Carrols Restaurant CEO Discusses Q3 2010 Results – Earnings Call Transcript
Carrols Restaurant Group, Inc. (
)
Q3 2010 Earnings Call Transcript
November 9, 2010 8:30 am ET
Executives
Paul Flanders – VP, CFO and Treasurer
Dan Accordino – President and COO
Alan Vituli – Chairman and CEO
Analysts
Bryan Hunt – Wells Fargo Securities
Jeffrey Omohundro – Wells Fargo
Carla Casella – JP Morgan
Mitch Speiser – Buckingham Research
Greg Ruedy – Stephens Inc.
Soraya Benitez – Cougar
Presentation
Operator
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Carrols Restaurant Group, Inc. Q3 2009 Earnings Call Transcript
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Carrols Restaurant Group third quarter 2010 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Tuesday, 9th of November 2010. I would now like to turn the conference over to Paul Flanders, Chief Financial Officer. Please go ahead.
Paul Flanders
Good afternoon. By now, everyone should have access to our third quarter earnings release, which you could also find on our website at www.carrols.com under the Investor Relations section.
Before we begin our formal remarks, I will remind everyone that our discussion today may include forward-looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed on them. We also refer you to our filings with the SEC for a more detailed discussion of the risks that could impact our business and our financial results.
On the call with me today is Alan Vituli, our Chairman and CEO; and Dan Accordino, our President and Chief Operating Officer. Dan will provide some commentary on the business, and then I’ll walk through the financial results for the third quarter as well as update you on our thoughts for the balance of 2010. We will then be happy to address any questions that you might have.
And now I’ll turn the call over to Dan.
Dan Accordino
Thanks, Paul. And good morning, everyone. Continuing the theme from our last call, our third quarter was characterized by very impressive results in Pollo Tropical, progressive improvements in Taco Cabana, and top and bottom line challenges for our Burger King restaurants. The overhang of our Burger King business was in fact the primary cause of lower earnings compared to the year ago period.
Still, we are particularly pleased with our Hispanic Brands, delivered positive comparable restaurant sales and continued to make solid gains and customer traffic count. We attribute that performance to product introductions, marketing activity, and to some degree, the effective elevating bulk brands in certain of our markets.
As we indicated on our last call, we are investing at bulk Pollo Tropical and Taco Cabana to elevate the guest experience, as we further differentiate our quick casual brands from conventional quick service competitors. Broadening the appeal of Pollo Tropical and Taco Cabana is an important strategic initiative as we enhanced their positioning and look forward to accelerating expansion.
With that said, I’ll now discuss our three brands in greater detail. Comparable restaurant sales for Pollo Tropical increased an impressive 8.8% in the third quarter of 2010, as customer traffic positive for five consecutive quarters was up by robust 12%. We improved segment EBITDA for Pollo Tropical to $7.5 million from $6.3 million and EBITDA margin by a 144 basis points to 15.7%.
Promotional activity in the third quarter, including TV advertising, featured our quesadilla wrap and salad launch, an introduction of our Create Your Own TropiChop, which is our line of bowls offered with various proteins. As I mentioned, we are in the process of transforming the Pollo Tropical transact in certain markets to provide customers an elevated dining experience, more consistent with the quality of our food. This is especially relevant to the in-store dining customer.
Enhancements include limited table service, new menu items such as sizzling fajita platters, sangria and wine, and real plates in silverware. At the end of the third quarter, we’ve completed 11 of an estimated 12 to 15 upgrades with primary emphasis on our Florida West Coast markets, Orlando and our Northeast locations.
In general, sales have responded very well to these changes with average increases of around 10% from the pre-conversion trends. The early traction gives us increased confidence of the brand’s broad appeal and our positioning as we look to future expansion in new markets, the average capital cost in conjunction with this upgrade is estimated to be a little over $100,000 per restaurant.
At Taco Cabana, comparable restaurant sales increased 1% in the third quarter, continuing the steady improvement in trends that we have experienced throughout the year. Customer traffic has now been positive for the brand since the fourth quarter of last year. Segment EBITDA for Taco Cabana fell modestly to $6.5 million from $6.7 million, and EBITDA margin was 39 basis points lower at 10.2%, reflecting commodity cost increases along with higher advertising compared to the prior year.
Our marketing in the third quarter was focused on our new obsession marketing campaign, which showcases how we prepare our authentic Mexican food by hand in our restaurants. Promotions include the limited time offer of fajitas with Asadero cheese and our new Kiolbassa and egg breakfast taco.
We also introduced Build Your Bowl, which provides our customers the ability to better customize our popular Cabana Bowls. Late in the quarter, we also began the promotion of street tacos, which contain grilled marinated steak, fresh cilantro, and diced onions served open-faced on two corn tortillas. Initial results seem to be quite favorable for this promotion, which is continuing into the fourth quarter.
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