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Fiesta Restaurant Group, Inc. Reports First Quarter 2019 Results

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Fiesta Restaurant Group, Inc. ("Fiesta" or the "Company") (NASDAQ:FRGI),
parent company of the Pollo Tropical® and Taco Cabana® restaurant
brands, today reported results for the 13-week first quarter 2019, which
ended on March 31, 2019.

Fiesta President and Chief Executive Officer Richard Stockinger said,
"Due to recent changes in accounting standards, particularly with
respect to lease accounting, it may be difficult to appreciate the
progress we have made in improving our operating margins and positioning
the Company for greater profitability in the future. We generated higher
first quarter Adjusted EBITDA and Restaurant-level Adjusted EBITDA
margins compared to the year-ago period, despite the negative impact of
an increase in expense resulting from the new lease accounting standard.
These improvements come from our constant focus on improving our
operations and managing costs, while enhancing the experience and value
proposition for our customer; however, we have yet to realize the
benefits of this enhanced customer experience in terms of comparable
restaurant sales growth. Comparable restaurant sales improved
sequentially through the first quarter at Pollo Tropical due primarily
to the relaunch of our ‘Pollo Time' everyday value platform while trends
at Taco Cabana were choppy in part due to unfavorable weather."

Mr. Stockinger continued, "Over the long-term, we intend to improve
sales and profits using the foundation we built through the
now-completed Renewal Plan. This year, we look to deliver sustainable
growth in comparable restaurant sales through a variety of sales
initiatives supported by an impactful mix of digital and social media
and traditional marketing. We are committed to amplifying our brands'
everyday value platforms, keeping our menus fresh through ongoing
innovation, capitalizing on our growing 'My Pollo' and 'My TC' loyalty
and e-club programs, and strengthening our partnership with DoorDash for
delivery services. We are also excited by our catering opportunity,
which is being positioned as a compelling ‘B to B' and ‘B to C' option
offering delicious, fresh, flavorful food for any business or social
occasion. We believe these efforts should in turn yield higher
profitability and margins on a consolidated basis as we leverage
favorable commodity costs and prior-year investments."

First Quarter 2019 Financial Summary

  • Total revenues decreased 2.1% to $165.9 million in the first quarter
    of 2019 from $169.5 million in the first quarter of 2018;
  • Comparable restaurant sales at Pollo Tropical decreased 2.6%;
  • Comparable restaurant sales at Taco Cabana decreased 0.5%;
  • Net income of $2.3 million, or $0.08 per diluted share, in the first
    quarter of 2019, compared to net income of $4.2 million, or $0.15 per
    diluted share, in the first quarter of 2018;
  • Adjusted net income of $4.1 million, or $0.15 per diluted share,
    (which includes a $0.02 per diluted share negative impact from
    adoption of the new lease accounting standard) in the first quarter of
    2019, compared to adjusted net income of $4.3 million, or $0.16 per
    diluted share, in the first quarter of 2018 (see non-GAAP
    reconciliation table below);
  • Adjusted EBITDA for Pollo Tropical of $14.3 million would have been
    $0.4 million higher absent accounting changes resulting from adoption
    of the new lease accounting standard in the first quarter of 2019,
    compared to $14.4 million in the first quarter of 2018;
  • Restaurant-level Adjusted EBITDA at Pollo Tropical of $21.2 million,
    or 23.3% of restaurant sales, would have been $0.4 million, or 0.4% of
    restaurant sales, higher absent accounting changes resulting from
    adoption of the new lease accounting standard in the first quarter of
    2019, compared to $21.6 million, or 22.8% of restaurant sales in the
    first quarter of 2018 (see non-GAAP reconciliation table below);
  • Adjusted EBITDA for Taco Cabana of $2.9 million would have been $0.5
    million higher absent accounting changes resulting from adoption of
    the new lease accounting standard in the first quarter of 2019,
    compared to $2.5 million in the first quarter of 2018;
  • Restaurant-level Adjusted EBITDA at Taco Cabana of $9.5 million, or
    12.8% of restaurant sales, would have been $0.5 million, or 0.6% of
    restaurant sales, higher absent accounting changes resulting from
    adoption of the new lease accounting standard in the first quarter of
    2019, compared to $8.7 million, or 11.7% of restaurant sales in the
    first quarter of 2018 (see non-GAAP reconciliation table below); and
  • Consolidated Adjusted EBITDA of $17.2 million would have been $0.8
    million higher absent accounting changes resulting from adoption of
    the new lease accounting standard in the first quarter of 2019,
    compared to Consolidated Adjusted EBITDA of $17.0 million in the first
    quarter of 2018 (see non-GAAP reconciliation table below).

First Quarter 2019 Brand Results

Pollo Tropical restaurant sales decreased 3.7% to $91.0 million in the
first quarter of 2019 compared to $94.5 million in the first quarter of
2018 due primarily to a comparable restaurant sales decrease of 2.6% and
the closure of restaurants in 2018. The decrease in comparable
restaurant sales resulted from a 2.9% increase in average check and a
5.5% decrease in comparable restaurant transactions. Sales
cannibalization from new restaurants on existing restaurants negatively
impacted comparable restaurant sales by approximately 100 basis points.
The increase in average check was driven primarily by menu price
increases of approximately 3.5%. Comparable sales trends improved in
February and March compared to January.

Adjusted EBITDA for Pollo Tropical, which decreased slightly to $14.3
million in the first quarter of 2019 from $14.4 million in the first
quarter of 2018, would have increased absent the negative impact of
accounting changes resulting from adoption of the new lease accounting
standard. The decrease was due to primarily to higher rent as a result
of adopting the new lease accounting standard ($0.4 million), the impact
of lower restaurant sales and higher operating expenses as a percent of
restaurant sales, partially offset by lower cost of sales and labor as a
percentage of restaurant sales.

Taco Cabana restaurant sales decreased 0.3% to $74.2 million in the
first quarter of 2019 from $74.4 million in the first quarter of 2018
due primarily to a comparable restaurant sales decrease of 0.5%. The
decrease in comparable restaurant sales resulted from a 3.6% increase in
average check and a 4.1% decrease in comparable restaurant transactions.
The increase in average check was due primarily to menu price increases
of 3.0% and the introduction of higher priced shareable items. We
believe that the decline in comparable transactions is partially
attributable to weather.

Adjusted EBITDA for Taco Cabana increased to $2.9 million in the first
quarter of 2019 from $2.5 million in the first quarter of 2018 despite
the $0.5 million negative impact of accounting changes resulting from
adoption of the new lease accounting standard in 2019. The increase was
due primarily to lower cost of sales and labor as a percentage of
restaurant sales and lower operating and advertising expense, partially
offset by higher rent as a result of adopting the new lease accounting
standard ($0.5 million).

Lease Accounting Change

We adopted Financial Accounting Standard Board ("FASB") Accounting
Standard Update ("ASU") 2016-02, Leases (Topic 842) ("ASC 842"), which
requires lessee recognition of lease assets and lease liabilities on the
balance sheet, at the beginning of fiscal 2019. The new lease accounting
standard, ASC 842, had a significant impact on our results of operations
because we had $18.6 million in sale leaseback gains from which we no
longer receive a benefit to rent expense and we have a significant
number of closed restaurants for which we had previous reserves that we
can no longer use to offset our closed restaurant rent payments.

As a result of adopting this standard, substantially all previously
deferred gains on sale-leaseback transactions were recognized as an
adjustment to retained earnings and we will no longer receive the
benefit to rent expense from amortizing these gains. Additionally, prior
to the adoption of ASC 842, we recorded closed restaurant reserves
representing future minimum lease payments and ancillary costs from the
date of the restaurant closure to the end of the remaining lease term
net of estimated sublease recoveries when a restaurant closed and then
recorded rent payments as a reduction to the closed restaurant reserves.
As a result of adopting ASC 842, accrued rent included in these closed
restaurant reserves was recorded as a reduction to operating lease
right-of-use assets and rent related to closed restaurants is now
included within closed restaurant rent expense, net of sublease income
in the condensed consolidated statement of operations. The comparative
period information has not been restated and continues to be reported
under the accounting standard in effect for that period. Amortization of
deferred gains from sale-leaseback transactions for the three months
ended April 1, 2018 totaled approximately $0.4 million and $0.5 million
for Pollo Tropical and Taco Cabana, respectively. Closed restaurant rent
expense, net of sublease income for the three months ended March 31,
2019 totaled $1.1 million and $0.3 million for Pollo Tropical and Taco
Cabana, respectively.

Restaurant Portfolio

During the first quarter of 2019, Fiesta opened two Taco Cabana
restaurants in Texas. As of March 31, 2019, there were 139 Company-owned
Pollo Tropical restaurants, 164 Company-owned Taco Cabana restaurants,
31 franchised Pollo Tropical restaurants in the U.S., Puerto Rico, the
Bahamas, Guyana and Panama and eight franchised Taco Cabana restaurants
in the U.S.

Capital Expenditures

Full year capital expenditures in 2019 include opening of three new
Company-owned Pollo Tropical restaurants in South Florida and three to
four new Company-owned Taco Cabana restaurants in Texas. Total capital
expenditures are expected to be $45 million to $55 million including $11
million to $14 million to develop new Company-owned restaurants, $9
million to $11 million to implement information technology and other
systems projects and $1 million in catering equipment. In addition,
ongoing reinvestment in our Pollo Tropical and Taco Cabana Company-owned
restaurants in 2019 is expected to include $16 million to $18 million
for restaurant remodeling, equipment to support new menu platforms and
other facility enhancements, and $9 million to $12 million for capital
maintenance.

Investor Conference Call Today

Fiesta will host a conference call at 4:30 p.m. ET today. The conference
call can be accessed live over the phone by dialing 201-689-8562. A
replay will be available after the call until Monday, May 13, 2019, and
can be accessed by dialing 412-317-6671. The passcode is 13689817. The
conference call will also be webcast live from the corporate website at www.frgi.com,
under the Investor Relations section. A replay of the webcast will be
available through the corporate website shortly after the call has
concluded.

About Fiesta Restaurant Group, Inc.

Fiesta Restaurant Group, Inc., owns, operates and franchises the Pollo
Tropical® and Taco Cabana® restaurant brands. The brands specialize in
the operation of fast casual/quick service restaurants that offer
distinct and unique flavors with broad appeal at a compelling value. The
brands feature fresh-made cooking, drive-thru service and catering. For
more information about Fiesta Restaurant Group, Inc., visit the
corporate website at www.frgi.com.

Forward-Looking Statements

Certain statements contained in this news release and in our public
disclosures, whether written, oral or otherwise made, relating to future
events or future performance, including any discussion, express or
implied regarding our anticipated growth, plans, objectives and the
impact of our investments in sales initiatives, advertising and
marketing, including our new loyalty programs, operations improvements,
menu development and innovation and catering and third party delivery on
future sales and earnings contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
statements are often identified by the words "may," "might," "believes,"
"thinks," "anticipates," "plans," "positioned," "target," "continue,"
"expects," "look to," "intends" and other similar expressions, whether
in the negative or the affirmative, that are not statements of
historical fact. These forward-looking statements are not guarantees of
future performance and involve certain risks, uncertainties, and
assumptions that are difficult to predict, and you should not place
undue reliance on our forward-looking statements. Our actual results and
timing of certain events could differ materially from those anticipated
in these forward-looking statements as a result of certain factors,
including, but not limited to, those discussed from time to time in our
reports filed with the Securities and Exchange Commission, including our
Annual Report on Form 10-K for the fiscal year ended December 30, 2018
and our quarterly reports on Form 10- Q. All forward-looking statements
and the internal projections and beliefs upon which we base our
expectations included in this release are made only as of the date of
this release and may change. While we may elect to update
forward-looking statements at some point in the future, we expressly
disclaim any obligation to update any forward-looking statements,
whether as a result of new information, future events, or otherwise.

FIESTA RESTAURANT GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2019 AND APRIL 1, 2018

(In thousands, except share and per share data)

(Unaudited)

 
  Three Months Ended (a)
March 31, 2019   April 1, 2018
 
Revenues:
Restaurant sales $ 165,181 $ 168,833
Franchise royalty revenues and fees 671   651  
Total revenues 165,852 169,484
Costs and expenses:
Cost of sales 50,510 53,565
Restaurant wages and related expenses (b) 45,036 46,483
Restaurant rent expense (c) 11,745 8,892
Other restaurant operating expenses (c) 21,763 23,450
Advertising expense 5,521 6,213
General and administrative expenses (b)(d) 15,071 14,919
Depreciation and amortization 9,548 8,999
Pre-opening costs 401 381
Impairment and other lease charges (e) (338 ) (662 )
Closed restaurant rent, net of sublease income (f) 1,424
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