Del Taco Restaurants Inc. is selling more premium items in an effort to broaden its customer base, which helped drive same-store sales up 5.6 percent in the third quarter, the company said Monday.
That was the eighth straight quarter of same-store sales growth. On a two-year basis, Del Taco’s same-store sales have risen 11.2 percent.
“By enhancing our premium tier offerings while managing value perceptions, we are expanding our customer base and providing our guests new reasons to visit Del Taco,” CEO Paul Murphy said during the company’s earnings call Monday. “We believe these results demonstrate the strength of our business model and enhance our ability to launch the brand into new and existing markets.”
Del Taco also said this week that it plans to close a dozen underperforming locations in Texas by the end of the year. The locations lose about $1.6 million a year, company executives said.
On the earnings call, Murphy suggested that the restaurants struggled because of the real estate strategy used at the time the company expanded into those Texas markets. Del Taco has changed its strategy since then, and restaurants in new markets in Georgia, for instance, have performed better.
Del Taco expects to open 13 units systemwide in 2015, and 14 to 18 locations next year, with growth accelerating in 2017 and thereafter at both company and franchised locations. Executives said the company would focus most of its development on existing markets, with plans to open in Denver in 2017.
The earnings call was the first for Del Taco since its reverse merger earlier this year with Levy Acquisition Corp., which took the company public.
Revenue in the third quarter ended Sept. 8 increased 6.7 percent, to $98.6 million, from $92.4 million in the same period a year ago. Operating income rose 17 percent, to $10.2 million, from $8.7 million.
The company reported $12 million in merger-related costs for the quarter, resulting in net income of $200,000, falling from $900,000 in the same period a year ago.
Del Taco has long been known as a value-oriented concept, with a lower average check than its primary competitors. In recent years, the company has worked to boost its average check and drive more premium occasions.
For instance, Del Taco has added a line of salads, and introduced fresh avocado in June. Executives said on the call that more than 10 percent of items ordered in the quarter included avocado.
This has driven some traffic, but executives cautioned that the customer expansion efforts would take time to reach new customers.
“We’re on a bit of a journey here,” Murphy said. “Some of the menu initiatives aren’t expected from a brand like ours. There won’t be immediate traffic growth. We hope to drive trial and awareness among new users. But it will take time to gain credibility.”