Shares of Del Taco Restaurants (TACO) fell as lagging quarter-to-date sales trends overshadowed stronger-than-expected third quarter results.
The company reported third-quarter net income of $5.8 million, compared with a loss of $7.7 million a year earlier. The latest adjusted earnings of 16 cents a share topped the consensus analyst estimate of 10 cents in a survey by FactSet.
Revenue of $120.8 million was just ahead of the $120.4 million consensus estimate.
But during the company's conference call, Del Taco said comparable sales from company-owned restaurants through the first five weeks of the current quarter have been slightly negative.
"Looking ahead to 2021, we plan to elevate our brand engagement and transform our digital capability through a holistic [customer-relations-management] platform to incentivize and reward our fans, and launch our ‘Ultimate Convenience’ initiative to expand our access and convenience through new technology," Chief Executive John Cappasola said.
Jefferies analyst Alexander Slagle said that the fourth-quarter-sales update is "likely to reset investor expectations," according to Bloomberg.
Slagle expects fourth-quarter restaurant-level margins to narrow sequentially to 16.1% from 18% in the third quarter due to higher cheese costs, possible inefficiencies in labor, and marketing outlays normalizing to 4% of sales from 3% in the third quarter.
He's got a buy rating and $12 price target on Del Taco.
"As we continue to navigate the challenges and opportunities related to covid-19, I am proud of our actions to stabilize our business as demonstrated by our strong third-quarter performance," Cappasola said.
Del Taco shares at last check were down 19% to $8.44. On Thursday they'd touched a 52-week high at $10.43. And they remain more than triple their 52-week low of $2.45, set in mid-March.