Carrols Restaurant Group (TAST) Misses Q3 EPS by 2c, Revenues Beat

Carrols Restaurant Group (NASDAQ: TAST) reported Q3 EPS of $0.09, $0.02 worse than the analyst estimate of $0.11. Revenue for the quarter came in at $407 million versus the consensus estimate of $403.93 million.

Highlights for the Third Quarter of 2020 versus the Third Quarter of 2019

• Total restaurant sales increased 2.2% to $407.0 million compared to $398.4 million in the prior year quarter;
• Comparable restaurant sales for the Company's Burger King® restaurants increased 0.8%;
• Comparable restaurant sales for the Company’s Popeyes® restaurants increased 5.5%;
• Adjusted EBITDA(1) increased to $34.1 million from $25.7 million in the prior year quarter;
• Adjusted Restaurant-Level EBITDA(1) increased to $52.8 million from $43.0 million in the prior year quarter;
• Net income was $3.5 million, or $0.06 per diluted share, compared to net loss of $(6.8) million, or $(0.15) per diluted share, in the prior year quarter;
• Adjusted Net Income(1) was $5.7 million, or $0.09 per diluted share, compared to adjusted net loss of $(3.9) million, or $(0.08) per diluted share, in the prior year quarter; and
• The Company generated $23.3 million of Free Cash Flow(2) during the third quarter of 2020 and $46.7 million on a year-to-date basis.

Management Commentary

Daniel T. Accordino, Chairman and Chief Executive Officer of Carrols, commented, “The sequential quarterly improvement in comparable restaurant sales of 720 basis points at our Burger King restaurants is demonstrative of Carrols’ resiliency in the face of the unprecedented current environment. We believe our business model is well-suited to meet the needs of customers seeking great value and convenience and we have been able to serve them effectively and efficiently through our drive-thru, at-the-counter for take-out, and delivery channels. Over the past two months, we have seen modest softening in comparable sales at our Burger King restaurants driven primarily, we believe, by a strain on consumer spending due to a weakening ‘Main Street’ economy. Despite this year’s challenges, we have been extremely adept in managing food costs, optimizing labor hours despite higher wage rates, and controlling other restaurant-level and corporate overhead expenses. Third quarter results reflect the strength of our positioning and operational acuity as we once again delivered improved restaurant-level profitability and increased Adjusted EBITDA compared to the prior year period.”

Accordino continued, “We generated $46.7 million in Free Cash Flow through the first three quarters of 2020 ($23.3 million in the third quarter) and our available liquidity, including cash and borrowing availability under our revolving credit facility, is now approximately $205 million. Given the strength of these metrics, our intention is to build upon what we have accomplished during the pandemic and further drive improvement in our overall performance for the remainder of 2020 and into 2021.”

“More importantly, looking further into the future, we are poised to re-engage in strong but balanced organic and non-organic growth strategies beginning later in 2021 while keeping our leverage in check. In terms of organic growth, we are in the process of negotiating a restructuring of our Burger King area development agreement with our franchisor. The remodel and new restaurant build commitments that required elevated levels of capital spending on our part under the current agreement are expected to be significantly reduced under the new agreement. Also, we anticipate that we would give up our right-of-first-refusal provision which we believe has diminished value in the current QSR business environment. Under this new arrangement, we believe we will have added flexibility to grow our business as we believe best optimizes our profit growth potential while generating consistent and enhanced free cash flow. It is important to note that while we believe such new agreement will be entered into, it is still being negotiated and there is no assurance that such new agreement will be entered into on such terms or at all."

Accordino concluded, “Although we still are firming up specific new construction and remodel plans for 2021 and beyond, we are committed to executing on our message last quarter of spending $40 million to $50 million annually in capital expenditures over the next three years. We expect that this spending will be sufficient to address restaurant maintenance and upgrade needs, remodel 20 to 25 restaurants per year and develop eight to twelve new restaurants per year, many of which will be financed using third party capital. We have previously discussed that we will not pursue acquisitions until our Adjusted Leverage Ratio (as defined in our senior credit facility) drops to below four times. We currently expect that to occur early next year. We should then be positioned to pursue opportunistic bolt-on transactions as long as we remain below our four times Adjusted Leverage Ratio target on a pro forma basis.”

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

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