Outback Steakhouse's Bold Moves To Spice Up Growth And Margin Expansion

Key Takeaways

• Strategic enhancements to Outback Steakhouse's menu and selective new additions aim to boost customer satisfaction and increase revenue through higher foot traffic.
  
• Expanding off-premises and catering sales offers considerable revenue growth potential through diversified and high-margin channels.
  
• Challenges in customer attraction and retention, coupled with increasing operational costs and foreign exchange risks, may erode future earnings and revenue growth.

Catalysts

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

• The strategic focus on improving Outback Steakhouse's menu for abundance and value alongside selective new item additions is slated to enhance customer satisfaction and repeat business, positively impacting revenue through increased foot traffic and potentially higher average ticket sizes.
  
• Investments in technology and equipment, such as new grills and server handhelds, aim at enhancing service delivery and customer experience, which could lead to increased customer foot traffic and loyalty, positively impacting revenue.
  
• Expanding the off-premises business segment, which now constitutes a significant portion of U.S. sales, alongside a growing catering business, presents a robust opportunity for revenue growth through diversified and high-margin sales channels.
  
• The anticipation of inflation normalizing presents an opportunity for reduced operational costs, which may improve net margins by lowering input costs without necessitating price increases that could impact customer demand negatively.
  
• The plan to continue opening new restaurants and remodeling existing ones, aimed at upgrading assets and improving traffic trends, especially at Outback, indicates a strategy to drive revenue growth by enhancing the dining experience and expanding market presence.

Assumptions

• Analysts are assuming Bloomin' Brands's revenue will grow by 1.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.7% today to 12.9% in 3 years time.
• Analysts expect earnings to reach $612.3 million (and earnings per share of $2.45) by about October 2027, up from $32.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.0x on those 2027 earnings, down from 43.9x today. This future PE is lower than the current PE for the US Hospitality industry at 23.9x.
• Analysts expect the number of shares outstanding to grow by 43.29% per year for the next 3 years.
• To value all of this in today's dollars, we will use a discount rate of 10.74%, as per the Simply Wall St company report.

Risks

• Decline in comparable restaurant sales and the net impact of restaurant closures and openings could lead to decreased revenue.
  
• Negative U.S. comparable restaurant sales and traffic indicate challenges in attracting and retaining customers, potentially impacting future revenues.
  
• The updated full-year guidance reflecting a softer industry environment suggests potential ongoing struggles with customer footfall and spend, which could affect earnings.
  
• Increasing costs, especially regarding construction and wage inflation, imply higher operational expenses that could erode net margins.
  
• Foreign exchange headwinds in Brazil highlight the risk of adverse currency movements affecting earnings from international operations.

Valuation

• The analysts have a consensus price target of $19.92 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 $25.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.8 billion, earnings will come to $612.3 million, and it would be trading on a PE ratio of 11.0x, assuming you use a discount rate of 10.7%.
• Given the current share price of $16.71, the analyst's price target of $19.92 is 16.1% 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.