NEW BEARISH Plays

Fiesta Restaurant Group Inc. - FRGI - close: 44.15 change: -0.85

Stop Loss: 45.75
Target(s): To Be Determined
Current Gain/Loss: unopened

Entry on July -- at $--.--
Listed on July 19, 2014
Time Frame: Exit PRIOR to earnings on Aug 5th
Average Daily Volume = 271 thousand
New Positions: Yes, see below

Company Description

Why We Like It:
Fiesta Restaurant Group, Inc. (FRGI) specializes in fast-casual, ethnic restaurant brands. They currently own, operate, and franchise the Taco Cabana and Pollo Tropoical brands with more than 300 locations across the southern United States, the Caribbean, Central and South America. Most of their stores are located in Florida.

FRGI was the best performing restaurant stock last year with a gain of 240%. Yet shares have been seriously underperforming this year with a -15.5% decline and that's after the eight-week rally from its May 2014 lows.

The company is growing. They're expected to boost their store growth by 17 percent this year. Their latest earnings report was mixed. FRGI delivered a profit of 33 cents per share when Wall Street was looking for 30 cents. Revenues were up +8.8% year over year to $145.4 million. That's nice growth but analysts were expecting revenues of $147.5 million.

Same-store sales and traffic were up +6.3% and 4.6%, respectively at the Pollo Tropical brand. Yet the Taco Cabana brand only saw +0.8% sales growth and traffic was negative.

The U.S. restaurant industry saw first quarter traffic decline. It looks like the trend continues in the second quarter. Industry wide traffic declined -1.7% in June. That's the 19th consecutive month of negative traffic. Now FRGI does seem to be outperforming its peers in the restaurant industry but it does seem to be swimming up stream against a cautious consumer spending environment.

The rally off FRGI's May lows appears to be breaking down. FRGI has been consolidating sideways the last few days and looks poised to break support at its simple 200-dma soon.

We think it will break down. I would consider this more of a short-term technical trade than a bearish call on FRGI's fundamental business. The $35-37 area looks like it could be significant support. We'd like to try and capture the drop.

Tonight I'm suggesting a trigger to open bearish positions at $43.75 with a stop loss at $45.75.

FRGI is scheduled to report earnings on August 5th and we do not want to hold over the announcement.

Trigger @ 43.75

Suggested Position: short FRGI stock @ $43.75

Annotated chart:

Weekly chart: