Bloomin’ Brands Announces 2017 Q1 Diluted EPS

TAMPA, Fla., April 26, 2017 (hospitalitybusinessnews.com) — Bloomin’ Brands, Inc. today reported results for the first quarter 2017 (“Q1 2017”) compared to the first quarter 2016 (“Q1 2016”).

Highlights for Q1 2017 include the following:

  • Reported combined U.S. comparable restaurant sales down 0.2% including up 1.4% at Outback Steakhouse;
  • Reported comparable restaurant sales for Outback Steakhouse in Brazil up 3.6%;
  • Generated $46 million in gross sale-leaseback proceeds; and
  • Opened 11 new restaurants, including eight in international markets.

Diluted EPS and Adjusted Diluted EPS

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

Q1

2017

2016

CHANGE

Diluted earnings per share

$

0.41

$

0.29

$

0.12

Adjustments

0.13

0.18

(0.05)

Adjusted diluted earnings per share

$

0.54

$

0.47

$

0.07

 ___________________

See Non-GAAP Measures later in this release.

CEO Comments

“The first quarter was a strong start to the year, and set us up well to achieve our 2017 goals,” said Liz Smith, CEO.  “We were pleased with our performance, particularly at Outback where our investments are gaining traction.  We continue to make progress domestically, reallocating spending away from discounting toward investments that strengthen brand health.  In addition, our International businesses are performing well and poised for growth.”

First Quarter Financial Results

(dollars in millions)

Q1 2017

Q1 2016

% Change

Total revenues

$

1,143.8

$

1,164.2

(1.7)%

U.S. GAAP restaurant-level operating margin

17.5

%

17.8

%

(0.3)%

Adjusted restaurant-level operating margin (1)

17.0

%

17.6

%

(0.6)%

U.S. GAAP operating income margin

6.0

%

7.4

%

(1.4)%

Adjusted operating income margin (1)

7.6

%

7.8

%

(0.2)%

 ___________________

(1)   See Non-GAAP Measures later in this release.

  • The decrease in Total revenues was primarily due to the sale of Outback Steakhouse South Korea restaurants in July 2016, partially offset by the effect of foreign currency translation and the net benefit of new restaurant openings and closings.
  • The decrease in U.S. GAAP restaurant-level operating margin was primarily due to: (i) higher labor costs due to higher wage rates and investments in our service model, (ii) higher net rent expense due to the sale-leaseback of certain properties and (iii) operating expense inflation. These decreases were partially offset by: (i) increases in average check, (ii) lower advertising expense and (iii) productivity savings.
  • Adjusted restaurant-level operating margin excludes the impact of the write-off of deferred rent in connection with the 2017 Closure Initiative and our 2016 Bonefish Restructuring.
  • The decrease in U.S. GAAP operating margin was primarily due to restaurant closing costs related to the 2017 Closure Initiative and lower U.S. GAAP restaurant-level margin. These decreases were partially offset by the timing of our annual partner’s conference which occurred in Q1 of 2016, but will not occur until Q2 of 2017.
  • Also included in U.S. GAAP and Adjusted operating income is $3.4 million of certain legal and tax contingencies related to our Brazilian operation.
  • Adjusted operating margin excludes the impact of our 2017 Closure Initiative and certain other adjustments. See table five later in this release for more information.

First Quarter Comparable Restaurant Sales

THIRTEEN WEEKS ENDED MARCH 26, 2017

COMPANY-OWNED

Comparable restaurant sales (stores open 18 months or more):

U.S.

  Outback Steakhouse

1.4

%

  Carrabba’s Italian Grill

(3.8)

%

  Bonefish Grill

(0.8)

%

  Fleming’s Prime Steakhouse & Wine Bar

(2.9)

%

Combined U.S.

(0.2)

%

International

  Outback Steakhouse – Brazil

3.6

%

Sale Leaseback Initiative

In Q1 2017, we sold 12 restaurant properties for gross proceeds of $46 million. We used a portion of these proceeds to repurchase shares of common stock and pay down the remaining balance of our bridge loan in April 2017.

Dividend Declaration and Share Repurchases

In April 2017, our Board of Directors declared a quarterly cash dividend of $0.08 per share to be paid on May 19, 2017 to all stockholders of record as of the close of business on May 8, 2017.

We repurchased 4.2 million shares of common stock year-to-date for a total of $78 million, which left $52 million remaining under our existing repurchase authorization. On April 21, 2017, our Board of Directors canceled the remaining authorization and approved a new $250 million authorization. The authorization will expire on October 21, 2018.

2017 Closure Initiative

In our February 17, 2017 earnings release we announced our decision to close 43 underperforming restaurants. In connection with these closures, we recognized $15.5 million of restaurant closing costs in the first fiscal quarter of 2017. These expenses are not included in our adjusted results.

Non-GAAP Financial Measures Update

Commencing with our results for the first fiscal quarter of 2017, when presenting non-GAAP measures, we are no longer including adjustments for the following:

  • Expenses incurred in connection with our remodel program; and
  • Intangible amortization recorded as a result of the 2013 acquisition of our Brazil operations.

We are making these changes after reviewing our non-GAAP measures in light of recent SEC guidance.  Our 2016 first fiscal quarter results have been recast to conform with this revised methodology.

Fiscal 2017 Financial Outlook

We are reaffirming all aspects of our full-year guidance as previously communicated in our February 17, 2017 earnings release.

TABLE ONE

BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

THIRTEEN WEEKS ENDED

(dollars in thousands, except per share data)

MARCH 26, 2017

MARCH 27, 2016

Revenues

Restaurant sales

$

1,135,488

$

1,158,052

Franchise and other revenues

8,335

6,136

Total revenues

1,143,823

1,164,188

Costs and expenses

Cost of sales

364,748

375,288

Labor and other related

324,398

322,805

Other restaurant operating

247,940

253,571

Depreciation and amortization

46,590

47,651

General and administrative

71,941

75,025

Provision for impaired assets and restaurant closings

19,076

3,164

Total costs and expenses

1,074,693

1,077,504

Income from operations

69,130

86,684

Loss on defeasance, extinguishment and modification of debt

(26,580)

Other expense, net

(51)

(19)

Interest expense, net

(9,141)

(12,875)

Income before provision for income taxes

59,938

47,210

Provision for income taxes

15,015

11,327

Net income

44,923

35,883

Less: net income attributable to noncontrolling interests

1,013

1,408

Net income attributable to Bloomin’ Brands

$

43,910

$

34,475

Earnings per share:

Basic

$

0.43

$

0.29

Diluted

$

0.41

$

0.29

Weighted average common shares outstanding:

Basic

103,074

117,930

Diluted

106,413

120,776

Cash dividends declared per common share

$

0.08

$

0.07

TABLE TWO

BLOOMIN’ BRANDS, INC.

SEGMENT RESULTS

(UNAUDITED)

(dollars in thousands)

THIRTEEN WEEKS ENDED

U.S. Segment

MARCH 26, 2017

MARCH 27, 2016

Revenues

Restaurant sales

$

1,027,212

$

1,038,749

Franchise and other revenues

5,406

5,030

Total revenues

$

1,032,618

$

1,043,779

  Restaurant-level operating margin

17.2

%

17.3

%

Income from operations

$

100,946

$

117,839

  Operating income margin

9.8

%

11.3

%

International Segment

Revenues

Restaurant sales

$

108,276

$

119,303

Franchise and other revenues

2,929

1,106

Total revenues

$

111,205

$

120,409

  Restaurant-level operating margin

20.3

%

19.5

%

Income from operations

$

8,802

$

11,349

  Operating income margin

7.9

%

9.4

%

Reconciliation of Segment Income from Operations to Consolidated Income from
Operations

Segment income from operations

  U.S.

$

100,946

$

117,839

  International

8,802

11,349

Total segment income from operations

109,748

129,188

  Unallocated corporate operating expense

(40,618)

(42,504)

Total income from operations

$

69,130

$

86,684

TABLE THREE

BLOOMIN’ BRANDS, INC.

SUPPLEMENTAL BALANCE SHEET INFORMATION

(UNAUDITED)

(dollars in thousands)

MARCH 26, 2017

DECEMBER 25, 2016

Cash and cash equivalents (1)

$

98,383

$

127,176

Net working capital (deficit) (2)

$

(505,488)

$

(432,889)

Total assets

$

2,510,976

$

2,642,279

Total debt, net

$

1,002,376

$

1,089,485

Total stockholders’ equity

$

219,148

$

195,353

_________________

(1)

Excludes restricted cash.

(2)

The Company has, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). The Company operates successfully with negative working capital because cash collected on Restaurant sales is typically received before payment is due on its current liabilities and its 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

(UNFAVORABLE)
FAVORABLE CHANGE
IN ADJUSTED

MARCH 26, 2017

MARCH 27, 2016

Consolidated:

U.S. GAAP

ADJUSTED (1)

U.S. GAAP

ADJUSTED (2)

QUARTER TO DATE

Restaurant sales

100.0

%

100.0

%

100.0

%

100.0

%

Cost of sales

32.1

%

32.1

%

32.4

%

32.4

%

0.3

%

Labor and other related

28.6

%

28.6

%

27.9

%

27.9

%

(0.7)

%

Other restaurant operating

21.8

%

22.3

%

21.9

%

22.1

%

(0.2)

%

Restaurant-level operating margin

17.5

%

17.0

%

17.8

%

17.6

%

(0.6)

%

Segments:

Restaurant-level operating margin – U.S.

17.2

%

16.7

%

17.3

%

17.1

%

(0.4)

%

Restaurant-level operating margin –
International

20.3

%

20.3

%

19.5

%

19.5

%

0.8

%

_________________

(1)

Includes adjustments for the write-off of $5.1 million of deferred rent liabilities primarily associated with the 2017 Closure Initiative, in the U.S. segment.

(2)

Includes adjustments for the write-off of $1.9 million of deferred rent liabilities primarily associated with the Bonefish Restructuring, in 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 26, 2017

MARCH 27, 2016

Income from operations

$

69,130

$

86,684

Operating income margin

6.0

%

7.4

%

Adjustments:

Restaurant impairments and closing costs (1)

15,497

2,131

Restaurant relocations and related costs (2)

2,107

356

Transaction-related expenses (3)

207

572

Severance (4)

1,135

Total income from operations adjustments

17,811

4,194

Adjusted income from operations

$

86,941

$

90,878

Adjusted operating income margin

7.6

%

7.8

%

Net income attributable to Bloomin’ Brands

$

43,910

$

34,475

Adjustments:

Income from operations adjustments

17,811

4,194

Loss on defeasance, extinguishment and modification of debt (5)

26,580

Total adjustments, before income taxes

17,811

30,774

Adjustment to provision for income taxes (6)

(4,419)

(9,076)

Net adjustments

13,392

21,698

Adjusted net income

$

57,302

$

56,173

Diluted earnings per share

$

0.41

$

0.29

Adjusted diluted earnings per share

$

0.54

$

0.47

Diluted weighted average common shares outstanding

106,413

120,776

_________________

(1)

Represents expenses incurred for the 2017 Closure Initiative, Bonefish Restructuring and International Restaurant Closure Initiative.

(2)

Represents asset impairment charges and accelerated depreciation incurred in connection with our relocation program.

(3)

Represents costs incurred in connection with our sale-leaseback initiative.

(4)

Relates to severance expense incurred as a result of the relocation of our Fleming’s operations center to the corporate home office in 2016.

(5)

Relates to the defeasance of the 2012 CMBS loan in 2016.

(6)

Represents income tax effect of the adjustments for the thirteen weeks ended March 26, 2017 and March 27, 2016.

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

THIRTEEN WEEKS ENDED

(dollars in thousands)

MARCH 26, 2017

MARCH 27, 2016

Other restaurant operating

$

(5,139)

$

(2,013)

Depreciation and amortization

1,593

444

General and administrative

2,389

2,652

Provision for impaired assets and restaurant closings

18,968

3,111

Loss on defeasance, extinguishment and modification of debt

26,580

Provision for income taxes

(4,419)

(9,076)

Net adjustments

$

13,392

$

21,698

TABLE SIX

BLOOMIN’ BRANDS, INC.

SEGMENT INCOME FROM OPERATIONS NON-GAAP RECONCILIATION

(UNAUDITED)

U.S. Segment

THIRTEEN WEEKS ENDED

(dollars in thousands)

MARCH 26, 2017

MARCH 27, 2016

Income from operations

$

100,946

$

117,839

Operating income margin

9.8

%

11.3

%

Adjustments:

Restaurant impairments and closing costs (1)

15,497

2,224

Restaurant relocations and related costs (2)

2,107

356

Transaction-related expenses (3)

207

334

Severance (4)

539

Adjusted income from operations

$

118,757

$

121,292

Adjusted operating income margin

11.5

%

11.6

%

International Segment

(dollars in thousands)

Income from operations

$

8,802

$

11,349

Operating income margin

7.9

%

9.4

%

Adjustments:

Restaurant impairments and closing costs (5)

(433)

Adjusted income from operations

$

8,802

$

10,916

Adjusted operating income margin

7.9

%

9.1

%

_________________

(1)

Represents expenses incurred for the 2017 Closure Initiative and Bonefish Restructuring.

(2)

Represents asset impairment charges and accelerated depreciation incurred in connection with our relocation program.

(3)

Represents costs incurred in connection with our sale-leaseback initiative.

(4)

Relates primarily to the relocation of our Fleming’s operations center to the corporate home office in 2016.

(5)

Represents expenses incurred primarily for the International Restaurant Closure Initiative.

TABLE SEVEN

BLOOMIN’ BRANDS, INC.

COMPARATIVE RESTAURANT INFORMATION

(UNAUDITED)

DECEMBER 25,
2016

OPENINGS

CLOSURES

MARCH 26,
2017

U.S.

Outback Steakhouse

  Company-owned

650

(13)

637

  Franchised

105

1

(1)

105

Total

755

1

(14)

742

Carrabba’s Italian Grill

  Company-owned

242

(14)

228

  Franchised

2

2

Total

244

(14)

230

Bonefish Grill

  Company-owned

204

1

(9)

196

  Franchised

6

1

7

Total

210

2

(9)

203

Fleming’s Prime Steakhouse & Wine Bar

  Company-owned

68

(1)

67

International

Company-owned

  Outback Steakhouse—Brazil (1)

83

83

  Other

29

2

31

Franchised

  Outback Steakhouse – South Korea

73

4

(2)

75

  Other

54

2

(1)

55

Total

239

8

(3)

244

System-wide total

1,516

11

(41)

1,486

____________________

(1)

The restaurant counts for Brazil are reported as of November 30, 2016 and February 28, 2017, respectively, to correspond with the balance sheet dates of this subsidiary.

TABLE EIGHT

BLOOMIN’ BRANDS, INC.

COMPARABLE RESTAURANT SALES INFORMATION  

(UNAUDITED)

THIRTEEN WEEKS ENDED

MARCH 26, 2017

MARCH 27, 2016

Year over year percentage change:

Comparable restaurant sales (stores open 18 months or more) (1):

  U.S.

Outback Steakhouse

1.4

%

(1.3)

%

Carrabba’s Italian Grill

(3.8)

%

(2.0)

%

Bonefish Grill

(0.8)

%

(2.7)

%

Fleming’s Prime Steakhouse & Wine Bar

(2.9)

%

1.3

%

Combined U.S.

(0.2)

%

(1.5)

%

  International

Outback Steakhouse – Brazil (2)

3.6

%

8.8

%

Traffic:

  U.S.

Outback Steakhouse

(2.1)

%

(3.0)

%

Carrabba’s Italian Grill

(7.2)

%

1.5

%

Bonefish Grill

(2.2)

%

(5.2)

%

Fleming’s Prime Steakhouse & Wine Bar

(7.5)

%

1.2

%

Combined U.S.

(3.3)

%

(2.2)

%

  International

Outback Steakhouse – Brazil

(1.8)

%

0.3

%

Average check per person increases (decreases) (3):

  U.S.

Outback Steakhouse

3.5

%

1.7

%

Carrabba’s Italian Grill

3.4

%

(3.5)

%

Bonefish Grill

1.4

%

2.5

%

Fleming’s Prime Steakhouse & Wine Bar

4.6

%

0.1

%

Combined U.S.

3.1

%

0.7

%

  International

Outback Steakhouse – Brazil

6.2

%

7.3

%

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