Restaurant sales increased 21.6% to $368.6 million (including $50.7 million in restaurant sales from Cambridge) from $303.0 million in the prior year quarter;
Carrols Restaurant Group, Inc. Nasdaq: TAST) today reported financial results for the second quarter ended June 30, 2019. Carrols also announced that its Board of Directors has authorized a stock repurchase program under which the Company may repurchase up to $25 million of its outstanding common stock and that it has revised its annual guidance.
Carrols owned and operated 1,023 Burger King® restaurants and 58 Popeyes® restaurants in 23 states on June 30, 2019. On April 30, 2019, the Company completed its merger with Cambridge Franchise Holdings, LLC (“Cambridge”) which resulted in Carrols acquiring 165 additional Burger King® and 55 Popeyes® restaurants in 10 Southeastern states. On June 11, 2019, the Company completed the acquisition of 13 Burger King® restaurants in the Baltimore, Maryland market.
Highlights for the Second Quarter of 2019 versus the Second Quarter of 2018 Include:
- Restaurant sales increased 21.6% to $368.6 million (including $50.7 million in restaurant sales from Cambridge) from $303.0 million in the prior year quarter;
- Comparable restaurant sales increased 0.1% compared to a 5.0% increase in the prior year quarter;
- Adjusted EBITDA(1) was $23.8 million compared to $32.8 million in the prior year quarter;
- Net loss was $3.7 million, or $0.09 per diluted share (which included a $7.4 million loss on extinguishment of debt), compared to net income of $7.8 million, or $0.17 per diluted share, in the prior year quarter; and
- Adjusted net income(1) was $4.3 million, or $0.07 per diluted share, compared to adjusted net income of $10.0 million, or $0.22 per diluted share, in the prior year quarter.
(1) 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 (loss) from operations in the tables at the end of this release.
Daniel T. Accordino, Chairman and Chief Executive Officer of Carrols, commented, “Comparable restaurant sales during the second quarter of 2019 rose 0.1% as we lapped a very strong 5.0% increase during the prior year period. Looking ahead, we are confident that the Burger King marketing calendar, including the Impossible™ Whopper® launch this week and more effective promotions, can generate stronger sales performance and better restaurant-level margins through the remainder of the year.”
Accordino continued, “Restaurant-level profitability and Adjusted EBITDA during the second quarter were challenged by a number of factors, specifically higher commodity costs, labor cost pressures, and less effective promotions compared to the year-ago period. In addition, as we are early in our integration of the Cambridge merger, our results do not yet reflect any of the gains in sales and efficiencies that we expect to achieve once the integration is complete. Based on our experience and track record, we are confident that we can improve the sales and overall financial performance of the Cambridge restaurants over time as we assimilate them into our platform and implement our financial and operating systems.”
Accordino added, “While we are disappointed with our 2019 first half performance, we do not believe that these short-term results reflect a shift in the fundamentals of our business model. With two world-class brands, a supportive franchisor partner, an experienced management team, and growth opportunities across multiple attractive markets, we believe we are positioned to deliver strong growth and value creation to our investors for years to come. Also, given the flexibility provided by our recently reset capital structure, we believe this is an opportune time to pursue additional acquisitions within both the Burger King® and Popeyes® systems, and build an even stronger foundation to drive our growth going forward.”
Accordino concluded, “Our capital allocation strategy will continue to favor investments that enhance our EBITDA and earnings growth, particularly acquisitions and new restaurant development, which we believe will generate attractive long-term returns for our investors. Today’s announcement of our $25 million share repurchase program reflects the Board’s continued confidence in our strategy and value creation potential, and provides us with the flexibility to opportunistically reinvest in ourselves at attractive rates of return.”
Second Quarter 2019 Financial Results
Restaurant sales increased 21.6% to $368.6 million in the second quarter of 2019, including $50.7 million in restaurant sales from Cambridge, compared to $303.0 million in the second quarter of 2018. Comparable restaurant sales (which excludes recently acquired restaurants) increased 0.1%, consisting of an average check increase of 0.4%, which included 0.9% of pricing, offset by an average customer traffic decrease of 0.3%.
Restaurant-level EBITDA(1) (excluding restaurant-level integration costs) was $41.0 million in the second quarter of 2019 compared to $47.4 million in the prior year period. Restaurant-Level EBITDA margin was 11.1% of restaurant sales and decreased 450 basis points from the second quarter of 2018 primarily reflecting higher commodity costs, increased restaurant wage costs, as well the impact of the lower margin Cambridge restaurants.
General and administrative expenses were $20.6 million in the second quarter of 2019, including $1.4 million in acquisition costs and $0.8 million in Cambridge integration costs, compared to $16.0 million in the prior year period. Excluding acquisition and integration costs, general and administrative expenses declined to 5.0%, as a percentage of restaurant sales, compared to 5.3% in the prior year period.
Adjusted EBITDA(1) was $23.8 million in the second quarter of 2019 compared to $32.8 million in the second quarter of 2018. Adjusted EBITDA margin decreased 436 basis points to 6.5% of restaurant sales.
Income from operations was $2.1 million in the second quarter of 2019 compared to $13.8 million in the prior year period.
Interest expense increased to $6.9 million in the second quarter of 2019 from $5.9 million in the second quarter of 2018, reflecting higher indebtedness. Cash balances totaled $3.4 million at the end of the second quarter of 2019.
Net loss was $3.7 million in the second quarter of 2019, or $0.09 per diluted share, compared to net income of $7.8 million, or $0.17 per diluted share, in the prior year period. Net loss in the second quarter of 2019 included a $7.4 million loss on extinguishment of debt due to the 2019 refinancing and write-off of previously deferred financing costs, $0.4 million of impairment and other lease charges, $1.4 million of acquisition expenses and $1.2 million of integration expenses. Net income in the second quarter of 2018 included $2.9 million of impairment and other lease charges and $0.1 million of acquisition expenses.
Adjusted net income(1) was $4.3 million, or $0.07 per diluted share, compared to adjusted net income of $10.0 million, or $0.22 per diluted share, in the prior year quarter.
Stock Repurchase Program
The Board of Directors has approved a stock repurchase program under which the Company may purchase up to $25 million of its outstanding common stock. The authorization is effective immediately, and will expire in 24 months, unless terminated earlier by the Board of Directors. Purchases under the program may be made from time to time in open market transactions at prevailing market prices or in privately negotiated transactions (including, without limitation, the use of Rule 10b5-1 plans) in compliance with applicable federal securities laws, including Rule 10b-18 under the Securities Exchange Act of 1934, as amended.
The Company has no obligation to repurchase stock under this program, and the timing, actual number and value of shares purchased will depend on the Company’s stock price, trading volume, general market and economic conditions, and other factors.
Revisions to Full Year 2019 Outlook
Carrols is revising its annual guidance to reflect the following. These estimates exclude any other potential acquisitions that the Company may complete in 2019:
- Total restaurant sales are expected to be $1.44 billion to $1.47 billion, including approximately $200 million of restaurant sales from Cambridge for approximately eight months in 2019 (previously $1.45 billion to $1.48 billion);
- Comparable restaurant sales growth of 2.0% to 3.0% (previously 2.0% to 3.5%);
- Commodity costs are expected to increase 3% to 4% with beef costs increasing 7% to 9% (previously 2% to 3% with beef costs increasing 5% to 6%);
- General and administrative expenses are expected to be $68 million to $72 million, excluding stock compensation expense and acquisition or integration costs. The Company expects to fully integrate the Cambridge corporate functions by the end of the year;
- Adjusted EBITDA is expected to be $100 million to $105 million, including $10 million to $12 million in contributions from Cambridge for approximately eight months in 2019 (previously $114 million to $121 million);
- Capital expenditures are expected to be $120 million to $130 million, including $50 million to $60 million for construction of 20 to 25 new Burger King® and 5 to 7 new Popeyes® restaurants, and $35 million to $40 million for remodels and upgrades;
- Proceeds from sale/leasebacks are expected to be approximately $15 million to $25 million;
- The Company expects to close up to 15 Burger King® restaurants, of which 10 have already closed through the second quarter of 2019.
Carrols has not reconciled guidance for Adjusted EBITDA to the corresponding GAAP financial measure because the Company does 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 Carrols’ control or cannot be reasonably predicted.
About the Company
Carrols is one of largest restaurant franchisees in the United States, and currently operates a total of 1,084 restaurants. It is the largest BURGER KING® franchisee in the United States currently operating 1,024 BURGER KING® restaurants and also operates 60 POPEYES® restaurants. It has operated BURGER KING® restaurants since 1976.