El Pollo Loco Holdings, Inc. (LOCO - Snapshot Report) grew nearly 8% in afterhours trading on Aug 4, after the company reported strong second-quarter 2016 results with both earnings and sales beating the Zacks Consensus Estimate.

Earnings and Revenue Discussion

El Pollo Loco’s second-quarter adjusted earnings of 19 cents per share beat the Zacks Consensus Estimate of 18 cents by 5.6%. However, earnings were flat on a year-over-year basis.

Revenues of $97.5 million were up 9% year over year mainly due to an increase in company- operated restaurant sales. Revenues also beat the Zacks Consensus Estimate of $96 million by 1.6%.

Behind the Headline Numbers

Notably, system-wide comps rose 2.4% due to an increase in comps at both company-operated and franchise restaurants.

Company-operated restaurant sales were $90.9 million, compared with $83.6 million in the year-ago quarter. The 8.7% growth was mainly due to the opening of 18 new restaurants during and subsequent to the second quarter of 2015.

Meanwhile, comps at company-operated restaurant grew 2% due to a 2.7% increase in traffic, partially offset by a 0.7% decrease in average check.

Franchise operated restaurant sales increased 12.2% to $6.6 million compared with $5.9 million in the year-ago quarter.

Comps at Franchise restaurants were up 12.2% due to the opening of 9 new restaurants during and subsequent to the second quarter of 2015 and fees associated with its point-of-sale system.

Restaurant contribution was $20.0 million, higher than $18.0 million in the second quarter of 2015. The increase in restaurant contribution was mainly due to an improvement in food and paper costs along with an increase in comps, somewhat offset by higher labor, occupancy and other operating expenses. 

EL POLLO LOCO Price, Consensus and EPS Surprise

EL POLLO LOCO Price, Consensus and EPS Surprise | EL POLLO LOCO Quote

2016 Outlook

The company expects 2016 pro forma earnings per share to be in a range of 68 cents to 72 cents, down from the prior guidance of 70 cents to 74 cents. Meanwhile, the Zacks Consensus Estimate for 2016 is pegged at 70 cents and falls within the guided range.

Adjusted EBITDA is expected to be in a range of $67.0 to $69.0 million, down from the prior expected range of $68.0 to $70.5 million. Meanwhile, restaurant contribution margin is expected to be in a range of 20.8% to 21.2%, down from the previous expected margin of 21.0% to 21.4%.

The company reiterated its system-wide comparable restaurant sales and expects it to grow in low single digits. Meanwhile, El Pollo Loco still expects to open 17-20 new company-owned restaurants and 10-15 franchised operated restaurants in the year.

Zacks Rank & Stocks to Consider

El Pollo Loco has a Zacks Rank #4 (Sell). Better-ranked restaurant stocks are The Cheesecake Factory Inc. (CAKE - Analyst Report) , Del Taco Restaurants Inc. (TACO - Snapshot Report) and Denny’s Corp. (DENN - Snapshot Report) . All the three stocks carry a Zacks Rank #2 (Buy).