Carrols Restaurant Group (TAST) Misses Q1 EPS by 13c, Revenues Miss, Comp. Sales Up 2.4%; Offers FY19 Revenue Views

Carrols Restaurant Group (NASDAQ: TAST) reported Q1 EPS of ($0.29), $0.13 worse than the analyst estimate of ($0.16). Revenue for the quarter came in at $290.8 million versus the consensus estimate of $292.04 million.

Highlights for the First Quarter of 2019 versus the First Quarter of 2018 Include:

• Restaurant sales increased 7.1% to $290.8 million from $271.6 million in the prior year quarter;
• Comparable restaurant sales increased 2.4% compared to a 6.2% increase in the prior year quarter;
• Adjusted EBITDA(1) was $13.1 million compared to $18.9 million in the prior year quarter;
• Net loss was $11.5 million, or $0.32 per diluted share, compared to net loss of $3.1 million, or $0.09 per diluted share, in the prior year quarter; and
• Adjusted net loss(1) was $10.4 million, or $0.29 per diluted share, compared to adjusted net loss of $2.8 million, or $0.08 per diluted share, in the prior year quarter.

Daniel T. Accordino, Chairman and Chief Executive Officer of Carrols, commented, “We increased restaurant sales by over 7% and delivered 2.4% growth in comparable restaurant sales during the first quarter of 2019 as we lapped our toughest comparable restaurant sales comparison from the prior year of 6.2%. Notable first quarter promotions included the $6 King Box, the $1.49 10-piece Spicy Chicken Nuggets, and the Big King XL.”

Accordino continued, “Despite solid top line growth, restaurant level profitability was negatively affected on a year over year basis in the first quarter by promotional activity that accelerated during the second half of last year, and by continued labor cost pressures. Although discounting was much higher relative to the first quarter of 2018, these elevated levels began to taper off mid-way through the first quarter this year resulting in a modestly lower impact sequentially from the fourth quarter of 2018. We expect the impact from this discounting to subside as we move further into the year.”

Accordino concluded, “We are excited to have completed our transformational merger with Cambridge and to welcome Matt Perelman and Alex Sloane to our Board of Directors. The transaction strengthens our position within the Burger King® system with opportunities to acquire and open new restaurants, while adding Popeyes® as a growth brand to further enhance our expansion alternatives. We are well along with our plans to integrate Cambridge over the next several months. We believe that as we assimilate these restaurants that there is good potential for us to improve their sales and overall restaurant-level financial performance. We also plan to leverage Cambridge’s development capabilities as we move forward with this new phase of our growth. Our updated annual guidance reflects our revised expectations for the core Carrols’ business along with expected contributions from the newly-acquired restaurants.”

GUIDANCE:

Carrols Restaurant Group sees FY2019 revenue of $1.25-1.28 billion, versus the consensus of $1.37 billion.

Carrols is providing the following updated annual guidance, which includes the estimated impact from the recently completed merger with Cambridge, but excludes any other potential acquisition(s) that the Company may complete in 2019. These are estimates and may be updated as the year and the integration of Cambridge progresses:

• For the trailing twelve months, Cambridge’s financial results, adjusted for the pro forma effect of acquisitions completed by Cambridge during the preceding year, are estimated to include restaurant sales of approximately $300 million and Restaurant-level EBITDA of approximately $40 million. Adjusted EBITDA, including anticipated synergies after the integration of Cambridge’s corporate functions expected to be completed by the end of 2019, is estimated to be $25 million to $30 million;
• Excluding Cambridge, total restaurant sales are expected to be $1.25 billion to $1.28 billion including comparable restaurant sales growth of 2.0% to 3.5%. With Cambridge included for approximately eight months in 2019, total restaurant sales are expected to be $1.45 billion to $1.48 billion;
• Carrols expects recent increases in beef and pork prices brought about by the breakout of hog fever in China, among other things, to continue for the foreseeable future. This has caused the Company to revise its expected increase in commodity costs to 2% to 3% (from 1% to 2% previously) with beef costs increasing 5% to 6% (from 2% to 3% previously);
• General and administrative expenses, excluding Cambridge, are still expected to be $62 million to $64 million, excluding stock compensation expense and acquisition or integration costs. Carrols expects that for the eight months that Cambridge will be included in its 2019 results that achieved synergies will be minimal and estimates incremental general and administrative expense attributable to Cambridge to be $11 million to $12 million in 2019. The Company expects to fully integrate the Cambridge corporate functions by the end of the year;
• Adjusted EBITDA, including Cambridge results for approximately eight months, is expected to be $114 million to $121 million including $14 million to $16 million for Cambridge;
• 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 8 to 10 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 (previously $10 million to $15 million);
• As previously disclosed, Carrols completed a refinancing of both its existing debt and Cambridge’s debt in conjunction with the merger. This financing has lowered the Company’s effective cost of funds from 8% to under 6% and expanded its capital available to fund its expansion strategy moving forward; and lastly
• The Company expects to close 10 to 15 Burger King® restaurants, of which six have already closed during the first quarter of 2019. Restaurant closings related to the Cambridge business are not contemplated at this time.

For earnings history and earnings-related data on Carrols Restaurant Group (TAST) click here.

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