Inflationary Pressures Can't Stop Bloomin's Promising Sales and Profits

Each concept achieved higher U.S. same-store sales versus 2019 in the second quarter.

August 2, 2021 Ben Coley

For multiple years, Bloomin’ Brands made a concerted effort to build a stronger, leaner, operations-centered company, and recent results suggest the Outback Steakhouse parent is checking all the boxes.

Despite an ongoing cost environment that's pressuring much of the industry, restaurant-level margin grew to 20.3 percent in Q2, compared to 15 percent two years ago. Additionally, the company earned $118 million in adjusted operating income, exceeding $47 million from 2019. It’s the highest adjusted operating income in company history, and resulted in an adjusted operating income margin of 11 percent versus 4.6 percent in 2019.

Those improvements were driven by a sales recovery that saw each of Bloomin’s restaurants achieve higher U.S. same-store sales in the second quarter compared to pre-pandemic numbers. Fleming’s Prime Steakhouse & Wine Bar led the way with 24.4 percent growth, followed by Carrabba’s Italian Grill (16.7 percent), Outback (11.3 percent), and Bonefish Grill (4.2 percent). Overall, Bloomin’s comps increased 12.1 percent against 2019 levels, and its weekly AUV was $75,000.

The momentum continued through July even though Q3 is traditionally a slower time of year. Through the four weeks ending July 25, Fleming’s exploded with a same-store sales increase of 37.5 percent, while Bonefish Grill and Carrabba’s jumped 12.3 percent and 23.3 percent, respectively. Outback’s rise remained steady with an 11.2 percent lift. Bloomin’s combined two-year U.S. comps were 15.2 percent in July, and its average weekly sales $70,762, only slightly down from the second quarter.

“We are very pleased with the second-quarter sales and profit performance,” CEO David Deno said during the chain’s Q2 earnings call. “Our strategies are working and setting the company up for even more sustainable growth. The success is directly tied to the planning and hard work that has taken place in our company over the last few years.”

Deno said those type of sales results would not have been possible without the brand's efforts to retain employees, which is a major part of Bloomin’s COVID story. As the company stated before, it didn’t furlough any workers, and that’s resulted in engagement scores among the best in the industry.

Not only did Bloomin’ sustain strong staffing levels, but it also managed labor to the point that it doesn’t anticipate returning to employment levels of 2019. That’s not a knee-jerk reaction, either, Deno said. The streamlined labor model has been a long, meticulous plan with investments in equipment, off-premises, and digital innovation.

In Q2, Bloomin’ generated more than $275 million in off-premises sales, representing a mix of roughly 28 percent. The company also saw $21,000 in average weekly off-premises sales, which decreased only $2,000 per week compared to Q1 despite significantly higher dine-in volumes. Total Q2 off-premises sales were 31 percent of revenues at Outback and 36 percent at Carrabba's. Even at the experiential Bonefish Grill, sales outside the four walls accounted for 19 percent of revenue. Also, profit margins in the off-premises channel are approaching margins of Bloomin's dine-in business. Deno attributed profit growth to mix of the menu offerings, relationships with third-party delivery providers, and carryout.

Digital mixed roughly 20 percent in the U.S., good for a 318 percent increase over 2019 levels. Bloomin’ recently rolled out a new Outback app that improves the off-premises ordering experience, and early data and consumer feedback has been “very positive” so far.

“The app will later showcase substantial investments we made to digitize and streamline the carryout experience,” the CEO said. “These new app features will be rolling out in the coming quarters, and we expect them to accelerate our very attractive carryout channel.”

“ … I mean, [carryout is] a gigantic part of our business,” he continued. “Margins are very high. The customers are in control. They do some of the work. They order up. And we've been doing this for a long time, and it's a very, very important part of our business.”

Carrabba’s

Off-premises accounted for 36 percent of sales at Carrabba's in Q2.

Quarter-to-date, off-premises is at 25 percent, and that's mostly been a trade between curbside pickup and in-restaurant dining. However, the third-party delivery business, which accounted for $100 million in Q2, stayed flat on a percentage basis.

Deno said restaurants will continue with self-delivery to provide flexibility, but the partnership with third parties remains strong.

“That's clearly the incremental business for us,” the CEO said.

Total revenues in Q2 were $1.08 billion, up 5 percent from 2019. In the U.S. specifically, revenues lifted 10 percent versus two years ago. That growth was fueled by more in-restaurant volume, off-premises retention, and an increase in average check. That rise in average check relative to 2019 was driven by a 21 percent reduction in discounts, increased menu mix, and a nominal amount of pricing.

Food and beverage sales were below 30 percent of sales for the second consecutive quarter as opposed to the usual 31 to 32 percent range. Deno explained that product simplification and the new Outback menu have supported those favorable numbers.

“People have traded up [with] higher cuts of steak and also added on to the appetizers and things,” Deno said. “Waste management in the restaurants, because we're more simple in how we do things, waste has come way down in the restaurants. So all of these things are contributing to what we are seeing in the restaurants. And we think that's sustainable.”

In Q3, Bloomin’ expects total revenues of at least $1.015 billion, an increase from $967 million in Q3 2019. The projection assumes a weekly average sales volume of roughly $69,000, which is a slight decrease from the current pace as the company predicts historical seasonality will resume. Bloomin’ also expects EBITDA of at least $115 million and EPS of at least $0.45. Both would represent company records for the third quarter.

The company’s guidance for labor inflation stayed at 3 to 3.5 percent, but its projected commodity inflation rose from flat to roughly 1 percent. Although Bloomin’ is locked into its largest commodities for the year, heavy sales volumes have forced the company to secure additional chicken and seafood outside of contracted terms, said CFO Chris Meyer. Most of the inflation will impact the back half of the year.

“Our supply chain team has done a great job navigating commodities over the years,” Deno said. “You saw our performance this year. You've seen performance in the past, and I'm very confident that we will do a good job going forward on managing commodity costs.”

Fleming’s Prime Steakhouse & Wine Bar

Bloomin' CEO David Deno said Fleming's Prime Steakhouse & Wine Bar has future growth opportunities.

Bloomin’ finished Q2 with 1,484 restaurants systemwide—1,174 in the U.S. and 310 internationally. Outback has 697 domestic outlets, followed by Carrabba’s with 219, Bonefish Grill with 186, and Fleming’s with 64.

Deno told investors that Bloomin’ believes there’s an opportunity to accelerate new unit growth at Outback, Fleming’s, and Carrabba’s. For Outback in particular, the company has seen rise in demand after the implementation of its relocation program. In the past five years, the popular steakhouse chain has relocated roughly 50 restaurants with sales increases of 35 percent and AUVs of $4.6 million. The brand also developed a less expensive prototype that should result in “meaningful restaurant growth with healthy returns.” The CEO added that Bloomin’ has opportunities to open more Fleming’s stores in California and Florida, which are the company’s best-performing markets.

The Bloomin’ leader expects the company to reach net unit growth of 1 to 2 percent sometime in the future.

“I really believe next year, it's too early to lay out targets for 2022 and beyond,” Deno said. “But I think we've got some opportunities for unit expansion, a lot of opportunity for expansion. And we quoted the relocation opportunities we've had, but also just flat-out new units of Outback and Fleming's.”

“And then the other piece is Carrabba's. I mean, they have just been a spectacular performer during the pandemic,” he added. “If you look at the off-premises gains and everything else that they've done, that that team has done, it's just been wonderful. And it may be a little bit too early to talk about what we're doing from a standpoint of Carrabba's. But clearly, that's gotten our attention given their performance.”