An activist investor is intensifying its pressure on the parent of Outback Steakhouse to sell the company’s three smaller restaurant chains and rethink the strategy set by the operator’s CEO, Liz Smith.
Barington Capital Group sent a letter to the board of Bloomin’ Brands on Monday, urging that it shift Smith’s responsibilities as board chairman to someone hired from outside the full-service operator’s management team. The communication did not call for Smith’s ouster as CEO, but criticized the direction she has set for Outback and its sister brands, according to Reuters, which said it had obtained a copy of the letter.
The board responded later in the day with a statement pledging support for the current management team and the plan it has drafted for Outback and its sister concepts, Carrabba’s Italian Grill, Bonefish Grill, and Fleming’s Prime Steakhouse & Wine Bar. The words of support were attributed to the board’s lead independent director, Jim Craigie, the former CEO of OxiClean parent Church & Dwight.
“We fully support the management team and its successful ongoing efforts,” Craigie said.
The communication also included a defense from Smith of her leadership. “We are making great progress in elevating the total customer experience by investing in food quality, service, and ambience,” she is quoted as saying. “As a result, over the last three reported quarters, we have achieved an increase in sales and market share. We have also taken actions to reduce overhead and reinvest those savings to improve our digital and IT infrastructure, as well as to enhance our growing off-premise business.”
The statement directly refuted Barington’s contention that Bloomin’ has been unreceptive to the hedge fund’s input, saying the board has met with representatives of the investor seven times since March 2017.
Demands similar to Barington’s were pressed earlier this year by another activist shareholder, Jana Partners. Its push for a divestiture of Carrabba’s, Bonefish and Fleming’s led to the appointment of Jana representative Wendy Beck, a former executive of Domino’s Pizza and Whataburger, to Bloomin’s board.
Barington is led by James Mitarotonda, a former executive of Bloomingdale’s and Citibank. The company is known for working collaboratively with the management of its portfolio companies rather than taking a strongarm approach.
But the concern has loudly criticized Bloomin’, particularly its decision to hold onto Carrabba’s, Bonefish and Fleming’s. It has argued that shareholder value would be maximized by spinning those smaller operations into a separate company and concentrating on the growth prospects of Outback, Bloomin’s workhorse brand.
Outback has been the company’s consistent outperformer. For the quarter ended July 1, the moderately priced steakhouse brand posted a same-store sales gain of 4%, compared with a 1.3% rise for Bonefish and a 0.3% increase for Fleming’s. Carrabba’s comps slipped 0.6%.
Smith has lessened the reliance of all four brands on discounting and broad-based conventional marketing campaigns, steering it toward local programs and social media. She has also taken the contrarian approach of relying on self-delivery instead of charging into the off-premise market through partnerships with third parties such as Grubhub or Uber Eats.
She has led the company since 2009, joining Bloomin’ after serving as president of Avon Products. She is one of the few CEOs in casual dining to come from outside the restaurant industry.