Outback Steakhouse same-store sales fell 0.7 percent in the U.S. during the third quarter amid “softer than anticipated” traffic, especially at dinner, parent company Bloomin’ Brands Inc. said Friday.
The Tampa, Fla.-based company cited “continued competitive activity” pressuring casual-dining restaurants. Bloomin’ Brands CEO Liz Smith said during the company’s earnings call Friday that discounting in the segment, the growing number of restaurants, and improving value associated with lower grocery prices also contributed to the weakness.
In response, Bloomin’ Brands is redoubling efforts to bolster the customer experience inside its restaurants, including improving service and food quality. It is also cutting 19 items from the Outback menu in November in a bid to simplify operations.
“Industry headwinds are pressuring traffic growth,” Smith said during the call. “But we’re making the right investments to generate healthy traffic. But it’s going to take longer to manifest in this environment.”
Three of Bloomin’ Brands’ four concepts reported same-store sales declines in the third quarter ended Sept. 25. Carrabba’s Italian Grill same-store sales fell 2.1 percent, and Fleming’s Prime Steakhouse & Wine Bar same-store sales dropped 1.9 percent. But Bonefish Grill same-store sales increased 1.7 percent.
The biggest problem came at dinner.
“We have more challenged traffic at dinner versus lunch,” Smith said. “That has more to do with what’s going on in the competitive environment.”
Smith cited increased restaurant capacity, the “confidence gap” among core casual-dining consumers, and Americans taking a “wait-and-see” approach amid negative rhetoric associated with the presidential election.
“People are a little bit tentative, and that’s showing up more at the dinner segment,” she said. She added that the widening gap in pricing between grocers and restaurants is having a bigger impact in the evening.
“The meal people cook at home is dinner,” Smith said. “There’s a lot more availability for at-home dinner, with third-party meal kits, grocery meals and dinner options.”
Bloomin’ Brands has been working to shift its brands away from traditional discounting to focus more on the customer experience.
The company is “reducing our allocation of dollars against traditional discounting,” and “migrating toward healthier traffic.” That’s why average check has increased while traffic has fallen.
Smith said that Bloomin’ Brands has done that at Bonefish Grill, which is seeing same-store sales growth again following some challenging quarters. The company shifted away from traditional discounting at the brand to focus on its casual-dining roots.
“Last year, we felt we overallocated dollars to discounting and price promotion, relative to what customers want from us,” she said, noting that the company has started to “pivot away” from some of those programs. Executives suggested that discounted traffic is not profitable, while traffic looking for a good experience is “stickier, more loyal traffic.”
“It is a very competitive environment,” Smith said. “Given the headwinds the category is facing, we have to be nimble and agile. And price promotions will always be part of the equation. We just think we overallocated to it.”
Another thing that will be part of the equation: To-go orders. The company is boosting its efforts on to-go orders, believing it to be a strong potential for some of its brands, notably Outback and Carrabba’s.
Bloomin’ Brands is testing a go-to-market strategy for off-premise orders and has “added talent to the organization to enable us to move forward,” Smith said.
“We think there’s a significant opportunity in off-premise dining,” Smith said. “People want convenience and [casual-dining] food quality. Our own research says this is a sizable, incremental sales layer. We want to be prudent and aggressive to capture those sales.”
Bloomin’ Brands net income increased 23 percent in the third quarter, to $20.7 million, or 19 cents per share, from $16.8 million, or 14 cents per share the previous year.
Revenue decreased 2.1 percent, to $1.01 billion, from $1.03 billion the previous year.
Bloomin’ Brands stock rose 1.5 percent through early Friday afternoon trading.
Average check increased at all four concepts, including a 5.8-percent increase at Outback. But traffic was a sore point: At Outback, traffic fell 6.5 percent, and it dropped 4.5 percent at Carrabba’s, 2 percent at Bonefish Grill and 2.9 percent at Fleming’s.
The company has more than 1,500 units across its four brands, including 756 domestic Outback locations.