El Pollo Loco (LOCO) Q3 Earnings & Sales Lag, Stock Down

El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) fell nearly 8% in the afterhours trading on Nov 3, after the company reported weak third-quarter 2016 results with both earnings and sales missing the Zacks Consensus Estimate.

Earnings and Revenue Discussion

El Pollo Loco’s third-quarter adjusted earnings of 18 cents per share missed the Zacks Consensus Estimate of 19 cents by 5.3%. However, earnings were flat on a year-over-year basis.

Revenues of $95.8 million were up 7.8% year over year mainly due to an increase in company-operated restaurant sales. Revenues, however, lagged the Zacks Consensus Estimate of $97 million by 1.2%.

EL POLLO LOCO Price, Consensus and EPS Surprise

Behind the Headline Numbers

Notably, system-wide comps rose 1.6% due to an increase in comps at both company operated and franchise restaurants.

Company-operated restaurant sales were $89.7 million, compared with $83.0 million in the year-ago quarter. The 8.1% growth was mainly due to the opening of 22 new restaurants during and subsequent to the third quarter of 2015.

Meanwhile, comps at company-operated restaurant grew 1.4% due to a 1.4% increase in average check while transaction growth remained flat.

Franchise operated restaurant sales increased 3.3% year-over-year to $6.1 million mainly due to the opening of 10 new restaurants during and subsequent to the third quarter of 2015.

Meanwhile, comps at Franchise restaurants were up 1.8% in the quarter..

Restaurant contribution was $18.8 million (20.9% of restaurant revenue), higher than $17.6 million (21.2% of restaurant revenue) in the third quarter of 2015. The decrease in restaurant contribution margin was mainly due to elevated labor, occupancy and other operating expenses as well as higher costs related to new opening, somewhat offset by an improvement in food and paper costs along with an increase in comps.

2016 Outlook Slashed

The company expects 2016 pro forma earnings per share to be in a range of 67 cents to 68 cents, down from the prior guidance of 68 cents to 72 cents. Meanwhile, the Zacks Consensus Estimate for 2016 is pegged at 70 cents and is higher than the guided range.

Adjusted Earnings before Interest, Tax, Depreciation and Amortization is expected to be in a range of $66.0 to $67.0 million, down from the prior expected range of $67.0 to $69.0 million. Meanwhile, restaurant contribution margin is expected to be in a range of 20.6% to 20.8%, down from the previous expected margin of 20.8% to 21.2%.

The company expects system-wide comparable restaurant sales to grow approximately 1%.

Meanwhile, El Pollo Loco lowered the upper end of its restaurant opening guidance. It now expects to open 17–18 new company-owned restaurants as opposed to 17–20 expected earlier. Also, it expects 11–12 new franchised restaurants in the year, compared with 10–15 expected earlier.

Zacks Rank and Stocks to Consider

Currently, El Pollo Loco carries a Zacks Rank #3 (Hold).

Better-ranked restaurant stocks include Domino’s Pizza, Inc. (NYSE:DPZ) , Potbelly Corporation (NASDAQ:PBPB) and Wingstop, Inc. (NASDAQ:WING) .

Domino’s current year growth estimate is pegged at 22.8% compared with the industry average of 7%. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Potbelly currently carries a Zacks Rank #2 (Buy). Its current year growth estimate is pegged at 28.4% compared with the industry average of 7%.

Wingstop current year growth estimate is pegged at 20.5% compared with the industry average of 7%. It currently carries a Zacks Rank #2.

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