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Carrols Restaurant Group, Inc. (NASDAQ:TAST)

Q3 2011 Earnings Call

November 7, 2011 4:30 PM ET

Executives

Paul Flanders – VP and CFO

Alan Vituli – Chairman and CEO

Tim Taft – CEO, Fiesta Restaurant Group, Inc.

Dan Accordino – President and COO

Analysts

Jeff Omohundro – Wells Fargo Securities

Bryan Hunt – Wells Fargo Securities

Paul Simonour – JP Morgan Chase

Bryan Elliott – Raymond James

Ken Bann – Jefferies & Co

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Carrols Restaurant Group Third Quarter 2011 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Monday, November 7th, of 2011. I would now like to turn the conference over to my host for today, Mr. Paul Flanders, Carrols’ Chief Financial Officer, for opening remarks.

Please go ahead, sir.

Paul Flanders

Good afternoon, everyone. By now you should have accessed the announcement released earlier, which can also be found on our website 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 spin-out transaction of Fiesta Restaurant Group. 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 risk that could impact our business and our financial results.

With that, I’ll now turn the call over to Alan Vituli, Carrols’ Chairman and Chief Executive Officer.

Alan Vituli

Thanks, Paul, and good afternoon, everyone. I’m pleased to report that we delivered solid results despite our – during the quarter despite inflationary pressures and the economic uncertainty and market volatilities that we’re facing. Overall revenues increased 5%, including an 8.9% increase at our Fiesta brands. Pollo Tropical’s performance remains strong, with a 7.9% increase in comp restaurant sales. Taco Cabana continued to build momentum, with comp restaurant sales increases of 5.3%. Our Burger King comp restaurant sales increased 1.6%, reflecting the progress being made by that brand during the quarter. We also expanded operating margins and excluding non-recurring items, grew diluted earnings per share by almost 20%. Given the current environment, I’m proud of these accomplishments.

The – during the quarter, we expanded Fiesta with the opening of two new Pollo Tropical restaurants. We opened our first unit in the Atlanta, Georgia market followed by the opening of a new unit in the Jacksonville market. The Atlanta restaurant has gotten off to a great start, with average weekly sales currently in the $65,000 to $70,000 range.

The Jacksonville restaurant, which is our second location in that market, also opened very well with sales currently running more than $60,000 a week. We’ve seen little impact from the opening of this new unit on the restaurant that we opened last year in Jacksonville. Its weekly sales continued to hold at around $65,000. These results continue to build our confidence in the expansion of the Pollo Tropical brand to the general market.

We’ve also opened a new Taco Cabana restaurant in the Dallas market, bringing our Taco Cabana openings to four for this year. The latest unit, which opened mid September is initially running about $55,000 a week. Collectively, the four Taco Cabana openings in this year are running about 15% higher than the system-wide average, reflecting the changes that we made with the brand.

With regard to the spin-off, having completed the refinancing of our debt, we continue to move forward with the separation of Fiesta, yes, this is the parent company of Pollo Tropical and Taco Cabana and that separation is from our Burger King business. We’re still waiting the private letter ruling from the Internal Revenue Service, and we’ve taken the steps necessary to register the Fiesta shares with the Securities and Exchange Commission. At this point we’re aiming to complete the spin-off early in the first quarter of 2012.

As announced last week, I will be retiring from Carrols Restaurant Group affective December 31, 2011 as its CEO, and shortly thereafter as its Chairman while continuing with Fiesta Restaurant Group as the Chairman of its Board. I leave Carrols and our Burger King business in the capable hands of Dan Accordino, who has worked with me as Carrols’ President and Chief Operating Officer for many years. Dan has a deep understanding of the Burger King business and is well suited for his new role as CEO. Dan will provide you with a strategy for the Burger King business going forward. I also look forward to working with Tim Taft in my role as Chairman of Fiesta, as he takes the Pollo Tropical and Taco Cabana brands to the next level.

With that, I’d like to introduce you to Tim Taft, who will give you an update on the Fiesta business. As you know or may recall, Tim joined Fiesta as CEO in August and has been tasked to accelerate the unit growth of our Pollo Tropical and Taco Cabana businesses. After Tim reviews the Fiesta business then we’ll update you on our Burger King business and then Paul will review our third quarter financial results.

With that, I’ll turn the call over to Tim.

Tim Taft

Thanks, Alan. I’m pleased to be joining everyone today on today’s call and look forward to talking with you about Fiesta Restaurant Group in the quarters ahead. This was obviously a very exciting time for the entire company and I’m pleased to be on board as Fiesta begins its journey to being an independent publicly-traded company. Many of the initiatives undertaken in the past couple of years have enhanced the positioning of our two brands, broadened our demographic appeal and positioned us for growth. Alan touched on our recent openings. The success that we’re having with Pollo Tropical and Taco Cabana in our new and existing markets is evident. Based on my initial observation, I’m confident that we can realize the potential of both of these brands as we pursue our expanse strategy and move forward in our dynamic, yet disciplined, manner.

So far as I visited many of our markets and our restaurants, I’ve encountered quality operating teams and a seamless desire and commitment level that’s necessary to drive our performance to a higher level throughout the organization. To this end, our teams will be focusing on several pillars to drive Fiesta’s future success. Growth, this includes growth in comparable restaurant sales, new unit growth, and the development of our people within our management team to support our growth.

Our facilities, we’ll be focusing on re-imaging and remodeling initiatives, operating clean, well-maintained restaurants and value-engineering new unit costs to improve our unit economics. Operating excellence, an on-going focus on customer service, cleanliness, speed of service, food quality and cost management. And lastly, brand management, new and differentiated products, effective advertising and promotion and costs of supply chain management initiatives. It’s a long list and we’ve got plenty of work to do. But I’m excited to be on board to lead these two great brands to much higher levels of growth and profitability.

Now let’s turn our attention to the third quarter itself. At Pollo Tropical, comparable restaurant sales increased a solid 7.9% marking eighth consecutive quarter of positive comparable unit sales at the brand. Segment EBITDA improved to $8.6 million from $7.5 million last year and segment EBITDA margin expanded by 56 basis points to 16.3% despite higher commodity costs. We believe that the brand’s stellar growth – sales growth has primarily been driven by effective promotional activity, differentiated products and new menu items initiatives and by a compelling value proposition which our customers are rewarding us with by their loyalty and frequency.

Key products and promotion in the quarter included our new Chicken Avocado Club Wrap and our new Chicken Avocado Salad, both offered as value combos and supported with TV advertising. We also employed direct mailers with coupons in July and September, and in mid-September introduced our Chicken Chipotle Sandwich.

At Taco Cabana we’ve continued to experience positive momentum as reflected by a comparable restaurant sales increase of 5.3%. Taco Cabana’s segment EBITDA increased to $7.4 million from $6.5 million in the third quarter last year while segment EBITDA margin expanded 56 basis points to 10.7%. In the third quarter, we continued to promote our Chicken Street Tacos and in July, we rolled out sopapillas, which are a light, fried pastry popular throughout the southwest. We also introduced our new Puebla Tacos with grilled steak or chicken topped with fresh vegetables, creamy Italian – avocado sauce, pico de gallo with chopped bacon.

As was mentioned on the last conference call we’ve expanded our social media strategy with the launch of an integrated marking program featuring actress/comedian Anjelah Johnson in both our TV advertising and social media efforts. We continue to see positive results as we capitalize on Johnson’s social media Internet following to create buzz and brand loyalty at Taco Cabana.

With that, I’ll turn it over to Dan to review the Burger King business.

Dan Accordino

Thanks, Tim. We were encouraged to see modest top line growth at our Burger King Restaurants. Comparable restaurant sales increased 1.6% which is the first quarter that we’ve seen positive same-store sales in nine quarters, since the early first quarter of 2009. This improvement reflected favorable mix shifts and a continuation of better balancing of our value products and promotions. Customer traffic while still negative did show some stabilizing trends, although segment EBITDA declined about $200,000 to $6.2 million due to some G&A increases, restaurant-level EBITDA actually improved for the quarter when compared to last year due to the leveraging of restaurant labor and lower utility costs.

We are beginning to see much change as the brand default repositions itself for transformation. We are early in this process of course but there are more initiatives, product enhancements and operational changes and we’ve seen in a very long time. In August, Burger King launched its new advertising campaign and refreshed marketing image. Along with its new advertising agency McGarryBowen, the brand has redirected its marketing message with more focus on our products and the quality of ingredients with advertising created to appeal to a broader audience.

The initial promotion with McGarryBowen featured the launch of the California Whopper Sandwich the whopper made with creamy guacamole, melted Swiss cheese and crisp bacon. This promotion ran from mid-August through mid-September. In late September the brand also added a line of soft serve sundaes and handspun shakes. This product launch was highlighted by a three-week promotion offering of a free soft-serve cone with a purchase of a value meal and at over 100 per-day per-restaurant, we received pretty good consumer trial.

Other featured products during the quarter included a bacon cheddar ranch tender crisp and the Angry Whopper, which was reintroduced late in the second quarter. We also offered the BK minis miniature sandwich packs with either beef or white meat chickens available in 4, 8 and 12 packs. Lastly there was a continued focus on the value-oriented stacker products, featuring a single, double and triple stacker priced between $1 and $3.

The product pipeline remains active as we’ve moved into the fourth quarter. Burger King recently added its new BK Toppers line of 3.2 ounce fire-grilled burgers a lineup that includes a deluxe cheeseburger, a mushroom and Swiss burger and the western barbecue cheeseburger, all priced at $1.99. We also just introduced the BK Chef’s Choice burger, a premium flame-grilled sandwich offered at a $4.99 price point. This 5.5 ounce burger is made with ground chuck and comes with thicker pieces of cheese, thick cut bacon, romaine lettuce, red onions and tomatoes served with a grill sauce on an artisan bun. Lastly, we just introduced a new thicker-cut French-fry.

As I said earlier, there is a lot going on and many transformational changes that are just beginning for the brand. We are optimistic and hopeful that as we move forward, Burger King will begin to regain market share, expand its customer base and experience sustainable traction in its performance.

With that, I’ll now turn the call over to Paul to discuss our financial results.

Paul Flanders

Thanks, Dan. In third quarter total revenues increased 5% to $211.8 million from the prior year with revenues from Fiesta Restaurant Group increasing 8.9% to $121.2 million. Pollo Tropical revenues increased 10.7% to $52.7 million with comparable restaurant sales up about 7.9% against the positive 8.8% comparison from the prior year. Customer traffic increased 5.8% and average check increased 2.1% due to pricing. Taco Cabana revenues increased 7.5% to $68.5 million with comparable restaurant sales up 5.3% against the positive 1% comparison from the prior year. The average check increased 6.4% reflecting favorable mix changes along with 3.7% of effective pricing. Customer traffic decreased 1.1%.

Finally, Burger King revenues increased 0.3% to $90.6 million with comparable restaurant sales up 1.6%. Customer traffic, although improving sequentially, decreased 5.8% at Burger King. Average check increased 7.8%, reflecting mix shifts from more effective value strategies along with 4.8% in effective pricing. For the quarter GAAP net income was $3.4 million or $0.15 per diluted share compared to net income $4.6 million or $0.21 per diluted share in the third quarter of 2010.

Earnings included non-recurring items of $2.8 million before taxes or $0.09 per diluted share after tax, mostly due to a $2.4 million charge of our early extinguishment of debt. Earnings in last year’s third quarter included an insurance fee of $0.4 million or $0.01 per diluted share after tax. Adjusting for these non-recurring items, EPS was $0.24 per diluted share in the third quarter this year compared to $0.20 last year.

Overall, cost of sales was 31.1% of total restaurant sales, an increase of 122 basis points compared to the third quarter of 2010, primarily from commodity inflation at all three brands. Pollo Tropical and Taco Cabana cost of sales increased 164 basis points and 142 basis points respectively, with higher chicken costs at Pollo Tropical and higher beef and cheese costs at Taco Cabana driving our commodity increases. At Burger King, cost of sales increased 73 basis points compared to last year’s third quarter. Average ground beef costs at $1.80 per pound dropped about 8% sequentially, however, this was still 11.8% higher than the third quarter last year.

In terms of operating expenses, we were able to leverage the sales increases on most P&L items. Restaurant labor costs decreased 86 basis points from the prior year and were 28.5% of restaurant sales on a combined basis. Restaurant operating expenses, which exclude rent and advertising, were 14.3% of total sales or 40 basis points lower than last year. Advertising expense was $8.3 million for the quarter and $586,000 or 49 basis points lower than last year, primarily from the timing shift in Taco Cabana’s advertising, which was skewed more heavily to the third quarter of last year.

General and administrative expenses were $1.7 million higher in absolute dollars compared to the third quarter of 2010 and 51 basis points higher as a percentage of revenues. This increase included $1.1 million in higher bonus expense, $223,000 for spin-off related expenses and $312,000 increase in stock compensation expenses.

As I said earlier, non-recurring items negatively impacted earnings per share approximately $0.09 per diluted share for the quarter, mainly from the $2.4 million charge related to the early extinguishment of debt. This charge included the write-off of unamortized debt issuance costs in the prior financing as well as costs related to the tender offer for the outstanding senior subordinated notes. Non-recurring items also included the spin-off-related expenses and a$ 105,000 loss on the sale of a property.

Income from operations was $13 million, increasing from $12.1 million in the third quarter of 2010, and as a percentage of total revenue, increased 16 basis points to 6.2%. Interest expense increased to $5.8 million for the quarter from $4.7 million in the prior year. While overall debt balances were about the same as the third quarter last year, our weighted average interest rate has increased due to the rate increases on the senior credit facility along with the $35 million dollar shift from bank debt to our high-yield debt.

Total outstanding debt was $276.2 million, including Fiesta’s $200 million eight-and-seven-eighths senior secured second lien notes and Carrols LLC $65 million term loan borrowers. At the end of the quarter, there were no borrowings under either the Carrols LLC or Fiesta revolvers. Cash balances total about $22 million, including approximately $9 million accumulated by Fiesta since the refinancing.

Capital expenditures in the third quarter of 2011 were $12.2 million. Fiesta CapEx totaled $5.7 million, including $2.9 million for new units and $1.3 million for remodeling. Burger King CapEx totaled $6.5 million including $2.7 million for remodeling and $2.1 million for equipment related to some of the new product initiatives, including the soft serve ice cream rollout.

Based on year-to-date results and our expectations for the fourth quarter of 2011, we’re providing the following updated information for the full year, which doesn’t include any impact from the planned spin-off of Fiesta. We expect a comparable restaurant sales increase from approximately 8.5% to 9.5% for Pollo Tropical and approximately 3.5% to 4.5% at Taco Cabana. Burger King comparable sales are expected to be approximately 1% to 2% negative for the full year. Commodity costs are still expected to increase 5% to 6% for Pollo Tropical, 8% to 9% for Taco Cabana and 5% to 6% for Burger King. Fiesta will open six new restaurants, all of which are open. For the balance of the year, we also anticipate closing one or two more Burger King restaurants.

Total capital expenditures are estimated in the $49 million to $51 million range. Interest expense is still expected to increase approximately $2 million to $2.5 million compared to last year due to the refinancing. And lastly, our annual effective tax rate is estimated to be 28% to 29%

With that, we’ll now open the line for questions.

Question-and-Answer Session

Operator

Absolutely. (Operator Instructions) And our first question comes from the line of Jeff Omohundro with Wells Fargo Securities. Please go ahead.

Jeff Omohundro – Wells Fargo Securities

Thanks. First I guess, Dan, I wonder if you could give us a little more detail on what you think is driving the turn at BK and BK comps improvement? What are your thoughts around the product component versus the messaging?

Dan Accordino

They’re – we’re in the throws, Bryan, of introducing a significant number of new products as well as the way that both products are prepared. In the past few months, we’ve introduced the toppers as we indicated, which is $1.99 product. It comes in three different varieties. The Chef’s Burger, the new BK Chef’s Burger was only launched about three weeks ago. The ice cream and smoothies were rolled out in September – August, September. There’s a new thick sliced bacon product which is receiving high scores on the sandwiches as well as the breakfast platters. The new thick cut French fries were only launched three weeks ago.

So the brand is in the process of significant modifications and improvement in its products, its menu structure and how these menu items are prepared in the kitchen. Everything, the vegetables are freshly prepared in the restaurants. The bacon is now cooked from a raw state in the restaurants. The microwave ovens have been eliminated. So I think there’s a lot that’s going on in terms of Burger King’s positioning is the QSR food authority.

Jeff Omohundro – Wells Fargo Securities

And then I might have missed it, but Paul, did you give an update on commodity contracting and you’re thinking about, particularly on the Fiesta side, commodities in 2012?

Paul Flanders

I didn’t give it. I gave an update on 2011. We’re still in the process of finalizing the contracts. I think in general I would say that our inflation at this point looks to be certainly lower than it was in 2011, I think for certainly in the low mid-single digits at all three brands at this point.

Alan Vituli

So, yes, don’t lose sight of our pricing power for each of the brands especially the Fiesta brands and the transformed Burger King with its new products as it might substantially – better pricing power during the period where we were dealing with a $0.99 menu.

Jeff Omohundro – Wells Fargo Securities

Thanks.

Operator

Thank you. And our next question comes from the line of Bryan Hunt with Wells Fargo Securities. Please go ahead.

Bryan Hunt – Wells Fargo Securities

Thank you. I was wondering if you all could talk about any differences in the new Pollo Tropicals that opened in Atlanta and the second store in Jacksonville and whether one, there is any physical differences between those stores and the first Jacksonville store as well as, second, whether there was any different messaging you brought to the community as you rolled those stores out?

Paul Flanders

Bryan, I’m going to ask Tim to answer that question, but recognize that you’re getting a very fresh pair of eyes with Tim having joined us in August and then I’ll see if I can supplement Tim’s answer. Tim?

Tim Taft

Thank you. I think the answer to your question is there is no real material difference in the first two restaurants that we have at Jacksonville as well as the one in Atlanta. All three of those represent an elevated concept versus our core markets in Southern Florida, but in terms of the service platform, in terms of menu, in terms of the physical plant with the exception of a couple of reader boards or some electronic POP and the repositioning of the salsa bar, the brands – and the brand representation is very, very similar in those three restaurants.

Alan Vituli

Bryan, if I could just sort of add to where we’re going with this. Basically, we see our revenue sources as coming from three distinct streams. One, the launch both on and off premises and thus we’d better be in a position to have speeds and values that can compete with fast food. Our off premises business, in terms of home meal replacements, where consumers want real food for dinner to be taken home in sort of a convenient manner. We’ve always had a strong business and I think if Jacksonville and Atlanta say something about the transition of Pollo Tropical it’s that we recognize the fact that we’ve had great food, but that the consumers’ expectation for in-store, that in-store experience has always been something that our loyal customers loved us for, new customers scratch their head and said, do I want to eat in a fast food restaurant for dinner?

And I think where we’re going with it through a sequence of steps is positioning it into something that we can call, convenient casual. And I think what’s showing up is that non-Hispanic people are recognizing these brands as a great place to go for dinner if you’re looking for a convenient casual dinner, and I’m sure we’ll continue to be building on the convenient casual theme for dinner.

Bryan Hunt – Wells Fargo Securities

And then just two more questions. One, can you talk about maybe the day part trends at Taco Cabana? I know there’s been a lot of late night competition and also breakfast competition. Could you talk about where you’re seeing the benefits of the remodeled stores as well as the new stores? Whether there’s any material difference between the day part sales in the traditional stores and the new stores?

Paul Flanders

Tim, do you want to give it a shot?

Tim Taft

Sure. Thank you, Alan. I think the answer to your question is that the brand new restaurants that we built in US is really showing some incredible breakfast numbers, larger than what we’ve seen before. And as far as our mix through the drive-through versus the dine in or off premise consumption, we see those numbers more and more and more towards a drive-through in that particular area and I think that can be attributed to its location – premier location right off the highway.

But in terms of the elevated standards or the remodels going on, you’re seeing an increase across the board, but we’re also seeing dinner being a more dine-in area, that people are willing to come and spend some time and eat with their families. But you’re also seeing the fact that people are traveling now greater distances, as our research indicates that people are coming to us and driving by competitors and coming to our restaurants.

Bryan Hunt – Wells Fargo Securities

Great. And my last question. Is there any way you can give us some guidance on 2012 CapEx for each of the brands or Fiesta versus Carrols?

Alan Vituli

Paul, you want to try?

Paul Flanders

I mean, we’re still – we’re going to give a more complete update on guidance later, Bryan. We’re still working through our budgets at this point. I would – I guess what I would say at this point is we expect Pollo and Taco or Fiesta to – obviously their CapEx could be a little heavier next year as we increase or accelerate new unit growth. So this year our guidance sort of would suggest that we’re in the low $20 million range this year. I would see that increase depending on the units we open could increase into the $30 million or $40 million range to put a broad brush on it.

And then at Burger King we’re investing heavily in some of the equipment initiatives and remodeling as Dan suggested. I think CapEx for Burger King in 2012 is probably a bit north of the $20 million range and that includes the fact that we’re putting new point-of-sale systems or in the process of rolling those out in all of our restaurants.

Alan Vituli

Bryan, remember that our Fiesta plan is essentially to develop around a 7% or so new unit growth rate. You have a generally good idea of what our strategy is with respect to what our restaurant costs are and I use the lease backs, but the other part of the capital expenditure for Fiesta is that clearly it’s part of a repositioning and isn’t as (ph) convenient/casual.

With respect to the Taco brand, Tim’s inherited some restaurants that are in some markets that are going to consume a fair amount of capital over the next couple of years. But we’ve pretty much developed a fair amount of excess capital to be able to transform the restaurants and to sustain that 7% growth rate.

Bryan Hunt – Wells Fargo Securities

Fantastic. Thank you.

Operator

Thank you. And our next question comes from the line of Carla Casella with JP Morgan Chase. Please go ahead.

Paul Simonour – JP Morgan Chase

Hi. This is Paul Simonour for Carla Casella. I just have one question for you guys. It sounds like the BK turnaround in menu and marketing is taking hold. Are you guys optimistic enough that you see yourself as a consolidator of BK franchisees or would you continue to close locations? Thanks.

Alan Vituli

Dan?

Dan Accordino

We see opportunities to acquire Burger King restaurants as this moves forward. We still will be closing some restaurants simply because there are lease term and they’re not restaurants that we would choose to remodel and continue. But certainly we see there to be a significant opportunity in terms of our ability to acquire restaurants in the next going forward period of time.

Paul Simonour – JP Morgan Chase

Thanks.

Operator

Thank you. And our next question comes from the line of Bryan Elliott with Raymond James. Please go ahead.

Bryan Elliott – Raymond James

Good afternoon. I just have a quick question. Just a couple of food cost numbers that you gave, Paul, for the third quarter by brand. Could you run through those again real quick? The basis point changes?

Paul Flanders

Taco Cabana was up about 1.6% and Taco Cabana was up about 1.4% Burger King was up 0.7%.

Bryan Elliott – Raymond James

I’m sorry. Food costs in basis points. Not percent change.

Paul Flanders

That’s just the change in cost of sales in terms of basis points.

Bryan Elliott – Raymond James

Oh, okay. I’m sorry.

Paul Flanders

1.6% Pollo, 1.4% Taco and 0.7% Burger King.

Bryan Elliott – Raymond James

Okay.

Alan Vituli

Paul, you’re getting an echo.

Paul Flanders

Yes, I know. I can hear it.

Bryan Elliott – Raymond James

Maybe it’s my phone. Sorry. I’ll go to the next question.

Operator

Thank you. (Operator Instructions) And our next question comes from the line of Ken Bann with Jefferies & Company. Please go ahead.

Ken Bann – Jefferies & Co

Yes, good afternoon. At Taco Cabana with the check going up, is that due to more price increases or mix? And do you think you can, given what’s going on in the competitive landscape down there, can you keep on moving that average check up?

Alan Vituli

Tim.

Tim Taft

So I think as Alan said earlier that we’ve got some flexibility in our cost structure. Why is it going up? We took a price increase midsummer and that’s part of it. The other part is that we are not – we’re focusing really more on a quality communication strategy as opposed to really cheap. So our – it doesn’t surprise or shouldn’t surprise that our average check has gone up.

Ken Bann – Jefferies & Co

Okay. And you’ve talked in the past about the competitive landscape at Taco Cabana and the increase in various markets, especially in Texas that you’ve had. What are you seeing on that front? Are competitors still building a fair number of new restaurants in the markets that you compete in, Tim?

Tim Taft

They are doing some building. I don’t think it’s as aggressive as they have been in the past. The recession has been very difficult on everybody. There I’m not sure if I can speak for them, but I question whether they have the same kind of elasticity that we do in our value proposition. But to our – as it relates to Taco Cabana, you’re going to see us building in high profile new areas that are going to enhance our proposition in each of those marketplaces that we operate.

Ken Bann – Jefferies & Co

Okay. And then just finally, also on the new marketing program, how much of an impact do you think that might have had in pushing your sales higher?

Tim Taft

With Taco Cabana?

Ken Bann – Jefferies & Co

Yes.

Tim Taft

Well, I think there’s something – the overall our overarching view of what’s going on with Taco Cabana is with the remodels that have been taken place in Dallas, as well as a new emphasis on operations and some of the operating programs, we’re seeing increased sales, but we’re also seeing increase in check. Marketing for both brands, obviously, is critical as we – as they continue to evolve and we move towards handheld items, which is going to add to our sales mix and hopefully give us the opportunity to steal share from other restaurants.

Ken Bann – Jefferies & Co

Okay. Great. All right. Thanks a lot.

Operator

Thank you. And we do have a follow-up question from the line of Jeff Omohundro with Wells Fargo Securities. Please go ahead.

Jeff Omohundro – Wells Fargo Securities

Yes. Thank you. Just wondering if you would comment on Q4 quarter-to-date trends? Thanks.

Alan Vituli

For which brand, Jeff? All?

Jeff Omohundro – Wells Fargo Securities

Yes, please.

Alan Vituli

Dan, you want to take Burger King’s first?

Dan Accordino

Well, Burger King we’ve obviously only had October and we’re flat for October which, given the competitive environment and given the fact we had a coupon last October and didn’t have one this October is actually not a bad trend at all.

Alan Vituli

Tim?

Tim Taft

Well, the Fiesta brands we’re seeing improvements in same-store sales versus a year ago. And as Dan mentioned it’s only one month in, but we’re seeing price increases.

Alan Vituli

Both Pollo and Taco is showing pretty good increases, fairly consistent with our current trends.

Jeff Omohundro – Wells Fargo Securities

Thank you very much. Appreciate it.

Dan Accordino

Just to add to that, Jeff in October I think Pollo was actually up about almost 8%; about 7.9%. As Tim said, Taco continues to be positive we’re about 2% left over.

Jeff Omohundro – Wells Fargo Securities

Thank you.

Operator

Thank you. And, management, there are no further questions in the queue. Please continue.

Alan Vituli

With that, we thank you. We’re going to be speaking to you soon as two separate entities and we appreciate your support for each of the brands. Thank you, and enjoy the balance of your day.

Operator

Thank you, ladies and gentlemen. This concludes the Carrols Restaurant Group Third Quarter 2011 Earnings Call. Thanks again for your participation, and you may now disconnect.

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