Bloomin' Brands Results

Bloomin’ Brands Announces 2019 Q1 Diluted EPS of $0.69 and Adjusted Diluted EPS of $0.75

Comparable restaurant sales increased 3.5% at U.S. Outback Steakhouse - Combined U.S. comparable restaurant sales increased 2.4%

Bloomin' Brands

Bloomin’ Brands, Inc. (Nasdaq:BLMN) today reported results for the first quarter 2019 compared to the first quarter 2018.

Highlights for Q1 2019 include the following:

  • Comparable restaurant sales increased 3.5% at U.S. Outback Steakhouse
  • Combined U.S. comparable restaurant sales increased 2.4%
  • Comparable restaurant sales increased 3.7% for Outback Steakhouse in Brazil
  • Opened six new restaurants, including five in international markets

Diluted EPS and Adjusted Diluted EPS

Our Q1 2019 results include the impact of adopting the new lease accounting standard. Among its impacts, we no longer recognize the benefit of deferred gains on sale-leaseback transactions, resulting in an increase to Other restaurant operating expense of approximately $3.1 million. This represents a three cent reduction in earnings per share. The following table includes both a reported and a comparable basis that adjusts for this lease accounting change.

The following table reconciles Diluted earnings per share to Adjusted diluted earnings per share for the periods as indicated below.

         
    Q1    
    2019   2018   CHANGE
Diluted earnings per share   $ 0.69     $ 0.68     $ 0.01
Adjustments   0.06     0.03     0.03
Adjusted diluted earnings per share   $ 0.75     $ 0.71     $ 0.04
Remove new lease accounting standard impact (1)       (0.03 )   0.03
Adjusted diluted earnings per share on a comparable basis (1)   $ 0.75     $ 0.68     $ 0.07
                       
___________________
See Non-GAAP Measures later in this release.
 
(1)     In Q1 2018 both GAAP and adjusted diluted earnings per share were positively impacted by the benefit of deferred gains on sale-leaseback transactions by approximately $0.03. For comparability, we have presented adjusted diluted earnings per share excluding this benefit that we no longer recognize in 2019 as a result of the adoption of the new lease accounting standard.
       

CEO Comments

“The first quarter was a strong start to the year, and sets us up well to achieve our 2019 goals,” said David Deno, CEO. “Outback continues its strong sales momentum marking the ninth consecutive quarter of meaningful outperformance versus the industry. In addition, we continue to make progress against our growth platforms and this is showing up in increased sales and margin expansion across the portfolio. In the first quarter, operating margin grew on a comparable basis versus last year.”

First Quarter Financial Results

As described above, our Q1 2019 results include the impact from adopting the new lease accounting standard which reduces operating margins by 30 basis points. The following table includes both a reported and a comparable basis that adjusts for the lease accounting change:

         
    AS REPORTED   COMPARABLE BASIS (1)
(dollars in millions)   Q1 2019   Q1 2018   CHANGE   Q1 2018   CHANGE
Total revenues   $ 1,128.1     $ 1,116.5     1.0%   $ 1,116.5     1.0%
                     
GAAP restaurant-level operating margin   17.1 %   16.6 %   0.5%   16.3 %   0.8%
Adjusted restaurant-level operating margin (2)   17.1 %   16.5 %   0.6%   16.2 %   0.9%
                     
GAAP operating income margin   7.3 %   7.0 %   0.3%   6.7 %   0.6%
Adjusted operating income margin (2)   7.8 %   7.4 %   0.4%   7.1 %   0.7%
___________________
(1)     To improve comparability in this table, we removed the benefit of deferred gains on sale-leaseback transactions from our Q1 2018 results.
(2)     See Non-GAAP Measures later in this release.
       
  • The increase in total revenues was primarily due to higher U.S. comparable restaurant sales and the net impact of restaurant openings and closures, partially offset by foreign currency translation.
  • The increase in reported GAAP operating income margin was primarily due to increases in U.S. comparable restaurant sales and the impact of certain cost savings initiatives. These increases were partially offset by labor and commodity inflation, and the impact from adopting the new lease accounting standard as described above.

First Quarter Comparable Restaurant Sales

THIRTEEN WEEKS ENDED MARCH 31, 2019   COMPANY-OWNED
Comparable restaurant sales (stores open 18 months or more):    

U.S.

   
Outback Steakhouse   3.5%
Carrabba’s Italian Grill   0.3%
Bonefish Grill   1.9%
Fleming’s Prime Steakhouse & Wine Bar   0.6%
Combined U.S.   2.4%
     

International

   
Outback Steakhouse - Brazil   3.7%
     

About Bloomin’ Brands, Inc.

Bloomin’ Brands, Inc. is one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. The Company has four founder-inspired brands: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. The Company operates approximately 1,500 restaurants in 48 states, Puerto Rico, Guam and 20 countries, some of which are franchise locations.

 
TABLE ONE
BLOOMIN’ BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
    THIRTEEN WEEKS ENDED
(in thousands, except per share data)   MARCH 31, 2019   APRIL 1, 2018
Revenues        
Restaurant sales   $ 1,111,642     $ 1,099,003  
Franchise and other revenues   16,489     17,462  
Total revenues   1,128,131     1,116,465  
Costs and expenses        
Cost of sales   352,111     352,132  
Labor and other related   319,015     311,062  
Other restaurant operating   250,854     253,345  
Depreciation and amortization   49,482     50,120  
General and administrative   70,589     68,696  
Provision for impaired assets and restaurant closings   3,586     2,739  
Total costs and expenses   1,045,637     1,038,094  
Income from operations   82,494     78,371  
Other (expense) income, net   (168 )   1  
Interest expense, net   (11,181 )   (10,310 )
Income before provision for income taxes   71,145     68,062  
Provision for income taxes   5,496     1,925  
Net income   65,649     66,137  
Less: net income attributable to noncontrolling interests   1,349     739  
Net income attributable to Bloomin’ Brands   $ 64,300     $ 65,398  
         
Earnings per share:        
Basic   $ 0.70     $ 0.71  
Diluted   $ 0.69     $ 0.68  
         
Weighted average common shares outstanding:        
Basic   91,415     92,268  
Diluted   92,661     95,782  
             
 
TABLE TWO
BLOOMIN’ BRANDS, INC.
SEGMENT RESULTS
(UNAUDITED)
(dollars in thousands)   THIRTEEN WEEKS ENDED
U.S. Segment   MARCH 31, 2019   APRIL 1, 2018
Revenues        
Restaurant sales   $ 1,000,813     $ 984,344  
Franchise and other revenues   13,694     14,363  
Total revenues   $ 1,014,507     $ 998,707  
Restaurant-level operating margin   16.7 %   16.3 %
Income from operations   $ 113,035     $ 109,134  
Operating income margin   11.1 %   10.9 %
International Segment        
Revenues        
Restaurant sales   $ 110,829     $ 114,659  
Franchise and other revenues   2,795     3,099  
Total revenues   $ 113,624     $ 117,758  
Restaurant-level operating margin   22.3 %   19.4 %
Income from operations   $ 13,720     $ 8,325  
Operating income margin   12.1 %   7.1 %
Reconciliation of Segment Income from Operations to Consolidated Income from Operations        
Segment income from operations        
U.S.   $ 113,035     $ 109,134  
International   13,720     8,325  
Total segment income from operations   126,755     117,459  
Unallocated corporate operating expense   (44,261 )   (39,088 )
Total income from operations   $ 82,494     $ 78,371  
                 
 
TABLE THREE
BLOOMIN’ BRANDS, INC.
SUPPLEMENTAL BALANCE SHEET INFORMATION
(UNAUDITED)
(in thousands)   MARCH 31, 2019   DECEMBER 30, 2018
Cash and cash equivalents   $ 82,766     $ 71,823  
Net working capital (deficit) (1)   $ (572,151 )   $ (455,556 )
Total assets   $ 3,552,547     $ 2,464,774  
Total debt, net   $ 1,064,310     $ 1,094,775  
Total stockholders’ equity   $ 252,363     $ 54,817  
Common stock outstanding   91,647     91,272  
___________________
(1)     The change in net working capital (deficit) during the thirteen weeks ended March 31, 2019 is primarily due to current lease liabilities recognized as a result of the adoption of the new lease accounting standard. We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on Restaurant sales is typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are used to service debt obligations and to make capital expenditures.
       
 
TABLE FOUR
BLOOMIN’ BRANDS, INC.
RESTAURANT-LEVEL OPERATING MARGIN NON-GAAP RECONCILIATION
(UNAUDITED)
    THIRTEEN WEEKS ENDED   THIRTEEN WEEKS ENDED  

(UNFAVORABLE)

FAVORABLE CHANGE IN

ADJUSTED

YEAR TO DATE

    MARCH 31, 2019   APRIL 1, 2018  
    AS REPORTED   AS REPORTED  

COMPARABLE

ADJUSTED

BASIS (2)

 
Consolidated:   GAAP   ADJUSTED   GAAP   ADJUSTED (1)    

AS

REPORTED

 

COMPARABLE

BASIS (2)

Restaurant sales   100.0%   100.0%   100.0%   100.0%   100.0%        
                             
Cost of sales   31.7%   31.7%   32.0%   32.0%   32.0%   0.3%   0.3%
Labor and other related   28.7%   28.7%   28.3%   28.3%   28.3%   (0.4)%   (0.4)%
Other restaurant operating   22.6%   22.6%   23.1%   23.1%   23.4%   0.5%   0.8%
                             
Restaurant-level operating margin (3)   17.1%   17.1%   16.6%   16.5%   16.2%   0.6%   0.9%
                             
Segments - Restaurant-level operating margin (3):                            
U.S.   16.7%   16.7%   16.3%   16.2%       0.5%    
International   22.3%   22.3%   19.4%   19.4%       2.9%    
___________________
(1)    

The table set forth below titled “Restaurant-level Operating Margin Adjustments” provides additional information regarding the adjustments for each period presented.

(2)     In Q1 2018 both GAAP and adjusted restaurant-level operating margin were positively impacted by the benefit of deferred gains on sale-leaseback transactions by approximately $3.1 million. For comparability, we presented adjusted restaurant-level operating margin excluding this benefit that we no longer recognize in 2019 as a result of the adoption of the new lease accounting standard.
(3)     The following categories of our revenue and operating expenses are not included in restaurant-level operating margin because we do not consider them reflective of operating performance at the restaurant-level within a period:
        (i)     Franchise and other revenues, which are earned primarily from franchise royalties and other non-food and beverage revenue streams, such as rental and sublease income.  
        (ii)     Depreciation and amortization which, although substantially all of which is related to restaurant-level assets, represent historical sunk costs rather than cash outlays for the restaurants .
        (iii)     General and administrative expense which includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices.  
        (iv)     Asset impairment charges and restaurant closing costs which are not reflective of ongoing restaurant performance in a period.  
                 

Restaurant-level Operating Margin Adjustments - Following is a summary of unfavorable restaurant-level operating margin adjustments recorded in Other restaurant operating for the following activities, as described in table five of this release:

     
    THIRTEEN WEEKS ENDED
(dollars in millions)   APRIL 1, 2018 (1)
Restaurant and asset impairments and closing costs   $ 0.8
Restaurant relocations and related costs   0.2
    $ 1.0
___________________
(1)     All adjustments were recorded within the U.S. segment.
       
 
TABLE FIVE
BLOOMIN’ BRANDS, INC.
INCOME FROM OPERATIONS, NET INCOME AND DILUTED EARNINGS PER SHARE NON-GAAP RECONCILIATIONS
(UNAUDITED)
    THIRTEEN WEEKS ENDED
(in thousands, except per share data)   MARCH 31, 2019   APRIL 1, 2018
Income from operations   $ 82,494     $ 78,371  
Operating income margin   7.3 %   7.0 %
Adjustments:        
Severance (1)   $ 2,855     $ 965  
Restaurant and asset impairments and closing costs (2)   2,131     1,295  
Restaurant relocations and related costs (3)   1,032     1,725  
Legal and contingent matters       470  
Total income from operations adjustments   $ 6,018     $ 4,455  
Adjusted income from operations   $ 88,512     $ 82,826  
Adjusted operating income margin   7.8 %   7.4 %
         
Net income attributable to Bloomin’ Brands   $ 64,300     $ 65,398  
Adjustments:        
Income from operations adjustments   6,018     4,455  
Total adjustments, before income taxes   6,018     4,455  
Adjustment to provision for income taxes (4)   (819 )   (1,681 )
Net adjustments   5,199     2,774  
Adjusted net income   $ 69,499     $ 68,172  
         
Diluted earnings per share   $ 0.69     $ 0.68  
         
Adjusted diluted earnings per share   $ 0.75     $ 0.71  
Remove new lease accounting standard impact (5)       (0.03 )
Adjusted diluted earnings per share on a comparable basis (5)   $ 0.75     $ 0.68  
         
Diluted weighted average common shares outstanding   92,661     95,782  
___________________
(1)     Relates to severance expense incurred as a result of restructuring activities.
(2)     Represents asset impairment charges and related costs primarily associated with approved closure initiatives.
(3)     Represents asset impairment charges and accelerated depreciation incurred in connection with our relocation program.
(4)     Represents income tax effect of the adjustments for the periods presented.
(5)     In Q1 2018 both GAAP and adjusted diluted earnings per share were positively impacted by the benefit of deferred gains on sale-leaseback transactions by approximately $0.03. For comparability, we have presented adjusted diluted earnings per share excluding this benefit that we no longer recognize in 2019 as a result of the adoption of the new lease accounting standard.
       

Following is a summary of the financial statement line item classification of the net income adjustments:

     
    THIRTEEN WEEKS ENDED
(in thousands)   MARCH 31, 2019   APRIL 1, 2018
Other restaurant operating   $ (22 )   $ (958 )
Depreciation and amortization   565     1,588  
General and administrative   3,255     1,557  
Provision for impaired assets and restaurant closings   2,220     2,268  
Provision for income taxes   (819 )   (1,681 )
Net adjustments   $ 5,199     $ 2,774  
                 
 
TABLE SIX
BLOOMIN’ BRANDS, INC.
SEGMENT INCOME FROM OPERATIONS NON-GAAP RECONCILIATION
(UNAUDITED)
U.S. Segment   THIRTEEN WEEKS ENDED
(dollars in thousands)   MARCH 31, 2019   APRIL 1, 2018
Income from operations   $ 113,035     $ 109,134  
Operating income margin   11.1 %   10.9 %
Adjustments:        
Restaurant and asset impairments and closing costs (1)   $ 1,835     $ (616 )
Restaurant relocations and related costs (2)   1,032     1,725  
Severance (3)   700     888  
Adjusted income from operations   $ 116,602     $ 111,131  
Adjusted operating income margin   11.5 %   11.1 %
         
International Segment        
(dollars in thousands)        
Income from operations   $ 13,720     $ 8,325  
Operating income margin   12.1 %   7.1 %
Adjustments:        
Restaurant and asset impairments and closing costs (1)   296     1,911  
Adjusted income from operations   $ 14,016     $ 10,236  
Adjusted operating income margin   12.3 %   8.7 %
___________________
(1)     Represents asset impairment charges and related costs primarily associated with approved closure initiatives.
(2)     Represents asset impairment charges and accelerated depreciation incurred in connection with our relocation program.
(3)     Relates to severance expense incurred as a result of restructuring activities.
       
 
TABLE SEVEN
BLOOMIN’ BRANDS, INC.
COMPARATIVE RESTAURANT INFORMATION
(UNAUDITED)
Number of restaurants (at end of the period):   DECEMBER 30, 2018   OPENINGS   CLOSURES   OTHER   MARCH 31, 2019
U.S.                    
Outback Steakhouse                    
Company-owned   579     1     (1 )       579
Franchised   154         (1 )       153
Total   733     1     (2 )       732
Carrabba’s Italian Grill                    
Company-owned (1)   224         (1 )   (18 )   205
Franchised (1)   3             18     21
Total   227         (1 )       226
Bonefish Grill                    
Company-owned   190         (1 )       189
Franchised   7                 7
Total   197         (1 )       196
Fleming’s Prime Steakhouse & Wine Bar                    
Company-owned   70                 70
Other                    
Company-owned   5         (3 )       2
U.S. Total   1,232     1     (7 )       1,226
International                    
Company-owned                    
Outback Steakhouse—Brazil (2)   92     3             95
Other   33     1             34
Franchised                    
Outback Steakhouse - South Korea   76         (4 )       72
Other   55     1     (2 )       54
International Total   256     5     (6 )       255
System-wide total   1,488     6     (13 )       1,481
___________________
(1)     In March 2019, we sold 18 Carrabba’s Italian Grill locations, which are now operated as franchises.
(2)     The restaurant counts for Brazil are reported as of November 30, 2018 and February 28, 2019 to correspond with the balance sheet dates of this subsidiary.
       
TABLE EIGHT
BLOOMIN’ BRANDS, INC.
COMPARABLE RESTAURANT SALES INFORMATION
(UNAUDITED)
    THIRTEEN WEEKS ENDED
    MARCH 31, 2019   APRIL 1, 2018
Year over year percentage change:        
Comparable restaurant sales (stores open 18 months or more) (1):        
U.S.        
Outback Steakhouse   3.5%   4.3%
Carrabba’s Italian Grill   0.3%   0.9%
Bonefish Grill   1.9%   (0.1)%
Fleming’s Prime Steakhouse & Wine Bar   0.6%   2.9%
Combined U.S.   2.4%   2.8%
International        
Outback Steakhouse - Brazil (2)   3.7%   1.1%
         
Traffic:        
U.S.        
Outback Steakhouse   (0.5)%   2.2%
Carrabba’s Italian Grill   (1.3)%   (5.6)%
Bonefish Grill   (1.9)%   (2.4)%
Fleming’s Prime Steakhouse & Wine Bar   (1.6)%   (2.4)%
Combined U.S.   (0.9)%   (0.2)%
International        
Outback Steakhouse - Brazil   (2.4)%   (1.6)%
         
Average check per person (3):        
U.S.        
Outback Steakhouse   4.0%   2.1%
Carrabba’s Italian Grill   1.6%   6.5%
Bonefish Grill   3.8%   2.3%
Fleming’s Prime Steakhouse & Wine Bar   2.2%   5.3%
Combined U.S.   3.3%   3.0%
International        
Outback Steakhouse - Brazil   6.5%   3.0%
___________________
(1)     Comparable restaurant sales exclude the effect of fluctuations in foreign currency rates. Relocated international restaurants closed more than 30 days and relocated U.S. restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening.
(2)     Includes trading day impact from calendar period reporting.
(3)     Average check per person includes the impact of menu pricing changes, product mix and discounts.
       



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