10-K: El Pollo Loco Reports Modest 2025 Growth Amid Cost Pressures

El Pollo Loco Holdings, Inc. reported a 3.6% increase in total revenue and a 3.1% rise in net income for fiscal year 2025, driven by a 53rd week and franchise growth, despite a slowdown in comparable restaurant sales.

Summary

• Total revenue for fiscal year 2025 increased by 3.6% to $490.046 million, up from $473.008 million in fiscal year 2024.
• Net income rose by 3.1% to $26.486 million in fiscal year 2025, compared to $25.684 million in the prior year.
• System-wide comparable restaurant sales grew by a modest 0.1% in fiscal 2025, a significant deceleration from the 3.2% growth in fiscal 2024.
• Company-operated comparable restaurant sales increased by 0.3%, primarily due to a 2.1% increase in average check size, partially offset by a 1.8% decrease in transactions.
• Franchise revenue saw a substantial 15.0% increase to $52.389 million, largely due to $4.1 million in franchisee IT pass-through revenue, a royalty rate true-up, increased franchisee fees, and new locations.
• Adjusted EBITDA increased by 6.4% to $66.713 million in fiscal 2025.
• The company opened 9 new restaurants in 2025 (1 company-operated, 8 franchised) and plans to open 18-20 new restaurants in 2026 (3-4 company-operated, 15-16 franchised).
• Labor and related expenses as a percentage of company-operated restaurant revenue decreased to 31.4% from 32.1% in 2024, attributed to menu pricing and improved labor efficiencies offsetting wage rate increases.
• Food and paper costs as a percentage of company-operated restaurant revenue decreased to 24.7% from 25.4% in 2024, due to cost management initiatives and slight commodity deflation.
• The company completed 17 company-operated and 52 franchised restaurant remodels in 2025, with plans for 25-35 company-operated and 30-40 franchised remodels in 2026.
• The Loco Rewards loyalty program reached over 5.3 million members by December 31, 2025, with digital and delivery orders constituting 13.8% of total sales mix in fiscal 2025.
• The share repurchase program was terminated on March 31, 2025, with $1.8 million in repurchases during fiscal 2025 prior to termination.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a mixed report with concerning trends. While net income and Adjusted EBITDA saw modest increases, the significant slowdown in comparable sales growth and declining transactions at company-operated restaurants suggest underlying operational challenges that could impact future performance, despite strategic growth initiatives.

Positives

• Total revenue increased by 3.6% to $490.046 million in fiscal 2025, demonstrating overall top-line growth.
• Net income grew by 3.1% to $26.486 million, indicating improved profitability.
• Adjusted EBITDA increased by 6.4% to $66.713 million, reflecting stronger operational earnings.
• Franchise revenue surged by 15.0% to $52.389 million, boosted by IT pass-through revenue and new franchise locations, highlighting successful franchise expansion and support.
• Company-operated restaurant contribution margin improved to 17.8% from 17.4% in 2024, driven by menu pricing, cost management, and slight commodity deflation.
• Labor and related expenses as a percentage of company-operated restaurant revenue decreased, indicating effective labor efficiency improvements despite minimum wage increases.
• Food and paper costs as a percentage of company-operated restaurant revenue decreased, reflecting successful cost management initiatives and favorable commodity pricing.
• Interest expense, net, decreased by 24.2% to $4.470 million, due to lower outstanding debt balances and lower interest rates on the 2022 Revolver.
• The company plans significant unit growth in 2026, with 3-4 new company-operated and 15-16 new franchised restaurants, alongside substantial remodels.
• The Loco Rewards loyalty program has grown to over 5.3 million members, and digital/delivery orders represent a significant and growing portion of sales (13.8%).

Negatives

• System-wide comparable restaurant sales growth slowed significantly to 0.1% in fiscal 2025 from 3.2% in 2024, indicating a deceleration in sales momentum at existing locations.
• Company-operated comparable restaurant transactions decreased by 1.8% in fiscal 2025, suggesting fewer customer visits despite higher average check sizes.
• Franchise-operated comparable restaurant sales were flat (0.0%) in fiscal 2025, a notable drop from 3.5% growth in 2024, with a slight decrease in average check size.
• General and administrative expenses increased by 8.6% to $50.258 million, primarily due to higher legal and professional fees related to shareholder activism, increased stock-based compensation, and executive transition costs.
• Occupancy and other operating expenses increased by 7.2% to $106.386 million, driven by higher utilities, occupancy expenses, marketplace delivery fees, and software maintenance.
• The company incurred $1.7 million in higher wage rates in fiscal 2025 due to legislative increases in the California minimum wage (AB 1228), which are expected to continue in 2026.
• The company experienced increased discounting, partially offsetting gains from menu price increases and cost management in food and paper costs.
• The share repurchase program was terminated on March 31, 2025, limiting future direct returns to shareholders through this mechanism.

Risks

• Unsuccessful new company-operated or franchised restaurant openings or establishment in new markets could adversely affect growth.
• Intense competition within the quick-service and fast-casual restaurant segments, including from national, regional, and local chains, grocery stores, and meal kit delivery services.
• Vulnerability to changes in political and economic conditions, such as trade policies, tariffs (e.g., temporary 15% tariffs on all countries under Section 122 of the Trade Act of 1974), import regulations, inflationary pressures, consumer discretionary spending, and geopolitical turmoil (e.g., war in Iran).
• Inability to attract, develop, assimilate, and retain employees, exacerbated by labor shortages and increased labor costs due to minimum wage legislation (e.g., California's AB 1228 increasing minimum wage to $20/hour).
• Negative impact from regional geographic concentrations, with approximately 71.9% of 2025 revenue generated from the greater Los Angeles area.
• Failure to execute business continuity and response plans following major disasters (natural disasters, terrorism, social unrest, cybersecurity incidents).
• Difficulty in effectively identifying and securing appropriate sites for new restaurants, including competition for sites and increasing development/leasing costs.
• Potential for significant impairment of certain assets, particularly in new markets, if actual performance does not meet projections.
• Changes in food costs (especially chicken, which was 37% of total food and paper costs in 2025), supply costs, and other operating expenses could adversely affect profitability.
• Public health crises (pandemics, epidemics, avian flu outbreaks) could negatively impact restaurant operations, sales, and financial condition.
• Negative social media and other negative publicity related to food safety, sanitation, or employee relationships could harm brand reputation and business.
• Reliance on the ability to expand digital business, delivery orders, and catering, which are subject to technological failures, third-party provider issues, and data ownership concerns.
• Food-borne illness and other food safety and quality concerns could lead to product liability claims and negatively impact business and profitability.
• Failure to receive timely deliveries of food or other supplies could result in revenue loss and adversely impact operations.
• High level of indebtedness and restrictions under the credit facility could limit financial flexibility and ability to fund growth.
• Marketing programs, new menu items, advertising campaigns, and restaurant designs/remodels may not be successful in generating increased sales or profits.
• Adverse changes in franchisees' economic position could lead to payment delinquencies, bankruptcies, and negative impacts on market share and new franchisee attraction.
• Limited control over franchisees' day-to-day operations could diminish the quality of franchised restaurants and harm brand image.
• Deterioration of relations with existing or potential franchisees could negatively affect restaurant performance and development pipeline.
• Self-insurance programs may expose the company to significant and unexpected costs and losses.
• Long-term and non-cancelable leases, with potential inability to renew at the end of terms without substantial additional cost.
• Failure to achieve corporate responsibility goals could damage reputation and relationships with stakeholders.
• Information technology system failures or breaches of network security could interrupt operations and lead to data loss, litigation, and reputational damage.
• Inability to protect customer payment method data or personal information, leading to data loss, litigation, liability, and reputational damage (e.g., CCPA, CPRA, PCI standards).
• Failure to enforce and maintain trademarks and protect other intellectual property could materially and adversely affect brand awareness.
• Matters relating to employment and labor law, including class action lawsuits for wage and hour violations, discrimination, or wrongful termination, could adversely affect the business.
• Extensive laws, government regulation, and other legal requirements (food labeling, health, safety, environmental, zoning, data privacy) could increase costs and affect operational efficiencies.
• Legislation and regulations regarding menu offerings, new information or attitudes regarding diet and health, or adverse opinions about the health effects of consuming menu offerings could affect consumer preferences and negatively impact results of operations (e.g., restrictions on food dyes).
• Potential liabilities arising from environmental laws could increase operating expenses.
• Quarterly operating results may fluctuate significantly due to seasonality (lower in Q1 and Q4, higher in Q2 and Q3) and other factors beyond control.
• Future offerings of debt or equity securities may adversely affect the market price of common stock or dilute existing stockholders' ownership.
• Delaware law, organizational documents, and debt agreements may impede or discourage a takeover, potentially depriving investors of a premium for their shares.
• Shareholder activism could cause significant expense, disrupt business, result in proxy contests or litigation, and impact stock price.

Future Outlook

The company plans to continue expanding its business, driving restaurant sales growth, and enhancing competitive positioning through five key strategies: Brand That Wins, Hospitality Mindset, Digital First, Winning Unit Economics, and Drive Unit Growth Again with National Expansion. In fiscal 2026, the company intends to open three to four new company-operated restaurants and 15 to 16 new franchised restaurants. It also expects to complete 25 to 35 company-operated and 30 to 40 franchised remodels. Cost pressures from increased labor wages (like California's AB 1228) and macroeconomic challenges (inflation, trade policies) are expected to continue in 2026, and the company may not be able to fully offset these increases through menu pricing or productivity improvements.

Management Comments

• We believe that our market position to make and serve quality chicken that is fast and easy sets El Pollo Loco apart.
• We are currently testing chicken tenders and sandwiches, products which we expect to launch to our restaurant system during fiscal year 2026.
• We believe that creating strong margins is as important as driving topline sales.
• We expect future new unit development to be led by franchisees and complemented by company store growth, through both in-fill in existing markets and expansion into adjacent and contiguous new markets.
• We believe that these sources of liquidity and capital are sufficient to finance our continued operations, including planned capital expenditures, for at least the next 12 months and beyond from the issuance of the consolidated financial statements.

Industry Context

StockSavvy.ai notes that El Pollo Loco operates in a highly competitive and fragmented restaurant industry, specifically within the quick-service (QSR) and fast-casual segments. The company's strategy to differentiate through 'quality chicken that is fast and easy' and Mexican-inspired flavors positions it against both traditional QSRs and higher-end fast-casual concepts. The slowdown in comparable restaurant sales growth to 0.1% system-wide, particularly the transaction decline, suggests that El Pollo Loco is facing headwinds common across the broader restaurant sector, including shifting consumer preferences and intense competition for value and convenience. The significant increase in labor costs due to California's AB 1228 highlights a growing regulatory challenge impacting many restaurant chains with a strong presence in the state, forcing companies to adapt through menu pricing and operational efficiencies. The focus on digital sales, loyalty programs, and delivery partnerships aligns with broader industry trends towards off-premise dining and technology integration.

Comparison to Industry Standards

• El Pollo Loco's system-wide comparable restaurant sales growth of 0.1% in fiscal 2025 lags behind some leading fast-casual competitors like Chipotle Mexican Grill, which reported 7.9% comparable restaurant sales growth in its most recent fiscal year (2023), indicating a weaker performance in driving sales at existing locations.
• The company's average unit volume (AUV) of approximately $2.3 million for company-operated restaurants in 2025 is competitive within the fast-casual segment but generally lower than top-tier QSR brands such as McDonald's or Chick-fil-A, which often exceed $3 million to $5 million per unit, reflecting El Pollo Loco's regional concentration and specific market niche.
• The improvement in restaurant contribution margin to 17.8% from 17.4% suggests effective cost management, which is crucial in an inflationary environment. This margin is generally in line with or slightly below the average for publicly traded fast-casual chains, which can range from 15% to 25% depending on operational model and geographic footprint.
• The 15.0% growth in franchise revenue, driven by IT pass-throughs and new unit development, indicates a healthy franchise system expansion, a common growth driver for many restaurant concepts like Domino's Pizza or Yum! Brands, which rely heavily on franchisee capital for unit growth.

Corporate Governance

Legal Proceedings

• The company is involved in various claims, such as wage and hour and other legal actions, that arise in the ordinary course of business.
• The company does not believe that the ultimate resolution of these actions will have a material adverse effect on its financial position, results of operations, liquidity, or capital resources.

Related Party Transactions

• On May 23, 2024, the company entered into a Stock Repurchase Agreement with FS Equity Partners V, L.P. and FS Affiliates V, L.P. (the Sellers), who were the company's largest stockholders, to purchase 1,534,303 shares of common stock for $15.0 million. This repurchase was completed in May 2024.
• John Roth, a director of the company until his resignation on August 16, 2023, was a general partner and chief executive officer of Freeman Spogli & Co., which managed the Sellers.

Stakeholder Impact

• **Shareholders**: Experience slower comparable sales growth but improved margins and net income. The termination of the share repurchase program and the expiration of the shareholder rights agreement could impact future stock price and governance dynamics. Potential dilution from increased equity incentive plan shares.
• **Employees**: Face increased labor costs due to minimum wage legislation (e.g., California's AB 1228), but the company is implementing labor efficiency improvements. Continued investment in training and a 'Hospitality Mindset' aims to improve employee experience and retention.
• **Customers**: May experience menu price increases to offset rising costs. Benefit from ongoing menu innovation (e.g., chicken tenders, sandwiches) and enhanced digital ordering and loyalty programs (Loco Rewards).
• **Franchisees**: Contribute significantly to unit growth and revenue. Benefit from IT pass-through revenue and ongoing support. Face similar cost pressures (labor, commodities) and competitive challenges as company-operated restaurants.
• **Suppliers**: The company actively manages cost volatility for poultry through contracts with multiple suppliers. PFG Customized became the new primary distributor, indicating a shift in key supply chain relationships.
• **Creditors**: The company's debt level and compliance with credit facility covenants are monitored. Lower interest expense due to reduced outstanding balances and interest rates is favorable for creditors.

Next Steps

• Launch chicken tenders and sandwiches to the restaurant system during fiscal year 2026.
• Open three to four new company-operated restaurants in California and Texas in fiscal 2026.
• Open 15 to 16 new franchised restaurants in fiscal 2026, including first locations in Idaho.
• Complete 25 to 35 company-operated restaurant remodels and 30 to 40 franchised remodels in fiscal 2026.
• Continue investing in loyalty and delivery programs and other technology platforms to enhance customer access.
• Invest more resources in sourcing and onboarding new franchisees, including recruitment, operations, and field marketing.
• Monitor and manage ongoing cost pressures from labor (e.g., California minimum wage increases) and macroeconomic conditions (inflation, tariffs).

Key Dates

Recommendation

The filing presents a mixed financial picture for El Pollo Loco. While net income and Adjusted EBITDA increased, the significant deceleration in comparable restaurant sales growth (especially the transaction decline) is a concern, indicating weakening demand at existing locations. The company is actively managing cost pressures and pursuing strategic growth initiatives, including new unit development and digital investments, which are positive long-term drivers. However, the immediate outlook is tempered by ongoing inflationary pressures and intense competition. A 'hold' recommendation is appropriate as the company navigates these challenges, with investors advised to monitor the effectiveness of its growth strategies and its ability to reverse the trend of declining transactions.

Keywords

El Pollo Loco, LOCO, SEC Filing, 10-K, Annual Report, Restaurant Industry, Fast Casual, Quick Service Restaurant, QSR, Franchise, Comparable Sales, Revenue Growth, Net Income, Adjusted EBITDA, Labor Costs, Commodity Costs, Digital Sales, Loyalty Program, New Restaurant Development, California Minimum Wage, AB 1228, Share Repurchase, Corporate Governance, Cybersecurity, Risk Factors