Fiesta Restaurant Group, Inc.
Q2 2013 Earnings Call Transcript

Published: 12 Aug 2013

[Operator:]

Good day, everyone and welcome to the Fiesta Restaurant Group Second Quarter 2013 Earnings Conference Call. Today’s conference is being recorded. For opening remarks and introductions, I would like to turn the call over to Lynn Schweinfurth, Chief Financial Officer. Please go ahead, ma’am.

[Lynn Schweinfurth:]

Thanks, Angela. Good afternoon and thank you for joining our call. Our second quarter 2013 earnings release was issued after the market closed today. If you have not already seen it, it can be found on our website, www.frgi.com 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 strategies, 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 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 an 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, Chief Executive Officer to begin with some opening comments and a brief update on the state of the business.

[Tim Taft:]

Thank you, Lynn, and good afternoon everyone. We enjoyed a very solid quarter in Q2 and are especially pleased with our accomplishments considering the weather comparisons that affected our discounts at Taco Cabana during April and May. The key takeaway from the three-month period is that our teams at both brands continue to set a higher bar to improve upon their stated objectives. As a result, we are seeing growth in our performance and financial results. We increased restaurant sales by 9.4% through contributions from new units and increases in comparable sales, expanded our restaurant level margins, continued to build our teams that further progressed the administrative transition from Carrols and to prepare for our planned acceleration of development in the coming years and significantly paced our top line gain with diluted EPS growth of 24% compared to second quarter last year. Lynn will provide some directional updates to some of the guidelines that we provided earlier this year, but the bottom line is that we anticipate we are well in our way to exceed 20% EPS growth in 2013. Critical to sustaining our progress and moving our business forward is having the right people in place, at both corporate and at the brands. People are excited and eager to take on additional responsibilities and enhance their skill sets. I am proud of the results-oriented and entrepreneurial culture we have created at Fiesta, because I believe it is the foundation upon which we could be truly successful over the long-term and thereby realize our potential. We believe that our customer satisfaction surveys and general out-performance of the restaurant industry confirmed that Pollo Tropical and Taco Cabana are highly regarded for their freshly prepared high-quality and customizable food that appeals to both premium and value-oriented customers. In addition to the time tested favorites that solidify our brand equity, we often have a robust pipeline of LTOs and new products that are on trend that in many cases enhanced the convenient factor that is so important to our Amigo guests. We similarly approach operations in a very disciplined manner, with the intent to improve what we do and how we do it. This way, we can best leverage our variable costs on sales growth and realize that positive impact of sales increases on fixed cost. Specifically, we are mitigating the impact of modest commodity inflation through a combination of pricing and supply chain management efforts that is also helping us with consistency, quality, and profitability. We are currently focused on optimizing labor cost based on an ergonomic time motion study at our new Pollo Tropical restaurant prototype, so we can better manage many mix and improve throughput. In addition, we are in the process of updating our labor model to efficiently and effectively operate our restaurants. Other initiatives underway include reducing paper and packaging costs, improving order accuracy, achieving greater scale on equipment procurement, and establishing new equipment maintenance practices and processes. Our determination to get better and better is clearly evident and unrelenting. So, now, let’s review the individual brands before discussing how we see our growth plans evolving. Pollo Tropical renovated industry leading comparable restaurant sales growth of 6.4% in the second quarter versus a 7.8% year ago comparison. In fact, the brand has now generated positive comps in each of the last 15 quarters and on a two year basis has grown Q2 comparable sales by 14.3%. The 6.4% comp sales gain in the second quarter consistent of transaction growth of 2.8% along with a 3.6% increase in average check. It is important to note that we have achieved these milestone improvements while lowering its discount percentages by approximately 70 basis points. Joint comp sales were similarly strong, up 5.2%. In second quarter promotions Tangy Pineapple Chicken that guest can order within a wrap or a salad top or entree, on Mother’s Day we ran it two combined for $9.99. Beginning in the third quarter we’re featuring a guava barbeque chicken and TropiChop that can be also ordered within a rap on a salad topper or entree. Our marketing brand engine focuses on freshness and value and together with featuring a new library of food photography and a new campaign tagline of Life’s Better Under the Palm is resonating with both current and prospective guests. We also believe that through these visuals and messaging are with the customers, will be more quick to understand, and then seek to experience the Caribbean influence and that continues our offering as Mexican, which has long been the case. Taco Cabana is delivering comparable restaurant sales growth of 1.1% on the second quarter and has now generated positive comp sales growth for 12 consecutive quarters. The growth in comparable restaurant sales resulted in 1.6% increase in average check, partially offset by 0.5% decrease in guest traffic. From a trend standpoint April and May comp sales growth was essentially flat due to cooler, rainy and tornadic weather we faced in Texas and Oklahoma which severely limited our Pollo business. Along with the broken weather sales rebounded in June with a gain of 3.5%. The year ago quarterly comp sales comparison was 4.5%, the brand’s toughest comparison from 2012 so we are especially pleased with successfully lapped back despite getting off to a slower start. On a two-year basis, Taco Cabana has grown comparable restaurant sales by 5.6%. Note the comp sales growth in July was up 2.3% as we benefited from running a promotion that we have not done in many years, and we will broadcast our earlier weather issues as we entered Q3 with momentum. In April and May, Taco Cabana promoted value pricing through its TV broadcast message with favorites under $5 featuring the chicken fajita grill and a $3 Happy Hour with half price as much as in Margarita’s. While in June our TV ads promoted shrimp tacos and favorites under 5%, we also supplemented our TV advertising with radio’s fast for breakfast featuring rice and dine for $1.9. This is first time that ever did TV and radio simultaneously. Our promotional effort certainly paid off with the breakfast in the afternoon day parts outpacing the rest of the day by a fairly wide margin. Now, that we discussed Pollo Tropical and Taco Cabana in some detail. Let’s turn our attention to recent development activity and long-term development model. At Pollo Tropical, we opened four company-owned restaurants during the second quarter, the first in Kennesaw, Georgia, which is our third restaurant in the Atlanta area and three across Florida in Gainesville, Melbourne, and Pompano Beach. In addition, our international franchise partners opened a restaurants in Panama City, our second in Panama another in Costa Rica and our first restaurant outside the Western Hemisphere in India. Taco Cabana also opened three restaurants in Texas in the second quarter with one restaurant in Waxahachie and two restaurants in Dallas. Since the beginning of the third quarter, we have opened three Pollo Tropical restaurants, one in Cool Springs, Tennessee, our second in Nashville area, and one each in Stuart and Brandon, Florida. And within the next two weeks, we will reach a new milestone of our 100 company-owned Pollo Tropical restaurants in the Continental U.S. with our opening in Alpharetta, Georgia. We have also recently opened a franchise restaurant in Santo Domingo, Dominican Republic. You will recall, we originally expected 14 to 17 new company-owned restaurants opening in 2013. However, based on our pace of new openings in current construction timeline for the balance of 2013, we anticipate we are now slated to exceed the high end of that range with a total of 18 new company-owned restaurants by concept 12 of the Pollo Tropical restaurants and 6 will be Taco Cabana restaurants. My direction is this guest will be that FRGI will ramp up to 8 to 10 unit percent growth rate. It probably comes as no surprise that we booked the Pollo Tropical as our primary expansion vehicle growing going forward. The brand commands industry-leading unit economics. There is no direct regional and national competitor within the fast-casual segment. We see opportunities to backfill markets within Florida, where volumes have grown up 20% in just two years, increase our penetration in Georgia and Tennessee, and build a scalable footprint in Texas. Our development team has also completed the value engineering process for Pollo Tropical and this will be reflected in our first restaurant built in Dallas, Texas in the first quarter of 2014. As we said on our last call, our direction will be to cluster Pollo Tropical in DMAs like Dallas, Houston and Austin until we achieve immediate efficiency. There is an advantage to opening Pollo restaurants in Texas, where Taco Cabana already has a meaningful presence. These benefits include shared infrastructure, managerial oversight, a trained labor force, and supply chain optimization. It will also be extremely efficient from a marketing standpoint as it relates to TV and Radio and local store couponing drops. Now, with respect to Taco Cabana, we view the brand as a proven concept that is capable of generating exceptional free cash. You’ll continue to grow Taco Cabana, mostly in Texas, although we expect we will be entering the new market in Georgia by the end of first quarter 2014. Outside of this home state, we will be elevating the concept tweaking its menu and offerings our guests a lunch and dinner only business model. And if the research is correct, we are hopeful we could have yet another powerful growth vehicle of Fiesta. We will also substantial complete Taco Cabana’s remodeling program in 2014. Restaurants would have been refreshed since we began the program. We are averaging the first year incremental sales left of 2% to 5%. On the San Antonio and Houston markets where we are in process of being updated, similarly continuing to outpace the system. We believe that these investments pay dividends in both higher volumes and higher perception of the brand and more than justify the upfront expenditure. Before turning the call back over to Lynn, I want to reiterate this team’s confidence in the promise that it’s Fiesta’s future. By having two distinct items that are each capable of making meaningful contributions to each other’s development should prove beneficial to our shareholders. While we are focused on making further enhancements to the guest experience and continuing to refine the economic model while transitioning from Carrols, we believe that we are already well-positioned to sustain long-term EPS growth in excess of 20% as our team begin to shift from primarily evolution focus to execution driven. We look forward to sharing our progress with you and these quarterly conference calls come through our ongoing dialog. With that, let me turn the call back over to Lynn.

[Lynn Schweinfurth:]

Thanks, Tim. Overall, I was very pleased with the quarter that delivered comparable sales gains, restaurant operating margin expansion, and EPS growth. At the same time, we are delivering the operating results we are also making investments in our business, so that we will be capable of realizing our long-term vision for sustainable sales growth, development, and profitability. During our second quarter which ended on June 30, 2013, total revenue grew 9.4% to $140.9 million from $128.8 million. In addition to what Tim has already covered regarding comparable sales and traffic drivers, average check increased year-over-year driven by menu price increases of 2.3% at Pollo and 1.8% at Taco in the second quarter. To offset cost increases, we will continue to balance pricing actions with other cost savings initiatives to retain the strong value proposition we enjoy at both brands, which we believe gives us a competitive advantage. Cost of sales as a percent of restaurant sales was 10 basis points higher than the prior year as commodity cost increases were mitigated by supply chain management initiative and modest price increases. Note that we continue to look for cost of sales as a percent of restaurant sales for full year 2013 to be similar to that of full year 2012. Restaurant wages and related costs improved 110 basis points year-over-year, primarily due to sales leverage, lower workers compensation claims, as lower medical and other benefits. Other operating expenses increased by 10 basis points as a percent of restaurant sales, primarily due to higher costs associated with general liability claims, partially offset by the positive impact of initiatives to reduce repair and maintenance costs and lower utility costs. You’ll recall that starting last quarter we began isolating pre-opening expense on our income statement to provide more visibility to this increasingly impactful expense category. Pre-opening expense include costs incurred prior to opening a restaurant, such as restaurant employee wages and related expenses, travel, training, rents and promotional costs and it can be incurred four to six months prior to the restaurant opening. Pre-opening costs increased by $0.3 million as three additional restaurants were opened compared to the prior year period. In addition to expenses incurred for the new restaurants that has opened already in the third quarter or will be opened in the coming weeks and months. With this quarter, we have concluded the year-over-year comparison impact related to the qualification of certain leasing transactions for sale-leaseback accounting treatment. As we have now lapped the anniversary of the spin-off. Relative to second quarter 2012, rent expense was negatively impacted by $0.9 million, while depreciation and amortization expense and interest expenses were positively impacted by $0.2 million and $1.2 million respectively. Again in the third quarter all of these line items will be on apples-to-apples basis with the prior year. Turning to general and administrative expenses they were $1.4 million higher than the prior year at $12 million as a result of company management and team additions, infrastructure implementation costs associated with transitioning administrative functions from Carrols and costs associated with our acceleration of new restaurant development. As Tim mentioned, we are targeting to substantially complete the transition of administrative function from Carrols by year end and are doing so by making steady progress and building our corporate infrastructure and affecting an orderly transition, which is not minimizing business disruption. Our provision for income taxes in the second quarter of 2013 was derived using an estimated annual effective income tax rate for 2013 of 36.5%, while the provision for income taxes for the second quarter of 2012 was derived using an estimated annual effective income tax rate of 42.7% in ’12 excluding discrete items. The improvement in the tax rate year-over-year is primarily due to the positive effect of the Work Opportunity Tax Credit which was renewed in early 2013 and adopting that consolidated filing position in the state of Florida in the third quarter of 2012. Net income increased $1 million to $5 million in the second quarter of 2013 or $0.21 per diluted share from the net income was $3.9 million or $0.17 per diluted in the second quarter of 2012. At the end of the quarter we had a cash balance of $7.3 million. There were no outstanding borrowings under the senior credit facility and we were in compliance with all covenants related to our indenture and senior credit facility. Leverage ratios continued to improve given our financial growth. After reserving $8.4 million for letters of credit guaranteed by the senior credit facility, $16.6 million remain available for borrowings at the end of the quarter. We continue to believe cash generated from operations, availability under our senior credit facility and proceeds from any sale-leaseback transactions we may choose to do, will provide sufficient cash to cover our anticipated working capital needs, capital expenditures, and debt service requirements in 2013. During the second quarter, we completed the sale-leaseback of one property which generated $2.9 million in net cash proceeds and purchased another property to be sold in the future sale-leaseback transaction for $1.7 million. For the first half of the year now behind us I thought it might be helpful to provide some directional information with respect to how we now view the balance of the year from a financial perspective. Based upon year-to-date results and projections for the third and fourth quarter we now expect Pollo Tropical to be at the high end of the 3% to 5% full year comp sales range. And Taco Cabana to be slightly below the 3% to 4% full year comp sales range. Pre-opening expenses should be higher than we originally modeled since we are now committing to 18 restaurants opening versus our original plan of 14 to 17 new units. Along with expenses associated with restaurants that we will open early next year. On a related note, capital expenditures will likely come in at the high end of our $45 million to $50 million ranges and reflects our current development schedule. G&A was up, tracking at the higher end of our previously stated range of $46 million to $48 million, which includes almost $2.5 million of equity based compensation. Expenses associated with the secondary offering we did earlier this year expenses associated with the transition of our back office and resources we are adding to prepare for accelerated development in the coming years. Finally, I would like to eco Tim’s positive outlook with respect to delivering quality financial results both this year and beyond. As a remainder, our basis for comparison in 2013 is the adjusted EPS of $0.60 that we reported in 2012 and we are confident that we will be able to achieve our goal to exceed 20% EPS growth rate through profitable top line growth while strategically investing in our future. With that, let’s open up the line for questions.

[Operator:]

(Operator Instructions) We’ll take our first question from Will Slabaugh with Stephens Incorporated.

[J.R. Bizzel:]

Hi, guys this is J.R. here on for Will. Thanks for taking my questions and congrats on the quarter.

[Tim Taft:]

Thanks J.R.

[Lynn Schweinfurth:]

Thank you.

[J.R. Bizzel:]

You gave a monthly cadence for Taco Cabana I was wondering if you could kind of fill in that monthly cadence you saw for Pollo Tropical for the second quarter?

[Lynn Schweinfurth:]

Well I can certainly tell you that Pollo had very consistent performance into the three months during the quarter of over 6%.

[J.R. Bizzel:]

Okay. Let’s shift to I know you said July for the Pollo Tropical was running I think 5.2%. I wonder how much of that is traffic, is there any way you can give us that?

[Tim Taft:]

I think the percentages are the same as they were and ratio as they were in the second quarter.

[J.R. Bizzel:]

Okay. And switching gears to new store productivity, I am wondering if you can kind of still are seeing kind of like you did last quarter on the new units how they are performing are you seeing similar mixes, similar day part mixes along those lines?

[Tim Taft:]

Well first starting with Taco Cabana as we’ve mentioned last time it depends on whether the restaurant was build and somewhere we built in brand new areas where the city is growing out to and other areas where they are in highly dense areas we are in the middle of where reaction is now. And so the bottom line is that we are pleased with the direction and the sales mix for we are talking this. In Pollo, as we will continue to evolve, we will have a nice blend between existing core market development and also in the State of Florida development to come on side with markets outside of the state. And today we feel again positives as we did last quarter about how Pollo is performing in both of those markets.

[J.R. Bizzel:]

Alright, great. Thanks guys.

[Lynn Schweinfurth:]

Great, thanks J.R.

[Operator:]

And we’ll now go to the Nicole Miller Regan with Piper Jaffray.

[Josh Long:]

It’s Josh on for Nicole. My first question for Tim was could you talk about the new branding that you rolled out at Pollo Tropical the Life’s Better Under the Palm and then how that’s been received and what kind of, I guess, consumer research you have and how this being received from the consumers?

[Tim Taft:]

Thanks, Josh. Life’s Better Under the Palm, it’s interesting to note that both brands have new advertising agencies. And with that, the new agency came in with a fresh perspective and when we talk to them about the ongoing constraints for the objective to get new people to try the restaurants that have never tried it before and really we are talking about new markets, where they are not intimately familiar with a brand. So, rolling now the tagline Life’s Better Under the Palm really has done a great job of cementing the Caribbean influence and the researchers come back at our customers, it’s kind of the most of the brand communication are customers clearly know that it’s Caribbean, that it’s beach-oriented, that it is not Mexican. And that has been as I mentioned in my opening comments has been kind of the ongoing head structure, where people kind of look this method as we have noted it’s Mexican. So, today, whether you can quantify it as the reason why sales are continuing to go the way they are, we think it’s additive, and we are very, very happy with how it rolls up it’s own and the feedback thus far from customers.

[Josh Long:]

Thank you for that. And then on the note that you mentioned as far as a reduction in the discounting at Pollo Tropical, how is that being affected at the restaurant? Well, is that through up-selling, is that through some new marketing, is that different merchandizing, if any sort of color you could give us on how that kind of consumer behavior is changing at the restaurant level?

[Tim Taft:]

Sure, Josh. We used to have IVR, which was our – when a customer came in to the restaurant at the bottom of their receipt would be only 100 members that they would call in getting their feedback to how we did. And with that, we used to give for everyone that called in either a buy one get one or a free meal and we will realize clearly that we were giving away too much fruit, because our storage of information that we are gathering from the customer was really specifically was we had way too much feedback. So, we went from given the coupon one every person that called in, the 1 out of 10 to 1 out of 3. So, finally, I mean, but now we finally just get away with it altogether. And we haven’t had a blip in sales and we have been able to discount to lower dispatching rate.

[Josh Long:]

That is very interesting. Thank you for flushing that up for us. Lynn, on the cost side, it looks like you have done a really good – the team has done a really good job on continuing to pull out cost from the supply chain. Is that something we can continue to expect? Is that halfway through, I mean, I know we are always looking for more cost, but it seems like just trying to get a sense for where we are in the grand scheme of being able to kind of realign things on the supply chain?

[Lynn Schweinfurth:]

Well, I will answer your question then certainly Tim would like to add any additional perspective. I would say, we are still uncovering opportunities as it relates to cost savings. So, it continues to be an effort underway. And I don’t think we are all the way to try and we’ll continue to look for opportunities really on a go-forward basis. Now, year-over-year, what I have at least provided as an expectation is for the full year, we do expect percent of sales to be the same this year as it was last year. So, that means that we will see some cost increases coming out with some of the promotional items that were featuring in the balance of the year to get to that flat margin for cost of sales.

[Tim Taft:]

And I would accept what Lynn said that it really is an ongoing profit. And that as the situations on the ground change, opportunities become available and we have stated more than once that we believe our supply chain guidance investment business. And we continue to see improvement and we anticipate to continue to see opportunities in the coming 18 to 24 months.

[Josh Long:]

I appreciate it. Thanks so much. I’ll hop back in the queue.

[Operator:]

And we will now go to Jeff Farmer with Wells Fargo.

[Jeff Farmer:]

Great, thank you. So, probably just through the exception, but over the last three weeks, we have heard your peers point to a long list of drivers for their sales and traffic numbers, just in terms of my question. So, as you think about this, what factors do you think are driving those traffic declines from most of your peers and you worry that some level of frustration by this group could lead to some pretty aggressive promotional tactics in coming quarters?

[Tim Taft:]

I can’t speak for what the competition will do, Jeff, but I would suspect that they may discount, which that’s really where we are. It is a value proposition. That’s what our message is and has been for the last several years. And we continue to see improvement in our sales, I think in large part, not only is the team doing a better job of executing at the restaurant level, but we have a new director of marketing in the Pollo that’s been there for I think 18 years and has given first perspective to what our opportunities are from a local sort of marketing standpoint. And we continue to mind those opportunities. But as far as the competition is concerned, we can affect what we can affect, and that’s just trying to do a better job today than we did yesterday.

[Jeff Farmer:]

Okay. I just want to try and get some inside into why you thought Pollo, in particular was outperforming and you gave me that color. So, that was helpful. And then as it relates to revenue growth versus G&A growth in coming years, have you guys ever sort of outlined what the expectation is for the ratio of those, those two metrics moving forward.

[Lynn Schweinfurth:]

Jeff, we haven’t been too specific although we are intending the leverage down on a go-forward basis and 2014 will be more of a baseline for us given all of the transition happening this year.

[Jeff Farmer:]

Okay. And then final question you mentioned the labor model, I am just curious when you think some of those benefits might begin to hit the P&L if they have not already.

[Lynn Schweinfurth:]

Well, we are actually just undergoing that analysis right now. So, in terms of implementation, we are several months down and possibly out into the middle part of next year.

[Jeff Farmer:]

Okay, thank you.

[Operator:]

We will now go to Alex Slagle with Jefferies.

[Alex Slagle:]

Hey, guys.

[Lynn Schweinfurth:]

Hey.

[Alex Slagle:]

A question on Pollo Tropical new markets, I was wondering if you could talk more about the response you are seeing in Nashville, you are learning sort of anything surprising you at this point?

[Tim Taft:]

No, I don’t think anything really surprise us. I mean, we have been getting excellent feedback about the quality of the food. As we mentioned last time, when you enter a new market and these restaurants are left to their own devices meaning there is no broadcast, there is no – there is an occasional coupon drop, but they are in local store marketing, they are on their own until switch time as we can backfill in .So, we had a restaurant in Smyrna. They have opened up really, really strongly. We opened up another one in Nashville and Cool Springs, which is doing well, but those collective when you look at it, but it’s going to be some overall decrease in total for each of the restaurants on cannibalization, but it kind of needs to be expected. We look to obviously when we have more restaurants to be able to get to a point, where we can do broadcast one, but with this new advertising agency that I have mentioned, Danny has got them working on a local store marketing activity, which will be new for all of the new markets where Pollo is represented.

[Alex Slagle:]

Great. So, for the Atlanta market, how far long are you there in terms of getting up stores clustered in that market to turn on media?

[Tim Taft:]

Now, that you don’t ask with you that we are not even close, I mean, we got even 3 or 4 restaurants, that’s why the local store marketing, which might include as we did in the past about four months ago a kind of the spot media, which had an impact on sales that might be a part of some local store marketing for around special events, but for that market we want – we are going to need to have probably 25 restaurants grow to make a meaningful difference. And that’s why too we are excited about bringing Taco Cabana to that market, because we can co-develop the Atlanta DMA with Taco and Pollo and therefore get us some efficiency quicker.

[Alex Slagle:]

Okay. And then on the new Pollo Tropical prototype, if you could talk about some of the changes you have made, update to the investment cost estimate and specific elements of the brand elevation maybe upgrades or some of the pieces that you deemed less important that maybe you took away?

[Tim Taft:]

Well, it’s going to be a grand opening. It’s the first one by the way we have the potential to open up our first one in Texas. And we thought by Thanksgiving we were going to kind of surprise and have that open. We then made the decision that we will be better served by holding off seven to eight weeks, so we could put our brand new prototype in Texas. So, for every restaurant that we develop here will look exactly like the first one to avoid any confusion. I will say that the restaurant by itself and looking at it there is no mistake and that is a Caribbean influence, the feedback or research in the past is that our restaurants that we’ve built prior to this has had been confused with Mexican as I mentioned earlier. We’ll see a – it’s a much more efficient building that is scalable, that has a potential that easily put on an outdoor dining area. And we’ve essentially eliminated about 300 square feet in the back in the house where a lot of money is.

[Alex Slagle:]

Thanks.

[Tim Taft:]

My pleasure.

[Operator:]

We will now go to Nick Setyan with Wedbush Securities.

[Nick Setyan:]

Thanks guys and congrats on a great quarter. Just a quick question on the pricing, how much was menu pricing in the quarter and then could you remind us again when sort of some of that pricing is going to fall off and what your thoughts are on incremental pricing going forward and timing as well?

[Lynn Schweinfurth:]

Okay, well, I’ll maybe answer your last question first and that is we wanted to take pricing carefully, because we really enjoyed great value proposition. And I think that helped to explain why our results have been so consistently good in the current industry environment. So, there will be two dishes with those price increases going forward trying to absorb cost increases through pricing, but also through other initiatives trying to balance those offset. Overall, we had 2.3% in pricing at Pollo and 1.8% pricing at Taco during the quarter and that pricing should remain pretty consistent for Pollo through the balance of the year. At Taco, we’ll be lapping a 1.2% price event that we took in October of last year.

[Nick Setyan:]

Perfect, thanks. That’s very helpful. And then in terms of the new model for Pollo in Dallas, have you guys been able to lower the costs, the construction costs at all and are there opportunities in the future to lower that a bit more?

[Tim Taft:]

In round numbers, we’ve been able to eliminate about $160,000 out of the cost which in round numbers is between 12% and 15%. And I think that that’s the big buyout of what we’ve done thus far. I think there might be continuing opportunities as when the labor metrics is reworked and the time motion study is complete, but we’re really, really pleased with the job that John and his team done by carving that much money out of it and making the ability that is really so beautiful and representative of the brand going forward.

[Nick Setyan:]

Okay. And just a final question, Lynn, what was the by segment the level of EBITDA margins?

[Lynn Schweinfurth:]

The EBITDA margins you will see those in the Q that are what we released shortly upon the completion of the call that we have our segment information that will be provided.

[Nick Setyan:]

Okay, great, thanks so much guys.

[Tim Taft:]

Thanks Nick.

[Operator:]

We will now go to Bryan Elliott with Raymond James.

[Bryan Elliott:]

Good afternoon, I have a couple of questions actually first a clarification, Tim, I see you talked about the new prototype taking out 300 square feet where a lot of money was, so that – is that where the in store safe is and that’s where – that’s what coming out of the restaurant?

[Tim Taft:]

Yes.

[Bryan Elliott:]

But on that subject, have you quantified what the cost reduction is, how much that 300 square feet might save you in investment cost?

[Tim Taft:]

Right now, it’s about $150,000 is how much we have been able to carve out of the existing model.

[Bryan Elliott:]

Great, great, okay. And again to be clear that we haven’t built one yet, the first one will be in Texas right of redesign or whatever?

[Tim Taft:]

Yes. So, it will be Madison Texas right down the street from the corporate office, and it will have the safe.

[Bryan Elliott:]

Okay, alright. And the research that you used to get the tickets, are you going to replace that with anything at some point down the road and how are we monitoring things day-to-day?

[Tim Taft:]

Great question, Bryan. What we used to do is get all of our information from these call and we have now changed both brands to 1800 number, its 1800 how am I driving. So, the feedback that we get from the customers is instantaneous. In the past, I think somebody will have and experience that they would like to share good or bad that they would even have to leave a voicemail message or they would sent an e-mail maybe, but if they have something that was needed actual results or action we would not be able to get back to that person in a short amount of time. When people calling now, we will ask them certain questions about how they experienced well in addition to – there is a reason that they are calling. So, we are currently capturing that data with every phone call.

[Bryan Elliott:]

Okay. And last question is I kind of missed some of the commentary on the breakfast commercial, could you quickly reiterate what you did at Taco and what the results were, I think you said that breakfast sales for out performed the other day parts right?

[Tim Taft:]

Yes, it’s correct. When we did a rise in dime for $1.9, and we supplemented our used broadcast radio as well as TV, and as a result of that it really showed when we are running radio, because of the – it outpaced the breakfast happened in day parts outpaced the other markets considerably.

[Bryan Elliott:]

Were you still up rest of the day at lunch and other day parts?

[Tim Taft:]

Yes, we were.

[Bryan Elliott:]

Okay, great. Thank you.

[Operator:]

And it appears there are no further questions. And this will conclude today’s conference. We thank you for your participation.