Through the first several weeks of Q1, both franchises and company-run stores are seeing positive same-store sales and sequential improvement. For the remainder of the quarter, Del Taco expects accelerated performance as it laps the initial COVID impact. This should result in comps growth in the mid-single digits for corporate locations and low-double digits for franchises.
Del Taco posted a restaurant contribution margin of 17 percent, down only 40 basis points from last year. This was achieved through a menu price increase of 4 percent, which favorably impacted food and labor costs. The chain earned total revenues of $491.9 million, representing a 4.1 percent decrease year-over-year.
Breakfast and late-night dayparts remain challenged, but Cappasola said those should improve as COVID subsides.
“Consumer demand related to changing behaviors because of the pandemic is one,” said Cappasola, describing how the dayparts are affected. “And then two, some of the curtailing of dollars that’s occurred at these dayparts just due to optimizing profitability. The demand is not there, so we've taken hours incrementally here and there, store to store, depending on the circumstances. So both of these factors start to take care of themselves as things open back up and consumers return to more normalized activities. We do believe that both dayparts are poised to have an acceleration in same-store sales.”
The CEO noted Del Taco’s performance outside of California is a “testament to the relevance of this brand amid the pandemic.” The rising sales have energized discussions with both current and prospective franchisees, who are likely interested in the brand’s new Fresh Flex prototype.
The prototype includes third-party delivery pickup stations, double drive-thru lanes, a dedicated lane for mobile orders or delivery driver pickups, and dedicated parking lot areas to park, eat, and go. Because of the building’s flexible nature, Del Taco is able to offer multiple build-out options to lower net investment and expand real estate access. This means the chain can grow through small footprint drive-thru only models, drive-thru endcaps, conversions, and freestanding sites. The first Fresh Flex store is scheduled to open in Orlando later this year.
The new store design, including backlit towers and a “vibrant welcoming color palette,” will be provided to current stores through remodeling. Del Taco modernized five older restaurants prior to COVID, which drove a double-digit lift in sales. Another five were completed during the pandemic, but the results are harder to sort through because of COVID trends. Up to 20 more remodels will be completed in 2021.
Del Taco is targeting design costs between $150,000 and $500,000 per restaurant, based on the age of the building and type of legacy prototype that’s being remodeled.
“We expect the older restaurants will come in at the higher end of the range, while the restaurants built since the 1990s should come in closer to the lower end of the range with mostly cosmetic upgrades,” Cappasola said. “Ultimately, we believe we can generate AUV growth and an appealing ROI through this final phase of testing that will lead to a formal systemwide remodel program that is compelling to franchisees as we move into 2022.”
In 2020, Del Taco opened a net of one company-run store and closed a net of one franchise store. This year, the chain expects to open 12 stores—four corporate and eight franchises.
Capital expenditures are expected to be in the low $30 million range and cover the following: maintaining or enhancing existing restaurants, opening company-operated restaurants, implementing the test remodel program, and rolling out various technology and restaurant-level investments.