Bloomin’ Brands, Inc. — Q1 2021 Form 10-Q
Reporting period: Thirteen weeks ended March 28, 2021. The unaudited filing covers a restaurant operator and franchisor with Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s. At quarter-end, it operated 1,160 restaurants and franchised 316 across 47 states, Guam and 20 countries.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $987.5 million | $1,008.3 million |
| Income (loss) from operations | $91.0 million | ($41.6 million) |
| Net income (loss) attributable to Bloomin’ Brands | $68.9 million | ($34.6 million) |
| Diluted EPS | $0.63 | ($0.44) |
| Operating cash flow | $141.0 million | $28.3 million |
| Capital expenditures | $19.4 million | $32.8 million |
- Restaurant-level operating margin, a supplemental non-GAAP measure, rose to 18.8% from 12.1%. Consolidated operating margin was 9.2%, versus negative 4.1%.
- Cash and cash equivalents were $136.7 million at March 28, 2021. The company reported $1.0 billion of principal debt outstanding, including $770.6 million under its senior secured credit facility and $230.0 million of 5.00% convertible notes due 2025. It had $624.9 million of unused revolving capacity, net of letters of credit, and reported covenant compliance.
- Current liabilities exceeded current assets by $659.0 million. The filing says negative working capital is common in the restaurant business and reflects, in part, $315.0 million of unearned revenue, primarily unredeemed gift cards, and current lease liabilities.
- Operating cash flow less capital expenditures was approximately $123.6 million. Financing activities used $96.9 million, primarily reflecting net revolving-credit repayments. Cash increased $26.3 million during the quarter.
Changes versus the prior-year quarter
- Revenue declined 2.1%. U.S. revenue increased to $904.9 million from $894.5 million, while international revenue fell to $82.6 million from $113.8 million, affected by weaker comparable sales and Brazilian real translation.
- U.S. comparable sales rose 3.3% year over year, but were 7.3% below Q1 2019; U.S. traffic was 8.3% below 2019. Brazil Outback comparable sales declined 21.4% year over year. Comparisons are affected by the prior-year onset of COVID-19 and dining-room closures.
- Profitability rebounded as 2020’s pandemic-related charges and relief pay receded, and restaurant costs improved as a share of sales. Impairment and restaurant-closing charges fell to $2.2 million from $41.3 million; general and administrative expense fell to $57.2 million from $84.8 million.
- Interest expense increased to $14.6 million from $11.7 million, mainly reflecting the 2025 notes issued in 2020. Diluted EPS was affected by adoption of the if-converted method for those notes; diluted weighted-average shares were 110.6 million versus 87.1 million.
Outlook, material events and risks
- Management estimated 2021 capital expenditures of $170 million to $185 million, subject to business and financing conditions; the credit agreement capped 2021 capital expenditures at $200 million.
- After quarter-end, on April 16, 2021, the company issued $300 million of 5.125% senior notes due 2029 and refinanced its secured credit facility with a $200 million term loan and $800 million revolver, maturing in 2026. Proceeds were used to repay part of the prior term loan and revolver. The new facility has leverage, payment and other restrictive covenants; certain dividends, restricted payments and acquisitions are limited pending covenant compliance. The company reported $251 million drawn on the new revolver as of April 30.
- The company elected to settle principal on conversions of the 2025 notes in cash, with any excess settled in shares. Holders were eligible to convert during Q2 2021 based on quarter trading prices.
- Key risks include COVID-19 impacts and consumer behavior, labor and commodity costs, competition, foreign-exchange movements, cybersecurity, supplier concentration, litigation, and substantial debt and restrictive covenants. A 10% change in foreign-exchange rates would have changed Q1 foreign-entity revenue by approximately $8.8 million, with no material effect on net income, according to the filing.
- Recorded legal liabilities were $4.0 million. Lease guarantees had $27.3 million of undiscounted potential payments, a $21.6 million present value, and a $9.3 million recorded liability. Management did not expect ordinary-course legal matters to materially affect financial position, results or cash flows.
- No dividends or share repurchases occurred in Q1; the new credit agreement restricts certain distributions pending covenant compliance. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Investor verification points
- Assess how much of the earnings recovery reflects sustainable operating improvement versus comparison against pandemic-affected Q1 2020.
- Track U.S. sales and traffic against 2019, and international performance, particularly Brazil, including currency effects.
- Review the refinancing’s effect on interest expense, debt levels, covenant headroom and restrictions on dividends or other capital returns.
- Reconcile cash generation with capital-spending plans, working-capital needs and gift-card redemptions.
- Consider the diluted-share impact of the 2025 notes and warrants, and the accounting effects of adopting ASU 2020-06; the filing’s adoption adjustment was noncash.