Can a Revitalized Outback Get Even Better in 2018?
Bloomin’ Brands CEO Liz Smith called the fourth quarter of fiscal 2017 “an excellent finish” to the year for the company’s concepts, especially its flagship—Outback Steakhouse. While comparable same-store sales growth of 4.7 percent, year-over-year, was a welcome sign for the legacy chain, it’s 4.3 percent traffic lift was the true heavy hitter. For the year, versus the prior-calendar period, traffic lifted just 0.3 percent. It was up 0.1 percent in Q3, which marked the first quarter of improved traffic since 2016. So the 4Q boom was something executives saw approaching, but watching it actually materialize provided Bloomin’ a jolt headed into what could be one of its more important years in recent memory, especially as activist investor Jana Partners, which owns 8.7 percent of the company’s shares, continues to loom in the background.
Bloomin’ took investors into a deeper dive during its Q4 presentation.
Here were some of the highlights.
Firstly, let’s take a look at how Bloomin’s $4.2 billion sales pie break down.
- Outback: 51 percent
- Carrabba’s Italian Grill: 16 percent
- Bonefish Grill: 15 percent
- Fleming’s Prime Steakhouse: 7 percent
- International: 11 percent
Here’s how those respective concepts performed in Q4, year-over-year, in regards to same-store sales:
- Outback: 4.7 percent
- Carrabba’s: 1.3 percent
- Bonefish: 0.6 percent
- Fleming’s: 3.1 percent
- Outback (Brazil): 4.9 percent:
- U.S. combined: 3.3 percent
And total locations as of December 31, 2017:
- Outback: 740 (No. 1 in its market)
- Carrabba’s: 228 (No. 2 in its market)
- Bonefish: 201 (No. 2 in its market)
- Fleming’s: 69 (No. 3 in its market)
Take it international
Bloomin’ pointed to international as a strong growth area. The company currently has 119 restaurants across seven countries in Latin America and 121 restaurants across 10 countries in Asia Pacific.
The company said there’s significant whitespace here since these are highly fragmented markets with a long runway for development. For example, in China there are 153 million people per Outback, and Brazil has only a fifth the penetration of the U.S. The company has plans to extend its Abbraccio (the Brazilian Carrabba’s) base from nine to 13 in the coming year. At the end of Q4, Outback had 87 Brazil locations, and said 100 is a reachable target.
Bloomin’ has had an international platform focused on Outback since 1996. The base totals 249 locations in 21 countries with $751 million in systemwide sales ($450 million from company-owned units and $301 million from franchised).
Brazil offers a robust sales environment for Outback.
Here are the Brazil comps for the past eight quarters:
- Q4 2017: 4.9 percent
- Q3 2017: 4.8 percent
- Q2 2017: 12.6 percent
- Q1 2017: 3.6 percent
- Q4 2016: 6.1 percent
- Q3 2016: 7.3 percent
- Q2 2016: 3.9 percent
- Q1 2016: 8.8 percent
But it doesn’t stop there. Bloomin’s international footprint broken down by ownership type:
- Brazil: 104
- China: 9
- Hong Kong: 11
- Asia Pacific/Australia: 29
- South Korea: 72
- North America: 2
- Middle East: 7
- Latin America: 15
Bloomin’ said it expects to actively pursue near-term company-owned growth in Brazil, China, and the Andean Cluster.
In 2016, the company signed a 26-store franchise agreement in the Middle East, and a 20-store development agreement in Australia.
The digital push
Bloomin’s digital investment is another key area the company plans to leverage.
The company said it is focusing on three key areas:
- Pre-visit control
- Seamless digital experience in restaurant
- A customer data strategy to increase personalization and targeting marketing vehicles
Bloomin’ recently hired Ramin Eivaz as head of digital marketing, analytics, and CRM to help the company “determine how to best optimize our data to more efficiently engage and market to consumers in a more personalized manner,” Smith said, adding that research is suggesting off-premise could be a bigger opportunity than originally expected.
Over time, Smith said, the company believes off-premise can reach 25 percent of total restaurant sales. Currently, 240 Outback and Carrabba’s units offer delivery and are fine-turning staffing and operations to meet the demand. Delivery checks are reporting higher than curbside as well.
This strategy extends to Bloomin’s first Express locations, which opened in fiscal 2017. These combine Outback and Carrabba’s offerings in delivery and takeout-only formats.
“This smaller footprint concept will be utilized to expand our reach into both new and fill-in trade areas. These locations will help inform our go-forward off-premise development strategy,” Smith said.
There are three currently open, with eight expected by the end of the year.
In 2016, Bloomin’ unveiled its connected customer app and enhancements, which included mobile pay, an offer pouch featuring specials and coupons, wait list and reservation, and location specific menus.
The company’s Dine Rewards loyalty program, launched systemwide in July 2016, now has more than 5.5 million members, and is attracting a “healthier consumer” Smith said. It achieved about 2 percent traffic lift in Q4.
Relocate and reinvigorate
Bloomin’ outlined what it calls an “Entrepreneurial Operating Model Aimed at Delivering Superior 360 Degree Customer Experience.”
Broken down as such:
- Managing Partners have skin in the game
- Incented for growth
Highly Attentive Service
- Customer surveys implemented in 2009 (SMG)
- Comprehensive training program
- Menu refresh and simplification
- Brand appropriate offers to surprise and delight
- Product and portion upgrades
- Enhanced service experience
- Began Carrabba’s refresh in 2013
- Bonefish remodels underway
- Outback exterior remodels nearly complete
- Outback interior remodels underway
Outback completed 145 remodels and 18 relocations in 2017 with the entire system expected to be finished in 2018. In 2018, Smith said Outback would shift focus to interior remodels, particularly those that have not had an update since 2010. The company also plans to relocate 14 Outbacks this year. Carrabba’s is in its fourth year of this program, while Bonefish and Fleming’s are also undergoing similar refreshes.
“Outback remodels continue to drive the expected sales lift and we will focus on quantifying the potential for Express units as we go forward. We have growing confidence that this strategy will drive healthier, sustained growth in 2018 and beyond,” Smith said.
On the relocation front, Bloomin’ said there is potential to relocate 100-plus Outbacks. In those that have been moved, the chain is seeing 20–40 percent sales lifts. Weekday lunch has been added and there’s been additional dinner lift as well.
Bloomin’ said it has three platforms for sustainable growth:
- Continued focus on U.S. sales and profitability
- Optimize international opportunities
- Drive long-term shareholder value
In Q4, the company opened seven new restaurants, including four in international markets. For the fiscal year, Bloomin’ debuted 31 new units, including 23 international.
From a numbers angle, Bloomin’ has reported 2.2 percent compounded annual growth rate in U.S. annual average unit volumes in the past seven years to about $3.4 million.
The company also intends to reinvest about 50 percent of its tax savings back into its employees. This will come in the form of additional compensation, enhancements to health benefits, a larger 401K match, as well as leadership development training.
It expects 2018 GAAP effective income tax rate to be between 9–10 percent, and the adjusted effective income tax rate to be between 11–12 percent. This represents an 800 basis point to 900 basis point decrease from our 2017 adjusted tax rate of 20 percent.
Bloomin’ said it would drive long-term shareholder value through a proven track record of strong cash flow generation.
In 2017, the company had (in million) $148 in free cash flows, up from $80 in 2016 and down from $185 in 2015. The previous three years: $114, $140, and $161.
Since the beginning of 2015, the company has returned $850 million to shareholders, it said. In February 2018, Bloomin’ authorized a new $150 million share buyback program. Since the beginning of 2015, the company has repurchased more than $750 million of stock. Bloomin’s has also used proceeds from sale of real estate to the tune of more than $650 million gross proceeds since the beginning of 2016.