With just one single trading day left before El Pollo (NASDAQ:LOCO) reports its first round of earnings as a publicly traded company, shares remain extremely volatile. Investors are clearly placing bets as opposed to waiting on the sidelines for greater insights into the future prospects for the company. The company will report its Q2 2014 earnings after the closing bell on September 4, 2014.
So what is the likelihood that El Pollo Loco can beat analysts' estimates for the quarter which are as follows: "Analysts are expecting the company to report $.16 in earnings on $86.44mm in revenues for the 2nd quarter of 2014. This comes on the heels of the company reporting $.22 in earnings on $81.4mm in revenues during the 1st quarter of 2014".
If we consider that the company has opened a few new restaurant locations during the quarter we might assume that the company will continue to see revenue growth from its expanding restaurant base. Additionally, the company has been able to pass along menu price increases to its customers over the last couple of years. These higher menu prices have also helped provide El Pollo Loco with 11 straight quarters of same-store sales increases, even in the face of declining foot traffic.
There are some early reads into the strength of the overall restaurant sector in the most recent Consumer Spending report for the month of July. Unlike the first six months of 2014, the second quarter started off on the right track for the restaurant industry as same-store sales returned to positive growth in July, according to the latest Restaurant Industry Snapshot from TDn2K's Black Box Intelligence and People Report. Additionally, same-store sales grew by 0.5 percent in July, which represents a 0.6-percent increase over June's results. Four out of the five months since March have shown positive same-store sales growth for the restaurant industry which may prove to be a key piece of insight into El Pollo Loco's quarterly results to come. Unfortunately, for every good there must be a bad. As noted earlier, El Pollo Loco has witnessed declining foot traffic. This is not unique to El Pollo Loco as same-store traffic fell 1.0 percent in July for the restaurant industry. According to the Black Box Intelligence report, the best-performing region during July both on a year-over-year and a two-year basis was the Western region, with 2.2 percent and 3.9 percent same-store sales growth, respectively. El Pollo Loco's restaurant base is almost entirely comprised in the Western region of the United States. Certainly, one monthly restaurant industry report does not make for a great look into a particular company's quarter, but it is still something to consider as investors gauge the likelihood of a strong quarter from El Pollo Loco.
Today, when El Pollo Loco reports earnings, many institutional shareholders will be eyeing some key metrics and they may not even be the usual earnings and revenue metrics. While these two metrics are important, they may not be most useful in extrapolating the long-term thesis for investing in shares of LOCO. With that said, same-store sales and gross margins might be where these investors dedicate their focus and ultimately place their bets if you will. Outside of the roughly 70% shareholder interest currently garnered by Trimaran and Freeman Spogli, the next biggest "hitters" in the stock are currently Vanguard Group Inc. and Pioneer Investment Incorporated. It should be an interesting day for shares of LOCO on September 4th and we look forward to a positive outlook from the company and its first, public analyst conference call.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.