El Pollo Loco (LOCO)

Fast food chain El Pollo Loco (NASDAQ:LOCO) fell short of the markets revenue expectations in Q3 CY2025, with sales flat year on year at $121.5 million. Its non-GAAP profit of $0.27 per share was 26.2% above analysts’ consensus estimates.

Company Overview

With a name that translates into ‘The Crazy Chicken’, El Pollo Loco (NASDAQ:LOCO) is a fast food chain known for its citrus-marinated, fire-grilled chicken recipe that hails from the coastal town of Sinaloa, Mexico.

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Competitors offering Mexican-inspired fare or specialty chicken dishes include Chipotle (NYSE:CMG), Fiesta Restaurant Group (NASDAQ:FRGI), Chuy’s (NASDAQ:CHUY), and private company Qdoba.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $480.8 million in revenue over the past 12 months, El Pollo Loco is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

As you can see below, El Pollo Loco’s 1.4% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was weak as its restaurant footprint remained unchanged and it barely increased sales at existing, established dining locations.

This quarter, El Pollo Loco’s $121.5 million of revenue was flat year on year, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.2% over the next 12 months. While this projection implies its newer menu offerings will catalyze better top-line performance, it is still below average for the sector.

Number of Restaurants

A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.

El Pollo Loco operated 498 locations in the latest quarter, and over the last two years, has kept its restaurant count flat while other restaurant businesses have opted for growth.

When a chain doesn’t open many new restaurants, it usually means there’s stable demand for its meals and it’s focused on improving operational efficiency to increase profitability.

Same-Store Sales

The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales provides a deeper understanding of this issue because it measures organic growth at restaurants open for at least a year.

El Pollo Loco’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 1.5% per year. Given its flat restaurant base over the same period, this performance stems from a mixture of higher prices and increased foot traffic at existing locations.

In the latest quarter, El Pollo Loco’s year on year same-store sales were flat. This was a meaningful deceleration from its historical levels. We’ll be watching closely to see if El Pollo Loco can reaccelerate growth.

El Pollo Loco has bad unit economics for a restaurant company, giving it less room to reinvest and grow its presence. As you can see below, it averaged a 21.7% gross margin over the last two years. Said differently, El Pollo Loco had to pay a chunky $78.25 to its suppliers for every $100 in revenue.

El Pollo Loco produced a 22.9% gross profit margin in Q3, up 1.6 percentage points year on year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as ingredients and transportation expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability for restaurants as it accounts for all expenses keeping the business in motion, including food costs, wages, rent, advertising, and other administrative costs.

El Pollo Loco’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 8.4% over the last two years. This profitability was higher than the broader restaurant sector, showing it did a decent job managing its expenses.

Analyzing the trend in its profitability, El Pollo Loco’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, El Pollo Loco generated an operating margin profit margin of 9.4%, up 1 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

El Pollo Loco’s EPS grew at an unimpressive 4.1% compounded annual growth rate over the last six years. This performance was better than its flat revenue but doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q3, El Pollo Loco reported adjusted EPS of $0.27, up from $0.21 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects El Pollo Loco’s full-year EPS of $0.94 to shrink by 7.4%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

El Pollo Loco has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 4.9% over the last two years, slightly better than the broader restaurant sector.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

El Pollo Loco’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 8.8%, slightly better than typical restaurant business.

El Pollo Loco reported $10.87 million of cash and $61 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $64.16 million of EBITDA over the last 12 months, we view El Pollo Loco’s 0.8× net-debt-to-EBITDA ratio as safe. We also see its $2.53 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly El Pollo Loco blew past analysts’ EPS and EBITDA expectations this quarter. On the other hand, its revenue and same-store sales fell short of Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The stock traded up 6.6% to $9.65 immediately after reporting.

Updated: December 3, 2025 at 9:43 PM EST

When considering an investment in El Pollo Loco, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We cheer for all companies serving everyday consumers, but in the case of El Pollo Loco, we’ll be cheering from the sidelines. To begin with, its revenue growth was weak over the last six years. And while its stable growth in new restaurants shows it has steady demand, the downside is its brand caters to a niche market. On top of that, its projected EPS for the next year is lacking.

El Pollo Loco’s P/E ratio based on the next 12 months is 11.9x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $13.67 on the company (compared to the current share price of $11.29).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.