Carrols adjusts to pandemic, reports Q1 loss of more than $22M

SYRACUSE — Citing the COVID-19 pandemic, Carrols Restaurant Group, Inc. (NASDAQ: TAST) reported a net loss of more than $22 million, or 44 cents a share, in the first quarter of 2020.

Carrols is the nation’s largest Burger King franchisee.

The loss was worse than the net loss of more than $11 million, or 32 cents, that Carrols reported in the same quarter in 2019.

Carrols also announced an adjusted net loss of $19.3 million, or 38 cents a share, in the first quarter, compared to an adjusted net loss of $10.2 million, or 28 cents, in the prior-year period.

The Syracuse–based company noted acquisition and integration costs of $2.7 million for the three months ended March 31. The costs included legal and professional fees incurred in connection with the acquisition of 165 Burger King and 55 Popeyes restaurants from Cambridge Holdings, LLC, which were included in general and administrative expense.

Comparable restaurant sales for the company’s Burger King restaurants decreased 5.7 percent in the quarter compared to a 2.4 percent increase in the prior-year quarter. During the last month of the first quarter, when the COVID-19 crisis hit hard, comparable Burger King restaurant sales decreased 16.8 percent, Carrols said.

The shutdown of in-person dining across much of the nation due to the pandemic hurt sales and uncertainty about how quickly it fully resumes clouded the company’s outlook.

“Given the ongoing uncertainty around the magnitude and duration of the COVID-19 pandemic,” Carrols is withdrawing its previously issued guidance for the full year 2020, per its May 7 earnings report.

Carrols is one of the largest restaurant franchisees in the U.S. and currently operates 1,095 restaurants. The firm currently operates 1,030 Burger King restaurants. It also runs 65 Popeyes eateries. Carrols has operated Burger King restaurants since 1976.

CEO comments

“We began 2020 with optimism with respect to what we intended to accomplish this year in improving operations across our restaurants, resetting our priorities in terms of capital allocation, and generating free cashflow. Of course, our company, our industry, and our fellow citizens were faced with a whole new set of challenges beginning March due to the worldwide pandemic caused by COVID-19,” Daniel Accordino, chairman and CEO of Carrols, said in a May 7 conference call about the earnings report. “We as a management team reacted quickly and decisively to align with the realities of the new marketplace. First, to comply with national, state, and local guidelines, and for the safety and well-being of our team members and guests, we closed our dining rooms across the system and ramped up our off-premise capabilities, including takeout and drive-thru. We also launched delivery services to the majority of our Burger King and Popeyes restaurants during the last few weeks, ahead of our original timetable of late in the second quarter, which had a positive impact on sales.” 

The CEO says the business was “fortunate” to be able to continue generating a consistent level of base revenue as conditions unfolded, as about 75 percent of the company’s 2019 restaurant sales were generated from takeout and drive-thru orders. 

“But traffic and sales still rapidly declined. This put a lot of pressure on us to protect every shift and job that we could,” Accordino said. 

To address near-term “financial flexibility,” Carrols looked for “every efficiency,” including cutting executive salaries, starting with his own, he noted. 

The company “put on hold” any non-essential operating expenses and capital expenditures, other than those necessary to maintain operations. It also implemented additional safety protocols to protect employees and restaurant customers, including facemasks, thermometers, and greater use of a “multitude” of cleaning products. 

“In many cases, we have reduced operating hours based upon sales volumes, daypart traffic, and mandated curfews. We have also temporarily closed 46 restaurants consisting of 42 Burger Kings and four Popeyes where we could improve overall operations by shifting guests to nearby locations. In those situations, we reassigned team members where possible,” said Accordino. 

The Carrols CEO also said he is “encouraged” that April comparable-restaurant sales numbers have steadily improved from the weakest period in late March. Accordino is hopeful that the trend “can continue and build over the next several months” as government restrictions are lifted, businesses begin to reopen, and more people leave their homes to go back to work and shop.