El Pollo Loco (NASDAQ:LOCO) Misses Q3 Revenue Estimates
Fast food chain El Pollo Loco (NASDAQ:LOCO) missed analysts' expectations in Q3 FY2023, with revenue flat year on year at $120.4 million. Turning to EPS, El Pollo Loco made a non-GAAP profit of $0.19 per share, improving from its profit of $0.14 per share in the same quarter last year.
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El Pollo Loco (LOCO) Q3 FY2023 Highlights:
Revenue: $120.4 million vs analyst estimates of $120.9 million (small miss)
EPS (non-GAAP): $0.19 vs analyst estimates of $0.19 (2.7% beat)
Gross Margin (GAAP): 27%, up from 17.1% in the same quarter last year
Same-Store Sales were up 0.8% year on year
Store Locations: 492 at quarter end, increasing by 7 over the last 12 months
With a name that translates into ‘The Crazy Chicken’, El Pollo Loco (NASDAQ:LOCO) is a fast food chain known for its citrus-marinated, fire-grilled chicken recipe that hails from the coastal town of Sinaloa, Mexico.
Traditional Fast Food
Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.
Sales Growth
El Pollo Loco is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale.
As you can see below, the company's annualized revenue growth rate of 1.73% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was weak, but to its credit, it opened new restaurants and grew sales at existing, established dining locations.
This quarter, El Pollo Loco's revenue grew 0.43% year on year to $120.4 million, falling short of Wall Street's estimates.
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Number of Stores
When a chain like El Pollo Loco is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Since last year, El Pollo Loco's restaurant count increased by 7, or 1.44%, to 492 locations in the most recently reported quarter.
Over the last two years, El Pollo Loco has generally opened new restaurants and averaged 1.36% annual growth in new locations, which is on par with the broader sector. Comparisons, however, should be taken with a grain of salt as the industry is quite mature. Analyzing a restaurant's location growth is important because expansion means El Pollo Loco has more opportunities to feed customers and generate sales.
Same-Store Sales
El Pollo Loco's demand within its existing restaurants has generally risen over the last two years but lagged behind the broader sector. On average, the company's same-store sales have grown by 4.98% year on year. With positive same-store sales growth amid an increasing number of restaurants, El Pollo Loco is reaching more diners and growing sales.
In the latest quarter, El Pollo Loco's year on year same-store sales growth was flat, or 0.8%. By the company's standards, this growth was a meaningful deceleration from the 3.8% year-on-year increase it posted 12 months ago. One quarter fluctuations aren't material for the long-term prospects of a business, but we'll watch El Pollo Loco closely to see if it can reaccelerate growth.
Key Takeaways from El Pollo Loco's Q3 Results
With a market capitalization of $281.8 million and more than $13.8 million in cash on hand, El Pollo Loco can continue prioritizing growth.
We struggled to find many strong positives in these results. Its gross margin and revenue missed Wall Street's estimates, driven by lower-than-expected same-store sales. Overall, the results could have been better. The stock is flat after reporting and currently trades at $8.7 per share.
El Pollo Loco may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.
