Same-store sales at the four Bloomin’ Brands Inc. concepts combined fell 2.3 percent in the second quarter ended June 26, the company said Friday.
The decline was unexpectedly large, and enough to cause the operator of Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar to lower its expectations for same-store sales and earnings for the full year. Investors didn’t like the news, and Tampa, Fla.-based Bloomin’ Brands’ stock fell 7 percent in Friday morning trading.
But company executives insisted that same-store sales will improve in the second half of the year, and into next year as well. Their confidence is rooted in the company’s decision to shift away from discounts that have dominated casual-dining marketing over the past decade, and to generate higher quality traffic.
“We have over-allocated our spending toward price-conscious messaging,” Bloomin’ Brands CEO Liz Smith said on the company’s earnings call Friday. “In 2016, we began to pivot. We will reduce the over-allocation of dollars toward traditional discounting and will allocate dollars toward the customer experience.”
Smith began the earnings call with a lengthy takedown of the casual-dining environment over the past decade. She said that the industry spent too much time discounting in a bid to win back customers.
Smith noted that deal-driven casual-dining traffic increased through the recession from 16 percent to 21 percent by 2010. Since then, that figure has only increased: She said 22 percent of today’s casual-dining traffic is deal driven.
“This trend is unlikely to change, given the sluggish start to 2016,” Smith said. “Twenty-five percent of customers are truly motivated by price than by brand preference.”
And yet the heavy discounts haven’t generated traffic overall. Casual-dining traffic has been falling for years, and has continued to do so this year. Segment traffic has increased only four months since May 2012, according to MillerPulse data, including a 2.5-percent decline in June.
“The industry overspent chasing a group through discounting and price promotions,” Smith added. “[Casual-dining] brands trade share among a subset of customers that are less brand loyal and less profitable, and unnecessarily subsidizing the majority of customers who would have visited, anyway.”
Bloomin’ will work on improving the customer experience so it is “more focused on the numerator than on the denominator.” Although the company will be “sensitive to the macro environment,” it will “lessen our reliance on traditional discounts.”
Smith believes that doing so will help the company generate “high-quality, more predictable traffic growth.”
She said that the company has proven the strategy at Bonefish Grill. The company has spent recent quarters eschewing discounts in favor of a return to its polished-casual roots.
It was the only of the four brands to report a same-store sales increase in the second quarter, growing 0.9 percent.
Same-store sales fell 2.5 percent at Outback Steakhouse, 4.8 percent at Carrabba’s and 0.8 percent at Fleming’s.
The results were “softer than anticipated,” Smith said.
The company reduced its expectations for full-year same-store sales to flat instead of positive. It also lowered its earnings per share forecast to $1.35 from $1.40, and lowered its operating margin growth to flat. All of that was due to the sales decline.
Carrabba’s “disappointed” in the second quarter despite a new menu and advertising. “The Italian category is increasingly competitive,” Smith said. “There are elevated levels of promotional activity.” She noted that 26 percent of traffic at Italian casual-dining concepts is “deal driven,” higher than the 22 percent for the casual-dining sector.
The company believes it has the strategies to improve same-store sales for the rest of the year, to finish 2016 flat instead of down.
The company recently began its DineRewards loyalty program that enables customers to collect reward points at all Bloomin’ Brands concepts, making it the first multi-concept loyalty program in casual dining. The company started the program on July 19, and 800,000 people have already signed up.
Upgraded online ordering is generating more to-go sales. The average check for online orders is 15-percent higher than phone orders. The company is promoting bundled offers to generate more interest in online ordering.
In addition, the chain is testing delivery in 10 restaurants. Smith said that delivery could be “a sizable incremental sales layer” for casual-dining restaurants.
The company is also working on exterior remodels at Outback that have shown to generate sales.
By focusing on the customer experience, Smith said the company can generate more consistent sales over the long term.
“We know that historically every time we increase the 360-degree customer experience, we gain sales and volume,” Smith said. “We’re reducing our reliance on straight price couponing. There are much more important and interesting things to talk about that bring customers in. Consumers are fatigued from coupons.”