Bloomin' Brands (BLMN) Q1 2021 Earnings Call Transcript

Bloomin' Brands (BLMN 0.86%)
Q1 2021 Earnings Call
Apr 29, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Bloomin' Brands fiscal first-quarter 2021 earnings conference call. [Operator instructions] It is now my pleasure to introduce your host, Mark Graff, group vice president of investor relations. Thank you, Mr. Graff.

You may now begin.

Mark Graff -- Group Vice President of Investor Relations

Thank you, and good morning, everyone. With me on today's call are David Deno, our chief executive officer; and Chris Meyer, executive vice president and chief financial officer. By now, you should have access to our fiscal first-quarter 2021 earnings release. It can also be found on our website at bloominbrands.com in the Investors section.

Throughout this conference call, we will be presenting results on an adjusted basis. An explanation of our use of non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures appear in our earnings release on our website, as previously described. Before we begin formal remarks, I'd like to remind everyone that part of our discussion today will include forward-looking statements, including a discussion of recent trends. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from our forward-looking statements.

Some of these risks are mentioned in our earnings release. Others are discussed in our SEC filings, which are available at sec.gov. During today's call, will provide a brief recap of our financial performance for the fiscal first-quarter '21, a discussion regarding current trends and a select Q2 2021 guidance metrics. Once we've completed these remarks, we'll open up the call for questions.

And with that, I'd now like to call -- turn the call over to David Deno.

David Deno -- Chief Executive Officer

Well, thank you, Mark, and welcome to everyone listening today. The first quarter was a strong start to the year, and we had very good results across many measures. Results further reinforce our belief that the strategies and tactics are working and set us up well to achieve our near and long-term commitments. Thank you to the teams in the restaurants and restaurant support center for your unwavering commitment to serving our guests.

Your dedication to bringing great hospitality, service and experience every day is what makes our restaurants so successful. Thanks to all of you for your hard work. The first-quarter performance was the culmination of a multiyear effort to elevate the guest experience, grow healthy traffic and pursue operational and simplification efforts to improve margins and profitability. This was accomplished by, first and foremost, taking care of our people and customers.

We did not furlough any employees during the pandemic, and this decision has contributed to low turnover. Maintaining a motivated and well-trained and engaged employee base is critical to our long-term success. As sales volumes are now exceeding prepandemic levels, these actions provide a competitive advantage to retaining talent as the industry faces some staffing challenges. Second, we are focused on providing great food and service to customers in the dining room while maintaining our off-premises volumes.

We made significant investments prepandemic to capitalize on the growing off-premises demand as consumers shifted toward convenience. Our to-go and delivery businesses are performing very well, and the high off-premises retention levels are contributing to the strong sales outperformance. Third, we have been aggressive in pursuing opportunities to further optimize how we run and support our restaurants. We are realizing efficiencies through simplification efforts and across operations, menus and marketing offers.

This has led to lower waste, reduce prep and training hours and improved execution. These benefits translate into lower costs in the restaurants and in the restaurant support center. We will continue to look for ways to reduce complexity, improve consistency and increase profitability across revenue channels. As a result of these actions, we had higher-than-expected volumes and generated significant margin and profit improvement in the first quarter.

We believe the strategic and operational framework we outlined last quarter can deliver consistent performance in the quarters ahead. As the country reopens, we remain focused on optimizing revenue channels across both in restaurant and off premises. Our goal is to preserve off-premises volumes as dining room capacity grows. The Carrabba's team has done an exceptional job in this area.

In the first quarter, Carrabba's off-premises sales were a portfolio high of 42% of revenue. We will enhance and strengthen the company's delivery and carryout business by, first, continue to provide great food and service. For example, the Family Bundle platform at Bonefish offers convenience at an attractive price point. The offering provides a fully prepared meal for five, starting at $29.99 with six different options to choose from.

And second, by expanding our technology and digital efforts, we improved our online ordering system for Outback and Carrabba's in late March. This technology creates a faster and simpler ordering process and resulted in a higher average check. We are seeing strong consumer adoption with approximately 65% of all off-premises sales in Q1 handled through our digital channels, representing 147% growth versus the prior year. In addition, we are in the process of updating the Outback mobile app to improve off-premises execution for our customers and our operators.

We expect the new app to be available in Q3 of this year. As we increase off-premises revenue, we will also continue to grow our dine-in business. One of the key drivers is the new menu at Outback, which is performing ahead of expectations. We designed the menu to reinforce our [Inaudible] leadership through more accessible premium cuts and larger portions while also lowering menu prices.

We are seeing strong customer preference as guests are trading up to larger cuts of steak, enjoying larger portions and increasing their attachment rate on appetizers and beverages. In addition, the efficient menu design reduces complexity, which improves execution and consistency. This results in an improved customer experience. We'll be doing similar work at our other brands.

The positive momentum of our initiative is carrying into the second quarter. Through the first four weeks, second-quarter U.S. comparable sales are up 12.6% on a two-year basis versus 2019. It's clear customers want to come back to restaurants, and we are confident in our ability to provide a safe and welcoming dining experience.

Now turning to Brazil. Beginning in March, the country experienced a second spike in COVID cases, which caused the government to impose new lockdowns to slow the spread of the virus. This led to significantly reduced or closed in-restaurant dining capacity for a majority of the country. During this period, our restaurants primarily operated in off-premises-only capacity.

However, in recent weeks, we've seen in-restaurant dining restrictions beginning to ease. This has resulted in improving weekly sales volumes per store from $21,000 to $35,000 over the last four weeks. In addition, on April 24, São Paulo, which is our largest market, announced their in-restaurant dining capacity to 25%. This provides further optimism about the future continued pace of the recovery.

We expect these reduced sales volumes, while temporary, to disproportionately impact Brazil's second-quarter results. As a reminder, last year, when Brazil underwent the first wave of COVID, we had to operate with an off-premises-only business model. As capacity restrictions eased, sales improved quickly. We would expect a similar recovery once Brazil emerges from this recent wave of the virus.

These near-term headwinds do not diminish our long-term enthusiasm for the business. We remain optimistic and expect Brazil to emerge stronger with an even better market position when the pandemic subsides, given the following: first, we have a leading market position and Outback remains a highly regarded brand with strong consumer appeal; second, the competitive landscape could look very different on the other side of the pandemic. We expect that a large number of restaurants, as high as 30%, will remain permanently closed in Brazil. This reality, combined with a high level of pent-up demand for our brands, could provide meaningful and rapid growth opportunities for this business on the other side, the pandemic.

Third, we have an incremental revenue channel in off premises that did not exist before the pandemic and believe we can retain a large portion of this business, moving forward, even as restaurant dining grows. Lastly, we have a great local team in Brazil. We are confident that they will not only navigate the pandemic but also capture the major opportunities we will have once the crisis is over. Finally, returning to the U.S.

We have the financial power and capability to build our development pipeline in 2021 and beyond. Later, Chris will talk about the very successful refinancing that we just completed. As the environment stabilizes, we are finding opportunities for development. In the U.S., Outback new restaurants and relocations, along with new Fleming's and our stronghold markets, will be the priority.

In addition, we'll be building a few Aussie Grill test units. Internationally, we'll continue to expand our great business in Brazil, and they're able to fund their development. In summary, we are off to a terrific start. We are making significant progress against key initiatives to enhance the customer experience, simplify operations and optimize our cost structure.

The learnings developed through the pandemic have put us in even better position to capture these opportunities to drive total shareholder return. I can assure you, we will not rest on a success and will be aggressively pushing forward. We are confident we will emerge a better, stronger operations-focused company. And with that, I'll turn the call over to Chris.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Thanks, Dave, and good morning, everyone. I would like to start by providing a recap of our financial performance for the fiscal first quarter of 2021. Q1 U.S. comp sales finished up 3.3%.

This result reflected a significant improvement from the down 12.9% through seven weeks of Q1 that we discussed on our February earnings call. This improvement was driven by a combination of an improvement in our recent trends, as well as the lapping of the onset of the pandemic in March 2020. Moving into Q2, traditional one-year comp sales calculations will be less instructive as we lap the pandemic. Although we will continue to provide this one-year view, we will also share both a two-year comp sales perspective, as well as average weekly sales, to capture a more complete picture of our performance.

On a two-year basis, as compared to 2019, Q1 comp sales were down 7.3%. Two-year comp sales improved significantly as we moved into March. In addition, average weekly sales per restaurant increased from approximately $62,000 in January to $75,000 in March. There are three primary factors driving that improvement.

First, we are benefiting from several sales levers that are in place throughout our portfolio, such as the impact of the new Outback menu and our introduction of Tender Shack. Also, the investment in and growth of our off-premises business is among the most important of these levers. Over the course of Q1, we saw relatively consistent weekly off-premises sales volumes, even as in-restaurant sales returned as dining rooms reopened. We started and ended the quarter averaging roughly $23,000 per restaurant per week in off-premises sales.

Off-premises represented 35% of our U.S. sales in Q1, which is only down 2% from Q4. This occasion is proving to be highly incremental and will remain a key part of our growth strategy moving forward. Second, we ended the quarter with 100% of our domestic company-owned restaurants open with in-restaurant dining.

This is up from 85% at year end. We have also seen an easing of capacity restrictions while continuing to adhere to state and local rules, which vary across our portfolio. Third, the latest round of government stimulus has been a catalyst for sales increases. We saw a large increase in weekly sales volumes over the final two weeks of Q1 after the stimulus was distributed.

Importantly, we have seen this momentum carry forward into the second quarter. Through the first four weeks of Q2, our two-year U.S. comp sales has been plus 12.6%. And in the U.S., we have continued to average $75,000 a week in sales per restaurant.

Now turning to our brands. Outback Q1 comp sales were up 4.1%, and Carrabba's comp sales were up 8.9%. On a two-year basis, Outback and Carrabba's were down 5.8% and 0.6%, respectively. The two-year sales results at both brands were ahead of the major competitive benchmarks.

As has been the case since the onset of the pandemic, these brands relied heavily on our strong off-premises business. Total Q1 off-premises sales were 38% of revenues at Outback and 42% of revenue at Carrabba's. At Bonefish Grill, comp sales were down 2.9% in Q1 and down 16.3% on a two-year basis. The in-restaurant experience and bar-centric culture of Bonefish has been impacted more by capacity restrictions than our other casual dining brands.

Despite this, we have built an impressive off-premises business at Bonefish, and it represented 25% of their sales in Q1. Fleming's comps were down 2.3% in Q1 and down 15% on a two-year basis. Given their large California presence, 17% of Fleming's locations were closed for in-restaurant dining until mid-March. We are pleased with their ability to drive sales despite this significant headwind.

As it relates to other aspects of our Q1 performance, total revenues decreased 2% versus last year to $987 million. GAAP diluted earnings per share for the quarter was $0.63 versus $0.44 of diluted loss per share in 2020. Adjusted diluted earnings per share was $0.72 versus $0.14 of adjusted diluted earnings per share last year. Adjusted operating income for the quarter was $91 million.

This result exceeded our adjusted operating income from 2019 of $89 million. We achieved this level of operating income on $141 million less revenue than 2019. Adjusted operating income margin was 9.2% in Q1 versus 2.7% in 2020 and 7.8% in 2019. This improvement relative to 2020 is driven by our ongoing efforts to drive efficiency into our business through simplification.

In terms of our Q1 adjusted performance by cost category, COGS was 170 basis points favorable year over year, driven primarily by waste reduction and increases in check average following the rollout of the new Outback menu. As we indicated last call, our commodities are largely locked for 2021, and we expect little to no inflation for the year. The labor line was 300 basis points favorable year over year. Similar to COGS, we also benefited from simplification efforts.

This showed up in a reduction in food prep hours. We are also finding efficiencies in off-premises labor as that business continues to grow. In addition, we are lapping relief payments to our hourly employees from 2020. Operating expenses were 160 basis points favorable, due primarily to a $19 million reduction in domestic marketing expense year over year.

In addition, we had favorability in areas, such as R&M and utilities. This favorability was offset by increases in to-go supplies and third-party delivery fees related to the growth in off-premises. On the G&A front, Q1 was down $3.3 million from last year, net of adjustments. This includes the ongoing benefit of cost-savings initiatives that we have detailed on prior calls.

We remain on track to achieve $15 million of cost savings in 2021 and reaffirm that our G&A expense should be between $225 million and $230 million for the full year. Overall, we were pleased with our first-quarter results, and importantly, it keeps us on track for our long-term margin commitments we laid out for investors last quarter. On the franchise front, as California reopens, we are seeing improved sales performance for our 46 locations in the state. Over the last several weeks, our California market has been comping positive on a two-year basis.

We will be collecting on deferred royalty amounts as that business recovers. Our non-California franchise locations, both domestically and internationally, continue to perform well, and we are collecting royalties from these locations. Turning to our capital structure. We recently completed a refinancing of our credit facility and added a new $300 million bond into our stack.

The credit facility is a five-year $1 billion facility with a $200 million Term Loan A and a $800 million revolver. The facility carries an interest rate of LIBOR plus $250 million, and the rate will decrease as we pay down debt. The bond matures in 2029 and carries an interest rate of 5.125%. These moves have diversified our capital structure, staggered debt maturities, insured ample liquidity and secured our balance sheet for the foreseeable future.

Moving forward, we will continue to pay down debt with all excess free cash flow until we are at or below our targeted leverage ratio of three times net debt to EBITDAR. As our EBITDA continues to improve, we are confident that we can make significant progress toward achieving our objective in 2022. Once we reach our targeted ratio, we will evaluate further debt paydown or other uses of cash to enhance shareholder value. Turning to Q2.

As I discussed, we have seen significant domestic sales momentum to start the second quarter. In addition, we maintain a high degree of visibility in our margin improvement journey. Given this, we have provided guidance for the second quarter. We expect Q2 total revenues to be at least $1.03 billion.

This outcome for total revenues assumes a weekly average sales volume of approximately $72,000 in the U.S. for the remaining nine weeks of the quarter and a weekly average sales volume of $35,000 over the last few weeks of the quarter in Brazil. The U.S. volume assumption for the balance of the quarter is a slight decrease from current volumes on the assumption that there will be some resumption of traditional seasonality as we get into the summer months.

Should this seasonality not materialize, there will be upside to this outlook. We expect EBITDA to be at least $130 million, consistent with our Q1 EBITDA total. The primary reason, we do not expect a higher EBITDA flow-through on sales increases between Q1 and Q2 is driven by the short-term COVID-specific challenges we face in Brazil. Also, as Deno mentioned, there have been staffing challenges within the industry here in the U.S., but any costs associated with hiring have been built into our Q2 guidance.

We expect our U.S. segment sales, profit and operating margin to be better than Q1. We expect GAAP EPS to be at least $0.54 and adjusted EPS to be at least $0.60. The only adjustment to EPS that we are currently expecting in Q2 is to our diluted share count.

Under GAAP, we are not allowed to consider the share count benefit of the hedge that we entered into related to our convertible bond. We have taken that benefit into the share count used to derive adjusted EPS, which, in this case, is a $0.06 impact on Q2 EPS. In Q2, we expect that adjusted diluted share count will be approximately 99 million shares, but share count is highly dependent on our weighted average share price for the quarter. In our last earnings release, we provided a table that outlines expected dilution from the convert at various stock prices.

We believe our Q2 guidance reflects continued optimism for our current performance in the U.S. and a cautious near-term outlook on Brazil as they finish out their quarter. Given the ongoing uncertainty related to the pandemic and the shape of the recovery, we are not going to provide an outlook beyond Q2. We do, however, want to reinforce our confidence in the margin framework we laid out for investors last quarter.

As a reminder, that framework suggested that once sales achieved 2019 levels, our adjusted operating margin will be between 6.3% and 6.8%. This is a 150- to 200-basis-point improvement from 2019 levels. We have also committed to a longer-term framework to achieve 7.5% operating margins as sales improve over 2019 levels. This framework includes expansion of restaurant margins, lower depreciation expense and ongoing favorability in G&A.

In summary, this was another strong quarter for Bloomin' Brands, and we are well on our way to becoming a better stronger operations-focused company. And with that, we will open up the call for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question is coming from Jeffrey Bernstein of Barclays. Please go ahead.

Jeffrey Bernstein -- Barclays -- Analyst

Thank you. Good morning.

David Deno -- Chief Executive Officer

Good morning.

Jeffrey Bernstein -- Barclays -- Analyst

Two questions. One, just on the off-premise side of things, in terms of dollar retention because, obviously, that's more important than percentages here. But I think you mentioned you started and ended the quarter at $23,000 per week. I'm just wondering maybe where that was pre-COVID and where you think that $23,000 will settle once your dining rooms are fully reopened, just trying to gauge what you think the incremental sales could be on top of the full return of dine-in? And then I had one follow-up.

David Deno -- Chief Executive Officer

Sure. We believe as we've made the investment in off-premises carryout and delivery over the years that it's an incremental occasion. And our goal is to retain as much of that weekly volume as possible. And we've been very successful as dining room reopened to retain much of that.

And we anticipate that being an incremental occasion as the dining rooms reopen and gives us the impetus for same-store sales growth is one of the big reasons why we're seeing 12.6% sales growth versus 2019 right now. So it's an incremental occasion, and our goal is to hang on to as much of it as possible.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. And Jeff, just to give you more specificity on the actual numbers. So as you recall, Outback was 15% or so of sales pre-COVID. Carrabba's was a little north of 20% of sales pre-COVID.

We didn't have off-premises business to speak of at Bonefish or Fleming's. So I think that the number on a weekly sales volume standpoint, probably in that $13,000 per-store, per-week range, somewhere around there.

Jeffrey Bernstein -- Barclays -- Analyst

Got it. So you've got an incremental maybe $10,000 per store per week at Outback and presumably Carrabba's right now relative to pre-COVID?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah.

David Deno -- Chief Executive Officer

That's right. And we think the Carrabba's opportunities especially meaningful.

Jeffrey Bernstein -- Barclays -- Analyst

Got you. And my follow-up is just on the margin opportunity off of that incremental sales. I mean, if you would see those incremental sales hold, which, obviously, there's some skepticism that, that's fully sustainable. But if they were to hold, I'm just wondering how you think about the margin on those incremental sales.

Presumably there's less apps, desserts and drinks and things like that. You have some fees for whatever third-party delivery there might be, but just trying to get a feel for what you think the incremental flow-through would be or what that adds to your margin if you were to hold on to those sales.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. And you're talking specifically about off-premises, correct?

Jeffrey Bernstein -- Barclays -- Analyst

We're talking specifically about off-premise, yeah.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Got it. Yeah. So a couple of things. One, I think it does vary a little bit by channel.

But what I would say is, call it, 20% of the 35% that we had this quarter in off-premises mix was our to-go curbside. And the curbside margin is effectively -- and we've talked about this before, effectively as good as your in-restaurant experience. We've really got that thing wired. There's obviously less labor associated with it.

But from a margin flow-through standpoint, we're pretty much indifferent from a to-go standpoint versus in-restaurant. I would say, from a third-party standpoint, it is a little bit lower. But it is certainly pretty good relative to expectations. I think that what we talked about just a couple of years ago, there being a higher take rate, but that's -- for us, it's not an issue.

We feel very good about our third-party margins. So definitely an opportunity to generate some pretty high flow-through on these off-premises sales.

David Deno -- Chief Executive Officer

Jeff, if I just want to add one thing to the skeptics out there about off-premise. I mean, we have made significant investments in our digital efforts, and we improved our online ordering system this quarter to make it easier to do a lot of different things we hadn't done before. We're also making other digital investments that will enable the off-premises business. So this is not a static event.

This is something we're going to continue to build and grow.

Jeffrey Bernstein -- Barclays -- Analyst

And you said 20% of the 35% -- I just want to clarify, that's more than half of the 35%, not 20% of 35%?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Correct. Yes. More than half of the 35%.

Jeffrey Bernstein -- Barclays -- Analyst

Great. Thank you.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Sure.

Operator

Thank you. Our next question is coming from Alex Slagle of Jefferies. Please go ahead.

Alex Slagle -- Jefferies -- Analyst

Thanks. Good morning, and congrats. The margins I wanted to focus on, I guess labor. I mean, I have to go back five or six years to see anything this low.

Just given like the tightening labor availability and the demand capacity for dine-in, I imagine this would mark a low point for some time. And can you talk about the dynamics of what kind of volumes you need to maintain this level of margin or other initiatives you have in place to balance kind of getting the service level where you want it, also maintaining these strong margins?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. Sure. Thanks for the question. So here's the response I give.

As you digest the Q1 results, we are in a very different world with regards to labor than we were prepandemic. There's no question that we are running and will continue to run a more favorable and efficient labor model than we did in 2019. Between the simplification efforts with the menus driving favorability, we have a reduction in prep hours. And just generally speaking, there are more efficiencies now with how we staff our restaurants.

So given that Q1 sales exceeded our expectations, it's not surprising. We ran this level of favorability in labor. And in terms of kind of the trending and how we think about that, this favorability could continue to a large degree in Q2. Now as Dave indicated, we're going to have some step-up in training, given the volume increases, but that's all incorporated into the guidance.

So we feel pretty good about where we are with labor.

David Deno -- Chief Executive Officer

The other thing I want to add is, much like our off-premises business, we're making investments in our restaurants to help in enable our labor costs to manage that, but also improve customer service. We're making investments in back-of-the-house equipment. And much like our digital efforts on off premises, we're making investments in technology to help our front-of-the-house servers. So we have the scale and technology to move this forward.

And as Chris said, this is a completely different environment than it was prepandemic.

Alex Slagle -- Jefferies -- Analyst

Thanks. That's helpful. I'll pass it along.

Operator

Thank you. Our next question is coming from Brett Levy of MKM Partners. Please go ahead.

Brett Levy -- MKM Partners -- Analyst

Just one follow-up and then a question. The follow-up is you just mentioned front-of-house tech investments. Can you go a little bit more into detail in terms of magnitude of the investments, what you think you could see in terms of either productivity or savings and pacing? And then I have a follow-up.

David Deno -- Chief Executive Officer

Yeah. It's a little too early to say specific numbers, Brett, as what we think the technology savings will be. We believe it will be significant. There are two areas.

One, the phone, customer's phone is a big part of that, so they can control the customer experience and do pay at the table or the tables, other kind of things. And as we do, we've got the scale and technology and resources to do that. And then we've got to look at technology enablers for our servers, be tablets or whatever it might be to help with them as they go forward. So those are the two things we're doing, Brett.

It's in test. We're very optimistic about it, but it's a little too early to say exactly what the numbers would look like.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. And I'd say, in terms of capital, we are going to deploy within our capital budget this year. We've talked about the numbers, but we're going to deploy anywhere from $20 million to $30 million toward IT initiatives this year.

Brett Levy -- MKM Partners -- Analyst

Great. And then just going back to the macro side of it, sales environment. Can you give a little bit more clarity? We're starting to see more states going to this 100% capacity? I just saw Atlanta Sports says that their stadiums are going, they're actual stadiums are going there. So can you give a little bit more clarity or color into how you're seeing the general makeup across the country, the more and the less impacted, the earlier and the later markets?

David Deno -- Chief Executive Officer

Yeah. First of all, and I'll turn it over to Chris for some of the details. But we're seeing the benefit of it as the country opens up. People want to come back into in-restaurant dining.

We're keeping our off-premises sales, which is sales, which is so great, but we're seeing that throughout our system. We're seeing it throughout our concepts. And I'll turn it over to Chris, and I'll talk about some more details, but it's been a good tailwind for us.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. And just to give you some perspective of -- and we've talked about there being more of a regional SKU to performance, and that still seems to be the case. And again, it has a lot to do with the fact that a lot of these states are open up with 100% or so capacity, still with social distancing and things like that, but they're generally -- you're able to get a little better throughput into those boxes. States like -- just to give you perspective, this last, call it, this last four weeks or so quarter to date, states like Georgia, Tennessee, Texas, Alabama, they all have Q2 quarter-to-date comps in that 15% to 20% range on a two-year basis.

Florida continues to do very well, although it is a little bit regional, South Florida, a little bit slower, but we've seen a rebound in Orlando, Tampa, Jacksonville continue to be very strong. And then, of course, you have the flip side where it's the same states we've talked about where you have a little more in terms of restrictions. New York, New Jersey, Michigan, Minnesota, those have been a little behind in terms of our overall sales performance, but still even behind, they're in that either slightly down on a two-year basis or positive in the low single digits on a two-year basis. So we're seeing sort of a sea change across the portfolio, but there definitely is some regional bias.

Brett Levy -- MKM Partners -- Analyst

And then just one last clarification. Can you give us a number in terms of where you see total capacity right now in terms of seating, and then I'll turn it to the queue.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. Effective capacity, I'd say, is in that 70% to 75% range.

Operator

Thank you. Our next question is coming from Brian Vaccaro of Raymond James. Please go ahead.

Brian Vaccaro -- Raymond James -- Analyst

Thanks, and Good morning. I wanted to ask about the labor market in current situation. Can you just help frame where you stand in terms of your current staffing levels versus pre-COVID and how you plan to manage the current situation? I think hiring trends is always a big cost for the industry. Maybe just perspective on how much higher versus normal that could run in the near term? And any other perspectives you see worth highlighting?

David Deno -- Chief Executive Officer

Well, first of all, let me say one of the big competitive advantages we had, which was a very smart movement on our company's behalf, was that we did not furlough or let anybody go during the pandemic. So that gave us a higher staffing base, a more committed employee base, higher retention and low -- very low turnover. So that base is extremely important as we go forward. Now we do participate in the restaurant business, and our comp store sales are up 12.6% so far this quarter.

And Chris also mentioned that you can't look at 2019 staffing levels and say that we will return to those levels, given that's such a different world in the pandemic. So we are staffing where we need to be. We don't have any significant problems. Our team is doing a great job addressing the opportunities.

And as we go forward, the guidance, the labor cost guidance -- labor costs are in our guidance and is part of our model going forward. But I think the decision to hang on to our people, not let anybody go was crucial as we got to this point.

Brian Vaccaro -- Raymond James -- Analyst

All right. And a lot of moving pieces, obviously, comparing the business today versus pre-COVID. The sales channels that are coming in and the different efficiencies, some of which are unique to you as you streamline the business, etc. But I guess the question that I had was, is there a way to frame -- the business today is generating AUVs that are around 10% above '19 levels.

Taking into consideration the reduced prep hours, the efficiencies associated with off premise, obviously, less server, labor, etc., is there a way to frame sort of the cost per-week dynamic that you compared to '19 for an average restaurant that you run that you would need to get back to, to comfortably run AUVs in the high single digits or 10% versus pre-COVID?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. I don't have an immediate answer to that in terms of cost per week. I guess what I would say, Brian, is as you think about our go-forward efficiencies and our go-forward margin structure, I would just fall back on the commentary we gave last quarter where we laid out a very detailed framework by category in terms of how we think this could come together and play out. But -- and kind of to your point, one thing we did say, though, is that we had an opportunity to get to 7.5% operating margins as the sales environment improved over 2019 levels, indicating that we do believe there is ability to further leverage the P&L as sales volumes improve.

And look, we're seeing that right now, obviously. So I would say in terms of -- sort of -- not the cost per-week answer, but really just in terms of framing the go-forward margin opportunity with the context of the environment we see today.

Brian Vaccaro -- Raymond James -- Analyst

All right. Fair enough. And then also, just one quick follow-up, if I could. Just could you provide a quick update on Tender Shack where the weekly volumes are trending for that business as it moves through the first quarter and quarter to date relative to the prior targets you provided?

David Deno -- Chief Executive Officer

Sure. We continue to do well in Tender Shack across all of our dimensions, be it financial impact to our restaurants, acceptance by consumers and running it by the operators. They're doing a really good job on that. When the restaurant dining occasion opened back up, the sales at Tender Shack did soften a bit.

We do believe that the $75 million annualized sales goal is attainable, but we have some work to do on that. With the restaurants reopening, we've got to increase the brand awareness. We've got to add some potentially some additional products. We've got to look at -- pickup opportunity in our restaurants, and we're looking at some partnerships.

But most importantly, our sales volumes right now are above our -- they're profitable, they're above our -- the goals that we need to set and we expect to see further improvement so far in the Tender Shack opportunity.

Brian Vaccaro -- Raymond James -- Analyst

All right. Thank you.

Operator

[Operator instructions] Our next question is coming from Sharon Zackfia of William Blair. Please go ahead.

Sharon Zackfia -- William Blair -- Analyst

Hi. Good morning, and congratulations on a strong first quarter and an incredible April. I guess it would be helpful to kind of get some insight into what restaurant level margins looked like for you domestically in April. And I'm wondering -- I know you've talked about the shift in marketing to focus more on digital, but I'm wondering if there were any other shifts that you've done as on premises has rebounded, whether you've pulled away at all from kind of off-premises marketing or made any other changes to the way you're addressing the consumer.

David Deno -- Chief Executive Officer

Yeah. Sharon, thank you for the compliment. We appreciate it. The sales growth or the digital efforts that we're going to -- that we're doing will continue.

There is going to be, post pandemic, certainly, a shift in digital versus network television or cable television and things like that. And we're very well prepared to make even more investments in that category. We have very good sense of what our return on investments look like from the marketing standpoint, and we're going to support our dine-in business and our off-premise business. We'll do both.

And we'll continue to examine the marketplace and continue to spend primarily up against our digital efforts as we move forward.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. And on the restaurant-level margin, we're still in the process of closing the books for April. But what I would tell you is the early read would suggest that we are on track to achieve what we talked about in the prepared remarks, which is we do expect to see improvement in margins in Q2 from Q1, driven a lot by the higher sales levels and a continuation of some of the efficiencies that we saw in Q1.

Sharon Zackfia -- William Blair -- Analyst

Thank you.

Operator

Thank you. Our next question is coming from Rahul Kro of J.P. Morgan. Please go ahead.

Rahul Kro -- J.P. Morgan -- Analyst

Good morning, guys. Thanks for taking my questions. this is Rahul for John Ivankoe from J.P. Morgan.

I'm just curious to -- wanted to understand better on what -- like -- if there is a way to quantify what kind of contribution in these results are from, say, temporary lag of hiring or inflation, just because of structural -- better efficiency improvements. I'm just trying to get a better sense of divergence between both these items.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. So I think that as you think about labor in Q1, I would say the majority of the favorability that we're seeing relative to 2019 levels is driven by the simplification efforts that we're seeing. And in terms of the hiring that we may have to do or the costs, in terms of hiring, the training costs those are not prohibitive. They're not going to be middle number in our P&L results.

That's why we feel confident we could build them into the guidance and still have margin expansion in the second quarter. So again, there are some increases in cost. There are some -- there is some element of sales being a little ahead of inflation, but the majority of our labor favorability that you see in Q1 is being driven by our simplification efforts.

Rahul Kro -- J.P. Morgan -- Analyst

Understood. Thanks, guys.

Operator

Thank you. Our next question is coming from Karen Holthouse of Wells Fargo. Please go ahead.

Karen Holthouse -- Wells Fargo Securities -- Analyst

Hi. This is Karen on for John Tower. Another margin question for you. And maybe instead of kind of working forward, working backwards.

And if you look in the quarter, you were outperforming both at 6.3% to 6.8% margin target and even the longer-term one. And I understand and seasonality is at play. But if we start to look at that more by cost bucket, could you sort of frame it as the line items where you think you might have been overshooting in the quarter?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Well, your point is spot-on. I do think that there is a seasonality of the business where Q1 will tend to over perform from a margin perspective. I don't think anything we saw in Q1 changes us for long-term framework we provided where we said, "Hey, look, we do believe there's 50 basis points or so of restaurant margin expansion in the long-term model." I think you're going to see that in COGS. You're going to see that in labor.

You're going to see that in advertising with some give back in restaurant operating expenses. So with that framework, everything really came together kind of how we said it was going to come together. Now we just have the sales to support the hypothesis that we laid out for investors last quarter. So I think we're in pretty good shape on that front.

David Deno -- Chief Executive Officer

Yeah. I think, Karen, too, we're making the investments in our business to continue to enhance margins and improve customer service. We talked about the digital investments. This will help us on managing waste, this will help us on the labor cost going forward, all different kind of aspects of our business.

So not only are we enjoying the margin benefits right now, we are investing behind the business to set us up for the long-term to continue this kind of margin performance that we've been having.

Karen Holthouse -- Wells Fargo Securities -- Analyst

And then one just quick question on the off premise. Can you share the -- just percent of sales that was off premise at Outback and Carrabba's in the first quarter and then in the April quarter-to-date number?

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. Outback was 38% of revenue, and Carrabba's was 42% of revenue. And what was the other part of again?

Karen Holthouse -- Wells Fargo Securities -- Analyst

And for the April -- for the quarter and then also in the April number.

Chris Meyer -- Executive Vice President and Chief Financial Officer

Yeah. We'll get back to you. We don't have that.

Karen Holthouse -- Wells Fargo Securities -- Analyst

All right. Thank you.

Operator

Thank you. At this time, I'd like to turn the floor back over to Mr. Deno for closing comments.

David Deno -- Chief Executive Officer

Well, thank you for attending, everybody. We appreciate your time and look forward to updating you in July on our second-quarter results.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Mark Graff -- Group Vice President of Investor Relations

David Deno -- Chief Executive Officer

Chris Meyer -- Executive Vice President and Chief Financial Officer

Jeffrey Bernstein -- Barclays -- Analyst

Alex Slagle -- Jefferies -- Analyst

Brett Levy -- MKM Partners -- Analyst

Brian Vaccaro -- Raymond James -- Analyst

Sharon Zackfia -- William Blair -- Analyst

Rahul Kro -- J.P. Morgan -- Analyst

Karen Holthouse -- Wells Fargo Securities -- Analyst

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