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Carrols' Loss In Line, Revs Beat

Zacks Equity Research

Carrols Restaurant Group, Inc.’s (TAST) posted first-quarter 2013 adjusted loss of 27 cents per share as compared with an earnings of 16 cents per share in the comparable year-ago quarter. Earnings were in line with the Zacks Consensus Estimate. Moderated performance of the company’s acquired Burger King Worldwide, Inc.’s (BKW) restaurants during the second quarter of 2012 and higher operating as well as integration costs hurt the company’s results.

Carrols Restaurant’s restaurant sales surged 82.7% year over year to $156.1 million, beating the Zacks Consensus Estimate of $159 million by 1.8%. Revenues in the quarter have gained from positive comparable restaurant sales (comps) growth and higher traffic. The company’s acquisition of Burger King restaurants has also positively impacted on the sales.

Quarter Highlights

Carrols Restaurant, a franchisee of Burger King, earned revenue from its legacy as well as franchised restaurants.

Revenues at legacy restaurants increased 0.4% to $85.8 million, gaining from higher comps and a 1.3% improvement in the average weekly sales. Comps at legacy restaurants were up 1%, aided by a 4.4% rise in average check, 0.8% increase in price and favorable product mix. Revenues at acquired restaurants were $70.4 million.

Carrols Restaurant’s adjusted EBITDA, slipped 13.2% year over year to $3.3 million. Adjusted EBITDA margin were down 240 basis points (bps) to 2.1%. The drop in EBITDA margin was attributed to higher restaurant-level expenses, poor performance of the acquired restaurants and higher general and administrative expenses, partially offset by the favorable performance of legacy restaurant , higher comps and traffic growth.

Restaurant level operating margins (G&A expenses excluded) expanded 70 bps to 11.8% on lower cost of sales. In the reported quarter, cost of sales declined 100 bps to 29.6%, attributed to reduced commodity costs and improved average guest check.

Store update

During the quarter, one restaurant was closed. As of Mar 31, 2013, Carrols Restaurant franchised and operated 571 Burger King Units.


For 2013, the company expects that the total sales will be within $670 million and $700 million. Moreover, management expects comps at legacy restaurant will grow 2%–4%.

Carrols Restaurant expects commodity expenses to continue increasing in the range of 2–3%. Capital expenditure is anticipated to be in the range of $40 million to $50 million, of which includes $40 million for the restoration of 90-120 restaurants in 2013. The company is planning to close 6-8 restaurants.

Our Take

Higher operating as well as integration costs is continuously pressuring on the company’s earnings and margin. However, these expenses are justified for future growth. However, in the near term  this costs and the uncertain economy remains a headwind.

Finally, on a positive note, Carrols Restaurant anticipates performance at acquired restaurants will improve from higher productivity and effective cost management, moving ahead.

Carrols Restaurant carries a Zacks Rank #3 (Hold). Some other restaurateurs like McDonald’s Corp. (MCD) missed our estimates on both lines this season while Yum! Brands Inc. (YUM) beat earnings but missed out on revenues.

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