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01/10 19:37
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary presents a mixed picture with several negative factors outweighing positives. Financial performance is weak, with declining revenues, EPS, and operating margins. The guidance is also negative, expecting further declines in sales and EPS. Despite some positive elements like increased average check and off-premises sales, the market strategy and financial health are concerning, with high debt and inflation pressures. The Q&A section reveals early-stage turnaround efforts and lack of clarity in management responses, further dampening sentiment. Given the small-cap nature, stock is likely to see a negative reaction.
Total revenues $1 billion compared to $999 million last year, showing a slight increase. The increase was driven by net impact of restaurant openings and closures, offset by a decline in franchise and other revenue due to a lower royalty rate on Brazil this year.
U.S. comparable restaurant sales Down 10 basis points year-over-year. Traffic was down 200 basis points. The decline was attributed to investments in value offers for guests and challenges in the casual dining industry.
Average check Increased by 1.9% compared to 2024. This was due to investments in value offers for guests.
Off-premises sales 24% of total U.S. sales in the quarter, consistent with Q2 last year. Outback's off-premise sales were 26%, and Carrabba's was 35%.
GAAP diluted earnings per share $0.29 compared to $0.28 last year, showing a slight increase.
Adjusted diluted earnings per share $0.32 versus $0.45 last year, showing a decline. The decline was due to transformational and restructuring activities and foreign currency forward contracts.
Adjusted operating margins 3.5% versus 6.0% last year, showing a decline of 250 basis points. The decline was driven by higher costs, including COGS inflation of 3.3%, labor inflation of 3.4%, and increased health insurance and operating expenses.
COGS inflation 3.3%, driven by higher-priced inventory and negative product cost mix.
Labor inflation 3.4%, driven by inflationary pressure on wages.
Off-premises sales percentage 24% of total U.S. sales, consistent with the previous year.
Net debt $867 million at the end of Q2. The company received $104 million from the first installment of the Brazil refranchising transaction and applied it to the revolver balance.
Leverage metrics 2.7x on a net debt to adjusted EBITDA basis and 4.1x on a lease-adjusted net leverage basis.
Aussie 3-course offering: Contributed to traffic improvement at Outback in Q2. Positioned as an everyday value offer, easy to execute, and provides great value for guests.
Menu simplification: Streamlined menus across brands, removing low-performing items and seasonal LTOs to focus on everyday execution.
Ziosk/Tablemates: Rolled out at Outback, improving table turns by 5-7 minutes and gathering real-time feedback through surveys.
Steak quality and menu innovation: Testing enhanced product specs, updated execution processes, and opening price points to improve guest experience.
International expansion: New CFO-elect, Eric Christel, has experience in international expansion, which may influence future strategies.
Brazil refranchising: Received $104 million from the first installment and expects $96 million in December 2025, focusing on debt reduction.
Leadership restructuring: Significant changes in senior leadership to enhance operational and strategic capabilities.
Operational priorities: Focus on simplifying the agenda, driving consistency, and turning around Outback brand.
Cost-saving initiatives: Engaged external partners to identify savings in indirect expenses, contracts, and supplies.
Outback turnaround: Expanded testing to 42 restaurants focusing on service models, steak quality, and value components.
Brand positioning: Working on sharper positioning and consumer communication for Outback to differentiate within casual dining.
Remodeling strategy: Plans to remodel 10 Outback locations in 2025 with varying spending scopes to inform future strategies.
Traffic Decline: U.S. traffic was down 2% in Q2, and the company is losing market share in the industry as defined by Black Box. This indicates challenges in attracting and retaining customers.
Outback Turnaround Challenges: The turnaround of Outback is the highest priority, but it faces challenges in improving steak quality, service, and value. Testing and investments are ongoing, but results will take time to materialize.
Cost Pressures: The company is experiencing inflationary pressures on wages (3.4% increase) and health insurance costs, as well as higher operating and supply expenses. These are impacting restaurant-level margins.
General Liability Insurance Costs: Higher general liability insurance claim costs are driven by the pace and cost of older cases working through the court system. This is expected to result in $6 million to $8 million in additional expenses.
Bonefish Grill Traffic Trends: Traffic trends at Bonefish Grill have been challenging, posing risks to the brand's performance.
Brazil Transaction Impact: The 33% retained ownership in Brazil has resulted in a negative $1.8 million impact in Q2 due to depreciation, amortization, and interest expenses.
Debt Leverage: The company has a lease-adjusted net leverage ratio of 4.1x, which is above its target of less than 3.0x. Reducing debt remains a priority, but it is contingent on the success of the Outback turnaround.
Testing and Investment Costs: The expansion of tests to 42 restaurants for Outback turnaround requires approximately $3 million in investments in 2025, which was not included in prior guidance.
Supply Chain and Inflation: COGS inflation of 3.3% and challenges in sourcing and logistics are impacting profitability.
Operational Execution: Inconsistent execution in restaurants, particularly at Outback, is a significant challenge. Efforts to simplify menus and improve service models are ongoing but require time to show results.
Revenue Expectations: The company expects U.S. comparable restaurant sales to be between flat and negative 100 basis points for Q3 2025. Adjusted diluted earnings per share for the full year is revised to a range of $1 to $1.10.
Margin Projections: Restaurant level margins are expected to be impacted by approximately $6 million in tariff costs and $6-8 million in general liability insurance claim costs spread across Q3 and Q4. These factors are included in the updated full-year guidance.
Capital Expenditures: Capital expenditures for the full year are expected to be on the low end of the guidance range, approximately $190 million. The company plans to repurpose capital dollars from new restaurant openings towards remodels over the next few years.
Strategic Plans for Outback Turnaround: The company is expanding its test of service models, steak quality, menu innovation, and value components to 42 restaurants by the end of September 2025. Approximately $3 million will be invested in these tests in 2025, primarily impacting Q4. The company is also conducting a thorough assessment of its restaurant network to prioritize remodels and refreshes.
Market Trends and Business Segment Performance: Traffic trends at Bonefish Grill remain challenging, and risks in this brand have been incorporated into the guidance. The company is focusing on improving traffic trends and addressing challenges in the Outback brand through strategic tests and operational changes.
Quarterly Dividend: The Board declared a quarterly dividend of $0.15 per share, payable on September 3, 2025.
Share Repurchase Program: The company has $97 million remaining under its share authorization program, which expires on August 13, 2025. However, the company does not plan to execute share repurchases at this time.
The earnings call reflects mixed signals. Financial performance and strategic updates are positive, with consistent Q4 trends, successful marketing initiatives, and no further closures. However, challenges persist with flat traffic at Outback, potential beef inflation, and lack of specific guidance on remodel costs and manager compensation. The company's market cap suggests moderate sensitivity to news. Overall, the sentiment is neutral, with no strong catalysts for significant stock movement in either direction.
The earnings call summary presents a mixed picture with several negative factors outweighing positives. Financial performance is weak, with declining revenues, EPS, and operating margins. The guidance is also negative, expecting further declines in sales and EPS. Despite some positive elements like increased average check and off-premises sales, the market strategy and financial health are concerning, with high debt and inflation pressures. The Q&A section reveals early-stage turnaround efforts and lack of clarity in management responses, further dampening sentiment. Given the small-cap nature, stock is likely to see a negative reaction.
The earnings call reveals several challenges: declining revenues, negative comparable sales, and lower operating margins. Management's cautious outlook and lack of concrete guidance further dampen sentiment. Despite some operational improvements and a dividend declaration, inflationary pressures and consumer pullbacks are concerning. The Q&A highlights strategic pricing issues and unclear management responses, adding to uncertainties. Given the company's small market cap, the stock is likely to react negatively, falling between -2% to -8%.
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