Bloomin’ Brands, Inc. — Q2 2020 Form 10-Q
Reporting period: Thirteen weeks ended June 28, 2020; year-to-date figures cover the twenty-six weeks ended that date. Bloomin’ Brands operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s, with U.S. and international operations. The results reflect the substantial effects of the COVID-19 pandemic.
Key financial results
| Metric | Q2 2020 | Q2 2019 | First half 2020 | First half 2019 |
|---|---|---|---|---|
| Total revenue | $578.5 million | $1,021.9 million | $1,586.8 million | $2,150.1 million |
| Operating income (loss) | $(111.9) million | $43.5 million | $(153.5) million | $126.0 million |
| Net income (loss) attributable to Bloomin’ Brands | $(92.3) million | $29.0 million | $(126.9) million | $93.3 million |
| Diluted earnings (loss) per share | $(1.05) | $0.32 | $(1.49) | $1.02 |
| Operating margin | (19.3)% | 4.3% | (9.7)% | 5.9% |
Q2 adjusted restaurant-level operating margin, a non-GAAP measure, was 2.7%, versus 15.0% a year earlier; adjusted operating loss was $79.2 million. The filing cautions that these adjusted measures are not substitutes for GAAP results.
- Cash flow: First-half operating cash flow was $(3.3) million, versus $132.4 million provided in the prior-year period. Capital expenditures were $53.2 million, compared with $80.8 million. Financing activities provided $169.7 million, principally reflecting convertible-note proceeds and revolving-credit activity.
- Cash and liquidity: Cash and cash equivalents were $181.4 million at quarter-end, plus $1.1 million restricted cash. The company reported $364.8 million of unused revolving-credit capacity, net of letters of credit, and a $483.3 million working-capital deficit.
- Debt: Debt carrying value, net of discounts and issuance costs, was $1.211 billion, compared with $1.049 billion at year-end 2019. Principal borrowings under the credit facility and 2025 notes totaled $1.283 billion. The company issued $230 million of 5.00% convertible senior notes due 2025; net proceeds were approximately $221.6 million.
- Lease obligations and equity: Operating lease liabilities totaled approximately $1.426 billion. Stockholders’ equity was $29.2 million, down from $177.5 million at year-end 2019.
Material changes and drivers
- Q2 revenue fell 43.4% year over year. Comparable sales declined 39.4% in the U.S. and 63.9% at Outback Steakhouse Brazil; consolidated restaurant sales also reflected closures, lower franchise revenue and unfavorable Brazilian currency translation.
- Substantially all dining rooms had reopened by June 28, but with limited seating. Earlier dining-room closures and capacity limits sharply reduced traffic. The company reported that Q2 comparable-sales declines were primarily pandemic-related.
- Operating results included higher labor and other restaurant costs as a share of sales, incremental delivery costs, commodity inflation and pandemic-related relief pay. Reduced operating, advertising and utility expenses and cost-saving initiatives partly offset these pressures.
- The company recorded $41.7 million of COVID-19-related charges in Q2 and $106.8 million in the first half, including employee relief pay, inventory spoilage, credit and lease-guarantee reserves, and asset impairments. First-half impairment and restaurant-closing expense was $66.3 million, versus $5.5 million in the prior-year period. A COVID-19 restructuring involved closure of 22 restaurants.
- Interest expense rose to $16.6 million in Q2 and $28.3 million in the first half, mainly due to the convertible notes and revolving-credit borrowings. The first-half loss attributable to common stockholders also includes a $3.5 million deemed dividend related to redemption of subsidiary preferred stock.
Liquidity, outlook and risks
- A May 2020 credit-agreement amendment waived the total net leverage ratio covenant for the remainder of fiscal 2020 and set revised tests beginning in 2021. It also requires minimum monthly liquidity of $125 million through March 28, 2021. The company reported covenant compliance at June 28, 2020.
- The amended agreement limits capital expenditures to $100 million for the four fiscal quarters through March 28, 2021 and restricts dividends and share repurchases until after September 26, 2021, subject to covenant compliance. The company suspended its dividend and repurchases; its stated 2020 capital-expenditure estimate of $100–$110 million is subject to the facility’s cap.
- Management said pandemic duration, future restrictions, customer traffic recovery and longer-term effects were uncertain, and expected results to remain significantly adversely affected for the foreseeable future. No specific revenue or earnings guidance is provided in the supplied filing text.
- Key risks include renewed dining restrictions or closures, weak consumer demand, liquidity and covenant compliance, increased debt, lease obligations and contingent lease guarantees, franchisee distress, supply-chain concentration, commodity and foreign-exchange exposure, and further asset impairments. Management noted a recent increase in COVID-19 cases and some local capacity reductions.
- Potential lease-guarantee payments were approximately $32.6 million undiscounted ($20.5 million present value); the recorded contingent lease liability was $9.6 million. Management said ordinary-course litigation was not expected to have a material adverse effect.
Important facts for investors to verify
- Whether dining-room capacity, guest traffic and comparable sales recover, and how renewed restrictions affect sales.
- Cash burn, available revolver capacity and compliance with the $125 million minimum-liquidity test and future leverage covenants.
- Debt service and potential dilution or cash obligations under the 2025 convertible notes, including the hedge and warrant arrangements.
- Whether planned capital expenditures can remain within the credit-agreement limit and the status of suspended dividends and share repurchases.
- Further restaurant closures, impairment charges, lease-guarantee exposure, franchisee collections and supplier continuity.