Bloomin' Brands Faces Near-Term Pressure, Analyst Highlights Peer Brinker's Turnaround Roadmap

BofA Securities analyst downgraded the shares of Bloomin’ Brands Inc BLMN from Neutral to Underperform and lowered the price forecast from $18.00 to $13.00.

Over the last decade, Bloomin’s transaction growth has averaged a decline of approximately 2% per year across its brands, with its largest brand, Outback, seeing a -1.1% compound annual growth rate (CAGR) in traffic, said the analyst.

Outback US accounted for about 51% of Bloomin’s (BLMN) revenue in FY24, and following the Brazil licensing, this is expected to rise to around 53%.

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While the casual dining sector generally experiences slow growth, Bloomin’s challenges have allowed competitors to gain a larger market share. The new management’s primary focus is on reversing the decline in traffic, noted the analyst.

Although BLMN’s volumes have consistently decreased, its margins have remained unexpectedly strong. Domestic same-store transaction counts across the BLMN system are roughly 10% lower than in 2019, but restaurant margins have only dropped by 70 basis points.

With flow-through margins around 40% on additional transactions, the analyst would have anticipated a margin decline closer to 260 basis points compared to 2019.

The fact that their pricing has been on par with or higher than direct competitors such as Texas Roadhouse Inc in the steak category, supports this perspective.

While turnarounds in casual dining are uncommon, they are not unattainable, as demonstrated by Chili’s. However, its parent company, Brinker International Inc made substantial investments in labor to enhance service and marketing efforts to attract customers.

To balance this, Brinker implemented significant price hikes. In contrast, the analyst notes an important difference between Chili’s and Bloomin’ is that Chili’s had historically underpriced its competitors.

Bloomin’s brands, on the other hand, have maintained competitive pricing and lack the scale advantages within their segments to outspend rivals on marketing or value without compromising margins.

Although BLMN is currently priced below its historical average, the analyst anticipates that both revenue and earnings projections will continue to face pressure in the near future.

Price Action: BLMN shares are trading lower by 0.36% at $12.27 at the last check Monday.

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