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Will Fiesta Group's digital initiatives put it on the path to profitability?

Although Fiesta Restaurant Group, parent company of Pollo Tropical and Taco Cabana, closed several units last year and reported mixed financial results Monday for the 13-week fourth quarter, the company is expecting 2019 to be a year of growth.

February 26, 2019 by Cherryh Cansler — Editor, FastCasual.com

Although Fiesta Restaurant Group, parent company of Pollo Tropical and Taco Cabana, closed several units last year and reported mixed financial results Monday for the 13-week fourth quarter, which ended Dec. 30, 2018, the company is expecting 2019 to be a year of growth. 

"Our 2018 results were driven by the investments and initiatives we put in place as we implemented the "Strategic Renewal Plan" beginning in 2017," President and CEO Richard Stockinger said during a Monday earnings call, which revealed that while total revenues increased 3.3 percent to $167.6 million in the fourth quarter of 2018, from $162.2 million in the fourth quarter of 2017, comparable restaurant sales at Pollo Tropical decreased 1.9 percent. Comparable restaurant sales at Taco Cabana increased 5.1 percent, and net loss decreased to $7.9 million, or $0.30 per diluted share, in the fourth quarter of 2018, from a net loss of $10.8 million, or $0.40 per diluted share, in the fourth quarter of 2017.

"There is still much work to be done, but our foundation is now firmly in place and the team is energized by the strongly  — strong affinity for our brands and their long-term potential,"  said Stockinger, who expects to deliver sustainable sales this year. "We believe we can achieve our objectives through ongoing execution of quality operations, menu innovation, capitalizing on our loyalty programs, generating impactful social media and traditional marketing.

Danny K. Meisenheimer, SVP and COO, told listeners that the improvements his team made to the brand experience last year will show up in the financial results this year. The My Pollo digital loyalty platform, for example, now allows guests to find a location, order online, manage their points and redemptions and upload coupons, among other things.

"We believe My Pollo will help increase frequency and build and return and retain brand affinity," he said. 

The chain is also continuing to roll out more portable POS tablets, now with the capability of processing secure payments.

"We believe this will have a meaningful impact to speed of service in our drive-thrus," Meisenheimer said.  "We will also begin testing kiosks in the first quarter."

During the fourth quarter of 2018, Fiesta opened three Pollo Tropical restaurants in South Florida, closed 14 Pollo Tropical restaurants in Florida and Georgia, including all nine Pollo Tropical restaurants in the greater Atlanta metropolitan area, and closed nine Taco Cabana restaurants in Texas. As of Dec. 30, 2018, there were 139 company-owned Pollo Tropical restaurants, 162 company-owned Taco Cabana restaurants, 30 franchised Pollo Tropical restaurants in the U.S., Puerto Rico, the Bahamas, Guyana and Panama and eight franchised Taco Cabana restaurants in the U.S.

Full-year 2018 financial summary

Total revenues increased 2.9 percent in 2018, to $688.6 million from $669.1 million in 2017, driven primarily by comparable restaurant sales increases of 2.2 percent at Pollo Tropical and 4.5 percent at Taco Cabana including the favorable comparison to 2017, which included the negative impact of Hurricanes Harvey and Irma, and sales from new restaurants, partially offset by permanent restaurant closures.

The company recognized net income of $7.8 million in 2018, or $0.29 per diluted share, compared to a net loss of $36.2 million, or $1.35 per diluted share in 2017, due primarily to lower impairment and other lease charges, the positive impact of tax rate changes in 2018, compared to the negative impact in 2017, lower general and administrative expenses, higher comparable restaurant sales including the impact of the Hurricanes in 2017, the impact of closing unprofitable restaurants, lower advertising expenses and insurance recoveries associated with the Hurricanes, partially offset by higher cost of sales as percentage of sales.

Looking ahead

Fiesta expects to open three company-owned Pollo Tropical restaurants this year in South Florida and three company-owned Taco Cabana restaurants in Texas.

Total capital expenditures in 2019, are expected to be $45 million to $55 million, including $11 million to $13 million to develop company-owned restaurants, $9 million to $11 million to implement information technology and other systems projects and $1 million in catering equipment.
 
In addition, the company, this year, will spend $16 to $18 million for restaurant remodeling, equipment to support menu platforms and other facility enhancements and $9 million to $12 million for capital maintenance, according to the release.

About Cherryh Cansler

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Cherryh Cansler is VP of Events for Networld Media Group and publisher of FastCasual.com. She has been covering the restaurant industry since 2012. Her byline has appeared in Forbes, The Kansas City Star and American Fitness magazine, among many others.

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