Bloomin' Brands, Inc. — Q2 2022 Form 10-Q
Reporting period: Thirteen and twenty-six weeks ended June 26, 2022; unaudited. Bloomin' Brands operates Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill and Fleming's, with U.S. and international operations.
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Total revenue | $1,125.2 million | $1,077.4 million | $2,265.7 million | $2,064.8 million |
| Income from operations | $87.7 million | $124.6 million | $195.0 million | $215.6 million |
| Net income attributable to Bloomin' Brands | $(63.6) million | $82.5 million | $11.9 million | $151.4 million |
| Diluted EPS | $(0.72) | $0.75 | $0.12 | $1.38 |
| Restaurant-level operating margin | 15.5% | 20.3% | 16.3% | 19.6% |
- Q2 revenue increased 4.4%, while operating income declined 29.6%. Q2 GAAP loss included $104.7 million of debt extinguishment and modification losses and $17.7 million of derivative fair-value losses related to the 2025 Notes transaction. Adjusted diluted EPS, a non-GAAP measure, was $0.68 versus $0.81.
- For the first half, operating cash flow was $218.8 million, down from $283.2 million. Capital expenditures were $76.9 million versus $51.4 million; cash used in investing was $75.7 million. Cash and restricted cash increased $6.4 million to $95.4 million.
- At June 26, cash was $95.3 million and total debt, net, was $801.7 million, including $400 million drawn on the revolving facility, $105 million of 2025 Notes and $300 million of 2029 Notes. Revolver availability was $580 million, net of letters of credit. The company reported compliance with debt covenants.
- Current assets were $292.9 million and current liabilities $909.9 million, resulting in a $616.9 million working-capital deficit. Management says negative working capital is typical for the business, partly reflecting unredeemed gift cards and current lease liabilities.
Changes versus prior comparable periods
- U.S. comparable sales fell 0.4% in Q2, with traffic down 8.3% and average check up 7.9%. International Outback Brazil comparable sales rose 95.7%, excluding foreign-exchange effects; traffic increased 57.8% and average check 37.3%.
- International results benefited from Brazil recovery, new restaurant openings and favorable currency translation. International Q2 revenue rose to $126.5 million from $74.3 million; U.S. revenue was $998.6 million versus $1,003.1 million.
- Q2 restaurant-level margin declined 4.8 percentage points. Food and beverage costs rose to 32.9% of restaurant sales from 29.6%; other restaurant operating costs rose to 23.8% from 22.1%. Labor costs improved slightly as a share of sales, to 27.8% from 28.0%.
- Management attributed margin pressure principally to commodity inflation, wage inflation, utilities and advertising. Menu price increases were lagging commodity inflation. Lower incentive compensation, cost-saving initiatives and Brazil recovery partly offset these pressures.
- Prior-year comparisons included $6.3 million of Brazilian tax-related revenue from favorable court rulings. The Q2 2022 net loss was also affected by the one-time 2025 Notes transaction losses.
Outlook, risks and unusual items
- Management estimated 2022 capital expenditures of approximately $200 million to $210 million. It stated expected liquidity sources should cover debt service, leases, capital expenditures and working capital for the next 12 months, subject to revenue, cash-flow and cost management.
- The company amended its credit agreement in April, increasing revolving capacity from $800 million to $1.0 billion and transitioning the benchmark from LIBOR to SOFR; management said the transition did not materially affect borrowing rates. The term loan was repaid using revolver borrowings.
- In June, the company exchanged $125 million principal of 2025 Notes for $196.9 million cash, accrued interest and approximately 2.3 million shares. It received $131.9 million from terminating part of its note hedges and paid $114.8 million to terminate related warrants. The remaining notes may be convertible during Q3 2022.
- The company declared a $0.14-per-share dividend for July, payable in August. It repurchased $47.5 million of common stock in the first half; $77.5 million remained under the $125 million authorization at quarter-end. An additional $14.9 million of shares was repurchased after quarter-end through July 28.
- Key disclosed risks include commodity and labor inflation, employee availability, consumer spending and traffic, competition, supply-chain concentration, foreign exchange and international conditions, interest rates and leverage, cybersecurity, litigation, and food safety. Legal reserves were $8.5 million; additional losses were considered reasonably possible but not estimable. Lease guarantees had $23.0 million of undiscounted potential payments.
Investor verification priorities
- Assess whether pricing and traffic trends can offset continuing food, labor and operating-cost inflation, particularly given the Q2 U.S. traffic decline.
- Separate underlying restaurant performance from the $122.4 million combined Q2 debt and derivative losses, and review the assumptions behind the company's non-GAAP adjusted results.
- Track operating cash flow, capital expenditure execution against the $200–$210 million estimate, revolver borrowings and covenant headroom.
- Verify conversion, dilution and cash implications of the remaining 2025 Notes and associated warrants, including the post-quarter conversion eligibility noted in the filing.
- Monitor legal and lease-guarantee exposures, Brazil performance and foreign-exchange effects, and the sustainability of dividends and share repurchases.