El Pollo Loco Holdings, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco Second Quarter 2021 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the presentation. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star and zero. Please note that this conference is being recorded today August 5, 2021. On the call today, we have Bernard Okoka, President and Chief Executive Officer of El Pollo Loco, and Larry Roberts, Chief Financial Officer. And now I would like to turn the conference over to Larry Roberts.

Thank you, Operator, and good afternoon. By now, everyone should have access to our second quarter 2021 earnings release. If not, it can be found at www.elpolloloco.com in the investor relations section. Before we begin our formal remarks, I need to remind everyone that our discussion today will include forward-looking statements, including statements related to the impact of the COVID-19 pandemic on our business and strategic actions we are taking in response, as well as our marketing initiatives, cash flow expectations, capital expenditure plans, and plans for new store openings, among others. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we currently expect. We refer you to our recent SEC filings, including our Form 10-K, for a more detailed discussion of the risks that could impact our future operating results and financial conditions. We expect to file our 10-Q for the second quarter of 2021 tomorrow and would encourage you to review that document at your earliest convenience. During today's call, we will discuss non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release. Before I turn the call over to President and Chief Executive Officer Bernard Okoka, I'd like to note that Bernard and I are in different locations today. Please bear with us if you experience any slight delays or minor audio quality issues. Bernard, please go ahead.

Thank you, Larry. Good afternoon, everyone, and thank you for joining us today. We're very pleased with the continued sales recovery in both our Los Angeles and outer market restaurants during the second quarter, culminating in a 21% increase in system-wide comparable restaurant sales. On a two-year basis, which I believe captures a more complete picture of our performance coming out of this pandemic, our system-wide comparable sales grew 14.8%. As mentioned in our previous earnings call, This was a quarter in which we achieved not only our number one and number two highest sales volume days in company history with our National Burrito Day and Sanco de Mayo promotions respectively, but also achieved company-comparable restaurant weekly average unit volumes of over $40,000 for 18 straight weeks, further highlighting the strength we are seeing in our business. With the further relaxation of restrictions, our positive sales trajectory has continued into the third quarter. Through July 28, our third quarter to date, system comparable sales are up 10.6%, and on a two-year basis, system comparable sales have increased 14.6%. From a profitability standpoint, despite some pressure on labor and food costs, we were able to leverage our increased sales and post a strong restaurant operating profit margin of 20.8% during the quarter and pro forma earnings per share of 29 cents. Looking at our sales in a bit more detail, restaurants outside of Los Angeles continued their positive sales trajectory during the second quarter. In addition, I'm especially pleased to report that our LA market has strengthened since the lockdowns were lifted. In fact, The gap in system comparable sales performance between our L.A. and outer market restaurants improved throughout the second quarter, with L.A. system comp sales exceeding outer markets in June by 150 basis points. You may remember that we began the second quarter with our L.A. restaurants operating at approximately 50% capacity, increasing to 100% on June 15th in accordance with state and local law. Not surprisingly, our dine-in traffic has increased at a steady pace and currently runs between 8% to 9% of transactions. This is still well below pre-COVID levels, which is one reason why we're optimistic about continued sales growth in the LA market. Helping to drive our strong sales results during the quarter were a number of marketing initiatives, starting with our tostada promotion, which demonstrated the power of a unique consumer insight to drive sales. The promotion did not include any new menu items, but instead the advertising focused on the many unique ways you can eat a tostada with the tagline, how do you tostada? The execution of this insight was so well received that we achieved record sales of tostadas during the promotion period, and they have remained strong as we've transitioned into our next promotion, our $5 fire grill combos. As with tostadas, our $5 fire grill combo promotion does not include any new products. Instead, our advertising continues to exploit meaningful consumer insights and targets an older Gen Z, younger millennial demographic who are seeking higher quality value meal options, hence the tagline, value yourself. We believe that this approach will broaden our consumer base and and drive incremental sales over a sustained period of time. During the quarter, we also introduced our new Thermo2Go packaging, which was optimized to retain heat given how important our off-premise business has become and also eliminates the use of Styrofoam from our brand completely. In fact, the removal of Styrofoam from our restaurants will eliminate 21 Olympic-sized swimming pools of Styrofoam from the waste stream annually. We also continue to drive our off-premise business and are currently running a free delivery promotion for dispatch orders placed directly through ElPolloLoco.com or our app. To date, we are seeing very positive impact from this promotion, which has doubled our system dispatch sales and increased overall delivery sales to 7.7% over the past three weeks. To highlight our free delivery offer and new thermo-to-go packaging, we became the first national restaurant company to deliver food to customers' homes through the air via a drone delivery service which we have branded Air Loco. The drones are capable of delivering our food up to a two-mile radius. While a lot of work remains to be done to make drone delivery a viable everyday option, We are excited about its potential. You can learn more about Air Loco on GoAirLoco.com. Finally, we continue to enhance our loyalty program, Loco Rewards, and are extremely pleased with the progress we are making. Since the beginning of the year, we have added 330,000 members to the program for a total of 2.6 million. Equally exciting, is the progress we are starting to see with transactions in the program. Through targeted offers and greater engagement with our loyalty members, loyalty transactions continue to grow 14% from the first to the second quarter with significant increases in frequency amongst our heavy and medium users. As our loyalty program continues to build momentum, we are confident that it will become an even greater driver of sales in the future. On the new unit development side, I'm very excited to announce that during the quarter, we concluded a four-unit development agreement for a portion of the Denver market with an existing franchisee. This marks our first agreement in a new market and we expect more to follow. In addition, on July 1st, we concluded the sale of our eight company-owned restaurants in Sacramento to an existing franchisee. The transaction included an agreement to build three additional restaurants in the market. We are encouraged that these transactions highlight the desire of our existing franchisees to grow with El Pollo Loco. With that, let me briefly discuss two challenges that we, along with many other businesses, are currently confronting. First, labor availability. To better navigate the current tight labor market, we have implemented several steps geared towards staffing and labor retention in our restaurants. These include increasing our recruiting resources to surface more candidates, increasing applicant flow, and processing applications faster. Increasing our discretionary budget in order to give pay raises to key employees, in particular our shift supervisors. Increasing pay if restaurants hit certain high-volume thresholds as a means of rewarding our general managers while creating the right kind of performance incentives. and also we've increased our training budget for new employees. Over the past month, these initiatives have significantly increased our number of new hires and improved retention, and we've been able to avoid any significant disruptions to our business. We expect these and additional efforts will exert some pressure on our labor costs during the second half of the year. Secondly, Our teams continue to work hard to ensure that our restaurants are continuously supplied with the products they need to feed our customers. While product supplies have improved, transportation and logistics continue to be the biggest challenges. Through the efforts of our teams and vendors, to date we have effectively managed through the supply challenges and have experienced very few product outages. While we expect supply issues to start improving in the fall, We expect higher inflation for the balance of the year as we source chicken outside of our contracts and packaging costs remain elevated. In order to contend with these inflationary pressures, coupled with our confidence and our ability to continue to command pricing power, given the strengthening of our brand, we have moved up a planned price increase to start in September, our second of the year, to mitigate some of these cost headwinds. Just to close out my comments about the quarter, I couldn't be more proud of what our team has accomplished. Despite labor and supply challenges, the hard work and dedication of our restaurant and support center teams have enabled us to ramp up our restaurant operations to 100% as efficiently and safely as possible, while also delivering exceptional financial results. As we look toward the back half of the year, We will continue our efforts to execute on the four pillars of our acceleration agenda to build on the momentum of our core business and further scale our brand for rapid and successful growth, especially in new geographies. As a reminder, these pillars include, one, expanding the brand by growing in new geographies in asset-light fashion with franchisees. Two, supporting the brand and building the right organization for asset-light growth. Three, evolving the brand by continuing to digitize the business to compete and expand frictionless convenience for our customers no matter how they choose to interact with us. And four, focusing the brand on our most valuable core equities and exaggerating them to the point where we really stand out in terms of what makes us so special and so unique. With that, I'd like to turn the call over to Larry to review our second quarter results in more detail.