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Carrols: BK profitability hurt by discounting

Carrols Restaurant Group Inc., one of Burger King’s largest franchisees and the owner of the Pollo Tropical and Taco Cabana chains, said it was challenged in the second quarter with weak profitability at its Burger King restaurants as the chain drove customer traffic through discounted promotions.

Same-store sales at Carrols’ Burger King locations for the quarter ended July 4 fell 1.4 percent from the same quarter a year ago. During the quarter, the chain launched its premium Whiplash Whopper promotion as well as its new BK Fire-Grilled Ribs and Steakhouse XT product. But the chain also continued to heavily promote value offerings and sandwich combos for customers pinching pennies.

“The combination of negative sales trends, aggressive price driven promotional activities and higher beef costs resulted in a significant reduction in profitability for our Burger King restaurants,” Carrols chief executive Alan Vituli said. “Although customer traffic was positive, incremental sales were not sufficient to overcome the lower margins on the broad line of discounted offerings.”

For the quarter, Syracuse, N.Y.-based Carrols earnings fell to $2.4 million, or 11 cents per share, compared with $7.1 million, or 32 cents per share, in the same quarter a year ago.

Latest-quarter revenue increased to $204.5 million from $203.9 million a year ago. Same-store sales rose 6.3 percent at Pollo Tropical and fell 0.1 percent at Taco Cabana.

Jeff Omohundro, a securities analyst at Wells Fargo Securities, said he was encouraged by the potential for new menu items at Burger King, including a breakfast line set for September.

“While we think the challenging economic and competitive environment may continue to pressure Burger King’s sales results in the near term, we have a positive view of the brand’s breakfast related initiatives and upcoming breakfast relaunch,” he said. “On the premium side of the menu, we came away … with a greater sense that we could potentially see Burger King’s marketing focus shift back toward more premium products utilizing the new broilers.”

Carrols Corp. currently owns or operates 554 restaurants, including 309 Burger King, 90 Pollo Tropical and 155 Taco Cabana restaurants. It also franchises 33 restaurants under the two Hispanic brands.

Contact Elissa Elan at [email protected].

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