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 (the “Exchange Act”). 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 and geopolitical 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 cybersecurity threats, and to protect consumer data and personal employee information; 21 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, pork, chicken and other major product supply needs; (viii) 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; (ix) The effects of international economic, political and social conditions and legal systems on our foreign operations and on foreign currency exchange rates; (x) The impact of the strategic review process for our Brazil operations or any resulting action or inaction; (xi) Our ability to comply with new corporate citizenship and sustainability reporting requirements and investor expectations or our failure to achieve any goals, targets or objectives that we establish with respect to corporate citizenship and sustainability matters; (xii) Our ability to effectively respond to changes in patterns of consumer traffic, including by maintaining relationships with third party delivery apps and services, consumer tastes and dietary habits; (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 31, 2023. 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 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. 22 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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 31, 2024, we owned and operated 1,162 restaurants and franchised 289 restaurants across 46 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 Overview - Our financial overview for the thirteen weeks ended March 31, 2024 includes the following: • U.S. combined and Outback Steakhouse comparable restaurant sales of (1.6)% and (1.2)%, respectively; • Decrease in Total revenues of (4.0)% as compared to the first quarter of 2023; • Operating income and restaurant-level operating margins of 6.4% and 16.0%, respectively, as compared to 9.7% and 17.9%, respectively, for the first quarter of 2023; • Operating income of $77.1 million as compared to $120.6 million in the first quarter of 2023; and • Diluted loss per share of $(0.96) as compared to diluted earnings per share of $0.93 for the first quarter of 2023. Reviewing Strategic Alternatives for Brazil Operations - On May 7, 2024, we announced that we are exploring and evaluating strategic alternatives for our Brazil operations that have the potential to maximize value for our shareholders, including but not limited to, a possible sale of the operations. The Board has retained BofA Securities, Inc. as its financial advisor. We plan to proceed in a timely manner, but have not set a definitive timetable for completion of this process. There can be no assurance that this review will result in a transaction or other strategic alternative of any kind. We do not intend to make any further public comment regarding the review unless it determines that disclosure is appropriate or necessary. 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 (loss) income and Diluted (loss) 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 expense and Other restaurant operating expense (including 23 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued advertising expenses) represent, in each case as such items are reflected in our Consolidated Statements of Operations and Comprehensive (Loss) Income. The following categories of revenue and operating expenses are not included in restaurant-level operating income and corresponding 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 (Loss) 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 (loss) 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. • 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. 24 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 restaurants in operation as of the periods indicated: Number of restaurants (at end of the period): MARCH 31, 2024 MARCH 26, 2023 U.S. Outback Steakhouse Company-owned 544 564 Franchised 125 127 Total 669 691 Carrabba’s Italian Grill Company-owned 192 199 Franchised 18 19 Total 210 218 Bonefish Grill Company-owned 162 172 Franchised 4 5 Total 166 177 Fleming’s Prime Steakhouse & Wine Bar Company-owned 64 65 Aussie Grill Company-owned 4 7 Franchised 2 — Total 6 7 U.S. total (1) 1,115 1,158 International Company-owned Outback Steakhouse - Brazil (2) 159 140 Other (2)(3) 37 36 Franchised Outback Steakhouse - South Korea (1) 92 90 Other (3) 48 47 International total 336 313 System-wide total 1,451 1,471 System-wide total - Company-owned 1,162 1,183 System-wide total - Franchised 289 288 ____________________ (1) Excludes four and 26 off-premises only kitchens as of March 31, 2024 and March 26, 2023, respectively. One location was Company-owned in the U.S. and all others were franchised in South Korea as of March 31, 2024 and March 26, 2023. (2) The restaurant counts for Brazil, including Abbraccio and Aussie Grill restaurants within International Company-owned Other, are reported as of February 29, 2024 and February 28, 2023, respectively, to correspond with the balance sheet dates of this subsidiary. (3) International Company-owned Other included two and four Aussie Grill locations as of March 31, 2024 and March 26, 2023, respectively. International Franchised Other included five and four Aussie Grill locations as of March 31, 2024 and March 26, 2023, respectively. 25 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Results of Operations 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 26, 2023 $ 1,228.2 Change from: Comparable restaurant sales (1) (35.7) Restaurant closures (25.1) Brazil value added tax exemptions (2) (9.6) Restaurant openings 14.3 Effect of foreign currency translation 7.4 For the period ended March 31, 2024 $ 1,179.5 ________________ (1) The thirteen weeks ended March 26, 2023 included high-volume days between December 26 th and December 31 st and the thirteen weeks ended March 31, 2024 excluded these days. This shift had an estimated $16.5 million negative impact on comparable restaurant sales. (2) Beginning in the fourth quarter of 2023, we are once again subject to the value added taxes for which we were previously exempt under the Brazil tax legislation. See Note 14 - Income Taxes of the Notes to Consolidated Financial Statements for details regarding value added tax exemptions in connection with Brazil tax legislation. The decrease in Restaurant sales during the thirteen weeks ended March 31, 2024 was primarily due to: (i) lower comparable restaurant sales including the impact of the one-week shift in the fiscal calendar, (ii) the closure of 57 restaurants since December 25, 2022 and (iii) value added tax exemptions in Brazil during 2023. The decrease in Restaurant sales was partially offset by the opening of 53 new restaurants not included in our comparable restaurant sales base and the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. 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 31, 2024 MARCH 26, 2023 Average restaurant unit volumes (weekly): U.S. Outback Steakhouse $ 83,012 $ 84,506 Carrabba’s Italian Grill $ 72,325 $ 72,687 Bonefish Grill $ 66,661 $ 70,146 Fleming’s Prime Steakhouse & Wine Bar $ 115,580 $ 121,625 International Outback Steakhouse - Brazil (1) $ 61,578 $ 63,170 Operating weeks: U.S. Outback Steakhouse 7,205 7,358 Carrabba’s Italian Grill 2,550 2,587 Bonefish Grill 2,168 2,248 Fleming’s Prime Steakhouse & Wine Bar 832 845 International Outback Steakhouse - Brazil 2,027 1,788 ____________________ (1) Translated at average exchange rates of 4.92 and 5.21 for the thirteen weeks ended March 31, 2024 and March 26, 2023, respectively. Excludes the benefit of the Brazil value added tax exemptions discussed in Note 14 - Income Taxes of the Notes to Consolidated Financial Statements. 26 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 (Decreases) Increases - Following is a summary of comparable restaurant sales, traffic and average check per person (decreases) increases for the periods indicated: THIRTEEN WEEKS ENDED MARCH 31, 2024 (1) MARCH 26, 2023 Year over year percentage change: Comparable restaurant sales (restaurants open 18 months or more): U.S. (2) Outback Steakhouse (1.2) % 4.9 % Carrabba’s Italian Grill 0.4 % 6.7 % Bonefish Grill (4.9) % 5.2 % Fleming’s Prime Steakhouse & Wine Bar (2.0) % 3.6 % Combined U.S. (1.6) % 5.1 % International Outback Steakhouse - Brazil (3)(4) (0.7) % 14.3 % Traffic: U.S. Outback Steakhouse (4.2) % (1.5) % Carrabba’s Italian Grill (2.9) % 1.7 % Bonefish Grill (7.1) % (0.5) % Fleming’s Prime Steakhouse & Wine Bar (5.0) % 0.2 % Combined U.S. (4.3) % (0.7) % International Outback Steakhouse - Brazil (3) (3.7) % 2.2 % Average check per person (5): U.S. Outback Steakhouse 3.0 % 6.4 % Carrabba’s Italian Grill 3.3 % 5.0 % Bonefish Grill 2.2 % 5.7 % Fleming’s Prime Steakhouse & Wine Bar 3.0 % 3.4 % Combined U.S. 2.7 % 5.8 % International Outback Steakhouse - Brazil (3) 2.7 % 11.6 % ____________________ (1) For Q1 2024, comparable restaurant sales, traffic and average check per person compare the thirteen weeks from January 1, 2024 through March 31, 2024 to the thirteen weeks from January 2, 2023 through April 2, 2023. (2) Relocated restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening. (3) Excludes the effect of fluctuations in foreign currency rates and the benefit of the Brazil value added tax exemptions discussed in Note 14 - Income Taxes of the Notes to Consolidated Financial Statements. (4) Includes trading day impact from calendar period reporting. (5) Includes the impact of menu pricing changes, product mix and discounts. 27 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued COSTS AND EXPENSES The following table sets forth the percentages of certain items in our Consolidated Statements of Operations in relation to Restaurant sales or Total revenues for the periods indicated: THIRTEEN WEEKS ENDED MARCH 31, 2024 MARCH 26, 2023 Revenues Restaurant sales 98.7 % 98.7 % Franchise and other revenues 1.3 1.3 Total revenues 100.0 100.0 Costs and expenses Food and beverage (1) 30.3 31.3 Labor and other related (1) 29.1 27.8 Other restaurant operating (1) 24.6 23.0 Depreciation and amortization 4.1 3.7 General and administrative 5.6 5.3 Provision for impaired assets and restaurant closings 0.9 0.3 Total costs and expenses 93.6 90.3 Income from operations 6.4 9.7 Loss on extinguishment of debt (11.4) — Interest expense, net (1.1) (1.0) (Loss) income before provision for income taxes (6.1) 8.7 Provision for income taxes 0.8 1.2 Net (loss) income (6.9) 7.5 Less: net income attributable to noncontrolling interests 0.1 0.2 Net (loss) income attributable to Bloomin’ Brands (7.0) % 7.3 % ____________________ (1) As a percentage of Restaurant sales. Thirteen weeks ended March 31, 2024 as compared to thirteen weeks ended March 26, 2023 Food and beverage cost decreased as a percentage of Restaurant sales primarily due to 1.3% from increases in average check per person driven by an increase in menu pricing and 0.7% from cost saving and productivity initiatives. These decreases were partially offset by increases as a percentage of Restaurant sales of 0.6% from commodity inflation and 0.4% from unfavorable product mix. Labor and other related expense increased as a percentage of Restaurant sales primarily due to 2.0% from higher hourly and field management labor costs, primarily due to wage rate inflation, partially offset by a decrease of 0.5% from an increase in average check per person. Other restaurant operating expense increased as a percentage of Restaurant sales primarily due to 0.9% from higher restaurant-level operating and supply expenses, primarily due to inflation, and 0.7% from higher advertising expense, partially offset by a decrease of 0.2% from certain cost saving and productivity initiatives. Depreciation and amortization expense increased primarily due to restaurant development and technology projects, partially offset by a decrease due to restaurant closures under the 2023 Closure Initiative. General and administrative expense increased primarily due to higher severance partially offset by a decrease in employee stock-based compensation. 28 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Provision for impaired assets and restaurant closings increased primarily due to charges in connection with the 2023 Closure Initiative within the U.S. segment. Income from operations during the thirteen weeks ended March 31, 2024 includes a net operating margin decrease of approximatel y 0.3% attributable to the lapping of the 2023 Brazil value added tax exemptions (PIS and COFINS). See Note 14 - Income Taxes of the Notes to Consolidated Financial Statements for further discussion regarding Brazil tax legislation. Loss on extinguishment of debt during the thirteen weeks ended March 31, 2024 was in connection with the 2025 Notes Partial Repurchase, which is described in further detail within Note 9 - Convertible Senior Notes of the Notes to Consolidated Financial Statements. Provision for income taxes for the thirteen weeks ended March 31, 2024 includes the impact of nondeductible losses associated with the 2025 Notes Partial Repurchase which, relative to a pre-tax book loss during the quarter, resulted in a negative effective income tax rate. 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, a portion of insurance expenses and certain bonus expenses. Refer to Note 16 - 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. 29 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Summary financial data - Following is a summary of financial data by segment for the periods indicated: U.S. INTERNATIONAL THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 31, 2024 MARCH 26, 2023 MARCH 31, 2024 MARCH 26, 2023 Revenues Restaurant sales $ 1,030,896 $ 1,080,569 $ 148,591 $ 147,665 Franchise and other revenues 12,208 12,427 3,632 4,085 Total revenues $ 1,043,104 $ 1,092,996 $ 152,223 $ 151,750 Income from operations $ 97,484 $ 133,243 $ 15,762 $ 24,508 Operating income margin 9.3 % 12.2 % 10.4 % 16.2 % Restaurant-level operating income $ 161,976 $ 187,808 $ 27,157 $ 34,015 Restaurant-level operating margin 15.7 % 17.4 % 18.3 % 23.0 % Restaurant sales - Following is a summary of the change in segment Restaurant sales for the period indicated: U.S. INTERNATIONAL THIRTEEN WEEKS ENDED THIRTEEN WEEKS ENDED (dollars in millions) (dollars in millions) For the period ended March 26, 2023 $ 1,080.6 For the period ended March 26, 2023 $ 147.6 Change from: Change from: Comparable restaurant sales (1) (32.8) Effect of foreign currency translation 7.4 Restaurant closures (2) (24.5) Restaurant openings (3) 6.7 Restaurant openings (3) 7.6 Brazil value added tax exemptions (4) (9.6) For the period ended March 31, 2024 $ 1,030.9 Comparable restaurant sales (2.9) Restaurant closures (2) (0.6) For the period ended March 31, 2024 $ 148.6 ____________________ (1) Includes an estimated $16.5 million negative impact on comparable restaurant sales from a one-week shift in the fiscal calendar. (2) Includes the restaurant sales impact from the closure of 55 U.S. and two international restaurants since December 25, 2022. (3) Includes restaurant sales from 17 U.S. and 36 international new restaurants not included in our comparable restaurant sales base. (4) Beginning in the fourth quarter of 2023, we are once again subject to the value added taxes for which we were previously exempt under the Brazil tax legislation. See Note 14 - Income Taxes of the Notes to Consolidated Financial Statements for details regarding value added tax exemptions in connection with Brazil tax legislation. Income from operations U.S. - The decrease in U.S. Income from operations generated during the thirteen weeks ended March 31, 2024 as compared to the thirteen weeks ended March 26, 2023 was primarily due to: (i) lower restaurant sales, as discussed above, (ii) higher labor, operating and commodity costs, primarily due to inflation, (iii) impairment and closure costs in connection with the 2023 Closure Initiative, (iv) higher advertising expense and (v) unfavorable product mix. These decreases were offset by an increase in average check per person and the impact of certain cost saving and productivity initiatives. International - The decrease in international Income from operations generated during the thirteen weeks ended March 31, 2024 as compared to the thirteen weeks ended March 26, 2023 was primarily due to: (i) higher operating and labor costs, primarily due to inflation, (ii) lapping value added tax exemptions in Brazil during 2023, (iii) a decline in customer traffic and (iv) commodity inflation. These decreases were partially offset by an increase in average check per person. 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 Adjusted Restaurant-level Operating Income and Corresponding Margins Non-GAAP Reconciliations - The following table reconciles consolidated Income from operations and the corresponding margin to restaurant-level operating income and adjusted restaurant-level operating income and the corresponding margins for the periods indicated: Consolidated THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 31, 2024 MARCH 26, 2023 Income from operations $ 77,093 $ 120,633 Operating income margin 6.4 % 9.7 % Less: Franchise and other revenues 15,840 16,512 Plus: Depreciation and amortization 49,282 46,302 General and administrative 66,776 65,804 Provision for impaired assets and restaurant closings 10,873 3,324 Restaurant-level operating income $ 188,184 $ 219,551 Restaurant-level operating margin 16.0 % 17.9 % Adjustments: Asset impairments and closure-related costs (1) 434 — Total restaurant-level operating income adjustments 434 — Adjusted restaurant-level operating income $ 188,618 $ 219,551 Adjusted restaurant-level operating margin 16.0 % 17.9 % _________________ (1) Represents costs in connection with the 2023 Closure Initiative. Segment Restaurant-level and Adjusted Restaurant-level Operating Income and Corresponding Margins Non-GAAP Reconciliations - The following tables reconcile segment Income from operations and the corresponding margin to segment restaurant-level operating income and adjusted restaurant-level operating income and the corresponding margins for the periods indicated: U.S. THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 31, 2024 MARCH 26, 2023 Income from operations $ 97,484 $ 133,243 Operating income margin 9.3 % 12.2 % Less: Franchise and other revenues 12,208 12,427 Plus: Depreciation and amortization 39,968 38,163 General and administrative 25,796 25,505 Provision for impaired assets and restaurant closings 10,936 3,324 Restaurant-level operating income $ 161,976 $ 187,808 Restaurant-level operating margin 15.7 % 17.4 % Adjustments: Asset impairments and closure-related costs (1) 434 — Total restaurant-level operating income adjustments 434 — Adjusted restaurant-level operating income $ 162,410 $ 187,808 Adjusted restaurant-level operating margin 15.8 % 17.4 % _________________ (1) Represents costs in connection with the 2023 Closure Initiative. 31 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued International THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 31, 2024 MARCH 26, 2023 Income from operations $ 15,762 $ 24,508 Operating income margin 10.4 % 16.2 % Less: Franchise and other revenues 3,632 4,085 Plus: Depreciation and amortization 7,261 5,919 General and administrative 7,829 7,673 Provision for impaired assets and restaurant closings (63) — Restaurant-level operating income $ 27,157 $ 34,015 Restaurant-level operating margin 18.3 % 23.0 % Adjusted 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 31, 2024 MARCH 26, 2023 REPORTED ADJUSTED (1) REPORTED ADJUSTED Restaurant sales 100.0 % 100.0 % 100.0 % 100.0 % Food and beverage 30.3 % 30.3 % 31.3 % 31.3 % Labor and other related 29.1 % 29.1 % 27.8 % 27.8 % Other restaurant operating 24.6 % 24.6 % 23.0 % 23.0 % Restaurant-level operating margin 16.0 % 16.0 % 17.9 % 17.9 % _________________ (1) See the Consolidated Restaurant-level Operating Income and Adjusted Restaurant-level Operating Income and Corresponding Margins Non-GAAP Reconciliations table above for details regarding the restaurant-level operating margin adjustments. All restaurant-level operating margin adjustments for the periods presented were recorded within Labor and other related expense. Adjusted Income from Operations Non-GAAP Reconciliations - The following table reconciles Income from operations and the corresponding margin to adjusted income from operations and the corresponding margin for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 31, 2024 MARCH 26, 2023 Income from operations $ 77,093 $ 120,633 Operating income margin 6.4 % 9.7 % Adjustments: Total restaurant-level operating income adjustments (1) 434 — Asset impairments and closure-related charges (2) 12,521 — Total income from operations adjustments 12,955 — Adjusted income from operations $ 90,048 $ 120,633 Adjusted operating income margin 7.5 % 9.7 % _________________ (1) See the Consolidated Restaurant-level Operating Income and Adjusted Restaurant-level Operating Income and Corresponding Margins Non-GAAP Reconciliations table above for details regarding the restaurant-level operating income adjustments. (2) Includes asset impairment, closure costs and severance in connection with the 2023 Closure Initiative. 32 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Adjusted Net Income and Adjusted Diluted Earnings Per Share Non-GAAP Reconciliations - The following table reconciles Net (loss) income attributable to Bloomin’ Brands to adjusted net income and adjusted diluted earnings per share for the periods indicated: THIRTEEN WEEKS ENDED (in thousands, except per share data) MARCH 31, 2024 MARCH 26, 2023 Net (loss) income attributable to Bloomin’ Brands $ (83,872) $ 91,311 Adjustments: Income from operations adjustments (1) 12,955 — Loss on extinguishment of debt (2) 135,797 — Total adjustments, before income taxes 148,752 — Adjustment to provision for income taxes (3) (1,366) — Net adjustments 147,386 — Adjusted net income $ 63,514 $ 91,311 Diluted (loss) earnings per share $ (0.96) $ 0.93 Adjusted diluted earnings per share $ 0.70 $ 0.98 Diluted weighted average common shares outstanding (4) 87,024 98,011 Adjusted diluted weighted average common shares outstanding (4) 91,055 93,180 _________________ (1) See the Adjusted Income from Operations Non-GAAP Reconciliations table above for details regarding Income from operations adjustments. (2) Includes losses in connection with the 2025 Notes Partial Repurchase. See Note 9 - Convertible Senior Notes of the Notes to Consolidated Financial Statements for additional details. (3) Includes the tax effects of non-GAAP adjustments determined based on the nature of the underlying non-GAAP adjustments and their relevant jurisdictional tax rates for all periods presented. The primary difference between GAAP and adjusted effective income tax rates relates to certain non-deductible losses and other tax costs associated with the 2025 Notes Partial Repurchase. (4) Due to a GAAP net loss, antidilutive securities are excluded from diluted weighted average common shares outstanding for the thirteen weeks ended March 31, 2024. However, considering the adjusted net income position, adjusted diluted weighted average common shares outstanding incorporates 4,031 dilutive securities, including 3,132 for outstanding warrants. Adjusted diluted weighted average common shares outstanding was calculated including the benefit of our convertible notes hedge. 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. 33 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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 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 31, 2024 MARCH 26, 2023 U.S. Outback Steakhouse $ 133 $ 136 Carrabba’s Italian Grill 12 13 Bonefish Grill 3 3 U.S. total 148 152 International Outback Steakhouse - South Korea 82 94 Other (1) 24 27 International total 106 121 Total franchise sales $ 254 $ 273 _________________ (1) Includes franchise sales fo r off-premises only kitchens in South Korea. Liquidity and Capital Resources Cash and Cash Equivalents As of March 31, 2024, we had $131.7 million in cash and cash equivalents, of which $57.5 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 31, 2024, we had aggregate undistributed foreign earnings of approximately $46.7 million that may be repatriated 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 31, 2023 $ 381,000 $ 104,786 $ 300,000 $ 785,786 2024 new debt 550,000 — — 550,000 2024 payments (296,000) — — (296,000) 2024 conversions — (84,062) — (84,062) Balance as of March 31, 2024 $ 635,000 $ 20,724 $ 300,000 $ 955,724 Interest rates, as of March 31, 2024 (1) 6.94 % 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 31, 2024. 34 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued As of March 31, 2024, we had $346.7 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $18.3 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 12 - Long-term Debt, Net in our Annual Report on Form 10-K for the year ended December 31, 2023 for further information. As of March 31, 2024 and December 31, 2023, 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. 2025 Notes Partial Repurchase - On February 29, 2024, we and the Noteholders entered into the Exchange Agreements in which the Noteholders agreed to exchange $83.6 million in aggregate principal amount of our outstanding 2025 Notes for approximately 7.5 million shares of our common stock and $3.3 million in cash, including accrued interest. Convertible Note Hedge and Warrant Transactions - In connection with the 2025 Notes Partial Repurchase, we entered into the Early Termination Agreements with the Derivative Counterparties. Upon settlement, we received approximately $118.2 million in cash and 0.3 million shares of common stock from the Derivative Counterparties and paid $102.2 million in cash to the Derivative Counterparties during the thirteen weeks ended March 31, 2024. See Note 9 - Convertible Senior Notes of the Notes to Consolidated Financial Statements for additional details regarding the 2025 Notes Partial Repurchase and related Early Termination Agreements. 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, development of new restaurants, remodeling or relocating older restaurants, investments in technology, dividend payments and share repurchases. 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 $270 million to $290 million in 2024. 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 2024, our Board declared a quarterly cash dividend of $0.24 per share, payable on May 31, 2024. 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. In February 2024, our Board canceled the remaining $57.5 million under our former share repurchase authorization and approved a new $350.0 million share repurchase authorization. The 2024 Share Repurchase Program includes capacity above our normal share repurchases activity to provide flexibility in retiring our 2025 Notes at or prior to their May 2025 maturity. The 2024 Share Repurchase Program will expire on August 13, 2025. 35 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued On March 1, 2024, we entered into the ASR Agreement, in connection with our previously announced 2024 Share Repurchase Program, with Wells Fargo to repurchase $220.0 million of our common stock. Under the ASR Agreement, we made an aggregate payment of $220.0 million to Wells Fargo and received an aggregate initial delivery of approximately 6.5 million shares of common stock on March 4, 2024, representing approximately 80% of the total shares that are estimated to be repurchased under the ASR Agreement based on the price per share of common stock on that date. On April 23, 2024, we received 1.4 million additional shares of common stock from Wells Fargo in connection with the final settlement of the ASR Agreement. See Note 10 - Stockholders’ Equity of the Notes to Consolidated Financial Statements for additional details regarding the ASR Agreement. As of March 31, 2024, $130.0 million remained available for repurchase under the 2024 Share Repurchase Program. Following is a summary of dividends and share repurchases from fiscal year 2023 through March 31, 2024: (dollars in thousands) DIVIDENDS PAID SHARE REPURCHASES TOTAL Fiscal year 2023 $ 83,742 $ 70,000 $ 153,742 First fiscal quarter 2024 21,075 188,500 209,575 Total (1) $ 104,817 $ 258,500 $ 363,317 ________________ (1) Excludes $44.0 million paid in March 2024 for the repurchase of 1.4 million shares that settled on April 23, 2024 in connection with the ASR Agreement. Also excludes $0.4 million of fees recorded in Additional paid-in capital related to repurchases under the ASR Agreement. 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 31, 2024 MARCH 26, 2023 Net cash provided by operating activities $ 73,786 $ 189,668 Net cash used in investing activities (64,585) (62,945) Net cash provided by (used in) financing activities 8,758 (116,987) Effect of exchange rate changes on cash and cash equivalents (668) (30) Net increase in cash, cash equivalents and restricted cash $ 17,291 $ 9,706 Operating Activities - The decrease in net cash provided by operating activities during the thirteen weeks ended March 31, 2024 as compared to the thirteen weeks ended March 26, 2023 was primarily due to changes in working capital and lower net earnings. Financing Activities - The net cash provided by financing activities during the thirteen weeks ended March 31, 2024 was due to net draws on the revolving credit facility exceeding cash used to repurchase common stock and net cash received from the Early Termination Agreements. Net cash used in financing activities during thirteen weeks ended March 26, 2023 was primarily due to net repayments on our revolving credit facility. 36 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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 31, 2024 DECEMBER 31, 2023 Current assets $ 298,172 $ 343,314 Current liabilities 894,057 1,002,335 Working capital (deficit) $ (595,885) $ (659,021) Working capital (deficit) includes: (i) Unearned revenue primarily from unredeemed gift cards of $320.0 million and $381.9 million as of March 31, 2024 and December 31, 2023, respectively, and (ii) current operating lease liabilities of $171.2 million and $175.4 million as of March 31, 2024 and December 31, 2023, 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 31, 2024 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. 37 Table of Contents BLOOMIN’ BRANDS, INC.