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Why Shares of Del Taco Restaurants Are Soaring Today

By Timothy Green – Oct 18, 2016 at 11:56AM

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The company beat analyst estimates on all fronts, driven by impressive comparable-sales growth.

Image source: Del Taco Restaurants.

What happened

Shares of restaurant chain Del Taco Restaurants (TACO) jumped on Tuesday following the release of the company's third-quarter report. Impressive comparable-sales growth drove a revenue and earnings beat, propelling the stock 10% higher by 11 a.m. EDT.

So what

Del Taco reported third-quarter revenue of $104.4 million, up 5.9% year over year and nearly $3 million higher than the average analyst estimate. Systemwide comparable sales rose 6.7%, while comparable sales at company-operated restaurants rose 7.1%. Average check size at company-operated restaurants grew by 4.8%, and the number of transactions rose by 2.3%.

EPS came in $0.13, $0.01 higher than analysts expected. Del Taco's restaurant contribution margin, which measures profitability at the restaurant level, was 20.9% during the third quarter, up 120 basis points year over year.

"The success of our Fresh Combined Solutions strategy and UnFreshing Believable 2.0 campaign bolsters our confidence to begin accelerating development in 2017 and is expected to also help us attract new, qualified franchise partners over time," said Del Taco CEO Paul Murphy. "This year, we are expanding at a low-single digit growth rate with a now expected 14 systemwide openings, and next year we expect to accelerate system growth to a mid-single digit growth rate. Our long-term goal of 2,000+ Del Taco restaurants reflects what we view as a considerable opportunity to expand nationwide, which we are approaching in the near-term primarily through lower risk, in-fill development."

Now what

For the full year, Del Taco expects to produce systemwide comparable-sales growth at the high end of its previous guidance range of 2.5% to 4.5%. Restaurant contribution margin is expected between 20.2% and 20.3%, higher than a previous guidance range of 19.8% to 20.3%, and EPS is expected in the range of $0.53 to $0.56.

With about 550 Del Taco locations nationwide, the company sees an opportunity to quadruple its footprint over the long run. With impressive comparable-store sales growth and an across-the-board beat, there's a lot to like about Del Taco's third-quarter report.

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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