El Pollo LoCo Holdings Inc (NASDAQ:LOCO) announced financial results for the 13-week period ended June 29, 2016.
Highlights for the second quarter ended June 29, 2016, compared to the second quarter ended July 1, 2015 were as follows:
- Total revenue increased 9.0% to $97.5 million compared to $89.5 million.
- System-wide comparable restaurant sales grew 2.4%, including a 2.0% increase for company-operated restaurants, and a 2.7% increase for franchised restaurants.
- Net income increased to $7.3 million, or $0.19 per diluted share, compared to $7.2 million, or $0.18 per diluted share in the prior year.
- Pro forma net income(1) was $7.6 million, or $0.19 per diluted share, compared to $7.4 million, or $0.19 per diluted share.
- Adjusted EBITDA(1) was $17.9 million compared to $17.0 million in the prior year.
(1) Pro forma net income and adjusted EBITDA are non-GAAP measures. A reconciliation of GAAP net income to each of these measures is included in the accompanying financial data. See also “Non-GAAP Financial Measures.”
Steve Sather, President and Chief Executive Officer of El Pollo Loco Holdings, Inc., stated, “Throughout the second quarter we continued to make progress executing on the value, operational and service initiatives implemented during the past year. This is evident by our 20th consecutive quarter of system wide comparable restaurant sales growth, including traffic growth of 2.7% for company-operated restaurants. We are confident that we have the right strategy in place to continue delivering comparable restaurant sales.”
Sather continued, “Looking to the second half of the year, we have an exciting pipeline of growth ahead through both company-operated and franchised restaurants including our entrance into the Dallas market. We continue to expect to open 17-20 company-operated restaurants and 10-15 franchised restaurants in 2016.”
Second Quarter 2016 Financial Results
Company-operated restaurant revenue in the second quarter of 2016 increased 8.7% to $90.9 million, compared to $83.6 million in the same period last year. The growth in company-operated restaurant revenue was largely driven by the 18 new restaurants opened during and subsequent to the second quarter of 2015.
Comparable company-operated restaurant sales in the second quarter increased 2.0%, driven by a 2.7% increase in traffic partially offset by a 0.7% decrease in average check.
Franchise revenue in the second quarter of 2016 increased 12.2% to $6.6 million, compared to $5.9 million in the second quarter of 2015. Franchised comparable restaurant sales increased 2.7% during the quarter. The growth in franchise revenue was largely driven by comparable restaurant sales growth, nine new restaurants opened during and subsequent to the second quarter of 2015 and fees associated with our point-of-sale system.
Restaurant contribution was $20.0 million, compared to $18.0 million in the second quarter of 2015. As a percent of company-operated restaurant revenue, restaurant contribution margin increased 40 basis points to 22.0%. The increase in restaurant contribution margin was primarily the result of an improvement in food and paper costs coupled with an increase in comparable restaurant sales, partially offset by higher labor and occupancy and other operating expenses.
Net income for the second quarter of 2016 was $7.3 million, or $0.19 per diluted share, compared to net income of $7.2 million, or $0.18 per diluted share in the second quarter of 2015. Pro forma net income was $7.6 million, or $0.19 per diluted share during the second quarter of 2016, compared to $7.4 million, or $0.19 per diluted share during the second quarter of 2015. A reconciliation between GAAP net income and pro forma net income is included in the accompanying financial data.
Based on current information, the Company is updating its guidance for the fiscal year 2016.
The company expects 2016 pro forma diluted net income per share ranging from $0.68 to $0.72. This compares to pro forma diluted net income per share of $0.71 in 2015. Pro forma net income guidance for fiscal year 2016 is based, in part, on the following updated annual assumptions:
- System-wide comparable restaurant sales growth in the low single digits;
- The opening of 17-20 new company-owned restaurants and 10-15 new franchised restaurants;
- Restaurant contribution margin of 20.8% to 21.2%;
- G&A expenses of between 8.0% and 8.2% of total revenue, excluding legal expenses related to securities class action litigation;
- Pro forma income tax rate of 40.0%; and
- Adjusted EBITDA of between $67.0 and $69.0 million.
The following definitions apply to these terms as used in this release:
Comparable restaurant sales reflect the change in year-over-year sales for the comparable company, franchised and total system restaurant base. The comparable restaurant base is defined to include those restaurants open for 15 months or longer. At June 29, 2016, there were 170 restaurants in our comparable company-operated restaurant base and 408 restaurants in our comparable system restaurant base.
Restaurant contribution and restaurant contribution margin are neither required by, nor presented in accordance with, GAAP. Restaurant contribution is defined as company-operated restaurant revenue less company restaurant expenses, which are food and paper costs, labor and related expenses and occupancy and other operating expenses. Restaurant contribution margin is defined as restaurant contribution as a percentage of net company-operated restaurant revenue. See also “Non-GAAP Financial Measures.”
EBITDA and adjusted EBITDA are neither required by, nor presented in accordance with, GAAP. EBITDA represents net income before interest expense, provision for income taxes, depreciation, and amortization, and adjusted EBITDA represents EBITDA before items that we do not consider representative of our ongoing operating performance, as identified in the GAAP reconciliation in the accompanying financial data. See also “Non-GAAP Financial Measures.”
Pro forma net income is neither required by, nor presented in accordance with, GAAP. Pro forma net income reflects (i) costs related to loss on disposal of assets and asset impairment and closed store costs, (ii) amortization expense and other estimate adjustments incurred on the Tax Receivable Agreement (“TRA”) completed at the time of our IPO, (iii) legal costs associated with a securities class action lawsuit, (iv) expenses and gains on the recovery of insurance proceeds related to a fire at one of our restaurants in 2015, (v) professional fees incurred as a result of the block trade of 5.96 million common shares in the second quarter of 2015, (vi) gain on the disposition of restaurants, and (vii) provision for income taxes at a normalized tax rate of 40.0%, which reflects our estimated long-term effective tax rate, including both federal and state income taxes. See the GAAP reconciliation in the accompanying financial data and “Non-GAAP Financial Measures.” (Original Source)
Shares of El Pollo LoCo rose 7% to $14.01 in after-hours trading Thursday. LOCO has a 1-year high of $19.69 and a 1-year low of $9.58. The stock’s 50-day moving average is $12.87 and its 200-day moving average is $12.60.
On the ratings front, LOCO has been the subject of a number of recent research reports. In a report released today, Jefferies analyst Alexander Slagle reiterated a Buy rating on LOCO. Separately, on July 26, Stifel Nicolaus’ Paul Westra downgraded the stock to Hold .
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Alexander Slagle and Paul Westra have a total average return of 9.3% and 6.5% respectively. Slagle has a success rate of 60.5% and is ranked #674 out of 4085 analysts, while Westra has a success rate of 57% and is ranked #870.
The street is mostly Neutral on LOCO stock. Out of 4 analysts who cover the stock, 3 suggest a Hold rating and one recommends to Buy the stock. The 12-month average price target assigned to the stock is $16.00, which implies an upside of 22.3% from current levels.
El Pollo Loco Holdings, Inc. operates as a holding company with interest in managing restaurants. It operates through its subsidiary, El Pollo Loco, Inc. develops, franchises, licenses and operates quick-service restaurants under the name El Pollo Loco. The company specialize in flame-grilled chicken in a wide variety of contemporary mexican-influenced entrees, including specialty chicken burritos, chicken quesadillas, chicken tortilla soup,pollo bowls and pollo salads.