Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco First Quarter 2017 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and all the lines will open for your questions following the presentation. Please note that this conference is being recorded today, May 4, 2017. On the call today, we have Steve Sather, President and Chief Executive Officer of El Pollo Loco, and Larry Roberts, Chief Financial Officer. And now, I would like to turn the conference over to Larry Roberts.

Thank you, operator, and good afternoon. By now, everyone should have access to our first quarter 2017 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. 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 first quarter of 2017 tomorrow and we 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 would like to turn the call over to Steve Sather.

Thanks, Larry, and good afternoon everyone. We appreciate your joining us on the call today. First quarter results included revenue growth of 5.7% and pro forma net income of $0.16 per share. System-wide comparable store sales decreased 0.3% during the first quarter, including 0.4% decrease at Company-operated restaurants and a 0.2% decrease at franchised restaurants. Comparable store sales performance in the quarter came in ahead of our expectations as sales in March improved over the first two months of the quarter. I'm pleased to note that positive trends have continued thus far into the second quarter. We continue to believe that we can drive sales momentum and profitability by executing our strategy of highlighting our authentic brand and differentiated product, while enhancing our strong value equation. Our unique brand and product offerings will be emphasized this year in our new creative campaign, The Road to Authenticity, which we launched in January. The campaign focuses on several key themes, including our differentiated brand story, the work that goes into preparing our food, the quality and healthiness of our offerings and the authentic influence of our hometown, Los Angeles. We are currently analyzing recently completed consumer research, designed to evaluate the campaign's effectiveness. While the work is not yet complete, early indications are encouragingly positive. As highlighted in our previous earnings call, we're focused on addressing the softness in our family meal business that we experienced in 2016. During the quarter, we promoted several family meal offerings. These offers, which included two variations of our $20 family meal, were designed not only to deliver great value to our customers, but to maintain or even improve margins. We've been very pleased with the performance of these promotions as family chicken sales are up 4% so far this year, reversing the 2016 declines. Our…

Thanks Steve. For the first quarter ended March 29, 2017, total revenue increased 5.7% to $99.8 million from $99.4 million in the first quarter of 2016. The growth was largely as a result of increase in Company-operated restaurant sales, which rose 5.7% in the quarter to $93.4 million. This increase in Company-operated restaurant sales was driven by the contribution from the 23 new restaurants opened during and subsequent to the first quarter of 2016, partially offset by the 0.4% decrease in comparable restaurant sales. The decrease in Company-operated comparable restaurant sales was comprised of a 2.2% decrease in transactions, partially offset by a 1.9% increase in average check. Franchise revenue increased 5.6% in the quarter to $6.3 million from $6 million in the first quarter of 2016. This increase was driven by the contribution from 17 new restaurants opened during and subsequent to the first quarter of 2016, partially offset by comparable restaurant sales decline of 0.2%. Turning to expenses, food and paper cost as a percentage of Company-restaurant sales decreased 130 basis points year-over-year to 29%. The improvement was predominantly due to lower commodity costs, particularly lower contracted chicken prices and freight cost. While we are currently experiencing higher produce cost, especially with regard to avocado prices, for the full year we expect commodity deflation of about 2.5% to 3%. Labor and related expenses as a percentage of Company-restaurant sales increased 100 basis points year-over-year to 28.7%. The increase in labor expenses was due primarily to higher workers' compensation expense, higher minimum wages in California and Los Angeles, and the impact of incremental labor required for 23 new restaurants opened during or after the prior year quarter. For 2017, we expect labor inflation of about 4% as a result of minimum wage laws and tighter labor market. Occupancy and…

Thanks, Larry. We are encouraged to see improving trends across our core business, bolstered by our new marketing campaign as well as initiatives designed to enhance convenience and loyalty. We continue to believe that our authentic brand, differentiated product and strong value equation will drive positive financial results, despite what remains a challenging environment. While we still have a ways to go in order to meet our expectations in Houston, stores in that market are responding to recent marketing and operational initiatives. Our development plans remain on track for 2017 and we are continuing to garner interest from both new and existing franchisees to further build our brand. Again, I'd like to thank everyone for joining us on the call today. We're happy to answer any questions that you have. Operator?

[Operator Instructions] Our first question comes from [indiscernible] with Robert W. Baird. Please proceed.

My first question is on the comps, and appreciate the talk about the acceleration in March, but is there any more perspective you can provide just on kind of the monthly cadence of comps throughout Q1? And along with that, maybe your thoughts on what the impacts were of things during Q1, such as weather or the Easter shift?

This is Steve. First of all, you mentioned weather. We did really see a reversal of weather that we had particularly in February and a little bit in January. In March, we saw that reverse, and that certainly helped. As far as cadence of the comps, the January, the first period was a negative 0.5% for the system sales. In February, we were a negative 2.8%. And that reversal came in March, a positive 1.8% for the system in March. And while the Company transactions were down for the overall quarter, they were slightly positive in March. And while we don't get into hard numbers for Q2, we can say that the trend in March has also continued for Q2. So, we're pleased directionally with that.

And just to add to that a little bit, the other thing we saw was, overall when I look at the quarter, the first quarter, the weather impact was roughly around 60 basis points, and then the Easter impact for the quarter was roughly favorable 40 basis points, which of course would have come off or will come off in the second quarter, it will reverse to be a negative impact on our second quarter.

So I guess maybe as a follow-up, so March obviously saw the whole Easter impact and you are expecting to see that whole negative impact in April, so I guess the quarter to date comped you still said slightly positive, to confirm that?

What we said is the quarter to date, the second quarter to date is basically on par with the trends we saw in March.

And that's including the drag you've seen from Easter?

Yes.

Okay, that's helpful. Thank you. And maybe just in terms of the Company transaction side, I know Steve, you did say that they turned slightly positive in March, but overall while comps in Q1 for the Company I think was near the Q4 level, transactions did take a step back. So, any color you can provide there kind of on that sequential cadence?

Larry, do you have those specific numbers on the transaction?

I mean transactions for the first quarter are somewhat difficult to read, because I mean that hit in February with the weather, that's basically all transactions. So, I think [indiscernible] drove the negative transaction that we had in the quarter, the negative 2.2% in transaction at the Company restaurants. Like we said, coming at in March, we saw some strength in transactions. We continue to see strength in transactions. So, personally I'm not too concerned about the overall negative in the quarter just because, again, that weather impact, which was really focused in February, was really all transaction related and really had a negative impact on transaction.

That's helpful. Thanks. And maybe one more, last one for me, I appreciate the commentary on Houston maybe seeing some directional benefit from those marketing and operations programs, but any perspective you can provide on the magnitude of benefit you have seen since you have implemented some of those programs, which I think started more so, the most recent ones in Q4?

We are pleased. Again, it's early we think. We started this in testing a number of different marketing initiatives as well as operational investments. So, on the operations side, we put some of our best operators, including our top operator, down in the Houston, Dallas market. We also tested a number of marketing initiatives, and what we have done is we really tested them out through December, January a little bit, and February, but we've landed on ones that we think are seeming to be very positive for the market, and those are targeted direct market mail and FSIs. That's working very well. We have utilized street teams and we have used them in Houston and we've moved them up into Dallas as well that go in about a mile radius around the store and meet with business owners, schools, they do a lot of – one of the things we have additionally found is fund raising promotions where we bring different charity groups and school groups into the stores and they get a percentage of our sales. That's getting very popular. We have actually scheduled over 60 of those in both the markets. And then we used radio, which we are still on right now, through the mid part of the summer I believe, with the ones that were effective. And although we've seen sales improvements across all restaurants, they are still performing slightly below our target levels and we still have a lot of work to do. So, we are seeing these improvements, we saw them also in the consumer metrics. If you look at our market force metrics, those are moving in a positive direction. And we just completed some research which looks – again initially, we looked at that, it looked positive but a lot more to dive into that, and that will help us further guide both Houston and Dallas. So that work continues on, we're directionally positive, but that gives you a lot of the update on what we are doing. And what we learned in Houston, we are taking to Dallas, both in those direct mail and FSIs, street teams, fundraising and the radio.

Great, that's helpful. Thanks guys.

Our next question comes from Matthew DiFrisco with Guggenheim Securities. Please proceed.

I just wanted to ask a little bit about the competitive environment, and especially in Southern California. I'm curious if you could, have you seen some of the pressure last year obviously with the deflationary environment out there in food cost? You cited that in the year ago with the bundling meal and some of the lower end customer business maybe being taken down by the fast food or QSR+ guys' competition. Where do we stand as far as year-over-year and are we seeing the grocery channel and inflation in general just coming back enough that we are seeing less discounting going on in your opinion?

I'll take that first. This is Steve. I don't think the competitive environment has gotten any less, especially in the QSR burger chains, still a lot of heavy discounting going on there. We still have that gap between the restaurant prices and the grocery prices. We think that by focusing on what we call our value equation, value proposition, and the four brand pillars of the great food, service, environment, over a reasonable price, we think that's the way to go and not get into that heavy discount. We have mentioned this on a number of calls in the past and we follow that. I think it's been worked very well. In addition to that, I think if you look at our marketing approach this year and starting with our new agency, Vitro, and our new Road to Authenticity campaign, I think that it has really elevated our communication strategy. And then the focus on family meals with value helps us give that value without that heavy discounting. So, Larry, any other thing?

Matt, what I would add, I think Steve hit all the main points, I don't think we've seen any real change in how competitive it is out there in terms of discounting and certainly the grocery chains are also very aggressive. I think one of the highlights or what we need to highlight is, the way we have approached to family meals and success we've had in terms of getting growth back in family meals. I mean you'll probably recall, last year we were talking about how we are seeing a decline in family meal business as we were not advertising a price point of $20 on TV. We've been able to go back and do that and then also do some other things around really driving value. At the same time, we have structured those that are actually favorable from a margin standpoint. But clearly, being a little bit more aggressive in terms of messaging on a family meal has for now generated renewed growth in the family meals, which can increase the mix and overall growth. So, I think it just highlights that right now it's very competitive and you need to be on air with good deals for consumers. At the same time, I think we've done a nice job and the market has done a nice job in terms of structuring those. So from a market standpoint, they are favorable.

Did you disclose how much the family meals represented as a percent of sales?

They are normally around 28%, 27% to 29% of sales.

But they are up year-over-year?

Yes, we have got a 4% growth year to date on family meals.

Okay. And then just to go back to the comp and the commentary, obviously you did a positive comp, 1.8% in March, and you are indicating that you are seeing a similar trend in 2Q. I mean you actually have been seeing an improvement on a core trend if you sort of – if those are your numbers with the Easter effect in both of those, given that April got hurt by Easter and March got aided by Easter. So, you're seeing acceleration would be implied then on a natural basis or a normalized same-store sales number, correct?

I will say, we are cautiously optimistic about what we are seeing in this quarter to date, yes.

I had to try, right? So I was trying to get more than that.

It was a great try.

Good points for persistency on it.

All right, thank you. Appreciate it.

Our next question comes from John Glass with Morgan Stanley. Please proceed.

This is actually Brian on for John. First, can we just get system-wide sales for the quarter?

System-wide sales were $208.7 million.

All right, perfect. Thanks. And then just maybe what you guys are seeing so far in digital since you rolled out the app? I think you said last quarter it was 70 or 80 basis points as a percent of sales. What are you guys seeing in the first quarter, and maybe kind of as you're going to rollout loyalty and delivery, what you think that could mean?

This is Steve. We're about 0.8% on transaction mix right now, and launched that late last year on our mobile. We think this will continue to grow, especially as we launch a delivery and then loyalty, both of which will be launched in Q2. In fact, the delivery is being tested right now in Las Vegas. So, we're pleased with that. We think it will grow at 0.8%, grow from that as we add the launch in Q2 with delivery and loyalty. It's a little early on for the total package, but that's where we are right now.

All right, great. And then just one more if I could, what are you guys seeing so far in delivery that makes you confident in such a quick rollout from the test in 1Q to a full rollout in 2Q?

I think first of all we are seeing that in Las Vegas we are not running into any operational problems, either from the delivery side of it or from the – in the in-store getting the orders ready. Still early, but this is kind of the first test that we have done with that. We don't think it's going to be difficult to roll it out and we think it will also build then as we move it into the system. Really and when you look at it when you get into LA where you have that density of stores, and pop and density for our stores, a delivery makes a lot of sense for us with our family meals. So, we are optimistic there, but we want to move slowly and make sure we get it right. That's why we are testing in Las Vegas.

Just to add to Steve's comments, I mean not only – I mean the Vegas test was really an operational test. So, as he said, haven't seen any issues from an operation standpoint. Also haven't seen any options from call it a systems perspective. I mean integration between our mobile app and delivery and in-store orders is working very well. So that's why we have the confidence that we can move forward with it. And so we are basically ready to go.

All right, great, guys. Thanks.

There are no further questions. I would like to turn the floor over to Steve Sather for closing comments.

Great. Thank you, operator. Just want to thank everybody for joining us today on the call. Thank you for your continued support of El Pollo Loco and we look forward to our next call.

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