LOCO

El Pollo Loco Holdings, Inc. - 10-Q Summary (Q3 2025)

Business Context and Reporting Period

This report covers the quarterly period ended September 24, 2025, and the thirty-nine weeks ended on that date. El Pollo Loco Holdings, Inc. operates and franchises quick-service restaurants specializing in fire-grilled chicken. As of the period end, the system included 174 company-operated and 324 franchised restaurants in the United States, plus eight licensed restaurants in the Philippines. The company operates as a single reporting segment.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenue increased 0.9% for the quarter and 2.2% year-to-date (YTD) compared to the prior year. Franchise revenue grew significantly (13.5% Q/Q, 14.8% YTD) driven by new POS system IT pass-through revenue and new unit openings.
• Comparable Sales: System-wide comparable restaurant sales decreased 0.8% for the quarter and 0.6% YTD. Company-operated comparable sales decreased 1.1% for the quarter but increased 0.2% YTD due to higher average check sizes offsetting lower transaction volumes.
• Profitability: Net income increased 18.9% for the quarter and 1.1% YTD. Operating income rose 13.0% for the quarter but declined 1.2% YTD.
• Expense Management: Labor expenses decreased 6.4% for the quarter and 1.3% YTD due to improved efficiencies, partially offset by higher minimum wage rates in California. Food and paper costs decreased 2.1% for both periods due to cost management and commodity deflation.
• Interest Expense: Net interest expense decreased 27.0% for the quarter and 24.2% YTD, attributed to lower interest rates and reduced revolver balances.

Guidance, Outlook, and Risks

• Outlook: Management expects inflationary pressures and cost increases (labor, food, construction) to continue through the remainder of fiscal 2025. The company plans to offset these via menu price increases and productivity improvements.
• Growth Strategy: The company is executing a brand refresh and focusing on five strategies: Brand That Wins, Hospitality Mindset, Digital First, Winning Unit Economics, and National Expansion. The 500th restaurant opened in October 2025.
• Capital Allocation: The previous $20 million share repurchase program expired on March 31, 2025. No new repurchase program is currently active. The company repurchased $1.8 million of stock YTD under the expired program.
• Risks: Key risks include geographic concentration (approx. 72% of revenue from the Greater Los Angeles area), vulnerability to natural disasters, supply chain disruptions, and potential impacts of new tariffs on imported goods (produce, packaging).
• Unusual Items: YTD G&A expenses included approximately $1.6 million in legal and professional fees related to shareholder activism. There were no material impairment charges recorded in the current period.

Investor Verification Checklist

• Verify the sustainability of the 18.3% Restaurant Contribution Margin given ongoing inflationary pressures on labor and food costs.
• Monitor the impact of the new Point of Sale (POS) system rollout on franchise revenue and expenses, as this drove a significant portion of recent franchise revenue growth.
• Assess the company's ability to maintain comparable sales growth in the Greater Los Angeles market, which represents over 70% of total revenue.
• Review the status of the Tax Receivable Agreement (TRA), which was terminated in May 2024 with no remaining obligations as of the period end.
• Track the utilization of the $78.7 million available revolver capacity against planned capital expenditures for remodels and new unit openings.