El Pollo Loco’s Earnings Call Highlights Growth and Challenges

El Pollo LoCo Holdings ((LOCO)) has held its Q4 earnings call. Read on for the main highlights of the call.

El Pollo Loco’s recent earnings call painted a largely positive picture, emphasizing notable achievements in revenue growth, margin improvement, and strategic expansion plans. These accomplishments were driven by culinary innovation and cost-saving initiatives. However, the company also acknowledged challenges such as decreased transactions and wage inflation. Overall, the sentiment was optimistic, reflecting strong progress towards the company’s goals.

Revenue Growth

The earnings call revealed that El Pollo Loco’s total revenue for the fourth quarter reached $114.3 million, marking a 1.8% increase from $112.2 million in the same period of 2023. This growth was mirrored in the company-operated restaurant revenue, which also saw a 1.8% rise.

Margin Improvement

El Pollo Loco reported an improvement in restaurant contribution margins, which increased to 17.4% for 2024. This represents a 190 basis point improvement year-over-year, showcasing the company’s successful efforts in enhancing profitability.

Culinary Innovation

The introduction of new products such as Mango Habanero chicken and fresca wraps and salads has been a key driver of consumer interest and operational simplicity, contributing to the company’s positive performance.

Expansion Plans

El Pollo Loco plans to open 10 new restaurants in 2025, focusing on expanding beyond California into states like Arizona, Colorado, and Texas, indicating a strategic move to broaden its market presence.

Cost Savings Initiatives

The company has identified cost savings across its profit and loss statements, which have contributed to improved economics and profitability, further strengthening its financial position.

New Restaurant Prototype

A new iconic restaurant prototype has been introduced, designed to reduce build costs and enhance cash-on-cash returns, with build costs kept under $2 million.

Positive Customer Feedback

El Pollo Loco has implemented a new customer feedback system aimed at improving service quality and customer satisfaction, reflecting its commitment to enhancing the customer experience.

Franchise Expansion Interest

There has been increased interest and engagement from franchise partners, with ongoing discussions and meetings indicating potential growth in franchise operations.

Decrease in Transactions

Despite a 9% increase in average check size, the company experienced a 6.8% decrease in transactions during the fourth quarter, highlighting a challenge that needs addressing.

Wage Inflation Impact

Wage inflation, driven by a 15% increase due to California’s minimum wage hike, has impacted labor expenses, posing a challenge to maintaining cost efficiency.

Franchise Comparable Sales Decline

Franchise revenue was slightly affected by a comparable restaurant sales decrease of 0.1%, indicating a need for strategies to boost franchise performance.

Occupancy and Operating Expenses Increase

The company reported a 60 basis point increase in occupancy and other operating expenses due to higher rent and third-party delivery expenses, impacting overall cost management.

Forward-Looking Guidance

Looking ahead, El Pollo Loco’s guidance for 2025 includes plans to open 1 to 2 company-owned restaurants and 8 to 9 franchise restaurants, with a capital expenditure plan of $30 million to $34 million. The company expects general and administrative expenses to range between $48 million and $51 million. Despite a 25 basis point unfavorable impact from new tariffs, the restaurant contribution margin is projected to be between 17.25% and 17.75%. Wage inflation is anticipated to be 5% to 6%, with commodity inflation expected between 1.5% and 2.5%. Additionally, the company plans to remodel 60 to 80 restaurants to enhance customer experience and operational efficiency.

In conclusion, El Pollo Loco’s earnings call highlighted a positive trajectory, with significant achievements in revenue and margin improvements, alongside strategic expansion plans. While challenges such as decreased transactions and wage inflation remain, the company’s focus on culinary innovation and cost-saving initiatives positions it well for future growth and profitability.