Bloomin’ Brands, Inc. — Q1 2020 Form 10-Q
Reporting period: Thirteen weeks ended March 29, 2020; unaudited. Bloomin’ Brands operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. The quarter was materially affected by COVID-19; U.S. dining rooms shifted to takeout and delivery only on March 20.
Financial performance and condition
| Metric | Q1 2020 | Prior-year quarter |
|---|---|---|
| Total revenue | $1,008.3 million | $1,128.1 million |
| Operating income (loss) | $(41.6) million | $82.5 million |
| Net income (loss) attributable to Bloomin’ Brands | $(34.6) million | $64.3 million |
| EPS attributable to common stockholders | $(0.44) | $0.70 basic; $0.69 diluted |
| Cash from operating activities | $28.3 million | $83.9 million |
| Capital expenditures | $34.2 million | $44.7 million |
- Revenue declined 10.6%. Restaurant sales fell 10.4%; U.S. comparable sales declined 10.4%. International revenue was approximately flat, but Brazil results exclude a material COVID-19 impact because they are reported on a one-month lag.
- Operating margin was (4.1)% versus 7.3%. Consolidated restaurant-level operating margin was 12.1% versus 17.1% on a GAAP basis; adjusted restaurant-level margin was 12.5% versus 17.1%.
- Cash and cash equivalents were $403.4 million at quarter-end, up from $67.1 million at year-end, principally reflecting revolving-credit borrowings. Debt totaled $1.419 billion, including $975 million drawn on the revolver; unused revolver capacity was $4.8 million after letters of credit.
- Current assets were $572.4 million and current liabilities $838.0 million, a working-capital deficit of $265.6 million. Operating lease liabilities were substantial: $1.467 billion in total.
Material changes and unusual items
- COVID-19-related charges identified in the notes totaled $65.1 million, including employee relief pay, inventory obsolescence, credit-loss and lease-guarantee reserves, and asset impairments. The company recorded $41.3 million of impairment and restaurant-closing provision, compared with $3.6 million a year earlier; this includes overlapping items and should not be added to the $65.1 million total.
- General and administrative expense rose to $84.8 million from $70.6 million, reflecting expected credit losses and contingent lease liabilities, transformation costs and severance, among other items. The company also reported $22.2 million of pre-tax transformational charges.
- U.S. restaurant-level operating margin fell to 11.5% from 16.7%; international margin fell to 18.5% from 22.3%. Lower sales, pandemic-related costs, labor and commodity inflation contributed.
- The quarter included a $19.7 million income-tax benefit, with the CARES Act’s NOL carryback provisions among the factors cited. A $3.5 million deemed dividend from redeeming subsidiary preferred stock reduced income attributable to common stockholders.
Liquidity, outlook and risks
- Management withdrew its 2020 financial guidance, citing uncertainty about the pandemic, customer traffic and government restrictions. It said results were expected to remain significantly adversely affected, even as dining rooms reopened where permitted.
- Liquidity actions included suspending future dividends and share repurchases, reducing marketing and other expenses, deferring nearly all non-maintenance capital spending, and discussions with landlords on rent relief. The first-quarter $0.20-per-share dividend had already been declared and paid.
- After quarter-end, the company amended its credit agreement on May 4, 2020. The amendment waived the leverage covenant for the remainder of fiscal 2020, set revised leverage limits beginning in 2021, required at least $125 million of monthly liquidity through March 28, 2021, and restricted certain payments and investments. The filing says the company was covenant-compliant at March 29; the amendment addressed potential covenant-default risk under the original agreement.
- After quarter-end, Bloomin’ Brands issued $230 million of 5.00% convertible notes due 2025, receiving approximately $221.4 million net proceeds for general corporate purposes. The notes’ initial conversion price was approximately $11.89 per share; related hedge and warrant transactions affect potential dilution.
- Other risks include prolonged dining-room restrictions, uncertain consumer recovery, franchisee payment distress and lease guarantees, supply-chain concentration, foreign-exchange exposure, further impairments, and the company’s increased debt and covenant constraints. Potential undiscounted payments under lease guarantees were approximately $31.3 million; recorded contingent lease liability was $9.7 million.
- Management estimated 2020 capital expenditures of $100–$110 million, while the amended credit agreement capped aggregate capital expenditures at $100 million for the four fiscal quarters through March 28, 2021.
Important facts for investors to verify
- How reopening pace, capacity restrictions and off-premises demand affect comparable sales, margins and cash generation.
- Compliance with the amended credit agreement’s minimum-liquidity and leverage requirements, and the availability of additional liquidity.
- Use of the convertible-note proceeds, interest burden, and potential dilution from the notes and warrant transactions.
- Whether impairment, franchisee credit-loss and lease-guarantee exposures increase as pandemic effects develop.
- Actual capital spending versus the company’s estimate and the credit-agreement cap; the filing provides no firm revenue or earnings forecast after guidance was withdrawn.