Carrols Restaurant Group, Inc. (
recently reported third quarter 2012 adjusted loss per share of
10 cents, wider than the Zacks Consensus Estimate of loss of 3
cents per share. Dismal performance of the 278 restaurants
acquired from Burger King on May 30, 2012, coupled with
integration costs affected the results.
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However, on GAAP basis, the company reported a loss of 29 cents,
which includes after-tax charges of 14 cents per share related to
integration costs and legal expenses as well as a tax expense
charge of 6 cents for a valuation allowance against certain
deferred tax assets, compared with earnings of 2 cents in the
Restaurant sales surged 87.1% year over year to $169.5 million,
aided by the acquired restaurants. However, total revenue lagged
the Zacks Consensus Estimate of $177 million.
Comparable restaurant sales at legacy restaurants jumped 6.2%,
aided by increased traffic of 3.6% and average check of 2.6%, as
well as a price increase benefit of 1.9%. This marks the fifth
consecutive quarter of positive comps.
In the reported quarter, cost of sales grew 240 bps to 32.1%,
attributed to higher commodity costs and discounting. General and
administrative expenses spiked 49.5% year over year to $9.3
million including the acquisition expenses related to Burger King
Restaurants, increased field costs for the acquired restaurants
and legal charges related to litigation. As a percentage of
sales, general and administrative expenses spiked 20 bps to 5.5%.
Adjusted EBITDA, slipped 15.5% to $7.1 million in the quarter
compared to $8.4 million in the prior-year, and adjusted EBITDA
margin slipped 500 basis points (bps) to 4.2%.The drop in EBITDA
margin was attributed to poor performance of the acquired
restaurants and higher general and administrative expenses,
partially offset by the favorable performance of legacy
During the quarter, two restaurants were closed. As of September
30, 2012, Carrols owned and operated 572 Burger King Units versus
302 in the prior-year quarter.
For full year 2012, based on the strength in its legacy business,
management raised its same-store sales outlook for the legacy
restaurants to 6%-7% from the prior range of 4%-6%. The
company expects commodity expenses to continue increasing in the
range of 3-4%. Capital expenditure is anticipated to be in the
range of $38 million to $42 million, which includes $24-$26
million for remodeling more than 80 restaurants.
Despite the robust performance of the company's legacy business,
the acquisition of the 280 restaurants has weakened Carrols'
position. However, over time, Carrols, the largest franchisee of
Burger King, anticipates performance at acquired restaurants to
improve aided by better operations and effective cost management.
To drive sales, the company is also aggressively pursuing the
refurbishment of its restaurants and targets to remodel 80
restaurants in 2012.
However, fierce discounting wars among restaurant operators,
lower consumer confidence and higher input costs remain areas of
Carrols, which competes with
Ruby Tuesday, Inc. (
, currently retains a Zacks #3 Rank, which translates into a
short-term 'Hold' rating. We are maintaining our long-term
'Outperform' recommendation on the stock.