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Del Taco 1Q sales grow despite bad weather

Company says it’s on track for 4-percent same-store sales growth amid headwinds

Del Taco Restaurants Inc. executives said on Monday that same-store sales kept growing in the first quarter this year, despite bad weather in its home state of California and other problems depressing industry sales.

Same-store sales, which increased 5.5 percent in the fourth quarter ended Jan. 3, are expected to increase 4 percent in the current first quarter.

“January was a good month, despite a lot of rain in California,” Del Taco CFO Steve Brake said during an earnings call Monday. “February slowed considerably, with the rains and the later Lent shift. Perhaps we saw impact from delayed tax returns. But February did remain comfortably positive, and in March, business strengthened.”

Del Taco was one of the best performers among publicly traded restaurant companies in the fourth quarter. No quick-service chain performed better, and only Domino’s Pizza Inc. had stronger same-store sales among all restaurants.

Del Taco’s systemwide same-store sales have increased for 13 straight quarters, and fourth-quarter same-store sales increased 10.3 percent on a two-year basis.

The 550-unit Del Taco has used a combination of lower-priced items with its Buck and Under menu, but has more recently added higher-end items, such as the Del Taco and its latest addition, Platos. Those items have helped generate sales while improving margins.

Restaurant contribution margin in 2016, for instance, was 20.6 percent, up 60 basis points since 2015 and up 340 basis points since 2012.

Meanwhile, average unit volume has increased $230,000 since 2012, to just over $1.4 million. Executives said Del Taco aims to reach $1.5 million by 2018.

“Our goal is to provide guests with a better QSR value proposition so we can take share from QSR and grow our share from fast casual, because we have the convenience of a drive-thru,” Del Taco CEO Paul Murphy said Monday.

Del Taco plans new products across its various platforms throughout 2017. That includes new breakfast items it expects to add this month, including $1 Breakfast Rollers and an Epic Huevos Rancheros Burrito.

The Lake Forest, Calif.-based chain is also working on technology. The chain has been testing online ordering and a mobile app at 18 locations, and plans to expand the test to Las Vegas this year. 

The first test had few features, including no delivery or loyalty. The Las Vegas test will provide a bigger market and will add delivery.

“We’re in testing and learning mode,” said company president John Cappasola. “We’re going to develop the right solutions for customers. We’re working on the right things that would compliment our business model.

“We think it’s an inevitable adoption curve. We know we need to be there. But we need to be pragmatic and realistic in how we move forward.”

Del Taco revenue increased 12.6 percent in the fourth quarter, to $150.2 million, from $133.4 million the previous year. Net income nearly doubled, to $8 million, or 20 cents per share, from $4.8 million, or 12 cents per share the previous year.

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

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