Outback Steakhouse parent Bloomin' Brands posted strong restaurant-level operating margins for a second straight quarter as it remained less susceptible to cost pressures than its casual-dining peers.
But executives acknowledged they will have to start pulling some levers next year as inflation sets in, starting with a 3% menu price hike later this month.
Restaurant-level margins for the third quarter were 16.8%, excluding a one-time expense associated with a royalty termination. That's more than 4 percentage points better than the company's margins for the same quarter two years ago.
Those margins were aided by strong same-store sales growth across Bloomin’s four brands. Outback comps were up 6% compared to 2019, Carrabba’s Italian Grill grew 17.1%, Bonefish Grill grew 5.7%, and Fleming’s Prime Steakhouse was up 28%.
Sales at 697-unit Outback would have been better, executives said, were it not for several key promotions in 2019 that it didn’t run this year, which made for tougher comparisons. Those promotions, including Steak & Lobster for $16.99 and a deal tied to its new third-party delivery channel, accounted for 10 percentage points of traffic in Q3 2019.
"That's the real delta between what you're seeing at Outback and maybe some of the other brands," said CFO Chris Meyer on a call with analysts Tuesday.
Outback sales also began to moderate in August due to seasonal dining patterns and the spread of the delta variant, and were essentially flat in October as it continued to lap promotions.
Driving the growth was the continuing strength of Bloomin’s off-premise business, which made up 27% of sales in the quarter, including an impressive 36% at Carrabba’s. In-restaurant sales for the quarter, meanwhile, fell 8%. Profit margins on the to-go orders are approaching those of in-restaurant transactions, said CEO Dave Deno.
But Bloomin's margins will be tested in 2022 by commodity cost inflation that the company expects to reach 10% and labor inflation in the “mid-single digits.” The costs will contribute to an estimated $170 million in inflationary headwinds next year, which executives said they were confident the company can offset.
The price increase, Bloomin’s first since late 2019, is one part of that. And the company is “not beyond taking more pricing,” Meyer said.
The 3% hike will account for about $100 million of upside, Meyer said. The increases will differ from brand to brand, said Deno, who noted that the company is particularly careful about prices at Outback.
Bloomin’s struggling Brazil market could also provide a boost. Same-store sales at those restaurants declined 5.1% in Q3 compared to 2019 as the country continued to battle the impacts of COVID-19, but have improved recently: Comps were up 7% in the eight weeks ended Oct. 24.
Additional cost control options include initiatives to boost productivity and other overhead opportunities, Meyer said.
"When you add all those levers up, there's a path to offsetting the inflation pressures that we could see next year and holding on to the 8% operating margins," he said.
Bloomin’s total revenues for the quarter were $1 billion. The Tampa, Fla.-based company opened nine restaurants and closed nine in the period, ending it with 1,484 restaurants worldwide.
Also in the period, Bloomin’ paid $61.9 million to the founders of Carrabba’s to end royalty payments on the brand. Terminating the 1.2% royalty will reduce operating expenses by $7 million, Deno said, adding approximately 20 basis points to Bloomin’ s margins. Outback acquired development rights to Carrabba’s in 1995.
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