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CFA Research Challenge 2015 Entry

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CFA Institute Research Challenge
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Bloomin’ Brands, Inc. NASDAQ: BLMN
CFA Institute Research Challenge P a g e | 1
Important Disclosures appear at the back o...
Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015
CFA Institute Research Challenge P a g e | 2
Figure 1: 2014-YTD Sale...
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CFA Research Challenge 2015 Entry

  1. 1. CFA Institute Research Challenge Hosted by CFA society Miami
  2. 2. Bloomin’ Brands, Inc. NASDAQ: BLMN CFA Institute Research Challenge P a g e | 1 Important Disclosures appear at the back of this report Recommendation: BUY January 20, 2015 Current Price $23.50 (as of 12/19/2014) Target Price $26.28 (11.85% Upside) Highlights We issue a BUY recommendation on Bloomin’ Brands, Inc. (BLMN) with a price target of $26.28. Using a blend of the discounted cash flow model and a forward Price to Earnings multiple, the valuation offers an 11.85% upside from the December 19th , 2014 closing price of $23.50. Bloomin’ Brands’ upside strength results from superior sales growth, margin improvements, and strong growth in operating cash flow. Additionally, significant brand recognition improves firm value by allowing for successful expansion both domestically and internationally.  Domestic Growth to Remain Robust – Bloomin’ Brands outperforms industry peers in both sales growth and consumer traffic. Since 2010 Bloomin’ Brands has beat the Knapp- Track Index in comparable store sales and traffic by 2.9% and 4.5% respectively. The company seeks to maintain the gap to the Knapp-Track Index through a national lunch rollout in its Outback Steakhouse and Carrabba’s Italian Grill brands. Bonefish Grill, which provides the highest ROIC for the company, will be the focus of domestic new restaurant build outs and is expected to contribute 74% of domestic new stores sales in 2015.  International Expansion – Global market size for full service restaurants is projected to grow at 1.5 times the rate of the U.S. market, creating an opportunity for Bloomin’ Brands to expand its international footprint. Currently, international operations in Brazil, South Korea, and China account for 12.3% of the company’s total revenue. The addition of over 100 restaurants outside the U.S. by 2019 is expected to drive 18.5% of company revenue. Furthermore, Brazilian Outback average unit volume of $6 million is double its U.S. counterparts’. Incremental international sales are projected to contribute 24.3% of Bloomin’ Brands 2014 total revenue growth.  Improved Margins – Productivity improvements will save Bloomin’ Brands near $50 million in operating costs per year. We forecast operating profit margins to rise from 5.5% to 6.7% through 2019, moving closer to the industry peer median of 8.3%. Margin improvements are expected to come from the implementation of labor optimization, high performance kitchens, and supply chain efficiencies. Past productivity improvements have previously contributed 130 bps to operating margin.  Strong Operating Cash Flow – Bloomin’ Brands’ operating cash flow has grown at a five year CAGR of 5.9%. Going forward the operating cash flow will outweigh upcoming investing and financing commitments, eliminating the need for external financing. The company has recently announced the payment of its first dividend of $0.24 per share and a $100 million share repurchase program. Additionally, Bloomin’ Brands is paying down debt and projects to make CAPEX investments in the range of $255 million to $280 million, an increase of 14% from 2014. Despite the increase in cash outflows, we project Bloomin’ Brands will experience a net increase in cash starting in 2016. 2012 2013 2014F 2015F 2016F 2017F 2018F 2019F Revenue ($M) 3,988 4,129 4,409 4,545 4,795 5,055 5,326 5,608 EBITDA ($M) 304 405 391 445 489 531 559 589 Net Income ($M) 50 208 105 151 178 207 226 247 Diluted EPS ($) 0.44 1.63 0.84 1.23 1.47 1.71 1.87 2.04 Bloomin' Brands Forecast Summary Sector Services Industry Casual Dining Restaurants Price 12/19/14 23.5 52 Week High 26.45 52 Week Low 15.01 Avg. Daily Vol 2,117,580 Est. Yield (%) 1 Beta 0.98 Market Cap (B) 2.94 P/E (TTM) 23.74 P/E (FWD) 18.95 Institutional Ownership (%) 92.7 Insider Ownership (%) 7.61 Shares Outstanding (M) 125.7 Public Float (M) 97.8 EPS (TTM) 1.01 PEG (FWD) 1.73 1-Month Return (%) 7.69 6-Month Return (%) 4.72 1-Yr Return (%) 0.64 Key Statistics 0 10 20 30 0 500 1000 1500 2000 2500 S&P 500 BLMN Stock Price Since IPO 0 10 20 30 1400 1600 1800 2000 2200 S&P 500 BLMN Stock Price YTD Source: Bloomberg Source: Bloomberg
  3. 3. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 2 Figure 1: 2014-YTD Sales by Restaurant Concept ($M) Source: Company Data Figure 2: Outback Sales Comparison Source: Company Data Figure 3: Carrabba’s Sales Comparison Source: Company Data Figure 4: Bonefish Sales Comparison Source: Company Data Business Description Summary Bloomin’ Brands, Inc. (NASDAQ: BLMN) is the second largest full service casual dining company by sales with $4.38 billion. Its portfolio of 1,491 locations consists of four differentiated restaurant concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, and Fleming’s Prime Steakhouse & Wine Bar (see Figure 1). Bloomin’ Brands was initially incorporated as OSI Restaurant Partners Inc. in 1987 and initially went public as Outback Steakhouse in 1991. Bain Capital and Catterton Partners took the company private in 2007 for a purchase price of $3.2 billion in order to turn around the underperforming company. In August 2012 the company was taken public again as Bloomin’ Brands, named after the signature menu item, Bloomin’ Onion. The current market capitalization is $2.98 billion and Bain Capital is still the largest shareholder with 14.6% ownership. Headquartered in Tampa, Florida, Bloomin’ Brands operates company-owned stores in the United States and abroad while also selectively franchising. Domestically it maintains a large presence in the Southeast United States, primarily in Florida with 223 restaurants. CEO Elizabeth Smith has led the company since the 2012 IPO. Outback Steakhouse currently comprises 63% of the portfolio, but future growth will be focused on Bonefish Grill and international Outback locations.  Outback Steakhouse (Domestic) -- Australian themed steakhouse with 648 company- owned restaurants and 105 franchises across the U.S (see Figure 5). The Outback brand accounted for $2.1 billion of Bloomin’ Brands’ 2013 revenue and holds the top position in full service steakhouses (see Figure 2). Alcohol comprises 11% of sales and the average check is $20 per person.  Carrabba’s Italian Grill – Italian style dining with 248 company-owned and one franchised location in the U.S. Carrabba’s is ranked second in full service Italian dining (see Figure 3). Carrabba’s contributed $706 million to top line revenue in 2013. Alcohol represents 16% of the sales mix and the average check is $21 per person.  Bonefish Grill - Polished casual dining seafood restaurant with 209 company-owned units and seven franchises in the United States. Bonefish is second in full service seafood and accounts for $555 million of Bloomin’ Brands’ 2013 revenue (see Figure 4). Alcohol accounts for 24% of sales and the average check is $23 per person.  Fleming’s Prime Steakhouse – Upscale contemporary steakhouse with 65 locations across 28 states in the United States. Fleming’s 2013 revenues were $265 million. Alcohol makes up 29% of sales and the average check is $69 per person.  Outback International – Operations in 21 countries with 171 company-owned locations and 51 franchises or joint ventures. Brazil and South Korea are the largest international markets and Outback is ranked first and second respectively among casual diners. Revenue in 2013 was $344 million. Industry Overview and Competitive Positioning Overview and Key Macroeconomic Drivers The casual dining restaurant industry is projected to generate $92.0 billion in revenue for 2014 and accounts for nearly 15% of total U.S. restaurant sales. The fragmented nature of the industry creates a highly competitive market place with no firm having greater than 10.7% market share. In this divided industry, Bloomin’ Brands holds a 4.6% market share. Over the past five years, the casual dining restaurant industry has shown recessionary recovery revenue growth of 2.1% annually. Going forward, overall industry revenue is projected to grow at a slower annual growth rate of 1.5% through 2019. Acting as a demand driver, lower unemployment rates have benefited the casual dining industry by consumers contributing more discretionary spending. The current unemployment rate of 5.8% is a positive indicator for the industry along with improved consumer confidence and spending levels. Increased consumer confidence drives spending habits on discretionary items such as sit-down meals. Outback Steakhouse 50% Carrabba's 17% Bonefish Grill 14% Bloomin' International 13% Fleming's 6% 1,627 535 461 200 437 $- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 Sales($B) # 1 in Steak Sales $- $1.0 $2.0 $3.0 $4.0 Sales($B) # 2 in Italian Sales $- $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 Sales($B) # 2 in Seafood Sales
  4. 4. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 3 Figure 5: Store Concept Breakdown Source: Company Data Figure 6: Revenue vs Employment Source: IBIS World & Capital IQ Figure 7: Revenue vs Consumer Spending Source: IBIS World & Capital IQ Figure 8: International Foodservice Growth by Type Source: Company Data Consumer spending is expected to increase at an annual rate of 2.6% over the next five years. The average consumer spends roughly 5.2% of annual expenditures on food and beverages outside the home. An estimated 40% of industry demand comes from consumers with household incomes of $100k or more, while roughly 50% comes from households with incomes between $20k and $80k. Correlations between changes in casual dining restaurant sales and changes in employment and consumer spending are 78.1% and 70.2% respectively. Co-movement of these variables are shown in Figure 6 and Figure 7. Industry Analysis Domestic Market Saturation Casual Dining Restaurants are beginning the mature stage of their economic life cycle as evidenced by Industry Value Added (% contribution to gross GDP) projections of 2.1%, matching the projected five year growth of U.S. GDP. Market saturation is the largest constraint to comparable store sales growth and new restaurant growth. The key metric in industry comp store sales is the Knapp Track Index which projects domestic growth to be negative 2% to 0% for the casual dining restaurant industry, indicating market saturation. Gains at the firm level will have to come from market share rather than industry growth. Furthermore, new store growth is hindered by competition for real estate in prime high consumer traffic locations. Consumer Preference Trends Consumer preferences have shifted toward lighter, healthier options, such as the 6 oz. sirloin paired with fresh mixed vegetables listed on Outback’s 600 calorie menu. This trend will be reinforced by upcoming FDA regulations mandating that nutritional information be listed on menus. Traditionally, casual dining restaurants have benefitted from large portions and high calorie entrees as a value proposition. Recent shifts in the healthy eating index indicate consumers are seeking out lighter meal options; however, the casual dining industry has been slow to react. Furthermore, fast casual chains such as Chipotle and Panera have been able to capitalize on the trend. The casual dining industry is anticipated to face pressure to adjust menus and possibly revamp brands to accommodate changing consumer preferences. M&A Activity A number of restaurant groups have been offloading underperforming chains to private equity firms. The largest recent move came from Darden Restaurants in 2014. The company sold its 600-plus Red Lobster restaurants to Golden Gate Capital for $2.1 billion. The private equity community plays a significant role in the industry. Firms have targeted underperforming chains with the goal of a quick turnaround in profitability. Roughly 25 M&A deals have occurred since 2012 in the entire restaurant industry, a pace that has been increasing in order to lock in lower interest rates. Most recently, Bloomin’ Brands has announced the sale of its Roy’s brand to a Dallas-based Applebee’s franchisee. Barriers to Entry The barriers to entry for the casual dining restaurant industry are low. The ability to franchise allows for the easy transition of equipment, training, and marketing from a corporate to franchisee level. Franchising allows inexperienced ownership a lower operating cost and favorable financial risks in operating a restaurant. Although the industry is highly regulated with regards to food quality and health concerns, there are no extraordinarily restrictive barriers. The most significant barrier entry is competition for prime restaurant locations. International Growth The saturated domestic market is driving the industry to expand abroad. International expansion is favorable as the average global consumer has seen increases in wealth. Full Service restaurants are projected to account for 50% of all international food service growth from 2014 to 2018 (see Figure 8). Firms in the industry have varied their approach to international operations, choosing either to franchise, engage in a joint venture, or own the restaurant themselves. Bloomin’ Brands projects 30% of its future revenue will come from international operations. As a comparison, international sales currently account for 13.4% of revenue (see Figure 9). In terms of future growth, casual dining restaurants that successfully capitalize on international locations will see large gains in both revenues and profits. Outback Steakhouse 753 Bloomin' International 277 Carrabba's 244 Bonefish Grill 201 Fleming's 66 -5% -3% -1% 1% 3% 5% %Change Revenue % Change Employment -5% -3% -1% 1% 3% 5% %Change Revenue % Change Consumer Spending Full Service Restaurants 50%Fast Food 30% Other 20%
  5. 5. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 4 Figure 9: 2014-YTD BLMN Sales Mix Source: Company Data Figure 10: Five Forces Model Source: Team’s Analysis Figure 11: Industry Market Share Source: Bloomberg Figure 12: Average Check Comparison Source: Company Data Competitive Positioning Bloomin’ Brands operates in a highly competitive industry (see Figure 10) and is the fourth largest restaurant company by market share with 4% of the market (see Figure 11). Bloomin’ Brands is favorably positioned within the casual dining restaurant industry largely due to its diversified portfolio of brands. Diversification allows it to compete in several restaurant segments including: seafood, steak, fine dining, and Italian. Different food offerings, expressed through each themed restaurant, protect against changing consumer preferences and dietary trends. A history of high quality food and service dating back to 1987 has produced a strong brand awareness which helps to distinguish BLMN from new competitors. Average Check Reduction Adds Consumer Value Outback Steakhouse has been able to provide value to customers by decreasing the average check size relative to its peers. Since 2008 Outback average checks have dropped 9.1% from $22 to $20. Over the same time span competitors’ average checks have risen (see Figure 12). The brand has been able to capitalize by widening the menu with smaller portioned items and giving more choices to the consumer. Bloomin’ Brands has been increasing Outback menu prices by 2% annually, but consumer preferences towards smaller menu items has driven down the average check. Promotions Bloomin’ Brands’ management has stated their intent to reduce many of the company’s promotions in response to improved economic conditions. Most notably, the removal of Bonefish Grill’s Bang Wednesdays. Increased consumer spending has reduced the need for promotional prices to drive traffic. The goal is to create a regular customer base not driven by promotions and to maintain traffic while increasing revenue. Investment Summary Recommendation We issue a BUY recommendation on Bloomin’ Brands, Inc. (BLMN) with a price target of $26.28. Using a blend of the discounted cash flow model and a forward Price to Earnings multiple, the valuation offers an 11.85% upside from the December 19th , 2014 closing price of $23.50. Bloomin’ Brands’ upside strength results from superior sales growth, margin improvements, and strong growth in operating cash flow. Additionally, significant brand recognition improves firm value by allowing for successful expansion both domestically and internationally. Sales Growth Substantially Outpacing the Industry Average Since 2010 Bloomin’ Brands’ annual comp store sales have outperformed the Knapp-Track by an average of 2.9% (see Figure 13). Going forward, management expects this trend will continue at a 2% pace. The gap to the Knapp-Track is accomplished through successful restaurant expansion, addition of lunch, renovations and relocations, and innovative menu updates.  Expanding Domestic and International Locations – Bonefish Grill restaurant unit growth is the top domestic expansion priority. Bloomin’ Brands projects expansion of over 150 locations in the next four to six years. Restaurant unit ROI ranges from 3%-12% depending on restaurant concept, with management noting that Bonefish provides the highest ROI. Internationally, Bloomin’ Brands’ focus is on leveraging local expertise from established expansion in Brazil and South Korea into additional international markets. Target markets include China, other Asia-Pacific countries, Mexico, and the Andean Cluster. The international sales CAGR for full service restaurants is 6% compared to the U.S. rate of 4.1%. Given the current international growth rate being 1.5x the U.S. rate, future growth will likely depend on expanding abroad. Expectations are that international revenue will increase with a CAGR of 13.9% and comprise approximately 18.5% of total revenue by 2019.  Lunch Rollout - Bloomin’ Brands has already added lunch to half of Outback Steakhouse locations and will bring lunch to the remaining half of by Q2 of 2015 to coincide with a national lunch advertising campaign. Applying current market share ratios, Bloomin’ International 13.4% Domestic 86.6% 437 2823 1 2 3 4 5 Substitutes Competitive Rivalry Threat of New Enterants Buyer Power Supplier Power Darden 11% Dine Equity 9% Brinker 5% Bloomin' Brands 4% Cracker Barrel 3% Cheesecake Factory 2% Other 66% $0.00 $5.00 $10.00 $15.00 $20.00 $25.00 2008 2014
  6. 6. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 5 Figure 13: Comp Store Sales vs Knapp Source: Company Data & Knapp Track Figure 14: Productivity Savings Source: Company Data Figure 15: Net Debt / EBITDAR Source: Company Data & Team’s Analysis Figure 16: CMBS Loan Info Source: Company Data Figure 17: Pricing Source: Team’s Analysis Figure 18: DCF Price Calculation Source: Team’s Analysis Brands expects to add $1.4 billion of top line growth from the $25.4 billion CDR lunch segment. The lunch rollout will include over 70 additional combinations to the menu helping to drive the projected 85% lunch incremental sales.  Renovations and Relocations – Interior remodels of Outback Steakhouse were completed in 2014, along with 40% of Carrabba’s. Remodels consist of a refreshed contemporary interior and have resulted in a 3% traffic lift. The remodeling program will continue with updated exterior designs. Focus is now on driving additional traffic by relocating legacy restaurants from non-prime to prime locations within the same trade area. Management has identified over 100 such relocation opportunities with positive initial tests.  Health Conscious Menu Updates – BLMN has taken advantage of the shift in consumer preferences towards healthier dieting and has implemented health conscious menu items. The company plans to launch additional items under 600 calories for higher customer retention as well as penetration into a new target market. Improving Margins Create Profitability Opportunity A cornerstone of Bloomin’ Brands’ turnaround under Bain’s private control was margin improvement. Specifically, centralized purchasing reduced the cost of sales. Since the IPO the company has targeted $50 million in annual savings through creating efficiencies and has achieved a cost savings of over $330 million since 2008 (see Figure 14). Bloomin’ Brands’ operating margin is still 200 bps below the industry average representing potential upside for the future as margins continue to improve. Dividend and Share Repurchase Announcement On December 16, 2014 Bloomin’ Brands announced a $0.24 per share dividend representing a 1% yield. In addition, the company instituted a $100 million share repurchase program to be carried out over the next 18 months. Free cash flow growth has allowed Bloomin’ Brands to begin returning value to shareholders while simultaneously paying down debt. The announcement prompted S&P to upgrade the rating on Bloomin’ Brands debt to BB. Achievable Optimal Capital Structure Bloomin’ Brands has stated its optimal capital structure is approaching 3.0x adjusted net debt / adjusted EBITDAR (see Figure 15). The current ratio is 4.0x. Despite the recent dividend and share buyback announcement, our forecast shows Bloomin’ Brands can maintain 2013 debt pay down levels. The result is that BLMN can achieve a 3x adjusted net debt / adjusted EBITDAR in 2019. Bloomin’ Brands debt rating is expected to be upgraded to investment grade as its capital structure reaches optimal levels. CMBS Maturation Gives Bloomin’ Brands Options Bloomin’ Brands has $473 million of 6.3% Commercial Mortgage-Backed Securities with a maturation date of April 2017 (see Figure 16). Bloomin’ Brands has the opportunity to refinance the loans at a lower rate, due to its improved corporate credit rating. Additionally, it can sell the assets to a third party and lease them back. Execution of either option will provide the company with cost savings relative to the current situation. Valuation Our intrinsic valuation for Bloomin’ Brands is derived from two models: Discounted Cash Flow (DCF) and Price - Earnings Multiple analysis. DCF Model: Free Cash Flow to Firm (FCFF) Valuation Using a DCF model forecasting free cash flow to the firm, we derived a valuation of $26.89 (see Figure 17, 18). Our rationale for using FCFF in the model is the following:  BLMN’s capital structure is still heavily influenced by the leveraged buyout, and its Debt/EBITDAR of 4.0 is above the desired level of approximately 3.0. FCFF does not account for principal and interest payments and is calculated to arrive at the cash available to the firm's debt and equity holders.  FCFF also considers the time value of money and accounts for investment in future growth opportunities, which is an important component of the company’s value -2% 0% 2% 4% 6% 2010 2011 2012 2013 2014 Growth BLMN Knapp 2.9% Average Outperform $0 $20 $40 $60 $80 2008 2009 2010 2011 2012 2013 2014E Savings($M) $330 (M) Cumulative 6.1 5.4 4.4 4.1 4.0 3.9 3.6 3.4 3.2 3.0 2 3 4 5 6 7 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Optimal Capital Structure Current Optimal 2012 CMBS Loans Outstanding Balance (0,000) Interest Rate Mortgage Loan 301,859 4.07% First Mezzanine Loan 85,392 9.00% Second Mezzanine Loan 86,240 11.25% Total 2012 CMBS Loans 473,491 Price Target $26.28 Current Price $23.50 Upside 11.85% BLMN Enterprise Value 4,578 Less: Debt (1,370) Add: Cash 161 Equity Value 3,369 Shares Outstanding 125 DCF Value Per Share $26.89
  7. 7. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 6 Figure 19: Sales Forecast ($M) Source: Team’s Analysis Figure 20: Cost of Equity Calculation Source: Yahoo & Team’s Analysis Figure 21: Multiple Comparison Source: Bloomberg Figure 22: FWD P/E since IPO Source: Bloomberg Figure 23: BLMN Forecasted EPS Source: Team’s Analysis Sales Forecast We forecasted revenue using comparable store sales and new store sales by individual restaurant concept. Comp store sales imply a blended comp store sales growth of 2.2% for 2015 and 2.1% for 2016-2019. Our growth forecast anticipates BLMN to continue to outpace the Knapp by 200 bps based on historical outperformance. New store sales are expected to rise 12.5% annually with nearly 90% attributed to Bonefish and International locations. The result is a revenue CAGR of 4.9% (see Figure 19). Further breakdown of projected revenue can be found in Appendix 7 and Appendix 8. Operating Margin We expect the company’s commitment to creating efficiencies will help to protect and improve operating margins from 5.5% in 2015 to 6.7% in 2019.  Cost of Goods Sold - Commodity inflation is expected to rise from 3% in 2014 to 4-6% in 2015 and will scale back to 3% for subsequent years. To mitigate the risk of increasing commodity prices, BLMN has locked in 80% of its commodity prices through futures contracts. The national rollout of lunch will impact margins due to lack of alcohol sales and lower prices. We assume the implementation of inventory management will help to offset the cost increases, resulting in 25% of total productivity savings and will improve COGS margin by 10 bps in 2015, and 20 bps in 2016 and 2017.  SG&A - We modeled SG&A and other operating expenses to be 57.9% of sales in 2015, 57.7% in 2016, and 57.5% thereafter. Margin improvements are expected to come from labor optimization and lunch efficiencies due to increased utilization. We do not expect the Affordable Healthcare Act to have significant effect on margins as BLMN already provides healthcare for employees. Change in Net Working Capital We analyzed historical working capital components as a percentage of sales resulting in a net factor of -6.09%. We multiplied this factor by the projected change in sales to derive future changes in net working capital. Historically, as sales have increased, net working capital has become increasingly negative. We expect this trend to continue. Capital Expenditures CAPEX is expected to be the midpoint of management guidance of $235-290m in 2015 and $270-290m thereafter. We anticipate net new store openings to be 33 in 2015, followed by 48 annually through 2019. 50% of openings are expected to be international. Additionally, an increased focus on remodels and relocations is driving up CAPEX. Weighted Average Cost of Capital Cost of Equity of 8.34% was derived from CAPM using the 30-year Treasury of 2.76% as the risk-free rate, a market risk premium of 5.7%, and a 0.98 beta calculated by regressing BLMN excess returns against the S&P 500 (see Figure 20). We used a 4.88% pre-tax cost of debt to compute a WACC of 6.63% Terminal Value We projected a 2.3% perpetual growth in FCFF for BLMN. Over the past five years the casual dining industry growth rate of 2.1% has lagged behind GDP. Going forward, we expect this trend to continue due to the mature stage of the industry. Our 2.3% estimate is below forward GDP of 2.5% while still accounting for Bloomin’s Brands’ track record of outpacing the industry and its plans for international growth. Price – Earnings Multiple Valuation We used a Price – Earnings multiple consistent with the street’s valuation of the company. A peer average next twelve month P/E of 20.82 was used to calculate a price of $25.38 (see Figure 21). The 20.38 multiple used offers a premium versus the historical average of 18.63 (see Figure 22). The premium is warranted based on the earnings growth outlook and the similar valuation of comparable peers (see Figure 23). Model Weightings Given the discrepancy between the multiple and DCF valuations, we used a 60/40 weighting in favor of the DCF. BLMN is a mature company with a steady cash flow stream and is conducive to DCF valuation. The blend is the best representation of the true equity value of the firm as it combines forward looking company projections with the firm’s position against its peers (see Figure 24). $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 2015 2016 2017 2018 2019 4.9% CAGR Risk Free Rate 2.76% Beta 0.980 Market Risk Premium 5.7% Cost of Equity 8.34% P/E Ratio (NTM) EV/EBITDA (1-Yr FWD) BLMN 19.573 9.570 EAT 18.609 9.827 DRI 22.795 12.215 CAKE 21.295 10.374 TXRH 24.213 12.089 DIN 18.453 11.934 Average 20.823 11.002 10 15 20 25 Sep-12 Sep-13 Sep-14 Average = 18.63 $1.23 $1.47 $1.71 $1.87 $2.04 $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 2015 2016 2017 2018 2019 13.43% CAGR
  8. 8. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 7 Source: Company Data Source: Company Data Source: Company Data Source: Company DataSource: Bloomberg &Company DataSource: Bloomberg &Company Data Figure 24: Price Target Calculation Source: Team’s Analysis Risk to Price Target  Domestic casual dining industry growth is expected to be -2% to 0% and a macro-driven slowdown in industry traffic could push growth rates lower than the current soft estimates. Should this occur, Bloomin’ Brands’ revenue would be adversely affected negatively impacting our price target.  While we assume that remodels and lunch rollout will help to drive domestic comp sales, there is a risk that these initiatives could result in lower than expected traffic.  We expect the company to aggressively expand internationally. Failure to expand due to overseas factors could limit international growth.  Less than expected productivity cost savings can also adversely affect our Price Target. Financial Analysis Balance Sheet Structure Management’s commitment to grow Bloomin’ Brands and pay down debt is reflected in the structure of its balance sheets. In 2012, BLMN had $3,017 million worth of assets, which included $261.7 million in cash and cash equivalents (see Figure 25). Liabilities were $2,797 million which included $1,494 in total debt (see Figure 26). $220.2 million in equity, translated into a Debt/Equity ratio of 6.79, a current ratio of 0.71, a quick ratio of 0.38, and negative net working capital (NWC) of $203.6 million (see Figures 27, 30). In 2013 total assets rose to $3,274 million with $129.9 million in cash and cash equivalents. Net PP&E increased by 8.51%, to $1,634 million. Debt decreased to $1,419 million and total liabilities were $2,770million. Equity was $504.7 million, which translated to a Debt/Equity ratio of 2.81, a current ratio of 0.65, a quick ratio of 0.28, and a deficit of $260.5 million in NWC. By the third quarter 2014, BLMN reported $3,234 million in assets. Current assets were $451.5 million; this included $144.7 million in cash and cash equivalents. Net PP&E accounted for $1,640 million, a 1.43% increase from the previous year. The rate of increase was reduced by the closure of 34 units primarily in South Korea. Liabilities amounted to $2,640 million, with $1413 million in debt. The owners’ equity balance was $569.9 million, which translated to a Debt/Equity ratio of 2.48, a current ratio of 0.66, and a quick ratio of 0.21. NWC was negative $233.4 million. Since the 2012 IPO, the company has been reducing debt levels incurred by the 2007 LBO as well as expanding operations shown by increases in net PP&E. Over the past three years, the result is a steady increase in assets with a CAGR of 3.8%. Commitment to paying down debt has resulted in consistent improvement of BLMN’s debt to equity ratio. Debt to equity has declined from 6.68 to 2.41 since 2012, largely from increases in equity through retained earnings. Bloomin’ Brands continues to operate with negative net working capital, a common occurrence in the industry. The cash conversion cycle improved from -11 Days in 2012 to -39 Days in 2014-YTD due to faster inventory turnover and a lower payables turnover. The current ratio is below the peer average and is declining with the industry trend over the past three years. BLMN’s quick ratio was able to match its peers in 2014-YTD. This trend indicates the company is holding less non-cash current assets than its competitors (see Figures 28, 29). Price Weight P x W DCF $26.89 60% $16.13 Multiple $25.38 40% $10.15 $26.28Price Target 0.1 0.3 0.5 0.7 2010 2011 2012 2013 2014-YTD Peers BLMN Figure 29: BLMN Quick Ratio vs Peers -120.1 -248.1 -203.6 -260.5 -255.4-300 -250 -200 -150 -100 -50 0 2010 2011 2012 2013 2014-YTD Figure: 30: Net Working Capital ($M) 2147 2084.8 1494.4 1419.1 1413.1 0 500 1000 1500 2000 2500 2010 2011 2012 2013 2014-YTD Figure 26: Total Debt ($M) 3016.6 3274.2 3234.3 2796.3 2769.5 2639.9 220.2 504.7 569.9 1400 1500 1600 1700 0 1000 2000 3000 2012 2013 2014-YTD PP&E Figure 25: Balance Sheet ($M) Assets Liabilities Equity PP&E Figure 27: Key Financial Ratios 0.6 0.7 0.8 0.9 1 2010 2011 2012 2013 2014-YTD Peers BLMN Figure 28: BLMN Current Ratio vs Peers 2012 2013 2014-YTD Debt to Equity 6.79x 2.81x 2.48x Current Ratio 0.71x 0.65x 0.66x Quick Ratio 0.38x 0.28x 0.21x Cash Conversion Cycle -11.4 Days -18.8 Days -39.1 Days
  9. 9. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 8 Source: Company Data Source: Company Data Source: Company Data Source: Company Data Revenues and Profitability From 2010 to 2014-Q3 revenue increased 21.5% and grew with a CAGR of 4.1%. In 2011 revenue rose by 5.87% to $3,841 million. Gross profit margin was slightly lower from the previous year at 68.08%. EBITDA margin improved to 9.56% due to lower SG&A costs (see Figure 32). The year ended with a net income of $100 million and earnings per share of $0.94, almost twice the previous year’s EPS (see Figure 31). In 2012 top line grew by 3.81% from the previous year and totaled $3,988 million. Margins were slightly lower compared to the previous year, primarily due to costs associated with the IPO. EBIT margin shrank to 4.54% from 5.56% in 2011. However, gross profit margin and SG&A as a percent of sales changed far less indicating that the drop stemmed from non-operating items. 2012’s net Income of $50 million was half of 2011’s level, primarily due to $42.1 million IPO expenses. Lower earnings resulted in an EPS of $0.44 per share. Revenue amounted to $4,129 million in 2013, a 3.55% increase from 2012. Acquiring a controlling interest in Brazilian joint ventures added the sales of 69 additional restaurants to 2013 revenue. Both EBITDA and EBIT margins improved from the prior year. Net Income of $208.4 million translated to an EPS of $1.63 per share. Net Income Margin jumped to 5.05% from 1.25% in the previous year due to an Income tax benefit of $42.2 million. The tax benefit was the result of a release of a valuation allowance. 2014-YTD revenue is $3,334 million, an increase of 8.3% compared to Q1-Q3 of 2013 (see Figure 32). However, Gross Profit, EBITDA, EBIT, and Net Income margins are lower than in 2013. Decreased margins are a result of expenses related to the closure of 36 underperforming restaurants, primarily located in South Korea. Net Income of $68.7 million includes a Q3 net loss of $11.4 million, resulting in an EPS of $0.54. After analyzing the data for the noted 5 year period, we conclude that revenue is growing. Gross Profit Margin is on a slight downward trend; however, EBITDA and EBIT margins have fluctuated over the period through improved management of SG&A. Interest coverage ratio has remained above 1.7 throughout the period indicating sufficient operating income generation to satisfy interest expense (see Figure 33). Net Income margin has improved over the time span along with EPS as the company has become more profitable. Profitability and Growth From 2010 to 2014-Q3, top line growth and profitability improvements translated into positive returns for ROE, ROA, and ROIC (See Figure 34). ROIC has been consistently above the WACC of 6.63% indicating BLMN is creating value with its invested capital. Retained Earnings In 2010 retained earnings were -$922.6 million and has increased to its current level of -$497.3 million. Retained earnings has consistently increased from 2010 to 2014-YTD due to the accumulation of positive net income (see Figure 35). As shown in Figure 35, the spread between operating income and net income is decreasing. The decline is primarily due to reduced interest expense as BLMN continues to pay down debt accelerating retained earnings growth. Figure 32: Revenues and Margins $0.50 $0.94 $0.44 $1.63 $0.54 $0.00 $0.50 $1.00 $1.50 $2.00 2010 2011 2012 2013 2014-YTD Figure 31: Historical Diluted EPS 2.56 2.09 1.71 3.32 1.0 1.5 2.0 2.5 3.0 3.5 2011 2012 2013 2014-YTD Figure 33: Interest Covearge Ratio Figure 34: Profitability Ratios For the Fiscal Year 2010 2011 2012 2013 2014-YTD Trend Total Revenue 3628.3 3841.3 3987.8 4129.2 3,334.2 Growth Over Prior Year 0.70% 5.87% 3.81% 3.55% 8.30% Gross Profit 2476.3 2615.2 2706.8 2795.4 2,253.4 Gross Profit Margin, % 68.25% 68.08% 67.88% 67.70% 67.59% EBITDA 322.0 358.8 304.2 405.0 280.6 EBITDA Margin, % 8.87% 9.34% 7.63% 9.81% 8.42% EBIT 168.9 213.5 181.1 225.4 151.3 EBIT Margin, % 4.66% 5.56% 4.54% 5.46% 4.54% Net Income 53.0 100.0 50.0 208.4 68.7 Net Income Margin, % 1.46% 2.60% 1.25% 5.05% 2.06% 2010 2011 2012 2013 2014-YTD Trend ROE 23.32% 43.56% 11.85% ROA 1.63% 2.98% 1.66% 6.36% 2.12% ROIC 9.74% 14.62% 14.28% 23.90% 8.85%
  10. 10. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 9 Source: Company Data Source: Company Data Source: Company Data Since 2012 Bloomin’ Brands has maintained an Altman’s Z- Score above the distress level of 1.8. Furthermore, BLMN has raised the score above 2 and has maintained a range of 2.1-2.4 since the IPO. Retained earnings growth along with increasing ROE, ROA, and ROIC has allowed the company to stay solvent despite high debt levels (See Appendix 16). Cash Flows and Profitability Analysis Due to Bloomin’ Brands’ IPO in August 2012, the year stands out in terms of cash flows. The company reported $340.1 million in cash inflows from operations which were heavily weighted by depreciation and amortization amounting to $155.5 million (see Figure 36). BLMN reported positive cash flow from investing activities of $19.9 million. This inflow was a result of $192.9 million from the sale of 67 restaurant properties in a sale- leaseback transaction. The inflow was offset by a 48% growth in CAPEX totaling $178.7 million. Cash outflow from financing activities was $586.2 million. BLMN issued $142.2 million of common stock and reduced long-term debt by 280.4 million in part by refinancing its large debt position. In 2013 cash flow from operations totaled $377.3 million. In comparison to 2012, CFO growth of 10.9% outpaced depreciation which grew only 5.5% to $164.1 million. Cash outflow from investing increased to $346.1 million as capital expenditures rose 32.7% due to acquisitions of controlling interest in Brazilian joint ventures. Cash flow from financing returned to a pre IPO level of $87.1 million, with $80.8 million coming from repayment of LTD. As a result, the company had net cash outflow of $51.8 million. By the third quarter of 2014, BLMN reported $159.5 million in cash flow from operations effected by Q3’s net loss of $11.4 million. For the same period, BLMN reported a change in unearned revenue totaling $134.5 million as a result of gift card redemptions and promotional sales. Capital expenditures were $174.4 million. Cash outflow from financing of $48.9 million included the refinance of $415.0 million in debt. In summary, BLMN’s cash position has declined over the past 5 years as the company has aggressively used cash for expansion and debt repayment. This trend is consistent with the company’s continued commitment to growth as it expands its store base. Despite the steady decline in cash, the need for a capital infusion is not expected. Free Cash Flow and Capital Expenditures From 2010 through 2013 BLMN heavily invested in capital expenditures. However, FCFF has been relatively steady throughout the period due to growth in operating cash flow (see Figure 37). Figure 38: Knapp CDR Traffic Trend Investment Risks Return to Industry Average in Sales Growth and Traffic The ability to continuously outperform the Knapp Track in comp stores sales growth and traffic is a core component of Bloomin’ Brands’ value. Should Bloomin’ Brands fail to outpace the declining industry, cash flow generation will be reduced. Risks to comp store sales growth include: shifting consumer preferences, failure to maintain high service standards, and failure to keep brand awareness at current levels. Figure 38 shows industry traffic through 2014. -5.60% -2.50% -0.40% -1.50% -2.80% -2.90% -6.00% -5.00% -4.00% -3.00% -2.00% -1.00% 0.00% 2009 2010 2011 2012 2013 2014 Source: Knapp Track 168.9 213.5 181.1 225.4 151.3 53.0 100.0 50.0 208.4 72.0 -922.6 -822.6 -773.1 -565.2 -497.3 -1000.0 -800.0 -600.0 -400.0 -200.0 0.0 200.0 400.0 2010 2011 2012 2013 2014-YTD Operating Income Net Income Retained Earnings Figure 35: Operating and Net Income Relationship ($M) 275.2 322.5 340.1 377.3 159.5 -71.7 -113.1 19.9 -346.1 -176.0-167.3 -89.3 -586.2 -87.1 -48.9 -600.0 -400.0 -200.0 0.0 200.0 400.0 2010 2011 2012 2013 2014-YTD Cash Flow from Operations Cash Flow from Investing Cash Flow from Financing Figure 36: Statement of Cash Flows ($M) 0 50 100 150 200 250 2010 2011 2012 2013 CAPEX FCFF Figure 37: FCFF & CAPEX ($M)
  11. 11. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 10 Figure 39: Target Future Revenue Mix Source: Company Data Figure 40: Beef Prices and Future Contracts (2012-17) Source: Capital IQ Figure 41: Monte Carlo Statistics Source: Team’s Analysis Increased International Focus Bloomin’ Brands revenue growth from international operations grew 57.6% from 2013 to 2014 and will account for approximately 12% of total revenue in 2014. Management has reiterated that future growth will largely come from expansion into international markets, specifically Brazil and China, with a goal to achieve 30% of total revenue from abroad (see Figure 39). International operations face additional and magnified risk factors including: political instability issues, currency exchange fluctuations, changing government regulations, sociocultural differences, ad commodity sourcing. Failure to execute as planned in international markets could cause Bloomin’ Brands to underperform revenue targets. Commodity Inflation Expansion Food and beverage composes 33% of Bloomin’ Brands total costs. Of food and beverage costs, beef accounts for 28% followed by produce at 12% and seafood at 11%. Bloomin’ Brands portfolio is heavily weighted towards Outback Steakhouse at 63% with future international growth plans consisting primarily of new Outback locations. A significant rise in beef commodity prices will have a negative impact on Bloomin’ Brands’ future margins and earnings (see Figure 40). Lunch Fails to Meet Expectations To reach its projected $1.4 billion lunch sales goal, Bloomin’ Brands will have to overcome being a late entrant into the lunch segment. Raising consumer awareness will entail a costly marketing campaign which may not be able to overcome consumer’s view of the brand as a dinner only option. Furthermore, consumer preferences for lunch have shifted towards lighter and quicker meal options as evidenced by the growth of fast casual restaurant sales. Leverage Bloomin’ Brands is highly leveraged with a Q3 2014 debt to equity ratio of 2.48x. Despite Bloomin’ Brands commitment to paying down debt, high leverage poses certain risks:  Interest Rate Risk - A portion of CMBS long term debt ($48.7 million) and the Senior Secured Credit Facilities Loan ($935.0 million) carry variable interest rates. A rise in interest rates would cause a substantial increase in the company’s interest expense and could possibly restrict further financing.  Strategic Flexibility – BLMN’s high rate of leverage carries with it certain covenants. The ability to increase borrowings to capitalize on future market opportunities such as strategic acquisitions or divestitures is restricted by debt covenants and the overall burden of debt. Monte Carlo Analysis A Monte Carlo Simulation was preformed to test the sensitivity of our terminal value and model weighting assumptions (see Figure 41). The mean, median, and mode of the distribution were above the current price and the probability of generating a sell rating was only 3.8%. These results confirm our buy rating. See Appendix 11 for additional information on the simulation. Sensitivity to Earnings Announcements All three major price moves in 2014 have come from earnings releases. The three earnings announcements caused an average absolute price change of 18.5% (see Figure 42). Going forward, a disappointing earnings announcement could significantly reduce the stock price and require a long holding period to recover the one-day loss. International 30% Domestic 70% 30 40 50 60 Cattle - Live (BMF) Historical Pricing Cattle - Live (BMF) Future Contracts Number of Samples 10,000 Mean 27.14 Median 25.99 Mode 25.36 Sell 3.8% Hold 44.5% Buy 51.8% Monte Carlo Statistics 0 5000 10000 15000 20000 10 15 20 25 30 Jan-14 Apr-14 Jul-14 Oct-14 Volume Price Q2 2014Earnings Q3 2014EarningsQ4 2013 Earnings Figure 42: Earnings Announcement Effect on Stock Price Source: Yahoo Finance
  12. 12. Bloomin’ Brands, Inc. NASDAQ: BLMN CFA Institute Research Challenge P a g e | 11 Important Disclosures appear at the back of this report Appendix Appendix 1: Income Statement Income Statement (In Millions) 2009 2010 2011 2012 Q4 2013 2013 Q4 2014 2014 2015 2016 2017 2018 2019 Outback Steakhouse 1,960.0 2,027.0 2,115.0 546.3 2,142.0 559.4 2,186.4 2,239.0 2,294.1 2,350.6 2,408.3 2,467.5 Carrabba's 653.0 682.0 693.0 174.0 706.0 172.3 707.3 714.3 721.5 728.7 736.0 743.3 Bonefish 403.0 441.0 494.0 140.0 555.0 142.8 603.8 659.0 731.8 807.2 885.1 965.8 Fleming's 223.0 239.0 252.0 74.0 265.0 76.6 276.6 291.9 307.8 324.3 341.4 359.1 Roy's 75.0 78.0 77.0 18.9 77.0 9.5 63.5 - - - - - Total Domestic 3,573.8 3,314.0 3,467.0 3,631.0 953.2 3,745.0 960.5 3,837.5 3,904.2 4,055.2 4,210.7 4,370.8 4,535.8 International 281.0 336.0 315.0 87.7 344.0 105.3 542.3 610.2 708.2 812.1 922.1 1,038.5 Other 27.9 33.6 38.0 41.7 9.3 40.1 9.0 29.0 30.1 31.1 32.1 33.1 34.1 Revenue 3,601.7 3,628.3 3,841.3 3,987.8 1,050.6 4,129.2 1,074.8 4,408.8 4,544.5 4,794.5 5,054.9 5,326.0 5,608.4 Cost of Sales 1,184.1 1,152.0 1,226.1 1,281.0 340.8 1,333.8 348.2 1,429.0 1,467.9 1,539.0 1,617.6 1,704.3 1,794.7 COS Margin 32.9% 31.8% 31.9% 32.1% 32.4% 32.3% 32.4% 32.4% 32.3% 32.1% 32.0% 32.0% 32.0% Gross Profit 2,417.6 2,476.3 2,615.2 2,706.8 709.7 2,795.4 726.5 2,979.8 3,076.6 3,255.5 3,437.3 3,621.7 3,813.7 SG&A 2,284.8 2,156.6 2,275.2 2,362.6 615.9 2,390.8 615.8 2,567.4 2,631.3 2,766.4 2,906.5 3,062.4 3,224.8 sg&a % of sales 63.4% 59.4% 59.2% 59.2% 58.6% 57.9% 57.3% 58.2% 57.9% 57.7% 57.5% 57.5% 57.5% Depreciation & Amortization 186.1 156.3 153.7 155.5 42.9 164.1 48.8 192.3 193.2 199.4 205.0 210.0 214.6 Impairment of Assets - - 14.0 13.0 20.1 22.8 - 7.1 - - - - - Goodwill Impairment 58.1 - - - - - - - - - - - - Other Expenses (Income), Net (2.2) (5.5) (41.3) (5.5) (0.3) (7.7) - - - - - - - Operating Income (109.3) 168.9 213.5 181.1 31.1 225.4 62.0 213.1 252.2 289.6 325.8 349.2 374.3 Operating Margin -3.0% 4.7% 5.6% 4.5% 3.0% 5.5% 5.8% 4.8% 5.5% 6.0% 6.4% 6.6% 6.7% Interest Expense, net 115.9 91.4 83.4 86.6 18.2 74.8 12.7 58.3 48.3 45.3 42.3 39.2 36.2 Loss on Modification of Debt (158.1) - - 21.0 - 14.6 - 11.1 - - - - - Other Income (Losses), Net 0.2 (3.0) (0.8) 0.1 (36.5) (36.4) - (0.2) - - - - - Income Before Income Taxes (67.3) 80.5 130.9 73.4 49.4 172.4 49.2 143.9 203.9 244.3 283.5 310.0 338.1 Income Tax Expense (Benefit) (2.5) 21.3 21.7 12.1 (11.5) (42.2) 12.3 35.1 53.0 66.0 76.5 83.7 91.3 Effective Tax Rate 3.7% 26.5% 16.6% 16.5% -23.3% -24.5% 25.0% 24.4% 26.0% 27.0% 27.0% 27.0% 27.0% Profit Before Minority Interest (64.8) 59.2 109.2 61.3 60.9 214.6 36.9 108.7 150.9 178.4 206.9 226.3 246.8 Minority Interest (0.4) 6.2 9.2 11.3 1.9 6.2 - 3.3 - - - - - Net Income (64.5) 53.0 100.0 50.0 59.0 208.4 36.9 105.4 150.9 178.4 206.9 226.3 246.8 W. Avg. Basic Shares O/S 104.4 106.0 106.2 112.0 124.1 123.0 125.3 125.3 122.5 121.0 121.0 121.0 121.0 W. Avg. Diluted Shares O/S 104.4 106.0 106.7 114.8 128.6 128.1 125.3 125.3 122.5 121.0 121.0 121.0 121.0 Basic EPS (0.62) 0.50 0.94 0.45 0.48 1.69 0.29 0.84 1.23 1.47 1.71 1.87 2.04 Diluted EPS (0.62) 0.50 0.94 0.44 0.46 1.63 0.29 0.84 1.23 1.47 1.71 1.87 2.04 Source: Team's Estimate and Company's Annual Reports
  13. 13. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 12 Appendix 2: Common Size Income Statement Common Size Income Statement 2009 2010 2011 2012 Q4 2013 2013 Q4 2014 2014 2015 2016 2017 2018 2019 Outback Steakhouse 54.0% 52.8% 53.0% 52.0% 51.9% 52.0% 49.6% 49.3% 47.8% 46.5% 45.2% 44.0% Bonefish 18.0% 17.8% 17.4% 16.6% 17.1% 16.0% 16.0% 15.7% 15.0% 14.4% 13.8% 13.3% Carrabba's 11.1% 11.5% 12.4% 13.3% 13.4% 13.3% 13.7% 14.5% 15.3% 16.0% 16.6% 17.2% Fleming's 6.1% 6.2% 6.3% 7.0% 6.4% 7.1% 6.3% 6.4% 6.4% 6.4% 6.4% 6.4% Roy's 2.1% 2.0% 1.9% 1.8% 1.9% 0.9% 1.4% 0.0% 0.0% 0.0% 0.0% 0.0% Total Domestic 91.3% 90.3% 91.1% 90.7% 90.7% 89.4% 87.0% 85.9% 84.6% 83.3% 82.1% 80.9% International 7.7% 8.7% 7.9% 8.4% 8.3% 9.8% 12.3% 13.4% 14.8% 16.1% 17.3% 18.5% Other 0.9% 1.0% 1.0% 0.9% 1.0% 0.8% 0.7% 0.7% 0.6% 0.6% 0.6% 0.6% Revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales 32.9% 31.8% 31.9% 32.1% 32.4% 32.3% 32.4% 32.4% 32.3% 32.1% 32.0% 32.0% 32.0% Gross Profit 67.1% 68.2% 68.1% 67.9% 67.6% 67.7% 67.6% 67.6% 67.7% 67.9% 68.0% 68.0% 68.0% SG&A 63.4% 59.4% 59.2% 59.2% 58.6% 57.9% 57.3% 58.2% 57.9% 57.7% 57.5% 57.5% 57.5% Depreciation & amortization 5.2% 4.3% 4.0% 3.9% 4.1% 4.0% 4.5% 4.4% 4.3% 4.2% 4.1% 3.9% 3.8% Impairment of Assets - - 0.4% 0.3% 1.9% 0.6% 0.0% 0.2% - - - - - Goodwill Impairment 1.6% - - - - - - - - - - - - Other Expenses (Income), Net -0.1% -0.2% -1.1% -0.1% 0.0% -0.2% - - - - - - - Operating Income -3.0% 4.7% 5.6% 4.5% 3.0% 5.5% 5.8% 4.8% 5.5% 6.0% 6.4% 6.6% 6.7% Interest Expense, net 3.2% 2.5% 2.2% 2.2% 1.7% 1.8% 1.2% 1.3% 1.1% 0.9% 0.8% 0.7% 0.6% Loss on Modification of Debt -4.4% - - 0.5% 0.0% 0.4% 0.0% 0.3% - - - - - Other Income (Losses), Net 0.0% -0.1% 0.0% 0.0% -3.5% -0.9% 0.0% 0.0% - - - - - Income Before Income Taxes -1.9% 2.2% 3.4% 1.8% 4.7% 4.2% 4.6% 3.3% 4.5% 5.1% 5.6% 5.8% 6.0% Income Tax Expense (Benefit) -0.1% 0.6% 0.6% 0.3% -1.1% -1.0% 1.1% 0.8% 1.2% 1.4% 1.5% 1.6% 1.6% Profit Before Minority Interest -1.8% 1.6% 2.8% 1.5% 5.8% 5.2% 3.4% 2.5% 3.3% 3.7% 4.1% 4.2% 4.4% Minority Interest 0.0% 0.2% 0.2% 0.3% 0.2% 0.2% - 0.1% - - - - - Net Income -1.8% 1.5% 2.6% 1.3% 5.6% 5.0% 3.4% 2.4% 3.3% 3.7% 4.1% 4.2% 4.4% Source: Team's Estimate and Company's Annual Reports
  14. 14. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 13 Appendix 3: Balance Sheet Balance Sheet (In Millions) As of December 31 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Assets Current Assets Cash and Cash Equivalents 365.5 482.1 261.7 209.9 160.7 115.3 117.0 186.5 280.5 399.9 Restricted Cash 8.1 20.6 4.8 3.4 4.5 4.5 4.5 4.5 4.5 4.5 Inventory 59.0 69.2 78.2 80.6 68.4 70.8 75.3 80.0 84.9 89.9 Deferred Income Tax Assets 26.4 32.0 39.8 70.8 70.1 70.1 70.1 70.1 70.1 70.1 Assets Held for Sale - - - - - - - - - - Other Current Assets, net 71.8 104.4 103.3 119.4 153.1 157.0 164.3 171.8 179.7 187.9 Total Current Assets 530.9 708.3 487.8 484.0 456.8 417.8 431.2 512.9 619.7 752.4 Restricted Cash 19.5 3.6 15.2 25.1 26.3 26.3 26.3 26.3 26.3 26.3 Property and Equipment, net 1,673.3 1,635.9 1,506.0 1,634.1 1,657.5 1,694.2 1,749.7 1,799.6 1,844.4 1,884.7 Investments in Affiliates, net 31.7 35.0 36.7 - - - - - - - Goodwill 269.9 268.8 271.0 346.3 359.2 359.2 359.2 359.2 359.2 359.2 Intangible Assets, net 572.1 566.1 551.8 617.1 600.1 600.1 600.1 600.1 600.1 600.1 Deferred Income Tax Assets - - 2.5 2.4 3.3 3.3 3.3 3.3 3.3 3.3 Other Noncurrent Assets, net 146.1 136.2 145.4 165.2 150.9 156.1 165.6 175.5 185.8 196.5 Total Assets 3,243.4 3,353.9 3,016.6 3,274.2 3,254.2 3,257.0 3,335.4 3,476.9 3,638.8 3,822.4 Liabilities and Shareholders Equity Current Liabilities Accounts Payable 78.3 97.4 131.8 164.6 223.6 229.8 241.0 252.7 264.9 277.6 Accrued Expenses 194.4 211.5 192.3 194.3 206.2 206.2 206.2 206.2 206.2 206.2 Unearned Revenue 269.1 299.6 329.5 359.4 226.9 235.1 250.1 265.7 281.9 298.9 Current Portion of Long-Term Debt 95.3 332.9 23.0 13.5 40.8 40.8 40.8 40.8 40.8 40.8 Other Current Liabilities 14.0 15.0 14.8 12.5 10.7 11.1 11.8 12.5 13.3 14.1 Total Current Liabilities 651.0 956.4 691.4 744.5 708.2 722.9 749.8 777.9 807.2 837.7 Deferred Expenses 57.7 70.1 87.6 106.0 118.3 118.3 118.3 118.3 118.3 118.3 Deferred Income Tax Liabilities 187.8 193.3 195.9 150.6 142.5 142.5 142.5 142.5 142.5 142.5 Long-Term Debt 2,051.7 1,751.9 1,471.4 1,405.6 1,328.9 1,248.1 1,167.3 1,086.5 1,005.7 924.9 Other Noncurrent Liabilities 351.0 341.9 350.0 362.8 321.8 321.8 321.8 321.8 321.8 321.8 Total Liabilities 3,299.3 3,313.6 2,796.3 2,769.5 2,619.9 2,553.7 2,499.9 2,447.1 2,395.6 2,345.3 Stockholders Equity Preferred Stock - - - - - - - - - - Common Stock 1.07 1.07 1.21 1.25 1.26 1.22 1.21 1.21 1.21 1.21 Additional Paid-in Capital 872.0 874.8 1,001.0 1,068.7 1,076.8 1,076.8 1,076.8 1,076.8 1,076.8 1,076.8 Treasury Stock (66.7) (100.0) (100.0) (100.0) (100.0) Retained Earnings (922.6) (822.6) (773.1) (565.2) (460.4) (339.0) (189.6) (11.7) 185.5 403.2 Accumulated Other Comprehensive Loss (19.6) (22.3) (14.8) (26.4) (10.9) 8.6 28.1 47.7 67.3 86.8 Total Bloomin' Brands Equity (69.2) 30.9 214.3 478.4 606.7 681.0 816.6 1,014.0 1,230.8 1,468.1 Non-controlling Interests 13.3 9.4 5.9 26.3 27.6 22.3 19.0 15.7 12.4 9.1 Total Stockholders Equity (55.9) 40.3 220.2 504.7 634.4 703.3 835.5 1,029.7 1,243.2 1,477.2 Total Liabilities and Stockholders Equity 3,243.4 3,353.9 3,016.6 3,274.2 3,254.2 3,257.0 3,335.4 3,476.9 3,638.8 3,822.4 Source: Team's Estimate and Company's Annual Reports
  15. 15. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 14 Appendix 4: Common Size Balance Sheet Common Size Balance Sheet As of December 31 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Assets Current Assets Cash and Cash Equivalents 11.3% 14.4% 8.7% 6.4% 4.9% 3.5% 3.5% 5.4% 7.7% 10.5% Restricted Cash 0.3% 0.6% 0.2% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% Inventory 1.8% 2.1% 2.6% 2.5% 2.1% 2.2% 2.3% 2.3% 2.3% 2.4% Deferred Income Tax Assets 0.8% 1.0% 1.3% 2.2% 2.2% 2.2% 2.1% 2.0% 1.9% 1.8% Assets Held for Sale 0.0% Other Current Assets, net 2.2% 3.1% 3.4% 3.6% 4.7% 4.8% 4.9% 4.9% 4.9% 4.9% Total Current Assets 16.4% 21.1% 16.2% 14.8% 14.0% 12.8% 12.9% 14.8% 17.0% 19.7% Restricted Cash 0.6% 0.1% 0.5% 0.8% 0.8% 0.8% 0.8% 0.8% 0.7% 0.7% Property and Equipment, net 51.6% 48.8% 49.9% 49.9% 50.9% 52.0% 52.5% 51.8% 50.7% 49.3% Investments in Affiliates, net 1.0% 1.0% 1.2% 0.0% 18.4% 0.0% 0.0% 0.0% 0.0% 0.0% Goodwill 8.3% 8.0% 9.0% 10.6% 11.0% 11.0% 10.8% 10.3% 9.9% 9.4% Intangible Assets, net 17.6% 16.9% 18.3% 18.8% 18.4% 18.4% 18.0% 17.3% 16.5% 15.7% Deferred Income Tax Assets 0.0% 0.0% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% Other Noncurrent Assets, net 4.5% 4.1% 4.8% 5.0% 4.6% 4.8% 5.0% 5.0% 5.1% 5.1% Total Assets 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Liabilities and Shareholders Equity Current Liabilities Accounts Payable 2.4% 2.9% 4.4% 5.0% 6.9% 7.1% 7.2% 7.3% 7.3% 7.3% Accrued Expenses 6.0% 6.3% 6.4% 5.9% 6.3% 6.3% 6.2% 5.9% 5.7% 5.4% Unearned Revenue 8.3% 8.9% 10.9% 11.0% 7.0% 7.2% 7.5% 7.6% 7.7% 7.8% Current Portion of Long-Term Debt 2.9% 9.9% 0.8% 0.4% 1.3% 1.3% 1.2% 1.2% 1.1% 1.1% Other Current Liabilities 0.4% 0.4% 0.5% 0.4% 0.3% 0.3% 0.4% 0.4% 0.4% 0.4% Total Current Liabilities 20.1% 28.5% 22.9% 22.7% 21.8% 22.2% 22.5% 22.4% 22.2% 21.9% Deferred Expenses 1.8% 2.1% 2.9% 3.2% 3.6% 3.6% 3.5% 3.4% 3.3% 3.1% Deferred Income Tax Liabilities 5.8% 5.8% 6.5% 4.6% 4.4% 4.4% 4.3% 4.1% 3.9% 3.7% Long-Term Debt 63.3% 52.2% 48.8% 42.9% 40.8% 38.3% 35.0% 31.3% 27.6% 24.2% Other Noncurrent Liabilities 10.8% 10.2% 11.6% 11.1% 9.9% 9.9% 9.6% 9.3% 8.8% 8.4% Total Liabilities 101.7% 98.8% 92.7% 84.6% 80.5% 78.4% 74.9% 70.4% 65.8% 61.4% Stockholders Equity Preferred Stock - - - - - - - - - - Common Stock 0.03% 0.03% 0.04% 0.04% 0.04% 0.04% 0.04% 0.03% 0.03% 0.03% Additional Paid-in Capital 26.9% 26.1% 33.2% 32.6% 33.1% 33.1% 32.3% 31.0% 29.6% 28.2% Retained Earnings -28.4% -24.5% -25.6% -17.3% -14.1% -10.4% -5.7% -0.3% 5.1% 10.5% Accumulated other Comprehensive Loss -0.6% -0.7% -0.5% -0.8% -0.3% 0.3% 0.8% 1.4% 1.8% 2.3% Total Bloomin' Brands Equity -2.1% 0.9% 7.1% 14.6% 18.6% 20.9% 24.5% 29.2% 33.8% 38.4% Non-controlling Interests 0.4% 0.3% 0.2% 0.8% 0.8% 0.7% 0.6% 0.5% 0.3% 0.2% Total Stockholders Equity -1.7% 1.2% 7.3% 15.4% 19.5% 21.6% 25.1% 29.6% 34.2% 38.6% Source: Team's Estimate and Company's Annual Reports
  16. 16. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 15 Appendix 5: Statement of Cash Flows Statement of Cash Flows (In Millions) 2009 2010 2011 2012 Q4 2013 2013 Q4 2014 2014 2015 2016 2017 2018 Operating Activities Net Income (64.8) 59.2 109.2 61.3 60.9 214.6 36.9 108.7 150.9 178.4 206.9 226.3 Depreciation and Amortization 186.1 156.3 153.7 155.5 42.9 164.1 48.8 192.3 193.2 199.4 205.0 210.0 Amortization of Financing Costs 14.3 13.4 12.3 8.2 0.9 3.6 - 2.4 - - - - Amortization of Gift Card Sales 10.9 15.0 18.1 21.1 23.8 23.8 5.0 25.1 25.1 25.1 25.1 25.1 Accretion on Debt Discounts 0.6 0.6 0.7 0.9 (14.8) 2.5 - - - - - - Stock - Based Compensation 47.6 39.5 39.2 44.8 5.0 21.6 5.0 19.5 19.5 19.5 19.5 19.5 Deferred Income Tax Benefit (15.1) 5.1 (0.2) (7.4) (27.5) (83.6) - (1.7) - - - - Sale of Assets 3.1 4.1 6.3 (1.4) 1.1 1.4 26.7 28.3 - - - - Gain on Modification of Debt (158.1) - - 21.0 - 14.6 - 11.1 - - - - Bad Debt Expense 1.9 0.8 0.1 - - - - - Excess Tax Benefits from Stock - Based Compensation - - - - (4.4) (4.4) - (1.1) - - - - Other Non-Cash Items 141.0 (21.4) (26.6) 0.3 (20.7) (28.9) - 34.8 - - - - Impairment of Goodwill 58.1 - - - - - - - - - - - Change in Assets/Liabilities Change in Inventory 27.5 (2.6) (10.5) (8.6) (3.6) 3.8 (3.6) 11.1 (2.4) (4.5) (4.7) (4.9) Change in Other Current Assets (11.4) (13.9) (59.6) (13.7) (12.5) (28.3) (12.5) (46.9) (3.9) (7.2) (7.6) (7.9) Change in Other Assets 8.3 10.7 8.2 4.0 2.8 (0.3) 2.8 9.0 (5.2) (9.5) (9.9) (10.3) Change in Accounts Payable & Accrued Expenses (66.2) (28.4) 32.2 5.2 23.4 10.2 23.4 21.3 6.1 11.2 11.7 12.2 Change in Accrued Expenses (2.2) (0.2) (0.0) - - - - - - - - - Increase in Deferred Rent 14.2 10.7 12.5 17.1 2.9 20.6 - - - - - - Change in Unearned Revenue 24.8 32.0 30.6 29.6 157.0 29.6 - (134.5) 8.1 15.0 15.6 16.3 Change in Other Liabilities (25.0) (5.8) (3.7) 2.3 13.2 12.4 12.5 0.4 0.7 0.8 0.8 Cash Flows from Operations 195.5 275.2 322.5 340.1 250.6 377.3 132.5 291.9 391.8 428.2 462.6 487.2 Investing Activities Disposal of Fixed Assets 3.1 0.5 1.2 4.0 (0.1) 3.2 - 4.1 - - - - Acquisition of Business (0.5) - - - (100.3) (100.3) - (3.1) - - - - Divestiture of Business 1.7 - 10.1 3.5 - - - - - - - - Capital Expenditures (57.5) (60.5) (120.9) (178.7) (71.1) (237.2) (71.1) (245.5) (255.0) (280.0) (280.0) (280.0) Other Investing Activities 14.1 (11.7) (3.5) 191.2 (13.2) (11.8) - (2.6) - - - - Cash Flows from Investing (39.2) (71.7) (113.1) 19.9 (184.7) (346.1) (71.1) (247.1) (255.0) (280.0) (280.0) (280.0) Financing Activities Net borrowing/repayment on Short-Term Debt 11.0 5.1 (45.1) (810.6) - - - 415.0 - - - - Net borrowing/repayment on Long-Term Debt (24.5) (140.9) (25.2) 1,438.3 (43.4) (80.8) (43.4) (471.5) (80.8) (80.8) (80.8) (80.8) Proceeds from the exercise of Stock Options - - - 0.9 3.1 27.8 7.0 - - - - Dividends - - - - - - - - (29.4) (29.0) (29.0) (29.0) Issuance of Common Stock - - - 142.2 - - - - - - - - Repurchase of Common Stock - - - - (0.1) (0.4) - (0.9) (66.7) (33.3) - - Contributions From Minority Interest 1.7 0.1 0.4 0.4 - - - - - - - - Minority Interest Distributions (9.1) (11.6) (13.5) (14.4) (2.3) (8.1) (2.0) (5.3) (5.3) (3.3) (3.3) (3.3) Other Financing Activities (116.6) (20.1) (6.0) (1,343.1) (1.5) (25.6) (35.2) - - - - Cash Flows From Financing (137.4) (167.3) (89.3) (586.2) (44.1) (87.1) (45.4) (90.8) (182.2) (146.5) (113.2) (113.2) Effect of Exchange Rate Changes on Cash 0.9 (1.5) (3.5) 5.8 4.4 4.2 - 0.1 - - - - Net Change in Cash 19.8 34.6 116.5 (220.4) 26.2 (51.8) 16.0 (45.9) (45.4) 1.7 69.4 94.0
  17. 17. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 16 Appendix 6: Ratio Analysis 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Current Ratio 0.82x 0.74x 0.71x 0.65x 0.65x 0.58x 0.58x 0.66x 0.77x 0.90x Quick ratio 0.56x 0.50x 0.38x 0.28x 0.23x 0.16x 0.16x 0.24x 0.35x 0.48x Cash Ratio 0.56x 0.50x 0.38x 0.28x 0.23x 0.16x 0.16x 0.24x 0.35x 0.48x Inventory Turnover 19.53x 19.13x 17.38x 16.80x 19.19x 21.10x 21.07x 20.84x 20.68x 20.53x Days in Inventory 19 Days 19 Days 21 Days 22 Days 19 Days 17 Days 17 Days 18 Days 18 Days 18 Days Payables Turnover 14.72x 14.08x 11.26x 9.02x 7.30x 6.49x 6.56x 6.57x 6.60x 6.63x Days in Payables 25 Days 26 Days 32 Days 40 Days 50 Days 56 Days 56 Days 56 Days 55 Days 55 Days Cash Conversion Cycle -6 Days -7 Days -11 Days -19 Days -31 Days -39 Days -38 Days -38 Days -38 Days -37 Days Fixed Asset Turnover 2.17x 2.32x 2.54x 2.63x 2.68x 2.71x 2.78x 2.85x 2.92x 3.01x Total Asset Turnover 1.12x 1.16x 1.25x 1.31x 1.35x 1.40x 1.45x 1.48x 1.50x 1.50x Total Debt to Assets(%) 66.2% 62.2% 49.5% 43.3% 42.1% 39.6% 36.2% 32.4% 28.8% 25.3% Long-Term Debt Ratio (%) 63.3% 52.2% 48.8% 42.9% 40.8% 38.3% 35.0% 31.3% 27.6% 24.2% Total Debt to Equity -38.4x 51.7x 6.8x 2.8x 2.2x 1.8x 1.4x 1.1x 0.8x 0.7x LTD to Equity -36.7x 43.5x 6.7x 2.8x 2.1x 1.8x 1.4x 1.1x 0.8x 0.6x Debt to EBITDAR 6.1x 5.4x 4.4x 4.1x 4.0x 3.9x 3.6x 3.4x 3.2x 3.0x Equity Multiple -46.8x 108.7x 14.1x 6.8x 5.4x 4.8x 4.1x 3.4x 3.0x 2.6x Interest Coverage Ratio -0.9x 1.8x 2.6x 2.1x 1.7x 3.0x 4.9x 3.7x 5.2x 6.4x 7.7x Gross Profit Margin 67.1% 68.2% 68.1% 67.9% 67.7% 67.6% 67.7% 67.9% 68.0% 68.0% 68.0% Operating Profit Margin -3.0% 4.7% 5.6% 4.5% 5.5% 4.8% 5.5% 6.0% 6.4% 6.6% 6.7% Net Profit Margin -1.8% 1.5% 2.6% 1.3% 5.0% 2.4% 3.3% 3.7% 4.1% 4.2% 4.4% Return on Total Assets 5.2% 6.4% 6.0% 6.9% 6.5% 7.7% 8.7% 9.4% 9.6% 9.8% Return on Assets 1.6% 3.0% 1.7% 6.4% 3.2% 4.6% 5.3% 6.0% 6.2% 6.5% Return on Equity 324.2% 23.3% 43.6% 17.4% 22.2% 21.8% 20.4% 18.4% 16.8% Return on Invested Capital 9.7% 14.6% 14.3% 23.9% 12.6% 14.2% 15.7% 17.2% 18.0% 19.0% FCFF (6.7) 222.5 230.3 157.2 220.5 23.5 133.1 146.1 178.7 201.5 225.0 Revenues 3601.7 3628.3 3841.3 3987.8 4129.2 4408.8 4544.5 4794.5 5054.9 5326.0 5608.4 COGS Margin 32.9% 31.8% 31.9% 32.1% 32.3% 32.4% 32.3% 32.1% 32.0% 32.0% 32.0% SG&A Margin 63.4% 59.4% 59.2% 59.2% 57.9% 58.2% 57.9% 57.7% 57.5% 57.5% 57.5% EBITDA Margin 3.7% 9.0% 9.6% 8.4% 9.4% 9.2% 9.8% 10.2% 10.5% 10.5% 10.5% EBTDAR Margin 12.8% 12.8% 13.6% 14.5% 14.6% 15.2% 15.8% 16.3% 16.5% 16.7% Net Working Capital -120.1 -248.1 -203.6 -260.5 -251.4 -305.1 -318.6 -265.0 -187.5 -85.3 Non-Cash & Non-Int Bearing NWC -398.5 -418.0 -447.1 -460.2 -375.9 -384.1 -399.4 -415.2 -431.7 -448.9 Liquidity Ratios Leverage Ratios Profitability Ratios Efficiency Ratios Margins Source: Team's Estimate and Company Data
  18. 18. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 17 Appendix 6: Ratio Analysis Continued 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Gross Profit Margin 1.7% -0.2% -0.3% -0.3% -0.2% 0.2% 0.3% 0.1% 0.0% 0.0% Operating Profit Margin -253.4% 19.4% -18.3% 20.2% -11.4% 14.8% 8.9% 6.7% 1.7% 1.8% Net Profit Margin -181.6% 78.3% -51.9% 302.7% -52.6% 38.8% 12.1% 10.0% 3.8% 3.6% Return on Total Assets 22.2% -5.6% 14.6% -4.9% 18.3% 12.1% 7.9% 2.4% 2.0% Return on Assets 82.6% -44.4% 284.2% -49.1% 43.0% 15.5% 11.3% 4.5% 3.8% Return on Equity 86.8% -60.1% 27.5% -1.4% -6.6% -9.9% -8.6% Revenues 0.7% 5.9% 3.8% 3.5% 6.8% 3.1% 5.5% 5.4% 5.4% 5.3% COGS Margin -3.4% 0.5% 0.6% 0.6% 0.3% -0.3% -0.6% -0.3% 0.0% 0.0% EBITDA Margin 139.2% 6.6% -11.7% 11.7% -2.5% 6.6% 4.1% 2.9% 0.0% 0.0% EBTDAR Margin -0.6% 6.3% 6.6% 0.8% 4.6% 3.9% 3.1% 1.1% 1.2% Net Working Capital 106.6% -18.0% 28.0% -3.5% 21.3% 4.4% -16.8% -29.3% -54.5% Source: Team's Estimate and Company Data Profitability Ratio Growth Margin Growth
  19. 19. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 18 Appendix 7: Revenue Summary and Forecast Source: Company Data & Team’s Analysis 2009 2010 2011 2012 Q4 2013 2013 Q4 2014 2014 2015 2016 2017 2018 2019 Total Store Sales Outback $1,960 $2,027 $2,115 $546 $2,142 $559 $2,186 $2,239 $2,294 $2,351 $2,408 $2,467 Growth 3.4% 4.3% 1.3% 2.4% 2.0% 2.4% 2.5% 2.5% 2.5% 2.5% Locations 680 670 669 665 663 663 648 648 650 653 656 659 662 Carrabba's $653 $682 $693 $174 $706 $172 $707 $714 $721 $729 $736 $743 Growth 4.4% 1.6% 1.9% -1.0% 0.2% 1.0% 1.0% 1.0% 1.0% 1.0% Locations 232 232 231 234 239 239 243 243 243.00 243 243 243 243 Bonefish $403 $441 $494 $140 $555 $143 $604 $659 $732 $807 $885 $966 Growth 9.4% 12.0% 12.3% 2.0% 8.8% 9.1% 11.0% 10.3% 9.7% 9.1% Locations 145 145 151 167 187 187 196 196 210 229 248 267 286 Fleming's $223 $239 $252 $74 $265 $77 $277 $292 $308 $324 $341 $359 Growth 7.2% 5.4% 5.2% 3.5% 4.4% 5.5% 5.4% 5.4% 5.3% 5.2% Locations 64 64 64 65 65 65 66 66 68 70 72 74 76 Roy's $75 $78 $77 $19 $77 $9 $63 - - - - - Growth 4.0% -1.3% 0.0% - -17.6% - - - - - Locations 58 22 22 22 22 21 - - - - - - - Total Domestic Total Store Sales $3,314 $3,467 $3,631 $953 $3,745 $960 $3,837 $3,904 $4,055 $4,211 $4,371 $4,536 International $281 $336 $315 $88 $344 $105 $542 $610 $708 $812 $922 $1,038 Growth 19.6% -6.3% 9.2% 20.0% 57.6% 12.5% 16.1% 14.7% 13.5% 12.6% Locations 119 120 111 156 169 169 176 176 191 215 239 263 287 Other $28 $34 $38 $42 $9 $40 $9 $29 $30 $31 $32 $33 $34 Growth 20.5% 13.1% 9.6% -3.8% -27.6% 2.0% 2.0% 2.0% 2.0% 2.0% Total Revenue $3,601.7 $3,628.6 $3,841.0 $3,987.7 $1,050.2 $4,129.1 $1,074.8 $4,408.8 $4,544.5 $4,794.5 $5,054.9 $5,326.0 $5,608.4 CAGR 2009 -2014 4.1% CAGR 2015-2019 4.9%
  20. 20. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 19 Appendix 8: Revenue Forecast in Further Detail Source: Team’s Analysis 2015 2016 2017 2018 2019 Comp Store Sales Outback $2,232 $2,284 $2,340 $2,398 $2,456 Growth 2.1% 2.0% 2.0% 2.0% 2.0% Locations 648 650 653 656 659 Carrabba's $714 $721 $729 $736 $743 Growth 1.0% 1.0% 1.0% 1.0% 1.0% Locations 243 243 243 243 243 Bonefish $616 $672 $746 $823 $903 Growth 2.0% 2.0% 2.0% 2.0% 2.0% Locations 196 210 229 248 267 Fleming's $284 $299 $315 $332 $350 Growth 2.5% 2.5% 2.5% 2.5% 2.5% Locations 66 68 70 72 74 Roy's - - - - - Growth - - - - - Locations - - - - - Total Domestic Comps $3,846 $3,977 $4,131 $4,289 $4,453 International $564 $632 $733 $841 $954 Growth 4.0% 3.5% 3.5% 3.5% 3.5% Locations 176 191 215 239 263 Total Comp Store Sales $4,410 $4,608 $4,864 $5,130 $5,407 Blended Comp Sales Growth 2.2% 2.1% 2.1% 2.1% 2.1% Total Comp Stores 1329 1362 1410 1458 1506 New Store Sales Outback $6.7 $10.3 $10.5 $10.7 $11.0 Locations 2 3 3 3 3 Carrabba's $0.0 $0.0 $0.0 $0.0 $0.0 Locations - - - - - Bonefish $43.1 $59.6 $60.7 $61.8 $63.0 Locations 14 19 19 19 19 Fleming's $8.4 $8.6 $8.8 $9.0 $9.2 Locations 2 2 2 2 2 Roy's - - - - - Locations - - - - - Total Domestic New Stores Sales $58.3 $78.5 $80.1 $81.6 $83.2 International $46.2 $76.7 $79.1 $81.5 $84.1 Locations 15 24 24 24 24 Total New Store Sales $104 $155 $159 $163 $167 Total Openings 33 48 48 48 48
  21. 21. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 20 Appendix 9: DCF Model and Valuation Summary Source: Team’s Analysis 0 1 2 3 4 5 2014 2015 2016 2017 2018 2019 EBIT*(1-t) 186.6 211.4 237.8 254.9 273.3 Depreciation 193.2 199.4 205.0 210.0 214.6 Change in NWC 8.3 15.2 15.9 16.5 17.2 CAPEX (255.0) (280.0) (280.0) (280.0) (280.0) FCFF 133.1 146.1 178.7 201.5 225.0 Terminal Value 5,318.0 PV factor @ 6.63% 0.938 0.880 0.825 0.774 0.725 Discounted Cash Flows 124.8 128.5 147.4 155.8 4,021.4 Enterprise Value 4,578 Less: Debt (1,370) Add: Cash 161 Equity Value 3,369 Shares Outstanding 125 DCF Value Per Share $26.89 WACC 6.63% Terminal Growth Rate 2.3% Risk Free Rate 2.76% Beta 0.980 Market Risk Premium 5.7% Cost of Equity 8.34% Kd 4.88 Tax Rate 38.8% A-T Cost of Debt 2.99% Market Cap 2944.3 68.0% Marked Value of Debt 1386.4 32.0% WACC 6.63% Current Price $23.50 Industry P/E (NTM) 20.823 BLMN EPS (NTM) $1.22 Multiple Share Price $25.38 DCF Share Price $26.89 Multiple Weight 40% DCF Weight 60% Price Target $26.28 Upside / (Downside) 11.85%
  22. 22. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 21 Appendix 10: Weighted Average Cost of Capital Assumptions
  23. 23. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 22 Appendix 11: Monte Carlo Simulation A Monte Carlo Simulation was preformed to test the sensitivity of our terminal value and model weighting assumptions. We simulated 10,000 analysts valuing Bloomin’ Brands using randomly generated inputs for the terminal value growth rate as well as the model weightings. The terminal value selected was based on a normal distribution with a mean of our assumption of 2.3% and a standard deviation of 1.0%. This distribution assumes that 99.7% of terminal growth rates chosen fall between -0.7% and 5.3%. The simulation then chooses a weight for the DCF model based on a normal distribution with a mean of 50% and a standard deviation of 16.67%. This distribution assumes that 99.7% of weights fall between 0% and 100%. The simulation generated a distribution of price targets with a mean of $27.14, a median of $25.99, and a mode of $25.36. 3.8% of the prices indicated a Sell rating, 44.5% indicated a Hold rating, and 51.8% indicated a Buy rating. The simulation confirms the legitimacy of our $26.28 price target and Buy rating. Source: Team’s Analysis 0 5 10 15 20 25 16.17 19.07 20.02 20.64 21.15 21.61 22.08 22.54 23.00 23.46 23.92 24.38 24.84 25.30 25.76 26.22 26.68 27.14 27.60 28.06 28.52 28.99 29.45 29.92 30.40 30.86 31.34 31.82 32.34 32.87 33.40 33.96 34.60 35.16 35.88 36.54 37.28 38.18 39.21 40.73 42.72 44.74 49.07 55.02 Monte Carlo Simulation Mean $27.14 Median $25.99 Mode $25.36 STDEV $5.23 Max $111.11 Min $16.17 Condition Results Percentage Below - $23.50 1884 18.8% Above - $23.50 8116 81.2% Total 10000 100.0% Sell - $21.05 376 3.8% Hold 4448 44.5% Buy - $25.85 5176 51.8% Total 10000 100.0%
  24. 24. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 23 Appendix 12: Adjusted Net Debt to Adjusted EBITDAR Reconciliation Source: Company Data & Team’s Analysis 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Net (loss) Income Attributable to Bloomin' Brands 53.0 100.0 50.0 208.4 105.4 150.9 178.4 206.9 226.3 246.8 (Benefit) Provision for Income Tax 21.3 21.7 12.1 (42.2) 35.1 53.0 66.0 76.5 83.7 91.3 Interest Expense, net 91.4 83.4 86.6 74.8 58.3 48.3 45.3 42.3 39.2 36.2 Depreciation and Amortization 156.3 153.7 155.5 164.1 192.3 193.2 199.4 205.0 210.0 214.6 EBITDA $321.96 $358.80 $304.20 $405.03 $391.13 $445.36 $489.04 $530.76 $559.23 $588.88 Adjusted EBITDA $338.90 $361.48 $396.31 $440.49 $470.11 $502.88 $550.28 $595.56 $626.46 $658.64 Rent 126.6 128.532 144.3 156.3 171.9 189.1 208.0 228.8 251.7 276.9 Adjusted EBITDAR $465.48 $490.01 $540.58 $596.79 $642.04 $692.01 $758.32 $824.40 $878.18 $935.53 Total Debt, Net of Discounts 2,147.0 2,084.8 1,494.4 1,419.1 1,369.7 1,288.9 1,208.1 1,127.3 1,046.5 965.7 Less: Cash 365.5 482.1 261.7 209.9 160.7 115.3 117.0 186.5 280.5 399.9 Net Debt $1,805.99 $1,627.21 $1,232.75 $1,209.27 $1,209.00 $1,173.56 $1,091.06 $940.81 $765.96 $565.77 Capitalized Rent 1,012.6 1,028.3 1,154.2 1,250.4 1,375.4 1,513.0 1,664.3 1,830.7 2,013.8 2,215.2 Adjusted Net Debt $2,818.61 $2,655.46 $2,386.97 $2,459.68 $2,584.44 $2,686.54 $2,755.34 $2,771.52 $2,779.74 $2,780.93 Adjusted Net Debt / Adjusted EBITDAR 6.1 5.4 4.4 4.1 4.0 3.9 3.6 3.4 3.2 3.0
  25. 25. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 24 Appendix 13: Macroeconomic Factors U.S. GDP On December 23, 2014, the Bureau of Economic Analysis (BEA) released this year’s revised third quarter Gross Domestic Product Report. The estimate revealed a 5.1% annual growth rate. For comparison, in the second quarter there was an estimated annual growth rate measure of 4.6%. There is a noted upward trend in GDP growth compared to recessionary levels and we anticipate this trend to continue going into the 2014 Q4. U.S. Unemployment As of November 2014, the U.S. unemployment rate is 5.8%. The unemployment levels have gradually improved month over month. The consumer has contributed to the noted growth in GDP levels. The uptick in GDP has been a factor in the growth of U.S. employment levels. The 5.8% unemployment level points toward a more normalized economic situation compared to recessionary highs of 9.8% in November 2009. Given the positive signs of growth, we anticipate for unemployment levels to keep moderately improving and showing stability in a normalized economy. Source: Capital IQ and Team’s Analysis
  26. 26. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 25 Consumer Confidence The pattern in consumer attitudes and spending will have an influence on the casual dining industry. The more confident consumers are about the economic situation, the more likely they are to spend on discretionary items. The consumer sentiment report released on December 12, 2014 showed a robust 93.8 level. This is the strongest reading dating back to January 2007. The current conditions and expectation components are signaling a rising confidence in future income and jobs for the U.S. economy. Personal Income and Outlays Income is the major determinant for consumer spending. Based on the current November 26, 2014 data release, the consumer sector is slowly improving in the areas of income and spending. Personal income has increased 4.1% over the past year. The rise in personal income is consistent with the 3.6% increase in consumer spending habits. Source: Capital IQ and Team’s Analysis
  27. 27. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 26 Appendix 14: Competition Description Darden Restaurants (DRI) Darden is the largest casual dining restaurant chain in the industry measured by market cap and market share. Its market cap is equal to $7.77 billion and accounts for 10.7% of total market share. Its family of restaurants includes: Olive Garden, Red Lobster, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V’s, and Yard House. Through subsidiaries, it owns and operates more than 1,500 restaurants. It generates over $6.3 billion dollars in annual sales, and is headquartered in Orlando, Florida. Darden employs more than 150,000 people and was recently included in Fortune’s “100 Best Companies to Work For” list in 2014. DRI has made this list 4 years in a row. Darden caters to differing population segments and has the ability to reach many markets. Dine Equity (DIN) Dine Equity is the second largest dining restaurant chain in the industry measured by market share and the 9th largest measured by market cap. Its market cap is equal to $1.92 billion and accounts for 8.2% of total market share. Dine Equity’s duo of restaurants is Applebee’s and IHOP. Headquartered in Glendale, California, Dine Equity owns 3,600 restaurants throughout 19 countries employing over 200,000 people. Dine Equity also collects revenue from 400 franchisees. Brinker International (EAT) Brinker International is the 3rd largest casual dining restaurant chain in the industry measured solely by market cap. Its market cap is equal to $3.73 billion. Brinker International owns both Chili’s Grill & Bar and Maggiano’s Little Italy restaurant chains. It was founded in Dallas, Texas and owns, operates, or franchises 1,593 restaurants. Buffalo Wild Wings (BWLD) Buffalo Wild Wings is the 4th largest casual dining restaurant chain in the industry measured solely by market cap. Its market cap is equal to $3.391 billion. Buffalo Wild Wings owns only the Buffalo Wild Wings restaurant concept. It was founded in 1982, and is headquartered in Minneapolis, Minnesota. It currently owns and operates more than 1,045 Buffalo Wild Wings restaurants in the United States, Canada, and Mexico. Cracker Barrel Old Country Store (CBRL) Cracker Barrel is the 5th largest casual dining restaurant chain in the industry measured solely by market cap. Its market cap is $3.263 billion. Cracker Barrel Old Country Store owns only the Cracker Barrel restaurants & gift shops. It is headquartered in Lebanon, Tennessee and owns as well as operates 634 stores in 42 states. Source: Company Data & Team’s Analysis
  28. 28. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 27 Appendix 15: Porter’s Five Forces Threat of Substitutes Highest force of the five. Frequency of substitutes is high. Home cooked meals can be substituted for casual dining. Fast Casual Restaurants Fast casual restaurants are a relatively new and fast growing concept within the restaurant industry. The segment is positioned between fast food restaurants and casual dining restaurants and is considered to be a hybrid of the two concepts. Meals range from $8 to $15 per person. The biggest fast casual dining restaurant chains are: Chipotle Mexican Grill, Panera Bread, and Baja Fresh. Quick Service Restaurants Quick service restaurants have grown at a faster rate than any other segment in the restaurant industry. Prices of meals range from $3 to $6 per person. Food is prepared in big quantities, is highly processed, and cooked using standard cooking steps. McDonald’s is the leading example, followed by Subway and Starbucks. Competitive Rivalry Restaurant density is high in the industry. Products and services are similar in nature. This intense competition keeps prices relatively low and competitive. Larger restaurants have an advantage because they can take advantage of economies of scale, and this allows them to advertise more frequently, innovate new menu items or services, and increase their technology. Threat of New Entry There are low barriers to entry. Intense competition and high fixed costs are deterrents, but many entrepreneurs enter due to sales having a high profit margin once the break-even point is reached. Large chain restaurants enjoy economies of scale, more benefits from advertising due to higher amount of stores, better technology, and more real estate expertise. Buyer Power Buyers collectively do not have much of an impact on menu prices. Buyers are average citizens from a wide array of socioeconomic backgrounds. Supplier Power There are many suppliers for all of the various commodities that the casual dining industry requires. None of these suppliers are special in any way, and there are a wide array of suppliers for differing commodities. Supplier power is heavily dependent on the restaurant’s location, and how close it is to a supplier. The closer the supplier is to the distribution chain, the more bargaining power it has. Prices are locked in with hedge contracts to guarantee a stable commodity price for about a year. Source: IBIS World, Company Data & Team’s Analysis 0 1 2 3 4 5 Substitutes Competitive Rivalry Threat of New Entry Buyer Power Supplier Power
  29. 29. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 28 Appendix 16: Altman’s Z-score Since 2012, Bloomin’ Brands maintained an Altman’s Z-score above the distress level of 1.80 and over the past 7 quarters the score has been kept above 2.0 with slight fluctuations within a range of 2.1-2.4, as shown on the graph below. Altman’s Z-score components show an upward trend in tangible assets as BLMN has aggressively invested in capital expenditures to expand its operations. Simultaneously, sales components reveal a similar upward trend, reflected in EBIT translating into gains to the bottom line and retained earnings. For the same period, liabilities decreased as the company paid down debt. Therefore, the Altman’s Z-score progression does not show a warning for default. Source: Company Data & Team’s Analysis Inputs 2014 Q3 2014 Q2 2014 Q1 2013 Q4 2013 Q3 2013 Q2 2013 Q1 2012 Q4 2012 Q3 2012 Q2 2012 Q1 2011 Q4 Tangible Assets 2,275.0 2,270.2 2,251.1 2,310.8 2,185.8 2,166.5 2,136.2 2,193.8 2,073.2 2,173.4 2,205.6 2,519.0 Working Capital (233.4) (232.3) (226.3) (260.5) (148.4) (110.2) (146.8) (203.6) (201.9) (47.2) (30.0) (248.1) Retained Earnings (513.3) (498.5) (543.7) (591.6) (640.9) (662.8) (729.2) (787.9) (810.6) (781.5) (792.3) (845.0) EBIT 183.4 214.1 218.5 225.4 247.8 206.8 187.6 181.1 188.5 221.1 213.2 213.5 Market Value of Equity 2,371.9 2,839.8 2,974.3 2,996.1 2,934.4 3,085.3 2,189.1 1,894.8 1,992.1 Total Liabilities 2,639.9 2,631.6 2,656.5 2,769.5 2,575.4 2,584.9 2,655.7 2,796.3 2,679.4 2,895.4 2,942.1 3,313.6 Sales 4,384.8 4,286.9 4,194.8 4,129.2 4,077.1 4,062.4 4,024.4 3,987.8 3,945.0 3,920.4 3,895.0 3,841.3 Altman's Z-score 2.29 2.42 2.40 2.26 2.43 2.42 2.11 1.88 1.98 2.29 2.42 2.40 2.26 2.43 2.42 2.11 1.88 1.98 1.50 1.70 1.90 2.10 2.30 2.50 2.70 2.90 2014 Q3 2014 Q2 2014 Q1 2013 Q4 2013 Q3 2013 Q2 2013 Q1 2012 Q4 2012 Q3 Altman's Z-score
  30. 30. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 29 Appendix: 17 Ownership Summary Source: Capital IQ Type Common Stock Equivalent Held % of Total Shares Outstanding Market Value (USD in mm) Institutions 87,460,786 69.6 2,077.20 Individuals/Insiders 2,614,321 2.08 62.1 VC/PEFirms (>5% stake) 18,307,782 14.57 434.8 Public and Other 17,278,111 13.75 410.4 Total 125,661,000 100 2,984.50 Institutional Ownership Type Common Stock Equivalent Held % of Inst. Ownership Traditional Investment Managers 53,025,193 60.63 Hedge Fund Managers (<5% stake) 24,521,455 28.04 Family Offices/Trusts 7,139,544 8.16 Banks/Investment Banks 1,447,030 1.65 VC/PEFirms (<5% stake) 596,973 0.68 Charitable Foundations 399,296 0.46 Government Pension Sponsors 328,626 0.38 Union Pension Sponsors 2,669 0 Total 87,460,786 100 Top Holders Common Stock Equivalent Held %of Total Shares Outstanding Market Value (USDin mm) Position Date Bain Capital, LLC 18,307,782 14.57 435.5 Nov-14-2014 Point72 Asset Management, L.P. 6,746,724 5.37 160.5 Sep-30-2014 Citadel LLC 5,756,244 4.58 136.9 Sep-30-2014 AllianceBernstein L.P. 5,287,754 4.21 125.8 Sep-30-2014 Wellington Management Company, LLP 5,235,275 4.17 124.5 Sep-30-2014 Insider Holder Name Common Stock Held % of CSO Market Value (USDin mm) Change in Shares % Change Sullivan, Chris T. 2,207,902 1.757 52.4 -99,997 -4.33 Kadow, Joseph J. 308,722 0.246 7.3 0 0 Smith, Jeffrey S. 32,016 0.025 0.8 0 0 Shaw, Amanda Link 15,780 0.013 0.4 0 0 Grossman, Mindy F. 14,857 0.012 0.4 0 0 Mahoney Jr., John J. 11,439 0.009 0.3 0 0 Deno, David J. 9,571 0.008 0.2 0 0 Pace, David A. 5,659 0.005 0.1 0 0 Craigie, James R. 4,763 0.004 0.1 0 0 Levy, Tara Walpert 3,359 0.003 0.1 0 0 Fitzjohn, David Roy 253 0 0 0 0
  31. 31. Bloomin’ Brands, Inc. (NASDAQ: BLMN) January 20, 2015 CFA Institute Research Challenge P a g e | 30 Appendix 18: Market Comparison Bloomin’ Brands and Market Comparison Bloomin’ Brands, Inc. is a member of the Russell 2000 Index, NASDAQ Composite Index, and Russell 3000 Index. In measuring the returns of Bloomin’ Brands and the respective indices, historical data reveals that the company has outperformed the market overall since the 2012 IPO. The stock has notable volatile trading volume on earning release dates. Specifically March 5, 2014 when 12,452,700 shares were traded; August 5, 2014 when 16,244,000 shares were traded; and November 11, 2014 when 10,186,100 shares were traded. The average daily trade volume for Bloomin’ Brands is 2.12 million shares. Source: Capital IQ & Team’s Analysis
  32. 32. Disclosures: Ownership and material conflicts of interest: The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company. The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation: Compensation of the author(s) of this report is not based on investment banking revenue. Position as an officer or director: The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company. Market making: The author(s) does not act as a market maker in the subject company’s securities. Disclaimer: The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA society Miami, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock. CFA Institute Research Challenge

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