The Bloomin’ Brands (BLMN) Companies cut its dividend because of intense competition, inflation, and a stressed customer. Comparable sales are now negative; a new CEO recently took the helm. Although a new strategy and direction may help, changes take time. The firm previously omitted its dividend during the pandemic in 2020 and restarted it in early 2022, but it was constant for eight quarters.
The company’s end market challenges have caused the share price to drop substantially from March 2024. The share price fell as investors exited this dividend stock because of worries about when comparable sales would turn positive, and a potential dividend cut as safety decreased. Another cut may occur in the future, depending on economic conditions.
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Overview of The Bloomin’ Brands Companies
Bloomin’ Brands was founded in Tampa, Florida, in 1988. It is a business and fast-casual restaurant chain operating through two segments: United States and International Franchise. The company’s four concepts are the Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, and Fleming’s Prime Steakhouse & Wine Bar. The company owns, operates, and franchises over 1,450 restaurants in 47 states, territories, and 12 countries.
Total revenue was $3,950 million in the fiscal year 2024 and in the past twelve months.
Dividend Cut Announcement
During the first quarter fiscal 2025 results announcement on Wednesday, February 26th, The Bloomin’ Brands Companies (EL) cut its dividend payout. The company’s quarterly dividend rate was $0.24 per share before the announcement. The dividend is now $0.15 per share, a 37.5% reduction. In the quarterly results on February 26th, the announcement stated,
“On February 12, 2025, our Board of Directors declared a quarterly cash dividend of $0.15 per share, payable on March 26, 2025 to stockholders of record at the close of business on March 11, 2025.”
Later, in the earnings call transcript, the company’s CEO stated,
“As it relates to our dividend, this is our first quarter post the Brazil transaction. We are, therefore, adjusting our dividend such that our dividend payout ratio will be more in line with our historical payout ratio based on the earnings of the business post the Brazil transaction. Our new annual dividend will be $0.60 per share compared to $0.96 per share previously “
“I want to be clear that we know we need to take actions to improve our results. We are focused on driving everyday value within our casual dining brands while also delivering a great guest experience. Our work will take time, and we will be transparent along the way. We know that we have hard work to do, but the team and I believe in the future.”
“As Mike mentioned, we are updating our dividend to reflect the reduced earnings from the sale of Brazil and setting the payout ratio in line with our historical average. Board declared a quarterly dividend of $0.15 a share that is payable on March 26, 2025”
“…it’s part of our holistic strategy in terms of capital allocation. And as Michael said, and we talked about, it’s, one, we’re going to focus on the base business. That’s number one. Two, we’re going to go at the debt to get to that 3.0 lease leverage ratio. And then the third is we’re going to return cash to shareholders. And we thought the dividend, and we think the dividend is the most reliable, predictive, consistent way to bring cash back to shareholders. And we’re going to stay at that. And if that changes, we’ll let you know.”
Effect of the Change
By executing a 37.5% dividend cut, Bloomin’ Brands sought to reduce its dividend to provide financial flexibility because of lower revenue after selling 67% of its Brazil operations and restating the franchise agreement. Because the firm’s earnings will be lower going forward, it reduced the dividend. The company’s dividend rate has been constant since early 2023, so it did not have a streak. The result is less free cash flow is required for the dividend payout, permitting the restaurant operator to focus on its priorities.
Challenges
Bloomin’ Brands is facing a difficult economic environment globally because of intense competition, inflation, and a stressed customer.
Competition
Bloomin’ Brands’ flagship restaurant chain, Outback Steakhouse, faces significant competition from Texas Roadhouse and LongHorn Steakhouse. The chain’s comparable sales have been declining and are now negative. Texas Roadhouse is positioned with more value pricing, while LongHorn Steakhouse has offset lower traffic with a higher average check per guest.
Also, the other three concepts have experienced similar trends and now have negative comparable sales. The bottom line is that competition in the business and fast-casual dining market is significant.
Inflation
Inflation remains a primary concern of restaurants. Cost of goods inflation has stabilized and can likely be mitigated. However, labor inflation remains higher than usual, placing upward pressure on wages. Low unemployment has made finding inexpensive labor difficult.
Inflation
Next, inflation has subsided but is now returning. Business and consumer expectations are for higher prices in the future. This is impacting margins and consumer spending.
Dividend Safety
Bloomin’ Brands’s dividend safety was declining because of lower revenue and earnings per share. Earnings per share peaked in fiscal year (FY) 2023 at $2.93 but plunged dramatically to $1.45 in 2024. They are expected to fall further to $1.30 per share in FY 2025.
As a result, as seen in the chart below from Portfolio Insight*, the dividend yield climbed rapidly to over 10%. This value is usually associated with company distress, especially when dividends are not increasing. It was much greater than the 5-year average of 4.31%. After reducing the dividend by approximately 37.5%, the estimated forward dividend yield is around 6.5%, but it has risen to 8.8% because of a falling share price. The quarterly rate is $0.15 per share. However, the yield is still significantly higher than the S&P 500 average.
The annual dividend now requires about $56 million ($0.60 yearly dividend x 85 million shares), compared to $83 million in FY 2024. In addition, based on consensus 2025 estimates of $1.30, the dividend payout ratio will contract to around 46%. We expect the annual difference in cash flow requirements to enhance liquidity and allow the firm to de-lever and reduce debt. The firm aims to achieve a leverage ratio of less than 3.0X. It is nearly 4.0X now.
Although the dividend is in a better position and more secure now, the payout ratio is still elevated and above our target value of 70%. In addition, the restaurant firm receives a dividend quality grade of ‘F’ from Portfolio Insight. Hence, Bloomin’ Brands is in the bottom percentile of dividend stocks tracked. We view the equity as at risk for another dividend cut unless the results improve.
Final Thoughts on the Bloomin’ Brands (BLMN) Dividend Cut
Before the pandemic, Bloomin’ Brands was a dividend growth stock. It restarted the dividend in the first quarter of 2022. However, intense competition, inflation, and a stressed customer have created significant challenges for the firm. Moreover, tariffs and rapidly changing policies make the economic climate uncertain. Moreover, the negative comparable sales and EPS decline have been severe. As a result, Bloomin’ Brands cut its dividend.
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.
