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Item 7. Management’s Discussion and Analysis

2026-03-13 compared with 2025-03-07 · 147 added, 151 removed, 439 unchanged (40% of the section changed)

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In a 53-week fiscal year, the first, second and third quarters each include 13 weeks of operations, and the fourth quarter includes 14 weeks of operations.

Approximately every six or seven years a 53-week fiscal year occurs.

Fiscal 2024, 2023 and 2022 were 52-week fiscal years.

Approximately every five or six years a 53-week fiscal year occurs.

Fiscal 2025 was a 53-week fiscal year, and fiscal 2024 and 2023 were 52-week fiscal years.

53-week years may cause revenues, expenses, and other results of operations to be higher due to the additional week of operations.

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El Pollo Loco is a differentiated and growing restaurant concept that specializes in fire-grilling citrus-marinated chicken and operates in the limited-service restaurant segment.

We strive to offer food that integrates the culinary traditions of Mexico with the healthier lifestyle.

We strive to offer quality chicken served fast and easy.

Our distinctive menu features our signature product--citrus-marinated fire-grilled chicken--and a variety of Mexican and LA-inspired entrees that we create from our chicken.

We serve individual and family-sized chicken meals, a variety of Mexican and LA-inspired entrees, and sides, and, throughout the year, on a limited-time basis, additional proteins like beef and shrimp.

Our entrees include favorites such as our Chicken Avocado Burrito, Pollo Fit entrees, chicken tostada salads, and Pollo Bowls.

We serve individual and family-sized chicken meals, including a variety of entrees like our Double Chicken Tostada, Guacamole Chicken Burrito, and Salsa Verde Chicken Quesadilla.

Our famous Creamy Cilantro dressings and salsas are prepared fresh daily, allowing our customers to create their favorite flavor profiles to enhance their culinary experience.

We believe that our distinctive menu with better for you and more affordable alternatives appeals to consumers across a wide variety of socio-economic backgrounds and drives our balanced composition of sales throughout the day (our “day-part mix”), including at lunch and dinner.

We believe that our distinctive menu that features quality chicken is a flavorful and affordable option that appeals to consumers across a wide variety of socio-economic backgrounds and drives our balanced composition of sales throughout the day, including at lunch and dinner.

M arket Trends and Uncertainties

On September 28, 2023, Governor Newsom signed AB 1228 into law in California, which repealed and replaced the FAST Act on January 1, 2024.

Pursuant to AB 1228, the minimum wage at fast food restaurants that are part of brands which have more than 60 establishments nationwide increased to $20 an hour on April 1, 2024, and a Fast Food Council created by AB 1228 has limited power to approve annual wage increases until 2029.

Under AB 1228, the Fast Food Council also retains the power to develop and propose minimum standards for fast food workers, including standards for working hours, working conditions, and health and safety.

As a result of AB 1228, we have experienced an increase in our labor and regulatory compliance costs and we expect these cost increases to continue into fiscal 2025.

Although we have been able to substantially offset these cost pressures through various actions, such as increasing menu prices, managing menu mix, and productivity improvements, we expect these cost pressures to continue into 2025 and we may not be able to offset cost increases in the future.

Additionally, we are impacted by macroeconomic challenges, such as inflationary pressures and changes in trade policies, that have in the past, and may continue to in the future, affect our operations in certain areas such as food cost, labor costs, construction costs and other restaurant operating costs.

As a result of recent California legislation increasing wages of fast food workers, we experienced an increase in our labor and regulatory compliance costs in fiscal 2024 and fiscal 2025.

Additionally, we are impacted by macroeconomic challenges, such as inflationary pressures and changes in trade policies, that have in the past affected, and may continue in the future, to affect our operations in certain areas such as food cost, labor costs, construction costs and other restaurant operating costs.

We have been able to substantially offset these inflationary and other cost pressures through various actions, such as increasing menu prices, managing menu mix, and productivity improvements.

However, we expect these inflationary and other cost pressures to continue in fiscal 2025 and we may not be able to offset cost increases in the future.

Current uncertainties about increases in tariffs of imported products from countries, including Mexico, may have an adverse effect on our Company.

However, we expect these inflationary and other cost pressures to continue in 2026 and we may not be able to offset cost increases in the future.

Global events, such as the recent outbreak of war in Iran, may also impact our business costs, including the costs of transportation and energy.

There is ongoing uncertainty regarding increased tariff duties on goods imported into the United States, which if imposed, may have an adverse effect on our Company.

On February 20, 2026, the U.S.

government proposed tariffs up to 25% on imports from certain countries, including Mexico and Canada, and implemented other tariffs on countries including China.

Some of our produce, packaging and other items are procured from outside of the U.S.

(including from Mexico, Canada and China), and any new or increased import duties, tariffs, trade sanctions or taxes, or other changes in U.S.

trade or tax policy could result in higher food and supply costs that would adversely impact our financial results.

While we are still evaluating the potential impacts of these proposed tariffs, as well as our ability to mitigate their related impacts, we anticipate it might adversely impact our revenue and cost of goods sold in the United States.

Supreme Court struck down the international tariffs imposed by President Trump that relied on the IEEPA as the basis.

President Trump has subsequently expressed his intent to reinstate the tariffs through other means, and he has imposed temporary 15% tariffs on all countries under Section 122 of the Trade Act of 1974.

Certain of the produce, packaging materials, and other items procured by our Company are sourced from outside the United States, including from Canada, Mexico and Asia.

Current and proposed tariff rates range widely, depending on the country of origin.

Certain goods from Canada and Mexico that are compliant with the United States-Mexico-Canada Agreement (USMCA) are, and may continue to be, exempt from new tariffs.

While we continue to evaluate the potential impacts of increased tariff rates, as well as our ability to mitigate any such related impacts, we anticipate that the imposition of tariffs on goods we import into the United States will adversely impact our revenue and cost of goods sold in the United States.

Any new or increased import duties, tariffs, or taxes, or other changes in U.S.

trade or tax policy could result in further increases to our food and supplies costs that would adversely impact our financial results.

For additional information, see “Item 1A.

Risk Factors”, including the risk factor titled “ We are vulnerable to changes in political and economic

conditions, such as trade policies, tariff and import regulations by the United States, as well as consumer preferences.”

Risk Factors,” including the risk factor titled “ We are vulnerable to changes in political and economic conditions, such as trade policies, tariff and import regulations by the United States, as well as consumer preferences.”

Growth Strategies and Outlook

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Business in this Annual Report for a detailed description of the five key pillars of our growth strategy.

As of December 25, 2024, we had 498 locations in seven states.

As of December 31, 2025, we had 503 locations in nine states.

In fiscal 2025, we opened one new company-operated restaurant in California and our franchisees opened 8 new restaurants, two in California, two in Arizona, and one in each of the following states:

Colorado, Texas, New Mexico and Washington.

In fiscal 2024, we opened two new company-operated restaurants in California and our franchisees opened two new restaurants, one in California, and one in Texas .

In fiscal 2023, we opened two new company-operated restaurants in Nevada and our franchisees opened three new restaurants, one in California, one in Colorado and one in Utah .

In 2025, we intend to open one to two new company-operated in California and eight to nine new franchised restaurants.

In 2026, we intend to open three to four new company-operated restaurants in California and Texas, and our franchisees intend to open 15 to 16 new restaurants.

To increase comparable restaurant sales, we plan to increase customer frequency, attract new customers, and improve per-person spend.

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Comparable Restaurant Sales

In fiscal 2024, comparable restaurant sales system-wide increased 3.2%.

In fiscal 2023, comparable restaurant sales system-wide decreased 0.3%.

In fiscal 2022, comparable restaurant sales system-wide increased 5.9%.

Comparable restaurant sales growth/decline reflects the change in year-over-year sales for the comparable restaurant base.

A restaurant enters our comparable restaurant base the first full week after its 15-month anniversary.

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Refer to “Comparable Restaurant Sales” definition in the subsection titled “Key Performance Indicators” below for further information.

Comparable restaurant sales at company-operated restaurants increased 2.8%, 0.3%, and 3.7%, respectively, in fiscal 2024, 2023 and 2022.

The change in year-over-year sales for our comparable restaurant base are as follows:

53 Weeks Ended

52 Weeks Ended

December 31, 2025

December 25, 2024

December 27, 2023

Company-operated same store sales

Franchise-operated same store sales

System-wide same store sales

In fiscal 2025, comparable restaurant sales at system-wide comparable restaurants increased 0.1% which consisted of a 0.7% increase in average check size due to increase in menu prices partially offset by a 0.6% decrease in transactions.

For company-operated restaurants in 2025, the change in comparable restaurant sales consisted of a 2.1% increase in average check size due to increases in menu prices partially offset by a 1.8% decrease in transactions.

In fiscal 2023, the increase in company-operated comparable restaurant sales consisted of a 2.3% increase in average check size due to increase in menu prices partially offset by a 2.0% decrease in transactions .

In fiscal 2022, the increase in company-operated comparable restaurant sales consisted of a 7.3% increase in average check size partially offset by a 3.3% decrease in transactions.

In fiscal 2024, comparable restaurant sales at franchised restaurants increased 3.5%.

In fiscal 2023, comparable restaurant sales at franchised restaurants decreased 0.7%, and in fiscal 2022, comparable restaurant sales at franchised restaurants increased 7.4%.

In fiscal 2025, comparable restaurant sales at franchised restaurants was flat as compared to the prior year driven by an increase in transactions of 0.1% offset by a decrease in average check size of 0.1%.

Restaurant Development

In fiscal 2024, we opened two company-operated restaurants, and our franchisees opened two new restaurants.

In fiscal 2025, we opened one company-operated restaurant, and our franchisees opened eight new restaurants.

From time to time, we and our franchisees close restaurants.

In fiscal 2024, we did not close any company-operated restaurants, and our franchisees closed one restaurant.

In fiscal 2025, we did not close any company-operated restaurants, and our franchisees closed four restaurants.

In fiscal 2025, the Company acquired one franchise-operated restaurant.

Our restaurant counts at the beginning and end of each of the last three years were as follows:

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Beginning of period

Restaurant sale to Company

Restaurant sale to franchisee

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Beginning of period

Restaurant sale to Company

Restaurant sale to franchisee

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Restaurant Remodeling

During the year ended December 25, 2024, we completed eight company-operated restaurant remodels and 44 franchise remodels.

In fiscal 2025, we plan to continue our standard practices for remodels, which includes completing a total of 30-40 company and 30-40 franchise remodels.

During the year ended December 31, 2025, we completed 17 company-operated restaurant remodels and 52 franchise remodels.

In fiscal 2026, we plan to continue our standard practices for remodels, which includes completing a total of 25 to 35 company and 30 to 40 franchise remodels.

Remodeling is a use of cash and has implications for our net property and depreciation line items on our consolidated balance sheets and statements of income, among others.

The cost of our restaurant remodels varies depending on the scope of work required, but on average the investment is $0.3 million to $0.4 million per restaurant.

The cost of our restaurant remodels varies depending on the scope of work required, but on average the investment is approximately $0.4 million per restaurant.

Loco Rewards™

Our Loco Rewards™ loyalty program offers rewards that incentivize customers to visit our restaurants more often each month.

Customers earn points for each dollar spent and points can be redeemed for multiple redemption options.

If a customer does not earn or use points within a one-year period, their account is deactivated and all points expire.

Points expire 365 days after a customer completes an eligible transaction to earn them.

When a customer is part of the rewards program, the obligation to provide future discounts related to points earned is considered a separate performance obligation, to which a portion of the transaction price is allocated.

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Occupancy and other operating expenses (1)

Gain on recovery of insurance proceeds, lost profits, net

Company restaurant expenses (1)

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Company-Operated Restaurant Revenue

In fiscal 2024, company-operated restaurant revenue decreased $2.2 million, or 0.5%, from the prior year.

The decrease in company-operated restaurant sales was primarily due to $16.1 million decrease in revenue from the 19 company-operated restaurants sold by us to existing franchisees during or subsequent to the first quarter of 2023, which was partially offset by an increase in company-operated comparable restaurant revenue of $10.8 million, or 2.8%, as well as $2.4 million of additional sales from the opening of four restaurants during or subsequent to the first quarter of 2023.

The company-operated comparable restaurant revenue increase consisted of an approximately 7.9% increase in average check size due to increases in menu prices, partially offset by a 4.7% decrease in transactions.

In fiscal 2025, company-operated restaurant revenue increased $9.6 million, or 2.4%, from the prior year.

The increase in company-operated restaurant sales was mainly due to a $5.3 million increase for the additional week of operations in a 53-week fiscal year, a $2.9 million increase from additional sales related to the opening of two restaurants during or after the first quarter of 2024, as well as an increase in company-operated comparable revenue.

For the full year company-operated comparable sales increased 0.3% consisting of an approximately 2.1% increase in average check size due to increases in menu prices, partially offset by a 1.8% decrease in transactions.

Franchise Revenue

In fiscal 2025, franchise revenue increased $6.8 million, or 15.0% from the prior year.

This increase was primarily due to a franchise comparable restaurant sales increase of 3.5%, four franchise-operated restaurant openings and 19 company-operated restaurants sold by us to our existing franchisees in each case, during or subsequent to the first quarter of 2023.

This increase was primarily due to $4.1 million in franchisee IT pass-through revenue related to the franchisee rollout of the new POS system, which was offset by a corresponding increase in franchise expenses.

In addition, the increase in franchise revenue includes $0.5 in revenue recognized for the additional week of operations in a 53 week fiscal year.

In addition, the increase in franchise

revenue was also driven by a royalty rate true up, increased franchisee fees related to terminated franchise development agreements, and the nine franchise-operated locations opened during or subsequent to the fourth quarter of 2024.

Franchise Advertising Fee Revenue

Franchise advertising fee revenue increased $0.7 million, or 2.1% from the prior year.

As advertising fee revenue is a percentage of franchisees’ revenue, the year-to-date fluctuation was due to the increases and decreases noted in franchise revenue above.

$0.4 million of the increase was due from an additional week of operations in a 53-week fiscal year, combined with higher franchise revenue.

As advertising fee revenue is a percentage of franchisees’ revenue, the year-to-date fluctuation was due to the increases noted in franchise revenue above.

Food and Paper Costs

Food and paper costs decreased $0.6 million, or 0.6%, in fiscal 2025 from the prior year.

The decrease in food and paper costs was primarily due to a decrease in transactions, as well as restaurant locations sold to franchisees during the current or prior year, partially offset by commodity inflation.

Food and paper costs as a percentage of company-operated restaurant revenue were 25.4% in fiscal 2024, down from 27.2% in fiscal 2023, primarily due to an increase in menu pricing and lower discounting, partially offset by commodity inflation.

The decrease in food and paper costs was primarily due to a decrease in transactions, as well as cost management initiatives and slight commodity deflation.

This decrease was partially offset by increased discounts and $1.3 million in expenses from the additional week of operations in a 53-week fiscal year.

Food and paper costs as a percentage of company-operated restaurant revenue were 24.7% in fiscal 2025, down from 25.4% in fiscal 2024, primarily due to an increase in menu pricing, cost management initiatives, and slight commodity deflation, partially offset by increased discounting.

Labor and Related Expenses

Labor and related expenses decreased $0.1 million, or 0.1%, in fiscal 2024 as compared to 2023.

The decrease was due primarily to a $5.8 million reduction in labor related costs resulting from the 19 company-operated restaurants sold by us to our existing franchisees during or subsequent to the first quarter of 2023 and as well as $6.6 million reduction related to improved labor efficiencies.

The decrease in labor and related expenses for the year was partially offset by a $12.3 million increase due to higher wage rates during fiscal 2024 and 2023 primarily as a result of legislative increases in the California state minimum wage, which became effective April 1, 2024.

Labor and related expenses as a percentage of company-operated restaurant revenue were 32.1% in fiscal 2024, up from 31.9% in fiscal 2023 primarily due to the higher wage rates, partially offset by the increase in menu pricing and improved labor efficiencies.

Labor and related expenses increased $0.1 million, or 0.1%, in fiscal 2025 as compared to 2024.

The increase was mainly due to $3.4 million in higher wage rates during fiscal 2025 as a result of legislative increases in the California minimum wage, which became effective April 1, 2024, as well as $1.7 million from the additional week of operations in a 53-week fiscal year.

This increase was partially offset by a $5.0 million reduction in costs related to improved labor efficiencies as part of our cost management initiatives.

Labor and related expenses as a percentage of Company-operated restaurant revenue were 31.4% in fiscal 2025, down from 32.1% in fiscal 2024 primarily due to an increase in menu pricing and improved labor efficiencies being greater than the increase in wage rates.

Occupancy and Other Operating Expenses

Occupancy and other operating expenses decreased $2.1 million, or 2.1%, in fiscal 2024.

The decrease was primarily due to a $4.9 million decrease in utilities, repairs and maintenance costs and other operating expense primarily driven by the sale of 19 company-operated locations during or subsequent to the first quarter of 2023 to existing franchisees, partially offset by a $2.2 million increase in other operating expenses and the four new company restaurant openings.

Occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 25.1% in fiscal 2024, down from 25.4% in fiscal 2023 primarily due to higher menu prices and the cost decreases highlighted above .

Gain on Recovery of Insurance Proceeds, Lost Profits and Gain on Recovery of Insurance Proceeds Property, Equipment and Expenses

During fiscal 2023 and fiscal 2022, two of the Company’s restaurants incurred damage resulting from a fire.

In fiscal 2023, the Company incurred costs directly related to the fire of less than $0.1 million.

In fiscal 2023, the Company recognized gains of $0.2 million, related to the reimbursement of property and equipment and expenses incurred and $0.3 million related to the reimbursement of lost profits and in fiscal 2024, the Company recognized gains of less than $0.1 million related to the reimbursement of property and equipment and expenses.

The gain on recovery of insurance proceeds and reimbursement of lost profits, net of the related costs, is included in the accompanying consolidated statements of income, for the year ended December 27, 2023, as a reduction of Company restaurant expenses.

The Company received from the insurance company cash of $0.5 million, net of the insurance deductible, during fiscal 2023.

Occupancy and other operating expenses increased $7.1 million, or 7.2%, in fiscal 2025.

The increase was primarily due to a $1.4 million increase in occupancy and other operating expenses for the additional week of operations in a 53-week fiscal year, a $1.4 million increase in utilities, a $1.3 million increase in occupancy expenses, a $1.0 million increase in marketplace delivery fees, a $0.9 million increase in software maintenance, and a $1.1 million increase in other operating expenses.

Gain on Recovery of Insurance Proceeds Property, Equipment and Expenses

During fiscal 2023 and fiscal 2022, two of our restaurants incurred damage resulting from a fire.

In fiscal 2024, we recognized gains of less than $0.1 million related to the reimbursement of property and equipment and expenses.

We had no gain or loss on recovery of insurance proceeds in 2025.

General and Administrative Expenses

General and administrative expenses increased $4.0 million, or 8.6%, in fiscal 2025.

The increase was due primarily to a $3.6 million increase in labor related costs, primarily related to an increase in estimated management bonus expense and a $0.6 million increase in other general and administrative expenses.

The increase was due primarily to a $1.7 million increase in legal and professional fees related to shareholder activism and related matters, a $1.5 million increase in stock-based compensation expense, a $1.0 million increase in salaries and wages largely related to the impact of an additional week of operations in a 53-week fiscal year, and a $0.5 million increase in restructuring and executive transition cost.

These increases were partially offset by a $0.6 million decrease in incentive compensation.

General and administrative expenses as a percentage of total revenue were 10.3% in fiscal 2025, up from 9.8% in fiscal 2024.

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Franchise expenses increased $5.5 million, or 12.9%, in fiscal 2025 from the prior year.

The increase was primarily due to an increase in advertising expenses, primarily resulting from higher franchise revenue, higher franchise services expense and higher rent expense for locations sub-leased to franchisees that have a portion of the rent based on a percentage of revenue generated.

Loss (Gain) on Disposition of Restaurants

During fiscal 2024, we completed the sale of one company-operated restaurant within California to an existing franchisee due to an expiring lease term on April 30, 2024.

This sale resulted in cash proceeds of $0.1 million and a net loss on sale of restaurant of less than $0.1 million for the fiscal year ended December 25, 2024.

This restaurant is included in the total number of franchised El Pollo Loco restaurants.

During fiscal 2023, we completed the sale of 18 restaurants within California, Utah and Texas to existing franchisees.

We determined that these restaurant dispositions represent multiple element arrangements, and as a result, the cash consideration received was allocated to the separate elements based on their relative standalone selling price.

Cash proceeds included upfront consideration for the sale of the restaurants and franchise fees.

The cash consideration per restaurant related to franchise fees is consistent with the amounts stated in the related franchise agreements, which are charged for separate standalone arrangements.

We initially defer and subsequently recognize the franchise fees over the term of the franchise agreement.

During fiscal 2023, these sales resulted in cash proceeds of $7.7 million and a net gain on sale of restaurants of $5.0 million.

Since the date of their sale, these restaurants are now included in the total number of franchised El Pollo Loco restaurants.

The increase was primarily due to $4.1 million in one-time IT pass-through expense related primarily to the new POS system rollout and $0.4 million related to the additional week of operations in a 53- week fiscal year, as well as higher franchise services expense and higher occupancy expense for locations sub-leased to franchisees and higher franchise advertising expenses.

Impairment and Closed-Store Reserves

During fiscal 2025, we did not record any non-cash impairment charges.

During fiscal 2024, we recorded a $0.1 million non-cash impairment charge primarily related to the property and equipment assets of two restaurants in Nevada .

During fiscal 2023, we recorded a $1.5 million non-cash impairment charge primarily related to the property and equipment assets of one restaurant in Nevada and the carrying value of the ROU assets of one restaurant in California .

During fiscal 2024, we recognized $0.1 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations compared to $0.2 million during fiscal 2023 .

During fiscal 2025, we recognized less than $0.1 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations compared to $0.1 million during fiscal 2024 .

Interest Expense, Net

For fiscal 2024, net interest expense, increased by $1.1 million, primarily related to higher outstanding balances on our 2022 Revolver (as defined below) as well as the higher interest rates during fiscal 2024 versus the comparable period during the prior year.

For fiscal 2025, net interest expense decreased by $1.4 million or 24.2%, primarily related to lower outstanding balances on our 2022 Revolver (as defined below) as well as the lower interest rates during fiscal 2025 versus the comparable period during the prior year.

Income Tax Receivable Agreement

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The TRA calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods.

In fiscal 2025 we did not record any income tax receivable agreement income.

In fiscal 2024, we recorded less than $0.1 million in income tax receivable agreement income.

In fiscal 2023, we paid $0.3 million to our pre-IPO stockholders under the TRA and we recorded income tax receivable agreement expense of $0.1 million.

On May 29, 2024, we terminated most of the obligations under the TRA, with respect to any payments or obligations owed to the FS Equity Partners V, L.P.

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(together, the “Sellers”) thereunder in exchange for a payment to the Sellers of $0.4 million.

As of December 25, 2024, there was no remaining obligations owed on our consolidated balance sheets.

As of December 31, 2025 and December 25, 2024, there were no remaining obligations owed on our consolidated balance sheets.

Provision for Income Taxes

In fiscal 2025, we recorded an income tax expense of $11.1 million, compared to income tax expense of $9.6 million in fiscal 2024, reflecting an estimated effective tax rate of 29.5% and 27.2%, respectively.

The difference between the 21.0% statutory rate and our effective tax rate of 29.5% for the year ended December 31, 2025 is primarily a result of state taxes, the impact of non-tax deductible executive compensation expense, a tax shortfall related to equity compensation deductible for tax as compared to the cumulative amount recorded as stock-based compensation expense, and $0.1 million related to the additional week of operations in a 53-week fiscal year, partially offset by a Work Opportunity Tax Credit benefit .

The difference between the 21.0% statutory rate and our effective tax rate of 27.2% for the year ended December 25, 2024 is primarily a result of state taxes, the impact of non-tax deductible executive compensation expense, a tax shortfall related to equity compensation deductible for tax as compared to the cumulative amount recorded as stock-based compensation expense, partially offset by a Work Opportunity Tax Credit benefit .

The difference between the 21.0% statutory rate and our effective tax rate of 26.7% for the year ended December 27, 2023 is primarily a result of windfall tax benefit related to stock options exercised, state taxes, a Work Opportunity Tax Credit benefit and the corresponding valuation allowance release in connection with the California Enterprise Zone credits expiration .

Fiscal Year 2024 Compared to Fiscal Year 2023

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To evaluate the performance of our business, we utilize a variety of financial and performance measures.

These key measures include company-operated restaurant revenue, system-wide sales, comparable restaurant sales, company-operated average unit volumes (“AUV”), restaurant contribution, restaurant contribution margin, new restaurant openings, EBITDA, and Adjusted EBITDA.

In fiscal 2024, our restaurants generated company-operated restaurant revenue of $396.3 million and system-wide sales of $1,095.7 million, and system-wide comparable restaurant sales growth of 3.2%, consisting of company-operated restaurant comparable restaurant sales growth of 2.8% and franchised comparable restaurant sales growth of 3.5%.

These key measures include company-operated restaurant revenue, system-wide sales, comparable restaurant sales, company-

operated average unit volumes (“AUV”), restaurant contribution, restaurant contribution margin, new restaurant openings, EBITDA, and Adjusted EBITDA.

In fiscal 2025, our restaurants generated company-operated restaurant revenue of $405.8 million and system-wide sales of $1,125.4 million, and system-wide comparable restaurant sales growth of 0.1%, consisting of company-operated restaurant comparable restaurant sales growth of 0.3% and franchised comparable restaurant sales growth stayed flat.

The company-operated comparable restaurant sales increase consisted of a 2.1% increase in average check size due to increases in menu prices and partially offset by a 1.8% decrease in the number of transactions.

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Comparable restaurant sales indicate the performance of existing restaurants, since new restaurants are excluded.

Comparable restaurant sales growth can be generated by an increase in the number of meals sold and/or by increases in the average check size, resulting from a shift in menu mix and/or higher prices resulting from new products or price increases.

Comparable restaurant sales growth can be generated by an increase in the number of meals sold and/or by increases in the average check size, resulting from a shift

in menu mix and/or higher prices resulting from new products or price increases.

Because other companies may calculate this measure differently than we do, comparable restaurant sales as presented herein may not be comparable to similarly titled measures reported by other companies.

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Weekly AUVs consist of comparable restaurant sales over a seven-day period from Thursday to Wednesday.

Annual AUVs are calculated using a step process.

Annual AUVs are calculated using a two-step process.

First, we divide our total net sales for all company-operated restaurants for the fiscal year by the total number of restaurant operating weeks during the same period.

Second, we annualize that average weekly per-restaurant sales figure by multiplying it by 52.

Second, we annualize that average weekly per-restaurant sales figure by multiplying it by 53 for a 53-week year or 52 for a 52-week year.

An operating week is defined as a restaurant open for business over a seven-day period from Thursday to Wednesday.

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Restaurant contribution is defined as company-operated restaurant revenue less company restaurant expenses which includes food and paper cost, labor and related expenses and occupancy and other operating expenses, where applicable.

Restaurant contribution therefore excludes franchise revenue, franchise advertising fee revenue and franchise expenses as well as certain other costs, such as general and administrative expenses, franchise expenses, depreciation and amortization, asset impairment and closed-store reserve, loss on disposal of assets and other costs that are considered corporate-level expenses and are not considered normal operating costs of our restaurants.

Restaurant contribution therefore excludes franchise revenue, franchise advertising fee revenue and franchise expenses as well as certain other costs, such as general and administrative expenses, franchise expenses, depreciation and amortization, impairment and closed-store reserves, loss on disposal of assets and other costs that are considered corporate-level expenses and are not considered normal operating costs of our restaurants.

Accordingly, restaurant contribution is not indicative of overall Company results and does not accrue directly to the benefit of stockholders because of the exclusion of certain corporate-level expenses.

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Restaurant contribution and restaurant contribution margin are supplemental measures of operating performance of our restaurants, and our calculations thereof may not be comparable to those reported by other companies.

Restaurant contribution and restaurant contribution margin have limitations as analytical tools, and you should not consider them in

isolation, or superior to, or as substitutes for the analysis of our results as reported under GAAP.

Restaurant contribution and restaurant contribution margin have limitations as analytical tools, and you should not consider them in isolation, or superior to, or as substitutes for the analysis of our results as reported under GAAP.

Management uses restaurant contribution and restaurant contribution margin as key metrics to evaluate the profitability of incremental sales at our restaurants, to evaluate our restaurant performance across periods, and to evaluate our restaurant financial performance compared with our competitors.

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Income tax receivable agreement (income) expenses (f)

Securities class action legal expense (g)

Special legal and professional fees expense (g)

Special other expenses (h)

Shareholder advisory fees (i)

Gain on recovery of insurance proceeds (j)

Executive transition costs (k)

Restructuring charges (l)

Pre-opening costs (m)

Duplicate rent expense for corporate office relocation (j)

ERP software implementation costs (k)

Gain on recovery of insurance proceeds (l)

Restructuring and executive transition costs (m)

Pre-opening costs (n)

Adjusted EBITDA

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(b) Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.

During fiscal 2024, we recorded non-cash impairment charges of $0.1 million, primarily related to the property and equipment assets of two restaurants in Nevada.

D uring fiscal 2024, we recognized $0.1 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

In fiscal 2023, we recorded non-cash impairment charges of $1.5 million for the year ended December 27, 2023, primarily related to the property and equipment assets of one restaurant in Nevada and the carrying value o f the ROU assets of one restaurant in California.

During fiscal 2025, we did not record any non-cash impairment charges.

D uring fiscal 2025, we recognized less than $0.1 million of closed-store reserve expense, p rimarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

In fiscal 2024, we recorded non-cash impairment charges of $0.1 million, primarily related to the property and equipment assets of two restaurants in Nevada.

During fiscal 2024, we recognized $0.1 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

In fiscal 2022, we recorded non-cash impairment charges of $0.5 million for the year ended December 28, 2022, primarily related to the carrying value of the ROU assets of one restaurant in California that closed in 2021 and the property and equipment assets of two restaurants in California.

In fiscal 2023, we recorded non-cash impairment charges of $1.5 million, primarily related to the property and equipment assets of one restaurant in Nevada and the carrying value of the ROU assets of one restaurant in California.

During fiscal 2023, we recognized $0.2 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

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These sales during 2023 resulted in cash proceeds of $7.7 million and a net gain on sale of restaurants of $5.0 million for the year ended December 27, 2023.

During fiscal 2022, we completed the sale of three company-operated restaurants within the Orange County area to an existing franchisee.

This sale during 2022 resulted in cash proceeds of $1.0 million and a net gain on sale of restaurants of $0.8 million for the year ended December 28, 2022.

(e) Includes $0.9 million received from legal settlements, net of legal expenses.

(f) On July 30, 2014, we entered into the TRA.

(f) On July 30, 2014, we entered into the income tax receivable agreement (“TRA”).

This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods.

For the years ended December 25, 2024, December 27, 2023 and December 28, 2022, income tax receivable agreement (income) expense consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.

For the years ended December 25, 2024, and December 27, 2023, income tax receivable agreement (income) expense consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.

On May 29, 2024, we terminated most of the obligations under the TRA, with respect to any payments or obligations owed to the Sellers thereunder in exchange for a payment to the Sellers of $0.4 million.

As of December 25, 2024, there was no remaining obligations owed on our consolidated balance sheets.

(g) Consists of costs related to the defense of securities lawsuits.

(h) Consists of (1) $0.2 million in legal costs related to the share distribution by Trimaran Group of substantially all shares of our common stock held by Trimaran Group to its investors, members and limited partners, which occurred on March 28, 2023, and (2) $0.1 million and $0.4 million, respectively, in costs related to a special dividend declaration which was paid on November 9, 2022, to stockholders of record, including holders of restricted stock for fiscal 2023 and 2022.

As of December 31, 2025 and December 25, 2024, there was no remaining obligations owed on our consolidated balance sheets.

(g) Consists of legal and professional costs related to shareholder activism and related matters.

(h) Consists of $0.3 million in legal costs related to the share distribution by Trimaran Group of substantially all shares of our common stock held by Trimaran Group to its investors, members and limited partners, which occurred on March 28, 2023.

(i) Consists of advisory fees pertaining to a shareholder rights agreement adopted in connection with a shareholder’s accumulation of a significant amount of shares of our common stock.

Refer to Note 16, “Shareholder Rights Agreement” for further details on the Shareholder Rights Agreement.

(j) During fiscal 2022, one of our restaurants incurred damage resulting from a fire.

(j) Consists of duplicate rent expense for the corporate headquarter relocation.

The Company moved headquarter locations during Q4 of fiscal year 2025.

During the transition period the Company was still contractually obligated to pay rent expense for both the new location and old location at the same time.

(k) Represents costs incurred in connection with the implementation of a new “ERP” system which are included in general and administrative expenses.

(l) During fiscal 2022, one of our restaurants incurred damage resulting from a fire.

In fiscal 2023, we incurred costs directly related to the fire of less than $0.1 million.

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The gain on recovery of insurance proceeds for the reimbursement of property and equipment and expenses and the reimbursement of lost profits, net of the related costs is included in the accompanying consolidated statements of income, for the year ended December 27, 2023, as a reduction of company restaurant expenses.

(k) Includes costs associated with the transition of our former CEO, such as severance, executive recruiting costs and stock-based compensation costs.

(l) On March 8, 2024, we made the decision to eliminate and restructure certain positions in the organization, which resulted in costs of approximately $0.6 million.

On April 13, 2023 we made the decision to eliminate and restructure certain positions in the organization, which resulted in costs of approximately $1.1 million.

(m) Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs.

(m) Consists of costs associated with the transition of certain executive officers, such as severance and stock-based compensations costs and costs associated with restructuring certain positions in the organization.

(n) Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs.

These are generally incurred over the three to five months prior to opening.

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Our primary sources of liquidity and capital resources have been cash provided from operations, cash and cash equivalents, and the 2022 Revolver (as defined below).

Our primary requirements for liquidity and capital are new restaurants, existing restaurant capital investments (remodels and maintenance), legal defense costs, lease obligations, interest payments on our debt, working capital and general corporate needs .

Our primary requirements for liquidity and capital are new restaurants, existing restaurant capital investments (remodels and maintenance),lease obligations, interest payments on our debt, working capital and general corporate needs .

Our working capital requirements are not significant, since our customers pay for their purchases in cash or by payment card (credit or debit) at the time of sale.

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Financing activities

Net decrease in cash

Net increase/(decrease) in cash

Operating Activities

In fiscal 2025, net cash provided by operating activities increased by $1.3 million compared to fiscal 2024.

This increase was due primarily to an increase in profitability and favorable working capital fluctuations during fiscal 2024.

This increase was primarily due to a $6.8 million increase in net income excluding non-cash and reconciling items disclosed within our consolidated statement of cash flows, partially offset by a $5.5 million unfavorable change in operating assets and liabilities.

The $6.8 million increase in net income excluding non-cash and reconciling items was primarily driven by favorable changes in non-cash and reconciling items including deferred income taxes and stock-based compensation expense.

The $5.5 million of unfavorable changes in operating assets and liabilities was primarily driven by unfavorable changes in accrued salaries and vacation, accounts and other receivables, and income taxes receivable (payable), partially offset by favorable changes in accounts payable.

In fiscal 2024, net cash provided by operating activities increased by $6.1 million compared to fiscal 2023.

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In fiscal 2025, net cash used in investing activities increased by $3.7 million compared to fiscal 2024.

This change was primarily due to the cash proceeds of $7.7 million received during the year ended December 27, 2023 related to the sale of 18 company-operated restaurants to existing franchisees .

In fisc al 2023, net cash used in investing activities decreased by $5.5 milli on compared to fiscal 2022.

This decrease was primarily due to cash proceeds of $7.7 million received during fiscal 2023 related to the sale of 18 company-operated restaurants to existing franchisees .

This change was primarily due to the increase purchases of property and equipment .

In fisc al 2024, net cash used in investing activities increased by $5.5 milli on compared to fiscal 2023.

This increase was primarily due to cash proceeds of $7.7 million received during fiscal 2023 related to the sale of 18 company-operated restaurants to existing franchisees .

Financing Activities

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The decrease was primarily due to repurchases of shares of our common stock of $20.6 million during the year ended December 25, 2024 compared to repurchases of shares of our common stock of $1.8 million during the year ended December 31, 2025.

The change was offset by an $13.0 million in net pay downs on the 2022 Revolver during the year ended December 25, 2024 compared to an $18.0 million in net borrowings during the year ended December 27, 2023.

In fiscal 2023, net cash used in financing activities increased by $11.3 million compared to fiscal 2022.

This change was due primarily to repurchases of common stock of $59.2 million during fiscal 2023.

This increase was partially offset by $18.0 million in net borrowings of the 2022 Revolver during fiscal 2023 compared to the net pay downs of $26.0 million on the 2022 Revolver during fiscal 2022.

The change was partially offset by $20.0 million in net paydowns on the 2022 Revolver during the year ended December 31, 2025 compared to $13.0 million in net paydowns during the year ended December 25, 2024.

In fiscal 2024, net cash used in financing activities decreased by $7.8 million compared to fiscal 2023.

The decrease was primarily due to repurchases of shares of our common stock of $20.6 million during the year ended December 25, 2024 compared to repurchases of shares of our common stock of $59.2 million during the year ended December 27, 2023.

The change was offset by $13.0 million in net pay downs on the 2022 Revolver during the year ended December 25, 2024 compared to $18.0 million in net borrowings during the year ended December 27, 2023.

Debt and Other Obligations

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The 2022 Revolver and 2022 Credit Agreement will mature on July 27, 2027.

The obligations under the 2022 Credit Agreement and related

loan documents are guaranteed by us.

The obligations under the 2022 Credit Agreement and related loan documents are guaranteed by us.

The obligations of our company, EPL and Intermediate under the 2022 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.

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Our total capital expenditures for 2025 were $26.9 million.

In 2024, we spent approximately $4.3 million on the development and construction of our new restaurants.

The remaining $14.8 million of capital expenditures during 2024 were related to investments in existing restaurants, including new equipment and hardware, technology to optimize efficiencies, remodeling and similar improvements.

In 2025, we expect to incur between $30.0 million and $34.0 million in total capital expenditures, of which we expect $3.0 million to $5.0 million will be related to our construction of new restaurants, and $27.0 million to $29.0 million will be related to investments in existing restaurants, including new equipment and hardware, technology to optimize efficiencies, remodeling and similar improvements.

Finally, we expect a portion of our incurred capital expenditures in 2025 to be for additional corporate initiatives, including investments in

technology for support centers to boost innovation, enhancing the customer experience, and improving operations.

In 2025, we spent approximately $3.1 million on the development and construction of our new restaurants, $10.4 million on remodels of existing restaurants, and $3.5 million on our new corporate office location.

The remaining $9.9 million of capital expenditures during 2025 were related to investments in existing restaurants, including new equipment and hardware, technology to optimize efficiencies, and similar improvements.

In 2026, we expect to incur between $37 million and $40 million in total capital expenditures, of which we expect approximately $8 million to $9 million will be related to our construction of new restaurants, $14 million to $15 million will be related to remodeling of existing restaurants, including new equipment and hardware, technology to optimize efficiencies, minor remodeling and similar improvements, and $6 million to $7 million related to sales driving and cost savings initiatives.

Finally, we expect a portion of our incurred capital expenditures in 2026 to be for additional corporate initiatives, including investments in technology for support centers to boost innovation, enhancing the customer experience, and improving operations.

We expect to fund these capital expenditures primarily with operating cash flows.

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Share Repurchase Program

On November 2, 2023, we announced that the Board approved a share repurchase program (“Share Repurchase Program”) under which we are authorized to repurchase up to $20,000,000 of shares of our common stock.

Under the Share Repurchase Program, we are permitted to repurchase our common stock from time to time, in amounts and at prices that we deemed appropriate, subject to market conditions and other considerations.

Pursuant to the Share Repurchase Program, we are authorized to effect repurchases using open market purchases, including pursuant to Rule 10b5-1 trading plans, and/or through privately negotiated transactions.

The repurchase program does not obligate us to acquire any particular number of shares.

The repurchase program will terminate on March 31, 2025.

Further on December 4, 2023, we repurchased 1.5 million shares of our common stock for a total purchase price of $12.6 million under the Stock Repurchase Agreement with the Sellers.

Following completion of this repurchase, approximately $7.4 million of our common stock remained available for repurchase under the share repurchase program at December 27, 2023.

On November 2, 2023, we announced that the Board approved a share repurchase program (“Share Repurchase Program”) under which we were authorized to repurchase up to $20,000,000 of shares of our common stock.

Under the Share Repurchase Program, we were permitted to repurchase our common stock from time to time, in amounts and at prices that we deemed appropriate, subject to market conditions and other considerations.

Pursuant to the Share Repurchase Program, we were authorized to effect repurchases using open market purchases, including pursuant to Rule 10b5-1 trading plans, and/or through privately negotiated transactions.

The repurchase program did not obligate us to acquire any particular number of shares.

On December 4, 2023, we repurchased 1.5 million shares of our common stock for a total purchase price of $12.6 million under the Stock Repurchase Program.

Following completion of this repurchase, approximately $7.4 million of

our common stock remained available for repurchase under the Share Repurchase Program at December 27, 2023.

For the year ended December 25, 2024, we repurchased 535,628 shares of common stock under the Share Repurchase Program, using open market purchases, for total consideration of approximately $5.6 million.

Following completion of these repurchases, approximately $1.8 million of our common stock remained available for repurchase under the Share Repurchase Program at December 25, 2024.

Other Share Repurchases

On August 7, 2023, we entered into a Stock Repurchase Agreement with the Sellers, as amended on August 4, 2024, pursuant to which we agreed to purchase an aggregate of 2,500,000 shares of our common stock from the Sellers at a

price of $10.63 per share for a total purchase price of $26.6 million.

The repurchase was completed in August 2023.

Prior to the repurchase, Freeman Spogli & Co.

(“Freeman Spogli”), collectively with the Sellers and certain other funds managed by Freeman Spogli, was our largest stockholder.

In addition, John Roth, a director of the Company until his resignation on August 16, 2023, is a general partner of Freeman Spogli and its chief executive officer.

Further, on May 23, 2024, we entered into a new Stock Repurchase Agreement with the Sellers, pursuant to which we agreed to purchase an aggregate of 1,534,303 shares of our common stock from the Sellers at a price of $9.785 per share for a total purchase price of $15.0 million.

The repurchase was completed in May 2024.

For the year ended December 31, 2025, we repurchased 163,229 shares of our common stock for a total purchase price of $1.8 million under the Stock Repurchase Program.

The repurchase program was terminated on March 31, 2025.

Critical Accounting Policies and Estimates

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As such, initial franchise and development fees received, and subsequent renewal fees, are recognized over the franchise, or renewal, term, which is typically 20 years.

The Company offers a loyalty rewards program, which awards a customer points for dollars spent.

Customers earn points for each dollar spent and points can be redeemed for multiple redemption options.

If a customer does not earn or use points within a one-year period, their account is deactivated and all points expire.

The performance obligation related to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is recognized as revenue, when the points are transferred to a reward and redeemed, the reward or points have expired, or the likelihood of redemption is remote.

A portion of the transaction price is allocated to loyalty points, if necessary, on a pro-rata basis, based on stand-alone selling price, as determined by menu pricing and loyalty points terms.

Goodwill and Indefinite-Lived Intangible Assets, Net

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The amount of goodwill included in the cost basis of the asset sold is determined based on the relative fair value of the portion of the reporting unit disposed of compared to the fair value of the reporting unit retained.

The fair value of the portion of the

reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future cash flows expected to be generated by the restaurant and retained by the franchisee, which includes a deduction for the anticipated, future royalties the franchisee will pay us associated with the franchise agreement entered into simultaneously with the refranchising transition.

The fair value of the portion of the reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future cash flows expected to be generated by the restaurant and retained by the franchisee, which includes a deduction for the anticipated, future royalties the franchisee will pay us associated with the franchise agreement entered into simultaneously with the refranchising transition.

The fair value of the reporting unit retained is based on the price a willing buyer would pay for the reporting unit and includes the value of franchise agreements.

As such, the fair value of the reporting unit retained can include expected cash flows from future royalties from those restaurants currently being refranchised, future royalties from existing franchise businesses and company restaurant operations.

During fiscal 2024, we determined that there were no indicators of potential impairment of our goodwill and indefinite-lived intangible assets.

Accordingly, we did not record any impairment to our goodwill or indefinite-lived intangible assets in fiscal 2024.

During fiscal 2025 and fiscal 2024, we determined that there were no indicators of potential impairment of our goodwill and indefinite-lived intangible assets.

Accordingly, we did not record any impairment to our goodwill or indefinite-lived intangible assets in fiscal 2025 and fiscal 2024 .

During fiscal 2023, we determined that, in connection with the sale of 18 units, there were indicators of potential impairment of our goodwill and indefinite lived intangible assets.

After completing the impairment analysis, we did not record any decrement to goodwill related to the disposition of restaurants in fiscal 2023.

During fiscal 2022, we determined that there were no indicators of potential impairment of our goodwill and indefinite-lived intangible assets.

Accordingly, we did not record any impairment to our goodwill or indefinite-lived intangible assets in fiscal 2022.

Property and Equipment and ROU Assets

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In estimating our insurance accruals, we utilize independent actuarial estimates of expected losses, which are based on statistical analyses of historical data.

The Company utilizes an actuary to estimate its workers’ compensation reserves and significant assumptions in the estimate included loss development factors, expected loss rates, and weighting of methods.

Our actuarial assumptions are closely monitored and adjusted when warranted by changing circumstances.

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This lease accounting evaluation may require significant judgment in determining the fair value and useful life of the leased property and the appropriate lease term.

The lease term used for the evaluation includes renewal option periods only in instances in which the exercise of the renewal option can be reasonably assured because failure to exercise such an option would result in an economic penalty.

Such an economic penalty would typically result from our having to abandon a building or fixture with remaining economic value upon vacating a property.

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We also make significant assumptions and judgments in determining an appropriate discount rate for property leases.

These include using a consistent discount rate for a

portfolio of leases entered into at varying dates, using the full 20-year term of the lease, excluding any options, and using the total minimum lease payments.

These include using a consistent discount rate for a portfolio of leases entered into at varying dates, using the full 20-year term of the lease, excluding any options, and using the total minimum lease payments.

We utilize a third-party valuation firm to assist in determining the discount rate, based on the above assumptions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis