Why El Pollo Loco Holdings Inc. Stock Dove 16% Last Month

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What:Shares ofEl Pollo Loco Holdings Inc. lost their wings last month, falling 16% after the company delivered another weak earnings report.

So what:The fast-casual chicken chain said comparable-store sales rose just 0.7% in the quarter, and its earnings per share of $0.17 were down a penny a share from a year ago, and missed analysts' estimates by the same amount.

CEO Steve Sather defended the company, saying it has the right strategy to drive business for the near and long term, touting the company's operating pillars and new initiatives, but did not provide much in the way of specifics.

El Pollo Loco is one of a host of fast casual restaurant stocks, includingPotbelly andNoodles & Company, that have come on the market in recent years and have consistently disappointed investors; growth among this class of recentlyIPO'ed fast-casual chains has underwhelmed. Still, El Pollo Loco shares may be at a bottom, as they are essentially flat for the last nine months and are now valued at a modest P/E ratio of just under 20.

Now what: Management maintained its guidance for the full year, indicating confidence in its ability to overcome the weak first quarter. It continues to expect EPS in the $0.70 to $0.74 range, in line with the $0.71 it made last year, and sees comparable-store sales growth in the low single digits. The company is moving along with its expansion plans, projecting 17 to 20 new company-owned restaurants and 10 to 15 franchised ones.

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While the comparable-store sales and new store guidance is encouraging, the expectation that earnings per share will be flat is concerning. In order for the stock to rebound, management must show that new stores are contributing to bottom-line performance. If not, continued expansion seems undeserved.

The article Why El Pollo Loco Holdings Inc. Stock Dove 16% Last Month

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