El Pollo Loco Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 7 speakers on the call.

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to El Pollo Loco Second Quarter 2023 Earnings Conference Call. At this time, all participants have been placed in a listen only mode and the lines will be open for your questions following the presentation. Please note that this conference is being recorded today, August 3, 2023. And now, I would like to turn the conference over to Ira Phils, the company's Chief Financial Officer.

Operator

Thank you.

Speaker 1

Thank you, operator, and good afternoon. By now, everyone should have elpolloloco.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 strategic and operational initiatives, Expectations regarding cash flow, sales and margins, potential changes to our menu platforms, Capital expenditure plans, future share repurchases, expectations regarding commodity and wage inflation, Remodel plans, expected new store openings, franchise partnerships and our 2023 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.

Speaker 1

We refer you to our recent SEC filings, including our Form 10 ks for a more detailed discussion of the risks that could impact our future operating results and financial condition. We expect to file our 10 Q for the Q2 of 2023 tomorrow and would encourage you to review that document at your earliest convenience. During today's call, we will discuss non GAAP measures, which we believe can be useful 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 With respect to the restaurant contribution margin 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 GAAP financial measure because Without unreasonable efforts, we are unable to predict with reasonable certainty the amount of or timing of non GAAP adjustments that are used to calculate income from operations and company operated restaurant revenue on forward looking basis. Now, I would like to turn it over to our President and CEO, Larry Roberts.

Speaker 2

Thanks, Ira, and good afternoon, everyone. I'd like to start by thanking our El Pollo Loco team members and our franchise partners for the hard work they put in every day to make this brand great. Without the dedication of everyone in the organization, we would not have been able to achieve the outstanding improvements we've seen across our operational metrics, including drive through times, social media ratings and customer complaints for both company and franchise restaurants. These efforts helped deliver restaurant contribution margin of 16.9%, an improvement of 190 basis points compared to last year's Q2 and adjusted earnings per share of $0.23 While our system wide comparable restaurant sales Decrease of 3.4% was below our expectations, primarily due to the lapping of our extremely successful beef theory promotion last year. We are encouraged by the positive trend we've seen to start the Q3 with system wide comparable restaurant sales growth of 1.8% over the past 4 weeks ending July 26.

Speaker 2

This includes comparable sales growth at company restaurants of 2.1% A 0.4% decline in transactions. We believe that our improved sales performance is to some extent driven by refocusing on our famous fire grilled chicken through our current promotions, including our new double chicken chopped salads And our new summer family meal that includes 8 pieces of fire grilled chicken, 3 large sides, tortillas and fresh salsa. Notably, guest feedback on our new chopped styles has been very strong with quality, taste, Healthy and overall ratings among the highest we've seen for some time. Most importantly, the sales emphasize a major differentiator for relative to our competition, which is the freshness of our food and the healthier options we offer on our menu. This differentiation consistently shows up in our consumer research and is highlighted by last week's recognition In the 2023 USA TODAY 10 Best Readers' Choice Awards as we were voted by readers as a best restaurant for quick healthy food.

Speaker 2

Going forward, we will continue developing products and advertising campaigns that drive this differentiation versus our competition. While we continue work to determine whether there is incremental opportunity

Speaker 3

for

Speaker 2

alternative proteins, including a carnitas promotion in the 4th quarter, We will primarily focus on what makes El Pollo Loco unique, which is our fire grilled citrus marinade chicken and freshly prepared entrees that our guests crave. In addition to our promotional activities, with the launch of our Double Chop sound promotion, we have reallocated media spend towards those channels that more effectively drive sales. This reallocation is based on a recently completed media effectiveness study and includes reducing spend on several digital channels while increasing on more traditional channels like TV. We will continue to adjust our media allocation based on further analysis to ensure we are maximizing sales from our media spend. As we previously highlighted, we believe additional menu platforms are a Significant opportunity for us to grow incremental sales with the largest one being catering.

Speaker 2

Today, catering sales represent about 1% of our total system sales. Given how well our food travels, we believe catering can reach 5% of our system sales mix within the next 1 to 2 years. Over the past 2 months, our team has been hard at work revamping our catering program, including the development of a new catering menu that provides more options for customers in addition to our chicken on the bone offerings. This work is largely completed and we're now developing the market materials and training programs We were required to roll out the new program later in Q3. We're also evaluating partnerships with 3rd party catering delivery services that will further drive the program.

Speaker 2

After the initial rollout of the program, we will be testing the use of area catering managers to determine the impact they can have on growing our catering business. We are very excited about the potential of catering and believe it can become a $50,000,000 to 100,000,000 Our sales layer for the Pollo Loco system over time. In addition to a catering platform, we continue to make progress on our menu board test, which includes several new menu items, the creation of an add on panel and potentially a new value menu. The goals of the new menu are to make it easier for consumers to navigate our menu and identify new items and platforms that will resonate with consumers to build sales over the long term. We're excited about the progress and expect to roll out a revised menu and menu board at the beginning of next year.

Speaker 2

Ultimately, growing comp sales depends on restaurants consistently delivering great food and service. Along these lines, I couldn't be more pleased The operational improvements we made this year across both company and franchise restaurants. Drive through times, customer complaints and social media scores Continued to improve in the Q2 and at the best levels we've seen in years. As part of our efforts to continue improving the customer experience, We recently completed a recalibration process with each of our general managers to reiterate the importance of food quality and ensure consistency and continued availability of our fire grilled chicken across the system. In addition, we continue to make progress simplifying our operations.

Speaker 2

We expect to start rolling out new salsa processing equipment to the system later this year and our kiosk test continues to yield positive results. We've begun expanding the test to 10 more restaurants with a number of franchisees participating. We believe these and other operational initiatives will further drive efficiencies and allow our teams to better serve our customers. With regards to our company culture, servant led leadership continues to be the foundation with which we operate and what better way to demonstrate our familiar culture than providing greater support to the communities in which we operate. If you recall, back in November, we announced a new partnership with Feeding America with a goal to raise $400,000 for the Feeding America network of local food banks.

Speaker 2

I'm thrilled to report that through our limited time roundup campaign, Our restaurant teams were able to raise over $474,000 as of June 30, 2023 With our charitable organization, apollo loco charities matching the first 100,000 roundup transactions. 90% of these donations are being distributed The food banks around our restaurants and the communities we serve. Lastly, let me provide an update on our unit expansions. In recent quarters, we've seen positive momentum in our franchising efforts as showcased by the development agreements we announced on our previous earnings call for Northern Colorado, New Mexico and El Paso, Texas. That said, for 2023, we are reducing our unit guidance to 2 company owned Similar to what you've heard from others in our industry, we continue to face permitting and construction delays side of our control as well as ongoing economic uncertainty causing franchisees to delay their development plans.

Speaker 2

Discussions on new development agreements continue with both existing and potential new franchisees and we expect to make further progress during the balance of the year. In closing, we believe the initiatives we're executing against will drive same store sales, increase restaurant margins over time to over 18% that attracts high quality franchisees to El Pollo Loco system to drive new unit development. Moreover, We expect to continue being in a position to return cash to shareholders as we did in the Q2 through our share repurchase program. As we look to the back half of the year, we will continue to execute against our key strategies and position ourselves for sales and profit growth. Lastly, I'd like to once again thank our team members and franchise partners for the work they do each and every day to make Opio Loco a truly special brand.

Speaker 2

With that, let me turn the call over to Ira for a more detailed discussion of our Q2 financial results. Thanks, Larry, and good afternoon, everyone. For the Q2 ended June 28, 2023, Total revenue decreased 2.1 percent to $121,500,000

Speaker 1

compared to $124,100,000 In the Q2 of 2022, company operated restaurant revenue decreased 2.4% to $103,900,000 from $106,500,000 in the same period last year. The decrease in company operated restaurant sales was primarily driven by a 2.3% decrease in company operated comparable restaurant sales, including A 2.3% increase in average check size offset by 4.5% decrease in transactions. During the Q2, our effective price increase versus 2022 was approximately 9.5%. As Larry mentioned earlier, we are encouraged with our improved sales performance in July with system wide comparable sales for the month up 1.8%, including a 2.1% increase in company operated restaurants through July 26. Franchise revenue increased 0.5 percent to $10,100,000 during the 2nd quarter, driven by 8 new franchise restaurant openings and 4 company operated restaurants sold by the company to existing franchisees, In each case during or subsequent to the Q2 of 2022.

Speaker 1

This Turning to expenses. Food and paper costs as a percentage of company restaurant sales decreased 240 basis year over year to 27.4% due to higher menu prices, partially offset by increased commodity comp. Commodity inflation did moderate during the Q2 to approximately 1%. We expect commodity inflation to decelerate to between 1% 2% for 2023. Labor and related expenses as a percentage of company restaurant sales increased 10 basis points year over year to 31.1%.

Speaker 1

Higher menu pricing and improved labor management was offset by wage Rate increases and the leverage lost on the comparable sales decline. Labor inflation during the Q2 was a little over 4% and we expect inflation of about 4% for the full year 2023. Occupancy and other operating expense as a percentage of company restaurant sales increased 30 basis points year over year to 24.6%, primarily due to higher rent, insurance costs and repair and maintenance expense, partially offset by lower utilities. Our restaurant contribution margin for the 2nd quarter was 16.9% compared to 15% in the year ago period. For the full year 2023, we expect contribution margin to be in the 15.5% to 16.5% range.

Speaker 1

General and administrative expenses increased 130 basis points year over year to 9.1% of total revenue. The increase for the quarter was primarily due to $1,100,000 in restructuring costs recognized during the second quarter and a $300,000 increase in labor related costs. During the Q2, we recorded a provision for income taxes of $2,700,000 for an effective tax rate of 27.9%. This compares to a provision for income taxes of $3,100,000 and an effective tax rate of 30% in the prior year period. We reported GAAP net income of $7,100,000 or $0.20 per diluted share in the 2nd quarter compared to GAAP net income of $7,100,000 or $0.20 per diluted share in the prior year period.

Speaker 1

Adjusted net income for the quarter was $8,000,000 or $0.23 per diluted share compared to adjusted net income of 7.6 for a reconciliation of non GAAP measures. During the quarter, we remodeled 2 company operated restaurants and 7 franchise restaurants. For the year, we continue to expect to remodel 10 to 15 company operated and 20 to 30 franchise restaurants. Turning to liquidity, as of June 28, 2023, we had $60,000,000 of debt outstanding and $10,200,000 in cash and cash equivalents. In addition, during the quarter, we repurchased about 1,272,000 shares for approximately $11,900,000 Finally, Based on our results today, we would like to provide the following update to our 2023 guidance.

Speaker 1

The opening of 2 company And 3 to 4 franchise restaurants, remodeling of 10 to 15 company owned and 20 to 30 franchise restaurants, Capital spending of $22,000,000 to $25,000,000 G and A expenses between $42,000,000 $44,000,000 inclusive of approximately $1,400,000 in one time costs and an adjusted income tax rate of 26.5% to 27.5%. This concludes our prepared remarks. We'd like to thank you again for joining us On the call today, we are now happy to answer any questions that you may have. Operator, please open the line for questions.

Operator

Thank you. We will now be conducting a question and answer session. Our first question comes from Todd Brooks with The Benchmark Company. Please proceed.

Speaker 3

Hey, thanks for taking my questions. Appreciate it. Larry, I want to lead off with a question just kind of reflecting on the comments that you made tonight. I hear the shift in Tone or thinking about strategy with Fire Grilled working, core menu focus being recognized For fresh and the rework of the marketing balance, is there a kind of a kind of repositioning, but strategic change that you're looking to make

Speaker 2

Thanks, Todd. So let me step back. I hit a number of points In my opening remarks, but I want to step back and talk about what are the really the key things we're focused on Right now. And 1st and foremost to me is to continue the progression in operations. To me, ultimately, like I said in my opening comments, You can't drive sales and profitability over any time period in a restaurant business without having great operations.

Speaker 2

The great thing is we fixed company operations service from where they were last year. We've got the costs under control. Now in operations, it's really around raising the bar on food quality, consistency across the system. And we started doing that by retraining. We are starting to monitor complaints around food issues and making sure then we hold people accountable and address them as quickly as possible.

Speaker 2

So again, raising the bar in operations and really focused on food quality consistency is a major focus. So that would be really the first thing I'd say. On the marketing side, to more your question, really I see 3 things. First of all, refocus and drive our brand differentiation. It's all around chicken and freshness.

Speaker 2

Our consumer insight data tells us those are the things that Really differentiates us in front of consumers. And so in order to do that, the advertising campaign, the Content on your social and digital channels, product news and the menu all have to be geared towards driving that differentiation. So To some extent, yes, I mean, that's something we were talking about, but we are now going to be really, really focused on driving that in the business. Yes. In addition on marketing, it's going to be around the new sales channels, which I talked about, catering being the biggest one, big opportunity.

Speaker 2

You got to get that out there, got to get that done and we got to make it into a 5%, maybe even 10% system sales type of number on catering. And the last one is the loyalty program, which we relaunched it. We need to get the loyalty program to be a real incremental sales And it's kind of stalled out a bit. So we need to figure out how we're going to really use that to drive incremental sales. 3rd, I would say is really around the assets.

Speaker 2

As a brand, if we're looking to modernize and really push the freshness cues, We really have to remodel our assets. And so we've been doing that. We need to continue doing that and make sure that we don't We step on that and perhaps even accelerate on the remodels because again, we've got too many assets out there where people, especially newer customers just I guess the 4th one I'd call would be economics and we talked about that as we have to get back to 18%. And quite frankly, my target is 20% margins in the business. And so we've got a game plan to get there, and so we'll deliver against that game plan.

Speaker 2

Next would be around development. We are going to be franchise driven in development. We've got to improve the unit economics. Part of that is from the margin work we're doing, but we also got to push ourselves to find ways to get our building costs down. And then we need to increase efforts to attract new franchisees into the system and make sure that they open successfully.

Speaker 2

So a lot of work going on there. And the last one, which we talked about just real briefly is, We are a cash flow generator and we need to continue returning cash to shareholders. We've done that through a special dividend, Yes, our recently completed share repurchase program, but we'll continue finding the best way to return cash to shareholders. So I break it down into, I guess, that was 6 areas that we're just really, really focused on. And to your point around the brand, it's not necessarily a shift of focus, but I think the Iberia promotion was a it did great last year.

Speaker 2

It may have been a business distraction for us. We're just getting back to our the key things that we really do great, which we know is around chicken and how we prepare our food From the entree items to sauces to sauces, all those things in the restaurant are fresh. And so we just need to drive that differentiation.

Speaker 3

That's great to hear. And I guess a follow-up on one of the pillars that you just laid out there, hearing Kind of a potential internal goal, wanting to get back to 2018, but potentially getting back to 2020. What are what's the unlock to Is that AUV driven in your mind? Are there it feels like you've extracted a lot of efficiencies out of the business from the operations already. Is this a volume driven recovery to that type of restaurant level, Martin?

Speaker 2

I think it's a bit of both. But honestly, I'm trying to do it without relying on sales. I think sales will be the add on. So it's looking at where We can find efficiency. So, as we're looking at the new salsa processor equipment, I think that's an opportunity.

Speaker 2

Kiosks, we're pushing those tests. That could be a huge opportunity to drive margin improvements. And then I think there is on the sales line, I mean, especially catering, I think we estimate for every 1% catering sales, we get about a 30 basis point improvement in margins, Somewhere in that range. So it's a combination of both, but we're not just saying, hey, we got to grow sales, because we want to make sure that we're also doing it on the cost side.

Speaker 3

Okay, great. I'll jump back in queue. Thanks, Larry.

Operator

Our next question comes from Jake Bartlett with Truist. Please proceed.

Speaker 4

Great. Thanks for taking the question. Larry, my question is about the momentum in the business. And I understand that the difficult compare from Virea last year in Q2, but there was a deceleration versus 2019, kind of as I looked at a 4 year stack On same store sales. So, wondering what you think is driving that?

Speaker 4

You might speak to the macro environment, how Loco's position in that, but just trying to understand the underlying momentum in the business And really what's driving that?

Speaker 2

Yes. So Jake, I mean, I think actually right now we're seeing a change in momentum in the Yes, I mean, we provided a 4 week look as of July 26, 27, I can't remember which date it was. But actually the 1st week of that was actually negative. That was 4th July weekend and The lap was just a little strange way 4th July fell, but so that was a negative week. And so then the last 3 have been even better.

Speaker 2

I think when you look at, call it, last quarter, again, I highlighted that I thought we're seeing some pullback from Lower income consumers in terms of frequency, check. So I think that was a driver. And I think Birria itself just didn't resonate the second time around. And I think getting away from focusing on chicken actually hurt us, The second time around with Birria. So I think those are some of the factors and I'm just really watching now the trends in the business now.

Speaker 2

And some encouraging trends. I don't want to get too far out there in terms of, hey, everything's great and sales are going to keep climbing, but Definitely seen better trends. And I'd say what's great is on the sales side, what we're seeing is The change in trend is being led by LA and Southern California. So that's been great to see. It's been mainly lunch driven, but dinner has also been positive.

Speaker 2

And then we're also seeing pretty much consistency across the different demographics. So It seems to be pretty widespread. And again, LA, Southern California driven, which is great to see since you know that's where the majority of our business is.

Speaker 4

That's great to see. And I guess given that, given the improvement, I guess maybe that means you don't need to Make any meaningful changes to the balance of value, but how do you feel, you're positioned in terms of value and There's the menu innovation in the more premium side, but

Speaker 5

do you think you need

Speaker 4

to make any kind of changes there, any tweaks to get the balance to be more effective in this environment?

Speaker 2

Well, first thing I'll say that When we look at our value scores via our consumer surveys, they're actually very strong right now overall. However, what we are doing is in the menu board test is we are looking at Providing perhaps a value panel. And so right now, we are screening with consumers various options around value, whether it's at Probably more $6 $7 How do those screen and then we'll get out and test that with consumers to see, do they drive incremental sales? What you don't I see a lot of trade down, but doing it in a way that's got very good margins and look at those ones that screen the best with consumer. So We are looking at that.

Speaker 2

And so that would be something we would look at either really back half of the year, early next year. Yes, it really seems to resonate. We try to get that on the menu. But we got to test our way that other than that, we still have our $5 value scores right now Are strong with consumers.

Speaker 4

Great. And then my last question is just on margins and A good quarter for margins, restaurant level margins, your commodity inflation has been taken down. I think Your labor inflation a little bit to 4 from 4 to 5. But at the midpoint of guidance, I think you stayed the same for the annual number. So just wondering what the moving pieces are there and maybe within that I think pricing is going to make a difference.

Speaker 4

So if you could share what you expect menu pricing to be in the back half of the year. And just to add on to this long question, in the past you've given us some guidance for the current quarter, you gave us guidance for the year with restaurant level margins, but any guidance or any indication for the Q3 would be helpful.

Speaker 1

Yes, Jake. Our pricing plans are pretty similar to what they've been. If you think about so in Q2, we were at about 9.5% Effective pricing year over year, as you roll forth through the balance of the year, you'll see that decline as we took a lot of price Towards the end of last year, so Q2 I'm sorry, Q3, we should be about 7.25% and in Q4, we'll be about 5.5%, A little play how that plays out. I think we feel really good about Our visibility in regards to commodities and that's why we were able to bring the guidance down. And our wage rates have been Pretty consistent as well.

Speaker 1

So we feel, we have a lot of visibility from a cost standpoint and a lot of Then really what drives any differences is how sales move. As Larry talked about, it's about 30 basis points or so on the margin

Operator

Our next question comes from Andy Barish with Jefferies. Please proceed with your

Speaker 5

Hey, good afternoon guys. It sounds like from the prepared remarks, You expect comps to stay positive in the back half of the year even against some tougher laps. I assume that confidence is coming from sort of the promotional lineup, but is there anything else that's, I know there's a lot of initiatives, but what kind of gives you that confidence at this point?

Speaker 2

Yes. So I see as a key sales growth drivers in the back half of the year. First of all, I think getting back and refocusing on chicken, The chopped sals and then we have quesadillas are next up and quesadillas performed very well last year. So that gives us confidence that we've got good promotions both going on now and coming up next. I expect That we'll continue to see improvement in operations and customer service.

Speaker 2

And I think one of the big opportunities is and this comes from focus groups I watched last week, which is around we did focus groups with lapsed users And the continued improvements we'll make, we will really be targeting to bring the last users back into the restaurants back half of the year. Yes, I do think the loyalty program will continue to make changes to that. So that will be a driver. And I think the realignment of the media spend that I talked about versus the first half of the year continue to fine tune that to really get focused on those Channels that deliver the strongest sales will be a driver. And then I think the last one is going to be around Catering, which will look to roll out the end of September.

Speaker 2

So he's moving to Q4. Certainly going to holidays, having a really strong catering platform, I think we'll be a sales driver. So I think we've got a number of good things on the agenda to drive the sales in the back half of the year.

Speaker 5

Just to follow-up on the marketing. I think you've got a new agency of record. I'm not recalling the timing exactly, but Has the creative from that group started to be out there yet?

Speaker 2

Yes. So that group started The first run was, I guess, February, so our module 2, but it was that was kind of a thrown there quickly, put something together quickly. So it wasn't the full blown, here it is. But they are now full in force and the advertising we have now is full on With a new agency, the agency's name is organic and really pleased with what we're seeing in terms of The look and feel the advertising, I mean, it's got more energy with the music. We're now really focusing on the food, house Prepared, done that before, but for example, with chopped salads, show the chicken being chopped.

Speaker 2

And so doing those things and then We really re shot the whole family dinner promotion, the advertising and really made sure that okay, we need families in it. So we've got families now in there Because you're targeting mom. So the look and feel, the energy, the vibe and I think we've got a lot of the right ingredients in there that we want to have To really drive, 1st of all, a slightly, I'll call it more modern brand.

Speaker 5

Got it. And then finally, just The 10 or so units from both company and franchise have Been pushed now from this year. Are those expected to open in 2024 or some of those Kind of evaporated with some challenges out there. How do you kind of look at that start to 2024? Is it right to think of these 10 units kind of moving into next year?

Speaker 2

Some are moving into next year. I'd say somewhere around The half are probably moving next year and half have just fallen through. Either the development has stopped For the landlord, so I'd say it's half and half at this stage.

Speaker 5

Okay. Thanks guys.

Operator

Our next question comes from June North with Baird. Please proceed with your question.

Speaker 6

Great. Thanks for taking the question. A number of mine have been asked already, but I'll follow-up on margins or the inflation outlook. Can you just update us on how much the commodity basket is locked for the balance of 2023? And perhaps any earlier reads on your contracting efforts For chicken looking out to 2024, yes, do you see opportunity to lock in at rates below the levels paid in 2023?

Speaker 6

Or What's your level of visibility to the inflation outlook to 2024 at this point?

Speaker 1

I think More broadly, we view the outlook next year positive just given, we haven't seen a lot of pressure in regards specifically on the Chicken side, we don't have we just started quite frankly our RFP process. So we'll have more on that in the next quarter. So but we feel I think that we've seen commodities decelerate substantially this year and we are definitely looking for 20 24% to be a much more moderate commodities inflation environment. For the back half of the year, like I think we're around 80% -plus or so locked in on the chicken side. Really what's not locked is just the breast meat, which floats.

Speaker 1

We have a caller on that. So again, the spot price on that has been very favorable and We feel like we do have quite a bit of visibility to where we're headed from a commodity standpoint.

Speaker 6

That's helpful. And one clarification, Ira. The pricing metrics you mentioned earlier on in the call as we got to Q3, Q4, Was that contemplating additional pricing as we got to September or assuming no changes in price as the new menu rolls out?

Speaker 1

It is. There's a 2% price increase built into that when the new menu rolls out in the September time.

Speaker 6

Perfect. And then one more from me. Just thought I'd give you the chance to update on the kiosk rollout, if you have any details to share. I know it's expanded to additional locations this past quarter. So it's still early, but getting to a more critical mass of the test, I guess.

Speaker 6

And other brands have been successful with the rollout of Kia. So maybe if you're willing to share, could you speak to the benefits you're seeing on Check or margins at this point in the units where the kiosks have been rolled out and perhaps the interest level from franchisees at this point?

Speaker 2

Sure. A little more detail on kiosk. Like I said, we have I believe it's 11 kiosks Now in service, that includes some franchise restaurants. And company restaurants, What we have found is that to really drive kiosk usage, it's important to have cash machines, the ability to use cash to pay. And so when we put those in, we're seeing anywhere in our test restaurants from, I'll call it dining room transactions.

Speaker 2

So meaning either somebody eating in the dining room or coming in and ordering for it to go, we're seeing anywhere from restaurants 75% to 80% kiosk usage, and the lows will be in the 20s, but even those We're seeing increase. And so overall, we're seeing really good usage on the kiosks. We're seeing nice average checklists. And the other thing we're seeing is when you start getting up to 50% plus In terms of usage, you can start looking at labor hours. So we are pulling some labor hours out of those restaurants that have a high usage rate.

Speaker 2

And so now given the success there, we are rolling out, I think 10 more kiosks On the company side, they'll be in Las Vegas. And the reason why I've chosen Las Vegas is because there's no EBT In Las Vegas, so in California, we think the usage will even go further as we integrate EBT usage into the kiosk system. And because we get a lot EBT sales here in California, but Vegas, they don't have EBT. And so we're already in a Couple of restaurants there, we're seeing very high usage in Vegas. And in fact, I think we're going to basically test a restaurant where it's just kiosk service And see what that does.

Speaker 2

So we're trying to really push the envelope on the kiosk, similar to what other concepts Done. I see what they're doing. And I think there's a big ability there to both drive check and reduce labor hours in the restaurant.

Speaker 6

Thanks for all the color. I'll pass it on.

Operator

Our next question comes from Jake Bartlett with Truist. Please proceed.

Speaker 4

Great, thanks. So this is a fairly detailed question about compares, but I just want to make sure I Getting it right. So last Q3, July was relatively weak relative to the quarter. That was going up against the opposite where July of 2021 was the strongest. So last year might have been Related to the year before.

Speaker 4

So the question is, as we think about the rest of the quarter and kind of where sales can land, Do you view the compares as more difficult going forward or maybe on a kind of a stack basis 4 year basis or versus pre COVID It's not. So just want to make sure I don't get too carried away by the fact that compares seem to get considerably harder In August, in September.

Speaker 2

Yes, Jake. So the way I was looking at it actually is, I threw out the 4th July week and looked at say the last 3 weeks plus. And actually, again, we were positive last year in that same time period year over year. And especially LA, company restaurants, I mean, I'll just give you 2022 over this timeframe, we're up about 1.6%. In LA, at this point, we're up close to 5%.

Speaker 2

Yes, I think we're lapping. I don't think the numbers are as negative when you actually throw away 4th July weekend and do the compares. And so I feel like there's good enough momentum that as we move through the quarter, the last get more challenging. So I still think we'll be able to deliver Positive same store sales growth, but I think that's probably one reason why we're just don't get too far out there in front of your skis, we still got to deliver. But certainly, I think the trends over the last several weeks have been reassuring, especially in terms of the LA, Southern California market.

Speaker 4

Great. That's helpful. And yes, I think that's it. Thank you so much. Appreciate it.

Operator

I would now like to turn the call back over to Mr. Larry Roberts for closing remarks.

Speaker 2

Just like to thank everybody for joining the call tonight and

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Key Takeaways

  • El Pollo Loco reported a 3.4% system‐wide comparable restaurant sales decline in Q2, missing expectations as it lapped last year’s strong beef Birria promotion.
  • In the four weeks ended July 26, system‐wide comparable restaurant sales turned positive with 1.8% growth, including a 2.1% increase at company‐operated restaurants.
  • Operational performance hit multi‐year highs, with improved drive-through times, social media ratings, and reduced customer complaints across company and franchise restaurants.
  • The new catering initiative, launching late Q3, aims to grow catering from 1% to 5% of system sales and could add $50M–$100M in incremental sales over time.
  • 2023 unit growth guidance was lowered to just 2 company‐owned and 3–4 franchised restaurants due to permitting, construction delays, and economic uncertainty.
AI Generated. May Contain Errors.
Earnings Conference Call
El Pollo Loco Q2 2023
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