Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded, October 30, 2025. And now, I would like to turn the conference over to Ira Fils, the company's Chief Financial Officer. Please go ahead, sir.

Thank you, operator, and good afternoon. By now, everyone should have access to our third quarter 2025 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 growth opportunities, strategic and operational initiatives, expectations regarding sales and margins, potential changes to our product platforms, capital expenditure plans, expectations regarding kiosk rollouts, the ability of our franchisees to drive growth, expectations regarding commodity and wage inflation, remodel plans and our 2025 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 subject to numerous risks and uncertainties that could cause actual results to differ materially from what we currently expect. We refer you to our recent SEC filings, including our Form 10-K for the year ended December 25, 2024, as well as our Form 10-Q for the third quarter to be filed, for a more detailed discussion of the risks that could impact our future operating results and financial condition. We expect to file our 10-Q for the third quarter of 2025 tomorrow and would encourage you to review that document at your earliest convenience. During today's call, we will discuss non-GAAP measures, which we believe can be useful 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. And 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 restaurant contribution margin 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 restaurant 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. I am excited about the momentum in our business and very proud of our team and franchise partners as I share third quarter results that clearly reinforce the strength of our strategy. Our third quarter results delivered across 3 of our core financial priorities, including positive traffic growth, accelerating unit growth and margin expansion at both the restaurant and corporate level. From menu innovations to improvements in operational excellence to our robust development pipeline, our team is executing across many strategic fronts as we continue to deliver sustainable, profitable growth. We are particularly pleased with our positive system-wide traffic growth during the third quarter as we implemented targeted innovation and value offerings, beginning with our $9.99 quesadilla combos, which have a good balance of innovation and value. Throughout the quarter, we also increased our app-only promotions, our targeted couponing and our third-party delivery promotions. Together, these actions successfully drove traffic, while also enhancing brand equity and importantly, without jeopardizing our margins. At the same time, our ongoing focus on operational excellence and efficiency optimization delivered year-over-year profitability improvement, both on a dollar and margin basis. These results only reinforce my confidence in the strategy that we've put in place. We remain laser-focused on executing against our 5 strategic pillars: brand that wins through marketing and menu innovation; hospitality mindset through operational excellence; our digital-first approach; our winning unit economics; and driving new unit growth. Now, let me provide more details on how these strategic pillars are driving our results, starting with our brand that wins pillar. Our marketing and menu innovation strategy continues to be anchored by what we believe makes El Pollo Loco truly differentiated, quality chicken served fast and easy. Chicken is our signature protein and the foundation that enables us…

Thank you, Liz, and good afternoon, everyone. For the third quarter ended September 24, 2025, total revenue was $121.5 million compared to $120.4 million in the third quarter of 2024. Company-operated restaurant revenue decreased 0.5% to $100.7 million from $101.2 million in the same period last year. The $0.5 million decrease in company-operated restaurant sales was driven by a 1.1% decrease in company-operated comparable restaurant sales, partially offset by additional sales from the opening of 2 restaurants during or subsequent to the third quarter of 2024. The decrease in comparable restaurant sales included a 1.3% decrease in average check size, partially offset by a 0.1% increase in transactions. During the third quarter, our effective price increase versus 2024 was about 2.8%. Franchise revenue increased 13.5% to $12.9 million during the third quarter, driven by a $900,000 in IT pass-through revenue related to the franchisee rollout of our new point-of-sale system, which is offset by a corresponding increase in franchise expenses, combined with an increased revenue, driven by the opening of 5 new franchise-operated restaurants subsequent to the third quarter of 2024 and a true-up of royalty rates. The increase in franchise revenue was partially offset by comparable restaurant sales decrease of 0.6%. Nonetheless, we are very encouraged to see franchise traffic growth continue to accelerate with traffic up 2.5% in the third quarter for our franchise system, which drove the positive system-wide traffic of 1.6% that Liz alluded to earlier. We are extremely pleased with how the fourth quarter has started with sales turning positive on continued strength in transactions. System-wide comparable store sales for the fourth quarter to date through October 22, 2025 increased 2.2%, consisting of a 1.5% increase in company-operated restaurants and a 2.5% increase in franchise restaurants. While we are mindful that we are rolling over…

[Operator Instructions] The first question comes from Jake Bartlett with Truist Securities.

My first was about your performance relative to peers. And in terms of -- we can see what your same-store sales were in the quarter. My impression or I think it's been kind of known for a couple of quarters now that California, the markets that you're exposed to the most have been the weakest. So I imagine actually, with your results, you might be actually gaining some share, maybe outperforming peers. If you can give us any sense for that, that would be helpful.

Thanks for the question. Yes. So when we do look at ourselves in the California market versus peers, we are pleased to see that we are indeed outperforming on both sales and transactions. So, that would indicate that we are taking some share, which I think is -- we can attribute to getting positioned right on value, on innovation and the brand positioning really starting to resonate. So nice to see. Also, I would add is operational, all of the enhancements we're making operationally. I think, consumers are seeing that better service.

Got it. And then, I think related to that question, your quarter-to-date nicely positive. And I think on a 2-year basis, it roughly holds the line at roughly about 2%. But we've heard from others in this earnings season so far, a real deceleration in October. So maybe the government shutdown impacts, or it's, I think, somewhat uncertain, but a pretty significant deceleration and you haven't seen it. So I think maybe building on that, what were your tactics near term to offset incremental pressure? Are you seeing those market share gains accelerate near term, and I guess, the level of confidence you have that, that will continue?

Yes. So, as we look over the past year, we saw a lot of the customer softness. Really it was last year this time that we started to see that. We saw the customer pulling back and the consumer, for all the reasons, having some trepidation in terms of spending. And we made a lot of adjustments, and we've made them really throughout the year in terms of bringing more value to the menu, our positioning, getting our operations improved so that when they did come in, they had a really great experience. And so, as we sit here today, I would say that the consumer isn't any worse than they've been really all year. I think we're figuring out how to maneuver and how to just give a great experience, given that they are just so stretched. So, as Ira mentioned, as we have seen in October, it is an easier lap. So we will acknowledge that. But even on a 2-year basis, we're proud of what we're accomplishing.

Great. And then, the last question, you've had some -- your margins have been solid, especially relative to your same-store sales in '25. And you talked about the initiatives you've had in place and the efficiencies you're driving. My question is, how much you have left in the tank on those efficiencies? Should we expect incremental cost saves efficiencies in '26 as we kind of look forward?

Yes. Great question. We believe we're not done yet. We still have a lot of opportunity as we continue to gain efficiencies on the labor side. And we have multiple projects that we're working from an input side from COGS where we believe that these things will put us on our path as we move forward to that 18% to 20% target that we always mentioned.

The next question comes from Andy Barish with Jefferies.

It is nice to hear about some decent October numbers for a change. Can you sort of level set on sort of these more mainstream menu items that you're in test on with tenders and sandwiches? Sort of where -- what's the goal? Where in the testing process are you? Kind of how does that find its place on to the menu board as we look out to next year?

Yes. So we have a lot in the pipeline. The culinary innovation team has been really busy and working together with operations, getting these in front of customers and in test. And this comes from -- a couple of years ago, we made the realization that as the consumer is gravitating to handheld, portable, also a lower ticket, so as much as consumers love our family chicken and chicken on the bone, they want to be able to take a burrito or a bowl. And so, we've migrated to making sure we have that. So these new products that we're excited about, things like the Loco Tenders and a sandwich, as an example, both of those now are in operations testing in the local markets here, and they're about to go into broader market testing so that they could be ready for next year. So, one, probably we're looking at where we would slot them in on the calendar, but could be as early as Q2 and then, of course, into Q3 and Q4. We also -- even though we are doing so much innovation around the more portable single customer, great delicious eats, we're also -- we love our chicken on the bone, and we are bringing new flavors there. I talked about the barbecue chicken that we're really excited about. That will be something -- there's no better season than summertime for barbecue chicken. So we're thinking that's probably a summer addition. And then, the most requested item that I hear about from consumers are our black beans. Years ago, we had black beans, and it does make sense to have barbecue chicken and black beans with our coleslaw, so again, something that we're about to test with so that we have it ready for the summer.

Got it. And then just, Ira, over on the cost side, where are you on kind of chicken contracting for next year? Are you in pretty good shape? And is there anything sort of unusual we should be aware of in that market?

No. So we're in good shape. We are in the process actually this week of awarding our contracts for next year. And we're pleased with how it's come out. We -- there's a little pressure in the dark meat chicken, but we've been able to offset that in other areas of our chicken buy. So we are very -- we feel very good about our chicken buy for next year.

Yes. And then, just finally, anything new sort of on supply chain with like pre-marinade as something you guys have looked at or anything we should be aware of like as next steps on the equipment side for '26 to continue to help the labor efficiencies?

Yes. So we're testing on many different ideas. We love the cost improvement, but even more so, we love the consistency and the quality improvements that some of the work with our suppliers, our chicken partners have brought to us, so things like how we marinate our chicken so that it is the most juicy chicken in every single experience and really consistent. And we're seeing great results, and we'll have some of that as early as Q1. So in terms of supply chain and doing innovation, not only on bringing new things to the menu, also making the product better, the food better, the quality better and also realizing some cost savings. And really, like you said, the cost savings comes primarily with labor, just making the preparation in our restaurants easier so that our team members really can focus on the cooking that happens over our grill versus some of the activities that just aren't as necessary.

[Operator Instructions] Our next question comes from Jeremy Hamblin with Craig-Hallum.

Congrats on good execution here in a pretty tough backdrop. I wanted to start with just kind of the margin outlook here in Q4. And just to get a sense, there is a little bit of pressure on food costs. But just in terms of -- I think what you indicated was a midpoint of about a 17% restaurant-level margin in Q4 versus the 18.3% in Q3. And I wanted to just see if you could kind of walk us through where you expect a little bit of that pressure in the fourth quarter.

Yes, a couple of things. I think when you look, first of all, quarter-to-quarter sequentially from Q3 to Q4, a lot of the variance there is driven by the sales volumes. Q2 is actually our highest sales volume quarter, but Q3 is the next highest sales volume and Q4 is the lowest. So just the sales volume difference puts a little pressure on the store-level margins. I think if you look back to where we finished Q4 of last year, our guidance shows us that we will be growing margins year-over-year in the fourth quarter.

Got it. And then, I just want to come back to your marketing efforts here. And in terms of how you feel like the new tagline is playing out, again, it's -- my peers have noted, it's been a bit of a tough couple of months here in the restaurant industry. You are holding in pretty nicely. But I wanted to get a sense for how you feel like that messaging is resonating in a predominantly value environment. And if you can give us a sense for how you're thinking about some of these new menu items to come here in '26 from a kind of a price point perspective of whether or not they're going to be adding to your average check or potentially lowering your average check?

Yes. So we can see in our credit card data that the things we're doing are resonating and bringing in new and lapsed consumers. And I attribute that to not one thing, but many things. And starting with the repositioning with the Let's Get Loco campaign, that certainly has driven awareness and is reaching new consumers, coupled with even better when they can drive by and see a remodeled restaurant. And then, as we shift to the menu and just having things on our -- food on our menu that has a much wider aperture for all consumers, that's helping as well. When we look at the different price points, doing something like quesadilla this summer, that was an entry-level price point that we haven't seen in years. So $7.49 a la carte, $9.99 as a combo, and that combo and even a la carte had a side of guacamole with it. So, so many of our competitors, they charge extra, a couple of dollars for guacamole. So it was a great value. And we saw that in terms of growing transactions. It brought new consumers in that had a very limited price point. And what I love about that product, we've been able to find a way to keep it on our menu. So consumers that have found that can still enjoy it. But as we brought in the burrito bowl, the burrito bowl is at a higher price point. So we're $10 -- upper $10 in some restaurants, $11. And what that's doing, like you pointed out, it's really helping protect check. So what we saw in Q3 was, we drove a lot of transactions, but we did see a check decline. And it was one of those moments where we had to realize this check decline is not going to be forever. We're driving transactions, and it's healthy transactions. We also did do some discounting, which in this environment, we had to do, which also put pressure on check. But when we are able to combine it with something like the burrito bowls a couple of weeks later and still keep that quesadilla under it, together, it's a really powerful combination, and I think it's helping us. So, as we go into next year, we're looking for ways to balance both the value but also the check protection, which -- I'm excited about our beverages. That's a great check protector. Desserts: we launched flan earlier just in the last couple of months. We had so much innovation. We didn't even talk about flan, but we launched flan. It's a great check protector as well. And it reminds us we need to have additional desserts. Churros do well for us. There's a lot we can do to protect check all over the place.

And as a follow-up, just on the quesadilla, you noted it's now on the regular menu. How is it mixing today, let's say, over the last 3 or 4 weeks versus when you introduced it, in terms of percent of sales?

Yes. So it's dropped down a couple of percentage points, which is typical, given that it was featured so prominently on the menu. So any time we have the main product of the marketing module, it gets the promotional panel, and that promotional panel always drives a lot of mix. And so quesadilla was right in line a little bit -- some weeks, a little bit over what a promotional panel would drive. And then, as we've taken it off, it drops, but it's still -- I'm pleased with how it's mixing. It is still an incremental product on our menu. And like I mentioned earlier, it's solving an entry-level price point that I think is so critical in this economic environment.

Got it. Last one for me real quick. You've probably had a bit of an outsized impact on kind of a hot button topic here in restaurant land of immigration policies. In particular, Southern California saw a bit of a bigger presence. I wanted to just get a sense from what you're seeing with traffic. Is that issue still a fairly significant obstacle for the business? Do you feel like it's settled down a little bit? Any color you might be able to share on that would be great.

Yes. I think it still persists. We see it a little bit more in lunch than dinner. It still persists. Hard to quantify, but it's still there.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn the call back over to Liz Williams for closing remarks.

Yes. Thank you again, everyone, for your interest in El Pollo Loco. We look forward to talking to you again next quarter. Have a wonderful evening.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.