El Pollo Loco(LOCO) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue increased by 1.4% to $116.2 million compared to $114.5 million in Q1 2023 [19] - Company-operated restaurant revenue decreased by 0.7% to $97.2 million from $97.9 million in the same period last year [19] - Franchise revenue increased by 17.3% to $11.3 million, driven by a 5.9% increase in franchise comparable restaurant sales [20] - GAAP net income was $5.9 million or $0.19 per diluted share, compared to $4.9 million or $0.13 per diluted share in the prior year [24] - Adjusted net income for the quarter was $6.8 million or $0.22 per diluted share compared to $4.9 million or $0.14 per diluted share in the first quarter of last year [24] Business Line Data and Key Metrics Changes - Company-operated comparable restaurant sales increased by 3.8%, with a 2.6% increase in average check size and approximately 1.2% increase in transactions [20] - Restaurant contribution margin for Q1 was 17.6%, compared to 15% in the year-ago period [23] Market Data and Key Metrics Changes - System-wide comparable store sales increased by 5.3% through April 24, 2024, consisting of a 3.7% increase in company-operated restaurants and a 6.3% increase in franchise restaurants [21] - Food and paper costs as a percentage of company restaurant sales decreased by 110 basis points year-over-year to 26.4% [21] - Labor and related expenses as a percentage of company restaurant sales decreased by 70 basis points year-over-year to 31.5% [22] Company Strategy and Development Direction - The company is focusing on five strategic pillars: brand leadership, hospitality mindset, digital-first approach, winning unit economics, and driving unit growth [8][10] - Emphasis on enhancing brand positioning by promoting key differentiators such as citrus-marinated fire-grilled chicken and healthier menu options [9] - Plans to modernize store designs and reduce build costs to facilitate franchise growth [17][18] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the brand's potential and the quality of its food offerings, highlighting strong consumer perceptions [36][37] - The company is closely monitoring labor and commodity inflation, with expectations of wage inflation between 12% to 14% for the full year 2024 [22] - Management is focused on improving operational efficiencies and identifying additional savings across the P&L [23] Other Important Information - The company completed three company-operated restaurant remodels and 11 franchise restaurant remodels during the first quarter [24] - Liquidity position remains strong with $80 million of debt outstanding and $9.1 million in cash and cash equivalents as of March 27, 2024 [25] Q&A Session Summary Question: Insights on restaurant-level operating margin drivers - Management indicated that price increases and operational efficiencies contributed to the 260 basis points increase in operating margin, with specific pricing actions taken in preparation for minimum wage increases [30][31] Question: Performance across different income cohorts - Management noted that the brand serves well across various income cohorts and did not experience outsized effects from any specific group, emphasizing the need for continued focus on value [32][33] Question: Impressions from the first few months as CEO - The new CEO highlighted the quality of food and strong consumer perceptions as positive surprises, while identifying opportunities for improvement in customization and operational efficiency [36][37] Question: Consumer behavior in response to price increases - Management acknowledged that while sales have held up well, there has been some pressure on transactions following price increases, but they remain comfortable with their pricing strategy [40] Question: Steps for accelerated development and cost engineering - The CEO mentioned that significant work is needed in the coming months to improve cost engineering and that positive feedback has been received from franchise partners regarding new development incentives [43][44] Question: Balancing value versus premium offerings - The CEO emphasized the importance of providing everyday value while also innovating within the premium segment, with ongoing tests for updated recipes and price points [46]