Carrols Restaurant Group reports Q2 net loss of US$900,000, compared with net earnings of US$300,000 in year-ago period, partly because of loss on extinguishment of debt of US$1.5M; restaurant sales up 37.8% to US$122.1M

Nevin Barich

SYRACUSE, New York , August 7, 2012 (press release) – Carrols Restaurant Group, Inc. ("Carrols" or the “Company”) (Nasdaq: TAST) today announced financial results for the second quarter ended July 1, 2012.

Financial results for the second quarter of 2012 treat Fiesta Restaurant Group, Inc., which was spun-off from Carrols on May 7, 2012, as a discontinued operation. In addition, financial results for the second quarter include results from 278 BURGER KING® restaurants that were acquired from Burger King Corporation on May 30, 2012.

Highlights for the second quarter of 2012 versus the second quarter of 2011 include:

Restaurant sales were $122.1 million and increased 37.8% including $27.5 million of sales from the 278 acquired restaurants;

Comparable restaurant sales increased 8.8% including an increase in customer traffic of 4.9%;

Net loss from continuing operations was $0.9 million in the second quarter of 2012, or $0.04 per diluted share, compared to net income from continuing operations of $0.3 million, or $0.01 per diluted share in the prior year period;

Net loss from continuing operations in the second quarter of 2012 included certain non-recurring charges including a loss on extinguishment of debt of $1.5 million ($0.04 per diluted share after tax) and acquisition related expenses of $0.8 million ($0.02 per diluted share after tax).

Adjusted EBITDA, a non-GAAP measure, was $7.9 million in the second quarter of 2012 compared to $7.7 million in the prior year period. (Refer to the reconciliation of adjusted EBITDA to net income (loss) from continuing operations in the tables at the end of this release).

As of July 1, 2012, Carrols owned and operated 574 BURGER KING® restaurants.

Daniel T. Accordino, Chief Executive Officer of Carrols Restaurant Group, Inc. said, “As reflected by our strong comparable restaurant sales, enhancements to BURGER KING®’s menu and marketing are resonating with our customers and we believe are starting to broaden the brand’s appeal to a wider demographic base. We view the new and upgraded products, creative advertising campaign, and multi-year remodeling program as important elements as the brand increases its market share in the competitive quick-service environment.”

Accordino continued, “On May 30, 2012 we completed the acquisition of 278 restaurants from Burger King Corporation. We have begun the integration of these restaurants, and as we knew, there is much work to be done as we make necessary operational changes and implement our labor, inventory and other management systems. We believe that there is an opportunity to considerably improve the operating performance and contribution from these restaurants as we fully integrate them with our operating systems and technology.”

Second Quarter 2012 Financial Results

Restaurant sales grew 37.8% to $122.1 million in the second quarter of 2012, including $27.5 million of sales from the acquired restaurants, compared to $88.6 million in the second quarter of 2011. Comparable restaurant sales increased 8.8% as traffic increased 4.9% and average check increased 3.9%, including an effective price increase of 2.3%. Average weekly sales for Carrols’ legacy BURGER KING® restaurants increased 9.7% to $24,763 from $22,578 in the same period last year. Average weekly sales for the acquired restaurants were $21,798 for the period operated by the Company.

Adjusted EBITDA was $7.9 million in the second quarter of 2012 compared to $7.7 million in the second quarter of 2011 and Adjusted EBITDA Margin was 6.5% compared to 8.7%. Before general and administrative expenses, the acquired restaurants contributed $1.3 million to Adjusted EBITDA for the 32 days they were included in the quarterly results. However due to the lower profitability of these restaurants, they reduced Adjusted EBITDA Margin by approximately 2.2% (before general and administrative expenses). Adjusted EBITDA Margin was also impacted by higher general and administrative expenses. (Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. See reconciliation to net income (loss) from continuing operations at the end of this release.)

The Company's legacy restaurants contributed positively to Adjusted EBITDA Margin as most restaurant expenses were favorably leveraged from the strong comparable restaurant sales increase. Cost of sales for the legacy restaurants, however, increased from 29.9% to 31.1% due to higher commodity costs and slightly higher discounting during the quarter.

General and administrative expenses were $8.1 million in the second quarter of 2012 compared to $4.9 million in the second quarter of 2011, and as a percentage of sales, increased to 6.6% from 5.5%. Included in general and administrative expenses were approximately $0.8 million of expenses incurred in connection with the acquisition, approximately $0.5 million of incremental field and corporate overhead costs for the acquired restaurants, $0.7 million of legal fees related to recent activity regarding the Company’s outstanding litigation with the EEOC, and a $0.7 million increase in bonus expense.

Income from operations was $0.4 million in the second quarter of 2012 compared to $3.3 million in the second quarter of 2011.

Interest expense increased to $2.6 million during the second quarter of 2012 from $2.3 million in the second quarter of 2011 including $0.3 million related to the settlement of an interest rate swap in conjunction with the refinancing of the Company's debt that was completed on May 30, 2012. Loss on extinguishment of debt related to the refinancing was $1.5 million.

Net loss from continuing operations for the second quarter of 2012 was $0.9 million, or $0.04 per diluted share, compared to net income from continuing operations of $0.3 million, or $0.01 per diluted share, in the second quarter of 2011. The loss in the second quarter of 2012 included the aforementioned non-recurring charges for the extinguishment of debt and acquisition costs which totaled $2.3 million, or $0.06 per diluted share after tax.

2012 Guidance

The following guidance is being provided for 2012:

Comparable restaurant sales for the full year are expected to increase 4% to 6%;
Commodity costs are expected to increase 3% to 4%;
General and administrative expenses for the second half of 2012 are expected to be approximately $14 million to $15 million excluding stock compensation and legal fees that may be incurred in conjunction with the EEOC litigation;
The annual effective income tax rate (before any discrete items) is expected to be 42% to 44%; and
Capital expenditures are expected to be approximately $40 million to $45 million, including $28 million to $33 million for remodeling more than 80 restaurants.
Conference Call Today

Daniel T. Accordino, Chief Executive Officer, and Paul Flanders, Chief Financial Officer, will host a conference call to discuss second quarter 2012 financial results today at 8:30 AM ET.

The conference call can be accessed live over the phone by dialing 877-941-8416 or for international callers by dialing 480-629-9808. A replay will be available one hour after the call and can be accessed by dialing 800-406-7325 or for international callers by dialing 303-590-3030; the passcode is 4555932. The replay will be available until Tuesday, August 14, 2012. The call will also be webcast live from www.carrols.com under the investor relations section.

About the Company

Carrols Restaurant Group, Inc. is Burger King Corporation's largest franchisee, globally, with 574 BURGER KING® restaurants as of June 30, 2012 and has operated BURGER KING® restaurants since 1976. For more information on Carrols, please visit the company's website at www.carrols.com.

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