Bloomin’ Brands, Inc. — Q1 2023 Form 10-Q
Reporting period: Thirteen weeks ended March 26, 2023; comparisons are with the thirteen weeks ended March 27, 2022 unless otherwise noted. Bloomin’ Brands owns and operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s, with franchised operations as well.
Financial performance
| Metric | Q1 2023 | Prior period | Change |
|---|---|---|---|
| Total revenue | $1,244.7 million | $1,140.5 million | Up 9.1% |
| Operating income | $120.6 million | $107.3 million | Up 12.5% |
| Net income attributable to Bloomin’ Brands | $91.3 million | $75.5 million | Up 20.9% |
| Diluted EPS | $0.93 | $0.73 | Up 27.4% |
| Operating margin | 9.7% | 9.4% | Up 0.3 percentage points |
| Restaurant-level operating margin (non-GAAP) | 17.9% | 17.1% | Up 0.8 percentage points |
| Operating cash flow | $189.7 million | $147.1 million | Higher |
| Capital expenditures | $64.4 million | $40.2 million | Higher |
Restaurant sales were $1,228.2 million, up from $1,123.6 million. U.S. combined comparable sales increased 5.1%; comparable traffic declined 0.7% while average check rose 5.8%. Revenue growth reflected comparable-sales gains, new restaurants, foreign exchange and Brazil tax-related benefits. Brazil VAT exemptions contributed $9.6 million to restaurant sales.
Food and beverage costs declined to 31.3% of restaurant sales from 32.0%, reflecting menu pricing and cost savings partly offset by commodity inflation. Labor costs were 27.8% of sales in both periods; wage inflation was offset by sales leverage. Other restaurant operating costs were 23.0%, versus 23.1%, with utility and other inflation offset by sales leverage. Interest expense was $12.4 million versus $13.6 million. The effective tax rate fell to 13.6% from 17.0%.
Financial position and liquidity
- Cash and cash equivalents were $94.4 million at March 26, 2023, versus $84.7 million at December 25, 2022. Cash flow from operations was $189.7 million; investing activities used $62.9 million and financing activities used $117.0 million.
- Debt principal totaled $765.0 million: $360.0 million drawn on the revolving facility, $105.0 million of 2025 Notes and $300.0 million of 2029 Notes. The revolver’s weighted average rate was 6.28%. Available revolver capacity was $620.2 million, net of letters of credit. The company reported covenant compliance.
- Current assets were $247.8 million and current liabilities were $920.4 million, a working-capital deficit of $672.6 million. Management notes this is common in the restaurant industry, citing gift-card proceeds, restaurant cash receipts and inventory turnover.
- Total lease liabilities were approximately $1.33 billion. Stockholders’ equity was $322.8 million.
Changes, outlook and risks
- International segment revenue rose to $151.8 million from $104.1 million, and operating income to $24.5 million from $8.9 million. U.S. segment revenue rose to $1,093.0 million from $1,036.4 million, while operating income was $133.2 million versus $132.2 million.
- Brazilian tax legislation and a preliminary injunction provided a temporary reduction in the Brazilian income tax rate from 34% to 0% for the quarter, as well as federal VAT exemptions. The company is assessing the injunction and eligibility; the duration and continued availability of the benefits are uncertain.
- No earnings or revenue guidance is provided in the supplied filing text. Management estimates 2023 capital expenditures of approximately $240 million to $260 million and says expected liquidity sources should cover obligations for the following 12 months, subject to revenue, cash flow, cost and working-capital performance.
- The company paid a $0.24-per-share quarterly dividend and repurchased approximately 863,000 shares for $20.6 million. A new $125 million repurchase authorization was approved; $119.4 million remained available at quarter-end. A further $7.2 million of repurchases occurred after quarter-end.
- Key risks cited include consumer demand and traffic, wage and commodity inflation, labor availability, interest rates and leverage, competition, cybersecurity, foreign currency and international conditions, regulatory and tax changes, litigation, and execution of restaurant development and remodel plans. The filing reports no material changes to the risk factors in the 2022 Form 10-K.
- Legal reserves were $15.9 million; additional losses were considered reasonably possible, but the company could not estimate an additional loss range. Lease guarantees had $22.7 million of undiscounted potential payments ($17.2 million present value); the recorded contingent liability was $6.2 million.
Investor verification priorities
- Assess how much reported earnings and margin improvement depends on temporary Brazil tax and VAT benefits, and the status of the related injunction.
- Track U.S. traffic, menu pricing, food and labor inflation, and whether comparable-sales growth is sustainable.
- Compare planned capital expenditures and shareholder returns with cash generation, revolver borrowing and debt service needs.
- Review the convertible 2025 Notes’ potential dilution and conversion eligibility, as well as litigation and lease-guarantee exposures.