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01/10 19:42
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reflects mixed signals. Financial performance and strategic updates are positive, with consistent Q4 trends, successful marketing initiatives, and no further closures. However, challenges persist with flat traffic at Outback, potential beef inflation, and lack of specific guidance on remodel costs and manager compensation. The company's market cap suggests moderate sensitivity to news. Overall, the sentiment is neutral, with no strong catalysts for significant stock movement in either direction.
Total revenues $929 million compared to $910 million last year, representing an increase. The increase was driven by the net impact of restaurant openings and closures as well as U.S. comparable restaurant sales. This was partially offset by a decline in franchise and other revenue due to a lower royalty rate on Brazil this year compared to the intercompany royalty received last year.
U.S. comparable restaurant sales Up 120 basis points year-over-year. Traffic was down 10 basis points. Improvements were attributed to operational priorities translating into better guest metrics, sales, and traffic gains.
Outback comp sales Up 40 basis points year-over-year with traffic flat. This was the first quarter of positive comp sales for Outback since Q2 of 2023. The Aussie 3-Course offering contributed to traffic, with two-thirds of guests trading up to higher price tiers.
Carrabba's comp sales Up 410 basis points year-over-year with positive traffic of 60 basis points. Growth was led by in-restaurant value offers like Dinner and Dolce for two for $45, experiential wine dinners, lunch, and off-premises sales.
Bonefish comp sales Up 80 basis points year-over-year with traffic down 170 basis points. Improvement was driven by day-of-the-week offers like $5 Martini Margarita Mondays and $7 Bang Wednesdays, as well as pre-fixed lunch offerings.
Fleming's comp sales Up 120 basis points year-over-year with traffic down 120 basis points. Sales momentum was maintained through in-restaurant traffic driven by experiential events, elevated service, and events and catering platforms.
GAAP diluted loss per share $0.54 compared to a loss of $0.01 per share last year. The loss was primarily due to $43 million of adjustments related to restaurant closures, impairments, restructuring activities, foreign currency forward contracts, and changes in employee benefits policy.
Adjusted diluted loss per share $0.03 compared to earnings of $0.11 per share last year. The loss was above guidance, reflecting operational adjustments and investments.
Adjusted operating margins 0.8% versus 2.3% last year, a decline of 150 basis points. The decline was driven by COGS inflation of 4.9%, labor inflation of 3.3%, and higher operating and supply expenses, including 60 basis points from higher insurance expense.
Off-premises sales 24% of total U.S. sales in the quarter, consistent with Q3 last year. Outback's off-premises mix was 26%, and Carrabba's was 34%.
Leverage metrics Lease adjusted net leverage was 4.3x, and net-debt-to-adjusted-EBITDA was 2.9x. The company expects these metrics to improve with proceeds from the Brazil refranchising transaction.
Ziosk Implementation: Installed Ziosk across the Outback system, with over 85% of guests using it to pay for meals, saving time and improving table turns by 5-7 minutes.
Menu Simplification: Reduced menu SKUs by 10%-20% and reduced LTOs to simplify operations.
Steak Quality Enhancements: Invested in steak quality improvements, including better cuts and cooking equipment, leading to a 10-point lift in guest satisfaction metrics.
Brazil Refranchising: Refranchised restaurants in Brazil, streamlining operations and focusing on U.S. market growth.
Marketing Strategy Shift: Shifted marketing mix from 70% linear TV and 30% digital to 40% linear TV and 60% digital, improving media ROI and brand communication.
Operational Simplification: Streamlined corporate structure by removing layers and simplifying processes.
Productivity Savings: Identified $80 million in non-guest-facing productivity savings from 2026-2028, with $30 million expected in 2026.
Restaurant Closures: Closed 21 underperforming restaurants and identified 22 additional locations for lease non-renewal.
Turnaround Strategy: Launched a holistic turnaround strategy for Outback Steakhouse, focusing on steak quality, service, brand relevancy, and restaurant investments.
Asset Refresh: Planned to refresh nearly 100% of Outback restaurants by 2028, with an average investment of $400,000 per unit.
Leadership Changes: Appointed new brand presidents with an average of 34 years of industry experience to drive operational excellence.
Overly complex menus and unclear brand positioning: The company faces challenges with overly complex menus and unclear brand positioning, which have led to inconsistent guest experiences and a gap in steak quality. These issues have also contributed to a diminishing value perception among customers.
Inconsistent guest experiences: The company has struggled with delivering consistent guest experiences, particularly in food quality, service, and value. This inconsistency has negatively impacted customer satisfaction and loyalty.
Operational inefficiencies: The company identified inefficiencies in its operational structure, including a high table-to-server ratio during peak hours, which has hindered the quality of guest interactions and service.
Underperforming restaurants: The company has closed 21 underperforming restaurants and plans not to renew leases for 22 additional locations, indicating challenges in maintaining profitability across its restaurant portfolio.
Inflationary pressures: The company is experiencing inflationary pressures on costs of goods sold (COGS) and labor, which have negatively impacted operating margins.
Declining traffic and market share: Traffic and market share have been declining, particularly for the Outback brand, which has struggled to reverse these trends despite recent efforts.
Supply chain and cost management: The company faces challenges in negotiating costs with suppliers and optimizing product selections, which are critical for maintaining profitability.
Marketing and brand relevancy: The company needs to improve its marketing efficiency and brand relevancy to attract new customers and re-engage lapsed users. The shift from traditional to digital marketing channels is still a work in progress.
High leverage and debt levels: The company has high leverage metrics, with a lease-adjusted net leverage of 4.3x, which could limit financial flexibility.
Turnaround execution risks: The success of the turnaround strategy depends on effective execution of multiple initiatives, including menu simplification, service model changes, and restaurant asset refreshes, which carry inherent risks.
U.S. Comparable Restaurant Sales Guidance: The company is raising its U.S. comparable restaurant sales guidance range for the full year to be between flat to positive 50 basis points, driven by current momentum.
Adjusted Diluted Earnings Per Share Guidance: The company is raising its adjusted diluted earnings per share range to be $1.10 to $1.15 for the full year.
Capital Expenditures: The company continues to track toward capital expenditures of approximately $190 million for the full year.
Fourth Quarter 2025 U.S. Comparable Restaurant Sales: The company expects U.S. comparable restaurant sales to be between positive 50 basis points and positive 150 basis points.
Fourth Quarter 2025 Adjusted Diluted Earnings Per Share: The company expects adjusted diluted earnings per share to be between $0.23 and $0.28.
Brazil Ownership Impact: The estimated negative impact from the company's 33% Brazil ownership is expected to be approximately $1.5 million in Q4 2025.
2026 Turnaround Investments: The company has identified approximately $75 million of investments across 2026 through 2028, with approximately $50 million being spent in 2026. These investments will focus on steak quality, service, people, guest experience, and marketing.
2026 Productivity Savings: The company plans to offset turnaround investments with approximately $30 million of non-guest-facing productivity savings in 2026.
Marketing Strategy for 2026: The company plans to increase marketing investments by approximately $10 million in 2026, shifting from a legacy mix of 70% linear TV and 30% digital to approximately 40% linear TV and 60% digital.
Restaurant Asset Refresh: The company plans to refresh nearly 100% of Outback restaurants by the end of 2028, with targeted initiatives to refresh interiors and exteriors, starting in Q1 2026. The average investment per unit is expected to be $400,000.
Leverage Goals: The company aims to reach a 3.0x lease-adjusted leverage ratio by the end of 2028, using available free cash flow to pay down debt.
Dividend Suspension: The company has decided to suspend its dividend payments as part of its new capital allocation strategy. This decision is aimed at redirecting resources towards investments in restaurants, guests, and employees to drive sustainable growth.
Share Repurchase: No share repurchase program was mentioned or discussed in the transcript.
The earnings call reflects mixed signals. Financial performance and strategic updates are positive, with consistent Q4 trends, successful marketing initiatives, and no further closures. However, challenges persist with flat traffic at Outback, potential beef inflation, and lack of specific guidance on remodel costs and manager compensation. The company's market cap suggests moderate sensitivity to news. Overall, the sentiment is neutral, with no strong catalysts for significant stock movement in either direction.
The earnings call summary presents a mixed picture with several negative factors outweighing positives. Financial performance is weak, with declining revenues, EPS, and operating margins. The guidance is also negative, expecting further declines in sales and EPS. Despite some positive elements like increased average check and off-premises sales, the market strategy and financial health are concerning, with high debt and inflation pressures. The Q&A section reveals early-stage turnaround efforts and lack of clarity in management responses, further dampening sentiment. Given the small-cap nature, stock is likely to see a negative reaction.
The earnings call reveals several challenges: declining revenues, negative comparable sales, and lower operating margins. Management's cautious outlook and lack of concrete guidance further dampen sentiment. Despite some operational improvements and a dividend declaration, inflationary pressures and consumer pullbacks are concerning. The Q&A highlights strategic pricing issues and unclear management responses, adding to uncertainties. Given the company's small market cap, the stock is likely to react negatively, falling between -2% to -8%.
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