Bloomin’ Brands, Inc. — Q1 2019 Form 10-Q
Reporting period: Thirteen weeks ended March 31, 2019; comparable period ended April 1, 2018. Bloomin’ Brands owned and operated 1,174 restaurants and franchised 307 across four concepts and 20 countries.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $1,128.1 million | $1,116.5 million |
| Operating income / margin | $82.5 million / 7.3% | $78.4 million / 7.0% |
| Net income attributable to Bloomin’ Brands | $64.3 million | $65.4 million |
| Diluted EPS | $0.69 | $0.68 |
| Adjusted diluted EPS (non-GAAP) | $0.75 | $0.71 |
| Operating cash flow | $83.9 million | $51.5 million |
| Capital expenditures | $44.7 million | $48.3 million |
- Revenue increased 1.0%, primarily on stronger U.S. comparable sales and restaurant openings; foreign exchange and closures partly offset growth.
- Restaurant-level operating margin was 17.1%, compared with 16.6%. Cost of sales improved to 31.7% of restaurant sales from 32.0%; labor costs rose to 28.7% from 28.3%. Management cited pricing and cost savings as offsets to commodity and wage inflation.
- Interest expense increased to $11.2 million from $10.3 million, mainly due to higher interest rates. The effective tax rate rose to 7.7% from 2.8%, largely because the prior-year period included favorable discrete tax benefits.
- Cash and equivalents were $82.8 million at quarter-end. Current assets were $249.8 million and current liabilities $822.0 million, a $572.2 million working-capital deficit.
- Debt totaled $1.064 billion, including $468.8 million under the term loan and $595.4 million drawn on the revolver. The company reported $382.6 million of unused revolver capacity, net of letters of credit, and compliance with debt covenants. Operating lease liabilities were $1.455 billion.
Changes, outlook and notable items
- U.S. comparable sales rose 2.4%, while traffic declined 0.9% and average check increased 3.3%. Brazil comparable sales rose 3.7%, with traffic down 2.4%; reported international sales were affected by Brazilian real weakness.
- U.S. segment revenue was $1.015 billion and operating income $113.0 million, versus $998.7 million and $109.1 million. International revenue declined to $113.6 million from $117.8 million, while operating income increased to $13.7 million from $8.3 million, reflecting improved comparable sales and lower impairment and closure costs.
- Operating cash flow improved year over year, primarily from timing of receivable collections and payments; higher interest and tax payments partly offset the increase. Financing cash use included dividends and debt repayments. No shares were repurchased in the quarter.
- The company adopted the new lease accounting standard at the start of fiscal 2019. It recorded $1.3 billion of right-of-use assets and $1.5 billion of lease liabilities; reported balance-sheet and working-capital comparisons are therefore affected. The adoption also eliminated recognition of deferred sale-leaseback gains in earnings, which weighed on restaurant operating expense versus the prior-year period.
- Management estimated 2019 capital expenditures of $175 million to $200 million and stated expected liquidity was adequate for obligations for at least the next 12 months. No full-year revenue or earnings guidance was provided in the supplied filing text.
- The company sold 18 U.S. Carrabba’s locations to an existing franchisee for $3.6 million. It also agreed to sell five surplus properties for $12.8 million, with closing expected in 2019. Certain assigned restaurant leases carry contingent guarantees: potential undiscounted payments were approximately $34.2 million; no liability was recorded.
- Impairment and restaurant-closing charges were $3.6 million, primarily related to closure initiatives and locations considered for remodel, relocation or closure. Management cited competition, wage and commodity costs, consumer demand, foreign exchange, leverage and interest rates among material risks. Legal liabilities recorded were $2.4 million; management did not expect the matters to materially affect results or cash flows.
Important facts for investors to verify
- Whether comparable-sales growth can persist if traffic remains negative, and how much growth depends on pricing and check increases.
- How commodity, labor and interest-rate pressures affect margins, debt service and cash generation.
- Whether the improved operating cash flow reflects sustainable performance or mainly working-capital timing.
- The effect of lease accounting on comparisons, reported liabilities and future lease-related cash obligations.
- Progress against the $175–$200 million capital expenditure estimate, liquidity needs, and the company’s decisions on dividends, debt repayment and the $150 million share-repurchase authorization.
- Exposure to Brazilian currency movements, restaurant closures and impairments, and the contingent lease guarantees.