Forget Chipotle Mexican Grill, Fiesta Restaurant Group Was the Real Winner This Year

The real winner this year among the restaurant chains rooted in Latin flavors was not Chipotle Mexican Grill (NYSE: CMG  )  but Fiesta Restaurant Group (NASDAQ: FRGI  ) . Shares of Fiesta Restaurant Group have rallied more than 240% this year versus the 92% rise in Chipotle shares.

The owner of Pollo Tropical and Taco Cabana has been a hit with both diners and investors as sales and profits have grown. Readers of my columns know that I'm a fan, and I first discussed the restaurant chain earlier this year in "It's a Non-Stop Fiesta Owning This Company." The question now is, what's next?

For those not familiar
Fiesta Restaurant Group was spun off from Carrols Restaurant Group (NASDAQ: TAST  ) in 2012. Carrols is the largest Burger King Worldwide franchisee and operates 564 restaurants. Each Carrols shareholder received one share of Fiesta for every share of Carrols that they owned. With Carrols trading at the same price as it was this time last year, let's hope no Carrols shareholder decided to dump their Fiesta stock and keep Carrols.

Pollo Tropical was started in Miami with a focus on its citrus-marinated grilled chicken. Like Chipotle, Pollo Tropical's chickens are free of hormones, trans-fats, and are never frozen. Its menu also includes its signature TropiChops, which are similar to Chipotle's burrito bowls, mojo pork, ribs, fajitas, soups, salads, sandwiches, and wraps, including a chicken quesadilla wrap.

Taco Cabana offers fresh, quality, made-from-scratch Mexican food at affordable prices. On its menus are several items less than $5 including hand-rolled flautas, chicken fajita bowls and burritos, steak street tacos, and many more. Customers can also stop in during happy hour everyday from 4 p.m. to 7 p.m. and get their choice of a margarita or domestic beer and bean and cheese nachos.

Plenty of room to grow
Fiesta's Pollo Tropical and Taco Cabana brands are located in only six states in the U.S. At the end of September, the company owned and operated 100 Pollo Tropical restaurants and 164 Taco Cabana restaurants. Fiesta also franchised 38 Pollo Tropical locations in the U.S. and internationally. So as you can see, there's plenty of room to grow both brands, and that's one of the key things pushing the share price higher.

Latest results speak volumes
In the third quarter, sales at Pollo Tropical increased 15.1%. Comparable-restaurant sales rose 6.5% This was on the back of a 3.2% increase in guest traffic and 3.3% increase in the average check. These results are higher than the 6.2% increase in comparable-restaurant sales recorded at Chipotle.

Taco Cabana did not fare as well, but the results were positive nonetheless. Taco Cabana restaurant sales increased 5.4%. Comparable-restaurant sales increased 1.8%, which was led by a 1.9% increase in average check and offset the 0.1% decline in guest traffic.

Strong expectations for next year
Heading into 2014, Fiesta expects comparable-restaurant sales to grow 3% to 5% at Pollo Tropical and 1.5% to 3.5% at Taco Cabana. The plan is to open 20 to 22 new company-owned Pollo Tropical locations and two-to-four new Taco Cabana restaurants.

One area where I see Fiesta benefiting from is expanding Taco Cabana and Pollo Tropical into each other's turf. Taco Cabana's locations are primarily in Texas, while Pollo Tropical is in Florida. By expanding onto each other's territories, the two chains can share media buys and source ingredients. I think both moves will go a long way to keep growing sales and increase the bottom line as well.

What about the outlook for shares?
In looking at shares of Fiesta Restaurant Group, we see that shares are trading at 43 times next year's earnings.This is right inline with Chipotle, which is trading at 40 times next year's earnings. The one advantage that Chipotle has over Fiesta is its balance sheet.

Chipotle has more than $532 million in cash and no debt. Fiesta had to resort to the public markets and just issued 2.7 million shares at $46 for gross proceeds of approximately $124 million to pay down debt and finance a continued expansion.

Foolish assessment
I still see continued growth for shares in both Fiesta Restaurant Group and Chipotle. Chipotle has been a favorite of mine as well in "Will New Concepts From Chipotle and Buffalo Wild Wings Take Off?" Overall, I like the food from all three chains, and I see plenty of expansion ahead for Fiesta and Chipotle. While Fiesta was the clear winner in 2013, I think both have plenty of potential as we head into 2014.

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