Executives: Chris Meyer - Vice President of Investor Relations Liz Smith - Chief Executive Officer Dave Deno - Chief Financial & Administrative Officer and Executive Vice

President
Analysts: John Glass - Morgan Stanley Joseph Buckley - Bank of America Michael Gallo - CL King Jeff Farmer - Wells Fargo Alton Stump - Longbow Research John Ivankoe - JPMorgan Jeffrey Bernstein - Barclays Andrew Strelzik - BMO Capital Markets Sharon Zackfia - William

Blair
Operator: Good day, and welcome to the Bloomin' Brands Inc First Quarter 2015 Results Conference Call. Today's conference is being recorded. At this time, I would turn the conference over to Chris Meyer, Vice President of Investor Relations. Please go ahead, sir.

Chris Meyer: Thanks, Audra.

Good morning, everyone, and thank you for joining us. With me on today's call are Liz Smith, our CEO; and Dave Deno, Executive Vice President and Chief Financial & Administrative Officer. By now, you should have access to our fiscal first quarter 2015 earnings release. It can also be found on our website at www.bloominbrands.com in the Investors section. Throughout this conference call, we will be presenting non-GAAP financial measures, including adjusted restaurant level operating margin, adjusted income from operations, adjusted net income, adjusted diluted earnings per share, adjusted restaurant - segment restaurant level operating margins and adjusted segment income from operations.

This information is not calculated in accordance with U.S. GAAP and may be calculated differently than other companies’ similar non-GAAP information. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP measures appear in our earnings release and on our website as previously described. Before we begin our formal remarks, I'd like to remind everyone that part of our discussion today will include forward-looking statements, including our discussion of growth strategies and financial guidance. Such forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them.

These statements are subject to numerous risks and uncertainties that could cause actual results to differ from our forward-looking statements. Some of these risks are mentioned in our earnings release. Others are discussed in our Form 10-K filed with the SEC on February 24, 2015, and subsequent filings, which are available at www.sec.gov. During today's call, we'll provide a recap of our financial performance for the fiscal first quarter 2015, an overview of company highlights, a discussion regarding progress on key strategic objectives and an update on 2015 guidance. Once we've completed these remarks, we'll open up the call for questions.

With that, I would now like to turn the call over to Liz Smith.

Liz Smith: Thanks, Chris, and welcome to everyone listening today. We’re pleased to share with you our results for the first quarter of 2015. As noted in this morning’s earnings release, our adjusted first quarter diluted earnings per share was $0.54 and our first quarter reported U.S. comp sales were up 3.6%.

U.S. traffic for the quarter was up 70 basis points. This represents a 150 basis point sales and traffic over delivery versus the casual dining segment. Q1 marks the 22nd and 23rd consecutive quarters that we have outperformed the industry in sales and traffic respectively. We were pleased with these results as they reflect strong sales performance, as well as margin improvements at both the restaurants and operating levels.

Our Q1 results have set us up well to achieve our 2015 goals. As it relates to industry performance, we were encouraged by the strong sales results in Q1. This was the strongest sales quarter for casual dining in over six years. However it was difficult to gauge the true underlying health of the segment, given the noise from weather. So consistent with what we’ve said in the past, we did not believe there is enough evidence yet to suggest some meaningful trend change based on Q1 results.

So for now, we are reiterating our guidance of at least 1.5% comp sales in the U.S. in 2015. Q2 should be a better barometer for the state of the industry and we will update our forecast as the year moves on. Now, I'll take you through our Q1 performance by concept. At Outback, comp sales grew 5% in the first quarter and continued to perform very well across all metrics.

Our focus on reinforcing steak authority which began in Q3 2014 is resonating with consumers. The steak-centric messaging also increased our guest check average as we are seeing higher guest preference for steak entrees and steak-focused LTOs that are unique to Outback. We have experienced strong success behind our multiyear Weekday Lunch Roll-Out and we are taking our support to the next level. This past week, we launched National Advertising for Lunch. We are featuring our lunch menu that offers variety and affordability with over 70 combinations starting at $6.99.

We are using multiple mediums behind this launch, including television and social media. This will drive awareness among consumers and accelerate our share gains in the $25 billion lunch segment. At Carrabba's, we had positive comp sales of 1.9% in the quarter. This included an impressive 3.3% increase in traffic, as we focused on affordability in our marketing. We continued to leverage LTOs that reflect our new positioning with a focus on variety and value to drive frequency, while we progress the next iteration of our core menu.

The new menu remains on track to rollout in either late 2015 or early 2016. Ongoing testing will determine the ideal timing of this rollout. We are also pleased to announce that Carrabba's was recently voted the number one Italian restaurant as rated by consumers in the Nation's Restaurant News Annual Survey for the second year in a row. Carrabba's remains the undisputed quality leader and consumer preference for authentic Italian dining. Bonefish growth Q1 comp sales were 0.9%.

Bonefish is returning to its polished casual roots and its brand equity pillars of culinary forward cuisine and continuous innovation. We said that as we execute the strategy, we will unwind some of the promotional activities that drove traffic. This type of traffic is less sticky and tends to come out more quickly. This is reflected in our Q1 results and Bonefish sales performance will remain challenged for the balance of the year. Moving forward, our focus is on making sure Bonefish Grill’s customer experience is the best in the business with consistent execution.

Our continuous innovation will focus on the core dinner experience to delight customers without adding complexity. Bonefish Grill is a strong brand that once again was chosen as the number-one seafood restaurant and the number four overall in the CDR category as rated by the Nation's Restaurant News Survey. Recently, we announced that Gregg Scarlett had been named President of Bonefish Grill. Gregg is a 20 year veteran of our company and has played a key role in improving our operations at both Outback and Carrabba’s. Prior to that, he spent several successful years at Bonefish in various capacities, including Vice President of Operations.

He adds the right balance between innovation and operational excellence and is the perfect fit to guide Bonefish Grill to its next phase of growth. Fleming’s finished the quarter with comp sales growth of 3%. This is the 21st consecutive quarter that Fleming's has had positive comps. Fleming's has consistently brought high level of innovations and food exploration to the table. Our 8-9-10 promotion has been very successful and has provided an opportunity for us to drive frequency to a differentiated occasion.

By combining unique value offerings like this with our more indulgent offerings, Fleming's continues to take share and has really distinguished itself in the competitive high-end steak category. Turning to our international business. Brazil is performing at a high level. Although GDP growth had slowed and there remains ongoing concerns about the economy, our restaurants are performing in line with our high expectations. Demand for our restaurants well exceeds supply, so we remain somewhat insulated despite a slowing economy.

We also recently opened our first two Abbraccio’s in Brazil. I just returned from a visit there and was truly impressed with the level of detail, service and hospitality that the team brought in localizing the concept, while keeping the core DNA of Carrabba’s. And while it's still early, we are very pleased with the initial performance. Italian dining is the number two segment in Brazil, and no clear category leader exists, providing us with significant runway for growth. We believe we have an opportunity to open at least 50 locations over the next five years.

In addition, I am pleased to announce that we are bringing Fleming’s to Brazil. We believe there will be strong demand to the Fleming's experience, as there is currently no dominant brand in the upscale Steakhouse segment. We have a disciplined focus on building out our Outback and Abbraccio businesses, so Fleming's will not be company-owned in Brazil. Instead, we have chosen to enter the market as a franchise or a minority partner. This strategy is consistent with our desire to stay nimble and agile as we build out our international business.

The first opening is expected in Q1 2016. Shifting to Asia, we were pleased with our Q1 performance in Korea, where comps were down 3%. This is a significant improvement in our trends versus the past 18 months and reflects our focus on restoring momentum in the business. On the development front, we opened 14 system-wide locations in the first quarter, consisting of; four Bonefish Grill’s, three Carrabba’s, two company-owned and one franchise, one U.S. Outback, four company-owned international Outback restaurants, one in Brazil, two in South Korea and one in China and two franchise international Outback restaurants.

Finally, I also wanted to highlight that Bain Capital sold its last remaining shares in the quarter, ending the successful eight-year partnership. We thank them for their guidance and stewardship. In summary, we are pleased with our first quarter results and it was a great start to the year. We will continue to capitalize on our unique mix of levers across our portfolio to further drive sales and profit growth. Our confidence and the vitality of our portfolio and its long-term prospects remain strong.

And with that, I'll turn the call over to Dave Deno to provide more detail on our first quarter operating results. Dave?

Dave Deno: Well, thank you, Liz, and good morning, everyone. I'll kick off with discussion around our sales and profit performance for the quarter. As a reminder, when I speak to net income and EPS, I'll be referring to adjusted numbers that exclude certain costs and benefits. Please see our earnings release for reconciliations between our non-GAAP metrics and their most directly comparable U.S.

GAAP measures. We also provide a discussion of the nature of each adjustment. With that in mind, our first quarter financial results versus the prior year are as follows. Adjusted diluted earnings per share were $0.54 versus $0.46 in 2014. GAAP diluted earnings per share for the quarter, were $0.47 versus $0.42 last year.

As a reminder, our 2015 first quarter results include two additional operating days due to our change to 52, 53 week fiscal year in 2014. This conversion increased our Q1 adjusted EPS results by $0.04. So, on a comparable basis, we're up $0.04 versus a year ago. Adjusted net income was $69.7 million versus $58.5 million for the first quarter a year ago. GAAP net income was $60.6 million versus $53.7 million in 2014.

Overall, we were very pleased with our Q1 performance. Sales results were strong, particularly at Outback. In addition, margins improved as a result of our ongoing productivity efforts. These results came despite some significant headwinds in the form of commodity and wage inflation, as well as additional FX related unfavorability. Comparable U.S.

restaurant sales were up 3.6% while traffic increased 0.7%. As a reminder, our comp sales results for the quarter do not include the impact of two additional days at the beginning of the quarter. These two days represented an additional $24.3 million of sales across our portfolio. All four of our U.S. concepts posted positive comp sales in Q1.

At Outback, comps were up an impressive 5%, while traffic was up 0.5%. At Carrabba’s, comps were up 1.9% while traffic up 3.3%. At Bonefish, comps were up 0.9% with traffic down 1.8%. And at Fleming's, comps were up 3% with traffic up 0.7%. Total revenues increased 3.8% to $1.2 billion.

The majority of this increase was due to new restaurant openings, higher U.S. comp sales and additional revenues from the two additional days in Q1. These results were partially offset by the impact of restaurant closures, lost revenues from the sales of our Roy’s business and a $12.4 million impact on revenue from foreign currency translation. Adjusted restaurant level operating margins were 18.3% this year versus 18% a year ago. Our Q1 margins benefited from the impact of our productivity initiatives and higher U.S.

average unit volumes. These were offset by commodity inflation and wage inflations. Our GAAP restaurant operating margins were 18.4% this year versus 18.2% a year ago. The primary difference between the change in adjusted restaurant margins and the change in GAAP restaurant margins was driven by adjustments related to our domestic restaurant closure initiative. Now onto the details.

First, cost of sales decreased to 32.4% from 32.5% in 2014. This change was primarily driven by productivity initiatives and menu price increases. This was partially offset by commodity inflation, particularly beef. Our ability to bring down cost of sales in the quarter with high commodity costs, especially beef, is a good indication of how our productivity initiatives are really paying off. We are currently contracted for 78% of our total 2015 buy.

And as indicated last quarter, we are 99% contracted on beef. Labor and other related expenses were 27.1%. This was flat versus a year ago. Higher U.S. average unit volumes and productivity initiatives were offset by wage inflation and continued higher health insurance and workers’ compensation expenses.

One vote on labor costs, we are seeing higher-than-expected wage inflation and that is built into our 2015 guidance. Finally, adjusted restaurant operating expenses decreased to 22.1% versus 22.5% a year ago. This decrease was primarily driven by higher U.S. average unit volumes, favorable market expenses and productivity initiatives. This was partially offset by higher general liability expenses, R&M and operating supplies.

On a GAAP basis, restaurant operating expenses decreased to 22.1% from 22.3% in 2014. The primary difference between our adjusted restaurant operating expense and on our GAAP restaurant operating expense was driven by expenses in 2014 related to our domestic restaurant closure initiative. Turning to G&A. Q1 general and administrative expenses were $73.2 million versus $74.1 million a year ago. This decrease was primarily driven by a lower compensation expenses due to our organizational realignment in the second half of 2014.

And finally, our Q1 two tax rate was 25.9% on an adjusted basis and our GAAP effective income tax rate for Q1 was 25.5%. In terms of productivity, we are in excellent shape to deliver on our goal of at least $50 million of productivity savings in 2015. On the cost of sales line, our actual versus theoretical food cost initiative has been rolled out and as the year progresses, we expect to continue to see the benefits in our food cost. We expect cost of sales to represents 50% of our overall productivity savings in 2015. In addition, we are seeing incremental benefits in the labor line, as we become more proficient at using our labor scheduling tools.

These efforts will help us offset the inflation we are seeing in both, commodities and wages. We do expect to see margin improvement in 2015 and continue on closing the margin gap versus our peers. In Q1 2015, we revised our segment reporting to increase visibility into our results, particularly as it relates to our growing international business. In our segment reporting, we have included comp sales, revenues, restaurant operating margin and operating income margin for the U.S. segment, as well as the international segment.

We'll include this information on both the U.S. GAAP and adjusted basis. Operating expenses not included either the U.S. or international segment will be included in an unallocated corporate expense bucket. These unallocated expenses relate primarily to corporate overhead and certain restaurant operating expenses such as insurance which we mark - we add [ph] centrally.

We will provide the segment information in our earnings release and our quarterly SEC filings. In addition, we have also provided historical 2014 data by quarter for these segments at the back of this morning's release. In terms of the first quarter, I would like to point out a couple of items of note from our international segment. Q1 comps sales were up 6.2% at our Outback restaurants in Brazil, with traffic up 1.2%. This result represents continued momentum in our Brazil business following 2014, where comp sales finished an impressive 7.6%.

This business is performing well across all measures despite ongoing concerns about the Brazilian economy. In Korea, Q1 comps were down 3% with traffic down 4.6%. This is much improved from 2014, where we finished the year down 17.7%. The casual dining environment in Korea remains challenged and sales results will be choppy, but we are pleased with the progress we have made to stabilize this business. In terms of margin performance, restaurant margins will be higher internationally than in the U.S.

given the strength of our international business. And we certainly saw that this quarter, and is a good indication of why we are investing overseas. The choppiness in Korea and our desire to invest ahead of growth, lead to some volatility in our restaurant margins quarter-to-quarter, but as I mentioned, we expect international restaurant margins to be very favorable. Turning to operating margins. International operating margins will be better but a bit closer to the U.S.

for two reasons. First, we continue to make significant growth investments in China and Brazil. These investments typically show up in G&A within our international segment. And secondly, our international business has fully staffed teams in our key countries. These markets are smaller than the U.S.

and we expect to leverage our in-country G&A expenses as we grow. One final note on international. In Q1, foreign currency translation negatively impacted our results by $2 million, most of it relating to our international business. Turning to our capital structure, as Liz mentioned, Bain Capital sold the remaining shares in the first quarter and Bloomin’ Brands purchased $70 million of shares as part of that transaction. This transaction was completed as part of our $100 million share repurchase program.

We currently have $30 million remaining on our share authorization that runs through the middle of 2016. Also of note, last week our Board of Directors declared a cash dividend of $0.06 per share payable on May 27. Before turning to Q&A, it is important to discuss a few key items regarding our 2015 guidance. First, all aspects of our 2015 guidance remain intact except for our total revenue guidance. Given the continued pressure on the Brazilian real, we lowered our total revenue guidance to at least $4.43 billion.

This is down from at least $4.49 billion. Second, in our guidance, we have embedded an additional $3 million of foreign exchange translation risk for the year. We had originally expected to face $9 million of Forex downside in 2015. We now expect to see $12 million of downside. We are able to keep our, at least, $1.27 guidance for 2015 EPS despite this additional $3 million headwind.

Third, even though it's not our practice to give quarterly guidance, I do want to remind everyone of some fairly significant events that impacted Q2 last year. In our Q2 call last year, we indicated that we had approximately $7 million of lower incentive compensation expenses due to performance against objectives. We do not anticipate this recurring in 2015. In addition, although 2014 turned out to be a difficult year for health insurance, we did have $1.2 million of favorability in last year’s Q2 results that we do not expect to repeat in 2015. Last year, we delivered $0.20 of adjusted diluted EPS in Q2.

If you adjust for these two items just mentioned, our EPS would have been approximately $0.05 lower. That would give us a comparable base in 2014 of $0.22 per share. Please keep this in mind when assessing our Q2 performance this year. Our expectations for Q2 are consistent with the guidance we have provided of at least $1.27 for the year. And as Liz said, we are off to a very good start for the year and feel good about our commitments.

And with that, I'll open the call for questions.

Operator: Thank you. [Operator Instructions] And we'll go first to John Glass with Morgan Stanley.

John Glass: Thanks. A few, if you could.

Just first, Liz, on the top line, the gap to the Knapp, which is still positive, I think you said it’s about 150 basis points. But it's been narrowing in the last - this quarter at least versus the prior two quarters. How do you explain that? Is that - particularly because the steak category I think has led the industry for the last several quarters, so why is it now less than it was? If that's an answerable question.

Liz Smith: Sure. So John, let me give you my perspective on that.

We feel very good about our performance in Q1, and we also feel very good about Knapp’s performance in Q1, right. It was the strongest performance Knapp had in six years. That's a good thing. And so if we see - a good thing would be if we see that Knapp’s strong performance continuing throughout the year and our performance continuing about that, even if the gap narrowed to 150, if Knapp was in a positive environment, that would be a very strong outcome and something we feel very comfortable with. What we are committed to is constantly outperforming Knapp and meaningfully taking share and we will be next share takers.

Now you have seen the quarterly Knapp jump around on us in the past as well. But we really do like the composition of Q1 and how that to was. And as I said, if Knapp stays positive, which lets wait till we get through Q2, I've been consistent on this, then we think that that would be a positive environment even if it meant that our gap narrowed to 150. As it relates to the steak segment, yes it's a great stay segment and you saw that Outback posted a 5% comp. And that's the third really impressive comp in the row.

We think that business and the category had some great momentum, so we really agree.

John Glass: Okay. And then, two questions on the expenses. One, Dave, on the G&A. I think you had said originally it was going to grow 5% this year, and so you were making some prudent investments and that was one of the conversations we had about guidance this year.

It was down - is that just an adjustment issue or do you think now G&A will grow less robustly, given other offsets like currencies and stuff. How do you assess that now?

Dave Deno: Yes, sure. John, we will be making our technology investments and continue to make our international investments as the year goes along. So I do think you'll see a bit of an uptick on those investments like we had talked about last year when we set our guidance. It's just a matter of timing right now.

You'll see more of that more uptick in Q2 and Q3 and Q4 as we continue to invest behind technology especially.

John Glass: Okay. Just on your second quarter guidance, I understand the offsets you got high yields [ph] and benefits last year you didn't get, but you also had this huge headwind from Korea last year. Can you quantify what that was now that we're breaking out the segments and maybe understand how that fits in the context of what you talked about in the second quarter?

Dave Deno: Yes, sure. John, we don't really breakout country level detail.

If you look at our international segment year-on-year, you'll see how the quarter performed and we are happy talk to you more offline about that. But we really don't want to get into any kind of country level stuff beyond what’s reported on our international segment.

John Glass: Okay. Thank you.

Operator: We'll go next to Joseph Buckley at Bank of America.

Joseph Buckley: Thank you. A couple questions as well. So Dave, I think you said a few extra days kicked in about $0.04, and I think at the beginning of quarter you were thinking more like $0.05 to $0.06. So just reconcile those two if you can?

Dave Deno: Joe, just frankly it's our very best estimate that we could give. There wasn't really anything I can do beyond that other than it was our best estimate, it's about a penny.

So I really can't go beyond that.

Joseph Buckley: Okay. And then, just kind of run through G&A again. I'm sort of confused, why it was down in the first quarter. You mentioned some of these investments behind IT and international.

Did those not flow ratably in the first quarter? Was that part of the first quarter G&A performance?

Dave Deno: Yes, it didn't flow ratably in the first quarter. And as I mentioned on the earlier question Joe, you'll see some additional spending going on balance of the year, especially around technology and some of our international investments

Joseph Buckley: Okay. And then lastly just on Outback. Could you just talk about the percentage of stores with line share [ph]? Are you up to that 70% threshold that you had talked about to advertise, and then there is always questions on the composition of the Outback same-store sales increase. I mean, 5% is a great number.

Maybe talk about the check versus the traffic. I know, you gave us those numbers, but there is always - we always get questions on the lunch contribution to the traffic, for example.

Liz Smith: Sure Joe. So Outback ended Q4 2014 at 61%, and we ended Q1 2015 at 71%, which is exactly, as you said what we're targeting as we turn on the national advertising associated with lunch. Let me go ahead and quickly give you those figures for Carrabba’s too, because I know we have in the past.

So Carrabba’s ended Q1 2015 with 56% of the fleet open for weekday lunch versus 55% of the fleet were closed Q4 2014. So, just a bit of housekeeping there. As it relates to the composition of Outback, the great thing about Outback and why this has been now entering its sixth year of outperformance is that it's got so many levers in front of it. So we feel great about the appreciation and check. That's what we wanted to do as we pivoted towards the steak-centric messaging and reasserted our steak authority.

And we are seeing that in our dinner traffic. We haven't taken the pricing as the people are coming and showing a preference for these steak innovations, for these steak LTOs and they are trading up. So we feel really good about that. That's performing as we had hoped. What you're going to see for us in Q2, we just launched lunch nationally, because we really like what we are going to see on that, and so I think for Q2, the Outback story or the momentum will be a lot of focus on lunch and growing our share in that $25 billion segment, with lunch that has been already been very successful, but hasn't had national advertising awareness.

So the amount of levers that we have and the ability to flex those is really the story on Outback on what allows us to have that quarter-after-quarter performance. So we are pleased with how the comp came in and how the brand is performing across all metrics.

Joseph Buckley: Okay. That will all be for now. Thank you.

Liz Smith: Thanks.

Operator: And we'll take our next question from Michael Gallo at CL King.

Michael Gallo: Hi, good morning.

Dave Deno: Good morning.

Liz Smith: Good morning.

Michael Gallo: My question is just on the national rollout of lunch at Outback. I was wondering if you planned to spend incremental marketing against that in the second quarter. And then, if not, how you plan to make sure that you don't cannibalize dinner as you push that rollout on air? Thanks.

Liz Smith: Sure. Thanks Michael.

So let me take the two parts. We are not spending incremental advertising. We have a really healthy share of voice in Outback. We purposed some of the media and then we will move into - it's a very simple message, it's kind of lunch at last. Everything you love about the number one steakhouse, now you can get a lunch.

So it's very simple message that will then move into tags across our core dinner business. And in terms of cannibalization, we test everything here. And so we are very comfortable that with the rollout of national advertising that we will continue to observe the same relationship that we have observed between lunch and dinner, which means it's about 15% of lunch sales will come out of dinner. Why do we feel comfortable with that? Well, last year we actually put that into test. We had a group of markets, with lunch advertising, and we had a group of markets without and that relationship helps.

So that gives as an awful lot of confidence that the national advertising is going to do what we saw it do in test last year, which is to really grow the lunch business and maintain that relationship with dinner.

Michael Gallo: Thanks very much.

Operator: We'll take our next question from Jeff Farmer at Wells Fargo.

Jeff Farmer: Thanks. It looks like you guys are three quarters into your strategy for heightening the product and promotional focus on steak, for lack of a better wording.

I'm just curious if that shift in strategy is maintaining momentum as the same-store sales driver. So I know you moved there I think last year. I'm sure there was a lot of sort of incremental demand related to the move to that shift of steak. But have you maintained that level of consumer interest in your efforts and do you expect that to continue, once you lap the rollout from last year?

Liz Smith: Sure, Jeff. So yes, that momentum has continued and we don't breakout, but dinner traffic has continued to strengthen, so I'm very happy with that.

In terms of lapping, I'm going to go back to the levers things. We had a job to do on Outback, which is to broaden the experience. And we did that so well for four years, that as we said, we kind of got away from reminding people, hey, we are number one at steak. So it's not a matter to be honest of lapping, it was just reminding them of what we had. We didn't take prices down.

We didn't change menu. We were like, hey, remember us, we have stake authorities. We have the best cuts. We have two cooking corporations and we're number one rated. So we're just committed to balancing that news and the levers and never letting people forget or assume that they remember on the top of mind that we are best at steak.

So that momentum has continued. It will continue because it's fact-based in what we offer consumers and what they experience in the restaurants.

Jeff Farmer: Okay and just a quick follow-up. You literally just touched on this, but with the plan to provide media support for Outback's lunch business, you alluded to there are being some tests for, I guess, advertising lunch. Is there anything you can share in terms of what that meant to sort of mix out lunch, price points or anything that would help?

Liz Smith: Yes.

I mean, what I can share with you is that it drove awareness and it drove the business and it didn't change the dynamic with dinner. So it was kind of all green lights which gave us the kind of enthusiasm and confidence to go on air nationally and tell people about lunch and that's what we started to do about nine days ago.

Jeff Farmer: So just meaning that that collective - so collectively, that restaurant across all dayparts, any restaurants that received sort of the lunch media theoretically, saw a elevated level of same-store sales relative to sort of the test cases. Is that fair?

Liz Smith: Yes, the advertising worked. It drove awareness, which drove lunch.

And when you go in, which I hope you have and have the Outback lunch, the team has done a great job on executing that lunch environment. So yes, that's a fair characterization.

Jeff Farmer: Thank you.

Operator: And we'll take our next question from John Ivankoe with JPMorgan. It looks like Mr.

Ivankoe has disconnected. We'll move next to Alton Stump at Longbow Research.

Alton Stump: Hi. Thank you, and good morning.

Dave Deno: Good morning.

Liz Smith: Good morning.

Alton Stump: Just a quick question. It just so happens that the Bonefish Grill that - it’s here down street from where I work has been offering lunch for the last couple quarters and it does seems like traffic just based on my own experience hasn’t picking up at lunch. We'll presuming that it's just a test, but how widespread is that test if you talk about it, and is it something on your mind to potentially launch lunch just with the overall Bonefish as well or is that something that you think is far off into the future at this point?

Liz Smith: Yes. So you're absolutely right.

Similar to Carrabba’s and Outback in the past, which did have lunch locations that were opened for seven-day-a-week lunch before we kind of formally had a program. We do have Bonefish opened for lunch in different locations, where we think it makes sense. In terms of having a focus on lunch at Bonefish, that is not a priority for us. Our priority at Bonefish is dinner, dinner, dinner. And that's where the innovation is gone against.

We were really psyched with the core menu innovation. We got recognized for menu masters. But really is about continuing to make sure that it’s that polished casual great experience for that $23, $24 price point at dinner and that will continue to be our focus.

Alton Stump: Makes sense, thanks. And just one quick follow-up on Outback.

Obviously you've done a great job, sort of, refocusing your efforts back on your steak platform. How much longer does that continue? Is it something that you’d hope to sustain, or is it now time to go back to some other portions of your menu at Outback and focus on that now?

Liz Smith: Yes, I mean, it's a great question. The thing that I always love about Outback is that we just have a richness of levers, if you will. But one thing that we can never do is walk away from reminding and asserting our steak authority, right? And it's first, let's remember we are number one at steak. I hate to sound repetitive, but you can’t say it enough.

We have in general the highest quality cuts. We have two cooking preparation methods. We are number one rated et cetera, et cetera. So always reminding and then talking about the great broadening efforts that have been so successful, whether it's kind of the new menu, the $4 dollars finds or the evolving menu. And then now, what you see is a really great lunch menu that has performed really well and an opportunity to talk of that.

So I think it's that combination levers. You add onto that. You know how reloads have been doing, you know that we have a big pipeline ahead of reloads, you also know that as we - as we talked about on Analyst Day, we see 50 more new Outback's out there. And then we have the exterior remodel that is in test and doing very well. So I think the notion is with Outback is constant relevance, constant top of mind, constant best-in-class.

Alton Stump: Makes sense. Thanks so much.

Liz Smith: Thanks.

Operator: [Operator Instructions] We'll go back to John Ivankoe with JPMorgan.

John Ivankoe: Hi, thank you.

Sorry about that. Two telephones hang up on people I guess. So, two completely unrelated questions. The first is on Outback lunch. As you said, Liz, 71% of the system this year - it was actually 45%, if my notes are right, in the first quarter of 2014.

So that's a very big jump year-over-year. And then you saw a similar jump like that in 2014. As you mentioned, you're kind of at that 70% threshold, so the rollout of lunch is going to slow down very significantly, if it doesn't end. So have you kind of gone back - and there is some mention of this in the 10-K. But have you gone back and really understood what the one-time costs were around the rollout of lunch, in terms of just the inefficiencies around the training, around the rollout costs that you saw presumably in 2014 and the first quarter of ‘15 that you might not see going forward, but could actually swing to be a benefit? And then I have a follow-up.

Dave Deno: Yes. It’s Dave, John. On the question, we saw on Outback about 50 basis point spread between primarily food and labor in our business at Outback for lunch. That was rolling it out, training and everything else. So once we get through that, hopefully we'll continue to - we'll able to be leverage lunch.

As importantly, the retrofit have lunch at least for a year continue to grow their lunch comp sales, so that could be an upside as well for us as we go forward. So two big keys for our large business. And then as we grow our lunch sales well beyond break-even, the flow-through begins to get closer to our dinner business. So we really are hopeful about where our lunch and innovation can bring.

John Ivankoe: So I don't want that number to be taken out of context.

So that 50 basis points is the total margin cost of lunch, it's not just the rollout cost of lunch, or the training cost of lunch?

Dave Deno: Yes, that's the total cost for Outback for lunch. Yes.

John Ivankoe: Okay. And then, secondly. You obviously still have a big number of units in Korea.

I was actually surprised to see comp down 3% versus down, what I think was down 18.8% last year, especially with the closures. And there was at least some thinking that there would be some reverse cannibalization of sales that transferred from closed units to units that remained open. So can you just kind of put some more context around that number? Is it pure economic, is it pure segment, or is there something that you're doing that you need to do better there?

Liz Smith: Yes. So John, we’re very pleased with the 3%. And kind of what I can see that the market there continues to be extremely challenged down.

They haven't - the market hasn't seen that change in trend that we've seen. So we are now in the position of being outperforming the casual dining market there with that negative 3.3%. And so I think we feel really good about how the entire plan is working at of ring-fencing. We've shut down the right restaurants. We are investing in revitalizing.

We have a great team in place. We feel very good about with Korea. I don't know, Dave, if you want to add anything onto that?

Dave Deno: I think, John, the only thing I would say is, as we put together our guidance for the year, we did not expect heroic turnaround in Korea, because of the difficulty in the marketplace. And to have a change of trend that big quarter-to-quarter is really helpful for us and we have great hope for the market. Now, it will be choppy from quarter-to-quarter, but we have made a significant change in trend, which we are very happy with.

Liz Smith: So John, I do not provide context for that three even more - the market was down 20% in Korean casual dining. So, just to give perspective on what that down 3% is for you.

John Ivankoe: It was down 20% in the first quarter of ‘15. I think you said last year, it was down 20% or 25%. I mean, that’s pretty remarkable to hear, but I will take your words on that.

Liz Smith: I'm looking at TNS Tracker which is - to be honest, that's kind of the Knapp that we get from there. That's the best information that we get from there. And they just reported that for Korea CDR market sales, is it was down 20% in Q1. Q4 was - it worsened from Q4 into Q1.

John Ivankoe: Okay.

We’ll take it - I understand. And then, just since I have you, are you doing a minority a interest in Fleming's in Brazil? Contrast that you’re doing a fully-owned Abbraccio. I mean, what's different between the two and why not do company-owned strategy with that concept as well?

Liz Smith: Yes. So we have always said and I think the strength is that one size isn't going to fit all, and we are going to be nimble and agile. And Outback is performing extremely well in Brazil.

We just launched Abbraccio. That has a really significant runway for growth. But I've committed to you guys is that we will never get spread too thin again. So that's our focus. However there is a huge focus, or huge opportunity we believe in the high-end steak down there, because there is no dominant player.

So we don't want to see the first-mover advantage. But at the same time, it’s not appropriate for us given our focus and what we have, the growth opportunity on our plate to take that on. So we have joined with a partner that we know well and that we admire in much the same way Outback was launched in 1996, and we know that they will do Fleming's right as well as kind of capture that first-mover advantage we think of western steakhouse dining. And that was the thought process that went into that, which is kind of remaining focus on the opportunities without spreading ourselves too thin, but also being open to what we’ve said as a hybrid strategy to franchise what it makes sense.

Dave Deno: Yes, John, and I really think it's the first indication of the franchise interest of our brands overseas.

And so we've got a great partner here and we think we've got a pretty nice franchising opportunity overseas and let's get started.

John Ivankoe: Okay. Thank you.

Liz Smith: Thanks.

Operator: We'll move next to Jeffrey Bernstein with Barclays.

Jeffrey Bernstein: Great. Thank you very much. Couple of questions. One, Liz, you commented on Knapp-Track's strength in the first quarter. It seemed like based on monthly data, it was more driven by January and then things kind of eased.

Hopefully, it's still positive in February and March. I'm just wondering whether you can talk sequentially, maybe not given the granular detail month-by-month, but is that fair to say that the Outback brand at least saw a similar trend and then stabilized at a lower level, to kind of close the first quarter, or maybe enter the second quarter?

Liz Smith: Yes. So Jeff, as you know, we are boringly consistent in saying that we don't talk about monthly trends. And the reason we don't is that we don’t think they’re instructive about the overall health of the business, but certainly and so when a lot of folks were talking about January, we said, let's get Q1, let's look at the business on Q1. So there is no question that the casual dining industry benefited from what was a horrible January last year.

And we remember the casual dining industry. But we knew that. We knew that that was the case. So there was no surprise for us in how our comp store sales came in over Q1. And we were actually really delighted with the performance kind of throughout the quarter.

And it really is, I think a good example of why we just don't give monthly guidance. We don't think it's instructive on how the health of the business is performing.

Jeffrey Bernstein: Got it. And then, just on the - or maybe just a follow-up. It seems like from the Outback brand specifically, the traffic was up maybe 50 bps in the first quarter.

I know lunch is now contributing. So at this point it seems like - could you give a specific traffic number within that Outback comp?

Dave Deno: Yes, it was 50 basis points.

Liz Smith: I believe it did. You're exactly right.

Dave Deno: Yes.

Jeffrey Bernstein: So then just to clarify, I guess. If traffic was up 50 and the pricing was up - I mean, I'm just trying to figure out the lunch versus dinner. I know that gets talked about a lot, but it would seem like the lunch traffic is a big positive driver and therefore maybe the dinner traffic. I know you're talking about reasserting your excellence at steak at dinner, but it would seem like the dinner traffic is still the kind of the hindrance. Is that fair to say or am I reading that wrong?

Liz Smith: Yes.

So we were pleased with our dinner traffics because it strengthened. So we are seeing the positive benefit of our dinner strategy. The rollout of lunch was really - I'll be honest with you, a soft rollout in terms of we didn't talk about it, we are getting ready for the big national advertising bang that's going to be happening, which started in Q2. So there was a big jump from quarter-to-quarter, but it was a bit of a soft roll to get ourselves set up for this. So what I would say to you is that we're happy with how the lunch business is responding to - the dinner business is responding to our pivot back.

It’s strengthening. Overall, if you look at the categories measured by NPD Crest, for the consecutive quarter you see that dinner for the industry for the period of December, January, February, was softer than lunch. So that's kind of an industry-wide comment. But for us again, strengthening dinner, responding to the message, and I think you're right, we just turned the advertising on in Q2 and now you're going to see that awareness and traffic at lunch build behind our effort.

Jeffrey Bernstein: Got it.

And my last question is just on the steak component and the price, or I should say the cost perspective. I know we're 99% locked and it's locked it up in double-digits, but being locked is obviously comforting. As you look out to ‘16 and obviously you're talking to more suppliers and what not than we are. But there seems to be some modest level of excitement building that in ‘16. We could see much more modest inflation, if not, neutral, or at some point turning the other way.

So do you have any insight into at least directionally how things would play out ‘16 versus ‘15 from a beef cost perspective?

Dave Deno: Yes sure. Best thing to say right now because we are just beginning to look pretty seriously at ‘16, Jeff, we are hopeful, but it’s still a little too early. It's been a tough beef market for the last couple of years. We are extremely pleased to be where we’re at with our buy and to have it locked and the team has done a fantastic job on that and continuous to do a fantastic job, and we're turning - now we have the opportunity to turn our attention to ‘16. But let's just wait a little bit and see.

But we are hopeful, but let's see how things play out.

Jeffrey Bernstein: Great. Thank you.

Operator: And we'll go next to Andrew Strelzik at BMO Capital Markets.

Andrew Strelzik: Hi.

Thanks for taking the question. I just wanted to ask about Carrabba's. It seems like the menu continues to be delayed a little bit, but at the same time we're seeing some nice encouraging signs on the traffic front. So can you talk about what you are seeing in terms of the menu testing? Number one. And number two, where you were saw some of the successes in terms of the quarter on the traffic side?

Liz Smith: Sure.

So as we said I think on the last call, Andrew, the menu that we launched in 2014, the goal was to go into more variety lighter and more affordability, and we definitely made strides there, but we didn't go far enough. And what I said on the last call, which is, we are not going to roll out the second iteration of this until it is 100% locked and loaded in where we are. We like what we are seeing in the tests. And very much like what we are seeing in the test. And so that's going to govern when we’ve kind of finished that assessment, whether it's going to be late H2 of this year or Q1 of next year.

But I feel very good about what we are seeing. We are going far enough. We’ve taken it all the way to bright. But what we said at the time is that's not going to stop us from implementing the playbook because we know that it's - Carrabba’s is a beloved brand. Number one in the Italian segment, number five choice overall among in casual dining.

But the whole Italian category needs to reinvent itself to have that capability but also lighter more approachable. And we said we would start right away on that. And so what you saw was in our advertising and messaging, a focus on that value and that variety and that affordability, and that's really resonating and our LTOs were constructed against that. And so what you're seeing for us is some wood grilled favorites. You're seeing the Spiedino, the lighter.

We were also on air with a entire program that said 15% off. We are out there with our No Worries - I’m sorry with our Amore Monday, which is the price fix that has a great value that's driving that frequency during the week. So I think what we said is we are not going to wait to implement the playbook, we know what the issue is and you're seeing people responding to that marketing and to that whole effort. And it will be taken to even further when we rollout the core menu. And again, I just can't give you an exact date whether it's going to be late this year or early next year.

Andrew Strelzik: Okay, thanks. And then, if I could also ask on the Brazil Outback, Brazil comps. I was a little bit surprised by the composition between price and traffic. I just wanted to get your sense for the comfort that you have in carrying that 6%, 7% pricing going forward, and if you could also give what the first quarter pricing was, that’d be helpful. Thank you.

Liz Smith: Yes. So what I'd like to say is and we've been - we’ve said this, the restaurants are full. There is line. There is really not - if we had more seats, we could grow traffic more, right. So that's why we are putting up new Outback’s as quickly as we can because you're still having these waits.

And so I've said to you guys before that they have made an art of pioneering new dayparts to try to sift demand into periods that don't wait, but there is a limit on what we can do when you have several - when you have multi-hour wait at lunch or dinner. So honestly that’s been the governor of traffic growth. But the good news is that we are putting them up as fast as we can. And if I just look at 2014, the stores that we put up are performing above the business case. So it just speaks to kind of providing another funnel for that pent-up demand.

In terms of pricing, I think it's been very consistent with how we’ve approached pricing over the last several years, really kind of in line with the market. So despite a lot of concern about the Brazil economy and we watch it very closely, I would just say that the demand for the concept well exceeds the supply and we're addressing the supply issue by building them as prudently and as fast as possible.

Dave Deno: Yes, I'll just add to Liz’s point, we’re getting - we’re adding to the supply, and we are getting traffic growth in the existing restaurants. That's terrific. And so we are very pleased with we’re at in Brazil and that's an indication what - where we’re at the marketplace, especially on Outback.

And Abbraccio started out very well. So very good performance out of Brazil.

Andrew Strelzik: Great, that's very helpful. Thank you.

Operator: And we'll go next to Sharon Zackfia at William Blair.

Sharon Zackfia: Hi, good morning. Two quick questions, I guess. So first, David, I think in the press release, there was something about $4.9 million in insurance and unallocated corporate year-over-year that was most of the increase. Can you talk about that, or did you mention that?

Dave Deno: Sure. There are three parts.

One, we had a very favorable workers’ comp trend last year. We have a normalized workers’ comp trend this year. Number two, we had some healthcare claims this quarter, not as difficult as it was in Q4, but we did have some versus a year ago. And three, we had some increases in what we call general liability, which is basically customer slips and falls in the restaurant. So those three things came together, weighted about equally.

We were all over it. It’s in our forecast. We don't anticipate it being a big problem this year, but it was a call out.

Sharon Zackfia: Okay. And then secondarily, any comments on KDS and where you are on that test, and how that might or might not be rolled out?

Dave Deno: Yes.

The first thing that we are doing right now is making sure our labor initiatives and actual versus theoretical food cost initiatives were all over that, and making sure that we get the opportunities that we are pursuing to flow through the restaurants and flow through the P&L. So that's our main focus this year is that, we are continuing to test KDS and high performance kitchens. That probably won't be something we will see until 2016, may be back half. It’s too early to say. But we continue to test it right now, and it will be put in our productivity queue when it's ready.

But right now, we are focusing on our initiatives are right ahead of us, which is food cost management and labor cost management.

Sharon Zackfia: Good. Great. Thank you.

Operator: And that does conclude today’s question-and-answer session.

At this time, I'd like to turn the conference back over to Liz Smith for any closing remarks.

Liz Smith: Thank you. We appreciate everyone for joining us today. And we look forward to updating you on the portfolio on our Q2 call in August. Thanks again and have a great day.

Operator: And that does conclude today’s conference. Again thank you for your participation.