El Pollo Loco Holdings, Inc.LOCO posted mixed third quarter 2015 results with earnings beating the Zacks Consensus Estimate but revenues missing the same. Shares of the company fell approximately 8.3% since it lowered its comps guidance and narrowed its earnings guidance for 2015. This dampened investors' confidence. Also, the company posted soft comps.
Adjusted earnings of 18 cents per share beat the Zacks Consensus Estimate of 15 cents by 20% and went up approximately 38.5% year over year supported by revenue growth.
Total revenue of $88.9 million missed the Zacks Consensus Estimate of $90 million by 1.2%. However, it grew 2.7% year over year backed by an improvement in Restaurant revenues and Franchise revenues.
Behind the Headline Numbers
Company-operated restaurant revenues increased 2.6% year over year to approximately $83 million driven largely by unit growth, partially offset by loss of sales from six units sold to a franchisee and one company-operated unit closed in fiscal 2014. Franchise revenues went up 3.3% year over year to approximately $5.9 million.
System-wide comps grew 0.6% in the quarter that compared unfavorably with prior quarter growth of 1.3%.
Company-operated restaurant sales were flat year over year driven by a 1.9% increase in average check, partially offset by a 1.9% decrease in traffic. Comps were slightly better than the prior quarter decline of 0.5%.
Comps at franchised restaurants increased 1.1% during the quarter and compared unfavorably with prior-quarter comps growth of 2.6%.
Restaurant contribution was $17.6 million, up 5.4% year over year. As a percentage of company-operated restaurant revenues, restaurant contribution margin grew 50 basis points (bps) to 21.2%. The increase reflects lower occupancy and other operating expenses as well as lower food and paper costs, partially offset by increased labor and related expenses on higher workers' compensation and medical insurance claims activity.
Food and paper cost, as a percentage of company restaurant sales, fell 20 bps year over year to 31.8%. The upside reflects higher average check, partially offset by increased commodity costs.
Labor and related expenses, as a percentage of company restaurant sales, increased 20 bps year over year to 25.1%, driven primarily by higher workers' compensation and health insurance claims.
Guidance for 2015 Earnings & Comps Revised
The company narrowed its earnings guidance while lowering its comps guidance for 2015. This was the second consecutive quarter when the company lowered its comps guidance. Earnings per share are now expected in the range of 67 cents to 69 cents compared with the previous expectation of 67 to 71 cents. Comps are expected to be 1.7% compared with the previous expectation of 3%.
The company continues to expect restaurant contribution margin in the range of 21.2% to 21.5%. General and administrative expense as a percentage of total revenue is expected in the range of 7.8%-8%.
El Pollo Loco has a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the restaurant industry are BJ's Restaurants, Inc. BJRI , Bojangles', Inc. BOJA , and Carrols Restaurant Group, Inc. TAST . All these stocks sport a Zacks Rank #1 (Strong Buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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