Carrols Restaurant Group Inc. (NASDAQ:TAST)
Q4 2010 Earnings Call
February 24, 2011 8:30 a.m. ET
Paul Flanders - Chief Financial Officer
Alan Vituli - Chairman and CEO
Dan Accordino - President and Chief Operating Officer
Reza Vahabzadeh - Barclays Capital
Kevin McClure - Wells Fargo Securities
Jeff Omohundro - Wells Fargo Securities
Greg Ruedy - Stephens
Arthur Roelick - Numara
Brett Hendrickson - Nokomis Capital Partners
Ladies and gentlemen, thank you for standing by and welcome to the Carrol’s Restaurant Group’s fourth quarter and full year 2010 earnings conference call. As a reminder today’s call is being recorded. At this time all participants are in a listen only mode. Following the presentation we will conduct a question and answer session and instructions will be provided at that time for you to queue up for questions. I would now like to turn the conference over to Mr. Paul Flanders, Carrols’ Chief Financial Officer, for opening remarks. Please go ahead.
Good morning everyone. By now you should have access to the announcement released this morning, which you can also find on our Web site at www.carrols.com under the investor relations section. Before we begin our formal remarks I want to remind everyone that our discussion today may include forward-looking statements.
These forward-looking statements may include comments regarding our strategies, intentions or plans including without limitation our intention to pursue a spin off transaction as disclosed in this morning’s announcement. 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. Alan and Dan will provide some comments on the business and then I’ll walk through the financial results for the fourth quarter as well as provide some commentary regarding 2011. We will then be happy to address any questions that you might have.
Before we start I want to point out that operating results for the fourth quarter and full year 2009 included one extra operating week. For comparative purposes our same store sales changes are presented on a comparable 13-week basis for the quarter and a 52-week basis for the year. I will now turn the call over to Alan.
Thanks Paul and good morning everyone. Before we discuss our fourth quarter results I want to make some comments regarding this morning’s release. As announced, it’s our intention to pursue splitting the company’s business into two separate publicly traded companies through a tax-free spin off of our expanding brands to our shareholders.
The company to be spun off would operate our Pollo Tropical and Taco Cabana businesses, which in 2010 had combined revenues of approximately $439 million. Carrols Restaurant Group would be comprised of essentially then 300 Burger King and franchise Burger King restaurants. The separation is a natural evolution for Carrols.
We believe that it will enable each company to better focus on its respective opportunities as well as to pursue its own distinct growth and business plans. We also believe that a separation offers a potential for improving shareholder value as each publicly traded company would be better positioned to align its business with its respective shareholder objectives. With respect to our Hispanic brands, we believe that both Pollo Tropical and Taco Cabana are differentiated concepts.
Each has broad consumer appeal and each is well positioned for new unit growth and expansion. Our Burger King business has great potential for sales and profitability improvement as Burger King attempts to win back its market share. Also, as a separate company it will be better positioned to capitalize on the growth and acquisition opportunities in the Burger King system. We still have a lot of work to do before effecting the spin off.
This will of course all be subject to board of directors and customary approvals as well as the receipt of a favorable ruling from the Internal Revenue Service among other things. We expect to complete this spin off by the end of 2011. We plan to limit our comments on this matter today since it is premature to discuss many of the related details. In the future we also do not intend to discuss further developments with respect to this separation until such time as material issues are resolved.
Now moving on to 2010, financial results were certainly mixed across our different businesses in 2010. Pollo Tropical and Taco Cabana both generated positive comp store sales results for the full year with Pollo Tropical up 7.4% for the year and Taco Cabana up 0.3% for the year. On the other hand, comparable sales at our Burger King restaurants declined 4.3% following the 2.6% decline in 2009. On a combined basis our Hispanic brands generated 57.7 million in EBITDA, up from about 54.4 million as adjusted in the 2009 year.
While Burger King’s EBITDA conversely fell by 13.1 million to 19.8 million as lower comp sales and margin pressures weighed heavily on the brand. We opened a total of four new restaurants in 2010 including two Pollo Tropical units, one Taco Cabana and one Burger King and closed 12 units, mostly Burger King restaurants. We ended the year with 551 company-owned restaurants and 34 franchised restaurants. We also continued to make progress with the expansion of our Pollo Tropical franchise business in 2010.
In addition to the openings in first franchise restaurant in Trinidad, new development agreements were signed for Aruba and Venezuela, adding to the development agreements signed in 2009 for Honduras, Trinidad, Tobago and Panama. There is a new restaurant development underway in a number of these markets for 2011 as momentum here continues to build. As we look to 2011 we expect our Hispanic brand to continue to demonstrate strong positive trends.
We are cautious with regard to Burger King but hope that as trends begin to stabilize in 2011 that we’ll start to see improvements in both sales and margins. I’d like to now turn the call over to Dan Accordino to address the fourth quarter results in more detail. Dan.
Thanks Alan. We were very pleased with the performance of both Pollo Tropical and Taco Cabana in the fourth quarter particularly given the improvements in their comparable restaurant sales trends. We attribute these results to new product introductions and product line extensions coupled with what we believe were more effective promotional marketing campaigns in 2010.
We also experienced positive results at restaurants that were remodeled in 2010. At Pollo Tropical comparable restaurant sales increased a solid 10.7% including a 12.8% increase in customer traffic. Product promotions during the fourth quarter featured our chipotle chicken sandwich as well as our new split pea soup sold either as separate items or as part of a combo offering. We offer cheesy yucca bites and cilantro garlic dipping sauce value priced at 2.19 on a limited time basis and promoted our wrap combos through a direct mail piece.
Despite having one less week in the fourth quarter of 2010 than in the fourth quarter of 2009, segment EBITDA at Pollo improved to 7.9 million from 6.7 million due to the sales increase. Our EBITDA margin reflected positive P&L leverage and improved 188 basis points to 16.7%. I don’t believe that it’s any secret that we’ve had mixed results with our expansion outside of Florida. Many of these units were developed before the recession and based on demographics that are somewhat different than our current target.
Earlier in 2010 we closed the Staten Island, New York restaurant. In the fourth quarter we closed the restaurant in Hartford, Connecticut. As indicated on our previous calls, we have undertaken certain initiatives to better position the Pollo Tropical concept for successful and sustainable growth as we move forward. In 2010 we began to transform the concept in certain existing markets to provide customers an elevated quick casual experience.
Since late 2009 we have upgraded 14 locations in our Florida west coast, Orlando and northeast markets as part of our brand positioning efforts in addition to restaurant remodeling, enhancements including free table service, Wi-fi, new menu items and the addition of real plates and silverware. We have generally been pleased with the consumer response to these changes. In the fourth quarter we opened two new Pollo Tropical restaurants, one in East Brunswick, New Jersey and one in Jacksonville, Florida.
While both new restaurants are based on the elevated guest service model, the unit in Jacksonville, which is a new market, is the first restaurant that is also in a location based on our revised site selection demographics. These include higher income levels and more general market positioning among other things. While the unit has only been open for about 13 weeks, the customer response has so far been very positive.
While we don’t want to imply that current performance levels are necessarily sustainable, we are past the initial trial period at this point and average weekly sales are still running at about $75,000 per week. We believe that these early results confirm the brand’s broad appeal and have given us increased confidence that our changes have positioned us for more successful growth in new markets.
In terms of 2011 development we plan to open another restaurant in Jacksonville, are looking to develop new sites in Atlanta, Georgia, another new market, and continue to pursue additional locations in the New Jersey market. At Taco Cabana comparable restaurant sales increased 2.3%, a continuation of the improvement that we saw throughout 2010. However, given one less operating week in the period, segment EBITDA for Taco Cabana fell modestly to 7.3 million from 8.1 million and EBITDA margin by 69 basis points to 11.8%.
In 2010 we introduced our obsession marketing campaign, which showcases our cooks making real Mexican food by hand in our restaurants. This campaign coupled with new product introductions and LTO promotions has been effective at improving our sales trends at Taco Cabana. Our promotions during the fourth quarter included a kiolbassa and egg breakfast taco, our new open faced street tacos and our build your own cabana bowl that provides the customer the ability to customize the cabana bowl offering based on individual preferences.
Similar to Pollo Tropical we have also effected enhancements to our Taco Cabana restaurants. We have completed remodeling and service upgrades at 29 restaurants in the Dallas-Fort Worth market in 2010. In 2011 we will finish the remodeling of six restaurants in Dallas and move on to Austin where we plan to upgrade our 20 restaurants in that market. Lastly I’ll address Burger King. Balance at our Burger King business has had its challenges throughout the year.
Sales have been weak reflecting the economic pressures being experienced by its core customer, margins have been under pressure from the brand’s own aggressive discounting that began in late 2009 with the $1 double cheeseburger along with commodity pressures, namely higher beef costs. These issues certainly all factored into our fourth quarter results but were further compounded by the severe winter weather experienced in all of our Burger King markets late in the year.
In the fourth quarter comparable restaurant sales for our Burger King restaurants decreased 6.1% against the 3% negative comparison from 2009 while segment EBITDA declined to 4.1 million from 7.9 million in the fourth quarter of 2009. In 2011 the brand under new ownership and leadership will be employing a back to basics approach to regain lost market share with a focus on core products, reduced discounting activity, more impactful advertising and longer promotional windows.
We hope that these efforts help customers reconnect with the Burger King brand and begin to favorably impact both sales and margins and with that I’ll turn it over to Paul Flanders who will review our fourth quarter financial results.
Thanks Dan. I’d like to reiterate that the fourth quarter and full year 2009 included one extra operating week, which contributed 13.6 million in total revenue. For the fourth quarter total revenues were 194.9 million in 2010 compared to 209.7 million in the prior year. Excluding the effect of the extra week in 2009 for comparative purposes, total revenues decreased 0.6% with our Burger King restaurants down 8.3% and our Hispanic brands increasing 6-1/2% over the fourth quarter of 2009.
Pollo Tropical revenues increased 5.1% to 47.4 million, a 12-1/2% increase adjusted for the extra week with sales at our comparable restaurants up 10.7% on a comparable 13-week basis. This marks the fifth consecutive quarter of positive same store sales for Pollo. Taco Cabana revenues decreased 4-1/2% to 61.8 million and adjusted for the extra week in 2009 increased 2.3%. Sales at comparable restaurants increased 2.3% against a negative 4-1/2% comparison from the prior year on flat customer traffic.
With regards to Burger King overall sales decreased 14.2% to 85.6 million, an 8.3% decrease adjusted for the extra week with comparable sales down 6.1% for the quarter. In addition to the weak comps, we also had a net closing of nine Burger King restaurants since the beginning of the fourth quarter last year. For the fourth quarter net income was 2.6 million or 12 cents per diluted share compared to net income of 4.1 million or 19 cents per diluted share in the fourth quarter of 2009.
Earnings in the fourth quarter of 2010 after impairment and other lease charges of 3.2 million or 10 cents per diluted share after tax as well as favorable adjustments to our income tax expense of $600,000 or 3 cents per diluted share. Earnings in the fourth quarter of 2009 included impairment and other lease charges of 2.4 million or 7 cents per diluted share after tax and included the benefit of one extra week, which contributed 7 cents per diluted share.
Said another way, excluding the effect of the charges, favorable tax adjustments and the extra week in 2009 earnings were 19 cents per diluted share in both years. Overall cost of sales was 30% of restaurant sales and increased 30 basis points compared to the fourth quarter of 2009. Burger King cost of sales increased 12 basis points as higher commodity costs, namely beef, which increased more than 15% year over year, were offset by favorable mix changes from the lapping of the $1 double cheeseburger.
Pollo Tropical cost of sales was 72 basis points lower reflecting both favorable mix changes and lower chicken prices compared to 2009. Taco Cabana increased 92 basis points reflecting higher commodity costs partially offset by favorable mix shifts. Restaurant labor cost decreased 49 basis points in the fourth quarter to 29-1/2% of restaurant sales as we leveraged sales increases at each of our Hispanic brands by 80-90 basis points offset in part by sales deleveraging at Burger King.
Restaurant operating expenses, which exclude rent and advertising were 14.2% of sales or 25 basis points higher than the fourth quarter of 2009. Advertising expense was 6.9 million or 9 basis points lower in the fourth quarter compared to the fourth quarter of the prior year and on an absolute basis decreased 700,000 due to lower Burger King advertising contributions because of the lower sales. General and administrative expenses were about $650,000 higher in absolute dollars compared to the fourth quarter of ’09 in part due to higher bonuses at Pollo Tropical and as a percentage of total revenue were 81 basis points higher than the year ago period.
And lastly, interest expense was essentially flat at 4.7 million. Impairment and other lease charges were 3.2 million in the fourth quarter of 2010. Impairment charges from Pollo Tropical were 2.2 million including charges relating to two restaurants in Orlando, one of which was closed in January 2011, and $800,000 related to a New Jersey restaurant. Lease termination charges were $700,000 including charges related to a Pollo Tropical restaurant closed in the fourth quarter of 2010 and reserve adjustments for five other Hispanic brand restaurants previously closed.
And lastly, there were also $300,000 in impairment charges related to four Burger King restaurants. For full year net income was 11.9 million in 2010 or 55 cents per diluted share compared to net income of 21.8 million or $1.00 per diluted share in 2009. Both years included non-recurring gains and impairment and other lease charges, which in the aggregate reduced earnings by 21 cents per diluted share in 2010 and 6 cents per diluted share in 2009.
And again the extra week in 2009 added net income of 7 cents per diluted share. At the end of 2010 total debt was 263.5 million, a decrease of 19.6 million for the year and a decrease of 12 million in the fourth quarter. Our financial leverage was about the same as last quarter but has increased slightly from the beginning of the year due to the EBITDA decline at Burger King. Our financial leverage ratio or debt to EBITDA was 3.35 times as calculated for purposes of loan compliance.
Capital expenditures for 2010 were 37.0 million compared to 36.9 million in 2009. Covered in this morning’s release, we plan to undertake a refinancing of our existing debt and we plan to do so with a separate financing of the Burger King and Hispanic brand businesses. Our intent in bifurcating the financing is to facilitate the contemplated spin off at a later date and avoid having to alter or reconstitute the capital structure at that time.
Presently our plan is to complete this refinancing by mid 2011. We are not providing specific earnings per share guidance for 2011. However, we do provide the following information, which does not include any impact from the potential spin off transaction or the refinancing. Our Hispanic brands we expect comparable sales to increase 3-5% for Pollo Tropical and 1-2% for Taco Cabana. While we have less visibility with regards to Burger King comparable sales, we believe that the brand should begin to improve from the 2010 levels.
Commodity costs are expected to increase 2-1/2 to 3% in our Hispanic brands and increase 5-6% at Burger King. We plan to open 5-10 new Hispanic brand restaurants and to relocate one Burger King restaurant. We expect to close one Pollo Tropical, one Taco Cabana and 10 Burger King restaurants excluding the relocation. Total capital expenditures are estimated to be 45-55 million and lastly, our annual effective tax rate is estimated to be between 35-36%.
Finally, I’d like to provide some commentary regarding our sales trends. As I’m sure you’re aware, the severe winter weather has affected almost all of our markets. Through the first seven weeks of the quarter Burger King comparable restaurant sales were down about 7-1/2%. Taco Cabana comparable sales were down slightly at 0.3% after trending at about 2% positive prior to the storms in late January and early February.
Although there has been a little cold weather in Florida, Pollo Tropical has been relatively unaffected by the weather except in the northeast. Pollo Tropical comparable restaurant sales increased about 12% for the first seven weeks. And with that operator, we’ll now open the line for questions.
Question and Answer Session
Thank you sir. Ladies and gentlemen, we will now begin the question and answer session. If you have a question please press the star followed by the 1 on your touchtone phone. If you’d like to withdraw your question press the star followed by the 2. And if you’re using speaker equipment today it will be necessary to lift your handset before making your selection. And our first question comes from the line of Reza Vahabzadeh with Barclays Capital. Please go ahead.
Good morning. Just a housekeeping item - how much of your full year CapEx from last year was attributed to your Hispanic brands?
I’ll have to pull that up. Go ahead. I’ll come back to that.
Okay. And then you talked about the different commodity cost outlooks for the different segments. Is that because of the different input costs? Or is that also reflecting your hedged positions?
Obviously it’s reflecting both the increase in costs and the degree to which we have hedged those costs. Yes, it’s post hedge.
Right. And would you anticipate the momentum that you’ve experienced so far at Taco to continue?
Reza, repeat the question.
Would you expect the same sort of sales momentum that you’ve enjoyed so far at Taco to continue into 1Q in 2011?
Reza, the CapEx number for the Hispanic brands is about 24 million in 2010.
Got it. And then on the same store sales weakness experienced at Burger King concept, how much of that would you anticipate was weather?
That’s a good question. Dan, you want to take this?
Yes. It’s difficult Reza but as best as we can calculate it’s probably around 3-1/2 to 4%.
3-1/2 to 4% of the 6%?
And the same in the first two months of first quarter?
No. I’m dealing with the first part of 2011. In the December period it’s probably half of the 6% as well.
Got it. And as far as the BK concept is concerned, any visibility as far as the marketing game plan?
Well, we’re working on the calendar and we are quite familiar with what the calendar looks like. And as we said in the prepared comments, it’s a back to basics approach with a focus on the core menu items and continual discussion around value and breakfast.
Has there been any movement in net pricing in the QSR segment that you noted or at least a moderation in promotional activity?
Yes. McDonald’s has raised some prices and we are also raising prices in our Burger King restaurants.
Got it. Thank you.
Thank you. Our next question comes from the line of Bryan Hunt with Wells Fargo Securities. Please go ahead.
Good morning. This is Kevin McClure in for Bryan. Paul, Alan, could you comment on Burger King or your acquisition strategy for Burger King? Any additional color you could provide around the markets you’re looking at, the number, whether you think that you should increase your exposure to Burger King at this time? Any color you could provide about that would be helpful. Thanks.
Clearly I mean the bifurcation does emancipate the businesses from each other. And clearly in the past we have demonstrated our ability to both acquire and integrate Burger King restaurants. The BK brand in this industry is a very significant business. Obviously we see opportunities all the time in this business and have chosen to really allocate most of the capital to the in terms of growth capital to the Hispanic brands.
I think I can’t give you any more specificity with respect to how acquisition opportunities come along. But there are huge numbers of restaurant that just in the normal course come available. We probably try to confine ourselves to this part of the US potentially Canada as well, but much more on the right up to the mid-Atlantic states where we already operate restaurants.
Okay. And can you comment on your interactions with Burger King corporate, how those discussions have gone? What do you think of the new management team? Basically anything you can offer on that?
It’s a new brood and they’ve got some clear and dynamic views with respect to what they plan on doing with the business. And for us as a franchisee in a relatively mature business I think the best way to describe us is a company that will take advantage of the opportunities as they develop. But to provide any subjective comments on the management team at Burger King would be just premature at this time.
Okay. And lastly just regarding your outlook for commodities inflation at your Hispanic brands and Burger King, can you comment on the extent to which you have forward bought? Some of your commodities are contracted to purchase, your needs for Pollo Tropical, Taco Cabana and Burger King?
Dan, you want to handle that?
Kevin, we are partially hedged in terms of the chicken contract with Pollo, which is our primary commodity there. And we’re pretty well fully hedged on the rice and beans and the other kinds of major items at Pollo. At Taco we’re partially hedged on cheese, partially hedged on beef. So we’ve got a fair amount of our exposure already covered.
Okay. Thank you very much.
Thank you. Our next question comes from the line of Jeff Omohundro with Wells Fargo Securities. Please go ahead.
Thanks. I have some questions on the spin off and to the extent you’re willing to comment or have determined yet, how are you thinking about the respective leadership teams, the respective CEOs, who they’ll be for the two public companies?
Obviously we have talked and thought an awful lot about it. It’s a little premature Jeff. We’ll give you an answer for that one as soon as it becomes a little more concrete.
And secondly on the upcoming refinancing and this also might be premature but how are you thinking about splitting the debt? Would it be weighted more heavily toward BK? Or are there any thoughts about that yet?
Let me first try and Paul if you want to, you just jump in. You obviously try to match your debt with your capital needs going forward and you try to basically access what’s available. The Burger King debt would probably represent the prudent level of debt to EBITDA given the fact that acquisitions would probably have to be financed with added funds, additional debt.
Whereas the Hispanic brand debt is really intended to maximize cash flow in order to facilitate a more expansive growth strategy. I don’t know if that…
That’s helpful at least in terms of some color on it. And then on Jacksonville, I’ve been to that unit. I just want to follow up on that comment regarding the stabilization it sounds like around 75,000 a week. Is that correct? Do you think that it will sustain at that level? And is there anything unusual about how that unit opened to support such a high average weekly sales?
Let me break it into two pieces. You know, we use the word stabilize. We’re probably going to go into a phenomenon in Jacksonville where we end up with three restaurants, potentially four restaurants. The effect of that will make that number, the $75,000 a week number lower. But the degree to which it would be lower, it certainly is too busy at 75,000 even though they’re doing a pretty good job of executing.
So we’d almost engineer to get that volume down. The sustainability of the uniqueness of Jacksonville is not nearly as unique as it would sound. We changed the brand around as you saw when you were there. We continue to make modifications to the brand. I mean it’s clear that what we’ve done is change direction over the last two years. What we did was take a brand that was an Hispanic brand and have now made it a general market brand but trying to retain its Hispanic flavor.
I can’t answer the question any better than that. I mean stabilization at 75,000 does not sound like a prudent business idea in Jacksonville. Would we open restaurants that did 40,000 in Jacksonville? Absolutely and it’s likely that that’s the kinds of volumes that we’re going to be seeing in the additional restaurants in Jacksonville.
And in terms of the remodeling results, has there been a shift in terms of in-store dining and this is at Pollo? And in general the trends at the remodeled units, are they meeting the expectations that you had had on that?
They are. They continue to build and it continues to create a halo effect on the other parts of the business. So even though for example the drive through customer is hardly affected by some of the service initiatives, the increase in sales seem to be weighted toward the dinner but we’re seeing increases in all day parts.
Very good. Thank you.
Thank you. Our next question comes from the line of Greg Ruedy with Stephens. Please go ahead.
Thanks. Good morning. I wanted to circle back to Jacksonville. With that first unit doing so well did you spend a little bit more on the real estate? And what kind of economics do you need on kind of the newer positioned concept versus the average of 1.8 million a year?
No we didn’t spend much more on the real estate. The unit is slightly larger. Land was not extraordinarily expensive. We did spend more with respect to some of the experimental components that we put into Jacksonville. Prospectively our business model runs on unit economics that require a restaurant to do about $1.8-2 million a year off of our current cost structure.
We’re also exploring alternatives to conventional free-standing buildings just given the technology that is coming about in which consumers are more apt to be ordering ahead and not using the drive through. That would facilitate us going inline or in cap, which would lower our investment costs considerably. That probably is a couple of years away. And certainly the pattern is very visible in terms of consumers ordering that way.
But in the current mode we need about 1.8-2 million a year to justify some of the land costs and other costs.
Okay. In the first quarter I believe you closed a unit in Orlando. Was that a unit that had been upgraded? And if so, what was it that didn’t take there?
The transition for this company from sort of what was lower middle class/middle middle class and highly skewed Hispanic to what is now clearly middle middle and something north of middle as our new demo where the proclivity to eat out is higher, where disposable income is higher, Poinciana, which is the unit we closed, didn’t have those demos.
And the feeling was that no matter how much energy we would throw against it, it was simply going to…
Thank you. Our next question comes from the line of Arthur Roelick with Numara. Please go ahead.
Hi. Good morning guys. A couple questions - one, can you take us through just the thought process with regard to the corporate finance solution you guys have come up with regard to the spin? And I guess just sort of looking at obviously in aggregate the company has about 80 million of EBITDA.
You’re going to have two businesses now that are publicly traded, one that’s extremely small and the other one is quite small. And what are your general thoughts about the spin versus obviously you’ve got Jefferies in there as a large equity holder versus just taking the company private? What was the sort of decision tree?
What was the last part of that?
Well, the last part of it was Jefferies obviously is a private equity firm. They own a large piece of your equity. Why not take the company private versus doing the spin off with these sort of two micro caps trading in the public markets?
Well, I think in terms of our Hispanic brands I think we clearly believe that there are long term growth opportunities and that we’re better served to be in the public markets to take advantage of the capital that might be required for that as we ramp development prospectively. I think in terms of our thinking regarding the spin off I think clearly we wanted to make this a tax neutral transaction certainly to the shareholders and to the company in which case it’s one of the reasons we went down the spin off path.
Have you considered then with the Burger King being sort of a node, a low growth type business then not putting much debt on it at all and just simply having that being a dividend paying equity?
Well, we haven’t been growing the Burger Kings predominantly because as we allocate capital we’re getting higher rates of return on invested capital on the Hispanic brands. So we have been using the cash flow from Burger King not because we’re not bullish on the brand long term but simply it’s a capital allocation issue.
I think as a separate business we believe that Burger King does in fact have opportunities to continue to grow and that we can leverage that as we go forward.
Guys, I’m back on. Sorry.
Okay. And then is it safe to say then given what you’re saying that once the companies are separated on the Hispanic brands side that you would come and probably look to do an additional equity raise in order to have capital and use that as sort of growth equity to roll out the brands in a more meaningful way?
The answer to that is clearly yes.
And what was the thought about not taking the company just private with Jefferies in there and then having them provide the growth capital and doing it where you’ve never really gotten a very good multiple, at least in the last several years? I mean you’re one of the cheapest publicly traded restaurant companies that isn’t in sort of financial distress.
I can’t speak for Jefferies at this time. It was certainly on the list of possibilities. At the end of the day our sense was that both brands had a calling and that we needed accessibility to the capital markets and that we didn’t want to burden the company with excessive debt during what we consider the really promising period.
Fair enough. Thank you.
Thank you. Ladies and gentlemen, as a reminder for any questions please press the star followed by the 1 on your touchtone phone. If you are using speaker equipment it will be necessary to lift your handset before making your selection. And our next question comes from the line of Brett Hendrickson with Nokomis Capital Partners. Please go ahead.
Hey guys. I think you answered my question to the extent you can but I’ll follow up offline. Thank you.
Thank you. Ladies and gentlemen, as a final opportunity for any questions please press the star, 1 at this time. One moment please. And I show no further questions in the queue at this time. I’d like to turn the conference back to management for closing remarks.
Well, we thank you for your patience and we thank you for your interest in our company. We certainly think that we’re taking a dynamic step that will cause shareholders to appreciate the value of each of our brands better by separating them into two separate companies - one, the mature Burger King business with an acquisition philosophy strategy and the zeal for the turnaround.
And the second, the two Hispanic brands, which we feel are differentiating, differentiated and uniquely positioned in some ways for substantial growth. With that, we’ll talk with you on the next quarter.
Ladies and gentlemen, this concludes the Carrols Restaurant Group’s fourth quarter and full year 2010 earnings conference call. Thank you for your participation. You may now disconnect.