El Pollo Loco reported operating revenue for the year ended December 29, 2010 of $271.2 million, which is a decrease of $6.5 million, or 2.3%, from operating revenue for the year ended December 30, 2009 of $277.7 million. Operating revenue includes sales at company-operated restaurants and franchise revenue.
The decrease in 2010 operating revenue was primarily attributed to a 4.3% decrease in system-wide same-store sales for the year ended December 29, 2010 compared to an 8.2% decrease for the year ended December 30, 2009. Restaurants enter the comparable restaurant base for the calculation of same-store sales the first full week after the 15-month anniversary of the opening.
Commenting on the Company’s 2010 results, Steve Sather, president and CEO of El Pollo Loco, Inc., said, “As we expected, the economy in 2010 continued to pose challenges for our business, the greatest of which was the disproportionately high unemployment, under-employment and home foreclosure rates in our core markets, and in particular among Hispanics which are a key demographic for our brand.”
“The continued frugality among dine out consumers also challenged us to think differently in 2010 to maintain the delicate balance between providing our guests value and protecting average check. The Loco Dollar Menu continued to represent a significant part of our mix. We also provided value to our guests in the fourth quarter with our ‘Free Cake with the purchase of a 9 or 14 piece Flame-Grilled Feast’ promotion and an in-restaurant promotion of 10 pieces (legs and thighs) for $9.99.”
For the year ended December 29, 2010, the Company had an operating loss of $12.5 million for the year which included non-cash impairment charges of $29.9 million related to trademarks and $5.3 million related to restaurants. For the year ended December 30, 2009, the Company had an operating loss of $4.1 million which included non-cash impairment charges of $11.3 million related to trademarks, $6.1 million related to franchise network and $4.2 million related to restaurants. Excluding these non-cash impairment charges for both 2010 and 2009, the Company would have reported operating income of $22.7 million in 2010 compared to $17.5 million in 2009. This improvement of $5.2 million, or 29.7% in 2010 over 2009 when the non-cash impairment charges are excluded, was mainly due to lower general and administrative expenses and product costs.
General and administrative expenses decreased $5.1 million, or 14.5%, to $30.0 million for 2010 from $35.1 million for 2009. The decrease was primarily attributed to decreased legal expenses of $7.4 million due to lower legal settlements in 2010 compared to 2009 which was partially offset by a $1.1 million increase in the closed restaurant reserve for two restaurants closed in 2010 and two restaurants which did not open and a $1.1 million increase in non-cash impairment charges for seven underperforming company-operated restaurants.
Product costs decreased $4.4 million, or 5.3%, to $79.0 million for 2010 from $83.4 million for 2009. The decrease was primarily due to the decline in company-operated restaurant revenue in 2010 compared to 2009 and lower costs of chicken, rice, beans and certain non-ingredient items.
Interest expense, net of interest income, increased $4.9 million, or 15.0%, to $37.5 million for the year ended December 29, 2010 from $32.6 million for the year ended December 30, 2009. This increase was mainly due to the May 2009 issuance of $132.5 million aggregate principal amount of 11¾ % senior secured notes.
The Company had a net loss for the year ended December 29, 2010 of $39.5 million compared to a net loss of $52.3 million for the year ended December 30, 2009. The 2010 loss included an income tax benefit of $10.5 million compared to an income tax provision of $15.6 million in 2009.
“We believe that 2011 may be as challenging as 2010 due to continued economic challenges, fierce competition in the restaurant industry and disproportionately high unemployment in our core markets. In California, where the majority of our restaurants are located, unemployment was 12.5% in January of 2011 compared to 9.4% nationally.”
“Our focus in 2011 is on building a strong foundation so that when the economy comes around, we are poised for growth. This encompasses a system-wide focus on quality, service and cleanliness; the development of crave-able new menu items that meet the needs of today’s consumers looking for freshness and flavor; compelling advertising that embraces the essence of our brand and resonates with consumers; and the development of a new restaurant design that can support our future growth in variety of real estate formats.”
Addressing the Company’s expansion plans, Sather said, “We opened four restaurants in 2010, one company location and three franchise restaurants, in areas where El Pollo Loco already has a presence. In 2011, we expect to open two company restaurants and anticipate that our franchisees will open one to three restaurants, also in markets where we now operate restaurants. Our modest expectations regarding expansion are due in part to the difficulty franchisees continue to have obtaining financing and the lingering economic challenges, which have delayed or reduced the number of new restaurants many franchisees plan to open.”
El Pollo Loco is the nation’s leading restaurant concept specializing in flame-grilled chicken. Headquartered in Costa Mesa, California, El Pollo Loco, Inc. operates a restaurant system comprised of 171 company-operated and 241 franchised restaurants (as of December 29, 2010). Existing restaurants are located primarily in California, with additional restaurants in Arizona, Colorado, Connecticut, Georgia, Illinois, Nevada, Oregon, Texas, and Utah. El Pollo Loco’s menu features the Company’s signature citrus-marinated, flame-grilled chicken in individual and family-size meals, along with a variety of contemporary, Mexican-inspired entrees.