ADDISON, Texas - March 2, 2013 - (BUSINESS WIRE) - Fiesta Restaurant Group, Inc. (“Fiesta” or the “Company”) (NASDAQ: FRGI), the owner, operator, and franchisor of the Pollo Tropical® and Taco Cabana® fast-casual restaurant brands, today reported results for the fourth quarter and the full year of 2012 which ended on December 30, 2012.
Tim Taft, President and Chief Executive Officer of Fiesta, commented, “We are pleased to have completed 2012 from a position of strength by delivering outstanding financial results in the fourth quarter. Pollo Tropical and Taco Cabana both posted robust comparable restaurant sales and transaction growth over the three-month period, which enabled us to achieve substantially higher operating profitability. We believe our menu selections, value proposition, marketing messages, and elevated dining experience are clearly resonating with a growing customer base, and underscore what we believe is our substantial opportunity to profitably grow both concepts.”
Taft continued, “New restaurant development will be key to our go-forward business strategy, and we plan to open 14 to 17 Company-owned restaurants in 2013 on top of the 10 Company-owned restaurants openings in 2012. While most of this year's growth will be in core Texas and Florida markets, Pollo Tropical opened its first of two locations planned for 2013 in the Nashville area on February 1st, and will further expand its emerging presence in Atlanta, as well. Internationally, franchise development is expected to consist of more than 10 Pollo Tropical restaurant openings in 2013, including our first franchised restaurant in India. Considering our own Company initiatives to develop an increasing number of new Company-owned restaurants over time and brand initiatives to continue to grow comparable restaurant sales, along with the substantial completion of the transition from Carrols, we believe that 2013 is poised to be a very exciting year for Fiesta.”
Total revenues increased 8.2% in the fourth quarter of 2012 to $126.6 million from $116.9 million in the fourth quarter of 2011. Restaurant sales in the fourth quarter of 2012 increased 8.1% to $125.9 million from $116.5 million in the fourth quarter of 2011, due primarily to comparable restaurant sales growth at both Pollo Tropical and Taco Cabana. Franchise revenues in the fourth quarter of 2012 increased to $649,000 from $477,000 in the prior year period.
Cost of sales improved as a percentage of restaurant sales in the fourth quarter of 2012 compared to the prior year period primarily due to increases in menu pricing, lower commodity costs and sales mix. Restaurant wages and related expenses improved as a percentage of restaurant sales primarily due to the positive impact of a sales increase on fixed costs. Other restaurant operating expenses increased as a percentage of restaurant sales primarily due to new restaurant opening expenses that were partially offset by the positive impact of a sales increase on fixed costs and lower utility rates. Advertising expense increased as a percentage of restaurant sales primarily due to timing.
Rent expense increased $1.9 million to $6.3 million in the fourth quarter of 2012 compared to $4.4 million in the prior year period. Rent expense was $1.6 million higher in the fourth quarter of 2012 compared to the fourth quarter of 2011 primarily due to certain transactions that qualified for sale-leaseback accounting treatment (and the related leases being treated as operating leases) upon the spin-off on May 7, 2012, that, until that time, had been classified as lease financing obligations, as previously disclosed.
General and administrative expenses increased $0.7 million to $11.1 million in the fourth quarter of 2012 from $10.4 million in the fourth quarter of 2011, due primarily to Fiesta employee additions and costs incurred to transition various information technology functions from the Company's former parent company, Carrols Restaurant Group, Inc. ("Carrols").
Depreciation and amortization decreased $0.4 million to $4.6 million in the fourth quarter of 2012 from $5.0 million in the fourth quarter of 2011, primarily due to the elimination of depreciation expense of $0.5 million as a result of the qualification for sale treatment of certain sale-leaseback transactions upon completion of the spin-off.
Interest expense decreased $2.6 million to $5.1 million in the fourth quarter of 2012 from $7.7 million in the fourth quarter 2011, primarily because of the elimination of $2.7 million in interest expense as a result of the qualification for sale treatment of certain sale-leaseback transactions upon the completion of the spin-off.
The provision for income taxes in the fourth quarter of 2012 was derived using an effective annual income tax rate of 34.2% as compared to an effective annual tax rate for 2011 of 32.7%, primarily due to the expiration of the Work Opportunity Tax Credit and the HIRE Act retention tax credit effective 2011. The 2012 effective annual tax rate does not include any impact from the reenactment of the Work Opportunity Tax Credit subsequent to year end.
Net income increased to $2.6 million in the fourth quarter of 2012, or $0.11 per diluted share, compared to net loss of $(0.1) million, or $(0.01) per diluted share, in the fourth quarter of 2011.
Pollo Tropical restaurant sales increased 8.8% to $56.1 million in the fourth quarter of 2012 from $51.6 million in the fourth quarter of 2011, primarily due to a comparable restaurant sales increase of 8.3%. The growth in comparable restaurant sales resulted from a 6.7% increase in guest traffic along with a 1.6% increase in average check. Pollo Tropical franchise revenues increased to $435,000 in the fourth quarter of 2012 from $403,000 in the fourth quarter of 2011. Adjusted Segment EBITDA for Pollo Tropical increased to $7.9 million in the fourth quarter of 2012 from $7.8 million in the fourth quarter of 2011. However, Adjusted Segment EBITDA was negatively impacted by an increase in rent expense of $0.6 million in the fourth quarter of 2012 compared to the fourth quarter of 2011 due to the qualification for sale treatment of sale-leaseback transactions upon the completion of the spin-off, as discussed above.
Taco Cabana restaurant sales increased 7.6% to $69.8 million in the fourth quarter of 2012 from $64.9 million in the fourth quarter of 2011, primarily due to a comparable restaurant sales increase of 6.8%. The growth in comparable restaurant sales resulted from a 4.2% increase in guest traffic along with a 2.5% increase in average check. Taco Cabana franchise revenues increased to $214,000 in the fourth quarter of 2012 from $74,000 in the fourth quarter of 2011 primarily due to the franchising of two previously Company-owned restaurants in New Mexico. Adjusted Segment EBITDA for Taco Cabana decreased to $5.9 million in the fourth quarter of 2012 from $6.1 million in the fourth quarter of 2011. Adjusted Segment EBITDA was negatively impacted by an increase in rent expense of $1.0 million in the fourth quarter of 2012 compared to the fourth quarter of 2011 due to the qualification for sale treatment of sale-leaseback transactions upon the completion of the spin-off, as discussed above.
Total revenues increased 7.3% to $509.7 million compared to $475.0 million in the prior year period, driven by comparable restaurant sales growth of 8.1% at Pollo Tropical and 4.7% at Taco Cabana. The growth in comparable restaurant sales resulted from an increase in comparable guest traffic of 6.6% at Pollo Tropical and 1.9% at Taco Cabana, with an increase in average check of 1.5% at Pollo Tropical and 2.8% at Taco Cabana.
Net income decreased $1.3 million to $8.3 million, or $0.35 per diluted share, compared to $9.5 million, or $0.41 per diluted share, in 2011. The variance was due to the impact of the spin-off from Carrols on May 7, 2012 and related expenses, the establishment of a separate public company with a transitioning infrastructure and senior management team, and impairment charges primarily associated with the closure of Pollo Tropical restaurants in the New Jersey market. These factors more than offset the positive impact of revenue growth and related profitability, and the positive impact of the qualification for sale treatment of sale-leaseback transactions.
Fiesta opened two new Company-owned Taco Cabana restaurants in the Dallas, Texas area and one new Company-owned Pollo Tropical restaurant on the east coast of Florida during the fourth quarter of 2012. Fiesta also sold two Taco Cabana restaurants to an existing franchisee in the fourth quarter of 2012. For the full year of 2012, there were a total of ten Company-owned Pollo Tropical and Taco Cabana restaurant openings and eight closings, including the closure of five Pollo Tropical restaurants resulting from the exit of the New Jersey market in the first quarter of 2012, and the sale of two Taco Cabana restaurants to an existing franchisee in the fourth quarter of 2012.
As of December 30, 2012, the Company owned 91 Pollo Tropical restaurants and 160 Taco Cabana restaurants and franchised 35 Pollo Tropical restaurants in the U.S., Puerto Rico, the Bahamas, Costa Rica, Ecuador, Honduras, Panama, Trinidad & Tobago, and Venezuela, and eight Taco Cabana restaurants in the U.S.
On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2013 into law, which included a provision to re-enact the Work Opportunity Tax Credit as of January 1, 2012, with a new expiration date of December 31, 2013. Because the Act was re-enacted after Fiesta's fiscal year-end, the retroactive re-enactment of the Work Opportunity Tax Credit is not reflected in the Company's 2012 provision for income taxes and will be recognized in the first quarter of 2013. As a result, Fiesta now expects the 2013 effective tax rate to be 32% to 34%, which includes the impact of the reinstatement of the Work Opportunity Tax Credits for both 2012 and 2013.
Fiesta will host a conference call and webcast to review fourth quarter and full year 2012 results today at 4:30 PM ET. Hosting the call will be Tim Taft, President and Chief Executive Officer, and Lynn Schweinfurth, Vice President and Chief Financial Officer.
The conference call can be accessed live over the phone by dialing 888-287-5532 or for international callers by dialing 719-325-2250. A replay will be available after the call and can be accessed by dialing 877-870-5176 or for international callers by dialing 858-384-5517; the passcode is 8047814. The replay will be available until Thursday, March 7, 2013.
The conference call will also be webcast live from the corporate website at www.FRGI.com, under the investor relations section. A replay of the webcast will be available through the corporate website shortly after the call has concluded.
Fiesta Restaurant Group, Inc. owns, operates, and franchises the Pollo Tropical® and Taco Cabana® restaurant brands with 251 company-owned and operated restaurants and 43 franchised restaurants in the U.S., Puerto Rico, the Bahamas, Costa Rica, Ecuador, Honduras, Panama, Trinidad & Tobago, and Venezuela as of December 30, 2012. The brands specialize in the operation of fast-casual, ethnic restaurants that offer distinct and unique flavors with a broad appeal at a compelling value. Both brands feature made-from-scratch cooking, fresh salsa bars, and drive-thru service and catering. For more information about Fiesta Restaurant Group, Inc. visit our corporate website at www.FRGI.com.
Except for the historical information contained in this news release, the matters addressed are forward-looking statements. Forward-looking statements, written, oral or otherwise made, represent Fiesta's expectation or belief concerning future events. Without limiting the foregoing, these statements are often identified by the words “may,” “might,” “believes,” “thinks,” “anticipates,” “plans,” “expects”, “intends” or similar expressions. In addition, expressions of Fiesta's strategies, intentions or plans, are also forward-looking statements. Such statements reflect management's current views with respect to future events and are subject to risks and uncertainties, both known and unknown. You are cautioned not to place undue reliance on these forward-looking statements as there are important factors that could cause actual results to differ materially from those in forward-looking statements, many of which are beyond Fiesta's control. Investors are referred to the full discussion of risks and uncertainties as included in Fiesta's filings with the Securities and Exchange Commission.
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Fiesta Restaurant Group, Inc.
Supplemental Information
The following table sets forth certain unaudited supplemental financial and other data for the periods indicated
(in thousands, except percentages and number of restaurants):
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Fiesta Restaurant Group, Inc.
Supplemental Non-GAAP Information
The following table sets forth certain unaudited supplemental financial data for the periods indicated
(in thousands, except per share amounts):
Adjusted net income and related adjusted earnings per share are non-GAAP financial measures. Adjusted net income is defined as net income before impairment and other lease charges and the impact of the qualification for sale-leaseback accounting (primarily upon the spin-off from Carrols) for certain leases previously accounted for as lease financing obligations. Management believes that adjusted net income and related adjusted earnings per share, when viewed with our results of operations calculated in accordance with GAAP (i) provide useful information about our operating performance and period-over-period growth, (ii) provide additional information that is useful for evaluating the operating performance of our business, and (iii) permit investors to gain an understanding of the factors and trends affecting our ongoing earnings, from which capital investments are made and debt is serviced. However, such measures are not measures of financial performance or liquidity under GAAP and, accordingly should not be considered as alternatives to net income or net income per share as indicators of operating performance or liquidity. Also these measures may not be comparable to similarly titled captions of other companies.
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(a) Impairment and other lease charges for the twelve months ended December 30, 2012 are primarily related to the closure of five Pollo Tropical restaurants in New Jersey in the first quarter of 2012. Impairment and other lease charges for each period are presented net of taxes of $76, $565, $2,407 and $897 for the three and twelve months ended December 30, 2012 and January 1, 2012, respectively.
(b) For certain of our sale-leaseback transactions, Carrols Corporation (a wholly-owned subsidiary of Carrols) has guaranteed the lease payments on an unsecured basis or is the primary lessee on the leases associated with certain of our sale-leaseback transactions. Prior to the spin-off from Carrols, these leases were classified as lease financing obligations because the guarantee from Carrols Corporation, a related party prior to the Spin-off, constituted continuing involvement and caused the sale to not qualify for sale-leaseback accounting. Upon completion of the spin-off from Carrols, such leases qualified for sale-leaseback accounting treatment due to the cure or elimination of the provisions that previously precluded sale-leaseback accounting (and the treatment of such leases as operating leases), primarily the guarantees of Carrols Corporation. As a result of the qualification for sale-leaseback accounting treatment during the second quarter of 2012 due to the spin-off from Carrols, we removed the associated lease financing obligations, property and equipment, and deferred financing costs from our balance sheet, and recognized deferred gains on sale-leaseback transactions, which is amortized as a component of rent expense.
Additionally in the second quarter of 2012, we exercised purchase options associated with the leases for five restaurant properties also previously accounted for as lease financing obligations and purchased those properties from the lessor. Subsequently, four of the five properties were sold prior to December 30, 2012, and qualified for sale leaseback treatment at the time of sale. The above table does not consider the impact of the qualification of sale-leaseback accounting for these four properties on the Company's rent and depreciation expense for all periods presented above.
As a result of the qualification of these leases and purchase of the five properties, restaurant rent expense was $1.6 million and $4.4 million higher, depreciation expense was $0.5 million and $1.4 million lower and interest expense was $2.7 million and $7.1 million lower in the three and twelve months ended December 30, 2012, respectively, compared to the prior year periods.
The amounts reported as "qualification for sale leaseback accounting" represent the net increase in rent expense, decrease in depreciation expense and decrease in interest expense, that would have impacted net income had the leases been accounted for as operating leases for all periods presented, based on the deferred gain on sale-leaseback transactions calculated at the time of the Spin-off, and had the five properties been owned for all periods presented. These amounts are shown net of taxes of $424, $649, and $1,771 in the three months ended January 1, 2012 and the twelve months ended December 30, 2012 and January 1, 2012, respectively. These amounts are included for comparative purposes only, and may not be indicative of what actual results would have been had the qualification for sale-leaseback accounting treatment of these leases (an the treatment of such leases as operating leases) occurred on the dates described above.
Investor Relations
Raphael Gross
203-682-8253
investors@frgi.com
Fiesta Restaurant Group, Inc. owns, operates and franchises the Pollo Tropical® and Taco Cabana® restaurant brands