Greetings. And welcome to the El Pollo Loco Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Larry Roberts, Chief Financial Officer for El Pollo Loco. Thank you. You may begin.

Thank you, Operator, and good afternoon. By now everyone should have access to our third quarter 2015 earnings release, if not, it can be found at www.elpolloloco.com in the Investor Relations section. Before we begin our informal remarks, I need to remind everyone that our discussions today will include forward-looking statements. 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 expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We expect to file our 10-Q for the third quarter of 2015 tomorrow and I 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. With that, I’d like to turn the call over to Steve Sather.

Thanks, Larry. Good afternoon, everyone. And thank you for joining us on the call today. Our third quarter results which include pro forma net income growth of over 40% and our 17th consecutive quarter of system-wide comparable store sales growth. For the quarter we saw a 0.6% increase in system-wide comparable restaurant sales growth, but consisted of flat growth at our company-operated restaurants and a 1.1% increase for franchise restaurants. The increase in system-wide comparable sales came on top of strong 7.9% growth last year for a two-year growth rate of 8.5% and the three-year growth rate of 12.2%. The four pillars of our brand remained great food, excellent service and a warm inviting environment at a good value. Given our recent sales results, we conducted extensive research during the quarter. Our research confirmed that consumers still love our food, rating significantly above QSR and on par with fast casual. The research also suggested that our sales results have been impacted by higher prices and a reduction in the value portion of our menu resulting in reduced visits from some of our more price conscious customers. We are taking actions to reengage these more value conscious consumers. During the third quarter we launched a $5 pollo bowl combo LTO with four new pollo bowls. Following this LTO we reintroduced the $5 combo menu, which remains in our company-owned restaurants full-time and this is a strong step toward reinforcing our value offering. In addition to these, we plan to reinstate combo pricing throughout our menu to provide another element of everyday value. Finally, during the quarter we completed a comprehensive analysis of our menu offerings to better understand the price value equation of each of our products, which will provide additional in put to our pricing decisions going forward. As we…

Thanks, Steve. For the third quarter ended September 30, 2015, total revenue increased to $88.9 million from $86.6 million in the third quarter of 2014. The increase was largely driven by growth in company-operated restaurant sales, which rose 2.6% in the third quarter to $83 million. The increase in company-operated restaurant sales was due to the contribution of 13 new restaurants opened during and subsequent to third quarter of 2014, partially offset by loss sales from six units sold to a franchisee. Comparable restaurant sales were flat in the quarter with a 1.9% increase in average check offset by a 1.9% decrease in transactions. Franchise revenue increased 3.3% year-over-year to $5.9 million, driven by comparable restaurant sales growth of 1.1%, as well as contribution from new restaurants and higher point of sales fees. Turning to expenses, food and paper costs as a percentage of company restaurant sales decreased by 20 basis points year-over-year to 31.8%. The improvement was predominantly due to higher average check, partially offset by increased commodity costs. Looking ahead to 2016, we have completed chicken negotiations and now expect overall commodity deflation of 3% to 4% for next year. Labor and related expenses as a percentage of company restaurant sales increased 20 basis points year-over-year to 25.1%. The increase in labor expenses was driven primarily by higher workers compensation and medical insurance claims activity. Occupancy and other operating expenses as a percentage of company restaurant sales decreased 50 basis points compared to the prior year third quarter to 21.9%. The decrease resulted of lower utility and repair and maintenance costs. General and administrative expenses decreased by $1.2 million year-over-year in the third quarter to $6.3 million. As a percentage of total revenue, G&A expenses decreased 160 basis points to 7.1%. The decrease was primarily due to the…

Thank you, Larry. In closing, I’d like to reiterate that we believe we have a unique brand that operates from a position of strength in terms of food taste and quality. We believe we are taking the necessary steps to our menu actions and our service and operating initiatives that will not only reengage our more value conscious customers but also continue to enhance the broader customer experience in ways that will strengthen our differentiated QSR plus positioning. We continue to have a long runway of growth ahead of us. And we're excited about the opportunity that lies ahead of us. Thank you for joining us today. We appreciate your continued interest in El Pollo Loco. And now we'd be happy to answer any questions you might have. Operator?

Thank you. [Operator Instructions] Our first question comes from line of Andy Barish with Jefferies. Please proceed with your question.

Hey guys. I was wondering if you can give us any color on the sales trends through the 3Q and then we’ve have definitely seen some weakness here across much of the industry to start the 4Q. Can you give us a little update in terms of think in what’s going on promotionally here -- in the first half of the 4Q please?

And really it reduced the visits from some of our more price conscious consumers. To address this, we're focused on the four pillars of our brand, which are great food, excellent service, warm and inviting environment and which all -- all people good value. Our research confirm what we thought in the spring that consumers still love our food but we can improve on our service and our value which are now taking action steps to address those issues. On the value side, as you know, we’ve implemented our $5 combo panel and we’re reinstating our combo pricing and are taking much more scientific approach to pricing decisions. And on service, we've implemented or are in the process of implementing a number of operational initiatives that will improve service and most of all our throughput ability. And we think together we’re confident that over time that these actions will take -- will enhance that value proposition and ultimately drive sales. And I think it’s going to take into this next quarter but we’re very confident on the moves that we’ve made.

Thank you.

Thank you. Our next question comes from the line of Sam Beres with Robert W. Baird. Please proceed with your question.

Hi. Good afternoon. My first question is related to the comps as well and obviously outline the range of initiatives to instill a bit better momentum here in upcoming quarters into the business. But just wondering if you could provide any perspective on maybe why you haven't seen some of those initiatives gain traction as of yet and what the consumer reaction has been to some of those initiatives you put in place?

This is Steve. I think it’s going to take some time to as consumers come in and see these value initiatives that are on the menu now as well as the service improvements that we’re making. And I think that's just going to take more time to bring those consumers back. Let them experience that both on the price side and the service side and regain those customers. I think the great point of our research that we saw was consumer still lover our food and also the Hispanic community is still very strong for us. So I think it's just going to take a little bit longer.

Thanks. And maybe a follow-up on the pricing outlook. Could you maybe provide any specific insight into what level of pricing you're expecting in Q4. I know you talked about a below average increase been implemented late here in November. And I believe you rolled off 1.5% from October of last year. And then maybe just looking into 2016, what are your thoughts overall on the pricing power kind of for the brand at this stage. And obviously you have chicken deflation next year but also some minimum wage pressures as well. So would we expect any additional pricing actions into next year beyond the increased plan for late November?

Yeah. This is Larry. So just talking about 2014 -- I mean 2015. As you highlighted the 1.5% has come off, we've done a lot of research and determine that we think it’s best for us to take a moderate price increase end of this November. So we will take something around 0.8% in price. And now what we’re going to do is we’re going to basically wait and see as next year develops around pricing. See what people react to the minimum wage, continue to do their own analysis. And so we will wait to see and look at taking other potential pricing next year, which is largely to be determined. In terms of then managing pricing versus margins, I’m not ready to get into a full discussion about 2016 margins. One thing I will highlight is obviously we do have a minimum wage impact. Fortunate thing is on the commodity side, as we highlighted it worked 3% to 4% deflation, which were actually offset the minimum wage impact on our business. And then we’re really assessing the balance of the P&L and then some of the other initiatives we want to take. And we’ll get deeper in the margins during our full-year 2015 call which will have probably scheduled to March.

Great. Thank you.

Thank you. Our question comes from the line of John Glass with Morgan Stanley. Please proceed with your question.

Thanks. Thanks very much. First just going back to the comp, again in the fourth quarter, your guidance, I guess, is assuming it further deceleration versus the third quarter. Can you confirm that's what you are trying to point to and is that both company and the franchise side or is it more one versus the other. Please?

John, so the fourth quarter comp would basically, if you back into will be flat. And so yes it will be a little bit deceleration from Q3. And it will be probably a little higher comp on the franchise side versus the company side in Q4.

Okay. And then how did you -- when did you put the $5 panels back up, is that intra quarter? Maybe color around what happened when you did that? Steve, it sounds like its going to take some longer time with reaction. And then you talked about reinstating combo pricing, when was that removed and when do you think you put that back in?

Yeah. John, this is Steve. We put the -- well, we did this $5 pullable in module six. And then module seven, which was in August, we brought $5 combos back on the menu. And I think you're next question was the combo pricing?

We’ll take the combo pricing off.

Yeah. You said, when did you remove it?

Yeah. We did that in period two when we took our price increase in February. We took that extra 1% to cover the high chicken cost for last year.

Yeah. And so part of that increase was to take the -- the combos came off when we took that price increase.

Okay. I mean, what was the thought process behind that? I thought that value was always an important part of the brand. Did you feel just like the brand didn’t need that anymore or was it more dismotivated by pricing and keeping margins?

I think what drove that was really just looking at price point and feeling that the Ala Carte price points might drive sales more than the combo pricing. And also the idea is potentially you get more revenue as people bought drink at the full price versus the half price.

Okay. And just one more so on development, I guess on the company side, really sounds like it slippage and you still very good about the 18 to 20, that would be what plus one to three that you missed this year or is that the way to think about it, 18, 20 plus one, two, three that slipped?

Yeah. The one to three are 18 to 20 be additional to the one, two, three that are slipping.

I’m trying to understand though with the full number of unit openings, you think you’re going to have next year or that is the right way to look at it?

Yeah. Correct.

And in the franchise side, how much of this is slippage versus how much of it is maybe their willingness right now given as maybe a little bit more uncertainty around sales? And maybe just you talk about their commitment to opening the stores at the same rate maybe you thought six months ago.

Yeah. John, this is Steve. Now we’re seeing the franchise side up. We had some slippage but we're seeing strong interest from our existing franchisees and new franchisees. And we’ll have significant increases next year in 2016 development of Houston, Dallas, San Antonio and Salt Lake are all going well. As you know, we got franchise partners in both Houston and to help co-develop Dallas with this. And a number of existing franchisees are also developing. Specifically Salt Lake, we have two existing franchisees that will open up units next year. About a third of our new units will be in Texas, two-thirds will be in the remainder California, Arizona and Las Vegas.

Thank you very much.

Thank you, John.

Thank you. [Operator Instructions] Our next question comes from the line of Jake Bartlett with SunTrust. Please proceed with your question.

Great. Thanks for taking the question. And just to clarify that the unit growth, so we should expect ‘13 to ‘15 this year and then ‘19 to ‘23 next year. Is that the right way to think about it or just ‘13 to ‘15 include the slippage? Just if you could just clarify exactly what you expect in both years?

Good. Jake, anything that slips from this year, from the original ‘16 target will be in addition to the ‘18 to ‘20 next year. So two units slipped, the target was then between ‘20 to ‘22.

Got it. But your guidance includes the slippage, so we should think about your actual what you really expect in ‘16 should be the larger number, correct?

Right. I think we made a …

‘13 to ‘15 assumes a slippage, so we should assume that for ‘16 as well correct?

Okay. Jake, I just want to try to really clear on this is that right now we said ‘18 to ‘20 next year, right. Any next slips from this year to next year, so originally target was ‘16 so anything that slip so say, we do 14 this year and two slip in the next year that means next years range would be 20 to 22.

Okay. Got it.

You got to understand it.

Yeah. And that make a lot of sense. And then just to think about what you’ve done, I mean it looks like guidance is for potentially new negative company same store sales in the fourth quarter. On a traffic basis, that could be maybe equal to what we saw in the third quarter or worse. And I’m trying to understand, so in July, you came out with the chicken bowls again, you change your promotions, you have this promotional kind of snap through in the first half of the year. You remit you made some changes but it doesn't seem like we’ve seen literally any improvement. So I’m just tying to understand that. And mostly just if you could quantify so there is the value sensitive consumer that you’ve lost. Can you quantify whether you’ve actually seen what percentage of your basic is and whether you’ve seen actually improvements from the rest of the group? So anything you measured to kind of see how those two groups of consumers are behaving.

Jake, can you just repeat the second part of that question. I’m not sure I quite understood ….

Yeah. The second part was you’ve kind of put this on the value conscious consumer, so have you done any work? And what percentage of your sales are going towards this kind of more value conscious consumer? And could you point -- is it possible that the rest of your consumer base is actually bit increasing their sales or the dollar spent?

Yeah. I mean, not really seen and when we did the research what we found is that we saw that the fact -- the frequency has declined in our business, especially among we call more value conscious consumers. And we ask them where do you go instead of El Pollo Loco, it was pretty clear where they're going, which was down to the lower end called the Taco Bells, In-N-Out Burgers and McDonalds. And so it just highlight that at least a good portion of our customer base, who is that value conscious consumer has big drop down and are using then more often that they using us. And then we did some also movement away from our higher end user, also to the more fast casual. But I think the larger piece of loss is really -- that really price value conscious consumer moving down to more QSR.

Okay. And then and the last question just, you mentioned that you are bringing back the combo menu boards to the company-owned stores. It sounds like the franchisees are on board with that or if you can maybe just clarify why they're not doing it too? And are they a little more sensitive to the pricing aspect or they’re going to -- do you feel like it’s possible that they will take more pricing or be less oriented towards winning back that value consumer?

Jake, definitely no, I mean, the menu board, the combos are actually a system initiative, so it is company and franchise.

Okay. I thought…

Everywhere you will have that…

Okay.

Thanks. That’s a good question and I will clarify that.

Okay.

And in terms of the franchisee pricing, it’s always hard to predict, how franchisees will price. I think the good thing is, initially when people are look at the minimum wage, I know somewhere highlighting the fact that they thought we have to take a good chunk of pricing. But now that we're communicating and we've gotten offset on commodities, we’re hopeful that they won’t take nearly the price increases they originally contemplated. But like I said, it’s always hard to predict in terms of what current pricing they will take.

Okay. And then this is really the last question. But I look at labor per operating weeks. This is just kind of how I try to measure it. And it was under 1% this quarter, even though we do have already some minimum wage pressure, as well as other pressures we have heard across the industry? How are you managing labor now? In last two quarters and maybe just the traffic is negative when you are rationalizing your labor little bit too to culminate that. But if you could kind of explain some of the reasoning for that?

In terms of the dropdown labor utilization, I think, you also answered the question yourself.

It just…

It is lower -- yeah, it’s a traffic and I would just say the operators are doing a very, very good job of managing labor.

Okay. Great. Thank you very much.

Thank you. Our next question comes from the line of Paul Westra with Stifel. Please proceed with your question.

Great. Thanks. Just a few more follow-up, most already asked. But I was trying to as well tease out maybe you are seeing a little deceleration here on the franchising business, obviously, it seem like in the second quarter the company slowdown was a little more self-inflicted, it seem liked anyway. And then we are seeing sort of a deceleration on the franchise even more so sequentially to the third, maybe even in the fourth year? I’m just trying to sort of tease out what might be happening in their markets or is there anything going on? I know you mentioned the combo menu boards was rational, my question, so they also -- system-wide it was removed and system-wide its putting back and maybe that explaining some of the franchise far?

System-wide, yeah, it was removed and system-wide it’s coming back. The one that is a slight differences the -- we have Pollo Bowls which we call where we have the $5 combos some of the franchisees call those now classic combos about 20% to 25% of the franchisees remain on the $5 combos, others have on their menu boards, its called classic combos and they are slightly higher.

Yeah. And, Paul, I’d also add that the one thing in Q4 is that the franchisees are lapping a lot of pricing. So when we did our forecast we kind of build that into our forecast.

Okay. That’s helpful. And as far as pricing on the company side, you have what 1.8 on the year-over-year basis now and one more follow-up in February. And if you alluded to maybe taking more pricing in ’16 with that February window normally be the time you decide to go or no go?

Yeah. So we’re 1.8 as of the end of this month, because we’ll take eight-tens at end of the month. And then in Q1 basically we’ll have that 0.8. The point falls of in February, so basically you have 1.1 in the first quarter of price.

Okay.

Then we’ll evaluate additional pricing during the year.

And Paul, this is Steve. We think that’s a very prudent move by us, so we can see what the reaction and what our competitors are going to do with the minimum wage increase and this will give us time, first quarter to really review that and then make our decisions.

Yeah. So except selling with your comparative deflation on the food side and just a follow-up on that, you mentioned that the deflation in food of 3 to 4, you mentioned sort of offset minimum wage, I know, you want to get into some specific, but is that safe to say therefore that the minimum wage impact for next year is around that 3% to 4% level?

Yeah. Probably closer to the 3% level.

Excellent. And then also did you have a franchise development actual target number for next year?

No. We haven’t given that yet.

Okay. And then I guess…

We are seeing…

Great. And then, I guess, lastly and maybe a modeling question. I guess, a seasonality, I mean, I guess, looking back, you see fourth quarter was a very good high margin quarter than the fourth quarter of last year? Assuming you paid a 12 or 13, I guess, in short the fourth quarter margin at the company store was less than 2012 and ‘13 year versus the third quarter and last year it was a reverse? So seasonality, how -- I guess, you had a extra week in the last year, I guess price plan, any seasonally should we expecting in normal seasonality be down 4Q versus 3Q and that would maybe explain why store margin number to mid -- hit the sort of guidance, it looks like a pretty decent fall in the year-over-year store margin for 4Q ’15.

Yeah. Paul, you’re right. Basically, last year was a bit anomaly, had 53rd. You also had some one of adjustment that took place in Q4, but the norm is that you will see margins decline in Q4 relative to Q3 that’s we will expect again this year. And the big driver of that is just the lower AUV you generally run during the fourth quarter as a result of your Thanksgiving and Christmas Holiday periods. And so again, we’d expect to see a fall off in margins in the fourth quarter which is reflected in the full year guidance.

Great. Thank you. That’s all I had.

Thanks, Paul.

Thank you. Our next question comes from the line of Jake Bartlett with SunTrust. Please proceed with your question.

Hi. Just a quick clarification. On the check could you give us the mix in the menu price in the quarter? I think you had 2.5% price, but if you could just kind of clarify that will be great?

Yeah. Q3 was 2.5% price.

Okay. Thank you.

Thank you. That’s all the time we have for questions today. I’d like to turn the floor back to Steve Sather with -- for closing comments.

Thank you, Operator. And thank you everybody for your time today. And we look forward to our next call.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.