El Pollo Loco Holdings, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 30, 2015 (52 weeks). The requested “2015 Q4” is covered within this annual filing; quarterly figures below are unaudited. Fiscal 2014 had 53 weeks, which limits direct year-over-year comparability.
Business context and results
The company operates and franchises a fire-grilled chicken restaurant concept. At year-end it had 433 restaurants: 186 company-operated and 247 franchised. Approximately 79% of fiscal 2015 revenue came from the greater Los Angeles area.
| Metric | FY2015 | FY2014 |
|---|---|---|
| Total revenue | $355.1 million | $344.9 million |
| Company-operated restaurant revenue | $332.0 million | $322.5 million |
| Franchise revenue | $23.0 million | $22.3 million |
| Operating income / margin | $48.8 million / 13.8% | $49.3 million / 14.3% |
| Net income | $24.1 million | $42.5 million |
| Diluted EPS | $0.62 | $1.24 |
| Restaurant contribution margin | 21.7% | 21.9% |
| Adjusted EBITDA | $65.5 million | $62.9 million |
| Cash from operations | $58.0 million | $26.1 million |
| Capital expenditures | $30.8 million | $26.8 million |
FY2015 system comparable sales rose 2.2%, versus 7.0% in FY2014. Company-operated comps increased 1.0%, as 2.9% higher average checks were offset by a 1.9% traffic decline; franchise comps rose 3.1%. Company-operated annual average unit volume was approximately $1.9 million.
For the unaudited December quarter, revenue was $86.3 million and net income was $5.4 million, compared with $90.0 million and $4.6 million, respectively, in the prior-year December quarter. The prior-year quarter included an additional fiscal week.
Financial position, liquidity, and material changes
- Year-end cash was $6.1 million, down from $11.5 million. Total debt, including capital leases, was $123.6 million, down from $165.8 million; the company had $69.8 million available under its $200 million revolving facility, net of outstanding letters of credit.
- The company reported $57.97 million of operating cash flow and used $30.84 million in investing activities and $32.53 million in financing activities. Financing outflows included a $42 million revolver repayment.
- Interest expense fell to $3.7 million from $18.1 million, principally following the IPO-related repayment of the second-lien loan, the 2014 refinancing, and the 2015 debt prepayment. The revolver matured in December 2019; its year-end interest rate was 2.02%. The company reported compliance with its debt covenants.
- Net income declined despite higher operating cash flow and Adjusted EBITDA. FY2014 included a roughly $65 million release of the deferred-tax valuation allowance, producing a $63.0 million tax benefit; FY2015 had a $20.9 million tax provision, including a $2.9 million valuation allowance against tax credits.
- The income tax receivable agreement requires payment to pre-IPO owners of 85% of qualifying tax savings. The recorded payable was approximately $41.5 million; scheduled contractual payments totaled $43.7 million.
Outlook, risks, and unusual items
- Management intended to open 18–22 company-operated and 10–15 franchised restaurants in fiscal 2016, with a longer-term target of 8%–10% annual system growth. These are plans, not guarantees. The remodeling program was expected to continue through 2018.
- Management cited labor and commodity costs as important pressures. Food and paper costs were 31.9% of company-operated revenue and labor costs were 25.4%, both slightly higher as a share than in FY2014. California and local minimum-wage increases could further pressure margins.
- Chicken represented approximately 40% of food and paper costs. The company stated that 100% of planned 2016 poultry supply was price-fixed through year-end 2016, but it remained exposed to other commodity costs and supply interruptions.
- Geographic concentration, competition, traffic trends, restaurant-opening execution, franchisee performance, food safety, and dependence on a primary distributor are notable risks. A 1 percentage-point increase in borrowing rates was estimated to raise annual pretax interest expense by about $1.3 million.
- Legal and regulatory matters include a wage-and-hour class action with a settlement agreement in principle pending formalization and court approval; consolidated securities class actions and a shareholder derivative action concerning alleged statements about comparable sales; and an informal, non-public SEC document request. The company said it was cooperating with the SEC and intended to defend the securities claims. The filing does not state a clear damages amount for these matters.
- The company reported no goodwill or indefinite-lived trademark impairment in FY2015. The FY2014 comparison included a $2.7 million gain from selling six San Antonio restaurants and substantial one-time refinancing and tax-related items.
Important facts for investors to verify
- Whether comparable-sales trends and traffic improve, particularly at company-operated restaurants, and how performance compares after adjusting for the extra week in FY2014.
- Actual restaurant openings, unit economics, and returns versus management’s expansion targets, especially in newer Texas markets.
- Whether labor, food, and other operating costs can be offset without further weakening traffic or restaurant contribution margins.
- Available revolver capacity, debt-covenant headroom, interest-rate exposure, lease commitments, and the timing and amount of TRA payments.
- Developments and potential financial effects of the wage-and-hour, securities, derivative, and SEC matters; the filing does not provide a clear quantified exposure for the securities-related matters.