Thank you for standing by. This is the conference operator. Welcome to the Bloomin' Brands, Inc. Third Quarter 2019 Results Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star zero. I would now like to turn the conference over to Mark Graff, Vice President of Investor Relations. Please go ahead, sir.
Thank you, and good morning, everyone. With me on today's call are Dave 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 2019 earnings release. It can also be found on our website at bloominbrands.com in the investor 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 third quarter 2019, an overview of company highlights, and a discussion regarding progress on key strategic objectives. Once we've completed these remarks, we'll open up the call for questions. With that, I'd now like to turn the call over to Dave Deno.
Well, thank you, Mark, and welcome to everyone listening today. Before beginning formal remarks on the third quarter, I wanted to provide additional context on the company's announcement this morning that we are exploring strategic alternatives. During the past four years, we've made a number of important decisions to improve the long-term health and profitability of the business. These included $50 million in investments in food and service enhancements to improve the customer experience, successfully pursuing the emerging off-premise business, establishing a world-class loyalty program, and accelerating the growth in our rapidly expanding international business. We also spent $400 million in remodels to refresh the brands and improve curb appeal. As a result of these initiatives and a focus on core execution, we've been able to consistently take market share over the past two years on both sales and traffic.
This momentum carried into this year, as we are outperforming the industry on sales and traffic by 100 and 130 basis points respectively year to date through October. Concurrent with the top-line sales momentum, we also continue to improve the profitability of the restaurant as we leverage and monetize the benefits of these investments across the portfolio. Q3 marks the fourth consecutive quarter of at least 60 basis points of adjusted operating margin expansion. In addition, we generate significant free cash flow, which provides increased flexibility for investing across our brands while de-leveraging the balance sheet and returning any excess cash to shareholders. Since 2015, we returned over $1.1 billion to shareholders in the form of dividends and share repurchases.
While we remain confident in our trends and long-term strategy, we do not believe the company's current market value appropriately reflects the company's sales performance, strong record of cash flow generation, and intrinsic value. Given the meaningful and ongoing valuation disconnect in the public markets, we are exploring potential strategic alternatives focused on maximizing shareholder value. As part of this review, we have retained BofA Securities as our financial advisor. The board of directors and management team are committed to enhancing value for our stockholders. This review is an important next step for our continued success while we execute against our business plan. Now turning to the quarter. Adjusted Q3 2019 diluted earnings per share was $0.10, representing an increase of 25% on a comparable adjusted basis versus last year. Combined U.S. comp sales were flat, with traffic significantly outperforming the industry.
We have intentionally moderated our average guest check increases to further strengthen value relative to competition. As a result, Q3 traffic outperformed the industry by 210 basis points with a modest average check increase of 80 basis points. This pricing discipline, combined with sales momentum from investments in the customer experience and off-premise, is building with strong October trends. In October, U.S. comp sales were up 3.6% with traffic up 2.1%. A large part of the sustained momentum is due to the progress made behind our strategic investments and relentless focus on core execution in the restaurant. During the start of Q3, we experienced softer sales trends consistent with the industry. In addition, we had shifts in our promotional calendar that impacted traffic, particularly in August. However, our sales performance improved considerably in September and, as I mentioned, into Q4.
We believe these improving trends are driven by the following factors. First, the investments made to elevate the customer experience are contributing towards healthy sales growth. As a reminder, these investments were prioritized towards customer-facing improvements across food quality, portion enhancements, service upgrades, and improved ambiance. The benefits of these investments are showing up in improved customer health metrics. Second, we are offering compelling and brand-appropriate marketing activities that continue to resonate with consumers. This included Outback Always Popular Steak and Lobster promotion that offers customers the ability to pair their steak with lobster prepared three separate ways at a compelling price point. In addition, the Dine Rewards loyalty program now has over 9.7 million members. We continue to leverage the rich data we have collected to enhance the customer segmentation opportunities. Our investments in CRM strengthen engagement through customer-centric communication while providing a higher return from marketing spend.
Third, we made the conscious decision to pivot towards a more tempered pricing approach. You saw this in the third quarter as the growth in average check was a modest 80 basis points. Over time, as we reduce reliance on pricing, it will further enhance our value equation relative to peers. We remain focused on building healthy quality traffic while also reducing unprofitable discounts. Finally, we continue to capitalize on the rapidly growing off-premise business. In September, we announced a third-party partnership with DoorDash. Delivery through DoorDash is now completely rolled out to over 550 Outback restaurants. We are excited about the potential of this new channel as it complements our existing in-house delivery platform. Our research suggests this is a different type of delivery consumer with distinct purchasing patterns and continues to be highly incremental.
Despite the DoorDash rollout, our direct delivery business has remained strong with little to no cannibalization. This further validates our omni-channel approach. Just to underscore, once again, our recent sales momentum is a combination of all the above, not just the success of the DoorDash deal. For example, in-restaurant dinner traffic strengthened in October as we continued to take share. Moving to international, Brazil comp sales increased 11%, with traffic up 10% in the quarter. These results reflect the strength of our brand positioning, outstanding operations, and innovative marketing programs. We also benefited from a more normalized sales environment as we lapped the lingering effects of the trucker strike last year. The underlying fundamentals of the Brazil business remains robust. October sales performed well. In addition, new restaurants continue to generate the highest returns on the portfolio, with sales well above expectations.
The market remains under-penetrated, and we are capturing this opportunity. The vitality and future growth potential of this business is tremendous. In summary, our portfolio is in a strong position. We have various sales levers at our disposal and are making significant progress to become a more efficient restaurant company. During the third quarter, adjusted operating income was up 35%, and adjusted operating income margins were up 60 basis points year-over-year on a comparable basis. This represents the fourth consecutive quarter of significant margin growth at Bloomin' Brands. We remain on track to deliver our operating margin commitments in 2019. In addition to expected sales growth in 2020, we are continually pursuing opportunities to optimize our overhead structure. These savings will represent a nice down payment to sustain margin growth in 2020 and beyond, while we take less overall pricing.
We anticipate a strong finish to the year and expect to deliver on our 2019 earnings targets. Finally, before turning over to Chris, I want to thank the over 90,000 team members in the field who bring to life the hospitality, service, and experience that make our restaurants so successful. I would also like to thank my colleagues in the restaurant support center who provide great service to our partners. Your enthusiasm and dedication to always putting the customer first is making a difference each and every day. With that, I'll turn the call over to Chris Meyer to provide more detail on Q3.
Thanks, Dave. Good morning, everyone. I'll kick off with discussion around our sales and profit performance for the quarter. I'd like to remind everyone that when I speak to results, I will be referring to adjusted numbers that exclude certain costs and benefits. Please see the earnings release for reconciliations between non-GAAP metrics and their most directly comparable U.S. GAAP measures. We also provided a discussion of the nature of each adjustment. With that in mind, our third quarter financial results versus the prior year were as follows: GAAP diluted earnings per share for the quarter was $0.11 versus $0.04 in 2018. Adjusted diluted earnings per share was $0.10 versus $0.10 last year.
When evaluating our results, it is important to keep in mind that our $0.10 from Q2 2018 included a $0.02 benefit for the amortization of deferred gains from sale-leaseback transactions. Upon adoption of the new lease accounting standard, we no longer recognize these deferred gains in our financial statements. If you exclude this $0.02 impact of the new lease accounting standard from Q2 2018 results, our adjusted EPS would have been $0.08. Total revenues increased 0.2% to $967 million in the third quarter. Total revenue increases were primarily due to higher comp sales in Brazil and the net impact of restaurant openings and closures. These increases were partially offset by lower revenues from the refranchising of 18 Carrabba's locations earlier this year. U.S. comp sales were down 0.2%.
This was driven by an increase in average check of 0.8%, offset by a 1% decline in traffic. Our Q3 average check benefit was a little below our expectations, driven by changes in product mix. Overall, however, the relatively modest level of average check increase in the quarter is consistent with our strategy to ratchet down the level of menu price increases in our results. We are confident that this strategy will provide more value to our customers and unlock healthier traffic. U.S. traffic was down 1% in Q3. While we outperformed the industry in traffic by 210 basis points, the result was lower than expected. This was driven by a couple of key factors. First, overall category traffic was down over 3%. This was a 90 basis point sequential decline from Q2 to Q3.
We did see an impact from this category softness in our Q3 traffic. Second, as Dave mentioned, we had timing shifts in our promotional calendar at Outback that impacted traffic more than we expected. It is also worth noting that we continue to opportunistically reduce discounting in our portfolio, particularly at Outback, where we are down 11% in Q3, and are now down 17% year to date. Although traffic was softer than expected in Q3, it meaningfully outperformed the industry, and we are pleased by the momentum we are seeing so far in Q4. We believe the investments in food and service, as well as the lift from our new delivery partnership, will allow us to outperform the industry on traffic. On to our concepts. Outback posted their 11th consecutive quarter of comp sales growth and outperformance versus the industry. Additionally, Outback traffic exceeded industry benchmarks by over 200 basis points.
This result comes despite the shift in our promotional calendar that I just discussed. We estimate this shift had an approximate 120 basis point impact to Outback's traffic in Q3. Our third-party delivery partnership with DoorDash rolled out in late September. The growth of third-party delivery is in line with our expectations. This is proving to be a highly incremental occasion, as there has been little cannibalization of our own delivery network. The economics are compelling and this business is profitable. We expect third-party delivery to be a strong contributor to results in Q4 and into 2020. Comp sales were up 0.1% at Carrabba's. We are having success with our $10 Bring Homemade Home program, and our off-premise business continues to grow. Carrabba's made the decision to utilize multiple third-party delivery providers to complement our own delivery network. Like Outback, this rollout was completed in September.
Overall, Carrabba's off-premise was 17% of sales in Q3 versus 14% at this time last year. Bonefish Grill comps were down 220 basis points. We tried a new marketing vehicle early in the quarter that underperformed expectations. Trends have since improved, we believe that differentiated occasions, such as our three-course dinners, will allow us to continue that momentum into the fourth quarter. Comp sales at Fleming's were up 0.4%, representing the seventh quarter of positive comp sales over the last eight quarters. We are pleased with how Fleming's is differentiating itself in the competitive high-end steakhouse category. In particular, our private dining business has become a standout performer and represents an opportunity for driving incremental business heading into the important holiday season. Adjusted operating income margin was 2.3% in Q3.
As Dave indicated, this was up 60 basis points after adjusting 2018 for the impact of the lease accounting change. This represented the fourth consecutive quarter of significant margin growth. It is particularly impressive that we were able to show this improvement in margins without a large benefit from increases in average check. Our high-margin international business continues to grow, and we are maximizing our opportunities in overhead and productivity. We are comfortable with our full year adjusted operating income margin expectations of between 4.8% and 5%. We remain committed to grow margins with moderated pricing while closing the margin gap to our peers. Moving to tax, our Q3 adjusted tax rate was negative 2%. Q3 is seasonally the lowest income quarter of the year, so the rate can be volatile. In terms of absolute tax dollars, this result was modestly better than expectations.
I will now take you through the various aspects of our updated full year guidance. First, as it relates to our comp sales guidance, given our performance in Q3 and the ongoing category softness, we believe it is prudent to lower our U.S. comp sales guidance for the year to approximately 1.5%. This is down from 2%-2.5%. As Dave mentioned, we are off to a good start in October with comp sales up 3.6%. We hope to maintain this early Q4 momentum as we approach the important holiday time period. Second, we now expect commodity inflation to be approximately 1.5%, down from approximately 2%. Although our seafood category remains inflationary, it is coming in better than expected. Third, our GAAP and adjusted tax rates are coming down slightly. Our GAAP tax rate is now expected to be between 5% and 6%.
Our adjusted tax rate is now expected to be between 6% and 7%. Fourth, our CapEx is now expected to be approximately $175 million, which is at the low end of our prior guidance range of $175 million-$200 million. We also continue to make progress in reducing overhead costs and expect to be down in G&A for the year. Our strong controls around costs make us comfortable reiterating our full year adjusted EPS guidance despite lower expectations for comp sales. We will provide detailed guidance on 2020 in our February earnings call. However, given some of the noise surrounding the commodity landscape, it is worth noting that we currently expect commodities to be in the 2%-2.5% range in 2020. Beef inflation is expected to be roughly in line with 2019.
Seafood, which represents approximately 20% of our food basket, is going to experience higher inflation and is the primary reason we expect our 2020 guidance to be higher than 2019. In summary, we feel good about both our third quarter results and where we stand moving forward. Our domestic business is on strong footing and our Brazil business is performing at an extremely high level. We have a profitable third-party delivery partnership and we continue to make significant progress on improving our operating margins. We remain very confident in our long-term plan for growth and look forward to updating you on our progress next February. With that, we will now open up the call for questions.
Thank you, sir. We will now begin the question and answer session. To join the question queue, you may press star one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star two. We will pause for a moment as callers join the queue. Our first question comes from Jeffrey Bernstein with Barclays. Please go ahead.
Great. Thank you very much. Two questions. I'm guessing you guys aren't offering any more color on the strategic alternatives, so I will look to the fundamentals. The first question was just on the sales trends you talked about. Just seems like big swings, at least at the Outback. I know the traffic was down more than 1% in the third quarter, now you're saying it's up over 2% in the fourth quarter. Besides comparisons, which I guess get a little easier, I'm just wondering, that's a huge swing. Just wondering, what you think are the drivers of that, whether it's more Outback specific or anything in particular you could point to in the industry that would explain that type of swing?
Yeah, sure. Good morning, Jeff. First of all, we're real pleased with the momentum. As I mentioned, we saw it into September and into October. The industry, we think is in pretty good shape. It remains choppy. You see it, as you look at the industry metrics. More importantly, it's an opportunity to take share in the marketplace. When you look at the change in trends have actually come across our portfolio. We're very pleased with what's happening at Outback, what's come across our portfolio. If you look at the investments that we've made in our food and service, if you look at the rolling out the DoorDash partnership and our own delivery opportunity, if you look at some of the pricing that we've been very careful about while removing unprofitable discounting, all these things are coming together, we believe, including improved service at our restaurants.
All these things are coming together to build momentum in the company, as we sit here today. It's not just the DoorDash partnership, it's all these things coming together. We've seen in-restaurant trends, traffic trends improve during the September-October timeframe. We feel very good about where we're going as a company.
Yeah. We have a really, really strong LTO lineup in Q4 at Outback that we're getting the benefit from as well, and we'll continue to get the benefit from as the quarter progresses.
Understood. My second question was just on the operating margin. I know as we entered 2019, you talked about, I guess, a maniacal focus on margin expansion. With now three quarters complete, and I think you mentioned 60 basis points of expansion over the past four quarters. Just wondering, as we think going into 2020, do you think it's possible to sustain that rate of expansion? If so, what are the biggest buckets of opportunity? I wasn't sure if it's your initial benefit and then it would fade. I know you mentioned something about maximizing overhead structure. I wasn't sure if that's a new potential cost-saving opportunity that might help support the expansion in 2020. Any directional thoughts on the magnitude of operating margin expansion into 2020 would be great. Thank you.
Sure. As we talked about in our investor conference in March, this is a multi-year movement forward, and we are very committed to margin expansion once again in 2020. If you look at the areas of opportunity, we continue to manage our productivity well. We are making significant improvement in our cost structure above the restaurant, so in overhead. We're seeing a significant down payment on that, and you'll see that go into 2020. You'll see continued healthy traffic growth as we continue to mitigate our discounting. That allows us to be careful on price increases as we go forward in this value environment. Jeff, it's a multi-year role and we've got good visibility into that as we go forward, and we'll provide more guidance in the February call.
One thing I'd add to that, Jeff, is that strategically speaking, this is playing out exactly how we laid it out at our investor day. The one area too that Dave didn't mention that I think is really important to note is our international business, particularly in Brazil. Our overall company margins get a real tremendous halo from that international business. As that continues to grow, you're going to continue to see strength in margins. I think the good part about this is that we've talked about less reliance on menu pricing moving forward. As you saw in our third quarter results, we can make this formula work with moderated levels of average check growth.
Thank you.
Our next question comes from Brett Levy with MKM Partners. Please go ahead.
Great. Thanks for the time. I know you're not going to talk much on the strategic, but I guess, is there anything that's off the table, whether that's paring down the portfolio or refranchising, aside from just the other strategic moves and a potential sale? Also, just a clarification on the trends. You had said you lost 120 basis points of traffic in the third quarter. Is that a shift into 4Q, or is that just something that's just lost within third quarter? Just how aggressive do you think you can or need to be in terms of the value construct? Then I'll leave it for the queue. Thank you.
Yeah, sure. First of all, there is some shift between quarters that's helping us and then did have an impact on Q3, but that's a small part, 100 basis points of our trend improvement. That's the first part. Secondly, I'm not going to get into more details on the strategic review that we announced today, but as we've said in the past, We always look at the opportunity to improve shareholder value. We're looking at all different alternatives for our company, which potentially would include a sale of the company. We're going to be looking with a lens towards improving shareholder value because we think there is a very large disconnect between what we're producing each and every quarter versus the value of the company. We'll provide more information to the marketplace as we go forward.
On the pricing piece, we're going to continue to manage out unprofitable discounting, and we're going to be very careful about our price increases going forward as we manage our value equation.
Our next question is from John Glass with Morgan Stanley. Please go ahead.
Thanks, good morning. Just going back to the change in your price, I guess. Was this something contemplated earlier in the year, and we're just seeing it now? Is this something, sort of a pivot you decided to do during the quarter as you saw traffic weakening? Is this the right level of price mix for, let's say, the Outback brand? Is it stable, or were you in transition during the quarter?
It's something, John, we've been contemplating during the year. It's not something that we weave to or try to combat traffic. It's a concerted strategy on our part as we go forward. I'm not going to get into details on pricing as we go forward. Our goal certainly is to price less than inflation, and we're going to be very careful about our price increases as we move forward at Outback and in all of our brands.
On, I understand the trends improved in September and here in October, and you've cited a lot of things you've been talking about really for a couple of years now in terms of elevated experience and loyalty, et cetera. The real change has been delivery, I think. Can you just maybe dimensionalize how much delivery is contributing? Or maybe as you think about expectations, what's a reasonable expectation for near-term delivery mix to help us sort of gauge where you think that goes?
Yeah. We're extremely pleased with our DoorDash partnership. It worked really well. We rolled it out during the month of September, and delivery is about 150-200 basis points, Chris, of our account?
Right now, yeah. It's about 200 basis points of the overall comp.
Okay, that is what, of October? Is that what you're referencing?
It's consistent. It's been consistent. You got to remember that the DoorDash thing rolled out mid-September, so we didn't get as much of a benefit in Q3 as we would expect moving forward. It will ramp up over time, we would expect.
Yep. Just to reiterate what I mentioned earlier, John, it's a mixture of everything coming together: in-restaurant traffic, delivery, off-premise. Also, I'd be remiss right now if I didn't call out the tremendous sales growth in Brazil in Q3, and Chris talked about the margins in the business. Brazil continues to do really well into Q4.
Got it. Okay. Thank you.
Thank you.
Our next question is from John Ivankoe with JPMorgan. Please go ahead.
Hi. Thank you. I am going to ask a couple of questions about kind of the strategic review and the maximizing shareholder value, if I can, and I think I'll keep them general enough. Just from your perspective, what kind of changes between today when the announcement was made and yesterday and the previous quarters where I know you as a management team and you as a board of directors has always focused on maximizing shareholder value. Is this just the public announcement of, "Hey, everyone, come and talk to us and make recommendations of what you think is possible?" Is there a formation of a special committee that we should be aware of, and who is leading that special committee?
Just want to get kind of your sense in terms of what's different today versus the past couple of months, in terms of the way you've run the company and looked at your stock price and always considered, I think, things that you could do to maximize shareholder value. I have several follow-ups as well.
Well, we'll try and keep the follow-ups, John, fair to all by the rules, but I'm happy to answer the question. Ever since we've been a public company under Liz's leadership when I was CFO, we always talked about maximizing shareholder value, and we took a lot of steps to do that. We've been a public company for eight years. If you look at what we've tried to do as a company, we've had a lot of success. We've had some issues we've addressed. If you look at it, 13 out of the past 14 quarters, we've made our EPS. The only quarter we missed was the Hurricane Irma quarter. We've got innovation in the company, as we just talked about the DoorDash partnership. We've got margin expansion. We've got high-quality brands. We've got good cash flow.
We've got an international business that, frankly, is underappreciated. Not by you, John, but underappreciated. Given this persistent disconnect, we decided, working with the board, to step back and ask the fundamental question: What's the best capital structure to go forward? We've used this opportunity to look at strategic alternatives. No, we're not responding to things. We're taking action here. We've decided to work with our board to look at various options. There's no special committee. We're moving forward with various alternatives for our company, working with BofA. We just felt that given where we're at right now, the time is right to do it.
Okay. All right. Understood. Thank you for that special committee comment. Let me ask you about Brazil. It's still not that big of a percentage of your overall operating income, which is probably why it kind of gets mixed more or less in the middle and doesn't get specific attention. Let's talk about, for example, how you could maximize value in that business overall. Does it make sense to perhaps sell that business or refranchise that business? The question that I'm going to ask you is what I think a lot of us as U.S.-based people don't understand is what the financing market is in Brazil, and is there a financing environment that's in place in that country? Are there operators in place in that country? Are there multiples that are being paid for operating businesses, in your opinion, that could be value accretive to Bloomin' Brands shareholders?
Again, I have one more follow-up after that one.
Sure. First of all, you get great value by great leadership and a great brand. Salim and Peter Rodenbeck really did a great job founding that business, and Pierre and his management team have taken it forward. You've seen the results. I don't need to repeat them. They're in our numbers. They've done it time after time again. You create optionality with great performance. Now, what's happening is we're opening up more and more restaurants. We always felt we'd get to 100 Outbacks. We see a growth platform there well beyond 100 at Outback. We've now introduced an Abbraccio, which is our version of Carrabba's. Now we've got optionality on new development. As we open up new restaurants, they're beating their CapEx targets by quite a bit, which opens up more and more opportunity. We love that business. It's growing very rapidly.
We're trying to communicate that to shareholders as best we can. There's a lot of optionality, John, on that business, whether it's company-owned or if it's franchised, there's a lot of interest in the company in Brazil. Most importantly, we have a fantastic management team down there that can run the business and continues to grow the portfolio. What we offer shareholders is tremendous business in Brazil with great optionality.
That's great. Thank you. Final one from me. On paper, where your cost structure does seem to be high relative to peers on a percentage of sales basis is G&A. One would think that that would be the biggest part of your margin expansion plan over the next couple of years. Can we talk about where we are in that process? You've mentioned on this call and mentioned at other times that you expect 2020 to be a big down payment towards achieving your margin goal. How far are we in this G&A process and you, Dave, as CEO and sitting in the seat, do you think you have fairly major efficiency opportunities that as an organization you haven't yet realized that may be allowed by potentially a new structure, different reporting lines, what have you?
Yeah, I think we can make our progress in overhead by not having new reporting lines or structures and stuff like that. We are well along in making progress on addressing our overhead, and you've seen some of that in this year already, as Chris mentioned, we're lowering our G&A spend guide for the year to be less than last year. That's number one. Number two is there still is additional opportunity that we're working within the company. There's robotics opportunities. There's opportunities in IT to continue to maximize our IT opportunities that we have to automate things. Our company has been really responsive to what we're trying to do. The good news is, John, we're not starting today. We've been working on this over the last six months and made significant progress on it. There's more to come. You can't do it all at once.
There's more to come. It will be a significant down payment in our margin expansion for next year.
Thank you.
Our next question is from Jeff Farmer with Gordon Haskett. Please go ahead.
Thank you. Can you guys provide some color on the interplay between that in-house delivery infrastructure that you guys have built over the last couple of years versus the third-party delivery providers once both went live in late September? Just curious how they both sort of worked hand in hand with one another.
I got to tell you, Jeff, I am so proud of our team at Outback and Carrabba's, and I know Bonefish is thinking about things as well. By the way, it's not just U.S. Brazil has a really great delivery business that they're rolling out. The one thing that this enabled us to do, and we've been working on this for a number of years. This isn't a fly-by-night thing. We put the infrastructure in place. We put the culture in place. We put the team leadership in place. We put the processes and systems in place to build our own delivery network. That is crucial. I spent 12 years, I think, associated with the Pizza Hut brand, four years in operations. There are a bunch of us in the building that understood delivery really well.
We had that infrastructure and the culture, and that got us going. The delivery business in-house is profitable, which is really great. Under Michael Stutts's leadership and our brand president's leadership, we put together a really compelling DoorDash partnership, which we're very pleased with. The partnership with them has been fantastic. What that's enabled us to do is to seamlessly integrate that into our culture, process, and systems. We weren't starting from ground zero. That was really important as we rolled it out during September. What we're seeing is the DoorDash business comes in, the do-it-yourself delivery business remains, and we are not seeing a drop-off in do-it-yourself delivery, which really emphasizes the omni-channel approach, which we've been talking about for quite some time.
This is the kind of thing that the innovation that we've been thinking about in our company and a platform for growth as we go forward.
All right. That's helpful. Just final question. Some of your casual dining peers have provided some high-level data, but data nonetheless, on average check, orders per day, incrementality. Is there anything like that you can share with us for the DoorDash partnership?
It is a different customer. It tends to come later in the day, and it's a slightly less check with party size.
Particularly ties into the omni-channel approach that we're talking about, and that's about as far as I'd like to go. When you look at the various opportunities in do it yourself delivery and DoorDash, it is a bit of a different customer, which makes us so excited as we go forward.
Okay. Thank you.
Thank you.
Our next question is from Brian Vaccaro with Raymond James. Please go ahead.
Thanks. Good morning. Just circling back on delivery. I think you said that delivery is about 2% of comp sales mix. Just wanted to be clear, is that specifically third party sales mix that you're referencing there?
No, that's the entire delivery contribution to same store sales in the third quarter.
Okay. In the third quarter specifically? Okay.
Correct.
Okay. Would you be willing to comment on what that looks like in October?
No, we're not going to get into it. Let me put it this way, it's not significant growth to the level that it would impact our thoughts around the benefits of the in-restaurant dinner traffic that we're seeing. It's not significantly higher.
Yeah, I just want to underscore it. The change we've seen is across our restaurant business, not just DoorDash.
Okay
which we're happy about.
Yeah.
It's just the whole thing.
Yeah. Brian, it's important to remember that delivery, even though we've talked a lot about it is still a relatively small overall part of our sales mix.
Yeah. Understood. Okay. That's a good segue into my next question. I wanted to go back to the monthly comp cadence you referenced in the third quarter. Obviously, October's encouraging, but really that September improvement could be particularly interesting given the industry didn't improve all that much. Could you provide some more color on what you think drove the sequential improvement in September, and maybe also elaborate on that marketing and promo mismatch? Was that a specific promotion that moved out of Q3 into Q4, or something else that's going on there that you can elaborate on?
Yeah. If you look at Q3 to Q4, Brian, by month, it's just choppy. The main thing is, we ran Back by Popular Demand Q3 last year. We're running it right now. We talked about the impact on our sales at Outback. I want to underscore, all of our brands are seeing the trend change that we talked about. It just underscores, Brian, the choppiness of the industry, and most importantly, what we do for ourselves to grow the business and take share is what we're trying to focus on.
All right. Could you also, what was the impact of Dorian to the quarter?
It was very small.
Very small? Okay. One last one from me. On the other OpEx line, I noticed that was up, I think, 90 basis points on an adjusted basis, up mid-single digits per week on our rough math. Could you touch on the moving pieces within that line?
Yeah, sure. I think generally speaking, productivity and the benefits of increases in average check offset the inflation. There were a couple of things in play there. One, R&M moves around a little, but that was about 40 basis points higher than a year ago. Operating supplies as we ramp up this delivery engine, was about 40 basis points over last year. Those were the big outliers in terms of that dynamic. One thing I'd like to add is, I didn't mention it earlier, our do it yourself delivery platform is profitable, and our DoorDash delivery platform is profitable.
Okay. Last call, Dave, you'd mentioned on that third party delivery rollout that you might reconsider some of the units where you've rolled out the self-executed delivery previously. Have you started to pare that back at all on the self-executed side?
Not yet, because what we're seeing is the incrementality I talked about, which is very interesting.
All right. Thank you.
Thanks, Brian.
Our next question is from Matt DiFrisco with Guggenheim Securities. Please go ahead.
Thank you. One follow-up question or bookkeeping question with guidance, then I had a question. With respect to the G&A, I think you said it's going to be lower in the fourth quarter. How much of that is sustainable and just efficiency and cuts versus maybe a change in compensation because of just lower same store sales? Then with respect to the comments made about strategic alternatives, what hasn't been discussed much is the Outback brand is obviously your flagship brand and it's your number one asset, yet your peers over the last five to six years, whether it's a LongHorn or a Texas Roadhouse, have all consistently opened stores and grown, and the category has not really been weak. It's been a relatively strong category steak.
Would strategic alternatives include ramping up the growth and focusing on your strongest asset, whether that's company or franchise development that seems to have lacked the last couple of years?
Sure. On overhead, it's sustainable. The down payment is going to continue going forward, and we're making great progress. On openings, Matt, you are exactly right. We have an opportunity to open, we believe at least 50 more Outbacks. We need to cycle that up. We've talked about that in the past. Relocations continue to do very well. We've got a great pipeline there. Annette Rodriguez and the real estate team really have done a nice job building a pipeline there. On the opening side at Outback Steakhouse and relocations, I really have an opportunity. Obviously I talked about Brazil. We thought we could get to 100 Outbacks. We're going to go well beyond that, and we're examining, can we go into some smaller cities with a smaller footprint with the Outback name? Can we expand Abbraccio? There's a big opportunity down there.
Finally, I'd be remiss, we're really pleased with the new unit openings at Fleming's Prime Steakhouse, and we continue to take a look at where we can expand that very profitable brand.
Why though, how about revisiting the number domestically for Outback and somewhat of maybe a fortressing method where the 750 number or so where you could get beyond 800 domestic stores potentially, on the Outback brand, if it were. Is there something in the model that just doesn't allow it to be that? You do have lunch now. It's not as though it's just a dinner house. What's the limitation there that you wouldn't maybe revisit to see if that target could be higher?
Yeah, Matt, I'm sorry if I wasn't clear, but we see for Outback Steakhouse, at least 50 new restaurants in the U.S. With the Brazil comment as secondary, and we continue with our relocation program. We agree with you. We think there's expansion opportunity for Outback Steakhouse, and we are looking at our international opportunity as well.
Excellent. Thank you.
Our next question is from Jon Tower with Wells Fargo. Please go ahead.
Great. Just a few clarifications and a question. First, the off-premise mix in the quarter, I don't think, if you had it, I missed it earlier. I apologize. Second, this one seems a little bit off the table, but I wanted to make sure. When you're speaking about strategic alternatives, I would assume you're not including the idea of building on the portfolio or the number of brands under Bloomin', but just wanted to clarify that with you. My question goes to the discounting piece. It's obviously been down nicely. I think you mentioned during the quarter that Outback was down 11% year-over-year, and yet traffic still continued to outperform the category and has improved into the fourth quarter. Can you talk about how much more room you have for reducing these discounts before you perhaps materially impact traffic? Thanks.
Yeah. John, I'll start with the off-premise mix, and I'll turn it over to Dave. The two big brands that have it, Outback is at 14%. That's 13% increase year-over-year. Carrabba's is at 17%, that's a 22% increase year-over-year. All right, Dave.
Yeah. On the strategic alternatives, I guess the best thing, John, right now is just to say the board is examining all alternatives. I'll leave it at that. I think it'd be just a piece part things, wouldn't be something that we would want to do. We haven't been in an acquisitive mode, but I'm not going to take anything off the table. We're really looking at all aspects of our company and as we go forward because we do think there's a significant disconnect between our valuation and what we're accomplishing as a group. On discounting, we've made a lot of progress. We are getting towards the end of it, the opportunity. We are always going to look at opportunities. We've got a really talented marketing and digital team that really looks hard into that.
We're trying to make sure that we manage that appropriately as we go forward. A lot of the progress that we've been made is pretty much behind us.
Great. Thank you.
Our next question comes from Gregory Francfort with Bank of America. Please go ahead.
Hey, guys. Thanks for the question. I just had two. The first is, in terms of the new third-party platform through DoorDash, do you get the same customer data, or are there any differences on that front in terms of what you collect in terms of customer spending patterns from them versus when it's happening on your own platform? The second question I had was, labor was very strong this quarter, it seems like that's been a common theme this earning season across a few of the restaurant chains in terms of maybe wage growth tempering a little bit. I'm curious if you could talk about the drivers of labor this quarter in terms of how much of that was from maybe more benign wages versus better turnover versus Brazil sales leverage or greater efficiency.
Anywhere helpful to frame that up, I think we'll get it with the queue, but would be helpful. Thanks.
With DoorDash, we get very rich operational data, but we get no PII, which we think is appropriate. On labor, before I turn over to Chris, one of the things that really impacts our costs that we're really proud of as a company is our retention levels are fantastic. Our turnover levels are very well managed, and as you can imagine, that reduces training costs and things like that. From an operating standpoint, our teams, our brands have done a great job managing through that. That's a key part of it. I'll turn the rest over to Chris.
Just more specific on labor, to your point, had been in kind of a margin headwind this year until Q3, so we're very pleased with the progress there. The actual wage inflation is still in that 3.5%-4% range, so it was a little bit less this year or this quarter relative to prior quarters. I think that the main bet that we're seeing there is we did have a real favorability in health insurance in Q3 relative to where it had been. That's the primary driver of the labor favorability.
Great. Thanks for the thoughts. Appreciate it.
Yep.
Once again, if you have a question, please press star one. Our next question comes from Sharon Zackfia with William Blair. Please go ahead.
Hi, good morning. Just to follow up on that last comment, on the health insurance favorability, can you quantify what that was in the quarter and remind us, are you self-insured? Is that just kind of more lumpy on an ongoing basis? Secondarily, just curious, I don't know if I recall you commenting before on if DoorDash and that relationship impacts your ability to grow margins at the pace you had alluded to earlier this year at the Analyst Day.
If you could comment at all on the terms there and whether or not that's kind of roughly neutral or how you think about the profitability there.
Sure. Chris, you want to take the label first?
Yeah. The health insurance, it was $1.3 million favorable year-over-year in health insurance. Yeah, it is going to be a little lumpy from a self-insurance aspect.
The team continues to really do a great job managing that. It's been a priority of ours because in this business, if you're not on top of that kind of stuff, it really can come and be a cost that you don't expect. Hats off to the team for doing such a great job on that. Then on the DoorDash piece, like I said, it's profitable. It's not going to impede our margin expansion goals. We're going to be able to continue to grow this and leverage this as we go forward. We're very satisfied with the contract. They're great partners, and we don't see this being an impediment to our overall margin goals as we march forward as a company in 2020 and beyond.
I guess just to follow up on that, though, is there any kind of line item noise that we should be aware of as DoorDash grows? I mean, should we expect more pressure in other restaurant operating costs or anything like that to be offset somewhere else in the P&L? Just any kind of direction there would be helpful.
No, I think just as we grow, the use of the operating supplies for delivery will grow. That'll put some pressure on restaurant operating expense.
And Sharon, one of the things that you've reminded us too, which we talk to people and talk to our investors, this is where the customer is going. To be on top of this and moving forward with it and attacking it is really, really great. It's a profitable location for us. We're going to leverage it, and we're on top of a customer trend that we're very pleased about.
My last question, it may be too early, but is there any difference in customer satisfaction whether you deliver or whether it comes via DoorDash?
No, there hasn't been anything that we've seen. It's early, there is something we're on top of all the time. It's early, our team continues to do a great job in all channels there.
Okay, great. Thank you.
Thank you.
Thanks, Sharon.
Our next question is from Andrew Strelzik with BMO Capital Markets. Please go ahead.
Hey, good morning. This is actually Dan on for Andrew today.
Yeah.
I just had a question on the comp trends quarter to date. It sounds like the average check increases are actually up a little more so far in October compared to 3Q based on those figures you gave earlier. I guess I'm just wondering what's driving that given the intentional moderating of average check. Was it mostly just due to mix or compares or something else? I know you're not committing yourself to any sort of pricing level moving forward, but is it fair to expect something around that October level of average check for the full quarter? Or should we expect that to kind of moderate as we move through 4Q?
Yeah. I'll answer the first part of this. As it relates to the trends we're seeing in October, it has to do with the LTO timing that we talked about. The Back by Popular Demand has a higher PPA associated with it, that's driving it. It's mix related as opposed to pricing related.
On pricing itself, for competitive reasons, we're not going to get into it. I think you've heard today what some of our broad plans are, and we're going to continue to follow through on that.
Great. That's helpful. Then maybe just one follow-up. I'm just thinking about the third-party delivery and maybe just some more color on why the decision to get into that now. I know you've kind of outlined how the economics have become more favorable last quarter. I guess I'm just trying to understand, was that really the predominant reasoning for it, or did you just feel like it was another incremental channel that you couldn't sit out any longer? Given the success of the direct delivery channel, which is obviously still performing strongly in its own right, I guess just trying to better understand what the main driver was to get into third-party.
It's a completely different consumer. We're seeing in our numbers. We're not seeing cannibalization on our do-it-yourself. We're seeing an incremental opportunity with DoorDash, which we're very pleased about. That's why we got into it, and we also have a wonderful partner with DoorDash and very good economics there.
Great. Thank you.
Our next question is from Brian Vaccaro with Raymond James. Please go ahead.
Thanks. Just one follow-up. On the G&A line, I think you've talked about a multi-year opportunity to find around 100 basis points as you narrow that differential versus peers. I guess oftentimes these streamlining initiatives are front-end loaded and just trying to triangulate around that a bit. Is it reasonable that G&A could be down $10 million, maybe more year on year in 2020 on that down payment that you referenced, or are there maybe some investments or other moving pieces we should keep in mind?
Brian, we're not going to get into detail on that. We don't plan on providing any detailed guidance for 2020 right now. I can tell you, and you've seen our results, our cost structure and our opportunities there to reduce our cost structure is providing a significant down payment as we go forward. We're already seeing some of the benefits of that. How much that is and everything else will come as we provide guidance for 2020. The team here has done a great job identifying the opportunities.
All right. Fair enough. On the commodity outlook, the 2020 outlook, you mentioned you think beef inflation will be similar to what you saw in 2019. Could you remind me what that was in 2019? Then could you also comment on your confidence level in that outlook? How much do you have contracted on the overall basket or your core proteins at this point in time? Thank you.
Yeah. Beef in the 2%-2.5% range. I would say we have a large degree of confidence, Brian. We're basically as locked this year as we have been historically at this point in time. A lot more to come, but we feel pretty good about where we are.
In closing, I just want to thank the supply chain team for doing such a great job leading us through that and Michael Healy and his team. I just want to thank everybody for the call today. Operator, are there any more questions?
There are no more questions at this time.
Okay. Thank you, everybody. We look forward to updating you on our Q4 results. Have a great day.
This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.