Q2 2021 Del Taco Restaurants Inc Earnings Call
Hello, and thank you for standing by and welcome to the fiscal second quarter 2021 conference call and webcast for del Taco restaurants, Inc.
I would now like to turn the call over to Mr. Raphael gross managing director at ICR to begin.
Thank you good afternoon and welcome on today's call are John campus of all our President and Chief Executive Officer, and Steve brake Chief Financial Officer. After we deliver our prepared remarks, we will open the lines of 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 and at refer you to today's earnings press release, and our SEC filings for more detailed.
<unk> 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 knee.
S. GAAP measures, however, non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income or loss adjusted income or loss net cash flows provided by operating activities or any other of GAAP measure of liquidity or financial performance. Let me now turn the call.
To John capital, our President and Chief Executive Officer.
Thank you Raphael and.
And thank you all for joining us today.
Once again I am delighted to report that we had another great quarter at del Taco and are on track to achieve what we set out to accomplish earlier this year.
Although inflationary headwinds impacting our industry and business have emerged we are well positioned through our initiatives to maintain operational excellence drive sales through new product launches and our new loyalty program and to accelerate our new restaurant pipeline to deliver 5% system wide new unit growth led by franchising by 2023.
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We were also pleased with our team's exceptional execution and providing our guests ultimate convenience through our drive through takeout and delivery channels as we navigate through the remainder of the pandemic, while maintaining strong guest satisfaction scores.
During Q2, we also leveraged our strong comparable restaurants sales trends against our very effectively manage input costs, resulting in significant restaurant contribution and adjusted EBITDA growth and margin expansion.
Let me briefly review performance highlights from the quarter before moving on to a discussion of our short and long term initiatives.
System wide comparable restaurants sales grew 17, 8% over the prior year, consisting of a 17, 2% increase at franchise restaurants, and an 18, 3% increase at company operated restaurants to.
To neutralize the impact of lapping the pandemic during Q2 on a same store basis compared to 2019 company sales grew approximately 3.6% while franchise restaurants grew at a high single digit rate.
Geographically during Q2 on a same store basis compared to 2019 are non California restaurants, which are primarily franchise operated grew at a double digit rate, while our California restaurants grew at approximately 4% compared to 2019.
This contrasts reflects the broad brand appeal at del Taco has earned across 15 states outside of California that also generally mandated fewer operating restrictions.
Also during Q2 on a same store basis compared to 2019 all of our day parts were positive except for breakfast, which has since improved to flat compared to 2019.
Importantly, we believe this day part offers a near term growth opportunity as I will explain shortly.
Late snack and graveyard were the top performing day parts in Q2 and were aided by strong delivery trends.
Restaurant contribution margin increased by 250 basis points to 18, 9%, primarily due to leverage from strong comparable restaurants sales, including 4% menu pricing coupled with flat food inflation, despite increased advertising cost as we lapped reduced advertising.
<unk> last year during the onset of the pandemic.
In terms of profit adjusted.
Adjusted EBITDA increased $4.8 million or 39, 5% to $16.9 million from $12.1 million, while adjusted net income per diluted share increased to 16 cents from adjusted net loss per diluted share of zero cents last year.
Finally during Q2 of our quarterly dividend and share repurchases returned an aggregate $3.6 million of capital to shareholders and we also reduced our net debt to $103 million lowering our net debt to adjusted EBITDA leverage ratio to approximately 166 times.
Turning to the business.
Recall over the past year, we've been executing on 5 drivers of sales acceleration, that's our value leadership menu innovation brand engagement digital transformation and ultimate convenience.
These pillars, which are anchored by our focus for better execution strategy provide us with the framework to improve our connectivity and relevance as they ensure that we are providing guests and employees outstanding experiences with the brand.
Let me start with operations and focus for better.
1 of the 4 key pillars of this strategy is our people first approach.
People are the engine of this business and there has never been a more important time, then now at a leverage this brand strength and stay ahead of the curve as the industry faces unprecedented labor availability challenges.
As we navigate this tough staffing environment to enhance our ability to attract and retain top talent we've.
We've developed a holistic recruiting scheduling and retention strategy.
The best way to staff of restaurant is to retain your current team and we are celebrating our teams through rewards and recognition during our employee appreciation month throughout July.
During the month, we have scheduled fun uniform theme days and are providing foods and other treats along with personalized. Thank you notes to our team members.
We continue to reinforce how important our people are to us by offering benefits like daily pay and a significant referral bonus.
To enhance talent acquisition. Our strategy includes testing of new digital recruiting partnership to increase our presence on job boards and simplify communication with prospective applicants.
The layers, we are adding along with leveraging our strong people first culture Foundation will aid our ability to maintain operational excellence for our guests and be supportive of our restaurant teams.
Turning to sales and marketing our value leadership strategy focuses on great everyday value across our barbell menu and is supported by ongoing menu innovation to keep our menu platforms fresh and interesting.
In Q2, we pared value with innovation with the introduction of our newest crispy chicken flavor.
Chipotle barbecue and relaunched our kronstadt of platform with new recipes with signature del Taco ingredients of top of large 6 and a half inch freshly fried tortilla Arco.
<unk> title lineup features $1.2 $3 of price points to drive trade up and to highlight our <unk> plus positioning with quality of ingredients like fresh guacamole and queso.
Due to their popularity and high guest satisfaction scores the crunched out of platform will remain a focus through this summer.
Just today, we introduced a new breakfast platform centered on our new double cheese breakfast tacos. Each Taco features are freshly shredded cheddar cheese and signature queso Blanco with price points starting at a dollar.
We believe this offering can jumpstart our breakfast sales as we approach 2 near term breakfast catalysts, namely morning routines continuing to normalize as offices repopulate.
And the return of breakfast seasonality in the fall as kids return to in person school.
Lastly, later this summer we will leverage menu innovation to launch you're at another exciting platform, we call that stuffed quesadilla tacos.
This new platform takes our fan favorite case of Dia and adds creamy queso Blanco folded into the shape of of Taco shell end stuffed with grilled chicken cornea saada.
Our crispy chicken.
These tacos are designed as a trade up from our current tacos with more ingredients and more flavor.
This combination of new product news driving both core and shoulder day part of activities puts us in a great position to generate a guest's excitement and momentum during the back half of 2021 and entering 2022.
Our del out of membership continues to grow and provide us with a solid foundation for our new holistic CRM platform launch. This September that will further digitize del Taco and incentivize and reward fans for their loyalty.
The launch will include a host of features and improvements to the del App, including the launch of our points based loyalty program, which will feature attractive rewards and exciting elite tiers as well as of data and attribution capability to drive personalized and valued experiences for our guests to increase sales and frequency over time.
Turning now to development we.
We're very encouraged at del Taco as franchise led system growth is gaining momentum.
Our franchisees will opened 9 new restaurants, this year of which 7 have already opened in 2 of our under construction.
4 of company operated restaurants will also opened this year of which 3 have already opened in the fourth is our first fresh flex prototype under construction in our new company seed market in Orlando.
Following the 2 development agreements for 18 restaurants in the southeast we signed earlier this year, we recently announced an agreement with another seasoned multi concept USR franchise group for 12 restaurants across the Florida Panhandle.
As these signings demonstrate we are gaining traction in the southeast where we have significant room to grow as a brand.
We believe these recent signings and additional pending development agreements are enabled by our unique <unk> plus positioning and ubiquitous menu that drives broad appeal, our strong track record of 8 consecutive years of franchise comparable restaurant sales growth across 15 states and the relevance of our of our attractive new fresh flex.
Type, which also expands real estate opportunities to help lower net investment and modernizes the guest experience.
We are very pleased with our franchise led development progress as we continue to build our new restaurant pipeline for both new and existing franchisees.
Looking ahead in 2022, we expect of modest step up in new system wide restaurants, compared to the 13 expected openings. This year as existing franchisees get back on track and start to leverage the new fresh flex prototype.
On a longer term basis, the 3 development agreements for 30, new restaurants commitments signed so far this year, plus our expanding backlog and additional agreements. We expect to soon announce we believe puts us in a position to deliver system wide new unit growth of 5% starting in 2023.
At this final phase of testing is largely during the second half of 2021 and includes integrating our fresh flex prototype into a remodel design and is expected to lead to a formal system wide remodel program beginning in 2022.
Also we announced our third quarter cash dividend of <unk> <unk> per share as we continue our commitment to delivering shareholder returns.
In summary, although the current environment continues to present operating and inflationary pressures.
Coming months will help determine whether these near term challenges will prove to be transitory and we believe our strong foundation sets us up for continued growth.
Looking ahead, our focus on driving sales includes plans to introduce innovative new products and platforms along with the launch of our new del App and loyalty program. This September and a growing pipeline of new restaurants to be developed over the next several years led by our growing base of franchisees.
Now I'll turn the call over to Steve to review, our Q2 financial results and discuss how we view the back half of 2021.
Thanks, John total revenue increased 19, 5% to $125 million from $104.6 million in the year ago period.
Company restaurant sales increased 18, 6% to 113.0 million from $95.3 million in the year ago period.
The growth was primarily driven by positive comparable restaurant sales.
Franchise revenue increased 24.0% year over year to $5.6 million from $4.5 million last year.
The growth was primarily driven by the increase in franchise comparable restaurant sales coupled with additional franchise operated restaurants compared to last year.
System wide comparable restaurants sales increased 17, 8% consisting of an 18, 3% increase at company operated restaurants and at 17, 2% increase at franchise restaurants.
Turning to our expenses food and paper costs as a percentage of company restaurants sales decreased approximately 140 basis points year over year to 25, 5% from 26, 9%. This was primarily driven by of menu price increase of approximately 4% and approximately flat food inflation.
<unk> looking forward I want to point out that recent inflationary pressure has materialized beyond our original second half food inflation expectations, particularly in the areas of beef soybean oil freight and other input costs. Therefore.
We now expect food inflation compared to last year of approximately 5% during Q3 and 4% during Q4, resulting in full year inflation of up to 2%.
Although this increased inflation is expected to result in a sequential increase in our food percentage of over 100 basis points during Q3 compared to Q2.
Jim will tell to what extent much of this inflation may prove to be transitory.
For instance, we would point to the recent pullback in Kearney of sort of pricing is 1 example of a meaningful yet temporary inflationary pressure that we are well positioned to manage through.
Despite the $1 increase in California minimum wage to $14 an hour in January 2021 of our labor and related expenses as a percentage of company restaurants sales decreased 30 basis points to 32, 9% from 33, 2%.
This was driven by the favorable impact from our strong comparable restaurants sales growth, including 4% menu pricing and effective management of our variable labor, partially offset by the impact of the California minimum wage and increased workers compensation expense based on unfavorable underlying trends compared to last year.
Although restaurant labor performance remains very efficient, we expect of labor availability challenges John referenced to drive a modest sequential uptick in our labor percentage during the second half of the year compared to our percentage during Q2.
This is due to wage rate pressure to retain and attract top talent to deliver operational excellence as well as of recent Nevada minimum wage increase from $9 to 975 on July 1.2021.
Occupancy and other operating expenses as a percentage of restaurant sales decreased by approximately 80 basis points to 22, 7% from 23, 5% last year.
This decrease was primarily due to leverage from the strong comparable restaurants sales growth, including 4% menu pricing and reduced direct COVID-19 costs, partially offset by increased advertising expense as we lap the reduced advertising spend during the onset of the pandemic last year.
Looking ahead during Q3, we will lap of muted 2020 advertising expense of approximately 3% compared to our typical advertising spend of approximately 4% of restaurants sales. In addition, our operating expenses will face of sequential pressure from utilities, which always trend the highest as a percentage of sales.
During our Q3 is due to increased consumption during the summer months.
Restaurant contribution grew 36, 9% to 21.4 million compared to $15.6 million in the prior year, while restaurant contribution margin increased approximately 250 basis points to 18, 9% from 16, 4%. We're very pleased at our solid restaurant contribution.
Performance during Q2 keeps us in a great position to deliver upon or exceed our original expectations for modest restaurant contribution margin expansion. This year on an annual basis, despite the aforementioned inflationary trends in packaging food and labor.
General and administrative expenses were $11.4 million up from $9.4 million last year end as a percentage of total revenue increased 10 basis points of 9.1%.
The increase was primarily driven by increased performance based management incentive compensation as we lap the minimal incentive compensation accrual in 2020 due to performance compared to strong performance. This year as well as the increased legal fees and noncash stock based compensation.
Adjusted EBITDA grew 39, 5% to $16.9 million compared to $12.1 million last year and increases of percentage of total revenue to 13, 5% from 11, 6% last year.
Depreciation and amortization was 6.01 million down from $6.3 million last year due to the impact of fully depreciated assets and decreased 120 basis points to 4.8% as a percentage of total revenue.
Interest expense was <unk> 7 million compared to $1.3 million last year. The decrease was due to a lower average outstanding revolver balance and lower 1 month LIBOR rate compared to 2020.
During the second fiscal quarter, our outstanding revolving credit facility borrowing was reduced from $115 million to $110 million and the remaining availability under the revolving credit facility was $126.6 million. In addition at the end of the second fiscal quarter, our balance sheet debt net of cash to adjust.
Good EBITDA leverage ratio declined to approximately 1.66 times compared to approximately 196 times at the end of fiscal 2020.
Along with this debt reduction we also repurchased 210401 shares of common stock at an average price per share of $10.7 during the second quarter for a total of $2.1 million and paid our second quarterly cash dividend totaling $1.5 million at.
At the end of this fiscal second quarter, approximately 15.0 million remained under our $75 million repurchase authorization. Net income was 6.0 million of <unk> 16 per diluted share compared to a net loss of <unk> 6 million or <unk> <unk> per diluted share last year. We also reported adjusted.
<unk> net income, which excludes various items identified in our earnings release and the financial tables adjust.
Adjusted net income was $6.1 million or at approximately <unk> 16 per diluted share compared to adjusted net loss of 75000 or zero cents per share last year.
We also announced our third quarterly dividend of <unk> <unk> per share of common stock that would be paid on August 25, 2021 to shareholders of record at the close of business on August 11th 2021.
In terms of Q3 same store sales to date, we are off to a good start and will soon face more challenging comparisons starting in the middle of our fiscal Q3 as we lap the very successful 2020 launch of crispy chicken.
During the second half of 2021, we currently anticipate company and franchise same store sales performance that is similar to our recent Q2 growth on a 2 year basis.
Finally, please refer to today's earnings press release for our fiscal 2021 guidelines, we have reiterated all of them with the exception of commodity inflation, which as I said earlier is now projected at up to 2% as well as a slightly higher 2021 estimated tax rate of approximately 29% and 1 at.
Additional system wide new restaurant opening for a total of 13.
That concludes our formal remarks as always thank you for your interest in del Taco and we are happy to answer any questions.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session. If you'd like to ask a question you May press star 1 on your telephone keypad accounts.
A confirmation tone will indicate your line is in the question queue.
You May press Star 2 of you would like to remove your question from the Q4.
<unk> partners for participants using speaker equipment at may be necessary to pick up of your handset before pressing of Starkey.
Our first question comes from the line of Joshua long with Piper Sandler. Please proceed with your question.
Joshua long your line is live.
Great. Thank you for taking my question and for the update today, 1 of the people who might be able to first dig into some of the people first initiative that you started with end.
Understand better there.
Obviously, you've got a lot of initiatives in place, but if you could contextualize that a little bit with just how the human capital pipeline, whether that's at the store level of the manager level is trending in buildings that we can support some of those growth initiatives that you talked about into next year end and even into 2023.
Yeah, Hi, Josh.
Listen we feel we feel good about where we're at right now overall as a general statement.
Considering these challenges that debt you know everyone I think in the industry cross categories have faced share with staffing over the last several months.
The first thing I'd, just like to say is our operators and our franchisees are just doing an outstanding job.
Really staying focused on our on our people and managing this situation.
We wouldn't be here, where we are today without having.
Having strong sales and guest satisfaction, if it wasn't for their focus and end and their belief in driving our our people first culture at del Taco.
Second.
We've been very active in trying to stay ahead of the curve by by providing these tools I referenced.
These resources and these best practices are really important to the operators to everyone at our restaurants to make sure that we are leveraging those and all.
Although we are seeing turnover at slightly versus prior year.
We're still below industry average and part of that is is we attribute.
Really steady and stable performance at the team member of level to that strength of our core crew and we track those folks. These are really important team members that have 5 plus years experience with the brand.
And this provides an unbelievable amount of stability. They did during COVID-19. They continue during the staffing environment. So we feel great about about that piece and that there.
We're not seeing increased turnover with that core of crew.
And then the last piece.
Al mentioned.
I think is really important.
Part of staying ahead of the game is we're at we're executing a holistic strategy here. So we've got some macro solutions like our new digital recruiting efforts and increased referral bonuses and ways to reduce friction in the hiring process at the restaurants to be more of immediate in our hiring practices and then there's micro solutions for where we have.
Hotspot stores or stores that need a little bit more help and those solutions are going to include things like increasing starting wages in end.
Perhaps even limiting in some cases restaurant dining room hours, which is certainly not the norm more of the exception, but those are some of those micro situations in some of those hotspot stores.
Lots of lots of <unk> said, there, but but it's a very important piece right now in our business and we're very focused on it.
Great. Thank you for that and.
Curious, if we might be able to dig a little bit further into or maybe get some more context around some of the quarter to date trends of what you've been seeing here. Most recently I believe you talked about seeing a in the second half of 2021 thing.
Trends similar to what you saw at <unk> on a 2 year basis.
Which is encouraging and obviously, there's a lot of concern and increased conversation around just what new variance of Covid or just you know what potential disruptions there might be to the consumer.
Patterns that are getting rebuilt right now and so I'm just curious if you've seen.
Anything here.
Here lately in terms of changes end.
Descartes consumer patterns of anything that might be embedded in some of that guidance you'd called of our attention.
Yes, all of that that's all been considered in the commentary here today I'd say that we certainly acknowledge that the environment continues to be.
Challenging relative to the pandemic.
At the Delta variant in the different aspects of surgeons that we're seeing around the country, it's not yet impacting our business from what we what we can tell at this point, but we're certainly very watching it very closely just like we did during COVID-19. Our main concern is always going to be keeping our guests and our employees safe end and we've got some great protocols.
To be able to monitor and adapt to that as needed.
In regards to just back half as we think about same store sales and at commentary.
You heard Steve say, yeah, we're going over the strength of all of 2020 from a same store sales perspective in the back half of especially due to that launch at a crispy chicken menu last year, but we believe we will continue to see good momentum on a 2 year basis compared to 2019, we're definitely excited about the upcoming product.
Launches as well as our our new App and loyalty program and we think that combination of the sales catalysts with our teams driving really great guest experiences make for a great recipe for continued sales growth.
Great. Thank you for that and it might be a little bit early but when you think about rebuilding some of those day parts, namely Bret.
Breakfast in particular, which is exciting does that lead you to maybe either accelerated revisit some of the.
Dining room closures of some of the operating hours I know that you mentioned that in some of the micro solutions, but just thinking about the tune of overall.
If if we're at a point, yet where you can see line of sight on some of these patterns being rebuilt that.
Youre revisiting some of the store level operations for the system.
Yes, it's early to make that call right now based on what we know we have opened at a substantial amount of our dining rooms here over over the last couple of months. So we're going to keep of real close eye on it and the good news is we've got multiple service modes to serve our guests through so when you think about dining that's 1.
Aspect of it the results by the way on that front have been rather tepid, thus far although it's building a little bit of momentum nowhere near where we were.
Pre pandemic.
But when you think about drive through and delivery and takeout and giving guests access. However, they want access where we are in a good spot.
Great. Thank you and then last 1 for me at understood on the some of the inflation commentary I think there's a second layer there that we're seeing across the system, which is just the availability of product where maybe the levels of service being pulled back a little bit just as product is hard to get from manufacturer to end restaurants, and if you could provide some commentary on what youre seeing in your city.
And maybe how you're addressing that you go through.
Slim down menus or maybe operational adjustments.
Keep those service levels.
Customer satisfaction scores high would be very helpful.
Sure. This is Steve overall, we've been very fortunate not to the experienced any material supply chain issues impacting availability of products.
And recently, we have been managing various packaging shortages, which.
The operations team working with supply chain is doing a great job being a little bit nimble and solving for those package issue packaging issues as they arise, but again unfortunately debt from a food standpoint, we'd been at really good shape. So proud of the supply chain team and the operators, we're being nimble and very focused there.
Far so good but it does remain a challenging environment as everyone knows.
Got it. Thank you for that at on the packaging specifically are those items that are imported or is that just maybe something that is.
I'm seeing a lot more competition as everybody moving into.
Off premise and there's just a lower supply of that packaging product just curious there.
Yes, the root causes largely domestic heavily tied to the labor availability staffing challenges that all businesses are essentially of facing today. So that's really the root cause of our issues.
Got it thank you I'll pass it on.
Our next question comes from the line of Alex Slagle with Jefferies. Please proceed with your question.
Hey, guys. Thanks.
<unk>.
Wanted to touch on the development outlook I mean, it sounds like pretty notable acceleration versus previous thoughts.
Growth levels from before 2020 and kind of wondering if you could give some more color on.
How you or how youre thinking about new versus existing markets and how much of this is fueled by new franchisees versus existing.
Maybe we'll start with that.
Sure, Yeah, Hey, Alex.
Well first of all.
We've really been talking much of this year about the excitement that we at on the franchising front relative to the launch of the fresh flex prototypes menu of venues initiative, obviously and it gives us a lot of.
Optionality in regards to build building types of real estate as well as just the excitement out there.
From a standpoint of 8 consecutive years of positive franchise same store sales growth.
Coming into 2021, so there's been a lot of a lot of a lot of that momentum has been has been fueled by those those items I just talked through.
But when you think about our growth strategy here and what we announced here today. It starts with franchising end and in our ability to build our franchise pipeline across multiple states and we're doing that.
By leveraging the fresh <unk> prototype with both new and existing franchisees.
But we're certainly seeing momentum on the new franchisees front as we see existing franchisees getting back on track and post Covid environment end and what that really does for us what we see happening is you know based on our pipeline.
Of all of existing agreements some of these new agreements some of that are yet to be signed that were that were looking out in the future on.
We feel we feel good at our franchise system is in a position to grow in that high single digit range. Beginning in 2023, and then when you think about the company. We will continue to build and we've said that we've talked about that over the past several quarters end, we'll do we'll look at opportunistic capability of <unk>.
Abilities that we have with fresh flex now on an infill basis and will also.
Obviously be fueling that seed market strategy with company capital and expect company.
Build outs to probably be in the LSD range mid day.
Have been they'll probably continue to be there in the real the real acceleration will be on the franchise side as I mentioned.
Got it and is at the 5% of is that a gross number.
Yes.
Just a number of growth.
Okay.
And then some.
Wondering if you could talk around some of your initiatives around speed of service and kind of the recent metrics I think you kind of talked about kind of solid throughput improvements through 2020, and it still seems like.
Kind of improvement so far in 2021.
Kind of wondering how you see this going as you face more challenges hiring and perhaps more employees and training and all of that and how you were able to sort of maintain staffing levels and kind of keep that momentum going.
Yeah like I said earlier staffing is critical at key.
And we've been somewhat fortunate that.
Really other than dealing with some hotspots its initiatives, although turnover is a little bit higher year on year.
Staffing, probably a little bit lower year on year, it's not we're not in an area, where we're seeing widespread.
The issue is around operating hours <unk>.
Operating metrics. So that's the that's the good news and to your point, we absolutely are seeing improvements.
Which is amazing and speaks to our franchisees and our operations team.
Were really solid improvements last year on both speed.
During during key hours of the day, where you really need that throughput capability as well as on our overall satisfaction scores I mean, maintaining really strong.
Overall satisfaction, both at the 4 wall level as well as with delivery, which is a really important part of the business and something that's been really strong for us this year. So all in all.
The operations team, our franchisees are doing an outstanding job.
That's great. Thanks.
Thanks, I'll pass it along.
Our next question comes from the line of Nick <unk> with Wedbush. Please proceed with your question.
Thank you and it's great to hear you expect the momentum of of top line of continuing to second half.
Just following up on the unit growth of around 2021, I think you said modest acceleration in 'twenty 1.
I guess, just given the gap between where we are now in 5% of 22, how should we interpret that modest.
You know right in 'twenty, 1 any any kind of help there would be appreciated.
Just to clarify it's I'm, sorry, 'twenty to 'twenty 2.
2022 will be of modest step up from the 13. This year, followed by that 5% New unit growth rate on a gross basis in 2023.
So your question about 2022.
Right Yeah in 2020, so just given the 5% and 23.
Any further clarification around what modest maybe.
Very helpful.
Yes, so 2022.
At a step up from 13 is something of stone the teens, but notably above <unk>. This year. So the more pronounced step up we'd certainly be in 2023 and as John touched on a number of signings that have happened this year.
Expansion of our current pipeline of number of deals that we expect of soon announce you know really those are frankly data points that we love we feel good about them and Thats what puts us in a position to have conviction that 2023 will be that year of where it has a more notable step ups certainly versus current numbers in recent trends and remember in equity.
Launched fresh <unk> in January of this year. So you know as you get into 2023 of them really start to see those fresh flex prototypes popping up which there'll.
There'll be a few probably in 2022, but I think the power of that menu of venues and fresh luxe piece will be you know really.
Starting really in 2023.
Yes, hopefully it will be over $1.7 million of <unk>, So that will help too.
In terms of G&A at.
Obviously, we have momentum.
You know in the second half year in terms of the top line.
Any chance that that 9% guidance.
Prove a little bit conservative.
The ultimate sales and revenues were getting obviously informed that I think overall Q2.
It's probably a fair of quarter to look at in terms of run rate.
So that would probably lead you to the conclusion that the 9% area is probably more.
More fair.
With a lower likelihood of at flexing down this year.
We had said before your kind of longer term basis now that you know sales of normalize post COVID-19.
Certainly our view is to control of G&A and while it tends to have some inflation.
Making sure that that inflation Steve's inside our overall pace of growth in revenues, which will allow in a longer term basis us to start to move into achieving.
Modest step downs in subsequent years after 2021.
Perfect. Thank you.
Youre welcome.
Our next question comes from the line of Todd Brooks with CL King <unk> Associates. Please proceed with your question.
Hey, good afternoon of gas congrats on the momentum in the quarter well done.
Scott.
Couple of questions here, 1 we were talking about set up for the back half and lapping the crispy chicken launch and we talked about the product platforms, but can you give us more color about the.
Planned.
Launch of the new loyalty program, what tactics are you employing around that how much of a of a driver and kind of of help and lapping those same store sales from crispy chicken last year, you're looking at.
At the launch of the loyalty program and how you're kind of margin to the customers.
Sure Yes.
The launch is really important and getting folks using the program is really important and I would characterize it as our expectation is that it is going to build momentum right. So.
I don't think it's something that you turn on an overnight there's a massive of catalyst right there, but I think that when you think about what this can do for this brand and you know really leveling the playing field with some of these bigger brands.
At this is going to be a great solution for del Taco and our gas moving forward.
I'll tell you we're excited about at the loyalty the loyalty program is actually I'll tell you what the name is going to be it's called <unk> rewards.
So we're excited about that it's fine it's.
And at <unk>.
It's exactly where we want to be as a brand. It's a point based points based loyalty program with a tiered structure designed to really motivate and reward behaviors. So essentially the more use of the higher year to year end the higher your chair of the more benefits you unlock and we'll have the ability to do things like challenges do enhanced frequency.
And and guest engagement and then ultimately you know what's really important here and the team at great team that we've been building internally along with new partners that we have we.
We will be collecting guest data to provide a more customized 1 to 1 experience with the brand. So as you can imagine.
We're absolutely going to want to get in as many guests into this program as we can.
Early and often and so there'll be that marketing push around this when it launches in September and.
In an ongoing effort at the restaurant level to make sure that we're building this program over time.
Greg It sounds excellent left on them so.
Just a follow up question all of the labor side.
From 2 fronts, 1 I think I think you hinted at this but were you had hotspot markets, where you had to curtail operating hours.
They are in aggregate drag to same store sales that you'd have us think about from staffing challenges in the quarter or was it not that was not a material problem.
And just to clarify John tried to make clear at stores definitely not markets. Unfortunately, very fortunate at the hot spots are literally at the store here of store there.
Quite isolated actually which means you can answer your question no. There is not really discernible overall impact on any metric of performance.
Alright, Thanks, Steve and then looking at the the labor performance being down 30 basis points.
Is there any chance that you're over levering because of staffing levels and the restaurants do you feel like that.
Running a little too efficiently on the labor line and we need to think about that within the context of how we're thinking about the back half of the year.
Generally no I mean, there can be that risk, but we really.
A very kind of.
Rigid prescribed formula of the restaurants follow.
It's a fair and balanced formula that make sure the right feet are on the right floor at the right time. So in general we're very comfortable and then as far as the overall leverage as you recall a year ago Q2, it was kind of for us at the heart of Covid. So really that outcome is heavily informed by.
Comps up high teens, it's really leverage on the fixed elements of labor, which would include your managers your health insurance premiums and even some of the elements of variable staffing or I guess early staffing that there is a fixed element to arrow leads as well. So that's what really enabled that levering that we.
Soft Q2.
Okay, great Thanks, and congrats again.
Thank you.
There are no further questions in the queue I'd like to hand, the call to management for closing remarks.
Okay. Thank you for taking the time with US today, everyone and we certainly appreciate your interest in del Taco and we look forward to sharing our progress on future calls.
Have a great day.
Ladies and gentlemen at this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.