Bloomin’ Brands Stock Drops on Weak Guidance and Demand Concerns

Key Points

• Weak guidance and demand concerns overshadowed a double beat by Bloomin’ Brands.
• The company is formulating a strategic plan that includes trimming menu items to deliver improved quality and consistency.
• Despite an attractive P/E ratio and high-yield dividend, Bloomin’ Brands presents fundamental concerns.

In a month when most stocks have been down, Bloomin’ Brands Inc. NASDAQ: BLMN has been a standout performer. The stock was up over 17% heading into its first-quarter earnings on May 7. But weak guidance for the current quarter overshadowed a double beat, and BLMN stock fell 4.4%.

Bloomin’ Brands is the parent company of popular national chains such as Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, and Fleming’s Prime Steakhouse and Wine Bar. That allows the company to participate in both the casual, upscale casual, and fine dining segments of the industry.

The popularity of these national chains is reflected in the company’s quarterly revenue and earnings, both of which beat expectations. However, the numbers were lower year-over-year (YOY). Bloomin’ Brands' chief executive officer (CEO), Mike Spanos, stated that the company’s performance was also lagging the industry. Plus, data from Black Box, an AI-driven restaurant experience and performance platform, indicated the company was losing market share.

A Search for Improved Quality and Consistency

According to Spanos, the fundamental issue facing the company is inconsistency in the areas of ingredient quality and consistency of customer experience. The CEO says the company will release the details of its strategic plan at a later date, but it did reveal plans to cut back on the menu at each of its chain restaurants.

This entails removing items with low sales mix, low satisfaction scores, or that the company said didn’t travel well. In the case of Outback, it includes reducing the number of seasonal promotions and limited-time offers (LTOs) that required incremental training.

The Core Issue Is Demand for Bloomin' Brands 

Like many retailers, Bloomin’ Brands is taking steps to control the controllables. However, it can’t control demand. Spanos acknowledged that the company is seeing softness with customers with household incomes under $100,000. And uncertainty surrounding demand is causing the lower guidance.

That's where things get tricky for investors. Bloomin’ Brands is trying to execute a value-oriented strategy that is likely to weigh on earnings in the short term. Lower earnings are one thing. The company, however, is also forecasting comparable sales to fall between 1.5% to 2.5% in the current quarter and for EPS between 22 and 27 cents per share. Even at the high point, the number would be nearly 50% lower on a YOY basis.

If investors are looking for any glimmer of hope, the company is maintaining its full-year guidance, at least for now.

The Fundamentals Are Not Appetizing

Value-oriented investors might look at the issues surrounding Bloomin’ Brands and believe that those issues are common with all retail stocks. That may be true. So if you look at the company’s price-to-earnings (P/E) of around 4.3x and its high-yield dividend of over 7%, you might think BLMN stock offers good value.

The problem is that other metrics don’t back up the company’s strength. For example:

• The company’s price-to-sales (P/S) ratio of 0.17 is 39.4% lower than the company’s trailing-twelve-month (TTM) average.

• The price-to-book (P/B) ratio of 4.97% is 16.7% lower than the company’s TTM average.

• The return on invested capital (ROIC) of 6.99% is 28.7% lower than the company’s TTM average.

• The debt-to-equity ratio of 7.66 is 83.7% higher than its TTM average.

There are other examples, but you get the idea. The company is looking unattractive in many ways that are important to value-conscious investors. And if those fundamentals don’t improve and earnings remain under pressure, investors should be concerned about the safety of that dividend, which the company has already cut from 24 cents to 15 cents in the prior quarter.

Analysts Are Bullish, But There Are Better Short-Term Options

The Bloomin’ Brands analyst forecast on MarketBeat gives the stock a consensus Reduce rating with a $13.85 price target, suggesting an 84% increase in the stock price. However, the stock has failed to climb above its 50-day simple moving average (SMA) in the two weeks leading up to earnings.

That trend is unlikely to change with weak guidance for the current quarter. Plus, short interest has been increasing in the last month and sits at over 10% of the BLMN stock float.

That said, BLMN stock is worth watching. If consumers get relief through interest rate cuts, lower inflation, or both, the stock may be more appealing in the second half of the year.