El Pollo Loco reports strong earnings in first quarter after IPO

El Pollo Loco, the fast-food chain known for Mexican-style grilled chicken, reported strong profit growth in its first quarter after going public in July.

The Costa Mesa company said net income was $6.6 million, or 21 cents a share, in the three months ended June 25. That’s a sharp jump compared with $410,000, or 1 cent, in the same quarter a year earlier.

Revenue climbed 6.3% to $86.9 million. Comparable restaurant sales, which are sales at restaurants open 15 months or longer, rose 5.4%.

“The consumers are voting with their dollars, and they are bringing them to our stores,” Chief Executive Steve Sather told The Times. “This is the first quarter we reported as a public company, and we are very proud of the accomplishments we have achieved.”

Among those accomplishments is a successful initial public offering, in which the chain raised nearly $113 million by selling 7.1 million shares of common stock. The share price has more than doubled since then, closing Thursday up 40 cents to $34.79, before earnings were reported.

Sather said the IPO enabled El Pollo Loco to pay down heavy debts, as planned. After going public, the company was able to reduce its annual interest payments to about $10 million; before refinancing its debt last year, the chain faced annual interest payments of about $40 million.

Getting out from under debt will free up cash for the company to expand more quickly than initially anticipated, Sather said.

On Thursday, El Pollo Loco said it will open nine to 11 company-owned restaurants and four franchised locations in the current fiscal year.

The chain, which has more than 400 locations in five states, eventually plans to expand to 2,300 restaurants. Houston is the next frontier -- up to three company restaurants will open by year’s end, and a franchisee has signed on to open a dozen locations over the next five years.

El Pollo Loco’s results came the same day that fast-food workers protested in more than 100 cities around the country for better pay, seeking at least $15 an hour.

Sather said fast-food chains will have to think long and hard about ways to cut costs if the minimum wage jumps to $15.

“That is a massive increase to take all at once,” Sather said. “There are a number of ways you can get there. This is somewhat through pricing, and you have to look at can you cut expenses, not just labor, but other things you can cut.”

Fast-food companies can consider innovative methods such as more efficient kitchens or smaller dining rooms that don’t require as much investment, Sather said.

But such a big wage jump would require menu prices to go up “fairly significantly,” and also would affect the workforce, Sather said.

For example, El Pollo Loco has experimented before with self-ordering kiosks, which would eliminate at least some cashiers. The idea was mothballed in favor of giving diners face-to-face service.

But “if you change the economics, you’ve got to look at everything,” he said. “That is what everybody is going to do.”

Follow Shan Li on Twitter @ShanLi