Consumer spending concerns has BMO sidelined on Bloomin’ Brands

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BMO Capital downgraded Bloomin’ Brands (NASDAQ:BLMN) to a Market Perform rating (from Outperform) and cut the price target on the stock to $26.00 (from $29.00). Recent strength in BLMN shares has coincided with accelerating BLMN/industry traffic data balancing the risk/reward and pushing BMO Capital to move to the sidelines.

However, analysts believe that it is prudent to be opportunistic given traffic improvements are likely unsustainable. They also remain concerned about broader consumer outlook and the risk to 2023 consensus margins.

Foot traffic at Outback Steakhouse accelerated from a 13% year-over-year decline in 4Q22 to 8% growth thus far in January, while Carrabba’s strengthened from a 12% decline in 4Q22 to 7% growth quarter-to-date. The recent strength reflects, in part, favorable weather and cycling the spread of the Omicron variant last year.

The analysts wrote in a note, “The recent traffic improvements likely are unsustainable, with trends likely to decelerate in the coming weeks, and our concerns about the consumer spending outlook remain unchanged. In addition, recent industry conversations suggest consensus 2023 restaurant margin forecasts likely are too optimistic as a starting point for at least some casual diners.”

FY23 EPS estimates were cut to $2.65 (from $2.78), below the consensus estimate of $2.73.

Shares of BLMN are down 2.18% in pre-market trading on Wednesday.

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