Del Taco Restaurants, Inc.
Q1 2017 Earnings Call Transcript

Published: 5 May 2017

[Operator:]

Good afternoon. Thank you for standing by and welcome to the Fiscal First Quarter 2017 Conference Call and Webcast for Del Taco Restaurants Incorporated. I would now like to turn the call over to Mr. Raphael Gross to begin.

[Raphael Gross:]

Thank you, operator, and thank you all for joining us today. On the call are Paul Murphy, Chief Executive Officer; John Cappasola, President and Chief Brand Officer; and Steve Brake, Executive Vice President and Chief Financial Officer. After Paul, John and Steve deliver their prepared remarks, we’ll open the lines for your questions. Before we begin, I’d like to remind everyone that part of our discussion today will include some 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 the SEC filings filed by Del Taco Restaurants Incorporated for more detailed discussion of the risks that could impact future operating results and financial condition. Today’s earnings press release also includes non-GAAP financial measures such as adjusted EBITDA and restaurant contribution. Non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income, operating income, net cash flows provided by operating activities or any other GAAP measure of liquidity or financial performance. We refer you to today’s earnings press release which includes the reconciliations of the non-GAAP measures to the nearest GAAP measures. I would now like to turn the call over to Paul Murphy, Chief Executive Officer.

[Paul Murphy:]

Thank you, Raphael. Good afternoon, everyone and thank you for your interest in Del Taco. In what has been characterized as a challenging environment for the industry, we delivered strong financial performance during the first quarter due to the successful execution of our Fresh Combined Solutions strategy. Highlights for the recent period include. System wide comparable restaurant sales growth of 4.2%. This came on top of 3.2% year ago comparison. Company-operated comparable restaurant sales growth of 4.0%, which included positive traffic growth of 0.3%. Restaurant contribution martin of 19.1% and adjusted EBITDA of $14.6 million. We are especially pleased with these results in the face of external headwinds. What was made of the poor weather in southern California during January and February as well as transitory issues such as the timing of tax refunds and the latencies in calendar shift. And yet, despite these factors, we not only grew transactions during the quarter itself, but have also generated four consecutive years of positive transactions for company operated stores and have now grown transactions in 13 of the last 16 quarters. We believe these achievements which are among the best of our peer set are a testament to the underlying strength of our QSR plus brand position and to the efficacy of our Combined Solutions strategy. We are further delighted that both our sales momentum and traffic growth that continued into the second quarter. And we expect to drive incremental traffic and mix during the second quarter as compared to the first quarter. Recall, however, that we expect comparable restaurant sales growth to moderate in the back half of the year as we will have increasingly difficult comparisons. When we first began to strategically reposition Del Taco back in 2012, we set out to drive enduring growth and have done just that. Since 2012, our company operated average unit volumes have grown by $230,000 or nearly 20% to $1.4 million in fiscal 2016. While our restaurant contribution margin has expanded by 340 basis points, our focus on Fresh Combined Solutions in 2017 will further define and embed our QSR plus position to differentiate Del Taco in the fast food category, bringing our goal of $1.5 million annual unit volume by 2018 firmly within our sites. Our unique position straddles the fast food and fast casual segments and is derived from our use of fresh, high quality ingredients paired with our speed, convenience and value as well as our ultimate barbell menu strategy which John will cover in a moment. Turning to development. We remain on track to accelerate system wide unit growth his year to a mid-single range. During the quarter our franchisees opened three restaurants. Subsequent to the end of the quarter, we have opened two franchised restaurants and have eight restaurants currently under construction including two franchised and six company-operated locations. From a cadence standpoint, development in 2017 will again be back half weighted, particularly for company operated restaurants. Our flexible model allows us to be strategic by selectively refranchising restaurants to facilitate the long-term success of our growing franchisees or by purchasing franchised restaurants as we did last year, taking advantage of accretive opportunities to accelerate growth. To that end, we refranchised five locations during the first quarter. As previously announced, we sold our two southern most company-operated restaurants in the San Diego area to a new franchisee that last fall signed a development agreement to open five locations in the San Diego area. We additionally sold three company-operated restaurants in Atlanta to a highly qualified and relevant local franchisee who had recently signed a five unit development agreement and is committed to growing the Atlanta market with us. These refranchised transactions provide new growing franchisees with an operating base of restaurants that will immediately enhance their operational expertise with Del Taco, helping to underwrite the success of their future openings. We continue to attract new, high quality franchise partners to help build our pipeline and expand our reach. To that end, on our last call we spoke of our focus on creating a hub of brand growth in the southeast. The recent announcements of new franchise development deals in Tennessee and Atlanta coupled with the previously announced signing in West Palm Beach are testament to our focus and disciplined strategy. Our strengthening pipeline supports our goals of achieving this single digit growth this year. We are confident in our ability to accelerate that growth in 2018 and beyond as we take advantage of the long runway for growth ahead of us. With that I would like to turn the call over to John Cappasola, our President and Chief Brand Officer to cover our brand highlights.

[John Cappasola:]

Thanks, Paul, and good afternoon everyone. As we have said, Fresh Combined Solutions will continue to be a driving force behind our results in 2017 and Q1 demonstrated how our focus on improving guest experiences coupled with our diverse occasion based marketing and menu platforms can deliver solid results despite a challenging backdrop. As communicated on the Q4 call, the key components of Fresh Combined Solutions that we expect to drive brand progress in 2017 are, first, improving operational consistency and ease of execution to deliver great guest experiences. Second, driving trial and awareness of the Del Taco and providing news to further expand usage; third, growing a new premium occasion through Platos and a focus on dinner; and fourth, delivering new product news supporting our sub-branded food platforms to keep the brand fresh. Operational enhancements and fine tuning through a focus on people and systems continue to be a top priority for the brand. These efforts are key in delivering our QSR plus brand promise and Fresh Combined Solutions execution. In the first quarter, our operations team drove an effort to address any restaurants that were below target on guest experience metrics and speed. We also continued our focus on training and embedding our operating best practices across lunch and dinner systemwide to enable greater throughput and outstanding guest experiences during our highest volume day parts. Due to these efforts, we once again showed steady growth in our guest experience scores and saw further speed improvements during the quarter. We look to continue this momentum throughout the year, leveraging the renewed focus coming out of our leadership academies which wrapped up last month. Over 700 general managers above store leaders and franchise owners across the country were involved with content design to help them become more effective leaders. In addition, we will continue to complement our focus on people and systems with targeted capital investments including deployment of kitchen enhancements and equipment solutions to improve throughput and make it easier to provide consistent and outstanding guest experiences. Before I move in to product and marketing, I would like to discuss our technology initiatives. We are making progress on our online and mobile ordering test. Last month we expanded the test to the Las Vegas market and expect to test a third party delivery component during the second quarter. We are pleased with our progress to operationalize the program and have shifted our focus now to drive trial and awareness. We will continue to evolve our marketing strategy as we analyze and learn from the results of our test. Switching gears now to menu development, new products and ingredient innovation. Our aggressive focus here is keeping the brand fresh and constantly giving our guests new reasons to visit. This will continue to be a key driver of brand progress in 2017 and beyond as we further embed our QSR plus brand position. We focused our first quarter promotions on new news designed to reinforce our core QSR competency and leverage the brand elevated position. We started by advertising the Del Turkey Taco, reinforcing and expanding the menu presence of our new signature product, the Del Taco. We were pleased with the increased usage of turkey during this promotion and plan to sustain the Del Turkey Taco on the menu to keep the Del Taco top of mind and drive usage. Following the turkey promotion was our seasonally relevant shrimp LTO. The shrimp program was particularly exciting this year as we introduced new jumbo shrimp which drove very guest satisfaction scores due to the size and just great flavors associated with the new ingredient. The strong sales mix and mid tier to premium pricing associated with our seafood offerings helped drive menu mix contribution in the quarter. Although it was not a primary message in Q1, Platos also contributed to our menu mix improvement. As I said before we appreciate the building a new occasion as a journey and our goal is to keep Platos top of mind and drive trial to refocus marketing initiatives. Platos will return to the marketing mix along with the Del Taco as a primary message in Q2 with new news to follow as we move through the year. Looking ahead to Q3. We plan to bring back Carnitas as a limited time offer at the beginning of the quarter as we lap the 2016 launch of the Del Taco which was our number one product launch in the company's history. Carnitas is a guest favorite that has been absent from our menu since 2014. We are excited about how it embodies the brand and our QSR plus positioning, as well as by the opportunity it provides to drive sales from both a traffic and check perspective. We plan to offer both mid tier and premium product builds to give our guests great variety and you can expect that our price points will be highly competitive to deliver a strong value proposition. On the day part front, I am happy to confirm the launch of the new dollar breakfast rollers and Epic Huevos Rancheros Burrito in March was a success and we are well positioned to reinforce value and quality in the morning through ongoing marketing support and these new product additions. We therefore expect to sustain our impressive multiyear momentum during the breakfast daypart in 2017. As you can see, our Fresh Combined Solutions strategy with its smart combination of execution improvements and menu innovation will continue to power brand momentum and results in 2017. With that, I would like to turn the call over to Steve Brake to review our first quarter results.

[Steve Brake:]

Thanks, John. In the first quarter company restaurant sales increased to 8.2% year-over-year to $101.2 million from $93.6 million in the year ago first quarter. The increase was driven by company operated and comparable restaurant sales growth of 4.0% along with contributions from additional company operated stores as compared to the first quarter last year. First quarter company operated comparable restaurant sales growth represents the 19th consecutive quarters of gains and was comprised of 3.7% in check growth, including over 1% in menu mix growth and 0.3% growth in transactions. Franchise revenue during the first quarter increased 8.5% year-over-year to $3.6 million from $3.3 million last year. The increase was driven by franchise comparable restaurant sales growth of 4.4% and increase in initial fees and additional franchise restaurants operating during the quarter as compared to the first quarter of the prior year. Systemwide comparable restaurant sales increased 4.2% and left systemwide comparable restaurant sales of 3.2% during the first quarter of 2016, resulting in a 7.4% two year trend. Total first quarter revenue was $105.3 million, an increase of 8.2% over the $97.4 million in the first quarter a year ago. Moving on to expenses. Food and paper cost as a percentage of company restaurant sales improved approximately 30 basis points year-over-year to 27.6% from 27.9%. This improvement was due to the impact of menu price increases in the low 2% area along with modest food deflation. This was led by reductions in beef and eggs, partially offset by increases in avocados, French fries and cheese as well as by the impact from our new Del Taco and Platos products which have driven a strong margin dollar contribution over the slightly lower than typical margin percentage. Looking ahead, we expect modest food inflation during the next three quarters and continue to expect annual 2017 food basket inflation of approximately 50 basis points. Labor and related expenses as a percentage of company restaurant sales increased approximately 100 basis points to 32.8% from 31.8%. This was primarily driven by the California minimum wage increased to $10.50 an hour as well as increased worker's compensation expense, partially offset by the impact of menu price increases. Occupancy and other operating expenses as a percentage of company restaurant sales decreased by approximately 100 basis points year-over-year to 20.5% from 21.5% last year. Half of the improvement was due to the timing of advertising expense which drove a 50 basis point reduction during the quarter compared to last year. Excluding this timing benefit which will reverse throughout the year, occupancy and other operating expenses would have improved by 50 basis points year-over-year driven by leverage on our comparable restaurant sales decrease. Based on this performance, restaurant contribution increased 10.6% to $19.4 million from $17.5 million in the prior year. Restaurant contribution margin improved approximately 40 basis points year-over-year to 19.1% from 18.7%. Excluding the aforementioned timing benefit related to the advertising spend, restaurant contribution margin would have decreased by approximately 10 basis points year-over-year and restaurant contribution would have increased approximately 7.7% year-over-year. General and administrative expenses were $9.3 million as a percentage of total revenue increased by approximately 30 basis points year-over-year to 8.8%. This increase was driven by increased stock-based compensation, management incentive compensation based on performance and incremental public company cost to support SOX Section 404b compliance in 2018. Note also that G&A percentage generally skewed higher in the first quarter relative to the other three quarters due to lower seasonality on average unit volumes. Adjusted EBITDA in the first quarter increased 11.4% to $14.6 million versus $13.1 million earned last year. As a percentage of total revenues, adjusted EBITDA was 13.9%, up approximately 40 basis points from 13.5% in the prior year. Excluding the aforementioned timing benefit related to advertising spend, adjusted EBITDA margin would have decreased by approximately 10 basis points year-over-year and adjusted EBITDA would have increased approximately 7.5% year-over-year. Depreciation and amortization expense was $5.1 million versus $5.5 million in the prior year first quarter, a decrease of 7% reflecting approximately 80 basis points in year-over-year improvement. This reduction was primarily driven by assets that became fully depreciated in the prior fiscal year, partially offset by the addition of new assets. Interest expense was $1.5 million in both first quarters. As of the end of the first quarter, $159 million was outstanding under our all revolver credit facility while our applicable margin for LIBOR loans remained at 1.75%. Income tax expense was $2.8 million during the first quarter for an effective tax rate of 40.1% as compared to a $2.1 million expense during the same period last year. Net income for the first quarter was $4.2 million or $.10 per diluted share compared to $3.1 million or eight cents per diluted share during the prior year period. Turning to our repurchase program covering common stock and warrants. During the fiscal first quarter we repurchased approximately 641,000 shares of common stock at an average price per share of $12.48 for $8.0 million. Subsequent to the end of the quarter, we repurchased 400,000 warrants from PW Acquisitions, a related party, for $3.75 per warrant or $1.5 million. We currently have 25.3 million remaining under our $50 million repurchase authorization. Finally, we are reaffirming our guidance for fiscal 2017. Please refer to today's earnings release for the details on our outlook and be mindful of the fact that fiscal 2017 contains 52 weeks and will compare to a 53 week period in fiscal 2016. As Paul indicated, the second quarter is off to a strong start with continued sales momentum and traffic growth and we expect to drive incremental traffic and mix during Q2 as compared to Q1. Looking ahead, recall that during the back half of the year we will have the number one product launch in brand history, the Del Taco, along with Platos, which each helped to drive second half of 2016 company same store sales above 6% with transactions above 2%. Therefore, we continue to expect more relative strength in the first half compared to the second half of this year. To conclude, we generated another quarter of impressive results by executing our Fresh Combined Solutions strategy and remain on track to accelerate system unit growth to mid single digits this year and reach our 1.5 million AUD goal by 2018. We appreciate your continued interest in Del Taco and are happy to answer any questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Peter Saleh with BTIG. Please proceed with your question.

[Peter Saleh:]

Congrats on the quarter guys. I just wanted to ask if you could just walk us through a little bit, there was a lot of noise in the quarter with all the weather in February and the timing of calendar shift. Could you just give us a little bit more color on the underlying trends and maybe a little bit more detail on the monthly cadence. I think that will be helpful.

[John Cappasola:]

Low to mid single digit area of start to the year. February, the rains were as bad, I would say. We definitely slowed in the February period although we remained positive. So kind of very low single digit area. And then as we got into March since then weather has been very normalized, a complete non-issue. And even though we had the adverse [indiscernible] that hurt us during March and came then came back in our favor, March was much stronger. It was a strong, solid mid-single digit type performance in March. So when you stack that all together, that’s the 4.2% system comp that we posted. So we felt very good about enduring what was really transitory issues. Nonetheless we are on strategy, very focused on the operation execution side and we cut through.

[Peter Saleh:]

Great. Good to hear. So it seems like this quarter was a very -- the industry was very value focused, very value centric. Did you see an uptick in the Buck & Under mix on menu? Did that mix as a percentage of sales go up this quarter?

[John Cappasola:]

The year-over-year Buck & Under was down meaningfully in terms of mix. The main driver there, as you know last June we brought in the Del Taco, which, it was a $1.39 product. As you know, drove tremendous success and momentum in the business. Number one monsoon product history and certainly it played a strong role in moving a lot of velocity of a buck and under, up to that mid tier type product. So we felt good about that. So the buck and under mix instead of being in that low 20% area, during the first quarter it was a little bit inside 20%. So we are happy about that mix shift.

[Peter Saleh:]

Great. And then just your comps continue to be pretty robust for a number of years now. Traffic continues to be positive. Can you just talk a little bit about the health of the franchises, the [indiscernible] economics, their health. And what it's going to take to get them to put a little bit more capital to work and how much longer we need to wait to see more the stores being built on the franchise side.

[Paul Murphy:]

Peter, this is Paul. I would say on the health side, they are certainly enjoying the same success that the company is in terms of comps towards sales and the growth and how that’s been put together. The key for the growth, and we said a few times we certainly see in '17 and 2018, even into probably early 2019, that the company will grow few more stores than the franchise base. They are growing our stores and store count every year but as you have noticed, we are bringing a lot more new groups into the business and when it takes them a bit 18 months or so to really get stores of the ground. So I would see that the existing guys are growing but I would see that kind of the next leg up or the next leg forward is going to come out of the newer franchise to certainly part into the business, especially in the southeast.

[Operator:]

Our next question comes from the line of Alex Slagle with Jefferies. Please proceed with your question.

[Alex Slagle:]

Just wanted to clarify your prepared remarks on the sales and traffic momentum in the 2Q. Just make sure I understand it correctly. Specifically the incremental traffic and mix in the 2Q, that means positive or are we talking like higher levels than the first quarter? Just some clarity on that.

[John Cappasola:]

Sure. As we have now reported in Q1, we had favorable traffic, 30 bps, mix up over 1%. What Paul and I both said is that in the Q2 outcome we do see, again both of those being positive contributors to the comp but to greater magnitudes. So each of those will improve incrementally in the second quarter compared to Q1 based on our assessment of trend.

[Alex Slagle:]

Okay. And then from an operations perspective, just wanted to hear how you thought your teams were executing the recent rollout of the new platforms and extensions through the first quarter. And if you think there is room to improve efficiency or additional training or equipment to help the restaurant teams.

[John Cappasola:]

Yes, there is always room to improve. If we were hitting on all cylinders in every restaurant, it would be a beautiful thing. So we are always looking to mine opportunities to improve overall satisfaction, speed that the restaurants really delivered accurate value, convenient value proposition. So some of the success we had in Q1 was clearly being able to mine out some of those locations that needed a little bit extra boost and focus on the people in those locations and inside of those locations. Making sure they were getting the training they needed to get the results. So I think we will continue on that front both on the company and franchise side. And then in 2017, as we have been talking about, we will continue to invest in our kitchens in order to quality and really get throughput moving in a great direction and continue to improve the capabilities there. So you will see us continue to target higher volume, higher return restaurants with the new fryers that we announced last year. We are deploying more outside order takers which drive speed during our peak hours and we are doing targeted Taco bar retrofits to double our make line capacity in select restaurants. So a lot of targeted investment to really move throughput and improve our capabilities to just keep getting more efficient and more capable in driving our transactions especially during peak times. So much more of that to come and that’s a big part of our combined solutions model.

[Alex Slagle:]

Okay, my last question still on the marketing front. If there is anything you are seeing in the current consumer spending environment, competitive environment that might make you to re-evaluate the balance and your marketing focus between the premium, like the Platos and the Buck & Under Dell.

[John Cappasola:]

I think the environment right now has been fairly stable. We are not seeing anything like the incremental move to value we saw at the beginning of 2016. I think it's a much more balanced environment out there today. Value is pervasive. But I think we are well positioned as a brand in regards to value and affordability and that barbell strategy ultimately is what -- the proof is in the pudding, provides that context for the consumer. So whether we are out with a new program like Carnitas which we announced over the summer, which will be mid tier and premiumly priced. Or the Del Taco which is mid tier price. I think you have always got that buck and under balance on the menu that we are maintaining and keeping rather robust. So if guests decide to opt to that, they certainly can. So I think we are well positioned across the menu strategy from a value proposition standpoint to compete whether we are dealing on the low end or up to premium end.

[Operator:]

Our next question comes from the line of Jeremy Hamblin with Dougherty & Company. Please proceed with your question.

[Jeremy Hamblin:]

I will add my congratulations guys on the results and great execution. I just wanted to first clarify something on pricing. I know you came into the year with a little bit lower pricing given the environment. Steve, in terms of thinking about the pricing trends, first as we look at Q2, how is Q2 pricing compared to Q1. And then I think you said that if the environment kind of eases off on the value focus that you may be a little more aggressive in the back half of the year on pricing. But any commentary on pricing that you are going to help clarify.

[Steve Brake:]

Sure. We entered this year carrying right about exactly 2% price. We did have close to 50 bps increase back in February. That blended Q1 right in that low to mid 2% areas. What we will lap is two moves later this year. June close to 1% the year ago, and then in the fall a little over 1% the year ago. Right now we will likely replace both of those with very similar timing and magnitude. If that indeed plays out which is our expectation, that would put Q2 very close to that. Right in mid 2 area. And that would probably sustain in essence for the balance of the year. As you know our full year guidance, low to mid 2s. So I think we will be right there. Maybe at the upper end of low to mid 2s. So that’s our current thinking. We are watching it regularly but that’s the current expectation.

[Jeremy Hamblin:]

Great. Very helpful. And then not to pry too much but just want to clarify, John, on the LTOs and upcoming product introductions. You mentioned kind of a teaser I think on Platos that you are going to offer something new, but was that separate from the bringing back of the pork Carnitas? And the pork Carnitas I am assuming that’s not until Q3. I think you said the summer but I believed Q3. Is that correct?

[John Cappasola:]

Yes, it will impact, materially it will impact Q3, you know at the front end of Q3 for Carnitas. So as far as Platos goes, yes, we will have a component of Carnitas that will be off menu with Platos. It won't be a primary. And then as we move through the year, there will be new news coming to Platos. And then in regards to Carnitas, it will be -- we are excited about it. It is a program that we think is just right for what we are needing and looking for as we move into Q3. It's been a while since it's been on the menu, so we think there is some latent demand there since 2014, since we had it. It gives us a lot of flexibility in regards to the menu platforms we have right now and just being added to and complementary to those between kind of a mid tier and a premium price point. And the lastly and maybe most importantly, we need to be operating and executing at a really high level as we cycle over the Del Taco rollout and this is a protein that our operations is familiar with. We have done at a high level and they feel most comfortable with. So I think we have got a good kind of nexus there of consumer demand and operational capabilities and we will continue to -- beyond that we will continue to bring new news and new product innovation to market. It's been a big part of our formula of success. So you can look for more of that in the quarters to come.

[Jeremy Hamblin:]

Okay. Great. And then, Steve, just one last thing here. On the advertising shift, I think the numbers is about $500,000. Should we be thinking about that even the split over the course of the year?

[Steve Brake:]

The reversal will be back half weighted particularly in the third quarter.

[Operator:]

[Operator Instructions] Our next question comes from the line of Craig Bibb with CJS Securities. Please proceed with your question.

[Craig Bibb:]

You guys are incredibly consistent with seven quarters in a row right down the middle. So it sounded like the weather impact on comp was under half a percent or so. You didn’t put a number on it. Is that ballpark kind of, what would you think...?

[Steve Brake:]

We didn’t quantify that [indiscernible] for other California brands, just a higher number but we cut through it.

[Craig Bibb:]

Okay. And then Q2 was similar to March thus far also seem to be [quicker] [ph] in play.

[John Cappasola:]

You know Q2, as Paul said, we are definitely off to a strong start. The first few weeks of the quarter did include the favorable offset of the Lent shift, with Lent going over non-Lents. Overall we expect Q2 to, as I said, help improve traffic and mix trends compared to Q1 but it really be in five weeks since it's kind of premature to quantify anything beyond that.

[Craig Bibb:]

The leadership academy that John referenced, was that an incremental G&A cost or not material?

[John Cappasola:]

No. It was there last year, we reframed it this year as leadership academy. Last year we called it our boot camps. But it was essentially up from a year-over-year perspective. It's built into the run rate.

[Craig Bibb:]

And then what about ordering test that other tests that you are going right now. How long have they been going on and how long is the test likely to last before you are ready to roll?

[John Cappasola:]

Right. So we launched really the operational elements of the tests back in the back end of 2016 and kind of had 18 stores online as we moved into April. And then we launched now in the Las Vegas market so that brought another 30, just over 30 stores into the fray to learn from. And as I said on the last call, really we feel like we are getting our feed under us from a standpoint of ordering ahead and using the app on the operational side and really processes and procedures and some of those nuances related operations, getting those right so we can deliver a good guest experience there. And now really in the second part of the market test which is too early to really comment on, that we just launched. We are going to be focused on demand now, and marketing. So a bit more marketing support. Trying to be as nimble as we can. Trying new offers and new mechanisms to get folks to get interested because we give away, there is some nice upside there from an engagement perspective with our guests. And then eventually there will be a delivery module that gets bolted on within the app environment and the online ordering environment to further enhance the proposition there as well. Just entice folks to use even more. So Craig, we are going to be on a test and learn environment this year as we have said, and ultimately there is a lot to figure out there but what's most important to us is to make sure we are learning and we are trying to get the right value proposition in that space to invest in in the long run. So we are going to be patient with it and we are going to watch our competition and we are going to watch our guests and do our best to participate where appropriate.

[Craig Bibb:]

Any other source testing delivering already?

[John Cappasola:]

Not yet, no. So that will be part of the Las Vegas test. So first phase was to get them out with the mobile app and then we are going to be adding delivery to that test in the coming months.

[Craig Bibb:]

Okay. And then the last one. You guys are buying in shares at a pretty consistent rate. Is it an automatic program and we can look for that 640,000 or so shares per quarter going forward.

[Steve Brake:]

I would say yesterday we launched a program of March last year, so we are more than a year in to it. So far we have bought about 2 million shares at an average cost per share of $10.80. We certainly believe that outcomes has been accretive and opportunistic. I think we will continue to have more of an opportunistic lens on this program but we absolutely view the remaining $25.3 million as very viable ongoing lever to use over time to help enhance long-term shareholder returns.

[Operator:]

Our next question comes from the line of Nick Setyan with Wedbush Securities. Please proceed with your question.

[Nick Setyan:]

Obviously the focus is really on the second half from investors perspective and difficult comps and your guidance implies that either mix and/or guest counts are going to have to be negative given the 2.5% menu price. Do you expect mix to remain positive and most of that negative growth is going to be in transactions, or is it going to be some combination of both?

[Paul Murphy:]

I would say near term, certainly Q2 as we have already seen, we feel very good about mix. As we get into the third quarter, Del Taco overall though could be good and bad traits from Del Taco. Overall, it was mix helpful. Naturally in the fourth quarter when we lap Platos, a very strong check driver mix contributor, I would say fourth quarter. We are working hard to plan against that. For most chains in our industry as whole, holding mix neutral or a little bit good is usually good outcome for the industry. The fact that we are now in our fourth year of positive mix, meaningfully positive mix I should add, is pretty impressive, we are proud of it. So I think ongoing long-term, we view mix as a good guy for us that we are going to leverage. That doesn’t mean one should underwrite it to be substantially positive every single quarter forever. I would say Q4 would be a challenge for us but we are working hard to make sure that’s a win.

[Nick Setyan:]

Got it. And in terms of the unit growth guidance for the year, now that we are here in May, is that possible to maybe narrow or even just kind of tell us what the company versus the franchise breakdown maybe.

[Steve Brake:]

All right. In that, we reaffirmed the 23 to 26 and as we get a little further into the year, we can talk a little bit about the breakdown.

[Nick Setyan:]

Will there be a company on opening in Q2 or no?

[Steve Brake:]

I don’t believe so.

[Operator:]

Thank you. Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back to Paul Murphy, CEO, for closing comments.

[Paul Murphy:]

I appreciate everybody taking the time. That was a busy afternoon but as you can see we have just maintained some great financial results in what has been characterized as a tough quarter and our aim is to always keep that going. So thanks for your time and look forward to the next quarter.

[Operator:]

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.