Activist investor Starboard Value recently offered more insight behind its plan to turnaround Bloomin’ Brands, including improved operational execution and a return to historic marketing strategies.
The presentation, conducted at the 10th annual Capitalize for Kids Investors Conference, comes two months after the hedge fund took a nearly 10 percent stake in Bloomin’. The company’s interest makes it a top five investor.
Starboard is well known for its takeover at Darden Restaurants about a decade ago and its comeback efforts at Papa Johns. Now its eyes are set on the Outback and Carrabba’s owner. It referred to Outback as an “iconic concept with tremendously valuable brand equity” and called the chain’s Bloomin’ Onion an “American Staple, Reflecting the Reach of the Outback Brand.”
Here are some of Starboard’s key strategies:
Operational improvement at Outback: The firm said “improved quality and consistency in service and food are part of the recipe for happier customers and, ultimately, success at Outback.”
Outback must “re-embrace fun” in its advertising and promotional materials: Starboard said the steakhouse used to have commercials featuring cowboys, explorers, surfers, musicians, football, and the outdoors.
Recognizing opportunities at other concepts: The hedge fund noted that other chains in the portfolio, Carrabba’s, Bonefish Grill, and Fleming’s Prime Steakhouse & Wine Bar, are “attractive growth levers and valuation drivers.” More specifically, Starboard thinks there’s “extensive whitespace” for Carrabba’s to become the clear-cut No. 2 player in the Italian casual-dining segment.
Outback Brazil has potential: Starboard wants Bloomin’ to build up its business in Brazil, which is currently outperforming the casual-dining industry by a wide margin (23.3 percent same-store sales increase in 2022 against 2019 versus a 3.1 percent rise for the casual-dining segment overall). The company commented, “With 25 years of operating history, Outback is the casual dining steakhouse category leader in Brazil that warrants a premium, not a discount.”
The firm showed that Bloomin’ trades at a significant valuation discount compared to Darden and Texas Roadhouse, but has better free cash flow. The company also noted that Outback’s traffic isn’t where it needs to be. From September 2022 to June 2023, the chain’s figures were well below competitors LongHorn Steakhouse and Texas Roadhouse.
September 2022
Outback: –6.8 percent
Texas Roadhouse: 0.5 percent
LongHorn: –2 percent
December 2022
Outback: –8.7 percent
Texas Roadhouse: 1.1 percent
LongHorn: 0.1 percent
March 2023
Outback: –1.5 percent
Texas Roadhouse: 7.6 percent
LongHorn 5.7 percent
June 2023
Outback: –5.4 percent
Texas Roadhouse: 4.7 percent
LongHorn: 7.1 percent
Bloomin’ wasn’t always in the position. In fact, before Starboard got involved with Darden in 2014, the Outback owner traded above Darden. Additionally, in fiscal 2014, Outback’s same-store sales rose 6.4 percent, while LongHorn’s lifted 2.4 percent. Olive Garden’s dipped 3.4 percent compared to a 0.3 percent slide at Carrabba’s. Starboard attributed this to “Bloomin’s superior operational execution” versus Darden.
Just under 10 years ago, Starboard achieved a major coup by overhauling Darden’s entire board of directors due to mounting frustrations with the company’s strategic direction. Starboard proposed that Red Lobster and Olive Garden should operate as separate entities, but Darden dismissed this suggestion and opted to sell the seafood chain to Golden Gate Capital for a staggering $2.1 billion. Prior to their boardroom shake-up, Starboard had meticulously presented a comprehensive plan to boost Darden’s financial performance. This blueprint included critiques of Olive Garden’s unlimited breadstick policy and its culinary processes.
Following Starboard’s successful intervention, there was a sustained period of robust sales growth. After seeing same-store sales decline in 10 out of 13 quarters between Q12012 and Q12015, Darden rattled off positive comps for the next several quarters; the streak extended well after Starboard exited the restaurant’s board of directors.
The good news for Starboard is that Outback isn’t necessarily starting from scratch. The brand Outback’s has implemented 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. Also, Bloomin’ has plans to grow Outback Brazil to 300 locations up from its current 148 units. CEO David Deno said Carrabba’s is positioned for growth, too, but didn’t want to “go public or anything until we have a pipeline built and I can talk about it some more.”
