What happened
Shares of restaurant company Portillo's (PTLO 0.25%), a Chicagoan favorite, dropped on Thursday after it released financial results for the first quarter of 2023. The company had an unexpected net loss, which didn't sit well with the market. And that's why the stock was down 14% as of 2:40 p.m. ET today.
So what
Portillo's is still a small restaurant chain, with 76 locations. In the first quarter, the company generated revenue of $156 million, which was up 16% year over year. Some of the growth is attributable to opening three new restaurants during the quarter. The remainder of the top-line growth was driven by impressive same-store sales growth of 9.1%.
On the bottom line, Portillo's is customarily profitable. However, in the first quarter, the company turned in a net loss of $1.3 million. This seems to be why the market is reacting negatively to an otherwise good quarter.
Now what
Average unit volumes (annual sales volume per location) is a metric I like to track among restaurant stocks and Chipotle Mexican Grill has some of the highest around. However, sales volume at Portillo's is roughly three times that of Chipotle locations, which makes this a promising company. And in the first quarter, Portillo's average unit volumes increased yet again to $8.7 million.
I like tracking this metric because it can point to higher profit potential. And this is why I feel like Portillo's net loss needs additional context. Management said its net loss in the first quarter was mostly due to extinguishing some debt, which is actually a good long-term financial move.
Moreover, Portillo's first quarter operating profit was up nearly 25% year over year to $8.5 million. Because this company is still so small, non-operating expenses can affect it more than bigger companies. However, this problem should mitigate as it scales up. And it is planning on scaling up big time -- management is targeting 600 locations long term.
Given that Portillo's revenue and operating income are headed in the right direction, I'd be encouraged with the first-quarter financial results if I were a shareholder. The quarter just had a few growing pains that are to be expected with a small, newly public company.
