Del Taco Restaurants (TACO) Misses Q4 EPS by 1c, Slight Beat on Revenues, System-Wide Comp. Sales Up 2.5%; FY19 EPS Guidance Below Consensus, FY19 Revenue Mid-Point Views Above Estimates

Del Taco Restaurants (NASDAQ: TACO) reported Q4 EPS of $0.18, $0.01 worse than the analyst estimate of $0.19. Revenue for the quarter came in at $157.3 million versus the consensus estimate of $157.01 million.

• System-wide comparable restaurant sales grew 1.9%, marking the 21st consecutive quarter of gains;
  • Company-operated comparable restaurant sales grew 1.0%, marking the 26th consecutive quarter of gains. Company-operated comparable restaurant sales growth was comprised of average check growth of 4.9%, including over 1% of menu mix growth, partially offset by a transaction decrease of 3.9%;
  • Franchised comparable restaurant sales grew 3.2%;
• Total revenue of $157.3 million (including $4.1 million of franchise advertising contributions and $0.2 million of other franchise revenue required as part of the revenue recognition rules adopted in the fiscal first quarter 2018 whereby the offsetting impact is an increase to expenses such that there is no impact on operating income and net income), representing 7.3% growth from the fiscal fourth quarter 2017;
• Company-operated restaurant sales of approximately $146.7 million, representing 4.4% growth from the fiscal fourth quarter 2017;
• Net income was $5.6 million, or $0.15 per diluted share, compared to $35.2 million, or $0.89 per diluted share, in the fiscal fourth quarter 2017;
• Adjusted net income* was $7.0 million, or $0.18 per diluted share, compared to $6.2 million, or $0.16 per diluted share, in the fiscal fourth quarter 2017;
• Restaurant contribution* margin increased 40 basis points to 20.3% compared to 19.9% in the fiscal fourth quarter 2017;
• Adjusted EBITDA* increased to $23.6 million from $23.3 million in the fiscal fourth quarter 2017; and
• 15 system wide openings, including seven company-operated and eight franchised restaurants.

John D. Cappasola, Jr., President and Chief Executive Officer of Del Taco, commented, “We achieved our sixth consecutive year of system-wide comparable restaurant sales growth in 2018. This was led by strong franchise comparable restaurant sales growth across a diverse 13 state footprint that supports Del Taco’s brand portability, including 25 new system-wide openings across ten states during 2018 of which nearly half were franchised restaurants. Lastly, despite modest company comparable restaurant sales and meaningful wage and operating inflation, we demonstrated effective cost management and pricing strategies to post a strong annual restaurant contribution margin that remained near or above 20% in each of the last four years.”

Cappasola continued, “As we move into 2019, we remain focused on our mission to be the leader in the value oriented QSR+ segment. Our transaction driving initiatives are well underway as we enter 2019, led by our digital transformation including the new Del App which has now eclipsed 400,000 registered users and our expansion of Grubhub delivery to all company-operated restaurants. We recently enhanced our value platform with the launch of $4, $5 and $6 ‘Fresh Faves’ box meals to provide abundant value. Finally, during the second quarter we plan to use innovation to drive incremental occasions with the launch of the Beyond Taco and Beyond Avocado Taco, which leverages a proprietary new plant-based ground protein that tastes similar to our current ground beef.”

Cappasola concluded, “Earlier this year we began optimizing our restaurant portfolio to stimulate new restaurant growth and existing restaurant AUV’s by acquiring three high volume franchise restaurants and refranchising thirteen lower volume company restaurants, all in the greater LA area. We have also begun preparing to refranchise our non-core Western markets to new or existing franchisees with proven operational and development capabilities. We expect this refranchising to help shift our approximately 55% current company ownership to approximately 45% by the summer of 2020, positioning Del Taco for accelerated franchise growth and enabling a sharpened focus on company operations in core Western markets and strategic seed markets to support emerging market growth.”

GUIDANCE:

Del Taco Restaurants sees FY2019 EPS of $0.47-$0.52, versus the consensus of $0.58. Del Taco Restaurants sees FY2019 revenue of $517-527 million, versus the consensus of $518.24 million.

• 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 now expected between $66.5 million and $69.0 million compared to the $70.0 million to $72.5 million range issued previously, with the variance entirely related to 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.

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

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