Bloomin’ Brands, Inc. — FY2015 Form 10-K
Business context and reporting period. Bloomin’ Brands operates Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. The fiscal year was the 52 weeks ended December 27, 2015; this annual filing also reports fourth-quarter results. At year-end, the company operated 1,336 restaurants and franchised 171 across the U.S. and 22 countries. Roy’s was sold in January 2015. The company changed its fiscal year-end beginning in 2014, so comparisons are affected by operating-day differences: FY2015 included two additional days ($24.3 million of restaurant sales), while FY2014 included three fewer days ($46.0 million less sales).
Financial performance and liquidity
| Metric | FY2015 | FY2014 | Change / context |
|---|---|---|---|
| Total revenue | $4,377.7 million | $4,442.7 million | Down 1.5%; foreign currency translation was a principal headwind. |
| Income from operations | $230.9 million | $192.0 million | Operating margin 5.3%, versus 4.3%; improvement reflected lower G&A and impairment/closure costs and stronger restaurant-level margin. |
| Net income attributable to Bloomin’ Brands | $127.3 million | $91.1 million | Diluted EPS was $1.01 versus $0.71. |
| Restaurant-level operating margin | 16.5% | 16.1% | Improved 0.4 percentage points; adjusted non-GAAP margin was also 16.5% in 2015. |
| Operating cash flow | $397.4 million | $352.0 million | Capital expenditures were $210.3 million; operating cash flow less capital expenditures was approximately $187.2 million. |
| Cash and cash equivalents | $132.3 million | $165.7 million | $51.4 million was held by foreign affiliates. |
| Total debt, net | $1,316.9 million | $1,309.8 million | Year-end debt; $363.7 million of unused revolving capacity, net of letters of credit. |
Net cash used in investing activities was $180.6 million and net cash used in financing activities was $241.0 million; cash declined $33.4 million during the year. Interest expense, net, was $56.2 million, down from $59.7 million. Current assets of $418.6 million compared with current liabilities of $814.2 million, producing a $395.5 million working-capital deficit, which included $382.6 million of unredeemed gift-card liabilities. Management said operating cash receipts typically precede payment of current liabilities and believed liquidity sources adequate for the next 12 months.
U.S. segment revenue was $3,879.7 million and segment operating income was $342.2 million; international revenue was $497.9 million and segment operating income was $34.6 million. International revenue was notably affected by currency translation.
Material changes and fourth-quarter results
- Combined U.S. comparable sales rose 0.5% for FY2015, primarily on pricing and product mix, partly offset by lower traffic. By concept: Outback +1.8%, Carrabba’s −0.7%, Bonefish −3.3%, and Fleming’s +1.3%.
- Outback Brazil comparable sales increased 6.3%; South Korea comparable sales declined 2.0%. Foreign exchange reduced FY2015 restaurant sales by $119.3 million and operating income by $11.0 million.
- FY2015 fourth-quarter revenue was $1,049.3 million, operating income $31.9 million, net income attributable to the company $17.7 million, and diluted EPS $0.14. U.S. comparable traffic declined 4.6% in the quarter; Bonefish traffic declined 8.4%.
- FY2015 commodity costs increased 3.7%. Menu prices increased by 2.1%–6.4% across concepts. Productivity and cost-management initiatives generated reported savings of $70.4 million.
- Income from operations included $36.7 million of impairment and restaurant-closing expense. This included approximately $24.2 million of Bonefish asset impairments recorded in FY2015 after the company decided in February 2016 to close 14 locations.
Outlook, risks, contingencies and unusual items
- For 2016, management expected 40–50 new system-wide restaurants, with more than half international, and capital expenditures of $235–$255 million. Management identified Brazil as a priority for international growth and expected continued foreign-currency volatility, particularly for the Brazilian real. The filing does not provide numerical 2016 revenue or earnings guidance.
- Management expected 2016 commodity-cost pressure of approximately 0.5%. Growth and margin plans depend on traffic recovery, pricing and value execution, productivity savings, and successful restaurant development and remodeling.
- After year-end, the company borrowed $300 million under a PRP mortgage loan and used the proceeds, together with revolving-credit borrowings, to prepay part of and defease the remainder of the 2012 CMBS loan. The new variable-rate loan is secured by 148 properties, matures in February 2018 with a conditional one-year extension, and management intended to repay it using sale-leaseback proceeds. The company anticipated a $26–$29 million extinguishment loss in Q1 2016 and approximately $12 million of 2016 interest savings.
- Leverage and covenant restrictions are significant risks. The company reported compliance with debt covenants at year-end; its senior secured facility includes a maximum total net leverage ratio of 5.00-to-1 through FY2017, stepping down to 4.75-to-1 thereafter. Variable-rate borrowings expose results to interest-rate increases; $400 million was hedged by swaps through May 2019.
- Future cash expenditures associated with the Bonefish closures were estimated at $11–$13.5 million through October 2024. The company also reported $960.2 million in operating-lease commitments and $509.7 million in purchase obligations at year-end.
- A tentative $3.2 million settlement of the Cardoza wage-and-hour litigation remained subject to court approval. The company settled 2011–2012 payroll-tax audit adjustments for $6.4 million in 2015. It lost a South Korea tax appeal involving a $6.7 million assessment and was seeking competent-authority relief; no additional tax expense was recorded for that assessment.
- Other risks include casual-dining competition and weak discretionary spending, food safety, labor and minimum-wage costs, commodity and beef-supplier concentration, cybersecurity, international economic and currency exposure, self-insured claims, and the ability to sustain dividends and buybacks amid substantial debt.
- The company reported immaterial out-of-period accounting corrections for allocations of foreign-currency translation and changes in redeemable noncontrolling-interest values. Management and the auditor concluded internal control over financial reporting was effective; the financial-statement audit opinion was unqualified.
Most important facts for investors to verify
- Whether comparable-sales and traffic trends—especially Bonefish and U.S. fourth-quarter traffic—improved after FY2015, and whether reported margin gains are sustainable.
- Actual 2016 foreign-exchange and commodity impacts compared with management’s expectations, including the effect of the Brazilian real and beef costs.
- Post-year-end debt balances, refinancing and sale-leaseback execution, repayment requirements, interest costs, and compliance with leverage covenants.
- Final costs and timing for Bonefish and other restaurant closures, and court approval and ultimate cost of the Cardoza settlement.
- Cash generation after capital expenditures, lease and other contractual obligations, and whether dividends and the new $250 million share-repurchase authorization remain supportable.