, At Carrols Restaurant Group, weak sales have not necessarily meant weak profits.
The Syracuse, N.Y.-based franchisee, one of the largest franchisees in the country, said same-store sales at its Burger King locations turned positive in the week ended June 7—up 2.5%, culminating nine weeks of improvement since they bottomed out at a decline of 34% the last week of march.
Carrols is the burger chain’s largest franchisee, meaning those numbers are meaningful.
But the biggest improvement for the franchisee is in another number: Adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA.
Carrols expects its adjusted EBITDA this quarter to range from $28 million to $32 million. That would be substantially higher than estimates and several times higher than the $4 million it did in the first quarter.
To put the number in perspective, Carrols’ adjusted EBITDA was $23 million in the fourth quarter of last year. The last time it was $32 million was the second quarter of 2018, according to the financial site Sentieo, when it was $33 million.
The numbers highlight an irony with fast-food chains and the pandemic: As the shutdown persisted, quick-service operators have seen improved profits even as their sales declined.
Chains have been getting most if not all of their sales through the drive-thru. Closed dining rooms have enabled them to target labor at a single window, without worrying about serving dine-in customers or cleaning after them.
Restaurants have generally served fewer customers, but the patrons tend to place bigger, more profitable orders.
Cash-preservation techniques have also improved profits for many operators.
Carrols generated considerable fear going into the pandemic because the company has a lot of debt and was taking steps to improve cash flow to pay that down. The company said it would cut back on acquisitions and remodels back in February so it could build up profitability. Moody’s Investor Service downgraded the company’s credit rating in March.
The company temporarily closed some restaurants, cut back further on capital spending and cut back on other costs. Carrols did not take Burger King up on its offer to defer royalty payments, however.
To be sure, it’s uncertain how long the improved sales will last for fast-food chains. At least some of the sales boost is coming from stimulus funds expected to last only through the end of this month. The return of dine-in service at many concepts and a reopening of the economy could further shift service back to normal.
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