Del Taco Inc.: Reports Fiscal Q3-2021 Financial Results

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 third quarter 2021 financial results for the 12-week period ended September 7, 2021.

Management Commentary

John D. Cappasola, Jr., President and Chief Executive Officer of Del Taco, commented, «We have made significant progress in signing new franchise development agreements, having signed a total of seven so far this year, including four since July, for a total of 53 new future Del Taco restaurant commitments across six states from coast to coast. Accelerating franchise development with experienced operators looking to diversify their portfolios through our unique QSR+ positioning is a critical part of our growth and these new agreements further support our stated goal of 5 percent system-wide new unit growth led by franchising beginning in 2023.»

Cappasola continued, «We are pleased with our positive third quarter comparable restaurant sales as we lapped strong performance driven by our very successful launch of Crispy Chicken, as well as our momentum thus far in the fourth quarter. Notable product innovation during the third quarter included new Double Cheese Breakfast Tacos and new Stuffed Quesadilla Tacos, and we plan to follow these introductions with the return of our seasonal, limited-time Tamales menu beginning in November.»

Cappasola concluded, «We recently launched our new holistic CRM platform and introduced our new loyalty App called Del Yeah! Rewards, a points-based loyalty program with four tiers that unlock exciting offers, rewards and experiences which increase along with usage of the app. We are confident that the App will enable us to not only strengthen our guest engagement but also increase sales and frequency over time.»

Fiscal Third Quarter 2021 Highlights

  • Comparable restaurant sales results compared to the fiscal third quarter 2020:
    • System-wide comparable restaurant sales increased 1.8 percent;
    • Company-operated comparable restaurant sales increased 1.6 percent;
    • Franchise comparable restaurant sales increased 2.0 percent;
  • Total revenue of USD 124.3 million, representing 2.9 percent growth from the fiscal third quarter 2020;
  • Company-operated restaurant sales of USD 112.0 million, representing 2.2 percent growth from the fiscal third quarter 2020;
  • Net income of USD 3.8 million, or USD 0.10 per diluted share, compared to USD 5.8 million, or USD 0.15 per diluted share, in the fiscal third quarter 2020;
  • Adjusted net income of USD 4.2 million, or USD 0.11 per diluted share, compared to USD 6.0 million, or USD 0.16 per diluted share, in the fiscal third quarter 2020;
  • Restaurant contribution margin of 16.5 percent compared to 18.0 percent in the fiscal third quarter 2020;
  • Adjusted Ebitda of USD 14.1 million compared to USD 15.3 million in the fiscal third quarter 2020; and
  • One company-operated and three franchised-operated restaurants opened; one company-operated and one franchise-operated restaurant closed.

Review of Fiscal Third Quarter 2021 Financial Results

Total revenue increased 2.9 percent to USD 124.3 million compared to USD 120.8 million in the fiscal third quarter 2020. Comparable restaurant sales increased 1.8 percent system-wide, increased 1.6 percent at company-operated restaurants, and increased 2.0 percent at franchised restaurants.

Net income was USD 3.8 million, or USD 0.10 per diluted share, compared to USD 5.8 million, or USD 0.15 per diluted share, last year.

Adjusted net income, which excludes various items, was USD 4.2 million, or USD 0.11 per diluted share, compared to USD 6.0 million, or USD 0.16 per diluted share, last year.

Restaurant contribution was USD 18.5 million compared to USD 19.7 million in the fiscal third quarter 2020. As a percentage of company-operated restaurant sales, restaurant contribution margin decreased 150 basis points year-over-year to 16.5 percent. The decrease from the year-ago period was the result of an approximate 80 basis points increase in labor and related expense and an approximate 100 basis points increase in other operating expense, due to higher advertising expense and utilities expense, partially offset by an approximate 30 basis points decrease in food and paper costs.

Adjusted Ebitda was USD 14.1 million compared to USD 15.3 million in the fiscal third quarter 2020.

Liquidity

As of September 7, 2021, Del Taco’s debt, net of cash, totalled USD 102.3 million compared to USD 106.7 million at the end of fiscal year 2020. At the end of the fiscal third quarter 2021 the Company had USD 130.6 million of remaining availability under its revolving credit facility.

Common Stock Repurchase Program
Del Taco repurchased 449,324 shares of common stock at an average price of USD 9.87 per share for a total of USD 4.4 million during the fiscal third quarter 2021. At the end of the fiscal third quarter approximately USD 10.6 million remained under the USD 75 million repurchase authorization.

Dividend Announcement

The Board of Directors has authorized a quarterly cash dividend of USD 0.04 per share of common stock payable on November 24, 2021 to shareholders of record at the close of business on November 3, 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 third quarter 2021, one company-operated and three franchised-operated restaurants opened, and one company-operated and one franchise-operated restaurant closed.

Since July, the Company signed four development agreements for a total of 23 restaurants. These agreements followed three development agreements announced earlier this year for 30 units. In total, Del Taco has signed seven development agreements to date in 2021 for 53 restaurants, featuring new franchisees across six states from coast to coast. The four recent new development agreements cover future restaurants in four states from coast to coast, including the east coast of Central Florida and Raleigh/Durham, North Carolina, as well as Fresno, California and non-traditional casino locations in Las Vegas.

Also, the Company recently announced a new delivery-only license agreement with REEF, who is a leader in the growing ghost kitchen and delivery restaurant space. The collaboration will initially kick off later this month with the first location in the dense urban Mid City area of Los Angeles, the first of several planned delivery-only locations.

Based on the current development pipeline, including the seven franchised development agreements signed this year, Del Taco expects system-wide new unit openings will continue to be led by franchisees and will increase modestly in 2022 compared to the thirteen expected system-wide new unit 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 2 percent, inclusive of approximately 5 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 4.6 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;
  • Capital expenditures up to USD 30 million, 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 franchised restaurant openings, of which eight have already opened, for 13 system-wide openings.