El Pollo Loco Holdings, Inc. Announces Quarter Financial Results

The following excerpt is from the company's SEC filing.

COSTA MESA, CA – November 1, 2018 –

El Pollo Loco Holdings, Inc. (Nasdaq: LOCO) today announced financial results for the 13-week period ended

September 26, 2018

Highlights for the

quarter ended

, compared to the

September 27, 2017

were as follows:

Total revenue, excluding franchise advertising fee revenue, increased

$106.7 million

$101.2 million

in the same period of 2017. Including

$5.5 million

of franchise advertising fee revenue related to franchise advertising fund contributions, required as part of new accou nting guidance implementation, total revenue increased

$112.2 million

System-wide comparable restaurant sales increased

, including a

increase for company-operated restaurants, and a

increase for franchised restaurants.

Net income was

$6.8 million

per diluted share, an increase compared to net loss of

$4.0 million

$(0.11)

 per diluted share in the same period of 2017.

quarter of 2017 included a

$16.0 million

pre-tax expense related to the full impairment of the assets of 10 restaurants and the closure of three restaurants.

Pro forma net income

$7.6 million

 per diluted share, compared to

$6.0 million

Adjusted EBITDA

$16.3 million

$16.2 million

Pro forma net income and adjusted EBITDA are non-GAAP measures 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, “We are very pleased to report third quarter results that demonstrate increasing business momentum. System-wide comparable restaurant sales grew 2.6% in the third quarter, or 4.3% on a two-year basis. We are encouraged by the progress we are making against our Transformation Agenda, which we believe is reflected in these results. We are confident that as we continue to execute against our strategies to invest in and grow our talent, accentuate and build upon our brand strengths, and profitably and responsibly grow our business for the long term, we can realize our brand’s full potential.”       

Quarter

Financial Results

Company-operated restaurant revenue in the

$100.0 million

$95.0 million

in the same period last year. The growth in company-operated restaurant revenue was largely driven by the

new restaurants opened during and subsequent to the

increase in company-operated comparable sales, partially offset by nine restaurant closures during the same time period.

Comparable company-operated restaurant sales in the

quarter increased

, driven by a

increase in average check, partially offset by a

decrease in transactions.

Franchise revenue in the

$6.7 million

$6.2 million

. This increase was primarily due to higher franchise fees received from franchised restaurants related to their use of our point-of-sales system, higher franchise comparable restaurant sales of

and by the opening of

new franchised restaurants opened during or after the prior year quarter.

In the first quarter of 2018 the Company implemented new accounting guidance, which in part requires the inclusion of franchisee advertising fund contributions as franchise advertising fee revenue. For the

, franchise advertising fee revenue was

Restaurant contribution was

$18.3 million

of company-operated restaurant revenue, compared to

$17.4 million

of company-operated restaurant revenue in the

. Higher company-operated restaurant revenue was partially offset by higher labor and related expenses, due to the impact of wage increases in California, and higher occupancy and other operating costs in the period.

During the

, the Company recorded a

pre-tax expense related to the full impairment of the assets of eight restaurants in Texas, two in California and the closure of three restaurants in Texas.

Net income for the

 per diluted share, compared to net loss of

. Pro forma net income was

 per diluted share during the

. A reconciliation between GAAP net income and pro forma net income is included in the accompanying financial data.

Outlook

Based on current information, the Company is updating its earnings guidance for the fiscal year

Excluding the impact of potential share repurchases, the Company expects

pro forma diluted net income per share ranging from $0.70 to $0.73. This compares to pro forma diluted net income per share of $0.63 in

. Pro forma net income guidance for fiscal year

is based, in part, on the following updated annual assumptions:

System-wide comparable restaurant sales growth of flat to 1%;

The opening of 8 new company-owned restaurants and 9-10 new franchised restaurants;

Restaurant contribution margin of 18.7% to 19.0%;

G&A expenses of between 8.0% and 8.2% of total revenue excluding CEO transition costs and legal fees related to securities related litigation, and reflecting our change in accounting for franchise advertising fees;

Pro forma income tax rate of 26.5%; and

Adjusted EBITDA of between $61.5 and $63.0 million.

Reconciliations of our 2018 expected pro forma diluted net income per share range and our expected 2018 Adjusted EBITDA range 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.

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. At

, there were

restaurants in our comparable company-operated restaurant base and

restaurants in our comparable system restaurant base.

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 reserve and other costs that are considered normal operating costs and 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.”

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.”

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 and asset impairment and closed store costs, (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 a securities class action lawsuit, (iv) insurance proceeds received related to securities class action legal expenses, (v) costs associated with the transition of our CEO and (vi) provision for income taxes at a normalized tax rate of 26.5% and 39.5% for the

thirteen and thirty-nine

weeks ended

, respectively, 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

today at 5:00 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 13682994. The replay will be available until Thursday, November 15, 2018. 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.

About El Pollo Loco

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 disclosed in our annual report on Form 10-K for the year ended

December 27, 2017

, file number 001-36556, including the sections thereof captioned “Forward-Looking Statements” and “Risk Factors,” as those sections may be updated in our quarterly reports on Form 10-Q. Those and other 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.

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,

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:

Alecia Pulman, ICR

loco@icrinc.com

203-682-8200

EL POLLO LOCO HOLDINGS, INC.

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share data)

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 26, 2018

September 27, 2017

Revenue:

100,024

94,982

294,204

287,316

19,324

19,183

Franchise advertising fee revenue

16,039

112,178

101,155

329,567

306,499

Costs of operations:

Food and paper cost (1)

28,349

27,851

84,265

84,069

Labor and related expenses (1)

29,164

27,514

84,682

80,939

Occupancy and other operating expenses (1)

24,187

22,242

69,019

64,358

Company restaurant expenses (1)

81,700

77,607

237,966

229,366

General and administrative expenses

12,186

37,862

27,594

Franchise expenses

18,424

Depreciation and amortization

13,063

13,646

Loss on disposal of assets

Recovery of securities lawsuits related legal expenses

(2,036

(6,099

(1,145

Asset impairment and closed-store reserves

16,038

17,293

Total expenses

102,686

106,767

308,038

290,010

Income (loss) from operations

(5,612

21,529

16,489

Interest expense, net of interest income

Income tax receivable agreement expense (income)

Income (loss) before provision for income taxes

(6,496

19,618

13,911

Provision for income taxes

(2,457

Net income (loss)

(4,039

14,416

Net income (loss) per share:

Diluted

Weighted average shares used in computing net income per share:

38,602,658

38,462,100

38,516,792

38,449,453

39,205,090

39,102,130

39,101,214

As a percentage of restaurant revenue.

UNAUDITED SELECTED BALANCE SHEETS AND SELECTED OPERATING DATA

(dollar amounts in thousands)

December 27, 2017

Selected Balance Sheet Data:

Cash and cash equivalents

Total assets

444,905

442,711

Total debt

71,219

93,316

Total liabilities

155,856

167,761

Total stockholders’ equity

289,049

274,950

Selected Operating Data:

Company-operated restaurants at end of period

Franchised restaurants at end of period

Company-operated:

Comparable restaurant sales growth

Restaurants in the comparable base

UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO EBITDA AND ADJUSTED EBITDA

Adjusted EBITDA:

Net income (loss), as reported

14,570

35,369

30,028

Stock-based compensation expense

Pre-opening costs

Securities lawsuits related legal expense

10,532

Executive transition costs

16,293

16,240

48,416

51,883

UNAUDITED RECONCILIATION OF NET INCOME (LOSS) TO PRO FORMA NET INCOME

(dollar amounts in thousands, except share data)

Pro forma net income:

Provision for taxes, as reported

Income tax receivable agreement expense (income)

Securities lawsuits related legal expenses

(2,728

(3,904

(8,254

(13,232

22,892

20,270

Pro forma weighted-average share and per share data:

Pro forma net income per share

Weighted-average shares used in computing pro forma net income per share

39,098,644

UNAUDITED RECONCILIATION OF INCOME (LOSS) FROM OPERATIONS TO RESTAURANT CONTRIBUTION

Restaurant contribution:

Add (less):

  General and administrative expenses

  Franchise expenses

  Depreciation and amortization

  Loss on disposal of assets

  Franchise revenue

(6,665

(6,173

(19,324

(19,183

  Franchise advertising fee revenue

(5,489

(16,039

  Recovery of securities lawsuits related legal expenses

  Asset impairment and closed-store reserves

18,324

17,375

56,238

57,950

Company-operated restaurant revenue:

Restaurant contribution margin (%)

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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