris provide more detail on Q3, what we expect for Q4, and provide preliminary thoughts on 2022.