Carrols Restaurant Group, Inc. Reports Financial Results for the Second Quarter of 2013

Carrols Restaurant Group, Inc. Reports Financial Results for the Second Quarter of 2013

SYRACUSE, N.Y.--(BUSINESS WIRE)-- Carrols Restaurant Group, Inc. ("Carrols" or the "Company") (NAS: TAST) today announced financial results for the second quarter ended June 30, 2013. The Company also updated its prior annual guidance for 2013.

Highlights for the second quarter of 2013 versus the second quarter of 2012 include:

  • Restaurant sales increased 42.1% to $173.5 million including $78.2 million in sales from the BURGER KING® restaurants that were acquired on May 30, 2012;

  • Comparable restaurant sales at legacy restaurants increased 1.4% compared to an 8.8% increase in the prior year period, marking eight consecutive quarters of positive comparable restaurant sales;

  • Net loss from continuing operations was $3.5 million, or $0.15 per diluted share, compared to a net loss from continuing operations of $779,000, or $0.03 per diluted share, in the prior year period;

  • Net loss from continuing operations included a charge of $2.2 million ($0.06 per diluted share after tax) related to impairment and other lease charges (largely attributable to restaurant closings during the period). Net loss from continuing operations in the second quarter of 2012 included a loss on extinguishment of debt of $1.5 million ($0.04 per diluted share after tax), costs related to the Company's now settled EEOC litigation of $0.7 million ($0.02 per diluted share after tax) and acquisition-related expenses of $0.8 million ($0.02 per diluted share after tax); and

  • Adjusted EBITDA, a non-GAAP measure, was $10.4 million compared to $8.6 million in the prior year period. (Please refer to the reconciliation of Adjusted EBITDA to net loss from continuing operations in the tables at the end of this release).


As of June 30, 2013, Carrols owned and operated 566 BURGER KING® restaurants.

Daniel T. Accordino, Chief Executive Officer of Carrols Restaurant Group, Inc. said, "We continued our trend of comparable restaurant sales gains with a 1.4% increase for the quarter at our legacy restaurants which we view as a solid accomplishment in the face of lapping an 8.8% comparison from 2012 and a somewhat heightened competitive environment. Restaurant-level profitability and margins also improved at our legacy restaurants as we effectively leveraged the higher sales, while also benefiting from favorable mix changes and higher check averages brought about by the brand initiatives over the past year."

Accordino continued, "We also made additional progress on a number of fronts with the Burger King restaurants that we acquired last year as we increased average weekly sales, continued to improve operations, and expanded both restaurant-level profitability and margins. On a sequential basis, operating margins increased 438 basis points at the acquired restaurants from the first quarter of 2013, and the overall difference compared to our legacy restaurants narrowed by 112 basis points in the quarter. We expect to make continual progress in improving the profitability at these restaurants in the future."

Accordino concluded, "On a macro level, it appears that there has recently been a modest pullback in consumer spending. And, while our July 2013 comparable sales were approximately 1% negative, this was against a strong 8.7% comparable sales increase in July 2012. Overall, we believe that Burger King's product pipeline and balanced promotional activity position the brand well as we move through the balance of the year."

Second Quarter 2013 Financial Results

Restaurant sales grew 42.1% to $173.5 million in the second quarter of 2013, including $78.2 million of sales from the acquired restaurants, compared to $122.1 million in the second quarter of 2012. From the period of May 30, 2012 to July 1, 2012, the acquired BURGER KING® restaurants generated sales of $27.5 million.

Comparable restaurant sales at the legacy restaurants increased 1.4% including an increase in average check of 1.0% and a 0.4% increase in customer traffic. In the second quarter of 2012, comparable restaurant sales at legacy restaurants increased 8.8%.

Average weekly sales for the acquired restaurants were $21,950 and increased 0.7% from the second quarter of 2012. This increase was net of an approximate 2% decline at the acquired restaurants from our elimination of 24 hour operations in a large number of such restaurants in the third quarter last year.

Adjusted EBITDA was $10.4 million in the second quarter of 2013, or 6.0% of restaurant sales, compared to $8.6 million in the second quarter of 2012, or 7.1% of restaurant sales. Although both the legacy and acquired restaurants contributed positively to Adjusted EBITDA, Adjusted EBITDA margin was lower compared to the prior year period due to inclusion of the acquired restaurants for the entire quarter in 2013. The acquired restaurants also demonstrated a sequential improvement from the first quarter of 2013 in both Adjusted EBITDA and Adjusted EBITDA margin.

General and administrative expenses were $9.5 million in the second quarter of 2013 compared to $8.1 million in the second quarter of 2012 but decreased, as a percentage of sales, from 6.6% to 5.5%.

Included in the second quarter 2013 results were impairment and other lease charges of $2.2 million. This included impairment charges of $0.6 million for certain underperforming restaurants and a $1.6 million reserve for future rental payments and lease related costs due to the closing of four of the acquired restaurants. These four restaurants had negative restaurant-level cash flow of approximately $0.74 million for the prior twelve month period.

Interest expense increased to $4.7 million from $2.6 million in the second quarter of 2012 from higher outstanding indebtedness and higher interest rates from the refinancing completed on May 30, 2012.

Net loss from continuing operations was $3.5 million, or $0.15 per diluted share, compared to a net loss from continuing operations of $779,000, or $0.03 per diluted share, in the prior year period.

Net loss from continuing operations included a charge of $2.2 million ($0.06 per diluted share after tax) related to impairment and other lease charges. Net loss from continuing operations in the second quarter of 2012 included certain charges, including a loss on extinguishment of debt of $1.5 million ($0.04 per diluted share after tax), costs related to the Company's EEOC litigation settled in the first quarter of 2013 of $0.7 million ($0.02 per diluted share after tax), and acquisition related expenses of $0.8 million ($0.02 per diluted share after tax).

2013 Guidance

Based upon the Company's year-to-date performance and expectations for the remainder of the year, the Company has refined its prior annual guidance:

  • Total restaurant sales of $660 million to $680 million including a comparable restaurant sales increase at legacy restaurants of 1.5% to 3.5%;

  • A commodity cost increase of 1% to 2%;

  • General and administrative expenses of approximately $35 million to $36 million (excluding stock compensation costs);

  • An effective income tax benefit of 42% to 45% including the carryover benefit for 2012 WOTC credits;

  • Capital expenditures of approximately $45 million to $50 million, including $35 million to $40 million for remodeling 100 to 110 restaurants, of which 71 were completed in the first half of 2013. Estimated remodeling expenditures include $6.5 million for the relocation of two restaurants to new sites and for costs to scrape and completely rebuild four restaurants; and

  • Eight to ten restaurant closures for the year (excluding the two restaurants to be relocated).

Conference Call Today

Daniel T. Accordino, Chief Executive Officer, and Paul Flanders, Chief Financial Officer, will host a conference call to discuss second quarter 2013 financial results today at 8:30 AM ET.

The conference call can be accessed live over the phone by dialing 877-941-4774 or for international callers by dialing 480-629-9760. A replay will be available one hour after the call and can be accessed by dialing 800-406-7325 or for international callers by dialing 303-590-3030; the passcode is 4629724. The replay will be available until Tuesday, August 13, 2013. The call will also be webcast live from www.carrols.com under the investor relations section.

About the Company

Carrols Restaurant Group, Inc. is Burger King Corporation's largest franchisee, globally, with 566 BURGER KING® restaurants as of June 30, 2013 and has operated BURGER KING® restaurants since 1976. For more information on Carrols, please visit the company's website at www.carrols.com.

Forward-Looking Statements

Except for the historical information contained in this news release, the matters addressed are forward-looking statements. Forward-looking statements, written, oral or otherwise made, represent Carrols' expectation or belief concerning future events. Without limiting the foregoing, these statements are often identified by the words "may", "might", "believes", "thinks", "anticipates", "plans", "expects", "intends" or similar expressions. In addition, expressions of our strategies, intentions or plans are also forward-looking statements. Such statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. You are cautioned not to place undue reliance on these forward-looking statements as there are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond our control. Investors are referred to the full discussion of risks and uncertainties as included in Carrols' filings with the Securities and Exchange Commission.

Carrols Restaurant Group, Inc.

Consolidated Statements of Operations

(in thousands except per share amounts)

(unaudited)

(unaudited)

Three Months Ended (a)

Six Months Ended (a)

June 30, 2013

July 1, 2012

June 30, 2013

July 1, 2012

Restaurant sales

$

173,518

$

122,104

$

329,657

207,554

Costs and expenses:

Cost of sales

52,870

38,877

101,501

64,999

Restaurant wages and related expenses

53,665

37,446

104,332

65,314

Restaurant rent expense

11,869

7,932

23,578

13,615

Other restaurant operating expenses

27,547

18,221

53,783

31,864

Advertising expense

7,926

4,604

15,020

7,300

General and administrative expenses (b)

9,524

8,081

18,602

14,280

Depreciation and amortization

8,391

6,149

16,454

10,842

Impairment and other lease charges

2,198

101

2,828

127

Other income

(185

)

Total costs and expenses

173,990

121,411

335,913

208,341

Loss from operations

(472

)

693

(6,256

)

(787

)

Interest expense

4,711

2,646

9,422

3,561

Loss on extinguishment of debt

1,509

1,509

Loss from continuing operations before income taxes

(5,183

)

(3,462

)

(15,678

)

(5,857

)

Benefit for income taxes

(1,687

)

(2,683

)

(6,983

)

(2,175

)

Income from continuing operations

(3,496

)

(779

)

(8,695

)

(3,682

)

Loss from discontinued operations, net of tax

668

44

Net loss

$

(3,496

)

$

(111

)

$

(8,695

)

$

(3,638

)

Diluted net income (loss) per share:

Continuing operations

$

(0.15

)

$

(0.03

)

$

(0.38

)

$

(0.16

)

Discontinued operations

0.03

Diluted weighted average common shares outstanding (c)

22,899

22,742

22,884

22,413

(a)

The Company uses a 52 or 53 week fiscal year that ends on the Sunday closest to December 31. The three and six months ended June 30, 2013 and July 1, 2012 each included thirteen and twenty six weeks, respectively.

(b)

General and administrative expenses include stock-based compensation expense of $296 and $177 for the three months ended June 30, 2013 and July 1, 2012, respectively, and $597 and $279 for the six months ended June 30, 2013 and July 1, 2012, respectively. General and administrative expenses for the six months ended June 30, 2013 also included $85 of costs related to the Company's litigation with the EEOC that was settled in January 2013. General and administrative expenses for the three and six months ended months ended July 1, 2012 also included $836 and $1,247, respectively, of legal and professional fees incurred in connection with the acquisition, and $674 and $769, respectively of costs related to the Company's litigation with the EEOC.

(c)

Shares issuable for convertible preferred stock and non-vested restricted stock were not included in the computation of diluted net loss per share because their effect would have been anti-dilutive for the periods presented.

Carrols Restaurant Group, Inc.

Supplemental Information

The following table sets forth certain unaudited supplemental financial and other data for the periods indicated (in thousands, except number of restaurants, percentages and average weekly sales per restaurant):

(unaudited)

(unaudited)

Three Months Ended (a)

Six Months Ended (a)

June 30, 2013

July 1, 2012

June 30, 2013

July 1, 2012

Restaurant Sales: (a)

Legacy restaurants

$

95,311

$

94,634

$

181,076

$

180,084

Acquired restaurants

78,207

27,470

148,581

27,470

Total restaurant sales

$

173,518

$

122,104

$

329,657

$

207,554

Change in Comparable Restaurant Sales (b)

1.4

%

8.8

%

1.2

%

7.4

%

Adjusted EBITDA (c)

10,413

8,630

13,708

12,477

Adjusted EBITDA margin (c)

6.0

%

7.1

%

4.2

%

6.0

%

Average Weekly Sales per Restaurant: (d)

Legacy restaurants

25,142

24,763

23,804

23,461

Acquired restaurants

21,950

21,798

20,848

21,798

Expenses - Legacy Restaurants: (e)

Cost of sales

29.8

%

31.1

%

29.7

%

30.8

%

Restaurant wages and related expenses

29.9

%

30.2

%

30.9

%

31.3

%

Restaurant rent expense

6.0

%

6.1

%

6.4

%

6.4

%

Other restaurant operating expenses

14.8

%

14.5

%

15.2

%

15.2

%

Advertising expense

4.4

%

3.7

%

4.3

%

3.5

%

Expenses - Acquired Restaurants: (e)

Cost of sales

31.3

%

34.4

%

32.1

%

34.4

%

Restaurant wages and related expenses

32.1

%

32.4

%

32.6

%

32.4

%

Restaurant rent expense

7.8

%

7.8

%

8.1

%

7.8

%

Other restaurant operating expenses

17.2

%

16.5

%

17.6

%

16.5

%

Advertising expense

4.8

%

3.9

%

4.8

%

3.9

%

Number of Restaurants:

Restaurants at beginning of period

571

297

572

298

New restaurants

Acquired restaurants

278

278

Closed restaurants

(5

)

(1

)

(6

)

(2

)

Restaurants at end of period

566

574

566

574

At 6/30/2013

At 12/30/2012

Long-term Debt (f)

$

160,972

$

161,492

Cash (including $20 million of restricted cash)

33,129