Bloomin’ Brands, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. Bloomin’ Brands owns and operates casual, upscale-casual and fine-dining restaurants, including Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s. The unaudited quarter covered the 13 weeks ended June 25, 2023; year-to-date figures cover 26 weeks. At quarter-end, the company reported 1,187 company-owned restaurants and kitchens and 298 franchised locations across 47 states, Guam and 13 countries.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Total revenue | $1,152.7 million | $1,125.2 million | $2,397.4 million | $2,265.7 million |
| Operating income | $89.4 million | $87.7 million | $210.1 million | $195.0 million |
| Net income attributable to Bloomin’ Brands | $68.3 million | $(63.6) million | $159.6 million | $11.9 million |
| Diluted EPS | $0.70 | $(0.72) | $1.63 | $0.12 |
| Operating margin | 7.8% | 7.8% | 8.8% | 8.6% |
| Restaurant-level operating margin (non-GAAP) | 16.4% | 15.5% | 17.2% | 16.3% |
- Q2 revenue increased 2.4%; first-half revenue increased 5.8%. Q2 U.S. combined comparable sales rose 0.8%, while U.S. traffic fell 4.2% and average check rose 5.0%.
- First-half operating cash flow was $287.3 million, versus $218.8 million a year earlier. Capital expenditures were $142.2 million, versus $76.9 million. Cash and cash equivalents were $88.8 million at quarter-end.
- Long-term debt, net, was $764.0 million, including $365.0 million drawn on the revolving facility. The company had $615.2 million of unused revolving capacity, net of letters of credit, and reported compliance with debt covenants. Operating and finance lease liabilities totaled approximately $1.33 billion.
- Current liabilities exceeded current assets by $663.7 million. Management said negative working capital is common in the restaurant business and reflects, in part, gift-card revenue and lease liabilities.
Material changes and drivers
- Q2 profit improved sharply from the prior-year loss, but the comparison is materially affected by 2022 charges related to the partial repurchase of convertible notes: debt extinguishment/modification losses and derivative fair-value losses totaled about $125.3 million before tax. These charges were absent in 2023. First-half adjusted diluted EPS, a non-GAAP measure, was $1.72 versus $1.48.
- Restaurant sales growth reflected openings, higher comparable sales and Brazil tax exemptions; currency translation partly offset Q2 international growth. Brazil sales included $9.6 million of value-added-tax exemption benefit in Q2 and $19.2 million in the first half.
- Food and beverage costs declined as a share of restaurant sales, helped by pricing and cost initiatives. Labor costs rose as a share, primarily due to wage inflation; other restaurant costs also faced inflation, including utilities. Consolidated Q2 restaurant-level margin improved, while U.S. segment operating income declined slightly and international operating income increased.
Outlook, risks and unusual items
- No full-year revenue or earnings guidance is provided in the supplied filing text. Management estimated 2023 capital expenditures of approximately $240 million to $260 million and said expected liquidity sources should cover debt service, leases, capital spending and working capital for the following 12 months, subject to revenue, cash flow and cost management.
- Brazil enacted legislation limiting the company’s tax exemptions. Management expects to become subject to PIS, COFINS and CSLL beginning in Q4 2023 and IRPJ beginning in 2024. Current-period tax benefits include Brazil legislation and FICA credits; reported effective tax rates may therefore not represent a normalized rate.
- The remaining 2025 convertible notes were eligible for conversion during Q3 2023 based on quarter-end share prices. Conversion could affect share count and cash obligations. The company also repurchased $36.2 million of shares and paid $42.0 million in dividends in the first half; $103.8 million remained under its $125 million repurchase authorization at quarter-end.
- Legal proceedings include ordinary-course claims such as employment, liquor-liability and personal-injury matters. Recorded reserves were $16.4 million; the company said additional losses were reasonably possible but could not estimate a range beyond recorded accruals. Potential lease-guarantee payments were approximately $21.9 million undiscounted.
- Key stated risks include labor availability and wage inflation, commodity and operating-cost inflation, consumer traffic and discretionary spending, competition, cybersecurity, foreign exchange and international conditions, litigation, and leverage/covenant constraints. Management reported no material change in risk factors or market risk and concluded disclosure controls were effective.
Important facts for investors to verify
- Whether sales growth and pricing can be sustained if traffic remains negative, and how comparable sales develop by brand and geography.
- How Brazil’s changing tax treatment affects segment margins, reported revenue and the effective tax rate from late 2023 onward.
- Whether labor, commodity and utility inflation continue to pressure margins despite pricing and cost-saving initiatives.
- Capital spending against the $240–$260 million estimate, cash generation, revolving-credit usage and progress on debt repayment.
- Potential dilution or cash settlement associated with the 2025 Notes, and the pace of dividends and repurchases relative to investment needs.
- Developments in litigation and lease guarantees, for which potential exposure beyond recorded amounts was not quantified.