Bloomin' Brands, Inc. — Q1 2015 Form 10-Q
Reporting period: Thirteen weeks ended March 29, 2015; comparison is with the thirteen weeks ended March 30, 2014. The company operates Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill and Fleming's, with U.S. and International reporting segments.
Financial performance
- Revenue: $1.202 billion, up 3.8% from $1.158 billion. U.S. revenue rose to $1.062 billion from $1.011 billion; International revenue declined to $140.0 million from $147.2 million.
- Comparable sales: Combined U.S. comparable restaurant sales grew 3.6%; South Korea fell 3.0%, while Brazil grew 6.2%. Two additional operating days contributed $24.3 million to revenue and were excluded from comparable-sales calculations.
- Profit and margins: Operating income was $97.7 million versus $90.0 million; operating margin was 8.1%, up from 7.8%. Net income attributable to Bloomin' Brands was $60.6 million versus $53.7 million. Diluted EPS was $0.47 versus $0.42. Adjusted diluted EPS, a non-GAAP measure, was $0.54 versus $0.46.
- Costs: Cost of sales was 32.4% of restaurant sales, down 0.1 percentage point; labor was flat at 27.1%; other restaurant operating costs improved to 22.1% from 22.3%. Beef and seafood cost inflation and higher wages were offsets to savings and sales-volume gains.
- Cash flow: Operating cash flow was $96.0 million, versus $39.8 million. Capital expenditures were $47.7 million versus $39.3 million. Cash declined $30.1 million to $135.6 million, compared with a $37.3 million decline in the prior-year quarter.
- Debt and liquidity: Reported current and long-term debt, net, totaled about $1.311 billion at quarter-end. Cash was $135.6 million, and unused revolver capacity was $229.4 million, net of letters of credit. Working capital was negative $251.1 million, including $272.1 million of unearned gift-card revenue. The company said expected liquidity was adequate for anticipated needs over the next 12 months and reported compliance with debt covenants.
Changes, outlook and notable items
- Operating income improved primarily on higher restaurant-level margins and lower general and administrative expense; increased restaurant-closure costs partly offset the improvement. International operating income fell to $8.9 million from $16.2 million, while U.S. operating income rose to $127.4 million from $106.9 million.
- The company sold Roy's in January for a stated purchase price of $10.0 million less certain liabilities, recording a $1.1 million loss. The sale generated $7.8 million in investing cash proceeds. A contingent payment of up to $5.0 million may apply if specified lease contingencies are not resolved by April 2018; management said no liability was considered probable at filing.
- Closure plans covered 36 underperforming international restaurants, 35 of which were closed by March 29. The company recorded $6.4 million of related costs in the quarter and expected another $1.0 million to $2.0 million through Q3 2015. Estimated future cash expenditures were $7 million to $10 million, primarily lease-related, through August 2022.
- After quarter-end, the revolving credit facility was increased from $600 million to $825 million, and the company drew $216.3 million to repay its $215 million Term Loan B and cover related amounts. It expected to record about $2.6 million of debt extinguishment and modification costs in the quarter ending June 28, 2015.
- The company repurchased $70.0 million of shares in connection with Bain Capital's secondary offering and paid its first quarterly dividend of $0.06 per share. A further $30.0 million remained under the $100 million repurchase authorization. No specific full-year earnings or revenue guidance is provided in the filing.
- Key risks include consumer spending and competition, commodity and labor-cost inflation, foreign currency movements, substantial leverage and variable-rate debt, and restaurant execution. A Nevada wage-and-hour collective action had been conditionally certified for notice purposes; the company disputed the claims and said it could not estimate a reasonably possible loss.
Important facts for investors to verify
- Assess how much of revenue growth reflected comparable-sales gains versus the $24.3 million benefit from additional operating days, openings and other changes.
- Track U.S. versus International sales and operating income, particularly South Korea results, closure costs and currency effects.
- Review the post-quarter debt refinancing, remaining revolver availability, maturities, interest-rate exposure and covenant requirements.
- Monitor closure-related cash obligations, Roy's lease contingencies and the wage-and-hour litigation.
- Distinguish GAAP results from management's adjusted, non-GAAP measures and consider the impact of buybacks and dividends on cash and leverage.