Reaffirms Guidance for Fiscal Year
2019
Company has Begun Optimizing its Restaurant
Portfolio through Refranchising
Del Taco Restaurants, Inc. (“Del Taco” or the “Company”),
(NASDAQ: TACO), the second largest Mexican-American quick service
restaurant chain by units in the United States, today reported
fiscal first quarter 2019 financial results for the 12-week period
ending March 26, 2019. Del Taco also reaffirmed its previously
announced guidance for fiscal year 2019.
Fiscal First Quarter 2019 Highlights
- System-wide comparable restaurant sales
decreased 0.1%;
- Company-operated comparable restaurant
sales decreased 0.6%. Company-operated comparable restaurant sales
were comprised of average check growth of 4.9%, including nearly 1%
of menu mix growth, offset by a transaction decline of 5.5%;
- Franchised comparable restaurant sales
grew 0.4%;
- Total revenue of $114.2 million
representing 1.5% growth from the fiscal first quarter 2018;
- Company-operated restaurant sales of
$105.9 million representing 0.8% growth from the fiscal first
quarter 2018;
- Net income was $1.4 million, or $0.04
per diluted share, compared to $3.2 million, or $0.08 per diluted
share, in the fiscal first quarter 2018;
- Adjusted net income* was $1.7 million,
or $0.04 per diluted share, compared to $3.2 million, or $0.08 per
diluted share, in the fiscal first quarter 2018;
- Restaurant contribution* margin of
15.8%, which includes an approximate 0.9% unfavorable impact from
the adoption of the new lease accounting standard, compared to
18.4% in the fiscal first quarter 2018;
- Adjusted EBITDA* of $12.1 million,
which includes approximately $0.7 million of unfavorable impact
from the adoption of the new lease accounting standard, compared to
$13.9 million in the fiscal first quarter 2018; and
- Four franchised restaurant openings and
one franchised restaurant closure. The Company also purchased three
franchised restaurants and refranchised 13 restaurants as part of
its restaurant portfolio optimization program.
* Adjusted net income, 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, “While our Mix2 and seasonal seafood
promotions performed well in the quarter, driving nearly 1% of menu
mix at company-operated restaurants, comparable restaurant sales
and transactions were adversely impacted by unfavorable weather in
California and throughout the West, as well as a delayed Lenten
season. However, our second quarter comparable restaurant sales
have returned to positive territory as we cycled the Lenten
calendar shift and began to benefit from our transaction-driving
initiatives including our digital transformation, value evolution,
and menu innovation. We are encouraged by this sequential
improvement and are pleased to reaffirm our guidance for the full
year.”
Cappasola continued, “Our new Del App now exceeds 500,000
registered users and we expect to expand its functionality to
include online ordering for pickup or delivery this summer.
Delivery is currently available through Grubhub at all
company-operated restaurants and we plan to add Postmates and
DoorDash later this year. During the quarter we enhanced our value
platform with the March launch of $4, $5 and $6 ‘Fresh Faves’ box
meals which were met with strong demand and we are incredibly
excited about our most recent menu innovation, the Beyond Taco and
Beyond Avocado Taco, which launched system-wide on April 25th. Our
new Beyond Tacos are not only generating significant favorable
media buzz, but also driving significant improvements in
transaction and check average trends since they launched.”
Cappasola concluded, “We made material progress on our portfolio
optimization strategy designed to stimulate new unit development
and grow AUV’s, including commencing the marketing of certain
company-operated restaurants across four non-core Western markets
to the franchise M&A marketplace through our partnership with
The Cypress Group. The Del Taco brand has proven portability across
a broad geographic footprint and we believe refranchising our
non-core Western markets provides potential franchise partners with
an attractive entry point to our system from which they can drive
further system-wide growth through new development.”
Review of Fiscal First Quarter 2019 Financial Results
Total revenue increased 1.5% to $114.2 million compared to
$112.6 million in the fiscal first quarter 2018. Comparable
restaurant sales decreased 0.1% system-wide, resulting in a 3.6%
increase on a two-year basis. Company-operated comparable
restaurant sales decreased 0.6% while franchise comparable
restaurant sales increased 0.4%.
Net income was $1.4 million, representing $0.04 per diluted
share, compared to $3.2 million in the fiscal first quarter 2018,
representing $0.08 per diluted share.
Adjusted net income* was $1.7 million, or $0.04 per diluted
share, compared to $3.2 million in the fiscal first quarter 2018,
or $0.08 per diluted share.
Restaurant contribution* was $16.8 million compared to $19.3
million in the fiscal first quarter 2018. As a percentage of
Company restaurant sales, restaurant contribution margin decreased
260 basis points year-over-year to 15.8%. The decrease was the
result of an approximately 220 basis point increase in occupancy
and other operating expenses and an approximately 80 basis point
increase in labor and related expenses, partially offset by an
approximately 40 basis point decrease in food and paper costs.
Restaurant contribution margin included a negative impact of
approximately 90 basis points due to the adoption of the new lease
accounting standard.
Adjusted EBITDA* was $12.1 million compared to $13.9 million in
the fiscal first quarter 2018 and includes approximately $0.7
million of unfavorable impact from the adoption of the new lease
accounting standard.
Restaurant Development
During the fiscal first quarter 2019, there were four franchised
restaurant openings and one franchised restaurant closure. Thus far
in the fiscal second quarter 2019, the company has opened one
company-operated restaurant and has nine additional system
restaurants under construction. Del Taco also recently signed a new
franchised development agreement for three restaurants in southern
Brevard County, FL.
Repurchase Program for Common Stock and Warrants
During the fiscal first quarter 2019, the Company repurchased
270,874 shares of common stock at average price of $10.30 per share
and repurchased 840,255 warrants at an average price per warrant of
$1.78, for an aggregate of $4.3 million. At the fiscal quarter-end,
approximately $25.4 million remained under our $75 million
repurchase authorization.
Restaurant Portfolio Optimization
Del Taco is currently optimizing its restaurant portfolio to
help stimulate growth in new restaurants and existing restaurant
AUV’s. This includes the following actions that are expected to
help shift our company ownership to approximately 45% by the summer
of 2020.
- During the fiscal first quarter of
2019, the Company purchased three high volume franchised
restaurants for approximately $3.1 million and refranchised
thirteen lower volume company-operated restaurants for net proceeds
of approximately $2.1 million, all in the LA area.
- Del Taco retained The Cypress Group, a
leading restaurant and franchise investment banking firm, to manage
the refranchising of certain company-operated restaurants across
four non-core Western markets. The marketing process has commenced
and is targeting new or existing franchise groups with proven
restaurant operations capabilities and a strong, consistent track
record of new unit development who commit to continued brand growth
in existing and/or other markets. Because the exact timing of any
refranchising transactions has not yet been determined, they are
not embedded within our fiscal year 2019 guidance referenced
below.
The Company also completed two sale-leaseback transactions for
net proceeds totaling approximately $10.0 million during the fiscal
first quarter of 2019.
Fiscal Year 2019 Guidance
Del Taco is reaffirming the following guidance for the 52-week
fiscal year 2019 ending December 31, 2019. This guidance does not
include any future refranchising transactions.
- System-wide comparable restaurant sales
growth of low-single digits;
- Total revenue between $517 million and
$527 million;
- Company restaurant sales between $481
million and $491 million;
- Restaurant contribution* margin between
18.1% and 18.6%, which includes approximately 70 basis points of
unfavorable impact from the adoption of the new lease accounting
standard;
- General and administrative expenses
between approximately 8.7% and 9.0% of total revenue;
- Interest expense between approximately
$7.2 million and $7.6 million;
- Effective tax rate of approximately
26.5% to 27.5%;
- Adjusted diluted earnings per share of
approximately $0.47 to $0.52;
- Adjusted EBITDA* is expected between
$66.5 million and $69.0 million, which includes approximately $3.5
million of unfavorable impact from the adoption of the new lease
accounting standard;
- At least 25 gross system-wide new unit
openings skewing toward franchised restaurants and an estimated 1%
system-wide closure rate; and
- Net capital expenditures between $42
million to $47 million.
Adjusted net income, restaurant contribution, and adjusted
EBITDA* are non-GAAP measures and defined below under “Key
Financial Definitions”.
We have not reconciled guidance for Adjusted Net Income or
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 201-689-8471. A telephone replay will be
available shortly after the call has concluded and can be accessed
by dialing 412-317-6671; the passcode is 13689899.
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 restaurant closure charges, 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.
Adjusted net income* represents company net income before
restaurant closure charges, sublease income related to closed
restaurants and other income related to insurance proceeds, net of
tax. Adjusted diluted net income per share* represents
company diluted net income per share before restaurant closure
charges, sublease income related to closed restaurants and other
income related to insurance proceeds, net of tax.
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 creamy
Queso Blanco. Del Taco’s new advertising campaign, “Celebrating the
Hardest Working Hands in Fast Food,” further communicates the
company’s commitment to providing guests with fresh, quality food
prepared by hand every day. Founded in 1964, today Del Taco serves
more than three million guests each week at its more than 580
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 on 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 include, 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 1,
2019, 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 26, 2019 January 1, 2019
Assets (unaudited) Current assets: Cash and cash equivalents
$ 9,024 $ 7,153 Accounts and other receivables, net 3,215 3,167
Inventories 2,673 2,932 Prepaid expenses and other current assets
2,487 4,935 Assets held for sale 2,747 14,794 Total
current assets 20,146 32,981 Property and equipment, net 149,549
161,429 Operating lease right-of-use assets 223,542 — Goodwill
324,120 321,531 Trademarks 220,300 220,300 Intangible assets, net
11,691 18,507 Other assets, net 4,158 4,208 Total
assets $ 953,506 $ 758,956
Liabilities and shareholders'
equity Current liabilities: Accounts payable $ 19,014 $ 19,877
Other accrued liabilities 32,901 34,785
Current portion of finance lease
obligations, other debt and deemed landlord financing
liabilities
481 1,033 Current portion of operating lease liabilities
20,146 — Total current liabilities 72,542 55,695
Long-term debt, finance lease obligations,
other debt and deemed landlord financing liabilities, excluding
current portion, net
154,573 178,664 Operating lease liabilities 217,967 — Deferred
income taxes 70,332 69,471 Other non-current liabilities
15,396 32,852 Total liabilities 530,810 336,682
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; 37,049,140 shares issued and
outstanding at March 26, 2019; 37,305,342 shares issued and
outstanding at January 1, 2019
4 4 Additional paid-in capital 334,144 336,941 Accumulated other
comprehensive income 62 180 Retained earnings 88,486
85,149 Total shareholders' equity 422,696 422,274
Total liabilities and shareholders' equity $ 953,506 $ 758,956
Del Taco Restaurants, Inc. Consolidated Statements
of Comprehensive Income (Unaudited) (In thousands,
except share and per share data) 12 Weeks
Ended March 26, 2019 March 27, 2018 Revenue:
Company restaurant sales $ 105,903 $ 105,109 Franchise revenue
4,065 3,792 Franchise advertising contributions 3,131 2,936
Franchise sublease and other income 1,098 717
Total revenue 114,197 112,554 Operating expenses: Restaurant
operating expenses: Food and paper costs 28,818 28,973 Labor and
related expenses 35,900 34,818 Occupancy and other operating
expenses 24,433 21,986 General and administrative 10,465 10,429
Franchise advertising expenses 3,131 2,936 Depreciation and
amortization 5,907 5,914 Occupancy and other - franchise subleases
and other 854 638 Pre-opening costs 100 442 Restaurant closure
charges, net 640 (13 ) Loss on disposal of assets, net 290
93 Total operating expenses 110,538
106,216 Income from operations 3,659 6,338
Other expense, net Interest expense 1,784 1,910 Other income
(104 ) — Total other expense, net 1,680 1,910 Income
from operations before provision for income taxes 1,979 4,428
Provision for income taxes 554 1,199
Net income 1,425 3,229 Other comprehensive (loss) income: Change in
fair value of interest rate cap, net of tax (139 ) 174
Reclassification of interest rate cap
amortization included in net income, net of tax
21 6 Total other comprehensive (loss)
income (118 ) 180 Comprehensive income $ 1,307
$ 3,409 Earnings per share: Basic $ 0.04 $ 0.08
Diluted $ 0.04 $ 0.08 Weighted-average shares outstanding Basic
37,155,978 38,441,707 Diluted 37,346,319 39,224,070
Del
Taco Restaurants, Inc. Reconciliation of Net Income to
EBITDA and Adjusted EBITDA (Unaudited) (In
thousands) 12 Weeks Ended March 26,
2019 March 27, 2018 Net income $ 1,425 $ 3,229
Non-GAAP adjustments: Provision for income taxes 554 1,199 Interest
expense 1,784 1,910 Depreciation and amortization 5,907
5,914
EBITDA 9,670
12,252 Stock-based compensation expense (a) 1,577 1,274 Loss
on disposal of assets, net (b) 290 93 Restaurant closure charges,
net (c) 640 (13 ) Amortization of favorable and unfavorable lease
assets and liabilities, net (d) 86 (118 ) Pre-opening costs (e) 100
442 Other income (f) (104 ) — Sublease income for closed
restaurants (g) (201 ) —
Adjusted
EBITDA $ 12,058 $ 13,930
(a)
Includes non-cash, stock-based
compensation.
(b)
Loss 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 gains or
losses recorded associated with the sale of company-operated
restaurants to franchisees and net gains or losses recorded
associated with sale-leaseback transactions.
(c)
During 2019, restaurant closure costs
includes rent expense, non lease executory costs and other direct
costs associated with previously closed restaurants. During 2018,
restaurant closure costs includes costs related to future
obligations associated with the closure or net sublease shortfall
of a restaurant and lease termination costs, partially offset by
sublease income from leases which are treated as deemed landlord
financing.
(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.
(f)
Other income consists of insurance
proceeds related to a fire at a company-operated restaurant.
(g)
Includes other sublease income related to
closed restaurants that have been subleased to third parties.
Del Taco Restaurants, Inc. Reconciliation of
Company Restaurant Sales to Restaurant Contribution
(Unaudited) (In thousands) 12 Weeks
Ended March 26, 2019 March 27, 2018 Company
restaurant sales $ 105,903 $ 105,109 Restaurant operating expenses
89,151 85,777 Restaurant contribution $
16,752 $ 19,332 Restaurant contribution margin
15.8 % 18.4 %
Del Taco Restaurants, Inc.
Reconciliation of Net Income and Diluted Earnings Per Share to
Adjusted Net Income and Adjusted Diluted Earnings Per Share
(Unaudited) (In thousands, except per share data)
12 Weeks Ended 12 Weeks
Ended March 26, 2019 March 27, 2018 $
Per Share $ Per Share Net income and diluted
earnings per share, as reported $ 1,425 $ 0.04 $ 3,229 $ 0.08
Restaurant closure charges, net (a) 640 0.02 (13 ) — Other income
(b) (104 ) — — — Sublease income for closed restaurants (c) (201 )
(0.01 ) — — Tax impact of adjustment (d) (91 ) —
— — Non-GAAP adjusted net income and
adjusted diluted earnings per share $ 1,669 $ 0.04 $
3,216 $ 0.08
(a)
During 2019, restaurant closure costs
includes rent expense, non lease executory costs and other direct
costs associated with previously closed restaurants. During 2018,
restaurant closure costs includes costs related to future
obligations associated with the closure or net sublease shortfall
of a restaurant and lease termination costs, partially offset by
sublease income from leases which are treated as deemed landlord
financing.
(b)
Includes other income which consists of
insurance proceeds related to a fire at a company-operated
restaurant.
(c)
Includes other sublease income related to
closed restaurants that have been subleased to third parties.
(d)
Represents the income tax associated with
the adjustments in (a) through (c) that are deductible for income
tax purposes.
Del Taco Restaurants, Inc. Restaurant
Development 12 Weeks Ended March 26,
2019 March 27, 2018 Company-operated restaurant
activity: Beginning of period 322 312 Openings — 3 Closures — —
Purchased from franchisees 3 — Sold to franchisees (13) —
Restaurants at end of period 312 315
Franchise-operated
restaurant activity: Beginning of period 258 252 Openings 4 —
Closures (1) (1) Purchased from Company 13 — Sold to Company (3) —
Restaurants at end of period 271 251
Total restaurant
activity: Beginning of period 580 564 Openings 4 3 Closures (1)
(1) Restaurants at end of period 583 566
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190506005676/en/
Investor Relations:Raphael Gross(203)
682-8253investor@deltaco.com
Del Taco Restaurants (NASDAQ:TACO)
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