El Pollo Loco Holdings, Inc. (LOCO) Q4 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And thank you for standing by. Welcome to El Pollo Loco's Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator instructions] Please note this conference is being recorded today March 11, 2021. On the call today we have Bernard Acoca, President and Chief Executive Officer; and Larry Roberts, Chief Financial Officer. And I'd like to turn the conference over to Larry Roberts.

Thank you, operator, and good afternoon. By now, everyone should have access to our fourth quarter 2020 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 our market initiatives, cash flow expectation, 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 expect. We refer 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-K for 2020 tomorrow, and we encourage you to review the 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. Before I turn the call over to President and Chief Executive Officer, Bernard Acoca, I'd like to note that Bernard and I are in different location today. Please bear with us if you experience any slight delays or minor audio quality issues. Bernard, please go ahead.

Thank you, Larry. Good afternoon, everyone. And thank you for joining us today. I hope that you and your families are staying safe and healthy. As previously communicated in our January 12 press release, system comparable restaurant sales for the fourth quarter declined by 0.2%. Our sales performance, combined with $2.9 million of COVID-19 related expenses resulted in pro forma fourth quarter earnings per share of $.16. Our fourth quarter performance continued to be a tale of two cities, our outer market sales performance, restaurants outside of Los Angeles remained strong during the quarter, while Los Angeles and the surrounding areas were heavily impacted by the ongoing and increased spread of COVID-19, particularly during November and December. This resulted in staffing shortages, forcing us to temporarily close and reduce hours of operations in a number of our restaurants. In addition, we believe that high unemployment in the LA area, which has been well above the national average, exacerbated the negative impact during the quarter. All in all, we believe our LA sales trends are largely macro driven, and as a result, temporary, as demonstrated by the system wide LA comparable sales decline of negative 2.1% compared to the comparable sales increase of 3.3% in our outer markets during the fourth quarter. As we have entered 2021, we have finally begun seeing COVID-19 cases in California decelerate beginning in mid-January, allowing the majority of our restaurants in the state to open with regular hours and all modes of service with the exception of dining rooms. While we have reopened patios throughout California dining rooms remain closed at this time in accordance with state regulations. However, a number of counties have begun to ease restrictions and it is expected that Los Angeles and Orange County will allow dining rooms to reopen to 25% capacity next week. Given current COVID-19 case levels, we are increasingly optimistic that restrictions will continue to be relaxed, and we will be able to reopen our dining rooms in California in the near future. In the meantime, sales trends in the first quarter to date continue to reflect trends experienced in the fourth quarter of 2020. System comparable restaurant sales in Los Angeles continue to be negative. While restaurants in our outer markets, particularly in Phoenix, Salt Lake City and Dallas are performing well. With COVID-19 cases recently trending downward in California, we expect sales to improve in Los Angeles as businesses reopen, and economic activity picks up. We are optimistic that the worst is behind us. And we can now focus more of our efforts on the future. Despite the challenges of 2020, our team was largely able to complete our three-year transformation agenda that was guided by four key strategies. Establish a people first culture, clearly differentiate the brand, and simplify operations, which then create the conditions for long-term business expansion. Accomplishing these during a pandemic is truly a testament to the resilience and dedication of our support center employees, restaurant teams and franchise partners. And I am proud to be able to work alongside each and every one of them. With that, I'm excited to speak with you today about our next phase of growth, which we are internally calling our three-year acceleration agenda. In a nutshell, our acceleration agenda is all about scaling for rapid and successful growth over the next three years by leveraging the operations and brand work we've completed over the past three years, and implementing and expanding our beautiful new LA Mex restaurant design, which we believe will deliver improved unit economics versus what we have today. Our transformation agenda establish the foundation and fundamentals required for successful growth. And now the acceleration agenda establishes a three-year strategic roadmap for El Pollo Loco to execute our growth plans and grow new units in DMAs, where we currently do not have a presence. There are four strategies that underpin our acceleration agenda. One, expand the brand, grow in new geographies with franchisees. Two, support the brand, build the right organization for asset like growth. Three, evolve the brand, digitize the business to compete. And four, focus the brand, exaggerate what makes us so special and different. We will expand the brand by growing our footprint in new geographies. This all starts with our partnership with existing franchisees and our renewed efforts to attract and recruit new franchisees. Through the work we've done in the past several years, we believe we have strengthened our foundation, streamlined our operations, and evolved our brand to the point that we can jumpstart our new unit development. We will initially focus our expansion on contiguously penetrating Western and Southwestern DMAs before eventually moving east. Our efforts to recruit new franchisees, which we began in January, will go hand in hand with the rollout of our new LA Mex design, which will modernize and reset our brand through remodels and new builds. For 2021, we are planning to complete 55 remodels with a longer-term goal to complete over 300 remodels over the next four to five years. In terms of new builds, we are targeting six new restaurants with the LA Mex design in 2021. Our second strategy support the brand translates into building the right organization for asset light growth. As we transition to a greater focus on franchise growth, we will reallocate resources to provide more support to our franchisees. We will focus not just on compliance, but more on building the operational capabilities of our franchise partners, including the development of franchise specific leadership training programs. Our third strategy is to evolve the brand through the use of technology. This includes growing our digital channels which encompasses our loyalty program Loco rewards. As I've said in the past, our loyalty program is the centerpiece of our go-to-market strategy for the long term. We're very pleased with the progress we made in 2020 growing digital sales from 5% to 10% of total sales, and growing the number of loyalty members nearly 40% to the current total of 2.3 million. We were also very pleased that Newsweek magazine recently rated Loco rewards among the Top 10 of 241 loyalty programs in the United States across 43 categories. Our focus on digital will continue in 2021as we recently engaged a new digital agency named Organic, which is a subsidiary of Omnicom. It is important to note that digital now comprises 40% of our total media spend, which is indicative of the progress we have made on this front. We will work with organic and our other partners to continue to enhance and accelerate our digital programs, with the goal being to increase digital sales to 30% of our total sales over the next three years. Another aspect of evolving the brand is leveraging our technology and processes to offer more frictionless convenience, and further improve our speed of service. Last September, we implemented GPS enabled curbside pickup, which is now available at over 97% of our system wide restaurants. This service enables our guests to conveniently place their order through our app, park in one of our dedicated curbside parking spaces, and have their orders delivered to their car, with the restaurant being notified of their arrival through the GPS functionality. We're very pleased with the execution at our restaurants; with customer wait times averaging about 90 seconds at company owned restaurants, which is significantly faster than competitors offering the service. While still representing a small mix of our total sales, it is steadily growing and we do expect curbside to continue to gain popularity as more customers download our app and take advantage of the convenience it offers. With regards to speed of service, we continue to focus on our drive-thru channel. Drive-thru has become an essential sales channel because of COVID-19. And we believe we have a massive opportunity to enhance the customer experience with improvements in both speed and accuracy. During the fourth quarter of 2020, we successfully implemented a number of measures to improve speed of service at our drive-thru windows. These included more efficient labor deployment readiness guidelines, pre packing site items and salsa and better positioning of equipment. We are now testing order taking tablets that enable team members to take orders and payment from customers while they are in the drive-thru queue. We are very excited about this test and our goal is to significantly increase drive-thru capacity by cutting in half the time it takes for customers to place orders and pick them up at the drive-thru window. This brings us to our last strategy focus the brand, which is designed to exaggerate what makes El Pollo Loco special and different. This will be accomplished through LA Mex positioning, which combines the traditions of Mexico with the healthier lifestyles and edgy culinary innovation of LA. While we will continue to sell the food customers have come to love El Pollo Loco, we will also look to broaden our reach by expanding our portfolio of better for your products. We believe expanding our product portfolio in this way, combined with our commitment to digitize our business enables us to cast the widest net and attract new customers to the El Pollo Loco franchise. Over time the ultimate goal is to establish and popularize LA Mex cuisine and make it as well-known as Tex Mex cuisine. In addition to firmly establishing LA Mex cuisine, we will also seek to differentiate ourselves by forging an emotional connection with our customers, or what we call moments of connection via the service we provide in our restaurants, and online primarily via our loyalty program. Moments of connection are about creating memorable experiences that delight our customers by acknowledging who they are as individuals, and what they need from us as a brand. To that end, we will continue to train our general managers to be powerful coaches, whose main responsibility is to build the restaurant teams that feel not just empowered to take care of our customers, but to build relationships with them over time. Similarly, we will look to humanize our digital experiences by surprising and delighting our customers with events and offers that demonstrate that we know them better than any other brand. In closing, I'd like to thank each and every one of our team members and franchise partners for their tremendous job operating in this highly uncertain environment. We successfully completed our transformation agenda despite the pandemic, and we are well positioned to accomplish our acceleration agenda through the strategies I've just laid out. Most importantly, as we continue to navigate the COVID-19, as a people first company, we will continue to take all necessary measures to ensure the health, safety and well-being of our employees, franchisees and customers. We are very optimistic about the future of our business and are confident that our go forward strategies, combined with everything we've done to date, will drive sales and profit growth when we return to a more normalized operating environment. Now I'd like to turn the call over to Larry to review our fourth quarter results in more detail.

Thanks, Bernard. Before we get into our fourth quarter results, I just wanted to highlight that during the quarter, one new franchise restaurant was opened in California. In addition, we completed two remodels using our new LA Mex design in Los Angeles. Now on to our financial results; for the fourth quarter ended December 30, 2020, total revenue was $110.3 million, compared to $107.5 million in the fourth quarter of 2019. Company operated restaurant revenue was $96.4 million, compared to $94.8 million in the same period last year. The increase in company operated restaurant sales was primarily due to $4.6 million from an additional week of operation during the quarter compared to last year fourth quarter, an increase of $0.9 million in non-comparable restaurant sales, and a $0.2 million increase in revenue recognized from our loyalty program. This was partially offset by a 3% decrease in company operated comparable restaurant sales primarily we believe due to the impact of the COVID-19 pandemic, a decrease of $0.6 million and the closure of two restaurants and the sale of five company operated restaurants, the franchisees during the fourth quarter of the prior year, and a $0.8 million decrease due to temporary restaurant closures also due to the COVID-19 pandemic. Franchise revenue was $7.9 million during the fourth quarter compared to $7.2 million in the prior year period. This increase was primarily due to a franchise coupled restaurant sales increase of 1.8% as well as the opening of one new franchise restaurant and additional revenue generated from five company operated restaurants sold to franchisees by the company during the fourth quarter of 2019. This increase was partially offset by the closure of eight franchise locations during the same period. Turning to expenses; food and paper costs as a percentage of company restaurant sales decreased 180 basis points year-over-year to 26.4%. The improvement was predominately due to higher menu prices, lower food and paper usage resulting from dining room closures, effective waste management and favorable sales mix. These were partially offset by commodity inflation of 1.5%. In 2021, we expect commodity inflation to be flat to 1%. Labor and related expenses, as a percentage of company restaurant sales increased 230 basis points year-over-year to 32.4%. The increase was primarily due to higher hourly wages in California and $2.8 million of labor costs related to leave of absence pay and overtime associated with the COVID-19 pandemic. These were partially offset by increased venue prices and operating efficiencies. In 2021, we expect wage inflation of 4% to 5%. Occupancy and other operating expenses as a percentage of company restaurant sales increased 240 basis points to 25.5% primarily due to sales deleverage and increase in operating costs and marketplace delivery fees. General and administrative expenses decreased by $1.3 million year-over-year to $8.9 million, primarily due to decreases in legal fees, lower labor costs related to a decrease in management bonus expense, and lower pre-opening costs. This was partially offset by increases in stock compensation expenses and other miscellaneous expenses. As a percent of total revenues, general and administrative expenses decreased approximately 130 basis points to 8.1%. We recorded a provision for income taxes of $2 million in the fourth quarter of 2020 for an effective tax rate of 26.3%. This compares to a provision for income taxes of $0.7 million and an effective tax rate of 17.2% in a prior year fourth quarter. We reported GAAP net income of $5.5 million or $0.15 per diluted share in the fourth quarter compared to net income of $3.5 million, or $0.10 per diluted share in the prior year period. Pro forma net income for the quarter was $5.7 million or $0.16 per diluted share, compared to pro forma net income of $6.2 million or $0.18 per diluted share in the fourth quarter of last year. For a reconciliation of pro forma net income and earnings per share to comparable GAAP figures, please refer to our earnings release. Let me quickly touch on our liquidity. As discussed previously, in March, we fully drew down the balance of a $150 million revolving credit facility, adding $34.5 million of cash to our balance sheet. During the fourth quarter, we pay down $21 million of debt, and as of December 30 of 2020 has $62.8 million of debt outstanding and $13.2 million in cash and equivalents. Subsequent to the end of the fourth quarter, we paid down an additional $7 million of debt, bringing out a current debt outstanding to $55.8 million. I now like to provide a brief update on our business during the first quarter of 2021. As Bernard highlighted earlier, COVID-19 pandemic has continued to significantly impact our business during the first quarter. All company owned and the vast majority of franchise restaurants located in California, which make up 80% of our restaurants continue to operate the closed dining room. System wide comparable restaurant sales in January and February decreased 3.6% and 1.8% respectively. As of February 24, 2021, year-to-date comparable restaurant sales decreased 2.7% consisting of a 6.9% decline in company operated restaurants and 0.4% increase at franchise restaurant. System wide comparable restaurant sales declined by 5.6% in Los Angeles and surrounding areas, while increasing 2.7% in other markets. Bear in mind that system comparable restaurant sales during the first 10 weeks of 2020 were approximately 4.2%. In addition, as of February 24, 2021, the company incurred $2.3 million of COVID-19 related expenses, which are primarily related to leaves of absence pay and overtime pay. These costs have been trending downward, as a number of COVID-19 cases continue to decline in California. Due to the uncertainty surrounding the COVID-19 pandemic, the company is not yet providing a financial outlook for the 2021 fiscal year. However, we are providing a following limited guidance, the opening of three to five company owned restaurants and four to six franchise restaurants, and a pro forma 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 we are not happy to answer any questions that you may have.

[Operator Instructions] Our first question comes from the line of Jake Bartlett with Truist Securities.

Great. Thanks for taking the question. My first one is about the experience in the outer markets outside of California, where restrictions have eased quicker. Obviously, there's been in California, what is the mix of sales looking like in terms of in store dining presuming you've reopened the dining rooms? Also the mix of drive-thru and whether that's sustained at elevated levels?

Well, Jake, what I can provide you is I mean, it varied across the markets in terms of the dine in business, I would say on average, just thinking of Texas we're probably running low teens in terms of percent mix, on dine in Vegas is a little lower than that. Again, they've been open at 50% capacity now for a while. So that's where they're mixing. The drive thru, I don't have off the top of my head handy. But I would expect that they're probably running similar to what we're seeing in LA less maybe that incremental dine-in traffic. That's something I get for you later if that's helpful but I do know the dine-in traffic is roughly kind of low to mid-teens in those markets.

Got it. And has that been I mean in places like Texas had less restrictions for a while but has the dine-in mix, been increasing more recently or over overtime? Or how is the business kind of shifting as cases are going down and restrictions or the economic activities improving?

Well, really and I am really looking since call it December last year, I don't go farther back than that. It's, I mean, again, it's up and down. But I would say it's been probably roughly flattish in terms of that dine-in mix overall. So we haven't really seen an acceleration, I mean, in some of these markets now, I hope that Dallas and Houston and these Texas markets, you start seeing it now as they are further opening those dining rooms, of course, that just started. So we'll keep an eye on that to see if that trend starts to move up on dine-in, but certainly, since early December, do those kinds of mid teen, low to mid-teens, dine-in percentages have been, fairly constant across time period.

Got it. And then, shifting to LA County, and you've mentioned, the impact of having the dining rooms being closed, but also the impact of high unemployment. And how do you expect, what's your expectation for the recovery in a place like LA and, next week as they reopen at 25%, is that the trigger for you to reopen your store, I think earlier, when they reopened at 25%, you hadn't reopened stores, but just to kind of gauge what your reaction is going to be as the restrictions, you ease a little bit, but also just in the context of having - still very high unemployment rate. How quickly do you expect sales to kind of start to rebound in a place like LA?

Well, I think if we look at the LA story, you know that our business has been very dependent on the Hispanic consumer; it's 50% of our customer base that we serve every single day. Naturally, that demographic group has been disproportionately impacted by COVID. I mean, at the height of the pandemic, during the winter, I mean, 72% of all hospitalizations in LA County, were those of folks who are Hispanic. And naturally, as we've mentioned, they have also been disproportionately impacted economically. So our strongest consumer segment has been affected by what's going on in LA. Now, the good news is both from a COVID case count, which is on the decline. And also from an economic standpoint, certainly with the arrival of more stimulus; we expect to hopefully be the beneficiaries of both those things. I think we will, although probably we were not inclined in the past to open up dining rooms at 25%. Because that business is coming back a little bit more slowly than we expected, I think we will capitalize on the opportunity when certain counties do reopen up, to open up to 25% to rebuild that business once again. We think we can do that without adding any incremental labor at 25%. So there's no harm in doing it. So it's really going to be a little bit of a wait and see, if things start to open up. We're encouraged by the fact that, schools look like they'll open up shortly as well. And again, I can't stress enough, I think what we're seeing with dining rooms, more than anything else, is a disruption of consumer patterns, right? So we see it not only in the work day, where lunch has been softer than it historically has been. And that's a really that's - that was always been a strong day part for us pre-COVID. But also, with kids being at home, and parents being at home more often as a result, once those, the disruption to those patterns start to return back to more normalized behaviors. We think that there's upside for us there as well.

Great, it'll make sense, and one last question. And that's just really on the interest you've received so far from existing franchisees. It sounds like you're just starting to look for newer franchisees, but I'm wondering about if you could share any kind of number of commitments that you've already secured for this reacceleration of growth, just to give us some insight as to how much visibility you have on achieving this.

Yes, Jake. So I mean, obviously, we kicked off the process in January, so it's still early days. I think I just say we're on track where we were hoping to be. We've got a few existing franchisees who are interested in expanding outside of their normal core markets in the new market, and then we also have a number of new people who have reached out to become franchisees, again, targeting the seeds we've been targeting. So I would say we're pretty much on track, in terms for our plans. And we're in the vetting process. Now, obviously, with our existing franchisees, that's pretty easy, since we know them, and we know their financial and things. With the newer ones, they're going through the vetting process now. And assuming that we get through that, and then we'll really start talking to them a lot more detail about exactly what parts of the markets will work for them to develop and reach agreements with them.

Our next question is coming from the line of Andy Barish with Jefferies.

Hey, guys, good afternoon. Just as you shift to asset light, wondering, and I think you purposely phrased it this way, Bernard on a reallocation of resources, just wondering, if you expect, a ramp or an impact on the run rate G&A, although I know that's tough to figure out these days, but just kind of your thoughts on giving us a little bit more color as it pertains to G&A and reallocation, moving to new franchisees and the support system you mentioned.

Hey, Andy, why don't I take that one? Yes, I think our - first of all, what I'd say is, I think we have a little time before we'll make the investment in those resources, because really, that investment will depend on the timing of when, new people will start developing a new market. So I think we have a while before we'll even make those investments. And then my thinking is, there might be some incremental, but I really would challenge the organization around can we figure out a way to reallocate resources. So there's not a lot of incremental G&A, it's more again, just pulling from resources for one area and devoting more into this franchise development and franchise expansion. So that's my current thinking. But again, I think the timing is not immediate. We've got a little time before we'll start making those investments on the franchise side.

Got you. And then on the unit growth and remodels, the franchise unit growth, I think is, more towards the low end of what maybe you were originally thinking, does that have to do with, some of the remodel ramp up, as you got the first few behind you, and although I know it's early, what kind of, same store sales, impact you sort of pencil out to generate an appropriate return for both the company and the franchisees as you endeavor on remodeling two thirds or so of the system over the next several years.

Yes, so on the franchise development side; I don't think that really has much to do with the remodel program. I think has more to do with the fact that we pretty much shut things down last year, and so now you've got a ramp back up, again, also say that the other comps would probably see the same thing is that the permitting process in a lot of these jurisdictions that have gotten very cumbersome and very time consuming. So those are really the two factors that have brought our franchise development numbers down to, I think you said probably the lower part of the range that you had. In terms of remodels, I've usually said that we need to be somewhere between 4% and 6%. I think obviously, it depends a lot on the unit volume of the restaurant that you're remodeling, what sales growth you need. So I would say for an average unit, you need to be somewhere in the five to six percentage point range in terms of pre post comp growth. I think that gets you to a call mid teen-ish cash on cash return. And certainly on the company side, that's what also gets you to a at least an income breakeven if not a little bit positive on income line after you take into account depreciation.

Okay, thanks. And then just one other quick one if you could on the temporary closures and the cost impact in the 1Q versus for 4Q, 4Q, it looks like about a point of same store sales or so. Is the 1Q actually running a little bit higher than that just given January, February and on the cost side as well, it seems like that's, I guess a little bit lower as things normalize.

Well, on the cost side, we highlight, I think fourth quarter was 2.9 so far to February, February 24. That's the end of our second period. It's around $2.3 million. And really, that $2.3 million is driven heavily by January; it got a lot less costly in February and continues to drop down. So for the quarter, I still think $2.3 million plus a little bit more for March. But again, those costs are coming way down. On the comp side, it's hard, it's probably roughly equivalent, because in the fourth quarter, what you saw was a ramp up in impact in December, and even late November. And then first quarter this year, what you saw was a heavy impact on the comp side, in January, and it starts to tail off in call it late January, February. So it's kind of a curve that peaks right around the holidays, and gradually comes down through January. So I mean, just to give you a sense, right now, a little more detail on that is, if you look at the performance of our restaurants that have never been closed, versus those that have been closed, at least some point during COVID, they're still running about a 2% to 2.5% difference in same store sales.

Next question is coming from the line of David Tarantino with Baird.

Hi, good afternoon. And hope you both are doing well. My question kind of comes back to the LA market. And I fully appreciate and understand a lot of the macro issues you're dealing with. But as you look at your data internally, do you see anything underneath the surface that might be explaining some of the weakness, related to value proposition or customer satisfaction scores or anything that might be more brand specific in that market.

So, not as it pertains to customer satisfaction regarding the brand, but I can say that probably where we're losing a bit of frequency is, as I mentioned earlier, with our core Hispanic segment with our core Hispanic customer group, that group with both COVID and the macroeconomic environment here and how it's affected them, has perhaps forced them to not visit us as often as they once did. And I think we're seeing a little bit of a frequency issue with them. And that is a group that has sustained us in the best of times, but in challenging times like this, I think we feel more of the effect of what they're going through. So there is that impact that we are experiencing. Now as the situation improves here, we expect that business to slowly come back, how quickly it comes back has yet to be determined. Nevertheless, we continue to figure out ways to speak to that demographic group in ways that are relevant to them, certainly, as it pertains to value. But I think it's going to really depends on how much the LA economy comes back. I know we're not the only brand experiencing this even more value centric brands, brands that drive a lot more discounting than we do are experiencing similar declines. So net-net, that's kind of what we're experiencing there. I don't think it's a fundamental brand issue, because all our brand health measures continue to remain very, very strong. I do think it is a function of how many of our restaurants in the LA area are dependent on our Hispanic consumer.

Got it. On the value side, I think you're running pricing close to 4%. Is that, first of all, is that correct? And do you think that pricing level has had an influence here and maybe you need to kind of pivot to a bit more of a value strategy in the next I guess several weeks as we come out of this?

Yes, David, on the fourth quarter we ran a little bit over 4% pricing. For the first quarter we'll run more like a 3% gross pricing because our next price increase is scheduled, I think for late April, early May. The other thing we are doing, yes, I feel like I mean, and this is my view, and we'll talk more about as a senior team as we go forward is, because of the cost pressures, especially on our wages, you almost have to take price during the year, I think if we look at a value strategy, we may re-look at the calendar and look at maybe going back to the $5 meals or something like that, to drive value versus, not taking the pricing. And, of course, we'll work with our outside consulting firm that we use on pricing to figure out what's the best way to take price, which will have the least impact on our value scores and our metrics with consumers.

I mean, I'll add a few things, I think, one, yes; naturally, you want to be really sensitive about pricing right now. We've been a brand that's been very, very fortunate to be able to take perhaps more in price increases than over the past two years that we've perhaps taken, three to four years before that. I primarily because I believe that the brand is strengthened, the total value equation that we provide the consumer in terms of both food and service has improved, based on all our measures that we track in regards to brand health, and, providing that very balanced total value equation is what enables you to command pricing power. Now, with that being said, we're always running a value layer in our business to be clear, I mean, that's the beauty of having transitioned our media mix model to a largely digital business is it allows us to run more simultaneous messages and target those messages more effectively than we otherwise could say, two to three years ago, when we were far more dependent on television and print. So to be clear, we are running value, we will perhaps need to look, depending on how the year shapes up a bit more to see if whether we got to turn that value message up in terms of volume, but it's something that we're always looking at.

Right. And then on the acceleration agenda. I had a question around your comments of asset light, makes sense from a, kind of a growth or where you're heading, more franchise-oriented growth. But I guess it also has a connotation that maybe this system could evolve to be, more heavily franchise through asset sales, are you considering re-franchising as part of the strategy and maybe as a way to seed some development agreements?

Well, there's I mean, we're always looking at the asset base and determining what we do, I don't think - we don't have any grand scheme to re-franchise a lot of restaurants. But I think we'll always take a look at whether it makes sense on a case-by-case basis, given some of the restaurant performance, whether we want to re-franchise some assets. And to your point, I think as we do that, if we do that, we might look to use that to get some new franchisees into the system. But you as of now, we don't have a big scheme to go re-franchise like, 50%, 60%, 70% of our company owned restaurants, nothing like that. I mean, and the reason being is again, I mean, the performance as we highlight before, LA and Vegas, our two biggest core markets continue to perform, very, very well from both a sales and margin standpoint. So, they drive a lot of profitability for us.

The next question is from the line of Todd Brooks with CL King.

Okay, good afternoon to you both. One follow-up and then one question about the acceleration agenda. On the 55 remodels planned for this year. What's the mix of kind of corporate stores to franchise locations getting remodeled?

Hey, Todd. It's probably 15 companies and 40 franchises.

Okay, great. Thank you. And then around the fourth pillar of the acceleration agenda, just really cementing that LA Mex focus what it stands for as a brand and also as a menu offering, is there any either broad strokes or a specific trigger point to on the menu or product development side that you're looking to further pivot into or build out new platforms over fiscal 2021 to help accomplish that fourth pillar of the agenda?

Yes, so, I think a perfect example of La Mex cuisine was represented by what we just recently introduced as our first promotion of the year, which is a Pollo Fit Bowls, which had organic super greens, which is not something you would expect from a traditional QSR. But was joined by more Mexican inspired ingredients, like, cotia cheese and Pico de Gallo, the other ingredient there that was a little bit again, an unexpected ingredient for QSR is cilantro lime, cauliflower, rice. So I think we started out the year, kind of really, with our, with a product that really exemplifies LA Mex cuisine, we will continue to do that, really, throughout the course of the year. I mean, what we've got right now in terms of our promotion is in a way, another way to reflect LA Mex cuisine, because what we're doing it in a really kind of fun, light hearted way. And that's our Loco lunch boxes. We really believe that design and packaging could be a big differentiator for the brand. And here we are trying to address what has been softness for a lot of brands right now that lunch day part by getting people excited for lunch, again, through a complete lunch offering packaged in a beautifully designed box. So there'll be more of those kinds of La Mac's influenced offerings throughout the course of the year. I think what you'll see with the menu, just generally speaking is a focus on a few things. Better few products, portability, given how important the drive-thru has become. And three, an attempt to expand day parts by really getting at the snacking occasion a little bit more than what we get today. So those are the three things that I think you can come to expect from the menu this year.

Okay, great. And just a final follow up on the menu, and then I'll hop back in the queue. If you look at year-over-year menu right now, are you running any sort of streamlined item count that's helping to drive efficiency? Are you running basically the same number of SKUs, just with maybe more of mix towards some of these new items like the Pollo Fit Bowls but other items have come off to keep the item count relatively flattish? Are we down year-over-year and can you talk about efficiencies that you have seen if you are down?

I mean, generally speaking year-over-year, I don't know we've added anything significant, it's probably, I'd say year-over-year it's the same by and large, I think, you got to take a step back a few years ago, where we actually reduced the menu SKUs by 20%. We added some since that time, took some off since that time, I think we're always evaluating the menu itself to determine for instance, what we need to do to achieve that speed of service with the ultimate goal of being cutting our drive-thru times in half. And really balancing that consideration with what we are leaving on our menu or what we are introducing on our menu. I'll give you a small example of something we just recently took off for that reason, our top potato fries did well, and we were selling a decent amount. But we had to ask ourselves a question, was the amount we were selling did that justify the longer operational time it took to fry and prepare that product, given what we are trying to do with our drive-thru times? And we made the ultimate decision that it wasn't. So we're constantly having those ongoing conversations to determine what earns its keep based on not just sales, but also the goal of reducing speed of service primarily via the drive thru.

Next question is coming from the line of Jake Bartlett with Truist Securities.

Great. Thanks. Larry, I just had a quick question about G&A. It came in 2020 lower than certainly initial expectations, but it's lower than we were expecting. How should we think about the run rate for G&A going into 2021? Is the fourth quarter a good base to grow from or anything abnormally low? How should we - any kind of way to level set us or get us in the right spot for G&A for 2021?

Yes, Jake. So in 2020, I mean, we had a number of things that save money on G&A some which were COVID related, the biggest one was on the bonus payout, which again will be an adjustment you're going to have to make in 2021. The fact that we didn't pay out full bonus in 2020 and then we always assume that we're going to have full bonus payout in 2021. And that's a fairly good-sized number on G&A line; I think the other big line item on G&A is that we have one more year of equity compensation increase. About four years ago, we kind of expanded our equity program in the business. And so over the four year and as a four-year vesting, so as you - each of the next four years, as you give equity to employees, it builds up and then it will start to flatten out, because what will happen is, as you add equity, you'll be dropping off because a chunk of vest. So we've got one more year in which you're going to see the equity compensation increase pretty much in line with what you've seen over the last several years. And then in addition to that, you've got some merit, you've got some of the cost savings that you had in 2020 around our insurance costs or our group insurance, people didn't go to the doctor as much as they had been previously. So there are a number of items that will add to the G&A line in 2021 relative to the 2020.

Is there a way you can kind of just made for one of those items that the incentive comp just to help us understand how much lower it was and then normal? And what that can be for G&A as it comes back next year?

Yes, I mean, so on the bonus, it was somewhere $2.5 million to $3 million lower than say the full payout.

At this time, we've reached the end of our question-and-answer session. Now I'll hand the floor back to Bernard Acoca for closing remarks.

Well, I want to thank everyone for spending time with us today and always expressing interest in our company and brand. I want to wish everyone a safe and healthy transition to hopefully what would be a more normalized world soon. So best of luck to everyone. Thank you for calling in today.

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