El Pollo Loco Holdings, Inc.

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the El Pollo Loco fourth 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. Please note that this conference is being recorded today, March 10, 2022. And now, I'd like to turn the conference over to Larry Roberts, Chief Executive Officer and Interim Chief Financial Officer.

Thank you, Operator, and good afternoon. By now, everyone should have access to our fourth quarter 2021 earnings release. If not, it can be found at www.apoyoloco.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 that differ materially from what we currently expect. We refer you to our recent SEC filings, including our Form 10-K, for more detailed discussion of the risks that could impact our future operating results and financial condition. We expect to file our 10-K for 2021 tomorrow, and we 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 an earnings release. Now, before we get started, I'd like to take a brief moment to comment on my appointment as permanent chief executive officer of Apoyo Loco that was announced this afternoon. It is an incredible honor to lead this company along with the employees and franchisees that made this such a great brand. While the current environment has its challenges, I believe the positioning of the brand is very strong, and I'm extremely excited about the initiatives we're implementing to strengthen the business further, as well as capture the company's long-term growth potential. With that, I'd like to touch on our recent results and spend some time discussing initiatives that we believe will set us up for a successful 2022 and beyond. As we previously announced in our January business update, we are pleased with our sales and operating performance during the fourth quarter as we posted 11% growth in system-wide comparable restaurant sales. Staffing challenges and the resurgence of COVID had an enormous impact on our company-owned restaurant comparable sales during the quarter to the tune of approximately five to six percentage points. Despite this sales impact, plus accelerating commodity and wage inflation during the quarter, Our teams did a fantastic job managing our business, resulting in a solid restaurant contribution margin of 15.7% and earning per share of 17 cents. Touching briefly on the first quarter of 2022 to date, some of the actions taken to manage the Omicron virus also impacted our business in January and the early part of February. These actions included reducing operating hours and service channels, along with temporarily closing a small number of restaurants. Despite the impact of the Omicron virus, through February 23rd, year-to-date system comfort restaurant sales were 7.4%, consisting of a 1.5% increase in company-operated restaurants and an 11.2% increase in franchise restaurants. I am pleased to say that the impact of Omicron is dissipating and has become negligible over recent weeks. In addition, we are seeing an increase in applicant flow, which has enabled us to significantly reduce staffing charges across our company-operated restaurants. Commodity and wage inflation is now our biggest challenge, which I will discuss later. Also, with regard to 2022, we are modifying our acceleration agenda to focus on four pillars that will further strengthen our business in the years to come. Let me start with our culture, which includes three key elements.

First,