Bloomin' Brands, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes. Unless the context otherwise indicates, as used in this report, the term the “Company,” “we,” “us,” “our” and other similar terms mean Bloomin’ Brands, Inc. and its subsidiaries. Cautionary Statement This Quarterly Report on Form 10-Q (the “Report”) includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “feels,” “seeks,” “forecasts,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could” or “would” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause actual results to differ materially from statements made or suggested by forward-looking statements include, but are not limited to, the following: (i) Consumer reactions to public health and food safety issues; (ii) Minimum wage increases, additional mandated employee benefits and fluctuations in the cost and availability of employees; (iii) Our ability to recruit and retain high-quality leadership, restaurant-level management and team members; (iv) Economic conditions and their effects on consumer confidence and discretionary spending, consumer traffic, the cost and availability of credit and interest rates; (v) Our ability to compete in the highly competitive restaurant industry with many well-established competitors and new market entrants; (vi) Our ability to protect our information technology systems from interruption or security breach, including cyber security threats, and to protect consumer data and personal employee information; 18 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued (vii) Fluctuations in the price and availability of commodities, including supplier freight charges and restaurant distribution expenses, and other impacts of inflation and our dependence on a limited number of suppliers and distributors to meet our beef, chicken and other major product supply needs; (viii) The severity, extent and duration of a health pandemic, its impacts on our business and results of operations, financial condition and liquidity, including any adverse impact on our stock price and on the other factors listed in this Report, and the responses of domestic and foreign federal, state and local governments to the pandemic; (ix) Our ability to preserve and grow the reputation and value of our brands, particularly in light of changes in consumer engagement with social media platforms and limited control with respect to the operations of our franchisees; (x) The effects of international economic, political and social conditions and legal systems on our foreign operations and on foreign currency exchange rates; (xi) Our ability to comply with new environmental, social and governance (“ESG”) requirements or our failure to achieve any goals, targets or objectives with respect to ESG matters; (xii) Our ability to effectively respond to changes in patterns of consumer traffic, consumer tastes and dietary habits, including by maintaining relationships with third party delivery apps and services; (xiii) Our ability to comply with governmental laws and regulations, the costs of compliance with such laws and regulations and the effects of changes to applicable laws and regulations, including tax laws and unanticipated liabilities, and the impact of any litigation; (xiv) Our ability to implement our remodeling, relocation and expansion plans, due to uncertainty in locating and acquiring attractive sites on acceptable terms, obtaining required permits and approvals, recruiting and training necessary personnel, obtaining adequate financing and estimating the performance of newly opened, remodeled or relocated restaurants, and our cost savings plans to enable reinvestment in our business, due to uncertainty with respect to macroeconomic conditions and the efficiency that may be added by the actions we take; (xv) Seasonal and periodic fluctuations in our results and the effects of significant adverse weather conditions and other disasters or unforeseen events; (xvi) The effects of our leverage and restrictive covenants in our various credit facilities on our ability to raise additional capital to fund our operations, to make capital expenditures to invest in new or renovate restaurants and to react to changes in the economy or our industry; (xvii) Any impairment in the carrying value of our goodwill or other intangible or long-lived assets and its effect on our financial condition and results of operations; and (xviii) Such other factors as discussed in Part I, Item IA. Risk Factors of our Annual Report on Form 10-K for the year ended December 25, 2022. Given these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior 19 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data. Overview We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of March 26, 2023, we owned and operated 1,184 full-service restaurants and off-premises only kitchens and franchised 313 full-service restaurants and off-premises only kitchens across 47 states, Guam and 13 countries. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Financial Highlights - Our financial highlights for the thirteen weeks ended March 26, 2023 include the following: • U.S. combined and Outback Steakhouse comparable restaurant sales of 5.1% and 4.9%, respectively; • Increase in Total revenues of 9.1%, as compared to the first quarter of 2022; • Operating income and restaurant-level operating margins of 9.7% and 17.9%, respectively, as compared to 9.4% and 17.1%, respectively, for the first quarter of 2022; • Operating income of $120.6 million, as compared to $107.3 million in the first quarter of 2022; and • Diluted earnings per share of $0.93 as compared to $0.73 for the first quarter of 2022. Key Financial Performance Indicators - Key measures that we use in evaluating our restaurants and assessing our business include the following: • Average restaurant unit volumes —average sales (excluding gift card breakage and the benefit of value added tax exemptions in Brazil) per restaurant to measure changes in customer traffic, pricing and development of the brand; • Comparable restaurant sales —year-over-year comparison of the change in sales volumes (excluding gift card breakage and the benefit of value added tax exemptions in Brazil) for Company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants; • System-wide sales —total restaurant sales volume for all Company-owned and franchise restaurants, regardless of ownership, to interpret the overall health of our brands; • Restaurant-level operating margin, Income from operations, Net income and Diluted earnings per share —financial measures utilized to evaluate our operating performance. Restaurant-level operating margin is a non-GAAP financial measure widely regarded in the industry as a useful metric to evaluate restaurant-level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes, overall and particularly within our two segments. Our restaurant-level operating margin is expressed as the percentage of our Restaurant sales that Food and beverage costs, Labor and other related expenses and Other restaurant operating expenses (including advertising expenses) represent, in each case as such items are reflected in our Consolidated Statements of Operations and Comprehensive Income. The following categories of revenue and operating expenses are 20 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued not included in restaurant-level operating margin because we do not consider them reflective of operating performance at the restaurant-level within a period: (i) Franchise and other revenues which are earned primarily from franchise royalties and other non-food and beverage revenue streams, such as rental and sublease income; (ii) Depreciation and amortization which, although substantially all of which is related to restaurant-level assets, represent historical sunk costs rather than cash outlays for the restaurants; (iii) General and administrative expense which includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices; and (iv) Asset impairment charges and restaurant closing costs which are not reflective of ongoing restaurant performance in a period. Restaurant-level operating margin excludes various expenses, as discussed above, that are essential to support the operations of our restaurants and may materially impact our Consolidated Statements of Operations and Comprehensive Income. As a result, restaurant-level operating margin is not indicative of our consolidated results of operations and is presented exclusively as a supplement to, and not a substitute for, Net income or Income from operations. In addition, our presentation of restaurant-level operating margin may not be comparable to similarly titled measures used by other companies in our industry; and • Adjusted restaurant-level operating margin, Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share —non-GAAP financial measures utilized to evaluate our operating performance. We believe that our use of these non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies within the restaurant industry by isolating the effects of certain items that may vary from period to period without correlation to core operating performance or that vary widely among similar companies. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent or will not recur. We believe that the disclosure of these non-GAAP measures is useful to investors as they form part of the basis for how our management team and Board evaluate our operating performance, allocate resources and administer employee incentive plans. 21 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Selected Operating Data - The table below presents the number of our full-service restaurants in operation as of the periods indicated: Number of restaurants (at end of the period): MARCH 26, 2023 MARCH 27, 2022 U.S. Outback Steakhouse Company-owned 564 562 Franchised 127 130 Total 691 692 Carrabba’s Italian Grill Company-owned 199 199 Franchised 19 20 Total 218 219 Bonefish Grill Company-owned 172 175 Franchised 5 7 Total 177 182 Fleming’s Prime Steakhouse & Wine Bar Company-owned 65 64 Aussie Grill Company-owned 7 7 U.S. total 1,158 1,164 International Company-owned Outback Steakhouse - Brazil (1) 140 123 Other (1)(2) 36 33 Franchised Outback Steakhouse - South Korea 90 78 Other (2) 47 52 International total 313 286 System-wide total 1,471 1,450 System-wide total - Company-owned 1,183 1,163 System-wide total - Franchised 288 287 ____________________ (1) The restaurant counts for Brazil, including Abbraccio and Aussie Grill restaurants within International Company-owned Other, are reported as of February 28, 2023 and 2022, respectively, to correspond with the balance sheet dates of this subsidiary. (2) International Company-owned Other included four and two Aussie Grill locations as of March 26, 2023 and March 27, 2022, respectively. International Franchised Other included four and three Aussie Grill locations as of March 26, 2023 and March 27, 2022, respectively. The table below presents the number of our off-premises only kitchens in operation as of the periods indicated: Number of kitchens (at end of the period) (1): MARCH 26, 2023 MARCH 27, 2022 U.S. Company-owned 1 2 International Company-owned — 1 Franchised - South Korea 25 46 System-wide total 26 49 ____________________ (1) Excludes virtual concepts that operate out of existing restaurants and sports venue locations. 22 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Results of Operations The following table sets forth the percentages of certain items in our Consolidated Statements of Operations in relation to Total revenues or Restaurant sales for the periods indicated: THIRTEEN WEEKS ENDED MARCH 26, 2023 MARCH 27, 2022 Revenues Restaurant sales 98.7 % 98.5 % Franchise and other revenues 1.3 1.5 Total revenues 100.0 100.0 Costs and expenses Food and beverage (1) 31.3 32.0 Labor and other related (1) 27.8 27.8 Other restaurant operating (1) 23.0 23.1 Depreciation and amortization 3.7 3.7 General and administrative 5.3 5.1 Provision for impaired assets and restaurant closings 0.3 0.2 Total costs and expenses 90.3 90.6 Income from operations 9.7 9.4 Interest expense, net (1.0) (1.2) Income before provision for income taxes 8.7 8.2 Provision for income taxes 1.2 1.4 Net income 7.5 6.8 Less: net income attributable to noncontrolling interests 0.2 0.2 Net income attributable to Bloomin’ Brands 7.3 % 6.6 % ________________ (1) As a percentage of Restaurant sales. REVENUES Restaurant Sales Following is a summary of the change in Restaurant sales for the period indicated: (dollars in millions) THIRTEEN WEEKS ENDED For the period ended March 27, 2022 $ 1,123.6 Change from: Comparable restaurant sales 73.3 Restaurant openings 21.0 Brazil value added tax exemptions (1) 9.6 Effect of foreign currency translation 5.5 Restaurant closures (4.8) For the period ended March 26, 2023 $ 1,228.2 ________________ (1) See Note 11 - Income Taxes of the Notes to Consolidated Financial Statements for details regarding value added tax exemptions in connection with recent Brazil tax legislation. The increase in Restaurant sales during the thirteen weeks ended March 26, 2023, was primarily due to: (i) higher comparable restaurant sales, (ii) the opening of 47 new restaurants not included in our comparable restaurant sales 23 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued base, (iii) value added tax exemptions in Brazil as a result of recent tax legislation and (iv) the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. The increase in Restaurant sales was partially offset by the closure of 19 restaurants since December 26, 2021. Average Restaurant Unit Volumes and Operating Weeks Following is a summary of the average restaurant unit volumes and operating weeks for the periods indicated: THIRTEEN WEEKS ENDED MARCH 26, 2023 MARCH 27, 2022 Average restaurant unit volumes (weekly): U.S. Outback Steakhouse $ 84,506 $ 80,552 Carrabba’s Italian Grill $ 72,687 $ 67,889 Bonefish Grill $ 70,146 $ 66,265 Fleming’s Prime Steakhouse & Wine Bar $ 121,625 $ 117,382 International Outback Steakhouse - Brazil (1) $ 63,170 $ 53,939 Operating weeks: U.S. Outback Steakhouse 7,358 7,320 Carrabba’s Italian Grill 2,587 2,587 Bonefish Grill 2,248 2,285 Fleming’s Prime Steakhouse & Wine Bar 845 832 International Outback Steakhouse - Brazil 1,788 1,581 ____________________ (1) Translated at average exchange rates of 5.21 and 5.47 for the thirteen weeks ended March 26, 2023 and March 27, 2022, respectively. Excludes the benefit of the Brazil value added tax exemptions discussed in Note 11 - Income Taxes of the Notes to Consolidated Financial Statements. 24 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Comparable Restaurant Sales, Traffic and Average Check Per Person Increases (Decreases) Following is a summary of comparable restaurant sales, traffic and average check per person increases (decreases) for the periods indicated: THIRTEEN WEEKS ENDED MARCH 26, 2023 MARCH 27, 2022 Year over year percentage change: Comparable restaurant sales (restaurants open 18 months or more): U.S. (1) Outback Steakhouse 4.9 % 9.2 % Carrabba’s Italian Grill 6.7 % 11.5 % Bonefish Grill 5.2 % 21.3 % Fleming’s Prime Steakhouse & Wine Bar 3.6 % 45.7 % Combined U.S. 5.1 % 14.0 % International Outback Steakhouse - Brazil (2) 14.3 % 35.9 % Traffic: U.S. Outback Steakhouse (1.5) % (1.0) % Carrabba’s Italian Grill 1.7 % 3.0 % Bonefish Grill (0.5) % 7.8 % Fleming’s Prime Steakhouse & Wine Bar 0.2 % 28.8 % Combined U.S. (0.7) % 1.5 % International Outback Steakhouse - Brazil 2.2 % 28.7 % Average check per person (3): U.S. Outback Steakhouse 6.4 % 10.2 % Carrabba’s Italian Grill 5.0 % 8.5 % Bonefish Grill 5.7 % 13.5 % Fleming’s Prime Steakhouse & Wine Bar 3.4 % 16.9 % Combined U.S. 5.8 % 12.5 % International Outback Steakhouse - Brazil 11.6 % 7.6 % ____________________ (1) Relocated restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening. (2) Includes trading day impact from calendar period reporting. Excludes the effect of fluctuations in foreign currency rates and the benefit of the Brazil value added tax exemptions discussed in Note 11 - Income Taxes of the Notes to Consolidated Financial Statements. (3) Includes the impact of menu pricing changes, product mix and discounts. Franchise and other revenues THIRTEEN WEEKS ENDED (dollars in millions) MARCH 26, 2023 MARCH 27, 2022 Franchise revenues $ 13.5 $ 13.4 Other revenues 3.0 3.6 Franchise and other revenues $ 16.5 $ 17.0 25 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued COSTS AND EXPENSES Food and beverage costs THIRTEEN WEEKS ENDED (dollars in millions) MARCH 26, 2023 MARCH 27, 2022 CHANGE Food and beverage $ 384.2 $ 359.4 % of Restaurant sales 31.3 % 32.0 % (0.7) % Food and beverage costs decreased as a percentage of Restaurant sales during the thirteen weeks ended March 26, 2023 as compared to the thirteen weeks ended March 27, 2022 primarily due to 2.1% from increases in average check per person, primarily driven by an increase in menu pricing, and 0.4% from the impact of certain cost saving initiatives. These decreases were partially offset by an increase as a percentage of Restaurant sales of 1.9% from commodity inflation. Labor and other related expenses THIRTEEN WEEKS ENDED (dollars in millions) MARCH 26, 2023 MARCH 27, 2022 CHANGE Labor and other related $ 341.5 $ 312.5 % of Restaurant sales 27.8 % 27.8 % — % Labor and other related expenses were flat as a percentage of Restaurant sales during the thirteen weeks ended March 26, 2023 as compared to the thirteen weeks ended March 27, 2022 primarily due to an increase of 1.6% from higher labor costs, primarily due to wage rate inflation. This increase was partially offset by a decrease as a percentage of Restaurant sales of 1.5% from leveraging increased restaurant sales due to increases in average check per person, primarily driven by an increase in menu pricing, and lapping the impact of COVID-19 in Brazil and Hong Kong. Other restaurant operating expenses THIRTEEN WEEKS ENDED (dollars in millions) MARCH 26, 2023 MARCH 27, 2022 CHANGE Other restaurant operating $ 282.9 $ 259.1 % of Restaurant sales 23.0 % 23.1 % (0.1) % Other restaurant operating expenses were flat as a percentage of Restaurant sales during the thirteen weeks ended March 26, 2023 as compared to the thirteen weeks ended March 27, 2022 primarily due to 1.6% from leveraging increased restaurant sales due to increases in average check per person, primarily driven by an increase in menu pricing, and lapping the impact of COVID-19 in Brazil and Hong Kong. This decrease was offset by an increase as a percentage of Restaurant sales of 1.6% from higher operating expenses including utilities, primarily due to inflation. 26 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Depreciation and amortization THIRTEEN WEEKS ENDED (dollars in millions) MARCH 26, 2023 MARCH 27, 2022 CHANGE Depreciation and amortization $ 46.3 $ 41.8 $ 4.5 Depreciation and amortization increased during the thirteen weeks ended March 26, 2023 as compared to the thirteen weeks ended March 27, 2022 primarily due to additional depreciation expense related to: (i) technology projects, (ii) upgraded kitchen equipment and (iii) restaurant remodels, openings and relocations. General and administrative General and administrative expense includes salaries and benefits, management incentive programs, related payroll tax and benefits, other employee-related costs and professional services. Following is a summary of the change in General and administrative expense for the period indicated: (dollars in millions) THIRTEEN WEEKS ENDED For the period ended March 27, 2022 $ 58.7 Change from: Legal and professional fees 3.0 Compensation, benefits and payroll tax 2.6 Travel and entertainment 1.2 Other 0.3 For the period ended March 26, 2023 $ 65.8 Income from operations THIRTEEN WEEKS ENDED (dollars in millions) MARCH 26, 2023 MARCH 27, 2022 CHANGE Income from operations $ 120.6 $ 107.3 $ 13.3 % of Total revenues 9.7 % 9.4 % 0.3 % The increase in Income from operations generated during the thirteen weeks ended March 26, 2023 as compared to the thirteen weeks ended March 27, 2022 was primarily due to: (i) increases in comparable restaurant sales, primarily driven by an increase in menu pricing and lapping the impact of COVID-19 in Brazil and Hong Kong, (ii) the impact of certain cost saving initiatives and (iii) value added tax exemptions in Brazil as a result of recent tax legislation. These increases were partially offset by: (i) commodity inflation, (ii) higher labor costs, primarily due to wage rate inflation, and (iii) higher operating expenses including utilities, primarily due to inflation. During the thirteen weeks ended March 26, 2023, the increase in operating income margin included approximately 0.3% attributable to exemptions from Brazil federal value added taxes (PIS and COFINS) on Restaurant sales provided by recent Brazil tax legislation, partially offset by corresponding limitations on allowable value added tax credits typically recognized as reductions of cost and expense lines throughout our Consolidated Statements of Operations and Comprehensive Income. See Note 11 - Income Taxes of the Notes to Consolidated Financial Statements for further discussion regarding Brazil tax legislation. 27 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Provision for income taxes THIRTEEN WEEKS ENDED (dollars in millions) MARCH 26, 2023 MARCH 27, 2022 CHANGE Income before provision for income taxes $ 108.2 $ 93.6 $ 14.6 Provision for income taxes $ 14.8 $ 15.9 $ (1.1) Effective income tax rate 13.6 % 17.0 % (3.4) % The effective income tax rate for the thirteen weeks ended March 26, 2023 decreased by 3.4 percentage points as compared to the thirteen weeks ended March 27, 2022. The decrease was primarily due to the benefits of Brazil tax legislation that include a temporary reduction in the Brazilian income tax rate from 34% to 0% applicable to the thirteen weeks ended March 26, 2023. See Note 11 - Income Taxes of the Notes to Consolidated Financial Statements for further discussion regarding Brazil tax legislation. SEGMENT PERFORMANCE The following is a summary of reporting segments: REPORTABLE SEGMENT (1) CONCEPT GEOGRAPHIC LOCATION U.S. Outback Steakhouse United States of America Carrabba’s Italian Grill Bonefish Grill Fleming’s Prime Steakhouse & Wine Bar International Outback Steakhouse Brazil, Hong Kong/China Carrabba’s Italian Grill (Abbraccio) Brazil _________________ (1) Includes franchise locations. Revenues for both segments include only transactions with customers and exclude intersegment revenues. Excluded from Income from operations for U.S. and international are certain legal and corporate costs not directly related to the performance of the segments, most stock-based compensation expenses, certain insurance expenses and certain bonus expenses. Refer to Note 13 - Segment Reporting of the Notes to Consolidated Financial Statements for reconciliations of segment income from operations to the consolidated operating results. Restaurant-level operating margin is widely regarded in the industry as a useful non-GAAP measure to evaluate restaurant-level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes, overall and particularly within our two segments. See the Overview-Key Financial Performance Indicators and Non-GAAP Financial Measures sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional details regarding the calculation of restaurant-level operating margin. 28 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued U.S. Segment THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 26, 2023 MARCH 27, 2022 Revenues Restaurant sales $ 1,080,569 $ 1,023,635 Franchise and other revenues 12,427 12,772 Total revenues $ 1,092,996 $ 1,036,407 Income from operations $ 133,243 $ 132,226 Operating income margin 12.2 % 12.8 % Restaurant-level operating income $ 187,808 $ 177,715 Restaurant-level operating margin 17.4 % 17.4 % Restaurant sales Following is a summary of the change in U.S. segment Restaurant sales for the period indicated: (dollars in millions) THIRTEEN WEEKS ENDED For the period ended March 27, 2022 $ 1,023.7 Change from: Comparable restaurant sales 50.4 Restaurant openings 11.3 Restaurant closures (4.8) For the period ended March 26, 2023 $ 1,080.6 The increase in U.S. Restaurant sales during the thirteen weeks ended March 26, 2023 was primarily due to higher comparable restaurant sales and the opening of 17 new restaurants not included in our comparable restaurant sales base. The increase in Restaurant sales was partially offset by the closure of 18 restaurants since December 26, 2021. Income from operations The increase in U.S. Income from operations generated during the thirteen weeks ended March 26, 2023 as compared to the thirteen weeks ended March 27, 2022 was primarily due to increases in comparable restaurant sales, primarily driven by an increase in menu pricing, and the impact of certain cost saving initiatives. These increases were partially offset by decreases primarily due to: (i) commodity inflation, (ii) higher labor costs, primarily due to wage rate inflation, (iii) higher operating expenses including utilities, primarily due to inflation and (iv) an increase in asset impairment charges. The decrease in U.S. operating income margin during the thirteen weeks ended March 26, 2023 as compared to the thirteen weeks ended March 27, 2022 was primarily due to an increase in asset impairment charges. 29 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued International Segment THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 26, 2023 MARCH 27, 2022 Revenues Restaurant sales $ 147,665 $ 99,940 Franchise and other revenues 4,085 4,188 Total revenues $ 151,750 $ 104,128 Income from operations $ 24,508 $ 8,884 Operating income margin 16.2 % 8.5 % Restaurant-level operating income $ 34,015 $ 16,935 Restaurant-level operating margin 23.0 % 16.9 % Restaurant sales Following is a summary of the change in international segment Restaurant sales for the period indicated: (dollars in millions) THIRTEEN WEEKS ENDED For the period ended March 27, 2022 $ 99.9 Change from: Comparable restaurant sales 22.9 Restaurant openings 9.7 Brazil value added tax exemptions (1) 9.6 Effect of foreign currency translation 5.5 For the period ended March 26, 2023 $ 147.6 ________________ (1) See Note 11 - Income Taxes of the Notes to Consolidated Financial Statements for details regarding value added tax exemptions in connection with recent Brazil tax legislation. The increase in international Restaurant sales during the thirteen weeks ended March 26, 2023 was primarily due to: (i) higher comparable restaurant sales in Brazil and Hong Kong, (ii) the opening of 30 new restaurants not included in our comparable restaurant sales base, (iii) value added tax exemptions in Brazil as a result of recent tax legislation and (iv) the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. Income from operations The increase in international Income from operations generated during the thirteen weeks ended March 26, 2023 as compared to the thirteen weeks ended March 27, 2022 was primarily due to: (i) the recovery of in-restaurant dining, (ii) value added tax exemptions in Brazil as a result of recent tax legislation and (iii) increases in comparable restaurant sales, primarily driven by an increase in menu pricing. These increases were partially offset by decreases primarily due to: (i) higher labor costs, primarily due to wage rate inflation, (ii) commodity inflation and (iii) higher advertising expense. 30 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Non-GAAP Financial Measures Consolidated restaurant-level operating income and corresponding margin non-GAAP reconciliations - The following table reconciles consolidated Income from operations and the corresponding margin to restaurant-level operating income and the corresponding margin for the periods indicated: Consolidated THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 26, 2023 MARCH 27, 2022 Income from operations $ 120,633 $ 107,256 Operating income margin 9.7 % 9.4 % Less: Franchise and other revenues 16,512 16,960 Plus: Depreciation and amortization 46,302 41,775 General and administrative 65,804 58,674 Provision for impaired assets and restaurant closings 3,324 1,839 Restaurant-level operating income $ 219,551 $ 192,584 Restaurant-level operating margin 17.9 % 17.1 % Segment restaurant-level and operating margin non-GAAP reconciliations - The following tables reconcile segment Income from operations and the corresponding margin to segment restaurant-level operating income and the corresponding margin for the periods indicated: U.S. THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 26, 2023 MARCH 27, 2022 Income from operations $ 133,243 $ 132,226 Operating income margin 12.2 % 12.8 % Less: Franchise and other revenues 12,427 12,772 Plus: Depreciation and amortization 38,163 34,758 General and administrative 25,505 23,445 Provision for impaired assets and restaurant closings 3,324 58 Restaurant-level operating income $ 187,808 $ 177,715 Restaurant-level operating margin 17.4 % 17.4 % International THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 26, 2023 MARCH 27, 2022 Income from operations $ 24,508 $ 8,884 Operating income margin 16.2 % 8.5 % Less: Franchise and other revenues 4,085 4,188 Plus: Depreciation and amortization 5,919 5,536 General and administrative 7,673 4,928 Provision for impaired assets and restaurant closings — 1,775 Restaurant-level operating income $ 34,015 $ 16,935 Restaurant-level operating margin 23.0 % 16.9 % 31 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Restaurant-level operating margin non-GAAP reconciliations (continued) - The following table presents the percentages of certain operating cost financial statement line items in relation to Restaurant sales for the periods indicated: THIRTEEN WEEKS ENDED MARCH 26, 2023 MARCH 27, 2022 Restaurant sales 100.0 % 100.0 % Food and beverage 31.3 % 32.0 % Labor and other related 27.8 % 27.8 % Other restaurant operating 23.0 % 23.1 % Restaurant-level operating margin 17.9 % 17.1 % Adjusted diluted earnings per share non-GAAP reconciliations - The following table reconciles Net income attributable to Bloomin’ Brands to adjusted diluted earnings per share for the periods indicated: THIRTEEN WEEKS ENDED (in thousands, except share and per share data) MARCH 26, 2023 MARCH 27, 2022 Net income attributable to Bloomin’ Brands $ 91,311 $ 75,511 Diluted earnings per share $ 0.93 $ 0.73 Adjusted diluted earnings per share (1) $ 0.98 $ 0.80 Diluted weighted average common shares outstanding 98,011 103,454 Adjusted diluted weighted average common shares outstanding (1) 93,180 94,722 _________________ (1) Adjusted diluted weighted average common shares outstanding was calculated excluding the dilutive effect of 4,831 and 8,732 shares for the thirteen weeks ended March 26, 2023 and March 27, 2022, respectively, to be issued upon conversion of the 2025 Notes to satisfy the amount in excess of the principal since our convertible note hedge offsets the dilutive impact of the shares underlying the 2025 Notes. System-Wide Sales - System-wide sales is a non-GAAP financial measure that includes sales of all restaurants operating under our brand names, whether we own them or not. Management uses this information to make decisions about future plans for the development of additional restaurants and new concepts, as well as evaluation of current operations. System-wide sales comprise sales of Company-owned and franchised restaurants. For a summary of sales of Company-owned restaurants, refer to Note 2 - Revenue Recognition of the Notes to Consolidated Financial Statements. The following table provides a summary of sales of franchised restaurants for the periods indicated, which are not included in our consolidated financial results. Franchise sales within this table do not represent our sales and are 32 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued presented only as an indicator of changes in the restaurant system, which management believes is important information regarding the health of our restaurant concepts and in determining our royalties and/or service fees. THIRTEEN WEEKS ENDED (dollars in millions) MARCH 26, 2023 MARCH 27, 2022 U.S. Outback Steakhouse $ 136 $ 129 Carrabba’s Italian Grill 13 12 Bonefish Grill 3 3 U.S. total 152 144 International Outback Steakhouse - South Korea 94 78 Other (1) 27 34 International total 121 112 Total franchise sales (2) $ 273 $ 256 _____________________ (1) Includes franchise sales for off-premises only kitchens in South Korea. (2) Franchise sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive Income. Liquidity and Capital Resources Cash and Cash Equivalents As of March 26, 2023, we had $94.4 million in cash and cash equivalents, of which $27.1 million was held by foreign affiliates. The international jurisdictions in which we have significant cash do not have any known restrictions that would prohibit repatriation. As of March 26, 2023, we had aggregate undistributed foreign earnings of approximately $25.8 million. This amount consisted primarily of historical earnings from 2017 and prior that were previously taxed in the U.S. under the 2017 Tax Cuts and Jobs Act and post-2017 foreign earnings, which we may repatriate to the U.S. without additional material U.S. federal income tax. These amounts are not considered indefinitely reinvested in our foreign subsidiaries. Borrowing Capacity and Debt Service Credit Facilities - Following is a summary of our outstanding credit facilities as of the dates indicated and principal payments and debt issuance during the period indicated: SENIOR SECURED CREDIT FACILITY TOTAL CREDIT FACILITIES (dollars in thousands) REVOLVING CREDIT FACILITY 2025 NOTES 2029 NOTES Balance as of December 25, 2022 $ 430,000 $ 105,000 $ 300,000 $ 835,000 2023 new debt 190,000 — — 190,000 2023 payments (260,000) — — (260,000) Balance as of March 26, 2023 $ 360,000 $ 105,000 $ 300,000 $ 765,000 Interest rates, as of March 26, 2023 (1) 6.28 % 5.00 % 5.13 % Principal maturity date April 2026 May 2025 April 2029 ____________________ (1) Interest rate for revolving credit facility represents the weighted average interest rate as of March 26, 2023. 33 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued As of March 26, 2023, we had $620.2 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $19.8 million. Our credit agreement, as amended, contains various financial and non-financial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the revolving credit facility and cause an acceleration of the amounts due under the credit facilities. See Note 13 - Long-term Debt, Net in our Annual Report on Form 10-K for the year ended December 25, 2022 for further information. As of March 26, 2023 and December 25, 2022, we were in compliance with our debt covenants. We believe that we will remain in compliance with our debt covenants during the next 12 months and beyond. Use of Cash Cash flows generated from operating activities and availability under our revolving credit facility are our principal sources of liquidity, which we use for operating expenses, debt payments, share repurchases, dividend payments, development of new restaurants, remodeling or relocating older restaurants and investment in technology. We believe that our expected liquidity sources are adequate to fund debt service requirements, lease obligations, capital expenditures and working capital obligations during the 12 months following this filing. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow and our ability to manage costs and working capital successfully. Capital Expenditures - We estimate that our capital expenditures will total approximately $240 million to $260 million in 2023. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things, including raw material constraints. Dividends and Share Repurchases - In April 2023, our Board declared a quarterly cash dividend of $0.24 per share, payable on May 24, 2023. Future dividend payments are dependent on our earnings, financial condition, capital expenditure requirements, surplus and other factors that our Board considers relevant, as well as continued compliance with the financial covenants in our debt agreements. During the thirteen weeks ended March 26, 2023, we fully utilized the remaining share repurchase authorization under the 2022 Share Repurchase Program. On February 7, 2023, our Board approved the 2023 Share Repurchase Program under which we are authorized to repurchase up to $125.0 million of our outstanding common stock. The 2023 Share Repurchase Program will expire on August 7, 2024. As of March 26, 2023, we had $119.4 million remaining available for repurchase under the 2023 Share Repurchase Program. Following is a summary of dividends and share repurchases from fiscal year 2015 through March 26, 2023: (dollars in thousands) DIVIDENDS PAID SHARE REPURCHASES TOTAL Fiscal years 2015 - 2022 $ 227,961 $ 1,083,580 $ 1,311,541 First fiscal quarter 2023 21,014 20,645 41,659 Total (1) $ 248,975 $ 1,104,225 $ 1,353,200 ________________ (1) Subsequent to March 26, 2023, we repurchased $7.2 million of our common stock under a Rule 10b5-1 plan. 34 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Summary of Cash Flows and Financial Condition Cash Flows - The following table presents a summary of our cash flows provided by (used in) operating, investing and financing activities for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 26, 2023 MARCH 27, 2022 Net cash provided by operating activities $ 189,668 $ 147,135 Net cash used in investing activities (62,945) (39,150) Net cash used in financing activities (116,987) (101,111) Effect of exchange rate changes on cash and cash equivalents (30) 1,965 Net increase in cash, cash equivalents and restricted cash $ 9,706 $ 8,839 Operating activities - The increase in net cash provided by operating activities during the thirteen weeks ended March 26, 2023 as compared to the thirteen weeks ended March 27, 2022 was primarily due to higher operational receipts net of payments and decreased employee compensation payments. Investing activities - The increase in net cash used in investing activities during the thirteen weeks ended March 26, 2023 as compared to the thirteen weeks ended March 27, 2022 was primarily due to higher capital expenditures. Financing activities - The increase in net cash used in financing activities during the thirteen weeks ended March 26, 2023 as compared the thirteen weeks ended March 27, 2022 was primarily due to increases in the repurchase of common stock and payment of cash dividends on our common stock. Financial Condition - Following is a summary of our current assets, current liabilities and working capital (deficit) as of the periods indicated: (dollars in thousands) MARCH 26, 2023 DECEMBER 25, 2022 Current assets $ 247,846 $ 346,577 Current liabilities 920,433 978,867 Working capital (deficit) $ (672,587) $ (632,290) Working capital (deficit) includes: (i) Unearned revenue primarily from unredeemed gift cards of $322.6 million and $394.2 million as of March 26, 2023 and December 25, 2022, respectively, and (ii) current operating lease liabilities of $182.8 million and $183.5 million as of March 26, 2023 and December 25, 2022, respectively, with the corresponding operating right-of-use assets recorded as non-current on our Consolidated Balance Sheets. We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on restaurant sales is typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are typically used to service debt obligations and to make capital expenditures. Recently Issued Financial Accounting Standards For a description of recently issued Financial Accounting Standards that we adopted during the thirteen weeks ended March 26, 2023 and, that are applicable to us and likely to have material effect on our consolidated financial statements, but have not yet been adopted, see Note 1 - Description of the Business and Basis of Presentation of the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q. 35 Table of Contents BLOOMIN’ BRANDS, INC.