Oct. 29, 2020, 4:16 p.m. EDT
El Pollo Loco Holdings, Inc. Announces Third Quarter 2020 Financial Results
COSTA MESA, Calif., Oct 29, 2020 (GLOBE NEWSWIRE via COMTEX) -- El Pollo Loco Holdings, Inc. /zigman2/quotes/203043086/composite LOCO +1.46% today announced financial results for the 13�?'week period ended September 23, 2020.
Highlights for the third quarter ended September 23, 2020, compared to the third quarter ended September 25, 2019 were as follows:
-- Total revenue was $111.0 million compared to $112.1 million.
-- System-wide comparable restaurant sales increased 1.8%, including a 0.2% increase for company-operated restaurants, and a 3.0% increase for franchised restaurants.
-- Income from operations was $12.2 million, compared to income from operations of $10.1 million in the prior year period. Restaurant contribution was $21.8 million, or 22.4% of company-operated restaurant revenue, compared to $18.4 million, or 18.6% of company-operated restaurant revenue, in the prior year period. Included in income from operations and restaurant contribution margin were $2.0 million of insurance proceeds received by the Company primarily as a result of restaurant sales losses and expenses related to the COVID 19 pandemic and resulting dining room closures.
-- Net income was $9.9 million, or $0.28 per diluted share, compared to net income of $6.4 million, or $0.18 per diluted share, in the prior year period. The third quarter of 2020 included a non-cash impairment expense of $1.5 million, primarily related to the long-lived assets of one restaurant in California.
-- Pro forma net income(1) was $9.9 million, or $0.28 per diluted share, compared to $7.2 million, or $0.20 per diluted share.
-- Adjusted EBITDA(1) was $19.3 million, compared to $15.9 million.
(1) 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 GAAP net income to pro forma net income and adjusted EBITDA 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, "Our third quarter results included a return to positive system-wide comparable sales and a continuation of improved operational efficiencies resulting in a 40% increase in pro forma diluted EPS and the highest restaurant contribution margin in over two years. I'd like to express how appreciative I am of the extraordinary efforts of our employees and franchisees, whose resilience and passion for our brand have been instrumental in navigating this unprecedented environment."
Acoca continued, "While the COVID crisis will likely continue to present challenges, we remain excited about the progress we've made against our Transformation Agenda. Our culture and brand fundamentals are now well established and we are driving against our off-premise strategies. Our new product pipeline has never been stronger and our operations continue to improve as we institute systems and processes to ensure our guests have an exceptional experience at our restaurants. Lastly, as we finalize and test our new "restaurant of the future" during the fourth quarter, we believe we are laying the foundation for future sales and unit growth in our existing and new markets as we seek to expand in the years ahead."
Third Quarter 2020 Financial Results
As discussed previously, in March the Company fully drew down its $150.0 million revolving credit facility, adding $34.5 million of cash to its balance sheet. During the third quarter, the Company paid down $55.0 million of debt and as of September 23, 2020 had $83.8 million of debt outstanding and $29.5 million in cash and equivalents. Subsequent to the end of the third quarter, the Company paid down an additional $28.0 million of debt.
Company-operated restaurant revenue in the third quarter of 2020 was $97.3 million, compared to $99.1 million in the third quarter of 2019. The decline in company-operated restaurant sales was primarily due to a decrease of $1.9 million from the closure of two restaurants and the five company-operated restaurants sold by the Company to franchisees during or subsequent to the third quarter of 2019, a $0.6 million decrease due to temporary restaurant closures due to the COVID-19 pandemic and a $0.2 million decrease in revenue recognized for our loyalty points program. This company-operated restaurant sales decrease was partially offset by an increase in revenue generated from the three new restaurants opened during the same time period and a $0.2 million increase due to a 0.2% increase in company-operated comparable restaurant sales. The company-operated comparable restaurant sales increase consisted of an approximately 18.1% increase in average check size, partially offset by a decline in transactions of 15.2%. It is uncertain whether the increase in average check size will persist once the pandemic ends.
Franchise revenue in the third quarter of 2020 increased 7.0% to $7.8 million, compared to $7.3 million in the third quarter of 2019. This increase was primarily due to a franchise comparable restaurant sales increase of 3.0%, the opening of two new franchised restaurants and revenue generated from five company-operated restaurants sold by the Company to franchisees during or subsequent to the third quarter of 2019, and revenue recognized related to franchise development agreements. This franchise revenue increase was partially offset by the closure of nine franchise locations during the same period.
Income from operations in the third quarter of 2020 was $12.2 million, compared to $10.1 million in the third quarter of 2019. Restaurant contribution was $21.8 million, or 22.4% of company-operated restaurant revenue, compared to $18.4 million, or 18.6% of company-operated restaurant revenue, in the third quarter of 2019. The increase was largely due to higher prices, net insurance proceeds received related to the COVID pandemic, labor efficiencies and the sale of lower-performing company-owned restaurants to franchisees during 2019. The increase was partially offset by the impact of wage increases in California, labor costs associated with the COVID-19 pandemic, increased delivery fees and the decrease in revenue previously mentioned. 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 third quarter of 2020 were $9.8 million, compared to $9.5 million in the third quarter of 2019. The increase was due primarily to a $0.8 million increase in labor related costs, primarily related to an increase in management bonus expense, and a $0.4 million increase in stock compensation expenses. This increase was partially offset by a $0.4 million decrease in legal expenses, a $0.2 million decrease in restaurant pre-opening costs, a $0.2 million decrease in recruiting costs and a $0.1 million decrease in other general and administrative expenses.
During the third quarter of 2020, the Company received insurance proceeds of $2.0 million primarily related to restaurant sales losses and expenses related to the COVID-19 pandemic. Additionally, during the third quarter of 2020, the Company recognized a $1.5 million non-cash impairment expense, primarily related to the long-lived assets of one restaurant in California.
Net income for the third quarter of 2020 was $9.9 million, or $0.28 per diluted share, compared to net income of $6.4 million, or $0.18 per diluted share, in the third quarter of 2019. Pro forma net income was $9.9 million, or $0.28 per diluted share, during the third quarter of 2020, compared to $7.2 million, or $0.20 per diluted share, during the third quarter of 2019. A reconciliation between GAAP net income and pro forma net income is included in the accompanying financial data. See also "Non-GAAP Financial Measures."
While market and economic conditions continue to be challenging due to the COVID 19 pandemic, based on current information, the Company provided the following limited outlook for the fourth quarter of 2020:
-- System same store sales of approximately 1% - 2%.
-- Restaurant contribution margin of 18.0% to 18.5%, which includes an estimated 60 bp negative impact from this year's 53 week.
-- G&A spend of $9.6 million to $10 million excluding legal costs associated with the securities class action lawsuit.
Key Financial Definitions
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 September 23, 2020, there were 191 restaurants in our comparable company-operated restaurant base and 468 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 ongoing 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 and thirty-nine weeks ended September 23, 2020 and September 25, 2019, 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."