DALLAS - May 08, 2017 - (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 13-week first quarter ended on April 2, 2017.
Select first quarter 2017 results as compared to first quarter 2016 results include:
Fiesta President and Chief Executive Officer Richard Stockinger said, “We are addressing our challenges and disappointing financial performance through a strategic Renewal Plan that we believe will create long-term value for our shareholders. We have already taken action by recently closing 30 Pollo Tropical restaurants in emerging markets that contributed material pre-tax operating losses in 2016 and the first quarter of 2017, while we focus on our core markets at both brands. With ignited passion, our entire team is galvanized and focused on re-establishing Fiesta as a best-in-class restaurant operator within our sector. Our goal is to be recognized for providing the best quality and value to our loyal guests, and our revitalization efforts have begun in earnest.”
On April 24, 2017, the Company launched its strategic Renewal Plan and issued a press release which included an overview and initial steps to drive long-term value creation. These steps include: 1) revitalizing restaurant performance in core markets; 2) managing capital and financial discipline; and 3) establishing platforms for long term growth. The entire press release can be found on Fiesta’s corporate website at www.frgi.com, under the investor relations section.
Total revenues decreased 0.6% to $175.6 million from $176.7 million compared to the prior year period as sales contributions from 24 net Company-owned restaurant openings were offset by declines in comparable restaurant sales amid continued industry-wide softness, which was particularly prevalent in Florida and Texas. According to data reported by TDn2K’s Black Box Intelligence, in the first quarter of 2017 comparable restaurant transactions in the fast casual segment declined 680 bps and 650 bps in Florida and Texas, respectively. Pollo Tropical comparable restaurant transactions in Florida were approximately 100 basis points lower than fast casual restaurant peers and Taco Cabana comparable restaurant transactions in Texas were 250 basis points higher than fast casual restaurant peers. Sales cannibalization negatively impacted Pollo Tropical comparable restaurant transactions in Florida by approximately 0.7%.
Comparable restaurant sales decreased 6.7% at Pollo Tropical compared to flat in the prior year period and decreased 4.5% at Taco Cabana compared to a 1.7% gain in the prior year period. Comparable restaurant transactions decreased 8.9% at Pollo Tropical compared to a 0.1% decrease in the prior year period and decreased 4.0% at Taco Cabana compared to a 0.8% decrease in the prior year period.
Cost of sales as a percentage of restaurant sales improved 160 basis points compared to the prior year period due primarily to favorable chicken and other commodity costs and menu price increases.
Restaurant wages and related expenses as a percentage of restaurant sales increased 190 basis points compared to the prior year period due primarily to higher labor costs and sales deleverage.
Other restaurant operating expenses as a percentage of restaurant sales increased 110 basis points compared to the prior year period due primarily to sales deleverage and higher real estate taxes.
Restaurant rent expense as a percentage of restaurant sales increased 50 basis points compared to the prior year period due primarily to new Company-owned restaurants, which generally have higher rent, and sales deleverage.
General and administrative expenses increased $2.2 million to $16.0 million compared to the prior year period due primarily to higher incentive-based compensation costs, higher medical costs, a $0.8 million charge for terminated capital project costs, $0.8 million of financial and legal advisory and other fees related to the Company’s CEO and board member searches, shareholder activism and related matters and a $0.3 million write-off of site development costs related to locations that we decided not to develop, partially offset by a $0.5 million benefit related to litigation matters. The increase in incentive-based compensation costs was due primarily to retention-related bonus costs in the first quarter of 2017 and favorable adjustments related to 2015 bonuses in the first quarter of 2016. As a percentage of revenues, general and administrative expenses increased 130 basis points compared to the prior year period.
As previously disclosed, as part of the strategic Renewal Plan designed to drive long-term value creation, Fiesta closed 30 Pollo Tropical restaurants in its emerging markets. The Company recognized impairment and other lease charges of $32.4 million in the first quarter of 2017 that included $32.0 million of impairment charges primarily related to the 30 Pollo Tropical restaurant closures, seven of which were impaired in 2016, $0.3 million of impairment charges related to three Taco Cabana restaurants that it continues to operate, and $0.1 million of lease and other charges related to closed Pollo Tropical restaurants, net of recoveries.
The closed restaurants contributed approximately $6.2 million of restaurant sales and $3.8 million of pre-tax restaurant-level operating losses, including $1.2 million of depreciation expense, to results in the first quarter 2017. The closed restaurants contributed approximately $27.0 million of restaurant sales and $14.6 million of pre-tax restaurant-level operating losses, including $4.9 million of depreciation expense and $1.8 million of pre-opening costs, to results in 2016. Annualized general and administrative expense savings are estimated to be $2.5 million to $2.7 million. The Company currently estimates that it will recognize impairment and other lease charges of $9 to $12 million in the second quarter 2017 based on the actual timing of restaurant closures.
The effective tax rate of 36.5% was flat as compared to the prior year period.
Net loss was $15.1 million, or $0.56 per diluted share, compared to net income of $9.9 million, or $0.37 per diluted share, in the prior year period.
Adjusted net income, a non-GAAP financial measure, was $6.7 million, or $0.25 per diluted share, compared to adjusted net income of $10.0 million, or $0.37 per diluted share, in the prior year period (see non-GAAP reconciliation table below).
Pollo Tropical restaurant sales increased 0.4% to $99.3 million in the quarter compared to the prior year period due primarily to sales contributions from 19 net Company-owned restaurant openings offset by a comparable restaurant sales decrease of 6.7%. The decrease in comparable restaurant sales resulted from an 8.9% decrease in comparable restaurant transactions, partially offset by a 2.2% increase in average check. Sales cannibalization from new restaurants on existing restaurants negatively impacted comparable restaurant transactions by approximately 0.7%. Average check was primarily driven by menu price increases that positively impacted restaurant sales by 2.0%. Restaurant-level Adjusted EBITDA for Pollo Tropical, decreased 4.9% to $22.3 million compared to the prior year period and Adjusted EBITDA for Pollo Tropical decreased 12.3% to $13.8 million compared to the prior year period, both are non-GAAP financial measures (see non-GAAP reconciliation table below).
Taco Cabana restaurant sales decreased 1.8% to $75.7 million in the quarter compared to the prior year period due primarily to a comparable restaurant sales decrease of 4.5% offset by sales contributions from five net Company-owned restaurant openings. The decrease in comparable restaurant sales resulted from a 4.0% decrease in comparable restaurant transactions and a 0.5% decrease in average check. Average check was driven by lower sales mix partially offset by menu price increases that positively impacted restaurant sales by 2.2%. Restaurant-level Adjusted EBITDA for Taco Cabana decreased 19.0% to $12.3 million compared to the prior year period and Adjusted EBITDA for Taco Cabana decreased 46.5% to $5.5 million compared to the prior year period, both are non-GAAP financial measures (see non-GAAP reconciliation tables below).
During the first quarter 2017, Fiesta opened three Company-owned Pollo Tropical restaurants in Florida. In addition, the Company opened one Company-owned Taco Cabana restaurant in San Antonio, Texas.
As of April 2, 2017, there were 180 Company-owned Pollo Tropical restaurants, 167 Company-owned Taco Cabana restaurants, 34 franchised Pollo Tropical restaurants in the U.S., Puerto Rico, the Bahamas, Guatemala, Guyana, Panama, and Venezuela and seven franchised Taco Cabana restaurants in the U.S.
Subsequent to the end of the first quarter 2017, Fiesta closed 30 Company-owned Pollo Tropical restaurants, including all locations in Dallas-Fort Worth and Austin, Texas, and Nashville, Tennessee. The Company continues to own and operate 19 Pollo Tropical restaurants outside of Florida, including 13 in Atlanta and six in south Texas in which to apply and prove successful regional strategies for future Pollo Tropical expansion beyond Florida. Up to five of the closed Texas restaurants may be rebranded as Taco Cabana restaurants.
In 2017, we expect to open eight to nine new Company-owned Pollo Tropical restaurants in Florida and six to seven new Company-owned Taco Cabana restaurants in Texas. Up to two and five closed Pollo Tropical restaurants in Texas may be converted to Taco Cabana restaurants in 2017 and 2018, respectively. Total capital expenditures in 2017 are expected to be $60.0 million to $70.0 million. Capital expenditures in 2017 are expected to include $22.0 million to $25.0 million for development of new restaurants. Our capital expenditures in 2017 are also expected to include approximately $21.0 million to $25.0 million for the ongoing reinvestment in our Pollo Tropical and Taco Cabana restaurants for capital maintenance expenditures, approximately $3.0 million to $4.0 million for remodeling costs and approximately $14.0 million to $16.0 million of other expenditures.
President and Chief Executive Officer Richard Stockinger, Senior Vice President and Chief Operating Officer Danny Meisenheimer and Senior Vice President and Chief Financial Officer Lynn Schweinfurth will host a conference call at 4:30 p.m. ET today.
The conference call can be accessed live over the phone by dialing 201-689-8562. A replay will be available after the call until Monday, May 15, 2017, and can be accessed by dialing 412-317-6671. The passcode is 13659179. 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 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, 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) Unused pre-production costs for the three months ended April 2, 2017, include costs for advertising pre-production that will not be used.
(b) Terminated capital project costs for the three months ended April 2, 2017, include costs related to the write-off of a capital project that was terminated in the first quarter.
(c) Financial and legal advisory and other fees for the three months ended April 2, 2017, include fees related to the Company’s CEO and board member searches, shareholder activism and related matters.
(d) Write-offs of site development costs for the three months ended April 2, 2017 and April 3, 2016, include the write-off of site costs related to locations that we decided not to develop.
(e) Management retention bonuses for the three months ended April 2, 2017, include costs related to bonuses paid to certain employees for retention purposes.
(f) Legal settlements and related costs for the three months ended April 2, 2017 and April 3, 2016, include benefits related to litigation matters.
(g) Impairment and other lease charges for the three months ended April 2, 2017, primarily include impairment charges for 30 Pollo Tropical restaurants that were closed in April 2017, seven of which were impaired in 2016, as well as an additional impairment charge related to previously closed restaurants primarily as a result of the decision not to convert a location to a Taco Cabana restaurant. The Company also recognized impairment charges with respect to three Taco Cabana restaurants that the Company continues to operate, plus additional lease charges related to Pollo Tropical restaurants that closed in the fourth quarter of 2016.
(h) Gain on condemnation for the three months ended April 3, 2016, primarily includes additional proceeds related to a location that closed in 2015 as a result of an eminent domain proceeding.
(i) The provision for income taxes related to the adjustments was calculated using the Company's combined federal statutory and estimated state rate of 36.8% and 37.3% for the periods ending April 2, 2017 and April 3, 2016, respectively.
Raphael Gross
Investor Relations
203-682-8253
investors@frgi.com
SOURCE Fiesta Restaurant Group, Inc.
Fiesta Restaurant Group, Inc. owns, operates and franchises the Pollo Tropical® and Taco Cabana® restaurant brands