El Pollo Loco Holdings, Inc. Q4 FY2022 Earnings Call

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco First Quarter 2022 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and lines will be opened for your questions following the presentation. Please note, that this conference is being recorded today, March 9, 2023. And now, I'd like to turn the conference over to Ira Fils, the Company’s Chief Financial Officer.

Thank you, operator, and good afternoon. By now, you should have access to our fourth quarter 2022 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 and macroeconomic environment on our business, as well as our marketing and new product initiatives, our strategic color, capital expectations, capital expenditure plans, remodel plans, expected new store openings and expected income tax rate 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 currently expect. We refer you to our current recent SEC filings, including our Form 10-K 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 2022 tomorrow and would 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. Now, I would like to turn it over to our President and CEO, Larry Roberts.

Thanks, Ira, and good afternoon, everyone. We are pleased with our performance in the fourth quarter as system-wide comparable restaurant sales increased by 4.7%, including a 6.5% increase at company-owned and a 3.5% increase at our franchise locations. These results were driven by the success of our Stuffed Quesadilla promotion that resonated well with both new and existing customers, as well as the continued improvement in our company-owned and franchised restaurant operations. In fact, our system restaurant operations in the fourth quarter were the best days in all year. Last visit excellence and social media scores reached new highs for the year, while customer complaints were at their lowest levels. The continued improvement in our restaurant operations are reflected in our brand tracker results in which we made significant progress against our competitive set across all five key attributes, which are food and menu quality, service environment, value, and overall brand experience. Our strong results on value were especially reassuring given the year-over-year pricing at company-owned restaurants in the fourth quarter was 10.6%. It again demonstrates that value is determined by more than just price, and consumers recognize the lengths we go to at El Pollo Loco to serve delicious food that is freshly prepared every day in our restaurants. Another highlight of the quarter was the opening of the first El Pollo Loco restaurant in Colorado in November. The opening set a new weekly sales record for El Pollo Loco, and the restaurant's average weekly sales are still well above expectations four months after opening. We're very excited for our franchise partners and look forward to continued success as they, along with other franchisees, build restaurants in Colorado. While we continue to be pressured by inflation, our team did an admirable job managing our businesses, delivering a restaurant operating profit margin of 14.7%, which was 230 basis points better than the third quarter, and adjusted net income earnings per share of $0.16. As we look ahead, we are excited to build upon this momentum in 2023, as we continue our focus on our four strategic pillars, which are: one, embed our unique El Pollo Loco culture; two, build awareness and own our lane; three, deliver exceptional service profitably; and four, accelerate development. Throughout 2022, we made significant progress in creating a servant-led leadership culture, predicated on recognition, greater interaction with team members, and career development, while still maintaining accountability. We also implemented programs to create greater support center appreciation of the work that our restaurant teams do every day. Another pillar of the culture we are building at El Pollo Loco is to provide greater support to the communities in which we operate. Along these lines, in November, we announced a new partnership with Feeding America to raise money for the Feeding America network of local food banks. Through this campaign, which runs until June 30, El Pollo Loco aims to raise $400,000 through a limited-time round-up campaign. Ultimately, 90% of donations made through this campaign will be distributed to food banks around our restaurants and the communities we serve. Our charitable organization El Pollo Loco Charities is matching the first 100,000 round-up transactions. In addition, El Pollo Loco Charities is finalizing an agreement to support a large charitable organization in Orange County which we expect to announce shortly. While El Pollo Loco Charities has existed for many years, we plan to significantly increase its fundraising capabilities in order to amplify its impact on our communities. We believe these types of initiatives reinforce the familial culture we are building throughout our system. Our second pillar is to build awareness and own our lane. El Pollo Loco is a differentiated concept founded upon our famous fire-grilled chicken and entrees, sauces, and dressings that are made fresh in the restaurants every day. These are served with the speed and convenience of fast food restaurants. It’s food that combines our authentic Mexican roots with the culinary culture of Los Angeles. Our strategy is to continue driving this differentiation, while working to attract younger consumers to the brand through our product offerings, advertising, and remodeled restaurants. A great example of this strategy was our Overstuffed Quesadillas promotion during the fourth quarter, which included three options, one of which was beef. Overstuffed Quesadillas achieved a mix of almost 7% of total sales, with beef being a top performer. The promotion's success was at least partially due to the continued use of TikTok to reach younger consumers, which achieved over 10 million views during the module. We are very encouraged by the performance of both Overstuffed Quesadillas and beef, both of which have the potential to be permanent menu items that help us attract younger consumers. Recognizing that many consumers are increasingly budget-conscious, we also focused on value offerings during the fourth quarter, with the promotion of our $24 Family Feast and revised Fire-Grilled Combo meals starting at $5. Both resonated well with consumers and further highlight the need to provide value offerings to maintain frequency among budget-constrained consumers. As we enter 2023, we introduced Loco Burrito Grillers at the beginning of January and started marketing our Double Tostada Salad in late February. Both promotions included shredded beef options, as we continue to test our way to permanently serving shredded beef at our restaurants. Our Loco Burrito Grillers are handheld and come with local dipping sauce comprised of cheese and a special consomme. While this is our third consecutive year promoting this item, we continue to see incremental growth of this platform, and with a pre-promotion sales mix of about 13.5%, it is now our highest selling non-chicken bone menu item. Adding a shredded beef option enables us to satisfy a fan favorite with continued development of shredded beef on our menu. To further enhance our value offering, in addition to our $24 Family Feast and Fire-Grilled Combos starting at $5, we will be introducing three pollo bowls priced at $5 beginning in late March. These screened well with consumers, and we believe they resonate well with cost-conscious consumers while providing attractive margins. Our menu innovation continues to be a key element to our brand. We're implementing several initiatives this year to further differentiate our unique offerings as well as grow our consumer base. First, we've hired a new creative agency Organic to build awareness and drive our differentiation by bringing a fresh look and new energy to our advertising across all media channels. This new approach recently debuted with our current tostada promotion. Second, in April, we will be launching a completely revamped app and loyalty program. These upgrades will make it significantly easier for consumers to order food from us, and our loyalty program will provide additional options for engagement and food redemption. Third, we're evaluating our menu approach with a menu board cast that will include an add-on panel to drive higher check and product platforms. Over time, we believe we can drive more sales by building on past product successes, structuring the menu towards permanent platforms versus six to eight-week limited-time offerings. Lastly, we believe desserts and catering present significant opportunities for incremental sales that we have not aggressively pursued. As a result of many businesses returning to work and group gatherings increasing, we decided to revamp our catering offerings to adjust to the evolving landscape of the way consumers eat in groups. We are committed to developing a robust catering program that we believe has the potential to drive significant incremental sales. While still early in the process, we are excited about the catering opportunities ahead and we'll update you as the year progresses. That brings us to our third pillar, deliver exceptional service profitably. Throughout 2022, our teams worked hard to properly staff our restaurants and train our team members, and we've been reaping the benefits of these efforts. Crew member turnover during the fourth quarter was down to 100%, and 93% of our company-owned restaurants were fully staffed. All company-operated restaurants were able to open all sales channels for all operating hours. As highlighted earlier, during the fourth quarter, we continued to see improvement in company and franchise-operated restaurants' drag-through times, last visit excellence scores, social media ratings, customer complaints, and value scores. These metrics have continued to improve during 2023. This is not to say that we don't have pockets of challenged restaurants, but overall, the system is operating at high levels, which we believe will drive increased sales. With staffing challenges largely behind us and the significant improvement in company-owned restaurant operations, in 2023 we are expanding our operations focus to include bench building, enhanced training, and cost management. We believe that the key to building sustainable and consistent restaurant operations is through the development of a restaurant leader bench, including area managers, general managers, assistant managers, and shift leaders. To that end, we have put a renewed focus on leadership development, not only to benefit our current restaurant base but also to ensure we have the leaders necessary for the continued growth of the El Pollo Loco brand. In addition to leadership development at the team member level, we've completed the rollout of an enhanced e-learning platform across the system. This will not only improve the training our team members receive but enable us to attract completion of the various modules, thereby ensuring employees are certified for the positions they are working. With improved staffing levels and customer service at company-operated restaurants, we are now increasing our focus on better managing labor and food costs. This includes minimizing overtime, meal break penalties, staffing inefficiencies, and food waste. I am pleased to say that we're already making good progress against these since the start of the year. Simplifying our operations remains a top priority, and we're building upon the work we did last year by implementing several initiatives geared towards reducing complexity and improving product quality. Soap tanks for cleaning grill filters and broilers will be implemented in company-owned restaurants by May and throughout the system this summer. A simplified new employee onboarding process will be rolled out to the company-owned restaurants in May, and we are revamping our operations manuals with a targeted rollout this summer. In addition to these, we continue to work to simplify the menu, reduce the time it takes to prepare salsa, and are testing dishwashers and ordering kiosks. We are excited by the progress we're making to simplify operations, and it remains an area of huge opportunity. Let's now turn to our last pillar, accelerate development. We expect to continue developing four to six company-owned restaurants annually in our four markets. Accelerating development will depend on franchisees, both new and existing, and will require us to successfully enter new markets. To execute this strategy, as we highlighted on our calls last year, we greatly enhanced our franchise recruiting efforts. These efforts have resulted in dramatic increases in inquiries and prospects to meet our investment criteria. During the fourth quarter, we signed a development agreement with a new franchise group to open eight restaurants in the Kansas City area. This brought us to five new development agreements for a total of 25 restaurants. In addition, our franchise partner successfully opened our first restaurant in the Denver market, which we believe is a great example of the success our franchisees can have in new markets, driven by the strength of the El Pollo Loco brand. We continue to work on a number of franchise development agreements and look forward to announcing additional partnerships as we progress through 2023. In summary, while unfavorable weather is proving to be a headwind in early 2023, we are excited about the prospects of El Pollo Loco this year. Our restaurant operations are as good as they have ever been and will continue to get even better. This is aided by the culture we are building throughout the El Pollo Loco system, which is focused on recognition, engagement, leadership development, and supporting our communities. Our brand positioning is clear and in addition to a strong marketing calendar, we are implementing several other sales-driving initiatives that will further differentiate our brand and drive awareness with younger consumers. Finally, efforts to attract new franchisees to the El Pollo Loco system are paying dividends, and we are on our way to accelerating new unit development. We remain confident that our focus on the four strategic pillars is successfully positioning us for success for years to come. Finally, I'd like to thank each member of the familia, including all our team members and franchisees for their hard work and dedication in making El Pollo Loco truly special. With that, let me turn the call over to Ira for a more detailed discussion of our fourth quarter financial results.

Thank you, Larry, and good afternoon everyone. For the fourth quarter ended December 28, 2022, total revenue increased 6.4% to $115.9 million compared to $109 million in the fourth quarter of 2021. Company-operated restaurant revenue increased 6.4% to $99.6 million from $93.6 million in the same period last year. The increase in company-operated restaurant sales was primarily driven by a 6.5% increase in company-operated comparable restaurant sales. The increase was comprised of a 7.3% increase in average check size, partially offset by a 0.8% decrease in transactions. During the fourth quarter, our effective price increase versus 2021 was a little over 10.5%. Looking ahead, including our quarter-to-date results, we are currently expecting first quarter 2023 system-wide comparable restaurant sales to increase 0.5% to 1.5%, inclusive of a company comparable restaurant sales increase of 3% to 4%. Our sales expectations reflect the negative impact of adverse weather conditions experienced in California and other Western markets during the first quarter of 2023. In addition, the last two weeks of the quarter will be rolling over our incredibly successful Beef Birria promotion in the prior year. Franchise revenue was $9.4 million during the fourth quarter compared to $8.8 million in the prior year period. This increase was driven by a franchise comparable restaurant sales increase of 3.5% as well as the opening of 11 new franchise restaurants during or subsequent to the fourth quarter of 2021 and revenue generated from three company-owned restaurants sold to an existing franchisee during the fourth quarter of 2022. This was partially offset by the closure of two franchise restaurants during or subsequent to the fourth quarter of 2021. Turning to expenses, food and paper costs as a percentage of company restaurant sales increased 110 basis points year-over-year to 28.3% due to increased commodity costs, partially offset by higher menu prices. Commodity inflation during the fourth quarter was approximately 16% and did moderate from a high of 23% during the third quarter of 2022. We continue to expect commodity inflation to decelerate to be between 3% and 5% for 2023. Labor and related expenses as a percentage of company restaurant sales decreased 40 basis points year-over-year to 31.9% as wage increases were offset by higher menu prices and lower overtime expenses as staffing levels continue to improve. Labor inflation during the fourth quarter was approximately 8%. We continue to expect wage inflation of 4% to 6% for 2023. Occupancy and other operating expenses as a percentage of company restaurant sales increased 20 basis points year-over-year to 25% due to higher utilities and insurance expense. Our restaurant contribution margin for the fourth quarter was 14.7%, compared to 12.4% in the third quarter of the year. Looking into 2023, we expect restaurant contribution margin to be in the mid-teens. General and administrative expenses improved 40 basis points year-over-year to 8.3% of total revenue as we gain leverage on the 6.4% revenue increase. Increases in legal settlement expenses, recruiting expenses, and other general and administrative expenses were offset by a decrease in labor-related costs, primarily related to lower incentive compensation. We recorded a provision for income taxes of $2.3 million in the fourth quarter of 2022 for an effective tax rate of 26.4%. This compares to a provision for income taxes of $1.7 million and an effective tax rate of 21.5% in the prior year fourth quarter. We reported GAAP net income of $6.5 million, or $0.18 per diluted share in the fourth quarter, compared to GAAP net income of $6.2 million, or $0.17 per diluted share in the prior year period. Adjusted net income for the quarter was $6 million, or $0.16 per diluted share, compared to adjusted net income of $6.1 million, or $0.17 per diluted share in the fourth quarter of last year. Please refer to our earnings release for a reconciliation of non-GAAP measures. Regarding development, during the fourth quarter, one new company restaurant was opened and two new franchise locations were added. The one new company opening was in Las Vegas. One of the new franchise locations was in Colorado, and the other new franchise location was in Utah. For the full year 2022, we opened a total of four new company restaurants and nine new franchise restaurants. During the fourth quarter, we remodeled two company restaurants and eight franchise restaurants, which brings our completed remodels for the year to six company and 16 franchise remodels. Looking into 2023, we expect to complete 10 to 15 company remodels and 20 to 30 franchise remodels. Turning to liquidity, as of December 28, 2022, we had $66 million of debt outstanding and $20.5 million in cash and cash equivalents. Subsequent to the end of the quarter, we paid down $8 million on our 2022 revolver and as of March 9, 2023, our outstanding borrowings were $58 million. Turning to our 2023 outlook, as we are providing the following guidance: opening up four to six company-owned restaurants and eight to 12 franchise restaurants; capital spending of $27 million to $31 million; G&A expenses between $42 million and $45 million; an adjusted income tax rate of 26.5%. This concludes our prepared remarks. We'd like to thank you again for joining us on the call today, and we are happy to answer any questions that you may have. Operator, please open the line for questions.

Thank you. We will now conduct a question-and-answer session. Our first questions come from Drew North with Baird. Please proceed with your questions.

Good afternoon. Thanks for taking the question. My first one was just on Q1. I was wondering if you would be able to give some estimate about the weather impact for the first quarter so that we can gauge the underlying trend, at least in the quarter-to-date period?

Sure. Thanks, Drew. I'll add a bit more detail. First, I want to emphasize that we saw strong momentum as we moved out of 2022. We've experienced consistent improvement in our quarter-over-quarter comparisons since October, with each month showing stronger results. As we look at our performance so far this quarter, company comp sales are up a little over 6%, and franchisees are seeing around 0.5% growth, which is strong considering the weather is likely impacting same-store sales growth by about 2% to 4% due to rain and cold temperatures. Overall, despite the weather setbacks, the trends we observed in the fourth quarter have continued into the first quarter. However, as Ira mentioned, the comp growth may be affected by the strong performance of our Birria offering in the last few weeks of the quarter.

Great. That's very helpful. Thanks a lot for the color. And then one follow-up on the comp. I guess, how are you looking at the comparison as we get to Q2, especially amid the successful Beef Birria promotion last year? I just wanted to get your sense of your level of confidence in your ability to cycle that period with sustaining positive comps against tough comparisons there.

We believe we will be able to achieve positive comparisons. At the beginning of the quarter, we will be comparing against last year's Birria promotion, but we will also have a Birria promotion running in the second quarter. This creates a slight offset in terms of comparisons because last year, Birria was part of our second module while this year it is in our third module. Therefore, there is a timing difference. Early in the quarter, we will be comparing against last year's Birria, which could make the comparisons challenging. However, later in the quarter, we expect to see more favorable trends as we launch Birria again, unlike last year when we were promoting something different.

Perfect. And then just one more from me here related to unit growth. Given a key component of the strategy from here is to fuel franchise-led development, I was hoping you could provide some color on where franchise level profitability or cash flow sit today maybe how that compares to last year, 2021, or even pre-COVID. And perhaps just higher level, any additional insights into how the conversations are going with franchisees and the sentiment there as you look to get back to 5% unit growth in the out years.

Yes, I don’t have visibility on all franchise profit and loss statements, but those I have seen show that cash flows remain strong. Over the past three years, franchisee sales have increased by about 20%, indicating good performance and a positive outlook on business and sales generation. Although profitability took a slight hit from last year’s inflation, they are still generating solid cash flow, so overall, our franchisees are in a good financial position. In terms of development, we are making good progress in attracting new franchisees. This process takes some time, but we anticipate completing more development deals this year. Existing franchisees are also showing interest, although some are assessing the economic landscape due to the possibility of a recession. Overall, sentiment within the system is very positive regarding El Pollo Loco, their sales, and profitability.

Thanks for all the color. I'll pass it on.

Thank you. Our next questions come from the line of Todd Brooks with The Benchmark Company. Please proceed with your questions.

Hey, good morning, everyone. A few questions for you, if I may. First, Larry or Ira if you look at the weather headwinds, which you highlighted in the quarter and parse that out how are the consumers that are making it into the restaurant behaving as far as how they're building checks, how they're attaching? Is third-party delivery still mixing at the same level than it was in let's say the second half of 2022?

Yeah. So third-party delivery is basically mixing about the same. It's about 7.5% to 8% of sales, which is where it was through most of last year. So it's not growing. It is in terms of total dollar sales, is growing. But in terms of mix, it's been basically flat, not seeing a decline in that. So certainly the consumers who want their food delivered are still ordering food to be delivered. Yeah, I think when you look at the overall customer base as we highlighted last year in the fourth quarter – in our third-quarter call, but we are seeing consumers react a little bit by maybe buying a little bit less. I mean, a little bit in average check, managing that down. We see that with our drink mix. Our drink mix is down from where it's been. And just again, it just looks like the lower-income consumer is managing their check down a bit by the number of items they order. So again, drink mix is down, number of items per ticket is down just slightly. So there definitely seems to be a little bit of impact there as people are managing their budgets a little more tightly, again, amongst low-income consumers. I think when you get to the kind of the mid-level and higher levels, we're just not – I think they're still acting the same as they were through all of last year not seeing much of a difference there.

Okay. Great. And you spoke to more of a focus on value with the $5 and $24 price point kind of messaging in the quarter. Value mix as a percent of the menu have you seen that pick up as well kind of pointing to maybe the consumer you were just referring to seeking out more value?

Well, we can see the $24 family meal improve the mix on the dinner on the family meals a little bit. So we felt good about that. The $5 originally well, the overall mix is probably pretty comparable to where it was previously. So at least, it's been able to sustain that mix. And the one that's got the most excited is the $5 bowls. We went out and did some consumer screening around, okay from a value perspective, what would consumers see as being the best value alternative that we could offer. And these $5 bowls were the clear winners, and the great thing about them is we can do them at pretty good margins and make those offerings. So that's why we'll look at in a couple of weeks going out and market these $5 bowls. And we do think that's going to resonate with the lower-income consumer and get them back into our restaurants as frequently as they used to be, so very excited about getting those out there and launching those and seeing the reaction that we get from consumers.

Okay. Great. And then a final one for me, and I'll jump back in queue. If we look at the pricing you talked about north of 10% menu price in Q4. Where is the expectation for where Q1 menu pricing will be running year-over-year? And thoughts on this environment on further price increases as we move across the balance of fiscal 2023?

Yeah. So for Q1, we'll be just shy of 11% pricing as we took another price increase. We took a 2.5% price increase in March. And as we move forward through the year, we're going to be careful with our pricing. We're thinking about taking another moderate price increase later in the year. So as we move forward through the year, you'll see our effective pricing decline as some of the higher increases we took last year. So by the time we get to the end of the year, we'll be carrying in the 4% pricing range.

Thank you. Our next questions come from the line of Matt Curtis with William Blair. Please proceed with your questions.

Hi. Good afternoon. Thanks for taking my question. With company-owned comps outpacing the franchise comp in the fourth quarter. I was just wondering, what factors drove that? I mean was it overly due to more normalized staffing and operating outage relative to last year, or was it something else?

Yeah. Thanks, Matt. I mean, the laps are obviously easier for company restaurants versus franchise restaurants. I mean the franchise restaurants performed extremely well for a number of quarters on a comp sales basis. Now, I do think one of the factors driving that lap, is the fact that the company operations, as we highlighted earlier, we're, quite frankly, not very good going back a year ago. And I think consumers did start trading off company locations to go to franchise locations, which were already getting very good service. So as we've made a dramatic improvement in the company operations, I think one of the factors out there is that we are seeing customers returning to the company restaurants because now they're getting a better experience. And so I think that is a factor and when we look at the average unit volumes in Los Angeles, where we saw a big swing when the company operations were poor, a big swing from those average unit volumes in favor of franchisees versus company restaurants, and now those have swung back quite a bit. So there is the indication that, yeah, the improvement we made in the company operations has moved the entire system up. But I do think there's more consumers now coming to company locations that had previously done to franchise locations because our company operations just weren't where they needed to be. So hats off to our company operators for the big improvements we've made.

Okay, great. And then I guess on restaurant level margins for this year. Could you walk us through what your expectations are in terms of the cadence? I mean, can we expect it to be stronger in the second half of the year as the inflationary pressures dissipate to some degree, or do you expect something else at this point?

I believe there are two main points to consider. First, if we look at it seasonally, the second quarter typically sees the highest margins of the year due to volume, while the first quarter usually has the lowest margins. The latter half of the year usually aligns with the average. However, this year, we anticipate a slight increase in margins as we progress into the second half, influenced by our expectations regarding inflation.

Thank you. Our next questions come from the line of Jake Bartlett with Truist Securities. Please proceed with your questions.

Thanks for taking the question. I'm curious about the costs associated with labor, particularly overtime, which seems to have stabilized and is benefiting the labor margin. The year-over-year change in labor per operating week is noticeably smaller compared to previous quarters. As we head into 2023, what kind of margin support can you expect from the labor line to counteract the ongoing wage inflation? I'm referring to factors like overtime, training, and recruiting. I'm trying to understand what kind of leverage can be achieved in labor despite some wage inflation.

I'm trying to recall the exact numbers, but essentially, we mentioned last year that overtime costs were significantly higher than the average. We are working to reduce those costs and return to more normalized levels, similar to what we experienced in 2019. Expenses related to COVID are decreasing because we are no longer covering the wages for employees on COVID leave. Meal breaks are another aspect, although they are not as substantial, and we are gaining control over food waste. Therefore, overtime appears to be the most significant factor. I’ll let Ira add any additional insights he may have.

No. Yeah. I think Larry hit it on the head. There's a lot of opportunity there. And if you think about the overtime, the meal breaks, all the things we're focused on, it's half a point to one point of favorable margin impact as we think about 2023.

Great. That's really helpful. And then my other question, Larry, you made a comment about potentially moving to more of a platform approach to the menu versus six to eight LTOs. I know over the years you had been moving towards platform. Maybe just remind us or me where you stand in the evolution, I mean, back historically you had, I think it was 10 LTOs or advertising windows. But where do you stand in terms of the cadence of LTOs and windows? And just maybe clarify the comment there. Are you planning on evolving that further so it's less focused on LTOs?

I should clarify that you're correct. We used to have as many as 10 limited-time offers, but now we're at 6. I believe that 6 is the right number. Last year, we had five, and this year we’ll have six. This number feels appropriate for the frequency we want in introducing new options. When I mention platforms, this is something we are developing. We've discussed it previously, but we haven't fully committed to or tested it yet. As mentioned earlier, we have a menu import test underway which includes additional options to encourage customers to try more items. We're also experimenting with leaving certain ideas on the menu to evaluate how they perform after promotions. The goal is to continue with limited-time offers, but to concentrate those offers around building these platforms. In the past, our limited-time offers came and went, generating a spike in sales without contributing to sustained growth. I want to see if, for instance, we introduce a Quesadilla platform and over time increase its contribution from, say, 4% to 5%, 6%, or even 7%. A good comparison is Tostadas, which were about 8% of sales three years ago. Since then, we've consistently discussed Tostada sales. Before the recent promotion, Tostadas reached a 13% to 13.5% mix on their own. Now, with the latest promotion, we hope to increase that even more to 14% or 14.5%. By treating Tostadas as a platform and promoting them regularly, we aim to steadily grow sales rather than relying on one-time limited-time offers that bring us back to our original sales levels. The focus is on maintaining that baseline by consistently developing these platforms. This is our strategic direction, and we are experimenting with a new menu board to support this approach.

Great. That's really helpful. My last question is about operations. I understand there are many moving parts, especially since staffing significantly affects your efficiencies and execution capabilities. Considering the recent years have focused on simplification with multiple initiatives currently underway, how would you assess the level of efficiency and speed of service now compared to pre-COVID, or under a normalized staffing scenario? Specifically, has the model improved materially compared to three or four years ago?

Yes. Currently, our drive-thru times have improved significantly. While I don't have the pre-COVID numbers, our company drive-thru times are around four minutes, and franchisees are at about 3.5 minutes. I believe these times may be better than before COVID, though I can't confirm that. However, they are certainly much better than last year. Our drive-thru window times are at some of their best levels in a long time, with franchisees performing slightly better. Looking at all our operational metrics, as I mentioned during the call, they are at very high levels today. For instance, a year ago we had 12 customer complaints per 10,000 transactions in company operations, and we've reduced that number by half. Franchisees have decreased their complaints from around 5.5% to 3%. Our social media metrics for franchisees are now at 4%, and we're approaching 4% for the company side regarding Yelp and Google reviews. I believe these numbers are the best we've seen in quite a while. Overall, the system has made remarkable progress in operations. Even though we were already performing well a year ago, franchisees have made further improvements, and the company has made significant strides as well. I apologize for not having the 2019 numbers, but when I look back over the last year, the improvements are substantial, and I'm confident that many of our current metrics are equal to, if not better than, where we were in 2019.

Thank you. Our next questions come from the line of Todd Brooks with The Benchmark Company. Please proceed with your question.

Thanks. Just one quick follow-up here or a question. Obviously, you're accelerating the remodel activity in 2023 after getting a little over 20 done last year. Can you share with us what we or investors should be expecting as of remodels? What's the early experience been? Are we seeing it in kind of operational performance at the store? Are we seeing it in a revenue lift? How should we think about accelerating remodel activity as a potential tailwind for the business? Thanks.

Yes, generally we expect sales to increase in the range of 3% to 5% from these remodels. Our target is on the higher end at 5%. The impact of COVID has created some variability, but overall, we are seeing results within that range. Franchisees have provided very positive feedback regarding the remodels, and consumers are responding well too. The anticipated lift of 3% to 5% is compared to a control group and reflects what we should expect from these remodels.

And has the cost of the remodels tightened up as you've gone through this first wave? And what should we think about there for the cost of rolling out this next wave?

Yes, I think we're still observing it. The impact varies based on the level of remodel we choose. We're currently focusing more on what I would call Level 1, which is a lower-level remodel that involves a complete external makeover. Internally, we may not change everything, like the flooring, but we still incorporate other elements. This type of remodel typically costs around $250 million to $300 million. For a mid-level remodel, it’s about $350 million, and at the higher end, costs range from $400 million to $450 million, possibly reaching up to $500 million. However, currently, most of the remodels are falling into Level 1 and Level 2 categories.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would now like to turn the call back over to Mr. Larry Roberts for closing remarks.

Okay. Well, I just want to thank everybody for joining us tonight and I hope you have a great night and I hope you're excited about El Pollo Loco as we are. Thanks very much.

Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.