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Bull of the Day: Bloomin' Brands (BLMN)

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The outbreak of the novel Coronavirus and the resulting shutdown orders have been devastating for the restaurant industry. Despite the efforts of Congress to provide fiscal stimulus – especially the PPP loans that allow small business owners to continue paying their employees - thousands of restaurants have shut their doors permanently and many of those remaining are in dire straits financially.

What hasn’t changed is Americans’ desire to eat their favorite foods from their favorite restaurants. In fact, the shutdown has people longing for a sense of normalcy and a restaurant meal is high on the list of things those people look forward to when they are once again able to go out in public as they please.

Bloomin’ Brands (BLMN - Free Report) is positioned to thrive as businesses reopen for business and could even be the beneficiary of the fact that many smaller restaurants may not be around when those customers reemerge – hungry for a meal as well as the experience.

Most consumers will know Bloomin’ Brands as the operator of the popular Outback chain of Australian-style steakhouses. They also own Fleming’s Prime Steakhouse, Carraba’s Italian Grill and seafood restaurant Bonefish Grill. They operate the fast-casual Aussie Grill by Outback and the Abbrocio chain outside the US.

Since the first outlet opened in 1988, the Outback formula has been enormously successful, offering a steakhouse experience in a more casual, accessible and affordable format. On busy nights, it’s not uncommon for customers to wait in line for an hour or more for their favorite Outback favorites, including the fried onion appetizer that lends its name to the corporation – the Bloomin’ Onion.

Typically, meat items are a restaurant’s lowest margin items, but Outback (and its corporate cousins) avoid that norm by having the economies of scale to order ingredients in bulk and also pad the bottom line with higher-margin appetizers, deserts, draft beer and wine by the glass.

The company adapted quickly to the unfortunate circumstance that saw the closure of in-person dining in the majority of their 1,450 restaurants, providing curbside pickup of individual items and complete family meal packages. They also scrambled to provide delivery options which have been a surprise hit.

Bloomin’ Brands provides investors and analysts with weekly sales data on their investor relations website, broken down by in-person and off-premise transactions. As you would expect, sales have declined quite a bit from the year-ago periods – especially same store sales at restaurants with no on-premise sales – but they’re not terrible.

Many diners have one or more favorite independent local restaurants that they prefer to frequent and will be disappointed if those businesses don’t survive the pandemic. It’s reality however that an operator with over 1,000 outlets has a big advantage in negotiating supply contracts, leases and employee schedules that the average neighborhood restaurant.

Bloomin’ Brands ended the second quarter of 2020 with $181 million in cash on the balance sheet, more than double the figure from the end of 2019 and a formidable war chest for implementing the changes necessary to survive the pandemic. You may or may not like it as a dining consumer, but as an investor, you have to appreciate that bigger chains like Bloomin’ will be around long after more specialized small competitors cry “uncle” and go out of business.

A look at earnings projections going forward fleshes out that idea. As expected, the remainder of 2020 looks pretty ugly with double-digit drops in revenue and triple digit declines in earnings.

Earnings in 2021 are expected to snap back however, and recent upward estimate revisions have reduced the expected losses this year and increased the expected profits next year, earning Bloomin’ Brands a Zacks Rank #1 (Strong Buy).

It’s inevitable that the events of 2020 will reshape the landscape for many industries and restaurants are chief among them. Demand for their food certainly won’t go away, but a lot of the competition will. During times of radical change, it’s important to keep an eye on who the eventual winners might be. In chain restaurants, Bloomin’ Brands is an excellent candidate to come out the other side stronger than ever.

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