El Pollo Loco Holdings, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Local fourth quarter 2024 earnings conference call. At this time, all participants have been placed in the 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 6, 2025. And now, I would like to turn the conference over to Ira Fields, the company's chief financial officer.

Thank you, operator, and good afternoon. By now, everyone should have access to our fourth 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 operational 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 2025 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 a more detailed discussion of the risks that could impact our future operating results and financial condition. We expect to file our 10-K for 2024 tomorrow and would encourage you to review that document at your earliest convenience. During today's call, we will discuss non-cap 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 Reconciliation's two 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 undue 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 Williamson.

Thank you, Ira, and good afternoon, everyone. 2024 was a foundational year for El Pollo Loco as we embarked on our brand transformation and made tremendous progress across all of our key objectives. We reignited growth, delivering same-store sales growth, expanding margins, and reviving our development pipeline. But make no mistake, we are just getting started. and we believe our best is yet to come. 2024 was my first year with the brand and the first year of our turnaround story. Now, when I say turnaround, I want to be clear. This is a brand turnaround, not a business turnaround. We are fortunate that our business fundamentals are solid, and we will talk about this today with regards to our strong financial position and our business model. We are equally fortunate that our food is high quality and loved. So many times in a turnaround, the food needs to be fixed or improved. That just is not our case. The turnaround needed for El Pollo Loco is one to modernize our brand, to drive operational consistency and simplicity, and most importantly, to enhance our customer experience. Our five pillar plan and focused initiatives position us to address these turnaround fundamentals and will allow us to achieve our goal to become the national fire grilled chicken brand. So let's dive into each of these areas. First, we've made great progress within our brand that wins pillar by reminding consumers that we are craveable, affordable, and better for you. A core strength of El Pollo Loco is our food, anchored around our signature, fire-grilled, citrus-marinated chicken. Whether it is our chicken family meals, our delicious tacos, our burritos, salads, fresh guacamole, and our unique salsas, all are prepared fresh daily, by hand, in our restaurants. In consumer research, we continue to get high-quality scores and accolades from customers that put us ahead of the traditional QSR players. We are fortunate that we don't need to change our food. We simply need to remind our lapsed consumers and communicate with new consumers that El Pollo Loco stands for quality and flavorful food that is quick, convenient, and offers value for the money. We will communicate these brand strengths in the upcoming months as we launch a new advertising campaign. Amplifying this quality even further, in 2024, we reignited our culinary innovation and are just now seeing the results as we have a 2025 marketing calendar with new innovation. In late January, we showcased our first innovation in many years with Mango Habanero, a new flavor for our bone-in fire-grilled chicken. In mid-February, we followed up with mango habanero chicken, available also on our tostada salads, and I'm pleased to say that both have been very well received. The sweet and spicy, or swicy, flavor delivers on taste at a value price that we know consumers are looking for. And the best part, it's operationally simple for our team members to execute. Mango habanero is just the beginning for new sauces and flavors at El Pollo Loco. And our innovation doesn't stop there, as we will launch our new Fresca wraps and salads this spring, featuring fresh and healthy leafy greens. Our new wraps and salads break the QSR mold, being made to order with premium ingredients. These products further solidify our positioning when it comes to quality, flavorful, better-for-you offerings in a drive-through format at affordable prices. Turning to value, we continue to have success with promotions like our Taco Tuesday and our $5 Puyo Bowl. As we look to extend value even further, we are focused on pairing value with innovation. We do not need to play into the price wars or the menu discounts that erode margins. Rather, we believe a new product like Quesadilla, slated to launch this summer, can deliver on both innovation and value, while also offering a craveable, portable fan favorite. With all-white meat chicken and guacamole included for dipping, Together with chips and a drink, this combo will be a tremendous value priced in the $9 to $10 price range. Mango habanero, fresca wraps, and salads followed by quesadilla are a testament to our focus on culinary innovation. We are proud of our growing pipeline, and we look forward to sharing more in the upcoming months as it continues to grow. In conjunction with our effort to reignite the brand through culinary innovation, we are excited about our plans to relaunch our brand in the coming months. From our brand aesthetic to a new approach in marketing and brand positioning, we will be evolving El Pollo Loco to be a more modern brand while remaining true to our core. We made a change with our advertising agency at the end of 2024 and are excited to show our passion for chicken, our fresh ingredients, homemade food, and quality. Together with our restaurant remodel program that will touch 60 to 80 restaurants this year, it will be hard to miss this transformation. While I won't spoil everything we have planned, I'm excited about where we will take the brand in 2025 with our new agency partner. Equally important, in our transformation are the improvements in all aspects of our four-wall operations with our hospitality mindset and digital first pillars. In 2024, we reaffirmed our standards driving accountability and productivity in all of our restaurants. From a relaunch of our standards to a new labor deployment system in our company restaurants to investments in cooking equipment and kiosks, We are focused on improving the team member and consumer experience while also driving productivity. As I continue to spend time in the field and in our restaurants, it has become more and more apparent that we need to get our consistency and quality of service to match our food quality. To that end, our focus for 2025 will be overall customer satisfaction building upon our standards and accountability foundation. To measure this, we recently launched a new customer feedback system with a best-in-class partner, which has enabled us to improve our closed-loop customer feedback system and to more clearly benchmark customer feedback with other leaders in the restaurant industry. This feedback, together with the efforts mentioned above, will position us to be laser-focused on improving our speed, accuracy, and consistency as we serve our guests. We recognize better customer service drives transaction growth and customer loyalty and are optimistic about the opportunity for improvement in both. Shifting to winning economics, we substantially improved our unit economics through methodical cost savings and asset modernization initiatives. During 2024, our team did a tremendous job identifying cost savings across the P&L, culminating in restaurant contribution margins of 17.4% for the year. This is a 190 basis point improvement year over year. More importantly, the work we've done this past year was just the beginning and has given us the ability to drive further cost improvement as we enter 2025. In 2024, we also improved our economics with our new restaurant build. Last fall, we introduced our new iconic restaurant prototype. This prototype not only showcases an enduring yet modern and efficient design that is uniquely El Coyo Loco, but it also helps us achieve our goal to reduce build costs and drive improved cash on cash returns as we grow our footprint across the country in 2025 and beyond. This evolutionary, flexible format is in the permitting process and will be built for under $2 million. Needless to say, this is a big unlock as we reignite sustainable unit growth across the country. Turning to new unit development, We are now planning to open 10 new restaurants in 2025. While California has been our home and holds a rich history for our brand, we know El Pollo Loco is destined for more. This year, the majority of our new restaurant openings will be outside of California and will also be spread across our emerging markets. with restaurants under development in Arizona, Colorado, Idaho, New Mexico, Texas, and Washington. In fact, we are thrilled to be opening our 500th restaurant outside of California in just a few months in a fitting tribute to what is yet to come as we celebrate our 50th year. As part of these development efforts, we bolstered our new unit growth strategy through conversions. We are taking advantage of restaurant closures that have been happening in our industry over the past several years. Due to our flexible restaurant format, our franchise partners have been able to take over some of these locations and convert them to El Pollo Locos with reduced build costs and outsized returns relative to a ground-up build. Finally, as I mentioned earlier, part of our brand transformation is modernizing our current locations to further showcase our evolved restaurant design, in line with our new iconic new build design. If you recall, we offer a two-tier approach on remodeling. One is a low-cost, five-year refresh investment, and another is an extensive 10-year remodel investment. With this strategy, we anticipate being able to touch roughly half of our total system over the next four years in partnership with our franchise partners. We are in the early days with just a few new images rolled out. However, we are pleased with the sales and economic returns that we are seeing with the remodels, and we'll share more throughout the year as we get more data points. Let me close by saying how thrilled I am with what we accomplished in 2024 and how equally excited I am about what we can accomplish in 2025. I am proud of our team, particularly our company and our franchise operators for establishing a strong foundation that we can build on as we move forward. As we enter year two of our three-year turnaround, our focus remains squarely on growth. We have a robust product calendar that embraces innovation and value. We are gearing up for a brand relaunch that will make our brand more relevant while maintaining our core identity, and we are improving our operational foundation. We have a new flexible and affordable unit prototype that will drive new units and remodel. With all of these combined, we believe we are well positioned to not only capture top line growth opportunities, but also to improve profitability as we make El Pollo Loco the national fire grilled chicken brand. Of course, none of this would be possible without the hard work and dedication of our over 4,300 amazing team members. And for that, I would like to say thank you to each of you. With that, let me turn the call over to Ira for a more detailed discussion on our fourth quarter financial results.