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Actionable news in LOCO: EL POLLO LOCO HOLDINGS Inc,

El Pollo Loco Hatching Into A Healthy Investment Opportunity After A Long Incubation

The struggling years are nearly over for El Pollo Loco. Their cash flow position has improved considerably due to their reduced debt load.

There are some missed opportunities in terms of geographic growth, but that only means the possibility of a fresh start.

Aggressive expansion into other high-Hispanic-population locations seems to be the way forward, since they are all over California with over 350 outlets.

El Pollo Loco (NASDAQ:LOCO) is a limited service Mexican-inspired restaurant that offers "citrus-marinated and fire-grilled chicken" entrees as its main offering, along with salads, burritos and other items. Expanding from Mexico into the American border in 1980, their single restaurant in California has now grown into a 418-unit chain that operates a pro-franchise model - 244 franchise units versus 174 company-run outlets.

They went public in July of 2014, using the proceeds to reduce overall debt. Since then they have been aggressively trying to reduce their interest expenses.

For a majority franchisee-run group their unit growth has been barely registering on the graph. Although the company says it intends to grow its restaurant base by 8 to 10% annually (2014 Annual Report), a look at their growth history since 2012 makes the claim sound incredible.

One of the biggest issues we feel the company currently faces with respect to expansion is its concentration of restaurants in California. The Golden State accounts of 86% of all units; while the large hispanic population justifies this trend, we question their absence in states like Florida and New Mexico. Even Texas only has 11 units at the moment - less than 3% of their total restaurants.

On the upside, revenue growth has been impressive - nearly 26% in three years - and annual growth in operating income has been in a somewhat loose range of between 16% and 28%.

However, despite great runs on revenue and operating income the top line has struggled to trickle down to the bottom as the company consistently reported losses until 2013, before finally being back in the black in 2014.

Most of their earnings were sucked out by their debt mountain before it reached the bottom, but thankfully the company...


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