Q3 2021 Portillos Inc Earnings Call

[music].

Good day, ladies and gentlemen, and thank you for standing by welcome to Port Charles third quarter, 2021 earnings conference call.

At this time, all participants have been placed in a listen only mode.

Note that this conference is being recorded today November 18th 2021.

Now like to turn the call over to your host Mr. Fits you tailor managing director at ICR. Thank you you may begin.

Thank you, Rob and good morning, everyone.

With me on the call today is Michael <unk>, President and Chief Executive Officer of Portola is Michelle Hook, the company's Chief Financial Officer.

Before we begin our formal remarks, let me remind everyone that part of our discussion today will include forward looking statements.

Statements are not guarantees of future performance and should not be unduly relied upon.

We do not undertake to update these forward looking statements unless required by law and we refer you to today's earnings release, and our SEC filings for more detailed discussion of the risks that could impact portela has future operating results and financial condition.

Our remarks also include non-GAAP financial measures, such as adjusted EBITDA and restaurant level adjusted EBITDA, We direct you to our earnings release issued this morning, which is available on our website for reconciliations of these non-GAAP measures to their most comparable GAAP measures.

Any non-GAAP financial measures should not be considered as an alternative to GAAP measure such as net income or operating income or any other GAAP measure of our liquidity our financial position. Finally, after we deliver our prepared remarks, we will open the lines for your questions. Let me now turn the call over to Michael <unk> Michael.

Thank you for to you and good morning, everyone. We appreciate you all joining us for our well what is our inaugural quarterly earnings call as a public company.

Incredibly exciting time for Portola as we're so proud of the successful completion of our IPO and we're pleased with our performance. So far this year, which is reflected continuing improvement in guest traffic as our business is evolving into a new normal.

Our teams continue to pivot in a smart efficient way to serve our loyal guests safe environment I couldnt be more pleased with our performance led by our amazing teams and their ability to successfully adjust and continue to improve in.

And importantly, theyre doing all this while living our values of family greatness energy and fun.

Before I, let Michelle review of the quarter results in more detail. Since this is our first earnings call since our IPO I want to take a few minutes to talk about <unk> and just share what makes our brand so special.

Our soy began in 1963, when <expletive> Portillo invested $1100 in a trailer and Villa Park, Illinois.

The doghouses he called it sold hotdogs fries and tamales.

A few years later <expletive> opened his first freestanding restaurant and named Port Pillows.

And that was just the beginning of this great American success story.

After gradual expansion over multiple decades, Berkshire partners acquired portfolios in 2014 and has since accelerated our growth, adding 29 restaurants across six additional states.

Most people think of Porto loads as the Chicago institution, but the reality is we burst star seems to become a national brand with 68 restaurants today soon to be 69 across nine states.

Even as we've grown we've maintained that iconic status with our fans who are truly obsess.

We do this with our unique menu of unrivaled Chicago Street, food and all American favorites that has something craveable for everyone.

Italian beef sandwiches, Chicago style, Hotdogs Char grilled third pound burgers fresh made salads and much more all at a remarkable price point.

In addition to this amazing menu I also want to stress Portillo operational excellence across numerous order channels, we've been multichannel since before it was even a thing.

While other brands have been chasing this especially since the outset of the pandemic. This is what poor Telus has done from early on in our history.

Just to give you an idea of our business both pre pandemic and now our annual drive thru sales represented $3 4 million per restaurant in 2019, and $4 9 million in the 12 months ending Q3 2021.

That's just our drive through.

Our dine in sales represented $4 4 million per restaurant in 2019, and $2 1 million in the 12 months ending Q3 2021.

Although dine in has decreased because of the pandemic traffic remains healthy.

That's in part because our restaurants are beautiful and they're engaging they're thoughtfully designed to handle incredible volume, while still providing a memorable and differentiated experience with each having its own locally inspired decor.

And then there is delivery.

We started delivery in 2017 and it accounted for about $500000 per restaurant in 2019, and nearly 900000 in the 12 months ending Q3 2021.

Our other channels are also growing we cater literally tons and tons of food and convenient formats that fit any occasion.

I already mentioned that our fans are obsessed people love catering port pillows for their gathering gatherings and events we.

Also have a really strong direct shipping business that not only gives us sales where it provides key insights into where there's latent demand for our business is.

This multichannel approach allows us to achieve best in class unit economics, including the highest average unit volumes in the fast casual space.

And adjusted EBITDA margins that put us in an elite class of restaurants, we are committed to continuing to be a world class multichannel restaurant brand with incredible sales from all of our channels.

Switching to development by the end of Q4, we will have added two new restaurants to the portfolio opening location number 68 in the Indianapolis market in the city of Westfield and location number 69 opening in about two weeks in Madison, Wisconsin.

Both new locations demonstrate our strategy to open new restaurants outside of our core Chicago land market.

The Westfield location on the north side of indie adds to an already strong presence as our fourth restaurant in Indianapolis and the seventh in the state and the new Madison location will be a second entry to Madison and the fourth in the state.

Each of these serves a separate and distinct trade area.

With these two we will have added five new restaurants in 2021, including two new markets, having opened our first.

<unk> includes Orlando, Florida, and Sterling Heights, Michigan.

As we move into next year and beyond we're excited about our massive white space opportunity as we've previously stated in our IPO filings with the SEC theres potential for over 600 Portillo as restaurants throughout the country.

This is obviously a long term growth number and we plan to expand at about 10% growth annually or.

Our current plan is to open seven restaurants in 2022.

And we're targeting to expand our presence in Florida, Arizona, Indiana, and Michigan as well as an initial expansion into Texas.

Strategy allows us to tap into our two pronged approach to expansion first continuing to expand our presence in our core market across the Midwest and second targeting national markets across the sunbelt for opportunistic growth.

One specific new location plan for 'twenty, two that I want to highlight is what we're calling a portillo pickup which will be located in Joliet, Illinois.

Unlike our other restaurants this off premise only spot features a smaller footprint than the traditional port pillows and it will not have a dining room. Instead it will feature three drive through lanes as well as a pickup area catering and delivery. This is the first prototype and if successful it gives.

As a great option to fill in mature markets.

Finally, as we grow our unit count.

Continue to be focused on our talent pipeline, we will continue to invest in our training programs develop leaders and live our values of family greatness energy and fun each and every day.

All of these efforts are reflected and drive our financial performance with that I'm going to turn it over to Michelle to cover more details about our financial results.

Thank you Michael.

Before we discuss our third quarter results, let me briefly recap our recent IPO on.

On October 25th following the end of the quarter completed our IPO by issuing approximately $23 3 million shares.

<unk> approximately 3 million shares sold through our underwriters as part of the over allotment option at an offering price of $20 per share.

We received net proceeds of approximately $429 9 million after underwriting discounts and commissions and estimated offering expenses, which we used along with cash on hand to one prepay the redeemable preferred equity on this call, including the redemption premium.

All totaling $221 7 million.

To repay all of the outstanding borrowings under the second lien credit agreement, including prepayment penalties, all totaling $158 1 million.

And three purchasing LLC units or shares of class a common stock from certain pre IPO LLC members for $57 million.

Also in connection with the IPO in the fourth quarter each option under the 2014 equity incentive plan that was outstanding whether invested or Unvested was substituted for an option to purchase a number of shares of class a common stock under the 2021 equity incentive plan and the ops.

<unk> received a cash payment in respect of their options, while their investor on basket in an aggregate amount of approximately $6 $3 million.

In addition, as a result of modifications to the terms of certain pre IPO performance Vesting Awards, we will record a compensation expense based on the fair value of the modified award.

We will expect to recognize a cash compensation expense of approximately $1 3 million and a noncash compensation expense of approximately $23 3 million each in the fourth quarter.

Now turning to our results for the third quarter.

Revenues were 138 million, reflecting an increase of $18 3 million or 15, 3% compared to the third quarter of 2020. This was driven by a six 8% incur increase and our same restaurant sales combined with the opening of two new restaurants in the <unk>.

Fourth quarter of 2020, and three new restaurants opened to first three quarters of 2021.

The same restaurant sales increase of six 8% was primarily driven by a seven 9% increase in average check partially offset by a decrease in our traffic.

Our higher average check was due to increases in our menu prices.

<unk> of items sold and more items per order.

The decrease in traffic, reflecting continued pressures from COVID-19 as we have fewer people dining in our restaurants versus pre pandemic levels. This was partially offset by more people going through our drive through channel.

While all of our dining rooms were opened during the third quarter, we continue to be subject to local masked mandates mandates for indoor dining and many of our locations.

We aim to continue to provide exceptional service to our loyal guests and a safe environment for both our team members and guests.

Now turning to our cost of goods sold cost of goods sold excluding depreciation and amortization as a percentage of revenues increased to 32, 1% from 36% last year, primarily due to an increase in commodity prices specifically beef.

This was offset by an increase in our average check.

We along with others in the industry continue to navigate through a disruption in our supply chain and we continue to work hard to maintain inventory when it comes to supply chain. We're confident in both our distribution partners and suppliers, we have outstanding relationships that we believe will allow.

US to continue to procure products needed and we feel extremely confident in our distribution strategy.

Moving on to labor.

Labor as a percentage of revenues increased to 26, 8% from 24, 3% last year, primarily due to an increase in hourly rates.

Investments made in training costs and discretionary bonuses.

All of these costs were partially offset by an increase in our average check.

As you are all aware the labor market is extremely tight right now and everybody is competing for talent. We've made a substantial investment in team member pay in the second quarter as part of an ongoing enhancement to our pay benefits training and talent development and we.

We're seeing the impact flow through in the third quarter labor expenses as our average hourly rates are up nearly 20% quarter over quarter.

While the current labor market challenges have hindered our ability to be fully staffed our restaurants have not had to limit service channels. Our hours of operation and we are proud of our committed team members that service our guests each and every day.

We remain committed to investing in our Portillo family and as a result would expect elevated year over year labor costs to continue in the near future.

Even with increases in food and labor costs, we continue to produce strong margin results. When you look at both the restaurant level margins and the adjusted EBITDA margins within the quarter.

Now turning to our other operating expenses those expenses increased $2 5 million or 19, 5%, which was primarily due to the opening of five new restaurants since the third quarter of 2020.

In addition to incremental costs for cleaning and utilities as dining capacity has expanded since the third quarter of last year.

All of this was combined with an increase in our direct marketing expenses as well as repair and maintenance costs.

Looking at our occupancy cost those decreased as a percent of sales primarily due to the year over year sales increase previously described.

And is inclusive of the opening of five new restaurants since the third quarter of 2020.

When you look at our restaurant level adjusted EBITDA that metric decreased one 1% to $34 2 million largely a result.

The impact of commodity and labor inflation.

We did not take any incremental pricing during the third quarter.

And have increased certain prices to reflect an approximately 3% price increase.

In the early part of the fourth quarter to combat both the commodity and labor headwinds we're seeing.

Our G&A expenses as a percentage of revenues increased to eight 5% from eight 1% versus last years third quarter, primarily due to higher wages, resulting from annual rate increases.

Filling open positions higher training program for future restaurant leadership and higher costs associated with becoming a publicly traded company.

When you roll all of this up it led to adjusted EBITDA of $24 2 million versus the prior year of $26 4 million a decrease of eight 4%.

Now from a balance sheet perspective as I previously mentioned, we used the proceeds from our IPO along with cash on hand to repay the redeemable preferred equity and fall repay outstanding borrowings under our second lien credit agreement and purchase LLC units or shares of class a common stock.

From certain pre IPO members.

After making those payments our cash on hand today is over $40 million and remains healthy.

Additionally, our debt has decreased by $155 million and the full balance of redeemable preferred equity has been extinguished in connection with the completion of our IPO.

With that that concludes our financial results I'll now turn it over to Michael for closing remarks. Thank you Michelle.

We've talked.

A lot about portfolios growth.

Across the landscape of fast casual and quick service restaurant chains ports.

<unk> really is a standout when it comes to unit Opex, but there's one major component that makes our brand. So special is our people centric values driven culture.

Our purpose is central to everything that we do and we use our values of family greatness energy and fund as our guiding principle, we care for and invest in our team members and they in turn care for and invest in portfolios.

For example, when <unk> completed its IPO last month, we awarded all restaurant managers onetime restricted stock unit grants, we know our over 500 managers work hard every single day and I am proud that we take care of our leaders by nurturing our connections as a family.

Team members. Our teams are motivated to work even harder for one another and to take amazing care of our guests. It's palpable to our guests. It's why they're obsessed they arent just come into port pillows for the craveable food at a fantastic price point, they're coming for the experience and that.

As an experience that translates across the country.

Thank you.

Operator back to you.

That concludes our formal remarks as always thank you for your interest in portfolios at this time, we'll open the line for questions. We ask that you limit your inquiries to one question and one follow up question. Please.

Okay.

Our first question comes from Andy Barish with Jefferies. Please proceed with your question.

Hey, good morning, guys.

Just a quick.

Question on Friday.

Sort of conceptualize, the the near term margin challenges and how much.

We should be looking at.

Third quarter.

Our base or do you expect some near term pressures as the industry has been talking about and then.

Sort of seeing things reach more of an equilibrium as you move through 'twenty, two just trying to get a sense of.

Some near term color on the margins there.

Yeah first.

Nice to hear from you and hope you're doing well before I turn it over to Michelle. There's one thing that I think I don't want anyone to gloss over is that the Q3, we kind of took the full brunt of all of the commodity and wage inflation and there was no pricing to mitigate some of that so keep in mind, we took pricing at the very beginning.

Q4, and obviously, we think that that will mitigate some of the margin pressure, but I'll, let Michel expand yes, Andy I think when you look at the pressures we're seeing in the back half of this year, we expect them to continue into the fourth quarter and when we think about 'twenty two as well I don't think we see an end in sight in terms of commodity.

Inflation, but to Michael's point, I think I mentioned the pricing action, we took at the beginning of Q4, which was around 3% pricing and we're going to continue to evaluate that as we look into 'twenty two based on what that outlook continues to look like and we'll make decisions on if we need to look at adjusting pricing further but we.

No that's a healthy way to grow this business as through transaction growth, but we'll continue to evaluate.

Both those those key lines of food and labor and see if we need to again adjust price as we move into 'twenty two.

And just as a follow up on pricing.

One is your typical kind of annual price increase and how do you. How do you look at that as you mentioned.

Over the next few months or so.

Yes, what.

What we like to do Andy as part of our strategy is typically be price laggards versus the rest of the industry. We carefully evaluate what the rest of the fast casual and <unk> is doing and we try to make sure that we maintain an exceptionally strong value proposition, but we also feel that we have very.

Very sharp price points, and we have some pricing power at our disposal and we evaluate it on an ongoing basis I don't think we live in a typical environment right now when it comes to commodity inflation. So we're treating this year as somewhat idiosyncratic and we're looking at pricing constantly and we are in.

<unk>, where we need to be we're evaluating where the rest of the market is and we are evaluating what the consumer's appetite is.

Okay very helpful. Thank you.

Thanks, Andy Thanks.

Our next question is from John Glass with Morgan Stanley. Please proceed with your question.

Hi, Good morning, Hey, Michael you gave some color around the drive thru performance pre Covid and post COVID-19 and the dine in business.

Through the first three quarters of 2021, how is the dining improved and what I'm trying to get at is is is that it does improve are you seeing any diminishing in the drive through sales or do you think you can hold those when you think about volumes in the future or is that a possible state where <unk> got the diamondback that those elevated drive through levels remain.

Relatively cogs.

Yes, great to hear from you John Hope you well thank.

Thank you.

It's an interesting dynamic as I think you know our drive dine in used to be low 50% of our mix and right now it's about 32% of our mix and it's been slow in coming back I think there's two factors to that I think one is that <unk>.

And in General across America has been a little bit slow in rebounding with with Covid, but also our restaurants in Chicago, which are still under a mask mandate have I think been even more affected by that.

Now the good news is our drive through traffic actually remains incredibly strong.

And resilient and so as our dine in has slowly eked back up towards mix. It has not negatively affected our drive through channel.

I don't know where this will stabilize.

I think that there is a lot of opportunity for us but.

We'd be foolish of me to hazard a guess on.

How much of it is incremental versus how much of it is shifting.

Thank you for that can you can you talk about you mentioned, Texas as a next year event.

When you think the timing of that is what's the city you selected why did you select that video was it maybe just location based not necessarily seeing base.

About Texas.

Here's what I'll tell you.

Everybody in the room is vigorously shaking their head no that I can't tell you the city, but.

Super excited about the location about where we're going I am so eager to talk to you and others about where we're going because I think it's going to be a flagship restaurant that should should be a really really strong performer for us. It's obviously, it's going to be our first foray into the great state of Texas and we.

Wanted to be a homerun and we believe that that's what it is so it will open in the fourth quarter. When I can I will certainly tell everyone exactly where it is and buildup excitement and momentum, but but unfortunately, John I can't tell you specifically where it is.

Got it thank you.

You bet.

Our next question comes from Dennis Geiger with UBS. Please proceed with your question.

Great. Good morning, and thanks folks first just wondering if you could share or maybe remind folks sort of what youre seeing in the most recently opened stores in some of the newer markets, Michael perhaps highlighting the performance of those stores on call for profitability or other metrics relative to the rest of the system or just any kind of commentary you could share on on.

How are you feeling.

Feeling about those those new stores in those newer markets.

Yes, I'll tell you I'm going to let Michelle I'll give you the specifics, but qualitatively we're thrilled with them, we think that as a class the five restaurants that we have.

Actually six now that we've opened up are all meeting or beating our expectations. So we feel exceptionally good about them.

There's a nuance to this to other than just the financials, what I really love is that we open these restaurants up 100% with values based hires we hired people who represented our values of family Greatness Energy fund and the experience that they are providing our guests from the get go.

Is exceptionally good and so from a qualitative perspective that thrills the heck out of me.

Setting up a restaurant for long term success, that's taking great care of our teams great care of our guests and Michelle can highlight for you the financials and Dennis I think this was outlined in the S. One as well so when you look at the five restaurants that we've opened since the third quarter of 2020, there are performing above our expectations. So.

Typically what our expectations are in year, one for a new restaurant would be around averaging $6 4 million <unk>. The restaurants. The five that I mentioned that we opened since the third quarter are performing roughly 35% above that metric so to Michael's point, we're extremely proud of the performance.

Most of those restaurants are outside of our Chicago land market. So our flagship restaurant in Michigan in Sterling Heights of restaurant near Arizona in Glendale, and then our first restaurant in Orlando, Florida. So we're proud about that performance and the fact that they're.

Like I mentioned, roughly 35% above what we were targeting in that year one AAV.

Great. Thank you and then just second question just as it relates to supply chain.

<unk> shortages et cetera.

Any thought there with respect to impacting opens over the next 12 months or so it doesn't sound like and I think Michelle you spoke to the strength of your relationships, but just curious if theres anything to note there as it relates to challenges opening stores over the next 12 months or any impact on build costs et cetera. Thank you.

There was a lot of that second question of yours, Dennis So let me, let me tease out some of the different parts.

We just recently opened in Westfield, Indiana, we're opening in two weeks in West Madison, Wisconsin, and we in the process of training those teams up.

I'm knocking on wood, because we were pleasantly surprised at the relative ease of attracting talent and hiring up for both of those restaurants.

We are opening those restaurants fully staffed there are I don't know if this is a canary in a coal mine dynamic that the labor markets are freeing up but we're thrilled with our ability to open those restaurants fully staffed get those folks trained and get going while there are certainly some supply chain hiccup.

And that's how I would describe it.

It's in no way negatively affecting our business or our ability to run our business. It is just we see some idiosyncratic spikes in cost and they come back down and something else spikes and then it comes back down and so.

I think I think the next six to nine months requires us to just be super agile and responsive to the supply chain dynamics, but also keep keep them when it comes to labor.

We're just going to keep doing what we do which is we provide a differentiated opportunity for people. We hire people based on values, we provide them a lifetime of opportunity if they so choose and I know you know this is Dennis but we don't pay minimum wage at any of our restaurants were significantly above minimum wage across the <unk>.

<unk> because we truly believe that people are the heart of our business and we take care of our teams.

Great Thanks, guys and congrats.

Thank you Dennis.

Our next question comes from Nicole Miller with Piper Sandler. Please proceed with your question.

Thank you good morning labor.

Labor costs are challenging, but if you flip it around and think about efficiency. How is labor efficiency I think you measure that by items sold per labor hour.

Yes.

First of all Hi, Nicole nice to hear from you.

You are 100% right. It's one of the things that we take a lot of pride in and I think.

I don't know if everybody remembers this or is aware of this but during the pandemic year, we did not lay off a single person.

We actually invested in our people and we saw a massive increase in 2020 in labor efficiency and you're 100% right. We look at it in terms of items per labor hour and so we.

2020 was an incredible year it was probably too much to be honest with you. Our people worked a little too hard but the good news is is that the investments that we've made in our and our people. The love that we've showed them and the learnings and the cross training that we did yields for us about a 10% improvement in IP LH in 2021.

One versus 2019, and so it is absolutely part of whats mitigating some of the cost pressures is that our folks are just more efficient.

And they and they work incredibly diligently.

And so we think that that's a learning that we got in the Covid year that will continue to bear fruit.

For us our team members and our investors for years to come.

And can you just run through where you stood on a debt to EBITDA ratio at the end of the quarter and why you're comfortable with that level.

Ali does the ratio taper as EBITDA increases or would you be proactively paying down debt.

Yes, Nicole.

On a post debt structure, which after we paid off the second lien in the $155 million were roughly around three five times debt to EBITDA ratio and so our expectation is is that as we continue to grow that EBIT line, where naturally going to delever, but the capital structure is in a.

Stronger position post IPO at the end of the quarter that that ratio is obviously higher just given that the pay off of the second lien occurred post Q3.

As part of the IPO proceeds.

Alright, thank you so much and good luck.

Thank you Nicole.

Our next question is from Sarah Senatore with Bank of America. Please proceed with your question.

Alright. Thank you I have a question about labor and then just a quick follow up on the pricing comment.

Labor investments you've made were partially offset by you said lower staffing levels, but also increased productivity. As you were just discussing I guess can you talk about the extent to which not having as much staff as you would like might have hindered topline.

I know you said you didn't have to close restaurants that presumably.

All lines for longer than perhaps you lost some sales from that perspective, so any insights you might have on whether that actually.

And affected your your your sales and also to the extent that there is more productivity just remind me is that some of the technology.

<unk> invested in or.

What's been driving that in terms of systems.

Great Great to hear from you. Thank you very much there is a lot again.

In that question of yours so.

There is when you think about the labor algorithm. There is a bunch of things going on so the first thing is that we are sort of slightly under staff versus ideal right and so that has that has flex a little bit but think of it as we're roughly 10% under staff versus ideal over the course of the third quarter. The second element of that is we are more.

Our productive than historical during that quarter and then the third component is that the hourly wage is.

In the third quarter was significantly higher than the third quarter of the prior year. So there's three different elements working against one another.

Intuitively you are absolutely right that when you are understaffed.

We are providing a less than perfect experience to guests and it slows things down it slows down your drive thru it slows down your line. So intuitively it would be hard to argue with your premise that better staffing results in better performance, which results in better guest.

Repeat and frequency so.

We certainly plan on staffing fully as those opportunities avail themselves because we intuitively believe that fully staff restaurants perform better and that theres some comp opportunity there so 100%.

<unk> with the way Youre thinking about it in that logic.

Great. Thank you and then just.

On you mentioned on pricing I know you talked about really being cognizant of your customer.

Thoughtful about it.

I think about going forward, though.

Should I be thinking about kind of stable trends you've added some price maybe you give some of that back in traffic. If I think about kind of the two year I know there are all kinds of puts and takes but as I think about elasticity is the right way to sort of see it as just sort of a one to one traffic price trade off or you think you have the ability.

To take price and again hold more of that traffic. So we might actually see an acceleration in comp.

I'll tell you this is a remarkable business in that.

As we as I've looked at it our pricing does not have the same elasticity effect as <unk> seen in other restaurant businesses are consumer businesses. We have we have more inelastic demand than I think people would expect so I think theres a lot of the pricing that is incremental.

That being said, we also need to be really really careful and smart about how we price Michel said, it earlier and I want to reiterate it right our.

Is this we believe is healthy when it's driving transaction growth.

That's hugely important to us and our team we want more people coming through our restaurants that's healthy.

I think pricing is an important lever to deal with what I will describe as idiosyncratic cost increases right. So some of the craziness that we saw in the last 12 months.

On commodities in the labor market, you really have no choice, but to price some of that away, but our healthy business is run by driving transaction growth that is our intent.

The good news is that we have a very sharp value proposition where pricing after most of the fast casual and <unk> have priced and so there is from across the last this to be a fact, we look really good and and we will continue to make sure that we're managing that great value proposition.

I'll still covering idiosyncratic cost increases in commodity and labor.

Thank you.

Thank you Sir.

Our next question is from Alton Stump with loop capital. Please proceed with your question.

Great. Thank you and good morning.

Just wanted to ask.

And restaurants, five which talks about a target of.

25% cash on cash return by year, three but clearly you've outperformed that with your openings over the last couple of years, even amidst the pandemic outbreak so.

Is it just being conservative or is there some reason why.

We should see cash on cash returns going forward below what you had been able to do over the last couple of years.

First very nice to hear from you Alton I feel like you are jinxed us with that comment sorry.

Alright.

Look we are we're really we're cautiously optimistic that the.

The performance that we're generating from these last couple of classes of restaurants are.

Are exactly what we expect going forward and we are.

We expect to beat our.

As a management team as a leadership team we are building restaurants, where.

Where we feel like there is a lot of upside and very little downside. So it's certainly our hope and our expectation, but I would not.

Would not tell you.

Necessarily bank on it is that fair.

Yes, no absolutely.

Definitely makes sense.

Thank you for that and then.

Just as.

As my follow up.

Just kind of think about absolute building outside.

Which call your Chicago market.

It was Indiana, Michigan et cetera.

If I assume that probably the average cost of those is a bit lower than your.

Bills that you've done in your core market, obviously AAV.

Of course, if it lower but still off.

Industry, leading a horse but.

Or kind of how the average returns in your core versus noncore markets are trending.

Yeah.

Yeah. There is so much noise in that I mean, it's a great question. The problem is there is so much noise in answering that question because yes, historically Chicago was more expensive to build no doubt about that.

But if I'm comparing historical Chicago build cost today to build outside Chicago, It's kind of it's kind of a wash because everything has gotten so much more expensive. So what we're spending today to build is probably what we would have spent in Chicago a couple of years ago to build.

So that's why there is noise, but your intuition that as we go to places like Florida, and Texas, and Arizona, and Michigan, and Indiana fundamentally the cost to build is less than it is in Denver, Chicago market and so the.

There's a good argument to be made that we can perform from a cash return standpoint, really really well outside Chicago.

Great. Thank so much Michael I'll hop back in the queue.

You bet nice to talk to you.

Our next question is from David Tarantino with Baird. Please proceed with your question.

Hi, good morning.

My first question's about staffing levels, Michael I think you mentioned.

Third quarter, you are 10% below where you'd ideally like to be and.

My question is whether you are starting to see progress on narrowing that gap.

In the fourth quarter, and whether you've set any goals internally.

On getting back to fully staffed by a certain time frame.

Great question, David What I would guide you towards is that.

The two new restaurants that we just opened up that we just opened up in Westfield, Indiana and will open in two weeks in Madison, Wisconsin, those two restaurants are fully staffed.

And we are we are all like we got our fingers and toes crossed we're pleasantly surprised and we're hoping that that's an indication of staffing in general we are staffing up across the system.

In general.

For us.

The holidays are really a big deal we do a ton of catering we have a lot of seasonal staff a lot of kids have gone off to college it come back and want to grab a few hours and so we are we are seeing some staffing improvement, but I'm not I'm not ready to declare victory or even.

I'm, just not ready to declare that yet I think there are certainly positive I'd say theres more positive signs of negative signs, but in no way do we feel confident to declare victory on labor.

Got it thanks for that and then.

I had a question about how youre thinking about prototype design on a long term basis, I mean, you've seen a very big change in the mix in your business and I realize that may not have fully settled out yet but to the extent you have a lot less dine in business going forward and more drive thru and digital and delivery.

<unk> business.

Are you thinking about.

Changing how the prototype is designed and is there an opportunity to optimize that.

Cost of the box when you're when you're building out new units.

Any thoughts on that would be great.

Another great question.

And youre going to Youre going to allow me to wax on about one of my favorite topics. So we are going to quote the great. One we're going where the puck is going not where the puck is and so.

Where the puck is going in is exactly what you described which is.

A bigger percentage of our sales will continue to be off premise versus on premise and so.

The prototypes that we are building, including what we built in Glendale in Orlando and Addison and Kimball in Chicago in Sterling Heights, there they were gearing towards IND.

Increased off premise sales. So what you see in these restaurants is less formal dining space. The dining rooms are getting a little smaller now we're kind of cheating a little bit because we're supplementing them with outdoor patio spaces that are really highly desirable from guests and very flexible, but we're being.

Very thoughtful in creating dedicated entrants investor Buell for third party delivery, we're creating special format special access for off premise I mean, we've we've done a bunch of things where curbside.

Is now I think we've cracked the code on it we're doing this racking system right by a door right five parking spots. So people can come in and get out Super quickly.

And then as we've mentioned.

We're building that drive through only concept and Juliet and I didn't say this but west Madison has a third lane drive thru Lane, it's essentially we're kind of toyed with the idea of calling it a SaaS Paas lane and its for people who have ordered via the app or want a curbside type experience, where you don't have to get out of your car you can zip.

Through that third drive thru Lane and the food gets brought out to you. So kind of my long winded way of saying, 100%, where we're moving towards where the consumer is which is the consumer says we want more off premise access and availability and the need to sit into the restaurant.

<unk> is coming down and so thats, how all of our new prototypes are being built.

Great. Thanks for the context.

You bet, David Nice to talk to you.

Yes.

Our next question is from Chris <unk> with Stifel. Please proceed with your question.

Yes, thanks, good morning, guys.

And now that we're at.

Hello, now that we're in mid November I wanted to ask about catering and large group orders I know the holidays typically provide or bring a sizable volume lift. So I was just curious what kind of visibility you have at this point into how that shaping up for the year and then I had a follow up.

Yeah.

Right.

You get this right. There's this whole e-commerce and catering business that is a is just a monster for us in the fourth quarter a lot of people don't know this but Christmas.

Christmas Eve is our single biggest day of the year. It is a massive date all hands on deck. We have team members from the restaurant support center out in all of our restaurants, helping because catering portillo is a thing and it's a huge thing in Chicago area on Christmas Eve, So catering the e-commerce business take.

During the fourth quarter I would tell you we have I.

Im not going to tell you anything on a forward looking basis, but I would tell you that the last few weeks have been extraordinarily strong from a catering business.

Significantly.

Positive comp over last year.

It would be low to tell you the numbers because I don't want you to plan on those numbers, but we feel really really good about the way our catering business is performing right now we're cautiously optimistic.

And think that it should be a really nice bounce back from last year for us.

Great and then.

Can you please speak a little bit more about the third order ahead drive thru Lane, that's being tested I was just wondering how that's being received by consumers and if you think that's a format or I can say.

Zion change that you'd look to implement going forward.

Yes, just to be precise I'm, sorry, if I misspoke, but it's in it's going to be in west Madison, which opens in two weeks. So it's anybody.

Your guess is as good as mine on how it will be received by consumers I honestly think it's going to be received really well because more and more consumers are asking for restaurant companies to be flexible in how consumer interacts with you and there is all kinds of almost micro channels right. There is like.

Our need for somebody who wants.

If you're a mom with three screaming kids in the back you don't want to wait in line. You've ordered ahead on the App and you paid you just want to pick up your food, we have made that super easy and we're going to see how that performs in west Madison and we'll see how that performs in Joliet. When we open that up in the first quarter of 'twenty two.

I think it's a very very important learning for us because.

If consumers continue to ask for and.

Require these sort of nuances in how you engage with them I think the restaurant companies that respond to that and Ken acquiesce to that kind of consumer demand are going to be in a better position and I think thats us I think we as I said in my opening remarks, we were multichannel before its a thing we're all.

Louis is going to be super responsive to what the consumer wants and how they want to interact with us and if there is a way of making that third land work Institutionally, then <unk>, we will do that.

Makes sense thanks, guys.

Thank you.

Our next question is from Gregory Frankfurt.

With Guggenheim Securities. Please proceed with your question.

Yes, thanks for the question.

I had two just the first one just on pricing, but I think historically you guys have taken pricing once per year.

This year, you're basically taking it twice.

Can you maybe talk about when you evaluate that and when you normally take it just as we think about next year and what might happen.

So.

Greg first of all good to hear from you.

I'd tell you the last couple of years, we've been a little bit more and I'd like to think of it as agile on pricing. So yes, we certainly we certainly do a pricing event.

Late in the third quarter early in the fourth quarter and that sort of the primary annual rhythm on pricing, we like to look at pricing late in the third quarter early in the fourth quarter set the price and then go through the year, but in the last couple of years.

Where there has been either a need or some sort of inflationary demand. We've also done a smaller pricing in the late spring early summer and so.

I don't think I don't think I want us tied down to a specific rhythm on pricing, we look at pricing on a weekly basis, we scraped competitor data, we look at what the elasticity impact is of our existing pricing.

We are analyzing it on a regular weekly basis now we're going to we're not going to price that frequently but I think it's really important to know what your competition is doing it's really important to know what consumers are experiencing and it's really important to gauge consumer response to ongoing pricing. So.

It would not.

I don't think it should surprise anyone if we take a small pricing sometime in the.

And next year right because as Michel mentioned, we're looking at commodities, we're looking at labor, where we see idiosyncratic issues, we may need to price, where we're seeing pockets of inflation, we may need to price.

Got it got it and then it seems like the two companies investor the two sort of themes investors. Most focused is on that labor.

The ability to kind of staff restaurants, as well as the price increase can you can you maybe talk about why you like Portillo has greater pricing power than some of your competitors out there is it just the absolute level of check or.

How youre thinking about why fluctuations of differentiation on that ability.

I mean, I think Greg it starts with the fact that the average average ticket per person at Fort Hills is $9 60.

Right.

Let's just start with that compare.

You, obviously know right that that number is not like pulled out of my rear end that is a number that is validated it's vetted it's gone through SEC.

Scrutiny, that's a real number and that is a surprisingly low number for the quality of our food for the abundance of our food and the experience that we provide and so I think it starts with we have an incredibly sharp value proposition and so so that is one of the reasons why we.

While we perform as well as we do and why we have the <unk>.

Revenues per unit that we do because we have an incredibly sharp value proposition.

We.

It.

Certainly seems to me like we have.

We have latent pricing power IC, where competitors are pricing I see how aggressively they're pricing.

Our pricing.

Go through all the details we continued to be priced laggards right, we don't price as much or as frequently as our competition and I think it means that when we need the price people accept it and they've already been inured to the price points that have gone up everywhere else.

Yes. Thank you.

You bet, Greg Nice talking to you.

Our next question is from Sharon Zackfia with William Blair. Please proceed with your question.

Hi, it's actually Matt Curtis on for Sharon.

I have a question on your menu evolution.

<unk>.

Recently, we've done a lot of menu simplification, while you were private.

And I was just wondering about going forward. How you how you think about the men.

The menu evolving in terms of new products or specific categories, you may be looking to expand.

It's a great question and yes, we have been the <unk> simplifying the menu on average we took I think 75 skus out of each restaurant during the pandemic. There were some restaurants that we took a 150 to 200 skus out.

We have taken menu items out we have dramatically improved menu items, we had.

If we if we we constantly are evaluating our menu and seeing what.

It sells and what to guess like and if there's stuff that sells but guests don't like we've worked hard to improve them right.

I mean I would tell you we've.

<unk> Caesar salads, we had a cold chicken on it that just wasn't really good I was embarrassed we dramatically improved the quality of the chicken salad is better we dramatically improve the quality of our fish sandwich and so I think the first priority for US is to always make sure that every single item on our menu is amazing and we're kind of.

Of ruthless in that sense that we look for things that we don't think are as good as they should be and we either make a much better or we replace them with something else thats much much better and a perfect example of that is our spicy chicken sandwich.

We had a chicken sandwich or broiled chicken sandwich on our croissant that just wasn't very good and so we killed it and we brought in the spicy chicken sandwich, which was amazing it's actually pushed up our chicken category by 27% year over year.

And that is awesome, it's a great win for our guests because they love it the chicken sandwich is unique because it's got a.

Spicy jarden ore source on it.

Sure.

I'll give you a free portillo is if you can all pronounced jarden are correctly, but it's really it's a unique thing thats <unk> to us it's not like what any other restaurant company does we're not trying to be like everybody else, we want to be port <unk> and <unk>.

So and I think that's a perfect example of menu innovation.

There are other things on our menu that our culinary team is taking a hard look at and I tease because I call. It a darwinian exercise with the menu we have the strong killed the week and Thats, what we do.

Okay, Great and then I guess just one other question on G&A.

Obviously youre going to have the incremental public company costs for the next little while.

And then also it sounds like some of your investments in training.

In things like technology, perhaps are likely to continue but I'm just wondering if you could talk about.

The companys ability to leverage G&A.

That is on an underlying basis going forward.

Yes.

A good question and I think when you when you look at to your point.

And the future quarters and years to come we're going to have incremental public company G&A. I also mentioned in my prepared remarks, we're going to have incremental stock based compensation expense as a result of some of the modifications and change changes to our equity incentive plan and so youre going to see that come through and once you strip out.

I'd say those two big buckets, we do expect to leverage G&A as we move forward, but it's not going to be at the expense of not investing in the training, particularly around the folks that we need to run our restaurants in the future. So we're going to continue to make investments.

And training our future restaurant leaders, but I can tell you that Michael and I are committed to definitely leveraging that line as we move forward. When you when you pull out those two line items.

Okay terrific, thanks, very much and congratulations on the IPO.

Thank you. Thank you.

This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.

[music].

Yeah.

[music].

[music].

Good day, ladies and gentlemen, and thank you for standing by welcome to Port Charles third quarter, 2021 earnings conference call.

At this time all participants have been placed in a listen only mode. Please note that this conference is being recorded today November 18th 2021.

Now like to turn the call over to your host Mr. Fitzhugh tailor managing director at ICR. Thank you you may begin.

Thank you, Rob and good morning, everyone.

With me on the call today is Michael <unk>, President and Chief Executive Officer of Portola is Michelle Hook, the Companys Chief Financial Officer.

Before we begin our formal remarks, let me remind everyone that part of our discussion today will include forward looking statements.

Statements are not guarantees of future performance and should not be unduly relied upon.

We do not undertake to update these forward looking statements unless required by law and we refer you to today's earnings release, and our SEC filings for more detailed discussion of the risks that could impact portela has future operating results and financial condition.

Our remarks also include non-GAAP financial measures, such as adjusted EBITDA and restaurant level adjusted EBITDA.

We direct you to our earnings release issued this morning, which is available on our website for reconciliations of these non-GAAP measures to their most comparable GAAP measures.

Any non-GAAP financial measures should not be considered as an alternative to GAAP measure such as net income or operating income or any other GAAP measure of our liquidity our financial position. Finally, after we deliver our prepared remarks, we will open the lines for your questions.

Let me now turn the call over to Michael <unk> Michael.

Thank you for to you and good morning, everyone. We appreciate you all joining us for our well what is our inaugural quarterly earnings call as a public company, it's an incredibly exciting time for port pillows.

We are so proud of the successful completion of our IPO and we're pleased with our performance. So far this year, which is reflected continuing improvement in guest traffic as our business is evolving into a new normal.

Our teams continue to pivot in a smart efficient way to serve our loyal guests and a safe environment I couldnt be more pleased with our performance led by our amazing teams and their ability to successfully adjust and continue to improve and.

And importantly, theyre doing all this while living our values of family greatness energy and fun.

Before I, let Michelle review the quarter results in more detail. Since this is our first earnings call since our IPO I want to take a few minutes to talk about <unk> and just share what makes our brand so special.

Our story began in 1963, when <expletive> Portillo invested $1100 in a trailer and Villa Park, Illinois.

The doghouses he called it sold hotdogs fries and tamales.

A few years later <expletive> opened his first freestanding restaurant and named Port Pillows.

And that was just the beginning of this great American success story.

After gradual expansion over multiple decades, Berkshire partners acquired portfolios in 2014 and has since accelerated our growth, adding 29 restaurants across six additional states.

Most people think of Porto lows as the Chicago institution, but the reality is we first start seems to become a national brand with 68 restaurants today soon to be 69 across nine states.

Even as we've grown we've maintained that iconic status with our fans who are truly obsess.

We do this with our unique menu of unrivaled Chicago Street, food and all American favorites that has something craveable for everyone.

Got Italian beef sandwiches, Chicago style, Hotdogs Char grilled third pound burgers fresh made salads and much more.

All at a remarkable price point.

In addition to this amazing menu I also want to stress portfolios operational excellence across numerous order channels, we've been multichannel since before it was even a thing.

While other brands have been chasing this especially since the outset of the pandemic. This is what poor Telus has done from early on in our history just.

Just to give you an idea of our business both pre pandemic and now our annual drive thru sales represented $3 $4 million per restaurant in 2019, and $4 9 million in the 12 months ending Q3 2021.

That's just our drive through.

Our dine in sales represented $4 4 million per restaurant in 2019, and $2 1 million in the 12 months ending Q3 2021.

Although dine in has decreased because of the pandemic traffic remains healthy.

That's in part because our restaurants are beautiful and they're engaging they're thoughtfully designed to handle incredible volume, while still providing a memorable and differentiated experience with each having its own locally inspired decor.

And then Theres delivery, we started delivery in 2017 and it accounted for about $500000 per restaurant in 2019, and nearly 900000 in the 12 months ending Q3 2021.

Our other channels are also growing we cater literally tons and tons of food and convenient formats that fit any occasion.

I already mentioned that our fans are obsessed people love catering port pillows for their gathering gatherings and events we.

Also have a really strong direct shipping business that not only gives us sales where provides key insights into where there's latent demand for our business is.

This multichannel approach allows us to achieve best in class unit economics, including the highest average unit volumes in the fast casual space.

And adjusted EBITDA margins that put us in an elite class of restaurants, we are committed to continuing to be a world class multichannel restaurant brand with incredible sales from all of our channels.

Switching to development by the end of Q4, we will have added two new restaurants to the portfolio opening location number 68 in the Indianapolis market in the city of Westfield and location number 69 opening in about two weeks in Madison, Wisconsin.

Both new locations demonstrate our strategy to open new restaurants outside of our core Chicago land market.

The Westfield location on the north side of indie adds to an already strong presence as our fourth restaurant in Indianapolis and the seventh in the state and the new Madison location will be a second entry to Madison and the fourth in the state.

Each of these serves a separate and distinct trade area.

With these two we will have added five new restaurants in 2021, including two new markets, having opened our first <unk>.

<unk> includes Orlando, Florida, and Sterling Heights, Michigan.

As we move into next year and beyond we're excited about our massive white space opportunity as we've previously stated in our IPO filings with the SEC theres potential for over 600 port till those restaurants throughout the country.

This is obviously a long term growth number and we plan to expand at about 10% growth annually or.

Our current plan is to open seven restaurants in 2022.

And we're targeting to expand our presence in Florida, Arizona, Indiana, and Michigan as well as an initial expansion into Texas.

Strategy allows us to tap into our two pronged approach to expansion first continuing to expand our presence in our core market across the Midwest and second targeting national markets across the sunbelt for opportunistic growth.

One specific new location plan for 'twenty, two that I want to highlight is what we're calling a portillo pickup which will be located in Joliet, Illinois.

Unlike our other restaurants this off premise only spot features a smaller footprint than the traditional port pillows and it will not have a dining room. Instead it will feature three drive through lanes as well as a pickup area catering and delivery. This is the first prototype and if successful gives.

As a great option to fill in mature markets.

Finally, as we grow our unit count.

Continue to be focused on our talent pipeline, we will continue to invest in our training programs develop leaders and live our values of family greatness energy and fun each and everyday.

All of these efforts are reflected in drive our financial performance with that I'm going to turn it over to Michelle to cover more details about our financial results.

Thank you Michael.

Before we discuss our third quarter results, let me briefly recap our recent IPO on October 25th following the end of the coronary and completed our IPO by issuing approximately $23 3 million shares, including approximately 3 million shares sold through our underwriters as part of the OS.

Allotment option at an offering price of $20 per share.

We received net proceeds of approximately $429 9 million after underwriting discounts and commissions and estimated offering expenses, which we used along with cash on hand to one prepay the redeemable preferred equity, including the redemption premium.

All totaling $221 7 million.

To repay all of the outstanding borrowings under the second lien credit agreement, including prepayment penalties, all totaling $158 1 million.

And three purchasing LLC units or shares of class a common stock from certain pre IPO LLC members for $57 million.

Also in connection with the IPO in the fourth quarter each option under the 2014 equity incentive plan that was outstanding whether invested or Unvested was substituted for an option to purchase the number of shares of class a common stock under the 2021 equity incentive plan and the option.

Orders received a cash payment in respect of their options, while they invested around baskin in an aggregate amount of approximately $6 $3 million.

In addition, as a result of modifications to the terms of certain pre IPO performance Vesting Awards, we will record a compensation expense based on the fair value of the modified award.

We will expect to recognize a cash compensation expense of approximately $1 3 million and noncash compensation expense of approximately $23 3 million each in the fourth quarter.

Now turning to our results for the third quarter.

Revenues were 138 million, reflecting an increase of $18 3 million or 15, 3% compared to the third quarter of 2020. This was driven by a six 8% incur increase and our same restaurant sales combined with the opening of two new restaurants in the <unk>.

Fourth quarter of 2020, and three new restaurants opened to first three quarters of 2021.

The same restaurant sales increase of six 8% was primarily driven by a seven 9% increase in average check partially offset by a decrease in our traffic.

Our higher average check was due to increases in our menu prices.

<unk> of items sold and more items per order.

The decrease in traffic reflected continued pressures from COVID-19 as we have fewer people dining in our restaurants versus pre pandemic levels. This was partially offset by more people going through our drive through channel.

While all of our dining rooms were opened during the third quarter, we continue to be subject to local masked mandates mandates for indoor dining and many of our locations.

We aim to continue to provide exceptional service to our loyal guests and a safe environment for both our team members and guests.

Now turning to our cost of goods sold cost of goods sold excluding depreciation and amortization as a percentage of revenues increased to 32, 1% from 36% last year, primarily due to an increase in commodity prices specifically beef.

This was offset by an increase in our average check.

We along with others in the industry continue to navigate through a disruption in our supply chain and we continue to work hard to maintain inventory when it comes to supply chain. We're confident in both our distribution partners and suppliers, we have outstanding relationships that we believe will allow.

US to continue to procure products needed and we feel extremely confident in our distribution strategy.

Moving on to labor.

Labor as a percentage of revenues increased to 26, 8% from 24, 3% last year, primarily due to an increase in hourly rates.

Investments made in training costs and discretionary bonuses.

All of these costs were partially offset by an increase in our average check.

As you are all aware the labor market is extremely tight right now and everybody is competing for talent. We've made a substantial investment in team member pay in the second quarter as part of an ongoing enhancement to our pay benefits training and talent development and we are seeing.

The impact flow through in the third quarter labor expenses as our average hourly rates are up nearly 20% quarter over quarter.

While the current labor market challenges have hindered our ability to be fully staffed our restaurants have not.

Had to limit service channels, our hours of operation and we are proud of our committed team members that service our guests each and every day.

We remain committed to investing in our Portillo family and as a result would expect elevated year over year labor costs to continue in the near future.

Even with increases in food and labor costs, we continue to produce strong margin results. When you look at both the restaurant level margins and the adjusted EBITDA margins within the quarter.

Now turning to our other operating expenses those expenses increased $2 5 million or 19, 5%, which was primarily due to the opening of five new restaurants since the third quarter of 2020. In addition to incremental costs for cleaning and utilities as dining capacity is it.

Expanded since the third quarter of last year.

All of this was a combined with an increase in our direct marketing expenses as well as repair and maintenance costs.

Looking at our occupancy cost those decreased as a percent of sales primarily due to the year over year sales increase previously described.

And is inclusive of the opening of five new restaurants since the third quarter of 2020.

When you look at a restaurant level adjusted EBITDA that metric decreased one 1% to $34 2 million largely a result of the.

The impact of commodity and labor inflation.

We did not take any incremental pricing during the third quarter.

And have increased certain prices to reflect an approximately 3% price increase.

In the early part of the fourth quarter to combat both the commodity and labor headwinds we're seeing.

Our G&A expenses as a percentage of revenues increased to eight 5% from eight 1% versus last years third quarter, primarily due to higher wages, resulting from annual rate increases.

Filling open positions higher training program costs for future restaurant leadership and higher costs associated with becoming a publicly traded company.

When you roll all of this up it led to.

Adjusted EBITDA of $24 2 million versus the prior year of $26 4 million a decrease of eight 4%.

Now from a balance sheet perspective as I previously mentioned, we used the proceeds from our IPO along with cash on hand to repay the redeemable preferred equity and fall repay outstanding borrowings under our second lien credit agreement and purchase LLC units or shares of class a common.

Stack from certain pre IPO.

<unk>.

After making those payments our cash on hand today is over $40 million and remains healthy.

<unk>, our debt has decreased by $155 million and the full balance of redeemable preferred equity has been extinguished in connection with the completion of our IPO.

Yes.

With that that concludes our financial results I'll now turn it over to Michael for closing remarks. Thank you Michelle.

Tom.

Talk a lot about portillo its growth.

Ross the landscape of fast casual and quick service restaurant chains.

Portillo is really is a standout when it comes to unit Opex, but there is one major component that makes our brand so special.

As our people centric values driven culture.

Our purpose is central to everything that we do and we use our values of family greatness energy and fund as our guiding principle, we care for and invest in our team members and they in turn care for and invest in portfolios. For example, when <unk> completed its IPO last month, we awarded.

All restaurant managers, one time restricted stock unit grants.

We know our over 500 managers worked hard every single day and I am proud that we take care of our leaders by nurturing our connections as a family of team members. Our teams are motivated to work even harder for one another and to take amazing care of our guests.

It's palpable to our guests, it's why they're obsessed they arent just come into port pillows for the craveable food at a fantastic price point, they're coming for the experience and Thats an experience that translates across the country.

Thank you.

Yes.

Operator back to you.

That concludes our formal remarks as always thank you for your interest in portfolios at this time, we'll open the line for questions. We ask that you limit your inquiries to one question and one follow up question. Please.

Our first question comes from Andy Barish with Jefferies. Please proceed with your question.

Hey, good morning, guys.

Just a quick.

I'm trying to.

You know sort of conceptualize the the near term margin challenges and how much.

We should be looking at third quarter.

Being a base or do you expect some near term pressures as the industry has been talking about and then.

Sort of seeing things reach more of an equilibrium as you move through 'twenty, two just trying to get a sense of.

Some near term color on the margins there.

Yeah first.

Nice to hear from you Andy Hope, you're doing well before I turn it over to Michelle There's one thing that I think I don't want anyone to gloss over is that the Q3, we kind of took the full brunt of all of the commodity and wage inflation and there was no pricing to mitigate some of that so keep in mind, we took pricing at the very beginning.

Q4, and obviously, we think that that will mitigate some of the margin pressure, but I'll, let Michel expand yes, Andy I think when you look at the pressures we're seeing in the back half of this year, we expect them to continue into the fourth quarter and when we think about 'twenty two as well I don't think we see an end in sight in terms of commodity.

Inflation, but to Michael's point, I think I mentioned the pricing action, we took at the beginning of Q4, which was around 3% pricing and we're going to continue to evaluate that as we look into 'twenty two based on what that outlook continues to look like and we'll make decisions on if we need to look at adjusting pricing further but.

We know that the healthy way to grow this business as through transaction growth, but we'll continue to evaluate.

Those those key lines of food and labor and see if we need to again adjust price as we move into 'twenty two.

And just as a follow up on pricing.

When is your typical kind of annual price increase and how do you. How do you look at that as you mentioned.

Over the next few months or so.

Yes.

What we like to do Andy as part of our strategy is typically be price laggards versus the rest of the industry. We carefully evaluate what the rest of the fast casual and <unk> is doing and we try to make sure that we maintain an exceptionally strong value proposition, but we also feel that we have.

Very sharp price points, and we have some pricing power at our disposal.

And we evaluate it on an ongoing basis I don't think we live in a typical environment right now when it comes to commodity inflation. So we're treating this year as somewhat idiosyncratic and we're looking at pricing constantly and we're evaluating where we need to be we're evaluating where the rest of the market is and we are evaluating.

<unk>, what the consumer's appetite is.

Okay very helpful. Thank you.

Thanks, Andy Thanks.

Our next question is from John Glass with Morgan Stanley. Please proceed with your question.

Good morning, Hey, Michael.

Gave some color around the drive thru performance pre Covid and post COVID-19 and the dine in business.

As you look through the first three quarters of 2021, how is the dining improved and what I'm trying to get at is is.

Is that it does improve are you seeing any diminution in the drive through sales or do you think you can hold those when you think about volumes in the future or is that a possible state where you've got the diamondback that those elevated drive through levels remained relatively constant.

Yeah, great to hear from you John Hope Youre well.

It's an interesting dynamic as I think you know our drive dine in used to be low 50% of our mix and right now it's about 32% of our mix and it's been slow in coming back I think there's two factors to that I think one is that.

Dining in general across America has been a little bit slow in rebounding with with Covid, but also our restaurants in Chicago, which are still under a masked mandate have I think been even more affected by that.

Now the good news is that our drive through traffic actually remains incredibly strong and resilient and so as our dine in has slowly eked back up towards mix. It has not negatively affected our drive through channel.

I don't know where this will stabilize.

Think that Theres, a lot of opportunity for us but.

It would be foolish of me to hazard, a guess on how much of it is incremental versus how much of it is shifting.

Thank you for that can you can you talk about you mentioned, Texas as a next year event.

Do you think the timing of that is what's the city you selected why did you select that city or was it maybe just location based not necessarily seeing base. How did you think about Texas.

Here's what I'll tell you.

Everybody in the room is vigorously shaking their head no that I can't tell you the city, but we are super excited about the location about where we're going I am so eager to talk to you and others about where we're going because I think it's going to be a flagship restaurant that should it should be a really re.

Really strong performer for us, it's obviously, it's going to be our first foray into the great state of Texas, and we want it to be a homerun and we believe that that's what it is so it will open in the fourth quarter. When I can I will certainly tell everyone exactly where it is and buildup excitement and momentum but but.

John I can't tell you specifically where it is.

Got it thank you.

Beth.

Our next question comes from Dennis Geiger with UBS. Please proceed with your question.

Great. Good morning, and thanks folks first just wondering if you could share or maybe remind folks sort of what youre seeing in the most recently opened stores in some of the newer markets Michael.

Haps, highlighting the performance of those stores on calling for profitability or other metrics relative to the rest of the system or just any kind of commentary you could share on on.

How are you feeling.

Feeling about those those new stores in those newer markets.

Yeah, I'll tell you I'm going to let Michelle I'll give you the specifics, but qualitatively we're thrilled with them, we think that as a class. The five restaurants that we have actually six now that we've opened up are all meeting or beating our expectations. So we feel exceptionally good about them.

There is a nuance to this to other than just the financials, what I really love is that we open these restaurants up 100% with values based hires we hired people who represented our values of family Greatness Energy fund and the experience that they are providing our guests from the get go.

<unk> is exceptionally good and so from a qualitative perspective that thrills the heck out of me.

Setting up a restaurant for long term success, that's taking great care of our teams great care of our guests and Michelle can highlight for you the financials, Yeah and Dennis I think this was outlined in the S. One as well so when you look at the five restaurants that we've opened since the third quarter of 2020, they are performing above our expectations. So tips.

<unk>, what our expectations are in year, one for a new restaurant would be around averaging $6 4 million.

He's the restaurants, the five that I mentioned that we opened since the third quarter are performing roughly 35% above that metric so to Michael's point, we're extremely proud of the performance.

Most of those restaurants are outside of our Chicago land market. So our flagship restaurant in Michigan in Sterling Heights, a restaurant near Arizona in Glendale, and then our first restaurant in Orlando, Florida. So we're proud about that performance and the fact that there.

Like I mentioned, roughly 35% above what we were targeting in that year one AAV.

Great. Thank you and then just a second question just as it relates to supply chain.

Labor shortages et cetera.

Any thought there with respect to impacting opens over the next 12 months or so it doesn't sound like and I think Michelle you spoke to the strength of your relationships, but just curious if theres anything to note there as it relates to challenges opening stores over the next 12 months or any impact on build costs et cetera. Thank you.

There was a lot of that second question of yours, Dennis So let me, let me tease out some of the different parts.

We just recently opened in Westfield, Indiana, we're opening in two weeks in West Madison, Wisconsin, and we in the process of training those teams up.

Im knocking on wood, because we were pleasantly surprised at the relative ease of attracting talent and hiring up for both of those restaurants.

We are opening those restaurants fully staffed there are.

Don't know if this is a <unk>.

Canary in a coal mine dynamic that the labor markets are freeing up but we're thrilled with our ability to open those restaurants fully staffed get those folks trained and get going while there are certainly some supply chain hiccups and thats, how I would describe it.

It's in no way negatively affecting our business or our ability to run our business. It is just we see some idiosyncratic spikes in costs and they come back down and something else spikes and then it comes back down and so.

I think I think the next six to nine months requires us to just be super agile and responsive to the supply chain dynamics, but also keep keep them when it comes to labor.

We're just going to keep doing what we do which is we provide a differentiated opportunity for people. We hire people based on values, we provide them a lifetime of opportunity if they so choose and I know you know this is Dennis but we don't pay minimum wage at any of our restaurants were significantly above minimum wage across the.

Tree, because we truly believe that people are the heart of our business and we take care of our teams.

Great Thanks, guys and congrats.

Thank you Dennis.

Our next question comes from Nicole Miller with Piper Sandler. Please proceed with your question.

Thank you good morning.

Labor costs are challenging, but if you flip it around and think about efficiency. How is labor efficiency I think you measure that by items sold per labor hour.

Yes.

First of all Hi, Nicole nice to hear from you.

You are 100% right. It's one of the things that we take a lot of pride in and I think.

I don't know if everybody remembers this or is aware of this but during the pandemic year, we did not lay off a single person, we actually invested in our people and we saw a massive increase in 2020 and labor efficiency and Youre, 100% right. We look at it in terms of items per layer.

Our and so we.

2020 was an incredible year it was probably too much to be honest with you. Our people worked a little too hard but the good news is is that the investments that we've made in our and our people. The loved that we've showed them and the learnings and the cross training that we did yields for us about a 10% improvement in IPL H in 2021.

One versus 2019, and so it is absolutely part of whats mitigating some of the cost pressures is that our folks are just more efficient.

And they and they work incredibly diligently.

And so we think that that's a learning that we got in the Covid year that will continue to bear fruit.

For us our team members and our investors for years to come.

And can you just run through where you stood on a debt to EBITDA ratio at the end of the quarter and why you're comfortable with that level and ideally does the ratio taper as EBITDA increases or would you be proactively paying down debt.

Yes, Nicole.

On a post debt structure, which after we paid off the second lien in the $155 million were roughly around three five times debt to EBITDA ratio and so our expectation is is that as we continue to grow that EBIT line, where naturally you're going to delever, but the capital structure is in a.

Stronger position post IPO at the end of the quarter that that ratio is obviously higher just given that the pay off of the second lien occurred post Q3.

As part of the IPO proceeds.

Alright, thank you so much and good luck.

Thank you Nicole.

Our next question is from Sarah Senatore with Bank of America. Please proceed with your question.

Alright. Thank you I have a question about labor and then just a quick follow up on the pricing comment.

Labor investments you've made were partially offset by you said lower staffing levels, but also increased productivity. As you were just discussing I guess can you talk about the extent to which not having as much staff as you would like might have hindered topline.

I know you said you didn't have to close restaurants that presumably.

All lines for longer than perhaps you lost some sales from that perspective, so any insights you might have on whether that actually.

And affected your your yourself and also to the extent that there's more productivity just remind me is that some of the technology.

<unk> invested in or.

What's been driving that in terms of systems.

Great Great to hear from you. Thank you very much there is a lot again.

In that question of yours so.

There is when you think about the labor algorithm. There is a bunch of things going on so the first thing is that we are sort of slightly under staff versus ideal right and so that has that has flex a little bit but think of it as we're roughly 10% under staff versus ideal over the course of the third quarter. The second element of that is we are.

Productive than historical during that quarter and then the third component is that the hourly wage is.

In the third quarter was significantly higher than the third quarter in the prior year. So there's three different elements working against one another.

Intuitively, you're absolutely right that when you are understaffed.

<unk>, providing a less than perfect experience to guests and it slows things down it slows down your drive thru it slows down your line. So intuitively it would be hard to argue with your premise that better staffing results in better performance, which results in better guest repeat and frequency. So.

We certainly plan on staffing fully as those opportunities avail themselves because we intuitively believe that fully staffed restaurants perform better and that theres some comp opportunity there so 100%.

With the way Youre thinking about it in that logic.

Great. Thank you and then just.

On you mentioned on pricing I know you talked about really being cognizant of your customer.

Thoughtful about it.

I think about going forward, though.

Should I be thinking about kind of stable trends you've added some price maybe you give some of that back in traffic. If I think about kind of the two year I know there are all kinds of puts and takes but as I think about elasticity is the right way to sort of see it as just sort of a one to one traffic price trade off or you think you have the ability.

To take price and again hold more of that traffic. So we might actually see an acceleration in comp.

Okay.

I'll tell you this is a remarkable business in that.

As we as I've looked at it our pricing does not have the same elasticity effect as ive seen in other restaurant businesses are consumer businesses. We have we have more inelastic demand than I think people would expect so I think theres a lot of the pricing that is incremental.

That being said, we also need to be really really careful and smart about how we price Michel said, it earlier and I want to reiterate it right. Our business. We believe is healthy when it's driving transaction growth.

That's hugely important to us and our team we want more people coming through our restaurants that's healthy.

I think pricing is an important lever to deal with what I will describe as idiosyncratic cost increases right. So some of the craziness that we saw in the last 12 months.

On commodities in the labor markets, you really have no choice, but to price some of that away, but our healthy business is run by driving transaction growth that is our intent. The good news is that we have a very sharp value proposition where pricing after most of the fast casual and <unk> have priced and so.

From a cross elasticity effect, we look really good and.

And we will continue to make sure that we're managing that great value proposition.

While still covering idiosyncratic cost increases in commodity and labor.

Yes.

Okay.

Thank you.

Thank you Sir.

Our next question is from Alton Stump with loop capital. Please proceed with your question.

Okay, great. Thank you and good morning.

Wanted to ask.

Restaurants.

You talked about a target of <unk>.

25% cash on cash return by year, three but you've clearly you've outperformed that with your openings over the last couple of years, even amidst the pandemic outbreak so.

Is it just being a bit conservative or is there some reason why.

We should see cash on cash returns going forward below what you had been able to do over the last couple of years.

First very nice to hear from you Alton I feel like you are jinxed us with that comment.

Alright.

We're really we're cautiously optimistic that the.

That the performance that we're generating from these last couple of classes of restaurants are.

Are exactly what we expect going forward and we are.

We expect to beat our.

As a management team as a leadership team we are building restaurants, when where we feel like there is a lot of upside and very little downside. So it's certainly our hope and our expectation, but I would not I would not tell you.

Necessarily bank on it is that fair.

Yes, no absolutely.

Definitely makes sense.

Thank you for that and then.

Just.

And as my follow up.

I kind of think about actually building outside.

Which call your Chicago market.

Who is Indiana, Michigan et cetera.

If I assume that probably the average cost of those is a bit lower than your bills.

Builds that you've done in your core market, obviously AAV.

Of course, if it lower but still off.

Julia horse, but.

Yeah sure on kind of how they average returns in your core versus noncore markets are trending.

Yeah. There is so much noise in that I mean, it's a great question. The problem is there's so much noise in answering that question because yes, historically Chicago was more expensive to build no doubt about that but if I'm comparing historical Chicago Bill to the cost to date to build outside Chicago.

It's kind of it's kind of a wash because everything has gotten so much more expensive. So what we're spending today to build is probably what we would have spent in Chicago a couple of years ago to build so.

That's why there is noise, but your intuition that as we go to places like Florida, and Texas, and Arizona, and Michigan, and Indiana fundamentally the cost to build is less than it is in dense Chicago market and so the there is a good argument to be made that we.

Can perform from a cash return standpoint, really really well outside Chicago.

Great. Thanks, so much Michael I'll hop back in the queue.

You bet nice to talk to you.

Our next question is from David Tarantino with Baird. Please proceed with your question.

Hi, good morning.

My first question's about staffing levels, Michael I think you mentioned.

Third quarter, you are 10% below where you'd ideally like to be in my.

My question is whether you are starting to see progress on narrowing that gap in the fourth quarter and whether you've set any goals internally on.

Getting back to fully staffed by a certain time frame.

Great question, David What I would guide you towards is that.

The two new restaurants that we just opened up that we just opened up in Westfield, Indiana and will open in two weeks in Madison, Wisconsin, those two restaurants are fully staffed.

And we are we are all like we got our fingers and toes crossed we're pleasantly surprised and we're hoping that that's an indication of staffing in general we are staffing up across the system.

In general.

For us.

The holidays are really a big deal we do a ton of catering we have a lot of seasonal staff a lot of kids have gone off to college it come back and want to grab a few hours and so we are we are seeing some staffing improvement, but I'm not I'm not ready to declare victory or even.

I'm, just not ready to declare that yet I think there are certainly positives I would say theres more positive signs of negative signs, but in no way do we feel confident to declare victory on labor.

Got it thanks for that and then.

I had a question about how youre thinking about prototype design on a long term basis, I mean, you've seen a very big change in the mix in your business and I realize that may not have fully settled out yet but to the extent you have a lot less dine in business going forward and more drive thru and digital and delivery.

<unk> business are you thinking about.

Changing how the prototype is designed and is there an opportunity to optimize the cost of the box.

When you're when you're building out new units.

Any thoughts on that would be great.

Another great question Youre going to Youre going to allow me to wax on about one of my favorite topics. So we are going to quote the great. One we're going where the puck is going not where the puck is and so.

Where the puck is going in is exactly what you described which is a bigger percentage of our sales will continue to be off premise versus on premise and so the prototypes that we are building, including what we built in Glendale in Orlando and Addison and Kimball in Chicago in Sterling Heights.

They were gearing towards <unk>.

Increased off premise sales. So what you see in these restaurants is less formal dining space. The dining rooms are getting a little smaller now we're kind of cheating a little bit because we're supplementing them with outdoor patio spaces that are really highly desirable from guests and very flexible, but we're being.

Very thoughtful in creating dedicated entrants invest tubule for third party delivery, we're creating special format special access for off premise I mean, we've we've done a bunch of things where curbside.

Now I think we've cracked the code on it we're doing this racking system right by a door right five parking spots. So people can come in and get out Super quickly.

And then as we've mentioned.

We're building that drive through only concept in Joliet, and and I didn't say this but west Madison has a third lane drive thru Lane, it's essentially we're kind of toyed with the idea of calling it a SaaS Paas lane and its for people who have ordered via the app or want a curbside type experience, where you don't have to get out of your car you can zip.

Through the third drive Thru Lane and the food gets brought out to you. So kind of my long winded way of say, 100%, where we're moving towards where the consumer is which is the consumer says we want more off premise access.

Availability.

And the need to sit into the restaurant is coming down and so thats, how all of our new prototypes are being built.

Great. Thanks for the context.

You bet, David Nice to talk to you.

Okay.

Our next question is from Chris <unk> with Stifel. Please proceed with your question.

Yes, thanks, good morning, guys.

And now that we're at.

Hello, now that we're in mid November I wanted to ask about catering and large group orders I know the holidays typically provide or bring a sizable volume lift. So I was just curious what kind of visibility you have at this point into how that shaping up for the year and then I had a follow up.

Yeah.

Right.

You get this right. There's this whole e-commerce and catering business that is a is just a monster for us in the fourth quarter a lot of people don't know this but Christmas.

Christmas Eve is our single biggest day of the year. It is a massive de all hands on deck. We have team members from the restaurant support center out in all of our restaurants, helping because catering portillo is a thing and it's a huge thing into Chicago area on Christmas Eve, So catering the e-commerce business take off.

During the fourth quarter I would tell you we have I.

I am not going to tell you anything on a forward looking basis, but I would tell you that the last few weeks have been extraordinarily strong from a catering business.

Significantly.

Positive comp over last year.

It would be low to tell you the numbers because I don't want you to plan on those numbers, but we feel really really good about the way our catering business is performing right now we're cautiously optimistic.

And I think that.

It should be a really nice bounce back from last year for us.

Great and then can you speak a little bit more about the third order ahead drive through lanes.

Being tested I was just wondering how thats being received by consumers.

If you think that's a format or I guess a design.

A design change that you'd look to implement going forward.

Yes, just to be precise I'm, sorry, if I misspoke, but.

It's going to be in West Madison, which opens in two weeks. So it's anybody.

Guess is as good as mine on how it will be received by consumers I honestly think it's going to be received really well because more and more consumers are asking for restaurant companies to be flexible in how consumer interacts with you and there is all kinds of almost micro channels right, there's like a need.

For somebody who wants.

If you're a mom with three screaming kids in the back you don't want to wait in line. You've ordered ahead on the App and you paid you just want to pick up your food, we have made that super easy and we're going to see how that performs and west Madison and we'll see how that performs in Joliet. When we opened that up in the first quarter of 'twenty two.

I think it's a very very important learning for us because.

If consumers continue to ask for and.

Require these sort of nuances in how you engage with them I think the restaurant companies that respond to that and Ken acquiesce to that kind of consumer demand are going to be in a better position and I think thats us I think we as I said in my opening remarks, we were multichannel before its a thing we're always.

He is going to be.

Super responsive to what the consumer wants and how they want to interact with us and if theres a way of making that third land work institutionally than heck, yes, we will do that.

Makes sense thanks, guys.

Thank you.

Our next question is from Gregory Frankfurt.

With Guggenheim Securities. Please proceed with your question.

Yes. Thanks for the question I had two just the first one just on pricing, but I think historically you guys have taken pricing once per year and this year, you're basically taking it twice.

Can you maybe talk about when you evaluate that and when you normally take it just as we think about next year and what might happen.

Yeah.

So.

I think Greg first of all good to hear from you I would tell you. The last couple of years, we've been a little bit more and I'd like to think of it as agile on pricing. So yes, we certainly we certainly do.

Pricing event.

Late in the third quarter early in the fourth quarter and that sort of the primary annual rhythm on pricing, we like to look at pricing.

Late in the third quarter early in the fourth quarter set the price and then go through the year, but in the last couple of years.

Where there has been either need or some sort of inflationary demand. We've also done a smaller pricing in the late spring early summer and so.

I don't think I don't think I want us tied down to a specific rhythm on pricing, we look at pricing on a weekly basis, we scraped competitor data we look at what the elasticity impact is of our existing pricing. We are analyzing it on a regular weekly basis now we're going to we're not going to <unk>.

<unk> frequently but I think it's really important to know what your competition is doing it's really important to know what consumers are experiencing and it's really important to gauge consumer response to ongoing pricing. So.

It would not.

I don't think it should surprise anyone if we take a small pricing sometime in the.

And next year right because as Michel mentioned, we're looking at commodities, we're looking at labor.

We see idiosyncratic issues, we may need to price, where we're seeing pockets of inflation, we may need the price.

Got it got it and then it seems like the two company an investor the two sort of themes investors. Most focused is on that labor.

The ability to kind of staff restaurants, as well as the price increase can you can you maybe talk about why you like Portillo has greater pricing power than some of your competitors out there is it just the absolute level of check or.

How youre thinking about why port choices of differentiation on that ability.

I mean, I think Greg it starts with the fact that the average average ticket per person at portals is $9 60.

Right.

Let's just start with that compare.

You, obviously know right that that number is not like pulled out of my rear end that is a number that is validated it's vetted it's gone through SEC.

Scrutiny, that's a real number and that is a surprisingly low number for the quality of our food for the abundance of our food and the experience that we provide and so I think it starts with we have an incredibly sharp value proposition and so so that is one of the reasons why we.

While we perform as well as we do and why we have the <unk>.

Revenues per unit that we do because we have an incredibly sharp value proposition.

We.

It <unk>.

Certainly seems to me like we have.

We have latent pricing power IC, where competitors are pricing I see how aggressively theyre pricing our pricing. If you go through all the details we continued to be priced laggards right, we don't price as much or as frequently as our competition.

And I think it means that when we need the price people accept it and they've already been in year two the price points that have gone up everywhere else.

Okay. Thank you.

You bet, Greg Nice talking to you.

Our next question is from Sharon Zackfia with William Blair. Please proceed with your question.

Hi, it's actually Matt Curtis on for Sharon.

I have a question on your menu evolution.

<unk>.

<unk> done a lot of menu simplification, while you were private.

And I was just wondering going forward how you how you think about the men the.

The menu evolving in terms of new products or specific categories, you may be looking to expand.

It's a great question and yes, we have been deciduous Lee simplifying the menu on average we took I think.

75, skus out of each restaurant during the pandemic there were some restaurants that we took a 150 to 200 skus out.

We have taken menu items out we have dramatically improved menu items, we had.

If we if we we constantly are evaluating our menu and seeing what what sells and what to guess like and if there is stuff that sells but guests don't like we've worked hard to improve them right.

I would tell you we've improved our Caesar salads, we had a cold chicken on it that just wasn't really good I was embarrassed we dramatically improve the quality of the chicken. The salad is better we dramatically improve the quality of our fish sandwich and so I think the first priority for US is to always make sure that every single item on our menu is amazing and.

We're kind of ruthless in that sense that we look for things that we don't think are as good as they should be and we either make a much better or we replace them with something else thats much much better and a perfect example of that is our spicy chicken sandwich right.

We had a chicken sandwich of broiled chicken sandwich on our croissant that just wasn't very good.

And so we killed it.

And we brought in the spicy chicken sandwich, which was amazing it's actually pushed up our chicken category by 27% year over year.

And that is awesome.

Great win for our guests because they love it the chicken sandwich is unique because it's got a.

Spicy jarden ore source on it.

I'll give you a free portillo is if you can all pronounced jarden are correctly, but it's really it's a unique thing thats <unk> to us it's not like what any other restaurant company does we're not trying to be like everybody else, we want to be portillo and.

And I think that's a perfect example of menu innovation.

There are other things on our menu that our culinary team is taking a hard look at and I tease because I call. It a darwinian exercise with the menu we have the strong killed the week and Thats, what we do.

Okay, Great and then I guess just another question on G&A.

Obviously, youre going to have incremental public company costs for the next little while.

And then also it sounds like some of your investments in training.

And things like technology, perhaps are likely to continue but I'm just wondering if you could talk about.

The company's ability to leverage G&A.

That is on an underlying basis going forward.

Yeah. It's a good question and I think when you when you look at to your point.

And the future quarter in years to come we're going to have incremental public company G&A. I also mentioned in my prepared remarks, we're going to have incremental stock based compensation expense as a result of some of the modifications and change changes to our equity incentive plan and so youre going to see that come through and once you strip out.

I'd say those two big buckets, we do expect to leverage G&A as we move forward, but it's not going to be at the expense of not investing in the training, particularly around the folks that we need to run our restaurants in the future. So we're going to continue to make investments.

And training our future restaurant leaders, but I can tell you that Michael and I are committed to definitely leveraging that line as we move forward. When you when you pull out those two line items.

Okay terrific, thanks, very much and congratulations on the IPO.

Thank you. Thank you.

This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.