El Pollo Loco Holdings, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Polo Loco second quarter 2024 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, August 1st, 2024. And now, I would like to turn the conference over to Ira Philz, the company's chief financial officer. Please go ahead, sir.

Thank you, operator, and good afternoon, everyone. By now, everyone should have access to our second quarter 2024 earnings release. If not, it can be found at www.elpoyoloco.com in the investor relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements, including statements related to our growth opportunities, strategic and operating initiatives, expectations regarding sales and margins, potential changes to our product platforms, capital expenditure plans, expectations regarding kiosk rollouts, the ability of our franchisees to drive growth, expectations regarding commodity and wage inflation, remodel plans, and our 2024 guidance, 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 the year ended 2023 previously filed, as well as our Form 10-Q for the second quarter to be filed for a more detailed discussion of the risks that could impact our future operating results and financial condition. We expect to file our 10-Q for the second quarter of 2024 tomorrow. We encourage you to review that document at your earliest convenience. During today's call, we will discuss non-GAAP measures that 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, which is available in the investor relations section of our website. With respect to the restaurant contribution margin outlook we will be providing on today's call, please note that we have not provided a reconciliation to the most directly comparable forward-looking GAAP financial measure because, without unreasonable efforts, we are unable to predict with reasonable certainty the amount of or timing of non-GAAP adjustments that are used to calculate income from operations and company-operated restaurant revenue on a forward-looking basis. Now, I would like to turn it over to our CEO, Liz Williams.

Thank you, Ira, and good afternoon, everyone. I am proud of what we have accomplished during the second quarter as we delivered 4.5% increase in system-wide comparable restaurant sales driven by our iconic Fire Grilled Chicken. our renewed focus on everyday value, and our consistent operation. Our restaurant-level margins were 18.6%, 170 basis point improvement versus the second quarter of 2023, which can be attributed to our ongoing operational focus. While we are proud of these achievements, we are just getting started in growing our beloved brand. As you know, it has been a challenging macroeconomic environment for the restaurant industry and consumers as a whole in the recent months. While some may see this as an obstacle, we see this as an opportunity to showcase to our guests that El Pollo Loco is one of the unique restaurants that can offer portable, craveable, fresh food, all for a good value and with the convenience of fast service. And don't just take our word for it. Last month, we were named the nation's number one best restaurant for quick, healthy food by USA Today, as voted on by consumers across the country, beating out several well-known larger brands. It is recognition like this that reinforces our differentiated consumer value proposition that makes us primed for growth. As we navigate the second half of 2024, let me update you on our five strategic pillars. As a reminder, these are brand that wins, to be the flavorful, affordable, better for you chicken leader. Hospitality mindset, to show up consistently and with a hospitality mindset. Number three, digital first, to become a digital first business in service of improving the customer experience. Number four, to deliver winning unit economics. And number five, to drive unit growth again with national expansion. Let's start with brand that wins. El Pollo Loco sits at the intersection of chicken and Mexican, two of the fastest growing categories. We are squarely focused on being known for the best chicken in the limited service restaurant sector by bringing thoughtful innovation and affordable options back into the brand. To that end, we recently relaunched our fire grilled burritos with handmade guacamole included in all three at a very attractive price point of $9.99 and $8.99 for our Loco Rewards members. As value perceptions across our entire industry are at a crucial point right now, our burritos with delicious ingredients like our new creamy chipotle sauce or our signature queso blanco reinforce the promise that you can fill up on really good food for a good price at El Pollo Loco. The best part is that these burritos were designed to maintain our favorable margins. Early feedback has been positive, and we look forward to providing you with additional updates later this year. As we launched our new burritos, we also brought back for a limited time our double-chopped salads with chicken. And we reintroduced shrimp, following the success we saw with shrimp in the first quarter. While premium priced, these fan favorites are affordable versus the fast casual alternatives in the market, and they provide healthy options for consumers on the go. We also continued to test other value with our Fire Grilled deals, including our a la carte and combo offerings in the $3 to $7 price range. with classics like our original pollo bowl and tacos al carbón. I look forward to sharing more with you in the upcoming months as we learn more from our tough markets. Finally, as we sharpen our brand positioning, we look forward to reinforcing El Pollo Loco as genuinely delicious food that not only tastes good, but also makes you feel good. We have a unique opportunity to own this space in QSR. Turning now to our digital first pillar. While we believe $9.99 is already a very competitive price point on our menu, our LOCO Rewards loyalty members have access to even better deals like $8.99 burritos already mentioned. Our program, powered through our local rewards app, is the best place for these deals at EPL. In this environment where value is key to the consumer, we will continue to ensure our digital assets offer value that drive trial and repeat visits. Turning to kiosks. When we first began the rollout of kiosks late last year, Our timeline was accelerated to help offset the minimum wage increases that were forecasted in our California markets. When we stepped back and realized the high touch training and customer service that was needed to drive sustainable customer adoption, we decided to better pace and sequence this timeline to ensure our guest experience remained a priority. In parallel, our team has been exploring additional labor productivity initiatives throughout our P&L to offset any gap from kiosk savings. As such, we now expect to complete our company kiosk rollout by the end of the year. This extra time has also enabled some technology enhancements that help our operational and customer experience, like accepting gift cards and discounts. We believe this has been the right decision for the success of kiosks within El Pollo Loco for the long term. We remain excited by the future potential of kiosks and look forward to keeping you updated as the year goes on. The next pillar I want to touch on is delivering winning unit economics. While we are pleased with our margin performance during the quarter, We are excited about the roadmap that we are building for our future. We are looking across the P&L from labor productivity to cost of goods sold to repair and maintenance and utilities and all other controllable expenses. We have a dedicated working team focused on these initiatives led by recently hired new leaders guiding our supply chain, our operational services, and our culinary functions. With their fresh perspective and our talented teams that have been with El Pollo Loco for many years, we are approaching our cost savings initiatives methodically to ensure our high-quality food and the guest experience only improve. As we unlock this potential, we expect to start seeing the benefits in the fourth quarter of 2024. and offsetting the investments we are making in this initiative. Through the work we've done thus far and with the roadmap for the next year, we believe there is an opportunity to approach 18% restaurant contribution margins in 2025, giving us increased confidence in our ability to return to consistent 18 to 20% margins over time. Lastly, let's talk about driving unit growth. As I mentioned on our last call, our current prototype build costs are simply too high to drive consistent long-term franchise growth. To that end, we have made good progress on value engineering and reducing the cost of our prototype, while at the same time modernizing our brand image. I have increased confidence in our ability to reduce our new unit build cost to around $1.8 million. We are just finishing up the design of the prototype, which will have a more relevant image that bridges our current design to our future. In the next few months, we will begin construction on a company unit with the new prototype and reduced cost model. We look forward to sharing further updates as we move through the year. Combined with the development incentive that we launched a few months ago for our franchise partners, we are quickly laying the foundation to ignite development growth in 2025. Wrapping up development, I am pleased to introduce Tim Welsh as our Chief Development Officer. Tim joined the team in early June and has brought with him over 20 years of development and franchising experience in growth strategies, franchise sales, prototype development, remodel programs, and facilities maintenance. From design to facilities maintenance to restaurant equipment, Tim has already had an impact on many areas of our cost engineering and design initiatives. His experience is the perfect fit for El Pollo Loco as we work together with our franchise partners to drive unit growth and become a national brand. I want to close by talking about our hospitality mindset pillar and the underpinning priority of culture. We are committed to attracting, hiring, and retaining top talent and driving a culture of accountability. As I have gotten to know the El Pollo Loco team better in my last six months, I have been so impressed with our restaurant culture. Because of the strength of our leaders and the passion of our team members and franchise partners, we have some of the lowest turnover in the restaurant industry, in both company and franchise restaurants. As our team is focused on updating our tools and standards to drive speed, accuracy and hospitality, we are confident that our culture will enable some quick operational wins. We look forward to sharing more in the future. In summary, we believe we have the right building blocks for long-term success. We are reinventing value by focusing on our key differentiator, citrus marinated fire grilled chicken. We have the right leadership in place to reignite our growth plan and return Apoyo Loco to historically strong margin performance. And we are fortunate to have such a strong support center team and over 4,300 amazing team members in our restaurants and an incredible franchise system. Together, all of this is ready to capture the growth ahead. With that, let me turn the call over to Ira for a more detailed discussion of our second quarter financial results.