System-wide comparable restaurant sales growth
of 3.3%
Reiterates fiscal year 2016 guidance
Conference call and webcast will be held at
5:00 p.m. ET today
Del Taco Restaurants, Inc. (“Del Taco” or the “Company”),
(NASDAQ: TACO, TACOW), the second largest Mexican-American QSR
chain by units in the United States, operating restaurants under
the name Del Taco, today announced fiscal second quarter 2016
financial results. The Company also reiterated its fiscal year 2016
guidance.
Del Taco became a public company when it completed a business
combination with Levy Acquisition Corp. on June 30, 2015. This
resulted in a fiscal second quarter financial statement
presentation that includes a predecessor period for the
twelve-weeks ended June 16, 2015 compared to a successor period for
the twelve-weeks ended June 14, 2016.
Fiscal Second Quarter 2016 Highlights
- System-wide comparable restaurant sales
growth of 3.3% and company-owned comparable restaurant sales growth
of 3.1%, marking the eleventh and sixteenth consecutive quarter of
gains, respectively;
- Company-owned comparable restaurant
sales growth comprised average check growth of 4.9%, including
nearly 1% of menu mix growth, and a transaction decrease of
(1.8%);
- Total revenue of $100.0 million,
representing 2.5% growth from the fiscal second quarter of
2015;
- Restaurant sales of $95.9 million,
representing 2.1% growth from the fiscal second quarter of
2015;
- Restaurant contribution margin, a
non-GAAP financial measure, of 20.6%, an improvement of
approximately 80 basis points from the fiscal second quarter of
2015;
- Net income increased to $4.9 million,
representing diluted earnings per share of $0.13, from $4.6 million
in the fiscal second quarter of 2015;
- Adjusted EBITDA, a non-GAAP financial
measure, increased to $16.0 million from $15.3 million in the
fiscal second quarter of 2015, representing 4.5% growth; and
- The opening of one company-owned
restaurant.
Paul J.B. Murphy, III, President and Chief Executive Officer of
Del Taco, commented, “Effective execution resulted in solid second
quarter performance that was in line with our expectations and
characterized by system-wide comparable restaurant sales growth,
restaurant contribution margin expansion, and increases in both
adjusted EBITDA and net income.”
Murphy added, “Del Taco’s brand equity and unique barbell menu
strategy supported favorable menu mix shifts driven by premium
category use while our expanded Buck & Under platform provided
guests compelling every day value without discounting. At company
restaurants, effective menu price increases and favorable menu mix
combined with modest commodity deflation helped offset the
California minimum wage increase to $10/hour and led to meaningful
restaurant contribution margin expansion.”
Murphy continued, “In late June, we launched Fresh Combined
Solutions, the next phase of our Combined Solutions strategy. The
goal is to build upon our successful repositioning by putting a
finer point on our brand positioning to further differentiate Del
Taco. In addition to a number of operational enhancement
initiatives designed to drive quality, speed, and service, we
launched several brand catalysts to drive demand. We are delighted
with how 2016 is shaping up for our business, confident that we can
achieve our annual guidance, and are excited by what we have yet to
accomplish this fiscal year.”
Review of Fiscal Second Quarter 2016 Financial
Results
Total revenue was $100.0 million, an increase of 2.5% compared
to $97.6 million in the fiscal second quarter of 2015. The growth
in revenue was driven by a 2.1% increase in Company restaurant
sales and a 13.6% increase in franchise revenue.
Comparable restaurant sales increased 3.3% system-wide for the
fiscal second quarter ended June 14, 2016, resulting in an
impressive 9.3% two year growth rate cycling over the second
strongest quarter of 2015. The Del Taco system has now generated
comparable restaurant sales growth for eleven consecutive quarters.
Company-owned comparable restaurant sales increased 3.1%, marking
the sixteenth consecutive quarter of comparable restaurant sales
growth. Franchise comparable restaurant sales increased 3.6%.
Restaurant contribution, a non-GAAP financial measure, increased
6.2% year-over-year to $19.8 million. As a percentage of Company
restaurant sales, restaurant contribution increased approximately
80 basis points year-over-year to 20.6%. The increase was driven by
an approximately 110 basis point improvement in food and paper
costs and an approximately 80 basis point improvement in occupancy
and other operating expenses, partially offset by an approximately
120 basis point increase in labor and related expenses. A
reconciliation between restaurant contribution and the nearest GAAP
financial measure is included in the accompanying financial
data.
Net income was $4.9 million, compared to $4.6 million in the
fiscal second quarter of 2015. Earnings per diluted share were
$0.13 compared to $0.69 in the fiscal second quarter of 2015. The
prior year period included $0.9 million of transaction-related
costs that consisted of direct costs incurred in connection with
our two-step business combination transaction.
Adjusted EBITDA, a non-GAAP financial measure, increased 4.5% to
$16.0 million compared to $15.3 million in the previous year’s
fiscal second quarter. A reconciliation between adjusted EBITDA and
the nearest GAAP financial measure is included in the accompanying
financial data.
Share Repurchase Program
Under the $25 million share repurchase authorization announced
in March 2016, during the fiscal second quarter of 2016 the Company
repurchased 542,303 shares of common stock at an average price of
$9.92 per share and also repurchased 241,806 warrants at an average
price of $2.36 per warrant for an aggregate cost of approximately
$6.0 million.
Since the inception of the program in March 2016 through June
14, 2016, Del Taco has repurchased 628,982 shares at an average
price per share of $10.04 and 241,806 warrants for an aggregate of
$6.9 million with approximately $18.1 million remaining under this
authorization.
Offer to Exchange Common Stock for Outstanding
Warrants
On July 11, 2016, the Company commenced an offer to exchange
("Offer to Exchange") 0.2780 shares of the Company's common stock
("shares") for each outstanding Company warrant exercisable for
shares at an exercise price of $11.50 per share (the “warrants”)
(approximately one share for every 3.6 warrants tendered), up to a
maximum of 6,750,000 warrants.
The Offer to Exchange will expire, unless extended, at 11:59
p.m., Eastern Time, on Friday, August 5, 2016. Tenders of warrants
must be made prior to the expiration of the Offer to Exchange and
may be withdrawn at any time prior to the expiration of the Offer
to Exchange. All outstanding Warrants are eligible to be tendered
pursuant to the Offer (subject to proration). All of our directors
and executive officers who beneficially own warrants have agreed to
participate in the Offer. The purpose of the Offer to Exchange is
to reduce the number of Shares that would become outstanding upon
the exercise of warrants, thus providing investors and potential
investors with greater certainty as to the Company’s capital
structure.
None of the Company, its board of directors, officers or
employees, nor the financial advisor, depositary or the information
agent makes any recommendations to warrant holders as to whether to
tender or refrain from tendering their warrants pursuant to the
Offer to Exchange Letter. Warrant holders must decide how many
warrants they will tender, if any.
This is not an offer to purchase or a solicitation of an offer
to sell securities. The Offer to Exchange described above is made
only pursuant to a Tender Offer Statement on Schedule TO and
related exhibits, including the Offer to Exchange Letter, Letter of
Transmittal and other related documents, filed with the SEC.
Warrant holders should read the Tender Offer Statement on Schedule
TO, Offer to Exchange Letter, Letter of Transmittal and related
exhibits, as they contain important information about the Offer to
Exchange. Warrant holders can obtain these documents free of charge
from the SEC’s website at www.sec.gov, or by directing a request to
the information agent for the Offer to Exchange, Morrow Sodali,
toll-free (855) 291-6792 (banks and brokerage firms, please call
(203) 658-9400).
Fiscal Year 2016 Guidance
The Company is reiterating the following guidance for fiscal
year 2016, the 53-week period ending January 3, 2017:
- System-wide same store sales growth of
approximately 2.5% to 4.5%;
- Total revenue between $439 million and
$449 million;
- Total company-owned restaurant sales
between $422 million and $432 million;
- Restaurant contribution margin between
19.8% and 20.3%;
- California minimum wage impact
estimated to increase labor and related expenses by approximately
$7.2 million, including preservation of appropriate wage
differentials and incremental payroll taxes;
- General and administrative expenses of
between approximately 7.9% and 8.3% of total revenue, including
incremental public company costs and non-cash stock-based
compensation;
- Adjusted EBITDA between $67.5 million
and $70.0 million;
- Effective tax rate of approximately
40%;
- Diluted earnings per share of
approximately $0.53 and $0.56;
- Fifteen to eighteen new system-wide
restaurant openings; and
- Net capital expenditures totaling
approximately $36.0 to $41.0 million including approximately $10.0
to $12.5 million for new unit construction, approximately $10.0 to
$11.0 million for capitalized maintenance, approximately $10.0 to
$11.5 million for discretionary investment in equipment and
technology, and approximately $6.0 million for land acquisition for
development after 2016.
Conference Call
A conference call and webcast to discuss Del Taco’s financial
results is scheduled for 5:00 p.m. ET today. Hosting the conference
call and webcast will be Paul J.B. Murphy, III, President and Chief
Executive Officer; John D. Cappasola, Jr., Executive Vice President
and Chief Brand Officer; and Steven L. Brake, Executive Vice
President and Chief Financial Officer.
Interested parties may listen to the conference call via
telephone by dialing 1-201-689-8562. A telephone replay will be
available shortly after the call has concluded and can be accessed
by dialing 1-858-384-5517, the passcode is 13639923.
The webcast will be available at www.deltaco.com under the
investors section and will be archived on the site shortly after
the call has concluded.
Key Financial Definitions
Comparable restaurant sales growth reflects the change in
year-over-year sales for the comparable company, franchise and
total system restaurant base. Restaurants are included in the
comparable store base in the accounting period following its 18th
full month of operations and excludes restaurant closures.
Restaurant contribution is defined as company restaurant
sales less restaurant operating expenses, which are food and paper
costs, labor and related expenses and occupancy and other operating
expenses. Restaurant contribution margin is defined as
restaurant contribution as a percentage of company restaurant
sales. Restaurant contribution and restaurant contribution
margin are neither required by, nor presented in accordance
with, GAAP. Restaurant contribution and restaurant contribution
margin are supplemental measures of operating performance of
restaurants and the calculations thereof may not be comparable to
those reported by other companies. Restaurant contribution and
restaurant contribution margin have limitations as analytical
tools, and you should not consider them in isolation or as
substitutes for analysis of results as reported under U.S. GAAP.
Management believes that restaurant contribution and restaurant
contribution margin are important tools for investors because they
are widely-used metrics within the restaurant industry to evaluate
restaurant-level productivity, efficiency and performance.
Management uses restaurant contribution and restaurant contribution
margin as key performance indicators to evaluate the profitability
of incremental sales at Del Taco restaurants, to evaluate
restaurant performance across periods and to evaluate restaurant
financial performance compared with competitors. A reconciliation
between restaurant contribution and the nearest GAAP financial
measure is included in the accompanying financial data.
Adjusted EBITDA is defined as net income/loss prior to
interest expense, income taxes, and depreciation and amortization,
as adjusted to add back certain charges, such as stock-based
compensation expense and transaction-related costs, as these
expenses are not considered an indicator of ongoing company
performance. Adjusted EBITDA is a non-GAAP financial measure
and should not be considered as an alternative to operating income
or net income/loss as a measure of operating performance or cash
flows or as measures of liquidity. Non-GAAP financial measures are
not necessarily calculated the same way by different companies and
should not be considered a substitute for or superior to GAAP
results. We believe Adjusted EBITDA facilitates operating
performance comparisons from period to period by isolating the
effects of some items that vary from period to period without any
correlation to core operating performance or that vary widely among
similar companies. These potential differences may be caused by
variations in capital structures (affecting interest expense), tax
positions (such as the impact on periods or changes in effective
tax rates or net operating losses) and the age and book
depreciation of facilities and equipment (affecting relative
depreciation expense). We also present Adjusted EBITDA because (i)
we believe this measure is frequently used by securities analysts,
investors and other interested parties to evaluate companies in our
industry, (ii) we believe investors will find this measure useful
in assessing our ability to service or incur indebtedness, and
(iii) we use Adjusted EBITDA internally as a benchmark to compare
performance to that of competitors. A reconciliation between
Adjusted EBITDA and the nearest GAAP financial measure is included
in the accompanying financial data.
About Del Taco Restaurants, Inc.
Founded in 1964 in Southern California, Del Taco (NASDAQ: TACO)
is the nation’s second largest Mexican Quick Service Restaurant
chain. Known for serving Mexican and American favorites prepared
fresh in every restaurants’ working kitchen, Del Taco’s menu items
taste better because they are made with fresh ingredients like
cheddar cheese grated from 40-lb blocks, hand chopped pico de
gallo, fresh sliced avocado, slow cooked beans made from scratch,
and fresh-grilled marinated chicken and carne asada steak. In June
2016, Del Taco reinvigorated its UnFreshing Believable® marketing
campaign to further communicate its commitment to serve guests
everything that they love, including choosing not to choose between
tacos and fries, fresh prep and fair price, or great tasting food
and the convenience of a drive thru. With nearly 550 restaurants in
16 states, Del Taco serves more than three million guests each
week. For more information, follow Del Taco on Twitter, Facebook
and Instagram or visit www.deltaco.com.
Forward-Looking Statements
In addition to historical information, this release may contain
a number of “forward-looking statements” as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, information concerning Del
Taco’s possible or assumed future results of operations, business
strategies, competitive position, industry environment, potential
growth opportunities and the effects of regulation. These
statements are based Del Taco’s management’s current expectations
and beliefs, as well as a number of assumptions concerning future
events. When used in this press release, the words “estimates,”
“projected,” “expects,” “anticipates,” “forecasts,” “plans,”
“intends,” “believes,” “seeks,” “target,” “may,” “will,” “should,”
“future,” “propose,” “preliminary,” “guidance,” “on track” and
variations of these words or similar expressions (or the negative
versions of such words or expressions) are intended to identify
forward-looking statements. Such forward-looking statements are
subject to known and unknown risks, uncertainties, assumptions and
other important factors, many of which are outside Del Taco’s
management’s control that could cause actual results to differ
materially from the results discussed in the forward-looking
statements. These risks included, without limitation, consumer
demand, our inability to successfully open company-owned or
franchised restaurants or establish new markets, competition in our
markets, our inability to grow and manage growth profitably,
adverse changes in food and supply costs, our inability to access
additional capital, changes in applicable laws or regulations, food
safety and foodborne illness concerns, our inability to manage
existing and to obtain additional franchisees, our inability to
attract and retain qualified personnel, our inability to profitably
expand into new markets, changes in, or the discontinuation of, the
Company’s repurchase program, and the possibility that we may be
adversely affected by other economic, business, and/or competitive
factors. Additional risks and uncertainties are identified and
discussed in Del Taco’s reports filed with the SEC and available at
the SEC’s website at www.sec.gov and the Company’s website at
www.deltaco.com.
Forward-looking statements included in this release speak only
as of the date of this release. Del Taco undertakes no obligation
to update its forward-looking statements to reflect events or
circumstances after the date of this release or otherwise.
Del Taco Restaurants, Inc. Consolidated Balance
Sheets (In thousands, except share and per share data)
Successor June 14, 2016 December 29,
2015 Assets (Unaudited) Current assets: Cash and cash
equivalents $ 7,298 $ 10,194 Accounts and other receivables, net
2,361 3,220 Inventories 2,427 2,806 Prepaid expenses and other
current assets 3,174 3,545 Total
current assets 15,260 19,765 Property and equipment, net 119,459
114,030 Goodwill 319,056 318,275 Trademarks 220,300 220,300
Intangible assets, net 26,692 28,373 Other assets, net 3,050
2,829 Total assets $ 703,817 $ 703,572
Liabilities and shareholders' equity Current
liabilities: Accounts payable $ 17,266 $ 16,831 Other accrued
liabilities 29,319 32,897 Current portion of capital lease
obligations and deemed landlord financing liabilities 1,667
1,725 Total current liabilities 48,252 51,453
Long-term debt, capital lease obligations and deemed landlord
financing liabilities, excluding current portion, net 167,387
167,968 Deferred income taxes 83,355 79,523 Other non-current
liabilities 33,835 36,251 Total
liabilities 332,829 335,195 Commitments and contingencies
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; 38,173,443 shares issued and outstanding at June 14,
2016; 38,802,425 shares issued and outstanding at December 29, 2015
4 4 Additional paid-in capital 366,946 372,260 Retained earnings
(accumulated deficit) 4,038 (3,887 ) Total
shareholders' equity 370,988 368,377
Total liabilities and shareholders' equity $ 703,817 $
703,572
Del Taco Restaurants, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited) (In thousands, except share and per share
data) Successor Predecessor
12 Weeks Ended 12 Weeks Ended June 14, 2016
June 16, 2015 Revenue: Company restaurant sales $ 95,917 $
93,902 Franchise revenue 3,576 3,147 Franchise sublease income
533 554 Total revenue 100,026 97,603
Operating expenses: Restaurant operating expenses: Food and paper
costs 26,358 26,859 Labor and related expenses 30,249 28,486
Occupancy and other operating expenses 19,526 19,924 General and
administrative 8,214 6,550 Depreciation and amortization 5,532
3,796 Occupancy and other - franchise subleases 510 517 Pre-opening
costs 35 129 Restaurant closure charges, net (166 ) 72 Loss on
disposal of assets 62 14
Total operating expenses
90,320 86,347 Income from operations
9,706 11,256 Other expenses: Interest expense 1,405 4,018
Transaction-related costs 126 877 Debt modification costs —
2 Total other expenses 1,531
4,897 Income from operations before provision for
income taxes 8,175 6,359 Provision for income taxes 3,311
1,731 Net income 4,864 4,628 Other
comprehensive income (loss): Change in fair value of interest rate
cap — (2 ) Reclassification of interest rate cap amortization
included in net income — 36 Total other
comprehensive income, net — 34
Comprehensive income $ 4,864 $ 4,662 Earnings per
share: Basic $ 0.13 $ 0.69 Diluted $ 0.13 $ 0.69 Weighted-average
shares outstanding Basic 38,292,215 6,707,776 Diluted 38,442,304
6,707,776
Del Taco Restaurants, Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited) (In thousands, except share and per share
data) Successor Predecessor
24 Weeks Ended 24 Weeks Ended June 14, 2016
June 16, 2015 Revenue: Company restaurant sales $ 189,467 $
184,785 Franchise revenue 6,905 6,148 Franchise sublease income
1,057 1,088 Total revenue 197,429 192,021
Operating expenses: Restaurant operating expenses: Food and paper
costs 52,487 52,841 Labor and related expenses 60,033 56,409
Occupancy and other operating expenses 39,649 39,958 General and
administrative 16,506 13,846 Depreciation and amortization 11,018
7,588 Occupancy and other - franchise subleases 1,013 1,022
Pre-opening costs 128 248 Restaurant closure charges, net 12 94
Loss on disposal of assets 137 14 Total
operating expenses 180,983 172,020 Income from
operations 16,446 20,001 Other expenses: Interest expense 2,877
10,829 Transaction-related costs 191 7,193 Debt modification costs
— 137 Change in fair value of warrant liability — (35
) Total other expenses 3,068 18,124 Income
from operations before provision for income taxes 13,378 1,877
Provision for income taxes 5,453 2,189 Net
income (loss) 7,925 (312 ) Other comprehensive income (loss):
Change in fair value of interest rate cap — (23 ) Reclassification
of interest rate cap amortization included in net income (loss)
— 58 Total other comprehensive income, net
— 35 Comprehensive income (loss) $ 7,925 $
(277 ) Earnings (loss) per share: Basic $ 0.21 $ (0.06 ) Diluted $
0.20 $ (0.06 ) Weighted-average shares outstanding Basic 38,545,115
5,391,137 Diluted 38,672,425 5,391,137
Del Taco
Restaurants, Inc. Reconciliation of Net Income to EBITDA and
Adjusted EBITDA (Unaudited) (In thousands)
Successor Predecessor 12 Weeks
Ended 12 Weeks Ended June 14, 2016 June 16,
2015 Net income $ 4,864 $ 4,628 Non-GAAP adjustments:
Provision for income taxes 3,311 1,731 Interest expense 1,405 4,018
Depreciation and amortization 5,532 3,797
EBITDA 15,112 14,174
Stock-based compensation expense 930 — Loss on disposal of assets
62 14 Restaurant closure charges, net (166 ) 72 Amortization of
favorable and unfavorable lease assets and liabilities, net (140 )
(1 ) Debt modification costs — 2 Transaction-related costs 126 877
Pre-opening costs 35 129
Adjusted
EBITDA $ 15,959 $ 15,267
Del
Taco Restaurants, Inc. Reconciliation of Net Income (Loss)
to EBITDA and Adjusted EBITDA (Unaudited) (In
thousands) Successor
Predecessor 24 Weeks Ended 24 Weeks Ended
June 14, 2016 June 16, 2015 Net income (loss)
$ 7,925 $ (312 ) Non-GAAP adjustments: Provision for income taxes
5,453 2,189 Interest expense 2,877 10,829 Depreciation and
amortization 11,018 7,590
EBITDA
27,273 20,296 Stock-based compensation
expense 1,629 532 Loss on disposal of assets 137 14 Restaurant
closure charges, net 12 94 Amortization of favorable and
unfavorable lease assets and liabilities, net (280 ) (2 ) Debt
modification costs — 137 Transaction-related costs 191 7,193 Change
in fair value of warrant liability — (35 ) Pre-opening costs
128 248
Adjusted EBITDA $ 29,090
$ 28,477
Del Taco Restaurants, Inc.
Reconciliation of Company Restaurant Sales to Restaurant
Contribution (Unaudited) (In thousands)
Successor Predecessor 12 Weeks
Ended 12 Weeks Ended June 14, 2016 June 16,
2015 Company restaurant sales $ 95,917 $ 93,902 Restaurant
operating expenses 76,133 75,269
Restaurant contribution $ 19,784 $ 18,633 Restaurant
contribution margin 20.6 % 19.8 %
Del Taco Restaurants, Inc. Reconciliation
of Company Restaurant Sales to Restaurant Contribution
(Unaudited) (In thousands) Successor
Predecessor 24 Weeks Ended 24 Weeks Ended
June 14, 2016 June 16, 2015 Company restaurant sales
$ 189,467 $ 184,785 Restaurant operating expenses 152,169
149,208 Restaurant contribution $ 37,298
$ 35,577 Restaurant contribution margin 19.7 %
19.3 %
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160720006259/en/
For Del Taco Restaurants, Inc.Media:Julia Young,
646-277-1280julia.young@icrinc.comorInvestor Relations:Raphael
Gross, 203-682-8253investor@deltaco.com
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