Portillo's Inc. 10-Q Summary: Quarter Ended September 29, 2024
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 29, 2024, and the three quarters ended September 29, 2024. Portillo's Inc. operates a chain of restaurants serving Chicago-style hot dogs, Italian beef, and burgers across 10 states. As of the reporting date, the company operated 87 restaurants, with one additional location opening in October 2024, bringing the total to 88. The company utilizes a 52-week fiscal year.
Key Financial Metrics
| Metric (in thousands) | Q3 2024 | Q3 2023 | YTD Q3 2024 | YTD Q3 2023 |
|---|---|---|---|---|
| Net Revenues | $178,252 | $166,805 | $525,945 | $492,047 |
| Operating Income | $15,988 | $15,097 | $44,200 | $40,973 |
| Net Income (GAAP) | $8,773 | $6,546 | $22,647 | $15,171 |
| Net Income Attributable to Portillo's Inc. | $7,220 | $4,361 | $18,252 | $10,635 |
| Diluted EPS (Attributable to Inc.) | $0.11 | $0.07 | $0.29 | $0.19 |
| Adjusted EBITDA | $27,911 | $27,285 | $79,554 | $76,140 |
| Restaurant-Level Adjusted EBITDA | $41,946 | $41,885 | $122,886 | $119,435 |
| Cash and Cash Equivalents | $18,520 | $12,947 | N/A | N/A |
| Total Debt (Net) | $302,242 | $306,423 | N/A | N/A |
| Revolver Availability | $80,700 | $80,700 | N/A | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 6.9% year-over-year for both the quarter and the three-quarter period, driven primarily by new restaurant openings (four in 2024, eight in late 2023).
- Same-Store Sales: Same-restaurant sales declined 0.9% for both periods, attributed to a decrease in transactions (3.5% in Q3, 3.0% YTD) partially offset by higher average checks due to menu price increases.
- Profitability: Operating income increased 5.9% for the quarter and 7.9% YTD. Net income attributable to Portillo's Inc. increased 65.6% for the quarter and 71.6% YTD, significantly aided by a reduction in the non-controlling interest ownership percentage.
- Cost Pressures: Food, beverage, and packaging costs rose 8.3% (Q3) and 8.1% (YTD) due to new openings and commodity inflation (3.6% in Q3, 5.1% YTD). Labor costs increased 7.9% (Q3) and 7.5% (YTD) due to wage investments and new openings.
- Debt: Total debt decreased slightly to $302.2 million. The effective interest rate on the 2023 Credit Agreement was 8.32% as of September 29, 2024.
Guidance, Outlook, and Risks
- Full Year 2024 Outlook: Management expects negative comparable sales of approximately 1.0% and restaurant-level margins between 23% and 24% for the full year.
- Expansion: The company plans to open five additional restaurants in December 2024, totaling 10 new openings for the fiscal year, including expansion into Houston and Dallas-Fort Worth.
- Strategic Initiatives: Focus areas include "Restaurant of the Future" prototypes, self-service kiosks, and a re-launched advertising campaign in the Chicagoland market.
- Risks and Contingencies:
- Unionization: Team members at commissaries in Addison and Aurora, IL, voted to unionize in 2023 and 2024. The company has filed objections with the NLRB.
- IT Systems: Risks associated with the implementation of a new enterprise resource planning (ERP) system completed in Q2 2024.
- Tax Receivable Agreement (TRA): The company has a liability of approximately $326.7 million related to future tax benefit payments to pre-IPO members. A payment of $7.7 million is expected within the next 12 months.
Investor Verification Checklist
- Same-Store Sales Trend: Verify the sustainability of the 0.9% decline in same-restaurant sales and the impact of transaction volume vs. pricing power.
- Non-Controlling Interest Dilution: Confirm the trajectory of LLC unit redemptions and the resulting impact on net income attributable to public shareholders.
- TRA Liability Impact: Assess the cash flow implications of the $326.7 million Tax Receivable Agreement liability and upcoming payments.
- Unionization Progress: Monitor the status of NLRB objections regarding union elections at commissaries and potential labor cost increases.
- Capital Expenditures: Review the $56.4 million in cash used for investing activities against the planned opening of 10 new restaurants for the year.