Bloomin’ Brands, Inc. — Q2 2021 Form 10-Q
Reporting period: Thirteen and twenty-six weeks ended June 27, 2021. Unaudited results; dollar amounts below are in U.S. dollars. Bloomin’ Brands operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Comparisons with 2020 reflect a sharply disrupted COVID-19 period, so the company also provides selected comparisons with 2019.
Financial results and liquidity
| Metric | Q2 2021 | First half 2021 |
|---|---|---|
| Total revenue | $1,077.4 million; +86.2% year over year and +5.4% versus Q2 2019 | $2,064.8 million; versus $1,586.8 million in 2020 |
| Operating income (loss) | $124.6 million; 11.6% of revenue | $215.6 million; versus a $153.5 million loss |
| Net income (loss) | $84.9 million; $82.5 million attributable to Bloomin’ Brands | $154.7 million; $151.4 million attributable to Bloomin’ Brands, versus a $126.8 million net loss in 2020 |
| Diluted EPS | $0.75; adjusted diluted EPS $0.81 | $1.38; adjusted diluted EPS $1.53 |
| Restaurant-level operating margin | 20.3%, versus 2.1% in 2020 and 15.0% in 2019 | 19.6%, versus 8.4% in 2020 |
| Operating cash flow | $283.2 million in the first half, versus cash used of $3.3 million in 2020 | |
| Capital expenditures | $51.4 million in the first half |
At June 27, 2021, cash and cash equivalents were $101.3 million, with another $1.8 million in restricted cash. Total debt, net of discounts and issuance costs, was $850.1 million; debt principal was $864.0 million. The company also reported substantial lease liabilities, including $1,207.1 million of non-current operating lease liabilities. Current liabilities exceeded current assets by $666.4 million; management notes that negative working capital is common in the restaurant industry and cites operating cash receipts and gift-card sales as funding sources.
Available unused revolving-credit capacity was $645.3 million, net of letters of credit. Operating cash flow and revolving-credit availability are the company’s stated principal liquidity sources.
Changes and operating performance
- U.S. comparable sales rose 84.6% versus Q2 2020 and 12.1% versus Q2 2019. The 2020 comparison is affected by pandemic closures; the 2019 comparison offers additional context.
- Management attributed the sales recovery to more in-restaurant dining and strong retention of off-premises sales. First-half U.S. segment revenue increased to $1,908.0 million from $1,431.6 million. International first-half revenue was $156.9 million, nearly flat with $155.2 million in 2020, including a negative foreign-currency translation impact.
- Q2 restaurant-level margin improved as sales recovered and the company leveraged restaurant costs. For the quarter, food and beverage costs were 29.6% of restaurant sales, labor 28.0%, and other restaurant operating costs 22.1%. Management cited reduced discounting and favorable product mix, cost savings, and lower off-premises-related costs; higher utilities, wages, insurance and incentive compensation partly offset improvements.
- First-half impairment and restaurant-closing charges fell to $7.4 million from $66.3 million. The 2020 period included substantial COVID-19-related charges, including impairments and closures of 22 restaurants.
- Restaurant footprint at quarter-end was 1,484 system-wide locations: 1,163 company-owned and 321 franchised. The filing’s overview gives these same ownership totals.
Debt, outlook, risks and unusual items
- Refinancing: In April 2021, the company issued $300 million of 5.125% senior unsecured notes due 2029 and replaced its former credit facility with a $1.0 billion senior secured facility, comprising a $200 million term loan and an $800 million revolver, maturing in 2026. Net note proceeds were used to repay prior facility borrowings. The company reported compliance with debt covenants at June 27 and said it expected to remain compliant over the next 12 months.
- Restrictions: The credit agreement restricts certain dividends, share repurchases and acquisitions until compliance with the leverage covenant for the period ending September 26, 2021. The company paid no common dividends and made no share repurchases in Q2. It also faces a $200 million 2021 capital-expenditure ceiling under the facility.
- Capital spending outlook: Management estimated 2021 capital expenditures of approximately $140–$150 million. The filing does not provide a company-wide revenue or earnings forecast.
- Post-quarter Carrabba’s transaction: On August 2, 2021, the company paid $61.9 million to terminate future U.S. Carrabba’s royalties and certain international opening fees. It funded the payment primarily with revolver borrowings and the remainder from cash. The payment was recorded as expense in the quarter ended September 26, 2021, not in Q2.
- Nonrecurring revenue: Q2 and first-half results included $6.3 million of other revenue from favorable Brazilian court rulings on PIS/COFINS taxes, relating primarily to recoverable prior-period taxes and interest to be offset against future tax payments.
- Key risks: The filing highlights COVID-19 effects, consumer demand, labor availability and wage increases, commodity prices and supplier concentration, competition, foreign exchange (particularly the Brazilian real), leverage and variable interest rates, litigation, and the ability to execute restaurant investment plans. A 10% change in foreign exchange rates would have changed first-half foreign-subsidiary revenue by $16.8 million; management said the net-income effect would not have been material.
- Contingencies: Legal reserves were $5.9 million. Management said additional losses were reasonably possible but could not estimate a loss range beyond recorded reserves. Lease guarantees had $27.9 million of potential undiscounted payments, a $22.9 million present value and a recorded liability of $10.3 million.
- The company reported no material change to the risk factors in its 2020 Form 10-K. Management concluded disclosure controls were effective as of June 27, 2021.
Most important facts for investors to verify
- Whether sales and restaurant-level margins remain strong against more normalized, non-pandemic comparisons, and whether labor, utility and commodity cost pressures offset operating leverage.
- Progress toward the $140–$150 million 2021 capital-spending estimate, and the cash and borrowing impact of the $61.9 million Carrabba’s royalty buyout.
- Debt balances, revolver availability and compliance with the tighter leverage covenant beginning with the September 26, 2021 period; also note restrictions on dividends and other payments.
- How much reported earnings benefit from the Brazilian tax recovery and other nonrecurring or adjusted items, and how GAAP results compare with management’s non-GAAP measures.
- Developments in legal claims and lease guarantees, pandemic conditions, staffing and supply availability, and foreign-exchange exposure in Brazil.