Bloomin' brands loan valuation presentation (v. 3 ma)
- 1. Bloomin’ Brands, Inc. (Formerly OSI Restaurant Partners, LLC) Loan Valuation Prepared by: The Phoenix Group— Roy Lunsford, Delton Mcbride, Stephenie Wilson, and Dena-Rose Wilson
- 2. Objectives • Examine Bloomin’ Brands, Inc.’s (BLMN) financial performance to determine its ability to service its current and future debt. • Assess Bloomin’ Brands’ long-term viability.
- 3. Summary To improve upon its restaurant functions and expand its market share of the industry, Bloomin’ Brands is seeking a working capital revolving credit facility of $313,000,000 (USD).
- 4. Synopsis of the Chain Restaurant Industry • Consists of eateries • Industry analysts providing full expect revenue to service restaurant grow by 3.6% operations to annually through 2017 patrons • Weak consumer • Generates spending persists approximately and continues to be $54.6B in revenue a major concern annually
- 5. Chain Restaurant Industry Sales (2011 - 2012) DRI, 16% BLMN, 6% CBRL, 5% OTHER, 73% DRI BLMN CBRL OTHER
- 6. Key External Drivers • Consumer • Households Spending earning over $100,000 • Healthy Eating • Consumer Index Sentiment Index
- 7. Characteristics of the Industry— • Requires a • Low barriers to substantial capital entry investment • Limited • Extremely high globalization at levels of present competition leading to • Revenue and fragmentation commodity pricing volatility
- 8. Threats to Profitability • Seasonality, costs • Cyclical changes of labor, changes in the economy in consumers’ • Ineffective lifestyles, and leadership fluctuating costs for commodities (DataMonitor, 2012)
- 9. Bloomin’ Brands, Inc.’s Core Concept Providing quality food and exceptional service at an affordable price.
- 10. Bloomin’ Brands’ Portfolio and Sources of Revenue Fleming's, Roy's, 4% 2% Bonefish, 11% Carrabba's, 16% Outback, 67% Outback Carrabba's Bonefish Fleming's Roy's
- 11. Salient Facts • Prior to 2010, OSI Restaurant Partners was highly overleveraged leading Moody’s Investors Services to conclude that it was likely to default on its debt obligations (DataMonitor, 2012). • OSI responded to the debt agency’s findings by restructuring the organization, offering equity, and reducing its debt.
- 12. Recent Corporate Initiatives • In August 2012, Bloomin’ raised $176M in a successful initial public offering campaign at $11 per share. • Bloomin’s senior leadership implemented a new strategic plan aimed at enhancing brand management, encouraging growth, and facilitating innovation.
- 13. Effects of Reducing Debt • In minimizing its exposure to risk, Bloomin’ Brands exhausted most of its cash reserves (DataMonitor, 2012). • Without securing additional capital, Bloomin’ is unable to expand thereby hindering its ability to grow its market share and compete with Darden Restaurants, Inc.
- 14. Proforma Profit and Loss Statement for Bloomin’ Brands, Inc. Bloomin’ Brands, Inc./OSI Restaurant Partners, LLC Year 2009 2010 2011 Revenue Cost of Goods Sold 2.39B 2.34B 2.47B Operating Income (74.44M) (6.64M) 19.11M Operating Expenses Selling, General, and 1.10B 1.12B 1.18B Administrative Expense EBIT After Unusual Expense (74.44M) (6.64M) 19.11M Total Expenses 1.03B 1.11B 1.20B EBITDA Income Taxes (Current) 13.58M 16.12M 21.89M Income Taxes (Deferred) (16.04M) 5.19M (175.00K) Interest Expenses 100.31M 89.99M 83.39M Depreciation 186.07M 156.27M 153.69M Net Income (64.84M) 52.97M 100.01M Profit Margin (%) (2)% 2% 2%
- 15. Current Financial Position Bloomin’ Brands’ financial reports for the first two quarters of 2012 reflect an improved financial outlook and reveal that the company is turning a profit despite the sluggish economy (Reuters, 2012).
- 16. Overview of Darden Restaurants, Inc. • Darden Restaurants, Inc.’s (DRI) core concepts are Red Lobster, Olive Garden, The Capital Grille, LongHorn Steakhouse, Seasons 52 Restaurant, and Bahama Breeze. • In 2011, Darden realized $7.50 billion in revenue representing a 5.4% increase over FY2010 (DataMonitor, 2012).
- 17. Summary of Bloomin’s and Darden’s Financial Position 2010 2011 (In millions) BLMN DRI BLMN DRI Net revenues 3.63B 7.11B 3.84B 7.50B Net income 52.97 407.00 100.01 478.70 Earnings per share 0.44 2.90 0.84 3.48 Return on net revenues 1.46% 5.72% 2.60% 6.38% Cash and short-term investments 373.68 248.80 502.72 70.50 Total assets 3.24B 5.28B 3.35B 5.47B Shareholder equity (69.23) 1.89B 220.24 1.94B EBITDA 324.89 944.30 344.22 1.06B
- 18. Comparative Balance Sheet 2010 2011 (In millions) BLMN DRI BLMN DRI Assets • Cash and short-term investments 373.68 248.80 502.72 70.50 • Accounts receivable 29.68 59.40 62.83 65.40 • Inventories 58.97 220.80 69.22 300.10 • Other 2.78B 4.75B 2.64B 5.03B Total Assets 3.24B 5.28B 3.35B 5.47B Liabilities • Accounts payable 78.25 246.40 97.39 251.30 • Accrued compensation 109.44 352.80 117.01 401.00 • Income taxes payable 0.00 1.00 0.00 9.30 • Other 3.12B 2.78B 2.92B 2.87B Total Liabilities 3.30B 3.38B 3.13B 3.53B Shareholder Equity (69.23) 1.89B 220.24 1.94B
- 19. Comparative Ratio Analysis 2009 2010 2011 BLMN DRI BLMN DRI BLMN DRI Current Ratio 1.98x 8.9x .82x (.14)x .74x .54x Debt Ratio 94% 6% 102% 5% 99% 4% Debt to Equity Ratio (49)% 3% (59)% (1)% 52% 4% Debt to Total Assets Ratio 94% 64% 102% 64% 99% 65% Net Profit Margin (2)% 5% 2% 6% 2% 6% Gross Profit Margin Ratio 14% 8% 15% 8% 15% 9%
- 20. Profit Margin Comparative Trend Analysis OSI Restaurant Partners Darden Restaurants
- 21. Debt to Assets Comparative Trend Analysis OSI Restaurant Partners Darden Restaurants
- 22. Darden’s Revenue Projections ($ in Billions) $12.0 $7.22 $7.11 $7.50 2009 2010 2011 2017
- 23. Darden’s Cash Flow Projections 201 $1,600 7 201 $895 1 (in millions) 201 $903 0 200 $784 9
- 24. Industry Analysts’ Forecasts for Earnings Growth Bloomin' Brands, Inc. Darden Restaurants, Inc. 22.74% 18.00% 14.03% 12.99% 13.28% 12.59% 12.55% 8.35% 0.50% 0.50% 2012 2013 2014 2015 5 Year
- 25. Using Loan Proceeds to Finance Growth If approved, Bloomin’ Brands plans to use the proceeds from the working capital revolving credit facility to improve upon its restaurant functions employing a three-step approach to growth.
- 26. Strategic Approach to Growth Step One Step Two Step Three
- 27. Criteria for Ensuring Success • Employ price and non-price barriers to entry to grow Bloomin’s position (e.g., advertising, etc.). • Achieve economies of scale by attaining productive and allocative efficiency. • Capitalize on brand equity as a tool for differentiating its products.
- 28. Recommendation In contrast to industry analysts’ optimism, the Phoenix Group recommends rejecting Bloomin’ Brands’ application for a working capital revolving credit facility.
- 29. Rationale for Decision • The proceeds from the loan would cause Bloomin’s liabilities to increase to $3.44B constituting cause for concern (as its total assets are only $3.35B). • Bloomin’s profits will decrease as a result of slow GDP growth, volatile commodity prices, high unemployment, and less disposable income.
- 30. Alternatives to Borrowing Capital • Bloomin’ Brands may offer additional equity in the company. • Or, Bloomin’ can adopt a less aggressive strategy for expansion and focus on building its cash reserves and strengthening its financial position.
- 31. Conclusion Although Bloomin’s branding revitalization initiatives and its renewed commitment to realizing productive efficiency resulted in cost savings and improved sales performance in 2012, economic indicators suggest that an annual increase in revenue of approximately 3 to 5% is not sustainable.
Editor's Notes
- #4: The revolving credit facility will cause Bloomin’ Brands’ liabilities to increase slightly from $3.13 billion to $3.44 billion dollars. However, industry analysts expect the company’s sales revenue to increase by 3% to 5% a year for the next five years.
- #5: Revenue declined sharply in 2008 and 2009 as a result of the financial crisis of 2008 and the subsequentrecession in the United States resulting in a decrease in consumer spending and a sharp decrease in net income. Further, because the recession had global implications, those entities with operations overseas were also affected adversely—thereby contributing to the industry’s losses.
- #6: Darden Restaurants, Inc. and Bloomin’ Brands are the industry leaders constituting22% of the restaurant industry’s sales.According to IBISWorld (2012), the restaurant industry generates over $200B in sales annually. Of that, the chain restaurant segment generates approximately $55B in sales annually.Darden: $8.69BBloomin’ Brands: $3.30BCBRL Group: $2.64BOther: $40.37B
- #7: Courtesy of IBISWorld (2012).
- #8: Limited globalization of the industry suggests that future opportunities for growth exist.
- #9: Cyclical changes in the economy are peak, recession, trough, and expansion. During economic downturns, there is less disposable income. This suggests that demand for eating out may be elastic.
- #10: Bloomin’ operates 1,253 restaurants in 49 states and 21 nations (of which 197 are franchises or joint ventures). The company employs 96,000people worldwide (Bloomin’ Brands, 2012).
- #11: Courtesy of Bloomin’ Brands (2012).Bloomin’ Brands, Inc. (formerly OSI Restaurant Partners LLC) owns five distinct restaurant concepts—Outback Steakhouse, Fleming’s Prime Steakhouse, Roy’s, Bonefish Grill, and Carrabba’s Grill.The pie chart indicates the percentage of revenue generated by each restaurant concept.
- #12: Though Moody’s “Bottom Rung” report was released in March 2009, this suggests BLMN has a history of being overleveraged and that its current financial position is tenuous and cannot withstand any significant losses.
- #13: OSI Restaurant Partners became Bloomin’ Brands, Inc. in 2010 and was taken private.
- #15: Courtesy of MarketWatch (2012).
- #16: According to Robert Trigaux (2012), “quarterly revenues are creeping toward $1 billion while net income soared 24.5% over second quarter 2011” (pg. 1). This is attributable in part to its recent debt leverage reduction efforts.
- #17: Darden Restaurants, Inc. is the industry leader in the casual dining sector. Darden operates 1,894 restaurants in the United States and Canada employing 178,380 individuals (Darden, 2012).
- #18: Courtesy of MarketWatch (2012).In 2009, OSI realized a negative net income of (64.46M) because it was overleveraged. Therefore, the company was operating at a loss prior to being taken private.Because Bloomin’ Brand’s fiscal year does not end until January, we cannot compare the figures for 2012 and have elected to use 2010 and 2011 instead.
- #19: Courtesy of MarketWatch (2012).
- #20: Courtesy of MarketWatch (2012).STEPHENIE TO EXPLAIN IN ORAL PRESENTATION.
- #21: (Kimmel, et. al, 2012).
- #22: (Kimmel, et. al, 2012).
- #23: Courtesy of DataMonitor (2012).
- #24: Courtesy of DataMonitor (2012).
- #25: Darden expects an increase of $3.0 to $4.5 billion in annual revenue by FY 2017.Darden plans to increase its revenue by 6.5% from 2012 to 2017. The increase will come from new unit growth, restaurant sales growth, and the acquisition of the Long Steakhouse and Capitol Grille brands. The company also believes their group of brands and international franchising will enable them to add an additional $3 to $4.5 billion in yearly revenue by 2017 (Darden,2012).
- #26: This slide suggests that Darden possesses a robust cash flow despite economic and industry conditions. Strong cash flow will allow for continued investment and growth of the company.Darden’s cash flow has proven to be durable over the years regardless of the economy. Their strong cash flow will enable the company to expand by opening 500 more restaurants in the next five years (Darden, 2012).
- #27: - Over the next five years analysts are expecting Bloomin’ Brands to grow their earnings at an average annual rate of 18%. This year they are forecasting earnings increase of less than 1% over last year, and are expecting earnings growth for 2013 of 14.03% over this year’s forecasted earnings (Bloomin’ Brands, 2012).Over the next five years analysts are expecting Darden Restaurant, Inc. to grow their earnings at an average annual rate of 12.55%. This year they are forecasting an earnings increase of 8.35% over last year, and are expecting earnings growth next year of 12.99% over this year’s forecasted earnings (Darden, 2012).
- #29: Three-step Approach to Growth:Over the course of the next three years, open new locations in developing and emerging economies, including China, Mexico, South Korea and Brazil. Strengthen Carrabba’s Italian Grill and Bonefish Grill brands, including extending hours of operations for some of its domestic restaurants to include luncheon. Develop more nutritious menu selections and exploit consumer preferences for a healthier lifestyle.Offering extended hours of operation to these subsidiaries allows Bloomin’ Brands to expand its customer base by providing service to those seeking a dining-in experience during these hours rather than patronizing fast food restaurants.
- #30: Offering extended hours of operation to these subsidiaries allows Bloomin’ Brands to expand its customer base by providing service to those seeking a dining-in experience during these hours rather than patronizing fast food restaurants. Develop more nutritious menu selections to exploit consumer preferences for a healthier lifestyle.
- #31: Undertaking these measures will allow Bloomin’ Brands to grow its market share of the industry.
- #32: The Phoenix Group’s decision is based on the anticipated economic outlook over the course of the next five years. Economists are predicting inflation or stagflation is a real possibility in the United States. In addition, commodity prices for food is expected to rise sharply in 2012/2013.
- #33: Currently, Bloomin’ possesses 3.13B in liabilities. ROY to reiterate that there are concerns regarding BLMN’s ability to service its debt given that it has no cash reserves, has a history of being overleveraged, and is already carrying other liabilities. These factors are cause for concern and calls the company’s long-term viability into question--particularly in light of the fragile health of the global economy and the potential for inflationary conditions.
- #34: Offering more equity in the company will result in less control of the firm thereby hampering its ability to shape its future.ROY, DISCUSS THE VARIOUS REASONS THAT A COMPANY MIGHT CHOOSE ONE OPTION OVER THE OTHER.
- #35: Industry analysts remain optimistic that Bloomin’ Brands will experience 5.5% growth in 2013. Additionally, analysts anticipate that Bloomin’s revenue will increase by at least 3% annually through 2015. The Phoenix Group does not believe that this is sustainable or realisticgiven expected economic conditions (including high unemployment, less disposable income, volatile commodity pricing, a global downturn, and the 2.5% annual GDP growth anticipated through 2017).Instead, the Phoenix Group suggests encouraging Bloomin’ Brands to raise the necessary capital by offering additional equity in the company.