Earnings call transcript Q1 2023

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Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, May 4, 2023. And now I would like to turn the conference over to your host, Ira Fils, the company’s Chief Financial Officer. Please go ahead.

Ira Fils

good and operator, you, afternoon. Thank should By quarter to first access earnings now, release. everyone XXXX our have If can Relations section. not, the in it be found www.elpolloloco.com at Investor

not we our including statements to to our performance, you I discussions risks undue therefore, Before cause and our will marketing These materially the and related for them. formal that discussion and strategic pillars that initiatives, we today statements, everyone expect. plans, formal our need statements detailed forward-looking include uncertainties strategic also our that begin more operational remind risks remarks, among financial should statements actual Form franchise numerous capital XX-K expected new future plans, not new to We and partnerships put our condition. future plans, to and what reliance expenditure filings, differ product to forward-looking refer you initiatives, from operating of cash a remodel others. XXXX subject on results could are of currently impact guarantees guidance, openings are our could flow and our recent These expectations, store results including and SEC

at encourage expect quarter of would the to for review you convenience. earliest first to file that and tomorrow We XXXX our document your XX-Q

reconciliations be we not During GAAP, considered our earnings a our of the comparable be for Relations useful release, in performance. which or discuss in will in substitute today’s should we isolation available call, evaluating and measures to is additional this The measures, non-GAAP believe information can presentation Investor are as of website. prepared with accordance in which in GAAP available our results section

without reconciliation be forward-looking provided margin today’s contribution restaurant that please the forward-looking measure directly on the unable providing restaurant non-GAAP income basis. timing predict a comparable a most used we with and revenue because unreasonable financial call, from operations company-operated have non-GAAP to of that outlook, are we efforts, note adjustments respect will certainty not calculate to With the of amount on we reasonable are to or to

our Roberts. it turn Now I Larry to like to over and President CEO, would

Larry Roberts

Thanks, Ira, and good afternoon, everyone.

sales start we by restaurant the during which quarter encouraged California sales unprecedented impacted weather, X lapping Birria X.X% decrease we despite comparable are the X% achieved We franchise successful a promotion. percentage system restaurant to a believe X year’s and X.X% XXXX restaurants. first by highly and to increase growth comparable at last points The positive of company-owned Beef increase included as at

enabled a instrumental reach margins controls to XXX Our level focus driving $X.XX. basis deliver service customer adjusted This in earnings share per restaurant-level to XX%, on us operating which year-over-year continued restaurant achieved was metrics to improvement in point highs. while was new of

Northern agreements On Texas. markets, front, development Paso, New are the we incremental X an recently Colorado, franchise for signed which El in new restaurants new development and Mexico XX X

addition, into franchise perform restaurant very opened In we as sales November success expand to have the highlights the with we $XX,XXX in over last well per can the new continues Denver which week, markets. area averaging

spend G&A April, of restaurant that sales support term. and the that reduce services operations long will better marketing. of believe is to and we in will We of implemented reorganization reorganization center reallocate execution in and note brand our over further build a to strategies, of improvement result resources both our continued One operation this which

against Let of several pillars. the key me about now made our talk strategic progress we’ve

call which we last to this call, our a year, our brand Organic own awareness hired creative differentiation, earlier earnings we As agency, us [indiscernible]. and drive mentioned build on help new

moms resonate media attracting channels. with this We consumers. marketing to will younger also As we across part of look families the that approach while are bringing our and advertising both a energy strategy, new and believe all

featured and time approach offer double late the both beef Our options. with limited tostada chicken began chicken debuted and new February that in

last tostada third mix up mix high the promoting of Post being over XX% Despite promotion, sales, at tostada doubled our offer second back a during around product, running. very this record promotion. some promoting item in this shredded can of year we Burritos a late non-chicken Tostada, in a product, overstuffed to menu a achieved which grilled brought guests to beef selling of including consummate. differentiated additional just be our time item. on-the-bone a the X is tacos, mix quesadilla Birria from dipped consistently continued years of nearly year year, represented To into April, for sales success our we’ve add Similar which mix. the to their of In years. consecutive menu as experience XX.X% and By crunchy Mexican-inspired highest context just our XX% they represents ago, sales variety pre-promotion and can X.X% X entrees, sales limited

customers to last assess be beef and While feedback new difficult believe year’s record Birria additional as to permanent match providing also loco pollo as menu it El frequency will while attract performance, a will drive we beef we that item.

new Many navigate will evaluate part IMs testing build process. a items board beverages. and approach and is that with the our As term. menu and new snacks, Through are brand quesadilla, beef over test continue menu our menu menu and we resonate for easier the long consumers sales platforms second, we and to test, are hardshell first, we board add-on tacos, include it X menu; stuff evolution, understand to that consumers new our identify of achieve make to looking with things: in currently

fall. board on Depending test and out expect a in results, to roll the the we menu menu revised

test, bone. goal catering program the addition way more will this in later more chicken with program we consumers the with today, be launching believe of customers catering eating on screening offer that year. In several board groups focus current options versus with especially offices. in for variety menu providing line is the our consumers on We The will we’ve concepts a revamped to developed the

The loyalty be a for our to potential layer catering sales sales app These loyalty it drive order our of provides and we and engagement consumers tiers restaurants. for approximately our food we young further program attracting the make in To for X% significant catering of to program. May, right and sales. believe represent redemptions. and additional our Today, has customers total food options strategy focus, system early revamped of upgrades program launched easier

points. program, member a To days, prior loyalty creating Pollo an help new our sign-ups have existing X for promote app The are for the or million millionaires. we loyalty roughly new XX been received loyalty rewarding a program rating, X.X has well are trends. Once new star while day versus with with reward doubled we

loyalty continue to get better only app make engaging we them them and customers. the more as both that our program expect and for will update We even

our teams. against significant was during greatly make our service Shifting to which build The program, low a employees. to believe create revamped for the the continued first our operations. employees improves delivering reflects restaurant and essential quarter we competitors. great rollout and our our completed are we last of continued crew of pillar XX% environment recognition significantly first strategic member which new staffed culture quarter, In fully of our under onboarding profitably. turnover turnover to the progress now is simplifies experience Along the our and restaurants of work a XXX%, week, lines, efforts below joining we these

restaurant see ratings in improvements during metrics, we continue times, of our result franchise including efforts, to first social complaints. customer these quarter, the service and a and company As drive-through media

up well is As we at showing food and we improve company-operated customer have system, margins. significant pay efficiencies to which penalties. meal costs making and service we the controlled, better restaurants, continue are operating significantly and Labor progress, in overtime and waste across also reduced are managing food brake labor our

are completed restaurant to so head additional deliver opportunities, the expect of this into results as May addition be summer With operations, to efforts restaurants management, working margin-enhancing to we to project which franchisees. rollout In level and for for – XXXX. regards tanks company in against later will simplify cost our teams we

We which dishwashers space installed are and company-owned that preparation XX and promising later installing next this we on restaurants months. simplifying and Based are which XX now especially franchisees in initiative be are One to progress in is them the several so see average test the in installing we’ll sauce also seeing make far to kiosks, self-ordering results good restaurants continue of have available. over company-owned restaurants. will program positive check year. continue be the we to accelerate expanding growth, Provided we number a to results, more expect good we

our accelerating that, last With let’s discuss development. driver,

to development have with several underway agreements signed highlighted franchisees new new a XX franchise X states. we X with the we in next previously activities earlier, restaurants signed additional XX total Combined over markets. agreements, new years of open As in X now development franchise recently

announcing our efforts, agreements, development the we we securing exciting partnerships additional and progress to forward look franchise our in work While continues progresses. year to on new made as team

to opportunities with high-quality further El system, we thanking our El El Loco of renewed to believe sales work that for and day truly brand. our In Pollo for closing, team each that Pollo by and to sales layers initiatives close every aided and brand, our special the including ourselves by to will they we member the remain growth. ahead I’d franchisees awareness each familia, and Loco place and build improved drive familiar younger Pollo members do differentiate by profit a of for in franchisees all we culture, consumers like for efforts operations, are positioning make attract excited a Loco the

more turn me financial Ira results. our over first the a let detailed to call for quarter of that, With discussion

Ira Fils

afternoon, you, Thank good Larry, and everyone.

$XXX.X same $XX.X of to increase Company-operated restaurant average a increase in comparable year. $XXX in sales increased ended March restaurant X.X% the X.X% to the revenue first in from period million transactions. in the partially size, $XX million offset of X.X% quarter XXXX, For decrease compared quarter by sales total increased The company-operated check a by to million last sales. million in increase company-operated was primarily X.X% restaurant a The revenue restaurant X.X% in company-operated comprised increase XX, driven XXXX. comparable was first in

quarter, effective was versus menu increase price During our the XX%. XXXX first approximately

first a franchisee franchise decline generated of opening new restaurants comparable quarter down first or offset by of X during during franchise X%. be to flat $X.X restaurants This sold the look revenue ahead, XXXX in we the promotion to compared the beef As subsequent quarter quarter for year. restaurant year driven as sales we an revenue opened last increase Birria prior the from quarter million comparable X by the to company-owned to system-wide was of during $X.X successful partially The lap we X% believe XXXX X and million first quarter our second in period. the of of was will and the fourth was extremely XXXX. existing Franchise sales

X% as expense decreased during sales did expenses partially restaurant was expenses. of XXX first and to X% substantially XXXX. X%. increased higher basis prices, a was basis menu approximately Food rates. higher XXX as year-over-year over compensation a during quarter first related sales lower to and to percentage restaurant company commodity of offset wage the menu now inflation partially Turning during costs expense, the expect the XX.X% COVID-XX-related to moderate offset to little from and impact decreased inflation Labor pay, to Labor by a percentage sick and points to Commodity workers’ XX% X% prices, between due quarter and lower points the higher for overtime company lower paper XXXX. fourth due of We inflation decelerate by year-over-year of quarter XX.X% commodity costs.

occupancy-related We a offset due inflation as percentage and by year-over-year menu expenses XXXX. maintenance expect of prices. was expenses for well X% wage higher X% other flat higher restaurant of expenses as at primarily sales company to repairs higher operating and Occupancy being as XX.X%, to

first year contribution margin quarter compared in for restaurant XX.X% XX% to Our ago period. the was the

and the we restaurant quarter, XX.X% For contribution our be second to margin between expect XX.X%.

incentive we year now total increased to XX% the is compensation. our to margin contribution for labor-related XX to primarily For of The expenses, due the in expect General revenue. administrative be to and XXXX, basis the XX% range. year-over-year higher higher quarter increase expenses X.X% restaurant full points

related to distribution. the In incurred one-time addition, recent we expenses share

reallocating actively ways identifying further Larry efficiency on As and sales resources that through as are previously. to business. growth, our we operations improve end, we we of mentioned future in now restaurant working To are in support process XXXX, go to the

G&A approximately incur will in Such the million restructuring-related an the in we balance $X during as in are spend second quarter. year the result, million reduction result a resources approximately overall will our for $X.X As reallocated. costs one-time of

or taxes quarter This income During period. in per earnings $X.XX compares of net prior refer adjusted diluted in tax prior provision effective Adjusted of $X.XX share the we for quarter. first for $X.X the of year or net XX.X%. the tax $X.XX reported share Please quarter GAAP of the net a the year for for income We million of taxes of per $X.X diluted of first to share in to million quarter, $X.X last first $X or income compared income provision year. million GAAP recorded share million first non-GAAP net income income rate of reconciliation $X.X a to a million to an of was diluted our rate diluted compared per million XX% per the in for quarter measures. $X.XX effective and release $X.X or

restaurants seven company-operated franchise During remodeled restaurants. the quarter, first and we seven

three to XX new nine franchise and expect the continue XX locations expect into for XX five and remodel company restaurant to XXXX. other to half franchise to development, openings permitting regards store in delays and locations development to have now We openings pushed XXXX. to back to as planned openings originally we six In XXXX of XX company-operated

March $X.X in million to cash had liquidity, and $XX as XX, Turning we million equivalents. outstanding XXXX, debt of and cash of

quarter, during outstanding $X million. We million end borrowings $X as million. XXXX, the on Subsequent the quarter. $XX May our additional of the paid were XXXX to X, our first borrowed revolver And an also of down we

During we million. $X.X the for XXX,XXX approximately quarter, repurchased shares

an of XXX,XXX approximately XXXX, shares current quarter, XXth, share program. April As approximately additional remaining of Subsequent the March to we XX, through repurchased $X.X $XX.X end on for million. repurchase million we our had the

Finally, franchised franchise of spending the XX opening results nine our and XX to-date, guidance, provide update to capital XX our five like XX based restaurants, expenses restaurants, million, share million be are following of rate G&A to $XX to the would XXXX reorganization $XX expected company-owned XX.X%. restaurants on three we to six million to company-owned of the remodeling recent to one-time inclusive to to from the approximately an and and $XX tax of million. income adjusted $XX costs to million to and $X.X in now related XX.X% of distribution and

prepared again happy have. our are And you today. may any the like would We line for that the answer us concludes This on please we Operator, for thank to call remarks. now joining questions questions. to open you

Operator

[Operator Instructions] First Please Jake from go from Bartlett is question ahead. Truist Securities.

Jake Bartlett

kind Ira, the what second the for much on my the first. And is taking mentioned guidance of Larry X% the so impact also you in a you you question. thank first or for Well, quarter of reported and weather X%. to

I how do as they what’s how meaning, what’s what’s are being and know is, commentary in that’s otherwise. question hear you lower First highlighting so weather than trying on your from and California companies first are that we quarter the When that not, sales other just that particularly the driven you weather. with confident am the to weak, reconcile same-store not

Larry Roberts

Jake. Yes,

that then gap we we look is that those versus the the we look sales which rain actually days not between way So, did comp two. a we at measure the in we at had those take and

we to somewhere to points a in X day, what so see sales non-rainy day. drop percentage around rainy a is on X will relative And we see

if getting a on And lot don’t would so where you that you bone time, chicken workers I cold think Pollo things. in at reason is us We restaurant El for of days. restaurants it. Loco I lunch that’s impact heavily non-rain days days thing look more a warm meals weather our a see one come their one we versus perhaps go rain days, highlight and And in into see with it’s why we the really versus is, strictly weather

on on a them They working. day, things. are rainy those and so not working are painting houses lawns, many generally clearly, on roofs, of And

the So, maybe see gap But the see weather reason what and impact we days heavier it. in how some we measure with Rain we other a concepts. that’s why what is. days and the that’s is, that’s way estimate impact that non-rand

Jake Bartlett

just behaving, trends shifts a kind underlying question are different you building any that. for of meaning your of seeing consumer in you, how Got another And it. am really on lower current are on Appreciate question figure environment. for – family to any just your positioned how pressure out you macro I the just incremental better consumer, understand consumer. are trying end the how cohorts

Ira Fils

Jake. Yes,

vacant much is it’s about what not in as a I the of we a for in think spending it little also we last ways. to think similar do seen think of think couple where of a And think have dinner more bit have we I So, because pretty number really, we bit I rest check I say, maybe a that bit. around – of may seeing terms quarters than about we consumer it, we talked seat. day. the a seeing little tend are from the it items to talked pullback we drop two One be lower call some during in do, more just you see income And

on things value So, we more are to to menu. the working bring some

restaurants For bowls example, that marketing bit little and may something have for really consumer. are $X weeks, value. we address a of value in a back do that now to couple our that on them a the three conscious of for different and bit marked it’s more to We look little bring to we bring do

mix nice pickup our a bowls. in on $X seen have We

go margins price low, about still food we profit, look have that, the looking we so bowls to fairly is good a on menu at those. can and little at points I other costs you the deliver mean value in actually profit those. good on and pretty do So, thing are perhaps on we points things that’s at a good are which to more great aggressive bring

again, I year. really think we have fourth from more changed at what much seen things. those really don’t since last quarter of I the But mean looking trends that – have are we So, of types

first little seeing have we pullback think perhaps some consumers. from started I bit a

Jake Bartlett

Great. I Thank you appreciate it. so much.

Operator

have you. question go from is next The Please Andy from Jefferies. ahead. Thank we Barish

Andy Barish

guys. Good Hey. afternoon

bit flat negative us your system, to X%, be kind positive? just a it now a year, challenges promotion, a give on what you what things of what if you Birria And best and peak the of that sense – got to well? sales as perspective making of are maybe makes little maybe last us may give Within could expecting it’s company-owned the still as lapping versus more

Larry Roberts

question. part will start that with of I Sure. the second

it at and or as looked last mean double-digit as weeks. about you I If XX% for year, stayed mix-wise six really little Birria up mix over a got much seven to weeks

mean So, I as distinctive from last came out a with unique consumers. huge a we year, that highlighted it product was response very and we had

increase. of so like And promotion. we the give to result year, a last And am we not I This weeks also, going record as year year sales yes, you a huge highlighted actual saw last saw numbers. Birria

of terms are seeing normal mix to slightly normal We a little in Birria. probably above bit

So would certainly else as brand-new reflects to that’s not was year. going news and not strong year, think year, doing as product, be not And case it. last just was or that probably I be it And as would that knew – surprising. year, nobody not given as the last or that. We last anything that like this Birria, exciting

slightly at and surprising, continue normal going said, on currently look and terms better wouldn’t expand. that as a like like it’s include mixing test our possible the So, some But us to I doing that being menu that consumers that to looking the item lower. come in menu more us. a it’s as we normally normal to permanent not to give And in than bringing beef to are we we good beef read mix. think of I in do that’s we It’s said,

franchise, mean the higher seeing So, of company that’s I sales terms second you of same-store in terms part. the the currently a company being franchise. trends trends in the are And versus

versus of – that franchisees were a that company to part year continue sales I the sales reflects of We really, And quarter. because second last through growth. franchisees, the expect this high certainly really timeframe during is lap that again, just just year-over-year think

lap there so restaurants And franchisees. for company is versus a benefit

Andy Barish

some you many know being But there opportunity less I mean or I is kiosks in see secondly, it’s with there then parts able at And terms and on some check. with of and of it. to the POS, higher to understanding flexibility maybe do early the either restaurant? labor the expect other reallocate labor a potentially what Got folks

Larry Roberts

Yes.

tests well, One key we things. move that doing to So, are test a part couple the counter. as – we are a key the testing at need ability kiosks the front of also labor. kiosks, be part of to finding these are we the is that of And the is

in be much customers are a available them line You finding certainly, restaurant are front the are want machines, Because for labor. are counter. is we machines we and to usage, the across we response don’t high really removing use usage want have cash. seeing have we good have is testing, with cash where are we cash least board. so bigger we in higher. labor finding those that kiosk our because But much And are to when the restaurants elsewhere the also going growth possibly you they bottom seeing can reallocating at check the again, And you to average at the

Andy Barish

Got it. Larry. Thanks

Operator

question-and-answer to to turn closing end [Operator I have back over like the gentlemen, call would session. think remarks. Instructions] Ladies Mr. now we the I Roberts of for and reached today’s Larry

Larry Roberts

can’t today. prospects. the for Again, how thanks Well, you everybody about joining I are we excited much us very – tell

to We to of balance in the a and implement year and of great business. forward have we continue looking drive lot business Thanks the joining the got as on really going in for the us. things these growth

Operator

gentlemen that Thank today’s then Ladies for Thank conference. you, us. you joining concludes sir. and

You may your now disconnect lines.

El Pollo Loco (LOCO) 4 May 232023 Q1 Earnings call transcript