uploads///Key Costs of Operation

Bloomin’ Brands Has 3 Key Costs of Operation

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Dec. 4 2020, Updated 10:52 a.m. ET

Key costs of operations

Restaurants’ key costs of operation comprise three key costs:

  1. cost of sales
  2. labor and related costs
  3. rent and other costs

These costs accounted for 83.9% of Bloomin’ Brands’ (BLMN) revenue in fiscal 2014.

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Cost of sales

The company’s cost of sales include food costs such as meat, seafood, produce, and dairy. During 2013 and 2014, several restaurants—including Darden Restaurants (DRI), Texas Roadhouse (TXRH), and McDonald’s (MCD)—were affected by rising beef prices. The beef price increase was driven by unfavorable weather conditions in the US.

The Consumer Discretionary Select SPDR ETF (XLY) holds about 10% of restaurants, including about 0.3% of DRI.

Higher commodity costs

Bloomin’ Brands’ revenue was affected by as much as 0.7% due to price increases for beef and seafood. A restaurant can do little when facing rising prices except to increase menu prices, which we’ll discuss in more detail in the next part of this series. The company expects to incur 4% to 6% increased commodity costs, driven by higher beef costs.

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Labor and related costs

Labor and related expenses include wages, compensation plans, and incentives as well as distribution expenses to partners. Labor and related costs accounted for as much as 27.6% of the company’s costs in fiscal 2014. The company incurred 0.8% more sales due to an expansion of its lunch program, requiring more staff. Bear in mind that some of Bloomin’ Brands’ restaurants offer only dinner. There’s also the looming issue of wage increases in the US, which could make things worse for Bloomin’ Brands.

Rents and other costs

Rents and related expenses include operating supplies, utilities expenses, insurance, and rents. These expenses accounted for 23.8% of Bloomin’ Brands’ sales in 2014. These costs are usually fixed.

The company’s operating margins declined to 5.5% from 6.1% due to these elevated costs.

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