El Pollo Loco Holdings, Inc. (LOCO) Earnings

Management highlights

- Menu Innovation and Brand Marketing * Launched three new products in Q2 2026: Loco Tenders (LTO, launched end of Q1), Loaded Quesadillas (late June), and Chata Coffee new beverage platform. Loco Tenders successfully attracted new, younger consumers, drove trial across cohorts, and performed well in snack and late-evening day parts, with management planning to bring the product back permanently after operational testing. Early response to Loaded Quesadillas and Chata Coffee has been strong, with products designed to capture underserved on-the-go and afternoon pick-me-up occasions. * The "Let's Get Loco" marketing campaign leveraged culturally relevant activations (including a National Go Skateboarding Day partnership with Olympic skateboarder Paige Haynes, World Cup advertising, and brand partnerships with Igloo Coolers, SandCloud, and Tapatio) to expand reach beyond El Pollo Loco's traditional audience. A strong innovation pipeline is in place for the second half of 2026 and 2027. - Digital and Loyalty * Digital sales (app, web, kiosk) represented 28% of system sales and grew 13% year-over-year. Off-premise digital sales (including delivery) represented almost 17% of total sales and grew 12% year-over-year. * Loyalty members visit 3x more frequently annually than non-members. Targeted segmented offers based on purchase behavior, recurring weekly/monthly value deals, and exclusive early access to new products have driven stronger frequency and check growth among loyalty members than non-loyalty guests. The new summer Loco Days promotion has exceeded early engagement expectations. - Operations and Technology * System-wide guest satisfaction scores improved year-over-year across order accuracy, speed of service, and staff friendliness. Restaurant-level margin came in at 19.5%, within the long-term 18-20% target range, up 40 basis points year-over-year, despite 90 basis point of food cost inflation driven primarily by produce price spikes. * A new Chief Technology Officer joined in 2026, and investments in AI and modern technology are improving operational insights, training, and restaurant support. - Development and Refresh * A new Chief Development Officer joined in late June 2026, with extensive experience in quick-service restaurant expansion. El Pollo Loco entered its 10th state (Idaho) in Q2, adding 3 new states in under 24 months, with nearly all new openings located outside of California. Refreshed restaurants deliver a consistent mid-single-digit same-store sales lift, in line with prior guidance.

Guidance

- System-wide full year 2026 comparable store sales growth guidance is increased to 3.5% to 4.5%, from prior guidance. - Adjusted EBITDA guidance for full year 2026 is increased to $68 million to $70 million. - Expected 2026 capital expenditure is reduced to $33 million to $37 million, driven by timing adjustments to restaurant remodel projects and new product equipment testing. - Full year 2026 restaurant-level margin guidance is 18.25% to 18.75%, an increase from 17.8% in 2025. Q3 2026 restaurant-level margin is expected to be 18% to 18.5%, in line with Q3 2025. - 2026 full year commodity inflation is expected to be 2.5% to 3.5%, and wage inflation is expected to be 1.5% to 2.5%. - Guidance for 18 to 20 total new system-wide restaurant openings in 2026 (3 to 4 company-operated, 15 to 16 franchise-operated) is maintained. Depreciation and amortization is expected to be $18 million to $18.5 million, G&A (excluding one-time items) is expected to be $52 million to $54 million, and the effective tax rate is expected to be 29% to 29.5% before discrete items, all unchanged from prior guidance. - Q3 2026 system-wide same-store sales are expected to be 3.5% to 4.5%, after a 5.8% increase through July 29, 2026.

Segment performance

El Pollo Loco reports two core operating segments: company-operated restaurants and franchise operations. For Q2 2026, total company revenue was $129.6 million, up 3.0% year-over-year from $125.8 million in Q2 2025. Company-operated restaurant revenue was $108.1 million, an increase of 3.7% year-over-year, and contributed 83.4% of total revenue. The growth in this segment came from 3% comparable restaurant sales growth and incremental sales from 3 new company-operated restaurants opened since Q2 2025. Franchise revenue was $12.9 million, a 3.8% decrease year-over-year, and contributed 10.0% of total revenue. The decline was driven by a $1.1 million drop in one-time franchise IT pass-through revenue from the 2025 point-of-sale system rollout; organic franchise performance was strong, with 4.5% comparable franchise restaurant sales growth and incremental revenue from 11 new franchise restaurants opened since Q2 2025. System-wide same-store sales for all segments combined were up 3.9% year-over-year.

Risks & headwinds

- Forward-looking statements regarding new products, expansion, sales performance, and margins are subject to risks and uncertainties that could cause actual results to differ materially from expectations, with detailed risk factors available in the company's SEC filings (Form 10-K 2025 and upcoming Form 10-Q Q2 2026). - Commodity price volatility remains a risk: Q2 2026 saw significant produce price inflation that increased food and paper costs by 90 basis points year-over-year, with ongoing pressure seen in packaging, oil, and fuel delivery costs even as produce pressure moderated. - New national expansion into non-contiguous markets carries execution risk, dependent on finding qualified, experienced multi-unit franchise partners to maintain consistent operational quality. - Operational execution risk exists for adding permanent new menu items (like Loco Tenders), which requires additional equipment modifications and training to maintain restaurant-level efficiency and margins. - Food safety and supply chain sourcing risk exists, aligned with broader industry concerns around produce contamination.

Analyst Q&A

• Q: Todd Brooks (Benchmark Stonex) asked for an update on new market performance, the geographic scope of franchise interest for national expansion, and criteria for franchise partners entering non-contiguous new markets. /

  A: Management reported new market locations are opening well above system average sales, exceeding expectations, and confirming consumer demand for El Pollo Loco's fire-grilled chicken outside the brand's historic footprint. Interest from prospective franchise partners is nationwide, and management is open to entering non-contiguous markets across the U.S., including the heavily populated East Coast. El Pollo Loco prioritizes experienced multi-unit restaurant operators with a track record of strong operations, enthusiasm for the brand, and belief in the brand's unit economics, and often leverages existing experienced franchise partners for new market entry (such as the Idaho market entry by a longstanding El Pollo Loco franchisee).

• Q: Matt Curtis (DA Davidson) asked what drove Q3-to-date accelerated comparable sales growth in July, why the full Q3 guidance implies moderation from the 5.8% July pace, and what learnings came from Loco Tenders that would enable a permanent return to the menu. /

  A: Management said July's strong performance came from a combination of factors: early momentum from the new Loaded Quesadillas launch, strong World Cup advertising lift, easier year-over-year comparisons, and increased in-restaurant dining trends. The 3.5% to 4.5% Q3 guidance reflects that July had outsized one-time benefits from the World Cup, and the full-quarter guidance aligns with the consistent 4% trend set in Q2. Loco Tenders successfully drove strong new customer acquisition (especially younger consumers) and incremental sales in snack and late-night day parts, but was launched as an LTO due to insufficient holding equipment for consistent high-velocity operation. Management is currently testing new holding equipment to add Loco Tenders as a permanent menu item, and is exploring additional tender-based menu extensions.

• Q: Jeremy Hamblin (Craig Helm) asked if El Pollo Loco faced any jalapeno/lettuce sourcing or food safety issues aligned with recent industry recalls, and what drove the reduction in 2026 capital expenditure guidance while unit growth guidance remained unchanged. /

  A: Management confirmed El Pollo Loco was not affected by recent industry produce recalls: all lettuce is sourced domestically from unaffected suppliers, and El Pollo Loco uses serrano peppers rather than jalapenos from the problematic supplier in recent headlines. No product has been recalled and no illnesses have been linked to the brand, and salad sales remain strong. The capital expenditure reduction is due solely to timing adjustments: permitting delays for the restaurant remodel program, and timing delays for testing Loco Tenders holding equipment, not project cancellations or changes to new unit growth plans.