Fiesta Restaurant Group, Inc.
Q1 2018 Earnings Call Transcript
Published:
- Operator:
- Good afternoon and welcome to Fiesta Restaurant Group First Quarter 2018 Earnings Conference Call. Today’s conference call is being recorded. At this time, all participants are in a listen-only mode. Following our presentation, we will conduct a question-and-answer session. Instructions will be provided to you at that time to queue up for a question. I would like to turn the conference over to Raphael Gross, Managing Director at ICR.
- Raphael Gross:
- Good afternoon everyone. Fiesta Restaurant Group’s first quarter 2017 earnings release was issued after the market close today. If you’ve 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 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 the company can give no assurance that such forward-looking statements will prove to be correct. Important factors that can cause actual results could 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 Stockinger:
- Thank you, Ralph. We are very encouraged by the building sales trajectory across our two unique brands as we continue to execute our strategic renewal plan. At Pollo Tropical, the brand re-launch continues to gain momentum, resulting in five consecutive months of positive comparable restaurant sales performance from December through April. Looking at the first quarter specifically Pollo Tropical generated its first quarter of comparable restaurant sales growth since the fourth quarter of 2015 with a 1.1% increase and a 22.8% restaurant level adjusted EBITDA margin, which is a non-GAAP measure defined in our SEC filings, an improvement of over prior years of 10 basis points. Our core markets Miami-Dade and Broward counties continue to lead the sales recovery, both with comparable sales growth of approximately 3%, exceeding the Florida Black Box quarterly industry benchmark of 1.9%. Our momentum continued into April with the company owned comparable restaurant sales increase of 2.8%, including comparable sales increases of 5.1% and 3.9% in Miami-Dade and Broward counties respectively. Importantly, we generated the highest comparable sales growth in the system on a percentage basis during April in our non-core Southwest Florida market where we first began testing our citrus-marinated crispy chicken platform earlier in the year. Reinvigorating our business in South Florida has been and remains our primary focus, but we are encouraged by the improving sales trajectory across every Pollo Tropical region. The comprehensive improvements in food quality, hospitality and restaurants facilities as part of the brand re-launch are clearly resonating well in both our core and non-core markets. Our investment in the brand including food, labor and marketing and O&M have clearly and reinvigorated the brands where it is today. We're focused on driving sales and future improvements in the margin. With that Danny will now provide a more detailed update on Pollo Tropical initiatives. I will then touch on the progress we’ve made at Taco Cabana before Lynn goes through our financials in greater detail.
- Danny Meisenheimer:
- Thank you, Rich. I would like to echoes Rich’s enthusiasm about the progress we're making at Pollo Tropical. The heart of our revitalization includes comprehensive quality enhancements made across our menu, including NAE chicken and the incremental impact of our new citrus-marinated crispy chicken platform introduced earlier in the year, validated by extensive research and testing, our culinary team has developed this unique product, founded on our signature 24-hour citrus margination process and flavor, which is hand battered in the restaurant and then fried. We consider this platform a real game changer for our brand. Let me briefly recap the timeline in this new platform. At the beginning of 2018, we begin testing crispy Pollo bites with television and social media support with promising results. In February, we rolled out crispy Pollo bites system wide that could be ordered as a meal, as a side item or in our signature TropiChop bowl. We are still only in the early innings of this process, but our crispy Pollo bites have already reached between 11% and 15% of transactions across every Pollo market since its launch. As the next step in our product evolution, we launched a new crispy Pollo bite wraps in April, supported by broadcast and social media. We attribute our 2.8% comp sales growth among other things to the compelling appeal of our crispy chicken platform that we believe will bring guests back more frequently once they try the product. Next up is our new crispy chicken sandwich which we are particularly excited about. Not only does the research indicate that the process would drive incremental visits, the quality and size of this product stands out in the market. More importantly, adding crispy chicken to our legacy chicken on the grill line up will allow us to appeal to a broader demographic. The feedback that we have garner thus far points to one conclusion, our guest will love this new platform in both core and non-core markets. And we are excited to see where it will take us going forward. Our focus on quality hospitality has been instrumental in the success of our new product roll outs and people are taking notice. We have been receiving a lot of guest compliments around the enhancements we’ve made to the guest experienced. We also recently held our General Manager’s Conference where there was a shared sense of passion, pride and commitment to be the best-in-class in our segment. Last, we continue to use social and digital media to build sales. As an example, we continue to promote the Pollo time which is a specific promotion at a reasonable price that targets building sales during certain parts of the day and certain days of the week by market. The current offer includes our signature half chicken, rice and beans in core markets for $5.99. In non-core markets, the current offer includes five Crispy Pollo bites, one fountain drink for $5.99 in all markets. During weekends Pollo term includes two family meals for $12.99, a whole chicken, rice and beans or 20 Crispy Pollo bites in one side. Advertising is now highlighting our signature citrus marination -- breast citrus marination to reinforce what differentiates Pollo Tropical from the competition. Lastly, we are planning to roll out our new loyalty program, online ordering and digital catering platform by early July, which believe will be foundational as we focus on building our off-premise business including delivery and catering. To conclude, the path we have been on has been both ambitious and challenging but the team has executed the plan to-date and we are delivering improving results. We are energized by our process as we begin to -- as our -- by our progress as we continue to strategically implement plan initiatives and build our business in the months and years ahead. With that, let me turn the call back over to Rich.
- Richard Stockinger:
- Thanks, Danny. Let me reiterate that the key focus that Pollo continues to be the fresh NAE chicken where we control the breed and the feed, bone-in and boneless, grilled or crispy, inspired by the tropics. Next, let me provide an update on our progress at Taco Cabana. While comparable sales fell 1.7% during the quarter, it is quite notable that Taco Cabana trends have been improving since August 2017. This encouraging trend continued into April with our first month of positive comparable restaurant sales growth of 0.9%. These trends are even more notable given the reduction in operating hours since November 2017 which have negatively impacted comparable restaurant sales by 1.6%. The breakdown of our quarterly comp between the transaction decline and the higher average check is indicative of our strategic direction that we are taking with this brand. As we have said previously, we are evolving our guest base to higher quality menu and promotional items at reasonable prices while eliminating deep discounting and reducing overnight operating hours. This of course is benefiting our average check while negatively impacting our transaction as we transition through this interim period. We therefore believe that our trends will continue to improve as we build new guest loyalty and frequency. Turning to profit innovations and other initiatives. We are reestablishing the quality in many recipes that originally made Taco Cabana special with the help of our founding chef Connie Gutierrez. We had online with system-wide rollout of our new Applewood-smoked Texas brisket. As brisket related product sales are exceeding 100 per restaurant, per day. One of the most successful product introductions in years. Our other product improvements included improved stake now USDA Choice inside skirt steak; NAE chicken; higher quality shrimp; and lean-smoked bacon to name a few. Next, we'll be rolling out our improved shredded chicken and ground taco meat in the coming weeks. We are also nearing completion of our TC patio party development and will be rolling this out strategically at certain restaurant. The patio party consistent entertainment in our restaurant's patio area and featured alcoholic beverages to complement shareable menu offering. Our draft beer and sangria test in select Taco Cabana locations continues to yield favorable results and we are planning to gradually expand this offering prior to our re-launch. All-day breakfast and TC Time! Dozen Taco Boxes continue to build. New creative TV media and aggressive social media are now in place as we continue to drive guest engagement and frequency to timely and a little bit social post, digital ads and e-blast. We have recently featured Brisket is Back, Margarita Mondays, Taco Tuesdays and other unique specials that change week-to-week. Given the traction, we have experienced with Pollo brand re-launch, our taco team is eager to implement their own brand re-launch this summer. Similar to Pollo, guests are noticing the enhancements we have put in place at TC. And our guest metrics and social media scores are improving. As we continue to build our sales, our margins will also improve. We recently held our annual Taco Cabana general management meeting in San Antonio. Under Chuck Locke’s leadership, the team is energized. Focused on delivering, a great guest experience, motivated and optimistic about the future. Chuck is an integral part of the turnaround and is proving himself to be the leader that the Taco Cabana brand reserves. As with Pollo, loyalty, online ordering, delivery and catering will also be rolled out at TC this year. In summary, I am pleased with our progress today given the sales improvement that both brands and the stabilized restaurant level margins at Pollo. We have more work to do at Taco to improve margins through sales leverage and supply chain, staffing and other initiatives that are underway. I’m confident that we are on the right path to establishing a promising foundation for future expansions. I’d like to thank all of our team members for their passion and hard work and helping to deliver our recent accomplishment. With that, let me turn the call over to Lynn.
- Lynn Schweinfurth:
- Thank you, Rich. During the first quarter 2018, comparable restaurant sales at Pollo increased 1.1% compared to a 6.7% decrease in the first quarter last year. This year’s increase included 2.3% decrease in comparable restaurant transactions offset by a 3.4% increase in average check. The increase in average check was primarily driven by many price increases that positively impacted restaurant sales. Comparable restaurant sales in Taco Cabana in the first quarter 2018 decreased 1.7% compared to a 4.5% decrease in the first quarter of last year. This year’s first quarter decline included an 11.3% decrease in comparable restaurant transactions, partially offset by a 9.6% increase in average check, due to positive sales mix associated with higher priced promotions, product mix, lower discounts and pricings. Reduced overnight operating hours, negatively impacted quarterly comparable restaurant sales by 1.6%. Please note that comparable sales for both Pollo and Taco during the first quarter were negatively impacted by approximately 0.4% each related to a fiscal calendar shift of New Year's Day and Easter. At Pollo, restaurant level adjusted EBITDA decreased by $1 million, but margins rose 0.1%. Restaurant level adjusted EBITDA margins were positively impacted by sales leverage, lower advertising costs and the closing of unprofitable restaurants during 2017, partially offset by the negative impact of higher cost of sales and repair and maintenance costs, primarily driven by the renewal plans. At Taco, first quarter restaurant level adjusted EBITDA decreased by $3.6 million and margins declined by 4.6%. Restaurant level adjusted EBITDA margins were negatively impacted by the deleverage of sales, higher labor costs due to increased hours to improve hospitality, higher wages and higher medical enrollment and claims cost and higher cost of sales and repairs and maintenance costs driven by renewal plan investment, partially offset by lower advertising costs. During the quarter, consolidated adjusted EBITDA on non-GAAP measure defined in our SEC filings declined to $17 million, primarily driven by lower restaurant level adjusted EBITDA at both brands, partially offset by lower G&A expenses. Adjusted net income also a non-GAAP measure was $4.3 million or $0.16 per diluted share compared to the prior year period adjusted net income of $6.8 million or $0.25 per diluted share. Please refer to our earnings release and SEC filings for all related non-GAAP reconciliation table. We continue to estimate our annual capital expenditures for 2018 to be $60 million to $70 million, including $22 million to $25 million for the development of new restaurants. As a reminder, other capital spending will primarily include deferred and other capital maintenance IT and infrastructure investments and restaurant remodel. Turning to our development plan for 2018, we expect to open seven to eight company owned Pollo Tropical restaurants in Florida and seven to eight new company owned Taco Cabana restaurants in Texas. As a reminder, these Taco Cabana openings will include five closed Pollo Tropical restaurant conversions. For the year, we also anticipate two Taco Cabana restaurant closures as we open new sites in superior locations in the same trade areas. We did not open any new restaurants during the first quarter. On the technology front, we continue to make meaningful investments that we believe will help us to be more effective in building sales and telling our story to both current and new guests. New loyalty programs will be implemented by early July in conjunction with our new digital delivery, catering and off-premise platforms, all of which presented us with the significant business opportunities to drive off-premise sales including delivery and catering as I mentioned earlier. Lastly, during the year we will be testing kiosk at each brand for potential roll out in 2018. To conclude, the successful implementation of our strategic plan includes refining our brands to have broad appeal and developing platforms for future sustainable growth to deliver our business model that creates long-term value for our shareholders. We believe we are on course to meet this objective. With that, Matt, will you please open the line for questions. Thank you.
- Operator:
- Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Our first question is from Nicole Miller from Piper Jaffray. Please go ahead.
- Nicole Miller:
- I wanted to understand a little bit more about marketing side. I know the menu has a modest level but there’s opportunity to be somewhat regionalized. Is there an opportunity to do that in terms of marketing as well, are you doing that and why or why not? Thank you so much.
- Richard Stockinger:
- Yes, that’s sustaining. And we’re certainly are doing that on the Pollo side in terms of the marketing plans. They do vary by market and by region. It could be a different blend of traditional and non-traditional media. Social and digital is playing a much bigger part and give us flexibility to tailor menu, offerings, Pollo terms as we mentioned earlier to really fit the market need and the customer type. So, it is matching.
- Danny Meisenheimer:
- The marketing will follow the flexibility of Pollo where the Pollo brand will be driven primarily by what it's used in South Florida Miami-Dade and Broward by the bone and chicken. But as you move to other markets, you have to be flexible to what the particular market needs are, it may not be so much bone and there may be boneless or it may be more handheld and less platters. So, our research has told us that and we are seeing it right now. So not only the marketing has to be focused more towards the individual needs and the flexibility of the brand.
- Nicole Miller:
- And just a second last question from me. How are guest satisfaction scores and also because the GM conferences have been recent, what are the challenges that offer the opportunities that the store level teams see?
- Richard Stockinger:
- I think the -- well the last one first, the opportunities that the store level people, the excitement and passion is incredible because the guest complaints have gone down, the compliments are going up and of course the sales are going up, their results are getting better and of course their incentive plans, each one is incentivized on their individual stores, as well as the better we do and continue to improve we look back to the growth model that we haven’t forgotten, it’s just been put on hold for a period of time during this renewal process. So, from them the excitement is incredible.
- Danny Meisenheimer:
- No just to reiterate, the satisfaction in net promoter scores have also been improving too coincide with what Rich said.
- Operator:
- Our next question is from Nick Setyan from Wedbush Securities. Please go ahead.
- Nick Setyan:
- When you guys talk about the Taco re-launch, it seems like a lot of things and improvements have already been made. I guess what’s the incremental step, what’s the difference between kind of what’s been going on till summer and the summer relaunch.
- Richard Stockinger:
- Sure. It’s Rich. We are still and as I mentioned before just two items. We’re not done with the proteins. We have finished with rolling out all the improve proteins as well as the patio program, it’s not yet, it’s in the process of being sent out there. And again, more shareable type buyer, bigger and better nachos et cetera. Once we’re completely done and rolled out then we’ll do a complete re-launch. Right now, it’s been a little out of time, the all-day breakfast, we just put a table out, we got that for a bit. The TC Time! buy the buck, which is basically Tacos by the Boxes or Dozen Tacos where obviously, we only had them at breakfast, we now have them all day and is not just breakfast items, its non-breakfast items and that continues to improve weekly. Well hopefully the loyalty program and some of the other programs ready to go and that when we do the re-launch. Right now, it’s just in okay, we’ll send out a little part of the renewal program and then pull it back. We’re about ready to do the stake, which is the marinated state platform that will be coming out in a few weeks. and in the commercial sets another added improvement from what we had before. So again, it’s really the culmination of these little things we have been rolling out which hopefully have that on this summer.
- Nick Setyan:
- Got it. I’m not sure Lynn, I’m not sure if you said the price versus mix. What it was for each brand? Could you mind telling us that?
- Lynn Schweinfurth:
- Yes. So, pricing for Pollo is 3.15% for the quarter and for Taco it was 6.8%.
- Nick Setyan:
- And in terms of the go- forward pricing, how we’re thinking about each?
- Lynn Schweinfurth:
- Well, we’ll be carrying some price certainly above brands throughout the year. We are planning potentially to take more price in the fall. So, it will fall between the mid-single-digits percent for the full year.
- Nick Setyan:
- Thesis for each brand?
- Lynn Schweinfurth:
- Well, it’s going to be a little over 5% for Taco depending on what we do in the fall we still have to finalize that decision. And then for Pollo, we’re probably trending closer to 4% for the year.
- Nick Setyan:
- And I guess the next price increase will be in fall.
- Lynn Schweinfurth:
- Yes.
- Nick Setyan:
- And then in terms of the commodity inflation, we saw for each brand the quarter, and I guess what you’ve seeing for the rest of the year?
- Lynn Schweinfurth:
- Yes. For the menu enhancements we have certainly seen some cost increases and those are laid out in our 10-Q document. I think the bigger impact to the 2 brands, is really the higher quality ingredient that we are purchasing. So that’s really the primary driver of the increased costs year-over-year. And then on the labor front, we’re speaking anywhere between I’d say 1% to 2% at Pollo and about 3% at Taco.
- Nick Setyan:
- And just lastly, when you guys talk about the non-core markets in Pollo seeing the improvements in April. Is the comp becoming more equal, I guess gradually more equal? How are we kind of thinking about that, as the year progresses in terms of the Miami market versus the rest of the markets?
- Lynn Schweinfurth:
- Well, the core market where we’re primarily focused initially. So, we have seen the benefits of that initial focus first in those markets. But as we mentioned today, our Southwest Florida market was the best performing market in the month of April, and that’s the market we have done a lot of our pre-testing and prior to system rollout. Our non-Florida and Atlanta markets continue to be challenged. However, they are improving in trajectory. So, we really have a range currently that we do expect to narrow further as we get through the balance of the year.
- Operator:
- Our next question is from Jeff Farmer from Wells Fargo. Please go ahead.
- Jeff Farmer:
- Thanks. You guys did touch on it, but across new product introductions, re-establishing that food quality I think you mentioned Pollo – Pollo Time! as well, the value offers, what’s been mostly impactful in driving the same store sales recovery at Pollo in your opinion and in terms of looking forward how sustainable are some of these drivers, are most of them going to be working for you for the balance of the year?
- Richard Stockinger:
- No. It’s not just --- Jeff, it’s Rich. It’s not just one item because we've improved 90% of the specs. So, everything has improved. In the beginning where we’re starting to drive was the Pollo Time! it was the $5.99 half chicken special bone-in as well during the week Monday through Friday at lunchtime and then at the weekend the $12.99 family meals. That was in the beginning starting to drive it. And now it's been -- recently it's been the addition of the bites and the crispy program. We've seen not only it’s been helping in sales and add-on sales, but it's also bringing in a different guest profile than we had before including Miami-Dade and Broward counties. It’s a younger guest and people are coming more often because of the success of the bite program or the crispy program. So, having just one item and say well that's we're going to hang our hat on that's been rolling forward. It's been an improvement in every item, we are focusing right now a little bit more on the handhelds because it's an opportunity for us and our research told us it was an opportunity. So, you’ll be seeing things like the sandwich coming out, we're playing with the potential slider program. We’ve got the -- we took the wraps and made them bigger wraps, they're better. So, we continue to look at improving the handhelds and the platters. So again, it's not been one thing, but it all goes back to the chicken when we improve the chicken, we improve the specs, continue the 24-hour marination, the NAE, it all starts with the chicken, don't care if it's bone-in or bone-less.
- Jeff Farmer:
- And then from a marketing perspective communicating with the customer everything you just outlined there. Are you early innings, do you think you've already done a good job of letting your existing customers, potential new customers know what has changed at Pollo or there’s still ramping up on the marketing communications side?
- Danny Meisenheimer:
- Yeah. This is Danny. We’re still in the early innings as we just said and we're learning a lot about this customer. We've been talking to them in focus groups and various research studies. We’re in the stores, we're doing intercepts, we're visiting with them and they’re very different. So, we're learning a lot about what their thoughts are about the brand and how they’re behaving in the category and really who they are and how we better target them and message through them. So, we're learning a about them as we go.
- Jeff Farmer:
- And just one final question on CapEx for 2018, it does include, I mean we can sort of back into it a healthy amount of deferred maintenance CapEx and some remodel CapEx, as you get into ’19, how much of that carries over into ’19 or do you get a big chunk of it taken care of an ’18 and then it falls off in ’19?
- Lynn Schweinfurth:
- Yeah. We are expecting that to fall off in ’19. We actually started our efforts in terms of deferred maintenance that needed to be addressed last year in 2017 with the balance being addressed this year.
- Jeff Farmer:
- Okay. Thank you.
- Operator:
- Our next question is from Will Slabaugh from Stephens. Please go ahead.
- Will Slabaugh:
- I had a question on Taco in order to make sure I understood how to frame the traffic declines that we saw this quarter. So, you mentioned that there continuing to be a lack of aggressive discounting but could you give us an example of what that was that you are no longer doing, whether it’s couponing or something else? And is there a concern at your end that the removal of some of this value whatever may have been could impact the frequency in future periods at all?
- Richard Stockinger:
- Sure. I will tell you that the guest decline and transaction continues to improve as we speak. So, people are starting to see the improved quality which we still think and so do our guests feel it is reasonable and fair priced. But we are no longer doing the coupons. We are no longer doing 4.5% in advertising and then 9% to 10% in discount and promotion. Our discount and promotion are hovering around 3% which is primarily for military first responders and senior citizens and it’s pretty much where it’s going to stay at. So, are we concerned? We are addressing it. We are doing selective type or strategic discounting or couponing, what I mean by that if we have some areas where we’ve been very big at breakfast and not so much at dinner, what we are doing is a bounce back. So, if you buy two dozen or a dozen breakfast tacos, we will give you a coupon good for the next x period of time for the hours of say 3
- Will Slabaugh:
- And also, you mentioned that kiosk test later this year. I think you said in Pollo. So curious any updated thoughts around any other technology you may be looking at to improve the profits, is there any test with delivery or any update on catering here as well?
- Lynn Schweinfurth:
- It’s a big category. So, I think yes is the general answer to your option. So, we are testing kiosks actually at both brands, not just Pollo this year. We are looking at new handheld POS equipment to helping our throughput at the restaurants. We are certainly looking at other digital capabilities that we talked about in our pre-opening comments around new loyalty program, new online ordering, guest experience and everything that kind of goes with it. So, technology is and will continue to be a big area of focus for the company as we move forward.
- Richard Stockinger:
- We’ve contacted the best in the business with B2B, although -- or it be punch where multimedia for the catering, so anything we’re roll it out, we have been working on extensively under renewal program. The line buster program will have new iPads, like items out there to be able to take the credits cards right there to just to get people through the dry fruits faster. So, we again are pretty excited about what the roll out, again will be some time in the summer -- late summer but we have been working on this now as part of The Renewal Program for some time.
- Operator:
- [Operator Instructions]. Our next question is from Brian Vaccaro from Raymond James. Please go ahead.
- Brian Vaccaro:
- Just a question on the comps if I could. I think you said the calendar shift was a 40-basis point headwind to the first quarter. Lynn can you maybe quantify that the Easter shift benefit to the April comps that you reported?
- Lynn Schweinfurth:
- Yes. It would be within 40 to 60 basis points for the month.
- Brian Vaccaro:
- And wanted to circle back also on the guest sat scores at Pollo Tropical. Can you speak to which metrics you’re seeing the greatest improvement in and then specifically on value are you seeing any signs of resistance to the price increases that you referenced earlier?
- Danny Meisenheimer:
- This is Danny. The number one feedback that we get in the highest ratings are in qualify of food and the trends have been taking that direction since the beginning and we see them get better and better and better. So, quality of food is the leading metric that we’ve see from our yesterday.
- Richard Stockinger:
- And the value scores that have not gone down, because of the quality of food and what we’ve been very careful on price increases again what area for Miami-Dade and real careful about the bone-in, the growth. And we’ll raise the prices in certain areas like the handhelds. So, we’ve real careful. We have introduced tier pricing which we announced several periods ago. But the value scores have continued and again I put that more towards the value and quality of the food.
- Brian Vaccaro:
- And then can you remind us, what the average check at these days at Taco Cabana?
- Lynn Schweinfurth:
- It’s over $11 currently.
- Brian Vaccaro:
- And then last one for me just quick one on the margins. Pollo Tropical margins specifically, that other OpEx line Lynn I know has been pressured by higher R&M for the last several quarters. Can you give us a sense of where you are sort of in the process of improving the physical state of the assets and when you expect that pressure point to dissipate?
- Lynn Schweinfurth:
- Well, we do expect ongoing costs throughout this year. But we do expect the cost dissipate as we go into 2019 on the expense line items similar to the capital category that we talked about earlier.
- Brian Vaccaro:
- And similar one on the advertising, I think came in lower than we expect this quarter and that’s our expectations not yours. But can you remind us what you expect to for Pollo Tropical ad spent this year maybe as a percent of sales just some guardrails there? And any cadence we should be mindful of as we move through the quarters? Thank you.
- Lynn Schweinfurth:
- Yes. We’ve actually move down our advertising expense expectation for the year a little bit for both brands down to 3.5%. As we are continuing to wait a little bit more heavily social media to help drive our results. And then on the Pollo side, from a cadence standpoint, we will be spending more in advertising in the second quarter as compared to the first.
- Operator:
- Our next question from Nick Setyan with Wedbush Securities. Please go ahead.
- Nick Setyan:
- In terms of the July 1 launch of online ordering and you kind of mentioned delivery. Is delivery going to be order through your side is it going to be third-party, is there going to be a test first. What’s your thinking around that?
- Lynn Schweinfurth:
- Well, we’ll definitely do a test first and we are going to try as best as we can to direct guests to go to our webcast because we won’t have to necessarily pay commissions associated with third-party delivery services, but by purchasing third-party delivery services, we have to offer our menus on their websites. So, through our loyalty program, we’re hoping this year those orders to the websites of the two brands.
- Nick Setyan:
- And the Taco launch, is that going to be a little bit later than Pollo, I know you guys said this year, did you guys mention any specific timeframe?
- Lynn Schweinfurth:
- Yes. Taco will be after Pollo, and Pollo we’re hoping to rollout in the coming weeks by early July.
- Operator:
- Thank you. This concludes the question-and-answer session as well as today’s teleconference. Thank you for your participation. You may disconnect your lines at this time.
Other Fiesta Restaurant Group, Inc. earnings call transcripts:
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