Cara Reports Year-end Results for a Transformational 2015 - Earnings before tax increases 568.7% to $66.2 million, Debt reduced by $328.6 million and Operating EBITDA grows 33.3%

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Cara Operations Limited

Mar 03, 2016, 18:36 ET

VAUGHAN, ON, March 3, 2016 /CNW/ - Cara Operations Limited, today announced results for the fourth quarter and fiscal year ending December 27, 2015.

"2015 was a transformational year for our business.  Net earnings before tax increased to $66.2 million in fiscal 2015 from $9.9 million in 2014, compared to a net loss of ($42.2) million in 2013.  This represents an improvement of $56.3 million, or 568.7% over 2014 and an improvement of $108.4 million since 2013.  Net proceeds from our IPO and cash from operations were used to reduce total debt by $328.6 million to $85.3 million at the end of 2015, compared to $413.9 million at the end of 2014.  Our balance sheet is strong and we are well positioned to take advantage of growth opportunities," said Bill Gregson, Chief Executive Officer.

"Our core business continues to improve.  Operating EBITDA increased $27.8 million or 33.3% in fiscal 2015 to $111.4 million, compared to $83.6 million in 2014 and $47.9 million in 2013.  This represents a compounded annual growth rate of 52.5% over two years.  We continue to build on a consecutive trend of quarter-over-quarter growth in Operating EBITDA margin as a % of system sales, delivering 6.3% in both the fourth quarter and fiscal 2015, compared to 5.1% and 4.9% in 2014, respectively.  Our corporate restaurant margin improvements were driven by our ongoing food, labour and overall cost containment initiatives and the acquisitions of the Landing Group and New York Fries. Our franchise margins improved because of less assistance to franchisees and the New York Fries acquisition.  I am proud of what our team has been able to accomplish in a relatively short period of time," commented Mr. Gregson. 

Fourth Quarter Highlights:

  • Completed the acquisition of New York Fries;

  • Opened 25 new restaurants during the fourth quarter consisting of both company-owned and franchised locations resulting in 16 net new restaurants in 2015, not including the acquisition of New York Fries;

  • System Sales grew to $461.1 million in 2015 compared to $436.9 million in 2014, an increase of $24.2 million or 5.5%;

  • Achieved Same Restaurant Sales ("SRS") Growth of 1.2% in the fourth quarter, representing eight straight quarters of positive SRS Growth;

  • Increased Operating EBITDA to $29.2 million in 2015 from $22.1 million in 2014, an improvement of $7.1 million or 32.1%;

  • Improved Operating EBITDA Margin on System Sales to 6.3% in 2015 from 5.1% in 2014;

  • Achieved Earnings from continuing operations before income taxes of $21.7 million in 2015, an improvement of $26.5 million from a loss of ($4.8) million in 2014;

  • Increased Net earnings to $58.3 million in 2015 from a loss of ($4.4) million in 2014, an increase of $62.7 million primarily related to operating improvements and interest savings of $25.8 million and the recognition of net deferred tax assets of $36.9 million;

  • Basic Earnings per Share ("EPS") from continuing operations increased to $1.19 in 2015 from ($0.25) in 2014 and diluted EPS from continuing operations increased to $1.11 in 2015 from $(0.14). Excluding the impact related to non-cash deferred tax asset recognition, Adjusted Basic EPS was $0.45 and Adjusted Diluted EPS was $0.42 in 2015 as compared to ($0.32) and ($0.18) in 2014, respectively.

Fiscal 2015 Highlights:

  • System Sales grew to $1,765.7 million in 2015 compared to $1,691.7 million in 2014, an increase of $74.0 million or 4.4%;

  • SRS Growth was 2.4% for the 52 weeks ended December 27, 2015;

  • Operating EBITDA increased to $111.4 million in 2015 compared to $83.6 million in 2014, an increase of $27.8 million or 33.3%;

  • Operating EBITDA Margin on System Sales increased to 6.3% compared to 4.9% in 2014;

  • Significantly transformed the Company's earnings from continuing operations before income taxes from a loss of ($42.2) million in 2013, to positive earnings of $9.9 million in 2014 and to $66.2 million in 2015, an improvement of $56.3 million or 568.7% over 2014, and $108.4 million since 2013;

  • Reduced total debt by $328.6 million from $413.9 million at the end of 2014 to $85.3 million at the end of 2015; and amended and extended the Company's term credit facility at reduced interest rates;

  • Net earnings improved from a loss of ($42.0) million in 2013, to positive $5.4 million in 2014 and to $99.7 million in 2015, an improvement of $141.7 million since 2013, of which $36.9 million of the total improvement is due to the recognition of net deferred tax assets in 2015;

  • Basic Earnings per Share ("EPS") from continuing operations increased to $2.46 in 2015 from $0.31 in 2014 and diluted EPS from continuing operations increased to $2.10 in 2015 from $0.19 in 2014. Excluding the impact related to non-cash deferred tax asset recognition, Adjusted Basic EPS was $1.59 and Adjusted Diluted EPS from continuing operations was $1.36 in 2015 as compared to $0.31 and $0.20 in 2014, respectively;

  • Successfully completed an Initial Public Offering (the "Offering") and raised gross proceeds of $230.1 million through the issuance of 10,005,000 subordinated voting shares at a price of $23.00 per share; Purchased the remaining 45% of The Landing Group in June 2015 for a purchase price of $21.2 million, which was settled for a combination of $14.1 million in cash and $7.1 million in subordinate voting shares;

  • Opened 16 net new restaurants, consisting of both company-owned and franchised locations, and added 159 locations from the acquisition of New York Fries on October 31, 2015.


For the 13 weeks ended



For the 52 weeks ended

($ millions unless otherwise stated)(1)


Dec. 27, 2015


Dec. 30, 2014



Dec. 27, 2015


Dec. 30, 2014



(unaudited)


(unaudited)



(unaudited)


(unaudited)

Total System Sales from continuing operations


$461.1

$436.9

$1,765.7

$1,691.7

Total System Sales Growth


5.5%

12.8%

4.4%

23.3%

SRS Growth


1.2%

4.9%

2.4%

2.9%

Number of restaurants (at period end)


1010

837

1010

837










Corporate restaurant sales


$60.6

$48.5

$237.8

$195.4

Number of corporate restaurants


119

91

119

91

Contribution from Corporate segment


$6.1

$2.7

$25.0

$10.0

Contribution as a % of corporate sales


10.0%

5.5%

10.5%

5.1%










Franchise restaurant sales


$400.5

$388.4

$1,527.9

$1,496.3

Number of franchised restaurants


891

746

891

746

Contribution from Franchise segment


$16.1

$15.3

$60.4

$55.6

Contribution as a % of Franchise sales


4.0%

3.9%

4.0%

3.7%










Contribution from Central segment


$7.0

$3.8

$26.0

$18.0

Contribution as a % of Total System Sales


1.5%

0.9%

1.5%

1.1%










Total gross revenue from continuing operations


$84.0

$75.4

$326.3

$281.8

Operating EBITDA


$29.2

$22.1

$111.4

$83.6

Operating EBITDA Margin


34.8%

29.3%

34.1%

29.7%

Operating EBITDA Margin on Total System Sales


6.3%

5.1%

6.3%

4.9%










Net earnings


$58.3

($4.5)

$99.7

$5.4

Earnings per share from continuing operations attributable to common shareholders (in dollars)(2) 











Basic


$1.19

($0.25)

$2.46

$0.31

Diluted


$1.11

($0.14)

$2.10

$0.19










Dividends Declared (in dollars)(3)











Subordinate and Multiple Voting Shares


-

-

$0.19

-

Common shares


-

-

-

$0.23

Cash Dividend on Class A Preferred Share Liabilities


-

-

-

$0.09

Cash Dividend on Class B Preferred Share Liabilities


-

-

-

$0.15




















(1)

Results from four restaurants in the United States are excluded in System Sales totals, SRS Growth and number of restaurants.

(2)

Amounts per share give effect on a retrospective basis for the 2.79 to 1 share consolidation for common shares outstanding at
April 10, 2015, that took place as part of the Offering.

(3)

Amounts based on shares outstanding prior to share consolidation resulting from the Offering.


The Company's unaudited interim consolidated financial statements for the 13 and 52 weeks ended December 27, 2015 and Management's Discussion and Analysis are available under the Company's profile on SEDAR at www.sedar.com.

Outlook

Management is pleased with the positive results in 2015, especially considering tough economic conditions being experienced in many markets.  The continued System Sales increases, SRS Growth, and cost reductions have resulted in increases in Operating EBITDA and improved contribution margins in all segments. Cara has also greatly reduced its risk profile and its ability to weather challenges by reducing debt, increasing profits and free cash flow. Despite progress during 2015, management remains cautious on the Canadian economy and its potential impact on restaurant sales stemming from challenges in western Canada, and weakness in the Canadian dollar.  With respect to 2016, Management provides the following comments regarding its strategies and initiatives:

  • System Sales and SRS Growth — Management will to continue to focus on building momentum and long-term sales growth through its various initiatives across all its brands and is targeting to achieve SRS Growth of 2.5% to 4.0% over the long-term subject to short-term fluctuations outside the target range due to economic conditions.

  • Restaurant Count — Management is targeting to add 30 net new restaurants in 2016 before the impact of Casey's closures and any acquisitions, up from 16 in 2015.

  • Corporate restaurant profitability — Management is pleased with the increase in corporate restaurant profitability from 5.1% of corporate sales in 2014 to 10.5% in 2015. The improvement of 5.4 percentage points is primarily related to strong Landing and Bier Markt restaurant contribution and the reduction in food costs and labour costs across the corporate store portfolio. The 2016 new restaurant plan includes one new Bier Markt and two new Landing locations. Long term, the opportunity remains for higher corporate contribution by adding more Bier Markts, Landings and select Milestones as we change the mix of our corporate restaurants to higher volume, higher margin restaurant concepts.

  • Franchise segment — Franchise contribution as a percentage of franchise sales improved from 3.7% in 2014 to 4.0% in 2015 reflecting improved franchise sales and profit performance resulting in less assistance provided to its franchise network. In 2015, Cara reduced the number of restaurants receiving assistance by 32 restaurants to 172 restaurants from a total of 204 at December 30, 2014. In 2016 and beyond, we expect to increase the franchise contribution rate by (1) adding new franchisees at the full 5% standard royalty rate and (2) by continuing to reduce the number of franchisees on assistance.

  • Central segment — Going forward as the run rate for central expenses normalizes, the improvements in the central contribution rate will be driven by growing sales faster than head office expenses and by expanding our off premise business.

  • Total Operating EBITDA — The combined contributions from the Corporate, Franchise and Central segments resulted in Total Operating EBITDA margin of 6.3% as a percentage of total System Sales compared to 4.9% in 2014. The Company will continue to work on all three segments to increase both segmented EBITDA Contribution and Total Operating EBITDA in relation to Total System Sales.

  • Improved net income and cash available — As a result of the IPO and the Fairfax preferred share and debt conversion, the Company significantly reduced debt which has decreased total interest and finance costs in 2015.

          While Management's outlook remains unchanged from the outlook provided at the time of Cara's IPO, there may be short term fluctuations due to the volatile Canadian and international markets.   Overall, Management is satisfied with the positive results and improvements achieved during 2015 and believes that the benefits from the IPO will provide more available cash and credit capacity to position the Company for growth. We will continue to look for accretive acquisitions in 2016 following the successful 2013 acquisition of Prime Restaurants, the 2014-2015 acquisition of the Landing Group and the 2015 acquisition of New York Fries.

          The foregoing description of Cara's outlook is based on management's current strategies and its assessment of the outlook for the business and the Canadian Restaurant Industry as a whole, may be considered to be forward looking information for purposes of applicable Canadian securities legislation. Readers are cautioned that actual results may vary. See "Forward Looking Information" and "Risk and Uncertainties" for a description of the risks and uncertainties that impact the Company's business and that could cause actual results to vary.

Dividend

Pursuant to its previously announced dividend policy, the board of directors (the "Board") today declared a dividend of $0.10171 per share on its outstanding subordinate voting shares and multiple voting shares, or approximately $5.0 million in aggregate, representing an expected annual dividend of $20.0 million.

Payment of the dividend will be made on April 15, 2016 to shareholders of record at the close of business on March 31, 2016.  Cara has designated this dividend as an eligible dividend within the meaning the Income Tax Act (Canada) and all provisions of provincial laws applicable to eligible dividends.

Cara offers a Dividend Reinvestment Plan ("DRIP" or the "Plan') to any registered or beneficial holder of its subordinate voting shares and multiple voting shares who is a resident of Canada.  The Dividend Reinvestment Plan enables shareholders to acquire additional subordinate voting shares from Cara by reinvesting all of their cash dividends.  The shares will be issued at a discount from the market price of the shares.  The purchase price discount has initially been set at 3%.

A registered shareholder may enroll in the Plan by completing an Enrollment Form and returning it to Computershare, the Administrator.  A completed Enrollment Form must be received by the Administrator no later than 5:00 pm (EDT) on March 24, 2016 in order for the fourth quarter dividend to be reinvested under the Plan.

To obtain an Enrollment Form, please contact Computershare at 1-866-313-1872.

Beneficial holders (persons who use a broker or other intermediary to hold their shares) may also participate in the Plan by (i) directing their broker to electronically transfer all or any number of whole shares into the holder's name and then enrolling in the Plan as a registered holder or (ii) making appropriate arrangements with the broker or other intermediary who holds the shares to enroll in the Plan on their behalf. 

A complete copy of the DRIP is available on the Investor Relations website at www.cara.com.  Shareholders should carefully read the complete text of the DRIP before making any decisions regarding their participation in the DRIP.

Non‑IFRS Measures

This press release makes reference to certain non‑IFRS measures. These measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement those IFRS measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS. The Company uses non IFRS measures including "System Sales", "SRS Growth", "Operating EBITDA", "Operating EBITDA Margin", "Operating EBITDA Margin on System Sales", "Adjusted Basic EPS", and "Adjusted Diluted EPS", to provide investors with supplemental measures of its operating performance and thus highlight trends in its core business that may not otherwise be apparent when relying solely on IFRS financial measures. The Company also believes that securities analysts, investors and other interested parties frequently use non IFRS measures in the evaluation of issuers. The Company's management also uses non IFRS measures in order to facilitate operating performance comparisons from period to period, to prepare annual operating budgets, and to determine components of management compensation.


"System Sales" represents top line sales received from restaurant guests at both corporate and franchise restaurants including take out and delivery customer orders. System Sales includes sales from both established restaurants as well as new restaurants. Management believes System Sales provides meaningful information to investors regarding the size of Cara's restaurant network, the total market share of the Company's brands and the overall financial performance of its brands and restaurant owner base, which ultimately impacts Cara's consolidated financial performance.


"System Sales Growth" is a metric used in the restaurant industry to compare System Sales over a certain period of time, such as a fiscal quarter, for the current period against System Sales in the same period in the previous year.


"SRS Growth" is a metric used in the restaurant industry to compare sales earned in established locations over a certain period of time, such as a fiscal quarter, for the current period against sales in the same period in the previous year. SRS Growth helps explain what portion of sales growth can be attributed to growth in established locations and what portion can be attributed to the opening of net new restaurants. Cara defines SRS Growth as the percentage increase or decrease in sales during a period of restaurants open for at least 24 complete fiscal months relative to the sales of those restaurants during the same period in the prior year. Cara's SRS Growth results exclude Casey's restaurants as the Company is in the process of winding down its operations and will either convert certain locations to other Cara brands or close. SRS Growth also exclude sales from international operations from 37 New York Fries and 4 East Side Marios.

"EBITDA" is defined as net earnings (loss) from continuing operations before: (i) net interest expense and other financing charges; (ii) loss (gain) on derivative; (iii) write-off of financing fees; (iv) income taxes; (v) depreciation of property, plant and equipment; (vi) amortization of other assets; and (vii) impairment of assets, net of reversals.

"Operating EBITDA" is defined as net earnings (loss) from continuing operations before: (i) net interest expense and other financing charges; (ii) gain (loss) on derivative; (iii) write-off of financing fees; (iv) income taxes; (v) depreciation of property, plant and equipment; (vi) amortization of other assets; (vii) impairment of assets, net of reversals; (viii) losses on early buyout / cancellation of equipment rental contracts; (ix) restructuring; * conversion fees; (xi) net (gain) / loss on disposal of property, plant and equipment; (xii) stock based compensation; (xiii) change in onerous contract provision; and (xiv) lease costs and tenant inducement amortization.

"Operating EBITDA Margin" is defined as Operating EBITDA divided by total gross revenue from continuing operations.

"Operating EBITDA Margin on System Sales" is defined as Operating EBITDA divided by System Sales.

"Adjusted Basic EPS" is defined as net earnings plus deferred income tax expense (reversal) divided by the weighted average number of shares outstanding.

"Adjusted Diluted EPS" is defined as net earnings plus deferred income tax expense (reversal) divided by the weighted average number of shares outstanding plus the dilutive effect of stock options and warrants issued. 

Forward-Looking Information

Certain statements in this press release may constitute "forward-looking" statements within the meaning of applicable Canadian securities legislation which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company or the industry in which they operate, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this press release, such statements use words such as "may", "will", "expect", "believe", "plan" and other similar terminology. These statements reflect management's current expectations regarding future events and operating performance and speak only as of the date of this press release.  These forward-looking statements involve a number of risks and uncertainties, including those related to: (a) the Company's ability to maintain profitability and manage its growth including SRS Growth, System Sales Growth, increases in net income, Operating EBITDA and Operating EBITDA Margin on System Sales (b) competition in the industry in which the Company operates;  (c) the general state of the economy; (d) integration of acquisitions by the Company; (e) risk of future legal proceedings against the Company.  These risk factors and others are discussed in detail under the heading "Risk Factors" in the Company's long form prospectus dated March 31, 2015.  New risk factors may arise from time to time and it is not possible for management of the Company to predict all of those risk factors or the extent to which any factor or combination of factors may cause actual results, performance or achievements of the Company to be materially different from those contained in forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Although the forward-looking statements contained in this press release are based upon what management believes to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this press release.

Related Communications

Bill Gregson, Chief Executive Officer and Ken Grondin, Chief Financial Officer, will hold an investor conference call to discuss 2015 fourth quarter and year-end results at 9:00 am Eastern Time on Friday, March 4, 2016.

To access the call, please call (647) 427-7450 or 1-888-231-8191, five to ten minutes prior to the start time. No access code is required. A telephone replay of the call will be available until midnight on April 1, 2016.  To access the replay, please dial (416) 849-0833 or 1-855-859-2056 and enter passcode 46407844.

About CARA

Founded in 1883, Cara is Canada's oldest and largest full-service restaurant company.  The Company franchises and/or operates some of the most recognized brands in the country including Swiss Chalet, Harvey's, Milestones, Montana's, Kelsey's, East Side Mario's, Casey's, New York Fries,  Prime Pubs, Bier Markt and Landing restaurants.  As at December 27, 2015, Cara had 1,010 restaurants, 973 of which were located in Canada and the remaining 37 locations were located internationally.  88% of Cara's restaurants are operated by franchisees and 66% of Cara's locations are based in Ontario.  Cara's shares trade on the Toronto Stock Exchange under the ticker symbol CAO.  More information about the Company is available at www.cara.com.

SOURCE Cara Operations Limited

INVESTOR RELATIONS: Cara Operations Limited, Ken Grondin, (905) 760-2244, Chief Financial Officer, Email: [email protected] or [email protected]

Organization Profile

Cara Operations Limited