Restaurant stocks are always a hot favorite among investors, as there are lots of opportunities. A great player in this industry is Del Taco Restaurants Inc. (TACO, Financial).
This Mexican food chain has posted excellent preliminary unaudited fiscal fourth quarter sales results, and has updated its guidance for fiscal year 2015. Further, the company has provided its initial guidance for fiscal year 2016.
Del Taco is the second largest quick service restaurant chain by units in the U.S., and serves breakfast and classic Mexican dishes as well as American favorites including hamburgers, crinkle-cut fries and shakes. The Lake Forest, California-based company offers Mexican- cuisine and American classics menu, which includes various categories such as tacos, burritos, Fresca bowls, American grill, quesadillas and nachos, desserts and shakes. With nearly 550 restaurants in 16 states, Del Taco serves more than three million guests each week.
Strong fourth-quarter results
On Jan. 11, Del Taco reported its preliminary fiscal fourth quarter 2015 sales results. The company’s system-wide comparable restaurant sales and company-owned comparable restaurant sales grew approximately 5.8% and 5.9%. Total revenue increased to approximately $133.4 million, representing 6.1% growth compared to the year ago quarter. Del Taco’s restaurant sales increased approximately 6% to $128.1 million from the fiscal fourth quarter of 2014. Further, based on updated 2015 guidance, adjusted EBITDA guidance (a non-GAAP financial measure) for the reported quarter was of at least $21 million, representing at least 7% growth from the previous year’s fiscal fourth quarter.
During the quarter, Del Taco opened three company-owned and six franchise restaurants, resulting in 12 system-wide openings during fiscal year 2015. Additionally, Del Taco closed 12 previously discussed underperforming company-owned restaurants late in the fiscal fourth quarter.
Projections for fiscal 2015
Based on the preliminary sales results, Del Taco has updated its guidance for fiscal year 2015. The company expects system-wide same store sales growth of approximately 6.3%, including 6.4% for company-owned restaurants and 6.2% for franchise restaurants. Total revenue and total company restaurant sales are expected of approximately $424.0 million and $407.6 million. Further, Del Taco expects adjusted EBITDA of at least $64.8 million and general and administrative expenses in the range of $32.3 million to $32.5 million.
Initial projections for fiscal 2016
Del Taco has also provided initial guidance for fiscal year 2016, a 53-week period ending Jan. 3, 2017 are as follows:
- Total revenue in the range of $439 million to $449 million.
- System-wide same store sales growth of approximately 2.5% to 4.5%.
- Total company-owned restaurant sales in the range of $422 million to $432 million.
- Adjusted EBITDA in the range of $67.5 million to $70.0 million, and
- Net capital expenditures in the range of approximately $36.0 million to $41.0 million.
Long term financial plan
Del Taco’s long term financial plans are as follows:
- Accelerating system-wide new unit growth.
- Brand re-investment.
- 2.5% to 4.5% annual same store sales growth.
- ~10% total revenue growth.
- $1.5 million average unit volume by fiscal 2018.
Growth and future plans
To strive well in this industry Del Taco has initiated several plans. The company is developing its people and culture to deliver great guest experiences. Further, to deliver an elevated brand promise it is focussing on driving existing and new occasions, celebrating brand position with a fresh forward approach, and leveraging technology to enhance guest engagement and brand promise. Del Taco expects its significant infill opportunity will accelerate unit growth to mid-single digits in 2017.
To expand its wings in the Pacific region, Del Taco opened two new franchise restaurants, located in Medford, Oregon, and Boise, Idaho, on Dec. 21, 2015. Further, on Sept. 28, 2015, the company signed an agreement with three new groups to develop 27 new Del Taco restaurants within the Central California region.
(Source: Company website)
On a concluding note
Overall, Del Taco is a rock-solid company with fast growing Mexican food segment, strong unit economics and optimized balance sheet. Further, the company has provided 14 consecutive quarters of company-owned comparable restaurant sales growth and nine consecutive quarters of system-wide comparable restaurant sales growth.
With the recent quarterly release, the company is aiming for a better future and is all set to deliver a healthy menu to its investors. It is expected to create greater shareholder returns.
Disclosure: I do not hold any position in the company.
