Fiesta Restaurant Group Inc (FRGI) 2014 Q1 法說會逐字稿

Greetings, and welcome to the Fiesta Restaurant Group first quarter 2014 earnings conference call. (Operator Instructions). I would now like to turn the conference over to your host today, Ms. Lynn Schweinfurth, Chief Financial Officer, for Fiesta. Thank you. You may begin.

Thank you. Good afternoon, and thank you for joining our call. Our first quarter 2014 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 filing. Please note that during today's conference call we will 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'd like to turn the call over to Tim Taft, President and Chief Executive Officer.

Thank you, Lynn, and good afternoon, everyone. Once again our teams did an outstanding job delivering strong results for our shareholders. We saw healthy growth on our top line that stemmed from both comparable sales gains and contributions from newer restaurants. Pollo continues exceptionally strong sales momentum while Taco has regained traction now that the erratic winter weather is behind us. In addition to our top line growth, we expanded restaurant level margins and had meaningful EPS growth. Lynn will walk you through the numbers in greater detail shortly. So, I will focus my remarks on our development plans and quarterly brand highlights.

As you know, we are continuing to accelerate expansion this year versus prior years. In 2014 we are targeting 22 to 26 new company owned restaurant openings, of which 20 to 22 will be called Tropical call restaurants, and the remaining will be Taco Cabana and Cabana Gills. Our pipeline continues to support our go west strategy for Pollo Tropical and our go east strategy Cabana Grill, with high profile sites that our corporate real estate team has been able to identify and secure. We opened a total of four company owned Pollo Tropical restaurants in the first quarter, including three in south Florida, specifically, Margate, Miami, and Lake Worth, as well as our first Texas restaurant in Addison, near our Corporate Headquarters. We currently have 16 company owned restaurants under construction.

In the second quarter we plan to open approximately seven restaurants, including our first Cabana Grill we opened outside of Atlanta in mid April as well as six Pollo restaurants in Florida. In the third quarter we are planning approximately 12 openings, including eight Pollo restaurants in Texas. The remaining openings will occur in the fourth quarter, including our second Cabana Grill which will open in Jacksonville, Florida. If our cabana grill concept performs as planned, it represents another potential growth vehicle for our Company. We're also going to close up the four Taco Cabana restaurants later in the year. These closures relate to condemnations for highway development, redevelopment projects, and opportunities to offset a closed restaurant with a better position new restaurant in same trade area.

At the end of the first quarter we opened our first Pollo Tropical restaurant in Texas to large crowd and strong sales. This restaurant is the first example of our new Pollo Tropical prototype and it looks completely different from what we've previously built. The interior and exterior have been extensively redesigned, and there is no mistaking the Caribbean influence and inspiration. Our unique exterior is a bold statement that is garnered much attention, and has been very effective in drawing new guests to the restaurant. The interior of the restaurant is totally redesigned, including an ergonomically engineered kitchen designed to be more efficient and require fewer labor hours than our other elevated restaurants.

The restaurant offers are elevated service model which includes helping guests locate and reserve a table prior to ordering at the counter, delivery of meals to the guest table, and assistance throughout the dining experience. Meals are presented on dish ware with metal cutlery. We are also featuring new menu items in Texas including all natural refreshed juices, rum punch, Caribbean beer, and calypso beef which consists of tender prime rib strips sauted with a hint of brief gravy and pickled red onions. Based on sales mix and guest feedback these new offerings have solid guest appeal and we're considering adding them to the menu in other elevated markets. Pollo Tropical go west strategy this year calls for at least nine additional openings in Texas. This is intended to create beach heads in three key Texas DNA's; Dallas/Fort Worth, Houston and San Antonio, where we will already have a strong presence with Taco Cabana. In addition to sharing infrastructure and supply chain optimization, we stand to benefit from efficiencies in media and marketing.

The balance of Pollo Tropical development will be in existing markets that are categorized into three groups. The first group is our legacy south Florida markets from West Palm Beach down to Miami, where the brand is well-known and possesses high restaurant penetration and superior brand awareness. Our primary objective in these markets is to build new restaurants where we have exceptionally high volume. (inaudible) our overall profitability and improve operational executions while spreading sales across more restaurants. Under this strategy of planned cannibalization, we expect that the sales of the existing high volume stores will steadily build back, and we are seeing evidence of that already.

The second group is our lower to medium penetrative markets such as Jacksonville, Fort Myers, Tampa, and Orlando. We remain very encouraged by current sales volumes in these markets and intend to increase our media penetration concurrent with new openings, resulting in greater TV and radio wave levels. As an example, in Orlando, we have increased average weekly sales over the past three years, approximately 25%, due to higher media spending and additional restaurants in the market. Both of which are driving higher brand awareness. The third group is our emerging markets, Nashville and Atlanta and now the state of Texas. Establishing Pollo in Texas has given us the flexibility of being selective in our expansion plans.

Strategically, we are building our Nashville and Atlanta as trade areas develop and as sites become available that will deliver desired results from the day of opening. In the meantime, we have a robust development pipeline currently underway in Texas with many high quality sites we believe are capable of immediate contribution. In addition to our first Cabana Grill that recently opened in Snellville, Georgia, we will open one additional Cabana Grill later this year. The Snellville opening was extremely encouraging as evidenced by strong sales on a steady line of customers. We are particularly pleased as we achieve notable sales results without offering a breakfast or overnight day park as a restaurant is currently open for lunch and dinner only. Our second Cabana Grill opening will be in Jacksonville, Florida, and is less than two miles from existing Pollo.

This additional restaurant will enhance our ability to spend more media and marketing dollars to benefit both brands in the market. As you know, our plan for Cabana Grill is to bring the best of Taco Cabana delicious authentic Mexican food to the southeast United States. We have elevated the experience with additional menu items, service updates and a new design element to reflect an authentic Mexican experience, but with a broader appeal. We took the opportunity to refine our floor plan and upgrade our technology. One exciting innovation was to implement a guest facing POS allowing the guest to follow his or her order being taken on a monitor at the counter. We believe this enhancement will help to optimize order accuracy while assisting the guest in the ordering process.

This technology can potentially increase average check by suggesting on screen other complementary menu items and premium toppings. The performance of this restaurant will be the basis for evaluating the opportunity for further expansion of Cabana Grill outside of Texas, to complement our aggressive development plans for Pollo Tropical. Regarding our existing Taco Cabana restaurants, we are forging ahead with our remodeling program with approximately 25 to 30 projects slated for completion primarily in Houston in 2014. Financial results for our remodeled restaurants continue to outpace the system while elevating the overall perception and appeal to the brand.

Before discussing individual brand results and promotions, I'd like to touch upon another initiative we believe will enable us to deliver an even better, fast-casual experience of price, value, and convenience to our guests. We are currently testing the smart phone app in conjunction with online ordering, which will enable guests to order and pay for their meal via their smart phones or tablets. The guests will also specify a pickup time, confirm their arrival and parking location, where upon their food will be delivered curbside. In the next few months we will expand the smart phones test into the additional markets with system-wide implementation planned for the foreseeable future. To build awareness we will promote this app on point of purchase displays, as well as an E blast and direct mail.

Online ordering will be featured on cups, bags, and other packaging materials. We believe this app and online ordering will play a critical role in raising our average check and driving additional traffic. Those of you that have not experienced our fresh flavorful food in the restaurant might not necessarily be aware that it travels extremely well, which is a key attribute for guests in deciding what to bring home for dinner. On a go-forward basis our goal is to prepare an even greater percentage of transactions consumed off premise whether it is ordered via app, online or catering. Now, let's discuss individual brand highlights. The momentum at Pollo Tropical continues with strong sales results and margin improvement.

Comparable restaurant sales grew 6.3% in the first quarter and consisted of 4.6% in transaction growth and 1.7% in average check growth. Note that the cumulative impact of price increase was 1.6% for the quarter. Notably, on a two-year basis, comparable sales increased 10.1% and on a three-year basis, comparable sales increased 19.5%. In addition, the brand is now into its fifth straight year of positive comparable sales and has generated growth in 18 consecutive quarters. In addition to its fresh flavorful food offerings, we believe Pollo Tropical is also benefiting from evolved branding with new advertising agency and campaign, a redesigned web site, a new media planning and buying which is more efficient in generating more awareness and interest.

During January and February we promoted the Tropical chicken spinach salad, and Tropical chicken spinach while in March, just in time for the Lenten season. We promoted citrus marinated grilled shrimp in a variety of dishes including create you're own shrimp (inaudible), shrimp quesadilla wrap, and shrimp quesadilla salad. Ongoing initiatives at Pollo Tropical include evaluating the new prototype building for improvements, evaluating menu products introduced into Texas for possible implementation in other markets, and highlighting our five points of focus, which is our operating platform to a refined restaurant evaluation process. From a profitability standpoint, adjusted EBITDA at Pollo Tropical grew nearly 40% in the first quarter of 2014 to $13.7 million, far out pacing the 15% increase in restaurant sales in the quarter.

Turning to Taco Cabana, comparable restaurants sales grew 0.8% in the first quarter. The comparable sales gain consisted of a 2.8% increase in average check, and a 2% decrease in guest traffic. Traffic was negatively impacted by weather and almost 240 fewer remodeled store weeks in the first quarter of 2014 compared to the same period in 2013. Check average was positively impacted by a new menu board and cumulative impact of menu price increases at 1.3%. On a two-year basis comparable sales grew 2.8%, and on a three-year basis, they grew 8.9%.

During the first quarter we promoted flautas plates for $4.99, rise and dine breakfast tacos for $1.09 and shrimp tempito. Beginning in the second quarter, we shifted our promotional strategy with media that focuses on a strong value message such as our brisket plate for $4.99, and a Cabana (inaudible) for 4.99. We're also promoting premium products and add-on's in restaurants to support and protect our check average. Brand initiatives include the completion of menu board changes in mid January. It is helping to raise our check average by moving guests from combos to our more profitable plates and measures that have improved order accuracy and total guest satisfaction.

From a profitability standpoint, adjusted EBITDA at Taco Cabana increased 8.8% to 7.1% in the first quarter of 2014, which out paces the 3% increase in restaurant sales. Before I turn the call back over to Lynn, let me express my appreciation to our teams for delivering exceptional results. In addition to our financial achievements, we took two big steps forward with Pollo Tropical opening in Texas and our Cabana Grill opening in Georgia. We congratulate Danny and Todd, the brand team and the Fiesta team for delivering such an exciting view of the future. We continue to be confident in our direction, and about what we can deliver to our guests and our shareholders over the long term. Lynn?

Thank you, Tim. We are pleased with our first quarter results and I second Tim's sentiment that our team is doing an incredible job on behalf of our shareholders. Let me first summarize the quarter and then dive deeper into the results themselves. First, we grew total revenues by 8.8% to $145.4 million from $133.6 million due to the impact of 16 net new company restaurants opened over the past year, and comparable restaurant sales growth at both brands. Pollo Tropical delivered comp sales growth of 6.3%, continuing its competitiveness within the industry and within the fast-casual segment, while Taco Cabana delivered positive comp sales of 0.8%. Note that due to Easter falling in the second quarter this year, and in the first quarter last year, there was a positive impact of 20 to 30 basis points to comp sales in the first quarter of this year.

The impact to each of the brands was about the same. Similar, comparable sales growth momentum in the first quarter has continued in the second quarter at Pollo, while at Taco comparable sales growth has improved to be a little over 2% so far in the second quarter. Restaurant level adjusted EBITDA as a percentage of restaurant sales improved by 110 basis points to 21.8% as we effectively managed the middle of the P&L. Pollo Tropical contributed 60% of our consolidated restaurant level adjusted EBITDA in the first quarter, compared to 56% in the same period last year, reflecting its increased importance to our consolidated results as its margins grew 180 basis points while Taco Cabana's margins were essentially flat. Keeping G&A flat year over year drove further margin expansion with higher revenues, and helped to drive a 27.2% increase in consolidated EBITDA to $20.8 million and a 210 basis point improvement of consolidated EBITDA as a percentage of revenue.

On the bottom line, we delivered $0.33 in diluted EPS which compared favorably to the $0.20 in diluted EPS we reported in the same period last year. Note that despite our equity offering last year, which increased our share count approximately 15%, EPS still grew by more than 60%. Delving further into our P&L, cost of sales improved as a percentage of restaurant sales by 50 basis points this quarter compared to the prior year period with a similar improvement at both brands. The positive leverage was due primarily to supply chain initiatives, the benefit of modest price increases, and a shift in sales mix to more profitable menu items, which more than offset commodity food inflation. Cost of sales is currently expected to continue on this same trajectory in 2014.

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 workers' compensation claim costs at Pollo and failed leverage. Note that the positive adjustment of workers' compensation claim costs represented approximately 130 basis points of margin improvement at Pollo in the first quarter. In addition, as we open up new elevated restaurants, we expect to see some labor pressure due to less efficient margins in the initial months of operation, as well as incremental labor to deliver our elevated service model.

In subsequent quarters in 2014, we currently expect Pollo restaurant wages as a percentage of restaurant sales to run somewhere between 100 to 150 basis points higher than the first quarter. While we expect Taco restaurant wages as a percentage of restaurant sales to be reasonably comparable to first quarter performance. Rents expense increased 20 basis points as a percentage of restaurant sales due primarily to new Pollo Tropical restaurant openings and sale lease back transactions that were completed over the course of last year. Other restaurant operating expenses increased slightly by 20 basis points as a percentage of restaurant sales. Advertising expense increased as a percentage of restaurant sales by approximately 30 basis points in the first quarter of 2014 compared to the prior year period, due primarily to the timing of promotions and increased media spending. Pre opening costs decreased by $0.1 million to $0.7 million in the first quarter of 2014, due to timing of expenses for future openings, which are typically incurred between four to six months prior to the restaurant opening.

We continue to expect pre opening costs of approximately $4 million in 2014. As I previously touched on, G&A expenses remained fairly flat at $12.2 million, but decreased 80 basis points as a percentage of revenues to 8.4% in the first quarter of 2014 due to the impact of higher sales on flat year-over-year expenses. Depreciation and amortization increased $0.5 million to $5.3 million in the first quarter of 2014 due to new restaurant openings over the past year that were partially offset by the impact of sale lease back transactions.

Interest expense decreased by $4.4 million to $0.6 million in the first quarter of 2014, compared to the prior year period due to the reduction in our outstanding debt, and a lower interest rate on borrowings under the new senior credit facility. Note that our first quarter income tax provision was derived using an estimated annual effective income tax rate of 38.3% while in the same period last year the provision for income taxes was derived using an estimated effective annual income tax rate of 35.8%, excluding discrete items. The 2014 rate is higher than the prior year period due to the expiration of the work opportunity tax credit at the end of 2013.

Net income increased $3.9 million to $8.7 million in the first quarter of 2014 as compared to net income of $4.8 million in the prior year period, or an increase of over 80%. Diluted EPS increased to $0.33 per share from $0.20 per share, or an increase of over 60%. At quarter end we had a cash balance of $2.4 million, and paid down $7 million of borrowings under our senior credit facility, compared to the fiscal year-end. After reserving $7.5 million for letters of credit, we had $78.5 million of borrowing capacity under our senior credit facility. We were in compliance with all covenants related to our credit facility. Now, let's review other 2014 operating targets. We are currently projecting to be at the high end of our previously communicated range for comparable sales growth of 3% to 5% at Pollo. We continue to project comparable sales growth in the range of 1.5% to 3.5% at Taco.

G&A is expected to be $48 million to $50 million including equity based compensation which compares with $48.5 million in 2013, driving margin expansion given a higher revenue base. We are working under the assumption that the work opportunity tax credit will not be reinstated in 2014 and our modeling an effective tax rate of 38.3%. Note that this rate is currently estimated to be slightly better than the 38.5% to 39.5% range that we had discussed on the fourth quarter conference call. If this credit is reinstated, we would expect a rate of 37% to 38%. Finally, capital expenditures are projected to be in between $60 million and $65 million in total. This includes $45 million to $50 million for our new restaurant development, $12 million to $14 million for remodeling and capital maintenance, and $4 million to $6 million for additional systems investment to realize efficiency, improve management tools used by our restaurant management team, and to enhance the guest experience. So, in closing, we are offer to a solid start in 2014. Strategically, operationally and financially. Let's open the line for questions, please.

Thank you. At this time we'll be conducting a question-and-answer session. (Operator Instructions). Our first question comes from Alex Slagle, with Jefferies. Please proceed with your question.

Okay. Thanks. Two things I wanted to clarify, one was the April same store sales trends. Were those figures you gave even including the negative Easter shift, and I guess what seems like a pretty difficult comparison?

Yes, they were inclusive of the Easter shift.

Okay. So that's like 60 to 90 basis points or something in the April time period, would that be?

No, in fact, actually, it would be lower than that.

Okay. And then 2015, is that a 53 week year?

Yes, it is.

Okay. And question on sort of just wanted to dive a little more into the new markets for Pollo Tropical, and Cabana Grill and, obviously, very early at this point but we're all eager to learn more about. So, I'm just wondering if you could provide a little more color on what you learned with the new market openings, Addison, Snellville and anything that surprised you and are you happy with the new restaurant designs and kitchen designs?

Well, let me start with Pollo in Addison. The response to the restaurant, just the exterior and interior of the restaurant has really been overwhelmingly positive. Social media has nothing but great things to say about not only the teams but the restaurant and the food. The redesign of the kitchen is handling our through put issues very, very well. We've got very good and consistent speed times, accuracies, is better. It's could always be better, especially when you've got new customers with a new menu, but the response thus far has met or exceeded our expectations for the brand expansion into Texas. Cabana Grill, likewise, has been really remarkable in the way that that brand has been embraced. It's only, you know, three weeks in, so the jury is still out.

The thing we have learned, though, is that the kitchen design, which is completely different than any one that we've built before in the Taco Cabana, really does handle volume better than any of the ones that we've had before. So, we're going to school on that particular layout and will be building that in future restaurants. The thing that's surprising is that, going back to Pollo, I guess, I'd say it's interesting how in Florida you sell a lot of white rice and Texans really don't like white rice but they do line our calypso beef. The alcohol sales in Atlanta, people seem to want to hang out a little bit more than they do in Texas, so, you know, your Margarita sales are higher. But all in all, both brands, I'm very happy with the reception that the brands have received thus far.

Great. Thank you.

Our next question comes from Jeff Farmer, with Wells Fargo. Please, proceed with your question.

Thank you. You mentioned it quickly so I might have missed the detail, but what is the plan to roll out timeline for the Pollo smart phone app and, if possible could you share some results from some of your test units?

I will tell you that right now it's in tests in a couple markets. The response has been very, very good. We have not yet turned on the curbside. That will happen here in the next couple weeks. It's in Jacksonville right now, we're rolling it out to additional markets, and we will have it fully implemented in the Texas market sometime by June. So, I think system wide we should have it in place by June, the middle/end of June.

Okay. That's helpful. In past quarters you've pointed to both speed of service and order accuracy initiatives. I think it's both pretty meaningful same store sales drivers, or at least some of the meaningful same store sales drivers you have. Are those still in play as you get out deeper into 2014? Are those two things that could both potentially continue to drive some pretty strong same store sales results for Pollo in particular?

I think that's a great question and the answer is that those two initiatives will always be front and center for both of the brands. Accuracy is like an onion. It can always be better, you can peel a layer at a time and still have other opportunity. Not only does it help speed of service but it also helps in reducing waste, and also customer perception. But it's not a one-time initiative, Jeff, it's something that both brands will focus on from now until the end of time.

Then a final question, Lynn, I apologize if I missed this, but on the commodity (inaudible) inflation, I missed it if you gave a number for 2014 and what some of your, I guess, key contracts are, and some of the items that are not contracted as well, what the commodity landscape looks like for you guys.

Okay. Well, what I indicated is that cost of sales as a % of restaurant sales is running about 50 basis points better year-over-year, and we expect that to continue through the balance of the year. We've locked in the majority of our commodity purchases, and some of the moving pieces, we've actually seen some favorability year-over-year for whole chicken, for fajita beef, for fajita chicken. But where we're seeing some pressure is in the areas of pork as well as cheese, and cheese is one of the commodities that we purchase that is not currently on a fixed contract. So, that will continue to have an impact over the next few months as we see the trend evolve.

All right. Thank you very much.

Our next question comes from Nick Setyan, Wedbush Securities. Please, proceed with your question.

Thank you, and congrats on another great quarter. On the new Cabana Grill in Atlanta, even with just lunch and dinner, is it reasonable to assume, given the first three weeks, I know it's not too much of a time period there, but is it theoretically at least reasonable to assume we can get to similar average unit volumes or should we think about that as slightly lower, given that it's only sort of lunch and dinner day parts?

Our goal, Nick, has been to have at or above the system average unit volumes for Cabana Grill as we had for Taco Cabana without breakfast and without overnight. And so, to date it's still early but we're, again, happy and encouraged by what we're seeing so far.

That's great to hear. Just a clarification on the commentary for the quarter to date. In terms of when you guys talk about similar trends, is it close to like a 6%? Because that would imply a significant acceleration on a two-year basis. Or should we think about the similar trend inclusive of two-year basis, so closer to maybe a 4% to 4.5%?

I would say that it's probably the former.

Perfect. Thank you so much. I appreciate it.

Our next question comes from Nicole Miller Regan, with Piper Jaffray. Please, proceed with your question.

Great. Thanks. This is Josh Hunt for Nicole. I wanted to see if you might be able to talk about an evolution of the Pollo Tropical units and layout. I know you touched on a little bit of that with the newer units there in Texas but it seems like each generation we've gotten better at it and so I was curious if we're now at a point where that's the prototype we'll use going forward, or if we'll see continued tweaks over time?

I think, first, we're extremely pleased with the way not only it looks but the way it's being received and the way that the restaurant operates. We will continue to tweak, but I don't believe that they're going to be material differences on a go-forward basis. We're four or five weeks into this restaurant opening. We see opportunities just to move equipment around or reposition it in the kitchen, but in large part, what you see in Addison is the restaurant that we're going to be building for the foreseeable future.

Great. That's helpful. Thank you. And then as we shift back over to the commodities side, have we cycled through or when will we cycle through, rather, the improvements and savings from the supply chain initiatives? And maybe said differently, is there an opportunity as we go through the rest of this year maybe into next year that we can still find more supply chain savings over time?

Josh, I would answer that question with, it's an ongoing thing that we focus on. You know, whether it's sales mix shift to more profitable products, whether it's the way we're fixing pricing on a go-forward basis. And looking for ways to really leverage the system where we're purchasing commodities across both brands. Things like that are ongoing, and, you know, really front of mind for the brand teams and our commodity team.

Great. Thank you.

Our next question comes from Will Slabaugh, with Stephens. Please, proceed with your question.

Yes, thanks guys. I had a question in trends. Just given the update you gave us after 4Q it sounds like trends are fairly steady throughout the quarter so I wonder if you could confirm that at both brands? And then, I apologize if I missed this, but could you give us what the April trends were for Pollo and Taco?

Well, I guess I'll start with the second question first, the April trends. We indicated that we saw a continuation of the trajectory in the first quarter happen in the second quarter for Pollo and for Taco we saw an improvement, quarter to date in the second quarter Taco is generating comp sales of above 2%. And then, in terms of the first question, we saw a little bit of movement throughout the month based on some of the comparables from the prior year. We had some weather at Taco in February, I believe, and then in January we saw softer results at Pollo because of the some of the macro impacts that were impacting the brand and certainly the industry last year.

Great. Thank you. And secondly, I wanted to ask a little more about Cabana Grill. Just assuming a continuation of the good trends, I think it's very early there, but assuming that continues, and then Jacksonville opens up well, how many Cabana Grills in a perfect world would you like to be able to build next year, and how quickly could this turn into another growth vehicle for you?

Well, I think we'll answer it by saying we agree that it is early. We are currently looking for additional sites as we speak. We are, as I've mentioned, encouraged by what we're seeing thus far. I think we get to the bottom line of your question, I think it will be -- it's like Pollo, you have to get the teams accustomed to the kind of opening frequency that we'll anticipate. So, if you look at Pollo as an example, a couple three years ago we built three and then we built eight and then we built 12 or 16, and this year wield build 20 to 22. Those kind of ramp ups seem reasonable should we get to that level.

Just lastly, I want to ask you about advertising expenses. That was up just modestly year-over-year and I'm just curious, Lynn, if you knew what we should expect the rest of the year in terms of this year versus last year.

You should expect something fairly comparable. It might be all little bit higher this year versus last year. And we did pull back on some of our advertising spend at the latter part of last year.

Thank you very much.

(Operator Instructions). Our next question is from Mark Adler, with G and S. Please, proceed with your question.

Hi, thanks for taking the phone call. I enjoy the food by the way, I live in Florida. Are you happy with the teams that are building up their restaurants now and do you have any long-term plans to increase the ability to build out at a faster pace, or on a national scale?

I think as we've said in the past, what we want to do is make sure that we open up every restaurant and do it appropriately, so we'll grow as fast as we think that we can do it correctly. As we mentioned, development is more than a want to proposition, and what we have been doing is ramping up the teams and the pace by which we open, and this year we'll open up far more than we opened up a year ago and the year before that. I think that we want to do for the next couple years is really fill out Texas and the major DMAs where we're going to establish beach heads and then probably, you know, sometime in the next two or three years be discussing about what it looks like should we move outside of that geography and the pace then.

Thank you.

There are no further questions in queue at this time and I would like to close the conference for today. Thank you for your participation. You may disconnect your lines at this time.