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spk05: Hello, and thank you for standing by. 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 Capasola, President and Chief Executive Officer, and Steve Brake, Chief Financial Officer. After we deliver our prepared remarks, we'll open the lines 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 and refer you to today's earnings press release, and our SEC filings for more detailed discussion of the risks that could impact Del Taco's future operating results and financial condition. Today's earnings press release also includes non-GAAP financial measures, such as adjusted debt income, adjusted EBITDA, and restaurant contribution, along with reconciliations of these non-GAAP measures to the nearest 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 gap measure of liquidity or financial performance. Let me now turn the call over to John Capasola, President and Chief Executive Officer.
spk03: Thank you, Rafael, 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. We are also pleased with our team's exceptional execution in 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 restaurant sales trends against our very effectively managed 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 restaurant 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 neutralize the impact of lapping the pandemic, during Q2, on a same-store basis compared to 2019, company sales grew approximately 3.6%, while franchised restaurants grew at a high single-digit rate. Geographically, during Q2 on a same-store basis compared to 2019, our 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. Again, this contrast reflects the broad brand appeal that 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 restaurant sales, including 4% menu pricing, coupled with flat food inflation, despite increased advertising costs as we lapped reduced advertising last year during the onset of the pandemic. In terms of profit, 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 $0.16 from adjusted net loss per diluted share of $0 last year. Finally, during Q2, our quarterly dividend and share repurchases returned in 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 1.66 times. Turning to the business. Recall over the past year, we've been executing on five 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. One of the four 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 than now to 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 developed a holistic recruiting, scheduling, and retention strategy. The best way to staff a 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 a 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 paired value with innovation with the introduction of our newest crispy chicken flavor, Honey Chipotle Barbecue, and relaunched our Crunch Tata platform with new recipes with signature Del Taco ingredients atop a large 6 1⁄2-inch freshly fried tortilla. Our Crunch Tata lineup features $1, $2, and $3 price points to drive trade-up and to highlight our QSR Plus positioning with quality ingredients like fresh guacamole and queso. Due to their popularity and high guest satisfaction scores, the Crunch Tata platform will remain a focus through this summer. We also intend to leverage new product innovation on the day part front. Just today, we introduced a new breakfast platform centered on new double cheese breakfast tacos. Each taco features our freshly shredded cheddar cheese and signature queso blanco with price points starting at $1. We believe this offering can jumpstart our breakfast sales as we approach two 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 yet another exciting platform. We call that Stuffed Quesadilla Tacos. This new platform takes our fan favorite quesadilla and adds creamy queso blanco folded into the shape of a taco shell and stuffed with grilled chicken, carne asada, or 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 activities puts us in a great position to generate guest excitement and momentum during the back half of 2021 and entering 2022. Our Dell app membership continues to grow and provide us with a solid foundation for our new holistic CRM platform launched 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 Dell app, including the launch of our points-based loyalty program, which will feature attractive rewards and exciting elite tiers, as well as a 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 are very encouraged that Dell Taco's franchise-led system growth is gaining momentum. Our franchisees will open nine new restaurants this year, of which seven have already opened and two are under construction. Four company-operated restaurants will also open this year, of which three have already opened, and the fourth is our first FreshFlex prototype under construction in our new company, Seed Market, in Orlando. Following the two development agreements for 18 restaurants in the southeast we signed earlier this year, we recently announced an agreement with another seasoned multi-concept QSR 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 QSR Plus positioning and ubiquitous menu that drives broad appeal. Our strong track record of eight consecutive years of franchise-comparable restaurant sales growth across 15 states and the relevance of our attractive new Fresh Flex prototype, 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 a 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 three development agreements for 30 new restaurant 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. Our test remodel program is ongoing, and we expect to complete up to 20 remodels in 2021. including 10 extensive remodels of older facilities and 10 remodels of more modern facilities with primarily cosmetic upgrades at a lower investment level. This final phase of testing is largely during the second half of 2021 and includes integrating our Fresh Flex prototype into our 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 $0.04 per share as we continue our commitment to delivering shareholder returns. In summary, although the current environment continues to present operating and inflationary pressures, the 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 Dell 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.
spk01: 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 restaurant sales increased 17.8%, consisting of an 18.3% increase at company-operated restaurants and a 17.2% increase at franchise restaurants. Turning to our expenses, food and paper costs as a percentage of company restaurant sales decreased approximately 140 basis points year over year to 25.5% from 26.9%. This was primarily driven by a menu price increase of approximately 4% and approximately flat food inflation. 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, time will tell to what extent much of this inflation may prove to be transitory. For instance, we would point to the recent pullback in carne asada pricing as one 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, our labor and related expenses as a percentage of company restaurant sales decreased 30 basis points to 32.9% from 33.2%. This was driven by the favorable impact from our strong comparable restaurant 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 the 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 the recent Nevada minimum wage increase from $9 to $9.75 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 restaurant sales growth, including 4% menu pricing and reduced direct COVID-19 costs, partially offset by increased advertising expense as we lapped the reduced advertising spend during the onset of the pandemic last year. Looking ahead, during Q3, we will lap a muted 2020 advertising expense of approximately 3% compared to our typical advertising spend of of approximately 4% of restaurant sales. In addition, our operating expenses will face sequential pressure from utilities, which always trend the highest as a percentage of sales during our Q3 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 are very pleased that 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 impacting food and labor. General and administrative expenses were $11.4 million, up from $9.4 million last year, and as a percentage of total revenue, increased 10 basis points to 9.1%. The increase was primarily driven by increased performance-based management incentive compensation, as we lapped the minimal incentive compensation accrual in 2020 due to performance compared to strong performance this year, as well as increased legal fees and non-cash stock-based compensations. Adjusted EBITDA grew 39.5% to $16.9 million compared to $12.1 million last year, an increase as a percentage of total revenue to 13.5% from 11.6% last year. Depreciation and amortization was $6.0 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 percent of total revenue. Interest expense was $0.7 million compared to $1.3 million last year. The decrease was due to a lower average outstanding revolver balance and lower one-month libel 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 adjusted EBITDA leverage ratio declined to approximately 1.66 times compared to approximately 1.96 times at the end of fiscal 2020. Along with this debt reduction, we also repurchased 210,401 shares of common stock at an average price per share of $10.07 during the second quarter. for a total of $2.1 million and paid our second quarterly cash dividend, totaling $1.5 million. At the end of the fiscal second quarter, approximately $15.0 million remained under our $75 million repurchase authorization. Net income was $6.0 million, or $0.16 per diluted share, compared to a net loss of $0.6 million, or $0.02 per diluted share, last year. We also reported adjusted net income, which excludes various items identified in our earnings release in the financial tables. Adjusted net income was $6.1 million, or approximately $0.16 per diluted share, compared to adjusted net loss of $75,000, or $0 per share, last year. We also announced our third quarterly dividend of $0.04 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 sales same store sales performance that is similar to our recent Q2 growth on a two-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 one 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.
spk05: 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. The confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of 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. I wanted to see if we might be able to first dig into some of the People First initiatives that you started with and 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 or the manager level, is trending and building so we can support some of those growth initiatives that you talked about into next year and even into 2023?
spk03: Yeah. Hi, Josh. Listen, we feel good about where we're at right now overall as a general statement considering these challenges that, you know, everyone I think in the industry across categories have faced here with staffing over the last several months. You know, and the first thing I'd just like to say is our operators and our franchisees are just doing an outstanding job in really staying focused on our people and managing the situation. We wouldn't be here, you know, where we are today without, you know, with having strong sales and guest satisfaction if it wasn't for their focus and their belief in driving our people-first culture at Del Taco. Second, we've been very active in trying to stay ahead of the curve 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 although we are seeing turnover up slightly versus prior year, like I say, we're still below industry average. And part of that is we attribute really steady and stable performance at the team member level to that strength of our core crew. And we track those folks. These are really important team members that have five-plus years' experience with the brand. And this group provides an unbelievable amount of stability. They did during COVID. They continue during the staffing environment. So we feel great about that piece and that we're not seeing increased turnover with that core crew. And then the last piece I'll mention that I think is really important as part of staying ahead of the game is we're executing a holistic strategy here. So we've got some macro solutions. like new digital recruiting efforts and, you know, increased referral bonuses and ways to reduce friction in the hiring process at the restaurant to be more 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, you know, increasing starting wages and, you know, perhaps even limiting, in some cases, restaurant dining room hours, which is certainly not the norm or the exception, but those are some of those micro situations in some of those hotspot stores. So a lot to be said there, but it's a very important piece right now in our business, and we're very focused on it.
spk05: Great. Thank you for that. I'm curious if we might be able to dig a little bit further in or maybe get some more context around some of the quarter-to-date trends or what you've been seeing here most recently. I believe you talked about seeing in the second half of 2021 seeing trends be similar to what you saw in 2Q on a two-year basis, which is encouraging. And obviously there's a lot of concern and increased conversation around just what new variants of COVID or just what potential disruptions there might be for the consumer patterns that are getting rebuilt right now. And so just curious if you've seen anything here lately in terms of changes in day part consumer patterns, anything that might be embedded in some of that guidance that you'd call to our attention?
spk03: Yeah, 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. The Delta variant and the different aspects of surges that we're seeing around the country. It's not yet impacting our business from what we can tell at this point, but we're certainly watching it very closely, just like we did during COVID. Our main concern is always going to be keeping our guests and our employees safe. And we've got some great protocols to be able to monitor and adapt to that as needed. You know, in regards to just, you know, back half as we think about same-store sales and that commentary, you know, you heard Steve say, yeah, we're going over the strength of, you know, of 2020 from a same-store sales perspective in the back half, especially due to that launch of the crispy chicken menu last year. But we believe we'll continue to see good momentum on a two-year basis and compared to 2019. We're definitely excited about the upcoming product launches, as well as our new app and loyalty program. And we think that combination of these sales catalysts with our teams driving really great guest experiences make for a great recipe for continued sales growth.
spk05: 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 breakfast in particular, which is exciting, does that lead you to maybe either accelerate or revisit some of the dining room closures or some of the operating hours? I know that you mentioned that in some of the micro solutions, but just thinking about the chain overall, if we're at a point yet where you can see line of sight on some of these patterns being rebuilt, that you're revisiting some of the store-level operations for the system.
spk03: It's early to make that call right now based on what we know. We have opened a substantial amount of our dining rooms here over the last couple of months. So we're going to keep a 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 one 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, we're in a good spot.
spk05: Great. Thank you. And then last one for me, understood on 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 or maybe the levels of service being pulled back a little bit just as product is hard to get from the manufacturer to in the restaurant. And if you could provide some commentary on what you're seeing in your system and and maybe how you're addressing that either through slimmed-down menus or maybe operational adjustments to keep those service levels and customer satisfaction scores high would be very helpful.
spk01: Sure. This is Steve. Overall, we've been very fortunate not to experience any material supply chain issues impacting availability of any products. That said, recently, we have been managing various packaging shortages, which the operations team working with supply chains is doing a great job being a little bit nimble in solving for those packaging issues as they arise. But, again, fortunate that from a food standpoint, we've been in really good shape. So, you know, proud of the supply chain team and the operator for being nimble and very focused there. And, you know, so far so good, but it does remain a challenging environment, as everyone knows.
spk05: Got it. Thank you for that. On the packaging specifically, are those items that are imported, or is that just maybe something that is? seeing a lot more competition as everybody moves into off-premise and there's just a lower supply of that packaging product. Just curious there.
spk01: Yeah, the root cause is largely domestic, heavily tied to the labor availability staffing challenges that any and all businesses are essentially facing today. So that's really the root cause of our issues. Got it. Thank you. I'll pass it on.
spk05: Our next question comes from the line of Alex Slagle with Jefferies. Please proceed with your question.
spk02: Hey, guys. Thanks for the question. I wanted to touch on the development outlook. I mean, it sounds like pretty notable acceleration versus previous thoughts and peak growth levels from before 2020. I'm just kind of wondering if you could give some more color on that. how you're thinking about new versus existing markets and how much of this is fueled by new franchisees versus existing. And maybe we'll start with that.
spk03: Sure, yeah. Hey, Alex. You know, well, first, we've really been talking much of this year about the excitement that we've got on the franchising front relative to the launch of the Fresh Flex prototype, you know, menu of venues initiative, obviously. It gives us a lot of optionality in regards to building types in real estate, as well as just, you know, the excitement out there from a standpoint of eight consecutive years of positive franchise same-store sales growth coming into 2021. So, There's been a lot of that momentum has been fueled by those items I just talked through. But, you know, when you think about our growth strategy here and what we announced here today, it starts with franchising and our ability to to build our franchise pipeline across multiple states. And we're doing that by leveraging the FreshFlex 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 in the post-COVID environment. And what that really does for us, what we see happening is, based on our pipeline, you know, of existing agreements, some of these new agreements, some that are yet to be signed that we're looking out in the future on. We feel good that 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'll continue to build, and we've said that, we've talked about that over the past several quarters, and we'll look at opportunistic capabilities that we have with Fresh Flex now on an infill basis, and we'll also obviously be fueling that seed market strategy with company capital and expect company build-outs to probably be in the LSD range. They have been. They'll probably continue to be there, and the real acceleration will be on the franchise side, as I mentioned.
spk02: Guy, is that the 5%? Is that a gross number? Yes, that's a system number of gross. Okay. Okay. And then I was wondering if you could talk around some of your initiatives around speed of service and some of the recent metrics. I think you kind of talked about some solid throughput improvements through 2020 and still seems like Some improvements so far in 2021, just kind of wondering how you see this going as you face more challenges hiring and perhaps more employees in training and all that and how you're able to sort of maintain staffing levels and kind of keep that momentum going.
spk03: Yeah, like I said earlier, staffing is critical. It's key. And we've been somewhat fortunate that really other than dealing with some hot spots and some issues, although turnover is a little bit higher year on year, Staffing is probably a little bit lower year on year. We're not in an area where we are seeing widespread issues around operating hours and or operating metrics. So 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 over really solid improvements last year on both speed 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 four-wall level as well as with delivery, which is a you know, really important part of the business and something that's been really strong for us this year. So all in all, operations team, our franchisees are doing an outstanding job.
spk02: That's great. Thanks. I'll pass it along.
spk05: Our next question comes from the line of Nick Sutton with Wedbush. Please proceed with your question.
spk00: Thank you. It's great to hear you expect the momentum on the top line to continue in the second half. You know, just following up on the unit growth, you know, around 2021, I think you said modest acceleration in 21. I guess just given the gap between where we are now and 5% in 22, you know, how should we interpret that modest, you know, rate in 21? Any kind of help there would be appreciated. Just to clarify, it's... I'm sorry, 22, right, 22.
spk01: Yeah, yeah, 2022 will be a modest step up from the 13 this year, followed by that 5%, you know, new unit growth rate on a growth basis in 2023. So your question about 2022?
spk00: Right, yeah, in 2022, just given the 5% in 23, you know, any further clarification around what modest may mean would be very helpful. Okay.
spk01: Yeah, so 2022, a modest step up from 13 is something still in the teens, but notably above the 13 this year. So the more pronounced step up would certainly be in 2023. And as John touched on, a number of signings that have happened this year. The expansion of our current pipeline and number of deals that we expect to soon announce, really those are frankly data points that we love, we feel good about them, and that's what puts us in a position to have conviction that 2023 will be that year where it has a more notable step up certainly versus current numbers and recent trends.
spk03: And remember, Nick, we launched them Fresh Flex in January of this year. So, you know, as you get into 2023, you'll really start to see those Fresh Flex prototypes popping up, which, you know, there will be a few probably in 2022. But I think the power of that menu of venues and Fresh Flex piece will be, you know, really, you know, starting really in 2023.
spk00: Yeah, and hopefully we'll be able to 1.7 million AUVs, so that'll help too. In terms of GNA, you know, obviously we have momentum, you know, in the second half here in terms of the top line. Any chance that, you know, that 9% guidance, you know, could prove a little bit conservative?
spk01: Yeah, the ultimate sales and revenues are going to obviously inform that, you know, I think overall Q2, you know, is probably a fair quarter to look at in terms of run rate. So that would probably lead you to the conclusion that, you know, the 9% area is probably, you know, more fair with a lower likelihood of it, you know, flexing down this year. You know, as we've said before, you know, on a longer-term basis now that, you know, sales have normalized, you know, post-COVID. You know, certainly our view is to, you know, control G&A while it, you know, tends to have some inflation, you know, making sure that inflation stays inside our overall pace in growth and revenues, which will allow on a longer-term basis us to start to move into achieving, you know, modest step-downs in subsequent years after 2021. Perfect. Thank you.
spk00: You're welcome.
spk05: Our next question comes from the line of Todd Brooks with CL King & Associates. Please proceed with your question.
spk04: Hey, good afternoon, guys. Congrats on the momentum in the quarter. Well done. So a couple questions here. One, we were talking about setup for the back half and lapping the crispy chicken launch, and we talked about the product platforms, but can you give us some more color about the planned – launch of the new loyalty program what what tactics are you employing around that how much of a of a driver and kind of a help in lapping those same store sales um from crispy chicken last year are you looking at the the launch of the loyalty program and how are you going to promote to the customers
spk03: Sure, yeah. You know, I think 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's going to build momentum, right? So, you know, I don't think it's something that you turn on and overnight there's a, you know, massive catalyst right there, but I think that when you think about what this could do for this brand in, you know, really leveling the playing field with some of these bigger brands, This is going to be a great solution for Del Taco and our guests moving forward. You know, I'll tell you, we're excited about it. The loyalty program is actually, I'll tell you what the name is going to be. It's called Del Yeah Rewards. So we're excited about that. It's fun. It's exactly where we want to be as a brand. It's a point-based brand. points-based loyalty program with a tiered structure designed to really motivate and reward behavior. So, you know, essentially the more you use, the higher your tier, and the higher your tier, the more benefits you unlock. And we'll have the ability to do things like challenges to enhance frequency and guest engagement and, And then ultimately, you know, what's really important here, the great team that we've been building internally along with new partners that we have will be collecting guest data to provide a more customized one-to-one experience with the brand. So as you can imagine, we're absolutely going to want to get as many guests into this program as we can early and often. And so there will be the marketing push around this when it launches in September. and an ongoing effort at the restaurant level to make sure that we're building this program over time.
spk04: That's great and sounds excellent. I love the name. So just a follow-up question. On the labor side, from two fronts, one, I think you hinted at this, but where you had hotspot markets where you had to curtail operating hours, Was there an aggregate drag to same-store sales that you'd have us think about from staffing challenges in the quarter, or was it not a material problem?
spk01: No, and just to clarify, you know, John, trying to be clear, it's stores, definitely not markets. I mean, fortunately, we're very fortunate the hot spots are literally a store here, a store there, you know, quite isolated, actually, which means, you know, to your question, no, there is not really a discernible overall impact on any, you know, metric of performance.
spk04: Okay, great. Thanks, Steve. And then looking at the labor performance being down the 30 basis points range, Is there any chance that you're over-levering because of staffing levels in the restaurant? Do you feel like that you're actually 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?
spk01: Generally, no. I mean, there can be that risk, but we really – there's a very kind of rigid prescribed – formula the restaurants follow. And it's a fair and balanced formula that makes sure, you know, the right feet are on the right floor at the right time. So, you know, in general, very comfortable. And then as far as the overall leverage, just recall a year ago, you know, Q2 was kind of for us, you know, the heart of COVID and So, you know, really that outcome is heavily informed by, you know, with comps up, you know, high teams. It's really leverage on the fixed elements of labor, which would include, you know, your managers, your health insurance premiums, and even some of the elements of variable staffing or, you know, I guess hourly staffing that, you know, there is a fixed element to hourlies as well. So that's what really enabled the nice, you know, levering that we saw Q2.
spk04: Okay, great. Thanks and congrats again. Thank you. Thanks.
spk05: There are no further questions in the queue. I'd like to hand the call to management for closing remarks.
spk03: 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.
spk05: Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.
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