Del Taco Holdings Inc. reported Monday an increase in sales and earnings during the first quarter, ahead of its merger with Levy Acquisition Corp., which will close in June and take the company public.
Systemwide same-store sales rose 7.7 percent during the quarter ended March 24, Del Taco said, including a 7.9-percent increase at company locations and 7.5-percent growth at franchised units. It was the 11th straight quarter of same-store sales increases at the Lake Forest, Calif.-based quick-service operator.
“As soon as we signed the documents in March (to merge with LAC), we went to work on our priorities for the future,” Del Taco CEO Paul Murphy said during a call Monday discussing earnings. “No one is waiting for the merger to be completed. We hit the ground running.”
Del Taco has 550 restaurants in 16 states, about half of which are company owned. The operator is merging with LAC, a blank-check company operated by Chicago restaurateur Larry Levy and his family. The deal will make Del Taco a public company. It will trade under the ticker symbol TACO.
Levy said during the call that he was targeting a brand with “accelerating same-store sales growth” and “ample opportunities” to continue growing.
Del Taco’s revenue increased 8.9 percent during the first quarter, to $94.4 million, from $86.7 million the previous year. The company reported a net loss of $4.9 million, due entirely to $6.3 million in transaction-related costs. The net loss was more than double the $1.9 million net loss the previous quarter.
The company has $247.3 million in long-term debt, which generated interest payments of $6.8 million in the quarter, which also contributed to the loss.
However, operating income increased 33.6 percent, to $8.7 million, from $6.5 million the previous year, due largely to sales increases. Food costs as a percentage of revenue decreased 110 basis points, to 28.6 percent, from 29.7 percent, due to a menu price increase and “slight food cost deflation.”
Restaurant contribution margin increased 140 basis points during the quarter, to 18.6 percent of revenue, due largely to the improvement in food costs.
Del Taco’s same-store sales have been its biggest bright spot. In the third quarter of 2013, same-store sales at company-operated restaurants rose 0.4 percent, and fell 1.3 percent at franchised locations.
Since then, same-store sales have accelerated every quarter. Its figures for the most recent first quarter represent a two-year same-store sales increase of 12 percent, Del Taco said. Two-year same-store sales numbers are often considered a stronger indicator of performance because they factor out one-year events like weather and other issues.
Same-store sales growth in the first quarter included a 3.9-percent increase in traffic.
The chain has a lower average check, of $6.49, but has been advertising a combination of quality and value with a tiered menu strategy. That includes low-cost items for $1 or less, mid-tier items and premium items.
Executives said they have worked to drive consistent guest experience improvements. Del Taco developed restaurant teams to provide consistent service and increase speed during peak periods.
“We believe these strong operating results are a testament to the hard work put in by every employee,” Murphy said. “We have repositioned the brand with fresh ingredients and value, speed and convenience.”