What happened

Shares of El Pollo Loco Holdings (NASDAQ:LOCO) were looking overcooked today, as the fast-casual chicken chain sold off following its third-quarter earnings report. Shares closed down 12.9% as the company missed estimates on the top and bottom lines, and cut its guidance for the fiscal year.

A selection of chicken and sides from El Pollo Loco

Image source: El Pollo Loco.

So what

Comparable sales in the period ticked up 0.9%, as overall revenue increased 5.6%, to $101.2 million, missing estimates at $103.7 million. Revenue would've been $0.5 million higher without the impact of Hurricane Harvey. On the bottom line, adjusted earnings per share slipped from $0.18 to $0.16, factoring in the effects of Harvey, which was also short of the analyst consensus at $0.18.  

Rising labor and occupancy costs ate into margins, erasing the benefit of the modest growth in comparable sales. CEO Steve Sather credited the Family Meal offering and Taco Platters limited-time offer for the increase in comp sales, but also acknowledged that restaurants in Texas continue to underperform. The company plans to do a brand relaunch in the Houston and Dallas market to reenergize sales.

Now what 

Sather said that comparable sales had slowed toward the end of the quarter and remain soft thus far into the fourth quarter. Management lowered its full-year guidance, calling for adjusted earnings per share of $0.61-$0.63, down from $0.66 a year ago, and a previous range of $0.64-$0.67. It also sees same-store sales growth of 1%-1.5%, down from its prior forecast of 1%-2%, and expects lower restaurant-level operating margin of 19.3%-19.6%.

Based on that forecast, it's easy to see why the stock slipped today, and shares hit an all-time low on the news. The stock is reasonably valued based on its current earnings forecast, but if management can't deliver profit growth next year, shares could fall further.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.