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El Pollo Loco (LOCO) Stock Down Despite Q2 Earnings Beat

El Pollo Loco Holdings, Inc. LOCO reported mixed second-quarter 2017 results, wherein earnings beat the Zacks Consensus Estimate, while revenues marginally missed the same.

However, the company’s shares fell 1.5% in afterhours trading on Aug 3, reflecting investors’ concerns regarding the slashed earnings outlook for 2017.

Earnings and Revenue Discussion

El Pollo Loco’s second-quarter adjusted earnings of 21 cents per share surpassed the Zacks Consensus Estimate of 20 cents by 5%. Moreover, earnings increased 10.5% year over year primarily on higher revenues.

Revenues of $105.6 million were up 8.3% year over year on increase in company-operated restaurant as well as franchise revenues. In fact, revenues fell marginally short of the Zacks Consensus Estimate of $106 million.

El Pollo Loco Holdings, Inc. Price, Consensus and EPS Surprise

El Pollo Loco Holdings, Inc. Price, Consensus and EPS Surprise | El Pollo Loco Holdings, Inc. Quote

Behind the Headline Numbers

Notably, system-wide comps increased 2.9% due to an increase in comps at both company-operated and franchise restaurants.

Company-operated restaurant sales were $98.9 million in the second quarter of 2017, compared with $90.9 million in the year-ago quarter. Improvement of 8.8% in the sales was mainly because of the opening of 24 new restaurants during and subsequent to the second quarter of 2016.

Moreover, comps at company-operated restaurant increased 2.4% due to a 0.5% increase in transactions and a 1.9% rise in average check.

Franchise-operated restaurant sales increased 1.4% year over year to $6.7 million compared with $6.6 in the prior quarter. This increment was mainly due to the opening of 17 new restaurants during and subsequent to the second quarter of 2016.

Comps at Franchise restaurants were up 3.2% during the quarter.

Restaurant contribution was $21.6 million (21.8% of company-operated restaurant revenues), compared with $20 million (22% of company-operated restaurant revenues) in the second quarter of 2016. The drop in restaurant contribution margin was mainly due to elevated labor charges, higher occupancy and other operating expenses associated with restaurant openings, somewhat offset by lower worker’s compensation costs and improvement in food costs related to lower chicken prices.

2017 Outlook Revised

El Pollo Loco now expects 2017 pro forma earnings per share in the band of 64 cents to 67 cents, down from the earlier guided range of 65 cents to 69 cents. Notably, in 2016, adjusted earnings per share stood at 66 cents. Meanwhile, the Zacks Consensus Estimate for 2017 earnings is pegged at 68 cents, above the guide range.

Adjusted EBITDA (Earnings before Interest, Tax, Depreciation and Amortization) is expected in the band of $66.5 million to .5 million (earlier $67--$70 million). Meanwhile, restaurant contribution margin is projected in the range of 20.3% to 20.7% (earlier 20.4%--20.8%).

Furthermore, the company expects system-wide comparable restaurant sales growth in the range of 1--2% (earlier flat to up 2%).

The company revised the range of its restaurant opening and now plans to open 17 to19 company-owned restaurants in 2017 (earlier 15 to 20). Meanwhile, the expected number of new franchised restaurants in the year lies between 9 and 11 (earlier 8 to 12).

Also, the company is likely to close three company-owned restaurants in Texas during the third quarter of 2017.

Currently, El Pollo Loco carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases

Darden Restaurants, Inc.’s DRI fourth-quarter fiscal 2017 adjusted earnings of $1.18 per share outpaced the Zacks Consensus Estimate of $1.15 by 2.6%. Further, the bottom line rose 7.3% year over year on the back of higher revenues and lower share count.

Chipotle Mexican Grill, Inc.’s CMG second-quarter 2017 adjusted earnings of $2.32 per share outpaced the Zacks Consensus Estimate of $2.16 by 7.4%. The figure also increased significantly from the prior-year quarter earnings of 87 cents on a substantial rise in revenues.

Buffalo Wild Wings, Inc.’s BWLD second-quarter 2017 adjusted earnings of 66 cents fell short of the Zacks Consensus Estimate of $1.01 by 34.6%. The figure also decreased significantly from the prior-year quarter earnings of $1.27, given high wing costs, increased operating expenses and lower-than-expected same store sales.

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