Portillo's Inc. Q3 FY2025 earnings call

• Mike Miles, Interim CEO, expresses confidence in Portillo's growth runway, mentions strategic reset to slow development in 2025-2026, focuses on guest experience. - Michelle Hook discusses third quarter financial results, including revenue, cost increases, impairment charge related to Barnelli's trade name, adjusted EBITDA, G&A adjustments, and preopening expenses.

Revenues for the third quarter were $181.4 million, an increase of $3.2 million or 1.8% compared to the prior year. Same-restaurant sales declined 0.8% due to a 2.2% decrease in transactions partially offset by a 1.4% increase in average check. Food, Beverage and Packaging costs as a percentage of revenues increased to 34.5% from 33.7% in the prior year. Labor as a percentage of revenues increased to 26.6% from 25.8% in the prior year. Restaurant level adjusted EBITDA decreased to $36.7 million from $41.9 million in the prior year. Adjusted EBITDA was $21.4 million in the quarter versus $27.9 million in the prior year, a decrease of 23.4%.

• Expect adjusted EBITDA for fiscal year 2025 to be $90 million to $94 million. - Plan to open 8 restaurants in 2026, with gradual expansion in other markets. - Commodity and labor cost outlooks will be more detailed in January 2026.

• Commodity inflation, particularly in beef, with no easing expected soon. - Labor cost pressures, with labor inflation estimated at 3%-4% for the full year. - Risks associated with market development and restaurant performance in new markets.

Q: Isiah on for Sara. Just seeing that other restaurant OpEx saw pressure just due to advertising expense, but the traffic decline seems to have accelerated quarter-on-quarter. Could you guys speak to marketing efficacy in the quarter and just how you think about marketing strategy going forward, especially in the light of Denise joining back in September?

A: Yes, Isiah, keep in mind that our marketing, it's in two spots. One, as you mentioned, is in OpEx, but then in G&A as well, we do have marketing spend in there, just more geography for you on the P&L. Yes, absolutely, we continue to believe that we need to drive trial and awareness, specifically in our newer markets. And so as we look at campaigns we have ongoing in Dallas, we're making investments in Houston as well, where we have five restaurants today. And we continue to believe that that's a good investment to make as we drive that trial and awareness. Now having said that, here in our core market of Chicagoland, that still is extremely important to us. We need to make sure that we continue to message the brand and look at our value proposition here. And so we make investments here as well. We have a campaign going on in Chicagoland as we speak right now to continue to message the brand here in our core markets. So we continue to believe in that investment and that that's a good payback for us now and as we look into the future.

Q: This is Arian Razai on for Greg. I wanted to ask about the beef cost. And I know it's early, but can you help frame the early thoughts in commodity into the next year? And also maybe like touch on labor inflation guidance. It seems like a lot of companies like are seeing like below 3% wage like year-over-year, but I'm seeing you guys are still like above that. I don't know if it's regional or any outlook on that or any commentary would be super helpful.

A: Yes. So in terms of beef cost, obviously, we saw, we've seen pressures on beef all this year. As we go into next year, we don't see any easing on beef costs. We're still putting together plans. I think you've seen other companies who have a more concentrated basket on beef signaled more mid-single digits. We're again putting together that plan. We'll have more information on what we think '26 is going to look like in January for you all. But I imagine what you're hearing today, we're not in any different boat than those folks are. But just for context, about 30% of our basket is beef. So we, that is more heavily weighted for us, but there's still a broader basket for us and with some offsets as we look into next year as well that we think can help mitigate some of those pressures. On the labor front, year-to-date, we're at about 3%. We came into the year forecasting 3% to 4%. So we're at the lower end of the range. I wouldn't say that there's necessarily more geographical concentration for us. We continue to give increases to our team members within each year. We don't pay minimum wage anywhere. When you look at our average hourly rate, we're above $17 an hour. So we feel really good about where we sit today, but we still need to make investments in markets and existing team members, but nothing I'd call out in terms of concentration of where those increases are.