Acquires 233 Restaurants in Quarter as Part
of Expansion Strategy
Board of Directors Authorizes $25 Million
Stock Repurchase Program
Carrols Restaurant Group, Inc. (“Carrols” or the “Company”)
(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.
Conference Call Today
Daniel T. Accordino, Chairman and Chief Executive Officer, and
Paul R. Flanders, Chief Financial Officer, will host a conference
call to discuss second quarter 2019 financial results today at 8:30
AM ET.
The conference call can be accessed live over the phone by
dialing 323-794-2423. A replay will be available one hour after the
call and can be accessed by dialing 412-317-6671; the passcode is
9658703. The replay will be available until Thursday, August 15,
2019. Investors and interested parties may listen to a webcast of
this conference call by visiting www.carrols.com under the tab
“Investor Relations”.
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. 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, 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.
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, 2019
July 1, 2018
June 30, 2019
July 1, 2018
Restaurant sales
$
368,559
$
303,050
$
659,348
$
574,636
Costs and expenses:
Cost of sales
109,157
81,917
191,732
154,922
Restaurant wages and related expenses
121,140
96,954
221,332
188,098
Restaurant rent expense
26,690
19,879
48,606
39,853
Other restaurant operating expenses
56,308
44,589
101,913
87,428
Advertising expense
14,677
12,356
26,549
23,621
General and administrative expenses (b)
(c)
20,620
16,020
40,344
32,156
Depreciation and amortization
17,121
14,621
32,413
28,871
Impairment and other lease charges
367
2,881
1,277
3,190
Other expense (income), net (d)
376
—
(1,753
)
—
Total costs and expenses
366,456
289,217
662,413
558,139
Income (loss) from operations
2,103
13,833
(3,065
)
16,497
Interest expense
6,900
5,917
12,847
11,843
Loss on extinguishment of debt
7,443
—
7,443
—
Gain on bargain purchase
—
(208
)
—
(230
)
Income (loss) before income taxes
(12,240
)
8,124
(23,355
)
4,884
Provision (benefit) for income taxes
(8,508
)
336
(8,154
)
198
Net income (loss)
$
(3,732
)
$
7,788
$
(15,201
)
$
4,686
Basic and diluted net income (loss) per
share (e)(f)
$
(0.09
)
$
0.17
$
(0.39
)
$
0.10
Basic weighted average common shares
outstanding
41,051
35,720
38,548
35,693
Diluted weighted average common shares
outstanding
41,051
45,201
38,548
45,235
(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, 2019 and July 1, 2018 each included thirteen and
twenty-six weeks, respectively.
(b) General and administrative expenses include acquisition
costs of $1.4 million and $0.1 million for the three months ended
June 30, 2019 and July 1, 2018 respectively and $4.0
million and $0.2 million for the six months ended June 30,
2019 and July 1, 2018, respectively.
(c) General and administrative expenses include stock-based
compensation expense of $1.3 million and $1.4 million for the three
months ended June 30, 2019 and July 1, 2018 respectively
and $2.8 million and $3.0 million for the six months ended
June 30, 2019 and July 1, 2018, respectively.
(d) Other expense, net, for the three months ended June 30,
2019 included a loss on disposal of assets of $0.5 million and a
gain on a sale-leaseback transaction of $0.1 million. Other income,
net, for the six months ended June 30, 2019, included, among
other things, a $1.9 million gain related to a settlement with
Burger King Corporation for the approval of new restaurant
development by other franchisees which unfavorably impacted our
restaurants.
(e) Basic net income (loss) per share was computed excluding
loss attributable to preferred stock and non-vested restricted
shares unless the effect would have been anti-dilutive for the
periods presented.
(f) Diluted net income (loss) per share was computed including
shares issuable for convertible preferred stock and non-vested
restricted shares unless 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
Six Months Ended (a)
June 30, 2019
July 1, 2018
June 30, 2019
July 1, 2018
Revenues:
Burger King
$
353,714
$
303,050
$
644,503
$
574,636
Popeyes
11,960
—
11,960
—
Other
2,885
—
2,885
—
Total revenues
$
368,559
$
303,050
$
659,348
$
574,636
Change in Comparable Restaurant Sales
(a)
0.1
%
5.0
%
1.2
%
5.6
%
Average Weekly Sales per Restaurant
(b)
$
28,137
$
28,996
$
26,766
$
27,490
Restaurant-Level EBITDA (c)
$
40,993
$
47,355
$
69,622
$
80,714
Restaurant-Level EBITDA margin (c)
11.1
%
15.6
%
10.6
%
14.0
%
Adjusted EBITDA (c)
$
23,822
$
32,809
$
36,909
$
51,722
Adjusted EBITDA margin (c)
6.5
%
10.8
%
5.6
%
9.0
%
Adjusted net income (loss) (c)
$
4,337
$
9,970
$
(6,054
)
$
7,178
Adjusted diluted net income (loss) per
share (c)
$
0.07
$
0.22
$
(0.16
)
$
0.16
Number of Burger King restaurants:
Restaurants at beginning of period
845
807
849
807
New restaurants (including offsets)
4
2
6
4
Restaurants acquired
178
—
178
1
Restaurants closed (including offsets)
(4)
(2)
(10)
(5)
Restaurants at end of period
1,023
807
1,023
807
Average Number of Restaurants:
954.7
804.0
899.0
804.0
Number of Popeyes restaurants:
Restaurants at beginning of period
—
—
—
—
Restaurants acquired
55
—
55
—
New restaurants
3
—
3
—
Restaurants at end of period
58
—
58
—
Average Number of Restaurants:
56.0
—
56.0
—
At 6/30/19
At 12/30/2018
Long-term debt and finance lease
liabilities (d)
$
454,854
$
280,144
Cash and cash equivalents
3,412
4,014
(a) Restaurants are generally included in comparable restaurant
sales after they have been operated by us for 12 months. The
calculation of changes in comparable restaurant sales is based on
the comparable 13-week or 26-week period.
(b) Average weekly sales per restaurant are derived by dividing
restaurant sales for the comparable 13-week or 26-week period by
the average number of restaurants operating during such period.
(c) EBITDA, Adjusted EBITDA, Adjusted EBITDA margin,
Restaurant-Level EBITDA, Restaurant-Level EBITDA margin and
Adjusted net income (loss) are non-GAAP financial measures and may
not necessarily be comparable to other similarly titled captions of
other companies due to differences in methods of calculation. Refer
to the Company's reconciliation of net income (loss) to EBITDA,
Adjusted EBITDA and Adjusted net income (loss), and to the
Company's reconciliation of income (loss) from operations to
Restaurant-Level EBITDA for further detail. Both Adjusted EBITDA
margin and Restaurant-Level EBITDA margin are calculated as a
percentage of restaurant sales. Adjusted diluted net income (loss)
per share is calculated based on Adjusted net income (loss) and
reflects the dilutive impact of shares, where applicable, based on
Adjusted net income (loss).
(d) Long-term debt and finance lease liabilities (including
current portion and excluding deferred financing costs) at
June 30, 2019 included $425,000 of the Company's Term Loan B
under our senior credit facility, $25,000 of outstanding revolving
borrowings under the Company's senior credit facility, $1,200 of
lease financing obligations and $3,654 of finance lease
liabilities. Long-term debt and finance lease liabilities
(including current portion and excluding deferred financing costs)
at December 30, 2018 included $275,000 of the Company's 8%
Senior Secured Second Lien Notes, $1,203 of lease financing
obligations and $3,941 of finance lease liabilities.
Carrols Restaurant Group,
Inc.
Reconciliation of Non-GAAP
Measures
(In thousands, except per share
amounts)
(unaudited)
(unaudited)
Three Months Ended
Six Months Ended
June 30, 2019
July 1, 2018
June 30, 2019
July 1, 2018
Reconciliation of EBITDA and Adjusted
EBITDA: (a)
Net income (loss)
$
(3,732
)
$
7,788
$
(15,201
)
$
4,686
Provision (benefit) for income taxes
(8,508
)
336
(8,154
)
198
Interest expense
6,900
5,917
12,847
11,843
Depreciation and amortization
17,121
14,621
32,413
28,871
EBITDA
11,781
28,662
21,905
45,598
Impairment and other lease charges
367
2,881
1,277
3,190
Acquisition costs (b)
1,366
89
4,022
194
Integration costs (c)
1,207
—
1,207
—
Other expense (income), net (d)
376
—
(1,753
)
—
Gain on bargain purchase
—
(208
)
—
(230
)
Stock-based compensation expense
1,282
1,385
2,808
2,970
Loss on extinguishment of debt
7,443
—
7,443
—
Adjusted EBITDA
$
23,822
$
32,809
$
36,909
$
51,722
Reconciliation of Restaurant-Level
EBITDA: (a)
Income (loss) from operations
$
2,103
$
13,833
$
(3,065
)
$
16,497
Add:
General and administrative expenses
20,620
16,020
40,344
32,156
Integration costs (c)
406
—
406
—
Depreciation and amortization
17,121
14,621
32,413
28,871
Impairment and other lease charges
367
2,881
1,277
3,190
Other expense (income), net (d)
376
—
(1,753
)
—
Restaurant-Level EBITDA
$
40,993
$
47,355
$
69,622
$
80,714
Reconciliation of Adjusted net income
(loss): (a)
Net income (loss)
$
(3,732
)
$
7,788
$
(15,201
)
$
4,686
Add:
Loss on extinguishment of debt
7,443
—
7,443
—
Impairment and other lease charges
367
2,881
1,277
3,190
Acquisition costs (b)
1,366
89
4,022
194
Integration costs (c)
1,207
—
1,207
—
Other expense (income), net (d)
376
—
(1,753
)
—
Gain on bargain purchase
—
(208
)
—
(230
)
Income tax effect on above adjustments
(e)
(2,690
)
(580
)
(3,049
)
(662
)
Adjusted net income (loss)
$
4,337
$
9,970
$
(6,054
)
$
7,178
Adjusted diluted net income (loss) per
share
$
0.07
$
0.22
$
(0.16
)
$
0.16
Adjusted diluted weighted average common
shares outstanding (f)
58,208
45,201
38,548
45,235
(a) Within our press release, we make reference to EBITDA,
Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income
(loss) which are non-GAAP financial measures. EBITDA represents net
income (loss) before income taxes, interest expense and
depreciation and amortization. Adjusted EBITDA represents EBITDA as
adjusted to exclude impairment and other lease charges, acquisition
costs, integration costs, stock-based compensation expense, and
other non-recurring income or expense. Restaurant-Level EBITDA
represents income (loss) from operations as adjusted to exclude
general and administrative expenses, integration costs,
depreciation and amortization, impairment and other lease charges
and other non-recurring income or expense. Adjusted net income
(loss) represents net income (loss) as adjusted to exclude
impairment and other lease charges, acquisition costs, integration
costs, gain on bargain purchase, and other non-recurring income or
expense.
We are presenting Adjusted EBITDA, Restaurant-Level EBITDA and
Adjusted net income (loss) because we believe that they provide a
more meaningful comparison than EBITDA and net income (loss) of the
Company's core business operating results, as well as with those of
other similar companies. Additionally, we present Restaurant-Level
EBITDA because it excludes the impact of general and administrative
expenses, integration costs, and other expense, all of which are
non-recurring at the restaurant level. Management believes that
Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income
(loss), when viewed with the Company's results of operations in
accordance with GAAP and the accompanying reconciliations in the
table above, provide useful information about operating performance
and period-over-period growth, and provide additional information
that is useful for evaluating the operating performance of the
Company's core business without regard to potential distortions.
Additionally, management believes that Adjusted EBITDA and
Restaurant-Level EBITDA permit investors to gain an understanding
of the factors and trends affecting our ongoing cash earnings, from
which capital investments are made and debt is serviced.
However, EBITDA, Adjusted EBITDA, Restaurant-Level EBITDA and
Adjusted net income (loss) are not measures of financial
performance or liquidity under GAAP and, accordingly, should not be
considered as alternatives to net income (loss) from operations or
cash flow from operating activities as indicators of operating
performance or liquidity. Also, these measures may not be
comparable to similarly titled captions of other companies. The
tables above provide reconciliations between net income (loss) and
EBITDA, Adjusted EBITDA and Adjusted net income (loss) and between
income (loss) from operations and Restaurant-Level EBITDA.
(b) Acquisition costs for the three and six months ended
June 30, 2019 mostly include legal and professional fees
incurred in connection with the acquisition of 165 Burger King and
55 Popeyes restaurants from Cambridge Franchise Holdings, LLC,
which were included in general and administrative expense.
(c) Integration costs for the three and six months ended
June 30, 2019 includes $1.2 million for certain professional
fees, corporate payroll, and other costs related to the integration
of the Cambridge merger and $0.4 million of one-time repairs and
maintenance costs which are included in Restaurant-Level
EBITDA.
(d) Other expense, net for the three months ended June 30,
2019 included a loss on disposal of assets of $0.5 million and a
gain on a sale-leaseback transaction of $0.1 million. Other
income, net for the six months ended June 30, 2019 included a
$1.9 million gain related to a settlement with Burger King
Corporation for the approval of new restaurant development by other
franchisees which unfavorably impacted our restaurants, a gain on
two sale-leaseback transactions of $0.1 million, and a gain related
to an insurance recovery from a fire at one of our restaurants in
the prior year of $0.1 million.
(e) The income tax effect related to the adjustments for
impairment and other lease charges, gain on bargain purchase,
acquisition costs, and other non-recurring expense (income) during
the periods presented was calculated using an effective income tax
rate of 25% for the three and six months ended June 30, 2019
and 21% for the three and six months ended July 1, 2018,
respectively.
(f) For the three months ended June 30, 2019, approximately
17.2 million shares issuable upon conversion of preferred stock and
non-vested shares were included in the computation of adjusted
diluted net income per share.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190808005263/en/
Investor Relations: 800-348-1074, ext. 3333
investorrelations@carrols.com
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