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01/10 21:35
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A reveal a mixed sentiment. While there are positive aspects such as the loyalty program, successful advertising campaigns, and operational improvements, challenges like weak Texas performance, inflation pressures, and a reduction in revenue guidance temper the outlook. The management's optimistic guidance and strategic plans, along with strong internal value scores, provide some positive momentum, but overall, the sentiment remains balanced due to existing challenges and uncertainties.
Revenue $188.5 million, reflecting an increase of $6.6 million or 3.6% compared to last year. The growth was driven by noncomp restaurants contributing $6.1 million and same-restaurant sales increasing by 0.7%, which added approximately $1.1 million. The increase in same-restaurant sales was due to a 2.1% rise in average check, partially offset by a 1.4% decrease in transactions.
Restaurant-level adjusted EBITDA $44.5 million with a margin of 23.6%. This represents a decrease of 90 basis points compared to 24.5% in the prior year. The decline was attributed to lower transactions and increased costs in labor, repair, maintenance, and utilities.
Adjusted EBITDA $30.1 million, an increase of 0.7% compared to the prior year. This was driven by revenue growth and cost management, despite pressures from inflation and increased operating expenses.
Food, beverage, and packaging costs 33.8% of revenues, a slight decrease from 33.9% in the prior year. The improvement was due to an increase in average check, partially offset by a 1.9% increase in commodity prices, particularly in chicken, hamburger, and dairy products.
Labor costs 25.7% of revenues, up from 25.5% in the prior year. The increase was due to lower transactions, higher benefit costs, and incremental wage increases, partially offset by labor efficiencies and an increase in average check. Hourly labor rates rose by 2.9%.
Other operating expenses 11.6% of revenues, up from 11% in the prior year. The increase was driven by new restaurant openings and higher repair, maintenance, and utilities expenses.
Occupancy expenses 8.2% increase compared to the prior year, primarily due to new restaurant openings. As a percentage of revenues, occupancy expenses increased by 0.2%.
Cash from operations $28.7 million year-to-date, a decrease of 31.1% year-over-year. The decline was attributed to increased operating expenses and slower ramp-up of new restaurants.
Interest expense $5.7 million, a decrease of $0.9 million from the prior year. This was due to a lower effective interest rate of 6.9% compared to 8.3% in 2024.
Italian Beef Month Promotion: Launched a buy one, get one offer for loyalty members, driving engagement and transactions.
The Leo Sandwich: Introduced a new sandwich inspired by cultural events, showcasing agility and creativity.
New Market Playbook: Refined strategies for new market entries, focusing on sustained marketing investment and local field marketers.
Atlanta Expansion: Planned entry into the Atlanta market in fall 2025.
AI-Powered Drive-Thru Technology: Expanded testing of AI technology for real-time execution and training benefits.
Kiosk Adoption: In-restaurant kiosk usage exceeded 33%, improving average check and mix.
Build Cost Reduction: Achieved significant cost savings, reducing average build costs to $5.2-$5.5 million per restaurant.
Restaurant Formats Diversification: Introduced new formats like in-line restaurants and airport locations, with plans for further diversification in 2026.
Loyalty Program Growth: Expanded Portillo's Perks to over 1.9 million members, enhancing guest engagement and retention.
Noncomp Restaurants in Texas: Noncomp restaurants in Texas have gotten off to a slower start, pressuring overall top-line revenue performance. The company is focused on building awareness and driving transactions in these locations.
Commodity Inflation: The company experienced a 1.9% increase in commodity prices during the quarter, with significant pressures from beef. Forecasted commodity inflation for 2025 is 3% to 5%.
Labor Costs: Labor as a percentage of revenues increased due to lower transactions, increased benefit costs, and incremental wage increases. Hourly labor rates were up 2.9% in the second quarter, with labor inflation estimated at 3% to 4% for the full year.
New Market Performance in Texas: Houston has been slower to ramp up, and the company acknowledged overcorrecting to manage volumes and maintain service. Sustained marketing investment is now being emphasized to accelerate awareness and drive revenue.
Delayed Restaurant Openings: The Stafford, Texas opening was delayed due to local permitting challenges, impacting sales weeks and revenue forecasts.
General and Administrative Expenses: G&A expenses increased due to higher professional fees and advertising expenses, particularly in the Phoenix market.
Restaurant-Level Adjusted EBITDA Margins: Margins decreased by 90 basis points to 23.6% in Q2 2025 compared to the prior year, driven by increased costs and lower transactions.
Revenue Growth: Portillo's expects total revenue growth for 2025 to be in the range of 5% to 7%, driven by new restaurant openings and same-restaurant sales growth. However, slower ramp-up in Texas and permitting delays in Stafford, Texas, have impacted projections.
Restaurant Openings: The company plans to open 12 new restaurants in the back half of 2025, with 4 to 6 expected in Q3 and the remainder in Q4. The new formats include in-line restaurants and nontraditional formats like the debut airport restaurant at Dallas-Fort Worth Airport in 2026.
Build Cost Reduction: Portillo's is achieving significant build cost reductions, with new restaurant costs averaging $5.2 million to $5.5 million, representing over $1 million in savings compared to 2024 openings. The next iteration of restaurant design (2.0) will debut in the back half of 2026, further reducing costs and streamlining operations.
Adjusted EBITDA Growth: Adjusted EBITDA growth for 2025 is now expected to be flat to low-single digits due to revised revenue and G&A expense outlooks.
Commodity and Labor Inflation: The company forecasts commodity inflation of 3% to 5% for 2025, with significant pressures from beef. Labor inflation is estimated at 3% to 4% for the full year.
Atlanta Market Entry: Portillo's plans to enter the Atlanta market in fall 2025, marking its next major market expansion.
New Market Strategy: The company is refining its new market playbook, focusing on sustained marketing investments and grassroots efforts to accelerate awareness and revenue in new markets like Texas.
Restaurant Formats and Pipeline: The 2026 pipeline includes the most diverse lineup of formats in Portillo's history, with multiple 2.0 designs and new prototypes aimed at unlocking incremental site opportunities.
The selected topic was not discussed during the call.
The earnings call revealed declining financial metrics, including a decrease in restaurant-level adjusted EBITDA and cash from operations, along with increased expenses. The Q&A highlighted uncertainties in marketing efficacy and commodity costs, and management's reluctance to provide specific guidance for Q4. Despite some positive marketing strategies, the overall sentiment is negative due to financial pressures and lack of clear future guidance.
The earnings call summary and Q&A reveal a mixed sentiment. While there are positive aspects such as the loyalty program, successful advertising campaigns, and operational improvements, challenges like weak Texas performance, inflation pressures, and a reduction in revenue guidance temper the outlook. The management's optimistic guidance and strategic plans, along with strong internal value scores, provide some positive momentum, but overall, the sentiment remains balanced due to existing challenges and uncertainties.
The earnings call reveals mixed signals: positive revenue growth and strategic initiatives like breakfast testing, but concerns over macroeconomic pressures, rising costs, and limited guidance on new market performance. The Q&A highlighted management's confidence in brand awareness strategies and sales guidance, but also noted some vagueness in metrics. Overall, the lack of share repurchase plans and increased debt, combined with economic uncertainty, suggest a neutral market reaction.
The earnings call indicates mixed signals: revenue increased by 6.4%, but margins decreased and adjusted EBITDA fell by 2.6%. The Q&A reveals concerns about new unit performance and brand awareness, although management is optimistic about future growth and initiatives like breakfast testing and the Portillo’s Perks program. The lack of detailed guidance on Houston's performance and increased expenses are concerning. Overall, the positive revenue growth is offset by operational challenges, leading to a neutral sentiment.
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