Q3 2021 Fiesta Restaurant Group Inc Earnings Call
Good day and welcome to the Fiesta restaurant group third quarter 2021 earnings call. Today's conference is being recorded at this time I'd like to turn the conference over to Mr. Raphael gross managing director at ICR. Please go ahead.
Thank you operator, so yesterday restaurant group's third quarter 2021 earnings release was issued after the market close today. If you have not already accessed it it can be found on the company's website Www Dot F. R. G I dot com under the Investor Relations section before we begin I'd like to inform.
From you that during the call today the company will make various statements that are not based on historical information. These forward looking statements include without limitation statements regarding the company's future financial position and results of operations business strategy budget projected costs and plans and objectives of management for future op.
Actual outcomes and results may differ materially less is expressed or forecasted in such forward looking statements and the company 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.
Slide by the forward looking statements can be found in the company's SEC filings. Please note that during today's conference call certain non-GAAP financial measures will be discussed, which the company believes can be useful in evaluating its performance.
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 the company's earnings release.
On the call with me today are president and Chief Executive Officer, Rich Stockinger, Chief experience Officer, Patty Lopez, Yeah, and Chief Financial Officer, Dirk Montgomery, and now I'd like to turn the call over to rich.
Thank you Bryce I'd first like to thank all of the investors and other participants on the call today for their continued support.
And a special thanks on this veterans day, so our veterans and active military for their service.
I'll be covering three topics today.
Business update and overview of third quarter results.
The status of our 2021 strategic priorities and thoughts on 2022.
Dirk will then wrap up with the financial update before we open the call for questions.
Like we said, we also have Patty Lopez Kaye, our chief experience officer here with us to provide more color on our digital status during the Q&A session.
As you know we announced the sale of Taco Cabana in July and successfully closed the transaction on August 16th.
Concurrent with the Taco Cabana divestiture, we use the sale proceeds to fully pay off our outstanding term loan balance plus a prepayment premium totaling $76 $9 million.
As a result, we are now debt free with a total cash balance of $55 8 million as of October 3rd and our leadership team is fully focused on achieving what we believe are significant growth opportunities for the boiler tropical brand.
Regarding third quarter results.
We were pleased with the boiler Tropic House third quarter sales performance, despite lost hours and other operating challenges from staffing shortages throughout the quarter.
Third quarter 2021 comparable restaurant sales were 13, 8%.
Versus 'twenty 'twenty.
And accelerated to a 0.9%.
Over 2019.
An improvement from the second quarter 2021, comparable restaurant sales versus 2019, which were below one 8%.
Comparable restaurant sales results were much stronger than markets that had adequate staffing.
Those markets realized third quarter 2021 comparable restaurant sales of approximately 16, 7% versus 2020 and up four.
Four 3% versus 2019.
With very promising sales acceleration in non core markets, including double digit positive comps versus 2020, and 2019 and both the Tampa and southwest Florida markets are.
Our positive comparable restaurant sales growth versus 2020 in 2019 continued in October and we are optimistic about accelerating sales momentum.
As we continue to achieve increased staffing levels.
As we all know staff availability has been an industry wide challenge.
We have approached this issue with a very disciplined and forward thinking approach and took proactive action in the third quarter that has positively impacted staffing levels and margins.
We achieved adequate staffing levels at a total company level by September and continues to show staffing improvement in October.
In addition, the combination of pricing action and ongoing ongoing labor optimization is resulting in meaningful margin improvement in October compared to the third quarter of 2021.
Additional details on key action items are as follows.
We first increased wage rates to at least market benchmarks across all units and positions began offering hiring incentives and increased recruiting resources.
Select markets that are more on the staff, we are offering a boat market wage rates in order to remain competitive in these challenging marketing conditions. We are also enhancing our benefit packages, including offering more assessable comprehensive and affordable medical plans and the addition of other attract.
It benefits such as including.
Emergency childcare family leave company paid educational programs and commuter assistance.
We are taking a phased approach to price increases, which should enable us to recover margins, while maintaining value perceptions.
We implemented a three 7% price increase in late August and are targeting additional price increases in the fourth quarter of approximately 4% to 6%.
In addition, we are accelerating our ongoing labor optimization efforts to improve staffing efficiency, which we expect will increase both staff availability.
And margins.
Let me provide a bit more color on our staffing and margin improvement plans regarding staffing. The fact that comp sales were up 16, 7% versus 2020, and a four 3% versus 2019 in markets in which we were adequately staff is promising.
The only major market that is currently below adequate staffing levels as Miami Dade, where we're implementing additional actions to improve staffing levels, including offering additional pay rate incentives for weekends increased training and recruiting resources and enrich sign on a referral bonuses.
Additional actions are resulting in improvements in staffing issues in that market.
Our phased approach to price increases over the third and fourth quarter is trailing the wage rate increases which resulted in a short term reduction in margins that we anticipate will be recovered in the first half of 2022 as we implement additional pricing action and continue.
Our enhanced and ongoing labor optimization efforts.
As a reminder, our historic pricing action in 2019, and 2020 was slightly over 1% over that two year period.
Which is well below our estimates of competitor price increases over that time.
Our internal competitive price benchmarking and research conducted by our outside pricing analytics consultants gives.
It gives us confidence that we can implement our planned price increases while still maintaining.
<unk> value perceptions.
Our customers.
We intensified our ongoing efforts to optimize labor scheduling in October which will include refinement such as scheduling in shorter time increments compressing prep and open close hours and improving the accuracy of our sales forecast that drive schedule.
We have already seen positive results from those refinements.
With wage rates were restaurant wages as a percentage of sales decreasing approximately 200 basis points on a run rate basis by the end of October compared to the third quarter of 'twenty one.
After adjusting for short term incentives such as sign on bonuses that are being phased out as staffing improves.
Based on planned pricing action and labor scheduling operate optimization efforts underway, we fully expect margins will improve over the remainder of 2021 and into 2022.
We are targeting restaurant level, adjusted EBITDA margins, a non-GAAP financial measure returning to that 18% to 20% range.
In the first half of 2022, barring any unforeseen changes in our cost structure, our operating environment.
Now for an update on the third quarter profitability.
Restaurant level adjusted EBITDA margins are non cap financial measure declined the third quarter compared to 2020, primarily due to the wage rate increases and hiring extent incentives offered a head of the pricing action.
Restaurant level adjusted EBITDA, a non-GAAP financial measure for Pollo tropical as a percentage of restaurant sales decreased with third quarter restaurant level adjusted EBITDA as a percentage of restaurant sales a 14, 8% in 2021 compared to 21, 2% in 2020 and 21% in <unk>.
2019.
Continuing operations adjusted EBITDA, a non-GAAP financial measure decreased to $3 $7 million compared to $8 2 million in 2020.
The decrease was primarily due to higher labor costs advertising expenses, G&A expenses repair and maintenance costs, partially offset by the higher the impact of the higher restaurant sales and improved cost of sales margins.
Approximately <unk> $9 million of the third quarter 2021 labor cost increase compared to 2020 includes overtime and staffing related incentives that are short term in nature.
Dirk will provide additional details regarding our third quarter results as part of his prepared comments.
Next an update on our strategic priorities.
As I mentioned on prior calls our strategic priorities are as follows.
One concentrate on accelerating growth and nine non dine in channels and improving the guest experience across all channels to better enable our customers to enjoy our brand wherever and whenever they choose.
Enhanced to enhance our digital platform and make improvements and customization.
Ease of use and speed of service for off premise, including an enhanced digital drive thru experience.
Curbside pickup enabled by Geo fencing technology.
And the introduction of QR.
Kiosk in hand technology for ordering and payment.
Three continue to test and refine the Pollo tropical brand proposition and unit design and investment in preparation for future Remodels as well as expansion in existing and new markets.
Regarding non dine in channel growth, we continued to drive year over year growth in delivery with comparable restaurant sales growth of 33% in the third quarter of 2021 versus the third quarter of 2020.
In addition, third quarter 2021 online comparable same store sales grew 42%.
Compared to 2020.
Our App store ratings for the App is currently four nine for I O S.
And $4 eight.
For Android out of five stars much improved from our prior App ratings ratings.
Ratings before the enhancements.
In addition, the average app user check for the third quarter of 2021 was approximately 18% higher than the non app user check average.
Over the third quarter, we continue to make investments.
To enhance our digital platform and improve the customer experience.
We completed a number of mobile app enhancements and made good progress on the design of our digital drive through platform.
Which we will be piloting in the fourth quarter.
With staffing levels more stable in the fourth quarter, we are starting curbside initially and 77 select fully staffed locations with our new Geo fencing technology.
In law launching contactless QR code usage to provide customers another alternative to drive thru and pilot locations.
We are very excited that we will be able to offer our guests such state of the art digital platforms.
Finally regarding our third strategic priority, we continue to work on improving the customer experience through better speed of service.
Order accuracy and labor efficiency.
Against that mission, we are redesigning our kitchens with assistance from Tpa and industrial engineering firm will be testing the redesign in a mock restaurant and during the fourth quarter.
Our remodel model program is also advancing with an additional six to eight units at Varian scope levels completed by yearend aimed at testing key restaurant design and operation platform enhancements.
Looking forward towards 2022, we earned the process of finalizing our commodity and food cost negotiations for next year.
We have not yet completed the negotiations in all major categories, but we expect that we will see higher food cost in 2022 compared to 2021.
We intend to offset any food cost increases with additional pricing action.
Regarding future uses of cash and investments for growth.
We will be taking a disciplined approach to using our cash for investments.
As we have in the past, we will prioritize spending on strategic growth initiatives that will continually enhance our brand image and drive operational effectiveness and efficiency.
But before we finalized capital plans for 2022.
We'll evaluate the results of our digital platform tests and Remodels being completed in Q4 of 2021.
We also intend to continue the approved share repurchasing program as a good use of cash that we believe improves returns for our shareholders.
As we mentioned last quarter, we are working towards reducing G&A to appropriate levels now that we have divested Taco cabana.
Third quarter 2021, continuing operations G&A was $11 2 million or 12, 6% of revenue and includes $2 $6 million of overhead costs, excluding stock based compensation that were previously allocated to Taco Cabana.
Our goal is to reduce G&A as a percentage of sales that is comparable to our peer group, which we believe.
Is eight 5% to 9% of Pollo tropical sales.
Made progress during the third quarter qualifying areas of potential savings and we'll be finalizing implementation plans over the remainder of the year and we are targeting 2022 to achieve the targeted Gilles G&A level on a run rate basis.
In summary, we are optimistic about continuing our positive sales momentum as we improve staffing levels.
And as we accelerate progress from our digital initiatives.
As we implement additional pricing action in the fourth quarter and continue our refined labor optimization efforts, we expect margins to continue the improvement that we've seen in October.
We expect that our continued efforts to drive an upgraded customer experience across all service channels and ongoing investment in expanding our digital platform will accelerate top line growth going forward.
Now Dirk will provide the financial update and closing comments.
Thank you rich and good afternoon, everyone I will start by reviewing our third quarter results and then provide you with an update on our outlook for the remainder of 2021.
One reporting note before I start due to the divestiture Taco cabanas results, excluding corporate overhead cost are presented as discontinued operations in our financial statements. The consolidated results ill be reviewing today will be focused on continuing operations and unfold Tropic out.
Overall, we were very pleased with our third quarter comparable same store sales performance of plus 13, 8% compared to the third quarter of 2020 and up <unk>, 9% versus the third quarter of 2019, our same store comp sales growth compared to 2019 also outpaced second quarter 2021 compare.
Same store sales versus 2019, we are very encouraged by the strong momentum we are seeing in markets that are more fully staffed as we continued to improve staffing levels. We are optimistic that our sales momentum will accelerate.
Third quarter 2019, same store sales were negatively impacted by hurricane Dorian and details on the weather related impact are noted in today's earnings release.
Third quarter improvement compared to 2020 resulted from a four 2% increase in comparable restaurant transactions and a nine 6% increase in the net impact of mix and pricing the increase in product channel mix and pricing versus 2020 was driven primarily by increases in delivery and drive through checkout.
Average and menu price increases of five 7%.
Total continuing operations revenues increased 13, 7% to $88 6 million in the third quarter of 2021 from $77 9 million in the third quarter of 2020, driven by the comparable restaurant sales increase at Pollo tropical.
Third quarter 2021, consolidated net income was $17 3 million or <unk> 66 per diluted share and included 78 per diluted share positive impact from discontinued operations, primarily from the gain on the sale of Taco Cabana.
The third quarter 2021 loss from continuing operations was $3 2 million or negative <unk> 12 cents per share per diluted share. This compares to consolidated net income in the third quarter of 2020 of $4 6 million or <unk> 18 per diluted share, including 10 cents per diluted share negative.
Impact primarily from impairment charges and closed restaurant rent charges offset by the favorable then favorable impact of 23 per share primarily from adjustments to the deferred tax valuation allowance the impact of federal tax rate changes and other income.
Third quarter 2020, net income from continuing operations was $4 4 million or <unk> 17 per diluted share.
On an adjusted basis third quarter 2021, consolidated net loss from continuing operations was $2 4 million or <unk> <unk> per diluted share compared to adjusted net income of $1 2 million or <unk> <unk> per diluted share in the third quarter of 2020.
Please see the non-GAAP reconciliation table in our earnings release for more details continuing operations consolidated adjusted EBITDA, a non-GAAP financial measure was $3 7 million and four 1% of revenue in 2021 compared to $8 2 million in 2020, and 10, 5% of revenue.
Turning to restaurant level results Pollo tropical restaurant level adjusted EBITDA margin are non-GAAP financial measure was 14, 8% and 12% in 2021 compared to 21, 2% in 2020 and 21% in 2019 restaurant level EBITDA margins declined during the <unk>.
Third quarter compared to 2020, primarily due to hourly wage rate increases short term hiring incentives and additional overtime and training ahead of planned pricing action to offset those costs.
<unk> 9 million of the labor cost increases for overtime and staffing related incentives are short term in nature, representing approximately 100 basis points as a percentage of sales.
We expect that the planned pricing action, we're taking combined with ongoing labor optimization will recover restaurant level EBITDA margins are non-GAAP financial measure to the range of 18% to 20% by the first half of 2021, barring unforeseen changes in our cost structure and operating environment.
As rich mentioned, we are already seeing improved margins in October preliminary results.
Combination of labor optimization and pricing action resulted in a 200 basis point reduction in restaurant wages as a percentage of sales on a run rate run rate basis in October compared to the third quarter of 2021 after adjusting for temporary hiring incentives and bonuses being offered on a short term basis to improve staffing.
Levels as a reminder, due to the impact of holidays in November and December our restaurant wages as a percentage of sales in those months. It has been historically 100 to 150 basis points above October levels.
To further improve margins, we intend to take additional pricing action in December and the range of 4% to 6% and we'll continue our labor optimization efforts as rich mentioned, our historic pricing in 2019, and 2020 was low in comparison to our competitors, which should allow us to take additional pricing while maintaining <unk>.
Our active value perception with our customers.
Regarding third quarter trends in key expense categories cost of sales as a percentage of restaurant sales in the third quarter of 2021 decreased to 37% compared to 31, 7% in 2020 due to price increases sales mix and lower promotions and discounts partially offset by a high.
Food and packaging costs.
Strong wages as a percentage of net sales increased from 23, 3% in the third quarter of 2020% to 28% in 2021, driven primarily by higher labor costs due to higher wage rates and overtime due in part to labor shortages, partially offset by the impact of lower medical costs and the impact of higher restaurant sales.
Yes.
Higher labor costs are driven primarily by hourly wage rate increases short term hiring incentives additional overtime and training and short term guaranteed operations leadership bonuses.
Approximately <unk> 9 million in the third quarter 2021 labor cost increases compared to 2020 included overtime and staffing related incentives that are short term in nature.
Other restaurant operating expenses as a percentage of restaurant sales increased in the third quarter compared to 2020, due primarily to the impact of higher repair and maintenance costs and higher delivery fee expense due to increased delivery channel sales, partially offset by the impact of higher restaurant sales on utilities costs rent in the third quarter inquiry.
<unk> compared to 2020, due primarily to the impact of sale leaseback transactions and lease renewals at higher rates.
Turning now to cash flow related comments in the third quarter, our cash balance decreased from the second quarter balance of $65 8 million to $52 million at the end of the third quarter. We utilize the proceeds from the sale the Taco Cabana sale to fully repay our outstanding term loan and utilized cash on hand to pay transaction costs for.
<unk> the Taco Cabana sale.
We also made a onetime payment of approximately $3 million for the employer portion of social security benefits from 2020.
That we were allowed to defer under the cares act as part of Covid relief.
One additional cash benefit we expect looking forward is the payment of the insurance claim proceeds from the cost associated with winter storm Uri. Our claim has been filed and we are waiting a response from our insurers.
Total capital expenditures expenditures for the third quarter of 2021 were $6 4 million, which included $3 million for Taco Cabana and $3 4 million for Pollo tropical.
3.0 million of the polo Tropicana capital expenditures were for maintenance with the remainder for Remodels technology investments and corporate development related expenses.
We resumed our stock repurchases during the third quarter of 2021 repurchasing a total of 338223 shares for $3 9 million.
I'll close with a few comments on our outlook for the remainder of 2021.
We expect the margin.
Compression, we saw in Q3 to be short term and our October preliminary results, we've already seen margin recovery and we expect to see ongoing margin improvement going forward driven by intensified labor optimization and additional pricing action.
In October we continued to make progress on increasing our staffing levels and are optimistic about continued topline momentum with October same store sales comps above 2019 levels.
Commodity food costs are expected to remain roughly stable for the remainder of 2021 based on current supply commitments, we have in place for calendar 2021 across key commodities the entire.
Restaurant segment is facing cost pressure challenges as we look toward 2022 as rich noted we have not yet completed the negotiations in all major categories, but we expect that we will see higher food costs in 2022, compared to 2021 and need to finalize key commodity negotiations before we communicate estimates of cost increases for 2012.
Two.
We intend to offset any food cost increases with additional pricing action and we are confident that we can recover margins without significant traffic risk given our low level of relative historical pricing action.
Regarding G&A our goal is to reduce G&A as a percentage of sales to what we believe is comparable to our peer group, which is eight 5% to 9% based on Pollo tropical sales as rich mentioned, we made progress during the third quarter qualifying idea as a potential savings and we will be finalizing implementation plans over the remainder of the year.
Here as part of the Taco Cabana divestiture, we continue to provide back office services to Taco Cabana through mid December and we are targeting 2022 to achieve to achieve the targeted G&A level on a run rate basis.
Finally, full year 2021 capital expenditures are expected to be in the range of $25 million to $30 million, including approximately $6 5 million related to Taco Cabana prior to the close of the sale.
As we look towards the balance of the year. We are focused on continuing efforts to be a preferred employer and accelerating our margin improvement above the third quarter of 2021. In addition, we will continue our ongoing efforts to drive an upgraded customer experience across all service channels further investing in our growing digital platform and <unk>.
Continuing to refine our brand proposition and new unit design features and remodel test to drive future growth.
You for listening and we will now open the call up for questions operator.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure that your mute function is turned off to let your signal to reach our equipment.
Once again that is star one if you'd like to ask a question. We will take our first question from James Rutherford from Stephens, Inc. Please go ahead.
Alright, thanks, very much and congratulations on the improvement you are seeing especially in regards to staffing and actually that's why I wanted to start with the question.
Maybe a bit of a clarification I was hoping you could reconcile the comment and I think it was.
Rich's prepared remarks that the company maybe it was on average was fully staffed in December.
But at the same time, you're still seeing a divergence in Cogs.
In the quarter, I think plus <unk> nine on a two year for the total company and then the ones that are fully staffed over by over 4%. So are there still some restaurants that are no longer police that like what is the percentage of restaurants that are fully and are still a little bit lacking on the staffing side.
Yeah. Thanks, James so the.
We are fully staffed and were fully staffed as of the end of the quarter in all major markets, except for Miami day.
And so the big the big spread that we're seeing in comp trends actually is balanced company compared to Miami Dade. So.
The positive comp trend that we that we referenced.
Plus four 3% versus 2019 and up $16 seven versus 2020 is referencing basically all major markets except for in Miami Dade, We are making progress in Miami Dade as rich mentioned, we have implemented additional.
Initiatives additional incentives to increase staffing levels.
And.
Those staffing levels or continue continue to improve so but we still have some more work to do in Miami Dade, it's not at an adequate level.
As we sit here today.
Okay. That's a helpful clarification.
Their COVID-19 of a numbers question what is the two year traffic growth in the quarter.
And how did that progress if even if it's just kind of qualitatively what I'm getting at is whether you saw any impact on traffic from the pricing action or competitive factors or rollover of stimulus. There's a lot of things happening in the market I'd love to know what would happen to traffic over the course of the quarter.
Yeah. So I mean, we don't have a two year traffic number broken down, but what we can tell you that basically.
We've seen continued traffic improvement across really all of the channels except for Diana.
And so dine in has continued to be.
Continued to be challenging we did see a slight increase in dine in traffic from Q2 to Q3, and our mix has increased slightly and dine in from Q2 to Q3.
But we're still not at the at the historic level as it relates to the mix of dine in traffic, which historically the counter sales were the dine in sit down sales were roughly 25% of total sales.
Okay.
And also Thats one margin question, there's a lot that you could ask on this but just want to sort of sum up with this overarching philosophy around margins. It sounds like you all are fairly confident in the ability to expand margins into next year.
And I'm curious with commodities being a wildcard and to a certain extent I guess labor also with certain restaurants still not fully staffed is the confidence because you are committed to pricing at whatever level is necessary to get to that 18% to 20% margin range or is it because you feel like you have enough visibility into the cost picture over the next.
Couple of quarters.
Yes, I mean, it's probably a little bit of both I mean, I think as we think about.
As we just think about the pricing action that we have taken and that we have planned.
That pricing action in aggregate, which is of course always subject to flow through assumptions.
Should more than be more than adequate to offset the labor cost increases on a run rate basis that we expect.
We expect over the next year from the wage rate increases that we just took.
So.
And we also as we said the fact that our historical pricing action.
Really now over the last three years has been well below the competitive set we feel like we can take pricing action and still maintain value perceptions.
Got it okay actually can I slip one more in for Patty issues. There on digital I just wanted to hear a little bit more about what the digital drive thru entails is what does that experience exactly like you know what.
The impact on the customer experience and then I'll turn it over to the queue. Thanks, so much.
Oh, Hi game, yes, the digital drive train.
Two part we have are on peak and our off peak.
Work stream beyond peak off peak or exchanges, we have this beautiful new digital menu board that we will have order confirmation will have a component for up selling and Thats. What comps then that will be our off peak off peak hours.
Between lunch and dinner and prior.
To that end.
Late night or on peak, which is where we really see those long lines at all of our restaurants the pod.
Pod person the mobile ordering devices that are fairly common now within the industry those with a heavy dry fruit and we.
We will have a micro site, which is with a QR code that is unique to each consumer so when they click on that micro site there.
Our cell phone becomes an order confirmation board. The purpose behind this is twofold is to make sure that all of our our guests are they may not be familiar with our entire menu or with our limited time offers can see that and also for accuracy folks are seeing exactly what their order.
Real time, and they could also make their payments on their cell phones as they are placing the order with the.
With our mobile ordering devices than the huge menu board actually become collateral for.
Acquisition, telling our brand story and for hiring purposes. So they become another way to tell our brand story.
Thanks for that very helpful.
Thanks James.
Thank you. The next question comes from Brian Vaccaro with Raymond James.
Thanks, and good evening I, just wanted to circle back on staffing levels and when you say adequate staffing levels. I'm. Just curious does that mean that levels are back to where they were pre COVID-19 back in 19 or is that versus some other target that that might be different versus 19, and then could you also just help quantify how much improvement you saw maybe.
July August versus maybe what Youre seeing more recently moving through October is there a way to quantify the degree of improvement you've seen.
Yes, sure Bryan so.
The targets for staffing have not changed.
We use the same kpis.
We.
We basically measure the.
The head count that we have on the staff compared to the optimal head count to two to optimize scheduling.
And our target is 80% or higher.
Just into 2019, yeah, and we are back at the 2019 levels. So we definitely eclipsed.
Wherever you're at before I guess, the staffing challenges started kind of around the end of the first quarter beginning of the second quarter.
And I'm sorry can you can you repeat the second part of the question.
Yeah. It was just the degree to which you saw improvements sort of where where you July and August if theres a way to quantify that.
From an average staffing level of percentage of stores, maybe that were meaningfully understaffed and kind of where that is today just to frame the level of improvement you've seen over the last three or four months.
Sure. So I mean in the second quarter, we were.
Total company overall, we are in the 70% range in terms of staffing, which then in the third quarter.
In total we sequentially improved month to months to 80% at the end of the third quarter and that could that improvement continued into the mid eighties.
Tober.
Alright very helpful.
Wanted to just clarify and thanks for the comments on on your October margin improvement you've seen just to make sure we're kind of framing things and on the same page. The order of magnitude would you be willing to share where store margins were in October even if preliminary.
Thank you.
No I mean not.
Couple of comments number one we were we.
We feel a lot more comfortable with.
Our improvement in wage rate total wage rate dollars as a percentage of sales just because October results are still preliminary.
But that that metric reduced by 200 basis points in.
In October on a run rate basis. So we we believe that we're kind of on our way toward the returning margins to the 18% 20% range.
The balance of the fourth quarter is a little bit noisy I'm sure as you. All can appreciate because we got holidays in November and December, which 10 tend to make those months a little bit higher from a labor.
As a percentage of revenue perspective, but we feel like our run rate is very much on a trajectory as we head into 2022 to get to the 18% to 20% range that we talked about.
Okay. That's helpful and I guess on commodities I just wanted to touch base there can.
Can you help us with where it was your commodity inflation in the third quarter and when you say roughly stable in the fourth quarter are you, saying that you expect your Cogs ratio to be similar to what you saw in the third quarter I think it was 37% something like that or are you talking about the inflation rate in the fourth quarter being similar to Q3.
Yeah.
No.
The Cogs Cogs or cost of sales as a percentage of revenue. So we expect to see stable cost of sales as a percentage of revenue.
Overall in the quarter that that does not include the price increases that we plan to take because that would that will be in December most likely it will be kind of in the back half of that period. So it's not going to have a material impact probably but.
And I mean, just in terms of overall <unk>.
<unk> trends this year I mean, we we.
We have seen and have reflected in our cost increases in packaging costs like most of the the competitive set so we've seen.
Increases I'd say packaging is probably the area, where we've had the highest increase we've had some moderate increases in poultry prices.
<unk>.
So, but overall, we expect the cost of sales relationship too.
Two sales to be stable in the fourth quarter compared to the third quarter.
Alright, that's great and then just the last one for me could you just elaborate on the progress that you've made in assessing the new unit prototypes and potentially accelerating growth at Pollo, maybe comment on what guardrails do you have in place on the level of investment you're willing to make here versus say more of a meaningful buyback program and.
What's your latest thinking on pursuing company owned unit growth versus maybe initiating a more meaningful franchise program to fuel that unit growth. Thank you.
Yeah, I'll take that one.
We again, we are still in the process of testing and testing out.
Mock restaurant environment to make sure that the the results that we got from the outside engineer.
Engineers are accurate and assuming they're accurate we have a an investment which I think we've said already that it's going to be approximately $1 seven ish million versus historically well over $2 million.
But more importantly, the kitchen lines will be set up differently as a result of the.
The time and motion studies that the engineers have done.
We know that we have significant improvement available to us by setting up the kitchen lines in the lines differently. The way our current business is today versus the way it was 2030 years ago.
So that's what we're going to do first and foremost we will then try that out in a restaurant, it's going to be here in probably Miami Dade Broward, it's going to be in their core market.
So we can be very close to it so we're going to take that and we're also going to take that.
What we've learned there and see how we can retrofit some of our existing restaurants. So example, if we can go from 90 to 120 cars at lunch per hour, it's significant growth within our core restaurants, we believe there's a significant opportunity to increase comp store growth.
And growth restaurant sales without even building new restaurants, but we are looking at that first and foremost and then we'll be looking at potential additional units again testing in different markets within Florida, because we have not yet.
Got to the point, where we're going to do.
Expand a significantly in the next year or two and we will be looking at going outside of Florida, but we're not ready at that stage right now.
And I think one of your other questions was around was around kind of uses of cash I mean, as we said in our prepared comments, we're taking a very disciplined approach.
Two two all of these investments that's why we're testing a number of remodels.
This year and we're evaluating what what design features are the most attractive which ones will drive sales, which ones drive traffic.
And we've we're then going to finalize our plans for 2022 based on those on those results and Brian We're taking a very disciplined approach we know how important the future of Pollo is.
When it comes to growth and we want to make sure that we take a disciplined approach based on facts and data tested before we start rolling out significantly within Florida or outside of Florida.
And then on the second question on the franchise.
We're starting to see a lot of movement on the licensing people coming to us.
On the licensing we just opened at hard rock stadium here, where the Dolphins play we will be opening up.
One in.
With the Miami heat play we've had several inquiries inquiries regarding airports in Florida as well as other transportation centers.
So we're going to do that first.
Other type of franchising your typical franchising will wait until we get the test results of the new prototype from a sales to investment margin and then we will be taking a look at those plants.
Alright, that's very helpful. Thank you.
Thanks, Brian.
Thank you we'll take our next question from Eddie Riley with Jeff Hutton.
Okay.
Hey, guys. Thanks for taking my question I was wondering about the 8% to 9% target on the G&A margin.
Do you expect this to come more from revenue growth or is there going to be an absolute reduction in juneau and G&A going forward.
Yes, there will be an absolute reduction I mean, we're now that we've divested Taco obviously there.
There are expenses that we can reduce and we can better optimize our overall resource level.
And as we said where we are.
Qualifying ideas right now these are.
The ideas are also by the way not they're pretty standard typical typical ideas for improving efficiency.
We just need to get through the TSA period.
It's completely quality and completely qualify the ideas before we start implementation.
Got it.
Then second question for me I was wondering if you've seen much growth in the form of.
People, joining our loyalty program and downloads and the oil app.
We haven't.
Done a full core press yet on the loyalty because frankly, we've got so many other things in the hopper that we're working on the loyalty will follow as most likely going to be a strategic initiative sometime in 2022, but we have enough right now on the <unk> acquisition.
Our improving we are increasing the.
The App, we said earlier about the check difference between the App user being 18% higher than the non app user. So our focus right now is in increasingly the acquisition of the App. The loyalty will follow probably sometime next year.
Got you got you.
And just on that.
Greater ticket size are you guys, taking a different approach on pricing.
Dine in versus other channels.
Would you add to some extent, yes. So we have been and will continue to take a different approach with the delivery channel. So we historically have price delivery at a premium.
The analytic work that we've done suggests that the sensitivity levels are much.
Lower on delivery customers than they are for non delivery and so we do charge a higher price for delivery like like our peer group and we continue to you know.
Test and evaluate that sensitivity level, so that we can really optimize it.
Okay, great. Thanks, guys.
Okay.
Thank you and at this time there are no additional questions in the queue that does conclude today's conference. We thank you all for your participation you may now disconnect.
Okay.
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