Del Taco Restaurants Inc. said on Monday that its same-store sales rose 5.8 percent in the fourth quarter ended Dec. 29, as customers bought more upscale items and paid higher prices.
The higher sales come as the Lake Forest, Calif.-based chain has been working toward burnishing its upscale credentials with customers in a bid to be seen as a step above a typical quick-service restaurant.
“The ability to solidify our QSR Plus positioning and elevate our brand can be seen in our quarterly results,” Del Taco CEO Paul Murphy said on the company’s earnings call. “Consumers have responded to our premium offerings.”
Company executives also stressed, however, that its efforts on the premium end have not come at the expense of budget-conscious consumers that Del Taco has long scored well with.
They said that value perceptions among its customers have not been hurt, even though menu mix — meaning the cost of the items diners order — and a menu price increase of about 3.5 percent were the sole contributors to the 5.8-percent same-store sales figure.
The company expects, in fact, to market its budget items more heavily this year in the face of growing competition from quick-service restaurants offering low-cost deals to get customers in the door.
“We have observed some competitors revise or abandon deep discount tactics,” Murphy said, likely referring to McDonald’s Corp., which changed its value deal already this year to a 2-for-$5 menu offering from a 2-for-$2 offer earlier this year. “We plan to continue to position ourselves as the category leader in value.”
Del Taco has about 550 restaurants and opened 12 locations last year. But it also closed a dozen units in the fourth quarter, the company said.
Same-store sales have increased for nine straight quarters, and have increased 11.6 percent on a two-year basis.
The company has been working to make its brand more upscale for some time, as part of a bid to increase average unit volumes to $1.5 million by 2018. In so doing, executives hope to the restaurants’ profit margins increase to above 20 percent of revenues.
As part of that effort, the company has adding what it calls “freshness coolers” with some fresh ingredients displayed behind the counter. John Cappasola, the company’s chief brand officer, said on the earnings call that in so doing, “we move the needle with freshness perception.”
Newer units are being constructed with that cooler, and existing locations are being retrofitted to include the equipment, with half of the locations expected to have such a cooler by the end of the year.
In addition, Del Taco is planning to add equipment to its restaurants that should enable the locations to increase speed, particularly in the drive-thru. As it is, the company has increased training on service as part of an effort to improve customer satisfaction.
“We’re investing capital and targeting restaurants with equipment in the back and processes that increase throughput and lower drive-thru times,” Murphy said.
The company is working on an online and mobile ordering platform and has a deal with the mobile ordering company Olo to start adding that functionality this year.
But Cappasola said that the plans are simply to give customers an option. “We’re not planning on being on the leading edge of technology,” he said, noting that the mobile ordering would “further buttress their restaurant experiences and make sure guests can access Del Taco in any way they would like.”
The company has added chorizo sausage, including a new chorizo breakfast taco. Executives said that breakfast has been its best performing daypart.
They also expect that the chain will continue to generate positive sales this year. Del Taco expects same-store sales to be up in the low to mid 3-percent range despite a “tough environment,” including difficult comparisons and a value push by other brands.
Total revenue at Del Taco increased 6.1 percent in the fourth quarter, to $133.4 million, from $125.7 million the previous year. Net income in the quarter increased to $4.8 million, or 12 cents per share, from a loss of $8.1 million, or $2.08 per share, in the same period a year ago.
The company expects food costs to fall in the second half of the year. It also anticipates higher labor costs due to the increased minimum wage in California, which Del Taco expects to cost it $7.2 million.
The company’s stock fell nearly 3 percent as of mid-afternoon Monday.
Contact Jonathan Maze at [email protected]
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