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Why Bloomin' Brands Could Be Undervalued

GuruFocus.com

Bloomin' Brands Inc (NASDAQ:BLMN) offers good value for money, in my opinion, following its 12% stock price decline in the past year.

The restaurant chain is investing in international markets, has undertaken a reorganization of its business model and is aiming to reduce its costs to become more efficient.

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Reorganization

The company undertook a major reorganization of its structure in fiscal 2019. Its variety of casual dining restaurant brands will now operate more closely to allow costs and best practice to be more easily shared between them. This could ensure that its products and services are more consistent across its restaurant locations.

In addition, the business has simplified its administrative functions. For example, it has reduced the amount of administrative tasks that are undertaken by its restaurant staff so they can spend more time serving customers. It has also invested in new technology to streamline its food preparation process. This could improve its customer satisfaction levels and lead to a greater amount of repeat business.

International opportunities

The company's international performance in the fiscal 2019 fourth quarter was strong. For example, its sales in Brazil increased 4.9% compared to the same quarter of the prior year. In addition, it recorded an 8.2% rise in customer visits to its Brazilian restaurants. This was driven by its increased investment in marketing promotions.

Bloomin' Brands plans to increase its investment in Brazil and other international markets. It stated in its fourth quarter results that it believes international markets could accommodate a much larger number of its restaurants. Its international expansion could catalyze its financial performance and also reduce its overall risk due to it being less dependent on its existing markets.

Growth strategy

The business rolled out a delivery partnership with DoorDash in September 2019. Its delivery service is now available in 574 of its restaurants, which could broaden its appeal to a wider range of consumers.

The company reported in its fourth quarter results that its delivery service has not negatively impacted the number of visits made by customers to its restaurants. This could mean that its delivery service provides an incremental source of revenue in upcoming quarters, while the increasingly attractive margins of its delivery service may boost the company's bottom line.

Potential difficulties

Bloomin' Brands' fourth quarter results included a cautious outlook from the business regarding its fiscal 2020 financial prospects. It highlighted that consumer sentiment in the fourth quarter of 2019 was its lowest level over the previous four years, and the upcoming election could lead to a similarly cautious attitude towards spending among consumers. This may mean that the company's customers reduce their spending on non-essential items such as dining at restaurants.

In addition, Bloomin' Brands is currently undertaking a review of all of its operations. This could mean that it makes asset disposals in upcoming quarters, which may cause investor sentiment towards its shares to weaken in the short term.

In response, the business is aiming to reduce its costs to increase its efficiency. For example, it expects to reduce its overall costs by $40 million in the next two years through cutting its food waste and increasing the productivity of its staff. It is also refurbishing an increasing number of its restaurants. The restaurants that it has remodelled have reported improved sales compared to its other restaurant locations. This could help the business to offset weaker consumer sentiment and strengthen its competitive position.

Outlook

Market analysts forecast that Bloomin' Brands will report a 12.5% rise in its earnings per share in fiscal 2021. Its forward price-earnings ratio of 9.7 suggests that it offers a wide margin of safety given its growth potential.

Disclosure: The author has no position in any stocks mentioned.

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This article first appeared on GuruFocus.