TAST - Earnings call transcript Q1 2019 | Carrols Restaurant Group Inc.

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Operator

Good morning. Welcome to the Carrols Restaurant Group First Quarter 2019 Earnings Conference Call. At this time, all participants are in listen-only mode.

Following the presentation, we will conduct a question and answer session and instructions will be given at that time. I'd like to remind everyone that this call is being recorded today, Wednesday, May 8, 2019, at 8:30 AM Eastern time, and will be available for replay. the to turn Financial Flanders, now Officer. will conference Paul over Chief I sir. go Please ahead,

Paul Flanders

website By morning. earnings morning, on Investor earlier our should announcement this under our Relations available section. is Good which you released now have www.carrols.com, the at access to

will our comments discussion and regarding These intentions, and forward-looking we our that begin to statements everyone may should not them. reliance on plans. guarantees undue performance, I strategies, therefore, remarks, Before statements, of are like which would remind placed our include of future not consist guidance we

We SEC results. also that especially refer could you more risks to our filings with the and for the impact business our details,

Principles. call, in prepared Generally can additional to a of today's Restaurant that, that is this results will Accordino. in earnings with with our isolation Accepted accordance measures Group, substitute turn in should for call reconciliation now The Accounting non-GAAP measures we be GAAP of to Carrols be available and not CEO will the or presentation During information With believe as considered comparable discuss release. evaluating we Dan A certain useful I our Chairman performance. over

Dan Accordino

Thanks, morning, good everyone. Paul, and

quarter, our a tax-free restaurants transaction Along executing for acquisition King Cambridge states. of First footprint, ROFR King King Corporation. summarize, under are we remodeling Before transaction strategy, provide and Cambridge territory To let by our the excited and continue believe start Tennessee. well Burger preapproved extends Burger in expanded ten avenues with Refusal XX states, for Mississippi Popeyes significantly merger XXX an will Louisiana, XX Burger and and restaurant Holdings. to across us diversified with This agreement the acquired Right Popeyes positions operate area King more several We our ROFR restaurants Franchise or we XX we we that We with expansion first and Burger Arkansas, and discussing a on April acquisition X,XXX how now Southeastern believe additional and transformational be and XXX to new agreement us. for saying the growth. expanded the future restaurants this closed are of development and a have me to deal XX, at prove to

disclosed, previously our the we seven where in actively relinquished are states expanding. As not rights ROFR we

We over the six King years also acquired Burger Burger upgrade Restaurants to more number be image. the to agreed and restaurants, remodel to XXX develop our of to King new a existing or restaurants tomorrow of next

our we Carrols, a to as assimilate over along at with integrate and are is growth Popeyes, Popeyes merger exciting complementary and potential these Popeyes development as we there the an agreement financial a improve sales and the in We believe next us Kentucky, restaurants approximately Cambridge overall the time plans our next for we developing as years. acquisitions the ROFR over XX This Cambridge's new in a is have six in platform now Tennessee through to well we agreement systems performance. for well assume with that Lastly, operating which development several includes good restaurants months. for

also that forward. can we plan expansion We Cambridge's support to overhead synergies development as to we our and are achieve leverage capabilities confident move

our With Matt Finally, to also the that quarterly Perelman Directors. Board we Carol's welcome, like of let's would results. said, Alex to officially and to Sloane turn

quarter, across a offerings our Whopper Sandwich new popular which overall prior featuring XXX the Chicken Sandwich. Big from deal, comparable positive King included two Spicy Box and all top-line offerings the as last offerings & traffic increase King increase $XXX.X Match our that value of our the were Nuggets Note $X X.X% point. than a deal basis by by from Spicy deal Chicken Nuggets included Other $X we dollar grew $X XL Pound rolled and year dayparts. sales. King a Crispy Crispy sales several also system. despite Spicy million and comparable premium King comparison was restaurant supported delivered followed $X.XX, from The Crispy supported $X.XX performed in sales the XX-piece to well Chicken we the at toughest the price our for transition over launch the X.X%, our about in of The we and King early X.X% Nuggets the For of up Quarter impactful year, such Comparable Burger Mix quarter, as first the X.X% meal Sandwiches. platform. lapped U.S. and the in Chicken, X.X% restaurant deal, points gain The better Double our the

the to to deals offerings Lastly, daypart products balanced platform March, value-oriented day Café value. to was BK to premium by launched balanced core customers. barbell designed This forward. breakfast on King to and continues focus late provide a foundation and Burger quality, with driving menu strategy approach provide new with and in every continues going sales resonate a

promotional accelerated half discussed, of XXXX. activity the the levels past during we've over increasingly XX second discounting and reaccelerated as However, previously months, and

lower high historical taper fourth quarter the discounts XXXX. sequentially resulting first by began discounting quarter still midway in standards, While to this of from off finally through modestly the

that in points we sales first XXX The and prior from first Restaurant-level reflective quarters significantly past to year to of the $XX.X elevated which from the quarter, Margins margin still last have point from compared pressures increase in and EBITDA points obviously discounts, EBITDA declined to higher our due us of were basis, in quarter the the we've promotional effect market. quarter. year our over the of was some basis first experienced. further million been expect million the labor couple labor XXX in of and cost year margins pressure levels basis the due lower restaurant-level leads $XX.X prior tightness XX to solely in discounting by quarter, quarter restaurants These of deleveraging a to profitability. decreased core into from however, basis as year subside persistent to on labor move last almost the first to than cost under the on higher impact year-over-year compared the ongoing the year. quarter We

we both and average leveraging while opportunistically achieving of better have effectively we to However, performance us that these we track merger we future runway value overall development as growth strategy, longer-term and agreements trends, and operations we number restaurants We can we many of financial that new with Popeyes positions This grow King the restaurants. operators. than Cambridge a expansion acquired brands. for opportunities acquisition The believe than Cambridge recent other which sales leverage and with enable improving record better us including believe execute a long provide for at a alternatives our the expand. us Burger should shareholder and

excited We this into phase integrate and have and recent annual are the us now financial quarter our greater updated we our of new ahead first most detail guidance. as year this growth. we much acquisition work go with review as launch of will Paul

Paul Flanders

Thanks, Dan.

pay our $XXX the $XXX to we the the Term led all of way. proceeds facility new existing a financing C will fully diluted indebtedness Cambridge we company. We There a and from secured Before the were interest the used from revolving forward. B funds X.XX stock, Wells a million various facility first undrawn of deal structure. the I hold fees used the strategy. the stock giving facility. execute convertible Annual will merger me be into preferred Concurrent vote of Loan discuss with cash Cambridge's at King common of by considerably of to our to million the Cambridge all included consideration stockholders moving Cambridge XX.X% that merger, And also execution a approximately of our and into no the after able equity X% cost related capital both changes $XXX effect initiatives transaction. our X%, million the entered expanding senior with to conversion the consideration In Carrols’ of and interest be refinance a preferred our pay the of pleased end, of expenses the conversion our five-year subsidize Cambridge's subject and Cambridge if very credit who they pricing helped The convertible stock, as tightening were notes, was to were basis and recent of quarter, next along of and PIK the be to an shares stock. to Carrols’ The – touch convert Fargo, approximately the refinanced related stock, common to indebtedness reduce some and part to Total while convertible automatically The growth to let credit into below included shares of capital million shares to million Cambridge conversion stock our X% XX% on will financing. preferred approximate would X.X will Meeting to a Series to available growth as X% in conversion. by fund such Burger the common to approval equity while Corporation our

and EBITDA Turning by changes, sales decreased of from restaurant $XX.X sales of the average due X.X%, $XXX.X EBITDA prior to million. X.X% decreased and the average and XXX increase decreased and traffic labor. compared to to million quarter Adjusted offset basis EBITDA increased The increase $XX.X and first Adjusted first check restaurant-level year compared basis margin quarter. sales menu points, points to to million quarter margins first X.X% Comparable X.X% period now Restaurant mix discounting reflected a the XXXX. a consisting cost from year. to the pricing million, X.X% in in $XX.X of increased decreased mostly customer million, in $XX.X the deleveraging to XXX check. of EBITDA over restaurant-level last higher

last of point higher about Beef As a of pound year. sales, pound compared discounts XXX a of per alone quarter promotions increase restaurant sales basis sales, the $X.XX quarter cost increased to from The XXX cost. of in of $X.XX a the and in reflecting the in a to impact from and X% resulted modestly first and decreased basis higher XXXX. commodity higher cost percentage first discounts points, was

in As X.X% expense hourly January which To prior the put and XXXX year we've to start of from our discounting by due to in increased basis impact the seen to a labor points. increase improved impact points basis this off, rate. Restaurant quarter the to XXX XX.X%, compared March Dan wage perspective, very is approximately XX to mentioned, it XXX taper encouraging.

other nine to administrative were at sales, and flat by of operating X.X%, percentage slightly general a expenses costs. XX.X% As excluding acquisition and expenses decreased restaurant basis points

included loss $XX.X $X.X the of million a loss million net per impairment or diluted share, lease year and of the per period. million The net prior in million net share charges of to or $X.X $X.XX was quarter $X.XX acquisition $X.X first in Our XXXX loss diluted in other and compared expenses.

restaurant We Burger also cash income, a million with about a related other new XXXX. for permitted impacted restaurants related $X.X King to dating other Corporation has in primarily franchisees Carrols back XX to million development negatively had to $X.X settlement

net $X.X For impairment and included year, million $X.X of lease the acquisition income other expenses. charges same in million period last and

cash Excluding of our these end to loss net provided million. GAAP were $X.XX adjusted outlook. morning. share, do or of to non-GAAP items, let some updates million with in per million loss diluted first Total to total diluted the adjusted is With per our were guidance go At adjusted provide measure compared under tables capital $X.X here loss the of the that, reconciliation was all detailed was in loss this year balances release. $XX.X period. $X.XX or intend million about $X.X debt the I not prior A expenditures million today's supplemental net our $XXX share net to in net $XX.X the and me through our quarter, the outstanding to quarter. an

for you to refer specific release information. I press So more this morning's

for this of recently would completed updated eight we full any newly Cambridge, At acquired guidance guidance the with year include restaurants merger XXXX our months. point, be approximately the included results With our excludes have our that to adjusted generates in may approximately of other of over year, million On basis, adjusted Cambridge sales that $XXX EBITDA. its we acquisitions effect the restaurant-level in past an pro forma million potential and the $XX complete. annualized acquisitions

adjusted of year. the functions to million $XX contribution million, $XX our balance support Cambridge's be integration of corporate expect to to following their this over We EBITDA

about in In terms increases due of on unexpected breakout part ground China. of experienced impact recently brought costs, in the prices cost, beef input fever in to have the we protein by Hog

costs have our to originally the We current guidance higher the be than updated reflect anticipated. expectations, will commodity we likely

Cambridge's results $XXX to our reflect the addition We million XXXX. $XXX adjusted guidance in to have million raised EBITDA of to

the Popeyes of we and of of includes projects. to development new Cambridge's spending well anticipated estimates King's for the and Lastly, have updated King four our eight addition Burger Burger three as new XX to to which capital as development reflect remodeling the year, plans, our our restaurants balance

expenditure for Our before expected $XXX an total of also is landlord $XXX to these to out that to million. point will amounts million contribution million capital are estimated increase by $X I to King CapEx that and sale estimated a Burger the before $XX $XX of to of leasebacks units million million. concludes upgrade are That our remarks. prepared owned number be are

So with for go questions. ahead that, can line operator, and the we open

Operator

[Operator Brian Please go from Vaccaro, ahead, is instructions] first The James. question Raymond sir.

Brian Vaccaro

end. will you outlook And begin that be in soon curious rollout in Impossible the markets and a want anticipated out if rollout ask have test and there? any in my by I Louis, questions. Hey, national year? offered to after product brand comp in planning baked the year rollout this markets, guidance any King to thanks – benefits for have taking St. Burger when to successful I visibility Burger the morning good additional you I your think later start comp pretty with from to is the your am

Dan Accordino

Brian, of and that out Dan. not in we the to And in any we not rolled terms of product. no, baked this do relative rollout have to that going have is product is guidance visibility any be how

Brian Vaccaro

guess, you QX menu light gross the of detailed, the the outlook how starting of there. discounts down, XXXX? March the slightly in so in place on you and benefit comment during the But in And in about I versus raised are inflation outlook, that Okay. the you commodity coming around appreciate had I thinking you that margin one saw pricing change

Dan Accordino

This is Dan again.

be we We prices of prices, are wait X%. of their at the well, menu wanted looking June acquisition the so Cambridge portfolio. overall entire can strategy roughly evaluate closed will our in in price made adjustment – markets. until will on and currently that I my our That increase make adjustment the an I guess, as each to the across portfolio, be to in menu pricing

Brian Vaccaro

Okay. one the for units. And me, on acquired last then, just

of and million store-level million You an sales $XXX highlighted on in $XX basis. EBIDTA annual

savings $XX million? the in clarify that complete that margin of benefit to wanted leaseback you just sale after also does I reflect $XX sale And the Is million. So incremental the rent anticipated net and leasebacks? that

Paul Flanders

leasebacks on No. This is Paul. exclude doesn't we the The run number that LTM, might do. it is sale any based

completed recall, some am million Loan you the maybe upsized fact Term got about given right to indicated, we that we As that Cambridge now million. had do rushing would after not the $XX the of $XX of acquisition. I sale – we we've by we of really properties B the do leasebacks

the we're moment. off So that hold going at to on

this earlier So the units to are referred sale new primarily I we're leasebacks, building that some year.

million. in improvements In following that's to terms the that's P&L reflected assumptions net $XX not – of relative the the -- not no, the any acquisition,

Brian Vaccaro

you. All right. Thank

Operator

Hamblin, The Please & ahead. go Dougherty next question Company. is from Jeremy

Jeremy Hamblin

Thanks the for question. taking

the prices Let's beef Paul, with you thanks where there color for prices on First your costs say, wanted last are today? two swine on week from the the tracking impact delivery or fever. changes and per start in ground pound? seeing to beef the ground

Paul Flanders

Yes, whole as in quarter. the quarter the were we – the that first and averaged back-end said, of about $X.XX we I obviously increased about for

a $X.XX pound. about are beef on prices current Our

it's So been fair up several as you And a at can for see, weeks. amount it's here. jumped level now this

it I So which a think. stable be at level, to seems is that positive,

Jeremy Hamblin

pull on on or your any the seen But just the are think excited Obviously, might then, back And trends? as have discounting, terms some of current you you later about know quarter-to-date how products some you be the this people negative about, Okay. trends year. impact rollout your in what comp color I tracking?

Paul Flanders

month was prior about flat year the April X.X%. over our April basically the and The in was comparison of

than little So where about bit which the a about obviously, two year lower first in in first still were X.X%, – is the the were quarter. trend we we was where

Jeremy Hamblin

then, you to quarter? little that May, remainder compared improve to into the would the bit May Okay. translating as you expect easier of And see results

Paul Flanders

good month a was year. last May No.

I June comment I think that get when – may we to sure. for hold think your

Jeremy Hamblin

the to have the the might post-deal in cash – your Cambridge Coming deal where missed the kind after so Understood. of and I forth? change is this, but Okay. structure, refinancing where capital level and

Paul Flanders

deal, think closed probably we when Well, a cash and the I basis us there we that left. of was – million roughly between $XX Cambridge on combined

interest the the – after day also closing. due payment we We had the

funded essentially the closing. out So, that was of

we were – as the So, actually we obviously. speak process. We we cash building in were

Jeremy Hamblin

your embedded And guidance on aspect. here, the within just Okay. then, Cambridge

this $XX do on from year. assume in closer contributions forward, how that looking million of – about expect there to about in we of And that can like something thinking basis? looks Is an extrapolate million this restaurant-level contribution runrate XXXX start to it we $XX EBIDTA, with million So, any deal? $XX annualized terms from

Paul Flanders

Yes.

look think on think have that side because assumed at I point, part the and the when we've spend going of of G&A year provided Cambridge, for this any so good integrating functions corporate to synergies their –we really the incremental the forth. you rest not a we're at this guidance this I

year number – million we forward. probably and another going or anticipate $X the benefiting really that $X So isn't million synergy that's so this

deduced So about EBITDA. you a million I think, $XX

I think you are there. well

to going I think million, closer million. $XX that to be number is $XX

Jeremy Hamblin

for Okay. Thanks enough. the questions. Fair guys. taking Good luck

Operator

from is Partners. The sir. next Please Archambo, question ahead go Monarch Wayne

Wayne Archambo

Yes. Thank you. Good morning.

talked subsiding the remaining. about Just for discounting outlook, on you the the

middle that of to the is gives rest the year? of quarter. first What believe the in to discounting going tapering the the reason some subside saw You you a

Dan Accordino

it if their and discounting Dan. much quite was that of of then the the marketing I've part latter be the calendar seen XXXX year it into than will marketing is XXXX. and for for am certainly that as January of lower stays I This balance is, the confident calendar

Wayne Archambo

your have on you any that in Do industry, behind thoughts concrete is or that based experience just that? the

Dan Accordino

calendar, up Burger that’s King me. to – not the to Actually, marketing No. which take care,

Wayne Archambo

And Or in out cost itself side, the are on there cost that finding labor? Is are any a shortage you are labor any finding just labor the there? you seeing problem any problem? markets

Dan Accordino

relationship has markets have and Well, difficulty a that in is now. have you challenge And labor it some of the for the rate pay. direct certain attracting you labor that period that a been time to between

why system. our correctly, the plus of So is higher we which the XXX is staff our sales increase basis balance than restaurants points

pay order adequately restaurants. to what the we we to have in So staff pay

Wayne Archambo

Okay. Thank you.

Operator

have [Operator Will Please instructions] Slabaugh, Company. go We a from Stephens question ahead sir.

Will Slabaugh

Thanks Yes. guys.

think On a few however but past are that we that? want cycle, the us want to had sort Can Just XQ's you consider the of the activity maybe you for give about where level if when you years? to few will compare to follow-up rest think discounting you there. compare isn't over a that? discounting in of mean commentary, normal, promotional you that do might years and however or year then I to what this and normal of XQ? discounting whole, And And of sense past what you characterize you the

Paul Flanders

is point. escalate months know This XX – discounts, at you this to it continued was the over Paul. as Yes, have probably

if you as reference, discounting. gone well, think XXXX, sales, you was they about were to point sort the go if year, think which I up – from about quarter discounting of go of the mean, probably is back have the that than XX% point, It of if discounts the you fourth go were higher huge. of late our a up if I just back XXXX, was which of certainly a go in XXXX, this level to of when past started I you levels peak in – to put escalation just this reference, point

quarter QX down the in reverted and have sequentially and discounts come between QX. XXX basis about We have first points

it's the a just change, four sequentially, pretty months. in So, or have significant we three seen last

Will Slabaugh

initial color the then, Thanks. Popeye's the BK be you give could as well give pipeline if conversations helpful. both Popeye of any side I acquisition. about how well. That's as there wonder second in could you have and just gone as is and franchisees with question it. on us Got would update an the that helpful And if

Dan Accordino

Yeah. This is Dan.

of We close or that restaurants have franchisees have several going XX that I is right another known. opportunities flow AUV. now Baltimore deal very our May had as to terms we and existed the the both in deal, have on publicly have because XX discussions refinancing in seen high was with couple area Popeye's it deal Burger would a we're submit the And with it's King as XX past I years, of of and in because flow and that great both

we're brands. that realize there market buy flow the people deal significant So in both in and to a is

Will Slabaugh

Thank Great. you.

Operator

closing are turn would There this further questions comments. I time. over the at management no back like to floor to for

Paul Flanders

right. All

about – important nothing we thing Have But time and Bye. have have to look you day. a I think months. appreciate forward we updating that, your three We any today. in I good

Carrols Restaurant (TAST) 12 May 192019 Q1 Earnings call transcript