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22 Aug 1995
MOODY'S UPGRADES CARROLS CORPORATION'S SR. NOTE RATING TO B1
New York, 08-22-95 -- Moody's Investors Service upgraded the debt rating on Carrols Corporation's senior notes, due 2003, to B1 from B3. The upgrade is based on the company's stronger operating results, its impressive same store sales performance, and expanded store base. However, the new rating continues to recognize the company's vulnerability to existing competition, to new fast food formats, and to changes in consumer tastes; its geographic concentration in New York and Ohio; and acquisition risk.
Moody's noted that since issuing the notes in August 1993, Carrols, the largest independent Burger King franchisee in the United States, has opened or acquired 23 units. The expansion of the store base, in conjunction with same store sales growth of 5.1% during fiscal 1994 and 6.2% during the first six months of fiscal 1995, increased total sales to $221.2 million for the 12 months ended June 30, 1995 from $159.1 million for the 12 months prior to the note issuance. Profitability also improved during this period, with EBITDA increasing to $29.7 million from $19.3 million due to the higher sales volume and a rise in the EBITDA margin to 13.4% from 12.1%. The growth in cash flow strengthened the company's credit ratios as EBITDA interest coverage rose to 2 times from 1.7 times; fixed charge coverage rose to 1.5 times from 1.4 times; and debt adjusted for operating leases/EBITDAR declined to 5.4 times from 6 times.
Moody's cautions that as a participant in the highly competitive fast food industry, the company is sensitive to general economic conditions, consumer spending, changes in consumer tastes, and new competitors as a result of low barriers to entry. Although Burger King is the second-largest hamburger fast food operation in the world, Moody's notes that occasionally price wars force its franchisees, including Carrols, to offer promotional items and value meals that can weaken their gross margins.
Changes in food, paper, and packaging costs also affect the company's margin, Moody's said. To stabilize these costs, the company has a supply agreement that expires in 1999. Wages, another important component of the company's cost structure, are more difficult for the company to control because they vary with labor availability and the minimum wage. However, the company has established new procedures, such as self-service beverages, that enhance labor productivity.
Carrols Corporation, headquartered in Syracuse, New York, operates 219 Burger King restaurants in nine states.
No Related Data.
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