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Carrols posts profit decline in 2nd quarter on higher costs

By Eric Reinhardt

Date:

SYRACUSE, N.Y. — Carrols Restaurant Group, Inc. (NASDAQ: TAST) reported that its net income fell to $6 million, or 13 cents a share, in the second quarter ending July 2, from $9.4 million, or 21 cents, in the prior-year period.

Excluding items such as acquisition costs, Carrols posted net income of $6.6 million, or 14 cents a share, compared to $8 million, or 18 cents, a year earlier.

The profit decline was led by higher costs for wages, beef, and promotions, offsetting sales and revenue gains.

Syracuse–based Carrols is the world’s largest Burger King franchisee.

Restaurant sales increased nearly 16 percent to $279.5 million, up from $241.4 million in the second quarter of 2016.

The 2017 second-quarter figure includes $53.3 million in sales from 170 Burger King restaurants acquired between 2015 and 2017.

Comparable restaurant sales increased 4.6 percent compared to an increase of 0.7 percent in the prior-year period.

Adjusted EBITDA was $27.5 million compared to $27.9 million in the prior-year period

EBITDA is short for earnings before interest, taxes, depreciation, and amortization.

Carrols reported its earnings before the open of regular stock trading Wednesday. Its share price fell nearly 5 percent that day and another 3 percent Thursday, before rebounding almost 5 percent Friday.

 

CEO reaction

Carrols posted a “solid” 15.8 percent increase in total restaurant sales, reflecting its acquisition of 104 restaurants since the start of the second quarter last year, Daniel Accordino, CEO of Carrols Restaurant Group, said in the release.

“Our comparable restaurant sales were also strong and increased 4.6 percent over the prior-year quarter from a balance of premium products, value offerings and limited-time offers. However, adjusted EBITDA was effectively unchanged while adjusted EBITDA margin contracted 172 basis points due to continuing pressure on wage rates, commodity-cost inflation, including a spike in beef costs in the second quarter, and a higher level of promotional discounting,” said Accordino.

Carrols contends that “traction” from recent product launches coupled with Burger King’s promotional offerings can “sustain moderate growth” in comparable restaurant sales during the second half of 2017, Accordino said.

“We expect labor costs and the ongoing level of promotional activity to continue pressuring margins, however, beef prices have begun to recede and should continue to moderate for the balance of the year. In view of these factors, we are increasing our sales guidance for the year to reflect our recent acquisitions while maintaining our previous guidance for adjusted EBITDA.”

So far this year, Carrols Restaurant Group has acquired 60 restaurants, including 17 units during June in the Baltimore and Washington, D.C. markets, Accordino said.

Along with the 43 restaurants that Carrols acquired in the Cincinnati market in February, the firm’s integration of these locations is “progressing well.”

“Lastly, our recent $75 million add-on bond offering provides us continued flexibility to selectively acquire additional restaurants as they come to market,” he added.

Carrols owned and operated 799 Burger King restaurants at the end of the second quarter.

Contact Reinhardt at ereinhardt@cnybj.com