El Pollo Loco(LOCO) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q3 2019 was $112.1 million, slightly down from$ 112.2 million in Q3 2018 [18] - Company-operated restaurant revenue decreased to $99.1 million from$ 100 million year-over-year, impacted by the sale of 11 restaurants and closure of 5 [18] - GAAP net income was $6.4 million or$ 0.18 per diluted share, compared to $6.8 million or$ 0.17 per diluted share in the prior year [23] - Pro forma net income for the quarter was $7.2 million, down from$ 7.6 million in Q3 2018 [23] Business Line Data and Key Metrics Changes - Franchise revenue increased by 9.1% to $7.3 million, driven by a 0.6% increase in comparable restaurant sales and the transfer of company-operated restaurants to franchisees [19] - Company-operated comparable restaurant sales grew by 1.6%, with a 2.0% increase in average check offset by a 0.4% decrease in transactions [18] Market Data and Key Metrics Changes - System-wide comparable restaurant sales growth was 1.1% for the quarter, with a notable 4.2% growth in September [5][18] - The company reported a system-wide sales figure of$ 227.95 million for the quarter [55] Company Strategy and Development Direction - The company is focusing on culinary innovation and has prioritized building a robust product pipeline for 2020 [9] - Expansion of delivery capabilities through partnerships with Postmates and Uber Eats, in addition to DoorDash, is a key strategy [6][10] - The company is simplifying operations to enhance employee and franchisee experiences, including a new inventory management system and streamlined operating procedures [11][12] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about continued sales momentum into Q4, driven by successful promotions and operational improvements [5][10] - The company anticipates commodity inflation of 1% to 2% and labor inflation of 6% to 6.5% in 2020 [20][25] - Management is committed to community support initiatives, including food donations to local shelters [14] Other Important Information - The company completed the sale of 5 company-operated restaurants in Dallas to an existing franchisee, which is expected to provide a margin benefit [25][43] - The company plans to open 2 to 3 new company-operated restaurants and 2 to 3 franchised restaurants in 2019 [17][25] Q&A Session Summary Question: Performance in September and October related to $5 bundle - Management attributed sales momentum to the$ 5 Fire-Grilled Combos promotion, expanded delivery capabilities, and operational improvements [30] Question: State of company-owned stores in Houston - Management confirmed commitment to Houston, with ongoing performance improvements, and indicated opportunistic franchisee transfers [32][33] Question: Delivery menu pricing strategy - Management explained a bifurcated delivery pricing strategy, retaining higher margins on direct orders while offering curated menus through third-party marketplaces [39] Question: Impact of Dallas restaurant sale on P&L - Management confirmed a margin benefit of approximately 50 basis points from the sale of the Dallas restaurants [45] Question: New market development plans - Management indicated plans to enter at least one new market in 2020, with ongoing work on restaurant design [36][46] Question: Customer feedback on delivery pricing - Management noted positive customer reception to delivery pricing, emphasizing convenience as a key factor [41] Question: Labor efficiency and cooking procedures - Management clarified that new cooking procedures aim to improve product quality and ease of execution without reducing labor [68]