Bloomin’ Brands, Inc. — Q3 2023 Form 10-Q
Business context and reporting period. The filing covers the 13 and 39 weeks ended September 24, 2023, compared with the periods ended September 25, 2022. Bloomin’ Brands operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. At quarter-end, it reported 1,477 restaurants system-wide, including 290 franchised locations.
Financial performance
| Metric | Q3 2023 | Q3 2022 | 39 weeks 2023 | 39 weeks 2022 |
|---|---|---|---|---|
| Total revenue | $1,079.8m | $1,055.8m | $3,477.3m | $3,321.5m |
| Operating income | $58.2m | $51.3m | $268.3m | $246.3m |
| Net income attributable to Bloomin’ Brands | $44.5m | $32.0m | $204.1m | $43.9m |
| Diluted EPS | $0.45 | $0.34 | $2.08 | $0.44 |
| Operating margin | 5.4% | 4.9% | 7.7% | 7.4% |
| Restaurant-level operating margin (non-GAAP) | 13.8% | 13.1% | 16.1% | 15.3% |
Q3 U.S. comparable sales declined 0.5%, with traffic down 4.7% and average check up 4.2%. For the first 39 weeks, U.S. comparable sales increased 1.9%. Q3 total revenue rose 2.3%; restaurant sales growth included new openings, Brazilian tax-related benefits and currency translation, partly offset by closures and softer U.S. comparable sales. International operating performance improved, while U.S. segment operating income was essentially flat.
For the 39 weeks, operating cash flow was $373.6m, versus $292.6m a year earlier. Capital expenditures were $227.1m, versus $137.3m, and net cash used in investing was $225.5m. Net cash used in financing was $147.5m. Cash and cash equivalents were $86.6m at September 24, 2023.
Long-term debt, net, was $789.4m; principal debt outstanding was $794.8m, including $390.0m drawn on the revolving facility. The company reported $590.2m of available revolver capacity, net of letters of credit, and compliance with debt covenants. Total lease liabilities were approximately $1.35bn. Working capital was negative $658.7m, including $294.1m of unearned revenue, primarily unredeemed gift cards, and current operating lease liabilities.
Material changes and unusual items
- Q3 operating income increased $6.9m year over year. Management cited higher average checks, productivity initiatives, Brazilian tax exemptions and a lease-termination gain, partly offset by wage, commodity and other operating-cost inflation, advertising and depreciation.
- A $6.7m net gain related to terminating the lease and closing one U.S. restaurant reduced reported impairment and restaurant-closing expense in Q3.
- Brazil tax legislation and related exemptions reduced the effective tax rate; Q3’s rate was negative 0.1%, compared with 14.4% in Q3 2022. The 39-week rates were 9.2% and 40.2%, respectively. The prior-year comparison also included losses related to a partial repurchase of convertible notes.
- For the 39 weeks, GAAP diluted EPS was $2.08 and adjusted diluted EPS was $2.15; the prior-year adjusted figure was $1.84. Q3 adjusted diluted EPS was $0.44, compared with $0.35.
- Brazil tax benefits are not permanent as currently described: the company expects to become subject to PIS, COFINS and CSLL beginning in Q4 2023 and IRPJ beginning in 2024.
Outlook, liquidity and risks
Management estimated 2023 capital expenditures of $260m–$280m and stated that expected liquidity sources should be adequate for debt service, lease obligations, capital spending and working capital over the next 12 months. No specific revenue or earnings guidance is provided in the supplied filing text. The Board declared a $0.24-per-share quarterly dividend payable in November 2023; $87.9m remained under the $125m share-repurchase authorization at quarter-end.
Key risks include consumer traffic and discretionary spending, wage and commodity inflation, employee recruitment and retention, competition, cybersecurity, supplier concentration, foreign currency and international conditions, litigation, regulatory and tax changes, and the company’s leverage and lease obligations. Legal-proceeding reserves were $18.9m; the company said it could not estimate additional reasonably possible losses beyond recorded accruals. It also disclosed contingent lease guarantees with $20.5m of undiscounted potential payments. Management reported no material change to previously disclosed risk factors and stated disclosure controls were effective.
Important facts for investors to verify
- How much of revenue, operating-margin improvement and earnings growth is attributable to Brazil tax exemptions, currency translation and the one-time lease-termination gain.
- Whether declining U.S. traffic and negative Q3 U.S. comparable sales persist, and whether pricing can continue to offset labor and operating-cost inflation.
- The impact of Brazil’s scheduled tax changes on future effective tax rates, operating margins and cash flows.
- Planned capital spending, cash conversion and debt reduction relative to dividends, share repurchases and significant lease obligations.
- Potential outcomes and financial exposure from legal proceedings; the filing does not provide a clear estimate of possible losses beyond recorded reserves.