El Pollo Loco(LOCO) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements This section provides unaudited condensed consolidated financial statements, offering a detailed overview of the company's financial position, performance, and cash flows Condensed Consolidated Balance Sheets (Unaudited) Condensed Consolidated Balance Sheet Highlights (Amounts in thousands) | Metric | June 25, 2025 | December 25, 2024 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $8,989 | $2,484 | +$6,505 | | Total current assets | $26,819 | $19,895 | +$6,924 | | Total assets | $596,777 | $592,014 | +$4,763 | | Total current liabilities | $76,776 | $75,658 | +$1,118 | | Total liabilities | $322,599 | $331,345 | -$8,746 | | Total stockholders' equity | $274,178 | $260,669 | +$13,509 | Condensed Consolidated Statements of Income (Unaudited) Condensed Consolidated Statements of Income Highlights (Amounts in thousands) | Metric | 13 Weeks Ended June 25, 2025 | 13 Weeks Ended June 26, 2024 | Change (%) | 26 Weeks Ended June 25, 2025 | 26 Weeks Ended June 26, 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenue | $125,834 | $122,176 | +3.0% | $245,011 | $238,329 | +2.8% | | Income from operations | $11,305 | $12,318 | -8.2% | $20,277 | $21,997 | -7.8% | | Net income | $7,107 | $7,633 | -6.9% | $12,588 | $13,545 | -7.1% | | Basic EPS | $0.24 | $0.25 | -4.0% | $0.43 | $0.44 | -2.3% | | Diluted EPS | $0.24 | $0.25 | -4.0% | $0.43 | $0.44 | -2.3% | Condensed Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Changes in Stockholders' Equity (26 Weeks Ended June 25, 2025, Amounts in thousands) | Item | Amount | | :--- | :--- | | Balance, December 25, 2024 | $260,669 | | Stock-based compensation | $2,747 | | Repurchase of common stock | $(1,843) | | Net income | $12,588 | | Balance, June 25, 2025 | $274,178 | - Total stockholders' equity increased from $260,669 thousand at December 25, 2024, to $274,178 thousand at June 25, 2025[15] Condensed Consolidated Statements of Cash Flows (Unaudited) Condensed Consolidated Statements of Cash Flows Highlights (26 Weeks Ended, Amounts in thousands) | Activity | June 25, 2025 | June 26, 2024 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $18,872 | $28,117 | -$9,245 | | Net cash used in investing activities | $(8,427) | $(10,546) | +$2,119 | | Net cash used in financing activities | $(3,940) | $(14,394) | +$10,454 | | Increase in cash and cash equivalents | $6,505 | $3,177 | +$3,328 | | Cash and cash equivalents, end of period | $8,989 | $10,465 | -$1,476 | Notes to Condensed Consolidated Financial Statements (Unaudited) 1. Basis of Presentation and Summary of Significant Accounting Policies - As of June 25, 2025, the Company operated 174 and franchised 325 El Pollo Loco restaurants in the United States, and licensed eight restaurants in the Philippines[21] - Fiscal 2025 is a 53-week year ending on December 31, 2025, while Fiscal 2024 was a 52-week year[23] - The Company believes its cash flow from operations, available cash of $9.0 million, and borrowing availability under the 2022 Revolver are adequate for liquidity needs for the next twelve months[31] - Subsequent to quarter-end, the Company paid down an additional $1.0 million on its 2022 Revolver, reducing outstanding borrowings to $68.0 million as of July 31, 2025[32] - Restaurants in the greater Los Angeles area generated approximately 71.7% of total revenue for both the thirteen and twenty-six weeks ended June 25, 2025[36] - No indicators of potential impairment for goodwill and indefinite-lived intangible assets were found during the thirteen and twenty-six weeks ended June 25, 2025[45] Income Tax Provision and Effective Tax Rate | Period | Income Tax Provision (in thousands) | Estimated Effective Tax Rate | | :--- | :--- | :--- | | 13 Weeks Ended June 25, 2025 | $2,991 | 29.6% | | 13 Weeks Ended June 26, 2024 | $3,158 | 29.3% | | 26 Weeks Ended June 25, 2025 | $5,306 | 29.7% | | 26 Weeks Ended June 26, 2024 | $5,361 | 28.4% | 2. Prepaid Expenses and Other Current Assets Prepaid Expenses and Other Current Assets (Amounts in thousands) | Item | June 25, 2025 | December 25, 2024 | | :--- | :--- | :--- | | Prepaid insurance | $1,245 | $2,574 | | Prepaid service fees | $1,371 | $2,255 | | Other current assets | $1,053 | $680 | | Total | $3,669 | $5,509 | 3. Property and Equipment Property and Equipment, Net (Amounts in thousands) | Item | June 25, 2025 | December 25, 2024 | | :--- | :--- | :--- | | Land | $12,323 | $12,323 | | Buildings and improvements | $154,076 | $152,410 | | Other property and equipment | $94,036 | $91,352 | | Construction in progress | $12,656 | $9,882 | | Less: accumulated depreciation and amortization | $(186,265) | $(179,818) | | Total property and equipment, net | $86,826 | $86,149 | Depreciation and Amortization Expense (Amounts in thousands) | Period | Amount | | :--- | :--- | | 13 Weeks Ended June 25, 2025 | $3,929 | | 13 Weeks Ended June 26, 2024 | $3,870 | | 26 Weeks Ended June 25, 2025 | $7,816 | | 26 Weeks Ended June 26, 2024 | $7,721 | - No non-cash impairment charges were recorded for property and equipment for the thirteen and twenty-six weeks ended June 25, 2025, and June 26, 2024[64] 4. Stock-Based Compensation - The aggregate share limit under the Incentive Plan was increased by 1,250,000 shares to a total of 4,500,000 shares, with 1,397,957 shares remaining available for issuance as of June 25, 2025[65] Stock Options Outstanding (June 25, 2025) | Status | Shares | Weighted-Average Exercise Price | | :--- | :--- | :--- | | Outstanding | 1,437,961 | $10.42 | | Vested and expected to vest | 1,421,025 | $10.42 | | Exercisable | 465,605 | $10.62 | - Total unrecognized compensation expense related to unvested stock options was $4.4 million, expected to be recognized over 2.75 years[68] - Total unrecognized compensation expense related to unvested restricted shares was $6.9 million, expected to be recognized over 2.47 years[70] Total Stock-Based Compensation Expense (Amounts in thousands) | Period | Amount | | :--- | :--- | | 13 Weeks Ended June 25, 2025 | $1,700 | | 13 Weeks Ended June 26, 2024 | $897 | | 26 Weeks Ended June 25, 2025 | $2,747 | | 26 Weeks Ended June 26, 2024 | $1,817 | - The Share Repurchase Program, authorizing up to $20,000,000 in common stock repurchases, expired on March 31, 2025[73] - For the twenty-six weeks ended June 25, 2025, the Company repurchased 163,229 shares of common stock for approximately $1.8 million under the Share Repurchase Program[74] 5. Long-Term Debt - The Company's 2022 Revolver is a $150.0 million five-year senior secured revolving credit facility, maturing on July 27, 2027[75][80] - As of June 25, 2025, outstanding borrowings under the 2022 Revolver totaled $69.0 million, with $70.7 million in borrowing availability (after $10.3 million in letters of credit)[79] - The interest rate range under the 2022 Revolver was 5.65% to 7.75% for the twenty-six weeks ended June 25, 2025[78] - The Company was in compliance with all financial covenants as of June 25, 2025[79] - For the twenty-six weeks ended June 25, 2025, the Company borrowed $8.0 million and paid down $10.0 million on the 2022 Revolver[80] 6. Other Accrued Expenses and Current Liabilities Other Accrued Expenses and Current Liabilities (Amounts in thousands) | Item | June 25, 2025 | December 25, 2024 | | :--- | :--- | :--- | | Accrued sales and property taxes | $4,599 | $5,349 | | Gift card liability | $4,797 | $5,100 | | Loyalty rewards program liability | $977 | $844 | | Accrued advertising | $0 | $1,194 | | Accrued legal settlements and professional fees | $1,427 | $463 | | Deferred franchise and development fees | $547 | $539 | | Other | $2,546 | $2,407 | | Total | $14,893 | $15,896 | 7. Other Noncurrent Liabilities Other Noncurrent Liabilities (Amounts in thousands) | Item | June 25, 2025 | December 25, 2024 | | :--- | :--- | :--- | | Deferred franchise and development fees | $6,132 | $6,191 | | Other | $27 | $27 | | Total | $6,159 | $6,218 | 8. Commitments and Contingencies - The Company is involved in various claims, such as wage and hour and other legal actions, but does not believe their ultimate resolution will have a material adverse effect on its financial position[83] - The Company has long-term beverage supply agreements extending through the end of 2032, which provide marketing rebates[84] - As of June 25, 2025, the Company's total estimated commitment to purchase chicken was $11.8 million[85] - The Company is contingently liable on three lease agreements from the sale of company-operated restaurants to franchisees, with a potential undiscounted amount of $3.7 million as of June 25, 2025[86] 9. Earnings Per Share Basic and Diluted EPS Data | Metric | 13 Weeks Ended June 25, 2025 | 13 Weeks Ended June 26, 2024 | 26 Weeks Ended June 25, 2025 | 26 Weeks Ended June 26, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $7,107 | $7,633 | $12,588 | $13,545 | | Weighted-average shares outstanding—basic | 29,097,871 | 30,240,170 | 29,092,409 | 30,508,970 | | Weighted-average shares outstanding—diluted | 29,272,394 | 30,378,048 | 29,314,443 | 30,661,830 | | Net income per share—basic | $0.24 | $0.25 | $0.43 | $0.44 | | Net income per share—diluted | $0.24 | $0.25 | $0.43 | $0.44 | 10. Related Party Transactions - No related party transactions were reported for the periods presented[91] 11. Revenue from Contracts with Customers - The Company's revenue streams include company-operated restaurant revenue, franchise revenue (royalties, initial fees, license fees, IT support, rental income), and franchise advertising fee revenue[92][99] - As of June 25, 2025, the revenue allocated to loyalty points that had not been redeemed was $1.0 million, expected to be recognized within one year[95][96] - The gift card liability was $4,797 thousand as of June 25, 2025, down from $5,100 thousand at December 25, 2024[98] Company-Operated Revenue Disaggregated by Geographic Market | Market | 13 Weeks Ended June 25, 2025 | 13 Weeks Ended June 26, 2024 | 26 Weeks Ended June 25, 2025 | 26 Weeks Ended June 26, 2024 | | :--- | :--- | :--- | :--- | :--- | | Greater Los Angeles area | 71.7% | 71.8% | 71.7% | 71.7% | | Other markets | 28.3% | 28.2% | 28.3% | 28.3% | | Total | 100% | 100% | 100% | 100% | Estimated Future Franchise Revenue from Unsatisfied Obligations (Amounts in thousands) | Year | Amount | | :--- | :--- | | 2025 | $282 | | 2026 | $544 | | 2027 | $535 | | 2028 | $506 | | 2029 | $481 | | Thereafter | $4,331 | | Total | $6,679 | 12. Leases - The majority of building and facilities leases are classified as operating leases, while one facility and 24 equipment leases are classified as finance leases[116] - During the twenty-six weeks ended June 25, 2025, the Company reassessed lease terms on nine restaurants, resulting in an additional $7.1 million of ROU assets and lease liabilities[119] Total Lease Cost (Amounts in thousands) | Category | 13 Weeks Ended June 25, 2025 | 13 Weeks Ended June 26, 2024 | 26 Weeks Ended June 25, 2025 | 26 Weeks Ended June 26, 2024 | | :--- | :--- | :--- | :--- | :--- | | Finance lease cost | $62 | $79 | $125 | $113 | | Operating lease cost | $6,076 | $5,968 | $12,112 | $11,801 | | Sublease income | $(1,748) | $(1,758) | $(3,463) | $(3,537) | | Total lease cost | $6,138 | $6,047 | $12,274 | $11,914 | Present Value of Lease Obligations (June 25, 2025, Amounts in thousands) | Lease Type | Present Value | | :--- | :--- | | Finance Leases | $1,667 | | Operating Leases | $187,649 | Weighted-Average Lease Terms and Discount Rates (June 25, 2025) | Lease Type | Remaining Lease Term (Years) | Discount Rate | | :--- | :--- | :--- | | Finance Leases (Property) | 15.38 | 2.57% | | Finance Leases (Equipment) | 2.95 | 6.87% | | Operating Leases (Property) | 9.81 | 5.36% | | Operating Leases (Equipment) | 3.29 | 6.72% | 13. Shareholder Rights Agreement - The Shareholder Rights Agreement, initially declared on August 8, 2023, was amended to extend its expiration date[131][132] - The Amended Rights Agreement expired and was terminated by its terms on May 30, 2025[133] 14. Segment Reporting - The Company has one operating segment and one reportable segment[136] - The Chief Executive Officer, as the Chief Operating Decision Maker (CODM), reviews total revenues, segment expenses, consolidated net income, restaurant contribution margin, and Adjusted EBITDA to assess performance and allocate resources[137][138] Total Revenue and Segment Net Income (Amounts in thousands) | Metric | 13 Weeks Ended June 25, 2025 | 13 Weeks Ended June 26, 2024 | 26 Weeks Ended June 25, 2025 | 26 Weeks Ended June 26, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total revenue | $125,834 | $122,176 | $245,011 | $238,329 | | Total segment net income | $7,107 | $7,633 | $12,588 | $13,545 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and cash flows Cautionary Statement Concerning Forward-Looking Statements - The report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from expectations[144] - Key risk factors include the ability to open new restaurants, competition, global economic conditions (inflation, unemployment), labor costs (AB 1228), food and supply costs, and social media impact[145][150] - The company undertakes no obligation to publicly update or revise any forward-looking statement[147] Overview - El Pollo Loco is a quick-service restaurant concept specializing in fire-grilled citrus-marinated chicken and Mexican-inspired entrees[148] - In 2025, the company launched a brand refresh, including a new advertising campaign, restaurant design, new products, and an emphasis on hospitality, reinforcing its position of 'Quality Chicken, Fast & Easy'[148] Market Trends and Uncertainties - California's AB 1228 increased the minimum wage at fast food restaurants to $20 an hour on April 1, 2024, leading to increased labor and regulatory compliance costs[149][151] - The company has substantially offset cost pressures through menu price increases, menu mix management, and productivity improvements, but expects these pressures to continue[151][152] - Macroeconomic challenges like inflationary pressures and changes in trade policies (tariffs) may adversely affect food, labor, and construction costs[152][153] - Revenue per restaurant is typically lower in the first and fourth quarters and higher in the second and third quarters due to seasonality[154] Growth Strategies and Outlook - As of June 25, 2025, the company had 499 locations in seven states[155] - For the twenty-six weeks ended June 25, 2025, franchisees opened one new restaurant in Arizona and two in California, while closing two in California; the company acquired one restaurant in California[155] - The company plans to expand its business and drive sales growth through five key strategies: Brand That Wins, Hospitality Mindset, Digital First, Winning Unit Economics, and Drive Unit Growth Again with National Expansion[158] Highlights and Trends Revenue Overview Total Revenue (Amounts in millions) | Period | Total Revenue | | :--- | :--- | | 13 Weeks Ended June 25, 2025 | $125.8 | | 26 Weeks Ended June 25, 2025 | $245.0 | Revenue Breakdown (Amounts in millions) | Revenue Type | 13 Weeks Ended June 25, 2025 | 26 Weeks Ended June 25, 2025 | | :--- | :--- | :--- | | Company-operated restaurant revenue | $104.3 | $202.7 | | Franchise and franchise advertising fee revenue | $21.5 | $42.3 | Comparable Restaurant Sales Comparable Restaurant Sales Growth (YoY) | Category | 13 Weeks Ended June 25, 2025 | 26 Weeks Ended June 25, 2025 | | :--- | :--- | :--- | | System-wide | -0.3% | -0.4% | | Company-operated | +1.2% | +0.9% | | Franchised | -1.1% | -1.2% | - For company-operated restaurants, the 13-week comparable sales increase was due to a 1.5% increase in average check size, partially offset by a 0.3% decrease in transactions[161] - For company-operated restaurants, the 26-week comparable sales increase was due to a 3.0% increase in average check size, partially offset by a 2.0% decrease in transactions[161] Restaurant Development Restaurant Activity (26 Weeks Ended June 25, 2025) | Category | Beginning of Period | Openings | Acquisitions/Sales | Closures | End of Period | | :--- | :--- | :--- | :--- | :--- | :--- | | Company-operated | 173 | 0 | +1 (acquisition) | 0 | 174 | | Franchised | 325 | 3 | -1 (sale to company) | 2 | 325 | | System-wide | 498 | 3 | 0 | 2 | 499 | - The restaurant count excludes eight licensed restaurants in the Philippines[162] Restaurant Remodeling - The company completed 20 company-operated and franchise remodels during the twenty-six weeks ended June 25, 2025[163] - The company expects to complete 55-65 additional remodels for the remainder of fiscal 2025, with an average investment of approximately $0.4 million per restaurant[163] Loco Rewards - The Loco Rewards loyalty program had over 4.5 million members as of June 25, 2025[167] - Revenue allocated to loyalty points not yet redeemed was $1.0 million as of June 25, 2025, up from $0.8 million at December 25, 2024[167] - Loyalty points expire if not earned or used within a one-year period[166] Critical Accounting Policies and Use of Estimates - The preparation of condensed consolidated financial statements requires management to make significant estimates and judgments[168] - There have been no material changes to critical accounting policies or uses of estimates since the Annual Report on Form 10-K for the year ended December 25, 2024[170] Key Financial Definitions - Revenue is derived from company-operated restaurant revenue, franchise revenue (royalties, fees, sublease income), and franchise advertising fee revenue[171] - Labor and related expenses include wages, payroll taxes, workers' compensation, benefits, and bonuses, influenced by minimum wage and other labor laws (e.g., California's AB 1228)[173][175] - Impairment and closed-store reserves involve reviewing long-lived assets for impairment based on undiscounted future cash flows and amortizing ROU assets for closed restaurants[181][182] Comparison of Results of Operations Company-Operated Restaurant Revenue - Company-operated restaurant revenue increased by $2.0 million (2.0%) for the 13 weeks and $3.2 million (1.6%) for the 26 weeks ended June 25, 2025, compared to the prior year[191][192] - The increase was mainly due to higher comparable restaurant revenue (1.2% for 13 weeks, 0.9% for 26 weeks) and additional sales from new restaurant openings[191][192] - Comparable restaurant sales increases were driven by higher average check sizes (1.5% for 13 weeks, 3.0% for 26 weeks), partially offset by transaction decreases (0.3% for 13 weeks, 2.0% for 26 weeks)[191][192] Franchise Revenue - Franchise revenue increased by $1.7 million (14.8%) for the 13 weeks and $3.6 million (15.5%) for the 26 weeks ended June 25, 2025, compared to the prior year[193][194] - The increase was primarily due to $1.6 million (13 weeks) and $3.4 million (26 weeks) in franchisee IT pass-through revenue related to a new Point of Sale (POS) system rollout, and five new franchise restaurant openings[193][194] - This increase was partially offset by a franchise comparable restaurant sales decrease of 1.1% (13 weeks) and 1.2% (26 weeks)[193][194] Franchise Advertising Fee Revenue - Franchise advertising fee revenue decreased by less than $0.1 million (0.9%) for the 13 weeks and $0.1 million (0.6%) for the 26 weeks ended June 25, 2025[195][196] - Fluctuations were due to changes in franchisees' revenue, as advertising fees are a percentage of their sales[196] Food and Paper Costs - Food and paper costs decreased by $0.2 million (0.9%) for the 13 weeks and $1.1 million (2.2%) for the 26 weeks ended June 25, 2025[198] - The decrease was primarily due to a lower number of transactions, cost-management initiatives, and commodity deflation[199] - As a percentage of company-operated restaurant revenue, food and paper costs decreased from 25.2% to 24.5% for the 13 weeks and from 25.7% to 24.8% for the 26 weeks[199] Labor and Related Expenses - Labor and related expenses decreased by $0.7 million (2.2%) for the 13 weeks, primarily due to $1.0 million in improved labor efficiencies[200] - Labor and related expenses increased by $0.9 million (1.4%) for the 26 weeks, driven by a $3.0 million increase from higher California minimum wage rates, partially offset by $2.5 million from labor efficiencies[200] - As a percentage of company-operated restaurant revenue, labor and related expenses decreased from 32.1% to 30.8% for the 13 weeks and from 31.8% to 31.7% for the 26 weeks[201] Occupancy and Other Operating Expenses - Occupancy and other operating expenses increased by $2.1 million (8.5%) for the 13 weeks and $3.9 million (8.0%) for the 26 weeks ended June 25, 2025[202][203] - The increases were primarily due to higher costs in occupancy, utilities, marketplace delivery fees, software maintenance, and repairs and maintenance[202][203] - As a percentage of company-operated restaurant revenue, these expenses increased from 24.1% to 25.6% for the 13 weeks and from 24.3% to 25.9% for the 26 weeks[204] General and Administrative Expenses - General and administrative expenses increased by $1.7 million (14.8%) for the 13 weeks, driven by higher stock compensation, legal/professional fees (shareholder activism), and restructuring costs[205][206] - For the 26 weeks, these expenses increased by $1.1 million (4.6%), primarily due to $1.4 million in legal/professional fees and $0.9 million in stock compensation, partially offset by a $0.6 million legal settlement[207] - As a percentage of total revenue, these expenses increased from 9.6% to 10.8% for the 13 weeks and from 9.9% to 10.1% for the 26 weeks[208] Franchise Expenses - Franchise expenses increased by $1.8 million (16.2%) for the 13 weeks and $3.6 million (16.7%) for the 26 weeks ended June 25, 2025[209] - The increase was primarily due to $1.6 million (13 weeks) and $3.4 million (26 weeks) in IT pass-through expenses related to the franchisee rollout of a new POS system[209] Loss on Disposition of Restaurants - For the thirteen and twenty-six weeks ended June 26, 2024, the company recorded a net loss of less than $0.1 million from the sale of one restaurant to an existing franchisee, generating $0.1 million in cash proceeds[210] Impairment and Closed-Store Reserves - No non-cash impairment charges were recorded for the thirteen and twenty-six weeks ended June 25, 2025, or June 26, 2024[211] - Less than $0.1 million of closed-store reserve expense was recognized for both the thirteen and twenty-six weeks ended June 25, 2025, and June 26, 2024[212] Interest Expense, Net - Interest expense, net, decreased by $0.3 million for the 13 weeks and $0.7 million for the 26 weeks ended June 25, 2025, compared to the prior year[213] - The decrease was primarily related to lower interest rates and reduced outstanding balances on the 2022 Revolver[213] Income Tax Receivable Agreement - The company terminated most obligations under the Tax Receivable Agreement (TRA) on May 29, 2024, by making a payment of $398,896[214] - As of June 25, 2025, there was no remaining obligation owed on the condensed consolidated balance sheets[214] Provision for Income Taxes Income Tax Provision and Effective Tax Rate | Period | Income Tax Provision (in thousands) | Estimated Effective Tax Rate | | :--- | :--- | :--- | | 13 Weeks Ended June 25, 2025 | $3,000 | 29.6% | | 13 Weeks Ended June 26, 2024 | $3,200 | 29.3% | | 26 Weeks Ended June 25, 2025 | $5,300 | 29.7% | | 26 Weeks Ended June 26, 2024 | $5,400 | 28.4% | - The difference from the 21.0% statutory rate is primarily due to state taxes, non-tax deductible executive compensation, and lower stock compensation expense deductible for tax, partially offset by a federal Work Opportunity Tax Credit benefit[217] Key Performance Indicators System-Wide Sales System-Wide Sales (Amounts in thousands) | Period | June 25, 2025 | June 26, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | 13 Weeks Ended | $287,038 | $285,607 | +0.5% | | 26 Weeks Ended | $556,491 | $553,496 | +0.5% | - System-wide sales do not include the eight licensed stores in the Philippines[221] Company-Operated Restaurant Revenue (KPI) - Company-operated restaurant revenue consists of sales of food and beverages in company-operated restaurants, net of promotional allowances, employee meals, and other discounts[222] - This revenue is directly influenced by the number of operating weeks, the number of open restaurants, and comparable restaurant sales[222] Comparable Restaurant Sales (KPI) - Comparable restaurant sales reflect year-over-year sales changes for restaurants that have operated for at least fifteen months, excluding those closed during the period[223] - As of June 25, 2025, there were 485 comparable restaurants (171 company-operated and 314 franchised)[223] - Growth can be generated by an increase in meals sold and/or increases in the average check amount due to menu mix shifts or price increases[223] Restaurant Contribution and Restaurant Contribution Margin - Restaurant contribution is a non-GAAP measure defined as company-operated restaurant revenue less company restaurant expenses (food and paper, labor, occupancy, and other operating expenses)[224] - Restaurant contribution margin is restaurant contribution as a percentage of net company-operated restaurant revenue[224] Restaurant Contribution and Margin (Amounts in thousands) | Metric | 13 Weeks Ended June 25, 2025 | 13 Weeks Ended June 26, 2024 | 26 Weeks Ended June 25, 2025 | 26 Weeks Ended June 26, 2024 | | :--- | :--- | :--- | :--- | :--- | | Restaurant contribution | $19,926 | $19,052 | $35,700 | $36,141 | | Restaurant contribution margin (%) | 19.1% | 18.6% | 17.6% | 18.1% | New Restaurant Openings - New restaurant openings reflect the number of new restaurants opened by the company and its franchisees during a reporting period[228] - New restaurants typically experience a start-up period of approximately fourteen weeks with higher-than-normal sales volumes and lower restaurant contribution margins due to inefficiencies[228] EBITDA and Adjusted EBITDA - EBITDA and Adjusted EBITDA are non-GAAP measures used to evaluate operating performance by excluding interest, taxes, depreciation, amortization, and other non-recurring items[229][230] EBITDA and Adjusted EBITDA (Amounts in thousands) | Metric | 13 Weeks Ended June 25, 2025 | 13 Weeks Ended June 26, 2024 | 26 Weeks Ended June 25, 2025 | 26 Weeks Ended June 26, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net income | $7,107 | $7,633 | $12,588 | $13,545 | | EBITDA | $15,234 | $16,188 | $28,093 | $29,718 | | Adjusted EBITDA | $18,473 | $17,218 | $32,398 | $32,917 | - Adjustments to EBITDA include stock-based compensation, loss on disposal of assets, impairment and closed-store reserves, legal settlements, special legal and professional fees, restructuring and executive transition costs, and pre-opening costs[236][237][243] Liquidity and Capital Resources Operating Activities - Net cash provided by operating activities decreased by $9.2 million to $18.9 million for the twenty-six weeks ended June 25, 2025, compared to $28.1 million in the prior year[241][242] - This change was due to unfavorable working capital fluctuations[242] Investing Activities - Net cash used in investing activities decreased by $2.1 million to $8.4 million for the twenty-six weeks ended June 25, 2025, compared to $10.5 million in the prior year[241][244] - This decrease was primarily due to reduced purchases of property and equipment related to restaurant remodeling[244] Financing Activities - Net cash used in financing activities decreased by $10.5 million to $3.9 million for the twenty-six weeks ended June 25, 2025, compared to $14.4 million in the prior year[241][245] - The change was primarily due to lower share repurchases ($1.8 million in 2025 vs $18.2 million in 2024), partially offset by a $2.0 million net paydown on the 2022 Revolver in 2025 (vs $3.0 million net borrowings in 2024)[245] Debt and Other Obligations - The 2022 Revolver is a $150.0 million senior secured revolving credit facility maturing on July 27, 2027[246] - As of June 25, 2025, outstanding borrowings were $69.0 million, with $70.7 million in borrowing availability[249] - The company was in compliance with all financial covenants of the 2022 Credit Agreement as of June 25, 2025[249] - The interest rate range under the 2022 Revolver was 5.65% to 7.75% for the twenty-six weeks ended June 25, 2025[248] Material Cash Requirements - Material cash requirements as of June 25, 2025, have not changed materially since the Annual Report on Form 10-K for December 25, 2024[251] - These requirements primarily relate to debt payments (including interest), restaurant operating lease payments, chicken purchasing commitments, restaurant finance lease payments, and capital expenditures[251] Share Repurchases (Liquidity) - The Share Repurchase Program, which authorized up to $20,000,000 of common stock repurchases, expired on March 31, 2025[252] - For the thirteen weeks ended June 25, 2025, the company repurchased 3,479 shares for less than $0.1 million[253] - For the twenty-six weeks ended June 25, 2025, the company repurchased 163,229 shares for approximately $1.8 million[253] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily focusing on interest rate fluctuations, inflationary pressures, and commodity price volatility Interest Rate Risk - The company is exposed to market risk from changes in interest rates on its variable-rate 2022 Revolver debt, with $69.0 million outstanding as of June 25, 2025[254] - A 1.0% increase in the effective interest rate on 2022 Revolver borrowings would result in a pre-tax interest expense increase of $0.7 million on an annualized basis[254] - Borrowings bear interest at rates based on SOFR or a base rate, plus a margin[255] Inflation - Inflation impacts food, paper, construction, utility, labor and benefits, and general and administrative costs[256] - The company has largely offset cost increases through menu price increases, managing menu mix, and improving productivity, but future offsets are not guaranteed[256] - Increases in federal, state, or local minimum wage rates will increase labor costs[257] Commodity Price Risk - The company is exposed to market price fluctuations in food products, particularly chicken, other proteins, grains, produce, dairy products, and cooking oil[258] - While purchasing commitments partially mitigate risk, volatility from factors like diseases or inclement weather can still impact food and beverage costs[258] - The company does not currently use financial instruments to hedge its commodity risk[258] Item 4. Controls and Procedures This section describes the company's disclosure controls and procedures, confirming their effectiveness as of June 25, 2025 Disclosure Controls and Procedures - Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the disclosure controls and procedures were effective at the reasonable assurance level as of June 25, 2025[261] - Disclosure controls are designed to ensure information required to be disclosed is recorded, processed, summarized, and reported timely[259] Changes in Internal Control over Financial Reporting - No changes in internal control over financial reporting occurred during the quarter ended June 25, 2025, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[262] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company faces routine legal claims, with no material proceedings expected to significantly impact its financial position - The company is involved in various claims, such as wage and hour and other legal actions, that arise in the ordinary course of business[264] - Neither the company nor its subsidiaries are party to any material legal proceedings[264] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 25, 2024 - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 25, 2024[265] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 3,479 shares of common stock for less than $0.1 million under its Share Repurchase Program, which expired on March 31, 2025 - The Share Repurchase Program, authorized for up to $20,000,000 of common stock repurchases, expired on March 31, 2025[267][268] - For the thirteen weeks ended June 25, 2025, the company repurchased 3,479 shares of common stock under the program for less than $0.1 million[268] - Total repurchases for the quarter included 3,479 shares under the program and 34,621 shares acquired to satisfy employee tax withholding obligations[268] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[269] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures - No mine safety disclosures were reported[270] Item 5. Other Information No directors or executive officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the twenty-six weeks ended June 25, 2025 - None of the Company's directors or executive officers adopted or terminated any 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the twenty-six weeks ended June 25, 2025[271] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, equity incentive plans, certifications, and XBRL interactive data files Selected Exhibits Filed | Number | Description | | :--- | :--- | | 3.1 | Amended and Restated Certificate of Incorporation of El Pollo Loco Holdings, Inc. | | 10.1 | Equity Incentive Plan, as amended | | 31.1 | Certification of Chief Executive Officer under section 302 of the Sarbanes–Oxley Act of 2002 | | 31.2 | Certification of Chief Financial Officer under section 302 of the Sarbanes–Oxley Act of 2002 | | 101.INS | Inline XBRL Instance Document | | 104 | Cover Page Interactive Data File | Signatures The report is duly signed on behalf of El Pollo Loco Holdings, Inc. by its Chief Executive Officer, Elizabeth Williams, and Chief Financial Officer, Ira Fils, on August 1, 2025 - The report was signed by Elizabeth Williams, Chief Executive Officer, and Ira Fils, Chief Financial Officer, on August 1, 2025[279]