Del Taco Restaurants, Inc. (TACO) is a nationwide operator and franchisor of restaurants featuring fresh and fast cuisine, including both Mexican inspired and American classic dishes. The company has established a unique position in the restaurant market, occupying a space between traditional quick-service restaurants (QSRs) and fast-casual establishments, a combination it calls "QSR+."
Business Overview
Del Taco's menu is designed to appeal to a wide variety of budgets and tastes, with high-quality food and attractive price points. The company operates a network of 603 restaurants, the majority of which are located in the Pacific Southwest region. Each of its restaurants features a working kitchen where food is made to order, providing customers with the speed and convenience of a QSR along with the quality and experience of a fast-casual establishment.
The company's growth strategy has focused on repositioning the brand, increasing brand awareness, strengthening operational capabilities, and refinancing indebtedness to build a foundation for future organic and new unit growth. Despite the challenges posed by the COVID-19 pandemic, Del Taco and its franchisees have continued to execute on their development plans, with the recent launch of the company's new "Fresh Flex" prototype restaurant design.
Financials
In the latest fiscal year, Del Taco reported annual revenue of $527.4 million and net income of $5.7 million. The company's quarterly performance has been resilient, with third-quarter 2021 revenue increasing 2.9% year-over-year to $124.3 million. This growth was driven by a 1.8% increase in system-wide same-store sales, including a 1.6% increase in company-operated same-store sales and a 2.0% increase in franchise-operated same-store sales.
Despite the challenges posed by the COVID-19 pandemic, Del Taco has maintained a strong financial position. As of the end of the third quarter of 2021, the company had $3.4 million in cash and cash equivalents and $130.6 million in available borrowing capacity under its senior secured credit facility. This liquidity, combined with the company's focus on cost management and operational efficiency, has enabled Del Taco to navigate the pandemic and continue investing in its growth initiatives.
Operational Highlights
During the third quarter of 2021, Del Taco opened one new company-operated restaurant and three new franchise-operated restaurants, while closing one company-operated restaurant and one franchise-operated restaurant. For the full year 2021, the company expects to open a total of 13 system-wide restaurants.
The company has faced some operational headwinds, including labor availability challenges in certain markets and increased food and paper costs due to supply chain disruptions. To address these issues, Del Taco has implemented a holistic staffing strategy focused on retention and recruitment, as well as cost-saving initiatives with its suppliers.
Liquidity
Del Taco's strong liquidity position and access to capital have been critical in supporting its operations and growth initiatives. As of the end of the third quarter of 2021, the company had $3.4 million in cash and cash equivalents and $130.6 million in available borrowing capacity under its senior secured credit facility. This liquidity, combined with the company's focus on cost management and operational efficiency, has enabled Del Taco to navigate the pandemic and continue investing in its growth initiatives.
Risks and Challenges
Del Taco faces several risks and challenges, including competition from other QSR and fast-casual chains, labor availability and wage inflation, supply chain disruptions, and the ongoing impact of the COVID-19 pandemic. The company also operates in a highly regulated industry, with changes in minimum wage laws, paid sick leave requirements, and other regulations potentially impacting its cost structure and profitability.
To mitigate these risks, Del Taco has implemented various strategies, such as its holistic staffing approach, cost-saving initiatives with suppliers, and the development of its "Fresh Flex" prototype to enhance the customer experience and drive brand loyalty.
Outlook
For the full year 2021, Del Taco expects to open a total of 13 system-wide restaurants, including both company-operated and franchise-operated locations. The company remains focused on executing its growth strategy, with a particular emphasis on new restaurant development, brand repositioning, and operational improvements.
While the COVID-19 pandemic has presented significant challenges, Del Taco has demonstrated its resilience and ability to adapt to changing market conditions. The company's unique positioning in the QSR+ segment, combined with its strong financial position and strategic initiatives, position it well for continued success in the years ahead.
Conclusion
Del Taco Restaurants, Inc. is a well-positioned player in the dynamic quick-service restaurant industry, offering a unique QSR+ experience that appeals to a broad range of customers. Despite the challenges posed by the COVID-19 pandemic, the company has maintained a strong financial profile, continued to invest in growth, and implemented strategies to address operational headwinds. As Del Taco navigates the evolving landscape, its focus on innovation, operational excellence, and strategic execution will be key to driving long-term shareholder value.