El Pollo Loco, Inc.
11/02/17

El Pollo Loco Holdings, Inc. Announces Third Quarter 2017 Financial Results

 

COSTA MESA, Calif., Nov. 02, 2017 (GLOBE NEWSWIRE) -- El Pollo Loco Holdings, Inc. (Nasdaq:LOCO) today announced financial results for the 13-week period ended September 27, 2017.

Highlights for the third quarter ended September 27, 2017, compared to the third quarter ended September 28, 2016 were as follows:

(1) Pro forma net income and adjusted EBITDA are non-GAAP measures. A reconciliation of GAAP net income to each of these measures is included in the accompanying financial data. See also "Non-GAAP Financial Measures."

Steve Sather, President and Chief Executive Officer of El Pollo Loco Holdings, Inc., stated, "Results in the third quarter included system-wide comparable store sales growth of 1.7%, driven in part by strong performance from our unique Family Meal offering and our Taco Platters limited time offer. The quarter also included margin pressure due to rising labor costs and loyalty program incentives as we continue to invest in this initiative.  While comparable store sales growth slowed towards the end of the quarter and has remained soft thus far in the fourth quarter, we believe that our strategy to highlight what we believe to be our authentic differentiated brand and QSR+ positioning, along with technology initiatives aimed at improving the customer experience, will drive sales in 2018 and beyond." 

Sather continued, "Our restaurants in Texas continue to perform below expectations; however, we remain focused on the market and are implementing a brand relaunch in Houston and Dallas. The relaunch will encompass everything from operations to facilities to marketing, and is designed to drive brand awareness, bring guests into our restaurants, and deliver an exceptional experience. We will continue to evaluate our programs in order to fine tune our strategies and generate sustained momentum in these very competitive Texas markets."

Third Quarter 2017 Financial Results

Company-operated restaurant revenue in the third quarter of 2017 increased 5.8% to $95.0 million, compared to $89.7 million in the same period last year. Total revenue in the quarter was negatively impacted by approximately $0.5 million as a result of Hurricane Harvey. The growth in company-operated restaurant revenue was largely driven by the 25 new restaurants opened during and subsequent to the third quarter of 2016, partially offset by 5 restaurant closures during the same time period.

Comparable company-operated restaurant sales in the third quarter increased 0.9%, driven by a 1.7% increase in average check, partially offset by a 0.8% decrease in transactions.

Franchise revenue in the third quarter of 2017 increased 1.6% to $6.2 million, compared to $6.1 million in the third quarter of 2016. The growth in franchise revenue was largely driven by the contribution from the 15 new restaurants opened during and subsequent to the third quarter of 2016 and a 2.4% increase in franchised comparable restaurant sales during the quarter. These were partially offset by a decline in franchise and development agreement fees and lower fees received related to use of our point-of-sales system.

Restaurant contribution was $17.4 million or 18.3% of company-operated restaurant revenue, compared to $18.8 million, or 20.9% of company-operated restaurant revenue in the third quarter of 2016. The decrease in restaurant contribution margin was primarily the result of higher labor costs, due to increased minimum wage, and higher other operating expenses associated with new restaurants opened in 2016 and 2017.

During the third quarter of 2017, the Company recorded a $16.0 million expense related to the impairment of the assets of eight restaurants in Texas and two in California, and the closure of three restaurants in Texas.

Net loss for the third quarter of 2017 was $4.0 million, or $(0.11) per diluted share, compared to net income of $5.2 million, or $0.13 per diluted share in the third quarter of 2016. Third quarter 2017 pro forma results include an estimated negative impact from Hurricane Harvey of approximately $0.3 million before taxes. Pro forma net income was $6.0 million, or $0.15 per diluted share during the third quarter of 2017, compared to $6.9 million, or $0.18 per diluted share during the third quarter of 2016. A reconciliation between GAAP net income and pro forma net income is included in the accompanying financial data.

2017 Outlook

Based on current information, the Company is revising its earnings guidance for the fiscal year 2017.

The Company expects 2017 pro forma diluted net income per share ranging from $0.61 to $0.63. This compares to pro forma diluted net income per share of $0.66 in 2016. Pro forma net income guidance for fiscal year 2017 is based, in part, on the following updated annual assumptions:

The following definitions apply to these terms as used in this release:

Comparable restaurant sales reflect the change in year-over-year sales for the comparable company, franchised and total system restaurant base. The comparable restaurant base is defined to include those restaurants open for 15 months or longer. At September 27, 2017, there were 179 restaurants in our comparable company-operated restaurant base and 423 restaurants in our comparable system restaurant base.

Restaurant contribution and restaurant contribution margin are neither required by, nor presented in accordance with, GAAP. Restaurant contribution is defined as company-operated restaurant revenue less company restaurant expenses, which are food and paper costs, labor and related expenses and occupancy and other operating expenses. Restaurant contribution margin is defined as restaurant contribution as a percentage of net company-operated restaurant revenue. See also "Non-GAAP Financial Measures."

EBITDA and adjusted EBITDA are neither required by, nor presented in accordance with, GAAP. EBITDA represents net income before interest expense, provision for income taxes, depreciation, and amortization, and adjusted EBITDA represents EBITDA before items that we do not consider representative of our ongoing operating performance, as identified in the GAAP reconciliation in the accompanying financial data. See also "Non-GAAP Financial Measures."

Pro forma net income is neither required by, nor presented in accordance with, GAAP. Pro forma net income represents net income adjusted for (i) costs (or gains) related to loss (or gains) on disposal of assets and asset impairment and closed store costs, (ii) amortization expense and other estimate adjustments (whether expense or income) incurred on the Tax Receivable Agreement ("TRA") completed at the time of our IPO, (iii) legal costs associated with a securities class action lawsuit, (iv) expenses and gains on the recovery of insurance proceeds for the reimbursement of property and equipment, and expenses related to a fire at one of our restaurants in 2015, (v) insurance proceeds received related to securities class action legal expenses, (vi) costs associated with the transition of our CEO and (vii) provision for income taxes at a normalized tax rate of 39.5% and 40.0% for the thirteen and thirty-nine weeks ended September 27, 2017 and September 28, 2016, respectively, which reflects our estimated long-term effective tax rate, including both federal and state income taxes. See the GAAP reconciliation in the accompanying financial data and "Non-GAAP Financial Measures."

Conference Call

The Company will host a conference call to discuss financial results for the third quarter of 2017 today at 5:00 PM Eastern Time. Steve Sather, President and Chief Executive Officer and Larry Roberts, Chief Financial Officer will host the call.

The conference call can be accessed live over the phone by dialing 877-407-3982 or for international callers by dialing 201-493-6780. A replay will be available after the call and can be accessed by dialing 844-512-2921 or for international callers by dialing 412-317-6671; the passcode is 13669870. The replay will be available until Thursday, November 16, 2017. The conference call will also be webcast live from the Company's corporate website at investor.elpolloloco.com under the "Events & Presentations" page. An archive of the webcast will be available at the same location on the corporate website shortly after the call has concluded.

About El Pollo Loco

El Pollo Loco (Nasdaq:LOCO) is the nation's leading fire-grilled chicken restaurant chain renowned for its masterfully citrus-marinated, fire-grilled chicken and handcrafted entrees using fresh ingredients inspired by Mexican recipes. With more than 470 company-owned and franchised restaurants in Arizona, California, Nevada, Texas and Utah, El Pollo Loco is expanding its presence in key markets through a combination of company and existing and new franchisee development. Visit us on our website at ElPolloLoco.com.

Forward-Looking Statements

This press release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this press release are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements because they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "outlook," "potential," "project," "projection," "plan," "intend," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. They appear in a number of places throughout this press release and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those that we expected.

While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties disclosed in our annual report on Form 10-K for the year ended December 28, 2016, file number 001-36556, including the sections thereof captioned "Forward-Looking Statements" and "Risk Factors," as those sections may be updated in our quarterly reports on Form 10-Q. Those and other filings are available online at www.sec.gov, at www.elpolloloco.com or upon request from El Pollo Loco.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the ways that we expect. The forward-looking statements included in this press release are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use non-GAAP financial measures including those indicated above. These measures are not intended to be considered in isolation or as substitutes for, or superior to, financial measures prepared and presented in accordance with GAAP. We use non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. We believe that they provide useful information about operating results, enhance understanding of past performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. The non-GAAP measures used in this press release may be different from the measures used by other companies.

Investor Contact:
Fitzhugh Taylor, ICR
fitzhugh.taylor@icrinc.com
714-599-5200

Media Contact:
Christine Beggan, ICR
loco@icrinc.com
203-682-8200

 

  EL POLLO LOCO HOLDINGS, INC.  
  UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS  
  (in thousands, except share data)  
   
    Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
    September 27, 2017   September 28, 2016   September 27, 2017   September 28, 2016  
    $   %   $   %   $   %   $   %  
  Revenue:                              
  Company-operated restaurant revenue $ 94,982     93.9 %   $ 89,738     93.7 %   $ 287,316     93.7 %   $ 268,984     93.5 %  
  Franchise revenue 6,173     6.1 %   6,078     6.3 %   19,183     6.3 %   18,660     6.5 %  
  Total revenue 101,155     100.0 %   95,816     100.0 %   306,499     100.0 %   287,644     100.0 %  
  Costs of operations:                              
  Food and paper cost (1) 27,851     29.3 %   26,960     30.0 %   84,069     29.3 %   80,760     30.0 %  
  Labor and related expenses (1) 27,514     29.0 %   24,455     27.3 %   80,939     28.2 %   73,323     27.3 %  
  Occupancy and other operating expenses (1) 22,242     23.4 %   20,071     22.4 %   64,358     22.4 %   58,401     21.7 %  
  Gain on recovery of insurance proceeds (1)     %   (502 )   (0.6 )%       %   (502 )   (0.2 )%  
  Company restaurant expenses (1) 77,607     81.7 %   70,984     79.1 %   229,366     79.8 %   211,982     78.8 %  
  General and administrative expenses 8,285     8.2 %   8,252     8.6 %   27,594     9.0 %   25,776     9.0 %  
  Franchise expenses 709     0.7 %   797     0.8 %   2,532     0.8 %   2,960     1.0 %  
  Depreciation and amortization 4,697     4.6 %   4,074     4.3 %   13,646     4.5 %   11,796     4.1 %  
  Loss on disposal of assets 65     0.1 %   58     0.1 %   724     0.2 %   524     0.2 %  
  Expenses related to fire loss     %       %       %   48     0.0 %  
  Loss (gain) on recovery of insurance proceeds, property, equipment and expenses     %   148     0.2 %       %   (741 )   (0.3 )%  
  Recovery of securities lawsuits related legal expenses (634 )   (0.6 )%       %   (1,145 )   (0.4 )%       %  
  Asset impairment and closed-store reserves 16,038     15.9 %   2,490     2.6 %   17,293     5.6 %   2,624     0.9 %  
  Total expenses 106,767     105.5 %   86,803     90.6 %   290,010     94.6 %   254,969     88.6 %  
  (Loss) gain on disposition of restaurants     %   (5 )   0.0 %       %   28     0.0 %  
  (Loss) income from operations (5,612 )   (5.5 )%   9,008     9.4 %   16,489     5.4 %   32,703     11.4 %  
  Interest expense, net of interest income 903     0.9 %   785     0.8 %   2,471     0.8 %   2,441     0.8 %  
  Income tax receivable agreement (income) expense (19 )   0.0 %   182     0.2 %   107     0.0 %   411     0.1 %  
  (Loss) income before provision for income taxes (6,496 )   (6.4 )%   8,041     8.4 %   13,911     4.5 %   29,851     10.4 %  
  (Benefit) provision for income taxes (2,457 )   (2.4 )%   2,830     3.0 %   5,254     1.7 %   11,930     4.1 %  
  Net (loss) income $ (4,039 )   (4.0 )%   $ 5,211     5.4 %   $ 8,657     2.8 %   $ 17,921     6.2 %  
  Net (loss) income per share:                                  
  Basic $ (0.11 )       $ 0.14         $ 0.23         $ 0.47      
  Diluted $ (0.11 )       $ 0.13         $ 0.22         $ 0.46      
  Weighted average shares used in computing net (loss) income per share:                              
  Basic 38,462,100         38,415,189         38,449,453         38,331,400      
  Diluted 38,462,100         39,083,577         39,101,214         39,020,127      
                                         

(1) As a percentage of restaurant revenue.

                   
  EL POLLO LOCO HOLDINGS, INC.  
  UNAUDITED SELECTED BALANCE SHEETS AND SELECTED OPERATING DATA  
  (dollar amounts in thousands)  
                   
    As of  
    September 27, 2017   December 28, 2016  
  Selected Balance Sheet Data:            
  Cash and cash equivalents $ 7,062     $ 2,168    
  Total assets 453,672     471,305    
  Total debt 85,348     104,461    
  Total liabilities 179,003     206,123    
  Total stockholders' equity 274,669     265,182    
    Thirty-Nine Weeks Ended  
    September 27, 2017   September 28, 2016  
  Selected Operating Data:            
  Company-operated restaurants at end of period 208     193    
  Franchised restaurants at end of period 265     253    
  Company-operated:      
  Comparable restaurant sales growth 1.0 %   0.9 %  
  Restaurants in the comparable base 179     170    
               

 

                                   
  EL POLLO LOCO HOLDINGS, INC.  
  UNAUDITED RECONCILIATION OF NET (LOSS) INCOME TO EBITDA AND ADJUSTED EBITDA  
  (dollar amounts in thousands)  
   
    Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
    September 27, 2017   September 28, 2016   September 27, 2017   September 28, 2016  
  Adjusted EBITDA:                    
  Net (loss) income, as reported $ (4,039 )   $ 5,211     $ 8,657     $ 17,921    
  (Benefit) provision for income taxes (2,457 )   2,830     5,254     11,930    
  Interest expense, net 903     785     2,471     2,441    
  Depreciation and amortization 4,697     4,074     13,646     11,796    
  EBITDA (896 )   12,900     30,028     44,088    
  Stock-based compensation expense 324     105     738     244    
  Loss on disposal of assets 65     58     724     524    
  Expenses related to fire loss             48    
  Loss (gain) on recovery of insurance proceeds, property, equipment and expenses     148         (741 )  
  Recovery of securities lawsuits related legal expenses (634 )       (1,145 )      
  Asset impairment and closed-store reserves 16,038     2,490     17,293     2,624    
  Pre-opening costs 429     918     1,526     1,775    
  Loss (gain) on disposition of restaurants     5         (28 )  
  Income tax receivable agreement (income) expense (19 )   182     107     411    
  Securities lawsuits related legal expense 933     519     2,341     2,327    
  Executive transition costs         271        
  Adjusted EBITDA $ 16,240     $ 17,325     $ 51,883     $ 51,272    
                                   

 

   
  UNAUDITED RECONCILIATION OF NET (LOSS) INCOME TO PRO FORMA NET INCOME  
  (dollar amounts in thousands, except share data)  
   
    Thirteen Weeks Ended   Thirty-Nine Weeks Ended  
    September 27, 2017   September 28, 2016   September 27, 2017   September 28, 2016  
  Pro forma net income:                    
  Net (loss) income, as reported $ (4,039 )   $ 5,211     $ 8,657     $ 17,921    
  (Benefit) provision for taxes, as reported (2,457 )   2,830     5,254     11,930    
  Loss (gain) on disposition of restaurants     5         (28 )  
  Income tax receivable agreement (income) expense (19 )   182     107     411    
  Loss on disposal of assets 65     58     724     524    
  Expenses related to fire loss             48    
  Loss (gain) on recovery of insurance proceeds, property, equipment and expenses     148         (741 )  
  Recovery of securities lawsuits related legal expenses (634 )       (1,145 )      
  Asset impairment and closed-store reserves 16,038     2,490     17,293     2,624    
  Securities lawsuits related legal expenses 933     519     2,341     2,327    
  Executive transition costs         271        
  Provision for income taxes (3,904 )   (4,577 )   (13,232 )   (14,006 )  
  Pro forma net income $ 5,983     $ 6,866     $ 20,270     $ 21,010    
  Pro forma weighted-average share and per share data:                    
  Pro forma net income per share              
  Basic $ 0.16     $ 0.18     $ 0.53     $ 0.55    
  Diluted $ 0.15     $ 0.18     $ 0.52     $ 0.54    
  Weighted-average shares used in computing pro forma net income per share                    
  Basic 38,462,100     38,415,189     38,449,453     38,331,400    
  Diluted 39,098,644     39,083,577     39,101,214     39,020,127