Fiesta Restaurant Group, Inc. Reports Third Quarter 2018 Results
DALLAS - (BUSINESS WIRE) - November 05, 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 third quarter of 2018, which ended on September 30, 2018.
Fiesta President and Chief Executive Officer Richard Stockinger said, "Pollo Tropical extended its positive comparable restaurant sales trend to three consecutive quarters and ten consecutive months through September. Taco Cabana has now reported two consecutive quarters and six consecutive months of positive comparable restaurant sales growth through September. We attribute our momentum to the successful implementation of our Strategic Renewal Plan that has elevated important aspects of the guest experience including improved food quality, hospitality and an enhanced restaurant environment. While our prior year period results are distorted by the effects of the hurricanes last year and make comparison less meaningful, we are pleased with the continuation of our overall trajectory."
Mr. Stockinger continued, "We have completed significant development of our digital platforms and are now proceeding to launch comprehensive catering plans and pilot new loyalty and delivery programs. In advance of the upcoming holiday season, we have made great progress building our catering infrastructure at Pollo Tropical. Our 'My TC' loyalty program has been rolled out systemwide at Taco Cabana with positive initial results. Also, in the coming weeks, Pollo Tropical will begin piloting our 'My Pollo' loyalty program and third-party delivery in South Florida."
Mr. Stockinger concluded, "We celebrated Taco Cabana's 40th anniversary in September and will celebrate Pollo Tropical's 30th anniversary in November, true milestones for these iconic brands. Yet, we believe we remain in the early innings of the long-term opportunity of these two brands and we are looking ahead with optimism. The success of our Crispy Pollo Bites™ at Pollo Tropical and our shareable appetizers at Taco Cabana, including our Kickin' Grande Nachos, are examples of successful new product additions that broaden the appeal of our brands. With the stabilization of the topline, we are now focused on refining the Pollo Tropical brand in non-core markets and on improving Taco Cabana sales volumes and margins to ready the brands for future expansion."
Third Quarter 2018 Financial Summary
- Total revenues increased 10.1% from the prior year period to $174.6 million due primarily to comparable restaurant sales growth at both Pollo Tropical and Taco Cabana;
- Comparable restaurant sales at Pollo Tropical increased 6.5%, the third consecutive quarter of positive comparable restaurant sales, and included the positive impact of lapping Hurricane Irma in the prior year period;
- Comparable restaurant sales at Taco Cabana increased 12.2%, the second consecutive quarter of positive comparable restaurant sales, and included the positive impact of lapping Hurricane Harvey in the prior year period;
- Net income of $2.0 million, or $0.08 per diluted share, compared to the prior year period net loss of $8.3 million, or $0.31 per diluted share;
- Adjusted net income of $3.0 million, or $0.11 per diluted share, compared to the prior year period adjusted net income of $1.7 million, or $0.06 per diluted share (see non-GAAP reconciliation table below); and
- Consolidated Adjusted EBITDA of $15.0 million compared to the prior year period Consolidated Adjusted EBITDA of $13.2 million (see non-GAAP reconciliation table below).
Third Quarter 2018 Brand Results
During the third quarter of 2018, we lapped the anniversaries of Hurricanes Harvey and Irma (the "Hurricanes") which occurred in the prior year period.
Pollo Tropical restaurant sales increased 6.5% to $93.6 million in the third quarter of 2018 compared to the prior year period due primarily to a comparable restaurant sales increase of 6.5%. The increase in comparable restaurant sales resulted from a 5.2% increase in average check and a 1.3% increase in comparable restaurant transactions. The increase in average check was driven primarily by menu price increases of approximately 4.9%. In the prior year period, we estimated that the Hurricanes negatively impacted comparable restaurant sales and transactions by approximately 5.5% to 6.5%.
Adjusted EBITDA for Pollo Tropical increased to $12.5 million in the third quarter of 2018 from $9.4 million in the third quarter of 2017. This was due primarily to the impact of the Hurricanes and closing unprofitable restaurants in 2017, higher comparable restaurant sales and lower advertising expenses in 2018, partially offset by an increase in cost of sales as a percentage of restaurant sales and general and administrative expenses. In the prior year period, we estimated that the Hurricanes negatively impacted Adjusted EBITDA and income (loss) from operations by approximately $3.0 million to $4.0 million.
Taco Cabana restaurant sales increased 14.5% to $80.4 million in the third quarter of 2018 compared to the prior year period due primarily to a comparable restaurant sales increase of 12.2%. The increase in comparable restaurant sales resulted from a 12.1% increase in average check and a 0.1% increase 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 0.9%. The increase in average check was primarily driven by menu price increases of 7.7% and positive sales mix associated with higher priced promotions and new menu items related to brand repositioning. In the prior year period, we estimated that the Hurricanes negatively impacted comparable restaurant sales and transactions by approximately 2.0% to 3.0%.
Adjusted EBITDA for Taco Cabana decreased to $2.5 million in the third quarter of 2018 from $3.8 million in the third quarter of 2017 due primarily to higher cost of sales as a percentage of restaurant sales and higher advertising, operating and general and administrative expenses, partially offset by the impact of higher comparable restaurant sales in 2018 and the impact of Hurricane Harvey in 2017. In the prior year period, we estimated that the Hurricanes negatively impacted Adjusted EBITDA and income (loss) from operations by approximately $1.0 million to $1.5 million.
General and Administrative Expenses
General and administrative expenses were $13.3 million in the third quarter of 2018 and $12.1 million in the third quarter of 2017, and as a percentage of total revenues, general and administrative expenses were 7.6% in the third quarter of 2018 and the third quarter of 2017. General and administrative expenses for the third quarter of 2018 included $0.4 million in costs related to discontinuing certain services and $0.4 million related to a system implementation and project-oriented advisory services. General and administrative expenses in the third quarter of 2017 included a reduction of $(0.2) million in board and shareholder matter costs and a net benefit of $(0.1) million related to restructuring costs.
Impairment and Other Lease Charges
Impairment and other lease charges decreased to $6.4 million in the third quarter of 2018 from $15.9 million in the third quarter of 2017. Third quarter 2018 charges related primarily to impairment of three Pollo Tropical and five Taco Cabana underperforming restaurants that we continue to operate and other lease charges, net of recoveries, of $0.7 million, due primarily to lease charges related to an office relocation in the third quarter of 2018 and other lease charges, net of recoveries, related to previously closed restaurants due to adjustments to estimates of future lease costs.
We revalued our net deferred income tax assets at the new federal corporate statutory rate of 21.0% in 2017 as a result of the Tax Cuts and Jobs Act. In 2018, in conjunction with a cost segregation study conducted prior to filing our 2017 federal income tax return, we changed the depreciation method for certain assets for federal income tax purposes to accelerate tax deductions. Changes in our 2017 federal income tax return from the amounts recorded as of December 31, 2017 were primarily the result of changing the depreciable lives of assets for federal income tax purposes. These changes allowed us to record an incremental benefit of $3.9 million for the third quarter of 2018. The provision for income taxes for the third quarter of 2018 was derived using an estimated annual effective tax rate of 23.4%, which excludes the discrete impact of a tax deficiency from the vesting of restricted shares of $0.2 million and an adjustment resulting from changes in our 2017 federal income tax return from the amounts recorded as of December 31, 2017 of $4.1 million, which includes the $3.9 million impact of revaluing changes in our deferred tax assets.
As of September 30, 2018, there were 150 Company-owned Pollo Tropical restaurants, 171 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 third quarter of 2018, we opened one Company-owned Taco Cabana restaurant in Texas.
2018 Restaurant Development and Capital Expenditures
New restaurant development in 2018 includes seven Company-owned Pollo Tropical restaurant openings in Florida and seven Company-owned Taco Cabana restaurant openings in Texas, including five conversions from closed Pollo Tropical restaurants. All fourteen planned 2018 restaurant openings will be completed by the end of this week. We continue to anticipate capital expenditures for the development of new restaurants in 2018 to be $22.0 million to $25.0 million.
Total capital expenditures in 2018 are 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.
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, November 12, 2018, and can be accessed by dialing 412-317-6671. The passcode is 13683908. 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 the 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.
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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SOURCE Fiesta Restaurant Group, Inc.