Bloomin’ Brands, Inc. — 2014 Q3 Form 10-Q
Business context and period. Unaudited results cover the 13 weeks ended September 28, 2014, and the 39 weeks ended that date; comparisons are with the three and nine months ended September 30, 2013. The company operated 1,349 restaurants and franchised 162 across five concepts. It plans to exit Roy’s. A fiscal-year change means the 2014 quarter had one fewer operating day, reducing reported restaurant sales by an estimated $6.9 million and attributable net income by $1.4 million.
Financial results and liquidity
| Metric | Q3 2014 | Prior comparable period | 39 weeks 2014 | Prior comparable period |
|---|---|---|---|---|
| Total revenue | $1,065.5 million | $967.6 million | $3,334.2 million | $3,078.7 million |
| Operating income (loss) | $(1.1) million | $29.5 million | $151.3 million | $194.3 million |
| Net income (loss) attributable to Bloomin’ Brands | $(11.4) million | $11.3 million | $68.7 million | $149.4 million |
| Diluted EPS | $(0.09) | $0.09 | $0.54 | $1.16 |
| Adjusted diluted EPS (non-GAAP) | $0.10 | $0.10 | $0.82 | $0.84 |
- Q3 revenue increased about 10%; 39-week revenue rose about 8%. Growth primarily reflected consolidation of Brazil operations acquired in November 2013 and new restaurant openings, with domestic comparable-sales growth also contributing.
- Q3 domestic comparable sales rose 3.3% across Outback, Carrabba’s, Bonefish and Fleming’s; 39-week growth was 1.3%. Carrabba’s comps declined in both periods. South Korea comparable sales were under pressure.
- Restaurant-level operating margin was 13.8% for Q3 versus 12.5% GAAP in the prior period; adjusted prior-period margin was 13.0%. For 39 weeks, margin was 16.1% versus 15.7% GAAP; adjusted current and prior margins were 16.0% and 15.9%, respectively.
- Q3 operating results included $29.1 million of impairment and closure charges, including charges related to South Korea closures, Roy’s and corporate aircraft. These items drove the quarterly operating loss. Adjusted figures are non-GAAP and exclude specified items.
- For 39 weeks, operating cash flow was $159.5 million, compared with $126.7 million; capital expenditures were $174.4 million versus $166.2 million. Cash and cash equivalents were $144.7 million at September 28, down from $209.9 million at year-end.
- Total debt was $1.420 billion, including $40.8 million current; long-term debt, net, was $1.372 billion. The company reported $155.4 million of unused revolving capacity, net of letters of credit, and compliance with debt covenants. Approximate debt less cash was $1.275 billion.
- Working capital was negative $233.4 million, including $226.9 million of unredeemed gift-card revenue. Management said expected liquidity sources were adequate for the next 12 months.
Material changes, outlook and risks
- The May 2014 refinancing established a $300 million Term Loan A, $225 million Term Loan B and $600 million revolving facility. The company recorded an $11.1 million debt-extinguishment and modification loss in the 39-week period. It entered into $400 million of interest-rate swaps beginning June 2015; management estimated about $3.3 million of additional interest expense in fiscal 2015 based on the then-current LIBOR curve.
- The company decided to close 36 underperforming international restaurants, primarily in South Korea, and expected substantial completion in Q4 2014 and Q1 2015. It anticipated another $19–$29 million of pre-tax charges and future cash costs, primarily lease-related, through February 2024. It had already recorded about $11.6 million of related asset impairments.
- Roy’s assets and liabilities were classified as held for sale; the company expected to exit the concept within one year and recorded a $6.0 million impairment. It also decided to sell two corporate airplanes and recorded $10.6 million of impairment charges.
- Management expected 2014 capital expenditures of approximately $215–$235 million and planned 55–60 system-wide openings, about half domestic and half international. These are stated plans, not a financial earnings forecast.
- Management cited weak discretionary spending and competitive pressure, especially in South Korea, as well as commodity, labor, interest-rate and foreign-exchange risks. The filing also describes an IRS payroll-tax audit and employee wage-and-hour lawsuits; outcomes of the lawsuits could not be predicted. The company had accrued $12 million for payroll-tax audits.
Most important facts to verify
- Whether domestic comparable-sales momentum and traffic improvements continued after the quarter, and whether South Korea sales stabilized.
- Actual costs, timing and cash impact of the 36 international closures, Roy’s exit and aircraft disposals versus stated estimates.
- Debt covenant headroom, required excess-cash-flow repayments, revolving-facility availability and interest-rate exposure.
- Cash conversion and planned capital spending relative to operating cash flow, including gift-card redemptions and working-capital movements.
- Developments in the IRS payroll-tax examination and wage-and-hour litigation, including any changes to accruals or contingencies.