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Is El Pollo Loco (LOCO) Likely to Disappoint in Q2 Earnings?

El Pollo Loco Holdings, Inc. LOCO is scheduled to report second-quarter 2017 numbers on Aug 3, after market close.

Last quarter, El Pollo Loco Holdings came up with a positive earnings surprise of 14.29%. In fact, the company has surpassed earnings in two of the trailing four quarters, recording an average beat of 1.73%.

Let’s see how things are shaping up for this announcement.

El Pollo Loco Holdings, Inc. Price and EPS Surprise


Factors at Play

After 21 consecutive quarters of positive comps, El Pollo Loco witnessed a decline in comps in the last two reported quarters. The downtrend was due to the persistent choppiness in the restaurant space that might continue in the to-be-reported quarter.

Nevertheless, we expect this fire-roasted chicken specialist’s fresh handcrafted Mexican inspired cuisine to continue driving its popularity and ensuring steady traffic. In fact, El Pollo Loco’s various sales-building initiatives, relentless focus on providing excellent service, reasonable pricing and its advertising campaign should aid in further boosting comps.

Additionally, menu innovation and limited time offers are likely to boost traffic while solid unit development should drive the top line.

Meanwhile, El Pollo launched an entirely redesigned mobile app with more convenient features in the to-be-reported quarter. This, in turn, is expected to drive convenience and loyalty, thereby boosting revenues. El Pollo Loco’s Loco Rewards and its partnership with Olo to enhance delivery services might further propel results.

However, increasing labor costs, pre-opening and remodeling costs of outlets as well as investments in sales-boosting initiatives might dent the quarter’s profits. In fact, in the first-quarter conference call management noted that the company is experiencing higher produce costs, especially with regard to avocado prices, which might continue in the to-be-reported quarter as well.

Overall, the rise in expenses combined with the challenging retail environment in the U.S. restaurants space makes us anxious about the company’s overall performance.

Earnings Whispers

Our proven model does not conclusively show earnings beat for El Pollo Loco this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen, which is not the case here, as you will see below.

Zacks ESP: El Pollo Loco has an Earnings ESP of -5.00%. This is because the Most Accurate estimate is 19 cents per share, while the Zacks Consensus Estimate is pegged higher at 20 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: El Pollo Loco has a Zacks Rank #4 (Sell).

As it is we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks to Consider

Here are some companies in the broader Retail-Wholesale sector that investors may consider, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Alibaba Group Holding Limited BABA has an Earnings ESP of +4.11% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lumber Liquidators Holdings, Inc. LL has an Earnings ESP of +75% and a Zacks Rank #2.

YUM! Brands, Inc. YUM has an Earnings ESP of +1.64% and a Zacks Rank #3.

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El Pollo Loco Holdings, Inc. (LOCO): Free Stock Analysis Report
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