8-K: Bloomin' Brands Reports Mixed Q3 Results, Announces Brazil Re-Franchise

Bloomin' Brands announced its Q3 2024 financial results, including a decrease in diluted EPS and the strategic re-franchise of its Brazil operations.

Summary

• Bloomin' Brands reported a decrease in diluted earnings per share (EPS) to $0.08 and adjusted diluted EPS to $0.21 for the third quarter of 2024, compared to $0.45 and $0.41 respectively in Q3 2023.
• Total revenues decreased by 3.8% to $1,038.8 million, primarily due to lower comparable restaurant sales, foreign currency translation, and net restaurant closures.
• The company's GAAP operating income margin decreased to 1.7% from 5.4% in the same period last year, while adjusted operating income margin decreased to 3.0% from 5.3%.
• Comparable restaurant sales in the U.S. declined by 1.5%, with Outback Steakhouse, Carrabba's, and Bonefish Grill all experiencing negative growth, while Flemings showed a slight increase of 1.2%.
• The company announced a strategic re-franchise of its Brazil operations, selling 67% to Vinci Partners for approximately $243 million, reflecting a total enterprise value of R$2.06 billion or 6.5x trailing twelve months EBITDA.
• Bloomin' Brands updated its full-year 2024 guidance, lowering the expected GAAP diluted EPS to a range of -$0.26 to -$0.16 and adjusted diluted EPS to $1.72 to $1.82.
• A quarterly cash dividend of $0.24 per share was declared, payable on December 11, 2024.
• The company repurchased 10.1 million shares for $265.7 million year-to-date and has $96.8 million remaining under its share repurchase program.

Sentiment

Score: 3

Explanation: The document presents a mix of negative and positive news. The negative aspects, such as decreased earnings, revenue, and comparable sales, along with lowered guidance, outweigh the positive news of the Brazil re-franchise and dividend declaration. The overall sentiment is cautious and indicates potential challenges ahead.

Positives

• The company is taking strategic action by re-franchising its Brazil operations, which is expected to generate an ongoing royalty stream and allow them to focus on core markets.
• The company has an option to sell its remaining stake in the Brazil operations in 2028.
• The company declared a quarterly cash dividend of $0.24 per share, demonstrating a commitment to returning value to shareholders.
• The company has an active share repurchase program, having bought back 10.1 million shares year-to-date.

Negatives

• Diluted EPS decreased significantly to $0.08 from $0.45 year-over-year.
• Adjusted diluted EPS also decreased to $0.21 from $0.41 year-over-year.
• Total revenues decreased by 3.8% compared to the same quarter last year.
• Comparable restaurant sales in the U.S. declined by 1.5%.
• The company's GAAP operating income margin decreased from 5.4% to 1.7%.
• The company lowered its full-year 2024 guidance for both GAAP and adjusted diluted EPS.
• Restaurant-level operating margin decreased from 13.8% to 12.5%.

Risks

• The company faces risks related to consumer reaction to public health and food safety issues.
• Increases in labor costs and fluctuations in the availability of employees could impact profitability.
• The company is exposed to competition and potential interruptions or breaches of its systems.
• Price and availability of commodities and other impacts of inflation could affect costs.
• Political, social, and legal conditions in international markets and foreign currency exchange rates pose risks to international operations.
• The company's ability to complete the Brazil franchise partnership transaction and the impact of such transaction on future results is a risk.
• Changes in consumer traffic, tastes, and dietary habits could impact sales.
• The company faces challenges associated with remodeling, relocation, and expansion plans.
• The company's ability to make debt payments and comply with debt covenants is a risk.
• The company is exposed to the effects of weather, acts of God, and other disasters.

Future Outlook

The company has updated its full-year 2024 guidance, lowering the expected GAAP diluted EPS to a range of -$0.26 to -$0.16 and adjusted diluted EPS to $1.72 to $1.82. Q4 2024 U.S. comparable restaurant sales are expected to decline by 1.0% to 2.0%. GAAP diluted EPS for Q4 is expected to be $0.31 to $0.41 and adjusted diluted EPS is expected to be $0.32 to $0.42.

Management Comments

• CEO Mike Spanos stated he is impressed with the team's resiliency and sees potential in the brands.
• Spanos emphasized the importance of consistent and elevated guest experience, focusing first on Outback Steakhouse.
• Spanos expressed confidence that the Brazil franchise partnership with Vinci Partners will maximize future growth potential.

Industry Context

The casual dining industry is facing challenges with inflation, labor costs, and changing consumer preferences. Bloomin' Brands' results reflect these broader trends, with declining comparable sales and margins. The strategic re-franchise of the Brazil operations is a move to streamline operations and focus on core markets, which is a common strategy in the industry.

Comparison to Industry Standards

• Comparable restaurant sales declines of 1.5% in the US are worse than some competitors such as Texas Roadhouse who have reported positive comparable sales growth in recent quarters.
• The decrease in restaurant-level operating margin to 12.5% is below the industry average for casual dining restaurants, which typically aim for margins in the mid-teens.
• The strategic re-franchising of the Brazil operations is similar to moves by other restaurant chains to reduce risk and focus on core markets, such as Yum Brands' re-franchising efforts in various international markets.
• The adjusted diluted EPS guidance of $1.72 to $1.82 is below the average analyst estimates for the sector, indicating potential underperformance compared to peers.

Stakeholder Impact

• Shareholders will be impacted by the decreased earnings and lowered guidance, but may be encouraged by the dividend and share repurchase program.
• Employees may be affected by the company's focus on improving the guest experience and potential cost-saving initiatives.
• Customers may experience changes in service and menu offerings as the company focuses on improving the guest experience.
• Suppliers may be impacted by changes in the company's operations and supply chain.
• Creditors may be impacted by the company's financial performance and debt levels.

Next Steps

• The company will continue to focus on improving the guest experience, particularly at Outback Steakhouse.
• The company will complete the strategic re-franchise of its Brazil operations.
• The company will continue to execute its share repurchase program.
• The company will host a conference call to discuss the results.

Key Dates

Keywords

restaurant, franchise, earnings, sales, EPS, Brazil, Outback Steakhouse, casual dining, financial results, re-franchise