COSTA MESA, Calif., Oct. 31, 2019 // GLOBE NEWSWIRE // - El Pollo Loco Holdings, Inc. (Nasdaq: LOCO) today announced financial results for the 13-week period ended September 25, 2019.
Highlights for the third quarter ended September 25, 2019, compared to the third quarter ended September 26, 2018 were as follows:
(1) Pro forma net income and adjusted EBITDA are not presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") and are defined below under "Key Financial Definitions." A reconciliation of GAAP net income to pro forma net income and adjusted EBITDA is included in the accompanying financial data. See also “Non-GAAP Financial Measures.”
Bernard Acoca, President and Chief Executive Officer of El Pollo Loco Holdings, Inc., stated, "Our third quarter results were highlighted by accelerating sales momentum as our Transformation Agenda continues to gain traction. Despite a slow start to the quarter, the expansion of our delivery capabilities, focus on value and improved company operations drove system-wide comparable restaurant sales growth of 1.1%, representing our fifth straight quarter of positive system-wide comp growth. In fact, the month of September was our strongest month of the year to-date in terms of sales, with system comparable restaurant sales of 4.2% driven by positive traffic, which is particularly impressive given the 3% growth comparison from last year. We’re pleased to see our momentum continue into the fourth quarter as both system wide comparable sales and traffic remain positive in October.”
Acoca added, “During the quarter, we continued our focus on simplifying in-store operations to reduce back of house complexity and virtually completed the roll-out of a new inventory management system, which will enable our employees to spend more time delivering an exceptional customer experience. Looking ahead, we are particularly excited by our first ever holiday-themed promotion that promises to be special for both our customers and employees alike. We continue to believe our strategic initiatives, renewed focus on product innovation and ongoing efforts to elevate the El Pollo Loco brand will further strengthen our foundation, allowing us to grow our business profitably and responsibly over the long-term.”
Third Quarter 2019 Financial Results
Company-operated restaurant revenue in the third quarter of 2019 was $99.1 million, compared to $100.0 million in the same period last year. The decline in company-operated restaurant sales was primarily due to a $4.4 million decrease in revenue from the closure of five restaurants during or subsequent to the third quarter of 2018 and the sale of eleven company-operated restaurants to franchisees earlier this year. This restaurant sales decrease was partially offset by 1.6% increase in company-operated comparable restaurant sales, the six new restaurants opened during and subsequent to the third quarter of 2018 and $0.5 million related to an increase in revenue recognized from our loyalty points program.
Comparable company-operated restaurant sales in the third quarter increased 1.6%, driven by a 2.0% increase in average check, partially offset by a 0.4% decrease in transactions.
Franchise revenue in the third quarter of 2019 increased 9.1% to $7.3 million, compared to $6.7 million in the third quarter of 2018. This increase was primarily due to a 0.6% increase in franchise comparable restaurant sales, the eleven restaurants sold by the company to franchisees and the opening of seven new franchised restaurants during or after the prior year quarter. This was partially offset by the closure of three franchise locations during the same period.
Net income for the third quarter of 2019 was $6.4 million, or $0.18 per diluted share, compared to net income of $6.8 million, or $0.17 per diluted share in the third quarter of 2018. Pro forma net income was $7.2 million, or $0.20 per diluted share during the third quarter of 2019, compared to $7.6 million, or $0.19 per diluted share during the third quarter of 2018.
During the third quarter of 2019 the Company incurred legal expenses related to securities litigation of $0.2 million. The third quarter of 2018 included legal expenses related to securities lawsuits of $3.7 million and insurance proceeds of $2.0 million related to the reimbursement of certain legal expenses paid in prior years for the defense of securities lawsuits.
Restaurant contribution was $18.4 million or 18.6% of company-operated restaurant revenue, compared to $18.3 million, or 18.3% of company-operated restaurant revenue in the third quarter of 2018. The increase was largely due to price increases, partially offset by the impact of wage increases in California, increased delivery fees, related to the roll-out of new delivery service providers, and higher commodity inflation. Restaurant contribution is a non-GAAP measure defined below under "Key Financial Definitions." A reconciliation of GAAP income from operations to restaurant contribution is included in the accompanying financial data. See also “Non-GAAP Financial Measures.”
2019 Outlook
Based on current information, the Company is updating its earnings guidance for fiscal year 2019.
Excluding the impact of potential share repurchases, the Company expects 2019 pro forma diluted net income per share ranging from $0.71 to $0.74. Pro forma net income guidance for fiscal year 2019 is based, in part, on the following annual assumptions:
Reconciliations of our 2019 expected pro forma diluted net income per share range, our expected 2019 Adjusted EBITDA range, our expected 2019 restaurant contribution margin and our 2019 expected pro forma income tax rate to their corresponding GAAP measures have not been provided as we cannot determine the probable significance or timing of certain reconciling items which are outside of our control and therefore cannot be reasonably predicted. Accordingly, we do not provide guidance for these various reconciling items. These reconciling items such as asset impairment and closed store reserves, securities lawsuit related legal expenses and gain or loss on disposal of assets impact the timing and amount of the quarterly recognition of GAAP net income. Therefore, reconciliations of the differences between these forward-looking information items to their most directly comparable financial measures calculated and presented in accordance with GAAP are not available without unreasonable effort.
Key Financial Definitions
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 and excludes restaurants that were closed during the applicable period. At September 25, 2019, there were 198 restaurants in our comparable company-operated restaurant base and 462 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 excludes certain costs, such as general and administrative expenses, depreciation and amortization, asset impairment and closed-store reserves, loss on sale of restaurants, recovery of securities lawsuits related legal expenses and other costs that are considered normal operating costs. Accordingly, restaurant contribution is not indicative of overall Company results and does not accrue directly to the benefit of shareholders because of the exclusion of certain corporate-level 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 or assets held for sale and asset impairment and closed store costs, (ii) amortization expense and other estimate adjustments (whether expense or income) incurred on the Tax Receivable Agreement completed at the time of our IPO, (iii) legal costs associated with securities class action litigation, (iv) legal settlement costs, (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 26.5% for the thirteen and thirty-nine weeks ended September 25, 2019 and September 26, 2018, 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 2019 today at 4:30 PM Eastern Time. Bernard Acoca, 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 13694249. The replay will be available until Thursday, November 14, 2019. 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.
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 480 company-owned and franchised restaurants in Arizona, California, Nevada, Texas, Utah, and Louisiana. 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 that could cause outcomes to differ materially from our expectations. These factors include, but are not limited to: the adverse impact of economic conditions on our (i) operating results and financial condition, (ii) ability to comply with the terms and covenants of our debt agreements, and (iii) ability to pay or refinance our existing debt or to obtain additional financing; vulnerability to changes in consumer preferences and economic conditions; vulnerability to conditions in the greater Los Angeles area; vulnerability to natural disasters given the geographic concentration and real estate intensive nature of our business; ability to open new restaurants in new and existing markets, including difficulty in finding sites and in negotiating acceptable leases; delayed or canceled future restaurant openings; restaurant closures, due to financial performance or otherwise; increases in chicken and other input costs; and other risks set forth in our filings with the Securities and Exchange Commission from time to time, including under Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 26, 2018, which such 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 which include supplemental measures of operating performance of our restaurants. Our calculations of supplemental measures and other non-GAAP financial measures indicated above may not be comparable to those reported by other companies. These measures have limitations as analytical tools, and 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 and to evaluate our restaurants' financial performance against our competitors' performance. 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. These non-GAAP financial measures may also assist investors in evaluating our business and performance relative to industry peers and provide greater transparency with respect to the Company's financial condition and results of operation.
Investor Contact:
Fitzhugh Taylor, ICR
fitzhugh.taylor@icrinc.com
714-599-5200
Media Contact:
Hanna Gray, Edible
hannah.gray@edible-inc.com
323-202-1477
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Source: El Pollo Loco Holdings, Inc.
El Pollo Loco is a fire-grilled chicken restaurant chain renowned for its masterfully citrus-marinated, fire-grilled chicken and handcrafted entrees using fresh ingredients inspired by Mexican recipes.