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Real Mex reduces losses in 3Q

Company credits value-focused promotions, small plates and retail product for boost

Real Mex Restaurants Inc. narrowed its losses during the third quarter, in part due to traffic-boosting happy hour promotions, the introduction of small plates and the expansion of its brand presence in grocery aisles.

For its third quarter ended Sept. 10, the Cypress, Calif.-based parent of the Chevys Fresh Mex, El Torito and Acapulco casual-dining chains reported a loss of $6.3 million, compared with a loss of $13.4 million in the third quarter last year.

Revenues declined 4.5 percent to $118.6 million from $124.2 million for the quarter a year ago. The $5.6 million decline in revenue reflected a $5.1 million drop in restaurant revenues, as well as a $400,000 slide in manufacturing and distribution revenues, and a $100,000 decrease in franchising royalties and fees.

The closure of seven mostly El Torito restaurants outside California during the quarter was partly to blame for the revenue decline, as was the 2.4-percent drop in same-store sales. Although average checks were up 0.03 percent, company officials said entrée counts were down 2.7 percent.

In an overview of third quarter results, Richard Rivera, Real Mex chief executive, said the company is continuing to focus on menu and value-focused promotions rather than discounts to build traffic as the economic environment continues to become “more stabilized — not good, but more stabilized.”

Rivera noted that the recent quarter was lapping a period of deep discounting in the third quarter of 2009.

Toward the end of the recent third quarter, sales began to turn positive, Rivera said, in part because of comparisons, but also as a result of successful Happy Hour promotions at El Torito offering $3 drink specials.

Rivera said the company also has been testing the offer of small plates at both El Torito and El Torito Grill restaurants — following other casual-dining chains such as The Cheesecake Factory and California Pizza Kitchen, which have had success with similar moves.

While noting that small plate offerings are not a new trend, he said, “They give people more variety and allow them to dictate what they want to spend.”

Early indications show that guests are spending about the same amount when ordering off the small plates menus, he said, adding, “They just buy more individual units.”

The company declined to offer details on a lunch initiative, likely to be in test this month.

During the quarter, the company launched an El Torito-brand Caesar salad kit at Costco stores in Southern California. Through its manufacturing-and-distribution arm Real Mex Foods, the company also began producing a line of El Pollo Loco-brand bowls, which are sold in various grocery chains in Southern California.

Rivera said the company is looking to expand its contract manufacturing, and points of distribution are picking up for Real Mex-branded grocery products.

In June majority ownership of Real Mex was reclaimed by its previous owner, private-equity firm Sun Capital Partners Inc.

Cypress, Calif.-based Real Mex operates, franchises or licenses 182 restaurants, 152 of which are in California, a region that continues to struggle with high unemployment.

In addition to the core brands — Chevys, Acapulco, El Torito Grill/Sinigual and El Torito — the company operates eight concepts under the Las Brisas, Casa Gallardo, El Paso Cantina and Who-Son & Larry’s brands.

Contact Lisa Jennings at [email protected].

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