Fiesta Restaurant Group, Inc.
Q3 2013 Earnings Call Transcript

Published: 6 Nov 2013

[Operator:]

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

[Lynn Schweinfurth:]

Good afternoon and thank you for joining our call. Our third quarter 2013 earnings release was issued after the market closed today. If you’ve 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 strategy, 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 during 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 in 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 the some opening comments and a brief update on our business.

[Tim Taft:]

Thank you Lynn, and good afternoon everyone. We are pleased to deliver a robust quarter what was generally a challenging period for industry and we are very optimistic about our future. On the top line we experienced a healthy 9.8% increase in revenues with positive comp sales of both brands. On the bottom line grew diluted EPS through the effective P&L management despite summarizing cost. We also made G&A investments to complete the transition from Carrols by year end and built resources to manage our growing restaurant companies. As I revised into little more to tell shortly we will focus primarily on development of (Inaudible) select markets in the Southeast. We’ll also begin testing more upscale Taco Cabana concept in Georgia beginning next year. In short, we believe that we are in the early stages of the exciting and significant growth story that will reward shareholders over time. The consistent track record we have generated since the spin off and our determination to deliver a sustainable level of results over the long term as predicated on the execution of our business model as we have articulated on prior calls. There is no single catalyst that we use to spur comp sales or performance but rather a million of factors that go into building sustainable awareness and differentiation. Satisfying the guest, encouraging the frequency and of course managing our four wall operations as well as corporate expenditures. I will talk further about specific brand initiative shortly. But overall I think we were doing a much better job improving the talent of our teams, elevating the effectiveness of our marketing, ensuring our order accuracy speed and consistency as well as promoting products that satisfying the needs of our customers products that are fresh customizable and in many cases portable. We believe our new media planning and buying agency Southwest Media will make our TV and radio expenditures go further and this is particularly relevant in the view of noticeable increase in restaurant industry advertising. And since re-launching our brand websites earlier this year we have experienced 250% to 300% increase in site visits and also significantly increased our number of Facebook fans which both reflect tangible demonstration of interest in our brands. Our focus on operational excellence has enabled us to manage the middle of our P&L despite the rising cost for items not directly tied to growing restaurant sales such as medical and other benefits along with general liability expenses. In addition and as we have stated previously G&A cost would be higher this year during what we considered in the transitional period and this is for two reasons. We’ve been working through the after math of the spin-off taking unique functions in-house that previously have been handled by Carrols. This has incurred many upfront costs not all of which can be capitalized as we built out our IT systems and processes. By the end of December we will be self-sufficient as we have effectively completed the administrative transition from Carrols with our finance HR and IT functions – recall our original agreement with our formal parent company that called for up to three full years of transition services. But through a lot of hard work and great team effort will enable cut that time in–house. And second from the resource standpoint we have also been building our corporate teams strategically adding power so we are best positioned to achieve our longer term vision of sustainable restaurant sales growth development and profitability. So with that introduction let’s discuss individual brand highlights and development before Lynn reviews the financials and our outlook in greater detail. Pollo Tropical comparable restaurant sales grew 6.5% in third quarter as compared to a 7% gain in the same period last year. Our flagship brand has now generated positive comparable sales growth in each of the last 16 quarters. On a two year basis Pollo Tropical has grown comparable restaurant sales by 13.5% specific to the quarter a 6.5% comp sales gain was well balanced between 2% of transaction grow and 3.3% in average check growth. While the system average unit volume has climbed to $2..6 million. Within the quarter itself August was stronger month however the brand luck a tropical storm from last year which on a comparison basis is estimated to be provided 150 point comp sales benefit excluding this the other benefit the month-to-month trend was fairly consistent. You may recall that earlier this year we engaged a new advertising agency for Pollo Tropical rolled out a new tagline life’s better under the pump, along with library food photography. We believe that these efforts are received obviously positively by our guests and proven effective been more clearly identifying Caribbean influence. The most not common misconceptions about Polo Tropicana was they only serve traditional Mexican fair and we believe that this messaging to is helping to both educate the public and further differentiating the brand. We promoted a guava barbeque chicken TropiChop during the third quarter which was supported by a combination of TV, billboard and direct mail. While in the fourth quarter promoting chipotle chicken sandwich with soup. We also recently launched the new Tropical light menu test in our West Palm Beach market that consists of five unique items that are all under 510 calories. We believe that our focus on grilled versus fried chicken lends itself quite naturally to lower calorie fare as many people are seeking flavorful yet healthier offerings in the fast casual setting. However, since it’s only been few weeks since the launch it would be premature to comment typically on this menu’s reception. Taco Cabana restaurant sales rose 1.8% in the third quarter as compared to prior year gain of 1.8% as well in the same period. Notably we had 283 remodel store weeks this year versus 381 last year which makes our year ago sales comparison even more challenging than how it appears on the surface. The brand has now generated positive comparable sales growth for 13 consecutive quarters while on a two year basis Taco Cabana has grown comparable restaurant sales by 3.6% specifically to the third quarter 1.8% comp gain consisted of 1.9% increase in average check and employing 1% in guest traffic. We promoted sizzling steak fajitas along with an individual portion steak fajitas nachos as part of our favorites under $5 umbrella during the third quarter. While currently in the fourth quarter we’re promoting our Beef Taco combo meal. In addition we’re also offering the $3 happy hour with half price nachos and margaritas. In late September we introduced (Inaudible) again with guess convinced food and other prices instantly or by collecting accommodation of staffs overtime. Taco Cabana completed 10 remodels in the third quarter including the restoration of our original 35 new restaurant in San Antonio with the special grand reopening Fiesta event that included the San Pedro Taco Cabana’s founder Felix Stehling Our intention is to continue to invest in Taco Cabana’s remodeling program in 2014 which we believe may generate incremental sales left of these investments or raising the perception of the brand. Turning to restaurant development in the third quarter we opened up four company owned Pollo Tropical restaurants one in each of Stewart, and Brandon Florida, one in Franklin, Tennessee, our second international area and our 100 Pollo Tropical in the Continental U.S. in Haynesbridge, Georgia which is also our fourth restaurant in the Metropolitan Atlanta area. We also recently opened franchise restaurants in Santa Domingo, Dominic Republic which is the largest of roughly 7,500 square feet along with our second franchise restaurant on the island of Trinidad & Tobago. During the fourth quarter we have opened in Terre wood outside of Tampa and Cumming outside of Atlanta. And last week we opened up our 18 and final company owned restaurant this year. So we finally ended up with 12 Pollo Tropical restaurants and six Taco Cabana restaurants. Our direction as discussed will be ramp up to an annual 8% to 10% company restaurant growth rate with the primary emphasis again on Pollo Tropical. Taking a dig into next year we’re anticipating development of approximately 22 to 26 restaurants which includes a near doubling of the number of Tropical opening from 2013. Specifically we will be opening 20 to 22 Pollo Tropical units, which will consist primarily an end market of Florida and where volumes have risen roughly by 20% in just two years and increasing our penetration in Georgia and Tennessee so that we can move closer to reaching the efficiency. In addition we’ll also be opening our first call Pollo Tropical location in the central time zone near our corporate office of Edison outside of Dallas. The particular location will be within extremely dense three more radius quick casual and casual chains. And will therefore provide a great way to monitor performance. We believe that if we can succeed in the competitive market such as this one we will be positioned to build scalable footprint in Texas overtime we also have meaningful presence with Taco Cabana. Plus training Pollo Tropical in DMZ such as Dallas. Houston and San Antonio will enable us to share the infrastructure managing over site labor force training and supply chain optimization. It will also be extremely efficient from the marketing standpoint as it relates to TV and radio and local store coupon drops. We are therefore in the process of selecting sites and identifying resources and restaurant management that could help support large presence for Pollo in Texas. Our development team has also completed value engineering and new Pollo Tropical prototype and was able to eliminate about $150,000 in upfront cost for the Dallas restaurant. We think there are also continuing opportunities with our labor staffing parameters are being worked and time motion study is completed. We have not done optimizing our operations but we’re encouraged by the progress that we have made so far. We’re anticipating opening to four Taco Cabana restaurants next year. Although we expect to close up to four Taco Cabana locations two of which because highway construction. So the unit count will not change that much if at all. Most of the Taco Cabana openings while the first opening outside of Texas in recent memory will be in the Atlanta market. The Atlanta restaurant will operate under different business model that includes elevated ambiance service and menu. It will also be open for lunch and dinner whereas most Taco Cabanas are 24 hours. If I test case in Atlanta prove successful we will very well may have a powerful secondary growth vehicle at Fiesta. Before turning the call back over to Lynn, I want to express my appreciation to the entire team for what they have accomplished in the third quarter and year-to-date specifically. And to thank them for what we expect to accomplish in 2014 and beyond. I know I speak for the entire organization when I say that we take our responsibility to enhancing shareholder value very seriously and make all of our decisions in what we believe are the best strategic and financial interest of our brands over the long-term. This includes disciplined expansion that focused primarily on Pollo Tropical because of its strong cash and cash returns and we will compliment it’s a limited development of Taco Cabana. Our existing restaurant base we will focus on strengthening operations to ensure that the gains we make in comparable restaurant sales positively impact our profitability. We will leverage our G&A investments and continue to focus on realizing greater efficiencies while effectively supporting our restaurant operations. In summary, this is an exciting time for Fiesta, with great progress already made and we believe even greater progress still to come. Now allow me to turn the call back over to Lynn.

[Lynn Schweinfurth:]

Thank you. I would share some enthusiasm for what we accomplished this year and in the third quarter and would like to similarly express my gratitude to the team for their meaningful contribution that will enable our company to implement a robust business model in the years to come. I would also like to thank the team mate Carrols for their support and positive collaboration as we wind up our transition purposes arrangements with our former parent company. In addition to walking through our financial results, I would also like to provide to you a preliminary view of initial 2014 operating targets. First, turning to the quarter for our three months period that ended on September 29, we grew total revenue by 9.8% to a 140.7 million from 128.2 million to higher volumes at comparable restaurants along with sales contributions from newer restaurants that are not yet in the comparable phase. Tim already shared the average check in transaction growth metrics that each of the brand to supplement this information average check list positively impacted by price increases, 2.3% at Polo and 1.9% at Taco during the third quarter. And consistent with what we exceeded on higher cost, we are comfortable taking prices needed to offset higher cost inputs but are also sensitive to the macro environment and the economic reality facing many of our customers. We therefore balance whatever pricing actions that we take with other cost saving initiatives, we believe maintaining and expatiating our price volume proposition is critical to both brands positioning and we feel this as distinct competitive advantage. Cost to of sales as a percent of restaurant sales improved 10 basis points this quarter compared to the prior year period as commodity cost increases or largely mitigated by supply chain management initiative and modest price increases. Note that we continue to look for annual cost sales as a percent of restaurant sales to be similar to that of last year. Restaurant wages and related costs improved 10 basis points year-over-year, primarily due to sales leverage and lower workers compensation claim that were partially offset by higher medical and other benefits. Rent expense held steady as a percentage of restaurant sales note that this is the first full quarter that release counting is on a comparable basis year-over-year as a result of the qualification of certain leases for treatment as of the spin off in May of 2012. Other restaurant operating expenses increased slightly as a percentage of restaurant sales primarily due as one additional restaurant was opened compared to the prior year period in addition to expenses incurred for new restaurants that are opened already in the fourth quarter or will be opened early next year. Note that cost can be incurred beginning four to six months prior to the restaurant opening. Turning to general and administrative expenses they were 0.5 million higher than the prior year period at 11.7 million as a result of higher cost and timing associated with the transition of the corporate infrastructure, company management and team addition and cost associated with our acceleration of new restaurant development. As Tim mentioned we will substantially complete the transition of administrative function from Carrols by the end of next month. Depreciation and amortization increased 0.6 million to 5.1 million due to new company and restaurant opening. Impairment and other lease charges in the third quarter of 2013 consisted at 0.3 million of lease charge recovery related to previously closed location. Interest expense was favorable 0.6 million in the third quarter 2013 compared to the prior year period due to the year-to-date capitalization of interest in the third quarter of 2013 driven by an increasingly – construction. Our provision for income taxes in the third quarter of 2013 was derived using an estimated annual effective income tax rate for 2013 up 36.5% while the provision for income taxes for the third quarter of 2012 was derived using an estimated annual effective income tax rate of 39.3% both 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 is renewed in early 2013. Net income increased 1.4 million to 5 million in the third quarter of 2013 or $0.21 per diluted share from a net income of 3.6 million or $0.16 per diluted share in the third quarter of 2012. At the end of the quarter we had a cash balance of 5.9 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 ratio continue to improve given our financial growth. After reserving for 8.4 million for letters of credit guaranteed by the senior credit facility 15.6 million remain available for borrowings under our senior credit facility at the end of the quarter. We continue to believe cash generated from operation availability under our senior credit facility and proceeds from our any sale lease transaction we may choose to do or provides sufficient cash to cover our anticipated capital needs. During the third quarter we closed two sale lease transactions and purchased one property for future selling fact which together generated a net 3.9 million in cash. Now in terms of our 2013 full year outlook and as we discussed last quarter we believe Polo will be at the high end of our 3% to 5% full year comp sales range while Taco Cabana is expected to be below the 3% to 4% full year comp sales range as we projected earlier this year. Preopening expenses will relate primarily to our 18 company restaurant openings of which 15 had opened through the end of the third quarter and three have opened after the end of the quarter. Preopening expenses also relate to our pipeline of new restaurants that will open in early 2014. Capital expenditures are expected to follow on the high end of the range of 45 and 50 million this year consistent with earlier projections. G&A is estimated to be approximately 48 million consistent with prior expectations and include expenses associated with the secondary offering we did earlier this year and expenses associated with the transition of our back office and resources we are adding to prepare for accelerated development in the years to come. For 2014 we are providing the following preliminary operating targets. Polo has expected to grow comp sales by 3% to 5% while Taco has projected to grow comp sales by 1.5% to 3.5%. As we build out Florida and new markets keep in mind we are expecting some sales cannibalization at Polo. In 2014, the cannibalization may represent up to a percentage point of comp sales. Tim mentioned that we intent to build 22 to 26 new restaurants of which 20 to 22 will be Polo. We are also anticipating closing up to four Taco restaurants during the year due to content nation or redevelopment projects or with the intent to offset the closed restaurant with the new restaurant in the same trade area. We are also extremely excited to validate our new Polo prototype in Texas this year and to prove our new elevated Taco concept that will potentially result in another growth vehicle for our company. G&A is expected to be 48 to 50 million including equity based compensation of between 3 million and 3.5 million. We are planning for an effective tax rate of approximately G&A is expected to be 48 million to 50 million including equity based compensation of between 3 million and 3.5 million. We are planning for an effective tax rate of approximately 37% to 38% which assumes the reinstatement of the work opportunity tax credit in 2014. And finally capital expenditures are projected in the range of 50 million to 65 million which encompasses new development in the ongoing Taco Cabana remodeling program, capital maintenance and additional systems investment to realize efficiencies and improve the management total fees by our restaurant management team. Overall I’m very pleased with our results today and I’m confident that the entire organization is working unanimously to support our restaurant teams and meet our growth plans in the coming years. With that let’s open up the line for questions.

[Operator:]

Thank you. (Operator Instructions) And we’ll take our first question from Alex Slagle of Jefferies.

[Alexander Slagle:]

Thanks. Development questions 2014 the Pollo side it looks like pretty strong development outlook and just wondering if that’s in line with your previous internal expectations or is there something like better momentum in the construction process that makes you feel better about that?

[Tim Taft:]

Well I think Alex the big step was opening up Texas and when we opened up Texas that allowed us the flexibility to build a lot more Pollo restaurants while we took our time and backfield the existing markets to get to media efficiency. But I think to more of your point we decided in the last earnings call announced that we were going to be really focusing on Pollo as our main development vehicle and we’re going to continue to do that and built up that pipeline until such time as Taco approves itself in the Southeast.

[Alexander Slagle:]

Okay, thanks. And wonder if you could provide a little more about the response you’re seeing in your markets Tennessee and Georgia with the Pollo Tropical brand?

[Tim Taft:]

We still remain very pleased with the results our new restaurants that we’re opening in areas where we don’t have any market penetration, where we do know media efficiency. The results have thus far been frankly exactly where we thought that would be and we’re pleased with the results.

[Alexander Slagle:]

Great, thanks.

[Operator:]

We will take our next question from the Nicole Miller Regan of Piper Jaffray.

[Josh Long:]

Hi this is Josh in for Nicole. I wanted to circle back to the development as we look to those 20 to 22 new Pollo Tropical units for next years. We are talking about some of the investments that have been put in place ahead of this to support this meaningful uptick in the absolute number of units and then also could you touch on the timing that we should throughout the course of the year?

[Tim Taft:]

Well, first of all I think timing will see those restaurants will be opened fairly consistently across the 12 months next year. What’s happened over the last 12 months is that John Todd is the new Chief Development Officer came in and brought together and built a brand new team to allow us to get to the point where we get open up as many restaurants as we plant to. That included the value engineering of the building really opening up the pipeline to – restricted that’s been in the past obviously opening up Texas was as big moment for us but there hasn’t been a part of the development process that hasn’t been reworked and get the team that will be building those restaurants and the ones to come in the future are already on board.

[Josh Long:]

That’s helpful. As we think about the build out of Texas with building out Pollo Tropical in Texas should we expect there is an opportunity really to leverage Taco Cabana human capital pipeline or will you be looking to bring in completely new people from the organization from other restaurant concepts or perhaps retail concepts to support the build out of that geography?

[Tim Taft:]

Josh great question I think the answer is clear one, once we get the restaurants open and running and we continue to build more restaurants in the market place than we will have the facilities to grow to bring people from those and transplant into new restaurants. In the interim though– revision is always been that we would be able to use Taco Cabana not only for media because we can split radio and TV to bill boards but we can also use their human capital not only just the hourly but also management as well because of large part the jobs that we do inside the Taco Cabana are very similar to the jobs and training that is necessary to Pollo.

[Josh Long:]

That’s very helpful. And then as we think about the franchise aspect of the franchise out of the deploy your business what any sort initial indication on what that pipeline looks like for fiscal ‘14 that you can share with us?

[Tim Taft:]

I think we may have shared last quarter was that we were going to open about 10 restaurants internationally between the combination of domestic and international and that probably the number that you should use for next year about 10. We have thus we mentioned last quarter and we’re now proactive and that we have outside firm that is helping us with the non-traditional franchise in element inside the U.S. So they will be on our behalf recruiting and getting potential franchises for airport small universities like.

[Josh Long:]

It is on both fronts or just specifically Pollo?

[Tim Taft:]

Both brands.

[Josh Long:]

Okay. Is that 10 is that roughly split between both brands as well?

[Tim Taft:]

It is weighted more towards Pollo.

[Josh Long:]

Okay. Thank you.

[Operator:]

And our next question will come from Jay Donnelly of Wells Fargo.

[Jay Donnelly:]

Hi this is Jay Donnelly on for Jeff Farmer. Thanks for taking my questions. As the continued traffic growth at Pollo Tropical occurred across day-parts?

[Tim Taft:]

Both day-parts for the last two years yes, it has been driven lunch has been driven by my deployable line of menu items that we’ve been offering and dinner has been driven by only over place, it’s a pretty good mix going back to last couple of years.

[Jay Donnelly:]

Okay, thanks. And then what opportunities are there for Taco Cabana to narrow some of the margin performance gap for Pollo Tropical?

[Tim Taft:]

Well started we hope to prove that out with the first opening in Atlanta first quarter of next year. Right now we have the two models are decided to be different obviously there is a volume – with the averaging at volume but one is 24 hours a day and Taco Cabana and Pollo is only open for lunch and dinner. Our search indicates that we have the possibility of running some pretty good numbers open just lunch and dinner and so that obviously will be able to narrow the delta between the two brands.

[Jay Donnelly:]

Okay. Thank you very much.

[Operator:]

We’ll take the next question from Bryan Elliott of Raymond James.

[Bryan Elliott:]

Hi thanks. A couple of questions first actually it seems like when you got cut out at some point earlier in the call as you’re going through the results and occupancy expense we lost you and you came back with the 11.7 of the G&A are the offerings spend space rather that we’ve got flat and then the NSA cut you so I am just kidding there wasn’t I don’t know what happened but…

[Lynn Schweinfurth:]

So what I mentioned was that rent expense do tell study as a percent of sales for the current quarter versus the prior quarter and I just reaffirmed that this is the first full quarter that we didn’t have the incomparable list accounting challenge that we had today because of the spin-off triggering a different accounting treatment for lease.

[Bryan Elliott:]

And then the other operating is where we lost you?

[Lynn Schweinfurth:]

Okay, I’m sorry well, it increased slightly and it was primarily due to the higher cost associated with general liability claim partially offset by the positive impact of initiative to reduce repair and maintenance cost and lower the utility cost.

[Bryan Elliott:]

Any guidance, Q4 guidance down that line?

[Lynn Schweinfurth:]

No, these are all comments for 2013. I did not provide that credit line item guidance for 2014.

[Bryan Elliott:]

No, I am not for fourth quarter but okay you gave us fourth quarter help on couple of others, okay. And I think then you moved to G&A right, so that’s how we missed with the general liability claims, okay.

[Lynn Schweinfurth:]

I was just going to say that the other thing I did mention was preopening cost but obviously those are driven by new restaurant development, but I don’t know if there would be any questions around that.

[Bryan Elliott:]

Okay, all right, fair enough. And my questions on, it looks like was there a – Pollo one or two Pollo Internationals are closed in the quarter?

[Tim Taft:]

There were two in Puerto Rico, yes, so those were planned closings.

[Bryan Elliott:]

Right, right okay, that’s right. And then Lynn you historically have given us quarter-to-date comps and did not here, is there a change in policy?

[Lynn Schweinfurth:]

No, actually there should be a table in the back of the press release that has that information.

[Bryan Elliott:]

Okay, I am sorry, missed that. I didn’t go through the press release before the call started.

[Lynn Schweinfurth:]

Okay, no problem I will just – yeah, year-to-date Pollo came in at 5.5% and Taco came in at 1.6%.

[Bryan Elliott:]

No, I am sorry, I am talking about like October first few weeks in the fourth quarter historically you told us what you are quarter-to-date in the new quarter during previous calls, I believe?

[Lynn Schweinfurth:]

Okay.

[Tim Taft:]

Yes. Pollo in October was a little north of six and Taco Cabana was above 0.3% positive versus a year ago.

[Bryan Elliott:]

Okay, great. Thank you.

[Operator:]

(Operator Instructions). Our next question will come from Will Slabaugh with Stephens.

[Will Slabaugh:]

Yes, thanks guys. Can you talk just a little bit more about the plans for Texas for Pollo next year both from a fiscal stand point and then also how many of the 20 plus Pollo units you are talking about for next year do you think could end up in Texas both in 2014 and then as you think about 2015 what that trajectory might look like?

[Tim Taft:]

Well, first I think the restaurant we will be building in Texas, nobody has seen before. It’s a brand new design from the ground up, both inside and outside and the design of the kitchen. The feedback that we have received continuously about the restaurant that we build in the Southeast with the stucco and the Spanish [inaudible] was that is reminds a lot of people of Mexico. And so we build the brand new restaurant that really speaks to Caribbean, the inspiration of Caribbean and that whole attitude and lifestyle. So that restaurant looks completely different as we mentioned we have taken $150,000 out of the cost of the building compared to what has been our prototype that we build in the southeast. Moving forward I think next year a little less than half will be in the state of Texas, the new builds and the rest on a go forward basis would be our strategy would be the same and that is filling out now existing markets to immediate penetration that will obviously include the new markets that we open up next year into Texas.

[Will Slabaugh:]

Great, that’s helpful. And then moving on to Taco really quickly if I could, just the state of remodel campaign right now how you feel that’s moving along still pleased with what you’re seeing from a one and two year lift standpoint? And then also as you think about moving down in to Atlanta and elsewhere sort of any sort of changes you want to see in that within the Taco box and now you mentioned someday part movements around [without] taking breakfast out of some of the units?

[Tim Taft:]

Well, I think the easy answer is yes, when we moved into Atlanta, with Taco we planned on doing is just opening up for lunch and dinner. We will not have breakfast we can always add breakfast but we don’t want to have to do that right off the bat. The other thing if we want to able to prove is that anybody can operate on its own just to lunch and dinner, we also want to comment you asked a question about the success or how we feel about the remodels. We feel really, really good about the remodels in the Texas market. We are entering or I should say almost I guess half way done with the last few markets and that is Houston and San Antonio which by the way are our two oldest market. So we should be done by the middle of next year say with our remodeling in large part. I would say one last thing and Jay asked a question about how you narrow the delta between the two brands. Average checks is going to be something too that we think that they check averages is going to be a lot closer to a Pollo the ones that we built in Atlanta. So that too will help narrow that gap.

[Will Slabaugh:]

Okay, got it. And one last one if I could. Could you talk about the move to Southwest Media and what you expect to come from that?

[Tim Taft:]

I expect a great deal to come from that. Bob Nichol and his team are some of smartest most disciplined media planners and buyers that I have ever had the great pleasure to work with. We expect that our advertising dollars would be stretched further. I think our buys are going to be a lot better and a lot more effective and I think that next year we should be close to establishing a baseline of sales that for years and years to come we are going to be able to grow on to.

[Will Slabaugh:]

Great, thanks Tim.

[Tim Taft:]

Thank you Will.

[Operator:]

And our next question will come from Nick Setyan of Wedbush Securities.

[Nick Setyan:]

Thanks, that’s another great quarter. And mix has been a [inaudible] contributor now for a couple of quarters. Is it the popularity of the seasonal offering that maybe a little bit higher price, is that increase in takeout or is that higher an average check maybe you can cheese out some of the success or drivers behind the success of mix contribution there?

[Tim Taft:]

Well, I think the average check continues to go up with Pollo and that really is a result primarily of whole meal replacements with the activity for moms and pops getting meals to six to eight to go. I think too our discounting continues to go down as we were discounting less and less, that’s really the same drivers that have been in place for the last two to three quarters.

[Nick Setyan:]

Got it, and just thinking of pricing going forward then what’s of menu price in Q4, and in terms of the guidance for next year, what’s the menu prices assumption the comp guidance?

[Lynn Schweinfurth:]

Okay, maybe touching on October 1st, Tim mentioned Taco came in 0.3% in comp store sale for October. Part of the reason for the decline in sequential performance is that we have just rolled off 1.2% in price. So we could just roll out that. Pollo continue to carry price at little lower 2% through the balance of the year and Taco is at about half of a point, balance of the year. As we think about next year there is a few moving pieces that we certainly have made some assumptions on price. The process we are going through right now as we test size at each of the two brands, and so that’s in process. Pollo continued to implement new price in December and Taco continues to implement price in January. We intend for price to help to offset our commodity comp increases which we still have some contracts that we are continuing to negotiate for 2014. So the pricing may be up to 2% at Pollo and maybe up to 1.5% at Taco. However those numbers may change depending and how our commodity basket comes in for 2014.

[Nick Setyan:]

Got it, got it and just one quick question, any closures anticipated for Pollo next year?

[Lynn Schweinfurth:]

No.

[Nick Setyan:]

Okay, great. Thanks so much guys..

[Tim Taft:]

Thank you Nick.

[Operator:]

And it does appear there are no further questions at this time. That does conclude today’s teleconference. We thank you all for your participation.

[Lynn Schweinfurth:]

Thank you.