BLOOMIN' BRANDS, INC. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with our unaudited consolidated
financial statements and the related notes. Unless the context otherwise
indicates, as used in this report, the term the "Company," "we," "us," "our" and
other similar terms mean
Cautionary Statement
This Quarterly Report on Form 10-Q (the "Report") includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms "believes," "estimates," "anticipates," "expects," "feels," "seeks," "forecasts," "projects," "intends," "plans," "may," "will," "should," "could" or "would" or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause actual results to differ materially from statements made or suggested by forward-looking statements include, but are not limited to, the following: (i)The severity, extent and duration of the COVID-19 pandemic, its impacts on our business and results of operations, financial condition and liquidity, including any adverse impact on our stock price and on the other factors listed below, and the responses of domestic and foreign federal, state and local governments to the pandemic;
(ii)Consumer reactions to public health and food safety issues;
(iii)Our ability to compete in the highly competitive restaurant industry with many well-established competitors and new market entrants;
(iv)Minimum wage increases and additional mandated employee benefits;
(v)Economic conditions and their effects on consumer confidence and discretionary spending, consumer traffic, the cost and availability of credit and interest rates;
(vi)Our ability to protect our information technology systems from interruption
or security breach, including cyber security threats, and to protect consumer
data and personal employee information;
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
(vii)Fluctuations in the price and availability of commodities;
(viii)Our ability to comply with governmental laws and regulations, the costs of compliance with such laws and regulations and the effects of changes to applicable laws and regulations, including tax laws and unanticipated liabilities;
(ix)Our ability to effectively respond to changes in patterns of consumer traffic, consumer tastes and dietary habits;
(x)Our ability to implement our remodeling, relocation and expansion plans due to uncertainty in locating and acquiring attractive sites on acceptable terms, obtaining required permits and approvals, recruiting and training necessary personnel, obtaining adequate financing and estimating the performance of newly opened, remodeled or relocated restaurants;
(xi)The effects of international economic, political and social conditions and legal systems on our foreign operations and on foreign currency exchange rates;
(xii)Our ability to preserve and grow the reputation and value of our brands, particularly in light of changes in consumer engagement with social media platforms;
(xiii)Any impairment in the carrying value of our goodwill or other intangible or long-lived assets and its effect on our financial condition and results of operations;
(xiv)Seasonal and periodic fluctuations in our results and the effects of significant adverse weather conditions and other disasters or unforeseen events;
(xv)The effects of our substantial leverage and restrictive covenants in our various credit facilities on our ability to raise additional capital to fund our operations, to make capital expenditures to invest in new or renovate restaurants and to react to changes in the economy or our industry, and our exposure to interest rate risk in connection with our variable-rate debt; and (xvi)Such other factors as discussed in Part I, Item IA. Risk Factors of our Annual Report on Form 10-K for the year endedDecember 29, 2019 and Part I, Item IA. Risk Factors in this Report. In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data. 33
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Overview
We are one of the largest casual dining restaurant companies in the world with a
portfolio of leading, differentiated restaurant concepts. As of September 27,
2020 , we owned and operated 1,152 restaurants and franchised 312 restaurants
across 47 states, Puerto Rico , Guam and 20 countries. We have four
founder-inspired concepts: Outback Steakhouse , Carrabba's Italian Grill ,
Bonefish Grill and Fleming's Prime Steakhouse & Wine Bar .
Executive Summary
Our financial results for the thirteen weeks ended
•A decrease in Total revenues of 20.3% in the third quarter of 2020, as compared to the third quarter of 2019, primarily due to: (i) significantly lower comparable restaurant sales and franchise revenues principally attributable to the COVID-19 pandemic, (ii) the net impact of restaurant closures and openings and (iii) the effect of foreign currency translation of the Brazil Real relative to theU.S. dollar. •Loss from operations of$(14.3) million in the third quarter of 2020, as compared to income from operations of$22.0 million in the third quarter of 2019, was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including incremental delivery related costs, and (ii) certain costs incurred in connection with our transformation initiatives. These decreases are partially offset by: (i) reduced advertising, utilities and operating expenses, (ii) a reduction in prep labor hours, offset by higher labor costs, and (iii) cost savings from waste reduction initiatives.
Recent Developments - COVID-19
In response to the COVID-19 pandemic, governmental authorities took dramatic action in an effort to slow the spread of the disease. Along with many other restaurant businesses across the country, we temporarily limited our services in theU.S. to carry-out and delivery only beginningMarch 20, 2020 . In earlyMay 2020 , we began to reopen our restaurant dining rooms with limited seating capacity in compliance with state and local regulations. As ofSeptember 27, 2020 , our restaurant dining rooms have reopened but many are still subject to seating capacity restrictions. The temporary closure of our dining rooms and the limitations on seating capacity in our reopened dining rooms has resulted in significantly reduced traffic in our restaurants. It remains uncertain whether customer traffic will return to levels prior to the outbreak of COVID-19. Even if consumer demand fully recovers, governmental restrictions may continue to limit the capacity of our dining rooms or services we may provide in the future. As a result, our results for the foreseeable future may be significantly adversely impacted. In response to the pandemic, we have tightly managed expenses while taking steps to secure our liquidity position. See the subsection below entitled "Liquidity and Capital Resources" for further details. 34
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ContinuedKey Performance Indicators
Key measures that we use in evaluating our restaurants and assessing our business include the following:
•Average restaurant unit volumes-average sales (excluding gift card breakage) per restaurant to measure changes in customer traffic, pricing and development of the brand;
•Comparable restaurant sales-year-over-year comparison of sales volumes (excluding gift card breakage) for Company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants;
•System-wide sales-total restaurant sales volume for all Company-owned and franchise restaurants, regardless of ownership, to interpret the overall health of our brands; •Restaurant-level operating margin, (Loss) income from operations, Net (loss) income and Diluted (loss) earnings per share - financial measures utilized to evaluate our operating performance. Restaurant-level operating margin is widely regarded in the industry as a useful metric to evaluate restaurant level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes, overall and particularly within our two segments. Our restaurant-level operating margin is expressed as the percentage of our Restaurant sales that Food and beverage costs, Labor and other related and Other restaurant operating (including advertising expenses) represent, in each case as such items are reflected in our Consolidated Statements of Operations. The following categories of our revenue and operating expenses are not included in restaurant-level operating margin because we do not consider them reflective of operating performance at the restaurant-level within a period: (i)Franchise and other revenues which are earned primarily from franchise royalties and other non-food and beverage revenue streams, such as rental and sublease income. (ii)Depreciation and amortization which, although substantially all of which is related to restaurant-level assets, represent historical sunk costs rather than cash outlays for the restaurants. (iii)General and administrative expense which includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices. (iv)Asset impairment charges and restaurant closing costs which are not reflective of ongoing restaurant performance in a period. Restaurant-level operating margin excludes various expenses, as discussed above, that are essential to support the operations of our restaurants and may materially impact our Consolidated Statement of Operations. As a result, restaurant-level operating margin is not indicative of our consolidated results of operations and is presented exclusively as a supplement to, and not a substitute for, Net (loss) income or (Loss) income from operations. In addition, our presentation of restaurant-level operating margin may not be comparable to similarly titled measures used by other companies in our industry;
•Adjusted restaurant-level operating margin, Adjusted (loss) income from operations, Adjusted net (loss) income and Adjusted diluted (loss) earnings per share-non-GAAP financial measures utilized to evaluate our operating performance.
We believe that our use of non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based onU.S. GAAP results and relative to other companies within the restaurant industry by isolating the effects of certain items that may vary from period to period without correlation to core operating performance or that vary widely among similar companies. 35
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
However, our inclusion of these adjusted measures should not be construed as an
indication that our future results will be unaffected by unusual or infrequent
items or that the items for which we have made adjustments are unusual or
infrequent or will not recur. We believe that the disclosure of these non-GAAP
measures is useful to investors as they form part of the basis for how our
management team and Board of Directors evaluate our operating performance,
allocate resources and administer employee incentive plans; and
•Customer satisfaction scores-measurement of our customers' experiences in a variety of key areas.
Selected Operating Data The table below presents the number of our restaurants in operation as of the periods indicated: Number of restaurants (at end of the period): SEPTEMBER 27, 2020 SEPTEMBER 29, 2019U.S. : Outback Steakhouse Company-owned 567 579 Franchised 140 147 Total 707 726Carrabba's Italian Grill Company-owned 199 204 Franchised 21 21 Total 220 225 Bonefish Grill Company-owned 181 190 Franchised 7 7 Total 188 197Fleming's Prime Steakhouse and Wine Bar Company-owned 65 69 Other Company-owned 5 3 U.S. total 1,185 1,220 International: Company-owned Outback Steakhouse-Brazil (1) 104 99 Other (2) 31 28 Franchised Outback Steakhouse-South Korea (2) 88 70 Other (3) 56 54 International total 279 251 System-wide total 1,464 1,471 ____________________ (1)The restaurant counts forBrazil are reported as ofAugust 31, 2020 and 2019, respectively, to correspond with the balance sheet dates of this subsidiary. (2)As ofSeptember 27, 2020 , we had 14 international "dark kitchen" locations that offer delivery and carry-out only. One of these locations was included within Company-owned Other and 13 were included inFranchised Outback Steakhouse -South Korea . (3)Includes three and two fast-casualAussie Grill locations as ofSeptember 27, 2020 andSeptember 29, 2019 , respectively. 36
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ContinuedResults of Operations
The following table sets forth, for the periods indicated, the percentages of
certain items in our Consolidated Statements of Operations in relation to Total
revenues or Restaurant sales, as indicated:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019
Revenues
Restaurant sales 99.4 % 98.4 % 99.2 % 98.5 %
Franchise and other revenues 0.6 1.6 0.8 1.5
Total revenues 100.0 100.0 100.0 100.0
Costs and expenses
Food and beverage costs (1) 30.1 31.6 31.3 31.4
Labor and other related (1) 32.2 30.3 32.6 29.6
Other restaurant operating (1) 27.0 25.3 27.0 23.9
Depreciation and amortization 5.6 5.0 5.8 4.7
General and administrative 7.4 6.9 8.4 6.7
Provision for impaired assets and
restaurant closings (*) 0.1 2.8 0.2
Total costs and expenses 101.8 97.7 107.1 95.3
(Loss) income from operations (1.8) 2.3 (7.1) 4.7
Loss on modification of debt - - (*) -
Other income (expense), net * * (*) (*)
Interest expense, net (2.4) (1.4) (2.0) (1.1)
(Loss) income before (benefit) provision
for income taxes (4.2) 0.9 (9.1) 3.6
(Benefit) provision for income taxes (1.9) (0.1) (3.0) 0.2
Net (loss) income (2.3) 1.0 (6.1) 3.4
Less: net (loss) income attributable to
noncontrolling interests (*) * (*) 0.1
Net (loss) income attributable to Bloomin'
Brands (2.3) % 1.0 % (6.1) % 3.3 %
________________
(1)As a percentage of Restaurant sales.
* Less than 1/10th of one percent of Total revenues.
RESTAURANT SALES
Following is a summary of the change in Restaurant sales for the periods indicated: (dollars in millions)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
For the periods ended September 29, 2019 $ 951.8 $ 3,069.1
Change from:
Comparable restaurant sales (157.6) (661.3)
Restaurant closures (17.5) (42.0)
Effect of foreign currency translation (12.6) (31.4)
Divestiture of restaurants through refranchising
transactions - (11.2)
Restaurant openings 2.4 15.8
For the periods ended September 27, 2020 $ 766.5 $ 2,339.0
The decrease in Restaurant sales during the thirteen weeks ended September 27,
2020 was primarily due to: (i) significantly lower comparable restaurant sales
principally attributable to the COVID-19 pandemic, (ii) the closure
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
of 43 restaurants since
The decrease in Restaurant sales during the thirty-nine weeks endedSeptember 27, 2020 was primarily due to: (i) significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic, (ii) the closure of 51 restaurants sinceDecember 30, 2018 , (iii) the effect of foreign currency translation of the Brazilian Real relative to theU.S. dollar and (iv) domestic refranchising. The decrease in Restaurant sales was partially offset by the opening of 31 new restaurants not included in our comparable restaurant sales base.
Average Restaurant Unit Volumes and Operating Weeks
Following is a summary of the average restaurant unit volumes and operating weeks, for the periods indicated:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
SEPTEMBER 27, 2020 2019 2020 2019
Average restaurant unit volumes (weekly):
U.S.
Outback Steakhouse $ 59,929 $ 66,084 $ 58,771 $ 70,925
Carrabba's Italian Grill $ 47,940 $ 51,989 $ 46,230 $ 56,185
Bonefish Grill $ 42,439 $
53,549
$
71,954
$ 23,919 $ 72,791 $ 36,884 $ 71,459 Operating weeks: U.S. Outback Steakhouse 7,365 7,527 22,330 22,592 Carrabba's Italian Grill 2,587 2,653 7,887 8,212 Bonefish Grill 2,366 2,470 7,300 7,395 Fleming's Prime Steakhouse & Wine Bar 845 897 2,575 2,717 International Outback Steakhouse - Brazil 1,358 1,297 4,015 3,750 ____________________ (1)Translated at average exchange rates of 5.34 and 3.88 for the thirteen weeks endedSeptember 27, 2020 andSeptember 29, 2019 , respectively, and 4.60 and 3.86 for the thirty-nine weeks endedSeptember 27, 2020 andSeptember 29, 2019 , respectively. 38
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Comparable Restaurant Sales, Traffic and Average Check Per Person Increases
(Decreases)
Following is a summary of comparable restaurant sales, traffic and average check
per person increases (decreases), for the periods indicated:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019
Year over year percentage change:
Comparable restaurant sales (stores open
18 months or more):
U.S. (1)
Outback Steakhouse (10.4) % 0.2 % (17.4) % 1.7 %
Carrabba's Italian Grill (9.0) % 0.1 % (18.1) % (0.4) %
Bonefish Grill (22.5) % (2.2) % (31.0) % - %
Fleming's Prime Steakhouse & Wine Bar (20.3) % 0.4 % (29.7) % 0.8 %
Combined U.S. (12.8) % (0.2) % (20.7) % 1.0 %
International
Outback Steakhouse - Brazil (2) (54.8) % 11.2 % (36.9) % 6.1 % Traffic: U.S. Outback Steakhouse (13.6) % (1.1) % (18.1) % (1.1) % Carrabba's Italian Grill (11.7) % 0.5 % (15.1) % (0.8) % Bonefish Grill (3) (14.7) % (2.9) % (19.4) % (2.1) % Fleming's Prime Steakhouse & Wine Bar (23.3) % (0.3) % (26.6) % 0.6 % Combined U.S. (3) (13.6) % (1.0) % (17.9) % (1.1) % International Outback Steakhouse - Brazil (37.6) % 10.0 % (25.9) % 2.8 % Average check per person (4): U.S. Outback Steakhouse 3.2 % 1.3 % 0.7 % 2.8 % Carrabba's Italian Grill 2.7 % (0.4) % (3.0) % 0.4 % Bonefish Grill (7.8) % 0.7 % (11.6) % 2.1 % Fleming's Prime Steakhouse & Wine Bar 3.0 % 0.7 % (3.1) % 0.2 % Combined U.S. 0.8 % 0.8 % (2.8) % 2.1 % International Outback Steakhouse - Brazil (16.2) % 0.8 % (11.0) % 3.3 % ____________________ (1)Relocated restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening. (2)Excludes the effect of fluctuations in foreign currency rates. Includes trading day impact from calendar period reporting. (3)In Q2 2020, Bonefish Grill replaced guest count with entrée count to measure restaurant traffic.Bonefish Grill and CombinedU.S. traffic for the thirty-nine weeks endedSeptember 27, 2020 were calculated using the entrée count methodology forBonefish Grill as if the new methodology was in effect at the start of the fiscal year, which would have increased traffic forBonefish Grill and CombinedU.S. for the thirteen weekend endedMarch 29, 2020 by 3.1% and 0.5%, respectively. (4)Average check per person includes the impact of menu pricing changes, product mix and discounts. 39
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ContinuedFranchise and other revenues
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
(dollars in millions) 2020 2019 2020 2019
Franchise revenues (1) $ 4.2 $ 12.4 $ 15.7 $ 39.0
Other revenues 0.6 2.9 3.4 9.1
Franchise and other revenues $ 4.8 $ 15.3 $ 19.1 $ 48.1
____________________
(1)Represents franchise royalties, advertising fees and initial franchise fees.
Franchise revenues declined during the thirteen and thirty-nine weeks ended
COSTS AND EXPENSES
Food and beverage costs
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
(dollars in millions) SEPTEMBER 27, 2020 2019 Change 2020 2019 Change
Food and beverage costs $ 230.5 $ 300.4 $ 731.0 $ 965.2
% of Restaurant sales 30.1 % 31.6 % (1.5) % 31.3 % 31.4 % (0.1) %
Food and beverage costs decreased as a percentage of Restaurant sales during the
thirteen weeks ended September 27, 2020 as compared to the thirteen weeks ended
September 29, 2019 primarily due to 0.9% from increases in average check per
person and 0.8% from cost savings attributable to waste reduction initiatives.
Food and beverage costs decreased as a percentage of Restaurant sales during the
thirty-nine weeks ended September 27, 2020 as compared to the thirty-nine weeks
ended September 29, 2019 primarily due to 0.4% from increases in average check
per person and 0.3% from cost savings attributable to waste reduction
initiatives, partially offset by an increase as a percentage of Restaurant sales
of 0.3% from commodity inflation and 0.2% related to a reduction in vendor
rebates.
Labor and other related expenses
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
(dollars in millions) SEPTEMBER 27, 2020 2019 Change 2020 2019 Change
Labor and other related $ 246.9 $ 288.6 $ 761.7 $ 908.8
% of Restaurant sales 32.2 % 30.3 % 1.9 % 32.6 % 29.6 % 3.0 %
Labor and other related expenses increased as a percentage of Restaurant sales
during the thirteen weeks ended September 27, 2020 as compared to the thirteen
weeks ended September 29, 2019 primarily due to: (i) 2.6% from decreased
restaurant sales, (ii) 0.6% from higher labor costs and (iii) 0.3% from employee
benefits in response to COVID-19. These increases were partially offset by a
decrease as a percentage of Restaurant sales of 1.8% from lower prep labor
hours.
Labor and other related expenses increased as a percentage of Restaurant sales
during the thirty-nine weeks ended September 27, 2020 as compared to the
thirty-nine weeks ended September 29, 2019 primarily due to: (i) 3.1% from
decreased restaurant sales, (ii) 1.2% from relief pay primarily for hourly
employees impacted by the closure of dining rooms due to COVID-19, offset by
employee retention tax credits, and (iii) 0.5% from higher labor costs. These
increases were partially offset by a decrease as a percentage of Restaurant
sales of 1.7% from lower prep labor hours.
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ContinuedOther restaurant operating expenses
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
(dollars in millions) SEPTEMBER 27, 2020 2019 Change 2020 2019 Change
Other restaurant operating $ 207.3 $ 240.4 $ 631.7 $ 732.1
% of Restaurant sales 27.0 % 25.3 % 1.7 % 27.0 % 23.9 % 3.1 %
Other restaurant operating expenses increased as a percentage of Restaurant
sales during the thirteen weeks ended September 27, 2020 as compared to the
thirteen weeks ended September 29, 2019 primarily due to: (i) the impact of
dining room seating capacity restrictions as a result of the COVID-19 pandemic
including, 2.5% from decreased restaurant sales and 1.9% from incremental
delivery related costs, (ii) 0.5% from gains on the sale of certain U.S. surplus
properties in 2019 and (iii) 0.2% from menu printing costs. These increases were
partially offset by a decrease as a percentage of Restaurant sales of 3.3% from
reduced advertising, utilities and operating expenses.
Other restaurant operating expenses increased as a percentage of Restaurant
sales during the thirty-nine weeks ended September 27, 2020 as compared to the
thirty-nine weeks ended September 29, 2019 primarily due to the impact of
shifting to an off-premise only operational model in March 2020 and dining room
seating capacity restrictions as a result of the COVID-19 pandemic including,
3.0% from decreased restaurant sales and 1.9% from incremental delivery related
costs. These increases were partially offset by a decrease as a percentage of
Restaurant sales of 1.8% from reduced advertising, utilities and operating
expenses.
Depreciation and amortization
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
(dollars in millions) 2020 2019 Change 2020 2019 Change
Depreciation and
amortization $ 43.4 $ 47.9 $ (4.5) $ 137.5 $ 147.2 $ (9.7) Depreciation and amortization expense decreased during the periods presented primarily due to impairment and the effect of foreign currency translation.
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
General and administrative
General and administrative expense includes salaries and benefits, management
incentive programs, related payroll tax and benefits, other employee-related
costs and professional services. Following is a summary of the change in General
and administrative expense for the periods indicated:
(dollars in millions) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
For the periods ended September 29, 2019 $ 66.6 $ 209.1
Change from:
Compensation, benefits and payroll tax (3.6) (9.6)
Legal and professional fees (1.7) (5.7)
Foreign currency exchange (1.3) (3.0)
Severance (0.8) 4.5
Travel and entertainment (1) (0.5) (8.0)
Expected credit losses and contingent lease
liabilities - 7.4
Transformational costs (2) 1.1 8.6
Deferred compensation 0.2 (3.3)
Other (2.6) (2.3)
For the periods ended September 27, 2020 $ 57.4 $ 197.7
_________________
(1)Includes managing partner conference costs. (2)Primarily consists of consulting fees incurred in connection with our transformation initiatives.
Provision for impaired assets and restaurant closings
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
(dollars in millions) 2020 2019 Change 2020 2019 Change
Provision for impaired
assets and restaurant
closings $ (0.1) $ 1.4 $ (1.5) $ 66.2 $ 6.9 $ 59.3
During the thirty-nine weeks ended September 27, 2020 , we recognized asset
impairment and closure charges of $56.4 million and $3.6 million within the U.S.
and international segments, respectively, primarily related to the COVID-19
pandemic. Included in the amount for the thirty-nine weeks ended September 27,
2020 were pre-tax asset impairments and closure costs of $20.9 million in
connection with the closure of 22 restaurants and from the update of certain
cash flow assumptions, including lease renewal considerations. We also
recognized asset impairment charges during the thirty-nine weeks ended September
27, 2020 of $6.2 million which were not allocated to our operating segments,
primarily related to transformational initiatives.
Impairment and closure charges during the thirteen and thirty-nine weeks ended
September 29, 2019 resulted primarily from locations identified for remodel,
relocation or closure and certain other assets.
See Note 4 - Impairments, Exit Costs and Disposals of the Notes to Consolidated Financial Statements for further information.
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued(Loss) income from operations
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,(dollars in millions) SEPTEMBER 27, 2020 2019 Change 2020 2019 Change (Loss) income from operations $ (14.3)$ 22.0 $ (36.3) $ (167.7) $ 147.9 $ (315.6) % of Total revenues (1.8) % 2.3 % (4.1) % (7.1) % 4.7 % (11.8) % Loss from operations generated during the thirteen weeks endedSeptember 27, 2020 , as compared to income from operations during the thirteen weeks endedSeptember 29, 2019 was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including incremental delivery related costs, and (ii) certain costs in connection with our transformation initiatives. These losses were partially offset by: (i) reduced advertising, utilities and operating expenses, (ii) a reduction in prep labor hours, offset by higher labor costs, and (iii) cost savings from waste reduction initiatives. Loss from operations generated during the thirty-nine weeks endedSeptember 27, 2020 , as compared to income from operations during the thirty-nine weeks endedSeptember 29, 2019 was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including asset impairment charges, incremental delivery related costs and relief pay (net of tax credits), and (ii) commodity inflation. These losses were partially offset by: (i) reduced advertising, utilities and operating expenses, (ii) a reduction in prep labor hours, offset by higher labor costs, and (iii) cost savings from waste reduction initiatives.
Interest expense, net
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
(dollars in millions) 2020 2019 Change 2020 2019 Change
Interest expense, net $ 18.3 $ 13.3 $ 5.0 $ 46.6 $ 36.9 $ 9.7
The increase in Interest expense, net for the thirteen weeks ended September 27,
2020 as compared to the thirteen weeks ended September 29, 2019 was primarily
due to interest expense from our convertible senior notes issued in May 2020 ,
partially offset by lower outstanding revolving credit facility borrowings and
lower interest rates on our unhedged variable rate debt balances.
The increase in Interest expense, net for the thirty-nine weeks ended September
27, 2020 as compared to the thirty-nine weeks ended September 29, 2019 was
primarily due to interest expense from our convertible senior notes issued in
May 2020 and additional draws on our revolving credit facility, partially offset
by lower interest rates on our unhedged variable rate debt balances.
(Benefit) provision for income taxes
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Change SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Change
Effective income tax rate 45.4 % (7.6) % 53.0 % 32.7 % 5.5 % 27.2 %
The effective income tax rate for the thirteen and thirty-nine weeks ended
September 27, 2020 increased by 53.0 and 27.2 percentage points as compared to
the thirteen and thirty-nine weeks ended September 29, 2019 . These increases
were primarily due to the benefit of the tax credits for FICA taxes on certain
employees' tips, the forecasted 2020 pre-tax book loss and changes to the
estimate of the forecasted full-year effective tax rate relative to prior
quarters in 2020.
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ContinuedSEGMENT PERFORMANCE
We consider our restaurant concepts and international markets as operating segments, which reflects how we manage our business, review operating performance and allocate resources. Resources are allocated and performance is assessed by our CEO, whom we have determined to be our CODM. We aggregate our operating segments into two reportable segments,U.S. and international. TheU.S. segment includes all restaurants operating in theU.S. while restaurants operating outside theU.S. are included in the international segment. The following is a summary of reporting segments: REPORTABLE SEGMENT (1) CONCEPT GEOGRAPHIC LOCATION U.S. Outback Steakhouse Carrabba's Italian Grill United States of America Bonefish Grill Fleming's Prime Steakhouse & Wine Bar International Outback Steakhouse Brazil, Hong Kong/China Carrabba's Italian Grill (Abbraccio) Brazil _________________
(1)Includes franchise locations.
Revenues for both segments include only transactions with customers and exclude intersegment revenues. Excluded from Income (loss) from operations forU.S. and international are certain legal and corporate costs not directly related to the performance of the segments, most stock-based compensation expenses and certain bonus expenses. During the thirteen and thirty-nine weeks endedSeptember 27, 2020 , we recorded$4.2 million and$28.8 million , respectively, of pre-tax charges as a part of transformational initiatives implemented in connection with our previously announced review of strategic alternatives. These costs were primarily recorded within General and administrative expense and Provision for impaired assets and restaurant closings and were not allocated to our segments since our CODM does not consider the impact of transformational initiatives when assessing segment performance.
Refer to Note 21 - Segment Reporting of the Notes to Consolidated Financial Statements for a reconciliation of segment income (loss) from operations to the consolidated operating results.
Restaurant-level operating margin is widely regarded in the industry as a useful
metric to evaluate restaurant-level operating efficiency and performance of
ongoing restaurant-level operations, and we use it for these purposes, overall
and particularly within our two segments. See the Overview-Key Performance
Indicators section of Management's Discussion and Analysis for additional
details regarding the calculation of restaurant-level operating margin.
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
U.S. Segment
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, SEPTEMBER 29,
(dollars in thousands) 2020 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019
Revenues
Restaurant sales $ 719,406 $ 835,753 $ 2,141,062 $ 2,737,182
Franchise and other revenues 2,332 12,691 12,253 39,988
Total revenues $ 721,738 $ 848,444 $ 2,153,315 $ 2,777,170
Restaurant-level operating margin 11.4 % 12.0 % 9.4 % 14.5 %
Income (loss) from operations $ 29,574 $ 50,318 $ (21,968) $ 242,167 Operating income (loss) margin
4.1 % 5.9 % (1.0) % 8.7 %
Restaurant sales
Following is a summary of the change in U.S. segment Restaurant sales for the
periods indicated:
(dollars in millions) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
For the periods ended September 29, 2019 $ 835.8 $ 2,737.2
Change from:
Comparable restaurant sales (101.0) (550.0)
Restaurant closures (16.9) (39.8)
Divestiture of restaurants through refranchising
transactions - (11.2)
Restaurant openings 1.5 4.9
For the periods ended September 27, 2020 $ 719.4 $ 2,141.1
The decrease in U.S. Restaurant sales during the thirteen weeks ended September
27, 2020 was primarily due to significantly lower comparable restaurant sales
principally attributable to the COVID-19 pandemic and the closure of 34
restaurants since June 30, 2019 .
The decrease in U.S. Restaurant sales during the thirty-nine weeks ended
September 27, 2020 was primarily due to: (i) significantly lower comparable
restaurant sales principally attributable to the COVID-19 pandemic, (ii) the
closure of 42 restaurants since December 30, 2018 and (iii) the refranchising of
certain Company-owned restaurants. The decrease in U.S. Restaurant sales was
partially offset by the opening of nine new restaurants not included in our
comparable restaurant sales base.
Income (loss) from operations
The decrease inU.S. income from operations generated during the thirteen weeks endedSeptember 27, 2020 as compared to the thirteen weeks endedSeptember 29, 2019 , was primarily due to significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including incremental delivery related costs. These losses were partially offset by: (i) reduced advertising, operating and utilities expenses, (ii) a reduction in prep labor hours, offset by higher labor costs, and (iii) cost savings from waste reduction initiatives.U.S. loss from operations generated during the thirty-nine weeks endedSeptember 27, 2020 , as compared to income from operations during the thirty-nine weeks endedSeptember 29, 2019 , was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including asset impairment charges, incremental delivery related costs and relief pay (net of tax credits) and (ii) commodity inflation. These losses were partially offset by: (i) reduced advertising, utilities and operating expenses, (ii) a reduction in prep labor hours, offset by higher labor costs, and (iii) cost savings from waste reduction initiatives. 45
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ContinuedInternational Segment
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 2020 2019 2020 2019
Revenues
Restaurant sales $ 47,081$ 116,063 $ 197,923 $ 331,963 Franchise and other revenues 2,441 2,637 6,818 8,072 Total revenues $ 49,522 $
118,700
Restaurant-level operating margin (1.5) % 18.7 % 5.7 % 19.8 % (Loss) income from operations $ (7,926)$ 10,550 $ (18,209) $ 31,179 Operating (loss) income margin (16.0) % 8.9 % (8.9) % 9.2 % Restaurant sales Following is a summary of the change in international segment Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED For the periods ended September 29, 2019 $ 116.0 $ 331.9 Change from: Comparable restaurant sales (56.6) (111.3) Effect of foreign currency translation (12.6) (31.4) Restaurant closures (0.6) (2.2) Restaurant openings 0.9 10.9 For the periods ended September 27, 2020 $ 47.1 $ 197.9 The decrease in international Restaurant sales during the thirteen weeks endedSeptember 27, 2020 was primarily due to significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic and the effect of foreign currency translation of the Brazilian Real relative to theU.S. dollar. The decrease in international Restaurant sales during the thirty-nine weeks endedSeptember 27, 2020 was primarily due to significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic and the effect of foreign currency translation of the Brazilian Real relative to theU.S. dollar. The decrease in Restaurant sales was partially offset by the opening of 22 new restaurants not included in our comparable restaurant sales base.
(Loss) income from operations
International loss from operations generated during the thirteen weeks endedSeptember 27, 2020 , as compared to income from operations during the thirteen weeks endedSeptember 29, 2019 , was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including incremental delivery related costs, and (ii) commodity inflation. These decreases were partially offset by reduced utilities, operating and advertising expenses and lower labor costs. International loss from operations generated during the thirty-nine weeks endedSeptember 27, 2020 , as compared to income from operations during the thirty-nine weeks endedSeptember 29, 2019 , was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including incremental delivery related costs and inventory obsolescence, and (ii) commodity inflation. These decreases were partially offset by reduced utilities, operating and advertising expenses and lower labor costs. 46
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BLOOMIN' BRANDS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ContinuedNon-GAAP Financial Measures
System-Wide Sales - System-wide sales is a non-GAAP financial measure that
includes sales of all restaurants operating under our brand names, whether we
own them or not. Management uses this information to make decisions about future
plans for the development of additional restaurants and new concepts, as well as
evaluation of current operations. System-wide sales comprise sales of
Company-owned and franchised restaurants. For a summary of sales of
Company-owned restaurants, refer to Note 3 - Revenue Recognition of the Notes to
Consolidated Financial Statements.
The following table provides a summary of sales of franchised restaurants, which
are not included in our consolidated financial results. Franchise sales within
this table do not represent our sales and are presented only as an indicator of
changes in the restaurant system, which management believes is important
information regarding the health of our restaurant concepts and in determining
our royalties and/or service fees.
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, SEPTEMBER 29, SEPTEMBER 27, SEPTEMBER 29,
(dollars in millions) 2020 2019 2020 2019
U.S.
Outback Steakhouse $ 76 $ 118 $ 250 $ 381
Carrabba's Italian Grill (1) 8 11 25 28
Bonefish Grill 2 3 6 10
U.S. total $ 86 $ 132 $ 281 $ 419
International
Outback Steakhouse-South Korea $ 64 $ 50 $ 174 $ 154
Other 19 25 45 78
International total $ 83 $ 75 $ 219 $ 232
Total franchise sales (2) $ 169 $ 207 $ 500 $ 651
_____________________
(1)In March 2019 , we sold 18 Carrabba's Italian Grill locations, which are now
operated as franchises.
(2)Franchise sales are not included in Total revenues in the Consolidated
Statements of Operations and Comprehensive (Loss) Income.
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