Has Burger King turned a corner? It sure appears that way, judging by the performance of the chain’s largest franchisee, Carrols Restaurant Group.
The Syracuse, N.Y.-based operator, which runs 1,000 Burger King locations or one out of every seven of the chain’s restaurants, on Thursday said it turned its best first quarter restaurant-level EBITDA (earnings before interest, taxes, depreciation and amortization) margin in five years.
Same-store sales in the first three months of the year increased 11.7%. Efforts at the chain to improve efficiency, along with improving inflation, led to a profitability increase at its restaurants.
Restaurant-level EBITDA margin adjusted for one-time events was 12.2% in the quarter. “We were able to flow through much of the $46 million year-over-year increase in first-quarter sales,” CFO Tony Hull said in a statement.
Carrols tends to be one of the better performing Burger King operators in the country. Its same-store sales outperformed the brand by 300 basis points, for instance.
Yet its performance is a strong sign that efforts on the part of Burger King and its operators to improve operations and profits after a brutal 2022 may be paying off quickly as inflation eases. That’s good news for a brand where dozens of restaurants have closed, two major franchisees filed for bankruptcy and others are in danger of doing the same.
Toms King, a large franchisee in states such as Illinois, Ohio and Virginia, was sold to multiple buyers out of bankruptcy. Meridian Restaurants Unlimited, a large operator in several states out west, also filed for bankruptcy. Both operators closed dozens of restaurants. And a franchisee in Michigan closed 26 locations.
Company executives said earlier this month, meanwhile, that up to 400 restaurants could close this year before accounting for new restaurant openings. That’s about double the typical number of closures in a given year.
But Burger King under Tom Curtis, who heads North America for the brand, has focused intently on improving operations over the past several quarters. The company also will not let operators build or buy locations unless they’ve proven to be quality franchisees.
At Carrols, investors have been betting on a comeback. Its stock has nearly tripled so far this year, for instance. The company recently named Deborah Derby its CEO, following the unexpected death of Paulo Pena on New Year's Eve.
Sales at the operator increased 11.4% to $445.2 million. Comparable-store sales at its Popeyes restaurants increased 9.5% in the first quarter. Net income was $900,000, or 1 cent per share, compared with a loss of $21.3 million in the same period a year ago.
Adjusted EBITDA margin, which was just 1% of revenues in the first quarter a year ago, was 7% in the first quarter.
“We believe our performance in the past two quarters has showcased the power of our operating model as we have sustained top-line growth and a renewed focus on operational excellence,” Hull said.
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