The macroeconomic climate has been kinder to fast-casual chains so far this year, but Portillo’s was among those feeling headwinds in the second quarter.
Same-store sales at the Chicago-based chain were down 0.6% for the quarter ended June 30, despite a 7.5% increase in revenues to $181.9 million. Transactions were down 2.3%, offset by an increase in average check of 1.7% that was driven in part by a 4.3% increase in certain menu prices.
That’s an improvement from the first quarter this year, however, when transactions were down 3.2% and same-store sales declined 1.2%, indicating Portillo’s is gaining momentum—though President and CEO Michael Osanloo on Tuesday said the results fell short of his expectations, according to a transcript by Alpha-Sense.
“We definitely have room for improvement,” he said. “But in this macroeconomic environment, it’s an undeniable headwind on traffic and mix, and that is why we must maintain sharp focus on the factors within our control.”
Among those factors is marketing. Portillo’s during the quarter has been investing more in advertising in the Chicagoland market, with what Osanloo described as “food porn” in TV ads and billboards. That campaign will rachet up when football season starts. Portillo’s has bought spots around Bears games and Osanloo hopes the ads will remind Chicagoans why they love the brand, he said.
“There’s a lot of enthusiasm in the Chicagoland area for the Bears,” he said.
Portillo’s drive-thru speeds have also improved by 15 seconds, compared with the same period last year. They’re still not as fast as in 2019, when drive-thru speeds were a full minute faster than they’ve been over the past 12 months, Osanloo said, but it showed improvement. Earlier this year, he said a 30-second improvement in speed equated to a single point increase in same-store sales.
Portillo’s had “lost our way a little bit” with the speed of drive-thrus, Osanloo said, but having a manager outside to coach and train staffers, giving real time feedback, has helped.
The chain has also realigned its teams to focus on “factors that matter to drive transactions and sales,” said Osanloo. Prior efforts to measure success had general managers focused on “too many metrics” that took them away from the guest experience.
Now Portillo’s is focusing on the practice of giving managers bonuses based on the percentage of incremental profit they generate—an “ownership mindset” practice borrowed from Texas Roadhouse, Osanloo said.
When asked to explain the menu-price increases in light of macroeconomic headwinds, Osanloo described the move as “clean-up pricing.”
Portillo’s is methodically increasing pricing in jurisdictions where labor costs have increased significantly, though not all at once to avoid sticker shock. That tinkering amounted to an effective price increase of about 1%.
“There’s a handful of restaurants that were candidly being subsidized by other markets, and now we’ve put them into the right price tier,” he said.
Portillo’s “Famous Five” bundled meals helped generate a slight uptick on average check as well as incentivizing the purchase of more premium items. But Osanloo said Portillo’s will not be joining in the value wars of late.
“We’re not a brand that is going to be on sale,” he said. Rather, Portillo’s is a brand that provides “everyday, low pricing. We provide a phenomenal value for what a guest gets. Our price points are excellent.”
Net income for the quarter decreased $1.4 million to $8.5 million. Restaurant-level margins, however, held at a “healthy” 24.5%, Osanloo said.
The company lowered its guidance for the year, saying they now expect flat to slightly positive same-store sales, compared with earlier projections of a low-single-digit increase. Margins for the year are expected to be between 23% to 24%.
But expected unit openings will increase to at least 10 this year, which will raise the growth percentage to close to 12%, compared with prior projections of 10% growth. So far this year, four new restaurants have opened, for a total of 88.
Last week, Portillo’s added its first kiosk prototype to a unit in Chicago in a test that Osanloo said will help improve throughput. More kiosks will be added to restaurants in the third quarter.
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