Bloomin’ Brands, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; unaudited. Bloomin’ Brands operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s and Roy’s. It reported 1,478 system-wide restaurants, including company-owned, franchised and joint-venture locations.
Financial performance
Amounts below are USD millions except per-share data and percentages.
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Total revenue | $1,092.3 | $1,055.6 | +3.5% |
| Income from operations | $96.9 | $90.4 | +7.1% |
| Operating margin | 8.9% | 8.6% | +0.3 percentage points |
| Net income attributable to Bloomin’ Brands | $63.2 | $50.0 | +26.4% |
| Diluted EPS | $0.50 | $0.47 | +$0.03 |
| Operating cash flow | $18.1 | $2.1 | +$16.0 |
| Capital expenditures | $41.0 | $34.0 | +$6.9 |
Restaurant sales were $1,082.4 million. Combined comparable sales at the four core domestic concepts rose 1.6%, versus 5.2% a year earlier. Cost of sales increased to 32.3% of restaurant sales from 32.1%; labor improved to 27.7% from 28.1%, while other restaurant operating costs rose to 21.6% from 20.9%. The effective tax rate declined to 14.1% from 19.2%. The company reported a $4.5 million foreign-currency translation loss in other comprehensive income.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $217.5 million, down $44.2 million from year-end; restricted cash was $19.0 million.
- Total debt carrying amount was $1,478.0 million, including $1,451.7 million of long-term debt net of discount and current portion. The $975 million senior secured term loan B and approximately $491.5 million CMBS borrowings were the principal obligations.
- Working capital was a deficit of $146.8 million, including $232.1 million of unearned revenue, largely related to gift cards and promotional sales. Management said negative working capital is common in its restaurant model.
- The $225 million revolver had no borrowings; $37.6 million was committed to letters of credit, leaving approximately $187.4 million available. The company reported compliance with debt covenants.
- Operating cash flow was $18.1 million, while investing activities used $38.4 million and financing activities used $21.2 million. Cash flow comparisons are affected by the prior-year $192.9 million sale-leaseback proceeds and major refinancing transactions.
Material changes, outlook and notable items
- Sales growth reflected $24.7 million from new restaurants and a $15.9 million increase in comparable sales, partly offset by closures. Management attributed traffic gains to daypart expansion, menu and service initiatives, promotions and renovations; weather and the extra February day in leap-year 2012 were offsets. Comparable-sales growth slowed amid pressure on discretionary consumer spending.
- Management planned 45–55 system-wide restaurant openings in 2013 and estimated 2013 capital expenditures of $220–$250 million. In April it accelerated a multi-year Outback relocation program, initially about 10–20 restaurants, with an estimated $4–$8 million of 2013 expense.
- On April 10, 2013, after quarter-end, the company repriced its $975 million term loan. The lower spread is expected to reduce annual cash interest by about $12 million (about $9 million in 2013), assuming constant principal and rates. The transaction required an approximately $10 million prepayment penalty; total repricing costs were estimated at $14–$17 million.
- A possible $40–$50 million tax benefit could result if the company reverses part of its U.S. deferred-tax valuation allowance. Management said it would consider reversal within 9–12 months if U.S. pretax income remained sufficient; this was not a guaranteed benefit.
- A settlement gave T-Bird franchise entities a put right, exercisable through August 13, 2013, that could require Bloomin’ Brands to purchase interests associated with 56 California Outback restaurants. The filing does not provide a clear purchase price.
- Unusual items included a $2.2 million gain in G&A from terminating split-dollar insurance agreements and lower impairment/closure charges ($1.9 million versus $4.4 million). Q1 2012 included a $2.9 million debt-extinguishment loss and transaction and management expenses; adjusted non-GAAP earnings should be distinguished from GAAP results.
- Principal risks cited include restaurant competition and consumer spending, labor and commodity-cost inflation, expansion execution, weather, food safety, foreign exchange, taxes, substantial leverage and restrictive debt covenants. The company said market-risk exposure had not materially changed since year-end. Disclosure controls were assessed as effective, with no material quarterly change in internal control reported.
Important facts for investors to verify
- Whether comparable-sales trends and traffic improved after the reported slowdown, including performance by brand.
- Actual capital spending, openings and relocation costs against management’s 2013 estimates.
- The realized interest savings and total accounting and cash costs of the April loan repricing.
- Any exercise or resolution of the T-Bird put right and its financing and earnings implications.
- Progress toward any deferred-tax valuation-allowance release and the assumptions supporting it.
- Cash generation, debt paydown and covenant headroom, considering the working-capital deficit and partner-plan funding obligations.