Bloomin’ Brands, Inc. — Q2 2012 Form 10-Q
Business and period: Unaudited results for the three and six months ended June 30, 2012, compared with the same 2011 periods. The company operated 1,253 restaurants and had 197 more under franchise or joint-venture arrangements, across five concepts. It completed its IPO on August 13, 2012, after quarter-end.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Total revenue | $980.9m | $955.5m | $2,036.5m | $1,957.4m |
| Operating income | $48.7m | $40.8m | $139.1m | $131.4m |
| Operating margin | 5.0% | 4.3% | 6.8% | 6.7% |
| Net income attributable to Bloomin’ Brands | $17.4m | $14.0m | $67.4m | $68.9m |
| Diluted EPS | $0.16 | $0.13 | $0.63 | $0.65 |
- Q2 revenue rose 2.7%; restaurant sales increased 2.5%. Comparable sales at core domestic concepts rose 2.4% in Q2 and 3.8% in the first half. Management attributed growth principally to traffic, menu pricing, promotions, menu innovation, and expanded weekend lunches.
- Q2 operating income improved, while first-half attributable net income and EPS declined slightly. First-half results included a $2.9m loss on debt extinguishment; interest expense increased to $45.0m from $41.9m.
- Food cost was 32.5% of restaurant sales in Q2, up 0.3 percentage points, reflecting higher beef and seafood costs, partly offset by savings and pricing. Labor improved to 28.0% from 29.1%; other restaurant operating costs were flat at 23.8%.
- Six-month operating cash flow was $57.7m, down from $101.7m. Capital expenditures were $79.7m. Investing cash flow was positive $95.0m, primarily due to $192.9m of sale-leaseback proceeds. Cash declined $202.1m to $280.0m.
Financial position, liquidity, and material changes
- At June 30, cash and cash equivalents were $280.0m; current assets were $492.8m and current liabilities $540.0m, yielding a $47.2m working-capital deficit. The company said negative working capital is common in its industry and cited cash receipts preceding many payments.
- Reported long-term debt, net, was $1,737.2m, with $26.6m current long-term debt and $24.5m current guaranteed debt. The company reported covenant compliance at quarter-end. Available unused borrowing capacity was approximately $84.4m on the working-capital revolver and $100.0m on the capital-expenditure facility.
- In March, the company refinanced PRP debt with a $500m commercial mortgage-backed loan, including mezzanine loans bearing 9.00% and 11.25%. It also sold and leased back 67 properties for $192.9m net proceeds, recording a deferred gain of $42.9m. The leases have 20-year initial terms and renewal options.
- After quarter-end, the IPO raised approximately $130.2m net for the company. Proceeds and cash on hand were used to retire the 10% senior notes; the company disclosed a $9.0m third-quarter debt-extinguishment loss. The IPO also increased shares outstanding: 119.9m were outstanding as of August 31, versus 106.8m at June 30.
Outlook, commentary, and risks
- Management planned to open 30 or more restaurants in 2012, with a faster pace thereafter, and estimated 2012 capital expenditures of $200m–$220m. It emphasized comparable-sales growth, development with acceptable unit economics, and margin improvement. It cautioned that favorable sales and operating trends may not be sustainable; no specific full-year revenue or earnings guidance is provided in the filing.
- Management cited exposure to competition, economic and consumer-spending conditions, commodity and labor costs, interest rates, foreign exchange, food safety, weather, and substantial leverage and restrictive debt covenants. Future restaurant underperformance or cost increases could also result in impairment charges.
- Unusual post-IPO costs included a $22.4m CEO bonus payment, with $18.1m expense recorded in Q3, an $8.0m management-agreement termination fee, and approximately $16.0m of noncash stock-compensation expense. The company also expected $19.7m of additional compensation expense through 2017 on specified options.
Investor facts to verify
- Whether comparable-sales and traffic gains continue, and whether commodity inflation erodes restaurant-level margins.
- Debt terms, covenant headroom, refinancing effects, and the costs and obligations associated with the sale-leaseback leases.
- Actual 2012 development and capital spending against management’s stated plans.
- The realized impact of IPO-related debt retirement, share dilution, and executive and equity-compensation costs on subsequent-period earnings and cash flow.