Portillo's Inc. Announces Third Quarter 2024 Financial Results
CHICAGO, Nov. 05, 2024 (GLOBE NEWSWIRE) -- Portillo's Inc. ("Portillo's" or the "Company") (NASDAQ:PTLO), the restaurant concept known for its menu of Chicago-style favorites, today reported financial results for the third quarter ended September 29, 2024.
Michael Osanloo, President and Chief Executive Officer of Portillo's, said, "While our top line results for the quarter fell short of expectations, I'm proud of how our team protected margins and drove cash flow. We're profitable, we're controlling the levers we can, and we're positioned for lasting, long-term growth."
Financial Highlights for the Third Quarter 2024 vs. Third Quarter 2023:
Total revenue increased 6.9% or $11.4 million to $178.3 million;
Same-restaurant sales* decreased 0.9%;
Operating income increased $0.9 million to $16.0 million;
Net income increased $2.2 million to $8.8 million;
Restaurant-Level Adjusted EBITDA** increased $0.1 million to $41.9 million; and
Adjusted EBITDA** increased $0.6 million to $27.9 million.
*For the quarter ended September 29, 2024, same-restaurant sales compares the 13 weeks from July 1, 2024 through September 29, 2024 to the 13 weeks from July 3, 2023 through October 1, 2023. **Adjusted EBITDA and Restaurant-Level Adjusted EBITDA are non-GAAP measures. Please see definitions and the reconciliations of these non-GAAP measures accompanying this release.
Recent Developments and Trends
In the quarter ended September 29, 2024, total revenue grew 6.9% or $11.4 million primarily due to new restaurant openings in 2023 and 2024. Same-restaurant sales declined 0.9% during the quarter ended September 29, 2024, compared to 3.9% same-restaurant sales growth during the same quarter in 2023. Change in same-restaurant sales is defined below.
In the quarter ended September 29, 2024, commodity inflation was 3.6% compared to 3.5% for the quarter ended September 24, 2023. Labor, as a percentage of revenue, net increased 0.3% during the quarter ended September 29, 2024 compared to the quarter ended September 24, 2023, primarily due to lower transactions and incremental wage rate increases, partially offset by an increase in our average check.
In the quarter ended September 29, 2024, total revenue, operating income, net income, Restaurant-Level Adjusted EBITDA, and Adjusted EBITDA all improved versus the prior year. We believe this improvement stemmed from maintaining concentration on our four strategic pillars, which guide our short-term objectives and form the basis for long-term growth.
Review of Third Quarter 2024 Financial Results
Revenues for the quarter ended September 29, 2024 were $178.3 million compared to $166.8 million for the quarter ended September 24, 2023, an increase of $11.4 million or 6.9%. The increase in revenues was primarily attributed to the opening of eight restaurants in the third and fourth quarters of 2023 and four restaurants during the three quarters ended September 29, 2024, partially offset by a decrease in our same-restaurant sales. Restaurants not in our Comparable Restaurant Base (defined below) contributed $13.6 million of the total year-over-year increase. This increase in revenues was offset by a same-restaurant sales decrease of 0.9%, or $1.4 million in the quarter. The same-restaurant sales decline was attributable to a 3.5% decrease in transactions, partially offset by an increase in average check of 2.6%. The higher average check was driven by an approximate 4.4% increase in certain menu prices partially offset by product mix. To address inflationary cost pressures, we increased select menu prices by approximately 1.5% in January 2024 and again at the end of March 2024. In June 2024, we implemented a 1% price increase primarily by re-tiering some of our restaurants in higher-cost areas. Revenue was also negatively impacted by $1.0 million in the third quarter due to the shifting of comparable weeks. For the purpose of calculating same-restaurant sales for the quarter ended September 29, 2024, sales for 70 restaurants that were open for at least 24 full fiscal periods were included in the Comparable Restaurant Base.
Total restaurant operating expenses for the third quarter ended September 29, 2024 were $136.3 million compared to $124.9 million for the third quarter ended September 24, 2023, an increase of $11.4 million or 9.1%. The increase in restaurant operating expenses was primarily driven by the opening of eight restaurants in the third and fourth quarters of 2023 and four restaurants during the three quarters ended September 29, 2024. Additionally, food, beverage and packaging costs were negatively impacted by a 3.6% increase in commodity prices. Labor expense increases were also driven by incremental investments to support our team members, partially offset by lower variable-based compensation. Lastly, the increase in other operating expenses was due to the aforementioned restaurant openings and increases in repairs and maintenance, partially offset by a decrease in insurance expense.
General and administrative expenses for the third quarter ended September 29, 2024 were $18.3 million compared to $18.9 million for the third quarter ended September 24, 2023, a decrease of $0.6 million or 3.1%. This decrease was primarily driven by lower variable-based and equity compensation, partially offset by an increase in advertising expenses and software license expense related to our enterprise resource planning system ("ERP") implementation.
Operating income for the third quarter ended September 29, 2024 was $16.0 million compared to $15.1 million for the third quarter ended September 24, 2023, an increase of $0.9 million due to an increase in revenues and decrease in general and administrative expenses and pre-opening expenses, partially offset by increases in total restaurant operating expenses, and depreciation and amortization.
Net income for the third quarter ended September 29, 2024 was $8.8 million compared to a net income of $6.5 million for the third quarter ended September 24, 2023, an increase of $2.2 million. The increase in net income was primarily due to an increase in our Tax Receivable Agreement liability adjustment of $1.2 million and an increase in operating income of $0.9 million due to the aforementioned factors.
Restaurant-Level Adjusted EBITDA* for the third quarter ended September 29, 2024 and September 24, 2023 was $41.9 million.
Adjusted EBITDA* for the third quarter ended September 29, 2024 was $27.9 million compared to $27.3 million for the quarter ended September 24, 2023, an increase of $0.6 million or 2.3%.
*A reconciliation of Restaurant-Level Adjusted EBITDA and Adjusted EBITDA and the nearest GAAP financial measure is included under "Non-GAAP Measures" in the accompanying financial data below.
Development Highlights
During the three quarters ended September 29, 2024, we opened four new restaurants. Subsequent to September 29, 2024, we opened one additional restaurant, bringing our total restaurant count to 89, including a restaurant owned by C&O of which Portillo's owns 50% of the equity. We plan to open five more restaurants, all in December, for a total of 10 new restaurants opened in the fiscal year 2024, including further expansion into the Houston and Dallas-Fort Worth markets in Texas.
Below are the restaurants opened since the beginning of fiscal 2024:
Location
Opening Month
Fiscal Quarter Opened
Denton, Texas
March 2024
Q1 2024
Surprise, Arizona
May 2024
Q2 2024
Livonia, Michigan
July 2024
Q3 2024
Mansfield, Texas
August 2024
Q3 2024
Richmond, Texas
October 2024
Q4 2024
Fiscal 2024 Financial Targets
Based on current expectations, we are providing updated financial targets for 2024 as follows:
Prior Target
Current Target
Unit growth
10+ new units
→
10 new units
Same-restaurant sales
Flat to slightly positive
→
Approximately (1.0%)
Commodity inflation
mid-single digits
→
mid-single digits
Labor inflation
mid-single digits
→
Approximately 3.0%
Restaurant-level adjusted EBITDA margin*
23% - 24%
→
23% - 24%
General and administrative expenses
$82 - $84 million
→
$78 - $80 million
Pre-opening expenses
$10.0 - $10.5 million
→
$10.0 - $10.5 million
Capital expenditures
$85 - $88 million
→
$85 - $88 million
*We are unable to reconcile the long-term outlook for restaurant-level adjusted EBITDA margin to operating income/loss margin, the corresponding U.S. GAAP measure, due to variability and difficulty in making accurate forecasts and projections and because not all information necessary to prepare the reconciliation is available to us without unreasonable efforts. For the same reasons, we are unable to address the probable significance of the unavailable information because we cannot accurately predict all of the components of the adjusted calculations and the non-GAAP measure may be materially different than the GAAP measure.
Long-Term Financial Targets
Unit growth
12% - 15%
Same-restaurant sales
Low single digits
Revenue growth
Mid teens
Adjusted EBITDA growth*
Low teens
*We are unable to reconcile the long-term outlook for adjusted EBITDA growth to net income/loss, the corresponding U.S. GAAP measure, due to variability and difficulty in making accurate forecasts and projections and because not all information necessary to prepare the reconciliation is available to us without unreasonable efforts. For the same reasons, we are unable to address the probable significance of the unavailable information because we cannot accurately predict all of the components of the adjusted calculations and the non-GAAP measure may be materially different than the GAAP measure.
The following definitions apply to these terms as used in this release:
Change in Same-Restaurant Sales - The change in same-restaurant sales is the percentage change in year-over-year revenue (excluding gift card breakage) for the Comparable Restaurant Base, which is defined as the number of restaurants open for at least 24 full fiscal periods. For the quarters ended September 29, 2024 and September 24, 2023, there were 70 and 66 restaurants in our Comparable Restaurant Base, respectively.
A change in same-restaurant sales is the result of a change in restaurant transactions, average guest check, or a combination of the two. We gather daily sales data and regularly analyze the guest transaction counts and the mix of menu items sold to strategically evaluate menu pricing and demand. Measuring our change in same-restaurant sales allows management to evaluate the performance of our existing restaurant base. We believe this measure provides a consistent comparison of restaurant sales results and trends across periods within our core, established restaurant base, unaffected by results of restaurant openings and enables investors to better understand and evaluate the Company's historical and prospective operating performance.
Average Unit Volume - AUV is the total revenue (excluding gift card breakage) recognized in the Comparable Restaurant Base, including C&O, divided by the number of restaurants in the Comparable Restaurant Base, including C&O, by period.
This key performance indicator allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base.
Adjusted EBITDA and Adjusted EBITDA Margin - Adjusted EBITDA represents net income (loss) before depreciation and amortization, interest expense, interest income, and income taxes, adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of net income (loss), the most directly comparable GAAP measure to Adjusted EBITDA. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues, net. See also "Non-GAAP Financial Measures."
Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin - Restaurant-Level Adjusted EBITDA is defined as revenue, less restaurant operating expenses, which include food, beverage and packaging costs, labor expenses, occupancy expenses and other operating expenses. Restaurant-Level Adjusted EBITDA excludes corporate level expenses and depreciation and amortization on restaurant property and equipment. Restaurant-Level Adjusted EBITDA Margin represents Restaurant-Level Adjusted EBITDA as a percentage of revenues, net. See also "Non-GAAP Financial Measures".
For more information about the Company's Non-GAAP measures, how they are calculated and reconciled and why management believes that they are useful, see "Non-GAAP Financial Measures" below.
Earnings Conference Call
The Company will host a conference call to discuss its financial results for the third quarter ended September 29, 2024 on Tuesday, November 5, 2024, at 10:00 AM ET. The conference call can be accessed live over the phone by dialing 877-407-3982. A telephone replay will be available shortly after the call has concluded and can be accessed by dialing 412-317-6671; the passcode is 13741636. The webcast will be available at www.portillos.com under the investors section and will be archived on the site shortly after the call has concluded.
About Portillo's
In 1963, Dick Portillo invested $1,100 into a small trailer to open the first Portillo's hot dog stand in Villa Park, IL, which he called "The Dog House." Years later, Portillo's (NASDAQ:PTLO) has grown to more than 85 restaurants across 10 states. Portillo's is best known for its Chicago-style hot dogs, Italian beef sandwiches, char-grilled burgers, fresh salads and famous chocolate cake.
Cautionary Note Regarding Forward-Looking Statements
This press release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"). All statements other than statements of historical fact are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business, and are based on currently available operating, financial and competitive information which are subject to various risks and uncertainties, so you should not place undue reliance on forward-looking statements. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "commit," "estimate," "expect," "forecast," "outlook," "potential," "project," "projection," "plan," "intend," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following:
risks related to or arising from our organizational structure;
risks of food-borne illness and food safety and other health concerns about our food;
risks relating to the economy and financial markets, including inflation, fluctuating interest rates, stock market activity, or other factors;
the impact of unionization activities of our Team Members on our reputation, operations and profitability;
risks associated with our reliance on certain information technology systems, including our new enterprise resource planning system, and potential failures or interruptions;
privacy and cyber security risks related to our digital ordering and payment platforms for our delivery business;
the impact of competition, including from our competitors in the restaurant industry or our own restaurants;
the increasingly competitive labor market and our ability to attract and retain the best talent and qualified employees;
the impact of federal, state or local government regulations relating to privacy, data protection, advertising and consumer protection, building and zoning requirements, costs or ability to open new restaurants, or sale of food and alcoholic beverage control regulations;
inability to achieve our growth strategy, such as the availability of suitable new restaurant sites in existing and new markets and opening of new restaurants at the anticipated rate and on the anticipated timeline;
the impact of consumer sentiment and other economic factors on our sales;
increases in food and other operating costs, tariffs and import taxes, and supply shortages; and
other risks identified in our filings with the Securities and Exchange Commission (the "SEC').
All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Form 10-Q in the context of the risks and uncertainties disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on February 27, 2024, and subsequent filings with the SEC, which are available on the SEC's website at www.sec.gov.
The forward-looking statements included in this Form 10-Q are made only as of the date hereof. The Company undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Investor
Media Contact:ICR,
PORTILLO'S INCCONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except common share and per common share data)
Quarter Ended
Three Quarters Ended
September 29, 2024
September 24, 2023
September 29, 2024
September 24, 2023
REVENUES, NET
$
178,252
100.0
%
$
166,805
100.0
%
$
525,945
100.0
%
$
492,047
100.0
%
COST AND EXPENSES:
Restaurant operating expenses:
Food, beverage and packaging costs
60,136
33.7
%
55,551
33.3
%
178,809
34.0
%
165,407
33.6
%
Labor
45,945
25.8
%
42,588
25.5
%
135,659
25.8
%
126,200
25.6
%
Occupancy
9,172
5.1
%
8,210
4.9
%
27,723
5.3
%
24,898
5.1
%
Other operating expenses
21,053
11.8
%
18,571
11.1
%
60,868
11.6
%
56,107
11.4
%
Total restaurant operating expenses
136,306
76.5
%
124,920
74.9
%
403,059
76.6
%
372,612
75.7
%
General and administrative expenses
18,305
10.3
%
18,898
11.3
%
54,786
10.4
%
57,285
11.6
%
Pre-opening expenses
1,747
1.0
%
2,410
1.4
%
5,270
1.0
%
5,029
1.0
%
Depreciation and amortization
6,679
3.7
%
6,178
3.7
%
20,729
3.9
%
17,788
3.6
%
Net income attributable to equity method investment
(383
)
(0.2
)%
(422
)
(0.3
)%
(923
)
(0.2
)%
(1,010
)
(0.2
)%
Other income, net
(390
)
(0.2
)%
(276
)
(0.2
)%
(1,176
)
(0.2
)%
(630
)
(0.1
)%
OPERATING INCOME
15,988
9.0
%
15,097
9.1
%
44,200
8.4
%
40,973
8.3
%
Interest expense
6,450
3.6
%
6,573
3.9
%
19,583
3.7
%
20,539
4.2
%
Interest income
(50
)
—
%
(116
)
(0.1
)%
(204
)
—
%
(116
)
—
%
Tax Receivable Agreement liability adjustment
(1,724
)
(1.0
)%
(528
)
(0.3
)%
(2,724
)
(0.5
)%
(1,691
)
(0.3
)%
Loss on debt extinguishment
—
—
%
—
—
%
—
—
%
