Fiesta Restaurant Group, Inc. Reports Second Quarter 2018 Results

  • Pollo Tropical Quarterly Comparable Restaurant Sales Growth of 3.4%
  • Taco Cabana Quarterly Comparable Restaurant Sales Growth of 3.1%
  • July Comparable Restaurant Sales Increased 2.2% at Pollo Tropical and 8.8% at Taco Cabana

DALLAS - (BUSINESS WIRE) - August 06, 2018 - Fiesta Restaurant Group, Inc. (“Fiesta” or the “Company”) (NASDAQ:FRGI), parent company of the Pollo Tropical® and Taco Cabana® restaurant brands, today reported results for the 13-week second quarter of 2018, which ended on July 1, 2018. The Company also provided an update on the continuing progress of its ongoing Strategic Renewal Plan (the "Plan") to drive long-term shareholder value creation.

Fiesta President and Chief Executive Officer Richard Stockinger said, “Our solid second quarter results are in-line with what we expected to see from our Plan, which is aimed at restoring our iconic brands to full strength and growth. Quarterly comparable restaurant sales grew over three percent at both Pollo Tropical and Taco Cabana, validating the tremendous job our teams are doing in executing our Plan. We believe our guests truly appreciate the heightened food quality and other hospitality improvements in place and this is reflected in both our rising Net Promoter Scores and our positive restaurant sales trajectory. However, our work is far from done. In the second half of 2018, we will introduce new delivery, catering and digital loyalty platforms to grow sales and upgrade our POS tablets to increase speed of service. We will also continue to innovate our product pipeline while continuing to rebalance our mix of broadcast, digital and social media and extend our local store marketing programs to drive increased awareness and frequency. Finally, we will test kiosks and complete the implementation of several initiatives already underway to improve food and labor costs.”

Mr. Stockinger continued, “Through July, we have reported eight consecutive months of positive comparable restaurant sales growth at Pollo Tropical. To date, our hand-battered crispy chicken platform has been a resounding success, with broad appeal and high sales mix across all markets while leveraging our signature 24-hour citrus marinated chicken. We continue to focus on operational execution to support sales increases across all markets as we continue to implement the Plan.”

Mr. Stockinger concluded, “Taco Cabana has also made significant headway in enhancing the overall guest experience. Our brand re-launch began in July when we completed numerous menu enhancements. We have improved the breadth and depth of our menu which now features USDA Choice steak and applewood-smoked brisket, and improved chicken and ground beef, delivering on our promise of authentic, high quality and freshly prepared cuisine, inspired by our original recipes. We are further encouraged by the brand’s sales trajectory and its four consecutive months of comparable restaurant sales growth. We plan to build on this momentum with, among other things, all day breakfast tacos, tacos by the dozen and patio parties featuring an expansion of alcoholic beverages such as our frozen raspberry lemonade made with Tito’s® handmade vodka, complementing our new, shareable appetizers. We are gaining traction and believe that our strategic repositioning of Taco Cabana is attracting new and returning loyal guests.”

Second Quarter 2018 Financial Summary

  • Total revenues increased 2.4% from the prior year period to $176.8 million due primarily to comparable restaurant sales growth at both Pollo Tropical and Taco Cabana;
  • Comparable restaurant sales at Pollo Tropical increased 3.4%, the second consecutive quarter of positive comparable restaurant sales. Comparable restaurant sales were positively impacted by approximately 0.2% related to the fiscal calendar shift of Easter;
  • Comparable restaurant sales at Taco Cabana increased 3.1%, the first quarter of positive comparable restaurant sales since the second quarter of 2016. Comparable restaurant sales were positively impacted by approximately 0.3% related to the fiscal calendar shift of Easter;
  • Net income of $9.5 million or $0.35 per diluted share, compared to the prior year period net loss of $(2.2) million, or $(0.08) per diluted share;
  • Adjusted net income of $6.8 million, or $0.25 per diluted share, compared to the prior year period adjusted net income of $8.1 million, or $0.30 per diluted share (see non-GAAP reconciliation table below); and
  • Consolidated Adjusted EBITDA of $20.2 million compared to the prior year period Consolidated Adjusted EBITDA of $24.1 million (see non-GAAP reconciliation table below).

July 2018 Comparable Restaurant Sales

July 2018 comparable restaurant sales increased 2.2% at Pollo Tropical and increased 8.8% at Taco Cabana.

Second Quarter 2018 Brand Results

Pollo Tropical restaurant sales increased 1.1% to $95.4 million in the second quarter of 2018 compared to the prior year period due primarily to a comparable restaurant sales increase of 3.4%, partially offset by the impact of closing unprofitable restaurants in 2017. The increase in comparable restaurant sales resulted from a 4.4% increase in average check, partially offset by a 1.0% decrease in comparable restaurant transactions. Comparable restaurant sales were positively impacted by approximately 0.2% related to the fiscal calendar shift of Easter. The increase in average check was driven by menu price increases of 4.5%.

Adjusted EBITDA for Pollo Tropical decreased to $15.5 million in the second quarter of 2018 from $17.1 million in the second quarter of 2017 due primarily to the impact of an increase in cost of sales as a percentage of restaurant sales and higher advertising costs primarily driven by the Plan, partially offset by higher comparable restaurant sales and the impact of closing unprofitable restaurants in 2017.

Taco Cabana restaurant sales increased 4.0% to $80.8 million in the second quarter of 2018 compared to the prior year period due primarily to a comparable restaurant sales increase of 3.1%. The increase in comparable restaurant sales resulted from a 10.2% increase in average check, partially offset by a 7.1% decrease in comparable restaurant transactions. Comparable restaurant transactions were negatively impacted primarily by the elimination of deep discounting related to the repositioning of the brand, and by the reduction in overnight operating hours which negatively impacted comparable restaurant sales by 1.5%. Comparable restaurant sales were positively impacted by approximately 0.3% related to the fiscal calendar shift of Easter. The increase in average check was primarily driven by menu price increases of 6.3% and positive sales mix associated with higher priced promotions and new menu items related to brand repositioning.

Adjusted EBITDA for Taco Cabana decreased to $4.6 million in the second quarter of 2018 from $7.0 million in the second quarter of 2017 due primarily to the impact of higher cost of sales as a percentage of restaurant sales and higher restaurant wages and related expenses primarily driven by the Plan, partially offset by higher comparable restaurant sales.

Other Expense (Income)

Other income, net was $3.5 million in the second quarter of 2018 and primarily consisted of $2.8 million in additional insurance recoveries related to Hurricanes Harvey and Irma (the “Hurricanes”) and total gains of $1.1 million on the sales of two restaurant properties, partially offset by the write-off of site development costs of $0.2 million and costs for the removal, transfer and storage of equipment from previously closed restaurants of $0.2 million.

Capital Allocation

Anticipated capital expenditures in 2018 include opening seven new Company-owned Pollo Tropical restaurants in Florida and seven new Company-owned Taco Cabana restaurants in Texas. Up to five of the new Taco Cabana restaurants are conversions from closed Pollo Tropical restaurants, four of which were completed by the end of the second quarter of 2018. Total capital expenditures in 2018 are now expected to be at the high-end of the $60.0 million to $70.0 million range due in part to additional restaurant investments being made to improve food quality and support new menu, catering and technology platforms. We continue to anticipate capital expenditures for the development of new restaurants to be $22.0 million to $25.0 million in 2018.

Restaurant Portfolio

As of July 1, 2018, there were 150 Company-owned Pollo Tropical restaurants, 170 Company-owned Taco Cabana restaurants, 30 franchised Pollo Tropical restaurants in the U.S., Puerto Rico, the Bahamas, Guyana and Panama and eight franchised Taco Cabana restaurants in the U.S.

During the second quarter of 2018, Fiesta opened four Company-owned Pollo Tropical restaurants in Florida and six Company-owned Taco Cabana restaurants in Texas. Two Taco Cabana restaurants closed during the second quarter of 2018 when we opened new Taco Cabana restaurants in superior sites in the same trade areas.

Investor Conference Call Today

Fiesta 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 13, 2018, and can be accessed by dialing 412-317-6671. The passcode is 13681560. 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.

About Fiesta Restaurant Group, Inc.

Fiesta Restaurant Group, Inc., owns, operates and franchises Pollo Tropical® and Taco Cabana® restaurant brands. The brands specialize in the operation of fast casual/quick service restaurants that offer distinct and unique flavors with broad appeal at a compelling value. The brands feature fresh-made cooking, drive-thru service and catering. For more information about Fiesta Restaurant Group, Inc., visit the corporate website at www.frgi.com.

Forward-Looking Statements

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.

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JULY 1, 2018 AND JULY 2, 2017

(In thousands of dollars, except share and per share amounts)

(Unaudited)

 
  Three months ended (a)   Six months ended (a)
  July 1, 2018   July 2, 2017   July 1, 2018   July 2, 2017
               
Revenues:              
Restaurant sales $ 176,152     $ 172,005     $ 344,985     $ 346,982  
Franchise royalty revenues and fees 675     619     1,326     1,249  
Total revenues 176,827     172,624     346,311     348,231  
Costs and expenses:              
Cost of sales 56,689     50,728     110,254     101,676  
Restaurant wages and related expenses (b) 47,677     46,269     94,160     94,401  
Restaurant rent expense 8,840     8,915     17,732     18,777  
Other restaurant operating expenses 24,654     24,636     48,104     48,704  
Advertising expense 5,361     4,292     11,574     11,831  
General and administrative expenses (b)(c) 12,820     18,996     27,739     34,694  
Depreciation and amortization 9,170     8,596     18,169     17,782  
Pre-opening costs 877     910     1,258     1,334  
Impairment and other lease charges (d) 784     10,762     122     43,176  
Other expense (income), net (e) (3,545 )   798     (3,179 )   1,252  
Total operating expenses 163,327     174,902     325,933     373,627  
Income (loss) from operations 13,500     (2,278 )   20,378     (25,396 )
Interest expense 986     654     2,055     1,238  
Income (loss) before income taxes 12,514     (2,932 )   18,323     (26,634 )
Provision for (benefit from) income taxes 3,021     (772 )   4,646     (9,414 )
Net income (loss) $ 9,493     $ (2,160 )   $ 13,677     $ (17,220 )
Basic net income (loss) per share $ 0.35     $ (0.08 )   $ 0.50     $ (0.64 )
Diluted net income (loss) per share $ 0.35     $ (0.08 )   $ 0.50     $ (0.64 )
Basic weighted average common shares outstanding 26,916,295     26,815,015     26,895,302     26,794,560  
Diluted weighted average common shares outstanding 26,919,914     26,815,015     26,901,829     26,794,560  

(a) The Company uses a 52 or 53 week fiscal year that ends on the Sunday closest to December 31. The three and six month periods ended July 1, 2018 and July 2, 2017 each included 13 and 26 weeks, respectively.

(b) Restaurant wages and related expenses include stock-based compensation of $33 and $(74) for the three months ended July 1, 2018 and July 2, 2017, respectively, and $50 and $35 for the six months ended July 1, 2018 and July 2, 2017, respectively. General and administrative expenses include stock-based compensation expense of $984 and $1,248 for the three months ended July 1, 2018 and July 2, 2017, respectively, and $1,856 and $1,785 for the six months ended July 1, 2018 and July 2, 2017, respectively.

(c) See notes (e) through (h) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information".

(d) See note (b) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information".

(e) See note (c) to the reconciliation of net income (loss) to adjusted net income (loss) in the tables titled "Supplemental Non-GAAP Information".

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of dollars, except share and per share amounts)

(Unaudited)

 
  July 1, 2018   December 31, 2017
       
Assets      
Cash $ 4,698     $ 3,599
Other current assets 32,388     37,449
Property and equipment, net 239,647     234,561
Goodwill 123,484     123,484
Deferred income taxes 15,091     17,232
Other assets 7,511     6,988
Total assets $ 422,819     $ 423,313
       
Liabilities and Stockholders' Equity      
Current liabilities $ 50,277     $ 59,844
Long-term debt, net of current portion 74,691     76,425
Deferred income sale-leaseback of real estate 21,664     23,466
Other liabilities 29,983     32,062
Total liabilities 176,615     191,797
Stockholders' equity 246,204     231,516
Total liabilities and stockholders' equity $ 422,819     $ 423,313

 

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):

 
  (unaudited)   (unaudited)
  Three months ended   Six months ended
  July 1, 2018   July 2, 2017   July 1, 2018   July 2, 2017
Segment revenues:              
Pollo Tropical $ 95,836     $ 94,801     $ 190,778     $ 194,560  
Taco Cabana 80,991     77,823     155,533     153,671  
Total revenues $ 176,827     $ 172,624     $ 346,311     $ 348,231  
               
Change in comparable restaurant sales (a):              
Pollo Tropical 3.4 %   (7.7 )%   2.2 %   (7.2 )%
Taco Cabana 3.1 %   (4.7 )%   0.7 %   (4.6 )%
               
Average sales per Company-owned restaurant:              
Pollo Tropical              
Comparable restaurants (b) $ 669     $ 622     $ 1,342     $ 1,236  
New restaurants (c) 445     471     878     824  
Total company-owned (d) 645     594     1,292     1,148  
Taco Cabana              
Comparable restaurants (b) $ 487     $ 462     $ 941     $ 914  
New restaurants (c) 416     500     769     960  
Total company-owned (d) 481     463     929     916  
               
Income (loss) before income taxes:              
Pollo Tropical $ 10,797     $ (3,502 )   $ 18,925     $ (28,598 )
Taco Cabana 1,717     570     (602 )   1,964  
               
Adjusted EBITDA:              
Pollo Tropical $ 15,529     $ 17,139     $ 29,976     $ 31,861  
Taco Cabana 4,648     6,982     7,159     13,476  
               
Restaurant-Level Adjusted EBITDA (e):              
Pollo Tropical $ 22,261     $ 24,269     $ 43,845     $ 46,864  
Taco Cabana 10,702     12,910     19,365     25,174  

(a) Restaurants are included in comparable restaurant sales after they have been open for 18 months or longer.

(b) Comparable restaurants are restaurants that have been open for 18 months or longer. Average sales for comparable Company-owned restaurants are derived by dividing comparable restaurant sales for such period for the applicable segment by the average number of comparable restaurants for the applicable segment for such period.

(c) New restaurants are restaurants that have been open for less than 18 months. Average sales for new Company-owned restaurants are derived by dividing new restaurant sales for such period for the applicable segment by the average number of new restaurants for the applicable segment for such period.

(d) Average sales for total 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.

(e) Restaurant-Level Adjusted EBITDA is a non-GAAP financial measure. Please see the reconciliation from net income (loss) to Restaurant-Level Adjusted EBITDA in the table titled "Supplemental Non-GAAP Information".

FIESTA RESTAURANT GROUP, INC.

Supplemental Information

The following table sets forth certain unaudited supplemental data for the periods indicated:

 
  Three months ended   Six months ended
  July 1, 2018   July 2, 2017   July 1, 2018   July 2, 2017
               
Company-owned restaurant openings:              
Pollo Tropical 4     3     4     6  
Taco Cabana 6     2     6     3  
Total new restaurant openings 10     5     10     9  
               
Company-owned restaurant closings:              
Pollo Tropical     (30 )       (30 )
Taco Cabana (2 )       (2 )    
Net change in restaurants 8     (25 )   8     (21 )
               
Number of Company-owned restaurants:              
Pollo Tropical 150     153     150     153  
Taco Cabana 170     169     170     169  
Total Company-owned restaurants 320     322     320     322  
               
Number of franchised restaurants:              
Pollo Tropical 30     32     30     32  
Taco Cabana 8     7     8     7  
Total franchised restaurants 38     39     38     39  
               
Total number of restaurants:              
Pollo Tropical 180     185     180     185  
Taco Cabana 178     176     178     176  
Total restaurants 358     361     358     361  

 

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):

 
  Three months ended
  July 1, 2018   July 2, 2017
    (a)     (a)
Pollo Tropical:          
Restaurant sales $ 95,377       $ 94,374    
Cost of sales 31,482   33.0%   28,956   30.7%
Restaurant wages and related expenses 21,549   22.6%   21,691   23.0%
Restaurant rent expense 4,335   4.5%   4,472   4.7%
Other restaurant operating expenses 12,634   13.2%   12,930   13.7%
Advertising expense 3,130   3.3%   2,011   2.1%
Depreciation and amortization 5,363   5.6%   5,435   5.8%
Pre-opening costs 341   0.4%   451   0.5%
Impairment and other lease charges 685   0.7%   10,536   11.2%
           
Taco Cabana:          
Restaurant sales $ 80,775       $ 77,631    
Cost of sales 25,207   31.2%   21,772   28.0%
Restaurant wages and related expenses 26,128   32.3%   24,578   31.7%
Restaurant rent expense 4,505   5.6%   4,443   5.7%
Other restaurant operating expenses 12,020   14.9%   11,706   15.1%
Advertising expense 2,231   2.8%   2,281   2.9%
Depreciation and amortization 3,807   4.7%   3,161   4.1%
Pre-opening costs 536   0.7%   459   0.6%
Impairment and other lease charges 99   0.1%   226   0.3%
           
  Six months ended
  July 1, 2018   July 2, 2017
    (a)     (a)
Pollo Tropical:          
Restaurant sales $ 189,855       $ 193,684    
Cost of sales 62,497   32.9%   58,903   30.4%
Restaurant wages and related expenses 43,705   23.0%   45,737   23.6%
Restaurant rent expense 8,632   4.5%   9,847   5.1%
Other restaurant operating expenses 24,749   13.0%   26,319   13.6%
Advertising expense 6,446   3.4%   6,336   3.3%
Depreciation and amortization 10,679   5.6%   11,518   5.9%
Pre-opening costs 565   0.3%   783   0.4%
Impairment and other lease charges 144   0.1%   42,607   22.0%
           
Taco Cabana:          
Restaurant sales $ 155,130       $ 153,298    
Cost of sales 47,757   30.8%   42,773   27.9%
Restaurant wages and related expenses 50,455   32.5%   48,664   31.7%
Restaurant rent expense 9,100   5.9%   8,930   5.8%
Other restaurant operating expenses 23,355   15.1%   22,385   14.6%
Advertising expense 5,128   3.3%   5,495   3.6%
Depreciation and amortization 7,490   4.8%   6,264   4.1%
Pre-opening costs 693   0.4%   551   0.4%
Impairment and other lease charges (22 ) —%   569   0.4%

(a) Percent of restaurant sales for the applicable segment.

FIESTA RESTAURANT GROUP, INC.

Supplemental Non-GAAP Information

The following table sets forth certain unaudited supplemental financial data for the periods indicated

(In thousands):

Consolidated Adjusted EBITDA and Restaurant-level Adjusted EBITDA are non-GAAP financial measures. Adjusted EBITDA is defined as earnings attributable to the applicable operating segments before interest expense, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense, other expense (income), net, and certain significant items for each segment that are related to strategic changes and/or are not related to the ongoing operation of our restaurants as set forth in the reconciliation table below. 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 finance, legal, supply chain, human resources, construction and other administrative functions. Restaurant-level Adjusted EBITDA is defined as Adjusted EBITDA excluding franchise royalty revenues and fees, pre-opening costs and general and administrative expenses (including corporate-level general and administrative expenses).

Adjusted EBITDA for each of our segments is the primary measure of segment profit or loss used by our chief operating decision maker for purposes of allocating resources to our segments and assessing their performance. In addition, management believes that Consolidated Adjusted EBITDA and Restaurant-level Adjusted EBITDA, when viewed with our results of operations calculated in accordance with GAAP and our reconciliation of net income (loss) to Consolidated Adjusted EBITDA and Restaurant-level Adjusted EBITDA (i) provide useful information about our operating performance and period-over-period changes, (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 cash flow from operating activities as indicators of operating performance or liquidity. Also, these measures may not be comparable to similarly titled captions of other companies.

Three Months Ended   Pollo Tropical   Taco Cabana   Consolidated
July 1, 2018:            
Net income           $ 9,493  
Provision for income taxes           3,021  
Income before taxes   $ 10,797     $ 1,717     $ 12,514  
Add:            
Non-general and administrative expense adjustments:            
Depreciation and amortization   5,363     3,807     9,170  
Impairment and other lease charges   685     99     784  
Interest expense   491     495     986  
Other expense (income), net   (1,894 )   (1,651 )   (3,545 )
Stock-based compensation expense in restaurant wages   14     19     33  
Total Non-general and administrative expense adjustments   4,659     2,769     7,428  
General and administrative expense adjustments:            
Stock-based compensation expense   584     400     984  
Board and shareholder matter costs   (328 )   (269 )   (597 )
Strategic Renewal Plan restructuring costs and retention bonuses   (16 )   31     15  
Legal settlements and related costs   (167 )       (167 )
Total General and administrative expense adjustments   73     162     235  
Adjusted EBITDA:   $ 15,529     $ 4,648     $ 20,177  
Restaurant-level Adjustments:            
Add: Pre-opening costs   341     536     877  
Add: Other general and administrative expense(1)   6,850     5,734     12,584  
Less: Franchise royalty revenue and fees   459     216     675  
Restaurant-level Adjusted EBITDA:   $ 22,261     $ 10,702     $ 32,963  
             
July 2, 2017:            
Net loss           $ (2,160 )
Benefit from income taxes           (772 )
Income (loss) before taxes   $ (3,502 )   $ 570     $ (2,932 )
Add:            
Non-general and administrative expense adjustments:            
Depreciation and amortization   5,435     3,161     8,596  
Impairment and other lease charges   10,536     226     10,762  
Interest expense   295     359     654  
Other expense (income), net   853     (55 )   798  
Stock-based compensation expense in restaurant wages   (45 )   (29 )   (74 )
Unused pre-production costs in advertising expense       88     88  
Total Non-general and administrative expense adjustments   17,074     3,750     20,824  
General and administrative expense adjustments:            
Stock-based compensation expense   640     608     1,248  
Terminated capital project   7     6     13  
Board and shareholder matter costs   1,767     1,332     3,099  
Strategic Renewal Plan restructuring costs and retention bonuses   1,153     716     1,869  
Total General and administrative expense adjustments   3,567     2,662     6,229  
Adjusted EBITDA:   $ 17,139     $ 6,982     $ 24,121  
Restaurant-level Adjustments:            
Add: Pre-opening costs   451     459     910  
Add: Other general and administrative expense(1)   7,106     5,661     12,767  
Less: Franchise royalty revenue and fees   427     192     619  
Restaurant-level Adjusted EBITDA:   $ 24,269     $ 12,910     $ 37,179  
             
             
             
Six Months Ended   Pollo Tropical   Taco Cabana   Consolidated
July 1, 2018:            
Net income           $ 13,677  
Provision for income taxes           4,646  
Income (loss) before taxes   $ 18,925     $ (602 )   $ 18,323  
Add            
Non-general and administrative expense adjustments            
Depreciation and amortization   10,679     7,490     18,169  
Impairment and other lease charges   144     (22 )   122  
Interest expense   1,019     1,036     2,055  
Other expense (income), net   (1,548 )   (1,631 )   (3,179 )
Stock-based compensation expense in restaurant wages   19     31     50  
Total Non-general and administrative expense adjustments   10,313     6,904     17,217  
General and administrative expense adjustments            
Stock-based compensation expense   1,051     805     1,856  
Board and shareholder matter costs   (328 )   (269 )   (597 )
Strategic Renewal Plan restructuring costs and retention bonuses   182     321     503  
Legal settlements and related costs   (167 )       (167 )
Total General and administrative expense adjustments   738     857     1,595  
Adjusted EBITDA   $ 29,976     $ 7,159     $ 37,135  
Restaurant-level Adjustments:            
Add: Pre-opening costs   565     693     1,258  
Add: Other general and administrative expense(1)   14,227     11,916     26,143  
Less: Franchise royalty revenue and fees   923     403     1,326  
Restaurant-level Adjusted EBITDA:   $ 43,845     $ 19,365     $ 63,210  
             
July 2, 2017:            
Net loss           $ (17,220 )
Benefit from income taxes           (9,414 )
Income (loss) before taxes   $ (28,598 )   $ 1,964     $ (26,634 )
Add:            
Non-general and administrative expense adjustments:            
Depreciation and amortization   11,518     6,264     17,782  
Impairment and other lease charges   42,607     569     43,176  
Interest expense   544     694     1,238  
Other expense (income), net   1,050     202     1,252  
Stock-based compensation expense in restaurant wages       35     35  
Unused pre-production costs in advertising expense   322     88     410  
Total Non-general and administrative expense adjustments   56,041     7,852     63,893  
General and administrative expense adjustments:            
Stock-based compensation expense   955     830     1,785  
Terminated capital project   484     365     849  
Board and shareholder matter costs   2,225     1,678     3,903  
Strategic Renewal Plan restructuring costs and retention bonuses   1,227     787     2,014  
Legal settlements and related costs   (473 )       (473 )
Total General and administrative expense adjustments   4,418     3,660     8,078  
Adjusted EBITDA:   $ 31,861     $ 13,476     $ 45,337  
Restaurant-Level Adjustments:            
Add: Pre-opening costs   783     551     1,334  
Add: Other general and administrative expense(1)   15,096     11,520     26,616  
Less: Franchise royalty revenue and fees   876     373     1,249  
Restaurant-Level Adjusted EBITDA:   $ 46,864     $ 25,174     $ 72,038  

(1) Excludes general and administrative adjustments above.

FIESTA RESTAURANT GROUP, INC.

Supplemental Non-GAAP Information

The following table sets forth certain unaudited supplemental financial data for the periods indicated

(In thousands of dollars, except per share amounts):

Adjusted net income and related adjusted diluted earnings per share are non-GAAP financial measures. Adjusted net income is defined as net income (loss) before impairment and other lease charges, other expense (income), net, unused pre-production costs in advertising expense, terminated capital project costs, board and shareholder matter costs, Strategic Renewal Plan restructuring costs and retention bonuses, certain legal settlements and related costs and other significant items that are related to strategic changes and/or are not related to the ongoing operation of our restaurants. Management believes that adjusted net income and related adjusted earnings per diluted 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.

    (unaudited)
    Three months ended
    July 1, 2018   July 2, 2017
    Income Before Income Taxes   Provision For Income Taxes (a)   Net Income   Diluted EPS   Income (Loss) Before Income Taxes   Provision For (Benefit From) Income Taxes (a)   Net Income (Loss)   Diluted EPS
Reported - GAAP   $ 12,514     $ 3,021     $ 9,493     $ 0.35     $ (2,932 )   $ (772 )   $ (2,160 )   $ (0.08 )
Adjustments:                                
Non-general and administrative expense adjustments:                            
Impairment and other lease charges (b)   784     193     591     0.02     10,762     4,100     6,662     0.25  
Other expense (income), net (c)   (3,545 )   (873 )   (2,672 )   (0.10 )   798     304     494     0.02  
Unused pre-production costs in advertising expense (d)                   88     34     54      
Total Non-general and administrative expense   (2,761 )   (680 )   (2,081 )   (0.08 )   11,648     4,438     7,210     0.27  
General and administrative expense adjustments:                                
Terminated capital project (e)                   13     5     8      
Board and shareholder matter costs (f)   (597 )   (147 )   (450 )   (0.02 )   3,099     1,181     1,918     0.07  
Strategic Renewal Plan restructuring costs and retention bonuses (g)   15     4     11         1,869     712     1,157     0.04  
Legal settlements and related costs (h)   (167 )   (41 )   (126 )                    
Total General and administrative expense   (749 )   (184 )   (565 )   (0.02 )   4,981     1,898     3,083     0.11  
Adjusted - Non-GAAP   $ 9,004     $ 2,157     $ 6,847     $ 0.25     $ 13,697     $ 5,564     $ 8,133     $ 0.30  
                                 
    (unaudited)
    Six months ended
    July 1, 2018   July 2, 2017
    Income Before Income Taxes   Provision For Income Taxes (a)   Net Income   Diluted EPS   Income (Loss) Before Income Taxes   Provision For (Benefit From) Income Taxes (a)   Net Income (Loss)   Diluted EPS
Reported - GAAP   $ 18,323     $ 4,646     $ 13,677     $ 0.50     $ (26,634 )   $ (9,414 )   $ (17,220 )   $ (0.64 )
Adjustments:                                
Non-general and administrative expense adjustments:                            
Impairment and other lease charges (b)   122     30     92         43,176     16,451     26,725     0.99  
Other expense (income), net (c)   (3,179 )   (783 )   (2,396 )   (0.09 )   1,252     477     775     0.03  
Unused pre-production costs in advertising expense (d)                   410     156     254     0.01  
Total Non-general and administrative expense   (3,057 )   (753 )   (2,304 )   (0.08 )   44,838     17,084     27,754     1.03  
General and administrative expense adjustments:                                
Terminated capital project (e)                   849     323     526     0.02  
Board and shareholder matter costs (f)   (597 )   (147 )   (450 )   (0.02 )   3,903     1,487     2,416     0.09  
Strategic Renewal Plan restructuring costs and retention bonuses (g)   503     124     379     0.01     2,014     767     1,247     0.05  
Legal settlements and related costs (h)   (167 )   (41 )   (126 )       (473 )   (180 )   (293 )   (0.01 )
Total General and administrative expense   (261 )   (64 )   (197 )   (0.01 )   6,293     2,397     3,896     0.14  
Adjusted - Non-GAAP   $ 15,005     $ 3,829     $ 11,176     $ 0.41     $ 24,497     $ 10,067     $ 14,430     $ 0.53  
 

(a) The provision (benefit) for income taxes related to the adjustments was calculated using the Company's combined federal statutory and estimated state rate of 24.6% and 38.1% for the periods ending July 1, 2018 and July 2, 2017, respectively. For fiscal years beginning January 1, 2018, our federal statutory tax rate is 21% as a result of the enactment of the Tax Cuts and Jobs Act (the "Act") in December 2017.

(b) Impairment and other lease charges for the three and six months ended July 1, 2018 primarily include lease charges, net of recoveries, of $0.5 million related to certain previously closed restaurants due to adjustments to estimates of future lease costs and impairment charges of $0.3 million primarily related to previously closed restaurants as well as one underperforming Taco Cabana restaurant with a short remaining lease term. Impairment and other lease charges for the six months ended July 1, 2018 also include a net benefit of $(0.7) million in lease charge recoveries due primarily to a lease termination, a lease assignment, subleases and other adjustments to estimates of future lease costs in the first quarter of 2018.

Impairment and other lease charges for the three and six months ended July 2, 2017 include impairment charges of $3.8 million and $35.7 million, and other lease charges, net of recoveries, of $6.7 million and $6.9 million, respectively, related to impairment and closures of underperforming Pollo Tropical restaurants in the first and second quarters of 2017. Impairment and other lease charges for the three and six months ended July 2, 2017 also include impairment charges of $0.2 million and $0.6 million, respectively, related to underperforming Taco Cabana restaurants.

(c) Other expense (income), net for the three and six months ended July 1, 2018 primarily includes $2.8 million in insurance recoveries related to the Hurricanes and total gains of $1.1 million and $1.2 million, respectively, on the sales of restaurant properties, partially offset by the write-off of site development costs of $0.2 million and $0.3 million, respectively, and costs for the removal, transfer and storage of equipment from closed restaurants of $0.2 million and $0.5 million, respectively. Other expense (income), net for the three and six months ended July 2, 2017, includes the write-off of site costs related to locations that we decided not to develop, 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.

(d) Unused pre-production costs for the three and six months ended July 2, 2017, include costs for advertising pre-production that were not used.

(e) 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 of 2017.

(f) Board and shareholder matter costs for the three and six months ended July 1, 2018 include fee reductions and final insurance recoveries related to 2017 shareholder activism costs. Board and shareholder matter costs for the three and six months ended and July 2, 2017 include fees related to shareholder activism and CEO and board member searches.

(g) Strategic Renewal Plan restructuring costs and retention bonuses for the three and six months ended July 1, 2018 and July 2, 2017, include severance related to the Plan and reduction in force and bonuses paid to certain employees for retention purposes.

(h) Legal settlements and related costs for the three and six months ended July 1, 2018 and six months ended July 2, 2017 include reductions to final settlement amounts and benefits related to litigation matters.

Contact:

Raphael Gross
Investor Relations
203-682-8253
investors@frgi.com

SOURCE Fiesta Restaurant Group, Inc.

###

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