LOCO US Equity☆

ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our “Audited Consolidated Financial Statements” and accompanying “Notes to Consolidated Financial Statements” included elsewhere in this Annual Report. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause actual results to differ materially from management’s expectations. See “Forward-

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Looking Statements” and “Item 1A. Risk Factors” included elsewhere in this Annual Report. We assume no obligation to update any of these forward-looking statements.

Basis of Presentation

We use a 52- or 53-week fiscal year ending on the last Wednesday of each calendar year. Fiscal 2025, 2024, and 2023 ended on December 31, 2025, December 25, 2024 and December 27, 2023, respectively. In a 52-week fiscal year, each quarter includes 13 weeks of operations. 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 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. Fiscal years are identified in this Annual Report according to the calendar years in which they ended. For example, references to fiscal 2025 refer to the fiscal year ended December 31, 2025.

Overview

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 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, 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 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.

Market Trends and Uncertainties

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. 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 in 2026.

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 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. 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.”

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Growth Strategies and Outlook

We plan to continue to expand our business, drive restaurant sales growth, and enhance our competitive positioning, by executing the following five key strategies:

● Brand That Wins;

● Hospitality Mindset;

● Digital First;

● Winning Unit Economics; and

● Drive Unit Growth Again with National Expansion.

See subsection titled “Our Growth Strategy” in Item 1. Business in this Annual Report for a detailed description of the five key pillars of our growth strategy.

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 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.

Highlights and Trends

Comparable Restaurant Sales

A restaurant enters our comparable restaurant base the first full week after its 15-month anniversary. System-wide comparable restaurant sales include restaurant sales at all comparable company-operated restaurants and at all comparable franchised restaurants, as reported by franchisees. Refer to “Comparable Restaurant Sales” definition in the subsection titled “Key Performance Indicators” below for further information.

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

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ 53 Weeks Ended ​ 52 Weeks Ended ​ 52 Weeks Ended

Company-operated same store sales 0.3 % ​ 2.8 % ​ 0.3 %

Franchise-operated same store sales ​ — % ​ 3.5 % ​ (0.7) %

System-wide same store sales 0.1 % ​ 3.2 % ​ (0.3) %

​

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 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%.

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Restaurant Development

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 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:

​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Fiscal Year Ended

Company-operated restaurant activity(1): ​ ​ ​ ​ ​ ​

Openings ​ 1 ​ 2 ​ 2

Restaurant sale to Company ​ 1 ​ — ​ —

Restaurant sale to franchisee ​ — ​ (1) ​ (18)

Closures ​ — ​ — ​ —

Restaurants at end of period ​ 175 ​ 173 ​ 172

Franchised restaurant activity: ​ ​ ​ ​ ​ ​

Openings ​ 8 ​ 2 ​ 3

Restaurant sale to Company ​ (1) ​ — ​ —

Restaurant sale to franchisee ​ — ​ 1 ​ 18

Closures ​ (4) ​ (1) ​ —

Restaurants at end of period ​ 328 ​ 325 ​ 323

System-wide restaurant activity: ​ ​ ​ ​ ​ ​

Openings ​ 9 ​ 4 ​ 5

Closures ​ (4) ​ (1) ​ —

Restaurants at end of period ​ 503 ​ 498 ​ 495

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Restaurant Remodeling

​

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 approximately $0.4 million per restaurant.

Loco RewardsTM

Our Loco RewardsTM 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. 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. 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 on a pro-rata basis, based on stand-alone selling price, as determined by menu pricing and loyalty point’s terms.

In addition, customers can earn additional points and free entrées for a variety of engagement activities. As points are available for redemption past the quarter earned, a portion of the revenue associated with the earned points will be deferred until redemption or expiration. As of December 31, 2025, the revenue allocated to loyalty points that had not been redeemed was $1.1 million. We had over 5.3 million loyalty program members as of December 31, 2025.

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Key Financial Definitions

Revenue

Our revenue is derived from three primary sources: company-operated restaurant revenue, franchise revenue, which is comprised primarily of franchise royalties and, to a lesser extent, franchise fees and sublease rental income, and franchise advertising fee revenue. See Note 15 “Revenue from Contracts with Customers”in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report for further details regarding our revenue recognition policy.

Food and Paper Costs

Food and paper costs include the direct costs associated with food, beverage and packaging of our menu items. The components of food and paper costs are variable in nature, change with sales volume, are impacted by menu mix, and are subject to increases or decreases in commodity costs.

Labor and Related Expenses

Labor and related expenses include wages, payroll taxes, workers’ compensation expense, benefits, and bonuses paid to our restaurant management teams. Like other expense items, we expect labor costs to grow proportionately as our restaurant revenue grows. Factors that influence labor costs include minimum wage and payroll tax legislation, state labor laws (which, in California, includes AB 1228), overtime, wage inflation, the frequency and severity of workers’ compensation claims, health care costs, and the performance of our restaurants.

Occupancy Costs and Other Operating Expenses

Occupancy costs include rent, common area maintenance (“CAM”), and real estate taxes. Other restaurant operating expenses include the costs of utilities, advertising, credit card processing fees, delivery service provider fees, restaurant supplies, repairs and maintenance, and other restaurant operating costs.

Gain on Recovery of Insurance Proceeds, Net

Gain on recovery of insurance proceeds includes insurance reimbursements related to the property and equipment damage, expenses incurred, and lost profits.

General and Administrative Expenses

General and administrative expenses are comprised of expenses associated with corporate and administrative functions that support the development and operations of our restaurants, including compensation and benefits, travel expenses, stock compensation costs, legal and professional fees, and other related corporate costs. Also included are pre-opening costs, and expenses above the restaurant level, including salaries for field management, such as area and regional managers, and franchise field operational support.

Franchise Expenses

Franchise expenses are primarily comprised of rent expenses incurred on properties leased by us and then sublet to franchisees, expenses incurred in support of franchisee information technology systems, and the franchisee’s portion of advertising expenses.

Depreciation and Amortization

Depreciation and amortization primarily consists of the depreciation of property and equipment, including leasehold improvements and equipment.

Loss on Disposal of Assets

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.

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Impairment and Closed-Store Reserves

We review long-lived assets such as property, equipment, and intangibles on a unit-by-unit basis for impairment when events or circumstances indicate the carrying value of the assets may not be recoverable. We determine if there is impairment at the restaurant level by comparing undiscounted future cash flows from the related long-lived assets to their respective carrying values and record an impairment charge when appropriate. In determining future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions. If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the asset’s carrying amount exceeds its fair value. This process of assessing fair values requires the use of estimates and assumptions, including our ability to sell or reuse the related assets and market conditions, which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these assets and these charges could be material.

When we close a restaurant, we will evaluate the right-of-use (“ROU”) asset for impairment, based on anticipated sublease recoveries. The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense, in addition to property tax and CAM charges for closed restaurants.

Loss (gain) on Disposition of Restaurants

Loss (gain) on disposition of restaurants includes the loss (gain) on the sale of restaurants to franchisees, or other third parties, and includes the difference between carrying value and sales price of leasehold improvements, equipment and other assets included in the sale.

Interest Expense, Net

Interest expense, net, consists primarily of interest on our outstanding debt. Debt issuance costs are amortized at cost over the life of the related debt.

Provision for Income Taxes

Provision for income taxes consists of federal and state taxes on our income.

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Results of Operations

Fiscal Year 2025 Compared to Fiscal Year 2024

Our operating results for the fiscal years ended December 31, 2025 and December 25, 2024, are in absolute terms and expressed as a percentage of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as a percentage of company-operated restaurant revenue, are compared in the table below:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Fiscal Year

​ ​ (53-Weeks) ​ (52-Weeks) ​ Increase / (Decrease)

​ ​ ​ ​ ($,000) ​ ​ ​ (%) ​ ​ ​ ($,000) ​ ​ ​ (%) ​ ​ ​ ($,000) ​ ​ ​ (%)

Statements of Income Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cost of operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Loss (gain) on disposition of restaurants ​ — — ​ 7 0.0 ​ (7) 100.0 ​

Company-Operated Restaurant Revenue

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 $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

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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. $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 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 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 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 $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. This increase is primarily due to the cost increases described above.

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Franchise Expenses

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

On July 30, 2014, we entered into the income tax receivable agreement (the “TRA”). 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. 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. and FS Affiliates V, L.P. (together, the “Sellers”) thereunder in exchange for a payment to the Sellers of $0.4 million. 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.

Fiscal Year 2024 Compared to Fiscal Year 2023

Year-to-year comparisons of fiscal 2024 and fiscal 2023 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual Report on Form 10-K for the year ended December 25, 2024, which was filed with the SEC on March 7, 2025.

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Key Performance Indicators

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-

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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. In fiscal 2025, for company-operated restaurants, our annual AUV was $2.3 million, restaurant contribution margin was 17.8%, and Adjusted EBITDA was $66.7 million.

Company-Operated Restaurant Revenue

Company-operated restaurant revenue consists of sales of food and beverages in company-operated restaurants net of promotional allowances, employee meals, and other discounts. Company-operated restaurant revenue in any period is directly influenced by the number of operating weeks in such period, the number of open restaurants, and comparable restaurant sales.

Seasonal factors and the timing of holidays cause our revenue to fluctuate from period to period. Our revenue per restaurant is typically lower in the first and fourth quarters due to reduced January and December transactions and higher in the second and third quarters. As a result of seasonality, our quarterly and annual results of operations and key performance indicators such as company-operated restaurant revenue and comparable restaurant sales, may fluctuate.

System-Wide Sales

System-wide sales are neither required by, nor presented in accordance with, accounting principles generally accepted in the United States of America (“GAAP”). System-wide sales are the sum of company-operated restaurant revenue and sales from franchised restaurants. Our total revenue in our consolidated statements of income is limited to company-operated restaurant revenue and franchise revenue from our franchisees. Accordingly, system-wide sales should not be considered in isolation or as a substitute for our results as reported under GAAP. Management believes that system-wide sales is an important figure for investors, because it is widely used in the restaurant industry, including by our management, to evaluate brand scale and market penetration.

System-wide sales does not include the 8 licensed stores in the Philippines.

The following table reconciles system-wide sales to company-operated restaurant revenue and total revenue (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Fiscal Year

​ ​ (53-Weeks) ​ (52-Weeks) ​ (52-Weeks) ​

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Comparable Restaurant Sales

Comparable restaurant sales reflect year-over-year sales changes for comparable company-operated, franchised, and system-wide restaurants. A restaurant enters our comparable restaurant base the first full week after it has operated for fifteen months. Comparable restaurant sales exclude restaurants closed during the applicable period. At December 31, 2025, December 25, 2024 and December 27, 2023, there were 482, 479 and 470 comparable restaurants, 170, 168 and 178 company-operated and 312, 311 and 292 franchised, respectively. 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

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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. Management believes that comparable restaurant sales is a valuable metric for investors to evaluate the performance of our store base, excluding the impact of new stores and closed stores.

Company-Operated Average Unit Volumes

We measure company-operated AUVs on both a weekly and an annual basis. Weekly AUVs consist of comparable restaurant sales over a seven-day period from Thursday to Wednesday. 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 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. This measurement allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base.

Restaurant Contribution and Restaurant Contribution Margin

Restaurant contribution and restaurant contribution margin are neither required by, nor presented in accordance with, GAAP. 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, 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. Restaurant contribution margin is defined as restaurant contribution as a percentage of net company-operated restaurant revenue.

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. 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. Management believes that restaurant contribution and restaurant contribution margin are important tools for investors, because they are widely-used metrics within the restaurant industry to evaluate restaurant-level productivity, efficiency, and performance. Management further believes restaurant level operating margin is useful to investors to highlight trends in our core business that may not otherwise be apparent to investors when relying solely on GAAP financial measures.

A reconciliation of restaurant contribution and restaurant contribution margin to company-operated restaurant revenue is provided below:

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Fiscal Year

Restaurant contribution: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Add (less): ​ ​ ​ ​ ​ ​ ​

Loss on disposal of assets ​ 277 ​ 221 ​ 192 ​

Impairment and closed-store reserves ​ 11 ​ 175 ​ 1,732 ​

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Loss (gain) on disposition of restaurants ​ — ​ 7 ​ (5,034) ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Company-operated restaurant revenue: ​ ​ ​ ​ ​ ​ ​

Less: ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Restaurant contribution margin (%) ​ 17.8 % 17.4 % 15.5 %

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New Restaurant Openings

The number of restaurant openings reflects the number of new restaurants opened by us and our franchisees during a particular reporting period. Before a new restaurant opens, we and our franchisees incur pre-opening costs, as described below. New restaurants often open with an initial start-up period of higher than normal sales volumes, which subsequently decrease to stabilized levels. New restaurants typically experience normal inefficiencies in the form of higher food and paper, labor, and other direct operating expenses and, as a result, restaurant contribution margins are generally lower during the start-up period of operation. The average start-up period after which our new restaurants’ revenue and expenses normalize is approximately fourteen weeks. When we enter new markets, we may be exposed to start-up times and restaurant contribution margins that are longer and lower than reflected in our average historical experience.

EBITDA and Adjusted EBITDA

EBITDA represents net income (loss) before interest expense, provision (benefit) for income taxes, depreciation, and amortization. Adjusted EBITDA represents net income (loss) before interest expense, provision (benefit) for income taxes, depreciation, amortization, and other items that we do not consider representative of on-going operating performance, as identified in the reconciliation table below.

EBITDA and Adjusted EBITDA as presented in this Annual Report are supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP. EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, operating income, or any other performance measures derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity. In addition, in evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses or charges such as those added back to calculate EBITDA and Adjusted EBITDA. Our presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP. Some of these limitations are (i) they do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) they do not reflect changes in, or cash requirements for, our working capital needs, (iii) they do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements, (v) they do not adjust for all non-cash income or expense items that are reflected in our statements of cash flows, (vi) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our on-going operations, and (vii) other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from such non-GAAP financial measures. We further compensate for the limitations in our use of non-GAAP financial measures by presenting comparable GAAP measures more prominently.

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We believe that EBITDA and Adjusted EBITDA facilitate operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). We also present EBITDA and Adjusted EBITDA because (i) we believe that these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) management believes that investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally for a number of benchmarks, including to compare our performance to that of our competitors.

The following table sets forth reconciliations of our net income to EBITDA and Adjusted EBITDA:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Fiscal Year

Non-GAAP adjustments: ​ ​ ​ ​ ​ ​

Interest expense, net of interest income ​ 4,470 ​ 5,899 ​ 4,811

Loss on disposal of assets (b) ​ 277 ​ 221 ​ 192

Impairment and closed-store reserves (c) ​ 11 ​ 175 ​ 1,732

Loss (gain) on disposition of restaurants (d) ​ — ​ 7 ​ (5,034)

Legal settlements (e) ​ (882) ​ — ​ —

Income tax receivable agreement (income) expenses (f) ​ — ​ (20) ​ 103

Special legal and professional fees expense (g) ​ ​ 1,696 ​ ​ — ​ ​ —

Special other expenses (h) ​ ​ — ​ ​ — ​ ​ 266

Shareholder advisory fees (i) ​ ​ — ​ ​ — ​ ​ 293

Duplicate rent expense for corporate office relocation (j) ​ ​ 239 ​ ​ — ​ ​ —

ERP software implementation costs (k) ​ ​ 179 ​ ​ — ​ ​ —

Gain on recovery of insurance proceeds (l) ​ ​ — ​ ​ (41) ​ ​ (399)

Restructuring and executive transition costs (m) ​ ​ 1,660 ​ ​ 1,194 ​ ​ 1,673

(a) Includes non-cash stock-based compensation.

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 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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Liquidity and Capital Resources

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),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. Thus, we are able to sell many of our inventory items before we have to pay our suppliers. Our restaurants do not require significant inventories or receivables. We believe that these sources of liquidity and capital are sufficient to finance our continued operations, including planned capital expenditures, for at least the next 12 months and beyond from the issuance of the consolidated financial statements.

However, depending on macroeconomic conditions, our financial performance and liquidity could be further impacted and could impact our ability to meet certain financial covenants required in our 2022 Credit Agreement (as defined in Note 7 “Long-Term Debt”), specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.

Cash Flows

The following table presents summary cash flow information for the years indicated:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Fiscal Year

Net cash provided by (used in) ​ ​ ​ ​ ​ ​ ​ ​ ​

Net increase/(decrease) in cash ​ $ 3,744 ​ $ (4,804) ​ $ (13,205)

​

Operating Activities

In fiscal 2025, net cash provided by operating activities increased by $1.3 million compared to 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. This increase was due primarily to an increase in profitability and favorable working capital fluctuations during fiscal 2024.

Investing Activities

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 increase purchases of property and equipment.

In fiscal 2024, net cash used in investing activities increased by $5.5 million 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

In fiscal 2025, net cash used in financing activities decreased by $10.9 million compared to fiscal 2024. 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.

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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.

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Debt and Other Obligations

We, as a guarantor, are a party to a credit agreement (the “2022 Credit Agreement”) among our wholly-owned subsidiary, El Pollo Loco, Inc. (“EPL”), as borrower, and our direct subsidiary. EPL Intermediate, Inc. (“Intermediate”), as a guarantor, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provides for a $150.0 million five-year senior secured revolving credit facility (the “2022 Revolver”). The 2022 Revolver, which is available pursuant to the 2022 Credit Agreement, includes a sub limit of $15.0 million for letters of credit and a sub limit of $15.0 million for swingline loans. 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 of our company, EPL and Intermediate under the 2022 CreditAgreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.

Under the 2022 Revolver, we are restricted from making certain payments such as cash dividends or share repurchases, except that we may, inter alia, (i) pay up to $1.0 million per year to repurchase or redeem our qualified equity interests held by our past or present officers, directors, or employees (or their estates) upon death, disability, or termination of employment, (ii) pay under the TRA, and (iii) so long as no default or event of default has occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up to $0.5 million in any 12-month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans, employment agreements, or incentive plans, (d) make up to $5.0 million in other restricted payments per year, and (e) make other restricted payments, subject to our compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the financial covenants applicable to the 2022 Revolver.

​

Borrowings under the 2022 Credit Agreement (other than any swingline loans) bear interest, at the borrower’s option, at rates based upon either the secured overnight financing rate (“SOFR”) or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid. The base rate is calculated as the highest of (a) the federal funds rate plus 0.50%, (b) the published Bank of America prime rate, or (c) Term SOFR with a term of one-month SOFR plus 1.00%. For Term SOFR loans, the margin is in the range of 1.25% to 2.25%, and for base rate loans the margin is in a range of 0.25% to 1.25%. Borrowings under the 2022 Revolver may be repaid and reborrowed. For borrowings under the 2022 Revolver during fiscal 2025, the interest rate range was 5.3% to 7.75%. For borrowings under the 2022 Revolver during fiscal 2024, the interest rate range was 5.7% to 7.0%. The interest rate under the 2022 Revolver was 5.3% at December 31, 2025 and 5.7% under the 2022 Revolver at December 25, 2024.

​

The 2022 Credit Agreement contains certain financial covenants. We were in compliance with the financial covenants as of December 31, 2025.

​

At December 31, 2025, $10.3 million of letters of credit and $51.0 million of the revolving line of credit were outstanding. The amount available under the revolving line of credit was $88.7 million at December 31, 2025.

See Note 7, “Long-Term Debt” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report for additional information.

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Material Cash Requirements

Our total capital expenditures for 2025 were $26.9 million. 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 andhardware, 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 andhardware, 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.

The following table summarizes our other current and long-term material cash requirements as of December 31, 2025, which we expect to fund primarily with operating cash flows:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Payments Due by Period

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2027 - ​ ​ ​ 2029 - ​ ​ ​ 2031 and

(Amounts in thousands) ​ Total ​ 2026 ​ 2028 ​ 2030 ​ thereafter

Purchasing commitments—chicken(3) ​ 26,232 ​ 26,232 ​ — ​ — ​ —

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Share Repurchases

Share Repurchase Program

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

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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.

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

The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under current circumstances in making judgments about the carrying value of assets and liabilities that are not readily available from other sources. We evaluate our estimates on an on-going basis. Actual results may differ from these estimates under different assumptions or conditions.

Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when reviewing our reported results of operations and our financial position. Management believes that the critical accounting policies and estimates discussed below involve the most difficult management judgments, due to the sensitivity of the methods and assumptions used. Our significant accounting policies are described in Note 2 “Summary of Significant Accounting Policies” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report.

Revenue Recognition

We record revenue from company-operated restaurants as food and beverage products are delivered to customers and payment is tendered at the time of sale. We present sales net of sales-related taxes and promotional allowances. In the case of gift card sales, we record revenue when the gift card is redeemed by the customer. We record royalties from franchised restaurant sales based on a percentage of restaurant revenues in the period that the related franchised restaurants’ revenues are earned. The initial franchise services, or exclusivity of the development agreements, are not distinct from the continuing rights or services offered during the term of the franchise agreement and are, therefore, treated as a single performance obligation. 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. 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. 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

Intangible assets consist primarily of goodwill and trademarks.

We do not amortize our goodwill and indefinite-lived intangible assets. We perform an annual impairment test for goodwill during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise.

We perform an annual impairment test for indefinite-lived intangible assets during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise. An impairment test consists of either a qualitative assessment or a comparison of the fair value of an intangible asset with its carrying amount. The excess of the carrying amount of an intangible asset over its fair value is its impairment loss.

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These assumptions used in our estimates of fair value are generally consistent with past performance and are also consistent with the projections and assumptions that we use in our forward-looking operating plans. These assumptions are subject to change as a result of changing economic and competitive conditions. Changes in these estimates and assumptions could materially affect our determinations of fair value and impairment.

Upon the sale or refranchising of a restaurant, we evaluate whether there is a decrement of goodwill. 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 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 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.

Property and Equipment and ROU Assets

We state the value of our property and equipment, including primarily leasehold improvements and restaurant equipment, furniture, and fixtures, at cost, minus accumulated depreciation and amortization.

We review our property and equipment and ROU assets for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances indicate that the carrying value of certain assets may not be recoverable. We consider a triggering event to have occurred related to a specific restaurant if the restaurant’s AUV for the last twelve months are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. If we conclude that the carrying value of certain assets will not be recovered based on expected undiscounted future cash flows, an impairment write-down is recorded to reduce the assets to their estimated fair value. The fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs. There is uncertainty in the projected undiscounted future cash flows used in our impairment review analysis. Further, the projected undiscounted future cash flows require management to develop estimates and assumptions about future revenue transaction growth rates, menu pricing changes, and restaurant operating margins, which are made more uncertain by the impact of the current inflationary pressures on our business. If actual performance does not achieve the projections, we may recognize impairment charges in future periods, and such charges could be material.

Insurance Reserves

We are responsible for workers’ compensation, general, and health insurance claims up to a specified amount. We maintain a reserve for estimated claims both reported and incurred but not reported, based on historical claims experience and other assumptions. 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. Should claims occur or medical costs increase in greater amounts than we have expected, accruals may not be sufficient, and we may record additional expenses.

Accounting for Lease Obligations

We lease a substantial number of our restaurant properties. At the inception of each lease, we evaluate the property and the lease to determine whether the lease is an operating lease or a finance lease. 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

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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.

We make significant assumptions and judgments related to determination of whether a contract contains a lease and the discount rate used for the lease. In determining if any of our contracts contain a lease, we make assumptions and judgments related to our ability to direct the use of any assets stated in the contract and the likelihood of renewing any short-term contracts for a period extending past twelve months. 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. We utilize a third-party valuation firm to assist in determining the discount rate, based on the above assumptions. For all other leases, we use the discount rate implicit in the lease, or the Company’s incremental borrowing rate.

Income Taxes

We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on temporary differences between the financial carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. As of December 31, 2025, we had no federal and less than $0.1 million state net operating loss (“NOL”) carryforwards. These State NOLs expire beginning 2029.

​

A valuation allowance is required when there is significant uncertainty as to whether certain deferred tax assets can be realized. The ability to realize deferred tax assets is dependent upon our ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for each tax jurisdiction. We have considered the following possible sources of taxable income when assessing the realization of our deferred tax assets:

● future reversals of existing taxable temporary differences;

● tax-planning strategies; and

● taxable income in prior carryback years.

We will continue to reevaluate the continued need for a valuation allowance. Relevant factors include:

● current financial performance;

● the overall market environment; and

● the volatility and trends in the industry in which we operate.

All of the factors that we consider in evaluating treatment of a deferred tax asset valuation allowance involve significant judgment. For example, there are many different interpretations of “cumulative losses in recent years” that can be used. Also, significant judgment is involved in making projections of future financial and taxable income, especially because our financial results are significantly dependent upon industry trends. Any change in our valuation allowance will significantly impact our financial results in the period of that change.

When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position we take has to have at least a “more likely than not” chance of being sustained (based on the position’s technical merits) upon challenge by the responsible authorities. The term “more likely than not” means a likelihood of more than 50%. Otherwise, we may not recognize any of the potential tax benefits associated with that position. We recognize a benefit for a tax position that meets the “more likely than not” criterion as the largest amount of tax benefit that is greater than 50% likely to be realized upon its effective resolution. Unrecognized tax benefits involve our judgment regarding the likelihood of a benefit being sustained. The final resolutions of uncertain tax positions could result in adjustments to recorded amounts and affect our results of operations, financial position, and cash flows. However, we anticipate that any such adjustments would not materially impact our financial statements.

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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

On July 27, 2022, we refinanced and entered into the 2022 Credit Agreement, which provides for a $150 million five-year senior secured revolving facility. We are exposed to market risk from changes in interest rates on our debt, which bears interest at SOFR plus a margin between 1.25% and 2.25%. As of December 31, 2025, we had outstanding borrowings of $51.0 million under our 2022 Revolver, $10.3 million of letters of credit in support of our insurance programs, and the applicable margin on outstanding borrowings under 2022 Revolver was 1.5%. A 1.0% increase in the effective interest rate applied to our 2022 Revolver borrowings would result in a pre-tax interest expense increase of $0.5 million on an annualized basis.

During the year ended December 31, 2025, we borrowed $9.0 million and paid down $29.0 million on our 2022 Revolver and the outstanding balance as of December 31, 2025 was $51.0 million. Borrowings under the 2022 Credit Agreement (other than any swingline loans) bear interest, at the borrowers’ option, at rates based upon either SOFR or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid. If future rates based upon SOFR are higher than SOFR rates as currently determined, we may experience potential increases in interest rates on our variable rate debt, which could adversely impact our interest expense, results of operations and cash flows.

Inflation

Inflation has an impact on food, paper, construction, utility, labor and benefits and general and administrative costs, as well as other costs, all of which can materially impact our operations. In general, we have been able to substantially offset cost increases thus far resulting from inflation by increasing menu prices, managing menu mix, improving productivity, or making other adjustments. We may not be able to offset cost increases in the future. In addition, we have a substantial number of hourly employees who are paid wage rates at or based on the applicable federal, state, or local minimum wage, and increases in the minimum wage will increase our labor costs.

Commodity Price Risk

We are exposed to market price fluctuation in food product prices. Given the historical volatility of certain of our food product prices, including chicken, other proteins, grains, produce, dairy products, and cooking oil, these fluctuations can materially impact our food and beverage costs. While our purchasing commitments partially mitigate the risk of such fluctuations, there is no assurance that supply and demand factors such as diseases or inclement weather will not cause the prices of the commodities used in our restaurant operations to fluctuate. In periods when the prices of commodities drop, we may pay higher prices under our purchasing commitments. In rapidly fluctuating commodities markets, it may prove difficult for us to adjust our menu prices in accordance with input price fluctuations due to trade tariffs, natural disasters and other world events. Therefore, to the extent that we do not pass along cost increases to our customers, our results of operations may be adversely affected. At this time, we do not use financial instruments to hedge our commodity risk.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

EL POLLO LOCO HOLDINGS, INC. AND SUBSIDIARIES

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

​

Audited Consolidated Financial Statements ​

Consolidated Balance Sheets – December 31, 2025 and December 25, 2024 59

Notes to Consolidated Financial Statements 64

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Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

El Pollo Loco Holdings, Inc.

Costa Mesa, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of El Pollo Loco Holdings, Inc. (the “Company”) as of December 31, 2025 and December 25, 2024, the related consolidatedstatements of income,comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and December 25, 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 13, 2026 expressed an unqualified opinion thereon.

Basis for Opinion

These consolidatedfinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

​

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Estimation of workers’ compensation liabilities

As discussed in Note 2 to the consolidated financial statements, the Company accrued $10.3 million of workers’ compensation reserves in accrued insurance as of December 31, 2025. The Company maintains a reserve for estimated claims both reported and incurred but not reported. Significant assumptions in the estimate included loss development factors, expected loss rates, and weighting of methods.

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We identified the evaluation of certain methods and assumptions used in the estimation of the underlying workers’ compensation reserves as a critical audit matter. Specifically, the estimation was subject to inherent uncertainty and required especially subjective auditor judgment, including the involvement of actuarial professionals with specialized skills and knowledge to evaluate certain methods and assumptions including loss development factors, and expected loss rates.

The primary procedures we performed to address this critical audit matter included:

​

/s/ BDO USA, P.C.

​

We have served as the Company’s auditor since 2011.

​

Costa Mesa, California

March 13, 2026

​

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​

CONSOLIDATED BALANCE SHEETS

​

(Amounts in thousands, except share data)

​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ December 31, ​ ​ ​ December 25,

Assets ​ ​ ​ ​ ​ ​

Current assets: ​ ​ ​ ​ ​ ​

Cash and cash equivalents ​ $ 6,228 ​ $ 2,484

Accounts and other receivables, net ​ 11,210 ​ 9,471

Prepaid expenses and other current assets ​ 6,369 ​ 5,509

Income tax receivable ​ — ​ 493

Property and equipment held under finance lease, net ​ 1,303 ​ 1,499

Deferred tax assets ​ 187 ​ 336

Liabilities and Stockholders’ Equity ​ ​ ​ ​

Current liabilities: ​ ​ ​ ​

Current portion of obligations under finance leases ​ $ 142 ​ $ 170

Current portion of obligations under operating leases ​ 17,616 ​ 19,738

Accrued income taxes payable ​ 1,567 ​ 2,105

Accrued interest ​ 44 ​ 319

Other accrued expenses and current liabilities ​ 20,985 ​ 15,896

Obligations under finance leases, net of current portion ​ 1,436 ​ 1,583

Obligations under operating leases, net of current portion ​ 170,812 ​ 170,529

Deferred tax liabilities, net ​ 7,611 ​ 6,357

Other noncurrent liabilities ​ 5,633 ​ 6,218

Commitments and contingencies (Note 14) ​ ​ ​ ​

Stockholders’ equity ​ ​ ​ ​

Total liabilities and stockholders’ equity ​ $ 606,648 ​ $ 592,014

See notes to consolidated financial statements.

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​

CONSOLIDATED STATEMENTS OF INCOME

​

(Amounts in thousands, except share data)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Fiscal Years Ended

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Revenue ​ ​ ​ ​ ​ ​

Cost of operations ​ ​ ​ ​ ​ ​

Gain on recovery of insurance proceeds, lost profits, net ​ ​ — ​ ​ — ​ ​ (327)

Loss (gain) on disposition of restaurants ​ ​ — ​ ​ 7 ​ ​ (5,034)

Impairment and closed-store reserves ​ 11 ​ 175 ​ 1,732

Income tax receivable agreement (income) expense ​ — ​ (20) ​ 103

Net income per share ​ ​ ​ ​ ​ ​

Weighted-average shares used in computing net income per share ​ ​ ​ ​ ​ ​

​

See notes to consolidated financial statements.

​

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​

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

​

(Amounts in thousands)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ For the Fiscal Years Ended ​

​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ ​ December 25, ​ ​ ​ December 27,

Other comprehensive (loss) income ​ ​ ​ ​ ​ ​ ​ ​

Changes in derivative instruments ​ ​ ​ ​ ​ ​ ​ ​

Reclassifications of loss into net income ​ ​ — ​ — ​ (170) ​

Income tax benefit ​ ​ — ​ — ​ 44 ​

Other comprehensive (loss), net of taxes ​ ​ — ​ — ​ (126) ​

​

See notes to consolidated financial statements.

​

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

​

(Amounts in thousands, except share data)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Accumulated ​ ​ ​ Accumulated ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ Deficit) ​ ​ ​ Other ​ ​ ​ Total

​ ​ Common Stock ​ Paid-in ​ Retained ​ Comprehensive ​ Stockholders’

Stock-based compensation ​ — ​ — ​ 2,964 ​ — ​ — ​ 2,964

Stock-based compensation ​ — ​ — ​ 3,931 ​ — ​ — ​ 3,931

Other comprehensive income, net of income tax ​ — ​ — ​ — ​ — ​ — ​ —

Stock-based compensation ​ — ​ — ​ 5,396 ​ — ​ — ​ 5,396

​

See notes to consolidated financial statements.

​

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​

CONSOLIDATED STATEMENTS OF CASH FLOWS

​

(Amounts in thousands)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Fiscal Years Ended

​ ​ ​ ​ December 31, ​ ​ ​ December 25, ​ ​ ​ December 27,

Cash flows from operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​

Income tax receivable agreement (income) expense ​ — ​ (20) ​ 103

Fire insurance proceeds for expenses paid and lost profit ​ ​ — ​ ​ — ​ ​ 327

Loss (gain) on disposition of restaurants ​ ​ — ​ ​ 7 ​ ​ (5,034)

Impairment of property and equipment and ROU assets ​ — ​ 123 ​ 1,536

Amortization of deferred financing costs ​ 195 ​ 197 ​ 201

Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​

Accounts and other receivables ​ (1,739) ​ 677 ​ (216)

Prepaid expenses and other current assets ​ (860) ​ 125 ​ (1,972)

Income taxes receivable (payable) ​ (45) ​ 1,695 ​ 838

Payment related to tax receivable agreement ​ — ​ (399) ​ (350)

Other accrued expenses and liabilities ​ (1,274) ​ (1,684) ​ 3,304

Cash flows from investing activities: ​ ​ ​ ​ ​ ​

Proceeds from disposition of restaurants ​ — ​ 100 ​ 7,722

Proceeds from fire insurance for property and equipment ​ ​ — ​ ​ 41 ​ ​ 163

Net cash flows used in investing activities ​ (22,635) ​ (18,940) ​ (13,447)

Cash flows from financing activities: ​ ​ ​ ​ ​ ​

Payments on revolver and swingline loan ​ ​ (29,000) ​ ​ (27,000) ​ ​ (21,000)

Payment of obligations under finance leases ​ (223) ​ (207) ​ (158)

Net cash flows used in financing activities ​ (21,697) ​ (32,645) ​ (40,446)

Increase/(Decrease) in cash and cash equivalents ​ 3,744 ​ (4,804) ​ (13,205)

Cash and cash equivalents, beginning of period ​ 2,484 ​ 7,288 ​ 20,493

Cash and cash equivalents, end of period ​ $ 6,228 ​ $ 2,484 ​ $ 7,288

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ For the Fiscal Years Ended

​ ​ ​ ​ December 31, ​ ​ ​ December 25, ​ ​ ​ December 27,

Supplemental cash flow information ​ ​ ​ ​ ​ ​

Cash paid during the period for interest ​ $ 4,381 ​ $ 5,890 ​ $ 4,819

Cash paid during the period for income taxes, net ​ $ 9,730 ​ $ 10,351 ​ $ 7,721

Unpaid purchases of property and equipment ​ $ 8,384 ​ $ 3,969 ​ $ 5,098

Unpaid repurchases of common stock and excise tax ​ $ - ​ $ 204 ​ $ —

​

​

See notes to consolidated financial statements.

​

​

​

​

​

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​

1. DESCRIPTION OF BUSINESS

El Pollo Loco Holdings, Inc. (“Holdings”) is a Delaware corporation headquartered in Costa Mesa, California. Holdings and its direct and indirect subsidiaries are collectively referred to herein as the “Company.” The Company’s activities are conducted principally through its indirect wholly-owned subsidiary, El Pollo Loco, Inc. (“EPL”), which develops, franchises, licenses and operates quick-service restaurants under the name El Pollo Loco ®. The restaurants, which are located principally in California but also in Arizona, Nevada, Texas, Colorado, Utah Louisiana, New Mexico and Washington, specialize in fire-grilling citrus-marinated chicken in a wide variety of contemporary Mexican and LA-inspired entrees, including specialty chicken burritos, chicken quesadillas, chicken tostada salads, chicken tortilla soup, variations on the Company’s Pollo Bowl®, Pollo Salads and Pollo Fit entrees. At December 31, 2025, the Company-operated 175 (132 in the greater Los Angeles area) and franchised 328 (148 in the greater Los Angeles area) El Pollo Loco restaurants. In addition, as of December 31, 2025, the Company licensed 8 restaurants in the Philippines.

Holdings has no material assets or operations. Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc. (“Intermediate”), guarantee EPL’s 2022 Revolver (see Note 7 “Long-Term Debt”) on a full and unconditional basis and Intermediate has no subsidiaries other than EPL. EPL is a separate and distinct legal entity, and has no obligation to make funds available to Intermediate. EPL and Intermediate may pay dividends to Intermediate and to Holdings, respectively.

The Company operates in one operating segment. All significant revenues relate to retail sales of food and beverages through either company-operated or franchised-operated restaurants.

​

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Liquidity

The Company’s principal liquidity and capital requirements are new restaurants, existing restaurant capital investments (remodels and maintenance), interest payments on its debt, lease obligations and working capital and general corporate needs. At December 31, 2025, the Company’s total debt was $51.0 million. The Company’s ability to make payments on its indebtedness and to fund planned capital expenditures depends on available cash and its ability to generate adequate cash flows in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond the Company’s control. Based on current operations, the Company believes that its cash flow from operations, available cash of $6.2 million at December 31, 2025, and the outstanding borrowing availability under the 2022 Revolver (as defined in Note 7 “Long-Term Debt”) will be adequate to meet the Company’s liquidity needs for the next twelve months from the issuance of the consolidated financial statements.

Basis of Presentation

The Company uses a 52- or 53-week fiscal year ending on the last Wednesday of each calendar year. Fiscal 2025, 2024, and 2023 ended on December 31, 2025, December 25, 2024 and December 27, 2023, respectively. In a 52-week fiscal year, each quarter includes 13 weeks of operations. 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 five or six years a 53-week fiscal year occurs. Fiscal 2025 was a 53-week year. 53-week years may cause revenues, expenses, and other results of operations to be higher due to the additional week of operations.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Holdings and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

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Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and revenue and expenses during the periods reported. Actual results could materially differ from those estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, insurance reserves, lease accounting matters, contingent liabilities and income tax valuation allowances.

Cash and Cash Equivalents

The Company considers all liquid instruments with an original maturity of three months or less at the date of purchase to be cash equivalents.

Concentration of Risk

Cash and cash equivalents are maintained at financial institutions and, at times, these balances may exceed federally-insured limits. The Company has never experienced any losses related to these balances.

The Company had one supplier for which amounts due at December 31, 2025 totaled 10.9% of the Company’s accounts payable. As of December 25, 2024, the Company had one supplier for which the amount due totaled 19.7% of the Company’s accounts payable. Purchases from the Company’s largest supplier totaled 21.1% of the Company’s purchases for fiscal 2025, 24.1% for fiscal 2024 and 26.6% for fiscal 2023 with no amounts payable at December 31, 2025 or December 25, 2024.

In fiscal 2025, 2024 and 2023, Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 71.9%, 72.0%, and 71.3%, respectively, of total revenue. One franchisee accounted for 28.1% of total accounts receivable as of December 31, 2025, and one franchisee accounted for 28.4% of total accounts receivable as of December 25, 2024.

Management believes the loss of the significant supplier or franchisee could have a material adverse effect on the Company’s consolidated results of operations and financial condition.

Accounts and Other Receivables, Net

Accounts and other receivables consist primarily of royalties, advertising and sublease rent and related amounts receivable from franchisees. Such receivables are due on a monthly basis, which may differ from the Company’s fiscal month-end dates. Accounts and other receivables also include credit/debit card receivables. The need for an allowance for credit losses is reviewed on a specific identification basis and takes into consideration past due balances and the financial strength of the obligor.

Inventories

Inventories consist principally of food, beverages, packaging and supplies and are valued at the lower of average cost or net realizable value.

Property and Equipment, Net

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets. Expenditures for reimbursements and improvements that significantly add to the productivity capacity or extend the useful life are capitalized, while expenditures for maintenance and repairs are expensed as incurred. Leasehold improvements and property held under finance leases are amortized over the shorter of their estimated useful lives or the remaining lease terms. For leases with renewal periods at the Company’s option, the Company generally

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

uses the original lease term, excluding the option periods, to determine estimated useful lives; if failure to exercise a renewal option imposes an economic penalty on the Company, such that management determines at the inception of the lease that renewal is reasonably assured, the Company may include the renewal option period in the determination of appropriate estimated useful lives.

The estimated useful service lives are as follows:

​

​ ​ ​

Buildings ​ ​ ​ 20 years

Land improvements 3—30 years

Building improvements 3—10 years

Restaurant equipment 3—10 years

Other equipment 2—10 years

Leasehold improvements Shorter of useful life or lease term

​

The Company capitalizes certain directly attributable internal costs in conjunction with the acquisition, development and construction of future restaurants. The Company also capitalizes certain directly attributable costs, including interest, in conjunction with constructing new restaurants. These costs are included in property and amortized over the shorter of the life of the related buildings and leasehold improvements or the lease term. Costs related to abandoned sites and other site selection costs that cannot be identified with specific restaurants are charged to general and administrative expenses in the accompanying consolidated statements of income, and there was $0.1 million for the year ended December 31, 2025, none for the year ended December 25, 2024, and $0.2 million for the year ended December 27, 2023. The Company capitalized internal costs related to site selection and construction activities of $0.6 million, $0.6 million and $1.8 million for the years ended December 31, 2025, December 25, 2024 and December 27, 2023, respectively.

Impairment of Property and Equipment and ROU Assets

The Company reviews its property and equipment and right-of-use assets (“ROU assets”) for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances indicate that the carrying value of certain property and equipment and ROU assets may not be recoverable. The Company considers a triggering event, related to property and equipment assets or ROU assets in a net asset position, to have occurred related to a specific restaurant if the restaurant’s Average Unit Volume (“AUV”) for the last twelve months are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. Additionally, the Company considers a triggering event, related to ROU assets, to have occurred related to a specific lease if the location has been closed or subleased and future estimated sublease income is less than current lease payments. As of December 31, 2025 and December 25, 2024, ROU assets related to closed or subleased restaurant locations totaled $28.9 million and $39.1 million, respectively. If the Company concludes that the carrying value of certain property and equipment and ROU assets will not be recovered based on expected undiscounted future cash flows, an impairment loss is recorded to reduce the property and equipment or ROU assets to their estimated fair value. The fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs. There is uncertainty in the projected undiscounted future cash flows used in the Company’s impairment review analysis, which requires the use of estimates and assumptions. If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize impairment charges in future periods, and such charges could be material. The Company determined that triggering events occurred for certain stores during the year ended December 31, 2025 that required an impairment review of the Company’s property and equipment and ROU assets. Based on the results of this analysis, the Company did not record impairment charges for the year ended December 31, 2025.

​

In fiscal 2024, the Company recorded non-cash impairment charges of $0.1 million primarily related to the property and equipment assets of two restaurants in Nevada. In fiscal 2023, the Company recorded a non-cash impairment charge of $1.5 million primarily related to the carrying value of the ROU assets of one restaurant in California and the property and equipment assets of one restaurant in Nevada. Given the inherent uncertainty in projecting results for newer restaurants in newer markets, the Company is monitoring the recoverability of the carrying value of the assets of several

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

restaurants on an ongoing basis. For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.

Closed-Store Reserves

When a restaurant is closed, the Company will evaluate the ROU asset for impairment, based on anticipated sublease recoveries. The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserves expense. Additionally, any property tax and common area maintenance (“CAM”) payments relating to closed restaurants are also included within closed-store reserves expense.

During fiscal 2025, 2024 and 2023, the Company recognized less than $0.1 million, $0.1 million and $0.2 million, respectively, of closed-store reserves expense related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

Goodwill and Indefinite-Lived Intangible Assets

The Company’s indefinite-lived intangible assets consist of trademarks. Goodwill represents the excess of cost over fair value of net identified assets acquired in business combinations accounted for under the purchase method. The Company does not amortize its goodwill and indefinite-lived intangible assets. Goodwill resulted from the acquisition of certain franchise locations.

Upon the sale or refranchising of a restaurant, the Company evaluates whether there is a decrement of goodwill. 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 Company reports as one reporting unit. 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 the Company 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. The Company did not record any decrement to goodwill related to the disposition of restaurants in fiscal 2025, 2024 or 2023.

The Company performs an annual impairment test for goodwill during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise.

The Company reviews goodwill for impairment utilizing either a qualitative assessment or a fair value test by comparing the fair value of a reporting unit with its carrying amount. If the Company decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. If the Company performs the fair value test, the Company will compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the Company will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.

The Company performs an annual impairment test for indefinite-lived intangible assets during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise. An impairment test consists of either a qualitative assessment or a comparison of the fair value of an intangible asset with its carrying amount. The excess of the carrying amount of an intangible asset over its fair value is recognized as an impairment loss.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS