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Del Taco Looks Tasty

- By Mrinalini Chaudhuri

Headquartered in Lake Forest, California, Del Taco Restaurants Inc. (TACO) reported fourth quarter and fiscal 2016 results. The company's fourth quarter was strong, and the company exceeded its annual guidance.

Fourth-quarter revenue increased due to restaurant sales and a 9.7% increase in franchise revenue. Franchise comparable restaurant sales increased by 5.8%.


Fourth-quarter performance

Total revenue during the quarter was $150.2 million, an increase of 12.6% from $133.4 million in the prior-year quarter.

Comparable restaurant sales increased by 5.5% systemwide for the fiscal fourth quarter. Company-operated comparable restaurant sales increased by 5.3%. This marks the 18th consecutive quarter of comparable restaurant sales growth.

Net income during the quarter was $8.0 million, representing 20 cents per diluted share ($4.8 million in the prior-year quarter, representing 12 cents per diluted share).

Restaurant contribution increased by 14.6% year over year and was $31.1 million during the quarter.

As a percentage of company restaurant sales, restaurant contribution increased by an estimated 30 basis points year over year and was 21.5%.

Adjusted EBITDA increased by 19.4% and was $25.3 million ($21.2 million in the prior-year quarter).

Full-year performance

Total revenue was $452.1 million, representing 6.6% growth from the prior-year period.

Restaurant sales grew 6.5% from the prior-year period and were $452.1 million.

Restaurant sales were $434.1 million, which marked an increase of 6.5% from the prior-year period.

Net income for the year was $20.9 million.

Restaurant contribution margin improved by 60 basis points from the prior-year period and was 20.6%.

Adjusted EBITDA was $71.4 million.

Systemwide comparable restaurant sales increased by 4.8%.

Company-operated comparable restaurant sales increased by 4.7%.

Share repurchases

During the quarter, the company repurchased 212,510 shares at an average price per share of $11.16 and 222,201 warrants at an average price per warrant of $3.45 for an aggregate of $3.1 million.

For fiscal year 2016, the company repurchased 1,347,300 shares at an average price per share of $10.00 and 699,007 warrants at an average price per warrant of $2.54 for an aggregate of $15.2 million. As of the end of fiscal 2016 there was approximately $34.8 million remaining under the $50 million repurchase authorization.

Expectations for 2017

Range

Capex

To be between $43.0 million and $46.0 million

Effective tax rate

To be around 40.0%

Adjusted EBITDA

To be between $71.0 million and $73.5 million

Total revenue

To be between $466 million and $476 million

Systemwide same-store sales growth

To be between 2.0% and 4.0%

Restaurant contribution margin

To be between 19.8% and 20.3%

Diluted EPS

To be between 52 cents and 55 cents



Focus

  • Menu offerings.
  • To attract new, qualified franchise partners over time.
  • Broadening customer base.
  • Grow same-store sales.
  • Growing same-store sales.



Conclusion

It is the second largest Mexican-American QSR chain by units in the U.S., operating restaurants under the name Del Taco. It caters to more than 3 million guests each week at its nearly 550 restaurants across 15 states. Founded in 1964, it offers a wide variety of Mexican and American favorites such as burritos and fries with the added convenience of a drive-through.

For more than 30 years the company has been catering to its guests with delicious yet affordable foods. It recently upgraded its breakfast menu with the launch of five new breakfast items. Customers can enjoy these items for as little as $1.

This American restaurant chain has a balanced approach toward existing and emerging markets. It has plenty of room for franchisees to grow in both existing and untapped markets. The company has plans to roll out more than 2,000 Del Taco restaurants over time. It is on an expanding spree and ramping up expansion in the Southeast. The company plans to open both franchised and corporate locations in West Palm Beach County, Florida, Southern Georgia and the greater Atlanta area.

For 13 consecutive quarters, the Del Taco system has now generated comparable restaurant sales growth. The company caters to customers' changing preferences. With the rise in disposable income, quick service restaurants industry is preferred due to busy lifestyles. It has a strong balance sheet and is opening up new restaurants. This company has lots of opportunities in this industry and adding it may reap shareholder returns.

Disclosure: I do not hold any position in the company.

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This article first appeared on GuruFocus.