Carrols Restaurant Group, Inc.
) posted second-quarter 2013 adjusted loss of 9 cents per share
as compared with earnings of 5 cents in the comparable year-ago
quarter. The second quarter's loss was wider than the Zacks
Consensus Estimate of a loss of 4 cents per share. Shortfall in
adjusted earnings before interests, taxes, depreciation and
amortization (EBITDA) margin pressurized the earnings during the
Carrols' restaurant sales increased 42.1% year over year to
$173.5 million, aided by the company's acquired
Burger King Worldwide, Inc.
) restaurants in the second quarter of 2012. However, the
quarterly revenues lagged the Zacks Consensus Estimate of $176
million by 1.4%.
Carrols Restaurant, a franchisee of Burger King, earned
revenues from its legacy as well as franchised restaurants.
Revenues at legacy restaurants increased 0.7% to $95.3
million, gaining from positive comparable sales (comps) growth
and a 1.5% improvement in the average weekly sales. Comps at
legacy restaurants were up 1.4%, driven by a 1% rise in average
check and a 0.4% increase in traffic. Although the second
quarter's comps were down 740 basis points (bps) from the
year-ago quarter's comps of 8.8%, they were 40 bps higher than
the first quarter.
Revenues at acquired restaurants were $78.2 million,
significantly higher than the year-earlier quarter's sales of
$27.5 million. Average weekly sales at the acquired restaurants
were also up 0.7% year over year to nearly $22 million.
Carrols' adjusted EBITDA, climbed up 20.7% year over year to
$10.4 million, driven by higher EBITDA gain in the company's
legacy as well as acquired restaurants. However, with the
addition of the acquired restaurants, adjusted EBITDA margin were
down 110 bps to 6.0%. In the reported quarter, cost of sales
declined 130 bps to 29.8%, attributed to moderated commodity
costs, improved average guest check and positive sales mix.
During the quarter, five restaurants were closed. As of Jun
30, 2013, Carrols franchised and operated 566 Burger King Units.
The company has reimaged 71 restaurants during the first half of
2013, and also intends to remodel nearly 30-40 units in the rest
of the year. The company is planning to close 8-10 restaurants in
For 2013, the company has lowered its revenue and comps
guidance. Carrols now expects total sales to be between $660
million and $680 million, down from $670 million and $700
million. Moreover, management expects comps at legacy restaurant
to grow 1.5%-3.5%, lower than the previous estimates of
Carrols Restaurant expects commodity expenses to continue
increasing in the range of 1%-2%. However, it was lower than the
previous range of 2%-3%. The company has increased the higher end
of its capital expenditure guidance from $40 million to $45
million. Capital expenditure is now expected in the range of $45
million to $50 million, including $40 million for the restoration
of 100-110 restaurants in 2013.
Higher operating costs have hurt the company's earnings in the
past few quarters. A muted comps trend is also concerning. Apart
from this, fierce discounting wars among restaurant operators and
low consumer spending remain major headwinds.
However, on a positive note, Carrols anticipates performance
at acquired restaurants to improve gradually in the ensuing
quarters gaining from the innovative marketing and other
sales-driving initiatives undertaken by Burger King. We expect
this Zacks Rank #3 (Hold) company to continue to drive sales
through its remodeling program.
Some other players in the restaurant industry which look
attractive at the current level include
Yum! Brands Inc
Buffalo Wild Wings Inc.
). Both of them carry a Zacks Rank #2 (Buy).
BUFFALO WLD WNG (BWLD): Free Stock Analysis
CARROLS RESTRNT (TAST): Free Stock Analysis
YUM! BRANDS INC (YUM): Free Stock Analysis
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