Fiesta CEO: Hurricanes to blame for Q3 declines
The CEO of Fiesta Restaurant Group, parent company of Pollo Tropical and Taco Cabana, is blaming its Q3 sales decline on Hurricanes Harvey and Irma, which caused several locations to temporarily close and a few to stay closed.
"We estimate that the Hurricanes negatively impacted Adjusted EBITDA and income (loss) from operations by approximately $3 million to $4 million at Pollo Tropical and approximately $1 million to $1.5 million at Taco Cabana and negatively impacted comparable restaurant sales and transactions by approximately 5.5 percent to 6.5 percent at Pollo Tropical and approximately 2 percent to 3 percent at Taco Cabana for the third quarter of 2017," Fiesta President and Chief Executive Officer Richard Stockinger said in a company press release.
Fiesta's total revenues decreased 12.9 percent to $158.7 million, while comparable restaurant sales at Pollo Tropical decreased 10.9 percent, primarily driven by a decrease in comparable restaurant transactions of 13.1 percent, according to the release. Comparable restaurant sales at Taco Cabana decreased 12.6 percent, primarily driven by a decrease in comparable restaurant transactions of 14.3 percent including the negative impact from Hurricane Harvey and the continued suspension of advertising and promotional discounts.
"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," he said. "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 5-week fiscal period ending Nov. 6, 2017 were approximately flat at Pollo Tropical, including the positive impact from lapping Hurricane Matthew in the prior year period of 3.4 percent.
Strategic renewal plan
Stockinger said that despite the problems caused by the hurricanes, Fiesta is making progress on its plan to drive long-term shareholder value creation.
The plan focuses on four areas:
- Revitalizing restaurant performance in core markets.
- Managing capital and financial discipline.
- Establishing platforms for long-term growth.
- Optimizing each brands' restaurant portfolio.
Revitalizing restaurant brands in core markets
To revitalize the brand, Fiesta has implemented refined recipes that improve food quality with fresh and clean ingredients, positively impacting approximately 90 percent of each brand's menu, according to the release. Other improvements are below:
- The company has 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.
- 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. According to the company, other accomplishments in this area are below:
- 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, according to the release.
Fiesta is also 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.
Lastly, 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 restaurant portfolio
Fiesta has rationalized its restaurant portfolio at both brands with the closure of several unprofitable restaurants, according to the release.
In September, due to the ongoing uncertainty created in Houston by Hurricane Harvey, the company did not re-open two Houston Pollo Tropical restaurants. Also, due to limited awareness of the Pollo Tropical brand and high relative overhead costs needed to support the four remaining restaurants in San Antonio, it 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, Stockinger said.
In an effort to support potential franchise growth in the future, Fiesta will update its franchise disclosure documents as well as site selection and restaurant optimization models for future expansion outside of core markets.
"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," Stockinger said. "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."
Stockinger said while the hurricanes hindered brand re-launches, Pollo Tropical's brand re-launch began 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," he said.
Senior executive appointments
The company has recently appointed a number of executives, including:
- Chuck Locke, Taco Cabana president, who previously served as COO at Anthony's Coal Fired Pizza.
- Tony Dinkins SVP human resources at Fiesta, who was previously with Cable and Wireless Communications.
- Maria Chang Mayer, general counsel and secretary, who was general counsel of AMG and Widex USA.
- Danny Meisenheimer, Pollo Tropical president who had been serving as Fiesta COO.
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.
A look ahead
By the end of the year, Fiesta expects to open nine company-owned Pollo Tropical restaurants in Florida and six company-owned Taco Cabana restaurants in Texas, including one closed company-owned Pollo Tropical restaurant that will be converted to a Taco Cabana restaurant.
In 2018, Fiesta expects to open nine company-owned Pollo Tropical restaurants in Florida and seven company-owned Taco Cabana restaurants in Texas including up to five closed Pollo Tropical restaurants that will be converted to Taco Cabana restaurants.