Portillo’s(US:PTLO)2023-11-05 10:57Financial Data and Key Metrics Changes - In Q3 2023, revenues were $166.8 million, an increase of $15.7 million or 10.4% compared to Q3 2022, primarily driven by new restaurant openings and increased same restaurant sales [6][30] - Restaurant-level adjusted EBITDA increased 22.9% to $41.9 million in Q3 2023 from $34.1 million in Q3 2022, with adjusted EBITDA margins at 25.1% compared to 22.6% in the prior year [8][116] - Income tax expense was $2.6 million in Q3 2023, up $1.6 million from Q3 2022, with an effective tax rate of 28.6% versus 23.9% in the prior year [10][126] Business Line Data and Key Metrics Changes - Same restaurant sales grew 3.9% in Q3 2023, attributed to a 7.4% increase in average check, partially offset by a 3.5% decrease in transactions [31][122] - Labor as a percentage of revenues decreased to 25.5% in Q3 2023 from 25.9% in Q3 2022, despite higher labor utilization and investments in team members [7][123] - Other operating expenses increased by $1.7 million or 10% in Q3 2023, mainly due to new restaurant openings and higher credit card fees [34] Market Data and Key Metrics Changes - The company opened 12 new restaurants in 2023, with significant growth in the Sunbelt region, including Texas, Arizona, and Florida [5][120] - The company anticipates continued pressure on restaurant-level adjusted EBITDA margins due to planned new restaurant openings and the roll-off of pricing [35][58] Company Strategy and Development Direction - The company aims for low-single digit comp growth and revenue growth from new units, with a focus on self-funded development to drive near-term revenue growth [16][31] - The company is strategically positioning itself in growth markets with significant population increases, such as Texas and Florida, to counteract negative trends in its traditional markets [130] - The company is committed to maintaining operational efficiency and enhancing guest experiences to drive long-term shareholder value [124][141] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about improvements in transaction trends going into Q4 2023, indicating a return to more normal seasonality in the restaurant industry [153] - The company is cautious about pricing strategies, having foregone any pricing increases for the remainder of the year to maintain value for customers [80][129] - Management noted that labor inflation is expected to remain in the mid-single digit range for the full year, with ongoing investments in team member compensation [123][101] Other Important Information - The company ended Q3 2023 with $12.9 million in cash and increased its CapEx range to $75 million to $80 million for future restaurant growth [37][150] - The company is facing delays in permitting and utility hookups, which are impacting restaurant opening timelines [55] Q&A Session Summary Question: What are the trends observed in October? - Management noted strong momentum in October, indicating a return to a more normal rhythm in the restaurant industry compared to previous quarters [153] Question: How does Portillo's stack up as a long-term investment given recent traffic trends? - Management acknowledged the challenges of negative transaction growth in the Midwest but emphasized growth in states with positive population trends [130][154] Question: What initiatives can the company take to maintain traffic? - Management highlighted the importance of operational excellence and guest experiences as key drivers for repeat visits, rather than discounts or promotions [141] Question: What is the outlook for labor inflation and commodity prices? - Management expects labor inflation to remain in the mid-single digit range and anticipates continued pressure on commodity prices, particularly beef [101][101] Question: How is the company managing new unit contributions? - Management expressed satisfaction with the performance of new units and their contributions to overall revenue growth, despite some initial lower average weekly sales [74][120]