Burger King franchisee Carrols Restaurant Group, Inc. (NASDAQ:TAST) announced strong first-quarter 2018 results on Tuesday morning, showcasing continued momentum in both comparable-restaurant sales and revenue from acquired locations over the past year. Carrols was also able to considerably narrow its losses in this seasonally slow quarter.

With shares up nearly 8% in response, let's take a closer look at how Carrols kicked off the new year, and what investors should watch for in the months ahead.

Close-up of a Burger King Whopper Sandwich

IMAGE SOURCE: CARROL'S RESTAURANT GROUP/BURGER KING.

Carrols Restaurant Group results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Change

Restaurant sales

$271.6 million

$239.9 million

13.2%

GAAP net income (loss)

($3.1 million)

($5.6 million)

N/A

GAAP earnings (loss) per share

($0.09)

($0.16)

N/A

DATA SOURCE: CARROLS RESTAURANT GROUP. 

What happened with Carrols Restaurant Group this quarter?

  • On an adjusted (non-GAAP) basis -- which excludes items like acquisition costs and stock-based compensation -- Carrols' net loss was a narrower $2.8 million, or $0.08 per diluted share.
  • These results compared favorably to investors' expectations for a wider adjusted net loss of $0.18 per share on revenue of $263.9 million.
  • Revenue included contributions from 64 restaurants acquired in 2017. With the start of 2018, Carrols will no longer plan to separately break out its more recently acquired restaurants, the impact of which has grown smaller as the company has increased in size.
  • At the end of the first quarter, Carrols owned and operated 807 Burger King restaurants.
  • Comparable-restaurant sales grew 6.2% year over year.
  • Adjusted EBITDA grew 36.3% to $18.9 million.

What management had to say

Carrols Restaurant Group CEO Daniel Accordino noted that the company benefited this quarter from Burger King's "impactful marketing strategy," as well as its balance of premium, value, and limited-time items, and its pipeline for menu innovation that resonates with consumers in today's crowded dining industry. As such, with the help of the resulting sales leverage, Carrols has been able to drive "solid improvements" in both restaurant-level EBITDA and adjusted EBITDA.

Accordino added:

Given our first quarter performance and continued sales momentum early in the second quarter, we are increasingly confident in our ability to meet our sales and Adjusted EBITDA outlook as updated for our first quarter results. Although labor costs continue to rise as expected, we now forecast that commodity inflation should be somewhat lower than our earlier guidance. With respect to acquisitions, we closed a small transaction in the first quarter and have two small transactions expected to close in the next few weeks. We also continue to focus on our acquisition pipeline and believe that as the year progresses that we will close additional transactions.

Looking forward 

For all of 2018, Carrols now expects total restaurant sales of $1.15 billion to $1.17 billion (up from $1.14 billion to $1.17 billion previously) and adjusted EBITDA of $95 million to $102 million (up from $93 million to $100 million before).

During the subsequent conference call, management explained that this guidance assumes that beef costs should be lower on a year-over-year basis over the next few quarters. In particular, commodity costs are expected to increase 1% to 2% for all of this year, versus previous expectations for a 2% to 3% increase.

All told, there was nothing not to like about this quarter from Carrols Restaurant Group. The company is reaping the fruits of the strength underlying the Burger King Brand, and it has been able to capitalize on that strength by bolstering its profitability. With shares down around 17% over the past year leading into yesterday's close, it should be no surprise to see the stock rebounding today.

Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Carrols Restaurant Group. The Motley Fool has a disclosure policy.