Q4 2023 Bloomin' Brands Inc Earnings Call

Participants

Jeffrey Bernstein; Analyst; Barclays Bank PLC

Alex Slagle; Analyst; Jefferies LLC

John Ivankoe; Analyst; JPMorgan Chase & Co.

Sharon Zackfia; Analyst; William Blair & Company L.L.C.

Jeffrey Farmer; Analyst; Gordon Haskett Research Advisors

Sara Senatore; Analyst; BofA Securities

Brian Harbour; Analyst; Morgan Stanley

Lauren Silberman; Analyst; Deutsche Bank

Brian Vaccaro; Analyst; Raymond James & Associates, Inc.

Brian Miller; Analyst; Piper Sandler Companies

Dennis Geiger; Analyst; UBS Investment Bank

Jon Tower; Analyst; Citigroup, Inc.

Andrew Strelzik; Analyst; BMO Capital Markets Equity Research

Presentation

Operator

Greetings, and welcome to the Bloomin Brands Fiscal Fourth Quarter 2023 earnings conference call. At this time, all participants are in a listen only mode. A brief question-and-answer session will follow management's prepared remarks. It is now my pleasure to introduce your host Tara Kurian, Vice President, Corporate Finance and Investor Relations. Thank you, Ms. Kurian, you may begin.

Thank you and good morning, everyone. With me on today's call are David Deno, our Chief Executive Officer; and Chris Meyer, Executive Vice President and Chief Financial Officer.. By now, you should have access to our fiscal fourth quarter 2023 earnings release.
It can also be found on our website at w. w. w. dot Bloomin Brands.com in the investor section throughout this conference call, we will be presenting results on an adjusted basis and explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our earnings release on our website as previously described.
Before we begin formal remarks, I'd like to remind everyone that part of our discussion today will include forward-looking statements, including a discussion of recent trends. These statements are subject to numerous risks and uncertainties that could cause actual results to differ in a material way from our forward-looking statements. Some of these risks are mentioned in our earnings release.
Others are discussed in our SEC filings, which are available at www.SEC.gov. during today's call, we'll provide a brief recap of our financial performance for the fiscal fourth quarter 2023, an overview of company highlights and current thoughts on fiscal 2024 guidance. Once we've completed these remarks, we'll open the call up for questions. With that, I would like to now turn the call over to David Deno.

Thank you, Tara, and welcome to everyone listening today. As noted in this morning's earnings release, adjusted Q4 2023 diluted earnings per share was $0.75. This compares to $0.68 in Q4 2022 domestic, reflecting a growth of 10% year over year. Combined US comparable sales were down 20 basis points.
Our Q4 and 2023 results were largely in line with expectations. Importantly, we had a sequential U.S. comp sales and traffic improvement from Q3 into Q4 and was in queue for a softer October was offset by progressively improving comp sales ending with the strong holiday season before we discuss 2024 and more specifically our plans at Outback Steakhouse.
I would like to recognize two businesses that had outstanding results in 2023. Carrabba's in Brazil for Havas continues to take share versus the industry for Havas posted comp sales growth of 3.9% and positive traffic growth for the year.
In 2023, Carrabba's outperformed the industry by in sales by 90 basis points and in traffic growth by 300 basis points. It continues to demonstrate strength specifically in the off-premises channel and growing catering business problems Bistro, which we launched in 2023 is a lunch focused catering option featuring a wide variety of sandwiches that reflect crops. Italian heritage is now offered in our restaurants as a compelling lunch offer either within the restaurant or to go Bistro, continues to outperform expectations.
Brazil had another great year with significant growth in sales and profits. This is especially impressive given the lapping of pent up demand in 2022. We continue to expand this business throughout the country and opened 18 new restaurants in 2023. We look forward to capitalizing on our leading position and doubling our restaurant footprint in the coming years.
Our 2023 results would not have been possible without our great teams in the restaurants in our restaurant support center. Thank you for delivering outstanding hospitality and excellent service to our guests. As we move forward, we remain focused on the strategic priorities are making us a stronger, leaner operations centered company.
These priorities include first, driving in-restaurant same-store sales growth remains our top priority, especially at Outback. Second, increasing new restaurant openings while refreshing our existing assets third, maintaining our off-premises momentum, fourth, becoming a more digitally driven company, and finally, investing in technology to improve infrastructure and drive growth while preserving margins.
Our primary focus remains improving. In-restaurant sales and traffic at Outback. We've done a lot of work to better understand our ever-evolving post-COVID customer. We believe we have a better idea of who our customer is and as a result, we continue to sharpen our brand position. The first step of this effort was the launch of OpEx, no rules, just right campaign.
This is built in our brand equity and heritage and it bring back the inventor and I referenced as expected from Outback, I especially like the just right part of that phrase as it reinforces the food and service promise to our customers.
In addition, we spent more on marketing and advertising in 2023 to improve our share of voice in a highly competitive market. During Q4, we saw positive response to our additional marketing spend, we plan to increase our 2024 spending by approximately $20 million. This investment will improve our share of voice and build traffic utilizing a blend of television, high return digital tactics, the advertising highlights, new menu innovation, accessible price points and great value.
We also recognize that consumer may be more careful with their discretionary spending our current LTO, a three-course Aussie Jennifer [1699], offers the customer a great value. We will continue to be thoughtful about our approach to overall pricing and discounting the no real shift right campaign and the marketing investments are just the start of the work underway at Outback.
There'll be more to unveil in our strategy at Outback in the coming quarters since we are going to spend more on marketing in 2024 at Outback, we must make sure our operations are best in class. We will continue to focus upon delivering a differentiated guest experience, specifically improved service and consistently great food. We are solving this through investments in technology such as such as server handhelds and new ovens and grills as well as relentlessly focusing on key operational behaviors.
As a result of this work, our internal customer measures have meaningfully improved a couple of key leading indicators that we track our steak accuracy and consistency of experience over the last year, big accuracies up 400 basis points and consistency of experiences up 700 basis.
This progress is further validated by casual dining industry metrics, which have continued to improve friendly service and food quality are now [300 and 360 basis points] ahead of our casual dining peers, respectively. We are confident in the strategy at Outback and it is working in 12 of the last 14 weeks, OpEx has beaten the industry and comp sales growth. Based on recent trends, we expect to see OpEx perform above the industry, and this is reflected in our guidance.
Onto our second priority is new unit development and improving our asset base. We are upgrading our assets through new openings, relocating and remodeling restaurants. We opened six new domestic units in 2023 are on track to nearly triple that in 2024 new that upgrading our assets is a big part of improving our traffic trends, especially at Outback.
Our development pipeline for new restaurants and relocations remains very robust. We are opportunistic on relocations and continue to see outsized sales lift on these investments. We successfully completed over 100 remodels in 2023, and we'll continue to work our way through the system in 2024 for our development efforts, provide a runway for future growth, offer good returns and are key part of our strategy.
The last priority I'll discuss today is our leading off-premises channel. The business has more than doubled since 2019 and currently represents 24% of our US sales. We were pioneers in the to-go space, and we continue to see robust demand in this highly incremental occasion. In addition, the success of our catering business at all of our brands, but particularly Carrabba's, provides a runway for future growth.
Next, let me comment on our restaurant closure initiative. We periodically review our asset base and in our latest review, made the decision to close 41 underperforming locations. The majority of these restaurants were older assets with leases from the 90s and early 2000. This decision considered a variety of factors, including sales and traffic trade areas and the investment that would have to be made to improve the restaurants.
Despite this initiative, our confidence in our portfolio remains high as we plan to open 40 to 45 new restaurants across the system in 2024 is our promising trade areas with great potential is critical. As these closures are not a reflection of the hard work of our team members, as always, will take care of our people offering many the opportunity to transfer to another restaurant and severance for those who do not.
Importantly, the sales growth initiatives I described are supported by a solid foundation with healthy margins, robust cash flow and a strong balance sheet strength gives us ability to invest in new unit development, technology enhancements and asset improvements, while meeting our commitments remain dedicated to delivering great food and experience for our guests while building a strong business that will continue to thrive for many years to come.
Before I turn the call over to Chris, I just wanted to comment on the eight K we sent out this morning regarding Chris's retirement from Bloomin Brands. Chris has been a great partner to me the last five years as CFO. He has made many, many contributions to our company, and he will be missed the company's considering various options for his replacement versus expected to continue in his current role until such time as successor is named and otherwise assist in the transition.
Chris, thank you for everything you have done for the Company and for me over to you to discuss our financial performance and 2024 guidance.

Thanks, Dave. For the kind words, it's been a privilege working with you and serving as our CFO for the last five years. I would like to start by providing a recap of our financial performance for the fiscal fourth quarter of 2023.
Total revenues in Q4 were $1.19 billion, which was up 9% from 2022. This was primarily driven by an additional $83.5 million of revenue from our 53 week favorable foreign exchange translation and the net impact of restaurant openings and closures.
US comparable restaurant sales came in just slightly below our expectations at negative 20 basis points. This reflects a comparable 14-week view versus 2022 traffic in Q4 was down 3.1%, which represented a 160 basis point improvement in traffic from Q3.
Average check was up 2.9% in Q4 versus 2022 to, as we mentioned in our prior calls, check average benefit decreased steadily throughout the year as we chose not to replicate the amount of menu pricing that had been taken in 2022, we remain very cautious about taking additional menu pricing, particularly at Outback.
Q4 off-premises was approximately 24% of total US sales. Importantly, the highly incremental third party delivery business was 13% of total US sales, which was up from 12% in Q3, driven by our growth in catering as it relates to other aspects of our Q4 financial performance.
GAAP diluted earnings per share for the quarter was $0.45 versus $0.61 of diluted earnings per share in 2022. Adjusted diluted earnings per share was $0.75 versus $0.68 of adjusted diluted earnings per share in 2022. The primary difference between GAAP and adjusted diluted earnings per share is due to restaurant closing and asset impairment costs related to our restaurant closure initiatives.
Q4 adjusted restaurant-level operating margins were 15.9% versus 16.8% last year. The reduction in restaurant margin from last year was driven by a couple of factors. First, as we mentioned on the last call, in Q4, we were lapping significant be favorability from 2022. This lapping, coupled with a smaller benefit from average check, did not allow us to leverage the COGS line like we had throughout the first three quarters of 2023.
Second, inflation levels remained somewhat elevated in Q4 and drove additional year-over-year margin. Unfavorability. Labor inflation was up 4.4% in Q4, and restaurant operating expense inflation was up 4.7%. Total company adjusted operating income margin was 7.5% in Q4 compared to 8.2% in 2022.
Depreciation expense and general and administrative expense were both up in Q4, consistent with our increased levels of capital spending and our investments in infrastructure to support growth. As it relates to the 53 week, we estimate that the benefit from the extra extra week was worth $0.16 of diluted EPS to our 2023 results.
The week between Christmas and New Year's includes many of our busiest days of the year, and this is reflected in the large EPS amounts from this week. The operating margin for the 53 week is higher than our normal operating margin because some of our fixed expenses such as rent and depreciation, are recorded on a monthly basis and were not allocated to the 53 week.
Turning to our capital structure, total debt was $786 million at the end of Q4. We have worked very hard coming out of COVID to reduce our debt levels and are pleased that our lease adjusted leverage ratio is solidly below our goal of three times with significant levels of liquidity.
In terms of share repurchases, we repurchased 2.8 million shares of stock in 2023 for $70 million. As indicated in this morning's earnings release, the Board has canceled the existing $125 million authorization and approved a new $350 million authorization expiring in August of 2025. This is a larger authorization than we would normally put in place.
The purpose of the authorization is twofold. First, $150 million of this authorization allows us to continue to repurchase a typical volume of shares over the next 18 months. Second, our convertible bond matures in May of 2025.
The remaining $200 million of this authorization allows for flexibility to retire the convert sometime between now and next May. There are a number of ways to structure a potential transaction and these additional dollars give us the flexibility to retire the remaining $105 million of principal on the converts and remove the dilution from the converts that currently exist in our share count in.
Our 2024 guidance, we are assuming approximately 4 million shares related to the convert are included in our adjusted EPS calculation. The Board also declared a quarterly dividend of $0.24 a share payable on March 20.
Before I turn to 2024, I wanted to remind everyone that our full year 2023 adjusted results include the benefits from the Brazil tax legislation and the 53 week. The Brazil tax legislation benefit was worth approximately $0.26 and the 53 week was worth approximately $0.16. On a comparative 52-week basis, our 2023 adjusted diluted earnings per share result was $2.51.
Now turning to our 2024 and Q1 guidance. We expect the full year US comparable restaurant sales to be flat to 2% on a comparable calendar basis. Adjusted diluted earnings per share are expected to be between $2.51 and $2.66. We expect commodities inflation to be between 3% and 4%, driven in large part by beef inflation.
We expect our full year tax rate assumption to be between 14% and 16%. Capital expenditures are expected to be between $270 million ,$290 million. Our level of capital spending accelerated late in 2023 as our new restaurant pipeline has grown. The 2024 capital plan includes dollars to support approximately 40 to 45 new restaurant openings, including significant Q4 spending for 2025 openings as well as ongoing funding of remodel relocation and infrastructure projects.
The 53 week in 2023 creates some complexity in comparing year-over-year results, both for the full year and by quarter. Each fiscal quarter of 2024 will be comparing to a fiscal quarter from 2023. That includes a one week shift. This shift is especially impactful in the first quarter. Please refer to the fiscal and comparable calendar dates table provided in our earnings release this morning to help you better understand our 2024 calendar.
As it relates to the first quarter, similar to the rest of the industry we experienced negative impacts from weather in the first few weeks of the year. This represents a 1.3% comparable sales headwind to the quarter. We have included this thinking in our comparable sales guide.
As such, we expect US comparable restaurant sales to be down between 50 basis points and 200 basis points on a comparable calendar basis. The good news is we've seen continued sales growth ahead of the industry.
In addition, our Valentine's Day week represented the strongest week in our company's history. This trend, including the weather impact from the first three weeks are included in our guidance. We expect Q1 adjusted diluted earnings per share to be between $0.70 and $0.75, which includes a negative $0.06 impact due to the calendar shift and an approximate $0.05 impact from weather at the beginning of the quarter. In addition, the removal of the Brazil tax exemption is a headwind of $0.08 in Q1 versus 2023.
In summary, we successfully navigated a challenging environment in Q4. We will remain disciplined in executing against our strategy in 2024 and we'll emerge a better, stronger operations focused company.
And with that, we will open up the call for questions in queue.

Question and Answer Session

Operator

(Operator Instructions)
Jeffrey Bernstein, Barclays. Please proceed with your question.

Jeffrey Bernstein

Great. Thank you very much. And my question is on the broader consumer environment. I'm just curious, we still have multiple brands have pretty good perspective. No change in consumer behavior in recent months impacting traffic or mix in the I mentioned the risk of a slowing consumer in 2024. So just trying to gauge what you've seen in recent months.
And Chris, just to clarify, I think you said down one day, very strong downtimes weak, but more broadly, the trends since the first few weeks of January with the inclement weather, would you say that they're now back to the strength you are seeing to close the fourth quarter? How would you gauge that more recent momentum? And then I had one follow-up.

Yeah, good morning. Yes, we see the consumer hanging in there on our trends. As I talked about on the call, we had a weak October, but they got stronger as the quarter moved along. And we finished really strong. And then we had the first three weeks of weather, but then the strength that we've seen return and I'm really pleased with some of the trends we're seeing in our business, especially at Outback and Carrabba's 12 of the last 14 weeks, Outback has outperformed the industry. We expect that trend to continue, and we tried to incorporate that all that in our guidance. So we see the consumer hanging in there, and we see our brands doing pretty well on that front.

Yes, the only thing I would add to that is that you asked about mix and mix trends. You know, we're still and you saw the numbers. We're still we're still seeing some negative mix trends show up in the financials. But at the same time, I think as we've said no in the last couple of calls, a lot of that's engineered the growth in catering at Carrabba's has been significant. The LTO activity has been very successful. So I think that it's been more engineered than anything else Now that's not to say that there isn't some check management going on, but I don't think that's the lion's share of what we've been saying.

Jeffrey Bernstein

Understood. And then my follow-up is just more broadly, Dave, in the boardroom I'm just wondering, has anything changed in recent months or quarters? It is activist involvement. And just wondering whether there's any change in perspective of priorities or how that and investor and kind of the impact that you've seen, if any as you look to your business through 2024 banking.

Yes, you have a they've been a very positive part of our company, and we welcomed our two new Board members. As you saw, we've had good interaction in the boardroom, good ideas, and they've been a big part of helping us understand how we can move our businesses forward and we're very optimistic about the year and and I think it's been a good partnership.

Jeffrey Bernstein

Great to hear. Thank you very much.

Operator

Alex Slagle, Jefferies.

Alex Slagle

All right. Thanks. Good morning, Chris. Congrats on a great career there. And now we will all miss you for sure. Wanted to ask, I guess, just as you step back and think about all this, the efforts you've made improving the guest experience at Outback and investing in the food quality and simplification, better service remodels.
I mean, how far have you gone along the spectrum of what you think you need to do to position this brand as share gain or and I know we have more and we'll hear about in the quarters to come. But what I sort of think about that, and I don't know if there's been that way it specific dollar amounts to how much you've invested and how much you think you need to do in the core experience, but any thoughts around that?

Sure. I think we've made progress, but we have more to do and if I should give a football analogy or a scale of one to 10, but I think we've made we've made progress. We're seeing it in our trends, which were especially at the end of last year in the first quarter this year in OpEx. But when you look at the work, we've done to understand our consumer in this post-COVID environment and sharpen our positioning that's been done.
I think you look at the no real just right positioning. We've started that started more work to do there. You look get the food and service elements that we've invested in. We invest, we've invested some, but we have even more to do, I think us on some of the service elements and some of the food elements we talked about the additional spending and marketing in that 2024.
We're seeing some return on that, and we've opened up six new restaurants and we can open up 15 to 18 and 2024, and then we're remodeling. So it's brought, Alex, it started, but we have more to do. And I think we're beginning to see the trend change in the business.

Alex Slagle

Got it. And there's the closures. How many of those effectively would have been relocations is the relocation pipeline through is still the same as there was before. How does that look? And I mean, maybe any thoughts on like that the cash-on-cash return profile of these new units?

Yes. So I'll give you some perspective. No, none of these would be, quote unquote, considered relocation opportunities. I think the relocations this year, we'll probably have another five or so. I think that we like the cadence that we have in terms of relocations, every time we relocate a new Outback, we see significant sales lifts.
And I think that the just to sort of piggyback on the question to Dave about Outback, I think that the relocation and what we see when we do a relocation is one of the reasons why we truly believe in the relevance and the strength of the Outback brand. Because every time we do that, we see such positive results.
Now what I would say is like from a new unit perspective, obviously, we're seeing pretty good cash-on-cash returns, um, you know, if we think about allocation of capital, we get asked a lot. Why are you investing so much in new units we're getting solid returns on these new units there and infill opportunities in strong markets with strong demographics.
And obviously, I mean, I think from a capital allocation perspective, if we were seeing that we weren't getting the returns that we need to justify the investment, then we would use those dollars elsewhere. So we feel really good about kind of the whole strategy and how we're deploying capital.

Alex Slagle

Thank you.

Operator

John Ivankoe, JP Morgan.

John Ivankoe

I think you the question is around menu simplification. And I guess a couple of things. I mean, one, how far down this journey are you in terms of yet another significant reduction in menu items at Outback, obviously, that would come with reduced complexity in some cases that actually may come with reduced costs. So just wanted to get your sense of how big of an opportunity you guys see that to be kind of the first question.
And then secondly, are there any opportunities for kind of longer-term price investments of the Outback brand? I mean, are there some opportunities on the menu where you could sell a lot more certain certain foods and including Foods deal that are regularly price on the menu of actually lowering menu prices and maybe in some cases, bringing them a little bit closer to where peers are?

Yes, John, I think on the simplification side, that's something we have always looked at and we are continuing to look at. And I think that's a good point that you make, and it's something that works we're looking at in the marketplace and I won't go any further than that because of competitive reasons. But I think you've hit on something that we're that we're looking at net that brings us improved operations.
And I talked on the call about the progress we're making. And if we can make it with the technology and with some of the work we're doing in the menu, if we can make it easier for operators to serve product and easier for our customers navigate the menu. That could be an opportunity for us. So we're looking at that number one.
Number two is the way we tried to get about this, John, is if you look at our combo pricing, that's something that's very attractive versus competitors. If you look at what we're doing with the Aussie three-course meal, [1699] that works very well. And we're also potentially looking at some high-quality menu items that may be a little bit lower price that we would introduce on the menu to help offset some of the pricing at Outback about some of the pricing perceptions at Outback.
So those are the things that we're doing is looking at our combo pricing. We're looking at some of the LTOs that we're doing and advertising against that. And we're also looking at some of the menu items that we can bring in place that might be a little lower price point, but offer of high valued high-quality.

John Ivankoe

Thank you.

Operator

Sharon Zackfia, William Blair.

Sharon Zackfia

Good morning. Can you give us some more texture around the closures and what concepts were impacted besides Aussie Grill? I know that they were older locations that any commonality other than the fact that they were older. And then how do we think about the impact of those closures on revenue and margins as we think about '24?

Yes, they're they're split across the portfolio. So there was mostly Outback, but there was a handful in the other concepts as well from there. We talked about the revenue impact, you know, sort of that $100 million of actual revenue would come out of related those closures. But actually, if it's profit accretive right on, that's what part of the reason why we're making this move, we probably going to add about $4 million of EBIT to the bottom line results of the Company this year.

As a result of the closures, you're I think Sharon is we're opening -- 40 to 45 new restaurants to to bring in those restaurants will be far more visible, attractive, higher performing across the portfolio. And so that will that will really that will really help as well.

Sharon Zackfia

And thanks for that. And I think you alluded to in the CapEx kind of maybe a further acceleration and development in 2025 as I'm kind of triangulating the commentary there correctly. Is that is that the case and now from 40 to 45 new locations this year, what I mean, what kind of cadence of growth. Do you think you can maintain as you get into '25, '26 and beyond?

Yes, Sharon, I love our pipeline. Our real estate team has done a great job. You're correct. We would like to improve the cadence and raise the cadence as we go forward. As Chris mentioned, we're always on top of our returns to make sure that the returns are great. But we have a pipeline building that is very, very strong, especially in our stronghold markets in the Southeast.

Yes. And maybe just to give you a little context on the capital guide and how that comes together a little bit. So one of the dynamics that you are going to have in the 2024 capital spending is that in 2023, we had about $65 million of restaurant technology. That spend is going to fall off in 2024. But we are then going to have an increase in the number of new units that you're going to see in the numbers. So it's really just a trade between the technology and the restaurants increasing the number of new units.

Sharon Zackfia

Very helpful. Thank you.

Operator

Jeff Farmer with Gordon Haskett.

Jeffrey Farmer

Thanks. And best of luck to Chris with everything you're going to be pursuing in the future. On couple of questions for you, Rob, anything you can offer on the sort of the component assumptions across pricing traffic mix as it relates to that flat to 2% same-store sales guidance for 2024?

Yes, yes, sure. I'll get I'll give you some perspective on it. So I think if you think about traffic, there's a pretty wide range of possible outcomes here, I'd say anywhere from flat, which I think is certainly doable, but also down to like to be down to 2%. A lot of it's going to depend on sort of the external environment, but there's also a couple of things worth calling out on that I mean, first, we're going to start out a little bit of a hole here in Q1 because of the weather from a traffic traffic perspective.
And then I would say, candidly, the category as measured by Black Box or Knapp. However, you choose to look at the category look, it's likely going to have a negative traffic outlook for 2024 and I don't think that's anything new. I mean, I think that outside of a couple of years around COVID, the category generally speaking, been down 2% to 3%, pretty much every year that I can remember going back quite a ways.
So I think those two things taken in perspective, it is our goal and is our commitment to trying to outperform the category in traffic this year, which is why if the category is down 2% to 3%, our traffic is going to be flat to down 2% in that range.
We expect to outperform it. The category does a little better because consumer seems to be hanging in there. Then, of course, we have opportunity to have some upside there. So that's how I would think about traffic now in terms of average check pricing, et cetera, start with average check in the full year guide, it assumes an average check increase of call it 2% to 3%.
And that's going to be comprised of about, I'd say, 3.5% of so our pricing and then some negative mix. And that negative mix, again is driven by some of the things I talked about in terms of catering growth, LTO activity, things like that on the pricing assumptions is going to have about 2% or so rollover pricing and then a small amount of incremental pricing over the balance of the year.
Again, I mean, the commodity environment is going to be somewhat benign, but the one area where it's not benign is in the beef markets. And so we're going to have significant beef inflation against this year again this year. And so some of that incremental pricing is going to be meant to offset that.

Jeffrey Farmer

That's helpful. And then just as a follow-up, as it relates to again, sort of the increased level of media, have you sort of fully implemented that across Q4 and into the first part of 1Q? Or is this going to sort of slowly build on how should we be thinking about the ongoing effort to sort of get a stronger media share of voice out there?

Yes, Jeff, a two way to think about it. One, it will build and we will always look at the ideas we have. And I'm pretty excited about a couple of the ideas coming up the balance of the year. And so the ideas will the funding will follow the ideas so we see that there they will build during the year and then we will fully support our ideas, a strong share of voice.

Jeffrey Farmer

Thank you.

Operator

Sara Senatore, Bank of America.

Sara Senatore

Thank you. I guess, and I'm trying to I understand how you are thinking about capital allocation by which I mean, relos obviously have high returns. Is there a scenario where, you know, if you reinvested that money elsewhere, maybe not in capital, but with OpEx, maybe even more marketing or at labor, something like that, where you could get you think you could see return across the system just because the relocations obviously help the individual as I think about know the guidance, it looks a little heavier on CapEx than we had thought. And so wondering how you kind of compare I. across the different uses of capital within the P&L are in CapEx and then and then I just have a quick clarifying question.

Sure. We look at that very carefully across the P&L will look at our labor investments, our food investments and then also CapEx, one of our ways to unlock traffic growth, especially at Outback, where we have older assets, refreshment of the really strong assets, relocations and new.
And that will uplift the entire trade area. And as we did our relocations or excuse me, as we did our remodels within 2023, we tried to concentrate them, for instance, in Florida, and we saw the benefit of that concentration.
So as we look across the P & L, we look at the investments we'll make and labor look at the investments we'll make in food, but in advertising. But then also we look at our capital and we know that the cash on cash return we receive is strong. And then what it does to the entire marketplace and then what it does for traffic as we uplift our assets.

Yes, we've made we've made decisions like that in the past. I mean, we certainly have it, whether it's increasing portion sizes at some of our brands or adding a second site, there have been reinvestments back in areas where we think it makes sense. So certainly one of the advantages of having a significant amount of free cash flow like we have is that you're able to make these kind of investments and decisions and still leave yourself in a really good shape from an from a capital structure standpoint.

Sara Senatore

Got it. Thank you. And just to clarify some of what you're doing to have broader implications for the trade areas. So the perception of the customers in that trade area from we will remodel may it has reverberate throughout the trade areas. Is that fair?

Yes, there's nothing like a new Outback or two in a trade in a city to to attract people and say, wow, look at that, especially in our new prototypes, which we think are very attractive. So that's part of the traffic building as well for the entire trade area.

We factor in and we'll factor in cannibalization when we come up with the returns for new restaurant investments. So if there's a way for going in entering a restaurant and a rarity where we already have a significant presence, we factor in potential cannibalization into our mouse model to make sure that we're making the right decisions.

Sara Senatore

Got it. Okay. Thank you. And then just a technical question. Am I understanding correctly the repurchase would just offset the dilution from the convert? Is that? Is it sort of pretty much of a wash?

Well, yes. And so the convert gets pretty pretty complicated, but let me so let me just trying to frame the 300 because it's an important part of what we're trying to do here, the $350 million share repurchase authorization. So you can put aside the [150, right, because the 150 is just normal course of business. We did $70 million of share repurchases in 2023. We got another $150 million for the next 18 months. That's pretty much normal course of business. The remaining 200], it just gives us optionality. And again, I'm not going to get too much into timing because timing to be anywhere between now and next May when the convert comes to maturity.
But what I can say about how it would be performed is at the end of the day, what would likely be the outcome is that you would have of that $200 million of share repurchases, you would just have the $4 million shares that are currently sitting in my adjusted earnings per share share count, those shares would come out of the share count using the funds from the $200 million, the remainder of it, the $105 million. That's the principle on the converts.
There's just some options between I can I can do some share buybacks and and issuing shares, et cetera. There's just some arbitrage there. That's really more just a refinancing kind of event. The real impact to share count would be that $4 million shares that are sitting currently in my adjusted share count if that makes sense.

Sara Senatore

Thank you very much. Very helpful.

Operator

Brian Harbor with Morgan Stanley. Please proceed with your question.

Brian Harbour

Thanks.Good morning. And Chris, best of luck to you. Just a question on is, did you saw what you expect wage inflation to be this year? And I think the broader question about labor, do you feel like there's kind of a need to reinvest in labor, add some stores as you think about kind of building traffic this year?

I think our labor models are very well established well run. We've invested behind the technology to enable our servers. We've invested in cooking technology to enable our back of the house service model is strong and we feel very good about it. So the labor spending at the restaurant level number of hours, et cetera, is in really good shape.

You asked about inflation. Look, yes, I mean, I think that, yes, I think inflation call it 4.5%. It just seems like that 4% to 5% range of inflation is just pretty sticky. And I don't see it going anywhere anytime in the future, particularly since we have such a presence in Florida and Florida is going through this stage of raising their minimum wage.
So look, I think that's just part of how we go to market on. That's why the productivity initiatives and things like that become so important because you need some offsets on you can't just take unlimited amounts of pricing to offset that. And that's why we focus so much on making sure we do the right thing with productivity.

Brian Harbour

Okay. Got it. That's maybe I'll take the bait on your comment about kind of the work you've done your customer, what's what's changed I guess, for what was some of your key insights from that work you've done?

Yes, I don't want to get into too much detail for competitive reasons, but a couple of things. One, our core is loves Outback Steakhouse, and they continue to reimage Doug say that again and again and again, and I think we have some permission from some of our explorers out there that might be looking at some other categories of interest but the focus is on the core.
And if we can pick a few up to explore that, look at other categories besides state, the Outback has the permission to do that and the last thing is the reinforcement of our OpEx, such an adventurous steakhouse. And we have a lot of support for our long heritage of no real just write off the heritage, et cetera. All those things came to light up some direct, but continue to do our research.

Operator

Lauren Silberman, Deutsche Bank.

Lauren Silberman

Thank you. On the advertising front, a bit more there and your approach to marketing, what messaging are you going to lean into two into 2024, how much more on value and we need to see. And then just in terms of how we think about the step-up in advertising expense, it will move up during the year.

But I think more importantly, what it will do is they'll be with such ideas that we have, which I'm like I said before, I'm very optimistic about I think if you can if we can do the combo of a product that consumers really love. And I don't want to go into detail here along with the good value.
I think that's the magic that we can bring together at Outback, especially to help grow traffic and our advertising and our in our consumer awareness and excitement. I think that's clearly something that we can do because we have a heritage of that.
The second thing is, like I said, you'll see the step up of spending during the year as the ideas come to fruition, and we'll continue to track that return as we go forward. And lastly, I think we have a much better understanding we've talked about in other calls on the way to advertise it, digital versus network versus television. Those are things that we can also look at and change the mix around as we as we need to. So those are the things that we're doing with our advertising investment, and we'll continue to track the returns and what we can do going forward.

Lauren Silberman

Okay. Thank you. And then just on restaurant margin, what's embedded in the guide this year? And can you just talk about how we should think about the cadence of margin throughout the year? Thank you.

Yes, I think I think if you look at offer, we'll start with operating margins, and Ryan will talk about restaurant margins the same time, I think. But to give perspective, we finished at 7.6% in our op margin line in 2023, 50 basis points of that was driven by the 53 week in the Brazil tax exemption. So you're not going to have those in 2024.
So if you exclude those two in your view, so your starting points at 7.1, look with the guide we gave, I'd expect op margin to be slightly up to slightly down, probably flattish, depending on where we land within our guidance range in and around, call it 7% or so, which is again, as a reminder, it's 210 basis points above where we were in 2019 despite what continues to be very persistent inflation.
So you think about it from a restaurant margin and a category perspective, I think cost of goods sold and OpEx, just given where the productivity dollars will probably land and some of the inflation that we're seeing in those categories causes a little bit less inflation this year.
Those both those categories have a decent chance to be favorable in terms of margin year over year. Labor is probably the one category that's most likely to be a little higher year over year, given the inflation I just talked about that 4% to 5% inflation.
And then the other piece is when you go further down the P&L, the one G&A, we'd like to keep somewhat flat on a dollar basis, but depreciation is going to be higher, obviously with the capital spend. So I would expect depreciation as a percentage of total revenues to be higher as well. So that gives you a little bit of sense about, I think about the pieces parts.

Lauren Silberman

Thank you.

Operator

Brian Vaccaro with Raymond James.

Brian Vaccaro

Thanks, and good morning and congrats, Chris, best of luck to you. So I'm just circling back on the Outback comps for a second. Could you be a little more specific on the degree of improvement you've seen or how much that spread versus the industry has improved over the last few months.
And also just given the unusual swings on weather in January anyway, you can you could level set how your US comps look more recently as the weather has normalized?

Yes, I don't want to get into specific percentage points versus the industry, Brian, I hope you understand that, but I think you know me pretty well, we've gone from a place and especially in the fall when Outback was behind the industry in same-store sales growth to a point in December and then into Q1, we're consistently ahead, and we're very pleased about that.
And that's the beginning of what that's a result of the beginning of the work we're doing and we can see going forward some of the work we're doing to help that trend continue and hopefully strengthen. But that is that is about all I can say right now. I don't want to get into price points per se after the weather, the first three weeks, we've seen the trend resume that we saw in December and the last few weeks have shown just that. And so we tried to bundle all that into our guidance? No, for the quarter.

Brian Vaccaro

Okay, fair enough. And on that spread, is it fair to say that that spread is positive on both a comp and traffic basis?

Yes.

Okay. Brian, question on working it. Before I get to the next question, I just want to mention one thing that hasn't gotten a lot of attention on this call, but I just need to see a couple of things about the Carrabba's team, how great they're doing. If you look at their trends versus the industry, they're just knocking it out of the park, both in traffic and in sales. And it's a brand we feel very good about and something that has investment opportunities going forward. So excuse me, for interrupting you, but I just wanted to mention that.

Brian Vaccaro

Absolutely, and definitely noted. My other question was just on the fourth-quarter store margin dynamics on labor and other OpEx moved a little differently than we were expecting. And I guess on labor that that little over 100 basis points of pressure, I think you saw year on year. Could you just give some color on what drove that and to what degree you reinvested in hours or service in the quarter?

Yes. Well, I wouldn't say so much reinvestment in hours for service I think the labor dynamic that you see in Q4 was mostly inflation, but we did have some additional compensation expenses related to relative to last year, specifically related to the 53 week as we pay our partners on a percentage of cash flow.
That 53 week was just outsized and that just we had lost some leverage on that line and then we were lapping some stuff from a year ago from a one-time perspective, that wasn't as big, but those are kind of the big buckets.
I mean, I think that broadly speaking, Brian, the Q4 margin performance, what we really tried to turn people into was the fact that the COGS line was going to move the way that it did because we have been leveraging that restaurant margin pretty favorably up until Q4.
But we we talked about the idea that we were going to leverage the COGS line just because some of the beef activity that we had a year ago. So that's probably the biggest dynamic. But you have labor was a little higher, but I think it had a lot to do with just kind of the advanced dynamics of the 53rd week and how that came together.

Brian Vaccaro

Okay. Thank you for that. And just on the topic of productivity, if I could last one, what level of savings did you achieve in 23? And could you provide a few more specifics on what some of the key drivers of efficiency in 2024 will be.

So we ended up at about $55 million or so of productivity in 2023. And again, I think the buckets that we saw in 2023 are largely going to be the buckets that we would see in 2024. Again, I think we're going after another $50 million of productivity this year. I a lot of it is going to be driven by the restaurant technology that we put in place.
But another big piece is going to be a supply chain related because there's a lot of opportunities there that we've been looking at, as well as some of the menu work and things that Dave talked about. So it's going to be pretty broadly spread across the the P & L between COGS and labor, et cetera. Again, maybe a little more weighted to a cost of goods sold, but we'll see.

I just want to underscore to Brian productivity will do. We do will not touch food quality and not such service what it's pure, getting our great products, our service to our people in a more efficient manner. So that's extremely important to us.

Brian Vaccaro

All right. Thank you very much. I'll pass it along.

Operator

Brian Miller, Piper Sandler.

Brian Miller

With your question, Greg, you are just a question on Brazil. Can you just touch on the operating environment down there right now? What you expect to see as you put together the guidance for the year? And then just related to that, I know you've been asked this many times in the past, but if you could just give your first thinking on your desire to own those restaurants longer term? And if the current environment is conducive to taking any action on that front for the foreseeable future?

Sure. How the environment remains good. Inflation has come down. Interest interest rates are still pretty high down there, but the consumer is in good shape. We had a tremendous sales improvement last year at this time, probably because of the World Cup.
So that was a very difficult lap, which we're able to do. And so the new-store openings are fantastic. Our position is unparalleled number one and so the operating environment we believe continues to be really, really strong so that that is a that's important.
The second piece is we've looked at in the past about potentially having that business be a franchise business that still is something that we may or may not consider. We'll just continue to look at the environment and then the value we get from the business and up as we move forward. So we can look at optionality down there. But right now, our job is to continue to continue to build a great business.

Brian Miller

Okay. Thank you. And then just as a follow-up, just a question on Bonefish. Maybe can you touch on some of the in-store sales trends recently? Maybe what's going on with that brand? What are the key priorities for that brand this year over the next few years?

Just what's the team that are focused on? I think for us, we have a I've got to do some more work. There are some of the work that we did at Outback, quite frankly, to get a better understanding of our customer on this post-COVID environment. I think that's something that we need to focus in on and we're doing that work right now is our menu investment and simplification opportunities that we can do.
We're looking at that we've invested in operations, both in technology, but also focusing on key measures such as speed of service in our bar and for food because it's such a bar center concept, that's our highest mixing of beer, liquor and wine business in casual dining. And we continue to refresh our assets at Bonefish, those kind of a four pronged strategy there. It's not a growth vehicle for us and we'll continue to upgrade the assets and we'll continue to the customer and menu work to get that brand up it trends to improve.

Brian Miller

Thank you.

Operator

Dennis Geiger with UBS. Please proceed with your question.

Dennis Geiger

Great. Thanks, guys. Encouraging to hear about the progress that you're continuing to see across the Outback operations and the customer satisfaction scores, et cetera. And then I can personally attest to just some of the positive customer experience benefits from the server handhelds and in some visits recently. So just wondering if you could talk a little more about the opportunity for operations gains, where is it consistency of speed to where sort of the biggest opportunities that you've identified lie. And I guess most importantly, sort of how long you think it takes to get to, I think the best in class levels that you spoke to as a target.

Yes, we're making significant progress in our operating measures. So we'll continue to make progress each and every month. And our goal is certainly as soon as we can. And I want to make a specific prediction, but it's something that we are all over. And I'm very pleased with the operating measures we're seeing both in the internal progress we're making, but also externally with Technomic and other people that do a lot of work for us externally.
So that is really, really a great thing to see. So that's the first and the second thing is I think it's more around the trade-off at the restaurant between variety and menu simplification. Can we continue to make progress there as we do our work. So there's more work coming at Outback there. Number two is really leveraging our technology, saw the benefit of the handheld that's clearly happening. The grills have been a big success. If you look at reflux and reorders of steak satisfaction. That's been very, very strong.
And then as we continue to do this casual dining, the customer comes two or three times a year. We just got the data to make progress here that will be a reinforcement in building traffic. And then as we look at our chances to help our managing partners and our teams to offer great service. Those are the things that we're looking at.

Dennis Geiger

Very helpful. Appreciate that. And then just second question, just as it relates to some of the bunch of the traffic drivers that you've spoken to, but much of the work that the team has been doing as we think about maybe some of the biggest drivers for this year, if the if there are a couple that you think can be most impactful this year? And then if there are some that are kind of most impactful on a multi-year basis, would there be anything that you'd kind of break out there? Thank you.

Yes, I love. I love some of our product and marketing ideas coming up. I like the fact that we're looking at how we're spending our advertising dollars and how we're doing it to support those ideas. So in the near term, that's clearly something that we'll be looking at and very hopeful for longer term on some of the menu work we talked about continuing with our positioning is really important. I think the asset upgrades, if you live in Florida and go into our Outback most have been remodeled now and you can see it.
Those are things longer term are going to really help us our operations longer term, our asset investment, longer term our menu work. We want to balance some short term gains, which I think are possible along with some of the strong long term things that we have in place at Outback.

Dennis Geiger

Very helpful. Thank you.

Operator

Jon Tower, Citi. Please proceed with your question.

Jon Tower

Great. Thanks. I appreciate it. And Chris, best of luck and look forward to seeing what you do. Next curious, maybe on the it's 1699 Aussie three-course meal. I'm just curious to get your thoughts on how you think about everyday value on your own menu today? And do you feel like that is a decent launch and or something that you can continue to evolve over time to have an everyday value option for consumers over time?

Yes, I think it's the first step, and I think it's something we'll continue to look at for our various limited time offer opportunities. We'd certainly look at that. But then as I mentioned earlier on the call, John, we're also looking at some products that may have a lower price point. They're still really great products that are good return to the Company, but also great offer great value to the customer.
So we're doing some of that work on the menu side as well. But we have the opportunity through our combos and through selected LTOs with the right marketing spend to drive value in the brand.

Jon Tower

In the menu items you speak of do you see those as permanent or LTO.

We are thinking that they would be permanent, but they have to earn the right onto the menu.

Jon Tower

Got it. And then I guess just just kind of zooming out a little bit and thinking about the business, I know for a few years, you've been aiming toward that 8% or so EBIT margin target and had exceeded it at one point. Now we're taking a bit of a step back. So I'm just curious to get your thoughts on how you see it evolving over the next several years. And I would assume obviously '24 is going to be a more difficult year for that. And but beyond '24 and '25, how should we think about your ability as a company to get back to that 8% or so target.

And before I turn over to Chris, I just want to mention that there's a very benign commodity basket fixed one exception, that's beef. And so we don't want to price up and to cover that deep cost entirely. So we have to continue to looking at our our margins to up to look at that and how it means what it means for our customer. And I want to make that broad point first before I turn over to Chris.

Yes. Well, I think that look longer term, I think we still feel good about using 8% as an operating margin target. I think the problem has been, you know, in the time period between 2022 and 2024. And we've had this massive inflation that's been really tough to leverage, not just for us, but candidly, for everyone who's trying to be thoughtful about menu pricing and things and balancing that dynamic. And look, the good news is I think that despite the inflation, margins are kind of hanging in there. And so as you think about like what's the path forward?
I'd say the key areas we probably need to make progress on in 2024 would be first and foremost, we need to continue to make traffic progress at Outback because traffic ultimately is going to be a lever moving forward that you're going to have to leverage in order to continue to make progress on margins.
And second, once you start to see the new restaurants ramp up, you'll begin to leverage depreciation, et cetera, and you'll make more progress on that in 2024. And then I think that the last thing is once the beef situation improves, you'll have the makings of a much better landscape from an inflation standpoint to make progress on margin. So I think the signs are encouraging. And I think that looking ahead to 2025 and beyond, there's there's some reasons to believe that second question.

Operator

Andrew Strelzik, BMO Capital Markets.

Andrew Strelzik

Hey, good morning. Thanks for taking the questions. I just had two on the cost side. First one is back on the marketing spend. You mentioned that's going to ramp through the year. So is it fair to assume that that would hold at a higher level in 2025 as well? And maybe more importantly, are you going to be exiting this year at a more kind of steady state level?
I think if I'm looking at this right, you'd be kind of like 2.5, maybe a little bit higher than that percent of sales. So still a bit of a gap from where you were pre-COVID, but just Just curious how we should think about that trending.

I'll start, and I'll turn it over to Dave. I think the way I think about 2020 for marketing is yes, it will be higher. It's probably going to be higher in every quarter, to be honest, even Q1 than it was a year ago. So there's going to be increases in marketing spend. I think the we've talked about marketing, we've talked about this for years in terms of we used to spend 3.5% of sales on marketing we got down into the low twos.
We recognize that we've always talked about, hey, look, even when we laid out that margin framework a couple of years ago, we said, hey, look, we think the sweet spot for marketing is probably in that 2.5% to 3% of sales range. I think that's kind of where we really think it's going to be long term as well. So I think that if we land this year, sort of in that 2.5% to 3% range, then I would say that that's probably a good thought for us moving forward. Obviously the spending can ramp up as our sales increase. So I think we feel good about it as a percentage of sales.

Yes, I'd just like to say in our company, the money falls, the ideas and good ideas get supported, and we'll continue to have that discipline. That makes sense.

Andrew Strelzik

And then just my other one was on the commodity outlook. It sounds like really only beef as a problem child there and you've been able to lock these on an annual basis. The last couple of years. We're able to do that again this year. I'm just curious on the visibility to that commodity outlook. Thanks.

Yes, same thing, we're probably, you know, 74% locked on our basket for the year, [74, 75], somewhere in there because beef is 100% locked, obviously as in prior years. So, you know, we're hopeful that the market continues to make progress. And if it does, hopefully, we can take advantage of some of that upside.

Operator

Thank you. Ladies and gentlemen, that concludes our question and answer session. And I'll turn the floor back to Mr. Dave for any final comments.

Thank you, everybody, for your time this morning. We look forward to updating you on our Q1 call later this year. And Chris, thank you for everything you've done for our company. Thank you.

Thanks, everybody.

Operator

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.