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Carrols franchise group sees marked Burger King improvements in Q1

Operator finds same-store sales increases at its Popeyes units as well

Carrols Restaurant Group Inc., which operates 1,074 franchised Burger King and Popeyes Louisiana Kitchen restaurants, saw its same-store sales increase and its bottom line improve with moderating commodity costs in the first quarter, executives said Thursday.

The Syracuse, N.Y.-based Carrols, one of Toronto-based Restaurant Brands International Inc.’s largest franchise groups, said its results for the first quarter, which ended April 2, were among the best in past five years.

Tony Hull, Carrols chief financial officer, said, “In the first quarter of this year, our comparable sales increase of 11.7% at our Burger King restaurants was driven by menu price increases and lower promotions and discounting, which together resulted in a low-teens increase in average check.

“Combined with moderating inflation and our continued focus on operational efficiencies, we were able to flow much of the $46 million year-over-year increase in sales during the quarter into higher adjusted restaurant-level margins, which improved to 12.2%,” Hull said on an earnings call with analysts. “To put this in perspective, this is our best first-quarter restaurant level margin in five years.”

Deborah Derby, who was named Carrols CEO in April and is a five-year board member, thanked RBI, which launched a two-year, $400 million “Reclaim the Flame” effort last fall, for “their recent diligent efforts to reinvigorate and reinvest in the brand and their franchisees.”

Hull, who served as interim CEO before Derby’s announcement in April, said average check had improved over the past two quarters “driven by reduced discounting and menu price increases.”

Hull warned that average check would unlikely increase as much during the last half of year.

“As we look to the back half of 2023, we do not anticipate the same level of average check benefit for two reasons,” he said. “One, as inflationary pressures ease, we expect that our ability to raise menu prices in tandem will moderate. And two, we will lap our recently improved promotion and discounting profile in the third quarter of 2023. Consequently, we believe that positive changes in the trajectory of traffic trends in the back half of 2023 will be the most meaningful driver of comparable sales growth.”

Gretta Miles, Carrolls controller and treasurer, said first-quarter traffic declined 1.1% at its Burger King units and dipped 0.5% at Popeyes.

Hull said Carrols was expanding its hours of operation by about 3.5% as staffing challenges eased, and that eased some traffic declines. Consumers were reducing add-ons, like soda, but increasing their purchases of full-price combo meals vs. value menu, he noted.

For the first quarter ended April 2, Carrols reported net income of $864,000, or one cent a share, compared to loss of $21.3 million, or 42 cents a share, in the same period a year ago. Revenues rose to $445.2 million from $399.5 million in the prior-year quarter.

Same-store sales for Carrols’ Burger King restaurants increased 11.7% in the quarter and increase 9.5% for its Popeyes restaurants.

Carrols is one of the largest restaurant franchise groups in North America, operating 1,019 Burger Kings in 23 states and 65 Popeyes in seven states. Carrols has operated Burger Kings since 1976 and Popeyes since 2019.

Contact Ron Ruggless at [email protected]

Follow him on Twitter: @RonRuggless

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