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Why Fiesta Restaurant Group Inc. Stock Plummeted Today

What happened

Shares of Fiesta Restaurant Group Inc. (NASDAQ: FRGI) were down 23% as of 1:26 p.m. EST Tuesday after the company announced disappointing fourth-quarter 2016 results, suspended its sale process, and appointed a new CEO.

So what

Quarterly revenue fell 4.6% year over year, to $171.3 million, but would have climbed 2.1% had it not been for an extra week in 2015. Even so, comparable-restaurant sales at Pollo Tropical declined 4%, while comparable-restaurant transactions decreased 7.3%. These declines were partially due to a combination of Hurricane Matthew and sales cannibalization, which negatively affected comparable transactions by 1.3% and 1.1%, respectively. Similarly at Taco Cabana, comparable sales fell 3.5%, and comparable transactions declined 4.5%. 

On the bottom line, that translated to adjusted net income of $7.3 million, or $0.27 per share -- roughly in line with Wall Street's expectations -- down from $10.5 million, or $0.39 per share, in last year's fourth quarter. 

New Pollo Tropical Markets performed below expectations for Fiesta Restaurant Group this quarter. Image source: Fiesta Restaurant Group.

Now what

Fiesta Restaurant Group also appointed former Benihana chief Richard Stockinger as CEO. Stockinger succeeds Danny Meisenheimer, who temporarily took the helm when former CEO Tim Taft retired this past September. Meisenheimer will resume his job as Fiesta's chief operating officer and senior vice president.

In addition, after four months of evaluating "a range of strategic alternatives potentially available," Fiesta announced it has opted to suspend its sale evaluation process as no potential suitors presented final proposals to acquire the company. Fiesta also reiterated there are no plans to spin off either of its flagship restaurant brands. 

During the subsequent conference call, interim CEO Danny Meisenheimer admitted results were below expectations, particularly as new Pollo Tropical markets "obviously did not perform as hoped thus far."

"As a result," Meisenheimer added, "we have a reset and a growth plan that we will refine further under Rich's leadership. This year the company plans to slow down development, focus on building consistent and sustainable growth, and to plan for the future."

In the end, this news is obviously disappointing for short-term investors who were betting on receiving a hefty acquisition premium. And it doesn't help that Fiesta's results came in below expectations in the fourth quarter. So while the company might well turn itself around as it refines and implements its new growth plan, it's no surprise to see shares plunging today.

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Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.