El Pollo Loco Holdings, Inc. (LOCO) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Thank you for standing by. to the El Pollo Loco Second Quarter 2026 Earnings Conference Call. This time all participants have been placed in listen-only mode and there will be an opportunity to ask questions following the presentation. Please note that this conference is being recorded today, August 6, 2026. And now, I'd like to turn the conference over to Ira Fills, the company's Chief Financial Officer.

Thank you, Operator, and good afternoon. By now, everyone should have access to our second quarter 2026 earnings release, which can be found at www.elpoyoloco.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements. including statements related to our new products and growth opportunities, strategic and operational initiatives, expectations regarding sales and margins, potential changes to our product platforms, capital expenditure plans, the ability of our franchisees to drive growth, expectations regarding commodity and wage inflation, remodel plans, and our 2026 guidance, among others. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we currently expect. more detailed discussion of the risks that could impact our future operating results and financial conditions, we refer you to our recent SEC filings, including our Form 10-K for the year ended December 31, 2025, as well as our Form 10-Q for the second quarter of 2026, which we expect to file tomorrow and encourage you to review at your earliest convenience. During today's call, we will discuss non-GAAP measures, which we use for financial and operating decision-making and as a means to evaluate period-to-period comparisons, and which we believe can be useful to investors in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release, which is available in the investor relations section of our website. With respect to the adjusted EBITDA outlook, we will be providing on today's call. Please note that we have not provided a reconciliation to the most directly comparable forward-looking gap financial measure because without unreasonable efforts, we are unable to predict with reasonable certainty the amount of or time of non-GAAP adjustments that are used to calculate income from operations and company operated revenue on a forward-looking basis. Now, I would like to turn it over to our CEO, Liz Williams.

Thank you, Ira, and good afternoon, everyone. We are pleased with our second quarter results of system-wide same-store sales growth of 3.9% and restaurant-level margin of 19.5%, which demonstrates the sustainability of the improvements we've made over the past two years. What's more encouraging is that we achieved this performance through a combination of sales layers and operational improvements, which gives us confidence in the long-term sustainability of our group. More specifically, we achieved this performance through a combination of sales layers and More specifically, our top-line performance this quarter was driven by a combination of our strategic pillars. with strong brand activation and menu innovation, a targeted focus on providing value through our digital channels and operational excellence. But let me walk you through our progress across our strategic pillars. Let's start with Brand Not Win, which continues to be anchored by menu innovation. First, our local tenders, which launched at the end of the first quarter, brought new guests to the brand, many of whom who had not considered El Juego Loco before. And they broadened our appeal beyond our core, Fire Grilled Chicken Loyalists. Notably, our tenders generated significant buzz and excitement. From social media conversation to word of mouth, this craveable product done with our own twist put El Pollo Loco back in the conversation in a way that we haven't seen in years. Our high-quality Mexican-seasoned loco tenders, paired with our new Pollo Loco sauce, drove trial across income and age cohorts, but notably with a new, younger consumer. They were additive to check and popular in snacking and late-evening day parts. As these were always planned as an LTO, we are taking the learnings and already thinking of ways to bring them back in the future. We believe we've only scratched the surface of what is possible with LOCO tenders. tenders in late June we introduced loaded quesadillas available in two flavors queso with our creamy cilantro sauce and street corn with our creamy chipotle sauce both with our citrus-marinated, fire-grilled, chopped chicken breast wrapped in a warm flour tortilla and grilled to order. We designed these for portability and value, giving guests a satisfying eat, baked to their heart's content. can enjoy on the go at a price of less than $10 a la carte or $10.99 for a combo meal, which includes chips, salsa, and a drink. We also gave our local rewards members early exclusive access ahead of the general launch. The early guest response has been strong, and we believe Loda Quesadillas strengthens our lineup within handheld and on-the-go occasions. We also introduced a new coffee platform to the menu this quarter with our Chata coffee lineup, featuring our signature horchata, iced coffee, and cold foam. We designed our new beverages to capture an afternoon pick-me-up occasion, which we believe is a meaningful and underserved day part for all. our brand. Alongside items like our tenders and quesadillas, we see this as part of a broader snacking occasion that brings guests into our restaurant outside of traditional mealtimes and also helps in building trust. We are just getting started with beverages and look forward to even more innovation in the upcoming quarters. As we head into the second half of the year, we are encouraged by the strength of our innovation pipeline. Two new double chicken burrito bowls will be coming this fall, as well as a new pumpkin spice churro and caramel apple chata coffee. We also continue to test new salads, wraps, and sandwiches as we prepare for 2027. In short, we remain committed to keeping our menu. craveable, relevant, and fresh, giving guests new reasons to visit. Our Let's Get Loco campaign continues to build momentum and has found new ways to put our new menu items in front of our guests. by showing up where our brand hasn't historically been invited. In late June, around National Go Skateboarding Day, we launched our Case Videos for Kickflips Activation, featuring Olympic skateboarder Paige Haines. This content resonated well beyond our usual audience, drawing praise from from across the skateboarding world, including from the editor-in-chief of Thrasher Magazine, one of the most recognized voices in that community. We followed that with our Hold It Like It's Hot campaign, which put our new chata coffee, loaded quesadillas, and black beans into real, everyday moments to highlight how portable and delicious these products are. We continue to expand our presence with brand partnerships, working with brands like Igloo Cooler, SandCloud, and Tapatio all throughout the quarter as we were showing up in live sports. From our media presence during the World Cup games to free food giveaways for at-home watch parties, we were there. We believe this combination of timely, culturally relevant marketing and strong menu innovation is exactly the kind of engine that builds lasting brand loyalty and something that we will continue to lean into as we carry the momentum through the rest of the year. Turning to our loyalty and digital business, which continues to contribute to our top line performance. Digital sales, including our app, web, and kiosk channels represented approximately 28% of system sales and were up 13% year over year. and our local rewards members continued to be an important growth driver for the brand. These members visited approximately three times more annually than non-loyalty members. We use a strategic approach with our loyalty offers based on segmentation and purchase behavior. These targeted offers deployed throughout the quarter, together with more frequent communications, drove not only frequency growth, but also check growth among our loyalty members, outpacing non-loyalty guests by more than double. As a reminder, we center our loyalty program around three things. Giving members everyday value, tailoring offers based on purchase behavior, and giving our most loyal guests access to exclusive experiences. Starting with everyday value, our weekly Loco Friday drops, providing great offers and value each Friday on some of our best menu items, and our Sunday spreads and abundant value on family chicken meals have continued to be consistent performers for the program. These all-member deals, combined with our segmented offers based upon purchase history, have both contributed to the frequency and check growth. In addition to these deals, our exclusive giveaways, early access to menu items and prizes, have created engagement in our loyalty program. As we look ahead, In early Q3, we launched Loco Days, a summer-themed promotion featuring exclusive prizes, deals, and a grand prize VIP experience at the iHeart Music Festival. Early engagement in the promotion has exceeded expectations, and we look forward to future growth of our loyalty program. Finally, our off-premise digital business, Inclusive of Delivery, continues to gain strength as we have launched segmented deals targeting new customers at the snack and late evening day parts. For lunch, we have expanded our roster of third-party partners focused on groups and catering services. In total, our off-premise digital business represents almost 17% of sales and has increased 12% year-over-year. While we're pleased with the growth, we believe there is still significant opportunity to grow this channel. At the intersection of digital and operational excellence is technology. We continue to make great progress in modernizing our capabilities. from in-restaurant training to analyzing consumer feedback to a more effective help desk for restaurant general managers. use of technology and AI tools is improving our insights and capabilities. In just a few months, we have made great strides in our capabilities with the addition of Vadim Parajer, who joined us earlier this year as our Chief Technology Officer. His leadership in digital, data, and technology is unlocking opportunity and insights across the business and we look forward to sharing more about our technology advancement in future calls. Moving on to operational excellence and our hospitality mindset, I'm pleased with the continued progress we made this quarter in improving guest experience and overall customer satisfaction. System satisfaction scores continued to move in the right direction on a year-over-year basis, We saw improvement across the board from order accuracy to speed of service to overall friendliness. This kind of consistent incremental progress is exactly what we set out to build and it reflects the discipline our teams have in driving operational excellence every day. As we look forward to national expansion with new restaurant openings, we will continue to build our operational people capability as this is the single most critical item in ensuring consistency and execution across our restaurants. We know there is room to have even more of a consistent guest experience that builds long-term loyalty, and we are focused on the investment in people, tools, training, and technology to get us there. Shifting to financial metrics, we are proud to have coupled our sales momentum with winning unit economics. In Q2, we delivered another solid restaurant-level margin of 19.5%, comfortably within our 18 to 20% long-term target range. We are pleased with this result. especially in light of the significant cost pressure in produce during the quarter. Even with this headwind, our underlying cost discipline continues, which speaks to the margin focus we've built over the past several years. We will continue to manage the levers within our control closely, including labor productivity, waste reduction, and disciplined menu pricing. And we are watching our key commodities as we move through the back half of the year. As we said last quarter, we will also balance the goals of driving year-over-year margin expansion with the need for value offers and investment in innovation, technology, and unit growth. We believe we can do all of these and be in the healthy margin range. Let me now touch on our new unit growth pillar. First, we were pleased to welcome Tara Hinkle in late June to the El Pollo Loco family as our new Chief Development Officer. Cara joined us with extensive industry experience and expertise that spans development operations, market planning, franchise recruiting, and finance, with experience from brands like Taco Bell, Starbucks, and Coffee Bean and Chili. We remain confident in our goal of opening 18 to 20 new restaurants system-wide this year, nearly double our 2025 pace. Our new restaurants continue to open with strength, which reinforces our confidence in the appeal for Fire Grilled Chicken and the El Pollo Loco brand as we continue our nationwide expansion. A good proof point of this progress came at the end of June, when our franchise partner opened our first restaurant in Idaho, making the entry into our 10th state. The Idaho restaurant is run by an experienced franchise group with more than 25 years in the El Pollo Loco system, and we already have a second location. location scheduled to open later this fall, with three to four more planned in the market as it develops. Less than two years ago, Apoyo Loco operated in just seven states. Since then, we've added Washington, New Mexico, and now Idaho, three new states in under 24 months. As we look forward, the vast majority of our openings will continue to be outside of California. Our new unit growth continues to benefit from the second generation sites where we are achieving lower development costs than the typical ground-up bills. Together with our value engineering initiatives, we remain focused on overall new unit economics. As we look forward to becoming a national brand, we are encouraged by the discussions and the level of interest with prospective franchise partners. Over the past couple of months, we've hosted discovery days at our restaurant support center with new franchise groups representing opportunities across the country. These visits have been positive and we are in discussions on various development agreements. We expect to have more details to share on future calls and remain confident that our development pipeline is building nicely and supports our continued expansion across the country. On the restaurant refresh initiative, we remain pleased with our results. On average, we continue to see a mid-single-digit sales list in the locations we've refreshed, consistent with what we've shared on prior calls. We'll continue to be thoughtful about pacing this initiative in a way that supports our teams without disrupting the sales list. day-to-day operations. In summary, we are proud of our quarterly performance and the work we have done over the last two and a half years in transforming the El Pollo Loco brand. Our menu innovations are driving real trial and repeat and our marketing and loyalty engines are amplifying that momentum. Our operations to improve and we are back to healthy margin expansion and unit growth. With that, let me turn the call over to Ira for a more detailed discussion of our second quarter financial results.

Thank you Liz and good afternoon everyone. For the second quarter ended July 1st, 2026, Total revenue was $129.6 million compared to $125.8 million in the second quarter of 2025. Company-operated restaurant revenue increased 3.7% to $108.1 million from $104.3 million in the same period last year. The 3.8 million increase in company-operated restaurant sales was driven by 3% growth in company-operated comparable restaurant sales, as well as sales from the three company restaurants opened since the second quarter of 2025. The growth in comparable restaurant sales increased. included a 4.2% increase in average check size, partially offset by a 1.1% decrease in transactions. During the second quarter, our effective price increase versus 2025 was approximately 3.4%. Franchise revenue decreased 3.8% to $12.9 million during the second quarter, driven by a $1.1 million decrease in franchise IT pass-through revenue related to the franchise rollout of our new point-of-sale system completed in 2025. Franchise revenue did benefit from a 4.5% increase in comparable restaurant sales and revenue associated with 11 franchise operated restaurant openings. Subsequent to the 2nd quarter of 2025, the 4.5% increase in comparable franchise store sales. consisted of a 5.3% increase in average check size, partially offset by a 0.8% decrease in transactions. For the second quarter, system-wide, same-store sales were up 3.9%, with system-wide transactions down 0.9%. We are very pleased to report that the positive sales momentum we experienced in Q2 has continued into the third quarter. System-wide comparable store sales for the third quarter to date through July 29, 2026, increased 5.8%, consisting of a 4.4% increase in sales. 4% increase in company operated restaurants and a 6.6% increase in franchise restaurants. Looking ahead, we believe same store sales for the third quarter will be in the 3.5 to 4.5% range. Turning to expenses, food and paper costs as a percentage of company restaurant sales increased approximately 90 basis points year over year to 25.4%, primarily due to commodity inflation of 4.1%, primarily produce, combined with increased discounts and menu mix shifts. These increases were partially offset by higher menu prices. We expect commodity inflation to be in the 2.5% to 3.5% range for the full year 2026. Labor and related expenses as a percentage of company restaurant sales decreased about 90 basis points year over year to 29.9% as we continue to benefit from improvements in operating efficiencies along with lower health insurance and workers' compensation costs. In addition, labor as a percentage of sales benefited from leverage on the 3% company-owned comparable store sales. Wage inflation during the second quarter was under 1% for all our company-owned locations. the full year 2026 we expect wage inflation of between one and a half to two and a half percent Occupancy and other operating expenses as a percentage of company restaurant sales decreased 30 basis points year-over-year to 25.3%, primarily due to lower liability insurance costs, lower utilities, and lower other controllable expenses. offset increases from higher delivery and mobile ordering fees and higher repairs and maintenance Our restaurant contribution margin for the second quarter improved to 19.5% compared to 19.1% in the year-ago period. As we continue our path of margin improvement, we expect our restaurant level margin for the full year 2026 to be between 18.25% to 18.75%, an increase from the 17.8% we ran for the full year of 2020. In addition, we expect our restaurant margins in the third quarter of 2026 to be between 18% and 18.5%, which is in line with the 18.3% we posted in the third quarter of 2025. General and administrative expenses decreased to $7.1 million compared to $13.5 million in the prior year. decrease was primarily due to $6.3 million received from a legal settlement, lower shareholder activism-related expenses, and lower restructuring and executive transition-related costs. The The decrease was partially offset by higher legal fees, new store pre-opening costs, and other general and administrative expenses. Excluding the impact of the $6.3 million favorable legal settlement as a percentage of sales, G&A decreased to 10.3% or 50 basis points. During the second quarter, we recorded a provision for income taxes of $5.2 million for an effective tax rate of 28.8%. compared in an effective tax rate of 29.6% in the prior year period. We reported GAAP net income of $12.8 million, or $0.43 per diluted share, in the second quarter compared to GAAP net income of $7.1 million, or $0.24 per diluted share, in the prior year period. Adjusted EBITDA for the second quarter of 2026 was $19.1 million compared to $18.5 million in the second quarter of 2025. adjusted net income for the second quarter was $8.9 million, or $0.30 per diluted share, compared to adjusted net income of $8.2 million, or $0.28 per diluted share, in the second quarter of last year. Please refer to our earnings release for a reconciliation of non-GAAP measures. As Liz mentioned earlier, we are pleased with our increasing pace of new store development as we open five new franchise locations and one new company location in the second quarter. Since the end of the second quarter, we have opened an additional two locations bringing our 2026 year-to-date day new store opening to 10 and we remain on track deliver a total of 18 to 20 new openings in 2026. In regard to our remodeling efforts, during the second quarter, we completed six franchise restaurant remodels and five company remodels, bringing the remodels completed for the first half of the year to 24, consisting of 12 franchise remodels and 12 company remodels. In terms of liquidity, as of July 1st, 2026, after a net pay down of $21 million on our revolver during the preceding 26 weeks, we had $30 million of debt outstanding and $13.3 million in cash and cash equivalents. Subsequent to the end of the quarter, on August 4th, 2026, we amended our $150 million revolving credit facility, extending the term to August 4th of 2031. With that, we would like to provide you with the following updated guidance for 2026. We are increasing our system-wide comparable store sales growth guidance. to now be between 3.5 and 4.5% for the whole year. we are increasing our adjusted EBITDA guidance to be between 68 and 70 million. we are reducing our expected capital spending to be between $33 and $37 million. In addition, we now expect depreciation and amortization expenses to be between $18 and $18.5 million for the year. We are maintaining the following guidance. The opening of at least three to four company-operated restaurants and 15 to 16 franchise-operated restaurants. G&A expenses between $52 and $54 million, excluding one-time charges or benefits. And finally, an estimated effective income tax rate of approximately 29 to 29.5% before discrete items. This concludes our prepared remarks. We'd like to thank you again for joining us on the call today, and we are now happy to answer any questions that you may have. Operator, please open the line for questions.

Thank you. If you would like to ask a question at this time, you may press star 1 from your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Thank you. And our first question is from the line of Todd Brooks with Benchmark StoneX. Please proceed with your question.

Hey, congrats on another solid quarter and continued momentum into the third quarter. Great to see. Thanks, Todd. If we can talk about franchisees. You gave us some good color last quarter about some of the magnitude of the openings in the Washington and New Mexico, now you've added Idaho on top of it. What are you seeing for... kind of continued strength of performance in newer markets? Yes. Appreciate the question.

Newer markets are opening really well. We're very pleased with the strength of the sales. Most are opening above system average, particularly when it's the first restaurant in the first state or first market. They're opening to just blockbuster lines and quite frankly exceeding our expectations, which is giving us a belief that the fire grilled chicken is resonating and our brand is resonating. It also gives us the confidence to open more units and those franchisees to open more units in those markets. So like I mentioned, Idaho, the second Idaho location is coming on board in the next couple of months. They're already looking for additional sites. Similarly, up in Washington, we've got just one unit. We have been working on finding additional sites up there. Following on with the rest of the quarter, we'll have restaurants opening in New Mexico, in Colorado, another one in Washington, as I mentioned, and then a few more in California. California and one in New Mexico. So, you know, just really pleased with how these are opening and our franchise partners. It's giving a lot of confidence to them and then additional new partners who are looking at coming into the brand.

And I wanted to follow up on that because I think you used the word national three or four times. during the prepared remarks. These discovery days and the outbound work that you're doing doing to build a pipeline of interest with potential franchisees. Can you give us a sense of how far afield the interest in the brand is reaching? Does it feel contiguous? Are you seeing interest nationwide, which kind of helps prove out that concept of our grilled chicken working anywhere in your mind? I'm just curious how this is developing.

goes? There is nationwide interest. And while we have been rather contiguous over the years, particularly West Coast and down into the South, as we went over to Texas and just a couple in Louisiana, jumping across the country is certainly something that we are considering doing, talking with folks and doing. You know, there's a lot of population on the East Coast and just, you know, throughout different parts of the country. So we don't think it has to be contiguous. We certainly could see a world where, you know, we could go to jump many states and go across the country. It really just depends. on you know how these conversations progress over the next couple months to and hopefully we'll we'll share more in upcoming calls to that that effect that's great and then just final question I'll jump back into you what's.

if you're going to make a jump into non-contiguous and a new territory, new market, what are you looking for in that franchisee partner? And in your outreach, are those type of partners being transparent drawn to the brand, you have to go find them. Just kind of if you give us the criteria and the interest from that type of partner.

Certainly. The partners that we're talking with are partners that have experience in the restaurant space, multi-units. We want partners that are a great fit with the brand, that love the brand, have the enthusiasm for the brand, they believe in the economic story of the brand, but also they have a great a proven track record in the restaurant space, and they're great operators. That's really important to us. They've done this before. They know how to do new store development. They know how to do grand openings. They know how to do just great customer service. We also have the benefit of a fabulous franchise system today and I can't say enough great things about our existing franchise partners. And we're talking with many of them about their desires to be in additional states. As I mentioned in the remarks, our partner up in Idaho is a partner that's been in the system for many years. And so that's just... been a great opening for many reasons but one of which is he knows the El Pollo Loco system and he has you know just a great team that was was able to get trained and ready to go with great efficiency.

Okay. Thanks, Liz. Yes, thank you. As a reminder, to ask a question, you may press star 1 from your telephone keypad. The next question is in the line of Matt Curtis with DA Davidson. Please proceed with your question.

Hey guys, thanks for taking the question. You know, I want to talk about comp trends. You know, July accelerated in terms of traffic relative to the second quarter. I just was wondering if you could unpack what drove the sequential acceleration. I mean, was it LTO momentum, loyalty activity, comparisons or something else. And then, you know, given the guidance for the full third quarter on comps, it implies a deceleration. Is that just a function of more difficult comparisons in August and September, or is there something else going on we should be aware of?.

Thanks for the question. I'll start and then hand it over to Ira for the back half of that. So I would say all of the above when you gave the list, you know, we were proud of how our loaded quesadilla got off to a great start. It's a nice eat, a great value, combined with just the meat media that we've had behind it and also we wish we could have a World Cup advertising in the month of July every year you know usually people aren't watching live sports in July and you know we think that that certainly got eyeballs on El Pollo Loco also in terms of just the momentum that the brand was experiencing. And then in terms of as we think about the lap from last year as well, you think about with everything going on last year, people weren't coming out of their homes as much, and so some of that certainly has come back as well in fact we're seeing even some trends where people are eating in the dining room more whereas last year if they were coming out maybe they were going through the drive-through so I would say all of those factors you know have played a role and then as we look into the back half of the year.

Yes, as we think about, you know, our full year guidance for the year and even for the quarter, you know, we ran a 3.9% in Q2. And if you think about the midpoint of the guidance for both Q3 and Q4, that's right at 4%. So really consistent with what we, you know, what we ran in Q2. I will tell you there is a little bit of about a 200 basis point change as you go into Q4 versus Q3 in regards to the compares get tougher as you move into Q4, but as you can see by our guidance, we feel great about what's going on from a same-store sales trend, and we're and we really foresee Q3 being pretty much on the same pace as Q2.

Okay, got it. Then separately on local tenders, can you maybe just expand on what you learned from the local tenders? in terms of new guest acquisition, repeat rates, check impact and all of that. And I mean, given that the product brought new guests into the brand, it sounds like, I guess what needs to be true for tenders to return in a more permanent or recurring way?.