Fiesta Restaurant Group, Inc. Second Quarter 2014 Total Revenues Increase 9.4%

2014-08-06
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  • Fiesta Restaurant Group, Inc (NASDAQ:FRGI), the owner, operator, and franchisor of the Pollo Tropical® and Taco Cabana® fast-casual restaurant brands, today reported results for the second quarter 2014, which ended on June 29, 2014.

    Fiesta Restaurant Group, Inc (NASDAQ:FRGI), the owner, operator, and franchisor of the Pollo Tropical® and Taco Cabana® fast-casual restaurant brands, today reported results for the second quarter 2014, which ended on June 29, 2014.

    Highlights of the second quarter of 2014 include:

    • Total revenues increased 9.4% to $154.2 million;
    • Comparable restaurant sales increased 6.7% and comparable restaurant guest traffic increased 5.6% at Pollo Tropical;
    • Comparable restaurant sales increased 2.8% and comparable restaurant guest traffic decreased 0.2% at Taco Cabana;
    • Seven Company-owned restaurants were opened, including six Pollo Tropical restaurants and the first Company-owned restaurant under the elevated, non-24 hour Taco Cabana format, Cabana Grill®;
    • Net income increased 87.4% to $9.3 million; and
    • Diluted earnings per share increased 66.7% to $0.35.

    Fiesta President and Chief Executive Officer Tim Taft commented, “We believe our financial results are demonstrative of the strength of our business model and our ability to perform despite a challenging consumer spending environment. In the second quarter, we increased total revenues, grew comparable restaurant sales, expanded operating margins, and delivered diluted EPS growth of almost 67%. We are very pleased with what we have accomplished so far this year and look forward to continuing to execute our strategy and enhance shareholder value.”

    Second Quarter 2014 Financial Review

    Consolidated Results

    Total revenues increased 9.4% to $154.2 million from $140.9 million compared to the prior year period due to 18 net Company-owned restaurant openings and comparable restaurant sales growth of 6.7% and 2.8% at Pollo Tropical and Taco Cabana, respectively.

    Cost of sales as a percentage of restaurant sales improved 40 basis points compared to the prior year period as modest price increases, a favorable sales mix, and supply chain management initiatives more than offset commodity cost increases.

    Restaurant wages and related expenses as a percentage of restaurant sales held steady compared to the prior year period as the positive impact of sales increases on fixed costs were offset by higher medical expenses.

    Other restaurant operating expenses as a percentage of restaurant sales increased 30 basis points compared to the prior year period as timing and higher repair and maintenance expenses including costs associated with the conversion to Coca-Cola products at Pollo Tropical restaurants and higher insurance expenses were partially offset by lower utility expenses.

    Pre-opening costs increased $0.2 million to $1.2 million compared to the prior year period due to the timing of expenses for future Company-owned restaurant openings.

    Rent expense as a percentage of restaurant sales increased 20 basis points compared to the prior year period as a consequence of new sale-leaseback transactions and Company-owned restaurant openings, which generally have higher rent.

    Advertising expense as a percentage of restaurant sales decreased 20 basis points compared to the prior year period due primarily to the favorable impact of sales increases and the timing of promotions.

    General and administrative expenses increased slightly to $12.1 million compared to the prior year period but improved as a percentage of revenues by 60 basis points due to the favorable impact of higher sales on relatively flat overhead expenses.

    Depreciation and amortization increased $0.4 million to $5.6 million compared to the prior year period due to new Company-owned restaurant development, partially offset by the impact of sale-leaseback transactions.

    Interest expense decreased $4.4 million to $0.6 million compared to the prior year period due to the reduction in Fiesta’s outstanding debt and a lower interest rate on borrowings under the new senior credit facility.

    The provision for income taxes was derived using an estimated annual effective income tax rate for 2014 of 38.3%, while the provision for income taxes for the prior year period was derived using an estimated effective annual income tax rate for 2013 of 36.5%, excluding discrete items. The estimated effective annual income tax rate for 2014 is higher than 2013, primarily due to the expiration of the Work Opportunity Tax Credit on December 31, 2013.

    Net income increased 87.4% to $9.3 million compared to net income of $5.0 million in the prior year period.

    Diluted earnings per share increased 66.7% to $0.35 (on a base of 26.3 million shares) compared to diluted earnings per share of $0.21 (on a base of 22.9 million shares) in the prior year period.

    Brand Results

    Pollo Tropical restaurant sales increased 16.7% to $75.3 million compared to the prior year period due to a comparable restaurant sales increase of 6.7% along with a net increase of 16 Company-owned restaurants. The growth in comparable restaurant sales resulted from a 5.6% increase in comparable restaurant guest traffic along with a 1.1% increase in average check. Average check was driven by menu price increases that positively impacted restaurant sales by 1.6% partially offset by sales mix. This is the 19th consecutive quarter the brand has delivered comparable restaurant sales growth and, on a two-year basis, second quarter comparable restaurant sales grew 13.1%. Adjusted EBITDA for Pollo Tropical, a non-GAAP financial measure, increased 12.1% to $13.4 million compared to the prior year period.

    Taco Cabana restaurant sales increased 3.3% to $78.3 million compared to the prior year period due to a 2.8% increase in comparable restaurant sales along with a net increase of two Company-owned restaurants. The increase in comparable restaurant sales resulted from a decrease of 0.2% in comparable restaurant guest traffic which was more than offset by a 3.0% increase in average check. Average check was driven by menu price increases that positively impacted restaurant sales by 1.3% and a positive change in sales mix due to the implementation of new menu boards. On a two-year basis, second quarter comparable restaurant sales grew 3.9%. Adjusted EBITDA for Taco Cabana, a non-GAAP financial measure, increased 23.9% to $8.9 million compared to the prior year period.

    Restaurant Development

    During the quarter, Fiesta opened six new Pollo Tropical restaurants in Florida and its first restaurant under the elevated, non-24 hour Taco Cabana format, Cabana Grill, outside of Atlanta, all of which are Company-owned.

    As of June 29, 2014, the Company owned and operated 112 Pollo Tropical restaurants and 166 Taco Cabana restaurants and franchised 35 Pollo Tropical restaurants in the U.S., Puerto Rico, the Bahamas, Costa Rica, Ecuador, Guatemala, Honduras, Panama, Trinidad & Tobago, Venezuela and the Dominican Republic, and seven Taco Cabana restaurants in the U.S.

    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, ethnic 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, and drive-thru service and catering. 

           

    FIESTA RESTAURANT GROUP, INC.

    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

    THREE AND SIX MONTHS ENDED JUNE 29, 2014 AND JUNE 30, 2013

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

    (Unaudited)

     
    Three months ended (a) Six months ended (a)
    June 29, 2014     June 30, 2013 June 29, 2014     June 30, 2013
     
    Revenues:
    Restaurant sales $ 153,515 $ 140,276 $ 298,340 $ 273,366
    Franchise royalty revenues and fees 670   604   1,281   1,138  
    Total revenues 154,185 140,880 299,621 274,504
    Costs and expenses:
    Cost of sales 48,960 45,318 94,489 87,729
    Restaurant wages and related expenses (b) 39,116 35,819 75,622 70,935
    Restaurant rent expense 7,374 6,411 14,578 12,846
    Other restaurant operating expenses 19,466 17,339 37,351 33,503
    Advertising expense 4,676 4,455 10,095 9,004
    General and administrative expenses (b)(c) 12,132 11,999 24,283 24,210
    Depreciation and amortization 5,578 5,178 10,923 9,988
    Pre-opening costs 1,188 958 1,871 1,789
    Impairment and other lease charges 32 456 17 551
    Other (income) expense     (6 ) (497 )
    Total costs and expenses 138,522   127,933   269,223   250,058  
    Income from operations 15,663 12,947 30,398 24,446
    Interest expense (d) 568   5,011   1,171   10,018  
    Income before income taxes 15,095 7,936 29,227 14,428
    Provision for income taxes 5,781   2,967   11,194   4,660  
    Net income $ 9,314   $ 4,969   $ 18,033   $ 9,768  
    Basic net income per share (e) $ 0.35   $ 0.21   $ 0.67   $ 0.41  
    Diluted net income per share (e) $ 0.35   $ 0.21   $ 0.67   $ 0.41  
    Basic weighted average common shares outstanding 26,271,116   22,908,191   26,236,432   22,888,542  
    Diluted weighted average common shares outstanding 26,271,116   22,908,191   26,236,713   22,888,542  
     
    (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 June 29, 2014 and June 30, 2013 included 13 and 26 weeks, respectively.
     
    (b) Restaurant wages and related expenses include stock-based compensation expense of $21 and $0 for the three month periods ended June 29, 2014 and June 30, 2013, respectively, and $30 and $1 for the six month periods ended June 29, 2014 and June 30, 2013, respectively. General and administrative expenses include stock-based compensation expense of $1,058 and $595 for the three month periods ended June 29, 2014 and June 30, 2013, respectively, and $1,770 and $1,020 for the six month periods ended June 29, 2014 and June 30, 2013, respectively.
     
    (c) General and administrative expenses for the six months ended June 30, 2013 include expenses related to the underwritten secondary public equity offering completed during March 2013 totaling $425. The Company did not receive any proceeds from the sale of shares in such offering.
     
    (d) In the fourth quarter of 2013, Fiesta repurchased and redeemed its $200.0 million in aggregate principal amount of 8.875% Senior Secured Second Lien Notes due 2016, sold 3,078,336 shares of its common stock, and entered into a new senior secured revolving credit facility that provides for aggregate borrowings of up to $150.0 million with variable rate interest.
     
    (e) As previously disclosed, Fiesta has granted shares of restricted stock to certain of its employees. Because the unvested shares participate in any dividends declared, the unvested shares are considered a second class of common stock for accounting purposes, impacting the calculation of net income per share. For further information, please see the Company's unaudited financial statements to be included in the Company's Quarterly Report on Form 10-Q for the quarter ended June 29, 2014.
           

    FIESTA RESTAURANT GROUP, INC.

    CONDENSED CONSOLIDATED BALANCE SHEETS

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

    (Unaudited)

     
    June 29, 2014 December 29, 2013
     
    Assets
    Cash $ 3,867 $ 10,978
    Other current assets 21,543 21,947
    Property and equipment, net 162,207 144,527
    Goodwill 123,484 123,484
    Intangible assets, net 80 121
    Deferred income taxes 12,369 12,046
    Deferred financing costs, net 1,382 1,530
    Other assets 4,806   4,152
    Total assets $ 329,738   $ 318,785
     
    Liabilities and Stockholders' Equity
    Current liabilities $ 31,062 $ 38,087
    Long-term debt, net of current portion 67,295 72,324
    Lease financing obligations 1,659 1,657
    Deferred income sale-leaseback of real estate 35,912 35,873
    Other liabilities 14,386   12,538
    Total liabilities 150,314 160,479
    Stockholders' equity 179,424   158,306
    Total liabilities and stockholders' equity $ 329,738   $ 318,785
     
           

    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 and number of restaurants):

     
    (unaudited) (unaudited)
    Three months ended Six months ended
    June 29, 2014     June 30, 2013 June 29, 2014     June 30, 2013
    Segment revenues:
    Pollo Tropical $ 75,795 $ 64,992 $ 147,639 $ 127,274
    Taco Cabana 78,390   75,888   151,982   147,230  
    Total revenues $ 154,185   $ 140,880   $ 299,621   $ 274,504  
     
    Change in comparable restaurant sales (a):
    Pollo Tropical 6.7 % 6.4 % 6.5 % 5.1 %
    Taco Cabana 2.8 % 1.1 % 1.8 % 1.5 %
     
    Average sales per Company-owned restaurant (b):
    Pollo Tropical $ 697 $ 685 $ 1,379 $ 1,359
    Taco Cabana 472 462 917 906
     
    Income before income taxes:
    Pollo Tropical $ 9,888 $ 7,233 $ 20,384 $ 12,951
    Taco Cabana 5,207 703 8,843 1,477
     
    Adjusted EBITDA (c):
    Pollo Tropical $ 13,425 $ 11,973 $ 27,102 $ 21,778
    Taco Cabana 8,927 7,203 16,030 13,731
     
    Restaurant-Level Adjusted EBITDA (c):
    Pollo Tropical $ 18,756 $ 17,444 $ 37,833 $ 32,875
    Taco Cabana 14,000 12,532 26,531 24,686
     
    Number of Company-owned restaurants:
    Pollo Tropical 112 96 112 96
    Taco Cabana 166   164   166   164  
    Total Company-owned restaurants 278 260 278 260
     
    Company-owned restaurant openings:
    Pollo Tropical 6 4 10 6
    Taco Cabana 1   3   1   5  
    Total new restaurant openings 7 7 11 11
     
    Company-owned restaurant closings:
    Pollo Tropical (1 ) (1 )
    Taco Cabana   (1 )   (1 )
    Net change in restaurants 7 5 11 9
     
    Number of franchised restaurants:
    Pollo Tropical 35 38 35 38
    Taco Cabana 7   8   7   8  
    Total franchised restaurants 42 46 42 46
       

    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
    June 29, 2014     June 30, 2013
      (a)   (a)
    Pollo Tropical:
    Restaurant sales $ 75,253 $ 64,509
    Cost of sales 24,983 33.2 % 21,350 33.1 %
    Restaurant wages and related expenses 16,423 21.8 % 14,183 22.0 %
    Restaurant rent expense 3,071 4.1 % 2,238 3.5 %
    Other restaurant operating expenses 9,422 12.5 % 7,410 11.5 %
    Advertising expense 1,639 2.2 % 1,148 1.8 %
    Depreciation and amortization 2,750 3.7 % 2,314 3.6 %
    Pre-opening costs 968 1.3 % 737 1.1 %
    Impairment and other lease charges (31 ) % (101

    )

     

    (0.2 )%
     
    Taco Cabana:
    Restaurant sales $ 78,262 $ 75,767
    Cost of sales 23,977 30.6 % 23,968 31.6 %
    Restaurant wages and related expenses 22,693 29.0 % 21,636 28.6 %
    Restaurant rent expense 4,303 5.5 % 4,173 5.5 %
    Other restaurant operating expenses 10,044 12.8 % 9,929 13.1 %
    Advertising expense 3,037 3.9 % 3,307 4.4 %
    Depreciation and amortization 2,828 3.6 % 2,864 3.8 %
    Pre-opening costs 220 0.3 % 221 0.3 %
    Impairment and other lease charges 63 0.1 % 557 0.7 %
     
    Six months ended
    June 29, 2014 June 30, 2013
    (a) (a)
    Pollo Tropical:
    Restaurant sales $ 146,609 $ 126,378
    Cost of sales 48,212 32.9 % 41,843 33.1 %
    Restaurant wages and related expenses 31,688 21.6 % 28,500 22.6 %
    Restaurant rent expense 5,988 4.1 % 4,595 3.6 %
    Other restaurant operating expenses 17,799 12.1 % 14,613 11.6 %
    Advertising expense 3,601 2.5 % 2,722 2.2 %
    Depreciation and amortization 5,327 3.6 % 4,413 3.5 %
    Pre-opening costs 1,501 1.0 % 1,230 1.0 %
    Impairment and other lease charges (70 ) % (62

    )

     

    %
     
    Taco Cabana:
    Restaurant sales $ 151,731 $ 146,988
    Cost of sales 46,277 30.5 % 45,886 31.2 %
    Restaurant wages and related expenses 43,934 29.0 % 42,435 28.9 %
    Restaurant rent expense 8,590 5.7 % 8,251 5.6 %
    Other restaurant operating expenses 19,552 12.9 % 18,890 12.9 %
    Advertising expense 6,494 4.3 % 6,282 4.3 %
    Depreciation and amortization 5,596 3.7 % 5,575 3.8 %
    Pre-opening costs 370 0.2 % 559 0.4 %
    Impairment and other lease charges 87 0.1 % 613 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):

    Adjusted EBITDA and Restaurant-Level Adjusted EBITDA are non-GAAP financial measures. Adjusted EBITDA is defined as earnings before interest, income taxes, depreciation and amortization, impairment and other lease charges, stock-based compensation expense and other income and expense. 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 accounting, legal and other administrative functions. Restaurant-Level Adjusted EBITDA is defined as Adjusted EBITDA excluding franchise royalty revenues and fees and general and administrative expenses (including corporate-level general and administrative expenses). Adjusted EBITDA for each of our segments is a measure of segment profitability reported to our chief operating decision maker for purposes of allocating resources to the segments and assessing each segment's performance. In addition, management believes that Adjusted EBITDA and Restaurant-Level Adjusted EBITDA, when viewed with our results of operations calculated in accordance with GAAP and our reconciliation of Restaurant-Level Adjusted EBITDA and Adjusted EBITDA to net income (i) provides useful information (including at the restaurant level) about our operating performance and period-over-period growth, (ii) provides additional information that is useful for evaluating the operating performance of our business, and (iii) permits 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 a measure of financial performance or liquidity under GAAP and, accordingly, should not be considered as an alternative 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)     (unaudited)
    Three months ended Six months ended
    June 29, 2014     June 30, 2013 June 29, 2014     June 30, 2013
     
    Restaurant-Level Adjusted EBITDA:
    Pollo Tropical $ 18,756 $ 17,444 $ 37,833 $ 32,875
    Taco Cabana 14,000   12,532   26,531   24,686  
    Consolidated 32,756 29,976 64,364 57,561
    Add:
    Franchise royalty revenue and fees 670 604 1,281 1,138
    Less:
    General and administrative (excluding stock-based compensation expense of $1,058, $595, $1,770 and $1,020, respectively) 11,074 11,404 22,513 23,190
    Adjusted EBITDA:
    Pollo Tropical 13,425 11,973 27,102 21,778
    Taco Cabana 8,927   7,203   16,030   13,731  
    Consolidated 22,352 19,176 43,132 35,509
    Less:
    Depreciation and amortization 5,578 5,178 10,923 9,988
    Impairment and other lease charges 32 456 17 551
    Interest expense 568 5,011 1,171 10,018
    Provision for income taxes 5,781 2,967 11,194 4,660
    Stock-based compensation 1,079 595 1,800 1,021
    Other (income) expense     (6 ) (497 )
    Net income $ 9,314   $ 4,969   $ 18,033   $ 9,768  



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