TACO - Earnings call transcript Q2 2018 | Del Taco Restaurants, Inc.

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Operator

Thank you for standing by and welcome to the Fiscal Second Quarter 2018 Conference Call and Webcast for Del Taco Restaurants, Inc. I would now like to turn the call over to Mr. Raphael Gross to begin.

Raphael Gross

Thank you, operator, and thank you all for joining us today.

On the call with me are John Cappasola, President and Chief Executive Officer; and Steve Brake, Executive Vice President and Chief Financial Officer. deliver your remarks, questions. Steve the will and for lines John their we prepared open After

financial income, cash includes should financial non-GAAP as GAAP GAAP of now measures net call such some statements Before you these Del to SEC contribution. Cappasola, to everyone at any Restaurants We or income, Executive today's performance, financial nearest placed to press such operating release our include statements measures. and upon as release, Officer. to that begin, and would press adjusted forward-looking a part by statements. we measures more the I'd should do restaurant of and discussion other like adjusted alternatives net therefore, measures as undue some by them. date flows today operating not results also earnings earnings press non-GAAP to turn release provided the EBITDA, operating to These could a reconciliations activities, not refer of considered filings includes John non-GAAP GAAP for We not refer filed be of update guarantees risks or performance. are Taco later Inc. to reliance and the and remind measure today's discussion which impact the net of I Today's forward-looking you future over the financial to the like earnings liquidity detailed condition. measures These be Chief that will undertake income, not future

John Cappasola

you for and you, Thank the joining thank everyone call afternoon Raphael. today. Good

company achieve volume to proud dollars. of unit were annual goal we our trailing $X.X QX, XX-month During

strength we entrance our guided each something Since a We with solid on very recall system company and XXXX, of this growth XX.X% rose AUV. comparable restaurant fiscal are brand to a continue the X.X% interest restaurant broadened gains as or helped streak and X.X%. franchise stimulate respectively, of years growth believe outperformance economics to to comparable growth relevant across two-year and pleased company well XX XX us that ago following to opportunities. the consecutive basis. positioning and QX our achieve helps existing restaurant We reflects unit AUVs restaurant more and You comparable as was we achieve to extended brand company elevated foundation public brand's than of scale has markets several sales geographies comparable our in this ability the This franchise may among and across XX%. with first enabling achieve continued supports by and company-operated sales growth milestone franchisees development enhanced sales to which sales and System-wide grown footprint. a differentiated are X.X% franchise a our quarters, diverse franchise future and that geographic

the quarter, new company-operated and During restaurant. franchised restaurant one new we one opened

with our and position remain have XX We people, units put XX satisfaction restaurants development to construction or mid-tier This to open now XX our continue night and drove Carnitas premium in better either bites through have to And favorable cravable for on late drive new popular investments to ongoing menu will very continued our launching with pipeline much mix branded positioned products a night an system-wide new XXXX. platform Our promoting menu late indulgent process, and provides efforts under compared track open sub-brand. new match our value. innovation, by Carnitas two product segment and in on standpoint, mid-tier innovation QX XXXX. late From continued menu our returned food and platforms, and our guest and classic that executed to high of a brand trends. strengths quality We menu marketing. leverage In marketing on LTO our for and our summer. menu scores May, in mix to offerings the course, burritos. $X expand strategy also night our to highly mid-tier

At Elevated QSR-plus of our further launch Combined brand the QX. latest improvements we Elevated designed iteration and Solutions of leader start the the to the category in Solutions, strategy. Combined be to catalysts operational quarter, pivotal Turning mission our includes to brand value-oriented the segment.

operational hands being ingredients boards, brand through new has campaign along real prep our food. which ingredient The significant side, guests, a our QSR-plus where catalysts, With chalkboard, of prepared the creating which Elevated we artwork, our To it by and showing accentuates focus what one designed hardest when guest good-bye, the inside launched greetings picked, uniforms, like items fresh freshly and each by that and features a focus operators was is ingredient On formed, brand it enhance elevating hospitality. members, new more on fresh features well-received team updated XG with menu our refreshed prepared advertising newly on Improvements fresh team we working restaurants day. to the that created the campaign call in day, celebrating team positioning the our are and genuine Combined Solutions, or hospitality. member and fast complement was pride. restaurant

name guests. we in And introducing guest instead are with the our the numbers, name. now connection our well. themselves more moves calling room, by out of order in example, drive-thru, create personal as a by calling Both For dining are cashiers

the brand. series strategies over confident and drive shows that Taco take to our building big paired of influence the our connection restaurants elevated launch I differentiate of experience are further on service hospitality has Our the service make into and hospitality a with changes. XG Del is to guest overall am level. marketing will foundational They help guests These be of elements for brand to will catalysts next time. consumer of to point our a our will goal type satisfaction another and hospitality research this differentiation the

consumer Based Under this catalyst $X, reinforce to of a The perceptions terms select in Combined & part on With sold. results, product is includes Quesadilla and value & to Buck Snacker breaking menu enhancements which is it on Initial Chicken recent guest Solutions items product new Quesadilla Snacker our of the we Chicken Dollar New drive Buck increase our first record designed expansion. price an affordability Buck on has price units Elevated Change a as with and Under introductory as favorable. coincides been our early the of menu. feedback & demand

through five second negative quarter Although trends Chicken menu This the QX. mix outperformance. similar Dollar New a with system-wide to of same-store our slightly same-store continued guidance slowing mix compared transaction remain to are reflects due very the high sales Snacker, franchise while trending negative QX, range first sales annual to below our a weeks Quesadilla the on sequential

to we we our of shifted focus expect LTO balance exciting ahead, the Epic our and the These the and and complement protein on Looking Quesadilla around premium promotion external primary to Chicken Burritos New communications recently for news premium products. include new year; and mid-tier a to message remain an Snacker. premium new Dollar

paired this should trend transaction focus as Combined improved and when help Solutions with also will Elevated year We our trends strengthen drive progresses. check the elements, our average expect

sequentially focus restaurant our lower trends. chain cost additional on contribution the advertising. optimize when focused was dollar price lower menu management of This evident supply net food higher to the X% inflation contribution drive inflation of X% margin results restaurant for timing XX helped pricing, quarter and and menu second remain our in points labor area as contraction also to plan high slightly food margin adjusted only sequentially below and limit strategies, in margin basis improved We designed achieve to

Moving the to prep area progress structural will of supply at ingredient launch contribution while performance. third scheduling reducing of new provide the restaurant menu equipment labor during the in chain pricing and end to mid enhanced on to hours, optimize low strategies, forward, techniques, labor X% help QX enhancements quarter, enhance the quality continued

in call our will franchise I'll margin and with in Solutions further company to and we the of believe Combined designed Elevated loyalty stages restaurant be coupled third-party expect capabilities addition capability performance expand Steve and drive strengthen delivery our quarterly which us With we focus feature turn we a program, conclude, QSR to drive marketing later mobile going plan app marketing In will app mobile in support frequency use us continued journey to crowded launch forward. powerful that, fast to Solutions and over for will positions remains serve guest contribution Del early offering tool is To review the as a differentiate Del management that Taco enhanced the the including and to future the unit of detail. to and Elevated offers year. a to Combined promotional The targeted Taco landscape. this momentum or results casual sales catalyst growth. and our

Steven Brake

$XXX.X the year was X.X% John. to $X.X new an rules. Thanks $XXX.X revenue revenue Total quarter franchise franchise $X.X included ago adoption second million, revenue recognition other million and million increase quarter related and of advertising million contributions the to of of the the second in from

of strong System-wide recognition System during sales XXXX, revenue a grew XX restaurant positive in has impacts, XX.X% these restaurant by Excluding X.X% QX computer Taco lapped quarters generated consecutive sales. resulting sales and same-store X.X% total of trend. Del revenue of comparable The two-year X.X%. approximately increase system-wide now will

comparable million year. the period. from This was Second sales with in quarter by quarter to restaurant compared of second company-operated the from ago increase year-over-year as sales restaurant stores to company-operated growth company additional $XXX.X driven along increased X.X% contributions X.X% $XXX.X year million last

primarily increase related including represents rules, menu in comparable the offset approximately X.X% last fees. franchise and new year. quarter the revenue and offset by franchise driven Second growth comparable X.X% partially increased partially quarter other restaurant by growth revenue of to reduced X% gains increase the million Franchise company-operated recognition of to decline The $X.X check, initial X.X% a the from consecutive revenue $X.X in sales of year-over-year X.X% was by transactions. restaurant adoption was sales of million mix, comprised of XXth

lower of company ran slightly which as XX decreased offset increases inflation basis from as more a to Moving a percentage. Carnitas Food impact price paper margin restaurant approximately the strong of XX.X% impact slightly onto the XX.X% of a below well drives that points year-over-year costs typical menu than expenses. sales X% dollar as impact but food margin than and with percentage contribution, as from

increased the inflation from increase net the Los Xst, X%. the California hour annual expect as during to expenses an and Labor wage continue was based approximately impact by XXXX percentage County food on of and XX X.X%. by this points based $XX.X as SOX increase quarter basket the and offset revenue to total administrative offset to a of $XX.X and year. partially basis costs, as inflation prior contribution increased of from compliance This $XX.X and expenses, the incentive million EBITDA Pasadena at points Angeles minimum advertising half and $XX including Based expense expense sales approximately were that operating basis restaurant or driven in XXXX, on basis as Xst, XX.X% million reductions side million last management legal company based million XX.X% underlying stock-based on XX increased escalations of to expenses was to now XX deleverage workers' in approximately decreased percentage and inflation was by driven to XX wage on of expense sales X% to related $XX franchise increase second compared an and other primarily advertising. of of impacted the to January XX.X% by we reduced reported million under the from XXXX claims sales X.X% timing mostly last company operating basis basis to points of company $XX.X a increases approximately XX.X%. is This by other on second from expense, incremental hour compensation. points XX.X% year net General performance, inflation activity. decreased performance percentage the food This price Adjusted revenue timing a Restaurant of and of increased ahead, restaurant July line gross higher the $XX.X This Occupancy expenses margin related was was otherwise advertising was company Looking approximately an menu XX which of and year. increase expense basis, compensation restaurants. points a XX.X% year. compensation the XX restaurant increased XXX(b) growth. to by year-over-year of contribution due with from restaurant

$X.X revenues, compared of percentage to basis a increased total EBITDA last million XX.X%, and XX.X% $X.X million was adjusted amortization Depreciation down XX.X% points to As year. XXX last from expense year.

and the depreciation assets. was increase of year amortization increase $X.X an of compared new the Interest percentage to million in year. X.X% a by year. was to expense was to compared prior increase $X.X last the to revenue, was quarter. rate second The LIBOR As month total The million compared to addition X.X% due prior driven one

As interest rate year-over-year the expect the environment. trend increase previously to discussed, rising to we due continue

diluted As at of last $X.XX compared rate quarter million all-revolver or diluted period was the was the the year. million during X.XX%. to the income share quarter million impact outstanding effective end of expense $X.X of is due remained per $XXX last per $X.X for an in under tax the $X.X The margin a for while of the second XX.X% credit the our with or quarter, XX.X% rate year. of second effective same loans facility, for tax compared share million tax second LIBOR tax Net effective to during applicable Income $X.X was reform. tax $X.XX recent or as million reduction expense our rate

reported net of we which per share. or excludes addition, $X.XX an impairment diluted long adjusted income million assets in of resulting In tax $X.X net lived

to the of by of completion warrants, repurchase Board program unless will and Turning million. The covering increased Board million authorization from Directors. common $XX earlier authorization terminated our $XX stock increased upon repurchase to program, repurchase expire the of the our Directors

we $XX.X Del income During average remains of second are to was John guidance of Taco. performance In in adjusted million our indicated, share to reaffirming common repurchased of at the a today's $XX.XX answer the Please an our refer and basis. on XXXX. warrant XX-week for release per is $X.XX. as we XX,XXX any your expectations at diluted XXX,XXX warrants currently million total $X.X the an repurchased Approximately you authorization. for $XX for our that shares per an Xst, of And half however, net million January line first under stock and price to we and period Note, in price summary, are outlook. questions. average in our quarter, share our guidance details Thank per the now earnings interest happy with

Operator

with begin Slagle Instructions] now comes from the first Alex question-and-answer Jefferies. will question go The We [Operator Please session. ahead.

Alexander Slagle

comes second to Wanted more talk a after negative -- third performance. if pretty wonder bit Thanks. you Hey guys. I mix the the about solid could shift, a quarter in the quarter

all to of timing Snacker you If kind Or to Chicken some was Quesadilla there due Snacker? response impact can clarify, in -- that was Carnitas the shift the better-than-expected also? the the LTO having an

John Cappasola

supports also leveraging years top the we positive was where demand mix evident is Yes, with characteristics I'd part Snacker products quarter. it that & us and Buck fairly the to by tough see early obviously our fully couple and as traffic ascend mid-tier as leading when our great complement a that's And sure from are category snacker one back it the those with our really compare in year-on-year. Thus think know affordability check Under the on a near-term, here And a view of towards going we've strategy. working products the which I driver fiscal we premium to commentary we're of the we focus Dollar say that the is menu bigger perceptions, quickly. for we're to building what that us five new of and far, average it mean and make of the we some value that you because Quesadilla of promotion like a class driver here. problem and got kind is it's powerful high Chicken this big somewhat for barbell

menu for the match popular and last August two we our late we're beef So, shredded mix even $X to we're new be to going it bring then had XXXX. and in as in an exciting bringing with profile we on than flavor September better to late going time toggle an premium in back back specifically, LTO that

to using that we good Chicken on of kind of we -- success end Del Carnitas So, think the the barbell Snacker. Taco in of used given for the with launch. XXXX a cycled when us summer seeing low We on make the back the playbook move with we're that's that that Quesadilla

program have towards the of back half year, of we're the Burrito end that the to back so year, also put business another We planning the Epic -- say. into I should the or

we're So, and to now the answer going can we mid-tier snacker do news. think that. We continue and we'll with against innovate to everything surround continue premium that's to to the right nice

Alexander Slagle

thoughts pipeline initial And Great. thoughts company franchise might XXXX? terms kind on between how for markets? the or it's And like of that the any development-wise but then of split look on still early, in preliminary what what any looks

John Cappasola

Specific to XXXX?

Alexander Slagle

Yes.

John Cappasola

is remainder It XXXX too.

me both. Let on me hit let

very what you in I'd some time, on our is we're very company that some to on to momentum now, delivering the the franchise So, At same obviously, having pipeline some and good relative pipeline the be say future I'll give fueling And that like good that building right the years. also to focused and a we're moment. success obviously. and building XXXX side pipeline going And critical just commentary XXXX is seeing on XXXX. on both we're to and focused within

in we that we provided. guidance the feel range really about So, XXXX, good

in to incidentally, and units to another as we need range. under so we hit to As that more actually And a and year were working we able in that can that I have or have expect three the much imagine are early than well be units year-on-year. We as guidance you we're August. open construction our good units XX under or prior fact put we said, better either construction, the us where about feel is position

getting be construction XXXX. months just going position work a in that's with of good units around puts about to -- that's under and us So, done couple more a in

So, overall on on see regards XXXX nice so that been to because and it's deliver pipeline commitments. really see signs good to it is and strengthening our the in focused to do we able we've being

Alexander Slagle

Okay. Thank you.

Operator

[Operator for over any closing turn Instructions] the like I back remarks. to the would conference This session. Cappasola question-and-answer to John concludes

John Cappasola

All right Have progress your everyone. interest future sharing a thank Taco to day. great Well, look we you and our Del on calls. for forward in

Operator

This call. conference concludes today's

pleasant disconnect participating have your a Thank and for may lines. You you day.

Del Taco Restaurants (TACO) 26 Jul 182018 Q2 Earnings call transcript