Carrols (NASDAQ:TAST) Q3: Beats On Revenue
Fast food franchisee Carrols Restaurant Group (NASDAQ:TAST) beat analysts' expectations in Q3 FY2023, with revenue up 7.2% year on year to $475.8 million. Turning to EPS, Carrols made a non-GAAP profit of $0.16 per share, improving from its loss of $0.17 per share in the same quarter last year.
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Carrols (TAST) Q3 FY2023 Highlights:
Revenue: $475.8 million vs analyst estimates of $468.9 million (1.5% beat)
EPS (non-GAAP): $0.16 vs analyst estimates of $0.05 ($0.11 beat)
Free Cash Flow of $33.93 million, down 10.4% from the previous quarter
Gross Margin (GAAP): 17.9%, up from 12.5% in the same quarter last year
Same-Store Sales were up 8.2% year on year
Store Locations: 1,080 at quarter end, decreasing by 7 over the last 12 months
Deborah Derby, President and Chief Executive Officer of Carrols, commented, “We are pleased to report yet another quarter of exceptional performance for Carrols, demonstrated by strong comparable sales growth at our Burger King and Popeyes restaurants, along with a 74% increase in our restaurant-level profitability. We were thrilled to achieve positive traffic growth at our Burger King restaurants earlier than anticipated, with great traction on recent product launches, such as the BK Royal Crispy Wraps, which significantly outperformed expectations in the third quarter. Equally important, we delivered continued improvement in our speed of service and guest satisfaction scores, as our team members worked hard to provide our guests with an excellent experience in our restaurants”.
With a reputation for reviving underperforming locations, Carrols Restaurant Group (NASDAQ:TAST) is the largest franchisee of Burger King restaurants and also a major Popeyes franchisee.
Traditional Fast Food
Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.
Sales Growth
Carrols is larger than most restaurant chains and benefits from economies of scale, giving it an edge over its smaller competitors.
As you can see below, the company's annualized revenue growth rate of 7.8% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was decent despite not opening many new restaurants, implying that growth was driven by higher sales at existing, established dining locations.
This quarter, Carrols reported solid year-on-year revenue growth of 7.2% and its $475.8 million of revenue outperformed analysts' estimates by 1.5%. Looking ahead, the analysts covering the company expect sales to grow 2.5% over the next 12 months.
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Number of Stores
A restaurant chain's total number of dining locations is a crucial factor influencing how much it can sell and how quickly company-level sales can grow.
When a chain like Carrols doesn't open many new restaurants, it usually means there's stable demand for its meals and it's focused on improving operational efficiency to increase profitability. At the end of this quarter, Carrols operated 1,080 total locations, in line with its restaurant count 12 months ago.
Taking a step back, Carrols has kept its locations more or less flat over the last two years compared to other restaurant businesses. A flat restaurant base means Carrols needs to boost foot traffic and turn tables faster at existing restaurants or raise prices to generate revenue growth.
Same-Store Sales
Carrols's demand has outpaced the broader restaurant sector over the last eight quarters. On average, the company has grown its same-store sales by a robust 9.4% year on year. Given its flat restaurant base over the same period, this performance stems from increased foot traffic or larger order sizes per customer at existing locations.
In the latest quarter, Carrols's same-store sales rose 8.2% year on year.
Key Takeaways from Carrols's Q3 Results
Sporting a market capitalization of $321.6 million, Carrols is among smaller companies, but its more than $73.02 million in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
We were impressed by how significantly Carrols blew past analysts' adjusted EBITDA, EPS, and free cash flow expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates, driven by strong same-store sales performance. Overall, this quarter's results seemed positive and shareholders should feel optimistic. The stock is up a whopping 21.9% after reporting and trades at $7.58 per share.
So should you invest in Carrols right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
