Taco Cabana Shutters 19 Texas Restaurants

Fiesta Restaurant Group announced Monday the closure of 19 Taco Cabanas in Texas, effective immediately. The company said “nearly all” employees impacted would be offered positions at other locations.

Fiesta president and chief executive Richard Stockinger said the company, which also directs Pollo Tropical, began to implement a margin improvement plan in the fourth quarter that should improve restaurant-level adjusted EBITDA margins by roughly 200–300 basis points in 2020 versus 2019. But that includes “efficiency initiatives in operations across food and operating expensive categories,” and the shuttering of 19 underperforming units.

“These closures eliminate all stores with significant losses, which we expect will result in a highly viable portfolio of restaurants,” he said in a statement.

For the 12-month period that ended December 29, the 19 Taco Cabana units contributed about $24.5 million restaurant sales and an estimated $4.2 million in restaurant level pre-tax operating losses, including $2 million in depreciation expense.

Fiesta expects to absorb non-cash long-lived asset impairment charges of $7–$8 million from the move in Q4, as well as lease right-of-use asset impairment charges of $1–$3 million.

As of September 29, there were 165 company-run Taco Cabana restaurants and eight franchises. The brand is heavily located in Texas, per below (144 locations). Fiesta said last quarter it recorded $3.1 million of non-cash impairment charges “primarily related to underperforming Taco Cabana restaurants.”

Taco Cabana/Google

Taco Cabana has infused value into its everyday menu with TC Time.

In Q3, Taco Cabana’s same-store sales declined 4.8 percent compared to a jump of 12.2 percent in the year-ago period. However, Q3 2018’s result lapped the previous year’s Hurricane Harvey dampened performance of negative 12.6 percent.

Taco Cabana’s Q3 restaurant sales decreased 6.3 percent to $75.3 million from $80.4 million due primarily to the comps decrease and six fewer restaurants in the base, year-over-year. Off-premises comprised 3.6 percent of total restaurants sales (it was 1.4 percent in Q3 2018).

The brand’s comps dropped due to a 5.6 percent decline in traffic. Average check rose 0.8 percent thanks to menu price increases of 1.4 percent and higher-ticket sharable items. However, the company’s value platform, “TC Time,” which launched in September, offset the gain somewhat. Taco Cabana also took a 20 basis-point hit from weather-related flooding that resulted in certain store closures.

The chain’s adjusted EBITDA decreased $1.3 million to $1.2 million in Q3.

As a company, Fiesta posted a net loss of $22.2 million in Q3 as revenues declined 6 percent to $164.2 million from $174.6 million last year.

Stockinger said in November that Taco Cabana was “seeing early signs of sales transactions stabilization based on recent results.”

“We’re in the process of simplifying the menu and operations platform to improve efficiency and customer service and will combine those efforts with continued improvement in promotion effectiveness and off-premises channel sales to return to growth,” he said. “This brand has a long and successful legacy in the Texas market and the management team is very focused on regaining momentum.”

The TC Time platform stretches value across occasions—two bacon, egg, and cheese tacos for $2.99 at breakfast; two beef tacos with beans and rice for $3.99 at lunch; two chicken fajita tacos with beans and rice for $4.99 at dinner; and six chicken fajita tacos and six flautas with beans and rice for $14.99 on the weekends.

Additionally, Taco Cabana rolled a low-price menu to its catering platform at the end of September. Delivery mixed 1.4 percent of total sales, too.

The last time Fiesta announced double-digit closures was December 2018 when it concluded a “strategic renewal plan” by shuttering 14 Pollo Tropical restaurants in Florida and Georgia, including all nine in the greater Atlanta metropolitan area. It also shut down nine Taco Cabana restaurants in Texas. To that point, there were 150 company-run Pollo Tropical units, 171 corporate Taco Cabanas, 30 franchised Pollo Tropicals in the U.S., Puerto Rico, the Bahamas, Guyana and Panama, and eight franchised Taco Cabana restaurants stateside.

At the end of last quarter, Fiesta had 141 company-owned Pollo Tropicals and 31 franchises to go along with its Taco Cabana footprint. Pollo Tropical’s same-store sales fell 3.8 percent in Q3, year-over-year.

In total, Fiesta finished the last quarter (before Monday’s announcement) with 345 restaurants. It had 359 in September 2018 and 386 in October 2016.

Fiesta launched a “strategic renewal plan” in early fiscal 2017. It was coming off same-store sales declines of 4.5 and 6.7 percent, respectively, at its brands, and the closure of 30 restaurants.

The company made two executive hires in 2019, adding Dirk Montgomery as CFO and Hope Diaz as CMO.