System-wide comparable restaurant sales growth
of 3.7% in Fiscal First Quarter
Conference Call and Webcast at 4:30 p.m. ET
Today
Del Taco Restaurants, Inc. (“Del Taco” or the “Company”),
(NASDAQ:TACO), the second largest Mexican-American QSR chain by
units in the United States, today reported fiscal first quarter
2018 financial results. The Company also reaffirmed guidance for
fiscal year 2018.
Fiscal First Quarter 2018 Highlights
- System-wide comparable restaurant sales
growth of 3.7%, marking the 18th consecutive quarter of gains;
- Company-operated comparable restaurant
sales growth of 2.6%, marking the 23rd consecutive quarter of
gains. Company-operated comparable restaurant sales growth was
comprised of average check growth of 2.6%, including slightly
positive mix growth, and flat transactions;
- Franchised comparable restaurant sales
growth of 5.2%;
- Total revenue increased 6.8% to $112.6
million (including $2.9 million of franchise advertising
contributions and $0.2 million of other franchise revenue required
as part of the new revenue recognition rules adopted in the first
fiscal quarter whereby the offsetting impact is an increase to
expenses such that there is no impact on operating income and net
income) compared to $105.3 million in the fiscal first quarter
2017;
- Company restaurant sales increased 3.8%
to $105.1 million compared to $101.2 million in the fiscal first
quarter 2017;
- Net income decreased to $3.2 million,
representing diluted earnings per share of $0.08, compared to $4.2
million in the fiscal first quarter 2017, representing diluted
earnings per share of $0.10;
- Restaurant contribution* margin of
18.4% compared to 19.1% in the fiscal first quarter 2017;
- Adjusted EBITDA* of $13.9 million
compared to $14.6 million in the fiscal first quarter 2017;
and
- Three company-operated restaurant
openings and one franchised restaurant closure.
Restaurant contribution* and Adjusted EBITDA* are non-GAAP
measures and defined below under “Key Financial Definitions.”
Please see the reconciliation of non-GAAP measures accompanying
this release.
John D. Cappasola, Jr., President and Chief Executive Officer of
Del Taco, commented, “Restaurant results were generally in-line
with our expectations and we are pleased to reaffirm our guidance
for the year. System-wide comparable restaurant sales growth of
3.7%, or 7.9% on a two-year basis, was a strong outcome, and we
view the franchise restaurants 5.2% comparable restaurant sales
increase as a reflection of Del Taco’s strength in varied
geographies. We are very pleased with the continued AUV growth
within our franchise base which is driving increased traction on
franchise development across the country.”
Cappasola continued, “We began the second quarter with a
successful ‘2 For $5’ promotion allowing guests to ‘mix and match’
our popular Classic Burritos, and recently launched our
fan-favorite Carnitas protein as a limited time offering. A
favorable guest response to these offerings has helped drive
positive second quarter system-wide comparable restaurant sales
through the first five weeks as we lap over our most difficult
prior year comparisons of over 8% for company and franchise
restaurants during the same five weeks, resulting in very strong
two-year trends.”
Cappasola concluded, “We view our first quarter restaurant
contribution margin as a good outcome considering we had our lowest
expected level of menu pricing coupled with the highest level of
expected food inflation for the year. As the year progresses we
expect to increase our menu pricing while food inflation trends
moderate and various supply chain and labor optimization strategies
generate additional savings. We believe these factors, coupled with
our upcoming launch of Elevated Combined Solutions with enhanced
marketing and advertising, menu innovation and operational
initiatives, has us well positioned to drive improved restaurant
contribution performance in the second half of the year and
beyond.”
Review of Fiscal First Quarter 2018 Financial Results
Total revenue increased 6.8% to $112.6 million (including $2.9
million of franchise advertising contributions and $0.2 million of
other franchise revenue required as part of the new revenue
recognition rules adopted in the first fiscal quarter whereby the
offsetting impact is an increase to expenses such that there is no
impact on operating income and net income) compared to $105.3
million in the fiscal first quarter 2017. Excluding these revenue
recognition impacts total revenue increased 3.9%.
Comparable restaurant sales increased 3.7% system-wide for the
fiscal first quarter 2018, resulting in a 7.9% increase on a
two-year basis. The Del Taco system has now generated comparable
restaurant sales growth for 18 consecutive quarters.
Company-operated comparable restaurant sales increased 2.6%,
marking 23 consecutive quarters of comparable restaurant sales
growth. Franchise comparable restaurant sales increased 5.2%.
Net income was $3.2 million, representing $0.08 per diluted
share, compared to $4.2 million in the fiscal first quarter 2017,
representing $0.10 per diluted share.
Restaurant contribution* was $19.3 million compared to $19.4
million in the fiscal first quarter 2017. As a percentage of
Company restaurant sales, restaurant contribution* margin decreased
approximately 70 basis points year-over-year to 18.4%. The decrease
was the result of an approximate 30 basis point increase in labor
and related expenses and an approximate 40 basis point increase in
occupancy and other operating expenses, of which half was related
to the timing of advertising expenses.
Adjusted EBITDA* was $13.9 million compared to $14.6 million in
the previous year’s fiscal first quarter.
Restaurant Portfolio
During the fiscal first quarter 2018, Del Taco opened three
company-operated restaurants and one franchised restaurant was
closed.
Repurchase Program for Common Stock and Warrants
During the fiscal first quarter 2018, the Company repurchased
9,811 warrants at an average price per warrant of $3.37. At the end
of the fiscal first quarter approximately $20.9 million remained
under our $50 million repurchase authorization.
Fiscal Year 2018 Guidance
The Company is reiterating the following guidance for fiscal
year 2018, the 52-week period ending January 1, 2019:
- System-wide same store sales growth of
approximately 2% to 4%;
- Total revenue between $506 million and
$516 million, reflecting the new revenue recognition rules whereby
franchise advertising contributions and other franchise revenue,
which totaled $12.7 million and $0.8 million in fiscal year 2017,
respectively, will now be reported on a gross basis. This guidance
also includes an estimated $0.5 million unfavorable impact from the
timing of initial franchise fees and renewal fees which must be
deferred and recognized over the term of the related franchise
agreement;
- Total company-operated restaurant sales
between $473 million and $483 million;
- Restaurant contribution margin between
19.3% and 19.8%;
- General and administrative expenses
between approximately 8.2% and 8.5% of total revenue, including the
expense side of the other franchise revenue that will now be
reported on a gross basis;
- Effective tax rate of approximately
26.5% to 27.5%;
- Diluted earnings per share of
approximately $0.59 to $0.63;
- Adjusted EBITDA between $71.5 million
and $74.0 million;
- 25 to 28 new system-wide restaurant
openings; and
- Net capital expenditures between $35.0
million to $38.0 million.
We have not reconciled guidance for Adjusted EBITDA to the
corresponding GAAP financial measure because we do not provide
guidance for the various reconciling items. We are unable to
provide guidance for these reconciling items because we cannot
determine their probable significance, as certain items are outside
of our control and cannot be reasonably predicted since these items
could vary significantly from period to period. Accordingly, a
reconciliation to the corresponding GAAP financial measure is not
available without unreasonable effort.
Conference Call
A conference call and webcast to discuss Del Taco’s financial
results and annual guidance is scheduled for 4:30 p.m. ET today.
Hosting the conference call and webcast will be John D. Cappasola,
Jr., President and Chief Executive Officer; and Steven L. Brake,
Executive Vice President and Chief Financial Officer.
Interested parties may listen to the conference call via
telephone by dialing 1-201-689-8471. A telephone replay will be
available shortly after the call has concluded and can be accessed
by dialing 1-412-317-6671, the passcode is 13678922.
The webcast will be available at www.deltaco.com under the
investors section and will be archived on the site shortly after
the call has concluded.
Key Financial Definitions
Comparable restaurant sales growth reflects the change in
year-over-year sales for the comparable company, franchise and
total system restaurant base. Restaurants are included in the
comparable store base in the accounting period following its 18th
full month of operations and excludes restaurant closures.
Restaurant contribution* is defined as company restaurant
sales less restaurant operating expenses, which are food and paper
costs, labor and related expenses and occupancy and other operating
expenses. Restaurant contribution margin is defined as
restaurant contribution as a percentage of company restaurant
sales. Restaurant contribution and restaurant contribution
margin are neither required by, nor presented in accordance
with, GAAP. Restaurant contribution and restaurant contribution
margin are supplemental measures of operating performance of
restaurants and the calculations thereof may not be comparable to
those reported by other companies. Restaurant contribution and
restaurant contribution margin have limitations as analytical
tools, and you should not consider them in isolation or as
substitutes for analysis of results as reported under U.S. GAAP.
Management believes that restaurant contribution and restaurant
contribution margin are important tools for investors because they
are widely-used metrics within the restaurant industry to evaluate
restaurant-level productivity, efficiency and performance.
Management uses restaurant contribution and restaurant contribution
margin as key performance indicators to evaluate the profitability
of incremental sales at Del Taco restaurants, to evaluate
restaurant performance across periods and to evaluate restaurant
financial performance compared with competitors.
Adjusted EBITDA* is defined as net income/loss prior to
interest expense, income taxes, and depreciation and amortization,
as adjusted to add back certain charges, such as stock-based
compensation expense and transaction-related costs, as these
expenses are not considered an indicator of ongoing company
performance. Adjusted EBITDA is a non-GAAP financial measure
and should not be considered as an alternative to operating income
or net income/loss as a measure of operating performance or cash
flows or as measures of liquidity. Non-GAAP financial measures are
not necessarily calculated the same way by different companies and
should not be considered a substitute for or superior to GAAP
results. We believe Adjusted EBITDA facilitates operating
performance comparisons from period to period by isolating the
effects of some items that vary from period to period without any
correlation to core operating performance or that vary widely among
similar companies. These potential differences may be caused by
variations in capital structures (affecting interest expense), tax
positions (such as the impact on periods or changes in effective
tax rates or net operating losses) and the age and book
depreciation of facilities and equipment (affecting relative
depreciation expense). We also present Adjusted EBITDA because (i)
we believe this measure is frequently used by securities analysts,
investors and other interested parties to evaluate companies in our
industry and (ii) we use Adjusted EBITDA internally as a benchmark
to compare performance to that of competitors.
About Del Taco Restaurants, Inc.
Del Taco (NASDAQ:TACO) offers a unique variety of both Mexican
and American favorites such as burritos and fries, prepared fresh
in every restaurant's working kitchen with the value and
convenience of a drive-thru. Del Taco's menu items taste better
because they are made with quality ingredients like fresh grilled
chicken and carne asada steak, hand-sliced avocado, hand-grated
cheddar cheese, slow-cooked beans made from scratch, and new creamy
Queso Blanco. The brand's UnFreshing Believable® campaign further
communicates Del Taco's commitment to provide guests with the best
quality and value for their money. Founded in 1964, today Del Taco
serves more than three million guests each week at its more than
560 restaurants across 14 states. For more information, visit
www.deltaco.com.
Forward-Looking Statements
In addition to historical information, this release may contain
a number of “forward-looking statements” as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, information concerning Del
Taco’s possible or assumed future results of operations, business
strategies, competitive position, industry environment, potential
growth opportunities and the effects of regulation. These
statements are based Del Taco’s management’s current expectations
and beliefs, as well as a number of assumptions concerning future
events. When used in this press release, the words “estimates,”
“projected,” “expects,” “anticipates,” “forecasts,” “plans,”
“intends,” “believes,” “seeks,” “target,” “may,” “will,” “should,”
“future,” “propose,” “preliminary,” “guidance,” “on track” and
variations of these words or similar expressions (or the negative
versions of such words or expressions) are intended to identify
forward-looking statements. Such forward-looking statements are
subject to known and unknown risks, uncertainties, assumptions and
other important factors, many of which are outside Del Taco’s
management’s control that could cause actual results to differ
materially from the results discussed in the forward-looking
statements. These risks included, without limitation, consumer
demand, our inability to successfully open company-operated or
franchised restaurants or establish new markets, competition in our
markets, our inability to grow and manage growth profitably,
adverse changes in food and supply costs, our inability to access
additional capital, changes in applicable laws or regulations, food
safety and foodborne illness concerns, our inability to manage
existing and to obtain additional franchisees, our inability to
attract and retain qualified personnel, our inability to profitably
expand into new markets, changes in, or the discontinuation of, the
Company’s repurchase program, and the possibility that we may be
adversely affected by other economic, business, and/or competitive
factors. Additional risks and uncertainties are identified and
discussed in Del Taco’s reports filed with the SEC, including under
Item 1A. Risk Factors in our Annual Report on Form 10-K for the
year ended January 2, 2018, and available at the SEC’s website at
www.sec.gov and the Company’s website at www.deltaco.com.
Forward-looking statements included in this release speak only
as of the date of this release. Del Taco undertakes no obligation
to update its forward-looking statements to reflect events or
circumstances after the date of this release or otherwise.
Del Taco Restaurants, Inc. Consolidated Balance
Sheets (In thousands, except share and per share data)
March 27, 2018 January 2, 2018
Assets (unaudited) Current assets: Cash and cash equivalents
$
10,038
$
6,559
Accounts and other receivables, net 3,524 3,828 Inventories 2,739
2,712 Prepaid expenses and other current assets 3,216
6,784 Total current assets 19,517 19,883 Property and
equipment, net 157,643 156,124 Goodwill 320,638 320,638 Trademarks
220,300 220,300 Intangible assets, net 20,711 21,498 Other assets,
net 4,325 3,881 Total assets $ 743,134
$ 742,324
Liabilities and shareholders' equity
Current liabilities: Accounts payable $ 16,040 $ 18,759 Other
accrued liabilities 32,947 35,257
Current portion of capital lease
obligations and deemed landlord financing liabilities
1,309 1,415 Total current liabilities
50,296 55,431
Long-term debt, capital lease obligations
and deemed landlord financing liabilities, excluding current
portion, net
171,472 170,639 Deferred income taxes 68,644 68,574 Other
non-current liabilities 32,562 31,431
Total liabilities 322,974 326,075 Shareholders' equity:
Preferred stock, $0.0001 par value;
1,000,000 shares authorized; no shares issued and outstanding
— —
Common stock, $0.0001 par value;
400,000,000 shares authorized; 38,448,916 shares issued and
outstanding at March 27, 2018; 38,434,274 shares issued and
outstanding at January 2, 2018
4 4 Additional paid-in capital 350,543 349,334 Accumulated other
comprehensive (loss) income 194 14 Retained earnings 69,419
66,897 Total shareholders' equity
420,160 416,249 Total liabilities and
shareholders' equity $ 743,134 $ 742,324
Del Taco Restaurants, Inc. Consolidated Statements of
Comprehensive Income (Unaudited) (In thousands,
except share and per share data) 12 Weeks
Ended March 27, 2018 March 28, 2017
Revenue: Company restaurant sales $ 105,109 $ 101,222 Franchise
revenue 3,792 3,613 Franchise advertising contributions 2,936 —
Franchise sublease income 717 510 Total
revenue 112,554 105,345 Operating expenses: Restaurant operating
expenses: Food and paper costs 28,973 27,918 Labor and related
expenses 34,818 33,221 Occupancy and other operating expenses
21,986 20,718 General and administrative 10,429 9,305 Franchise
advertising expenses 2,936 — Depreciation and amortization 5,914
5,103 Occupancy and other - franchise subleases 638 481 Pre-opening
costs 442 26 Restaurant closure charges, net (13 ) 9 Gain on
disposal of assets, net 93 (49 ) Total
operating expenses 106,216 96,732
Income from operations 6,338 8,613 Other expense Interest expense
1,910 1,543 Total other expense
1,910 1,543 Income from operations before
provision for income taxes 4,428 7,070 Provision for income taxes
1,199 2,832 Net income 3,229 4,238
Other comprehensive income (loss): Change in fair value of interest
rate cap, net of tax 174 (88 ) Reclassification of interest rate
cap amortization included in net income 6 —
Total other comprehensive income (loss) 180
(88 ) Comprehensive income $ 3,409 $ 4,150
Earnings per share: Basic $ 0.08 $ 0.11 Diluted $ 0.08 $ 0.10
Weighted-average shares outstanding Basic 38,441,707 39,003,935
Diluted 39,224,070 40,375,061
Del Taco Restaurants,
Inc. Reconciliation of Net Income to EBITDA and Adjusted
EBITDA (Unaudited) (In thousands)
12 Weeks Ended March 27, 2018 March 28,
2017 Net income $ 3,229 $ 4,238 Non-GAAP adjustments:
Provision for income taxes 1,199 2,832 Interest expense 1,910 1,543
Depreciation and amortization 5,914 5,103
EBITDA 12,252 13,716
Stock-based compensation expense (a) 1,274 1,069 Loss (gain) on
disposal of assets, net (b) 93 (49 ) Restaurant closure charges,
net (c) (13 ) 9 Amortization of favorable and unfavorable lease
assets and liabilities, net (d) (118 ) (147 ) Pre-opening costs (e)
442 26
Adjusted EBITDA $ 13,930
$ 14,624 (a) Includes non-cash, stock-based
compensation. (b) Loss (gain) on disposal of assets, net includes
the loss or gain on disposal of assets related to sales,
retirements and replacement or write-off of leasehold improvements
or equipment in the ordinary course of business, net of
amortization of deferred gains on asset sales associated with
sale-leaseback transactions and gains or losses recorded associated
with the sale of company-operated stores to franchisees. (c)
Includes sublease income from leases which are treated as deemed
landlord financing, partially offset by costs related to future
obligations associated with the closure or net sublease shortfall
of a restaurant. (d) Includes amortization of favorable lease
assets and unfavorable lease liabilities. (e) Pre-opening costs
consist of costs directly associated with the opening of new
restaurants and incurred prior to opening, including restaurant
labor, supplies, cash and non-cash rent expense and other related
pre-opening costs. These are generally incurred over the three to
five months prior to opening.
Del Taco Restaurants,
Inc. Reconciliation of Company Restaurant Sales to
Restaurant Contribution (Unaudited) (In
thousands) 12 Weeks Ended March 27,
2018 March 28, 2017 Company restaurant sales $
105,109 $ 101,222 Restaurant operating expenses 85,777
81,857 Restaurant contribution $ 19,332
$ 19,365 Restaurant contribution margin 18.4 %
19.1 %
Del Taco Restaurants, Inc. Restaurant
Development 12 Weeks Ended March 27,
2018 March 28, 2017 Company-operated
restaurant activity: Beginning of period 312 310
Openings 3 — Closures — — Sold to franchisees — (5 )
Restaurants at end of period 315 305
Franchise-operated restaurant activity: Beginning of period
252 241 Openings — 3 Closures (1 ) — Purchased from Company —
5 Restaurants at end of period 251 249
Total restaurant activity: Beginning of period 564 551
Openings 3 3 Closures (1 ) — Restaurants at end of period
566 554
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180503006364/en/
For Del Taco Restaurants, Inc.Media:Julia Young,
646-277-1280julia.young@icrinc.comorInvestor Relations:Raphael
Gross, 203-682-8253investor@deltaco.com
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