Fast food chain El Pollo Loco (NASDAQ:LOCO) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 2.6% year on year to $119.2 million. Its non-GAAP profit of $0.19 per share was in line with analysts’ consensus estimates.
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El Pollo Loco (LOCO) Q1 CY2025 Highlights:
- Revenue: $119.2 million vs analyst estimates of $118.5 million (2.6% year-on-year growth, 0.6% beat)
- Adjusted EPS: $0.19 vs analyst estimates of $0.19 (in line)
- Adjusted EBITDA: $13.93 million vs analyst estimates of $13.71 million (11.7% margin, 1.6% beat)
- Operating Margin: 7.5%, in line with the same quarter last year
- Free Cash Flow Margin: 1.1%, down from 6% in the same quarter last year
- Locations: 499 at quarter end, up from 495 in the same quarter last year
- Same-Store Sales were flat year on year (5.1% in the same quarter last year)
- Market Capitalization: $284.9 million
StockStory’s Take
El Pollo Loco’s first quarter was shaped by a challenging consumer environment, with management citing continued pressure on consumers across all demographics, including the Hispanic segment. CEO Liz Williams acknowledged that the brand turnaround remains a work in progress, highlighting recent menu innovation—like the Mango Habanero chicken—and operational investments such as new kitchen equipment and customer feedback systems. Williams emphasized that while initial results were modest, these efforts are laying the groundwork for improved performance in the coming quarters.
Looking ahead, management is focused on a brand relaunch and the introduction of new menu items, including fresco wraps, salads, and quesadillas, as key strategies to drive guest traffic and improve value perception. Williams noted, “Our brand relaunch couldn’t come at a better time,” while CFO Ira Fils projected moderate labor and commodity cost inflation for the rest of the year, supported by ongoing productivity initiatives and supply chain optimizations. The company is targeting a sequential acceleration in same-store sales later in the year, driven by these initiatives.
Key Insights from Management’s Remarks
El Pollo Loco’s leadership identified menu innovation, operational improvements, and development momentum as central to the first quarter’s performance and near-term strategy. Management cited both internal and external headwinds that contributed to flat same-store sales and pressured margins, but expressed conviction in the underlying brand transformation and upcoming product launches.
- Menu innovation impact: The launch of Mango Habanero chicken attracted new guests and demonstrated consumer appetite for new flavors. Management believes ongoing menu updates, like the upcoming fresco wraps and quesadillas, will further drive trial and value perception.
- Brand relaunch strategy: The company is undertaking a comprehensive brand relaunch this quarter, including a new aesthetic and marketing campaign aimed at modernizing the brand and reinforcing its focus on quality and affordability.
- Operational efficiency initiatives: Investments in kitchen equipment and rollout of holding cabinets have improved productivity in company-owned restaurants. New technology, such as kiosks, is being used to streamline ordering and could eventually enhance guest engagement.
- Customer feedback integration: The implementation of a new customer feedback system has highlighted opportunities in service consistency, particularly order accuracy and hospitality. Management is addressing these issues through back-to-basics training and new standards programs.
- Development pipeline growth: The company opened two new restaurants in Q1 and expects at least 10 openings in 2025, with the majority outside California. Early signs suggest the pipeline is strengthening for accelerated growth in 2026, with the next opening marking the chain’s 500th location.
Drivers of Future Performance
Management’s outlook for the remainder of the year centers on driving traffic with menu innovation, operational improvements, and a brand relaunch, while navigating ongoing consumer and cost pressures.
- Menu innovation and value focus: Upcoming launches of fresco wraps, salads, and quesadillas are expected to address consumer demand for affordable, portable options, targeting both core and younger audiences.
- Operational productivity gains: Continued rollout of kitchen equipment, labor deployment improvements, and supply chain optimization (Project FIRE) are projected to help offset wage and commodity inflation, supporting margin stability.
- Remodels and new builds: Modernization of existing restaurants and the introduction of a lower-cost prototype (“Iconic”) are intended to improve unit economics and accelerate development, particularly in emerging markets outside California. Management noted these initiatives are expected to boost both sales performance and cash returns.
Top Analyst Questions
- Jeremy Hamblin (Craig-Hallum Capital Group): Asked about expectations for Q2 same-store sales and the timeline for impact from new menu items; management indicated continued headwinds in Q2 but expects sequential improvement later in the year as new products launch.
- Jake Bartlett (Truist Securities): Inquired about regional and demographic performance, specifically pressures on the Hispanic customer; CEO Liz Williams confirmed broad consumer pullback and added that the Hispanic segment is experiencing additional strain.
- Jake Bartlett (Truist Securities): Requested clarity on menu pricing trends and cost of goods; CFO Ira Fils stated menu price increases will moderate to around 3% for the year, with further efficiencies expected from supply chain projects.
- Andy Barish (Jefferies): Probed into operational execution and the impact of weather and product cycles on March sales; management cited unusually rainy weather in Southern California and acknowledged that repeat visits for Mango Habanero could have been stronger.
- Andy Barish (Jefferies): Sought an update on kiosk rollout and its effect on productivity; management said kiosks are in most company restaurants and are being optimized for better guest engagement and merchandising.
Catalysts in Upcoming Quarters
In future quarters, the StockStory team will be watching (1) the performance of new menu items like fresco wraps and quesadillas and their impact on guest traffic, (2) the effectiveness of the brand relaunch in shifting consumer perception and driving sales, and (3) the pace of new restaurant openings, particularly outside California. Additionally, operational execution—especially improvements in service consistency and margin recovery—will be key factors to monitor.
El Pollo Loco currently trades at a forward EV-to-EBITDA ratio of 4.4×. Should you double down or take your chips? See for yourself in our free research report.
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