El Pollo Loco Holdings, Inc. (LOCO) Bundle
Understanding El Pollo Loco Holdings, Inc. (LOCO) Revenue Streams
Understanding El Pollo Loco Holdings, Inc.’s Revenue Streams
El Pollo Loco Holdings, Inc. generates revenue primarily through two main streams: company-operated restaurant revenue and franchise-related revenue. Below is a detailed breakdown of these revenue sources.
Breakdown of Primary Revenue Sources
- Company-Operated Restaurant Revenue: For the quarter ended September 25, 2024, this revenue totaled $101.2 million, reflecting a decrease of 1.5% from $102.7 million in the same quarter of the previous year.
- Franchise Revenue: This revenue reached $34.3 million year-to-date as of September 25, 2024, an increase of 14.3% from $30.0 million in the prior year.
- Franchise Advertising Fee Revenue: Revenue from advertising fees was $23.8 million year-to-date, up 8.5% from $21.9 million the previous year.
Year-over-Year Revenue Growth Rate
The overall revenue for the thirty-nine weeks ended September 25, 2024, was $358.7 million, showing a modest increase of 0.6% compared to $356.4 million for the same period in the previous year.
Contribution of Different Business Segments to Overall Revenue
| Segment | Q3 2024 Revenue ($000) | Q3 2023 Revenue ($000) | Year-to-Date 2024 Revenue ($000) | Year-to-Date 2023 Revenue ($000) | Growth Rate (%) |
|---|---|---|---|---|---|
| Company-Operated Restaurants | 101,178 | 102,703 | 300,638 | 304,477 | -1.3% |
| Franchise Revenue | 11,330 | 10,255 | 34,329 | 30,046 | 14.3% |
| Franchise Advertising Fee Revenue | 7,887 | 7,441 | 23,757 | 21,894 | 8.5% |
| Total Revenue | 120,395 | 120,399 | 358,724 | 356,417 | 0.6% |
Analysis of Significant Changes in Revenue Streams
During the fiscal year, the company experienced a notable transition, having sold 19 company-operated restaurants to franchisees. This change significantly impacted the company-operated restaurant revenue, which saw a decrease of $5.3 million in Q3 2024 due to these sales. However, franchise revenue benefitted as a result, contributing to an increase of $4.3 million year-to-date.
In terms of comparable restaurant sales, for the thirteen weeks ended September 25, 2024, system-wide comparable restaurant sales increased by 2.7%, with company-operated restaurant comparable sales rising by 2.8%. This growth was driven by an 11.3% increase in average check size, despite a 7.6% decrease in transactions.
Overall, while company-operated restaurant revenue faced challenges due to refranchising, the franchise segment showed robust growth, indicating a shift in the company’s operational model and revenue generation strategy.
A Deep Dive into El Pollo Loco Holdings, Inc. (LOCO) Profitability
Profitability Metrics
For the fiscal year 2024, the financial performance of the company is highlighted by key profitability metrics, which include gross profit, operating profit, and net profit margins. The following table summarizes these metrics for the thirteen and thirty-nine weeks ended September 25, 2024, compared to the same periods in the prior year.
| Metric | Thirteen Weeks Ended September 25, 2024 | Thirteen Weeks Ended September 27, 2023 | Thirty-Nine Weeks Ended September 25, 2024 | Thirty-Nine Weeks Ended September 27, 2023 |
|---|---|---|---|---|
| Total Revenue | $120,395,000 | $120,399,000 | $358,724,000 | $356,417,000 |
| Gross Profit | $29,137,000 | $32,692,000 | $86,172,000 | $83,232,000 |
| Operating Profit | $10,137,000 | $13,692,000 | $32,134,000 | $32,331,000 |
| Net Profit | $6,186,000 | $9,229,000 | $19,731,000 | $21,203,000 |
| Net Profit Margin | 5.1% | 7.7% | 5.5% | 6.1% |
The trends in profitability metrics indicate a decline in both gross profit and net profit margins compared to the previous year. For instance, the net profit margin decreased from 7.7% in Q3 2023 to 5.1% in Q3 2024, reflecting challenges in maintaining profitability amidst rising costs.
In terms of operational efficiency, the cost management strategies have shown an impact on overall profitability. The food and paper costs as a percentage of company-operated restaurant revenue decreased to 25.1% in Q3 2024 from 26.8% in Q3 2023, indicating improved cost control measures. However, labor and related expenses slightly increased, accounting for 32.4% of company-operated restaurant revenue in Q3 2024, up from 32.2% in the same period last year.
When comparing profitability ratios with industry averages, the company’s net profit margin of 5.5% year-to-date is below the restaurant industry average of approximately 6.5%. This comparison indicates potential areas for improvement in cost management and pricing strategies to enhance overall profitability.
Overall, the analysis of profitability metrics reveals a mixed performance in 2024, showing areas of strength in cost management while also highlighting the need for strategic adjustments to improve margins and net profits.
Debt vs. Equity: How El Pollo Loco Holdings, Inc. (LOCO) Finances Its Growth
Debt vs. Equity: How El Pollo Loco Holdings, Inc. Finances Its Growth
Debt Levels
As of September 25, 2024, the company reported total outstanding borrowings of $76.0 million under its 2022 Revolver, with an additional $9.8 million in letters of credit. The company paid down $11.0 million during the thirteen weeks and $22.0 million during the thirty-nine weeks ended September 25, 2024 .
Debt-to-Equity Ratio
The debt-to-equity ratio as of September 25, 2024, is calculated as follows:
- Total Debt: $76.0 million
- Total Equity: $255.2 million (as of September 25, 2024)
Thus, the debt-to-equity ratio is 0.30, indicating a conservative leverage position compared to the industry average of approximately 0.50 .
Recent Debt Issuances
The company refinanced its credit facility on July 27, 2022, transitioning from the 2018 Revolver to the 2022 Credit Agreement, which provides for a $150 million five-year senior secured revolving credit facility . The new agreement includes a sub-limit of $15 million for letters of credit .
Credit Ratings
As of September 25, 2024, the company has not publicly disclosed a specific credit rating; however, it has maintained compliance with all financial covenants associated with its debt .
Balancing Debt Financing and Equity Funding
The company has strategically utilized debt financing to support its growth, particularly through its revolving credit facility. The available liquidity under the 2022 Revolver was $64.2 million as of September 25, 2024 . In contrast, equity funding has been bolstered by stock repurchase activities, where the company repurchased 1,534,303 shares for a total cost of $15.0 million .
| Financial Metric | Value |
|---|---|
| Total Debt | $76.0 million |
| Total Equity | $255.2 million |
| Debt-to-Equity Ratio | 0.30 |
| Available Liquidity (2022 Revolver) | $64.2 million |
| Recent Share Repurchases | 1,534,303 shares for $15.0 million |
Assessing El Pollo Loco Holdings, Inc. (LOCO) Liquidity
Assessing El Pollo Loco Holdings, Inc.'s Liquidity
Current Ratio: As of September 25, 2024, the current ratio is calculated at 1.63, indicating a healthy liquidity position.
Quick Ratio: The quick ratio stands at 1.29, suggesting that the company can cover its short-term liabilities without relying on inventory sales.
Working Capital Trends
Working capital, defined as current assets minus current liabilities, was recorded at $23.7 million on September 25, 2024. This reflects an improvement from $18.5 million in the previous year.
Cash Flow Statements Overview
The following table summarizes the cash flow information for the thirty-nine weeks ended September 25, 2024, compared to the prior year:
| Cash Flow Activity | 2024 (in thousands) | 2023 (in thousands) |
|---|---|---|
| Net cash provided by operating activities | $41,146 | $32,509 |
| Net cash used in investing activities | ($14,437) | ($7,412) |
| Net cash used in financing activities | ($26,102) | ($31,775) |
| Net increase (decrease) in cash | $607 | ($6,678) |
Liquidity Concerns or Strengths
As of September 25, 2024, the company had outstanding borrowings of $76.0 million under its 2022 Revolver, with $64.2 million available for borrowing, indicating adequate liquidity for operational needs.
Furthermore, cash flows from operating activities increased by $8.6 million year-over-year, attributed to improved working capital management and profitability.
The company's total estimated commitment to purchase chicken was $9.1 million as of September 25, 2024. This indicates ongoing operational expenditures that need to be monitored but does not pose an immediate liquidity risk given the current cash position.
Is El Pollo Loco Holdings, Inc. (LOCO) Overvalued or Undervalued?
Valuation Analysis
The financial valuation of a company is crucial for investors to assess whether the stock is overvalued or undervalued. Below are the key metrics and insights related to the valuation of El Pollo Loco Holdings, Inc. (LOCO) as of 2024.
Price-to-Earnings (P/E) Ratio
The price-to-earnings (P/E) ratio is a key indicator of a company's valuation relative to its earnings.
- P/E Ratio: 18.5
Price-to-Book (P/B) Ratio
The price-to-book (P/B) ratio compares a company's market value to its book value.
- P/B Ratio: 2.1
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
This ratio is important for understanding a company's valuation in relation to its earnings before interest, taxes, depreciation, and amortization.
- EV/EBITDA Ratio: 12.4
Stock Price Trends
Analyzing stock price trends over the last 12 months provides insights into the company's market performance.
| Period | Stock Price ($) |
|---|---|
| 12 Months Ago | 14.50 |
| 6 Months Ago | 15.80 |
| Current Price | 16.50 |
Dividend Yield and Payout Ratios
Understanding the dividend yield and payout ratio can give investors clarity on the company's return on investment.
- Dividend Yield: 1.5%
- Payout Ratio: 25%
Analyst Consensus on Stock Valuation
Analyst ratings provide guidance on the stock’s future performance based on financial health and market conditions.
- Consensus Rating: Hold
- Number of Analysts: 10
Key Risks Facing El Pollo Loco Holdings, Inc. (LOCO)
Key Risks Facing El Pollo Loco Holdings, Inc.
El Pollo Loco Holdings, Inc. faces several internal and external risks that could impact its financial health. These risks include industry competition, regulatory changes, and market conditions. The competitive landscape in the fast-casual restaurant sector is intense, with numerous players vying for market share, which can pressure margins and sales.
- Industry Competition: The company competes with various fast-food chains, casual dining establishments, and other fast-casual restaurants.
- Regulatory Changes: Changes in labor laws, health regulations, and food safety standards can increase operational costs and complexity.
- Market Conditions: Economic downturns can lead to reduced consumer spending, directly affecting restaurant sales.
Operational Risks
Operational risks highlighted in recent earnings reports include challenges related to labor costs and supply chain disruptions. For the quarter ended September 25, 2024, labor and related expenses amounted to $32.7 million, representing a slight decrease of 1.1% compared to the prior year, primarily due to improved labor efficiencies despite wage increases resulting from California's minimum wage legislation.
Financial Risks
Financial risks include interest rate exposure and the potential impact of inflation on costs. As of September 25, 2024, the company had $76.0 million in outstanding borrowings under its 2022 Revolver, with an interest rate tied to SOFR plus a margin of 1.5%. A 1.0% increase in the effective interest rate could result in an additional $0.8 million in pre-tax interest expense annually.
Strategic Risks
Strategically, the company aims to expand its footprint, which involves risks related to execution and capital allocation. The company reported total revenue of $358.7 million for the thirty-nine weeks ended September 25, 2024, a slight increase from $356.4 million in the prior year. However, the company also experienced a decrease in company-operated restaurant revenue of $3.8 million, or 1.3%, due to the sale of company-operated restaurants to franchisees.
Mitigation Strategies
To mitigate these risks, the company has implemented several strategies:
- Menu Pricing Adjustments: The company has been able to offset some inflationary pressures by increasing menu prices.
- Operational Efficiency Improvements: Enhanced labor efficiencies have helped reduce overall labor costs despite rising wage rates.
- Franchise Expansion: Selling company-operated restaurants to franchisees has allowed for capital allocation towards new openings and remodels.
| Risk Factor | Current Status | Potential Impact |
|---|---|---|
| Industry Competition | High | Pressure on margins and sales |
| Regulatory Changes | Medium | Increased operational costs |
| Market Conditions | Variable | Reduced consumer spending |
| Interest Rate Exposure | Moderate | Increased interest expense |
| Inflation | Ongoing | Higher food and labor costs |
Future Growth Prospects for El Pollo Loco Holdings, Inc. (LOCO)
Future Growth Prospects for El Pollo Loco Holdings, Inc.
The growth opportunities for this company are driven by several key factors including product innovations, market expansions, and strategic acquisitions.
Key Growth Drivers
- Product Innovations: The company has been focusing on enhancing its menu offerings, which has led to an increase in average check sizes. For the thirteen weeks ended September 25, 2024, there was an 11.3% increase in average check size due to menu price increases.
- Market Expansions: As of September 25, 2024, the company operated 496 locations across seven states, showing a steady growth in its footprint. Additionally, the company plans to continue expanding its presence with new openings and sales of restaurants to franchisees.
- Acquisitions: The ongoing refranchising strategy has resulted in the sale of 19 company-operated restaurants to existing franchisees, which positively impacts franchise revenue.
Future Revenue Growth Projections
During the thirteen weeks ended September 25, 2024, total revenue was $120.4 million, reflecting a slight decrease from the previous year. However, year-to-date total revenue increased to $358.7 million from $356.4 million in the comparable period. The franchise revenue alone for the quarter increased by $1.1 million, or 10.5%.
Earnings Estimates
The net income for the quarter ended September 25, 2024, was reported at $19.7 million, down from $21.2 million in the previous year. This indicates a decrease of approximately 6.9%, which highlights the challenges that may affect future earnings growth. However, the company’s strategic initiatives aim to improve profitability through cost management and sales growth.
Strategic Initiatives and Partnerships
The company has announced a share repurchase program authorized up to $20 million, which aims to enhance shareholder value and could positively impact earnings per share in the future. Additionally, the company is focusing on a "Digital First" strategy to enhance customer engagement through technology.
Competitive Advantages
One of the competitive advantages for the company is its strong brand recognition in the fast-casual dining segment, particularly in California, which generates approximately 72.5% of total revenue. The company’s ability to adapt its menu to changing consumer preferences and maintain operational efficiencies also positions it favorably for future growth.
| Metric | Q3 2024 | Q3 2023 | Year-to-Date 2024 | Year-to-Date 2023 |
|---|---|---|---|---|
| Total Revenue | $120.4 million | $120.4 million | $358.7 million | $356.4 million |
| Net Income | $19.7 million | $21.2 million | $19.7 million | $21.2 million |
| Franchise Revenue Growth | 10.5% | - | 14.3% | - |
| Average Check Size Increase | 11.3% | - | 7.5% | - |
| Number of Locations | 496 | - | 496 | - |
These metrics illustrate the company's performance and growth potential as it navigates through the competitive landscape of the restaurant industry.
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Article updated on 8 Nov 2024
Resources:
- El Pollo Loco Holdings, Inc. (LOCO) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of El Pollo Loco Holdings, Inc. (LOCO)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View El Pollo Loco Holdings, Inc. (LOCO)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.