Fiesta Restaurant Group Inc. is considering regional menu promotions to boost traffic at its two brands in the wake of closing 10 Pollo Tropical units in October, the interim CEO said Monday.
The regional promotions aim to “improve appeal and profitability in each of our Pollo Tropical markets,” said Danny Meisenheimer, who was named interim president and CEO in September, succeeding Tim Taft, who retired from the company. Fiesta, which also owns the Taco Cabana brand, has a total of 386 restaurants.
“New product innovation has been an area of key focus at both brands, balanced with minimizing related operational complexity,” Meisenheimer said in a call with analysts after the company released third-quarter earnings that reflected a loss due to the 10 closures.
“Starting in late August, at Pollo Tropical we promoted a new Churrasco Steak offering across the system, which contributed to generating positive transactions in September,” Meisenheimer said. “In October, we began promoting a Chipotle Shredded Chicken Taco meal deal priced at $4.99 at Taco Cabana. More product innovation is underway in the fourth quarter and throughout 2017 at both brands.”
For the third quarter ended Oct. 2, Fiesta swung to a loss of $4.5 million, or 17 cents per share, from a profit of $7.9 million, or 30 cents per share, in the same quarter last year. The quarter included asset impairment charges of $18.5 million related to the 10 closed Pollo Tropical restaurants, eight of which were in the newer market of Texas.
Third-quarter revenue rose 5.9 percent, to $182.3 million, from $172.1 million in the same period a year ago, the company reported.
Third-quarter same-store sales declined 1 percent at Pollo Tropical, with traffic down 2.5 percent. Same-store sales fell 4.1 percent at Taco Cabana, with traffic down 3.5 percent.
Meisenheimer said the expansion of Pollo Tropical had led units in some areas to struggle amid what he called “challenging market conditions, restaurant concentration and lack of brand awareness.”
The company had opened 38 new Pollo Tropical restaurants in Texas and 20 in the Atlanta and Nashville, Tenn., markets.
“Unfortunately, despite the loyalty of valued guests and the efforts of our dedicated teams, some of those locations have struggled,” Meisenheimer said.
“In addition, our rapid expansion has to some degree caused us in these new markets to take our focus off of what is most important, providing our guest an exceptional Pollo Tropical experience,” he added.
Of the 10 closed Pollo Tropical restaurants, three locations in Texas may be converted to the Taco Cabana brand, he said.
Lynn Schweinfurth, Fiesta Restaurant Group chief financial officer, said the company plans a reduced 2017 expansion schedule of 12 to 13 new Pollo Tropical restaurants in Florida and eight to 10 new Taco Cabana restaurants in Texas.
Alexander Slagle, an analyst with Jefferies LLC, said the closures and moderated unit growth plan would benefit the company.
“We think this makes sense, as temporarily halting development in challenged emerging markets will provide the necessary breathing room to focus on operations and building awareness,” Slagle said in a note Tuesday.
Meisenheimer noted that the Pollo Tropical units in the Florida market generated average unit volumes of at least $1.9 million.
“We are also planning to reimage 22 restaurants in South Florida, primarily in Miami-Dade County, where we operate our busiest and most profitable restaurants, with AUVs of approximately $3.5 million,” he said.
He said Taco Cabana growth will focus on smaller Texas markets, as well as adding restaurants in existing markets.
“In smaller markets, we will utilize a smaller scalable building prototype that we believe can produce target investment returns, while still delivering the full menu and brand experience,” he said.
Meisenheimer said the company had suspended its search for a Taco Cabana brand CEO, and had named Mark Phillips interim chief operating officer. Phillips has worked at Taco Cabana for more than 20 years, most recently as vice president of operations.
As of Oct. 2, Fiesta had 215 Pollo Tropical units, with 34 of those franchised, and 171 Taco Cabana locations, with seven of those franchised.