Carrols Restaurant Group reports Q1 net loss of US$7.4M, compared to year-ago loss of US$5.2M, as restaurant sales fall 3% to US$151.5M

Nevin Barich

SYRACUSE, New York , May 6, 2014 (press release) – Carrols Restaurant Group, Inc. ("Carrols" or the “Company”) (Nasdaq:TAST) today announced financial results for the first quarter ended March 30, 2014. The Company also updated its annual guidance to reflect an accelerated remodeling plan this year.

Highlights for the first quarter of 2014 versus the first quarter of 2013 include:

Restaurant sales decreased 3.0% to $151.5 million from $156.1 million;

Comparable restaurant sales decreased 2.5% reflecting the widespread effect of severe winter weather compared to a 1.0% increase in the prior year period;

Net loss was $7.4 million, or $0.32 per diluted share, compared to a net loss of $5.2 million, or $0.23 per diluted share, in the prior year period, and was higher mostly due to timing differences caused by legislative delays extending WOTC tax incentives in both years;

The net loss included impairment and other lease charges in both years, and EEOC litigation costs in 2013. Such charges totaled $0.6 million and $0.7 million in the first quarter of 2014 and 2013, respectively, or $0.02 per diluted share after tax in both periods;

Restaurant-level EBITDA (a non-GAAP financial measure) totaled $13.2 million compared to $11.8 million in the first quarter of 2013, and restaurant-level EBITDA margin increased 113 basis points; and

Adjusted EBITDA (a non-GAAP financial measure) was $3.2 million compared to $3.3 million in the prior year period. (Please refer to the reconciliation of Adjusted EBITDA to net loss and Restaurant-level EBITDA to loss from operations in the tables at the end of this release).

As of March 30, 2014, Carrols owned and operated 560 BURGER KING® restaurants.

Daniel T. Accordino, the Company's Chief Executive Officer said, "Our comparable restaurant sales decrease was a direct consequence of the severe and persistent winter weather that affected many of our markets throughout the first quarter. Despite top-line challenges from the weather, both restaurant-level EBITDA and our restaurant-level EBITDA margin increased compared to the first quarter of 2013 due to improved financial performance at the restaurants that we acquired from Burger King in 2012. These restaurants contributed $3.9 million to restaurant-level EBITDA in the first quarter of 2014, 126% higher than in the prior year period."

Accordino continued, "The QSR segment remains intensely competitive with aggressive marketing and focused promotions. We continue to address the needs of our economically sensitive customer with our value offerings, while maintaining a balanced marketing approach with compelling limited-time offers and premium products. More impactful product launches and promotions such as the BIG KING™ sandwich and KING DEALS®, along with enhancing the brand experience through our remodeling program, help ensure that we deliver on guest expectations. Despite the slow start to 2014, we anticipate that both our sales trends and margins will improve over the course of the year."

First Quarter 2014 Financial Results

Restaurant sales decreased 3.0% to $151.5 million in the first quarter of 2014 compared to $156.1 million in the first quarter of 2013 primarily due to a 2.5% comparable restaurant sales decrease and to a lesser extent, 11 fewer restaurants in operation as of the end of the quarter. Comparable restaurant sales decreased 2.5% on an overall basis including a decrease of 1.8% at legacy restaurants and a 3.4% decrease at the 2012 acquired restaurants. Both groups were significantly impacted by the severe winter weather. Average check was 4.2% higher while customer traffic decreased 6.7%.

Adjusted EBITDA was $3.2 million in the first quarter of 2014 compared to $3.3 million in the first quarter of 2013, or 2.1% of restaurant sales in both years. Restaurant-level EBITDA increased $1.4 million to $13.2 million from $11.8 million in the prior year quarter. Restaurant-level EBITDA margin increased to 8.7% from 7.6% in the first quarter of 2013, reflecting a 2.5% cost of sales improvement (as a percentage of sales) with a 4.2% decrease at the 2012 acquired restaurants.

General and administrative expenses were $10.3 million in the first quarter of 2014, or 6.8% of restaurant sales, compared to $9.1 million in the first quarter of 2013, or 5.8% of restaurant sales. This increase reflected the elimination of payments from Fiesta Restaurant Group following their transition of administrative functions which was completed during the fourth quarter of 2013.

Interest expense remained flat at $4.7 million in the first quarter of 2014 compared to the same period last year.

Net loss in the first quarter of 2014 was $7.4 million, or $0.32 per diluted share, including impairment and other lease charges of $0.6 million, or $0.02 per diluted share after tax. Net loss in the first quarter of 2013 was $5.2 million, or $0.23 per diluted share, including impairment and other lease charges, and EEOC litigation costs which in the aggregate were approximately $0.7 million in 2013, or $0.02 per diluted share, after tax.

The increased loss in the first quarter of 2014 was mostly due to a lower tax benefit caused by legislative delays in extending WOTC tax credits over the last three years. The effective tax benefit was 33.6% in the first quarter compared to 50.5% in the first quarter last year. The 2014 tax benefit includes no WOTC credits since these incentives have not yet been extended after expiring at the end of 2013. The first quarter of 2013 included a benefit for the 2013 WOTC tax credits, as well as $1.0 million for 2012 WOTC credits that were all recorded in the first quarter of 2013 due to extension delays in 2012.

2014 Guidance

The Company is providing the following guidance for 2014 which is unchanged except for capital expenditures:

Total restaurant sales of $665 million to $680 million including a comparable restaurant sales increase of 1.5% to 3.5%;

A commodity cost increase of 2.0% to 3.0%;

General and administrative expenses of approximately $39 million to $41 million (excluding stock compensation costs);

Adjusted EBITDA of $38 million to $42 million;

An effective income tax benefit of 33% to 35% which could increase if the Work Opportunity Tax Credit is reinstated and extended;

Capital expenditures are now expected to be approximately $42 million to $47 million (compared to $30 million to $35 million previously) including $30 million to $32 million for remodeling 105 to 115 restaurants and $4 million to $5 million for costs to scrape and rebuild three restaurants; and

15 to 20 restaurant closures.

Accordino concluded, "Our recently completed public offering of common stock will enable us to accelerate our ongoing restaurant remodeling efforts while positioning us to execute on our long-term plan of expanding our ownership of Burger King restaurants. We now project remodeling 105 to 115 restaurants to Burger King's 20/20 restaurant image in 2014, up from 65 to 75 previously, with plans to have almost 60% of our existing restaurants updated to the new design by year-end. We also are evaluating expansion opportunities and expect to selectively acquire additional restaurants in 2014 and over time. We believe our track record of improving the operations and profitability of restaurants acquired in the past demonstrates our ability to further enhance shareholder value through expansion. Consistent with this strategy, on April 30, 2014 we completed the acquisition of four Burger King restaurants in Fort Wayne, Indiana following the exercise of the right of first refusal assigned to us by Burger King Corporation in 2012."

Conference Call Today

Daniel T. Accordino, Chief Executive Officer, and Paul Flanders, Chief Financial Officer, will host a conference call to discuss first quarter 2014 financial results today at 8:30 AM ET.

The conference call can be accessed live over the phone by dialing 877-941-2068 or for international callers by dialing 480-629-9712. 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 4680247. The replay will be available until Tuesday, May 13, 2014. Investors and interested parties may listen to a webcast of this conference call by visiting www.carrols.com under the tab "Investor Relations”.

About the Company

Carrols Restaurant Group, Inc. is the largest BURGER KING®franchisee in the world with 560 restaurants as of March 30, 2014 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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