Are El Pollo Loco Inc.’s private equity parents cooking up an initial public offering after two years of retooling the business?
The company declined comment last week on recent reports of preparations of a filing with the Securities and Exchange Commission.
“We remain focused on serving great food to our guests, every day,” Mark Hardison, El Pollo Loco’s vice president of marketing, said in an email.
The timing looks good for Costa Mesa-based El Pollo Loco to become the third restaurant chain to file for an initial public offering this year.
Vancouver, Wa.-based Papa Murphy’s Holdings Inc., with 1,418 franchised and company-owned restaurants that account for $785.6 million in annual revenue, recently filed plans to raise $70 million. Zoe’s Kitchen Inc. in Plano, Texas, with 111 locations and $116.4 million revenue, is looking to raise $80.5 million.
Neither of those chains is profitable.
El Pollo Loco Chief Executive Steve Sather told the Business Journal in January that the company is profitable and that a number of efforts to boost business have taken hold.
The chain has more than 400 restaurants in California and neighboring states, mostly franchised. They accounted for 2012 annual revenue of about $607 million, the most recent data available. Same-store sales rose 9.9% in 2012, and preliminary numbers for last year indicate more growth.
El Pollo Loco is owned by New York-based Trimaran Capital Partners LLC, which bought the chain in 2005 for an estimated $400 million and later sold a stake in the company to Freeman Spogli & Co. of Los Angeles in 2007 for $45 million.
Calls to the two firms last week were not returned.
This wouldn’t be the first time El Pollo Loco mulled going public (see related stories throughout this special issue on the biggest publicly traded companies based in Orange County).
El Pollo Loco filed for an initial public offering in 2006 and said at the time that it was looking to raise as much as $135 million. It later pulled the filing, citing market conditions.
Sales and profits then took a hit with
the downturn, forcing the company to
further retrench. And it looks as though efforts over the past couple of years have been successful.
Sather implemented several strategies and made a number of key hires since he took the top spot permanently in 2011. He had been leading the company on an interim basis before that.
It was a process of “leaving no stone unturned,” Sather told the Business Journal earlier this year.
At the crux of the changes was a repositioning of the brand into “QSR-plus.”
The chain operates in the quick-serve or fast-food segment of the industry but has always viewed itself as a notch above direct competitors.
New market studies, and the hiring of Vice President of Research and Development Heather Gardea to work on menu innovation, helped tell that story more effectively to consumers. The executive team also was filled out with restaurant industry vets: Chief Operating Officer Kay Bogeajis, Chief Financial Officer Larry Roberts, Vice President of Finance Doug Soller, Vice President of Franchise Operations John Onstott, and Vice President of Information Technology John Laporte.
The chain also got a new restaurant design that is rolling out and bringing modern looks to interiors and exteriors.
Investors took notice of the changes as Sather and the rest of the El Pollo Loco executive team took their efforts on a roadshow late last year, when they secured a second refinancing that helped to reduce the company’s interest payments on bonds and position it well for more restaurant openings. The company refinanced its bonds for the first time in August 2011.
Sather credits the multipronged approach to improving the business, saying it wasn’t just one factor that has brought more customers into El Pollo Loco.
“Of course, the markets were very receptive to that,” he said earlier this year. “They heard it two years earlier, but we’re just starting to come out of the recessionary time now and really, in all fairness, hadn’t given a lot of time for these initiatives in 2011. They were really just a strategy that we wrote and just thoughts on paper, but the sales were just starting to improve then.”
The company plans 11 company-owned restaurant openings and six franchised locations this year. It expects to pick up the pace.
“EPL has been around for 30 years-plus,” Sather said. “It is a tremendous brand. It has tremendous potential. We’re starting to expand again. … It’s a fun story. We work hard every day.”
