Carrols Restaurant Group, Inc.

Third-quarter restaurant sales increased 7% to $475.8 million from $444 million a year ago. Comparable sales at Burger King increased 8.1%, made up of a 7.7% increase in average check and 0.3% traffic growth; Popeyes comparable sales increased 11.7%, with an 8.6% increase in average check and 2.8% traffic growth. Cost of food, beverage and packaging improved to 27.3% of restaurant sales, restaurant labor fell to 32.3%, adjusted EBITDA rose to $41.9 million from $17.7 million, and adjusted EBITDA margin expanded to 8.8%. Net income was $12.6 million, or $0.20 per diluted share, versus a net loss of $8.7 million, or $0.17 per share, last year; adjusted net income was $10 million, or $0.16 per diluted share, versus an adjusted net loss of $7.3 million, or $0.14 per share. Free cash flow was $33.9 million, and cash and cash equivalents were $73 million at quarter-end. Management raised/confirmed 2023 adjusted EBITDA guidance to $145 million to $149 million, implying $28 million to $32 million in Q4. For Q4, Burger King comparable sales are expected to be in the mid-single digits, with positive traffic expected to continue. The company also said commodity inflation should remain in the low-single digits for the rest of 2023 and wage inflation in the mid-single digits.

Deborah Derby said the quarter reflected broad operating progress: stronger guest satisfaction, better traffic, improved labor productivity, and successful product launches like BK Royal Crispy Wraps and Sweet 'N Spicy wings. She emphasized that operational improvements are driving repeat business, and said the company is entering 2024 focused on organic growth, remodels, and maintaining positive traffic and EBITDA momentum. Her tone was notably upbeat, with confidence in the turnaround and in the restaurant base’s potential.

Tony Hull highlighted the financial leverage from sales growth and cost discipline. He pointed to restaurant sales of $475.8 million, adjusted EBITDA of $41.9 million, free cash flow of $33.9 million, and a year-end adjusted EBITDA outlook of $145 million to $149 million. He also noted food cost improvement to 27.3% of sales, labor at 32.3%, about 90% fixed-rate debt at a 5.7% overall interest rate, $73 million of cash, no revolver borrowings, and $205 million of revolver availability; he said the new vendor agreement contributed about 70 basis points of the food margin improvement in Q3 and should add about 20 basis points per quarter going forward.

Analysts focused on the competitive environment, pricing, traffic durability, the 2024 new-product pipeline, the dividend, kiosk rollout, and the remodel plan. Management said traffic strength is being supported by operational improvements and Burger King marketing, while pricing should move at a more normal pre-COVID cadence in 2024; they also said the fourth quarter should see positive traffic, aided by about $35 million of incremental Burger King marketing spending. On kiosks, management expects potential upside to average check, customer satisfaction, and possibly labor efficiency, but said the rollout is still early and intended to prove out the concept first. On remodels, management said about half of the planned 2024 remodels may fit the new Sizzle format, but site constraints will determine the final mix.