Del Taco Restaurants, Inc., the second largest Mexican-American QSR chain by units in the U.S., operating restaurants under the name Del Taco, announced fiscal third quarter 2016 financial results for the 12 weeks ended September 6. The company also updated its fiscal year 2016 guidance based upon its performance to-date and expectations for continued momentum during its 17-week fiscal fourth quarter.
Del Taco became a public company when it completed a business combination with Levy Acquisition Corp. on June 30, 2015, which resulted in a fiscal third quarter 2015 financial statement presentation that includes a predecessor period for the two-weeks ended June 30, 2015 followed by a successor period for the 10 weeks ended September 8, 2015. The financial results for the fiscal third quarter 2015 referenced herein have been aggregated to reflect, on a pro forma basis, the combined successor and predecessor periods for the 12 weeks ended September 8, 2015.
Fiscal Third Quarter 2016 Highlights
System-wide comparable restaurant sales growth of 6.7 percent and company-operated comparable restaurant sales growth of 7.1 percent, marking the 12th and 17th consecutive quarter of gains, respectively.
Company-operated comparable restaurant sales growth comprised average check growth of 4.8 percent, including over 1 percent of menu mix growth, and a transaction increase of 2.3 percent, representing a sequential transaction improvement of 410 basis points compared to the second fiscal quarter of 2016.
Total revenue of $104.4 million, representing 5.9 percent growth from the fiscal third quarter of 2015.
Restaurant sales of $100.2 million, representing 5.7 percent growth from the fiscal third quarter of 2015.
Paul J.B. Murphy, III, president and chief executive officer of Del Taco, says, “Our strong fiscal third quarter performance is a direct result of the success of our Fresh Combined Solutions strategy and UnFreshing Believable 2.0 campaign, which are inspiring positive guest experiences and showcasing Del Taco as an innovator within the QSR segment. Through the use of fresh ingredients and product innovation served with the speed and convenience of a drive-thru, we are further differentiating our iconic brand and broadening our appeal, generating system-wide comparable restaurant sales growth of 6.7 percent, or 12.3 percent on a two-year basis, that we believe is among the highest in the industry. We are delighted that our top-line momentum led to substantial increases in restaurant contribution margin, adjusted EBITDA and net income.”
Murphy continues, “In June we launched The Del Taco—a bigger, better-tasting crunchy beef taco worthy of our name—and it has since broken all-time sales records for new product introductions. Later this month we are following up this highly successful launch with a system-wide rollout of our new Platos program, our first occasion based expansion strategy. Platos start at $6.49 and consist of plated meals including chips and salsa, rice and beans and an entrée. We are hopeful that similar to our test markets, the Platos program will drive incremental sales and margin dollars.”
Murphy concludes, “The success of our Fresh Combined Solutions strategy and UnFreshing Believable 2.0 campaign bolsters our confidence to begin accelerating development in 2017 and is expected to also help us attract new, qualified franchise partners over time. This year, we are expanding at a low-single digit growth rate with a now expected 14 system-wide openings, and next year we expect to accelerate system growth to a mid-single digit growth rate. Our long-term goal of 2,000-plus Del Taco restaurants reflects what we view as a considerable opportunity to expand nationwide, which we are approaching in the near-term primarily through lower risk, in-fill development.”
Review of Fiscal Third Quarter 2016 Financial Results
Total revenue was $104.4 million, an increase of 5.9 percent compared to $98.6 million in the fiscal third quarter of 2015. The growth in revenue was driven by a 5.7 percent increase in company restaurant sales and a 13.8 percent increase in franchise revenue.
Comparable restaurant sales increased 6.7 percent system-wide for the fiscal third quarter ended September 6, resulting in an impressive 12.3 percent increase on a two-year basis. Both of these results represent the highest performances year-to-date. The Del Taco system has now generated comparable restaurant sales growth for twelve consecutive quarters. Company-operated comparable restaurant sales increased 7.1 percent, marking the 17th consecutive quarter of comparable restaurant sales growth. Franchise comparable restaurant sales increased 6.2 percent.
Restaurant Portfolio Activity and Fiscal Year 2017 Development Outlook
During the fiscal third quarter, Del Taco opened one company-operated and two franchised restaurants, and also acquired one franchised restaurant in Ontario, California. Year to date, Del Taco has opened six system-wide restaurants and eight system-wide restaurant openings are expected in the fiscal fourth quarter.
On October 12, 2016 Del Taco opportunistically acquired five franchised restaurants in and around Bakersfield, California, from a single franchisee and intends to open additional company-operated restaurants in this market over time.
For fiscal year 2017, system-wide development is expected at a mid-single digit growth rate, consistent with the company’s plans to begin accelerating restaurant openings.