El Pollo LoCo Holdings ((LOCO)) has held its Q1 earnings call. Read on for the main highlights of the call.
El Pollo Loco’s recent earnings call painted a mixed picture for investors, with both promising developments and notable challenges. The company reported revenue growth and successful menu innovations, yet faced hurdles such as decreased comparable store sales and rising labor costs. Despite efforts to drive growth through innovation and expansion, economic pressures and operational challenges remain significant concerns.
Revenue Growth
El Pollo Loco reported a 2.6% increase in total revenue for the first quarter of 2025, reaching $119.2 million compared to $116.2 million in the same period last year. This growth reflects the company’s ongoing efforts to expand its market presence and enhance its financial performance.
Menu Innovation Success
The introduction of the Mango Habanero fire-grilled chicken has been a hit, attracting new guests and demonstrating the potential for flavor and menu innovation to drive customer interest and sales.
Franchise Revenue Increase
Franchise revenue saw a significant rise of 16.2%, totaling $13.2 million in the first quarter. This growth underscores the strength of El Pollo Loco’s franchise model and its contribution to the company’s overall financial health.
New Restaurant Openings
The company opened two new restaurants in the first quarter and plans to open at least 10 more in 2025, with further acceleration expected in 2026. This expansion strategy is a key component of El Pollo Loco’s growth plan.
Successful Distribution Transition
El Pollo Loco successfully transitioned to a new distribution partner, PFG, which is expected to support improved business models and future growth, ensuring a more efficient supply chain.
Decreased Comparable Store Sales
System-wide comparable store sales fell by 1.2% in the first quarter, with company-operated restaurants experiencing a slight decline of 0.1% and franchise restaurants down by 1.8%. This decrease highlights the challenges the company faces in maintaining sales momentum.
Labor Cost Increase
Labor-related expenses increased significantly, with wage inflation at 12% in the first quarter, raising labor costs to 32.7% of company restaurant sales. This rise in expenses is a critical issue impacting profitability.
Restaurant Contribution Margin Decline
The restaurant contribution margin decreased to 16% from 17.6% in the previous year, primarily due to increased labor costs and other operational expenses, affecting the company’s bottom line.
Consumer Pullback
A noticeable decline in consumer spending, particularly among Hispanic consumers, was attributed to economic uncertainty and macroeconomic pressures, posing a challenge to El Pollo Loco’s sales growth.
Forward-Looking Guidance
Looking ahead, El Pollo Loco provided guidance for fiscal year 2025, anticipating restaurant contribution margins between 17.25% and 17.75%. The company plans to open 10 to 11 new restaurants, primarily franchise locations, and remodel 60 to 70 existing ones. Capital expenditures are expected to range from $30 million to $34 million, with general and administrative expenses projected between $48 million and $51 million. The company remains focused on menu innovation and addressing operational challenges to drive long-term growth.
In summary, El Pollo Loco’s earnings call highlighted a balanced mix of opportunities and challenges. While revenue growth and menu innovation are promising, decreased comparable store sales and rising labor costs present significant hurdles. The company’s forward-looking guidance reflects a strategic focus on expansion and innovation to navigate these challenges and achieve sustained growth.