El Pollo Loco Holdings Inc (LOCO) Q2 2024 Earnings Call Highlights: Navigating Growth Amidst ...
Total Revenue: Increased 0.6% to $122.2 million compared to $121.5 million in Q2 2023.
Company-Operated Restaurant Revenue: Decreased 1.5% to $102.3 million from $103.9 million in the same period last year.
System-Wide Comparable Restaurant Sales: Increased 4.5%.
Company-Operated Comparable Restaurant Sales: Increased 3.2%.
Franchise Revenue: Increased 15.1% to $11.7 million.
Restaurant-Level Margins: 18.6%, a 170 basis point improvement versus Q2 2023.
Net Income: GAAP net income of $7.6 million or $0.25 per diluted share.
Adjusted Net Income: $7.8 million or $0.26 per diluted share.
Cash and Cash Equivalents: $10.5 million as of June 26, 2024.
Debt Outstanding: $87 million as of June 26, 2024, reduced to $83 million as of July 31, 2024.
Store Openings: One new franchise restaurant opened in California during the quarter.
Remodels Completed: Two company-operated and 17 franchise restaurant remodels in Q2 2024.
Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
El Pollo Loco Holdings Inc (NASDAQ:LOCO) reported a 4.5% increase in system-wide comparable restaurant sales, driven by their iconic fire-grilled chicken and focus on everyday value.
The company achieved an 18.6% restaurant-level margin, a 170 basis point improvement from the previous year, indicating better operational efficiency.
El Pollo Loco Holdings Inc (NASDAQ:LOCO) was named the nation's number one best restaurant for quick, healthy food by USA Today, highlighting its strong consumer value proposition.
The company is making progress on reducing new unit build costs to around $1.8 million, which is expected to drive future franchise growth.
El Pollo Loco Holdings Inc (NASDAQ:LOCO) is focusing on digital-first initiatives, including offering better deals to loyalty members, which is expected to enhance customer experience and drive repeat business.
Negative Points
Company-operated restaurant revenue decreased by 1.5% due to the refranchising of 19 company-operated restaurants, impacting overall revenue growth.
The company experienced a 5.2% decrease in transactions, indicating potential challenges in maintaining customer traffic.
Labor and related expenses increased by 100 basis points year-over-year, driven by wage inflation, particularly in California.
Family meals, a significant part of the company's value proposition, remain under pressure, affecting overall sales mix.
The rollout of kiosks has been delayed to ensure customer service quality, potentially impacting labor cost savings and operational efficiency.
Q & A Highlights
Q: How do you interpret the underlying consumer demand given the volatility in same-store sales? A: Elizabeth Williams, CEO, noted that the data shows mixed signals due to factors like mismatched LTO timing and reduced discounting. Despite these challenges, new product launches have shown positive traffic responses, indicating a mixed but potentially stabilizing demand.
Q: How are your stores in California performing compared to those outside the state? A: Ira Fils, CFO, mentioned that while there is a slight decline in traffic in California due to higher pricing, the overall performance is representative of the system, with marginally stronger results in some markets outside California.
Q: What are the main drivers for the expected margin expansion from 2024 to 2025? A: Elizabeth Williams, CEO, explained that the margin expansion will be broad-based, focusing on labor productivity, cost of goods, and semi-variable costs. New leadership and third-party engagements are helping to identify savings across the P&L.
Q: Are you seeing any improvement in California traffic trends amid consumer pullback? A: Elizabeth Williams, CEO, stated that while there is no significant improvement yet, El Pollo Loco benefits from trade-down effects as consumers seek more affordable dining options compared to casual dining or fast-casual alternatives.
Q: What drove the positive swing in mix during the quarter, and can it be sustained? A: Ira Fils, CFO, attributed the positive mix to easier comparisons, reduced discounting, and successful promotions of core items like tostadas and new menu additions. The company expects to maintain positive mix trends in the coming quarters.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.