Time To Sell Bloomin’ Brands Stock After A 1.5x Rally?

Bloomin’ Brands (NASDAQ: BLMN), a restaurant holding company that owns several American casual dining restaurant chains such as Outback Steakhouse, Bonefish Grill, and Carrabba’s Italian Grill, struggled last year as the lockdown restrictions for dining-room seating set its business back. Consequently, the company’s revenues fell 22% to a consolidated figure of around $3.1 Bil for the last four quarters from the consolidated figure of $4 Bil for the four-quarter period before that. However, this restaurant stock gained 152% – moving from about $12 to $29 in the last twelve months, due to a better-than-expected fiscal Q1 result and an increase in the vaccination rates in the U.S. In fact, the company’s stock is only 9% lower than its all-time high of $32 (in April 2021). So does BLMN stock still look attractive at current levels? We certainly don’t think so.

We believe the company’s stock could potentially slump going forward due to this revenue and stock price mismatch. It is worth mentioning that the company’s Q1 comparable sales in the U.S. were up 3.3% from the first quarter of last year. But on a two-year basis, Q1 comp sales were down 7.3% as compared to 2019. However, through the first four weeks of the second quarter – U.S. comparable sales grew 12.6% on a two-year basis versus 2019. This indicates that customers want to go back to restaurants, and the sales are clearly recovering well and its business is showing growth from where it was before the pandemic. That said, the company still faces new challenges in 2021 with an increase in food and labor expenses. This could continue to pressure its bottom line in the coming year – making it difficult for BLMN stock to maintain its recent outperformance. Our dashboard, ‘Buy or Fear Bloomin’ Brands Stock?‘ provides the key numbers behind our thinking, and we explain more below.

BLMN stock grew 5% from almost $18 in fiscal 2018 to close to $19 in fiscal 2020. During this period, the company’s revenues declined 23% from $4.1 billion in FY2018 to $3.2 billion in FY2020, and the shares outstanding declined 7%. Taken together, this led revenue per share to plunge by 17% from around $45 in FY2018 to $37 in FY2020.

Finally, BLMN’s P/S multiple grew from 0.4x in fiscal 2018 to 0.5x in fiscal 2020. While the company’s P/S has now increased to 0.8x, there is a downside risk when the current P/S is compared to levels seen in the past years.

How Is Coronavirus Impacting Bloomin’ Brands Stock?

Bloomin’ Brands reported a 23% year-over-year decline in total revenues and registered a net loss of nearly $159 million in 2020. The company was at a disadvantage from coronavirus lockdowns and dine-in capacity limitations because it’s primarily a dine-in restaurant operator. However, the easing of restrictions earlier this year led to improved fiscal Q1 results for the company, where its total revenues decreased only 2% y-o-y. In addition, adjusted diluted earnings per share were $0.72 versus $0.14 of adjusted diluted earnings per share last year. It should be noted that the adjusted operating income margin was 9.2% in Q1 versus 2.7% in 2020 and 7.8% in 2019. This improvement was driven by the company’s cost-saving initiatives.

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