Fiesta Restaurant Group, Inc. Reports Fourth Quarter and Full Year 2018 Results
DALLAS - (BUSINESS WIRE) - February 25, 2019 - 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 fourth quarter and 52-week full year 2018, which ended on December 30, 2018.
Fiesta President and Chief Executive Officer Richard Stockinger said, "We ended 2018 with a flurry of activity, relaunching Pollo Tropical Catering with dedicated resources, piloting third party delivery in South Florida, rolling out the 'My Pollo' and 'My TC' loyalty programs, and most importantly, completing the components of the Strategic Renewal Plan, including our comprehensive portfolio review, that we began in 2017. Through these actions, we believe that we have achieved higher quality restaurant operations and a healthier and more profitable restaurant portfolio."
Mr. Stockinger continued, "Taco Cabana generated its ninth consecutive month of positive comparable restaurant sales growth in December 2018. Importantly, positive NPS trends at both brands, including Pollo Tropical experiencing its peak performance in December 2018 led by our South Florida markets, coupled with continued improvements to Restaurant-level Adjusted EBITDA margins, gives us continuing confidence in the future trajectory of the business."
Mr. Stockinger concluded, "In 2019, we expect to deliver sustainable sales growth coupled with higher Restaurant-level Adjusted EBITDA by leveraging the investments made as part of the Plan. We believe we can achieve our objectives through ongoing execution of quality operations, menu innovation, capitalizing on our loyalty programs, generating impactful social media and traditional marketing. In addition, we are excited about partnering with DoorDash for delivery to build off-premise sales."
Fourth Quarter 2018 Financial Summary
- Total revenues increased 3.3% to $167.6 million in the fourth quarter of 2018 from $162.2 million in the fourth quarter of 2017;
- Comparable restaurant sales at Pollo Tropical decreased 1.9%;
- Comparable restaurant sales at Taco Cabana increased 5.1%;
- Net loss decreased to $7.9 million, or $0.30 per diluted share, in the fourth quarter of 2018 from a net loss of $10.8 million, or $0.40 per diluted share, in the fourth quarter of 2017;
- Adjusted net income increased to $2.2 million, or $0.08 per diluted share, in the fourth quarter of 2018 from an adjusted net loss of $0.1 million, or $0.00 per diluted share, in the fourth quarter of 2017 (see non-GAAP reconciliation table below);
- Adjusted EBITDA for Pollo Tropical increased to $12.4 million in the fourth quarter of 2018 from $9.7 million in the fourth quarter of 2017;
- Restaurant-level Adjusted EBITDA at Pollo Tropical increased to $19.1 million, or 21.0% of restaurant sales, from $16.0 million, or 17.7% of restaurants sales (see non-GAAP reconciliation table below);
- Adjusted EBITDA for Taco Cabana increased to $3.4 million in the fourth quarter of 2018 from $(0.7) million in the fourth quarter of 2017;
- Restaurant-level Adjusted EBITDA at Taco Cabana increased to $8.9 million, or 11.8% of restaurant sales, from $4.9 million, or 7.0% of restaurant sales (see non-GAAP reconciliation table below); and
- Consolidated Adjusted EBITDA increased to $15.8 million in the fourth quarter of 2018 from Consolidated Adjusted EBITDA of $8.9 million in the fourth quarter of 2017 (see non-GAAP reconciliation table below).
Fourth Quarter 2018 Brand Results
Pollo Tropical restaurant sales increased 0.2% to $90.9 million in the fourth quarter of 2018 compared to $90.8 million in the fourth quarter of 2017 due primarily to sales from new restaurants, partially offset by a comparable restaurant sales decrease of 1.9%. The decrease in comparable restaurant sales resulted from a 4.4% increase in average check and a 6.3% decrease in comparable restaurant transactions. Sales cannibalization from new restaurants on existing restaurants negatively impacted comparable restaurant sales by approximately 60 basis points. The increase in average check was driven primarily by menu price increases of approximately 4.3%. During the fourth quarter of 2018, Pollo Tropical comparable restaurant sales were negatively impacted by lapping the recovery period after Hurricane Irma and the Pollo Tropical brand re-launch that included significantly higher advertising spending in the year-ago period.
Adjusted EBITDA for Pollo Tropical increased to $12.4 million in the fourth quarter of 2018 from $9.7 million in the fourth quarter of 2017. The increase was due primarily to higher advertising and repairs and maintenance expenses in the fourth quarter of 2017 related to the Plan and lower cost of sales and restaurant wages and related expenses as a percentage of restaurant sales, partially offset by higher real estate taxes in the fourth quarter of 2018.
Taco Cabana restaurant sales increased 7.5% to $76.0 million in the fourth quarter of 2018 compared to $70.7 million in the fourth quarter of 2017 due primarily to a comparable restaurant sales increase of 5.1% and sales from new restaurants. The increase in comparable restaurant sales resulted from a 9.6% increase in average check and a 4.5% decrease in comparable restaurant transactions. We believe comparable restaurant transactions were negatively impacted by the repositioning of the brand and an evolving guest base. The increase in average check was due primarily to menu price increases of 6.2% and positive sales mix associated with higher priced promotions and new menu items related to brand repositioning.
Adjusted EBITDA for Taco Cabana increased to $3.4 million in the fourth quarter of 2018 from $(0.7) million in the fourth quarter of 2017. The increase was due primarily to higher advertising and repairs and maintenance expenses in the fourth quarter of 2017 related to the Plan and higher comparable restaurant sales, lower medical benefits costs and lower cost of sales as a percentage of restaurant sales, partially offset by higher restaurant level incentive bonus costs and higher real estate taxes in the fourth quarter of 2018.
General and Administrative Expenses
General and administrative expenses were $13.5 million in the fourth quarter of 2018 compared to $12.9 million in the fourth quarter of 2017. As a percentage of total revenues, general and administrative expenses were 8.1% in the fourth quarter of 2018 and 7.9% in the fourth quarter of 2017. The increase in general and administrative expenses in the fourth quarter of 2018 compared to the prior year period was due primarily to favorable adjustments to board and shareholder matter costs in 2017, and severance costs, system implementation, project advisory and consulting costs and investments in resources to build our off-premise business, partially offset by lower incentive-based compensation expense.
Impairment and Other Lease Charges
Impairment and other lease charges for the three months ended December 30, 2018, include impairment charges of $12.9 million and lease charges, net of recoveries, of $1.7 million. These were primarily related to 14 Pollo Tropical restaurants and nine Taco Cabana restaurants closed in December 2018, nine of which were previously impaired, as well as four underperforming Pollo Tropical and Taco Cabana restaurants that we continue to operate and adjustments to estimates of future lease costs for certain previously closed restaurants.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act"), which includes a provision that reduced the federal corporate income tax rate from 35.0% to 21.0% effective January 1, 2018, was signed into law. In accordance with generally accepted accounting principles, the enactment of this new tax legislation required us to revalue our net deferred income tax assets at the new corporate statutory rate of 21.0% as of the enactment date, which resulted in a one-time adjustment of $9.0 million as a discrete item that increased our provision for income taxes in the fourth quarter of 2017.
Full Year 2018 Financial Summary
Total revenues increased 2.9% in 2018 to $688.6 million from $669.1 million in 2017, driven primarily by comparable restaurant sales increases of 2.2% at Pollo Tropical and 4.5% at Taco Cabana including the favorable comparison to 2017 which included the negative impact of Hurricanes Harvey and Irma (the "Hurricanes"), and sales from new restaurants, partially offset by permanent restaurant closures.
We recognized net income of $7.8 million in 2018, or $0.29 per diluted share, compared to a net loss of $36.2 million, or $1.35 per diluted share in 2017, due primarily to lower impairment and other lease charges, the positive impact of tax rate changes in 2018 compared to the negative impact in 2017 discussed above, lower general and administrative expenses, higher comparable restaurant sales including the impact of the Hurricanes in 2017, the impact of closing unprofitable restaurants, lower advertising expenses and insurance recoveries associated with the Hurricanes, partially offset by higher cost of sales as percentage of sales.
Consolidated Adjusted EBITDA increased to $68.0 million in 2018 from $67.4 million in 2017 (see non-GAAP reconciliation table below).
During the fourth quarter of 2018, Fiesta opened three Pollo Tropical restaurants in South Florida, closed 14 Pollo Tropical restaurants in Florida and Georgia, including all nine Pollo Tropical restaurants in the greater Atlanta metropolitan area, and closed nine Taco Cabana restaurants in Texas. As of December 30, 2018, there were 139 Company-owned Pollo Tropical restaurants, 162 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.
2019 Restaurant Development and Capital Expenditures
In 2019, Fiesta expects to open three new Company-owned Pollo Tropical restaurants in South Florida and three new Company-owned Taco Cabana restaurants in Texas.
Total capital expenditures in 2019 are expected to be $45 million to $55 million including $11 million to $13 million to develop new Company-owned restaurants, $9 million to $11 million to implement information technology and other systems projects and $1 million in catering equipment. In addition, ongoing reinvestment in our Pollo Tropical and Taco Cabana Company-owned restaurants in 2019 is expected to include $16 million to $18 million for restaurant remodeling, equipment to support new menu platforms and other facility enhancements, and $9 million to $12 million for capital maintenance.
Lease Accounting Change
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessee recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. Fiesta will adopt the new standard starting in fiscal year 2019 using the transition method that allows initially applying the standard as of the adoption date without restating prior periods. We expect to recognize right-of-use lease assets and lease liabilities for most of the leases we currently account for as operating leases including leases related to closed restaurant properties. The initial right-of-use lease assets to be recognized will be reduced by accrued occupancy costs such as certain closed-restaurant lease reserves, accrued rent (including accruals to expense operating lease payments on a straight-line basis) and unamortized lease incentives. Upon adoption of ASC 842, we will no longer record closed restaurant lease reserves, and right-of-use lease assets will be reviewed for impairment with our long-lived assets. We also expect to separately present rent expense related to our closed restaurant locations and any sublease income related to these closed restaurant locations in the consolidated statement of operations. In addition, we will be required to record an initial adjustment to retained earnings associated with previously deferred gains on sale-leaseback transactions, and for any future sale-leaseback transactions, the gain, adjusted for any off-market terms, will be recorded immediately. Currently, we amortize sale-leaseback gains over the lease term.
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, March 4, 2019, and can be accessed by dialing 412-317-6671. The passcode is 13687303. 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.
Certain statements contained in this news release and in our public disclosures, whether written, oral or otherwise made, relating to future events or future performance, including any discussion, express or implied regarding our anticipated growth, plans, objectives and the impact of our investments in our renewal plan initiatives on future sales and earnings contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements are often identified by the words "may," "might," "believes," "thinks," "anticipates," "plans," "positioned," "target," "continue," "expects," "intends" and other similar expressions, whether in the negative or the affirmative, that are not statements of historical fact. These forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict, and you should not place undue reliance on our forward-looking statements. Our actual results and timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those discussed from time to time in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended December 30, 2018 and our quarterly reports on Form 10-Q. All forward-looking statements and the internal projections and beliefs upon which we base our expectations included in this release are made only as of the date of this release and may change. While we may elect to update forward-looking statements at some point in the future, we expressly disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.
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SOURCE Fiesta Restaurant Group, Inc.