El Pollo Loco Q2 2026 Earnings Call Transcript

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Provided by Quartr
August 6, 2026

Key Takeaways

  • Positive Sentiment: Q2 performance exceeded the company’s prior trajectory: systemwide same-store sales rose 3.9%, restaurant-level margin improved to 19.5% from 19.1%, and adjusted EBITDA increased to $19.1 million.
  • Positive Sentiment: Management raised its 2026 outlook, targeting 3.5%-4.5% comparable-store sales growth and $68-$70 million of adjusted EBITDA, while reporting third-quarter sales growth of 5.8% through July 29.
  • Positive Sentiment: Menu innovation and digital engagement are driving growth, with Loco Tenders attracting younger and new customers, Loaded Quesadillas gaining early traction, and digital sales rising 13% to approximately 28% of system sales.
  • Positive Sentiment: El Pollo Loco remains on track to open 18-20 restaurants in 2026, including expansion into Idaho and continued growth outside California; management said newer markets are opening above system averages and franchise interest is building nationally.
  • Negative Sentiment: Commodity pressure remains a risk, particularly from produce, packaging, oil, and fuel costs; food and paper expense rose 90 basis points year over year, while the amended credit facility will increase the borrowing spread by about 50 basis points.
AI Generated. May Contain Errors.
Earnings Conference Call
El Pollo Loco Q2 2026
00:00 / 00:00

Transcript Sections

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Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome 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 6th, 2026. Now I'd like to turn the conference over to Ira Fils, the company's Chief Financial Officer.

Ira Fils
Ira Fils
CFO at El Pollo Loco

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.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 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.

Ira Fils
Ira Fils
CFO at El Pollo Loco

For a more detailed discussion of the risks that could impact our future operating results and financial condition, we refer you to our recent SEC filings, including our Form 10-K for the year ended December 31st, 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. Reconciliations to comparable GAAP measures are available in our earnings release, which is available in the investor relations section of our website.

Ira Fils
Ira Fils
CFO at El Pollo Loco

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 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 revenue on a forward-looking basis. Now, I would like to turn it over to our CEO, Liz Williams.

Liz Williams
Liz Williams
CEO at El Pollo Loco

Thank you, Ira, and good afternoon, everyone. We are pleased with our second quarter results of systemwide same-store sales growth of 3.9% and restaurant level margin of 19.5%, which demonstrate 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 growth. More specifically, our top-line performance this quarter was driven by a combination of our strategic pillars, notably with strong brand activation and menu innovation, a targeted focus on providing value through our digital channels, and operational excellence. With that, let me walk you through our progress across our strategic pillars. Let's start with brand that wins, which continues to be anchored by menu innovation.

Liz Williams
Liz Williams
CEO at El Pollo Loco

First, our Loco Tenders, which launched at the end of the first quarter, brought new guests to the brand, many of whom who had not considered El Pollo 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.

Liz Williams
Liz Williams
CEO at El Pollo Loco

We believe we've only scratched the surface of what is possible with Loco Tenders. Following 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 they 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 Loco Rewards members early exclusive access ahead of the general launch. The early guest response has been strong, and we believe Loaded Quesadillas strengthens our lineup within handheld and on-the-go occasions.

Liz Williams
Liz Williams
CEO at El Pollo Loco

We also introduced a new coffee platform to the menu this quarter with our Chatacoffee 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 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 mealtime, and also helps in building check. 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 Chatacoffee.

Liz Williams
Liz Williams
CEO at El Pollo Loco

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, often by showing up where our brand hasn't historically been invited. In late June, around National Go Skateboarding Day, we launched our Quesadillas for Kickflips activation, featuring Olympic skateboarder Paige Heyn. This content resonated well beyond our usual audience, drawing praise from across the skateboarding world, including from the editor-in-chief of "Thrasher" magazine, one of the most recognized voices in that community.

Liz Williams
Liz Williams
CEO at El Pollo Loco

We followed that with our Hold It Like It's Hot campaign, which put our new Chatacoffee, 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 Coolers, Sand Cloud, and Tapatío all throughout the quarter, as we were showing up in live sports. From our media presence during the World Cup 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.

Liz Williams
Liz Williams
CEO at El Pollo Loco

Digital sales, including our app, web, and kiosk channels, represented approximately 28% of system sales and were up 13% year-over-year. And our Loco 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.

Liz Williams
Liz Williams
CEO at El Pollo Loco

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 Spread, an 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 iHeartRadio Music Festival. Early engagement in the promotion has exceeded expectations and we look forward to future growth of our loyalty program.

Liz Williams
Liz Williams
CEO at El Pollo Loco

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 our restaurant general managers, our use of technology and AI tools is improving our insights and capabilities.

Liz Williams
Liz Williams
CEO at El Pollo Loco

In just a few months, we have made great strides in our capabilities with the addition of Vadim Parizher, 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. We look forward to sharing more about our technology advancements 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, and 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.

Liz Williams
Liz Williams
CEO at El Pollo Loco

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. 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%-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.

Liz Williams
Liz Williams
CEO at El Pollo Loco

We will continue to manage the levers within our control closely, including labor productivity, waste reduction, and disciplined menu pricing. 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. Tara 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 The Coffee Bean & Tea Leaf.

Liz Williams
Liz Williams
CEO at El Pollo Loco

We remain confident in our goal of opening 18-20 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 scheduled to open later this fall, with three to four more planned in the market as it develops. Less than two years ago, El Pollo Loco operated in just seven states. Since then, we've added Washington, New Mexico, and now Idaho.

Liz Williams
Liz Williams
CEO at El Pollo Loco

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 build. Together with our value engineering initiative, 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.

Liz Williams
Liz Williams
CEO at El Pollo Loco

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 lift 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 day-to-day operations. In summary, we are proud of our quarterly performance and the work we have done over the last 2.5 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 operation scores continue to improve, and we are back to healthy margin expansion and unit growth.

Liz Williams
Liz Williams
CEO at El Pollo Loco

With that, let me turn the call over to Ira for a more detailed discussion of our second quarter financial results.

Ira Fils
Ira Fils
CFO at El Pollo Loco

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 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%.

Ira Fils
Ira Fils
CFO at El Pollo Loco

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 second 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.

Ira Fils
Ira Fils
CFO at El Pollo Loco

System-wide comparable store sales for the third quarter to date through July 29th, 2026 increased 5.8%, consisting of a 4.4% 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%-4.5% range. Turning to expenses, food and paper cost 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 pricing. We expect commodity inflation to be in the 2.5%-3.5% range for the full year 2026.

Ira Fils
Ira Fils
CFO at El Pollo Loco

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. For the full year 2026, we expect wage inflation of between 1.5%-2.5%. 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, which offset increases from higher delivery and mobile ordering fees and higher repairs and maintenance expenses.

Ira Fils
Ira Fils
CFO at El Pollo Loco

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%-18.75%, an increase from the 17.8% we ran for the full year of 2025. 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. The 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 decrease was partially offset by higher legal fees, new store pre-opening costs, and other General and Administrative expenses.

Ira Fils
Ira Fils
CFO at El Pollo Loco

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%. This compares to a provision for income taxes of $3 million and 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.

Ira Fils
Ira Fils
CFO at El Pollo Loco

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 new store openings to 10, and we remain on track to deliver a total of 18-20 new openings in 2026.

Ira Fils
Ira Fils
CFO at El Pollo Loco

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 paydown 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.

Ira Fils
Ira Fils
CFO at El Pollo Loco

We are increasing our system-wide comparable store sales growth guidance to now be between 3.5% and 4.5% for the full year. We are increasing our Adjusted EBITDA guidance to be between $68 million and $70 million. We are reducing our expected capital spending to be between $33 million and $37 million. In addition, we now expect depreciation and amortization expenses to be between $18 million 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 15-16 franchise-operated restaurants, G&A expenses between $52 million and $54 million, excluding one-time charges or benefits, and finally, an estimated effective income tax rate of approximately 29%-29.5% before discrete items. This concludes our prepared remarks.

Ira Fils
Ira Fils
CFO at El Pollo Loco

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. If you'd like to ask a question at this time, you may press star one from your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star two 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. Our first question is from the line of Todd Brooks with Benchmark StoneX. Please proceed with your question.

Todd Brooks
Analyst at Benchmark StoneX

Hey, congrats on another solid quarter and continued momentum into the third quarter. Great to see.

Liz Williams
Liz Williams
CEO at El Pollo Loco

Thanks, Todd.

Todd Brooks
Analyst at Benchmark StoneX

If we can, Liz, if we can talk about franchisees. You gave us some good color last quarter about some of the magnitude of the openings in Washington and New Mexico. Now you've added Idaho on top of it. What are you seeing for kind of continued strength and performance in newer markets?

Liz Williams
Liz Williams
CEO at El Pollo Loco

Yes. Appreciate the question. Our 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 and/or first market, they're opening to just blockbuster lines and, quite frankly, exceeding our expectations, which is, you know, 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. 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.

Liz Williams
Liz Williams
CEO at El Pollo Loco

Following on with the rest of the quarter, we'll have restaurants opening in New Mexico and Colorado, another one in Washington, as I mentioned, and then a few more in California and one in New Mexico. 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.

Todd Brooks
Analyst at Benchmark StoneX

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 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 fire-grilled chicken working anywhere in your mind? I'm just curious how this is developing as it goes.

Liz Williams
Liz Williams
CEO at El Pollo Loco

There is nationwide interest. 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 there's a lot of population on the East Coast, and just throughout different parts of the country. We don't think it has to be contiguous. We certainly could see a world where we could go to jump many states and go across the country. It really just depends on how these conversations progress over the next couple of months. Hopefully, we'll share more in upcoming calls to that effect.

Todd Brooks
Analyst at Benchmark StoneX

That's great. Then just a final question, I'll jump back in queue. If you're going to make a jump into non-contiguous and a new territory, a new market, what are you looking for in that franchisee partner and in your outreach, are those type of partners being drawn to the brand? Do you have to go find them? Just kind of if you could give us the criteria and the interest from that type of partner. Thanks.

Liz Williams
Liz Williams
CEO at El Pollo Loco

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. Also they have a proven track record in the restaurant space. 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. I can't say enough great things about our existing franchise partners. We're talking with many of them about their desires to be in additional states.

Liz Williams
Liz Williams
CEO at El Pollo Loco

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 just a great team that was able to get trained and ready to go with great efficiency.

Todd Brooks
Analyst at Benchmark StoneX

Okay, thanks, Liz.

Liz Williams
Liz Williams
CEO at El Pollo Loco

Yeah. Thank you.

Operator

As a reminder, to ask a question, you may press star one from your telephone keypad. The next question is in the line of Matt Curtis with D.A. Davidson. Please proceed with your question.

Matt Curtis
Matt Curtis
Analyst at D.A. Davidson

Hey, guys. Thanks for taking the question. I want to talk about comp trends. July accelerated, in terms of traffic, relative to the second quarter. I just was wondering if you could unpack what drove the sequential acceleration. Was it LTO momentum, loyalty activity, easier comparisons, or something else? 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?

Liz Williams
Liz Williams
CEO at El Pollo Loco

Thanks for the question. I'll start and then hand it over to Ira for the back half of that. I would say all of the above, when you gave the list. We were proud of how our Loaded Quesadillas got off to a great start. It's a nice eat at a great value, combined with just the 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. Usually, people aren't watching live sports in July, and we think that that certainly got eyeballs on El Pollo Loco.

Liz Williams
Liz Williams
CEO at 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-thru. I would say all of those factors have played a role. As we look into the back half of the year.

Ira Fils
Ira Fils
CFO at El Pollo Loco

As we think about our full-year guidance for the year and even for the quarter, 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%. Really consistent with 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. As you can see by our guidance, we feel great about what's going on from a same-store sales trend, and we really foresee Q3 being pretty much on the same pace as Q2.

Matt Curtis
Matt Curtis
Analyst at D.A. Davidson

Okay, got it. Separately on Loco Tenders, can you maybe just expand on what you learned from the Loco Tenders in terms of new guest acquisition, repeat rates, check impact, and all of that? Given that the product brought new guests into the brand, it sounds like.

Liz Williams
Liz Williams
CEO at El Pollo Loco

Yeah.

Matt Curtis
Matt Curtis
Analyst at D.A. Davidson

I just wonder, what needs to be true for Tenders to return in a more permanent or recurring way?

Liz Williams
Liz Williams
CEO at El Pollo Loco

Yeah. In terms of what needs to be true, Tenders did great for us, and we'll come around to the answers to some of those first questions. On the back half, the Tenders, we had always planned as a limited time offer for the main reason of having some of the equipment in the restaurants to be able to hold them, so that we could operate at a higher velocity, and just operationally, we could execute them for just a better execution. We're working with the system now. We're testing holding equipment so that they could be a permanent menu item.

Liz Williams
Liz Williams
CEO at El Pollo Loco

What gives us the confidence in earning that spot for a permanent menu item was that Tenders drove a lot of incrementality, particularly around a new consumer, with that younger consumer, but also that consumer that is wanting something more portable, that consumer that wants them late night. We saw a higher incidence and attach rate through delivery coupled by late night. And when I say late night, for us, late night is like eight to 10 o'clock in the evening. We're not even talking true deep into late night. It was really evident that this fit a need state also in snacking, which was in the afternoon as well. We also just were really pleased with how it helped with check across the board, all times of the day. We learned a lot there.

Liz Williams
Liz Williams
CEO at El Pollo Loco

The other thing that we're going back into test and we'll learn some more is different ways to enjoy Tenders. We have a great menu item that has the Tender in a wrap. That's, again, a portable, more robust eat. I personally love the Tender chopped up on a salad. There's a lot of things that we can do with Tenders, and I think you'll see a lot more over the upcoming quarters.

Matt Curtis
Matt Curtis
Analyst at D.A. Davidson

Okay. Got it. Thanks very much for the time.

Liz Williams
Liz Williams
CEO at El Pollo Loco

Thank you.

Operator

Our next question is from the line of Todd Brooks with Benchmark StoneX. Please proceed with your question.

Todd Brooks
Analyst at Benchmark StoneX

Don't get rid of me yet. I have one for Ira that I forgot to ask here. Ira, you talked about produce cost pressure in the quarter. I've heard from a couple of other operators that it was very spiky, but relatively short-lived. If you look at the COGS pressure that you talked about, I guess, what proportion of that was related to produce? Are you finding that it is more short-lived and kind of retrenching here as we get into Q3? If that's the case, just wondering about the 19.1% restaurant level margin in Q2 versus the 18.25 For, sorry, the 18.5.

Ira Fils
Ira Fils
CFO at El Pollo Loco

To answer the first part, about three-quarters of the COGS pressure that we did see in Q2 was related to produce in particular. We have seen it mitigate some. There's still a little pressure there, but it has mitigated some. We're seeing some pressure on some other lines. We've seen some pressure in packaging, and we've seen some pressure in oil costs. Not as significant as what we've seen in produce. There's been some fuel pressure as well for delivery charges as far as getting things to the restaurant. We've got all that baked in do we think about our guidance when we think about the balance of the year and margins as we look forward.

Todd Brooks
Analyst at Benchmark StoneX

Okay. It's kind of anticipatory based on what you're seeing now, not baking in any relief from these levels currently.

Ira Fils
Ira Fils
CFO at El Pollo Loco

We definitely have relief from produce, there's still some other items where we're feeling pressure on.

Todd Brooks
Analyst at Benchmark StoneX

Okay, perfect. Thank you.

Operator

Thank you. The next question is from the line of Jeremy Hamblin with Craig-Hallum. Please proceed with your question.

Jeremy Hamblin
Jeremy Hamblin
Analyst at Craig-Hallum

Thanks. I'll add my congratulations on the strong results. Just want to come back to the question around the Q3 guide. If we look back, I don't think that the compares actually get tougher in August or September. I think they're pretty similar to what July looked like. Just wanted to see if you could confirm that. Just maybe some assumption that there's a moderation from the current 5.8% level.

Ira Fils
Ira Fils
CFO at El Pollo Loco

That's exactly right, Jeremy. The balance of the quarter is pretty similar to what July was. I think, the way to think about it is more about the balance of the quarter being more similar to what Q2 was, and that really in July, we had some outsized benefit from some things that Liz mentioned are, we had some great advertising Mentions and spots related to the World Cup. It really worked hard for us this year. Live sports is great for us from a media standpoint, and it, again, played really well for us. I think July was a little more outsized, and as we think about the quarter in a whole, kind of the midpoint of our guide, that's where you think about where our trend is.

Jeremy Hamblin
Jeremy Hamblin
Analyst at Craig-Hallum

Got it. Have to ask, since it's kind of topical here, some other kind of Mexican food concepts have been thrown some curve balls here with their sourcing. Have you kind of scoured your food sourcing to ensure no potential issues with jalapeños, anything like that? Have you seen any impact at all with those headlines that are reaching consumers?

Liz Williams
Liz Williams
CEO at El Pollo Loco

Yeah. We take food safety utmost seriousness. Of course, we've scoured every bit of our supply chain and work really closely with our suppliers. El Pollo Loco was not involved in any of the lettuce recalls. There was no lettuce product pulled, and no illnesses have been linked to us. All of our lettuce is currently sourced from the USA. All of that. Then on the peppers, we don't use jalapeño peppers, we use serrano peppers, and we also don't use the supplier that I know people are talking about right now. We continue to be vigilant with the supply chain, and it's definitely part of the industry and caring deeply about that. In terms of benefit, it's hard to tease out. I think possibly, we probably got a little bit of help from it.

Liz Williams
Liz Williams
CEO at El Pollo Loco

I know our salad business, it is a core part of our menu, and it remains strong. Don't have any worries in terms of consumer demand there. Particularly in the summertime, they're really popular items, and they continue to remain strong.

Jeremy Hamblin
Jeremy Hamblin
Analyst at Craig-Hallum

Got it. Then, want to come to the CapEx for a second. I think you lowered it by about $3 million-$4 million, but you're maintaining your unit growth. You might have mentioned it, but can you just talk about kind of the lowering of that? Presumably, the new units are coming in at or below budget. Just color you might be able to share on that.

Ira Fils
Ira Fils
CFO at El Pollo Loco

Yeah, great question, Jeremy. Where we really took the CapEx tipping down is more just the timing of our remodel program. We're very happy, we're very pleased with the results of the remodel program. We're continuing to move forward. Just as we evaluate, A, the timing of permits, number one, and two, making sure that we're deploying the right resources internally from an operations and from a development standpoint, we've just pulled the timing back a little bit of it, and that's really the first driver of the lowered CapEx. The second one is a little bit what Liz has mentioned. We're still testing, and we're working on holding equipment, which we feel like if the tests go, that's something we're going to move forward with. It's just more of a timing issue than a cancellation of a project.

Jeremy Hamblin
Jeremy Hamblin
Analyst at Craig-Hallum

Got it. One other housekeeping item. With the extension of your credit agreement, what's the interest rate that we should expect?

Ira Fils
Ira Fils
CFO at El Pollo Loco

The spread from what we were paying before will be going up by about 50 basis points.

Jeremy Hamblin
Jeremy Hamblin
Analyst at Craig-Hallum

Thank you.

Operator

Ladies and gentlemen, we've reached the end of today's question and answer session. I'd like to turn the call back over to Liz Williams for closing remarks.

Liz Williams
Liz Williams
CEO at El Pollo Loco

Thanks again, everyone, for your interest in El Pollo Loco. We look forward to talking to you again next quarter. Have a great evening.

Operator

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Executives
    • Ira Fils
      Ira Fils
      CFO
    • Liz Williams
      Liz Williams
      CEO
Analysts
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