Bloomin’ Brands, Inc. — Q3 2021 Form 10-Q
Reporting period: Thirteen weeks ended September 26, 2021; year-to-date figures cover thirty-nine weeks. The company operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s, with U.S. and international reporting segments.
Financial results and liquidity
- Q3 revenue: $1.010 billion, up 31.0% from $771.3 million in Q3 2020 and 4.5% from Q3 2019. Comparable U.S. restaurant sales rose 25.5% year over year, but were 9.5% above 2019, providing context beyond the pandemic-affected comparison.
- Q3 earnings: Operating income was $14.8 million versus an operating loss of $14.3 million. Net income was $5.1 million versus a loss of $17.8 million; diluted EPS attributable to common stockholders was $0.03 versus a loss of $0.20. The reported net result included a $4.5 million income tax benefit. Restaurant-level operating margin was 10.3%, versus 10.7% a year earlier; adjusted margin was 16.8%.
- Year-to-date: Revenue was $3.075 billion versus $2.358 billion; operating income was $230.5 million versus a loss of $167.7 million; net income was $159.7 million versus a loss of $144.6 million. Diluted EPS was $1.42 versus a loss of $1.69. Adjusted diluted EPS was $2.10 versus a loss of $0.72.
- Cash flow: Operating cash flow was $304.2 million for the thirty-nine weeks, versus $55.0 million. Investing used $69.1 million, including $85.3 million of capital expenditures; financing used $265.2 million. Cash, cash equivalents and restricted cash ended at $80.6 million.
- Debt and liquidity: Debt, net of discounts and issuance costs, was $839.2 million; principal outstanding was $851.5 million. Cash and cash equivalents were $76.3 million, and unused revolver capacity was $655.3 million, net of letters of credit. The company reported compliance with debt covenants. Working capital deficit was $656.6 million, including $284.1 million of unearned revenue, primarily gift cards.
- Margins and costs: Q3 food and beverage costs were 30.5% of restaurant sales, labor 29.1%, and other restaurant operating costs 30.1%. Labor leverage helped, while commodity inflation and operating costs weighed on results.
Material changes and unusual items
- Q3 results included a $61.9 million cash payment to terminate future Carrabba’s royalties and certain international lump-sum royalty fees. It was recorded in other restaurant operating expense and reduced reported Q3 restaurant-level margin by 6.2 percentage points. Management’s adjusted Q3 EPS was $0.57, excluding this and other specified adjustments.
- In April 2021, the company issued $300 million of 5.125% senior notes due 2029 and refinanced its credit facility. The new secured facility provides up to $1.0 billion, including an $800 million revolver, and matures in 2026. The company also had $230 million of 5.00% convertible notes due 2025.
- Year-to-date operating improvement reflects stronger sales and the comparison with substantial 2020 COVID-19 impairments, restructuring costs and other pandemic-related charges. The company reported no COVID-19 charges in the current year-to-date comparison in its adjusted-results reconciliation.
- Other items included a $2.7 million accrual related to an adverse Brazilian municipal service-tax ruling, partly offset in other revenues by recognition of recoverable Brazilian taxes following favorable court rulings. The 2021 year-to-date impairment and restaurant-closing provision was $9.0 million, versus $66.2 million in 2020.
Outlook, risks and contingencies
- The filing gives no full-year earnings or revenue guidance. Management estimated 2021 capital expenditures of approximately $140 million to $150 million, within a $200 million credit-agreement cap.
- Management anticipated approximately 10% commodity inflation and mid-single-digit labor cost inflation in 2022. These cost pressures, along with staffing availability and wage increases, may challenge margins.
- Key disclosed risks include COVID-19 impacts, food and labor cost inflation, employee recruitment and retention, reliance on a limited number of suppliers, competition, consumer demand, cybersecurity, foreign-exchange exposure, leverage and restrictive debt covenants, and possible asset impairment.
- The company had $6.3 million of legal reserves and said additional losses were reasonably possible but could not be estimated. Lease guarantees had $25.9 million of undiscounted potential payments and an $8.8 million recorded liability.
- Management said it expected to remain in covenant compliance over the next 12 months. The credit agreement includes restrictions on dividends and other payments; no common dividends or share repurchases were made during Q3.
Most important facts for investors to verify
- Assess sales and traffic against 2019 as well as 2020, since pandemic-related comparisons materially affect reported growth.
- Separate the $61.9 million Carrabba’s termination payment from ongoing operating performance, and evaluate the future royalty savings against the upfront cash cost.
- Monitor commodity and labor inflation, restaurant-level margins, and whether pricing and sales can offset those pressures.
- Review debt maturities, variable-rate exposure, covenant headroom and revolver availability, alongside planned capital spending.
- Track the outcome and potential financial effects of Brazilian tax matters, legal proceedings and lease guarantees.