Q3 2022 Portillos Inc Earnings Call
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Greetings and welcome to <unk> third quarter 2022 earnings conference call. At this time, all participants are I know listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Barbara Ryan, though very neat they have nowhere.
You may begin.
Thank you operator, good morning, everyone and welcome to our fiscal third quarter 2022 earnings call with me on the call today is Michael of Sanlu, President and Chief Executive Officer, and Michelle Hook, the Companys Chief Financial Officer.
Before we get started let me remind everyone that we are hosting our inaugural Investor day on Tuesday November eight with management presentations beginning at nine a M eastern time.
<unk> registered for the live webcast by visiting our Investor Relations website at investors Dot Portillo dotcom.
In addition to viewing our presentation webcast participants are welcome to submit questions. During the live Q&A session with our management teams.
We look forward to continuing the conversation with you on November 8th.
Let me also remind everyone that part of today's discussion will include forward looking statements. These 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 refer you to today's earnings press release and our SEC.
Filings for more detailed discussion of the risks that could impact <unk> 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 the reconciliations of these non-GAAP measures to the most comparable GAAP measure any.
Any non-GAAP financial measures should not be considered as an alternative to GAAP measures such as net income or operating income or any other GAAP measure of liquidity or financial performance.
Finally, after we deliver our prepared remarks, we will open the lines for your questions.
Now, let me turn the call over to Michael <unk>, President and Chief Executive Officer.
Thank you Barb, we are incredibly proud to share the results of another great quarter with U R.
Our dedicated team members proved time and again, the delivering an exceptional guest experience drives our solid financial performance. We have some of the best team members in the industry and I want to thank them for living our values and making operational excellence a top priority of portfolios.
In the third quarter of 2022 total sales increased nine 5% to $151 $1 million same.
Same restaurant sales grew five 8% showing resilience in this macroeconomic backdrop.
We ended the quarter with average unit volumes of $8 4 million per restaurant.
Our throughput continues to show up in our restaurant level, adjusted EBITDA margin, which was 22, 6% for the quarter.
Now Michelle will go over our financial results in more detail, but let me discuss the underlying drivers of our performance in the quarter.
First our strong comps serve as evidence that our pricing approach is working our pricing philosophy is slightly lagged inflation and our competitors may.
Let me be clear, we do take price, we just arent going to be the first to do so that's the crux of our price laggard strategy.
Power of our value proposition is especially apparent during times of economic uncertainty.
Our guests expect a high quality meal at a great price point. This is something we carefully protect.
So we've surgically taken price across our menu to keep up with inflationary trends, while ensuring our guests feel that relative value in the quality and abundance of our food.
We have two solid indicators that suggest our tactics have been prudent.
Guest survey data and our guest counts so first.
Our guest satisfaction scores have continued to trend higher in Q3, one component of that is a relative value score, which captures guest sentiment with respect to our value proposition.
Even in this inflationary period, where consumers have undoubtedly felt pinched, we continued to score high with our guests our value scores are the highest they've been in three years.
<unk> seen that inflation for food at home has outpaced food away from home year to date and further we've deliberately priced less aggressively than other restaurant companies.
Our guests can feel that value and we're thrilled that they continue to tell us exactly that.
Our guest count, which we calculate as the number of sandwiches and entre salad sold in the quarter ticked up slightly in other words, we served more people in Q3. This is proof that our price strategy is working.
Next our team members handle unbelievable volumes on a daily basis, which drives our restaurant level margins. It's the energy of our people and the consistency of our operating model that translate into the attractive margin profile. We enjoyed portfolios. We see high contribution margins from every incremental beef sandwich every incremental Fry every incremental.
Hotdogs sold and we wouldn't be able to do that without the incredible frontline team members, who rock are busy shifts and handle our ridiculous volume.
Because focus on operational excellence matters, we implemented another round of pay increases in the quarter for us attracting and retaining engaged team members is key to our continued success.
In an environment, where talent is hard to come by our staffing levels are now over 100% and our turnover has consistently been 20 to 30 percentage points better than the industry average investing in our team members is consistent with our values driven culture and our team members in turn take care of our guests.
Who in turn take care of our investors.
Finally, we are gearing up to open five new restaurants over the next few months first of these openings will be in <unk>, Indiana Shareable is our eighth restaurant in Indiana, a market in which we continue to build out local scale.
We've already invited fans to get a sneak peak before the soft opening next week.
We will open four more restaurants across the sunbelt, we're continuing to build out central Florida with West Coast semi and we're also on track to open our first location at the Grand Scape development in the colony in Texas.
We will add two more restaurants in Arizona in Tucson and Gilbert.
We continue to face lengthy permitting processes, which were largely responsible for clustering. These build into the fourth quarter. Our teams have been preparing well in advance to open the last five restaurant, but there is a chance that one of them moves into 2023 by a few weeks.
We already have line of sight toward opening at least nine additional restaurants in 2023 preparations are underway for three to five new restaurants in Texas three to four in Central Florida, one to two in Arizona, one to two in Chicago land and one to two in Michigan over this.
Time frame.
We had a great third quarter and we're excited about the future of portfolios.
As we grow we remain committed to the strategy is driving these strong financial results.
We will continue to take great care of our team members, who we treat like family. We will continue to maintain our value proposition by serving abundant portions of our delicious food at a great price. We will continue to focus on operational excellence and we will continue to build beautiful restaurants in high growth markets with that.
Let me hand, it off to Michele share a few more details of the quarter.
Great. Thank you Michael and good morning, everyone before we discuss our third quarter results I want to briefly recap our recent secondary offering this quarter. We completed the offering of approximately 8 million shares of the company's class a common stock at an offering price of $23 75 per share.
All of the shares sold in the offering represented class a and B shares owned by pre IPO members. The company did not receive any proceeds from the sale of shares of class a common stock, but rather use the net proceeds to purchase class a and b shares from the pre IPO members.
Total number of shares remain the same.
To reiterate this transaction did not dilute any existing P. T L O shareholders.
Now turning to the results for Q3, our third quarter results prove again that our dedicated team members are delivering an exceptional guest experience, which is driving our consistently high average unit volumes and strong restaurant level. Adjusted EBITDA margins. This shows that we are resilient in the face of a tough.
Mick environment.
Let's now dive into the details.
<unk> revenues were $151 1 million, reflecting an increase of $13 1 million or nine 5% compared to the third quarter of 2021.
This increase was driven by the opening of two new restaurants in the third and fourth quarters of 2021, and two new restaurants in 2022 combined with a five 8% increase in same restaurant sales. The same restaurant sales increase of five 8% was driven by six 3% increase in average check.
And a two 8% benefit from the change in recording third party delivery pricing.
This was partially offset by a decline in transactions of three 3%.
A higher average check was driven by eight 2% increase in menu prices, partially offset by lower items sold per transaction.
When you look at our third quarter comp on a three year geometric basis. We grew 10, 7%, which is in line with our long term target of low single digit annual growth.
Cost of goods sold as a percentage of revenues increased to 35, 3% in the third quarter of 2022 from 32, 1% in the third quarter of 2021 <unk>.
This increase was largely driven by 15, 4% average increase across all commodities.
We saw higher impacts on beef and chicken in the quarter.
Additionally cost of goods sold was negatively impacted by one 8%, resulting from the change in recording third party delivery pricing.
These increases were partially offset by the increase in our average check.
The commodity market continues to remain volatile and we have and are taking measures to mitigate our risk within key and port categories. We have locked in pricing on approximately 57% of our commodity basket for the fourth quarter of 2022.
We believe our commodity basket will increase at 15% for fiscal 2020 to the higher end of our previously guided range.
Now moving on to labor.
<unk> as a percentage of revenues decreased to 25, 9% in the third quarter of 2022 from 26, 8% in the third quarter of 2021.
This decrease was primarily driven by the increase in our average check and operational efficiencies.
Partially offsetting these favorable variances was.
Labor inflation.
We continued to invest in our incredible team members with additional hourly rate increases put in place at the beginning of the third quarter.
Other operating expenses increased $1 3 million or eight 5% in the third quarter of 2022.
Occupancy expenses increased <unk> 6 million or nine 2%.
Both increases were largely the result of new restaurant openings in 2021 and 2022.
Restaurant level, adjusted EBITDA decreased <unk>, 5% to $34 1 million in the third quarter of 2022 from $34 2 million in the third quarter of 2021.
Restaurant level adjusted EBITDA margins were 22, 6% in the third quarter of 2022 versus 24, 8% in the third quarter of 2021.
The decrease of 220 basis points was driven by the continued impact of increased commodity costs and to a lesser extent labor inflation.
We are partially offsetting these expense increases through menu price increases and operational efficiencies.
During the first and second quarters of 2022, we increased menu prices on certain items by approximately one 5% and three 5%.
In mid October we increased menu prices on certain items by approximately 3%.
These increases combined with pricing actions taken in 2021 resulted in an effective increase in price of approximately eight 2% in the third quarter of 2022, and seven 4% year to date as.
As Michael mentioned, our philosophy of the lag inflation and our competitors.
By not taking aggressive pricing, we are preserving our value proposition.
We will continue to monitor the current environment and remain flexible and strategic in our pricing approach moving forward, our focus remains providing a great value for our guests.
Our G&A expenses increased $6 3, million% to 12.0% in the third quarter of 2022 from eight 5% in the third quarter of 2021. This increase was primarily driven by increases in equity based compensation expense of $3 2 million an increase in insurance of <unk>.
$7 million and transaction fees related to our secondary offering of <unk> 6 million.
Preopening expenses increased <unk> 4 million to <unk>, 5% in the third quarter of 2022 from <unk>, 3% in the third quarter of 2021. The increase was due to preparation for the planned restaurant openings in the fourth quarter.
All of this led to adjusted EBITDA of $21 6 million in the third quarter of 2022 versus $24 2 million in the third quarter of 2021.
Decrease of 10, 7%.
Below the EBIT line interest expense was $7 1 million in the third quarter of 2022, a decrease of $3 6 million from the third quarter of 2021.
This decrease was driven by the payoff of our second lien term loan in the fourth quarter of 2021, and lower outstanding borrowings under our first lien term loan.
This decrease was partially offset by 0.9 million of additional interest expense on our current term loan due to an increased interest rate.
As of the end of Q3, the effective interest rate on the term loan was eight 8%.
Income tax expense was $1.0 million in the third quarter of 2022, and our effective tax rate for the quarter was 23, 9%.
We ended the quarter with $46 7 million in cash we will be using our cash balance plus operating cash flow to support our continued growth in the near term and beyond.
We remain focused on our strategy, which is driving our strong financial results.
We care about our team who in turn care for our guests.
We prioritize our value proposition through strategic price management.
We focus on operational excellence and.
And we will continue to build beautiful restaurants.
Thank you for your time and with that I'll turn it back to Michael Thank.
Thank you Michelle.
<unk> is a brand that has persevered through a wide range of external pressures throughout the past six decades without ever closing a restaurant.
The broader macro environment is highly unpredictable, but getting a great meal from port <unk>, it's not no matter, what's going on in the world. We are committed to delivering our delicious menu at a value driven price point. This is what makes portillo special it's what we excel at we do this by leading with our people centric culture and focusing in on opera.
<unk> excellence, our guests can taste it they can feel it and it keeps them coming back. Thank you.
With that let's just turn to Q&A operator can you. Please open the line for questions.
Yeah.
B G.
Be conducting a question and answer session.
Mike just a quick question. Please press star one on your telephone keypad.
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One moment, please while with Paul quick question.
Our first question comes from Andy Barish with Jefferies. Please go ahead.
Hey, good morning, guys.
Understanding the.
The challenges in the developed world.
Friday.
Yes hone in on.
Just opening that many units coming up in the <unk> sort of how we should think about.
That impact on restaurant level margins, just with all the kind of moving pieces and date and stuff like that.
Yeah, let.
Let me, let me give you.
I suspected that people are going to ask about so let me give you a little bit of my <unk> My thoughts on this and then I'll turn it over to Michelle on what that impact might be.
So a couple of things one obviously.
This.
Clustering of these restaurants. This late in the year, we learned a lot about how much permitting time, we need to budget and how.
It's just it's a longer process than it's ever been so we've been very very conservative in budgeting permitting time in total construction time for next year.
The good news is all of the restaurants are under construction <unk> as we said is basically done and we're opening for soft sales next week.
We did I did mention that one restaurant might slide into 'twenty, three and Andy just to be totally transparent, we're probably being way transparent on this one because we will see a lot of you in early January at an Investor Conference and if the restaurants not open I don't want you to say well you could have told US. This in November so we just wanted to be abundantly.
<unk> transparent about that it might slip a couple of weeks when it comes to 'twenty. Three we are far far ahead of where we were the last several years in terms of development pipeline.
We've got we are well underway to hit.
Our targets.
And it's probably going to be.
Still more backend loaded than I think we would ideally like more in the second and third quarters not is not I don't I'm not sure. We can have any in the first quarter. So we'd like to we'd like to keep working on that.
But development is progressing incredibly well and we have an abundant pipeline for 'twenty three and then even richer pipeline for 'twenty four so Michelle any thoughts on yes, I would just add Andy is as Michael mentioned with the openings this year being back loaded share of El next week, but then the other restaurants.
Planning to open later in December and so when you think about the impacts on margins. This year, it's really going to be.
Not much of an impact because youre not going to have really that many weeks.
The remaining restaurants that youre going to be operating with in fiscal 2022, so that'll be more something as we move forward in 'twenty three that'll that'll be impactful versus 'twenty two.
Gotcha and then along those same lines can you just give us a quick update on.
Sort of building.
<unk> costs I know that that's been an industry wide issue any.
What kind of value engineering that youre looking at to get some get some efficiencies like you've done on the operations side, which is obviously, helping.
Helping on the.
On the Labor line as we've seen here in the last couple of quarters.
Yes, let me.
Probably three things.
That are of interest one is we have an initiative going on we're calling kitchen 'twenty three.
Which is reconfiguring our kitchen ware.
We're testing it in some of the we're going to test it in the 'twenty three builds we're excited by it.
More efficient kitchen in terms of both labor utilization as well as cost of equipment. So we think that this could be a very helpful initiative to reducing both the cost, but also helping with operating costs of our operators are doing a great job of this it was a grassroots effort, we really got some of the greatest idea.
From frontline team members, who do this every day. So we're excited we're excited by that second thing is we are we are looking at continuing to.
I hate the word value engineer, Andy because it sounds like.
You are cutting value, let's say, we're trying to go where the guest is going in terms of what they expect in a restaurant experience. So what guests expect is better.
Better access to off premises, so a killer drive through if they want to come in and do takeout, It's super easy if you're a third party people coming in to do off premise.
<unk> EZ were.
Seeing a structural change in how many guests want to sit inside a restaurant in Eden and so we're being thoughtful and flexible about right sizing the dining room.
Continuing to improve access for everybody off premise as well as right sizing the kitchen. The total of that is we should be able to take some space out of the restaurant.
While actually having a restaurant that is better suited to consumers' changing needs. So and then Michele will talk about this but we're seeing some amelioration in cost.
Yes, I would just add to that Andy Yes, my expectation heading into 'twenty. Three is that we should see some easing on the costs that we saw this year, obviously to be determined but that's my expectation heading into 'twenty three.
Thank you guys.
Thank you Andy.
Next question comes from Sharon Zackfia Yeah.
Liam Blair. Please go ahead hi.
Good morning.
Sharon I guess hi.
When you think about the value positioning that you've been able to maintain even in this very inflationary environment.
I'm curious on how that impacts.
Both new customer acquisition as well as frequency of returning gas if there's a disproportionate impact on one of those buckets.
And then separately.
We've heard from a lot of other companies that trends improved quite a bit in September and October I'm, just wondering if that's something as well their portfolios has seen.
Let me handle the first part of the question and I will defer to Michelle on the second.
I think.
Great insights Sharon I think we have as you know we have such a loyal customer following wherever we are whether it's Arizona, Florida, California, Chicago land that getting that repeat visit and getting that continuation of both our ultra heavy user in our heavy user is super important to us so having a sharp.
Value proposition, especially as it relates to the price increases that guests. We're seeing elsewhere is really important for the base of our customers.
People, who use us notice these things and they're voting with their feet to stay at or come more frequently to portillo from a new customer acquisition standpoint, we don't we're not we're not.
Our first.
Our first marketing hook is not trying to say hey, we're cheaper than everyone. We're not there's certainly <unk> that are less expensive and we are our marketing hook is we have amazing delicious food.
We have an unbelievable guest experience and then by the way, it's an incredible value proposition that will keep coming back from war, so we'd like to hook them with delicious food great experience and then keep them coming back with both those things as well as great value.
Turning to ensure I can answer in terms of transfer and I mean, it's early early on we just ended our peers.
Period, Tan and Sunday and so on.
<unk> of how we're looking at things in October I think I don't know all of a sudden expect that we're going to flip the calendar and you see our numbers mix has been pretty consistently negative Q2, and Q3 I think items per transaction has been consistently down I don't think that trend will.
All of a sudden flip and then we did see some transaction improvement as you saw in the numbers Q2, Q3, and so I think that's the one thing I would point to that at least within the quarter within Q3 that we saw improvement on and then early innings on Q4 right now.
Okay, great. Thank you.
Yes.
Yeah.
Next question comes from David Tarantino with Baird. Please go ahead.
Hi, David Hi, good morning.
Just a quick follow up to Sharon's question. So I guess, we've heard quite a bit about.
Urban recovery or bigger cities starting to see.
Mobility improvement, including in Chicago, and I was wondering if you could just give some perspective on how that might be.
Impacting your business and whether that was the reason we saw the.
Traffic improvement you saw in the <unk>.
Third quarter relative to the second quarter.
And then I had a second question related to the fourth quarter, which is really I know you have a huge catering business around the holidays and that.
It's been maybe less robust in the last couple of years I'm, just wondering how you're anticipating that to play out this year.
Yes.
Your first question I would say in general in general David our trends.
Michelle is going to kick me for saying this but like.
Equally positive everywhere so from the second to the third quarter, it's not it's like yes, the trends improved in Chicago land, but trends really improved in Arizona, the trends really improved in Wisconsin, and the trends really improved in Florida.
Trends improved across the board for us all across the country. So we feel really good about the overall pace of improvement and the trends in our business.
Yes, I think when you look at Q4 and catering Andy or David sorry, It's still TBD.
And as you know, we did have impact because of <unk>.
Last year and so.
Assuming nothing else happens my expectation is is that we have a chance to outperform versus last year, but again, we won't know that as you know until we hit period 12, which is where the bulk of our catering comes into play so.
I'm not going to.
Count anything until it actually happens, but yes, I would like to think that hopefully, we'll see some improvement in those trends versus 'twenty one.
Great. Thank you and Michael if I could squeeze one more in.
Could you give us an update on the most recent unit openings I know you've only done a couple this year, but how they are performing.
Relative to your plan.
Yes.
I would tell you I think they are both performing.
Above initial expectations. So we're very very happy with Juliet, we're very very happy we're very very happy with St. Pete St. Pete has been an excellent opening.
We think that.
It's validating a lot of the thinking ideas.
As you know Juliet is a bit of a test because it is the drive through only concept, it's our portfolio pick up and so it's performing really well, but we also see a lot of room for improvement in how it performs and so.
As we look at doing more.
Pick up only locations I think the next iteration of them will be even better than this one.
Great. Thank you.
Beth.
Next question comes from Gregory <unk>.
With Guggenheim Securities. Please go ahead.
Hey, Thanks for the question I had two quick ones. The first is Michel I think you talked about.
Capex for retro may be coming down.
Next year, you, maybe give us what you think thats going to be in the fourth quarter and then I don't know if there is a chance that maybe roughly framing up how much that could come down in 'twenty three but.
That would be helpful.
Yes, Greg we're not going to see any easing in 2022 barrels as Michael mentioned everything is under construction, we're incurring those costs today it would be more in the 'twenty three builds as we look out to that.
We're still.
Putting those exact figures together I'll probably have more information for you when we talk in January and how 'twenty three is looking in shaping up from a build cost standpoint, but.
But right now I wouldn't expect significant easing on 'twenty two because we're incurring everything as we speak in a lot of the materials going into those builds were already.
Purchased and bought well in advance.
Before we started putting shovels in the ground.
Got it thanks, and then maybe just the other question.
As we look out to 2023 and commodities and pricing I'm curious how you guys are thinking about that relationship and we've heard a few companies talk about mid single digit ish commodities.
In 2023.
Are you guys still looking at maybe doing kind of two pricing actions a year, you're trying to kind of under price wherever commodities shake out just how you're thinking about that framework. Thanks.
Yes.
I'll take that one Greg we're.
Putting together plans for 'twenty three again I think we'll have more to share with you in January when we speak signed but absolutely the way we're thinking about it is we don't expect it to be.
15% inflation next year I think more mid single digits is probably more reasonable a lot of what youre hearing from other concepts as well we're seeing the same types of things as we look at the data right now and then as we've always stated we're going to remain flexible in our pricing approach. So as you know coming into the year.
I mentioned, we took the one 5% price in Q1, another three and a half in May and then 3% and in mid October we're going to continue to evaluate and remain true to our strategies.
Okay.
How that's looking at how inflation of looking at that point in time, but we're not sat and two or three actions a year.
Well, thank you very much.
Thanks, Greg.
Yes.
Okay.
The next question comes from Nicole Miller with Piper Sandler. Please go ahead.
Thank you good morning.
I wanted to comment earlier.
Thank you I think it was prepared commentary about labor efficiencies and I guess you know every time I go I appreciate the complexity of the business.
Just curious about the labor efficiencies that you spoke to is that less turnover with more training and just more time in those positions or are you able to eliminate something operationally in terms of complexity.
First tightened the coal.
It's a great question and the reality is I think in part you've answered your own question, which is there is a ton that goes into labor efficiency. So there is everybody knows that there are hard costs associated with turnover right you have to recruit someone you pay for that bring them onboard et cetera, but theres a lot of soft costs associated with labor turnover that affects you.
Efficiency line.
Tenured employees season people tend to be faster they tend to work better they tend to work cross functionally better, especially in our environment. So there is definitely definitely a strong benefit to improve turnover trends and all the training that we've been doing and having engage team members. So that's that's a big part of it but.
We're being very very thoughtful and careful about what we do in the kitchen that makes sense versus what we should have other people do for US and you guys are probably board of me, saying this but it's a lot of little things that add up.
It's finding a supplier who can give us beautifully sliced pre sliced red onions, so that it creates labor efficiencies you don't have to have somebody putting on a cut club cutting onions for hours you have beautiful fresh onions that are coming out.
Seal bag and you put those on we have we are reconfiguring some restaurants in our in our older markets, where the salad Bowl has become antiquated removing the solid prep on.
The mainline it gets complicated good news is from a labor efficiency standpoint that creates huge opportunity less convenience for our team members less walking back and forth easier to slide from station to station. So we're seeing significant labor efficiencies. There. So what I can promise you that we continue.
<unk> two assiduously look for opportunities to remove low value work out of our kitchens and just focus our team members on high value added activities.
Thank you for that turning to price assuming you didn't realize perhaps all of the 3% October price could you talk about what fourth quarter prices and then its impact on fourth quarter store level margin.
There is some seasonality and I'm just trying to think about year over year commodities seasonality and a store level margin with that that price.
Could be higher than the third quarter and and also higher year over year. Thank you.
Yeah, Nicole I'll take that and I do expect Q4 pricing to be consistent with Q3.
So I think that pricing will be consistent.
When we took the action I think that's it.
At least what im estimating as we sit here today and.
So the other component that I didn't want to make I did want to make sure everyone understood.
When you look at the impact of our third party delivery.
Pricing on the cap as well remember, we put that change in effect and <unk> 12, and so the impact of that in Q4 is going to be less so we've been trending around 272, 8% impact on cap, that's going to be closer to around two ish percent in Q4. So.
That's going to that <unk> is going to come down a little bit.
But in terms of your question on margins I think from a commodity standpoint, I do expect that we are still going to be pressured in Q4, and we will be likely the midpoint of our 13% to 15% range therefore coming in at around that 15% ish for the entire year is what I am.
Currently looking at from a Q4 standpoint for commodities.
Thank you very much.
Next question comes from Chris.
With T cell. Please go ahead.
Sorry about that I was on mute.
Good morning.
Hi, good morning.
I had a follow up question about a couple of them about development first how many new projects have signed leases and then Michele you've talked about investments for new units being higher but how do you expect the margin maturation curve to change.
For new units.
So we don't really I don't want to get in the business of talking about when the leases signed when it'll an LOI et cetera.
What I would say Chris is that we have.
And abundant number that we are excited about actively working on.
And so we're.
You can imagine right to make sure you get nine youre working on $15 16, restaurants, and Thats kind of what we're doing.
Yes, Chris in terms of the build cost my expectation is that we will continue to get the returns that we talked about a year ago. During the IPO process right and so yes. The equation has changed slightly and the current environment, where your build costs are higher but.
I expect that we're going to continue to generate the top line to get the returns that.
That we discussed back then when you look at by year, three getting into that low 20% margin profile is my current expectation as we continue to build new restaurants, and as you know we have a very rigorous process that each new restaurant goes through to a real estate committee and I will not sign off and I know Michael Weil.
That sign off on any restaurants that does not deliver those returns.
Perfect and then just Michelle you mentioned earlier, there won't be much contribution from the fourth quarter earnings from new stores during the fourth quarter, but I suspect there's going to be some cost associated with opening those stores. So can you help us quantify the additional costs you might incur in the quarter, maybe from Preopening G&A labor training et cetera, yeah yeah.
Chris I still expect and that's why I didn't come off of the pre opening expense guide will be at the low end of the six to $6 $5 million range. So you're absolutely right, we're still going to incur those preopening expenses, because as Michael said, we're running really hard to get all of those up and running with the potential that one does slip, but we're going to run real hard.
And so we will still incur those preopening expenses.
Okay perfect. Thanks.
Next question comes from John Glass with Morgan Stanley . Please go ahead.
Good morning.
Good morning, John .
Michael first question is on average unit volumes in Chicago versus non Chicago land.
In your filing.
You put an updated average unit volumes I thought what was interesting is that it looks like Chicago is now a Chicago land is now well above pre COVID-19 levels non Chicago is not yet, but I also know there's a lot of things in there. For example, there is the new stores, but can you just talk about.
What is going on in that or some of the more legacy stores still not recovered and newer stores are outperforming can you just unpack that non Chicago on evs versus pre COVID-19 and it might be why theres still below pre COVID-19 levels with Chicago is still is now above.
So great question John .
Actually I think I think the data is a little off so.
All of our restaurants, so if you said.
Trailing 12 months from P&I.
All of.
Our restaurants in Chicago land are certainly doing better than 2019.
Our restaurants in non Chicago land.
In total are really close to 2019, and then, California, Arizona, and Florida, which I think is always important to call out because I think those are sort of the best proof points of the portability of the concept those are significantly above 2019. So we're actually seeing great performance in general where in some of the markets where it is.
The restaurants, the <unk> are not quite up to 2019 levels. It's totally a function of newer restaurants opening that are just kind of.
Building up scale building up momentum so in general we feel really great about the recovery of our restaurants across the country.
Obviously, Chicago is fantastic for us, but we also feel really good about.
California, Arizona, and Florida, and the way that they are both have recovered and then exceeded 2019.
Thanks for that and then just going back to your comments on Entre Count I just wanted to clarify you said it ticked up when you're talking about it's positive now year over year or did improve versus last quarter. I think luxury counts were remind me, but I think they were down still a little bit last quarter or are they now so is that a sequential comment or a year over year comment. Thanks. So it can be more specific so number of.
First quarter, our entre counts were up.
One, 7%, so and just for everybody who is not quite sure. We look at entrees sandwiches sold an entree salads as an indicator of how many people are eating at portillo, everybody knows when most people quoting transaction or check thats kind of a that has.
A lot of noise in it based on mix channel et cetera, So entre counts for us in the first quarter were up about one 7% entree counts for the second quarter were down about one 9% entre counts for the third quarter ticked positive again.
1%, so we're basically flat for the year, but we had <unk>.
First quarter was a good second quarter was a little challenged with the third quarter. Our entre counts came back up at a time that I think has been very very challenging for the restaurant.
The restaurant industry in general.
That's helpful. Thank you.
You bet.
Again, if you have a question. Please press star one on your telephone keypad.
Alright, well operator, it looks like there are no more questions. So.
Thanks, everyone for attending our.
Earnings call and we will see many of you in early January in Florida take care.
This concludes today's teleconference call.
May disconnect your lines at this time, thank you for your participation.
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