El Pollo Loco Holdings, Inc. Q3 FY2024 earnings call

• Drove top line growth through a 2.7% increase in system-wide comparable sales and expanded restaurant level margins 230 basis points year-over-year to 16.7%.
• Made progress on reducing the cost of prototype to stimulate future restaurant development. Invited franchise partners to annual conference, energized to tackle key priorities: consistent sales growth, improved margins, and unit development.
• Launched promotions like $5 Hoya bowl starting in November and Taco Tuesday with two tacos for $5. Utilized Loco Rewards app to drive trial and repeat visits.
• On track to complete kiosk rollout by early Q1 2025, with additional technology enhancements. Raised margin expectations for 2024, expecting to end 2024 in the range of 16.75% to 17.25%.
• Unveiled new iconic restaurant prototype with reduced build cost. Plan to remodel roughly half of the system over the next four years through a two-tiered approach. Aimed to lower new unit build cost to around $1.8 million and has units in planning for opening in 12-18 months.

For the third quarter ended September 25, 2024, total revenue was $120.4 million, unchanged from the third quarter of 2023. Company operated restaurant revenue decreased 1.5% to $101.2 million. Franchise revenue increased 10.5% to $11.3 million. Food and paper costs as a percentage of company restaurant sales decreased 170 basis points year-over-year to 25.1%. Labor and related expenses as a percentage of company restaurant sales increased about 15 basis points year-over-year to 32.4%. Occupancy and other operating expenses as a percentage of company restaurant sales decreased 80 basis points year-over-year to 25.8%. Restaurant contribution margin for the third quarter was 16.7% compared to 14.4% in the year ago period. For the full year 2024, expected restaurant contribution margin is in the range of 16.75% to 17.25%.

• Expect to open 2 company operated restaurants and 3 to 4 franchised restaurants in 2024.
• Capital spending of $21 million to $23 million.
• G&A expenses of $45 million to $47 million excluding onetime costs.
• Adjusted income tax rate of 27.5% to 28%.

• Forward-looking statements subject to numerous risks and uncertainties that could cause actual results to differ materially from expectations, refer to SEC filings for detailed risks.
• Macro-economic environment putting pressure on consumers, competitive environment changes may impact business.
• Uncertainty regarding the effectiveness of promotional activities.
• Risks associated with execution of cost savings initiatives.

Q: Just looking at the sequential progression in same store sales drop, what are the components of that? Is there a change in average check or traffic?

A: Yes, it's the value-oriented consumer needing more value. We've been working on new innovation like the $5 Hoya bowl and Taco Tuesday. Reheats are losing some steam. We'll see continued emphasis on value and more new innovation next year.

Q: How high is up on restaurant level margin without generating positive traffic?

A: We have cost initiatives to continue growing margins next year, especially on procurement side. We're willing to invest to drive traffic while also growing profit, like with catering partnerships.

Q: What's the experience with the $5 promotion? When was the last national run and outcome?

A: Need to dig to find last national run. It's a responsive LTO. We also do coupon drops which get responsive reactions. We're using coupons, app offers, $5 Hoya bowl and Taco Tuesday to reach consumers.

Q: Contracting on chicken for next year and menu price?

A: Looking at very moderate pricing next year. Not locked in chicken yet, but in the middle of RFP process on chicken, feeling good about direction.

Q: On unit fleet, any store closures or refranchising?

A: System volumes are healthy, franchise system is tight, seasoned, financially conservative and healthy. Unveiled new work at franchise conference, franchisees are excited about growth pipeline for next couple of years.