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Plant-based meat can't lift Del Taco's traffic

Weak sales and high costs sent the Mexican fast-food chain’s shares plunging.
Photograph courtesy of Del Taco

Plant-based meat couldn’t save Del Taco’s traffic last quarter.

The Lake Forest, Calif.-based Mexican fast-food chain saw its stock price plunge more than 12% in after-hours trading Monday after acknowledging its profits declined following a combination of weak sales and higher costs.

Same-store sales at the company-owned restaurants rose 0.4%, as customers paid more for their orders but customer count declined. Traffic fell 3.7%, while average check increased 4.1%.

The company’s franchised restaurants fared better: Same-store sales rose 1.8% in the quarter ended Sept. 10.

The weak traffic came despite the company’s Beyond Taco product, which now represent 6% of the company’s sales mix, though the company said that has since fallen to 4%.

“We think 4% is actually a really healthy sales mix related to other programs we’ve done in the past,” CEO John Cappasola said on the company’s earnings call Monday, according to a transcript on financial services site Sentieo. “We think it definitely has the ability to continue to drive sales as the market continues to become familiar with plant-based proteins.”

Still, the “flattish” same-store sales and higher labor and food costs hurt the company’s profits.

Net income adjusted to factor out one-time events was $3.7 million, or 10 cents per share, down 38% from $6 million a year ago.

Del Taco lowered its expectations for revenue and earnings for the year.

While company executives said that sales have improved so far in the fourth quarter, the report disappointed investors, who sent the company’s stock falling.

Del Taco is spending more on wages as minimum wages continue to increase in its home market of California, where the bottom-level wage rose $1 to $12 an hour. The company said its labor cost as a percentage of sales rose a half a percent to 32.7% from 32.2%.

Another wage increase is set for next year.

And food costs are going up, too. Del Taco said it expects food inflation of over 3% in the fourth quarter, due to the Beyond products and some of the chain’s value offers.

The combination hurt the chain’s restaurant margins, which declined by 2 percentage points.

Del Taco is hoping to drive traffic with a combination of value and technology. It started delivery with third-party service Postmates, for instance, and its app for pickup and delivery has 800,000 registered users.

The company launched a two for $3 Del Taco promotion and also introduced a $2 Breakfast Toasted Wrap to bolster its value strategy.

Del Taco operates more than 300 of the chain’s 586 restaurants.

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