Bloomin' Brands Posts Gains, but Comps Remain a Concern

For Bloomin' Brands (NASDAQ: BLMN  ) , the challenging macroeconomic environment looks to have kept restaurant performance limited, even though the company posted top- and bottom-line gains. Still, the company deserves credit as its four chains together outperformed the industry, based on traffic numbers provided by Knapp. Bloomin' has been a publicly traded company for only 15 months, and the stock has gained more than 100% in value. There is little doubt that the company will keep growing attractively via new-store growth, domestic and international, but is the price right for investors with all things considered? Let's take a closer look.

Earnings recap
In the company's fiscal third quarter, Bloomin' Brands managed to eke out a 1.5% gain in top-line sales to $967.6 million. The sales gain was almost entirely due to the opening of new restaurants.

Systemwide, the company opened 14 new locations:

  • 6 Bonefish Grills
  • 3 Carrabba's Italian Grills
  • 3 Outback Steakhouses
  • 1 Brazilian joint venture
  • 1 "new international franchise"

For existing stores, things didn't go quite as well. Domestic comparable sales dropped by 0.3% in the quarter, while traffic bumped up 0.2%. But on an adjusted basis, accounting for the trading day, same-store sales gained 0.4%.

Broken down by segment, it was the company's premium brand, Fleming's Steakhouse, that saved the day with a comparable-sales gain of 4.2%. This comes on the heels of a difficult comparable quarter and year, when Fleming's saw sales rise by more than 5%. Without the upscale restaurant, companywide comparables would have been definitively down.

On the bottom line, Bloomin' posted a big gain of 43% to $0.10 per share.

Looking ahead, management revised full-year 2013 guidance downward on revenue and same-store sales by $100 million and a half percentage point, respectively. For 2014, the company expects 2% same-store sales growth and $4.6 billion in revenue.

It wasn't a great quarter for the company, but it could have been much worse. Management seems to expect little from the remaining quarter of the year, so what should investors look for ahead?

Great brands, tough bet
Bloomin' Brands has a strong overall portfolio with three core brands that focus on casual dining with higher checks and keeping customers in the restaurants as long as possible. Fleming's is the most appealing of the four, with insulation from greater market trends and fatter margins.

Internationally, the company is doing the right things to expand its footprint. Bloomin's joint venture in Brazil is a move to own a controlling interest in the nation's nearly 50 Outback locations. Investors will want to keep a close eye on how quickly the company can develop this concept, as well as its other international Outback locations.

But with 2014 same-store sales averaging 2%, it's looking like the company intends to impress investors with top-line gains on new store expansion. In the short term, it will succeed, but what's far more important is the continuing profitability of its stores. Investors need to see a solid ROI on capital expenditures, and one that compares favorably to competitors, if Bloomin' Brands is to be an appealing long-term hold. At this point, we haven't seen much evidence other than the runaway success of Fleming's. Bloomin' Brands doesn't offer enough downside protection to justify its opacity going forward.

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