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spk00: Thank you for standing by. This is the conference operator. Welcome to Fiesta Restaurant Group fourth quarter 2020 earnings conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. Instructions will be provided for you at that time to queue up for questions. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Rafael Gross, Managing Director at ICR. Please go ahead, sir. Rafael Gross Thank you.
spk02: Fiesta Restaurant Group's fourth quarter 2020 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 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.
spk01: Dirk Montgomery Thank you, Rafe. 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 were 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-through 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 reduction and labor efficiency. Net income was $.9 million, and pre-tax income was $1.5 million for the quarter. Consolidated adjusted EBITDA, a non-GAAP measure, increased 42% versus last year at the $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. 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 3rd, 2021. On November 23rd, 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-through experience. We are seeing building benefits and 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 three on our prior app. Total online sales across both 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 Foyo Tropical and 18% at Taco Cabana. In the fourth quarter, we began the implementation of enhancing our curbside pickup ordering to include geofencing functionality, which enables the restaurants to know when the customers arrive for pickup, enables communication 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 geofencing 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 lines. These upgrades will improve order cycle time during peak drive-through 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 environments 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 units should be open for dine-in business. Now I'll highlight the Q4 results and the status of our initiative 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 to the impact of Tropical Storm Etta, 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-through and off-premise channels again, showed strong growth versus 2019 in the fourth quarter. Drive-through 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 fresh 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 to 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 down to 10% down. The improvement in sales trend compared to the fourth quarter comp sales also continued into January of 2021. The drive-through and off-premise channels again showed strong growth versus 2019 in the fourth quarter. Drive-through comparable restaurant sales grew 26% above last year during the quarter, and delivery growth led the off-premise channel. Delivery comparable restaurant sales for the quarter grew 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-through. And Taco has developed a calendar of Margarita promotional events for 2021 to continue to leverage the revenue growth opportunity from this platform. In addition, In 2021, we'll 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 40-year-old plus brand. In the fourth quarter, we introduced a higher quality line of enchiladas that performed well in the fourth quarter. Enchilada category mix grew from historical averages of 2.5% to over 7% for the quarter. Enchilada check average were accretive to the company average 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 we'll 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-through experience, geofencing technology designed to improve curbside speed, and infrastructure changes designed to improve our order cycle times for drive-through and delivery orders. We intend to continue to drive traffic and check through differentiated 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.
spk03: 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 improvements. 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 of 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 ClearTrap account 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-through 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 and 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 82 cents per diluted share, including a 77 cent 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 in 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 Foyer Traffic Cow, 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 a 19.3% decrease in comparable restaurant transactions and an 11.1% increase in the net impact of product channel mix in pricing. The increase in product channel mix in pricing was driven primarily by increases in delivery, online and drive-through average check, and sales channel penetration, and menu price increases of 1.1%. After adjusting for the impact of Tropical Storm Etta, Pollo sales improvement from the third quarter of 2020 would have been even stronger, with adjusted fourth quarter comp sales approximately 40 basis points higher. Pollo Traffic Out Dining and Counter Takeout 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 dining 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, Porter grew restaurant-level adjusted EBITDA margins, a non-gap 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 POYO restaurant level adjusted yield at that margin would have been 20.9% of sales, 170 basis points above last year. As a percentage of restaurant sales, Porto 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, Port of Traffic Cal 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. At 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-through and delivery sales channel penetration, growth in average check for drive-through versus last year, and menu price increases of 2.1%. Taco Cabana dine-in and counter take-out comparable restaurant sales increased or 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 brand's fourth quarter profitability, Taco Cabana continued to improve margins and 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 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 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 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 $2.2 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 with a 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 14th through February 21st, 2021 Taco Cabana February revenue and profit increased 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 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 Polar Trap account 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 were to be 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 underway. 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 debates. 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 to $38 million, with the increase compared to 2020 levels primarily driven by investments in our digital platforms, including digital drive-through 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 at 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?
spk00: Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. If you're using a speakerphone, please pick up your hands before pressing any keys. To withdraw your question, you may press Start then 2. We will pause for a moment as callers join the queue. Our first question is from Joshua Long with Piper Sandler. Please go ahead.
spk02: Great.
spk03: 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 Poyo and had a follow-up as well. Yes, thanks, Josh. For both brands, we saw improvement in comp sale trends in January compared to the fourth quarter trend, so off to a good start in January for both brands. All right, thank you. Then I imagine that the disruption there was probably primarily focused on Tacos Vanna, just given its Texas-centered, you know, geography there. Anything to call out for Pollo in the February to date period? Anything worth noting? No. I mean, we certainly know no weather-related impact in February for Pollo. 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 brand has been repositioned as well with a lot of exciting investments there on the digital channel on the food side um you're really crossing the whole spectrum here when you think about that guidance for positive same store sales for the year would you be able to provide some more context or expectations around how that builds because obviously you'll have some uh I wouldn't say easy compares, but you'll be lapping over some of the severely negative numbers in 2Q and in 3Q.
spk02: And so just trying to put some more context around, you know, how we square up the brand momentum within what is, you know, on paper some negative comps from prior year to then end up at positive just for the year. Any sort of bookends you might be able to help put on that in terms of taste or, you know, magnitude would be very helpful from a modeling perspective.
spk03: Sure. I mean, the – 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, you know, 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 are growth initiatives that we describe building in momentum, you know, throughout the course of the year.
spk01: You know, Joshua, the key to me is we're now analyzing the business by a channel for each channel, the investment per channel, the sales per channel, the profit by channel. And the fact that we are, you know, very close to break even right now, especially at Pollo, leave 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 pre-opening to 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 towards that. But we are very excited about the momentum. Great, thanks. And one more for me.
spk03: 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, you know, pricing and really optimizing that margin structure by channel, given the growth and the delivery and the off-premise segment as well? 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 on the low side. And so I think we feel like that, combined with very high value perceptions of both brands, puts us in a position to feel like we can make modest price increases without negatively impacting traffic in 2021. Thank you.
spk02: Thanks, Joshua.
spk00: Once again, if you have a question, please press star then 1 on your telephone. Our next question is from Brian Vaccaro with Raymond James. Please go ahead.
spk03: All right, thanks, and good evening. I had a question about reopening the dining rooms, and I think you said it's nearly all the foios currently are now open. I understand it's still early, but just curious what the consumer response has been so far, and if you're seeing any noticeable moderation in other segments.
spk01: Yeah, again, it's too early to tell. We just opened them up several weeks ago. The mix has gone up, the sales mix, you know, from – from where we were pre to where they are now. It's only taken it away from the drive-through. 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 area. But it's going to take us a little time. To me, I'm focusing more and more on those other channels because of the changing in consumer behavior. So anything we get out of 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, it's only going to help us incrementally.
spk02: All right, great. And can you help frame, I guess, the cost side of that equation as you reopen 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 COGS perspective, you know, maybe opening drink machines? I believe those are sometimes inefficient.
spk03: Just any other, you know, can you help frame where you've been, really great margins, along with a lot of other, you know, fast casual and quick service brands that have been optimizing and seeing the drive-thrus really strong during COVID?
spk02: What's the reasonable expectation on the margin impact if we open back rooms?
spk01: Again, our goal is that the margins will not go down. In terms of the peak periods, you 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. We've got zero complaints on that, so those margins will stay. We have not removed them yet at Taco, but we have not reopened them yet, and a decision will be made on that shortly. And they'll have no impact on the cost of goods sold by opening up the dining rooms.
spk03: Yeah, I mean, we've been, I guess, the one bright spot from being in COVID now for almost an entire year, The packaging costs, 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 our intent is to manage it that way. Okay, great.
spk02: 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?
spk03: No, I mean, when we said stable, yeah, we expect COGS to be flat on a rate basis compared to 2020 and 2021. Okay.
spk02: Okay. And so we're talking about a COGS ratio. And if I look at 2020, it was sort of a tale of two halves where your COGS ratio is a lot lower in the second half compared to the first half. So is there, do you expect to be closer to the second half or the first half? Or just curious what your guidance is because you started out at a high of 31 and you finished at 30 even across both brands combined. We're just trying to make sure I get the message there.
spk03: 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.
spk02: Okay. And then on the G&A line, I noticed that picked up a little bit here sequentially in the fourth quarter. I'm curious what your G&A expectations are in 2021. Could you give an update? I think there was a review process that was underway on the G&A line. Any update on that front?
spk03: Yeah, so we generally expect G&A to be roughly flat in 21 against 20. We aren't planning any significant increases in headcount, 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, you know, I think a flat assumption in dollars we feel is reasonable year over year.
spk02: All right, thank you. I'll pass it along.
spk01: Thank you, sir.
spk00: This concludes the question and answer session and today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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