Del Taco Restaurants, Inc. (NASDAQ:TACO) Q3 2019 Earnings Conference Call - Final Transcript

Oct 21, 2019 • 04:30 pm ET

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Del Taco Restaurants, Inc. (NASDAQ:TACO) Q3 2019 Earnings Conference Call - Final Transcript

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Presentation
Executive
John D. Cappasola

bacon or chorizo at a great price point. This highly relevant new product not only quickly became our best-selling breakfast product ever in terms of units sold, but it's also re-energize the breakfast day part to become our number one sales comping daypart since this product launched.

Product innovation across the barbell will continue to be an important part of our marketing strategy and we've developed a robust pipeline for 2020. As noted earlier, Q4 trends to date for company-operated restaurants have sequentially improved compared to fiscal Q3 led by transaction improvement resulting from our transaction-driving initiatives that specifically address the transaction softness in Q3. They included the successful new $2 Breakfast Toasted Wrap that reinvigorated our breakfast daypart. The launch of Postmates to expand our presence in this important new sales channel and the recent 2 for $3 Del Taco promotion that uses a hero product to reinforce our value and affordability.

In addition, Q4 is benefiting from the return of our popular Carnitas program and our Beyond platform. Beyond continues to resonate with new and existing guests mixing it over 6% during fiscal Q3 and at approximately 4% during Q4, despite limited menu merchandising.

Looking ahead, we expect added momentum from the mid-November launch of the new authentic Pork Tamales LTO for the first time to capitalize on the seasonal relevance of this traditional Mexican holiday indulgence. As well as the expected late Q4 launch of DoorDash as we fully activate our multiple DSP approach to set ourselves up for success in the new year. On the development front, during Q3, we opened two company-operated restaurants in our franchisees opened two restaurants. Including two openings this week there will be 15 Del Taco system restaurant openings so far this year and we currently have 12 restaurants under construction, of which 10 are expected to open during fiscal 2019.

This would achieve our 2019 development guidance of at least 25 new restaurants, skewing slightly toward franchise openings. During Q3, we also opportunistically purchase to high volume Southern California franchise restaurant and closed one company-operated restaurant.

Turning to our portfolio optimization strategy. We have now executed an asset purchase agreement for one market and have signed letters of intent covering two other markets to be re-franchised. Each non-core western market is now expected to be re-franchise to a different franchise group. Two groups are existing multi-unit, multi-state franchisees and the other group is a new multi-unit, multi-state and multi-concept franchisee. All three franchise groups are very high quality operators with demonstrated track records and operations and new unit development and each transaction will include a meaningful future store growth commitment in these and adjacent markets.

We currently expect to complete the refranchising of the first three markets through a series of transactions in late Q4 and into Q1, 2020. Since we are still finalizing definitive purchase franchise and development agreement terms we are not going to share any transaction specifics, although we will share relevant financial highlights related to the