EPL Intermediate, Inc. Announces Results for the 13 Weeks and 39 Weeks Ended September 24, 2008

EPL Intermediate, Inc. ('El Pollo Loco'), parent company of El Pollo Loco, Inc., today reported results for its 13-week third quarter and 39 weeks ended September 24, 2008. For simplicity of presentation, the Company has described the 13-week third quarters and 39-week periods ended September 24, 2008 and September 26, 2007 as September 30, 2008 and September 30, 2007, respectively.

El Pollo Loco reported operating revenues for the 13-week third quarter ended September 30, 2008 of $74.9 million, which is an increase of $2.6 million, or 3.6%, over operating revenues for the 13-week third quarter ended September 30, 2007 of $72.3 million. Operating revenues include sales at both company-operated stores and franchise revenues.

Same store sales for the system, which includes sales from both company-operated and franchised stores, remained flat for the 13 weeks ended September 30, 2008 compared to the same period of 2007. Year to date same-store sales for restaurants system-wide increased 1.1% compared to the prior year same period. Restaurants enter the comparable restaurant base for same-store sales the first full week after that restaurant's 15-month anniversary.

Changes in operating expenses in the third quarter of 2008 include:

• an increase in product cost of $1.9 million, or 9.3%, to $22.7 million for the 13 weeks ended September 30, 2008 from $20.8 million for the prior year same period. These costs, as a percentage of restaurant revenue, increased 1.7% to 32.6% during the third quarter of 2008 compared to 30.9% for the third quarter of 2007. This increase is attributed to higher chicken and commodity costs, along with heavier promotional discounting in the current period, partially offset by the benefit of menu price increases taken this year.

• payroll and benefits expenses that increased $0.9 million, or 5.1%, to $18.4 million for the 13 weeks ended September 30, 2008 from $17.5 million for the 13 weeks ended September 30, 2007. As a percentage of restaurant revenue, these costs increased 0.4% to 26.4% for the 2008 period from 26.0% for the 2007 period. This increase is primarily attributed to higher wages, due in part to increases this year in the federal and California minimum wage, partially offset by the leverage from menu price increases earlier this year.

• a 0.9% increase in restaurant other operating expense, which includes utilities, repair and maintenance, advertising, property taxes, occupancy and other operating expenses, as a percentage of restaurant revenue, resulting from a 0.4% increase in occupancy costs as a percentage of revenue, which was primarily a result of higher rent expense in the current period. The increase was also due to a 0.6% increase in utilities as a percentage of revenue due to higher gas prices in the current period. The increase in restaurant other operating expense was partially offset by a 0.4% decrease in repairs and maintenance expense as a percentage of revenue and a 0.4% decrease in preopening costs as a percentage of revenue.

• a $2.1 million decrease in general and administrative expenses, attributed primarily to a $2.8 million loss recognized in the 2007 period from the sale of eight company restaurants that did not occur in the 2008 period and decreased salaries and wages of $0.7 million due primarily to lower bonus expense in the current period. The decrease in general and administrative expenses was partially offset by an impairment charge of $1.2 million in the current period, recorded by the Company for two under-performing company stores that will continue to operate, and an increase of $0.2 million in meetings expense in the current period due to timing of the Company's annual conference.

Operating income increased $0.4 million, or 6.9%, to $6.6 million for the third quarter of 2008 from $6.2 million for the third quarter of 2007 due to the factors described above.

Interest expense, net of interest income, decreased $1.3 million, or 17.7%, to $6.1 million for the 13 weeks ended September 30, 2008 from $7.4 million for the prior year same period. Average debt balances for the third quarter of 2008 decreased to $248.3 million compared to $265.0 million for the third quarter of 2007, and our average interest rate decreased to 9.15% for the 2008 period compared to 10.62% for the 2007 period.

Our provision for income taxes consisted of income tax expense of $43,000 and $2.8 million for the 13-week periods ended September 30, 2008 and 2007, respectively, for an effective tax rate of 47.6% for 2008 and 36.5% for 2007. The higher income tax expense reported in 2007 occurred because of a large gain on sale for tax purposes related to the sale of eight restaurants in the third quarter that created additional income tax expense as most of the goodwill written off for book purposes was not deductible for tax purposes.

As a result of the factors above, there was net income for the third quarter of 2008 of $48,000, compared with a net loss of $4.0 million for the prior year third quarter.

Operating revenues for the 39-week period ended September 30, 2008 were $222.5 million, which was an increase of $13.7 million, or 6.5%, over operating revenues for the 39 weeks ended September 30, 2007 of $208.8 million.

Operating income for the 39 weeks ended September 30, 2008 was $10.0 million, which was a decrease of $12.6 million, or 55.6%, over operating income of $22.6 million for the 39 weeks ended September 30, 2007. This decrease is attributed primarily to the $10.7 million expense included as general and administrative expense in the 39 weeks ended September 30, 2008 to settle litigation between El Pollo Loco Mexico, S. A. de C.V. and El Pollo Loco, Inc. The settlement amount was paid by Chicken Acquisition Corp., the Company's indirect shareholder, which was treated as a capital contribution to the Company.

Excluding the $10.7 million settlement expense, general and administrative expense decreased $0.7 million, or 3.0%, to $21.3 million for the 39 weeks ended September 30, 2008 from $22.0 million for the 39 weeks ended September 30, 2007. As a percentage of restaurant revenue, general and administrative expense, excluding the settlement expense, decreased 1.0% to 10.3% for the 39 weeks ended September 30, 2008 from 11.3% for the prior year same period. The decrease was primarily attributed to a $2.8 million loss recognized in the 2007 period from the sale of eight restaurants that did not occur in the 2008 period. The decrease in expense was partially offset by an impairment charge in the current period of $1.2 million, which was recorded by the Company for two under-performing company-operated stores that will continue to operate and also due to an increase in legal expense of $1.0 million in the current period, primarily attributed to the Mexico Litigation.

Interest expense, net of interest income, decreased $2.2 million, or 10.0%, to $19.7 million for the 39 weeks ended September 30, 2008 from $21.9 million for the 39 weeks ended September 30, 2007. Average debt balances for the 2008 period decreased to $254.6 million compared to $260.7 million for the 2007 period, and our average interest rate decreased to 9.69% for the 2008 period compared to 10.63% for the 2007 period.

Our provision for income taxes consisted of an income tax benefit of $4.1 million for the 39-week period ended September 30, 2008 compared to income tax expense of $3.1 million for the 39-week period ended September 30, 2007 for an effective tax rate of 42.4% for 2008 and 32.6% for 2007.

As a result of the factors above, in particular the $10.7 million settlement expense, there was a net loss for the 39 weeks ended September 30, 2008 of $6.0 million, an increase of $3.6 million from the net loss for the 39 weeks ended September 30, 2007 of $2.4 million.

Commenting on the Company's year to date results, Stephen E. Carley, President and CEO of El Pollo Loco, Inc. said, 'During these extraordinarily difficult times, consumers are worried about rising credit card debt while enduring losses in the value of their home equity, retirement nest egg and stock portfolios. As a result, many are deciding to eat out less frequently or spend less when they do. Despite an exceptionally difficult economy, El Pollo Loco has sustained positive system-wide sales growth year to date which we attribute in part to value pricing on our family meals, new product introductions and targeted couponing.'

Midway through the third quarter, El Pollo Loco successfully introduced the Grilled Chicken Tortilla Roll, a portable menu item featuring the chain's signature citrus-marinated, flame-grilled chicken with two kinds of cheese rolled in a flour tortilla and grilled. This 'grab and go' entrée delivers high satisfaction and value at a $1.99 price point.

Reader Comments:

Be the first to leave a comment for this article