A New CEO To Drive Growth While Decisive Decisions May Overcome Challenges In The Hospitality Sector

Key Takeaways

• The emphasis on operational excellence and strategic growth at Outback and Carrabba's could enhance guest experience and drive traffic, boosting revenues and profitability.
  
• Partnership in Brazil and disciplined investments aim to streamline operations, potentially improving efficiency and supporting long-term financial performance.
  
• Weather disruptions, declining sales, and rising labor costs challenge Bloomin' Brands' profitability, while refocusing strategies and international risks impact revenue and growth potential.

Catalysts

Bloomin’ Brands, Inc., through its subsidiaries, owns and operates casual, upscale casual, and fine dining restaurants in the United States and internationally.

• The new CEO, Mike Spanos, emphasizes the importance of operational excellence and enhancing the guest experience, particularly at Outback Steakhouse. This focus is expected to drive sustainable traffic growth, which could improve comparable sales and profitability. (Revenue and net margins)
  
• Strategic growth opportunities have been identified for the Outback and Carrabba’s brands. Efforts to improve the guest experience and explore expansion opportunities at Carrabba's could lead to increased traffic and sales, positively impacting revenues and earnings. (Revenue and earnings)
  
• A partnership with Vinci Partners in Brazil is expected to enhance growth prospects in that market. Bloomin' Brands will retain a 33% ownership, allowing them to benefit from the Brazil business's anticipated growth while focusing on domestic operations, potentially improving financial performance through efficiencies. (Revenue and net margins)
  
• The company is exploring disciplined capital investments and focusing on simplifying operations, which could streamline costs and improve efficiency, positively affecting net margins. (Net margins)
  
• Continued share repurchases and a commitment to maintaining a strong balance sheet, including strategic debt management, are expected to support earnings per share growth over time. (Earnings)

Bloomin' Brands Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bloomin' Brands's revenue will decrease by -1.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.1% today to 3.6% in 3 years time.
• Analysts expect earnings to reach $156.8 million (and earnings per share of $2.03) by about November 2027, up from $-5.3 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.3x on those 2027 earnings, up from -201.6x today. This future PE is lower than the current PE for the US Hospitality industry at 24.4x.
• Analysts expect the number of shares outstanding to decline by 3.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.86%, as per the Simply Wall St company report.

Bloomin' Brands Future Earnings Per Share Growth

Risks

• Weather events, such as Hurricane Helene and Hurricane Milton, have had a negative impact on business operations, contributing to decreased traffic and profitability, potentially affecting future earnings.
  
• Declines in comparable restaurant sales and traffic, particularly at Outback Steakhouse, indicate challenges in maintaining customer engagement, which could adversely affect revenue growth.
  
• Increased labor costs, driven by wage rate inflation, have pressured operating margins, suggesting risks to net margins if these costs continue to rise without a corresponding increase in sales.
  
• The company's strategic focus includes refocusing on core brands and optimizing operations, but the existing challenges in sustaining traffic growth highlight potential execution risks that could impact revenue and profitability.
  
• The valuation and partial divestment of Brazilian operations introduce currency risks and dependency on the strategic partner's performance, which could influence international revenue streams and long-term growth projections.

Valuation

• The analysts have a consensus price target of $16.91 for Bloomin' Brands based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $22.0, and the most bearish reporting a price target of just $14.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.3 billion, earnings will come to $156.8 million, and it would be trading on a PE ratio of 11.3x, assuming you use a discount rate of 10.9%.
• Given the current share price of $12.56, the analyst's price target of $16.91 is 25.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.