Why Shares of Fiesta Restaurant Group Inc. Slumped Today

By Markets Fool.com

Image source: Fiesta Restaurant Group.

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What: Shares of restaurant operator Fiesta Restaurant Group tumbled on Tuesday following the company's first-quarter earnings report. At noon, the stock was down about 17.5%.

So what: Fiesta reported quarterly revenue of $176.7 million, up 7.8% year over year and about $1.4 million higher than analysts were expecting. Despite the revenue beat, comparable sales were flat at the company's larger Pollo Tropical brand. The Taco Cabana brand boosted comparable sales by 1.7%, but traffic declined by 0.8%.

Non-GAAP EPS came in at $0.37, down from $0.39 in the prior-year period and $0.03 below the average analyst estimate. Higher wage costs as a percentage of revenue and the company's push into new markets were two reasons put forward for the earnings shortfall.

Fiesta plans to open a total of 30 to 34 Pollo Tropical restaurants and up to four Taco Cabana restaurants this year. At the end of the first quarter, the company operated 161 Pollo Tropical and 162 Taco Cabana locations, in addition to 42 total franchised locations. Comparable sales are expected to grow in the low single digits for both brands this year.

Now what: Fiesta is aggressively expanding its Pollo Tropical brand, but flat sales at existing locations are giving investors pause. Fiesta CEO Tim Taft tried to put the results into perspective. "During the first quarter, Pollo Tropical matched a record comparable restaurant sales level from the prior year despite the approximate 2% negative impact of planned cannibalization and the general slowdown in restaurant sales industrywide."

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Investors didn't buy that excuse on Tuesday, pushing shares of Fiesta lower and carving out a new 52-week low in the process.

The article Why Shares of Fiesta Restaurant Group Inc. Slumped Today originally appeared on Fool.com.

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.