Bloomin’ Brands, Inc. — FY2020 Form 10-K
Business context and reporting period. Bloomin’ Brands operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar, with U.S. and international reporting segments. The fiscal year ended December 27, 2020; the company also reports fourth-quarter results below. At year-end, it owned and operated 1,157 restaurants and franchised 317 across 47 U.S. states, Guam and 20 countries.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $3.171 billion | $4.139 billion |
| Operating income (loss) | $(175.0) million | $191.1 million |
| Net income (loss) attributable to common stockholders | $(162.2) million | $130.6 million |
| Diluted EPS | $(1.85) | $1.45 |
| Cash from operating activities | $138.8 million | $317.6 million |
| Capital expenditures | $87.8 million | $161.9 million |
Revenue fell 23.4%, principally from pandemic-related sales declines, foreign exchange and net restaurant closures. U.S. comparable sales declined 19.9%; Brazil Outback comparable sales declined 31.4% excluding currency effects. Restaurant-level operating margin was 9.9%, versus 14.9% in 2019; GAAP operating margin was (5.5%), versus 4.6%.
Fourth-quarter revenue was $812.5 million, operating loss was $7.2 million, net loss was $14.2 million and diluted loss per share was $0.16. The prior-year quarter reported revenue of $1.022 billion, operating income of $43.2 million, net income of $29.3 million and diluted EPS of $0.32.
At year-end, cash and cash equivalents were $110.0 million. Total debt, net, was $1.036 billion; principal debt outstanding was $1.102 billion, including $230 million of 5.00% convertible notes due 2025. Revolving-credit availability was $533.7 million, net of letters of credit; the company subsequently paid down $92 million on the revolver. Operating lease liabilities totaled approximately $1.394 billion. Working capital was negative $626.3 million, including $381.6 million of unearned revenue, mainly gift cards, and current lease liabilities.
Material changes and unusual items
- Dining rooms were temporarily limited to takeout and delivery beginning March 20, 2020; reopening began in early May with capacity restrictions. At year-end, 85% of dining rooms were open, many with restrictions.
- The company recorded $93.8 million of COVID-19-related costs and $32.4 million of transformational and restructuring costs for its adjusted-results reconciliation. Impairment and restaurant-closing expense totaled $76.4 million, including pandemic-related impairments and closures; 22 U.S. restaurants were closed in the COVID-19 restructuring.
- In May 2020, the company issued $230 million of 5.00% convertible senior notes and amended its credit agreement for covenant relief. It suspended dividends after the first-quarter payment and suspended share repurchases.
- Operating cash flow declined by $178.8 million year over year. Management attributed the decrease primarily to lower restaurant sales and gift-card sales, partly offset by lower variable costs, deferred payroll taxes and other timing effects.
Outlook, management commentary and risks
Management said expected liquidity sources should fund debt service, lease obligations, capital expenditures and working capital for the 12 months following the filing, subject to revenue, cash-flow and cost-management performance. It planned 2021 capital expenditures of $170–$185 million, subject to credit-agreement restrictions, and approximately 20–25 new system-wide locations, most in Brazil. Other 2021 estimates included flat commodity costs, labor-cost inflation of approximately 3.0%–3.5%, depreciation and amortization of $165–$175 million, and general and administrative expense of $225–$230 million.
Management’s stated priorities include improving the customer experience, growing off-premises sales, investing in digital marketing and loyalty, improving the credit profile and pursuing international opportunities. The company said off-premises sales per restaurant tripled during the U.S. dining-room shutdown and that it retained approximately 50% of the incremental volume after dining rooms reopened.
Key risks include continued COVID-19 restrictions and uncertain customer demand; leverage, interest rates and debt-covenant compliance; the $2022 maturity of the senior secured credit facility; substantial lease commitments; franchisee financial distress and contingent lease guarantees; food-safety and supply-chain exposure, including dependence on a small number of beef suppliers; labor-cost pressures; foreign-exchange exposure, particularly the Brazilian real; competition; and potential further impairment charges. The company’s 2021 credit terms restrict dividends and share repurchases until after September 26, 2021, subject to covenant compliance. Management stated its intent to prioritize debt payments.
Other notable items: the Out West franchisee agreement waived certain past-due fees and reduced future advertising fees, with deferred amounts recognized only when collectability is reasonably assured. The auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; identified critical audit matters included insurance-reserve valuation and the impairment assessment of an international reporting unit.
Most important facts for investors to verify
- Whether sales, comparable traffic and restaurant margins recover as dining restrictions ease, and whether off-premises demand persists.
- Cash generation, liquidity and covenant headroom under the amended credit agreement, including the post-year-end revolver repayment and subsequent compliance tests.
- Debt refinancing and repayment requirements, including the 2022 secured-facility maturity, convertible-note treatment and interest-rate exposure.
- Potential further impairments, lease-guarantee payments and franchisee-related losses, including collections under the Out West agreement.
- Whether 2021 capital spending, restaurant development and stated cost assumptions remain achievable under operating and financing constraints.