Fiesta Restaurant Group Inc (FRGI) 2014 Q2 法說會逐字稿

Greetings and welcome to the Fiesta Restaurant Group Second Quarter 2014 Earnings Conference Call.

(Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lynn Schweinfurth, Chief Financial Officer. Thank you. You may begin.

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

Our second 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 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 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. I'm very proud of our teams for the exceptional job they did in the second quarter on behalf of our guests and shareholders. They are successfully executing on our strategy and thereby enabling us to deliver on our stated goals; namely, increasing our top line through positive comparable sales growth and restaurant development, while leveraging fixed and operating expenses to generate meaningful EPS growth.

Lynn will provide you with more depth in the financial review shortly, but I think you'll agree that our performance up to and through the second quarter of this year places us in very select Company, given the challenging consumer spending environment affecting so many within our peer group.

During the second quarter, we opened up seven restaurants and through the first half of the year, we opened a total of 11 restaurants. Recall that for all of 2014, we are targeting 22 to 26 new Company-owned restaurant openings in high profile sites, including 20 to 22 Pollo Tropical, two Taco Cabana, and two Cabana Grill restaurants. All remaining 2014 restaurant openings are currently under construction.

In early July, we opened our second Texas Pollo Tropical restaurant to very strong results and now both Texas openings are exceeding our expectations. We attribute this earlier traction to having applied insights from prior restaurant openings in Jacksonville, Georgia, and Nashville to tweak and evolve the brand. This has culminated in initial volumes in Texas that are similar to some of our Florida-based restaurants. Moreover, the enhancements that have been made are testament to the receptivity of the brand by our general market guests, complemented by the new building envelope, which is truly Caribbean-inspired.

In April, we opened the first Cabana Grill outside of Atlanta with promising results and since opening this restaurant, there continues to be a good mix of new and repeat guests and high intent to return scores. Some constructive learnings include more awareness around the drive-through and home meal replacement, adding more value-driven meal deals, and adding more options for kids. We're also benefiting from a more efficient kitchen layout in this restaurant that we intend to use for new Cabana Grills and Taco Cabana restaurants in the future.

Given the results to date, we're extending our test with a second Cabana Grill in Jacksonville, Florida in the fourth quarter. The restaurant is less than two miles from an existing Pollo Tropical restaurant. This additional restaurant will enhance our ability to spend more media and marketing dollars that will benefit both brand in the market.

The performance of these two Cabana Grill restaurants will be the basis for evaluating the opportunity for further expansion of Cabana Grill outside of Texas. As referenced earlier, we have aggressive development plans for Pollo Tropical this year. During the second quarter, we opened a total of six Pollo Tropical restaurants in Miami, Hollywood, and Hialeah Gardens in South Florida, two in Fort Myers, and on the west coast, and one in Jacksonville, where we now have four restaurants.

In the third quarter, we anticipate 10 openings, including five Pollo Tropical restaurants in Texas. Our intention is to create beachhead at three key Texas DMAs: Dallas-Fort Worth, Houston, and San Antonio where we 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 remaining openings will occur in the fourth quarter.

So as you can see, even as we are expanding Pollo Tropical westward and testing Cabana Grill in the east, we are adding to Pollo Tropical's presence in Florida, gaining media efficiencies in medium-penetrative markets including Jacksonville, Fort Myers, Tampa, and Orlando, while in legacy South Florida markets between West Palm Beach and Miami, intentionally taking operational pressure off high-performing restaurants and simultaneously growing our total market share.

Under the strategy of planned cannibalization, we expect that sales of mature, high-volume stores will steadily build back and we're seeing evidence of that already. While the push in Texas is getting a lot of our attention, I do want to mention emerging markets in Nashville and Atlanta. We will build these markets out 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 making a more immediate contribution.

I'm going to spend a few minutes discussing the development and quarterly brand highlights, but first want to bring to your attention some recent news with respect to optimizing our supply chain. Specifically, just last week, we completed the transition of Taco Cabana to Performance Food Group, or PFG, as its main distributor.

Taco had used its previous supplier for the past 20-plus years and this marks the first time that Pollo Tropical and Taco Cabana are being serviced by the same distribution company. We believe that consolidating under PFG provides us with better scale and frequencies of delivery through the multiple distribution centers, thereby optimizing the quality and freshness of the products in addition to providing cost savings. We further maintain that PFG is better equipped to accommodate our growth plans as we execute our go west and go east strategies. Similar to the agreement which standardized Coca-Cola as our system-wide beverage this earlier this year, we believe our enhanced partnership with PFG is a significant strategic win.

Now, let's turn to individual brand highlights. Pollo Tropical generated a 6.7% increase in comparable restaurant sales, which consisted of 5.6% in transaction growth and 1.1% in average check growth. Note that the cumulative impact of price increase was 1.6%. On a two-year basis, comparable sales increased 13.1%.

Pollo Tropical has now generated comparable sales growth in 19 consecutive quarters since late 2009. Promotions during the second quarter include a shrimp salad, shrimp wrap, and shrimp TropiChop in April for the Lenten season and a tangy pineapple wrap and salad in May and June. In the third quarter, we're currently promoting our ever popular, create your own TropiChop.

From our vantage point, there are a number of key drivers that are sustaining comparable restaurant sales momentum at Pollo Tropical and enabling the brand to outperform so many of its casual peers. First of all, it's the food itself; distinctive, fresh, flavorful, and customizable. With enticing price points and generous portions, it not only represents great value, it also travels very well, which we know is a key attribute for guests in deciding what to bring home for dinner.

In addition, we have increased our presence in a number of markets throughout Florida, not only in the southeast part of the state, but also the southwest, central, and west coast. Clustering more restaurants in a given trade area facilitates greater brand awareness, while also providing better support to them through our messaging and advertising campaign and reaching them more frequently through better media buying.

As an example, we began cable TV advertising in Tampa earlier this year for the first time. This is led to an 11% increase in average weekly sales in the DMA. Note that Tampa is still not a market where we are fully media efficient and therefore, cannot deliver desired media weights. However, as we penetrate the area with new openings, we'll be able to invest more heavily in media and spend those dollars across a larger number of locations, thereby optimizing our return.

This, as you know, has been the case in nearby Orlando and something that we've discussed at our recent investor conferences. In that market, we've increased average weekly sales over the past three years by approximately 30%, due to higher media spending and additional restaurants factored with both drive higher brand awareness.

We also have a number of ongoing brand initiatives at Pollo Tropical that we believe are worthy of discussion. First, we're refining the new Caribbean prototype that will be built in feature openings. We are also evaluating some of the menu products introduced in Texas for introduction in other markets; among them is our Calypso Beef, which consists of tender prime rib strips sauteed with a hint of brown mushroom gravy and red pickled onions. It has proven very popular in Addison, is testing well in certain Florida restaurants and will be considered for future promotional efforts.

Adding a beef protein to our mix has strong implications for driving guest frequency and refining the flavor profile resonates with guests in our other markets, just as it has in Texas. We've also rolled out our tropical light menu that includes healthier options to Texas. We first tested this in West Palm Beach. By the year-end, the tropical light menu will be introduced throughout the Pollo Tropical system.

We view providing customers with a better for you options as a natural extension of our brand and are well-positioned to capitalize on this preference for healthier menu offerings. Other menu improvements in elevated restaurants included replacing our white bread dinner rolls with proprietary sugarcane roll and traditional Caribbean beverages, such as all natural refresca juices, rum punch, coconut water, and Caribbean beer.

We have eliminated a few items from our standard menu, including fajitas and sangria, in an effort to better manage throughput and minimize waste. We continue to uphold our five points of focus and our operating metrics, as determined by guests, show improvement across the board. Finally, testing of online ordering and our smartphone app continues in select markets with future expansion of this initiative schedule for the fall.

From a profitability standpoint, adjusted EBITDA at Pollo Tropical grew 12.1% in the second quarter of 2014 to $13.4 million; off of 16.7% increase in restaurant sales. Restaurant margins were impacted by some advertising timing and non-recurring costs, like the conversion cost to Coca-Cola products at Pollo, along with higher expenses at new elevated restaurants, partially offset by sales leverage.

Turning to Taco Cabana, comparable restaurant sales grew 2.8%, which consist of a 3% increase in average check and a slight 0.2% decrease in guest traffic. Check average was positively impacted by a new menu board and cumulative impact of menu price increases of 1.3%. On a two-year basis, comparable sales grew 3.9%. During the second quarter, our promotional strategy focused on a strong value message, such as our Brisket Taco Plate and Chicken Fajita Bowl and drink deals, which were both priced at $4.99, along with $3 happy hour.

We also featured premium products and add-ons and point-of-purchase positions to protect and drive check average. In the third quarter, we continue to focus on $4.99 price point with the chicken flautas and drink deal along with State Street Taco three pack and a drink. For breakfast, we are featuring our Rise and Dine breakfast tacos for $1.09. Brand initiatives included in raising our check average by moving guests from combos to more profitable plates, measures to improve order accuracy and total guest satisfaction, and the rollout of online ordering, which is currently being tested in select Dallas-Fort Worth restaurants.

We're also going to complete up to 30 remodeling projects in 2014, mostly in Houston and to a lesser extent in San Antonio, of which we have finished 26 through July. The sales lifts and related EBITDA contributions from remodeled restaurants are not only meeting healthy investment return hurdles, but are critical in elevating overall brand perception and appeal. From a profitability standpoint, adjusted EBITDA at Taco Cabana increased 23.9% to $8.9 million compared to the prior year period, off of a 3.3% increase in restaurant sales. As a percentage of restaurant sales, Taco Cabana benefited from decreases in costs of sales, other restaurant operating expenses, and timing on advertising expenses.

I'm now going to turn the call back over to Lynn, but before I do, let me thank my fellow team members once again for their contributions to our success. 2014 was a pivotal year at Fiesta as we fine-tune and evolve our brands, enter new markets, accelerate development, and ensure that we position ourselves for sustainable growth well into the future.

Our achievements to date support the confidence we have in our direction and our teams. Our ongoing mission is to continually deliver on the promise to our guests and our shareholders over the long-term. Lynn?

Thank you, Tim. I will begin with a summary of our second quarter and then dive deeper into the results themselves.

First, we grew total revenues by 9.4% to $154.2 million from $140.9 million, due to the impact of 18 new net new Company restaurant openings over the past year and comparable restaurant sales growth at both brands. Pollo delivered comp sales growth at 6.7%, further solidifying its position among the best performing fast casual operators, while Taco delivered positive comp sales of 2.8%.

As a reminder, the timing of Easter negatively impacted comparable restaurant sales results in the second quarter at each brand by approximately 20 basis points to 30 basis points. So far, the comparable sales growth momentum experienced in the second quarter has continued in the third quarter, with third quarter to-date comp sales of 5.2% at Pollo and 2.2% at Taco. Better cost of sales, labor, and advertising expenses offset higher other operating and rent expenses to deliver restaurant-level adjusted EBITDA as a percentage of restaurant sales of 21.3%, a decline of 10 basis points.

In dollar terms, restaurant level adjusted EBITDA rose 9.3% to $32.8 million from $30 million. Improvement of G&A year-over-year as a percentages of revenue drove margin expansion and contributed to a 16.6% increase in consolidated adjusted EBITDA to $22.4 million and a 90 basis point improvement in consolidated EBITDA, as a percentage of revenues.

Cost of sales improved as a percentage of restaurant sales by 40 basis points this quarter compared to the prior year period, primarily due to the benefit of modest price increases, a shift in sales mix to more profitable menu items, and effective supply chain initiatives that more than offset commodity food inflation. Cost of sales is currently expected to continue on the same trajectory in 2014. Restaurant wages and related costs as a percentage of restaurant sales held steady at 25.5% as increases in medical costs were offset by higher revenues during the quarter.

As we mentioned on our last call, our new elevated restaurant openings will result in 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. Rent expense increased 20 basis points as a percentage of restaurant sales, due primarily to new Pollo restaurant openings, which generally have higher rent, and sale lease back transactions that were completed in 2013.

Other restaurant operating expenses increased 30 basis points as a percentage of restaurant sales. This was a consequence of higher insurance expenses, timing of repair and maintenance expenses, including costs associated with the conversion to Coca-Cola products at Pollo, partially offset by lower utility expenses.

Advertising expense decreased as a percentage of restaurant sales by approximately 20 basis points in the second quarter of 2014 compared to the prior year period, due primarily to the timing of promotions and favorable impacted sales growth.

Pre-opening costs increased by $0.2 million to $1.2 million in the second 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.

G&A expenses increased $0.1 million to $12.1 million in the second quarter of 2014, but decreased 60 basis points as a percentage of revenue to 7.9% in the second quarter of 2014, due to the impact of higher sales on essentially flat overhead, as we focused on ensuring that our infrastructure spending is efficient yet adequate in meeting or exceeding our short and long-term business objectives.

Depreciation and amortization increased $0.4 million to $5.6 million in the second 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 second quarter of 2014 compared to the prior-year period. This expense reduction was due to the reduction in our outstanding debt from $200 million to $66 million and a reduction of our interest rate on borrowings from almost 9% to 2.3% under the new senior credit facility.

Our second 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 36.5% 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 87% or $4.3 million to $9.3 million in the second quarter of 2014, as compared to net income of $5 million in the prior-year period. Diluted EPS increased to $0.35 per share from $0.21 per share. Note that, despite our equity offering last year, which increased our share count approximately 15%, diluted EPS still grew by more than 66%.

Turning to brand margins, at Pollo, restaurant margins declined this quarter compared to the prior-year period, primarily due to the timing of certain expenses; more specifically, advertising, the cost to convert Pollo to Coca-Cola products, and higher insurance costs. Sales leverage helped to offset the expected negative impact on labor margins of opening new elevated restaurants.

Cost of sales as a percentage of restaurant sales was about the same as the prior-year period, due to sales mix driven by our second quarter promotions. We expect cost of sales margins at Pollo to get better in the second half of the year. Taco restaurant margins expanded this quarter, primarily due to favorable cost of sales and favorable timing of the advertising expenses. Sales leverage helped to offset higher medical expenses.

At quarter end, we had a cash balance of $3.9 million and paid down $5 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 $76.5 million of borrowing capacity under our senior credit facility. We were in compliance with all covenants related to our credit facility and in fact, as of the end of the second quarter, our adjusted leverage ratio improved to trigger a lower borrowing rate under our credit facility. The result is a LIBOR margin and a letter of credit fee equal to 150 basis points; an improvement of 25 basis points.

Now, let's review our 2014 operating targets. We expect to be at the high-end of the 3% to 5% range for comparable sales growth at Pollo, if not slightly above the range based upon our year-to-date results. Please note that we continued to anticipate sales cannibalization associated with planned new store development that will negatively impact our comparable sales growth this year by approximately 1 percentage point. The expected impact of hiring the second half of the year compared to the first half.

With respect to Taco, we continue to expect a 1.5% to 3.5% comparable sales growth range. 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. Assuming the work opportunity tax credit will not be reinstated in 2014, we are estimating an effective tax rate of 38.3%. If this credit is reinstated, we would expect a rate of between 36.5% and 37.5%.

Finally, capital expenditures are projected to be approximately $5 million higher this year versus what we have previously communicated. This increase is the result of certain new restaurants being opened earlier in 2015 than previously anticipated.

Overall, we believe capital expenditures will be between $65 million and $70 million in total. This includes $50 million to $55 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 teams, and to enhance the guest experience.

So in closing, we continue to be pleased with our current performance and are as focused as ever to ensure that we meet or exceed successful long-term expectations. Operator, let's open the line for questions, please.

(Operator Instructions)

Our first question comes from Nicole Miller of Piper Jaffray.

Thank you and good afternoon. Thank you very much for the quarter to-date color.

Could you help us understand if third quarter price at both concepts is similar to second quarter price? Also, can you talk a little bit about where your share gains are coming from? Is it from the broader limited service arena or is it from more specifically, fast casual peers? Thanks.

Hi, Nicole, this is Lynn. I'll just confirm for you that pricing in the third quarter should be fairly consistent with the second quarter.

If, Nicole, the question is where are the sales increases coming from, I think it's a combination of a number of things. With Pollo, it's an increase of op premise and home meal replacement. It's opening up new markets and making them media efficient so they're now on TV and their same-store sales are improving, improving throughput, especially at our highest volume restaurants by reducing menu items, that were great, albeit made it cumbersome for the restaurants in terms of throughput.

Finally, really just more impactful and effective communication by the ops team really raising their level. The same thing with Taco, the team there is raising their game. Their measurement by -- as feedback by the customers across the board are all improved versus a year ago and we're starting to see some real improvement in not only in same-store sales with Taco, but also in the transaction counts as a comparative basis versus a year ago.

And just a little further extrapolation anything, from your peers side or your survey work where you could see if there's anything specific, you're gaining share from a certain food cuisine category or again, from fast casual or more broader limited service overall?

No, I think we've been pretty much consistent in what we've said in the past in that we have our head down and we're focusing on our four walls and what we're doing and trying to improve those things that have caused us to stumble somewhat in the past and improving those, we're starting to see, really, improvement across the board with both brands.

Thank you very much.

Our next question comes from Alex Slagle with Jefferies

Tim, I was wondering if you could expand on your comments regarding the initial volumes you're seeing at Pollo Tropical in Texas? And how we should think about that relative to the levels you've seen in different markets in Florida and how you think those volumes could expand or ramp with additional media spend down the road?

First, Alex, I think we have now two restaurants opened in Texas with another eight under construction. Is it early? Yes, it's early, but we believe that the question of whether or not our food translates to Texan cuisine or the Texas taste profile has been answered.

That's just not us saying it, it's not only the average unit volume or average weekly volumes of the restaurant, that also the response via social media. The brand is being received very well, the food is being received very well.

We haven't stated any of the kind of numbers, but I think we are surprised, pleasantly surprised, at the fact that our expectations are being exceeded by the kind of sales that we're producing. And it's with a very little amount of media, just really pre-opening media.

I think that there's no doubt in our mind that, as we fill out these markets and we continue to put weight against it, that we're going to see the same kind of opportunity for sales expansion like we've seen in Tampa and Orlando and the other markets that are now just becoming online with media efficiency. We like where we stand so far.

Okay. A question on Pollo Tropical, the mix as a component of the check, how that was negative and what the reason behind that was?

It was just a little bit negative and that was really the result of some smaller portion products associated with our tropical light menu and some add-ons where we saw a better influence last year versus this year. But overall the influence I think was maybe negative 20 basis points.

Got it, thank you.

Our next question comes from Jeff Farmer with Wells Fargo.

Just following up on Alex' first question in terms of the pre-opening media. So I'm not asking for you guys to share all your secrets here, but in terms of getting these restaurants open, especially in a place like Addison, obviously, well, again, it's close to corporate headquarters but still, in terms of thinking about local store marketing or any other promotional effort, what have you guys been doing when you open these restaurants? What can we expect as you sort of get the balance of these restaurants open in some of these other Texas cities?

Jeff, the way we opened up the Texas restaurants is consistent with the way we've been opening up the new restaurants really system-wide, with the exception of those in our core marketing area where Pollo has a much, much greater presence. What we typically do is send a team in there a couple weeks prior to the restaurant opening and we call them brand ambassadors and they go out to the local businesses and they give away the product. They put our product in the customers and so that by the time that the restaurant opens, there's already been a demand created for the product.

We do a little bit of -- we're on Good Morning Houston or Good Morning Dallas. We're talking about our product freshness and all the brand attributes and then we've been typically going on air with a radio local personality that's well-known and well-respected with a radio station. And they just do some live liners talking about the product and about the opening that's come out. That's really it.

Once it's been open for a while, then we might do a coupon drop that features some specific items. In the case of Dallas and in Houston, because we're already media efficient because of the amount of the restaurants that Taco Cabana has in the DMA, then we'll be able to fold in media. And run some, obviously, some better ways than we've been able to do in Jacksonville and Atlanta and until recently in Jacksonville, because we haven't been immediate efficient. Again, we're excited about the kind of numbers that we're putting up there without any kind of significant media weight behind it.

That's helpful. Just one follow-up and you touched on some of this, but I think you've had at least a couple restaurants in Atlanta, since I believe early 2012, I think the first national unit was early in 2013. At least focusing on those Atlanta units, couple things I was curious how those sales volumes build? And if you're willing to share with us whether or not those Atlanta restaurants have entered the comparable store base, helping out positively, I should say, have they enter the comparable store base, contributing to that same-store sales number?

Three of the restaurants in the Atlanta market have entered into the comp base, but remember, I should say that, in the beginning, at the end of this year, we will have two markets that are not yet media efficient. One will be Atlanta and the other one will be Tampa, even though we're running some spot TV in Tampa. Media and being able to drive top line awareness is key and evidence of some of the things results that we gave you, Tampa being on TV for the first time is up 11% versus a year ago and Orlando up 30% in the last three years.

That market is going to be is slow developer because it's going to need 20 to 25 to 30 restaurants and to be immediate efficient. We'll build them as great sites become available, but it's not one that we're in a hurry to put in sites just to put in sites. We're really focusing on Texas and Florida.

Okay, thank you.

(Operator Instructions)

Your next question comes from Nick Setyan from Wedbush Securities.

Hi, thank you. Congrats on a great quarter.

All the new opening on the Pollo side where Florida and the all the feedback has been they've been very strong openings and your average sales grew about 1.8%, if I'm not mistaken versus the comp. I just wanted to better understand what the drivers there are? Is it because the stores are actually opening at such high volumes that we're seeing a little bit of a honeymoon impact before they actually enter the comp base as opposed to maybe opening extremely weakly?

I think a few things are going on, Nick. Past openings did have a higher honeymoon curve, certainly, as we really exerted a lot more effort around the opening activities and the opening marketing. But now, we've shifted our focus and we're much more controlled in terms of the way we're opening stores so that we can have more consistency in terms of performance and growth thereafter. So the environment is changing a little bit.

As you're calculating average weekly sales, the question I'm often asked about is the pacing of new store openings. At least in the latest quarter, the openings were more back-end weighted or weighted toward the latter part of the second quarter. We had no Pollo openings in April, three in May, and then three in June. Of the June openings, they all happened in the back half of the month.

Okay, that's helpful, thank you. On the advertising, should we expect the pick up sales as a percentage of sales in the second half or can we potentially see, for the annual level, more in-line with last year?

I think, Nick, as a percentage of sales, the percentage is going to remain pretty constant. Obviously, with more restaurants, you'll have more dollars to spend, but the overall percentages are being held pretty tight.

Great, thank you.

Our next question comes from Will Slabaugh with Stephens, Inc.

Thanks, guys. It seems like the comps have been consistently in that mid-single-digit range at Pollo, if not a little bit ahead of that. Can you talk about the day part growth within that, if that's been fairly steady or if the growth in handhelds and other successes that you've had, to go, et cetera, has moved the growth around a little bit during the day?

I think it's really a mixed bag. The big thing that I would point to is home meal replacement being still as a very strong contributor. Catering and off premise consumption, although as still low single-digits, still has great percentages of increases. I think that you can probably draw, mostly on home meal replacement and then during lunch, it's really off premise consumption.

Got it. If I could shift over the Cabana Grill, quickly, over in Atlanta. You'd mentioned your goal there was to be able to hit your unit volume target without breakfast and you seemed pretty pleased with that last quarter and pleased enough now to where you're building the second. Just any more learnings that you're getting there in terms of customer feedback or what you might Incorporate into the next store that maybe you didn't do as well as you would've liked in this current store?

First, great question, Will. I think the straightforward answer is that, I think like the Pollo that we've been building, we're not changing, really, in a material fashion, any of the kitchen design or anything like that. We're really focusing on just learning the difference between the customer in the southeast versus the customer that we've known for 36 years here in Texas. We've learned that value meals and kids offering for the Cabana Grill is something that they're more interested in the southeast, so we're folding that in.

But in terms of the physical plant, we're not really changing anything with either of the two restaurants and I think that's a tribute to the amount of planning that the teams put in on the front end.

Great, thank you.

Ladies and gentlemen, we have reached the conclusion of our Q&A session. Thank you all for your participation.

Our teleconference has concluded. You may disconnect your lines at this time. Thank you.