Fiesta Restaurant Group Results

Fiesta Restaurant Group, Inc. Reports First Quarter 2018 Results

April Comparable Restaurant Sales Increased 2.8% at Pollo Tropical and 0.9% at Taco Cabana

Fiesta Restaurant Group

Fiesta Restaurant Group, Inc. (NASDAQ:FRGI), parent company of the Pollo Tropical® and Taco Cabana® restaurant brands, today reported results for the 13-week first quarter of 2018, which ended on April 1, 2018.

Fiesta President and Chief Executive Officer Richard Stockinger said, “Last year, we developed and began implementing our Strategic Renewal Plan (the “Plan”) in earnest, starting with Pollo Tropical and following a few months later with Taco Cabana. We believe our Plan is driving intended operational and financial performance improvements.”

Mr. Stockinger continued, “For the past five consecutive months, comparable restaurant sales at Pollo Tropical increased, including comparable restaurant sales growth of 2.8% in April. As part of the Plan, we conducted consumer research in multiple markets to develop and validate our strategic positioning, service standards and menu innovation. We initially prioritized much of our Plan implementation in Pollo Tropical’s core markets where we generated system-leading comparable restaurant sales growth in the first quarter. An important new product platform for Pollo Tropical, hand-battered crispy citrus-marinated chicken, has been extremely successful, with broad appeal across all markets. More work needs to be done, but we believe we are establishing a promising foundation for future expansion.”

Mr. Stockinger added, “The early indicators of Taco Cabana’s revitalization are mirroring what we experienced at Pollo Tropical, including improving guest and social media scores, fewer guest complaints and growing guest compliments. While still early, we are encouraged by April comparable restaurant sales growth of 0.9%. Similar to Pollo Tropical, Taco Cabana’s consumer research has helped us to develop our brand positioning and related initiatives, including a focus on tacos with improved proteins, flavorful toppings and the successful reintroduction of Texas brisket. Leading up to our Taco Cabana brand re-launch this summer, we are implementing additional brand enhancements which we believe will continue to build our business momentum and improve restaurant margins.”

First Quarter 2018 Financial Summary

  • Total revenues decreased 3.5% from the prior year period to $169.5 million due primarily to closing unprofitable restaurants and comparable restaurant sales declines at Taco Cabana, partially offset by comparable restaurant sales growth at Pollo Tropical;
  • Comparable restaurant sales at Pollo Tropical increased 1.1%. Comparable restaurant sales were negatively impacted by approximately 0.4% related to the fiscal calendar shift of New Year’s Day and Easter;
  • Comparable restaurant sales at Taco Cabana decreased 1.7%. Comparable restaurant sales were negatively impacted by approximately 1.6% related to the reduction of overnight operating hours and by approximately 0.4% related to the fiscal calendar shift of New Year’s Day and Easter;
  • Net income of $4.2 million or $0.15 per diluted share, compared to the prior year period net loss of $(15.1) million, or $(0.56) per diluted share;
  • Adjusted net income of $4.3 million, or $0.16 per diluted share, compared to the prior year period adjusted net income of $6.8 million, or $0.25 per diluted share (see non-GAAP reconciliation table below); and
  • Consolidated Adjusted EBITDA of $17.0 million compared to the prior year period Consolidated Adjusted EBITDA of $21.2 million (see non-GAAP reconciliation table below). The decrease in Consolidated Adjusted EBITDA of $4.2 million was primarily driven by the decrease in Adjusted EBITDA at Taco Cabana of $4.0 million compared to the prior year period.

First Quarter 2018 Brand Results

Pollo Tropical restaurant sales decreased 4.9% to $94.5 million in the first quarter of 2018 compared to the prior year period due primarily to 34 fewer Company-owned restaurants in operation compared to the prior year period as a result of closing unprofitable restaurants, partially offset by a comparable restaurant sales increase of 1.1%. The increase in comparable restaurant sales resulted from a 3.4% increase in average check, partially offset by a 2.3% decrease in comparable restaurant transactions. Comparable restaurant sales and transactions were negatively impacted by the fiscal calendar shift of New Year’s Day and Easter. The increase in average check was primarily driven by menu price increases that positively impacted restaurant sales, higher priced promotions and add-on sales.

Adjusted EBITDA for Pollo Tropical decreased to $14.4 million in the first quarter of 2018 from $14.7 million in the first quarter of 2017 due primarily to the impact of an increase in cost of sales as a percentage of sales and higher repairs and maintenance costs primarily driven by the initiatives under the Plan, partially offset by higher comparable restaurant sales, lower advertising costs and the impact of closing unprofitable restaurants in 2017.

Taco Cabana restaurant sales decreased 1.7% to $74.4 million in the first quarter of 2018 compared to the prior year period due to a comparable restaurant sales decrease of 1.7%. The decrease in comparable restaurant sales resulted from an 11.3% decrease in comparable restaurant transactions, partially offset by a 9.6% increase in average check. Comparable restaurant transactions were negatively impacted primarily by the elimination of deep discounting related to the repositioning of the brand, the reduction in overnight operating hours and the fiscal calendar shift of New Years’ Day and Easter. The increase in average check was primarily driven by positive sales mix associated with higher priced promotions and new menu items related to the repositioning of the brand, and menu price increases.

Adjusted EBITDA for Taco Cabana decreased to $2.5 million in the first quarter of 2018 from $6.5 million in the first quarter of 2017 due primarily to the impact of lower comparable restaurant sales, higher cost of sales as a percentage of sales and higher repairs and maintenance costs primarily driven by the initiatives under the Plan, and higher restaurant wages and related expenses, partially offset by lower advertising costs.

Capital Allocation

Anticipated capital expenditures in 2018 include opening seven to eight new Company-owned Pollo Tropical restaurants in Florida and seven to eight new Company-owned Taco Cabana restaurants in Texas. Up to five of the new Taco Cabana restaurants are expected to come from converting closed Pollo Tropical restaurants. Total capital expenditures in 2018 are expected to be $60.0 million to $70.0 million, including $22.0 million to $25.0 million for the development of new restaurants.

Restaurant Portfolio

As of April 1, 2018, there were 146 Company-owned Pollo Tropical restaurants, 166 Company-owned Taco Cabana restaurants, 31 franchised Pollo Tropical restaurants in the U.S., Puerto Rico, the Bahamas, Guyana, Panama and Venezuela and seven franchised Taco Cabana restaurants in the U.S. There were no restaurant openings during the first quarter of 2018.

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.

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED APRIL 1, 2018 AND APRIL 2, 2017

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

(Unaudited)

 

  Three months ended (a)

April 1, 2018   April 2, 2017

 
Revenues:

Restaurant sales

$ 168,833

$ 174,977

Franchise royalty revenues and fees

651  

630  
Total revenues

169,484

175,607

Costs and expenses:

Cost of sales

53,565

50,948

Restaurant wages and related expenses (b)

46,483

48,132

Restaurant rent expense

8,892

9,862

Other restaurant operating expenses

23,450

24,068

Advertising expense

6,213

7,539

General and administrative expenses (b)(c)

14,919

15,698

Depreciation and amortization

8,999

9,186

Pre-opening costs

381

424

Impairment and other lease charges (d)

(662 )

32,414

Other expense (income), net (e)

366  

454  
Total operating expenses

162,606  

198,725  
Income (loss) from operations

6,878

(23,118 )
Interest expense

1,069  

584  
Income (loss) before income taxes

5,809  

(23,702 )
Provision for (benefit from) income taxes

1,625  

(8,642 )
Net income (loss)

$ 4,184  

$ (15,060 )
Basic net income (loss) per share

$ 0.15  

$ (0.56 )
Diluted net income (loss) per share

$ 0.15  

$ (0.56 )
Basic weighted average common shares outstanding

26,874,016  

26,774,103  
Diluted weighted average common shares outstanding

26,879,831  

26,774,103  
(a)   The Company uses a 52 or 53 week fiscal year that ends on the Sunday closest to December 31. The three month periods ended April 1, 2018 and April 2, 2017 each included 13 weeks.
 
(b)

Restaurant wages and related expenses include stock-based compensation of $17 and $109 for the three months ended April 1, 2018 and April 2, 2017, respectively. General and administrative expenses include stock-based compensation expense of $872 and $537 for the three months ended April 1, 2018 and April 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)

 

  April 1, 2018   December 31, 2017

 

Assets

Cash

$       3,791

$

3,599

 

Other current assets

33,323

37,449

Property and equipment, net

235,038

234,561

Goodwill

123,484

123,484

Deferred income taxes

15,884

17,232

Other assets

  7,564  

6,988  
Total assets

  $       419,084  

$ 423,313  

 
Liabilities and Stockholders' Equity

Current liabilities

$

48,391

$ 59,844

Long-term debt, net of current portion

81,718

76,425

Deferred income sale-leaseback of real estate

22,564

23,466

Other liabilities

  30,114  

32,062  
Total liabilities

182,787

191,797

Stockholders' equity

  236,297  

231,516  
Total liabilities and stockholders' equity

  $       419,084  

$ 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)

Three months ended

April 1, 2018   April 2, 2017
Segment revenues:

Pollo Tropical

$ 94,942

$ 99,759

Taco Cabana

74,542  

75,848  
Total revenues

$ 169,484  

$ 175,607  

 
Change in comparable restaurant sales (a):

Pollo Tropical

1.1 %

(6.7 )%
Taco Cabana

(1.7 )%

(4.5 )%

 
Average sales per Company-owned restaurant:

Pollo Tropical

Comparable restaurants (b)

$ 674

$ 614

New restaurants (c)

432

372

Total company-owned (d)

647

556

Taco Cabana

Comparable restaurants (b)

$ 455

$ 453

New restaurants (c)

341

475

Total company-owned (d)

448

454

 
Income (loss) before income taxes:

Pollo Tropical

$ 8,128

$ (25,096 )
Taco Cabana

(2,319 )

1,394

 
Adjusted EBITDA:

Pollo Tropical

$ 14,447

$ 14,722

Taco Cabana

2,511

6,494

 
Restaurant-Level Adjusted EBITDA (e):

Pollo Tropical

$ 21,584

$ 22,595

Taco Cabana

8,663

12,264

(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

April 1, 2018   April 2, 2017

 
Company-owned restaurant openings:

Pollo Tropical

3

 

Taco Cabana

 

1  
Total new restaurant openings

4

 
Company-owned restaurant closings:

Pollo Tropical

Taco Cabana

 

 
Net change in restaurants

4

 
Number of Company-owned restaurants:

Pollo Tropical

146

180

Taco Cabana

166  

167  
Total Company-owned restaurants

312

347

 
Number of franchised restaurants:

Pollo Tropical

31

34

Taco Cabana

7  

7  
Total franchised restaurants

38

41

 
Total number of restaurants:

Pollo Tropical

177

214

Taco Cabana

173  

174  
Total restaurants

350

388

 

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

April 1, 2018   April 2, 2017

  (a)

    (a)
Pollo Tropical:

Restaurant sales

$ 94,478

$ 99,310

Cost of sales

31,015

32.8 %

29,947

30.2 %
Restaurant wages and related expenses

22,156

23.5 %

24,046

24.2 %
Restaurant rent expense

4,297

4.5 %

5,375

5.4 %
Other restaurant operating expenses

12,115

12.8 %

13,389

13.5 %
Advertising expense

3,316

3.5 %

4,325

4.4 %
Depreciation and amortization

5,316

5.6 %

6,083

6.1 %
Pre-opening costs

224

0.2 %

332

0.3 %
Impairment and other lease charges

(541 )

(0.6 )%

32,071

32.3 %

 
Taco Cabana:

Restaurant sales

$ 74,355

$ 75,667

Cost of sales

22,550

30.3 %

21,001

27.8 %
Restaurant wages and related expenses

24,327

32.7 %

24,086

31.8 %
Restaurant rent expense

4,595

6.2 %

4,487

5.9 %
Other restaurant operating expenses

11,335

15.2 %

10,679

14.1 %
Advertising expense

2,897

3.9 %

3,214

4.2 %
Depreciation and amortization

3,683

5.0 %

3,103

4.1 %
Pre-opening costs

157

0.2 %

92

0.1 %
Impairment and other lease charges

(121 )

(0.2 )%

343

0.5 %

(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
April 1, 2018:

Net income

$ 4,184

Provision for income taxes

 

 

1,625  
Income (loss) before taxes

$ 8,128

$ (2,319 )

$ 5,809

Add

Non-general and administrative expense adjustments

Depreciation and amortization

5,316

3,683

8,999

Impairment and other lease charges

(541 )

(121 )

(662 )
Interest expense

528

541

1,069

Other expense (income), net

346

20

366

Stock-based compensation expense in restaurant wages

5  

12  

17  
Total Non-general and administrative expense adjustments

5,654

4,135

9,789

General and administrative expense adjustments

Stock-based compensation expense

467

405

872

Plan restructuring costs and retention bonuses

198  

290  

488  
Total General and administrative expense adjustments

665  

695  

1,360  
Adjusted EBITDA

$ 14,447  

$ 2,511  

$ 16,958  
Restaurant-Level Adjustments:

Add: Pre-opening costs

224

157

381

Add: Other general and administrative expense(1)

7,377

6,182

13,559

Less: Franchise royalty revenue and fees

464  

187  

651  
Restaurant-Level Adjusted EBITDA:

$ 21,584  

$ 8,663  

$ 30,247  

 
April 2, 2017:

Net loss

$ (15,060 )
Benefit from income taxes

 

 

(8,642 )
Income (loss) before taxes

$ (25,096 )

$ 1,394

$ (23,702 )
Add:

Non-general and administrative expense adjustments:

Depreciation and amortization

6,083

3,103

9,186

Impairment and other lease charges

32,071

343

32,414

Interest expense

249

335

584

Other expense (income), net

197

257

454

Stock-based compensation expense in restaurant wages

45

64

109

Unused pre-production costs in advertising expense

322  

 

322  
Total Non-general and administrative expense adjustments

38,967

4,102

43,069

General and administrative expense adjustments:

Stock-based compensation expense

315

222

537

Terminated capital project

477

359

836

Board and shareholder matter costs

458

346

804

Plan restructuring costs and retention bonuses

74

71

145

Legal settlements and related costs

(473 )

 

(473 )
Total General and administrative expense adjustments

851  

998  

1,849  
Adjusted EBITDA:

$ 14,722  

$ 6,494  

$ 21,216  
Restaurant-Level Adjustments:

Add: Pre-opening costs

332

92

424

Add: Other general and administrative expense(1)

7,990

5,859

13,849

Less: Franchise royalty revenue and fees

449  

181  

630  
Restaurant-Level Adjusted EBITDA:

$ 22,595  

$ 12,264  

$ 34,859  

(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, 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

April 1, 2018   April 2, 2017

 

 

 

Income

 

Provision

 

 

Income

Provision

(Loss)

For (Benefit

Before

For

Before

From)

Net

Income

Income

Net

Diluted

Income

Income

Income

Diluted

Taxes

Taxes (a)

Income

EPS

Taxes

Taxes (a)

(Loss)

EPS

Reported - GAAP

$   5,809

$   1,625

$   4,184

$   0.15

$   (23,702 )

$   (8,642 )

$   (15,060 )

$   (0.56 )
Adjustments:

Non-general and administrative expense adjustments:

Impairment and other lease charges (b)

(662 )

(164 )

(498 )

(0.02 )

32,414

11,919

20,495

0.77

Other expense (income), net (c)

366

91

275

0.01

454

167

287

0.01

Unused pre-production costs in advertising expense (d)

 

 

 

 

322  

118  

204  

0.01  
Total Non-general and administrative expense

(296 )

(73 )

(223 )

(0.01 )

33,190

12,204

20,986

0.78

General and administrative expense adjustments:

Terminated capital project (e)

836

307

529

0.02

Board and shareholder matter costs (f)

804

296

508

0.02

Plan restructuring costs and retention bonuses (g)

488

121

367

0.01

145

53

92

Legal settlements and related costs (h)

 

 

 

 

(473 )

(174 )

(299 )

(0.01 )
Total General and administrative expense

488  

121  

367  

0.01  

1,312  

482  

830  

0.03  
Adjusted - Non-GAAP

$   6,001  

$   1,673  

$   4,328  

$   0.16  

$   10,800  

$   4,044  

$   6,756  

$   0.25  
(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 24.8% and 36.8% for the periods ending April 1, 2018 and April 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 months ended April 1, 2018, primarily consist of a $(0.6) million and a $(0.1) million net benefit related to lease charge recoveries for Pollo Tropical and Taco Cabana, respectively, due primarily to a lease termination, a lease assignment, subleases and other adjustments to estimates of future lease costs. Impairment and other lease charges for the three months ended April 2, 2017 primarily include impairment charges of $32.0 million primarily related to the 30 Pollo Tropical restaurants that were subsequently closed during the second quarter of 2017, seven of which were initially impaired in 2016. For the three months ended April 2, 2017, the Company also recognized impairment charges of $0.3 million with respect to three underperforming Taco Cabana restaurants.
 
(c)

Other expense (income), net for three months ended April 1, 2018 includes the write-off of site costs primarily related to a location that we decided not to develop and costs for the removal, transfer and storage of equipment from closed restaurants, partially offset by a gain on the sale of a closed restaurant property. Other expense (income), net for the three months ended April 2, 2017, includes the write-off of site costs related to locations that we decided not to develop, and costs for the removal of signs and equipment related to closed Pollo Tropical restaurants.
 
(d)

Unused pre-production costs for the three months ended April 2, 2017, include costs for advertising pre-production that were not used.
 
(e)

Terminated capital project costs for the three months ended April 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 months ended April 2, 2017, include fees related to shareholder activism and CEO and board member searches.
 
(g)

Plan restructuring costs and retention bonuses for the three months ended April 1, 2018 and April 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 months ended April 2, 2017 include costs and benefits related to litigation matters.



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