Earnings Review: Bloomin' Brands

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In my article entitled Earnings Preview: Bloomin' Brand I shared with you the one thing that I would be looking for in Bloomin' Brands (NASDAQ: BLMN) latest earnings report.  We'll take a look at that in a bit, but right now let's take a look at how they did overall.

Beat the Street

First off, lets talk about something I wasn't looking for specifically.  I am typically not very concerned with a company beating or missing analyst estimates.  Now, big misses are a horse of a different color.  If they are off by a lot that will peak my interest.  But generally companies get pretty close to estimates.  I'm not worried about a penny off here and a penny over there.  Anything can happen in just one quarter.  I'm looking more for trends and patterns.  I'm focusing on business plan execution.  

However, after I've said all that, let's not gloss over the fact that Bloomin' Brand did beat the street.  Here's the two big areas where they did so:

<table> <tbody> <tr> <td> </td> <td><strong>Analyst Expectation</strong></td> <td><strong>Actual Result</strong></td> </tr> <tr> <td><strong>Earnings Per Share</strong></td> <td>-$0.01</td> <td>$0.08</td> </tr> <tr> <td><strong>Revenue</strong></td> <td>$948.1 Million</td> <td>$952.9 Million</td> </tr> </tbody> </table>

Does it bother you that analysts had expected a loss?  Well, you can sleep calmly tonight.  Bloomin' was hit hard this quarter with one-time costs associated with it's IPO.  There were some food costs and labor expenses that also ate into profits a little bit, but the bulk of the costs are related to the IPO.  It's now behind us.  

Now the company is projecting earnings per share of $0.95 on the year.  This is an increase from what Wall Street was expecting.  Investors loved this news.  Shares were up nearly 10% when it was announced.

One Big Thing Missing

Things aren't all peachy with Bloomin'.  What hasn't been talked about much is the $1.57 Billion debt that they have hanging over their heads, and their quickly diminishing cash reserves.   

<img src="http://media.ycharts.com/charts/3833290f9e0bddfd991a7e32dc934ac2.png" />

BLMN Debt to Equity Ratio data by YCharts

When you look at their debt to equity ratio, you can see it has fallen rapidly, but is still around 7x greater than some of their competitors.  Both Darden Restaurants (NYSE: DRI) and Cracker Barrel (NASDAQ: CBRL) have had a debt to equity ratio of about 1 for several years now.  Heck, even my normal punching bag Ruby Tuesday (NYSE: RT) blows Bloomin' clear out of the water in this category.

To me, this isn't quite reason to push the panic button (unless it makes you calm down and think clearer.  I'm not sure how your panic button works...).  This company has just gone public.  Going public changes the way that a company does business.  Problems that have been ignored for years come to the forefront and get dealt with many times.  I think Facebook has been a good example of how companies can begin to come of age so to speak.  This debt issue is one to wait and watch how they begin to address it.

Bonefish

The thing I was most interested in from this earning report was what had happened with Bonefish Grill since last we looked.  With a flagship restaurant like Outback Steakhouse, you may be confused why I would focus all my investor attention on Bonefish.  Simply put:  I'm focusing on Bonefish, because Bloomin' Brands is focusing on Bonefish.

Their prospectus states:  "Bonefish Grill unit growth will be our top domestic development priority in 2012, with 20 or more new restaurants planned." (emphasis mine)

In another section of the prospectus, they stated their belief that they can double Bonefish's restaurant count over the long term.  However, this year they are starting with the reasonable goal of 20 new locations.

At the time of the prospectus in June of this year, there were 162 Bonefish locations.  They had added 10 during the year leading up to the IPO.  In this release we discovered that they opened up 5 new locations.  The count, as of Sept. 30, stands at 167.  Five new locations a quarter is perfectly in line with the goal of 20 for the year.

Conclusion

Some good things were in this report.  However I am meeting it with cautious optimism.  Really, I'm neither a bull nor a bear yet.  I'm encouraged how the beat the street.  I'm encouraged that they are meeting their business goals, especially with Bonefish Grill.  But I want to wait to see how they turn their attention to deal with the massive debt they carry.


thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of Darden Restaurants. Motley Fool newsletter services recommend Cracker Barrel Old Country Store. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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