Del Taco Restaurants (TACO 9.96, -0.97, -8.87%) is trading lower since reporting Q3
results last night., Del Taco is the second largest Mexican-American quick
service restaurant chain by units in the US. Del Taco has more than 560
restaurants across 14 states, a majority of which are in the Pacific Southwest.
Roughly 55% of the restaurants are company-owned and 45% are franchised.
Turning to the Q3 results, adjusted EPS rose 15% yr/yr to $0.15, which was slightly better than expected. However, revenue rose just 6.2% yr/yr to $117.8 mln, which was a bit below market expectations. System-wide comps rose +1.4%, marking the 20th consecutive quarter of gains. Company-operated comps grew +0.3% while franchised comps grew +3.0%. On a full year basis, TACO lowered revenue guidance to $504-507 mln from $506-516 mln. Adjusted EPS guidance was reduced to $0.53-0.56 from $0.59-0.63. System-wide comp guidance is now approx +3%, roughly in-line with prior guidance of +2-4%.
It seems that its new $1 Chicken Quesadilla Snacker was a big seller, but it brought down average check numbers. TACO then quickly pivoted to promoting mid-tier and premium products which achieved an immediate improvement in menu mix. Looking ahead to Q4, the goal is to generate transaction momentum with the launch of Shredded Beef as a limited time offer. It has not been on the menu since 2012. Furthermore, next month TACO will launch its Del Taco mobile app and begin offering delivery in the Los Angeles market through GrubHub, followed by a system-wide launch in 2019 that will include partnerships with Postmates and DoorDash.
In sum, the Q3 results were a bit disappointing. There was modest EPS upside, but revenue was light and company-operated comps were weak. And the full year guidance makes it clear that management is cautious about Q4 results. After trading near $15 in early July, the stock is now trading around $10. This is a competitive space and TACO is feeling some pressure. Hopefully results improve in 2019.
- OUR VIEW
- LEARNING CENTER