El Pollo Loco (LOCO 15.05, +0.17, +1.14%) is another name that has been holding up
pretty well even as the overall market has been turbulent. It's a Mexican
restaurant chain. It opened its first location in Los Angeles in 1980 and has
grown to 480 restaurants located in California, Arizona, Nevada, Texas, Utah,
and Louisiana. LOCO uses an owned/franchise hybrid model.
It operates in the fastest growing segment of the restaurant industry, the limited service restaurant (LSR) segment. LOCO believes it offers the quality of food typical of fast casual restaurants while providing the speed, convenience and value typical of traditional QSRs, a combination which the company calls QSR+.
Its menu features its signature product (citrus-marinated fire-grilled chicken) and a variety of Mexican-inspired entrees that center around chicken, including burritos, salads, tostadas, bowls, stuffed quesadillas etc. “El pollo loco” is Spanish for "the crazy chicken."
LOCO has been in turnaround mode. A few years ago, it made a mistake when it raised prices and cut back on the value portion of its menu. Customers did not like these changes. However, LOCO has gotten back to its value roots with its $5 combo meals, as well as simplifying its menu by reducing SKUs in some test markets.
It has also been improving its mobile app by adding delivery service from all locations using DoorDash, LOCO has been slowly remodeling restaurants and it has been sharpening its marketing messages. All of this has led to a recovery in sales.
The stock jumped in early November on a strong Q3 report. System-wide comps increased +2.6% in Q3, for a +4.3% two-year stack. It was LOCO's best two-year comp in over a year and LOCO says the momentum has carried into Q4.
The stock has been trending nicely higher in recent months after having stagnated for much of 2015-17, which is a positive sign that its turnaround is making progress. Despite its recent move, the stock is still well below its all-time highs in the $40 area in 2014. LOCO could be a name to keep on the radar in 2019 to see if the changes it is implementing pay off more.
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