Greetings, and welcome to Bloomin' Brands Third Quarter 2022 Earnings 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 Mark Graff, Senior Vice President of Investor Relations. Thank you, Mr. Graff, 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 third quarter 2022 earnings release. It can also be found on our website at bloominbrands.com in the Investors section. Throughout this conference call, we will be presenting results on an adjusted basis. An 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 materially 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 sec.gov. During today's call, we'll provide a brief recap of our financial performance for the fiscal third quarter 2022, an overview of company highlights, and an update to 2022 guidance. Once we've completed these remarks, we'll open up the call for questions. And with that, I'd now like to turn the call over to David Deno.

Well, thank you, Mark, and welcome to everyone who listening today. As noted in this morning's earnings release, adjusted Q3 2022 diluted earnings per share was $0.35, which is more than triple our 2019 results. This compares to $0.57 in Q3 2021 as we lapped exceptional earnings from stimulus checks and pent-up consumer demand. This quarter was among the highest inflationary quarter of the year. We made the conscious decision to preserve our value equation and not raise prices to fully offset inflation. While the consumer has remained resilient to date, we believe the short-term decision will have long-term benefits for the business. The confidence in our strategy, both domestically and internationally is reflected in our increased revenue guidance. This was driven in large part by the momentum we saw in our sales initiatives during the quarter and the marketing investments we are making the balance of the year. During the quarter, we saw comp trends improve sequentially every month. This was driven by stronger traffic across all U.S. concepts, particularly in in-restaurant dining. Importantly, this represent over 300 basis points of outperformance in traffic versus the industry on a three-year basis. We continue to execute against the comprehensive plan we established to build a stronger, leaner operation-centered company. This includes leveraging our leading off-premises business, growing digital capabilities, and improved operational efficiencies to deliver on our key commitments. These results would not have been possible without the talented and dedicated employees in our restaurants and the restaurant support center. I'm especially proud of the team's proactive response to aid and assist those impacted by Hurricane Ian. The storm hit the West Coast of Florida at the end of September, causing significant disruption to residents, our employees, and restaurants. Among their efforts, the team fed more than 11,000 first responders,…

Thanks, Dave and good morning everyone. I would like to start by providing a recap of our financial performance for the fiscal third quarter of 2022. Total revenues in Q3 were $1.06 billion, which was up 4.5% from 2021 driven by a $36 million increase in international revenue primarily in Brazil, as well as a 1.4% increase in U.S. comparable restaurant sales. In our U.S. concepts, we saw year-over-year traffic trends improved steadily throughout the quarter. The slower start to Q3 was driven in large part by lapping the height of the 2021 stimulus benefits, particularly in July. As the quarter progressed, trends improved as we began to lap the impact of the Delta variant from last August. This improvement continued into September. Importantly, Q3 sales were up 11% relative to 2019 and maintained a relatively consistent double-digit comp throughout the quarter. Of note, in Q3, we achieved an approximate 300 basis point outperformance relative to the industry in traffic on a three-year basis. Outperformance versus 2019 continues to be bolstered by our significant growth in off-premises dining. At 25% of U.S. sales, Q3 off-premises was in line with Q2. Additionally, the highly incremental third-party delivery business continues to grow and was 12.4% of U.S. revenues in Q3 versus 12% in Q2. In terms of concept performance, Outback total off-premises mix was 27% of sales and Carrabba's was 33% of sales. Off-premises remains sticky and is a large part of our ongoing success. It will be a key part of our growth strategy moving forward. Average check was up 8.6% in Q3 versus 2021. This consisted of 7.3% menu pricing and a 1.3% increase in menu mix. This level of pricing is 1.5% higher than the 5.8% that we had in the previous quarter. The increase in Q3 was driven…

Thank you. [Operator Instructions] Our first question is from Jeffrey Bernstein with Barclays. Please proceed.

Great, thank you very much. First question which is on the broader consumer Dave, you mentioned that it sounds like comps improve sequentially through the third quarter, just wondering if you think there's any impact from a slowing macro in there when you parse through the data on a two and three year basis? Whether you willing to share anything on October just because it does seem like industry is holding up pretty well. So I was wondering if you can give your thoughts on the impact from a slowing macro at all and what initiatives, would you implement if trends were to slow in coming months? And then I had one follow-up.

Sure, good morning, Jeff. Yes we see trends doing well. We have provided fourth quarter guidance. We've seen the sequential improvement in Q3. We provide a guidance which implies a comp of 3% to 6%, October was right smack in that range, it was good for us and we see that coming together in the quarter quite well and that's why we raised our revenue guidance, if you look at - what we're offering. We've tried to make sure that we've taken price increases below inflation to maintain our value equation and offer very good different types of things for our customers in our various brands. So, we want make sure we maintain the value equation and that's what be doing in case there was a macro slowdown. And I'm not here to predict a macro slowdown or recession, but I'm just saying, if that were to come to pass, I think we're well-positioned with some of our marketing offerings and what we understand with our business and our value offerings to address that. Finally, I think the company is in really good shape, given the improvements we've made in margins and in cash flow and our balance sheet to go forward.

Understood. And then the follow-up on the restaurant margins specific to 4Q, and I think more importantly, as we look to 23, I know you're not giving formal guidance, but it does seem like investment/investors have been excited that sales are holding up, menu pricing is outsized or at least to start the year, and let's hope that inflation's easing, which if those things were to all happen together, you'd see some significant potential margin recapture and earnings growth in '23. I'm just wondering whether you would agree with that assessment, especially around the inflation easing? Or maybe we're underestimating the potential headwinds that you look out to '23? Just trying to get a sense for that scenario of a potential big margin expansion if those factors would have come true. Thank you.

Sure. Hi, good morning, Jeff. Yes, we'll start with Q4. I think as it relates to Q4, the one thing that we have going for us in Q4 that we haven't had for the balance of the year is, as Dave mentioned, we've been pretty diligent about underpricing inflation for the entire year. There is sort of an inflection given the timing of some of our price increases where we will have more pricing relative to inflation than we've had in any quarter throughout the year. So that gives us a little bit of optimism, at least in the fourth quarter, that we can do better and opt margin on a year-over-year basis than maybe we have certainly in Q3. Now, look, I think as you look forward to 2023, the reality is if you look at this year and you look at where our margins are, we have a pretty strong operating margin and restaurant margin despite the record inflation that we've seen. The midpoint of my guidance this year is for that 7.5% or so range. And look, we're not - we didn't provide fulsome guidance on 2023 op margin at this point, I think it's still a little early. I think we have a long way to go to understand consumer demand environment and the inflation demand environment. But look, I would say this, I think we feel good about getting back to our operating margin commitment of 8% when the environment is normalized, right? And I think the - if you look at the technology enhancements that we're putting in place at Outback, that should be a real tailwind to helping offset cost pressures, but again, in a normalized environment. So I think that it's a little too early to say on margin. We can talk a little bit about commodities and things like that, but for the most part, we're just not going to get into '23 at this point.

Understood. But as you mentioned, have you locked in? I mean a lot of people are talking about beef easing but then there is a supply heard concern in the back half of next year. So just trying to get a sense for what your approach has been on inflation, specifically around beef as we look to '23. Whether you want to lock it now or whether you're not contracting because you expect prices to ease? Any color on that front?

Yes. So, 2022 is pretty much in the books. We're 97% or so locked on our pasture for this year. I think that it's too early to give definitive thoughts on '23. But look, we are optimistic it's going to be a less inflationary environment than it was in 2022. Certainly categories like dairy, seafood, chicken should be much improved next year. But look, you're right, I mean, when it comes to beef, there are indications that the beef market is still going to be inflationary next year, mostly driven by the potential supply constraints that you've heard all about. Given that beef represents close to 40% of our baskets, this could drive the entire commodity basket to be inflationary next year. We're also seeing pressure in categories like oil. If I were to place a number on it, the best estimate I can give you at this point is probably mid to high single-digit inflation next year. But the reality is that a lot is going to change in the next few months. If demand is stronger or less than expected, it's going to have a big impact on the outcome. Now, we begin our locking conversations in earnest on 2023 over the next several weeks and we'll be able to give you a more fulsome guidance in February. But yes, look, we always go into each year intending to lock up a significant portion of our overall commodity needs, particularly in beef because that level of supply assurance gives us a great deal of comfort as the year progresses.

Thank you.

Our next question is from Alex Slagle with Jefferies. Please proceed.

Hi, thanks. I had a question on the international operating margins. It seems like we're finally seeing more of the operating margin expansion really materialize in this business. But the relative overhead impact's seemingly narrowing. So, I'm just wondering how much of this is due to sustainable efficiencies and leverage in the business that you can continue as we get further into the future?

Yes. It's - we're really pleased with what we're seeing in international, especially Brazil and I'll talk broadly about that. First, I'll turn it over to Chris for some more financial details. But as we've talked about for a long time, that business is uniquely positioned as the number one restaurant brand, not only in its category, but the number one restaurant brand in the country. And we've got a terrific team down there that runs the business. Top line sales are extremely strong, new unit development is very, very strong. We're at 137 restaurants, on our way to the mid-200s. We've got - our off-premises business is a new layer for us that did not exist prior to the pandemic. They're doing a great job managing margins and what they're doing there. So, all that has come together to produce the performance that they have. And I think before I turn over to Chris, I just want to add that the growth that they're doing is funded internally. It's not like we're sending dollars down there to invest. They're just growing and growing and growing and as a result, they can fund their own internal growth, which is a very positive story.

Yes, look, I think it is sometimes an under-appreciated aspect of our ability to maintain margin. If you look at the restaurant margin line in Q3, it was 18.5% in what is seasonally somewhat slower time of the year. I think we said at the beginning of the year that Brazil's recovery would be a pretty significant part of our overall profitability picture this year and it's playing out exactly like we thought. I mean, it's business is just phenomenal. The 18.5% operating margin is 300 basis points or so better than it was a year ago. They're really on track to put together a really fantastic year after a challenging year last year amidst all the COVID restrictions.

Great. And on the other restaurant expense line you talked about, are there any temporary expenses in there or is it just really the buildup of all the higher energy costs that you talked about or anything else?

Well, look, yes. Operating expense, it's really primarily just the utilities inflation. I mean, like, if you look at the overall category just sequentially, restaurant operating expense, in Q2, we were up to something like 8% year-over-year in inflation in restaurant operating expense. And then you fast forward to Q3, and it was up 13%, right? Now, I think it's hard to say how long that utilities pressure lasts but certainly I would expect it to continue into the fourth quarter. I think that you would start to get relief again, to be honest, when you start lapping these accelerated increases sometime in the middle of next year unless there's any fundamental changes in energy pricing sort of in the macro environment. But that's kind of how we see at this point.

Got it. Thank you.

Our next question is from Lauren Silberman with Credit Suisse. Please proceed.

Thank you. I'll just start with customer behavior. As you look across your brands, are you seeing any signs or changes in customer behavior trade down tech management? And to the extent possible any sense of differences amongst your lower income versus higher income cohorts?

Yes. We get - with our - Good morning. With our portfolio, we get a broad look at the consumer. And so, if you look at it, we've got some interesting combo offers at Outback, they're doing really well. We've got some prefixed menu items at Bonefish, they're doing really well. And then we've got the high-end consumer. And so far, we have not seen a major change in trend among the various consumer basis. And if I would say one thing, fine dining continues to do extremely well and Fleming's within fine dining does really well. So, we're seeing the dynamics there still do well across our entire portfolio. The one area that is also really interesting, before I turn it over to Chris for any other comments, that is also interesting is our third-party delivery also is very vibrant. So that consumer is doing well as well.

Well, the only thing I would add is, Lauren, good morning, is that we're not seeing any negative mix trends, right? Q2 was still positive 1% or so. I think that mitigates some in Q4, but we don't expect it to turn negative. And I think that if you're using mix in terms of what am I choosing when I come into the restaurant on menu, we're not seeing negative mix trends at this point, which is an encouraging sign that the consumer is hanging in there.

Great, that's really helpful. And then just on marketing. How are you thinking about advertising from here? And just in the third quarter, where was advertising compared to historical levels? Just trying to understand broadly what you're seeing in the promotional environment. Thank you.

Yes. One thing we learned during the pandemic was, we really have an outstanding understanding of our marketing and we're thrilled that the world is going more and more digital, which gives us flexibility. We have a great understanding of our return on investments. And so there's been - we've seen some really good returns on our marketing spend. So it's been a bit of a step up in marketing spend and Chris will talk about that in just a minute. But you're going to see us in a more digital environment talking about the value we offer every day. You won't see a lot of discounting from us. We think we've got our menu prices in line, we think we've got some great offers in line. We understand the digital marketing piece, we can flex it up and down, and we're really pleased with the returns that we're seeing on our marketing.

Yes. And then in terms of the overall spend trend and where we've been, it really depends on the comparison that you're looking at. Certainly, if you go back to 2019, we were spending 3.5% of our sales on marketing, but if you look at last year, it was closer to 1% to 1.5% of sales on marketing, right? So this year, we're in that two - last couple of quarters we've been in that 2% to 2.5% range on overall marketing spend. I think the one thing in terms of the financials that we've committed to is, look, we're not going back to spending 3.5% of sales on marketing long-term. I think that somewhere in the twos is probably where we settle in long-term. But we're obviously going to reserve the right to flex that within t that 2% to 2.5% to 3% range based on what we're seeing from a returns standpoint.

Great, thank you very much.

Our next question is from John Ivankoe with JPMorgan. Please proceed.

Hi. I wanted to ask about just the relationship between pricing and traffic. I mean, many of us are kind of talking about pricing to cover costs. But I'm just wondering what you kind of see as the consumer sensitivity? Looking at your table, for example. I mean, there is almost a perfect inverse correlation between the increases in average ticket and the decreases in traffic, at least on a one-year basis. So, the point of the question is that, I mean, do you think that you're actually out pricing at least a certain percentage of your customer base? In other words, is your pricing, is the industry's pricing responsible for some of the traffic declines or would there traffic declines in your opinion be the same even with a much less degree of pricing than you and your competitors are taking?

Yes, I think it's important, John that we've seen a sequential improvement in traffic during the quarter. And we're guiding to that in Q4. And we have specifically not priced up to level some of our competition. And interestingly, we have not priced up to the level of food and grocery stores. So, I think it's what we do as a company can continue to make progress. And we've talked about some of the things that we are doing, which is some of our menu offerings in innovation. Some of the combo meals that we've done, some of the prix fixe menus at Bonefish, and also some things that Carrabba's is doing. Our operating scores - our consumer scores are improving every day. These are the things that we're going to do to build on traffic. And I'd also say, John, as you know, 2021 as far as the lap standpoint. During the quarter, we were lapping some pretty heavy stimulus spending still. So, we saw a sequential improvement in traffic during the quarter, we will continue to see some - hopefully some improvement, and I think we have the actions in place to make it work.

Yes, and the only thing I would add, John is, and I know your question isn't really a Bloomin' specific question, it's more of a broader thought. But I do think it's a really important perspective for our company that if you look back at 2021, we only took 1.5% or so percent menu pricing in 2021 relative to where we were in '19. So, when you look at our decisions, our total fiscal year 2022, we're only going to be around 8% to 8.5% pricing benefit on a three-year stacked basis, which is really relatively low in this environment. So, we are being very thoughtful about menu pricing for the reasons that you talked about.

Okay, all right. A separate question, if I can. Dave, in your prepared remarks you talked about pursuing food, labor, and overhead efficiencies. Is that related to handhelds, KDS, the cooking tech - the changes in the cooking technology specifically at Outback? Or are there other big buckets that after all these years, I mean, we've been talking about it now for 10 years, but are there other big buckets that still remain that you can pursue that are going to benefit the customer and employee experience?

Yes, two big buckets, John, and we're always looking at our organization to invest where we need to invest and pull back where we need to pull back. And I think you have mentioned over the years that you've been impressed with our efforts on overhead and things and I think the company is in really good shape there, but we'll continue always to look at things. But most importantly, we have two big buckets of opportunity and productivity to both improve customer service and to reduce costs and that is the other rollout at Outback, which will be done in the middle of next year and then the tablet rollout at Outback, which will be done at the end of this year. And in February, we will provide for our investors what we think the financial implications are for that on a productivity side, but we also see a large sales opportunity from a standpoint of faster cook throughs and table turns, better accuracy. And this is - we are seeing this in the restaurants where they are in place. We're up to - 35% of our restaurants have ovens now and a lot of high volume restaurants. So, we're seeing that. And then secondly, we're going to task our supply chain organization to continue to provide productivity opportunities for the companies, while improving quality of the food and food availability to our restaurants where they've done a great job. So, supply chain productivity is a big part of what we have planned for next year as well. So, those are the two big buckets, John.

Thank you.

Our next question is from Jared Garber with Goldman Sachs. Please proceed. Jared, please check and see if your line is muted.

Hi. Can you hear me?

Yes. Go ahead.

Okay, great thanks. Thanks for the question. Dave, I think in the opening remarks, you talked about catering being a big opportunity, not only going forward but I think maybe more specifically in the fourth quarter, just if we think about the near term. Can you talk a little bit more about that and maybe where you've been in terms of penetration in years past, and maybe where that can go and how that - how you see that impacting the fourth quarter this year? Thanks.

Yes, a real shout-out to Carrabba's Italian Grill and the team, they've done a fantastic job on catering. Obviously, the food for them travels well but they've transformed that business for us and showed us the way. And with the holiday season coming up and people returning to offices and stuff, this is going to be even a bigger opportunity for Carrabba's. So, hats off to the team for doing that. Now, what we got to do is, the rest of the company needs to come along like Carrabba's and perform like Carrabba's. I've talked to our various brands about that. And Carrabba's has shown us what we need to do, we put the resources in place to do the sales and catering. So, with the Carrabba's example, we think that certainly Bonefish and Outback especially can come along and do a great job in catering and we expect to see even more progress within our brand, but also Carrabba's to continue to lead the way. Lastly, Fleming's has done a really great job with catering and private dining. We see a tailwind, with people coming back to work and having office parties and holidays, we see a tailwind from Fleming's Prime Steakhouse this holiday season.

Thanks, that's great color. And I guess your commentary on Carrabba's certainly is continues to be encouraging, as do the results, and sort of begs the question, and maybe I've asked this before so apologies, but in your remarks on unit growth, I think Carrabba's maybe was the third priority after Outback and Fleming's. Why not lean in more on unit growth at Carrabba's and - maybe you are, but can you maybe frame for us the longer-term opportunity that you see there? At only 200 units right now, it would seem like the opportunity is certainly there for the picking. Thank you.

Yes, this is an important point. Carrabba's has earned the right to expand. And Mark Graff, who runs development is working with our team there to identify those opportunities. We are working on the - much look at Outback, working on the box, we're working on the economics, working on a business that has 35%, 40% off-premises, which is just amazing. And we think we have expansion opportunity here that's really great. In fact, I was just talking with our Board about that last week. So, look for Carrabba's. Now, what are we going to do besides working on the box? We're going to expand in our stronghold markets, first and foremost, Florida, Texas, Tennessee, Georgia. Those are the areas that we're really looking at. And the other interesting thing, we have opportunities with our restaurants, but the other interesting thing about Carrabba's is, is there a delivery carry-out type business that we can build as well there? But kudos to the brand and the team between sales and profits and everything else and leading the way. Lastly, we did open our first Carrabba's in quite some time in Tampa. I know it's our home market but the sales have just been off the charts. So, high hopes for the brand.

Thanks, Dave.

Our next question is from Jon Tower with Citigroup. Please proceed.

Great, thanks. Just a follow-up first and then a question. First, on the pricing side, can you talk about where you're running in the 4Q and then perhaps what carries over into 2023, assuming that there's no other price taken?

Yes, sure. So, let me maybe unpack that a little bit for you. So, as we said in the prepared remarks, I'd expect check average benefits to be between 9% and 10% in Q4. And as I said, most of that is pricing. So, we will be in the 9% to 9.5% pricing range in Q4. Some of that higher Q4 number's just a byproduct of when we took the pricing actions. So, we basically moved up our normal late November pricing action to late Q3 to cover the higher restaurant operating expense inflation we're seeing. So, to start if you go back to Q2, we had almost 6% pricing. Then, we added 3% pricing in late August mostly at Outback. Now, in early October, I'm adding another 2% pricing action mostly at our other brands. Then, in late November, 3% pricing falls off. So, I exit the year at about 8% pricing. Then, in Q1, you have another 1% that's going to fall off. So, I would expect to be in the 7% or so range exiting Q1. But again, just to reinforce, it's really important to remind everybody that we only had 1.4% pricing in 2021. So again, this year, if you look at the total year pricing coming in around 7%, our three-year pricing is going to be like 8% to 8.5%. So, that's relatively low in this environment.

Awesome. Thanks for that color. I appreciate it. Just kind of pivoting a little bit on the off-premise, specifically the delivery business, I think, as mentioned earlier in the transcript about 12.5% of your sales in the third quarter coming from delivery channel. I'm just curious how you're planning for - it doesn't seem like we're getting signals that the economy is going to roll over and soften and it appears that the delivery channel is probably the most discretionary occasion within the restaurant industry. So, I'm curious to hear how you're planning for a potentially softer demand environment in the delivery channels specifically?

Yes. First of all, I've been involved in the delivery business for many, many years with young brands and then now here. The delivery business is really strong and the customer has a habit - and I mentioned in the - either an earlier question or in my prepared remarks, I can't remember, but our third-party delivery sales continue to be really great. And I think people, Jon, get in the habit of ordering. Now, we can't just rest on our laurels, we have to be ready. We've got tremendous bundles, family bundle offers that if you get them, you get a large amount of food from Bonefish and from Carrabba's and from Outback. And that, we will play up in a big way, number one. Number two is, we have a terrific partnership with our third-party delivery providers. There are - each of them really like working with us and we have a great relationship with each of them and we've leveraged that over the year. So, that will continue to be an opportunity for us. So, in summary, we're finding that the delivery customer's pretty sticky, but we can't rest on our laurels. We've got wonderful value propositions with high-quality food and strong relationship with our third-party partners.

Got it. Thank you.

Our next question is from Brian Vaccaro with Raymond James. Please proceed.

Thanks, and good morning. Just circling back on food costs a little bit. Chris, where did Q3 commodity inflation land for the quarter and what have you embedded in terms of year-on-year inflation in the fourth quarter on food costs?

Yes, it's probably around 13% to 13.5% in Q3 and then it will be around the 12% inflation in Q4 for overall commodities.

Okay, great, thank you for that. And I guess the other question I had was on labor. With the recovery in dining that you're experiencing, I'm curious to what degree you've added hours back into the box? Maybe you can level set where current staffing levels are versus where you need them to be to deliver a good dining experience? Maybe you could just touch on that a bit?

Yes. First of all, like I mentioned earlier, Brian, I'm going to start here. Our customer measures at Outback versus the industry and competition are really strong. We've made big improvements in many different ways and we're very, very pleased about that, which will help us over time, grow comp sales and take share. Our staffing levels, the market is much better than it was, say 18 months ago, still pockets of challenges, but the thing that we've seen, Brian, with our productivity efforts and our good services, we're not back to staffing hours and levels of, say at 2019. And we believe that our restaurants are - we have pockets of opportunity obviously, but our restaurants are in really good shape from a staffing standpoint. And as we mentioned earlier, with the handhelds and the oven technology, that will give us opportunity to further manage labor hours in the restaurants and offer opportunity for us to improve service as well. So, I don't think you'll see us go back to labor hours of prior years as we go forward. While, importantly, while we're improving customer service and we're seeing that in our external metrics that people provides us.

Okay. And as the labor market has loosened and I think we're lapping sort of the outsized inflation rates that we saw as everybody was scrambling to hire people in the second half of last year. I'm just curious on wage inflation. Where's wage inflation in the third quarter and are you starting to see year-on-year inflation press, if not sort of disinflate moving into the fourth quarter?

Yes. So, this is how it carries. So, first of all to answer your first question, your total wage inflation is about 9% hourly, a little higher than that, management is a bit lower, but total wage inflation was 9% in Q3. It probably steps down by 1.5% or so in Q4, just given what you're lapping from last year. I would say - the way I would characterize sort of that hourly wage inflation is that, obviously, it's still inflationary year-over-year, but from a sequential standpoint, the rate of increase has slowed down. So, we have seen some normalization. It's still going up every quarter but it's normalized versus the pretty steep levels that we were seeing sequentially each quarter, certainly earlier in the year.

Okay. And then last one from me, just on capital allocation. I'm curious, how does the higher rate environment impact your appetite for share repurchases for - versus paying down the revolver? And can you just remind us sort of on the dynamics of the remaining convertible note, is there a potential to remove that overhang in the near term, that dilutive overhang? Thank you.

Yes, sure. So, look, I don't think our capital allocation strategy or thought has changed - excuse me, has changed too much, it's going to be balanced. And I guess the best way I can characterize it is, you think about it, we used to make, back in 2019, $400 million of EBITDA. And now we are a company that sustainably is generating $500 million of EBITDA for the past couple of years and that gives us a lot of optionality with respect to use of cash. And so we're going to prioritize it this way, we're going to allocate sufficient funds to fund our growth areas that Dave's talked about via capital expenditures. Second, we're going to look at the peers who we admire in this space. And look, they have very little debt in their capital structure and that gives them a ton of flexibility. So, we're always going to be conscious of our debt ratio when we make those decisions, particularly in a more uncertain consumer environment. And we do believe also that a healthy dividend is an important sign of confidence in the health of our business and it provides longer term investors with a stickier return. Look, I think we do think that our stock is undervalued. And we're going to make share repurchase as a part of that strategy and we're making good progress on our $125 million authorization. So, I think that rather than look at it like in an uncertain environment, the shift, I'm going to say, look, we still feel like we have adequate flexibility to do a lot of different things with our free cash flow, which is really, really good. In terms of the convert, that's another thing that we can consider, right? I mean we continue to monitor the environment. We will continue to monitor it next year to see if it makes sense to take out either all or a portion of the remaining convert. I think the thing to keep in mind with the convert though is that it is - you are going to have to pay a bit of a premium to retire it early. And that is a use of cash that I potentially could use for something else like debt pay down, dividend, or share repurchase. So, we're just going to have to weigh that optionality next year as part of the calculus with - when we're allocating our free cash flow.

All right, very helpful. Thank you.

Our next question is from Brian Mullan with Deutsche Bank. Please proceed.

Hi, thank you. Just a question on Outback. The average weekly sales are running nicely above 2019, but it does seem like perhaps the dining room traffic is down a decent amount relative to three years ago. You're spending less on marketing dollars. It seems like it was a very smart thing to do for the business? My question is just besides spending less on marketing, is there anything going on with the Outback consumer or the industry that you might call out contributing to this? And do you see a path to fully recapturing that dining room traffic over time?

Yes, no, we'll continue to improve on dining room traffic as we go forward. I've talked about some of the initiatives we have in place. The work we're doing on marketing, the work we're doing on some of our product innovation, the work we're doing in our ovens and handhelds as we improve table turns and things. So that will continue to move forward for us at Outback. We don't - as we mentioned earlier, we don't see anything particular to consumer dynamics that concern us. It's a matter of what we're doing in our business to continue to grow that traffic. Now what we'd have to also do at the same time is grow our delivery and carryout business, which we will also be doing. But from a specific in-restaurant dining standpoint, those are the three or four things we're concentrating on to improve our performance.

Yes and we had to unpack a lot of this last Q3 when we talked about Outback's performance relative to 2019. The lack of the promotional in the LTO and the discounting activity from 2019 is a very, very steep number. In fact, we're right now in the middle of lapping the stake lobster promotion from 2019 that we talked about at some length last year. So look, I think that, that is going to have an outsized impact on traffic. But I think that that's a trade we're willing to make. And I think that now the key for us is to build back using the levers that Dave discussed to healthy in restaurant traffic moving forward.

Okay, thank you. And just a follow-up question on G&A, just at a high level I'm wondering, is there a path to getting that G&A down below 5% of sales over time? And if so, does that have to come from sales growth or are there may be some built some opportunities on the corporate side to reduce the G&A dollars on an absolute basis. Dave, you might have alluded to this in the priorities, but I'm just wondering if you could provide additional color on how you're thinking about this topic?

Yes, the good news is we've made some really tough calls on G&A over the years, and we're in great shape. The good news is, as G&A as a percent of sales, you can do it by growing revenue and you can do it by managing costs. We will always be prudent in managing our costs. But I don't anticipate any major massive restructurings or anything like that to achieve these targets. So, we will invest where, we need to invest, and we'll pull back where we need to pull back. But I think if we can keep our overhead growing slowly and then have revenue exceed that, we can get to that 5% range. And I think 5% range is a good base camp for our company, 5% of revenue. So that's what we're shooting for, and we've taken a lot of tough actions already.

Thank you.

Our next question is from Andrew Strelzik with BMO Capital Markets. Please proceed.

Hi good morning, thanks for taking the questions. My first one, I just wanted to go back to the commodity inflation outlook that you provided. And I completely understand that's not a formal guidance, but mid to high single digits for next year potentially as a first look? I would have thought that you were above the market on beef, just given your aggressive locks there and what you said about 4Q. So is there anything else in the basket just that we should be aware of as we kind of evaluate what that might look like for next year?

Yes, I think that there's some - like I said, there are some good guys and there's some bad guys, I think, as it relates to sort of how we're thinking about next year playing out, beef again, being inflationary makes sense. Oil is the other one, right? I think that oil is being diverted to other uses. There's some pressure in the marketplace. Oil will tend to be pretty inflationary next year. And then things like French fry, I mean, there's just other categories where we just aren't seeing some of the relief that you might have expected from a commodity standpoint. And that's not to say that there's, not things that are going to break our way or things that are going to be more benign from an inflation standpoint. Certainly, things like I called out like chicken, dairy, seafood, areas like that should be more benign next year. But look, I mean beef's 40% of our basket, and that's going to really drive a lot of our outcomes as it relates to our overall commodity outlook for the year.

Got it, okay that makes sense. And then the other one is just on your value scores with a couple of price increases here over the last couple of weeks, understanding that you're lagging kind of the peers lagging the food at home. Are you seeing that show up incrementally in your value scores as you're kind of evaluating additional price increases going forward or the magnitude of what you're taking prices here in these last couple?

The really great news is not only our operating score is improving, but our value scores are improving, and that's not our own internal forecast, that's third-party data. So we feel great about where we're going.

Okay, great thank you.

And our next question is from Dennis Geiger with USB. Please proceed.

Great, thank you. Wondering if you guys could speak a bit more about the development opportunity across the portfolio. Recognizing you'll provide more color on the next call regarding 2023, but anything at a higher level that you can share about the strength of the needed pipeline? The returns currently on where the key opportunities are supply chain, perhaps all kind of within the context of the work that Mark and the team are doing and within the context of kind of that longer-term 2% to 3% target. Just curious if there's anything additional you can share there at this point? Thank you.

Yes, I am very pleased with where we're going. The smaller box what we refer to as the Joy box at Outback is opening very well, providing excellent returns at lower cost. And we're building in our stronghold markets, and we're seeing really great performance in Florida, for instance, and other places. So that, for us, is a massive opportunity to grow this business and build a pipeline that makes some sense at Outback. So that's number one. And then secondly at Outback, the relocation program for us. I talked about in prepared remarks, we opened those things up. They're doing $4.7 million so way above the system average. So we know that we have a site with our brand at Outback, we got significant sales increases. So that's number two for us. Number three, I talked about Carrabba Italian grill and they've earned the right to expand. And so we'll talk to that more in the future, but we're very excited about building out that brand. Number four, Fleming's Prime Steakhouse, you've seen their numbers. The profitability is very strong. We're getting some wonderful sites. We're opening up a new one in Fort Lauderdale in December. You'll see more in California, Texas and Florida. So Fleming's will be opportunity for us to continue to grow that business, and we're very excited about that. So that's the third one. Then lastly, I'd be remiss if I didn't talk to our success in Brazil, Outback Steakhouse is expanding there. If we talked about, we're at 137 restaurants we think we are on our way to 240. They're opening up Abbraccio, which is their version of Carrabba's. So that's an opportunity for us. They're funding all of this with their own free cash flow. And then finally, I want to call out our franchise partners in Korea. They've done a great job opening up restaurants and building that business. So very pleased with the work that they're doing. So those are the development opportunities we have. It's our business presidents and the task of our real estate team to get that pipeline more vibrant and moving. And I'm very optimistic that we're going to be able to do that and do it within the construct of the balanced capital strategy that Chris talked about. Lastly, we have a very robust post completion process, so we can adjust things as they say fit. And so you can count on our utilization of capital to be very prudent and good for the shareholder.

Great, I appreciate that incremental color. Just one more then if you could speak to the rewards program at all and sort of what's the latest with respect to engagement benefits you're seeing with the customer with the program? And kind of on the look ahead, the potential for the program as you think about it as sort of a marketing efficiency tool, CRM tool and really just the broader opportunity for the program if there's much incremental to highlight there? Thanks guys.

Yes Dennis, we've got 13 million Dine Rewards members. It is underutilized. We have very loyal people there. We love the program that we have. We want to continue to use it with various marketing programs and really reward and recognize those customers. I'm not - for competitive reasons, I'm not going to get into some of the things that we're thinking. And in the future, we would love to think through some partnerships, but it's something that we've been talking about internally to more strongly bring that program to life because it is something that's well established in our system.

Great, thanks Dave.

That concludes our question-and-answer session. I would like to turn the conference back over to management for closing comments.

Well, thank you, everybody. We appreciate you for joining us today. We look forward to updating you about our company in February on our next earnings call. Thank you.

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