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El Pollo Loco's Earnings: What Wall Street's Saying

NEW YORK (TheStreet) -- El Pollo Loco (LOCO - Get Report) shares ticked higher on Friday after the fast-casual chain reported quarterly net profit that exceeded Wall Street estimates.

The company went public in late July, raising $113 million in net proceeds that it used to pay down debt and expand operations. With approximately 400 restaurants, El Pollo Loco has positioned itself as a rival to Chipotle (CMG) and a healthier play on Yum! Brands' (YUM) Taco Bell-and-KFC combination restaurants, El Pollo Loco has 400 stores split between company-owned stores and franchised locations. The chain is known for its fire-grilled chicken and Mexican-themed menu items. Shares have more than doubled since its IPO price of $15 a share.

El Pollo Loco's fiscal second-quarter net income of $6.6 million, or 21 cents a share beat analysts' consensus estimate by 5 cents. The chain reported profit of $410,000, or a penny per share, in the year-earlier quarter. Revenue for the June 25-ending quarter rose 6.3% to $86.9 million.

El Pollo Loco reported comparable restaurant sales gains of 5.4%, which included a 5% comp gains for company-owned restaurants and a 5.9% comp gain for its franchised restaurants. For 2014, the company forecast comparable restaurant sales growth between 5.5% and 6.0%.

Shares were up 1.2% to $35.16 on Friday. Here's what analysts were saying.

Andy Barish, Jefferies (Hold; $30 PT)

[El Pollo Loco] drove 5.4% SSS, slightly above our model, as the brand repositioning continues to resonate with guests and drive both traffic and check. We see continued growth via menu innovation (note success of non-chicken proteins with Carne Asada in 2Q), effective LTOs & advertising, the Hacienda remodels (+3% SSS lift), and an increased focus on digital engagement (can be very efficient). Heading into 3Q, management reported solid topline trends, and expects 3Q system SSS to be about 6.5-7.0% (vs. 3Q cons 5.3%). Note that price is expected to be ~1.75% in the 2H (took modest increase in July to help offset the CA min wage increase), but we think EPL still has good price flexibility should it need it (10-15%+ below Chipotle, especially after their recent price hike).

We like LOCO's visible SSS drivers & reaccelerating unit growth story, but the stock trades at a premium to most other QSR & fast casual companies, leaving little room for error. We've seen some momentum names move downward on seemingly temporary missteps, and find it difficult to recommend putting new money to work in EPL while it's still very much a "show-me" story on the new market penetration into Houston.

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