Fiesta Restaurant Group Inc (FRGI) 2015 Q4 法說會逐字稿

Greetings and welcome to the Fiesta Restaurant Group fourth-quarter and full-year 2015 earnings conference call. I would now like to turn the conference over to your host today, Ms. Lynn Schweinfurth, Senior Vice President and Chief Financial Officer. You may begin.

Thank you. Good afternoon and thank you for joining our call. Our fourth quarter and full-year 2015 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 will 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 would like to turn the call over to Tim Taft, President and Chief Executive Officer.

Thank you and good afternoon, everyone. This afternoon we announced the next step in the next evolution of our Company, the eventual separation of our two great brands. As we are early in our new fiscal year, we thought it appropriate to review what we believe to be our strengths and the areas that will receive the most attention in 2016.

As we've discussed as part of our 2016 operating plan, our big three, Pollo Tropical markets, Dade, Palm Beach and Broward counties, will, for the first time in years, have a full complement of broadcast media with sufficient media weights to help advance these robust restaurant groups. As we've mentioned repeatedly over the last three years, we've been allocating marketing dollars away from the big three to our other Florida markets as we build those DMAs to a point where they can be self-sufficient from a media standpoint.

In addition to our Florida markets being media self-sufficient, we will be increasing our marketing budget approximately 70 basis points or 3.4% of Pollo Tropical restaurant sales. This not only adds about $5 million to the media coffers, but also from a percentage standpoint it amounts to a 50% increase versus 2015. Our Nashville, Tennessee, markets is now media efficient with all Pollo Tropical restaurants units reflecting the Big Blue concept.

Atlanta will be media efficient by the end of this year and we expect to turn on media support by the beginning of Q4. In San Antonio, we turned on media for the first time last week. This will help us build awareness as we double the number of Pollo Tropical restaurants to 10 in that market.

With each brand, we have a distinct strategic objective. Over the last four years, we've made significant investments in remodeling and reimaging our Taco Cabana restaurants and trained restaurant teams to produce at a higher level than they ever have before. We've created new kitchens and creating a new smaller building prototype for smaller markets that will improve unit-level economics.

We believe we will shortly be in a position to ramp up our development of new Taco Cabana restaurants in smaller Texas markets with this lower-cost prototype, one that has a lower cost of construction and better margins. We intend to develop a distinct Taco Cabana infrastructure with its own support mechanisms, so that Taco and Pollo will no longer compete with each other internally for resources.

This particularly will be a victory for Taco Cabana, a brand that has been relegated to a cash cow and more recently have been reinvigorated through the hard work of the entire team in San Antonio with the support from the Fiesta corporate office in Dallas. We believe Taco has met the challenges and put itself in the position where it can control its own destiny and show the world what a remodel and refocus on core operating principles can do to revitalize a 39-year-old Texas icon.

Taco Cabana from 2011 to 2015, averaging at volumes improved from $1.7 million to $1.9 million and adjusted EBIDTA improved from $26.8 million to $39.7 million. We have now generated same-store sales increase 21 of the last 22 quarters. More importantly, we believe the separation of these two companies is in the best interests of our shareholders.

We believe the separation will enable us to provide the singular focus critical for Pollo Tropical, a once-in-a-generation brand. Since 2012, Pollo has doubled the number of its non-core restaurants. These initially have been lower volume restaurants, because they are in markets that did not have enough restaurants to justify spending the media dollars necessary to create the requisite level of brand awareness in such markets.

As a consequence, these restaurants were forced to stand on their own and unable to advance like other restaurants in the southern part of Florida. For those that are interested, you can see a clear demonstration of what we are talking about in our most recent presentation which is in the Investor Relations section of our website. It is a vivid demonstration of a strong favorable response that occurs when we go on TV and sustain that presence over time.

Now let's discuss cannibalization at Pollo, the [diluted] negative sales effect on existing stores as new stores are added to the market. In our view, you can't have it be a part of your development strategy without pointing out the pros and cons, the latter of which we believe are short-term.

It is fair to say that we have been cannibalizing sales of existing restaurants and existing marketplaces whenever and wherever we have restaurants. But we have done so with a strong belief in a much larger overall opportunity.

One, we have added restaurants in areas that were underserved and needed more restaurants to increase media and operating efficiencies. Two, we have added restaurant locations to reduce sales pressures in existing restaurants at which volumes had become incredibly high, resulting in pressure on operating teams and impacting the guest experience.

By the way, we added 12 restaurants over the last four years in South Florida, our highest volume markets and the average unit volumes of these markets still climbed $500,000 per unit since 2012. Moreover, with material cannibalization, we still ended 2015 with 11 units in South Florida that did over $4 million in sales.

Three, and finally, cannibalization in the Atlanta and Texas markets. We have been slowly but steadily adding restaurants in Atlanta and are excited to see how the market performs when it goes on air after reaching the low-end of media efficiency by the fourth quarter.

In Texas, we've been adding restaurants at an unprecedented rate. You can imagine, regardless of how well a restaurant performs, if you rapidly add more and more units to a market where you previously are unknown, and you are in the early stages of building awareness, you are going to cannibalize sales.

Development in these markets follows the traditional reality of balancing supply and demand. In Texas, we are not as well-known as South Florida, so the demand is going to be lower for each time you add a new unit to the marketplace without creating a corresponding increase in demand or awareness. You are going to have dilution.

We face the choice, build restaurants at a rapid pace in a new market to give ourselves an opportunity to compete by achieving media efficiency more quickly or grow slowly and mute the impact of cannibalization. We've had a consistent message. We believe Pollo Tropical has the potential to be a national brand. In getting there, it will take time in each new market to build out and develop awareness. But we believe this will generate meaningful, profitable growth over the long term.

By the end of 2016, Pollo Tropical will have doubled its domestic restaurant count in just 4 1/2 years. Our belief is that the Pollo brand is capable of even better results from having the unparalleled focus of dedicated Management to making the brand as great as its potential. We believe the next step in achieving maximum performance for both brands is the separation of Pollo Tropical and Taco Cabana. We believe this will benefit the shareholders as well as each brand.

Now let's turn to our quarterly results. Revenues grew almost 15% in the fourth quarter as we benefited from 26 net Company-owned restaurant openings, an incremental 14th operating week and comparable restaurant sales gains at both brands. Adjusted net income and adjusted diluted EPS both similarly grew nearly 15% inclusive of the extra fiscal week.

Starting out with Pollo Tropical, comparable restaurant sales grew 0.4% during the fourth quarter and 8.1% on a two-year basis extending the brand's track record to 25 consecutive quarters of gains. The growth consisted of a 1.5% increase in average check, but was offset by a 1.1% decrease in comparable transactions.

Recall that as we started the fourth quarter with a 3.7% decline in comparable transactions in October, for the fourth quarter, sales cannibalization from the new units on existing restaurants impacted transaction comps by 1.9%. Despite a soft October, we were able to turn comparable transactions positive in both November and December as intended. During these months, we ran a $3.99 quarter chicken meal, and a $9.99 family meal with chicken, rice, and beans, which gave us momentum heading into 2016.

Turning to 2016, through this past Sunday, quarter-to-date comparable transactions were up 0.6% at Pollo Tropical, while comparable restaurant sales were even with the prior year. Also, we are lapping performance from last year's comparable sales growth of 8.6% and comparable transaction growth of 2.6%. And as a reminder, last year we were carrying price of over 5% on a comparable basis.

As recently as last week, we unveiled a new marketing campaign for Pollo Tropical. The new campaign, dubbed Real People, is a fresh approach to our narrative, focusing on what real customers have to say about the brand. The Real People campaign should resonate in places like Miami and Orlando and inform in places like Atlanta and San Antonio.

Interestingly, Pollo Tropical's Texas markets already have some of the highest guest satisfaction scores in the system. It clearly is an acceptance of the brand as a quality operator. And while it is still too early to comment on the success of our new campaign being supported by efficient media weights across Florida, Nashville, and San Antonio, we are pleased with the results we have generated so far.

Lastly, let's talk about product innovation, R&D, and supply chain at Pollo Tropical. We will continue to innovate and introduce new menu items with renewed focus on limited time offers. In late 2015, our Pollo Tropical R&D and supply teams implemented initiatives to reduce our chicken costs by offering more dark meat chicken options and purchasing larger chicken breasts for diced chicken meats.

This initiative, coupled with a favorable chicken outlet overall, will help drive down our commodity costs in 2016 relative to 2015. We will also continue to streamline our menu in an ongoing effort to improve kitchen processes and increase throughput.

Turning to Taco Cabana, the brand has continued to perform well. Comparable restaurant sales grew 3.3% during the fourth quarter, which included a 0.7% decrease in comparable transactions, primarily due to unfavorable weather that negatively impacted results by 2%. Breakfast has regained its momentum and is once again the highest growth day part.

On a two-year basis, comparable restaurant sales rose 9.4%, extending Taco Cabana's record of positive comparable restaurant sales gains to eight consecutive quarters and 21 of the past 22 quarters. 2016 year to date Taco comparable sales increased 3.4% and comparable transactions were essentially even with the prior year. Last year for the same time period, comparable sales grew 4% and comparable transactions grew 1.9%.

Regarding product innovation, we are upgrading many of Taco Cabana's core menu components so we can better deliver on our brand promise of fresh and quality food. First, we are replacing our skirt steak with prime rib as our steak fajita meat, which is not only a superior product but also provides some savings to our commodity basket. We are also planning to provide our guests fresh seasonal salsas and two new seasonal margarita flavors during the year.

Let me next provide an update on our 2016 development plan. We are once again accelerating our development pace with plans to open between 40 and 44 restaurants in 2016, consisting mostly of Pollo Tropical restaurants and up to four Taco Cabana restaurants. We may close one Pollo during the year due to an expiring lease.

In 2016 we will open up approximately 12 new Pollo Tropical restaurants in Florida, six in Atlantic, and the balance in Texas. It is important to note that our 2016 restaurant openings are more back-end weighted with 60% of the openings expected to occur in the second half of the year. To date, in 2016, we have opened up six restaurants and have nine more under construction.

Development, of course, goes hand-in-hand with the need for proper human capital investments. We accelerate our developmental pace. It is more important than ever to ensure that we are properly staffed and that our GMs can operate at the highest level possible and provide a great guest experience from day one.

To that end, we will continue to put great emphasis on training and engaging our managers and team members, as well as enhancing the recruiting process and resources in order to attract, retain great talent.

Next are Pollo Tropical reimaging efforts. At the end of the fourth quarter, we completed our planned reimaging project in Orlando and should complete 15 Big Blue reimaging projects this year, including 10 in South Florida. Combined with the increased media spend I referenced earlier, we believe these efforts will further differentiate Pollo Tropical in the highly competitive fast casual segment.

In summary, our team continues to be focused on successfully executing our strategy, clearly have exciting plans for both of our brands in 2016 and the years ahead. Let me now turn the call back over to Lynn.

Thank you, Tim. Let me start with a summary of our quarterly financial results after which I will discuss our updated full-year 2016 operating targets. For the fourth quarter, we grew revenue by 14.9% to $179.5 million through sales contributions from new Company-owned restaurant openings over the prior year and positive comparable restaurant sales at both brands.

Note that the 14th week in the fourth quarter contributed approximately $11.8 million in total revenues. Pollo generated comparable restaurant sales growth of 0.4%. The growth consisted of a 1.5% increase in average checks, but was offset by a 1.1% decrease in comparable transactions. Fourth quarter comparable transactions were affected by sales cannibalization which negatively impacted transactions by about 1.9% in the fourth quarter.

Average check was driven by menu price increases that positively impacted restaurant sales by 2.6%. The extra 14th week in the fourth quarter contributed about $6.5 million in revenues for Pollo. Taco generated comparable restaurant sales growth of 3.3% which consisted of a 4% increase in average check which was partially offset by a 0.7% decrease in comparable transactions.

The decline was primarily related to unfavorable weather which alone impacted comparable transactions by about 2%. Average check was driven by menu price increases that positively impacted restaurant sales by 3%, as well as the positive change in sales mix of 1%. The extra 14th week in the fourth quarter contributed about $5.3 million in revenues at Taco.

Similar to the last several quarters, the implementation of new menu boards in February of 2015 contributed to the higher sales mix. We eliminated combo meals from the menu board entirely, which has continued to help shift our guests' ordering patterns to place with additional side items, including drinks. In terms of quarterly expense and related cost drivers, I will simply point you to our press release that went out after the market closed this afternoon that provides explanations for each P&L line item on a consolidated basis.

The 2015 provision for income tax was derived by using an estimated annual effective income tax rate of 36.4%, which was slightly lower than the estimated rate of 36.7% in the same period last year. It is important to note that the work opportunity tax credit was reinstated at the end of 2015 and is now applicable for 2015 through 2019.

Net income decreased to $8.8 million in the fourth quarter of 2015 or diluted EPS of $0.33 as compared to net income of $9 million in the prior-year period or diluted EPS of $0.34. Adjusted net income increased to $10.4 million in the fourth quarter, or a diluted EPS of $0.39 as compared to adjusted net income of $9.1 million in the prior year period or diluted EPS of $0.34. Note that our fourth quarter 2015 results included an extra week in the quarter and we are estimating that extra week added diluted EPS of $0.07.

Turning to brand margins, consolidated restaurant level EBIDTA margins decreased in the fourth quarter by 80 basis points due to margin contraction at Pollo. Pollo's margin decreased by 260 basis points, given commodity cost increases, new restaurant openings and advertising expenses. Operating inefficiencies from the 20 newly opened Pollo restaurants during the third and fourth quarters also led to higher labor and rent expense as a percentage of sales.

On the other hand, Taco's margins improved by 100 basis points as the brand experienced lower cost of sales, rent, and other restaurant operating expenses, which were partially offset by higher labor costs and medical expenses. At quarter end we had a cash balance of $5.3 million. And after reserving $5.5 million for letters of credit, we had $73.5 million of borrowing capacity under our senior credit facility. We continue to be in compliance with all related covenants.

Primarily during the second half of 2015, we completed remodeling our Pollo restaurants in Nashville and Orlando along with one of our restaurants in South Florida. And while it is still early, the results we've seen to date are on track to meet a five-year payback on the investment made. We plan to reimage 15 Pollo restaurants in 2016 and look for an average 3% sales lift and meet a five-year payback.

With that, let's now discuss our financial expectations for the 52- week FY16. We are providing a limited updated set of operating targets which do not include any impact or costs related to the proposed separation process. We expect comparable restaurant sales growth of at least low single digits at both brands.

As a percentage of restaurant sales, we expect cost of sales to improve by approximately 100 basis points at Taco and 180 basis points at Pollo. We expect depreciation and amortization to be between $36 million and $38 million. We are anticipating an effective tax rate of approximately 36% to 37%.

We are planning to open between 40 and 44 Company-owned restaurants, including 36 to 40 Pollo restaurants and up to four new Taco restaurants. As Tim mentioned, we may close one Pollo restaurant.

Finally, our capital expenditures projection continues to be between $95 million and $110 million in total, with an average investment for new restaurants exclusive of any land purchase of between $1.8 million and $1.9 million. As a reminder, we disclosed a great deal of brand specific financial and operating performance in our quarterly earnings release tables and in our SEC filings. This information includes brand-specific comp and non-comp restaurant average unit volumes and income statement line item details.

Turning to new restaurant sales volumes, in 2015, Pollo non-comparable restaurants generated AUVs of about $1.8 million. Tim has laid out the rationale for our development strategy and why we think it is in the best interest of our shareholders. We continue to believe we will approach our investment return goals within a few years after turning on broadcast media in our new markets, while our South Florida markets continue to generate strong performance fairly quickly.

You can see an example of what has happened when we introduced media to new markets on our website, as Tim pointed out. In particular, in Naples, Fort Meyers, we experienced AUV growth in low double digits over the first several years. The only new markets that will not be media efficient this year are Dallas and Houston. We believe that we will be on media in both of these markets at some point next year.

In closing, we would like to thank our operating and corporate support teams for their tremendous contributions in 2015. We continue to focus on what is right in the near term to build long-term value for our shareholders. We look forward to detailed planning and making the investments needed to complete a separation of our business in a couple of years while still having the bandwidth to accomplish our priority goals for 2016.

With that, let's open the lines for questions.

(Operator Instructions)

Alex Slagle, Jefferies.

I had a question on the proposed split, the brands, and I want to get your perspective on the efficiencies and inefficiencies to consider with this split in terms of supply chain and marketing and restaurant level labor and real estate resources.

Alex, what we have been doing a very good job over the last three or four years is speaking to the efficiency that we have created between these two brands. We don't believe it is going to impact either one on a material basis, either from marketing or supply chains.

The opportunity that we are focusing on that we think is a big upside is the opportunity for how great these two brands can be when we do split them up. But we don't believe it will make a material impact on us.

Thank you.

Will Slabaugh, Stephens, Inc.

Thank you. I want to ask about Pollo. And it was nice to see the traffic turn positive, but want to ask you about the average ticket. Can you talk about the movement you saw there toward the back half of the quarter?

I know you had some promotional advertising out there and then also as we got into 2016. And then lastly how we should think about that trending throughout the rest of 2016.

Will, the promotions we ran, particularly in November and December and also in January, had a drag on the sales mix because the promotions were larger this year compared to the prior year. As we are moving forward, we are going to try and find opportunities for add-on sales.

We will continue to value promote, probably not at the levels we were doing at the end of 2015. So the sales mix you should see likely a slight decline through the year and that has really been a factor of opening up new restaurants and the fact that family meals take a while to really build in those new markets.

Got it. A quick follow-up, if I could, on the proposed spin of Taco. Can you talk about why you chose to pursue a spin versus a sale? And on the back of that, if you would be open to considering a sale as well if this news were to spur some sort of interested party?

We will always look at any opportunities that we think will create the most shareholder value. I will tell you the tax basis for Taco is considerably low and so the tax burden associate with a straight sale would be difficult compared to a spin-off.

Understood. Thank you.

Jeff Farmer, Wells Fargo.

Thanks. I actually have a few myself and, again, to follow up on the business separation. Just curious why you think it is the right time to pursue this now as opposed to maybe a year ago when both concepts were putting up positive same-store sales in traffic?

Jeff, first of all, it was about a year, year and a half ago that we decided we would move into Texas. We thought we were going to need the assistance of Taco Cabana to really help us, either from a marketing standpoint or from an employee team member standpoint. It really was not the case.

We believe that, taking a look at it a year ago, the position that we are in now puts it -- we believe it is the right time to do it, or at least announce the split. It's going to take us a while either way, whether we started a year ago or whether we start now, it is going to take a couple of years for us to be able to put ourselves in a position where we separate.

We believe right now and feel strongly about the same-store sales and the potential that both of the brands, A, are putting up, and, B, that they are capable of going forward. We don't believe that, by any stretch, we've seen the peak.

That is helpful. The long-term earnings framework points to 10% to 12% revenue growth further benefited by margin expansion. I understand your lapping that 53rd week and it looks like you have a pretty big jump in D&A, but do you expect to deliver on those numbers, meaning the 10% to 12% revenue growth and the margin expansion component of your long-term framework in 2016?

We've provided a limited set of operating targets that were included in our press release today and in our opening comments. We haven't really made an earnings comment as it relates to our expectations for the year. We've given you our sales goals. We've also reiterated in the past that we are expecting margin and expansion at both brands.

The area that is still to be determined is our G&A and our infrastructure costs. That may be impacted during the year as we start to transition for a future separation. As soon as we have a better perspective that we can share externally, we will certainly do so.

Just one more. It's on the 100 basis point to 180 basis points or 100 basis points and 180 basis points of favorability at Taco and Pollo respectively, how should we think about that hitting the quarters? Is that a very stable cadence or does it grow or decline as the quarter progresses?

There's a little bit of a variation, but generally it is fairly comparable quarter over quarter.

Thank you very much.

(Operator Instructions)

Joshua Long, Piper Jaffray.

I was wondering if we might be able to talk about the pricing outlook at both brands for the year. Just given what's going on in the industry, seems competition is starting to tick up again, and so just curious on how you are thinking about pricing or maybe a high-level mix promotion opportunities across the brands to support that low single digit comp this year?

Well, there's a couple things going on, Josh. First of all, the comp we feel really encouraged because we have about a 50% increase in marketing dollars that we have to spend against Pollo Tropical versus over a year ago. Every one of our Florida markets are now on TV for the first time. The majority and our biggest producing restaurants are in South Florida and they will have a full complement of media being spent against it this year, so we feel strongly about what we are capable of for that brand.

And then you add on top of that, there's a new creative -- a new campaign that, as I mentioned, just began. With that, we believe and we are actually pretty excited about what we are seeing. It is still early. But we think the two of those things in combination will allow us to have a positive outlook on same-store sales.

And let me just say one other thing about Pollo, that Pollo, when we looked at this year, 2016 versus a year ago, the first quarter is the one we looked at with a good deal of hesitation because it was such a huge first quarter a year ago. To be in a position year-to-date where we're, with all the cannibalization with sub-optimal weather and still being a little bit positive in transactions, that we view is a strong beginning versus a very strong quarter a year ago.

I guess I would add, in terms of pricing that has been put in place, both on the same date at both brands, February 8, we added a percentage point of price at Pollo, a percentage point of price at Taco. As we look out through the year, Pollo is not intending to take any incremental price for the balance of year, so that will be a consistent pricing through the balance of the year.

For Taco, we will likely take 50 basis points again in the springtime. And then there is a consideration of taking another pricing amount in the summer, but that is still to be determined. Including the spring pricing we are anticipating, the cadence would be about 2.5% in the first quarter, 2.5% in the second quarter and then it would drop down to about 1% in the third and maybe about 1.5% in the fourth.

Thank you. And those numbers were on Taco specifically.

Yes.

How much menu price do you have now at Pollo?

At Pollo, as of February 8 we have 1%. There was no pricing essentially as we started the year.

Okay. That is helpful. In terms of understanding the COGS guidance there, it was helpful to know it was more or less even across the year. As we think about that on a consolidated basis, is thinking about that in terms of weighting it based on the sales splits between the two brands, is that still a fair way to think about it? On a consolidated basis, that would work out to something in that 140 basis point range?

I think that's fair. Obviously some of our costs are variable, although the majority are locked in. But there will be some minor variations through the year based on what we know today.

Great. Another topic that seems to come up a lot lately is just the outlook on the labor market. I was wondering if you might be able to update us in terms of how you are thinking about that across your brands in terms of the training stores you've been focused on, on bringing out and then maybe the opportunity for a pure wage inflation across your restaurant base.

First of all, with respect to competition, it is getting more and more intense. It seems like every time somebody wants to open up a new restaurant, a new concept, they say we're going to choose Houston to begin with, so Houston is a challenged market. We are also seeing in Houston a little signs or some initial signs of the impact of oil now being underneath $25.

By and large, one of the big successes that both brands can point to versus this time a year ago is putting recruiting processes in place, people dedicated and teams dedicated to recruiting. And with the new training stores in each of the different DMAs that we're opening, that our retention is getting better. And so with better retention and more people getting into our pipeline, we feel very good about the position we are in versus a year ago.

Great. Thank you so much.

Brian Vaccaro, Raymond James.

Good evening, and thanks for taking my question. Tim, I wanted to ask about the advertising spend increase at Pollo Tropical in 2016. And just confirm I heard you say that the spend is going to go up 70 basis points in 2016, year on year?

I think that's up a little bit from the 50 you discussed on your last call. If that's the case, can you give some color on where that incremental spend will be relative to the original plan?

First, let me say we are going to be spending additional dollars and we said it was going to be -- it is up as much as 70 basis points versus a year ago, which the math adds up to a 50% increase. The money is going to be spent evenly across our system. As we mentioned in the call, we have already started being on-air in San Antonio, which is a little bit of an investment spend because there are 4 restaurants in that marketplace now and we will have as many as 10 by the end of the year.

We wanted to demonstrate the impact in the new market of media. We're going to be on the low end of media efficiency in Atlanta and so we plan on by Q4 of being on-air, maybe a little bit of investment spending there. But by and large, Florida, all the markets in Florida will be self-sufficient because of the additional dollars they will have as well as our ability to put some pressure on our biggest three markets, the Big Three down in Dade, Broward and Palm Beach. I think it is really across the board. The big message is for the first time in a handful of years that we will be putting appropriate levels or pressure on the Big Three, which represents such a still a huge opportunity to move the needle.

Okay. That's helpful. If you look at those, just the Big Three South Florida markets, can you give a sense of how much you have been underinvesting and where that is going year on year? Obviously it's going up more than 50%, it would seem, but can you give directionally a sense of the magnitude of increase year on year just in the Big Three?

I think the way we have been explaining it is over the last four years, we have been taking money away from the Big Three and investment spending it in the other emerging markets as if they had enough restaurants to be media efficient. As each year has gone by, we have studied and been very careful about how that market responds.

First, we might have taken out a certain kind of radio. Then we took out billboards. And then we took out some maybe radio or TV weights to be able to take as much money out of the market without adversely impacting it and spending it in the other markets.

Clearly, given the average unit volumes of the South Florida Big Three, it would be impossible to spend all of that money on those markets. But rest assured, the money we are going to be spending on it in 2016 will be the most it has seen in the last five years.

Okay. That is helpful. One other quick one, if I could. Just wanted to go back to the quarter-to-date period so far at Pollo Tropical. I believe the $3.99 value promotion you ran that ended in late December, I believe, can you remind us what was featured in the January or the quarter-to-date period?

And then one other one, did the first seven weeks that you mentioned in that quarter to date, did that benefit from higher advertising spend levels or is that just starting now? Thank you.

I'll answer the second half of it. The new weight levels began with especially the new creative that started in early February. I think that is probably when the biggest part of the weight has been. That and the new creative has really made its presence known.

To Tim's point, for the majority of the window that we've reported year to date, we did not have the new creative on-air. We have more incremental weights with the new creative currently underway. In terms of the promotion itself, we promoted the spinach chicken wraps at Pollo. The current year versus last year, we were promoting Tropical Light and that did have a negative effect in terms of sales mix during the initial part of the year.

Very helpful. Thank you.

(Operator Instructions)

Nick Setyan, Wedbush Securities.

Thank you. The Pollo comp actually starts off the year pretty well. The Taco definitely starts off the year pretty well with easy comparisons, higher weights. What is the thinking behind, I guess, going to the guidance in terms of the comp of low single digits as opposed to what you had previously, which was low to mid?

I think, first of all, we are coming off of what was a challenging fourth quarter of last year. We recognize we do not operate in a vacuum, that everybody else is kind of in the same boat and people are discounting and spending and so our position was for us to go over what was a year ago -- we can't forget that -- a year performance for both brands, to roll over those with 2% to 3% increase projections is still a huge accomplishment.

I think we look at it and say, let's make sure that, that's something that is achievable. And given the fact that we didn't know and won't know really, for a little bit of the impact that the increased weight and the increase -- or the new creative, what impact that's going to have on the overall sales mix. That will be something we will be discussing obviously at this time in a couple, three months.

Lynn, on the labor at Pollo, obviously you have less pricing, but hopefully we should get transactions to contribute more. We have not just the pressure from the unit inefficiencies as we build newer units, but we also should have some tailwinds from some of these builds that were in the class of 2015, of 2014, actually contributing higher-margins. You always have some labor pressure at the same time, so obviously there's a lot of puts and takes.

How should we think about all of those things in terms of how the percentage of sales is going forward? With all of these new stores here in Q4, we were able to do 100 BPS of deleverage. Is that the right level to think about? Could it be a little bit lower than that? Maybe higher than that?

On a consolidated basis, it will be lower than that. I would remind you, too, that in the fourth quarter, we actually had 20 new restaurants that had opened either in the fourth quarter or the third quarter, so we did have our largest number of units within the short frame time, so that definitely impacted the labor results. We do expect a drag at Pollo to be partially offset by Taco.

Just talking about Pollo, obviously, I actually think 100 BPS of deleverage is pretty good, given all the new stores that you opened in Q3 and Q4. Is that, at Pollo, a higher -- kind of the upper end of that to think about or can it be a little bit better going forward? Or could that actually -- because we should have some [tellens] from stores that we opened already offset by less pricing, so there's a lot of moving parts. So how should we (multiple speakers). What do you think is the right way to think about --?

Well, if I could answer the question this way. Your estimate is probably pretty good. But as we move through the year and we change our perspective, I will certainly update you in the future. But based on what we know now, your estimate is probably pretty good.

Okay. Last question. On the new units, the unit volume that, at Pollo, is that just very kind of back-end loaded in terms of the openings? Did that the 14th week have anything to do with the math there in terms of the 390?

Yes, I would say it is a little bit back-end loaded because of the 20 new restaurants we opened at the end of the year. There is a little bit of that effect. There is lower seasonality, particularly in the non-Florida markets, in the second half of the year.

Got it. Thank you.

There are no further questions at this time. This does conclude today's conference. Thank you for your participation. You may disconnect your lines at this time.