Are Lower Interest Rates the Right Bet on Bloomin’ Brands Stock?

Bloomin’ Brands Inc. (NASDAQ: BLMN) is the parent company of a diverse group of restaurants, including Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, and Fleming’s Prime Steakhouse & Wine Bar. I’ll comment on the relevance of that later, but right now, growth is slowing to a crawl, and inflation is taking a bite out of the company’s earnings.  

That’s the takeaway from the company’s second-quarter earnings report released on August 6, 2024. The company delivered revenue of $1.12 billion, which was only a slight miss from the $1.13 billion that analysts expected and down a bit more from the $1.15 billion reported in the same quarter in 2023. 

The drop in earnings was more pronounced. The 51 cents earnings per share (EPS) missed analysts’ expectations by 12%, and the loss was an even more significant 31% drop year-over-year. Additionally, the company’s adjusted operating margin of 5.7% was down from the prior quarter’s 7.8%. The same trend was in place with the restaurant-level operating margin, which fell to 14.3% from 16.4%.  

The company competes in the consumer discretionary stocks sector with rivals such as Texas Roadhouse Inc. (NASDAQ: TXRH) and Darden Restaurants Inc. (NYSE: DRI). Bloomin’ Brands was the last to report earnings; its results were the weakest of the three companies.  

At a time when investors and traders are particularly sensitive to any bad news, the report was bound to send BLMN stock lower. As of yesterday's midday trading, it is down 7%.

BLMN's Guidance Was Lower As Well 

It's important not to get carried away by the headline numbers in an earnings report. They are always backward-looking. However, it’s worth noting that the company lowered both its revenue and earnings outlooks significantly from the prior report.  

It’s not surprising to hear that Bloomin’ Brands is under pressure. Anecdotal evidence in some markets aside, consumers are pulling back. And that is coming at a time when restaurants continue to deal with wage pressures and other higher input costs. 

However, Bloomin’ Brands is now projecting comparable restaurant sales to be down 2% to flat. Its full-year EPS outlook is between $2.10 and $2.30, down from $2.51 to $2.66. That range suggests that more than 50% of the company’s earnings are already in for the year.  

Could a Rate Cut Make a Difference for Bloomin' Brands?

What may be keeping analysts interested in BLMN stock is the Federal Reserve's near guarantee of a rate cut in September. The company operates a diverse model that appeals to consumers of all income levels, giving each chain a different value proposition. It doesn’t need all consumers to return, just some, particularly in its higher-end markets.  

However, economists are warning that even an aggressive Federal Reserve rate-cut campaign is likely not to make a short-term difference, as rate cuts, like rate hikes, take time to work their way through the economy.  

That makes it difficult to see a rate cut as a reason to buy BLMN stock, which is trading near its 52-week low. However, heading into the report, analysts had still been bullish on the company. The Bloomin’ Brands analysts' forecasts on MarketBeat gave the stock a consensus price target of $26.56, which would be a 56% gain.  

Investors should note that it took BLMN stock nearly two years to gain that much from its 2022 low. But if you believe an uptrend is ready to happen, then buying a stock with a 5.64% dividend yield may be a bargain.  

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