Fiesta's CEO Discusses Q4 2013 Results - Earnings Call Transcript

| About: Fiesta Restaurant (FRGI)

Fiesta Restaurant Group, Inc. (NASDAQ:FRGI)

Q4 2013 Results Earnings Conference Call

February 25, 2014 4:30 PM ET


Lynn Schweinfurth - Chief Financial Officer

Tim Taft - President and CEO


Alex Slagle - Jefferies

Jeff Farmer - Wells Fargo

Nicole Miller Regan - Piper Jaffray

Will Slabaugh - Stephens Incorporated

Nick Setyan - Wedbush Securities


Please standby, we are about to begin. Good day, everyone. And welcome to the Fiesta Restaurant Group Fourth Quarter and Full Year 2013 Earnings Conference Call. Today’s conference is being recorded.

For opening remarks and introduction, I would like to turn the conference over to Lynn Schweinfurth, Chief Financial Officer. Please go ahead.

Lynn Schweinfurth

Thank you, Jessica. Good afternoon and thank you for joining our call. Our fourth quarter and full year 2013 earnings release was issued after the market closed today. If you’ve not already seen it, it can be found on our website, under the Investor Relations section.

Before we begin, I must remind everyone that our call today may include statements that are not based on historical information. These forward-looking statements include, without limitation statements regarding our future financial position and results of operations, business strategy, budgets, projected costs and plans and objectives of management for future operations.

Actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements and we 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 our SEC filings.

Please note that today’s conference call we may discuss certain non-GAAP financial measures, which we believe can be useful in evaluating our performance. Any discussion of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and a reconciliation to comparable GAAP measures is available in our earnings release.

And now I would like to turn the call over to Tim Taft, President and Chief Executive Officer.

Tim Taft

Thank you, Lynn, and good afternoon, everyone. I’d like to briefly review both annual and quarterly highlights and then discuss our dynamic plans for 2014. Lynn will wrap up our formal remarks by walking through the financials and affirming our outlook.

For the full year we grew revenues 8.2% to $551 million, which included contribution from 16 net new company-owned restaurants, as well as comparable sales increases of 5.9% at Pollo Tropical and 0.5% at Taco Cabana.

Our brands have now had positive comparable sales for four consecutive years. Pollo Tropical average unit volume increased $2.7 million, while Taco Cabana’s AUVs also increased and is at $1.8 million, both among the highest and fast casual and quick service segment.

But perhaps even more compelling is that in 2013 we had 28 Pollo Tropical restaurants that generated between $3 million and $4 million in average unit volume and five restaurants that generated over $4 million AUVs. We also had five Taco Cabana restaurants that generated over $3 million in AUVs in 2013.

GAAP net income increase $1 million to $9.3 million in 2013 or $0.39 per share compared to GAAP net income of $8.3 million or $0.35 per share in 2012. Adjusted net income increased $6 million to $20.2 million or $0.84 per share from $14.1 million or $0.60 per share in 2012.

As you know, we also raised more than $135 million in net proceeds from the public offering of common stock, which together with borrowing under a new $150 million senior credit facility enabled us to repurchase or redeem our outstanding Senior Secured Second Lien Notes reducing our outstanding debt by nearly $130 million at year end with significant decrease in interest rate and thereby substantially reducing our interest expense for 2014 and beyond.

Lynn will discuss the result our recent financing efforts in greater detail but the key takeaways that we enhanced our capital structure and are better position with resources available to us to grow our business and capitalize on future opportunities.

Operationally, we accomplished much at the corporate brand levels by improving the caliber of our team, elevating effectiveness of our marketing and promoting products that satisfy customer needs and are aligned with our brand strategy.

We finished out our new FRGI headquarters in Addison, Texas and recruited staff to support our current business and to prepare for anticipated growth. We also bought the more robust real estate pipeline that we believe will enable us to hit our development target with high quality restaurant site.

We terminated our transition services agreement with our former parent company and brought in-house remaining support functions that have been providing to us since the spin-off of May 2012 and we are now fully self-efficient. This was accomplished before one and half years ahead of schedule and its testament to the hard work and results delivered by the team.

Back in front office IT is not generally a topic on restaurant earnings conference call, but I think its important to note that in making transition from our parent we catapulted our IT infrastructure significantly through the use of cloud-based system that are easier to support and more scalable as we become even larger enterprise. We also completed redesign of our brand website which has led to the significant 200% to 300% increase in site visits as we also significantly grew our fan base on Facebook.

And while the digital realm is currently important, critically important for our messaging and customer interaction, we also rely on traditional media, such as TV, radio and outdoor mediums to give our brand message out and to promote LTOs.

We recently partnered with the leading media planning and buying agency Southwest Media to make our purchases smarter and more efficient. Southwest Media is the perfect partner for these emerging brand as we expand our footprint and increase media in smaller markets, while backfilling existing markets to reach peak media efficiency.

We design and elevated and distinctive Caribbean Pollo Tropical prototype that we estimate will save somewhere between $150,000 and $170,000 in building cost per restaurant that features a complete redesign from the insight and out including a new ergonomically engineered kitchen.

This stress test kitchen design should prove to be more efficient and we expect to prove out potential labor savings opportunity in our Addison, Texas restaurant that opens next month. All new Pollo Tropical elevated restaurants will feature this kitchen design regardless of where they are built.

Taco Cabana which will be branded as Cabana Grill when we open next month at Atlanta, similarly features a new kitchen design that’s been elevated as well. We designed new menu boards, updated the product offering and color scheme and we will be serving lunch and dinner only. So Cabana Grill will not be open 24 hours like a typical Taco Cabana restaurant.

While the name change is intended to avoid confusion with other Taco named concept. You are committed to a fresh food heritage prepared on the premises and believe these attributes will be a strong brand differentiator. In particular, we will be handed pricing corn and flour tortillas in plain sight of our guests and intend to make this signature feature in all Taco Capabana and future Capabana Grill restaurants.

Our supply chain initiative proved effective helping us manage commodity cost despite commodity inflation while upgrading the quality of products served. We also established secondary suppliers for over 20 of our top SKUs along with the distribution network in the South west for Pollo Tropical and South East for Taca Cabana as we execute on our go west strategy for Pollo and go east strategy for Taco Cabana under the marker for that grill.

Now in terms of the quarter itself, we delivered the quarter itself we delivered $0.20 in adjusted EPS and this compared favorably to the $0.12 in adjusted EPS we reported for the same period last year. Our topline grew 7.6% which was made possible by comparable restaurant sales at Pollo Tropical and revenue contributions from new other locations which more than offset a comp sale decrease at Taco Cabana.

Restaurant level adjusted EBITDA as a percentage of restaurant sales expanded by 200 basis points to 20.8% as we effectively manage the middle of the P&L. Even higher G&A related to the completion of the transition from our former parent and solid as it adjusted EBITDA as a percentage of revenue increased 150 basis points to 12.3%.

So with that introduction let's discuss individual brand highlights and then turn our attention to 2014. Pollo Tropical truly has a gravity of its own and continues to deliver excellent results. Comparable restaurant sales grew 7% in the fourth quarter as compared to 8.3% gain in the same period last year, which resulted in stack growth on a two-year basis of 15.3%.

The brand is now into its fifth straight year of positive and comparable sales and has generated growth in each of the last 17 quarters. Specific to the fourth quarter, the comparable sales gain was well balanced between 3.8% in transaction growth and 3.2% in average check growth.

Note that the cumulative impact price increase was 2.1% for the quarter. During the quarter itself, we promoted chicken chipotle sandwich with harvest soup and tested new Tropical light menu in our West Palm Beach markets. They consists of five unique offerings that are all under 510 calories.

The healthy menu was very well received by our guests and will soon be rolled out under the addition of market. So far in the first quarter, we had a two new ways to enjoy our signature fresh growth chicken through the introduction of the Tropical Chicken Spinach Salad and Tropical Chicken Spinach Wrap.

On the development front, we opened in care with Florida outside of Tampa, Cumming; Georgia, outside of Atlanta in the fourth quarter bringing our yearly -- our year end tally to 102 company-owned locations. One franchise location also opened in Panama during the fourth quarter. So far in the first quarter of 2014, we’ve opened up three company-owned restaurants and have seven under construction.

I will discuss our companywide development plans for 2014 in a moment but let’s first review Taco Cabana. Taco compared a comparable restaurant sales for 2.9% in the fourth quarter as compared to prior year gain of 6.8% which was by far the brand’s toughest quarterly comparison in several years.

On a two-year basis, Taco Cabana grew comparable sales by 3.9%, specific to the fourth quarter, the comparable sales declined consisted of 0.5% increase in average check and 3.4% decrease in guest traffic. Traffic was negatively impacted primarily by weather while a cumulative price increase for the quarter was 0.7% reporting a higher average ticket.

It’s appropriate to point out that Taco Cabana had 24 fewer remodels that negatively impacted the fourth quarter compared to the same period in 2012. During the fourth quarter itself, we promoted Loteria a game where guests can win foods and other prizes instantly or buy collecting combination of stamps over time as well as featuring a brief Taco plate for $499.

In addition, we also offered a $3 happy hour with half priced nachos and margaritas. We added one restaurant in Austin, Texas during the quarter bringing the year end total to 165-company owned restaurants. We also completed a total 11 remodels in San Antonio in 2013.

We’ve opened these markets, continue to outpace the system while elevating the perception of the brand. We will be continuing the program in 2014 as I would detail shortly. Weather is another excuse, merely an explanation when you have restaurants or has been the case, entire markets shattered, you can only control so much.

To that end, as operators, we are pleased to report that we achieved at least 160 basis point improvement in order accuracy. In fact, all of our operating metrics in the area of cleanliness service, friendliness and restaurant condition rose last year. Evidence with our customers recognized our renewed commitment through operational excellence.

Now let’s dive into our plans for 2014. Disciplined expansion particularly will take centerstage in 2014 as we are accelerating growth to improve a total of 22 to 26 new company-owned restaurants of which 20 to 22 will be Pollo Tropical. I know we have spoken in the past about opening a balance in our first Pollo Tropical in Texas. We perhaps are not aware of is that we plan to build 10 more restaurants in Texas this year across Dallas, Austin, Houston and San Antonio. Creating Pollo Tropical beachheads in DMAs, where we already have a strong presence of Taco Cabana, enable us to share infrastructure, managerial oversight, labor force training and supply chain authorization.

We are also going to be extremely efficient from a marketing standpoint as it relates to TV, radio, media purchasing outdoor and the local store coupon drops. Beyond selecting the particular site, we’ve also identified support resources by restaurant management, finalized our menu, pricing and distributions so we can make a big fish successfully from day one.

The balance for the Pollo Tropical development will be across our three current states as we fill lot of the existing market and increased our media penetration, which will improve more TV and radio slots in lower penetrated markets. Regarding Taco Cabana, we are limiting ourselves to two to four openings this year and we will also be closing up to four Taco Cabana locations in Texas, primarily because of highway taking and lease expirations.

The big news is the upcoming Cabana grow opening at Atlanta and what that might mean for us is a secondary growth year. We will be keeping a watchful eye on this restaurant, which is not only is down the street from a Pollo Tropical restaurant we opened at Mid-Atlanta in 2012.

And finally, we are forging ahead with our Taco Cabana remodeling program with approximately 25 to 30 products projects slated for completion in Houston and El Paso in 2014. Houston is one of our oldest markets. We believe that a comprehensive remodeling program will really propel the brand forward in these markets.

The ROIs on completed remodel projects reinforce continued investment spending in this manner. At the corporate level, we recently announced a multi-year product and marketing agreement with the Coca-Cola Company, under which all company-owned Pollo Tropical locations in the U.S. will serve Coca-Cola products. The agreement also extends to our Taco Cabana locations, which has served Coca-Cola products for 35 years.

We believe combining with soft drink gallonage for both brand and at the same time being able to select the industry leader as our beverage supplier is a win to our customers, our team members and of course our shareholders. We further expect to leverage our joint marketing and operational capabilities with Coke as we expand both within and into new markets.

On the technological front, we will be implementing a new smartphone app that we believe will deliver even better fast casual application of price value and convenience to our guests. Our Pollo Tropical and Taco Cabana apps, which will soon be available for Apple and Android users, will enable customers to order and pay for via their phones or tablets, and avoid the drive-through line and will bring their food directly to them at a specific time of their choosing.

Home meal replacement is of course an important component of both branded sales mix and a nice check builder too. We know that our fresh flavorful food travels extremely well and we believe our guests view this as a key attribute when determining what to bring home for dinner.

Given the importance that smarphones play in our lives these days, the growing importance of technology and helping customers make choices of where to purchase food, we think this app will be viewed as a very positive step forward. The app will also likely serve as a catalyst to raise average check as under chains app that have rolled out apps and expressed the notion that customers tend to order more at higher price food online than the food on the phone or in person.

Finally, with our corporate team now in place, we believe that we have the resources and talent on hands to sustainable grow our business and achieve higher profitability and continue to grow shareholder value.

Before I turn the call back over to Lynn, I want to thank our team for a fantastic year. We did a great deal of multitasking in 2013, establishing our corporate headquarters and related staffing. We are taking big strides in involving our brands and preparing for exciting development both in 2014 and years to come.

Our organization is focused and work collaboratively to accomplish a great deal in strengthening our brands and creating value for our shareholders. I applaud everyone for their efforts.

At the same time, we thank Carrols for being fine stewards of our two brands and hope the excitement of our future success is shared by the teams that worked so diligently over the years and especially during the transition. Lynn?

Lynn Schweinfurth

Thank you, Tim. I would also like to thank the team at Carrols that provide a quality before and transition training to help facilitate a successful implementation of our new corporate infrastructure in Addison.

We have just put in place a great team in our new Fiesta headquarters that shares a collective passion for excellence, commitment and collaboration to support our restaurant’s breadths on operations and our brand team.

I’m extremely pleased with the financial results and accomplishments we made in 2013. Let me first summarize quarterly and then full year results. For our three months period that ended on December 29th, we grew total revenue by 7.6% to $136.2 million from $126.6 million due to the impact of new stores developments, comparable restaurant sales both at Pollo Tropical and the cumulative effect of price increases, partially offset by lower comparable restaurant sales at Taco Cabana.

For the quarter, sales delivered comp sales growth of 7%, and it continues to be one of the strongest brands in the industry. Taco experienced a comp sales decline with weather remodeled timing and a challenging prior year comparisons impacting results.

Recorded today through this past Sunday, Pollo grew comp store sales by 6.6% and Taco grew comp stores sales by 1.3%. As Tim has already addressed new store developments and comparable store sales performance and related details, I will turn to addressing some of the key expense line items in the P&L.

We continue to see improvement in cost of sales as a percentage of restaurant sales, which includes 20 basis points this quarter compared to the prior year period, due primarily to supply chain initiatives and the benefit of modest price increases, which mitigated commodity inflation.

Restaurant wages and related costs as a percentage of restaurant sales improved 120 basis points year-over-year, primarily due to the favorable impact of sales leverage and favorable medical and other benefit costs. Rent expense increased 40 basis points as a percentage of restaurant sales because of new company-owned restaurant openings and sale-leaseback transactions that were completed during the year.

Other restaurant operating expenses increased slightly by 30 basis points as a percentage of restaurant sales due primarily to higher insurance cost. Advertising expense decreased as a percentage of restaurant sales by approximately 100 basis points in the fourth quarter compared to the prior year period, due primarily to timing and a decision to reduce advertising given adverse weather conditions in Texas.

Pre-opening cost decreased by $0.2 million due to timing of expenses for future openings which are typically incurred between 4 to 6 months prior to the restaurant openings.

Turning to G&A expenses, they were $1.6 million higher than the prior year period at $12.6 million as a result of company management and team additions, including higher cost associated with completing the implementation of our corporate infrastructure.

Depreciation and amortization increased $0.7 million to $5.3 million due to new company-owned restaurant openings as well as restaurant remodeling expenditure.

Interest expense decreased by $1.5 million in the fourth quarter 2013 compared to the prior year period due to refinancing and reduction in our outstanding debt and lower interest rate.

Adjusted net income increased $2.2 million to $4.9 million as compared to adjusted net income of $2.7 million. Adjusted EPS increased to $0.20 per share compared to an adjusted EPS of $0.12 in the prior year quarter.

Turning to full year financial performance, Pollo grew comp store sales by 5.9% in 2013 while Taco grew comp store sales by 0.5%. If you recall the industry experienced the slowdown in traffic at the beginning of the year as higher payroll taxes and delayed income tax refunds negatively impacted consumer spending patterns. In addition, 2013 was a challenging year with weather comparisons that negatively impacted Taco’s results.

For the full year, cost of sales as a percentage of restaurant sales came in with margin improvement of 15 basis points year-over-year as pricing and efforts to define supply chain opportunities to mitigate higher cost have been successful.

Restaurant wages and related expenses were favorable as a percentage of restaurant sales coming in over 70 basis points better than the prior year as a percentage of sales driven primarily by higher sales and lower worker’s compensation cost.

Advertising expense as a percentage of restaurant sales was lower year-over-year as a result of our decision to reduce spending in the fourth quarter as a result of adverse weather conditions in large Texas market. Going forward we expect to spend about the same as we had spent in years prior to 2013 as a percentage of sales or 3.3% to 3.4%.

Pre-opening expenses have increased with our accelerated development efforts increasing $1.1 million in 2013 versus 2012. Rent expense increased $5.3 million in 2013 versus the prior year as a result of new restaurants and sale-leaseback transactions. In addition, the impact of the qualification for sale-leaseback accounting for certain leases triggered by the spin-off increased rent expense by approximately $2.8 million.

G&A expenses were $4.7 million higher than the prior year period at $48.5 million as a result of company management and team additions, including higher cost associated with completing the implementation of our corporate infrastructure.

Depreciation and amortization expense increased $2.1 million as a result of new restaurant development and restaurant remodeling partially offset by the qualification for sale-leaseback accounting for certain leases triggered by the spin-off which decreased depreciation expense by $0.7 million.

Impairment and other lease charges improved by $6.8 million in 2013 compared to 2012 due primarily to the closure in 2012 of five Pollo restaurants in New Jersey.

Interest expense decreased by approximately $6.4 million in 2013 versus 2012, partially due to the qualification for sale-leaseback accounting for certain leases, eliminating related interest expense by $3.9 million. In addition, debt refinancing in the fourth quarter and the capitalization of interest expense driven by an increase in new store construction also favorably impacted interest expense year-over-year.

Adjusted net income increased $6 million to $20.2 million in 2013. Adjusted EPS was $0.84 compared to an adjusted EPS of $0.60 in the prior year, an increase of 40%.

At year end, we had a cash balance of $11 million. We closed on six sale-leaseback transactions that generated over $15 million in cash during 2013. We had a total of $74 million in outstanding debt, including $71 million drawn on our new $150 million revolver and we were in compliance with all covenants related to our credit facility.

Leverage ratios also improved significantly as a consequence of our debt refinancing and equity capital raise. After reserving for $8.4 million for letters of credit, we had $70.6 million available for borrowing under our credit facility at year end. During the fourth quarter, we repurchased and redeemed all of our $200 million senior secured second lien notes that were due in 2016 and carried an interest rate of almost 9%. We did so by generating net proceeds from an equity offering of approximately $135 million issuing approximately 3.1 million shares and through borrowings of $81 million under a new revolving credit facility.

As I just mentioned, we had $71 million drawn on our facility at the end of the year and it carried a weighted average interest rate of 2.25%. On an annualized basis, assuming a consistent rate and debt balance, our new credit facility would result in approximately $16 million in interest savings compared to that of our $200 million notes. These interest savings on an after-tax basis partially offset by the dilution created by the equity offering represents meaningful EPS accretion in 2014.

The new senior credit facility provides for aggregate revolving credit borrowings of up to $150 million, including $15 million available for letters of credit and currently bears an interest rate of LIBOR plus 175 basis points and matures December 2018. The new senior credit facility also provides for incremental increases of up to $50 million to revolving credit borrowings available under the new facility.

We recognized the pre-tax loss on extinguishment of debt at $16.4 million or $0.42 per share after-tax in the fourth quarter of 2013 related to the repurchase and redemption of the notes. The loss on extinguishment includes the write-off of deferred financing costs, related to the notes and payments, interest and other fees related to the repurchase or redemption of the notes.

The 2014, we are reaffirming our prior operating target. We continue to expect Pollo to grow comp sales by 3% to 5%, while, Taco is projected to grow comp sales by 1.5% to 3.5%.

As we build out Florida and new markets, keep in mind that we are expecting some sales cannibalization at Pollo. In 2014, this cannibalization may represent up to a percentage point of comp sale.

Tim mentioned that we intend to build 22 to 26 new restaurants of which 20 to 22 will be Pollo restaurants. We’re also anticipating closing up to four Taco restaurants during the year, due do condemnation to build roadways, lease expirations or redevelopment projects or with the intention to offset the closed restaurant with the new restaurants in the same trade areas in the superior size.

We are also eager to validate our new Pollo prototype in Taxes this year and to determine whether our new elevated Cabana Grill concept will meet performance expectation consistent with what our consumer research told us, resulting in another potential growth vehicle for our company.

G&A is expected to be $48 million to $50 million including equity-based compensation. And now that we have our team in place and we’re fully self-sufficient, we will continue to look for opportunities across our organization to be more efficient yet effective.

We have previously provided the 2014 effective tax rate estimate of approximately 37% to 38%, based on the assumption that the work opportunity tax credit was reinstated and effective in 2014. Without the reinstatement of the work opportunity tax credit in 2014 our rate could be higher or approximately 38.5% to 39.5%.

And finally, capital expenditures are projected in the range of $60 million to $65 million which includes $45 million to $50 million for new restaurant development, $12 million to $14 million for remodeling and capital maintenance, and $46 million for additional systems investments to realize efficiency, improve management tools fees by our restaurant management team and to enhance the guest experience.

2013 was the transitional year for our entire organization and we made incredible strive to establish the foundation from which we will meet our long-term business goals. We look forward to continuing to deliver our strategic operating and financial goals in 2014 and thereafter.

With that, Jessica, lets open up the line for questions.

Question-and-Answer Session


Thank you. (Operator Instructions) We’ll go first to Alex Slagle with Jefferies.

Alex Slagle - Jefferies

Thanks. Question on Pollo Tropical, just, Tim, if you can give us more color on what drove the acceleration in the same-store sales and traffic and it's pretty amazing on two and three year basis all accelerating was there, something in particular that you can pull out of there?

Tim Taft

Alex, I think, the answer is, its not any one particular thing, it’s a combination of all the different initiatives. There has been speed of service initiatives. There's been accuracy initiatives, which have helped with throughput we have eliminated from some of our products in the core area. We eliminated beef fajitas. We redid the packaging which helped the speed and timing, the accuracy of Pollo specifically as a couple of points better than the year ago which translates hundreds and thousands of dollars of transaction that are not being redone. So it’s really about improving throughput and improving efficiency. New creative, new websites, new TV, new media planning and buying, it’s a combination of all those things which continue to have a positive impact on our sales.

Alex Slagle - Jefferies

Okay. And the accuracy metric that you put out the 160 basis points, is that just for Taco or was that both?

Tim Taft

That was really a blended for the two Taco, Pollo is about two points better and Taco is around 1.3, 1.4 so blended. It was 160 basis points for the both.

Alex Slagle - Jefferies

Okay. And if you could just talk little bit more about the strategic decision to sort of slowdown the Taco remodels in the fourth quarter and kind of your thoughts around that?

Tim Taft

Well, first of all, as Lynn mentioned, we going in and I mentioned as well, going into the or had been Houston and in San Antonio, those are our oldest markets. And with those older markets, more money, more energy needed to placed on them, which included more of the processing and a permitting process that we had in the other markets.

Roofs needed to be replaced, extending dining rooms and that kind of thing. So rather than trying to pack the tax the operation and try to do too much, we said let’s just spread it out and let's make sure that we did correctly with local municipality in their, their…

Lynn Schweinfurth

Their related requirement.

Tim Taft


Lynn Schweinfurth


Alex Slagle - Jefferies

Okay. Thank you.


The next is Jeff Farmer with Wells Fargo.

Jeff Farmer - Wells Fargo

Thanks. Lynn, I apologize if I missed this. There’s a lot of obviously moving pieces to the P&L especially with the some of the refinancing that went on out there. But any rough estimate on EPS growth, the ballpark number, we should be thinking about in ’14?

Lynn Schweinfurth

Well there is a lot of moving number. So again, depending on which number you’re pointing to and what the growth rate is. No, we haven’t been specific but again our EPS growth continues to be meaningful and we expect that in 2014 and beyond.

Jeff Farmer - Wells Fargo

Okay. And just one other quick modeling question for to ask one more about the top line. Just because of the timing of the transaction, what’s a good share count to think about in Q1 in terms of incorporating a full quarter those shares been out there?

Lynn Schweinfurth

I will say that I’ll give you a rounded number, $26.2 million.

Jeff Farmer - Wells Fargo

Okay. And then last one on the top line, you talks on this with the discussion about the output. I’m just following up on Alex question is obviously strong comp. So one of the things you pointed to in the past is home meal replacement. And the fact that its growing to become, I think a mid team percentage of your sales mix al Pollo. So the question is that momentum still there, how big a percentage of your mix, do you think that can grow to and how do you actually market that service in store for people that even find out about it.

Tim Taft

Jeff, on the online order, there's quite of purchased material that speaks to and has the way to lay the order online. Also the invention of app that is currently would be tested, rolled out in the next week or so and then after probably mid April, we will roll it out to the Texas market. That would be marketed across on our web site on point of purchase material that takes whole momentum and we will have that fitted on, absolutely all of our to go materials, cups and anything you could imagine.

Jeff Farmer - Wells Fargo

Okay, as a percentage mix what is on new replacement right now?

Tim Taft

Right now, probably, the whole new replacement is about 18%. We expect that to continue to grow as we make it easier for people to not only online ordering but also on the app. Online ordering right now is in handful of markets and we plan on continuing to roll that out over the next six months.

Jeff Farmer - Wells Fargo

Okay. Thank you.


And we will go next to Nicole Miller Regan with Piper Jaffray.

Nicole Miller Regan - Piper Jaffray

Thanks good afternoon. In terms of the current comp trend, how much price is in that going forward on so far this year please?

Lynn Schweinfurth

So for 2014, we took price at Pollo which essentially last took price from a timing standpoint and we feel 1.4% in price, kind of mid to late December and then with Taco, we recently took about 1.1% to 1.2% price and adding some price we took in the middle part of the year, they will carry about 1.3% into the first quarter.

Nicole Miller Regan - Piper Jaffray

Thanks. And for the stores for this year, are they -- can you give us a number on the signed leases or is that the majority and then kind of what would be cadence of opening throughout the year by quarter if possible?

Tim Taft

Well, I think for the, in terms of pacing, as I mentioned we opened up three, we have got seven under construction, the big period is going to be -- base percentage of our restaurants would be opened and then towards the end of the year but the third quarter is going to be primarily well for large number of open up of restaurants.

Nicole Miller Regan - Piper Jaffray

Thank you. And just a final one on that app you are talking about, what would be your loyalty function either initially or over time?

Tim Taft

Nicole, there will be over time. Although we want to start up, just making it simple and getting people with the customization or getting their head wrap around how that will work. So we feel largely there is going to be a little bit different and then when you call up on the location, actually ordered and put your credit card number in, you are going to tell what time you are going to be here and we are anticipating you be in and then when you pull on location, you will hit the app button and we will have the food running out for you. So more conveniently to give and have more efficient outcome from function with better often feel that we are going to be there.

Nicole Miller Regan - Piper Jaffray

Thank you so much.


We will go next to Will Slabaugh with Stephens Incorporated.

Will Slabaugh - Stephens Incorporated

Thanks guys and congrats on the great year. I have a couple of questions for you, first I wonder if you could give us an update on the performance of the new Pollos that you build in your new elevated markets. Are you still pleased with what you are seeing out there as far as you opening scale?

Tim Taft

Well, the answer to that is yes. We are still very pleased. There is two sets of restaurants that we’ve opened. One is obviously in the existing market where strategically they are doing what we thought they would do and that is try to take some relief of some of the highest unit volumes that we have. Interestingly not even those restaurants that we thought would be cannibalized are now starting to narrow that gap. But also in the new market in Jacksonville and Atlanta, we are still very encouraged by the kind of volumes that they are building. And we are also excited by the fact that in 2014, we are going to have the amount of grill opening-up restaurants in those markets as well as additional players. So we will be able to have more million dollars to spend on those restaurants. So all-in-all, a lot of time we were ask the question, are there any dogs out there? And the answer is no.

Will Slabaugh - Stephens Incorporated

Great to hear. Second question, could you tell us a little bit more about the new prototypes that you mentioned going into effect obviously with Pollo and then Atlanta with Taco Cabana, what do you think the biggest test changes are going to be and then as far as any food or menu changes that might occur?

Tim Taft

Well, I think more than anything else it’s Pollo in Texas, I don’t think that besides the logo that you will recognize anything about it. It looks completely different than the Pollo Tropical in the Florida markets. Although research indicated that one of the things that we had a disadvantage in Florida and in the South East is that our restaurants to the consumers, even though that traded with us thought that it looks Mexican, or that it was a Mexican offering.

So we redesign the interior and exterior of the building to look very much Caribbean inspired and there is no escaping, that this is a Carrabin inspired restaurant. And in Taco in Atlanta, the restaurant looks very much -- in fact, it is the same envelope as the restaurant that we were building in Texas. There is a little bit of a color difference. It’s not going to be the pink, but will be more of a kind of eggplant color is the theme and instead of Taco Cabana, it will be Cabana Grill.

But really the change for Cabana Grill in terms of menu, there is something that’s in the Southeast. We said that they don’t like lupines for instance and we won’t offer lupines. And in the Southeast, they think that some of the higher velocity items will be what traditionally in Texas have been low velocity items, specifically not only the tortillas but the (inaudible).

So we think that there is going to be a high velocity item, which has allowed us and made us to change our kitchen design. But all in all, we are going to be serving about the same kind of products.

Will Slabaugh - Stephens Incorporated

Got you. Thank you very much.


(Operator Instructions) We will go next to Nick Setyan with Wedbush Securities.

Nick Setyan - Wedbush Securities

Thank you. Congrats on another great quarter. I just have a quick question on the topline and then I want to spend the time on some of the margin assumptions. We have seen the quarter again of really good average check growth. Could you maybe kind of give us some color on what the drivers on the mix on the Pollo side are? Is it just a continued trend of higher take out orders and new replacements, or is there some timing around market and marketing and sort of LTOs that are higher priced, sort of how should we think of that going forward?

Tim Taft

I think we’ve very simply stated that our percentage of outcome of consumptions and online ordering is continuing to go up and that’s really been the main driver of check average. And on a go-forward basis, I think our goal is to prepare for an even greater percentage of transactions consumed off premise. So our intention for that trend is to continue.

Nick Setyan - Wedbush Securities

Got it. Got it. And then just as we accelerate unit growth, how should we think about the labor and the rent takes time, specially on the rent side we’ve have had, obviously the change now that’s over way since so we have got to anniversary that. But just kind of a going forward, can we start seeing some leverage if Pollo continue with the compliment at the sort of mid to high end of your guidance range, or should we think about more of a flat, I’m just trying to say sales and then on the labor, that would be great if you could give some color there?

Lynn Schweinfurth

Yes. I would say on the labor side because of some inefficiency due to initially, when you open up restaurants, you can’t assume that there will be too much expansion on the labor line items. We also had some benefits this year with adjustments made from medical expenses and I mentioned with workers’ comp earlier as well. So, I would say year-over-year that percentage as a percent of restaurant sales should be approximately the same if not close.

On the restaurant, on the rent expense line item, I think you were talking about actual flow through for Pollo versus Taco. Again, with some of the pressure points with new restaurant development, we are getting our cost in mind as you get used to the volumes in the new restaurants and also the labor scheduling. Those two things are less efficient in the initial three or so months. And then, we also have pre-opening costs. And what I would say is our margin should be well in line year-over-year, maybe a little bit pressured on the Pollo side being offset by Taco.

Nick Setyan - Wedbush Securities

Perfect. Thank you very much.


And that does conclude our question-and-answer session as well as today’s conference. Thank you for your participation.

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