Fiesta Restaurant Group Inc (NASDAQ:FRGI), the parent of the “Pollo Tropical” and “Taco Cabana” restaurant brands, announced that it closed 30 underperforming Pollo Tropical locations in Texas, Georgia, and Tennessee as the company works to restructure operations, revitalize its brands, and prop up its floundering share price.
The closures are part of Fiesta’s recently announced “Renewal Plan,” which includes the relaunching the Pollo Tropical brand in September 2017 and the Taco Cabana brand late in the year. (Source: “Fiesta Restaurant Group, Inc. Announces Strategic Renewal Plan to Drive Long-Term Value Creation,” Fiesta Restaurant Group Inc, April 24, 2017.)
At the time, the company said it was closing all Pollo Tropical locations in Dallas-Fort Worth and Austin, Texas, as well as in Nashville, Tennessee. The company will, however, continue to own and operate 19 Pollo Tropical restaurants outside of Florida, including 13 in Atlanta and six in South Texas.
Richard Stockinger, Fiesta’s President and CEO, said the company’s expansion into new markets produced, “disappointing … results,” adding that, “recent growth initiatives diverted resources from our core markets and some amount of renewal is required to restore momentum in these markets.”
“While the decision to close restaurants is never easy, we believe it is vital to focus the company’s resources and efforts on markets and locations that have proven successful for our brands,” Stockinger said.
Pollo Tropical, a Caribbean-inspired, quick-casual restaurant, experienced rapid growth in North Texas, soaring from one location to approximately 20 in just a few years. But it was too much of a good thing; in October 2016, the company closed 10 of its then-209 locations, most in Texas. More are planned.
Fiesta Restaurant Group is expected to incur non-cash impairment charges of between $33.0 million and $37.0 million in the first quarter of 2017 and additional $9.0 to $12.0 million in leases and other charges during the second quarter.
Not surprisingly, Fiesta’s share price has been under pressure after reporting disappointing quarterly results. In February, Fiesta announced that total fourth-quarter revenue, for the period ended January 1, 2017, fell 4.6% year-over-year to $171.3 million. Comparable sales at Pollo Tropical decreased four percent, while comparable sales at Taco Cabana fell 3.5%. Fourth-quarter net income was $2.4 million, or $0.09 per diluted share, a 72% drop over the $8.8 million, or $0.33 per diluted share, recorded in the fourth quarter of 2015. (Source: “Fiesta Restaurant Group, Inc. Reports Fourth Quarter and Full Year 2016 Results,” Fiesta Restaurant Group Inc, February 27, 2017.)
Things went bad to worse in the first quarter of 2017. In May, Fiesta said first-quarter revenue for the period ended April 2, 2017 slipped 0.6% to $175.6 million. Comparable restaurant sales at Pollo Tropical fell 6.7% year-over-year, while comparable restaurant sales at Taco Cabana were down 4.5%. The company swung to a first-quarter loss of $15.1 million, or $0.56 per diluted share, compared to net income in the prior year period of $9.9 million, or $0.37 per diluted share. (Source: “Fiesta Restaurant Group, Inc. Reports First Quarter 2017 Results,” Fiesta Restaurant Group Inc, May 8, 2017.)
Commenting on the results, Stockinger said, “We are addressing our challenges and disappointing financial performance through a strategic Renewal Plan that we believe will create long-term value for our shareholders. We have already taken action by recently closing 30 Pollo Tropical restaurants in emerging markets that contributed material pre-tax operating losses in 2016 and the first quarter of 2017, while we focus on our core markets at both brands.”
As of April 2, 2017, there were 180 company-owned Pollo Tropical restaurants and 167 company-owned Taco Cabana restaurants. The company also franchised 34 Pollo Tropical restaurants and seven Taco Cabana restaurants.