El Pollo Loco (LOCO) Q3 Earnings Lag, View Cut, Stock Down

El Pollo Loco Holdings, Inc.’s (NASDAQ:LOCO) earnings and revenues missed the Zacks Consensus Estimate in the third quarter of 2017.

Notably, the company’s shares lost more than 7% in after-hours trading on Nov 2, reflecting investor concerns regarding the slashed guidance for 2017 earnings.

Earnings and Revenue Discussion

El Pollo Loco’s third-quarter adjusted earnings of 15 cents per share missed the Zacks Consensus Estimate of 18 cents by 16.7%. Earnings also declined 16.7% year over year primarily due to the impact of hurricane Harvey.

Revenues of $101.2 million rose 5.6% year over year but lagged the Zacks Consensus Estimate of $103.2 million by 2%.

Behind the Headline Numbers

Notably, system-wide comps increased 1.7% due to an increase in comps at both company-operated and franchise restaurants.

Company-operated restaurant sales totaled $95 million in the third quarter of 2017, compared with $89.7 million in the year-ago quarter. Sales rose 5.9% year-over-year mainly on the back of the opening of 25 new restaurants during and subsequent to the third quarter of 2016, offset by the closing down of five over the same time frame.

Moreover, comps at company-operated restaurants increased 0.9% on a 1.7% rise in average check. However, it was partially offset by a 0.8% decline in transactions. Moreover, the figure compared unfavorably with the prior quarter comps growth of 2.4%.

Franchise-operated restaurant sales increased 1.6% year over year to $6.2 million compared with $6.1 million in the prior-year quarter. The upside was mainly driven by higher comps and the launch of 15 restaurants during and subsequent to the third quarter of 2016, partly offset by a decline in franchise and development agreement fees and lower fees received related to use of the company’s point-of-sales system.

Comps at Franchise restaurants were up 2.4% during the quarter, lower than the prior quarter comps growth of 3.2%.

Restaurant contribution was $17.4 million (18.3% of company-operated restaurant revenues), compared with $18.8 million (20.9%) in the third quarter of 2016. The drop in restaurant contribution margin was mainly due to elevated labor charges reflecting the increased minimum wage, and higher other operating expenses associated with restaurant openings.

2017 Outlook Revised

El Pollo Loco now expects 2017 pro forma earnings per share in the band of 61 cents to 63 cents, down from the earlier guided range of 64 cents to 67 cents. In 2016, adjusted earnings per share were 66 cents. The Zacks Consensus Estimate for 2017 earnings is also pegged at 66 cents, above the guide range.

Adjusted EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) is expected in the band of $64.0 million to $65.5 million (earlier $66.5 million to $68.5 million). Meanwhile, restaurant contribution margin is projected in the range of 19.3% to 19.6% (earlier 20.3% to 20.7%).

Furthermore, the company expects system-wide comparable restaurant sales growth in the range of 1-1.5% (earlier 1-2%).

The company revised the range of its restaurant opening and now plans to open 15-16 company-owned restaurants in 2017 (earlier 17 to19). Meanwhile, the expected number of new franchised restaurants for the year lies between 7 and 9 (earlier 9 and 11).

Currently, El Pollo Loco carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases

Darden Restaurants, Inc.’s (NYSE:DRI) first-quarter fiscal 2018 adjusted earnings of 99 cents per share outpaced the Zacks Consensus Estimate of 98 cents by more than 1%. The bottom line rose 12.5% year over year on the back of higher revenues.

Chipotle Mexican Grill, Inc.’s (NYSE:CMG) third-quarter 2017 adjusted earnings of $1.33 per share lagged the Zacks Consensus Estimate of $1.56 by 14.7%. The figure also increased significantly from the prior-year quarter figure.

Buffalo Wild Wings, Inc.’s (NASDAQ:BWLD) third-quarter 2017 adjusted earnings of $1.36 per share surpassed the Zacks Consensus Estimate of 78 cents by 74.4%. The figure also increased 5.4% from the prior-year quarter, supported by operating improvement and cost savings.

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