Why Customers are Flocking Back to Outback Steakhouse
When it comes to the health and progress of Bloomin’ Brands, modest sales growth at its most recognizable brand doesn’t quite sum it up, said CEO Liz Smith in a conference call Wednesday. Rather the buzzword was traffic, and how increased guest counts and engagement are positioning the company for long-term prosperity amid an increasingly challenging landscape.
Comparable restaurant sales grew 0.3 percent at Outback Steakhouse in the second quarter, while sales climbed 0.4 percent at Carrabba’s Italian Grill. Across the company, comps fell 0.3 percent as Bonefish Grill dropped 2.6 percent and Fleming’s Prime Steakhouse & Wine Bar declined 1.3 percent.
“This was Outback’s second consecutive quarter with positive comps,” said David Deno, executive vice president and chief financial officer, in the call, referring to Outback’s 1.4 percent gain in the first quarter. “And, more importantly, traffic is strengthening. We saw 130 basis-point sequential improvement from the first quarter.”
What that equates to is Outback’s highest traffic since the second quarter of 2015.
“We continue to see progress in our efforts to build healthy traffic growth with the brand,” he said.
Across the entire restaurant industry, traffic was down 3.1 percent in the second quarter, according to industry tracker TDn2K. That was actually a 0.6 percent improvement over the first quarter. In 2016, casual dining traffic dropped an alarming 3 percent compared to 0.8 percent in 2015.
Bloomin’ Brands absorbed its blows in that downturn. In February, the company announced it was planning to close 43 underperforming restaurants after reporting a loss of $4.3 million in the fourth quarter.
But things are looking up for one of the industry’s largest restaurant companies. The operating parent of roughly 1,500 restaurants in 48 states, Puerto Rico, Guam, and 19 countries, spoke about its investments and how they’re leading customers back to the table.
“We have seen some strengthening of casual dining sales trends for the past two quarters since the significant pullback of the industry in Q4 of 2016,” Smith said in the call. “We have also seen improvement in key indicators such as employment, confidence, and wage growth that suggest the state of the consumer is better.”
Smith said Bloomin’ Brands has followed three key strategies to achieve “sustainable long-term growth.”
The first being an investment in elevating customer experience. “This encompasses food quality and portion enhancements, service upgrades, and improved ambiance,” she said.
Next is a reduced reliance on strength discounting. Lastly, the growth of incremental sales layers, such as the company’s remodeling program, Dine Rewards platform, and a deeper dive into off-premise business.
“We remain committed to moving away from shorter-term sales tactics to longer-term customer experience layers,” Smith said. “We will be patient as this strategy takes hold and will not overreact in the face of monthly category volatility.”
Checking in on these initiatives, Bloomin’ Brands has made significant progress. Smith said more than 3.9 million users are enrolled in the Dine Rewards program, which is an increase of 700,000 or so since the first quarter. The platform just celebrated its one-year anniversary last week.
“Dine Rewards is attracting a healthier consumer and is now attaining the higher end of the 1—2 percent traffic lift contribution we saw in test markets,” Smith said.
For delivery, Bloomin’ Brands has extended the service to around 250 restaurants and “has been pleased with the consumer response and overall results so far.”
Smith said the company expects to complete 150 remodels and 16 relocations in 2017 in the ongoing Outback exterior remodeling program. And two-thirds of those are still to come.
These initiatives, Smith pointed out, remain part of a larger traffic conversation for the brand.
“It’s a reflection of the investments we’ve made,” she said. “… I think the key thing for us is it’s the totality of the investments that are coming together in general to elevate the 360-degree experience. So you are seeing increase in customer satisfaction across every single metric.”
Bloomin’ Brands’ menu simplification and reduction in complexity is playing out over time as well, she added. Investments in portions and quality and labor are also fueling long-term optimism.
“We feel really, really good about how all the investments we are making at Outback are building that traffic growth, restoring that brand health, and bringing that higher quality traffic back in on a sustainable basis,” Smith said.
In the second quarter, Bloomin’ Brands opened five restaurants, all of which were in international markets. Brazil reported restaurant comparable sales growth of 13 percent year-over-year, which provided a boon for the brand’s bottom line and future outlook.
Bloomin’ had net income of 35 cents per share. Earnings, adjusted for non-recurring gains, were 28 cents per share. The company posted revenue of $1.03 billion in the period. That came in below Thomson Reuters estimates of $1.04 billion.
Looking ahead, Bloomin’ reaffirmed its full-year guidance, but did reduce its development from 40—50 new stores to 30.
Returning to its other brands, Deno said Carrabba's comp sales results was its highest in eight quarters.
“We have refocused our efforts in 2017 to ensure Carrabba’s is the restaurant for authentic Italian dining and special occasions,” Smith said. The brand is returning to less overt marketing programs, more direct marketing to core customers, and a “real focus on building off-premise via family bundles and delivery platforms.”
Bonefish’s sagging results reflected its first TV campaign in part, Deno said, which rolled out in 2016 and was not replicated in 2017—a fact that impacted traffic. The chain remains in recovery mode after closing around a dozen stores in 2016.
Despite some of the positives, shares of Bloomin' Brands fell as much as 10 percent in Wednesday trading. It appeared the meager same-store sales growth, reduced openings, and declines from Fleming's and Bonefish Grill overshadowed the positive traffic numbers.
Smith, however, reiterated that Bloomin' Brand's performance remains competitive in the casual dining arena.
“Our portfolio is performing in line with expectations,” Smith said. “And we are pleased with the progress we are seeing behind our initiatives. Our investments in the core experience, off-premise, and international are paying off.