Fiesta Restaurant Group Inc (FRGI) 2013 Q4 法說會逐字稿

Good day everyone, and welcome to the Fiesta Restaurant Group Fourth-Quarter and Full-Year 2013 Earnings Conference Call. Today's conference is being recorded.

For opening remarks and introductions, I would like to turn the conference over to Lynn Schweinfurth, Chief Financial Officer. Please go ahead.

Thank you, Jessica. Good afternoon, and thank you for joining our call.

Our fourth-quarter and full-year 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 strategy, budget, projected cost 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 conference 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.

Now I would like to turn the call over to Tim Taft, President and Chief Executive Officer.

Thank you, Lynn, and good afternoon everyone. I would like to briefly review both annual and quarterly highlights, and then discuss our dynamic plans for 2014. Lynn will wrap up our formal remarks by walking through the financials and affirming our outlook.

For the full year, we grew revenues 8.2% to $551 million, which included contributions from 16 net new Company-owned restaurants, as well as comparable sales increases of 5.9% at Pollo Tropical, and 0.5 point at Taco Cabana.

Our brands have now had positive comparable sales for four consecutive years. Pollo Tropical's average unit volume increased $2.7 million, while Taco Cabana's AUV also increased, and is at $1.8 million -- both among the highest in the fast casual and quick service segments. But perhaps even more compelling is that in 2013, we had 28 Pollo Tropical restaurants that generated between $3 million and $4 million in average unit volume, and five restaurants that generated over $4 million in AUV. We also had five Taco Cabana restaurants that generated over $3 million in AUV in 2013.

GAAP net income increased $1 million to $9.3 million in 2013, or $0.39 per share, compared to GAAP net income of $8.3 million, or $0.35 per share in 2012. Adjusted net income increased $6 million to $20.2 million, or $0.84 per share, from $14.1 million, or $0.60 per share in 2012.

As you know, we've also raised more than $135 million in net proceeds from the public offering of common stock, which together with borrowings under a new $150-million senior credit facility, enabled us to re-purchase or redeem our outstanding senior-secured, second-lien note. Reducing our outstanding debt by nearly $130 million at year end, with a significant decrease in interest rate, and thereby substantially reducing our interest expense for 2014 and beyond. Lynne will discuss the results of our recent refinancing efforts in greater detail. But the key take-away is that we enhance our capital structure, and are better positioned with the resources available to us to grow our business and capitalize on future opportunity.

Operationally, we accomplished much at the corporate-brand level by improving the caliber of our teams, elevating the effectiveness of our marketing, and promoting products that satisfy customer needs, and are aligned with our brand strategies. We finished out our new FRGI headquarters in Addison, Texas, and recruited staff to support our current business, and to prepare for anticipated growth. We also built a more robust real estate pipeline that we believe will enable us to hit our development targets with high-quality restaurant sites.

We terminated our transition services agreement with our former parent company, and brought in house remaining support functions they have been providing to us since the spin-off of May 2012, and we are now fully self sufficient. This was accomplished a full one and a half years ahead of schedule, and is testament to the hard work and results delivered by the team.

Back- and front-office IT is not generally a topic on restaurant earnings conference calls, but I think it's important to note that in making the transition from our former parent, we catapulted our IT infrastructure significantly through the use of cloud-based systems that are easier to support, and more scalable as we've become an even larger enterprise. We also completed redesigns of our brand websites, which has led to the significant 200% to 300% increase in site visits, as we also significantly grew our fan base on Facebook.

While the digital realm is currently important -- or critically important for our messaging and customer interaction, we also rely on traditional media such as TV, radio, and outdoor mediums to get our brand message out, and to promote LTOs. We recently partnered with a leading media planning and buying agency, Southwest Media, to make our purchases smarter and more efficient. Southwest Media is the perfect partner for these emerging brands, as we expand our footprint and increase media in smaller markets, while back-filling the existing markets to reach peak media efficiency.

We designed an elevated and distinctive Caribbean Pollo Tropical prototype that we estimate will save somewhere between $150,000 and $170,000 in building costs per restaurant. It features a complete redesign from the inside and out, including a new ergonomically engineered kitchen. This stress-test kitchen design should prove to be more efficient, and we expect to prove out potential labor savings opportunity in our Addison, Texas, restaurant that opens next month. All new Pollo Tropical elevated restaurants will feature this kitchen design, regardless of where they are built.

Taco Cabana, which will be branded as Cabana Grill when we open next month in Atlanta, similarly features a new kitchen design that's been elevated as well. We designed new menu boards, updated the product offering and color scheme, and we will be serving lunch and dinner only. So Cabana Grill will not be open 24 hours, like the typical Taco Cabana restaurant.

While the name change is intended to avoid confusion with other taco-named concepts, we are committed to a fresh-food heritage prepared on the premises. And believe these attributes will be a strong brand differentiator. In particular, we will be hand-pressing corn and flour tortillas in plain sight of our guests, and intend to make this a signature feature in all Taco Cabana and future Cabana Grill restaurants.

Our supply-chain initiative proved effective in helping us manage commodity costs despite commodity inflation, while upgrading the quality of products served. We also established secondary suppliers for over 20 of our top SKUs, along with a distribution network in the southwest with Pollo Tropical, and southeast for Taco Cabana as we execute on our Go West strategy for Pollo, and Go East strategy for Taco Cabana under the moniker Cabana Grill.

In terms of the quarter itself, we delivered $0.20 in adjusted EPS, and this compared favorably to the $0.12 in adjusted EPS we reported in the same period last year. Our top line grew 7.6%, which was made possible by comparable restaurant sales growth at Pollo Tropical, and revenue contributions from newer locations, which more than offset a comp sales decrease at Taco Cabana.

Restaurant-level adjusted EBITDA as a percentage of restaurant sales expanded by 200 basis points to 20.8%, as we effectively managed the middle of the P&L. Even the higher G&A related to the completion of the transition from our former parent, consolidated adjusted EBITDA as a percentage of revenues increased 150 basis points to 12.3%.

With that introduction, let's discuss individual brand highlights, and then turn our attention to 2014. Pollo Tropical truly has a gravity of its own, and continues to deliver excellent results. Comparable restaurant sales grew 7% in the fourth quarter, as compared to an 8.3% gain in the same period last year, which resulted in the stacked growth on a two-year basis of 15.3%. The brand is now into its fifth straight year of positive comparable sales, and has generated growth in each of the last 17 quarters.

Specific to the fourth quarter, the comparable sales gains was well balanced between 3.8% in transaction growth, and 3.2% in average check growth. Note that the cumulative impact of price increases was 2.1% for the quarter.

During the quarter itself we promoted Chicken Chipotle Sandwich with Harvest Soup and tested new Tropical Light menu in our West Palm Beach market, that consists of five unique offerings that are all under 510 calories. The healthy menu was very well received by our guests, and will soon be rolled out in additional markets. So far in the first quarter, we added two new ways to enjoy our signature fresh grilled chicken, through the introduction of the Tropical Chicken Spinach Salad, and the Tropical Chicken Spanish Wrap.

On the development front, we opened in Carrollwood, Florida, outside of Tampa, and Cumming, Georgia, outside of Atlanta in the fourth quarter, bringing our year-end tally to 102 Company-owned locations. One franchise location also opened in Panama during the fourth quarter. So far in the first quarter of 2014, we've opened up three Company-owned restaurants and have seven under construction. I will discuss our Company-wide development plans for 2014 in a moment, but let's first review Taco Cabana.

Taco comparable restaurant sales fell 2.9% in the fourth quarter, as compared to a prior-year gain of 6.8%, which was by far the brand's toughest quarterly comparison in several years. On a two-year basis, Taco Cabana grew comparable sales by 3.9%. Specific to the fourth quarter, the comparable sales decline consisted of a 0.5% increase in average check, and a 3.4% decrease in guest traffic.

Traffic was negatively impacted primarily by weather, while the cumulative price increase for the quarter was 0.7%, supporting the higher average ticket. It's appropriate to point out that Taco Cabana had 24 fewer remodels that negatively impacted the fourth quarter compared to the same period in 2012.

During the fourth quarter itself, we promoted La Lotteria, a game where guests can win food and other prizes instantly, or by collecting a combination of stamps over time, as well as featuring a beef taco plate for $4.99. In addition, we also offered a $3 happy hour, with half-price nachos and margaritas.

We added one restaurant in Austin, Texas, during the quarter, bringing the year-end total to 165 Company-owned restaurants. We also completed a total of 11 remodels in San Antonio in 2013. Results in these markets continue to out-pace the system, while elevating the perception of the brand. We will be continuing this program in 2014, as I will detail shortly.

Weather is not an excuse, merely an explanation. When you have restaurants, or has been the case entire markets shuttered, you can only control so much. To that end, as operators, we are pleased to report that we achieved at least 160 basis-point improvement in order accuracy. In fact, all of our operating metrics in the area of cleanliness, service, friendliness, and restaurant condition rose last year, evidence that our customers recognize our renewed commitment to operational excellence.

Now let's dive into our plans for 2014. Disciplined expansion, particularly for Pollo Tropical, will take center stage in 2014, as we are accelerating growth to include a total of 22 to 26 new Company-owned restaurants, of which 20 to 22 will be Pollo Tropical. I know we've spoken in the past about opening near Dallas with our first Pollo Tropical in Texas. But what perhaps you are not aware of is that we plan to build 10 restaurants in Texas this year across Dallas, Austin, Houston, and San Antonio.

Creating Pollo Tropical beachheads in these DMAs, where we already have a strong presence with Taco Cabana, enable us to share infrastructure, managerial oversight, labor-force training, and supply-chain optimization. It's also going to be extremely efficient from a marketing standpoint, as it relates to TV, radio, media purchasing, outdoor, and local store couponing drops.

Beyond selecting the particular sites, we've also identified support resources and restaurant management, finalized our menu, pricing, and distribution, so we can make our big push into Texas successfully from day one. The balance of our Pollo Tropical development will be across our three current states, as we fill out existing markets. And increase our media penetration, which will include more TV and radio spots in lower-penetrated markets.

Regarding Taco Cabana, we are limiting ourselves to two to four openings this year, and will also be closing up to four Taco Cabana locations in Texas, primarily because of highway taking and lease expirations. The big news is the upcoming Cabana Grill opening in Atlanta, and what that might mean for us as a secondary growth vehicle. We will be keeping a watchful eye on this restaurant, which incidentally is down the street from a Pollo Tropical restaurant we opened in Atlanta in 2012.

Finally, we are forging ahead with our Taco Cabana remodeling program, with approximately 25 to 30 products -- projects slated for completion in Houston and El Paso in 2014. Houston is one of our oldest markets, and we believe that our comprehensive remodeling program will really propel the brand forward in these markets. The ROIs on completed remodel projects reinforce continued investment spending in this manner.

At the corporate level, we recently announced a multi-year product and marketing agreement with Coca-Cola Company, under which all Company-owned Pollo Tropical locations in the US will serve Coca-Cola products. The agreement also extends to our Taco Cabana locations, which have served Coca-Cola products for 35 years. We believe combining the soft drink gallonage for both brands, and at the same time being able to select the industry leader as our beverage supplier, is a win for our customers, our team members, and of course our shareholders. We further expect to leverage our joint marketing and operational capabilities with Coke, as we expand both within and into new markets.

On the technological front, we will be implementing a new smartphone app that we believe will deliver an even better fast casual application of price value and convenience to our guests. Our Pollo Tropical and Taco Cabana apps, which will soon be available for Apple and Android users, will enable customers to order and pay for food via their phones or tablets. And avoid the drive-through line since we will bring their food directly to them at the specific time of their choosing.

Whole-meal replacement is of course an important component of both brands' sales mix, and a nice check-builder, too. We know that our fresh flavorful food travels extremely well, and we believe our guests view this as a key attribute when determining what to bring home for dinner.

Given the importance that smartphones play in our lives these days, the growing importance of technology in helping customers make choices of where to purchase food, we think this app will be viewed as a very positive step forward. The app will also likely serve as a catalyst to raise average check, as other chains that have rolled out apps have expressed the notion that customers tend to order more and higher-priced food online than the food -- or on the phone or in person.

Finally, with our corporate team now in place, we believe we have the resources and talent on hand to sustainably grow our business, achieve higher profitability, and continue to grow shareholder value.

Before I turn the call back over to Lynn, I want to thank our team for a fantastic year. We did a great deal of multi-tasking in 2013, establishing our corporate headquarters and related staffing while taking big strides in evolving our brands, and preparing for exciting developments, both in 2014 and the years to come.

Our organization is focused, and work collaboratively to accomplish a great deal in strengthening our brands, and creating value for our shareholders. I applaud everyone for their efforts. At the same time, we thank Carrols for being fine stewards of our two brands, and hope the excitement of our future success is shared by the teams that worked so diligently over the years, and especially during the transition.

Lynn?

Thank you, Tim. I would also like to thank the team at Carrols that provided quality support and transition training to help facilitate a successful implementation of our new corporate infrastructure in Addison. We have put in place a great team in our new Fiesta headquarters that shares a collective passion for excellent commitment and collaboration to support our restaurant operations and our brand team. I am extremely pleased with the financial results and accomplishments we made in 2013.

Let me first summarize quarterly and then full-year results. For a three-month period that ended on December 29, we grew total revenues by 7.6% to $136.2 million, from $126.6 million. Due to the impact of new-store development, comparable restaurant sales growth at Pollo Tropical and the cumulative effect of price increases, partially offset by lower comparable restaurant sales at Taco Cabana.

For the quarter, Pollo delivered comp sales growth of 7%, and it continues to be one of the strongest brands in the industry. Taco experienced a comp sales decline, with weather, remodel timing, and a challenging prior-year comparison impacting results. Quarter-to-date through this past Sunday, Pollo grew comp store sales by 6.6%, and Taco grew comp store sales by 1.3%.

As Tim has already addressed new store development and comparable store sales performance and related details, I will turn to addressing some of the key expense line items in the P&L. We continue to see improvement in cost of sales as a percentage of restaurant sales, which improved 20 basis points this quarter compared to the prior-year period, due primarily to supply-chain initiatives and the benefit of modest price increases, which mitigated commodity inflation.

Restaurant wages and related costs as a percentage of restaurant sales improved 120 basis points year-over-year, primarily due to the favorable impact of sales leverage, and favorable medical and other benefits cost. Rent expense increased 40 basis points as a percentage of restaurant sales, because of new Company-owned restaurant openings and sale-lease-back transactions that were completed during the year.

Other restaurant operating expenses increased slightly by 30 basis points as a percentage of restaurant sales, due primarily to higher insurance costs. Advertising expense decreased as a percentage of restaurant sales by approximately 100 basis points in the fourth quarter compared to the prior-year period, due primarily to timing and a decision to reduce advertising, given adverse weather conditions in Texas. Pre-opening costs decreased by $0.2 million, due to timing of expenses for future openings, which are typically incurred between four to six months prior to the restaurant opening.

Turning to G&A expenses, they were $1.6 million higher than the prior-year period, at $12.6 million, as a result of Company Management and team additions, including higher costs associated with completing the implementation of our corporate infrastructure. Depreciation and amortization increased $0.7 million to $5.3 million, due to new Company-owned restaurant openings, as well as restaurant remodeling expenditures.

Interest expense decreased by $1.5 million in the fourth quarter of 2013 compared to the prior-year period, due to refinancing and reduction in our outstanding debt and a lower interest rate. Adjusted net income increased $2.2 million to $4.9 million, as compared to adjusted net income of $2.7 million. Adjusted EPS increased to $0.20 per share, compared to an adjusted EPS of $0.12 in the prior-year quarter.

Turning to full-year financial performance. Pollo grew comp store sales by 5.9% in 2013, while Taco grew comp store sales by 0.5%. If you recall, the industry experienced a slow-down in traffic at the beginning of the year, as higher payroll taxes and delayed income tax refunds negatively impacted consumer spending patterns. In addition, 2013 was a challenging year, with weather comparisons that negatively impacted Taco's results.

For the full year, cost of sales as a percentage of restaurant sales came in with margin improvement of 15 basis points year-over-year, as pricing and efforts to find supply-chain opportunities to mitigate higher costs have been successful.

Restaurant wages and related expenses were favorable as a percentage of restaurant sales, coming in over 70 basis points better than the prior year as a percentage of sales, driven primarily by higher sales and lower worker's compensation claims. Advertising expense as a percentage of restaurant sales was lower year-over-year as a result of our decision to reduce spending in the fourth quarter as the result of adverse weather conditions in large Texas markets. Going forward, we expect to spend about the same as we have spent in years prior to 2013 as a percentage of sales, or 3.3% to 3.4%.

Pre-opening expenses have increased with our accelerated development effort, increasing $1.1 million in 2013 versus 2012. Rent expense increased $5.3 million in 2013 versus the prior year, as a result of new restaurants and sale-lease-back transactions. In addition, the impact of the qualification for sale-lease-back accounting for certain leases triggered by the spin-off increased rent expense by approximately $2.8 million.

G&A expenses were $4.7 million higher than the prior-year period, at $48.5 million, as a result of Company Management and team additions, including higher costs associated with completing the implementation of our corporate infrastructure. Depreciation and amortization expense increased $2.1 million, as a result of new restaurant development and restaurant remodeling. Partially offset by the qualification for sale-lease=back accounting for certain leases triggered by the spinoff, which decreased depreciation expense by $0.7 million.

Impairment and other lease charges improved by $6.8 million in 2013 compared to 2012, due primarily to the closure in 2012 of five Pollo restaurant in New Jersey. Interest expense decreased by approximately $6.4 million in 2013 versus 2012, partially due to the qualification for sale-lease-back accounting for certain leases, eliminating related interest expense by $3.9 million. In addition, debt refinancing in the fourth quarter and the capitalization of interest expense, driven by an increase in new-store construction, also favorably impacted interest expense year-over-year.

Adjusted net income increased $6 million to $20.2 million in 2013. Adjusted EPS was $0.84, compared to an adjusted EPS of $0.60 in the prior year, an increase of 40%.

At year end, we had a cash balance of $11 million. We closed on six sale-lease-back transactions that generated over $15 million in cash during 2013. We had a total of $74 million in outstanding debt, including $71 million drawn on our new $150-million revolver. We were in compliance with all covenants related to our credit facility.

Leverage ratios also improved significantly as a consequence of our debt refinancing and equity capital raise. After reserving for $8.4 million for letters of credit, we had $70.6 million available for borrowing under our credit facility at year end.

During the fourth quarter, we re-purchased and redeemed all of our $200-million, senior-secured, second-lien notes that were due in 2016, and carried an interest rate of almost 9%. We did so by generating net proceeds from an equity offering of approximately $135 million, issuing approximately 3.1 million shares, and through borrowings of $81 million under a new revolving credit facility.

As I just mentioned, we had $71 million drawn on our facility at the end of the year, and it carried a weighted average interest rate of 2.25%. On an annualized basis, assuming a consistent rate and debt balance, our new credit facility would result in approximately $16 million in interest savings, compared to that of our $200-million note. This interest savings on an after-tax basis, partially offset by the dilution created by the equity offering, represents meaningful EPS accretion in 2014.

The new senior credit facility provides for aggregate revolving credit borrowings of up to $150 million, including $15 million available for letters of credit, and currently bears an interest rate of LIBOR plus 175 basis points, and matures December 2018. The new senior credit facility also provides for incremental increases of up to $50 million to the revolving credit borrowings available under the new facility.

We recognized a pre-tax loss on extinguishment of debt $16.4 million, or $0.42 per share after tax in the fourth quarter of 2013 related to the re-purchase and redemption of the notes. The loss on extinguishment includes the right-off of deferred financing costs related to the notes, and payments, interest, and other fees related to their repurchase or redemption of the notes.

For 2014, we are re-affirming our prior operating target. We continue to expect Pollo to grow comp sales by 3% to 5%, while Taco is projected to grow comp sales by 1.5% to 3.5%. As we build out Florida and new markets, keep in mind that we are expecting some sales cannibalization at Pollo. In 2014, this cannibalization may represent up to a percentage point of comp sales.

Tim mentioned that we intend to build 22 to 26 new restaurants, of which 20 to 22 will be Pollo restaurants. We are also anticipating closing up to four Taco restaurants during the year, due to condemnations to build roadways, lease expirations, or redevelopment projects. Or with the intent to offset the closed restaurant with a new restaurant in the same trade area and a superior site.

We are also eager to validate our new Pollo prototype in Texas this year. And to determine whether our new elevated Cabana Grill concept will meet performance expectations consistent with what our consumer research told us, resulting in another potential growth vehicle for our Company.

G&A is expected to be $48 million to $50 million, including equity-based compensation. Now that we have our team in place and we are fully self-sufficient, we will continue to look for opportunities across our organization to be more efficient yet effective. We have previously provided the 2014 effective tax rate estimate of approximately 37% to 38%, based on the assumption that the Work Opportunity Tax Credit was reinstated and effective in 2014. Without the reinstatement of the Work Opportunity Tax Credit in 2014, our rate could be higher, or approximately 38.5% to 39.5%.

Finally, capital expenditures are projected in the range of $60 million to $65 million, which includes $45 million to $50 million for new restaurant development, $12 million to $14 million for remodeling and capital maintenance, and $4 million to $6 million for additional systems investments to realize efficiency, improve management tools used by our restaurant management teams, and to enhance the guest experience.

2013 was a transitional year for our entire organization, and we made incredible strides to establish the foundation from which we will meet our long-term business goals. We look forward to continuing to deliver our strategic operating and financial goals in 2014 and thereafter.

With that, Jessica, let's open up the line for questions.

Thank you.

(Operator Instructions)

Alex Slagle, Jefferies

Thanks. Question on Pollo Tropical. Just seeing if you could give some more color on what drove the acceleration in the same-store sales and traffic. It's pretty amazing on the two- and three-year basis all accelerating. Was there something in particular that you can pull out of there?

Alex, I think the answer is it's not any one particular thing. It's a combination of all the different initiatives. There has been speed of service initiatives. There's been accuracy initiatives, which have helped with through-put. We've eliminated some of our products in the quarter area. We eliminated beef fajitas. We re-did the packaging, which helps with speed and timing.

The accuracy -- Pollo specifically is a couple points better than a year ago, which translates to hundreds of thousands of dollars of transactions that are not being re-done, so it's really about improving through-put and improving efficiency. New creative, new websites, new TV, new media planning and buying. It's a combination of all those things which continues to have a positive impact on our sales.

Okay. Then the accuracy metric that you put out, the 160 basis points. Is that just for Taco, or was that both?

That was really a blended for the two. Pollo is about two points better, and Taco is around 1.3, 1.4, so blended it was 160 basis points for the both.

Okay. If you could just talk a little bit more about the strategic decision to sort of slow down the Taco remodels in the fourth quarter, and your thoughts around that?

Well, first of all, as Lynn mentioned, we're going in -- and I mentioned as well -- going into Houston and in San Antonio, those are our oldest markets. With those older markets more money and more energy needed to be placed on them, which included more of a processing and a permitting process than we've had in the other markets. Roofs needed to be replaced, extending dining rooms, and that kind of thing. Rather than try to tax the operations and try to do too much, we said let's just spread it out and let's make sure that we do it correctly with local municipalities in their --

Their related requirements.

Right.

Yes.

Okay, thank you.

Jeff Farmer, Wells Fargo.

Thanks. Lynn, I apologize if I missed this. There's a lot of obviously moving pieces to the P&L, especially with some of the refinancing that went on out there, but any rough estimate on EPS growth, a ball park number we should be thinking about in 2014?

Well, there's a lot of moving numbers. Again, depending on which number you are pointing to, and what the growth rate is, no we haven't been specific. But again, our EPS growth continues to be meaningful, and we expect that in 2014 and beyond.

Okay. One other quick modeling question before I ask one more about the top line. Just because of the timing of the transaction, what's a good share count to think about in Q1, in terms of incorporating a full quarter of those shares being out there?

I would say about -- I'll give you a rounded number, $26.2 million.

Okay. Last one on the top line, You touched on this with the discussion about the app, but I'm just following up on Alex's question, obviously strong comps. One of the things you pointed to in the past is home meal replacement, and the fact that it's grown to become, I think, a mid-teen percentage of your sales mix at Pollo. The question is -- is that momentum still there? How big a percentage of your mix do think that can grow to, and how do you actually market that service in-store for people to even find out about it?

Jeff, on the online ordering, there's point-of-purchase material that speaks to it, and has the way to order online. Also with the invention of the app that is currently being tested rolled out in the next week or so, and then after probably mid-April we will roll it out to the Texas market. That will be marketed across on our websites, on point-of-purchase material, and as that takes hold and momentum, we will have that printed on absolutely all of our to-go materials and cups and anything you can imagine.

Okay. As a percent of mix, what is home-meal replacement right now?

Right now at Pollo, home-meal replacement is about 18%. We expect that to continue to grow as we make it easier for people, but not only online ordering but also on the app. Online ordering right now is in a handful of markets, and we plan on continuing to roll that out over the next six months.

Okay, thank you.

Nicole Miller Reagan, Piper Jaffray.

Thanks, good afternoon. In terms of the current comp trends, how much price is in that? What are you rolling forward on so far this year, please?

For 2014, we took price at Pollo, which essentially last -- the price that we took last year from a timing standpoint, and we took 1.4% in price, kind of mid to late December. Then with Taco we recently took about 1.1% to 1.2% price, and adding some price we took in the middle part of the year, they will carry about 1.3% into the first quarter.

Thanks. For the stores for this year, are they -- can you give us a number under signed leases, or is it the majority? Then what would be the cadence of opening throughout the year by quarter, if possible?

Well, I think for the -- in terms of pacing, as I mentioned, we've opened up three. We've got seven under construction. The big month, or the big period is going to be third quarter, where a big percentage of our restaurants will be opened, and then dwindling towards the end of the year. But third quarter is going to be primarily where a large number of opens (inaudible - background noise).

Thank you. Then just a final one. On that app you are talking about, will there be a loyalty function, either initially or over time?

Nicole, there will be over time. But we want to start off with just making it simple and getting people with the customization, or getting their head wrapped around how it will work. But we feel ours is going to be a little bit different, and then when you pull up on the location after you've ordered and put your credit card number, and you're going to tell what time you are going to be there. When -- and we are anticipating you being there. When you pull up on location you'll hit the app button, and we will have the food running out to you. So the more convenient we can give, and have more efficient off-premise consumption, the better off we feel we're going to be.

Thank you so much.

Will Slabaugh, Stevens Incorporated.

Thanks guys, and congrats on the great year. Had a couple questions for you. First, I wondered if you could give us an update on the performance of the new Pollo's that you built in your newer elevated markets; if you're still pleased with what you are seeing out there as far as the new unit openings go?

Well, the answer to that is yes. We are still very pleased. There's two sets of restaurants we've opened -- one in the obviously the existing markets, where strategically they are doing what we thought they would do, and that is try to take some relief off some of the highest unit volumes that we have. Interestingly enough, even those restaurants that we thought would be cannibalized are now starting to narrow that gap.

But also in the new markets in Jacksonville and Atlanta, we are still very encouraged by the kind of volumes that they are doing. We're also excited by the fact that in 2014 we're going to have Cabana Grill opening up restaurants in those markets, as well as additional Pollo's, so we'll be able to have more media dollars to spend on those restaurants. All in all, a lot of times we're asked the question -- are there any dogs out there? The answer is no.

Great to hear. Second question, could you tell a little bit more about the new prototypes that you mentioned going into Texas. Obviously with Pollo and then Atlanta with Taco Cabana, what you think the biggest aesthetic changes are going to be, and then as far as any food or menu changes that might occur?

Well I think more than anything else in Pollo in Texas. I don't think that besides the logo that you will recognize anything about it. It looks completely different than the Pollo Tropical in the Florida markets. All the research indicated that one of the things that we had a disadvantage in Florida and in the southeast was that our restaurants to the consumer, even those that traded with us, thought that it looked Mexican or that it was a Mexican offering. We redesigned the interior and exterior of the building to look very much Caribbean inspired, and there is no mistaking that this is a Caribbean-inspired restaurant.

In Taco in Atlanta, the restaurant looks very much -- in fact it is the same envelope as the restaurant that we are building in Texas. There's a little bit of a color difference. It's not going to be the pink. It will be more of a kind of an eggplant color, is the theme. Instead of Taco Cabana, it will be Cabana Grill.

But really the change for Cabana Grill in terms of menu -- there are some things that in the southeast research said that they don't like chalupas, for instance, and we won't offer chalupas. But in the southeast they think that some of our higher-velocity items will be what traditionally in taxes have been low velocity items, specifically not only the tortillas, but the -- quesadilla, thank you. The quesadilla's going to be a high-velocity item, which has allowed us and made us to change our kitchen design, but all in all, we're going to be serving about the same kind of products.

Got you. Thank you very much.

(Operator Instructions)

Nick Setyan, Wedbush Securities.

Thank you. Congrats on another great quarter. Just a quick question on the top line, and I want to spend a little time on some of the margin assumptions. We've seen another quarter again of really good average check growth. You're going to be kind of giving us some color on what the drivers on the mix on the Pollo site are. Is it just a continued trend of higher take-out orders and meal replacements, or is there some timing around marketing and sort of LTOs that are higher-priced? How should we think of that going forward?

I think very simply stated that our percentage of off-premise consumption and online ordering is continuing to go up. That's really been the main driver of check average. On a go-forward basis, I think as our goal is to prepare for an even greater percentage of transactions consumed off premise. Our intention is for that trend to continue.

Got it. Then just as we accelerate growth, how should we think about the labor and the rent expense? Especially on the rent side, we've had obviously the change now that's over with, and so we've anniversaried that. Going forward, can we start seeing some leverage if Pollo continues with the comp momentum at the sort of mid to high end of your guidance range, or should we think about more of a flat in terms of percentage of sales, and then on the labor that would be great, if you could give some color there?

Yes. I would say on the labor side, because of some inefficiencies you see initially when you open up restaurants, you can't assume that there will be too much expansion on the labor line item. We also had some benefits this year with adjustments made for medical expenses, and I mentioned worker's comp earlier, as well.

I would say year over year, the percentage as a percent of restaurant sales should be approximately the same, if not close. On the restaurant -- on the rent expense line item, I think you were talking about actual flow-through for Pollo versus Taco. Again, with some of the pressure points with new restaurant development, with getting our costs in line as you get used to the volumes in the new restaurants, and also the labor scheduling, those two things are less efficient in the initial three or so months. Then we also have pre-opening costs. What I would say is our margins should be well in line year over year, maybe a little bit pressured on the Pollo side being offset by Taco.

Perfect. Thank you very much.

That does conclude our question-and-answer session, as well as today's conference. Thank you for your participation.