Bloomin' Brands (NASDAQ: BLMN) reported a weak second quarter results and soft guidance on Tuesday.
As a result, Andy Barish of Jefferies downgraded shares fro Buy to Hold with a price target reduced from $26 to $18 as the company may have run out “sizzle” to sell to investors.
Barish noted that Bloomin' Brands has seen its gap to competitors narrow, cost offsets are winding down and the International growth story presents challenges that “we aren't willing to take.”
Earnings per share of $0.27 came in $0.02 below estimates as lunch continues to grow at chains such as Outback but dinner traffic continues to slip. Carrabba's new menu failed to live up to expectations forcing the company to introduce new items.
Barish noted that Bloomin' Brands will spend $5 million in incremental expenses via a shift in marketing to improve dinner sales at Outback and support the new Bonefish menu. In addition, the company will see increased G&A costs for the first Carrabba's location set to open in Brazil in 2015.
While Bloomin' Brands restaurants in South Korea is a relatively small contributor to the bottom line, a sharp sales decline seen in the second quarter and little change for the back end of 2014 may reduce the company's full year EPS by more than $0.10, according to Barish.
Bloomin' Brands management maintains a belief that it can return to 20 percent plus EPS growth, a view which is not shared by Barish.
“It's tough to imagine a real bounce-back in 2015 given so many moving pieces,” Barish concluded, hinting that his downgrade may be revisited if EPS visibility improves in the future.
Shares of Bloomin' Brands traded recently at $15.77, up 4.6 percent.
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