Bloomin' Brands, Inc. — Q2 2013 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2013; unaudited. The company operates Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, Fleming's and Roy's. It reported 1,276 company-owned and 207 franchised or joint-venture restaurants at period-end.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Total revenue | $1,018.9 million | $980.9 million | $2,111.1 million | $2,036.5 million |
| Income from operations | $67.9 million | $48.7 million | $164.7 million | $139.1 million |
| Net income attributable to Bloomin' Brands | $74.9 million | $17.4 million | $138.1 million | $67.4 million |
| Diluted GAAP EPS | $0.58 | $0.16 | $1.08 | $0.63 |
| Net cash from operations | — | $94.7 million | $57.7 million |
- Q2 revenue rose 3.9%; restaurant sales increased 3.9%. Management attributed the increase to new restaurants and higher comparable sales, driven by menu pricing, traffic, menu and service initiatives, and renovations. Core domestic comparable sales rose 2.0% in Q2, versus 2.4% a year earlier; first-half growth was 1.8%, versus 3.8%.
- Operating income margin was 6.7% of revenue in Q2, compared with 5.0%; for the first half it was 7.8%, compared with 6.8%. Q2 cost of sales improved to 32.3% of restaurant sales from 32.5%; labor costs increased to 28.2% from 28.0%.
- Reported net income benefited substantially from a $52.0 million income-tax benefit related to releasing valuation allowances. The company also recorded a $14.6 million debt-modification and extinguishment loss. Adjusted diluted EPS, a non-GAAP measure, was $0.25 in Q2 versus $0.18 and $0.74 for the first half versus $0.74. These adjusted figures exclude specified items and use a normalized tax rate.
- First-half investing cash outflow was $93.1 million, principally reflecting $97.2 million of capital expenditures. Financing cash outflow was $35.7 million, and cash declined by $39.2 million to $222.4 million. Restricted cash was an additional $19.3 million.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $222.4 million; total assets were $2.980 billion. Debt was $1.464 billion net carrying value, including current maturities; principal before unamortized discount was approximately $1.475 billion.
- OSI's $975 million term loan was repriced in April, lowering its rate margins and floors; maturity remained October 2019. The company incurred a $14.6 million related charge, including a $9.8 million prepayment penalty. The company reported covenant compliance.
- No revolving-credit borrowings were outstanding. Approximately $187.4 million of borrowing capacity remained available after letters of credit. The separate $489.2 million CMBS balance included mortgage and mezzanine debt, with stated maturities in 2017.
- Working capital was negative $110.2 million, compared with negative $203.6 million at year-end, and included $220.4 million of unredeemed gift-card and promotional revenue. Management said operating cash receipts typically precede payment of current liabilities and asserted that cash flow, borrowing capacity and restricted cash were adequate for expected needs over the next 12 months.
Changes, outlook and material items
- Management said casual-dining sales faced pressure in the first half from weak consumer confidence and discretionary spending. Its priorities were comparable-sales growth, margin improvement, and domestic and international development. It expected 45–55 system-wide openings in 2013 and capital expenditures of approximately $220–$250 million for the year.
- Management cited higher beef and other commodity costs, labor expense, restaurant operating costs, competitive pressure and consumer spending as factors that could weigh on results. It also identified leverage, variable-rate debt, foreign exchange and regulatory, weather, food-safety and other risks. It cautioned that interim results may not indicate full-year performance.
- The tax valuation-allowance release reflected management's conclusion that U.S. tax-credit carryforwards were more likely than not to be realized. Management expected subsequent-period tax rates to be higher than the unusually low 2013 rate, though below the blended statutory rate; tax expense may substantially exceed cash taxes while credits remain available.
- A T-Bird franchisee group had a right, exercisable through August 13, 2013, to require the company to purchase interests associated with 56 California Outback restaurants under specified terms. The filing does not state whether the right was exercised.
- Other unusual items included $3.7 million of six-month net gains from terminating split-dollar insurance agreements. The company reported no material long-lived-asset impairment charges in the first half of 2013; 2012 included $7.6 million.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring operations versus the $52.0 million tax benefit and other adjustments; compare GAAP results with the company's non-GAAP reconciliations.
- Whether comparable-sales and traffic trends improved after the first-half slowdown, and whether planned openings and capital expenditures met targets and returns.
- Debt service, required excess-cash-flow prepayments, interest-rate exposure, covenant headroom and actual remaining revolver availability.
- The outcome and financial effect, if any, of the T-Bird put right, and the timing and cash requirements of partner deferred-compensation obligations.
- Realization of tax-credit carryforwards, future effective tax rates, and any material developments in tax examinations or other contingencies.