It’s party time! Well…almost there as the board of directors of Carrols Restaurant Group (TAST) recently approved the spinoff of the Fiesta Restaurant Group. You may not realize this, but Carrols is the country’s largest Burger King franchisee and post-transaction the parent will retain its Burger King franchise business. The new company, Fiesta, will operate the company’s two quick-casual restaurant brands, Pollo Tropical and Taco Cabana. The spin is expected to be completed on May 7th, but the date of record for the transaction is actually today, April 26th. The new company will trade on the NASDAQ under the ticker FRGI and shareholders of Carrols will receive one share of Fiesta for every share of TAST owned.
While Burger King’s growth may have slowed a bit with the chain dropping to #3 in the US, Fiesta’s brands have been growing quite nicely with large increases in comp restaurant sales in 2011. As of its most recent filing, the company owned and operated 91 Pollo Tropicals and 158 Taco Cabanas including a bunch located in Central & South America. International expansion appears to be one of the company’s growth drivers and the company has agreements to develop franchises in Panama, Tobago, Aruba, Curacao, Bonaire and Costa Rica. While the company has franchised some Pollo Tropical restaurants, it is not actively doing so for Taco Cabana. For much more additional information on the company, check out its SEC filing here.
Carrols recently reported its year end numbers and also provided some guidance for 2012. Comparable restaurant sales are expected to be slightly higher at Pollo Tropical and Taco Cabana (4-6%) than at Burger King (3-5%). The company expects CapEx for Fiesta to be almost double that of the BK business, with Fiesta adding a net of 6-10 new restaurants. Commodity costs have been a problem in the past for the company and Burger King is expected to face increased pressure with commodity costs expected to rise 3-4% vs. 1-2% for Pollo Tropical and 2.5-3.5% for Taco Cabana.
This WSJ article discusses some of the challenges of franchisees, but Carrols obviously relishes its role and recently ‘doubled down’ on the strategy by purchasing an additional 278 franchises from the Burger King Corporation. Carrols will pay $15.8m and agreed to remodel 450 restaurants over the next 3.5 years. The deal is contingent upon the closing of the spinoff and BKC will also receive a 28.9% interest in the post-spin Carrols.
For some additional background information on the transaction, check out our earlier article on the subject.
Disclosure: Author holds no position in any stock mentioned.