From a top- and bottom-line perspective, 2017 was a difficult year for Fiesta Restaurant Group by any definition. The company reported a fourth-quarter loss of $10.8 million after posting a profit in the same period a year ago. Fiesta saw a loss of 40 cents per share, and earnings, adjusted for pretax expenses and non-recurring costs, were less than a cent on a per-share basis.
For the fiscal year, Fiesta reported a loss of $26.2 million, or $1.35 per share. Revenue, which was $162.2 million in the fourth quarter, came in at $669.1 million for the full year.
This news sent shares tumbling more than 14 percent to $17.32 by early afternoon Tuesday. In the final minutes of trading on Monday, the stock hit $20.20, which represented a 23 percent decline in the past 12 months.
Throughout the year, Fiesta president and CEO Richard Stockinger hasn’t shied away from the heavy reality facing the brands. And Fiesta has been proactive in addressing those concerns. The company’s “Strategic Renewal Plan,” was shared after a rough first quarter, one in which Pollo Tropical shuttered 30 stores and saw its comparable same-store sales plummet 6.7 percent, year-over-year.
Stockinger, the former president and CEO of Benihana, who was named to the same role at Fiesta in February, updated investors Monday (February 26) afternoon regarding some of those initiatives and how they’re helping the company regain market share and turn sliding comps and negative transactions in the right direction.
To start with Pollo Tropical, Stockinger said the 177-unit brand (31 franchised) is a bit ahead of Taco Cabana thanks to its brand relaunch in October, which, at a 0.1 percent decline, recorded its best quarterly comparable restaurant sales performance over the past seven quarters. And perhaps most notable, the chain saw comps lift 2.4 percent in December and 0.6 percent in January despite the about 0.7 percent negative impact related to a fiscal calendar shift of New Year’s Day. At the end of the quarter, there were 173 Taco Cabanas (seven franchised).
Much of this renewal plan focused Pollo Tropical’s efforts on its core markets—Miami-Dade and Broward County in Florida. Stockinger said Pollo Tropical saw its same-store sales increase 2.8 percent in the Sunshine State, outpacing TDn2K’s Florida benchmarks for performance by 40 basis points.
The October brand relaunch included a vast menu overhaul that affected 90 percent of the offerings with food and ingredient enhancements, including removing artificial ingredients. Fiesta also said it would vertically integrate its chicken supply chain to control the feed and breed of chickens, with a goal of serving a totally antibiotic and hormone free product.
“We continue to prioritize the importance of using fresh and high-quality natural ingredients and are, therefore, excited to have transitioned Pollo Tropical to No Antibiotics Ever, or NAE, chicken,” Stockinger said. “NAE chicken is meaningful to health-conscious consumers looking for high quality, natural ingredients, and our transition marks a significant milestone for the company.”
Danny Meisenheimer, the chief operating officer at Pollo Tropical, said the brand conducted research in all of its markets over the past several months, which was also a key initiative in the renewal plan. This led to one major tangible change: the introduction of boneless fried chicken.
On January 15, in Southwest Florida, Jacksonville, and Atlanta, Pollo Tropical launched citrus-marinated crispy Pollo Bites. They can be dunked in unique sauces, such as cilantro garlic and guava barbecue, and have been promoted as a five- and eight-piece meal option. It’s also on the kids menu.
“In the Southwest Florida market, we also promoted this new product with television and social media support where we saw products mix build in excess of 3 percent,” Meisenheimer said.
In mid-February, these markets added salads and bowls. “To date, the response has been very encouraging,” he added. “Sales are increasing, guests satisfaction has improved, and future purchase intent scores are high. This early start was also important because it allowed us to measure the results and assess operational performance before expanding a rollout.”
All remaining locations added the citrus-marinated crispy Pollo bits in early February. Additional iterations are on the way as well, including wraps, party trays, and family meals.
This kind of innovation and result is something Fiesta hopes to replicate at Taco Cabana once it relaunches. Fiesta brought Chuck Locke on board as Taco Cabana president in October. Locke served as chief operating officer at Anthony’s Coal Fired Pizza before joining the brand.
Stockinger said Taco Cabana is targeting mid-2018 to relaunch the brand. It can surely use the boost.
Taco Cabana’s comparable same-store sales dropped 7.4 percent in the fourth quarter, primarily driven by a sizable 12.2 percent decline in transactions.
Stockinger said Taco Cabana has focused on attracting loyal guests while increasing profitability through high-quality menu and promotional items at reasonable prices, and eliminating deep discounting. Thus, increasing average check. This strategy will have short-term kickback, though.
“This focus is transforming our guest base and will initially result in transaction declines. However, we anticipate a gradual improvement in trends as we build guest loyalty and frequency at Taco Cabana,” Stockinger said.
The chain also stopped operating 24/7 at the majority of its restaurants in the latter part of 2017. Many are now closing at 1 a.m. Sunday through Wednesday, while staying open around the clock Thursday through Saturday. This change hurt sales, Stockinger said, but hardly moved the needle on profitability. “Reduced operating hours have other quantitative and qualitative benefits, including security, staffing, and restaurant cleanliness,” he said.
Taco Cabana introduced All-Day Breakfast Tacos in January in additional to TC Time, which are taco boxes that offer guests the chance to order a dozen tacos at different dayparts.
The brand is testing beer and sangria is select stores as well, and, based on initial results, expects to roll that out to more locations this year. An increased patio presence is also in the works, which will give the chain the chance to offer entertainment and alcoholic beverages to complement its menu.
“We are leveraging all relevant opportunities to tell the TC story and drive guest engagement, being targeted communications, including traditional, social, digital, and local restaurant marketing,” Stockinger said.
On the development front, Fiesta expects to open nine new company-owned Pollo Tropicals in Florida this year and seven corporate Taco Cabanas in Texas. This includes five closed Pollo Tropicals that are being converted to Taco Cabanas.
A new mobile app and loyalty program is expected to launch second quarter, with added investment in delivery, catering, and off-premise on the books for 2018, the company added. “We have brought in third-party industry experts, including OLO, MonkeyMedia, and Punchh to help us in these efforts,” said Lynn Schweinfurth, Fiesta’s chief financial officer.
Both brands are raising prices. Fiesta completed the rollout of its tiered menu pricing in mid-October, which resulted in incremental effective pricing of about 3 percent at each concept. Even in a quick-service arena where lower price points are taking precedent, Stockinger said the move hasn’t been met with any real resistance from customers.
Pollo Tropical could be looking at an additional hike in late spring, Stockinger added.
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