ADDISON, Texas - November 04, 2014 - (BUSINESS WIRE) - Fiesta Restaurant Group, Inc. ("Fiesta" or the "Company") (NASDAQ:FRGI), parent company of the Pollo Tropical® and Taco Cabana® fast-casual restaurant brands, today reported results for the third quarter 2014, which ended on September 28, 2014. The Company also provided initial operating targets for 2015.
Highlights of the third quarter of 2014 include:
Fiesta President and Chief Executive Officer Tim Taft commented, “We believe our performance is demonstrative of the successful execution of our operational and development strategies and our ability to enhance shareholder value with improved results. During the third quarter, we grew our top-line by double digits through contributions from recent restaurant openings and strong comparable restaurant sales increases, while sales leverage and management initiatives drove robust margin expansion. The combination of these factors and the new capital structure we put in place late last year resulted in higher profitability, yielding diluted EPS growth of almost 62%.”
Taft added, “We view 2014 as a pivotal year. Of note, we have successfully introduced Pollo Tropical to Texas with our new restaurant prototype and new menu offerings and accelerated new restaurant development, positioning Fiesta for sustainable growth.”
Total revenues increased 10.4% to $155.3 million from $140.7 million compared to the prior year period due primarily to 21 net Company-owned restaurant openings and comparable restaurant sales growth of 5.9% at Pollo Tropical and 3.5% at Taco Cabana respectively. Pollo Tropical has now generated comparable restaurant sales growth for 20 consecutive quarters.
Cost of sales as a percentage of restaurant sales improved 50 basis points compared to the prior year period as favorable sales mix, modest price increases and supply chain management initiatives more than offset commodity cost increases.
Restaurant wages and related expenses as a percentage of restaurant sales improved 60 basis points compared to the prior year period due to the favorable impact of sales increases on fixed costs and lower medical costs partially offset by the impact of new restaurants and higher workers’ compensation costs.
Rent expense as a percentage of restaurant sales improved 20 basis points compared to the prior year period as the favorable impact of sales increases more than offset higher rent at recent Company-owned restaurant openings.
Other restaurant operating expenses as a percentage of restaurant sales increased 30 basis points compared to the prior year period as timing and higher repair and maintenance expenses were partially offset by lower insurance costs.
Advertising expense as a percentage of restaurant sales decreased 30 basis points compared to the prior year period due to the timing of promotions.
General and administrative expenses increased slightly to $11.8 million compared to the prior year period but improved as a percentage of revenues by 70 basis points due to the favorable impact of higher sales on relatively flat overhead expenses. General and administrative expenses include a benefit of a $0.5 million payment received in the third quarter of 2014 as a settlement of a litigation matter.
Depreciation and amortization increased $0.9 million to $6.0 million compared to the prior year period due to new Company-owned restaurant development, partially offset by the impact of sale-leaseback transactions.
Pre-opening costs increased $0.8 million to $1.4 million compared to the prior year period due to the increased number of new restaurant openings.
Impairment and other lease charges of $0.2 million in the third quarter 2014 primarily resulted from a decision to opportunistically relocate a Pollo Tropical restaurant to a superior site in the same trade area.
Other income in the third quarter of 2014 consisted primarily of a $0.6 million gain from a real estate condemnation award resulting from an eminent domain proceeding related to a Taco Cabana restaurant that closed during the quarter.
Interest expense decreased $3.9 million to $0.5 million compared to the prior year period due to the reduction in Fiesta’s outstanding debt and a lower interest rate on borrowings under the new senior credit facility.
The provision for income taxes was derived using an estimated annual effective income tax rate for 2014 of 38.3%, while the provision for income taxes for the prior year period was derived using an estimated effective annual income tax rate for 2013 of 36.5%, excluding discrete items. The estimated effective annual income tax rate for 2014 is higher than 2013, primarily due to the expiration of the Work Opportunity Tax Credit on December 31, 2013.
Net income increased 81.6% to $9.2 million compared to net income of $5.0 million in the prior year period.
Diluted earnings per share increased 61.9% to $0.34 (on a base of 26.3 million shares) compared to diluted earnings per share of $0.21 (on a base of 23.0 million shares) in the prior year period.
Pollo Tropical restaurant sales increased 18.0% to $77.9 million compared to the prior year period due to a comparable restaurant sales increase of 5.9% along with a net increase of 19 Company-owned restaurants. The growth in comparable restaurant sales resulted from a 4.6% increase in comparable restaurant guest traffic along with a 1.3% increase in average check. Average check was driven by menu price increases that positively impacted restaurant sales by 1.6% partially offset by sales mix. This is the 20th consecutive quarter the brand has delivered comparable restaurant sales growth and, on a two-year basis, third quarter comparable restaurant sales grew 12.4%. Adjusted EBITDA for Pollo Tropical, a non-GAAP financial measure, increased 13.0% to $12.1 million compared to the prior year period.
Taco Cabana restaurant sales increased 3.6% to $76.8 million compared to the prior year period due to a 3.5% increase in comparable restaurant sales. The increase in comparable restaurant sales resulted from an increase of 0.9% in comparable restaurant guest traffic and a 2.6% increase in average check. Average check was driven by menu price increases that positively impacted restaurant sales by 1.1% and a positive change in sales mix due to the implementation of new menu boards during the first quarter of 2014. On a two-year basis, third quarter comparable restaurant sales grew 5.3%. Adjusted EBITDA for Taco Cabana, a non-GAAP financial measure, increased 43.7% to $9.8 million compared to the prior year period.
During the quarter, Fiesta opened seven new Company-owned Pollo Tropical restaurants in Florida and Texas and two new Company-owned Taco Cabana restaurants in Texas. During the quarter, the Company closed two Taco Cabana restaurants in Texas.
As of September 28, 2014, the Company owned and operated 119 Pollo Tropical restaurants and 166 Taco Cabana restaurants (including one Cabana Grill® restaurant) and franchised 36 Pollo Tropical restaurants in the U.S., Puerto Rico, the Bahamas, Ecuador, Guatemala, Honduras, Panama, Trinidad & Tobago, Venezuela and the Dominican Republic; and seven Taco Cabana restaurants in the U.S.
The 2015 fiscal year ending January 3, 2016 contains 53 weeks compared to the 2014 fiscal year ending December 28, 2014 which contains 52 weeks.
Fiesta will host a conference call to review third quarter 2014 results today at 4:30 PM ET. Hosting the call will be President and Chief Executive Officer Tim Taft and Vice President and Chief Financial Officer Lynn Schweinfurth.
The conference call can be accessed live over the phone by dialing 877-407-0789 or for international callers by dialing 201-689-8562. 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 13593225. The replay will be available until Tuesday, November 11, 2014.
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. is the parent company of the Pollo Tropical® and Taco Cabana® restaurant brands. The brands specialize in the operation of fast-casual, ethnic restaurants that offer distinct and unique Caribbean and Mexican inspired flavors with broad appeal at a compelling value. The brands feature made-from-scratch cooking, fresh salsa bars, and drive-thru service and catering. For more information about Fiesta Restaurant Group, Inc., visit the 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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(a) The Company uses a 52 or 53 week fiscal year that ends on the Sunday closest to December 31. The three and nine month periods ended September 28, 2014 and September 29, 2013 included 13 and 39 weeks, respectively.
(b) Restaurant wages and related expenses include stock-based compensation expense of $20 and $1 for the three month periods ended September 28, 2014 and September 29, 2013, respectively, and $50 and $2 for the nine month periods ended September 28, 2014 and September 29, 2013, respectively. General and administrative expenses include stock-based compensation expense of $812 and $657 for the three month periods ended September 28, 2014 and September 29, 2013, respectively, and $2,582 and $1,677 for the nine month periods ended September 28, 2014 and September 29, 2013, respectively.
(c) General and administrative expenses for the nine months ended September 29, 2013 include expenses related to the underwritten secondary public equity offering completed during March 2013 totaling $425. The Company did not receive any proceeds from the sale of shares in such offering.
(d) In the fourth quarter of 2013, Fiesta repurchased and redeemed its $200.0 million aggregate principal amount of 8.875% Senior Secured Second Lien Notes due 2016, sold 3,078,336 shares of its common stock in a public offering, and entered into a new senior secured revolving credit facility that provides for aggregate borrowings of up to $150.0 million with variable rate interest.
(e) As previously disclosed, Fiesta has granted shares of restricted stock to certain of its employees. Because the unvested shares participate in any dividends declared, the unvested shares are considered a second class of common stock for accounting purposes, impacting the calculation of net income per share. For further information, please see the Company's unaudited financial statements to be included in the Company's Quarterly Report on Form 10-Q for the quarter ended September 28, 2014.
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(a) Restaurants are included in comparable restaurant sales after they have been open for 18 months.
(b) Average sales for Company-owned restaurants are derived by dividing restaurant sales for such period for the applicable segment by the average number of open restaurants for the applicable segment for such period.
(c) Adjusted EBITDA and Restaurant-Level Adjusted EBITDA are non-GAAP financial measures. Please see the reconciliation of Restaurant-Level Adjusted EBITDA and Adjusted EBITDA to net income in the table titled "Supplemental Non-GAAP Information" on the last page of this release.
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(a) Percent of restaurant sales for the applicable segment.
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Adjusted EBITDA and Restaurant-Level Adjusted EBITDA are non-GAAP financial measures. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense and other income and expense. Adjusted EBITDA for each of our segments includes an allocation of general and administrative expenses associated with administrative support for executive management, information systems and certain accounting, legal and other administrative functions. Restaurant-Level Adjusted EBITDA is defined as Adjusted EBITDA excluding franchise royalty revenues and fees and general and administrative expenses (including corporate-level general and administrative expenses). Adjusted EBITDA for each of our segments is a measure of segment profitability reported to our chief operating decision maker for purposes of allocating resources to the segments and assessing each segment's performance. In addition, management believes that Adjusted EBITDA and Restaurant-Level Adjusted EBITDA, when viewed with our results of operations calculated in accordance with GAAP and our reconciliation of Restaurant-Level Adjusted EBITDA and Adjusted EBITDA to net income (i) provides useful information (including at the restaurant level) about our operating performance and period-over-period growth, (ii) provides additional information that is useful for evaluating the operating performance of our business, and (iii) permits 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 a measure of financial performance or liquidity under GAAP and, accordingly, should not be considered as an alternative 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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SOURCE Fiesta Restaurant Group, Inc.
Raphael Gross
Investor Relations
203-682-8253
investors@frgi.com
Fiesta Restaurant Group, Inc. owns, operates and franchises the Pollo Tropical® and Taco Cabana® restaurant brands