Bloomin’ Brands Inc (NASDAQ:BLMN) has outperformed peers Brinker International, Inc. (NYSE:EAT) and Darden Restaurants, Inc. (NYSE:DRI) by substantial margins year to date.
For example, Bloomin’ Brands Inc (NASDAQ:BLMN) has appreciated 44%, whereas Brinker International, Inc. (NYSE:EAT) and Darden Restaurants, Inc. (NYSE:DRI) have appreciated 24% and 11%, respectively. At first glance, this might make you think that Bloomin’ Brands Inc (NASDAQ:BLMN) is likely to be the best of the three. However, this might be a mistake.
The good news
Bloomin’ Brands Inc (NASDAQ:BLMN) offers brand diversification with Outback Steakhouse, Carrabbass Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse & Wine Bar, and Roy’s.
If you take a good look at this list, you will see that it offers a variety of food, from Italian to Hawaiian. Additionally, since these restaurants offer both casual and upscale dining, different types of consumers are targeted.
Overall, Bloomin’ owns 1,275 restaurants over 48 states and 19 countries, and an additional 203 restaurants are franchised. Bloomin’ also recently opened its first Outback in Shanghai, China.
The bad news
Competition is increasing, especially in the United States, where the market is saturated. Two of the most logical ways to increase market share are menu innovation and acquisitions.
Bloomin’s menus are pretty set as diners like to know what to expect. And with a debt-to-equity ratio of 4.90 versus an industry average of 1.0, Blooomin’ isn’t in a good position for an acquisition. This high debt ratio also makes it tough for Bloomin’ to offer a dividend at any point in the near future. One way for Bloomin’ to gain share is through expansion, but with such a heavy debt load, any form of significant expansion is high risk.
As long as monetary stimulus and low interest rates continue to drive stock and real estate prices higher, Bloomin’ has potential for stock appreciation. But if it’s proven that these markets can’t stand on their own and growth slows, then this debt load could really hurt the company.
High gas prices, elevated real unemployment (14.3% according to Forbes), and increased taxes, aren’t factors that bode well for the restaurant industry. That said, high-income consumers are mostly unfazed by current circumstances, which is good news for Bloomin’s Fleming’s Prime Steakhouse & Wine Bar and Roy’s.
Bloomin’ Brands Inc (NASDAQ:BLMN) vs. peers
Bloomin’ Brands Inc (NASDAQ:BLMN) owns a profit margin of 1.57%, debt is high, it doesn’t pay a dividend, and it’s trading at 42 times earnings.
Brinker International, Inc. (NYSE:EAT), owner of Chili’s and Maggiano’s Little Italy, sports a profit margin of 5.77%, it yields 2%, and it’s only trading at 18 times earnings. On the other hand, Brinker owns a debt-to-equity ratio of 2.87, which makes the long-term sustainability of the dividend questionable. Brinker might cater to both middle and high-income consumers, but it also lacks brand diversification.
