With a Strategic Review and No Growth, Has Bloomin' Brands Already Bloomed?

Value investors often find themselves looking at companies in the food and hospitality business. The management teams running those companies sometimes have to feel frustrated that their shares just aren’t doing anything. In the case of Bloomin’ Brands Inc. (NASDAQ: BLMN), the company has decided it’s time to explore strategic alternatives. That’s street lingo for “looking for an acquirer.”

The company announced earnings on Wednesday morning that also included news that it was backing 2019 expectations of $1.54 to $1.61 in earnings per share. That values the company at not even 15 times earnings. According to the earnings release, U.S. comparable sales were flat, but the company said that traffic is significantly outperforming the industry. In a world where hiking prices is often the only game in town, Bloomin’ Brands noted that the company has taken the opposite approach by intentionally moderating its average check increases in an effort to offer stronger value relative to its competition across its restaurant portfolio. Its off-site revenues also have contributed as it seeks to lower costs.

Bloomin’ Brands operates restaurants that fit within casual to upscale. It has four restaurant concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. At the end of 2018, it had 1,068 restaurants owned and operated by the company itself and another 164 franchised restaurants spread over 48 states. The company also owned and operated 125 restaurants and franchised 131 restaurants internationally.

All in all, Bloomin’ Brands has a good restaurant portfolio of brands that are widely visited. But one of its problems is that the company just isn’t growing, and the period from 2018 out to 2020 is a time when labor pressures have been and are likely to continue to be the norm.

The company’s overall revenues just have not been growing. According to Market Watch data, revenues of $4.44 billion in 2014 have trickled down as follows: $4.38 billion in 2015, $4.25 billion in 2016, $4.22 billion in 2017 and $4.13 billion in 2018. The analyst community sees less than 1% total revenue growth in 2019 (to $4.14 billion) and just 2% growth (to $4.22 billion) in 2020.

Where “exploring and evaluating strategic alternatives” gets interesting is that management noted that it potentially could lead to a sale of the company to maximize value for its shareholders. There is no assurance a deal will occur, and in some ways it could be argued that one or two of the brands could be unlocked. CEO David Deno voiced some frustration about the stock not increasing its value:

Over the past few years Bloomin’ Brands has made significant progress towards its long term objectives to elevate the customer experience, capitalize on the emerging off-premises segment, expand the rapidly growing international business, and improve operating margins. These efforts have created significant market share gains and enhanced profitability. However, despite this continued progress, we believe the current stock price does not reflect the value of the Company. That is why the time is right to explore strategic alternatives that have the potential to maximize value for our shareholders. Our Board of Directors is committed to fully evaluating appropriate strategic alternatives while simultaneously supporting the Company’s ongoing progress against our business plan.

While the company’s release indicated that it plans to proceed with its review in a timely manner, there is also no set timetable for it to complete the process.

A review of Bloomin’ Brands’ stock chart shows that it has been rather range-bound for the past four years. With a few exceptions, its shares have spent the bulk of the time between $16 and $22. Its shares peaked at roughly $25 back in 2013 and again in 2015. Not exactly a stellar growth model, despite having well-known restaurants.

Some investors will wonder what the future of this company looks like. Does it just plan to call up Tillman Fertitta to see if he’s willing to add in four more brands to his massive restaurant empire? Or does the company want to be creative on how to manage its future? It remains possible that perhaps the best strategy of all would be to carve out one or two of the brands and focus on a core. Then again, it might be easy to argue that the brands are already saturated and have limitations on just how many more locations be added on the domestic front. There is also the notion that some U.S. brands have seen a mixed history when it comes to aggressive expansion in international markets.

Bloomin’ Brands hit a 52-week high of $23.07 after the news, but being valued at less than 15 times adjusted earnings and having a range-bound stock when the stock market is at all-time highs doesn’t feel that great to shareholders.

What if Bloomin’ Brands has bloomed already?

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