Q3 2024 El Pollo Loco Holdings Inc Earnings Call
and the
Good day ladies and gentlemen and thank you for standing by welcome to the L-Political third quarter 2024, Ira News Conference call
At this time, all participants have replaced an innocent only mode, and the lines will be opened for your questions following the presentation. Please note that this conference is being recorded today, October 31, 2024. And now I'd like to turn the conference over to Ira Fils, the company's chief financial officer.
and the
Thank you, operator, and good afternoon everyone. By now, everyone should have access to our third quarter, 2020, 4 earnings release. If not, it can be found at www.lpoilloko.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 opportunity.
Strategic and Operational Initiatives, Expectations regarding sales and margins.
The Tensual Changes to our product platforms, Apple Expenders or Plans, Expectations regarding key-oscroll-outs
The ability of our franchiseees 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 them.
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 10K for the year ended 2023 previously filed, as well as our form 10Q for the third quarter, to be filed for a more detailed discussion of the risks and current impact of our future operating results in financial condition.
We expect to file our 10Q for the third quarter of 2024 tomorrow. We encourage you to review that document at your earliest convenience.
During today's call we will discuss non-gap 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 gap and reconciliation to comparable gap measures are available in our earnings release.
which is available in the Investor Relations section of our website.
with respect to the restaurant margin contribution outlook.
We will be providing today on today's call. Please note that we have not provided a reconciliation to the most directly comparable for looking at financial measure.
because without unreasonable efforts, we are unable to predict with reasonable certainty the amount of or timing of non-gap adjustments that are used to calculate income from operations and comparable restaurant revenue on a forward-looking basis.
Now, I would like to turn it over to our CEO Liz Williams.
Thank you, Ira and good afternoon, everyone.
During the quarter, we drove top-line growth through a 2.7% increase in system-wide comparable sale.
We expanded restaurant level margins 230 basis points year over year to 16.7% and we continue to make great progress on reducing the cost of our prototypes to stimulate future restaurant development.
While I am pleased with the progress we have made thus far, there is still a lot to do.
We have a substantial opportunity ahead of us to become the National Fire Grilled Chicken Brand.
As we approach our 50th year in business with plans to modernize the loved brand that foundation is critical.
I continue to be impressed with the culinary, operational, and people focused foundations that have allowed us to get off to a fast start with our transformation.
At the end of September, we invited all of our franchise partners to meet in person for our annual franchise conference.
Our team came out of the conference energized and ready to tackle our key priorities. Consistent sales growth, improved margins, and igniting new units of element. We will do this by executing on our five strategic pillars.
First.
Brand That Wind, through our craveable, affordable, and better for you chicken offerings. Second, hospitality mindset, by embodying the O' play O'Logo culture and providing our guests with fast, friendly and consistent service.
Third, digital first, bringing friction on experiences to our gap.
Fourth, winning unit economics, making sure margins matter, and finally driving unit growth again with national expansion by becoming flexible and affordable.
With the current macro economic environment continuing to put pressure on our gas, it is more important than ever to lean on our strength.
Providing portable, craveable, fresh food, all for a good value, and with the convenience of staff service to ensure we are a brand-new win.
In Q3, we did this by offering our delicious double chopped salad and our fire grilled burrito.
Our relaunched burritos offered consumers new flavors, like creamy chipotle and delicious k-pop lock-up. Both with handmade guacamole included.
All of this was from 1999 or 899 in our app.
This is a deal compared to South Casual competitors.
In Q3, El Play-A-Logo also showcased our unique positioning when it comes to better for you. We did this with our double-top solids featuring our double portion of Fire Girl Chicken.
Also with Supergreen's lettuce, avocado, and salsa's made fresh daily in our restaurant.
Her salad mix it over 21st-un, and our uniquely positioned in that 999-1279 price point.
Truly fast casual quality but at USR prices, something that few USRs can do.
While we are proud of how our style is in our breeders performed, we recognize that the consumer is still under continued economic pressure, and that the industry has become even more competitive with value offers at even lower price points.
These Salas and burritos are great values at that nine to twelve dollar price point. But we realize we need even more value on the low end around that five dollar price point.
To address this, we recently launched our Taco Tuesday promotion that some of our franchise partners had been testing with great success.
This Tuesday promotion offers guests to delicious tacos for $5.
The guest feedback has been great, but what's more important is that this promotion creates new trial, allowing us to showcase to our guests that we're just really good food, that's really good for you. With a product that we're not always known for.
Not surprising, consumers are asking us to offer this promotion every day, which is something we will consider as we learn more.
To keep the excitement going and to drive more value messaging, we are also launching a $5 original playable promotion in November.
The original play-able is a fan favorite, and we believe our guests will be delighted to gain access to this popular product for only $5.
We intend to run this promotion through the end of January 2025.
As part of our franchise conference, we also unveiled our 2025 Marketing Calendar.
While we're keeping the details under wraps for now, I truly believe it's the strongest marketing calendar that El Pueo Locke has had in many years.
What I can say is that our 2025 calendar embraces innovation and value combined.
with what makes a play-aloco truly unique, being known for having the best chicken.
Underlying all of our efforts is an acknowledgement that to be successful in the long term. We need to drive improved traffic trends in 2025. And we believe we have the strategy to do just that.
Turning to hospitality, we are pleased with the progress we have made driving standards, accountability, and productivity, which we believe will help in driving transactions as we look ahead to 2025.
For example, we are re-watching a standardized development system that makes sure ACES are in their places during peak hours, which in turn drives more transaction.
We are also continuing to invest in equipment and handsets, like warming cabinets to keep our chickens more flavorful and delicious while also reducing team member labor.
Finally, we have recently switched to a new customer feedback system that will enable us to more clearly benchmark our voice of customer feedback with other leaders in the restaurant industry.
This will also improve our closed-loop customer feedback system.
In turn, all of this will drive better accountability with our operations team and franchise partners, ensuring better customer service overall.
That brings us next to the digital first pillar.
We continue to utilize our local rewards app to drive trial and repeat visits.
including exclusive offers like our 99-Breados.
for only 899.
or our new Taco Tuesday promotion.
where we've sweetened the deal.
So that local remorse members can get three tacos for $5, not just the standard two for five that you can get in the store. Over time, we know that in order to drive sustainable, conqueror, we must win a whistle-l-l-t.
Well, we are not announcing anything new today. I can assure you of two things.
First, our act is and will continue to be the easiest way for customers to interact in order from El PlayoLogo. And second, our best offers will be only in the app, giving customers a great reason to engage.
While it's still early, we believe our loyalty program and app will be crucial to driving long-term sustainable conference.
We are also on track to complete our K-F rollout by early Q1 of next year. If you recall, we took a step back and slowed down our K-F rollout earlier this year to ensure we had high-tech training and customer service to drive sustainable customer adoption.
Not only have we accomplished this, but we have also enabled additional technology enhancements that will further improve our operations and customer experience, including the ability for our K-OPS to now accept GIF-CART, discount and EVT.
Next, let me touch on delivering winning units, economics, through our margin improvement initiative.
I'm going to steal Ira's thunder a little bit here, but today we are raising our margin expectations for 2024 for the third consecutive quarter.
We now expect to end 2024 in a range of 16 and three quarters to 17 and a quarter per of the year.
During the quarter, we continue to make progress in our cost savings initiatives.
with a dedicated team actively looking across the entire piano.
from Labour productivity, took off some good souls, repairing maintenance, utilities, and other controllable expenses.
Again, we are approaching our cost savings initiatives, methodically, to ensure high quality food and the gastre experience only improves.
We expect to see some cost-saving benefits in the fourth quarter, but more importantly, all of the work we've done this year gives us increased confidence in our ability to drive further improvement next year in 2025.
Lastly, let's talk about driving Unicrow.
Before we can drive sustainable long-term new unacreus, it is important that we achieve relative brand consistency across our system.
We unveiled earlier this week a new iconic restaurant prototype, showcasing an enduring, get modern and efficient design. Some highlights of this new prototype are...
This iconic design does uniquely allow for a look. A clean and simple design embracing a less as more philanthropy.
An evolutionary rather than revolutionary design that allows us to coalesce the system around a new prototype design and bring along task prototype design.
Under scoring all three points is a reduced build cost from where we stand today. As we know stronger cash on cash returns will drive long-term sustainable unit growth across the country.
New units are just one signal of modernization. The other is our ability to use remodels to showcase the sub-all design.
Through a two-tiered approach, including a low-cost five-year refreshment and a more extensive 10-year remodeling investment.
We anticipate being able to touch roughly half of our total system over the next four years in partnership with our franchise partners.
We are excited to roll this modernized image across the system and also optimistic with the sales and economic returns that come with remodels.
Turning to New Growth, I'm pleased with the progress we have made to reduce the cost of our new restaurant prototype.
from reducing the footprint and simplifying the build structure. To rethinking equipment packages, state core, signage design, we have a clear path to lowering our new Unipil cost to around $1.8 million.
We have company and franchise units in the planning process using these new lower cost, beautiful designs that will be open in the next 12 to 18 months.
In addition to targeting new ground-up sites, we have also had success with conversion.
As most of you know, there have been a number of restaurant closures in our industry over the past few years. This has created an opportunity for future new units of elements.
Due to our flexible restaurant format, our franchise partners have been able to take some of these locations and convert them to El Pueblocos with reduced build cost and outsized returns.
Relatives to a ground up bill. In fact, our first Denver location, which has failed volumes of buzz, our system average, was itself a conversion from another QSR brand.
So, as we move forward into 2025, an accelerator restaurant development plan.
We plan to open at least 10 restaurants. We will further embrace our flexible footprint and drive unicross through a variety of formats, including free standing, drive through, and tap and non-traditional location.
We are excited to get back to growth. We are also excited about what the future holds on our unit expansion and we look forward to providing more updates on upcoming calls.
In closing, let me reiterate how please I am with the work that we've accomplished thus far in laying down the foundation to ignite our growth in 2025 and beyond.
Through our renewed approach to menu innovation and brand positioning.
Our Missotical, Cross-saving Initiatives, and flexible and affordable New Units Development Plan. We are well-positioned to capture the growth opportunities ahead and make L. Play O'Logo the National Fire Girls Chicken Brand.
Most importantly, I want to thank our over 4,300 amazing team members and our incredible franchise partners for their hard work and their dedication without whom none of these accomplishments would have been possible.
With that, let me turn over the call to Ira for a more detailed discussion of our third quarter financial result.
IRA: Thank you, Liz, and good afternoon, everyone. For the third quarter ended September 25, 2024, total revenue was 120.4 million, or no change as compared to the third quarter of 2023.
Company operated restaurant never revenue decreased 1.5%. So 101.2 million from 102.7 million in the same period last year.
IRA: The 1.5 million decrease in company operated restaurants sales was primarily driven by a 5.3 million decrease in revenue from the refranchising of 19 company operated restaurants to existing franchises.
IRA: and prior quarters.
IRA: Partially offset by a 2.8% increase in company operated comparable restaurants sales and additional sales from restaurants open during or subsequent to the third quarter of 2023.
The increase in comparable restaurants sales included at 11.3% increase in average check size and approximately 7.6% decrease in transactions.
During the third quarter, our effective pricing crease versus 2023 was 8.4%.
franchise revenue increased 10.5% to 11.3 million during the third quarter, driven by a 2.7% increase in franchise comparable restaurant sales.
as well as three new franchise restaurant openings during or subsequent to the third quarter of 2023. And the 19 refranchised restaurants I've just mentioned earlier.
IRA: Looking ahead.
Fourth quarter today through October 23rd, 2024.
IRA: Systemwide, comparable store sales decreased 0.5%. Consisting of a 0.8% decrease in company-operated restaurants and a 0.3% decrease in franchise restaurants.
We believe we will finish Q4
Slightly positive as we expect our same store sales trends to improve as we are rolling over our 2023 Carnita's LTO in the back half of the quarter which underperformed our expectations last year and we continue to innovate with value promotions.
Turning to expenses.
Food and Paper Cost as a percentage of company restaurant sales decreased.
170 basis points year over year to 25.1% due to many pricing and lower discounting, partially offset by commodity inflation of approximately 4.5%.
IRA: We expect commodity inflation to be in the 2-3% range for the full year 2024.
Labor and related expenses as a percentage of company restaurant sales increased about 15 basis points year over year to 32.4%.
and increase in wages was partially offset by menu pricing and better operating efficiencies, primarily driven through improvements and labor deployment and scheduling, especially during opening and closing periods.
Labor inflation during the third quarter was approximately 14% for all our company owned locations, driven by wage inflation in our California restaurants as a result of the April 1st, California $20 an hour minimum wage for QSR restaurants.
For the full year 2020-24, we expect wage inflation of about 12% for all our company owned locations.
IRA: occupancy and other operating expenses as a percentage of company restaurant sales.
decreased 80 basis points to year over year to 25.8%. Primarily due to the leverage gained on the same store sales increase, combined with the sale of lower volume restaurants to existing franchisees in the prior year.
Our restaurant contribution margin for the third quarter was 16.7% compared to 14.4% in the year ago period.
For the full year 2020, we expect our restaurant contribution margin to be in the 16.75% to 17.25% range.
General and administrative expenses increased 190 basis points year over year to 9.5% of total revenue.
The increase for the quarter was primarily due to an increase in estimated management bonus expense and other general administrative expenses.
During the third quarter, we recorded a provision for income taxes of approximately 2.4 million for an effective tax rate of 28.1%.
This compares to a provision for income taxes of 3 million and an effective tax rate of 24.4% in the prior year period.
We reported gap net income of 6.2 million or 21 cents per diluted share in the third quarter compared to gap net income of 9.2 million or 28 cents per diluted share in the prior year period.
I just had net income for the third quarter was 6.3 million or 21 cents per diluted share compared to a just-editing income of 6.4 million or 19 cents per diluted share in the third quarter of last year.
IRA: Please refer to our earnings release for a reconciliation of non-gap measures.
In terms of our development plan, during the quarter, we opened one new company location in California.
In addition, as Liz mentioned earlier, we are analyzing on a location for our new prototype build that will incorporate the new design elements and cost savings we've discussed. With a plan to open the store over the next 12 to 18 months.
Regarding remodels during the third quarter, we completed no company operated restaurant remodels and seven franchise restaurant remodels.
We have completed five company restaurant remodels and 35 franchise restaurant remodels through the third quarter
For the full year, we expect a complete atoll of six to eight company remodels and 35 to 40 franchise remodels.
We intentionally slowed our re-model program as we are in the process of developing a new more modern look and cost-engineered design.
IRA: We are very excited about this new design and we anticipate completing our first company, Riemal with the new design in the fourth quarter of 2024.
Turning to liquidity as of September 25th, 2020, 24, we had 76 million of debt outstanding and 8 million in cash and cash equivalents.
IRA: Subsequent to the end of the quarter, we paid down an additional 5 million on a revolver, bringing our current outstanding borrowings to 71 million as of October 31, 2024.
During the third quarter, we repurchased approximately 92,000 shares of stock.
for approximately 1.1 million, leaving about 3.1 million remaining under our current share repurchase of the resation as of September 25th, 2024.
IRA: And finally, based on our results today, we would like to update following guidance for 2024.
Opening of two company operated restaurants and three to four franchise restaurants.
Capital Spirining of 21 to 23 million
IRA: Jean A expenses a 45 to 47 million excluding one time costs and adjusted income tax rate of 27.5 to 28%.
IRA: and the
This concludes our repair remarks. We'd like to thank you again for joining us on the call today and we are now happy to answer any questions that you may have. Operator, please open the line for questions.
Speaker Change: Thank you.
Louis will now be conducting a question and answer session.
Louis: If you'd like to ask the question, please press star 1 on your telephone team bad. A confirmation told will indicate your line is in the question team. You may press star 2 to remove yourself from your team. The participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star key.
and we hope for a question.
Speaker Change: And our first question comes from the line of time I Brooks with benchmark company, please for see me with your question.
Hey, thanks for taking my questions, I'm pretty sure that...
Tim Brooks: First question, just looking kind of the sequential progression in the same store sales kind of that north that's where you enter business point drop, quarter to date versus what you were able to generate.
IRA: Yut-3
I guess what are the components of that? Is there some real change in average check-up that's dragging things down? Is there a change in traffic?
is just something comparatively that you've seen that you think is impacted the business as maybe leaving you to seek out more of that $5 value price point than many others are running. I'm just trying to get some some color around this floor down here.
Speaker Change: Thanks Todd Fair question. You know, it definitely is that that value oriented consumer more than ever telling us that they need more value.
and we've been working over the last couple of weeks identifying what we can do to really bring that to bear. So we also came into, if you think about our calendar with 2024, we came in with limited innovation. So we really have a calendar of re-hits.
Speaker Change: and I say the first half of the year through middle of the year, the double to a stop at the top cell list, the sub case of the year, they were on re-hit number two or you know.
Speaker Change: We had value at a higher price point as we talked about over the last couple quarters at that, you know, kind of nine to twelve dollar price point.
Speaker Change: But what we've realized is we've moved further into the year is two things. One, the re-hits are losing some steam, so we're running double-toes data and for most of the month of October, we were running double-toes data. We've hit that now a couple times this year and a couple times over the last years.
and it's a great product, consumers love it, but it is still a really high price point and we need more innovation. So the couple things that we've done to do that and to bring what we call new news.
is the $5 playable. Of course, the playable isn't a new item, but that $5 price point. We were able to get our franchise system in pretty quick order to align that we're going to go on national media with that $5 price point. So that will be trafficking here in the next couple of weeks. I think the week is...
November 11th was the soonest we could get that by just by the commercial today it looks great. And then the other thing that we've done is two for five dollar tacos and we've been testing that out on Tuesday. We had it just...
Speaker Change: Two days ago, it was the first two day at RAN. It was really nice to see how quickly transactions in one day respond when you could not for like that out there. So again, it's a hint to us on how do we grow that? Obviously, it'll throw over the next couple of weeks on two days, and then how do we take that seed and grow it even further? And how do we do that all while keeping our products also up at that nine to twelve dollar price point that people love as well?
So I think you'll see a continued emphasis on value and then moving in the next year we have to have more new innovation which I feel comfortable we do.
Okay, great. And then the price mix does that change or the outer tract does that change much as we think about Q4 versus Q3.
Yeah, it starts to soften a little bit. We'll be a little bit under seven percent pricing as we move into Q4.
Speaker Change: Okay
Speaker Change: Great. Thanks, Ira. The margin for formuses.
Silver Dakeel: Silver Dakeel, C-strong, it's pretty good to see. Just want that frame the question this way and obviously you give us that guide up on.
Silver Dakeel: Where do you think the Q4 restaurant level margins will be?
and Ohio's up on restaurant level margin without generating positive traffic to go with it. So how close do you think we're getting to a margin ceiling?
Silver Dakeel: and Joey and get the traffic flywheel working in our favor as well.
Speaker Change: You know...
Speaker Change: You know, Irrigard, Elizabeth Seltag, Sales, or Enboard, and we're working hard to improve them.
but we have a lot of cost initiatives.
that we're working on, that we feel that we have a lot of opportunity as we talked about to continue to grow the margins next year. Especially on the procurement side, you know, we launched a project earlier in the year where we're looking at everything from a total cost to serve basis. And we're really excited about the opportunities.
and projects that we're working on in place that we know are going to help us drive more margin improvement next year.
But following on that, I want to be clear, we're not going to trade off just getting to some. As much as we'd like to have the highest margins out there in QSR, we're not going to trade that off for traffic. And so, I think getting everyone to invest in the $5 playable in the two for five just shows we're willing to make the investments to drive traffic.
Speaker Change: and another place is an example catering. We just completed a finding a partnership with easy caterer as an example and are working with other mechanisms to get our catering out there. Now we will take, it is a high ticket so that's great as a high check. But when you work with these aggregators, you do give up a lot of margin as well. We're willing to do that to invest to get our product out there so people can try it. So want to be clear with everyone, we want to grow traffic and it's a big end and we want to grow profit.
That's great. If I can squeeze one more in, the Mail Trump back into, it's saying to hear the magnitude of the expected remodeled cadence, have to have the system over the next four years. I know that the...
Speaker Change: is feeling that kind of perfect design phase for what you are planning these remodels to entail whether it's the...
Speaker Change: I'm the five year or the ten year model.
Speaker Change: Point.
is just kind of a structural lift that franchiseeers are being told that they can expect or that maybe you're targeting.
at each of the versions of the remodel. I'm just trying to think about this structural, same-store sales tale when the you may be creating for local with the remodel program. Thanks.
Speaker Change: Right, so what I can say is in the remodeled that we've done over the years, we've seen, you know, a mid-single digit uptick after a remodeled.
Speaker Change: and certainly we're putting a lot of emphasis on remodels next year. I think over the next couple of years as an example, we've got almost half of our system will be touched over a couple of years, but next year will be the first year to really have a large quantity of those.
and we have, you know, with this new prototype that we unveiled earlier this week.
Speaker Change: We have a few remodels that are actually going to be completed this week.
with this new design that then we will roll out next year. And so we'll see we'll get a new batch of data in here in the next couple of weeks on how that looks. But I think it looks like a beautiful restaurant and no reason to believe it would be any different from what we've seen in the past.
Speaker Change: Okay, great, thank you, book.
Yeah, thank you.
Speaker Change: Thank you and as a reminder if anyone has any questions you may press star one on your telephone keypad. This way it will enable you to join the given ask question.
Our next question comes from the line of...
Jake Bartlett with True Securities, Elizabeth See with your question.
Great, thank you so much for taking the question. The line was on the macro environment that you're seeing. Obviously, you're still in your pressure. You can see that with the volatility of your same source sales. But I'm wondering whether you're in different regions, whether you're seeing any specific just to California itself, or whether really the environment is pretty similar across your system.
California definitely has some of the biggest transactions of clients. We don't have the largest samples outside of California, so I will say that. But in some of our restaurants in Texas, for example Houston, the Rio Grande Valley San Antonio, I'm seeing healthier transaction growth there. By and large though, I think the consumer is under pressure in all of the markets. Las Vegas is an example as a market, not in California, but that Las Vegas consumer as an example is hurting as well.
But you know, obviously predominantly we are predominantly still in California we plan to change that over over time. But I definitely think that California consumers have been hurt more than anyone.
and I'm thinking of just other factors that might have contributed to the disseleration that you saw, you know, quarter to date and you know, some of your hammer or QSR competitors are running promotions right now that are very, very successful and really getting a lot of attention. To what extent do you think that that could impact the demand for El Pollo Loco?
as consumers are really kind of going a little bit gaggle over some of these innovation that the larger QSR players are offering right now.
Yeah, I think it's less about innovation and I think it's more just about what you can get for what you pay it a really low end And obviously when some of the competitors just...
have allowed Megafone to be able to put that out there. And quite frankly, we just haven't...
Speaker Change: and the police. We have not had things down in that $5 price point. You know.
Speaker Change: up until now we've had a few things but not as seriously as we're going to get in there.
So, you know, I think that that is certainly part of it.
Also, if you think of just overall pricing on the menu as well and this has been true since I think that that test of time and the restaurant space, even a family meal of chicken, it's an example If it's 29, 99 today but just a couple years ago it was $21 or $22, that's a big increase for someone, that's under $100,000 an income and so I think it all is playing in a fact. So I wouldn't blame it just on the $5 value war. I think it's pricing all up and down the menu.
Speaker Change: Got it. And last question on the promotional approach in New York, but can you remind me when what your experience has been with the FIVE? I've been hearing about the $5, you know, bowls for a long time and it seems that it comes and gets pulsed in periodically.
and what's the last time you offered it in promoted it nationally and what was the outcome when you were doing it last.
You know, I'll have to do some digging to find out when the last time it was we ran it nationally from what I understand, it has always been a very responsive LTO that we run.
Speaker Change: I can tell you just from running, you know, talk at Lincoln's, talk at Tuesday just a couple days ago.
I saw, you know, woke up and signed the Daily Fills a responsive.
Speaker Change: and nature there.
So, you know, I think those two things matter, the other thing I will say about this brand, we still do coupons drops, so we're one of the few brands that still drops coupons every like six to eight weeks.
and again just showcasing the power of value when we dropped the coupons we see a very responsive reaction in terms of transactions and those coupons are all over the menu so there are everything from a couple dollars off the family chicken to you know a burrito to a salad so we kind of have something for everyone
Speaker Change: Just again, reconfirring that, you know, there is that value, contouring, QSR that is looking for a good deal. So we need to do, I would say, all of the above in terms of reaching our consumers.
Speaker Change: and the coupons in the app in the $5 play-of-all and talk about Tuesday. So we're really turning that on and the ninth part is we're doing a lot of cost work on the other side, so we can afford to do that. And I think because we're doing all that cost work, we were able to get our franchise system aligned to come along with us.
Got it. And then switching to margins, you know, kind of multi-part question, but the first is
You beat handle and beat your guidance in the third quarter for restaurant level margins. I'm not sure whether you beat your St. Joseph's, you didn't beat ours. So something drove us away. So what was the surprise if there was to really drove the upside in the margins in the third quarter? And then you're raising your guidance for 24.
Speaker Change: Is that more of a pull forward or do you still expect and do you still expect to be around the 18% in 25? Or should we think of 18 as increased as well as you've found more efficiencies?
So, that's great questions. I'll take the second one first and then dive into the first part. You know, we still believe as we look out into next year, we will be approaching 18% margins for the full year of next year. So nothings really changed in our space.
Speaker Change: and we feel really good about the direction we're headed in the opportunities that we have there. I think where we did see some favorability on the, was on a little bit on the commodity side.
Speaker Change: as well as a little less discounting. A little bit of mix, a little bit of the mix of the products that we were serving, had a little less of the...
had a little more of the leg and thigh meat in them, which is a little less expensive than some of the other meats that we use sometimes. And so that also helped drive a little bit of the upside from a margin standpoint, as well as a little less discounting than we originally thought that we'd see.
Speaker Change: Yeah, and, you know, coupled with that, our Ops team continues to do an incredibly good job at managing on the labor side, and a lot of the initiatives that we put into place in Q2, they continue to build on those, specifically around deployment, labor deployment, and we saw a little upside on the labor side as well.
Speaker Change: All right. Thank you so much. I appreciate it.
Speaker Change: Thank you. Our next question comes from the line of Andy Barish with Jeffries. Please proceed with your question.
Hey guys, I'm just wondering if you could share
Andy Barish: Contracting on chicken for next year, Ira, and maybe how that.
Speaker Change: sort of informing the early, you know, feelings around menu price. Obviously you'll carry some of the California pricing through the first quarter, but just kind of
Speaker Change: Wondering if you've, you know, sort of level set on where pricing for next year maybe shakes out?
Speaker Change: Yeah, I think we're looking at very moderate pricing next year.
Speaker Change: Pricing increases, we haven't landed on it completely, but you know we definitely feel the opportunities that we have on the commodity side and the product side will give this ability to be really thoughtful about pricing as we look at it next year. We have not locked the chicken yet. We are in the middle towards the end of the RFP process on chicken.
Speaker Change: and we feel really good about the direction we're headed there.
Got it. And then...
Speaker Change: Could you, um...
Just give give us a sense of sort of where you are on on the
office quarter that to be plus three just any any thoughts on kind of how that that looks for the fourth quarter as you you know bring in a little bit more five dollar price points and things like that
Yeah, that'll moderate some as we move into the quarter, you know, and some of the mix
Speaker Change: was driven, um, you know,
you know less discounting what part was part of it but some of the innovation that we've been doing around the menu really drove some of the positive places in the mix you know just a couple points I'll point out would be you know we put you know we added the crunchy tacos earlier in the year and that's continued to really be um you know add no tends to be add-ons that has been a real positive to the mix.
Speaker Change: You know, we did when we launched the burrito promotion this year, we put a lot more emphasis on upselling to the combos. And that was also helpful in help helping driving our mix. And the other thing that we did, you know, we we continued the shrimp component of the with the tostada promotion we did in Q3. So we did a lot of things from an innovation standpoint, which really helped drive that that mix and check during the quarter. Also, with our family chicken, I think we did a better job of showcasing bigger options for families. So, you know, historically, we've shown our eight piece. We've seen that when we promote on the menu, the ten and the twelve, we drive a higher, you know, not surprising. We drive a higher ticket there.
Speaker Change: and others. Thank you for your time. I'm Elizabeth Hollandsworth.
Speaker Change: Got it. And then, you know, finally, just, you know, as we get towards the end of the year, Liz, and you've had time, is there anything...
sort of on the on the unit fleet, you know, other than obviously, you know, some of the remodel work you're doing. I mean, are there
areas or you know store closures that maybe you know could help clean things up or you know anything else on on refranchising or just kind of how you
You know how you view the the fleet as you head towards the end of the year and into 25
You know, we're fortunate in that our system volumes are healthy and we have a pretty tight, I guess, when you look at the volumes around the average, it's a pretty tight distribution. We don't have, you know, I know there's some systems that have some that are just, you know.
a million or, you know, one, two, one, three, we don't have a lot of those out there in our system. And if we do, they're an inline with, you know, really favorable economics that would allow them to live on at that low end. So relatively healthy system, which I'm super pleased. Our franchise system is a tight group of franchise, a very good seasoned, long-term group.
Speaker Change: that is financially conservative and healthy. So we all we feel really good about our system health overall. And the best part about it is I mentioned earlier, we had our franchise conference a few weeks ago, we unveiled a lot of the new work that we're working on, not only with the new unit, we shared with them the new marketing calendar for next year, and just a bunch of, you know, other growth initiatives, and the excitement we got from them, the feedback was terrific.
They're really starting to lean into a pipeline for the next couple of years in terms of growth again. So I feel like in terms of system health and franchise health, I'd give us a very strong grade there.
Good to hear it. Thank you.
Thank you. And ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn the call back over to Liz Williams for closing remarks.
Liz Williams: Thank you and just thank you everyone for taking the time today. It's always good to hear from you and we feel very optimistic about the days and months ahead. We think there's a lot of opportunities still in front of us and we look forward to talking with you again next quarter. Have a great evening and a happy Halloween to all of you. Thanks again. Bye-bye.
Speaker Change: And ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time.
Thank you for your participation.