Bloomin’ Brands, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 29, 2019 (52 weeks). The filing also reports unaudited fourth-quarter results. Bloomin’ Brands operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s, with 1,173 company-owned and 300 franchised restaurants across 48 U.S. states, Puerto Rico, Guam and 21 countries.
Key financial results
| Metric | FY2019 | FY2018 | Change / context |
|---|---|---|---|
| Total revenue | $4.139 billion | $4.126 billion | Up 0.3% |
| Operating income | $191.1 million | $145.3 million | Up 31.6%; operating margin 4.6% vs. 3.5% |
| Net income attributable to Bloomin’ Brands | $130.6 million | $107.1 million | Up 21.9% |
| Diluted EPS | $1.45 | $1.14 | Adjusted diluted EPS, a non-GAAP measure, was $1.54 vs. $1.50 |
| Operating cash flow | $317.6 million | $288.1 million | Up; capital expenditures were $161.9 million |
| Cash and cash equivalents | $67.1 million | $71.8 million | At fiscal year-end |
| Total debt, net | $1.049 billion | $1.095 billion | Senior secured facility matures November 2022 |
Margins and sales: Restaurant-level operating margin was 14.9% vs. 14.8% (company-wide). Cost of sales improved to 31.4% of restaurant sales from 31.9%, while labor rose to 29.6% from 29.5% and other restaurant operating expense rose to 24.1% from 23.8%. U.S. comparable sales increased 1.2%, but traffic declined 0.6%; Brazil comparable sales increased 5.8% (excluding foreign-exchange effects).
Fourth quarter: Revenue was $1.022 billion vs. $1.013 billion; operating income was $43.2 million vs. $21.4 million; net income attributable to the company was $28.0 million vs. $10.9 million. Diluted EPS was $0.32 vs. $0.12.
Material changes and financial position
- Operating income improved primarily from higher comparable sales, cost savings and lower impairment and closure charges; these benefits were partly offset by labor, commodity and operating cost inflation, delivery rollout costs and lease-accounting effects.
- International revenue rose to $451.5 million from $439.2 million, while U.S. revenue was essentially flat at $3.688 billion. Currency translation reduced restaurant sales by $35.9 million.
- Operating cash flow increased to $317.6 million. Investing cash outflow was $131.3 million and financing cash outflow was $189.4 million; the company repurchased $107.0 million of shares and paid $35.7 million of dividends.
- Current liabilities exceeded current assets by $621.6 million. Management said negative working capital is typical for the business and noted that current liabilities include $369.3 million of unredeemed gift-card and other deferred revenue and $171.9 million of current operating lease liabilities.
- Adoption of the lease standard added $1.3 billion of right-of-use assets and $1.5 billion of lease liabilities. Total operating lease liabilities were $1.451 billion at year-end; this accounting change materially increased reported assets and liabilities and affected comparability.
Outlook, commentary and risks
- Management expected 2020 commodity cost inflation of approximately 2% and labor cost inflation of approximately 3.5%; planned 2020 capital expenditures were $175 million to $190 million.
- 2020 plans included approximately 25 new system-wide restaurants, mostly in Brazil, and nine U.S. Outback relocations. The company also planned continued investment in delivery, digital marketing, remodeling and customer experience.
- In November 2019, the company began reviewing strategic alternatives, including a possible sale. It also announced corporate-function streamlining, a more operations-focused organization and a rebalanced capital allocation policy. Management targeted significant cost savings over the next couple of years but cautioned that execution and savings were uncertain.
- The Board declared a quarterly dividend of $0.20 per share in February 2020, double the 2019 quarterly rate. Future dividends and repurchases remain subject to cash generation, board discretion and debt restrictions.
- Major risks include substantial leverage and variable-rate exposure, debt covenants and 2022 refinancing, long-term lease commitments, wage and commodity inflation, intense restaurant competition, food safety, cyber and privacy incidents, supplier concentration, foreign-exchange and international-market risks, and execution of the strategic review and cost initiatives. The filing noted uncertainty about the then-recent coronavirus outbreak’s effects in markets where the company or franchisees operated.
- Unusual items included $9.1 million of impairment and restaurant-closing charges in 2019, $5.5 million of severance expense, a $3.8 million gain on surplus-property sales and $6.0 million of Brazilian VAT-credit benefits. The 2018 impairment and closing provision was $36.9 million. The 2019 effective tax rate was 5.3%, principally reflecting employment-related tax credits, including FICA tip credits.
Important facts for investors to verify
- Progress and outcome of the strategic-alternatives review, including whether a transaction is pursued and the costs or operational effects of the process.
- Whether planned corporate savings are achieved without weakening sales, service or restaurant operations, and whether expected cost inflation is offset by pricing or productivity.
- Cash generation, debt reduction, covenant headroom and refinancing plans ahead of the November 2022 maturity; also assess the company’s substantial lease obligations.
- Dividend sustainability and the balance among dividends, repurchases, debt repayment and reinvestment, particularly after the announced increase to $0.20 per quarter.
- Comparable-sales and traffic trends by brand and geography, including the effect of currency movements and the performance of delivery and Brazil expansion.
- Potential future impairment, closure, legal, tax and lease-guarantee costs; the filing reports $31.2 million of undiscounted contingent lease-guarantee exposure and $54.3 million of insurance reserves.