El Pollo Loco’s Earnings Call: Growth Amid Challenges

The recent earnings call for El Pollo Loco Holdings revealed a generally positive sentiment, with notable achievements in digital sales growth, improved margins, and successful new restaurant openings. However, the company faced challenges such as a slight dip in revenue from company-operated restaurants and rising operating expenses. Positive System-Wide Traffic Growth El Pollo Loco reported positive system-wide traffic growth in the third quarter, attributed to targeted innovation and value offerings like the $9.99 quesadilla combos and app-only promotions. These initiatives have successfully attracted more customers, enhancing the company’s market presence. Restaurant Contribution Margin Improvement The company saw an improvement in restaurant contribution margins, which rose to 18.3% from 16.7% in the previous year. This improvement was driven by cost savings measures and enhanced labor productivity, showcasing the company’s focus on operational efficiency. Digital Business Growth El Pollo Loco’s digital business experienced significant growth, accounting for 27% of system sales compared to 20% last year. Loyalty transactions increased by 28% year-over-year, highlighting the success of the company’s digital transformation efforts. Franchise Revenue Increase Franchise revenue saw a 13.5% increase during the third quarter, fueled by the rollout of a new point-of-sale system and the opening of new franchise-operated restaurants. This growth underscores the strength of El Pollo Loco’s franchise model. Successful New Restaurant Openings The company celebrated the opening of its 500th restaurant, with new locations averaging $2 million in annualized sales. This milestone reflects strong unit growth and the successful execution of the company’s expansion strategy. Decrease in Company-Operated Restaurant Revenue There was a slight decrease of 0.5% in revenue from company-operated restaurants, totaling $100.7 million. This was due to a 1.1% decrease in comparable restaurant sales, primarily driven by a 1.3% decrease in average check size. Higher Third-Party Delivery Costs Operating expenses increased, mainly due to higher third-party delivery-related expenses and software maintenance fees. This highlights the challenges faced in managing costs associated with delivery services. G&A Expenses Increase General and administrative expenses rose to $12.3 million, driven by stock compensation, legal and professional fees, and costs related to a new ERP system and office relocation. These expenses reflect the company’s investment in infrastructure and talent. Forward-Looking Guidance Looking ahead, El Pollo Loco expects total revenue of $121.5 million, with franchise revenue projected to grow by 13.5%. The company plans to open at least 10 new restaurants in 2025, with capital spending estimated between $28 million to $30 million. The focus will remain on menu innovation, digital growth, and operational excellence to drive sustainable growth and profitability. In conclusion, El Pollo Loco’s earnings call reflected a positive outlook with strong digital sales growth, improved margins, and successful expansion efforts. Despite challenges in company-operated restaurant revenue and rising expenses, the company remains committed to its strategic initiatives to ensure continued growth and profitability.