Carrols Restaurant Group, Inc. Reports Financial Results for the Third Quarter 2023.
Highlights:
* Comparable restaurant sales growth of 8.2%, including positive traffic growth at our Burger King restaurants
* Top-line strength helped deliver another quarter of improved profitability
* Board declares regular quarterly dividend
SYRACUSE, N.Y., - Carrols Restaurant Group, Inc. ('Carrols' or the 'Company') (Nasdaq: TAST), the largest BURGER KING franchisee in the United States, today reported its financial results for the third quarter ended October 1, 2023.
Highlights for the Third Quarter of 2023 versus the Third Quarter of 2022 include:
Total restaurant sales increased 7.2% to $475.8 million in the third quarter of 2023, compared to $444.0 million in the third quarter of 2022;
Comparable restaurant sales for the Company's Burger King restaurants increased 8.1%;
Comparable restaurant sales for the Company's Popeyes restaurants increased 11.7%;
Adjusted EBITDA(1) totaled $41.9 million, compared to $17.7 million in the prior year quarter;
Adjusted Restaurant-Level EBITDA(1) totaled $65.8 million, compared to $37.9 million in the prior year quarter;
Net Income was $12.6 million, or $0.20 per diluted share, compared to a Net Loss of $8.7 million, or $0.17 per diluted share, in the prior year quarter;
Adjusted Net Income(1) was $10.0 million, or $0.16 per diluted share, compared to Adjusted Net Loss of $7.3 million, or $0.14 per diluted share, in the prior year quarter; and
Free Cash Flow(2) was $33.9 million, compared to Free Cash Flow of $14.0 million in the prior year quarter.
Management Commentary
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.'
Derby continued, 'During the quarter, we generated free cash flow of over $30 million, driving a reduction in our total net leverage ratio to 2.8 times. As we look to 2024 and beyond, we are focused on continuing the momentum of our strong results and positive traffic growth.'
Third Quarter 2023 Financial Results
Total restaurant sales were $475.8 million in the third quarter of 2023 compared to $444.0 million in the third quarter of 2022, both of which were 13-week periods.
Comparable restaurant sales for the Company's Burger King restaurants increased 8.1% compared to a 4.9% increase in the prior year quarter.
Comparable restaurant sales for the Company's Popeyes restaurants, which represented 5.0% of total restaurant sales in the third quarter of 2023, increased 11.7% compared to a 6.5% increase in the third quarter of 2022.
Adjusted Restaurant-Level EBITDA(1) was $65.8 million in the third quarter of 2023 compared to $37.9 million in the prior year period. Adjusted Restaurant-Level EBITDA margin improved to 13.8% of restaurant sales from 8.5% in the third quarter of 2022, primarily due to increased leverage from a higher average check and lower promotional discounting. Adjusted Restaurant-Level EBITDA in the third quarter of 2023 included a benefit from a new vendor agreement of $3.4 million in food, beverage and packaging costs, of which $2.3 million related to purchases in the first six months of 2023.
General and administrative expenses increased to $26.2 million in the third quarter of 2023 from $22.6 million in the prior year period, including stock compensation expense of $1.9 million and $0.9 million, respectively. The increase in the third quarter of 2023 was primarily due to incentive compensation accruals which were significantly lower in the prior year period.
Adjusted EBITDA(1) was $41.9 million in the third quarter of 2023 compared to $17.7 million in the third quarter of 2022. Due to the factors discussed above, Adjusted EBITDA margin increased to 8.8% of restaurant sales from 4.0% in the third quarter of 2022.
Income from operations was $23.4 million in the third quarter of 2023 compared to loss from operations of $3.5 million in the prior year quarter.
Interest expense decreased to $7.2 million in the third quarter of 2023 from $7.9 million in the third quarter of 2022 due to lower outstanding debt.
Net Income was $12.6 million in the third quarter of 2023, or $0.20 per diluted share, compared to a Net Loss of $8.7 million, or $0.17 per diluted share, in the prior year quarter. Net Income in the third quarter of 2023 included, among other items, $1.6 million in impairment and other lease charges, $3.6 million in other income, net, and a $1.3 million decrease in the valuation allowance for deferred taxes. Among other items, Net Loss in the third quarter of 2022 included $1.2 million in impairment and other lease charges, $1.4 million of executive transition, litigation and other professional expenses, $1.8 million of other income, net, and a $0.7 million increase in the valuation allowance for deferred taxes.
Adjusted Net Income(1) was $10.0 million in the third quarter of 2023, or $0.16 per diluted share, compared to an Adjusted Net Loss of $7.3 million, or $0.14 per diluted share, in the prior year quarter.
The Company had Free Cash Flow(2) in the third quarter of 2023 of $33.9 million compared to Free Cash Flow of $14.0 million in the prior year period.
Balance Sheet Update
The Company ended the third quarter of 2023 with cash and cash equivalents of $73.0 million and long-term debt (including current portion) and finance lease liabilities of $475.0 million. There were no revolving credit borrowings outstanding and $10.5 million of letters of credit issued under the Company's $215.0 million revolving credit facility, leaving $204.5 million of borrowing availability as of October 1, 2023. Including the cash balance, the Company had $277.5 million of available liquidity at the end of the third quarter of 2023.
Looking Ahead
For the fourth quarter, the Company expects a strong finish to the year, with comparable restaurant sales increases at the Company's Burger King restaurants in the mid-single digits, aided by accelerating traffic growth. The Company anticipates achieving Adjusted EBITDA of approximately $145 million to $149 million for 2023. This equates to anticipated Adjusted EBITDA of approximately $28 million to $32 million in the fourth quarter.
In 2024, to help accelerate its organic growth, the Company plans to remodel approximately 45 Burger King restaurants. Similar to the benefits being leveraged for its 2023 remodels, the Company will avail itself of meaningful contributions from its franchisor through Burger King's Reclaim the Flame program for its 2024 remodels. While this will modestly increase the Company's overall capital expenditure level in 2024 compared to 2023, given its current earnings profile, the Company believes that this is an opportune time to take advantage of its franchisor's economic assistance to help accelerate the modernization and overall profitability of its Burger King restaurant portfolio.
This release includes forward-looking projections for certain non-GAAP financial measures, including comparable restaurant sales and Adjusted EBITDA. The Company excludes certain expenses and benefits from Adjusted EBITDA, such as the impact from impairment and other lease charges, acquisition costs, loss on extinguishment of debt, executive transition, litigation and professional expenses, stock compensation expense, other income or expense, interest expense, depreciation and amortization expense, and the provision (benefit) for income taxes. Due to the uncertainty and variability of the nature and amount of those expenses and benefits, the Company is unable without unreasonable effort to provide projections of net income or a reconciliation of projected net income to projected Adjusted EBITDA.
Initiation of Quarterly Dividend
The Board of Directors has authorized an initial regular quarterly dividend of $0.02 per share of common stock, totaling approximately $1.3 million. This dividend will be paid on December 15, 2023 to shareholders of record as of November 21, 2023.
Conference Call Today
Deborah M. Derby, President and Chief Executive Officer, Anthony E. Hull, Chief Financial Officer and Treasurer, and Gretta Miles, Controller and Assistant Treasurer, will host a conference call to discuss third quarter 2023 financial results at 8:30 a.m. (ET).
The conference call can be accessed live over the telephone by dialing 201-493-6779. A replay will be available three hours after the call and can be accessed by dialing 412-317-6671; the passcode is 13735444. The replay will be available until Thursday, November 23, 2023. Investors and interested parties may listen to a webcast of this conference call by visiting the Investor Relations page of the Company's website located at www.carrols.com. The press release and related presentation slides will be accessible via the same website page prior to the scheduled call.
About the Company
Carrols is one of the largest restaurant franchisees in North America. It is the largest BURGER KING franchisee in the United States, currently operating 1,020 BURGER KING restaurants in 23 states as well as 60 POPEYES restaurants in six states. Carrols has operated BURGER KING restaurants since 1976 and POPEYES restaurants since 2019. For more information, 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, plans or guidance 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.
Footnotes
(1)Adjusted EBITDA, Adjusted Restaurant-Level EBITDA and Adjusted Net Income (Loss) 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.
(2)Free Cash flow is a non-GAAP financial measure. Refer to the definition and reconciliation of this measure in the tables at the end of this release.
Carrols Restaurant Group, Inc.
Consolidated Statements of Operations: See full results at:
https://investor.carrols.com/news-releases/news-release-details/carrols-restaurant-group-inc-reports-financial-results-third-13
Investor Relations:
Jeff Priester
332-242-4370
investorrelations@carrols.com
CARROLS RESTAURANT GROUP, INC. 
