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 13-week third quarter ended on October 1, 2017. The Company
also provided an update on senior executive appointments,
meaningful progress it is making on its Strategic Renewal Plan (the
"Plan") to drive long-term shareholder value creation, and
corporate governance policies.
Fiesta President and Chief Executive Officer Richard Stockinger
said, “Prior to the arrival of two significant hurricanes in late
August and early September, we were experiencing improved sales and
transaction trends at Pollo Tropical with comparable restaurant
sales rebounding from high single digit declines to low single
digit declines. After the temporary closing of all our Pollo
Tropical restaurants in Florida and Atlanta due to the storms, we
are pleased that sales are beginning to approach pre-hurricane
comparable levels. October estimated comparable sales for the five
week fiscal period ending November 6, 2017 were approximately flat
at Pollo Tropical, including the positive impact from lapping
Hurricane Matthew in the prior year period of 3.4%.”
Mr. Stockinger added, “We continue to execute our Plan of
operational and concept change at Taco Cabana where we have
intentionally reduced our media presence over an extended period
and eliminated most promotional activities. While these steps are
impeding sales performance at Taco Cabana year over year in the
near-term, we are experiencing improving qualitative indicators
including an increase in guest compliments and fewer guest
complaints. This is similar to our experience at Pollo Tropical
ahead of the reversal of its sales trajectory."
Mr. Stockinger concluded, "While the hurricanes hindered our
brand re-launches, Pollo Tropical’s brand re-launch has begun
recently with the introduction of new menu offerings supported by a
new advertising campaign. We will complete our full Taco Cabana
brand re-launch by early next year under the leadership of our new
brand president, with much work yet to do.”
Senior Executive Appointments
The Company has recently appointed a number of accomplished
executives who have extensive restaurant and retail experience to
complete the composition of the senior management team. Chuck Locke
has joined the Company as Taco Cabana President, having previously
served as Chief Operating Officer at Anthony’s Coal Fired Pizza,
and Tony Dinkins, who was previously with Cable and Wireless
Communications, has been appointed Senior Vice President of Human
Resources at Fiesta. Maria Chang Mayer, General Counsel of AMG and
Widex USA, one of the world’s largest hearing aid manufacturers
that operates hundreds of retail hearing aid clinics nationwide,
was appointed General Counsel and Secretary at Fiesta and will join
the Company this month. Additionally, Danny Meisenheimer, Fiesta
Chief Operating Officer, has assumed the additional role of Pollo
Tropical President.
Strategic Renewal Plan
The Company continues to execute its Plan making meaningful
progress since last quarter in all four areas of focus: 1)
revitalizing restaurant performance in core markets; 2) managing
capital and financial discipline; 3) establishing platforms for
long-term growth; and 4) optimizing each brands’ restaurant
portfolio. The items detailed below reflect Fiesta’s
accomplishments to date.
Revitalizing Restaurant Brands in Core Markets
- Fiesta has implemented refined recipes
that improve food quality with fresh and clean ingredients,
positively impacting approximately 90% of each brand’s menu.
- The Company has uniquely vertically
integrated its chicken supply chain for Pollo Tropical allowing it
to control the feed and breed of all chickens purchased with the
objective of "no antibiotics ever" by next year.
- Multiple operational initiatives have
been put in place to deliver high quality execution with
consistency.
- Pollo Tropical launched a new creative
TV, radio, billboard and social media advertising campaign in late
October which features freshly prepared menu offerings.
- In October, Pollo Tropical rolled out a
new menu featuring new menu items which is demonstrating promising
initial results including higher check averages. Research validates
the new menu direction including new and future opportunities.
- Taco Cabana recently launched a new
advertising campaign that features for a limited time three new
chicken fajita tacos with composed topping recipes.
- New digital menu boards are in the
process of being rolled out across both brands featuring enhanced
displays with flexibility to rotate by daypart and feature
promotions and videos.
- New labor models have been implemented
at both brands to improve speed of service, transaction flow, and
the quality and consistency of hospitality.
- Fiesta continues to upgrade its
kitchens and restaurant presentation, including added signage and
exterior lighting to improve visibility.
- Regional chefs were added to the field
structure to enhance food knowledge, provide culinary training and
ensure adherence to high quality operating and food safety
standards.
Managing Capital and Financial Discipline
- Based on research and financial
modeling, the Company has introduced a tiered menu pricing strategy
across both brands in October.
- Nine Pollo Tropical Company-owned
restaurants have been remodeled this year and one Taco Cabana
restaurant will be remodeled by the end of the year.
- Fiesta is in the process of developing
a preventative maintenance program to improve the longevity of its
restaurant base.
- Restaurant prototypes for both brands
are being redesigned to optimize the guest experience and deliver
attractive investment returns at lower costs.
Establishing Platforms for Growth
- The Company launched an outsourced call
center to answer guest inquiries and handle catering orders
initially at Pollo Tropical. This is a significant source of future
growth at both brands.
- Fiesta is working with new partners to
establish comprehensive digital capabilities that will include
refining delivery, catering, mobile apps, online ordering and
loyalty platforms for implementation in 2018.
- The Company continues to refine the
positioning of both brands in core markets and outside of core
markets beginning with Pollo Tropical locations in North Florida
and the Atlanta metropolitan area.
Optimizing our Restaurant Portfolio
- Fiesta has rationalized its restaurant
portfolio at both brands with the closure of several unprofitable
restaurants.
- The Company is updating its franchise
disclosure documents to support potential franchise growth in the
future.
- Fiesta plans to update its site
selection and restaurant optimization models for future expansion
outside of core markets.
Corporate Governance
Today, the Board is updating shareholders on its ongoing review
of corporate governance policies. The Board has adopted a mandatory
retirement age of 75 years for directors seeking re-election and,
as previously disclosed, intends to put forward a plan at the next
Annual Meeting to declassify the Company's Board of Directors.
Third Quarter 2017 Financial Summary
Hurricanes
During the third quarter of 2017, Texas and Florida were struck
by Hurricanes Harvey and Irma (the “Hurricanes”). 43 Taco Cabana
and two Pollo Tropical Company-owned restaurants in the Houston
metropolitan area and all 149 Pollo Tropical Company-owned
restaurants in Florida and the Atlanta metropolitan area were
closed and affected by the hurricanes to varying degrees (e.g.
property preparation and damage, inventory losses, payment of
hourly restaurant employees while restaurants were closed, lost
business related to temporary closures, limited menu and modified
hours of operations). Other Texas markets where we operate
Company-owned restaurants including San Antonio were also affected
by Hurricane Harvey, but to a lesser degree. All of the restaurants
that were closed have re-opened except for one Taco Cabana
restaurant and two Pollo Tropical restaurants that remain closed in
Houston. The Company donated $0.6 million in food to relief efforts
in addition to feeding first responders and families in need in
both Texas and Florida.
We estimate that the Hurricanes negatively impacted Adjusted
EBITDA and income (loss) from operations by approximately $3.0
million to $4.0 million at Pollo Tropical and approximately $1.0
million to $1.5 million at Taco Cabana and negatively impacted
comparable restaurant sales and transactions by approximately 5.5%
to 6.5% at Pollo Tropical and approximately 2% to 3% at Taco Cabana
for the third quarter of 2017.
Select third quarter 2017 results as compared to third quarter
2016 results include:
- Total revenues decreased 12.9% to
$158.7 million;
- Comparable restaurant sales at Pollo
Tropical decreased 10.9%, primarily driven by a decrease in
comparable restaurant transactions of 13.1% including the negative
impact from the Hurricanes;
- Comparable restaurant sales at Taco
Cabana decreased 12.6%, primarily driven by a decrease in
comparable restaurant transactions of 14.3% including the negative
impact from Hurricane Harvey and the continued suspension of
advertising and promotional discounts;
- Two Company-owned Pollo Tropical
restaurants and three Company-owned Taco Cabana restaurants were
opened, and six Company-owned Pollo Tropical restaurants and four
Company-owned Taco Cabana restaurants in Texas were closed;
- The Company recognized impairment and
other lease charges of $15.9 million in the third quarter of 2017
compared to impairment and other lease charges of $18.5 million in
the third quarter of 2016;
- Net loss of $8.3 million or $0.31 per
diluted share, compared to the prior year period net loss of $4.5
million, or $0.17 per diluted share.
- Adjusted net income of $1.7 million, or
$0.06 per diluted share, compared to the prior year period adjusted
net income of $8.1 million, or $0.30 per diluted share (see
non-GAAP reconciliation table below); and
- Consolidated Adjusted EBITDA of $13.2
million compared to the prior year period consolidated Adjusted
EBITDA of $23.5 million including the negative impact of the
Hurricanes (see non-GAAP reconciliation table below).
Brand Results
Pollo Tropical restaurant sales decreased 15.0% to $87.9 million
compared to the prior year period due primarily to a comparable
restaurant sales decrease of 10.9% and 32 fewer Company-owned
restaurants in operation compared to the prior year period as a
result of recent restaurant closures in Texas, Georgia, and
Tennessee. The decrease in comparable restaurant sales resulted
from a 13.1% decrease in comparable restaurant transactions,
partially offset by a 2.2% increase in average check. Comparable
restaurant sales and transactions were negatively impacted by the
Hurricanes as noted above and by sales cannibalization from new
restaurants on existing restaurants by approximately 60 basis
points. The increase in average check was driven by menu price
increases that positively impacted restaurant sales by 1.2% and
higher sales mix.
Taco Cabana restaurant sales decreased 10.3% to $70.2 million in
the quarter compared to the prior year period due primarily to a
comparable restaurant sales decrease of 12.6%. The decrease in
comparable restaurant sales resulted from a 14.3% decrease in
comparable restaurant transactions, partially offset by a 1.7%
increase in average check. Comparable restaurant sales and
transactions were negatively impacted by Hurricane Harvey as noted
above as well as by the continued suspension of advertising and
promotional discounts. The increase in average check was primarily
driven by menu price increases that positively impacted restaurant
sales by 1.7%.
Restaurant Portfolio
During the third quarter of 2017, Fiesta opened two
Company-owned Pollo Tropical restaurants in Florida and three
Company-owned Taco Cabana restaurants in Texas.
In September, due to the ongoing uncertainty created in Houston
by Hurricane Harvey, the Company did not re-open our two Houston
Pollo Tropical restaurants. Due to limited awareness of the Pollo
Tropical brand and high relative overhead costs needed to support
the four remaining restaurants in San Antonio, the Company decided
to permanently close all six Pollo Tropical restaurants in Texas
and focus on revitalizing core markets and brand repositioning
outside of core markets. Fiesta also closed four Company-owned Taco
Cabana restaurants in Texas during the third quarter of 2017.
As of October 1, 2017, there were 149 Company-owned Pollo
Tropical restaurants, 168 Company-owned Taco Cabana restaurants, 32
franchised Pollo Tropical restaurants in the U.S., Puerto Rico, the
Bahamas, Guyana, Panama, Honduras and Venezuela and seven
franchised Taco Cabana restaurants in the U.S.
In 2017, Fiesta expects to open nine new Company-owned Pollo
Tropical restaurants in Florida and six new Company-owned Taco
Cabana restaurants in Texas, including one closed Company-owned
Pollo Tropical restaurant that will be converted to a Taco Cabana
restaurant. As of October 1, 2017, eight new Company-owned Pollo
Tropical restaurants and six new Company-owned Taco Cabana
restaurants have opened.
2018 Restaurant Development and Capital Expenditures
In 2018, Fiesta expects to open nine new Company-owned Pollo
Tropical restaurants in Florida and seven new Company-owned Taco
Cabana restaurants in Texas including up to five closed Pollo
Tropical restaurants that will be converted to Taco Cabana
restaurants.
Total capital expenditures in 2018 are expected to be $60
million to $68 million. Capital expenditures include $26 million to
$28 million for the development of new Company-owned restaurants,
$23 million to $25 million for the ongoing reinvestment in our
Pollo Tropical and Taco Cabana Company-owned restaurants including
approximately $11 million to $13 million in deferred maintenance
needs related to the Plan, approximately $4 million to $6 million
for restaurant remodeling costs and approximately $7 million to $9
million of other expenditures which primarily include information
technology and systems projects.
Investor Conference Call Today
President and Chief Executive Officer Richard Stockinger, Senior
Vice President and Chief Financial Officer Lynn Schweinfurth, and
Senior Vice President, Chief Operating Officer and Pollo Tropical
President Danny Meisenheimer 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, November 13, 2017, and can be accessed by dialing
412-317-6671. The passcode is 13671682. 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 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.
Forward-Looking Statements
Except for the historical information contained in this news
release, the matters addressed are forward-looking statements.
Forward-looking statements, written, oral or otherwise made,
represent Fiesta's expectation or belief concerning future events.
Without limiting the foregoing, these statements are often
identified by the words "may," "might," "believes," "thinks,"
"anticipates," "plans," "expects," "intends" or similar
expressions. In addition, expressions of Fiesta's strategies,
intentions or plans are also forward-looking statements. Such
statements reflect management's current views with respect to
future events and are subject to risks and uncertainties, both
known and unknown. You are cautioned not to place undue reliance on
these forward-looking statements as there are important factors
that could cause actual results to differ materially from those in
forward-looking statements, many of which are beyond Fiesta's
control. Investors are referred to the full discussion of risks and
uncertainties as included in Fiesta's filings with the Securities
and Exchange Commission.
FIESTA RESTAURANT GROUP, INC. CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS THREE AND NINE MONTHS
ENDED OCTOBER 1, 2017 AND OCTOBER 2, 2016 (In thousands of
dollars, except share and per share amounts) (Unaudited)
Three months ended (a) Nine months ended (a)
October 1, 2017 October 2, 2016
October 1, 2017 October 2, 2016
Revenues: Restaurant sales $ 158,100 $ 181,592 $ 505,082 $ 538,366
Franchise royalty revenues and fees 591 664 1,840
2,099 Total revenues 158,691 182,256 506,922 540,465
Costs and expenses: Cost of sales 49,151 54,726 150,827 163,383
Restaurant wages and related expenses (b) 44,649 47,503 139,050
139,536 Restaurant rent expense 9,104 9,488 27,881 27,522 Other
restaurant operating expenses 24,856 25,715 73,560 72,366
Advertising expense 5,885 7,506 17,716 21,507 General and
administrative expenses (b)(c) 12,065 14,520 47,213 42,621
Depreciation and amortization 8,483 9,513 26,265 26,474 Pre-opening
costs 544 1,509 1,878 4,707 Impairment and other lease charges (d)
15,905 18,513 59,081 18,607 Other expense (income), net (e) 461
— 1,259 (238 ) Total operating expenses
171,103 188,993 544,730 516,485 Income
(loss) from operations (12,412 ) (6,737 ) (37,808 ) 23,980 Interest
expense 672 542 1,910 1,635 Income
(loss) before income taxes (13,084 ) (7,279 ) (39,718 ) 22,345
Provision for (benefit from) income taxes (4,827 ) (2,748 )
(14,241 ) 8,065 Net income (loss) $ (8,257 ) $ (4,531 ) $
(25,477 ) $ 14,280 Basic net income (loss) per share $ (0.31
) $ (0.17 ) $ (0.95 ) $ 0.53 Diluted net income (loss) per
share $ (0.31 ) $ (0.17 ) $ (0.95 ) $ 0.53 Basic weighted
average common shares outstanding 26,845,568 26,716,219
26,811,610 26,658,739 Diluted weighted average
common shares outstanding 26,845,568 26,716,219
26,811,610 26,665,091
(a) The Company uses a 52 or 53 week fiscal year that ends on
the Sunday closest to December 31. The three and nine month periods
ended October 1, 2017 and October 2, 2016 each included
13 and 39 weeks, respectively.
(b) Restaurant wages and related expenses include stock-based
compensation of $9 and $35 for the three months ended
October 1, 2017 and October 2, 2016, respectively, and
$44 and $111 for the nine months ended October 1, 2017 and
October 2, 2016, respectively. General and administrative
expenses include stock-based compensation expense of $938 and $330
for the three months ended October 1, 2017 and October 2,
2016, respectively, and $2,723 and $2,523 for the nine months ended
October 1, 2017 and October 2, 2016, respectively.
(c) General and administrative expenses for the three and nine
months ended October 1, 2017, include $(155) and $3,748,
respectively, of board and shareholder matter costs related to
shareholder activism and CEO and board member searches, and $87 and
$2,101, respectively, of Plan restructuring costs and retention
bonuses. General and administrative expenses for the nine months
ended October 1, 2017 also include an $849 charge for
terminated capital project costs, $462 for the write-off of site
costs related to locations that we decided not to develop,
partially offset by the benefit of $473 related to litigation
matters.
General and administrative expenses for the three and nine
months ended October 2, 2016, include $834 and $459,
respectively, related to litigation matters, $581 and $877,
respectively, for the write-off of site costs related to locations
that we decided not to develop, $282 and $1,030, respectively, of
board and shareholder matter costs primarily related to the
previously proposed and terminated separation transaction, and $193
and $539, respectively, in office restructuring and relocation
costs.
(d) Impairment and other lease charges for the three months
ended October 1, 2017, primarily include impairment charges
for six Pollo Tropical restaurants that closed in September 2017,
six additional Pollo Tropical restaurants and two Taco Cabana
restaurants that the Company continues to operate, and other lease
charges, net of recoveries, for restaurants closed in the third
quarter of 2017 as well as adjustments related to previously closed
restaurants due to lease terminations and assignments. Impairment
and other lease charges for the nine months ended October 1,
2017, primarily include impairment charges for 36 Pollo Tropical
restaurants closed in 2017, seven of which were impaired in 2016,
impairment charges for four Taco Cabana restaurants closed in July
2017, impairment charges with respect to six Pollo Tropical
restaurants and five Taco Cabana restaurants that the Company
continues to operate, impairment charges related to a restaurant
closed in 2016 as a result of the decision not to convert the
location to a Taco Cabana restaurant, and other lease charges, net
of recoveries, related to restaurants closed in 2017 as well as
previously closed restaurants.
Impairment and other lease charges for the three and nine months
ended October 2, 2016 primarily included impairment charges of
$18.5 million related to sixteen Pollo Tropical restaurants that
were subsequently closed in the fourth quarter of 2016 and second
quarter of 2017 and one Taco Cabana restaurant that was
subsequently closed in the third quarter of 2017.
(e) Other expense (income), net for the three and nine months
ended October 1, 2017, primarily includes costs for the
removal of signs and equipment and equipment transfers and storage
related to the closure of restaurants, and severance for restaurant
employees, partially offset by estimated insurance recoveries
related to a restaurant temporarily closed due to Hurricane Harvey
damages, and expected business interruption insurance proceeds
related to a Taco Cabana restaurant that was temporarily closed due
to a fire. Other income for the nine months ended October 2,
2016, primarily includes additional proceeds related to a Taco
Cabana location that closed in 2015 as a result of an eminent
domain proceeding.
FIESTA RESTAURANT GROUP, INC. CONDENSED
CONSOLIDATED BALANCE SHEETS (In thousands of dollars, except
share and per share amounts) (Unaudited)
October 1, 2017 January 1, 2017 Assets
Cash $ 4,244 $ 4,196 Other current assets 26,974 22,746 Property
and equipment, net 227,686 270,920 Goodwill 123,484 123,484
Deferred income taxes 31,263 14,377 Other assets 4,146 5,842
Total assets $ 417,797 $ 441,565
Liabilities and
Stockholders' Equity Current liabilities $ 58,754 $ 46,769
Long-term debt, net of current portion 62,350 71,423 Lease
financing obligations — 1,664 Deferred income sale-leaseback of
real estate 24,365 27,165 Other liabilities 30,836 30,369
Total liabilities 176,305 177,390 Stockholders' equity 241,492
264,175 Total liabilities and stockholders' equity $ 417,797
$ 441,565
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) (unaudited) Three months ended
Nine months ended
October 1, 2017
October 2, 2016
October 1, 2017
October 2, 2016
Segment revenues: Pollo Tropical $ 88,284 $ 103,827 $ 282,844 $
305,697 Taco Cabana 70,407 78,429 224,078
234,768 Total revenues $ 158,691 $ 182,256 $
506,922 $ 540,465 Change in comparable
restaurant sales (a): Pollo Tropical (10.9 )% (1.0 )% (8.5 )% (0.8
)% Taco Cabana (12.6 )% (4.1 )% (7.2 )% (2.1 )% Average
sales per Company-owned restaurant: Pollo Tropical Comparable
restaurants (b) $ 614 $ 659 $ 1,849 $ 2,062 New restaurants (c) 385
414 1,217 1,232 Total company-owned (d) 575 586 1,723 1,821 Taco
Cabana Comparable restaurants (b) $ 420 $ 475 $ 1,335 $ 1,436 New
restaurants (c) 423 568 1,358 1,513 Total company-owned (d) 420 477
1,336 1,438 Income (loss) before income taxes: Pollo
Tropical $ (10,816 ) $ (13,070 ) $ (39,414 ) $ 4,235 Taco Cabana
(2,268 ) 5,865 (304 ) 18,932 Adjusted EBITDA: Pollo Tropical
$ 9,396 $ 13,782 $ 41,257 $ 43,832 Taco Cabana 3,776 9,762 17,252
30,530 Restaurant-Level Adjusted EBITDA (e): Pollo Tropical
$ 15,480 $ 21,977 $ 62,343 $ 68,846 Taco Cabana 8,984 14,712 34,159
45,317
(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 Nine months ended
October 1, 2017
October 2, 2016
October 1, 2017
October 2, 2016
Company-owned restaurant openings: Pollo Tropical 2 9 8 26
Taco Cabana 3 — 6 2 Total new restaurant
openings 5 9 14 28 Company-owned restaurant closings: Pollo
Tropical (6 ) — (36 ) — Taco Cabana (4 ) — (4 ) — Net change
in restaurants (5 ) 9 (26 ) 28 Number of Company-owned
restaurants: Pollo Tropical 149 181 149 181 Taco Cabana 168
164 168 164 Total Company-owned restaurants 317 345
317 345 Number of franchised restaurants: Pollo Tropical 32
34 32 34 Taco Cabana 7 7 7 7 Total franchised
restaurants 39 41 39 41 Total number of restaurants: Pollo
Tropical 181 215 181 215 Taco Cabana 175 171 175
171 Total restaurants 356 386 356 386
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 October 1, 2017 October 2, 2016
(a) (a) Pollo Tropical:
Restaurant sales $ 87,888 $ 103,353 Cost of sales 28,527 32.5 %
32,565 31.5 % Restaurant wages and related expenses 21,208 24.1 %
24,383 23.6 % Restaurant rent expense 4,655 5.3 % 5,059 4.9 % Other
restaurant operating expenses 13,034 14.8 % 14,361 13.9 %
Advertising expense 4,980 5.7 % 5,026 4.9 % Depreciation and
amortization 5,187 5.9 % 6,337 6.1 % Pre-opening costs 230 0.3 %
1,456 1.4 % Impairment and other lease charges 13,729 15.6 % 18,390
17.8 %
Taco Cabana: Restaurant sales $ 70,212 $
78,239 Cost of sales 20,624 29.4 % 22,161 28.3 % Restaurant wages
and related expenses 23,441 33.4 % 23,120 29.6 % Restaurant rent
expense 4,449 6.3 % 4,429 5.7 % Other restaurant operating expenses
11,822 16.8 % 11,354 14.5 % Advertising expense 905 1.3 % 2,480 3.2
% Depreciation and amortization 3,296 4.7 % 3,176 4.1 % Pre-opening
costs 314 0.4 % 53 0.1 % Impairment and other lease charges 2,176
3.1 % 123 0.2 %
Nine months ended October 1,
2017 October 2, 2016 (a) (a) Pollo
Tropical: Restaurant sales $ 281,572 $ 304,138 Cost of sales
87,430 31.1 % 96,435 31.7 % Restaurant wages and related expenses
66,945 23.8 % 71,259 23.4 % Restaurant rent expense 14,502 5.2 %
14,528 4.8 % Other restaurant operating expenses 39,353 14.0 %
40,654 13.4 % Advertising expense 11,316 4.0 % 12,473 4.1 %
Depreciation and amortization 16,705 5.9 % 17,043 5.6 % Pre-opening
costs 1,013 0.4 % 4,365 1.4 % Impairment and other lease charges
56,336 20.0 % 18,390 6.0 %
Taco Cabana: Restaurant
sales $ 223,510 $ 234,228 Cost of sales 63,397 28.4 % 66,948 28.6 %
Restaurant wages and related expenses 72,105 32.3 % 68,277 29.1 %
Restaurant rent expense 13,379 6.0 % 12,994 5.5 % Other restaurant
operating expenses 34,207 15.3 % 31,712 13.5 % Advertising expense
6,400 2.9 % 9,034 3.9 % Depreciation and amortization 9,560 4.3 %
9,431 4.0 % Pre-opening costs 865 0.4 % 342 0.1 % Impairment and
other lease charges 2,745 1.2 % 217 0.1 %
(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. Prior to the second quarter
of 2017, Adjusted EBITDA was defined as earnings before interest
expense, income taxes, depreciation and amortization, impairment
and other lease charges, stock-based compensation expense, and
other expense (income), net. In 2017, our Board of Directors
appointed a new Chief Executive Officer who initiated the Plan and
uses an Adjusted EBITDA measure for the purpose of assessing
performance and allocating resources to segments. The new Adjusted
EBITDA measure used by the chief operating decision maker includes
adjustments for significant items that management believes are
related to strategic changes and/or are not related to the ongoing
operation of our restaurants. Beginning in the second quarter of
2017, the primary measure of segment profit or loss used by the
chief operating decision maker to assess performance and allocate
resources is Adjusted EBITDA, which is now defined as earnings
attributable to the applicable operating segments before interest
expense, income taxes, depreciation and amortization, impairment
and other lease charges, stock-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, development 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 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 Other Consolidated
October 1, 2017: Net income (loss) $ (8,257 ) Provision for
(benefit from) income taxes (4,827 ) Income
(loss) before taxes $ (10,816 ) $ (2,268 ) $ — $ (13,084 ) Add:
Non-general and administrative expense adjustments: Depreciation
and amortization 5,187 3,296 — 8,483 Impairment and other lease
charges 13,729 2,176 — 15,905 Interest expense 329 343 — 672 Other
expense (income), net 566 (105 ) — 461 Stock-based compensation
expense in restaurant wages (4 ) 13 — 9 Total
Non-general and administrative expense adjustments 19,807 5,723 —
25,530 General and administrative expense adjustments: Stock-based
compensation expense 587 351 — 938 Board and shareholder matter
costs (89 ) (66 ) — (155 ) Write-off of site development costs 8 —
— 8 Plan restructuring costs and retention bonuses 51 36 — 87
Office restructuring and relocation costs (152 ) — —
(152 ) Total General and administrative expense adjustments 405
321 — 726 Adjusted EBITDA: $ 9,396
$ 3,776 $ — $ 13,172 Restaurant-Level
Adjustments: Add: Pre-opening costs 230 314 — 544 Add: Other
general and administrative expense(1) 6,250 5,089 — 11,339 Less:
Franchise royalty revenue and fees 396 195 —
591 Restaurant-Level Adjusted EBITDA: $ 15,480 $
8,984 $ — $ 24,464
October 2,
2016: Net income (loss) $ (4,531 ) Provision for (benefit from)
income taxes (2,748 ) Income (loss) before
taxes $ (13,070 ) $ 5,865 $ (74 ) $ (7,279 ) Add: Non-general and
administrative expense adjustments: Depreciation and amortization
6,337 3,176 — 9,513 Impairment and other lease charges 18,390 123 —
18,513 Interest expense 229 313 — 542 Stock-based compensation
expense in restaurant wages 18 17 — 35
Total Non-general and administrative expense adjustments 24,974
3,629 — 28,603 General and administrative expense adjustments:
Stock-based compensation expense 183 147 — 330 Board and
shareholder matter costs 119 89 74 282 Write-off of site
development costs 549 32 — 581 Office restructuring and relocation
costs 193 — — 193 Legal settlements and related costs 834 —
— 834 Total General and administrative expense
adjustments 1,878 268 74 2,220 Adjusted
EBITDA: $ 13,782 $ 9,762 $ — $ 23,544
Restaurant-Level Adjustments: Add: Pre-opening costs 1,456 53 —
1,509 Add: Other general and administrative expense(1) 7,213 5,087
— 12,300 Less: Franchise royalty revenue and fees 474 190
— 664 Restaurant-Level Adjusted EBITDA: $
21,977 $ 14,712 $ — $ 36,689
Nine Months Ended Pollo Tropical
Taco Cabana Other Consolidated October 1,
2017: Net income (loss) $ (25,477 ) Provision for (benefit
from) income taxes (14,241 ) Income (loss)
before taxes $ (39,414 ) $ (304 ) $ — $ (39,718 ) Add: Non-general
and administrative expense adjustments: Depreciation and
amortization 16,705 9,560 — 26,265 Impairment and other lease
charges 56,336 2,745 — 59,081 Interest expense 873 1,037 — 1,910
Other expense (income), net 1,454 (195 ) — 1,259 Stock-based
compensation expense in restaurant wages (4 ) 48 — 44 Unused
pre-production costs in advertising expense 322 88 —
410 Total Non-general and administrative expense
adjustments 75,686 13,283 — 88,969 General and administrative
expense adjustments: Stock-based compensation expense 1,542 1,181 —
2,723 Terminated capital project 484 365 — 849 Board and
shareholder matter costs 2,136 1,612 — 3,748 Write-off of site
development costs 170 292 — 462 Plan restructuring costs and
retention bonuses 1,278 823 — 2,101 Office restructuring and
relocation costs (152 ) — (152 ) Legal settlements and related
costs (473 ) — — (473 ) Total General and
administrative expense adjustments 4,985 4,273 —
9,258 Adjusted EBITDA: $ 41,257 $ 17,252
$ — $ 58,509 Restaurant-Level Adjustments:
Add: Pre-opening costs 1,013 865 — 1,878 Add: Other general and
administrative expense(1) 21,345 16,610 — 37,955 Less: Franchise
royalty revenue and fees 1,272 568 — 1,840
Restaurant-Level Adjusted EBITDA: $ 62,343 $ 34,159
$ — $ 96,502
October 2, 2016:
Net income (loss) $ 14,280 Provision for (benefit from) income
taxes 8,065 Income (loss) before taxes
$ 4,235 $ 18,932 $ (822 ) $ 22,345 Add: Non-general and
administrative expense adjustments: Depreciation and amortization
17,043 9,431 — 26,474 Impairment and other lease charges 18,390 217
— 18,607 Interest expense 708 927 — 1,635 Other expense (income),
net (12 ) (226 ) — (238 ) Stock-based compensation expense in
restaurant wages 56 55 — 111 Total
Non-general and administrative expense adjustments 36,185 10,404 —
46,589 General and administrative expense adjustments: Stock-based
compensation expense 1,408 1,115 — 2,523 Board and shareholder
matter costs 119 89 822 1,030 Write-off of site development costs
796 81 — 877 Office restructuring and relocation costs 539 — — 539
Legal settlements and related costs 550 (91 ) — 459
Total General and administrative expense adjustments 3,412
1,194 822 5,428 Adjusted EBITDA: $
43,832 $ 30,530 $ — $ 74,362
Restaurant-Level Adjustments: Add: Pre-opening costs 4,365 342 —
4,707 Add: Other general and administrative expense(1) 22,208
14,985 — 37,193 Less: Franchise royalty revenue and fees 1,559
540 — 2,099 Restaurant-Level Adjusted
EBITDA: $ 68,846 $ 45,317 $ — $ 114,163
(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, write-off of site development costs, Plan
restructuring costs and retention bonuses, office restructuring and
relocation costs, 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 October 1,
2017 October 2, 2016
Income (Loss) Before
Income Taxes
Benefit From Income
Taxes (j)
Net Income (Loss)
Diluted EPS
Income (Loss) Before
Income Taxes
Benefit From Income
Taxes (j)
Net Income (Loss)
Diluted EPS
Reported - GAAP $ (13,084 ) $ (4,827 ) $ (8,257 ) $ (0.31 ) $
(7,279 ) $ (2,748 ) $ (4,531 ) $ (0.17 ) Adjustments: Non-general
and administrative expense adjustments: Impairment and other lease
charges (a) 15,905 6,111 9,794 0.36 18,513 7,035 11,478 0.43 Other
expense (income), net (b) 461 177 284 0.01
— — — — Total Non-general and
administrative expense 16,366 6,288 10,078 0.37 18,513 7,035 11,478
0.43 General and administrative expense adjustments: Board and
shareholder matter costs (e) (155 ) (60 ) (95 ) — 282 107 175 0.01
Write-off of site development costs (f) 8 3 5 — 581 221 360 0.01
Plan restructuring costs and retention bonuses (g) 87 34 53 — — — —
— Office restructuring and relocation costs (h) (152 ) (58 ) (94 )
— 193 73 120 — Legal settlements and related costs (i) — —
— — 834 317 517 0.02
Total General and administrative expense (212 ) (81 ) (131 )
— 1,890 718 1,172 0.04 Adjusted
- Non-GAAP $ 3,070 $ 1,380 $ 1,690 $ 0.06
$ 13,124 $ 5,005 $ 8,119 $ 0.30
(unaudited) Nine months ended October 1,
2017 October 2, 2016
Income (Loss) Before
Income Taxes
Benefit From Income
Taxes (j)
Net Income (Loss)
Diluted EPS
Income Before Income
Taxes
Provision For Income
Taxes (j)
Net Income
Diluted EPS
Reported - GAAP $ (39,718 ) $ (14,241 ) $ (25,477 ) $ (0.95 ) $
22,345 $ 8,065 $ 14,280 $ 0.53 Adjustments: Non-general and
administrative expense adjustments: Impairment and other lease
charges (a) 59,081 22,700 36,381 1.35 18,607 7,071 11,536 0.43
Other expense (income), net (b) 1,259 484 775 0.03 (238 ) (90 )
(148 ) (0.01 )
Unused pre-production costs in advertising
expense (c)
410 158 252 0.01 — — —
— Total Non-general and administrative expense 60,750
23,342 37,408 1.38 18,369 6,981 11,388 0.42 General and
administrative expense adjustments: Terminated capital project (d)
849 326 523 0.02 — — — — Board and shareholder matter costs (e)
3,748 1,440 2,308 0.09 1,030 391 639 0.02 Write-off of site
development costs (f) 462 178 284 0.01 877 333 544 0.02 Plan
restructuring costs and retention bonuses (g) 2,101 807 1,294 0.05
— — — — Office restructuring and relocation costs (h) (152 ) (58 )
(94 ) — 539 205 334 0.01 Legal settlements and related costs (i)
(473 ) (182 ) (291 ) (0.01 ) 459 174 285 0.01
Total General and administrative expense 6,535 2,511
4,024 0.15 2,905 1,103 1,802
0.07 Adjusted - Non-GAAP $ 27,567 $ 11,612
$ 15,955 $ 0.59 $ 43,619 $ 16,149
$ 27,470 $ 1.02
(a) Impairment and other lease charges for the three months
ended October 1, 2017, primarily include impairment charges
for six Pollo Tropical restaurants that closed in September 2017,
six additional Pollo Tropical restaurants and two Taco Cabana
restaurants that the Company continues to operate, and other lease
charges, net of recoveries, for restaurants closed in the third
quarter of 2017 as well as adjustments related to previously closed
restaurants due to lease terminations and assignments. Impairment
and other lease charges for the nine months ended October 1,
2017, primarily include impairment charges for 36 Pollo Tropical
restaurants closed in 2017, seven of which were impaired in 2016,
impairment charges for four Taco Cabana restaurants closed in July
2017, impairment charges with respect to six Pollo Tropical
restaurants and five Taco Cabana restaurants that the Company
continues to operate, impairment charges related to a restaurant
closed in 2016 as a result of the decision not to convert the
location to a Taco Cabana restaurant, and other lease charges, net
of recoveries, related to restaurants closed in 2017 as well as
previously closed restaurants. Impairment and other lease charges
for the three and nine months ended October 2, 2016 primarily
included impairment charges of $18.5 million related to sixteen
Pollo Tropical restaurants that were subsequently closed in the
fourth quarter of 2016 and second quarter of 2017 and one Taco
Cabana restaurant that was subsequently closed in the third quarter
of 2017.
(b) Other expense (income), net for the three and nine months
ended October 1, 2017, primarily includes costs for the
removal of signs and equipment and equipment transfers and storage
related to the closure of restaurants and severance for restaurant
employees, partially offset by estimated insurance recoveries
related to a restaurant temporarily closed due to Hurricane Harvey
damages, and expected business interruption insurance proceeds
related to a Taco Cabana restaurant that was temporarily closed due
to a fire. Other income for the nine months ended October 2,
2016, primarily includes additional proceeds related to a Taco
Cabana location that closed in 2015 as a result of an eminent
domain proceeding.
(c) Unused pre-production costs for the nine months ended
October 1, 2017, include costs for advertising pre-production
that will not be used.
(d) Terminated capital project costs for the nine months ended
October 1, 2017, include costs related to the write-off of a
capital project that was terminated in the first quarter.
(e) Board and shareholder matter costs for the three and nine
months ended October 1, 2017, include fees related to
shareholder activism and CEO and board member searches. Board and
shareholder matter costs for the three and nine months ended
October 2, 2016, primarily include fees related to the
previously proposed and terminated separation transaction.
(f) Write-off of site development costs for the three and nine
months ended October 1, 2017 and October 2, 2016,
includes the write-off of site costs related to locations that we
decided not to develop.
(g) Plan restructuring costs and retention bonuses for the three
and nine months ended October 1, 2017, include severance
related to the Plan and reduction in force and bonuses paid to
certain employees for retention purposes.
(h) Office restructuring and relocation costs for the three and
nine months ended October 1, 2017 and October 2, 2016,
include severance and relocation costs associated with
restructuring Pollo Tropical management in Miami, Florida and
Dallas, Texas.
(i) Legal settlements and related costs for the three and nine
months ended October 1, 2017 and October 2, 2016, include
costs and benefits related to litigation matters.
(j) The provision for income taxes related to the adjustments
was calculated using the Company's combined federal statutory and
estimated state rate of 38.4% and 38.0% for the periods ending
October 1, 2017 and October 2, 2016, respectively.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171106006274/en/
Investor Relations:Fiesta Restaurant Group, Inc.Raphael Gross,
203-682-8253investors@frgi.com
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