El Pollo Loco (LOCO) On Track To Boost Digital Capabilities

The digital wave has hit the U.S. fast casual restaurant sector as more and more restaurants are deploying technology to enhance guest experience. The leading fire-grilled chicken chain in the U.S., El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) is not lagging on this front either.

In the fourth quarter of 2016, the company had rolled out its mobile ordering system, which includes a mobile app. The app features customizable ordering, multiple payment options and flexible pick-up time selection along with third-party delivery. It believes that this system will not only drive convenience and loyalty but boost the top line as well. Moreover, it has now launched an entirely redesigned mobile app with more convenient features.

Recently, El Pollo Loco announced the launch of several new digital initiatives including an all-new loyalty program called Loco Rewards. Loco Rewards members will be able to earn points, redeem rewards and manage offers directly from the new app. The company believes that the new program will not only allow it to reward its loyal fans but also “learn about their behavior” and “become more targeted in communication”.

El Pollo Loco is aggressively pursuing its delivery initiative as delivery is considered to be the fastest growing channel in the business. The company has introduced delivery service from select restaurant locations. In fact, El Pollo Loco has worked in partnership with Olo to enhance their online ordering features and is offering the service via Olo’s Dispatch Delivery service. All these new changes have been designed to address customers’ changing needs and enhance brand accessibility. Going forward, it will continue to expand delivery service from additional restaurant locations.

While all these digital enhancements bode well, the company also expects to drive growth through a number of other initiatives including its authentic advertising campaign, highlighting the brand’s differentiated offering as well as aggressive expansion across the country. Meanwhile, menu innovation and limited time offers have been contributing to traffic at the restaurants.

We note that the shares of the company have outperformed the Zacks categorized Retail–Restaurants industry in the last one year. While El Pollo Loco shares rallied 19.4%, the industry witnessed a gain of 10.4%. Moreover, earnings estimates for current quarter and current year went up by 5.3% and 3%, respectively, over the past 60 days, reflecting the ongoing optimism in the stock.

However, a challenging sales environment given lower consumer spending in the U.S. restaurant space remains a potent headwind to the company’s top line while high costs may hurt profits. Moreover, while other restaurateurs like Yum! Brands, Inc. (NYSE:YUM) , McDonalds Corporation (NYSE:MCD) and Papa John’s International, Inc. (NASDAQ:PZZA) pursue aggressive global expansion policies, El Pollo Loco loses out in terms of international presence.

Nevertheless, moving ahead, we expect this Zacks Rank #3 (Hold) company’s efforts to boost digital capabilities, to add immensely to the top line and boost its overall performance. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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