Tag Archives: BLMN



We continue to look for new data points that will help us understand which restaurant chains have the best chance to survive, then prosper, and when.

We’ve previously asked the question as to how much of the new off-premise business will be retained as the dining room activity rebuilds, and that jury is still out. We’ve suggested that store level margins will suffer as dining rooms are only 25-50% open and operating expenses (especially labor and new sanitizing requirements) burden the bottom line. Our article in mid-May, describing developments at Darden (Olive Garden and Longhorn Steakhouse) suggested that YTY same store sales have to get back to something like down 25% to approximate corporate cash flow break even. All of that is confirmed by commentary from Bloomin’ Brands on May 5th, as well as highly qualified Michael Halen, at Bloomberg Intelligence, just this morning, 5/29.

From Management Conference Call, May 5th:

      “Have to get back to down 20-25% to be cash flow breakeven…. For our brands, we talked a lot about Outback and things and Carrabba’s on off-premises. But Bonefish and Fleming’s have taken it from virtually nothing. Bonefish had some, Fleming’s had hardly anything…..So I think at Bonefish, we’ve seen it. We’ll see what happens at Fleming’s…As of  May 5th: 2/3 takeout, 1/3 delivery (half and half third party/in house).”

As described below by Michael Halen, off-premise revenues at Outback and Carabba’s had tripled, from an average of 18%, so we figure overall sales were running down YTY an average of approximately 46%. Management also confirmed, above, that sales have to recover to roughly a negative  20-25% to approximate corporate cash flow breakeven.

Per: Michael Halen at Bloomberg Intelligence, on 5/29/20

“Bloomin’s same-store sales may drop double digits in 2020 as dining-room closings and high unemployment hurt sales, yet a strong off-premise business at Outback will mitigate losses. We see Outback’s in-house delivery service as a competitive advantage as it has wider margins, control of service and access to customer data.

“Off-Premise Sales as % of Total Before Coronavirus

(Bloomin’ Brands)Outback Steakhouse 15% & Carraba’s 21%, Cheesecake Factory 17%, Cracker Barrel 9%,Applebee’s 13%, IHOP 10%,Olive Garden 17%, Brinker (Chili’s&Maggiano’s 17% Texas Roadhouse 7%

Bloomin’s decision to prioritize direct delivery over third-party aggregators created a competitive advantage over casual-dining peers, as we see it. This includes wider margins, access to customer data — which allows for personalized marketing — and significantly faster delivery times (35 minutes). According to management, 74% of customers prefer self-delivery for the superior service and safety it provides. “Delivery is profitable, with more than 630 units offering the service. Bloomin’s recent partnership with DoorDash complements the existing self-delivery platform and expands the company’s reach to new customers.

“Delivery sales are now split evenly between in-house and third-party providers. Off-premise sales almost tripled from the beginning of March into the end of April. (05/29/20)”


Aside from the typical description of off-premise sales building rapidly through April and early May, and the confirmation of corporate breakeven for full service casual diners around a negative 20-25%, we think the movement to self-delivery may prove to be an important new development. We are all aware of the extra expense, management challenge and corporate liability of self-delivery. However, control of “the last mile”, more complete customer interaction and the elimination of delivery charge from third parties could make self-delivery an increasingly attractive option. The 74% surveyed preference of customers toward self-delivery could prove to  be “anecdotal” but might also be an important indicator. Self delivery might especially appeal to regional chains, as opposed to multi-national giants, for whom The Brand is an important competitive advantage.


  • Off-Premise is here to stay
  • Overall margins will be hindered until restaurants get well over a negative 20%, back to at least full capacity, 
  • Cash breakeven for full service casual dining operators is approximately down 20-25% YTY
  • Self-Delivery is at least worth considering

Roger Lipton



The questions are numerous. The problems are obvious. The solutions are not so easily manufactured. We don’t know what sales will be, what labor will be required to service customers that have new requirements. Cost of goods is not the biggest problem, but distortions in the supply chain could create price volatility as well as product shortages. We will have lots of new “other” expenses, necessary to deal with health concerns of employees and customers. There has to be negotiation with landlords, convincing them that you are here to stay, but need their help. You must economize at the executive level, but the needs are broader and deeper than ever before. You have to maintain a strong balance sheet somehow, but financing is more difficult, and more expensive than ever with the fundamental uncertainty. With all of this, management is working for reduced pay and Board compensation has been reduced or eliminated.

It’s no wonder, then, that something like a dozen publicly held companies, have had changes at the Board level, sometimes suggested (or imposed) by activist investor groups. Roark has invested $200M in Cheesecake Factory (CAKE) and KKR now owns over 8% of  Dave & Buster’s (PLAY). Vintage Capital owns over 10% of Red Robin (RRGB) and is represented on the Board. Among smaller companies, Kanen Capital Management has taken major positions and is represented on the Boards of both BBQ Holdings (BBQ) and The One Group Hospitality (STKS). Shake Shack (SHAK), Bloomin’ Brands (BLMN), Cheesecake Factory, Dave & Buster’s and others have raised money publicly at what most would consider to be distress prices.  It’s clear, therefore, that management and the Board must be capable of evaluating strategic financial alternatives. We wonder, for example, how and why Bloomin’ Brands was able to raise capital at much better terms than Cheesecake  Factory.

Investment bankers are beating the bushes to “write tickets”, but their possibilities must be evaluated from a realistic standpoint. We heard of a highly regarded investment banking firm suggesting (this past weekend) to a privately held chain that they could still get a multiple of historical EBITDA close to what was considered reasonable before the pandemic. This chain, by the way, is a big box casual dining company. Their sales are currently down 50% YTY, and the chain is, predictably, cash flow negative. That particular Board won’t likely go down that fruitless road, because they have at least one  very smart Board member (my friend), but other companies might not know better and could be forced to do a very unattractive deal at the last minute with a gun at their head.

Now comes the commercial: I’M AVAILABLE ! Two of my most recent Board involvements have ended recently, one of them very successfully, the other a privately held company that required refinancing and the new lender didn’t know that he needed me:)

I was on the Board until just recently of publicly held Diversified Restaurant Holdings (SAUC), which we took private on 2/25/20 (how’s that for timing?) at a price over 100% higher than the stock had been trading. SAUC was operating 65 franchised Buffalo Wild Wings locations, clearly a troubled restaurant system even before the pandemic. They had about $100M of debt, which they were servicing as required, but the net cash flow after debt service was non-existent. I was on the Special Committee and, with the great help of Darren Gange of Duff & Phelps, we found the “needle in a haystack” private equity buyer.  Parenthetically, while we were negotiating with the ultimate buyer on virtually a daily basis, an activist investor (and shareholder) was screaming his desire to “help us out”, at what turned out to be about half the price we sold for. It was tedious but we closed the deal for an Enterprise Value of about 7.5x the “run rate” of Adjusted Cash Flow. Intense and lengthy as the negotiations were, it was stimulating and satisfying, especially since it was very successful.

The other recent Board position was a 17 unit big box privately held casual dining company that required new financing.  The chain was, and is, very successful in their home state, but geographically remote locations, opened before my arrival, proved to be their undoing. I’ve always been predisposed to keep operations  “close to home”, suggesting expansion outward from the base so there is always brand awareness and maximum ability to adjust when necessary. I learned from Norman Brinker forty years ago that “running a restaurant chain is like managing a military campaign”. You want your troops “massed”, for strength and speed and flexibility.  It was the old formula that Shoney’s used so successfully decades ago, finally running out of steam when the third or fourth generation of managers that followed founder Ray Danner allowed the operating standards to slip too far.

I’m well aware that compensation for Board members has been suspended in many cases, reduced at the least. I can, fortunately, afford to work for the “going rate” along with other Board members. My major requirement is that the chain has the corporate culture that provides the foundation for long term success. I would naturally like to work with colleagues that enjoy the hospitality industry as much as I and are committed to the task at hand.

Other than reminding all of you that I have a good education,  operated my own chain of fast casual restaurants  many years ago, and have had four decades of  investment banking experience relating to the restaurant/retail industry, more details are provided at the “About Roger” section of this website (from the Home Page)..

So much for the pitch. Publicly held or “Up & Coming” privately held companies can respond, and we’ll talk.  I can be reached at lfsi@aol.com or call 646  270 3127. Please leave a message if I don’t pick up, there is so much spam these days.

Along with you, I will be closely watching developments within the restaurant/retail industries over the critical coming months. There will be lots of closings, but some operators  will emerge stronger than ever. We will remain in touch with all of you, doing our best to contribute to your thought process.

Roger Lipton








In the last few days, five prominent restaurant companies, with company operated locations, have reported fourth quarter results. These data points give us a reasonably accurate view into current trends, and allows us a best guess as to what 2020 might look like. While franchising companies such as Wingstop and Domino’s have also reported, with excellent results it so happens, precise store level margins are not reported and we are not commenting here on those results. We have also not included Chipotle, which has become very much of a “special situation”, still recovering from the problems of several years ago, at the same time establishing themselves as a leader with off-premise sales, and it’s the four wall economics that primarily concerns us here.

The table just below shows the five companies listed above, with their Q4 results at the store level. We will fill in the other blanks later, with full updated writeups on these companies, but a quick look at four wall economics can tell us a lot quickly.

We’ve been saying for some time that a couple of points of comp sales is not enough to overcome higher store level expenses, wage inflation most notably but also higher occupancy and other store expenses. That conclusion is pretty clearly demonstrated by these results.

Only Texas Roadhouse (TXRH) improved same store sales materially (+4.4%), and that was accompanied by the best traffic trend among the five companies (+1.5%).  That allowed TXRH to leverage the sales trend into a 117 bps increase in their store level margin. The other four companies , even with slightly better comp sales, suffered material deterioration of store level EBITDA margin.  Labor Expense was higher by varying degrees, most notably at BJ’s, with Texas Roadhouse, again, being the only company to hold the line in this regard.  Cost of Goods was not much changed across the board, except at RUTH with their heavy dependence on beef costs.

We have indicated also, at the bottom of the table, the indication as far as Q1’20 sales to date, or guidance for 2020. Once again, Texas Roadhouse leads the pack with a 6.4% comp sales increase in Q1 to date. BJ’s gave us a 1.7% number for Q1 to date. The others provided guidance for 2020 as a whole, very much in line with the modest recent increases. It is worth noting that the weather this winter so far has been fairly good on a comparative basis, and each of us can make our own judgements as to what effect this is having on Q1  results to date and management’s guidance for 2020.

In summary, there is no tangible reason to expect a material change in operating trends at company operated restaurant chains. Outliers can exist at special situations, but the overriding factors that have challenged the industry are still in place.

Roger Lipton


Conclusion LAST DECEMBER 17th: @ 12/17/17

The recently announced purchase by Jana Partners of a total of 8.7% of the stock in BLMN leads us to evaluate the long term attractiveness, at or near this price, of this Company.  At about 16.5x ’18 EPS and 8x estimated ’17 EBITDA, the stock, while not bargain priced, is not expensive. On the other hand, other than adding further leverage to the balance sheet, we don’t see a lot of easy levers to pull to improve earnings by an order of magnitude.

The current $1.2B of debt is “only” 3x EBITDA, so that is considered “conservative” in this environment and more debt could be added. If the company were taken private at a 25% premium to the current price (with, for example, $1.0B of equity and $1.5B of debt) the total debt would be $2.7B, or about 6.7x EBITDA, pretty heavy leverage. (we used to think). Parenthetically, D&A is not “free cash flow”, as evident by the ongoing remodel program at Outback. If more equity were added, the resulting leverage would obviously be more acceptable.

The sale/leasebacks have been almost completed so that liquidity opportunity is in the past. We don’t think that a franchising program, going “asset light”, which private equity investors love, is easily applicable in this case. Though strange things can happen, and franchisees (especially overseas) might be seduced, the cash on cash returns, after royalties, would not be all that impressive to a franchisee unless the AUVs were much higher.

On balance, we consider BLMN stock to be “fairly valued”, with no visible special opportunity for a buyer at a premium to the current price, though anything can happen in an environment where capital is available, at interest rates that continue to be suppressed.


We describe below how management is bending every effort to build upon the long established base of each concept, and they deserve great credit for all of that.  However……the harsh reality is that these are all mature brands that are collectively generating less than fabulous store level EBITDA margins (11.9% in Q3 and 14.4% for nine months). Even if improved by 250 bp over the next year or so, for which management holds out hope, the unit level economics with today’s real estate burden (especially if interest rates continue to rise) will not be extraordinary. Depreciation is not “free cash flow”, and BLMN is demonstrating that “investments’ must be made to keep a concept current. If 5% is deducted for D&A (to be “reinvested” in stores), another 7% spent on G&A, 1% at least for interest on the debt, it leaves only 3-5% of revenues before taxes. High margin franchise and license revenues could be an additional positive, but that is hard to quantify. The Brazilian economy is volatile and the Chinese economic backdrop has its own set of macro issues.

Our view is that Bloomin’ Brands provides a good example of a highly competent management team using every tool at their disposal to improve results. BLMN is not statistically expensive, and “above average” earnings growth could be ahead, but we don’t think that industry peer “average growth” is going to be much, so “above average” may not be good enough. Operating margins are going to be hard to improve, interest rates will likely move higher over time, and corporate tax rates will not come down from here. BLMN doesn’t qualify as a growth stock, doesn’t provide a high enough dividend to make it a “yield” stock, and as a takeover candidate, activists don’t have a silver bullet which management is not already employing.  

Company Background and Long-Term Strategy

Bloomin’ Brands operates and franchises four restaurant brands domestically: Outback Steakhouse; Carrabba’s Italian Grill; Bonefish Grill; and Fleming’s Prime Steakhouse & Wine Bar.  The Company operates Outback Steakhouse restaurants and Abbraccio Cucina Italiana (essentially Carrabba’s) in Brazil and franchises Outback and other brands internationally. The following table shows the number of restaurants in operation by concept and geography as of the end of the third quarter of fiscal 2017.

The first Outback Steakhouse restaurant was opened in Tampa, FL in 1988 and the company went public in 1991.  Originally, the restaurants were open only for dinner and each was operated by a managing partner that was required to invest in his or her restaurant and sign a five-year employment contract.  In return, the managing partner received a percentage of his restaurant’s defined cash flow.  This progressive management structure (a version of which was used successfully by Sambo’s decades earlier) enabled the company to attract high-quality operators who supported rapid growth through most of the 1990s.

The company also sought to diversify and made acquisitions of several concepts, including Carrabba’s, Fleming’s, and Bonefish.  Other concepts that were acquired over the years, including Roy’s and Lee Roy Selmon’s, have been sold.

In the mid-2000s, the company’s growth slowed and, similar to many casual dining operators at the time, sales and profitability came under pressure.  Prodded by an activist investor, the company elected to go private in 2007.  Renamed Bloomin’ Brands, the Company went public again in 2012.  Since its second IPO, the Company has regularly divested itself of assets, including Roy’s in 2014, its South Korean Outback’s in 2016, and 54 Company-operated domestic Outback’s to franchisees in 2017; the Company has also sold and leased back approximately 250 restaurants since early 2012.

Long Term Strategy:

Continued focus on US sales and profitability.  The Company is in the latter stages of an exterior remodel program and the early stages of an interior reimage program designed to enhance visibility and improve guest appeal.  The Company also is making investment to improve the guest experience and increase off-premise sales.  A major component of these efforts relates to technology.  Additionally, management is always seeking to develop innovative new menu items.

Accelerate international growth.  International development, though relatively stagnant lately, is planned, with focus on South America, principally Brazil where the brand is already established, and Asia, with China being an important growth market.

Driving shareholder value.  Management continues to reinvest back in the business to maintain and enhance the brands’ competitive positions, improve the Company’s credit profile, and return excess cash to investors in the form of dividends and share repurchases.

Sources of Revenue  Total revenues were $4.2 billion in 2017, more than 99% of which was from sales of Company-operated restaurants.  The Company does not break out total sales by brand, but does disclose average Company-operated restaurant sales and operating weeks for each accounting period.  Based on that data, the following table presents a breakdown of Company sales:

Total sales in the above table differ from reported sales due to the impact of rounding average restaurant sales and operating weeks and the table does not include sales for Abbraccio (14 restaurants), the Outback Steakhouse restaurants operated in Hong Kong (9) and China (6), and the South Korean Outback’s that were sold in the middle of the 2016 to a franchisee and contributed $90 million to sales in 2016.

Menu The Outback Steakhouse menu (Outback Menu) offers seasoned and seared or wood-fire grilled steaks, chops, chicken, seafood, pasta, salads and seasonal specials. The menu also includes several specialty appetizers, including our signature Bloomin’ Onion, and desserts, together with full bar service including Australian wine and beer.

Carrabba’s Italian Grill menu (Carrabba’s Menu) includes a variety of Italian pasta, chicken, beef and seafood dishes, small plates, salads and wood-fired pizza.

Bonefish Grill’s menu (Bonefish Grill) specializes in market fresh fish from around the world, wood-grilled specialties and hand-crafted cocktails.  In addition, Bonefish Grill offers beef, pork and chicken entrées, as well as several specialty appetizers, including our signature Bang Bang Shrimp, and desserts.

Fleming’s menu (Fleming’s Menu) features prime cuts of beef, chops, fresh fish, seafood and poultry, salads and side dishes. The steak selection features USDA Prime corn-fed beef, both wet- and dry-aged for flavor and texture, in a variety of sizes and cuts. Fleming’s Prime Steakhouse & Wine Bar offers a large selection of domestic and imported wines, with 100 selections available by the glass.

Unit Economics Unit level economics are not disclosed. However, in the August 2012 IPO prospectus, the Company disclosed that it would seek to develop new domestic restaurants with an average pretax return on investment of 15%.  The prospectus also indicated that international restaurants were producing returns on investment greater than 30%.  At that time, the Company’s emphasis was on domestic growth, but new units developed internationally are currently more likely than domestically, where renovation and relocation are the emphasis.  The typical square footage and domestic average restaurant sales in 2017 of each restaurant brand are as follows:  Outback Steakhouse, 6,200 and $3.354M; Carrabba’s, 6,500 and $2,960M; Bonefish Grill, 5,500 and $3.079M; and Fleming’s, 7,100 and $4.436M.  Outback Steakhouse restaurants operating in Brazil averaged sales of $4.429M in 2017.

Management has expected to open 40-50 new restaurants a year, the bulk of which will be international, but that has stagnated in 2017. The first three quarters of ’18 have shown openings of  12, 8, and 5, with closings of 7, 12, and 7, for a net contraction of one unit.  The Company also is testing 5 “express” Outback restaurant for take-out only that, if successful, could be used to fill in domestic markets.

Operating Metrics Bloomin’ Brands has been highly leveraged since its 2012 IPO, having been subject to a leveraged buy-out in 2007.  The Company has consistently generated sufficient cash flow to both service its debt and return cash to shareholders.  Because of the substantial share repurchase program, as described below under: Shareholder Returns, the Company’s shareholder equity has declined to $60.1 million at the end of 2017s third quarter, from $556 million at the end of 2014.  Consequently, debt to equity and the return on equity are not meaningful measures of performance. Lease adjusted debt to earnings before interest, taxes, depreciation and amortization, and rent (EBITDAR) is the best measure of leverage and was 3.5x at the end of 2017, down from 3.9x in 2016 and 2015, 4.1x in 2014, and 4.3x in 2012.

Shareholder Returns Bloomin’ Brands’ stock had been under pressure fairly consistently since early 2015 largely reflecting the conditions of the casual dining sector, and the necessity to improve the “dining proposition” at most of Bloomin’s concepts.  In November 2017, a group formed by JANA Partners, an activist hedge fund, filed a 13-D indicating it “intends to have discussions with the Issuer’s board of directors and management regarding topics including a review of strategic alternatives including exploring a sale of the Issuer; portfolio composition; operating performance and cost management; capital allocation; board composition; and governance.”  A year ago, this was reminiscent of the actions in the mid-2000s of another activist investor, Pirate Capital, that ultimately led to the predecessor company going private in 2007. In this case, Jana exited their position in early to mid ’18, apparently with a small profit. Within the last month, a new “activist”, Barington Capital Group, has purchased a modest 0.6% of the common stock, and is expressing their dissatisfaction with the current leadership. The Board has supported the management team and the Company has so far refused to meet with Barington.

Bloomin’ has more than $830M of stock since early 2015, as well as paying out approximately $100M in dividends. Much of that capital was raised through the sale/leaseback of $650M worth of real estate. The current dividend yield is about 1.9%

Recent Developments: Per Q3’18 Earnings Release and Conference Call

The quarter was largely encouraging. Most of the operating initiatives are bearing fruit, and/or promising to do so in the near future. The most widely watched guidepost, comp sales, was up 2.9% overall, including 4.6% at Outback. The other concept US comps were -0.6% at Carabba’s, +1.8% at Bonefish, and +0.5% at Flemings.  It was the seventh consecutive quarter of SSS at Outback and the fifth quarter of positive traffic, +0.9% in Q3. Traffic is presumably still negative at the other concepts. Importantly, there has been a weaning of discount promotions, largely completed at Outback, almost completed at the others.

Guidance was raised for Q4, in terms of comp sales (up 50bp to 2.0-2.5%), adjusted earnings per share by .02-.03 to $1.41-$1.47. Management indicated, on the conference call, a high level of confidence that store operating margins would improve in Q4’18 and more in calendar ’19.It should be noted that the higher EPS guidance for ’18 is a result of a lower tax rate, as well as the ongoing expectation of operational improvement.

New units, domestically at least, are taking a back seat (the company didn’t put it quite that way) to the success of renovations (interior and exterior) and especially relocations where feasible. Interior remodels are driving 4-5% comp improvements, and relocations a dramatic 30-50%. They are spending from $300-500k on full remodels, including expanding the To-Go rooms. The opportunity is obvious, limited by individual real estate situations.

Delivery, as part of the “To-Go” effort, is another major focus, now 13% of sales, expected to grow to at least 25%. It is considered largely incremental, would prefer to control it internally rather than third parties like DoorDash, but will react market by market. Delivery was rolled out to 240 locations in Q3, 200 more in Q4 and company wide by the end of ’19. Not all domestic locations are “eligible”, perhaps 80%, the remainder being “rural”, presumably without the necessary consumer density.

Marketing continues to be redirected: to digital venues, social marketing, an emphasis on  “personalizing” the customer contact. The loyalty Rewards program is now at 7.2M members, up 600k in just the last quarter, and management is very high on the potential here. Predictably, management declined, for competitive reasons,  to discuss details such as frequency or average ticket from these customers.

In terms of store level operations, the EBITDA margin in Q3 was 11.9% vs. 11.8%. For nine months it was 14.4% bs. 14.6%. In Q3: cost of sales was down 10 bp to 32.4%, labor was up 10 bp to 30.4%, other operating expenses were down 50 bp to 24.6%. Management expects to improve operating margins in Q4 and ’19, even without help from commodity prices and carrying the predictably higher labor costs. The sharp reduction in discounting, working its way through all concepts, labor efficiencies, better (high quality) traffic at Bonefish and Flemings, the result of the renovations and relocations, an improvement in Brazil, less foreign exchange burden, each contribute to the success in “monetizing” the operational investments of the last several years.

Conclusion: Provided Above



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