El Pollo Loco Holdings, Inc. 2026 Q2 Earnings Call

Thank you, operator, and good afternoon. By now, everyone should have access to our second quarter 2026 earnings release, which can be found at www.elpolloloco.com in the investor relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements, including statements related to our new products and growth opportunities, strategic and operational initiatives, expectations regarding sales and margins, potential changes to our product platforms, capital expenditure plans, the ability of our franchisees to drive growth, expectations regarding commodity and wage inflation, remodel plans, and our 2026 guidance, among others. These forward-looking statements are not guarantees of future performance, and therefore you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we currently expect.

For a more detailed discussion of the risks that could impact our future operating results and financial condition, we refer you to our recent SEC filings, including our Form 10-K for the year ended December 31st, 2025, as well as our Form 10-Q for the second quarter of 2026, which we expect to file tomorrow and encourage you to review at your earliest convenience. During today's call, we will discuss non-GAAP measures, which we use for financial and operating decision-making and as a means to evaluate period-to-period comparisons and which we believe can be useful to investors in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are available in our earnings release, which is available in the investor relations section of our website.

With respect to the adjusted EBITDA outlook we will be providing on today's call, please note that we have not provided a reconciliation to the most directly comparable forward-looking GAAP financial measure because, without unreasonable efforts, we are unable to predict with reasonable certainty the amount of or timing of non-GAAP adjustments that are used to calculate income from operations and company-operated revenue on a forward-looking basis. Now, I would like to turn it over to our CEO, Liz Williams.

Thank you, Ira, and good afternoon, everyone. We are pleased with our second quarter results of systemwide same-store sales growth of 3.9% and restaurant level margin of 19.5%, which demonstrate the sustainability of the improvements we've made over the past two years. What's more encouraging is that we achieved this performance through a combination of sales layers and operational improvements, which gives us confidence in the long-term sustainability of our growth. More specifically, our top-line performance this quarter was driven by a combination of our strategic pillars, notably with strong brand activation and menu innovation, a targeted focus on providing value through our digital channels, and operational excellence. With that, let me walk you through our progress across our strategic pillars. Let's start with brand that wins, which continues to be anchored by menu innovation.

First, our Loco Tenders, which launched at the end of the first quarter, brought new guests to the brand, many of whom who had not considered El Pollo Loco before, and they broadened our appeal beyond our core fire-grilled chicken loyalists. Notably, our tenders generated significant buzz and excitement. From social media conversation to word of mouth, this craveable product, done with our own twist, put El Pollo Loco back in the conversation in a way that we haven't seen in years. Our high-quality Mexican seasoned Loco Tenders, paired with our new Pollo Loco Sauce, drove trial across income and age cohorts, but notably with a new, younger consumer. They were additive to check and popular in snacking and late evening day parts. As these were always planned as an LTO, we are taking the learnings and already thinking of ways to bring them back in the future.

We believe we've only scratched the surface of what is possible with Loco Tenders. Following tenders, in late June, we introduced Loaded Quesadillas, available in two flavors: queso with our creamy cilantro sauce and street corn with our creamy chipotle sauce, both with our citrus-marinated fire-grilled chopped chicken breast wrapped in a warm flour tortilla and grilled to order. We designed these for portability and value, giving guests a satisfying eat they can enjoy on the go at a price of less than $10 a la carte or $10.99 for a combo meal, which includes chips, salsa, and a drink. We also gave our Loco Rewards members early exclusive access ahead of the general launch. The early guest response has been strong, and we believe Loaded Quesadillas strengthens our lineup within handheld and on-the-go occasions.

We also introduced a new coffee platform to the menu this quarter with our Chatacoffee lineup, featuring our signature Horchata iced coffee and cold foam. We designed our new beverages to capture an afternoon pick-me-up occasion, which we believe is a meaningful and underserved day part for our brand. Alongside items like our tenders and quesadillas, we see this as part of a broader snacking occasion that brings guests into our restaurant outside of traditional mealtime, and also helps in building check. We are just getting started with beverages and look forward to even more innovation in the upcoming quarters. As we head into the second half of the year, we are encouraged by the strength of our innovation pipeline. Two new double chicken burrito bowls will be coming this fall, as well as a new pumpkin spice churro and caramel apple Chatacoffee.

We also continue to test new salads, wraps, and sandwiches as we prepare for 2027. In short, we remain committed to keeping our menu craveable, relevant, and fresh, giving guests new reasons to visit. Our Let's Get Loco campaign continues to build momentum and has found new ways to put our new menu items in front of our guests, often by showing up where our brand hasn't historically been invited. In late June, around National Go Skateboarding Day, we launched our Quesadillas for Kickflips activation, featuring Olympic skateboarder Paige Heyn. This content resonated well beyond our usual audience, drawing praise from across the skateboarding world, including from the editor-in-chief of "Thrasher" magazine, one of the most recognized voices in that community.

We followed that with our Hold It Like It's Hot campaign, which put our new Chatacoffee, Loaded Quesadillas, and black beans into real, everyday moments to highlight how portable and delicious these products are. We continue to expand our presence with brand partnerships, working with brands like Igloo Coolers, FANCHEST, and Tapatío all throughout the quarter, as we were showing up in live sports. From our media presence during the World Cup to free food giveaways for at-home watch parties, we were there. We believe this combination of timely, culturally relevant marketing and strong menu innovation is exactly the kind of engine that builds lasting brand loyalty and something that we will continue to lean into as we carry the momentum through the rest of the year. Turning to our loyalty and digital business, which continues to contribute to our top-line performance.

Digital sales, including our app, web, and kiosk channels, represented approximately 28% of system sales and were up 13% year-over-year. Our Loco Rewards members continued to be an important growth driver for the brand. These members visited approximately three times more annually than non-loyalty members. We use a strategic approach with our loyalty offers based on segmentation and purchase behavior. These targeted offers deployed throughout the quarter, together with more frequent communications, drove not only frequency growth but also check growth among our loyalty members, outpacing non-loyalty guests by more than double. As a reminder, we center our loyalty program around three things: giving members everyday value, tailoring offers based on purchase behavior, and giving our most loyal guests access to exclusive experiences.

Starting with everyday value, our weekly Loco Friday Drops, providing great offers and value each Friday on some of our best menu items, and our Sunday Spread, an abundant value on family chicken meals, have continued to be consistent performers for the program. These all-member deals, combined with our segmented offers based upon purchase history, have both contributed to the frequency and check growth. In addition to these deals, our exclusive giveaways, early access to menu items, and prizes have created engagement in our loyalty program. As we look ahead, in early Q3, we launched Loco Days, a summer-themed promotion featuring exclusive prizes, deals, and a grand prize VIP experience at the iHeartRadio Music Festival. Early engagement in the promotion has exceeded expectations and we look forward to future growth of our loyalty program.

Our off-premise digital business, inclusive of delivery, continues to gain strength as we have launched segmented deals targeting new customers at the snack and late evening day parts. For lunch, we have expanded our roster of third-party partners focused on groups and catering services. In total, our off-premise digital business represents almost 17% of sales and has increased 12% year-over-year. While we're pleased with the growth, we believe there is still significant opportunity to grow this channel. At the intersection of digital and operational excellence is technology. We continue to make great progress in modernizing our capabilities. From in-restaurant training to analyzing consumer feedback to a more effective help desk for our restaurant general managers, our use of technology and AI tools is improving our insights and capabilities.

In just a few months, we have made great strides in our capabilities with the addition of Vadim Parizher, who joined us earlier this year as our Chief Technology Officer. His leadership in digital, data, and technology is unlocking opportunity and insights across the business. We look forward to sharing more about our technology advancements in future calls. Moving on to operational excellence and our hospitality mindset, I'm pleased with the continued progress we made this quarter in improving guest experience and overall customer satisfaction. System satisfaction scores continued to move in the right direction on a year-over-year basis, and we saw improvement across the board from order accuracy to speed of service to overall friendliness. This kind of consistent incremental progress is exactly what we set out to build, and it reflects the discipline our teams have in driving operational excellence every day.