Bloomin’ Brands (BLMN) Q4 2023: $100M Revenue Cut from Closures Boosts EBIT, Signals Portfolio Reset
Bloomin’ Brands is closing 41 underperforming restaurants, removing $100 million in revenue but adding $4 million in EBIT, as it leans into asset refreshes, Outback Steakhouse repositioning, and a ramp in new unit development for 2024. Management’s guidance embeds higher marketing spend, persistent labor and beef inflation, and a disciplined capital allocation framework, reflecting a pragmatic response to mixed traffic and margin pressures. Investors should watch for Outback’s comp outperformance, Carrabba’s catering momentum, and how new openings and remodels impact traffic and margin trends as the portfolio is reshaped.
Summary
- Portfolio Rationalization: Restaurant closures will lift profit despite revenue loss, sharpening focus on higher-return assets.
- Outback Repositioning: Brand refresh, targeted marketing, and operational upgrades aim to sustain comp outperformance.
- CapEx Ramp: Accelerated new unit openings and remodels set the stage for multi-year growth and asset quality improvement.
Business Overview
Bloomin’ Brands operates a portfolio of casual dining restaurants, including Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, and Fleming’s Prime Steakhouse & Wine Bar. The company generates revenue from dine-in, off-premises (to-go and delivery), and catering sales, with Outback as the flagship brand. Major segments include U.S. operations, international (notably Brazil), and off-premises channels, with U.S. comp sales and traffic as key drivers. Asset refreshes, menu innovation, and digital investments are central to its growth strategy.
Performance Analysis
Bloomin’ Brands delivered Q4 results in line with expectations, with total revenue up 9% year-over-year, aided by an extra 53rd week and favorable FX. U.S. comparable sales dipped slightly, while traffic improved sequentially from Q3, signaling some stabilization after a soft October. Average check growth moderated as the company pulled back on menu price increases, reflecting caution on consumer price sensitivity, especially at Outback.
Margin pressure was evident, with adjusted restaurant-level margins declining 90 basis points year-over-year, primarily due to beef cost normalization, labor inflation (up 4.4%), and higher OpEx. Off-premises sales remained robust at 24% of U.S. sales, and third-party delivery grew to 13% driven by Carrabba’s catering. The 53rd week provided a temporary margin lift, but underlying cost inflation persisted. Notably, the closure of 41 underperforming restaurants is expected to be profit-accretive, adding $4 million to EBIT in 2024 despite a $100 million revenue reduction.
- Brand Divergence: Carrabba’s outperformed with 3.9% comp sales growth and positive traffic, while Bonefish remains in turnaround mode.
- Brazil Expansion: The international segment posted strong growth, opening 18 new units and maintaining momentum despite tough comps from pent-up demand in 2022.
- Share Repurchase Reset: The board authorized a new $350 million buyback, with $200 million earmarked for potential convertible bond retirement, signaling capital discipline.
Overall, the quarter reflects a business in transition: portfolio pruning, asset investment, and brand repositioning are intended to drive sustainable traffic and margin improvement, but near-term headwinds from inflation and cautious consumer spending remain.
Executive Commentary
"Our primary focus remains improving in-restaurant sales and traffic at Outback. We've done a lot of work to better understand our ever-evolving post-COVID customer. We believe we have a better idea of who our customer is, and as a result, we continue to sharpen our brand positioning."
David Dino, Chief Executive Officer
"We repurchased 2.8 million shares of stock in 2023 for $70 million. As indicated in this morning's earnings release, the board has canceled the existing $125 million authorization and approved a new $350 million authorization expiring in August of 2025. The purpose of the authorization is twofold. First, $150 million of this authorization allows us to continue to repurchase a typical volume of shares over the next 18 months. Second, our convertible bond matures in May of 2025. The remaining $200 million of this authorization allows for flexibility to retire the convert."
Chris Meyer, Chief Financial Officer
Strategic Positioning
1. Outback Steakhouse Brand Refresh
Outback is undergoing a multi-pronged repositioning, with the “No Rules, Just Right” campaign leveraging its brand heritage to reconnect with core customers and attract new ones. Increased marketing spend—up $20 million in 2024—targets share-of-voice gains and traffic lifts, with a mix of TV and digital, and a focus on value-driven menu innovation (e.g., $16.99 three-course meal).
2. Asset Quality and Expansion
The company is accelerating asset refreshes, aiming to open 40 to 45 new restaurants in 2024 (triple last year’s domestic unit growth), continue robust remodels, and capitalize on relocations, which consistently deliver strong sales lifts. Closures of underperforming, legacy assets are expected to improve portfolio returns, with new units and remodels concentrated in stronghold markets like the Southeast.
3. Productivity and Technology Investments
Ongoing investments in technology—such as server handhelds and new kitchen equipment—are driving measurable gains in service and food quality, with internal metrics for steak accuracy and consistency up 400 and 700 basis points, respectively. Productivity initiatives yielded $55 million in 2023 savings, with another $50 million targeted for 2024, focused on supply chain, menu simplification, and operational efficiency.
4. Off-Premises and Catering Growth
The off-premises channel now represents nearly a quarter of U.S. sales, with third-party delivery and catering (notably at Carrabba’s) as incremental growth engines. Carrabba’s Bistro and lunch-focused catering are outperforming expectations, supporting sustained above-industry traffic growth for that brand.
5. Capital Allocation and Shareholder Returns
Capital allocation remains disciplined, balancing CapEx for new units and remodels with share repurchases and prudent leverage. The new $350 million repurchase authorization provides flexibility to address convertible dilution and maintain capital return to shareholders, even as CapEx rises to support growth.
Key Considerations
Bloomin’ Brands is actively reshaping its portfolio and operating model, with a focus on asset quality, brand relevance, and operational productivity. The quarter’s results and guidance reflect both the progress and the challenges of this transition.
Key Considerations:
- Asset Rationalization Impact: Closure of 41 older, low-performing units will reduce revenue but improve EBIT, highlighting a shift to higher-return assets and markets.
- Brand-Specific Momentum: Outback’s comp sales outperformance and Carrabba’s catering growth are offsetting softness elsewhere, but Bonefish requires further repositioning.
- Inflation and Cost Management: Persistent labor (4.5%) and beef inflation (100% locked for 2024) remain key margin pressures, requiring ongoing productivity gains and cautious pricing.
- Capital Deployment Balance: Accelerated CapEx for new units and remodels is balanced by a larger buyback program and strong free cash flow, maintaining financial flexibility.
- Marketing ROI Watchpoint: Elevated marketing spend is intended to drive traffic and brand relevance, but returns must materialize to justify ongoing investment.
Risks
Key risks include sustained labor and beef inflation, which may pressure margins if productivity and pricing actions fall short. Consumer discretionary caution and negative industry traffic trends could limit sales growth, while the success of Outback’s repositioning and new unit ramp is not guaranteed. Execution on asset refreshes and closure transitions must be managed carefully to avoid operational disruption and protect brand equity.
Forward Outlook
For Q1 2024, Bloomin’ Brands guided to:
- U.S. comparable restaurant sales down 0.5% to 2% (weather headwind of 1.3% incorporated)
- Adjusted diluted EPS of $0.70 to $0.75 (includes $0.06 negative calendar shift and $0.05 weather impact)
For full-year 2024, management maintained guidance:
- U.S. comp sales flat to up 2%
- Adjusted diluted EPS of $2.51 to $2.66
- CapEx of $270 million to $290 million for new units, remodels, and infrastructure
Management emphasized continued comp outperformance at Outback, a robust new unit pipeline, and disciplined pricing to offset beef inflation. Marketing spend will ramp as new campaigns and menu innovations launch throughout the year.
- Beef costs fully locked, other commodities 74% hedged
- Productivity savings targeted at $50 million
Takeaways
Bloomin’ Brands is navigating a portfolio reset, with closures, asset upgrades, and targeted investment in Outback and Carrabba’s as levers to drive improved traffic and margin resilience.
- Portfolio Focus: The closure of underperforming stores and ramp in new openings should boost average unit volumes and profitability, but execution risk remains as the company juggles asset refresh and operational upgrades.
- Brand and Channel Divergence: Outback and Carrabba’s are outperforming, but Bonefish lags and requires further repositioning. Off-premises and catering are critical growth drivers, especially as dine-in traffic remains pressured industry-wide.
- Watch for Margin Recovery: The ability to offset inflation with productivity, pricing, and traffic gains will determine if BLMN can return to its long-term 8% EBIT margin target as beef and labor cost headwinds persist.
Conclusion
Bloomin’ Brands is executing a disciplined shift toward higher-return assets, leveraging brand refreshes, digital investments, and operational productivity to drive comp outperformance and margin stability. Near-term headwinds persist, but the company’s capital allocation flexibility and targeted growth investments position it for improved returns if execution continues to deliver.
Industry Read-Through
The closure of legacy, low-return units and focus on asset refreshes at BLMN signals a broader trend in casual dining, as operators confront post-COVID shifts in consumer behavior, cost inflation, and aging restaurant fleets. Elevated marketing spend and menu innovation aimed at value-conscious guests reflect sector-wide efforts to defend traffic and share in a cautious spending environment. Off-premises and catering growth at Carrabba’s highlight incremental revenue opportunities that are increasingly critical as dine-in growth moderates. Investors should monitor how other chains balance CapEx, asset rationalization, and capital returns in the face of persistent labor and commodity inflation.