Carrols Restaurant Group Falls Short on Higher Costs

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Carrols Restaurant Group, Inc. (NASDAQ: TAST) announced second-quarter 2017 results on Tuesday morning, showcasing big improvements in comparable-restaurant sales and the fruits of acquisitions over the past year.

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But with profits under pressure, shares of the country's largest Burger King franchisee fell around 4.7% when all was said and done today. Let's take a deeper look at what Carrols Restaurant Group accomplished over the past few months, as well as what investors can expect from the company going forward.

Carrols Restaurant Group results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Restaurant sales

$279.5 million

$241.4 million

15.8%

GAAP net income

$6.0 million

$9.4 million

(36.2%)

GAAP earnings per share

$0.13

$0.21

(38.1%)

What happened with Carrols Restaurant Group this quarter

  • Sales growth was driven by Carrols' acquisition of 104 restaurants over the past year, as well as a 4.6% increase in comparable-restaurant sales.
  • Comparable sales growth was driven by a combination of demand for premium products, value offerings, and limited-time promotions.
  • On an adjusted (non-GAAP) basis, which excludes items like acquisition expenses, Carrols' net income was $6.6 million, or $0.14 per share, down from $8 million, or $0.18 per share in the same year-ago period.
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) declined 1.4% year over year to $27.5 million.
  • Profitability was impacted by higher wage rates, higher beef costs, and higher levels of promotional discounts.
  • For perspective -- and though we don't lend much credence to Wall Street's expectations -- consensus estimates predicted adjusted earnings of $0.20 per share on lower revenue of $275.5 million.
  • In June, Carrols closed on a $75 million add-on offering of 8% senior secured lien notes due 2022, providing flexibility for future strategic restaurant acquisitions.

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What management had to say

Carrols Restaurant Group CEO Daniel Accordino elaborated:

We believe 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. 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.

Looking forward 

More specifically, Carrols now expects total restaurant sales in 2017 of $1.05 billion to $1.07 billion (up from $1.03 billion to $1.06 billion previously), assuming 2% to 3% growth in comparable-restaurant sales. Carrols also reiterated its outlook for 2017 adjusted EBITDA of $90 million to $95 million.

All things considered, this was a decent quarter despite headwinds holding back Carrols' bottom line. If Carrols can sustain its sales momentum in today's difficult restaurant environment, however, it should be nicely poised to emerge stronger when that environment eventually takes a turn for the better.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Carrols Restaurant Group. The Motley Fool has a disclosure policy.