Fiesta Restaurant Group Inc (FRGI) Q4 2018 Earnings Conference Call Transcript

FRGI earnings call for the period ending December 30, 2018.

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Fiesta Restaurant Group Inc  (NASDAQ:FRGI)
Q4 2018 Earnings Conference Call
Feb. 25, 2019, 4:30 p.m. ET

Contents:

Prepared Remarks:

Operator

Good afternoon, and welcome to the Fiesta Restaurant Group Fourth Quarter 2018 Earnings Conference Call. Today's conference call is being recorded. At this time, all participants are in a listen-only mode. Following our presentation, we will conduct a question-and-answer session, instructions will be provided to you at that to queue up for a question. I would now like to turn the call over to Raphael Gross, Managing Director at ICR.

Raphael Gross -- Managing Director

Good afternoon, everyone. Fiesta Restaurant Group's fourth quarter 2018 earnings release was issued after the market closed today. If you have not already accessed it, it can be found on the Company's website, www.frgi.com, under the Investor Relations section.

Before we begin, I'd like to inform 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 strategies, budget, projected costs and plans and objectives of management for future operations. Actual outcomes and results may differ materially from what 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 can cause actual results to differ materially from those expressed or implied 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. Any 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 today are President and Chief Executive Officer, Rich Stockinger; Senior Vice President, Chief Operating Officer and Pollo Tropical Brand President, Danny Meisenheimer; and Chief Accounting Officer and Interim Financial -- Chief Financial Officer, Cheri Kinder.

And now, I will turn the call over to Rich.

Richard Stockinger -- President and Chief Executive Officer

Thank you, Raph. Our 2018 results were driven by the investments and initiatives we put in place as we implemented the Strategic Renewal Plan beginning in 2017. There is still much work to be done, but our foundation is now firmly in place and the team is energized by the strongly -- strong affinity for our brands and their long-term potential. As such, we will no longer speak of our ongoing efforts to build shareholder value as the Strategic Renewal Plan, although, all the tenants remain in place.

In December, we mark the conclusion of our plan with a number of initiatives, including the relaunch of Catering with dedicated resources, expanded loyalty programs, a new third-party delivery program and the completion of our comprehensive portfolio review that entailed closing our remaining nine Pollo Tropical restaurants in Atlanta, along with five underperforming Pollo Tropical restaurants in Florida and nine Taco Cabana restaurants in Texas.

Pollo Tropical had struggled in the Atlanta market for some time, but we had also held out hope that results would improve if it had time to experience the enhancements we had made as part of the plan. Unfortunately, Atlanta did not experienced the same positive momentum as our other markets, and there was no reasonable path forward for it.

With these actions behind us, we entered 2019 from a position of strength, characterized by quality operations, a healthier and more profitable restaurant base, improving guest metrics and programs in place to improve traffic and build margins.

This year, we will continue focusing on delivering a consistent distinctive guest experience, improving traffic trends, realizing margin expansion and building our fundamental sales growth platforms to create long-term value for our shareholders. In addition, later this year, we plan to develop and test the refined Pollo Tropical restaurant concept with broader mass appeal for potential future expansion.

Pollo Tropical recorded a quarterly comparable restaurant sales decline of 1.9% in the fourth quarter after three consecutive quarters of comparable restaurant sales growth in 2018. This decline derives from the very strong fourth quarter we've recorded in 2017 due to the recovery period after Hurricane Irma and the Pollo Tropical -- Pollo Tropical brand relaunch, which was supported by significantly higher advertising spending in late 2017.

Importantly, we had our highest monthly net promoter score or NPS in December at Pollo Tropical, led by our largest markets, Broward and Miami-Dade counties in South Florida. Our NPS score and trajectory give us confidence that we are improving the overall guest experience at our restaurants and turning more guests into promoters of our Pollo Tropical brand. In the first quarter of 2019 through February 17, Pollo Tropical restaurant sales decreased 3.7%.

Pollo Tropical comparable restaurant sales were approximately 370 basis points, worse than Black Box fast-casual industry peer comparable restaurant sales through February 10. Sales cannibalization from new restaurants on existing restaurants negatively impacted comparable sales during this timeframe by approximately 90 basis points. We experienced an improved trajectory -- trajectory of sales and transactions in February compared to January, and are closing the gap between our results and the Black Box industry results.

With that said, our traffic trends are clearly not where we believe they can and should be. And we're therefore taking further steps to address this head on concurrent with what we're doing in terms of catering, delivery and loyalty. Despite rising NPS scores, the feedback from guests is that they are not visiting us is often as they would like to in view of strong value messaging from both limited and full service brands. To address this perceived under competitiveness in our price value equation, we relaunched everyday value platforms this month and are beginning to see improved transactions and sales.

Our Pollo Time! offering consists of Weekday Value offers of $3.99 quarter chicken at lunch and $5.99 half chicken at dinner, along with the $12.99 original family meal Saturday and Sunday.

Taco Cabana is similarly launching its own everyday value platform called TC Time!. We think these platforms will go a long way in accentuating the quality of our offerings and the ability to enjoy our food at value price points.

Note that these Pollo Time! offers still have a favorable margin as we now have in place a very favorable chicken contract in 2019. We recently announced that we entered into an agreement with DoorDash, bringing them on board as our delivery partner.

For the fourth quarter, Pollo Tropical restaurant level adjusted EBITDA improved $3.1 million to $19.1 million, and as a percentage of restaurant sales, restaurant level adjusted EBITDA margins improved 330 basis points to 21% compared to the fourth quarter of 2017.

Turning to Taco Cabana, comparable restaurant sales grew by 5.1%, and we generated our ninth consecutive month of positive comparable restaurant sales growth at the brand in 2000 -- December 2018.

NPS improved sequentially through the quarter with significant improvement in our core market, San Antonio where we operate over 40 restaurants. We continue to believe we are attracting new and loyal guests that will lead to continued improving comparable restaurant transactions.

In the first quarter of 2019 through February 17, Taco Cabana comparable restaurant sales increased 1.8%. Taco Cabana comparable restaurant sales are about 240 basis points better than Black Box fast-casual industry peer comparable restaurant sales through February 10. We scaled back our patio program in early 2019 because of cold weather, which we believe had a negative impact on comparable sales and we're planning to expand it again as the weather improves.

Taco Cabana's financial trajectory steadily improved throughout the year as we continue to evolve the guest base through our strategic repositioning away from the quick service segment and deep discount promotions to higher quality menu offerings that represent everyday good value.

Taco Cabana restaurant level adjusted EBITDA improved $4 million to $8.9 million and as a percentage of restaurant sales, restaurant level adjusted EBITDA margins improved 480 basis points to 11.8%.

Restaurant level adjusted EBITDA margins improved 180 basis points sequentially from the third quarter of 2018.

Overall in the fourth quarter, we experienced revenue growth of 3.3% and consolidated adjusted EBITDA, a non-GAAP measure, as defined in our SEC filings of $15.8 million, an increase of 77% compared to the fourth quarter of 2017.

I also want to acknowledge the departure of Lynn Schweinfurth, our former CEO, who left -- CFO, who left Fiesta last month. We wish her all the best in her recent move to Denver. In the meantime, we have faith in Cheri Kinder, our long time Chief Accounting Officer and Interim CFO , along with our finance team, and leading the charge until we name a permanent CFO. You'll be hearing from Cheri shortly when she provides our financial review, but this search process is well under way.

I would also like to publicly welcome Lou DiPietro, who joined us in December as a General Counsel and Corporate Secretary from Panera Bread Company, where he served a similar role for 12 years. His background includes two decades of experience and expertise in areas, corporate governance, SEC rules and regulations, contract negotiations mergers acquisitions, dispositions and restaurant refranchising. I am confident Lou will serve Fiesta as well as we set our course for future growth and build long-term shareholder value.

With that, let me turn the call over to Danny for a more detailed update on Pollo initiatives. Thereafter, I will provide an overview of Taco initiatives before Cheri goes through our financial results.

Danny K. Meisenheimer -- Senior Vice President, Chief Operating Officer

Thank you, Rich. Since the onset of our planned implementation, our dedicated team has made significant improvements to the brand experience. We are now ready to leverage our accomplishments in 2019 to deliver results as we also plan for the long term.

During the fourth quarter, we laid the foundation for several key growth platforms. First, we implemented our new My Pollo, digital loyalty platform in December. This app allows guests to find a location, order online, manage their points and redemptions and upload coupons, among other things.

We are now actively promoting the program using digital ads, social media, eClub mailings, in-restaurant POP and sonnets (ph) local store marketing events. We believe My Pollo will help increase frequency and build and return -- and retain brand affinity. Also, for those, who choose not to download the app, we are continuing to foster our eClub (ph) with promotional offers consistent with our loyalty program, although E-club members will not be able to accumulate points.

We've also formed a dedicated team to oversee our catering program, including both operations and sales and we are beginning to build our book of business. We rebranded our catering effort under catering by Pollo Tropical and have refined the menu. We will further evolve our catering platform in 2019 to be even more competitive in the marketplace and to broaden the offering to appeal to different occasions and party sizes.

We are also investing in 2019 in equipment to support this line of business with dedicated equipment for our catering hub units, the introduction of those Bill's Kitchen (ph) Miami-Dade and new vehicles.

In the fourth quarter, we promoted build your own TropiChops and family meals, and in addition, we celebrated our 30th anniversary with local store restaurant events and media outreach. As Rich noted earlier, we have an arrangement with DoorDash to serve as our exclusive provider of delivery services. Delivery has now been fully rolled out in all of our stores. We can see the momentum building, and we are excited as to the potential positive impact on our business.

Our new chicken contracts kicked in during the fourth quarter and we will be in place and will be in place throughout 2018. This new contract will help us realize approximately $5 million to $6 million in cost savings for 2019, of which, nearly all will benefit Pollo. Importantly, we continue to dictate the breed, feed and size of our chickens to ensure continued high quality.

Turning to 2019, we are focused on building on our existing -- on our existing strategic priorities including quality operations, a more effective staffing model has been put in place and equipment will be added to certain restaurants to support our growing crispy chicken platform and new product pipeline. We are continuing to roll out more portable POS tablets, now with the capability of processing secure payments. We believe this will have a meaningful impact to speed of service in our drive thrus. We will also begin testing kiosks in the first quarter.

As Rich mentioned earlier, we are not simply waiting to see a sales lift in the new delivery catering loyalty platforms and anticipate that our Pollo Time! offers will address the perceived (ph) price value opportunity every day. We will resume our restaurant remodeling in 2019 with 10 to 13 restaurants. Our intention is to upgrade the facilities to better match the quality of the food. We expect to invest about $3 million to remodel these restaurants.

Our team is passionate about the state of the brand and the initiatives under way in 2019. We believe we can build frequency and reach through our digital platforms, especially our new loyalty program. 2019 promotional calendar includes compelling product news supported by a balanced marketing approach. Growing catering and delivery sales channels for additional significant opportunities for profitable growth. Focusing on high quality execution should lead to improved speed of service.

With that, I'll now turn the call back over to Rich.

Richard Stockinger -- President and Chief Executive Officer

Thanks, Danny. Over the last two years, we have made material changes For the Taco Cabana brand experience. We believe this repositioning of the brand will deliver sustainable sales and has improved our gross margin per transaction.

In 2018, we experienced consistent improvement in sales and traffic trends. The fourth quarter NPS trended positively and margins are beginning to improve, more effective cost management, sales growth and the closure of the unprofitable restaurants.

During the fourth quarter, our quesadilla and shareables promotions included new and limited time product news. In October, we promoted a new Southwest investable quesadilla along with our entire quesadilla product line. In November-December, we featured our new Shareables category, which includes Kickin' Nachos, Kickin' Nachos potato skins and our Trio Sampler. Also during the fall, we rolled out our new Chicken Tortilla Soup, these promotions were supported by broadcast, outdoor, digital and social media.

If you recall in September, we rolled out our new TC loyalty program systemwide, as well as our updated online ordering platform and mobile app. Like Pollo Tropical for those, that do not want the download or use the app, we continue to promote our email club offers that are consistent with the loyalty program. During the fourth quarter, we added an average of approximately 11,000 loyalty members per month and have consistently experienced a higher average check to loyalty members compared to the system.

We are also excited by the opportunity to target our marketing efforts to individual loyalty members and to accumulate and analyze data, which includes the detail purchasing history of each member. Also like Pollo, we are planning to test in restaurant self order kiosks at Taco Cabana in 2019. And in the process of adding upgraded POS tablets at our Taco Cabana restaurants to securely process payments, increased sales through speed of service.

We will shortly begin rolling out our delivery with DoorDash, and we continue making progress, implementing the infrastructure of our catering program. We are planning to remodel 10 Taco Cabana restaurants in 2019 and expect to invest about $3 million to remodel these restaurants. Improving our restaurant models through food and labor cost management without negatively impacting the guest experience is essential and an ongoing focus and priority of the brand.

We are testing revised operating hours and are continuing to refine the way we manage food and labor. Updating our cooking guides to ensure consistent high-quality products are being prepared throughout the day, while reducing waste and optimizing staffing. In addition, we are increasing the use of shift leaders to promote leadership development with the added benefit of reducing costs. Staffing open positions continues to be a challenge at both brands, we are addressing the challenge by investing in resources to improve recruiting, training and in employee engagement and retention. We continue to be deeply committed to contributing positively to the communities, where our restaurants are located, some of our related initiatives include pursuing more earth-friendly serving and packaging materials, recruiting and supporting military veterans and providing hot meals to first responders and residents in need, assisting employees, who have suffered losses or hardships through our non-profit Fiesta Family Foundation and providing donations to and voluntary at worthwhile organization.

In October, Breast Cancer Awareness Month, we are proud to have raised over $130,000 for the Susan G. Komen Foundation by donating $1 for every piece of pie sold at Pollo Tropical and $1 for every loaded cake (ph) that's sold at Taco Cabana. We have established -- accomplished a lot over the past two years and we are optimistic about the future.

We remain intensely focused on quality execution, increased transactions, margin expansion and long-term sustainable growth.

With that, let me turn the call over to Cheri to go through our financials in greater detail.

Cheri Kinder -- Chief Accounting Officer and Interim Chief Financial Officer

Thank you, Rich. Good afternoon. Total revenues increased 3.3% from the prior year period to $167.6 million, due primarily to comparable restaurant sales growth at Taco Cabana and new restaurants. Comparable restaurant sales at Pollo Tropical decreased 1.9% compared to a 0.1% decrease in the fourth quarter last year. This year's decrease consisted of the 6.3% decrease in comparable restaurant transactions and a 4.4% increase in average check, inclusive of 4.3% in pricing.

Sales cannibalization from new restaurants and existing restaurants negatively impacted comparable restaurant sales by approximately 60 basis points. Last year, Pollo Tropical recovered more quickly than other restaurant competitors in the market after Hurricane Irma. In addition, we spent considerably more on broadcast media in the fourth quarter of 2017 to rebuild momentum during the relaunch.

More specifically, we spent $1.9 million more in advertising in the fourth quarter of 2017 compared to the fourth quarter of 2018. We believe this challenging comparison negatively impacted our comparable restaurant transactions in the fourth quarter of 2018.

The Pollo Tropical restaurant level adjusted EBITDA, a non-GAAP measure, as defined in our SEC filings, increased by $3.1 million, and as a percentage of restaurant sales, improved 330 basis points compared to the prior year period.

Fourth quarter of 2017 saw particularly high spend on advertising and repair and maintenance due to the Strategic Renewal Plan and the associated relaunch. As such, these increases were primarily driven by lower advertising expenses and lower repair and maintenance expenses. These increases were also driven by lower wages and related expenses and cost of sales as a percentage of restaurant sales, partially offset by higher real estate taxes in the fourth quarter of 2018.

As we mentioned last quarter, new contracts were recently put in place that reduced our cost of chicken during a portion of the fourth quarter. This and higher menu prices, partially offset by menu offering improvements related to the Plan, drove cost of sales as a percentage of restaurant sales almost 90 basis points lower in the fourth quarter of 2018 compared to the prior year period. Comparable restaurant sales at Taco Cabana, increased 5.1% compared to 7.4% decrease in the fourth quarter last year.

This year's gain consisted of a 9.6% increase in average check, inclusive of 6.2% in pricing and positive sales mix associated with menu items and promotions with higher prices and a 4.5% decrease in comparable restaurant transactions.

At Taco Cabana, restaurant level adjusted EBITDA, a non-GAAP measure, as defined in our SEC filings, increased $4 million and as a percentage of restaurant sales improved 480 basis points compared to the prior year period. Similar to Pollo, Taco Cabana saw higher spend on advertising and repair and maintenance costs in the fourth quarter of 2017 related to the Plan.

Restaurant level adjusted EBITDA margins are positively impacted by lower advertising expenses and lower repair and maintenance expenses, as well as the benefit of sales leverage on fixed costs and lower medical benefit costs and cost of sales as a percentage of sales. These were partially offset by higher incentive bonus costs and higher real estate taxes in the fourth quarter of 2018.

G&A increased $0.6 million to $13.5 million, due primarily to severance and settlement costs, system implementation, project advisory and consulting costs and investments and resources to build our off-premise business, partially offset by lower incentive-based compensation in the fourth quarter of 2018.

The year-over-year comparison was also negatively impacted by favorable adjustments to board and shareholder matter costs in the fourth quarter of 2017.

During the quarter, consolidated adjusted EBITDA, a non-GAAP measure defined in our SEC filings, increased $6.9 million to $15.8 million. In the fourth quarter, we recognized impairment charges of $12.9 million and lease charges net of recoveries of $1.7 million. These are primarily related to 14 Pollo Tropical restaurants and nine Taco Cabana restaurants that closed in December 2018, nine of which were previously impaired. They were also related to adjustments to estimates of future lease costs for certain previously closed restaurants as well as impairment charges for four underperforming Pollo Tropical and Taco Cabana restaurants that we continue to operate.

For the full year, the 14 closed Pollo Tropical restaurants contributed approximately $15.8 million in restaurant sales and approximately $5.2 million in restaurant level pre-tax operating losses including $2.2 million in depreciation expense. The nine closed Taco Cabana restaurants contributed $9.5 million in restaurant sales and $1.7 million in restaurant level pre-tax operating losses including $0.7 million in depreciation expense.

2018 Capital expenditures totaled $57.9 million, including $27.5 million for restaurant capital maintenance expenditures, including deferred and ongoing maintenance and new equipment for new menu platforms.

$21.4 million for new restaurants and $8.4 million in technology and other corporate project expenditures, including online ordering, loyalty programs, data warehouse development and planned hardware upgrades.

As of December 30th, 2018, we were in compliance with all covenants under our senior credit facility. After reserving $4 million for letters of credit issued under the credit facilities, $68 million were available for borrowing.

Turning to 2019, we currently plan to open three restaurants at each brand and capital expenditures are expected to be $45 million to $55 million as we laid out in our press release. In addition to new restaurant development and ongoing capital maintenance, we will invest and remodeling 10 to 13 restaurants at each brand, upgrade our facilities, including adding equipment to support new menu platforms and energy efficiency initiatives and catering equipment. Technology projects include rolling out portable POS tablets with the capability to accept secure payments, testing self service kiosk, upgrading kitchen video system and other planned hardware upgrade.

Thank you. We will now open the line for questions.


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Questions and Answers:

Operator

At this time, we will be conducting a question-and-answer session. (Operator Instructions) Our first question comes from the line of Will Slabaugh with Stephens. Please proceed with your question.

Cheri Kinder -- Chief Accounting Officer and Interim Chief Financial Officer

Yeah, thanks guys and sorry for the background noise. First, a question on Pollo, you've shown some nice improvement there on the top line, that seems to have -- thinking of a bit of a pause with the consumer. It'd be helpful, if you wouldn't mind sharing any new sort of cadence or what you sort of saw during the quarter and then into the quarter-to-date period to the extent that you're willing? And then what happened, how would you sort of characterize the quarter itself at Pollo more broadly? And then what are you most positive of those initiatives that you described going on at Pollo, what are you most positive about getting those comps going back to direction that you'd like?

Richard Stockinger -- President and Chief Executive Officer

Hi, Will. It's Rich, I'll start that. In the fourth quarter, we were going up against a very strong quarter the year before, we were able to bounce back better than a lot of our competitors and Black Box et cetera after the big Hurricane. So -- and as well as we spent a significant amount of advertising dollars in the fourth quarter that helped us get to bounce that back as quickly as we can, because of the damage that happened because of Irma.

In January of this year, we should not have pulled away from the Pollo Time!, which we did, we put out the pinchos. The pinchos had done in the past for the brand was to drive transactions, and clearly, that did not work, we figured that out in the first several weeks. We're able to get switch off to the Pollo Time! program and we just could not overcome the weakness that we had the first several -- first three weeks, four weeks of -- the first three weeks of January.

It is now paying off, we've got the commercial going, which reintroduces Pollo Time! And then especially been successful in driving increased traffic from where we were trending and transactions in our Miami-Dade market as well as in Broward. Danny?

Danny K. Meisenheimer -- Senior Vice President, Chief Operating Officer

Yeah, just to add a little bit to what Rich just said, the opportunity in terms of recent weeks is that we now have delivery in all of our stores as we mentioned in the press release that is effective with DoorDash in the new partnership. The catering and the opportunities with off-premise consumption are truly just coming online as the new sales agents are going into markets throughout the system and we're seeing some really nice results from those efforts so far.

And then the addition of the loyalty program, which was really reliant on bringing on new management systems that have now become fully operational. At Pollo, we have over 75,000 new members on the loyalty app and over 0.5 million on the email club. And Taco has nice results with I believe 70,000 members on their eClub and over 280,000 at email. So these new initiatives are not coming along behind the price value message and then the add-on sales opportunities we have in the stores, whether the pinchos, new soups, lemonades, those products of that nature.

Will Slabaugh -- Stephens -- Analyst

Got it. Thank you for that color. One broader question if I could, you guys have done a good job in the past couple of years of obviously turning both these brands around and getting things going in mostly the right direction. And so, I'm curious as you see the success happen and you get this -- your plan sort of under way and more or less kind of completed, I guess, as we get toward the end of this year or into next year, can we talk more about and sort of endgame as you think about this. If there is one, should we think about this as -- is there a potential for after we get these brands both going exactly sort of how we want them to go? Is there a potential for refranchising the business? Is there a potential for other strategic alternatives? Or should we be thinking about this a little bit different way? I just wasn't sure how we should think about "an endgame," if in fact there's one here?

Danny K. Meisenheimer -- Senior Vice President, Chief Operating Officer

Well, I can only talk about what the management team is to address and that's who we are. Right now, I still think there's plenty of room in terms of increasing the unit level, average unit volume, again, we're going up against our competitors that have had these programs in place for a significant amount of time and that now includes loyalty, which will drive transactions, it includes the catering program, which not only drives the top line but it drives the bottom line. And with delivery, we just started and we literally just started at Taco where we didn't ever had delivery before and it's already starting to show positive results from a sales perspective.

Our margins, we need -- we have, we've worked hard to get these margins up to -- I would call an industry-leading margin at Pollo, and Taco, we've got more room to do. So right now, it's going to be within the four walls. We've got limited growth right now organically and get these units to where we should be. After we do that, it's going to be looking at the growth, both organically and through franchise and licensing.

I think the shareholder value, which is significant going forward, if we just execute exactly what the two brands can execute and then down the road, I just -- my goal right now is just to get these brands into a position where we can grow this and anything further than that, we have not addressed.

Will Slabaugh -- Stephens -- Analyst

Understood. Thank you, guys.

Richard Stockinger -- President and Chief Executive Officer

Thanks, Will.

Operator

(Operator Instructions) Our next question comes from the line of Joshua Long with Piper Jaffray. Please proceed with your question.

Joshua Long -- Piper Jaffray -- Analyst

Great. Thanks for taking the question. In terms of thinking about some of the value offerings that you've shifted back to in order to drive some of the traffic, are those similar in line with what you've done in the past, have you had to adjust those or maybe sweeten deal a little bit to cut through some of that noise that we've seen here in the -- from some of your other peers in the industry? How are you thinking about that in terms of capturing the mind share from consumers?

Richard Stockinger -- President and Chief Executive Officer

Well, from a Pollo standpoint -- from the Pollo standpoint, we've done in the past last year, the $3.99 quarter chicken rice and beans for lunch, the $5.99 have chicken rice and beans for lunch, at dinner weekdays, and then on weekends, we did the $12.99 original family mill with rice and beans. I will be honest with you it's driving it now just as much as it drove it last year. So we will keep that program going, we will look at it carefully, especially outside of the core markets where we may add or replace certain things, but that is in our core that is our meat and potatoes. It's right down the center of the lane, and our guests are responding to it, and with the chicken contract that we have this year, the gross profit -- the gross margin is still very favorable to us.

And at TC, we're going to go start with some duos, we have $1.99 special two potato and egg tacos everyday all time, two shredded chicken tacos for $2.99, 2 gram beef tacos for $3.99, and a dozen bean and cheese tacos for $9.99. Trying again, we believe we have a great price value all the time. But we do believe based on the current environment, both with the quick service, the fast-casual, as well as the casual dining segment that we need to put this out there to get the transactions back going in the right direction.

Joshua Long -- Piper Jaffray -- Analyst

And maybe a follow up on that point is if the actual offerings or platforms are working and don't necessarily need to meaningfully change. Is there a number of impressions or maybe $1 spent in terms of advertising that might need to tick up to cut through some of that noise? Or do you -- should we think about it more as just having to really stick to your guns and -- in order to netting or how gross can say that in terms of just keeping that messaging out there to your top of mind with your consumer.

Richard Stockinger -- President and Chief Executive Officer

We're going to stick to our guns but we're going to spend maybe a slightly a little less than last year because it's really the renewal program and starting that off, but we're going after anything from digital, social, TV other forms of media. And I'm really looking forward to the rollout of the loyalty program, the catering programs and both because we deliver the products that the market wants, it's what the customer wants. So real excited and again, looking forward to the results of the delivery and tracking that closely.

Joshua Long -- Piper Jaffray -- Analyst

Great. Thanks. And then the last one from me. In terms of the remodels on the Pollo Tropical side, can you talk through maybe some of the big pieces there or what you're trying to accomplish, things you're going to touch, things that we might notice as we go back in -- or the consumer might notice as they go back in to help drive some of that traffic in connection with the brands?

Richard Stockinger -- President and Chief Executive Officer

We're identifying those restaurants that are the oldest, the ones that need the refreshing in the front of the house. We've done a lot of work in the back of the house with the deferred maintenance, so the guests really didn't see that because we want to get started and restart a remodel program where you're going to start seeing some of that impact on the top line.

Joshua Long -- Piper Jaffray -- Analyst

All right. Thank you.

Richard Stockinger -- President and Chief Executive Officer

Thanks, Joshua.

Operator

Our next question comes from the line of Brian Vaccaro with Raymond James. Please proceed with your question.

Brian Vaccaro -- Raymond James -- Analyst

Thanks, and good evening. I just wanted to circle back on a couple on the margin outlook. And I just want to clarify, you said you expect the ad spend to be down a little bit in '19 versus '18 is that consistent at both brands and are you speaking as a percentage of sales or total dollars, sales is coming down because of the closure. So just wanted to be make sure we're on the same page on the ad spend comment?

Richard Stockinger -- President and Chief Executive Officer

Sure, the ad spend comment is both brands, I think last year we ended about 3.5% and we're going to be slightly lower than that this year. Again, last year was the big push that we had with the launch of both brands.

Brian Vaccaro -- Raymond James -- Analyst

Yeah, OK, perfect. And really appreciate the color on the new chicken contracts. Can you speak to any changes in the spec that fall within that new contract? And then also as it relates to the commodity inflation outlook for each brand, could you comment on those brands just the aggregate commodity inflation you expect?

Richard Stockinger -- President and Chief Executive Officer

Sure. In terms of the chicken we were lucky in getting the pricing in November, as you remember the glut was in the market. So we have sometimes it's better to be lucky than good. Hopefully we're both on that one. In terms of the other commodities, chicken is Pollo, I mean, it's basically chicken and produce are the big items, so we're fine there. And Taco, we've seen a little bump up we've seen a bump up in steak but we're working on, so we'll see a slight increase in the food costs but not significant. We've taken the pricing to cover that.

Brian Vaccaro -- Raymond James -- Analyst

Okay, thanks. And then just last one sort of that same angle, thinking about labor cost inflation at each brand I know there are some specific initiatives, especially in Taco Cabana from a labor scheduling perspective, but can you help us with how we should think about your labor cost outlook for each brand? Thank you.

Richard Stockinger -- President and Chief Executive Officer

I think the labor costs -- again at Taco we kind of talk about a little with the shift leaders that -- and with the improvements that have been done with the management team. I do believe we're going to see it slightly favorable than last year, so it will be an improvement. And at Pollo, a same thing, we've rebound the schedules, demanding guys regarding the frying program non-frying program, we're going to see a slight uptick but it would not be significant.

Brian Vaccaro -- Raymond James -- Analyst

Great. Appreciate it.

Richard Stockinger -- President and Chief Executive Officer

Thanks, Brian.

Operator

Ladies and gentlemen, we have reached fan of the question and answer session. And this does conclude today's conference. You may disconnect your lines at this time . Thank you for your participation.

Duration: 40 minutes

Call participants:

Raphael Gross -- Managing Director

Richard Stockinger -- President and Chief Executive Officer

Danny K. Meisenheimer -- Senior Vice President, Chief Operating Officer

Cheri Kinder -- Chief Accounting Officer and Interim Chief Financial Officer

Will Slabaugh -- Stephens -- Analyst

Joshua Long -- Piper Jaffray -- Analyst

Brian Vaccaro -- Raymond James -- Analyst

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