El Pollo Loco Holdings, Inc. (LOCO) CEO Laurance Roberts on Q4 2021 Results - Earnings Call Transcript

Mar. 10, 2022 8:36 PM ETEl Pollo Loco Holdings, Inc. (LOCO)
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El Pollo Loco Holdings, Inc. (NASDAQ:LOCO) Q4 2021 Earnings Conference Call March 10, 2022 4:30 PM ET

Company Participants

Laurance Roberts - Chief Executive Officer and Interim Chief Financial Officer

Conference Call Participants

Jack Corrigan - Truist Securities

David Tarantino - Robert W. Baird and Company

Andy Barish - Jefferies Group, LLC

Operator

Good day, ladies and gentlemen, thank you for standing by. Welcome to the El Pollo Loco Fourth Quarter 2021 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the lines will be opened for your questions following the presentation. Please note that this conference is being recorded today, March 10th, 2022. And now, I'd like to turn the conference over to Laurance Roberts, Chief Executive Officer, and interim Chief Financial Officer.

Laurance Roberts

Thank you, Operator. And good afternoon. By now, everyone should have access to our fourth quarter 2021 earnings release. If not, it 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 discussion today will include forward-looking statements, including statements related to the impact of the COVID-19 pandemic on our business and strategic actions we are taking in response. As well as our marketing initiatives, cash flow expectations, capital expenditure plans, and plans for new store openings, 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 also 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 a more detailed discussion of the risks that could impact our future operating results and financial condition.

We expect to file our 10-K for 2021, tomorrow, and 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.

Now, before we get started, I'd like to take a brief moment to comment on my appointment as permanent Chief Executive Officer of El Pollo Loco that was announced this afternoon. It is an incredible honor to lead this company along with the employees and franchisees that made this such a great brand. While the current environment has its challenges, I believe the positioning of the brand is very strong.

And I'm extremely excited about the initiatives we're implementing to strengthen the business further, as well as catch the company's long-term growth potential. With that, I'd like to touch on our recent results and spend some time discussing initiatives that we believe will set us up for a successful 2022 and beyond.

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.

Despite the sales impact, plus accelerating commodity and wage inflation during the quarter, our teams did a fantastic job managing our business, resulting in a solid restaurant contribution margin of 15.7% and earnings per share of $0.17. Touching briefly on the first quarter of 2022 to date, some of the actions taken to manage the Omicron virus also impacted our business in January and the early part of February. These actions included reducing operating hours and service channels along with temporarily closing a small number of restaurants.

Despite the impact of the Omicron virus through February 23, year-to-date system comparable restaurant sales were 7.4%, consisting of a 1.5% increase in company-operated restaurants and an 11.2% increase in franchise restaurants. I am pleased to say that the impact of Omicron is dissipating and has become negligible over recent weeks. In addition, we're seeing an increase in applicant flow, which has enabled us to significantly reduce staffing shortages across our company operated restaurants. Commodity and wage inflation is now our biggest challenge, which I will discuss later.

Also with regard to 2022, we are modifying our acceleration agenda that focus on four pillars that will further strengthen our business in the years to come. Let me start with our culture which includes three key elements. First, create a restaurant operations [Indiscernible] across the entire organization, not just in our restaurants. Second, act as one system by further engaging franchisees and making sure everything we do encompasses the full scope of our system wide operations.

And third, creating exceptional work environment for our restaurant employees based on recognition and support while also maintaining accountability. I will talk more about the first two elements on future calls as we develop concrete action plans. I'd like to take a moment to discuss what we're doing to create an exceptional work environment for our restaurant employees which is critical to delivering a great experience for our customers.

During the fourth quarter, we focused on engagement with our team members through recognition and emphasis on getting to know you conversations. Area leaders were tasked with talking with each team member during our restaurant visits to build a relationship and understand their career interest. Recognition boards and snack tables are now prominently displayed in every restaurants and in November, we launched Employee Appreciation Month which included an employee engagement survey to better understand what's in the minds of our team members.

This is the first survey of its kind in 10 years within our restaurants and we believe it is already creating a positive impact while highlighting employee concerns that we will address during the years. More importantly, it's fulfilling our goal to create a familiar culture in our restaurants.

While early, we have experienced a significant reduction and turnover during the fourth quarter versus the second and third quarters of 2021. And we believe we can still do better. As we move through 2022, we have many other initiatives planned at both the restaurant level and support center to further strengthen the El Pollo Loco culture. Our second pillar is brand differentiation and awareness. Over the past year, we believe our messaging has become inconsistent.

But let's focus on what clearly differentiates us from other restaurant concepts, which is the quality of our food and healthier offerings provided by our freshly grilled chicken. It's food that combines our Mexican roots with the culinary culture of Los Angeles, whereas we say it's L.A. Mex. We need to own this differentiation and build more awareness around our unique offerings, which we refer to as owning our lane.

As part of this strategy, we're striving to extend our reach with younger consumers while maintaining our strong core customer base. A big part of these efforts is enhancing our products innovation process. We've recently added additional resources along our product development team to improve everything from concept screening and development to testing and successfully launching new products.

We're already making significant strides in the product development process and believe that we will increase the success rate of our new product launches, especially as we reach out to younger consumers. We also continue to expand our effort in digital and social media. Currently, our digital sales comprise 11% to 12% of our sales, which is an increase from 10% at the end of 2020. While we're making good progress, we believe that we've only just begun to tap into the full potential of digital and social media.

To that end, we have expanded our digital team and are implementing a comprehensive go-to-market strategy that will integrate TV, social, and digital media channels to deliver coordinated, targeted messages to various user groups. In addition, we are in the final stages of entering into a partnership with a customer intelligence provider that will greatly enhance our ability to segment consumer information, both from our loyalty program and across our business.

That brings us to our third pillar, customer service, the goal of which is to deliver exceptional service profitably. This correlates directly with our ability to properly staff our restaurants and train our team members. As I highlighted earlier, we have made very good progress staffing our restaurants during these challenging times. However, we need to maintain our intensity and focus to ensure that we achieve and maintain 100% staffing across all of our restaurants. Therefore, staffing and retaining team members remains our number one priority.

To that end, we continue to increase our recruiting efforts to find and retain the best people for our restaurants. This includes ensuring that the wages and benefits we offer are competitive, adding resources to[Indiscernible] more candidates faster and creating a culture where excellence is rewarded and celebrated. Along with our staffing efforts, we're developing our leadership capabilities and business acumen of our area leaders and general managers. This includes monthly development days for our area leaders in which they come to our support center for leadership training.

By developing better leaders, we believe that we will significantly reduce turnover and improve our restaurant operations. Our other big initiative to improve customer service is our work to simplify operations for our teams and franchisees which should ultimately enhance the customer experience. These efforts can be broken down into three categories: the menu, operations processes, and equipment. With regards to the menu, we continue the process of eliminating low mix menu items and removing unnecessary ingredients.

In conjunction, we are working on a new simplified menu board which we will test later this year. The goal of the project is to make the menu board easier for customers to comprehend and for team members to execute. The result should be faster service with better order accuracy. Lastly, we are introducing a more robust front-end assessment of new products and deal offers to ensure they are not overly complex operationally.

In addition to menu simplification, we're looking closely at process simplification including an active evaluation of the most labor intensive activities in our restaurants to find ways to improve our kitchen efficiency without impacting product quality. Example of this, they changed by Stanlis Serrano peppers and pre -cut cilantro, which will remove preparation activities from our restaurants starting in mid-March.

Finally, we are upgrading our equipment with the goal to simplify our back-of-house processes and enhance our few qualities. For example, we are currently testing new equipment to make our house saucer. Early results are very positive with a significant win-win. Not only does it eliminate one to three hours of work in the restaurants, the saucer is dramatically better and more consistent. As you can see, we have a lot to be excited about from these efforts and we believe they will allow us to deliver improved service to our customers in 2022 and beyond.

Our last pillar is accelerating development. Our system restaurant volumes now average over $2 million, which we believe are very enticing to restaurant too is looking to expand. While we've had some success in 2021, our franchising activity fell short of our goals. Fairly our message is not getting out there as effectively as we would like. And in response, we are ramping up efforts to better capture qualified franchisees in this highly competitive environment.

To start, we have strengthened our franchise team by adding a Senior Vice President of franchising during the fourth quarter. And we are in the process of hiring a Director of Franchise Sales to will be 100% focused on recruiting new franchisees into the El Pollo Loco system. With resources in place, our focus is on modifying, enhancing our franchise recruiting efforts, including the development of a new website and completely new marketing materials that include the use of both print and video.

In addition, we will be broadening our franchise recruiting efforts to include larger multi-concert franchisees, as well as mid-scale operators. Lastly, we're fine-tuning our recruiting process by involving senior management early in a process, including attendance at various conventions. We expect these improvements will be completed by the end of the first quarter and are confident that we will make strides in our franchise efforts during the current year.

In summary, despite the challenges we have faced over the past two years, I truly believe that El Pollo Loco brand is stronger than ever. The entire organization is fully engaged on the four pillars of our strategic priorities that will further strengthen our position as a very distinctive concept that resonates across a broad range of consumers. I'm very excited by the work we're doing and the opportunities ahead of us. Most importantly, I'd like to thank all of our restaurant and support center teams, as well as our franchisees for their hard work and commitment to better El Pollo Loco brand.

With that, let me briefly review our fourth quarter financial results in greater detail. For the fourth quarter ended December 29th, 2021, total revenue decreased 1.3% to $109 million compared to $110.3 million in the fourth quarter of 2020. Company-operated restaurant revenue decreased 2.9% to $93.6 million from $96.4 million in the same period last year.

The decrease in company-operated restaurant sales was primarily due to $4.6 million attributed to the extra operating week in fiscal 2020 and a $2.5 million decrease due to the sale of eight company-owned restaurants to a franchisee during 2021. These were partially offset by a 6.2% increase in company-operated comparable restaurant sales and $2.3 million in non-comparable restaurant sales which included restaurants temporary closed due to the pandemic during last year's fourth quarter.

The increase in company-operated comparable restaurant sales was comprised of a 5.6% increase average check and a 0.6% improvement in transactions. During the quarter, our gross pricing increase versus 2020 was 6.8%. As I mentioned earlier, Omicron has negatively impacted our performance at the beginning of our first quarter.

Through February 23rd, first quarter system-wide comparable restaurant sales increased 7.4%, consisting of a 1.5% increase at company-owned restaurants and 11.2% increase at franchise restaurants while two-year system-wide comparable sales were up 3.5%. Franchise revenue was $8.8 million during the fourth quarter compared to $7.9 million in the prior-year period.

This increase was driven by a franchise comparable restaurant sales increase of 14.2% as well as the opening of three new franchise restaurants during or subsequent to the fourth quarter of 2020 and revenue generated from eight company-owned restaurants sold to an existing franchisee during 2021. This was partially offset by the closure of two franchise restaurants during the same period. Turning to expenses; food and paper costs as a percentage of company restaurant sales increased 80 basis points year-over-year to 27.2% due to increased commodity costs and investments in new packaging.

These were partially offset by higher menu prices. As highlighted earlier, commodity inflation accelerated during Q4, 2021 and continues to increase early in 2022. For the first quarter, we expect commodity inflation of approximately 18%. We believe that commodity inflation will decline later in the year as prices for boneless chicken, avocado and other products fall from the current highs.

Labor and related expenses as a percentage of company restaurant sales decreased 10 basis points year-over-year to 32.3% as higher menu prices and the benefit of lapping 2020 COVID -related costs offset higher wage inflation, overtime cost and other labor-related costs. Based on the continued labor pressure that we're experiencing, we're expecting wage inflation of approximately 6% during the first quarter of 2022. Through February 23, we have incurred approximately $2.2 million of COVID -related expenses, including leave of absence and overtime pay.

Occupancy, and other operating expenses as a percentage of company restaurant sales decreased 60 basis points to 24.9% due to sales leverage, favorability and cleaning supplies, in a collection of an insurance claim. Our restaurant contribution margin for the quarter was 15.7%. General and Administrative expenses increased to $9.5 million, from $8.9 million in the year-ago period due to an increase in management bonus expense and legal costs, partially offset by $600,000 decrease in stock compensation expense.

As of recent, the total revenues, G&A increased approximately 60 basis points to 8.7%. We recorded a provision for income taxes of $1.7 million in the fourth quarter of 2021, for an effective tax rate of 21.5%. This compared to a provision for income taxes of $2 million and an effective tax rate of 26.3% in the prior year fourth quarter. We reported GAAP net income of $6.2 million or $0.17 per diluted share, in the fourth quarter, compared to GAAP net income of $5.5 million or $0.15 per diluted share in the prior-year period.

Proforma net income for the quarter was $6.1 million or $0.17 per diluted share, compared to proforma net income of $5.7 million or $0.16 per diluted share in the fourth quarter of last year. For a reconciliation of proforma net income and earnings per share to the comparable GAAP figures, please refer to our earnings release.

Regarding development during the fourth quarter, one franchise restaurant was opened in [Indiscernible], while no new company restaurants were open. Turning to liquidity, as of December 29th, 2021, we had $40 million of debt outstanding and $30 million in cash and cash equivalents. Lastly, due to the uncertainty surrounding the COVID-19 pandemic, the company is not providing a financial outlook for the year ending December 28, 2022 to have or we are providing the following limited guidance for fiscal 2022.

The opening of 3 to 6 company-owned restaurants and 6 to 10 franchise restaurants. Remodeling of 10 to 20 company-operated restaurants in 20 to 30 franchise restaurants. The capital spending of $20 million to $25 million and a proforma income tax rate of 26.5%. This concludes our prepared remarks. I'd like to thank you again for joining us on the call today. And I'm now happy to answer any questions that you may have.

Question-and-Answer Session

Operator

Thank you. At this time, we'll now be conducting a question-and-answer session. [Operator Instructions]. And our first question will be coming from the line of Jack Corrigan with Truist , please proceed with your questions.

Jack Corrigan

Hey, Larry, thanks for taking the questions and congratulations on being appointed CEO. Well, it's well deserved.

Laurance Roberts

Thank you, Jack.

Jack Corrigan

I guess my first question is on current same-store sales trends and I appreciate you've given the year-to-date trends. But I guess, could you split out the company and franchise two-year trends year-to-date? And would you be willing to give any more color, maybe breaking out January and February, just so we know if there was some inflection as Omicron receded?

Laurance Roberts

Yeah. Just the two-year trends have been pretty consistent across the company and franchise. I think the company is somewhere around flattish. Our franchisees continue to be strong. And top of my head I think they're in low double-digits on a two-year basis.

Jack Corrigan

Okay. Good.

Laurance Roberts

Let me --

Jack Corrigan

We can follow-up after the call as well.

Laurance Roberts

Yeah. And then what's the second part of your question?

Jack Corrigan

Yeah. I was wondering if you'd be willing to break out January versus February and was there any inflection there? I guess maybe if we get a more real time trend.

Laurance Roberts

Yeah, in January, we are harder hit than February. I mean, January is really the peak of COVID. So that both, in our sales and franchisee sales. And then they start bouncing back, late January or early February is when we saw the inflection point and we started seeing improvements in sales.

Jack Corrigan

Okay, great. That's helpful. And then I guess any more detail on the staffing environment currently? I think you said 5% to 6% same store sales impact in 4Q. Is it still that level of impact right now? And I guess maybe what is the staffing level versus 2019 or where you'd like to be?

Laurance Roberts

Yes. I mean, our staffing levels have improved significantly over the past month or so. I mean, really started back in December. We started seeing progress, COVID knocked us back a little bit and flattened out and now they've improved to the point where we really have very few, if any, restaurants, certainly during a week, we have really no restaurants that aren't fully open in all channels.

A few are still -- have slightly reduced operating hours, but it's just a handful. So overall, the impact due to staffing levels is down to negligible, basically just about zero. The only thing we do see is on weekends, we see some callouts and things, but overall, we're now able to keep all of our restaurants open, all channels, and basically all hours of operation.

Jack Corrigan

That's great. That's really helpful. And then I guess for inflation up to 18% in the first quarter is a sizable jump. Have you taken any more price or do you plan on taking any more price to combat that or offset that? And are you maintaining -- I think you previously said your full-year expectation for high single-digit to low double-digit commodity inflations, are you maintaining that for the full year and expected to come down in the second half?

Laurance Roberts

Well, we are expecting it to come down in the second half. I guess, I'm holding off in terms of giving a full-year outlook, just given to the volatility that we're seeing across all markets. Just a little color on the 18% number. Part of that is driven by the fact that we had such great contracts last year. I think last year, our commodity inflation during Q1 was zero. So there is a big step-up we incurred in the fall, late in the year, when we renegotiated our contracts. That's part of the driver. And then the other big drivers on the acceleration and inflation were around really three products.

One was boneless chicken -- boneless breast in particular, which we had made a decision to let float year-end when we negotiate a contract, and those prices have gone up. Fortunately, we did lock in bone-in chicken because that's also been impacted on in terms of the markets. But we're locked in at that rate so that has not resulted in additional inflation on top of what we were expecting. The second product was avocados. That should be -- that will be temporary.

That was really due to the issues in Mexico which stopped exports from Mexico to the U.S. on avocados for a couple of weeks. And so that should get back in line here. And then the third item was really pinto beans and that was driven by weather. Here in California with the rains, our supplier had to shut down production of pinto beans for a while and we had to source it from another supplier.

So that drove the pinto bean cost during the quarter. So we had a couple of market factors and I'd say a couple of non-market factors driving that 18% rate. Having said that, like I said, I expect inflation to remain at high levels but we do see it coming down over the back half of the year.

Jack Corrigan

Thanks. Appreciate all that color.

Laurance Roberts

And then in terms of pricing, your other part of the question was pricing.

Jack Corrigan

Yes.

Laurance Roberts

Yes. I mean, we ran in the first quarter, 8.2% price. We're getting ready to take an additional 3% price here in the next week or so. We will be constantly looking at that. And whereas in the past, we've tended to take pricing one to two times a year. I think this is going to be an environment in which we are constantly looking at price and looking at it could be every module taking price just to keep up with inflation but we want to make sure that we're monitoring inflation, seeing where it's heading before making these pricing decisions rather than try to get out in front of it and take a huge price increase that may impact our consumer.

But I'd also highlight on top of the pricing, I mean the entire organization is looking at ways to how else do we improve margins in the business and that's everything from we looking at the makeup of products that we have, we looking on the menu, and what we provide in our combo meals and things, looking at the types of ingredients that we use. So there's a lot of work going on to see how we might improve our margins across the board.

At the same time, what we want to be really careful about is don't do anything to jeopardize the quality of the food. I don't want to be in a position in which because we're trying to protect margins in the short-term, we jeopardize the consumer experience and the quality of our food. And so everything we do is very focused on maintaining that food quality. So some of these things, the bigger things we have in the pipeline that we're looking at from a margin standpoint will have to be tested and reviewed again to make sure that we don't upset the consumer and really impact our food quality.

Jack Corrigan

That's great. I appreciate all that color and congratulations again.

Laurance Roberts

Thank you.

Operator

Our next question is coming from the line of David Tarantino with Robert W. Baird and Company. Please proceed with your question.

David Tarantino

Hi. Good afternoon and congratulations, Laurance, on the appointment.

Laurance Roberts

David Thanks.

David Tarantino

Well done. Very well done. A couple of questions on some of your strategic points you made. First on the marketing, I think you've mentioned that the brand messaging has maybe gotten off center in terms of your key points of differentiation. I was wondering if you could elaborate on what you meant by that. And I guess what the changes you hope to make with the marketing and advertising strategy going forward?

Laurance Roberts

Yeah, thanks, David. So when we look back and look at the marketing during last year, if you recall, you're going back several years ago, we developed a brand book with a tag line, and that brand book highlighted what we're going to focus on, the colors, the fonts, everything about the advertising and marketing and that was all going to tie into this brand book.

And when we went back and looked at it, we realized, also new colors are coming in, the tagline, if you look at the advertising last year and you say each module basically has two sets of commercials, one for dinner and one for the -- it's called the entree family meals and entrees. So you basically had twelve on call commercials, we used fee to flame our tagline twice.

I think the focus was also a little bit away from the food and consumers using the food and got more into quite frankly, naked people with Nachos and those types of things. So it just felt like we were going a route that myself along with the marketing team just felt like we should get back to focusing on what we really had determined in our brand work that we've done has get back to that and just a really focused on the food, on the brand book.

The target consumers we were going after and those types of things. So that's what we're going back to, again, it's not I wouldn't say a huge, huge shift, but it is getting back to the fundamentals of we believe really differentiates the brand.

David Tarantino

Got it. And when does your new, I guess, your evolved approach begin? Has it already started or is that on to come?

Laurance Roberts

It really starts here in the next module. And let me just highlight. We're really excited about the next module we're on. It's one of the most unique products the business has launched and served to our customers. It's capturing a trend that is very big out here in California. And I think other Hispanic markets, and that is a beef birria product.

So it's centers around this great beef that we have sourced. And then it's dipped into a Mexican, call it juice or sauce, the birria. So we're super excited about it. And looking forward to the success that we think we're going to have with this product. But that will get more into really focusing in on the food. Really nothing cute about the advertising, it speaks for itself.

And you can already have fun with it just from the dipping, so really looking forward to that and that to me is really where we start getting back to the more consistent advertising, more focused on the brand, the quality of the food. And we want to make sure also all our advertising is when people see the ad, they know it's El Pollo Loco. And it doesn't get too far off track from what we've traditionally done.

David Tarantino

Great. Thank you. And then one more question on the development outlook. I know you mentioned having some setbacks or not making as much progress on the franchising side. And I was wondering, I think previously you had talked about getting to a mid-single-digit type unit growth for the system. And I wanted to ask, is that still the goal? And then what type of timeframe do you think you need to establish that type of growth on a consistent basis?

Laurance Roberts

Well, David, that is still the goal and 2013 -- 2023 it's still the goal. I think, like I said in the previous call, that's certainly a challenging goal. So it may be that we get to a run rate towards the backend of 2023. But like we said, we're pushing the pedal to the metal, a lot of resources this first quarter to really raise our game on that. So we're not shifting the goal at this point, 2023, but admittedly, that is a more -- I'll call it a challenging goal than I would have said a year ago.

David Tarantino

Got it. Thank you very much.

Laurance Roberts

Thanks, David.

Operator

Our next question is coming from the line of Andy Barish with Jefferies Group, LLC. Please proceed with your questions.

Andy Barish

Hey, Laurance. My congrats as well.

Laurance Roberts

Thanks, Andy.

Andy Barish

Just wondering, you knew 4Q, 1Q were going to be top on the margin side of things. Do you have the visibility in your plans that kind of see progression as we move through the rest of the year?

Laurance Roberts

Yeah. [Indiscernible]

Andy Barish

Margin improvement?

Laurance Roberts

Yeah. No, actually, I figured that's what you're talking about Andy. Yes. But of course, the volatility in commodities. I say yes with the caveat. If things stay according to what we think is going to happen, then I would see progression during the year, especially as we look to take more price and as we hopefully implement some of these cost savings initiatives that we have planned.

Andy Barish

Got you. Very helpful. And when you, when you think about sort of pricing as you move through this year, I think you've mentioned family meals are already priced above the $20 mark for a lot of your franchisees. Is that something you're testing in the company-owned stores to move up on that important products in the mix?

Laurance Roberts

Yes. So of the 3% price I mentioned, really 2% is what I would call our straight menu price increases. A percentage point of that is what we're expecting from the restructuring of our family meals on the menu. And so we're moving forward with that and that will be this next module which launches, I guess, in a week or so. So that will be done and we will be off between our price point which most of our franchisees had moved off of.

I'd say the other one that we're really now evaluating is we do Fire-Grilled Combos, several things on the menu at $5. We're looking at that and saying, well, do you come off that price point as many franchisees have done or do you restructure it in a way that from a food cost perspective is better? So that's a piece of work that's going on now and it's one of the many, I'll call, cost initiatives that we have going on in the business.

Andy Barish

Got you. And then just one final one on the balancing of renewed innovation just with the improvements the brand has made in terms of some of the operational simplifications over the last couple of years. How do you make sure you keep some of that efficiency and productivity while still exciting the customer with some new products?

Laurance Roberts

Yes. Well, that's what the -- all the work going on, as I mentioned earlier on the call, bringing in additional resources to really manage the product development pipeline and so we are really ramping up our consumer research, putting new products in front of those consumers, making sure that we're going to have a lot more success and a limit-time offers. And in terms of the efficiency piece, it's really looking at the number of ingredients that we put in the products.

I think many times we put too many ingredients in the products or probably more than necessary. I mean, they are fantastic products, but do we need everything we put in them? From a consumer experience, do they really notice it? From an employee perspective, they know that there are complicated to make. The other thing that we're reevaluating and we're doing research on is, as you're probably familiar, most of our LTOs, we always knew three new items.

So if we're doing a new burrito, we do three new burritos. I think the earlier [Indiscernible] says, you may only need two burritos. You don't really need that third one. So there's just a lot of work going on there around, not only really dramatically improving the new products and the chances of them being big successes, but also around how do we simplify things to make it easier in the restaurants to execute.

Andy Barish

Thanks. Very helpful color.

Laurance Roberts

Okay. Thanks Andy.

Operator

Thank you. [Operator Instructions]. The next question comes from the line of Zackfia Sharon with William Blair.

Unidentified Analyst

Hi, it's Matt (ph) for Sharon. Firstly, a question on comps, if you kind of take the trend line through February 23rd and just extrapolate that, I'm wondering what you expect for comps for the full quarter? And the reason I ask is just because the comparisons they get so much tougher in March.

Laurance Roberts

Yes, they do. So that's why, as I talked about comps for the quarter in March for our Period 3, the comp growth gets more challenging. The other more challenging thing that we see in Period 3 is a disconnect on the lapse. So last year, we did six modules, this year, we're doing five modules. One of those module launches took place actually a couple of weeks ago. So you see the lap of that even makes it a little more challenging. I don't want to get into an actual comp forecast for the quarter but you're correct.

I mean, the fact that we're at season comp over 7% through February. The March comp scale is a little more challenging as we came out of COVID last year. And having said that, what we are seeing is if you look at the average unit volume lines in our business, those are growing nicely, coming out of COVID really strong as I highlighted in the call. We're -- we track to over $2 million of annual AUVs. If you look at our franchisees in LA, they're now up around -- they probably average $44,000 a week. So we're seeing nice sales growth which is one of the things I'm also looking at as we get into March.

Unidentified Analyst

Okay. And then circling back to price. I think I heard you say you are running about an 8% price benefit here in the first quarter, are the franchisees being more aggressive on price right now? And I just ask because of the disparity in comps between franchise and company-owned. And then more generally, how have consumers reacted to the price increases so far?

Laurance Roberts

Yes. So, first on the franchisee side, it's always a little difficult to judge exactly what pricing they've taken, the thing we use and what we look at is average check, because that's generally a good guideline for what pricing is being taken by our franchisees. And so what you actually see is the gap between the company average check and franchisee average check has been very consistent and is consistent now, it's had a dollar more on the average check for franchisees.

So that indicates to us that they basically have taken pricing at roughly the same levels as we have. And when you look at performance and a big part of the gap between company and franchise performance is it's really all transactions. If you look at average check, growth is basically the same as transaction growth.

And that just comes from the impact that COVID has had on our business, not just this year, the prior years, the staffing challenges we had, and we're fixing those things and we're making progress. And to me, one of the upsides we have on the company side is we improve operations. We should keep closing that gap with franchisees on the same-store sales side, and we should start getting more rapid sales growth than say the franchisees should.

Now I hope to franchisees maintain it and we keep growing and accelerating our growth but we should have more upside on the company side as we continue to improve our operations. In terms of consumer push back, it's difficult to read through COVID especially on the company side. But I would say right now, we're not really seeing it. We're seeing if you look at the pricing we've taken versus average check growth.

There's probably two to three-point gap there, meaning we've taken more price than average check of increase. But a lot of that is basically what we expected, which is as consumers coming back, people going back to work. Our lunch business and entree business are growing in a more faster rate than dinner.

And so there's a natural mix shift that you're going to get as you maintained your dinner business but you're gaining a growth more from your lunch and entree side of the business. So if I look at the franchisees, I certainly don't see any pricing pushback given their transaction growth on that side of the business. So I don't see any pushback from consumers there.

Unidentified Analyst

Okay. Thanks for that. And then a last one from me. It looks like you're managing labor very well with the company-owned restaurants. Is that primarily a function of turnover being down sequentially or have you discovered new efficiencies that maybe are helping you out more on the labor front?

LauranceRoberts

No, I don't think it's anything special. I mean, we've always done a very good job of managing labor in our business. In fact, well, we'd hope to see or expect to see here over the next several weeks and months is that we should be reducing over time and meal breaks penalties that had been a pretty sizable cost in the business.

And those are driven by the fact that we've had challenges staffing our restaurants. And so I expect that to actually come more in line to what we've seen historically. So from an efficiency standpoint, I don't see much different what we're doing today than we've done in the past.

Unidentified Analyst

Great. Thanks very much and good luck in the other world.

Laurance Roberts

Thank you.

Operator

Thank you. At this time, we've reached the end of the question-and-answer session. I will now turn the call over to Laurance Roberts for closing remarks.

Laurance Roberts

I'll just say, thanks everybody for joining the call today. I really appreciate it. I would just highlight again the few challenges on the inflation front and the staffing front where we're making some big progress. I step away from the business and then just super excited about the prospects and I look at our sales performance, the things we're doing in the business to really continue to drive that sales growth.

And one thing I'd like to mention that I think got crossing the call is just the -- it's not just the sales growth that we're seeing in Pollo California, it's really across a broad spectrum of our markets, I mean basic -- almost all of our markets are seeing good sales growth and good comp growth which is another reason why I just highlighted because it just highlights the strengths of El Pollo Loco.

And again, see some challenges ahead on the cost side, brought from a -- where the brand stands from a sales perspective, I'm super excited that's where we stand. So again, thanks everybody for joining the call and I hope you have a great night.

Operator

Thank you. This will conclude today's conference. Thank you for your participation. You may now disconnect your lines at this time.

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