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Del Taco Restaurants, Inc. Reports Fiscal Third Quarter 2020 Financial Results

·22 mins read

Del Taco Restaurants, Inc. ("Del Taco" or the "Company"), (NASDAQ:TACO), the second largest Mexican-American quick service restaurant chain by units in the United States, today reported fiscal third quarter 2020 financial results for the 12-week period ending September 8, 2020 and provided a business update.

Management Commentary

John D. Cappasola, Jr., President and Chief Executive Officer of Del Taco, commented, "As we continue to navigate the challenges and opportunities related to COVID-19, I am proud of our actions to stabilize our business as demonstrated by our strong third quarter performance. Positive third quarter comparable restaurant sales for company-operated and franchised restaurants reflects our value-oriented QSR+ positioning, expanding off-premise convenience and use of innovation with the very successful launch of new fresh Guacamole and our Crispy Chicken menu. We also drove operational efficiencies and maintained our cost discipline to help slightly expand our restaurant contribution margin after adjusting for the timing of advertising expense which will normalize during our fourth quarter."

Cappasola concluded, "We are delivering great experiences and driving high overall guest satisfaction scores due to the exceptional work and dedication of our restaurant teams, franchisees and support center employees. Their efforts have established a solid foundation that we plan to leverage with continued innovation including the recent introduction of a new flavor to our Crispy Chicken menu through our partnership with Cholula. Looking ahead to 2021, we plan to elevate our brand engagement and transform our digital capability through a holistic CRM platform to incentivize and reward our fans, and launch our ‘Ultimate Convenience’ initiative to expand our access and convenience through new technology."

Fiscal Third Quarter 2020 Highlights

  • System-wide comparable restaurant sales increased 4.1%;

    • Company-operated comparable restaurant sales increased 2.0%;

    • Franchised comparable restaurant sales increased 6.5%;

  • Total revenue of $120.8 million, representing a 0.5% increase from the fiscal third quarter 2019;

  • Company-operated restaurant sales of $109.5 million, representing a 1.4% decrease from the fiscal third quarter 2019 primarily due to fewer company-operated restaurants open during 2020 compared to 2019 due to our refranchising activity;

  • Net income of $5.8 million, or $0.15 per diluted share, compared to net loss of $7.7 million, or $0.21 per diluted share, in the fiscal third quarter 2019;

  • Adjusted net income* of $6.0 million, or $0.16 per diluted share, compared to adjusted net income* of $3.7 million, or $0.10 per diluted share, in the fiscal third quarter 2019;

  • Restaurant contribution* margin of 18.0% compared to 16.8% in the fiscal third quarter 2019;

  • Adjusted EBITDA* of $15.3 million compared to $14.5 million in the fiscal third quarter 2019; and

  • One company-operated and four franchise-operated restaurants opened and two franchise-operated restaurants closed.

* Adjusted net income, restaurant contribution, and adjusted EBITDA are non-GAAP measures and defined below under "Key Financial Definitions". Please see the reconciliation of non-GAAP measures accompanying this release.

Liquidity

During the fiscal third quarter, the Company reduced its outstanding revolving credit facility borrowing by $21 million to $124 million from $145 million at the end of both the fiscal second quarter and last year’s fiscal fourth quarter. The Company currently has $108.7 million available under its revolving credit facility.

Review of Fiscal Third Quarter 2020 Financial Results

Total revenue increased 0.5% to $120.8 million compared to $120.2 million in the fiscal third quarter 2019. Comparable restaurant sales increased 4.1% system-wide, increased 2.0% at company-operated restaurants, and increased 6.5% at franchised restaurants.

Net income was $5.8 million, or $0.15 per diluted share, compared to net loss of $7.7 million, or $0.21 per diluted share, last year.

Adjusted net income*, which excludes sublease income for closed restaurants, impairment of long-lived assets, restaurant closure charges, loss on disposal of assets and adjustments to assets held for sale, and executive transition costs, was $6.0 million or $0.16 per diluted share compared to adjusted net income* of $3.7 million or $0.10 per diluted share last year.

Restaurant contribution* was $19.7 million compared to $18.6 million in the fiscal third quarter 2019. As a percentage of company-operated restaurant sales, restaurant contribution margin increased 120 basis points year-over-year to 18.0%. The increase was the result of an approximate 120 basis point decrease in food and paper costs and an approximate 30 basis point decrease in labor and related expenses, partially offset by an approximate 20 basis point increase in occupancy and other operating expenses.

Adjusted EBITDA* was $15.3 million compared to $14.5 million in the fiscal third quarter 2019.

Restaurant Development

During the fiscal third quarter 2020, one company-operated restaurant and four franchise-operated restaurants opened and two franchise-operated restaurants closed. There are two planned franchise restaurant openings in the fiscal fourth quarter 2020, including the first Del Taco restaurant opening in Ohio.

Fiscal Year 2020 Guidance Withdrawn

As a reminder, Del Taco previously withdrew guidance for the 52-week fiscal year 2020 ending December 29, 2020.

Conference Call and Webcast

A conference call and webcast is scheduled for 4:30 p.m. ET today. Hosting the conference call and webcast will be John D. Cappasola, Jr., President and Chief Executive Officer; and Steven L. Brake, Executive Vice President and Chief Financial Officer.

Interested parties may listen to the conference call via telephone by dialing 201-689-8471. A telephone replay will be available shortly after the call has concluded and can be accessed by dialing 412-317-6671; the passcode is 13710596.

The webcast will be available at www.deltaco.com under the investors section and will be archived on the site shortly after the call has concluded.

Key Financial Definitions

Comparable restaurant sales growth reflects the change in year-over-year sales for the comparable company, franchise and total system restaurant base. Restaurants are included in the comparable store base in the accounting period following its 18th full month of operations and excludes restaurant closures.

Restaurant contribution* is defined as company restaurant sales less restaurant operating expenses, which are food and paper costs, labor and related expenses and occupancy and other operating expenses. Restaurant contribution margin is defined as restaurant contribution as a percentage of company restaurant sales. Restaurant contribution and restaurant contribution margin are neither required by, nor presented in accordance with, GAAP. Restaurant contribution and restaurant contribution margin are supplemental measures of operating performance of restaurants and the calculations thereof may not be comparable to those reported by other companies. Restaurant contribution and restaurant contribution margin have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of results as reported under GAAP. Management believes that restaurant contribution and restaurant contribution margin are important tools for investors because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity, efficiency and performance. Management uses restaurant contribution and restaurant contribution margin as key performance indicators to evaluate the profitability of incremental sales at Del Taco restaurants, to evaluate restaurant performance across periods and to evaluate restaurant financial performance compared with competitors.

Adjusted EBITDA* is defined as net income/loss prior to interest expense, income taxes, and depreciation and amortization, as adjusted to add back certain charges, such as impairment of goodwill, trademark and long-lived assets, stock-based compensation expense and restaurant closure charges, as these expenses are not considered an indicator of ongoing company performance. Adjusted EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income/loss as a measure of operating performance or cash flows or as measures of liquidity. Non-GAAP financial measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to GAAP results. We believe Adjusted EBITDA facilitates operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present Adjusted EBITDA because (i) we believe this measure is frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry and (ii) we use Adjusted EBITDA internally as a benchmark to compare performance to that of competitors.

Adjusted net income * represents company net income before impairment of goodwill, trademark and long-lived assets, restaurant closure charges, sublease income related to closed restaurants, other income, executive transition costs and loss on disposal of assets and adjustments to assets held for sale, net of tax. Adjusted diluted net income per share* represents company diluted net income per share before impairment of goodwill, trademark and long-lived assets, restaurant closure charges, sublease income related to closed restaurants, other income, executive transition costs and loss on disposal of assets and adjustments to assets held for sale, net of tax.

About Del Taco Restaurants, Inc.

Del Taco (NASDAQ:TACO) offers a unique variety of both Mexican and American favorites such as burritos and fries, prepared fresh in every restaurant's working kitchen with the value and convenience of a drive-thru. Del Taco's menu items taste better because they are made with quality ingredients like fresh grilled chicken and carne asada steak, hand-sliced avocado, hand-grated cheddar cheese, slow-cooked beans made from scratch, and creamy Queso Blanco. The brand's campaign further communicates Del Taco's commitment to providing guests with the best quality and value for their money through cooking, chopping, shredding and grilling menu items from scratch. Founded in 1964, today Del Taco serves more than three million guests each week at its approximately 600 restaurants across 15 states. For more information, visit www.deltaco.com.

Forward-Looking Statements

In addition to historical information, this release may contain a number of "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, without limitation, information concerning Del Taco’s possible or assumed future results of operations, business strategies, competitive position, industry environment, potential growth opportunities and the effects of regulation. These statements are based on Del Taco’s management’s current expectations and beliefs, as well as a number of assumptions concerning future events. When used in this press release, the words "estimates," "projected," "expects," "anticipates," "forecasts," "plans," "intends," "believes," "seeks," "target," "may," "will," "should," "future," "propose," "preliminary," "guidance," "on track" and variations of these words or similar expressions (or the negative versions of such words or expressions) are intended to identify forward-looking statements. Such forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other important factors, many of which are outside Del Taco’s management’s control that could cause actual results to differ materially from the results discussed in the forward-looking statements. These risks include, without limitation, the impact of the COVID-19 pandemic, consumer demand, our inability to successfully open company-operated or franchised restaurants or establish new markets, competition in our markets, our inability to grow and manage growth profitably, adverse changes in food and supply costs, our inability to access additional capital, changes in applicable laws or regulations (including minimum wage regulations), food safety and foodborne illness concerns, our inability to manage existing and to obtain additional franchisees, our inability to successfully execute our portfolio optimization strategy, our inability to attract and retain qualified personnel, our inability to profitably expand into new markets, changes in, or the discontinuation of, the Company’s repurchase program, and the possibility that we may be adversely affected by other economic, business, and/or competitive factors. Additional risks and uncertainties are identified and discussed in Del Taco’s reports filed with the SEC, including under Part I. Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2019 and Part II., Item 1A. Risk Factors in our Quarterly Report on Form 10-Q for the period ended June 16, 2020, and available at the SEC’s website at www.sec.gov and the Company’s website at www.deltaco.com.

Forward-looking statements included in this release speak only as of the date of this release. Del Taco undertakes no obligation to update its forward-looking statements to reflect events or circumstances after the date of this release or otherwise.

Del Taco Restaurants, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share data)

September 8, 2020

December 31, 2019

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

5,359

$

1,421

Accounts and other receivables, net

3,731

3,580

Inventories

2,640

3,123

Prepaid expenses and other current assets

2,541

2,289

Assets held for sale

1,495

8,411

Total current assets

15,766

18,824

Property and equipment, net

147,569

156,921

Operating lease right-of-use assets

250,154

258,278

Goodwill

108,979

192,739

Trademarks

208,400

220,300

Intangible assets, net

10,202

10,827

Other assets, net

4,610

4,568

Total assets

$

745,680

$

862,457

Liabilities and shareholders’ equity

Current liabilities:

Accounts payable

$

17,616

$

19,652

Other accrued liabilities

45,690

34,577

Current portion of finance lease obligations and other debt

199

220

Current portion of operating lease liabilities

20,116

17,848

Total current liabilities

83,621

72,297

Long-term debt, finance lease obligations and other debt, excluding current portion, net

123,380

144,581

Operating lease liabilities, excluding current portion

253,121

257,361

Deferred income taxes

61,466

69,510

Other non-current liabilities

16,274

16,601

Total liabilities

537,862

560,350

Shareholders’ equity:

Preferred stock, $0.0001 par value; 1,000,000 shares authorized; no shares issued and outstanding

Common stock, $0.0001 par value; 400,000,000 shares authorized; 37,324,593 shares issued and outstanding at September 8, 2020; 37,059,202 shares issued and outstanding at December 31, 2019

4

4

Additional paid-in capital

336,285

333,379

Accumulated other comprehensive loss

(52

)

Accumulated deficit

(128,471

)

(31,224

)

Total shareholders’ equity

207,818

302,107

Total liabilities and shareholders’ equity

$

745,680

$

862,457

Del Taco Restaurants, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(In thousands, except share and per share data)

12 Weeks Ended

36 Weeks Ended

September 8, 2020

September 10, 2019

September 8, 2020

September 10, 2019

Revenue:

Company restaurant sales

$

109,522

$

111,059

$

305,116

$

329,142

Franchise revenue

5,169

4,490

14,080

13,193

Franchise advertising contributions

4,001

3,458

9,995

10,048

Franchise sublease and other income

2,090

1,191

5,971

3,472

Total revenue

120,782

120,198

335,162

355,855

Operating expenses:

Restaurant operating expenses:

Food and paper costs

29,051

30,761

82,988

90,434

Labor and related expenses

35,450

36,304

101,995

108,542

Occupancy and other operating expenses

25,302

25,386

72,099

73,522

General and administrative

10,841

10,421

30,139

31,735

Franchise advertising expenses

4,001

3,458

9,995

10,048

Depreciation and amortization

6,055

5,941

18,477

17,661

Occupancy and other - franchise subleases and other

1,766

1,011

5,088

2,858

Pre-opening costs

63

465

359

720

Impairment of goodwill

87,277

Impairment of trademarks

11,900

Impairment of long-lived assets

1,407

8,287

5,101

Restaurant closure charges, net

413

588

1,406

1,718

Loss on disposal of assets and adjustments to assets held for sale, net

140

7,906

697

8,790

Total operating expenses

113,082

123,648

430,707

351,129

Income (loss) from operations

7,700

(3,450

)

(95,545

)

4,726

Other expense (income), net:

Interest expense

941

1,663

3,730

5,169

Other income

(201

)

Total other expense, net

941

1,663

3,730

4,968

Income (loss) from operations before provision (benefit) for income taxes

6,759

(5,113

)

(99,275

)

(242

)

Provision (benefit) for income taxes

962

2,556

(2,028

)

3,910

Net income (loss)

5,797

(7,669

)

(97,247

)

(4,152

)

Other comprehensive income (loss):

Change in fair value of interest rate cap, net of tax

(75

)

(345

)

Reclassification of interest rate cap amortization included in net income, net of tax

32

52

79

Total other comprehensive income (loss), net

(43

)

52

(266

)

Comprehensive income (loss)

$

5,797

$

(7,712

)

$

(97,195

)

$

(4,418

)

Earnings (loss) per share:

Basic

$

0.16

$

(0.21

)

$

(2.62

)

$

(0.11

)

Diluted

$

0.15

$

(0.21

)

$

(2.62

)

$

(0.11

)

Weighted average shares outstanding

Basic

37,293,390

37,023,287

37,152,419

37,000,331

Diluted

37,420,043

37,023,287

37,152,419

37,000,331

Del Taco Restaurants, Inc.

Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA

(Unaudited)

(In thousands)

12 Weeks Ended

36 Weeks Ended

September 8, 2020

September 10, 2019

September 8, 2020

September 10, 2019

Net income (loss)

$

5,797

$

(7,669

)

$

(97,247

)

$

(4,152

)

Non-GAAP adjustments:

Provision (benefit) for income taxes

962

2,556

(2,028

)

3,910

Interest expense

941

1,663

3,730

5,169

Depreciation and amortization

6,055

5,941

18,477

17,661

EBITDA

13,755

2,491

(77,068

)

22,588

Stock-based compensation expense (a)

1,267

1,347

3,905

4,601

Loss on disposal of assets and adjustments to assets held for sale, net (b)

140

7,906

697

8,790

Impairment of goodwill (c)

87,277

Impairment of trademarks (d)

11,900

Impairment of long-lived assets (e)

1,407

8,287

5,101

Restaurant closure charges, net (f)

413

588

1,406

1,718

Amortization of favorable and unfavorable lease
assets and liabilities, net (g)

(70

)

(19

)

(185

)

44

Pre-opening costs (h)

63

465

359

720

Sublease income for closed restaurants (i)

(247

)

(173

)

(745

)

(554

)

Executive transition costs (j)

438

287

438

Other income (k)

(201

)

Adjusted EBITDA

$

15,321

$

14,450

$

36,120

$

43,245

(a) Includes non-cash, stock-based compensation.

(b) Loss on disposal of assets and adjustments to assets held for sale, net includes adjustments to reduce the carrying amount for assets held for sale to estimated fair value less cost to sell, loss or gain on disposal of assets related to sales, retirements and replacement or write-off of leasehold improvements or equipment in the ordinary course of business, net gains or losses recorded associated with the sale of company-operated restaurants to franchisees, gains from the write-off of right-of-use assets and operating lease liabilities related to the termination of leases and net gains or losses recorded associated with sale-leaseback transactions.

(c) Includes non-cash charges related to impairment of goodwill.

(d) Includes non-cash charges related to impairment of trademarks.

(e) Includes non-cash charges related to impairment of long-lived assets.

(f) Restaurant closure costs include rent expense, non-lease executory costs, other direct costs associated with previously closed restaurants and future obligations associated with the closure or net sublease shortfall of a restaurant.

(g) Includes amortization of favorable lease assets and unfavorable lease liabilities.

(h) Pre-opening costs consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including restaurant labor, supplies, cash and non-cash rent expense and other related pre-opening costs. These are generally incurred over the three to five months prior to opening.

(i) Includes other sublease income related to closed restaurants that have been subleased to third parties.

(j) Includes costs associated with the transition of former Company executives, such as severance expense.

(k) During 2019, other income consists of insurance proceeds related to a fire at a company-operated restaurant.

Del Taco Restaurants, Inc.

Reconciliation of Company Restaurant Sales to Restaurant Contribution

(Unaudited)

(In thousands)

12 Weeks Ended

36 Weeks Ended

September 8, 2020

September 10, 2019

September 8, 2020

September 10, 2019

Company restaurant sales

$

109,522

$

111,059

$

305,116

$

329,142

Restaurant operating expenses

89,803

92,451

257,082

272,498

Restaurant contribution

$

19,719

$

18,608

$

48,034

$

56,644

Restaurant contribution margin

18.0

%

16.8

%

15.7

%

17.2

%

Del Taco Restaurants, Inc.

Reconciliation of Income (Loss) from Operations to Restaurant Contribution

(Unaudited)

(In thousands)

12 Weeks Ended

36 Weeks Ended

September 8, 2020

September 10, 2019

September 8, 2020

September 10, 2019

Income (loss) from operations

$

7,700

$

(3,450

)

$

(95,545

)

$

4,726

Less:

Franchise revenue

(5,169

)

(4,490

)

(14,080

)

(13,193

)

Franchise advertising contributions

(4,001

)

(3,458

)

(9,995

)

(10,048

)

Franchise sublease income and other

(2,090

)

(1,191

)

(5,971

)

(3,472

)

Plus:

General and administrative

10,841

10,421

30,139

31,735

Franchise advertising expenses

4,001

3,458

9,995

10,048

Depreciation and amortization

6,055

5,941

18,477

17,661

Occupancy and other - franchise subleases and other

1,766

1,011

5,088

2,858

Pre-opening costs

63

465

359

720

Impairment of goodwill

87,277

Impairment of trademarks

11,900

Impairment of long-lived assets

1,407

8,287

5,101

Restaurant closure charges, net

413

588

1,406

1,718

Loss on disposal of assets and adjustments to assets held for sale, net

140

7,906

697

8,790

Restaurant contribution

$

19,719

$

18,608

$

48,034

$

56,644

Company restaurant sales

$

109,522

$

111,059

$

305,116

$

329,142

Restaurant contribution margin

18.0

%

16.8

%

15.7

%

17.2

%

Del Taco Restaurants, Inc.

Reconciliation of Net Income (Loss) to Adjusted Net Income

(Unaudited)

(In thousands, except per share data)

12 Weeks Ended

36 Weeks Ended

September 8, 2020

September 10, 2019

September 8, 2020

September 10, 2019

Net income (loss), as reported

$

5,797

$

(7,669

)

$

(97,247

)

$

(4,152

)

Sublease income for closed restaurants (a)

(247

)

(173

)

(745

)

(554

)

Impairment of goodwill (b)

87,277

Impairment of trademarks (c)

11,900

Impairment of long-lived assets (d)

1,407

8,287

5,101

Restaurant closure charges, net (e)

413

588

1,406

1,718

Loss on disposal of assets and adjustments to assets held for sale, net (f)

140

7,906

697

8,790

Other income (g)

(201

)

Executive transition costs (h)

438

287

438

Tax impact of adjustments (i)

(82

)

1,242

(5,891

)

(180

)

Non-GAAP adjusted net income

$

6,021

$

3,739

$

5,971

$

10,960

Earnings (loss) per share (as reported):

Basic

$

0.16

$

(0.21

)

$

(2.62

)

$

(0.11

)

Diluted

$

0.15

$

(0.21

)

$

(2.62

)

$

(0.11

)

Weighted average shares outstanding (as reported):

Basic

37,293,390

37,023,287

37,152,419

37,000,331

Diluted

37,420,043

37,023,287

37,152,419

37,000,331

Adjusted earnings per share:

Basic

$

0.16

$

0.10

$

0.16

$

0.30

Diluted

$

0.16

$

0.10

$

0.16

$

0.29

Shares used in computing adjusted earnings per share:

Basic

37,293,390

37,023,287

37,152,419

37,000,331

Diluted

37,420,043

37,438,920

37,213,880

37,289,679

(a) Includes other sublease income related to closed restaurants that have been subleased to third parties.

(b) Includes non-cash charges related to impairment of goodwill.

(c) Includes non-cash charges related to impairment of trademarks.

(d) Includes non-cash charges related to impairment of long-lived assets.

(e) Restaurant closure costs include rent expense, non-lease executory costs, other direct costs associated with previously closed restaurants and future obligations associated with the closure or net sublease shortfall of a restaurant.

(f) Loss on disposal of assets and adjustments to assets held for sale, net includes adjustments to reduce the carrying amount for assets held for sale to estimated fair value less cost to sell, loss or gain on disposal of assets related to sales, retirements and replacement or write-off of leasehold improvements or equipment in the ordinary course of business, net gains or losses recorded associated with the sale of company-operated restaurants to franchisees, gains from the write-off of right-of-use assets and operating lease liabilities related to the termination of leases and net gains or losses recorded associated with sale-leaseback transactions.

(g) During 2019, other income consists of insurance proceeds related to a fire at a company-operated restaurant.

(h) Includes costs associated with the transition of former Company executives, such as severance expense.

(i) Represents the income tax associated with the adjustments in (a) through (h) that are deductible for income tax purposes.

Del Taco Restaurants, Inc.

Restaurant Development

12 Weeks Ended

36 Weeks Ended

September 8, 2020

September 10, 2019

September 8, 2020

September 10, 2019

Company-operated restaurant activity:

Beginning of period

294

310

300

322

Openings

1

2

3

3

Closures

(1

)

(2

)

(4

)

Purchased from franchisees

1

4

Sold to franchisees

(6

)

(13

)

Restaurants at end of period

295

312

295

312

Franchise-operated restaurant activity:

Beginning of period

299

273

296

258

Openings

4

2

5

8

Closures

(2

)

(6

)

(1

)

Purchased from Company

6

13

Sold to Company

(1

)

(4

)

Restaurants at end of period

301

274

301

274

Total restaurant activity:

Beginning of period

593

583

596

580

Openings

5

4

8

11

Closures

(2

)

(1

)

(8

)

(5

)

Restaurants at end of period

596

586

596

586

View source version on businesswire.com: https://www.businesswire.com/news/home/20201015005955/en/

Contacts

Investor Relations:
Raphael Gross
(203) 682-8253
investor@deltaco.com