Why Fiesta Restaurant Shares Dropped

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Fiesta Restaurant Group (NASDAQ: FRGI  ) were missing out on the party today, falling as much as 13% after reporting earnings last night.

So what: The parent of Pollo Tropical and Taco Cabana restaurants said revenues were up 5.9% in the quarter to $133.6 million, slightly ahead of estimates, while net income also topped the experts' view coming in at $0.20 vs. expectations of $0.17. Comparable sales were up modestly at the chain, gaining 3.8% at Pollo Tropical and 2% at Taco Cabana. However, traffic was essentially flat, indicating that the same-store sales gains were from price increases, a less sustainable method than adding new customers. CEO Tim Taft cited "macroeconomic headwinds" in the quarter, but called the performance solid in spite of that.

Now what: Shares recovered to finish down just 3.6%, but despite the earnings beat, investors seem to be expecting more from Fiesta, especially with a forward P/E of more tha 30. Flat traffic growth is definitely a negative sign as high-priced stocks will need to increase their customer base to pay off down the line for investors. Fiesta did not issue guidance for the rest of the year, but investors should be hoping for stronger organic growth indicators in coming quarters.

Stay on track with Fiesta Restaurant Group. Add the company to your Watchlist by clicking right here.

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