El Pollo Loco Holdings, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 27, 2023 (52 weeks). This is an annual report, not a standalone fourth-quarter filing. The company operated 172 restaurants and franchised 323 across seven U.S. states.
Financial and operating results
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $468.7 million | $470.0 million |
| Operating income / margin | $39.8 million / 8.5% | $30.1 million / 6.4% |
| Net income / net margin | $25.6 million / 5.5% | $20.8 million / 4.4% |
| Diluted EPS | $0.74 | $0.57 |
| Cash from operations | $40.7 million | $38.5 million |
| Capital expenditures | $21.3 million | $19.9 million |
| Cash and cash equivalents at year-end | $7.3 million | $20.5 million |
| Revolver borrowings at year-end | $84.0 million | $66.0 million |
- System-wide sales rose 1.1% to $1.05 billion, while system-wide comparable sales declined 0.3%. Company-operated comparable sales increased 0.3% as average check grew 2.3% but transactions fell 2.0%; franchised comparable sales declined 0.7%.
- Company-operated restaurant contribution was $61.9 million, with a 15.5% margin versus 13.2% in FY2022. This is a non-GAAP restaurant-level measure, not overall company profit.
- Revenue mix shifted with refranchising: company-operated revenue fell 1.2% to $398.4 million, while franchise revenue rose 7.3% to $41.0 million. Franchise advertising fee revenue was $29.2 million.
- Operating cash flow improved, but cash fell $13.2 million overall, principally reflecting $59.2 million of share repurchases and net revolver borrowing. Total assets were $592.3 million and stockholders’ equity was $250.7 million at year-end.
Material changes and unusual items
- FY2023 net income increased 22.8%; operating income increased 32.1%. Lower food costs as a percentage of company restaurant revenue (27.2% versus 29.2%) and lower labor costs as a percentage (31.9% versus 32.4%) supported restaurant margins. Pricing contributed to these improvements.
- Net interest expense increased to $4.8 million from $1.7 million amid higher borrowing and interest rates. The revolver rate was 7.0% at year-end; a 1 percentage-point increase would add about $0.8 million in annualized pretax interest expense.
- The company sold 18 company-operated restaurants to existing franchisees for $7.7 million of proceeds and recognized a $5.0 million gain. The refranchising reduced company-operated revenue but increased the franchised base.
- Share repurchases totaled $59.2 million in FY2023, and outstanding shares fell to 31.4 million from 37.0 million. The year included two repurchases from funds managed by Freeman Spogli, a former major shareholder; the second purchase was 1.5 million shares for $12.6 million.
- The company recorded $1.5 million of noncash impairment charges, primarily involving one Nevada restaurant’s property and equipment and one California restaurant’s lease asset. A further $0.2 million of closed-store reserve expense was recorded.
Outlook, liquidity, and risks
- For FY2024, management plans to open two company-operated restaurants and five to seven franchised restaurants, and complete 15–20 company and 40–50 franchise remodels. Expected capital expenditures are $25–$28 million, primarily funded from operating cash flow. The filing does not provide specific revenue or earnings guidance.
- California AB 1228 sets a $20 hourly minimum wage for covered fast-food workers beginning April 1, 2024; management expects higher labor and compliance costs and potential pressure on profitability. Inflation in food, labor, construction, and other operating costs is also expected to continue.
- The $150 million secured revolving facility matures in July 2027. At year-end, $84.0 million was borrowed, $9.8 million was committed to letters of credit, and $56.2 million was available. The company was in compliance with financial covenants. Management believes liquidity is adequate for at least 12 months, while noting that weaker performance or macroeconomic conditions could affect covenant headroom.
- Lease obligations are significant: future minimum operating lease payments were $243.9 million before imputed interest; the balance sheet recorded $187.6 million of operating lease liabilities. The company also reported $31.3 million of chicken purchase commitments.
- Geographic concentration is material: the greater Los Angeles area generated 71.3% of FY2023 revenue. Poultry supply and cost, labor availability and wage regulation, competition, food safety, cybersecurity, and potential impairment—particularly in newer markets—are identified risks.
- The company is contingently liable on three assigned leases; potential undiscounted payments in the event of franchisee default were $3.8 million. It is also involved in wage-and-hour and other ordinary-course claims; management does not expect their resolution to materially affect the company, but outcomes are uncertain.
- Maria Hollandsworth served as interim CEO following the prior CEO’s transition. The company announced Elizabeth Williams as CEO effective March 11, 2024. The board’s shareholder rights plan, adopted in August 2023, generally triggers at 12.5% ownership and is scheduled to expire August 7, 2024.
Important facts for investors to verify
- Whether transaction declines, modest comparable-sales performance, and planned pricing can support growth without further weakening traffic.
- How the California wage increase and continued input-cost inflation will affect labor expense, restaurant contribution margin, and pricing needs in FY2024.
- Revolver balances, variable-rate exposure, available borrowing capacity, and compliance headroom under the credit facility’s financial covenants.
- Whether the planned openings and remodels meet return expectations, and whether newer-market restaurants or other locations require additional impairment charges.
- Cash deployment and capital allocation, including continued repurchases, planned capital expenditures, and the company’s stated expectation that it does not anticipate dividends in the foreseeable future.
- Developments in wage-and-hour litigation, contingent lease exposure, and the shareholder rights plan. The auditor issued an unqualified opinion on the financial statements and found internal control over financial reporting effective; restaurant asset impairment estimates were identified as a critical audit matter.