Q2 2024 Earnings Summary
- Portillo's is successfully expanding into new markets, achieving scale quickly, which drives brand awareness and potentially boosts sales and profitability. The company opened its sixth restaurant in the Dallas-Fort Worth area in less than two years, an achievement they did not imagine possible. They are also entering the Houston market in the back half of the year, focusing on building scale to drive cost efficiencies and awareness.
- The company is reducing capital expenditures by implementing smaller footprint restaurant prototypes, leading to lower build costs and improved returns on new units. They have three restaurants coming online in Q4 with a new 6,300 square foot footprint, reducing build costs to between $5.2 million to $5.5 million. This allowed them to lower their estimated range of capital expenditures for the year to between $85 million to $88 million.
- Portillo's is launching significant advertising campaigns, particularly in Chicagoland, expected to drive guest traffic and accelerate performance in the second half of the year. They are getting aggressive on marketing, investing in TV commercials and billboards, which will coincide with the start of the NFL season. The company notes that their business is highly responsive to marketing efforts, especially in Chicago, and believe this will contribute to achieving flat to slightly positive same-restaurant sales growth for fiscal 2024. , ,
- The company continues to experience negative transaction growth, with same-restaurant transactions decreasing by 2.3% in Q2 2024 after a 3.2% decline in Q1 2024, indicating ongoing challenges in driving customer traffic.
- Management expects "choppiness" in sales to continue into Q3 and beyond, reflecting uncertainty and potential instability in revenue growth.
- The company needs to ramp up marketing spend significantly to achieve flat to slightly positive same-restaurant sales growth, suggesting that organic sales growth is weak and reliant on increased marketing investments.
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Same-Store Sales Outlook
Q: What are the drivers of stronger comps in the second half?
A: Management expects improved comparable sales due to enhanced transaction trends and increased focus on throughput and marketing efforts. These initiatives are anticipated to accelerate performance, leading to flat to slightly positive comps. -
Commodity Inflation Peaking
Q: Is Q2 the peak for commodity inflation, and what's expected ahead?
A: The company confirms that Q2 was the peak for commodity inflation, with a $6.9 million increase. They expect easing in the back half of the year, particularly in hamburger, produce, and french fry costs. -
Marketing Spend Impact
Q: Explain recent marketing efforts in Chicago and expected impact.
A: Portillo's launched fresh marketing in Chicago, showcasing enticing food imagery to excite customers. They've increased spend significantly, especially around NFL campaigns and Bears games, expecting this material investment to boost sales. -
Operational Improvements
Q: How have you improved drive-thru speed, and is there more room?
A: By emphasizing throughput and drive-thru excellence, including managerial presence and team coaching, they've reduced drive-thru times by 15 seconds so far, with potential to cut up to a minute compared to 2019. They're also testing kiosks inside restaurants to enhance throughput. -
Pricing Strategy
Q: What's the rationale for the recent price adjustments?
A: The company adjusted pricing in certain locations to the appropriate tier, maintaining margin neutrality amid higher local labor costs. This "cleanup pricing" avoids sticker shock and ensures fairness across jurisdictions. -
2025 Pipeline and CapEx
Q: Insights on 2025 openings and expected cadence?
A: With clearer visibility into the 2025 pipeline, they expect a smoother opening schedule compared to 2024. Increased pre-opening costs reflect building 2025 restaurants at lower costs, and they're comfortable with the CapEx range of $85 million to $88 million. -
Drive-Thru Traffic Challenges
Q: How is drive-thru traffic amid intense fast-food promotions?
A: Drive-thru traffic faces challenges due to aggressive promotions by big QSRs. Portillo's aims to mitigate this by excelling in speed and efficiency, delivering hot, fresh, made-to-order food to compete effectively. -
Sales Mix Improvement
Q: What's driving the slight improvement in sales mix?
A: The slight mix improvement may stem from initiatives like the Famous 5 meals, but data remains noisy. Management hopes negative mix trends will mitigate over time and is implementing strategies, including kiosks, to aid mix. -
Customer Behavior and Satisfaction
Q: Any notable trends in customer behavior or satisfaction scores?
A: Customer behavior is choppy across channels but overall consistent. Guest satisfaction scores remain very strong, with meaningful improvements in friendliness and speed, focusing on exceptional execution over score management. -
Wage Inflation Outlook
Q: Is wage inflation expected to pick up in the second half?
A: Wage inflation was 3.1% in the first two quarters and is expected to increase in Q3 with annual raises. The company focuses on efficient labor deployment and kitchen efficiencies, anticipating overall wage inflation closer to the low end of 4% to 6%.
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