Bloomin’ Brands, Inc. — Q1 2024 Form 10-Q
Reporting period: Thirteen weeks ended March 31, 2024; comparisons are to the thirteen weeks ended March 26, 2023. Bloomin’ Brands operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s. It had 1,162 company-owned and 289 franchised restaurants at quarter-end.
Financial performance
- Revenue: $1.195 billion, down 4.0% year over year. Restaurant sales were $1.179 billion, down $48.7 million. Lower comparable sales, restaurant closures and the lapping of Brazil tax exemptions were partly offset by openings and foreign exchange.
- Comparable sales and traffic: U.S. combined comparable sales declined 1.6%, while traffic fell 4.3% and average check rose 2.7%. Brazil Outback comparable sales declined 0.7% and traffic fell 3.7%.
- Profitability: Operating income was $77.1 million versus $120.6 million; operating margin was 6.4% versus 9.7%. Restaurant-level operating margin, a company-defined non-GAAP measure, was 16.0% versus 17.9%. Higher labor, restaurant operating and advertising costs, lower sales, and closure charges pressured results.
- Net income and EPS: GAAP net loss attributable to Bloomin’ Brands was $83.9 million, or $0.96 per diluted share, versus net income of $91.3 million, or $0.93 per diluted share. The 2024 loss includes a $135.8 million loss on extinguishment of debt. Adjusted net income was $63.5 million and adjusted diluted EPS was $0.70, versus $91.3 million and $0.98, respectively.
- Cash flow and investment: Operating cash flow was $73.8 million, down from $189.7 million; management attributed the decline primarily to working-capital changes and lower earnings. Capital expenditures were $64.9 million. The company estimates 2024 capital expenditures of $270 million to $290 million.
- Liquidity: Cash and cash equivalents were $131.7 million, including $57.5 million held by foreign affiliates. Current assets were $298.2 million and current liabilities $894.1 million, producing a $595.9 million working-capital deficit. Management notes that gift-card liabilities and lease liabilities contribute to this deficit and says expected liquidity is adequate for obligations over the next 12 months.
- Debt: Long-term debt, net, was $951.8 million, compared with $780.7 million at December 31, 2023. Principal outstanding was $635.0 million on the revolving facility, $20.7 million of 2025 Notes and $300.0 million of 2029 Notes. Revolver availability was $346.7 million, net of letters of credit. The company reported compliance with debt covenants.
Material changes and unusual items
- The company exchanged $83.6 million of 2025 Notes for approximately 7.5 million shares and $3.3 million cash, recognizing the $135.8 million extinguishment loss. Remaining 2025 Notes principal was $20.7 million.
- A $220 million accelerated share repurchase agreement was funded primarily with revolving-credit borrowings and proceeds from partial termination of note hedge and warrant arrangements. The company repurchased 6.9 million shares during the quarter; it received a further 1.4 million shares at final settlement on April 23, 2024. The new repurchase authorization is $350 million, with $130 million remaining at March 31.
- Q1 2023 included high-volume days absent from the 2024 comparable period due to a fiscal-calendar shift; management estimated a $16.5 million negative effect on comparable restaurant sales in Q1 2024.
- Q1 2024 included $10.9 million of impairment and restaurant-closing provisions. The filing also reports $12.955 million of total closure-initiative costs across expense lines. The company said closures under its 2023 initiative were completed, though further charges were recorded.
Outlook, commentary and risks
- No full-year revenue or earnings guidance is provided in the supplied filing text. Management expects available liquidity to cover the next 12 months, subject to revenue, cash flow, cost management and working-capital performance.
- On May 7, 2024, the company announced it was evaluating strategic alternatives for its Brazil operations, including a possible sale. There is no definitive timetable or assurance of a transaction.
- The company is appealing an unfavorable Brazilian court ruling concerning tax exemptions. Management believes it is more likely than not to prevail and has not recorded a liability for disputed amounts. The filing says it cannot estimate reasonably possible legal losses beyond $9.5 million of recorded reserves.
- Key risks cited include consumer demand and traffic, wage and commodity inflation, labor availability, competition, cybersecurity, foreign exchange and international conditions, litigation and regulation, leverage and debt covenants, and execution of restaurant investment plans.
- The Board declared a $0.24-per-share quarterly dividend payable May 31, 2024. Future dividends remain subject to financial and other considerations, including covenant compliance.
Important facts for investors to verify
- Whether traffic and comparable-sales trends improve, and how the fiscal-calendar comparison affects subsequent quarters.
- Operating-margin trajectory amid wage, commodity, advertising and other restaurant-cost pressures.
- Debt and revolver usage following the note exchange and large share repurchase, including remaining 2025 Notes conversion or repayment needs.
- Progress and potential financial implications of the Brazil strategic review and tax litigation.
- Closure-related charges, planned capital spending and management’s ability to sustain liquidity and covenant compliance.