DALLAS - August 07, 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 second quarter ended on July 2, 2017. The Company also provided an update on the progress it is making with its Strategic Renewal Plan (the "Plan") to drive long-term shareholder value creation.
Select second quarter 2017 results as compared to second quarter 2016 results include:
Fiesta President and Chief Executive Officer Richard Stockinger said, “Since initiating the Strategic Renewal Plan in April and implementing related major operational changes, we significantly reduced our media presence and moderated promotions and discounts, which negatively impacted our quarterly revenues. Our Plan includes deliberate investments to build affinity and frequency by improving the quality of our food, hospitality and restaurant environment. We remain confident and anticipate that our actions will significantly improve our core business model and drive improved results in the future.”
Mr. Stockinger concluded, “We are now preparing to relaunch Pollo Tropical in October and Taco Cabana shortly thereafter once the material aspects of our Plan are in place, including new and impactful creative advertising campaigns. We are committed to maintaining high standards with consistent execution and increased innovation across both brands. Meanwhile, we continue to manage our business with capital and financial discipline. By early 2018, among other things, we intend to implement incremental strategies for growth including digital solutions aimed at building effective programs to foster loyalty and grow online ordering, delivery and catering sales.”
The Plan consists of the following: 1) revitalizing restaurant performance in core markets; 2) managing capital and financial discipline; and 3) establishing platforms for long term growth.
The items detailed below reflect Fiesta’s meaningful progress to date.
Revitalizing Restaurant Brands in Core Markets
As previously announced, a comprehensive review of Fiesta’s corporate governance and board composition is underway, and the Company is committed to putting forward a proposal to declassify the Board at its next Annual Meeting.
Fiesta is in the process of refinancing its revolving credit facility that expires in the fourth quarter of 2018 and, upon completion of the refinancing that is expected before the end of 2017, will refine its plan to allocate capital, including considering the implementation of a share repurchase plan.
July comparable restaurant sales decreased 6.4% at Pollo Tropical and decreased 8.9% at Taco Cabana. After suspending broadcast media during the second quarter at both brands, media was reintroduced starting in late June in some Pollo Tropical markets.
Consolidated Results
Total revenues decreased 4.9% to $172.6 million from $181.5 million compared to the prior year period primarily due to reduced comparable restaurant sales and closed Pollo Tropical Company-owned restaurants. Broadcast media was materially reduced during the quarter while the Company implemented initiatives related to the Plan. There were 14 net fewer Company-owned restaurants operating relative to last year due primarily to the 30 Pollo Tropical Company-owned restaurant closures in Texas, Georgia, and Tennessee in April, partially offset by new Company-owned restaurant openings.
Comparable restaurant sales decreased 7.7% at Pollo Tropical compared to a decrease of 1.4% in the prior year period and decreased 4.7% at Taco Cabana compared to a decrease of 3.8% in the prior year period. Comparable restaurant transactions decreased 10.0% at Pollo Tropical compared to a 2.6% decrease in the prior year period and decreased 4.5% at Taco Cabana compared to a 5.5% decrease in the prior year period.
Comparable restaurant transactions declined 560 basis points in the U.S. fast casual segment. According to data reported by TDn2K’s Black Box Intelligence, comparable restaurant transactions in the fast casual segment declined 580 bps and 600 bps in Florida and Texas, respectively. Based on such data, Pollo Tropical comparable restaurant transactions in Florida were approximately 370 basis points lower than fast casual restaurant peers and Taco Cabana comparable restaurant transactions in Texas were 150 basis points higher than fast casual restaurant peers. Sales cannibalization negatively impacted Pollo Tropical comparable restaurant transactions in Florida by approximately 60 basis points.
Cost of sales as a percentage of restaurant sales improved 70 basis points compared to the prior year period due primarily to menu price increases and lower commodity costs, partially offset by sales mix.
Restaurant wages and related expenses as a percentage of restaurant sales increased 90 basis points compared to the prior year period due primarily to higher labor and medical benefit costs and sales deleverage, partially offset by lower incentive based compensation and the closure of restaurants with higher labor costs.
Restaurant rent expense decreased $0.2 million compared to the prior year period due primarily to fewer Company-owned restaurants.
Advertising expense decreased $2.7 million compared to the prior year period due primarily to reduced broadcast media while the Company implemented initiatives related to the Plan.
Other restaurant operating expenses as a percentage of restaurant sales increased 90 basis points compared to the prior year period due primarily to sales deleverage and higher repair and maintenance costs.
General and administrative expenses increased $4.9 million to $19.1 million compared to the prior year period. As a percentage of total revenues, general and administrative expenses increased 320 basis points compared to the prior year period. General and administrative expenses increased due primarily to board and shareholder matter costs related to shareholder activism and CEO and board member searches of $3.1 million and Plan restructuring costs and retention bonuses of $1.9 million. These items increased general and administrative expenses as a percent of total revenues by 290 basis points compared to the prior year period as a percentage of total revenues.
The Company recognized impairment and other lease charges of $10.8 million in the second quarter of 2017 primarily related to lease charges for Company-owned Pollo Tropical restaurants that closed in the second quarter of 2017, impairment charges for three closed Company-owned Pollo Tropical restaurants as a result of the decision not to convert such locations to Taco Cabana restaurants, and impairment charges with respect to four Company-owned Taco Cabana restaurants that were subsequently closed in the third quarter of 2017.
The effective tax rate was 26.3% as compared to 36.5% during the prior year period. The benefit from income taxes for the second quarter of 2017 was derived using an estimated annual effective tax rate of 37.3%, which excludes the discrete impact of a tax benefit deficiency from the vesting of restricted shares and the tax benefit resulting from impairment and other lease charges of $0.1 million and $3.9 million, respectively. The provision for income taxes for the second quarter of 2016 was derived using an estimated effective annual income tax rate of 36.5%.
Net loss was $2.2 million, or $0.08 per diluted share, compared to net income of $8.9 million, or $0.33 per diluted share, in the prior year period.
Adjusted net income, a non-GAAP financial measure, was $8.1 million, or $0.30 per diluted share, compared to adjusted net income of $9.3 million, or $0.35 per diluted share, in the prior year period. Consolidated Adjusted EBITDA, a non-GAAP measure, was $24.1 million compared to Consolidated Adjusted EBITDA of $25.1 million in the prior year period (see non-GAAP reconciliation tables below).
Pollo Tropical restaurant sales decreased 7.4% to $94.4 million in the quarter compared to the prior year period due primarily to a comparable restaurant sales decrease of 7.7% coupled with 19 fewer Company-owned restaurants in operation as a result of recent restaurant closures in Texas, Georgia, and Tennessee. The decrease in comparable restaurant sales resulted from a 10.0% decrease in comparable restaurant transactions partially offset by a 2.3% increase in average check. Sales cannibalization from new restaurants on existing restaurants negatively impacted comparable restaurant transactions by approximately 60 basis points. The increase in average check was driven by menu price increases that positively impacted restaurant sales by 2.1%.
Restaurant-level Adjusted EBITDA for Pollo Tropical, a non-GAAP financial measure, increased 3.5% to $24.3 million compared to the prior year period of $23.4 million and Adjusted EBITDA for Pollo Tropical, increased 17.5% to $17.1 million compared to the prior year period of $14.6 million. The increases in Restaurant-level Adjusted EBITDA and Adjusted EBITDA were primarily due to the closure of unprofitable restaurants and lower cost of sales as a percentage of restaurant sales, partially offset by lower sales and related profitability (see non-GAAP reconciliation table below).
Taco Cabana restaurant sales decreased 1.7% to $77.6 million in the quarter compared to the prior year period due primarily to a comparable restaurant sales decrease of 4.7% offset by sales contributions from five net Company-owned restaurant openings. The decrease in comparable restaurant sales resulted from a 4.5% decrease in comparable restaurant transactions and a 0.2% decrease in average check. The decrease in average check was driven by lower sales mix partially offset by menu price increases that positively impacted restaurant sales by 2.0%.
Restaurant-level Adjusted EBITDA for Taco Cabana, a non-GAAP financial measure, decreased 16.5% to $12.9 million compared to the prior year period of $15.5 million and Adjusted EBITDA for Taco Cabana decreased 33.7% to $7.0 million compared to the prior year period of $10.5 million. The decreases in Restaurant-level Adjusted EBITDA and Adjusted EBITDA were due primarily to lower sales and related profitability, higher restaurant wages and related costs and higher other operating expenses, partially offset by lower cost of sales as a percentage of restaurant sales (see non-GAAP reconciliation tables below).
During the second quarter of 2017, Fiesta opened three Company-owned Pollo Tropical restaurants in Florida and two Company-owned Taco Cabana restaurants in Texas. As previously reported, Fiesta closed 30 Company-owned Pollo Tropical restaurants in Texas, Georgia and Tennessee which contributed $7.8 million in restaurant sales and $5.0 million in restaurant-level operating losses to income from operations, including $1.4 million of depreciation expense for the six months ended July 2, 2017. Subsequent to the end of the second quarter of 2017, Fiesta closed four Company-owned Taco Cabana restaurants in Texas.
As of July 2, 2017, there were 153 Company-owned Pollo Tropical restaurants, 169 Company-owned Taco Cabana restaurants, 32 franchised Pollo Tropical restaurants in the U.S., Puerto Rico, the Bahamas, Guyana, Panama, Honduras and Venezuela and seven franchised Taco Cabana restaurants in the U.S.
In 2017, Fiesta expects to open nine new Company-owned Pollo Tropical restaurants in Florida and six new Company-owned Taco Cabana restaurants in Texas, including one Company-owned Pollo Tropical restaurant that was closed in October 2016 that will be converted to a Taco Cabana restaurant. As of July 2, 2017, six new Company-owned Pollo Tropical restaurants and three new Company-owned Taco Cabana restaurants have opened.
Total capital expenditures in 2017 are expected to be $60.0 million to $70.0 million. Capital expenditures in 2017 are expected to include approximately $22.0 million to $25.0 million for development of new restaurants, approximately $22.0 million to $26.0 million for the ongoing reinvestment in Pollo Tropical and Taco Cabana restaurants for capital maintenance expenditures, approximately $2.0 million to $3.0 million for remodeling costs and approximately $14.0 million to $16.0 million of other expenditures which primarily includes information technology and systems projects and indoor video menu boards.
President and Chief Executive Officer Richard Stockinger, Senior Vice President and Chief Financial Officer Lynn Schweinfurth, and Senior Vice President and Chief Operating Officer Danny Meisenheimer 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, August 14, 2017, and can be accessed by dialing 412-317-6671. The passcode is 13666627. 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 tropical 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.
(a) Impairment and other lease charges for the three months ended July 2, 2017, primarily include lease charges related to Pollo Tropical restaurants that closed in the second quarter of 2017, additional impairment charges related to three closed Pollo Tropical restaurants as a result of the decision not to convert the locations to Taco Cabana restaurants and impairment charges with respect to four Taco Cabana restaurants that the Company subsequently closed in the third quarter of 2017. Impairment and other lease charges for the six months ended July 2, 2017 primarily include impairment charges for Pollo Tropical restaurants that were closed in April 2017, seven of which were impaired in 2016, as well as additional impairment charges related to previously closed restaurants primarily as a result of the decision not to convert four locations to Taco Cabana restaurants, impairment charges with respect to four Taco Cabana restaurants that the Company subsequently closed during the third quarter of 2017, impairment charges with respect to three Taco Cabana restaurants that it continues to operate and lease charges related to Pollo Tropical restaurants that closed in the second quarter of 2017 and fourth quarter of 2016.
(b) Other expense (income), net for the three and six months ended July 2, 2017, primarily includes costs for the removal of signs and equipment related to the closure of Pollo Tropical restaurants and severance for restaurant employees, partially offset by expected business interruption proceeds related to a Taco Cabana restaurant that was temporarily closed due to a fire. Other expense (income), net for the six months ended July 3, 2016, primarily includes additional proceeds related to a location that closed in 2015 as a result of an eminent domain proceeding.
(c) Unused pre-production costs for the three and six months ended July 2, 2017, include costs for advertising pre-production that will not be used.
(d) Terminated capital project costs for the three and six months ended July 2, 2017, include costs related to the write-off of a capital project that was terminated in the first quarter.
(e) Board and shareholder matter costs for the three and six months ended July 2, 2017, include fees related to shareholder activism and CEO and board member searches. Board and shareholder matter costs for the three and six months ended July 3, 2016, include fees related to the previously proposed and terminated separation transaction.
(f) Write-off of site development costs for the three and six months ended July 2, 2017 and July 3, 2016, includes the write-off of site costs related to locations that we decided not to develop.
(g) Plan restructuring costs and retention bonuses for the three and six months ended July 2, 2017, include severance related to the Plan and reduction in force and bonuses paid to certain employees for retention purposes.
(h) Office restructuring and relocation costs for the three and six months ended July 3, 2016, include severance and relocation costs associated with restructuring Pollo Tropical management in Miami, Florida and Dallas, Texas.
(i) Legal settlements and related costs for the three and six months ended July 2, 2017 and July 3, 2016, include benefits related to litigation matters.
(j) The provision for income taxes related to the adjustments was calculated using the Company's combined federal statutory and estimated state rate of 38.1% and 37.4% for the periods ending July 2, 2017 and July 3, 2016, respectively.
Raphael Gross
Fiesta Restaurant Group, Inc.
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