Industry News | July 28, 2017 | By Danny Klein | QSR Exclusive Brief

Del Taco Impressing with Sales, Menu Innovations

Del Taco's sales are headed in the right direction. flickr: Mike Kalasnik
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John Cappasola is only weeks into his role as Del Taco Restaurants Inc.’s chief executive officer. He began his first earnings conference call Thursday by relaying his excitement about the iconic brand and its future growth as the nation’s second largest Mexican-American quick-service chain. He then backed up the sentiment with bullish sales growth that injected investor optimism into the 53-year-old brand.

Del Taco reported system-wide comparable restaurant sales growth of 7.1 percent and company-operated comparable restaurant sales growth of 6.9 percent in the second quarter, marking 15 and 20 consecutive quarters, respectively, of positive gains.

The company’s revenue boosted 8.6 percent to $108.6 million, which topped Wall Street estimates by $1.49 million.

“The performance speaks for itself,” said Cappasola in the call, who was promoted from the CBO and president role when Paul Murphy resigned in early July. “Twenty consecutive quarters of positive company same-store sales with 14 of the past 17 quarters achieving positive transactions. This has been made possible by dramatically improving guest experiences at our restaurants, significantly enhancing consumer perceptions of Del Taco, and successfully repositioning the brand for future growth.”

Del Taco had 555 restaurants as of June 20. The chain opened one company store and two franchised locations in the second quarter and closed two company restaurants. Two franchised stores have opened in the third quarter and 10 restaurants (nine company owned) are currently under construction.

Net income grew to $5.3 million (diluted earnings per share of 13 cents) compared to $4.9 million in the previous year period.

Cappasola said in the call that Del Taco’s mid-term goal of $1.5 million average unit volume by 2018 and mid-single digit system unit growth in well on its way. But the brand is getting there by focusing on long-term growth. Del Taco will be announcing a new CMO shortly and created the role of SVP of planning and strategic initiatives.

Del Taco’s menu underwent several changes that helped lift sales as well. The chain refreshed its breakfast menu in March with Breakfast Rollers and the Huevos Rancheros Epic Burrito. The Del Taco continues to achieve double-digit sales mix, including the Del Taco Meal, and Platos, which pair entrees with sides, such as the popular Wet Burrito Platos, helped the brand penetrate a challenging dinner daypart, Cappasola said. He said they’ve consistently garnered 3 percent-plus sales mix at dinner.

Del Taco launched a Carnitas LTO in the third quarter, which marked the first time carnitas have graced the menu since 2014.

Upcoming, Del Taco plans to introduce Queso Blanco. The product will be free of artificial colors, flavors or preservatives.

“From a menu strategy standpoint, we like the flexibility the Queso provides to drive sales and we think we can use it across multiple menu platforms,” Steven Blake, Del Taco’s executive vice president and CFO, said in the call. “… It will feed our new product development pipeline for years to come.”

Cappasola said Del Taco will expand its mobile and online ordering test that is currently available in more than 50 restaurants. The Las Vegas test recently added UberEATS network of drivers. Additionally, Del Taco announced it entered into a delivery test agreement with GrubHub that will kick off in the third quarter.

Restaurants in Orange County, Los Angeles, and Las Vegas will join the platform.