TAST - Earnings call transcript Q4 2019 | Carrols Restaurant Group Inc.

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Operator

Welcome to the Carrols Restaurant Group Fourth Quarter and Full Year 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Following the presentation, we will conduct a question-and-answer session and the instructions will be given at that time. I would like to remind everyone that this conference call is being recorded today, Tuesday, February, 25, 2020 at 8:30 a.m. Eastern Time, and will be available for replay.

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

Tony Hull

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

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

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

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

will that, over and Chairman our Dan? the Dan turn Accordino. With to CEO, call now I

Dan Accordino

Thanks, good Tony morning, everyone. and

Let me for -- before our strategy to discuss briefly and to guidance. review and turn quarterly XXXX Tony to results provide our over financial I XXXX XXXX recap

transformational portfolio with XX. substantially XXXX our XX to place and size years billion completed was to by We where growth primarily a restaurants $X.XX expanded come. we on Cambridge intend States transaction revenue over Carrols busy reap in and for benefits to our productive our catalyst put by we in XX% X,XXX that through April XX% we've year at to from which increased total

Burger and year, of course we restaurants. including new built Burger King Popeyes remodeled restaurants the XX restaurants and successfully over addition King XX XX the In XX

acquisition portfolio part the brand Popeyes, its tremendous transaction, us within Chicken Sandwich of November. August Cambridge excited last but our even and since second growing strong in were relaunch now to strong as as given we has the platform potential of brand brought the this and success in more a so -- know very you Importantly, about launch the the

the more for item the and friendly. supported sandwich and friendly because Popeyes' of more performance profile handheld is have Over extensions, implications it as can customer is by think we financial a lunch time we Specifically, female demographic product the significant further believe it future development. changing positive and Popeyes

posted at This sales expectations solid we comparable Nevertheless, faced of the last the X.X% two was some months a King a also year, deceleration we the year. annual end in result for of lower real last X%. during of trend restaurant Burger to challenges our while growth two-year due

restaurant and the strong For we X%. itself continue. rose fourth sales quarter had October would momentum out that anticipated comparable started

success lapping despite and Impossible our and highest However, the of during Whopper in levels December unfortunately the softened November two of months. discounting trends the those

$X. the XX-piece the quarter discounting Pretzel quarter. the comparable Stacker fourth promotions, brand $X.XX Crispy the year Sandwiches Notably fell and X Bacon the quarter King, the Caesar and Meal Whopper restaurant Nuggets at featured; Match Rodeo XX-piece King the sales to Chicken & $X were the Mix Deal, Nuggets, in of Whopper, fourth the Recapping restaurants as and $X Taco, ago During fourth year-ago Impossible promotions marketing Chicken $X, Chicken King. quarter percentage $X Burger a a in fourth for King's compared Burger XX.X% the to and XX%

declined legacy basis adjusted our labor relatively long the excess points by impacted inflation Adjusted and to last certain XXXX our of staff margins at previously was investments basis been margin EBITDA in integration disclosed. for King XX-week training and Cambridge Burger a and EBITDA consistent restaurant summer Carrols declined Although by per XXXX over period sales were time historically results XXXX. $XX.X of XXXX to by part EBITDA points at adjusted our full oversight year staffing These has level periods over the management adjusted pressure restaurant-level XXX as on compared basis we commodity restaurant as restaurants, discounts million. -- restaurant cost customers and XXX a

is Cambridge track. integration The on

items. to playbook In and which Ops are satisfaction the terms higher sales working lead among of in our now integration scores optimize POS labor we system costs with will implementation completed November to and customer other team food increase

while We that cycle restaurant long what the longer and began with can accomplish return business level we restaurant XXXX I'm term. for average in optimism EBITDA this sales respect to will trajectory. confident we have been regarding with our normalized profitability and growth a renewed I to over

in will our we as believe explain more addition to will I terms have detail allocation more moment year. taking to in capital in priorities flow generation a approach of a for this cash In lead XXXX expenditures we disciplined that free reset

beginning product customers for in second schedule improvement a we adding X% and restaurant XXXX. comparable a roll-out to Burger for delivery upon sales marketing quarter, Based including initiatives late X% project in the King's option

also full benefit XXXX during remodeled, of from year's revenue will built XXX reflect and XXXX. early topline and Our acquired, the restaurants we

improve margins restaurants Additionally, to we King all these basis Cambridge points of place IT XXX at our approximately in and each XXXX. of the of quarters for by are scheduling our and expect Burger on investments in completed, systems first sales three labor systems and cost of management inventory now training already

loss between and Cambridge the we confident also close the and that remaining can the sales issues guest Cambridge as restaurants King differential narrow we legacy at scores our are Burger and satisfaction restaurants. gap cash and food We eliminate

costs expect as XXXX XXXX. points XXX basis labor of Popeyes, sales and restaurant cost to terms a points we by improve in sales labor of respectively basis in XXX and In percent of

our Burger XXXX. cost Finally, the of headwinds labor we steep XXXX on in expect fronts compared reduced the sold faced headwinds at King goods legacy and restaurants to in

discuss Now, let's our strategy. XXXX

we to our have and growth to that improving to Given flow order balance acquired strategy capital allocation restaurants generate capital in restaurant to be last within we our and with aggressively and remaining the delever current cash consulted our year, XXXX organic the prioritize to reset decided reduce margin work spending have in sheet. sales Board free and in our improvement portfolio our done and

we naturally stated January declining after our As our CapEx presentation, non-discretionary XXXX. in was investor

approximately XX% franchise restaurants our that XX.X Now average our years. been have the is of agreements of remodeled and tenure

flow stage Nonetheless, in we our free The uncompromising highest which aggressively projects. will XXXX. opportunity its more will only be sooner us in generate set and reduce the ROI saw commitments to an for unemotional to cash capital to company commitment even the

equal Not have all projects CapEx returns.

labor about are portfolios others. The be advantageous on periods development significantly especially associated restaurant prioritized and than land ROIs attractive costs and real This new lower purchased costs and restaurants in example, develop that For be development and today. true than can markets in our can where larger is are with in southern more where ourselves other estate payback markets we markets.

owning high of in barrier there if this company the market stores as history own The we and you That's stories do. a was buying fantastic already northeast region.

increasingly you're new a over the years our coming on Focusing to store and development our simply as the in south. going skewed mix south better that see is proposition

are In capital focused laser summary XXXX, on we for allocation.

generation flow and expediting using deleveraging. that flow priorities are free Our free for cash cash

restaurants development steps; following return new new slowing objective in this Burger down to King attractive of through on activity; with six second, pace the first, XXXX acquisition capital. strategic the accomplish expected will restaurant We limiting

Burger the XX also Burger comparison, in of we By We this late to Burger six King year. completing last and are Popeyes that XXXX. quarter last this total, new year. opened open we we year restaurants build XX restaurants XX King restaurants In started plan King restaurants

this activity remodeled Burger year. King by and to remodeling our year high returns restaurants Popeyes restaurants four XX Burger on XX restaurants with reducing Third, comparison. just capital last We King

expenses goal look of operating Fourth, business greater at across renewed creating and a time. expanded improve taking margins the a efficiencies over with

to Carrols we than firmly we the term sheet. the acquisitions growth pace, King both better is so can need Burger pause systems, While the within business balance near operators delever and we believe our in demonstrate existing still and Popeyes appreciate within our pursue organic also positioned that our that to most

strengthening placing accomplished on hold and Popeyes among call, that other overall conference transaction be opportunities. of third acquisition this our the referenced restaurant I performance that will entire acquired our our on contributing by to quarter the growth. are This we restaurants are ensuring portfolio Therefore

earlier, one of mentioned fleet the approximately remodeled freshest already the have we of As XX% newest all Carrols restaurants, making our Burger among King operators. and Burger franchise King

on We returns to focused capital will that be maniacally be restaurants remaining the remodeled. need on for

million expenditures XXXX expenditures in reduce In $XX favorably approximately $XX compares $XXX expect to net capital total, to net million. XXXX. our in million of This to we about our capital to

in up free Tony upon detail will Based to $XX outlook this shortly, that to flow year. cash million generate we our expect

leverage be will dollars flow by neutral well in capital as ratios as changes, reduce our as cash free our our Assuming to covenants. our debt debt absolute working defined deployed

over financials to Tony With that, review and guidance. detail the let call me to our in our discuss XXXX further turn

Tony Hull

Thanks, Dan.

As is my to have as and world-class opportunities Dan two of ahead us for I to am as excited working how express look conference the CFO, and we inaugural this we with operating brands. wanted call about foundation the I team strengthen forward Carrols

and sublet convenience XX.X% closed sales into million delve the to million third-party convenience the operating to we over no store year The have sales in $XXX.X $XX.X fourth of the million, acquisition. including from restaurant results. will report. Revenue January, results quarter let's $X.X increased a prior were Now and in period and Cambridge longer to stores

system during U.S. Burger outpaced the X%. the basis increasing King's restaurant XXX by King Burger points, comparable quarter sales about

in a traffic. in an decrease average X%and Our comp pricing of X% including increase sales gain menu X% of consisted check,

last a the was which XX.X% XX% stack discounts a rose -- The promotions substantially corresponding But percentage as sales, fell also check a two-year period restaurant year. basis during had corresponding sharp comparable which of lower increase sales this to a same compared in negative on to On traffic. had X.X%. average to impact and also due restaurant

Carrols' added were King Burger and to expect top labor restaurant-level line playbook see improve being our and in place we and Cambridge our the now best and in at improvement practices costs With impacted integration maintenance bedded both repair meaningful as margins. operations. operating by restaurants to we systems operationally, Results

restaurants believe year. about As in our closing sales are XXXX we optimistic on between Dan Burger are margin cost and this King gap track in we restaurants we Cambridge the mentioned and earlier, improve our of Cambridge Legacy sales to

million $X.X quarter $XX.X points Adjusted EBITDA decreased sales. million to basis EBITDA in last of Adjusted fourth during the restaurant X.X% $XX.X million to quarter of XXX declined year. margin from the

$X.X from in year. basis level EBITDA and sales EBITDA last adjusted quarter million XXX $XX.X points. margin decreased restaurant restaurant-level the quarter increased million of the Adjusted was XX.X% fourth Restaurant in to $XX.X million

approximately items, aggregate. in cost line points basis expense our to Turning QX XX sales of increased

percentage a of our of adjust sales the sales related you store XX and compared points convenience to If restaurant cost year. revenue restaurant-only sales increased as prior of basis cost

beef December, These of increased averaged have the inflation forecasting per quarter $X.XX XXXX. of $X.XX in XXXX fourth last per pound of in and annual costs fourth beef $X.XX stabilized pound average in X% year. Ground the and about from XX% to XXXX year-over-year for approximately compared we are of in quarter the

Restaurant in our restaurants legacy a increase labor basis X.X% to XX quarter the restaurants. Cambridge the expense a hourly to compared prior in Burger as of King sales addition percentage rate of increased the in inclusive inclusion points of year wage

leaseback gain standard. Restaurant to higher as of acquired on year, amortization and sales as points in rent of as XXXX accounting primarily lease sale the the to of rent expense deferred we basis prior new sales percentage a the on the XX increased a a result restaurants elimination percentage due transactions of compared

higher operating credit restaurant more proportionally basis of we a accruals points year card usage expense the liability compared acquired as and XXXX. expenses in from due fees, increased sales general period, XX and Our levels prior operating of percentage related to increased to restaurants

Cambridge expenses and integration $XX expenses – and of acquisition administrative XXXX, compared million in $XX.X $X.X those costs integration in in that the in $X.X acquisition million the prior to costs. year fourth in and included million General quarter were That million including period. costs were period

year. scope revenues both oversight periods, in base. initial and increased of administrative slightly percentage from expenses costs reflects last as required total integration to larger the This the X.X% X.X% and acquisition to a due general expanded of restaurant Excluding

prior per and quarter charges diluted fourth integration Our loss $X.XX included $X.X was to share in of or compared the the $X.X for expenses. million in year. and net lease net the $X.X The net income per XXXX $X.X other quarter diluted loss of million fourth or impairment of million acquisition share $X.XX million of and XXXX of

Net acquisition income expenses. other year well for included impairment of million of million charges prior the quarter as $X.X $X.X and as lease

in million or quarter. in income share per or XXXX $X.XX loss was quarter prior net to per year diluted adjusted $X.X net $X.X $X.XX compared diluted the charges, adjusted these of Excluding the fourth of million share

adjustments costs reminder, items this in As of the or release. at in adjusted including a net summary loss and tables integration acquisition accompanying a other detailed arriving the and morning's impairment income are

million Total fourth full the capital for quarter million the expenditures were of $XXX in $XX year. and XXXX

However, net XXXX with year, last capital $XX.X million expenditures of million. sale were leasebacks $XX for

quarter, $X approximately and liabilities in million. X.XX X.XX XX, At the permitted credit million fourth maximum senior lease total cash in end December as finance a of balances the compared to was Leverage Ratio Net times defined was facility outstanding times. Lien debt At First our were our $XXX.X our of

carryover two first represents funded revenue of and period $XX.X elevated payables from lowest million XX, as of year. expenditure level we February and an XXXX year capital borrowings of had during revolver. earnings the As borrowing our the generation for capital we us working the of This during payments of months on the drawn

stronger and quarters, expect we move and earnings to periods we the accordingly. As into balance the revenue decline second the in revolver third see

in of share. Since Directors of $X an million approximately $X.XX cost repurchase we million, during a repurchased at $XX Board approved program approximately of at of the purchased XXX,XXX per per share. average our of Lastly, stock purchase our of shares cost fourth average the a million $X total XXX,XXX common price have at $X.XX quarter cost stock XXXX, August an we for shares

stock value no shares timing, and other stock and As factors. purchased market a price, trading depend obligation reminder, of program the will and repurchase this economic number the have actual general volume, on conditions to we and in

With which XXXX. that guidance let to me for has following provide you with compared the XXXX, extra an week

XX $X.XX that total to King for billion, billion than been restaurant sales months. for restaurants of more owned have We comparable our expect $X.XX sales restaurant Burger

expected As end to of it's XXXX, X%. be of to the X%

X% expected costs King the comparable be expected costs as with Cambridge I will the beef impact expected to to our oversee X%. $XX cost base to $XX rise enter and to the May General are Commodity that are to comp administrative Burger restaurants increase on of the Note base. enlarged restaurant stock X. earlier, year mentioned expenses reflecting overhead excluding million restaurant required support and expense, to full million, X%

to on to restaurants. Adjusted be are levels. $XX debt approximately is XX% Gross terms million for approximately be expected $XXX be EBITDA and is $XXX to to maintenance, $XX million expense based million, LIBOR expenditures of to expected million. Interest million XX% including our new expected XX% stable and $XX capital for for remodeling construction

Of of, million, from XXXX the approximately million new be $XX the are net to completion of be in in total, that and of expended to sale commenced will million. XXXX. $XX first the $XX million remodels the quarter to to capital leasebacks relating primarily in Proceeds approximately resulting restaurants in million expenditures expected $XX XXXX, $XX

and generate should operations provide flow, us cash improved XXXX, the reduction the reiterate, to XXXX To expenditures net positive our substantial year. at this means free to margins with our with compared in in coupled capital restaurants,

use our to that ratio. to outstanding free And intend the leverage flow debt reduce We debt. cash

fully franchiser We who fortunate step RBI, for XXXX. us, our to locked in are have capital in supportive adjusting a with has priorities

in our maintaining Our potential intention do to while ability we of balance organic of our realizing portfolio, the are sheet. just restaurant by is balance current And that. strong goals confident full a the growth, to solid

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

Session Question-and-Answer

Operator

Thank you. you. Thank [Operator Instructions]

your line proceed Our from with Jake SunTrust. comes first Bartlett of question. with question the Please

Jake Bartlett

maybe the that with entering the taking you're other detail any provide questions. some with sales or release, you press you the optimism I'm can current Great, trajectory. in mentioned thanks us, hoping sources trends optimism. about, about of Dan, XXXX for great that

Dan Accordino

I had marketing would Well. calendar. Burger we competitive think, we and we expected. King The And see would similar marketing product to continue improvements, product to the calendar, to component is to a new -- what launches, value expect consider

there the earlier, said an plant-based line. As expansion we've will product of be

Burger calendar. pretty So has that, King compelling a marketing I think

Jake Bartlett

you Okay. going think produce that a still saw trends, the quarter? for same trend deceleration against current last Did I November the I you and about XX nuggets. were in the fourth year kind note up -- I we Any now, of through even, as on that just comments Maybe what saw in, that, $X December?

Dan Accordino

is trend similar in quarter, the XX. quarter $X Yeah. Yeah, fourth the at on we the to first February pretty The you what saw end Jake, of yeah. mapped nugget,

Jake Bartlett

margins Cambridge the break what just quarter? the then, Legacy you Got can fourth the versus stores to in turning The for stores? out, level it. And restaurant margins were the margins,

Tony Hull

where are plans Yeah. comes get I being that lot company. think the definitely for lower. improved, margins able optimism overall that's of But, to from, XXXX for We in they margins have improve And don't break the and out. to those a to the place

Jake Bartlett

Got it, I think...

Tony Hull

Jake. you, tell I'll

Jake Bartlett

Yeah.

Sorry.

Tony Hull

tell Jake. you, I'll

of by So basis XXX where Burger points Burger basis September. far, improved where were in the over labor XXX Popeyes improved have and we've cost the King, over margins In in sales already, King from points both they September. were Cambridge from margins they by

So expected the Kings What's improvements bit the the to we're sales Burger that to make. that take is having making longer, level they track hitting we to if -- Cambridge be. should on to increasingly going a

improvements. is to Some operational due of that

in of the the And where store value the very part a it's due Because overall base. Burger to right geography, they're now. Central. the country it's oriented part South the softest the just King some located, of It's trend, of

Jake Bartlett

thinking about improving, do legacy Cambridge the that Legacy think in could in Got the improve aside stores margins from on it. you margins stores those And question, their the last stores, then just of own? XXXX, impact

as through? of pricing the level costs some you're as that well on of the to be you you're function -- a maybe expect focusing flowing being And that as that initiatives

Dan Accordino

be not to an of efficient standpoint, The more they're any efficiency their from legacy in controls. going terms margins,

So legacy of -- will the commodity function where margins costs be the where a primarily, are.

the X% and what – the XXXX. in were X% If commodity the given than margins they be will the range are Legacy restaurants, anticipated to costs in similar to at the pricing

Jake Bartlett

much. you Thank very Great.

Operator

with Jeremy Our next question question. of Please comes Hamblin Craig-Hallum. with from line the proceed your

Jeremy Hamblin

Thanks. And in acquired I locations the wanted to follow-up those on South.

of and to see hopefully take or were time starting guest you not directionally and think acquired sense improving last you locations taken the that Or to down back mid-single are that, more But side give Is improvements it's bit general assume it's a quarters. nationally digits margin on sales think satisfaction you those. the you they indicated, I little experience. improvements we mentioned step that going the improve hold couple And those at though to same-store – on moving means operations low-single digits? you starting had take Can really the see maybe a had I are comping to whether on even any – is are that down same-store sales? the

Dan Accordino

mid-single all. just was nuggets still digits haven't where quarter restaurants favorably It's $X again lapped But year seen it fourth that at in Jeremy. about No. to week. those which and the ago much really we very responded improvement negative, a is very We last

sales So should we're less be March that that last expecting relative to in year trend negative.

Jeremy Hamblin

Okay.

to even So, that basis March. actually it's a we more get relative move should improve on as forward and starting

Dan Accordino

That is our expectation.

Jeremy Hamblin

– the one-off. pivot focus on looking are want just And then a that came strategy be is sell you six those? free convenience that stores to in along with potentially given the the to to cash seems that transaction see flow to last – And And Okay. year I

Dan Accordino

We They're They're them end of got the of Jeremy. already before gone. XXXX. gone rid

Jeremy Hamblin

Okay. Great.

Dan Accordino

the slinky I'm not business. in

Jeremy Hamblin

I wanted then you – board delivery release just QX. coming about in I talked in to on the think Okay. And

of on things other terms BK far might of about thus thinking what the margin? also have locations expectations that type impact on based have both but side In seen what sales of on

Dan Accordino

have fan to that a I'm we to until in have delivery In so more we big what not be on dual were impact test the that's will going Jeremy. we increase delivered. have model pricing We by that POS certain, menu premium. essentially opportunity so see point, what's be that we terms what will have we'll were of restrictive And And there change we XX%. And that will devices the the waiting capabilities prices not a can margin opportunity to delivery of so the our program delivery be. for. at May, that and charge a

Jeremy Hamblin

again, pivot debt improving reducing ratios. enough. strategy as leverage focus on Fair the you Okay. also And then and and

is of – portfolio, terms terms Or Tony, change and of you've to closure beyond there meaningful at or In profitability, at rate a had chance look as looking expected potentially profitability in a store-by-store XXXX that? have to the any location in

Tony Hull

about to factors. the various X as year same of one Obviously, It's on biggest XX restaurants close No. expected lack profitability. being to about last are the based

Dan Accordino

expiration. lease And

Jeremy Hamblin

Understood.

in King a first being little Can just on and brand new of you last And then you of And surprise a openings you Okay. the provide Obviously, the was thing provide that you're after little that's a new color though in you release that no about opened. now. in – on year openings of right terms color slowing mention half that? wouldn't at Popeyes Can Popeyes even the look fire talked that any bit on that. that? of Burger

Dan Accordino

openings. the to – develop demographic Popeyes fact we're folks might is at to the Sure. changing. What constant better And look Popeyes. opportunities Popeyes be meeting matter the week where There of of sandwich Popeyes' some the with the this as profile we – of introduction because maybe a of

debt slowing to Popeyes' the we're our might the time, cash and So free where be and better point, new this at just flow development. down evaluating reducing at this same generating opportunities leverage

Jeremy Hamblin

guys. great. luck. Thanks That’s Good

Dan Accordino

Thank you.

Operator

Deutsche of next from with the Bank. Mullan Brian question. [Operator line Please with proceed Instructions] Our question your comes

Brian Mullan

plan to of the the near-term from separate the efficiencies from Thanks which store. for is says the The Cambridge drive Hey integration maybe operational improvements question. business release there expected guys. sounds taking in a the

far that? if you a on that more opportunity? wide G&A elaborate maybe something reaching? wondering Is Or Just could

Dan Accordino

items opposed basis technology process put at the to more It's and more functions dealing systems on manually. improved we're Brian. processes which our with looking quickly wide technology with as ranging than of these transformation can in And we our that,

costs of our labor. now some the think the of all evaluating better that are and also in there we restaurant P&L we outside of streamline. can mass there sales And critical We're cost things that with

Brian Mullan

Okay. across the the leverage. debt comes Great. with follow-up flow year a cash objective very And just reset the reduce for as clearly free strategy and

an the net Just then target of year? leverage actual there firm picture... at if end for into is wondering your this And bringing not

Dan Accordino

X-handle...

Brian Mullan

X-handle?

Dan Accordino

X-handle.

Brian Mullan

end of understood. the By XXXX

Okay, thank very you much.

Tony Hull

Yes. and happen be is but that lot then. of now going That would the there between goal, clearly a we're But stuff can to limit CapEx.

Our leverage allow vote get time us EBITDA our to goal get would three targets high to to the is down over handle? and a to

Brian Mullan

a Thanks understood. Okay, lot.

Operator

we've time of this At reached session. allotted end question-and-answer for the our time

Let for to floor closing remarks. back the me management turn

Dan Accordino

to all you we will months. Thank few a again speak Thank and you. you in

Tony Hull

you. Thank

Operator

Thank you. today's concludes conference. This

may time. you participation. for your lines this You Thank at disconnect your

Carrols Restaurant (TAST) 25 Feb 202019 Q4 Earnings call transcript