Blooming Brands' (NASDAQ: BLMN) value is slipping away, but not for any bad reasons. The company’s results prove that the rebound in restaurants is still strong and that pricing power is driving cash flow and that shares are moving higher. With the stock trading at only 8.4X, its earnings compared to 22X for Texas Roadhouse (NASDAQ: TXRH) and 13X for Ruth’s Hospitality Group (NASDAQ: RUTH) this diversified restaurant stock is in the midst of a price-multiple expansion and one that is aided by high short interest. The short interest was sitting at over 12% going into the report, and that is ample fuel to aid a rally, especially if the shorts decide to reposition at higher prices.
Bloomin’ Brands Is Growing, Growing
Bloomin’ Brands had a decent quarter supported by the addition of Outback Brazil, new restaurants, and a positive FX tailwind coming out of Brazil. The company reported $1.13 billion in net revenue for a gain of 4.6% over last year. The revenue also beat the consensus estimate by 180 basis points, as well, with same-store comps coming in at -0.4%. On a segment basis, all segments but one posted YOY gains, and all segments are up versus 2019. The core Outback Steakhouse segment is up 10%, while Carraba’s is up a stronger 15%.
Moving down the report, the news is mixed but ultimately supportive of share prices. The company reports a 480 basis point contraction in restaurant margin, and a 320 basis point contraction in the adjusted operating margin, but both are better than expected. The GAAP earnings of -$0.72 were a surprise but offset by the early extinguishment of debt and costs related to that.
Adjusted for those charges, the company reported $0.68 in EPS to beat the consensus by $0.06 while also increasing cash on a YOY basis and repurchasing shares. The company repurchased $62 million worth during the quarter and still has $63 million left under the current authorization. As for the balance sheet, the company is net debt, and debt is up slightly from last year, but leverage remains manageable and in line with the long-term outlook.
The dividend isn’t all that large at only 1.37%, but it is consistent with the broad market S&P 500 index and its peers. The payout is sustainable at only 25% of the earnings outlook, even after the big cut. The company raised its outlook for revenue due to expected pricing increases but also slashed its EPS outlook to half of the consensus estimate. The takeaway here is the cut to earnings was expected and the market is taking it in stride.
The Analysts Like The Cut Of Bloomin’ Brands Results
The analysts rate Bloomin’ Brands a Moderate Buy and have been narrowing their price targets in the wake of the report. There’re been at least three major reports put out, with one raising the price target and two lowerings. The takeaway is the one raising the target is below the consensus, and the two lowerings are above, so the net result is an uptick in the consensus, and the consensus implies about 33% of upside for the stock.
The Technical Outlook: Bloomin’ Brands Melts Up
The price action in Bloomin’ Brands hit a bottom a few weeks before the earnings release and it appears to be gaining momentum now. The price action is up about 2.0% to start the week and setting a new two-month high while moving above the 150-day moving average. Assuming the market follows through with this move, the stock could rise to the $24 level before hitting major resistance.