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BLMN > SEC Filings for BLMN > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for BLOOMIN' BRANDS, INC.

Form 10-Q for BLOOMIN' BRANDS, INC.


8-Nov-2012

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion and analysis of financial condition and results of operations should be read in conjunction with our Unaudited Consolidated Financial Statements and the related Notes. Unless the context otherwise indicates, as used in this report, the term the "Company," "we," "us," "our" and other similar terms mean Bloomin' Brands, Inc.

Cautionary Statement

This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "expects," "feels," "forecasts," "seeks," "projects," "intends," "plans," "may," "will," "should," "could" or "would" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We believe that these risks and uncertainties include, but are not limited to, the following:

(i) The restaurant industry is a highly competitive industry with many well-established competitors;

(ii) Challenging economic conditions may affect our liquidity by adversely impacting numerous items that include, but are not limited to: consumer confidence and discretionary spending; the availability of credit presently arranged from our revolving credit facilities; the future cost and availability of credit; interest rates; foreign currency exchange rates; and the liquidity or operations of our third-party vendors and other service providers;

(iii) Our ability to expand is dependent upon various factors such as the availability of attractive sites for new restaurants; our ability to obtain appropriate real estate sites at acceptable prices; our ability to obtain all required governmental permits including zoning approvals and liquor licenses on a timely basis; the impact of government moratoriums or approval processes, which could result in significant delays; our ability to obtain all necessary contractors and subcontractors; union activities such as picketing and hand billing that could delay construction; our ability to generate or borrow funds; our ability to negotiate suitable lease terms; the ability to recruit and train skilled management and restaurant employees; and our ability to receive the premises from the landlord's developer without any delays;

(iv) Our results can be impacted by changes in consumer tastes and the level of consumer acceptance of our restaurant concepts (including consumer tolerance of our prices); local, regional, national and international economic and political conditions; the seasonality of our business; demographic trends; traffic patterns and our ability to effectively respond in a timely manner to changes in traffic patterns; changes in consumer dietary habits; employee availability; the cost of advertising and media; government actions and policies; inflation or deflation; unemployment rates; interest rates; exchange rates; and increases in various costs, including construction, real estate and health insurance costs;

(v) Weather, natural disasters and other disasters could result in construction delays and also adversely affect the results of one or more restaurants for an indeterminate amount of time;


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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(vi) Our results can be impacted by tax and other legislation and regulation in the jurisdictions in which we operate and by accounting standards or pronouncements;

(vii) Minimum wage increases and mandated employee benefits could cause a significant increase in our labor costs;

(viii) Commodities, including but not limited to, such items as beef, chicken, shrimp, pork, seafood, dairy, potatoes, onions and energy supplies, are subject to fluctuation in price and availability and price could increase or decrease more than we expect;

(ix) Our results can be affected by consumer reaction to public health issues;

(x) Our results can be affected by consumer perception of food safety;

(xi) We could face liabilities if we are unable to protect customer credit and debit card data; and

(xii) Our substantial leverage and significant restrictive covenants in our various credit facilities could adversely affect our ability to raise additional capital to fund our operations, limit our ability to make capital expenditures to invest in new or renovate restaurants, limit our ability to react to changes in the economy or our industry and expose us to interest rate risk in connection with our variable-rate debt.

Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this report. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this report, those results or developments may not be indicative of results or developments in subsequent periods.

In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.


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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of September 30, 2012, we owned and operated 1,259 restaurants and had 197 restaurants operating under a franchise or joint venture arrangement across 48 states and 20 countries and territories internationally. We have five founder-inspired concepts: Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, Fleming's Prime Steakhouse and Wine Bar and Roy's. Our concepts seek to provide a compelling customer experience combining great food, attentive service and lively and contemporary ambience at attractive prices. Our restaurants attract customers across a variety of occasions, including everyday dining, celebrations and business entertainment. Each of our concepts maintains a unique, founder-inspired brand identity and entrepreneurial culture, while leveraging our scale and enhanced operating model. We consider Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill and Fleming's Prime Steakhouse and Wine Bar to be our core concepts.
The restaurant industry is a highly competitive and fragmented industry and is sensitive to changes in the economy, trends in lifestyles, seasonality (customer spending patterns at restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year) and fluctuating costs. Operating margins for restaurants can vary due to competitive pricing strategies and fluctuations in prices of commodities, including beef, chicken, seafood, butter, cheese, produce and other necessities to operate a restaurant, such as natural gas or other energy supplies. Companies tend to be focused on increasing market share, comparable restaurant sales growth and new unit growth. Competitive pressure for market share, inflation, foreign currency exchange rates and other market conditions have had and could continue to have an adverse impact on our business.
Our industry is characterized by high initial capital investment, coupled with high labor costs, and chain restaurants have been increasingly taking share from independent restaurants over the past several years. We believe that this trend will continue due to increasing barriers that may prevent independent restaurants and/or start-up chains from building scale operations, including menu labeling, burdensome labor regulations and healthcare reforms that will be enforced once chains grow past a certain number of restaurants or number of employees. The combination of these factors underscores our initiative to drive increased sales at existing restaurants in order to raise margins and profits, because the incremental contribution to profits from every additional dollar of sales above the minimum costs required to open, staff and operate a restaurant is relatively high. Historically, we have not focused on growth in the number of restaurants just to generate additional sales. Our expansion and operating strategies have balanced investment and operating cost considerations in order to generate reasonable, sustainable margins and achieve acceptable returns on investment from our restaurant concepts.
In 2010, we launched a new strategic plan and operating model, added experienced executives to our management team and adapted practices from the consumer products and retail industries to complement our restaurant acumen and enhance our brand management, analytics and innovation. This new model keeps the customer at the center of our decision-making and focuses on continuous innovation and productivity to drive sustainable sales and profit growth. As a result of these initiatives, we are recommitted to new unit development after curtailing expansion from 2009 to 2011. We believe that a substantial development opportunity remains for our concepts in the U.S. and internationally.


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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In 2011 and 2012, we continue to balance near-term growth in share gains with investments to achieve sustainable growth. For the remainder of 2012, our key growth strategies, which are enabled by continued improvements in infrastructure and organizational effectiveness, are:

Grow Comparable Restaurant Sales. We plan to continue our efforts to remodel our Outback Steakhouse and Carrabba's Italian Grill restaurants, use limited-time offers and multimedia marketing campaigns to drive traffic, grow beyond our traditional weekend dinner traffic and introduce innovative menu items that match evolving consumer preferences.

Pursue New Domestic and International Development With Strong Unit Level Economics. We believe that a substantial development opportunity remains for our concepts in the U.S. and internationally. We added significant resources in site selection, construction and design in 2010 and 2011 to support the opening of new restaurants. Our top domestic development priority is Bonefish Grill unit growth while internationally we are focusing on existing markets such as South Korea, Brazil and Hong Kong, with strategic expansion in selected emerging and high growth developed markets. We are focusing our new market growth in China, Mexico and South America. We expect to open 30 or more restaurants system-wide in 2012 and increase the pace thereafter.

Drive Margin Improvement. We believe we have the opportunity to increase our margins through cost reductions in labor, food cost, supply chain and restaurant facilities.

Key Performance Indicators

Key measures that we use in evaluating our restaurants and assessing our business include the following:

Average restaurant unit volumes - average sales per restaurant to measure changes in customer traffic, pricing and development of the brand;

System-wide sales - total restaurant sales volume for all Company-owned, franchise and unconsolidated joint venture restaurants, regardless of ownership, to interpret the overall health of our brands;

Comparable restaurant sales - year-over-year comparison of sales volumes for domestic, Company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants; and

Customer satisfaction scores - measurement of our customers' experiences in a variety of key attributes.


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                             BLOOMIN' BRANDS, INC.
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Results of Operations

The following tables set forth, for the periods indicated, (i) percentages that
items in our Consolidated Statements of Operations and Comprehensive (Loss)
Income bear to Total revenues or Restaurant sales, as indicated, and (ii)
selected operating data:

                                          THREE MONTHS ENDED              NINE MONTHS ENDED
                                             SEPTEMBER 30,                  SEPTEMBER 30,
                                         2012             2011           2012            2011
Revenues
Restaurant sales                          99.0  %          99.0  %        99.0  %         99.1  %
Other revenues                             1.0              1.0            1.0             0.9
Total revenues                           100.0            100.0          100.0           100.0
Costs and expenses
Cost of sales (1)                         32.8             32.7           32.5            32.3
Labor and other related (1)               28.6             28.5           28.2            28.7
Other restaurant operating (1)            25.1             25.1           23.2            23.4
Depreciation and amortization              4.0              4.1            3.9             4.0
General and administrative (2)            11.7              8.3            8.7             7.2
Provision for impaired assets and
restaurant closings                          -              0.1            0.3             0.2
Income from operations of
unconsolidated affiliates                 (0.1 )           (0.2 )         (0.2 )          (0.2 )
Total costs and expenses                 101.2             97.7           95.7            94.7
(Loss) income from operations             (1.2 )            2.3            4.3             5.3
Loss on extinguishment of debt            (1.0 )              -           (0.4 )             -
Other income (expense), net                  *              0.1            (*)             0.1
Interest expense, net                     (2.2 )           (2.2 )         (2.2 )          (2.2 )
(Loss) income before (benefit)
provision for income taxes                (4.4 )            0.2            1.7             3.2
(Benefit) provision for income taxes      (0.9 )              *            0.3             0.6
Net (loss) income                         (3.5 )            0.2            1.4             2.6
Less: net income attributable to
noncontrolling interests                   0.3              0.1            0.3             0.2
Net (loss) income attributable to
Bloomin' Brands, Inc.                     (3.8 )%           0.1  %         1.1  %          2.4  %

Net (loss) income                         (3.5 )%           0.2  %         1.4  %          2.6  %
Other comprehensive (loss) income:
Foreign currency translation
adjustment                                 0.7             (1.7 )          0.1            (0.3 )
Comprehensive (loss) income               (2.8 )           (1.5 )          1.5             2.3
Less: comprehensive income
attributable to noncontrolling
interests                                  0.3              0.1            0.3             0.2
Comprehensive (loss) income
attributable to Bloomin' Brands,
Inc.                                      (3.1 )%          (1.6 )%         1.2  %          2.1  %


________________
(1) As a percentage of Restaurant sales.

(2) General and administrative costs exclusive of $40.9 million of initial public offering related expenses would have been 7.4% and 7.3% of Total revenues for the three and nine months ended September 30, 2012, respectively (see General and administrative expenses discussion in "Results of Operations" included in "Management's Discussion and Analysis of Financial Condition and Results of Operations").

* Less than 1/10th of one percent of Total revenues.


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                             BLOOMIN' BRANDS, INC.
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The table below presents the number of our restaurants in operation at the end
of the periods indicated:

                                                           SEPTEMBER 30,
                                                           2012       2011
Number of restaurants (at end of the period):
Outback Steakhouse
Company-owned - domestic                                    666        669
Company-owned - international                               115        120
Franchised - domestic                                       106        106
Franchised and development joint venture - international     83         68
Total                                                       970        963
Carrabba's Italian Grill
Company-owned                                               232        232
Franchised                                                    1          1
Total                                                       233        233
Bonefish Grill
Company-owned                                               160        145
Franchised                                                    7          7
Total                                                       167        152
Fleming's Prime Steakhouse and Wine Bar
Company-owned                                                64         64
Roy's
Company-owned                                                22         22
System-wide total                                         1,456      1,434

We operate restaurants under brands that have similar economic characteristics, nature of products and services, class of customer and distribution methods, and as a result, aggregate our operating segments into a single reporting segment.

SYSTEM-WIDE SALES

System-wide sales increased 3.2% and 4.3% for the three and nine months ended
September 30, 2012 as compared with the corresponding periods in
2011. System-wide sales is a non-GAAP financial measure that includes sales of
all restaurants operating under our brand names, whether we own them or
not. System-wide sales comprises sales of Company-owned restaurants and sales of
franchised and unconsolidated joint venture restaurants. The table below
presents the first component of system-wide sales, which is sales of
Company-owned restaurants:
                                              THREE MONTHS ENDED                   NINE MONTHS ENDED
                                                SEPTEMBER 30,                        SEPTEMBER 30,
                                             2012                2011             2012             2011
COMPANY-OWNED RESTAURANT SALES (in
millions):
Outback Steakhouse
Domestic                             $       508             $      488     $     1,595        $    1,534
International                                 80                     96             228               249
Total                                        588                    584           1,823             1,783
Carrabba's Italian Grill                     164                    162             524               514
Bonefish Grill                               119                    104             370               331
Fleming's Prime Steakhouse and Wine
Bar                                           54                     52             182               172
Other                                         18                     17              60                58
Total Company-owned restaurant sales $       943             $      919     $     2,959        $    2,858


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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information presents the second component of system-wide sales, which is sales of franchised and unconsolidated joint venture restaurants. These are restaurants that are not consolidated and from which we only receive a franchise royalty or a portion of their total income. Management believes that franchise and unconsolidated joint venture sales information is useful in analyzing our revenues because franchisees and affiliates pay royalties and/or service fees that generally are based on a percentage of sales. Management also uses this information to make decisions about future plans for the development of additional restaurants and new concepts as well as evaluation of current operations.

The following do not represent our sales and are presented only as an indicator of changes in the restaurant system, which management believes is important information regarding the health of our restaurant concepts.

                                              THREE MONTHS ENDED                     NINE MONTHS ENDED
                                                SEPTEMBER 30,                          SEPTEMBER 30,
                                             2012                2011               2012               2011
FRANCHISE AND UNCONSOLIDATED JOINT
VENTURE SALES (in millions) (1):
Outback Steakhouse
Domestic                             $        74             $       71     $       234            $      228
International                                 88                     81             261                   226
Total                                        162                    152             495                   454
Carrabba's Italian Grill                       1                      1               3                     3
Bonefish Grill                                 5                      5              14                    14
Total franchise and unconsolidated
joint venture sales (1)              $       168             $      158     $       512            $      471
Income from franchise and
unconsolidated joint ventures (2)    $         9             $        8     $        30            $       27


__________________


(1) Franchise and unconsolidated joint venture sales are not included in revenues in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

(2) Represents the franchise royalty and the portion of total income related to restaurant operations included in the Consolidated Statements of Operations and Comprehensive (Loss) Income in the line items "Other revenues" and "Income from operations of unconsolidated affiliates," respectively.

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