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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings and welcome to the Bloomin’ Brands Fiscal Second Quarter 2018 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, Mark Graff, 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 Liz Smith, our CEO; and Dave Deno, Executive Vice President and Chief Financial and Administrative Officer. By now, you should have access to our fiscal second quarter 2018 earnings release. It can also be found on our website at www.bloominbrands.com in the Investors section.
Throughout this conference call, we will be presenting 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 growth strategies and financial guidance. 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 recap of our financial performance for the fiscal second quarter 2018, an overview of Company highlights, a discussion regarding progress on key strategic objectives, and an update on 2018 guidance. Once we’ve completed these remarks, we’ll open the call up for questions.
With that, I now like to turn the call over to Liz Smith.
Thanks, Mark, and welcome to everyone listening today.
As noted in this morning’s earnings release, adjusted second quarter diluted earnings per share was $0.38, up 41% from last year. Combined U.S. comp sales were up 2.4% in the second quarter. We are very pleased with the results this quarter.
Q2’s performance marks the sixth consecutive quarter of sales outperformance versus the industry. This reflects a continuation of the momentum we have built over the past several quarters as we made substantial progress behind our growth strategy. This strategy is centered around the reallocation of spending, away from discounting, while concurrently reinvesting back into the customer experience.
We are also focused on incremental sales layers to further accelerate momentum. This includes shifting our media spend from mass marketing to mass personalization, the Dine Rewards royalty program, and the rapidly growing off-premise business. We believe these investment priorities are appropriately aligned with customer preferences and that our momentum and share gains will continue. We will deliver a strong annual performance while we invest in initiatives that support long-term growth.
Now, turning to the brands.
Outback comp sales were up 4% in the second quarter with traffic up 0.6%. This is Outback’s fourth consecutive quarter of positive traffic. These results came despite a 14% reduction in overall marketing spend within the quarter. It is clear that the investments we have made to elevate the customer experience are driving healthy sales growth. As a reminder, these investments include enhancements in steak preparation and portion sizing, reducing complexity within the restaurants, and improved ambience through our remodel program.
Ensuring our assets are current remains a top priority. We are testing multiple design prototypes for our new interior remodel program. We are starting a rollout of this initiative in the second half and anticipate it will deliver approximately 3% traffic lift, consistent with our prior interior remodels. We expect to substantially complete this program within the next three years. In addition, we are relocating our Outback restaurants as quickly as quality sites become available. Given the strength of the pipeline, we are on track to relocate 14 restaurants this year. Our relocation program continues to deliver impressive results and recent relocations are generating a sales lift well in excess of 30%.
Beyond relocations, we are building the pipeline to add an additional 50 new Outback restaurants where significant opportunity exists. We will keep you posted as we make progress. We feel very about Outback. The brand is well-positioned to take share as it has the proper balance of great brand experience, strong marketing, and growing customer attachment.
On our other domestic brands, we remain focused on funding investments that support our ability to provide the highest quality food and service. At Carrabba’s these investments include our highly successful Wine Dinners, Amore Monday’s enhanced portion, and growing off-premise occasions to drive healthier traffic.
As we indicated in our prior calls, we are reducing our reliance on discounting, which was down 44% in Q2 versus last year for this brand. We have also doubled the available dollars for partners to engage in local marketing in their communities, as we shift marketing spend away from national TV and LTOs. We are confident these investments strengthen Carrabba’s differentiation, authentic Italian dining in a chain format.
At Bonefish, we have empowered our partners to resume sourcing fresh fish specials locally for their restaurants and are migrating marketing resources away from national, towards more local programs. This local philosophy helps define Bonefish as the unchanged chain and is paying off in sales and profitability.
And at Fleming’s, we rolled out a new, simplified menu that has improved our execution and consistency. Moving forward, Fleming’s will work on differentiating the brand from the traditional, high-end steakhouse to a localized menu selection and customer segmentation.
As we make these necessary investments, we continue to reduce the role of discounting. In the second quarter, discounting was down 19% collectively across the portfolio. This reduction did have an impact on traffic, particularly at our smaller brands, but it has had a positive impact on profitability. Bonefish and Fleming’s are on track to achieve record profits in 2018. As the second half of the year unfolds, we will continue to wean promotional traffic from the base and replace it with more-sticky, high-value consumers. We are confident this is the correct strategy to continue to build healthy traffic and grow margins.
Our successful Dine Rewards loyalty program now has over 6.6 million members. This program is performing very well and driving strong engagement across the portfolio. We will evolve the program to even further leverage the customer segmentation opportunities provided by the data. Our investments in CRM strengthen engagement to more customer-centric communication, while providing a higher return from marketing spending.
Turning to off-premise. It is becoming increasingly evident that the potential for off-premise and delivery provides a large and incremental tailwind for casual dining. As a part of our plan, we established targets for several metrics, including delivery time and deliveries per location. In Q2, a majority of our existing 240 delivery locations began to consistently hit those targets. And as a result, we are now resuming our rollout of delivery to another 200 locations. We anticipate having this next phase completed by the end of the year. In addition, we now have five express locations in tests, which combined Outback and Carrabba’s in the delivery and takeout-only format, and we expect to open one more this year. We continue to be patient and deliberate as we build our off-premise capabilities to meet expectations of customers in this all-important occasion.
Moving to International. Brazil comp sales were down 6.1% in the same quarter. Our Brazil business has consistently stayed strong through some very difficult economic challenges over the past several years.
Recently, however, a growing level of unrest, leading up to the upcoming Presidential election, has led to protests and strikes that has had a significant impact on both the consumer and businesses. In the second quarter, a lengthy truckers strike badly hurt the Brazilian economy, causing supply shortages and transportation gridlock that resulted in numerous lost operating days for many businesses including our restaurants. In addition, security concerns in Rio have had an impact on late-night traffic. These dynamics are more event-driven and are not a reflection of the underlying health indicators of the Brazilian economy. GDP is set to accelerate this year to 1.6%, its strongest performance in four-years. In addition, reduced inflation and interest rates are having a positive impact on consumer demand and disposable income.
Therefore, we believe the current situation in Brazil is likely more temporary. We are already seeing stronger trends and expect that to continue. Once the political situation is settled following the October Presidential election. We believe consumer confidence will resume the upward trend it has been on for the last few years. The demand and love for our restaurants remains high, and we are performing well in a difficult environment. For perspective, we expect our year-over-year adjusted operating income excluding ForEx will only be down approximately $4 million. Most-importantly, we remain well-positioned to continue to grow and take share in an underpenetrated casual dining market. On balance, we feel very good about the quarter, and we remain confident that 2018 will be a successful year at Bloomin’ Brands.
Before I turn the call over to Dave, there are two things I wanted to say. First, we have received inquiries from shareholders regarding my stock sales. For background, I joined Bloomin’ Brands in 2009 and at that time the board granted me stock options that expire in 2019. I will exercise these options prior to their expiration and expect to sell the underlying shares in an orderly fashion. I still retain significant holdings beyond these legacy options. And last and most importantly, I want to thank our managing partners and JDPs across our core concept for the dedication and support in taking care of our customers and our people, everyday. Your passion and pride in our branch which was so evident when we were together in April at our annual partners’ conference is the key to our success.
And with that, I’ll turn the call over to Dave Deno to provide more details on Q2. Dave?
Well, thank you, Liz, and good morning, everyone.
I’ll kick off with discussion around our sales and profit performance for the quarter. Before I begin, I’d like to remind everyone that when I speak to results, I’ll be referring to adjusted numbers that exclude certain costs and benefits. Please see the earnings release for reconciliation between non-GAAP metrics and our mostly directly comparable U.S. GAAP measures. We also provide a discussion of the nature of each adjustment. With this in mind, the second quarter financial results versus the prior year were as follows.
GAAP diluted earnings per share for the quarter was $0.28 versus $0.34 in 2017. Adjusted diluted earnings per share was $0.38 versus $0.27 last year, up 41% versus 2017. The primary difference between our GAAP and adjusted EPS results is related to our international restructuring efforts in 2018. Total revenues decreased 0.4% to $1 billion in the second quarter. The decrease was driven primarily by domestic refranchising and the impact of foreign currency translation. This was partially offset by the net impact of restaurant openings and closures, and increases from higher U.S. comp sales. Combined U.S. comp sales finished Q2 up 2.4%. By concept, comp sales at Outback were up 4%; at Carrabba’s, comps were down 0.6%; Bonefish comps were up 1.5%; and at Fleming’s, comps were up 0.3%.
Adjusted operating income margin was 4.1% in Q2 versus 4.4% a year ago. Adjusted operating margins were negatively impacted by wage inflation and commodity inflation as well as lower sales performance in Brazil. These decreases were partially offset by increases in average check, productivity initiatives and lower advertising expense. It is important to note that U.S. segment adjusted operating margin was up from last year. Our International segment margins, which are largely driven by Brazil, were lower year-over-year. Domestically, our margin improvement is being driven by higher quality sales and our ongoing productivity efforts. We will have adjusted operating margin growth this year on a 52-week comparable basis and are committed to closing the gap to our peer group.
The Q2 adjusted tax rate was negative 15%. This was lower than expected due primarily to the tax benefit of legacy options exercised within the quarter. In total, we had $6.2 million of excess tax benefits from option exercises in Q2, and this tax upside was worth $0.07 of EPS. The timing of these stock option exercises is difficult to predict and therefore any future benefit or expense is excluded from our tax rate guidance for the year. Given the large benefit in Q2, we have updated our tax rate guidance for the year, and I’ll discuss that more in a moment. Although our tax expense is negative for earnings purposes, we do anticipate paying our share of cash taxes for the year. On the development front, we opened eight system-wide locations in the second quarter, including seven international locations, and one express location. We have repurchased $81 million of stock so far this year. We will continue to opportunistically repurchase stock and return cash to shareholders.
I would now like to take you through some thoughts on our 2018 guidance. First, we now expect our adjusted tax rate to be between 4.5% and 5.5%, and our GAAP tax rate to be between 2.5% and 3.5% for the year. Our tax rate is expected to be lower due to excess tax benefit of certain legacy stock option exercises that I mentioned earlier. Second, we are increasing our U.S. comp sales guidance from between 1% and 2% to 1.5% to 2.5%. This is driven by the sustained strength of our Outback business. Third, our adjusted earnings per share guidance remains unchanged, $1.38 to $1.45. This represents growth of between 16% and 21% from 2017. We decided not to raise our adjusted EPS guidance. We think it is prudent given the uncertainty of leading up to the elections in Brazil, combined with an expected foreign currency impact of negative $3 million in the back half of the year. Therefore, our 2018 adjusted EPS guidance assumes the stronger-than-expected U.S. comp sales and our lower-than-expected tax rate, and that will be offset by lower profit in Brazil. Again, as Liz mentioned, trends in Brazil are improving and we’ll provide an updated perspective on the next call.
Finally, we are reducing our U.S. GAAP EPS expectations to be between $1.24 and $1.31. This change is driven by impairment expenses from our international restructuring efforts in Q2 of 2018. These changes do not impact adjusted earnings per share. All our aspects of our 2018 guidance remain intact.
A final note of our 2018 results. It is important to remember that we expect a large shift in incentive compensation between Q3 and Q4, driven by 2017 performance. Q3 2018 is expected to include $8 million negative impact from year-over-year changes in incentive compensation as we reduced incentive comp in Q3 2017. We expect this will reverse itself in Q4 where we anticipate $9 million year-over-year benefit in incentive compensation as our 2017 ended better than expected. Please keep this in mind as you assess our quarter results.
In summary, Q2 was a very good quarter for Bloomin’ Brands. We remain confident that we are making the right and necessary investments to support long-term growth. Clearly, our investments in the core customer experience are paying off. We remain disciplined stewards of capital and our improving capital structure provides increased flexibility to return cash to shareholders.
And with that, we will now open the call for questions.
Thank you. [Operator Instructions] Our first question is coming from Michael Gallo of C.L. King. Please go ahead.
Hi. Good morning. Congratulations on the domestic business. My question is, obviously, you’re able to achieve that, despite a 14% reduction, I think you said in marketing at Outback as well as a 19% reduction in discounting. Even going though the reduction and discounting, rolling across brands, I was wondering how we should think about those two metrics in the back half of the year and sort of when we should think about that you start to start to lap that. Obviously at Outback, to some degree, you already have, but some of the ancillary brands, when we should start to see those kind of start to catch up?
So, just for perspective, I will talk about the two things, discounting and then total marketing. Total marketing was down on a year-over-year basis and in the first half, but it is not going to be down in the second half of the year for total marketing. For discounting, we feel really good about the 19% reduction as we continue to rely on the natural levers that we have driven at our value added which allow us to drain the discounting out. However, we do feel like we’re approaching that. We do see the trends on the back half of the business, on the other businesses. We do expect those to strengthen. And as we head into next year, we believe we will kind of be fully lapping that discount reduction. So, again, as we reduce the discounting and shift towards celebrating the 360-degree experience. We are getting to a point where we are going to be leveling off. And then, as we head into 2019, we see those trends turning positive.
And as you pointed out on Outback, we have all the levers qualified. So, it’s kind of already building. The momentum is building quarter-over-quarter.
Our next question is coming from Jeffrey Bernstein of Barclays. Please go ahead.
Two questions. One, just on the U.S. comp, I’m wondering if you can talk a little bit about. I know you don’t give intra-quarter color anymore, but maybe sequential trends through the second quarter, and whether or not you can prioritize the drivers. Because it does seem like the industry and the broader consumer is getting better relative to how you think Outback, maybe if you could prioritize whether it’s off-premise, Dine Rewards or remodels? Kind of how you think the interplay between the industry getting better and your specific initiatives? Because, it does seem like maybe the gap to the industry is narrowing a little bit versus the core Outback? And then, I had one follow-up.
Sure, Jeff. As you said, we don’t give intra-quarter guidance because we don’t see it as constructive. But, I do want to talk about the investments and what we are seeing in Outback. We are very pleased with the 4% comp on the quarter. Clearly, the investments in all of our growth levers are really working. So, in terms of prioritizing impact, there is no kind of what I’d say one lever that’s carrying the day. Why we feel so good about it is, this is broad-based growth. So, certainly our investments in elevating the customer experience is working and we are seeing that in customer satisfaction scores and traffic. We are also getting a strong payback on our CRM initiatives, data personalization, and then, the loyalty program, which is working really well at Outback and keeps building itself. And we are going to continue to mine that data and that rich relationship as we leverage it.
Certainly, ambience enhancements and the exterior remodels continue to perform very, very well. We are pivoting now to interior remodels, the few that we have make us feel good about that 3% that I referenced on the call. And then, as you said, we are really qualified an entirely new incremental layer which is performing extremely well, which is the off-premise opportunity. And we really focus on that across the portfolio to get those metrics exactly where it needed to be. And so, now, we are confident in rolling it to another 200 stores throughout the system. So, I would say, everything is kind of firing on the right cylinders with Outback. It’s really a momentum business that has less applicability to the business that it was kind of call it 18 months ago or two years ago as these new growth opportunities take over. So, it isn’t any one thing. It’s just a real underlying health of the business and sprouting of the growth levers we’ve been tending.
Got it. And my follow-up was just on Brazil. And I know, it seems like from your pipeline these are more one-off events and therefore not driven by any weakness at your brand. I’m just wondering, while I believe that, like how do you assess that? Like, what you are able to see that on days when -- on their normalized days? I don’t know if that exits from Brazil this past quarter or whether you are able to see how the industry has been doing over the past couple of quarters versus you guys, or like, how do you get comfort that this is not an Outback issue and that we should actually see improvement come the fourth quarter?
Sure. So, we have all the same metrics available to us in Brazil that we do here. So, brand health is extremely strong, kind of all-time strong, no degradation there. We are performing very well in a challenging environment. So, we’re in a share gaining position in casual dining, despite the fact that we had a negative 6% comp. The real – the impact of the truckers strike on the economy as well as the unrest with some of the protests was pretty profound. And I think that’s been pretty well documented in a lot of different journals about the impact that it had on the total GDP and businesses. And so, I would say, Outback held up extremely well, gained share in a difficult environment. And then, I think most importantly, as we look at the underlying health of the economy, they’re calling for 1.6% growth. This is not a situation where the consumer is deteriorating as much as you have this unrest leading up to be election in what has been a tumultuous year. Most importantly, we’ve seen sensitive settlement of the strike. With the finishing of the World Cup, we’ve seen as real meaningful strengthening of the trends that we feel good about. And as Dave said, we’re going to be prudent and we’re going to update you quarter-by-quarter. But, I am very, very confident this is not an Outback issue, and that we will see what a lot of folks believe and are already saying it, which is a strengthening and a leveling-off of the unrest as we head towards the October elections.
Our next question is coming from John Glass of Morgan Stanley. Please go ahead.
On the Outback, check is higher than in the prior several quarters. Is that a function simply of the reduction of discounting or is it the consumer trading up on the menu? And maybe as framing of that in the broader context, I think the industry has seen higher check averages in general. So, are we seeing a lessening of competitive discounting? Is that what’s going industry-wide, or how do you reconcile about higher check at your business and also in the industry right now?
Yes. It’s a function of discounting that Liz talked about and it’s part of our overall strategy to provide value for the customer, but at the same time drop our reliance on specific LTOs and coupons. So, we talked about the reduction in discounting; that’s having an impact on our average check. And as far as the consumer goes, we’ll continue to watch the marketplace very carefully. And Liz, I don’t know, if you want to add anything else to that. But…
Yes. I mean, I think, -- so, for us John what -- exactly what Deno said. What we can give you insight into is that for us, it’s the reduction in discounting. For others, it’s going to be concept-specific, because I think there are some folks that aren’t reducing discounting, some that are. But, I think that there is no question that we feel like that the consumer is in a good place, domestically, they are. I know we focus a lot on, as an industry, Knapp traffic declines, but really, that just encaptures the installed base. And with the amount of capacity coming on line, the people and points of eating that are available, the customer going out and eating is very much on trend. The fact that Knapp measures the installed base of all the capacity coming on, I think obscures the picture. It’s a much wider competitive environment for dining out and eating and celebrating than just chain-to-chain or what’s measured in Knapp. And I think you do see the overall check trade-off is people, there is an interest in entertaining and eating and the consumer’s in a pretty place domestically. So, I can’t speak to other concepts. But for us, as Deno said, it’s reduction in discounting.
And then, the 240 stores you’ve got the delivery now working as you wanted. Can you share more metrics, either around the check lift, the percentage, anything that help us understand the benefits you are getting from that? And as you roll it out incrementally, do you -- I assume you have assessed, but is there an incremental margin pressure across the startup of those next 200 stores?
First of all, like Liz mentioned, the delivery performance we’re seeing now out of our existing restaurants is very positive. And we’ve got a lot of people in the company have delivery experience. So, we’re going to start rolling it out again, like Liz mentioned. We are seeing sales trends that are very good way. We won’t bifurcate the comp piece and everything like that. We’re seeing sales trends that are above our expectations. And after start-up costs, that is accretive to us. So, it will be part of the process we’re going to use to help build sales, the balance of the year into the next to have expansions in our margins, and we get check appreciation as a result. So, delivery for us has been a very nice aspect of our portfolio.
Thank you. Our next question is coming from Brian Vaccaro of Raymond James. Please go ahead.
Good morning and thanks for taking my questions. Just tow topics I wanted to touch on, if I could. First on store margins, in the second quarter that other OpEx line was down 100 bps. Could you quantify how much of that leverage was due to lower advertising costs, and were there any one-timers that benefited that line in the quarter?
Yes. Brian, much of due to the management we’re doing on the advertising and some R&M but there were no one-timers in the results.
Okay. And on the store margins, as you think about the second half, could you walk through the primary puts and takes as it relates to commodity inflation? Is there any change to you your prior guidance? I think it was up 3 to 3.5 for the year. And also, how should we think about the labor and other OpEx wise in the second half, any shifts that we should be mindful of as we think about year-on-year?
Sure. On the other OpEx piece, we’ll continue to manage that closely as manage our advertising and other costs. On commodities, we’re still looking at 3%ish increase in commodities; and then, on labor around 4%. I think as we look at operating margin, let me just talk about that for a minute, how do we expect that to continue to grow and move forward for our company, balance of this year and into next. We’ve got healthy traffic as we continue to fill the box with our investments; we’ve got the marketing ROIs on CRM that Liz was talking about, our digital efforts and everything else, that’ll help improve our marketing return on investment. We are past the large cycle of our investments. The investments we made in Outback and food, and labor and those kinds of things, those now begin to mitigate.
We can begin to monetize some of that investment as we go forward and we build sales. And obviously, simplifying our operations and reducing complexity, and continuing to use technology is a big part of our margin expansion. And then, lastly, we continue to watch our food cost management very closely as we’ve rolled out our actual versus theoretical systems. So, these are the four or five things that we have in place that we feel good about our operating margin expansion, as we go forward in the balance of 2018 and into 2019.
Okay. That’s helpful. And then, just one last for me, one last one on Brazil. I thing you mentioned that $3 million negative impact on EBIT, just what to confirm that was EBIT. And then, can you comment on the impact to sales, specifically of the FX headwind and maybe just some guardrails on what you’ve layered in, in terms of comps for the back half of the year?
Yes, sure. Brian, we’ll pass on any kind of particular comp guidance on Brazil back half of the year. But, I think on ForEx, we’re looking at $3 million of ForEx the balance of the year. And then, Liz talked about, on a year-over-year basis $4 million of EBIT. That’s in addition to the ForEx on a year-over-year basis in Brazil down. But like we’ve mentioned, the trends are getting better and we’re watching the trends very carefully. But that’s what’s embedded in our guidance.
Thank you. Our next is coming from Gregory Francfort of Bank of America. Please go ahead.
Yes. I got two quick ones and then maybe a longer one. But the first one is, what’s this tax rate for the second half implied in your guidance? And then, the other sort of housekeeping one is, maybe going back to the last question, do you have a sense for how much you thought truckers strike hurt your comps in the second quarter? And then, I have a sort of a broader picture question?
We’re not going to get into the specifics on the truckers strike within the quarter. But, it’s embedded in the down 6%. And on the tax rate, we’ve got 4.5 to 5.5 the balance of the year. I mean, that’s pretty much where we’d like to leave it right now. As things change, we’ll embed that in our guidance, but we’ll leave it at the 4.5 to 5.5 for the year…
Yes. The only thing I’d add on that is that it’s always -- given you don’t have a model that says truckers strike on a year-over-year basis, if you look at some of the published reports and a lot of the published data that we had, it’ll give you a good direction on the magnitude of the impact for the entire economy, which was quite large. And a lot of folks would point out that restaurants were probably hit first and foremost with the not only the shortages but once they get to turn back on, you have issues of kind of getting inventory and food back in the restaurants. So, the good news is, that’s behind us that 9, 10-day strike. And as Dave said, I want to reiterate that we’re seeing trends strengthening and we’re very pleased with that. But we -- I think, Dave characterized it well. We’re going to be prudent in our predictions going forward, but feel very good about how the -- where the business is, the strength the business has, how it weathered that impact, what we have going forward. And we continue to successfully open stores there and will do so for the rest of the year.
And then, just maybe on the U.S. business. With the loyalty programs, can you help me understand how that’s showing up in your business? Is it a benefit on frequency, is it a benefit on check, any sense for kind of where that shows up or -- so how much that’s been impacting your business?
Sure. So, the loyalty program has been really successful for us and it continues to grow. We have 6.6 million customers and we’re driving that high end of the original target that we put for you guys of 1% to 2% traffic. I would say to you that it’s doing all of the above. But first, it’s certainly working on frequency. The average casual dining customer visits restaurants kind of two -- about two to three times a year. This program is getting that incremental visit. The other thing that it’s doing is that it’s cross-fertilizing our traffic across the categories, which is great because it’s introducing Outback users to Bonefish; it’s introducing Bonefish users to Fleming’s. So, you’re seeing also new customers coming in from the sister brands into those things. So, that’s increasing the customer as well as driving the frequency. That’s growing pretty rapidly.
The other thing that it’s doing is that it’s broadening our customers’ use across our different revenue centers. What do I mean by revenue centers? The loyalty program is -- works with our delivery and it works with our off-premise. Right? And so, if you were a dine-in-only customer, we’re seeing you migrate now as well towards using us for delivery and off-premise, and that has multiple benefits in driving you up the life-time value model. The good news is, we have a lot of opportunity in front of us now, since we’ve made the data investments; we’ve built the data cloud; we’ve built the integrated customer profile on all the actions. We’re in the position now to monetize, as Dave said. And we can use that data base now and are using it to provide the relevant message at the right time regarding the right channel to our customers. So, in addition to Dine Rewards, we’ve been on a journey towards building this CRM capability and customer profile.
And just for prospective we had -- in terms of even our just our direct email marketing muscle, we had 9 million unique profiles of customers in our data base in 2014. We ended Q2 with 20 million profiles. And we know all about these customers, what they like and when they like and when they want to be served. So, they work pretty synergistically.
Thank you. Our next question is coming from Sharon Zackfia of William Blair. Please go ahead.
I guess, a follow-up on Brazil and the impact there. I think, historically, the international business has been a little bit more of a contributor to revenue in the third versus the fourth quarter. So, as you go through that impact for the rest of the year, should we expect that to be weighted a little bit more to the third quarter versus the fourth? And then, any thought you could give us on kind of the cadence or comps in the back half of the year? Obviously, there is a pretty big step up in the comparison domestically in the fourth quarter. I don’t know if you’re expecting the second quarter -- the third to be better than the fourth quarter because of that or you feel like the drivers of the business are such that it could be pretty even regardless of what those comparisons are?
On Brazil, to get into the quarter to quarter guidance there, I think would not be smart from our standpoint as just we will continue to update people how we’re doing, what the trends are doing in Brazil. It is true that international has had a bigger impact, positive impact on Q3 because of its revenue stream but it’s kind of a question that -- level of granularity probably that we probably should not get into. But for the year, we provide some guidance on U.S. comps and then on the -- on Brazil, continue to update you on business trends as the year progresses.
Just a comment on your question as well, Dave, domestically on Outback. As you know, quarter-to-quarter can be choppy, driven both by investment cadence year-over-year laps, all of that stuff. Here is what I will say on Outback, because we’re not going to give quarterly guidance. Outback is in a very strong place, and we have the investments, as you said in the new growth levels are working and they are building, so that in many ways, the profile of business now versus where it was in terms of the growth levers are not as directly comparable. So, when you talk about year-over-year lapping, you kind of go when do you stop looking at that. Because you could say, well, Q4 2017 was up. But then, we all remember Q4 ‘16 was way down. And at some point, you got to walk away from the year-over-year comparisons and just look holistically and say, is this business in a healthy great place with unique proprietary level and firing on all cylinders, and do I believe this momentum can continue to despite a lapping of this or a lapping or that or might be we choppy. And what I’d tell you that my confidence in Outback is very, very high. We are now in the position to monetize the investments we have made. Things are firing for the brand, both with the investments we have made in the customer, with the CRM capability which includes our ROI on marketing, so with our off-premise business, pivot to interior remodels. This is a business that -- yes, there will be some choppiness on the year-over-year basis but is in a strong position. So, on the year, we absolutely, as we look out over the year, we absolutely will have -- believe we will have good comps on Outback and certainly positive traffic on Outback. So, hopefully, that gives you a sense of our confidence in the business and our confidence that it’s not going to be the story of Outback, won’t be written on a quarterly basis.
And one follow-up, I might have missed this. But, did you say what of sales were off-premises this quarter?
I don’t think we broke that out. But, we certainly will have increasing as it increase -- becomes an increasingly large part of our business with another 200 stores rolling out now, we see that -- we are still seeing that -- potential to be 25% to 30% of the total business and we are still seeing that kind of call it 80% incrementality. So, stay tuned for that tailwind.
Our next questing is coming from Andrew Strelzik of BMO Capital Markets. Please go ahead.
Two for me. First on the express stores. I’m just wondering -- I know most of them haven’t been opened for that long but any early learnings you can provide on those, are they achieving your expectations? And how big do you think the opportunity set is around those? That’s number one. And number two, talking about monetizing some of the changes to the business and the margin opportunity. You have been doing 50 million or so of productivity for a long time now. Can you talk about the pipeline of continued cost savings opportunities?
Yes. On the productivity piece, we do have a good pipeline for productivity. We have been seeing $50 million a year. We do see cost of goods sales opportunities, we see supply chain opportunities, we see overhead opportunities. So that will continue to be part of our plan. And we are seeing that this year happening and you will see it next year and beyond. So, that will be something that we think going to continue to work on.
On express, they are learning labs. We are happy with what we see. We’ve got some really doing well and we have got some that we need some more work, but they are labs. And we clearly see an opportunity in this business, both from the fill-in delivery trade area opportunity but also from opportunity to maybe see -- be in some markets that we may not be able to be part of. But we have got dedicated team to it. They are doing a great job. We think there is some opportunity there. It’s a lab and it’s too early right now to say really how many or how big the size of the prize is. But we are very interested to see how this develops.
[Operator Instructions] Our next question is coming from John Ivankoe with JPMorgan. Please go ahead.
Hi. This is Brandon [ph] on for John. Most of my questions have been answered already, but just one follow-up on Brazil. I think reelections are expected to occur in October. Is it fair to assume that comp trends can normalize post reelections?
Well, as you know, Brandon, [ph] I don’t think anybody would say they have a crystal ball on Brazil. I would say that we are in a -- that we are seeing as we said, stabilization and a strengthening of the trends. Again, I don’t want to be a geopolitical pundit. But, I think most people believe that uncertainty is never good and that October will bring some certainty. And that always means kind of good things for the business. Certainty is good for the business environment and we agree with that.
And I really think, I want mention too one thing that Liz talked about, which is our operating measures are how the customer feels about us et cetera, like we talked about earlier, is still extremely strong. And so, that gives us confidence as we go forward in Brazil.
And I think, in the past you guys have broken out off-premise mix or percentage of sales mix at Outback. Are you not providing that this quarter?
Yes.
I think, it’s 12% to 13% across the two businesses. Yes. I think we have provided that in the past. Both Carrabba’s and Outback off-premise business grew in the quarter, but we don’t break out that growth rate. But yes, it’s about the -- between the two of them, it’s about 12% to 13% of the business right now.
Our next question is coming from Jeff Farmer Jon Tower of Wells Fargo. Please go ahead.
Just real quick on the timing of the interior remodels, I believe you said it was going to be over the next three years. But, could you talk about maybe the cadence around that as well as the impact that you are expecting on CapEx tide to those? And then, lastly, this one is probably more for Dave. On the incentive comp shifts this year hitting in the third quarter and probably benefit to the fourth quarter. Are you trying to tell us that you are expecting EPS to decline on the growth rate basis year-over-year in the third quarter?
We are not providing EPS guidance specifically. Quarter-over-quarter, we provide full-year guidance. But what we do want you to be informed, and as you develop your numbers, should you decide you want to look at quarterly numbers, those are the comps shift that we’re seeing we want to call those out for you.
On the interior remodels, we expect to get 50 done this year and we expect to see that 3% lift that we’ve been talking about, feels good and we certainly already have some done. In terms of CapEx, as I said on the call, we view updating our assets and keeping current are key priorities. So, that is contemplated in the capital expenditure number that we put out this year and going forward. And the three-year cycle is pretty typical of us. That’s kind of the length it took for us to get the first set of interior remodels, and we’re finishing up the exterior. And we’re rolling in on the strategy that we laid out in ‘09 of keeping current, laying out that new interior remodel program, so about 50 this year.
Thank you. At this time, I’d like to turn the floor back over to Ms. Smith, for closing comments.
Thank you. We appreciate everyone for joining us today. And we look forward to updating you on our portfolio on the Q3 call. Thanks again.
Ladies and gentlemen, thank you for your participation. This concludes today’s conference. You may disconnect your lines at this time, and have a wonderful day.