Carrols Restaurant Group Inc.’s stock fell more than 10 percent on Tuesday after the big Burger King operator disappointed investors with third-quarter revenue and earnings results.
Revenue increased 9.7 percent, to $238.9 million, in the quarter ended Oct 2, from $217.7 million the previous year, the company said Tuesday.
Net income fell 38 percent, to $4.5 million, or 10 cents per share, from $7.2 million, or 16 cents per share the previous year. Both numbers fell short of analyst expectations for the quarter, according to Factset, a financial research provider.
Same-store sales were flat, which Carrols blamed on tough comparisons — same-store sales rose 6.5 percent in the same quarter a year ago — and a “cautious” consumer.
“We believe the cautious state of the consumer and the current environment has had some impact on spending patterns,” Carrols CEO Dan Accordino said during the company’s earnings call Tuesday.
Despite favorable commodity costs and improving margins at newly acquired restaurants, higher labor, advertising and other costs hurt the company’s overall profits, Accordino said.
Carrols also lowered expectations for sales and cash flow for the year.
Based in Syracuse, N.Y., Carrols is Burger King’s largest franchisee, and it is getting bigger. It has 734 locations, 74 more than it had at this time last year, due largely to acquisitions.
The company has bought 32 locations this year, and has deals to acquire another 24 units. It is also working on 85 remodeling projects.
Carrols is putting much of its hope behind the idea that it can improve profits at restaurants. Profit margins at existing restaurants were 15.5 percent in the third quarter. By contrast, margins at restaurants the company has acquired were 12 percent.
Yet earnings before interest, taxes, depreciation and amortization, or EBITDA, decreased 74 basis points from a year ago, to 14.6 percent of sales. This, even though menu pricing rose 2.7 percent and cost of sales fell 115 basis points from a year ago on lower beef prices.
Labor expenses, however, increased 85 basis points, due to a 7-percent increase in the average hourly rate. Advertising expenses also increased in the period.
While sales and traffic were weak over the summer, Carrols said those figures improved in October. Still, executives said that they will be cautious about the fourth quarter because the company had a “mild winter and a strong December” that generated strong sales a year ago.