Fiesta Restaurant Group Inc (FRGI) 2016 Q1 法說會逐字稿

Greetings and welcome to the Fiesta Restaurant Group first quarter 2016 earnings conference call. I would now like to turn the conference over to your host, Miss Lynn Schweinfurth, Senior Vice President and Chief Financial Officer. Thank you, you may begin.

Thank you. Good afternoon, and thank you for joining our call. Our first quarter 2016 earnings release has was issued after the market closed today. If you've 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 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 filings.

Please note that during today's conference call, we will discuss certain non-GAAP 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. Let me first speak to the quarterly results.

We had anticipated a challenging start to the year, given the record comparable restaurant sales lap for Pollo Tropical along with the negative impact of planned cannibalization. Although macroeconomic pressures proved to be more onerous for both brands, more so than we expected.

So we believe the fundamentals of our business are intact, and we continue to focus on a long-term growth strategy and execution. Additionally, we believe we will meet the 2016 operating targets we provided in our press release this afternoon.

Pollo Tropical comparable restaurant sales were flat, as a 0.1% increase in comparable guest traffic was offset by 0.1% decrease in average check. Also embedded in this result was a 2% estimated cannibalization that negatively impacted traffic. The year ago comparison was 6.4%, and on a three-year basis comp sales were up 12.7%

While the brand had solid sales performance in January and February, we experienced softness in March especially in Dallas and Houston where we do not have any media support. Additionally, we believe that the slow-down in the oil industry has increasingly affected both our restaurant brands especially in Houston.

In April, comparable restaurant sales came in flat at Pollo. Importantly while the month started in negative territory, similar to what we had seen in March, we saw positive momentum sequentially through the month, with the last week coming at 2.6% positive. In April, we promoted a new product at Pollo, chicken skewers or chicken pinchos which proved so popular we had to increase our supply of the product to keep up with demand. We estimate Easter positively impacted the fiscal month by 0.6%.

With that background, let me go through the two key aspects of the Pollo Tropical strategy. Capitalizing on media efficiency and developing new restaurants, despite anticipated sales cannibalization in the near term.

During the quarter, we noticed a meaningful sales lift in San Antonio since we turned on media in mid-February when average weekly sales increased over 10% through the end of the quarter. This followed the pattern we'd experienced in Nashville, which has also reached media efficiency and similar experienced a healthy increase in sales. With comparable restaurant sales growth of 9%, and an average weekly sales increase of 6% as we doubled our restaurant presence in the market last year.

We believe that the Atlanta market should also benefit from media support starting in the third quarter, which is earlier than we'd previously indicated. And we're hopeful it will experience a similar positive sales lift as San Antonio and Nashville. Finally, we're considered going on television in Dallas Fort Worth DMA at some point in the second half of the year.

The Real People campaign we unveiled in late February is continuing to resonate well with the guests, and we hope will also feature various new product offerings like our current chicken pincho promotion. To further increase brand awareness, and drive traffic into our restaurants. And with the increase in the overall marketing expenditures, our big three Pollo Tropical markets which consist of Dade, Palm Beach and Broward counties, will be continued to be supported with higher levels of broadcast, direct and out of home media to further advance these robust restaurant groups.

With that, let's briefly touch on the topic of cannibalization. As we've discussed repeatedly, building restaurants at a pace in each new market that we have entered with a goal of quickly achieving media efficiency has resulted in a negative sales impact on existing stores. This is especially true in Texas, where we believe guests are willing to drive further to eat at our restaurants, thus creating larger trade areas around our restaurants.

While this is a reflection of the uniqueness and brand loyalty that Pollo Tropical generates, we also believe that the impact on the sales cannibalization for this brand is greater than that of our peers. We believe that as brand awareness increases, these trade areas will begin to normalize.

In addition, we're also adding restaurants in under-served markets that have already had media support. Such as the West Coast of Florida and the northern part of Florida, where we can further improve their media and operating efficiencies. And in the core South Florida markets, where we're hoping to reduce operational pressure in existing restaurants, thus improving the overall guest experience and performance of our operating teams.

Turning to Taco Cabana, comparable restaurant sales rose 1.7% during the first quarter, which included a 0.8% decrease in comparable guest traffic. On a two-year basis, comparable restaurant sales rose 5.5%, extending Taco Cabana's record of positive comparable restaurant sales gains to nine consecutive quarters and 22 out of the past 23 quarters. Like Pollo Tropical, we believe that the brand is being increasingly affected by oil industry related challenges, and this is particularly impactful to our Houston restaurants.

In April, Taco Cabana restaurant sales were down 4.1%. Weather had a negative impact of 1.4%, partially offset by the favorable timing of Easter of 0.6% for the month. Given the promotional environment, including the macro trends that we're seeing in Texas, the team is working on value offerings that could potentially be rolled out in June and run as a secondary offering to our ongoing meal deal promotions. The secondary offers are being considered as a number of off-menu items, low food costs that can be promoted at a $3.95 price.

Now let's review our key business drivers. First, our development plan. During the first quarter, we opened 6 of the 34 to 38 restaurants we were currently planning to open this year, the majority of which will be Pollo Tropical and up to 4 Taco Cabana restaurants.

The six restaurants include four Pollo Tropical restaurants in Texas, two Pollo Tropical restaurants in South Florida. To date, we also have 15 restaurants under construction.

We are also planning to utilize Taco Cabana's development by focussing on the smaller Texas markets. These markets will utilize a smaller lower cost building prototype that will further improve unit-level economics, while still delivering the brand promise of fresh quality Mexican food. We hope to have the first smaller Taco Cabana unit built in 2017.

Turning to our reimaging efforts. We just completed 3 Big Blue reimaging projects in Atlanta during the quarter, and are on schedule to complete an additional 11 projects before the end of the year. Our guest's reaction to the reimaging continues to be very positive, and we're pleased with the sales increases they are garnering. The restaurants we reimaged in 2015 are delivering to mid-single-digits sales lifts, and we're exceeding our five-year after-tax pay back goal.

Lastly, let me update on you on our off-premise business. We continue to believe in the tremendous growth opportunities for catering to go drive through in the years to come, and therefore focusing on leveraging the successful introduction of our online and mobile apps.

Pollo Tropical's platform has been fully launched, while Taco Cabana's platform is expected to be fully launched by the end of the second quarter. With our online and mobile apps in place, we will fully roll out our catering and group ordering capabilities in the third quarter. We anticipate generating incremental sales through these initiatives.

The next phase of the mobile strategy consists of introducing a loyalty program, which will be managed primarily through the mobile app and will allow us to track the individual guest transactions and personalize, surprise and delight promotions to encourage return visits. To date, we've begun a test pilot for Pollo Tropical and are planning on a full program rollout in the back half of the year. The pilot tests for Taco Cabana will begin in the third quarter.

We've also started testing third-party delivery in San Antonio earlier this year. With Pollo as part of our off-premise strategy, we have since expanded the test to our Houston market. While still in the early stages, we've received positive feedback and look forward to updating you on the progress in the coming quarters.

Next, let me address three main questions we have been asked since our spinoff announcement. I want to do this to provide more clarity.

The first question, why are you waiting so long to spin off Taco Cabana? The answer is simple. We want to be fully transparent to the organization, and involve the brand teams in effectively planning the separation while minimizing distractions.

In fact, we are currently in the process of relocating the Pollo management team to our Dallas office, while retaining a regional office in Miami to support our significant restaurant presence in South Florida. The Taco team is continuing to manage the brand out of San Antonio's corporate office.

The next question is, why can't we keep our both brands together as they're relatively small and there are many multiple brand companies in existence? We believe the brands can generate incremental shareholder value as separate companies. Our two differentiated brands have unique growth profiles, expansion opportunities and operational performance metrics that have the opportunity to be better positioned with a focus as individual companies.

On the one hand, Pollo Tropical is a unique concept with operating performance metrics that are very competitive among the high-growth fast-casual restaurant companies. On the other hand, Taco Cabana is a strong brand, with the near-term in-state expansion opportunities driving disciplined growth and significant cash flow.

Finally, what's going to happen to company G&A? At this point, we are not planning to add significant staffing and infrastructure in 2016, we will call out any separate related costs as we report our results going forward. Each brand currently has its own management team and operating support structure in place.

In addition, we anticipate we will provide infrastructure and back-office services to Taco Cabana under a multi-year transition services agreement, similar to what happened when Fiesta was spun off from Carroll's Restaurant Group in 2012. This will enable both companies to continue to leverage infrastructure costs, while gradually growing G&A at levels that meet their independent growth objectives.

To conclude my opening remarks, we started the year making investments that have and will put pressure on results in the short term. But we believe that we will begin to gain traction in the second half of 2016, and drive meaningful growth in the years to come.

We continue to be optimistic about our future, and remain focussed on the building of long-term shareholder value. Our operating teams are to be congratulated as they continue their forward direction, regardless of the obstacles they face.

Now I'm going to turn the call back over to Lynn.

Thank you, Tim.

Overall, quarterly performance was below our expectations due to a few key items. The first was the decline in comparable sales at both brands in March, which more than offset better than expected performance year to date through February. However, the decline in March transactions was fairly consistent with industry trends experienced in Florida and Texas as measured by published industry benchmarks.

Our 53rd week 2015 fiscal year resulted in a later start to FY16. The benefit of not having New Year's in Q1 this year compared to last year offset the timing of Easter that fell in Q1 this year compared to Q2 last year. Additionally favorable weather positively impacted Taco in Q1 by an estimated 1% to 1.5%.

Average weekly sales at new Pollo restaurants have trended lower, particularly in emerging markets, due to the consumer environment, cannibalization and low brand awareness. However, when we introduced broadcast media, we are seeing promising results as Tim has outlined.

We have a number of initiatives that we believe will help to build sales through the year at both brands that Tim has already touched on. We believe these initiatives along with the easier prior-year comparisons, additional pricing and a declining impact of cannibalization at Pollo through the year will allow us to meet at least low single digit comparable sales at both brands in 2016.

Turning to margins. In addition to the impact of lower sales volumes on margins, there are a few key opportunities to improve profitability at new Pollo restaurants.

As an example, there are additional managers in training in restaurants that will ultimately be deployed to new restaurants when open later in the year. Our initial flagship locations in emerging markets have higher rent expense, particularly in Texas where demand is high for attractive retail locations. We're focussed on achieving targeted operating costs sooner after opening new restaurants.

As a result of these pressures, we are now planning to take additional price at Pollo in the middle of the year of at least 50 basis points. This is incremental to the 1% price increase taken in early February.

For Taco, we are still considering whether or not we will take price mid-year. Without a mid-year pricing increase, we estimate pricing to impact Taco 2016 full-year comps by 1.8%.

We expected cost of sales as a percent of restaurant sales to be more favorable in the first quarter, given our supply chain initiatives including new chicken specifications and favorable costs year over year for key commodities. However, we are experiencing some operating inefficiencies at both brands, as our restaurant managers are utilizing a new inventory management system that was rolled out late last year that we believe will improve food cost management in the medium and long term but is having a negative short-term impact.

In addition at Pollo, we experienced some yield challenges around our Latin shrimp promotions that we have already concluded. Importantly, we have identified additional savings we expect in the balance of the year, and therefore expect cost of sales as a percent of restaurant sales to improve through the year to meet or exceed our annual 2016 targets affirmed in our press release today.

Consolidated restaurant level EBITDA margins decreased in the first quarter by 140 basis points, due to margin contraction at Pollo. Pollo's margin decreased by 340 basis points, as favorable commodity costs were not sufficient to offset higher labor, rent, advertising and other restaurant operating expenses. On the other hand, Taco's margin improved by 70 basis points as the brand experienced sales leverage and lower cost of sale.

We currently expect restaurant EBITDA margin expansion at Taco will more than offset the margin contraction at Pollo in 2016, resulting in consolidated restaurant EBITDA expansion for the full year. Please note that we expect the restaurant EBITDA margin will be negatively impacted 20 to 30 basis points, simply based on having an extra week of sales leverage in FY15. As fixed costs are embedded in labor, other operating and rent expense line items.

At quarter end, we had a cash balance of $4.1 million, and after reserving $5.2 million for letters of credit we had $73.9 million of borrowing capacity under our senior credit facility. We continue to be in compliance with all related covenants.

As a reminder, we disclose 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 and variance explanations.

Next, I would like to refer to the update of our financial expectations for FY16 laid out in our press release. The targets that changed include the following.

G&A, we are now expecting G&A to come in between $58 million to $60 million, excluding any separation costs which we will continue to call out as we did in our first quarter materials. The previous anticipated expense was $60 million to $62 million. The reduction is due to lower expenses in the first quarter, including the reduction in legal settlement costs.

New Pollo store openings. With some restaurants originally planned to open late in 2016 now anticipated to open in early 2017, we are reducing our estimated Pollo restaurant openings to between 30 and 34. And are maintaining our estimate for new Taco restaurant openings of up to four, we had previously communicated an expectation of 36 to 40 new Pollo restaurant openings.

Finally, we are updating our capital expenditures projection to fall between $90 million and $100 million in total as the result of our new restaurant pipeline projection for the year. The previous projection was between $95 million and $110 million.

In closing, while the consumer backdrop is a bit uneven, we believe the second half of the year will more than offset some of the sales and profitability challenges we have been experiencing. Leading to earnings growth in 2016, and a positive trajectory entering 2017.

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

(Operator instructions)

Will Slabaugh, Stephens, Inc.

Thank you. I wanted to ask a clarifying question first. So on Pollo, I believe you said you were positive 2.6% that last week or two. I just wanted to clarify that, and if you would be willing to give the April comp there at Pollo.

The April comps we did give in our opening comments, and they did sequentially improve through the month and ended with the last week being a positive 2.6%.

Okay. So we should just assume it is somewhere between zero and 2.6% for the full month?

Yes.

Fair enough, just clarifying there. And then as far as the unit growth guidance goes, are you intentionally letting some of those 2016 stores slide into 2017 just to maybe lessen that fairly dramatic cannibalization number we have been seeing? Or would you consider that reduction to be equally or even more externally forced and you would rather have kept the previous range?

I think it was situational to a great extent in terms of our development pipeline and a few situations in particular with the restaurants we'd pushed out into early 2016. Some of that also included the fact that we were nearing more of a holiday time period, and we'd prefer to open up the restaurants outside of that window. So a couple different things were going on, and therefore, the restaurants pushed into 2017.

And then to go back to your earlier question, Will, if I may. We did report that April comp store sales for Pollo were flat in April, but the trajectory started in the negative territory and then grew through the month of April ending at 2.6% in the last week. In addition, just as a reminder, because of our late fiscal calendar beginning, the April fiscal month ended on May 1.

Okay. Got it. Sorry I missed that. And then lastly just wondering if you could touch on labor.

You mentioned that was up at Pollo I believe 70 basis points you show for the Company. Wondering if you could talk just a little bit more about labor for Pollo, why it did increase with a flat same-store sales number like it did and your outlook for the rest of the year?

Yes, the outlook for the rest of the year for Pollo is consistent with what we reported last month. So we believe that the labor line item will be pressured by about 100 basis points this year compared to last year.

Some of the pressures we are seeing currently which we do expect to continue for a short period of time include having extra managers in restaurants, where we'll deploy those managers to new restaurants when they open later in the year. And then we're continuing the focus on trying to get to more efficient operating margins sooner in the new restaurants.

Got it. Thanks, Lynn.

Alex Slagle, Jefferies.

Thanks. Just wonder if you could remind us again of the cadence of the same-store sales through the quarter for Pollo. I recall the comp -- the compares by ease through the quarter, but just so many external crosswinds to think about. If you could provide a little more color, it would be helpful.

So the first month of the quarter we were at a 0.6% positive transaction at Pollo, and a 0.8% positive transaction at Taco. The same-store sales coming in at a negative 0.9% at Pollo and a positive 3.4% at Taco.

And then the performance improved in the month of February for both brands. And as I think we mentioned earlier in the call, our February year-to-date numbers were better than our expectations. However, March came in negative at both brands beyond the Easter timeframe, which surprised us, and was very consistent with some of the industry benchmarks we look at, in particular, Knapp-Track and Black Box.

Okay, thank you. And then just remind us with the promotional lineup in the first quarter and quarter to date, second quarter is this year versus last year maybe for Pollo?

Sure.

I think one of the big differences that we had a year ago starting last Wednesday, we had a direct-mail drop going into Mother's Day. So that was pretty impactful over the last week or so.

And then the actual product promotions, that was also what you wanted us to address. This year, it included our chicken spinach wraps and in the beginning part of the quarter, and then the shrimp fest in the middle part of the quarter. And then in April, we started promoting a new product that Tim mentioned earlier, pinchos or their chicken skewers, and the mix associated with that promotion was very well received by the guests.

And then in the prior year, we offered the tropical light menu, another shrimp promotion. I think it was a shrimp wrap promotion, and a create your own Tropi Top promotion. And then in April it was the tangy pineapple wrap combo promotion.

Okay. Thank you.

Jeff Farmer, Wells Fargo.

Thanks. It looks like Pollo's Q1 average in volume fell about 9%. I'm just curious how we should be thinking about the magnitude of that decline over the balance of 2016.

Well, that's a good question, Jeff. We haven't really talked about much of a revenue expectation for the year.

I will say our expectation of 10% plus from a long-term standpoint, it's probably higher than what we'll see this year. And we believe this year sales will only grow in the future. So it is going to be a little bit of an inflection year as it relates to sales.

Okay. So to just to try take a stab at this again, so does that seem fairly representative to you, that down 9%? I think it was something close to 10.5% decline in Q4.

It depends what you're comparing.

Okay. I'll move on to the next one, then. You did touch on this with Will, so excluding the 80 basis points of COGS favorability that Pollo saw in Q1, it looks like your restaurant level margin would have been down something close to 400 basis points.

Again, similar dynamic. I'm just trying to get a sense as to what that deleverage will look like over the balance course of the year, whether or not that 400 basis points is a good proxy for what we should looking at over the balance of the year excluding cost of goods sold?

Well, let me just clarify hopefully what I tried to communicate earlier, and that is we are expecting some contraction at Pollo this year compared to last year. Not in a huge amount, especially once you incorporate the cost of sales savings we'll experience this year. But then that contraction will be more than offset by the Taco margins this year to result in a consolidated restaurant EBITDA margin expansion in 2016.

Okay. And then just final one segue way from what you just said there, and you did touch on this a little bit in the prepared remarks. But 80 basis points of COGS favorability at Pollo in Q1, just in the context of seeing 180 basis points over the full year. How should we think about that in Q2, Q3, Q4, is there a quarter that's going to be see some outsized level of favorability and others are going to see smaller, how should we think about getting to 180 for the full year?

You should see a sequential improvement in Q2, and then another sequential improvement in Q3, and then it might be roughly the same if not a little bit less in the fourth quarter.

Okay. Thank you.

Joshua Long, Piper Jaffray.

Great, thank you. Wanted to see if we might be able to dig into some of the pressure you're seeing in, you called out Houston in particular. I was just curious if you'd be able to share any trends you're seeing at the restaurant level in terms of maybe mix shifts or if it's really just purely driven by traffic?

And then also curious on what the opportunities are to maybe look at Houston as an investment spending market. You've talked about the opportunity to maybe go in and pre-spend some marketing dollars to help ramp up certain markets before you reach the media efficiency level. I didn't know if that was an opportunity in some of those other markets in Texas.

Well, first of all, Josh, the first part of the question was in Houston especially, there is then -- it was just about a month ago I suppose that the media came out and said that there was a little bit of a ripple and which later became a wobble because of the industry segment. Lots of other segments are looking up in the state of Texas. It wasn't until this past quarter where Texas fell from being the number one job state.

But in Houston, in particular, first of all, we have less than 10 restaurants, at the end of the year I think we'll have less than -- we'll have well, around 8 restaurants or less than 8 restaurants in Houston by the end of the year. So we're not talking about a considerable number. I think the big driver is the cannibalization, as we have been talking about in -- the fact of putting money in Houston probably wouldn't make all that much sense.

A market like Atlanta where we're going on air in July, which is earlier than we anticipated, the fact that we went on in San Antonio early and we're seeing some good impact there because we've got some pretty good penetration there. And then there is a possibility given the success of San Antonio looking at a market like Dallas Fort Worth, that's got some scale. By the end of the year, we'll have around 15 restaurants in DFW, so that might be a possibility.

But again to recap, Houston, not a whole lot of restaurants, some cannibalization, awareness obviously is an issue and the market has been impacted. But overall, the opportunity to -- at the end of this year, we will have essentially two markets that are not on air. So we've obviously come a long way in that regard in the last two years.

Absolutely, I appreciate that color, Tim. As we think about the opportunities around some of the off-premise and on-line initiatives that you mentioned does sound exciting. Was curious on the loyalty program if that's something that you've really built up in-house, or if that's really more or partnership with third-party vendors?

And then secondly, on your catering and group ordering, just curious what you learned about that in test and what initiatives or items you put in place to make sure that that's a smooth rollout? We've talked about maybe building up some extra capacity in your most dense markets in terms of usage.

So just curious how we should think about the rollout of that, so it doesn't necessarily disrupt the restaurant level operations as we go through the year. Granted, it's going to be a small piece of the business. But just curious what your early thoughts are there.

I think that with the loyalty program, that's something that we have been working on and with another provider. The catering, the online, those are growing organically, so we won't really put a whole lot of weight or media or push them because we do want the operations to get accustomed to that pace of increase. So as a percentage of sales, it might be a small number but it continues to grow week after week.

Not only the loyalty program, but also our third-party provider for that we have been testing in San Antonio is going very well, and we anticipate rolling that out to other markets. Again, it's one of those things, to your point, and it's a good one, we want to make sure that these growth items are incremental.

At the same time, we want to make sure that they grow organically, so we're not bringing operations to their knees because obviously they're running some pretty significant numbers now. So to date, what we've found is higher check average, we've found the people excited about the opportunity for a third-party provider. Internally, we're excited about marketing for the loyalty program because it is going to make our communication a lot smarter and a lot more targeted, and therefore a lot more efficient.

Great. That's helpful. And then last one for me.

In terms of the new inventory management and the hiccup that you saw during the quarter, I was just curious if you had a sense as to when that learning curve or that growing pain would taper off? Is that something that you're largely through, or if that's something that still is getting worked on? And then secondarily, was the yield problem you mentioned in terms of the [Lentin] offer, was that related to the inventory management system as well, or was that just more of a temporal item at the restaurant given that promotion?

Two things, the shrimp was a real simple -- we sold a ton of them. We had a -- it was really an inventory we thought we were -- we were supposed to get a certain number per pound, and we got a fewer per pound which we're putting a larger shrimp on the product which caused a yield problem. That was part of the issue.

Something obviously that it's a short window, in and out, and so the damage was done. Our inventory management issue, I think we have been pretty much doing it the same way for a very long time. Last October, as you know, we rolled out that program, and it takes a while for the teams to get used to it. I think it is, as we indicated, I think it is more of a short-term issue.

There is no doubt that it's going to save us money in the long term, and will provide greater clarity on our inventory. But it was -- it's a short-term issue that getting the team accustomed to a new process, and it just took a while. I think it's more of a blip than anything else.

Okay. Thank you.

(Operator Instructions)

Brian Vacarro, Raymond James.

Thanks and good afternoon. I wanted to start out on the Pollo Tropical comps, and ask about the year-on-year increase in advertising spend during the first quarter. I guess if you just think about the year-on-year increase by month, was it fairly even through the quarter or was there a particular period where the impact was greatest or less as you looked at the individual months?

Well, I think that if you take a look at the first quarter by month, it is pretty evenly spread. And the incremental media was essentially in three markets, and that was in Dade, Broward and Palm beach.

Maybe a little bit more on a comparative basis in Nashville. But pretty evenly spread I think really starting in mid to late January.

Okay. And I guess shifting gears a bit. In context of the more intense competitive environment, are you seeing a larger impact on your lunch or dinner day part at Pollo? And maybe share how you're thinking tactically at Pollo regarding some menu innovation et cetera from a value perspective to respond to the environment?

Well, there is no doubt that everybody is getting into a discounting, and as we've mentioned pretty consistently that it's fast-food to white linen. Everybody is discounting. Because that is some place that we've always been, we don't really feel the need to respond any differently.

I think we're always been a value proposition. We continue to offer that. We still get very, very high scores for it.

But we're not -- I think that one of the things that you mentioned is product innovation, and the idea of pinchos as a new item for us, which is completely different than what we've ever done before and the response, as we mentioned, has been very, very favorable. Pollo Tropical, like Taco Cabana, as we've mentioned in the past, over the last couple of years, has been a little bit more ops friendly and we that we haven't been doing new product innovation.

That is over beginning in 2016. So I think on a go-forward basis, you'll see more of product innovation coupled with our ongoing price value that's been so attractive.

Okay. And switching over to Taco Cabana, if you could just comment also on the day part trends there. And is there a particular day part that you have seen some sequential deterioration in in the month of April that you could provide some color on? Thank you.

Nothing in particular. I think it's just pretty much across the board. The one day part that continues to grow is breakfast.

But nothing that really stands out. It is pretty even between lunch and dinner.

Okay. All right. And then just one quick model question if I could, Lynn, the other OpEx line at Pollo in the quarter was up a fair amount more than I would have expected. Anything unusual or one time in nature, or is that just a product of the rolling in the lower new unit volumes?

Well it is certainly part of that. It was mostly, however, due to real estate taxes and some timing of repair and maintenance expenses. So there was some timing issues as it relates to repair and maintenance.

All right. Thank you.

Nick Setyan, Wedbush Securities.

Hello, this is Colin Radke on for Nick. You guys called out San Antonio and Nashville as seeing sales lifts after launching media, but it sounds like might maybe you're not be seeing quite the same response in the more mature markets. Is there anything you've learned in terms of the big three after [bank loan] media has been there in terms of maybe what's working, what is less effective and maybe if that has any impact on the rest of the year?

Well first of all, I think that what you're seeing systemwide will start globally for the Pollo system, rolling over what was a record first quarter a year ago. So for us be flat with that in addition to and considering the 2% of cannibalization that we have been talking about, we started off the quarter at a negative 2% in transactions. But we ended up flat, so that's very, very positive.

As we mentioned, the ones driving that were the highest unit level volumes, and that was Palm Beach, Dade and Broward. So the fact that those continued to be stronger than a record quarter a year ago speaks to the media and it speaks to the new creative campaign.

As far as Nashville and San Antonio, we're very bullish. We're excited about the results of what we're experiencing in San Antonio and Nashville, up between 9% and 10% in those new markets. So as we've said moving into every time we've gone on air, we have been anywhere between 8% and 10%, that's been our standard increase.

The fact that we have done that again in Nashville and showing that in San Antonio, is reason for us to start looking at moving up Atlanta as a market, and looking at other markets as well. So we're happy with the results of media.

Okay. And then just quickly on the new unit volumes. As you guys are starting to build more of these units away from Florida and into areas that are more impacted by weather or seasonality, to what extent do you think the current new unit volumes, especially in Texas, are being impacted by seasonality? Are there any numbers or any color, I guess, that you could help us around that?

What I will tell you is there is a shifting of having a lot of restaurants in Florida to having restaurants not only in Florida now but in Atlanta, Nashville and Texas. In Texas, the seasonality tends to be a little bit in contrast to the Florida seasonality. So as we open up new restaurants in these markets outside of Florida, both the fourth quarter and the first quarter are our lowest seasonality quarters.

I would also offer that when you take a look at and consider new restaurant sales, there is new restaurants that are going in every one of our markets. So that's a good number of restaurants in southwest Florida, in Jacksonville, in Atlanta, in Orlando we opened up -- we've got two opened in the last year in Nashville. We've got obviously at the end of this year, as I mentioned, we'll have 15 open in DFW by the end of the year.

So we have got -- and 9 to 10 in San Antonio by the end of the year. So we have got a lot of new restaurants opening. Very few have been -- are in the markets where they have already been media efficient.

So you have got lot of cannibalization going in, and markets where you're not all that well known. So as Lynn mentioned, you start off with going from most of your restaurants being built in Florida to now a lot of your restaurants being built in markets where you're not that well known and you're not on TV.

And then you take a look at where we are and where we will be in the not too distant future, with being on air in Atlanta for the first time. And now we're on air in San Antonio and in Nashville, and looking at other markets. The new sales performance should be considerably different moving forward.

Got it. Okay. That makes sense. Thanks for the clarity there.

Just one more on me, and I apologize if I missed it. I heard you call out the weather impact on Taco in the quarter-to-date period. Was there any weather impact on the Pollo comp quarter to dates?

Not really. In fact both the first quarter and the April fiscal month were 0.2% negative impact of weather. So very little.

Okay. Thank you very much.

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. This now concludes our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.