TAST - Earnings call transcript Q2 2019 | Carrols Restaurant Group Inc.

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Operator

Welcome to the Carrols Restaurant Group Second Quarter 2019 Earnings Conference Call. [Operator instructions] I would now like to remind everyone that this conference is being recorded today, Thursday, August 8, 2019, at 8:30 a.m. Eastern Time, and will be available for replay.

I will now turn the conference over to Paul Flanders, Chief Financial Officer. Please go ahead, sir.

Paul Flanders

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

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

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

During in with today's presentation A we discuss or measures for substitute isolation The should in of useful be that GAAP is certain non-GAAP available information call, as release. believe with principles. a earnings can we accounting performance. prepared generally will accepted evaluating results reconciliation this considered our accordance comparable be in to our additional measures not

turn call to With that, Group, Carrols the Accordino. over and I our CEO Dan Restaurant of now will Chairman

Dan Accordino

good and Paul, morning, everyone. Thanks,

our the restaurants Our over period disappointing, year. of XXX by want directly second those of nearly address the and restaurant quarter and compared and $XXX.X morning. second-quarter last in Total XX% the to were second to this sales to grew XXX I due were results acquisition XXXX financial of million prior-year quarter restaurants since

last year, points. declining EBITDA comparable were margin the adjusted However, quarter flat with sales restaurant of $X.X to our basis adjusted million compared decreasing XXX over EBITDA and second

results. significant address the our more me Let affecting factors

by most comparable a and number First, flat challenged factors, were sales. from deleveraging profitability by our restaurant-level restaurant the significantly adjusted EBITDA of

restaurant-level the pressures lapped disappointing to as offset our of margin modest a from significant increase strong increased prevented the that some was a result sales restaurant we This quarter. and X% X.X% increasing a us cost we leverage prior-year very that comparable Our in experienced.

third of which southeast our relatively a for sales restaurants. in account experienced about we note, our softer markets, Of

We breakfast and in our day underperformance lunch also experienced parts.

the we past have from of expected, calls, we year mentioned as quarter prior second last as weigh levels while Secondly, the the And results. on of sequentially in to year. have over over on last quarters, of couple the impact continued the increased promotions higher discounting promotional our levels declined

by XX evidenced performance, less $X on our effective higher year-over-year driving impact million core were the second sales in basis EBITDA. in quarter. approximately As or the restaurant promotions these points a our was decrease margins of approximately levels restaurants promotional at sales The in

costs, quarter our X.X% including prices in by above year. the basis restaurant were margins core $X approximately XXX costs Increased restaurants. million costs at negatively Third, we beef from elevated impacted that over commodity or our second experienced of points last commodity

second a X.X% expect we by reflect that basis these points restaurant the we impacted Fourth, a which were achieve acquired. rate as our sales quarter. finally, Cambridge cost labor flat not we is from continued experienced rose yet we performance, average from our on sales deleveraged recently contribution complete. labor. results The once In integration in margin we in tandem to or comparable restaurants, just restaurants improvements with lower the profile do wage efficiencies pressures almost XX And

and time. these headwinds first-half addition of at our effect I'm by is the, that significantly same In it to clear impacted combined sorry, second-quarter were the occurring results the

our we for expectations result full a of year. these have near-term lowered the As pressures,

deliver we supportive are forward. world-class believe brands, to confident reflect model. to going a value With investors that positioned am I that and attractive franchisor shift our not the experienced the our do However, across management of we team multiple an growth growth two partner, creation these and fundamentals in opportunities business strong results geographies,

significantly attractive build completed a the expands of enhances Cambridge in long-term the several runway during Cambridge, this number acquisition April, financial transaction a To second will business it potential some results. our brand acquisition increasing our the This second southern time expanding end, of and closed diversity a added our continue in restaurants years Franchise through us across for and we to benefit to which see of restaurants scale. with number our XX late of beyond. of to quarter, portfolio value we to new flow and transactions, growth business across adding In position markets, Holdings, that the XXX Popeyes that key and integration early next opportunities is King our to states. growth which strong provides by long our take our Burger It

long-term However, to Cambridge and experience implement brands. and financial two finalized systems. acquisitions and expands improve the across ROFR states. ability Mississippi and in track conjunction also and performance development sales as agreement, our operating growth these unit assigns we Tennessee. acquired or transaction, we record This we transaction our we In acquire XXX refusal, great agreement them with and can value platform confident right additional XX two into which restaurants Cambridge us financial an are overall our first development creation and over us ROFR agreement This that territory with a based along assimilate provides extends Burger restaurants through and our time development agreement with the Burger on to substantial of the runway Popeyes of ROFR, new King, state with new and King's for a Arkansas, our Louisiana, both

a covenant-light opportune King we support operators most to We to and completed and we our both forward. flexibility of quarter enhanced this believe in an better the that refinancing Lastly, and going liquidity is execution time these that additional with a positioned within opportunities and attractive structure the the than acquisitions second systems. pursue are us Popeyes growth significantly Burger million $XXX that capital provides

enable believe acquisition while targets. an build Cambridge foundation currently acquisition even executing number are the We We that forward our financial of we we us going growth performance will our to overall to restaurants, confident opportunistically stronger can and are strategy. that evaluating acquire, strategy this drive improve restaurants including a at that

the provides of to favor Our and company fell us have model, lie second reflects with strategy for our growth, strong is opportunistically investments potential we the and million for our while opportunities and which repurchase business new returns board's conclude, continued confidence investors. the as our long-term added allocation strategy our authorization acquisitions will our restaurant capital share our reinvest ahead growth, Today's that enhance in $XX in namely as EBITDA value-creation our time. and announcement generate that attractive we the continue flexibility to brands over of confidence our quarter, growth short in new To goals ever.

the a Impossible which We being many product also exciting we week guests this have very new King will to Burger attract sales. restaurants at Whopper, new our and incremental launched believe drive with

more that marketing help performance Whopper are of the through the the promotions restaurant-level and effective overall, And generate including confident us stronger sales year. remainder calendar, the Impossible we will and better margins

go detail and with now financial updated review greater into will our annual second-quarter Paul guidance.

Paul Flanders

Thanks, Dan.

in little I by made drill As a I has disappointed think in which down we our will more second. a second-quarter results, Dan bit clear, were

we've to believe We are operate challenges. positioned However, longer that near-term to effective at to and value as strong beyond positive we look be build ways there's for about two brands employ alternatives us term. how well-positioned attractive growth the capital with for these much company for we investors

acquired the for Comparable in a restaurants restaurants Burger prior-year increased other from customer one $XXX.X restaurant in traffic. sales the from $XX.X Restaurant for decrease which and modest year, on operated increase over to with X.X%, King the and period XX.X% check million, along sales average quarter core Cambridge million additional consisting XX acquisition, past second in than less over XX, closed year. sales sales which including excludes Cambridge the increased April of a X.X% X.X% our restaurants, the

promotions reflected quarter for the Our offset first not menu of Cambridge average be base months. our XXXX. increase sales in higher check mix comparable compared XX and pricing, restaurant to will the X.X% second restaurants changes The included by

performed the quarter year, sales. from with EBITDA the $X to To EBITDA comparable the and Directionally, mid-singledigit reiterate that number us the Kings better said, resulted will that the we've in in experienced second the positive moderately million million. key from however, of Burger I quarter restaurant million negative and $XX a in cost some $XX.X flat while sales challenged of million million $XX.X Adjusted our to what say cost Popeyes expenses. in Dan for restaurant-level input quarter, to Cambridge quarter increases last restaurants $XX.X in decreased were offset across deleveraging the declined

of promotional to effective compared activity the XXXX, driving it simply was While second sales. sufficiently higher not in quarter was

percentage beef as pound period, compared was reflecting basis increased at core year. last as Restaurant points a sales to a X.X% second X.X% than wage of little the in the commodity labor costs. a a quarter hourly Carrols the prior-year rate of prior higher in lower a the $X.XX of Ground levels points quarter XXX per which which restaurant to and year. expense Restaurants, increase included pound, promotional know the and our from higher prior-year was sales had Cost increased $X.XX sales increased XX I basis compared percentage

profile our were lower given relatively their the the results. addition, and restaurants period included the EBITDA by margin recently In low in of acquired impacted short Cambridge contribution, we just

that and our improvement yet our operations in these forward. not very We margin restaurants, efficiencies that move in sales, the make will we are we confident as still are and early integration of results reflect do we

was quarter the due to prior-year million compared the financing diluted million Adjusted second net diluted with adjusted income a share $XX debt share, extinguishment $X.X loss per the loss in $X.XX the in million in net $X.XX in in $X.X year. to net of costs or income second per quarter. $X.XX refinancing prior XXXX net write-off The million deferred or compared the Our of share, of share our or of million was net loss to previously on diluted conjunction $X.X or diluted per income per of included quarter. $X.XX $X.X

$X.X second on of the integration debt are income, Total $XX.X costs capital acquisition end the quarter A release. 'XX was six for outstanding in debt arriving $XXX.X and balances tables this million months. in total million. in were accompanying items first of second At the loss $XX.X and and million million the our the quarter, were cash and other the of adjusted at morning's extinguishment, summary net expenditures adjustments including detailed

XXXX, of of for let for balance our turn view the outlook our and Now our me which updated year. date we performance have to to the projections in

I'll is here Our in so release, to updated this comments my detailed more relevant limit guidance the morning's changes. try to

Our but our changed we've comparable X% guidance sales estimates year. not to the somewhat X% significantly, tightened to overall for has sales restaurant

the sales through the to better week this King confident launch Whopper improved the at We are margins the increasingly remainder generate of Burger and Impossible calendar, marketing year. including performance

reflects be our half cost commodity expectation that on year. costs the will in Our anticipated beef due commodity than to the outlook higher inflation higher second of

costs a year, now to EBITDA to our million $XX Commodity versus X% to to for X%, guidance million eight is acquisition X% $XX months. X% costs. to the with costs $XXX X% overall million $XXX from are beef increase up for approximately Adjusted be expected increase expected in the now prior X% to million of to including Cambridge

the the we Our either or the basis, our will from as to integration, revised $XXX $X another $X does guidance. are guidance a these at full-year On operating Baltimore EBITDA rate for improvements likely not run of EBITDA our million forward add our include million year of approximately before the acquisitions. making any with full-year million contribution midpoint a move that Cambridge

go the that and lines. And remarks. And our let's that, ahead with operator, concludes prepared open

Operator

Instructions] our first question, hear we'll from SunTrust. [Operator with Bartlett And Jake

Jake Bartlett

your X.X% Great. to wondering, about I'm Thanks. taking question. sales half the implies year. a for same-store Paul, for of for year the X.X% the the guidance back Thanks

a out should range, Can And context, or quarter. you far help that also, figuring the range? in some your how high whether maybe trended of the lower give wide have be in toward end sales us of in so end that we third kind the

Paul Flanders

Yes.

guidance. the back ease the half be think the half the to the in the our obviously implies up where the guidance, year. think I we're we back I year thinking of the look as should And midpoint of bit comparisons a first little half compared around in at

So we're look optimistic as we forward.

to In this date, in terms in book the X.X% We're about July. saw up at of quarter our obviously is where July point. we

Jake Bartlett

to about in think you half of actually headwind a then here. impact promotions it discounting, And toward a back it. when tailwind it's of and and Got year the become been the positive the Do first we half? flip expect the

Dan Accordino

Jake, this is Dan.

in were that much there to a assumption discounting the what to discounting am Impossible the be have will be by level that the number much our same-store is going more With of discount, first second they it virtue are going first the fact really in Impossible half drive not promotional Whopper. our activity half. Whopper, and the same-store is, I'm fact that the as one, was if of the than concerned you of lower I robust be needs the challenge certainly, to behind sales the that about that the sales. in discounting, as The And about half,

the about focus the The issue. think half. you're the first launch again, discount, optimistic Impossible of and our sales discounting half, In the in performance is, I second our on Whopper isn't second the today, you in margin the the same-store and that better to half. really if positive going didn't improvement generate very issue happen sales, we're with

Jake Bartlett

the that core profile similar you that from to it sounds Cambridge. And on stores. then And was much stores acquired worse. actually lastly, restaurant-level the it. the margin I your like they're just impression on Got was

the Or there And what's attribute can kind happening in same-store improve? Can transition same-store looking of that sales? And terms how kind and to kind as that you in of just to I'm confident of you of then the to at both sales. margins the start operations? those mid-single-digit negative of issues are change of transition, you

Dan Accordino

same-store negative when did This again. the Cambridge is acquisition. were sales The Dan we

to at positive end that positive. a, time, be expected we in would So it'd same-store over the the generate result year they to some flat sales, of by least slightly

surprise. So a not that's

we where We said are. always their Carrols' still that we was improve basis a expect margins anywhere margins never XXX that there delta near upon, no, will. would were we and point And

back of that and until also we our We have office said, wouldn't that POS and however, installed all fourth quarter. our the devices

So we're that. still on track with

we would Cambridge, confident thought everything And will. are we with we accomplish still that we

Jake Bartlett

Thank much. you very

Operator

move Slabaugh with next, to Will And we Stephens Inc.

Will Slabaugh

can heard you're confidence talk of I bit But you any extremely given from about? And early more Impossible your you a it's nationwide help realize Can or there around just launch little you most the that impact you're guys. Impossible mentioned? what King out Hi, about week. itself, what calendar your or Burger thinking was in marketing the given the well? stores potential this seen just us in tests the of how you've as excited

Dan Accordino

half, conservative sales -- of Again, relative we we've we're Impossible in for this Whopper. think as the that's the same-store are Paul We is been said, to forecasting Well, kind numbers. second the Dan. seen what have test that X% the that in markets for

for this we the So Whopper entire balance about are very of year. Impossible optimistic the

the in that of The units quite sold ago, was traffic. nicely component was three because And got was missing really discounting. and doing component a of that said balanced first to terms of half, There's and confidence in weeks confuse call on actually incremental that, value the his approach, Jose introduced well. of about the don't and things is value was, very you that with sense compelling Cil a couple we've value as taco, there a in marketing a is if calendar have which number

So Impossible between on a breakfast, forecast. marketing focus we're as the against very value component, the and confident the in calendar as well of the Whopper launch and increased second-half the increased

Will Slabaugh

I though That's the back bit margin helpful. XQ Dan, you the that the little margin things the Cambridge that half of a traditionally better the of through, than realize year is the on and front, side bit. threw noise little And off a walked on some

of same-store guide I acceleration margins back improvements. sales that's an realize implies half. to the tied in some Your in

a little about better that bit the might cost else help that I to as should back in out. perspective a don't be anything know get thinking well from half we if there's

Paul Flanders

think No, we somewhat from to that's well. second improve, in margins as do were quarter. the we We I slightly anticipate accurate certainly where

than anticipated. out I is in think said, as second amount costs. the costs the fair be only we thing call to higher are, Beef I originally a would half I anticipated the commodity

on we at below where price Our guidance were beef implies year, XX% pretty versus levels, attractive $X about pound. a a return costs last

Will Slabaugh

been it. beef? on that inflation us give with you're more rate seeing And that right a above you've Got Is can what now? seeing update recent you the

Paul Flanders

Yes.

I mean, I we pound. averaged quarter think to a I date, think -- $X.XX about

in last about a pound right $X.XX So far, three actually the down running weeks. come couple, it's We're now.

Will Slabaugh

the last track the in just in then some thing stores to further we really still would this get numbers everything in Are performing you your on point? Okay. simply And integration mind? until we're the general. is and Cambridge going Cambridge and Or just see worse along on they're than this in expected at have early, noise

Dan Accordino

restaurants, Yes, improvement listen, always I seven Dan, past we've and we terms think, in bought what Yes. we said again. And the always would of is we've sales increases, XXX do Well, done. years. this in margin

I'm we'll Cambridge. with confident same the do And that absolutely

than that enhancement. systems are of we see we're say expected. in until wouldn't lot not we terms And I our any So of to of had what they worse really in improvement again, margin a going the get place, all

we directors that in established the and have along so move that thing at objectives have infrastructure from for this we we the some district portfolio, we will I'm come a rapid put Carrols' with realize And that whom Cambridge. absolutely be can However, confident ready an rate. place region more of managers, to

Operator

we to Next, with Instructions] Docherty [Operator move Raymond Dan James.

Dan Docherty

for store margin Brian morning. on Hi, performance. Vaccaro got a question guys. It's on Dan Docherty this I XQ

one disruptive follow-up. R&M, G&A. of for besides Could Carrols of seems but Cambridge And P&L Cambridge, stripped You quite versus then legacy guys integration XQ? couple the out perhaps more to integrated you onetime EBITDA have you to been disclosed the the a in store-level bit as provide a you million

Paul Flanders

that to, But directionally restaurant-level Cambridge integration of costs plus, can Yes, unusually included million it, spend we are is I EBITDA, alluded restaurants. in $XXX,XXX about so break $X.X about contributed $X million when $XXX,XXX that didn't first primarily of think, those as adjusted. that we maintenance needed to you I we costs there's high were what say, in and there -- to that And out. call the in, repairs excessive integration got

Dan Docherty

seems a And you a pretty color you to more second quarter. more XXXX and then the in improve? imply to the half expect compared on to dynamics guidance what provide your marked Could second improvement margin much little normal

Dan Accordino

in Well, same-store other larger half. this do the you to When we couldn't a generating can X-plus half. these is obviously, is The we which margin leverage a the improvement, sales second function costs, Dan in of again. degree, get sales, percent first

So with the product, generated margin and as positive the which good Whopper, sales well as Impossible sales and value traffic, a off significant a is the historically, we've same-store offerings, increase. positive leverage always

This order over get a your to we same-store in expenses, in year isn't operating This business complicated, to didn't that needs first X% and year the really. X% increase sales leverage half.

Dan Docherty

And one just on then discounting. question last

percentage the was but it think XQ on discount that disclose could I the first to compared down sales in of sequentially, quarter? and you how

Paul Flanders

-- We XXX levels sales, quarter. the discount lower discounts the I of against Yes. An were prior more the first percentage characterize year. way with it, about better you're I were basis issue the -- of up as the from sequentially would guess points the a still a function from

Operator

Jake with we move next SunTrust. And to Bartlett

Jake Bartlett

at that much inserted fourth-quarter that typically margins that Is acquired the and follow-up costs you similar earnings not stores. stages driven at I that just the call. the on the last margins restaurant-level your down for was some just of the maybe lower? acquired stores. you And were do Is what's had the stores that true? you of think, indicated a Paul, question, the in just it And I I'm kind level margins looking earlier Cambridge the acquisitions? from

Paul Flanders

quarter. because for make in quarter the don't wouldn't much are weeks where we too own we the them nine second Well, of I in

have I really the margins you're of restaurants, the terms referring the said, to where full for in think ending we is the Obviously, same-store up refer comments been as the negative this our Burger to year. difference sales. see we Kings, year Cambridge

or to going So they're they've you're end what the nine view be we LTM is an six from referring year so think where months ago. deleveraged, this you're and versus, of comparing to perhaps, at

Jake Bartlett

Got it.

true at had time, because that So it's but that sales the at was diverse those stores? fallen

Paul Flanders

margins our same as Yes. to moved. the Cambridge we as, The core impacting results. that by are the you results, the well And what's I is factors happened Carrols Carrols' when mean, impacted see

Jake Bartlett

it. the first the the quarter, us just what And was we overall half? quarter, Got see for you as back commodity in Okay. give then the if as inflation that what well to, can second just could so implies

Paul Flanders

handy. the commodities inflation. been mean, primary the beef obviously I have driver don't and pork, has and our overall I item is beef of the this driven that's year biggest here

will think maybe bit inflation were I little beef, lower. guessing, and a overall X.X% we I'm just up be or on about X%. That's, the X%

Operator

James. from we'll And question with take follow-up a Docherty Dan Raymond

Dan Docherty

guys. Hi,

at on believe delivery. the BK And from a you're in a delivery. sales third-party you X,XXX any that your could if about and question point? to discuss U.S. reached Has of what is offering this Just seeing profitability I units perspective? units up so,

Dan Accordino

in Yes, Dan, have our don't not. Dan we deliver delivery We portfolio. in again. this No, We have yet. restaurants our Burger King do of any Popeyes is

But like be else we're and that working on, looking the restaurants we given we so delivery, we will it. some standpoint. how make, everything by delivery It will looking doing a and wouldn't impact from the and restaurants, fourth than would looks restaurants, make delivery they'll have probably we're other it'll POS at we're at quarter. But expect looking a our in probably I certain the aggregators, restaurants sense at some mode various that are geographic integration

Operator

conclude will to call this question-and-answer closing the session. At Mr. the to would turn over back any Flanders for remarks. time, additional that I or And like

Paul Flanders

the but morning. your certainly, move we We're news you challenging through better this to reporting time and tell, today, was don't forward anything to We as looking year, appreciate have quarter. you. it else Thank a really Thanks. can add as

Operator

thank will you that We your call. conclude participation. today's And for

Carrols Restaurant (TAST) 11 Aug 192019 Q2 Earnings call transcript