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El Pollo Loco Holdings, Inc. Announces Third Quarter 2021 Financial Results

By: El Pollo Loco |  0 Shares     179 Reads

COSTA MESA, Calif., Nov. 04, 2021 // GLOBE NEWSWIRE // - El Pollo Loco Holdings, Inc. (Nasdaq: LOCO) today announced financial results for the 13-week period ended September 29, 2021.

Highlights for the third quarter ended September 29, 2021 compared to the third quarter ended September 23, 2020 were as follows:

• Total revenue was $115.7 million compared to $111.0 million.
• System-wide comparable restaurant sales(1) increased 9.3%.
• Income from operations was $14.2 million compared to $12.2 million.
• Restaurant contribution(1) was $20.4 million, or 20.4% of company-operated restaurant revenue, compared to $21.8 million, or 22.4% of company-operated restaurant revenue.
• Net income was $10.2 million, or $0.28 per diluted share, compared to net income of $9.9 million, or $0.28 per diluted share.
• Pro forma net income(1) was $10.0 million, or $0.27 per diluted share, compared to $9.9 million, or $0.28 per diluted share.
• Adjusted EBITDA(1) was $18.9 million, compared to $19.3 million.
• During the third quarter, under the CARES Act, the Company recognized a $3.2 million employee retention credit.
  • (1) System-wide comparable restaurant sales, restaurant contribution, 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 these non-GAAP financial measures to the most directly comparable GAAP financial measure is included in the accompanying financial data. See also “Non-GAAP Financial Measures.”

Larry Roberts, Interim Chief Executive Officer and Chief Financial Officer of El Pollo Loco Holdings, Inc., stated, “We are pleased to see that our strong sales continued during the third quarter as we posted a 9.3% growth in system-wide comparable restaurant sales, or 11.9% growth on a two-year basis. The year over year system sales results were driven by a 5.9% increase in transactions, further demonstrating the strength of the brand. As we look to the future, we could not be more excited about our brand positioning today and the growth opportunity we have ahead of us. Moreover, our focus on the acceleration agenda will continue to build momentum in our core business for rapid and successful growth over the next three years. In the near term, as with many in the restaurant industry, we continue to work through supply chain challenges and are particularly focused on ensuring that our restaurants are fully staffed so that they can continue to provide the service levels our customers expect from El Pollo Loco.”

Third Quarter 2021 Financial Results

Company-operated restaurant revenue in the third quarter of 2021 increased to $100.0 million, compared to $97.3 million in the third quarter of 2020, primarily due to a 4.8% increase in company-operated comparable restaurant sales. The company-operated comparable restaurant sales increase consisted of an approximately 3.5% increase in average check size and a 1.2% increase in transactions. In addition, company-operated restaurant revenue was favorably impacted by $0.9 million of additional sales from restaurants opened during or after the third quarter of the prior year and a $0.4 million increase in revenue from restaurants that were temporarily closed due to the COVID-19 pandemic during the third quarter of the prior year. This restaurant sales increase was partially offset by a $2.6 million decrease in revenue from the eight company-operated restaurants sold by the Company to an existing franchisee during the quarter and a $0.4 million decrease in revenue recognized for our loyalty points program.

Franchise revenue in the third quarter of 2021 increased 14.6% to $8.9 million, compared to $7.8 million in the third quarter of 2020. This increase was primarily due to a 12.6% increase in franchise comparable restaurant sales, the opening of one new franchise restaurant during or subsequent to the third quarter of 2020 and revenue generated from eight company-operated restaurants sold by the Company to an existing franchisee during the quarter. The increase in franchise revenue was partially offset by the closure of two franchise locations during or subsequent to the third quarter of 2020.

Income from operations in the third quarter of 2021 was $14.2 million, compared to $12.2 million in the third quarter of 2020. Restaurant contribution was $20.4 million, or 20.4% of company-operated restaurant revenue, compared to $21.8 million, or 22.4% of company-operated restaurant revenue in the third quarter of 2020. The decrease in restaurant contribution was largely due to the impact of wage increases and higher operating costs, partially offset by higher company-operated restaurant revenue and a $3.2 million employee retention credit, which was recorded as an offset to the corresponding payroll tax expense and was classified as part of labor and related expenses on the condensed consolidated statements of income during the thirteen weeks ended September 29, 2021. Restaurant contribution is a non-GAAP measure defined below under "Key Financial Definitions."

General and administrative expenses in the third quarter of 2021 were $9.4 million, compared to $9.8 million in the third quarter of 2020. The decrease of $0.4 million for the quarter was due primarily to a $1.3 million decrease in labor related costs, primarily related to a decrease in estimated management bonus expense. This general and administrative expenses decrease was partially offset by a $0.6 million increase in recruiting and other outside services fees and a $0.3 million increase in legal and professional expenses.

Net income for the third quarter of 2021 was $10.2 million, or $0.28 per diluted share, compared to net income of $9.9 million, or $0.28 per diluted share, in the third quarter of 2020. Pro forma net income was $10.0 million, or $0.27 per diluted share, during the third quarter of 2021, compared to $9.9 million, or $0.28 per diluted share, during the third quarter of 2020.

During the third quarter, the Company maintained its debt balance at $40.0 million and had $24.7 million in cash and cash equivalents.

Subsequent Events

CEO Resignation and Appointment of Interim-CEO:

On October 11, 2021, Bernard Acoca, the Company’s Chief Executive Officer and President, resigned from his position as Chief Executive Officer and President and as a member of the Board of Directors of the Company (the “Board”), effective October 15, 2021. In connection with Mr. Acoca’s resignation, the Board appointed Laurance Roberts as interim Chief Executive Officer of the Company (“Interim CEO”), effective October 15, 2021. Mr. Roberts currently also serves as Chief Financial Officer of the Company and will continue in that role during his tenure as Interim CEO.

2021 Outlook

• Due to the uncertainty surrounding the COVID-19 pandemic, the company is not yet providing a financial outlook for the year ending December 29, 2021. However, the company is updating the following expectations for 2021:
• Accelerating commodity and labor costs will further pressure margins in the fourth quarter of 2021 relative to the third quarter of 2021.
• Due to permitting and equipment delivery delays, we are lowering our 2021 development expectations to two to three company-owned and one to three franchise new restaurant openings versus our previous guidance of three to five new company-owned restaurants and four to six new franchised restaurants.
• Pro forma income tax rate of 26.5%.

Key Financial Definitions

System-wide sales are neither required by, nor presented in accordance with, GAAP. System-wide sales are the sum of company-operated restaurant revenue and sales from franchised restaurants. The Company’s total revenue in the consolidated statements of operations is limited to company-operated restaurant revenue and franchise revenue from the Company’s franchisees. Accordingly, system-wide sales should not be considered in isolation or as a substitute for our results as reported under GAAP. Management believes that system-wide sales are an important figure for investors because they are widely used in the restaurant industry, including by our management, to evaluate brand scale and market penetration.

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 29, 2021, there were 189 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 underlying 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 reserves, (ii) amortization expense and other estimate adjustments (whether expense or income) incurred on the Tax Receivable Agreement (“TRA”) completed at the time of our IPO, (iii) legal costs associated with securities class action litigation, (iv) extraordinary legal settlement costs, (v) insurance proceeds received related to securities class action legal expenses and (vi) provision for income taxes at a normalized tax rate of 26.5% for the thirteen and thirty-nine weeks ended September 29, 2021 and September 23, 2020, which reflects our estimated long-term effective tax rate, including both federal and state income taxes (excluding the impact of the income tax receivable agreement and valuation allowance) and applied after giving effect to the foregoing adjustments. 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 2021 today at 4:30 PM Eastern Time. Larry Roberts, Interim Chief Executive Officer and Chief Financial Officer will host the call.

EL POLLO LOCO HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)

^{(1)  Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant revenue as the denominator. All other percentages use total revenue.}

 

EL POLLO LOCO HOLDINGS, INC.
UNAUDITED SELECTED BALANCE SHEETS AND SELECTED OPERATING DATA
(dollar amounts in thousands)

 

 

EL POLLO LOCO HOLDINGS, INC.
UNAUDITED RECONCILIATION OF SYSTEM-WIDE SALES TO COMPANY-OPERATED RESTAURANT REVENUE AND TOTAL REVENUE
(in thousands)

 

EL POLLO LOCO HOLDINGS, INC.
UNAUDITED RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
(in thousands)

 ^{____________________________________
(a)  Includes non-cash, stock-based compensation.
(b)  Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.
(c)  During the thirteen and thirty-nine weeks ended September 29, 2021, we completed the sale of our eight restaurants within Sacramento area to an existing franchisee. This sale resulted in cash proceeds of $4.6 million and a net loss on sale of restaurants of less than $0.1 million and $1.5 million for the thirteen and thirty-nine weeks ended September 29, 2021, respectively.
(d)  During the thirteen and thirty-nine weeks ended September 23, 2020, we received insurance proceeds of $0.1 million related to a property claim.
(e)  Includes costs related to impairment of long-lived and ROU assets and closing restaurants. During the thirteen and thirty-nine weeks ended September 29, 2021, we recorded non-cash impairment charges of $0.1 million and $0.7 million, respectively, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019, the ROU assets of one restaurant in California, and the long-lived assets of three restaurants in California.
During the thirteen and thirty-nine weeks ended September 23, 2020, we recorded non-cash impairment charges of $1.5 million and $3.5 million, respectively, primarily related to the carrying value of the ROU assets of one restaurant in Texas and the long-lived assets of four restaurants in California.
During the thirteen and thirty-nine weeks ended September 29, 2021, we recognized $0.1 million and $0.4 million, respectively, of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations. During the thirteen and thirty-nine weeks ended September 23, 2020, we recognized $0.3 million and $1.1 million, respectively, of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
(f)  On July 30, 2014, we entered into the TRA. This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods. For the thirteen and thirty-nine weeks ended September 29, 2021 and September 23, 2020, income tax receivable agreement expense (income) consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.
(g)  Consists of costs related to the defense of securities lawsuits. During the thirteen and thirty-nine weeks ended September 29, 2021, we received $0.5 million in insurance proceeds, net of legal expenses, related to the derivative complaint.
(h)  Includes amounts incurred related to the payment of the final settlement amounts for multiple wage and hour class action suits.
(i)  Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs. These are generally incurred over the three to five months prior to opening. Pre-opening costs also include occupancy costs incurred between the date of possession and the opening date for a restaurant.}

EL POLLO LOCO HOLDINGS, INC.
UNAUDITED RECONCILIATION OF NET INCOME TO PRO FORMA NET INCOME
(dollar amounts in thousands, except share data)

 

EL POLLO LOCO HOLDINGS, INC.
UNAUDITED RECONCILIATION OF INCOME FROM OPERATIONS TO RESTAURANT CONTRIBUTION
(dollar amounts in thousands)

 SOURCE El Pollo Loco

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