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Carrols Restaurant Group, Inc. (NASDAQ:TAST)

Q3 2012 Results Earnings Call

November 6, 2012 9:00 AM ET

Executives

Paul Flanders - Chief Financial Officer

Dan Accordino - President and CEO

Analysts

Andrew Gadlin - CJS Securities

Bryan Hunt - Wells Fargo

Reza Vahabzadeh - Barclays

Howard Penney - Hedgeye Risk Management

Bryan Elliott - Raymond James

Ken Bann - Jefferies & Company

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Carrols Restaurant Group Third Quarter 2012 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions)

This conference is being recorded today, November 6, 2012. I would now like to turn the conference over to Paul Flanders, Carrols’ Chief Financial Officer. Please go ahead, sir.

Paul Flanders

Good morning, everyone. By now you should have access to our earnings announcement released earlier today, which can also be found on our website at www.carrols.com under the Investor Relations section.

Before we begin our remarks, I want to remind everyone that our discussion today will include forward-looking statements, which may include comments regarding our strategies, intentions or plans.

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 results.

Please note that during today’s call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. Presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, reconciliation of comparable GAAP measure is available in our earnings release.

I will now turn the call over to the President and CEO of Carrols Restaurant Group, Dan Accordino.

Dan Accordino

Thanks, Paul, and good morning, everyone. I want to start by focusing on our legacy restaurants or our core business, cover some key highlights for the brand and then I’ll turn to our progress on the integration of the Burger King restaurants that we acquired late in the second quarter.

The success of our Burger King’s -- our Burger King’s brand initiatives can be seen by the continued strong performance of our legacy Carrols restaurants. Comparable restaurant sales increased to solid 6.2% for the quarter, the fifth consecutive quarter of positive trends and also improved sequentially on a two-year basis. We were pleased with these results, particularly due to their favorable comparison to some of the broad trends within the QSR segment.

During the quarter, our comparable restaurant sales were very strong in July with an 8.7% increase, followed by a 4.5% increase in August, accelerated in September to 5.9%. This performance has continued early into the fourth quarter with our October comparable sales up around 9%.

Sales increases for the third quarter were driven by both high -- higher customer traffic and higher average check, exactly what we hope to see. This reflects the effectiveness, the Burger King’s strategies regarding menu and product innovation, and the improvements made to the brand marketing and advertising. At the same time, the brand is better balance its targeted promotions, value messaging and limited time offers.

Over the last couple of years and particularly since the April menu rollout, there has been conservative focus on broadening the appeal and consumer profile the brand. We continue to make progress in this area, as the mix of women and customer’s 50-year older has continued to expand.

We believe that the revised advertising messaging and the Taste is King tag line has provided better brand differentiation and is resonating with a broader customer demographics.

During the third quarter, Burger King launched the limited time summer barbecue menu, including Barbecue variations of the Whopper and chicken sandwiches, a new pulled pork sandwich, as well as sweet potato fries and frozen lemonade. These premium products were well-received and provided good balance with our value based promotions.

TV advertising was primarily focused on the summer barbecue menu along with our limited time chicken offerings designed to create more awareness around our broader chicken platform.

In terms of value-oriented offerings, third quarter promotions included $0.50 Soft-Serve cone promotion, $1 Smoothies, a 4th of July original chicken sandwich for $4 and a Cinnabon promotion.

With respect to our quarterly results, I’ll begin with the performance of our legacy restaurants and then move on to a discussion of acquired units and their integration activities.

Restaurant sales at our legacy restaurants increased to $94.4 million in the third quarter, which is I said, reflected a 6.2% increase in comparable restaurant sales. At the restaurant level, we leveraged the higher sales against nearly all expense line items with the exception being cost of sales, which was up slightly as a percentage of sales, compared to the third quarter of 2011.

Restaurant level operating margin which excludes G&A expenses expanded by over 100 basis points in our legacy restaurants, compared to the third quarter of 2011. We are also making progress with our yearly remodel as we aggressively undertake the upgrade of our restaurants to the 2020 design image and enhance the quality of our overall asset base.

To date we have remodel approximately 30 upgrades with plans to complete more than 80 remodels in total for the year, initial results are positives and as expected, we are initially experiencing an incremental sales lift of 8% to 10% on average.

With regard to the acquired restaurants, Paul will discuss their sales performance in a moment, I will instead focus on the integration process, where we are now and how our integration -- initial integration activities impacted our profitability during the third quarter.

As indicated in this morning’s press release, our overall financial results for the quarter were impacted by the acquired restaurants, including a number of actions that we took in connection with our initial integration of these restaurants.

As is evident by the historical financial performance of these restaurants, there is a considerable opportunity to improve operations and to improve financial results. To be clear, given our operating culture and history, I’m more confident today that we can achieve this and that we are aggressively taking actions to do so, although some of this will simply take some time.

Our initial focus in integrating these restaurants was on adequately staffing the acquired restaurants, providing necessary management training and beginning to enhance the operating culture to achieve the quality of operations and service levels that are reflective of our standards and our culture.

We consider this as a prerequisite to improving sales of these restaurants. We clearly over invested in labor in the third quarter, compared to our staffing and labor standards, in part this was by design and to some degree it was because it took us some time to implement our labor management tools, so the restaurants could properly schedule and manage their labor costs.

It was evident when we took over that many restaurants were not adequately staffed. In addition to a significant number of management vacancies, there were some restaurants for example, where staffing levels were simply inadequate to even maintain minimum restaurant operating hours. Our priority was to begin filling manager vacancies and at the same time, we directed the crew staffing of the restaurants to be increased.

As I said, the results was that we initially over invested in labor, which was necessary, given the circumstances and we estimate that it costs us approximately $1.8 million during the third quarter.

We completed the implementation of our labor scheduling and labor control systems late in the third quarter. There after labor costs quickly came into line and we are now where we should be based upon our staffing standards.

Related to initial integration, we also incurred above normal costs for management training, recruiting and employee meeting expense, along with some employer relocation costs. We estimate that those costs were approximately $500,000 higher than they would have been on a normalized level.

Lastly, we incurred excess repair and maintenance costs after taking over these restaurants, which in large part was due to deferred maintenance at the time we acquired the restaurants, compared to what we believe these costs it should be on a normalized basis, we estimate that incremental equipment, our repair costs were approximately $1.1 million for the quarter.

What I’ve been discussing only deals with our initial integration and the related costs, which we believe are mostly behind us as of late October. We have filled most of the management vacancies that existed at the time of the acquisition and have implemented our labor and inventory costs management systems.

However, there still remains considerable opportunity for P&L improvement in a number of other areas which we are addressing, most significant is the substantial opportunity in gross margin.

We implemented our inventory control systems during the third quarter, which are critical for us to implement our P&L disciplines and to provide the restaurants the necessary tools to effectively manage food costs, waste and shrinkage. There are also number of other areas, where we are implementing operating changes that will further reduce costs and enhance the operating results of these restaurants.

In summary, we have made much progress integrating the acquired restaurants and continue to believe that improved operations and effective costs management stood overtime result in improved sales and operating results for the acquired units that are more in line with the performance of our legacy restaurants.

Although, our third quarter results were distorted by the integration of the acquired restaurants, our core business is strong and we continued to experience traction from the Burger King brand initiatives. Performance at our legacy restaurants demonstrates the success that we are experiencing from the transformation and evolution of the Burger King brand.

And, with that, I’ll turn the call over to Paul to continue our financial review.

Paul Flanders

Thanks, Dan. Restaurant sales grew 87.1% to $169.5 million, which included $75.1 million in sales from the acquired restaurants, compared to total sales of $90.6 million for the same period last year.

We are very pleased with sales performance at our legacy restaurants, which as Dan said increased 6.2% for the quarter in comparable restaurants. This increase included growth in customer traffic of 3.6%, along with an increase in average check of 2.6%, which included effective pricing of 1.9%.

The average weekly sales for the quarter were $24,833 for the legacy restaurants and increased 6.8% in the same period last year. Average weekly sales for the acquired restaurants, however, were $20,804 in the third quarter of 2012 and given the strong performance at our legacy units, the sales gap for the acquired restaurants widened somewhat sequentially.

Average sales of the acquired restaurants decreased 0.4%, compared to the third quarter of 2011, although, these restaurants were obviously not included in last year’s results. We believe that much of this related to the quality of operation, which Dan has already touched on.

We also believe that there were more promotional activities at these units in the prior year at a local level, but this is somewhat anecdotal since we didn’t own them last year. We continue to believe that as we improve operations in these restaurants that this gap will narrow. There is no fundamental reason why they shouldn’t perform at levels much closer to our legacy restaurants.

Adjusted EBITDA, a non-GAAP measure was $7.1 million in the third quarter, compared to $8.4 million in the prior year, and adjusted EBITDA margin was 4.2%, compared to 9.2% in the prior year. The decline in adjusted EBITDA was due to $1.9 million of legal costs related to outstanding litigation with the EEOC, included in general and administrative expenses.

The decline in adjusted EBITDA margin reflects this, as well as the performance of the acquired restaurants and their impact on overall margins. Unfortunately, these more than offset the favorable results from our legacy restaurants.

In one of the tables attached to the earnings release, we provided supplemental data on restaurant level expenses, so that you can get a detail perspective on the differences in operating margins between the legacy and acquired restaurants.

In the third quarter, we favorably leveraged the strong comparable restaurant sales at the legacy units, with most restaurants level cost lower than last year as a percentage of sales. Cost of sales was one of the few exceptions and increased 39 basis points. This reflected some modest increases in commodity costs and somewhat higher inefficiencies from some of the menu changes.

Restaurant level operating margin, which excludes G&A expense increased by over a 100 basis points for the quarter. For the acquired restaurants, as Dan indicated, there is a significant opportunity to improve these results as we move forward.

There were a number of integration costs incurred in the quarter has already discussed in detail. These were approximately $3.4 million in total and included $1.8 million in restaurant labor, $1.1 million in excess repair costs and $500,000 of G&A expenses for above normal recruiting and management training costs, as well as employee meeting and relocation expenses.

General and administrative expenses increased $4.6 million to $9.3 million for the quarter from $4.8 million in the third quarter of 2011 and as a percentage of sales increased 23 basis points to 5.5%.

The increase in G&A included the $1.9 million EEOC related legal costs, $500,000 of the integration costs and ongoing incremental regional and district costs added in the field to support the acquired restaurants.

Excluding the EEOC costs and the integration costs, G&A was actually favorably leveraged by over 120 basis points for the quarter. Incremental corporate overhead costs due to the acquisition were fairly modest in total.

Depreciation and amortization expense increased from $3.9 million to $8.2 million, due to the addition of the acquired restaurants and some of the investments in late 2011 earlier this year, a new point of sales systems and new kitchen equipment at our legacy restaurants.

Interest expense increased from $1.7 million to $4.5 million in the quarter, as a result of the increase in outstanding debt and the higher interest rate on our May 2012 refinancing. This refinancing was used to fund the acquisition and to raise capital to fund our restaurant remodeling plans.

At the end of the quarter, our cash balances were $77.4 million, including $20 million of restricted cash held as collateral for our revolving credit facility. And in total, we are essentially unchanged from the $78 million of cash at the end of the second quarter.

Total outstanding debt was $161.9 million at quarter end and comprised mostly of our $150 million, 11.25% senior secured second lien notes.

The net loss from continuing operations was $6.7 million or $0.29 per diluted share, compared to a net income from continuing operations of $0.4 million or $0.02 per diluted share in the prior year period.

The loss in the third quarter of 2012 included certain charges, which in total reduced earnings by $0.20 per share. These included the acquisition and integration costs of $3.4 million or $0.09 per share, and the EEOC ligation-related expenses of $1.9 million or $0.05 per share. In addition, tax expense included a charge for valuation allowance against certain deferred tax assets of $1.4 million or $0.06 per share.

Capital expenditures for the quarter totaled $6.4 million, including $4.1 million for restaurant remodeling.

Finally, I’d like to update our guidance for 2012. Full year comparable sales for legacy restaurants are now expected to increase 6% to 7%, which is higher than our previous guidance of 4% to 6%. Commodity costs are still expected to increase 3% to 4% on an annual basis.

General and administrative expenses, excluding any additional legal costs that maybe incurred in conjunction with the EEOC litigation are expected to be approximately $8 million to $9 million for the fourth quarter. The annual effective income tax rate is now expected to be between 41% and 43%, exclusive of the valuation allowance recorded in the third quarter.

And lastly, capital expenditures are expected to be approximately $38 million to $42 million for the full year, including $24 million to $26 million for remodeling more than 80 restaurants.

And, with that, I will now open the line for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question is from the line of Andrew Gadlin with CJS Securities. Please go ahead.

Andrew Gadlin - CJS Securities

Good morning. Thanks for taking my question.

Dan Accordino

Hi.

Andrew Gadlin - CJS Securities

First, just short-term, do you guys have any impact from Hurricane Sandy and if so when do you think restaurants will be back in line?

Dan Accordino

We had a very limited impact and all of our restaurants are back in line. We had about a dozen restaurants that were closed for a day or more. One restaurant was closed for four days. Most restaurants were closed for part of the day. So, we are -- sales were negatively impacted Monday and Tuesday of last week.

But we recovered that and for the balance, of the week, and actually our legacy restaurants were up 8.7% last week and the acquired restaurants were up over 6%. So, we were fortunately spared.

Andrew Gadlin - CJS Securities

Great. I think you said, you did 30 stores so far this year, which was -- so just you’ve got 50 stores that you plan on upgrading this quarter, is that right?

Dan Accordino

We’ve got -- they were -- the 30 stores are stores that we are completed at quarter end, somewhere we are in the process of being completed. We have by the end of the -- we’ll have 43 done by the end of October and we will complete an additional 40 between in November and December.

Andrew Gadlin - CJS Securities

And will there be split between legacy and acquired stores?

Dan Accordino

Mostly legacy restaurants.

Andrew Gadlin - CJS Securities

Okay. In terms of the CapEx schedule, you took down your guidance a little bit by few million dollars and it looks to be related to store upgrade. Given that, you are not slowing down the number of source that you are upgrading, could you talk about what’s changing your thoughts there?

Dan Accordino

Yeah. Well, what we are seeing is the average cost that we expect this year is actually come down a little bit. But I think you do the math, the average this year is about 300,000. We thought that was initially was going to be a little bit higher.

Dan Accordino

We originally had forecasted, Andrew that we were going to 54 remodels this year and about mid-year we up that number to 80. So, we’re actually ahead of what we had committed we were going to do and as toss at the cost for remodel actually has been managed to us by lower level.

Andrew Gadlin - CJS Securities

Got it. Thank you.

Operator

Thank you. Our next question is from line of Bryan Hunt with Wells Fargo. Please go ahead.

Bryan Hunt - Wells Fargo

Good morning, Dan and Paul.

Paul Flanders

Good morning.

Dan Accordino

Good morning, Bryan.

Bryan Hunt - Wells Fargo

Dan, you were kind enough to give us same-store sales in October for the legacy stores, can you talk about the sales performance for the acquired stores for October?

Dan Accordino

They actually -- the gap between the acquired restaurants and the legacy restaurants actually narrowed a bit in October. And I think the legacy stores were up around 9. The acquired stores are going to be up around 3.7, 3.8.

Bryan Hunt - Wells Fargo

Great. And then next Paul and Dan, I mean you both mentioned that the labor rates improved slightly in October. Do you put in the new labor scheduling system and you pulled back on the over investment in labor. If you look the most recent quarter, there is in rough figures 500 basis points of labor rates difference. What do you think that can move to in Q4?

Dan Accordino

I think we’ll be pretty much on target, Bryan. Our October -- we gave these required restaurants slightly more labor in October but not a lot. And they actually are on that formula and slightly below it.

Paul Flanders

I mean the other thing you consider Bryan is that the third quarter sales number obviously is substantially below with legacy restaurants just by virtually the lower sales volume is as a percentage they’re running little bit higher. So, some of that will be running obviously as we get the volumes up.

Bryan Hunt - Wells Fargo

Got you.

Dan Accordino

And some of these management costs were higher, even know we were staffing these restaurants. They were key holders in these restaurants, which are -- they were kids that open stores, but they didn’t have any training. We were -- we had to supplement while those kids were still being trained. We had to supplement that with additional management labors still which you will see that in the third quarter as well.

Bryan Hunt - Wells Fargo

So, that 500 basis point difference is going to be made up completely in Q4, but you will at that point stop somewhat in getting in that direction then in the…

Dan Accordino

Yeah. Most of that begun.

Bryan Hunt - Wells Fargo

And the big difference remains, it sounds like AUV difference?

Dan Accordino

Correct.

Paul Flanders

And cost of sales?

Bryan Hunt - Wells Fargo

Yeah. Well, and that was my next question. When you look at cost to sales, you’ve also look into inventory system, how long do you think it will take before the acquired stores hit the targets on cost management relative to your legacy stores?

Paul Flanders

We originally said that we would take 50 basis points out of that delta by the end of 2012 and I still think that’s the case. The delta is a bit bigger than we thought it was, because when we look at the historical P&L’s we look that delta being 370 basis points. It’s actually closer to 450.

What happened was they didn’t put the -- the company stores didn’t put these new freestyle softening machines in until April, which was just before we bought these restaurants. And that is costing somewhere between 80 and 100 basis points in incremental costs of sales by virtue of the way the cost on those freestyle machines work. But will be -- we said we would lower that delta by 50 basis points by the end of 2012 and another 100 -- 150 in 2013 and I’m confident that we’ll do that.

Bryan Hunt - Wells Fargo

Very good. Very good. All my questions have been answered. I will get back in the queue.

Dan Accordino

Thanks.

Operator

Thank you. Our next question is from the line of Reza Vahabzadeh with Barclays. Please go ahead.

Reza Vahabzadeh - Barclays

Hi. Good morning.

Paul Flanders

Good morning, Reza.

Reza Vahabzadeh - Barclays

Did you give out a CapEx number for 2013?

Paul Flanders

We haven’t given any guidance on 2013 at this point. We will do that and we were working through number of issues obviously in our planning at this point, which little -- give guidance. But what we have said certainly, which has drive most of the CapEx dollars is our plan next year to remodel on additional 150 restaurants. So that will be the pretty good set to how much we are going to spend.

Reza Vahabzadeh - Barclays

Right. And the cost for the remodel is it running what four, five…

Dan Accordino

300 running average.

Reza Vahabzadeh - Barclays

300, yeah. Got it. Okay. And have you found any differences versus prior expectation as far as competition in the new markets versus legacy markets?

Dan Accordino

No. We had visited each of these restaurants and we knew where the competition was and that hasn’t changed, Reza. Where we call existing markets, which we do in many of these acquired restaurants, the competition is the same and our legacy restaurants are outperforming the acquired restaurants by 6% to 8% in sales with the same competition in the same market so this is purely an execution issue.

Reza Vahabzadeh - Barclays

Right. But is competition difference not necessarily versus your early expectation just an absolute sense versus some of your existing core markets or legacy markets?

Dan Accordino

No. No.

Reza Vahabzadeh - Barclays

Okay.

Dan Accordino

No.

Reza Vahabzadeh - Barclays

Yeah. Okay. And then is it so soon to have any thoughts on food cost in 2013?

Dan Accordino

In terms of commodity expectations?

Reza Vahabzadeh - Barclays

Yeah.

Dan Accordino

I think probably Burger King could better answer that than we because -- we get our information from RSI, which is the purchasing cooperative and I think Burger King probably has a clear view of that than we do at this point.

Reza Vahabzadeh - Barclays

Right. So, when do you usually get better information as far as cost expectation from RSI, is it one quarter ahead, two quarters ahead, one year ahead?

Dan Accordino

Well, some of the -- when they lack in commodity agreements, which in some cases they do, you get that information at that point in time.

In terms of beef cost, which is the primary cost driver, they don’t take significant positions and consequently those things are normally done about a quarter in advance, Reza.

Reza Vahabzadeh - Barclays

Got it.

Dan Accordino

And what we know so far is that we think beef costs are going to be actually lower in the near-term for the balance of this year and probably, first part of 2013 with magnitude of the increase for the second part of 2013, we don’t really have guidance on that yet but it looks -- certain it’s going to be higher.

Reza Vahabzadeh - Barclays

I see. Got it. And any day parts that were particularly stronger for you in this third quarter for the legacy business?

Dan Accordino

No. What’s good Reza is that they really weren’t. Our lunch day part was up around 6% and 7% and our dinner day part was up 6%. So we had pretty good even trends across all day parts. Breakfast was the softest but was still up around 4% but we really haven’t spent any dollars in marketing breakfast in the quarter.

So we actually had pretty good consistency across all day parts. And as we indicated in our press release, the most impressive thing about our performance was 3.6% increase in traffic.

Reza Vahabzadeh - Barclays

Yeah.

Dan Accordino

That’s pretty good compared to anything else we’ve heard.

Reza Vahabzadeh - Barclays

Right. And still was mix positive for you?

Dan Accordino

I’m not sure.

Reza Vahabzadeh - Barclays

Menu mix?

Dan Accordino

Menu mix. All of -- most of the advertising was around the full margin barbecue products. So from that standpoint, we got -- certainly our average check increase was higher than what’s embedded in our pricing, yeah.

Paul Flanders

Yeah. I think the other thing that helped from a mix standpoint was that we focused on some of the chicken products during the quarter and that was favorable.

Reza Vahabzadeh - Barclays

Got it. Thank you so much.

Operator

Thank you. (Operator Instructions) Our next question is from the line of Howard Penney with Hedgeye Risk Management. Please go ahead.

Howard Penney - Hedgeye Risk Management

Thank you for taking my question. Did you say what the risk was from the remodeled restaurants for same-store sales?

Dan Accordino

Yeah. On an average, we’re seeing 8% to 10% incremental lift.

Howard Penney - Hedgeye Risk Management

Given the gap that you have between the legacy restaurants and the acquired restaurants, do you expect the lift when you begin to remodel those to be higher than that?

Dan Accordino

Not higher. I think the issue with the acquired restaurants is more than the quality of the operations, not the quality of the assets. I think our sense is that we’re looking investors pretty consistently in these restaurants and so the quality of assets is not their best.

Howard Penney - Hedgeye Risk Management

So narrowing of the gap is just going to come from you operating it better.

Paul Flanders

And as I indicated, Howard, some of these restaurants weren’t even open for normal operating hours. So there is a good opportunity there simply by doing the very basic things that need to take place.

Howard Penney - Hedgeye Risk Management

And I think, you alluded to -- I'm sorry, if I look at borrowing others but you’ve actually touched our 278 restaurants before you bought them?

Dan Accordino

Some one did. I personally visited 205 of them yeah.

Howard Penney - Hedgeye Risk Management

With someone within your organization. So it was…

Dan Accordino

Yeah.

Howard Penney - Hedgeye Risk Management

You knew, you were relying.

Dan Accordino

Yeah. We knew what the asset base was? So we knew which restaurant, we knew what the competitive set was, we knew whether we wanted to keep the restaurant long-term or if we wanted to enter into a short-term lease because we didn’t like the positioning the restaurant. There was too many restaurants in the market.

We had -- the only basis we had to evaluate the operation is whatever scores that we got from Burger King which only get a few of those -- few ratings. So we did not know that the management teams were as weak as they were. We had no basis upon which we would have known that. We didn’t have any right or commission to talk any of the management teams.

Howard Penney - Hedgeye Risk Management

And lastly, thank you again for all this. The leases and everything you own now, I mean, you are going to keep all those open there. There are many that you’re thinking about closing that.

Dan Accordino

No. We’ve got a credit number of restaurants that we’ve indicated that will close at some point in time over the next two to five or six, seven years that we have -- was part of our due diligence. We entered into short-term leases with probably 22 restaurants.

Howard Penney - Hedgeye Risk Management

Perfect. Thank you.

Operator

Thank you. Our next question is from the line of Bryan Elliott with Raymond James. Please go ahead.

Bryan Elliott - Raymond James

Thanks. Good morning. Just wanted to come back to comment from Paul to make sure I hear it right. The question on the food cost outlook information that you’re getting from the Burger King Corporate. Did I hear correctly that you -- I actually expect your ground beef cost to be down into the first part of 2013 and then we lose this ability but clearly it’s going to be up. And if we could give maybe a little more timing on that and we look in into through the winter or is it just very short term.

Paul Flanders

That was Dan, Bryan, who made the comment.

Dan Accordino

Mr. Dan again. The visibility that we have currently, Bryan, is that it’s probably going to be lower into the first quarter of 2013 and beyond that we don’t really have much visibility.

Bryan Elliott - Raymond James

Okay. All right. That’s interesting. Thank you for sharing.

Operator

Thank you. Our next question is from the line of Ken Bann with Jefferies & Company. Please go ahead.

Ken Bann - Jefferies & Company

Yeah. Good morning. Just wondering in terms of the difference between the legacy restaurants and the acquired restaurants. Is there any difference in the level of local marketing? Also that you do at the legacy restaurants and have been doing for maybe a long period of time that needs to be up at the acquired restaurants, in addition, to the improvement in service levels to get those sales up?

Dan Accordino

No. Actually, it was quite the opposite. It looks to be based upon the information that we have that the acquired restaurants were doing much more local marketing last year than the legacy restaurants did. This year, 2012, since we owned them, all the restaurants are doing the same level of local marketing.

So I suspect based upon what we’ve been able to understand is probably the sales last year were a bit higher than they otherwise would have been by virtue of discounts and that sort of thing in the acquired restaurants.

And no, I do not expect that I’m going to increase the level of local store marketing in the acquired restaurants in the near term. I think they’re being adequately marketed and we need to improve the operating experience for we invite more people in.

Ken Bann - Jefferies & Company

Is there any difference in terms of the effectiveness in their marketing on a local level? Do you think you’ve got a better job but legacy restaurants in terms of how that work’s been growing people into those restaurants?

Dan Accordino

I think that Burger King did every thing the same across the whole country in terms of digital menu boards, the merchandising, the national couponing and I think they’ve done a very good job there.

People were invited into these acquired restaurants historically, and they were disappointed based upon the experience. So I don’t think it’s a marketing issue. I think it’s an executional issue.

Ken Bann - Jefferies & Company

Okay. All right. Great. Thank you.

Operator

Thank you. And we have not further questions at this time. I will turn it back to management for any closing remarks.

Paul Flanders

We have nothing really to add at this point but we appreciate you joining us today. And we look forward to talking to you following the next call. Thank you.

Operator

Ladies and gentlemen, this concludes the Carrols Restaurant Group Third Quarter 2012 Earnings Call. Thank you for your participation. You may now disconnect.

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