Q4 2019 Earnings Call
[music].
Thank you for standing by and welcome to the fiscal fourth quarter 2019 conference call and webcast for del Taco restaurants, Inc.
Now I'd like to turn the call over to Mr. I feel gross managing director at RCR to begin.
Thank you operator, thank you all for joining up today on the call Whats Nice is gone couple of follow President and Chief Executive Officer, and Steve break Chief Financial Officer. After we deliver our prepared remarks, well open the lines to your question.
Well, we began I'd like to remind everyone that part over discussion today will include forward looking statements. These statements are not guarantees of future performance and therefore undue reliance should not be placed upon them, but you're not undertake to update. These forward looking statements at a later date.
Today's earnings press release.
Do you see filings for more detailed discussions the risks that could impact the company's future operating results and financial condition Todays earnings press release also include non-GAAP financial measures such as.
Adjusted net income adjusted EBITDA and restaurant contribution along with reconciliations of these non-GAAP measures to the nearest GAAP measure however, non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income operating income that cash flows provided by operating activities or any other.
Our GAAP measure of liquidity or financial performance I would now like turn the call over to John campus DLA Chief Executive Officer.
Thank you Raphael and we appreciate everyone joining us today.
Before I get started I want to address the current Corona virus situation.
I can report that so far we have not observed any impact on our overall sales and transaction trends in our fiscal 2020 guidance does not include any adverse impact from Toronto virus.
That said, we take our commitment to protecting our gas our team members in our community is very seriously and our monitoring the situation and communicating with our employees and franchisees in real time.
We have been very proactive and reinforcing our safety and sanitation protocols and making sure all restaurants have the right supplies on hand.
We have also decided to go above and beyond are highly effective standard procedures by increasing the frequency of our cleaning protocols and expanding our beloved use policy to further for Chuck and provide peace of mind to our gas and team members.
We remain confident in our restaurant safety and sanitation protocols and believed that our drive thru and delivery channels provider provider gosh options for limited interactions if they searches.
We realize this is a fluid situation and our remaining nimble with our employees and gas at the forefront of our focus.
Now turning to fiscal 2019, although our performance fell short of our original expectations, we delivered our financial results within our revised expectations for total revenue restaurant contribution margin adjusted EBITDA and adjusted diluted earnings per share and made solid progress on a number of strategic fronts to.
Better position us for the future.
Before covering our plans for 2020, let me briefly review 2019, and Q4, starting with comparable restaurant sales.
System wide comparable restaurant sales for fiscal 2019, increasing <unk>, 0.9%, representing our seventh consecutive year of growth.
Consisted of a franchise comp increase of 1.3% any company operated comp increase of 0.5%.
System wide and company operated comparable restaurant sales for Q4, each increased 0.4% wall franchise comparable restaurant sales increase 0.5%.
Company operated comparable restaurant sales were comprised of 4.1% average check growth with modest menu mix growth, mostly offset by a transaction decline of 3.7%.
We primarily attribute the negative transaction trends and 29 chain, Chile slowing of heavy user frequency due to weakening value perceptions.
During 2019, and Q4, our restaurant contribution margin and adjusted EBITDA contracted compared to the prior year, reflecting increased four wall expenses across food labor and operating costs, including the impact at the new lease accounting rules that outpaced our modest company operated comparable restaurant sales growth.
As I referenced a moment ago, certain 2019 mid tier value moves to attract heavy users such as fresh sage and various two for promotions or unfortunately, not sufficiently competitive.
That said, we've moved swiftly to reverse these trends with the launch of the new deals dollar deals menu at the end of January which I'll discuss and just a moment.
This year, the combination of reinvigorating, our category, leading value position and compelling new product innovation are expected to serve as transaction catalyst, while our strategic progress during 2019 on digital initiatives and Daypart utilization strategies are expected to improve heavy user frequency.
As we execute this plan I'm excited to welcome Tim how far back to del Taco as our Chief marketing Officer.
Tim has nearly three decades of restaurant experience as a marketing executive or brand consultant, having letter advise numerous brands across restaurant categories.
Tim is a proven innovator and has a strong track record of driving same store sales growth.
He also led marketing at del Taco for four years, beginning a 1999 and during his tenure the brand had some of that's most successful years.
More recently, Tim consulted for us on projects ranging from marketing technology to new restaurant prototype design, he understands our brand and appreciates not only our differentiated QSR position plus positioning, but the importance of being nimble and innovative.
Tim's leadership will play an important role in our strategy is to accelerate same store sales and transaction growth to our focus on value and product innovation and his keen understanding of our heavy user will help drive frequency through our digital initiatives and daypart utilization strategies.
Now let me provide a brief update in each area starting with our focus on value historically, the price value chair of our menu has been the foundation of our barbell menu strategy to help drive strong value and affordability perceptions, which are key drivers of heavy QSR user frequency our ability to deliver a variety of lower.
Priced products featuring fresh ingredients is what makes del Taco is QSR plus a value proposition so powerful.
Since its 2013 introduction the Buck in under menu has been our primary price value message overtime, we believe the effectiveness of Buck in under eroded, particularly a certain items migrated up in price to the Buck and change menu and we slowed new product news on Buck in under in order to focus more on mid tier value and premium over the.
Last year or so.
In order to reestablish our commitment to price value with heavy QSR users at the end of January we replaced Buck in under with an exciting new value platform. The new deals dollar deals menu.
The Dallas dollar deals menu includes 15 freshly prepared items with attractive prices from 69 cents to a dollar and is designed to stimulate trial in frequency with a modest check average in margin impact since many guests use the menu as an add on.
[laughter] Dell's dollar deals menu includes five new products, consisting of burritos tacos and not just kraton crafted with fresh ingredients, along with drinking dessert options all designed to deliver unmatched craveability variety and value.
We believe this combination of compelling value and variety compared with freshness will stand out versus our competition as we embed this new menu with consumers and supported with strong operational execution to help drive improved frequency and new trial.
We're pleased with our early execution and guest feedback and encouraged by improved transaction trends since the launch and as expected offset by softer check average gross.
The dell's dollar deals menu and legacy Buck and change items have next at approximately 24% compared to approximately 19% for the legacy Buchan under in bucking change platform.
So far the early transaction check average and menu mix trends resemble our trends following the successful 2013 debut a buck in under.
Well the foundation of our menu strategy as price value relevant mid tier in premium product innovation will also play a role in our same store sales and transaction driving initiatives. This year.
Short term investment, we're making into check average the dry drive trial in frequency was dell's dollar deals is manageable overtime, particularly as we leverage our barbell menu strategy.
At the end of February our premium crispy Jumbo shrimp returned for the Latin season, which is one week earlier this year.
This spring we plan to stimulate check average growth with our planned launch of freshly prepared guacamole that will be available with chips as a side order or with any product on the menu.
And as part of a relaunch of our epic Burrito platform.
During 2019, our digital evolution met our initial objectives of three fully integrated DSP partners, including Grubhub Postmates Indoor Das which were all fully launched in company restaurants as of December. These three partnerships allow us to maximize driver coverage and consumer demand for this new sales channel as we enter 2012.
Okay and shift our focus toward increased marketing to drive awareness of del delivery and optimizing our delivery economics through strategic <unk> premium pricing.
As our delivery volume grows we continue to experience an average delivery check that is significantly higher than our restaurant check average.
As I said earlier in addition to having focused traffic catalyst. Our plans include driving heavy user frequency through our new del Taco out and Daypart utilization strategies.
Our del Taco App has achieved approximately 950000 registered users we will continue to drive customer acquisition and retention in 2022 targeted offers and want to Tim's top priorities is to enhance our CRM targeting capabilities to drive further guest engagement with improved segmentation techniques enabled with scale.
On the day part from the fall 2019 launch at the two dollar breakfast hosted route is proving to be a strong driver of both demand and guest satisfaction. In Q4 breakfast was the top performing daypart for same store sales and transactions and this trend has continued into Q1.
We plan to keep the breakfast day part and this innovative new product top of mind would guess, including strategies to bounce existing gas back to the breakfast daypart.
Turning now to operations, our COO, Chad Reitsma is driving our commitment to people and culture by activated activating our proudest del culture and core values through training career path planning and employee engagement.
We believe success in these key areas, we'll put the brand in a great position to develop and retain top talent.
Operations is prepared to play a large role in our transaction driving plans for 2020 through a narrowed focus on improving our four wall guest experience with simplified operations and programs to bolster accuracy friendliness and speed.
During 2020, restoring stronger same store sales, particularly transaction growth is our number one focus and is also critical to our restaurant margin performance.
To help drive same store sales and and manage margins, we plan to carry menu price of at least 4% during 2020 and whenever appropriate appropriate we plan to skew our menu merchandising and promotions toward items with favorable margin profiles.
We will also employee tactics to manage our margins, including leveraging a new ceridian workforce management system that launched in January 2020, and is designed to provide enhanced visibility and controls to help optimize labor scheduling and reduce labor inefficiencies.
Turning to development in 2019, we opened 24, new system wide restaurants in 12 States and again saw franchise lead our gross story with 14 franchise openings.
We also refranchise, a total of 31 restaurants, including 18 restaurants in the fourth quarter as part of our portfolio optimization strategy that includes targeted refranchising to help stimulate long term franchise growth.
Portfolio optimization progress over the past year includes.
Acquiring for high volume franchise restaurants in the La area.
Closing five lower volume company restaurants, Refranchising 13, lower volume Ellie area restaurants to three existing franchisees.
Refranchising eight Reno, Nevada restaurants to an existing franchisee and 10, San Diego restaurants to a new franchisee whereby these two transactions included development commitments for up to an additional aggregate 31 restaurants.
During the first quarter, we also refranchise five restaurants in Yuma, Arizona, and El Centro, California region to an existing franchisee in a transaction that includes a development commitment for four additional restaurants.
Looking forward, we continue to expect to Refranchise, one additional noncore western market in California, and the process to identify the right buyer, who will commit to and deliver a future new restaurant growth is ongoing.
The completion of our first three Refranchise markets included 23 total restaurants with eight use ease of approximately 1.2 million and resulting in a proximate 1.5 million reduction in annual adjusted EBITDA net of future franchise revenues and immediate DNA reductions.
We expect our Refranchising to drive a narrowed operational focus for company operated restaurants in our remaining core western markets that typically feature strong easy isn't restaurant margins limit future capital needs and lower operational risk, including less California exposure.
Along with these operational and financial benefits the future franchise growth commitments related to these transactions are intended to enhance our franchise growth prospects and ensure that franchise growth will continue to lead our growth story into the future.
This franchise growth momentum has put us in a position to alter our pace of company growth in the near to midterm to reflect a slower and more strategic approach, particularly while high real estate and construction cost persist.
For 2020, we anticipate opening 15 to 20, new restaurants, systemwide, including five company operated restaurants, reflecting selective infill in our core Western company markets and limited development in our existing Oklahoma and Atlanta seed markets that were originally designed to support long term franchise growth.
By the end of 2020, we expect to have a meaningful presence with at least 10 company restaurants in Oklahoma and nearly 30 systemwide restaurants in Georgia. This helps us continue to shift our focus towards supporting franchise growth in these geographic regions and activate our new company seen market in Orlando, Florida, starting in late 2021.
We identified Orlando, where we operate two franchise restaurants based on strong population in economic growth combined with its ability to serve as a spoke off of our current Atlanta hub to enable long term system growth and additional franchise support within the state of Florida.
Before I hand off to Steve we're squarely focused on growing transactions with the heavy QSR user by dramatically strengthening our value proposition through dell's dollar deals and we are encouraged by its early performance.
The new value platform, along with our key topline driving strategies that I outlined will soon be supported with strong operational execution and will also serve to improve margin performance during 2020.
And now Steve will review, our Q4 financials and 2020 annual guidance. Thanks, John total fourth quarter revenue decreased slightly to 157.1 million from 157.3 million in the year ago fourth quarter system wide comparable restaurant sales increase 0.4% eloped system wide comparable rest.
From sales of 1.9% during Q4 of 2018, resulting in a two year increase of 2.3%.
Fourth quarter company restaurant sales decreased 1.3% to 144.8 million from 146.7 million in the year ago period. This decrease was primarily driven by fewer company operated restaurants compared to the fourth quarter last year, partially offset by improved company operated mix in terms of.
I mean from the Refranchising of 31, low volume restaurants, and the acquisition of for high volume restaurants during 2019 as well as company operated comparable restaurant sales growth of 0.4%.
Fourth quarter company are pretty comparable restaurant sales growth was comprised of a 4.1% increase in check including approximately 0.4% increase in many mix, mostly offset by a 3.7% decline in transactions.
Franchise revenue increased nine 9.2% year over year to 5.8 million from 5.3 million last year. The increase was driven by additional franchise operated stores as compared to last year, including 31 restaurants that were re franchised during 2019 as well as by franchise comparable restaurant sales growth and.
4.5%.
And your expenses food and paper costs as a percent of company restaurant sales increased approximately 40 basis points year over year to 27.8% from 27.4%. This was driven by food inflation of over 4%, which exceeded our menu price increases plus impact from or beyond carnitas into fruit.
Three del Taco offerings, which have slightly below average margin percentages.
During fiscal 2020, we expect annual net food inflation of approximately 3%, including more than 5% during the first quarter as we lap favorable key buys and modest inflation. During the first quarter last year, followed by food inflation that will sequentially step down in each of the following three fiscal quarters.
Labor and related expenses as a percentage of company restaurant sales increased approximately 120 basis points to 32.8% from 31.6%. This was driven by wage inflation from the one dollar, California minimum wage increase to $12 an hour and lapping the fourth quarter 2018.
Retroactive elimination of the federal unemployment tax surcharge on California wages.
Partially offset by reduced workers compensation based on underlying trends and reduce group insurance expense.
Lapping the retroactive elimination during 2018 exaggerated our year over year increase and absent that dynamic the labor percentage would have increased 60 basis points.
Occupancy and other operating expenses as a percentage as a company restaurant sales increased by approximately 140 basis points to 22.0% from 20.6% last year, primarily due to approximately 70 basis points from the adoption of the new lease accounting rules and 40 basis points from the impact of third party delivery.
The fees as well as deleverage from inflationary trends, which outpaced the slightly positive company restaurant sales comp store growth.
Based on this performance restaurant contribution was 25.2 million compared to 29.8 million in the prior year and restaurant contribution margin decreased approximately 290 basis points to 17.4% from 20.3%.
However, excluding impacts from the new lease accounting rules and the retroactive elimination of the federal unemployment tax surcharge in 2018 restaurant contribution margins declined approximately 160 basis points from last year.
General and administrative expenses were 12.1 million down from 13.4 million last year and as a percent of total revenue DNA decreased by approximately 80 basis points year over year to 7.7%. These decreases were primarily driven by reduced performance fees management incentive compensation and lower.
Stock based compensation expense, partially offset by a general inflationary trends.
Adjusted EBITDA was 20.5 million down from 23.6 million last year and decreased as a percentage of total revenues to 13.1% from 15.0% last year. Adjusted EBITDA includes an unfavorable impact of approximately 1.0 million from the new lease accounting standard.
Depreciation and amortization expense was 7.8 million down from 8.2 million last year and the reduction primarily reflects the reclassification of our build to suit leases to occupancy and other operating expense under the new lease accounting rules as a percentage of total revenue depreciation and amortization deploying too.
The basis points to 5.0%.
During the fourth or based on a sustained decrease in the company's market capitalization. The company performed the goodwill impairment tests that resulted in a noncash impairment of goodwill charge totaling 118.3 million. This noncash charges does not affect our cash position cash flow from operating activities or have any into.
Act on future operations.
Interest expense was 2.1 million compared to 3.1 million last year. The decrease was due to the reclassification of our build to suit leases to occupancy and other operating expense under the new lease accounting rules, a slightly lower average outstanding revolver balance any decrease one month LIBOR rate compared to last.
Last year.
At the end of the fourth quarter 145 million was outstanding under our revolver compared to 159 million at the end of fiscal 2018, and our applicable margin for LIBOR loans remained at 1.75% in terms of capital structure. We plan to have a continued focus on maintaining net debt to judge.
EBITDA balance sheet leverage in the low to mid two times area and continue to view share repurchases are relevant long term lever to help enhance long term shareholder returns net loss was 114.1 million or a loss of $3 made sense per diluted share compared to net income of 5.6 million.
Or 15 cents per diluted share last year. We're also reported adjusted net income, which excludes impairment of goodwill and long lived assets restaurant closure charges executive transition costs sublease income for closed restaurants, other income and loss on disposal of assets and adjustments to assets held for sale.
I just adjusted net income in the quarter was 6.7 million or 18 cents per diluted share compared to 7.2 million or 19 cents per diluted share last year.
We're issuing the following guidance for the 52 week fiscal year ending December 29 2020.
System wide comparable restaurant sales growth of low single digits total revenue between 503, and 513 million company restaurant sales between 459 in 469 million restaurant contribution margin between 16.2 in 16.7% as noted we expect.
Jerry menu price of at least 4% and expect net food inflation of approximately 3% this year, which starts at more than 5% during the first quarter and sequentially steps down in each of the following three quarters labor and related inflation is expected to increase 6% primarily driven by a one dollar increase.
In California minimum wage to $13, an hour general and administrative expenses between approximately 8.6 and 8.9% of total revenues effective tax rate of approximately 27% to 27.5%.
Adjusted diluted earnings per share of approximately 35 cents to 40 cents adjusted EBITDA between 57 million and 60 million.
18 to 20 gross system wide, new unit openings, including five company openings and an estimated 1% system wide closure rates and a net capital expenditures between 33 million to 38 million, which includes approximately seven to 9 million for new unit construction.
Finally, our company operated comparable restaurant sales in the first quarter to date or positive approximately 1% with transaction trends that have sequentially improved compared to the fourth quarter, yet transactions remain negative.
Looking ahead, we expect fiscal 2020 to reflect the following financial cadence improving comparable restaurant sales trends, particularly as we can continue to embed the new dell's dollar deals menu with guest and improved check average trends through new product innovation digital and Daypart strategies.
Improved food cost inflation following the more than 5% during the first quarter that will sequentially step down in each of the following three fiscal quarters.
Labor and related in operating expense trends that will improve as a percent of restaurant sales commensurate with the accelerating comparable restaurant sales trends, including the activation of elevated menu pricing.
Based on this our restaurant contribution and adjusted EBITDA performance is expected to shift from dollar in percent contraction. During the first after the year two expansion by the fourth quarter fiscal 2020.
Include we're excited to enter 2020, where they compelling new value menu, a pipeline of new product innovation and a stronger digital capability to help drive same store sales and transaction growth as always thank you for your interest in del Taco and we're happy to answer any questions.
Thank you we will now be conducting a question and answer session. If you'd like to ask your question you May Press star one on your telephone keypad, a confirmation to one would indicate your line is in the question Q you May Press Star too. If you would like to move your question from the Q4 participants using speaker equipment. It may be necessary to pick up your handset before.
Pressing the star key our first question comes from the line of Nicole Miller with Piper Sandler. Please proceed with your question.
Thank you so much and good afternoon, I have three but I promised a quick in painless on <unk>.
Hi, Thank you for the update I understand hi comp trends of 1% less negative traffic, but I thought earlier you said this new value menu is weighing on mix shift. So then that's not calculating for me because I would get more negative transaction could you help me out with that.
Sure Nicole this is Steve side, certainly the Dell Darren deals launched at the start of our second period, so weak flies a bit fiscal quarter.
So first period was you know trends prior to that new value menu.
So where we are your debt for the delves dollar deal as expected has caused some negative mix to happened, especially in the initial days of its launch which weighs on check which does remain positive but does have some negative mix as you know we're turning price one that mid mid to high 3% area.
So that's where we are in terms of.
Chuck and mix and then of course traffic as we've said is still negative so think about share being certainly positive somewhat offset by negative traffic that is improved from Q4 and that takes you to that 1% area, thus far first quarter.
Okay I got to one prior to the then then you'd want to ask Eric I think that connect the dots.
Hi, I'm very good that you've now and one Q then re franchised five more stores one to make sure we get right for modeling purposes. Then do you still have 23 of those aggregate 31 prior that they can come through the rest here or is it. These five now and then it kind of there's not necessarily anything.
On the horizon.
Sure. So our Refranchising was aimed at four noncore markets to close in the fourth quarter towards the end of the fourth quarter that accounted for 18 restaurants re franchise in the fourth quarter and then recently during the first quarter, one more being our third and market was refranchise for fiber.
Strengths. So that takes you to a total of 23 that have now been sold across those three markets. One final market remains for sale in that market has 14 restaurants, which we continue to expect to so.
Later this year.
All right that that I had a disconnect on total company sales, so dot fix that and I. Appreciate it and then my last question on its really helpful to get a quite a bias update so I really a pot and thank you for that if there really is the best alternative for limited transactions and wonderful pricing strategy.
You know do your price slow so that you get all about traffic to price higher to protect the margin. How do you think that might fall out. Thank you.
Yes, I mean right now you know as we said we're not we're not seeing any impact in the business is related to Corona virus. When they look at our transaction trends are a same store sales trends.
So that's good news a knock on what ultimately that that trend continues so I think our in our strategy as we as we move through this is to just keep a close eye on the consumer keep a close I, obviously on our guests and our employees and make sure that they are safe and wherever we can right.
I will leverage our assets, we do believe that.
Assuming there's not a widespread outbreaks and it is a operating more business as usual if consumers feel like they want a little bit less contact we've got a great asset in the drive through which we talked about and we've also got really buttoned up procedures with the delivery service providers and our partners. There now that were up and running with them all.
Three major so turning those will be our you know this will be the things that we focus on with of course. The primary the primary focus is going to be keeping our employees in our guest safe and if consumer trends do shift I would suggest it's probably a lot less about price sensitivity more about personal preferences and certainly the way our brands positioned.
Let's see on the heels of the dose dollar deal value menu launch.
I think we're very well priced for everyone.
Don't have any plans to alter pricing.
Thank you.
You're welcome.
Our next question comes on line of Alex Slagle with Jefferies. Please proceed with your question.
Thanks set a follow up on delivery and maybe I missed some of the the details but just want to know what you saw in terms of delivery mix and the sales lift after returning on door dash and the Fourq you and then if you've seen any shift in the delivery or carryout business in recent weeks with the current of Iris.
Okay, Yeah, let me take I'll take that.
So you know now that we have all three D.S.P. is up and running you know in call. It Q1 to date, you were running roughly 3% of sales on delivery and company restaurants, and we're also pretty pleased with how guests are taking to our operational program whereby you know our.
Our teams and a great job and coming up with a strategy where were double bagging in sealing the bags at the restaurant with it with an over oversize branded del delivery sticker and so far overall satisfaction scores on delivery are over indexing to the good as well performing actually better than our already high restaurant.
Level overall satisfaction scores. So we're very pleased with that we think we've we've developed a strong capability here and on of course, I think we mentioned on a call or two ago. We're also seeing some over indexing on late night and those shoulder Dayparts late night Lake snack and we think that you know were opened its great point to leverage and we'll leverage that through some delay.
Livery marketing as we move through 2020, so those are the kind of more color on the headlines around delivery.
Got it thanks, and nothing really in the last week or two in turns ships in the business or or any more color there.
Yeah, no we haven't seen any any material shifts on delivering thus far no spikes just yet.
Okay, and just a question on innovation and the plans to launch fresh guacamole, if you could comment on the timing or.
On how we should think about that fitting into the menu.
Yes, sure we fresh flock is slated for spring launch at this point, So final day, TBD, but it's likely blankly late spring.
I think it's going to be a great complement for us as you think about us really driving value focus this year with Dallas dollar deals.
You know, it's great way for us to flex that bar Bell and reinforce that QSR plus position. We do you plan to offer fresh block in both new products as I said were relaunching the epic Brito platform I'm concurrent with this and we will feature fresh guacamole, and we'll merchandise and offered as a way to.
Modified.
You know products on the menu as well so think about it as you know what we have done in the past with things like slices of avocados, and and case, so blanco, you'll be able to add fresh flock to any product on the menu and operations will be very focused on that we haven't quite nail down pricing on a modification piece, yet we'll get to that here shortly.
Well, we do expect the epic lineup will start at a great value of around $5, when we launch and.
In the in the in the mid spring the late spring time frame.
That's great. Thank you.
Our next question comes from the line of Nick Setyan with Wedbush Securities. Please proceed with your question.
Thank you.
I appreciate that quarter to date comp, Bob, but just given kind of the importance to the value launched or is there any way to.
Parse out comp trends pre and post launch.
We basically since the launch we've seen an improvement in traffic and a reduction in check average through negative mix.
That said Fortunately, we are seeing the check average of Mega mix pretty quickly improve.
Not yet to flat, but as we know for instance launch our seasonal shrimp promotion during the last season.
We're starting to really see that check average move in the right direction and very similar to what we've experienced back in 2013, but the initial debut of Buck in under as we noted we're seeing similar trends were.
There's a short term investment here and check average in a touch of margin percentage to drive traffic and we are seeing that traffic definitely move into right direction and certainly just with the shrimp move in here soon as John touched on guacamole.
You know growth and delivery, which as you know has long haired shack, we feel very good about being able to over the course of the year work that check back into a more typical healthy level.
Historically, Brian and at the same time, obviously, it's all about execution and further innovation and product development and further embedding those dollar deals with the guest to make sure that traffic continues to accelerate so very happy thus far.
Thank you and then John I, I mean anything different around marketing or I mean, I. Appreciate you guys, saying you know maybe the value perception has declined in 2019, but is there anything else in terms of just a the way you're communicating whatever message it as you're communicating that could chew.
Age are going forward.
Yes, it's a good creates a good question, Nick and I'd say, you know, obviously, you've got new leadership and let's see here in the most.
The recent weeks and the initial focus there as it is exactly what I outlined I mean, we want to maximize the traffic driving capability of Dell's dollar deals this year and we're going to do that through.
Our real focus on marketing and product innovation.
To drive that heavy user traffic and really start to build that stronger value focus and foundation, that's created with their frequency.
We want to make sure that we're leveraging in refining.
Our strategy to strengthen frequency through our digital platform as well I mean, we spent a lot of time over the last 16 months building up our scale in that area. We have 950000 registered app users now some moving to seven figures and a full complement of delivery service providers now and we want to make sure the bad.
As capitalized upon again driving frequency getting those heavy users backend more more often and in the last piece of this initial focus for Tim as it comes and is making sure we're fully leveraging.
Both the mid tier and the premium products and those daypart stat strategies to complement these efforts so.
Course, I expect that over.
Reasonable amount of time.
Tim This is going to want to touch a lot of other pieces in regard to our marketing in our brand strategy and we'll be moving very quickly in that regard not ready to you for prime time, just yet but those are the initial priorities as he really hit the ground running as you move into the see I'm just a few weeks ago.
Okay and I just kind of last question. If there is this going in.
Scenario.
To what extent as the Capex.
You know do you have the ability to kind of pushed out if necessary.
To what extent other costs variable in the short term and I also understand that there's there hasn't been much of an impact that today, but I know you guys have like a couple of maybe four stores in the state of Washington have those stores not seen an impact either.
Sure that could Steve I'll take those maybe in reverse order. So Washington, we do have five restaurants, a massive through yesterday. There trends you know really haven't changed to the good or the bad individually or in aggregate. So nothing to report out of our five units in Washington.
As far as capital I mean, there's certainly a good portion of our capital is discretionary and door Delayable. It was should you need to obviously, so far no impact on the business. So I would tell you know capital we do reserve some flexibility there that is certainly notable.
In terms of four wall operating costs.
Really what we have areas of nearly 85% of a restaurant level costs are variable in whole or in parts with just over 15% being truly fixed costs much of that of course beat occupancy costs. So.
Thats kind of the way in land in terms of cost structure. If that's helpful.
Thank you very much.
Okay.
Our next question comes from the line of Peter Stella with BTG. Please proceed with your question.
Great. Thank you.
I just wanted to ask.
Come back to the.
Comments around the Corona bars, I know you guys aren't seeing in the sales.
Here that you're not seeing it in the state of Washington, either but are you hearing anything through their supply chain or suppliers.
Let me maybe supply issues.
Expecting or anything that you, maybe seeing and then second Steve I.
I think any additional labor to the restaurants or any additional capital to I guess, maybe for you know to guard against.
Some more labor to keep a cleaner.
I think about nature that maybe away on the margins in 2020.
Sure a Peter it's Steve let me, let's flip the order those but in terms of supply chain. Let me cover that one we're remaining in very close contact with our supplier partners monitoring for any potential direct or indirect impacts on our supply chain you know related to Corona virus.
Well looking at the preparedness plans that are suppliers have in place. So you know as of now you, we really have not experiencing need supply shortages that all in currently do not anticipating the immediate risk to food or non food categories.
And I'll take that no I'll take that first part of your question there Peter.
Yeah, I'll just say obviously, we've been all over the last for last few weeks and been very communicative with our system in preparing and getting information right and making sure that we're doing our best to protect our gas and our employees. We did recently make a few adjustments at the restaurant level that we think will.
Play really well with both our employees and our gas you know as they are number one priority as I said, we haven't moved to more frequent cleaning procedures and the restaurants.
You know and not piece in some restaurants will acquire some additional labor I hang of the overall impact of that we'll see but we are asking restaurants to clean more frequently used the supplies that are on hand, and we have put a cadence out that both our franchise owners agree I have agreed to as well as our company operations.
At the at the end today sitting here today I don't think it's got to be material on the labor number and the in the short run, but we'll continue to monitor that determine if it's enough. We've also done things like we've asked our cashiers to begin wearing love. It if that's become a policy we've done things like moved our lemons for the ice tea and the condiments, including our sauces and any on.
GAAP utensils behind the front counter and were just you know Reemphasizing drive thru and delivery procedures and case those guests choose to use those channels more frequently. So those are somebody a more incremental changes I guess that we've made in the last few days that I think put us in a great position you know to continue to move forward and operate the busy.
Yes, and away that again protects our gas protect our employees.
Uh huh.
Well I appreciate that can you also give us an update on.
Beyond.
Platform.
I think last so you guys talking about a about a 4% Nixon.
The maybe October I think that was down a little bit from.
Third quarter.
Stand today.
Beyond products.
Sure Yeah, we first off we continue to believe the beyond program.
It's a good program for del Taco and we're working we're actually working to further optimize the program. It's just a matter of priorities right now right now we're focused on value and we've got fresh block coming but certainly behind the scenes there's work happening on beyond because we do believe in it we think it's a nice differentiator for US as you think about Mexican limited service restaurant at the moment.
And on it also gives us ability to continue.
To drive sales as the consumer goes through that adoption curve and becomes more familiar with plant based protein as far as the mix goes.
We wound up in Q4 in that mid three and a half kind of ish range.
For the quarter, thus far in 2020 quarter today, we're running just shy of 3%. So it seems to be fairly stable around that 3% issue area, which incidentally is a higher run rate on a sales mix percent perspective than we were running you know with Turkey overtime. So so there's that.
Only demand there and we're going to continue to try to optimize the perla program as appropriate.
Great. Thank you very much.
Sure.
There are no further questions in the queue I'd like to hand, the call back to management for closing remarks.
All right well. Thank you everyone for your interest today in del Taco. We certainly appreciate you taking the time and we look forward to sharing our progress on future calls have a great day.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.