Carrols Restaurant Group, Inc. Reports Financial Results for the Third Quarter 2017
Highlights for third quarter of 2017 versus third quarter of 2016 include:
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Restaurant sales increased 19.4% to
$285.2 million from$238.9 million in the third quarter of 2016, including$59.6 million in sales from the 171 BURGER KING® restaurants acquired from 2015 to 2017(1); - Comparable restaurant sales increased 7.5% compared to being flat in the prior year period;
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Adjusted EBITDA(2) was
$24.2 million compared to$22.7 million in the prior year period; -
Net income was
$2.8 million , or$0.06 per diluted share, compared to net income of$4.5 million , or$0.10 per diluted share, in the prior year period; -
Adjusted net income(2) was
$3.5 million , or$0.08 per diluted share, compared to adjusted net income of$5.7 million , or$0.13 per diluted share, in the prior year period.
(1) "Acquired restaurants" refer to those restaurants acquired from 2015 through 2017. "Legacy restaurants" include all of the Company's other restaurants including restaurants acquired before 2015.
(2) 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 or to income from operations in the tables at the end of this release.
At the end of the third quarter of 2017,
Accordino concluded, "Restaurant-level EBITDA and Adjusted EBITDA both increased on an absolute basis and we were able to leverage a number of expenses. However, higher beef prices lingered through much of the quarter, which along with higher promotional sales and continued wage pressures, resulted in lower operating margins compared to the prior year period. We expect sales trends to remain firm for the balance of the year and have raised our top-line guidance but have also reduced our expectations for Adjusted EBITDA to reflect year to date results."
Third Quarter 2017 Financial Results
Restaurant sales increased 19.4% to
The comparable restaurant sales increase included a 7.5% increase at legacy restaurants and a 7.7% increase at acquired restaurants. For all comparable restaurants, average check increased 4.8% primarily because of higher sales mix while customer traffic increased 2.7% from the prior year period.
Restaurant-level EBITDA was
General and administrative expenses were
Adjusted EBITDA was
Income from operations was
Interest expense increased to
Net income was
Net income in the third quarter of 2017 included
Adjusted net income was
Full Year 2017 Outlook
The Company is providing the following updated guidance for 2017. As a reminder, while the Company may acquire additional BURGER KING® restaurants, this guidance does not include any impact from such potential future acquisitions:
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Total restaurant sales of
$1.07 billion to$1.08 billion , including a comparable restaurant sales increase of 3.8% to 4.2% (previously$1.05 billion to$1.07 billion with a comparable restaurant sales increase of 2% to 3%); - Commodity costs are expected to increase 3% to 4% including a 9% to 10% increase in beef costs (previously 2% to 4% including an 8% to 10% increase in beef costs);
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General and administrative expenses (excluding stock compensation and
acquisition costs) are still expected to be
$53 million to$55 million ; -
Adjusted EBITDA of
$85 million to$90 million (previously$90 million to$95 million ); -
Capital expenditures of approximately
$75 million to$85 million (previously$65 million to$85 million ) which includes remodeling a total of 30 to 35 restaurants (previously 28 to 32), the rebuilding of 5 to 7 restaurants (previously 6 to 8) and the construction of 12 to 14 new restaurants (previously 10 to 15) including 2 or 3 relocations of existing restaurants. Capital expenditures also include$10 million to$12 million for non-recurring investments in new kitchen production and product holding systems, new training systems and certain POS system upgrades; -
The closing of 20 to 22 existing restaurants (previously 15 to 20) of
which 17 had been closed as of
October 1, 2017 ; and - An effective income tax rate of (6%) to (8%) which reflects disproportionately high wage credits relative to pretax income (previously 18% to 20%).
The Company has not reconciled guidance for Adjusted EBITDA to the corresponding GAAP financial measure because it 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 the Company's control or cannot be reasonably predicted.
Initial Full Year 2018 Outlook
The Company is providing the following initial guidance for 2018. This outlook may be further refined and expanded when fourth quarter 2017 financial results are released:
-
Total restaurant sales are expected to be
$1.12 billion to$1.15 billion , including a comparable restaurant sales increase of 3% to 5%; - Commodity cost increases are expected to be somewhat more benign in 2018, and although restaurant wage pressures are expected to continue, wage inflation is expected to be somewhat lower than in 2017;
-
Adjusted EBITDA is expected to be
$90 million to$100 million ; and -
Capital expenditures before discretionary growth-related expenditures
(i.e., new restaurant development and acquisitions) are expected to be
$45 million to$50 million .
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will be available until
About the Company
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
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Consolidated Statements of Operations |
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(in thousands except per share amounts) |
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(unaudited) | (unaudited) | ||||||||||||||
Three Months Ended (a) | Nine Months Ended (a) | ||||||||||||||
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Restaurant sales | $ | 285,235 | $ | 238,870 | $ | 804,565 | $ | 702,757 | |||||||
Costs and expenses: | |||||||||||||||
Cost of sales | 81,850 | 63,844 | 224,810 | 184,981 | |||||||||||
Restaurant wages and related expenses | 91,540 | 75,678 | 260,559 | 221,306 | |||||||||||
Restaurant rent expense | 19,574 | 16,081 | 56,063 | 48,077 | |||||||||||
Other restaurant operating expenses | 42,884 | 37,606 | 123,989 | 110,611 | |||||||||||
Advertising expense | 11,693 | 10,857 | 33,025 | 30,755 | |||||||||||
General and administrative expenses (b) (c) | 14,699 | 13,000 | 44,686 | 40,561 | |||||||||||
Depreciation and amortization | 13,655 | 12,070 | 40,172 | 34,613 | |||||||||||
Impairment and other lease charges | 1,039 | 685 | 2,002 | 1,193 | |||||||||||
Other expense (income), net | (383 | ) | — | (354 | ) | 1,035 | |||||||||
Total costs and expenses | 276,551 | 229,821 | 784,952 | 673,132 | |||||||||||
Income from operations | 8,684 | 9,049 | 19,613 | 29,625 | |||||||||||
Interest expense | 5,937 | 4,560 | 15,767 | 13,615 | |||||||||||
Income before income taxes | 2,747 | 4,489 | 3,846 | 16,010 | |||||||||||
Provision (benefit) for income taxes | (48 | ) | — | 608 | — | ||||||||||
Net income | $ | 2,795 | $ | 4,489 | $ | 3,238 | $ | 16,010 | |||||||
Basic and diluted net income per share (d)(e) | $ | 0.06 | $ | 0.10 | $ | 0.07 | $ | 0.35 | |||||||
Basic weighted average common shares outstanding | 35,432 | 35,237 | 35,410 | 35,152 | |||||||||||
Diluted weighted average common shares outstanding | 44,938 | 44,856 | 44,966 | 44,892 |
(a) |
The Company uses a 52 or 53 week fiscal year that ends on the
Sunday closest to |
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(b) |
General and administrative expenses include acquisition costs of
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(c) |
General and administrative expenses include stock-based
compensation expense of |
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(d) |
Basic net income per share was computed excluding income attributable to preferred stock and non-vested restricted shares unless the effect would have been anti-dilutive for the periods presented. |
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(e) |
Diluted net income 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. |
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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 (a) | Nine Months Ended (a) | |||||||||||||||||||
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Restaurant Sales: (a) | ||||||||||||||||||||
Legacy restaurants | $ | 225,587 | $ | 212,880 | $ | 653,910 | $ | 634,432 | ||||||||||||
Acquired restaurants | 59,648 | 25,990 | 150,655 | 68,325 | ||||||||||||||||
Total restaurant sales | $ | 285,235 | $ | 238,870 | $ | 804,565 | $ | 702,757 | ||||||||||||
Change in Comparable Restaurant Sales (b) | 7.5 | % | 0.0 | % | 3.9 | % | 2.0 | % | ||||||||||||
Average Weekly Sales per Restaurant: (c) | ||||||||||||||||||||
Legacy restaurants | $ | 27,790 | $ | 25,549 | $ | 26,535 | $ | 25,307 | ||||||||||||
Acquired restaurants | 27,449 | 25,431 | 25,782 | 25,416 | ||||||||||||||||
Restaurant-Level EBITDA: (d) | ||||||||||||||||||||
Legacy restaurants | $ | 30,477 | $ | 31,315 | $ | 88,779 | $ | 97,372 | ||||||||||||
Acquired restaurants | 7,217 | 3,489 | 17,340 | 9,655 | ||||||||||||||||
Total Restaurant-Level EBITDA | $ | 37,694 | $ | 34,804 | $ | 106,119 | $ | 107,027 | ||||||||||||
Restaurant-Level EBITDA margin: (d) | ||||||||||||||||||||
Legacy restaurants | 13.5 | % | 14.7 | % | 13.6 | % | 15.3 | % | ||||||||||||
Acquired restaurants | 12.1 | % | 13.4 | % | 11.5 | % | 14.1 | % | ||||||||||||
All restaurants | 13.2 | % | 14.6 | % | 13.2 | % | 15.2 | % | ||||||||||||
Adjusted EBITDA (d) | $ | 24,220 | $ | 22,713 | $ | 65,581 | $ | 69,093 | ||||||||||||
Adjusted EBITDA margin (d) | 8.5 | % | 9.5 | % | 8.2 | % | 9.8 | % | ||||||||||||
Adjusted net income (d) | $ | 3,513 | $ | 5,661 | $ | 5,276 | $ | 15,837 | ||||||||||||
Adjusted diluted net income per share (d) | $ | 0.08 | $ | 0.13 | $ | 0.12 | $ | 0.35 | ||||||||||||
Number of Restaurants: | ||||||||||||||||||||
Restaurants at beginning of period | 799 | 723 | 753 | 705 | ||||||||||||||||
New restaurants | — | 1 | 2 | 3 | ||||||||||||||||
Restaurants acquired | — | 11 | 60 | 29 | ||||||||||||||||
Restaurants closed | (1 | ) | (1 | ) | (17 | ) | (3 | ) | ||||||||||||
Restaurants at end of period | 798 | 734 | 798 | 734 | ||||||||||||||||
At |
At |
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Long-term debt (e) |
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Cash |
43,875 |
2,002 |
(a) |
For 2017 we have modified our groupings of restaurants for reporting and analysis purposes. Acquired restaurants represent the 171 restaurants acquired in 17 acquisitions from 2015 through 2017. Legacy restaurants represent all other restaurants including restaurants acquired before 2015. |
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(b) |
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 39-week period. |
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(c) |
Average weekly sales per restaurant are derived by dividing restaurant sales for the comparable 13-week or 39-week period by the average number of restaurants operating during such period. |
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(d) |
EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Restaurant-Level EBITDA, Restaurant-Level EBITDA margin and Adjusted net income 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 to EBITDA, Adjusted EBITDA and Adjusted net income, and to the Company's reconciliation of income 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 for the respective group of restaurants. Adjusted diluted net income per share is calculated based on Adjusted net income and reflects the dilutive impact of shares, where applicable, based on Adjusted net income. |
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(e) |
Long-term debt (including current portion and excluding deferred
financing costs) at |
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Reconciliation of Non-GAAP Measures |
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(In thousands, except per share amounts) |
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(unaudited) | (unaudited) | |||||||||||||||
Three Months Ended (a) | Nine Months Ended (a) | |||||||||||||||
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Reconciliation of EBITDA and Adjusted EBITDA: (a) | ||||||||||||||||
Net income | $ | 2,795 | $ | 4,489 | $ | 3,238 | $ | 16,010 | ||||||||
Benefit for income taxes | (48 | ) | — | 608 | — | |||||||||||
Interest expense | 5,937 | 4,560 | 15,767 | 13,615 | ||||||||||||
Depreciation and amortization | 13,655 | 12,070 | 40,172 | 34,613 | ||||||||||||
EBITDA | 22,339 | 21,119 | 59,785 | 64,238 | ||||||||||||
Impairment and other lease charges | 1,039 | 685 | 2,002 | 1,193 | ||||||||||||
Acquisition costs (b) | 502 | 453 | 1,668 | 1,091 | ||||||||||||
Gain on insurance proceeds from fire and partial condemnation (c) | (383 | ) | — | (383 | ) | (906 | ) | |||||||||
Litigation settlement (d) | — | — | — | 1,850 | ||||||||||||
Stock-based compensation expense | 723 | 456 | 2,509 | 1,627 | ||||||||||||
Adjusted EBITDA | $ | 24,220 | $ | 22,713 | $ | 65,581 | $ | 69,093 | ||||||||
Reconciliation of Restaurant-Level EBITDA: (a) | ||||||||||||||||
Income from operations | $ | 8,684 | $ | 9,049 | $ | 19,613 | $ | 29,625 | ||||||||
Add: | ||||||||||||||||
General and administrative expenses | 14,699 | 13,000 | 44,686 | 40,561 | ||||||||||||
Depreciation and amortization | 13,655 | 12,070 | 40,172 | 34,613 | ||||||||||||
Impairment and other lease charges | 1,039 | 685 | 2,002 | 1,193 | ||||||||||||
Other expense (income), net | (383 | ) | — | (354 | ) | 1,035 | ||||||||||
Restaurant-Level EBITDA | $ | 37,694 | $ | 34,804 | $ | 106,119 | $ | 107,027 | ||||||||
Reconciliation of Adjusted net income: (a) | ||||||||||||||||
Net income | $ | 2,795 | $ | 4,489 | $ | 3,238 | $ | 16,010 | ||||||||
Add: | ||||||||||||||||
Impairment and other lease charges | 1,039 | 685 | 2,002 | 1,193 | ||||||||||||
Gain on insurance proceeds from fire and partial condemnation (c) | (383 | ) | — | (383 | ) | (906 | ) | |||||||||
Litigation settlement (d) | — | — | — | 1,850 | ||||||||||||
Acquisition costs (b) | 502 | 453 | 1,668 | 1,091 | ||||||||||||
Income tax effect on above adjustments (e) | (440 | ) | (432 | ) | (1,249 | ) | (1,226 | ) | ||||||||
Benefit from deferred income tax assets (f) | — | 466 | — | (2,175 | ) | |||||||||||
Adjusted net income | $ | 3,513 | $ | 5,661 | $ | 5,276 | $ | 15,837 | ||||||||
Adjusted diluted net income per share | $ | 0.08 | $ | 0.13 | $ | 0.12 | $ | 0.35 |
(a) |
Within our press release, we make reference to EBITDA, Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income which are non-GAAP financial measures. EBITDA represents net income before benefit for income taxes, interest expense and depreciation and amortization. Adjusted EBITDA represents EBITDA as adjusted to exclude impairment and other lease charges, acquisition costs, stock-based compensation expense and other non-recurring income or expense. Restaurant-Level EBITDA represents income from operations as adjusted to exclude general and administrative expenses, depreciation and amortization, impairment and other lease charges and other income. Adjusted net income represents net income as adjusted to exclude impairment and other lease charges, acquisition costs and other non-recurring income or expense. |
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We are presenting Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income because we believe that they provide a more meaningful comparison than EBITDA and net income 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 and other income, all of which are non-recurring at the restaurant level. Management believes that Adjusted EBITDA, Restaurant-Level EBITDA and Adjusted net income, 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 are not measures of financial performance or liquidity under GAAP and, accordingly, should not be considered as alternatives to net income, income 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 and EBITDA, Adjusted EBITDA and Adjusted net income and between income from operations and Restaurant-Level EBITDA. | ||
(b) |
Acquisition costs for the periods presented include legal and professional fees incurred in connection with restaurant acquisitions and in 2017 include certain payroll and other costs associated with the wind-down of our most recent acquisition's corporate headquarters, which were included in general and administrative expense. |
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(c) |
Other expense (income) for the three and nine months ended |
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(d) |
Other expense, net for the nine months ended |
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(e) |
The income tax effect related to the adjustments for impairment and other lease charges, acquisition costs and gain on partial condemnation during the periods presented was calculated using an effective income tax rate of 38%. |
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(f) |
Prior to the fourth quarter of 2016, the Company recognized a
valuation allowance on all of its net deferred income tax assets.
This valuation allowance was reversed in the fourth quarter of
2016. For comparability, when presenting Adjusted net income, the
benefit that would have been realized from deferred income tax
assets during the three and nine months ended |
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Investor Relations:
800-348-1074,
ext. 3333
investorrelations@carrols.com
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