Bloomin' Brands Is A Long-Term Survivor, But Has Near-Term Challenges: Analyst

J.P. Morgan analyst John Ivankoe cut the price forecast for Bloomin’ Brands, Inc. BLMN from $13.00 to $10.00 while retaining a Neutral rating.

The analyst says that the transition of the previously owned Brazil business to a royalty-based, capital-light model, combined with reduced capital expenditure for new units and strong liquidity, positions the brand and company for long-term success. Meanwhile, the analyst says that near-term challenges remain.

Ivankoe says the company has relied too heavily on strategies such as menu price hikes, extended dayparts like 7-day lunch, third-party delivery, and annual cost-efficiency goals.

With a new management team focused on addressing price value, simplifying operations, and leveraging a strong balance sheet to support a multi-year capital improvement plan, there is still time to revitalize these brands and businesses and prevent them from fading into obscurity, adds the analyst.

The analyst assumes a significant shift in capital expenditure towards remodels, as around 50% of the units are reported to require substantial updates.

Ivanhoe expects 150 restaurants of 970 company-owned units in the U.S. to be remodeled each year at an estimated cost of $1 million with $40 million expended for routine repair and maintenance.

In the two years in FY25/FY26, the analyst expects more than $150 million of cash to be generated, or ~21% of the equity value or ~9% of enterprise value.

The analyst estimates U.S. store margins of 12.9% in FY25 and 13.0% in FY26 vs. 13.3% in FY24 and 15.3% in FY23.

Last month, the company reported a fourth-quarter FY24 sales decline of 9.3% year-on-year to $972 million, missing the consensus estimate of $1.08 billion and adjusted EPS of $0.38, beating the consensus estimate of $0.36.

Price Action: BLMN shares are up 5.35% at $9.26 at the last check Monday.

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