El Pollo Loco 2016 Annual Report Download - page 15

ITEM 1A. RI SK FACTORS
You should carefully consider the following risk factors, as well as other information contained in this report, including our financial statements and the notes
related to those statements. The occurrence of any of the following risks could materially and adversely affect our business, prospects, financial condition, results
of operations, and cash flow.
Risks Related to Our Business and Industry
A prolonged economic downturn could materially affect us in the future.
Therestaurantindustryisdependentuponconsumerdiscretionaryspending.Aprolongedeconomicdownturnoraneconomicrecessioncouldimpactthepublic’s
abilityanddesiretospenddiscretionarydollarsasaresultofjoblosses,homeforeclosures,significantly-reducedhomevalues,investmentlosses,bankruptcies,and
reducedaccesstocredit,whichcouldresultinlowerlevelsofcustomertrafficandloweraveragechecksizesinourrestaurants.Iftheeconomyexperiencesanother
significantdecline,ourbusiness,resultsofoperations,andabilitytocomplywiththetermsofoursecuredrevolvingcreditfacilitycouldbemateriallyand
adverselyaffected,andweandourfranchiseesmightdeceleratethenumberandtimingofnewrestaurantopenings.Deteriorationincustomertrafficorareduction
inaveragechecksizewouldnegativelyimpactourrevenuesandourprofitabilityandcouldresultinfurtherreductionsinstafflevels,additionalimpairment
charges,andpotentialrestaurantclosures.
We are vulnerable to changes in consumer preferences and economic conditions that could harm our business, financial condition, results of operations, and
cash flow.
Foodservicebusinessesdependonconsumerdiscretionaryspendingandareoftenaffectedbychangesinconsumertastes,national,regional,andlocaleconomic
conditions,anddemographictrends.Factorssuchastrafficpatterns,weather,fuelprices,localdemographics,andthetype,number,andlocationsofcompeting
restaurantsmayadverselyaffecttheperformancesofindividuallocations.Inaddition,economicdownturns,inflation,orincreasedfoodorenergycostscouldharm
therestaurantindustryingeneralandourlocationsinparticular.Adversechangesinanyofthesefactorscouldreduceconsumertrafficorimposepracticallimits
onpricingthatcouldharmourbusiness,financialcondition,resultsofoperations,andcashflow.Therecanbenoassurancethatconsumerswillcontinuetoregard
chicken-basedorMexican-inspiredfoodfavorablyorthatwewillbeabletodevelopnewproductsthatappealtoconsumerpreferences.Ourbusiness,financial
condition,andresultsofoperationsdependinpartonourabilitytoanticipate,identify,andrespondtochangingconsumerpreferencesandeconomicconditions.
Our business is geographically concentrated in the greater Los Angeles area, and we could be negatively affected by conditions specific to that region.
Ourcompany-operatedandfranchisedrestaurantsinthegreaterLosAngelesareagenerated,intheaggregate,approximately79%ofourrevenueinfiscal2015and
approximately80%infiscal2014.Adversechangesindemographic,unemployment,economic,orregulatoryconditionsinthegreaterLosAngelesareaorinthe
StateofCalifornia,including,butnotlimitedto,enforcementpoliciesforandchangesinimmigrationlaw,havehadandmaycontinuetohavematerialadverse
effectsonourbusiness.Webelievethatanincreaseinunemploymentwouldhaveanegativeimpactontrafficinourrestaurants.Asaresultofourconcentrationin
thegreaterLosAngelesarea,wehavebeendisproportionatelyaffectedbytheaboveadverseeconomicconditionsascomparedtoothernationalchainrestaurants.
Furthermore,prolongedorsevereinclementweathercouldaffectoursalesatrestaurantsinlocationsthatexperiencesuchconditions,whichcouldmateriallyand
adverselyaffectourbusiness,financialcondition,andresultsofoperations.Weatherconditionscouldimpactourbusinessmorethanotherbusinessesinour
industrybecauseofoursignificantconcentrationofrestaurantsinthegreaterLosAngelesarea.Wemayalsosufferunexpectedlossesresultingfromnatural
disastersorothercatastrophiceventsaffectingourareasofoperation,suchasearthquakes,fires,droughts,localstrikes,terroristattacks,increasesinenergyprices,
explosions,orothernaturalorman-madedisasters.Theincidenceandseverityofcatastrophesareinherentlyunpredictable,andourlossesfromcatastrophescould
besubstantial.
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