Carrols Restaurant Group, Inc (NASDAQ:TAST) today announced financial results for the third quarter ended October 2, 2016.
Highlights for third quarter of 2016 versus third quarter of 2015 include:
| • | Restaurant sales increased 9.7% to $238.9 million from $217.7 million in the third quarter of 2015, including $62.7 million in sales from the 207 BURGER KING® restaurants acquired from 2014 to 2016(1); |
| • | Comparable restaurant sales were flat compared to an increase of 6.5% in the prior year period; |
| • | Adjusted EBITDA(2) increased 3.2% to $22.7 million from $22.0 million in the prior year period; |
| • | Net income was $4.5 million, or $0.10 per diluted share, compared to net income of $7.2 million, or $0.16 per diluted share, in the prior year period; and |
| • | Adjusted net income(2) was $5.6 million, or $0.13 per diluted share, compared to adjusted net income of $7.7 million, or $0.17 per diluted share, in the prior year period. Net income and Adjusted net income were lower largely reflecting a $2.7 million increase in depreciation and amortization expense from remodeling and acquisitions over the past year. |
| (1) | “Acquired restaurants” refer to those restaurants acquired from 2014 through 2016. “Legacy restaurants” include all of the Company’s other restaurants including restaurants acquired before 2014. |
| (2) | Adjusted EBITDA, Restaurant-level EBITDA and Adjusted net income are non-GAAP financial measures. Refer to the definitions and reconciliation of these measures to net income (loss) or to income from operations in the tables at the end of this release. |
At the end of the third quarter of 2016, Carrols owned and operated 734 BURGER KING® restaurants. On October 4, 2016 the Company completed the acquisition of three additional BURGER KING® restaurants in Raleigh, North Carolina and currently operates 737 BURGER KING® restaurants.
Daniel T. Accordino, the Company’s Chief Executive Officer said, “Expanding our restaurant portfolio by more than 11% over the past year enabled us to increase both sales and Adjusted EBITDA during the quarter. However, comparable restaurant sales were flat, reflecting our strong performance last year as well as the cautious state of the consumer in what has been a highly competitive and promotional QSR environment. We continued to benefit from favorable commodity costs and improved margins at acquired restaurants, but were unable to leverage higher labor, advertising or depreciation and amortization expenses, which negatively impacted overall operating margins. While we remain confident in the longer term Burger King strategy, based on our year-to-date results we have modestly revised our previous guidance for the year.”
Accordino concluded, “We are making meaningful progress executing our acquisition and reimaging strategies. We have purchased 32 restaurants so far this year and have agreements to purchase an additional 24 restaurants that we believe will be completed in the next few weeks. We are also on track to complete a total of approximately 85 remodel projects and rebuild or relocate another 10 restaurants for the full year. This will bring the total number of our locations that have been upgraded to the 20/20 design image since 2012 to over 525 restaurants by year-end.”
Third Quarter 2016 Financial Results
Restaurant sales increased 9.7% to $238.9 million in the third quarter of 2016 compared to $217.7 million in the third quarter of 2015. Restaurant sales included $62.7 million in sales from the 207 BURGER KING® restaurants acquired from 2014 to 2016 and comparable restaurant sales were flat compared to the year ago period. The comparable restaurant sales increase included a 0.1% decrease at legacy restaurants and a 0.4% increase at comparable acquired restaurants (primarily the 2014 acquisitions). Average check rose 2.3% while customer traffic decreased 2.3% from the prior year period.
Restaurant-Level EBITDA was $34.8 million in the third quarter of 2016, which included a $7.5 million contribution from the acquired restaurants, compared to total Restaurant-Level EBITDA of $33.3 million in the third quarter of 2015. Restaurant-Level EBITDA margin decreased 74 basis points from the prior year period to 14.6% of restaurant sales as lower commodity costs were not sufficient to offset higher other restaurant-level operating costs.
General and administrative expenses were $13.0 million in the third quarter of 2016 compared to $11.8 million in the third quarter of 2015. As a percentage of restaurant sales, general and administrative expenses held steady at 5.4% compared to the prior year period.
Adjusted EBITDA was $22.7 million in the third quarter of 2016 compared to $22.0 million in the third quarter of 2015, and Adjusted EBITDA margin decreased 60 basis points from the prior year period to 9.5% of restaurant sales.
Income from operations was $9.0 million in the third quarter of 2016 compared to $11.8 million in the prior year period. This decrease largely reflected a $2.7 million increase in depreciation and amortization from remodeling and the acquisition of restaurants over the past year.
Interest expense increased slightly to $4.6 million in the third quarter of 2016 from $4.5 million in the same period last year.
Net income was $4.5 million for the quarter, or $0.10 per diluted share, compared to net income of $7.2 million, or $0.16 per diluted share, in the prior year period.
Net income in the third quarter of 2016 included $0.7 million of impairment and other lease charges and $0.5 million of acquisition expenses. For the same period last year, net income included $0.4 million of impairment and other lease charges and $0.1 million of acquisition expenses. Because the Company has had a net deferred income tax asset valuation allowance since 2014, the Company has not recorded any income tax expense or benefit in 2015 or 2016.
Adjusted net income was $5.6 million, or $0.13 per diluted share, compared to Adjusted net income of $7.7 million, or $0.17 per diluted share, in the prior year period.
Full Year 2016 Outlook
Carrols is providing the following revised guidance for 2016 (a 52-week period):
| • | Total restaurant sales of $940 million to $950 million (previously $945 million to $960 million) including a comparable restaurant sales increase of 1.5% to 2% (previously 2% to 4%). Comparable restaurant sales are on a comparable 52 week basis; |
| • | Commodity cost decrease of approximately 3% (previously 2% to 3%) including a 13% to 14% decrease in beef costs (previously a 10% to 12% decrease); |
| • | General and administrative expenses (excluding stock compensation costs) of $51 million to $53 million; |
| • | Adjusted EBITDA of $88 million to $92 million (previously $90 million to $95 million); |
| • | Capital expenditures of $90 million to $95 million (previously $85 million to $90 million) which includes remodeling approximately 85 restaurants, the rebuilding of four restaurants and the construction of six new restaurants (all of which are relocations of existing restaurants); and |
| • | The sale/leaseback of owned restaurant properties for net proceeds of $47 million to $51 million (previously $27 million to $32 million) including $18 million to $22 million in the fourth quarter. The Company received $29.4 million from sale/leaseback transactions completed through the end of the third quarter of 2016. |
The Company has not reconciled guidance for Adjusted EBITDA (a non-GAAP financial measure) to the corresponding GAAP financial measure because we do not provide guidance for net income or for the various reconciling items. The Company is unable to provide guidance for these reconciling items since certain items that impact net income are outside of the Company’s control or cannot be reasonably predicted.
Conference Call Today
Daniel T. Accordino, Chief Executive Officer, and Paul R. Flanders, Chief Financial Officer, will host a conference call to discuss third quarter 2016 financial results today at 8:30 AM ET.
The conference call can be accessed live over the phone by dialing 785-830-1923. A replay will be available one hour after the call and can be accessed by dialing 719-457-0820; the passcode is 6752212. The replay will be available until Tuesday, November 15, 2016. Investors and interested parties may listen to a webcast of this conference call by visiting www.carrols.com under the tab “Investor Relations”
About the Company
Carrols is the largest BURGER KING® franchisee in the United States with 737 restaurants as of November 7, 2016 and has operated BURGER KING® restaurants since 1976. For more information on Carrols, please visit the company’s website at www.carrols.com.
