CARROLS RESTAURANT GROUP, INC.

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05/12CARROLS RESTAURANT GROUP, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)
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05/12TRANSCRIPT : Carrols Restaurant Group, Inc., Q1 2022 Earnings Call, May 12, 2022
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05/12CARROLS RESTAURANT : Q1 Earnings Snapshot
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Carrols Restaurant Group Reports Financial Results for the Third Quarter 2021

11/11/2021 | 09:07am EDT

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 3, 2021.

Highlights for the Third Quarter of 2021 versus the Third Quarter of 2020 Include:

Total restaurant sales increased 3.6% to $421.7 million compared to $407.0 million in the prior year quarter;

Comparable restaurant sales for the Company's Burger King restaurants increased 2.7%;

Comparable restaurant sales for the Company's Popeyes restaurants decreased 3.2%;

Adjusted EBITDA(1) totaled $18.6 million compared to $34.1 million in the prior year quarter;

Adjusted Restaurant-Level EBITDA(1) totaled $35.4 million compared to $52.8 million in the prior year quarter;

Net Loss was $9.9 million, or $0.20 per diluted share, compared to Net Income of $3.5 million, or $0.06 per diluted share, in the prior year quarter;

Adjusted Net Loss(1) was $7.8 million, or $0.16 per diluted share, compared to Adjusted Net Income of $5.7 million, or $0.09 per diluted share, in the prior year quarter; and

Free Cash Flow(2) of $13.5 million compared to $23.8 million in the prior year quarter.

(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.

Management Commentary

Daniel T. Accordino, Chairman and Chief Executive Officer of Carrols, commented, 'Similar to others in the quick service and casual dining business, our third quarter performance was challenged on a number of fronts due to the volatility caused by the ever-evolving and unpredictable course of the COVID-19 pandemic. We therefore moved quickly to increase our menu prices to mitigate unprecedented labor and commodity cost pressures. Our comparable Burger King restaurant sales grew by 2.7% with monthly trends improving sequentially through the third quarter. October comparable sales increased 5.0%. Due in part to our efforts to maintain normal operating hours in the face of severe labor constraints, we extended our track record of outperforming the domestic Burger King U.S. system to 21 of the last 23 consecutive quarters by exceeding the system's comparable restaurant sales growth by 430 basis points in the third quarter of 2021. Although our Burger King traffic was roughly 95% of 2020 levels, we more than offset the decline through higher pricing and reduced promotional activity, which, together with a nearly 5% delivery sales mix, raised our average check by approximately 7.8%. We also estimate that ongoing staffing issues resulted in approximately $3.5 million in lost sales and impacted our comparable Burger King restaurant sales by approximately 1.0%.'

Accordino continued, 'Inflationary challenges continued to weigh heavily on our profitability metrics. These include beef prices, which increased 15.5% compared to the same period last year, and team member average hourly wage costs, which rose 13.3% relative to the same period last year. On top of the two pricing actions completed in the third quarter, we have since taken additional pricing in October to help manage these and other cost pressures. While the near-term cost headwinds affecting our business model are certainly clear, as we move into next year, we believe that we will be able to claw back a portion of the margin erosion we are now experiencing. We believe this will be achieved through menu price actions taken to date and in the future combined with continued menu and promotional activity optimization as well as potentially easing cost pressures on a year-over-year basis, particularly in the back half of 2022.'

Accordino concluded, 'As we navigate this challenging business environment, we place great importance on disciplined capital allocation and maintaining substantial liquidity. We are pleased to have recently paid a special cash dividend, which represents a tangible action we have taken to enhance shareholder value and will use all other free cash flow generated this year to reduce our net indebtedness. While we had previously targeted net capital expenditures of approximately $60 million this year, they are now likely to be closer to $50 million due to construction delays that have pushed some projects into 2022.'

Third Quarter 2021 Financial Results

Total restaurant sales increased 3.6% to $421.7 million in the third quarter of 2021, compared to $407.0 million in the third quarter of 2020. Comparable restaurant sales for the Company's Burger King restaurants increased 2.7% compared to 0.8% increase in the prior year quarter. Restaurant sales for the Company's Popeyes restaurants, which represented 4.8% of total restaurant sales in the third quarter, decreased on a comparable restaurant sales basis by 3.2% compared to a 5.5% increase in the third quarter of 2020. Staffing challenges during the evening hours of operation this past quarter were particularly impactful to Popeyes comparable sales. The Company outperformed the Popeyes U.S. system change in comparable sales in the third quarter of 2021 by 140 basis points.

The hourly cost and availability of labor remain a challenge for the restaurant industry and the Company. Supply chain cost pressures also continue to adversely impact the Company's margins, although such costs appear to have stabilized over the past six weeks.

Adjusted Restaurant-Level EBITDA(1) was $35.4 million in the third quarter of 2021 compared to $52.8 million in the prior year period. Adjusted Restaurant-Level EBITDA margin declined to 8.4% of restaurant sales from 13.0% in the third quarter of 2020, reflecting higher food, beverage and packaging costs, higher wage and related expenses, and higher other restaurant operating expenses.

General and administrative expenses decreased to $19.2 million in the third quarter of 2021 from $20.4 million in the prior year period.

Adjusted EBITDA(1) was $18.6 million in the third quarter of 2021 compared to $34.1 million in the third quarter of 2020. Adjusted EBITDA margin decreased to 4.4% of total restaurant sales from 8.4% due to the factors discussed above.

Loss from operations was $3.6 million in the third quarter of 2021 compared to income from of operations of $10.2 million in the prior year quarter.

Interest expense increased to $7.7 million in the third quarter of 2021 from $6.6 million in the third quarter of 2020.

Net Loss was $9.9 million in the third quarter of 2021, or $0.20 per diluted share, compared to Net Income of $3.5 million, or $0.06 per diluted share, in the prior year quarter. Net Loss in the third quarter of 2021 includes, among other items, a $1.1 million gain from insurance recoveries related to property damage at two restaurants, $0.8 million of impairment and other lease charges and a tax valuation allowance charge of $1.6 million. Net Income in the third quarter of 2020 included, among other items, $2.0 million of impairment and other lease charges.

Adjusted Net Loss(1) was $7.8 million, or $0.16 per diluted share, compared to an Adjusted Net Income of $5.7 million, or $0.09 per diluted share, in the prior year quarter.

Balance Sheet Update

The Company ended the third quarter of 2021 with cash and cash equivalents of $89.4 million, and long-term debt (including current portion) and finance lease liabilities of $523.3 million. This total included $47.1 million of outstanding revolving credit borrowings under the Company's $215.0 million revolving credit facility. There were also $9.0 million of letters of credit issued under such facility leaving $158.9 million of availability under its revolving credit facility as of October 3, 2021. Including the cash balance, the Company had $248.3 million of available liquidity at the end of the third quarter of 2021. On October 5, 2021, $24.9 million of cash was used to pay the previously announced special cash dividend.

Stock Repurchase Program

During the third quarter of 2021, the Company did not repurchase shares of its common stock. There remains approximately $11 million of capacity as part of the Company's $25 million stock repurchase program. The Company's stock repurchase program will expire August 2, 2023, unless terminated earlier by the Board of Directors.

Lead Independent Director

On November 9, 2021, the Board of Directors appointed David S. Harris as Lead Independent Director. Mr. Harris has been a director of the Company since 2012. The duties of the Lead Independent Director are set forth in the Company's newly enacted Corporate Governance Guidelines, a copy of which is available on the Investor Relations page of the Company's website located at www.carrols.com.

Conference Call Today

Daniel T. Accordino, the Company's Chairman and Chief Executive Officer, and Anthony E. Hull, the Company's Chief Financial Officer, will host a conference call to discuss third quarter 2021 financial results and provide a business update today at 8:00 a.m. (ET).

The conference call can be accessed live over the telephone by dialing 201-493-6725. A replay will be available one hour after the call and can be accessed by dialing 412-317-6671; the passcode is 13723214. The replay will be available until Wednesday, November 17, 2021.

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.

Investor Conferences Participation

Carrols will be participating in three upcoming investor conferences.

On November 22, 2021, the Company will host investor meetings at the Deutsche Bank 2021 Gaming, Lodging, Leisure & Restaurants Conference (virtual).

On December 1, 2021, the Company will host investor meetings at the Stephens Annual Investor Conference.

On December 9, 2021, the Company will host investor meetings at the Truist Securities 2021 Gaming, Lodging, Leisure & Restaurants Summit (virtual).

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 1,028 BURGER KING restaurants in 23 states as well as 65 POPEYES restaurants in seven 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, including without limitation the impact of COVID-19 on Carrols' business, as included in Carrols' filings with the Securities and Exchange Commission.

The Company uses a 52 or 53 week fiscal year that ends the Sunday closest to December 31. The three and nine months ended October 3, 2021 and September 27, 2020 both included thirteen and thirty-nine weeks, respectively.

(b)	Free Cash Flow is a non-GAAP financial measure and may not necessarily be comparable to other similarly titled captions of other companies due to differences in methods of calculation. Free Cash Flow is defined as cash provided by operating activities less cash used for investing activities, adjusted to add back net cash paid for acquisitions excluding proceeds from acquisition-related sale-leaseback transactions completed in the third quarter of 2021. Management believes that Free Cash Flow, when viewed with the Company's results of operations in accordance with U.S. GAAP and the accompanying reconciliations in the table above, provides useful information about the Company's cash flow for liquidity purposes and to service the Company's debt. However, Free Cash Flow is not a measure of liquidity under U.S GAAP, and, accordingly should not be considered as an alternative to the Company's consolidated statements of cash flows and net cash provided by operating activities, net cash used for investing activities and net cash provided by financing activities as indicators of liquidity or cash flow. Free Cash Flow for the three months ended October 3, 2021 and September 27, 2020 is derived from the Company's consolidated statements of cash flows for the respective nine month periods to be presented in the Company's Interim Condensed Consolidated Financial Statements in its Form 10-Q for the period ended October 3, 2021 and the Company's consolidated statements of cash flows for the previously reported six month periods ended July 4, 2021 and June 26, 2020 contained in the Company's Form 10-Q for the period ended July 4, 2021.

Long-term debt and finance lease liabilities (including current portion and excluding deferred financing costs and original issue discount) at October 3, 2021 included $172,938 of outstanding term B loans and $47,063 of outstanding revolving borrowings under the Company's senior credit facilities, $300,000 of 5.875% Senior Notes due 2029 and $3,306 of finance lease liabilities. Long-term debt and finance lease liabilities (including current portion and excluding deferred financing costs and original issue discount) at January 3, 2021 included $419,375 of Term Loan B and $73,875 of Term Loan B-1 borrowings under the Company's senior credit facilities and $908 of finance lease liabilities. Long-term debt and finance lease liabilities (including current portion and excluding deferred financing costs and original issue discount) at September 27, 2020 included $419,688 of outstanding term B loans and $75,000 of outstanding term B-1 loans under the Company's senior credit facilities and $1,060 of finance lease liabilities.

(d)	Net Debt represents total long-term debt and finance lease liabilities less cash and cash equivalents.
(e)	Senior Secured Net Debt represents total net debt less the $300 million of unsecured 5.875% Senior Notes, due 2029.
(f)	Total Net Debt Leverage Ratio represents the Company's Total Net Debt Leverage Ratio as calculated in accordance with its senior credit facility for each period presented.
(g)	Senior Secured Net Debt Leverage Ratio represents the Company's Net Debt Leverage Ratio as calculated in accordance with its senior credit facility for each period presented.

See full results at: https://investor.carrols.com/news-releases/news-release-details/carrols-restaurant-group-inc-reports-financial-results-third-11

Investor Relations:

Raphael Gross

203-682-8253

investorrelations@carrols.com

(C) 2021 Electronic News Publishing, source ENP Newswire

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Financials (USD)
Sales 2022 1 693 M - -
Net income 2022 -41,3 M - -
Net Debt 2022 435 M - -
P/E ratio 2022 -2,61x
Yield 2022 -
Capitalization 72,5 M 72,5 M -
EV / Sales 2022 0,30x
EV / Sales 2023 0,27x
Nbr of Employees 15 938
Free-Float 58,9%
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Paulo A. Pena President, Chief Executive Officer & Director
Anthony E. Hull Chief Financial Officer, Treasurer & VP
David S. Harris Non-Executive Chairman
Nathan Mucher Chief Information Officer
Hannah Stone Craven Independent Director
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