El Pollo LoCo Holdings ((LOCO)) has held its Q2 earnings call. Read on for the main highlights of the call.
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
El Pollo Loco’s recent earnings call painted a picture of cautious optimism, highlighting strong revenue growth and a return to positive traffic trends. Despite some challenges, such as a slight decline in transactions and franchise comparable sales, the company remains confident in its strategic initiatives to fuel future growth.
Revenue Growth
El Pollo Loco reported a notable increase in total revenue, reaching $125.8 million, up from $122.2 million in the previous quarter. This growth was bolstered by a 2% rise in company-operated restaurant revenue, which climbed to $104.3 million.
Traffic Growth
The company experienced a return to positive system-wide traffic growth, driven by innovative offerings and targeted discounting strategies. This marks a significant turnaround and reflects the effectiveness of El Pollo Loco’s marketing efforts.
New Product Launches
El Pollo Loco introduced new products, including Fresca Wraps and Salads, as well as premium chicken quesadillas in two bold flavors. These innovations have been well-received by guests, contributing to the company’s positive outlook.
Digital Sales Growth
The digital segment of El Pollo Loco’s business saw impressive growth, with digital sales, including kiosks, accounting for 25.5% of total sales, up from 17.1% in the previous year.
Unit Economics Improvement
Restaurant-level operating profit margins improved significantly, surpassing 19%. This improvement underscores the company’s focus on enhancing operational efficiency.
Expansion Plans
Looking ahead, El Pollo Loco plans to open at least 10 new restaurants in 2025, with ambitions to nearly double this pace by 2026. This expansion strategy is a key component of the company’s growth plans.
Remodeling Effort
The company aims to remodel between 55 to 65 system-wide restaurants in 2025, with 20 remodels expected to be completed by mid-year. This initiative is part of El Pollo Loco’s strategy to enhance the customer experience.
Slight Decrease in Transactions
Despite the positive trends, the company noted a slight decrease in transactions, with company-operated comparable restaurant sales reflecting a 0.3% decline.
Franchise Comparable Sales Decrease
Franchise comparable restaurant sales saw a decrease of 1.1%, presenting a challenge that the company is actively addressing.
Challenging Macro Environment
The macroeconomic environment remains challenging, impacting consumer spending and exerting pressure on pricing strategies. This external factor continues to be a hurdle for El Pollo Loco.
July Sales Slowdown
The company observed a slowdown in sales during July, described as ‘choppy,’ which could potentially affect third-quarter results.
Higher Operating Expenses
Operating expenses increased, with occupancy and other costs rising by 150 basis points as a percentage of company restaurant sales.
Forward-Looking Guidance
El Pollo Loco provided forward-looking guidance, projecting total revenue for the quarter at $125.8 million and company-operated restaurant revenue at $104.3 million, marking a 2% increase from the previous year. The company anticipates opening 10 to 11 new restaurants in 2025, with capital spending estimated between $31 million and $34 million. Full-year restaurant contribution margins are expected to range from 17.25% to 17.75%.
In summary, El Pollo Loco’s earnings call conveyed a positive sentiment, driven by strong revenue growth and innovative product launches. While challenges persist, the company’s strategic initiatives and forward-looking guidance reflect a commitment to sustaining growth and overcoming obstacles in a challenging macroeconomic environment.