Bloomin’ Brands,
owner of Outback Steakhouse, aims to put more sizzle in its sales as it tries to catch up with faster-growing competitors. Once it does, the stock should flourish.
The Tampa, Fla.–based company gets the majority of its sales from Outback, which has more than 1,000 locations, including in Brazil and other countries, where sales are growing faster than at home. It also owns Carrabba’s Italian Grill, with 218 locations, and smaller chains Bonefish Grill, Fleming’s Prime Steakhouse & Wine Bar, and Aussie Steakhouse.
The company gets its name from Outback’s “Bloomin’ Onion” fried appetizer, and readers might remember television commercials with the sales pitch “No rules, just right.”
When the business is operating just right, sales should grow at least in line with other restaurants. That hasn’t been the case recently. Traffic at Outback U.S. dropped 4.3% year over year for both the fourth quarter and the full year of 2023, though total 2023 revenue still grew 5.7% to $4.67 billion as the company has been able to raise prices. Competitor
Brinker International
saw customer traffic decline a more modest 1.1% in its most recent quarter.
Earnings per share in the latest quarter of 75 cents beat estimates of 69 cents, driven by lower-than-expected operating costs. Bloomin’ stock moved higher after Friday’s earnings report, trading above $27.
Raymond James analyst Brian Vaccaro notes that the restaurant business is crowded and highly competitive, and operators go through periods of losing and gaining market share. For its part, Bloomin’ has said on its past couple earnings calls that its restaurants could benefit from faster service and stepped-up marketing.
The good news is that the company, with a market cap of $2.4 billion, is taking steps to spur growth and higher profitability. Management is looking to combine its digital-sales strength with new marketing and other efforts to retake market share.
The company says that 24% of U.S. sales in the fourth quarter came from “off-premise,” mostly consisting of digital sales, which the company launched several years ago. Growth in digital sales gives the company the foundation to take market share from peers.
“Stickier-than-expected off-premise sales, which could allow stronger sales volumes” is a potential catalyst to move the earnings and the stock higher, writes Jefferies analyst Andy Barish, who has a $34 price target.
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Bloomin’ said on its fourth-quarter earnings call that marketing spending for the full year of 2024 should rise by about $20 million year over year, a double-digit increase in percentage terms. That could weigh on profit margins in the near term. The company is also planning a $50 million cost-cutting program.
Analysts are looking for flat sales this year at $4.66 billion, according to FactSet, as traffic might not improve immediately. But for the next couple of years, “it is important to consider potential tailwinds on the marketing front,” writes Barish.
The company has invested in advanced grills and ovens, while also investing in hand-held technology for servers. That strategy has proved successful for other companies.
Texas Roadhouse
has grown total sales at about 25% annually over the past three years largely because it turns over tables quickly, Vaccaro says.
“On Bloomin’, it’s early,” he says, adding that once the improvements begin to materialize, the stock should move higher.
Such improvements are what Starboard Value, an activist investor that owns 9.7% of the stock, wants to see. The firm was successful in adding Starboard partner Jon Sagal and former
Darden Restaurants
Chief Operating Officer Dave George to the Bloomin’ board of directors.
George, who was at Darden from 2013 to 2020, oversaw a long period of growth. In that time, the stock gained about 17% on an annualized basis, and the company is now worth $20 billion. Analysts say shareholders are largely in favor of George’s involvement in the company and would like him to have a strong voice in decision-making.
Ultimately, the company is pursuing the ability to generate mid- to high-single-digit sales growth. Analysts expect just over 4% growth to $4.85 billion in 2025.
If the company can keep costs in check—selling, general, and administrative expenses should be flat this year at $252 million, even with higher marketing spending—margins can increase and the bottom line can grow faster than sales.
Earnings per share could grow by double digits annually, helped by continued stock buybacks. Bloomin’s expected earnings before interest, tax, depreciation, and amortization for this year is just over 10 times interest expense of $51 million. With a few hundred million dollars of annual free cash flow, the company can continue its recent buybacks. On Friday, management announced a $350 million authorization for repurchases.
Double-digit growth in 2025 could move per-share earnings up to at least $2.83. Shares now trade at about 10 times expected earnings for the coming 12 months, a hair under the other restaurant stocks and about half of the S&P 500’s 20 times. In the past, the stock has traded close to in-line with the index.
With an inexpensive stock and a start on planned improvements, investors would do well to work up an appetite for Bloomin’.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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