El Pollo Loco Holdings, Inc. (LOCO) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
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.
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Operating Highlights
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.
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Risk or Challenges
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.
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Guidance & Outlook
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.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:How is El Pollo Loco performing relative to peers in the California market?
A:El Pollo Loco is outperforming peers in the California market in both sales and transactions, indicating market share gains. This success is attributed to value positioning, innovation, brand resonance, and operational enhancements.
Q:What are El Pollo Loco's tactics to offset incremental pressure and maintain market share gains?
A:El Pollo Loco has made adjustments throughout the year, such as bringing more value to the menu, improving operations, and enhancing customer experience. Despite consumer spending challenges, the company is maneuvering effectively and achieving positive results.
Q:What is the outlook for cost efficiencies and margins in 2026?
A:El Pollo Loco believes there is still room for cost efficiencies, particularly in labor and cost of goods sold (COGS). The company is working on multiple projects to achieve its 18%-20% margin target.
Q:What is the status of testing and introducing new menu items like tenders and sandwiches?
A:El Pollo Loco is testing new items like Loco Tenders and sandwiches in local markets, with plans for broader market testing. These items could be introduced as early as Q2 2026. The company is also testing barbecue chicken and black beans for potential summer launches.
Q:What is the status of chicken contracting for next year?
A:El Pollo Loco is in the process of awarding chicken contracts for next year and is pleased with the results. While there is some pressure on dark meat chicken, it has been offset in other areas.
Q:Are there any new supply chain or equipment initiatives for 2026?
A:El Pollo Loco is testing innovations to improve consistency, quality, and cost savings, such as marinating processes. These initiatives aim to enhance product quality and reduce labor-intensive tasks, with some results expected as early as Q1 2026.
Q:What is the margin outlook for Q4 compared to Q3?
A:Q4 margins are expected to be lower than Q3 due to seasonal sales volume differences. However, margins are projected to grow year-over-year compared to Q4 of the previous year.
Q:How is the new marketing tagline and menu strategy resonating with consumers?
A:The 'Let's Get Loco' campaign and menu innovations are resonating well, attracting new and lapsed consumers. The company is balancing value offerings with higher-priced items to protect average check size.
Q:How is the quesadilla performing after being added to the regular menu?
A:The quesadilla's sales mix has decreased slightly since its promotional period but remains an incremental product, addressing a critical entry-level price point in the current economic environment.
Q:What is the impact of immigration policies on traffic in Southern California?
A:Immigration policies continue to impact traffic, particularly during lunch hours, though the extent is hard to quantify.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer regarding the impact of immigration policies on traffic in Southern California, stating that it persists but is hard to quantify.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI Chicken
Chicken Challenge
Corn
Double
El Paso
Let Loco
Loco Love
Loco Tenders
Loco campaign
Love service
Ranch
Street
app
average
bowl
call
culture
customer engagement
customer feedback
delivery platform
demand
employee
excellence
expansion
generation
marketing menu
marketplace
medium
momentum
offer
offering
place
portion
premium
quality chicken
restaurant level
sandwich
site
strength
tool
traffic
training
LOCO Transcript
El Pollo Loco Holdings, Inc. (LOCO) Q1 2026 Earnings Call Transcript
Unknown5-8
The earnings call presents a mixed outlook. Strong financial performance with revenue and net income growth, improved margins, and positive cash flow are offset by concerns over commodity and wage inflation, franchisee growth challenges, and execution risks. The absence of shareholder return plans and unclear management responses in the Q&A further contribute to uncertainty. Overall, the positive financial results are tempered by potential risks, leading to a neutral sentiment.
El Pollo Loco Holdings, Inc. (LOCO) Q4 2025 Earnings Call Transcript
Unknown3-13
The earnings call presents a mixed picture. Financial performance is positive, with increased revenue, net income, and operating margin. However, the absence of detailed guidance, potential risks from inflation, franchisee growth uncertainties, and challenges in remodel plans balance the positives. The lack of clear responses in the Q&A section adds uncertainty. With no strong catalysts or significant negative factors, the stock is likely to remain stable in the short term, leading to a neutral prediction.
El Pollo Loco Holdings, Inc. (LOCO) Q3 2025 Earnings Call Transcript
Positive10-30
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.
El Pollo Loco Holdings, Inc. (LOCO) Q2 2025 Earnings Call Transcript
Positive7-31
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%.
LOCO Report
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