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What to Expect from El Pollo Loco (LOCO) in Q1 Earnings?

El Pollo Loco Holdings, Inc. LOCO is scheduled to report first-quarter 2017 numbers on May 4, after market close.

Last quarter, the company posted a negative earnings surprise of 7.69%. In fact, the company lagged earnings in three of the trailing four quarters, recording an average miss of 3.24%.

El Pollo Loco Holdings, Inc. Price and EPS Surprise

 

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

Factors at Play

In the last reported quarter, comps declined on the back a soft industry backdrop. Prior to that, El Pollo Loco had been posting positive comps for 21 consecutive quarters. However, due to the persistent choppiness in the restaurants space and adverse weather conditions in California, management expects comps to decline in the range of 1–2% 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. El Pollo Loco’s various sales-building initiatives, relentless focus on providing excellent service, a warm and inviting atmosphere, and reasonable pricing should aid in further boosting comps. Additionally, menu innovation and solid unit development should drive revenues.

Notably, in the fourth quarter, the company rolled out its mobile ordering system, which includes a mobile app. The app features customizable ordering, multiple payment options and flexible pick-up time selection. The company believes that this app will drive convenience and loyalty and thereby bolster the top line in the to-be-reported quarter.

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.

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 +7.14%. This is because the Most Accurate estimate is 15 cents per share, while the Zacks Consensus Estimate is pegged lower at 14 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:

Best Buy Co., Inc. BBY has an Earnings ESP of +12.50% and a Zacks Rank #1.

Wingstop, Inc. WING has an Earnings ESP of +6.67% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Jack in the Box, Inc. JACK has an Earnings ESP of +4.40% and a Zacks Rank #2.

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Best Buy Co., Inc. (BBY): Free Stock Analysis Report
 
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El Pollo Loco Holdings, Inc. (LOCO): Free Stock Analysis Report
 
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