Item 1A. Risk Factors
The risk factors set forth below should be carefully considered. The risks described below are those that we believe could materially and adversely affect our business, financial condition or results of operations, however, they are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially and adversely affect our business, financial condition or results of operations.
Risks Related to the Restaurant Industry
Food safety and food-borne illness concerns in our restaurants or throughout the industry or supply chain may have an adverse effect on our business by reducing demand and increasing costs.
Regardless of the source or cause, any report of food-borne illnesses and other food safety issues, whether at one of our restaurants, in the industry or supply chain, could have a negative impact on our traffic and sales and adversely affect the reputation of our brands. Food safety issues could be caused by suppliers or distributors and, as a result, be out of our control and this risk may be exacerbated by supply chain issues, which could delay deliveries and necessitate alternative sourcing on short notice. Health concerns or outbreaks of disease in a food product could also reduce demand for particular menu offerings. Even instances of food-borne illness, food tampering or contamination occurring solely at other company’s restaurants could result in negative publicity about the food service industry and adversely impact our sales. There is also the risk of allergen cross contamination in our restaurants despite precautionary measures to minimize the risk. Social media has dramatically increased the rate at which negative publicity, including as it relates to food-borne illnesses, can be disseminated before there is any meaningful opportunity to respond or address an issue. The occurrence of food-borne illnesses or food safety issues could also adversely affect the price and availability of affected ingredients, resulting in higher costs and lower margins.
The restaurant industry is highly competitive and consumer options for other prepared food offerings continue to expand. Our inability to compete effectively could adversely affect our business, financial condition and results of operations.
A substantial number of restaurant operators compete directly and indirectly with us with respect to price, service, location and food quality, some of which are well-established with significant resources. There is also active competition for management, team members and other personnel, and attractive suitable real estate sites. Consumer tastes, nutritional and dietary trends, traffic patterns, discretionary spending habits and the type, number and location of competing restaurants often affect the restaurant business, and our competitors may react more efficiently, creatively and effectively to those conditions. In addition, our competitors may generate or better implement business strategies that improve the value and relevance of their brands and reputation, relative to ours. For example, our competitors may more successfully implement menu or technology initiatives, such as remote ordering, social media or mobile technology platforms that expedite or enhance the customer experience, or artificial intelligence to develop new customer insights. Further, we face growing competition from quick service and fast-casual restaurants, the supermarket industry and meal kit and food delivery providers, with the improvement of prepared food offerings. and the trend towards convergence in grocery, deli, delivery, retail and restaurant services. Further, if this competitive environment and the breadth of alternatives result in a decline in casual dining customer traffic, it could make our financial operations dependent on our ability to increase our market share within the hyper-competitive casual dining segment. We believe all of the above factors have increased competitive pressures in the casual dining sector in recent periods and we believe they will continue to present a challenging competitive environment in future periods. If we are unable to continue to compete effectively, our traffic, sales and margins could decline and our business, financial condition and results of operations would be adversely affected.
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Failure to recruit, train and retain high-quality leadership, restaurant-level management and hourly team members may inhibit our ability to operate and grow successfully.
Our success will continue to depend, to a significant extent, on our leadership team and other key management personnel. For example, during 2025, we appointed a new chief financial officer and made other changes to our senior leadership team. While some of these changes were reflective of ongoing succession-planning, leadership transition can create risks as individuals are integrated into new roles, onboarding shifts management attention from business concerns, we may fail to retain other key personnel, or we may lose institutional knowledge. These risks and uncertainties could result in operational and administrative inefficiencies and additional added costs, which could adversely impact our results of operations.
Our restaurant-level management and team members are largely responsible for the quality of our service. Our guests may be dissatisfied and our sales may decline if we fail to recruit, train and retain managers and team members that effectively implement our business strategy and provide high-quality guest service. There is active competition for quality management personnel and hourly team members, and such competition could require us to pay higher wages or incur higher costs for retaining and incentivizing our management personnel and hourly team members. If we experience high turnover, we may experience higher labor costs and have a shortage of adequate management personnel required for future growth. The tight labor market in the United States has further strained and could continue to strain our ability to keep our restaurants fully staffed. A shortage of team members also could cause our restaurants to operate with reduced staff, which could adversely affect our ability to provide high-quality guest service and cause our business and financial results to suffer.
The food service industry is affected by consumer preferences and perceptions. Changes in these preferences and perceptions may lessen the demand for our products, which would reduce sales and harm our business.
Food service businesses are affected by changes in consumer tastes and demographic trends. For instance, if prevailing health or dietary preferences or initiatives cause consumers to avoid steak and other products we offer in any of our concepts in favor of foods or ingredients that are perceived as healthier or otherwise reflect popular demand, our business and operating results would be harmed. Various factors such as menu labeling rules, health initiatives, changes in diet or attitudes toward diet and health, new information about diets and health, nutritional guidelines and academic studies, whether issued by government agencies, research institutions, or advocacy organizations, may impact consumer choice and cause consumers to select foods other than those that are offered by our restaurants. Consumer preference on sourcing, or in response to environmental and animal welfare concerns may also cause some groups of consumers to select foods other than those that are offered by our restaurants. Our business may be negatively impacted by customer preferences regarding third-party delivery apps and services with which we engage, particularly if the availability, performance and reliability of the apps or services adversely impact customer satisfaction. If we are unable to anticipate or successfully respond to changes in consumer preferences, our results of operations could be adversely affected, generally or in particular concepts or markets.
If our suppliers or distributors are unable to fulfill their obligations under their contracts or we are unable to develop or maintain relationships with these or new suppliers or distributors, if needed, we could encounter supply shortages and incur higher costs.
We depend on frequent deliveries of fresh food products that meet our specifications, and we have a limited number of suppliers and distributors for our major products, such as beef. These factors subject us to the risk that shortages or interruptions in products could adversely affect the availability, quality or cost of products or require us to incur more costs to obtain adequate products if we are unable to manage supply chain risk. During 2025, we purchased more than 80% of our beef raw materials from four beef suppliers that represent a significant portion of the total beef marketplace. Our dependence on a small number of suppliers subjects us to the risks of ingredient shortage, supply interruption, animal disease outbreak, and price volatility. An external disruption or an internal dispute could force us to sever ties with our suppliers or distributors, and we may not be able to find a suitable replacement in a timely or cost-efficient manner. Beef is a significant cost to us, and we may also incur higher costs to secure adequate suppliers or make substantial changes to our menu offerings, at the risk of material adverse harm to our
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business. Due to the nature of our industry, we expect to continue purchasing a substantial amount of our beef from a small number of suppliers. Global economic factors continue to place significant pressure on suppliers, making the supply environment more expensive and causing supply chain issues. Supply shortages or disruptions caused by inclement weather, climate change, natural disasters, pandemics, armed conflict, sanctions, government policy, financial or solvency issues of our suppliers or distributors, fuel increases or other conditions beyond our control could adversely affect our operations and operating results. In recent years, climate-related issues, including drought and flooding in our key supplier region, have led to volatility in the prices of our ingredients, such as produce and meats. In addition, if any of our suppliers or distributors were unable to fulfill their responsibilities or we were unable to maintain current purchasing terms or ensure service availability and we were unable to locate substitutes in a timely manner, we may encounter supply shortages, lose consumers and experience an increase in costs in seeking alternative supplier or distribution services. The failure to develop and maintain supplier and distributor relationships and any resulting disruptions to the provision of food and other supplies to our restaurant locations could adversely affect our operating results.
Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could have a material adverse impact on our business.
Social media allows individuals to access a broad audience of consumers and other interested persons. The availability of information on social media platforms is virtually immediate as is its impact, and users can post information often without filters or checks on the accuracy of the content posted. Adverse or inaccurate information concerning our Company or concepts may be posted at any time, and such information can quickly reach a wide audience. Social media has also been utilized to target specific companies or brands as a result of a variety of actions or inactions, or perceived actions or inactions, and such campaigns can rapidly accelerate and impact consumer behavior. The harm may be immediate without affording us an opportunity for redress or correction, and it is challenging to monitor, anticipate and promptly respond to such developments. These factors could have a material adverse effect on our business. Regardless of its basis or validity, any unfavorable publicity could adversely affect public perception of our brands.
Our failure to use social media responsibly in our marketing efforts may further expose us to these risks. As part of our marketing efforts, we rely on search engine marketing and social media platforms to attract and retain guests. We need to continuously innovate and develop our social media strategies in order to maintain broad appeal with guests and brand relevance. We also continue to invest in other digital marketing initiatives that allow us to reach our guests across multiple digital channels and build their awareness of, engagement with, and loyalty to our brands. These initiatives may not be successful, resulting in expenses incurred without the benefit of higher revenues, increased employee engagement or brand recognition. In addition, a variety of risks are associated with the use of social media, including the improper disclosure of proprietary or personal information and negative publicity. The inappropriate use of social media vehicles by our guests or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation.
Risks Related to Government Regulation
We are subject to various federal and state employment and labor laws and regulations.
We and our vendors are subject to various employment and labor laws and regulations governing relationships with employees throughout the world and changes to laws and regulations may affect operating costs. These laws and regulations relate to matters including employment discrimination, pay transparency, minimum wage requirements, scheduling, overtime, tip credits, unemployment tax rates, workers’ compensation rates, working conditions, immigration status, tax reporting and other wage and benefit requirements. Any significant additional government regulations, enforcement initiatives and new laws governing relationships with employees, including minimum wage increases, regulations relating to union organizing rights and activities, the employment status of third-party delivery drivers, mandated benefits, immigration status or other requirements that impose additional obligations on us, could increase our costs and adversely affect our business and results of operations.
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As a significant number of our food service and preparation personnel are paid at rates related to the applicable minimum wage, federal, state and local proposals related to minimum wage requirements or similar matters could, to the extent implemented, materially increase our labor and other costs. As minimum wage increases continue to be implemented in states in which we operate, we expect our labor costs will continue to increase. In addition, there have been in the past, and may be in the future, legislative efforts to significantly increase the federal minimum wage, which, if implemented, would materially increase our labor and other costs. Our distributors and suppliers could also be affected by higher minimum wage, benefit standards and compliance costs, which could result in higher costs for goods and services supplied to us. In addition, several U.S. jurisdictions have implemented fair workweek or “secure scheduling” legislation, which impose complex requirements related to scheduling for certain restaurant and retail employees, and additional jurisdictions are considering similar legislation. Several jurisdictions also have implemented sick pay/paid time off legislation, which requires employers to provide paid time off to employees, and “just cause” termination legislation, which restricts companies’ abilities to terminate employees unless they can prove “just cause” or a “bona fide economic reason” for the termination. Further, class action lawsuits filed pursuant to federal and state wage and hour laws may create additional material costs. We also rely on our employees to accurately disclose the full amount of their tip income, and we base our FICA tax reporting on the disclosures provided to us by such tipped employees. Inaccurate employee FICA tax reporting could subject us to monetary liabilities, which could harm our business, results of operations and financial condition.
Our failure to comply with government regulation related to our restaurant operations, and the costs of compliance or non-compliance, could adversely affect our business.
We are subject to various federal, state, local and foreign laws affecting our business. Each of our restaurants is subject to licensing and regulation by a number of governmental authorities, which may include, among others, alcoholic beverage control, food safety, nutritional menu labeling, health care, sanitation, hazardous material, building, zoning, land use, traffic, environmental and fire agencies in the state, municipality or country in which the restaurant is located. Our suppliers are also subject to regulation in some of these areas. Any difficulties or inabilities to retain or renew licenses, or increased compliance costs due to changed regulations, could adversely affect operations at existing restaurants. Additionally, difficulties in obtaining or failing to obtain the required licenses or approvals could delay or prevent the development of new restaurants. We are subject to various U.S. federal, state and international laws and regulations related to the offer and sale of franchisees. Failure to comply with these laws could adversely affect the results we generate from franchisees or otherwise impose costs on us. Alcoholic beverage sales represent 11% of our consolidated restaurant sales and are subject to extensive state and local licensing and other regulations. The failure of a restaurant to obtain or retain a liquor license would adversely affect that restaurant’s operations. In addition, we are subject to “dram shop” statutes in certain states. These statutes generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. We may also incur costs of and challenges in ensuring compliance with measures implemented in response to a widespread illness or a pandemic, such as requirements for physical barriers or other preventative measures in restaurants or vaccination or testing requirements for our employees, which can vary by the location of the restaurant and may continue to change. We are subject to laws relating to information security, cashless payments and consumer credit, protection and fraud.
Future laws, regulations, standards and other obligations, as well as changes in the interpretation of existing laws, regulations, standards and other obligations could impair our ability to operate our business, such as through increased compliance costs and procedures and distraction of management from other operational and strategic matters. For example, in June 2024 in Loper Bright Enterprises v. Raimondo (Loper), the Supreme Court’s holding that courts need not defer to a governmental agency’s interpretation of an ambiguous statute that it administers may result in increased challenges and changes to existing agency regulations.
The federal government may seek further sweeping regulatory changes. For example, there have been several executive actions and a number of executive orders in connection with, among other areas, energy production, trade, immigration and administrative agencies. The effects of these executive actions and executive orders, as well as any tandem regulatory changes pursued, are highly uncertain and may adversely impact our business.
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Compliance with these laws and regulations and monitoring and addressing changes can be costly, and any failure or perceived failure to comply with these laws or any breach of our systems could harm our reputation or lead to litigation, which could adversely affect our financial condition.
Changes in tax laws, uncertainty in the judicial interpretation of those laws and unanticipated tax liabilities could adversely affect the taxes we pay and our profitability.
We are subject to income and other taxes in the United States and numerous foreign jurisdictions. Our effective income tax rate and other taxes in the future could be adversely affected by a number of factors, including changes in the mix of earnings in countries with different statutory tax rates, changes in the valuation of deferred tax assets and liabilities, an “ownership change” as defined under Section 382 of the Internal Revenue Code, changes in U.S. or foreign tax laws, including the 15% global minimum tax under the Organization for Economic Co-operation and Development (“OECD”) Pillar Two (“Pillar Two”), Global Anti-Base Erosion rules, uncertainty in the interpretation of tax laws, comprehensive tax reform measures or other legislative changes, and the outcome of income tax audits and tax litigation, such as in Brazil. Further, differences in interpretations of Pillar Two and other rules by multiple jurisdictions may cause increased complexities as to compliance and increased audit controversy with tax authorities in jurisdictions where we operate. Although we believe our tax estimates are reasonable, the final determination of tax audits and tax litigation could be materially different from our historical income tax provisions and accruals. These results could have a material effect on our results of operations or cash flows in the period or periods for which these determinations are made. In addition, our effective income tax rate and our results may be impacted by our ability to realize deferred tax benefits, including our FICA tip credit carryforwards, and by any increases or decreases of our valuation allowances applied to our existing deferred tax assets.
If we fail to adequately address corporate citizenship and sustainability matters, it could have an adverse effect on our business, financial condition, and operating results and may damage our reputation.
In recent years, there has been an increasing focus with often differing and competing expectations and standards from certain investors, customers, consumers, employees, state, federal and international governments and agencies, and other stakeholders concerning corporate citizenship and sustainability matters, including practices and disclosures related to environmental stewardship; social responsibility; diversity, equity and inclusion; and workplace rights. Companies across all industries are facing increasing scrutiny relating to their corporate citizenship and sustainability practices, including from opponents of these initiatives. We are also subject to corporate citizenship and sustainability disclosure rules and regulations and institutional investor voting policies that seek this information, making it more accessible for scrutiny. Changing consumer preferences may result in increased demands regarding our products and supply chain and their respective environmental and social impact, including on sustainability. These demands could require additional transparency, due diligence, and reporting and could cause us to incur additional costs or to make changes to our operations to comply with such demands. We may also determine that certain changes are required in anticipation of further evolution of consumer preferences and demands. Increased focus and activism related to corporate citizenship and sustainability may also result in investors reconsidering their investment decisions as a result of their assessment of a company’s corporate citizenship and sustainability practices.
In addition, corporate diversity, equity and inclusion practices have recently come under increasing challenges from advocacy groups and federal and state officials through media campaigns, lawsuits and executive orders. Any failure or perceived failure by us to adequately address differing stakeholder expectations and legal requirements regarding corporate citizenship, including diversity, equity and inclusion, employee health, safety and welfare, and workplace rights, among others, may damage our reputation and adversely affect our business and results of operations. The current sociopolitical landscape has led to rapid and unpredictable shifts in public sentiment, which has resulted in dynamics that increase the risk of reputational damage, boycotts and shifts in consumer behavior, and we may not be able to align our practices with such evolving expectations within the timeframes expected by stakeholders or regulators, or without incurring significant costs to our business and reputation. Further, concern over climate change and other environmental sustainability matters, has and may in the future result in new or increased legal and federal and state regulatory requirements to provide extensive disclosure regarding and to
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reduce or mitigate impacts to the environment, including greenhouse gas emissions, alternative energy policies, water consumption, packaging and waste management, responsible sourcing and other sustainability initiatives. For example, state, federal and international regulations on sustainability matters, including the Climate Corporate Data Accountability Act and the Climate-Related Financial Risk Act in California, have been or may be implemented that will require reporting and third-party assurance on greenhouse gas emissions and other environmental matters.
If we fail to achieve goals, targets, or objectives we may set with respect to corporate citizenship and sustainability matters, if we do not meet or comply with new regulations or evolving government, consumer, investor, industry, or stakeholder expectations and standards, including those related to reporting, or if we are perceived to have not responded appropriately to the growing concern for corporate citizenship and sustainability matters, we may face legal or regulatory actions, the imposition of fines, penalties, or other sanctions, adverse publicity, and decreased demand from consumers, or the price of our common stock could decline, any of which could materially harm our reputation or have a material adverse effect on our business, financial condition, or operating results.
Risks Related to Our Business Model and Strategy
Failure to execute successfully our turnaround strategy or to achieve projected cost savings from our efficiency initiatives could adversely affect our results of operations and limit growth opportunities for our brands.
In recent years, we have identified strategies and taken steps to reduce operating costs and free up resources to reinvest in our business and drive long-term growth, including our turnaround strategy. These strategies include an increased focus on the dine-in experience, brand relevancy, our team members and culture and investment in our restaurants, as well as improved supply chain management, implementing labor scheduling tools, improvements in kitchen equipment and integrating restaurant information systems across our brands. We continue to evaluate and implement these strategies and cost-saving initiatives. However, the ability to execute our strategy successfully to achieve the intended results and to reduce our operating costs through these initiatives is subject to risks and uncertainties, such as consumer acceptance of our brand enhancements, effectiveness of our investments, and our ability to obtain improved supply pricing and the reliability of any new suppliers or technology. We cannot assure that these activities, or any other activities that we may undertake in the future, will achieve the desired results, cost savings or efficiencies. In addition, these measures may not be successful or sustainable, have unintended consequences or be detrimental to continued operations. Failure to achieve such desired operational improvements, cost savings, or other negative effects from our operational improvements and cost-saving measures could adversely affect our results of operations and financial condition and curtail investment in growth opportunities.
Our success depends substantially on the value of our brands and our ability to execute innovative marketing and consumer relationship initiatives to maintain brand relevance and drive profitable sales growth.
Our success depends on our ability to preserve and grow our brands. Our brand value and reputation are especially important to differentiate our concepts in the highly competitive casual dining sector to achieve sustainable same-restaurant sales growth and warrant new unit growth. Brand value and reputation are based in large part on consumer perceptions, which are driven by both our actions and by actions beyond our control, such as new brand strategies or their implementation, business incidents, ineffective advertising or marketing efforts, or unfavorable mainstream or social media publicity involving us, our industry, our franchisees, or our suppliers. A failure to innovate and extend our brands in ways that are relevant to consumers and occasions, including through our ongoing turnaround plans, in order to generate sustainable same-restaurant traffic growth, and produce non-traditional sales and earnings growth opportunities, could have an adverse effect on our results of operations. Additionally, insufficient focus on our competition or failure to adequately address declines in the restaurant industry, could adversely impact results of operations. If our competitors increase their spending on advertising, promotions and loyalty programs, if our advertising, media or marketing expenses increase, or if our advertising, promotions and loyalty programs become less effective than those of our competitors, or if we do not adequately leverage technology and data analytic capabilities needed to generate and effectively apply concise competitive insight, our results of operations could be materially and adversely affected.
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There are risks and uncertainties associated with strategic actions and initiatives that we may implement.
From time to time, we consider various strategic actions and initiatives in order to grow and evolve our business and brands and improve our operating results. These actions and initiatives could include, among other things, acquisitions, development or dispositions of restaurants or brands, new joint ventures, new franchise arrangements, restaurant closures and changes to our operating model. For example, during 2025 we announced operational initiatives as part of our turnaround plan. There can be no assurance that any such strategic actions or initiatives will be successful or deliver their anticipated benefits. We may be exposed to new and unforeseen risks and challenges, particularly if we enter into markets or engage in activities with which we have limited or no prior experience, and it may be difficult to predict the success of such endeavors. If we incur significant expenses or divert management, financial and other resources to any initiative that is unsuccessful or does not meet our expectations, our results of operations and financial condition would be adversely affected. We may also incur significant asset impairment and other charges in connection with any such initiative. Regardless of the ultimate success of a strategic initiative, the implementation and integration of new business or operational processes could be disruptive to our current operations. Even if we test and evaluate an initiative on a limited basis, the diversion of management time and resources could have an adverse effect on our business.
Our ability to realize continuing benefits from our minority equity investment in our franchised Brazil operations is subject to various risks and uncertainties. There is no assurance that our investment will be profitable, that growth will continue, or that we will be able to generate a favorable return on the sale of our remaining interest in the future.In addition, there is no assurance that we will generate anticipated royalties from our franchise arrangement, which will be subject to the general risks associated with franchise arrangements. As a minority equity investor and franchisor, we have limited control with respect to the Brazilian operations. The performance of these operations is subject to economic, regulatory and other market conditions in Brazil.As a result of the foregoing, our minority equity method investment in Brazil may be adversely affected.
We have limited control with respect to the operations of our franchisees and the business challenges they face, which could have a negative impact on our business.
Our franchisees are contractually obligated to operate their restaurants in accordance with our standards and we provide training and support to franchisees. However, franchisees are generally independent third parties that we do not control, and these franchisees own, operate and oversee the daily operations of their restaurants. As a result, the ultimate success and quality of any franchise restaurant rests with the franchisee. If franchisees do not successfully operate restaurants in a manner consistent with our product and service quality standards and contractual requirements or face financial or other difficulties that result in restaurant closures or even bankruptcy, our image and reputation could be harmed, which in turn could adversely affect our business and operating results.
A significant portion of our financial results are dependent upon the operational and financial success of our franchisees. If sales trends or economic conditions worsen for franchisees, their financial results may worsen and our royalty, rent and other fee revenues may decline. In addition, we may also incur expenses in connection with supporting or repurchasing franchise restaurants that are underperforming. As small businesses, some of our franchise operators may be negatively and disproportionately impacted by strategic initiatives, capital requirements, inflation, increased interest rates, labor costs, employee relations issues, or other causes. When Company-owned restaurants are sold to a franchisee, one of our subsidiaries is often required to remain responsible for lease payments for the sold restaurants to the extent the purchasing franchisees default on their leases. During periods of declining sales and profitability of franchisees, the incidence of franchisee defaults for these lease payments may increase and we may be required to make lease payments and seek recourse against the franchisee or agree to repayment terms. For example, we are party to an agreement with a franchisee of 74 Outback Steakhouse restaurants and its lenders that provides for (i) deferral and forbearance of the parties’ rights with respect to prior payment defaults, (ii) reduced franchise fees, (iii) payment priorities for rents, royalties, national advertising fees and local marketing expenditures, and (iv) mechanisms to settle its obligations with its lenders and provide for capital expenditures, within certain limitations. The agreement ends on December 27, 2026 or upon the earlier
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occurrence of certain specified events, including a default in ongoing franchise payment obligations to us or if earnings fall below specified levels, the sale of all or substantially all of the assets or equity of the franchisee, bankruptcy or a liquidation event.Upon expiration or earlier termination of the agreement for any reason, the deferred amounts, which include substantial amounts due to the franchisee’s lenders, will become due and payable and the lenders will have a priority right to pursue remedies for nonpayment including foreclosure on the franchisee’s assets. The franchisee may be unable to satisfy the amounts due or reach an alternative solution. In such case, we could lose any future revenue stream from the franchised restaurants, incur significant costs under contingent lease obligations or incur support and other costs, any of which could have an adverse effect on our business, turnaround and development plans and results. The Company continues to evaluate alternatives with respect to the expiration or earlier termination of this agreement and could also incur additional expense in connection with such alternatives.
Risks associated with our remodeling, relocation and expansion plans may have adverse effects on our operating results.
As part of our business strategy, we intend to continue to remodel, relocate and expand our current portfolio of restaurants. In 2025, we announced a plan to remodel nearly all of our Outback Steakhouse restaurants by the end of 2028. A variety of factors could cause the actual results and outcome of those plans to differ from the anticipated results, including, among other things, the selection of suitable locations for new or relocated restaurants, the availability and terms on which we can lease attractive sites for new or relocated restaurants, availability and terms of funding, recruiting, training and retaining skilled management and restaurant employees, construction or other delays, the availability of construction materials or restaurant equipment, construction and renovation costs and consumer tastes and acceptance of our restaurant concepts and awareness of our brands in new regions. Governmental regulations or other health guidelines concerning the operations of restaurants, including due to public health emergencies, may also cause disruptions in our plans.
It is difficult to estimate the performance of newly opened restaurants and whether they may attract consumers away from other restaurants we own. If new or existing restaurants do not meet targeted performance, it could have a material adverse effect on our operating results, including any impairment losses that we may be required to recognize. In addition, in an effort to increase same-restaurant sales and improve our operating performance, we continue to make improvements to our facilities through remodels and relocations and close underperforming restaurants. We incur significant lease termination or continuation expenses and asset impairment and other charges when we close or relocate a restaurant. If the expenses associated with remodels, relocations or closures are higher than anticipated, we cannot find suitable locations or remodeled or relocated restaurants do not perform as expected, these initiatives may not yield the desired return on investment, which could have a negative effect on our operating results.
We face a variety of risks associated with doing business in foreign markets that could have a negative impact on our financial performance.
We have a significant number of restaurants outside of the United States. There is no assurance that international operations will be profitable or international growth will continue. In addition, if we have a significant concentration of restaurants in a foreign market, the impact of any negative local conditions can have a sizable impact on our results. Our foreign operations are subject to all of the same risks as our U.S. restaurants, as well as additional risks including, among others, international economic, political, social and legal conditions and the possibility of instability and unrest, differing cultures and consumer preferences, diverse government regulations and tax systems, cybersecurity threats, corruption, anti-American sentiment, the ability to source high-quality ingredients and other commodities in a cost-effective manner, uncertain or differing interpretations of rights and obligations in connection with international franchise agreements and the collection of ongoing royalties from international franchisees, the availability and costs of land, construction and financing, and the availability of experienced management, appropriate franchisees and operating partners. Local or regional events or conditions in our international markets could disrupt our business operations and affect our results. In recent years, there were protests in cities throughout
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the United States as well as globally, including in Hong Kong, in connection with civil rights, liberties, and social and governmental reform.
Currency regulations and fluctuations in exchange rates could also affect our performance. We have operations in many foreign countries, including a minority equity investment in our Brazil franchisees, direct investments in restaurants in Hong Kong and other international franchisees. As a result, we may experience losses from fluctuations in foreign currency exchange rates or any hedging arrangements that we enter into to offset such fluctuations, and such losses could adversely affect our overall sales and earnings.
We are subject to governmental regulation of our foreign operations, including antitrust and tax requirements, anti-boycott regulations, import/export/customs regulations and other international trade regulations, the USA Patriot Act and the Foreign Corrupt Practices Act. Any new regulatory or trade initiatives could impact our operations in certain countries. Failure to comply with any such legal requirements could subject us to monetary liabilities and other sanctions, which could harm our business, results of operations and financial condition.
Risks Related to Inflation and Macroeconomic Disruption
Challenging economic, political and social conditions may have a negative effect on our business and financial results.
Challenging economic, political and social conditions may negatively impact consumer spending and thus cause a challenging sales environment in the casual dining sector and a decline in our financial results. For example, international, domestic and regional economic conditions, continued economic downturn or recession, or slowing or stalled recovery therefrom, unemployment levels, consumer income levels, financial market volatility, credit conditions and availability, consumer debt levels, inflation, increased energy prices, weakness in the housing market, stock market performance, rising interests rates, tariffs and trade barriers, pandemics or public health concerns, population growth, changes in government and central bank monetary policies, social unrest and governmental, political and budget matters may have a negative effect on consumer confidence and discretionary spending, which the restaurant industry depends upon. Further, it is difficult to predict what impact, if any, congressional election outcomes could have on consumer confidence and discretionary spending. The effects of international trade policies, trade conflicts and tariffs between the U.S. and its global trade partners including, without limitation, China, Mexico and Canada, may have an adverse impact on economic conditions, commodity pricing and consumer spending. As a result of these events, we may seek alternative strategies to mitigate any negative impacts, including adjusting menu prices, negotiating with vendors, and seeking alternative sourcing, any of which could have a material adverse effect on our business and results of operations. In addition, the effects on the global economy from the ongoing conflicts in Israel and Ukraine, particularly if they escalate or broaden, are uncertain. Terrorist attacks, heightened security requirements, attacks of critical infrastructure, protests, demonstrations, riots, civil disturbance, disobedience, insurrection, customer intimidation, mass shootings or social and other political unrest, such as those seen in recent years, have and may continue to result in restrictions, curfews or other actions and give rise to significant changes in regional and global economic conditions. If such events or disruptions persist for a prolonged period of time, our overall business and results of operations may be adversely affected.
In addition, it is difficult to predict what impact, if any, changes in federal policy, including tax, economic and monetary policies, will have on our industry, the economy as a whole, consumer confidence and discretionary spending. As a result, the nature, timing and impact on our business of potential changes to the current legal and regulatory frameworks are uncertain.
A decline in economic, political or social conditions or negative developments with respect to any of the other factors mentioned above, or a perception that such decline or negative developments are imminent, generally or in particular markets in which we operate, and our consumers’ reactions to these trends could result in increased pressure with respect to our pricing, traffic levels, commodity and other costs and the continuation of our innovation and productivity initiatives, which could negatively impact our business and results of operations. Further, poor
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economic conditions may force nearby businesses to shut down, which could cause our restaurant locations to be less attractive.
Increased commodity, energy and other costs could decrease our profit margins or cause us to limit or otherwise modify our menus or increase prices, which could adversely affect our business.
The performance of our restaurants depends on our ability to anticipate and react to changes in the price and availability of food commodities. Our business also incurs significant costs for energy, utilities, insurance, health care, labor, marketing and real estate over which we have little control. We have experienced and continue to experience the impact of inflation and fluctuations in costs on our operating expenses and anticipate the inflationary conditions will continue in the near future. We are anticipating 4.5% to 5.5% commodity inflation for 2026, but there can be no assurance that our expectations will be accurate or that we will be able to efficiently pass through any increased costs in our prices. Increased prices or shortages could affect the cost and quality of the items we buy or require us to raise prices, limit our menu options or implement alternative processes or products. In response, consumers may be less willing to patronize our restaurants in favor of our competitors or lower-priced alternatives. Prices may also be affected by supply, market changes, increased competition, changes in laws, shortages or interruptions in supply due to weather, disease or other conditions beyond our control, labor shortages, port disruptions and freight carrier stoppages, or other reasons. As a result, these events, individually or combined with other more general economic and demographic conditions, could impact our pricing and negatively affect our sales and profit margins.
Risks Related to Information Technology, Privacy and Intellectual Property
Cybersecurity breaches of confidential consumer, personal employee and other material information, the use of artificial intelligence tools and other threats to our technological systems may adversely affect our business.
A cyber incident that compromises the information of our consumers or employees, whether affecting our technological systems or those of third-party service providers that we rely on, could result in widespread negative publicity, damage to the reputation of our brands, a loss of consumers, an interruption of our business and legal liabilities. The majority of our restaurant sales are by credit or debit cards, and we maintain certain personal information regarding our employees and confidential information about our customers, franchisees and suppliers. Although we segment our card data environment and employ a cybersecurity protection program based upon industry frameworks, as well as scan and improve our environment for any threats and identify and remediate vulnerabilities, perform penetration testing and engage third parties to assess effectiveness of our security measures with oversight by our Audit Committee, there are no assurances that such programs will prevent or detect all cybersecurity breaches or technological failures.
Our operations and corporate functions rely heavily on information systems, including point-of-sale processing in our restaurants, management of our supply chain, payment of obligations, collection of cash, data warehousing to support analytics, finance and accounting systems, payroll and human resource systems, mobile technologies to enhance the customer experience and other various processes and procedures, some of which are handled by third parties. We have implemented a risk management program designed to identify and mitigate risks related to utilizing third-party vendors. The program also includes documenting audit and compliance reports to prevent these third-party vendors from negatively impacting our business operations. Our ability to efficiently and effectively manage our business depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, system maintenance problems, upgrading or transitioning to new platforms, or any cyber incident relating to these systems could expose our systems or information to cyber threats, result in delays in consumer service, reduced efficiency in our operations or result in negative publicity. Despite our security measures, our technology systems remain vulnerable to damage, disability or failures due to physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, employee error or malfeasance, denial of service, hacking, “phishing” attacks, social engineering, malware, ransomware, viruses, worms and other attacks or disruptive problems, which have increased in sophistication, frequency and duration in recent years. In addition, the rapid evolution and increased adoption of
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artificial intelligence technologies increases our cybersecurity risks, including generative artificial intelligence augmenting threat actors’ technological sophistication to enhance existing or to create new malware. We have been, and will continue to be, the target of cyber and other security threats and incidents, including those common to most industries and those targeting us due to the confidential consumer information we obtain through our electronic processing of credit and debit card transactions. Like other restaurants and retailers, we are also susceptible to claims for purportedly fraudulent transactions arising out of actual or alleged theft of credit or debit card information. A security breach or even a perceived security breach or failure to appropriately respond to a cyber incident could result in litigation or governmental investigation, as well as damage to our reputation and brands.
A claim or investigation resulting from a cyber or other security threat to our systems and data may have a material adverse effect on our business and distract management from running the business. Responses to cybersecurity incidents also have the potential of incurring significant remediation costs, to the extent such costs are not covered by our applicable insurance policies. As cybersecurity risks and applicable laws and regulations evolve, we may incur significant additional costs in technology, third-party services and personnel to maintain systems designed to anticipate and prevent cyber-attacks, as well as adequate insurance coverage for any incidents that may occur.
We are subject to a variety of continuously evolving laws and regulations regarding privacy, data protection and data security at federal, state and international levels. The California Consumer Privacy Act, for example, became effective January 1, 2020 and provides a private right of action to California residents related to data breaches and imposes disclosure and other requirements on companies with respect to their data collection, use and sharing practices as they relate to California residents. Other states and countries in which we operate have enacted, or are proposing to enact, similar laws or the laws expanding existing privacy rights. New areas of litigation related to privacy rights continue to emerge. Compliance with newly developed laws and regulations, which are subject to change and uncertain interpretations, may cause us to incur substantial costs.
Additionally, artificial intelligence tools are increasingly being used in our industry. We are evaluating, and will continue to evaluate, the use of artificial intelligence tools throughout our organization. There are risks involved in developing and using artificial intelligence in our operations. The use of artificial intelligence platforms by people, including our vendors and suppliers, with access to our proprietary or personal information, may continue to increase and may lead to the release of such information, which may negatively impact our company or cause reputational harm.
Our failure or inability to enforce our trademarks or other proprietary rights could adversely affect our competitive position or the value of our brand.
Our trademarks, including Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse & Wine Bar and Bloomin’ Onion, and other proprietary rights are important to our success and our competitive position. The protective actions that we take may not be sufficient to prevent unauthorized usage or imitation by others, which could harm our image, brand or competitive position. Furthermore, our ability to protect trademarks and other proprietary rights may be more limited in certain international markets where we operate.
Risks Related to Our Indebtedness
We may not be able to generate sufficient cash to service all of our indebtedness and operating lease obligations, and we may be forced to take other actions to satisfy our obligations under our indebtedness and operating lease obligations, which may not be successful. If we fail to meet these obligations, we would be in default under our debt agreements and the lenders could elect to declare all amounts outstanding under them to be immediately due and payable and terminate all commitments to extend further credit.
Our ability to make scheduled payments on our debt obligations and to satisfy our operating lease obligations depends upon our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to financial, business and other factors, many of which are beyond our control. We cannot be certain that we will maintain a level of cash flow from operating activities sufficient to permit us to pay
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the principal, premium, if any, and interest on our indebtedness, or to pay our operating lease obligations. For example, if inflation persists, or our financial position deteriorates, our revenues and liquidity position may decline. If our cash flow and capital resources are insufficient to fund our debt service obligations and operating lease obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of sufficient operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations or take other actions to meet our debt service and other obligations. Our debt agreements restrict our ability to dispose of assets and how we may use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could otherwise realize from such dispositions and any such proceeds that are realized may not be adequate to meet any debt service obligations then due. The failure to meet our debt service obligations or the failure to remain in compliance with the financial covenants under our debt agreements would constitute an event of default under those agreements and the lenders could elect to declare all amounts outstanding under them to be immediately due and payable and terminate all commitments to extend further credit.
Our leverage could adversely affect our ability to raise additional capital to fund our operations or limit our ability to react to changes in the economy or our industry.
We currently have a substantial amount of outstanding indebtedness. Our leverage could have important consequences, including:
•making it more difficult for us to make payments on indebtedness;
•increasing our vulnerability to general economic, industry and competitive conditions and the various risks we face in our business;
•increasing our cost of borrowing or limiting our ability to obtain additional financing, if needed;
•reducing our ability to use our cash flow to fund our operations, capital expenditures, dividend payments, repurchases of our common stock and future business and strategic opportunities; and
•limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who may not be as highly leveraged.
We may incur substantial additional indebtedness in the future, subject to the restrictions contained in our credit agreement. If new indebtedness is added to our current debt levels, the related risks that we now face could increase. We cannot be certain that our financial condition or credit and other market conditions will be favorable upon maturity of our unsecured notes or credit agreement in 2029, or at any earlier time we may seek to refinance our debt. Further, turmoil in global credit markets could adversely impact the availability and cost of credit. If we are unable to refinance our indebtedness on favorable terms, our financial condition and results of operations would be adversely affected.
Our debt agreements contain restrictions that limit our flexibility in operating our business.
Certain of our debt agreements limit our and our subsidiaries’ abilities to, among other things, incur or guarantee additional indebtedness, pay dividends above certain thresholds, redeem or repurchase our capital stock, make certain acquisitions or investments, incur or permit to exist certain liens, enter into transactions with affiliates or sell our assets to, merge or consolidate with or into, another company. Our debt agreements require us to satisfy certain financial tests and ratios. Our ability to satisfy such tests and ratios may be affected by events outside of our control. If we breach the covenants under our debt agreements, the lenders could elect to declare all amounts outstanding under the agreements to be immediately due and payable and terminate all commitments to extend further credit. If we are unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. We have pledged substantially all of our assets as collateral under our credit agreement. If our lenders accelerate the repayment of borrowings, we cannot be certain that we will have sufficient assets to repay them.
Risks Related to Our Common Stock
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Our stock price is subject to volatility.
The stock market in general is highly volatile. As a result, the market price of our common stock is similarly volatile. The price of our common stock could be subject to wide fluctuations in response to a number of factors, some of which may be beyond our control. These factors include actual or anticipated fluctuations in our operating results, changes in dividend payments and share repurchase plans, changes in or our ability to achieve estimates of our operating results by analysts, investors or management, analysts’ recommendations regarding our stock or our competitors’ stock, sales of substantial amounts of our common stock by our stockholders, actions or announcements by us or our competitors, the maintenance and growth of the value of our brands, litigation, legislation or other regulatory developments affecting us or our industry, widespread/pandemic illness, natural disasters, cyber-attacks, terrorist acts, war or other calamities and changes in general market and economic conditions.
Our ability to raise capital in the future may be limited, which could make us unable to fund our capital requirements.
Our business and operations may consume resources faster than we anticipate. In the future, we may need to raise additional funds through the issuance of new equity securities, debt or a combination of both. Additional financing may not be available on favorable terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund our capital requirements. If we issue new debt securities, the debt holders would have rights senior to common stockholders to make claims on our assets, and the terms of any debt could restrict our operations, including our ability to pay dividends above certain thresholds on our common stock. If we issue additional equity securities, existing stockholders may experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future securities offerings reducing the market price of our common stock and diluting their interest.
Provisions in our certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a change of control of our Company or changes in our management and, therefore, may depress the trading price of our stock.
Our certificate of incorporation and bylaws include certain provisions that could have the effect of discouraging, delaying or preventing a change of control of our Company or changes in our management. These provisions may discourage, delay or prevent a transaction involving a change in control of the Company that is in the best interests of our stockholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts.
Section 203 of the Delaware General Corporation Law may affect the ability of an “interested stockholder” to engage in certain business combinations, including mergers, consolidations or acquisitions of additional shares, for a period of three years following the time that the stockholder becomes an “interested stockholder.” An “interested stockholder” is defined to include persons owning directly or indirectly 15% or more of the outstanding voting stock of a corporation. Although we have elected in our certificate of incorporation not to be subject to Section 203 of the Delaware General Corporation Law, our certificate of incorporation contains provisions that have the same effect as Section 203.
General Risk Factors
Litigation could have a material adverse impact on our business and our financial performance.
We are subject to lawsuits, administrative proceedings and claims that arise in the regular course of business. These matters typically involve claims by consumers and others regarding issues such as food borne illness, food safety, premises liability, personal injury, discrimination, “dram shop” statute liability, promotional advertising and other
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operational issues common to the food service industry, as well as environmental, data privacy, contract disputes and intellectual property infringement matters. We are also subject to employee claims against us based on, among other things, discrimination, harassment, wrongful termination, disability, or violation of wage and labor laws. We are also subject to the risk of being named a joint employer of workers of our franchisees for alleged violations of labor and wage laws. These claims may divert our financial and management resources that would otherwise be used to benefit our operations. The ongoing expense of or diversion of management attention due to any resulting lawsuits, any substantial accrual, settlement payment or damage award against us and any damage to our reputation could adversely affect our business and results of operations. Significant legal fees and costs in complex class action litigation or an adverse judgment or settlement that is not insured or is in excess of insurance coverage could have a material adverse effect on our financial position and results of operations.
Significant adverse weather conditions and other disasters or unforeseen events and our ability to execute, or succeed in executing, a comprehensive business recovery plan at our Restaurant Support Center for these events could negatively impact our results of operations and have a material adverse impact on our business.
Adverse weather conditions, natural disasters and other unforeseen events, such as winter storms, severe temperatures, thunderstorms, floods, drought, fires, hurricanes, earthquakes, terrorist attacks, war, widespread/pandemic illness, and the effects of such events on economic conditions and consumer spending patterns, could disrupt our operations or supply chain and negatively impact our results of operations. These events may result in lost restaurant sales, property damage, lost products, interruptions in supply, and increased costs, temporary and prolonged restaurant closures may occur and consumer traffic may decline due to the actual or perceived effects from these events. For example, the COVID-19 pandemic, severe winter weather conditions, wildfires and hurricanes have impacted our traffic, our franchisees, and results of operations in recent years. Although we cannot predict when or where we will be negatively impacted by widespread illnesses or pandemics, adverse weather events, to the extent that climate change or other factors result in more frequent, widespread or severe events, it could adversely impact our results. U.S. and foreign governmental officials also have placed an increasing focus on environmental matters, including climate change, reduction of greenhouse gases and water consumption. This increased focus could lead to legislative, regulatory or other efforts to combat these environmental concerns. These efforts could result in further increases in taxes, cost of supplies, transportation and utilities, which could increase our operating costs and those of our franchisees and require future investments in facilities and equipment. There may also be increased pressure for us to make commitments, set targets or establish goals to take actions to meet them, which could expose us and our franchisees to market, operational, execution and reputational costs or risks.
Many of our corporate systems and processes and corporate support for our restaurant operations are centralized at one location in Tampa, Florida. We have disaster recovery procedures and business continuity plans in place to address crisis-level events, including hurricanes and other natural disasters, and backup and off-site locations for recovery of electronic and other forms of data and information, and the ability to manage our business remotely. However, if we are unable to fully implement our disaster recovery plans, we may experience delays in recovery of data, inability to perform vital corporate functions, tardiness in required reporting and compliance, failures to adequately support field operations and other breakdowns in normal communication and operating procedures that could have a material adverse effect on our financial condition, results of operations and exposure to administrative and other legal claims. In addition, these threats are constantly evolving, which increases the difficulty of accurately and timely predicting, planning for and protecting against the threat. As a result, our disaster recovery procedures and business continuity plans may not adequately address all threats we face or protect us from loss.
The United States and other countries have experienced, or may experience in the future, outbreaks of viruses or other diseases. If a regional or global health pandemic occurs, depending upon its location, duration and severity, our business could be severely affected. In the event a health pandemic occurs, customers might avoid public places, and local, regional or national governments might limit or ban public gatherings to halt or delay the spread of disease. Jurisdictions in which we have restaurants may impose mandatory closures or impose restrictions on operations. If a virus is transmitted by human contact or respiratory transmission, our employees or guests could become infected, or could choose, or be advised, to avoid gathering in public places, any of which would adversely affect our restaurant guest traffic or our ability to perform functions at the corporate level. A regional or global
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health pandemic might also adversely affect our business by disrupting or delaying production and delivery of materials and products in our supply chain and by causing staffing shortages in our restaurants.
Our insurance policies may not provide adequate levels of coverage against all claims, and fluctuating insurance requirements and costs could negatively impact our profitability.
We carry insurance programs with specific retention levels or high per-claim deductibles for a significant portion of our risks and associated liabilities with respect to workers’ compensation, general liability, liquor liability, employment practices liability, property, health benefits, cybersecurity and other insurable risks. However, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure. These losses, if they occur, could have a material and adverse effect on our business and results of operations. Additionally, if our insurance costs increase, there can be no assurance that we will be able to successfully offset the effect of such increases and our results of operations may be adversely affected.
An impairment in the carrying value of our goodwill or other intangible or long-lived assets could adversely affect our financial condition and results of operations.
Along with other intangible assets, we test goodwill for impairment annually and whenever events or changes in circumstances indicate that its carrying value may not be recoverable. We also evaluate long-lived assets on a quarterly basis or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. We cannot accurately predict the amount and timing of any impairment of assets. A significant amount of judgment is involved in determining if an indication of impairment exists. Unforeseen events could make developing forecasts for, and the accounting of, valuation of goodwill and certain other assets slower and more difficult. We have experienced impairment of such assets recently, and identified others where the fair value has become closer to the carrying value and, should additional value of goodwill or other intangible or long-lived assets become impaired, there could be an adverse effect on our financial condition and consolidated results of operations.
Failure to maintain effective systems of internal control over financial reporting and disclosure controls and procedures could adversely affect our business and financial results.
Effective internal control over financial reporting is necessary for us to provide accurate financial information. If we are unable to adequately maintain effective internal control over financial reporting, we may not be able to accurately report our financial results. Furthermore, we cannot be certain that our internal control over financial reporting and disclosure controls and procedures will prevent all possible errors and fraud, including through cyber-attacks. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, in our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake, which could have an adverse impact on our business. A significant financial reporting failure or a lack of sufficient internal control over financial reporting could cause a loss of investor confidence and decline in the market price of our common stock, increase our costs, lead to litigation or result in negative publicity that could damage our reputation.
Future changes to existing accounting rules or standards, new pronouncements and varying interpretations of pronouncements, or the questioning of current accounting practices may adversely affect our reported financial results. Additionally, our assumptions, estimates and judgments related to complex accounting matters could significantly affect our financial results. Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to, revenue recognition, impairment of long-lived assets, leases and related economic transactions, derivatives, intangibles, self-insurance, income taxes, property and equipment, unclaimed property laws and litigation, and stock-based compensation are highly complex and involve many subjective assumptions, estimates and judgments by us. Changes in these rules, their interpretations or changes in underlying assumptions, estimates or judgments by us could significantly change our reported or expected financial performance.
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Item 1B. Unresolved Staff Comments
Not applicable.
Item 1C. Cybersecurity
Risk Management and Strategy
We maintain a risk-based, defense-in-depth approach to cybersecurity and data protection. Our cybersecurity program is aligned with the National Institute of Standards and Technology Cybersecurity Framework and incorporates monitoring, vulnerability management, incident response planning and third-party security evaluations to identify and manage cybersecurity risks. We dedicate resources and apply security controls where we believe they would be most effective to predict, prevent, detect and respond to potential security threats to our highest value information assets, which we consider to be point-of-sale systems, financial systems and confidential, personal and private customer and employee information. We use multiple safeguards to protect our internal networks and systems, including, among others, firewalls, email protection and web filtering, endpoint detection and response software, controlled access to our data and systems, segmenting our card data environment, vulnerability management and patching. We engage independent third-party firms on a recurring basis to conduct cybersecurity audits that assess the effectiveness of our controls and identify areas for enhancement. In addition, we retain an external security firm each year to perform both internal and external penetration testing of our technology environment to evaluate the resilience of our systems against potential threats. Additionally, given that we accept credit cards as a form of payment, we consider the requirements of the Payment Card Industry Data Security Standards (“PCI DSS”) as part of our cyber security risk management program.
We implemented controls designed to identify and mitigate cybersecurity threats associated with our use of third-party service providers. Such providers are subject to security risk assessments at the time of onboarding, contract renewal and upon detection of an increase in risk profile. We use a variety of inputs in such risk assessments, including information supplied by providers and third parties. In addition, we require our providers to meet appropriate security requirements, controls and responsibilities, and we investigate security incidents that have impacted our third-party providers, as appropriate.
As part of our enterprise information security program, employees and contractors are required to participate in ongoing cybersecurity awareness activities, including role-based training, periodic refresher courses, and simulated phishing exercises designed to reinforce secure behaviors and identify areas for improvement. We also engage independent third-party cybersecurity firms to perform simulated cyberattack exercises to evaluate the design and operating effectiveness of our security controls. In addition, we retain external subject matter experts to conduct assessments of identity and access management, information technology asset management, and cybersecurity policies and standards to support continuous improvement of our cybersecurity risk management program.
We have company-wide business continuity and disaster recovery plans used to prepare for multiple events, including a potential disruption in the technology on which we rely. We maintain incident response plans and playbooks in preparation for various contingencies and types of incidents. The cybersecurity incident response plan (“IRP”) includes immediate actions to mitigate and contain the short-term impact of an incident, and long-term strategies for remediation and prevention of future incidents. The IRP also includes policies that dictate escalation procedures and remediation plans based on the severity level of an incident. As part of our IRP, we consider engaging third-party cybersecurity firms to assist in the event of a significant incident. We also conduct tabletop exercises to enhance incident response preparedness.
We, like others in our industry, experience cybersecurity incidents and attempts to access our systems. In the event we experience an incident, we classify it based on its significance and track remediation actions and outcomes. We have invested in the protection of our data and information technology and monitor our systems on an ongoing basis, however, we cannot provide any assurance that we will not experience a material incident in the future. As of the date of this filing, we do not believe we have been materially affected or are reasonably likely to be materially
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affected by cybersecurity incidents or threats. As described above, we utilize a risk-based approach to manage cybersecurity risk and it is possible we may not implement appropriate controls if we do not recognize or appropriately estimate a particular risk. In addition, security controls, no matter how well designed or implemented, may only mitigate and not fully eliminate risks. See Item 1A. Risk Factors for additional discussion of our cybersecurity risks.
Governance
Our Board of Directors (our “Board”) has charged the Audit Committee with oversight of the Company’s identification, assessment and management of cybersecurity and data privacy risks. The Audit Committee receives quarterly updates from our Chief Information Security Officer (“CISO”) and our Chief Information Officer (“CIO”) regarding our cybersecurity program and actions taken to manage cybersecurity risk, which include risk identification and management strategies, consumer data protection, security programs, ongoing risk mitigation activities and results of third-party assessments and testing.
We maintain a dedicated cybersecurity team, which consists exclusively of Company employees, within our broader information technology department. Functions within this department range from new information technology solution design and implementation, vulnerability management, phishing awareness, threat detection, PCI DSS compliance and incident response.Primary responsibility for assessing, monitoring and managing our cybersecurity risks rests with the CISO, who has over 25 years of experience in the field of cybersecurity, including prior service in the military in cybersecurity roles, and relevant industry certifications commensurate with his role. Our CISO reports directly to the CIO who has over 30 years of technology leadership experience in various industries.
Our CIO receives updates from our cybersecurity department regularly and reports to our Chief Executive Officer, who receives updates on incidents, trends, projects and other relevant information regularly. In addition, as part of our incident response planning, we maintain cross-functional response teams to be prepared to respond to an incident.
Item 2. Properties
As of December 28, 2025, we had 1,460 system-wide restaurants located across 46 states, Guam and 12 countries. The following is a summary of our restaurant locations by country and territory as of December 28, 2025:
COMPANY-OWNED FRANCHISED
United States 957 United States 138
International International
Hong Kong 10 Argentina 3 Guam 1
Australia 8 Japan 9
Canada 3 Qatar 7
Costa Rica 2 Saudi Arabia 9
Dominican Republic 1 South Korea 101
Total international franchised 355
Total Company-owned 967 Total franchised 493
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We lease substantially all of our restaurant properties from third parties. As of December 28, 2025, our Company-owned restaurants were located on the following sites:
U.S. NON-U.S. TOTAL PERCENTAGE OF TOTAL
Company-owned sites 20 — 20 2 %
Leased sites:
Land, ground and building leases 676 — 676 70 %
We also lease a corporate office in Tampa, Florida.
Item 3. Legal Proceedings
For a description of our legal proceedings, see Note 17 - Commitments and Contingencies of the Notes to Consolidated Financial Statements of this Report.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information - Our common stock is listed on the Nasdaq Global Select Market under the symbol “BLMN”.
Dividends - In October 2025, our Board suspended the quarterly dividend as a component of our turnaround strategy. Future dividend payments will depend on continued compliance with our financial covenants, as well as our earnings, financial condition, capital expenditure requirements, surplus and other factors that our Board considers relevant.
Holders - As of February 20, 2026, there were 123 holders of record of our common stock. The number of registered holders does not include holders who are beneficial owners whose shares are held in street name by brokers and other nominees.
Securities Authorized for Issuance Under Equity Compensation Plans - The following table presents the securities authorized for issuance under our equity compensation plans as of December 28, 2025:
(shares in thousands) (a) (b) (c)
Equity compensation plans approved by security holders 2,772 $ 19.88 8,824
____________________
(1)Includes 2,087 shares issuable in respect to restricted stock units and performance-based share units (assuming target achievement of applicable performance metrics and excluding units that do not have established performance metrics).
(2)The shares remaining available for issuance may be issued in the form of stock options, restricted stock units or other stock awards under the 2025 Omnibus Incentive Compensation Plan. See Note 7 - Stock-based and Deferred Compensation Plans of the Notes to Consolidated Financial Statements for details regarding the plan.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers - We did not repurchase any shares of our outstanding common stock during the thirteen weeks ended December 28, 2025.
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Stock Performance Graph - The following graph depicts total return to stockholders from December 27, 2020 through December 28, 2025, relative to the performance of the Standard & Poor’s 500 index and the Standard & Poor’s 500 Consumer Discretionary index, a peer group. The graph assumes an investment of $100 in our common stock and in each index on December 27, 2020 and the reinvestment of dividends paid since that date. The stock price performance shown in the graph is not necessarily indicative of future price performance.
Item 6. [Reserved]
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes. We have classified the results of operations, non-GAAP measures, and liquidity and capital resources of our Brazil operations as discontinued operations for all periods presented. Unless otherwise noted, this Management Discussion and Analysis of Financial Condition and Results of Operations does not include discontinued operations.
We utilize a 52-53-week year ending on the last Sunday in December. In a 52-week fiscal year, each quarterly period is comprised of 13 weeks. The additional week in a 53-week fiscal year is added to the fourth quarter. Fiscal years 2025 and 2024 both consisted of 52 weeks. For discussion of our consolidated and segment-level results of operations, non-GAAP measures, and liquidity and capital resources not included in this Annual Report for fiscal year 2023, see our Annual Report on Form 10-K for the year ended December 29, 2024, filed with the SEC on February 26, 2025.
Overview
We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of December 28, 2025, we owned and operated 967 restaurants and franchised 493 restaurants across 46 states, Guam and 12 countries. Our restaurant portfolio includes: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar.
Financial Overview - Our financial overview for 2025 includes the following:
•U.S. combined and Outback Steakhouse comparable restaurant sales of 0.2% and (0.5)%, respectively;
•Increase in Total revenues of 0.1% as compared to 2024;
•Operating income and restaurant-level operating margins of 0.9% and 11.7%, respectively, as compared to 3.5% and 13.3%, respectively for 2024;
•Operating income of $37.2 million as compared to $139.8 million in 2024; and
•Diluted earnings per share of $0.10 as compared to diluted loss per share of $(0.61) in 2024.
Sale of Majority Ownership of our Brazil Operations - On December 30, 2024, we completed the sale of 67% of our Brazil operations (the “Brazil Sale Transaction”) and entered into amended and restated franchise agreements with all existing restaurants in Brazil. The balance sheets, results of operations and cash flows of our Brazil operations are reported as discontinued operations for all periods presented. See Note 2 - Discontinued Operations of the Notes to Consolidated Financial Statements for additional details.
Our Turnaround Strategy - In November 2025, we announced a comprehensive turnaround strategy, with a key focus on Outback Steakhouse, to drive long-term sustainable and profitable growth. This strategy is based on four key platforms, including:
•Deliver a Remarkable Dine-In Experience: focus on operational excellence with center of the plate quality and service enhancements to deliver exceptional guest experience, which will drive in-restaurant traffic growth.
•Drive Brand Relevancy: expand brand reach to recruit new guests and increase frequency of visits.
•Reignite a Culture of Ownership and Fun: reinvest in our people and strengthen our Principles & Beliefs-based culture which will drive an enhanced guest experience.
•Invest in Our Restaurants: refresh our existing asset base to ensure restaurants are updated and reflect brand standards.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
These platforms will be supported by:
•Non-Guest Facing Productivity Savings: we are focused on cost savings in areas that will not impact the guest, such as indirect spend and contract negotiations.
•Balanced Capital Allocation: we have a dual approach to invest in the base business and focus on debt paydown. To support the objectives, we suspended the dividend in October 2025. We have slowed down our new unit development to focus on refreshing our existing restaurants. While we still believe there are development opportunities for our concepts in the U.S., we remain focused on driving healthy traffic in our existing restaurants. We expect to use available free cash flow to pay down debt.
•Strong Management Team: we have the right team in place to lead our brands through our turnaround initiatives, centered on an operational mindset and guest centricity.
We believe our turnaround strategy, with consistent execution and disciplined investments, will firmly place Outback Steakhouse and more broadly, Bloomin’ Brands, on the right course for sustainable, long-term and profitable growth.
Operating Environment - In recent years, geopolitical and economic shifts have impacted our operations, primarily through labor and commodity inflation. These ongoing macroeconomic pressures have led, or in the future may lead to, supply chain impacts and staffing challenges. Furthermore, these external conditions may dampen consumer spending, leading to lower traffic and average check per person.
Key Financial Performance Indicators - Key measures that we use in evaluating our restaurants and assessing our business include the following:
•Average restaurant unit volumes—average sales (excluding gift card breakage) per restaurant to measure changes in customer traffic, pricing and development of the brand.
•Comparable restaurant sales—year-over-year comparison of the change in sales volumes (excluding gift card breakage) for Company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants.
•System-wide sales—total restaurant sales volume for all Company-owned and franchise restaurants, regardless of ownership, to interpret the overall health of our brands.
System-wide sales is a non-GAAP financial measure that includes sales of all restaurants operating under our brand names, whether we own them or not. Sales from restaurants we do not own are not included in our consolidated Restaurant sales. Management uses this information to make decisions about future plans for the development of additional restaurants and new concepts, as well as evaluation of current operations. System-wide sales comprise sales of Company-owned and franchised restaurants. For a summary of sales of Company-owned restaurants, refer to Note 4 - Revenue Recognition of the Notes to Consolidated Financial Statements. Franchise restaurant sales disclosed as system-wide sales do not represent our sales and are presented only as an indicator of changes in the restaurant system, which management believes is important information regarding the health of our restaurant concepts and in determining our royalties and/or service fees.
•Restaurant-level operating margin, Income from operations, Net income (loss) and Diluted earning (loss) per share—financial measures utilized to evaluate our operating performance.
Restaurant-level operating margin is a non-GAAP financial measure widely regarded in the industry as a useful metric to evaluate restaurant-level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes. Our restaurant-level operating margin is expressed as the
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
percentage of our Restaurant sales that Food and beverage costs, Labor and other related expense and Other restaurant operating expense (including advertising expenses) represent, in each case as such items are reflected in our Consolidated Statements of Operations and Comprehensive Income (Loss). The following categories of revenue and operating expenses are not included in restaurant-level operating income and corresponding margin because we do not consider them reflective of operating performance at the restaurant-level within a period:
(i)Franchise and other revenues, which are earned primarily from franchise royalties and other non-food and beverage revenue streams, such as rental and sublease income;
(ii)Depreciation and amortization, which, although substantially all of which is related to restaurant-level assets, represent historical sunk costs rather than current cash outlays for the restaurants;
(iii)General and administrative expense, which includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices; and
(iv)Asset impairment charges and restaurant closing costs and Goodwill impairment, which are not reflective of ongoing restaurant performance in a period.
Restaurant-level operating margin excludes various expenses, as discussed above, that are essential to supporting the operations of our restaurants and may materially impact our Consolidated Statements of Operations and Comprehensive Income (Loss). As a result, restaurant-level operating margin is not indicative of our consolidated results of operations and is presented exclusively as a supplement to, and not a substitute for, Net income (loss) or Income from operations. In addition, our presentation of restaurant-level operating margin may not be comparable to similarly titled measures used by other companies in our industry.
•Adjusted restaurant-level operating margin, Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share—non-GAAP financial measures utilized to evaluate our operating performance, which definitions, usefulness and reconciliations are described in more detail in the “Non-GAAP Financial Measures” section below.
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Results of Operations
REVENUES
Restaurant Sales - Following is a summary of the change in Restaurant sales for the period indicated:
FISCAL YEAR
(dollars in millions) 2025
Change from:
Restaurant openings (1) 75.0
U.S. comparable restaurant sales 6.3
Restaurant closures (2) (67.0)
____________________
(1)Includes restaurant sales from 38 new restaurants not included in our comparable restaurant sales base.
(2)Includes restaurant sales from the closure of 86 restaurants since December 31, 2023.
Average Restaurant Unit Volumes and Operating Weeks - Following is a summary of the average restaurant unit volumes and operating weeks for the periods indicated:
FISCAL YEAR
Average restaurant unit volumes:
U.S.
Fleming’s Prime Steakhouse & Wine Bar $ 6,071 $ 5,822
Operating weeks:
U.S.
Fleming’s Prime Steakhouse & Wine Bar 3,391 3,293
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Comparable Restaurant Sales, Traffic and Average Check Per Person - Following is a summary of comparable restaurant sales, traffic and average check per person (decreases) increases for the periods indicated:
FISCAL YEAR
Year over year percentage change:
Comparable restaurant sales (restaurants open 18 months or more):
U.S. (2)
Outback Steakhouse (0.5) % (1.2) %
Carrabba’s Italian Grill 2.8 % — %
Bonefish Grill (2.2) % (3.2) %
Fleming’s Prime Steakhouse & Wine Bar 2.5 % 0.2 %
Combined U.S. 0.2 % (1.1) %
Traffic:
U.S.
Outback Steakhouse (1.2) % (4.2) %
Carrabba’s Italian Grill — % (3.2) %
Bonefish Grill (5.4) % (7.1) %
Fleming’s Prime Steakhouse & Wine Bar (1.2) % (5.8) %
Combined U.S. (1.4) % (4.4) %
Average check per person (3):
U.S.
Outback Steakhouse 0.7 % 3.0 %
Carrabba’s Italian Grill 2.8 % 3.2 %
Bonefish Grill 3.2 % 3.9 %
Fleming’s Prime Steakhouse & Wine Bar 3.7 % 6.0 %
Combined U.S. 1.6 % 3.3 %
____________________
(1)As a result of the 53rd week in 2023, U.S. comparable restaurant sales, traffic and average check per person compare the 52 weeks from January 1, 2024 through December 29, 2024 to the 52 weeks from January 2, 2023 through December 31, 2023.
(2)Relocated restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening.
(3)Includes the impact of menu pricing changes, product mix and discounts.
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
COSTS AND EXPENSES
The following table sets forth the percentages of certain items in our Consolidated Statements of Operations in relation to Restaurant sales or Total revenues for the periods indicated:
FISCAL YEAR
Revenues
Franchise and other revenues 1.8 2.1
Costs and expenses
Labor and other related (1) 31.9 31.1
Other restaurant operating (1) 26.1 25.9
Depreciation and amortization 4.5 4.4
General and administrative 6.0 5.6
Provision for impaired assets and restaurant closings 1.1 1.6
Goodwill impairment 0.7 —
Total costs and expenses 99.1 96.5
Income from operations 0.9 3.5
Loss on extinguishment of debt — (3.4)
Interest expense, net (1.1) (1.6)
Loss before benefit for income taxes (0.2) (1.5)
Benefit for income taxes (0.6) (0.3)
Loss from equity method investment, net of tax (0.1) —
Net income (loss) from continuing operations 0.3 (1.2)
Loss from discontinued operations, net of tax (*) (1.9)
Net income (loss) 0.3 (3.1)
Less: net income attributable to noncontrolling interests 0.1 0.1
Net income (loss) attributable to Bloomin’ Brands 0.2 % (3.2) %
____________________
(1)As a percentage of Restaurant sales.
* Less than 1/10th of one percent of Total revenues.
Fiscal year 2025 as compared to fiscal year 2024
•Food and beverage cost increased as a percentage of Restaurant sales due to 1.1% from commodity inflation and 0.6% from unfavorable product mix. These impacts were partially offset by 1.0% from an increase in average check per person, primarily due to menu pricing.
•Labor and other related expense increased as a percentage of Restaurant sales primarily due to 1.3% from higher hourly and field management labor costs, primarily due to wage rate inflation, partially offset by 0.3% from an increase in average check per person.
•Other restaurant operating expense increased as a percentage of Restaurant sales primarily due to 0.7% from higher restaurant-level operating and supply expenses, primarily due to inflation, partially offset by 0.5% from lower advertising expense.
•Depreciation and amortization expense increased primarily due to restaurant development partially offset by closed and impaired restaurants.
•General and administrative expense increased primarily due to: (i) lapping 2024 gains and incurring 2025 costs associated with our foreign currency forward contracts and (ii) severance costs. These impacts were partially offset by lower compensation and related expenses.
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
•Provision for impaired assets and restaurant closings decreased primarily due to lower impairment and closure charges related to restaurant closures and underperforming restaurants.
•Goodwill impairment includes charges for the Bonefish Grill reporting unit of $28.2 million during 2025. See Note 9 - Goodwill and Intangible Assets, Net of the Notes to Consolidated Financial Statements for additional details.
•Loss on extinguishment of debt during 2024 was in connection with the repurchase of $83.6 million of the outstanding convertible senior notes due in 2025 (the “2025 Notes”) (the “2025 Notes Partial Repurchase”), which is described in further detail within Note 11 - Convertible Senior Notes of the Notes to Consolidated Financial Statements.
•Interest expense, net decreased primarily due to $14.4 million of interest income on the final installment related to the Brazil Sale Transaction.
Benefit for income taxes includes credits we and other restaurant company employers may claim against federal income taxes for FICA taxes paid on certain tipped wages (the “FICA tax credit”). The level of FICA tax credits is primarily driven by U.S. Restaurant sales and is not impacted by costs incurred that may reduce (Loss) income before (benefit) provision for income taxes.
The Benefit for income taxes in 2025 and 2024 includes the impact of the FICA tax credit, and for 2024, also includes the impact of the nondeductible losses associated with the partial repurchase of the 2025 Notes.
Segments
We consider each of our U.S. restaurant concepts and our international franchise business as operating segments, which reflects how we manage our business, review operating performance and allocate resources. All other operating segments, which include our operations in Hong Kong and the equity method investment in Brazil, do not meet the quantitative thresholds for determining reportable segments.
Resources are allocated and performance is assessed by our Chief Executive Officer, whom we have determined to be our Chief Operating Decision Maker (“CODM”). We aggregate our U.S. operating segments into a U.S. reportable segment. The U.S. segment includes all restaurants operating in the U.S. while franchised restaurants operating outside the U.S. are included in the international franchise segment.
Revenue for the U.S. reportable segment includes transactions with customers and revenues for both reportable segments include royalties from franchisees. There were no material transactions among reportable segments. Excluded from Income from operations for U.S. are certain legal and corporate costs not directly related to the performance of the segments, most stock-based compensation expenses, a portion of insurance expenses and certain bonus expenses.
Operating income is utilized by the Company’s CODM as the primary segment profit or loss measure to allocate resources in the planning and forecasting process and also to review operating performance by monitoring actual results versus prior year and forecasts.
Refer to Note 18 - Segment Reporting of the Notes to Consolidated Financial Statements for reconciliations of segment income from operations to the consolidated operating results.
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Summary financial data - Following is a summary of U.S. segment financial data for the periods indicated:
U.S.
FISCAL YEAR
Revenues
Operating income margin 4.6 % 6.5 %
____________________
(1)The increase from 2024 to 2025 was primarily due to: (i) the net impact of restaurant openings and closures and (ii) higher comparable restaurant sales.
The decrease in U.S. Income from operations generated during 2025 as compared to 2024 was primarily due to: (i) higher labor, commodity and operating costs, primarily due to inflation, (ii) goodwill impairment related to Bonefish Grill and (iii) unfavorable product cost mix. These decreases were partially offset by: (i) an increase in average check per person, primarily due to menu pricing, (ii) lower advertising expense and (iii) lower General and administrative expense.
Following is a summary of international franchise segment financial data for the periods indicated:
INTERNATIONAL FRANCHISE
FISCAL YEAR
____________________
(1)On December 30, 2024, we entered into franchise agreements in connection with the Brazil Sale Transaction that include royalty rates that are lower than our 5% historical intercompany royalty rates and are on the low end of our international franchisee royalty percentage range.
Non-GAAP Financial Measures
In addition to the results provided in accordance with generally accepted accounting principles (“U.S. GAAP”), we provide certain non-GAAP measures, which present operating results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with U.S. GAAP and include the following: (i) Restaurant-level operating income, adjusted restaurant-level operating income and their corresponding margins, (ii) Adjusted income from operations and the corresponding margin, (iii) Adjusted net income, (iv) Adjusted diluted earnings per share and (v) system-wide sales.
We believe that our use of non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies within the restaurant industry by isolating the effects of certain items that may vary from period to period without correlation to core operating performance or that vary widely among similar companies. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent or will not recur. We believe that the disclosure of these non-GAAP measures is useful to investors as they form part of the basis for how our management team and our Board evaluate our operating performance, allocate resources and establish employee incentive plans.
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
These non-GAAP financial measures are not intended to replace U.S. GAAP financial measures, and they are not necessarily standardized or comparable to similarly titled measures used by other companies. We maintain internal guidelines with respect to the types of adjustments we include in our non-GAAP measures. These guidelines endeavor to differentiate between types of gains and expenses that are reflective of our core operations in a period, and those that may vary from period to period without correlation to our core performance in that period. However, implementation of these guidelines involves the application of judgment, and the treatment of any items not directly addressed by, or changes to, our guidelines will be considered by our disclosure committee. Refer to the reconciliations of non-GAAP measures for descriptions of the actual adjustments made in the current period and the corresponding prior period.
Consolidated Restaurant-level Operating Income and Adjusted Restaurant-level Operating Income and Corresponding Margins Non-GAAP Reconciliations - Restaurant-level operating margin is calculated as Restaurant sales after deduction of the main restaurant-level operating costs, which includes Food and beverage cost, Labor and other related expense and Other restaurant operating expense. Adjusted restaurant-level operating margin is Restaurant-level operating margin adjusted for certain items. The following table reconciles consolidated Income and the corresponding margin to restaurant-level operating income and consolidated adjusted restaurant-level operating income and the corresponding margins for the periods indicated:
Consolidated FISCAL YEAR
Operating income margin 0.9 % 3.5 %
Less:
Plus:
Provision for impaired assets and restaurant closings 45,137 64,291
Goodwill impairment $ 28,188 $ —
Restaurant-level operating margin 11.7 % 13.3 %
Adjustments:
Employee benefits policy change (1) 3,671 —
Closure-related charges — 434
Total restaurant-level operating income adjustments 3,671 434
Adjusted restaurant-level operating income $ 458,473 $ 515,365
Adjusted restaurant-level operating margin 11.8 % 13.3 %
_________________
(1)Represents costs associated with updated field PTO policy in connection with the transition to a new human resources and payroll system.
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Adjusted Income from Operations Non-GAAP Reconciliations - The following table reconciles Income from operations and the corresponding margin to adjusted income from operations and the corresponding margin for the periods indicated:
FISCAL YEAR
Operating income margin 0.9 % 3.5 %
Adjustments:
Total restaurant-level operating income adjustments (1) 3,671 434
Asset impairments and closure-related charges (2) 38,918 63,009
Goodwill impairment (3) 28,188 —
Severance and other transformational costs (4) 22,762 10,621
Foreign currency forward contract costs (gains) (5) 9,332 (15,728)
Adjusted operating income margin 3.5 % 5.0 %
_________________
(1)See the Consolidated Restaurant-level Operating Income and Adjusted Restaurant-level Operating Income and Corresponding Margins Non-GAAP Reconciliations table above for details regarding restaurant-level operating income adjustments.
(2)Fiscal year 2025 primarily includes costs related to the closure of 21 U.S. restaurants and the decision not to renew the leases of 22 restaurants and asset impairments related to five underperforming U.S. restaurants. Fiscal year 2024 primarily includes asset impairment related to older, underperforming restaurants and other asset impairment and closure-related costs in connection with previous restaurant closures. See Note 5 - Impairments and Exit Costs of the Notes to Consolidated Financial Statements for additional details.
(3)Relates to goodwill impairment from the Bonefish Grill reporting unit. See Note 9 - Goodwill and Intangible Assets, Net of the Notes to Consolidated Financial Statements for additional details.
(4)Includes severance, professional fees and other costs incurred as a result of transformational and restructuring activities.
(5)Represents costs (gains) in connection with the foreign currency forward contracts that mostly offset foreign currency exchange risk associated with payments from the Brazil Sale Transaction.
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Adjusted Net Income and Adjusted Diluted Earnings Per Share Non-GAAP Reconciliations - The following table reconciles Net income (loss) attributable to Bloomin’ Brands to adjusted net income and adjusted diluted earnings per share for the periods indicated:
FISCAL YEAR
(in thousands, except per share data) 2025 2024
Net income (loss) attributable to Bloomin’ Brands $ 8,237 $ (128,018)
Loss from discontinued operations, net of tax (537) (75,982)
Adjustments:
Loss on extinguishment of debt (2) — 135,797
Adjusted net income, continuing operations 96,875 129,096
Adjusted (loss) income, discontinued operations net of tax (4) (537) 30,246
Diluted earnings (loss) per share (5):
Continuing operations $ 0.10 $ (0.61)
Discontinued operations (0.01) (0.88)
Net diluted earnings (loss) per share $ 0.10 $ (1.49)
Adjusted diluted earnings per share (5):
Continuing operations $ 1.14 $ 1.45
Discontinued operations (0.01) 0.34
Adjusted net diluted earnings per share (6) $ 1.13 $ 1.79
Diluted weighted average common shares outstanding 85,307 85,905
Adjusted diluted weighted average common shares outstanding (6) 85,307 88,900
_________________
(1)See the Adjusted Income from Operations Non-GAAP Reconciliations table above for details regarding Income from operations adjustments.
(2)Includes losses in connection with the 2025 Notes Partial Repurchase, including settlements of the related convertible senior note hedges and warrants.
(3)The tax effect of non-GAAP adjustments is determined by recomputing the benefit for income taxes on an adjusted basis. The difference between the recomputed benefit for income taxes and the GAAP benefit for income taxes represents the tax effect of non-GAAP adjustments.
(4)Includes net (loss) income from our Brazil operations for the periods presented. For 2024, also includes adjustments for $68.3 million for impairment of assets held for sale and $33.8 million of deferred income tax expense resulting from the Brazil Sale Transaction and the tax effects of non-GAAP adjustments. See Note 2 - Discontinued Operations of the Notes to Consolidated Financial Statements for additional details regarding the Brazil Sale Transaction.
(5)Amounts may not add due to rounding.
(6)For 2024, includes shares that are excluded from GAAP diluted weighted average common shares outstanding due to a GAAP net loss, however, incorporated in adjusted diluted weighted average common shares outstanding as a result of the adjusted net income position.
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
System-Wide Sales - The following table provides a summary of sales of franchised restaurants by segment for the periods indicated:
FISCAL YEAR
U.S.
Carrabba’s Italian Grill 37 43
Bonefish Grill 6 9
Aussie Grill 1 2
International Franchise
Outback Steakhouse - Brazil 471 487
Outback Steakhouse - South Korea 319 310
International Franchise total 919 926
Liquidity and Capital Resources
Cash and Cash Equivalents
As of December 28, 2025, we had $59.5 million in cash and cash equivalents, of which $5.2 million was held by foreign affiliates, and did not have aggregate undistributed foreign earnings from our consolidated foreign subsidiaries.
Borrowing Capacity and Debt Service
Credit Facilities - Following is a summary of our outstanding credit facilities as of the dates indicated and principal payments and debt issuance during the periods indicated:
REVOLVING CREDIT FACILITY TOTAL CREDIT FACILITIES
SENIOR SECURED CREDIT FACILITY FORMER CREDIT FACILITY 2025 NOTES 2029 NOTES
(dollars in thousands)
Principal maturity date September 2029 April 2029
____________________
(1)Interest rate for revolving credit facility represents the weighted average interest rate as of December 28, 2025.
As of December 28, 2025, we had $693.7 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $16.3 million.
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
Credit Agreement - OnSeptember 19, 2024, we and OSI, as co-borrowers, entered into the Third Amended and Restated Credit Agreement (the “Credit Agreement”) which provides for senior secured financing of up to $1.2 billion consisting of a revolving credit facility (the “Senior Secured Credit Facility”). The Senior Secured Credit Facility matures on September 19, 2029 and replaced our prior senior secured financing of up to $1.0 billion (the “Former Credit Facility”). Our total indebtedness and the interest rate applied to our borrowings remained unchanged as a result of the Credit Agreement.
Our Credit Agreement, as amended, contains various financial and non-financial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the revolving credit facility and cause an acceleration of the amounts due under the credit facilities.
See Note 10 - Long-term Debt, Net of the notes to Consolidated Financial Statements for additional details regarding the Credit Agreement.
As of December 28, 2025 and December 29, 2024, we were in compliance with our debt covenants. We believe that we will remain in compliance with our debt covenants during the next 12 months and beyond.
2025 Notes - On February 29, 2024, we and certain holders entered into agreements to exchange $83.6 million in aggregate principal amount of our outstanding 2025 Notes for approximately 7.5 million shares of our common stock and $3.3 million in cash, including accrued interest. In connection with the repurchase, we entered into partial unwind agreements with certain financial institutions relating to a portion of the convertible note hedge transactions and a portion of the warrant transactions that we previously entered into in connection with the issuance of the 2025 Notes. Upon settlement, we received a termination payment which consisted of approximately $118.2 million in cash and 0.3 million shares of our common stock for the note hedges and we made a termination payment in an aggregate amount of approximately $102.2 million in cash for the warrants.
The 2025 Notes matured on May 1, 2025 and were settled in cash for $20.7 million, excluding accrued interest. On May 16, 2025, the Company terminated the remaining warrants in cash for $0.4 million.
See Note 11 - Convertible Senior Notes of the Notes to Consolidated Financial Statements for additional details.
Sources and Uses of Cash
Cash flows generated from operating activities and availability under our revolving credit facility are our principal sources of liquidity, which we use for operating expenses, remodeling or relocating older restaurants, investments in technology and equipment and development of new restaurants.
We believe that our expected liquidity sources are adequate to fund debt service requirements, lease obligations, capital expenditures and working capital obligations during the 12 months following this filing. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow and our ability to manage costs and working capital successfully.
Brazil Sale Transaction - On December 30, 2024 we received cash proceeds, net of withheld income taxes, of $103.9 million, in U.S. dollars based on the exchange rate on the closing date, representing 52% of total proceeds from the Brazil Sale Transaction, and applied the proceeds to our revolving credit facility during the thirteen weeks ended March 30, 2025.
During the thirteen weeks ended December 28, 2025, we received cash proceeds, net of withheld income taxes and inclusive of accumulated interest income, of $123.5 million in U.S. dollars, representing the remaining 48% of total proceeds from the Brazil Sale Transaction, and applied the proceeds to our revolving credit facility.
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BLOOMIN’ BRANDS, INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
The remaining 33% ownership interest is subject to a put-call mechanism contained in the shareholders agreement whereby the buyer may cause us to sell or we may cause the buyer to purchase the totality of the remaining interest during the fourth quarter of 2028 at a multiple of earnings defined in the shareholders agreement.
During 2025 and 2024, we (paid) received $(25.7) million and $15.1 million, respectively, of cash in connection with forward currency exchange contracts entered into concurrently with the Brazil Sale Transaction to hedge a portion of the foreign currency risk of the related purchase price installment payments. In November 2025, our foreign currency forward contracts matured.
Capital Expenditures - We estimate that our capital expenditures will total approximately $185 million to $195 million in 2026. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things, including raw material constraints.
Dividends and Share Repurchases - During the first three quarters of 2025, we declared and paid quarterly cash dividends of $0.15 per share. In October 2025, our Board suspended the dividend as a component of our turnaround strategy. During 2024, we declared and paid quarterly cash dividends of $0.24 per share.
In February 2024, our Board approved a share repurchase authorization of up to $350.0 million of our outstanding common stock as announced in our press release issued on February 23, 2024. The 2024 Share Repurchase Program expired on August 13, 2025.
The following table presents our dividends and share repurchases for the periods indicated:
(dollars in thousands) DIVIDENDS PAID SHARE REPURCHASES TOTAL
Material Cash Requirements - The following table presents current and long-term material cash requirements as of December 28, 2025:
PAYMENTS DUE BY PERIOD
LESS THAN 1-3 3-5 MORE THAN
(dollars in thousands) TOTAL 1 YEAR YEARS YEARS 5 YEARS
Long-term debt:
____________________
(1)Amounts represent undiscounted future minimum rental commitments under non-cancelable operating leases. Excludes $945.6 million related to operating lease renewal options that are reasonably certain of exercise.
(2)Includes Senior Secured Credit Facility and 2029 Notes. Amounts are not reduced by unamortized debt issuance costs totaling $2.6 million.
(3)Projected future interest payments on long-term debt are based on interest rates in effect as of December 28, 2025. Estimated interest expense includes the impact of variable-to-fixed interest rate swap agreements.
(4)Purchase obligations include agreements to purchase goods or services that are enforceable, legally binding and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
approximate timing of the transaction. We have purchase obligations with various vendors that consist primarily of inventory, technology, marketing, store-level services and fixtures and equipment.
(5)Includes other long-term liabilities, primarily consisting of deferred compensation obligations, deposits, undiscounted finance leases and other accrued obligations. Future indemnification obligations in connection with the Brazil Sale Transaction, subject to a cap under the terms of the related purchase agreement, and unrecognized tax benefits are excluded from this table since it is not possible to estimate when these future payments may occur.
Summary of Cash Flows and Financial Condition
Cash Flows - The following chart presents a summary of our cash flows provided by (used in) operating, investing and financing activities from continuing operations for the periods indicated:
Operating activities - The increase in net cash provided by operating activities during 2025 as compared to 2024 was primarily due to changes in working capital.
Investing activities - Net cash provided by investing activities during 2025 was primarily due to proceeds from the Brazil Sale Transaction, net of taxes withheld, partially offset by capital expenditures and payments on foreign currency forward contracts. Net cash used in investing activities during 2024 was primarily due to capital expenditures.
Financing activities - Net cash used in financing activities during 2025 was primarily due to: (i) net payments on the revolving credit facility, (ii) payments of cash dividends and (iii) maturity settlement for the 2025 Notes. Net cash used in financing activities during 2024 was primarily due to net draws on the revolving credit facility exceeding the aggregate of cash used to repurchase common stock, pay dividends on our common stock, and net cash received from the partial unwind agreements relating to a portion of the convertible note hedge and warrant transactions that were entered into in connection with the issuance of the 2025 Notes.
Financial Condition - Following is a summary of our current assets, current liabilities and working capital (deficit) as of the periods indicated:
Working capital (deficit) includes: (i) Unearned revenue primarily from unredeemed gift cards of $377.9 million and $374.1 million as of December 28, 2025 and December 29, 2024, respectively, and (ii) current operating lease liabilities of $176.3 million and $158.8 million as of December 28, 2025 and December 29, 2024, respectively, with
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued
the corresponding operating right-of-use assets recorded as non-current on our Consolidated Balance Sheets. We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on restaurant sales is typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are typically used to service debt obligations and to make capital expenditures.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these accompanying consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities during the reporting period. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We consider an accounting estimate to be critical if it requires assumptions to be made and changes in these assumptions could have a material impact on our consolidated financial condition or results of operations.
Impairment or Disposal of Long-Lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The evaluation is performed at the lowest level of identifiable cash flows independent of other assets. For long-lived assets deployed at our restaurants, we review for impairment at the individual restaurant level.
When evaluating for impairment, the total future undiscounted cash flows expected to be generated by the assets are compared to the carrying amount. If the total future undiscounted cash flows expected to be generated by the assets are less than the carrying amount, this may be an indicator of impairment. An impairment loss is recognized in earnings when the asset’s carrying value exceeds its estimated fair value. Fair value is generally estimated using a discounted cash flow model. The key estimates and assumptions used in this model are future cash flow estimates, with material changes generally driven by changes in expected use, and the discount rate. These estimates are subjective and our ability to realize future cash flows and asset fair values is affected by factors such as the period of time the restaurant has been open, ongoing maintenance and improvement of the assets, changes in economic conditions and changes in our operating performance. Historically, the change in useful lives of our assets as a result of planned closures or the decision not to renew leases has been a key factor in the impairment we have recognized.
Goodwill and Indefinite-Lived Intangible Assets - The carrying values of goodwill and trade names, our indefinite-lived intangible assets, as of December 28, 2025 were $185.1 million and $414.7 million, respectively. Goodwill and trade names are not subject to amortization and are tested for impairment annually, as of the first day of our second fiscal quarter, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
We may elect to perform a qualitative assessment to determine whether it is more likely than not that a reporting unit or trade name is impaired. If the qualitative assessment is not performed or if we determine that it is not more likely than not that the fair value of the reporting unit or trade name exceeds the carrying value, a quantitative assessment is performed. Fair value of a reporting unit is estimated by utilizing a weighted average of the income approach, typically using a discounted cash flow model, and the market approach, including the guideline public company method and guideline transaction method. Fair value of trade names is estimated by utilizing the relief-from-royalty method, which requires assumptions related to projected sales, market royalty rates and discount rates.
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The carrying value of the reporting unit or trade name is compared to its estimated fair value, with any excess of carrying value over fair value deemed to be an impairment.
During the second quarter of 2025, we performed our annual impairment testing utilizing a quantitative analysis due to a decline in our stock price and market capitalization (the “Q2 analysis”). No impairment was recorded in relation to the Q2 analysis; however, the Company identified a triggering event during the fourth quarter of 2025 as a result of: (i) a sustained decline in our stock price and market capitalization and (ii) a recent decline in margins specific to the Bonefish Grill reporting unit. As a result, we performed an interim quantitative impairment analysis (the “Q4 analysis”). The Q4 analysis determined that the Bonefish Grill reporting unit was impaired and goodwill impairment of $28.2 million was recorded to fully impair the goodwill of the reporting unit.
Goodwill Analysis - The Q2 analysis for goodwill indicated that all reporting units had fair values that exceeded their carrying values. However, the Outback Steakhouse and Bonefish Grill reporting units had fair values that decreased to approximately 10% above their respective carrying values (“cushion”) while the other reporting units had cushions that were above 20%. The fair values for the Outback Steakhouse and Bonefish Grill reporting units decreased primarily due to lower cash flow estimates, increased discount rates, lower market multiples and additionally for Bonefish Grill, a lower long-term growth rate. The discount rates for Outback Steakhouse and Bonefish Grill included an adjustment to the risk premium to reflect the elevated risk in management’s forecasted cash flows.
The Q4 analysis for goodwill indicated that all reporting units except Bonefish Grill had fair values that exceeded their carrying values. Additionally, the cushion for the Outback Steakhouse reporting unit decreased to approximately 3%. The cushions for all other reporting units remained above 20%. The fair value for the Outback Steakhouse reporting unit decreased compared to the Q2 analysis primarily due to lower market multiples and lower cash flow estimates. The fair value for the Bonefish Grill reporting unit decreased from the Q2 analysis primarily due to lower market multiples and lower cash flow estimates as a result of a recent decline in profit margins. Similar to the annual analysis, the discount rates for Outback Steakhouse and Bonefish Grill include an adjustment to the risk premium to reflect the elevated risk in management’s forecasted cash flows.
For both analyses, we used a combination of the income and market approaches, weighted 50% each, to determine the fair value of the reporting units. Some of the more significant estimates and assumptions included cash flow estimates (including sales and earnings before interest, taxes, depreciation and amortization), long-term growth rates, discount rates that appropriately reflect the risks inherent in cash flow estimates, and market multiples. These estimates are subjective, and our ability to achieve the forecasted cash flows used in our fair value calculations is affected by factors such as the success of strategic initiatives, changes in economic conditions, changes in our operating performance and changes in our business strategies.
In addition, for both the Q2 analysis and Q4 analysis, we considered the reasonableness of the fair value of the reporting units by assessing the implied enterprise value control premiums based on our market capitalization. We determined that the implied control premium was reasonable, which corroborates our fair value estimates for the reporting units.
As a result of the decreased fair values, the goodwill associated with the Outback Steakhouse reporting unit is at a higher risk of future impairment if any assumptions, estimates, or market factors change in the future.
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Assumptions used in the goodwill quantitative approach are made at a point in time and require significant judgment. They are subject to change based on facts and circumstances present at the impairment test date. However, it is reasonably possible that changes in assumptions could occur, so we performed a sensitivity analysis on the discount rate and long-term growth rate for our Outback Steakhouse reporting unit. If the discount rate increased by 100 basis points, the fair value of the reporting unit would decrease by 8%, resulting in goodwill impairment of $36.1 million. If the long-term growth rate decreased by 50 basis points, the fair value of the Outback Steakhouse reporting unit would decrease by 3%, but the fair value would still exceed the carrying value. These sensitivities were only calculated utilizing the discounted cash flow method and the estimated changes in fair value are not necessarily representative of the actual impairment that would be recorded in the event of a fair value decline.
Indefinite-Lived Intangible Assets Analysis- The Q2 analysis and Q4 analysis for indefinite-lived intangible assets indicated that all trade names had fair values exceeding their carrying values; however, the Outback Steakhouse trade name’s cushion decreased to approximately 15% and 5%, respectively. In the Q2 analysis, the fair value of the Outback Steakhouse trade name decreased primarily due to lower projected sales and an increased discount rate. The fair value declined further in the Q4 analysis due to lower projected sales and a decrease in the assumed royalty rate.
Leases - We use judgment at lease inception to determine the reasonably certain lease term, which in turn, impacts the applicable incremental borrowing rate (“IBR”) used to calculate the initial lease liability for each portfolio of leases. Other assumptions used in determining our incremental borrowing rate include our implied credit rating and an estimate of secured borrowing rates based on comparable market data. We determined the present value of the lease liabilities by using a country specific IBR and applying a single rate to the respective portfolio of leases based on term, regardless of the underlying asset type.
The reasonably certain lease term used in the evaluation of new leases includes renewal option periods only in instances in which the exercise of the renewal option is reasonably certain because failure to exercise such an option would result in an economic penalty. Such an economic penalty would typically result from having to abandon a building or equipment with remaining economic value upon vacating a property.
At the inception of each lease, we evaluate the property and the lease to determine whether the lease is an operating lease or a finance lease. This lease accounting evaluation may require significant judgment in determining the fair value and useful life of the leased property and the appropriate reasonably certain lease term. Determination of the reasonably certain lease term impacts the period in which buildings are depreciated. These judgments may produce materially different amounts of rent and depreciation expense in a given reporting period than would be reported if different assumed lease terms were used.
Insurance Reserves - We carry insurance programs with specific retention levels or high per-claim deductibles for a significant portion of expected losses under our workers’ compensation, general or liquor liability, health, property and management liability insurance programs. For some programs, we maintain stop-loss coverage to limit the exposure relating to certain risks.
We record a liability for all unresolved and incurred but not reported claims at the anticipated cost below our specified retention levels or per-claim deductible amounts. Our liability for insurance claims was $64.5 million and $53.0 million as of December 28, 2025 and December 29, 2024, respectively. In establishing our reserves, we consider certain actuarial assumptions and judgments regarding economic conditions, and the frequency and severity of claims. The establishment of the reserves utilizing such estimates and assumptions is in part based on the premise that historical claims experience is indicative of current or future expected activity, which could differ significantly. Reserves recorded for workers’ compensation and general or liquor liability claims are discounted using the average of the one-year and five-year risk-free rate of monetary assets that have comparable maturities.
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If actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material. A 50 basis point change in the discount rate in our insurance claim liabilities as of December 28, 2025, would have affected net earnings by $0.7 million in 2025.
Income Taxes - Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using the tax rates, based on certain judgments regarding enacted tax laws and published guidance, in effect in the years in which we expect those temporary differences to reverse. As of December 28, 2025, tax loss carryforwards and credit carryforwards that do not have a valuation allowance are expected to be recoverable within the applicable statutory expiration periods. We currently expect to utilize general business tax credit carryforwards within a 10-year period. However, our ability to utilize these tax credits could be adversely impacted by, among other items, a future “ownership change” as defined under Section 382 of the Internal Revenue Code as well as the Company’s inability to generate sufficient future taxable income. A valuation allowance is established against the deferred tax assets when it is more likely than not that some portion or all of the deferred taxes may not be realized. Changes in assumptions regarding our level and composition of earnings, tax laws or the deferred tax valuation allowance and the results of tax audits and litigation, may materially impact the effective income tax rate.