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El Pollo Loco Holdings, Inc. Announces First Quarter 2021 Financial Results
Source: Nasdaq GlobeNewswire / 06 May 2021 16:05:01 America/New_York
COSTA MESA, Calif., May 06, 2021 (GLOBE NEWSWIRE) -- El Pollo Loco Holdings, Inc. (Nasdaq: LOCO) today announced financial results for the 13-week period ended March 31, 2021.
Highlights for the first quarter ended March 31, 2021 compared to the first quarter ended March 25, 2020 were as follows:
• Total revenue was $107.7 million compared to $105.2 million. • System-wide comparable restaurant sales(1) increased 7.4%, including a 3.3% increase for company-operated restaurants, and a 10.5% increase for franchised restaurants. System-wide comparable restaurant sales increased 5.9% compared to the same period in 2019. • Income from operations was $6.0 million compared to $5.7 million in the prior year period. Restaurant contribution(1) was $15.2 million, or 16.1% of company-operated restaurant revenue, compared to $16.3 million, or 17.6% of company-operated restaurant revenue. Included in income from operations and restaurant contribution margin were approximately $2.8 million in COVID-19 related expenses. • Net income was $4.0 million, or $0.11 per diluted share, compared to net income of $3.6 million, or $0.10 per diluted share. • Pro forma net income(1) was $4.7 million, or $0.13 per diluted share, compared to $5.5 million, or $0.16 per diluted share. • Adjusted EBITDA(1) was $11.9 million, compared to $13.4 million. (1) System-wide comparable restaurant sales, restaurant contribution, pro forma net income and adjusted EBITDA are not presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and are defined below under “Key Financial Definitions.” A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measure is included in the accompanying financial data. See also “Non-GAAP Financial Measures.” Bernard Acoca, President and Chief Executive Officer of El Pollo Loco Holdings, Inc., stated, “We are pleased with our solid start to 2021, as we saw a significant improvement in sales trends during the first quarter, resulting in system-wide comparable restaurant sales growth of 7.4% compared to last year and an increase of 5.9% compared to 2019. Our momentum has continued into the second quarter with April system-wide comparable restaurant sales growth of 39.1% and two-year growth of 13.5%. Also highlighting our recovery, we recently achieved three consecutive records for average weekly sales and posted our highest single day of sales ever on National Burrito Day. While margins in January and February were challenged due to COVID-19 related expenses, March margins were strong at over 20.0%. These performance indicators along with declining COVID-19 cases, increasing vaccine availability, and loosening of dining room restrictions in California, give us confidence that the operating environment is normalizing and that we can now focus our efforts on our Acceleration Agenda, which provides a detailed roadmap for successful growth over the next three years.
First Quarter 2021 Financial Results
During the first quarter, the Company paid down $9.0 million of debt, and as of March 31, 2021 had $53.8 million of debt outstanding and $6.7 million in cash and equivalents.
Company-operated restaurant revenue in the first quarter of 2021 increased to $94.2 million, compared to $92.6 million in the first quarter of 2020, primarily due to an increase in company-operated restaurant revenue of $2.2 million, due to a 3.3% increase in company-operated comparable restaurant sales and an increase of $0.5 million of non-comparable restaurant sales. The company-operated comparable restaurant sales increase consisted of an approximately 15.7% increase in average check size, partially offset by a decline in transactions of 10.7%. This company-operated restaurant sales increase was partially offset by a $1.0 million decrease due to temporary restaurant closures due to the COVID-19 pandemic.
Franchise revenue in the first quarter of 2021 increased 7.8% to $7.6 million, compared to $7.1 million in the first quarter of 2020. This increase was primarily due to a 10.5% increase in franchise comparable restaurant sales and the opening of three new franchise restaurants during or subsequent to the first quarter of 2020. The increase in franchise revenue was partially offset by the closure of seven franchise locations during the same period.
Income from operations in the first quarter of 2021 was $6.0 million, compared to $5.7 million in the first quarter of 2020. Restaurant contribution was $15.2 million, or 16.1% of company-operated restaurant revenue, compared to $16.3 million, or 17.6% of company-operated restaurant revenue in the first quarter of 2020. The decrease in restaurant contribution was largely due to the impact of wage increases, labor costs associated with the COVID-19 pandemic, increased delivery fees and higher operating costs. The decrease was partially offset by the impact of higher menu prices and labor efficiencies. Restaurant contribution is a non-GAAP measure defined below under "Key Financial Definitions." A reconciliation of GAAP income from operations to restaurant contribution is included in the accompanying financial data. See also “Non-GAAP Financial Measures.”
General and administrative expenses in the first quarter of 2021 were $10.5 million, compared to $9.3 million in the first quarter of 2020. The increase was due primarily to a $0.6 million increase in labor related costs, primarily due to an increase in management bonus expense, a $0.3 million increase in legal and professional expenses and a $0.3 million increase in stock compensation expenses. This increase was partially offset by $0.2 million in other general and administrative expenses.
Net income for the first quarter of 2021 was $4.0 million, or $0.11 per diluted share, compared to net income of $3.6 million, or $0.10 per diluted share, in the first quarter of 2020. Pro forma net income was $4.7 million, or $0.13 per diluted share, during the first quarter of 2021, compared to $5.6 million, or $0.16 per diluted share, during the first quarter of 2020. A reconciliation between GAAP net income and pro forma net income is included in the accompanying financial data. See also “Non-GAAP Financial Measures.”
2021 Outlook
Due to the uncertainty surrounding the COVID-19 pandemic, the company is not yet providing a financial outlook for the year ending December 29, 2021. However, the company is reiterating the following expectations for 2021:
• The opening of three to five new company-owned restaurants and four to six new franchised restaurants. • Pro forma income tax rate of 26.5%. Key Financial Definitions
System-wide sales are neither required by, nor presented in accordance with, accounting principles generally accepted in the United States of America (“GAAP”). System-wide sales are the sum of company-operated restaurant revenue and sales from franchised restaurants. The Company’s total revenue in the consolidated statements of operations is limited to company-operated restaurant revenue and franchise revenue from the Company’s franchisees. Accordingly, system-wide sales should not be considered in isolation or as a substitute for our results as reported under GAAP. Management believes that system-wide sales are an important figure for investors because they are widely used in the restaurant industry, including by our management, to evaluate brand scale and market penetration.
Comparable restaurant sales reflect the change in year-over-year sales for the comparable company, franchised and total system restaurant base. The comparable restaurant base is defined to include those restaurants open for 15 months or longer and excludes restaurants that were closed during the applicable period. At March 31, 2021, there were 191 restaurants in our comparable company-operated restaurant base and 465 restaurants in our comparable system restaurant base.
Restaurant contribution and restaurant contribution margin are neither required by, nor presented in accordance with, GAAP. Restaurant contribution is defined as company-operated restaurant revenue less company restaurant expenses, which are food and paper costs, labor and related expenses, and occupancy and other operating expenses. Restaurant contribution excludes certain costs, such as general and administrative expenses, depreciation and amortization, asset impairment and closed-store reserves, loss on sale of restaurants, recovery of securities lawsuits related legal expenses and other costs that are considered normal operating costs. Accordingly, restaurant contribution is not indicative of overall Company results and does not accrue directly to the benefit of shareholders because of the exclusion of certain corporate-level expenses. Restaurant contribution margin is defined as restaurant contribution as a percentage of net company-operated restaurant revenue. See also “Non-GAAP Financial Measures.”
EBITDA and adjusted EBITDA are neither required by, nor presented in accordance with, GAAP. EBITDA represents net income before interest expense, provision for income taxes, depreciation, and amortization, and adjusted EBITDA represents EBITDA before items that we do not consider representative of our underlying operating performance, as identified in the GAAP reconciliation in the accompanying financial data. See also “Non-GAAP Financial Measures.”
Pro forma net income is neither required by, nor presented in accordance with, GAAP. Pro forma net income represents net income adjusted for (i) costs (or gains) related to loss (or gains) on disposal of assets or assets held for sale and asset impairment and closed store costs, (ii) amortization expense and other estimate adjustments (whether expense or income) incurred on the Tax Receivable Agreement (“TRA”) completed at the time of our IPO, (iii) legal costs associated with securities class action litigation, (iv) extraordinary legal settlement costs, (v) insurance proceeds received related to securities class action legal expenses, (vi) costs associated with the transition of our CEO and (vii) provision for income taxes at a normalized tax rate of 26.5% for the thirteen weeks ended March 31, 2021 and thirteen weeks ended March 25, 2020, which reflects our estimated long-term effective tax rate, including both federal and state income taxes (excluding the impact of the income tax receivable agreement and valuation allowance) and applied after giving effect to the foregoing adjustments. See the GAAP reconciliation in the accompanying financial data and “Non-GAAP Financial Measures.”
Conference Call
The Company will host a conference call to discuss financial results for the first quarter of 2021 today at 4:30 PM Eastern Time. Bernard Acoca, President and Chief Executive Officer and Larry Roberts, Chief Financial Officer will host the call.
The conference call can be accessed live over the phone by dialing 212-231-2937. A replay will be available after the call and can be accessed by dialing 412-317-6671; the passcode is 21993568. The replay will be available until Thursday, May 20, 2021. The conference call will also be webcast live from the Company’s corporate website at investor.elpolloloco.com under the “Events & Presentations” page. An archive of the webcast will be available at the same location on the corporate website shortly after the call has concluded.
About El Pollo Loco
El Pollo Loco (Nasdaq:LOCO) is the nation’s leading fire-grilled chicken restaurant chain renowned for its masterfully citrus-marinated, fire-grilled chicken and handcrafted entrees using fresh ingredients inspired by Mexican recipes. With more than 475 company-owned and franchised restaurants in Arizona, California, Nevada, Texas, Utah, and Louisiana, El Pollo Loco is expanding its presence in key markets through a combination of company and existing and new franchisee development. Visit us on our website at ElPolloLoco.com.
Forward-Looking Statements
This press release contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact included in this press release are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business, including in connection with the expected impact of the COVID-19 pandemic. You can identify forward-looking statements because they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. They appear in a number of places throughout this press release and include statements regarding our ability to improve growth and profitability as businesses reopen and economic activity resumes from the impacts of COVID-19, as well as our ongoing business intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, sales levels, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those that we expected.
While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this press release in the context of the risks and uncertainties that could cause outcomes to differ materially from our expectations. These factors include, but are not limited to: the impact of the COVID-19 pandemic on our company, our employees, our customers, our partners, our industry and the economy as a whole; our franchisees’ ability to maintain operations in their individual restaurants; our ability to open new restaurants in existing and new markets and to expand our franchise system, including difficulty in finding sites and in negotiating acceptable leases; our ability to compete successfully and the intense competition in the restaurant industry; vulnerability to changes in consumer preferences and economic conditions; political and social factors, including regarding trade, immigration and customer preferences; vulnerability to conditions in the greater Los Angeles area; vulnerability to natural disasters given the geographic concentration and real estate intensive nature of our business; changes to food and supply costs, especially for chicken; our ability to recognize and respond to and effectively manage the impact of social media and our ability to expand our digital business, deliver orders and catering; and other risks set forth in our filings with the Securities and Exchange Commission from time to time, including under Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 30, 2020, which filings are available online at www.sec.gov.
We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the consequences we anticipate or affect us or our operations in the ways that we expect. The forward-looking statements included in this press release are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as required by law. If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we use non-GAAP financial measures which include supplemental measures of operating performance of our restaurants. Our calculations of supplemental measures and other non-GAAP financial measures indicated above may not be comparable to those reported by other companies. These measures have limitations as analytical tools, and are not intended to be considered in isolation or as substitutes for, or superior to, financial measures prepared and presented in accordance with GAAP. We use non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons and to evaluate our restaurants’ financial performance against our competitors’ performance. We believe that they provide useful information about operating results, enhance understanding of past performance and future prospects, and allow for greater transparency with respect to key metrics used by management in its financial and operational decision making. These non-GAAP financial measures may also assist investors in evaluating our business and performance relative to industry peers and provide greater transparency with respect to the Company’s financial condition and results of operation.
Investor Contact:
Fitzhugh Taylor, ICR
fitzhugh.taylor@icrinc.com
714-599-5200Media Contact:
Hanna Gray, Edible
hannah.gray@edible-inc.com
323-202-1477
EL POLLO LOCO HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)Thirteen Weeks Ended March 31, 2021 March 25, 2020 $ % $ % Revenue: Company-operated restaurant revenue $ 94,161 87.4 $ 92,634 88.1 Franchise revenue 7,612 7.1 7,062 6.7 Franchise advertising fee revenue 5,948 5.5 5,467 5.2 Total revenue 107,721 100.0 105,163 100.0 Costs of operations: Food and paper cost (1) 24,391 25.9 25,562 27.6 Labor and related expenses (1) 30,732 32.6 28,693 31.0 Occupancy and other operating expenses (1) 23,844 25.3 22,109 23.9 Company restaurant expenses (1) 78,967 83.8 76,364 82.5 General and administrative expenses 10,474 9.7 9,331 8.9 Franchise expenses 7,751 7.2 6,911 6.6 Depreciation and amortization 3,938 3.7 4,369 4.2 Loss on disposal of assets 26 0.0 100 0.1 Impairment and closed-store reserves 564 0.5 2,402 2.3 Total expenses 101,720 94.4 99,477 94.6 Income from operations 6,001 5.6 5,686 5.4 Interest expense, net of interest income 517 0.5 905 0.9 Income tax receivable agreement (income) expense (77 ) (0.1 ) (120 ) (0.1 ) Income before provision for income taxes 5,561 5.2 4,901 4.7 Provision for income taxes 1,597 1.5 1,301 1.2 Net income $ 3,964 3.7 $ 3,600 3.4 Net income per share: Basic $ 0.11 $ 0.10 Diluted $ 0.11 $ 0.10 Weighted average shares used in computing net income per share: Basic 35,795,205 34,659,160 Diluted 36,424,068 35,347,456 _________________________ (1) Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant revenue as the denominator. All other percentages use total revenue. EL POLLO LOCO HOLDINGS, INC.
UNAUDITED SELECTED BALANCE SHEETS AND SELECTED OPERATING DATA
(dollar amounts in thousands)As of March 31, 2021 December 30, 2020 Selected Balance Sheet Data: Cash and cash equivalents $ 6,669 $ 13,219 Total assets 598,581 605,221 Total debt 53,800 62,800 Total liabilities 315,719 327,643 Total stockholders’ equity 282,862 277,578 Thirteen Weeks Ended March 31, 2021 March 25, 2020 Selected Operating Data: Company-operated restaurants at end of period 198 195 Franchised restaurants at end of period 283 284 Company-operated: Comparable restaurant sales growth 3.3 % (0.7 ) % Restaurants in the comparable base 191 191 EL POLLO LOCO HOLDINGS, INC.
UNAUDITED RECONCILIATION OF SYSTEM-WIDE SALES TO COMPANY-OPERATED RESTAURANT REVENUE AND TOTAL REVENUE
(in thousands)Thirteen Weeks Ended (Dollar amounts in thousands) March 31, 2021 March 25, 2020 Company-operated restaurant revenue $ 94,161 $ 92,634 Franchise revenue 7,612 7,062 Franchise advertising fee revenue 5,948 5,467 Total Revenue 107,721 105,163 Franchise revenue (7,612 ) (7,062 ) Franchise advertising fee revenue (5,948 ) (5,467 ) Sales from franchised restaurants 132,965 125,824 System-wide sales $ 227,126 $ 218,458 EL POLLO LOCO HOLDINGS, INC.
UNAUDITED RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA
(in thousands)Thirteen Weeks Ended March 31, 2021 March 25, 2020 Adjusted EBITDA: Net income, as reported $ 3,964 $ 3,600 Provision for income taxes 1,597 1,301 Interest expense, net 517 905 Depreciation and amortization 3,938 4,369 EBITDA $ 10,016 $ 10,175 Stock-based compensation expense (a) 853 534 Loss on disposal of assets (b) 26 100 Impairment and closed-store reserves (c) 564 2,402 Income tax receivable agreement income (d) (77 ) (120 ) Securities class action legal expense (e) 364 201 Legal settlements (f) — 67 Pre-opening costs (g) 163 51 Adjusted EBITDA $ 11,909 $ 13,410 _________________________ (a) Includes non-cash, stock-based compensation. (b) Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment. (c) Includes costs related to impairment of long-lived and ROU assets and closing restaurants. During the thirteen weeks ended March 31, 2021, we recorded non-cash impairment charges of $0.3 million, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019 and the long-lived assets of three restaurants in California. During the thirteen weeks ended March 25, 2020, we recorded a non-cash impairment charge of $1.9 million, primarily related to the carrying value of the ROU assets of one restaurant in Texas and the long-lived assets of three restaurants in California. Given the difficulty in projecting results for newer restaurants in newer markets, as well as the impact of the COVID-19 pandemic, we are monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis. For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material. When a restaurant is closed, we will evaluate the ROU asset for impairment, based on anticipated sublease recoveries. The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense. Additionally, any property tax and CAM payments relating to closed restaurants are included within closed-store expense. During the thirteen weeks ended March 31, 2021, we recognized $0.3 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations. During the thirteen weeks ended March 25, 2020, we recognized $0.5 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations. (d) On July 30, 2014, we entered into the TRA. This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods. For the thirteen weeks ended March 31, 2021 and March 25, 2020, income tax receivable agreement (income) expense consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments. (e) Consists of costs related to the defense of securities lawsuits. (f) Includes amounts incurred related to the payment of the final settlement amounts for multiple wage and hour class action suits. (g) Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs. These are generally incurred over the three to five months prior to opening. Pre-opening costs also include occupancy costs incurred between the date of possession and the opening date for a restaurant. EL POLLO LOCO HOLDINGS, INC.
UNAUDITED RECONCILIATION OF NET INCOME TO PRO FORMA NET INCOME
(dollar amounts in thousands, except share data)Thirteen Weeks Ended March 31, 2021 March 25, 2020 Pro forma net income: Net income, as reported $ 3,964 $ 3,600 Provision for taxes, as reported 1,597 1,301 Income tax receivable agreement income (77 ) (120 ) Loss on disposal of assets 26 100 Impairment and closed-store reserves 564 2,402 Securities lawsuits related legal expenses 364 201 Legal settlements — 67 Provision for income taxes (1,706 ) (2,001 ) Pro forma net income $ 4,732 $ 5,550 Pro forma weighted-average share and per share data: Pro forma net income per share Basic $ 0.13 $ 0.16 Diluted $ 0.13 $ 0.16 Weighted-average shares used in computing pro forma net income per share Basic 35,795,205 34,659,160 Diluted 36,424,068 35,347,456 EL POLLO LOCO HOLDINGS, INC.
UNAUDITED RECONCILIATION OF INCOME FROM OPERATIONS TO RESTAURANT CONTRIBUTION
(dollar amounts in thousands)Thirteen Weeks Ended March 31, 2021 March 25, 2020 Restaurant contribution: Income from operations $ 6,001 $ 5,686 Add (less): General and administrative expenses 10,474 9,331 Franchise expenses 7,751 6,911 Depreciation and amortization 3,938 4,369 Loss on disposal of assets 26 100 Franchise revenue (7,612 ) (7,062 ) Franchise advertising fee revenue (5,948 ) (5,467 ) Impairment and closed-store reserves 564 2,402 Restaurant contribution $ 15,194 $ 16,270 Company-operated restaurant revenue: Total revenue $ 107,721 $ 105,163 Less: Franchise revenue (7,612 ) (7,062 ) Franchise advertising fee revenue (5,948 ) (5,467 ) Company-operated restaurant revenue $ 94,161 $ 92,634 Restaurant contribution margin (%) 16.1 % 17.6 % 