Lake Forest / CA. (dtr) Del Taco Restaurants Inc., the second largest Mexican-American quick service restaurant chain by units in the United States, reported fiscal second quarter 2021 financial results for the 12-week period ended June 15, 2021 and provided a business update.
Management Commentary
John D. Cappasola, Jr., President and Chief Executive Officer of Del Taco, commented, «We generated outstanding revenue and profitability growth during the second quarter as we leveraged our top-line momentum across all key cost inputs. Top-line growth was characterized by system-wide comparable restaurant sales growth versus 2020 in the high teens, representing mid-single digit growth versus 2019. Importantly, compared to 2019 all day parts were positive during the second quarter except for breakfast, which has since improved to flat in the third quarter, while late snack and graveyard were our top performing dayparts compared to 2019, aided by a strong delivery mix that again reached approximately 7 percent of sales.»
Cappasola continued, «Looking ahead, our focus on driving sales includes plans to introduce innovative new products and platforms along with the launch of our new Del App and loyalty program this September. In fact, just today we introduced a new breakfast platform centered on Double Cheese Breakfast Tacos that is aimed at capitalizing on the continued normalization of morning routines and strong breakfast seasonality as we head into Fall. Later this summer, we will follow this up with yet another exciting platform launch, Stuffed Quesadilla Tacos, which puts us in a great position to generate guest excitement and momentum in the back half of 2021 and entering 2022.»
Cappasola concluded, «We are very encouraged that Del Taco’s franchise led system growth is gaining momentum as we now expect to open thirteen system-wide restaurants in 2021. We recently announced an agreement with a seasoned multi-concept QSR franchise group for 12 restaurants across the Florida panhandle, representing our third franchise development agreement signed this year for a total of 30 future restaurants. We believe these agreements, plus our expanding backlog and other late-stage agreements we are finalizing, put us in a position to deliver system-wide new unit growth of 5 percent starting in 2023.»
Fiscal Second Quarter 2021 Highlights
- Comparable restaurant sales results compared to the fiscal second quarter 2020:
- System-wide comparable restaurant sales increased 17.8 percent;
- Company-operated comparable restaurant sales increased 18.3 percent;
- Franchise comparable restaurant sales increased 17.2 percent;
- Total revenue of USD 125.0 million, representing 19.5 percent growth from the fiscal second quarter 2020;
- Company-operated restaurant sales of USD 113.0 million, representing 18.6 percent growth from the fiscal second quarter 2020;
- Net income of USD 6.0 million, or USD 0.16 per diluted share, compared to net loss of USD 0.6 million, or USD 0.02 per diluted share, in the fiscal second quarter 2020;
- Adjusted net income* of USD 6.1 million, or USD 0.16 per diluted share, compared to adjusted net loss* of USD 75 thousand, or USD 0.00 per diluted share, in the fiscal second quarter 2020;
- Restaurant contribution* margin of 18.9 percent compared to 16.4 percent in the fiscal second quarter 2020;
- Adjusted Ebitda* of USD 16.9 million compared to USD 12.1 million in the fiscal second quarter 2020; and
- Two franchised restaurant openings.
(*)Adjusted net income/loss, 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.
Review of Fiscal Second Quarter 2021 Financial Results
Total revenue increased 19.5 percent to USD 125.0 million compared to USD 104.6 million in the fiscal second quarter 2020. Comparable restaurant sales increased 17.8 percent system-wide, increased 18.3 percent at company-operated restaurants, and increased 17.2 percent at franchised restaurants.
Net income was USD 6.0 million, or USD 0.16 per diluted share, compared to net loss of USD 0.6 million, or USD 0.02 per diluted share, last year.
Adjusted net income*, which excludes various items, was USD 6.1 million, or USD 0.16 per diluted share, compared to adjusted net loss* of USD 75 thousand, or USD 0.00 per diluted share, last year.
Restaurant contribution* grew 36.9 percent to USD 21.4 million compared to USD 15.6 million in the fiscal second quarter 2020. As a percentage of company-operated restaurant sales, restaurant contribution margin increased 250 basis points year-over-year to 18.9 percent. The increase from the year-ago period was the result of an approximate 140 basis point decrease in food and paper costs, an approximate 30 basis point decrease in labor and related expenses, and an approximate 80 basis point decrease in occupancy and other operating expenses.
Adjusted Ebitda* grew 39.5 percent to USD 16.9 million compared to USD 12.1 million in the fiscal second quarter 2020.
Liquidity
As of June 15, 2021, Del Taco’s debt, net of cash, totaled USD 103.0 million compared to USD 106.7 million at the end of fiscal year 2020. At the end of the fiscal second quarter 2021 the Company had USD 126.6 million of remaining availability under its revolving credit facility.
Common Stock Repurchase Program
Del Taco repurchased 210,401 shares of common stock at an average price of USD 10.07 per share for a total of USD 2.1 million during the fiscal second quarter 2021. At the end of the fiscal second quarter approximately USD 15.0 million remained under the USD 75 million repurchase authorization.
Dividend Program Announcement
The Board of Directors has authorized a quarterly cash dividend of USD 0.04 per share of common stock payable on August 25, 2021 to shareholders of record at the close of business on August 11, 2021.
Del Taco intends to pay quarterly cash dividends for the foreseeable future, however, all subsequent dividend payments will be reviewed quarterly and declared by the Board of Directors at its discretion.
Restaurant Portfolio and New Development Agreements
During the fiscal second quarter 2021, two franchised restaurants opened.
The Company recently signed a new franchise development agreement for 12 restaurants across the Florida panhandle with an experienced multi-concept quick-service franchise group. This represents the third development agreement Del Taco has signed in 2021 for a total of 30 restaurants, all in the Southeast.
Based on the current development backlog, the three newly signed development agreements and additional agreements the Company expects to announce shortly, Del Taco expects system-wide openings will continue to be led by franchisees and will increase modestly in 2022 compared to the 13 expected system-wide openings in 2021, followed by system-wide new unit growth of 5 percent beginning in 2023.
Fiscal Year 2021 Guidelines
- Annual commodity inflation compared to the prior year of up to 2 percent (up from 1 percent previously), inclusive of approximately 5 percent inflation in the fiscal third quarter compared to the prior year and approximately 4 percent inflation in the fiscal fourth quarter compared to the prior year;
- Labor and related inflation of approximately 6 percent;
- Menu price increase of approximately 4 percent;
- Modest restaurant contribution margin* expansion compared to the 16.1 percent achieved during fiscal 2020;
- General and administrative expenses, inclusive of stock-based compensation, at approximately 9.0 percent of total revenue;
- Effective tax rate of approximately 29 percent (up from 27 percent previously);
- Capital expenditures in the low USD 30 million range, including expenditures to maintain or enhance existing restaurants, company-operated restaurant openings, the test remodel program, and various discretionary technology and restaurant level investments;
- Four company-operated restaurant openings, of which three have already opened; and
- Nine (up from eight previously) franchised restaurant openings, of which seven have already opened, for 13 (up from twelve previously) system-wide openings.
