Del Taco Restaurants, Inc. (NASDAQ: TACO) Q2 2021 earnings call dated
Jul. 22, 2021
Corporate Participants:
Raphael Gross — Investor Relations
John D. Cappasola — President and Chief Executive Officer
Steven L. Brake — Executive Vice President and Chief Financial Officer
Analysts:
Joshua Long — Piper Sandler — Analyst
Alex Slagle — Jefferies — Analyst
Nick Setyan — Wedbush — Analyst
Todd Brooks — CL King and Associates — Analyst
Presentation:
Operator
Hello and thank you for standing by. Welcome to the Fiscal Second Quarter 2021 Conference Call and Webcast for Del Taco Restaurants, Inc.
I would now like to turn the call over to Mr. Raphael Gross, Managing Director at ICR to begin.
Raphael Gross — Investor Relations
Thank you. Good afternoon and welcome. On today’s call are, John Cappasola, President and Chief Executive Officer; and Steve Brake, Chief Financial Officer. After we deliver our prepared remarks, we will open the lines for your questions. But first, let me remind everyone that part of our discussion today will include 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 our SEC filings for more detailed discussion of the risks that could impact Del Taco’s future operating results and financial condition.
Today’s earnings press release also includes non-GAAP financial measures such as adjusted net income, adjusted EBITDA and restaurant contribution along with reconciliations of these non-GAAP measures to the nearest GAAP measures. However, non-GAAP financial measures should not be considered as alternatives to GAAP measures such as net income or loss, adjusted income or loss, net cash flows provided by operating activities, or any other GAAP measure of liquidity or financial performance.
Let me now turn the call over to John Cappasola, President and Chief Executive Officer.
John D. Cappasola — President and Chief Executive Officer
Thank you, Raphael. And thank you all for joining us today.
Once again, I am delighted to report that we had another great quarter at Del Taco and are on track to achieve what we set out to accomplish earlier this year. Although inflationary headwinds impacting our industry and business have emerged, we are well positioned through our initiatives to maintain operational excellence, drive sales through new product launches and our new loyalty program and to accelerate our new restaurant pipeline to deliver 5% system-wide new unit growth led by franchising by 2023.
We are also pleased with our team’s exceptional execution in providing our guests ultimate convenience through our drive-thru, takeout and delivery channels as we navigate through the remainder of the pandemic, while maintaining strong guest satisfaction scores. During Q2, we also leveraged our strong comparable restaurant sales trends against our very effectively managed input costs resulting in significant restaurant contribution and adjusted EBITDA growth and margin expansion.
Let me briefly review performance highlights from the quarter before moving on to a discussion of our short and long-term initiatives. System-wide comparable restaurant sales grew 17.8% over the prior year, consisting of a 17.2% increase at franchise restaurants, and an 18.3% increase at company-operated restaurants. To neutralize the impact of lapping the pandemic, during Q2, on a same-store basis compared to 2019, company sales grew approximately 3.6%, while franchise restaurants grew at a high-single digit rate.
Geographically, during Q2 on a same-store basis compared to 2019, our non-California restaurants, which are primarily franchise-operated grew at a double digit rate while our California restaurants grew at approximately 4% compared to 2019. Again, this contrasts reflects the broad brand appeal that Del Taco has earned across 15 states outside of California that also generally mandated fewer operating restrictions.
Also during Q2, on a same store basis compared to 2019, all of our dayparts were positive except for breakfast, which has since improved to flat compared to 2019. Importantly, we believe this daypart offers a near-term growth opportunity as I will explain shortly. Late snack and graveyard were the top performing dayparts in Q2 and were aided by strong delivery trends. Restaurant contribution margin increased by 250 basis points to 18.9%, primarily due to leverage from strong comparable restaurant sales including 4% menu pricing coupled with flat food inflation, despite increased advertising cost as we lapped reduced advertising last year during the onset of the pandemic.
In terms of profit, adjusted EBITDA increased $4.8 million or 39.5% to $16.9 million from $12.1 million, while adjusted net income per diluted share increased to $0.16 from adjusted net loss per diluted share of $0.00 last year. Finally, during Q2 our quarterly dividend and share repurchases returned in aggregate $3.6 million of capital to shareholders and we also reduced our net debt to $103 million lowering our net debt to adjusted EBITDA leverage ratio to approximately 1.66 times.
Turning to the business. Recall over the past year, we’ve been executing on five drivers of sales acceleration. That’s our value leadership, menu innovation, brand engagement, digital transformation and ultimate convenience. These pillars, which are anchored by our focus for better execution strategy provide us with the framework to improve our connectivity and relevance as they ensure that we are providing guests and employees outstanding experiences with the brand.
Let me start with operations and focus for better. One of the four key pillars of this strategy is our people first approach. People are the engine of this business and there has never been a more important time than now to leverage this brand strength and stay ahead of the curve, as the industry faces unprecedented labor availability challenges. As we navigate this tough staffing environment to enhance our ability to attract and retain top talent, we’ve developed a holistic recruiting scheduling and retention strategy.
The best way to staff our restaurant is retain your current team and we are celebrating our teams through rewards and recognition during our employee appreciation months throughout July. During the month, we have scheduled fun uniform theme days and are providing foods and other treats along with personalized Thank You notes to our team members. We continue to reinforce how important our people are to us by offering benefits like daily pay and a significant referral bonus. To enhance talent acquisition, our strategy includes testing a new digital recruiting partnership to increase our presence on job boards and simplify communication with prospective applicants. The layers we are adding along with leveraging our strong people first culture foundation will aid our ability to maintain operational excellence for our guests and be supportive of our restaurant teams.
Turning to sales and marketing. Our value leadership strategy focuses on great everyday value across our barbell menu and is supported by ongoing menu innovation to keep our menu platforms fresh and interesting. In Q2, we paired value with innovation with the introduction of our newest Crispy Chicken flavor, honey chipotle barbeque and relaunched our Crunchtada platform with new recipes with signature Del Taco ingredients that top a large 6.5 inch freshly fried tortilla.
Our Crunchtada lineup features $1, $2 and $3 price points to drive trade up and to highlight our QSR plus positioning with quality ingredients like fresh guacamole and queso. Due to their popularity and high guest satisfaction scores, the Crunchtada platform will remain a focus through this summer.
We also intend to leverage new product innovation on the daypart front. Just today, we introduced a new breakfast platform centered on new double cheese breakfast Tacos. Each Taco features our freshly shredded cheddar cheese and signature Queso Blanco with price points starting at $1. We believe this offering can jumpstart our breakfast sales as we approach two near term breakfast catalysts, namely morning routines continuing to normalize as offices re-populate and the return of breakfast seasonality in the fall as kids return to in-person school.
Lastly, later this summer, we will leverage menu innovation to launch yet another exciting platform. We call that Stuffed Quesadilla Tacos. This new platform takes our fan favorite Quesadilla and adds creamy Queso Blanco folded into the shape of a taco shell and stuffed with grilled chicken, carne asada or Crispy Chicken. These Tacos are designed as a trade up from our current Tacos with more ingredients and more flavor. This combination of new product news driving both core and shoulder daypart activities puts us in a great position to generate guests excitement and momentum during the back half of 2021 and entering 2022.
Our Del App membership continues to grow and provide us with a solid foundation for our new holistic CRM platform launched this September that will further digitize Del Taco and incentivize and reward fans for their loyalty. The launch will include a host of features and improvements to the Del App including the launch of our points based loyalty program, which will feature attractive rewards and exciting [indecipherable] as well as a data and attribution capability to drive personalized and valued experiences for our guests to increase sales and frequency over time.
Turning now to development. We are very encouraged that Del Taco’s franchise led system growth is gaining momentum. Our franchisees will open nine new restaurants this year, of which seven have already opened and two are under construction. Four company-operated restaurants will also open this year, of which three have already opened and the fourth is our first Fresh Flex prototype under construction in our new company seed market in Orlando.
Following the two development agreements for 18 restaurants in the Southeast we signed earlier this year, we recently announced an agreement with another seasoned multi-concept QSR franchise group for 12 restaurants across the Florida Panhandle. As these signings demonstrate, we are gaining traction in the Southeast where we have significant room to grow as a brand.
We believe these recent signings and additional pending development agreements are enabled by our unique QSR plus positioning and ubiquitous menu that drives broad appeal. Our strong track record of eight consecutive years of franchise comparable restaurant sales growth across 15 states and the relevance of our attractive new Fresh Flex prototype, which also expands real estate opportunities to help lower net investment and modernizes the guest experience.
We are very pleased with our franchise led development progress as we continue to build our new restaurant pipeline for both new and existing franchisees. Looking ahead, in 2022, we expect a modest step-up in new system-wide restaurants compared to the 13 expected openings this year as existing franchisees get back on track and start to leverage the new Fresh Flex prototype.
On a longer-term basis, the three development agreements for 30 new restaurant commitments signed so far this year, plus our expanding backlog and additional agreements we expect to soon announce, we believe puts us in a position to deliver system-wide new unit growth of 5% starting in 2023.
Our test remodel program is ongoing and we expect to complete up to 20 remodels in 2021, including 10 extensive remodels of older facilities and 10 remodels of more modern facilities with primarily cosmetic upgrades at lower investment level. This final phase of testing is largely during the second half of 2021 and includes integrating our Fresh Flex prototype into our remodel design and is expected to lead to a formal system wide remodel program beginning in 2022.
Also, we announced our third quarter cash dividend of $0.04 per share as we continue our commitment to delivering shareholder returns. In summary, although the current environment continues to present operating and inflationary pressures, the coming months will help determine whether these near term challenges will prove to be transitory and we believe our strong foundation sets us up for continued growth.
Looking ahead, our focus on driving sales includes plans to introduce innovative new products and platforms, along with the launch of our new Del app and loyalty program this September and a growing pipeline of new restaurants to be developed over the next several years, led by our growing base of franchisees.
Now, I’ll turn the call over to Steve to review our Q2 financial results and discuss how we view the back half of 2021.
Steven L. Brake — Executive Vice President and Chief Financial Officer
Thanks, John. Total revenue increased 19.5% to $125 million from $104.6 million in the year-ago period. Company restaurant sales increased 18.6% to $113.0 million from $95.3 million in the year-ago period. The growth was primarily driven by positive comparable restaurant sales. Franchise revenue increased 24.0% year-over-year to $5.6 million from $4.5 million last year. The growth was primarily driven by the increase in franchise comparable restaurant sales coupled with additional franchise-operated restaurants compared to last year. System-wide comparable restaurant sales increased 17.8%, consisting of an 18.3% increase at company-operated restaurants and a 17.2% increase at franchise restaurants.
Turning to our expenses. Food and paper costs as a percentage of company restaurant sales decreased approximately 140 basis points year-over-year to 25.5% from 26.9%. This was primarily driven by a menu price increase of approximately 4% and approximately flat food inflation. Looking forward, I want to point out that recent inflationary pressure has materialized beyond our original second half food inflation expectations, particularly in the areas of beef, soybean oil, freight and other input costs.
Therefore, we now expect food inflation compared to last year of approximately 5% during Q3 and 4% during Q4, resulting in full-year inflation of up to 2%. Although this increased inflation is expected to result in a sequential increase in our food percentage of over 100 basis points during Q3 compared to Q2, time will tell to what extent much of this inflation may prove to be transitory. For instance, we would point to the recent pullback in carne asada pricing as one example of a meaningful yet temporary inflationary pressure that we are well positioned to manage through.
Despite the $1 increase in California minimum wage to $14 an hour in January 2021, our labor and related expenses as a percentage of company restaurant sales, decreased 30 basis points to 32.9% from 33.2%. This was driven by the favorable impact from our strong comparable restaurant sales growth including 4% menu pricing, and effective management of our variable labor, partially offset by the impact of the California minimum wage and increased workers’ compensation expense based on unfavorable underlying trends compared to last year.
Although restaurant labor performance remains very efficient, we expect the labor availability challenges John referenced to drive a modest sequential uptick in our labor percentage during the second half of the year compared to our percentage during Q2. This is due to wage rate pressure to retain and attract top talents to deliver operational excellence as well as the recent Nevada minimum wage increase from $9 to $9.75 on July 1, 2021.
Occupancy and other operating expenses as a percentage of restaurant sales, decreased by approximately 80 basis points to 22.7% from 23.5% last year. This decrease was primarily due to leverage from the strong comparable restaurant sales growth including 4% menu pricing and reduced direct COVID-19 costs, partially offset by increased advertising expense as we lapped reduced advertising spend during the onset of the pandemic last year.
Looking ahead, during Q3, we will lap a muted 2020 advertising expense of approximately 3%, compared to our typical advertising spend of approximately 4% of restaurant sales. In addition, our operating expenses will face sequential pressure from utilities which always trend the highest as a percentage of sales during our Q3 due to increased consumption during the summer months.
Restaurant contribution grew 36.9% to $21.4 million compared to $15.6 million in the prior year. While restaurant contribution margin increased approximately 250 basis points to 18.9% from 16.4%. We are very pleased that our solid restaurant contribution performance during Q2 keeps us in a great position to deliver upon or exceed our original expectations for modest restaurant contribution margin expansion this year on an annual basis, despite the aforementioned inflationary trends impacting food and labor.
General and administrative expenses were $11.4 million, up from $9.4 million last year and as a percentage of total revenue increased 10 basis points to 9.1%. The increase was primarily driven by increased performance-based management incentive compensation as we lapped in minimal incentive compensation accrual in 2020, due to performance compared to strong performance this year, as well as increased legal fees and non-cash stock-based compensation.
Adjusted EBITDA grew 39.5% to $16.9 million compared to $12.1 million last year and increased as a percentage of total revenue to 13.5% from 11.6% last year. Depreciation and amortization was $6.0 million, down from $6.3 million last year due to the impact of fully depreciated assets and decreased 120 basis points to 4.8% as a percent of total revenue. Interest expense was $0.7 million compared to $1.3 million last year. The decrease was due to a lower average outstanding revolver balance and lower one-month LIBOR rate compared to 2020.
During the second fiscal quarter, our outstanding revolving credit facility borrowing was reduced from $115 million to $110 million and the remaining availability under the revolving credit facility was $126.6 million. In addition, at the end of the second fiscal quarter, our balance sheet debt net of cash to adjusted EBITDA leverage ratio declined to approximately 1.66 times, compared to approximately 1.96 times at the end of fiscal 2020. Along with this debt reduction, we also repurchased 210,401 shares of common stock at an average price per share of $10.07 during the second quarter for a total of $2.1 million and paid our second quarterly cash dividend totaling $1.5 million.
At the end of the fiscal second quarter, approximately $15.0 million remained under our $75 million repurchase authorization. Net income was $6.0 million or $0.16 per diluted share compared to a net loss of $0.6 million or $0.02 per diluted share last year. We also reported adjusted net income, which excludes various items identified in our earnings release in the financial tables. Adjusted net income was $6.1 million or approximately $0.16 per diluted share compared to adjusted net loss of $75,000 or $0.00 per share last year.
We also announced our third quarterly dividend of $0.04 per share of common stock that would be paid on August 25, 2021 to shareholders of record at the close of business on August 11, 2021. In terms of Q3 same-store sales to date, we are off to a good start and we’ll soon face more challenging comparisons starting in the middle of our fiscal Q3 as we lap the very successful 2020 launch of Crispy Chicken. During the second half of 2021, we currently anticipate company and franchise same-store sales performance that is similar to our recent Q2 growth on a two-year basis.
Finally, please refer to today’s earnings press release for our fiscal 2021 guidelines. We have reiterated all of them with the exception of commodity inflation, which as I said earlier is now projected at up to 2% as well as a slightly higher 2021 estimated tax rate of approximately 29% and one additional system-wide new restaurant opening for a total of 13.
That concludes our formal remarks. As always thank you for your interest in Del Taco and we are happy to answer any questions.
Questions and Answers:
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Joshua Long with Piper Sandler. Please proceed with your question. Joshua Long, your line is live.
Joshua Long — Piper Sandler — Analyst
Great, thank you for taking my question and for the update today. I wanted to see if we might be able to first dig into some of the people first initiatives that you started with. Understand better there, obviously, you’ve got a lot of initiatives in place but if you could contextualize that a little bit, but just how the human capital pipeline, whether that’s at the store level, over the manager level is trending and building so we could support some of those growth initiatives that you’ve talked about into next year and even into 2023?
John D. Cappasola — President and Chief Executive Officer
Yeah. Hi, Josh. Yeah, listen, we feel good about where we’re out right now overall as a general statement, considering these challenges that everyone I think in the industry across categories have faced here with staffing over the last several months. And the first thing I’d just like to say is our operators in our franchisees are just doing an outstanding job, really staying focused on our people and managing the situation. We wouldn’t be here where we are today without — with having strong sales and guest satisfaction if it wasn’t for their focus and their beliefs in driving our people first culture at Del Taco.
Second, we’ve been very active in trying to stay ahead of the curve by providing these tools I referenced. These resources and these best practices are really important to the operators, to everyone at our restaurants to make sure that we are leveraging those. And although we are seeing turnover up slightly versus prior year, we’re still like I said, we’re still below industry average. And part of that is we attribute really steady and stable performance at the team member level to that strength of our core crew and we track those folks. These are really important team members that have five plus years experience with the brand and this [indecipherable] provides an unbelievable amount of stability they did during COVID, they continued during the staffing environment, so we feel great about that piece in that there.
We’re not seeing increased turnover with that core crew. And then the last piece, I’ll mention that I think is really important and as part of staying ahead of the game is we are executing a holistic strategy here. So we’ve got some macro solutions like new digital recruiting efforts and increased referral bonuses and ways to reduce friction in the hiring process at the restaurant to be more immediate in our hiring practices and then there is micro solutions for where we have hotspot stores or stores that need a little bit more help.
And those solutions are going to include things like increasing starting wages and perhaps even limiting in some cases restaurant dining run hours, which is certainly not the norm, more the exception. But those are some of those micro situations in some of those hotspot stores. So a lot to be said there, but it’s a very important piece right now in our business and we’re very focused on it.
Joshua Long — Piper Sandler — Analyst
Great, thank you for that and curious if we might be able to dig a little bit further in or maybe get some more context around some of the quarter-to-date trends that what you’ve been seeing here most recently. I believe you talked about seeing — in the second half of 2021 seeing trends be similar to what you saw in 2Q on a two-year basis, which is encouraging and obviously there’s a lot of concern and increased conversation around just what new variants of COVID or just what potential disruptions there might be for the consumer patterns that are getting rebuilt right now.
So, just curious if you’ve seen anything here — here lately in terms of changes in daypart consumer patterns, anything that might be embedded in some of that guidance that you’d call to our attention?
John D. Cappasola — President and Chief Executive Officer
Yeah, all — that’s all been considered in the commentary here today. I’d say that we certainly acknowledge that the environment continues to be challenging relative to the pandemic, the Delta variant and the different aspects of surgeons that we’re seeing around the country, it’s not yet impacting our business from what we can tell at this point, but we’re certainly very watching it very closely just like we did during COVID. Our main concern is always going to be keeping our guests and our employees safe and we’ve got some great protocols to be able to monitor and adapt to that as needed.
In regards to just back half as we think about same-store sales and that commentary you heard Steve say, yeah we’re going over the strength of 2020 from a same-store sales perspective in the back half, especially due to that launch of the Crispy Chicken menu last year, but we believe we will continue to see good momentum on a two-year basis compared to 2019. We’re definitely excited about the upcoming product launches as well as our new app and loyalty program. And we think that combination of the sales catalyst with our teams driving really great guest experiences make for a great recipe for continued sales growth.
Joshua Long — Piper Sandler — Analyst
Great, thank you for that. And it might be a little bit early, but when you think about rebuilding some of those dayparts namely breakfast in particular, which is exciting. Does that lead you to maybe either accelerate or revisit some of the dining room closures or some of the operating hours. I know that you mentioned that in some of the micro solutions, but just thinking about the chain overall, if we’re at a point yet where pattern — you can see, line of sight on some of the patterns being rebuilt that you’re revisiting some of the store level operations for the system.
John D. Cappasola — President and Chief Executive Officer
Yeah. It’s early to make that call right now based on what we know. We have opened a substantial amount of our dining rooms here over the last couple of months. So we’re going to keep a real close eye on it. And then the good news is we’ve got multiple service modes to serve our guests through. So when you think about dining that’s one aspect of it. The results by the way on that front have been rather tepid thus far, although it’s building a little bit of momentum nowhere near where we were pre-pandemic. But when you think about drive-thru, and delivery, and takeout and getting guests access, however they want access, we’re in a good spot.
Joshua Long — Piper Sandler — Analyst
Great, thank you. And then last one for me. I understood on the some of the inflation commentary, I think there is a second layer there that we’re seeing across the system, which is the availability of product or maybe the levels of service being pulled back a little bit just as product is hard to get from manufacturer to in restaurants. And if you could provide some commentary on what you’re seeing in your term and maybe how you’re addressing that either through slim down menus or maybe operational adjustments to keep those service levels and customer satisfaction scores high would be very helpful.
Steven L. Brake — Executive Vice President and Chief Financial Officer
Sure, this is Steve. Overall, we’ve been very fortunate not to experience any material supply chain issues impacting availability of products. That said recently, we have been managing various packaging shortages, which the operation team who are from the supply chain is doing a great job, being a little bit nimble in solving for those package issue — packaging issues as they arise. But again we are fortunate that from a food standpoint, we’ve been in really good shape. So proud of the supply chain team and the operator for being nimble and very focused there and so far so good, but it does remain a challenging environment and sort of one knows.
Joshua Long — Piper Sandler — Analyst
Got it. Thank you for that. On the packaging specifically, are those items that are imported or is that just maybe something that is being a lot more competition as everybody moves into off-premise and there’s just a lower supply of that packaging product. Just curious there?
Steven L. Brake — Executive Vice President and Chief Financial Officer
Yeah. The root cause is largely domestic, heavily tied to the labor availability, staffing challenges that any and all businesses are essentially facing today. So that’s really the root cause of our issues.
Joshua Long — Piper Sandler — Analyst
Got it. Thank you. I’ll pass it on.
Operator
Our next question comes from the line of Alex Slagle with Jefferies. Please proceed with your question.
Alex Slagle — Jefferies — Analyst
Hey guys, thanks for the question. I wanted to touch on the development outlook, I mean it sounds like pretty notable acceleration versus previous thoughts and peak growth levels from before 2020 timeline, if you could give some more color on, how you’re thinking about new versus existing markets and how much of this is fueled by new franchisees versus existing and maybe we can start with that.
John D. Cappasola — President and Chief Executive Officer
Sure. Yeah, hey, Alex. Well first, we’ve really been talking much of this year about the excitement that we’ve got on the franchising front relative to the launch of the Fresh Flex prototype menu of venues initiative obviously gives a lot of optionality in regards to building types in real estate, as well as just the excitement out there from a standpoint of eight consecutive years of positive franchise same-store sales growth coming into 2021.
So there’s been — a lot of that momentum has been fueled by those items I just talked through. But when you think about our growth strategy here and what we announced here today, it starts with franchising and our ability to build our franchise pipeline across multiple states and we’re doing that by leveraging the Fresh Flex prototype with both new and existing franchisees. But we’re certainly seeing momentum on the new franchisees front, as we see existing franchisees getting back on track in post-COVID environment.
And what that really does for us, what we see happening is based on our pipeline of existing agreements, some of these new agreements, some that are yet to be signed that we are — that we’re looking on in the future on, we feel good that our franchise system is in a position to grow in that high-single digit range beginning in 2023. And then when you think about the company, we will continue to build and we’ve said that. We’ve talked about that over the past several quarters and we’ll do, we’ll look at opportunistic capabilities that we have with Fresh Flex now on an infill basis and we’ll also obviously be fueling that seed market strategy with have company capital and expect company build outs to probably be in the LSD range. They have been, they’ll probably continue to be there and the real acceleration will be on the franchise side, as I mentioned.
Alex Slagle — Jefferies — Analyst
Got it. Is that — the 5%, is that a gross number?
Steven L. Brake — Executive Vice President and Chief Financial Officer
Yeah. That’s system number of gross new.
Alex Slagle — Jefferies — Analyst
Okay. And then, just wanted if you could talk around some of your initiatives around speed of service and some of the recent metrics, I think you kind of talked about solid throughput improvements through 2020 and still seems like an improvement so far in 2021. Just kind of wondering how you see this going as you face more challenges hiring and perhaps more employees in training and all that and how you’re able to sort of maintain staffing levels and kind of keep that momentum going.
John D. Cappasola — President and Chief Executive Officer
Yeah, like I said earlier, staffing is critical, it’s key and we’ve been somewhat fortunate that really other than dealing with some hotspots of some issues. Although turnover is a little bit higher year-on-year, staffing is probably a little bit lower year-on-year. It’s not, we’re not in an area where we are seeing widespread issues around operating hours and/or operating metrics.
So that’s the good news and to your point, we absolutely are seeing improvements which is amazing and speaks to our franchisees and our operations team over really solid improvements, so last year on both speed during key hours of the day where you really need that throughput capability as well as on our overall satisfaction scores, and we’re maintaining really strong overall satisfaction both at the four-wall level as well as with delivery, which is a really important part of the business and something that’s been really strong for us this year. So all in all, operations team, our franchisees are doing an outstanding job.
Alex Slagle — Jefferies — Analyst
That’s great. Thanks. I’ll pass it along.
Operator
Our next question comes from the line of Nick Setyan with Wedbush. Please proceed with your question.
Nick Setyan — Wedbush — Analyst
Thank you. It’s great to hear you expect the momentum on the topline to continue to second half. Just following up on the unit growth around 2021, I think you said modest acceleration in ’21. I guess just given the gap with where we are now and 5% in ’22, how should we interpret that modest rate in ’21? Any kind of help there would be appreciated.
Steven L. Brake — Executive Vice President and Chief Financial Officer
Just to clarify, it’s —
Nick Setyan — Wedbush — Analyst
I’m sorry, ’22, right ’22 —
Steven L. Brake — Executive Vice President and Chief Financial Officer
Yeah, 2022 will be a modest step-up from the 13% this year, followed by that 5% new unit growth rate on a gross basis in 2023. So your question about 2022?
Nick Setyan — Wedbush — Analyst
Right. Yeah, in 2022, just given the 5% in ’23, any further clarification around what modest mainly would be very helpful.
Steven L. Brake — Executive Vice President and Chief Financial Officer
Yeah, from 2022, a modest step-up from 13% is something still in the teens, but notably above the 13% this year. So the more pronounced step up would certainly be in 2023. And as John touched on a number of signings that have happened this year, the expansion of our current pipeline and number of deals that we expect to soon announce. Really those are frankly data points that we love, we feel good about that and that’s what puts us in a position to have conviction that 2023 will be that year where it has the more notable step ups certainly versus current numbers in recent trends.
John D. Cappasola — President and Chief Executive Officer
And remember Nick, we launched on Fresh Flex in January of this year. So as you get into 2023 we will really start to see those Fresh Flex prototypes popping up which there will be a few probably in 2022. But I think the power of that venues in Fresh Flex piece will be really starting really in 2023.
Nick Setyan — Wedbush — Analyst
Yeah, and hopefully we’ll be able to [indecipherable]. So that will help too. In terms of G&A, obviously we have momentum in the second half here in terms of the topline. Any chance that that 9% guidance could prove a little bit conservative?
Steven L. Brake — Executive Vice President and Chief Financial Officer
Yeah, the ultimate sales and revenues are going to obviously inform that I think overall Q2 is probably a fair quarter look at in terms of run rate. So that would probably lead you to the conclusion that the 9% area is probably more fair with lower likelihood of flexing down this year, as we’ve said before. On a longer-term basis, now that still sort of normalize post-COVID certainly our view is to control G&A while it tends to have some inflation, making sure that inflation stays inside our overall pace in growth in revenues, which will allow on a longer term basis for us to start to move into achieving modest step downs in subsequent years after 2021.
Nick Setyan — Wedbush — Analyst
Perfect, thank you.
Steven L. Brake — Executive Vice President and Chief Financial Officer
You’re welcome.
Operator
Our next question comes from the line of Todd Brooks with CL King and Associates. Please proceed with your question.
Todd Brooks — CL King and Associates — Analyst
Hey, good afternoon, guys. Congrats on the momentum in the quarter. Well done. Couple of questions here. One we were talking about set up for the back half and lapping the Crispy Chicken launch and we talked about the product platforms. But can you give us some more color about the planned launch of the new loyalty program. What tactics are you employing around that? How much of a driver and kind of a help in lapping those same-store sales from Crispy Chicken last year you looking at the launch of the loyalty program and how are you going to market to the customers?
John D. Cappasola — President and Chief Executive Officer
Sure. Yeah, I think the launch is really important and getting folks using the program is really important and I would characterize it as our expectation is that it’s going to build momentum, right. So I don’t think it’s something that you turn on an overnight, there is a massive catalyst right there, but I think that when you think about what this could do for this brand in level — really leveling the playing field with some of these bigger brands is going to be a great solution for Del Taco and our guests moving forward.
I’ll tell you, we’re excited about it, the loyalty program is actually — I’ll tell you what the name is going to be, it’s called Del Yeah rewards. So we’re excited about that, it’s fun, it’s exactly where we want to be as a brand, it’s a points based loyalty program with a tiered structure designed to really motivate the reward behavior. So essentially the more use the higher you tear, and the higher you tear, the more benefits you unlock. And we’ll have the ability to do things like challenges, enhanced frequency and guest engagement and then ultimately what’s really important here the team, the great team that we’ve been building internally along with new partners that we have will be collecting guest data to provide a more customized one-to-one experience with the brand.
So as you can imagine, we’re absolutely going to want to get as many guests into this program as we can early and often, and so there will be the marketing push around this when it launches in September and an ongoing effort at the restaurant level to make sure that we’re building this program over time.
Todd Brooks — CL King and Associates — Analyst
That’s great it sounds, love the name. So just a follow-up question on the labor side from two fronts, one, I think, I think you hinted at this but were you’ve had hotspot markets where you had to curtail operating hours. Was there an aggregate drag to same-store sales that you have us think about from staffing challenges in the quarter, it was not that — it was not a material problem?
Steven L. Brake — Executive Vice President and Chief Financial Officer
No, just to clarify here, John tried to make it clear. It’s stores definitely not markets, I mean fortunate — we’ve been very fortunate that hotspots are literally the store here, a store there quite isolated actually which means to answer your question, no, there is not really a discernible overall impact on any metric of performance.
Todd Brooks — CL King and Associates — Analyst
Great. Thanks, Steve. And then looking at the labor performance being down 30 basis points, is there any chance that you’re overlevering because of staffing levels in the restaurant? Do you feel like that — that you are actually running a little too efficiently on the labor line, and we need to think about that within the context of how we’re thinking about the back half of the year?
Steven L. Brake — Executive Vice President and Chief Financial Officer
Generally, no, I mean there can be that risk, but we really — there is a very kind of rigid prescribed formula that the restaurants follow. It’s a fair and balanced formula that make sure the right feet on the right floor at the right time. So in general, we’re very comfortable and then as far as the overall leverage just recall a year ago, Q2 was kind of for us the heart of COVID. So really that outcome is heavily informed by comps of high teens. It’s really leveraged on the fixed elements of labor, which would include your managers, your health insurance premiums and even some of the elements of variable staffing or I guess hourly staffing that there is a fixed element to ROEs as well. So that’s what really enabled the nice levering that we saw in Q2.
Todd Brooks — CL King and Associates — Analyst
Okay, great, thanks and congrats again.
Steven L. Brake — Executive Vice President and Chief Financial Officer
Thank you.
John D. Cappasola — President and Chief Executive Officer
Thanks.
Operator
There are no further questions in the queue. I’d like to hand the call to management for closing remarks.
John D. Cappasola — President and Chief Executive Officer
Okay, thank you for taking the time with us today everyone, and we certainly appreciate your interest in Del Taco. And we look forward to sharing our progress on future calls. Have a great day.
Operator
[Operator Closing Remarks]