Q4 2023 Portillo's Inc Earnings Call

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Greetings and welcome to the Fort Hill's fourth quarter and year end 2023 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on.

Operator: Greetings and welcome to Portillo's fourth quarter and year-end 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Operator: A brief 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 Novrini, Portillo's Director of Investor Relations. Thank you. You may begin.

Your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce your host Barbara Nokia No Freeney portfolios director of Investor Relations. Thank you you may begin.

Barbara Novrini: Thank you, operator. Good morning, everyone, and welcome to our fourth quarter and full year 2023 earnings call. Our 10k earnings press release and supplemental presentation are posted at investors.portillos.com. With me on the call today are Michael Asanlu, President and Chief Executive Officer, and Michelle Hook, Chief Financial Officer. Any commentary made here about our future results and business conditions is forward-looking statement, which are based on management's current expectations and are not guarantees of future performance. We do not update these forward-looking statements unless required by law. Our 10-K identifies risk factors that may cause our actual results to vary materially from these forward-looking statements. Today's earnings call will make reference to non-GAAP financial measures, which are not an alternative to GAAP measures.

Thank you operator, good morning, everyone and welcome to our fourth quarter and full year 2023 earnings call. Our 10-K earnings press release and supplemental presentation are posted at investors that Portola is dot com.

With me on the call today is Michael O'sullivan, President and Chief Executive Officer, and Michelle Hook, Chief Financial Officer.

Any commentary you made here about our future results and business conditions are forward looking statements, which are based on management's current expectations and are not guarantees of future performance. We do not update these forward looking statements unless required by law or 10-K identifies the risk factors that may cause our actual results to vary.

Materially from these forward looking statements.

Today's earnings call will make reference to non-GAAP financial measures, which are not an alternative to GAAP measures.

Barbara Novrini: Reconciliations of these non-GAAP measures to their most comparable GAP counterparts are included in this morning's posted materials. Finally, after we deliver our prepared remarks, we will open the lines for your questions. Now, I turn the call over to Michael Sanlu, President and Chief Executive Officer of Portillo's. Thank you, Barb. Good morning, everyone.

Reconciliations of these non-GAAP measures to their most comparable GAAP counterparts are included in this morning's posted materials.

Finally, after we deliver our prepared remarks, we will open the lines for your questions now.

Now, let me turn the call over to Michael <unk>, President and Chief Executive Officer of poor tell us.

Thank you Barbara and good morning, everyone. Thanks for joining us for our fourth quarter and full year 2023 earnings call I'm.

Michael Sanlu: Thanks for joining us for our fourth quarter and full year 2023 earnings call. I'm happy to share that we had a great fourth quarter and ended the year on a high note. In the fourth quarter, total sales increased 24.5% to approximately $188 million; same restaurant sales grew 4.4% on the back of transactions increasing 1.3%. Restaurant-level adjusted EBITDA grew 42.7% to 46 million, and restaurant-level adjusted EBITDA margins expanded by 310 basis points to 24.3%. For fiscal year 2023, total sales increased 15.8% to approximately $680 million.

I'm happy to share that we had a great fourth quarter and ended the year on a high note in.

In the fourth quarter total sales increased 24, 5% to approximately $188 million same restaurant sales grew four 4% on the back of transactions, increasing one 3%.

Restaurant level adjusted EBITDA grew 42, 7% to 46 million and restaurant level adjusted EBITDA margins expanded by 310 basis points to 24, 3%.

For fiscal year 2023, total sales increased 15, 8% to approximately $680 million.

Michael Sanlu: Same restaurant sales grew 5.7%, and we ended the year with average unit volumes of $9.1 million per restaurant. Restaurant level adjusted EBITDA grew 24.7% to $165 million. And for the full year, we expanded restaurant-level margins by 170 basis points to 24.3%. And importantly, we grew operating cash flow by 24.4% to a record level for Portillo. Let's dive into the factors that drove the success. First, we were operationally on point. We believe the best way to drive revenue and traffic in a sustainable fashion is to give our guests the outstanding experience we're known for and they've come to expect. In the fourth quarter, we did just that.

Same restaurant sales grew five 7% and we ended the year with average unit volumes of $9 $1 million per restaurant.

Restaurant level, adjusted EBITDA grew 24, 7% to $165 million.

And for the full year, we expanded restaurant level margins by 170 basis points to 24, 3%.

And importantly, we grew operating cash flow by 24, 4% to a record level for port pillows, let's.

Let's dive into the factors that drove this success.

First we were operationally on point we.

We believe the best way to drive revenue and traffic in a sustainable fashion is to give our guests the outstanding experience, we're known for and they've come to expect.

In the fourth quarter, we did just that the result, with strong revenue and margin performance multi year highs and overall guest satisfaction and a current net promoter score of nearly 70 outperforming most of our peers.

Michael Sanlu: The result was strong revenue and margin performance, multi-year highs in overall guest satisfaction, and a current net promoter score of nearly 70, outperforming most of our peers. We know the play; we serve abundant, delicious food at a fantastic price in an engaging environment. This is the number one way we create value for our guests and keep them coming back. In Q4, we flexed our multi-channel muscle extremely well.

We know the play we serve abundant delicious food at a fantastic price and an engaging environment.

This is the number one way we create value for our guests and keep them coming back.

In Q4, we flex our multichannel muscle extremely well we excelled in dine in our drive throughs were humming pickup and delivery orders were flying off the shelves and we did a great job growing our catering business for example in 'twenty two 'twenty three we invested in dedicated catering resources, such as a new <unk>.

Michael Sanlu: We excelled at dine-in, our drive-throughs were humming, pick-up and delivery orders were flying off the shelves, and we did a great job growing our catering business. For example, in 2023, we invested in dedicated catering resources such as a new concierge service to provide our guests with a high-touch ordering experience. We also strengthened our ability to handle large-scale catering events. For example, we served holiday meals to the frontline workers of a major airline in both Chicago and Arizona. The overarching theme there is that these investments are driving strong catering sales and will help us to continue to grow this channel. Today, catering represents only about 5% of our overall revenue.

Concierge service to provide our guests with a high touch ordering experience. We also strengthened our ability to handle large scale catering events.

For example, we serve holiday meals to the frontline workers are a major airline in both Chicago and Arizona.

The overarching theme there is that these investments are driving strong catering sales and will help us to continue to grow this channel.

Today catering represents only about 5% of our overall revenue we know it can be more we're excited about the opportunities to grow this channel by marketing additional catering occasions, and expanding this channel across our new markets.

Michael Sanlu: We know it can be more. We're excited about the opportunities to grow this channel by marketing additional catering occasions and expanding this channel across our new market. So speaking of marketing, in the lead up to the holiday season, we ran an advertising campaign in Chicago that brought the sights, smells, and sounds of Portillo's to the forefront. Instead of using discounting to drive traffic, we simply reminded fans in our largest market why they love Portillo's.

Speaking of marketing in the lead up to the holiday season, we ran an advertising campaign in Chicago that brought the sights smells and sounds of Portola as to the forefront.

Instead of using discounting to drive traffic, we simply reminded fans in our largest market why they love Port pillows. If you haven't seen our ads we have one linked on our Investor Relations website and you can see for yourself, how simple message like this can work as a traffic driver.

Michael Sanlu: If you haven't seen our ads, we have one linked on our investor relations website, and you can see for yourself how a simple message like this can work as a traffic driver. And as we move forward in the new year, we're going to continue to leverage traffic driving tools and initiatives. One that I'm excited to share is that we'll be adding two new salads to our permanent menu. As you know, we take menu innovation very seriously at Portillo's. We don't just add items to add. They have to fill a gap in the menu, make sense operationally, and, most importantly, be utterly craveable.

And as we move forward in the new year, we're going to continue to leverage traffic driving tools and initiatives. One that I'm excited to share is that we'll be adding two new salads to our permanent menu soon.

As you know we take menu innovation very seriously a portfolio. So we don't just add items to add they have to fill a gap in the menu makes sense operationally and most importantly be utterly craveable.

Michael Sanlu: Portillo's already generates more than $650,000 in salad sales per restaurant per year, with our beloved chopped salad as the best seller. Based on consumer and competitive data, we know we've got space to add more variety to this already craveable menu category. So we created a spicy chicken version of our signature chopped salad. We've also tested a chicken pecan salad with a new honey peppercorn dressing. Like all of our salads, these are also made fresh to order, and you can customize all the ingredients however you want.

Portillo is already generates more than $650000 in salad sales per restaurant per year with our beloved chopped salad is the best seller.

Based on consumer and competitive data, we know we've got space to add more variety to this already craveable menu category. So we created a spicy chicken version of our signature chopped salad. We've also tested a chicken pecan salad with a new honey peppercorn dressing.

Like all of our salads. These are also made fresh to order and you can customize all the ingredients. However, you want.

Michael Sanlu: Both test salads are selling really well, and we look forward to rolling them out system-wide soon. Now, let's pivot to development. In 2023, we opened 12 restaurants, including six in the fourth quarter. That 12 includes eight planned 2023 restaurants, as well as the four carryovers from the prior year. This is the most we've opened in a single year, and I'm excited about what this means and what we can do in the future. We've already got a lot of momentum heading into 2024, and you can expect it to be another strong year of growth for us. We've committed to at least nine new restaurants in the 2024 pipeline, five of which are already under construction. By the way, we self-fund all of this growth. Our new restaurants generate cash flow immediately, and we put all that cash right back into the business to fund further expansion. Now, as for unit economics, I've been told that everyone is sick of me bragging about the Colony Restaurant in Texas. So let's talk about some of the other stars of the class of 2023.

Both test salads are selling really well and we look forward to rolling them out system wide soon.

Now, let's pivot to development.

In 2023, we opened 12 restaurants, including six in the fourth quarter.

That 12 includes eight planned 2023 restaurants as well as the four carryover from the prior year. This is the most we've opened in a single year and I'm excited for what this means and what we can do in the future.

We've already got a lot of momentum heading into 2024, and you can expect it to be another strong year of growth for us.

We've committed to at least nine new restaurants in 2024 pipeline five of which are already under construction.

And by the way, we self fund all of this growth our new restaurants generate cash flow immediately and we put all that cash right back into the business to fund further expansion.

Now as for unit economics have been told that everyone is sick of me bragging about the colony restaurant in Texas. So let's talk about some of the other stars of the class of 2023.

Michael Sanlu: I'm extremely happy with the results coming out of our growth markets in particular. Fort Worth, Texas, and Claremont, Florida, have both opened strong out of the gate and are especially impressive with our new efficient kitchen layout. We also opened our second pickup location in Rosemont, Illinois. We continue to learn a lot from this model, and we're excited about its potential for Portillo's as we continue to grow. Remember that this model has everything except a dine-in capability, so it's essentially just a drive.

I'm extremely happy with the results coming out of our growth markets in particular.

Fort Worth, Texas, and Clermont, Florida have both opened strong out of the gate and especially impressive with our new efficient kitchen layout.

We also opened our second pick up location in Rosemont, Illinois.

We continue to learn a lot from this model and where we're and we're excited about its potential for poor till those as we continue to grow remember that this model has everything except a dine in capability. So it is essentially a drive thru we.

Michael Sanlu: We delivered a strong finish for the class of 2023, and we're looking forward to entering the Houston market in 2024. All told, we're really happy with the quarter and how the year ended. We executed on the fundamentals of our business and invested incrementally to drive brand awareness. In 2024, we will continue to flex traffic driving tools, driving success first and foremost by being operationally sound and protecting our value proposition. We're just building on the factors that have made Portillo's great for 60 years. We continue to execute against our playbook.

We delivered a strong finish for the class of 2023, and we're looking forward to entering the Houston market in 2024.

All told we're really happy with the quarter and how the year ended we executed on the fundamentals of our business and invested incrementally to drive brand awareness.

In 2024, we will continue to flex draft traffic driving tools driving success first and foremost by being operationally sound and protecting our value proposition.

We're just building on the factors that have made portillo is great for 60 years, we continued to execute against our playbook, providing a great experience and great food at a great price point is not are not is our not so secret sauce. It's how we drive the kind of financial results you saw from us in 2023.

Michael Sanlu: Providing a great experience and great food at a great price point is our not-so-secret sauce. It's how we drive the kind of financial results you saw from us in 2020. With that, I'll hand it over to Michelle.

With that let me hand, it over to Michelle.

Michelle Hook: Great. Thank you, Michael, and good morning, everyone. In Q4, we saw strong top-line revenue growth. During the fourth quarter, revenues were up $187.9 million, reflecting an increase of $37 million, or 24.5 percent, compared to last year, driven by a 4.4 percent increase in same-restaurant sales, combined with the opening of new restaurants. The same restaurant sales increase of 4.4% was primarily driven by an increase in average check of 3.1% and a 1.3% increase in transactions. The higher average check was driven by an approximate 6% increase in certain menu prices, partially offset by product. We had 14 weeks this fiscal quarter versus 13 weeks last year. Excluding the 14th week, revenue in the fourth quarter increased approximately 15.3%. The 14th week in fiscal 2023 included Christmas Day, resulting in six operating days.

Great. Thank you Michael and good morning, everyone in.

In Q4, we saw strong topline revenue growth during the fourth quarter revenues were up $187 9 million, reflecting an increase of $37 million or 24, 5% compared to last year driven by a four 4% increase in same restaurant sales combined with the opening of new rest.

Stress test.

The same restaurant sales increase of four 4% was primarily driven by an increase in average check of three 1% and a one 3% increase in transactions.

The higher average check was driven by an approximate 6% increase in certain menu prices, partially offset by product mix.

We had 14 weeks this fiscal quarter versus 13 weeks last year, excluding the 14th week revenue in the fourth quarter increased approximately 15, 3%.

The 14th week in fiscal 2023 included Christmas day, resulting in six operating days.

You have all seen choppy performance during the first quarter due to winter weather and consumer headwinds in our industry, we are not immune to that but.

Michelle Hook: You have all seen choppy performance during the first quarter due to winter weather and consumer headwinds in our industry. We are not immune to that, but we don't expect that to derail the rest of our year.

But we don't expect that to derail the rest of our year.

Michelle Hook: Our long-term growth algorithm reflects low single-digit caps. Now, there will be years when unexpected things happen in any given quarter, and years when we outperform. But on average, we have confidence we can hit that target on an annual basis, and we feel no different as we sit here today. On the development front, we expect to open at least nine new restaurants in the class of 2024. We currently expect one new opening later in the first quarter of this year, with two to three openings in each of the subsequent quarters.

Long term growth algorithm reflects low single digit comp.

Now there will be years, when unexpected things happen in any given quarter and years, when we outperform but on average we have confidence we can hit that target on an annual basis, and we feel no different as we sit here today.

On the development front, we expect to open at least nine new restaurants in the class of 2024. We currently expect one new opening later in the first quarter of this year with two to three openings in each of the subsequent quarters.

Michelle Hook: We remain committed to delivering on our long-term mid-teens revenue growth target, primarily through new restaurant growth, while continuing to deliver positive camp growth. We updated our long-term outlook in September at our development day, increasing our restaurant growth and revenue targets. These are also outlined in our earnings release issued this morning. Moving on to our cost. Food, beverage, and packaging costs as a percentage of revenues decreased to 34.8% in the fourth quarter of 2023 from 35% in the fourth quarter of 2022. This decrease was primarily due to an increase in our revenue and lower third-party delivery commissions, partially offset by a 4.4% increase in commodity prices. We estimate overall commodity inflation to stay consistent with recent trends and are currently estimating commodity inflation in the mid-single digits in 2024. Labor as a percentage of revenues decreased to 25.4 percent in the fourth quarter of 2023 from 26.5 percent in the fourth quarter of 2022.

We remain committed to delivering on our long term mid teens revenue growth target, primarily through new restaurant growth, while continuing to deliver positive comp growth.

We updated our long term outlook in September at our development day, increasing our restaurant growth and revenue targets.

These are also outlined in our earnings release issued this morning.

Moving on to our costs food beverage and packaging costs as a percentage of revenues decreased to 34, 8% in the fourth quarter of 2023 from 35% in the fourth quarter of 2020 to.

This decrease was primarily due to an increase in our revenue and lower third party delivery commissions, partially offset by a four 4% increase in commodity prices, we estimate overall commodity inflation to stay consistent with recent trends and are currently estimating commodity inflation in the mid single digits in 2024.

Labor as a percentage of revenues decreased to 25, 4% in the fourth quarter of 2023 from 26, 5% in the fourth quarter of 2022. The decrease was primarily driven by an increase in our revenue, partially offset by higher labor utilization and incremental.

Michelle Hook: The decrease was primarily driven by an increase in our revenue, partially offset by higher labor utilization and incremental investments in our team members, including hourly rate increases and variable-based compensation. Hourly labor rates were up 2.4% in the fourth quarter of 2023 and up 4.3% year-to-date versus the prior period. We are currently estimating labor inflation in the mid-single digits in 2024. Other operating expenses increased $2.4 million or 13.5 percent in the fourth quarter of 2023 compared to the fourth quarter of 2022, which was primarily driven by the opening of new restaurants as well as higher credit card fees, utilities, and repair and maintenance expenses. Occupancy expenses increased $0.6 million or 7.4% in the fourth quarter of 2023 compared to the fourth quarter of 2022, primarily driven by the opening of new restaurants. As a percentage of revenues, occupancy expenses decreased 0.7% compared to the prior year, driven by an increase in our revenues.

Investments in our team members, including hourly rate increases and variable based compensation.

Hourly labor rates were up two 4% in the fourth quarter of 2023 and up four 3% year to date versus the prior periods.

We are currently estimating labor inflation in the mid single digits in 2024.

Other operating expenses increased $2 4 million or 13, 5% in the fourth quarter of 2023 compared to the fourth quarter of 2022, which was primarily driven by the opening of new restaurants, as well as higher credit card fees utilities and repair and maintenance expenses.

Occupancy expenses increased <unk> 6 million or seven 4% in the fourth quarter of 2023 compared to the fourth quarter of 2022, primarily driven by the opening of new restaurants.

As a percentage of revenues occupancy expenses decreased <unk>, 7% compared to prior year driven by an increase in our revenue.

Restaurant level adjusted EBITDA increased 42, 7% to $45 7 million in the fourth quarter of 2023.

Michelle Hook: Restaurant Level Adjusted EBITDA increased 42.7% to $45.7 million in the fourth quarter of 2023. Adjusted EBITDA includes an impact of approximately $3.5 million due to the 14th week. Restaurant Level Adjusted EBITDA margins were 24.3% in the fourth quarter of 2023 versus 21.2% in the fourth quarter of 2022, a strong improvement of 310 basis points quarter over quarter. For the full year 2023, our restaurant level adjusted EBITDA margins were also 24.3%, which was an improvement of 170 basis points versus fiscal year 2022. As we said at the beginning of the year, increasing our margins was a focus for 2023, and we delivered. Our improvement and restaurant level adjusted even at margins is on top of opening a record level of new restaurants in 2023, which all have a lower margin profile to start. This improvement is the result of our ongoing efforts to deploy strategic pricing actions, elevate guest experiences, and implement operational efficiency. We will continue to focus on driving long-term shareholder value by focusing on our operational execution and a disciplined development strategy, including pricing. As a reminder, in 2023, we took two pricing actions in January and May.

Restaurant level adjusted EBITDA includes an impact of approximately $3 5 million due to the 14th week.

Restaurant level adjusted EBITDA margins were 24, 3% in the fourth quarter of 2023 versus 21, 2% in the fourth quarter of 2022, a strong improvement of 310 basis points quarter over quarter.

For the full year 2023, our restaurant level adjusted EBITDA margins were also 24, 3%, which was an improvement of 170 basis points versus fiscal year 2022.

As we said at the beginning of the year, increasing our margins with a focus in 2023 and we delivered.

Our improvement in restaurant level adjusted EBITDA margins is on top of opening a record level of new restaurants in 2023, which all have any lower margin profile to start.

This improvement was the result of our ongoing efforts to deploy strategic pricing actions elevate guest experiences and implement operational efficiencies.

We will continue to focus on driving long term shareholder value by focusing on our operational execution and a disciplined development strategy.

On pricing as a reminder, in 2023, we took two pricing actions in January and May.

Michelle Hook: We recently announced an additional pricing action in January of 2024 of approximately 1.5%. We will continue to monitor our cost pressures, the competitive landscape, as well as consumer sentiment to inform our pricing decisions in the coming quarters. This recent action puts us at an effective price increase of nearly 5% in the first quarter of 2024. Our general and administrative expenses increased by $3.8 million to 11.5% of revenue in the fourth quarter of 2023 from 11.7% in the fourth quarter of 2022.

We recently announced an additional pricing action in January of 2024 of approximately one 5%.

We will continue to monitor our cost pressures the competitive landscape as well as consumer sentiment to inform our pricing decisions in the coming quarters. This.

This recent action puts us at an effective price increase of nearly 5% in the first quarter of 2024.

Our general and administrative expenses increased by $3 8 million to 11, 5% of revenue in the fourth quarter of 2023 from 11, 7% in the fourth quarter of 2022.

Michelle Hook: The increase was primarily driven by higher variable-based compensation, higher advertising expenses due to our Chicagoland ad campaign, increased wages and benefits attributable to annual rate increases, and the filling of open positions to execute our growth plan, partially offset by a decrease in equity-based compensation expense and insurance. In 2024, we currently expect general and administrative expenses to be between 85 and 87 million.

The increase was primarily driven by higher variable based compensation higher advertising expenses due to our Chicago land AD campaign.

Increased wages and benefits attributable to annual rate increases.

And the filling of open positions to execute our growth plans.

Partially offset by a decrease in equity based compensation expense and insurance.

In 2024, we currently expect general and administrative expenses to be between $85 million to $87 million.

Michelle Hook: Pre opening expenses increased by 1 million to 2.1% in the fourth quarter of 2023 from 2% in the fourth quarter of 2022. The increase was due to the number and timing of executed and planned new restaurant openings. We expect pre opening expenses to be between $8 to $9 million in 2024. Please keep in mind that our reported pre-opening expenses, as well as our estimate for 2024, include deferred or non-cash rent expense, as well as actual costs incurred prior to the restaurants. All this led to adjusted EBITDA of $26.1 million in the fourth quarter of 2023 versus $18.1 million in the fourth quarter of 2022, an increase of 44.5%. Adjusted EBITDA includes an impact of approximately $2.4 million due to the 14th Amendment.

Preopening expenses increased 1 million to two 1% in the fourth quarter of 2023 from 2% in the fourth quarter of 2022.

The increase was due to the number and timing of executed and planned new restaurant openings.

We expect preopening expenses to be between $8 million to $9 million in 2024. Please.

Please keep in mind that our reported pre opening expenses as well as our estimate for 2024 includes deferred or noncash rent expense as well as actual costs incurred prior to the restaurants are opening.

All of this led to adjusted EBITDA of $26 1 million in the fourth quarter of 2023 versus $18 1 million in the fourth quarter of 2022, an increase of 44, 5%.

Adjusted EBITDA includes an impact of approximately $2 4 million due to the 14th week.

For the full year 2023, our adjusted EBITDA margins were 15% compared to 14, 5% for 2022.

Michelle Hook: For the full year 2023, our adjusted EBITDA margins were 15% compared to 14.5% for 2022. Below the EBITDA line, interest expense was $6.9 million in the fourth quarter of 2023, a decrease of $1.4 million from the fourth quarter of 2022. This decrease was primarily driven by improved lending terms associated with our 2023 term loan and revolver facility. As of today, our outstanding borrowings under the revolver are $13 million

Below the EBIT line interest expense was $6 9 million in the fourth quarter of 2023, a decrease of $1 4 million from the fourth quarter of 2022.

This decrease was primarily driven by improved lending terms associated with our 2023 term loan and revolver facility.

As of today, our outstanding borrowings under the revolver are $13 million.

Our effective interest rate was eight 4% for 2023 versus 10, 4% for 2022.

Michelle Hook: Our effective interest rate was 8.4% for 2023 versus 10.4% for 2022. The income tax benefit was $0.4 million in the fourth quarter of 2023, and we had an income tax expense of $3.2 million for the year. Our effective tax rate for the fourth quarter of 2023 was negative 3.8 percent, driven by a change in our valuation allowance.

Income tax benefit was <unk> 4 million in the fourth quarter of 2023, and we had an income tax expense of $3 2 million for the year.

Our effective tax rate for the fourth quarter of 2023 was negative three 8% driven by a change in our valuation allowance.

Our effective tax rate for the year was 11, 5% versus nine 6% in 2022.

The increase in our effective income tax rate was primarily driven by an increase in the company's ownership interest in portela opco, partially offset by a decrease in the valuation allowance and the recording of net operating loss carryforwards.

Michelle Hook: Our effective tax rate for the year was 11.5% versus 9.6% in 2022. The increase in our effective income tax rate was primarily driven by an increase in the company's ownership interest in Portillo's OPCO, partially offset by a decrease in the valuation allowance, and the recording of net operating loss carry forward. Our future effective tax rate will fluctuate as Class A equity ownership increases and as equity-based awards are exercised and refunded. As a reminder, we invest our strong operating cash flows into our future by self-funding our new restaurant group. Cash from operations increased by 24.4% year over year to $70.8 million for the year. This was primarily driven by solid revenue growth across the existing base of restaurants, the record number of new restaurant openings in 2023, and margin expansion. Note that in the fourth quarter of 2023, we pulled forward some capital expenditures to support activity for the 2024 pipeline.

Our future effective tax rate will fluctuate as class a equity ownership increases.

And as equity based awards are exercised and fast.

As a reminder, we invest our strong operating cash flows into our future by self funding, our new restaurant growth.

Cash from operations increased by 24, 4% year over year to $70 8 million for the year. This was primarily driven by solid revenue growth across the existing base of restaurants. The record number of new restaurant openings in 2023 and margin expansion.

Note that in the fourth quarter of 2023, we pulled forward some capital expenditures to support activity for the 2024 pipeline.

We're motivated to capture as many operating weeks as possible from our new restaurant openings in any year.

You may see quarterly Capex spend flax based on timing of new restaurant openings.

Having said that we are committed to staying within the six two to six and a half million average build cost range for the class of 2024.

We previous previously shared that we have accelerated our timeline to bring restaurant of the future into Q4 of this year.

Michelle Hook: We're motivated to capture as many operating weeks as possible from our new restaurant openings in any year, so you may see quarterly CapEx spend flux based on the timing of the new restaurant opening. Having said that, we are committed to staying within the $6.2 to $6.5 million average build cost range for the class of 2024. We previously shared that we have accelerated our timeline to bring Restaurant of the Future to Q4 of this year. And remember, these are expected to carry an even lower build cost.

And remember these are expected to carry an even lower build costs.

In 2024, we estimate the capex range to be $90 million to $93 million, which will fund our 2024 openings and the first wave of our 2025 pipeline. In addition to other operational capex needs.

We are currently estimating that 85% of our 2024 projected capex will be spent on new restaurant builds including early 2025 builds.

10% on investments in existing restaurants, and 5% on other discretionary capital, including investments in our commissaries.

Michelle Hook: In 2024, we estimate the CapEx range to be 90 to 93 million, which will fund our 2024 openings and the first wave of our 2025 pipeline, in addition to other operational CapEx. We are currently estimating that 85% of our 2024 projected CapEx will be spent on new restaurant builds, including early 2025 builds. 10% on investments in existing restaurants and 5% on other discretionary capital, including investments in our commissary. We are confident in the strength of our brand, our operational execution, and look forward to continuing to deliver on our long-term outlook that was provided in our earnings release this morning. Thank you for your time.

We are confident in the strength of our brand our operational execution and look forward to continuing to deliver on our long term outlook that was provided in our earnings release. This morning. Thank.

Thank you for your time and with that I'll turn it back to Michael Thanks, Michelle.

Before we open for questions I want to reiterate how pleased we are with the progress our teams made in 2023.

We grew revenue and adjusted EBITDA by double digits, we generated record operating cash flow. We opened 12, new restaurants, we ended the year with positive traffic and multi year highs and guest satisfaction. None of this is possible without our great team members I'm.

STREAMWAY proud of them and thankful to our frontline folks who delight our guests every single day.

I feel great about these results and I've never been more confident about our future. Thank you.

Michael Sanlu: And with that, I'll turn it back to Michael. Thanks, Michelle. Before we open for questions, I want to reiterate how pleased we are with the progress our teams made in 2020. We grew revenue and adjusted EBITDA by double digits. And we generated record operating cash flow.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Michael Sanlu: We opened 12 new restaurants. We ended the year with positive traffic and multi-year highs in guest satisfaction. None of this would be possible without our great team.

Our first question comes from Sharon Zackfia with William Blair. Please proceed with your question.

Michael Sanlu: I'm extremely proud of them and thankful to our frontline staff who delight our guests every single day. I feel great about these results, and I've never been more confident about our future. Thank you very much. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Hi, Good morning, two courtyard Michele good morning, Michel it sounds like you're probably not going to price away all of the labor and commodity inflation, you're expecting this year. So if you could give some thoughts on kind of how do you think restaurant level margin of nerf loves this year I think that would be helpful.

And then Michael given the success of the marketing in Chicago can you talk about what plans might be for marketing in Chicago. This year and whether there are any other markets, where you have density where that might make sense.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. Our first question comes from Sharon Zaxia with William Blair. Please proceed with your question. Good morning. Two questions. First, Michelle.

Yeah sure. So I'll address the first question on pricing, we havent made any decisions yet it's still early in the year and how we're going to approach pricing as we go into this year as you know we always taken approach that generally we want to set offset our inflationary pressures with price, having said that though.

Sharon Zaxia: Morning, Michelle. It sounds like you're probably not going to price away all of the labor and commodity inflation you're expecting this year. So if you could give some thoughts on kind of how you think restaurant level margin will be affected by their flows this year, I think that would be helpful. And then, Michael, given the success of the marketing in Chicago, can you talk about what plans there might be for marketing in Chicago this year and whether there are any other markets where you have density where that might make sense? Yeah, Sharon, so I'll address the first question on pricing. We haven't made any decisions yet.

You you all know that the consumer right now is is a little bit shaky and so we need to be careful on how we approach pricing and so we're going to continue to assess how that consumer is what the competitive landscape looks like before we make any decisions further on pricing in terms of your restaurant level margin question.

When we look at the portfolio and bringing in 12, new restaurants into the base. This year plus the nine nine plus that we're gonna open this year, we do expect to.

See some margin degradation from those restaurants as you know they don't come out of the gate doing 20% margins generally in year, one they're going to be in that high teens and so.

Michelle Hook: It's still early in the year, and we don't know how we're going to approach pricing as we go into this year. As you know, we always take an approach that, generally, we want to offset our inflationary pressures with price. Having said that, though, you all know that the consumer right now is a little bit shaky, and so we need to be careful how we approach pricing. And so we're going to continue to assess how that consumer is, and what the competitive landscape looks like before we make any decisions further on pricing. In terms of your restaurant-level margin question, when we look at the portfolio and bring in 12 new restaurants into the base this year, plus the nine plus that we're going to open this year, we do expect to see some margin degradation from those restaurants. As you know, they don't come out of the gate doing 20 plus percent margins generally in year one. They're going to be in the high teens, and so we do expect to see those restaurants impact restaurant-level margins as we approach this year. And then on.

We do expect to see those restaurants impact restaurant level margins as we approach this year yeah.

And then on.

I think your question, it's marketing, but it's really traffic driving so undeniably we have a muscle that we use but we like to use selectively when it comes to TV AD campaigns to drive traffic. It works really well in Chicago I think we're approaching the scale, where it could work for us in markets like Arizona and Indiana.

So we certainly have that.

Arrow in our quiver and we won't hesitate to use it if we need to I honestly think those shared that the best way to drive traffic as operational excellence, we're already investing in that we're already paying people to do that so the difference between good and great is a guest comes back frequently or guest comes back less frequently and so we.

Think that being operationally excellent is probably the most important lever to use to drive traffic, but of course, we have advertising we have new menu innovation, we have our PR machine. So we have other tools that we'll use to make sure that we're appropriately driving and balancing traffic versus expense.

Michael Sanlu: I think your question is marketing, but it's really traffic driving. So undeniably, we have a muscle that we use, but we like to use selectively when it comes to TV and ad campaigns to drive traffic. It works really well in Chicago.

Okay. Thank you.

Our next question comes from Sara Senatore with Bank of America. Please proceed with your question.

Thank you just a I guess it.

Michael Sanlu: I think we're approaching a scale where it could work for us in markets like Arizona and Indiana. And so we certainly have that arrow in our quiver, and we won't hesitate to use it if we need to. I honestly think, though, Sharon, that the best way to drive traffic is operational excellence. We're already investing in that. We're already paying people to do that.

Little bit more of a deeper dive into that comp. So I guess, you talked about catering and so I was curious if that was an outsized driver for the fourthquarter I know, that's a big bigger share of the mix in the fourth quarter, but just trying to understand to what extent that's a driver in the fourth quarter versus over time and then.

As we think about the advertising and the Chicago Atlanta, I guess, that's sort of perception has always been that your new markets tend to comp better than than the core market. One is that fair and two should we think about the fourth quarter being just maybe less of a drag from the Chicago land comp or.

Michael Sanlu: So the difference between good and great is whether a guest comes back frequently or a guest comes back less frequently. And so we think that being operationally excellent is probably the most important lever to use to drive traffic. But of course, we have advertising, we have new menu innovation, we have our PR machine. So we have other tools that we'll use to make sure that we're appropriately driving and balancing traffic versus excellence. Our next question comes from Sara Senatore with Bank of America. Please proceed with your question. Great. Thank you.

Did you actually see traffic improved sequentially across all your markets.

Yeah, I'll take the catering question, Sarah So I would only say that as we were comparing catering this year versus last year remember, we had a little bit of weather impacts as we approach that heavy catering season for us and Q4 last year and so when we look at quarter over quarter. Yeah. We did see a growth in catering from that perspective.

Sara Harkavy Senatore: Just, I guess, a little bit more of a deeper dive into that comp, so I guess you talked about catering, and so I was curious if that was an outsized driver for the fourth quarter. I know that's a bigger share of the mix in the fourth quarter, but just trying to understand to what extent that's a driver in the fourth quarter versus over time. And then, you know, as we think about advertising in Chicagoland, I guess the sort of perception has always been that your new markets tend to compete better than the core market. One, is that fair?

But having said that it wasn't outweighed it I wouldn't call it anything outweighed it in Q4, but as Michael mentioned over time I think it is a real opportunity for us to push catering, particularly in our outer markets and so that's we're going to what we're going to continue to work towards is making sure that our guests understand that we have this channel.

Outside of Chicago land.

Yeah, let me.

Two two little builds one is I think the catering theme is part of a broader theme for US which is we're incredibly proud of our multichannel capabilities and it is important to us that we are masters at flexing. Each one of those channels you Theres a lot of folks right now who are trying to learn how to do.

Michelle Hook: And two, you know, should we think about the fourth quarter being maybe less of a drag from the Chicagoland comp, or did you actually see traffic improve sequentially across all your markets? Thank you. Yeah, I'll take the catering question, Sara. So I would only say that as we were comparing catering this year versus last year, remember, we had a little bit of weather impact as we approached that heavy catering season for us in Q4 last year. And so, you know, when we look at quarter over quarter, yeah, we did see a growth in catering from that perspective. But having said that it wasn't outweighed, I wouldn't call it anything outweighed in Q4.

Drive through people, who are trying to get better at catering.

We're really good at all of these channels and so our goal is the catering we think theres more opportunity more tailwind and we look at the catering performance in the core versus in our growth markets and we know that we can get better and so that's one of the reasons I think we're excited about catering we want that to be as strong a channel for us.

<unk> drive through is dine in delivery, so that's sort of the big picture your second theme.

Michelle Hook: But as Michael mentioned, over time, I think it is a real opportunity for us to push catering, particularly in our outer markets. And so that's what we're going to continue to work towards, making sure that our guests understand that we have this channel outside of Chicagoland. Yeah, let me and I do two little builds.

Questions here about trends the trends were pretty consistent for us across all of our markets I would say that we probably saw a little bit of an acceleration with the with the advertising campaign in the Midwest. So that certainly helped but we had.

Very very positive trends across all of our markets for the.

For the fourth quarter.

Got it thank you very much.

Yeah.

Michael Sanlu: One is I think the catering theme is part of a broader theme for us, which is that we are incredibly proud of our multi-channel capabilities, and it's important to us that we are masters at flexing each one of those channels. There are a lot of folks right now who are trying to learn how to do drive-thru, people who are trying to get better at catering. We're really good at all of these channels, and so our goal is that catering. We think there's more opportunity, more tailwind, and we look at the catering performance in the core versus in our growth markets, and we know that we can get better. And so that's one of the reasons I think we're excited about catering. We want that to be as strong a channel for us as drive-thru is for us, dine-in, and delivery.

Our next question comes from Chris I'll call with Stifel. Please proceed with your question.

Thanks for taking my question and congratulations on a strong quarter.

I had a follow up question just on advertising and Michael I appreciate the need to drive frequency by delivering on the experience inside the store, but I'm just curious why not have a more consistent advertising strategy in Chicago that keeps the brand top of mind really do during important seasons for for the brand.

First thanks for the compliment and I actually I think we do we're just not comfortable telling everyone exactly what we're going to do and when to be totally honest with you. We have done we have pulse in and out of the Chicago market as appropriate and I think we will continue to do that.

Michael Sanlu: So that's sort of the big picture. Your second theme question, Sara, about trends. The trends were pretty consistent for us across all of our markets. I would say that we probably saw a little bit of an acceleration with the advertising campaign in the Midwest, so that certainly helped, but we had very, very positive trends across all of our markets for the fourth quarter. Got it. Thank you very much.

And it doesn't I'm not telling you anything thats state secrets, but like trying to advertise during an election cycle is.

Really tough spend and so we're probably not advertising in the back half of this year anywhere in the country, we would get shouted out by local politicians. So you can imagine that if we're going to advertise we're going to do it selectively we're going to advertise.

Sara Harkavy Senatore: Our next question comes from Chris O'Cull with Steeple. Please proceed with your question. Thanks for taking my question and congratulations on a strong quarter. I had a follow-up question just on advertising, and Michael, I appreciate the need to drive frequency by delivering on the experience inside the store, but I'm just curious, why not have a more consistent advertising strategy in Chicago that keeps the brand top of mind really during important seasons for the brand? You know, first, thanks for the compliment.

As necessary and when we think we're going to get great returns on those dollars I don't want of course, I don't want to be formulaic and say Oh I got to spend this much money on advertising in this quarter, we'd like to be more opportunistic when it comes to spending those ad dollars.

Okay. That's fair and then when you look at the early sales curves of the 2022 23 class of units new units do they continue to outperform your previous classes at a similar point in time, particularly those new units outside of Chicago in.

Chris O'Cull: And I actually think we do. We're just not comfortable telling everyone exactly what we're going to do and when. To be totally honest with you, we have done, we have pulsed in and out of the Chicago market as appropriate. And I think we will continue to do that. You know, like, and it doesn't, I'm not telling you anything that's state secrets, but trying to advertise during an election cycle is, you know, is a really tough spend. And so we're probably not advertising the back half of this year anywhere in the country because we would get shouted out by local politicians.

Yeah, Chris as you know we put out at development, how the class of <unk> 22 was trending.

And that first year that 8 million AAV level class of 23, frankly, Kristen is really very new and young. So we opened six of the eight just in Q4 alone. So it's really too early to tell but I will point to what Michael sandwiches, We're very happy about the performance, particularly when you look at both Artur markets you called out for its more than Clermont, but really it.

It's too early for me to make any commentary on the class of 2023, because it's just so new right now.

Okay fair enough thanks, guys.

Thanks, Chris.

Our next question comes from Brian <unk>.

Michael Sanlu: So you can imagine that if we're going to advertise, we're going to do it selectively. We're going to advertise as necessary and when we think we're going to get great returns on those dollars. I don't want, Chris, I don't want to be formulaic and say, oh, I got to spend this much money on advertising this quarter. We like to be more opportunistic when it comes to spending those ad dollars. Okay, that's fair.

With Piper Sandler. Please proceed with your question.

Hey, Thank you just a question on Texas you are off to a great start in that market could you just speak to how the Arlington in Fort worth openings went and out of curiosity do you see any cannibalization affected at the colony right. Alan that you can observe and then.

Related but separate just talk about the entrance into Houston this year kind of whats the roadmap.

Yeah.

Michael Sanlu: And then when you look at the early sales curves of the 2022-23 class of units, new units, do they continue to outperform your previous classes at a similar point in time, particularly those new units outside of Chicagoland? Yeah, Chris, as you know, we put out at Development Day how the class of 22 was trending in that first year at that 8 million AUV level. Class of 23, Frankly, Chris is really very new and young.

So we're look we're super excited about Texas, we have been consistent about how how how.

Our response has been from people in DFW, we've gone from zero restaurants, a little over a year ago to four opened the fifth is going to open soon.

I mean, we're really happy with that.

The company had a ridiculously good first year and I think that's not surprising we have a very strong brand. We have an installed base. There was a lot of demand for us and so I think that that first year you see a lot of.

A lot of visitation that's outside of our normal catchment you have people driving 30, 40 miles I mean heck, we had people driving from Houston and Austin to visit us at the colony. So that's of course not sustainable.

Michelle Hook: So we opened six of the eight just in Q4 alone. So it's really too early to tell. But I'll point to what Michael said, which is, we're very happy about the performance, particularly when you look at those ardor markets, he called out Fort Worth and Claremont. But really, it's too early for me to make any commentary on the class of 2023 because it's just so new right now.

We explore he expected the colony has slowed down a bit this year and we're seeing that still performing exceptionally well.

Exceptionally well, but Arlington and Fort worth have gotten off to great starts. Those are those are great start Alan has been a little bit slower youll recall that it was I don't know maybe eight nine months ago that that mall that were at had a shooting and so I think that whole mall has been a bit depressed it is still performing well.

Chris O'Cull: Fair enough, thanks guys. Thanks, Chris. Our next question comes from Brian Malone with Piper Sandler. Please proceed with your question. Hey, thanks. Just a question about Texas.

Well, it's just not performing at the same pace as Arlington Fort worth or the comedy. So we're super excited about <unk>.

Brian Malone: You're off to a great start in that market. Can you speak to how the Arlington and Fort Worth openings went? And, out of curiosity, do you see any cannibalization effect at the Colony or at Allen that you can observe?

<unk>, we're continuing to build in DFW.

And we're continuing to develop scale there we will open our first few restaurants in Houston this year.

Michael Sanlu: And then, you know, related but separate, just talk about the entrance into Houston this year. Yeah. So we're, look, we're super excited about Texas.

But similar to Dallas Fort worth I think that we're going to we're going to come out of the gate strong all of the modeling that we have done for what it's worth says it's going to be every bit as good as.

Michael Sanlu: I've been consistent about how great our response has been from people in DFW. We've gone from zero restaurants a little over a year ago to four open, and the fifth is going to open soon. That's, I mean, we're really happy with that. The colony had a ridiculously good first year, and I think that's not surprising.

Dallas is for us and so we have great located we have some great locations. We took our time to make sure. We have a plus locations that have great visibility great ingress, great egress, great demographics tailwind population growth sort of all the things that matter to us and I'm excited I'm excited to see how Houston growth for us.

Michael Sanlu: We have a very strong brand. We have an installed base. There was a lot of demand for us. And so I think that in that first year, you see a lot of visitation that's outside of a normal catchment. You have people driving 30, 40 miles. I mean, heck, we had people driving from Houston and Austin to visit us at the colony. So that's, of course, not sustainable.

I'm excited to get to scale very quickly in Houston.

Yeah.

Okay. Thank you for all that color and then just a follow up question on the Rosemont, Illinois location I think you touched on it a little in the prepared remarks, but just to elaborate a little have that second location is doing and maybe anything you're learning there relative to the first one and then.

When might you start to expect to deploy these formats are little more broadly across the system I mean could that be next year should we be thinking of.

Michael Sanlu: So we fully expected the colony to slow down a bit this year, and we're seeing that. Still performing exceptionally well, you know, exceptionally well. But Arlington and Fort Worth have gotten off to great starts. Those are great starts. Allen has been a little bit slower.

Little bit longer term for that type of format.

Yes.

You know.

Juliet was fantastic it exceeded all of our expectations. When we build Joliet that was the very first portfolios pickup Rosemont is doing well.

<unk>.

Michael Sanlu: You'll recall that it was, I don't know, maybe eight, nine months ago that the mall that we're at had a shooting. And so I think that whole mall has been a bit depressed. It's still performing well; it just isn't performing at the same pace as Arlington, Fort Worth, or the colony. So we're super excited about DFW. We're continuing to build in DFW, and we're continuing to develop scale there. We will open our first few restaurants in Houston this year, and similar to Dallas-Fort Worth, I think that we're gonna come out of the gate strong. All of the modeling that we have done for what it's worth says it's going to be every bit as good as Dallas is for us.

We learned from Julia I think in the Julia we realize we overbuilt the kitchen was a little bit bigger we probably under built the amount of space necessary for teams and I think frankly, we underestimated how many people would walk up and order food and we were not quite as well prepared for walk in business. So we tried to tweak all of that in Rosemont Rosemont.

Really what I want us Stu on a bit to make sure that we've learned everything that we need to learn do we have the right kitchen line do we have enough space for our team members are we.

Appropriately friendly to walk up some people, who just want to come in and get their food and eat at a counter maybe.

So we're learning all of that and my expectation is that we'll probably have one more iteration to perfect. The model and then we can hit go and grow aggressively.

Michael Sanlu: And so we have great locations; we took our time to make sure we had A-plus locations that have great visibility, great ingress, great egress, great demographics, tailwind population growth, sort of all the things that matter to us. And I'm excited, I'm excited to see how Houston grows for us, I'm excited to get to scale very quickly in Houston. Okay, thank you for all that color.

Thanks, a lot.

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

Hey, guys good morning.

It was kind of more on.

Kind of explicit guidance versus the implied guidance Michel you know.

Brian Malone: And then just a follow-up question on the Rosemount, Illinois, location. I think you touched on a little on the prepared marks, but just elaborate a little on how that second location is doing and maybe anything you're learning there relative to the first one. And then, you know, when might you start to expect to deploy these formats a little more broadly across the system? I mean, could that be next year?

A couple of things on same store sales margins may be <unk>.

Down a little bit.

New units or a little bit below the <unk>.

12 to 15, but.

Really kind of distilling it down.

<unk> adjusted EBITDA growth in the low double digits.

Michael Sanlu: Or should we be thinking, a little bit longer term for that type of format? Yeah, I you know, Joliet was fantastic. It exceeded all of our expectations when we built it. That was the very first, Portillo's pickup.

Is that a reasonable starting point kind of adjusting out the extra week for for.

For 'twenty three just trying to you know.

Michael Sanlu: Rosemont is doing well. It's, we learned from Joliet. I think in Joliet, we realized we overbuilt the kitchen; it was a little bit bigger, and we probably underbuilt the amount of space necessary for teams. And I think frankly, we underestimated how many people would walk in and order food. And we were not quite as well prepared for the walk-in business. So we tried to tweak all of that in Rosemont. Rosemont, I really want to, I want to stew on a bit to make sure that we've learned everything that we need to learn. Do we have the right kitchen line? Do we have enough space for our team members?

Get a little bit closer to what really matters there.

Yeah, I think Andy as you know, we don't give short term guidance, but.

As I mentioned in terms of the long term growth algorithm right, we're always going to be aiming to her.

Hit that as we look at any given year.

I will say on the margin so that yes, we have a lot of new units coming in and obviously, we still have a lot of year to play out here, but our operational teams are phenomenal in terms of just continuing to look for ways that we can become more efficient as we have these new kitchens coming online as Michael mentioned in his prepared remarks.

Michael Sanlu: Are we appropriately friendly to walk in and get their food and eat at a counter, maybe? And so we're learning all of that. And my expectation is that we'll probably have one more iteration to perfect the model, and then we can hit go and grow aggressively. Thank you a lot.

Catch in 'twenty three as we build the restaurant of the future even as we retrofit another 20 plus restaurants within 20.

24, I think we continue to look for operational efficiencies so that we can.

Back some of that margin pressures that we see from the new units.

As well as getting to scale as quickly as possible and I know we've talked to you all about that and in continuing to do that so we can again buffer against any margin degradation degradation, but.

Andrew Marc Barish: Our next question comes from Andy Barish with Jefferies. Please proceed with your question. Hey, guys. Good morning.

Andrew Marc Barish: Yeah, it was kind of more on, sort of explicit guidance versus implied guidance. Michelle, you noted a couple of things on same-store sales, you know, margins maybe down a little bit. You know, new units are a little bit below the, you know, 12 to 15, but really, you know, kind of distilling it down to adjusted EBITDA growth in the low, low double digits. Is that a reasonable starting point, kind of adjusting out the extra week for 23, just trying to, you know, kind of get a little bit closer to what really matters there?

That's just a fact right with the 12 from last year in the nine plus this year, but look I think if you. If you look at how you expect the units to perform when you layer in the nine units et cetera.

Obviously, I'm not going to give short term guidance, but it's something that we're always going to aim for so that that's what I'll comment on Andy without giving explicit guidance in 2024.

Yes, that's very helpful and kind of dovetails into my follow up I was going to ask Ed.

Last couple of years, you've kind of had a handful of really effective operational changes.

And productivity measures.

Michelle Hook: Yeah, I think Andy, as you know, we don't give short-term guidance. But you know, we, as I mentioned, in terms of a long-term growth algorithm, we're always going to be aiming to hit that as we look at any given year. I will say on the margins, though, that yes, we have a lot of new units coming in. And, obviously, we still have a lot of the year to play out here.

Derek and the team that took place in anything.

Youre willing to share with us kind of.

In your back pocket for 'twenty, four or is it really kind of around me.

The labor deployment with the new kitchens in the Remodels and things like that.

I think it's the latter Andy I think you nailed it.

<unk>.

I think probably give more guidance. She wanted like we have we did 17 restaurants last year that we retrofit.

Michelle Hook: But our operational teams are phenomenal in terms of just continuing to look for ways that we can become more efficient, as we have these new kitchens coming online, as Michael mentioned, is prepared to mark kitchen 23, as we build the restaurant of the future, even as we retrofit another 20 plus restaurants within 2024. I think we continue to look for operational efficiencies so that we can combat some of the margin pressures that we see from the new units, as well as get to scale as quickly as possible. And I know we've talked to you all about that and are continuing to do that.

In Chicago land too.

To do the grabbing goes to streamline the kitchen to get some efficiency for our team members. We have another 20, we're doing this year.

I mean, that's that is very very.

<unk>.

That's real helpful and it helps protect our margins our new kitchens.

The more we deployed these the more we learn and the more excited we are shorter.

Shorter kitchen lines.

Have improvements they we're seeing every little element of our staffing our productivity getting better and better and so I think it's more of the same and what we did in 'twenty three on a go forward basis, we were passionate about efficiency.

Michelle Hook: So we can again buffer against any margin degradation, but that's just a fact with the 12 from last year and the nine plus this year. But look, I think if you look at, you know, how you expect the units to perform when you layer in the nine units, etc. You know, obviously, again, not going to give short-term guidance, but it's something that we're always going to aim for. So that's what I'll comment on Andy without, you know, giving explicit guidance in 2024.

We're sort of closet lean six Sigma people and so we want to get really great at that in our restaurants.

Thanks you.

Thanks, Andy.

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

Great. Thanks, guys and congrats on the results.

If you could talk a little bit more about the traffic strength that you saw.

In the quarter and what that means for this year, Michael I know you talked about a bunch of key traffic drivers I assume all of those are in play for 'twenty. Four is there anything else to add on how you're thinking about traffic. This year given those drivers given the momentum you had in the <unk> Michel I know you kind of spoke to the long term low single digit company.

Michael Sanlu: That's very helpful and sort of dovetails into my follow-up. I was going to ask, you know, in the last couple years, you've kind of had a handful of really effective, you know, operational changes and, you know, productivity measures that Derek and the team have put in place. You know, are you willing to share with us kind of, you know, in your back pocket for 24 hours? Or is it really, you know, kind of around the, you know, the labor deployment with the new kitchens and the remodels and things like that? I think it's the latter.

Other considerations and how you were thinking at a high level about.

That traffic momentum broadly going into into this year or for this year.

I think.

Yes.

Traffic is obviously really important and we take we take traffic trends very very seriously is probably the most important.

Health metric of an organization.

Michael Sanlu: Andy, I think you nailed it. Like, Michelle just, I think, probably gave more guidance than she wanted. Like, we have 20, you know. We did 17 restaurants last year that we retrofitted in Chicagoland to do the grab and go's, to streamline the kitchen, to get some efficiency for our team members. We have another 20 we're doing this year. That's, that's, I mean, that's, that's very, very important. It's real, it's helpful, and it helps protect our margins. Our new kitchens, the more we deploy these, the more we learn, and the more excited we are. The shorter kitchen lines have many improvements.

And I would say Dennis like in my experience. The reason people choose to go to a restaurant is because of a past great experience think about where you. All go when you want to go get something to eat for lunch or dinner, you're going to go somewhere that you said man I had a great experience there last time and it was delicious and it's craveable I think thats the <unk>.

<unk> way to be a consistent traffic driver now of course, you need to have an entire toolkit and so part of our toolkit is is with great experience as the as the preeminent one but part of our toolkit is channel flexibility if the weather's bad you got great drive through we have great delivery, we have great catering.

If the weather is great. We are beautiful restaurants that you can sit outside and enjoy so having channel flexibility is really important to be a traffic buffer, having an ability to market aggressively and whether that is doing we have some really entertaining quirky marketing campaigns coming up with our new salads.

Michael Sanlu: They were seeing every little element of our staffing, our productivity getting better and better. And so I think it's more of the same in what we did in 23 on a go-forward basis. We're passionate about efficiency. You know, we're sort of closet Lean Six Sigma people, and so we want to get really great at that in our restaurant. Thanks. You bet. Thanks, Andy.

Think thats going to be awesome, I think it's going to drive visitation I think it is going to drive incrementally to salad and we've got two amazing new salads coming out that our guests love in the test panels, and the test kitchens and in our restaurants and our investors are going to love because they're they mix a little bit higher price point and better margins. So.

Andrew Marc Barish: Our next question comes from Dennis Geiger with UBS. Please proceed with your question. Great. Thanks, guys. And congratulations on the result.

I think those are the kind of things that a company needs to do and it's there's no. One lever that is the magical lever that you pull all the time you have to be balanced and what levers you are pulling and our commitment is we will we will use whatever levers are necessary to make sure that we have a healthy level of transaction growth.

Dennis Geiger: If you could talk a little bit more about the traffic strength that you saw in the quarter and what that means for this year. Michael, I know you talked about a bunch of key traffic drivers. I assume all those are in play for 24.

And I'll just add onto that Dennis one of the things that we know is very powerful is having digital menu boards and our restaurants and so to Michael's point earlier and you don't have to have a massive ad campaign.

Michael Sanlu: Is there anything else to add on how you're thinking about traffic this year, given those drivers, given the momentum you had in the 4Q? Michelle, I know you kind of spoke to the long-term low single-digit comp. Any other considerations, and how you're thinking at a high level about that traffic momentum broadly going into this year or for this year? I think.

We found that to be effective whether it's in the core or outside of the core how we market Portela was there market certain things on those menu boards I think matters and we talk to you all about portela classics, and Portillo pairings and how we pivoted.

Michael Sanlu: Traffic is obviously really important, and we take traffic trends very, very seriously. It's probably the most important health metric of an organization. And I would say, Dennis, like in my experience, the reason people choose to go to a restaurant is because of a previous great experience. Think about where you all go when you want to go get something to eat for lunch or dinner. You're going to go somewhere that you said, man, I had a great experience there last time, and it was delicious, and it's craveable. I think that's the healthiest way to be a consistent traffic driver. Now, of course, you need to have an entire toolkit.

Into that advertising within the back half of last year, and I think there's some opportunities to utilize those assets within our restaurants.

To drive home whatever messaging, we want whether that's the new salads or other things. So I think thats a powerful tool as well.

That's great. Thanks, guys and then just one more as it relates to I guess, Michael you talked about the strength in the guest satisfaction scores to all time highs which is terrific.

About the strength I think across channels anything else as it relates to what you saw with your customer.

Michael Sanlu: And so part of our toolkit is a great experience is the preeminent one, but part of our toolkit is channel flexibility. If the weather's bad, you've got great drive-through, we have great delivery, we have great catering. If the weather is great, we have beautiful restaurants that you can sit outside and enjoy.

Behavior changes that help support some of that traffic, whether it's day parts days of the days of the week and anything else you would flag. There that you you maybe saw that was a shift in the fourth quarter versus prior quarters. Thanks very much.

Michael Sanlu: So having channel flexibility is really important to be a traffic buffer, having an ability to market aggressively. And whether that happens, we have some really entertaining, quirky marketing campaigns coming up with our new salads. I think that's going to be awesome.

It's a great question, Dennis, but I think that I would say it was a broad based improvement it was not dinner versus launch or a weekend versus weekday or.

Or anything like that it was no unique segments of consumer it was pretty broad based and we feel really good about that.

Michael Sanlu: I think it's going to drive visitation. I think it's going to drive incrementality to salad. And, you know, we've got two amazing new salads coming out that our guests love in the test panels, in the test kitchens, and in our restaurants. And our investors are going to love them because they mix a little bit higher price points and better margins. So I think those are the kind of things that a company needs to do. And it's, it's, there's no one lever that's the magical lever that you pull all the time.

Terrific. Thanks again.

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

Hi, Hi, good morning.

Two different questions actually one sort of dovetails off some of the comments you were just making my God I was just wondering on traffic.

Whether you think speed of service is a big opportunity for port pillows and is that something you're.

Dennis Geiger: You have to be balanced in what levers you're pulling. And our commitment is we will, you know, we will use whatever levers are necessary to make sure that we have a healthy level of transactions. And I'll just add to that, Dennis. One of the things that we know is very powerful is having digital menu boards in our restaurants. And so to Michael's point earlier on, you know, you don't have to have a massive ad campaign. But we found that to be effective, whether it's in the core or outside of the core, how we market Portillo's or market certain things on those menu boards matters. And we talked to you all about, you know, Portillo's Classics and Portillo's Pairings and how we pivoted into that advertising within the back half of last year. And I think there are some opportunities to utilize those assets within our restaurants to drive home whatever messaging we want, whether that's the new salads or other things. So I think that's a powerful tool as well. That's great.

You're focused on more so going forward then than in the past or just wondering what your thoughts are on that as a potential traffic driver.

Well I mean for sure David.

It is.

It is our it is sort of.

I don't know that might be my secret sauce that we didn't want to talk about but yes, we have a very strong emphasis internally on speed of service even to the point, where look we know exactly what our service times are in the drive thru a 32nd improvement in the service time and the drive thru represents a 1% comp when.

We're pack that is incremental and the increments of that revenue flows through remarkably well. So we are our operators right now are maniacally focused on speed of service number one in the drive thru, it's less relevant frankly on dine in still important but just it doesn't have the same impact as in the drive through and so.

Absolutely speed of service matters, how fast you get guests in and out matters not just their perception of the time and how happy they are with it but literally the math of getting them in and out and move in the next person is drive thru can be almost infinite capacity, if you're fast enough.

Dennis Geiger: Thanks, guys. And then just one more as it relates to, you know, I guess, Michael, you talked about the strength and the guest satisfaction scores reaching all-time highs, which is terrific, about the strength, I think, across channels. Anything else as it relates to what you saw with your customer behavior changes that helped support some of that traffic, whether, you know, it's day parts, days of the week, days of the week, anything else you would flag there that you maybe saw that was a shift in the fourth quarter versus the prior quarter? Thanks very much.

And then I guess.

Yes.

Huge emphasis for us we don't we don't like to talk about it we'd like to just do that.

I thought that was going to be your answer, but I guess my follow up to that is.

I guess, where are you on speed of service now versus maybe where you were previously and is this.

Is this a bigger opportunity now that you have more new locations and new markets that maybe you have one offs experienced operators. So to speak I guess, how do you. How do you think about kind of where you are now and maybe where you want to be you know at the end of this year or next year or the following year.

Michael Sanlu: It's a great question, Dennis, but I think that I would say it was a broad-based improvement. It was not dinner versus lunch or weekends versus weekday or anything like that. There were no unique segments of consumers.

Steve.

Yeah, I think you want to separate speed I think theres two ways to think about speed of service. One is what is what are your customers, saying in terms of their satisfaction on speed of service that is a that.

Michael Sanlu: It was pretty broad-based, and we feel really good about that. Terrific. Thanks again.

That is their perception, which matters and it makes them happy or not then there is something on speed of service just the absolute time. It took you to get a guest through your drive throughs.

David E. Tarantino: Our next question comes from David Tarantino with Baird. Please proceed with your question. Hi, good morning. Two different questions, actually. One sort of dovetails off some of the comments you're just making, Michael. I was just wondering about traffic, whether you think speed of service is a big opportunity for Portillo's and is that something you're focused on more so you know going forward than in the past, or I was just wondering what your thoughts are on that as a potential traffic driver. Well, I mean, for sure, David, that it is.

We have material room for improvement there, we're nowhere near where we were at our best and it's always a balancing act when you focus purely on speed, there's a tendency to.

Perform less well on accuracy on all these other things that really matter. So for us. It's what's usually important as you know sort of the old adage of walking and chewing gum at the same time, so we need to be fast, but we also need to be accurate and friendly and so those things are always a balance I think we have.

Michael Sanlu: It is sort of, I don't know, that might be my secret sauce that we didn't want to talk about. But yes, we have a very strong emphasis internally on speed of service, even to the point where, look, we know exactly what our service times are in the drive-thru. A 30-second improvement in service time in the drive-thru represents a 1% comp. But when we're packed, that is incremental. And the incrementality of that revenue flows remarkably well. So we are, our operators right now are maniacally focused on speed of service. Number one in the drive-thru, it's less relevant, frankly, for dine-in.

Perhaps pushed accuracy and friendliness.

To the detraction of speed, a little bit and it's.

Will rejigger that will rebalance that and hopefully that's a traffic driver for us this year as well.

Great. Thank you for that detail.

You bet.

Our next question comes from Brian Harper with Morgan Stanley. Please proceed with your question.

Thank you good morning, I had just a couple of margin questions was.

Was the timing of the openings in the fourth quarter.

Consistent with what you planned or could you shed any light on what the timing looks like and was there any sort of <unk>.

Michael Sanlu: Still important, but it doesn't have the same impact as in the drive-thru. And so absolutely, speed of service matters. How fast you get guests in and out matters. Not just their perception of the time and how happy they are with it, but literally the math of getting them in and out and moving the next person in.

Impact on <unk> versus like what you might expect in <unk> 24 from a margin perspective.

Yeah, Brian no it was as expected our openings.

You can look whether its in the K or the earnings release, we give the bonds.

We open those restaurants. So you can see heavy into November and December when you look at the openings there and so yeah. As you look at again that was coming into the first quarter right always within that first call. It six month time period, Brian right Youre still going to be heavy on the training heavy on the labor.

Michael Sanlu: It's, you know, the drive-thru can have almost infinite capacity if you're fast enough. Huge emphasis for us. We don't we don't like to talk about it.

Michael Sanlu: We'd like to just do that. I thought that was going to be your answer, but I guess my follow-up to that is, I guess where you are on speed of service now versus maybe where you were previously, and is this, is this a bigger opportunity now that you have more new locations and new markets that maybe have less experienced operators, so to speak? I guess, how do you think about kind of where you are now and maybe where you want to be, you know, at the end of this year, next year, the following year, and so to speak? Yeah, I think you want to separate speed of, like there are two ways to think about speed of service. One is, you know, what do customers say in terms of their satisfaction with the speed of service? That is, that is their perception, which matters, and it makes them happy or not.

Syed heavier on the inefficiency side, whether it's labor or on the food side, and so thats, where youll see I see I think a little bit more of the impact would be in that first part of 2024 versus the back half, but then remember we start to layer and then right. The new class of restaurants, one in Q1 towards the tail end of Q1 of this year and then.

Two to three in Q2 et cetera, So yeah, I think you'd see a little bit more outweighed impact from those six particularly in the class of 23 coming into Q1 and Q2.

Okay, Yes that makes sense and then just on the your food cost ratio I think it was a little bit higher than I would've thought in the fourth quarter relative to kind of what you said inflation was were there any.

Michael Sanlu: Then there is speed of service, just the absolute time it takes you to get a guest through your driveway. I think we have material room for improvement there. We're nowhere near when we were at our best, and it's always a balancing act. When you focus purely on speed, there's a tendency to perform less well on accuracy, on all these other things that really matter.

Product mix drivers of that or anything we should keep in mind and then into the coming year what.

What do you expect pretty even inflation throughout the year anything we should keep in mind, just with regards to food cost.

Yeah, I'd say, Brian the four 4% in Q4 was right about where we thought it would be maybe just a hair higher but nothing that I would call out in terms of what we were thinking versus where Q4 came in at when we look at 2024 I think.

Michael Sanlu: So for us, what's hugely important is sort of the old adage of walking and chewing gum at the same time. So we need to be fast, but we also need to be accurate and friendly, and so those things are always in balance. I think we have perhaps pushed accuracy and friendliness to the detriment of speed a little bit, and we'll rejigger that, and we'll rebalance that, and hopefully that's a traffic driver for us this year as well.

Q2 looks to be a little bit more heavier impacted for us just based on again. These are projections based off of our basket of goods and where we think some of the pressures might come into play in Q2, and then Q3 and Q4 be a little bit more moderated, but yes, I'd call. It more Q2, as maybe being a little bit heavier impacted at least that's what.

David E. Tarantino: You bet. Our next question comes from Bryan Harbour with Morgan Stanley. Please proceed with your question. Thank you. Good morning.

We're seeing today.

Okay. Thank you.

Yes.

Bryan Harbour: I had just a couple of margin questions. Was the timing of the openings in the fourth quarter kind of consistent with what you planned, or could you shed any light on what the timing looked like, and was there any sort of, you know, impact on 4Q versus, like, what you might expect in 1Q24 from a margin perspective? Yeah, Brian, no, it was as expected.

Our next question comes from Gregory Frankfurt with Guggenheim Securities. Please proceed with your question.

Hey, Thanks, I had two questions the first.

You guys don't like to talk short term, but Michel maybe you can you can you address what the 50 <unk> week is there a comp impact to the first quarter, just based on lapse and any thoughts on.

Michelle Hook: You can look, whether it's in the K or the earnings release; we give the month that we open those restaurants. So you can see, you know, heavy into November and December when you look at the openings there. And so yeah, as you look at again, those coming into the first quarter, right, always within that first call, you know, six month time period, Brian, right, you're still going to be heavy on the training, heavy on the labor side, heavier on the inefficiency side, whether it's labor or on the food side. And so that's where you'll see, I see, I think a little bit more of the impact would be in But then remember, we start to layer and then write the new class of restaurants, one in q1 towards the tail end of q1 of this year, and then two to three in q2, etc. So yeah, I think you'd see a little bit more outweighed impact from those six, particularly in the class of 23, coming into q1 and q2. Okay, yeah, that makes sense.

Kind of right sizing expectations for how much weather might be impacting you early in the quarter.

Yeah, Greg so the cap there's no impact so our comp is actually a 53 week comp number at the.

Four 4% and we did that purposefully because that 50 <unk> week has Christmas on it and so when you look at if we were if we were to do a 52 week comp.

It would have skewed the cap a little bit higher in Q4, and so that's where we reported a 53 week comp in the fourth quarter, because we felt that was more honest in terms of what's the true nature of the business doing actually in the quarter.

So therefore, when we come into Q1, Greg there's no impact because we're going to continue to be comparing like for like weeks at Jan one week, starting Jan one week in 2020 forward to starting Jan second in 2023, So no impact in terms of whether you think about holidays et cetera on the cap.

Michelle Hook: And then just on your food cost ratio, I think it was a little bit higher than I would have thought in the fourth quarter relative to kind of what you said inflation was. Were there any, you know, product mix drivers of that or anything we should keep in mind? And then into the coming year?

To address your question on Q1 of this year.

Absolutely we are not immune to the impacts at the industry as seen on weather.

As well as how the consumer is feeling as we look at not just performance in January about performance and February but I'll come back to we feel really good about the health of the business to Michael's point, and regardless of how that choppy the comp maybe in Q1, not just for us about the rest of the industry, we felt really good.

Michelle Hook: What do you expect pretty even inflation throughout the year? Uh... anything we should keep in mind this with regard to food costs? Yeah, I'd say Brian, the 4.4% in Q4 was right about where we thought it would be, maybe just a hair higher, but nothing that I would call out in terms of, you know, what we were thinking versus where Q4 came in at. When we look at 2024, I think, you know, Q2 looks to be a little bit heavier impacted for us, just based on again, these are projections based off of our basket of goods and where we think some of the pressures might come into play in Q2. And then Q3 and Q4 would be a little bit more moderated. But yeah, I'd call it more Q2 as maybe being a little bit heavier impacted. At least that's what we're seeing today.

About the health of the business the trends that we were seeing outside of a weather impact in January.

And so that's what I would say about Q1.

Got it got it thanks, and then Michael maybe maybe just I think you know what is it five stores in the Phoenix market.

Can you talk sort of the horn honking behind me.

So just can you talk a little about the Phoenix market I think you know a five.

Stores there.

What has changed as you've hit maturity what benefits are you getting as you scale up that market.

It seems like you know maybe hitting a path where other markets. We're looking to go thanks.

Bryan Harbour: Okay, thank you. Yep. Our next question comes from Gregory Frankfort with Guggenheim Securities. Please proceed with your question. Hey, thanks. I had two questions. The first, you know, I know you guys don't like to talk short term, but Michelle, maybe you can address what the 53rd week? Is there a comp impact on the first quarter just based on laps? And any thoughts on kind of right sizing expectations for how much weather might be impacting you early in the quarter?

Yes.

You bet, Greg So we have.

We have seven restaurants in Arizona six are in the valley area and one in Tucson, and so we are approaching scale and Michele gave a little dissertation on the impact of scale in Arizona. When we went from two to four.

And the just the demonstrable margin improvement that we had but.

Gregory Frankfort: So the comp, there's no impact. 4.4%, and we did that purposefully because that 53rd week has Christmas in it. And so when you look at it, if we were to do a 52-week comp, it would have skewed the comp a little bit higher in Q4. And so that's why we reported a 53-week comp in the fourth quarter because we felt that was more honest in terms of what the true nature of the business was doing in the quarter. So therefore, when we come into Q1, Greg, there's no impact because we're gonna continue to be comparing like for like weeks that Jan one week, starting Jan one week in 2024 to starting Jan 2nd in 2023. So no impact in terms of whether you think about holidays, et cetera, on the comparison.

Scale allows us to leverage the cost side of the P&L really quickly. It's a wonderful dynamic because you get supply chain distribution and even some staffing synergies when you have the scale. The second thing that it does for US is it create some revenue synergy because now when you're craving.

Our port yellows beef sandwich dip with hot peppers on that delicious crusty bread you have one relatively close you don't have to drive 45 minutes to the one on the other side of the Valley you are the only one that you know, there's something a little closer and so that tends to be a revenue synergy once we achieve scale. We're at the early stages of scale.

And Phoenix, and we're still planning more restaurants in that market. We've got I don't know that we publicly announce we're going to we're definitely building more restaurants in that market to leverage that scale that we're getting so.

Michelle Hook: To address your question on Q1 of this year, absolutely, we are not immune to the impacts that the industry has seen on weather, as well as how the consumer's feeling as we look at, you know, not just performance in January, but performance in February. But I'll come back to, we feel really good about the health of the business, to Michael's point. And regardless of how choppy the comp may be in Q1, not just for us but the rest of the industry, we feel really good about the health of the business, the trends that we were seeing outside of a weather impact in January. And so that's what I would say about Q1. Thanks. And then Michael, maybe, maybe just I think you now have what is it five stores in the Phoenix market? Um, can you talk? Horn honking behind me?

You'll see it across the P&L.

Of revenue, but you also see it in margin improvement and that's they're both super exciting things.

[laughter].

We have reached the end of our question and answer session. This concludes today's conference. Thank you for your participation you may disconnect your lines at this time.

Okay.

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Yeah.

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Yeah.

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Okay.

Gregory Frankfort: Um, just can you talk a little about the Phoenix market? I think you now have five stores there. What has changed as you've hit maturity?

[music].

Michael Sanlu: What benefits are you getting as you scale up that market? Um, seems like you are now maybe hitting a path where other markets are looking to go. Thanks.

Yeah.

Yes.

Michael Sanlu: Yeah, we, you bet, Greg. So we have, we have seven restaurants in Arizona, six are in the Valley area, and one in Tucson. And so we are approaching scale. And, you know, Michelle gave a little dissertation on the impact of scale on Arizona when we went from two to four and just the demonstrable margin improvement that we had.

Yes.

Michael Sanlu: But, you know, scale allows us to leverage the cost side of the P&L really quickly. It's a wonderful dynamic because you get supply chain, distribution, and even some staffing synergies when you have scale. The second thing that it does for us is it creates some revenue synergy because now, when you're craving a Portillo's beef sandwich dip with hot peppers on that delicious crusty bread, you have one relatively close. You don't have to drive 45 minutes to the one on the other side of the valley or the only one that you know of. There's something a little closer.

Okay.

Yeah.

[music].

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Yes.

Okay.

Michael Sanlu: And so there tends to be a revenue synergy once we achieve scale. We're at the early stages of scale in Phoenix. And we're still planning more restaurants in that market. We've got, I don't know, but we publicly announced we're definitely building more restaurants in that market to leverage that scale that we're getting. So you'll see it across the P&L in terms of revenue, but you will also see it in margin improvement.

Okay.

Okay.

Okay.

Yes.

Yeah.

Okay.

Okay.

Operator: And that's, they're both super exciting. We have reached the end of our question and answer session. This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time, father.

Yeah.

Okay.