El Pollo Loco (LOCO) Q2 FY26 earnings call: guidance and Q&A

How are new market openings performing, and what is the continued strength you're seeing in newer states like Idaho?

New markets are performing exceptionally well, often opening above system average and exceeding expectations, particularly in new states. This strong performance reinforces confidence in the brand's appeal and encourages franchisees to pursue additional unit development.

“Newer markets are opening really well. We're very pleased with the strength of the sales. Most are opening above system average, particularly when it's the first restaurant in the first state or first market. They're opening to just blockbuster lines and quite frankly exceeding our expectations, which is giving us a belief that the fire grilled chicken is resonating and our brand is resonating.”

asked by Todd Brooks · answered by Elizabeth Williams

Is the interest from potential franchisees for national expansion contiguous, or are you seeing interest nationwide?

There is nationwide interest in the brand. While historically expansion has been contiguous, the company is open to non-contiguous jumps across the country, including to the East Coast, depending on how discussions with prospective partners evolve.

“There is nationwide interest. And while we have been rather contiguous over the years, particularly West Coast and down into the South, as we went over to Texas and just a couple in Louisiana, jumping across the country is certainly something that we are considering doing, talking with folks and doing.”

asked by Unknown Speaker · answered by Elizabeth Williams

What drove the sequential acceleration in July's comp trends to 5.8%, and why does Q3 guidance imply a deceleration?

July's acceleration was driven by a combination of strong Loaded Quesadilla momentum, World Cup advertising, and easier year-over-year comparisons. The Q3 guidance midpoint (3.5-4.5%) is consistent with Q2's pace, with July being an 'outsized' month due to specific factors. Comparisons are expected to get tougher in Q4.

“I would say all of the above when you gave the list, you know, we were proud of how our loaded quesadilla got off to a great start. It's a nice eat, a great value, combined with just the meat media that we've had behind it and also we wish we could have a World Cup advertising in the month of July every year...”

asked by Unknown Speaker · answered by Elizabeth Williams

What were the key learnings from Loco Tenders, and what needs to happen for them to become a permanent menu item?

Loco Tenders drove significant incrementality, attracting new, younger consumers and fitting snacking/late-night occasions, particularly for delivery. The primary factor for permanent inclusion is testing and implementing holding equipment in restaurants to ensure operational efficiency and better execution. The company is also exploring other applications for tenders, such as in wraps and salads.

“On the back half, the tenders, we had always planned as a limited time offer for the main reason of having some of the equipment in the restaurants to be able to hold them. so that we could operate at a higher velocity and just operationally we could execute them for just a better execution.”

asked by Unknown Speaker · answered by Elizabeth Williams

What proportion of Q2 COGS pressure was from produce, and is it mitigating into Q3, impacting margin guidance?

Approximately three-quarters of the Q2 COGS pressure was related to produce. While produce pressure has mitigated somewhat, other areas like packaging, oil, and fuel costs are still experiencing pressure. The Q3 restaurant-level margin guidance (18-18.5%) reflects this ongoing, albeit shifting, commodity environment.

“about three quarters of the COGS pressure that we did see in Q2 was related to produce in particular. We have seen it mitigate some. There's still a little pressure there, but it has mitigated some, and we're seeing some pressure some other lines, we've seen some pressure in packaging and we've seen some pressure in oil costs, not as significant as what we've seen in produce.”

asked by Unknown Speaker · answered by Ira Fils

Have you scoured your food sourcing for potential issues with jalapenos or lettuce, given recent industry headlines, and have you seen any impact?

The company takes food safety seriously and has thoroughly reviewed its supply chain. El Pollo Loco was not involved in any lettuce recalls, no illnesses were linked, and all lettuce is USA-sourced. They use serrano peppers, not jalapenos, and do not use the supplier in question. While it's hard to quantify, there might have been some benefit to their salad business from the headlines.

“Yes, so we take food safety, you know, utmost seriousness and, you know, of course we've scoured every bit of our supply chain and work really closely with suppliers. El Pollo Loco was not involved in any of the lettuce recalls. There was no lettuce product pulled, and no illnesses have been linked to us. and all of our lettuce is currently sourced from the USA.”

asked by Jeremy Hamblin · answered by Elizabeth Williams

Why was CapEx guidance lowered while unit growth targets were maintained?

The reduction in CapEx is primarily due to timing shifts in the remodel program, influenced by permit processes and internal resource deployment, rather than a cancellation. Additionally, the timing of testing holding equipment for Loco Tenders contributed to the adjustment. New units are still opening at or below budget.

“So where we really took the capex tipping down is more just the timing of our needle remodel program We're very happy. We're very pleased with the results of the remodel program. We're continuing to move forward but just as we evaluate a you know, the timing of permits number one and And two, making sure that we're deploying the right resources internally from an operations and from a development standpoint. We've just pulled the timing back a little bit of it, and that's really the first driver of – of the lowered capex.”

asked by Jeremy Hamblin · answered by Ira Fils