Carrols Restaurant Group, Inc. (Nasdaq: TAST), the parent company of Carrols Corporation, today announced financial results for the fourth quarter and full year ended January 2, 2011.
Carrols also announced its intention to pursue the splitting of the Company’s business into two separate, publicly traded companies through the tax-free spin-off of its Hispanic Brands to the Company’s stockholders. The company to be spun-off will own and operate the Pollo Tropical® and Taco Cabana® businesses which had combined revenues of $439.1 million in 2010. Carrols Restaurant Group, Inc. will continue to own and operate its more than 300 franchised Burger King® restaurants.
Alan Vituli, Chairman and Chief Executive Officer of Carrols Restaurant Group, Inc., commented, “The separation of our Hispanic Brand and Burger King restaurant businesses is a natural evolution for Carrols. We believe that the separation will enable each company to better focus on its respective opportunities as well as to pursue its own distinct plan and growth strategy. We also believe that a separation offers the potential for improving shareholder value as each publicly traded company will be better positioned to align its business with its respective shareholders’ objectives.”
The Company currently plans to refinance its existing debt and to separately finance the Burger King and Hispanic Brand businesses to facilitate the contemplated separation. The Company is also developing detailed plans for the proposed spin-off. The separation plan, including transaction structure, timing, composition of senior management and the Boards of Directors, capital structure and other matters, will be subject to approval by the Company’s Board of Directors, customary regulatory and other approvals and the receipt of a favorable IRS tax ruling, among other things. The Company expects to complete the spin-off by the end of 2011. Further details will be disclosed at a later date.
Highlights for the 13-week fourth quarter of 2010 versus the 14-week fourth quarter of 2009 include:
- Total revenues were $194.9 million in the fourth quarter of 2010 compared to $209.7 million. One extra week in the 2009 fiscal year contributed $13.6 million in revenues;
- Comparable restaurant sales (on a comparable 13 week basis) increased 10.7% at Pollo Tropical, increased 2.3% at Taco Cabana, but decreased 6.1% at Burger King; and
- Net income for the fourth quarter of 2010 was $2.6 million, or $0.12 per diluted share, compared to net income of $4.1 million, or $0.19 per diluted share in the prior year. Earnings in the fourth quarter of 2010 were after impairment and other lease charges of $3.2 million, or $0.10 per diluted share after tax, and favorable adjustments to the Company’s tax provision of $0.6 million, or $0.03 per diluted share. Earnings in the fourth quarter of 2009 included impairment and other lease charges of $2.4 million, or $0.07 per diluted share after tax. The extra week in 2009 contributed net income of $0.07 per diluted share.
Highlights for the 52-week full year 2010 versus the 53-week full year 2009 include:
- Total revenues were $796.1 million in 2010 compared to $816.1 million;
- Comparable restaurant sales (on a comparable 52 week basis) increased 7.4% at Pollo Tropical, increased 0.3% at Taco Cabana, but decreased 4.3% at Burger King;
- Net income for 2010 was $11.9 million, or $0.55 per diluted share, compared to net income of $21.8 million, or $1.00 per diluted share in 2009. Both years included non-recurring gains and impairment and other lease charges, which in the aggregate reduced earnings by $0.21 per diluted share in 2010 and $0.06 per diluted share in 2009; and
- Total outstanding indebtedness was reduced $19.6 million to $263.5 million as of January 2, 2011.
As of January 2, 2011, the Company owned and operated 551 restaurants, including 305 Burger King, 91 Pollo Tropical and 155 Taco Cabana restaurants, and franchised 34 restaurants.
Mr. Vituli commented, “We were pleased with the continued momentum at both Pollo Tropical and Taco Cabana during the fourth quarter. We are clearly benefitting from the success of new menu additions along with our promotional activity. We are also gaining traction from the remodeling and elevation of more than 40 Hispanic Brand restaurants in certain markets. Our actions better align our dining experience with our food quality and have broadened our customer base. We believe that our initiatives to improve the positioning of Pollo Tropical and Taco Cabana will provide a solid foundation for sustainable long-term growth.”
Mr. Vituli continued, “During the fourth quarter, Burger King was negatively impacted by aggressive competition, discounting, harsh winter weather conditions, and higher beef costs, which led to both lower sales and restaurant-level profitability compared to last year. In 2011, Burger King Corporation, under new ownership and leadership, will be employing a ‘back to basics’ approach to regain lost market share, with a focus on core products and less discounting activity. We hope that these efforts help customers reconnect with the Burger King brand and favorably impact sales, margins and operating profits.”
Fourth Quarter 2010 Results
Total revenues decreased 7.1% to $194.9 million in the fourth quarter of 2010 from $209.7 million in the fourth quarter of 2009, while revenues from the Company’s Hispanic Brands decreased 0.5% to $109.3 million from $109.8 million. The fourth quarter of 2010 was a 13 week period, while the fourth quarter of 2009 was a 14 week period.
Pollo Tropical revenues increased 5.1% to $47.4 million during the fourth quarter of 2010 from $45.1 million in the fourth quarter of 2009. On a comparable 13 week basis, Pollo Tropical comparable restaurant sales increased 10.7% and total revenues increased 12.5%.
Taco Cabana revenues decreased 4.5% to $61.8 million during the fourth quarter of 2010 from $64.7 million in the fourth quarter of 2009. On a comparable 13 week basis, Taco Cabana comparable restaurant sales increased 2.3% and total revenues increased 2.3%.
Burger King revenues decreased 14.2% to $85.6 million during the fourth quarter of 2010 from $99.9 million in the fourth quarter of 2009. On a comparable 13 week basis, Burger King comparable restaurant sales decreased 6.1% and total revenues decreased 8.3%.
General and administrative expenses increased to $13.8 million during the fourth quarter of 2010 from $13.2 million in the fourth quarter of 2009, and as a percentage of total revenues, increased from 6.3% to 7.1%.
Income from operations decreased to $7.6 million during the fourth quarter of 2010 from $11.2 million in the fourth quarter of 2009, and as a percentage of total revenues, decreased from 5.4% to 3.9%.
Interest expense held steady at $4.7 million in both the fourth quarter of 2010 and 2009.
Impairment and other lease charges were $3.2 million in the fourth quarter of 2010. Impairment charges for Pollo Tropical were $2.2 million including charges related to two restaurants in Orlando, one of which was closed in January 2011, and $0.8 million related to a New Jersey restaurant. Lease termination charges were $0.7 million including charges related to one Pollo Tropical restaurant closed in the fourth quarter of 2010 and five other restaurants previously closed. There were also $0.3 million in impairment charges related to four Burger King restaurants.
Net income in the fourth quarter of 2010 was $2.6 million, or $0.12 per diluted share, compared to net income in the fourth quarter of 2009 of $4.1 million, or $0.19 per diluted share. The fourth quarter of 2010 included $3.2 million in impairment and other lease charges ($0.10 per diluted share, after tax) while the fourth quarter of 2009 included $2.4 million in impairment and other lease charges ($0.07 per diluted share, after tax).
Full Year 2010 Results
For 2010 (which included 52 weeks), total revenues decreased 2.5% to $796.1 million from $816.1 million in the same period last year (which included 53 weeks). Net income was $11.9 million in 2010, or $0.55 per diluted share, compared to $21.8 million, or $1.00 per diluted share, in 2009. Both years included non-recurring gains and impairment and other lease charges, which in the aggregate, reduced net earnings by $0.21 per diluted share in 2010 and $0.06 per diluted share in 2009.
Full Year 2011 Outlook
The Company is not providing specific earnings guidance for 2011. However, the Company is providing the following information which does not include any impact from the potential spin-off transaction or refinancing:
- For the Company’s Hispanic Brands, comparable restaurant sales are expected to increase approximately 3% to 5% for Pollo Tropical and to increase approximately 1% to 2% for Taco Cabana. While there is less visibility with regards to Burger King, comparable sales are expected in improve from the 2010 levels;
- Commodity costs are expected to increase 2.5% to 3.0% for the Hispanic Brands and to increase 5% to 6% for Burger King;
- The Company plans to open five to ten new Hispanic Brand restaurants and to relocate one Burger King restaurant. It also anticipates the closing of one Pollo Tropical, one Taco Cabana and ten Burger King restaurants (excluding the relocated restaurant);
- Total capital expenditures are estimated in the $45 million to $55 million range; and
- The Company’s annual effective tax rate is estimated to be 35% to 36%.
Mr. Vituli added, “Separating Carrols Restaurant Group into two public companies is compelling despite some of the complexities which will be encountered. We believe that Pollo Tropical and Taco Cabana are well positioned for unit growth and expansion. Both brands have broad consumer appeal, serve differentiated food, offer an attractive value proposition and can win new customers from both conventional quick-serve and casual dining restaurants.”
“Carrols’ franchised Burger King restaurant business has the potential for higher sales and improved profitability as Burger King Corporation attempts to expand its market share. Moreover, given the number of restaurants comprising the Burger King system and Carrols’ historical success in acquiring and integrating franchised Burger King restaurants, we believe that there is considerable opportunity for growth through acquisition.”
Mr. Vituli concluded, “Our management team and our employees throughout the Company have all been instrumental in our success to this point and in helping shape the long-term strategic direction of our company. Day to day operations should not be affected by the spin-off nor do we expect such transaction to result in any work force reductions.”
About the Company
Carrols Restaurant Group, Inc., operating through its subsidiaries, including Carrols Corporation, is one of the largest restaurant companies in the United States. The Company operates three restaurant brands in the quick-casual and quick-service restaurant segments with 551 company-owned and operated restaurants in 17 states as of January 2, 2011, and 34 franchised restaurants in the United States, Puerto Rico, Ecuador, Honduras, Trinidad and the Bahamas. Carrols Restaurant Group owns and operates two Hispanic Brand restaurants, Pollo Tropical and Taco Cabana. It is also the largest Burger King franchisee, based on number of restaurants, and has operated Burger King restaurants since 1976.