Carrols' Q2 Loss Widens, Guides Down - Analyst Blog

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Carrols Restaurant Group, Inc. ( TAST ) 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 quarter.

Carrols' restaurant sales increased 42.1% year over year to $173.5 million, aided by the company's acquired Burger King Worldwide, Inc. ( BKW ) restaurants in the second quarter of 2012. However, the quarterly revenues lagged the Zacks Consensus Estimate of $176 million by 1.4%.

Quarter Highlights

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.

Store update

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 2013.

Outlook

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 2%-4%.

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.

Our Take

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 . ( YUM ) and Buffalo Wild Wings Inc. ( BWLD ). Both of them carry a Zacks Rank #2 (Buy).



BUFFALO WLD WNG (BWLD): Free Stock Analysis Report

CARROLS RESTRNT (TAST): Free Stock Analysis Report

YUM! BRANDS INC (YUM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BWLD , TAST , YUM

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