El Pollo Loco's Q3 2025: Contradictions Emerge on Market Share, Pricing Strategy, and Growth Targets

Date of Call: October 30, 2025

Financials Results

• Revenue: $121.5M total revenue, up $1.1M vs $120.4M in Q3 2024 (≈ +0.9% YOY); company-operated restaurant revenue $100.7M, down 0.5% vs $101.2M prior year
• EPS: GAAP: $0.25 per diluted share, up from $0.21 in Q3 2024; Adjusted: $0.27 per diluted share, up from $0.21 in Q3 2024
• Gross Margin: Restaurant contribution margin 18.3%, compared to 16.7% in the prior year (up 160 bps YOY)

Guidance:

• Open at least 10 restaurants system-wide in 2025 (remaining openings in Nov/Dec; some risk of shifting to early 2026)
• Capital expenditures $28.0M to $30.0M for full year 2025
• G&A expenses $47.5M to $49.5M (excluding one-time charges)
• Estimated effective income tax rate 29.0% to 29.25% (before discrete items)
• Q4 restaurant-level margin expected 16.75%–17.25%; full year 2025 restaurant margin expected 17.5%–17.75%
• Intend to nearly double development pace in 2026 with increased company and franchise investment

Business Commentary:

• Sales Performance and Market Share:
• El Pollo Loco Holdings, Inc. reported total revenue of $121.5 million for Q3 2025, slightly higher than the $120.4 million in Q3 2024, with a 13.5% increase in franchise revenue.

• The company outperformed its peers in the California market, indicating they are gaining market share by offering competitive value and innovative menu items.

• Operational Efficiency and Margin Improvement:

• The company achieved a restaurant-level operating profit margin of 18.3%, up from 16.7% in the previous year, driven by labor efficiencies, enhancements in operational excellence, and technology implementation.

• Cost savings were realized through improvements in labor deployment, scheduling, and technology use, which contributed to margin expansion.

• Digital Sales Growth:

• Digital business, including kiosks, accounted for 27% of system sales in Q3 2025, compared to 20% in the same period last year, reflecting a 7% increase.

• Enhanced app and kiosk experiences, increased loyalty transactions, and targeted promotions drove this growth, contributing to El Pollo Loco's digital-first approach.

• Unit Growth and Development:

• The company opened its 500th restaurant in Colorado Springs and expects to open at least 10 new restaurants in 2025, marking the largest system-wide unit growth since 2022.
• This expansion is fueled by strong franchise partnerships, increased development in key markets, and a focus on second-generation sites, which offer significant cost savings.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly described momentum: "positive system-wide traffic growth," "accelerating unit growth," and "margin expansion" with restaurant contribution margin up to 18.3% (from 16.7% prior year). CEO emphasized momentum from menu innovation and digital growth (digital sales 27% of system sales vs 20% prior year), supporting a positive outlook.

Q&A:

• Question from Jake Bartlett (Truist Securities, Inc., Research Division): Can you give any sense for whether you're outperforming peers in your core California markets and taking share?
  Response: Yes — management said El Pollo Loco is outperforming peers in California on sales and transactions, indicating share gains driven by value, innovation and operational improvements.

• Question from Jake Bartlett (Truist Securities, Inc., Research Division): With others reporting October deceleration, what near-term tactics are you using to offset pressure, are share gains accelerating, and how confident are you they will continue?
  Response: They've deployed targeted value offers, app promotions and operational fixes to drive transactions; October benefited from easier comparisons and management views the consumer as no worse than earlier in the year while remaining cautiously confident.

• Question from Jake Bartlett (Truist Securities, Inc., Research Division): How much incremental cost-savings potential remains for margins into 2026?
  Response: Ira said they are not done — additional labor efficiency and COGS projects remain that should help drive margins toward the long-term 18%–20% target.

• Question from Andrew Barish (Jefferies LLC, Research Division): Where are you in testing tenders and sandwiches and what's the goal/timing to put them on the menu next year?
  Response: Both Loco Tenders and a fire-fried sandwich are in operations testing and moving to broader market tests; management said they could be rolled out as early as Q2 and into later 2026 windows.

• Question from Andrew Barish (Jefferies LLC, Research Division): Where are you on chicken contracting for next year and any market risks we should know?
  Response: They are finalizing chicken contracts this week, feel 'very good' about the buy with modest pressure on dark meat offset elsewhere.

• Question from Andrew Barish (Jefferies LLC, Research Division): Any supply-chain or equipment initiatives (e.g., pre-marinade) to aid labor efficiency in 2026?
  Response: Testing supplier/process innovations (marinades, pre-prep) to improve consistency, quality and reduce labor; some benefits expected as early as Q1.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC, Research Division): Walk us through the drivers of the Q4 restaurant-level margin decline from Q3 (18.3% to ~17% midpoint).
  Response: Ira explained the Q3→Q4 gap is largely seasonal sales volume (Q4 is the lowest quarter), which pressures store-level margins sequentially, but margins are expected to grow year-over-year in Q4.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC, Research Division): How is the 'Let's Get Loco' messaging resonating in a value environment and how will new menu items affect check?
  Response: The campaign plus remodels and menu breadth are bringing new/lapsed guests; management balances low-entry items (quesadillas) to drive transactions with higher-ticket bowls, beverages and desserts to protect and grow check.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC, Research Division): How is the quesadilla mixing now versus launch in terms of percent of sales?
  Response: Mix down a few percentage points after promotional placement (typical), but the quesadilla remains incremental and fills an important entry-level price point.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC, Research Division): Any ongoing impact from local immigration policy actions on traffic?
  Response: Management said the impact persists, more noticeable at lunch than dinner, but is hard to quantify.

Contradiction Point 1

Market Share and Customer Behavior

It involves differing perspectives on El Pollo Loco's market share performance and customer behavior, which are crucial for understanding the company's competitive positioning and growth strategy.

How is El Pollo Loco performing compared to peers in California markets, and are you gaining market share? - Jake Bartlett (Truist Securities)

2025Q3: El Pollo Loco is outperforming peers in California markets on both sales and transactions, indicating that it has taken some market share. - Elizabeth Williams(CEO)

Can you elaborate on the macro environment challenges and how El Pollo Loco is addressing these challenges? - Jake Rowland Bartlett (Truist Securities)

2025Q2: The macro environment is characterized by value-conscious consumer behaviors across all income groups. The industry sees choppy activity, with more spending towards the end of the month due to payday effects. Targeted discounting is being utilized effectively, helping drive transactions despite consumer limitations on spending. The brand relaunch and menu innovation are key drivers of transaction growth. - Elizabeth Goodwin Williams (CEO)

Contradiction Point 2

Pricing Strategy and Flexibility

It involves differing views on pricing strategy and flexibility, which are critical for managing profitability and market competitiveness.

Can you discuss your position on next year's chicken contracting and any unusual market pressures? - Andrew Barish (Jefferies LLC)

2025Q3: We expect to finalize contracts this week and feel confident about our chicken supply. - Ira M. Fils(CFO)

What is causing the decline in average ticket sales at franchise restaurants? - Jake Rowland Bartlett (Truist Securities)

2025Q2: The minimum wage increase in California last year led to more price increases by franchisees than by company-owned restaurants. This is being lapped this year, affecting pricing flexibility, especially in a value-conscious environment. Some franchise partners experimented with more promotions, impacting average ticket. - Elizabeth Goodwin Williams (CEO)

Contradiction Point 3

Confidence in Growth Targets

It involves differing levels of confidence in growth targets, which are crucial for investor expectations and strategic planning.

What strategies will address October's incremental pressure and what are your expectations for market share growth going forward? - Jake Bartlett (Truist Securities)

2025Q3: We're very confident in our ability to achieve a mid-single-digit comp for the year. - Elizabeth Williams(CEO)

How confident are you in achieving your 2026 growth targets? - Jake Rowland Bartlett (Truist Securities)

2025Q2: Very confident in growth targets. Favorable average unit volumes at $2.2 million, strong returns for franchisees, and cost savings make for healthy business model. Many sites have leases signed or are under development, boosting confidence. Second-generation sites also reduce development costs. - Elizabeth Goodwin Williams (CEO)

Contradiction Point 4

Immigration Policy Impact on Operations

It involves the impact of immigration policies on staffing and operations, which is crucial for maintaining consistent service and customer experience.

Is immigration policy still affecting traffic in Southern California? - Jeremy Hamblin (Craig-Hallum)

2025Q3: Immigration policy continues to impact traffic, particularly during lunch hours. While there is no quantifiable data, the company acknowledges ongoing challenges related to staffing and operations due to these policies. - Elizabeth Williams(CEO)

What are your Q2 same-store sales expectations considering current consumer trends? - Jeremy Hamblin (Craig Hallum Capital Group)

2025Q1: Consumer pullback is observed across all markets and income levels. Hispanic consumers face additional pressures but are not the only ones affected. - Liz Williams(CEO)

Contradiction Point 5

Menu Pricing Strategy

It reflects the company's approach to menu pricing, which directly affects customer perception of value and ultimately impacts sales.

How do regional consumer differences affect your stores? - Jake Bartlett (Truist Securities)

2025Q3: Menu pricing is expected to be 3% for the year, with variations by quarter. Q2 will be 3%, and Q3 and Q4 will be 2%. - Ira Fils(CFO)

What is your menu pricing expectation for the year? - Jake Bartlett (Truist Securities)

2025Q1: Overall menu pricing is expected to be 3% for the year, with variations by quarter. Q2 will be 3%, and Q3 and Q4 will be 2%. - Ira Fils(CFO)