El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) Q1 2023 Profits Convention Name Would possibly 4, 2023 4:30 PM ET
Ira Fils – Leader Monetary Officer
Larry Roberts – President and Leader Government Officer
Convention Name Individuals
Jake Bartlett – Truist Securities
Andy Barish – Jefferies
Just right day, women and gents, and thanks for status by way of. Welcome to the El Pollo Loco First Quarter 2023 Profits Convention Name. [Operator Instructions] Please notice that this convention name is being recorded nowadays, Would possibly 4, 2023. And now I wish to flip the convention over on your host, Ira Fils, the corporateâs Leader Monetary Officer. Please pass forward.
Thanks, operator, and excellent afternoon. Through now, everybody must have get entry to to our first quarter 2023 profits free up. If no longer, it may be discovered at www.elpolloloco.com within the Investor Members of the family segment.
Ahead of we commence our formal remarks, I wish to remind everybody that our discussions nowadays will come with forward-looking statements, together with statements associated with our strategic pillars and strategic tasks, our operational plans, advertising and marketing and new product tasks, money go with the flow expectancies, capital expenditure plans, transform plans, anticipated new shop openings and franchise partnerships and our 2023 steerage, amongst others. Those forward-looking statements aren’t promises of long run efficiency, and due to this fact, you must no longer put undue reliance on them. Those statements also are topic to a large number of dangers and uncertainties that would motive precise effects to range materially from what we lately be expecting. We refer you to our fresh SEC filings, together with our Shape 10-Ok for a extra formal detailed dialogue of the dangers that would affect our long run working effects and monetary situation.
We think to record our 10-Q for the primary quarter of 2023 the next day and would inspire you to study that report at your earliest comfort. All through nowadaysâs name, we will be able to talk about non-GAAP measures, which we imagine can also be helpful in comparing our efficiency. The presentation of this extra knowledge must no longer be thought to be in isolation or as an alternative to effects ready based on GAAP, and reconciliations to related GAAP measures are to be had in our profits free up, which is to be had in the Investor Members of the family segment of our site.
With recognize to the eating place contribution margin outlook, we will be able to be offering on nowadaysâs name, please notice that we have got no longer supplied a reconciliation to probably the most immediately related forward-looking non-GAAP monetary measure as a result of with out unreasonable efforts, we’re not able to are expecting with affordable simple task the volume of or timing of non-GAAP changes which are used to calculate source of revenue from operations and company-operated eating place income on a forward-looking foundation.
Now I wish to flip it over to our President and CEO, Larry Roberts.
Thank you, Ira, and excellent afternoon, everybody. We’re inspired by way of the begin to 2023 as we completed certain formula related eating place gross sales enlargement of 0.8% all over the primary quarter in spite of unparalleled California climate, which we imagine impacted related eating place gross sales by way of 2 to 4 share issues and lapping closing 12 monthsâs extremely a hit Red meat Birria promotion. The rise integrated a three.8% building up at company-owned and a 1% lower at franchise eating places.
Our focal point on restaurant-level working controls was once instrumental in using a year-over-year 470 foundation level development in eating place point margins to fifteen%, which enabled us to ship adjusted profits consistent with percentage of $0.14. This was once completed whilst customer support metrics persevered to succeed in new highs. At the construction entrance, we just lately signed 3 franchise construction agreements for an incremental 26 new eating places in 3 new markets, which might be Northern Colorado, New Mexico and El Paso, Texas. As well as, the franchise eating place opened closing November within the Denver space continues to accomplish rather well with gross sales averaging over $70,000 every week, which highlights the good fortune we will have as we extend into new markets.
One additional notice is that during April, we applied a reorganization of our enhance middle to cut back G&A spend and reallocate assets to operation products and services and advertising and marketing. We imagine that this reorganization will lead to persevered development of eating place operations and higher execution of our model methods, either one of which is able to construct gross sales over the longer term.
Let me now communicate concerning the development weâve made in opposition to a number of of our key strategic pillars. As discussed on our closing profits name, previous this 12 months, we employed a brand new ingenious company, Natural to assist us construct consciousness and power our model differentiation, which we name personal [indiscernible]. As a part of the business plan, we’re bringing a brand new glance and effort to our promoting throughout all media channels. We imagine that this method will resonate with each mothers and households whilst additionally attracting more youthful customers. Our new method debuted with the double white meat tostada restricted time be offering that started in past due February and featured each red meat and white meat choices.
Regardless of being our 3rd consecutive 12 months selling this product, tostada gross sales completed a document top mixture of over 19% all over the promotion. Put up promotion, tostada persevered to combine at round 15% of gross sales, which is up from 13.5% pre-promotion and represents our best possible promoting non-chicken on-the-bone menu merchandise. So as to add some further context to the good fortune of Tostada, simply 2 years in the past, they represented 8.5% of our gross sales blend. Through constantly selling an excessively differentiated product, weâve just about doubled their gross sales blend in simply 2 years. In past due April, we introduced again shredded red meat Birria as a restricted time be offering for the second one 12 months operating. Very similar to closing 12 months, our visitors can revel in this menu merchandise in numerous entrees, together with crunchy tacos, grilled Burritos and overstuffed quesadilla which can also be dipped right into a Mexican-inspired consummate.
Whilst it’s going to be tough to check closing 12 monthsâs document efficiency, we imagine that red meat Birria will power frequency and draw in new consumers to El pollo loco whilst additionally offering further comments as we assess red meat as an enduring menu merchandise. As a part of our model evolution, we proceed to guage our menu method with a menu board check this is lately in procedure. In the course of the menu board check, we want to reach 2 issues: first, make it more uncomplicated for customers to grasp and navigate our menu; and 2d, determine new menu IMs and platforms that can resonate with customers and construct gross sales over the longer term. Many pieces we’re checking out come with new add-on snacks, stuff quesadilla, hardshell tacos, red meat and new drinks.
Relying at the check effects, we predict to roll out a revised menu and menu board within the fall. Along with the menu board check, weâve advanced a number of catering ideas that we will be able to be screening with customers with the objective of launching a remodeled catering program later this 12 months. This system will be offering extra choices for purchasers as opposed to our present focal point on white meat at the bone. We imagine offering selection is extra in step with the way in which customers consuming teams nowadays, particularly in workplaces.
These days, catering gross sales constitute roughly 1% of our general formula gross sales. The precise program and focal point, we imagine catering has possible to be an important gross sales layer for our eating places. To additional power our process of attracting younger customers in early Would possibly, we introduced our remodeled app and loyalty program. Those upgrades make it more uncomplicated for purchasers to reserve meals and the loyalty program supplies further choices for engagement and tiers of meals redemptions.
To assist advertise the brand new loyalty program, we’re developing Pollo millionaires. As soon as an afternoon for 30 days, we’re rewarding an current or new loyalty member with 1 million praise issues. The brand new app has been neatly won with a 4.5 megastar ranking, whilst sign-ups for our loyalty program have kind of doubled as opposed to prior traits. We think that each the app and loyalty program will simplest recuperate as we proceed to replace them and cause them to much more enticing for our consumers.
Transferring to operations. Within the first quarter, we persevered to make vital development in opposition to our strategic pillar of handing over crucial provider profitably. 97% of our eating places at the moment are totally staffed and workforce member turnover all over the primary quarter was once beneath 100%, which we imagine is considerably underneath our competition. The low turnover displays our persevered efforts to construct a popularity tradition and create a super paintings atmosphere for our workers. Alongside those traces, closing week, we finished the rollout of our remodeled onboarding program, which very much simplifies and improves the revel in of recent workers becoming a member of our eating place groups.
On account of those efforts, all over the primary quarter, we proceed to look enhancements in our corporation and franchise eating place provider metrics, together with drive-through instances, social media scores and buyer court cases. As we proceed to support customer support around the formula, we also are making vital development, higher managing hard work and meals prices at company-operated eating places, which is appearing up in our working margins. Exertions efficiencies and meals waste are neatly managed, and we’ve got considerably diminished time beyond regulation pay and meal brake consequences.
Along with eating place point price control, undertaking groups are operating in opposition to further margin-enhancing alternatives, which we predict to ship effects as we head into 2024. In terms of our efforts to simplify operations, the rollout of â so tanks shall be finished in Would possibly for corporation eating places and later this summer season for franchisees. We additionally proceed to make excellent development in simplifying sauce preparation and weâll be putting in dishwashers and eating places that experience area to be had. One particularly promising initiative is self-ordering kiosks, which at the moment are put in in 10 company-owned eating places. In response to effects to this point during which we’re seeing excellent reasonable take a look at enlargement, we’re increasing the check to ten extra company-owned eating places and plenty of franchisees shall be putting in them over the following a number of months. Equipped we proceed to look certain effects, we predict to boost up this system later this 12 months.
With that, letâs talk about our closing motive force, accelerating construction. As highlighted previous, we just lately signed 3 further franchise construction agreements with 2 new franchisees to open a complete of 26 new eating places over the following a number of years in 3 new markets. Blended with in the past signed agreements, now we have franchise construction actions underway in 12 states. Whilst we made thrilling development in our franchise construction efforts, our crew continues to paintings on securing new agreements, and we sit up for saying further partnerships because the 12 months progresses.
In ultimate, we stay focused on the alternatives forward for El Pollo Loco with advanced operations, aided by way of a well-recognized tradition, tasks in position that can additional differentiate our model, power consciousness for more youthful customers and construct gross sales layers and renewed efforts to draw top of the range franchisees to the El Pollo Loco formula, we imagine that we’re positioning ourselves for gross sales and benefit enlargement. Iâd like to near by way of thanking each and every member of our familia, together with all of our crew individuals and franchisees for the paintings they do each and every and on a daily basis to make El Pollo Loco a really particular model.
With that, let me flip the decision over to Ira for a extra detailed dialogue of our first quarter monetary effects.
Thanks, Larry, and excellent afternoon, everybody. For the primary quarter ended March 29, 2023, general income greater 4.1% to $114.5 million in comparison to $110 million within the first quarter of 2022. Corporate-operated eating place income greater 4.2% to $97.9 million from $94 million in the similar duration closing 12 months. The rise in company-operated eating place gross sales was once basically pushed by way of a three.8% building up in company-operated related eating place gross sales. The rise in company-operated related eating place gross sales was once made from a 6.3% building up in reasonable take a look at dimension, in part offset by way of a 2.4% lower in transactions.
All through the primary quarter, our efficient menu value building up as opposed to 2022 was once roughly 11%. As we glance forward, we imagine system-wide related gross sales shall be flat to down 2% for the second one quarter as we lap our extraordinarily a hit red meat Birria promotion closing 12 months. Franchise income was once $9.7 million all over the primary quarter in comparison to $9.3 million within the prior 12 months duration. The rise was once pushed by way of the outlet of 9 new franchise eating places opened all over or next to the primary quarter of 2022 and income generated from 3 company-owned eating places offered to an current franchisee all over the fourth quarter of 2022 and 1 within the first quarter of 2023. This was once in part offset by way of a franchise related eating place gross sales decline of one%.
Turning to bills. Meals and paper prices as a share of corporation eating place gross sales lowered 200 foundation issues year-over-year to 27.5% because of upper menu costs, in part offset by way of greater commodity prices. Commodity inflation all over the primary quarter was once roughly 4% and did reasonable considerably from 16% all over the fourth quarter of 2022. We now be expecting commodity inflation to slow down to between 2% and three% for 2023. Exertions and connected bills as a share of corporation eating place gross sales lowered 260 foundation issues year-over-year to 32.2% because of decrease COVID-19-related unwell pay, decrease time beyond regulation expense, decrease staffâ reimbursement expense and the affect of upper menu costs, in part offset by way of upper salary charges. Exertions inflation all over the primary quarter was once a little bit over 4%. We think salary inflation of four% to five% for 2023. Occupancy and different working bills as a share of corporation eating place gross sales was once flat year-over-year at 25.4%, basically because of upper maintenance and upkeep bills in addition to upper occupancy-related bills being offset by way of upper menu costs.
Our eating place contribution margin for the primary quarter was once 15% in comparison to 10.3% within the 12 months in the past duration. For the second one quarter, we predict our eating place contribution margin to be between 16.5% and 17.5%. For the entire 12 months 2023, we now be expecting our eating place contribution margin to be within the 15% to 17% vary. Normal and administrative bills greater 80 foundation issues year-over-year to 9.8% of general income. The rise for the quarter is because of upper labor-related bills, basically upper incentive reimbursement. As well as, we incurred one-time bills associated with the new percentage distribution.
As we undergo 2023, we’re actively operating on figuring out techniques to support potency in our trade. To that finish, we at the moment are within the means of reallocating assets to additional enhance eating place operations and long run gross sales enlargement, as Larry discussed in the past. Because of this, we will be able to incur roughly $1.1 million in one-time restructuring-related prices all over the second one quarter. Such will lead to an roughly $1 million aid in our total G&A spend for the steadiness of the 12 months as assets are reallocated.
All through the primary quarter, we recorded a provision for source of revenue taxes of $2 million for an efficient tax fee of 28.4%. This compares to a provision for source of revenue taxes of $0.9 million and efficient tax fee of 30% within the prior 12 months first quarter. We reported GAAP web source of revenue of $4.9 million or $0.13 consistent with diluted percentage within the first quarter in comparison to GAAP web source of revenue of $2.1 million or $0.06 consistent with diluted percentage within the prior 12 months duration. Adjusted web source of revenue for the quarter was once $4.9 million or $0.14 consistent with diluted percentage in comparison to adjusted web source of revenue of $2.6 million or $0.07 consistent with diluted percentage within the first quarter of closing 12 months. Please discuss with our profits free up for a reconciliation of non-GAAP measures.
All through the primary quarter, we revamped seven company-operated eating places and 7 franchise eating places. We proceed to be expecting to transform 10 to fifteen company-operated places and 20 to 30 franchise places in 2023. With regard to new eating place construction, we now be expecting 3 to 5 corporation openings and 6 to 9 franchise openings as allowing and different construction delays have driven shop openings at the beginning deliberate for the again part of 2023 into 2024.
Turning to liquidity, as of March 29, 2023, we had $58 million of debt exceptional and $4.8 million in money and money equivalents. We additionally paid down $8 million on our 2022 revolver all over the primary quarter. Next to the top of the quarter, we borrowed an extra $2 million. And as of Would possibly 4, 2023, our exceptional borrowings have been $60 million. All through the quarter, we repurchased 552,000 stocks for about $6.2 million. As of March 29, 2023, we had roughly $13.8 million closing on our present percentage repurchase program. Next to the top of the quarter, via April twenty eighth, we repurchased an extra 453,000 stocks for about $4.1 million.
In spite of everything, according to our effects to-date, we wish to give you the following replace to our 2023 steerage, the outlet of 3 to 5 company-owned eating places and 6 to 9 franchised eating places, transforming of 10 to fifteen company-owned and 20 to 30 franchise eating places, capital spending of $25 million to $29 million. G&A bills at the moment are anticipated to be from $42 million and $45 million, inclusive of roughly $1.4 million in one-time prices associated with the reorganization and the new percentage distribution and an adjusted source of revenue tax fee of 26.5% to 27.5%.
This concludes our ready remarks. We wish to thanks once more for becoming a member of us at the name nowadays. And we at the moment are glad to respond to any questions that you will have. Operator, please open the road for questions.
[Operator Instructions] First query is from Jake Bartlett from Truist Securities. Please pass forward.
Smartly, thanks such a lot for taking the query. Larry or Ira, my first is at the steerage for the second one quarter and roughly additionally what you reported within the first. And also you discussed a climate affect of two% to 4%. First query is, how have you learnt whatâs climate and whatâs no longer, which means, how assured are you that thatâs whatâs pushed the decrease same-store gross sales within the first quarter than differently. After we pay attention from different firms that they aren’t highlighting California as being specifically vulnerable, and so I’m simply looking to reconcile that along with your remark at the climate.
Sure, Jake. So, the way in which we measure this is we in fact check out the ones days during which we had rain as opposed to those who we didn’t after which we have a look at the comp gross sales hole between the 2. And so what we see is on a wet day, we will be able to see someplace round 6 to eight share issues drop in gross sales relative to a non-rainy day. And in order thatâs the place we are available with it. We donât have a look at climate chilly days as opposed to heat days, itâs truly strictly rain days as opposed to non-rain days. And the only factor I’d spotlight is, I feel one reason possibly we see climate extra closely affect us is that if you happen to pass right into a El Pollo Loco eating place for lunch time, you notice a large number of staff in our eating places getting their white meat on a bone foods and issues. And so obviously, on a wet day, a lot of them aren’t operating. They’re in most cases operating on lawns, on roofs, portray properties and the ones issues. So, perhaps thatâs the explanation why we see a heavier affect in every other ideas. However thatâs the way in which we measure it. Rain days with non-rand days and notice what that hole is, and thatâs how we estimate what the elements affect is.
Were given it. Admire that. And any other query roughly development on only a query of underlying traits for you, are you seeing any shifts in how your other client cohorts are behaving, which means any incremental power at the decrease finish client, your circle of relatives client. I’m looking to truly simply work out how â simply perceive higher how you might be situated for the present macro atmosphere.
Sure, Jake. So, I feel itâs beautiful very similar to what we’ve got mentioned truly, I feel within the closing couple of quarters the place we mentioned that we do suppose we’re seeing perhaps some pullback from a decrease name it, source of revenue client in two techniques. One is round simply no longer spending as a lot as a result of we’ve got observed plenty of pieces for take a look at drop a bit of. And I feel you might also be seeing it a little bit bit on the subject of vacant seat. And I feel we generally tend to look it extra â a little bit bit extra dinner than we do, say, all over the remainder of the day. So, we’re operating on some issues to deliver extra price to the menu. For instance, we do now have 3 other bowls for $5 which are in our eating places to deliver that price. We marked them a little bit bit for a few weeks, and itâs one thing we would possibly glance to deliver again and do some bit extra advertising and marketing on truly to deal with that price of the aware client. We’ve observed a pleasing pickup in blend on our $5 bowls. So, we do have that, and we’re browsing at different issues during which we glance to possibly deliver a little bit extra price to the menu at excellent benefit, at excellent benefit issues on the ones. I imply thatâs a wonderful thing about bowls is the meals prices are moderately low, so you’ll be able to in fact pass beautiful competitive on value issues and nonetheless ship excellent margins on the ones. So, we’re browsing at extra of the ones forms of issues. However once more, I donât suppose the traits have modified that a lot from what we’ve got observed truly since â I imply truly fourth quarter closing 12 months. I feel we’ve got first began seeing possibly a little bit bit pullback from some customers.
Nice. I recognize it. Thanks such a lot.
Thanks. The following query we’ve got is from Andy Barish from Jefferies. Please pass forward.
Hi there. Just right afternoon guys. Throughout the formula, gross sales were given a flat to adverse 2%, are you continue to anticipating company-owned to be certain? And if it is advisable give us perhaps a way of demanding situations and lapping Birria as your very best promotion, simply roughly what â perhaps what itâs making now as opposed to the height of what it makes closing 12 months, that can give us a little bit bit extra standpoint on issues as neatly?
Certain. I will be able to get started with the second one a part of that query. For those who checked out Birria closing 12 months, I imply it were given as much as up to a little bit over 12% blend and truly stayed double-digit mix-wise for approximately six weeks or seven weeks. So, as we highlighted closing 12 months, I imply it was once an excessively distinctive unique product that we got here out with and had an enormous reaction from customers. And so that you noticed an enormous building up. And prefer we highlighted closing 12 months additionally, we noticed document gross sales weeks closing 12 months on account of the Birria promotion. This 12 months, sure, It’s not that i am going to offer precise numbers. We’re seeing most definitely a little bit bit standard to somewhat above standard blend on the subject of Birria. So and I feel it displays that. And thatâs no longer unexpected. We knew that was once going to be the case or that without a doubt would no longer â or most definitely would no longer be as sturdy as closing 12 months, for the reason that closing 12 months, brand-new product, no person else was once doing Birria, the rest find it irresistible. And this 12 months, simply no longer as thrilling information as closing 12 months. So, no longer unexpected, thatâs blending decrease. Itâs extra like I mentioned, standard to somewhat higher than standard on the subject of the combo. However we do suppose itâs bringing in some customers that typically wouldnât come to us. And prefer I mentioned, itâs going to offer us a excellent learn at the red meat as we proceed to have a look at that as being a conceivable everlasting menu merchandise and we come with that red meat in our menu check that we’re lately doing and browsing to extend. So, thatâs the second one section. And on the subject of the traits corporation franchise, I imply the traits you might be seeing lately on the subject of the corporate being the next same-store gross sales as opposed to franchise. We think that to proceed without a doubt via the second one quarter. And once more, that simply displays â I feel a part of this is only a lap year-over-year of the corporate gross sales as opposed to franchisees, as a result of franchisees all over this time-frame closing 12 months have been truly, truly top gross sales enlargement. And so there’s a lap receive advantages for corporation eating places as opposed to franchisees.
Were given it. After which secondly, I imply I are aware of itâs early on with kiosks and working out what many see with the upper take a look at. However is there a hard work alternative there and doubtlessly both much less other folks on the POS, or do you are expecting some flexibility on the subject of perhaps having the ability to reallocate some hard work to different portions of the eating place?
Sure. So, as a part of the exams that we’re doing those kiosks, we also are checking out the power to transport hard work. And a key a part of the check that we’re discovering is â neatly, a few key issues. One is the kiosks wish to be on the entrance counter. You donât need to have them somewhere else within the eating place as a result of we’re seeing a far larger reaction if you find yourself on the entrance counter. And we also are discovering for our consumers a minimum of that you need to have money machines to be had so they may be able to use money. As a result of once more, we’re discovering the place we’ve got money machines, the utilization is far upper. However the secret’s we’re seeing excellent reasonable take a look at enlargement truly around the board. And without a doubt, in the ones eating places with the top kiosk utilization, we’re going to be checking out, reallocating hard work and in all probability getting rid of hard work.
Were given it. Thank you Larry.
[Operator Instructions] Girls and gents, I feel we’ve got reached the top of nowadaysâs question-and-answer consultation. I’d now like to show the decision again over to Mr. Larry Roberts for ultimate remarks.
Smartly, thank you everyone for becoming a member of us nowadays. Once more, I willât inform you how a lot â we’re very fascinated by the potentialities. We’ve were given a large number of good stuff happening within the trade and truly browsing ahead to the steadiness of the 12 months as we put in force those and proceed to power enlargement within the trade. Thank you for becoming a member of us.
Thanks, sir. Girls and gents that then concludes nowadaysâs convention. Thanks for becoming a member of us. You might now disconnect your traces.