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El Pollo Loco (LOCO) Q4 Earnings & Revenues Beat Estimates

Zacks Equity Research

El Pollo Loco Holdings, Inc. LOCO reported better-than-expected results for the fourth quarter of 2018. Despite recording earnings beat, the company’s shares dipped more than 17% on Mar 8, following the quarterly release. This may be due to its somewhat muted guidance of restaurant openings in 2019.

Adjusted earnings of 16 cents per share surpassed the Zacks Consensus Estimate of 14 cents and increased 45.5% on a year-over-year basis. Total revenues rose 11.6% year over year to $106.3 million and surpassed the consensus estimate of $104.4 million. Increased company-operated restaurant sales drove the top line.

Further, El Pollo Loco’s sales-building efforts like relentless focus on providing excellent service, reasonable pricing and advertising campaigns boosted revenues in the quarter under review.

Revenue Discussion

Company-operated restaurant revenues in the fourth quarter increased 6% from the year-ago quarter to $94.6 million. The uptick was driven by the launch of 12 restaurants during and after the fourth quarter of 2017. However, seven restaurants were closed in the same period, which somewhat affected revenues of the company-operated restaurants. An increase in company-operated comps also partially boosted company-operated restaurant revenues.

Comps at the company-operated restaurants increased 3.7% in the reported quarter, owing to 1% increase in transactions and 2.7% gain in average check.

Fourth-quarter franchise revenues increased 9.2% year over year to $6.4 million. The increase can be attributable to higher franchise comps of 5.1% and the contribution from the 10 restaurants opened during and subsequent to the fourth quarter of 2017, partially offset by four restaurant closures during the same period.

System-wide comps increased 4.4% from the prior-year quarter number.

El Pollo Loco Holdings, Inc. Price, Consensus and EPS Surprise


El Pollo Loco Holdings, Inc. Price, Consensus and EPS Surprise | El Pollo Loco Holdings, Inc. Quote

Expenses, Adjusted EBITDA and Net Income

Total expenses in the fourth quarter amounted to $137.3 million, up 30.8% from the year-ago quarter. This rise in expenses was largely owing to a 5.8% increase in company restaurant expenses, 13.5% rise in general and administrative expenses, and a record surge in franchise expenses.

Adjusted EBITDA (Expense Before Interest Tax Depreciation Amortization) in the reported quarter was $14.5 million, reflecting an 8.2% year-over-year increase.

Adjusted net income summed $6.1 million compared with net income of $4.4 million in the fourth quarter of 2017.

Balance Sheet

Cash and cash equivalents as of Dec 26, 2018, were $7 million, down from $8.6 million as of Dec 27, 2017. Total debt by the end of the reported quarter was $74.2 million, down from $93.3 million at the end of 2017.

Stockholders’ equity amounted to nearly $265.2 million as of Dec 26, 2018, compared with $275 million as of Dec 27, 2017.

2019 Guidance

El Pollo Loco continues to expect 2019 pro-forma earnings per share to be 70-75 cents. This compares with pro forma diluted net income per share of 74 cents in 2018.

System-wide comps growth is still projected to grow 2-4%. The company plans to open 3-4 company-owned and 3-5 franchised restaurants in the current year.

For 2019, adjusted EBITDA is expected to be $62-$65 million.

Zacks Rank & Stocks to Consider

El Pollo Loco currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the restaurant space are Starbucks SBUX, Darden DRI and Brinker EAT. While Starbucks currently flaunts a Zacks Rank #1 (Strong Buy), Darden and Brinker carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Starbucks, Darden and Brinker’s earnings for 2019 are projected to grow 12.4%, 18.3% and 10%, respectively.

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