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El Pollo Loco (LOCO) Lags Q1 Earnings, Sales; Keeps View

El Pollo Loco Holdings, Inc. LOCO posted weak first-quarter 2016 results with both earnings and sales missing the Zacks Consensus Estimate.

Shares dropped almost 2% in the after-hour trading session.

Earnings and Revenue Discussion

El Pollo Loco’s first quarter adjusted earnings of 17 cents per share missed the Zacks Consensus Estimate and the year-ago quarter earnings of 18 cents by 5.56% due to soft revenues and lower restaurant contribution margin.

Revenues of $94 million were up 4.3% year over year mainly on the back of higher company operated restaurant revenues. However, revenues missed the Zacks Consensus Estimate of $97 million by 2.61%.

Behind the Headline Numbers

Company-operated restaurant sales were $88.4 million compared with $84.7 million  in the year-ago quarter.  The 4.3% growth was mainly due to 17 new restaurant openings in the quarter. Comps remained soft in the quarter.

System-wide comps rose 0.7% as an increase in comps at franchise restaurants partially offset a decline at company-operated restaurants. Comps at company-operated restaurant declined 0.6% due to lower traffic trends. While average check rose 0.2%, traffic declined 0.8% in the quarter.

Franchise operated restaurant sales were $6.0 million compared with $5.7 million in the year-ago quarter.

Comps at Franchised restaurants went up 1.8% during the first quarter.

Restaurant contribution was $18.3 million, lower than $18.9 million in the first quarter of 2015. The decrease in restaurant contribution was mainly due to higher wages as well as higher occupancy and other expenses, partially offset by improvement in food and paper costs.

2016 Outlook

The company expects 2016 proforma diluted earnings per share to be in a range of 70 cents to 74 cents.

System-wide comparable restaurant sales are expected to grow in low single digits.

Adjusted EBITDA is expected to be in a range of $68.0 to $70.5 million. Restaurant contribution margin is expected in a range of 21.0% to 21.4%.

Further El Pollo Loco expects to open 17-20 new company-owned restaurants and 10-15 franchised operated restaurants in the year.

El Pollo Loco currently has a Zacks Rank#3 (Hold).

Stocks to Consider

Better-ranked stocks in the same space include Diversified Restaurant Holdings, Inc. SAUC, Dave & Buster's Entertainment, Inc. PLAY and Darden Restaurants, Inc. DRI. All these stocks carry a Zacks Rank #1 (Strong Buy).

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DARDEN RESTRNT (DRI): Free Stock Analysis Report
 
DAVE&BUSTRS ENT (PLAY): Free Stock Analysis Report
 
EL POLLO LOCO (LOCO): Free Stock Analysis Report
 
DIVERSIFIED RST (SAUC): Free Stock Analysis Report
 
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