El Pollo Loco Holdings, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco second quarter 2025 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, July 31st, 2025. And now, I would like to turn the conference over to Ira Filz, the company's chief financial officer. Please go ahead.

Thank you, operator, and good afternoon. By now, everyone should have access to our second quarter 2025 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 the year ended 2024 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 2025 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, 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 gap financial measure because without unreasonable efforts we are unable to predict with reasonable certainty the amount of or timing of non-gap 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. During the second quarter, we made meaningful progress against our strategy as the investments we've made in our brand relaunch and menu innovations are resonating with our customers. Despite ending the quarter with slightly negative sales performance, we saw modest sequential improvement in overall sales and achieved a return to positive system-wide traffic growth. This traffic growth reflects our careful balance of innovation and value in response to the current macroeconomic environment. Given value-conscious consumer behaviors, we implemented targeted discounting, Through Taco Tuesday, our app-only offers, third-party delivery promotions, and traditional coupons. Importantly, we took this targeted approach rather than discounting our everyday menu. It's clear that consumers are looking for better deals, and these offers resonated with our customers in driving traffic. In addition, even as we invested in transactions through targeted value offerings, and continued to roll off pricing, we were able to drive year-over-year margin expansion. Through our focus on operational excellence, we grew both restaurant level and corporate profitability on both a dollar and margin basis. Overall, progress takes time, especially in this consumer environment. but we believe we are on the right track in our journey to achieve long-term, sustainable growth. As we look ahead, we will remain focused on the growth drivers we've put in place, including menu innovation, improved four-wall operations, continued digital growth, and unit development. With that, let me give you an update on each of these drivers, starting with our brand and menu innovation. At the heart of our Brand That Wins pillar lies our signature fire-grilled citrus-marinated chicken, the cornerstone of our brand's success and differentiator. During the second quarter, we introduced our new Fresca wraps and solids, which perfectly demonstrate the versatility of our fire-grilled chicken platform. These products feature our signature citrus-marinated fire-grilled chicken breast, with premium leafy greens served as a salad or in a whole wheat tortilla wrap with hand-sliced avocados, queso fresco, and our new citrus vinaigrette. Importantly, the fresco salads and wraps address key consumer demands for both quality and portability, with both being convenient for on-the-go consumption. The positive guest feedback we've received validates our strategic focus on flavor innovation that leverages our core differentiator while addressing evolving consumer needs. Building on this momentum, we recently launched our new premium chicken quesadillas in two bold flavors, creamy chipotle and salsa verde. These handcraft offerings feature all-white meat, fire-grilled chicken with 100% jack cheese complemented by our signature sauces and served with handmade guacamole at no extra cost. Available as a $9.99 combo, these quesadillas deliver on both portability and value, which are key attributes among younger consumers and busy families seeking convenient meal options. We're pleased with the early performance of quesadillas and expect momentum to build over time as product awareness continues to grow. Importantly, these launches demonstrate our strategic approach to menu innovation with each product leveraging our core differentiator of fire grilled chicken, while also expanding into new consumer occasions. The Fresco line captures the fresh, health-conscious segment, while our quesadillas serve the consumer that's on the go. As we look ahead, we continue to build our culinary innovation pipeline and are excited by some of the other craveable, portable products that we have planned for the remainder of the year, like our street corn and queso crunch burrito bowls, and also our upcoming market tasks, like our new flavor-forward Mexican Caesar and street corn salads, our cold foam cooler beverages, and lots of exciting chicken innovation. including new seasoned chicken tenders paired with dipping sauces and chicken sandwiches like no other chicken sandwich you've seen in the market. We look forward to sharing more details on future calls. Building on our culinary team's menu innovation, we took a significant step toward the modernization of our brand during the quarter with an updated approach to marketing and brand positioning with our new Let's Get Loco brand campaign that launched in May of this year. This brand relaunch and evolution emphasizes our 50-year heritage of fire grilling chicken and actually cooking in our restaurants daily. a true competitive advantage in the QSR industry. Some may call this loco commitment to quality chicken and fresh ingredients crazy, but for us, loco is anything but crazy. Loco is about being unapologetic about our passions, and we are passionate about making the most delicious chicken. As we share our passion with the world, we are inviting others to share their passion with us as we embrace what makes us all a little loco. Importantly, our new positioning directly addresses our key differentiator in a crowded restaurant landscape, our authentic commitment to quality. As we look forward, our brand evolution provides the foundation for all of our marketing efforts and creates a cohesive narrative that supports everything we do. We believe this passion-driven positioning, rooted in our brand's essence, will resonate with both existing and new customers alike. We've also extended this passion-driven approach to marketing collaborations with pro basketball players Dalton Connect and Arike Agunbowale. Most recently, we've leveraged our partnership with Dalton Connect to introduce our first ever food truck with the launch of quesadillas in June. And we have something equally exciting planned with Arike later this year. These partnerships reflect our commitment to aligning with athletes who share our values of dedication, excellence, and passionate pursuit of their craft. Another top priority in our brand transformation is our hospitality mindset pillar, which we accomplish through operational excellence. Over the last few quarters, we have heightened our focus on standards and accountability, together with customer service and customer recovery. When something doesn't go as planned in the restaurant, we have to take action. From new tools and training to new programs and best-in-class third-party partners, these efforts are having an impact. As an example, we recently began utilizing Service Management Group, or SMG, data to track customer service and feedback. We are benchmarking our progress against the industry. The increase in actionable customer comments has been helpful for our restaurant team and is beneficial for accuracy, quality, and service. While our consistency across the system, both company and franchise locations, continues to improve, the data has highlighted we still have an opportunity across specific day parts. Our goal is to get our consistency and quality of service to match that of our food quality at all times. While we've made substantial progress in the second quarter, we still have work to do. With the high quality of our food, we have a high bar to meet, but we are up for the challenge. Turning now to our digital first pillar, we have continued to improve our app experience, making it easier for LOCO Rewards members to add points to their orders. And we have also increased the value proposition by providing more frequent offers to our most loyal customers. We have done this through in-app offers, loyalty member exclusive menu items, and our Loco Friday drops. These new offers or experiences drop every Friday exclusively for our Loco reward members. The combination of all of this activity has positively impacted frequency of our loco reward members by 5.6% year over year. And we are pleased with these early results. We have also invested in growing our third party delivery business in the last few months as delivery gives us the ability to reach more consumers that either don't have an El Pollo loco near them or are looking for the convenience of delivery. Our food travels well, and through special offers and deliveries, we are able to introduce El Pollo Loco to new consumers. Tied to our brand relaunch in May, our app, web, and kiosks all received a refresh with upgraded branding and a light user interface and experience updates. For the quarter, our digital business, which includes kiosks, grew to 25.5% of sales compared to 17.1% in the second quarter of last year. We have a robust roadmap for the back half of 2025 and through 2026 that will allow us to continue to improve the overall customer experience of our digital platforms while further optimizing for business performance. Turning to our winning economics pillar during the quarter, we continue to make improvement to our unit economics through methodical cost savings and asset modernization initiatives, delivering restaurant level operating profit margins of over 19%. We continue to see enhanced labor productivity with a continued focus on efficiency. From better using technology and kitchen equipment to having more success routines for opening and closing shifts, our team members are putting more into customer service hours while also delivering savings. These strong results, along with our visibility into the opportunities ahead, give us the confidence to maintain our expectations for full-year restaurant-level contribution margins of 17.25% to 17.75%. Lastly, let me update you on our unit growth pillar. During the quarter, we were able to bring some of our new iconic design to life with our recent restaurant opening in Arizona. This new design features an enduring yet modern and efficient design that is uniquely El Pollo Loco. Our restaurant in Kingman, Arizona marks our fifth new franchise unit open in the last 12 months with an average unit volume settling in at about $2.4 million. Up next is our 500th El Pollo Loco, which will open in Colorado Springs, Colorado in the second half of 2025. More importantly, we remain confident in our plan to open at least 10 new restaurants in 2025, representing the largest system-wide unit growth since 2022. In addition, thanks to the hard work of our real estate team and our franchise partners, we have the opportunity to almost double this pace in 2026. As a reminder, the majority of these new openings will be outside of California. Today, we have restaurants under development in Arizona, Colorado, Idaho, New Mexico, Texas, and Washington. Modernizing our restaurants through remodeling also remains a crucial component of our development strategy and brand evolution. If you recall, we've implemented a two-tier approach on remodeling with a cost-effective five-year refresh program and more comprehensive 10-year remodel. We continue to work alongside our franchisees with a goal to update approximately half of our total system over the next four years. As with any construction project, there are factors that we can't control, such as local permitting process, which has resulted in some projects being pushed a couple of months and into next year. With that in mind, for the year, we're now expecting to remodel between 55 to 65 system-wide restaurants, 20 of which have already been completed through the end of the second quarter. The remodeled restaurants look fresh and modern and have positive feedback coming in with excitement from customers and team members. We are happy with the early sales and the economic returns we are seeing thus far, from the remodeling effort and are encouraged by the acceleration in projects over the coming quarters. We look forward to updating you on our transformation journey as the year progresses. But in closing, I believe the second quarter results clearly demonstrate the momentum we're building across all aspects of our business. The initiatives we've put in place are delivering meaningful results thanks to the hard work and dedication of each of our team members and our franchise partners and their execution against our five strategic pillars. As we look ahead, we will remain focused on the long-term opportunity of El Pollo Loco to become the nation's favorite fire-grilled chicken restaurant. With that, let me turn the call over to Ira for a more detailed discussion of our second quarter financial results.