Guidance Trim Subdues Baird's Appetite For El Pollo Loco

El Pollo LoCo Holdings Inc LOCO reported robust Q2 results, with the comps and EPS beating the estimates.

Baird’s David E. Tarantino maintains a Neutral rating on the company, with a price target of $15.

Making Progress

“LOCO appears to be making promising progress on strengthening fundamentals within core markets, but our enthusiasm is being tempered by the slight reduction in 2016 earnings guidance, which is due in part to investments intended to strengthen new unit performance in Houston,” Tarantino explained.

Q2 Results

The company reported Q2 pro-forma EPS of $0.19, in line with the guidance but ahead of the estimate and the consensus.

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The EBITDA grew 4 percent to $17.4 million, beating the consensus and guidance, while both system and company comps beat the consensus forecasts, as did the traffic growth of 2.7 percent, representing the first positive since 1Q15.

However, EBIT margin declined to 13.8 percent, ahead of the consensus.

Guidance Lowered

El Pollo Loco Holdings lowered its 2016 EPS guidance from $0.70–0.74 to $0.68–0.72, while leaving the unit development and system comps targets unchanged. The restaurant-level margin and G&A ratio guidance were also lowered.

“Management attributed the reduction in EPS guidance to a slightly lower revenue outlook and investments intended to strengthen performance in Houston,” Sebastian said, while adding, “We are encouraged by recent same-store traffic improvements. Traffic to date in Q3 has been positive and is expected to be positive for Q3 overall.”

The analyst also expressed optimism regarding recent initiatives that could help sustain positive momentum in the core markets.

At time of writing, El Pollo Loco was up 7.87 percent on Friday, trading at $14.11.

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