Del Taco: Reports Fiscal Q1-2021 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 first quarter 2021 financial results for the 12-week period ending March 23, 2021 and provided a business update.

Management Commentary

John D. Cappasola, Jr., President and Chief Executive Officer of Del Taco, commented, «We are pleased to have delivered a very strong first quarter that sets us up for a great year at Del Taco. Although the operating environment remains very difficult due to continued Covid related impacts and very challenging labor availability, our team is doing an outstanding job growing sales by serving guests through our drive-thru, take-out, and delivery channels while managing costs effectively. This resulted in significant first quarter restaurant contribution and adjusted Ebitda growth and margin expansion.»

Cappasola continued, «Our marketing strategy is centered on innovation and value while accentuating the convenience we offer guests through our drive-thru, take-out, and delivery channels. In the first quarter, we launched Honey Mango Crispy Chicken followed by our seasonal Lent promotion that featured Crispy Jumbo Shrimp. In the second quarter, we have since introduced a new Honey Chipotle BBQ Crispy Chicken and re-launched our Crunchtada platform with a USD 1, USD 2 and USD 3 line up.»

Cappasola concluded, «On the development front, we opened five system-wide Del Taco restaurants during the first quarter and plan to open a dozen system-wide restaurants this year. We are encouraged by the recent signing of two new development agreements totaling 18 restaurants in the Southeast with two experienced multi-concept QSR franchise groups. One agreement includes commitments in South Carolina and Georgia, and the other agreement includes a commitment for Florida’s west coast. We view these signings and other active discussions as indicative of our brand relevance across a broad geographic footprint as we aim to accelerate franchise growth.»

Fiscal First Quarter 2021 Highlights

  • Comparable restaurant sales results compared to the fiscal first quarter 2020:
    • System-wide comparable restaurant sales increased 9.1 percent;
    • Company-operated comparable restaurant sales increased 4.9 percent;
    • Franchise comparable restaurant sales increased 14.0 percent;
  • Total revenue of USD 115.5 million, representing 5.2 percent growth from the fiscal first quarter 2020;
  • Company-operated restaurant sales of USD 103.6 million, representing 3.2 percent growth from the fiscal first quarter 2020;
  • Net income of USD 2.6 million, or USD 0.07 per diluted share, compared to net loss of USD 102.5 million, or USD 2.76 per diluted share, in the fiscal first quarter 2020;
  • Adjusted net income* of USD 2.5 million, or USD 0.07 per diluted share, compared to adjusted net loss* of USD 0.3 million, or USD 0.01 per diluted share, in the fiscal first quarter 2020;
  • Restaurant contribution* margin of 16.0 percent compared to 12.7 percent in the fiscal first quarter 2020;
  • Adjusted Ebitda* of USD 11.6 million compared to USD 8.7 million in the fiscal first quarter 2020; and
  • Two company-operated restaurants and three franchised restaurant openings, and two franchised restaurant closures.

* Adjusted net income/loss, restaurant contribution, and adjusted Ebitda are non-GAAP measures.

Review of Fiscal First Quarter 2021 Financial Results

Total revenue increased 5.2 percent to USD 115.5 million compared to USD 109.8 million in the fiscal first quarter 2020. Comparable restaurant sales increased 9.1 percent system-wide, increased 4.9 percent at company-operated restaurants, and increased 14.0 percent at franchised restaurants.

Net income was USD 2.6 million, or USD 0.07 per diluted share, compared to net loss of USD 102.5 million, or USD 2.76 per diluted share, last year.

Adjusted net income*, which excludes various items, was USD 2.5 million, or USD 0.07 per diluted share, compared to adjusted net loss* of USD 0.3 million, or USD 0.01 per diluted share, last year.

Restaurant contribution* grew 30.6 percent to USD 16.6 million compared to USD 12.7 million in the fiscal first quarter 2020. As a percentage of company-operated restaurant sales, restaurant contribution margin increased 330 basis points year-over-year to 16.0 percent. The increase was the result of an approximate 250 basis point decrease in food and paper costs, an approximate 50 basis point decrease in labor and related expenses, and an approximate 30 basis point decrease in occupancy and other operating expenses.

Adjusted Ebitda* grew 33.4 percent to USD 11.6 million compared to USD 8.7 million in the fiscal first quarter 2020.

Liquidity

As of March 23, 2021, the Company’s debt, net of cash, totaled USD 107.3 million compared to USD 106.7 million at the end of fiscal year 2020. At the end of the fiscal first quarter 2021 the Company had USD 121.6 million of remaining availability under its revolving credit facility.

Common Stock Repurchase Program

The Company repurchased 106,049 shares of common stock at an average price of USD 8.92 per share for a total of USD 0.9 million during the fiscal first quarter 2021. At the end of the fiscal first quarter approximately USD 17.1 million remains 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 May 27, 2021 to shareholders of record at the close of business on May 13, 2021. While the Company intends to pay quarterly cash dividends for the foreseeable future, 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 first quarter 2021, two company-operated restaurants and three franchised restaurants opened, and two franchised restaurants closed.

The Company recently signed two new development agreements totaling 18 restaurants in the Southeast with two experienced multi-concept QSR franchise groups. One agreement includes commitments for eight restaurants in the Greenville/Spartanburg, South Carolina region and three restaurants in the Macon/Albany, Georgia region. The other agreement includes a commitment for seven restaurants in the Sarasota/Bradenton region on Florida’s west coast.

Reiterated Fiscal Year 2021 Guidelines

Due to the continued uncertainty surrounding Covid-19 and its impact on the business, the Company is not able to provide a full outlook with respect to the 2021 fiscal year. However, the Company is able to reiterate the following guidelines for fiscal 2021 issued on March 8, 2021:

  • Commodity inflation of approximately 1 percent, excluding any adverse impacts from Covid-19 on the supply chain;
  • 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 27 percent;
  • 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 two have already opened; and
  • Eight franchised restaurant openings, of which four have already opened, for a dozen system-wide openings.