Bloomin’ Brands(BLMN) - 2019 Q4 - Annual Report

PART I Business Overview Bloomin' Brands operates a global casual dining portfolio, emphasizing innovation, digital engagement, and strategic value - Bloomin' Brands, Inc. is one of the largest global casual dining restaurant companies, with a portfolio of four founder-inspired concepts[23] Restaurant Count (as of December 29, 2019) | Category | Owned & Operated | Franchised | Total | |:---|:---|:---|:---| | U.S. | 1,045 | 173 | 1,218 | | International | 128 | 127 | 255 | | System-wide | 1,173 | 300 | 1,473 | - The company completed the rollout of in-house delivery to substantially all Outback Steakhouse and most Carrabba's Italian Grill Company-owned restaurants in 2019, and expanded Outback Steakhouse's delivery platform through an exclusive third-party partnership with DoorDash[36] - A multi-year relocation plan is underway for U.S. Outback Steakhouse, aiming to move legacy restaurants to prime locations to drive additional traffic, with 11 restaurants relocated in 2019 and nine planned for 2020[43] - The company is exploring strategic alternatives to maximize shareholder value, including a possible sale, and has implemented a plan for growth, efficiency, and scale through leadership consolidation, streamlined corporate functions, and rebalanced capital allocation[226][227][228] General and History Bloomin' Brands is a leading global casual dining restaurant company with a diverse portfolio of concepts - Bloomin' Brands, Inc. is one of the largest global casual dining restaurant companies, with a portfolio of leading, differentiated restaurant concepts[23] - As of December 29, 2019, the company owned and operated 1,173 restaurants and franchised 300 restaurants across 48 states, Puerto Rico, Guam, and 21 countries[24] Our Segments The company's operations are segmented into U.S. and International, encompassing owned and franchised restaurants - The company aggregates its operating segments into two reportable segments: U.S. and International[25] Reportable Segments and Concepts (as of December 29, 2019) | Reportable Segment | Concept | Geographic Location | |:---|:---|:---| | U.S. | Outback Steakhouse, Carrabba's Italian Grill, Bonefish Grill, Fleming's Prime Steakhouse & Wine Bar | United States of America | | International | Outback Steakhouse, Carrabba's Italian Grill (Abbraccio) | Brazil, Hong Kong/China | - As of December 29, 2019, the U.S. segment included 1,045 owned and operated restaurants and 173 franchised restaurants across 48 states[26] - As of December 29, 2019, the International segment included 128 owned and operated restaurants and 127 franchised restaurants across 21 countries, Puerto Rico, and Guam[34] Restaurant Overview This section details selected sales data, delivery initiatives, and system-wide restaurant rollforward for 2019 Selected Sales Data for Company-owned Restaurants (2019) | Concept | Food & Non-alcoholic Beverage | Alcoholic Beverage | Average Check Per Person ($USD) | |:---|:---|:---|:---| | Outback Steakhouse | 91% | 9% | $23 | | Carrabba's Italian Grill | 86% | 14% | $22 | | Bonefish Grill | 78% | 22% | $27 | | Fleming's Prime Steakhouse & Wine Bar | 74% | 26% | $83 | | Outback Steakhouse Brazil | 85% | 15% | $15 (R$ 59) | - In 2019, the company completed the rollout of in-house delivery to substantially all Outback Steakhouse and most Carrabba's Italian Grill Company-owned restaurants, and expanded Outback Steakhouse's delivery platform through an exclusive third-party partnership with DoorDash[36] System-wide Restaurant Rollforward (2019) | Concept | Dec 30, 2018 | Openings | Closures | Other | Dec 29, 2019 | |:---|:---|:---|:---|:---|:---|\ | U.S. Total | 1,232 | 6 | (20) | — | 1,218 | | Outback Steakhouse (Company-owned) | 579 | 3 | (3) | — | 579 | | Outback Steakhouse (Franchised) | 154 | — | (9) | — | 145 | | Carrabba's Italian Grill (Company-owned) | 224 | — | (2) | (18) | 204 | | Carrabba's Italian Grill (Franchised) | 3 | — | — | 18 | 21 | | Bonefish Grill (Company-owned) | 190 | 1 | (1) | — | 190 | | Fleming's Prime Steakhouse & Wine Bar (Company-owned) | 70 | — | (2) | — | 68 | | International Total | 256 | 21 | (22) | — | 255 | | Outback Steakhouse - Brazil (Company-owned) | 92 | 7 | — | — | 99 | | Outback Steakhouse - South Korea (Franchised) | 76 | 5 | (9) | — | 72 | | System-wide Total | 1,488 | 27 | (42) | — | 1,473 | Restaurant Design and Development The company focuses on constructing freestanding restaurants, ongoing remodels, and strategic relocations and international expansion - The company primarily constructs freestanding buildings on leased properties, with an ongoing remodel program across all concepts to maintain ambiance[40] - A multi-year relocation plan for U.S. Outback Steakhouse aims to move legacy restaurants to prime locations within the same trade area, with 11 relocations in 2019 and nine planned for 2020[43] - International expansion focuses on established equity and franchise markets in South America and Asia, particularly Brazil[45] Research & Development / Innovation The R&D team drives menu innovation and simplification through consumer research and local market tailoring - The R&D team performs thorough reviews and consumer research before adding items to the global core menu, with local teams tailoring menus for international markets[47] - Menu innovation and simplification are high priorities, including increased portion sizes at Outback Steakhouse and Carrabba's Italian Grill, and locally-sourced 'Neighborhood Catch' dishes at Bonefish Grill[49] Information Systems Technology is leveraged for digital marketing, customer engagement, business analytics, and supply chain efficiency - Technology is leveraged for digital marketing, customer engagement, business analytics, restaurant operations, and productivity initiatives[50] - Investments include brand websites, digital marketing, online ordering, mobile apps, and a customer loyalty program (Dine Rewards) to increase traffic[51] - A global supply chain management system has been implemented for better inventory forecasting and replenishment, with investments in risk management and cybersecurity[51] Advertising and Marketing Advertising utilizes diverse media channels with a focus on data-driven personalization and loyalty programs - Advertising uses diverse media channels including national/spot television, radio, social media, search engines, and other digital tactics[54] - Increased focus on data segmentation, personalization, customer relationship management, and digital advertising for efficiency and relevance[54] - The multi-branded loyalty program, Dine Rewards, aims to drive incremental traffic and provide data for customer segmentation[55] Restaurant Operations Restaurant operations involve varied management structures, performance-based incentives, and international partner participation - Restaurant management staff varies by concept and size, with most employees being hourly and part-time[56] - Area Operating Partners and Restaurant Managing Partners receive performance-based bonuses, with U.S. partners potentially participating in deferred compensation plans[57][58] - International Restaurant Managing Partners may purchase participation interests in restaurant cash distributions[59] Sourcing and Supply A global procurement strategy leverages diverse suppliers for efficiency, with beef as a primary purchased protein - A global approach to procurement and supply chain management leverages global, regional, and local suppliers for efficiency and economies of scale[63][64] - Beef constitutes the majority of purchased proteins, primarily sourced from four U.S. suppliers (over 80% of market) and two Brazil suppliers (approx. 45% of market)[66] - The R&D facility in Tampa, Florida, serves as a global test kitchen and vendor product qualification site, with a quality assurance team managing supplier evaluations and third-party inspections[67] Restaurant Ownership Structures Revenue is generated from company-owned and franchised restaurants, with varying royalty fee structures - Revenues are generated from Company-owned restaurants and royalties/franchise sales from franchised restaurants[69] - Company-owned restaurants are wholly-owned or majority-owned, with results included in consolidated operating results[70] - Carrabba's Italian Grill restaurants in the U.S. pay royalties of 0.5% to 1.5% of sales to the founders, while international Carrabba's pay a one-time lump sum fee[71] Unaffiliated Franchise Royalty Fee Percentages | Franchisee Type | Monthly Royalty Fee Percentage | |:---|:---|\ | U.S. franchisees | 3.50% - 5.75% | | International franchisees | 2.75% - 6.00% | Competition The restaurant industry is highly competitive, facing challenges from diverse operators and expanding food service options - The restaurant industry is highly competitive, with numerous operators competing on price, service, location, and food quality, including well-established competitors and new market entrants[75] - Competition also comes from the supermarket industry (prepared meals), quick service/fast casual restaurants, and expanding home delivery services[75] Government Regulation The company is subject to extensive federal, state, local, and international regulations, particularly for alcoholic beverage sales - The company is subject to various federal, state, local, and international laws and regulations, including those for alcoholic beverage control, health and safety, and employment[76][78][80] - Alcoholic beverage sales represent 14% of U.S. restaurant sales and require specific state and local licenses[77] Information About Our Executive Officers This section provides a list of the company's executive officers as of February 14, 2020 Executive Officers (as of February 14, 2020) | Name | Age | Position | |:---|:---|:---|\ | David J. Deno | 62 | Chief Executive Officer | | Christopher Meyer | 48 | Executive Vice President, Chief Financial Officer | | Kelly Lefferts | 53 | Executive Vice President, Chief Legal Officer and Secretary | | Gregg Scarlett | 58 | Executive Vice President, Chief Operating Officer, Casual Dining Restaurants | | Michael Stutts | 40 | Executive Vice President, Chief Customer Officer | Employees As of December 29, 2019, the company employed approximately 94,000 persons, with some international employees covered by labor agreements - As of December 29, 2019, the company employed approximately 94,000 persons, including 800 corporate personnel[87] - None of the U.S. employees are covered by a collective bargaining agreement, but various jurisdictional industry-wide labor agreements apply to certain employees in Brazil[87] Trademarks The company protects its key service marks and trademarks globally, licensing their use with quality control - Key service marks and trademarks include Outback®, Outback Steakhouse®, Carrabba's Italian Grill®, Bonefish Grill®, Fleming's Prime Steakhouse & Wine Bar®, and Bloomin' Onion®[89] - The company pursues global registration of its marks, vigorously opposing infringement and licensing their use to franchisees and third parties with quality control standards[89][90] Seasonality The business experiences seasonal fluctuations in customer traffic, with variations between U.S. and international markets - The business is subject to seasonal fluctuations, with U.S. customer traffic generally highest in the first quarter and lowest in the third quarter[91] - International customer traffic patterns vary by market; for example, Brazil historically experiences minimal seasonal fluctuations[91] Risk Factors The company faces risks from strategic review uncertainty, competitive pressures, operational challenges, regulatory compliance, and financial leverage - Uncertainty regarding the outcome of the strategic alternatives review could adversely impact business operations, stock price, and personnel retention[95][98] - Organizational restructuring, while aiming for cost savings, involves significant implementation challenges and potential unforeseen adverse effects on sales or operations[99][100] - Food safety issues, whether internal or industry-wide, could negatively impact traffic, sales, and brand reputation, exacerbated by social media[101][102] - The highly competitive restaurant industry, coupled with expanding consumer options, poses a risk to traffic, sales, and margins if the company cannot compete effectively[103][104] - Increases in minimum wage, mandated benefits, and other labor regulations could materially increase operating costs[106][107] - Challenging economic conditions, consumer confidence, and discretionary spending directly impact the restaurant industry, potentially leading to declining sales, increased costs, and reduced growth initiatives[109] - Cybersecurity breaches of confidential consumer/employee information or failures in technological systems could result in negative publicity, brand damage, business interruption, and legal liabilities[110][114][115] - Increased commodity, energy, and other costs could decrease profit margins or necessitate menu price increases, potentially affecting sales[116][117] - Failure to comply with extensive government regulations could adversely affect business operations and incur significant costs[118][120] - Changes in consumer preferences and perceptions may lessen demand for current product offerings, harming business and operating results[121][122] - Reliance on third-party delivery services carries risks related to platform failures, poor driver performance, and potential cannibalization of more profitable in-restaurant sales[123][124][125] - Risks associated with remodeling, relocation, and expansion plans include difficulty in site acquisition, funding constraints, personnel challenges, and uncertain performance of new/relocated restaurants[128][129][130][132] - International operations face additional risks such as economic/political instability, differing cultures, diverse regulations, currency fluctuations, and the ability to source high-quality ingredients[133][136][138][139] - Loss of key management personnel or failure to recruit/retain high-quality restaurant staff could hurt business and inhibit growth[140][141][142] - The success of the business depends on preserving and growing brand value, which can be adversely affected by ineffective marketing, negative publicity, or failure to innovate[143][144][149][150] - An impairment in the carrying value of goodwill or other intangible/long-lived assets could adversely affect financial condition and results of operations[151] - Limited control over franchisees means their failure to operate according to standards could harm brand image and reputation, and financial difficulties could impact royalty revenues and incur support expenses[153][154][155] - Reliance on a limited number of suppliers for major products and a single custom distribution company creates risk of supply shortages and higher costs if these partners fail to fulfill obligations[156][157][158] - Failure to achieve projected cost savings from efficiency initiatives could adversely affect results of operations and limit funding for growth[159][160] - Various initiatives (acquisitions, dispositions, new ventures) carry risks of being unsuccessful, incurring significant expenses, or diverting resources, potentially harming financial results[162] - Business is subject to seasonal and periodic fluctuations, with U.S. customer traffic highest in Q1 and lowest in Q3, and quarterly results affected by new restaurant openings/closures and associated costs[163] - Adverse weather conditions, natural disasters, and unforeseen events could negatively impact operations and consumer traffic[164] - Inability to enforce trademarks or other proprietary rights could adversely affect competitive position and brand value[165][166] - Litigation could divert resources, incur substantial settlement payments or damage awards, and materially impact financial performance[167][169] - Insurance policies may not provide adequate coverage, and fluctuating insurance requirements/costs could negatively impact profitability[170] - Failure to maintain effective internal control over financial reporting and disclosure controls could adversely affect business and financial results, leading to loss of investor confidence[171][172] - Future changes to accounting rules, standards, or interpretations, and subjective judgments in complex accounting matters, could significantly affect reported financial results[173] - Substantial leverage ($1.0 billion total indebtedness as of Dec 29, 2019) increases vulnerability to economic conditions, restricts capital raising, and exposes the company to interest rate risk[175][176][177][179] - Debt agreements contain restrictive covenants that limit operational flexibility and could lead to acceleration of debt if breached[183][184] - Inability to generate sufficient cash flow to service debt and operating lease obligations could force actions like reducing capital expenditures or selling assets, potentially leading to default[185][186] - The stock price is subject to volatility due to fluctuations in operating results, analyst estimates, market conditions, and other external factors[187] - Inability to continue paying dividends or repurchasing stock, especially under the new capital allocation policy, could lead to a decline in common stock value[189][190][191] - Provisions in the certificate of incorporation, bylaws, Senior Secured Credit Facility, and Delaware law may discourage, delay, or prevent a change of control or management changes, potentially depressing stock price[192][193][194][195] - Limited ability to raise future capital could hinder funding of capital requirements, and issuance of new securities could dilute existing stockholders' interests[196][197] Unresolved Staff Comments There are no unresolved staff comments to report - Not applicable[199] Properties The company operates 1,473 system-wide restaurants, primarily on leased properties, and leases corporate offices - As of December 29, 2019, the company had 1,473 system-wide restaurants across 48 states, Puerto Rico, Guam, and 21 countries[200] Restaurant Count by Ownership and Geographic Location (as of December 29, 2019) | Category | Company-Owned | Franchised | |:---|:---|:---|\ | United States | 1,045 | 173 | | International | 128 | 127 | | Total | 1,173 | 300 | Company-owned Restaurant Sites by Type (as of December 29, 2019) | Site Type | U.S. | International | Total | Percentage of Total | |:---|:---|:---|:---|:---|\ | Company-owned sites | 27 | — | 27 | 2% | | Leased sites: | | | | | | Land, ground and building