What happened
Shares of restaurant chain Portillo's (PTLO 0.25%) fell as much as 14.8% in trading this week after reporting second-quarter 2023 financial results. Shares are down 13.9% for the week as of 2:30 p.m. ET on Friday.
So what
The quarter wasn't all that bad, but it did miss lofty expectations in a few areas. Total revenue was up 12.3% to $169.2 million, and same-restaurant sales were up 5.9%. But operating income was flat at $17.4 million as higher food and labor costs ate into profits.
On the growth front, management expects to open another eight restaurants in the second half of the year, bringing the total to 84. But they did highlight in the conference call that openings in the Chicagoland area may eat into margins at existing stores.
Now what
The big theme for Portillo's was price increases not offsetting higher food and labor costs during the quarter. While prices have gone up, management was hesitant to push prices too high because they don't want to alienate customers. This is a balancing act all restaurants are dealing with right now, and Portillo's sees the pressure easing in the back half of the year.
What I think long-term investors need to keep in mind is the company's relatively small footprint and ability to grow rapidly. In the last 12 months, restaurant-level adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $144 million, or nearly $2 million per restaurant, and the company will grow the restaurant base by more than 10% this year.
Growth at existing restaurants and the addition of new restaurants could make this a very profitable growth business long term. However, this week, the market was focused on short-term results.
