(Photo Credit: Dale Chumbley)
El Pollo Loco (LOCO) is scheduled to report 3Q2015 earnings today after market close. Despite a popular IPO in 2014, the stock has taken a beating but has been showing positive earnings surprises over the past three quarters. The company serves “Mexican” entrees, ranging from tostada bowls to burritos with an emphasis on chicken meals. The Estimize consensus is anticipating EPS of $0.16 and revenue of $90.3 million and Wall Street Analysts are calculating EPS of $0.15 and revenue of $90.4 million.
As the health craze has taken over the US, chain restaurants have come under scrutiny for employing unethical meat procurement processes as well as providing fatty and unhealthy foods. The chains are adapting with “green” initiatives, but some are known by the public to be disadvantageous to one’s health. Luckily for El Pollo Loco, a trend in fresh menu items has been employed to attract the health conscious customers. These entrees contain 500 calories or less and do not compromise flavor.
However, store traffic has been declining as increased food prices and labor costs have struck the food industry as a whole. In California, the minimum wage is set to jump from $9 in 2016. Menu prices will in turn have to increase and profits would take a serious hit, given that most of the business is operated out of California.
One issue that has been holding the company back has been its geographic presence. A majority of store units remain in California. Aside from California, the restaurant holds a presence in Arizona, Texas, Nevada and Utah, with over 80% of stores in California. This marks a tremendous opportunity for expansion programs across the states. From 2011-2014, El Pollo Loco had a massive debt problem, which prevented any chances of growth. Since then, company’s cash flow has significantly increased as liabilities have been reduced by over $150 million. This leaves options like opening locations in Florida, New York, and even Illinois. All three states have great Hispanic populations and the food may fare well in these settings.
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