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Why Del Taco Restaurants, Inc. Stock Jumped 13% in October

By Jeremy Bowman – Nov 4, 2016 at 8:15AM

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The fast-food chain ripped higher on a surprisingly strong third-quarter earnings report.

Image source: Del Taco.

What happened

Shares of Del Taco Restaurants, Inc. (TACO) were looking tasty last month, as the California-based fast-food chain surged on a strong third-quarter earnings report. According to data from S&P Global Market Intelligence, the stock gained 12.5%.

TACO Chart

TACO data by YCharts

So what

It was an all-around impressive report for the Mexican-American taco chain, which delivered strong comparable sales growth at 6.7% and up 7.1% at company-operated restaurants. Overall revenue was a bit slower at 5.9%, as the company had six fewer company-owned restaurants in the quarter. Still, the top-line figure of $104.4 million still topped estimates at $101.4 million. On the bottom line, profits surged from just $0.2 million in the quarter a year ago to $4.9 million, or $0.13 a share, a penny better than the consensus.  

Management credited the strong quarter to new menu items such as the Del Taco and a brand-refresh campaign it calls Unfreshing Believable 2.0.

Now what

Del Taco's quarter was even more impressive, considering that much of the fast-food industry appears to be suffering from a "restaurant recession." Many of its competitors have posted declining or decelerating comps, using excuses such as the divisive election, food deflation, or an aggressive promotional environment to explain weak performance. However, none of those concerns affected Del Taco. 

The company raised its full-year revenue guidance from a range of $439 million to $449 million to a new range of $446 million to $449 million, and it reiterated its EPS forecast of $0.53-$0.56 and same-store sales growth of 2.5%-4.5% for the full year. It also expects to accelerate new store openings next year, with growth in the mid-single digits.

With much of the restaurant industry struggling, the company's results seem to be a sign of opportunity. If the company can maintain its strong comparable sales growth over the next few quarters, the stock should continue to move higher.

Jeremy Bowman 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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