El Pollo Loco Stock is not a Crazy Long

Spanish chicken restaurant chain operator El Pollo Loco NASDAQ: LOCO shares has been taken out to the woodshed in 2022. The Company replaced its CEO immediately on the Q4 2021 earnings release and is in search for a new CFO. Top line Q4 2021 and Q1 2022 shortfalls were still blamed on COVID-19 effects, which investors have grown wearily of excuses. While other restaurants and retail establishments are posting double and triple digit gains on the pent-up demand from the lockdowns, El Pollo is still having trouble sustaining a recovery. The ousting of its former CEO may be a start in the right direction as the Company attempts to implement a number of initiatives stemming from culture, brand differentiation, customer service and accelerated development. The Q4 2021 shortfall was also attributed to the explain week in 2020 making the comparison short by $4.6 million in sales. While the Company faced commodity inflation of almost 18% in Q1 2022, it offset them by raising prices and expects costs to decline later in the year for prices of boneless chicken and avocados. As Omicron dissipates, sales momentum is expected to resume despite the inflationary backdrop. Prudent investors looking for a buy the dip opportunity in the Mexican fast casual restaurant segment can watch for opportunistic pullback in shares of El Pollo Loco.

Q4 2021 Earnings Release

On March 10, 2022, El Pollo released its fiscal fourth-quarter 2021 results for the quarter ending December 2021. The Company reported earnings of $0.17 per share versus consensus analyst estimates of $0.12 per share, a $0.05 per share beat. Revenues fell (-1.2%) year-over-year (YoY) to $109 million beating consensus analyst estimates of $108.53 million. System-wide comparable restaurant sales rose 11%. The Company claims COVID-19 had a significant impact in Q1 2022 as comparative sales rose 7.4% YoY. Due to COVID uncertainty, the Company didn’t provider 2022 estimates. The Company appoints CFO Larry Roberts as the new CEO effective immediately as Company pursues a search for a new CFO. CEO Roberts commented, “Despite ongoing external challenges, we posted solid results to close out 2021, exemplified by an 11.0% increase in system-wide comparable restaurant sales and earnings per share to $0.17. While January and February were negatively impacted by the Omicron surge, system comparable restaurant sales continued to grow and have strengthened, as the impact has waned in recent weeks.”

Conference Call Takeaways

CEO Roberts tried to set a positive tone, “As we previously announced in our January business update, we're pleased with our sales and operating performance during the fourth quarter, as we posted 11% growth in system-wide comparable restaurant sales. Staffing challenges and a resurgence of COVID had an enduring impact on our company-owned restaurant comparable sales during the quarter to the tune of approximately 5 percentage points to 6 percentage points.” The Omicron virus resurgence impacted sales through Feb. 23, 2022. However, sales have been starting to improve as it dissipates. Increasing applicants are enabling the Company to cut down on staffing shortages. He elaborated on the four pillars of focus to strength its business moving forward. This includes brand awareness, standardizing one system among the organization by engaging franchisees, creating an exceptional work environment, improving customer service and experience. The Company implemented more employee recognition efforts like launching an Employee Appreciation Month including an employee engagement survey for the first time in a decade. He feels this has helped reduce the turnover of staff in 2021. The Company plans to continue to pursue younger consumers through bolster its brand awareness efforts in digital and social media platforms. Digital sales account for 11% to 12% of total sales, up from 10% in 2020. A targeted market campaign that integrates TV, social and digital media channels will be targeted to various groups. El Pollo is also working on a simplified menu to be released in 2022 resulting in faster service and improved accuracy of orders along with process simplification. System acceleration seeks to bolster top and bottom lines surpassing the average system restaurant volumes of over $2 million. The Company seeks to bolster its franchise operations by adding a Senior Vice President of Franchising and is in the process of hiring a Director of Franchise Sales to focus solely on recruiting new franchisees. They will be broadening recruiting efforts to include mid-scale operators and multi-concert franchises and involving senior management in the process and attending conventions.

LOCO Price Trajectories

Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for LOCO stock. The weekly rifle chart formed a market structure low (MSL) buy trigger on a breakout above $11.72. The weekly inverse pup breakdown has a falling 5-period moving average (MA) resistance at $11.81 followed by the 15-period MA at $12.99 and 200-period MA at $14.52 and 50-period MA at $15.59. The weekly lower Bollinger Bands (BBs) sit near the $10.75 Fibonacci (fib) level. The weekly upper BBs sit at $15.59. The daily rifle chart has been in a slow uptrend with a rising 5-period MA at $11.55 followed by the 15-period MA at $11.43. The daily stochastic is forming a mini pup through the 30-band. The daily 50-period MA sits at $12.61 with daily upper BBs at $13.10 and daily 200-period MA at $15.30. The daily lower BBs sit at $10.25. Prudent investors can watch for opportunistic pullback entry levels at the $11.34, $10.75 fib, $10.23 fib, $9.82 fib, $8.99 fib, $8.45 fib, and the $7.91 fib level. Upside trajectories range from the $13.20 fib level up towards the $15.67 fib level.