A variety of Pollo Loco's Baja Shrimp dishes. Image source: Pollo Loco.
What: Shares of El Pollo Loco (LOCO +0.36%) fell 20% on Friday morning, following the release of disappointing second-quarter results.
So what: The chicken restaurant chain saw second-quarter sales rise 3% year over year, landing at $89.5 million. On the bottom line, adjusted earnings increased 21% to $0.19 per diluted share. Since your average Wall Street analyst expected earnings of $0.18 per share on roughly $93 million in sales, that works out to a mixed quarter.
Same-store sales increased 2.6% year over year for franchised locations, but decreased 0.5% in company-owned restaurants. Management held its full-year earnings guidance steady at approximately $0.69 per share, a hair below Wall Street's current view of $0.70 per share.
Now what: Weak same-store growth in the company-owned segment is bad news. That division represents 40% of Pollo Loco's overall store network, but accounted for 96% of Pollo Loco's overall revenues in the second quarter. Foot traffic decreased by 3.9% in that crucial segment, offset by 3.4% higher spending per guest.
Based on these results and current business trends, Pollo Loco also lowered its full-year guidance for overall same-store growth from approximately 4% to 3%. Margins are shrinking due to higher healthcare costs and the introduction of non-chicken proteins such as shrimp and carne asada on the menu.
"We remain focused on delivering the core elements of our QSR+ brand promise and are confident in the remainder of the year with the addition of shrimp and the rebalancing of our menu with more value focused products," said Pollo Loco CEO Steve Sather in a press statement.
Discussing the quarter in a conference call with analysts, Sather noted that the push for non-chicken proteins at premium prices came at the same time as removing the $5 value meal from Pollo Loco's main menu. "We believe this confluence of actions drove reduced business from some of our more value-oriented customers," Sather said, and then promised to step more lightly with menu changes in coming quarters.
Pollo Loco's shares have fallen 26% so far in 2015. Since joining the public markets a year ago, the stock is down 39%.
