El Pollo Loco Holdings Inc.’s closure of several restaurants in its newer Texas market and lowered earnings guidance for the full year led its stock price to slide Friday.
The Costa Mesa, Calif.-based quick-service brand is seeing “ongoing challenges in our Texas markets,” said Steve Sather, El Pollo Loco CEO and president, in a third-quarter earnings call late Thursday.
For the third quarter ended Sept. 27, El Pollo Loco swung to a loss of $4 million, or 11 cents a share, from a profit of $5.2 million, or 13 cents a share, in the prior-year period. The company booked a $16 million expense related to the impairment of the assets of eight restaurants in Texas and two in California, and the closure of three restaurants in Texas.
As of midday Friday, El Pollo’s stock was trading down about 12 percent, at about $9.90 a share, from Thursday’s close of $11.25 a share.
Laurence Roberts, El Pollo Loco’s chief financial officer, said the third-quarter expenses covered about $15 million related to the impairment of assets in Texas and Northern California and about $1 million in closed-store reserves for the three Texas closures.
"Our restaurants in Texas continue to perform below expectations,” Sather said in a statement. “However, we remain focused on the market and are implementing a brand relaunch in Houston and Dallas. The relaunch will encompass everything from operations to facilities to marketing, and is designed to drive brand awareness, bring guests into our restaurants and deliver an exceptional experience.”
El Pollo Loco celebrated its first year in the Dallas-Fort Worth market in October.
“We will continue to evaluate our programs in order to fine-tune our strategies and generate sustained momentum in these very competitive Texas markets,” Sather said.
El Pollo’s third-quarter revenues increased 5.6 percent to $101.2 million from $95.8 million in the same quarter last year.
Systemwide same-store sales increased 1.7 percent, including a 0.9 percent increase for company-operated restaurants and a 2.4 percent increase for franchised units. The company-owned sales included a 1.7 percent increase in average check offset by a 0.8 percent decline in transactions.
Sather said third-quarter same-store sales were boosted by El Pollo Loco’s family meal offering and the brand’s limited-time taco platters.
“While comparable store sales growth slowed toward the end of the quarter and has remained soft thus far in the fourth quarter, we believe that our strategy to highlight what we believe to be our authentic differentiated brand and QSR-plus positioning, along with technology initiatives aimed at improving the customer experience, will drive sales in 2018 and beyond,” Sather said.
Andy Barish, equity analyst with Jeffries LLC, said in a note Friday that “relaunching brand in Texas and only scratching surface on loyalty/delivery, which could stabilize traffic in ’18.”
Barish noted that El Pollo Loco’s digital efforts offer the brand sales-building potential.
“Digital in particular appears at inflection point, with mobile ordering 1.5 percent of sales, Loco Rewards already at impressive 4.7 percent and potential to unlock delivery to 80 percent of the system in early ’18,” Barish said in his note.
El Pollo Loco has more than 470 company-owned and franchised restaurants in Arizona, California, Nevada, Texas and Utah.
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