Q3 2020 Del Taco Restaurants Inc Earnings Call
Thank you operator and thank you all for joining us today on the call with me is President and chief executive officer and Steve Chief Financial Officer. After we took our prepared remarks will open the lines for your questions. But first, let me remind everyone that part of our discussion today will include some forward-looking statements. These statements are not guarantees with her performance. And therefore undue Reliance should not be placed upon them. We do not undertake to update these forward-looking statements at a later date and refer you to today's earnings, press release and RNA SEC filings for more detailed discussion of the risks that could impact Del Tacos future operating results and financial condition. Today's earnings, press release also includes 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 measures wage.
Non-gaap Financial measures should know.
Not be considered as alternatives to get measures such as net income or loss operating income or loss net cash flows provided by operating activities or any other gap measure wage quiddity or financial performance. Let me now turn the call over to John capozzola president and chief executive officer.
Thank you Raphael. And we appreciate everyone joining us today. I would like to begin by expressing my deep appreciation for the entire Del Taco team at the restaurants in our support center off. And of course our franchise Partners across the country for their perseverance and exceptional work during these unusual times. They have more than risen to the occasion and serving our guests and strengthening our life by demonstrating their ability to innovate execute rapid change and embed new best practices. It is really their work that guided Del Taco through our recovery page set up our longer-term brand acceleration as I'll explain shortly as a reminder since the onset of COVID-19. We maintained operations through our drive-thru take out and wrap the expanding delivery channels. We have not yet reopen any company operated dining rooms, which has helped us stand out as a trusted brand for safety and sanitation while driving significant operational
Efficiencies this is validated by improving guest satisfaction scores labor efficiencies that were also aided by our new workforce management system increasing guests engagement in our digital channels. And of course our business results themselves. Let me briefly review Q3 before covering our plans for Q4 and twenty twenty-one.
During Q3 system-wide same-store sales Rose, 4.1% including a six and a half percent increase at franchise restaurants and a 2% increase at company-operated restaurants are franchised base exhibited strength across a diverse fourteen State footprint while company restaurants turn positive despite a 90% plus concentration in California and Las Vegas with heightened COVID-19 and restrictions restaurant contribution margin increased 120 basis points, reflecting a significantly lower food percentage and modest labor and related leverage despite absorbing a dollar increase to California minimum wage. These improvements were partially offset by slightly higher occupancy and other operating expense that benefited from a 1.1% reduction in advertising expense. Just a percentage of sales compared to last year this helped our Q3 restaurant contribution margin, but advertising expense will return to a normal eyes a level in Q4.
In terms of profit adjusted ebitda increased to Fifteen point three million dollars from 14.5 million while adjusted net income per diluted share increased to $0.16 from home since last year finally reduced are drawn Revolver by $21 to $124 million dollars, which helped to lower our net debt to adjusted ebitda leverage ratio. Only 2.1 x. I'm proud of our actions to stabilize our business and we're now focused on longer-term brand acceleration through five drivers, including value leadership and Innovation brand engagement digital transformation and ultimate convenience.
So let me start by.
Covering age and I'll start with value our unique ability to deliver speed convenience and affordability with freshly prepared quality ingredients establishes are broadly appealing brand positioning which along with our powerful barbell menu strategy provides multiple Leathers for sales and profit growth across day parts and allows us to compete against a wide spectrum of occasion. We believe our focus on value is enduring and will increasingly play an important role in restaurant purchase decisions, given the economic uncertainty facing today's consumer. The foundation of our menu strategies is Dells Dollar Deals because of its ability to do a few key things.
It supports our category leading value and affordability perception. It also attracts the interest and frequency of heavy eqs are users and it's margin friendly due to its primary issues as an add-on to a purchase and its ability to drive incremental transactions. It is not a loss-leader. We also plan to continue leveraging Innovation to keep Deals dollar deals fresh with new product issues and marketing reinforcement while also maintaining a steady stream of innovative mid-tier and quality value products at the middle and upper ends of our bar Bell menu strategy.
During the pandemic we didn't pause our menu Innovation efforts at all. Instead during Q3. We launch our new handcrafted fresh from scratch guacamole along with a new epic burrito lineup wage is handcrafted and each restaurant daily with just four simple ingredients and further separates us from rqs our peers. It is available across our bar Bell menu as a side or product modification as well as within new products designed to highlight this signature ingredient. We Then followed up this successful launch as the first national Mexican Q Sr to offer a new Crispy Chicken Shack menu that features unique products and flavors spanning or menu bar belts.
This highly relevant protein is available in a dollar crispy chicken taco, which was our first new addition to the Dells Dollar Deals menu, a $4 crispy chicken and fries box and a $5 epic them with Fresh Wok. The new crispy chicken contributed to our Q3 same-store sales improvements and drove strong overall guest satisfaction and high single-digit menu mix of the week. We added a new flavor to the crispy chicken menu through our partnership with Cholula and we plan to add other new flavors in the future. The next driver of acceleration is enhancing our brand engagement a new creative and advertising approach to layer in more irreverent and humorous branded content to bring new products and brand messages to life in memorable ways for consumers with Tim hack bar is collaborating with our new advertising agency to reimagine our strategy to ensure Del Taco stands out across traditional and digital channels through fun and buzzworthy content that birth
Fans want to talk about and share.
We are already seeing significant improvements in our consumer engagement across social and digital channels as a result of their early work. In fact our new approach to deliver must watch brand creative increased social engagement and Buzz by up to four times.
Turning to our digital transformation. We continue to increase our 121 digital engagement with fans through our Del Taco mobile app and delivery channels which enable enhanced guess engagement and expanded convenience has grown to more than one point two million registered users up 38% from the end of 2019 importantly. We have seen an increase in active app users month, which is in part due to regular disruptive offers only available on the day lap. We are aggressively promoting Dale delivery as a contactless ordering option with Postmates doordash GrubHub, and I reach across all company restaurants and today more than 90% of franchise restaurants provide delivery through one or more dst's
We Believe partnering with all four leading delivery platforms to maximize consumer convenience channels and leverage the trend toward at home delivery provides us with a clear Advantage during birth delivery representative over 6% of system-wide sales and our company-operated delivery check average continues at approximately 1.85 times are at restaurant check average including a company delivery premium of 20% that began at the start of fiscal Q3 more broadly the consumer adoption curve related to accessing and interacting with Branford technology has accelerated since the pandemic and this trend will likely strengthen we therefore plan to leverage our solid foundation to position us for the future with further investment and focus on technology package into key areas first and twenty Twenty-One. We plan to develop a holistic CRM platform to further digitize Del Taco by incentivizing and rewarding our guests dead.
To further develop and execute this strategy. We added a new position of Vice President of marketing technology to our team with the appointment of Aaron loves out Aaron brings strong expertise along with a background of building a successful CRM Platforms in the hotel and restaurant sectors.
The second area of focus enabled by technology is to address increased consumer demand in off-premise occasions through our ultimate convenience initiative this includes expanding the access and convenience of our drive-through lanes and adding outside order takers to improve throughput and high-volume restaurants. In addition. We plan to leverage our delivery channels and the Order ahead feature in our Delhi to Iraq and our limited contact service occasions and modes. This will include developing additional smart bundles similar to our Fiesta packs to grow our share of larger party size occasions and testing curbside pickup.
Turning now to development in Q3. We opened one company operated in for franchise restaurants. And we expect open to additional franchise restaurants during fiscal Q4, including our entry wage, Ohio looking ahead. We believe our unique brand position and ubiquitous menu offerings Drive broad National appeal that supports long-term system growth. Although the pandemic apparently caused us and our franchisees to pause growth plans strong recent results have instilled confidence in our growth minded franchisees to revisit. And in many cases resume wage growth plans. We have also resumed company development with a focus on attractive infill opportunities in core Western markets and the Strategic seating of Emerging Markets to help stimulate longer franchise growth, including our plans for the company to enter Orlando in 2021.
we also
Favorable Dynamics may occur as a result of the pandemic such as additional new franchise interest and drive-thru Concepts and increased real estate availability to help capitalize on these opportunities as well as shifting consumer Behavior. We are in the final stages of developing our new restaurant prototype and a menu of venues initiative.
These efforts are expected to help enhance our targeted new unit return profile and expand or real estate access. This will allow us to be opportunistic in regards to real estate and conversion opportunities package includes a smaller footprint drive-thru only model to accommodate smaller sites. The new prototype will include a modernized design improve functionality and other operational enhancements that will refresh the brand and position us well for growth in the future in addition We are continuing to refine our tests remodel program that is already driving encouraging sales lists and returns off. This is a great opportunity to promote both positive brand image and generate a compelling Financial Roi through the new design and functionality. We can apply across the age Fleet over time wage of the combination of expanded real estate and prototype opportunities alongside a comprehensive future remodel program will benefit future company and franchise development including attracting new franchisees.
So to conclude our brand positioning is exactly where what the consumer is looking for these days fresh flavorful food great value of of course convenience, and we can provide these relevant attributes through limited and no contact channels. Our business has recovered and is now stable. Our franchisees are healthy and our balance sheet in great shape. This allows us to invest in our future and we intend to reach the other side of the Cove in this better positioned to capitalize on New Opportunities. This includes celebrating our brand by bringing our new menu products and messages to life and memorable ways to create Buzz strengthening Our Guest engagement through Investments and Technology to improve our ability to provide even greater convenience and evaluating how we can realize the emerging real estate opportunities to grow our brand and expanded prototype capabilities.
We look forward to providing further updates on these topics and our progress now. I will turn the call over to Steve break to review our third quarter financials. Thank you. John total revenue increased 0.5% to 120.8 million from 120.2 million in the year-ago third-quarter system-wide comparable restaurant sales increased 4.1% consisting of a 2.0% increase at company-operated restaurants, and he's 6.5% increase at the franchise restaurants third-quarter Company restaurant sales decreased 1.4% to 195 million from 111.1 million in the year-ago. The decrease was driven by fewer company-operated restaurants compared to last year primarily due to our refranchising activity off the upset by the increase in company-operated comparable restaurant sales.
franchise Revenue
Increase 15.1% year-over-year to 5.2 million from 4.5 million last year the growth was driven by the increase in franchise comparable restaurant sales coupled with additional franchise operated restaurants compared to last year primarily from our refranchising activity during turning now to our expenses food and paper costs as a percentage of company reps sales decreased approximately 120 basis points year-over-year to 26.5% from 27.7% This was driven by a menu price increase of just over 4% which exceeded food inflation of approximately 1% regarding the fourth quarter the sequential step up and food inflation to over 2% driven by a very elevated cheese market coupled with slightly less Q4 menu pricing in the high 3% area is expected to result in a modest year-over-year reduction in our food percentage compared to the morgue.
Last reduction during Q3. We now expect an effective fiscal twenty-twenty menu price increase of approximately 4% in annual fiscal 2020. Inflation of approximately 3% labor and related expenses as a percentage of Company restaurant sales decreased Thirty basis points to 32.4 from 32.7% We've used is he strong outcome particularly with $1 increase in California minimum wage to $13 an hour that was more than offset by effective management of variable labor a narrow focus on drive-through operations is dining rooms remain closed and reduce workers compensation expense based on favorable underlying trends.
Occupancy in other operating expenses as a percentage of Company restaurant sales increased by approximately 20 basis points to 23.1% from 22.9% off here. This increase was primarily due to higher third-party delivery fees as our delivery Channel grew by a factor of over 8 times to six and a half percent of companies sales from 0.8 percent last year as well as incremental direct costs related to COVID-19. This was mostly offset by a historically low deployment of advertising and traditional media off at approximately 3% of restaurants sales representing a 110 basis point reduction compared to the prior-year. However, we expect to reinstate a normalized level of advertising spend of approximately 4% of restaurant sales during Q4, which will lap approximately 3.5% in Q4 last year. This is expected to sequentially in log.
RQ for advertising expense by approximately one hundred basis points compared to Q3 and result in a year-over-year increase during Q4 compared to a reduction during Q3 Palm restaurant contribution was 19.7 Million compared to eighteen point six million in the prior year while restaurant contribution margin increased approximately 120 basis points to a team 0% from 16.8% However, due to the aforementioned sequential increases in food and advertising expenses as a percent of restaurant sales. We are expecting a Quarter restaurant contribution margin contraction compared to the significant third-quarter expansion that was aided by the timing and level of advertising expenses compared to last year timing a Thursday. We expect our overall restaurant contribution performance during the second half of 2020 will demonstrate our business has stabilized and we are now currently focused or margin management strategies for 12 a.m.
21
General and administrative expenses were ten point eight million up from ten point four million last year and as a percentage of total revenue increased Thirty basis points to 9.0% wage increase in dollars was primarily driven by increased performance-based management incentive compensation compared to an insignificant amount in the prior-year partially offset by lower stock-based compensation expense wage and other GNA reductions note that in Q4 we lap our lowest G and a quarter from 2019 on a dollar run rate and percent basis, which was due to recording a negative bonus expense last year based on 2019 Performance Based on this Dynamic. We expect increased fourth-quarter GNA on a dollar and percent basis.
Adjusted ebitda was 15.3 million up from 14.5 million last year and increased as a percentage of total revenues to 12.7% from 12.0% last month depreciation and amortization was six point 1 million up from 5.9 Million last year the increase primarily reflects. The addition of new assets partially offset by the impact of rebirth as a percentage of total revenue depreciation and amortization increased ten basis points to 5.0% interest expense was 0.9 million compared with 1.7 Million last year. The decrease was due to a lower average outstanding revolver balance and lower 1-month. LIBOR rate compared to 2019.
During the third fiscal quarter, we reduced our outstanding revolving credit facility borrowing to $124 million compared to $145 million at the end of fiscal year 2019 and a rep availability under the revolving credit facility is currently 108.7 million in addition at the end of the third fiscal quarter our balance sheet debt off of cash to adjusted ebitda leverage ratio declined to approximately 2.1 times compared to approximately 2.25 times at the end of fiscal 2019.
Net income was 5.8 million or fifteen cents per diluted share compared to net loss of 7.7 million or 21 cents per diluted share of last year. We also reported adjusted net income which excludes subleased income for closed restaurants Restaurant close your charges impairment of long-lived assets loss on disposal of assets and adjustments to assets held-for-sale and executive transition costs adjusted. Net income with 6 .0 million or approximately $0.16 per diluted share compared to adjusted net income of 3.7 million or $0.10 per diluted share last year is a reminder. We have withdrawn or guidance for the 52-week fiscal year ending December 29th, 2020. However, here are a few final Thoughts with respect to our fourth quarter through the first five weeks of our 16-week fiscal Q4 are system-wide comparable restaurant sales are up low single-digits this consists of significant franchise off.
performance with
On the operator restaurants trending slightly negative inclusive of the previously noted sequential step down in menu pricing. Also as discussed is sequential step up and food costs and Nash expenses will impact our fourth quarter restaurant contribution margin performance on an absolute and year-over-year basis, and our fourth quarter G&A cost will lap an artificially low level of GNA do the negative bonus expense recorded during 2019 that concludes our formal remarks as always. Thank you for your interest in Del Taco and we are happy to answer any questions.
At this time, we would like to take any questions that you may have. If you would like to ask you a question over the phone, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue, press star to if you would like to remove your question from the Q4 part visit for participants using speaker equipment and maybe necessary to pick up your handset before pressing the star key. One moment, please while we pull question.
Our first question comes from Todd Brooks with cl King and Associates Todd go ahead with hey, thanks. Thanks for taking my question. Congratulations on the quarter guys had a couple of questions to you. Welcome a couple questions to lead off one. Can we just walk through is there is there a step or a path to reopening in a corporate dining rooms and what has to happen for that to occur? And when it does I know you talked about some of the labor efficiency in this quarter being related to running just the off-premise bowels. What would the impact on labor look like if and when you do reopen the dining rooms?
Yeah, let me I'll go ahead and take down just kind of let me just give you a bit of background here in regards to the dining rooms. Obviously. We we stated the company dining rooms or not. Open as of yet and Thursday, we feel comfortable right now given the circumstances with what we're seeing from the drive-through takeout and delivery channels, obviously and off-premise channels consumer demands there and we've we've been able to sneak up for the Lost dine in sales for the most part through these channels. Do these consumer Behavior changes. So the the key to reopening dining rooms is going to be making sure guests and employees are safe and off and secondly making sure there is adequate consumer demand to be profitable which kind of gets out your second question there Todd, so you may be able to pick up some sales but if it drags down profitability may not be worth it when you get in the risk associated with reopening so on the on the safety front we're confident we can make that work and we are making that work in a small minority of franchise markets that have not had the same level of birth.
This cuz we've seen out west and and therefore are able to open dining rooms with appropriate precautions most company and franchise markets.
Are still under restrictions, however, that's significantly limit dining room capacity. So in which is which is generally tied to obviously Market exposure and risk. So we're watching that very carefully off the second piece and and and really important point is that there are incremental costs that will be going into reopening dining rooms in the order to be safe and comply with County and state guidelines. So this is where the consumer demand part is really important and and in general we're seeing tepid demand for dining rooms in those minority of franchise markets, that would have them open. So our next step here is we are going to do some further testing and optimizing of our Dining Room reopening plan in Q4 will do that a couple of handfuls of company restaurants to make sure we're fully vetting the ongoing costs of reopening. You mentioned labor Todd. That's that's when we're going to really want to understand to see if we can streamline and optimize that so that that makes sense cuz there's clearly could be a sales rep.
30 here down the road. We just want to make sure that it's profitable.
Okay, great and just a follow-up if I can slide one man with the the labor performance that you saw in the quarter. You talked about the new workforce management system that you've put in place. Can we maybe quantify saved scene from The implementation of that system and is that two litter of process where it will drive further savings the longer that you using it? Thank you.
Yeah, good question. The tool has been you know, very powerful and you know, the timing was you know, incredibly appropriate given what we've been managing this year and it's really, you know, put our operators, you know in conjunction with some, you know, teeming with finance and a great position to just you know, make sure they're putting the right feet and hours on the floor to provide a good guest experience, you know naturally in a unique environment that is you know, almost solely focused, you know behind the counter, you know in the kitchen and that that drive-through window, you know with an occasional takeout and delivery driver coming in so long. It's really a unique here that we're we're very fortunate that that system is in place, you know, it's literally by store by our by day a week. I mean everything you could think of were looking at it that way and it's been a great benefit this year, you know longer-term. I really see two steps. You know, it's John touched on we are in the midst of starting to figure out, you know, how labor will eventually step up to service dining rooms.
And it's safe and appropriate and guest friendly manner that system would be very powerful as we test and learn in perfect that and then a longer-term once we are fully back in, you know normal folks room mode. Absolutely. It's a very robust system that'll always allow us to get you know, better, you know week after week, you know quarter after quarter. So, you know happy to have it in place. It's hard to you know, financially quantify it. You know, I think if you look at both Q2 and Q3 performance what labor did and light of the cops and knowing that we have that dollar of incremental wage hitting Us in California a year, you know, I think that labor line is looked very well financially in a lot of that is a credit to the new system we installed.
That's great.
Thanks. I appreciate it. You bet.
Our next question comes from Nicole Miller of Piper Sandler Nicole police received. Thank you. Thank you so much and good afternoon. Just one on comp and then Thursday follow-up. Could you talk about the company versus franchise performance? So I was going to ask the question is it due to the dining room performance, but it sounds like you said you had tepid demand. So that's probably not it. So if it's geography I guess it could still be mobilization to some degree, but I think I might be missing something. So could you give us a couple of reasons for that month that disconnecting those the the performance?
Sure. Yeah, Nicole so franchise obviously continues to have positive same-store sales. And as a reminder, it's over a broader Geographic Footprints. It's not as concentrated in one area and and generally many of those franchise markets just aren't experiencing the level of covetous poster and disruption that we've seen in our California market and the Las Vegas Market, which of those two markets really Southern California Las Vegas make up about ninety percent of the company footprint. So, you know over overall, obviously, we're happy to see franchise continue to outperform and and it's not entirely unexpected. I mean, it's just a tremendous amount of effort into establishing strong franchise support and infrastructure over the past several years and their results speak to the relevance of obviously the brand nationally and our ability to support that month. So that's a really important piece. Let me just address the company, for a moment and just kind of the recent, you know, the the recent Trend, you know, there's really kind of two drivers if you age
The company, Trends, you know, um post-labor day. The first is you know, the check, is it check comp issue related to burning off appointment half of pricing here on your at the beginning of September as we delayed our fall price increase to November in order to further read the consumer and and and just determine the appropriate strategy for twenty twenty one with the key there is to maximize flow-through. We want to make sure that we're maximizing flow through and we're considering all the factors as we move into twenty one, you know, in addition. We cycled the launch of our premium Carnitas El Tio in September 2019, which is a check program going over the dollar and $5 value crispy chicken program, which was designed to drive transactions. The second recent Trend that were experiencing issues in The Breakfast daypart. We've talked about breakfast having an outsized, you know adverse impact in company restaurants during COVID-19.
The disruption that's occurred in Southern California and Las Vegas and in Q3 company breakfast, as an example where negative mid single-digits and a company performed at a positive 2% compounded as we moved in into typically. Hi breakfast seasonality post-labor day in these markets while schools and offices are still slightly virtual the the Q3 and has declined further off at breakfast quarter today particularly as we laugh our 2019 want to the breakfast toasted Ralph last year that was launched during High breakfast seasonality and normal consumer behavior in these key off. So it causes the day part, to to do fly to climb further in Q4 and it's causing an overall drag on a Q4 comp because of that day park compared to Q3. Whereas all the other day parts are rejecting flattish to positive in Q4 so far for the company, including our highest mixing day parts of lunch and dinner that each remain up approximately 2% for company restaurants in my last job.
On the, sorry to be long-winded.
I know there's this kind of a lot in your question. I want to make sure I get I got to the details is the transaction volumes and the transaction comps have improved since the launch of crispy chicken and we're holding the majority of those increases. So it's it's it's truly a transaction driving program and we think the combination of crispy chicken new news with returning to a more normalized advertising spend, you know, as a person a sales and Q4 really should help to continue that transaction trajectory in our early November fall fall price increase obviously followed by we're doing a seasonal tamale El Tio which is more of a premium for us should be complementary and help check as well as we move deeper into the corridor. So a lot there but there was a lot in your question. I wanted to get to the details for you.
I think that's very very important and appreciated more of a curiosity but then it makes me really asked the question. I can imagine where your customer especially in California is also unique dining in with you. I understand they can use a drive-through and and the mandates don't limit that but franchise diverse geographies. Probably learn and leaned on that drive. Thru is that is that potentially an issue as well?
No, I mean I think if you look at the sales, you know, the sales being built back clearly were making up some of that from higher drive through, you know, mix we're making up some of that obviously from Monday delivery mixture on your show. So we're getting a lot of that back your points valid maybe a breakfast daypart you're going to have you could have some of that pressure but but overall, I don't think that it's wrong material compared to you know, in regards to that dining room piece compared to what we're seeing outside of California. I think it's probably a fairly neutral concept.
Well, thanks again a lot like you said going on and and I appreciate it best of luck. Thank you.
Our next question comes from Nick in from wedbush securities.
Nick proceed with your question. Thank you. Appreciate home and Nick you're breaking up.
Okay, can you guys hear me now?
Not very well.
The operator can try to clear that up for help operator.
Yes, one moment.
How about now?
Yes.
You can give it a shot but it's tough to stuff to understand. Okay, let me give it a shot. And thanks for the clarification with the remodel. Then you prototype, you know, when can we actually see those implemented in a you know, somatic way across the system would agree on the remodel, I mean and maybe just bigger picture talk about the unit growth you anticipate, you know, actually think about that bill off over than that, you know, you know years not necessarily near crime or even the twenty Twenty-One, but maybe overnight, you know, three years actually think about huge growth potential.
Yeah, I I think I got the gist of it Nick.
You know first off the new prototype design is we're at the finish line on that. We're excited about it and the additional functionality. We've added now given the pandemic and and covet and and some of the things that we see moving forward like the the ability to improve throughput as well. As you know, pick up at the Restaurant level of those things have been integrated along with some smart-ass, you know strategies around the kitchen that makes that kitchen more scalable to multiples menu venues ideas that we have like drive-thru only type of venues that lean into drive through and mobile pick up. So so we're we're right at the finish line of that and and now we're back casting a lot of that back into one or remodel program and into into menu of them. So, you know, as we enter into twenty Twenty-One, you know, we're going to have a real concept there that will be considered as we're you know, as we're hunting real estate both company and franchise as well as wage.
You know thinking about opening new restaurants in the next three to five years. So will it be beneficial we we believe it will be because the menu venues initiative, you know, as I said, it's it's designed for us to be able to get into real estate like conversions in other opportunities, maybe small smaller Parcels of land and infill scenarios that we couldn't necessarily penetrate with a standard drive through that we've typically bill. So we're going to have more opportunities there that we believe will lead to additional access for us on the real estate front and for our franchisees that should lead to you know, more growth. Obviously the real-life model, you know, we we continue to believe that that remodel strategy is very promising and it could be it should be a really good use of capital to drive, you know, sustainable Revenue agents and returns among the fleet not to mention just improving the guest experience with the brand. So we are continuing to refine and test remodel as we speak we we yep.
Need it for remodels at the end of 2019 beginning of 2020 with a focus on really trying to understand the impact of various consumer-facing elements. And we saw I saw strong top-line results in those restaurants. And so then obviously we pause because of the pandemic for a few months, but we got back on track here and we are going to be doing for additional remodels here in Q4 with a focus on now the learnings from that first phase streamlined and costs minimizing downtime and really optimizing consumer-facing elements life in general. We've used success as a SUV growth in the double-digit area. So that's what we're targeting and and then in 20 21 will take these learnings will do more remodels in 2021 and you're probably looking at you know, a goal of assuming everything goes well having more of a system-level program entering 2022. And that would that would certainly be our goal, you know as we think about wage.
Success we could have from some of these.
model these additional remodel test in 2021
labor wage. Yeah, we we in the eighth or ninth inning of wage headlines when you California footprint.
Yeah, we're getting past the middle Innings. You know that said it is still a minority of municipalities that have already hit, you know, 15,000. It's definitely a minority of our California footprint. So there's you know, $2 to go the next two years and most of our California restaurants. So, you know that that's our current reality.
Thank you.
There are no further questions at this time. I would like to turn the floor back over to management for closing comments.
Okay. Thank you operator. Well, we wish you all the best. Thank you for your interest in Del Taco and taking time with us today about the brand and we look forward to sharing our progress on future calls. Have a great day.
That concludes today's program. You may disconnect your lines. Thank you for your participation and have a great day.