Q4 2021 El Pollo Loco Holdings Inc Earnings Call
Good day, ladies and gentlemen, thank you for standing by.
Come to the El Pollo Loco fourth quarter 2021 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. This conference is being recorded today March 10 2022.
And now I'd like to turn the conference over to Larry Roberts, Chief Executive Officer, and interim Chief Financial Officer.
Thank you operator, good afternoon by now everyone should have access to our fourth quarter 2021 earnings release, if not it can be found at www Dot El Pollo Loco Dot com in the Investor Relations section.
Before we begin our formal remarks I need to remind everyone that our discussion today will include forward looking statements, including statements related to the impact of the COVID-19 pandemic on our business and strategic actions. We are taking in response as well as our marketing initiatives cash flow expectations.
Capital expenditure plans and plans for new store openings 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.
Could cause actual results to differ materially from what we currently expect.
We refer you to our recent SEC filings, including our Form 10-K for a more detailed discussion of the risks that could impact our future operating results and financial condition.
We expect to file our 10-K for 2021 tomorrow and we 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 now before we get started I'd.
I could take a brief moment to comment on my appointment as permanent Chief Executive Officer of Apollo.
Oh that was announced this afternoon.
It is an incredible honor to lead this company along with the employees and franchisees that made it such a great brand.
While the current environment has its challenges I believe the positioning of the brand is very strong and I'm extremely excited about the initiatives, we're implementing to strengthen the business further as well as cash the company's long term growth potential.
With that I'd like to touch on our recent results and spend some time discussing initiatives that we believe will set us up for successful 2022 and beyond.
As we previously announced in our January business update.
Pleased with ourselves operating performance during the fourth quarter as.
As we posted 11% growth in system wide comparable restaurant sales.
Staffing challenges and a resurgence of COVID-19 .
Or an impact on our company owned restaurant comparable sales during the quarter to the tune of approximately five to six percentage points.
Despite the sales impact plus accelerating commodity and wage inflation during the quarter. Our teams did a fantastic job managing our business, resulting in a solid restaurant contribution margin of 15, 7% and earnings per share of 17 cents.
Touching briefly on the first quarter of 2022 to date.
Some of the actions taken to manage the araucana virus also impacted our business in January and the early part of February East.
These actions included reducing operating hours and service channels, along with temporarily closing a small number of restaurants. Despite the impact of the virus through February 23rd year to date system comparable restaurant sales were seven 4% consisting of a 1.5% increase in company operated restaurant.
At 11, 2% increase in franchise restaurants.
I am pleased to say that the impact of auto front is dissipating and has become negligible over recent weeks. In addition, we are seeing an increase in applicant flow, which has enabled us to significantly reduce staffing shortages across our company operated restaurants commodity and wage inflation is now our biggest challenge, which I will discuss later.
Also with regard to 2022 we're modifying our acceleration agenda focused on four pillars that will further strengthen our business in the years to come.
Let me start with our culture, which includes three key elements.
First create a restaurant operations mindset across the entire organization not just in our restaurants.
Active one system by further engaging franchisees and making sure everything we do encompasses the full scope of our system wide operations and third creating exceptional work environment for our restaurant employees based on recognition and support while also maintaining accountability.
I will talk more about the first two element on future calls as we develop concrete action plans, but I'd like to take a moment to discuss what we are doing to create an exceptional work environment for our restaurant employees, which is critical to delivering a great experience for our customers.
During the fourth quarter, we focused on engagement with our team members through recognition and emphasis on getting to know you conversations early years were tasked with talking with each team member during a restaurant visits to build their relationship and understand their career interest.
Recognition boards and snack tables are now prominently displayed in every restaurant and in November we launched employee appreciation month, which included an employee engagement survey to better understand what's in the minds of our team members.
This is the first survey of its kind in 10 years within our restaurants, and we believe it is already creating a positive impact while highlighting employee concerns that we will address during the years.
More importantly is fulfilling our goal to create a familiar culture in our restaurants.
Early we've experienced a significant reduction in turnover during the fourth quarter versus the second and third quarters of 2021 and we believe we can still do better.
As we move through 2022, we had many other initiatives planned at both the restaurant level and support center to further strengthen the local culture.
Our second pillar is brand differentiation and awareness.
Over the past year, we believe our messaging has become inconsistent, but let's focus on what clearly differentiates us from other restaurant concept, which is the quality of our food and healthier offerings provided by our freshly grilled chicken is food that combines our Mexican routes with their culinary culture at Los Angeles, whereas we say.
It's L a mex.
We need to own this differentiation and build more awareness around our unique offerings, which we refer to as owning arlene.
As part of this strategy, we are striving to extend our reach with younger consumers, while maintaining our strong core customer base.
A big part of these efforts is enhancing our product innovation process.
We've recently added additional resources, along our price development team to improve everything from concept screening in development testing and successfully launching new products.
We are already making significant strides in the product development process and believe that we will increase the success rate of our new product launches, especially as we reach out to younger consumers.
We also continue to expand our efforts in digital and social media currently our digital sales comprised 11, 12% of our sales, which is an increase from 10% at the end of 'twenty 'twenty.
While we're making good progress we believe that we've only just begun to tap into the full potential of digital and social media.
Did that and we've expanded our digital team and are implementing a comprehensive go to market strategy that will integrate TV, social and digital media channels to deliver coordinated targeted messages to various user groups. In addition, we're in the final stages of entering into a partnership with a cut.
For intelligent provider that will greatly enhance our ability to segment consumer information both from our loyalty program and across our business.
That brings us to our third pillar customer service the goal, which is to deliver exceptional service profitably.
This correlates directly with our ability to properly staff, our restaurants and train our team members.
As I highlighted earlier, we have made very good progress staffing our restaurants. During these challenging times. However, we need to maintain our intensity and focus to ensure that we achieve and maintain 100% staffing across all of our restaurants airports staffing retain team members remains our number one priority.
Did that and we continue to decrease our recruiting efforts to find and retain the best people for our restaurants. This includes ensuring at the wages and benefits we offer our competitive adding resources to surface more candidates faster and creating a culture, where excellence is rewarded and celebrate.
Along with our staffing efforts, we're developing a leadership capabilities and business acumen of our ARY leaders and Gerald matters.
Includes monthly development days for Aerie leaders.
Come to our support center for leadership training.
By developing better leaders, we believe that we will significantly reduce turnover and improve our restaurant operations.
Or are there big initiative to improve customer service is our work to simplify operations for our team and franchisees, which would ultimately enhance the customer experience.
These efforts can be broken down into three categories the menu.
Operations processes and equipment.
With regards to the menu, we continue the process of eliminating low mix menu items and removing unnecessary ingredients and.
In conjunction we are working on a new simplified menu board, which we will test later this year.
The Gulf of project is to make the menu board easier for customers to comprehend and for team members to execute.
The result should be faster service with better or order accuracy.
Lastly, we are introducing a more robust front end assessment of new product and deal offers to ensure they're not overly complex operationally.
In addition to menu simplification, we're looking closely at process simplification, including an active evaluation of the most labor intensive activities in our restaurants to find ways to improve our kitchen efficiency without impacting product quality.
Examples if they changed it by stimulus Serrano peppers, and pre cut cilantro, which remove preparation activity from our restaurants starting in mid March.
Finally, we are upgrading our equipment with the goal to simplify our back of house processes and enhance our food quality for.
For example, we are currently testing new equipment to make our house SASSA.
Early results are very positive with a with a significant win win.
Not only does it eliminate one to three hours of work in our restaurants, the salsa is dramatically better and more consistent.
As you can see we have a lot to be excited about from these efforts and we believe they will allow us to deliver improved service to our customers in 2022 and beyond.
Our last pillar is accelerating development.
Our system restaurant volume now average over $2 million, which we believe are very enticing to restaurant tours looking to expand.
While we've had some success in 2021 our franchising activities fell short of our goals.
Clearly our message is not getting out there as effectively as we would like and in response, we are ramping up efforts to better capture qualified franchisee in this highly competitive environment.
Start we have strengthened our franchise team by adding a senior vice president of franchising during the fourth quarter and we are in the process of hiring a director of franchise sales, who will be 100% focused on recruiting new franchisees into the El Pollo Loco system.
With resources in place our focuses are modifying and enhancing our franchise recruiting efforts, including the development of a new website and completely new marketing materials that include the use of both print and video.
Addition, we will be broadening our franchise recruiting efforts to include larger multi concept franchisees as well as midscale operators.
Lastly, we are fine tuning our recruiting process by involving senior management early in that process, including attendance at various convention.
We expect these improvements will be completed by the end of the first quarter and are confident that we will make strides in our franchise efforts during the current year.
In summary.
The challenges we have faced over the past two years I truly believe that I'll call. It a local brand is stronger than ever the entire organization is fully engaged on our four pillars of our strategic priorities that will further strengthen our position as a very distinctive concept that resonate across a broad range of consumers.
I'm very excited by the work we were doing and the opportunities ahead of US most importantly, I'd like to thank all of our restaurant and support center teams as well as our franchisees for their hard work and commitment to better deal for your local brands.
With that let me briefly review, our fourth quarter financial results in greater detail.
For the fourth quarter ended December 29, 2021, total revenue decreased 1.3% to $109 million compared to $110.3 million in the fourth quarter of 2020.
Company operated restaurant revenue decreased 2.9% to $93.6 million from $96 $4 million in the same period last year.
The decrease in company operated restaurant sales was primarily due to $4 $6 million attributed to the extra operating week in fiscal 2020, and a $2.5 million decrease due to the sale of eight company owned restaurants to a franchisee during 2021 .
These were partially offset by a six 2% increase in company operated comparable restaurant sales and $2.3 million and non comparable restaurants sales, which included restaurants temporary closed.
The pandemic during last year's fourth quarter.
The increase in company operated comparable restaurant sales was comprised of a five 6% increase in average check and a 0.6% improvement in transactions.
During the quarter, our gross pricing increase versus 'twenty 'twenty was six 8%.
As I mentioned earlier argon has negatively impacted our performance at the beginning of our first quarter.
Through February 23rd first quarter system wide comparable restaurant sales increased seven 4% consisting of a 1.5% increase at company owned restaurants, and 11, 2% increase at franchise restaurants, while two year system wide comparable sales were up three 5%.
Franchise revenue was $8 $8 million during the fourth quarter compared to $7 $9 million in the prior year period.
This increase was driven by franchise comparable restaurant sales increase of 14, 2% as well as the opening of three new franchise restaurants during or subsequent to the fourth quarter of 2020.
Revenue generated from eight company owned restaurants sold to an existing franchisee during 2021 .
This was partially offset by the closure of two franchised restaurants during the same period.
Yeah.
Turning to expenses.
Food and paper costs as a percentage of company restaurant sales increased 80 basis points year over year to 27, 2% due to increased commodity costs and investments in new packaging.
These were partially offset by higher menu prices.
As highlighted earlier commodity inflation accelerated during Q4, 2021 and continues to increase early in 2022.
For the first quarter, we expect commodity inflation of approximately 18%.
We believe that commodity inflation will decline later in the year as prices for boneless chicken avocado and other product fall from the current highs.
Labor and related expenses as a percentage of company restaurant sales decreased 10 basis points year over year to 32, 3% as higher menu prices and the benefit of lapping twenty-twenty COVID-19 related costs offset higher wage inflation overtime costs and other labor related costs.
Just on the continued labor pressure that we're experiencing we're expecting wage inflation of approximately 6% during the first quarter of 2022.
Through February 23rd we've incurred approximately $2 $2 million of Covid related expenses, including leave of absence and overtime pay.
Occupancy other operating expenses as a percentage of company restaurant sales decreased 50 basis points to 24, 9% due to sales leverage and favorability.
Favorability in cleaning supplies and a collection of an insurance claim.
Our restaurant contribution margin for the quarter was 15, 7%.
General and administrative expenses increased to $9.5 million from $8 $9 million in year ago period, due to an increase in management bonus expense and legal costs, partially offset by $600000 decrease in stock compensation expense.
As a percent of total revenues G&A increased approximately 60 basis points to eight 7%.
We recorded a provision for income taxes of $1.7 million in the fourth quarter of 2021 for an effective tax rate of 21.5%. This compares to a provision for income taxes of $2 million and an effective tax rate of 26, 3% the prior year fourth quarter.
We reported GAAP net income of $6 $2 million or 17 cents per diluted share in the fourth quarter compared to GAAP net income of $5 $500 or 15 cents per diluted share in the prior year period.
Pro forma net income for the quarter was $6 $1 million or 17 cents per diluted share compared to pro forma net income of $5 $7 million or 16 cents per diluted share.
Fourth quarter of last year.
For a reconciliation of pro forma net income and earnings per share to the comparable GAAP figures. Please refer to our earnings release.
Regarding development during the fourth quarter, one franchise restaurant was opened and what target, Texas, while no new company restaurants broken.
Turning to liquidity as of December 29th 'twenty, 'twenty, one we had $40 million of debt outstanding and $30 million in cash and cash equivalents.
Lastly, due to the uncertainty surrounding the COVID-19 pandemic. The company is not providing a financial outlook for the year ending December 'twenty eight 'twenty 'twenty. Two however, we are providing the following limited guidance for fiscal 2022 .
The opening of three to six company owned restaurants, and six to 10 franchise restaurants.
Remodeling, a 10 to 20 company operated restaurants, and 20 to 30 franchise restaurants.
<unk> spending of $20 million to $25 million and a pro forma income tax rate of 26, 5%.
This concludes our prepared remarks I'd like to thank you again for joining us on the call today and I'm now happy to answer any questions that you may have.
Thank you at this time, we'll now be conducting a question and answer session.
You'd like to ask a question. Please press star one from your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
Do you mean first start to if he would like to remove your question from the queue for.
From a distance or using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Thank you and our first question coming from the line of Jack Corrigan was truest. Please proceed with your questions.
Hey, Larry Thanks for taking the questions and congratulations on being appointed CEO well its well deserved. Thank.
Thank you Jack.
I guess my first question is on current same store sales trends.
I appreciate you've given the year to date trends.
But I guess could you split out the company and franchise our two.
Two year trends year to date and would you be willing to give any more color maybe breaking out January and February just so we know it.
If there was some sort of inflection as omicron receded.
Yeah, just oh.
To your trends have been pretty consistent across our company and franchise.
I think the company somewhere around a flattish while the franchisees continue to be strong.
I think top of my head I think they are.
In the low double digits.
Two year basis.
Okay.
Let me.
We can we can follow up.
After the call as well.
And then what was the second part of your question.
Oh no I was I was wondering if you'd be willing to break out January versus February .
Was there any inflection there.
Maybe if we can get a.
More real time.
Yeah, Yeah in January we were harder hit than February I mean January is really the peak.
Of of Covid.
And you saw that both in our sales and franchisee sales and then they start bouncing back.
No late January early February is when we saw the inflection point and we start seeing improvements in sales.
Okay, Great that's helpful.
And then I guess any any more detail on the staffing environment. Currently I think you said, 5% to 6% same store sales impact.
And <unk> is it still at that level.
<unk> right now and I guess, maybe.
What is the staffing level versus <unk>.
2019, or where you'd like to be.
Yeah, So I mean, our our staffing levels have improved significantly.
Over the past month, or so I mean really it really started back in December we started seeing progress.
<unk>.
You cannot just back a little bit and flattened out and now they have improved to the point, where we really have very few if any restaurant certainly during the week, we have really no restaurants that arent fully open in all channels.
A few are still.
Slightly reduce operating hours, but it's just a handful so overall the impact.
Due to staffing levels is down to negligible.
Just that zero.
The only thing we do see is on weekends, we see some call outs and things, but overall, we're now able to keep all of our restaurants open all channels and basically all hours of operation.
That's great that's really helpful.
And then I guess it for inflation, you know up to 18% in the first quarters is a sizable jump.
Hum.
Have you taken any more price or do you plan on taking any more price to come.
About that or offset that and are you maintaining I think you'd previously said your full year expectation for high single digit to low double digit commodity inflations are you maintaining that for the full year I wouldn't expect it to come down in the second half.
Well, we are expecting to come down in the second half I guess I'm holding off in terms of giving a full year outlook just given to the you know the volatility that we're seeing.
Across all markets I mean, just a little color on the 18th.
18% number I mean part of that is driven by the fact that we had such great contracts last year.
I think last year, our commodity inflation during.
During Q1 was zero.
So there is a big step up we incurred.
Call it in the fall.
Late late in the year.
When we renegotiate our contract so that's part of the driver and then the other big drivers on you know the acceleration and inflation.
We're around really three products one was.
Bone boneless chicken, so our boneless breast in particular.
Which we had made a decision to let float.
Year end, when we negotiate a contract and those prices have gone up Fortunately.
Fortunately, we did lock in bone in chicken because that's also impacted on the you know in terms of the markets, but we're locked in at that rate. So that has not resulted.
<unk> in additional inflation on top of what we were expecting.
The second product was a avocados, yeah that should be that.
That will be temporary and that was really due to the issues in Mexico, which stopped.
Exports from Mexico to the U S on avocados for a couple of weeks and so that should get back in line here and then a third item was really pinto beans, and that was driven.
By weather here.
Here in California, with the rains are our supplier had to shut down production of Pinto beans for a while and we had to source it from another supplier.
So that drove the pinto being costs during the quarter. So we had you know.
Couple of market factors, and I'd say, a couple non market factors driving that 18% rate.
Having said that like I said I expect inflation to remain at high levels, but we do see it coming down over the back half of the year.
Thanks, I appreciate all the answers.
In terms of pricing Youre. Your other part of the question was pricing, yes, I mean, yeah. We ran in the first quarter eight 2% price.
We're getting ready to take an additional 3% price here in the next week or so we will be.
Constantly looking at that and whereas in the past we've tended to take pricing.
One to two times a year I think this is going to be an environment in which we are constantly looking at price.
And looking at T O. It could be every module taking price.
Just to keep up with inflation, but yeah, we want to make sure that we're monitoring inflation seen where it's heading before making these pricing decisions rather than try to get out in front of it and take a huge price increase that may impact our consumer but they also highlight on top of the pricing I mean, the entire organization is looking at ways.
As to how how else do we.
Improved margins in the business and that's everything from re looking at you know the makeup of products that we have we're looking on the menu and what we provide in our combo meals and things.
Looking at the types of ingredients that we use.
So theres a lot of work going on to see how we might.
Improve our margins.
Across the board so at.
At the same time, what we won't be really really careful about is don't do anything to jeopardize the quality of the food I don't want to be in a position in which you know because we're trying to protect margins in the short term, we jeopardize the consumer experience and the quality of our food and so everything we do is very focused on maintaining that.
Food quality so.
Some of these things the bigger things we have in the pipeline that we're looking at from a margin standpoint, we have to be tested and reviewed again to make sure that we don't upset the consumer and really impact our food quality.
That's great I appreciate all that color and.
Congratulations again.
Thank you.
Our next question is coming from the line of David Tarantino with Baird. Please proceed with your question.
Hi, good afternoon, and congratulations Larry on the appointment.
David Thank you well done.
Well done.
My question I got a couple of questions on some of your strategic points you made on the first on the marketing I think you mentioned that the brand messaging had maybe gotten.
Off center in terms of your key points of differentiation I was wondering if you could.
Elaborate on what you meant by that and I guess, what the changes you hope to make with the marketing and advertising strategy going forward.
Yeah, Thanks, David So.
Well when you look back at and look at.
The marketing during last year I mean, if you recall.
Going back several years ago, we developed a brand book.
With a tagline in that brand book highlighted Ah you know, what we're going to focus on the colors. The fonts you know everything about the advertising and the marketing and how it's all going to tie into this brand book.
And when we went back and looked at it we realized.
Yeah Awesome, new colors, we're coming in the tagline. If you look at the advertising last year and you say each module basically has two sets of commercials, one for dinner and one for the called the Entre family meals and entrees.
Yeah, So you're basically at 12.
I'll call commercials, we used a feed the flame tagline twice.
I think the focus also got a little bit away from the food.
And consumers using the food and got more into.
Quite frankly, a naked people with nachos and those types of things.
So yeah. It just felt like we were going a route that.
Myself, along with the marketing team just felt like we should get back to focusing on what we really had determined in our brand.
Work that we have done is get back to that in just a really really focused on on our food.
On the brand book.
The target consumers, we're going after it in those types of things, so that's where we're going back to I.
I mean again, it's not I wouldn't say a huge shift but it is getting back to the fundamentals of what we believe really differentiates the brand.
Yeah.
Got it and what when does when does your new I guess sure evolved approach began has it already started or is that on the come.
It really starts here in the next module.
And well let me just highlight.
We're really excited about the next module we're on it's one of the most unique products.
The business has has launched and serve to our customers.
It's capturing a a trend that is very big out here in California, and I think other Hispanic markets and that is a it's a beef barrier product. So it centers around this great beef that we have sourced and then it's dipped into a a a a.
Skin called juice or source.
The Bay area and so you you dip it in to that into that source is a fantastic product like I said, it's become very big out here in California. So we are super excited about it and looking forward to a success that we think we're going to have with us.
But that will get more into really focusing in on the food you know really nothing cute about the advertising.
It it speaks for itself and you could already have fun with it just from the dipping.
So I'm really looking forward to that and that to me is really where we start getting back to.
The more consistent advertising more focus on the brand the quality of the food and we want to make sure also all our advertising is when people see the AD. They know so put your logo and it doesn't get too far off track from what we've traditionally done.
Great. Thank you and then.
One more question on the development outlook I know you mentioned, having some setback for or not.
Not making as much progress on the franchising side and.
I was wondering I think previously you had talked about getting to.
Mid single digit type unit growth for the system and I wanted.
To ask is that still the goal and then what type of timeframe do you think you need.
To establish that type of a growth on a consistent basis.
Well that is still the goal and our 2013 to 2023 is still the goal I think that's like I said in the previous call that certainly a challenging goal. So it may be that we get to a run rate towards the backend of 2023.
But like we said, where we're pushing the pedal to the metal a lot of resources as first quarter to really raise our game on that so no.
We're not shifting the goal at this point 2023.
But in Italy.
That is a more I'll call. It challenging goal then I would just set a year ago.
Got it thank you very much.
Thanks, David.
Our next question is coming from the line of Andy Barish with Jefferies. Please proceed with your questions.
Hey, Larry My congrats as well.
Thanks, Andy.
Just wondering.
Kind of new <unk>, we're gonna be sort of talk on the margin side of things.
Do you have the visibility you know in your plan to kind of see.
No progression as we move through the rest of the year.
[laughter].
Yeah, My margin improvement Yeah, Yeah, no yeah.
I figured that's what you're talking about Andy.
Yes, but of course, the volatility in commodities, Oh, I say, yes with the caveat.
If things stay.
According to what we think is going to happen then I would see progression during the year, especially as we look to take more price.
And as we hopefully implement some of these cost savings initiatives that we have planned.
Gotcha.
Very helpful and when you when you think about sort of pricing as you move through this year.
I think you've mentioned.
Family meals.
<unk> priced above the $20, Mark where a lot of your franchisees is that something you're testing in the company owned stores to move up on that are important.
Product in the mix.
Yeah. So the 3% price I mentioned really 2% is what I would call our straight menu price increases.
A percentage point of that is what we're expecting from the restructuring of our family meals on the menu.
And so we're moving forward with that.
And that will be the next module, which launches I guess in a week or so.
So that will be done and we will be off the $20 price point, which most of our franchisees.
Had moved off of I'd say the other one that we're really now are evaluating is yeah, we do fire grilled combos.
Everything is on the menu at $5.
We're looking at that and saying well do you come off that price point as many franchisees have done.
Or do you restructure it in a way that are from a food cost perspective is better. So that's a piece of work that's going on now.
And it's one of the many I'll call cost initiatives that we have going on in the business.
Got you and then just one final one on sort of the balancing of renewed innovation just with the.
Improvement.
You know the brand has made in terms of some of the operational simplification over the last couple of years, how do you how.
How do you make sure you you know you keep some of that efficiency and productivity while still.
Exciting the customer with some new products.
Yeah.
Yeah, well, that's what the all the work going on as I mentioned earlier on the call.
Bringing in additional resources to really manage the the product development pipeline and so.
We are really ramping up.
R R.
Consumer research.
Putting new products in front of those consumers.
Making sure that we're going to have a lot more success early in the time offers.
And in terms of the efficiency piece is it's really looking at you.
The number of ingredients that we put in products.
Many times, we put too many ingredient products are probably more than necessary I mean, they are fantastic products, but.
Do we need everything we put in them.
From a consumer experience do they really notice it.
From a employee perspective, they know that there are more complicated to make.
The other thing that we are reevaluating and we're doing research on is as you're probably familiar most of our L. T OS we always view three.
New items, so if we're doing a new burrito, we do three new burritos.
I think the early research says well you may only need two barriers you don't really need that third one so there's just a lot of work going on there around not only really dramatically improving the new products and the chances of them being big successes, but also around how do we simplify things to make it easier in our restaurants to execute.
Thanks, very very helpful color.
Thanks Danny.
As a reminder, you May press star one to ask a question at this time.
The next question comes from the line of Zackfia, Sharon with William Blair.
Hi, its metrics for sure.
First a question on comps.
It kind of takes the trend line through February 23rd and just extrapolate that I'm wondering.
What you expect for comps for the full quarter and the reason I ask is just because the.
Comparisons to get so much tougher in March.
Yes, they do so that's why as I talk about comps for the quarter.
You know in March while our peer a three comp growth gets more challenging the other more challenging thing that we see in period three is a a disconnect on the lapse. So last year. We did six modules. This year, we're doing five modules one of those module launches took.
Place.
Actually a couple of weeks ago.
So you see the lap of that even makes a little more challenging.
I don't want get into an actual comp forecast for the quarter, but you're correct. I mean, the fact that worse isn't comp over 7% through February the.
March comps get a little more.
<unk> as we came out of Covid last year.
Having said that what we are seeing is if you look at the average unit volume lines are in.
In our business you'll.
Those are growing nicely.
You know coming out of Covid.
You know really strong as a highlight in the call.
You know, we track to over $2 million of annual Au vs. If you look at you know our franchisees in L. A they're now up around they probably averaged $44000 a week. So we're seeing nice sales growth, which is one of the things I'm also looking at as we as we get into into March.
Okay, and then circling back to price.
I think I heard you say, you're running about 8% punch benefit here in the first quarter or.
Are the franchisees being more aggressive on price right now and I just ask because of the disparity in comps between franchise and company owned.
And then more generally.
Consumers react to the price increases so far.
Yeah. So first on the on the franchisee side.
It's always a little difficult to judge exactly.
You know what pricing they've taken.
The thing we use and what we look at is average check.
Because that's generally a good guideline for what pricing is being taken by our franchisees and so what you actually see is the gap between the company average check and franchisee average check has been very consistent and it's consistent now I mean, it's a dollar more.
On the average check for franchisees.
So that indicates that they basically have taken pricing at roughly the same levels as we have.
And so and when you look at performance and a big part of the gap between company and franchise performance.
Is it really all transactions I mean, if you look at average check growth is basically the same.
As transaction growth.
And that just comes from the impact that Covid has had on our business not just this year, but prior years staffing challenges, we have and we're fixing those things and we're making progress.
And to me one of the upsides, we have on the company side is we improve operations. We should just keep closing that gap with franchisees on the same store sales side and we should start getting more rapid sales growth, let's say the franchisees should now I hope the franchisees maintain it and we keep growing and accelerating our growth but.
We should have more upside on the company side as we continue to prove our operations in terms of consumer pushback.
It's it's it's difficult to read through Covid.
Especially on the company side, but I would say right now we're not.
Not really seeing it.
We're seeing you know if you look at the pricing will be taken versus average check growth theres, probably two to three point gap there, meaning we've taken more price than average check has increased but a lot of that is basically what we expected which is you know as consumers coming back people going back to work you are our lunch.
Business in entree business are growing anymore.
Faster rate than dinner and so there's a natural mix shift that you're going to get as.
You know you you maintain your dinner business, but you're gaining a growth more from your your lunch and entre side of the business. So if I look at the franchisees I certainly don't see any pricing pushback given their transaction growth.
On that side of the business. So I don't see any pushback from consumers there.
Okay. Thanks for that.
Last one for me.
It looks like you're managing labor very well with our company owned restaurants is that primarily a function of turnover being down sequentially or can you discover new efficiencies that maybe helping you out more on the labor front.
No I love these anything special I mean, we've always done a very good job of managing labor in our business.
And in fact.
Well I would hope to see.
Or expect to see.
So here over the next several weeks and months is that we should be reducing overtime and Neil brakes penalties.
That had been a pretty sizable cost in the business.
Those are driven by the fact that we've had challenges staffing our restaurants.
And so I expect that to actually come more in line to what we've seen historically so from an efficiency standpoint, yeah, I don't see much different what we're doing today.
Then than we've done in the past.
Okay, great. Thanks, very much and good luck in the world.
Thank you.
Thank you at this time, if we stand as a question and answer session I'll now turn the call over to Larry Roberts for closing remarks.
Yeah, No I'd, just say Ah yeah, thanks, everybody for joining the call today.
Really appreciate it I would just highlight again, yes, we see challenges.
On the inflation front and.
And the staffing front were making.
Some some big progress I step away from the business and then you know just super excited about the prospects and I look at our sales performance.
The things we're doing in the business to.
To really continue to drive that sales growth.
And you know one thing I'd like to mentioned I Didnt get crossing the call is just the it's not just the sales growth that we're seeing in call, California, It's really across a broad spectrum of our markets main base almost all of our markets are seeing good sales growth and good comp growth, which is another reason why.
I guess highlight this because it just highlights the strength of El Pollo Loco and again see some challenges ahead.
On the cost side, but from a you know where the brand stands from a sales perspective.
I'm Super excited about where we stand so again, thanks, everybody for joining the call and hope you have a great night.
Thank you. This will conclude today's conference. Thank you for your participation you may now disconnect your lines at this time.