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Why Shares of Del Taco Restaurants Inc. Jumped on Tuesday

By Timothy Green - Jan 12, 2016 at 1:07PM

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The taco chain reported solid preliminary results, raising its guidance for the full year.

What: Shares of Del Taco (TACO) jumped on Tuesday following the company's release of preliminary fourth quarter results. Del Taco reported strong comparable sales growth, increased its guidance for 2015, an initiated guidance for 2016. At noon Tuesday, the stock was up about 12%.

So what: Del Taco reported fourth quarter revenue of $133.4 million, up 6.1% year over year, with growth being driven by a 5.8% rise in systemwide comparable restaurant sales. At company owned locations, a 0.1% drop in transactions was counteracted by a 6% increase in average check size.

Due to the strong fourth-quarter results, Del Taco also announced that it was increasing its guidance for fiscal year 2015. The company expects systemwide comparable restaurant sales to grow by 6.3%, with total revenue of $424 million and adjusted EBITDA of $64.8 million. Previously, Del Taco had guided for 5.5%-6% comparable sales growth and $420 million-$424 million of revenue.

For fiscal year 2016, Del Taco expects systemwide comparable sales growth between 2.5% and 4.5%, with annual revenue between $439 million and $449 million. A minimum wage increase in California is expected to lead to about $7.2 million in additional labor expense, but Del Taco still expects to grow adjusted EBITDA to a range of $67.5 million-$70 million.

Now what: Shares of Del taco have slumped over the past few months, in part driven by a secondary offering announced in October. Over the past three months, shares of Del Taco had declined by about 30% prior to Tuesday's gains. With the company reporting strong results, investors seem to be warming back up to the taco chain. Comparable sales growth is expected to slow down in 2016, but the better-than-expected fourth quarter numbers are driving the stock higher.

Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. 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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