Fiesta Restaurant Group Inc (FRGI) Q4 2020 Earnings Call Transcript

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Fiesta Restaurant Group Inc (FRGI)
Q4 2020 Earnings Call
Mar 4, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for standing by. This is the conference operator. Welcome to Fiesta Restaurant Group Fourth Quarter 2020 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Raphael Gross, Managing Director at ICR. Please go ahead, sir.

Raphael Gross -- Managing Director at ICR

Thank you. Fiesta Restaurant Group's fourth quarter 2020 earnings release was issued after the market close today. If you have not already accessed it, it could 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 strategy, 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 could 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 with me today are President and Chief Executive Officer, Rich Stockinger; and Chief Financial Officer, Dirk Montgomery.

And now, I'd like to turn the call over to Rich.

Richard Stockinger -- Chief Executive Officer and President

Thank you, Raph. And I'd first like to thank all of the investors and other participants on the call today for their continued support. I'll be covering three topics today, a recap of the progress we made in the fourth quarter on key 2020 priorities; the status of sales-driving initiatives for each brand; and an overview of our key priorities for 2021. Dirk will then provide a financial update.

As we closed 2020, we are pleased with the strong progress we made against our priorities identified in March when the pandemic began. We continue to place the safety of our guests and customers first. We maximize liquidity through increased restaurant EBITDA margins, working capital efficiency and property sales. And we made important investments in our digital platform that we expect will result in strong sales growth in 2021. As a result of COVID, we have had to concentrate on other sales channels to offset the sales loss from dining room closures, representing approximately 25% of our pre-COVID sales. In the fourth quarter, both brands generated drive-thru comparable restaurant sales growth of at least 24% versus last year, and we more than tripled our delivery comparable restaurant sales compared to the fourth quarter of 2019.

From a margin perspective, we continued our momentum from the third quarter, improving adjusted EBITDA margins at both brands compared to the fourth quarter of 2019. Our margin improvement was driven by continued improvements in food cost reductions and labor efficiencies. Net income was $29 million and pre-tax income was $1.5 million for the quarter. Consolidated adjusted EBITDA, a non-GAAP measure, increased 42% versus last year to $14.6 million. After excluding the extra week in the 2020 fiscal year, estimated consolidated adjusted EBITDA grew 13.4% compared to 2019. The impact of the extra week in fiscal 2020 unconsolidated adjusted EBITDA is estimated at $2.9 million.

Our overall financial position improved from the start of the pandemic, with the reduction in total debt from $148.4 million as of March 18, 2020 at the start of the pandemic to $73.3 million as of January 3, 2021. Net debt, a non-GAAP financial measure, was reduced from $74.4 million at the start of the pandemic, down to $23.3 million as of January 3, 2021. On November 23, we entered into a new senior credit facility agreement, which replaced our prior senior credit agreement with a more flexible and longer-term loan maturing in 2025 that provides greater liquidity and will also allow us to continue our investments in growth, including consumer-facing and digital initiatives.

We made very good progress selling our 16 owned properties over the quarter. By the end of the year, we had closed sale or sale leaseback transaction on 13 of the 16 properties generating net proceeds of $26.8 million and expect to sell the remaining three properties in the first half of 2021. However, there can be no assurance that the anticipated remaining property sales will occur. In addition, we generated full-year cash flow provided by operating activities of $40.3 million.

Now, I'll highlight Q4 results and the status of our initiatives to accelerate sales in this changing environment at each brand. We made continued progress during the fourth quarter on developing a better business model designed to enable our customers to enjoy our brands safely across all channels wherever and however they choose. Our two big focus areas over the quarter were further enhancing our digital platform and improving the drive-thru experience. We are seeing building benefits in positive consumer feedback on our new apps at both brands. Both brands currently have high app store ratings of 4.9 stars for Pollo and 4.8 stars for Taco compared to ratings of below 3 on our prior app.

Total online sales across both [Indecipherable] brands grew 37% in the fourth quarter versus 2019. In addition, check averages for online orders placed via the app since the new apps were launched have increased by 42% at Pollo Tropical and 18% at Taco Cabana. In the fourth quarter, we began the implementation of enhancing our curbside pickup ordering to include geo-fencing functionality, which enables the restaurants to know when the customers arrived for pick-up, enables communications to customers that their order is ready, very important to our customers and creates the ability to run location-based consumer promotions. We expect the implementation on geo-fencing to be completed in the first half of 2021.

Regarding the drive-thru channel, we believe this channel will continue to be very important, and we began an initiative in the fourth quarter to upgrade our infrastructure as we move forward replacing our current drive-thru technology with industry-leading digital technology. The first phase of the drive-thru initiative began in the fourth quarter with improvements in faster, upgraded payment devices and improved connectivity in our Remote ordering devices called PODs to take customer orders faster and further back in car loans. [Phonetic] These upgrades will improve order cycle time during peak drive-thru demand periods, and we are encouraged with the early results of this initiative, which will continue into 2021. Our approach to opening dining rooms will continue to be based on two key criteria on a location-by-location basis, our ability to maintain safe health environment to our team members and guests and our ability to generate a profit on dining room sales based on incremental staffing, while not deteriorating margins. Partly in response to what we believe is growing consumer interest, we began to open dining rooms at both brands in late February.

Pollo Tropical recently opened its dining rooms with the exception of four units. Taco Cabana currently has 63 dining rooms open and all our patios are now open. We are evaluating sales trends weekly to determine, which unit should be open for dine-in business.

Now, I'll highlight the Q4 results and the status of our initiatives to accelerate sales in this changing environment at each brand. Starting with Pollo Tropical. Fourth quarter comparable restaurant sales showed strong acceleration sequentially over the course of the quarter with fourth quarter comp sales of 8.2% down and December comp sales of minus 6.4%. After adjusting for the impact of Tropical Storm Eta, Pollo sales would have been even stronger with the adjusted fourth quarter comp sales approximately 40 basis points higher. The improvement in sales trends compared to the fourth quarter of 2020 comp sales also continued into January of 2021. The drive-thru and off-premise channels again showed strong growth versus 2019 in the fourth quarter.

Drive-thru comparable restaurant sales grew 24% above last year during the quarter, and delivery growth led the off-premise channel. Delivery comparable restaurant sales for the quarter more than tripled versus last year and accelerated by 8% compared to the third quarter, driven by both improved check and traffic from improved marketing and promotions.

On the menu innovation front, our new line of five Cuban-inspired pressed sandwiches performed well in the fourth quarter. Handheld category mix more than doubled to over 10% in sandwich check averages and margin dollar contribution were both accretive compared to the company averages, all resulting in absolute sales growth for the brand compared to pre-launch sales. We also brought back an increase in lapsed customer visits, compared to prior promotional windows. We plan to further expand this line, and we recently launched a new Miami Heat Spicy Crispy Chicken Sandwich, which we are co-marketing with the Miami Heat NBA Basketball Team.

From a margin perspective, Pollo grew restaurant-level adjusted EBITDA margins, a non-GAAP measure from 19.2% in 2019 to 21.8% in 2020. The 2020 margin rate includes an extra week in our fiscal year. After adjusting the extra week, Pollo restaurant level adjusted EBITDA margin would have been 20.9% of sales or a 170 basis point improvement over last year.

Turning to Taco Cabana. Fourth quarter restaurant comparable sales improved 420 basis points from the third quarter comps [Technical Issues] down to 10% down. [Phonetic] The improvement in sales trend compared to the fourth quarter comp sales also continued into January of 2021. The drive-thru in off-premise channels again showed strong growth versus 2019 in the fourth quarter. Drive-thru comparable restaurant sales grew 26% above last year during the quarter and the delivery growth led the off-premise channel. Delivery comparable restaurant sales for the quarter more than tripled versus last year and accelerated by 13% compared to the third quarter, driven by improved traffic from promotions and improved marketing.

Our margarita platform continues to be a driver of check growth in the drive-thru. And Taco has developed the calendar of margarita promotional events for 2021 to continue to leverage the revenue growth opportunity from this platform.

In addition, in 2021, we will be expanding alcohol sales with select third-party delivery service providers as a way to differentiate our brand and drive incremental sales dollars per order. As I mentioned in the third quarter, we have refocused our culinary and menu innovation to focus more on developing differentiated and authentic Tex-Mex recipes that are true to the heritage of Taco Cabana [Technical Issues] and drove total brand check growth compared to pre-launch results and also grew gross margin dollars per transaction versus the pre-launch period. We plan to continue to improve this category and launch additional differentiated new items over the course of 2021.

From a margin perspective, Taco grew adjusted restaurant EBITDA margins, a non-GAAP measure from 8% in 2019 to 13.6% in 2020. The 2020 margin rate includes an extra week in our fiscal year. After adjusting for the extra week, Taco adjusted EBITDA margin would have been 12.1% of sales or 410 basis points above last year.

My last topic is an overview of our 2021 key priorities. In 2021, we will continue to concentrate on non-dine-in sales channels to match the evolving changes in customer behavior and will focus on creating a guest experience -- a great guest experience across all channels. We are planning to make further enhancements to our digital platform and improvements in the speed and ease of use for off-premise sales channels such as enhanced digital drive-thru experience, geo-fencing technology designed to improve curbside speed and infrastructure changes designed to improve our order cycle times for drive-thru and delivery orders. We intend to continue to drive traffic and check through differentiated new menu introductions, effective LTOs and improved marketing.

We also believe the reopening of our dining rooms will also be a key component in driving sales in 2021. In addition, we are continuing the process of refining the Pollo Tropical brand assets. We have completed qualitative research and are in the process of completing the quantitative phase of our research. The results of this research will allow us to develop an enhanced brand positioning and provide a clear brand strategy for both existing and new markets. In part to COVID and the brand refinement effort that is in process, we paused our new restaurant development plans in 2020. However, we intend to resume new restaurant development in the future. Development of new restaurants will incorporate what we have learned during the COVID-19 pandemic and our market research. During 2021, we plan to complete brand positioning and operating model refinements for Pollo Tropical that we believe will enable future geographic expansion through both company-owned and franchise locations. Our primary focus for Taco Cabana in '21 will be to continue to improving existing unit average sales and continue to improve the margins.

In summary, we are pleased with the strong fourth quarter results. And we are optimistic about 2021 and believe that our growth initiatives will build momentum and accelerate sales over the course of 2021. I want to thank our team members for ensuring that we are stronger today than when the crisis began and are ready to capitalize on opportunities that await beyond the crisis.

I'll now turn it over to Dirk to cover the financial highlights in more detail.

Dirk Montgomery -- Chief Financial Officer

Thank you, Rich and good afternoon, everyone. I'll start by reviewing our fourth quarter results and then, provide you with an update on our financial plans for 2021. We were very pleased with our fourth quarter performance in terms of sales, profit growth and margin improvement. Total revenues decreased 6.6% to $148.9 million in the fourth quarter of 2020 from $159.5 million in the fourth quarter of 2019, driven by the comparable restaurant sales declines in both brands, which was due principally to the impact of COVID-19, along with a decrease in sales related to closed restaurants at Taco Cabana. Our fourth quarter same-store comp sales trend improved from the third quarter 2020 levels with Pollo Tropical comp trends improving 290 basis points to down 8.2% for the fourth quarter and Taco Cabana same-store comp sales improving 420 basis points to down 10% for the fourth quarter.

As Rich noted, our historical penetration of dine-in sales has been approximately 25%, and strong off-premise and drive-thru growth for the quarter was offset by the dine-in traffic loss. Consolidated net income was $0.9 million or $0.03 per diluted share and included approximately $0.12 per diluted share of negative impact primarily from closed restaurant rent charges, loss on extinguishment of debt and adjustments to the deferred tax valuation allowance. This was offset by the favorable impact of approximately $0.08 per diluted share primarily from other income, including gains on the sale and sale leaseback of restaurant properties, partially offset by closed restaurant-related costs and site development costs. This compares to a net loss in the fourth quarter of 2019 of $21.1 million or $0.82 per diluted share, including a $0.77 per diluted share negative impact primarily from establishing a tax valuation allowance, $8.4 million in impairment charges and $0.7 million in closed restaurant charges.

On an adjusted basis, consolidated net income was $1.8 million or $0.07 per diluted share, compared to an adjusted net loss of $1.1 million or $0.04 per diluted share in the fourth quarter of 2019. Please see the non-GAAP reconciliation table and our earnings release for more details. Consolidated adjusted EBITDA, a non-GAAP measure, increased 42% versus last year to $14.6 million. After excluding the extra week in the 2020 fiscal year, estimated consolidated adjusted EBITDA grew 13.4% compared to 2019. The impact of the extra week in fiscal 2020 on consolidated adjusted EBITDA is estimated at $2.9 million. This was the second quarter of consolidated adjusted EBITDA growth above prior year despite negative same-store comp sales. And both brands grew their adjusted EBITDA margins in the fourth quarter above 2019 levels.

Now, turning to our individual brands. At Pollo Tropical, fourth quarter comparable restaurant sales decreased 8.2% compared to a 0.6% increase in the fourth quarter of 2019. The fourth quarter decline resulted from 19.3% decrease in comparable restaurant transactions and 11.1% increase in the net impact of product channel mix and pricing. The increase in product channel mix and pricing was driven primarily by increases in delivery, online and drive-thru average check and sales channel penetration and menu price increases of 1.1%. After adjusting for the impact of Tropical Storm Eta, point of sales [Phonetic] improvement from the third quarter of 2020 would have been even stronger with adjusted fourth quarter comp sales approximately 40 basis points higher.

Pollo Tropical dine-in and counter take out comparable restaurant sales decreased 52% from the fourth quarter of 2019 to the fourth quarter of 2020, due primarily to the negative impact of the pandemic on dine-in traffic and closures of our dining rooms during most of the fourth quarter of 2020. The decrease in dining channel sales were partially offset by strong off-premise channel growth.

Turning to the brand profitability for the quarter. Pollo grew restaurant-level adjusted EBITDA margins, a non-GAAP measure, from 19.2% in 2019 to 21.8% in 2020. The 2020 margin rate includes the extra week in our fiscal year. After adjusting for the extra week, fourth quarter Pollo restaurant-level adjusted EBITDA margin would have been 20.9% of sales, 170 basis points above last year. As a percentage of restaurant sales, Pollo Tropical experienced lower fourth quarter cost of sales of 31.3% compared to 32.6%, due to operating efficiencies, lower promotions and discounts, and price increases partially offset by sales mix and lower rebates and discounts from suppliers. Restaurant wages as a percentage of net sales also declined from 24% in the fourth quarter of 2019 to 23% in 2020, driven primarily by labor efficiencies and workers' compensation costs. Despite lower comp sales, Pollo Tropical did an exceptional job managing food costs and labor to improve restaurant-level adjusted EBITDA margins compared to last year. Other restaurant operating expenses declined in the fourth quarter compared to 2019, due primarily to lower insurance expense and repair and maintenance costs, partially offset by increased delivery service provider fees.

Rent in the fourth quarter increased compared to 2019, due primarily to the impact of lease renewals at higher rates. We also incurred incremental costs related to COVID-19 of $0.3 million during the fourth quarter, including quarantine pay and costs related to COVID-19 testing. The Taco Cabana fourth quarter comparable restaurant sales decreased 10% compared to an 8.1% decrease in the fourth quarter of 2019. The decrease in comparable restaurant sales resulted from a 20.3% decrease in comparable restaurant transactions and a 10.3% increase in the net impact of product channel mix and pricing the increase in product channel mix and pricing was driven primarily by increases in drive-thru and delivery sales channel penetration, growth in average check per drive-thru versus last year, and menu price increases at 2.1%.

Taco Cabana dine-in encountered take-out comparable restaurant sales decreased 72% from the fourth quarter of 2019 to the fourth quarter of 2020, due to the negative impact of the pandemic on dine-in traffic and closures of our dining rooms during most of the fourth quarter. The decrease in dine-in channel sales was partially offset by significant off-premise channel growth.

Turning to the brands' fourth quarter profitability. Taco Cabana continued to improve margins in dollar profits in the fourth quarter compared to the fourth quarter of 2019. Taco restaurant-level adjusted EBITDA margins, a non-GAAP measure, grew from 8% in 2019 to 13.6% in 2020. The 2020 margin rate includes the extra week in our fiscal year. After adjusting for the extra week, fourth quarter Taco restaurant-level adjusted EBITDA margin would have been 12.1% of sales, 410 basis points above last year. As a percentage of restaurant sales, Taco Cabana experienced lower fourth quarter cost of sales of 28.4% compared to 31.7% in 2019 due to lower commodity costs, operating efficiencies, lower promotions and discounts, and price increases partially offset by sales mix and lower rebates and discounts from suppliers.

Restaurant wages, as a percentage of net sales, also declined from 32.4% in the fourth quarter of 2019 to 31.6% in 2020, driven primarily by labor efficiencies that were partially offset by higher medical costs. Despite lower comp sales, Taco Cabana continued to improve efficiency at a sustainable level in managing food cost and labor to improve restaurant-level adjusted EBITDA margins compared to last year. Other restaurant operating expenses declined in the fourth quarter compared to 2019, due primarily to the impact of closed stores and lower repair and maintenance, partially offset by increased delivery service provider fees.

Rent in the fourth quarter decreased compared to 2019 due primarily to the impact of restaurant closures in the first quarter of 2020. We also incurred incremental costs related to COVID-19 of $0.2 million during the fourth quarter, including quarantine pay and costs related to COVID-19 testing.

Turning to capital expenditures. Total annual capital expenditures for 2020 were $18.4 million, which included $11.3 million for maintenance, $4.1 million for technology and corporate, and $3.3 million for remodeling and development.

I'll close out with few comments on 2021. Both brands started the year building momentum with January sales outperforming fourth quarter comp sales trends for both brands. Due to the severe winter storm that impacted Texas from February 14 through February 21, 2021 Taco Cabana February revenue and profit is expected to be negatively impacted compared to 2020 results. All units were closed for a number of days during that period with significant reductions in traffic due to poor road conditions. We estimate the lost [Phonetic] revenue sales over the weather-impacted period to be in the range of $2.5 million to $3.0 million. Approximately 125 units were impacted at some level by the storm, including issues ranging from minor repairs to pipe, water and equipment damage.

All Taco Cabana units are now open. Taco Cabana is in the process of filing insurance claims for costs related to the winter storm. Additional minimum wage increase legislation in Florida will go into effect in 2021 with graduated increases through 2025. For 2021, we expect only a minimal impact on Pollo Tropical wage rates as our current average wage rate is slightly above the required minimum for 2021. In Texas, changes in minimum wage requirements have not been passed yet.

If the current proposed federal minimum wage schedule would have been passed, we would expect a minimal impact in 2021 based on our current average wage rate being above the proposed minimum wage. We expect to offset the impact of future minimum wage increases beyond 2021 through a combination of prudent price increases and labor reduction initiatives, which are already under way.

Now just a few comments regarding our full-year outlook for 2021. 2021 comparable same-store sales are expected to be positive for the year, driven by the company's growth initiatives and expected increases in overall segment dine-in traffic as the pandemic impact abates. Food costs are projected to remain stable in 2021 compared to 2020 based on current supply commitments we have in place for calendar 2021 across key commodities. Capital expenditures in 2021 are expected to be in the range of $33 million to $38 million with the increase compared to 2020 levels primarily driven by investments in our digital platforms, including digital drive-thru upgrades.

In closing, we finished 2020 with building top line momentum, improved margins and ample liquidity to continue to invest in digital and other revenue-building initiatives. We look forward to continuing our efforts to be seamless omnichannel brands to our customers with a differentiated and quality menu hit a value. We are optimistic that our growth strategies will continue to build momentum in 2021.

Thank you for listening, and we will now open the call up to questions. Operator?

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Joshua Long with Piper Sandler. Please go ahead.

Joshua Long -- Piper Sandler -- Analyst

Great. Thank you for taking the question and thanks for the update, particularly on Taco Cabana here into the first part of the year. I might have missed it, but curious if you could provide a similar update on Pollo and I had a follow-up as well.

Richard Stockinger -- Chief Executive Officer and President

Yes. Thanks, Josh. The -- for both brands, we saw improvement in comp sales trends in January compared to the fourth quarter trend. So off to a good start in January for both brands.

Joshua Long -- Piper Sandler -- Analyst

All right. Thank you. Then, I imagine that the disruption there was probably -- primarily focused on Taco Cabana just given its Texas-centered geography there. Anything to call out for Pollo in the February to-date period? Anything worth noting?

Richard Stockinger -- Chief Executive Officer and President

No, I mean, we -- certainly, no weather-related impacts in February for Pollo.

Joshua Long -- Piper Sandler -- Analyst

Great. Thank you. And then, as we think about the top line recovery over the course of this year, I mean a lot of good work has been put in and then, at each [Phonetic] brand has been repositioned as well with a lot of exciting investments there on the digital channel, on the food side really across the whole spectrum here.

When you think about that guidance for positive same-store sales for the year, would you be able to provide more context, your expectations around how that builds, obviously you have some, I wouldn't say, easy compares. You'll be lapping over some of the severely negative numbers in 2Q and 3Q. And so, just try to put some more context around how we square up the brand momentum within what is on [Indecipherable] negative comps from prior year to that end up at positive just for the year, any sort of bookings you might be able to help put on that in terms of pace for magnitude would be very helpful from a modeling perspective?

Richard Stockinger -- Chief Executive Officer and President

Sure. I mean, just because the -- let's start with the second quarter, I mean the second quarter of 2020 was obviously extremely low with the third quarter being also very low. So we're expecting this year's comp sales to mirror that. In some sense in that, we expect a much higher comp rate in the second and third quarters as we lap those numbers, and I think really that's about all we can provide at this point. I think, as Rich mentioned, we see the initiatives that -- our growth initiatives that we describe building in momentum throughout the course of the year.

Dirk Montgomery -- Chief Financial Officer

Josh, the key to me is we're now analyzing the business on [Indecipherable] channel for each channel, the investment per channel, the sales per channel, the profit by channel and the fact that we are very close to breakeven right now, especially at Pollo, at least Taco right now with the storm. The fact that our dining rooms just opened, and we've already seen the mix go up and the dining rooms preopening through now gives us a lot of support that these sales should continue. And now, we're going to start comparing ourselves to 2019 just not ready to give the guidance toward that. But we are very excited about the momentum.

Joshua Long -- Piper Sandler -- Analyst

Great. Thanks. And one more for me. In terms of all the work you've been doing by channel, can you remind us where we are -- where the brands are now in terms of pricing and really optimizing that margin structure by channel given the growth in the delivery in the off-premise segment as well?

Richard Stockinger -- Chief Executive Officer and President

Sure. So just to speak to off-premise pricing, I mean we do have different pricing structure in off-premise, particularly for delivery like most of our peers. In terms of absolute pricing, I guess, capability, as we've mentioned before, our price increases over the last couple of years have been conservative and [Indecipherable] on the low side. And so, I think we feel like that combined with very high-value perceptions at both brands puts us in a position to feel like we can make modest price increases without negatively impacting traffic in 2021.

Joshua Long -- Piper Sandler -- Analyst

Thank you.

Richard Stockinger -- Chief Executive Officer and President

Thanks, Joshua.

Operator

[Operator Instructions] Our next question is from Brian Vaccaro with Raymond James. Please go ahead.

Brian Vaccaro -- Raymond James -- Analyst

Thanks. Good evening. Any question about reopening the dining rooms and I think you said it's nearly all employers earlier now open. I understand it's still early, but just curious because consumer response has been so far and if you're seeing any noticeable moderation in other segments.

Richard Stockinger -- Chief Executive Officer and President

Yeah. Again, it's too early to tell. We just opened them up several weeks ago. The mix has gone up. The sales mix from where we were pre to where they are now, I mean it's only taking it away from the drive-thru. It hasn't taken away from the other trade channels, which is important to us. So again, I firmly believe it's going to come back, especially in core, especially in the Tri-County core [Indecipherable] area, but it's going to take us a little time to me and focusing more and more on those other channels, because of the changing in consumer behavior. So anything we get at the dining room, even if it comes out of the drive-thru with all the effort we're putting in the drive-thru, the speed of service and all the digital platforms is only going to help us incrementally.

Brian Vaccaro -- Raymond James -- Analyst

All right. Great. And can you help running I guess the cost side of the equation as you reopened dining rooms? Can you frame how many hours you need to bring back or positions you need to bring back to service the dining rooms? And is there anything from a cost perspective or maybe [Indecipherable] where you've been, really great margins along with a lot of other your fast casual/quick service brands that have been optimizing and seeing the drive-thru is really strong during COVID. What's the reasonable expectation on the margin impact [Indecipherable] dining rooms?

Richard Stockinger -- Chief Executive Officer and President

Yeah. Again, our goal is that the margins will not go down. In terms of the peak periods, we have to add one or two people from a staff position. In terms of the soda machines, we have removed all our soda machines at Pollo, as well as the saucing islands, net zero complaints on that. So that -- those margins will stay. We have not removed them yet at Taco, but we have not reopened them yet and the decision we made on that shortly.

Brian Vaccaro -- Raymond James -- Analyst

Okay.

Richard Stockinger -- Chief Executive Officer and President

So on the service, and they will have no impact on the cost of the goods sold by opening up the dining rooms.

Dirk Montgomery -- Chief Financial Officer

Yeah, I mean we've been -- I guess, the one bright spot from being in COVID now for almost the entire year, the packaging costs -- if any packaging cost increases are largely behind us and so, yeah, I don't think we expect packaging cost increases. And overall, we really expect the impact of dine-in on our total unit margins to be neutral. And we're -- our intent is to manage it that way.

Brian Vaccaro -- Raymond James -- Analyst

Okay. Great. Dirk, you guided 2021 COGS, you said stable versus 2020 level. Does that mean stable inflation, or do you expect stability on the COGS ratio itself?

Richard Stockinger -- Chief Executive Officer and President

I mean when we said stable, we -- yeah, we expect COGS to be flat on a rate basis compared to 2020 and 2021.

Brian Vaccaro -- Raymond James -- Analyst

Okay. And if so, we're talking about COGS ratio. And if I look at 2020, there is a sort of a tale of two halves where your COGS loans a lot lower in the second half compared to the first half. So there, do you expect to be closer to the second half or the first half or just curious what your guidance [Indecipherable] because you started out in the high 31%, when you finished at 30% even across both brands combined. So just trying to make sure [Indecipherable] there?

Richard Stockinger -- Chief Executive Officer and President

Yeah, that's correct. And it's a great question, Brian. We actually expect to be flat to our Q4 run rate. There was a lot of noise in both brands earlier in the year, particularly when COVID hit. And so, we really expect to be flat versus the Q4 run rate.

Brian Vaccaro -- Raymond James -- Analyst

Okay. And then, on the G&A line, [Indecipherable] picked up a little bit here sequentially in the fourth quarter. Curious what your G&A expectations are in 2021. Could you give an update -- I think there was a review process that was under way on the G&A line? Any update on that front?

Richard Stockinger -- Chief Executive Officer and President

Yeah. So we generally expect G&A to be roughly flat in '21 against '20. We aren't planning any significant increases in headcount. So -- and we're working to improve G&A efficiency. So we do have a number of ideas that we're still refining on that front. And so, I think a flat assumption in dollars we feel is reasonable year-over-year.

Brian Vaccaro -- Raymond James -- Analyst

All right. Thank you. I'll pass it along.

Richard Stockinger -- Chief Executive Officer and President

Thank you, sir.

Operator

[Operator Closing Remarks]

Duration: 41 minutes

Call participants:

Raphael Gross -- Managing Director at ICR

Richard Stockinger -- Chief Executive Officer and President

Dirk Montgomery -- Chief Financial Officer

Joshua Long -- Piper Sandler -- Analyst

Brian Vaccaro -- Raymond James -- Analyst

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