Portillo's Inc. Q3 FY2024 earnings call

• Top line grew 7% with expansion in Texas and Sun Belt, but same-restaurant sales were challenged by discounting. - Sustained margins with 23.5% restaurant level margins. - Kiosk rollout was a success with minimal upfront costs and positive impact on attach rates. - Opened first Houston area restaurant in Richmond, Texas, and on track to open 10 restaurants in 2024, with plans to open 12-15 next year. - Refining development model by reducing restaurant size, with first two 'restaurant of the future' builds opening later in the quarter. - Focus on long-term strategic pillars: innovation via technology, building restaurants with industry-leading returns, and running world-class restaurants with great people.

In Q3, revenue was $178.3 million, reflecting a 6.9% increase from the prior year. This was driven by new restaurant openings, but same-restaurant sales decreased 0.9% due to a 3.5% drop in transactions, partially offset by a 2.6% increase in average check. Kiosks had a positive impact on attach rates, especially for add-ons. Restaurants not in the comparable base contributed $13.6 million to the year-over-year revenue increase. Comp on a two-year stack basis was 2.9%.

• Full year comp sales expected to be approximately negative 1%. - Restaurant level adjusted EBITDA margins estimated to be in the range of 23% to 24% in 2024. - G&A expenses estimated to be between $78 million to $80 million in 2024. - Expect to quantify kiosk impact early next year and will pulse advertising in Dallas Fort Worth next year.

• Macro economic headwinds and price wars in the restaurant industry. - Election season and discounting noise reducing the impact of advertising campaigns. - Inflationary pressures on food and labor costs, with food, beverage, and packaging costs up to 33.7% of revenues and labor costs up to 25.8% of revenues. - Uncertainty around consumer behavior and market conditions affecting sales and margins.

Q: Update on loyalty program and drive-thru speed of service.

A: On loyalty, progress is being made behind the scenes with an announcement expected early next year. On drive-thru, there's pressure to improve as it's where competition is keen, and work is ongoing to address this.

Q: Reconcile fourth quarter outlook with kiosk rollout.

A: Kiosks have positive mix impact, but macro and discounting still affect traffic, leading to cautious outlook for fourth quarter with no significant improvement expected.

Q: Advertising in Dallas and brand building.

A: Characterized as opportunistic brand building, with 8 restaurants in Dallas and ability to generate trial and awareness with marketing.

Q: Restaurant size changes and impact on sales.

A: Reduced square footage is part of refining the development model, with mock-ups and operator input ensuring capacity to meet sales volumes, and focus on shared financing with landlords.

Q: Cost inflation and margins next year.

A: Food costs may still have pressures, especially on beef, but labor inflation expected to be moderate, with more color in January.

Q: Levers to drive transaction performance.

A: Focus on drive-thru and in-store efficiency, kiosks, loyalty program, and prudent marketing.

Q: Confidence in new unit changes not lowering sales.

A: Extensive testing and operator input ensure new restaurant models can achieve required sales volumes, with confidence in their performance.

Q: Houston opening and learnings.

A: First Houston restaurant performing well, with plans to spread out openings to mitigate spikes, and testing a rationalized menu.

Q: Unit growth and curves.

A: Confident in accelerating unit growth with good locations, people, and box economics, aiming to mitigate curve volatility.

Q: Future of restaurant size and G&A guidance.

A: Focus on cash-on-cash returns for investors, G&A driven by variable and equity-based comp, with discipline in strategic investments.