TACO - Earnings call transcript Q3 2018 | Del Taco Restaurants, Inc.

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Operator

Thank you for standing by, and welcome to the Fiscal Third Quarter 2018 Conference Call and Webcast for Del Taco Restaurants Incorporated. I’d 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

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

John Cappasola

decidedly dividends at to In our franchise we’ll cost We especially comparable launch great tempered our pricing progress out on strengthening characterize company company-operated been our designed for over our to be soft solutions, light pay more mission contribution timing the restaurant being our updated recent thank we mixed advertising brand all we have continue management rolled as is joining success by driver further values would comparable today. the segment, of given restaurant the the earnings afternoon, believe has against by as sales call guidance further systems of comparable portability. management a Overall, effective even leader we We and employees, new during executed release. restaurant everyone, you, to point successfully strong again results sales. strategic press a reflected after management plan which centered in favorable softer in I strengthening Still restaurant today, restaurants. advertising demonstrating elevated achieving on with experienced trends and and value-oriented of culture with focused our the quarter Good company and quarter, remain QX, view trends, cost our our and on and adjusting performance we margin expansion important, This margin you annual to in real the Raphael. Thank our cautious and effective campaign and QX franchise QSR+ the combined last expenses. long-term. our our the our elevated for sales of

to company grew and X% system-wide These XX respectively. growth sales growth extend of quarters, company-operated restaurant consecutive and comparable on a sales driven comparable XX restaurant X.X%. X.X%, franchise comparable streak sales sales comparable basis, and Looking our at sales, two-year restaurant of system of or restaurant by X.X% results gains

XX existing interest relevance supporting its our believe geographic construction, restaurants, reflects opened diverse new continue bringing franchise additional to stimulate reach. new our our brand’s franchise. a and to restaurants. currently and under surge In XX franchise development restaurants, and company-operated new three two franchise six across recently and to XX have outperformance strength restaurants ability We and company-operated franchisees, new system-wide restaurants We company-operated new two systems XXXX expand opened to our footprint in across we QX, and openings including

this franchise. XXXX to to restaurants of year and these between our company and XX openings XX nearly will expect We open even reflect split a

pleased franchisees, open restaurants the with which as momentum very for seeing total expects future us this we to brand our We are the XX states positions well with in are year, growth. a

acquired from opportunistically also We quarter. franchisees three during third the restaurants

further As brand the the brand to It positioning I elevate of on combined a deeper catalyst we designed strategy launched focus solutions, and QX. our iteration brand’s freshness at noted operational a included quality of elevated moment ago, onset latest improvements our to and attributes. our

focus As our on inside to the fresh part we to restaurants this improvements our and made preparation enhance elevate hospitality. of strategy,

restaurants our the as launched Hardest Chicken positioning also Food. the by were strategies changes. of into Working to We Hands the Quesadilla the QSR+ building $X our guest brand and the Fast menu a freshly new in the with highlighting experience ingredients advertising new Under These drive prepared on paired to catalyst launch Buck campaign, intended & Snacker Celebrating consumer

high however, and reflection used value effect Therefore, to Snacker launch a on immediately Snacker was second-half product, restored focus third although well all trends, quarter check Match and options, including we of maybe record-breaking believe not promotion. to this product transactions. terms which mix are in reinforce our of helped The to innovation Epic We in desired many competitive the on check messaging menu promotions sold and the pivoted have Burritos transactions. has its and with ended $X for quickly Ultimately, a dollar transaction we Chicken QX, soften. consumer action. year value Quesadilla ability high-demand perhaps of outcome diluted use continue Classic to the Burrito did a as Quesadilla our healthy $X a it of trends negative This as caused affordability new environment, the trends into value-driven discounting. heavy value the $X mix Although improvement new the current mix any we the part and positive Mix strong perceptions, units to and in our without shift

generate underway. is to our momentum transaction forward, Looking plan

execute game to experience brand continue Combined Elevated through Solutions will guest we designed our against drive plan, to frequency First, initiatives. and

driving menu occasions we drive digital emphasis premium through be for value strategy, intended initiatives access we’re guests key new frequency our to and the Second, will third, an focused of and new demonstrating And of launch expanding mid-tier products. both points on barbell with across trial. on

let Now through me take the detail. you

Epic since we Beef, to provide protein, and products QX, the year. brand. designed return our and Shredded launch pair are the the spur premium news been the fan-favorite premium LTO menu on month, which the Burritos During run featuring interest innovation with LTO and grilled end to value through using new beginning we’ll of has the menu Triple consumer will a chicken mid-tier Shredded that with a money with great XXXX, Later for of this food and the quality bacon. Beef steak, new freshly Beef product Shredded additional hasn’t experience Epic Burrito, Meat of elevate around

We expect drive a average check transaction healthy improved to to and QX. these promotions trends compared

Beef we featuring trends fiscal to So same-store far, single-digit two off high QX, its promotion around exciting sequentially. Shredded initiatives. how to achieving will sales week of position first the the its have to in strong sales expect promotional a the by ability enhanced points some program. start, capabilities, our the expanding drive launch I the have loyalty digital also guest weeks, brand through and offers of mobile third improved of mix targeted a to launch November, marketing access Del since is to and updates in in and frequency we sales app, including transactions support grow Taco future

many app, and of been our build as have launch any awaiting over are competitors limit their us we help we deep on database the discounts eagerly own our guests from consumer offering Our will this believe time. apps impact

Los market GrubHub, to delivery followed launch next month expand our In a in entire expect XXXX. addition, by Angeles partner through the we to system-wide third-party offering our

both We adding across to testing have our DoorDash will agreements significant demand optimize consumer an a XXXX. and believe trade increase driver in partnership occasions to plan additional us a toward approach date signed areas, moving with multiple and delivery Postmates coverage DSP during We and as position maximize DSP. upon indicates to with also expand

Our provide summary, that to attract continue are learn we convenient early In optimize we of delivery aspects allowed we in the are our all now us test another believe approach and in a guests. journey Del our new channel stages successfully program to Taco. to and to of position at

approach it premium who drive financial momentum transaction to underway. innovation to will plan people-driven our I growing now like results. Steve mid-tier our check to over and a remains allowed strengthening made our QX brand during progress driving restaurant strong comparable on and sales restaurant our growth, culture, nimble and swiftly to building and to focus us our trends, improve We would margins leverage is Our Brake, position, cover restaurant hand level strategic base. optimizing immediately

Steven Brake

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

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

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

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

from sales and to points of food during percentage on decreased basis XX.X%, company cost of menu and approximately Moving increases year-over-year as quarter. impact expenses. XX.X% XX deflation to restaurant the slight price a to the Food due paper

quarter to with during of new distribution increase Looking food costs. is agreement we expect as net ahead, distributor inflation the expected our to a up X% fourth

the Our to negative in lower than as an County which well sales and dollar basis was reductions approximately X, a full from as as of to Epic offset our also hour advertising California year and at Labor Angeles hour underlying workers’ increase wage XX This points to slightly percentage as from of Shredded fiscal last approximately the was expenses minimum in Occupancy sales This compensation restaurant claims on modest menu Beef margin by driven from decrease products, basis XX.X% $XX contribution, XXXX, face remains price pressure escalations and based inflation primarily a of same-store transactions margin quarter. fourth and Pasadena a XX.X%. typical increase a due was third food increases X, to with an year. inflation impact percentage related company based paper percentage from January approximately July a company Los decreased of percentage. strong other of the the wage operating for advertising. increased XX.X% loss the XX and and activity. slight will This Meat the estimate $XX XXXX on by during the drive expenses partially restaurant each and but to Triple The by on sales quarter food timing XX.X% X%. points lower XXXX expense expense leverage

of SOX to as approximately expenses $X.X increased growth. XX.X%. administrative operating expense $XX.X modest stock-based by to a of of and contribution timing X.X%. the the on during restaurant is $XX.X revenue as prior year, operating This an franchise basis X.X% Restaurant sales And timing General $XX.X contribution reported expanded margin side compensation total year-over-year to expense costs, gross last increased basis X.X%. this basis contribution the restaurant XX driven excluding than were the increase in of expected basis, margin Excluding advertising, year-over-year, third performance, Adjusted a that from expense year. incremental related legal despite which was and XXX(b) XX inflation percentage. the restaurant magnify well on impact, to at XX company sales and was $XX.X quarter. slightly basis XX compliance XX.X% compared increase points million increased EBITDA and points million, increased million the Based our outpaced as lower same-store points points revenues, million, percentage the expenses, from million increased the revenue other approximately as expense, by increased advertising

million, and XX.X% As a total to year. EBITDA percentage compared last increased with year. Deprecation $X.X last X.X% adjusted remained to $X.X of amortization million revenue, at expense consistent million

last Interest of compared line with increase amortization rate an to to outstanding and one-month year. revolver percentage third at increase expense LIBOR due $X.X total and in compared The to quarter X.X% balance $X.X last a average million As higher slightly revenue, was depreciation to of million, remained year. the was XXXX. a

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

As permanent recent tax restricted stock-based $X.X million income fiscal during credit favorable difference or and reduction a year. awards stock Income LIBOR in rate same diluted year. end is rate expense effective from XX.X% during an benefit the quarter, facility, tax million margin the effective per a or a The to had was million, that due loans quarter revolver outstanding quarter remained for the an expense $X.X compared tax the of tax share as compensation from was reform all a of at for tax $X.XX XX.X%, million, to during of last million applicable for impact we third expense period under third vested effective rate the for the the compared diluted quarter. to last $X.X $X.XX our of for share, third third $X.X X.XX%. Net while our per $XXX the

lease $X.X reporting are in closure we income million, related of to excludes diluted share. per write-off income, addition, charges liabilities. or In other the adjusted unfavorable which net was the quarter income net $X.XX Adjusted restaurant and

repurchase covering stock Turning common to program, and our the warrants.

common X,XXX XXX,XXX at $XX.XX price of an an stock $X.XX. price repurchased we warrants average of average and quarter, the share warrant of per per During shares at

quarter, of third the authorization. $XX.X million million approximately As the $XX of the remained fiscal end under

and of us As approximately XXXX fiscal earning for the of for growth guidance. more update approximately sales led outlook John company-operated on system-wide same-store details indicated, conservative contemplates a quarter and guidance our X%. our recent refer our performance that to expectations growth annual our to has XX-week Please X% release fourth note same-store these sales

year, timely evaluating we Looking when key ahead call next directionally would some out to to business. consider be thought items to it our

a noted, agreement distributor I new to our our as increase costs. First, with is distribution expected

expect finalize it compared range is Although we inflation exact identify food an estimated until XXXX inflation inflation do increased on key the ingredients, to for of coverage many to premature fiscal this we year. X% food

minimum increases XXXX, by takes effect from past a expect labor $X $XX primarily related X%, $XX, hourly inflation $X.XX we increase Second, in and California January a to of to approximately which driven XXXX. January compared wage in

menu our trends, to evaluate although we fiscal approximately will remain pricing Third, during expect XXXX. strategy as to nimble, fiscal X%, currently we continuously consumer, of up competitive XXXX macroeconomic compared elevated pricing X% and

system-wide fiscal an are openings X% openings, with similar unit to our expected rate. new estimated to again, gross Finally, XXXX system-wide closure be

conclusion, half we’re be from finish move early Shredded look Epic with Beef Triple and transaction with in improved we Del and into the we basis current as focus capital for the than company real continue of In you on use Meat and more due XXXX construction interest of pleased trends, cost our for new to questions. inflationary our restaurants. a the new expected it development XXXX any pairing selective Taco, your environments, results forward unit and estate and Our are to answer will franchised promotion we’re to are to that on openings XXXX. slightly happy pleased as Burrito our maintain we Thank restoring

Operator

we Our time, will first the session. a question your Slagle conducting from Jefferies. Instructions] of with be question. proceed question-and-answer this from At Alex comes Please line [Operator

Alexander Slagle

in region in California be promotion-related. might what some color is any is realized some a guys, you’ve on thoughts your of for seen We’ve can more thanks seen question. there what recently or provide driving But softer on you that? Hey, the trends and softness

John Cappasola

elevated is traffic. category Listen, this cases, in we I as fairly sure, markets overall, QX, you Alex, right. and what up Yes, you’re John. some of launched actually moved to saw outperforming the see we and – picked many performing through mean, relative is our well on we

So, of really X.X% that in the is which same-store QX, was comp, that majority when ahead you company of sales difference look traffic. at the franchise

consumer out And proven to Quesadilla obviously, heavily there. desired just as just mid-tier these products, options was including over and a good with same-store not and markets. sales, I as pressure isolated and absolutely having what kind to softer effect is time have the was was that drive $X been there. check we perhaps to many offset the traffic we catalyst that, news due and to traffic as The what too in markets, in ability healthy we do the to premium is I that, did why some here discount-driven that not of direction, value something part think, the brand success said, its ability from we that some differentiates the further we’re the and of And in said, seeing just we’ve early that environment especially the pivoted in saw Chicken it’s Snacker, that QX. part the So was that’s because it and QX strategically, Taco like early Bell of in we’ve have

using that other adoption a is of see market the the which mobile of like of apps technology, the more dynamic mobile where in like more out course, we Angeles think, shape and more then, things consumers apps, starting take delivery, discounting QSR and emergence has Los competitor to well I which documented. as environments in we via and heavy early are really been maybe playing see

So fronts, game. getting of on we’re those the in both

moving into roll We’re through out. our and testing development phases

markets to going to these our here is removed some few the there next because a it’s that, of if over quarters. be certain So of related programs, in headwind adoption careful

Alexander Slagle

mean, a of more at I and bit even just XXXX, and competitive traffic then staying we’ve tougher comfort And seen this higher this and you level environment pricing, hot to talk for about of still focused though the come your it. pretty pricing little and value continued that if being the plans into year Got rest could by?

Steven Brake

Alex, Steve. Sure, it’s

year, mid had a fiscal us to X.X% during that the over bit X% at menu fiscal price in kind will little high up leave tick of carrying net during move we So X% end to mid, QX, as to low area. slightly the QX through we this of year effect the

we expect to we’re year of and limited The comes carry in internally it. of out And we’ve although nice a enhancing covered about powerful a a and it’s analyze noting going call fluid up and into with aimed it it’s and plan, management with that modeling on is also before, that our analysis, going heck part as be playing XXXX, reading the side lastly, of as firm menu you make to compared price our margin all single is least. consumer, to price color certainly to Every believe that competitive thing definitely field it most price, we at and pricing, So the and management margin where restaurant performance econometric Right company particularly when contribution say move along stores we’re traffic. do to very price is put early we be that impact in elevated the the level increases. adverse deploy X% price how with California, our going as reside. third-party said, inform the All very We forward move macro that is internal carefully time to of that to and cautious lever to very mindful the it our future help we we price carried a this that X%. more to on the can tight year. we’ll very next to now,

peers continue We’re direct we take elevated not, forward. certainly also that observing and pricing if of our going menu most, expect to currently, all

Alexander Slagle

color. the for Thanks Great.

Operator

with comes question. Citigroup line proceed Badishkanian next from your question Greg of Incorporated. Our from the Please

Frederick Wightman

value story dig product something you way environment But guys, could of due for. understand bit I it’s quite much talked on Fred hoped just that or it I to else going Greg. out the for had How sort Hey, was didn’t I awry? the work into it’s traffic is just you in this gone actually the mean, Wightman declines that little hoping quarter a Snacker you on? of the there a about, is is launch of – really more,.

John Cappasola

Yes.

that, about and the a the years. to does about not has best And I us by Buck restaurants. something from these providing to they’re the looking the that standpoint. Under think Obviously, bit put think in when more you talked moving several is way probably that current relative a we & the say menu last as & answer big forward of see the think the looking above on front like mid-tier away better Consumers just could just brand is marketed Change it’s caveat in to marketplace we I environment it secondary bit as all consumer our of opportunity a and solid marketplace. think be and the for the We that to will focus in improve but momentum experiences. elevated and combined data. over for into It a that, are a our solutions foundation that that, we’ve markets. going we been a to be to board through for experience execute center always at from is be about what move and restaurants frequency that also with that the I continue traffic, through put wanted outlined to against value, I think to differentiator We It’ll of saying the premium call, mean time. on got to we’re and improve it innovation. Buck that But doing we’re nuance on with as the wanting walking

traffic have in our forward. us we’re absolutely markets of going to put last to on softer and digital the the right something relative is to and hands in Del So and tackle that And bit think that then a that’s everyday the and gotten point the some about moving continue disruptive ready we out do at we expansion, remind around to consumers now the Taco. value affordability marketplace in position obviously, a we good

Frederick Wightman

just you sort then sort or at perspective, plan unit year, there Great. thinking be or were else the the helpful? how from of XQ around cadence openings, looking out guys move in anything of the the year of back-half is would a would And did something

John Cappasola

we development I is a it’s geographies There of more Yes. the days. across function a This longer kind and definitely out right thanking. bit of these happening there what lead were mean, historically we’ve the is that’s loaded, is now. back-end happening around marketplace in which little times seen and of kind

lag So as a revenue we’d getting as them construction to then of bit well as and little to ever them more than operations, a like, generating but start getting both built certainly diligent franchisees. get as we’re as company units under of open for our these

Frederick Wightman

Great. Thanks.

Operator

of question next from the Please your proceed Jaffray. Piper Miller question. line Our comes with Nicole from

Nicole Miller Regan

Thank afternoon. you. Good

The make was I mix points? was in understand down price first to just quarter, X% so sure want XX one, basis I the

Steven Brake

in with negative was was the less Pricing low XX to check than mid-X%, X.X%. so bps. Mix at

Nicole Miller Regan

the company same-store current the sales I sequentially, and you Did you say that guidance And for that I X% about correctly? year? think I is for implies or XQ heard when talked comp. improved the And Okay. hear

Steven Brake

in about of we the seen to For sales fourth that our quarter implication due range what is single-digit X% continued year, in area minus expect year. the type plus comps The franchise or with company is we’ve all the outperformance with fiscal low a system X%, that implies. company range the X%,

Nicole Miller Regan

CapEx in some And just growth for up you new through pulling it is year the picked Maybe Okay. slightly. other units or could – was the of terms type And or this then talk of investment? maintenance the other just of see forward spend buckets? CapEx pieces I

Steven Brake

both constructing net in really environments, year, leases That open net that what was based aspects addition the on meaning, to of can this units. ground actually will more in construction opportunities, units we’re to meaningful sale or now, have capital mix other we a factors, combination Yes, most and and leaseback continued our opening different that due revision new of down the of upward of contributions costs category, fewer landlord needs. investments, where new that inflationary

construction which earlier front-half year Some original spending about meaningful some open lastly, additional on that of is positives. in that this talked the units overall that a one versus us expectations XXXX, captured to the will was then capital And now we require matter is expend there did that in guidance. revised defect

Nicole Miller Regan

then helpful required might is kind level prudent Thank a hold through next probably that’s labor comp just helpful. that think if assessment? fair store question. get What you. flat? I’m and margin look the the color and very to price, and wondering comps And like what for and year? thinking this the to last And It’s of just I’m deleverage, just about it’s thinking that’s to around

Steven Brake

through Ultimately, the impact price of flow the or in can comp the today that has absolute level probably comp itself, most carries more effectively composition than particular the menu significant maintaining on margin. enhancing

see to that of that, – lean continue traffic overall, fluid. to your the I’d but no X%, the take So a pluck or through the has environment X% move strategy basis, the price percent probably and we’re in carrying Del incredible going an year-over-year. guests. Taco you matter doing menu we absolute same thing I’ll barbell is will similar lever. margins We of of tell the say for a cart value a less meaningful question, and strength market which both menu what price mix, rate, our the on to we’re answer as we as and on one flow over X% primary on We that and slide parts price absolutely in we themselves. effectively of brand, on have impact whether little the to racing at flow touched powerful most the we how forward, much is and through course, preserve this of time. story That’s take

So that’s very to important note.

feel overall next have be innovation. to year next up think about we driver. good going as focus to a is mid-tier shape ongoing contribution continued that, really This with premium nice year. a should that We Beyond

So, of comp this in where composition what absolute comp that and versus much out, XXXX year. very margin the we’ll inform itself does shakes

that area, if guidance for deliver with this obviously be that XX.X% that’s that if we’re ago, inflation our obviously, shooting in in that, year a the be contraction would what from we ongoing for. year, despite So the where wage. XX.XX% the can percent we the the will area, current very And modest fourth around year RC XX% right row, across do a and in basket high-end

So margin management. on we’re focused remaining very

Nicole Miller Regan

so Excellent. much. Thank you

Steven Brake

bet. You

Operator

Our your line from from Hamblin Please & Co. question next comes of Dougherty with Jeremy proceed the question.

Jeremy Hamblin

Obviously, I G&A even it that about here, think a million, guidance as a get $X your low-end. math little sense you’re on than negative that? wanted on has guidance update, wanted can would that for on have you looks total guidance bit you. what’s why me your EBITDA thought for G&A dollar more lowering to impact a first maybe that moved because doing question to like higher? sense Thank year. give up a sales a ask have I’m the I G&A. guidance the But on might has on an that, I and basis And guidance the driving moved absolute

Steven Brake

still related for using of X.X in $XX million, also than squarely a and $XX on absolute the and well On guidance higher really the year, revenues the the midpoint that’s and trending actually new [ph] magnified [indiscernible] basis, talked That million as basis. kind expenses, legal on revenues, an remains it reduction pretty we’ve now as it said, of throughout costs percent between has the expected. the about

other compensation pressure of and by up million were really goes G&A way. certainly $XX with little lines a are that now. of we down netted there and where we right Net-net, So delivering kind $XX million, between is there where the bit is incentive

Jeremy Hamblin

other sales. bit going conjunction terms thought suck of how focused percent in on a margin to more be with you’ve cost are pressures, With was maybe mentioned this to, moving of out year? of even year control you next that you And Okay. or G&A that question, peak a year on in of little forward

Steven Brake

Yes, we…

Jeremy Hamblin

Is that a priority?

Steven Brake

Yes.

at move continue we peak through least. the long-term year focused We view and for process the and go leverage planning modest we’re as we to XXXX, real-time to that forward, say this sure our making looking are plateau as very as

we that we comes peaks is very that as focus. a our make across the is to this that, forward and percent So, make thereafter, line the so focus that sure taken business sharp sure optimized down G&A absolutely move year

Jeremy Hamblin

clarifying Okay. that you’re leverage right? year? to on next And say it assuming next year, get you just I’m when plateau, going not

Steven Brake

be area plateau look the We’ll which would to goal. probably have That range leverage. a we’ll in it, of the on

Jeremy Hamblin

one then question. other And Okay. forward-looking

has terms back the sounds on some an that’s – version in color next that of item here year? advertising like provide on of here there And on come had In costs. shift that XXXX? any can to kind more it going impact you’ve timing of your particular occupancy other resemble – Is and spender going in more to QX. like or us for you it Is XXXX in line that had

Steven Brake

back our good going the fiscal to going said, looking expectations we calendar and we it’s of news forward, every think So All that what year based marketing for be quarter-to-quarter, the the what need it’s and business advertising we on to appropriately. sales. X.X% and is deploy drive promotional

With X.X%, tell now. that’s year-over-year we you some so run largely the can first it there be variability the pressure a happened we’re to the two way just kind felt two that’s So ago quarters lapped the ran year wild-boar this I’ll we – year, of and reversed third dust the now back in X.X%, the quarter. that we when going in quarters other settled front-half it tilted caused where

much if is, amount has a X%. full-year X.X% year at good X.X% driving look So you the our quarter, given nice quarter really meaningful business. spending line this the news single of in every it is dollars in with or Every pretty

year, So performance. good percent out, have so that shift a folks or do, objective year-over-year call the view I as try for we guess, get of – there’s always more we the bad, a notable can the we if as into to next

Jeremy Hamblin

Okay, great. for Thanks luck. taking the Good questions.

Operator

question next your Our line Bibb of comes the proceed with from Securities. from CJS Please question. Craig

Craig Bibb

Hi.

much at it? traffic, with price, make me a same-store sure X% sales about were pretty it’s mix same Let of is understand, X% I QX where and just that but looking the better

Steven Brake

the a to single-digit range because range range guidance. revenue of there’s and has low $X more color, a million X% X% in The

the kind is. low guide So, of single-digit is implied what

You’re fourth we really with week about a the favorable quarter particularly QX. – Traffic on recovered. a had with the we check talked it’s we call, absolutely third of early actually on benefit into mix trend our third nice in last far, long the into kind negative line. quarter, the We the on time Beef QX, dime the out got check although, fiscal menu back-half turned continue remain by which a definitely that saw deliver also to business started the have QX, check check mix. quarter, had check and of days look of mentioned we But Early coming our shifted with Shredded ended back-half to Certainly, the that. in days your a nice QX, negative in out we in is does XX-week of quarter. to of the focus, the so promotional the

for a line on better So improvement Shredded position our in to have that’s early where sequential but Epic us as Beef that the well, we’re put the of looking to absolute in momentum call to focus. here, further lot Triple a are new traffic Meat innovation and runway left nets basis, on

Craig Bibb

then you’ve in – impacts Can you testing And of revenue? like up quite sales Sacramento for that us same-store or how where Okay. delivery sometime. any indication been picks give

Steven Brake

sure so product in the best for what so optimizing experience. like delivery economic for make of and operators, the that they is model. lot we’ve seamless have Yes, can program, our we’re a testing to been the also involves definitely there? possible area that Sacramento, Vegas stores is deliver that the now. in efforts Question it’s half our a There absolutely other our and see. of sometime Possible, number demand we consumer been one, L.A. there We

included in aimed has measuring price So delivery. to pricing also our menu sensitivity a tests, for date variety guest of premium really testing at to

testing this far, to low soon. So a definitely here pricing implement position indicates we a launch that us delivery for premium when transactions of sensitivity and in relatively level puts

going pressure potential margin offset there way restaurant long So to pricing help providers. is delivery news to go the is the a to that this premium service good from the paid commissions

with favorable So to and it’s to we going appropriate that’s that margins. part channel going about another potential be that feel good sales of to our same-store lead very a

Craig Bibb

thinking Okay. longer-term, partners? you’re – you’re you’re Grubhub multiple sounded delivery but using in like It’s LA.,

John Cappasola

that’s absolutely right, Yes, Craig.

our our POS We’re to which going Steve’s GrubHub, with fully into to in point. partnership start here is integrated

our is operators. seamless through We’ll expand we’ll GrubHub demand moving delivery nationally So We then and best and think DSP it be we’ll to that the approach DoorDash. make maximize Postmates capture way with and channel. for multiple the into expansion with

Craig Bibb

sounded struggling like I’m $X product like with high-value mix. Okay. sure… the bit little your Premium traffic a that within drive doesn’t traffic. stores And hurt I’m – is I drive Snacker-type it does guess, It mix that or driving

Steven Brake

I’d Yes. say…

Craig Bibb

[ph] they bought lever, or…?] …[before

Steven Brake

Yes.

promotions you windows look momentum on we’ve continuously year. we traffic absolutely how different check If be we our that Carnitas, same-store historical we launched, or and premium like program the the all, in look drove when historically more is what early a how see even like or program, whether different and We back the looks mix Shrimp Epic as And during premium programs. of historically, traffic which Burritos promotions, our that or or view and ultimately, parts those it LTO look sales. at at and it

of we Mexican the our our from of that that a we’re I that line QSR+. have that that’s ingredient we have we’re part than platform positioning absolutely our premium that, this think capability platform is leverage on separates that that QSR us and quality other strategy barbell that building upper-end and ability So with to nice of because

can traffic So from absolutely, think get momentum premium we products. we

of like as a a nice products it, bit, provides check and typically because well. those out margin really because also it you’re hedge getting also We really nice

Craig Bibb

what’s is up going to next that on? a one, guys I flat year? Last be it was ramping openings you Okay. thinking want little bit

Steven Brake

on you XX, as know, mid good building restaurants. XXXX, year the within this to here been to pipeline and that we’re next look we’ve pipeline. back The that and built backdrop we kind is, really our similar saying we and franchise, momentum is In if XXXX, company I mean, in year be range. going we feel see XX high-XX the we delivered of Yes. and about you

the a we So set because are others our investment that happening that to economics. of long of more term And is are good as to want sense up that pull environment long current a makes just operations, as inflationary many why bit a well our and investments. sure company selective. progress, the for franchisees. be we’re unit making lot And as makes while really this underlying term These starting we back make us

talk shape the to opportunity this and move building this And in in of more and franchisees want generally news That a quantity. kind despite markets this there. building restaurants. remember, of franchisees “Hey, I for to that’s We I stores good So, going we’re kind we’re conditions, we’ve like mean, quality challenging building in and said that, states carefully. need think I very be under think, new just in live is, over to make looks through great say big what pipeline that we that year”. I’d are sure XX markets statement and in the that we’re their constructing brand. longer-term relative the But is walk the run. to – environment always penetrated new seeing those We that, long

Craig Bibb

against a going outside you XX of have isn’t it your next California, a why really the you’re openings have be states guess, flat to of little whitespace went given I competitors.? really disappointment year, all of which of kind true lot is might the

John Cappasola

a not are at we lot one Remember Right. moving of markets time. different in

So market. quantity Atlanta we’ve that been Southeast adjacently the has us, over we’ve where building then in outside growing of hub that been quality approach for our down been and

willing down build folks operation in company us right get leverage franchises our – are infrastructure. to attracting and a franchise So and and there the build a there and around the build right that

So we’ve got those folks on coming Board.

got are sure there. success their stores we’ve those think, those we’re eight make building of executing to development end properly. are the agreements. make at multi-unit they’re sure of unit Remember, five year I down year first and agreements to this helping them having they’re XX got next that Many as we’ve that to individuals

those agreed So that we’ve they’ll build on agreements and to. that deliver

we the Del But maybe Taco be in as very looking that other ability quality where territories, think succinct quantity of successful the being attract expansion. brand, is Restaurants. the that’s we’re franchisees So dynamic and to we way and other already about have also where over of have a we kind part to

the we’re something this the anytime clearly we’re – and some single-digit mid success. isn’t range. before it’s to going move walk process get kind So to net we’re high digits we a in that’s to to need and of single of middle run, We But that seeing soon.

conversations great our think I we position eventually. pipeline get inflation development franchise there get our and through to the beyond that as and brand we’re pace this a all put on in will

Craig Bibb

Okay, lot. great, Thanks a John.

John Cappasola

you. Thank

Operator

question. from the Please next from your with comes Saleh line of BTIG. Peter question proceed Our

Peter Saleh

impact Thanks. pricing just Yes, of about the ask on wanted to I traffic.

little on If you could at what and or model suggest from – is taking what price much all, just any price? if about talk or is on traffic, if there taking the bit impact a is there’s impact if resistance level the of the this

Steven Brake

Sure.

near-term a a increase, increase. We recovery we observe with cycles purchase transaction of limited and really any level after goal price often the going As follow consumer is to to is transactions. price price particularly in believe a on impact contribution several enhance some I tension noted, restaurant and adverse performance elasticity of the

offer So, especially we absolute the long-term that an versus pieces said, near-term a footprint, with elevated environment we through our our in menu peers, very are barbell this relevant peers Del is for menu California very, compelling proposition particularly strategy taking versus and dynamics also Taco is, are the sensitivity price think on our where I as heavy price. value

that our overall. accretive actions analysis and recent continues been indicate ours the analysis to third-party So, that all have econometric said, pricing internal modeling all

notion. evidenced that think, we talked I during about that’s margin support fourth also the to quarter, think, improvement QX more recently sequential performance, I our even the in goes

Peter Saleh

more about how would this agreement that agreement And give little it inflation. just your food Can commodities tell the you would If Steve, probably your you Great. a for next you even saving you on place food us, I benefits be bit for higher be this the then, more didn’t for And thinking year, us and tradeoffs think you’re and have expecting – side? in agreement? should a is mentioned about agreement? bit we inflation money little detail XXXX a how for the

Steven Brake

So agreement. renewal what I is of referenced distribution our the

So long-term agreements. typically those are

their long-term expiring and distribution our limited what we’re cost was with has of fourth warehouseman will in the a during capacity, environment driver currently, fiscal prior agreements. be situation, side our And of on equation. been off coming quarter. on case the very Our challenged increase renewing prior pressure attractive fairly agreements and And rate the distribution shortages also

renewal So, similar that environment has shifted and more for brands going type through process. a is of are much currently challenging who

be So year. that across our will goods net fourth of basket the quarter entire pressured of this distribution we is into through cost next as sets move spread

net that, itself Beyond meaningful will have some inflation.

all work The will next But this road, items trying the where year. next on other into take bit to it the get little visibility puts still that. and will tighter a a basket of to year that year put said, inflation going takes us down within higher doing, color like more lot and versus food does a have that feel we’re our we’re food

Peter Saleh

the on should Are going be focus kind it the price to that premium just And again? Are to to that was about result, strategy going it understand trying I’m thinking more mid-tier great. back didn’t the circle rather positioning. I value we back to Is how $X How really drive going you Okay, point it to that than desired wanted was $X just lean product then forward? you Chicken Quesadilla. resonate, on the – if this to of forward? going coming didn’t about price the you are thinking point? that

understand didn’t trying to work? what Just

John Cappasola

Yes, Peter, it’s a great question.

about Buck been that last we Change still would Under. really the lot big on calls, the our place over platform, our that Buck have. off making strategy, we & with And which So couple the menu of migration what there’s menu & we’ve & we talked barbell for – absolutely the within believe Change a part platform lower-end of is that a call you Buck

Buck world, to Change is going think, likely Under I the you’ve living we’re & in So be where simultaneously got time. a for and & Buck

ourselves ability same that’s as be really high similar fence, or will fast very wanted think strategy do we the of being, traffic to fight time the side of value a status that, average a got food to the value-oriented differentiates value than leverage piece be perceptions barbell QSR+. we and from story brand, we give we a with food for there that affordability For that given where freshness that the the to convenience. said other continue Remember, quality on us and to QSR+, the our and better that, have

traffic proposition I we believe go incremental share us to that’s and is and think there great a there. still get for over

the on a premium. will on menu a our it’s of to So those opportunity the mid-tier are that to to build you have The we QSR+ areas focus out our we but is now to I bring innovation long to role the the and of forward. have what our side right life really plus equation going that do. intend winded, menu and moving that’s Remember, tell

it’s get when good the a sales, we get balance and there about really same-store got excited consumers healthy I door out right we think innovation the think it. if about

Peter Saleh

check. on initially? many be traditional to you Great. your average to I of that peers times service helpful. lastly X.X the Is than Got at check know quick higher very tends side, guys are And times then that the indicated delivery the or as within well have And it. the something space – least delivery X on seeing just that

John Cappasola

really, pricing, mean, demand convenience a model about and found very especially we’ve research about excited check said we these obviously here. driven out down mean, transaction think a model be about done with aggregate a with approach, as can gotten I and dollars the like our big we like what because we’re consumer earlier, come believe driver a comfortable we’ve maximize this through very very Yes, that the We that’s with We we’re consumers. LA. DSP take And Steve I average the is we’re to market that testing this seeing. ability move of the is out, also some the that can seeing, actually that right. accretive multiple transactions. laid further I that��s in of that then profit

Peter Saleh

All right. Great, thank much. you very

Operator

Our Securities. of from Nick Please question. the next Setyan comes proceed line question Wedbush with your from

Nick Setyan

you. Thank

guidance this mid single-digit could single-digit company-owned thought algorithm? given the should of and commentary of XXXX this down single-digit about the low Steve, think Just slightly I maybe next kind should kind to EBITDA bigger and EBITDA picture, solidify growth think we in cadence year, we on EBITDA. about picture So less XXXX, how XX being growth year bigger we should think EBITDA then How year we we unit of potentially the kind EBITDA XXXX. unit total flat, about are there? the than growth and on How step beyond think increase that think, I back low calls of growth potentially growth. that of the for taking of as year type a even And mid down a year single-digit this beyond next guide above here or

Steven Brake

Yes.

to somewhat The provided, P&L, will. inflation moving our and view color food the labor be in if positive with next that X%. So Obviously, lot that year. is, going news a pressure are you our play higher inflation good levers in serves to there’s to of

and than to it’s X% price year So first, the taking more this certainly up fluid. X%

We’re going make next competitor year. and and the the to carry optimal read sure macro consumer, the the level we price

an be lever restaurant help contribution to drive and going EBITDA. that’s to important So

effort as And involved lot time compliant. XXX(b) a expense and we related tough –it’s a and There’s ups. legal of year hit on year our had that. a become We on, addition, was In we touched this G&A. to and lot of in

going get peak we year, past G&A subside. you to that if this will, is once So headwind,

year, as the we’re though growth it’s I growth we to we ahead. the the deliver on put definitely going positive becomes it year, next year, would that’s So a Board similar say, this healthier. last look that even plus And as growth

lot In XXXX but We we’re feel like benefits of go of the fact, did financial this it year. further disciplined than it’s we’re to class road drive openings, early, seeing what XXXX particular. the really of a growth year profit next liking down well the to out in

have traffic mid-tier So kind positive. Then QSR+ lastly, that’s the mean, very and compelling many that mix. brand story have another our delivered years told we John for now I well has that consistently innovation premium and a certain, of healthier with and other the two the and for shape can traffic platforms up year mix, down we’re road. next of whitespace that be net year. to on opportunities year healthy working think We

things a costs that, lot can are also outstrips about. we of talked those So directional couple my view, in increased that positive the

we the try to scenes, our going guidance frame as to here into we’re road obviously, for remain focused So plights down behind on we move optimizing some XXXX that very forward. and meaningful the

Nick Setyan

John, the I in Are thinking labor expense maybe know maybe X.X% about labor you actual your inflation? more past, on initiatives mitigate cost highlighted opportunities there not of of some like to X% So kind is or particularly X%? had labor. growth that XXXX, some the X% guys

John Cappasola

like the processor and like make four about efficient, it’s and recently – get we contract. that our with labor. talked process strategic to ability much £XX under focused a feet well the we block saving that our some sure of program, We’ve of sure around, food cheese, which investment FREP program made executed make But Nick, making for start being in us types is become whole to we to do bring operation without really we anything that produce I the more the up guests call, operators trying our that, the within use can on got our we’re labor and absolutely tighten I is we and more some before can tomatoes potentially are think, we’re certainly that front what more of mean, impacting here we trick. walls that that our can with use to experience a into to a the efficient. the those bit opportunities to on

we that got to we’ve start can bit comfortable do a to that more become can So and we be efficient. then

tightening that difference make lying on deliver we sure at this things right can run scheduling front need been over at work we’ve peak. the got a doing making front hours up year. of we’ve lot looking that that on the moment labor a that also here, Quarter feet on long floor the and We’re to on the the

a of going on So well. effort front on, as that lot

know. of ability to take to opportunity little out both I over you’ve mean, got as be business if got approach, you of that is and time. you labor bit to want to kind of that efficiency a the be business it’s have do throughput we and So, successful. a this balanced the do to to able to down your answer be road But absolutely the see, of question, of

Nick Setyan

was the compelling And then of near-term. Roller, just purchasing Chicken Was product, purchasing the would instead that come would it the or final was somebody own mid-tier, question and of that of product a heard product. premium or a its just in, it – the on such instead a that actually mid-tier substitute maybe $X $X the And issue? adding the in they just really product is

John Cappasola

when I premium to heads think when many years And more mean, number out”. done situation. I’m our products check of to I that, and light sold product. maybe because And to the be us coming got plan great was gives and new that situation a But think brands in our it really have to think mid-tier but of at out. not bit concerned specifically it go us obviously over It’s Del news obviously user and talked that. much that, in of us. lot future, innovation, breaking things relative is Yes, check I to compelling highly move been certainly, we the and ability to area, it do early that records we it about that gates that say excites $X product levers also to are delivering could a units value the say, medium “Oh, sexy. brand on a of that be. that that in of will turn the to have in of seems part I’ve it mean, in some that puts more that here the going much And product so one the years, was is more pull. little core, in it their that folks and I sit I out the consumers and come that a us that’s – excites it’s for and a a having lever a lot lot our category we’ve today that a pivot and ladder point up we not of Taco

be don’t want that doing we to. fearful we to need So of where

a develop is against menu this we’ll nimble a pipeline, that, to of that we to of can layers so think, got be make sure great future. I the we’ve our continue and test example that all and strategy in

Nick Setyan

much. Got very it. Thanks

Operator

Our Please proceed next Maxim question Anderson of your Group. line Stephen with question. from the from comes

Stephen Anderson

deeper. a the I to mobile wanted some have you I bit a the launch. lines, And afternoon. exposed seeing are some pressure? talk other the go other cost but of about the wanted on Good I of commodity follow-up Yes. know you to little costs where

Steven Brake

pressure food year? The this Sure.

Stephen Anderson

and looking to – as into little you a XXXX? more you’re start what year this visibility at maybe maybe Yes, more get

Steven Brake

this those the will positive, renewals. area French cheddar that’s items. on been cheese, pressure from X% take pinto good us chicken, fries, net and the eventually would year we steak increases distribution and that year through then year soft drink This the that year Sure. for a The syrup, had on really some the beans reduction avocados, be

XXXX. So for takes the and puts that’s

the definitely year, bit of yes, release looking chicken primary a of inflation potential pressure at that’s fry is next have point, Looking in I through. we’re arrangement everyone some tell and a renewal this next going new year at be the addition you, French point tortilla goes year. that We would distribution to customarily every us working syrup for up beverage and

like. why a down small that think some next be Things doing didn’t generally against still upward lot some modest meat inflation of losses or there’s patties. and of a a are neutral the then XXXX, sort a on couple we’re taco We of I can tighter downwards well to beef So zone, as look what and year also well. good that’s might as guy put work note wins range [indiscernible]

Stephen Anderson

though Shredded of you spend a doing that I with the mobile only to launch? versus if or with of SG&A or expense additive launch. that’s Beef would look the you’ll you’re mean, kind in what a And whether directionally, And see be marking Okay. question what QX the what QX kind to increased launch? already follow-up do

Steven Brake

pressure. a the of amount specific that of we the that year. begin how But we And each support expect spend alter as composition G&A in portion deploy be It’ll spent to of marketing just to X%. of that forward, we X% No of messaging, we the part terms a course. year that spend, and that we X% move will delivery don’t where

Stephen Anderson

Okay. Thank you.

Steven Brake

Okay.

Operator

end Ladies and reached closing session. of like And management remarks. the gentlemen, question-and-answer call turn I back have to we would to the the for

John Cappasola

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

Operator

This today’s conference concludes call.

participating. lines your your this you time. disconnect for may You at Thank

Del Taco Restaurants (TACO) 16 Oct 182018 Q3 Earnings call transcript