Fiesta Restaurant Group, Inc.
Q3 2019 Earnings Call Transcript

Published: 6 Nov 2019

[Operator:]

Good day and welcome to the Fiesta Restaurant Group, Incorporated Third Quarter 2019 Earnings Conference Call. [Operator Instructions]I would now like to turn the call over to Raphael Gross, Managing Director at ICR. Please go ahead.

[Raphael Gross:]

Good afternoon, everyone. Fiesta Restaurant Group’s third quarter 2019 earnings release was issued after the market close 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 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 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 a 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; Chief Financial Officer, Dirk Montgomery and Chief Accounting Officer, Cheri Kinder.And now, I will turn the call over to Rich.

[Rich Stockinger:]

Thank you, Raph. I would like to begin by welcoming two exceptional individuals to our leadership team. First Dirk Montgomery joined us as our new CFO. Bringing to us his significant experience as a financial and operational executive in the restaurant, retail apparel [ph] and consumer products industries, this includes multiple as a Chief Financial Officer at various public companies such as Bloomin’ Brands and Ascena Retail Group. Most recently he was CFO of Hooters International, the $1 billion iconic restaurant chain with 425 units globally in 25 countries.Second, Hope Diaz joined us as our CMO, which is an entirely new position at Fiesta. Hope is a successful marketing executive with over 20 years of proven experience focused on developing bold and effective brand strategies and marketing campaigns for concepts such as Popeyes and Burger King. Most recently she was Global Chief Marketing Officer at Popeyes. Hope is a Miami native and she was already a big [indiscernible] fan before joining our team. I’m very excited to have these talented people on board and know that, we will all benefit tremendously from their efforts in strengthening our company.Before we review the third quarter results, I want to highlight these thoughts on the state of the business and strategic direction of the company. The key to the future of Fiesta is nurturing the existing Pollo Tropical business and positioning that concept to achieve its full potential. Our team has been and will continue to be focused on the Pollo business as a top priority. Although we’ve had a tough year with continuing market environment challenges, we’re optimistic that we’re beginning to turn the corner on returning to sustainable comp store sales growth at Pollo Tropical, driven by a refined value menu offering business platform simplification and accelerating growth in off premise channels including catering, delivery and online.We also continue to believe that the Pollo Tropical brand has significant growth potential to the existing and new markets. We’re in the early stages of beginning work with third party research firms to better position the brand to broaden consumer appeal while maintaining our strong core customer following. This effort will progress throughout 2020.Regarding Taco Cabana, we’re seeing early signs of sales transactions stabilization based on recent results. We’re in the process of simplifying the menu and operations platform to improve efficiency and customer service and will combine those efforts with continued improvement in promotion effectiveness and off premise channel sales to return to growth. This brand has a long and successful legacy in the Texas market and the management team is very focused on regaining momentum.As I mentioned, we now have what we considered to be a complete and very strong management team comprised of industry veterans that will continue to gain traction as they settle into their roles. We believe all of those factors will lead into 2020 being a better year for the company. With that, let’s discuss third quarter results and more specific details on our growth initiatives. As you know since Pollo Tropical and Taco Cabana operate mainly in Florida and Texas respectively. We think it’s best to compare our brands comparable restaurant sales and transaction trends to their peer group with the markets which we operate versus national industry benchmark while peer reporting for their entire domestic footprint.With this in mind, we faired really well despite lapping formidable year ago comparisons and notably ended the third quarter in a better position than when we started it due to a stronger September at both trends. Starting with Pollo Tropical, comparable restaurant sales fell 3.8% during the third quarter versus a positive 6.5% comparison from the previous year or alternatively rose 2.7% on a two-year stack basis. Compared to Black Box fast casual Florida benchmark for the markets in which we operate, Pollo Tropical was slightly below benchmark by 0.5% on a comparable restaurant sales basis, but outperformed by 2.9% on a comparable restaurant transaction basis.Our focus on sales driven [ph] initiatives resulted in market share growth both for the quarter and year-to-date. We gained $130 basis points versus the competitive set on a transaction basis year-to-date through the third quarter. If we were to exclude the planned impact of new store cannibalization from our peers comparison, we outperformed Black Box slightly by 0.3% on a comparable restaurant sales basis and by 3.7% on a comparable restaurant transaction basis.As we noted in the press release, September was Pollo Tropical’s strongest month during the third quarter exceeding Black box in both a comparable restaurant sales and transaction basis both including and excluding cannibalization. We attribute our strength volume Hurricane Dorian to the popularity of the Pollo Time value platform and a successful Churrasco Steak platter LTO [ph].In terms of media focus, our everyday value platform Pollo Time continued as a primary campaign that’s $3.99 quarter chicken meal, lunch seven days a week, $5.99 half chicken meal and dinner seven days a week and $12.99 original family meal on weekends. These items are featured on TV with real guest testimonials and emphasis on freshness and quality. We continue to make progress on our key sales building initiatives over the quarter including catering, delivering and online sales.Catering by Pollo Tropical now features a new lower price menu to broaden our appeal as a compelling B2B and B2C option and our Party by Pollo platform places greater emphasis on party platters of various sizes design to meet the need of informal and social gatherings. Pollo Tropical is also now available on ezCater, the largest marketplace for corporate catering. Catering orders are still in the early innings at 0.8% of total sales in September but growing at a healthy sequential pace.We are very optimistic as to what catering can become for this brand. And therefore invested in the infrastructure including sales people, catering of operational units and delivery vehicles to ensure that the offering uphold high standards for delicious, fresh, flavorful food that we are known for within our restaurants. Delivery is currently available through DoorDash through all Pollo Tropical restaurants. But this sales channel is still in its infancy representing only 2.3% of our total sales in September. We think that, in time the delivery mix can reach 10% or even 15% of sales given the industry data points coupled with the fact that our food travels so well and that these sales should become increasingly incremental.We have also raised many prices for our displays through DoorDash to offset the high cost of delivery and have not seen guest complaints as a result of that increase. To increase efficiency, we have created rapid pick up at 36 Pollo Tropical restaurants for those ordering online for pick up and sales core for delivery via DoorDash. This feature has been well received and we’ve rolled out to all Pollo Tropical locations by Q1, 2020. Although it is early in this rollout, we’re seeing a very solid sales pick in the locations in which we have added rapid pick up.Notably, our exclusivity with DoorDash to both Pollo Tropical and Tabo Cabana ends in February and we have begun discussions with additional delivery service providers to expand our reach. While DoorDash is a leader in the Florida market and has a meaningful presence in our largest Texas markets as well. We believe making our food available on a variety of marketplace platforms is important to gaining share within the nascent market good for delivery.Turning to brand profitability, our margin performance was solid considering the comp decline. Absent the impact of lease accounting and hurricane impact, Pollo adjusted EBITDA margins would have been up slightly versus last year and our dollar decline would have been approximately $0.6 million versus last year. Dirk will provide more details in a moment.A major operations focus for us is improving speed of service and we have a number of initiatives underway on this front. The remote POS tablets that were rolled out earlier this year are enabling us to improve our drive in speed of service and guest interactions. We’ll also be simplifying our menu and operations platforms over the next year by eliminating overselling [ph] menu item that add operations complexity and improving food preparation and efficiency.Finally for Pollo Tropical, we’ll be remodeling about a dozen restaurants this year it’s a better match to our interior with our food quality, many of these projects are underway and we expect to wrap up all of them by year end. With that, let’s turn our attention to Taco Cabana. At Taco Cabana, comparable restaurant sales fell 4.8% during the third quarter versus a positive 12.2% comparison in the prior year. Well alternatively rose 7.4% on a two-year stack basis compared to the Black Box fast casual [indiscernible] Texas benchmark for the markets in which we operate, Taco Cabana underperformed by 1.9% on a comparable restaurant sales basis and mirror [ph] disappears on a comparable restaurant transaction basis. Like its sister brands comparable restaurant sales transit Taco Cabana [indiscernible] September driven by the launch of the TC Time Value platform, so we ended the third quarter in a stronger position than when we started it.Based on the building momentum on the TC, Time platform. Taco Cabana September transactions exceeded the Black Box, Texas Benchmark Index which we view as very encouraging top line progress. The TC Time platform includes the following value offerings across key occasions. For breakfast, two bacon, egg and cheese tacos for $2.99. For lunch, two ground beef tacos with beans and rice for $3.99. For dinner, two chicken fajitas tacos with beans and rice for $4.99 and for family weekend dining six chicken fajita tacos and six flautas with beans and rice for $14.99.Similar to Pollo, we have made very good progress on our key sales building initiatives during the quarter including catering and delivery. Catering by Taco Cabana now features a new low price menu of delicious fresh and flavorful food for any business or social occasion. The menu is been rolled out all restaurants went online at the end of September and is expected to launch on EzCater’s marketplace in November. Similar to Pollo, we’re very optimistic as to what catering can become for this brand and as therefore invested in infrastructure including sales people, catering of operation units and delivery vehicles to ensure that the offering upholds our high standards for delicious, fresh, flavorful food that we’re known for within our restaurants. Delivery represented 1.4% of total sales during September. Similar to Pollo Tropical to offset delivery cost.We raised prices on new delivery menu, but we see no pushback as a result. From prospect perspective Taco Cabana restaurant levels [indiscernible] fell in absolute dollars due to the impact of negative comp sales and lease accounting changes. Absent the impact of lease accounting and tropical storm impact restaurant level adjusted EBITDA margins would have been roughly flat versus last year and the brand successfully flex labor down in response to the sales declined.As a reminder, restaurant level adjusted EBITDA is a non-GAAP financial measure. To conclude, we made strong progress during the third quarter on our sales building initiatives consisting of menu innovations, everyday value platforms and off premise dining including delivery and catering. The improved sales momentum in September is only partially reflective of what we can accomplish as we’ve been investing for growth across all these initiatives. We believe, they will continue to accelerate results for the remainder of year and into 2020.Our focus will remain on building sales capabilities across all channels both in store and off premise by continuing to enhance our brand attractiveness to guest. We further believe that we have an opportunity to enhance our digital connections and interactions and therefore partner with Bottle Rocket, a leading digital strategy design development company to grow our digital business and create experiences that minimize friction within our digital platform.With that, let me turn the call over to Dirk to go through our financials in greater detail.

[Dirk Montgomery:]

Thank you, Rich and good afternoon, everyone. This is my first conference call as Fiesta’s CFO, I’d like to express how excited I am to be part of the team and appreciate this opportunity to speak to you. Since showing in September I’ve been immersing myself in all things Fiesta and spending time with team members at our three support centers and our restaurants. These interactions have validated my belief that we have great growth opportunities at both of our brands and a very strong leadership team.As I have in my other public company CFO roles, to develop an open and constructive dialog with our shareholder and analyst some of whom I know from my prior industry experience. My philosophy is to be a good partner to the investment community and to be transparent and accessible. I look forward to engaging with all of you as we move forward. I also want to take a moment to thank Cheri Kinder, our Chief Accounting Officer and Controller who stepped up as the Interim Chief Financial Officer and did a great job. I very much look forward to working with Cheri going forward in her Chief Accounting Officer role and she has already proven to be a great partner.With that, let’s dive into quarterly results. Total revenues decreased 6% from the prior year period to $164.2 million due primarily to comparable restaurant sales declines of both Pollo Tropical and Taco Cabana coupled with restaurant closures as we operated 15 fewer locations at quarter end versus the year ago period. We continue to make progress in off premise sales during the quarter consisting of online catering and delivery orders which comprise 4.4% of Pollo Tropical’s total restaurant sales and 3.6% of Taco Cabana’s total restaurant sales in the third quarter of 2019. These results compared favorably to the 1.7% and 1.4% in total restaurant sales for Pollo Tropical and Taco Cabana respectively in the third quarter of 2018.Our net loss was $22.2 million or $0.84 per diluted share including a $0.84 per diluted share negative impact or $3.3 million impairment charges, $21.4 million a non-cash impairment of goodwill and $0.7 million in closed restaurant rent charges. Net and income tax benefits of $3 million, compared to net income of $2.0 million or $0.8 per diluted share in the third quarter of 2018.On an adjusted basis, net income was $0.2 million or $0.1 per diluted share and would have been $0.2 higher absent lease accounting changes. This compared to an adjusted net income of $3 million or $0.11 per diluted share in the third quarter of 2018. Please see the non-GAAP reconciliation table in our earnings release for more details. I’d like to highlight a few significant accounting items in the quarter.As we noted in prior quarters, new lease accounting standard impacted our results of operations. Summary level, deferred lease back gains that were previously amortized as a benefit to rent expense were eliminated. Amortization, deferred gains from sales leaseback transactions for the three months ended September 30, 2018 totaled approximately $0.4 million and $0.5 million for Pollo Tropical and Taco Cabana respectively.We also have a number of closed restaurants for which we had previous reserves it would not have recognized current period of expense under the previous account standard. This reserve was recorded as an adjustment to the write of use asset when we adopted the new lease accounting standard and rent expense related to close restaurants is now recognized each period. Close restaurant rent expense net of sub lease for three months ended September 29, 2019 totaled $0.6 million and $0.1 million for Pollo Tropical and Taco Cabana respectively.Finally, we recorded an additional goodwill impairment for Taco Cabana in the quarter. The $2.14 million non-cash impairment charge resulted in a full impairment of Taco Cabana reporting the goodwill and had an unfavorable impact on net income of $19.3 million or $0.73 per diluted share in the third quarter of 2019. Additional details regarding the impact of these significant accounting items can be found in our earnings release as well as 10-Q.Consolidated adjusted EBITDA margins decreased 120 basis versus last year however the year-over-year comparisons are difficult due to the accounting changes I’ve noted as well as the impact of the hurricane. After factoring in those items, our total company consolidated adjusted EBITDA margins would have been down only slightly compared to last year and this decrease was driven by the timing of incentive compensation accrual adjustments. As a reminder, consolidated adjusted EBITDA is a non-GAAP financial measure.Now turning to our individual brands. At Pollo Tropical comparable restaurant sales decreased 3.8% compared to 6.5% increase in the third quarter of last year. This year’s decline consisted of 2.7% decrease to comparable restaurant transactions and a 1.1% decrease in average check inclusive of approximately 1.1% in pricing, which was more than offset by lower sales mix. Due to lower price Pollo Time offerings which accounted for 11% of total sales was a primarily cause of the lower mix.Hurricane Dorian negatively impacted comparable restaurant sales by approximately 150 basis points. We also experienced an estimated 80 basis point impact during the third quarter from cannibalization within our core South Florida market particularly in Broward County where we’ve opened three Pollo Tropical restaurants over the past year and a half and are not yet in the comp base. However we view new development excluding the cannibalization factor as a positive for the brand overall since it allows us to enhance the guest experience while growing our total share in the market.As Rich indicated, we ended the quarter with positive momentum as Pollo Tropical comparable restaurant sales were positive for the period after the hurricane and we outperformed the Black Box benchmarks on both a comp sales and the transaction basis in September. Turning to the brands profitability, Pollo Tropical restaurant level adjusted EBITDA, a non-GAAP measure defining our SEC filings decreased by $1.4 million to $17.8 million or 20.1% of restaurant sales of $19.1 million or 20.4% of restaurant sales last year. There’s a $0.4 million negative impact associated with adopting the new lease accounting standard and an estimated $0.6 million of loss profit because of Hurricane Dorian. Absent the negative impact of the hurricane and lease accounting changes, restaurant level adjusted EBITDA margins would have improved by approximately 80 basis points.As a percent of restaurant sales Pollo Tropical benefited from lower cost of sales because of favorable commodities particularly chicken offset by higher Pollo Time and loyalty discounting and R&M [ph] expenses due to outsourcing and reduced internal headcount. However in addition to the negative impact to blow our comparable restaurant sales. The brand experienced higher restaurant wages and related expenses due to rising wage raise and a greater use of overtime and higher other operating expenses due to increased third party delivery fees and contract and cleaning services.Pollo Tropical adjusted EBITDA decreased by $1.6 million to $11 million in the third quarter of 2019 but would have been $0.4 million higher absent accounting changes resulting from adoption of the new lease accounting standard. In addition to the lower restaurant level adjusted EBITDA referenced a moment ago, we also experience higher D&A expenses due to the timing of incentive compensation accrual adjustments and invested in off premise support. Absent the impact of lease accounting in the hurricane, our adjusted EBITDA margins for Pollo would have been up slightly versus last year.Taco Cabana comparable restaurant sales decreased 4.8% compared to 12.2% increase in the third quarter last year. This year’s decline consisted of 5.6% increase in comparable restaurant transactions offset by 0.8% increase in average check. The increase in average check was due primarily to menu price increases of 1.4% and the introduction of higher price shareable items. Partially offset by discounted pricing for the TC time value platform.We also note that the severe weather in the form of tropical storm which resulted in store closures due to flooding which was audited negative comparable restaurant sales impact of approximately 20 basis points. Similar to Pollo Tropical comparable restaurant sales of Taco Cabana demonstrated solid improvement in September compared to the previous two months of the quarter driven by the launch of TC time.Turning to the brand’s profitability Taco Cabana restaurant level adjusted EBITDA, our non-GAAP measures defining our SEC filings decreased by $1.1 million to $6.9 million or 9.2% of restaurant sales from $8.0 million or 10% restaurant sales last year. There was a $0.5 million negative impact associated with the adopting of the new lease accounting standard absent the negative impact of lease accounting changes and flooding due to tropical storm severe weather, restaurant level adjusted EBITDA margins would have been essentially flat compared to the year ago period.As a percent of restaurant sales Taco Cabana incurred higher cost of sales due to increased discounting in traditional activity, higher advertising expense due to increased media spend and higher other operating expenses due to third party delivery fees. In addition to the negative impact of lower comparable restaurant sales these were partially offset by lower restaurant wages and related expenses due to improved staffing utilization. It was partially offset by higher wage rates and overtime as a percent of restaurant sales.Taco Cabana adjusted EBITDA decreased by $1.3 million to $1.2 million in the third quarter of 2019. Absent accounting changes resulting from the adoption of the new lease accounting standard adjusted EBITDA would have been $0.5 million higher, in addition we also experienced higher D&A expenses due to the timing of incentive compensation, accrual adjustments and investments in off premise support. During the quarter we recorded $3.1 million of non-cash impairment charges primarily related to underperforming Taco Cabana restaurants and $21.4 million non-cash impairment charge to write-down the value of the goodwill for Taco Cabana.One final comment on the trend of the business, third quarter results began to show only the partial benefit of the progress we’re making on driving comparable restaurant sales as a result of our new product and promotion innovations and investments in off premise particularly catering. We expect to see the benefits of that attraction more pulley [ph] in the fourth quarter and 2020. Turning now to a few additional financial items, we announced in our press release an increase in the share repurchase program of additional 1.0 million shares of common stock bringing the total authorized shares for repurchase to 3.0 million shares. This additional repurchase authorization underscores our intent to improve shareholder returns by pulling capital for continued share repurchases going forward.Under our two previous authorizations, we’ve repurchased approximately 1.2 million shares of common stock since February 2018 including over 900,000 shares during the third quarter itself. Following this increase, there are now approximately 1.8 million shares available for repurchase. Please note that the number of shares repurchased and the timing of repurchases will depend on a number of factors and that the program also has no time limit. It may also be modified and suspended, superseded or terminated at any time by the Board of Directors.With respect to development and capital expenditures, we maintained our plan to open three Pollo Tropical restaurants and three Taco Cabana restaurants this year. We now expect to be at the bottom half of our previous 2019 CapEx range of $45 million to $55 million this year. We call it our expenditure for 2019 including $11 million to $13 million to develop new company and restaurants, $10 million to $12 million to implement IT and other systems’ projects and $1 million in catering equipment.We’re also investing $16 million to $18 million for restaurant remodeling at both brands including equipment to support new menu platforms and other facility enhancements as well as $10 million to $11 million for capital maintenance. From a liquidity perspective, the company has more than adequate borrowing capacity at $77.3 million available on our line of credit as of the end of the quarter. our simple leverage ratio defined as our revolver balance provided by adjusted EBITDA as defined in our loan agreement is low at 1.15 times.Looking ahead to next year, we would expect our 2020 CapEx range to be about $5 million to $10 million lower than the current year due to lower expenditures for new equipment and facility enhancement and few our new company and restaurant openings. Although we’re not prepared to provide any other specific forward-looking commentary at this time beyond our CapEx plans. Directionally we can say, that we expect stable food cost for the remainder of 2019 and 2020 versus the prior year based on supply commitments in place across key commodities.We will provide additional details on our plans for 2020 early next year. Thank you for your interest at Fiesta Restaurant Group. We look forward to meeting many of you at the Stephens Conference next week and we will now open the line up for questions. Operator?

[Operator:]

[Operator Instructions] the first question comes from Will Slabaugh with Stephens, Incorporated. Please go ahead.

[Will Slabaugh:]

You mentioned an improvement in September at both brands and I think you said positive at one time at Pollo. I was just wondering if you could give us some additional color in terms of the level of improvement there and if that continued into the quarter-to-date period.

[Dirk Montgomery:]

Yes, so just in terms of our overall trend in October we can say that, the positive trends have continued for Pollo Tropical we’ve outperformed the benchmark comparison on both the traffic and the comp sales basis to date in October and so Taco Cabana we’ve outperformed the benchmark index on a transaction basis. Just in looking at the overall trend over the course of the quarter for the two brands, this is the third quarter. If you compare the July, August trend to the September trend within the quarter Pollo Tropical improved 155 basis points on its trend from July and August combined to September and Taco Cabana improved 240 basis points from the July August combined trend to September.

[Will Slabaugh:]

Got it. Thanks for that. And one other [indiscernible], if I could. On Pollo, could you talk a little bit more about your recent approach to value? I know you’ve had some changes there and how you’re thinking about the current strategy that we’ve seen recently versus any changes that may need to be made going forward?

[Rich Stockinger:]

Sure, Will. It’s Rich. At the Pollo Time platform has been significant to the brand. Especially at difficult times as we see right now in South Florida. As you know is just amount to NavTrack [ph] the year-to-date the worst performing ADI is a tie between Honolulu, Hawaii and Miami, Florida. So there’s no doubt that the Pollo Time value offerings has been significant, with that though I will say that we did test the launch [ph], going from $3.99 to $4.49 with no negative impact down here in Miami-Dade and we have now effected today raised that price to $4.49 throughout the entire company. So I don’t like the raised prices but reducing that discount a bit is helping us out.The other thing is that, we’ve just launched today was an $8.99 platform for Grillmaster Trio and it includes our steak item and it includes quarter chicken, boney chicken, it includes chicken sausage, rice, beans and plantains for $8.99. Early, we’ll see what happens but we still keep Pollo Time platform as well as offsetting that with some higher price more protein and food related items as we have right now in Grillmaster Trio.

[Will Slabaugh:]

Got it. Thank you.

[Operator:]

The next question comes from Joshua Long with Piper Jaffray. Please go ahead.

[Joshua Long:]

Exciting news to have the executive teams welcome aboard. Excited to see what initiatives and ideas you have, I realize it’s early but was curious if you might be able to share some early thoughts on the brand and on the portfolio brands where you think is there’s opportunity, anything that can give us a sense for what we might be able to expect as before coming operational initiatives you outlined and then also, as you [indiscernible] longer term model.

[Dirk Montgomery:]

This is Dirk. I think, I would say that both Hope and I are really excited about the opportunities here and I can’t tell you about the quality of the management team. At a general level the strategies and the priorities that Rich laid out at the beginning of the call really are what the entire team is focused on and frankly that, those opportunities that were one of the main drivers along with the quality of the management team. I think in both Hope and I joining the team. I think both of us see opportunities for us to more fully implement best practices that we’ve seen at other restaurant companies in our past, so from my perspective and I think this is a joint effort that Hope and I will be working on, one item that we think that we can refine and kind of hone in on is more effective revenue optimization analytics. So we’re going to be working on optimizing our pricing and our promotion strategies. I think both of us feel like we’re on the right track that there’s some opportunities therefore us to, I think to be more deploy a higher level of analytics. Also I think in terms of Pollo Tropical repositioning there again, Hope and I both been involved in repositioning efforts before different brands and I think we’re going to bring that experience to that effort and I think we very much look forward to get in that work done, as we head into 2020.

[Joshua Long:]

Great, thank you for that. Curios on, any sort of investments or additions on your teams to help kind of make some of the revenue optimization initiatives possible just trying to get a sense for the potential timeline of when we might be able to see a lot of these ideas come to fruition.

[Dirk Montgomery:]

Sure, I’d say on the staffing front not a material level of staff increases to implement those strategies. We’re evaluating bringing in big data research firm to help us just run some of the analytics support behind that effort which a lot of companies in the restaurant retail space have used third party firms to really do the kind of sensitivity and regression analysis that required to actually do the analytics.

[Joshua Long:]

Great, thank you and then, one larger term one for me in terms of the opportunity to grow Pollo both in new markets and existing markets, have been following the brand for a while now. We’ve seen some different opportunities overtime where the brand has expanded outside of its core markets. Curious on what we’ve learned over those [indiscernible] years in terms of doing research and due diligence and how we might start thinking about what that growth would look like for Pollo going forward.

[Rich Stockinger:]

It’s Rich, that’s what this heavy research going forward as it relates to the food, as to exactly what brand positioning we need to have in core versus what brand positioning we need to have outside of [indiscernible] as well as the brand positioning in other new markets. And that’s too be determined, we’ll keep your abreast as we move forward, but that’s the major focus will be on the repositioning of Pollo going forward. We do not want to make any mistakes that were made in the past and we feel very strongly as do the people that we were talking to, about the potential as Pollo because of the food and the taste and the healthiness of our food products.

[Joshua Long:]

Great, thank you that makes sense and one last one from me. Excited about the 12 remodels at Pollo this year, how much of the base needs to test after you go through these 12 remodels and how should we be thinking about kind of the look feel, changes that will be going on in this dozen or so units, is that consistent with what we’ve seen previously or there’s some new bells and whistles, new positioning, anything you’d be able to share there.

[Rich Stockinger:]

Well right now, again it’s Rich. We’re projecting for next year, probably about the same amount of remodels. We don’t have the work done yet and what the new positioning brand may or may not look like, so right now it’s just again about the same number, about the same CapEx that we spend in the normal type of remodel programs.

[Joshua Long:]

Great, thank you so much.

[Operator:]

[Operator Instructions] the next question comes from Brian Vaccaro with Raymond James. Please go ahead.

[Q –Brian Vaccaro:]

I just wanted to circle back on Pollo Time and CT Time I know it’s still early days Taco Cabana there, but could you elaborate on the sales mix that you’re seeing at each brand within those programs and do you think that’s the right balance on value for each and current environment.

[Dirk Montgomery:]

Sure, it’s so in terms of the mix perspective the Pollo mix is trending at about 12% of total revenue. In its early days on Taco we just launched in September but the Taco mix is running at about half that 6% to 7% of total mix and I’m sorry, could you repeat the second part of the question?

[Q –Brian Vaccaro:]

And just and maybe it’s for Rich, do you think that you’ve struck the right balance. I know it’s too early for Taco, but are you comfortable with that level of sales mix on the Pollo side or do you think, you need to move any of that in the current environment.

[Rich Stockinger:]

I’m very comfortable to-date because it’s consistent week in and week out. It’s almost like a guaranteed platform, the value platform again. Keep in mind, where we are currently doing business when you have 90% of your [indiscernible] EBITDA is in three counties in South Florida which has been negatively impacted on various [indiscernible] economic conditions that’s what we have to do right now based upon the socioeconomic conditions, the competitive intrusion AKA Chick-fil-A. we think we are positioned just where we should be, but again like we’re doing right now offering some higher priced items to offset that and it’s too early to tell, if that would be successful or not.

[Q –Brian Vaccaro:]

Okay and then on the commodity outlook, could you elaborate a little bit on the contracts that are in place over the key proteins looking into 2020?

[Dirk Montgomery:]

Sure, so I mean a broad level we’ve locked in about 80% of our total commodity complex for the year we’re pretty happy with that. I think we’re actually little bit ahead of schedule from where we’ve been in prior years and as we said, we’re looking at pretty stable year-over-year cost as we look out through 2020.

[Q –Brian Vaccaro:]

All right, thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Raphael Gross for any closing remarks.

[Raphael Gross:]

Thank you so much for your interest in Fiesta Restaurant Group and have a good evening, everyone.

[Operator:]

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.