Operator
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Polo Loco third quarter 2026 earnings conference call. At this time, all participants have been placed in a listen-only mode, and there will be an opportunity to ask questions following the presentation. Please note this conference is being recorded today, November 5th, 2026. And now I would like to turn the conference over to Ira Fels, the company's chief financial officer.
Thank you, Operator, and good afternoon. By now, everyone should have access to our third quarter 2026 earnings release, which can be found at www.elpoyoloco.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements, including statements related to our new products and growth opportunities, strategic and operational. Potential changes to our product platforms, capital expenditure plans, the ability of our franchisees to drive growth, expectations regarding. And our two. And therefore, These statements are...
Thank you. We're a member exclusive. Shot of Coffee. These new beverages are accretive to check and also show the potential. We carried our approach of offering abundant quality at compelling value into the fall as we launched our cheesy enchilada double chicken bowls at the end. We are delicious and hearty and are incremental to our existing bowl business. We also introduced pumpkin pie mini churros, a seasonal pop-up. To bring back even more desert and churro innovation. In terms of what's next. Check in. Unrecognized brands. Nothing captured the energy of the quarter and our Let's Get Loco spirit. After a year-long campaign that included a... We should be the ones to own this holiday. To commemorate the day, we offered a free two-piece chicken meal with a drink purchase on September 9th. Celebrations didn't stop there. We kept the party going all month long with our logo. of our grill. Thank you. A culturally relevant marketing campaign can bring new energy to the brand. The results exceeded our expectations. Not only did we attract new guests, Continue to be our most engaged. We now account for 14% of all visits. While we are pleased with the results, we believe there is still a lot of runway ahead. Building our loyal fan base in our local rewards program has many benefits, from connecting with guests to... For five dollars. Time examples. As we look to 2027. Be more relevant. In short, we are excited about the opportunity that lies ahead with our digital business, and we We're going to turn our focus to operational excellence. El Playo Loco. The heart of every restaurant, and this was a chance to show them how much we value what they do and our commitment to hospitality, notably. As we continue to elevate our service, we Thank you. And we're already seeing that enthusiasm translate. And knowing it will take... operations at high-growth brands like Shake Shack and Raising Cane, and he's already working side-by-side with our SVP of operations, Rick. of Franchise Operations, Christina Camara, who are best-in-class operations leaders. This team is aligned around one North Star. Southern California, and Since the announcement, we've heard from more potential franchise partners in joining the El Cueo Loco family. New York is just one proof point. New market development agreements. into new parts of the country with As we move forward into 2027, we are focused on the right balance of value and innovation to build Protecting the Margin Discipline. El Pollo Loco to new communities.
Operator
We will now be conducting a question and answer session. We ask that you please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
Operator
Our first question is from Jeremy Hamlin with Craig Hallam.
Operator
Please proceed with your question.
Thanks for taking the questions, and congrats on the momentum and the business. Just starting with same-store sales here, off to a very strong start. I think you said up 3.6, which I think is on top of like a plus 2.1. From a year ago. So, you know, it looks like you've got your best two-year stack of the year here, you know, in a somewhat choppy environment. Can you just discuss, you know, what you feel like is driving those results here in terms of... You know, LTOs, I think it sounded like loaded quesadillas were really good. Can you speak to, you know, cheesy enchilada, double chicken bowls? You know, is it you have more snackable options, more portability in your options, or is this more about having value on your menu?
Yeah, thanks for the question, Jeremy. And your math is right. And we're really pleased with the start of the quarter and the trend in the business, particularly in a challenging environment. And, you know, as we look forward, we believe the trends are largely consistent with what we've seen all year. You know, we attribute it to that combination where we've had a nice balance of innovation and value. You know, the consumer in this environment is really looking for new, great options, and the fact that our options are high quality and they are, you know, a good eat in terms of portion size, and then what they're paying for it is a competitive value-oriented price. You know, we continue to see our value scores versus the competition be very strong. And then also, we're using value in a very targeted way with our loyalty program. So being able to offer some of the best deals in the app, as I mentioned in the remarks, loyalty is really important right now for us with just being able to have that value proposition.
Got it. Switching gears, new unit growth, pretty exciting what you laid out for 2027, 25 to 30 units. Can you discuss the cadence that you expect for openings in 2027? So what do you think or what does the mix look like in terms of new markets versus existing markets? And then lastly, what should we anticipate, if any, cannibalization as you think about driving a bit more unit growth than you've had the last few years?
Yes. So we expect as we build through next year, you know, it seems to be the habit oftentimes that things end up going towards the back end of the year, second half of the year, no matter how much we try to bring them in earlier in the year, that just, that pace does sort of occur that way. But, you know, as the pipeline gets bigger and bigger, I do think we'll see more the first half of the year. In terms of the markets where we'll see them, about a third will be in our California market, two-thirds outside of California in the nine to ten other states that we're operating in or will operate in. And we'll also see that balance in terms of about a third of them will be ground up first generation and about two thirds will be second generation. And I also think as we look across the franchise system, we'll develop company in proportion to what our company mixes. And we'll see about a quarter of the new restaurants will be with new franchise partners in the system. Just a clarifying question on that. Yeah. Go ahead.
Just a clarifying question here before you get to the other point. You mentioned you expect to have more in the first half of the year. You're saying a higher portion than you've had in the past, not more than 50% in the first half of the year. Okay.
That's exactly right. We will try to continue to open more than we historically have in the first half, but the majority of the openings will be weighted towards the second half, as typically is the pattern. And then cannibalization was your other question. We look really carefully as we're planning for new units to make sure there's not too much and there really is a good demand ring around the restaurant that can substantiate that new restaurant. I don't have an exact number for you, but I think that cannibalization will be lower, especially in those markets that have a lot of green space.
Got it. And then just the last one on the same topic, you signed some new franchise agreements in the New York market, you know, pretty significant, and especially for the long-term growth potential of the concept. My understanding is one of those deals is with an existing franchisee. Assuming things go well in New York, how should we be thinking about geographic expansion in the future? Are you still going to focus maybe on the 10 existing states, or are you thinking about more expansion, let's say, in the mid-Atlantic, northeast markets?
Yes, there's a lot of white space in the 10 states that we operate. Even in California, there's still white space, but certainly in the other states. So we will continue to grow there, and we're looking for franchise partners in many of those states as well. We're excited about New York because that really will show that this brand is not a regional brand. I think we've already shown that being in Texas, being in Denver, being up in Washington, in Vegas. But New York is just one more proof point. And people love fire grilled chicken. We think they're going to love it in New York. And then, you know, we'll set up the distribution for the New York metropolitan area, but that same distribution can serve up and down the eastern seaboard. So we think there's a ton of potential to unlock that.
Thanks so much. Best wishes, and I'll hop out of the queue.
Operator
Our next question is from JP Wallum with Roth Capital Partners. Please proceed with your question.
Great. I appreciate you guys taking my questions today. If we could just start in terms of the sort of traffic durability, I just want to, you know, understand a couple of components there. First, on the last call, you talked about, I think, some new customer cohorts kind of coming in. I think that younger customer, and that was maybe around some of the tender innovation. But just first, are you seeing those new customers returning for sort of your broader menu? Or, you know, what do you need to do to kind of continue growing frequency with those new customers? And then just on the loyalty, great growth there. But I guess as you look into 2027, what's the opportunity still there around loyalty?
Yes, thanks for the question. So we're pleased that both reach and frequency are growing with that younger consumer. We can see that reach among the younger consumer is above last year, and frequency also continues to improve. And, you know, we've seen that throughout the year. And I think that is attributed not only to our menu and, you know, some of the more portable, delicious, craveable menu items. So whether it was the tenders or the loaded quesadilla, it's both of those and many of the other products, the bowls, they're resonating. Also, the value is resonating with the younger consumer. And then just the brand positioning. You know, we continue to sharpen our brand messaging with our Let's Get Loco campaign, and you'll see us do that even more in the next couple months. So all that together, we're feeling really good about our ability to reach that younger consumer. And then moving on to the question of loyalty, that also bodes well with all consumers, but certainly, you know, a younger consumer likes to do a lot of things in their app, and our loyalty program really speaks to them, the deals in the app also as well. But we're seeing just across all age cohorts, there is a lot of growth opportunity with loyalty. Loyalty today is only about 14 to 15 percent of our transactions. You know, there's a lot of room for growth there. So we're just getting started.
Great. And then just on the, you mentioned the development incentives back in place for 2027 and beyond. Just curious if you can touch at all on how those compare to, I think, what was in place for 2025 and 26 unit growth, or sorry, new units, and just, I guess, what that means for your franchisee cash-on-cash returns as they deploy new units.
Yeah, so if you think about what we did with our returns, you know, we're having great success, I'm sorry, for the incentives, we're having great success in California. So, and we're seeing good development there. So we pulled back on the incentives in California. Our franchisees already have great economics, as do we in California. So we were able to pull back on that. We believe that won't slow any growth. And in the newer markets, because we're seeing good momentum, and I say the developing new markets, but markets that we already have stores in, we pull back slightly on those incentives. They're still very good incentives, and franchisees will be developing there. Where we got a little more aggressive was in the brand new markets, i.e. the New York market. We actually increased those incentives as we're looking to set up the brand, all the operating efficiencies needed, and a new distribution center. We got a little more aggressive to get that market up and running.
Okay, great. And one last one, if I could squeeze it in, just, you know, understanding that you're now sort of in that 18 to 20% restaurant level margin target you've talked about, but just any kind of puts and takes as we think about margin heading into next year. You know, I think you've talked about pre-marinating chicken in the past and maybe some upstreaming of some salsas or other things, but any just kind of puts and takes as we think about margin for next year.
Sure. I'll start and then Ira can finish. So as we look at margin, you know, finishing out this year and next year, we really do see this as an and in terms of, you know, wanting to invest in value, invest in the consumer. And, you know, some of that does come at the expense of margin, but also continuing to find ways to build back the margin. And so, as you thoughtfully pointed out, some of those are finding efficiencies in the kitchen. And so, in terms of taking some things upstream that, quite frankly, are a win also for our consistency and our quality of our products, and they also make our team members' jobs easier, and they allow our team members to spend more time with our customers. And so some of those improvements, I'm excited to see those next year, but we're really trying to balance, you know, not taking too much back to the margin and making sure we're investing in the consumer and in value.
Yeah, and to that point, you know, we're going to be very thoughtful as we move forward, and we're always thoughtful, but in this environment, we're going to be even more thoughtful and really balance taking price next year versus what we're seeing in inflation, just to make sure that we're not overtaxing the consumer, which can be a little stretched right now, and really take advantage of these opportunities Liz is talking about to grow the business through efficiency and grow the margin through efficiency.
Great. Appreciate it, and best of luck.
Operator
Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn the call back over to Liz Williams for closing remarks.
I just wanted to thank everyone for joining us today. We are really excited about the momentum in the business and where the El Pollo Loco brand is going, and we look forward to talking with you next quarter. Thank you.
Operator
This concludes today's style conference. You may disconnect your lines at this time. Thank you for your participation.
