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01/11 03:39
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals strong financial performance with year-over-year improvements in revenue, net income, and margins. The company is outperforming peers in the California market and has a positive outlook on cost efficiencies and menu innovations. Although Q4 margins are expected to be lower than Q3, they will still improve year-over-year. The Q&A section supports the company's strategic initiatives and market gains. Overall, the sentiment is positive, with potential for stock price appreciation in the short term.
Total Revenue $121.5 million, a slight increase from $120.4 million in the third quarter of 2024. The increase was driven by franchise revenue growth, despite a slight decrease in company-operated restaurant revenue.
Company-Operated Restaurant Revenue $100.7 million, a 0.5% decrease from $101.2 million in the same period last year. This was due to a 1.1% decrease in comparable restaurant sales, partially offset by sales from two new restaurant openings.
Franchise Revenue $12.9 million, a 13.5% increase year-over-year. This was driven by IT pass-through revenue, new franchise-operated restaurant openings, and a true-up of royalty rates, partially offset by a 0.6% decrease in comparable restaurant sales.
Restaurant Contribution Margin 18.3%, an improvement from 16.7% in the prior year. This was due to cost savings in the supply chain, enhanced labor productivity, and higher menu pricing, despite higher discounting and delivery-related expenses.
Food and Paper Costs 24.7% of company restaurant sales, a 40 basis point decrease year-over-year. This was due to higher menu pricing and commodity deflation, partially offset by higher discounting.
Labor and Related Expenses 30.4% of company restaurant sales, a 200 basis point decrease year-over-year. This was due to improved labor deployment, technology use, and lower workers' compensation expenses, despite wage inflation of 0.6%.
Occupancy and Other Operating Expenses 26.5% of company restaurant sales, a 70 basis point increase year-over-year. This was due to higher delivery-related expenses, software maintenance fees, and rent, partially offset by lower repairs and maintenance expenses.
General and Administrative Expenses $12.3 million, an increase from $11.4 million in the prior year. This was due to higher stock compensation, legal fees, restructuring costs, and ERP system implementation expenses.
Net Income (GAAP) $7.4 million or $0.25 per diluted share, compared to $6.2 million or $0.21 per diluted share in the prior year. The increase was driven by improved margins and revenue growth.
Adjusted Net Income $7.8 million or $0.27 per diluted share, compared to $6.3 million or $0.21 per diluted share in the prior year. This reflects adjustments for non-GAAP measures.
Menu Innovation: Introduction of premium Creamy Chipotle and Salsa Verde quesadillas, Double Chicken Street Corn and Queso Crunch burrito bowls, and upcoming Double Pollo salads in 2026. Testing of Loco Tenders and fire-fried chicken sandwich for 2026.
Permanent Menu Additions: Creamy Chipotle and Salsa Verde quesadillas added to the permanent menu due to sustained demand.
Future Product Pipeline: Plans for new salads, tostadas, bowls, and quesadillas with unique flavors in 2026. Testing new beverage offerings to increase check averages.
Geographic Expansion: Opened 500th restaurant in Colorado Springs and expanded to El Paso, Texas. 75% of new openings in 2025 are outside California.
New Market Success: New restaurants in Colorado Springs and El Paso are performing above system average, with annualized volumes of $2 million.
Franchise Growth: Strong franchise partnerships driving expansion, with a focus on second-generation sites for cost efficiency.
Operational Efficiency: Restaurant-level operating profit margins improved to 18.3% in Q3 2025, driven by cost savings in supply chain and enhanced labor productivity.
Digital Growth: Digital sales grew to 27% of system sales, with loyalty transactions up 28% year-over-year. Completed kiosk rollout for company-owned restaurants.
Customer Satisfaction: Customer complaints at a 3-year low, with rising satisfaction scores due to improved service standards and AI-driven feedback systems.
Brand Transformation: 'Let's Get Loco' campaign evolved into a complete brand experience, coupled with modernized restaurant designs.
Remodeling Program: Completed 34 remodels in 2025, with plans to remodel 35 company-operated restaurants in 2026, achieving mid-single-digit sales lift.
Franchise Conference: Celebrated 50th anniversary and emphasized growth opportunities with franchise partners.
Commodity and Wage Inflation: The company faces potential challenges from commodity and wage inflation, which could impact margins and profitability. Although commodity inflation is expected to be flat for 2025, wage inflation is projected to be between 3% and 3.5%.
Supply Chain Costs: Higher third-party delivery-related expenses and software maintenance fees related to kiosk and POS rollouts have increased operating costs, which could pressure margins.
Regulatory and Legal Costs: The company incurred increased legal and professional fees related to shareholder activism and other matters, as well as restructuring and executive transition costs, which could impact financial performance.
Operational Consistency: While customer complaints have decreased and satisfaction scores have improved, the company acknowledges that service consistency still has room for improvement to reach top-tier levels.
Construction and Permitting Delays: The company faces potential delays in new restaurant openings due to permitting and other external factors, which could impact growth targets.
Economic Environment: The macro consumer environment remains challenging, which could affect sales and customer spending behavior.
Franchise System Performance: Franchise revenue growth is partially offset by a decrease in comparable restaurant sales of 0.6%, which could impact overall system performance.
Digital and Technology Investments: While digital channels and kiosks are growing, the associated costs for software maintenance and implementation could weigh on profitability.
Revenue Expectations: For the full year 2025, the company expects restaurant-level contribution margins of 17.5% to 17.75%. In the long term, the brand aims to return to the 18% to 20% range over time.
Menu Innovation and Product Launches: The company plans to launch Double Pollo salads, new flavor innovations across tostadas, bowls, and quesadillas, and portable options like Loco Tenders and a fire-fried chicken sandwich in 2026. Additionally, Mango Habanero chicken will return in February 2026, and barbecue chicken will be introduced in summer 2026. A comprehensive beverage platform is also planned for 2026.
Unit Growth and Expansion: The company plans to open at least 10 new restaurants in 2025, with a focus on expanding outside California. For 2026, the company aims to almost double its development pace with a strong pipeline and increased company capital investment in markets like California, Las Vegas, Dallas, and Denver.
Remodeling Plans: The company expects to remodel approximately 35 company-operated restaurants in 2026, aiming to update half of its total system over four years. Remodels are expected to deliver a mid-single-digit sales lift on average.
Digital and Technology Enhancements: The company has completed kiosk rollouts for company-owned restaurants, with 50% of the system now equipped with kiosks. Digital business, including kiosks, grew to 27% of system sales in Q3 2025, up from 20% in the same period last year.
Capital Expenditures: Capital spending for 2025 is projected to be between $28 million to $30 million.
The selected topic was not discussed during the call.
The earnings call reveals strong financial performance with year-over-year improvements in revenue, net income, and margins. The company is outperforming peers in the California market and has a positive outlook on cost efficiencies and menu innovations. Although Q4 margins are expected to be lower than Q3, they will still improve year-over-year. The Q&A section supports the company's strategic initiatives and market gains. Overall, the sentiment is positive, with potential for stock price appreciation in the short term.
The earnings call indicates positive momentum with a 2% increase in company-operated revenue and a 14.8% rise in franchise revenue. The restaurant contribution margin improved, and the digital business contribution increased significantly. Despite some challenges in the macro environment, the company is confident in achieving accelerated unit growth by 2026, supported by new menu items and brand relaunch efforts. The Q&A highlighted management's optimism about maintaining traffic growth and margin improvement, although there were some unclear responses. Overall, the sentiment is positive, suggesting a stock price increase of 2% to 8%.
The earnings call presents mixed signals. Financial performance shows modest revenue growth but declining margins and net income. Product development is promising with new launches, but consumer pullback poses a risk. Market strategy highlights brand transformation but lacks immediate impact. Expenses are rising due to labor inflation, affecting margins. Share repurchase is positive but not substantial enough to sway sentiment. Q&A reveals cautious optimism but ongoing headwinds. Overall, the stock is likely to remain neutral in the short term, with no significant catalysts to drive a strong price movement.
The earnings call presents a balanced picture with positive elements outweighing negatives. Revenue growth and improved margins suggest strong financial performance. The optimistic guidance, especially with margin expansion plans, is a positive indicator. The share repurchase program adds to shareholder value, while the new restaurant prototype and remodel plans suggest strategic growth. Despite supply chain challenges and tariff impacts, the company's efforts in cost management and innovation are promising. The Q&A reveals cautious optimism, with management focusing on efficiency and expansion. Overall, the sentiment is positive, likely resulting in a 2% to 8% stock price increase.
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