Del Taco Restaurants (TACO) Tops Q3 EPS by 1c, Revenues Miss; Lowers FY18 EPS/Revenue Outlook Below Consensus

Del Taco Restaurants (NASDAQ: TACO) reported Q3 EPS of $0.15, $0.01 better than the analyst estimate of $0.14. Revenue for the quarter came in at $117.83 million versus the consensus estimate of $119.83 million.

• System-wide comparable restaurant sales grew 1.4%, marking the 20th consecutive quarter of gains;
• Company-operated comparable restaurant sales grew 0.3%, marking the 25th consecutive quarter of gains. Company-operated comparable restaurant sales growth was comprised of average check growth of 2.9%, partially offset by a transaction decrease of 2.6%;
• Franchised comparable restaurant sales grew 3.0%;
• Total revenue increased 6.2% to $117.8 million (including $3.2 million of franchise advertising contributions and $0.2 million of other franchise revenue required as part of the new revenue recognition rules adopted in the fiscal first quarter whereby the offsetting impact is an increase to expenses such that there is no impact on operating income and net income) compared to $111.0 million in the fiscal third quarter 2017;
• Company restaurant sales increased 3.1% to $109.6 million compared to $106.3 million in the fiscal third quarter 2017;
• Net income was $5.9 million, or $0.15 per diluted share, compared to $5.1 million in the fiscal third quarter 2017, or $0.13 per diluted share;
• Adjusted net income* was $6.0 million, or $0.15 per diluted share, compared to $5.1 million in the fiscal third quarter 2017, or $0.13 per diluted share;
• Restaurant contribution* margin increased 70 basis points to 19.9% compared to 19.2% in the fiscal third quarter 2017; and
• Adjusted EBITDA* increased 6.4% to $17.7 million compared to $16.6 million in the fiscal third quarter 2017.

John D. Cappasola, Jr., President and Chief Executive Officer of Del Taco, commented, “During the quarter we made strategic progress led by the launch of Elevated Combined Solutions which furthers our mission to be the leader in the value oriented QSR+ segment. We again experienced strong franchise comparable restaurant sales trends demonstrating our strengthening franchise system which supports brand portability. We remained focused on strengthening our great culture with the launch of our company values and our new advertising campaign centered on real employees. And, despite soft company-operated comparable restaurant sales, our effective margin management strategy helped us deliver an improved restaurant contribution margin after adjusting for the favorable timing of advertising expenses.”

Cappasola continued, “Although the new $1 Chicken Quesadilla Snacker did not support check or transaction trends during the third quarter, our flexible barbell menu strategy allowed us to quickly pivot to mid-tier and premium products which achieved an immediate improvement in menu mix. As we enter the fourth quarter our plan to generate transaction momentum includes the launch of Shredded Beef as a limited time offer, which has already sequentially improved our trends, and premium innovation with a new Triple Meat Epic Burrito. Still, we have opted to take a more cautious approach to our fiscal year outlook and have therefore updated our annual guidance.”

Cappasola concluded, “Next month, we will launch our Del Taco mobile app and begin offering delivery in the Los Angeles market through GrubHub, followed by a system-wide launch in 2019 that will include partnerships with Postmates and DoorDash. We believe delivery will provide another convenient channel to enjoy our fresh, high quality food and that moving toward a multiple delivery service provider approach will position us to maximize consumer demand.”

GUIDANCE:

Del Taco Restaurants sees FY2018 EPS of $0.53-$0.56, versus the consensus of $0.61. Del Taco Restaurants sees FY2018 revenue of $504-507 million, versus the consensus of $511.65 million.

For earnings history and earnings-related data on Del Taco Restaurants (TACO) click here.

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