This article first appeared on GuruFocus .
Release Date: November 05, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Systemwide same-store sales grew 5%, marking the fourth consecutive quarter of positive comps, driven by a balanced mix of menu innovation, value, and operational improvements.
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Digital sales represented 31% of system sales, up from 27% last year, with Loco Rewards membership growing nearly 11% year-over-year and members visiting twice as often as non-members.
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Restaurant contribution margin came in at 18.4%, within the long-term target range of 18% to 20%, reflecting effective cost management and pricing strategies.
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The company is expanding into new markets, including New York, with development agreements for 15 restaurants over five years, and expects to accelerate unit growth to 25-30 new restaurants in 2027.
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Menu innovation, such as loaded quesadillas and Chata Coffee, resonated with guests, driving incremental sales and check growth, while marketing events like National Grilled Chicken Day exceeded expectations with 56,000 redemptions and 25,000 new loyalty sign-ups.
Negative Points
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Franchise revenue decreased 3% to $12.5 million, primarily due to prior-year IT pass-through revenue and a royalty true-up, partially offset by higher comparable sales.
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Food and paper costs as a percentage of company restaurant sales decreased 30 basis points to 24.4%, but commodity inflation of about 200 basis points partially offset the benefit from menu pricing and cost management.
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General and administrative expenses increased to $14 million from $12.3 million, driven by higher incentive compensation, stock compensation, and other labor-related expenses, partially offset by lower shareholder activism costs.
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Adjusted EBITDA for the third quarter was $17.1 million, down from $17.4 million in the prior year, and adjusted net income decreased to $7.3 million from $7.8 million.
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The company faces a challenging consumer environment, with management noting the need to balance price increases with inflation to avoid overburdening consumers, which may pressure margins.
Q & A Highlights
Q: Same-store sales are off to a strong start in Q4, up 3.6% on top of a plus 2.1% from a year ago, marking the best two-year stack of the year. What is driving these resultsmenu innovation like loaded quesadillas and cheesy enchilada double chicken bowls, more portable options, or value? A: CEO Liz Williams attributed the results to a balance of innovation and value. She noted that consumers are looking for new, high-quality options at competitive value-oriented prices, and the company's value scores versus competition remain strong. She also highlighted the targeted use of value through the loyalty program, offering some of the best deals in the app.
Q: Regarding the exciting 2027 new unit growth of 25 to 30 units, what is the expected cadence, the mix of new versus existing markets, and what should be anticipated regarding cannibalization? A: CEO Liz Williams stated that openings will likely be weighted toward the second half of the year, though the company will try to open more in the first half than historically. She expects about one-third of new units in California and two-thirds outside California, with a similar split of one-third ground-up and two-thirds second-generation. About a quarter of new restaurants will be with new franchise partners. She noted that cannibalization is carefully planned for and should be lower, especially in markets with a lot of green space.
Q: With new franchise agreements signed in New York, how should we think about future geographic expansion? Will the focus remain on the 10 existing states or expand to the Mid-Atlantic and Northeast? A: CEO Liz Williams emphasized there is still a lot of white space in the 10 states they operate in, including California. However, New York is exciting as it proves the brand is not regional. She noted that setting up distribution for the New York metropolitan area can also serve the eastern seaboard, unlocking significant potential.
Q: Can you discuss the traffic durability, specifically whether new younger customer cohorts are returning for the broader menu and what is needed to grow frequency? Also, what is the opportunity for loyalty in 2027? A: CEO Liz Williams said both reach and frequency are growing with the younger consumer, attributed to portable, craveable menu items like tenders and loaded quesadillas, value, and sharpened brand messaging. On loyalty, she noted it currently represents only about 14% of transactions, leaving a lot of room for growth across all age cohorts.
Q: You mentioned development incentives are back in place for 2027 and beyond. How do those compare to what was in place for 2025 and 2026, and what does that mean for franchisee cash-on-cash returns? A: An executive (likely CFO Ivor Phillips) explained that incentives were pulled back in California due to great success and strong economics. Incentives in existing newer markets were also pulled back slightly but remain very good. However, incentives were increased for brand-new markets like New York to help set up the brand, operating efficiencies, and a new distribution center.
Q: With restaurant-level margins now in the 18% to 20% target range, what are the puts and takes for margins heading into next year, considering past mentions of pre-marinating chicken and upstreaming salsas? A: CEO Liz Williams said the company is balancing investing in value and the consumer with finding efficiencies to build back margin. She highlighted taking some kitchen tasks upstream as a win for consistency, quality, and making team members' jobs easier. CFO Ivor Phillips added they will be very thoughtful and balance taking price versus inflation to avoid overtaxing the stretched consumer, growing margin through efficiency instead.
Q: Can you provide an update on the sales momentum and the drivers behind the 5% system-wide same-store sales growth in Q3? A: CEO Liz Williams highlighted that Q3 marked the fourth straight quarter of positive comps, driven by expanding sales layers and operational improvements. Key drivers included menu innovation like loaded quesadillas and Chata Coffee, the National Grilled Chicken Day campaign which drove 56,000 redemptions and 25,000 new loyalty sign-ups, and strong digital growth with digital sales representing 31% of system sales.
Q: What is the outlook for the remainder of 2026 and the pipeline for 2027? A: CFO Ivor Phillips stated that Q4 to date system-wide comparable sales increased 3.6%, and full-year 2026 same-store sales are expected to finish at approximately 4.5%. Adjusted EBITDA guidance is reiterated at $68 million to $70 million, expected to finish near the middle. CEO Liz Williams added that the company expects to open 18 to 20 new restaurants in 2026 and accelerate to 25 to 30 new units in 2027.
Q: What were the key financial results for Q3 2026? A: CFO Ivor Phillips reported total revenue of $126.3 million, up from $121.5 million. Company-operated restaurant revenue increased 4.6% to $105.4 million, driven by a 4.4% growth in comparable restaurant sales. Restaurant contribution margin improved slightly to 18.4%. GAAP net income was $6.9 million or $0.23 per diluted share, and adjusted EBITDA was $17.1 million.
Q: Can you elaborate on the digital business performance and the Loco Rewards program? A: CEO Liz Williams reported that digital sales represented 31% of system sales, up from 27% last year. Loco Rewards membership grew almost 11% year-over-year, and members now account for 14% of all visits, visiting twice as often as non-members. The Loco Days summer promotion drove over a 40% increase in daily sign-ups and 16% loyalty transaction growth.
Q: What is the status of the remodeling efforts and liquidity? A: CFO Ivor Phillips stated that in Q3, the company completed 10 franchise and 11 company remodels, bringing year-to-date totals to 22 franchise and 23 company remodels. As of September 30, 2026, debt outstanding was $23 million with $3.4 million in cash. Subsequent to quarter-end, an additional $4 million was borrowed, bringing debt to $27 million as of November 4, 2026.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
