421893

Bloomin' Brands (NASDAQ:BLMN) Posts Q4 Sales In Line With Estimates


Full Report / February 23, 2024

Restaurant company Bloomin’ Brands (NASDAQ:BLMN) reported results in line with analysts' expectations in Q4 FY2023, with revenue up 9.1% year on year to $1.19 billion. It made a non-GAAP profit of $0.75 per share, improving from its profit of $0.68 per share in the same quarter last year.

Bloomin' Brands (BLMN) Q4 FY2023 Highlights:

  • Revenue: $1.19 billion vs analyst estimates of $1.20 billion (small miss)
  • EPS (non-GAAP): $0.75 vs analyst estimates of $0.69 (8.6% beat)
  • EPS (non-GAAP) Guidance for Q1 2024 is $0.73 at the midpoint, below analyst estimates of $0.93
  • Gross Margin (GAAP): 17.6%, down from 18.3% in the same quarter last year
  • Same-Store Sales were down 0.2% year on year
  • Store Locations: 1,480 at quarter end, decreasing by 27 over the last 12 months
  • Market Capitalization: $2.31 billion

Owner of the iconic Australian-themed Outback Steakhouse, Bloomin’ Brands (NASDAQ:BLMN) is a leading American restaurant company that owns and operates a portfolio of popular restaurant brands.

The company was founded in 1988 when a group of three visionary restauranteurs (Chris Sullivan, Bob Basham, and Tim Gannon) came together to form Multi-Venture Partners, whose objective was to build durable restaurant franchises.

They launched their first eatery, Outback Steakhouse, shortly after forming the company and have since expanded its banners to include Carrabba's Italian Grill, Bonefish Grill, and Fleming's Prime Steakhouse & Wine Bar. Aside from the upscale Fleming’s, each restaurant caters to those seeking a casual dining experience.

Each banner within the Bloomin’ Brands’ family offers a unique culinary journey. Outback is known for its heavy appetizers such as the Bloomin’ Onion and hearty portions of grilled steaks, seafood, and chicken. Carrabba's captures the essence of Italian cuisine with its made-from-scratch pastas and wood-fired pizzas. Bonefish specializes in fresh seafood dishes prepared with unique and vibrant flavors, and Fleming's sets the stage for a sophisticated dining experience with its prime steaks, indulgent sides, and extensive wine selection.

Bloomin’ Brands’ restaurants are typically located in suburban areas and designed to create an inviting ambiance for guests, providing the perfect setting for any occasion whether it be a family dinner, romantic date night, or celebratory gathering.

Sit-Down Dining

Sit-down restaurants offer a complete dining experience with table service. These establishments span various cuisines and are renowned for their warm hospitality and welcoming ambiance, making them perfect for family gatherings, special occasions, or simply unwinding. Their extensive menus range from appetizers to indulgent desserts and wines and cocktails. This space is extremely fragmented and competition includes everything from publicly-traded companies owning multiple chains to single-location mom-and-pop restaurants.

Multi-brand full-service restaurant competitors include Brinker International (NYSE:EAT), Darden (NYSE:DRI), Dine Brands (NYSE:DIN), Texas Roadhouse (NASDAQ:TXRH), and The Cheesecake Factory (NASDAQ:CAKE).

Sales Growth

Bloomin' Brands is one of the larger restaurant chains in the industry and benefits from a strong brand, giving it customer mindshare and influence over purchasing decisions.

As you can see below, the company's annualized revenue growth rate of 3.1% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was weak as its restaurant footprint remained unchanged, implying that growth was driven by more sales at existing, established dining locations.

Bloomin' Brands Total Revenue

This quarter, Bloomin' Brands's revenue grew 9.1% year on year to $1.19 billion, missing Wall Street's expectations. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months, a deceleration from this quarter.

Number of Stores

A restaurant chain's total number of dining locations often determines how much revenue it can generate.

When a chain like Bloomin' Brands doesn't open many new restaurants, it usually means there's stable demand for its meals and it's focused on improving operational efficiency to increase profitability. As of the most recently reported quarter, Bloomin' Brands operated 1,480 total locations, in line with its restaurant count a year ago.

Bloomin' Brands Operating Retail Locations

Taking a step back, Bloomin' Brands has kept its locations more or less flat over the last two years compared to other restaurant businesses. A flat restaurant base means Bloomin' Brands needs to boost foot traffic and turn tables faster at existing restaurants or raise prices to generate revenue growth.

Same-Store Sales

Bloomin' Brands's demand within its existing restaurants has generally risen over the last two years but lagged behind the broader sector. On average, the company's same-store sales have grown by 2.7% year on year. Given its flat restaurant base over the same period, this performance stems from increased foot traffic or larger order sizes per customer at existing locations.

Bloomin' Brands Year On Year Same Store Sales Growth

In the latest quarter, Bloomin' Brands's year on year same-store sales were flat. By the company's standards, this growth was a meaningful deceleration from the 1.4% year-on-year increase it posted 12 months ago. We'll be watching Bloomin' Brands closely to see if it can reaccelerate growth.

Gross Margin & Pricing Power

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate pricing power and differentiation, whether it be the dining experience or quality and taste of food.

Bloomin' Brands's gross profit margin came in at 17.6% this quarter. in line with the same quarter last year. This means the company makes $0.17 for every $1 in revenue before accounting for its operating expenses. Bloomin' Brands Gross Margin (GAAP)

Bloomin' Brands has poor unit economics for a restaurant company, leaving it with little room for error if things go awry. As you can see above, it's averaged a 17.2% gross margin over the last two years. Its margin, however, has been trending up over the last 12 months, averaging 2.1% year-on-year increases each quarter. If this trend continues, it could suggest a less competitive environment.

Operating Margin

Operating margin is an important measure of profitability for restaurants as it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.

This quarter, Bloomin' Brands generated an operating profit margin of 4.8%, down 3.5 percentage points year on year. Because Bloomin' Brands's operating margin decreased more than its gross margin, we can infer the company was less efficient with its expenses or had lower leverage on its fixed costs.

Bloomin' Brands Operating Margin (GAAP)

Zooming out, Bloomin' Brands was profitable over the last two years but held back by its large expense base. It's demonstrated mediocre profitability for a restaurant business, producing an average operating margin of 7.3%. Its margin has also seen few fluctuations, meaning it will take a big change to improve profitability.

EPS

Earnings growth is a critical metric to track, but for long-term shareholders, earnings per share (EPS) is more telling because it accounts for dilution and share repurchases.

In Q4, Bloomin' Brands reported EPS at $0.75, up from $0.68 in the same quarter a year ago. This print beat Wall Street's estimates by 8.6%.

Bloomin' Brands EPS (Adjusted)

Between FY2019 and FY2023, Bloomin' Brands's adjusted diluted EPS grew 90.7%, translating into a decent 17.5% compounded annual growth rate. This growth is materially higher than its revenue growth over the same period, showing that Bloomin' Brands has excelled in managing its expenses.

Over the next 12 months, however, Wall Street is projecting an average 12% year-on-year decline in EPS.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to how much money the business raised (debt and equity).

Although Bloomin' Brands hasn't been the highest-quality company lately because of its poor top-line performance, it historically did a solid job investing in profitable business initiatives. Its five-year average ROIC was 11.5%, higher than most restaurant companies.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last two years, Bloomin' Brands's ROIC averaged 12.5 percentage point increases each year. This is a good sign and we hope the company can continue improving.

Key Takeaways from Bloomin' Brands's Q4 Results

We were impressed by how significantly Bloomin' Brands blew past analysts' gross margin and EPS expectations this quarter. On the other hand, its revenue missed as its same-store sales were flat. Double-clicking into its same-store sales by banner, however, we can see that Carrabba's Italian Grill was its lone bright spot with same-store sales rising 2.5%.

For 2024, the company expects to open 40 to 45 new restaurants and grow its same-store sales by 1%, though it expects same-store sales to be down next quarter (signaling an acceleration in the back half of the year as it'll be growing off easier year-on-year comps). On the EPS side, its forecast unfortunately fell short of Wall Street's estimates. Zooming out, we think this was still a decent, albeit mixed, quarter, showing that the company is staying on track. The stock is flat after reporting and currently trades at $26.5 per share.

Is Now The Time?

Bloomin' Brands may have had a favorable quarter, but investors should also consider its valuation and business qualities when assessing the investment opportunity.

We cheer for all companies serving consumers, but in the case of Bloomin' Brands, we'll be cheering from the sidelines. Its revenue growth has been weak over the last four years, and analysts expect growth to deteriorate from here. And while its well-known reputation makes consumers more likely to eat at its restaurants, the downside is its projected EPS for the next year is lacking. On top of that, its gross margins make it more challenging to reach positive operating profits compared to other restaurant businesses.

Bloomin' Brands's price-to-earnings ratio based on the next 12 months is 10.4x. While we've no doubt one can find things to like about Bloomin' Brands, we think there are better opportunities elsewhere in the market. We don't see many reasons to get involved at the moment.

Wall Street analysts covering the company had a one-year price target of $28.58 per share right before these results (compared to the current share price of $26.50).

To get the best start with StockStory, check out our most recent stock picks, and then sign up to our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds of the data being released, and especially for companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.