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Investing.com -- S&P Global Ratings has revised its outlook on Tampa-based casual dining company Bloomin’ Brands (NASDAQ:BLMN) Inc. from positive to negative. The company has experienced shrinking margins and cash flow over the last four quarters, leading to a leverage increase over 4x. The negative outlook is due to expectations of continued traffic declines, modest sales contraction, and costs related to various initiatives expected to put pressure on margins in a challenging and competitive environment.
The rating agency affirmed the ’BB-’ issuer credit rating for Bloomin’ Brands and lowered the rating on the company’s senior secured credit facility due in 2029 to ’BB’ from ’BB+’. The recovery rating was also revised to ’2’ from ’1’, indicating a substantial recovery expectation of 70% to 90% in the event of default. The rating on Bloomin’s senior unsecured notes due in 2029 was lowered to ’B’ from ’BB-’, with a revised recovery rating of ’5’ from ’4’, reflecting a negligible recovery expectation of 0% to 10%.
Bloomin’ Brands’ performance fell short of the industry average in the fourth quarter of 2024, losing 260 basis points on sales and 410 basis points on traffic. The company’s comparable sales were down about 1% to 2% in the quarter for its three brands, except for Fleming’s restaurants, which saw a 3% increase. A similar performance is expected in 2025 as consumers move towards lower-priced dining options or home dining.
The company’s debt increased in 2024 as its EBITDA generation declined. It maintained high borrowings under its $1.2 billion senior secured credit facility, more than $600 million throughout 2024. Over the year, S&P Global Ratings-adjusted debt increased approximately 14%, while adjusted EBITDA fell nearly 30% year-over-year to $538 million in 2024 from $748 million in 2023. The forecast for 2025 remains at $530 million to $540 million amid several performance-improvement investments.
Bloomin’ Brands recently announced its intention to franchise more than 30% of its total restaurants. The company is directly exposed to fluctuations in commodity prices, wage inflation, and other restaurant-related operating cost pressures, as well as ongoing capital investment needs. The company’s partial sale of its Brazil operation, once a growth driver, marks a turnaround. The refranchising of the Brazilian operations will reduce the company’s risk by shifting operations to local partners and allow management to focus on the company-owned business. The company plans to use the $225 million in proceeds from the sale to repay its revolver.
The rating could be lowered over the next 12 months if operating performance falls short of the forecast, including weaker margins and cash flow, keeping leverage above 4x. Conversely, the outlook could be revised to stable over the next 12 months if the company limits traffic losses to industry averages, improves EBITDA margins, and maintains S&P Global Ratings-adjusted leverage below 4x, with consistent and significant annual free operating cash flow generation.
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