Restaurants

A Burger King franchisee made a discounting error that cost it millions, but analyst says buy the stock

Key Points
  • Burger King's largest U.S. franchisee accidentally allowed double discounts on Whopper value meals from June to August.
  • The mistake decreased its sales by $12.4 million and its earnings before interest, taxes, depreciation and amortization by $10.9 million.
  • Craig-Hallum Capital Group analyst Jeremy Hamblin rated the franchisee's stock a "buy" as it trades "almost like it's going out of business."
Travelers order food in automated self-ordering kiosk at fast-food Burger King restaurant chain.
Bundrul Chukrut | LightRocket | Getty Images

Burger King's largest U.S. franchisee made a "one-time" discounting error that cost it millions, but Craig-Hallum Capital Group recommends buying its stock as the buzz continues for the Impossible Whopper and Popeyes' chicken sandwich.

Craig-Hallum Capital Group analyst Jeremy Hamblin wrote in a note Wednesday that the stock of Carrols Restaurant Group, which has a market value of $394 million, is trading "almost like it's going out of business."

The stock closed Wednesday up 2.8% at $7.60 per share. But the name has fallen 23% so far this year. For comparison, Restaurant Brands International, the parent company of Burger King, Popeyes Louisiana Kitchen and Tim Hortons, is up 26% in 2019.

Hamblin wrote that Carrols has suffered from "self-inflicted wounds," like an accidental double discount on Whopper value meals from June to August. The mistake decreased its sales by $12.4 million and its earnings before interest, taxes, depreciation and amortization by $10.9 million.

The discounting error also impacted the overall same-store sales sales of Burger King.

Carrols corrected the discounting mistake in late August. CEO Dan Accordino told analysts on the conference call earlier in November that it was a "one-time error" after disclosing the mistake.

Carrols operates more than 1,000 Burger King restaurants and 60 Popeyes locations, as of Sept. 29.

In April, Carrols acquired Cambridge Holdings. Hamblin said that he sees "opportunity in spades" for Carrols to improve Cambridge restaurants' profitability.

Hamblin also said that Carrols is benefiting from the strength of Burger King's and Popeyes' brands. The Impossible Whopper and Popeyes' chicken sandwich are drawing both new and old customers to restaurants. In October, the chains' parent company reported that both Burger King and Popeyes had their strongest quarterly same-store sales in years.

"It doesn't hurt that [Wendy's] is focused on its breakfast launch while [McDonald's] is coping with an unexpected CEO transition," Hamblin wrote.

— CNBC's Michael Bloom contributed to this report.

VIDEO6:0806:08
Popeyes parent company CEO Jose Cil on the chicken sandwich craze