Today, Keith shorted the BLMN love-fest we are seeing from the sell-side at $15 today post IPO initiations of coverage. Management is confident in its ability to achieve its stated goals and the sell-side seems convinced also.
As we see it, there has clearly not been much progress in fixing this company since it was taken private in 2006. The primary difference in the company's position, from our purview, is that casual dining now faces a more uncertain outlook dictated by demographic and economic headwinds. To achieve its goals, the company requires strong sales and management attacking the middle of the P&L. The macro environment will hamper BLMN's efforts and ultimately, we believe, actual results are likely to come in below where expectations currently sit. Among the macro issues we see as relevant for BLMN are the following:
- Accelerating food inflation
- Soft labor market
- Rising gas prices
- Long-term demographic headwing
To conclude, we do not subscribe to the emerging consensus that daypart expansion, enhanced marketing, or other "easy" drivers of earnings growth are ready-to-go, sure-fire winners for BLMN. As we've said before, Don Corleone would wonder why such generosity is being afforded the investment community. Why weren't these initiatives undertaken prior to the company coming public?
We do not believe that a lot has changed since 2007 where BLMN is concerned. The stock is immediate-term TRADE overbought.
Howard Penney
Managing Director
Rory Green
Analyst