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Fiesta Restaurant Group stock drops after earnings shortfall

The parent company of Taco Cabana and Pollo Tropical lagged behind analyst expectations.
Photograph: Shutterstock

Shares of Fiesta Restaurant Group, the parent company of Taco Cabana and Pollo Tropical, tumbled more than 22% midday Tuesday after its third quarter earnings fell short of analyst expectations.

The company, which had been in the midst of a turnaround in recent months, also reported higher than anticipated capital expenditures as part of the brands’ renewal plans.

Same-store sales increased 6.5% at Pollo Tropical for the quarter ended Sept. 30, while comps rose 12.2% at Taco Cabana during the period. Total revenue for the company increased 10.1% year over year.

“While our prior year period results are distorted by the effects of the hurricanes last year and make comparison less meaningful, we are pleased with the continuation of our overall trajectory,” Fiesta President and CEO Richard Stockinger said in a statement.

Hurricanes Harvey and Irma forced a large number of the chains’ units to close during the third quarter of 2017, causing significant sales decreases.

Much of the same-store sales growth for Q3 2018 was driven by menu price increases and not a jump in traffic. At Pollo Tropical, check averages increased 5.2% with price increases of 4.9%. Traffic grew 1.3%. At Taco Cabana, check averages climbed 12.1% with menu price increases of 7.7%. The chain’s traffic grew only 0.1%.

Fiesta is looking to jump-start speed of service by launching portable POS tablets at drive-thrus, executives said during a call this week with analysts. The chain also plans to test self-ordering kiosks early next year.

Pollo Tropical will begin testing third-party delivery in South Florida in the coming weeks, with plans to expand the service in 2019. Taco Cabana will test third-party delivery early next year as well.

Both brands are also looking to boost sales through enhanced catering programs while also finding ways to shave labor costs.

“While it’s important to build and solidify our sales base and recognizing the investments we made in the four-wall operations, we also need to improve upon our margins through food and labor cost management,” Stockinger told analysts. “Labor initiatives are well underway, including labor scheduling forecasting and tracking process, and updated batch cooking guides to reduce overtime.”

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