Q4 2020 Del Taco Restaurants Inc Earnings Call
Thank you for standing by and welcome to the fiscal fourth quarter 2020 conference call and webcast for del Taco restaurants, I would now like to turn the call over to Mr. Raphael gross managing director at ICR to begin.
Thank you operator, and thank you all for joining us today on the call with me is John Cup of install our President and Chief Executive Officer, and Steve brake Chief Financial Officer at.
After we deliver our prepared remarks, we will open the line for your questions, but first let me remind everyone that part of our 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. We do not undertake to update these forward looking statements at a later date.
For you to todays earnings press release, and our SEC filings for more detailed discussion of the risks that could impact del Taco as 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.
<unk> of these non-GAAP measures to the nearest GAAP measures. However, non-GAAP financial measures should not be considered at alternatives to GAAP measures such as net income or loss operating income or loss net cash flows provided by operating activities for any other GAAP measure of liquidity or financial performance. Let me now turn the call over to John.
Couple of us at all our Chief Executive Officer.
Thank you Raphael and we appreciate everyone joining us today.
While 2020 was certainly a challenging year for all of US I couldnt be more pleased with the resiliency of our brand and the tenacity that our operators our franchisees and our support center staff exhibited in a very tough operating environment.
They have worked tirelessly since the onset of COVID-19 to ensure business continuity execute operational changes and implement new best practices.
All while serving our guests through our drive through takeout and rapidly expanding delivery channels.
Even in this challenging new operating environment. The team delivered record setting overall guest satisfaction scores setting us up well as we enter 2021.
During Q4, we leaned into our core values and stayed focused on our people first culture.
Across the system, we operated with the overwhelming majority of dining rooms closed as stay at home orders and Covid related restrictions continued still.
Still our comparable restaurant sales trends strengthened through the quarter as we benefited from strong operational performance across our key guest experience metrics. Our digital transformation led by delivery of mid quarter price increase which aided both sales and margins in a couple of exciting L. T. S. R.
For our L. T OS included a new flavor for the already popular crispy chicken menu and of seasonal favorite at over the holidays with our tamales for motion.
On the franchise front, we were very happy with the strength of their comparable restaurant sales growth, which improved sequentially from Q3 and resulted in a very strong second half.
We were also proud to announce at franchise same store sales achieved its eighth consecutive year of positive growth in 2020.
Looking at our Q4 results at a high level of.
Our system wide comparable restaurant sales increased three 8%, which included a seven 5% increase at franchise restaurants, and a 0.6% increase at company operated restaurants.
From a day part standpoint, we are still challenged at breakfast and graveyard due to the pandemic is morning commutes remain disrupted and fewer people are out and about overnight due to various restrictions and changes in behavior.
As we first stated in our early January business update during Q4 of comparable restaurant sales within Los Angeles, Orange, and Clark counties, where notably negative and represent approximately half of all company operated restaurants, while all other company operated counties had positive comparable restaurant sales.
In light of the very significant COVID-19 impact within L. A in Las Vegas, we were pleased to have generated slightly positive overall company comparable restaurant sales in Q4 and believe these counties are poised for a strong rebound once COVID-19 subsides.
Our franchise comparable restaurant sales outperformance continues to be of geographic story as they operate across a broad 15 state footprint, mostly outside of California.
It is also of real Testament to the relevance of this brand amid the pandemic and is energized discussions with current and prospective franchisees on new restaurant development.
Restaurant contribution margin decreased only 40 basis points to 17.0 per cent, which we view as a solid outcome at.
Absent the timing of advertising, which increased 60 basis points compared to the prior year, we had slight margin expansion as higher delivery fees and incremental direct COVID-19 costs were more than offset by lower food and labor costs.
In terms of profit adjusted EBITDA fell to $18 4 million from $25 million, while adjusted net income per diluted share increased to 20 cents from 18 cents last year.
Finally, we reduced our drawn revolver by of 9 million to $115 million, which helped to lower our net debt to adjusted EBITDA leverage ratio to approximately 196 times.
As I referenced earlier, if there has been one constant throughout this pandemic. It is the incredible level of focus by our operations team that is clearly driving results.
This effort called focus for better prioritizes for critical dimensions of our business.
Trusted and safe, making our teams and guests smile throughput and ultimate convenience.
Impressively, we improved quantitatively across all four areas versus pre Covid and as we start 2021, we are using this foundation as a backbone to deliver on our five drivers of sales acceleration.
Value leadership menu innovation brand engagement digital transformation and ultimate convenience of.
Along with these drivers we are also planning to capitalize on our recently introduced fresh flex prototype, which has already been very well received and is helping to attract new franchisees to better position us for accelerated long term system growth.
It will also play an integral role in our planned remodeling program designed to contemporize, the del Taco fleet and drive returns.
So with that let me provide a few key updates.
I'll start with a brief but important comment on our value leadership strategy.
We recognize the continued economic uncertainty facing today's consumer even in the midst of of recovery and therefore maintain that value will continue to play an important role in restaurant purchase decisions.
Well, we have always offered great everyday value across our barbell menu, our Dallas dollar deals menu introduced last year is the foundation of our value strategy as it has been proven as a best in class value menu with high guest satisfaction marks.
We will continue to keep this important platform in our everyday value top of mind through ongoing marketing and new product news throughout the year.
For instance, we started 2021 with a delicious new honey mango flavor, which spans our barbell menu strategy beginning with a dollar new crispy chicken Taco up two of $5 epic Burrito.
On the menu innovation front, our team has been busy with menu development during the pandemic highlighted by the launches of new handcrafted fresh guacamole and the new crispy chicken menu.
'twenty 'twenty. One also has a very strong pipeline of new products flavors and new product platforms and the team is working on on this to drive sales.
We just brought back our popular seasonal crispy jumbo shrimp L. T O in February which represents great mid tier and premium value for the consumer and it will be followed by our newest crispy chicken flavor.
Upon its late March launch, we will have introduced more innovative crispy chicken items and any other acuity of our brand with a total of 11 unique crispy chicken offerings spanning our barbell menu strategy since last July.
Next is our digital transformation, which involves not only enhancing our one to one digital guest engagement, but also expanding our convenience.
The del Taco mobile App and delivery channels have played important roles in these efforts.
To date, we have more than 1.35 million registered users up over 50% from the end of 2019, while active app users have also increased.
This reflects the effectiveness of our regular disruptive offers that are only available on the del App.
During the quarter six 3% of all company restaurants sales where delivery of compared to only 2% last year. Our delivery check average also remains about 1.85 times are at restaurant check primarily due to party size. We believe the 20% delivery price premium enacted in Q3 has been effective and allowed us to.
Improved margins and flow through on delivery of transactions all in all of it is clear delivery will be of permanent and meaningful sales channel for del Taco.
Consumers are also using technology to access and interact with brands they care about.
And we are capitalizing on this opportunity by investing in ultimate convenience and a holistic CRM platform.
Ultimate convenience is about making sure we are maximizing all of our on and off premise service modes, and considering new ways guests want to access del Taco.
We want to meet our guests wherever they are and give them great experiences with the brand of.
A big focus to date has been our drive thru business, where we expanded the access and convenience of our drive through lanes by temporarily extending queue lines, and adding technology to improve throughput and high volume restaurants with wireless outside order takers. This has resulted in our drive thru being 6% faster during the lunch day part versus pre Covid.
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In addition for guests that are looking for alternative limited contact service modes, we are leveraging our del App and its order ahead feature to test curbside and of program, we call Park and get it.
This is another potential service option for those looking to dine in their car and it's certainly helpful. When our dining rooms are closed as they are now.
It will also be beneficial for our fresh flex drive through only building, which I'll talk about more in just a moment.
This brings us to the new holistic CRM platform, which we plan to launch by this fall.
This platform will enable us to further digitize del Taco and incentivize and reward our fans for their loyalty.
The launch will include a host of features and improvements to the del at the launch of our loyalty program as well as a data at an attribution capabilities of your eye personalized and valued experiences for our guests to increase sales and frequency over time.
Now, let's briefly discuss our exciting new fresh flex prototype, which we announced earlier this year.
To recap fresh flex as flexible scalable and designed for future growth first.
At first and foremost at was built to expand real estate opportunities modernize the guest experience and propel growth with new and existing franchisees.
Our goal is to create the most efficient convenient and enjoyable environment possible for guess crew members and franchisees alike.
The design is distinct and evokes a contemporary <unk> plus field of top priority was also to give the new design unmistakable curb appeal and you can see that clearly with our backlit towers and vibrant welcoming color pallets, which are both unique to del Taco.
Innovations available in the new prototype include third party delivery pickup stations double drive through lanes of dedicated land for mobile orders of delivery driver pickups and dedicated parking lot areas to park eat NGO. Thanks.
Thanks to the designs flexible nature, which scales around the kitchen, we're able to provide active developers what we like to call a menu of venues.
We're now offering multiple buildout options to maximize real estate opportunities, which can help lower net investment and expand real estate access with this expanded access del Taco can grow in a number of ways, including through small footprint drive through only models drive through end caps conversions and freestanding sites.
All in all we are excited about this new prototype and look forward to our first fresh flex building in our new company seed market in Orlando later this year.
With that let us now turn our attention to development for 2021, our system growth will be led by franchisees with the company remaining focused on opening select infill locations in our core markets as well as our new seed market in Orlando, We expect to open for new company units and at least a dozen restaurants system wide.
As our franchisees begin to get back on track barring any further delays related to the pandemic.
We believe our unique brand position and ubiquitous menu drives broad national appeal, and we are poised to accelerate franchise growth.
Our franchise systems are proven with eight consecutive years of comparable restaurant sales growth across a franchise geography that spans 15 states coast to coast.
With that in mind, we are optimistic about our ability to continue to accelerate our franchise pipeline through both existing and new franchisees in 2021, especially with the addition of the new fresh flex prototype as well as the broad based success at our non California franchisees are seeing.
Along with our development pipeline, we will expand our test of remodel program in 2021, and we will integrate the new fresh flex designed by mid year.
We believe this is a great opportunity to drive both of positive brand image and <unk> growth through the new design along with functionality improvements we can apply across the age portion of the fleet over time.
The remodel design cost we are targeting with this test ranges from $150000 up to $500000 per restaurant based on the age of the facility and type of legacy prototype that we are remodeling.
We expect the older restaurants will come in at the higher end of the range, while the restaurants built since the 19 nineties should come in closer to the lower end of the range with mostly cosmetic upgrades.
Ultimately, we believe we can generate a UV growth and an appealing ROI through this final phase of testing that will lead to a formal system wide remodel program that is compelling to franchisees as we move into 2022.
Before I turn it over to Steve Let me quickly discuss our approach to driving shareholder returns.
As we announced back in early January we initiated a quarterly cash dividend, which reflects our ongoing commitment to deliver value to our shareholders.
This is enabled by our strong and consistent historical operating cash flow that helped drive over $34 million of aggregate debt reduction plus share repurchases in 2020.
To briefly recap our strategy to drive shareholder returns is focused on three key levers driver.
Driving our core business day.
Applying a disciplined investment strategy and returning excess capital at.
As I discussed earlier, our core business is well positioned for average unit volume growth and strong margin performance, which we expect will continue to generate strong cash flow.
Our disciplined investment strategy is set up to grow the del Taco brand, primarily through accelerated franchise growth and of remodeling program that will leverage our new fresh flex design.
And finally similar to the last five years, we expect to remain in a position where we are able to return excess capital now on an expanded basis, including of quarterly cash dividend, along with our share repurchase program and repayment of debt.
In closing we are excited about what is in store for del Taco. Despite continued uncertainty from the Covid pandemic.
Between the combination of our focus for better strategy, a great operating culture that is able to move on a dime. The five drivers of sales acceleration that will continue to fuel innovation to drive sales and our <unk> prototype and accompanying development strategy. We believe we are set up to continue to drive solid top line performance in 2021.
And we intend to emerge from this crisis as a stronger company.
Now I'll turn the call over to Steve to review, our fourth quarter financials.
Thanks, John total revenue decreased <unk>, 2% to $1 $56 7 million from $157 1 million in the year ago fourth quarter system wide comparable restaurant sales increased three 8% consisting of a 0.6% increase at company operated restaurants and at seven 5%.
Kris at franchise restaurants company restaurant sales decreased two 2% to $1 $41 7 million from $1 $44 8 million in the year ago period. This decrease was driven by fewer company operated restaurants compared to last year, primarily due to our refranchising activity, partially offset by.
Positive comparable restaurant sales.
Franchise revenue increased 15% year over year to $6 7 million from $5 8 million last year. The growth was driven by the increase from franchise comparable restaurant sales coupled with additional franchise operated restaurants compared to last year, primarily from our refranchising activities.
Turning now to our expenses food and paper cost as a percentage of company restaurant sales decreased approximately 110 basis points year over year to 26, 7% from 27, 8%. This was primarily driven by menu price increases of approximately 4%, which exceeded food inflation of over 2%.
It.
Despite the $1 increase in California minimum wage of $13 an hour, our labor and related expenses as a percentage of company restaurant sales decreased 20 basis points to 32, 6% from 32, 8%. This was driven mainly by effective management of variable labor and the favorable.
The impact of menu pricing, along with reduced workers' compensation expense based on favorable underlying trends.
Occupancy and other operating expenses as a percentage of company restaurant sales increased by approximately 170 basis points to 23, 7% from 22.0% last year.
This increase was primarily due to a 60 basis point increase in advertising expense to four 1% of restaurant sales as well as of higher delivery fees as delivery grew to $6 three percentage of sales compared to 2.0% last year and incremental direct COVID-19 costs.
Looking ahead. This line item is expected to experience elevated delivery fees and incremental COVID-19 costs. During the first quarter of 2021, followed by an expected leveling and our delivery fees compared to the prior year and the potential reduction in incremental direct COVID-19 costs as vaccination rates improve at.
As the year progresses.
Restaurant contribution was $24 1 million compared to $25 2 million in the prior year, while restaurant contribution margin decreased approximately 40 basis points to 17.0% from 17, 4%. This was in our view of solid outcome and concluded a second half of 2020.
Which featured margin expansion of approximately 30 basis points with modest company owned same store sales growth of just over 1% and despite a $1 increase in California minimum wage <unk>.
General and administrative expenses were $13 9 million up from $12 1 million last year and as a percentage of total revenue increased 110 basis points to eight 8%.
As we laid out on our last call. The increase was primarily driven by increased performance based management incentive compensation as we lapped a negative bonus expense last year based on 2019 performance and higher legal expenses, partially offset by reduced travel expense.
Adjusted EBITDA was $18 4 million down from $20 5 million last year and decreased as a percentage of total revenue to 11, 8% from 13, 1% last year dip.
Depreciation and amortization was $8 1 million up from $7 8 million last year. The increase primarily reflects the addition of new assets, partially offset by the impact of Refranchising as a percentage of total revenue depreciation and amortization increased 20 basis points to five 2%.
Interest expense was $1 1 million compared to $2 1 million last year. The decrease was due to a lower average outstanding revolver balance and lower one month LIBOR rate compared to 2019.
During the fourth fiscal quarter, we reduced our outstanding revolving credit facility borrowings to $115 million compared to $145 million at the end of fiscal year 2019, and the remaining availability under the revolving credit facility was $117 7 million at year end.
In addition at the end of the fourth quarter, our balance sheet debt net of cash to adjusted EBITDA leverage ratio declined to a ratio of approximately $1 96 compared to approximately 2.25 at the end of fiscal 2019.
We also repurchased 496356 shares of common stock at an average price of $8 49 per share during the fourth quarter for a total of $4 2 million at the end of fiscal 2020, approximately $18 1 million remained under our $75 million Reaper.
This authorization.
Net income of $7 5 million or <unk> 20 per diluted share compared to net loss of $114 1 million or $3.08 per diluted share last year. We also reported adjusted net income which excludes the various items identified in our earnings release and the financial tables.
Adjusted net income was $7 5 million or approximately <unk> 20 per diluted share compared to adjusted net income of $6 7 million or at 18 cents per diluted share last year.
Lastly, due to the continued uncertainty surrounding COVID-19, and its impact on our business, we won't be able to provide you with a full outlook for 2021. However, we can offer the following guidelines commodity.
Inflation of approximately 1%, excluding any adverse impacts from COVID-19 on our supply chain.
Labor and related inflation of approximately 6%, which is due primarily to California regulations, including at California minimum wage increase from 13 to 14 per hour that began on January 1st and a mandated minimum salary of twice at the minimum wage which impacts of slightly over half of our.
Managers.
Menu price increase of approximately 4% modest restaurant contribution margin expansion compared to the 16, 1% achieved in fiscal 2022.
Total G&A of approximately 9% of total revenue, reflecting expectations for normalized incentive compensation during 2021 and modest underlying inflation, including the return of travel and related expenses as the year progresses.
Effective tax rate of approximately 27% capital expenditures in the low $30 million range, including expenditures to maintain or enhance our existing restaurants company operated restaurant openings are test remodel program and various discretionary technology and restaurant level of investments.
For company operated restaurant openings of which one has already opened and eight franchise restaurant openings of which one is already opened for a dozen system wide openings.
Lastly, we are nearly 10 weeks into the first quarter and I'm pleased to report that both company operated and franchise restaurants continue to generate positive comparable restaurant sales and have demonstrated sequential improvement compared to the fourth quarter last year.
For the remainder of our first quarter, we expect accelerated performance as we lap. The initial COVID-19 impact that should result in first quarter of comparable restaurant sales growth in the mid single digits for the company in the low double digits for franchise and high single digits for the del Taco system.
As we look ahead, we expect continued accelerated performance through the second quarter. In addition, we believe our five drivers of acceleration coupled with ongoing margin management strategies will help drive our results in the second half of the year end facilitate modest restaurant contribution margin expansion on an annual basis.
That concludes our formal remarks as always thank you for your interest in del Taco and we are now happy to answer any questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad at confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up of the handset before pressing Mr.
For Q1.
One moment, please while we poll for questions.
[laughter].
Thank you. Our first question comes from Alex Slagle with Jefferies. Please proceed with your question.
Hey, guys. Thanks for the question.
On the core of did same store sales I think you partially answered my question, but it looks like the outlook for that GAAP between the franchise and the company comp that's been getting bigger and bigger as you see that sort of starting to decline as we look ahead for the first quarter end and maybe the rest of the year is at the right way to think about.
At it.
Yeah. Overall, you know once we post the first quarter it'll be a little more of a clear exactly to what extent that does or doesn't white and I would say.
The GAAP, we saw both of Q3 and Q4.
I don't think of the differential will be dramatically different from what we saw second half last year that said naturally. The next couple of weeks here certainly get interesting.
Our 11th week, a year ago started with a lot of rain and then by the weekend coming up here. That's when you know Covid really began to have impact on the consumer leading to precipitous drops at navies in the same store sales are final week 12 of our 12 week quarter naturally, we're very much and stay at home orders a year ago.
And you know obviously be an outsized comp that will continue as we go into Q2 as well so hard.
Hard to say given the volatility of we're going over exactly what that GAAP does but in general it might be in a similar area and again, it's really of geographic story as we've covered in the past.
Got it that makes sense and then end he died.
Dynamics of our performance that Youre seeing in the California restaurants as restrictions start to ease some of this.
How should we think about at does it sort of drive more of mobility broadly in service of tailwind for del Taco or is it send more consumers to other types of restaurant formats. If theres anything you can kind of call out from what you've seen recently.
Yeah sure.
Well first off at just it's important to note that you know, we're obviously continuing to follow of local guidelines here in California and in many of the states we operate in and all of our company restaurants in California are currently.
In the states most restrictive tier right now and are at zero percent allowable dining dining room capacity, obviously as things loosen up a bit and we moved into next year and I think for next year, we get into is allowable, 25% dining room capacity and then eventually you get to about 50% allowable dining room capacity, so that that obviously it will take time to.
Two as the numbers continue to drop and perhaps the environment becomes a bit more normalized.
So obviously still having fairly strong impact.
In regards to that dynamic across our California stores and then also you know that.
These counties that that I that we talked about in early January and once again on the call today.
Clearly.
Those counties are continuing to see their fair share of of demand struggles, but we do believe that they're poised to to bounce back as things begin to normalize on.
On the reopening front you know.
Alex just to kind of address that question I think it's a good one of the reopening of restaurants or retailers I mean remember that goes along with other activities that are also reopening right. So you're going to see a movie theaters reopening maybe of gradual return to offices reopening as we move through the year and we think all of these things are good over.
For all because it means that people are out and about again, they're actively participating in the economy. If you will end at the quick service category you know as you know.
No. We will continue to be a category that is driven by value and convenience and end of consumers are on the run in between activities going to school and going to work and juggling a lot of things.
Just for them being out and about as a good thing for our business value and convenience of.
<unk> and for del Taco, We will continue to be really important we believe moving forward.
Great that's helpful. Thanks.
Youre welcome.
Thank you. Our next question comes from Nick studying with Wedbush. Please proceed with your question.
Hey, thanks.
Just on the unit growth.
Is it reasonable to.
And acceleration to sort of at the 2019 mid single digit.
Franchise at the growth rate by 2022.
Yeah, I think I think that is reasonable and Mac I think of what you said was you know taking a look at our 2019 franchise unit growth in particular can we get back to that unit growth in 2022, we do think that that is within our sights.
I think if you look at during 2021.
Think about at moving forward our system wide growth. We will continue to be we said publicly it will be led by franchise growth. We're excited about that.
You know and as I expected.
You know as I as I said, we expect at least 12 of system wide openings in 2021, and we said about around eight of those will be franchise, driven and then I think the way to think about it is that is going to be followed by a modest improvement in system wide openings in 2022 I think.
For 2019 is probably the right way to think about it and then of more pronounced.
Step up in openings. During 2023. So you know obviously existing franchisees are excited about the brand and building pipeline and we'll begin to get back on track. This year end next year, and we're seeing more high quality franchise prospects coming in.
Coming to the table. If you will excited about our fresh flex prototypes and also the fact that as we said on the call. We've had eight consecutive years of positive franchise same store sales growth. So.
That feels really good at those folks too so I think new signings in 2021, we'll obviously heavily impact 2023 and beyond.
And but we expect momentum in that area. This year.
At the context of back to 2019, I think as you laid out that's really more in the context of the absolute number of franchise openings. We opened 14 at year not necessarily in terms of the absolute level of system openings because as we've said focuses on franchise growth company.
Remaining of grower, but but at a more modest clip.
Understood understood that's very helpful.
You guys have a lot of top line initiatives.
I guess I'll choose to focus on the Remodels.
Just because it seems like the opportunities. So so great. There can you just remind us of how many stores to date you have remodels.
How many in 'twenty one the test includes.
Sure so over the past two years, we did book.
<unk> five older restaurants prior to any Covid impact and then five additional margin as modernization since COVID-19 and certainly overall jeffs employee feedback very positive also of the team's done a great job working at a remodel process that has very limited downtime, which helps of course protect in your sales.
All of us during the remodel process.
Five I mentioned prior to Covid.
Prepose versus control, we saw a nice lift in sales in that double digit area, we view that very favorably.
<unk> at more recent one since COVID-19 due to COVID-19 trends in Socal in particular at just can heavily impact of individual restaurants trade areas control groups, such that it's really hard if not impossible to discern that.
Lift that's happening other.
Other than you know, we think the assets look rates and it positions us very well for the future. So that's where we are in the current journey naturally. The year ahead is going to kind of wrap up at test you know aimed at more of a formal system wide launch later this year.
And so how many remodels will there be in 'twenty one.
Up to 20 was the number of them being the full investment of more limited portion also be in the more cost effective that's more cosmetic on our end more modern facilities to help capture of the appeal of the essence of fresh flex.
For up to 20 inclusive of the 10 already completed or for up to 20% incremental in the new year.
Okay. Okay.
Lastly on the technology initiatives.
Is there of timing on the loyalty launch.
Yeah. We've said, we've said fall of this year, Nick we're positioned to be able to pull that off obviously we have.
Last year, we put investment into our technology platform.
Building off of our digital transformation that we had done in 2019 continued that in 2020 and you know obviously through the work we did with the ultimate convenience and then we invested.
<unk> invested in our restaurant technology platform to be able of more seamlessly deliver on the ultimate convenience strategy as well as you know this fall launch of our CRM platform. So we're excited we're excited about being able to deliver that later this year and I think we're well positioned to be able to hit that timeline.
Alright, Thank you very much.
Okay.
Thank you. Our next question comes from Joshua Long with Piper Sandler. Please proceed with your question.
Great. Thank you for taking the question do they wanted to circle back to the digital pipeline and what you've learned through the about consumer as we've gone through Covid and has gone through your digital investments I know, we'll have more of learnings to come in terms of that loyalty launch that you mentioned, they're at towards the fall of this year, but just curious on what you.
You've learned about the consumer thus far and what's gonna be kind of fed into that loyalty launch going forward.
Well I think number one is the adoption of technology to be able to access restaurants restaurant occasions bolt on and off premise.
Has been quite impressive in 2020 as the consumer has really been for.
Force to to be able to adopt technology in order to access restaurants. So.
Clearly our ultimate convenience strategy was designed to be able to really play into that trend.
Trend around convenience and access so when you saw our dining room or our dining rooms closed down obviously, we saw drive through really accelerate into the low to mid eighties, depending on the timeframe that youre measuring and so a lot of actions were put against obviously being able to efficiently execute at the drive through.
Throughput was at key initiative for US, we talked about lunch being up about 6% pretty post COVID-19 due to that focus and then we looked at delivery obviously than we saw at what's happening in delivery.
At the height of delivery you know certainly over 7% of sales and in more recent quarters trending in the 6% area at <unk>.
Early demand from the consumer so Josh I think that all plays into a need for convenience and greater access and at the consumer is wanting from brands. So we want to continue to be able to do that and deliver that well with great guest experiences as well as look at opportunities like the parking get at test that we currently have underway at again at <unk>.
Leverages that technology integration to be able to allow of consumer to order from their mobile phone basically they can sit out under a tree in our parking lot and place the order and have the food brought to them. If they just want to hang out and relaxing their car and take 20 minutes to enjoy some epic burritos right. So we wanted to be able to kind of meet that consumer wherever.
They are and give them great experiences with our brand and then the CRM platform, obviously will take that a step further because now we will have a loyalty platform of mechanism to really incentivize and reward at consumer for accessing our brand through these different channel. So I think holistically at all coming together very nicely here as we entered.
For the fall.
And even if dining rooms of reopening and the environment around us is shifting and we believe that it's unlikely that the consumer will step backwards in regards to their want and need for convenience. We think that will continue to move forward. So we want to be positioned to be able to to do that well.
As a brand.
That makes sense and excited to see how that unfolds. When we think about the menu innovation work that you talked about in and provided an update today on its depreciate that can appreciate how value still plays an important role going forward and then you've done a great job in terms of just expanding it and I'm sure optimizing as well.
Well the different areas of the of the menu, whether that's by protein or by day part, but if you might be able to provide an update on how youre thinking about that and overall holistically and then when we think about some of those day parts of that you mentioned in terms of breakfast or graveyard is is there anything that can be done in the meantime, or do we really look forward to just that increasing mobile.
And whether it's vaccination rates or any of the other driving forces there to really.
The consumer getting back into a more normalized trend and that's really what it's going to help drive those the recovery of those day parts.
Okay. Let me address both of both let me unpack that a little bit end get the bulk of your questions.
I think first off we feel like we're positioned well from you know from the standpoint of our five drivers of sales acceleration, particularly you heard us talk about value and the need for value out there and I think that the Dallas dollar deals menu is at.
Is that is that foundation of our barbell menu strategy will continue to innovate end market against that in 2021, our product of new menu innovation pipeline is strong as we're entering the year end and we feel really good about the calendar this year and what we'll be able to bring to the table of Wolf in terms of new news around products and and perhaps as we get later.
And the year of new platform or two and.
So we feel we feel good about that and then obviously, we're entering into the digital space in a big way that I just talked about your ultimate convenience and.
Our end launch in the fall so a lot of innovation of very solid lineup at that really runs the gamut across that five of those five day.
Drivers of sales acceleration in regards to your second part of your question with day parts.
I wanted to address.
I think theres two two driving factors here of this performance and you kind of hit the nail on the head there Josh consumer demand related to changing behaviors because of the pandemic is one and then to some of the curtailing of ours has occurred at these day parts just due to optimizing profitability right. The demand is not there.
So we've taken ours incrementally here in their store to store depending on the circumstances. So both of these factors start to take care of themselves as things open back up and consumers return to more normalized activities. We do believe that both day parts of our poise.
Two to have an acceleration in same store sales once some of that starts to happen at once some of that normalization occurs in the meantime, we're keeping them top of mind for those stores that have.
All of the stores that have those open and that are doing well with them and you know as we start to see activity open back up we will start depressed of the gas pedal. If you will on things like you know of breakfast refresh perhaps from breakfast innovation as well as similar messaging towards the graveyard late night hours. So again, it's going to be relative.
Vince regarding when consumers start to come back and that demand starts to come back and we certainly hope late night as an example, we can start to.
Pull that lever in the summer months, and that's always a great time to be talking about late night activity and and at graveyard day part. So it would be great to be able to do that and it would be great. As we enter the fall if folks are going back to school normally and perhaps some more normal occurrences of folks returning to work it'd be great to be talking about breakfast end, so just a little bit of a yeah.
A little bit of a heads up in regards to how we're thinking about that but clearly we have got to watch the marketplace and the consumer and see what happens.
Understood and then last one for me when we think about that low thirties for millions for the Capex.
Would it be possible to talk about that in rough buckets of size in terms of new units. Some of the digital initiatives that you've outlined or maybe other other corporate pieces just to kind of help put a sharper point on the modeling side.
Sure certainly the largest bucket will be expenditures to maintain and enhance the current fleet. You know as you know we did slowdown some of activity.
Last year, especially when Covid first hit so you know maybe a little bit of catch up happening this year to some degree at so that's definitely the biggest bucket.
Two very meaningful ones would be certainly the remodel program that we touched on that we're real excited about as well as our spend towards new company openings certainly the for that we expect to deliver this year typically theres all of some spend on <unk>.
Units that'll open call at first quarter first half of the following year of 2022 of them.
And then finally, some discretionary investment whether that's technology initiatives.
Investments at the restaurant level, whether it's within or around the four walls drive through technology is a big area of opportunity kind of back to ultimate convenience. So putting some money towards you know restaurant operations to help drive throughput speed and experience overall, so hopefully that helps you kind of size that.
Guideline.
Great. Thank you.
Thanks welcome.
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Our next question comes from Todd Brooks with CL King and Associates. Please proceed with your question.
Hey, good afternoon, guys and great news on the quarter to date trends. So that's exciting.
A couple of questions for you can we can just dig in a little bit on attracting new franchisees for the brands you've got the new prototype you've got a history of.
Strong results with what's what gives from across the threshold at this point is at a willingness to maybe seed markets with corporate stores as of just.
Potential new franchisees wanting to have a little more certainty about how the the end of the pandemic plays out here.
Non sticks that and it allows you to start day.
Announce some new franchise deals.
Well, Hey, Todd it's John at the main thing that we are.
Talking about end and really excited about with new franchise prospects and Theyre excited about as well is a fresh flex prototype and the way that that then helps enable our menu of venue strategy because of anything we've talked very openly that we believe taking that portfolio of approach to growth is absolutely the right way to think about growth.
In this environment, right, where <unk> drive through demand is still.
Going to be going to be high and we need options through our prototype to be able to access real estate and maybe traditionally we haven't we just have an access. So if you think about you know a smaller footprint with a smaller parcel of land like our drive through only building or of conversion and.
You know of smaller restaurant prototype with a dining room, we've got that for the full array of options. If you will through that menu of end user approach in the way that you think about returns for that right now at least theoretically is that.
The consumer shift in regards to leveraging technology to access brands that I that I talked about a little bit earlier at integration into the prototype enable is at really a nice array of on and off premise opportunities that hopefully.
To do is net down your you know your total cost of investment in developing del at del Taco because of your portfolio approach with menu of venues, but maintain a similar AAV because of that consumer demand dynamics related to technology and technology integration is of prototypes. So we then.
That that at that as a that is a key piece and it really.
It gets us to the table if you will.
With folks being really interested in that I think the other piece that we've been talking about that is really important to recognize I mean outside of California around 9% at same store sales growth and Q4, we've had eight consecutive years of positive same store sales growth out of our franchise business. We've clearly put the infrastructure in place to be able to support franchise.
Growth at del Taco, We're in 15 States coast to coast. So we feel really good about that as do some of these prospects that are coming to the table end and we expect this to be a good year in regards to franchise prospecting at del Taco because of those facts.
That's great and then just for a second question for me.
And I know your ability to do this will be stronger when you rollout the new book.
CRM this fall in.
At the loyalty program, but if you look at.
New to brand customers during the pandemic and their behaviors just any anything you can share on kind of frequency in the sense of an incremental customer that the brand drew and your ability to turn them into a repeat or or more frequent customer.
Yeah, I mean I.
Or are you know key consumer has typically been a <unk> user that is you know.
Participating in the category on a very regular basis and using many brands. So one of the things we've always said from.
We launched our combined solution strategy is our goal is always to try to be best on block. So so the operations delivering frequency and sales is critical combined with elevating the brand promise through things like menu innovation the barbell.
Technology integration now is a big part of that strategy. Those are things that are going to draw folks and more often so from from a standpoint of a new consumer I wouldn't say that that is necessarily our aim I think it is very challenging in the <unk> drive.
Yes, they may be very light users. So I think I think the play Todd is we need to increase frequency across the segments. So if you think about light medium users, where you have a high volume of.
Consumers not giving you their fair share of sales, that's where we want to really play because that's a very that's a very fertile territory for the brand because of those consumers are in the category, they're already bought into <unk> lifestyle, and <unk> of our drive through and things like the CRM platform will help them to come back more often so that's how we're thinking.
At about it.
Okay, great. Thanks for the comments John personally.
There are no further questions at this time I would like to turn the floor back over to management for any closing comments.
Okay, well. Thank you for taking the time with US today and thank you for your for your interest in del Taco. We do appreciate it and we look forward to sharing our progress on future calls have a great day.
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