Feb 22, 2013
Executives
Elizabeth Smith - Chairman and CEO David Deno - EVP and CFO Mark W. Seymour, Jr.
- VP of IR
Analysts
Jeff Farmer - Wells Fargo Securities John Glass - Morgan Stanley & Co. Joseph Buckley - Bank of America Merrill Lynch John Ivankoe - JPMorgan Sharon Zackfia - William Blair Marc Riddick - The Williams Capital Group
Operator
Good morning. My name is Keisha and I will be your conference operator today.
At this time, I would like to welcome everyone to the Bloomin' Brands Q4 2012 Earnings Call. All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions).
Thank you. Mr.
Mark Seymour, Vice President of Investor Relations, you may begin your conference.
Mark W. Seymour, Jr.
Thanks, Keisha. Good morning, everyone, and thank you for joining us.
With me on today's call are Liz Smith, our Chairman and CEO; and Dave Deno, Executive Vice President and CFO. By now, you should have access to our fourth quarter 2012 press 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 income from operations, adjusted net income and adjusted diluted earnings per share.
This information is not calculated in accordance with GAAP and maybe calculated differently than other companies similarly titled non-GAAP information. Quantitative reconciliations of our non-GAAP financial measures to their most directly comparable GAAP measures appear in yesterday's 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 materially from our forward-looking statements. Some of these risks are mentioned in yesterday's release, others are discussed in the final prospectus filed on August 8, 2012 for our initial public offering which is available at www.sec.gov.
During today's call, we'll provide a brief assessment of the business, including performance for the fourth quarter and fiscal 2012, an overview of key highlights and discussion regarding how we performed against some of our key strategic objectives, and finally guidance for fiscal year 2013. 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 Liz Smith. Liz.
Elizabeth Smith
Thanks, Mark, and welcome to everyone listening today. I'm pleased to report another very strong quarter and exceptional year for Bloomin' Brands.
As you can see from yesterday's earnings release, our fourth quarter and fiscal 2012 results show continued strength and improvements in many of our key metrics. I'll take a moment to discuss some of the highlights for the full year and Dave will take you through the fourth quarter details.
Our fiscal year 2012 highlights included; an increase in full year adjusted diluted earnings per share to $0.99 compared to $0.81 for 2011. GAAP diluted earnings per share for the year was $0.44 versus $0.94 for 2011.
An increase in adjusted net income to 114 million compared to 86.5 million last year. GAAP net income for the year was 50 million versus 100 million for 2011.
Combined comparable restaurant sales growth at our company-owned domestic core concepts were 3.7 and importantly traffic was up 2.7 for the full year. We continued to perform well above the industry average which according to Knapp Track saw same-store sales up 0.6% in 2012 and traffic down 1.5%.
Finally, an increase in total revenues for the full year 2012 of 3.8% to approximately 4 billion compared to approximately 3.8 billion for 2011. Excluding the sale of Japan in 2011, the increase in total revenues would have been 4.5%.
Before we share details on our performance by brand, I think it's helpful as a backdrop to begin with our thoughts surrounding the macro environment, consumer sentiment and how we view the casual dining industry. So let's take it in that order.
First, with respect to the macro environment and consumer sentiment, there continues to be both positive and negative signs. While we've put the fiscal cliff somewhat behind us, there are still some lingering political issues such as sequestration that we believe are creating uncertainty in the marketplace.
Housing indicators are showing signs of improvement but gas prices now seem to be rising. In addition, the payroll tax increase on inflation and other categories represent real headwinds for consumer disposable income.
As a result, consumer confidence has been trended downwards. We think that in this environment, value and innovation remains the consumers' primary focus.
As for the casual dining segment, we are approaching 2013 with a bit more caution than we did 2012. Overall, we believe that index comparisons for the industry, such as Knapp and Black Box will continue to move along in a choppy manner and the traffic for the industry on the whole will end the year down between one and two points.
We also believe that you'll see the larger chains continue to leverage this sale through marketing, purchasing and innovation and thus take additional share at the expense of the smaller chains and independents. I know there have been a lot of comments recently of enhanced pricing competition in this segment and we've received many questions about how we intend to react.
As you know, we've been operating in a highly competitive environment for some time. We have seen some uptick in promotional activity, but [dealing] is not new in this space.
So I'd like to take a step back and reiterate the Bloomin' Brands philosophy on driving superior total brand value. In 2013, the consumer will remain focused on values.
But in our minds, value is not solely determined by price. We view the value equation as the entire 360 degree experience divided by price.
This experience consists of multiple consumer touch points including menu offerings and food quality, promotional efforts, customer service and ambiance. Our number one goal is to continuously innovate around these touch points in order to provide the most compelling experience possible with an affordable and attractive offer.
We've engineered our menu to include price points that satisfy the spectrum of customers out there. What we won't do is integrate our brands through extreme promotions.
By focusing on this broad definition of brand value, we believe that we will continue to outperform the segments in 2013. Now, I'd like to spend a few minutes talking about our platform for sustainable growth.
2012 was really an exceptional year for our company as we made measurable progress on all three of our primary growth strategies. Our first strategy is to continue to grow comparable restaurant sales.
As can be expected with any true portfolio, we did have some variability across our concepts. However, we are happy to report that this quarter represents the 11th consecutive quarter of positive comps for Outback, the 12th consecutive positive quarter for Fleming's and the 13th consecutive quarter of growth for Bonefish Grill.
For an industry comparison, Outback, Carrabba's and Bonefish Grill have now outpaced the Knapp-Track Casual Dining Index for at least 10 of the last 12 quarters and Fleming's has exceeded the Knapp-Track High End Steakhouse Index for 11 of the last 12 quarters. As for the individual concepts; at Outback, comp store sales continued to significantly outperform the segment with 5.3% growth in the fourth quarter and 4.4% growth for the year.
I've mentioned this before that Outback is really executing well in all aspects of the Bloomin' Brands playbook. The 4.4% lift in 2012 comps was driven by healthy traffic growth of 3% and demonstrates the strength of our business model once it has been fully implemented.
New menu offerings, innovative marketing and promotional efforts, additional lunch rollouts and remodels, all played a part in driving this year's results. Fleming's also closed the year strong with comps up 4% for the quarter and 5.1% for the year.
Fleming's once again outperformed the Knapp-Track High End Steakhouse dining segment which came in at 2% and 3.3% for the quarter and year, respectively. Bonefish Grill comps were up 1% for the quarter and 3.2% for the year.
These figures are more impressive when you consider the fact that we are lapping 5.9% for the fourth quarter and 8.3% for the full year 2011. We are pleased with how Bonefish is performing and are optimistic about the ongoing growth of this concept.
We will continue to evolve our menu in restaurants to keep pace with change in consumer taste and preferences. To that end, we are currently working on a menu refresh that will be in test at the end of the second quarter.
This will be the first major core menu update since 2008. Finally, Carrabba's comps were down 0.4% for the quarter but up 1.7% for the full year.
These results are well ahead of the segments in the full year and the results in Q4 sequentially improved after a poor performing LTO was transitioned to a more compelling offer. Moreover, after adjusting for the negative trading day impact for the quarter, Carrabba's sales comps were slightly positive.
With that as context, we recognized that we have the opportunity to strengthen Carrabba's assets, menu and value equation. As we mentioned on our last call, Carrabba's is a cycle or two behind Outback in executing the Bloomin' Brands playbook that I've discussed.
So with that as background, I'll walk through some of the details on how we are working to strengthen the Carrabba's 360 degree experience. First, we are finalizing the new remodel design and expect to roll it out to approximately 50 to 60 restaurants in 2013.
Second, we've spent considerable time evaluating the menu. I won't get into the specifics here, but our main goal is to make it more acceptable and better suited to a wider variety of occasions.
The revised menu will go into test this summer. We have also updated key service elements to contemporize the brand.
In addition, we will continue the expansion of Carrabba's dayparts with the rollout of weekday lunch to additional locations in 2013, as well as enhancing our lunch offerings. Finally, we've also made two leadership moves that we're excited about.
First, we created a new position, Senior Vice President of Casual Dining Restaurant Operations, to implement operational best practices across Outback, Bonefish and Carrabba's. Gregg Scarlett, a 30-year industry veteran is assuming this role.
As VP of Outback operations, Gregg has been instrumental in leading the renaissance that have taken place at that brand over the last few years. We look forward to bringing that same focus to Carrabba's.
In addition, after a lengthened search, we recently hired a new VP of Marketing at Carrabba's, Danielle Vona and expect that she will help further drive innovation. The Carrabba's brand recorded 11 straight quarters of positive comp growth prior to the fourth quarter.
Our market research reaffirms that the brand remains very appealing to the consumer. They appreciate the authentic, fresh Italian food that is cooked in front of them in our exhibition kitchen and table service consistently score high in customer surveys.
Once we completed our menu, service and facilities work, we believe we'll start to see an uptick in overall performance. This is a strong brand and these changes will only make it stronger.
Our next key growth strategy is the pursuit of new domestic and international restaurant developments. During 2012, in the United States, we opened 17 new Bonefish Grill and four new Carrabba's restaurants as well as one new Fleming's locations.
On the international front, we opened 15 new restaurants in total; five company-owned, seven joint venture locations and three new franchise restaurants. This puts us at 37 new units for the year, which exceeded our initial estimate of 35, but with a somewhat different mix between domestic and international.
Dave will discuss our expectations for 2013 development in a few minutes. Staying with international for a moment and as mentioned on our last call, we visited some of our Brazilian restaurants at the beginning of the fourth quarter.
This joint venture continues to outperform in all aspects of their business. Outback Brazil delivered approximately 250 million in net revenue for the year.
The average unit volumes far exceed their domestic counterparts because they are delivering a great Outback experience across every daypart. From lunch and happy hour to dinner and late night, it is common to find a lengthy wait when you arrive at one of our Brazilian locations.
We have a great partner and season operators down there and they are executing extremely well. We remain excited about the additional growth potential and future of the Outback brand in Brazil.
Moving to Asia, you may have seen our press release in December announcing the opening of our first company-owned restaurants in Mainland China. This new location in Shanghai is part of our ongoing strategy to leverage geographic operational knowledge into high growth surrounding areas.
In this case, lessons learned in South Korea, Hong Kong and Japan are all being applied to China. And given that we own approximately 88% in the joint venture, it falls in line with our desire to be the primary operating entity in what we believe could be a key piece of our future international footprint.
While it is too early to determine the viability of a full scale rollout in China, we are pleased with what we have seen thus far and results are in line with our expectations. We expect to open two more Outback restaurants in China this coming year.
Our third and final strategy for growth is to increase margin through continued productivity and increase fixed cost leverage. We have made measurable strides here as well.
Adjusted operating income margin increased 80 basis points from 5.1% to 5.9% in 2012. We accomplished this in spite of headwinds from food inflation, increased rent resulting from a failed leaseback transaction and additional preopening expense investments.
This increase was driven primarily by our productivity efforts and through AUV leveraging. As stated in our original guidance two quarters ago, our goal for the year was 50 million in productivity savings.
We finished 2012 with total savings of approximately 59 million. Looking to the future, we will continue to aim for $50 million a year in savings for 2013 and 2014.
We have a solid pipeline of ideas and new initiatives that are in various phases of qualification of taxing and are showing a lot of promise. I know everyone saw the news regarding the recent departure of our Chief Value Chain Officer Dirk Montgomery.
While we are going to miss Dirk and the many contributions he made to Bloomin' Brands over the years, we have built a deep and talented team in the supply chain IT and productivity departments. Dave Deno will oversee these groups and I'm confident that he will be able to maintain the momentum that Dirk helped create.
As you know, Dave brings a very strong background in these areas. In closing, as we put what was a very busy and successful 2012 behind us, we have now turned our full attention to 2013.
You will see us continue to align around our core strategies while emphasizing everything that is special about our authentic founder-inspired brands. Innovation in everything we do and a relentless focus on enhancing the guest experience will help us sustain the momentum that we've generated and gain further share in a challenging marketplace.
With that, I'll turn the call over to Dave Deno to provide more detail on our fourth quarter and year ending operating results, and what you can expect for 2013. Dave?
David Deno
Thank you, Liz, and good morning everyone. I'll first take a few minutes to walk through our sales and profit performance for the quarter.
I'll then dive into our guidance for 2013. Please remember that when I refer to net income and EPS, I will be referring to adjusted numbers that exclude certain costs, most significantly the transaction-related costs such as those related to our IPO and debt modification refinancing.
Please see yesterday's press release for reconciliations between our adjusted metric and their most directly comparable GAAP measures. Liz already went through comp by brand, so from a consolidated standpoint, blended domestic comparable restaurant sales at our core concepts grew by 3.5% during the fourth quarter, increases that included a healthy 2.2% rise in traffic.
This lift was driven by continued innovation in our menu, service and operations, renovations at our additional Outback locations and a pickup from this year's holiday shift. This was offset by Hurricane Sandy and the Nor'easter that swept through early in the fourth quarter.
Total revenues increased to 998 million in Q4 of 2012 versus 956 million in the fourth quarter of 2011, driven primarily by the comp growth previously mentioned in new restaurant developments. Restaurant operating margins as a percent of restaurant sales for Q4 were mostly flat at 15.4% this year versus 15.6% a year ago.
So let's break that down into its component parts. First, cost of sales increased to 32.4% of restaurant sales for the quarter from 32.1% of restaurant sales for the same quarter in 2011.
The increase was driven primarily by increases in beef and other commodities as well as changes in our product mix. This increase was also mostly offset by productivity initiatives and modest menu price increases.
On the labor side, we had some good news as labor expenses as a percentage of restaurant sales improved by 40 basis points to 28.6% for the fourth quarter of 2012 as opposed to 29% for the same period in 2011. This improvement was driven by further implementation of productivity initiatives at the restaurant level, AUV leveraging and favorability related to investment gains associated with the deferred compensation plans for our partner programs.
This was offset in part by anticipated additional training expense related to new daypart rollout and new restaurant openings and health insurance expense. Finally, restaurant operating margins for the quarter were essentially flat with a 10 basis point increase over the prior year, going from 23.4% of restaurant sales in Q4 2011 to 23.5% in Q4 2012.
The increase was mainly driven by higher preopening expense, incremental related to our recent sale leaseback and additional insurance expense offset by productivity improvements and AUV leveraging. I'd also like to take a moment to discuss some abnormal items in the fourth quarter.
As you know, we are self insured and as a result, there's always the possibility for some quarterly variation due to claims activity. In Q4, restaurant margins were negatively impacted by about 40 basis points due to the timing of certain health and general liability claims.
Absent these, we would have had restaurant margin favorability in Q4. So with all that said, I think the key takeaway is that although we encountered some variability in the quarters, we still saw 30 basis points of improvement in restaurant operating margin as a percent of restaurant sales in 2012.
We did this while funding incremental rent from the sale leaseback and investment in preopening expense. This demonstrates that our initiatives and focus on executing the strategic plan is producing results.
After incorporating the related non-GAAP adjustments outlined in the press release, general and administrative cost decreased 6.3% from 74 million in Q4 of 2011 to 69 million in the fourth quarter of 2012. These adjustments included the add back of transaction-related expenses, management fees and deduction of a gain related to the collection of proceeds associated with the 2009 sale of the Cheeseburger in Paradise concept that we previously reserved.
GAAP general and administrative costs were 67 million versus 83 million in Q4 2011. The decrease of approximately 20% was mainly driven by a reduction in severance pay, the termination of the management agreement, loss on sales of Japan in Q4 2011 and collection of a promissory note and related amounts associated with the 2009 sale of Cheeseburger in Paradise concept.
Adjusted operated income margin increased 120 basis points to 5.1% in Q4 of 2012 from 3.9% in the fourth quarter of 2011. For the full year, our adjusted operating income margin increased from 5.1% in 2011 to 5.9% in 2012, an 80 basis point increase.
These measures resulted mainly from successfully implementing our productivity measures and effective in leveraging increases in averaging of volumes. One of the great things about this is that it will provide us the opportunity to reinvest these savings into other areas of the company and continue our drive for long-term sustainable growth.
While we don't anticipate another 80 basis point improvement in 2013, we look forward to making more progress on our stated goals to deliver a total of 300 basis points in operating income margin improvement. Finally, adjusted diluted EPS for the fourth quarter of 2012 was $0.20 per share versus $0.10 per share for the same quarter of 2011 and GAAP EPS was $0.15 a share versus $0.28 a share for 2011.
For the full year, our effective income tax rate was relatively flat at 16.5% compared to 16.6% for 2011. Our tax favorability in the fourth quarter in relation to our original expectations was the result of some upsides in our state tax positions.
Importantly on a net basis, this tax favorability offsets the abnormal insurance claim activity we mentioned previously. From a balance sheet perspective, everyone is aware that 2012 was an extremely active year for us from a capital structure standpoint.
To briefly recap, we successfully refinanced our CMBS term and revolving debt, repaid the balance of our senior notes, engaged in the sale leaseback transaction of 67 properties and completed an IPO of our common stock. We are very proud of the progress we made in this area over the course of 2012 and are happy to put it behind us so that we can turn our attentions to executing our strategic plan and growing the business.
Altogether, we removed approximately $600 million in debt from our balance sheet in 2012. As a result, our net to EBITDA ratio, which capitalizes our lease obligations, decreased by over a full turn going from 5.5 times at the end of 2011 to 4.4 times at the end of 2012.
Our long-term goal is to get to a ratio of approximately three times. At that point, we will assess the best use of our free cash including but not limited to further debt pay downs, dividends or share buybacks.
I'll turn to 2013 and our expectations for the coming year. We expect our blended same restaurant sales comps for our core domestic brands to grow by at least 2%.
This increase is based on ongoing menu and promotional innovations, continued lunch expansion and additional restaurant remodels. We'll also note this is 1% below what we previously communicated in our preliminary guidance on our Q3 call and reflect the current industry-wide trends that we're all seeing which we believe necessitates a more cautious outlook.
I will speak to our Q1 comp expectations in just a moment. We believe that total company revenue will increase by approximately 4.5% to $4.2 billion.
This will be driven by the growth in comps and planned new restaurant developments. We will continue to work to expand our revenue growth to the 7% long-term target, as we further build-out our new restaurant pipeline.
Consistent from what we said previously, we believe that full year 2013 commodity inflation will come in roughly around the 3% to 5% range. This includes expected beef inflation in the range of 10% to 12% which should be offset in part by favorable pricing on sea foods.
We are currently contracted for approximately 72% of our total buy for 2013 which is consistent with where we typically stand at this time of year. We also anticipate that we'll gain further margin leverage from our productivity initiatives.
As in previous years and mentioned by Liz earlier, our goal for productivity in 2013 will be $50 million. We expect that this breakdown will be similar to 2012; 40% to 50% in supply chain and food waste management, 40% to 45% from labor and 10% to 20% from other operating expenses in G&A.
We believe we have a solid pipeline of successfully tested ideas in this area. I have been and will continue to work closely with our productivity team to realize these savings.
Adjusted and GAAP net income for the year is expected to be at least $136 million. Included in this guidance is a reduction of approximately 2 million in interest expense as it compared to 2012.
This decrease is primarily due to the very favorable debt refinancing that we completed ahead of schedule. We have also made payments on outstanding principal including the $20 million voluntary loan prepayment made in January.
In addition, we anticipate an adjusted effective income tax rate in the range of 20% to 22% which assumes the release of our deferred tax valuation allowance. We believe that adjusted GAAP diluted EPS will be at least $1.06 per share.
And just as a reminder, diluted EPS does not grow as quickly as net income due to an expected increase in share count. This is mainly due to the difference in the weighted average share count in 2013 versus 2012 which is driven by the timing of the IPO.
We estimate that 2013 full year capital expenditures will be between 220 million and 250 million. System-wide new restaurant development in 2013 is expected to be in the 45 to 55 mid range with approximately 60% in the U.S.
and 40% in international. Bonefish Grill will continue to be our lead development vehicle in the U.S.
In addition to new locations, we plan to remodel over 150 restaurants including 80 Outback locations, 50 to 60 Carrabba's locations or 20 company-owned international locations and a few other domestic sites on an opportunistic basis. Renovating our restaurants is a key element of our strategy for increasing comp growth.
The 150 plus remodels we have planned for this year demonstrates that we remain committed to upgrading the ambiance at our restaurants and providing our customers with the most pleasing casual dining environment possible. Now let me talk briefly about Q1.
Our stated policy is only to provide annual guidance. However, we believe there are few current themes that have had a greater impact than expected on the first quarter thus far and require further discussion.
It feels like Q1 will be a difficult quarter for casual dining and you've seen this in reported indices. For January, the Knapp-Track Casual Dining Index was down 0.6% for sales comps and negative 2.2% for traffic.
We believe that the combination of macroeconomic factors, payroll tax hike and increased health insurance costs, combined with bad weather put pressure on sales. With this in mind, it would translate into blended core domestic comp sales for Bloomin' Brands in Q1 ranging between flat to up 1%.
Importantly, we believe our track record will also be zero to 1% positive in the quarter. This guidance includes a negative trading day impact of 80 basis points due to the impact from Leap day in 2012.
On a trended basis, our comp sales will be up 1% to 2%. As you all know, we have maintained a GAAP to Knapp of at least 300 basis points in comps and 400 basis points in traffic in 2010, 2011, 2012 and this outperformance has strengthened in 2013.
Finally, one another important item, our Annual Partner Conference that cost about $4 million is moving from the second quarter in 2012 to the first quarter of 2013. In closing, we were very pleased with the way we finished the fourth quarter of 2012.
With favorable operating results, major progress in key strategic areas and the completion of our near-term capital structure needs, we consider it to be a very successful quarter and end to our fiscal year. We look forward to another fiscal year in 2013.
We will now open up the call to take your questions.
Operator
(Operator Instructions). Our first question comes from the line of Jeff Farmer with Wells Fargo.
Jeff Farmer - Wells Fargo Securities
You have a broad spectrum of concepts and price points which provides you probably one of the better reads on how the consumer is reacting to things that you mentioned, favorable tax, late tax refunds, power, gas prices, et cetera? So, as you watched your results come in over the last four or five weeks, what are some of the takeaways you can share with us in terms of how consumer spending habits are changing in this environment?
Are you seeing sort of a weaker mid-week sales, fewer appetizers, fewer desserts? How has it manifested itself in your top line?
Elizabeth Smith
So, as Dave talked about and the indices indicated, it has been a choppy start to the year for the whole casual dining industry. But I would say honestly between kind of timing of weather and shift, that there's no discernable differences or trends that have been emerging in terms of weekday versus weekend partners that we would call out that indicate that there were different than year ago.
It's just been an overall, like he said, choppy and tough start to the year for the industry.
David Deno
Jeff, I'd just like to add. As you know, we provided annual guidance, we decided to provide quarterly guidance this time around for Q1 and we believe that we've taken into effect the factors that Liz just mentioned.
So, you can use that as your guidance for Q1.
Jeff Farmer - Wells Fargo Securities
Just a final question and I don't think you'll be able to give me too much detail, but Walmart and some other restaurant companies have alluded to the fact that once you got to really February 15, February 16, you did begin to see some bounce back, be it even small, but can you sort of confirm or deny that that consumers did look like get a little bit more relaxed with the spending again once we got passed them in February?
Elizabeth Smith
Yeah. I mean, again, as you said, Jeff, we don't typically comment on quarterly -- we did, but we definitely don't comment on weekly or daily, because I just don't think that it helps provide any perspective or trend.
I think what we are comfortable reiterating, as Dave said, is that calendar year-to-date, this outperformance versus Knapp that we've seen in comp sales and in traffic historically has widened for us. And so I think we're comfortable giving that perspective.
And the Q1 perspective of zero to one positive on both comps and traffic and that of course takes into account what we've seen year-to-date.
Jeff Farmer - Wells Fargo Securities
Okay. Thank you.
Operator
Our next question comes from the line (inaudible) with Deutsche Bank.
Unidentified Analyst
One more on that topic. If you look at the individual brands, could you say if Outback continues to outperform Bonefish and Carrabba's here in the first quarter, despite the choppiness we've seen broadly?
David Deno
Yeah, it's Dave. I think we don't really get into guidance in the quarter by brand, so we'll stick with the overall guidance we've given you.
And you've seen our Q4 numbers for the various brands and what we've got there. So, we're very pleased with Q4 results and we're very pleased with where we stand relative to the industry in Q1.
Unidentified Analyst
Okay. And could I ask just a broader question on Outback, if you guys could talk a bit more about sort of the impact of the lunch rollout?
First of all, kind of how's that going in here too on the Sunday lunch? Are you still seeing growth and improvement in profitability on Sunday?
And then with Saturday kind of rolling out midyear in 2012, can you talk about the contribution from lunch at Outback in the 2012 comps and sort of how much of that do you think carries forward into 2013?
David Deno
Hi. We don't provide lunch comp guidance.
We've been very pleased with the Outback lunch rollouts. We've continued to move across the system on that.
We've seen good sales performance. We've seen the sales build over time.
Everything that we've seen is very, very good. I don't know, Liz, you want to add anything else to that.
Elizabeth Smith
Yeah. [Jason], it's been a measured roll.
As you know for Outback 2011, we rolled Sunday and pretty much 2012, we rolled Saturday. And now we're taking that staged approach to weekday rollout.
And we ended the year on weekday rollout at about 25% across the system. So that's going to be a multiyear rollout on weekday lunch.
So, again, happy with what we saw in 2011 on Sunday, happy with what we saw in 2012 on Saturday, stage rollout on weekday. It's just been performing as we'd hoped and we're very encouraged by it.
Unidentified Analyst
Okay. Thanks for the color.
Operator
John Glass, Morgan Stanley.
Elizabeth Smith
Hi, John.
John Glass - Morgan Stanley & Co.
Good morning. I wanted to ask about operating margin expansion in '13 and also maybe just for a second on the fourth quarter, I think there just may be a mismatch of expectations given that the ongoing savings produces 100 to 120 basis points of benefit and obviously there's been more offsets in the current business.
So, one, can you talk about what the operating margin expansion goal is for '13? You said it was going to be less than '12.
And what is some of the offsets in there, because we would have assumed that all else equals a positive comp of 2 to 3 either to kind of hold operating margins, ex the savings and the savings that kind of build on top of that. But it doesn't quite seem like that dynamic is quite occurring?
David Deno
Yeah. We're going to see probably 40 to 50 basis points of operating margin, John, in 2013.
I think we'll see commodity price increases offset by productivity. We're going to see, obviously, labor productivity which is the big part for us.
And one of the labor productivity things that we're doing is we're looking at our front-of-house labor scheduling and some of our tableside POS devices we're ordering in payment. So we've got some labor scheduling opportunity in our restaurants and we've got some POS device opportunities.
So, I think we're going to see between 40 and 50 basis points. And similar to last year when we had the initial goal of $50 million, we're going to try and beat that to get even more.
I think we have some plans in place to try and accomplish that. But I think again you'll see 40 to 50 basis points expansion in operating margin.
John Glass - Morgan Stanley & Co.
You may have said this before but I don't recall, what is the time horizon to achieve this 300 basis points? Is 50 basis points here the right pace or this is sort of a six-year journey or is it -- you expect accelerated margin benefits in the out years?
David Deno
No, I think John, first of all, we're really pleased about the 80 basis points. I mean that's -- this past year, and that's a big pay down on the 300 basis points target.
So, I would expect in another three or four more years, John, as we go through this. And we've got to make sure as we do this that we pace in sequence what we're doing in the restaurants to make sure we keep our operations strong, because we have some things that we can introduce in the restaurants to really help expand margins, but a lot of other restaurant companies already do.
It's just a matter of pacing and sequencing. So I'd say another three to four years.
John Glass - Morgan Stanley & Co.
Just one last question, maybe modeling oriented. When you guide units for '12 and for '13, are you talking about the gross number and there was a net number of closures and if there is, if the 45 to 55 is gross, what do you think the net number is?
David Deno
We've always -- from the IP road show on, we've always guided to a gross number. In each year we have a handful of closures, nothing major.
So 45 to 55 is a gross number and we'll continue to guide against that.
John Glass - Morgan Stanley & Co.
But so just we can understand the modeling, that was at – what's the right rate of closures roughly historically?
David Deno
3 to 5.
John Glass - Morgan Stanley & Co.
Got it, okay. Thank you.
David Deno
Yes.
Operator
Joe Buckley with BofA Merrill Lynch.
Joseph Buckley - Bank of America Merrill Lynch
Good morning.
David Deno
Hi, Joe.
Joseph Buckley - Bank of America Merrill Lynch
Just a couple of questions on Carrabba's. First, your outgoing was down with some pretty terrible numbers.
This morning Carrabba's comp slightly negative in the fourth quarter. Is there something going on in the Italian category do you think that's got (inaudible) to the category?
And then secondly, does the performance at Carrabba's, the slowdown in Carrabba's, does it influence your thoughts on how quickly you accelerate the expansion of the brand?
Elizabeth Smith
Sure, Joe. Let me take that in your two-part.
So the Italian category, as you know, is $15 billion and our share of it is 4.5%. And Olive Garden is obviously a big share at I think probably 23%, 24%.
So their performance is going to have an outside impact on the Italian segment, if you will. We've seen nothing structurally in the Italian segment to suggest that it is challenged.
And if you actually look at the quarters, you go back a couple of quarters, it was one of pizza and Italian and steak were one of the top performing ones, right? So we don't see any signs structurally in the consumer to suggest that there is an Italian market situation.
It's $15 billion. There's a lot of independents.
We have a four, five share. We think it's an excellent share gaining opportunity for Carrabba's.
We were down 0.4 I think as Dave said when you adjust it for the impact of the trading day, we were actually positive. That being said, I think I went through some detail on how we're even further strengthening the Carrabba's experience.
But keep in mind, Carrabba's units are very profitable and very successful. I mean, our average AUV last year at Carrabba's was $3 million.
And so the economics of that box are attractive and we're going to continue the expansion of that. We think we have industry-leading quality, industry-leading service and a very healthy proposition in the box.
And so the fourth quarter certainly doesn't diminish our belief or expectations that Carrabba's is a brand that can go well beyond 240 units.
Joseph Buckley - Bank of America Merrill Lynch
Okay. Maybe just a follow-up on Carrabba's.
Can you tell us where Carrabba's is on lunch weekday presence in the daypart?
Elizabeth Smith
Sure. So Carrabba's is fully rolled out as you know for Saturday and Sunday.
For weekday, we ended the year in 2012 with 9% of the fleet serving weekday lunch versus 25% for Outback that I quoted earlier. And again, this is a measured multiyear rollout across these businesses because we're introducing a lot of innovation where we have a lot of things going on.
We want to make sure that lunch goes in without missing a beat and that's kind of what people expect from Carrabba's. So, we ended the year at 9% in 2012.
Joseph Buckley - Bank of America Merrill Lynch
Okay. Thank you.
Elizabeth Smith
Thanks, Joe.
Operator
(inaudible)
Unidentified Analyst
First off, wanted to just follow-up on John Glass's question and I was hoping you could kind of talk about how we should think about leverage versus deleverage in light of lower same-store sales in the first quarter and what I'd consider to be somewhat limited visibility thereafter. If you exclude the discrete cost cuts, what kind of a comp for your business you need to lever your rent and labor and other fixed costs at the restaurant level?
David Deno
So I think we're comfortable at 2%, [Michael]. And I think we have good visibility on sales going forward with the programs that Liz talked about being our remodels, be it our new menu innovations, occasion expansions, those kind of things.
So I think we feel good about that. And so I think 2% can certainly help us get there.
And then when we layer in the productivity opportunities that we talked about earlier, I think we have a pretty good opportunity for operating margin expansion during the year.
Unidentified Analyst
Then on a separate topic, Bonefish unit openings missed your prior expectations. Can you talk about what drove that?
How we should think about it going forward, especially in light of -- it seems like a little bit lower U.S. unit guidance for 2013?
Elizabeth Smith
So, Michael, on the Bonefish front, we continue to be very pleased with our new unit openings on Bonefish. They're performing very well.
Frankly, it's a supply issue versus the demand issue. The demand for Bonefish Grill is vibrant.
It has proven itself in geographies all across the country. It's been a pipeline fill issue.
We are opening them up as quickly as we can as Bonefish quality sites become available. So there [are no] diminishing in our prospects for Bonefish Grill.
It's been a supply issue versus the demand issue. We feel really good about all the investments we've put into our development team under Mike Nolan and so we have a lot of faith in the go-forward, but frankly we'll put up Bonefish Grills as fast as we can because the demand is there.
Unidentified Analyst
Very encouraging. And then one last one.
Carrabba's changes that you talked about in the prepared remarks, they seem pretty meaningful and it almost feels like you perceive some element of it is broken even though it's consistently beating Knapp and taking share. So I guess my question is why are you making such significant changes at that brand?
Elizabeth Smith
Our philosophy was we've talked to you guys a lot is relentless innovation, continual innovation. So we're not going to change what is actually core and successful at Carrabba's.
And you're right, and we indicated, we have industry-leading rankings across service, across food and across everything. So, we're not going to mess with the secret sauce, no pun intended, that has made Carrabba's so successful.
However, we do have an opportunity to continue to broaden the menu that allows you to broaden the occasion, and we see that. We've successfully done that with $10 pasta, we've Cucina casual Allie, but we can go further.
We're always talking with our consumers and they would like some broader, lighter, different menu items, be able to enjoy Carrabba's in broader and different ways. We also, on the Carrabba's front, we really needed to upgrade the assets.
I mean we've talked about the road on renovation on Outback, well the Carrabba's needs to have the same road. And when you look at the ambiance, it is really in need of contemporization and updating, that's what the new remodel does.
We're really pleased with the reaction that we're seeing to that. So, it kind of goes back to the Bloomin' Brands playbook is Carrabba's is a healthy, strong brand, as I said, but these changes are going to make it stronger.
We're not talking about messing with the Carrabba's essence.
Unidentified Analyst
Thank you very much.
Operator
John Ivankoe, JPMorgan
Elizabeth Smith
Hi, John.
John Ivankoe - JPMorgan
Looking at the Outback comp in particular, there have been seem to be some discussion at most if not all of the outperformance relative to your peers because of the additional dayparts that you put in, I guess, incremental year-over-year whether it's Saturday lunch or weekday lunch. So, I just wanted to get your comments on just kind of how your existing daypart business is doing relative to your new daypart business?
David Deno
Hi, John. We are seeing growth in all aspects of our business.
So we've seen growth out of remodels, we're seeing growth out of lunch and we're seeing some very impactful menu items and marketing ideas at Outback. So when we look at -- Liz talked about the Bloomin' Brands playbook.
Between lunch, remodel, our marketing and innovation and everything else has really come together to continue to drive that brand forward. We don't get in the habit of breaking apart comps by daypart and things like that, but I think the pieces that are coming together for Outback that are working so well, that we've talked about, which is the remodel piece, the menu innovation and marketing and the daypart expansion.
John Ivankoe - JPMorgan
So, is it fair to say therefore that there's been little to no cannibalization of lunch to the dinner business?
Elizabeth Smith
Yeah, that is fair to say. It's a very different occasion, as we've talked about in the past, and we haven't seen that.
John Ivankoe - JPMorgan
And just one more on this topic, if I may. Thinking about the margin contribution from some of these new businesses beyond the training around the new menus on lunch, I guess, Saturday and midweek, I mean is it all-in a positive margin business as your leveraging the existing fixed costs in the business or not necessarily as the average ticket is lower and the productivity is lower during those dayparts…?
David Deno
It will help our -- especially our operating income margins, John. We do have some training and things at the restaurant level that we have to do to do this, but it will increase our overall profitability and help increase our overall operating margins.
And we will have some investments in training and labor to make this happen.
John Ivankoe - JPMorgan
Okay. And just – this is a housekeeping item.
The shares outstanding, I think, in the fourth quarter were 125.8, how do we get to 128 for the year in 2013? Why is this such a jump from the fourth quarter which I thought was kind of all-in post IPO to 128 and of course the question then becomes -- is that type of a couple million share a year increase going to happen longer term, each year, unless you buy back stock?
Mark W. Seymour, Jr.
Hi, John. This is Mark.
Actually, that's just a function of sort of the weighted average calculation on your dilution for the most part in terms of the IPO happened in August of 2012. So you've got that impact.
And then you just have sort of normal options and whatnot over the course of the year.
John Ivankoe - JPMorgan
Okay, but you do appreciate my question. I mean it's jumping quite a lot from the fourth quarter of '12 into 2013.
David Deno
It's the weighted average that Mark talked about, but also John I want to make sure that you know that we don't see that kind of expansion going forward. So, it's the math behind it and we'll be happy to take you through it in some of the modeling we have.
John Ivankoe - JPMorgan
Okay. Thank you.
Operator
Sharon Zackfia, William Blair.
Sharon Zackfia - William Blair
Hi. I guess one quick one.
I think you mentioned that Bonefish's comp bounced back after an LTO that didn't quite work. Can you give us some more color around that?
What was your LTO? What do you think (inaudible) about it?
Where were comps after that? And then secondly, David, you said something was moving -- I think $4 million was moving from the second to the first quarter in some service sense.
I just missed what that was?
Elizabeth Smith
Hi, Sharon. First I want to clarify it was Carrabba's that we talked about the LTO being disappointing and not Bonefish.
Sharon Zackfia - William Blair
Sorry.
Elizabeth Smith
No problem. And the LTO was around new items in our Cucina casual Allie line and it centered around two [pinnies] which wasn't moving the needle and probably is newsworthy as we could.
We transitioned that to our Q4 holiday messaging and that started performing very strongly for us. As you know on Carrabba's, we go out with a very strong Q4 item.
Last year it was Treasured Recipes highlighting chicken, (inaudible) ravioli and sirloin. So we transitioned out of an offer on [pinnies] into our stronger Q4 programming around the holidays.
I don't want to get into the daily uptick or anything like that, but we did want to provide some color that when we rotated off of that and we did that and back to our more traditional Q4, we did see it strengthening through the quarter as we exited. I think your second question was just -- something that Dave mentioned.
We have our Annual Partners Conference every year and that cost $4 million for us. Last year, it was in Q2 of 2012.
This year it's in Q1 in March and so the $4 million expense falls in Q1 of this year.
Sharon Zackfia - William Blair
Okay. Thank you.
Operator
Marc Riddick, Williams Capital
Marc Riddick - The Williams Capital Group
Good morning. I was wondering if you could share some thoughts as far as the promotional cadence that you see going forward for the year, both in messaging and LTOs.
I was wondering if any of the overall general macroeconomic consumer weakness that we've seen in, particularly behind overall traffic both restaurant and retail, if that had any impact on a preexisting plan just far as marketing, messaging, things of that nature?
Elizabeth Smith
So, we typically do five to seven LTOs a year across our core businesses and that supported complete 360 in-store table social media, advertising, the full complement around that. And it is paced throughout the year.
This year, we've talked a lot about the consumer sentiment, but as we talk -- this has been a challenging environment for many years where superior offerings for affordable prices had been absolutely necessarily. So we haven't had to shift our plans or change our perspective given the start to the year, but rather we feel very good about that relentless innovation, continuous innovation, what we have coming out that we think leverages what's special about our restaurants, our cooking techniques and our platforms.
And of course that will be done and has to be done at an affordable, attractive pricing. So, no, we haven't gone back given the start to the industry and had to revamp, it's that relentless focus that I talked about in my prepared remarks, that relentless focus on making it the strongest, superior brand equation out there.
Marc Riddick - The Williams Capital Group
Okay, excellent. And I was wondering if – in a ways, it's kind of a two-part combo question.
Compared to last year, would you say that there's any major differences shifting or changing this far as how you're getting you're messaging out there? Do you foresee any greater increases on TV versus radio versus Internet, that type of thing, or if that mix is about the same?
And then I guess sort of following up on that, would you say that there is – what do you see as far as getting bang for your buck this year versus the last? And obviously last year, you were dealing with the [quadrennial] event and that might have had more of an impact on these sort of marketing pricing than what (inaudible) this year?
Thank you.
Elizabeth Smith
Sure. So, we have – back to the comment of the strength of our marketing programs is exactly what you said is that we attack it from many different levers.
So we don't just have a TV, we always have a TV component. We have a heavy digital component and an in-store component, a managing partner component.
That formula has worked for us and it remains in place with the messaging and the platforms varying to bring on the new. We continue to enjoy a lot of success in our digital outreach and our social media.
You're going to continue to see innovation for us in that area. And around the Outback brand, that's something that's done very well for us.
So, that's probably up a little bit versus year ago and we'll continue to trend up. But the whole basket of support will continue to be across that.
Can you repeat the second piece?
Marc Riddick - The Williams Capital Group
The other part was sort of bang for the buck, I guess, as far as marketing spend this year versus last?
Elizabeth Smith
There is -- absent the media market, there was inflation this year as well as last year. So we always do innovative things.
I think you guys know we built a pretty hardcore analytic team and they're constantly re-cranking the ROIs and we're nimble with our money and moving it around to capture those ROIs. So, I'm really pleased with how we attack our marketing efficiency and the bang for the buck.
For competitive reasons, I kind of want to stop there on any changes that we would be doing.
Marc Riddick - The Williams Capital Group
I've got my (inaudible) dinner for two email. I'm certainly looking forward to that.
Thank you very much.
Elizabeth Smith
Thank you. There's out social digital media at work for you.
Operator
There are no further questions. Ms.
Smith, are there any closing remarks.
Elizabeth Smith
Well, we thank everybody for joining us. It's been a very productive and strong close to 2012 and we really look forward to 2013 and look forward to speaking to you all on the next call.
Thanks for joining us.
Operator
This does conclude today's conference call. Thanks for your participation.
You may now disconnect.