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Fiesta Restaurant Group, Inc. Reports Second Quarter 2016 Results

DALLAS--(BUSINESS WIRE)--Fiesta Restaurant Group, Inc. (“Fiesta” or the “Company”) (NASDAQ: FRGI), parent company of the Pollo Tropical® and Taco Cabana® fast casual restaurant brands, today reported results for the second quarter 2016, which ended on July 3, 2016.

Select second quarter 2016 results as compared to the second quarter 2015 include:

  • Total revenues increased 5.6% to $181.5 million;
  • Comparable restaurant sales at Pollo Tropical decreased 1.4% and comparable guest traffic decreased 2.6%, including the impact of sales cannibalization that negatively impacted comparable restaurant transaction growth by approximately 2.0%;
  • Comparable restaurant sales at Taco Cabana decreased 3.8% and comparable guest traffic decreased 5.5%, including the impact of weather that negatively impacted comparable restaurant transaction growth by approximately 1.0%;
  • Eleven Company-owned Pollo Tropical and two Company-owned Taco Cabana restaurants were opened;
  • Net income decreased $2.3 million to $8.9 million, or $0.33 per diluted share, compared to the prior year period of net income of $11.2 million, or $0.42 per diluted share; and
  • Adjusted net income decreased $2.0 million to $9.2 million, or $0.34 per diluted share, compared to the prior year period of adjusted net income of $11.2 million, or $0.42 per diluted share (see non-GAAP reconciliation table below).

Fiesta President and Chief Executive Officer Tim Taft commented, “Although we had a challenging first half to 2016 given industrywide softness, oil-related economic pressure affecting both brands in Texas, investment spending in new markets, and the negative impact of expected cannibalization, the second quarter was further pressured by severe rainstorms and flooding in Texas which hurt both sales and profitability.”

Taft added, “As we look to the second half of 2016, our mission is to strengthen our sales and margin trajectory through several initiatives as we navigate a challenging consumer environment. Effective media spending to further build brand awareness is already benefiting newer media markets such as San Antonio and Nashville and we are encouraged by early traction in Atlanta, where we launched media in June. We are also moving forward with accentuating our value proposition, testing our new loyalty platforms, implementing third party delivery in select markets, and enhancing our catering capabilities at both brands.”

Second Quarter 2016 Financial Review

Consolidated Results

Total revenues increased 5.6% to $181.5 million from $171.9 million compared to the prior year period due primarily to 37 net Company-owned restaurant openings. Comparable restaurant sales decreased 1.4% at Pollo Tropical compared to a 4.3% gain in the prior year period and decreased 3.8% at Taco Cabana compared to a 5.6% gain in the prior year period.

Cost of sales as a percentage of restaurant sales improved 150 basis points compared to the prior year period due primarily to favorable chicken and other commodity costs and successful implementation of supply chain management initiatives.

Restaurant wages and related expenses as a percentage of restaurant sales increased 130 basis points compared to the prior year period due primarily to higher labor costs, including the impact of new Company-owned restaurants, sales deleverage and the addition of restaurant managers that will be deployed to new restaurants opening later in the year.

Other restaurant operating expenses as a percentage of restaurant sales increased 90 basis points compared to the prior year period due primarily to higher repair and maintenance costs, higher insurance costs, higher real estate taxes and sales deleverage.

Restaurant rent expense as a percentage of restaurant sales increased 30 basis points compared to the prior year period due primarily to new restaurants, which generally have higher rent, and sales deleverage.

General and administrative expenses increased $0.6 million to $14.3 million compared to the prior year period. General and administrative expenses for the second quarter 2016 included $0.4 million in severance and relocation costs associated with transitioning our Pollo Tropical headquarters from Miami, Florida to Dallas, Texas. As a percentage of revenues, general and administrative expenses were flat compared to the prior year period due primarily to increased sales and lower incentive based compensation costs.

The provision for income taxes was derived using an estimated annual effective tax rate for 2016 of 36.5% which was lower than the prior year period rate of 38.3%. In December 2015, the Work Opportunity Tax Credit was retroactively reinstated for 2015 and prospectively for 2016 through 2019.

Net income decreased $2.3 million to $8.9 million, or $0.33 per diluted share, compared to net income of $11.2 million, or $0.42 per diluted share, in the prior year period.

Adjusted net income, a non-GAAP financial measure, decreased $2.0 million to $9.2 million, or $0.34 per diluted share, compared to adjusted net income of $11.2 million, or $0.42 per diluted share, in the prior year period (see non-GAAP reconciliation table below).

Brand Results

Pollo Tropical restaurant sales increased 13.7% to $101.9 million compared to the prior year period due primarily to 36 net Company-owned restaurant openings. Comparable restaurant sales decreased 1.4% during the quarter, which included a 2.6% decrease in comparable guest traffic and a 1.2% increase in average check. Sales cannibalization from new restaurants on existing restaurants negatively impacted comparable restaurant transaction growth by approximately 2.0%. Average check was primarily driven by menu price increases that positively impacted restaurant sales by 1.0%. On a two-year basis, quarterly comparable restaurant sales grew 2.9%. Adjusted EBITDA for Pollo Tropical, a non-GAAP financial measure, decreased 11.8% to $14.0 million compared to the prior year period (see non-GAAP reconciliation table below).

Taco Cabana restaurant sales decreased 3.4% to $79.0 million compared to the prior year period due primarily to a comparable restaurant sales decrease of 3.8%. The decrease in comparable restaurant sales resulted from a 5.5% decrease in comparable guest traffic and a 1.7% increase in average check. Severe weather negatively impacted comparable restaurant transaction growth by approximately 1.0%. Average check was driven by menu price increases that positively impacted restaurant sales by 2.4%. On a two-year basis, quarterly comparable restaurant sales grew 1.8%. Adjusted EBITDA for Taco Cabana, a non-GAAP financial measure, decreased 4.8% to $10.6 million compared to the prior year period (see non-GAAP reconciliation table below).

Restaurant Development

During the second quarter 2016, Fiesta opened 11 Company-owned Pollo Tropical restaurants including six in Texas, three in Florida, and two in Georgia, as well as two Company-owned Taco Cabana restaurants in Texas.

As of July 3, 2016, Fiesta had 172 Company-owned Pollo Tropical restaurants, 164 Company-owned Taco Cabana restaurants, 37 franchised Pollo Tropical restaurants in the U.S., Puerto Rico, the Bahamas, Guatemala, Honduras, Panama, Trinidad & Tobago and Venezuela and seven franchised Taco Cabana restaurants in the U.S.

Full Year 2016 Outlook

The Company will continue to provide a limited, updated set of operating targets for 2016 which do not include any impact or costs related to the potential separation transaction, including severance and relocation costs associated with transitioning our Pollo Tropical headquarters from Miami, Florida to Dallas, Texas. Based on current information, we are revising our projections for the full year 2016 for the following items:

  • Comparable restaurant sales are now expected to be between -3% to -1% at Taco Cabana;
  • Comparable restaurant sales are now expected to be between -1% and +1% at Pollo Tropical; and
  • General and administrative expenses are now expected to be $54 to $57 million.

Previously communicated 2016 projections that remain unchanged include:

  • Cost of sales improvement of approximately 100 basis points at Taco Cabana and approximately 180 basis points at Pollo Tropical, both as a percent of brand restaurant sales
  • Depreciation and amortization of $36 to $38 million;
  • An effective tax rate of 36% to 37%;
  • Company-owned restaurant openings of 30 to 34 Pollo Tropical and up to four Taco Cabana restaurants; and
  • Capital expenditures of $90 to $100 million.

Investor Conference Call Today

President and Chief Executive Officer Tim Taft and Senior Vice President and Chief Financial Officer Lynn Schweinfurth will host a conference call to review second quarter 2016 results today at 4:45 p.m. ET.

The conference call can be accessed live over the phone by dialing 201-689-8562. A replay will be available after the call until Wednesday, August 10, 2016, and can be accessed by dialing 858-384-5517. The passcode is 13641185.

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...


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