Ziosk Technology Adoption Will Improve Guest Experience And Operational Efficiency

Key Takeaways

• Operational enhancements, including menu reduction and technology adoption, should improve efficiency, guest satisfaction, and net margins across Bloomin' Brands.
  
• Strategic partnerships and value offerings are anticipated to stabilize revenue and bolster customer loyalty, supporting sustainable growth and profitability.
  
• Bloomin' Brands faces challenges with underperformance, restructuring risks, menu changes, rising costs, and a slowdown in growth initiatives impacting margins and sales potential.

Catalysts

Through its subsidiaries, owns and operates casual, polished casual, and fine dining restaurants in the United States and internationally.

• Bloomin' Brands' focus on simplifying their operational agenda, including menu reduction by 10% to 20% across all brands, is expected to improve operational efficiency, reduce labor costs, and enhance the guest experience, thereby positively impacting net margins.
  
• The refranchising of their Brazil operations and the partnership with Vinci should provide a steady royalty stream and reduce earnings volatility, potentially leading to more stable revenue growth and improved earnings.
  
• The introduction of Ziosk technology at Outback Steakhouse is expected to enhance guest experience and increase operational efficiency, potentially leading to higher customer satisfaction and repeat visits, boosting revenue and net margins.
  
• The strategic shift towards everyday abundant value offerings, such as the Aussie 3-Course at Outback, is designed to improve customer frequency and loyalty, directly contributing to sustainable revenue growth.
  
• Investments in remodels and relocations, with a focus on revamping existing installations, aim to enhance the customer experience, potentially increasing traffic and supporting top-line growth and profit margins over the next few years.

Bloomin' Brands Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bloomin' Brands's revenue will decrease by 0.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -1.3% today to 3.1% in 3 years time.
• Analysts expect earnings to reach $124.3 million (and earnings per share of $1.44) by about March 2028, up from $-52.0 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 10.4x on those 2028 earnings, up from -12.9x today. This future PE is lower than the current PE for the US Hospitality industry at 23.3x.
• Analysts expect the number of shares outstanding to decline by 1.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

Bloomin' Brands Future Earnings Per Share Growth

Risks

• Bloomin' Brands reported that their current performance underperformed the industry, losing market share as defined by Black Box with 260 basis points on sales and 410 basis points on traffic, which could impact future revenue and earnings.
  
• The company has implemented organizational restructuring which resulted in layoffs; while intended to streamline operations, such actions can lead to disruptions and risks related to morale, potentially affecting operational efficiency and profit margins.
  
• Their decision to reduce menu items by 10% to 20% and simplify operations might lead to unforeseen guest dissatisfaction, potentially impacting traffic and sales revenue.
  
• The turnaround strategy at Outback, the largest and most important brand, involves slowing down new unit openings to focus on existing restaurant improvements, which may limit potential revenue growth and could delay improvements in sales performance.
  
• Rising commodity costs, including mid-single-digit beef inflation, combined with labor inflation pressure, might squeeze restaurant operating margins if offsetting actions like productivity improvements and price adjustments do not suffice.

Valuation

• The analysts have a consensus price target of $11.625 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 $15.5, and the most bearish reporting a price target of just $9.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.0 billion, earnings will come to $124.3 million, and it would be trading on a PE ratio of 10.4x, assuming you use a discount rate of 11.4%.
• Given the current share price of $7.88, the analyst price target of $11.62 is 32.2% 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.