Pollo Loco Slowly Coming Back.............
SOURCE: Q1 2016 SEC COMPANY FILINGS.
Zoe's and Shake Shack are expanding revenue at a much faster pace than El Pollo Loco. To be fair, El Pollo Loco has been in business for over 36 years. Though it made its debut on the public markets only recently, in July 2014, it hasn't generated quite the sustained market buzz that the more recent IPOs of Zoe's and Shake Shack have.
Still, El Pollo Loco has undoubtedly stagnated as of late, and it shows in the paltry 0.7% comparable-store sales growth achieved in its most recent quarter. The company should be raising comparable sales at least within spitting distance of its competitors.
Management's solution to driving comps is twofold. First, the company is intensifying its marketing. El Pollo Loco named a new marketing agency of record, Harmelin Media, in April. The restaurant franchise will begin ramping up direct mail as well as radio and digital advertising, and it even intends to tweak external store signage, with the goal of better educating customers about its menu.
The chain has also begun testing a mobile app that will form the basis for a digital platform to more directly engage customers and build loyalty. Management has indicated that the app will move out of beta to a formal launch in 2016.
El Pollo Loco would gain much momentum from these efforts to improve comps, as it's already increasing its location count at a fairly brisk clip. While Zoe's and Shake Shack will each grow their total restaurant bases by roughly 13% through the next three quarters of this year, El Pollo Loco's pace isn't that far behind for a company that's much older. If it hits the top of its projected store opening range, El Pollo Loco will expand its store base by about 7% through the next three quarters of 2016.
Having lost 53% of its value since its IPO, El Pollo Loco has the market dismissing and discounting it, even though it tends to exhibit higher profitability relative to its peers. However, its revenue issues aren't unsolvable, and while it doesn't sport Shake Shack's 43% growth rate, it's capable of faster top-line improvement and deserves a higher multiple. In other words, El Pollo Loco is cheap, but it's also very likely undervalued.
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