Del Taco Restaurants, Inc. Reports Fiscal Second Quarter 2019 Financial Results
System-wide comparable restaurant sales increased 2.2%
Del Taco Restaurants, Inc., (NASDAQ: TACO), the second largest Mexican-American quick service restaurant chain by units in the United States, today reported fiscal second quarter 2019 financial results for the 12-week period ending June 18, 2019. Del Taco also reaffirmed its previously announced guidance for fiscal year 2019.
Fiscal Second Quarter 2019 Highlights
- System-wide comparable restaurant sales increased 2.2%;
- Company-operated comparable restaurant sales increased 1.7%. Company-operated comparable restaurant sales were comprised of average check growth of 4.2%, including slight menu mix growth, partially offset by a transaction decline of 2.5%;
- Franchised comparable restaurant sales increased 2.8%;
- Total revenue of $121.5 million representing 3.1% growth from the fiscal second quarter 2018;
- Company-operated restaurant sales of $112.2 million representing 2.2% growth from the fiscal second quarter 2018;
- Net income was $2.1 million, or $0.06 per diluted share, compared to $4.2 million, or $0.11 per diluted share, in the fiscal second quarter 2018;
- Adjusted net income* was $4.9 million, or $0.13 per diluted share, compared to $5.4 million, or $0.14 per diluted share, in the fiscal second quarter 2018;
- Restaurant contribution* margin of 19.0%, which includes an approximate 70 basis points unfavorable impact from the adoption of the new lease accounting standard, compared to 19.7% in the fiscal second quarter 2018;
- Adjusted EBITDA* of $16.7 million, which includes approximately $0.7 million of unfavorable impact from the adoption of the new lease accounting standard, compared to $16.8 million in the fiscal second quarter 2018; and
- One company-operated restaurant and two franchised restaurant openings and three company-operated restaurant closures.
John D. Cappasola, Jr., President and Chief Executive Officer of Del Taco, commented, “Del Taco’s digital transformation, value evolution, and menu innovation strategies drove sequential system-wide comparable restaurant sales improvement during the second quarter. Company-operated restaurants experienced a 230 basis point and 300 basis point improvement, respectively, in comparable restaurant sales and transactions relative to the first quarter, while franchised restaurants similarly generated stronger sequential trends. We also improved our restaurant contribution margin performance compared to the first quarter due to these stronger top-line results coupled with effective cost management. Based upon our second quarter performance and outlook for the remainder of 2019, we are reaffirming our annual guidance.”
Cappasola continued, “The Del App now exceeds 675,000 registered users and we have expanded its functionality in company-operated restaurants to include online ordering through the App for pickup or delivery. Delivery is already available through Grubhub in substantially all company-operated restaurants, and we are particularly excited about our plans to add Postmates and DoorDash later this year.”
Cappasola concluded, “Del Taco’s second quarter product and promotion strategy centered on the $4, $5 and $6 ‘Fresh Faves’ box meals to enhance our value platform, and the Beyond Taco and Beyond Avocado Taco platform to leverage our menu innovation. These products accentuate our QSR plus brand positioning and have been very well received by our guests as ‘Fresh Faves’ mixed at nearly 5% throughout the quarter while the Beyond Tacos mixed at over 6% since their system-wide launch on April 25th. During the third quarter we expanded our Beyond product line to include the Beyond 8 Layer Burrito and the Epic Beyond Cali Burrito as we seek to capitalize on the popularity and versatility of this 100% plant-based protein.”
Review of Fiscal Second Quarter 2019 Financial Results
Total revenue increased 3.1% to $121.5 million compared to $117.8 million in the fiscal second quarter 2018. Comparable restaurant sales increased 2.2% system-wide, resulting in a 5.5% increase on a two-year basis. Company-operated comparable restaurant sales increased 1.7% while franchise comparable restaurant sales increased 2.8%.
Net income was $2.1 million, representing $0.06 per diluted share, compared to $4.2 million in the fiscal second quarter 2018, representing $0.11 per diluted share.
Adjusted net income* was $4.9 million, or $0.13 per diluted share, compared to $5.4 million in the fiscal second quarter 2018, or $0.14 per diluted share.
Restaurant contribution* was $21.3 million compared to $21.7 million in the fiscal second quarter 2018. As a percentage of Company-operated restaurant sales, restaurant contribution margin decreased 70 basis points year-over-year to 19.0%. The decrease was the result of an approximately 50 basis point increase in occupancy and other operating expenses, an approximately 10 basis point increase in food and paper costs and an approximately 10 basis point increase in labor and related expenses. Restaurant contribution margin included a negative impact of approximately 70 basis points due to the adoption of the new lease accounting standard.
Adjusted EBITDA* was $16.7 million compared to $16.8 million in the fiscal second quarter 2019 and in fiscal 2019 includes approximately $0.7 million of unfavorable impact from the adoption of the new lease accounting standard.
Restaurant Development
During the fiscal second quarter 2019, there was one company-operated restaurant opening and two franchised restaurant openings. Thus far in 2019 there have been a total of nine system-wide openings and there are currently another 12 restaurants under construction with five more scheduled to begin construction in August. Del Taco also recently signed a new franchise development agreement for seven restaurants in Columbus, Ohio.
Repurchase Program for Common Stock and Warrants
During the fiscal second quarter 2019, the Company repurchased 303,607 shares of common stock at average price of $10.05 per share and repurchased 6,186 warrants at an average price per warrant of $1.30, for an aggregate of $3.1 million. At the fiscal quarter-end, approximately $22.3 million remained under our $75 million repurchase authorization.
Restaurant Portfolio Optimization
Del Taco continues to focus on optimizing its restaurant portfolio to help stimulate growth in new restaurants and existing restaurant AUV’s. This effort is expected to help shift company ownership to approximately 45% by the summer of 2020. Del Taco retained The Cypress Group, a leading restaurant and franchise investment banking firm, to manage the refranchising of certain company-operated restaurants across four non-core Western markets.
The marketing process has driven significant interest among new and existing franchisees and the Company is currently performing its due diligence by evaluating transaction economics and, most importantly, buyer qualifications including their track record as operators and new unit developers. Because the exact timing of any refranchising transactions has not yet been determined, they are not embedded within our fiscal year 2019 guidance referenced below.
Fiscal Year 2019 Guidance
Del Taco is reaffirming the following guidance for the 52-week fiscal year 2019 ending December 31, 2019. This guidance does not include any future refranchising transactions.
- System-wide comparable restaurant sales growth of low-single digits;
- Total revenue between $517 million and $527 million;
- Company restaurant sales between $481 million and $491 million;
- Restaurant contribution* margin between 18.1% and 18.6%, which includes approximately 70 basis points of unfavorable impact from the adoption of the new lease accounting standard;
- General and administrative expenses between approximately 8.7% and 9.0% of total revenue;
- Interest expense between approximately $7.2 million and $7.6 million;
- Effective tax rate of approximately 26.5% to 27.5%;
- Adjusted diluted earnings per share of approximately $0.47 to $0.52;
- Adjusted EBITDA* is expected between $66.5 million and $69.0 million, which includes approximately $3.5 million of unfavorable impact from the adoption of the new lease accounting standard;
- At least 25 gross system-wide new unit openings skewing toward franchised restaurants and an estimated 1% system-wide closure rate; and
- Net capital expenditures between $42 million to $47 million.
About Del Taco Restaurants, Inc.
Del Taco (NASDAQ: TACO) offers a unique variety of both Mexican and American favorites such as burritos and fries, prepared fresh in every restaurant's working kitchen with the value and convenience of a drive-thru. Del Taco's menu items taste better because they are made with quality ingredients like fresh grilled chicken and carne asada steak, hand-sliced avocado, hand-grated cheddar cheese, slow-cooked beans made from scratch, and creamy Queso Blanco. Del Taco’s new advertising campaign, “Celebrating the Hardest Working Hands in Fast Food,” further communicates the company’s commitment to providing guests with fresh, quality food prepared by hand every day. Founded in 1964, today Del Taco serves more than three million guests each week at its more than 580 restaurants across 14 states.
Del Taco Restaurants, Inc. | |||||||
Consolidated Balance Sheets | |||||||
(In thousands, except share and per share data) | |||||||
June 18, 2019 | January 1, 2019 | ||||||
Assets | (unaudited) | ||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 5,250 |
| $ | 7,153 | ||
Accounts and other receivables, net |
| 2,269 |
|
| 3,167 | ||
Inventories |
| 2,831 |
|
| 2,932 | ||
Prepaid expenses and other current assets |
| 2,960 |
|
| 4,935 | ||
Assets held for sale | — |
| 14,794 | ||||
Total current assets |
| 13,310 |
|
| 32,981 | ||
Property and equipment, net |
| 153,498 |
|
| 161,429 | ||
Operating lease right-of-use assets |
| 228,763 |
| — | |||
Goodwill |
| 324,120 |
|
| 321,531 | ||
Trademarks |
| 220,300 |
|
| 220,300 | ||
Intangible assets, net |
| 11,370 |
|
| 18,507 | ||
Other assets, net |
| 3,994 |
|
| 4,208 | ||
Total assets | $ | 955,355 |
| $ | 758,956 | ||
Liabilities and shareholders' equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 19,688 |
| $ | 19,877 | ||
Other accrued liabilities |
| 35,094 |
|
| 34,785 | ||
Current portion of finance lease obligations, other debt and deemed landlord financing liabilities |
| 423 |
|
| 1,033 | ||
Current portion of operating lease liabilities |
| 19,861 |
| — | |||
Total current liabilities |
| 75,066 |
|
| 55,695 | ||
Long-term debt, finance lease obligations, other debt and deemed landlord financing liabilities, excluding current portion, net |
| 146,587 |
|
| 178,664 | ||
Operating lease liabilities |
| 225,100 |
| — | |||
Deferred income taxes |
| 69,958 |
|
| 69,471 | ||
Other non-current liabilities |
| 15,336 |
|
| 32,852 | ||
Total liabilities |
| 532,047 |
|
| 336,682 | ||
Shareholders' equity: | |||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding | — | — | |||||
Common stock, $0.0001 par value; 400,000,000 shares authorized; 36,795,532 shares issued and outstanding at June 18, 2019; 37,305,342 shares issued and outstanding at January 1, 2019 |
| 4 |
|
| 4 | ||
Additional paid-in capital |
| 332,769 |
|
| 336,941 | ||
Accumulated other comprehensive (loss) income |
| (43 | ) |
| 180 | ||
Retained earnings |
| 90,578 |
|
| 85,149 | ||
Total shareholders' equity |
| 423,308 |
|
| 422,274 | ||
Total liabilities and shareholders' equity | $ | 955,355 |
| $ | 758,956 | ||
Del Taco Restaurants, Inc. | ||||||||||||||||
Consolidated Statements of Comprehensive Income | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||
12 Weeks Ended | 24 Weeks Ended | |||||||||||||||
June 18, 2019 | June 19, 2018 | June 18, 2019 | June 19, 2018 | |||||||||||||
Revenue: | ||||||||||||||||
Company restaurant sales | $ | 112,180 |
| $ | 109,800 |
| $ | 218,083 |
| $ | 214,909 |
| ||||
Franchise revenue |
| 4,638 |
|
| 4,149 |
|
| 8,703 |
|
| 7,941 |
| ||||
Franchise advertising contributions |
| 3,459 |
|
| 3,136 |
|
| 6,590 |
|
| 6,072 |
| ||||
Franchise sublease and other income |
| 1,183 |
|
| 728 |
|
| 2,281 |
|
| 1,445 |
| ||||
Total revenue |
| 121,460 |
|
| 117,813 |
|
| 235,657 |
|
| 230,367 |
| ||||
Operating expenses: | ||||||||||||||||
Restaurant operating expenses: | ||||||||||||||||
Food and paper costs |
| 30,855 |
|
| 30,082 |
|
| 59,673 |
|
| 59,055 |
| ||||
Labor and related expenses |
| 36,338 |
|
| 35,422 |
|
| 72,238 |
|
| 70,240 |
| ||||
Occupancy and other operating expenses |
| 23,703 |
|
| 22,627 |
|
| 48,136 |
|
| 44,613 |
| ||||
General and administrative |
| 10,849 |
|
| 10,321 |
|
| 21,314 |
|
| 20,750 |
| ||||
Franchise advertising expenses |
| 3,459 |
|
| 3,136 |
|
| 6,590 |
|
| 6,072 |
| ||||
Depreciation and amortization |
| 5,813 |
|
| 5,847 |
|
| 11,720 |
|
| 11,761 |
| ||||
Occupancy and other - franchise subleases and other |
| 993 |
|
| 651 |
|
| 1,847 |
|
| 1,289 |
| ||||
Pre-opening costs |
| 155 |
|
| 199 |
|
| 255 |
|
| 641 |
| ||||
Impairment of long-lived assets |
| 3,694 |
|
| 1,661 |
|
| 3,694 |
|
| 1,661 |
| ||||
Restaurant closure charges, net |
| 490 |
|
| (24 | ) |
| 1,130 |
|
| (37 | ) | ||||
Loss on disposal of assets, net |
| 594 |
|
| 87 |
|
| 884 |
|
| 180 |
| ||||
Total operating expenses |
| 116,943 |
|
| 110,009 |
|
| 227,481 |
|
| 216,225 |
| ||||
Income from operations |
| 4,517 |
|
| 7,804 |
|
| 8,176 |
|
| 14,142 |
| ||||
Other expense, net | ||||||||||||||||
Interest expense |
| 1,722 |
|
| 2,012 |
|
| 3,506 |
|
| 3,922 |
| ||||
Other income |
| (97 | ) | — |
| (201 | ) | — | ||||||||
Total other expense, net |
| 1,625 |
|
| 2,012 |
|
| 3,305 |
|
| 3,922 |
| ||||
Income from operations before provision for income taxes |
| 2,892 |
|
| 5,792 |
|
| 4,871 |
|
| 10,220 |
| ||||
Provision for income taxes |
| 800 |
|
| 1,582 |
|
| 1,354 |
|
| 2,781 |
| ||||
Net income |
| 2,092 |
|
| 4,210 |
|
| 3,517 |
|
| 7,439 |
| ||||
Other comprehensive (loss) income: | ||||||||||||||||
Change in fair value of interest rate cap, net of tax |
| (131 | ) |
| 115 |
|
| (270 | ) |
| 289 |
| ||||
Reclassification of interest rate cap amortization included in net income, net of tax |
| 26 |
|
| 10 |
|
| 47 |
|
| 16 |
| ||||
Total other comprehensive (loss) income |
| (105 | ) |
| 125 |
|
| (223 | ) |
| 305 |
| ||||
Comprehensive income | $ | 1,987 |
| $ | 4,335 |
| $ | 3,294 |
| $ | 7,744 |
| ||||
Earnings per share: | ||||||||||||||||
Basic | $ | 0.06 |
| $ | 0.11 |
| $ | 0.10 |
| $ | 0.19 |
| ||||
Diluted | $ | 0.06 |
| $ | 0.11 |
| $ | 0.09 |
| $ | 0.19 |
| ||||
Weighted-average shares outstanding | ||||||||||||||||
Basic |
| 36,821,728 |
|
| 38,299,483 |
|
| 36,988,853 |
|
| 38,370,595 |
| ||||
Diluted |
| 37,083,799 |
|
| 38,643,873 |
|
| 37,215,059 |
|
| 38,938,106 |
|
Del Taco Restaurants, Inc. | ||||||||||||||||
Reconciliation of Net Income to EBITDA and Adjusted EBITDA | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands) | ||||||||||||||||
12 Weeks Ended | 24 Weeks Ended | |||||||||||||||
June 18, 2019 | June 19, 2018 | June 18, 2019 | June 19, 2018 | |||||||||||||
Net income | $ | 2,092 |
| $ | 4,210 |
| $ | 3,517 |
| $ | 7,439 |
| ||||
Non-GAAP adjustments: | ||||||||||||||||
Provision for income taxes |
| 800 |
|
| 1,582 |
|
| 1,354 |
|
| 2,781 |
| ||||
Interest expense |
| 1,722 |
|
| 2,012 |
|
| 3,506 |
|
| 3,922 |
| ||||
Depreciation and amortization |
| 5,813 |
|
| 5,847 |
|
| 11,720 |
|
| 11,761 |
| ||||
EBITDA |
| 10,427 |
|
| 13,651 |
|
| 20,097 |
|
| 25,903 |
| ||||
Stock-based compensation expense (a) |
| 1,676 |
|
| 1,360 |
|
| 3,253 |
|
| 2,634 |
| ||||
Loss on disposal of assets, net (b) |
| 594 |
|
| 87 |
|
| 884 |
|
| 180 |
| ||||
Restaurant closure charges, net (c) |
| 490 |
|
| (24 | ) |
| 1,130 |
|
| (37 | ) | ||||
Amortization of favorable and unfavorable lease assets and liabilities, net (d) |
| (23 | ) |
| (132 | ) |
| 63 |
|
| (250 | ) | ||||
Pre-opening costs (e) |
| 155 |
|
| 199 |
|
| 255 |
|
| 641 |
| ||||
Impairment of long-lived assets (f) |
| 3,694 |
|
| 1,661 |
|
| 3,694 |
|
| 1,661 |
| ||||
Other income (g) |
| (97 | ) | — |
| (201 | ) | — | ||||||||
Sublease income for closed restaurants (h) |
| (180 | ) | — |
| (381 | ) | — | ||||||||
Adjusted EBITDA | $ | 16,736 |
| $ | 16,802 |
| $ | 28,794 |
| $ | 30,732 |
| ||||
(a) Includes non-cash, stock-based compensation. | ||||||||
(b) Loss on disposal of assets, net includes the loss or gain on disposal of assets related to sales, retirements and replacement or write-off of leasehold improvements or equipment in the ordinary course of business, net gains or losses recorded associated with the sale of company-operated restaurants to franchisees and net gains or losses recorded associated with sale-leaseback transactions. | ||||||||
(c) During 2019, restaurant closure costs includes rent expense, non lease executory costs and other direct costs associated with previously closed restaurants. During 2018, restaurant closure costs includes costs related to future obligations associated with the closure or net sublease shortfall of a restaurant and lease termination costs, partially offset by sublease income from leases which are treated as deemed landlord financing. | ||||||||
(d) Includes amortization of favorable lease assets and unfavorable lease liabilities. | ||||||||
(e) Pre-opening costs consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including restaurant labor, supplies, cash and non-cash rent expense and other related pre-opening costs. These are generally incurred over the three to five months prior to opening. | ||||||||
(f) Includes costs related to impairment of long-lived assets. | ||||||||
(g) Other income consists of insurance proceeds related to a fire at a company-operated restaurant. | ||||||||
(h) Includes other sublease income related to closed restaurants that have been subleased to third parties. |
Del Taco Restaurants, Inc. | ||||||||
Reconciliation of Company Restaurant Sales to Restaurant Contribution | ||||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
12 Weeks Ended | 24 Weeks Ended | |||||||
June 18, 2019 | June 19, 2018 | June 18, 2019 | June 19, 2018 | |||||
Company restaurant sales | $ 112,180 | $ 109,800 | $ 218,083 | $ 214,909 | ||||
Restaurant operating expenses | 90,896 | 88,131 | 180,047 | 173,908 | ||||
Restaurant contribution | $ 21,284 | $ 21,669 | $ 38,036 | $ 41,001 | ||||
Restaurant contribution margin | 19.0 % | 19.7 % | 17.4 % | 19.1 % | ||||
Del Taco Restaurants, Inc. | ||||||||||||||||
Reconciliation of Net Income and Diluted Earnings Per Share to Adjusted Net Income and Adjusted Diluted Earnings Per Share | ||||||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||
12 Weeks Ended | 12 Weeks Ended | |||||||||||||||
June 18, 2019 | June 19, 2018 | |||||||||||||||
$ | Per Share | $ | Per Share | |||||||||||||
Net income and diluted earnings per share, as reported | $ | 2,092 |
| $ | 0.06 |
| $ | 4,210 |
| $ | 0.11 |
| ||||
Restaurant closure charges, net (a) |
| 490 |
|
| 0.01 |
|
| (24 | ) | — | ||||||
Other income (b) |
| (97 | ) | — | — | — | ||||||||||
Sublease income for closed restaurants (c) |
| (180 | ) | — | — | — | ||||||||||
Impairment of long-lived assets (d) |
| 3,694 |
|
| 0.10 |
|
| 1,661 |
|
| 0.04 |
| ||||
Tax impact of adjustment (e) |
| (1,085 | ) |
| (0.03 | ) |
| (445 | ) |
| (0.01 | ) | ||||
Non-GAAP adjusted net income and adjusted diluted earnings per share | $ | 4,914 |
| $ | 0.13 |
| $ | 5,402 |
| $ | 0.14 |
| ||||
24 Weeks Ended | 24 Weeks Ended | |||||||||||||||
June 18, 2019 | June 19, 2018 | |||||||||||||||
$ | Per Share | $ | Per Share | |||||||||||||
Net income and diluted earnings per share, as reported | $ | 3,517 |
| $ | 0.09 |
| $ | 7,439 |
| $ | 0.19 |
| ||||
Restaurant closure charges, net (a) |
| 1,130 |
| $ | 0.03 |
|
| (37 | ) | — | ||||||
Other income (b) |
| (201 | ) | $ | (0.01 | ) | — | — | ||||||||
Sublease income for closed restaurants (c) |
| (381 | ) | $ | (0.01 | ) | — | — | ||||||||
Impairment of long-lived assets (d) |
| 3,694 |
| $ | 0.10 |
|
| 1,661 |
|
| 0.04 |
| ||||
Tax impact of adjustment (e) |
| (1,176 | ) | $ | (0.03 | ) |
| (442 | ) |
| (0.01 | ) | ||||
Non-GAAP adjusted net income and adjusted diluted earnings per share | $ | 6,583 |
| $ | 0.18 |
| $ | 8,621 |
| $ | 0.22 |
| ||||
(a) During 2019, restaurant closure costs includes rent expense, non lease executory costs and other direct costs associated with previously closed restaurants. During 2018, includes costs related to future obligations associated with the closure or net sublease shortfall of a restaurant and lease termination costs, partially offset by sublease income from leases which are treated as deemed landlord financing. | ||||||||
(b) Includes other income which consists of insurance proceeds related to a fire at a company-operated restaurant. | ||||||||
(c) Includes other sublease income related to closed restaurants that have been subleased to third parties. | ||||||||
(d) Represents the income tax associated with the adjustments in (a) through (c) that are deductible for income tax purposes. |
Del Taco Restaurants, Inc. | ||||||||||||
Restaurant Development | ||||||||||||
12 Weeks Ended | 24 Weeks Ended | |||||||||||
June 18, 2019 | June 19, 2018 | June 18, 2019 | June 19, 2018 | |||||||||
Company-operated restaurant activity: | ||||||||||||
Beginning of period | 312 |
| 315 |
| 322 |
| 312 |
| ||||
Openings | 1 |
| 1 |
| 1 |
| 4 |
| ||||
Closures | (3 | ) | (1 | ) | (3 | ) | (1 | ) | ||||
Purchased from franchisees | — | — | 3 |
| — | |||||||
Sold to franchisees | — | — | (13 | ) | — | |||||||
Restaurants at end of period | 310 |
| 315 |
| 310 |
| 315 |
| ||||
Franchise-operated restaurant activity: | ||||||||||||
Beginning of period | 271 |
| 251 |
| 258 |
| 252 |
| ||||
Openings | 2 |
| 1 |
| 6 |
| 1 |
| ||||
Closures | — | (1 | ) | (1 | ) | (2 | ) | |||||
Purchased from Company | — | — | 13 |
| — | |||||||
Sold to Company | — | — | (3 | ) | — | |||||||
Restaurants at end of period | 273 |
| 251 |
| 273 |
| 251 |
| ||||
Total restaurant activity: | ||||||||||||
Beginning of period | 583 |
| 566 |
| 580 |
| 564 |
| ||||
Openings | 3 |
| 2 |
| 7 |
| 5 |
| ||||
Closures | (3 | ) | (2 | ) | (4 | ) | (3 | ) | ||||
Restaurants at end of period | 583 |
| 566 |
| 583 |
| 566 |
| ||||