Del Taco Restaurants, Inc., the second largest Mexican-American quick-service chain by units in the U.S., operating restaurants under the name Del Taco, announced fiscal first quarter 2017 financial results. The company also reaffirmed guidance for fiscal year 2017.
Fiscal First Quarter 2017 Highlights
System-wide comparable restaurant sales growth of 4.2 percent and company-operated comparable restaurant sales growth of 4 percent, marking the 14th and 19th consecutive quarter of gains, respectively.
Company-operated comparable restaurant sales growth was comprised of average check growth of 3.7 percent, including over 1 percent of menu mix growth, and a transaction increase of 0.3 percent.
Total revenue of $105.3 million, representing 8.2 percent growth from the fiscal first quarter 2016.
Company-operated restaurant sales of $101.2 million, representing 8.2 percent growth from the fiscal first quarter 2016.
Net income increased to $4.2 million, representing diluted earnings per share of $0.10, compared to $3.1 million in the fiscal first quarter 2016, representing diluted earnings per share of $0.08.
Adjusted EBITDA, a non-GAAP financial measure, increased to $14.6 million from $13.1 million in the fiscal first quarter 2016, representing 11.4 percent growth including an approximate $0.5 million benefit in the fiscal first quarter 2017 from the timing of advertising expense which will reverse throughout the year.
The opening of three franchise restaurants and the strategic refranchising of five company-operated restaurants; and the repurchase of approximately 641 thousand shares at an average price per share of $12.48, for $8 million.
Paul J.B. Murphy, III, chief executive officer of Del Taco, says, “We delivered a successful quarter characterized by comparable restaurant sales and profitability growth, despite traffic challenges across our industry and other external headwinds. With our expectation for continued sales momentum in the second quarter and our underlying operational and product initiatives in place for the balance of the year, we are increasingly confident that we can achieve our 2017 annual guidance and reach our stated goal of $1.5 million in average unit volume by 2018.”
Murphy says, “Fresh Combined Solutions has strengthened our [quick-service-plus] value oriented positioning, enabling us to take share from [quick-serve] and grow relevance among fast casual occasions. The efficacy of this strategy also supports our acceleration to mid-single-digit restaurant growth in 2017 and our ability to accelerate that growth in 2018 and beyond. Our new unit development is predicated on quality of growth and will be well balanced across geographies and between company and franchise partners.”
Review of Fiscal First Quarter 2017 Financial Results
Total revenue was $105.3 million, an increase of 8.2 percent compared to $97.4 million in the fiscal first quarter 2016. The growth in revenue was driven by an 8.2 percent increase in company restaurant sales and an 8.5 percent increase in franchise revenue.
Comparable restaurant sales increased 4.2 percent system-wide for the fiscal first quarter 2017, resulting in a 7.4 percent increase on a two-year basis. The Del Taco system has now generated comparable restaurant sales growth for 14th consecutive quarters. Company-operated comparable restaurant sales increased 4 percent marking the 19th consecutive quarter of comparable restaurant sales growth. Franchise comparable restaurant sales increased 4.4 percent.
Net income was $4.2 million, representing $0.10 per diluted share, compared to $3.1 million in the fiscal first quarter 2016, representing $0.08 per diluted share.
Restaurant contribution, a non-GAAP financial measure, increased 10.6 percent year-over-year to $19.4 million. As a percentage of Company restaurant sales, restaurant contribution increased approximately 40 basis points year-over-year to 19.1 percent. The improvement was driven by the timing of advertising expense which drove a 50 basis point reduction in occupancy and other operating expenses during the quarter. Excluding this timing benefit, which will reverse throughout the year, restaurant contribution margin would have decreased by approximately 10 basis points, driven by a 100 basis point increase in labor and related expenses partially offset by improvements in other operating expenses and food and paper costs. A reconciliation between restaurant contribution and the nearest GAAP financial measure is included in the accompanying financial data.
Adjusted EBITDA, a non-GAAP financial measure, increased to $14.6 million compared to $13.1 million in the previous year’s fiscal first quarter, representing 11.4 percent growth which includes an approximate $0.5 million benefit from the timing of advertising expense which will reverse throughout the year. A reconciliation between adjusted EBITDA and the nearest GAAP financial measure is included in the accompanying financial data.
Our franchise partners opened three restaurants during the fiscal first quarter 2017. As previously announced, we sold two company-operated restaurants in the San Diego, CA area to a new franchisee that had previously signed a development commitment in that market. Additionally, we sold three company-operated restaurants in Atlanta, GA to another new franchisee who had previously signed a development agreement in the Atlanta area. Lastly, we announced the signing of new franchise development agreements for West Palm Beach, FL and Tennessee. These transactions reflect strategic opportunities to help accelerate system development.
Repurchase Program for Common Stock and Warrants
During the fiscal first quarter 2017, we repurchased 641,165 shares at an average price per share of $12.48. Subsequent to the end of the quarter, we purchased 400,000 warrants from PW Acquisitions, LP, a related party, for $3.75 per warrant.
We currently have $25.3 million remaining under our $50 million repurchase authorization.
Fiscal Year 2017 Guidance
We are reaffirming the following guidance for fiscal year 2017, which is a 52-week period ending January 2, 2018:
System-wide same store sales growth of approximately 2 percent to 4 percent.
Total revenue between $466 million and $476 million.
Total company-operated restaurant sales between $448 million and $458 million;
Restaurant contribution margin between 19.8 percent and 20.3 percent.
General and administrative expenses of between approximately 8.1 percent and 8.5 percent of total revenue, including incremental public company costs to support compliance with the Sarbanes-Oxley Section 404(b) requirement during fiscal 2018;
Effective tax rate of approximately 40 percent.
Diluted earnings per share of approximately $0.52 to $0.55.
Adjusted EBITDA between $71.0 million and $73.5 million.
23 to 26 new system-wide restaurant openings.
Net capital expenditures totaling approximately $43 million to $46 million including approximately $16 to $17 million for new unit construction, approximately $12.5 to $13.5 million for capitalized maintenance, approximately $7.5 to $8.5 million for discretionary investment in equipment, technology and remodels, and up to approximately $7.0 million for land acquisition for development after 2017.
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 due to the fact that these items could vary significantly from period to period. Accordingly, a reconciliation to the corresponding GAAP financial measure is not available without unreasonable effort.