Q4 2023 El Pollo Loco Holdings Inc Earnings Call

Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco Fourth Quarter 2023 Earnings Conference Call. At this time, all participants have been placed in listen-only mode, and lines will be open for your questions following the presentation.

Good day, ladies and gentlemen, and thank you for standing by.

Welcome to the El Pollo Loco fourth quarter, 'twenty 'twenty earnings Conference call.

At this time, all participants have been placed in a listen only mode and lines will be opened for your questions. Following the presentation.

Operator: Please note that this conference is being recorded today, March 7th, 2024. Now, I would like to turn the conference over to Ira Fils, the company's Chief Financial Officer. Please go ahead, sir.

Please note that this conference is being recorded Steve March seven 'twenty 'twenty four.

And now I would like to turn the conference over to Iris <unk> Company's Chief Financial Officer. Please go ahead, Sir Thank you operator, and good afternoon by now everyone should have access to our fourth quarter 2023 earnings release, if not it can be found at www Dot El Pollo Loco Dot com in the Investor Relations Sir.

Ira M. Fils: Thank you, operator, and good afternoon. By now, everyone should have access to our fourth quarter 2023 earnings release. If not, it 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 growth opportunities, strategic and operational initiatives, expectations regarding sales and margins, potential changes to our product platforms, capital expenditure plans, expectations regarding kiosk rollouts, the ability of our franchisees to drive growth, expectations regarding commodity 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.

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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 growth opportunities and strategic and operational initiatives expectations regarding sales and margins potential changes to our product platforms capital expenditure plans expectations regarding kiosk rollouts.

The ability of our franchisees to drive growth expectations regarding commodity and wage inflation remodel plans and our 2024 guidance among others. These forward looking statements are not guarantees of future performance and therefore, you should not put undue reliance on these.

These statements are also subject to numerous risks and uncertainties that 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.

Ira M. Fils: 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 2023 10-K for tomorrow and would encourage you to review that document at your earliest convenience. During today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. However, the presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and reconciliations to comparable GAAP measures are available in our earnings release, which is available in the investor relations section of our website.

<unk> financial condition, we expect to file our 10-K for 2023 Tomorrow and would encourage you to review that document at your earliest convenience.

During today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release, which isn't bad.

<unk> in the Investor Relations section of our website.

Ira M. Fils: With respect to the Restaurant Contribution Margin Outlook we will be providing on today's call, please note that we have not provided a reconciliation to the most directly comparable forward-looking GAAP financial measure because, without unreasonable efforts, we are unable to predict with reasonable certainty the amount of or timing of non-GAAP adjustments that are used to calculate income from operations and company-operated restaurant revenue on a forward-looking basis. Now, I would like to turn it over to our Interim CEO, President, and COO, Maria Hollandsworth. Thank you, Ira, and good afternoon, everyone.

With respect to the restaurant contribution margin outlook, we will be providing on today's call. Please note that we have not provided a reconciliation to the most directly comparable forward looking GAAP financial measure because without unreasonable efforts, we are unable to predict with reasonable certainty the amount or timing of non.

GAAP adjustments that are used to calculate income from operations in company operated restaurant revenue on a forward looking basis now.

Now I would like to turn it over to our interim CEO, President and C. L O Maria Hollinsworth. Thank.

Thank you IRA and good afternoon, everyone. During the fourth quarter, we continued to make great progress in re emphasizing what makes our brand unique or one of our clients better for you grilled chicken offering as we go forward, we aim to lean into this differentiating strength through our mark.

Maria Hollandsworth: During the fourth quarter, we continued to make great progress in reemphasizing what makes our brand unique, our one-of-a-kind, better-for-you grilled chicken offering. As we go forward, we aim to lean into this differentiating strength through our marketing and product development, both to drive our top-line growth and help us achieve the immense potential we have ahead of us. To that end, our organization is aligned around five key operational pillars.

Sitting in product development, both to drive our topline growth and help us achieve the immense potential we have ahead of us.

To that end our organization is aligned around five key operational pillars.

Maria Hollandsworth: The first operational pillar, Attract, Hire, and Retain Top Talent, demonstrates our belief that success in the restaurant industry is highly correlated with employee engagement. This includes building a compelling employer brand with strategies aligned with our values, as well as creating a culture of accountability and recognition while fostering a positive and inclusive environment. Our second operational filler, being known for our famous fire-grilled chicken, prioritizes our focus on our key differentiators, including our fire-grilled chicken, flavors from Mexico, and better-for-you positioning consistently and frequently. In late December, we reintroduced Double Pollo Fit Bowls to help make New Year's resolution planning easier and more convenient. Packed with double the protein, the Double Pollo Fit Bowls are a filling and nutritious choice for those craving a delicious, flavorful meal.

First operational pillar.

<unk> hire and retain top talent demonstrates our belief that success in the restaurant industry is highly correlated with employee engagement.

This includes building a compelling employer brand with strategies aligned with our values as well as creating a culture of accountability and recognition, while fostering a positive an inclusive environment.

Our second operational pillar <unk>.

Being known for famous fire grilled chicken prioritizes, our focus on our key differentiators, including our fire grilled chicken flavors from Mexico, and better for you positioning consistently and frequently.

In late December we reintroduced double pollo fit bowls to help make new year resolution planning easier and more convenient.

Packed with double the protein the double pool, you fit bowls are a filling and nutritious choice for those crazy a delicious flavorful meal.

Maria Hollandsworth: Since launch, we've seen great reception with guests typically skewing female and a little higher income. Starting in February, we began the promotion of our current Tostada platform alongside the introduction of a seasonal shrimp tostada and shrimp taco available for less. Additionally, guests can substitute shrimp for chicken or add shrimp to any entree for a small upcharge.

Since launch we have seen great reception with guests typically skewing female and a little higher income.

Starting in February we began a promotion of our current the startup platform alongside the introduction of a seasonal shrimp to startup and shrimp Taco available for Lat.

Additionally, guests can substitute shrimp for chicken or shrimp, so any entre for a small upstart.

Maria Hollandsworth: We're excited to be able to emphasize our better for you chicken offerings while providing a relevant seafood option during this time of year. Additionally, in late December, we launched a new menu board designed to make it easier for our guests to not only navigate our menu but also help them find new items and platforms. In addition to new items like the Chicken Avocado Stuffed Quesadilla, we also introduced Chips and Queso Blanco, new Agua Fresca flavors, and the Crunchy Shredded Chicken Taco as new add-on items.

We're excited to be able to emphasize our better for you chicken offerings, while providing a relevant seafood option. During this time of the year.

Additionally in late December we launched a new menu board design to make it easier for our guests to not only navigate our menu, but also help them find new items and platforms in.

In addition to new items like the chicken avocado stuff Cassidy, we all.

Also introduced chips, and queso Blanco, new Agua Fresca flavors, and the crunchy shredded chicken Taco as new add on items.

Maria Hollandsworth: The new menu board has received positive customer feedback for appearing more modern and premium. Over time, we will continue to evolve our menu to drive more add-on items and provide everyday value for our customers. We are also making progress with our relaunched catering program that we rolled out in late September. During the fourth quarter, we expanded our marketing support on digital and social to include messaging for key catering moments to keep El Pollo Loco top of mind as a great option for group occasions.

The new menu board has received positive customer feedback.

There is more modern and premium.

Overtime, we will continue to evolve our menu to drive more add on items and provide everyday value for our customers.

We are also making progress with our relaunched catering program.

We rolled out in late September.

During the fourth quarter, we expanded our marketing support on digital and social to include messaging for key catering moments to keep El Pollo Loco top of mind as a great option for group locations.

Maria Hollandsworth: We were encouraged to see sequential improvement in catering sales from the third quarter. With a new catering menu that provides a broader offering beyond our chicken on the bone, we still believe our catering channel mix has the opportunity to grow to approximately 5% of sales over time. To further accelerate the growth of catering, we are aligning marketing resources to focus on menu innovation, driving awareness, and overall customer experience. Our third pillar, digital-centric in-service of improving the customer experience, includes investing in consumer-facing technology to further differentiate our brand and reach customers for whom convenience and value are key decision factors. This includes our loyalty program, digital ordering through our website and mobile app, and our integrated delivery through a third-party service. This also includes the ability for our customers to order at kiosks. We've been thrilled by the seamless adoptions by our guests.

We were encouraged to see sequential improvement in catering sales from the third quarter.

We then you can't remain you that provides a broader offering beyond our chicken on the bone, we still believe our catering channel mix has the opportunity to grow approximately 5% of sales over time.

So further accelerate the growth of catering we are aligning marketing resources to focus on menu innovation driving awareness and overall customer experience.

Our third pillar digital centric in service of improving the customer experience includes investing in consumer facing technology to further differentiate our brand and reach customers for whom convenience and value are key decision factors. This.

Includes our loyalty program.

Digital ordering through our website and mobile App and our integrated delivery through a third party service.

This also includes the ability for our consumer to order on kiosks.

Have been thrilled by the seamless adoption by our guests.

Maria Hollandsworth: Additionally, when coupled with a cash machine, our test restaurants have been able to allow for more efficient service of our guests with less labor, especially at peak traffic periods. To that end, we remain on track to complete the rollout to all of our company-owned restaurants by mid-2024. Our fourth operational pillar is driving consistency in operations execution with a hospitality mindset through a focus on brand standards. Delivering a consistent experience across the brand starts with having the right playbook.

Additionally, when coupled with a cash machine our test restaurants have been able to allow for a more efficient servicing of our guests with less labor, especially at peak traffic periods does that and we remain on track to complete the rollout to all of our company owned restaurants by mid 2024.

Our fourth operational pillar is driving consistency in operations execution.

The hospitality mindset throw a focus on brand standards.

Delivering a consistent experience across the brand starts with having the right playbook.

Maria Hollandsworth: In the quarter, we launched an updated operations manual inclusive of a hospitality module specific to digital ordering and kiosks and subsequent training to ensure that we have a consistent customer experience. We also believe that we can drive additional consistency through simplification and labor efficiencies. And we have several initiatives in place to drive that consistent experience and reduce or optimize labor in our restaurant. In addition to the kiosks, which I previously discussed, another labor saving initiative comes from our salsa offering, which we divided into two phases. Late last year, we completed the simplification of our salsa lineup by introducing our salsa fresca offering and reducing our salsa count from two to one.

In the quarter, we launched an updated operations manual.

Inclusive of our hospitality module specific the digital ordering and kiosks and subsequent training to ensure that we have a consistent customer experience.

We also believe that we can drive additional consistency through simplification and labor efficiencies and we have several initiatives in place to drive that consistent experience and reduce or optimize labor in our restaurants.

In addition to the kiosks, which I previously discussed.

Another labor saving initiative comes form our salsa offering.

Which we divided in two phases.

Last year, we completed the simplification of our social lineup by introducing our salsa fresca offering and reducing our salsa count from two to one.

Maria Hollandsworth: With that behind us, our next phase is to roll out our new salsa processing equipment, which will further drive consistency in our product while also improving labor efficiency, as the new equipment is both easier to use and easier to clean. We are on track to roll out the salsa equipment to all our company restaurants by mid-2024 and to franchisees by the end of the year. Lastly, we continue to test other labor savings initiatives and look for operational efficiencies as we thoughtfully enhance our operating model. We are also aggressively exploring all areas of the P&L, from COGS to R&M, utilities, and other controllable expenses. We are leveraging third-party data and really scrutinizing all costs to help offset expected incremental labor costs from upcoming legislative changes. We are doing this carefully to ensure the El Pollo Loco experience is best in class for our customers and consistent across our entire system.

With that behind US our next phase is to rollout, our new SASSA processing equipment, which will further drive consistency of our product while also improve labor efficiency as the new equipment is both easier to use and easier to clean.

We are on track to rollout the salsa equipment. The all our company restaurants by mid 2024, and two franchisees by the end of the year.

Lastly, we continue to test other labor savings initiatives and look for operational efficiencies as we thoughtfully enhanced our operating model we.

We are also aggressively exploring all areas of the P&L from Cogs, So R&M utilities and other controllable expenses, we are leveraging third party data and really scrutinizing all costs to help offset expected incremental labor costs from.

Upcoming legislative changes we.

We are doing this carefully to ensure that El Pollo Loco experience is best in class for our customers and consistent across our entire system.

Maria Hollandsworth: Our fifth operational pillar is to build back the fundamentals of winning economics and partner with world-class franchisees to prepare for accelerated growth. I am excited about the work we have done with our franchisees in the past few months in this area. We have put support back into franchise recruitment and new restaurant and market openings with better training materials and best practice sharing. This will ensure operational excellence as new markets open and as we grow in markets where El Pollo Loco is relatively newer and less well known to consumers. We are also very focused on improving our development capability.

Our fifth operational pillar is to build back the fundamentals of winning economics and partner with World class franchisees to prepare for accelerated growth.

I am excited about the work we have done with our franchisees in the past few months in this area.

We have put support back into franchise recruitment and new restaurant and market openings with better training materials and best practice sharing.

This will ensure operational excellence as new markets open and as we grow in markets, where El Pollo Loco is relatively newer and less well known to consumers.

We are also very focused on improving our development capabilities from helping franchisees with better site selection to significantly cost engineering, our new bills for company and franchise units.

Maria Hollandsworth: From helping franchisees with better site selection to significantly cost engineering our new builds for company and franchise units. We know that if we get the economic model right with lower bill costs combined with higher sales volumes and store level margins, the development flywheel will get going. We have initiatives in place in all of these areas and look forward to sharing more details in the quarters to come. In addition, we are excited to announce an acceleration in our remodeling efforts for both the company-owned and franchise system to continue to enhance our restaurants and provide our customers with a more modern dining experience. We currently expect to remodel 15 to 20 company restaurants and 40 to 50 franchise restaurants in 2024. In closing, I would like to thank our El Pollo Loco team members and our franchisees for the hard work they put in every day to make this brand great.

We know that if we get the economic model right with lower build costs combined with higher sales volumes and store level margins.

Development flywheel will get going we have initiatives in place in all of these areas and look forward to sharing more details in the quarters to come.

In addition, we are excited to announce an acceleration in our remodeling efforts for both the company owned and franchise system to continue to enhance our restaurant and provide our customers with a more modern dining experience.

We currently expect to remodel 15 to 20 company restaurants, and 40 to 50 franchise restaurants in 2024.

In closing I would like to thank our El Pollo Loco team members and our franchisees for the hard work they put in everyday to make this brand great.

Maria Hollandsworth: It is an exciting time to be at El Pollo Loco, and I'm thrilled to be working alongside Liz Williams, our new CEO, who starts on March 11th, and the rest of the management team as we unlock our brand's long-term potential. With that, let me turn the call over to Ira for a more detailed discussion of our fourth quarter financial results. Thank you, Maria, and good afternoon, everyone.

It is an exciting time to be at El Pollo Loco and I'm thrilled to be working alongside Liz Williams, our new C O who starts on March 11th and the rest of the management team as we unlock our brands long term potential with that let me turn the call over to IRA for a more detailed discussion of.

Our fourth quarter financial results.

Thank you Maria and good afternoon, everyone for the fourth quarter ended December 27th 2023, total revenue decreased three 2% to $112 2 million compared to $115 9 million in the fourth quarter of 2022 company operated restaurant revenue decreased five 7% to nine.

Ira M. Fils: For the fourth quarter ended December 27, 2023, total revenue decreased 3.2% to $112.2 million, compared to $115.9 million in the fourth quarter of 2022. Company-operated restaurant revenue decreased 5.7% to $94 million from $99.6 million in the same period last year. The decrease in company-operated restaurant sales was primarily driven by a $5.8 million decrease in revenue from the refranchising of 18 company-operated restaurants to existing franchisees in prior quarters, as well as a 0.2% decrease in company-operated restaurants. This was partially offset by additional sales from restaurants open during or subsequent to the fourth quarter of 2022. The decrease in comparable restaurant sales included a 0.4% decrease in average check size, offset by a 0.2% increase in transactions.

<unk> 4 million from $99 6 million in the same period last year. The decrease in company operated restaurant sales was primarily driven by a five $8 million decrease in revenue from the Refranchising of 18 company operated restaurants to existing franchisees in prior quarters as well as a 2% <unk>.

Kris in company operated restaurant sales.

This was partially offset by additional sales from restaurants opened during or subsequent to the fourth quarter of 2022.

The decrease in comparable restaurant sales included a 4% decrease in average check size offset by a 2% increase in transactions.

Ira M. Fils: During the fourth quarter, our effective price increase versus 2022 was approximately 6%. For 2024, we expect our pricing to be in the mid to high single digits to help offset the impact of the April 1st California minimum wage increase. Franchise revenue increased 17% to $11 million during the fourth quarter, driven by a 1.6% increase in franchise comparable restaurant sales, as well as five new franchise restaurant openings during or subsequent to the fourth quarter of 2022, and 18 refranchised restaurants I've mentioned earlier. Looking ahead to 2024, first quarter to date through February 28, system-wide comparable store sales increased 3.8%, consisting of a 2.2% increase in company-operated restaurants and We are excited about the sales momentum in the business as we move past some of the underlying weather impact experienced in Q1 and feel we have created a strong marketing plan and calendar for the remainder of the year. Turning to expenses, food and paper costs as a percentage of company restaurant sales decreased 140 basis points year over year to 26.9% due to higher menu prices. During the quarter, we experienced slight commodity inflation of approximately 0.7%. We expect commodity inflation to be approximately 3% for the full year 2024.

During the fourth quarter, our effective price increase versus 2022 was approximately 6% for.

For 2024, we expect our pricing to be in the mid to high single digits to help offset the impact of the April 1st, California minimum wage increase.

Franchise revenue increased 17% to $11 million during the fourth quarter driven by a one 6% increase in franchise comparable restaurant sales as well as five new franchise restaurant openings during or subsequent to the fourth quarter of 2022.

And 18 re franchise restaurants, I've mentioned earlier looking ahead 2024 first quarter to date through February 28 system wide comparable store sales increased three 8% consisting of a two 2% increase in company operated restaurants.

Four 7% increase in franchise restaurants, we are excited about the sales momentum in the business as we move past some of the underlying weather impact experienced in Q1 and feel we have created a strong marketing plan in calendar for the remainder of the year turning to expenses food and paper costs as a percentage of company.

Our restaurant sales decreased 140 basis points year over year to 26, 9% due to higher menu prices during the quarter, we experienced slight commodity inflation of approximately <unk>, 7%.

We expect commodity inflation to be approximately 3% for the full year 2020 for labor and related expenses as a percentage of company restaurant sales increased 40 basis points year over year to 32, 3% higher menu pricing and improved labor management was more than offset by wage increases and higher workers.

Ira M. Fils: Labor and related expenses as a percentage of company restaurant sales increased 40 basis points year-over-year to 32.3%. Higher menu pricing and improved labor management were more than offset by wage increases and higher workers' compensation expense during the quarter. Labor inflation during the fourth quarter was 3.6%, and we expect wage inflation between 12% and 14% for the full year 2024, driven by the California minimum wage increase to $20 an hour for QSR restaurants on April 1st of 2024. Occupancy and other operating expenses as a percentage of company restaurant sales increased 20 basis points year over year to 25.2%, primarily due to higher repairs and maintenance and insurance costs partially offset by lower utilities. Our restaurant contribution margin for the fourth quarter was 15.8% compared to 14.7% in the year-ago period.

Compensation expense during the quarter.

Labor inflation during the fourth quarter was three 6% and we expect wage inflation between 12 and 14% for the full year of 2024, driven by the California minimum wage increase to $20 an hour for <unk> restaurants on April one of 2024.

Occupancy and other operating expenses as a percentage of company restaurant sales increased 20 basis points year over year to 25, 2%, primarily due to higher repairs and maintenance and insurance costs, partially offset by lower utilities expense, our restaurant contribution margin for the fourth quarter was 15, 8% compared to $14 7%.

In the year ago period for both the full year 24 in the first quarter of 2024, we expect our restaurant contribution margin to be in the 15% to 16% range as we move into 2024. We are pleased with the progress we are making in our labor improvement initiatives and we are focusing on identifying additional savings and efficiencies across the P&L.

Ira M. Fils: For both the full year 24 and the first quarter of 2024, we expect our restaurant contribution margin to be in the 15-16% range. As we move into 2024, we are pleased with the progress we are making in our labor improvement initiatives, and we are focusing on identifying additional savings and efficiencies across the P&L as we continue to improve restaurant-level margins. General and administrative expenses increased 110 basis points year over year to 9.4% of total revenue. The increase for the quarter was primarily due to executive transition costs and increased other G&A expenses. During the fourth quarter, we recorded a provision for income taxes of $1.7 million for an effective tax rate of 27.7%. This compares to a provision for income taxes of $2.3 million and an effective tax rate of 26.4% in the prior year period. We reported gap net income of $4.4 million, or 14 cents per diluted share, in the fourth quarter, compared to gap net income of $6.5 million, or 18 cents per diluted share, in the prior year period.

As we continue to improve restaurant level margins.

General and administrative expenses increased 110 basis points year over year to nine 4% of total revenue.

The increase for the quarter was primarily due to executive transition costs and increased other G&A expenses during the fourth quarter. We recorded a provision for income taxes of $1 7 million for an effective tax rate of 27, 7%. This compares to a provision for income taxes of two.

$3 million and an effective tax rate of 26, 4% in the prior year period.

We reported GAAP net income of $4 4 million or <unk> 14 per diluted share in the fourth quarter compared to GAAP net income of $6 $5 million or <unk> 18 per diluted share in the prior year period.

Ira M. Fils: Adjusted net income for the fourth quarter was $5.2 million, or $0.16 per diluted share, compared to adjusted net income of $6 million, or $0.16 per diluted share, in the fourth quarter of last year. Please refer to our earnings release for a reconciliation of non-GAAP measures. Turning to unit development, during the fourth quarter, we opened one company-operated restaurant in Las Vegas and two franchised restaurants, one in Denver and one in Utah, bringing the total to two company and three franchise openings for 2022. As Maria mentioned earlier, we're actively working toward value engineering our new restaurant investment with a target build cost of $1.8 million to drive new unit growth. In addition, we completed the remodeling of 15 company-owned restaurants and 33 franchise restaurants in 2023. As we look to 2024, we are currently planning to remodel 15 to 20 company-owned restaurants and between 40 and 50 franchise restaurants. Turning to liquidity, as of December 27, 2023, we had $84 million of debt outstanding and $7.3 million in cash and cash equivalents. After the end of the quarter, the company paid down $3 million on the revolver.

Adjusted net income for the fourth quarter was $5 2 million or <unk> 16 per diluted share compared to adjusted net income of $6 million or <unk> 16 per diluted share in the fourth quarter of last year.

Please refer to our earnings release for a reconciliation of non-GAAP measures.

Turning to unit development during the fourth quarter, we opened one company operated restaurant in Las Vegas, and two franchise restaurants, one in Denver and one in Utah, bringing the total to two company and three franchise openings for 2023.

As Maria mentioned earlier, we are actively working toward value engineering, our new restaurant investment with a targeted build cost of $1 8 million to drive new unit growth in.

In addition, we completed the remodeling of 15 company owned restaurants in 33 franchise restaurants. During 2023 as we look to 2024. We are currently planning to remodel 15 to 20 company owned restaurants and between 40% and 50 franchise restaurants.

Turning to liquidity as of December 27th 2023, we had $84 million of debt outstanding and $7 $3 million in cash and cash equivalents.

After the end of the quarter the company paid down $3 million on the revolver and as of March seven 2024, there was $81 million of debt outstanding.

Ira M. Fils: And as of March 7, 2024, there was $81 million of debt outstanding. As we mentioned on our last call, on October 31, 2023, our Board of Directors approved a new share repurchase program with an authorization to purchase up to $20 million of common stock through March 31, 2025. Following our repurchase of approximately $12.6 million in December, we have $7.4 million remaining under our authorization. Finally, based on our results to date, we would like to provide the following guidance for 2024, the opening of two company-owned restaurants and five to seven franchise restaurants, capital spending of between $25 million and $28 million, and G&A expenses of between $45 million and $47 million, which includes management incentive compensation expense at 100 percent of target and approximately This concludes our prepared remarks. We'd like to thank you again for joining us on the call today. And we are happy to answer any questions that you may have. Operator, please open the line for questions. Thank you, sir.

As we mentioned on our last call on October 31, 2023, our board of directors approved a new share repurchase program with an authorization to purchase up to $20 million of common stock through March 31 2025.

Following our repurchase of approximately $12 6 million in December we have seven $4 million remaining under our authorization.

Finally based on our results to date, we would like to provide the following guidance for 2024.

The opening of two company owned restaurants, and five to seven franchise restaurants capital spending of between 25% and 28 million and G&A expenses of between $45 million and $47 million, which includes management incentive compensation expense at 100% of target and approximately four point.

5 million and stock compensation expense.

And an adjusted income tax of 27% to 28%.

This concludes our prepared remarks, we'd like to thank you again for joining us on the call today and.

And we are happy to answer any questions that you may have operator, please open the line for questions.

Thank you Sam.

Operator: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and N1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and N2 if you would like to remove your question from the question queue.

At this time, we will be conducting a question and answer session if.

If you would like to ask a question. Please press star and then one on your telephone keypad.

<unk> tone will indicate your line is in the question queue. You May Press Star and then two if you would like to move your question from the question queue.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start key. Again, if you'd like to ask a question, please press star and then 1 now. The first question that we have comes from Jake Bartlett of Travel and Tourist Securities. Please go ahead. Hey guys, thanks for taking the question. This is actually Vince Sengelman on for Jake.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Again, if you'd like to ask a question. Please press star and then one now.

Last question, we have comes from Jake Bartlett.

Alright.

Trust Securities. Please go ahead.

Hey, guys. Thanks for taking the question. This is actually been Singleton on for Jake.

Vince Sengelman: Just firstly on the development guidance, I think it is slightly below our expectations for, you know, the system openings. Can you kind of frame your expectations for sort of your shift to more remodels? What is kind of holding you back in really accelerating development here?

Just firstly on the development guidance slightly.

Slightly.

Below our expectation for you now.

E.

System openings can you kind of frame your expectations for.

Sort of your shift to more remodels.

What is kind of holding you back and really accelerating development here.

Maria Hollandsworth: So, you know, I think from a, first of all, from a remodel standpoint, we completed, as we mentioned, 33 franchises and 15 companies, and we're seeing, you know, good sales momentum from the remodels. And so, it's why the franchisees are accelerating their development. We're, you know, getting a, you know, a mid-single-digit sales lift from the remodels when we're spending, you know, a little under $400,000 on average for these remodels.

So I think from a first of all from a remodel standpoint.

We completed as we mentioned 33 franchise and 15 company and.

We are seeing.

Good good good sales momentum from from the Remodels and so it's why the franchisees are accelerating their development, where we're getting a mid single digit sales lift.

From the from the Remodels when we're spending.

Little under 400000 on average for these reuse model. So if we're getting a good return on those so that thats definitely why we're continuing to push forward with the remodels from a from a development standpoint.

Maria Hollandsworth: So, we're getting a good return on those, so that's definitely why we're, you know, continuing to push forward with the remodels. From a development standpoint, you know, we are working to continue to bring in more franchisees into the system. And this is where we're sitting today is based on what we think we have, we have relatively good visibility into the openings this year.

Hey, we are working to continue to bring in more franchisees into the system.

And this is where we're sitting today is based on what we think we have we have relatively good visibility to the openings this year.

Maria Hollandsworth: And that's really driving what our guidance is for 2024, and we are still very actively in the process of recruiting and bringing on more franchisees. Yeah, also in my prepared speech, I did talk about how we have initiatives in place in all these areas. And you're going to hear more about this. Liz is actually very passionate about development.

That's really driving what our guidance is.

Core for 2024, and we are still very actively in the process of <unk>.

Recruiting and bringing on more franchisees.

Okay.

Yeah, let's say okay.

Also ahead.

On my prepared speech I did talk about how we have initiatives in place in all of these areas and you're going to hear more about this list is absolutely very passionate about development. So youre going to hear more about this in the next quarters to come.

Maria Hollandsworth: So you're going to hear more about that in the next quarter. Okay, great. That's super helpful.

Okay, Great. That's Super helpful. And then just shifting gears a bit.

Maria Hollandsworth: And then, just shifting gears a bit, you know, just on your strategy to offset the wage increases in California. Can you kind of give us an update? I think at ICR you mentioned that you're looking to your operational initiatives to offset roughly a third to a half of the impact of the wage increases. Where are you on track to meet that goal?

Just on your strategy.

Offset the wage increases in California.

Can you kind of give us an update I think at ICR you mentioned.

Youre looking to your.

Your operational initiatives to offset roughly a third to a half of the impact of the wage increases.

Where are you on track to meet that goal.

Maria Hollandsworth: Are there any early learnings you're getting from, let's say, testing of the new salsa processing equipment or the kiosks that you're willing to share or any update on, you know, the timing of the price? Yeah, in terms of the kiosks, we have learned that if we have the cash machine, and that works better for us, if the kiosk is on the counter, that is, our customers will learn quickly and accept it very easily, as well as if we have multiple kiosks in the restaurant. So that's one thing we've learned.

Are there any early learnings you're getting from let's say a testing of the new salsa processing equipment or the kiosks that youre willing to share or.

Or any update on timing of price increases.

Yes in terms of the kiosks, we have learned that if we have the cash machine and that works better for us if the kiosks on the counter and that is our customers will learn quickly and adopt very easily as well as if we have multiple kiosks in the restaurants.

Maria Hollandsworth: It's really helped us with being efficient when it comes to our customers placing their orders, as well as our team members preparing the orders for our customers. Yeah, so I think that, you know, and where we are in the salsa, that's, we feel like we're still waiting for the processors, but we've, we've already simplified the process from going to two salsas to one. And we have not, and we haven't had any negative guest feedback on that.

One thing we've learned it's really helped us with being efficient when it comes to.

Our customers, putting their orders as well as our team members preparing to orders for our customers.

Yes, so I think that you know and.

Where we are in the fall. So that's we feel like we're still waiting for the processors. We we've already simplified the process will go into two sources to one and we have not.

And we haven't had any negative guest feedback from that so we feel good about where we're headed there we have also.

Maria Hollandsworth: So we feel good about where we're headed there. We have also, and we've got the processors on order. Maria talked about the kiosk.

And we've got the processors on order and where you talked about the kiosks and we're also.

Maria Hollandsworth: And we're also, you know, working on kind of our whole labor, you know, we did a whole project on our whole labor tables as we're trying to really see if we can really streamline things like in times and out times to really be just more efficient from our labor standpoint. And so far, we're seeing good results there and plan on rolling that out when we April 1st come into effect at the same time as the minimum wage goes up. So you know, I think we're still comfortable with that range of, you know, a third to a half of that of the California minimum wage impact will be offset by, you know, labor savings.

We're working on kind of our our whole labor. We did we did a whole project and our whole labor.

Tables as we're trying to really see if we can really streamline things like in times an hour time, so really be just more efficient from a labor standpoint from a labor standpoint, and we're so far we're seeing good results there and plan on rolling that out.

When we.

April one.

At the same time minimum wage goes up so.

I think we're still comfortable with that range of.

A third to a half of that at the California minimum wage impact will be offset by labor savings and honestly the rest of it.

Maria Hollandsworth: And, you know, honestly, the rest of it. We've, we're working on picking some pricing we've already taken a little bit and, you know, for the year, we're going to be in the mid to high single digits on pricing, and we'll adjust that as we manage the impact of the minimum wage increase on our labor savings. And, you know, our whole goal is really to protect margins while balancing traffic as well, because we are cognizant of the impact that pricing can have on traffic. So we will continue to look for operational efficiencies with labor all throughout the year. We also know that labor alone is not enough to drive best-in-class margins.

We're working on taking some pricing we've already taken a little bit and for the year, we're going to be in the mid to high single digits on pricing and we'll we'll adjust that as we as we manage the impact of.

The minimum wage increase of our labor savings and our whole goal is really to.

To protect margins, while balancing traffic as well because we are cognizant of the impact of pricing can have on traffic.

Congrats to look operational efficiencies with labor all throughout the year. We also noted that labor alone is not enough to drive best in class margin. So we're also going to do a deep dive into the rest of the P&L and look forward to sharing more of that in the upcoming quarters.

Maria Hollandsworth: So we're also going to do a deep dive into the rest of the P&L and look forward to sharing more of that in the. Okay, great. And then just last one for me, just an update on the consumer. Could you kind of help us understand your strategy and your messaging around balancing value versus your premium offering and whether you've seen any, any shift in the consumer environment? You know, I don't necessarily know if we've seen a shift. I think we've seen the consumer under pressure a little bit for a couple quarters as we've seen them. We've seen our check not, not raised to the amount of our pricing. Because what we do see is consumers are managing their check; they're doing it through a couple ways there.

Okay, Great and then just last one for me just an update on the consumer could you kind of.

Help us understand your strategy.

And your messaging around balancing.

Balancing value versus your premium offering and whether you've seen any any shift in the consumer environment.

I don't necessarily know if we've seen a shift I think we've seen the consumer under pressure a little bit.

There are a couple of quarters as we've seen them we've seen our check.

No.

Not raise to the amount of our pricing because what we what we do see is.

Consumers are managing their check they're doing it through a couple of ways there.

Maria Hollandsworth: From a mixed standpoint, they're trading down a little bit, and they're also buying less checks per item, less items per check, sorry. And we're seeing a little fall off on family meals as well. So the combination of that and the fact that we're actually seeing a little more lunch business, which has a lower check, has weighed on our check a little bit. But I do think, you know, the lower end consumer is under a little bit of pressure. And I do think we're seeing that in regards to our check, but it's not I don't know if it's like a relatively new thing.

From a mix standpoint, theyre trading down a little bit and they are also buying less checks per item unless I.

Items per check sorry, and we're seeing a little falloff on family meals as well so the combination of that.

And the fact that we're actually seeing a little more lunch business, which has.

A lower check.

Has weighed on our check a little bit.

But I do think.

The lower end consumer is under a little bit of pressure and I do think we're seeing that in regards to <unk>.

Check, but its not I don't know if it looks like.

Maria Hollandsworth: I think we've seen it for, you know, a couple quarters now. And for us, when we rolled out our menu boards last December, we knew that our customers were looking for craveable food and also consistent value. And so we are testing ways to offer more value across our menu to meet this consumer demand. So look out for more information on this in the next quarters as well. Awesome. Thank you very much. Thanks, man. Thank you. The next question we have comes from Zach Riddle of William Blair. Please go ahead. Hi, good afternoon.

A relatively new thing I think we've seen it for sure.

A couple of quarters now.

Okay and for us when we rolled out our menu board last December we know that our customers are looking for craveable food and also.

Consistent value.

And so we are testing ways to offer more value across our menu to meet this consumer demand.

For more info.

Information on this in the next quarters as well.

Awesome. Thank you very much.

Thanks, Dan Thank you.

The next question we have comes from Zachary <unk> of William Blair. Please go ahead.

Hi, good afternoon.

Zachary James Riddle: Just a couple of questions for you guys. I guess first off, so just looking at the P&L, the food and packaging cost seems to have come in a little bit higher than we expected in the fourth quarter. I'm just wondering kind of what drove that. I mean, was it, you know, bone-in chicken, boneless chicken, some other ingredient or something like that?

Couple of questions for you guys I guess first off so.

Just looking at the P&L of the food and packaging cost seems to have come in a little bit higher than we expected in the fourth quarter.

Just wondering kind of what drove that I mean was it.

Bone in chicken boneless chicken, some other ingredient or something like that.

Ira M. Fils: are just kind of what caused that cost to be a bit higher. And then, secondarily, I know you just opened or recently opened your second location in Colorado. And I remember last year, that first location was performing really well right out of the gate. So I was wondering if you guys could give us an update on how the Colorado market, in general, is doing today and maybe how that second restaurant is performing. Thank you. Yeah, so the first question in regards to the commodities, I don't know if there was any one item that drove that unfavorability.

Or just kind of what caused that cost to be a bit higher.

And then second.

Secondarily I know you just opened a recently opened your second location in Colorado and I remember last year. The first location is performing really well right out of the gate. So I was wondering if you guys could give us an update on how.

How the Colorado market in general is doing today, and maybe how that second restaurant at performing.

Yes.

So the first question in regards to the commodities I don't know if there was anyone.

One item that drove that unfavorably I think we did.

Ira M. Fils: I think we did get a little bit maybe from the Carnitas promo, but we, you know, The basket came in pretty much as we expected for Q4. On that side, from a good news standpoint, I will tell you, yes, we did open our second store in Denver, and we are very excited about how both of them are performing. The first one, which opened over a year ago, is still performing very well, and the second store is performing above our expectations as well. So we are very excited about how the two stores in Denver are performing. Great, and I guess just as a follow-up, how should we think about the cadence and maybe number of LTOs in 2024 versus 2023? And I think in 2024, the cadence will be similar.

To get a little bit from a maybe from the carnitas.

Promo, but we.

The basket came in pretty much as we expected for Q4.

On that side from a good news standpoint, I will tell you, yes, we we did open our second store in Denver, and we are very excited.

While both of them are performing the first one which opened over a year ago.

It is still performing very well and.

And the second store is above our expectations as well. So we're very excited about how the two stores in Denver are performing.

Great and I guess just as a.

Follow up how should we think about the cadence and maybe number of LTE OS in 2024 versus 2023.

Yes, I think in 2024 that the cadence will be similar.

Maria Hollandsworth: We are reducing it from six LTOs to five LTOs this year. So, a small change for us, just because we've seen things like, for example, when we've seen the positive reception we've gotten from items like the Pollo Fit Bowls and the Tostadas, consumers are coming back, and they want us to put these on LTO. And then when we take them off, they're like, Hey, where are these items that we've, you know, that we built that we built some frequency on with them.

We are we are reducing it from six <unk> to five <unk> this year.

So a small change for us just because we've seen things for example, when we've seen the positive reception, we have gotten from items like the.

The pollo fit bowls and the Tostada as the consumers are coming back and they want that we put these on LTE Oh, and then when we take them off or like Hey, where are these items that you know that we have.

We built that we built some frequency on with them and so so that's why we've decided to extend.

Maria Hollandsworth: And so, that's why we've decided to extend the LTOs a little bit and go from six to five. Great, thanks. That does it for me on questions. Thank you, sir. Ladies and gentlemen, we have reached the end of today's question and answer session. I would now like to turn the call back over to the management team for closing remarks. Please go ahead. Thanks again everyone for your interest in El Pollo Loco, and we look forward to talking to you again next quarter. Have a great evening. Please see the complete disclaimer at https://sites.google.com or at www.google.com. Thank you. Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines. www.larryweaver.com The Ultimate Parody Site! All rights reserved. The Ultimate Parody Site!

Extend the <unk> was a little bit and go from six to five this year.

Great. Thanks that does it for me for questions.

Thank you Sue.

Ladies and gentlemen, we have reached the end of today's question and answer session.

I'd now like to turn the call back over to the management team for closing remarks. Please go ahead.

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

Okay.

Thank you ladies and gentlemen that does conclude today's conference. Thank you for joining US you may now disconnect your lines.

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Hum.

Hello.

Okay.

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Uh-huh.

Yes.

Okay.

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