Bloomin' Brands, Inc.
Q3 2014 Earnings Call Transcript

Published: 4 Nov 2014

[Operator:]

Good day, everyone, and welcome to the Bloomin’ Brands Incorporated Third Quarter 2014 Results Conference Call. Today’s conference is being recorded. At this time, I’m pleased to turn the conference over to Chris Meyer, Vice President of Investor Relations. Please go ahead, sir.

[Chris Meyer:]

Thanks, Jennifer. 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 third quarter 2014 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 and adjusted diluted earnings per share. 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 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 March 3, 2014, 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 third quarter 2014, an overview of company highlights, a discussion regarding progress on key strategic objectives and an update on annual 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.

[Elizabeth A. Smith:]

Thanks, Chris, and welcome to everyone listening today. As noted in this morning’s earnings release, our adjusted third quarter diluted earnings per share was $0.10, and our reported third quarter core domestic comp sales were up 3.3%. This represents a 290-basis-point sales over delivery versus a Casual Dining segment that strengthened during the third quarter. Traffic for the quarter was up 0.6%, which was 280 basis points better than the segment. This was the 20th and 21st consecutive quarters that we have meaningfully outperformed the industry in sales and traffic respectively. Overall, we were very pleased with the results this quarter, driven by an improved dinner sales trend and ongoing productivity savings that helped us achieve an 80 basis point improvement in adjusted restaurant-level margins. In addition to our strong operating results, we made several important strategic decisions over the past several weeks that strengthened our ability to deliver long-term sustainable growth. These include steps to restructure our business in Korea, the intent to sell our Roy’s business and rightsizing of our home office team. Before we discuss these actions in more detail, let me first address the dinner trends in our casual dining business. In the second quarter, dinner sales were below our expectations and on our last call, we outlined plans to address the specific challenges confronting each of our concepts. In the third quarter, we began to implement these plans and we are encouraged by our improved performance versus the industry. We recognize that there are still work to be done, but we’re quite pleased with our progress. Our view by concept is as follow

[David J. Deno:]

Thanks, 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 excludes certain costs and benefits. Please see our earnings release for reconciliations between our adjusted non-GAAP metrics and their mostly directly comparable U.S. GAAP measures. We also provided a discussion of the nature of each adjustment. With that in mind, our third quarter financial results versus the prior year are as follows

[Operator:]

Thank you. (Operator Instructions) We will hear first from John Glass with Morgan Stanley.

[John S. Glass:]

Thanks. Good morning. First, Liz, on the top-line, can you maybe at the Outback brand just sort of decompose a little bit the same store sales improvements that you saw. You said, dinner led the business or returns. So was that equally balanced with strength in lunch? Did it happen in commensurate with the improvement we’ve seen in the category in the Knapp-track numbers or you know what was the cadence of improvement I guess through the quarter as well?

[Elizabeth A. Smith:]

Sure, John. So, this was Outback’s best sales quarter since 2012, and so what I would start by saying is that it was strong across all measures of the business. We talked to you guys about how we were starting to pivot in Q3 to really drive the dinner business by reclaiming our steak authority, and I think you saw that in our LTO and our adverting. That works extremely well, was based on a lot of research and analytics and so we were very happy with the improvement and the strength of the dinner business on Outback. Particularly, when you look at the decomposition of the [MP] (ph) the crest breaks out, which always lagged by a month with June, July, and August. They said that the dinner traffic in June, July and August was down 3%. And so, Outback had a very, very strong dinner performance. And that was driven by what we did; we were pleased of course to see Knapp-track getting some tailwinds, but it really had to do with kind of the resonance of our positioning and our new focus on reclaiming steak authority. At the same time, lunch continued to perform extremely well. We had growth on a year-over-year basis with stores that have been open more than a year. We continue to have a lot of encouraging signs from this. And as I mentioned in my prepared remarks, we look forward to getting to that point when we can actually have enough of the fleet with weekday lunch where you can really turn on the awareness. So this growth is happening without any national medium that is tagging it and saying, “We’re open for lunch.” So, very strong across all day parts and across all of our initiatives for Outback in Q3. And that focus on that balance will continue into next year.

[John S. Glass:]

Thank you. And David, if I could just follow up. On the three things you announced, the Korea closures, the G&A reductions, and the plane, how much of an ongoing annualized savings do you think that realizes? I know you won’t talk about 2015, can you at least [dimensionalize] (ph) how much money you think those things saved ongoing?

[David J. Deno:]

Yeah, what we’ll do is, John, is we’ll lay that out in a more fulsome update in 2015 for our G&A outlook for the year. The one thing that I can tell you is, our goal is to hold core G&A flat year-on-year and then make investments behind it. But we’ll lay out all the pieces prior to that G&A looking to 2015 as we go forward.

[John S. Glass:]

Okay and that’s quite enough.

[Elizabeth A. Smith:]

The only other thing I’d add is, one of our key tenets is always to invest ahead of growth.

[David J. Deno:]

Right.

[Elizabeth A. Smith:]

So by kind of having that discipline on the G&A infrastructure allows us to invest ahead of growth and technology and international, which has always been our philosophy.

[John S. Glass:]

Okay. And you mean flat dollars or do you mean flat percentages?

[David J. Deno:]

Flat dollars year-on-year John, and then invest it behind our big ideas such as technology and international. But this is all part of our effort to be flat year-on-year in dollars in our core business.

[John S. Glass:]

Yeah, thank you.

[Operator:]

And now, we’ll move to a question from Joseph Buckley with Bank of America

[Joseph Buckley:]

Thank you. I’d like to go back to the sales for Outback as well if I could. So Dave, I think you said the traffic increase at Outback was 0.4%.

[David J. Deno:]

Correct.

[Joseph Buckley:]

So could you give us an idea around the check, how much was price, how much was mix and could you say that traffic increase occurred in both day parts, lunch and dinner?

[David J. Deno:]

Yeah, so what we have Joe is two things; one, the Outback pricing is consistent with our long-term approach of approximately 2.5% in pricing. It’s a little lumpy quarter-to-quarter but that’s where Outback will finish the year. But secondly, as Liz mentioned, Joe, the dinner business trends were stronger in the third quarter, were good, and as a result, that helped our overall PPA. So, strong dinner business helped us with our growth overall.

[Joseph Buckley:]

Okay, and then you’ve just given the updated and slightly raised full year same store sales guidance. Just by your calculations what does that imply for a blended same store sales number in the fourth quarter and maybe if you want to comment at all, what you’ve seen in October or, you know be part of the fourth quarter that’d be helpful too.

[Elizabeth A. Smith:]

Yeah, so that implies I think roughly a 1.5% to 2% comp for Q4 within that new range. And Joe, we were delighted like everybody else that Knapp had a [terse] (ph) positive sales in two years on a comp basis. As a reminder, traffic was down though, was 2.2% for them. So we really feel like it’s prudent to be cautious. There has been some false positives on the industry in the past, so while we are encouraged and we really like what we are seeing, we think that it would be imprudent to extrapolate those trends into November and December. And November and Decembers make up such a large part of our business, but all of casual dinings business that I think we’re taking an appropriately cautious stance on whether those – trends. What I can tell you is that we feel very good about where the business is and we also feel very good that we will continue to outperform and meaningfully outperform the Knapp-track segment and that all the fundamentals are in place. So, you can characterize our stance on the industry as perhaps cautiously, but I would say appropriately cautious.

[Joseph Buckley:]

Thanks. That’s helpful.

[David J. Deno:]

And Joe, just to add to our long-standing policy not to provide intra-quarter, the sales. So…

[Joseph Buckley:]

Okay, thank you.

[David J. Deno:]

Thanks Joe.

[Operator:]

Our next question comes from Andy Barish with Jefferies.

[Andrew Barish:]

Hey guys, can you give us sort of the update on where productivity is kind of hitting in the various line items this year and any surprises I guess on the, maybe on the food cost line getting a little bit more in this kind of inflationary environment?

[David J. Deno:]

Yeah, Andy, a couple things; we were very pleased with food cost in the quarter, especially when we see what’s going on in the industry. So our productivity, like I mentioned in my remarks will achieve at least $50 million. We are on track there certainly. We’ve got a fantastic pipeline for this – the balance of this year and into next. Let me talk a little bit more about that. The two big buckets continue to be food cost, if you saw in our P&L, but also labor. Food cost at this point is still pretty much around maximizing our supply chain, really working with our vendors, working on costs associated in our supply chain. That is number one. We will get the actual versus theoretical and I will talk more about that in just a minute. So supply chain was still a big part of it. Labor, we have now rolled out the back-of-the-house labor tool, the front-of-the-house labor tool; people are using it and we are seeing demonstrable improvement in our labor results as a result of this new tool. So that’s been very good this year. We’ll continue to see some of it in the next year because we rolled it up during this year and people are getting better and better and better. So for next year, the thing that is a big part of our business will be centralized inventory management and actual versus theoretical food costing. That will be closed. There’ll be probably 30% to 40% of our productivity opportunity next year is that – those two things. We’ve rolled out centralized inventory management to our people. Everybody can see now, inventory at all of our restaurants and where they stand, that’s helping us manage inventory. And then secondly, we’ll be rolling out the actual versus theoretical tool which is in test right now and working very well. We’ll roll that out the beginning of next year. As you think about your modeling, it will be – like anything else people will learn it, they’ll get better and better during the year, so we’ll see more and more benefits as the year moves along. So continued labor productivity and continued food cost opportunity in our P&L as we look into next year.

[Andrew Barish:]

And could you just give us the basket commodity inflation in the 3Q say versus your 3% expectations for the full year.

[David J. Deno:]

We’re pretty much right on – right spot on, Andy. We really don’t get into specific product lines, but we’re pretty much spot on what we talked about the entire year.

[Andrew Barish:]

Thank you.

[Operator:]

Our next question comes from John Ivankoe with JPMorgan.

[John W. Ivankoe:]

Hi, thank you. A couple of follow-ups to the different question, firstly, just from a housekeeping perspective, weekday lunch as a percentage of the overall system at Outback and Carrabba’s in the third quarter? I’m sorry if I missed that.

[Elizabeth A. Smith:]

Yeah, no problem. So, 59% of Outback’s fleet and 54% of Carrabba’s fleet.

[John W. Ivankoe:]

So, the question is, versus the third quarter of 2013, at least if my notes are correct, I think it was 26% of the system at Outback and 28% at Carrabba’s. So that’s a really big jump year-over-year, and obviously understanding that Carrabba’s traffic is negative and the Outback traffic is up, you know something less than 1%, just you kind of help juxtapose your satisfaction with lunch and your satisfaction with dinner, given the percentage of the fleet that had seen weekday lunch added on a year-over-year basis, if that’s a fair question.

[Elizabeth A. Smith:]

Yeah. So what I’d say is that when we put lunch in, we’re very happy with the performance and as we’ve said a number of times it continues to grow from there. So I think the most important thing is, is that lunch isn’t finished after a year, right? When you do it right, it continues to grow. And I think importantly, as we approach that threshold which we think is about 70% of the fleet, that allows you then to talk about lunch and to really drive awareness. So we think that there is a lot. We are happy with lunch and how it’s going in. We think there is a lot of opportunity ahead of us to continue to grow lunch. On the dinner side, over the last five years we have been very happy with how we’ve kind of broadened and gained and driven traction there. And we are pretty transparent about how in Q2 we saw the dinner business traffic weaken. Trends in dinner traffic meaningfully contributed to our comp in Q3 on a quarter-over-quarter basis, and we like the momentum that we are seeing. And so, I would say that we feel like our strategy on dinner and how do we vitalize each is showing signs of working and continued belief in our lunch business and how it’s going in.

[John W. Ivankoe:]

Okay.

[Elizabeth A. Smith:]

Go ahead, John. I’m sorry, didn’t mean to cut you off.

[John W. Ivankoe:]

I didn’t mean to cut you off, I’m – if there is anything else?

[David J. Deno:]

No, I think…

[John W. Ivankoe:]

Okay.

[David J. Deno:]

I think Liz captured it, and I think the change in dinner trends – in the dinner business quarter-to-quarter was a big piece of our comp improvement.

[John W. Ivankoe:]

Okay, understood. And secondly, David, this is in response to the first question. I just wanted to make sure that I got it. Core G&A is flat in dollars in fiscal 2015. And then did you talk about other investments being in addition to that core G&A being flat year-over-year, just the – I got a little bit confused in the language.

[David J. Deno:]

Sorry, John. Let me make sure I’m clear on that. Core G&A, which is all part of some of the work that we did this quarter, will be flat in dollar terms year-on-year. On the same time though, we will be investing in our international markets and continuing to make even more investments in technology going forward. So, as a result, we will see some increase in G&A, but it’s all behind our investment ideas and our growth opportunities.

[Unidentified Analyst:]

Thank you for that clarification. And then, finally, in a separate new question is about, the reduction in CapEx for the year, especially considering we have one quarter less, it’s actually pretty beg at $35 million. So is it just a timing issue where that G&A is going to get pushed in fiscal 2015 or might you be backing of some other previously discussed projects like Carrabba’s unit development or perhaps Outback relocations that will lead to a structurally lower CapEx levels that what we’ve previously seen?

[David J. Deno:]

No, we don’t. Our strategic initiatives behind Bonefish development, Outback relocations and those kind of things John, (indiscernible) development are all clearly in place. So that is not – that’s not a big change I think. I think the only thing that I would say is – kind of during the middle of the year people are little more bullish on the ability to spend the capital they need to spend. And so, when we get to this time of year, things do tend to drop a little bit. So we may see a couple of few restaurants fall into next year, we may see some projects fall into next year, but nothing in our strategy has changed. We are just trying to do some housecleaning on the Outlook for the year.

[Unidentified Analyst:]

Thank you

[Operator:]

Your next question comes from Howard Penney with Hedgeye Management.

[Howard Penney:]

Hi, thanks very much for taking the question. I can appreciate the difficult decisions that you made this quarter and that if I substitute the rationale for selling of [relays] (ph), you could pretty much search another brand or a couple of more brands in there. How do we know that you’ve gone far enough in this restructuring and [flash] (ph) asset sales Thank you.

[Elizabeth A. Smith:]

Yes. So, Howard, the first thing I’d say is that one of our core [tenants] (ph) is to be ruthlessly disciplined, okay, in our use of capital. And every single one of our brands has to earn the right to be invested behind [or else keep] (ph) in the portfolio. So the first I want to [assure] (ph) is that we are constantly evaluating the portfolio to make sure that we are excellent stewards of capital. I actually – when we think about – we’ve talked about the core for some time. So (indiscernible) I think is not too much as a surprise that we think that would be better outside the portfolio. When I look at our core brands though that you mentioned and maybe, we could substitute one, between Outback, Carrabba’s, Fleming’s and Bonefish, if you look over the last five years, we’ve significantly outperformed the category and gained over 25 points of traffic versus a category. And frankly, until this year on Carrabba’s, every single one of those brands have outperformed the category year after year, quarter after quarter. So I think Outback, if you had said anyone five years ago that Outback is after losing share for ten years, that Outback’s best days were in front of it, from 2009 to 2014, I don’t think they would have agreed with you. I think that it’s pretty incontrovertible that it is had a terrific five-year run and we feel great about the prospects for it and we love how it plays internationally, If you look at Bonefish, it’s number two – number two brand in the entire segment. We’re pleased with how it’s opening, we’re pleased with how it’s performing, we got behind on innovation, we fix that. If you look at Fleming’s, it could not be in a sweeter spot with the high-end recovering that’s happening in the U.S. and we continue to just absolutely perform above market for the past five years for that. So that’s a real keeper and there’s tremendous opportunity to expand that brand as well. And so, then there is Carrabba’s which has had a tough year and is down about 1.2%, but I’d just remind you that I don’t think you make asset decisions and portfolio decisions based on annual performance. I think you have look at the long-term health of the brand and the fit and what I tell you is that in 2010, 2011, or 2012 Carrabba’s significantly outperformed Knapp and took share. Now it is in a difficult moment right now and we have to own that, because we did not go far enough in what we needed to do when the consumer told us that we needed to do on Carrabba’s, right? Carrabba’s is the number three brand requested overall in the category and the top preference for Italian. But we needed to take that menu into lighter, more variety and we didn’t go far enough. And probably, I’ll be honest, our success us a bit too cautious in evolving the menu to drive more every day occasion and usage. We’re going back and doing that, but the brand health of Carrabba’s is excellent, it’s one of the highest-rated brands in the category and so it’s a real foundation of strength to build on. We’re always with a very, very different animal, if you will. The final thing I’d say about Carrabba’s is that Italian is the number two segment in so many key markets globally and all of our research in these key markets shows terrific opportunity for Carrabba’s and we are really excited and believe that Carrabba’s success in Brazil can be very similar to the success of Outback. So, we will always be disciplined stewards of capital, we will keep it tightly [edited] (ph), but we feel that we do have conferred portfolio that confers advantage.

[Howard Penney:]

Thank you so much for that answer.

[Elizabeth A. Smith:]

Sure.

[Operator:]

Our next question comes from Matt DiFrisco with Buckingam Research.

[Matthew J. DiFrisco:]

Thank you. I just had one follow-up on a question, with respect to, I think you guys when you were talking about the fourth quarter and your – what’s behind your comp guidance, I just want to clear, I know you made a effort to highlight on the third quarter, heading into, you were going to pull some advertising forward to rejuvenate your brand equity and reidentify yourselves with the steak [stake] (ph) authority. Can you talk about or comment about the year-over-year comparisons of marketing spend in the fourth quarter, how that might have been effected or how that factors into your guidance and then I just wanted to also a question on South Korea, would it be correct to assume the closures of those stores would be accretive on an operating income basis once they are done behind us as far as the costs associated with and the one-time nature with the closures?

[David J. Deno:]

Sure. A couple of things, on the third quarter, yes, that’s correct, with the Bonefish Grill menu launch, we had an advertising cost fall into the third quarter (indiscernible) above this year. So we did – in our result, we did overcome that as well. Fourth quarter, there really isn’t a big difference in media spending year on year. The main thing was the pull-ahead of the Bonefish Grill advertising to get menu launched properly. Now on Korea, the main thing there is we believe that, as Liz has mentioned, we’ve significantly downsized the financial risks there as we went through each and every trade area and looked at the performance of the restaurant and the future opportunity for the restaurant. So we went through each one and determined these 34. We’ll provide more color commentary around 2015 in our guidance for – at the Analyst Day, but we do not expect at this point – is we’re going to take a conservative planning posture and assume that Korea doesn’t markedly improve next year. If it does, that’s upside to what we anticipate, but we want to make sure we stabilize the business and grow it from there, Matt. So we basically de-risk the marketplace, hopefully we can grow from there, I think our guidance for 2015 will call for flattish to up modestly profits in Korea.

[Matthew J. DiFrisco:]

Can I just follow up on that? I just want to, are they – in your process, I guess, most restaurants are closed when they’re cash flow negative? Would it be correct to assume that those are cash flow negative?

[David J. Deno:]

Yeah. No, we had, not all of them are cash flow negative. As Liz has mentioned, we are very disciplined stewards of capital. Seven, around seven would have been cash flow – would be cash flow negative this year. If we extended the trends, we would get to about half of those for next year, so in other words, we’d be at about – 17 of the 34 would be cash flow negative if you assume the conservative trend and in the remaining 17, either didn’t fit the trade area, they were old restaurants, they didn’t deserve the capital, so when you looked at the future of that and the capital spending needed for those remaining 17 resturants, that so how we got to our number, site by site, bit by bit.

[Matthew J. DiFrisco:]

Great and then just you said the third quarter, so you did not spend more money on Outback in the third quarter. Then – so you didn’t really pull forward ad dollars from the fourth quarter to drive that great comp at Outback. You did it on a apples-to-apples spend basis from 2013 to 2014?

[Elizabeth A. Smith:]

Pretty much, yes, pretty much. I mean the pivot was as we talked about the shift towards steak authority and how the LTOs and the new positioning worked and that continues into what you’ll see in our promotions in Q4, that dedication to celebrating steak authority and celebrating the center of the [plate] (ph).

[Matthew J. DiFrisco:]

That’s all, thank you.

[Operator:]

We’ll now move to Jeffrey Bernstein with Barclays.

[Jeffrey Andrew Bernstein:]

Great, thank you very much. Just two questions, one, Dave, I think you mentioned kind of the normalized menu pricing would be in that 2.5% range, albeit lumpy quarter to quarter, but as we look out to next quarter and then next year, I know you’re going to give specific guidance in December, but is the goal to protect the existing restaurant margin percentage and therefore, would you consider taking more than 2.5% or is that your framework to consider taking more of that if commodities and labor were higher versus 2014, it seems like that’s what is looking to be happening in 2015 in terms of both commodities and labor. So just wondering, wonder if you can comment on either of those in terms of directional for 2015 versus 2014? But two, would you consider taking more than 2.5% if necessary to [draw the line, protect] (ph) the margin or whether you would rather not do that and therefore, you’d let margins take a little bit of a hit? And then I have a follow-up.

[David J. Deno:]

Jeff, we are going to protect our margins. First of all, we have to [get] (ph) the productivity. We have a lot of opportunities in our business, which I outlined on a previous question on productivity and we’ll be turning to that again in 2015. So pricing, plus productivity will offset commodity inflation and protect our margins because of the work that we are doing. I also wanted again give out a call-off to our supply chain team who continue to do a terrific job purchasing our products and everything else and working with our vendors. So our supply chain capability, the productivity that we have, even though we are facing some commodity headwinds in 2015, will help us preserve and grow our margins going forward.

[Elizabeth A. Smith:]

And the other thing I would add is on the labor front, even with any type of kind of labor inflation, as Dave said, are rolling out the labor tool and we have that kind of opportunity that has efficiencies coming through the labor line as well. And so, I think that productivity runway that we have is something that puts us in good standing even in a rising cost environment.

[Jeffrey Andrew Bernstein:]

Is there any directional color in terms of that commodity basket for next year, either how much you’ve lost or what it might be up year on year even directional?

[David J. Deno:]

Yes, Jeff, we are going to see it in just over a month and we’ll give you a fulsome update. We are proceeding, I can give you, we are proceeding along our typical plans on how much we have locked during the year. So we are in good shape there, but I’d really like to give you a fulsome review of what the year – what next year looks like we are together in [last six weeks] (ph)

[Jeffrey Andrew Bernstein:]

Understood. And the only other question was the Bonefish versus Carrabba’s, I think, Liz, you kind of mentioned that until the back half of 2015, Carrabba’s, you’d like to see more of the same, so maybe you do more limited time offers, but should we therefore assume that Carrabba’s comps run negative the next few quarters, whereas Bonefish seems like traction is building and therefore, we should assume kind of that positive trajectory of Bonefish just directionally for those two brands, is that fair?

[Elizabeth A. Smith:]

Well, I think two things I would say, Jeff, I think it’s always fair – I think it’s fair to say that the menu work and the momentum and the reception on what we did on Bonefish Grill was certainly, we were very successful versus Carrabba’s where we didn’t go far enough. We are not satisfied with negative [1.2%] on Carrabba’s, right? So – and we think there is a lot of opportunity not to wait for the core menu, but to have interesting LTOs that celebrate variety, that bring the lighter, but the [salt], if you will, the core menu [salt] will the back half of next year. So I think we need to continue – we are going to continue on the renovations of the Carrabba’s. That makes sense. You are going to see new advertising that – and a mix in LTOs that celebrate that more variety that more affordable price point, but the structural change in the core menu will be the back of the next year. On Bonefish, it’s about as I said, returning to our roots of continuous innovation. So this was the first step, the core menu, we are going to follow up with a new bar menu. I mean Bonefish has a 25% liquor mix and we need to just celebrate that, you are going to see a very innovative bar menu than we are going to doing seasonal menus, is a wave of innovation going forward and a lot of that pipeline is in front of us on Bonefish as well.

[Jeffrey Andrew Bernstein:]

Great, thank you.

[Operator:]

Our next question will be Sharon Zackfia, William Blair.

[Sharon Zackfia:]

Hi, good morning.

[David J. Deno:]

Good morning.

[Sharon Zackfia:]

Most of my questions were answered, but I guess two quick ones. On Carrabba’s, I guess I’m a little surprised that the new menu would be second half of next year, just curious as to why that, can it be pulled forward earlier? And then secondarily on Bonefish, there was a little bit of negative (indiscernible) it looks like in the quarter, I am assuming that something in the way that customers are using the new menu, maybe can you give us some color on that.

[Elizabeth A. Smith:]

Yeah. So, I was – on Carrabba’s first, I want to stress what I said before is that we’re not going to wait to have product news on Carrabba’s that addresses variety. So you are going to see LTOs and menu news, but in terms of core menu, when I say back half of the year, it’s basically we’re talking about nine or 10 months from now. Believe – when you think about and we really want to nail this, and as said, we didn’t go far enough and so we already have several pilots going right now on the new menu because we’re make – the new menu, we’re going all the way to bright and so we really need to read it. We need to leave time, we need do see what it’s doing and so that’s why we’ve targeted the back half. But I don’t want you to confuse that with and I am glad you asked the question that we’re not going to do anything on the food front before that, because we are. On the question on Bonefish Grill, it was really about the Saturday lunch mix that came in on the new menu, we’re very pleased with how it’s tracking and our return to assumptions. It did have some more attractive price points on it, but the whole menu is performing well. So you had [bold] (ph) platform which is on the new menus, that’s lower price. At the same time, we had premium size introduced, at the same time, we had a steak and chop [section] (ph). So we feel very good about how the menu is playing out, but I think more seeing the Saturday lunch contribution versus year ago.

[Sharon Zackfia:]

Great, thank you.

[Operator:]

And now from Michael Gallo, CL King.

[Michael W. Gallo:]

Hi, good morning.

[David J. Deno:]

Good morning.

[Elizabeth A. Smith:]

Good morning.

[Michael W. Gallo:]

Just a follow-up on actual versus theoretical, Dave, when will that system actually be in and fully operational and then can you remind us, Dave, I think when you’re at [Yum] (ph), you rolled us actual verse theoretical out of Pizza Hut. Remind us what kind of improvements you’ve seen in the path when using actual versus theoretical systems. Thanks.

[David J. Deno:]

Okay. Thank you. Yeah, I was at Pizza Hut at that time. We will roll the actual versus theoretical food cost system in late January; it will build during the year. [If] (ph) like anything, people have to train it, they have to learn it. So as we look at our cadence during the year, that will come and deploy. We’ve already rolled through our central (indiscernible) inventory management system, which is the first step in that. Secondly, the old story of about cash performance does not [dictate] (ph) future performance, but let me at lease answer the question. We saw about a 200 basis point improvement in that, what we rolled in Pizza Hut many, many years ago, as we looked at our business at that time. So we are not committing to that in 2015 guidance. But that’s the size of the price potentially.

[Michael W. Gallo:]

Thanks very much.

[Operator:]

And now our last question will come from Alton Stump with Longbow Research.

[Alton Stump:]

Yes, thank you and good morning.

[David J. Deno:]

Good morning.

[Elizabeth A. Smith:]

Good morning.

[Alton Stump:]

(indiscernible) on a quarter, I’ll keep it short, as we’re obviously at the end of the hour here. But just, as you look at the (indiscernible) raw initiative traffic trends, obviously has improved. As you kind of think back to, how you guys managed to some fall starts that we’ve just in the past. How does this feel to you, does it feel like, we could indeed see this becoming new trend last couple of quarter anyway. And or does it feel like much like the last couple of positive (indiscernible) surprises we’ve seen?

[Elizabeth A. Smith:]

Yeah, it a great question because I think, as we look at it, there’s been – as you said on the number of false stocks. Here is what I will say is that – for the quarter, traffic was down 2.2% in Q3 and Q2 was down 2.5%. And so, you had a strengthening of the overall comp, but traffic has been down for nine years now in casual dining. And so, but – what I will tell you though is that we are encouraged by some of the signs that we are seeing, right. And no one wants to bet against the nine-year trend, but I will tell you that when you look at the consumer confidence measures, which have really helped very nicely since August. It appears that this – kind of fear of that might have been an issue the last four, five years. When you see a stabilization at nice rate of consumer confidence, that feels really good. The challenge though, until you extrapolate this further is one, we need to see more of it, right. So let’s play this through. But two, until you see meaningful growth in disposable income which is the most highly correlated thing with traffic growth in CDR, in our core target of CDR, which is that 55,000 plus, you are not going to see in my judgment a return to positive low single-digit traffic numbers and we just currently haven’t seen that structural change an improvement in consumer disposable income with this target. So I think there is very definite green shoots and bright spots, we’d like to see consumer disposable income at that 55,000 to 65,000 level start to grow to really believe that we can kind of project out to days of increasing. So I’m going to go back to my original statement, which is we are cautiously optimistic, but we are prudent in our assumptions.

[Alton Stump:]

That’s great. Thanks so much for the color. That’s helpful.

[Elizabeth A. Smith:]

Thanks.

[Operator:]

And that does conclude our question-and-answer session for today. At this time, I’m pleased to turn the call back over to Liz Smith for additional or closing remarks.

[Elizabeth A. Smith:]

Thanks. We appreciate everybody for joining us today and we look forward to updating you on our portfolio and our thoughts on 2015 and long-term growth at our Analyst and Investor day in December. So we hope to see you then. Thanks, everybody.

[Operator:]

Thank you, ma’am. That does conclude our call for today. We do thank you all for your participation.