Bloomin' Brands Bears The Brunt Of Softer Spending Environment, Analyst Cautions On Traffic/Margin Tensions

BMO Capital Markets analyst Andrew Strelzik reiterated the Market Perform rating on Bloomin' Brands, Inc. BLMN, lowering the price target to $24 from $25.

The company reported third-quarter FY23 sales growth of 2.3% year-on-year to $1.079 billion, missing the analyst consensus estimate of $1.085 billion.

According to the analyst, valuation looks undemanding and margin management has been reliable. 

That said, the analyst highlights comp risk from the macro environment and remains concerned about positioning into a potentially softer spending environment, particularly with Outback traffic lagging. 

In addition, traffic/margin tensions could be rising with increasing ad spend and larger-scale reinvestment cannot be ruled out, the analyst adds.

The analyst remains on the sidelines on BLMN shares given category (sentiment) and company-specific (relative comps) dynamics. 

Casual diners are not the analyst's preferred near-term opportunities in Restaurants, but Strelzik's preference in the category remains other inexpensive peers such that have company-specific internal help drivers already in motion, such as Brinker International, Inc. EAT and Dave & Buster's Entertainment, Inc. PLAY.

The analyst notes that Starboard's involvement creates upside risk, but a conservative approach is warranted given concerns over Outback competitive positioning, potential that broader reinvestment could be needed to improve Outback performance at the expense of margins, and the likely extended timeline in which turnaround efforts could drive improved performance.

Price Action: BLMN shares are trading lower by 1.73% to $22.71 on Wednesday.