Why El Pollo Loco Stock Dropped Today
What happened
Shares of El Pollo Loco Holdings (NASDAQ: LOCO) were down 17.1% as of 3:00 p.m. EST Friday after the fast-casual restaurant chain announced solid fourth-quarter results but followed with disappointing forward guidance.
On the former, El Pollo Loco's quarterly revenue (including franchise ad fee revenue) climbed 11.6% to $106.3 million, translating to pro forma net income of $6.1 million, or $0.16 per share, up from $0.11 per share in the same year-ago period. Analysts, on average, were modeling lower earnings of $0.14 per share on revenue of $104.4 million.
So what
El Pollo Loco CEO Bernard Acoca stated that the company ended the year with "strong operating momentum." To be sure, comparable company-operated restaurant sales during the quarter grew 3.7%, including a 1% increase transactions and 2.7% growth in average check size. Restaurant-level contribution margin also expanded 20 basis points year over year to 18.7%.
"We believe these results are evidence that the initiatives we launched during 2018 as part of our Transformation Agenda are gaining traction and driving results," Acoca added. "[...] While we have made tangible progress during the past year, we believe many opportunities remain to drive the El Pollo Loco brand forward."
Now what
However, for the full year of 2019, El Pollo Loco expects pro forma net income per share of $0.70 to $0.75, compared to $0.74 per share in 2018 and below the $0.80 per share most analysts were anticipating. This range assumes systemwide comparable-restaurant sales growth of 2% to 4%, and restaurant contribution margin of 18.2% to 18.9%.
So, despite El Pollo Loco's progress and reasonably strong end to the year, that underwhelming guidance gave the market more than enough reason to bid down the stock today.
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