The segment has the potential to double in size over the next five years.
Three-and-a-half years after considering a sale of its Brazilian business, Bloomin' Brands couldn't be more confident in the market's future earnings potential, CEO David Deno told investors Tuesday.
The country had 148 Outback Steakhouse restaurants by the end of Q2 (a net of eight store debuts during the period) and Bloomin' expects that figure to reach 300 by 2028. Restaurant margins for the company's international segment rose 280 basis points in the quarter, driven by the continued growth in the Brazilian business and a tax exemption benefit provided by the nation.
Outback Brazil's same-store sales rose 4.1 percent, on top of a 95.7 percent hike last year. Traffic dipped 4 percent year-over-year, but that rolled over 57.8 percent growth in Q2 2022. Average check increased 8.5 percent.
Deno said the financial situation of Brazilian consumers is strong, and new restaurants are continually exceeding expectations. Outback has also discovered newfound development opportunities in smaller towns where it's the main player.
"I can't say enough about the Brazil business, the sales, the margins," Deno said during Bloomin's Q2 earnings call. "You know, at one point, we thought we could get to 100 Outbacks in Brazil. We now think we can get to 300. It's got an unprecedented market position down there and importantly, they're doing it with their own cash flow. So they're generating the cash to build a new business. It's primarily led by Outback. ... I think we can do all this and yet still maintain our long-term cash distribution strategy on paying down debt, returning cash to shareholders, and spend capital within those plans."
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Bloomin' was close to selling its Brazilian segment prior to the pandemic. In early 2020 Brazilian newspaper Valor Economico reported the company had selected three bidders and that the Outback business could be worth roughly $472 million. Deno told investors at the time that "Our portfolio that has received significant interest is our business in Brazil."
However, as it stands now, the CEO said there isn't a market for an IPO or sale in Brazil. Deno added that he's "thrilled with the direction" of the international segment. The Brazilian business also features Abbraccio Cucina Italiana and Aussie Grill.
"We'll always keep our optionality open about that business," Deno said. "But right now, our goal is to grow it as rapidly as possible, but there's no market for it right now."
Bloomin' is enthusiastic about its U.S. Outback restaurants as well. Last year, the company revealed a more efficient 5,000-square-foot prototype that cut about 1,000 square feet off of the traditional model. The reduction was accomplished by redesigning the kitchen and optimizing the dining room without impacting the number of tables. The prototype sits roughly 187 guests. Outback said it has room for 75-100 more restaurants in the U.S.
Outback U.S.'s comps lifted 0.6 percent in the second quarter. The chain's traffic slipped 5.4 percent year-over-year. Companywide, traffic declined 4.2 percent; Deno said this was in line with expectations and Bloomin' outperformed the industry by 110 basis points. Outback's average check rose 6 percent during Q2, but this will lower throughout the year as menu pricing rolls off. Bloomin' doesn't plan to add any more pricing in 2023.
Menu mix is negative, which the chain attributed to promotional deals (current seasonal offerings feature new menu innovation starting at $16.99) and consumer trade-down. Deno foresees improvement for the remainder of 2023.
"Our guide actually implies if you look at Q3, a tick up in traffic from where we were in Q2," he said. "And if you look at Q4, you can apply another tick up in traffic in Q4. So there is an expectation that the consumer continues to hang in there."
Restaurant-level operating margin was 16.6 percent in the second quarter, up from 15.5 percent last year. This was fueled in part by productivity increases from Outback's new cooking equipment and handheld devices for servers. The advanced grills and ovens are on track to be rolled out completely by the third quarter.
Outback U.S. finished Q2 with 689 stores.
Bloomin' projects a "meaningful" increase in new restaurant development in 2024. Deno highlighted Outback and Fleming's Prime Steakhouse & Wine Bar as two concepts prepped for growth.
Fleming's had 64 restaurants systemwide in June. Its comps dropped 2.5 percent, but the company pointed toward tough comparisons in Q2 2022 when there was high spending in the fine-dining category. The chain is now led by Sheilina Henry, who was recently promoted to brand president. She has more than 20 years of experience in restaurant operations, training, and project management and joined Bloomin’ in 2012.
"Both brands have a lot of whitespace ahead of them, especially in core markets," Deno said. "And we'll continue with our remodel plans in the U.S. as we upgrade our restaurants. So the growth you'll see, it will be new development. It will be something we haven't provided yet to investors in quite some time. And we've got the pipeline to prove it and the returns as well."
The CEO noted Carrabba's is positioned for growth too, although he prefers not to "go public or anything until we have a pipeline built and I can talk about it some more."
Carrabba's same-store sales rose 3.5 percent in the quarter, and traffic slid just 0.8 percent. It ended Q2 with 199 restaurants, with no openings or closures during the period.
"Clearly, the performance has been terrific," Deno said. "The team is doing a great job, but until we build the pipeline a little further, it's something that I'll continue to hold back on a little bit, but certainly we're looking at it and thinking about it. Having said that, the pipeline at Fleming's, Brazil, and Outback is filling up every day. It looks very strong. So more to come on development. But Carrabba's has certainly earned the right to more expansion."
Bloomin' earned $1.15 billion in Q2 revenue, good for a 2.4 percent increase versus 2022.
