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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 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.
Revenues $181.4 million, reflecting an increase of $3.2 million or 1.8% compared to last year. The growth was driven by non-comp restaurants contributing $5.6 million, while same-restaurant sales declined 0.8%, decreasing revenues by approximately $1.2 million. The decline in same-restaurant sales was due to a 2.2% decrease in transactions, partially offset by a 1.4% increase in average check.
Food, Beverage, and Packaging Costs Increased to 34.5% of revenues from 33.7% in the prior year. This was primarily due to a 6.3% increase in commodity prices, partially offset by an increase in average check.
Labor Costs Increased to 26.6% of revenues from 25.8% in the prior year. The increase was driven by lower transactions, incremental wage increases, higher benefit costs, and deleverage from newer restaurant openings, partially offset by an increase in average check and labor efficiencies. Hourly labor rates were up 3.3%.
Other Operating Expenses Increased by $2.3 million or 10.8% compared to the prior year, primarily due to new restaurant openings and higher repair and maintenance, utilities, and advertising expenses. As a percentage of revenues, these expenses increased to 12.9% from 11.8%.
Occupancy Expenses Increased by $1.4 million or 14.7% compared to the prior year, primarily due to new restaurant openings. As a percentage of revenues, these expenses increased by 0.7%.
Restaurant-Level Adjusted EBITDA Decreased by $5.3 million to $36.7 million from $41.9 million in the prior year. Margins decreased by 330 basis points to 20.2% from 23.5%, primarily due to pressures from non-comp restaurants.
General & Administrative Expenses Increased by $1.7 million to $20 million or 11% of revenue from $18.3 million or 10.3% of revenue in the prior year. The increase was driven by $3.3 million in dead site costs, partially offset by a $1.1 million net benefit from the CEO transition.
Preopening Expenses Increased by $1.5 million to $3.3 million compared to $1.7 million in the prior year, primarily due to the number and timing of activities related to planned restaurant openings.
Adjusted EBITDA Decreased by 23.4% to $21.4 million from $27.9 million in the prior year. The decrease was influenced by changes in G&A expenses and other operational pressures.
Interest Expense Decreased by $0.8 million to $5.7 million from the prior year, driven by a lower effective interest rate of 6.9% compared to 8.3% in 2024.
Cash from Operations Decreased by 32.3% year-over-year to $48.7 million year-to-date.
Portillo's Perks loyalty program: Launched earlier this year, it is being used to stimulate visits and expand reach, especially in new markets.
New market entry strategy: Portillo's is slowing development in 2025 and 2026, limiting openings to sites with already signed leases, and focusing on a smaller format restaurant model for better unit economics.
Expansion milestone: Portillo's will open its 100th restaurant in Kennesaw, Georgia, marking a significant milestone.
Operational reset: Portillo's is addressing low-volume restaurants opened in the past 24 months, particularly in Texas, and focusing on improving trial and labor efficiency.
Cost management: Efforts include managing commodity inflation (forecasted at 3%-5% in 2025) and labor inflation (estimated at 3%-4% for the full year).
Strategic reset: Portillo's is refocusing on delivering an outstanding guest experience and slowing down its development pace to avoid cannibalization and improve restaurant economics.
Strategic Reset and Slowed Development: Portillo's announced a strategic reset, slowing development in 2025 and 2026 due to overexpansion in the past 24 months, particularly in Texas. This led to low initial volumes in new restaurants, negatively impacting unit economics. The company is now limiting openings to sites with signed leases and pushing back or dropping other sites.
Low-Volume Restaurants: Several newly opened restaurants have low initial volumes, which are insufficient to deliver healthy economics. The company is working to drive trial and optimize labor at these locations.
Commodity Inflation: The company experienced a 6.3% 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, wage increases, higher benefit costs, and inefficiencies from newer restaurant openings. Labor inflation is estimated at 3% to 4% for the full year.
Other Operating Expenses: Other operating expenses increased by 10.8% due to new restaurant openings, higher repair and maintenance, utilities, and advertising expenses.
Occupancy Costs: Occupancy expenses increased by 14.7% due to new restaurant openings, further pressuring margins.
Decreased Same-Restaurant Sales: Same-restaurant sales declined by 0.8%, driven by a 2.2% decrease in transactions, partially offset by a 1.4% increase in average check.
Margin Pressures: Restaurant-level adjusted EBITDA margins decreased by 330 basis points to 20.2%, driven by pressures from non-comp restaurants and increased costs.
G&A Expenses: General & Administrative expenses increased due to $3.3 million in dead site costs and CEO transition-related adjustments. G&A expenses for 2025 are now estimated at $76 million to $79 million.
Impairment Charge: A noncash impairment charge of $2.2 million was recorded for the legacy Barnelli's trade name due to an increased discount rate.
Development Strategy: Portillo's announced a strategic reset, slowing development in 2025 and 2026, and refocusing operations on delivering an outstanding guest experience. Openings will be limited to sites with already signed leases, and several sites in the pipeline have been pushed back or dropped. The company plans to have more time and distance separating openings in new markets and is deploying a smaller format restaurant model to achieve good unit economics at $4 million to $5 million of sales.
Same-Store Sales Growth: The company is focusing on driving more transactions through the Portillo's experience, leveraging the Portillo's Perks loyalty program, affiliate marketing, catering, and delivery partners to stimulate visits and expand reach.
Commodity Inflation: Portillo's forecasts commodity inflation of 3% to 5% in 2025, with the most significant pressures coming from beef.
Labor Inflation: Labor inflation is estimated at 3% to 4% for the full year 2025.
Restaurant-Level Adjusted EBITDA Margins: Margins are estimated to be in the range of 21% to 21.5% in 2025.
General & Administrative Expenses: Updated estimate for fiscal year 2025 G&A expenses is $76 million to $79 million.
Adjusted EBITDA: Portillo's expects adjusted EBITDA of $90 million to $94 million for fiscal year 2025.
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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