Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adjusted Q2 2024 diluted earnings per share was $0.51, showing resilience despite industry challenges.
- Signs of inflation returning to normal and potential decline in interest rates could create a more favorable environment.
- Significant improvements in customer satisfaction metrics, with steak accuracy and consistency of experience both up 500 basis points.
- Strong off-premises business, accounting for 24% of US sales, with catering business expanding significantly.
- Robust cash flow and solid balance sheet enable continued investment in marketing, operations, and asset improvements.
Negative Points
- Total revenues in Q2 were down 3% from 2023, primarily due to a decline in comparable restaurant sales and other factors.
- US comparable restaurant sales were negative 10 basis points, with traffic down 380 basis points.
- Adjusted operating margins declined to 5.7% from 7.8% last year, impacted by various factors including labor and advertising costs.
- Higher construction costs are impacting the returns on new restaurant openings and remodels.
- Fine dining segment, particularly Fleming's, faced more significant traffic challenges compared to casual dining.
Q & A Highlights
Q: Can you offer your thoughts on how the current environment compares to past challenging periods in terms of the industry being more aggressive on value? Any concern of driving more unprofitable traffic in response to that?
A: (David Deno, CEO) The industry trends were softer than expected in Q2 and into Q3. We are adjusting by incorporating more value into the menu, especially at Outback, with offerings like the $14.99 three-course meal. We believe this will drive traffic while still providing a good return for shareholders. (Michael Healy, CFO) We engineer these offers to ensure strong economics, providing great value for guests while maintaining profitability.
Q: Can you provide an outlook on construction costs and beef prices?
A: (David Deno, CEO) Construction costs are significantly up, but we actively manage our pipeline to ensure high returns on new restaurants. (Michael Healy, CFO) Beef remains highly inflationary, but we are seeing some favorability compared to earlier in the year. We contract our beef to share in market favorability, which helps manage costs.
Q: What are you seeing in terms of consumer behavior and traffic trends?
A: (David Deno, CEO) Consumers are being choosy about where they spend their dollars. Once they choose to come to our restaurants, we are not seeing significant trade-downs or mix changes. The key is to get people into our restaurants and fight for market share.
Q: How are you promoting the $14.99 three-course meal?
A: (David Deno, CEO) We are using all advertising channels, including TV, social media, and digital. We have a good understanding of the returns on these investments and are spending appropriately. (Michael Healy, CFO) The offer is compelling not just in price but also in the amount of food provided, hitting both sides of the value equation.
Q: Can you provide more details on the Q3 same-store sales guidance?
A: (David Deno, CEO) The guidance incorporates current industry trends and our own situation, including sales, traffic, and pricing. (Michael Healy, CFO) We expect traffic to be similar to Q2, with average check holding steady. We are confident in continuing to take market share.
Q: What is the outlook for Fleming's and fine dining for the rest of the year?
A: (David Deno, CEO) Fine dining has been more challenged than casual dining, partly due to significant gains in prior years. However, Fleming's is taking share in the fine dining industry and continues to perform well. We remain bullish on the business.
Q: Can you provide an update on the Brazil business and the refranchising process?
A: (David Deno, CEO) The Brazil business remains strong, but the economy has been softer due to higher interest rates and significant flooding in the South. We expect some choppiness for the rest of the year but are confident in the long-term strength of the brand. (Michael Healy, CFO) We are taking as little price as possible to support the business and continue to grow rapidly with 20 new restaurant openings planned.
Q: How confident are you in holding marketing spend flat in the back half of the year?
A: (David Deno, CEO) We aim to hold our share of voice and can adjust advertising spend if needed based on the quality of our offerings and the returns we see. (Michael Healy, CFO) We have robust analytics around marketing spend returns and are willing to invest more if the ROIs justify it.
Q: Can you discuss the dynamics of G&A expenses for the rest of the year?
A: (Michael Healy, CFO) G&A came in a little lower in Q2 due to a few puts and takes but nothing overly meaningful. We expect G&A to be relatively flat for the year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
