Industry News | November 6, 2017

El Pollo Loco Reports Net Loss in Third Quarter

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El Pollo Loco Holdings, Inc. announced financial results for the 13-week period ended September 27.

Highlights for the third quarter ended September 27, compared to the third quarter ended September 28, 2016 were as follows:

Total revenue increased 5.6% to $101.2 million compared to $95.8 million. Total revenue in the quarter was negatively impacted by approximately $0.5 million as a result of Hurricane Harvey.

System-wide comparable restaurant sales increased 1.7%, including a 0.9% increase for company-operated restaurants, and a 2.4% increase for franchised restaurants.

Net loss was $4.0 million, or $(0.11) per diluted share, a decrease compared to net income of $5.2 million, or $0.13 per diluted share in the prior year. Third quarter of 2017 included a $16.0 million pre-tax expense related to the full impairment of the assets of 10 restaurants and the closure of three restaurants.

Pro forma net income(1) was $6.0 million, or $0.15 per diluted share, compared to $6.9 million, or $0.18 per diluted share. Third quarter 2017 pro forma results include an estimated negative impact from Hurricane Harvey of approximately $0.3 million before taxes.

Adjusted EBITDA was $16.2 million, compared to $17.3 million.

Steve Sather, president and chief executive officer of El Pollo Loco Holdings, Inc., says, "Results in the third quarter included system-wide comparable store sales growth of 1.7 percent, driven in part by strong performance from our unique Family Meal offering and our Taco Platters limited time offer. The quarter also included margin pressure due to rising labor costs and loyalty program incentives as we continue to invest in this initiative. While comparable store sales growth slowed toward the end of the quarter and has remained soft thus far in the fourth quarter, we believe that our strategy to highlight what we believe to be our authentic differentiated brand and [quick-service-restaurant-plus] positioning, along with technology initiatives aimed at improving the customer experience, will drive sales in 2018 and beyond."

Sather continues, "Our restaurants in Texas continue to perform below expectations; however, we remain focused on the market and are implementing a brand relaunch in Houston and Dallas. The relaunch will encompass everything from operations to facilities to marketing, and is designed to drive brand awareness, bring guests into our restaurants, and deliver an exceptional experience. We will continue to evaluate our programs in order to fine tune our strategies and generate sustained momentum in these very competitive Texas markets."

Third Quarter 2017 Financial Results

Company-operated restaurant revenue in the third quarter of 2017 increased 5.8% to $95.0 million, compared to $89.7 million in the same period last year. Total revenue in the quarter was negatively impacted by approximately $0.5 million as a result of Hurricane Harvey. The growth in company-operated restaurant revenue was largely driven by the 25 new restaurants opened during and subsequent to the third quarter of 2016, partially offset by 5 restaurant closures during the same time period.

Comparable company-operated restaurant sales in the third quarter increased 0.9%, driven by a 1.7% increase in average check, partially offset by a 0.8% decrease in transactions.

Franchise revenue in the third quarter of 2017 increased 1.6% to $6.2 million, compared to $6.1 million in the third quarter of 2016. The growth in franchise revenue was largely driven by the contribution from the 15 new restaurants opened during and subsequent to the third quarter of 2016 and a 2.4% increase in franchised comparable restaurant sales during the quarter. These were partially offset by a decline in franchise and development agreement fees and lower fees received related to use of our point-of-sales system.

Restaurant contribution was $17.4 million or 18.3% of company-operated restaurant revenue, compared to $18.8 million, or 20.9% of company-operated restaurant revenue in the third quarter of 2016. The decrease in restaurant contribution margin was primarily the result of higher labor costs, due to increased minimum wage, and higher other operating expenses associated with new restaurants opened in 2016 and 2017.

During the third quarter of 2017, the company recorded a $16.0 million expense related to the impairment of the assets of eight restaurants in Texas and two in California, and the closure of three restaurants in Texas.

Net loss for the third quarter of 2017 was $4.0 million, or $(0.11) per diluted share, compared to net income of $5.2 million, or $0.13 per diluted share in the third quarter of 2016. Third quarter 2017 pro forma results include an estimated negative impact from Hurricane Harvey of approximately $0.3 million before taxes. Pro forma net income was $6.0 million, or $0.15 per diluted share during the third quarter of 2017, compared to $6.9 million, or $0.18 per diluted share during the third quarter of 2016. A reconciliation between GAAP net income and pro forma net income is included in the accompanying financial data.

2017 Outlook

Based on current information, the company is revising its earnings guidance for the fiscal year 2017.

The company expects 2017 pro forma diluted net income per share ranging from $0.61 to $0.63. This compares to pro forma diluted net income per share of $0.66 in 2016. Pro forma net income guidance for fiscal year 2017 is based, in part, on the following updated annual assumptions:

System-wide comparable restaurant sales growth of approximately 1.0% to 1.5%;

The opening of 15-16 new company-owned restaurants and 7-9 new franchised restaurants;

Restaurant contribution margin of 19.3% to 19.6%;

G&A expenses of between 8.1% and 8.3% of total revenue excluding CEO transition costs and legal fees related to securities related litigation;

Pro forma income tax rate of 39.5%; and

Adjusted EBITDA of between $64.0 and $65.5 million.

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.