Del Taco: Reports Fiscal Q4 and Fiscal Year 2020 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 fourth quarter and fiscal year 2020 financial results for the 16-week and 52-week periods ending December 29, 2020 and provided a business update.

Management Commentary

President and Chief Executive Officer John D. Cappasola, Jr. commented: «We delivered a solid fourth quarter performance in terms of comparable restaurant sales growth, restaurant contribution margin and adjusted Ebitda performance. Our great food, great value, and great experiences drove overall satisfaction scores to record levels, while the success of our Crispy Chicken menu and seasonal Tamale promotion enabled us to grow system-wide comparable restaurant sales while navigating through the clear headwinds affecting our industry. The hard work of our restaurant teams and support center staff helped us manage our margins and profitability despite the many challenges presented by the ongoing pandemic. In doing so, during the second half of 2020 we demonstrated not only the resilience of our business, but also accelerated performance which sets us up for success in 2021.»

Cappasola continued, «Both company-operated and franchise restaurants continue to generate positive comparable restaurant sales to date in the first quarter and have demonstrated sequential improvement compared to the fourth quarter last year. We further expect accelerated performance for the remainder of the first quarter and through the second quarter as we lap the initial Covid-19 impact. In addition, we believe our five drivers of acceleration, coupled with ongoing margin management strategies, will help drive our results in the second half of the year and facilitate modest restaurant contribution margin expansion on an annual basis.»

Fiscal Fourth Quarter 2020 Highlights

  • System-wide comparable restaurant sales increased 3.8 percent;
    • Company-operated comparable restaurant sales increased 0.6 percent;
    • Franchised comparable restaurant sales increased 7.5 percent;
  • Total revenue of USD 156.7 million, representing a 0.2 percent decline from the fiscal fourth quarter 2019;
  • Company-operated restaurant sales of USD 141.7 million, representing a 2.2 percent decline from the fiscal fourth quarter 2019 primarily due to fewer company-operated restaurants open during 2020 compared to 2019 due to our refranchising activity;
    • Company-operated comparable restaurant sales within Los Angeles, Orange and Clark (Las Vegas) counties representing approximately half of company-operated restaurants were notably negative, while all other company-operated counties had positive comparable restaurant sales;
  • Net income of USD 7.5 million, or USD 0.20 per diluted share, compared to net loss of USD 114.1 million, or USD 3.08 per diluted share, in the fiscal fourth quarter 2019;
  • Adjusted net income of USD 7.5 million, or USD 0.20 per diluted share, compared to adjusted net income of USD 6.7 million, or USD 0.18 per diluted share, in the fiscal fourth quarter 2019;
  • Restaurant contribution margin of 17.0 percent compared to 17.4 percent in the fiscal fourth quarter 2019;
  • Adjusted Ebitda of USD 18.4 million compared to USD 20.5 million in the fiscal fourth quarter 2019; and
  • Two franchise-operated restaurants opened and two franchise-operated restaurants closed.

Fiscal Year 2020 Highlights

  • System-wide comparable restaurant sales decreased 0.9 percent;
    • Company-operated comparable restaurant sales decreased 2.9 percent;
    • Franchised comparable restaurant sales increased 1.4 percent;
  • Total revenue of USD 491.9 million, representing a 4.1 percent decrease from the fiscal year 2019;
  • Company-operated restaurant sales of USD 446.8 million, representing a 5.7 percent decline from the fiscal year 2019 in part due to fewer company-operated restaurants open during 2020 compared to 2019 due to our refranchising activity;
  • Net loss of USD 89.7 million, or USD 2.41 per diluted share, compared to net loss of USD 118.3 million, or USD 3.20 per diluted share, in fiscal year 2019;
  • Adjusted net income of USD 13.5 million, or USD 0.36 per diluted share, compared to adjusted net income of USD 17.7 million, or USD 0.47 per diluted share, in the fiscal year 2019;
  • Restaurant contribution margin of 16.1 percent compared to 17.3 percent in the fiscal year 2019;
  • Adjusted Ebitda of USD 54.6 million compared to USD 63.8 million in the fiscal year 2019; and
  • Three company-operated and seven franchise-operated restaurants opened, two company-operated and eight franchise-operated restaurants closed, and six company-operated restaurants were sold to franchisees.

Review of Fiscal Fourth Quarter 2020 Financial Results

Total revenue decreased 0.2 percent to USD 156.7 million compared to USD 157.1 million in the fiscal fourth quarter 2019. Comparable restaurant sales increased 3.8 percent system-wide, increased 0.6 percent at company-operated restaurants, and increased 7.5 percent at franchised restaurants.

Net income was USD 7.5 million, or USD 0.20 per diluted share, compared to net loss of USD 114.1 million, or USD 3.08 per diluted share, last year.

Adjusted net income, which excludes various items, was USD 7.5 million or USD 0.20 per diluted share compared to adjusted net income of USD 6.7 million or USD 0.18 per diluted share last year.

Restaurant contribution was USD 24.1 million compared to USD 25.2 million in the fiscal fourth quarter 2019. As a percentage of company-operated restaurant sales, restaurant contribution margin decreased 40 basis points year-over-year to 17.0 percent. The decrease was the result of an approximate 110 basis point decrease in food and paper costs, an approximate 20 basis point decrease in labor and related expenses, and an approximate 170 basis point increase in occupancy and other operating expenses.

Adjusted Ebitda was USD 18.4 million compared to USD 20.5 million in the fiscal fourth quarter 2019.

Liquidity

The Company reduced its outstanding revolving credit facility borrowing by USD 9 million during the fiscal fourth quarter 2020 to USD 115 million from USD 124 million at the end of the fiscal third quarter 2020. At the end of fiscal year 2020 the Company’s debt, net of cash, totaled USD 106.7 million compared to USD 143.4 million at the end of fiscal year 2019, representing a reduction of approximately USD 36.7 million. At the end of fiscal year 2020, the Company had USD 117.7 million of remaining availability under its revolving credit facility.

Common Stock Repurchase Program

The Company repurchased 496,356 shares of common stock at average price of USD 8.49 per share for a total of USD 4.2 million during the fiscal fourth quarter 2020. At the end of fiscal year 2020, approximately USD 18.1 million remains under the USD 75 million repurchase authorization.

Dividend Program Initiation

The Company’s first quarterly dividend of USD 0.04 per share of common stock was paid on February 23, 2021 to shareholders of record at the close of business on February 2, 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

During the fiscal fourth quarter 2020, two franchised restaurants opened and two franchised restaurants closed. Del Taco ended fiscal year 2020 with a system-wide total of 596 restaurants consisting of 295 company-operated and 301 franchised restaurants.

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 provide the following guidelines:

  • 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, due to California regulations including a minimum wage increase from USD 13 to USD 14 per hour that began on January 1, 2021 and a mandated minimum salary of twice the minimum wage, which impacts slightly over half of our General Managers;
  • 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 our existing restaurants, company-operated restaurant openings, our test remodel program and various discretionary technology and restaurant level investments;
  • Four company-operated restaurant openings, of which one has already opened; and
  • Eight franchised restaurant openings, of which one has already opened, for a dozen system-wide openings.