U.S. Markets open in 5 hrs 4 mins

Edited Transcript of FRGI earnings conference call or presentation 6-Aug-18 8:30pm GMT

Q2 2018 Fiesta Restaurant Group Inc Earnings Call

SYRACUSE Aug 17, 2018 (Thomson StreetEvents) -- Edited Transcript of Fiesta Restaurant Group Inc earnings conference call or presentation Monday, August 6, 2018 at 8:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Daniel K. Meisenheimer

Fiesta Restaurant Group, Inc. - SVP & COO

* Lynn S. Schweinfurth

Fiesta Restaurant Group, Inc. - CFO, Senior VP & Treasurer

* Raphael Gross

ICR, LLC - MD

* Richard C. Stockinger

Fiesta Restaurant Group, Inc. - CEO, President & Director

================================================================================

Conference Call Participants

================================================================================

* Brian Michael Vaccaro

Raymond James & Associates, Inc., Research Division - VP

* Joshua C. Long

Piper Jaffray Companies, Research Division - Assistant VP & Research Analyst

* Nerses Setyan

Wedbush Securities Inc., Research Division - SVP of Equity Research and Equity Analyst

* William Everett Slabaugh

Stephens Inc., Research Division - MD

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Greetings, and welcome to the Fiesta Restaurant Group Second Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Raphael Gross, Managing Director at ICR.

--------------------------------------------------------------------------------

Raphael Gross, ICR, LLC - MD [2]

--------------------------------------------------------------------------------

Thank you, and good afternoon, everyone. Fiesta Restaurant Group's second quarter 2018 earnings release was issued after the market closed today. If you have not already accessed it, it can be found on the company's website, www.frgi.com, under the Investor Relations section.

Before we begin, I'd like to inform you that during the call today, the company will make various statements that are not based on historical information. These forward-looking statements include, without limitation, statements regarding the company's future financial position and results of operations, business strategy, budget, projected costs and plans and objective of management for future operations. Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements, and the company can give no assurance that such forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements can be found in the company's SEC filings.

Please note that during today's conference call, certain non-GAAP financial measures will be discussed, which the company believes can be useful in evaluating its performance. Any discussion of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and reconciliation to comparable GAAP measures is available in the company's earnings release.

On the call today are President and Chief Executive Officer, Rich Stockinger; Senior Vice President, Chief Operating Officer and Pollo Tropical President, Danny Meisenheimer; and Senior Vice President and Chief Financial Officer, Lynn Schweinfurth.

And now I will turn the call over to Rich.

--------------------------------------------------------------------------------

Richard C. Stockinger, Fiesta Restaurant Group, Inc. - CEO, President & Director [3]

--------------------------------------------------------------------------------

Thank you, Raph. We are pleased with the progress we are making at both brands through the execution of the Strategic Renewal Plan and believe its positive impact is reflected in our second quarter and July comparable sales results.

Importantly, we also continue to be encouraged by the rising Net Promoter Scores that point to increasing guest engagement and brand affinity, but there is still much work left to do to drive ongoing improvements in performance that we can build on as we move forward.

At Pollo, we reported our second consecutive quarter of comparable sales growth with a solid 3.4% gain. Similar to the first quarter, our core markets continue to exhibit solid sales trends with comparable sales growth of approximately 4.9% in Miami-Dade County and 3.3% in Broward county, respectively, exceeding the Florida black box quarterly industry benchmark by 190 basis points and 30 basis points, respectively. The sales trajectory for Southwest Florida, where we have been testing initiatives before rolling them out to the rest of the system continues to have the strongest performance overall. Positive sales growth continued in July with the company-owned comparable restaurant sales gains for Pollo up 2.2%.

Turning to Taco Cabana. Let me start by expressing how pleased I am with the significant headway we are making. Chuck and his team have worked tirelessly implementing Taco Cabana Strategic Renewal Plan and their efforts bore fruit during the second quarter with a 3.1% increase in comparable restaurant sales. This was our first quarterly comparable sales gain since the second quarter of 2016.

With the July relaunch of the brand, we saw an acceleration in trends to an 8.8% gain, which also extended our comparable sales growth performance to 4 consecutive months. I will provide more color on Taco Cabana in a minute. But first, I would like to turn the call over to Danny for an update on Pollo Tropical's initiatives

--------------------------------------------------------------------------------

Daniel K. Meisenheimer, Fiesta Restaurant Group, Inc. - SVP & COO [4]

--------------------------------------------------------------------------------

Thank you, Rich. I am pleased and encouraged with the great progress we're making at Pollo Tropical. Our citrus-marinated chicken crispy chicken platform, introduced earlier this year, has helped to broaden the brand's demographic appeal. Crispy chicken purchases currently represent 15% to 20% of all transactions. To further build on the momentum we have experienced with this platform, we expanded the product line in June with the introduction of 3 crispy chicken sandwiches, including the Crispy BLT Chicken Sandwich, which is already become the brand's highest selling handheld item.

We're using a mix of broadcast, social and local store marketing to support our new product introductions, engage with our guests and drive awareness and frequency. For instance, we recently introduced our Crispy Chicken sandwiches utilizing broadcast media and extended billboards in strategic locations. We promoted our daily deals for a specific days of the week, such as Marination Mondays, TropiChop Tuesdays, Wild Card Wednesdays and Pollo Time! Weekends through digital channels.

Lastly, we have numerous unique and targeted social media events across all of our markets during the quarter. Operationally, we continue to focus on hospitality and guest and team engagement. We recently rolled out an improved reporting platform that allows our general managers to review Net Promoter Scores and guest feedback to address areas of opportunity more quickly. We also recently conducted roundtables with all of our general managers to reinforce our operation's capabilities and better than ever service training and to improve communication and collaboration. Additionally, we are upgrading our POS tablets to securely accept credit cards, which will improve speed of service, especially in our busiest restaurants.

We are also focused on improving food and labor costs through better cost control reporting, management and accountability. We will be testing kiosk at a few restaurants this year that may help to decrease cost, increase ticket average and improve accuracy. As Rich mentioned, there are still much work to do. We have several growth initiatives under way that we plan to implement in the second half of the year, including the introduction of the new loyalty program to build guest engagement and frequency and building our off-premise business.

We're planning to pilot our new loyalty program in the third quarter. We have hired an experienced off-premise leader to spearhead a successful implementation strategy across catering, third-party delivery and gift card sales. We're refining our catering program ahead of the holiday season and are in the process of hiring catering managers who will be solely focused on growing our catering business. We've also dedicated one of our senior operators to support our catering segment.

For delivery, we are currently pursuing partnerships with third-party vendors and estimate starting a pilot test later in the year. Taken together, we believe that the investments we are making in building our off-premise business should be fully in place and gaining traction by year-end 2018.

Before I turn it back over to Rich, I'd like to thank each one of our team members for their hard work in delivering improved sales and enhanced hospitality that we can build upon. Rich?

--------------------------------------------------------------------------------

Richard C. Stockinger, Fiesta Restaurant Group, Inc. - CEO, President & Director [5]

--------------------------------------------------------------------------------

Thanks, Danny. As I mentioned earlier, we successfully relaunched Taco Cabana in July with the completion of numerous menu and service enhancements. These consist of improvements to the breadth and depth of our menu so that we can deliver on our promise of high-quality, authentic and freshly prepared cuisine inspired by our original recipes and an upgraded hospitality experience.

Note that within our 3.1% comparable sales gain for the second quarter, we still experienced the meaningful decline in comparable transaction. To reiterate what we have said in the past, our strategic direction with Taco Cabana is to involve our guest base by repositioning the brand and offering higher quality menu and promotional items at reasonable prices while eliminating deep discounting. We believe this will create more profitable and growing transactions over time. Momentum is well underway with sequential improvement in monthly transaction trends every month since January.

Training is a key area of focus for the brand, and we believe will improve the guest experience, build our operations leadership bench and increase employee retention and engagement. In fact, we're in the process of onboarding a new experienced industry leader to oversee this area at Taco Cabana.

With that, let's now review the progress we've made, thus far, on Taco Cabana's renewal plan. As you know, product improvements are critical to the brand's turnaround effort. We have, therefore, improved most core products through ingredient and recipe quality upgrades, affecting almost 90% of Taco Cabana's menu, in particular, enhancements are centered around proteins that are utilized across menu categories, USDA Choice steak, Applewood-Smoked Brisket, chicken, ground beef and shrimp. We have introduced loaded tacos to deliver flavorful recipes consistent with our promise of high-quality and fresh ingredients.

All-day breakfast and tacos by the dozen continue to build traction and deliver relevant meal solutions to our guests. Our TC patio program has already been rolled out to approximately 40 restaurants, with some additional locations to follow. Revisiting our roots as the original Mexican patio café, we have amplified our patio with patio parties, with entertainment, including musicians, karaoke, game nights and other fun activities for our guests. To complement this experience, we also introduced several new alcoholic beverages offerings, including frozen raspberry vodka lemonade made with Tito's Handmade Vodka, draft beer and sangria and seasonal Margaritas as well as shareable appetizers.

Similar to Pollo Tropical, we'll be testing in-restaurant self-order kiosks this fall to further improve among our guest service and efficiency, and we'll soon pilot MY TC!, the new Taco Cabana loyalty program.

We continue to focus on improving margins. Initiatives that are in progress include, among other things, improve labor scheduling, forecasting and tracking processes, updated batch cooking guides and reduced over time. Additionally, we are increasing our use of shift leaders to promote leadership development with the added benefit of reducing cost.

Looking ahead, we also see great potential in delivery and catering that is yet to be realized at Taco Cabana, and we'll, therefore, be addressing these opportunities in the back half this year and beyond. We believe that our Dozen Taco boxes are especially well positioned for delivery starting with breakfast and continuing throughout the day and evening. We also appreciate that as important as it is to build and solidify our sales base while recognizing the investments we have already made in four wall operations, we also must optimize our food and labor cost to shore up margins and that work has begun as well.

Lastly, I'd like to thank all of our employees for their hard work and passion in this renewal effort. Much has been done with much still to accomplish. But together, with all the team members, I feel confident we will succeed.

With that, let me turn the call over to Lynn to go over our financials in greater detail.

--------------------------------------------------------------------------------

Lynn S. Schweinfurth, Fiesta Restaurant Group, Inc. - CFO, Senior VP & Treasurer [6]

--------------------------------------------------------------------------------

Thank you, Rich. During the second quarter of 2018, comparable restaurant sales at Pollo increased 3.4% compared to a 7.7% decrease in the second quarter last year. This year's gain included a 4.4% increase in average check, inclusive of 4.5% in pricing, partially offset by a 1% decrease in comparable restaurant transaction.

At Pollo, restaurant level adjusted EBITDA and related margin, non-GAAP measures as defined in our SEC filings, decreased by $2 million and 240 basis points, respectively, primarily due to the negative impact of an increasing cost of sales as the percentage of sales and higher advertising expense, primarily driven by initiatives such as the plan to improve the guest experience, partially offset by higher comparable restaurant sales and the positive effect of closing unprofitable restaurants during 2017.

Note that we experienced improvements in labor and other restaurant operating expense margin, more than offsetting material investments we have made in staffing and maintenance over this past year. Comparable restaurant sales at Taco in the second quarter of 2018 increased 3.1% compared to 4.7% decrease in the second quarter of last year. This year's gain included a 10.2% increase in average check, inclusive of 6.3% in pricing and positive sales mix associated with higher price promotions and new menu items related to the brand's repositioning.

Comparable restaurant transactions decreased 7.1% with the elimination of deep discounting related to the brands repositioning and the reduction in overnight operating hours. However, as Rich stated, the transaction trends, while still negative, improved throughout the second quarter, just as it did in the first quarter.

At Taco, second quarter restaurant level adjusted EBITDA decreased by $2.2 million and related margins declined by 340 basis points. Restaurant level adjusted EBITDA margins were negatively impacted by higher cost of sales as a percentage of sales due to upgrades to food quality, higher labor costs due to increase staffing hours to improve hospitality and higher incentive-based compensation, partially offset by higher comparable restaurant sales and lower other restaurant operating expenses.

During the quarter, consolidated adjusted EBITDA, a non-GAAP measure defined in our SEC filing, declined to $20.2 million, primarily driven by lower restaurant level adjusted EBITDA at both brands, partially offset by lower G&A expenses. While I will not review every line item on our P&L, I did want to mention the $3.5 million net gain in other income. This consisted of $2.8 million in additional insurance recoveries related to Hurricanes Harvey and Irma, the hurricanes, and $1.1 million in total gains on the sale of 2 restaurant properties. These gains were partially offset by a write-off of site development costs and cost for the removal, transfer and storage of equipment for previously closed restaurants. We may recognize additional insurance recoveries from the hurricanes in the third or fourth quarter.

As previously mentioned, we are keenly focused on improving our restaurant margin, while continuing to deliver a great guest experience. In addition to the programs already described, we are refining our theoretical food cost and inventory procedures to better manage the business. We are also refining our labor model and processes to optimize how and when we are staffing our restaurants with increased visibility and recording. In fact, while it is still early, a new labor initiative recently under way at Taco has generated improved labor cost.

While wage rate inflation continues to be in the low-single digits in the second quarter, we are experiencing higher overtime with increasing staffing pressures due to the competitive labor markets in which we operate. This environment may result in higher increases in wages going forward, while we concurrently focus on employee engagement and leadership development to reduce turnover and improve retention.

Adjusted net income, also a non-GAAP measure, was $6.8 million or $0.25 per diluted share compared to the prior year period adjusted net income of $8.1 million or $0.30 per diluted share. Please refer to our earnings release and SEC filings for all related non-GAAP reconciliation tables.

In terms of capital allocation, we are now expecting capital expenditures for 2018 to be at the high end of our previously announced range of $60 million to $70 million. This was due to additional investments in our restaurants to improve food quality and consistency and to support our catering and

(technical difficulty)

As a reminder, this includes $22 million to $25 million for the development of new restaurants. Other capital spending will primarily include deferred and other capital maintenance and restaurant remodels.

Turning to our 2018's development plan. We expect 7 new company-owned Pollo Tropical restaurant openings in Florida, 4 of which have already been opened as of the end of the second quarter. We also expect 7 new company-owned Taco Cabana restaurant openings in Texas, 6 of which have already been opened as of the end of the second quarter and one that opened in July. Of those 7 restaurant openings, 2 new Taco Cabana restaurants in superior locations in the same trade areas replaced 2 closed restaurants during the second quarter. As reminder, these Taco Cabana openings include 5 closed Pollo Tropical restaurant conversions with lower investment cost.

In the third quarter of 2018, we will be lapping the anniversaries of hurricanes Harvey and Irma from the prior year. In the third quarter of 2017, 43 Taco Cabana restaurants and 2 Pollo Tropical restaurants in the Houston metropolitan area and all 149 Pollo Tropical restaurants (technical difficulty)

metropolitan area were closed and affected by hurricanes in varying degrees. We estimate that the hurricanes negatively impacted comparable restaurants sales and transactions at Pollo by approximately 5.5% to 6.5% and at Taco by approximately 2% to 3%. We also estimate that the hurricanes negatively impacted adjusted EBITDA at Pollo by approximately $3 million to $4 million and at Taco by approximately $1 million to $1.5 million.

In closing, through our renewal plan, we are elevating our brands and developing a strong long-term business model to build shareholder value. We are going to continue working hard to maintain our momentum and have a lot of exciting things planned for the balance of this year and the years ahead.

With that, we will open up the line for questions. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from Will Slabaugh, Stephens Incorporated.

--------------------------------------------------------------------------------

William Everett Slabaugh, Stephens Inc., Research Division - MD [2]

--------------------------------------------------------------------------------

First question was on Taco Cabana and congrats on the turn there here, especially more recently. I was curious if you could just talk about the July acceleration and what you'd most credit that to. I know you mentioned it was a brand relaunch. It happened in a month. So I was curious if you felt like that was just big -- a bit of a bump from the media being turned back on, if there was something else happening inside the restaurant that we weren't necessarily able to see.

--------------------------------------------------------------------------------

Richard C. Stockinger, Fiesta Restaurant Group, Inc. - CEO, President & Director [3]

--------------------------------------------------------------------------------

I think -- it's Rich Stockinger. It's been a culmination because it's not something that just happened overnight. Even though we show each month, it's been each week has continued to show improvement in getting in more profitable guests. There's no doubt that our guest profile has been changing. We're seeing more families and younger people coming to our restaurants. So it's not just one thing that happened, it's a combination over time, and especially since now we have all of our proteins in place and each one of our proteins represent about the same as a percentage than any other were. So it's not like one protein is overshadowing the other. But there was nothing special or, in addition, that we did different in July that we haven't done in the recent months.

--------------------------------------------------------------------------------

William Everett Slabaugh, Stephens Inc., Research Division - MD [4]

--------------------------------------------------------------------------------

Got it. And sticking with Taco for a second. You mentioned your LTOs and likely future LTOs are going to involve more full priced items versus some deep discounts that have been there previously. Can you talk about how you feel like that positions you as a brand versus some of the peers and larger peers in particular that are more aggressive on advertising price points?

--------------------------------------------------------------------------------

Richard C. Stockinger, Fiesta Restaurant Group, Inc. - CEO, President & Director [5]

--------------------------------------------------------------------------------

Sure. I think what we've done is we tried to position ourselves, and it means no negative to these competitors at all, but in between the Taco Bell, Taco Bueno guests and below the [Torch Cheese] type guests, where we feel that there's an opportunity there to go after people with full fair pricing for high-quality items. I would say we're getting a lot of guest compliments that call it restaurant quality, which it is. So that's why it puts us in between those 2 type of categories.

--------------------------------------------------------------------------------

William Everett Slabaugh, Stephens Inc., Research Division - MD [6]

--------------------------------------------------------------------------------

Got it. And lastly, you mentioned South Florida continuing to lead way at Pollo. And then you also, in the same breadth said a lot of that is because of what you're sort of testing down there and doing. Can you go into a little bit more detail in terms of what you feel like is maybe a main driver or 2 in South Florida that may be leaking into the rest of the system as we work throughout the year?

--------------------------------------------------------------------------------

Daniel K. Meisenheimer, Fiesta Restaurant Group, Inc. - SVP & COO [7]

--------------------------------------------------------------------------------

Yes. This is Danny. I think there are 2 things that drive these. They really come from the crispy platform. The Pollo Bites have been really a remarkable new product introduction for us after having grown the crispy platform, the bites have been terrific for us, and not only as an entree, but also as an add-on or as an appetizer. And then we've also introduced the crispy sandwiches, which we introduced within the last 2 to 3 months. And really, it's the combination of both of those that have really driven some of the incremental sales and menu mix shift here as well as transaction. So we're seeing combo meals on the sandwich purchases and overall the platform has just really elevated our sales and our traffic gain.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Our next question comes from Nick Setyan, Wedbush Securities.

--------------------------------------------------------------------------------

Nerses Setyan, Wedbush Securities Inc., Research Division - SVP of Equity Research and Equity Analyst [9]

--------------------------------------------------------------------------------

My question relates to more kind of beyond just the near term. Now that you've rightsized the business or just largely rightsized the business, how should we think about some of the metrics kind of medium to longer term with respect to unit growth, with respect to maybe the margins at Pollo and the margins at Taco?

--------------------------------------------------------------------------------

Richard C. Stockinger, Fiesta Restaurant Group, Inc. - CEO, President & Director [10]

--------------------------------------------------------------------------------

Yes, it's Rich. And thanks, Nick. I think in terms of unit growth, I mean, we haven't come out officially, but I don't see next year being that much more different than the current year because, again, you got to be 18 months in advance. The renewal plan is not done. We have a lot of work to do. A lot of our investment that we put in, especially in technology, we're now starting -- ready to implement. We brought these outside experts to come in to help us. We set up a new loyalty program on both brands. In terms of delivery, we're working with closely partnering with the national company that will really give us a real punch in the arm regarding the delivery, which we do minimal at Pollo and basically none at Taco. And the last part is catering. There's such an opportunity for catering in both these 2 brands and when I look at Pollo down here in South Florida, it's really incredible and I look at Taco in its major markets being San Antonio and Houston and Dallas, there's a huge opportunity to do catering. Very profitable. So we have minimal in terms of -- we're not going to -- we're going to open the same -- about same units this year. I'm really looking in the opening and future growth is the year after, not so much next year, but it's really the sales opportunities in the existing markets and existing restaurants that are really exciting to us. In terms of the margins, Pollo margins, we're working on, we're working with our vendors, especially the produce companies. I think we'll see -- not produce, the poultry companies. I think we'll see some improvement over the next 12 months in the chicken costs to us. And then Taco, we've already announced that the improvements in the labor are happening, as we speak, because of the work that they've done at Taco, and we'll also see some help in the food cost area Taco. So I don't see barring any unforeseen issues that aren't related to the industry right now. I don't see food cost rising. I see them coming down a bit at both brands.

--------------------------------------------------------------------------------

Nerses Setyan, Wedbush Securities Inc., Research Division - SVP of Equity Research and Equity Analyst [11]

--------------------------------------------------------------------------------

That's helpful. And when I first joined, when we've got the revitalization plan, I think one of the points was potentially looking at franchising a little bit more. We haven't heard much about it over the last 12 months understandably as you focus on turning the business around, but how are you thinking about franchising going forward from here on?

--------------------------------------------------------------------------------

Richard C. Stockinger, Fiesta Restaurant Group, Inc. - CEO, President & Director [12]

--------------------------------------------------------------------------------

Sure. We're not ready to go full-blown on franchising. While I say that, I think tomorrow we'll be filing our franchising document for Pollo, and then Taco will be shortly thereafter. We're still doing the renewal, but I wanted to get the groundwork to be done on the franchising side and licensing side. But we're working with several companies on potential licensing both brands. On Taco, we already have a successful franchise in New Mexico, and we'll be looking at that shortly down the road. We haven't come out and formally announced what our franchising program may be. But I think, as you can tell, at Pollo, we have a huge opportunity now that we've rightsized it. At Taco, we are turning the corner and the success, the recent success of some of our converted Pollos into Tacos might open a new opportunity where you don't have to do a ground up with the higher investment costs that you can spend less on doing conversions may open the door to us in the near future.

--------------------------------------------------------------------------------

Nerses Setyan, Wedbush Securities Inc., Research Division - SVP of Equity Research and Equity Analyst [13]

--------------------------------------------------------------------------------

That's very helpful. And then just Lynn, on G&A, how should we think about G&A for the year or maybe just kind of directionally in the back half?

--------------------------------------------------------------------------------

Lynn S. Schweinfurth, Fiesta Restaurant Group, Inc. - CFO, Senior VP & Treasurer [14]

--------------------------------------------------------------------------------

We're continuing to find opportunities to leverage our G&A. Certainly as we get into the back half of the year, we will have a benefit associated with lapping the hurricane third quarter. So that's going to certainly drive some leverage as we look out to the balance of the year. And then moving forward, we will continue to look for means to leverage G&A as we move forward. Controlling our costs, growing only where we need to and certainly supporting the parts of our business that will provide a return on those expenses.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Our next question comes from Brian Vaccaro, Raymond James.

--------------------------------------------------------------------------------

Brian Michael Vaccaro, Raymond James & Associates, Inc., Research Division - VP [16]

--------------------------------------------------------------------------------

Starting with Pollo Tropical, I was hoping you could drill down a little further on the crispy chicken product launch. And curious if you could share further details on the sales mix. How it compares in the legacy markets versus the noncore markets, and given differences in competitive dynamics and brand positioning, if you will, in South Florida versus Central Florida or North Florida, even Atlanta, curious if there were differences in how you positioned or advertise those products?

--------------------------------------------------------------------------------

Daniel K. Meisenheimer, Fiesta Restaurant Group, Inc. - SVP & COO [17]

--------------------------------------------------------------------------------

This is Danny. We typically promote a little more aggressively in the Northern markets with this product. We found out through our research that we conducted that the boneless crispy had a very high appeal in those markets, and it's not to suggest that it isn't also the same down in South Florida. But on a weighted basis, our transaction rate is higher on the crispy platform, when you get to markets like Atlanta or you get to markets like Jacksonville or Orlando. But Dade and Broward also do very well. So when we talk about a range, that typically demonstrates the range we're talking about from South Florida being on a little bit of the lower number all the way to the high number. But it's going to accept extremely well whether it's the bites or whether it's the sandwich regardless of market. But the further North you go, the better it performs.

--------------------------------------------------------------------------------

Richard C. Stockinger, Fiesta Restaurant Group, Inc. - CEO, President & Director [18]

--------------------------------------------------------------------------------

Brian, it's Rich. The other area that is performing extremely well is in our license restaurants -- licensed locations for colleges and universities, where it's gone extremely well. And that is the Pollo Bite program, which again just to remind you, it's our fresh chicken breasts, 24 hours marinated and then we cut it into 6 pieces. So it's real chicken, it's [dressed] right in the restaurant where hand bread it and then fry it, and that citrus marinate stays within the product as a result of the frying process. And it's really a special flavor and that's what's caught on throughout the system.

--------------------------------------------------------------------------------

Brian Michael Vaccaro, Raymond James & Associates, Inc., Research Division - VP [19]

--------------------------------------------------------------------------------

All right. And I know it's still early, but have you been able to do any consumer research on crispy chicken to get a sense of how much of that sales mix is due to attracting a new customer and sort of broadening the brand appeal versus driving frequency amongst existing guests?

--------------------------------------------------------------------------------

Daniel K. Meisenheimer, Fiesta Restaurant Group, Inc. - SVP & COO [20]

--------------------------------------------------------------------------------

Yes, everything to this point has been largely anecdotal. We have done some intercepts, but we will be conducting market research a little bit later in the year. We needed to give this product a chance to get to market and give the guests a chance to experience it, but we will be visiting with them a little bit later.

--------------------------------------------------------------------------------

Richard C. Stockinger, Fiesta Restaurant Group, Inc. - CEO, President & Director [21]

--------------------------------------------------------------------------------

Brian, what we did, though, it's Rich again, is before we launch this, we did extensive research, including focus groups. And they really gave us the permission to try it, and that was the citrus-marinated chicken itself. And that's what, according to them, allowed us to get into the fried platform. And again, we're about ready, we'll be doing the research to get down to the bottom of it. And where it's really been successful has been in Southwest Florida, where that leads the turnaround of everyone, and that's a very diverse market there. So we're pretty excited, but we'll be doing more than just customer intercepts very shortly.

--------------------------------------------------------------------------------

Brian Michael Vaccaro, Raymond James & Associates, Inc., Research Division - VP [22]

--------------------------------------------------------------------------------

All right. That's great. Just shifting gears. I wanted to circle back on Taco and ask about the improvement you've seen in July. Can you remind us what the quarter to date was last year? I guess just thinking about the underlying trends, how much of it is lapping easier comparisons and maybe lapping lower add spend versus sort of true underlying improvement, if you could just put some color around that?

--------------------------------------------------------------------------------

Lynn S. Schweinfurth, Fiesta Restaurant Group, Inc. - CFO, Senior VP & Treasurer [23]

--------------------------------------------------------------------------------

Well, last year, we are lapping at 8.9% decline in the month of July. So we were lapping a more negative period. If you recall, we were off air from May to essentially the early to mid-part of October. So we are in the middle of that period, but we continue to see this gradual improvement in our results across really most of our major markets, being led primarily by Houston and Dallas currently.

--------------------------------------------------------------------------------

Brian Michael Vaccaro, Raymond James & Associates, Inc., Research Division - VP [24]

--------------------------------------------------------------------------------

Okay, okay. But even a modest improvement in sort of the 2-year trend, if you will, is encouraging. Okay, okay. And then one last one if I could, just Rich, on the Taco Cabana margins, I appreciate your comments there and sort of some of the initiatives you're pursuing to improve the margins, but from the current run rates that we're currently seeing sort of in that low double-digit run rate, where do you see a normal level of store profitability settling out? And how much of that bridge is due to a sort of expected cost savings and efficiency programs versus building sales from here? And that's all from me.

--------------------------------------------------------------------------------

Richard C. Stockinger, Fiesta Restaurant Group, Inc. - CEO, President & Director [25]

--------------------------------------------------------------------------------

Okay. Brian, that's a great question. I'm going to get kicked under the table by Lynn as to how much I can say. We definitely have room in the margins at Taco, and we're going to be working on that diligently. How much we can get from a labor perspective, we think there's, right now, I think, there's probably a point in there that we can pretty much grab pretty quickly off the trend. And in the food cost, we've locked in right now, so a lot of it has to do -- I think we'll be able to get some improvements in the chicken pretty quickly. I don't anticipate significant price increases or any price increases at all at Taco. I think we've done enough right now. It's now going to be in some of the combination of items doing combos, et cetera. We'll be doing certain LTOs to get people in. But it's not going to be anything from a price increase. It's now going to be after just better controls within the units.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

(Operator Instructions) Our next question comes from Joshua Long, Piper Jaffray.

--------------------------------------------------------------------------------

Joshua C. Long, Piper Jaffray Companies, Research Division - Assistant VP & Research Analyst [27]

--------------------------------------------------------------------------------

I wanted to dig into the opportunity for both off-premise sales through catering and then also delivery. It seems like a pretty exciting piece of the business, and you've mentioned reinvesting into or putting in some catering managers at the store level. So I'm curious on just kind of how that process works if those are net adds or maybe if you think that, at the end of the day, we've been able to kind of offset some positions as you've taken kind of a look at where operating hours are? And then just longer term, I know you said it's not -- it's still a little early to start thinking about re-accelerating unit development, but as we think longer term, how do you start taking into account the large off-premise opportunity and then balancing that with what the size of the store footprint should look like going forward?

--------------------------------------------------------------------------------

Daniel K. Meisenheimer, Fiesta Restaurant Group, Inc. - SVP & COO [28]

--------------------------------------------------------------------------------

Okay. This is Danny. Let me start with the catering piece and then we'll go to development. In the catering piece, the managers that we're adding, there's an offset for that because they're revenue generators. And so the way we will do this at Pollo first is to establish that program from a catering standpoint. We were doing that because of where we are with the renewal plan, where we are in terms of staffing. It's not only from an operations standpoint, but from a sales standpoint. And so those 2 will converge coming in the fourth quarter as we make our first big catering push for the brand during that time of year. And then of course, Taco Cabana will follow suit from a catering standpoint. The same is true for the delivery side of the business. Anything that we do in terms of investment, whether it's capital investment at the unit level, whether it's in the services that we provide and the partners that we choose, that's offset clearly by -- more than offset by the gain that we picked up from the sales and the opportunity of that. So these 2 things are hinged to one another, catering first, third-party delivery second, and then Pollo will be the first up and Taco will be the second.

--------------------------------------------------------------------------------

Richard C. Stockinger, Fiesta Restaurant Group, Inc. - CEO, President & Director [29]

--------------------------------------------------------------------------------

In terms of development, again, next year is going to be similar to this year, but we're already looking at ramping that up the year after. And not so much that there's not opportunity in locations, we are not done with the renewal program. We still have a lot of work to get within the four walls of where we currently operate our businesses. But we've already started what we're going to do in -- past next year and the year after that to accelerate our growth, and we have not yet as to where and when in outside of Florida and Texas, but we're looking

(technical difficulty)

--------------------------------------------------------------------------------

Joshua C. Long, Piper Jaffray Companies, Research Division - Assistant VP & Research Analyst [30]

--------------------------------------------------------------------------------

Great. Curious on the repositioning of Taco. You talked about bringing in more families, younger consumer. Curious if those were -- new to the brand or maybe perhaps a bit lapsed just given the fact you've got a strong core brand equity in a lot of these Texas markets. And then, what your research is telling you in terms of the ability to kind of push the brand even further. You'd mentioned 2 brands in particular that you wanted that you kind of have benchmarked yourself against. Just curious if the consumer is viewing that as well and kind of giving you permission to maybe move up the menu from a new product or mix perspective or just kind of how you're thinking about that.

--------------------------------------------------------------------------------

Richard C. Stockinger, Fiesta Restaurant Group, Inc. - CEO, President & Director [31]

--------------------------------------------------------------------------------

Sure. I would tell you we are bringing in new guests to Taco that haven't been there in several years because of a lack of deep discounting and going more for quality at full price. What's driving them in, I believe is the quality and the quality of our advertising, which has been -- all about freshness and quality of ingredients as well as our social media. We really started a major social media effort, which is bringing in more and more followers, and we're seeing that with some of our daily deals, et cetera. So again, not at all discrediting any competitor that is doing the 3.99 or 4.99 or discrediting the people above us. We just think there is a market and know from our research, there is a market in between those 2 for a very high quality, good value, full price, which means full profit guest. So we expect to do some more research starting the end of this year and then going into next year looking at these new guests that are coming in. But by going to the restaurants and speaking with Chuck and his team, we're getting new guests, we're getting some guests that didn't -- that haven't been to us in a while, but now they're enjoying coming to the Patio. They're coming enjoying to having either an alcoholic beverage with a shareable item and some of our newer items and bringing the children at the same time. So not just are we looking at the people are coming in for take-out or drive-thru. We're now concentrating more and more effort on the people that want to enjoy TC within the four walls of TC.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

Ladies and gentlemen, we have reached the end of the question-and-answer session. And this does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.