Bloomin’ Brands, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 30, 2018 (52 weeks). This is an annual filing, not a standalone fourth-quarter filing; quarterly figures are included below. Fiscal 2017 had 53 weeks, adding approximately $80.4 million of revenue and $0.11 of diluted EPS, which limits year-over-year comparability. Prior-period figures were restated for the company’s adoption of the revenue-recognition standard.
Business context
Bloomin’ Brands operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. At year-end it had 1,193 company-operated and 297 franchised restaurants across the U.S. and international markets. The business is reported in U.S. and International segments.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Total revenue | $4.126 billion | $4.223 billion |
| Income from operations | $145.3 million | $138.7 million |
| Net income attributable to Bloomin’ Brands | $107.1 million | $101.3 million |
| Diluted EPS | $1.14 | $1.02 |
| Adjusted diluted EPS (non-GAAP) | $1.50 | $1.32 |
| Net cash from operating activities | $288.1 million | $409.0 million |
| Capital expenditures | $208.2 million | $260.6 million |
- Revenue declined 2.3%, mainly reflecting the prior-year extra week, U.S. refranchising, restaurant closures and unfavorable foreign exchange; higher comparable sales partly offset the decline.
- Operating income rose, with a 3.5% operating margin versus 3.3%. Company-wide restaurant-level operating margin was 14.8% versus 15.2%; this non-GAAP-style operating measure excludes certain costs and is not a substitute for GAAP results.
- U.S. comparable sales increased 2.5%, while Brazil comparable sales declined 1.5%. U.S. traffic fell 0.8%; average check increased 3.3%.
- Cash and cash equivalents were $71.8 million. Current assets of $335.5 million and current liabilities of $791.0 million produced a $455.6 million working-capital deficit, including $342.7 million of unearned revenue, primarily gift cards.
- Total debt, net, was $1.095 billion. The company reported $378.5 million of unused revolving capacity, net of letters of credit. Debt was predominantly variable-rate; $400 million of swaps matured in May 2019, with replacement swaps covering $550 million through November 2022.
- Cash dividends paid were $33.3 million and share repurchases were $114.0 million. Stockholders’ equity was $54.8 million.
Material changes and unusual items
- Operating cash flow fell by $120.9 million year over year, principally due to timing of receivables, inventory payments and accounts payable, and higher incentive-compensation payments.
- Impairment and restaurant-closing charges totaled $36.9 million, down from $52.3 million. 2018 items included $13.9 million for international restructuring, $7.4 million for the Express concept and $5.5 million related to the planned sale of 18 Carrabba’s restaurants.
- The company agreed to sell 18 U.S. Carrabba’s locations for $3.6 million, subject to adjustments; they were expected to become franchises after the anticipated first-half 2019 sale.
- Brazilian political unrest and a truckers’ strike disrupted operations and supply chains. Management reported positive Brazil comparable sales in Q4 and expected consumer confidence to improve in 2019.
- Q4 revenue was $1.013 billion versus $1.076 billion in Q4 2017. Q4 operating income was $21.4 million versus $15.3 million; net income attributable to the company was $10.9 million versus $12.0 million, and diluted EPS was $0.12 versus $0.13. The prior-year quarter included the 53rd week.
Outlook, risks and contingencies
- For 2019, management expected commodity-cost inflation of approximately 2% and labor-cost inflation of approximately 4%; planned capital expenditures were $175 million to $200 million.
- Planned 2019 activity included approximately 35 Outback interior remodels, 11 U.S. Outback relocations and approximately 20 new system-wide restaurants. The company emphasized guest experience, off-premises dining, digital and loyalty initiatives, international expansion, debt-profile improvement and shareholder returns.
- Management said expected liquidity sources were adequate for debt service, leases, capital expenditures and working capital over the following 12 months and beyond, subject to operating performance and cost and working-capital management. The credit agreement matures in November 2022; the company reported covenant compliance at year-end.
- Operating lease commitments were $1.664 billion undiscounted. The company expected adoption of the new lease standard to recognize $1.1–$1.5 billion of right-of-use assets and $1.3–$1.7 billion of lease liabilities, with additional changes to equity and future expense presentation.
- Other disclosed exposures include approximately $30.0 million of undiscounted contingent lease-guarantee payments, $364.3 million of purchase obligations and $2.8 million of recorded liabilities for legal matters. Management did not expect ordinary-course legal matters to have a material adverse effect.
- Key risks include restaurant competition and changing consumer preferences; wage, commodity and operating-cost inflation; food safety and supplier concentration; cyber and technology incidents; foreign exchange and political risk, especially in Brazil; substantial variable-rate debt and restrictive covenants; and impairment, remodeling, relocation and closure risks.
Important facts for investors to verify
- How much of the revenue and cash-flow comparison reflects the 2017 extra week, refranchising, closures and currency movements, versus underlying demand?
- Whether comparable-sales growth can continue while traffic declines at several brands and restaurant-level margins face labor and commodity inflation.
- Cash generation, capital spending and shareholder distributions relative to debt, upcoming amortization and the 2022 credit-facility maturity.
- Actual balance-sheet and income-statement effects of lease-standard adoption, including the company’s disclosed estimates.
- Execution and economics of the Carrabba’s sale, Express and international restructuring, Outback remodels and relocations, and Brazil recovery.
- Reliability of tax-credit utilization, impairment assumptions, and the company’s estimates for gift-card breakage and insurance claims.