El Pollo Loco Holdings, Inc. Q1 FY2025 earnings call

Brand Turnaround - Progress and Initiatives

• In the second year of brand turnaround, despite challenging consumer environment, progress made. First quarter results underwhelming but initiatives like brand relaunch and menu innovation planned.
• Product innovations: Mango Habanero fire-grilled chicken drove trial; upcoming fresco wraps and salads, and quesadilla launch. Quesadilla combo priced at $9.99, targeting value and younger consumers.
• Brand transformation: Third-party research confirms consumer equity around quality, fresh ingredients; plan to unveil new brand campaign with updated aesthetic and marketing approach.

Hospitality Mindset - Operational Focus

• Implemented new customer feedback system with SMG to improve closed loop feedback, order accuracy, and hospitality. Focus on driving consistency in service across company and franchise restaurants.

Winning Economics - Cost and Development

• Focus on improving unit economics through cost savings and asset modernization. Seamlessly shifted distribution to PFG; progress on new build prototype with targeted cost below $2 million. Plan to open at least 10 system-wide restaurants in 2025, with majority outside California; expect to remodel 60 - 70 system-wide restaurants this year.

For the first quarter ended March 26, 2025, total revenue was $119.2 million, compared to $116.2 million in the first quarter of 2024. Company-operated restaurant revenue increased 1.2% to $98.4 million from $97.2 million in the same period last year. Franchise revenue increased 16.2% to $13.2 million. Food and paper costs as a percentage of company restaurant sales decreased 120 basis points year-over-year to 25.2%. Labor related expenses as a percentage of company restaurant sales increased about 120 basis points year-over-year to 32.7%. Occupancy and other operating expenses as a percentage of company restaurant sales increased 150 basis points year-over-year to 26.1%. The restaurant contribution margin for the first quarter was 16%, compared to 17.6% in the year-ago period.

2025 Guidance

• Open 10 to 11 system-wide restaurants, including 9 to 10 franchise restaurants and up to one company-owned restaurant.
• Capital spending of $30 million to $34 million.
• G&A expenses of $48 million to $51 million, including approximately $5.5 million in stock compensation expense.
• Estimated effective income tax rate of 29% to 29.5% before discrete items.

Risks

• Consumer pullback and economic uncertainty impacting sales.
• Commodity and wage inflation affecting margins. Wage inflation expected to be 4% - 5% for company-owned locations in 2025.
• Impact of tariffs on build costs.
• Execution risks in brand transformation and operational improvements.

Q: Jeremy Hamblin from Craig-Hallum Capital Group asked about Q2 same-store sales expectations.

A: Liz Williams said the consumer pullback is continuing in Q2, but the brand relaunch and value/innovation efforts (like quesadilla and highlighting value across menu) are underway, with lap getting easier in the back half of the year.

Q: Jake Bartlett from Truist Securities asked about regional differences and menu price.

A: Liz Williams noted similar consumer pullback across regions, and menu price is expected to be around 3% for the year, with Q2 at about 3% and Q3 - Q4 at about 2%. Ira Fils added there's a project (Project FIRE) for supply chain optimization.

Q: Andy Barish from Jefferies asked about March performance and operational gaps.

A: Liz Williams mentioned weather (three weeks of rain in March) and operational execution issues as factors in softer March, and focus on back-to-basics operational improvements like accuracy, hospitality, and optimizing labor through equipment and routine changes.