Portillo's Q3 2025 Earnings Call Contradictions: Marketing, Commodity Costs, Expansion, Labor, and Perks Program

Date of Call: November 4, 2025

Financials Results

• Revenue: $181.4 million, up $3.2M or 1.8% YOY (driven by non-comp restaurants; same-restaurant sales down 0.8%)

Guidance:

• Estimated effective price increase for Q4 ~2.5%–3% (pending Portillo's Perks offers)
• Commodity inflation forecast 3%–5% in 2025; beef is the most significant pressure
• Labor inflation estimated 3%–4% for the full year (hourly rates up ~3.3% in Q3; YTD ~3%)
• Restaurant-level adjusted EBITDA margin expected 21%–21.5% in 2025
• Fiscal 2025 adjusted EBITDA expected $90M–$94M; G&A expected $76M–$79M
• Plan to open 8 restaurants in 2026; development slowed and limited to signed leases, pursuing smaller-format units

Business Commentary:

• Operational Performance and Market Strategy:
• Portillo's reported revenue of $181.4 million for Q3, reflecting an increase of $3.2 million or 1.8% compared to last year.
• Same-restaurant sales declined by 0.8%, with a 2.2% decrease in transactions, largely due to opening too many restaurants too quickly in Texas.

• The company announced a strategic reset, slowing development and refocusing on guest experience.

• Labor and Cost Management:

• Labor as a percentage of revenues increased to 26.6% in the quarter from 25.8% in the prior year, primarily due to lower transactions and wage increases.

• Other operating expenses increased by 10.8%, driven by new restaurant openings and higher advertising costs, leading to a decrease in restaurant-level adjusted EBITDA margins by 330 basis points to 20.2%.

• Pricing and Menu Strategy:

• Food, Beverage, and Packaging costs increased by 6.3%, predominantly due to higher commodity prices, particularly in primary proteins.
• The company took a 3.2% increase in menu prices, which is anticipated in the fourth quarter to be between 2.5% and 3%.
• The pricing strategy is aimed at balancing cost pressures and maintaining competitive value, while focusing on driving transactions through promotions like the Portillo's Perks loyalty program.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Management emphasized a strategic reset and slowed development after overexpansion, reported modest revenue growth (+1.8% YOY) but meaningful margin pressure (restaurant-level adjusted EBITDA down and margins -330 bps YOY), while expressing confidence in brand fundamentals and plans (Perks program, smaller-format units, 8 openings in 2026).

Q&A:

• Question from Sara Senatore (BofA Securities): Isiah on for Sara. Just seeing that other restaurant OpEx saw pressure just due to advertising expense, but the traffic decline seems to have accelerated quarter-on-quarter. Could you guys speak to marketing efficacy in the quarter and just how you think about marketing strategy going forward, especially in the light of Denise joining back in September?
  Response: Marketing spend is deployed both in OpEx and G&A; company will continue investing in trial and awareness in newer markets (Dallas, Houston) and maintain campaigns in core Chicagoland as these investments drive trial and are viewed as good payback.

• Question from Sara Senatore (BofA Securities): As a follow-up, appreciating that you guys aren't taking price or planning to in 4Q, pricing does seem to be running towards the high end of the industry range. How do you guys view your value perception among guests and just your broader value proposition?
  Response: We are pricing below food-away-from-home inflation (~3.7% Sept data), are not planning additional price in Q4, and will consider pricing next year against inflation while prioritizing traffic generation.

• Question from Brian Mullan (Piper Sandler & Co.): Any color around the openings you expect in '26 as you sit here today? Presumably, what will open next year is already underway. If you were to pivot on development beyond next year, would that be 2027? Is there a world where you pause building and focus on existing assets?
  Response: We plan to open 8 restaurants in 2026 (many already in flight); development is slowed and more gradual thereafter—limited Dallas/Houston openings in '27 and measured expansion into other markets (e.g., second Atlanta in 2027).

• Question from Gregory Francfort (Guggenheim Securities): Can you help frame early thoughts on beef commodity cost into next year and touch on labor inflation guidance? Some companies are seeing below 3% wage increases; curious if regional factors apply to you?
  Response: Beef costs remain pressured with no near-term easing; we expect to provide 2026 detail in January and note beef comprises ~30% of our commodity basket; labor YTD ~3% (we guided 3%–4% for the year) and average hourly pay is >$17.

• Question from Christopher O'Cull (Stifel): Can you elaborate on what enabled the company to deliver a bit better comp performance than you guided to in the business update?
  Response: The Portillo's Perks loyalty program stimulated visits—lapsed guest activation and broad offers drove incremental traffic and menu trial, contributing to upside in comps.

• Question from Christopher O'Cull (Stifel): Follow-up on fourth quarter comp: the full year comp guidance implies a meaningful decrease in Q4. How is the quarter-to-date comp and any color?
  Response: We won't provide Q4 comp detail beyond the guide; note a tougher lap vs last year's positive Q4 and seasonal catering exposure creates variability, but we're comfortable with the guidance.

• Question from Dennis Geiger (UBS Investment Bank): Hi, this is Paul Hao on for Dennis. Can you provide color on the comp cadence through third quarter and how sales and traffic trended exiting the quarter? Also any notable shifts in consumer behavior by age or income cohorts?
  Response: Intra-quarter cadence reflected targeted Perks offers (July $1 hotdog week, Sept 50% cheeseburger) which boosted results; consumer demand remains pressured and fluid with no clear cohort-based shifts identified.

• Question from James Salera (Stephens Inc.): This is Tyler Prause on for Jim. Several QSR competitors cited outsized impact from Hispanic and younger cohorts—did you see any noticeable step change in those cohorts this quarter?
  Response: We did not observe any notable cohort-specific step changes; drive-thru channel showed more pronounced pressure in Q3 versus other channels.

• Question from James Salera (Stephens Inc.): With Portillo's in varied markets at different awareness stages, how are you developing a cohesive marketing message across markets and how is focused marketing in Texas performing?
  Response: Tactically we're using sampling, Perks offers and market-wide promotions in Texas to drive first visits; CMO Denise is developing a broader cohesive message across 2026 to better explain Portillo's to non-Chicago customers.

Contradiction Point 1

Marketing Strategy and Brand Awareness

It highlights differing perspectives on the company's approach to marketing and enhancing brand awareness, which are critical for driving sales and market penetration.

Isiah for Sara. With other restaurant OpEx pressures from advertising expenses and traffic decline accelerating quarter-over-quarter, could you discuss marketing efficacy this quarter and your marketing strategy moving forward, especially with Denise’s return in September? - Sara Senatore (BofA Securities, Research Division)

2025Q3: We continue to invest in driving trial and awareness, especially in newer markets like Dallas and Houston. While we remain focused on core markets like Chicagoland, we recognize the need to enhance our value proposition messaging. - Michelle Hook(CFO & Treasurer)

Is the new unit performance related to the new restaurant prototypes or streamlined menu? - David Tarantino (Baird)

2025Q1: It's not related to the prototypes or menu. It's due to new markets being less aware of the brand. The food is well-received, and we plan to increase marketing efforts. - Michael Osanloo(President and CEO)

Contradiction Point 2

Commodity Cost Inflation and Management

The company's ability to manage and mitigate the impact of commodity cost inflation is crucial for financial stability and performance. The contradictions in the company's statements regarding beef cost pressures suggest a shifting stance on cost management strategies.

What are your early outlook on beef and commodity costs for next year, and how do you expect labor inflation to trend? - Gregory Francfort (Guggenheim Securities, LLC, Research Division)

2025Q3: We expect no easing on beef costs next year. - Michelle Hook(CFO & Treasurer)

Could you break down the key drivers for the second quarter, including the pricing increase success, lower beef costs, and higher-than-expected labor costs? - Andrew Strelow (BMO Capital Markets)

2024Q4: We expect beef costs to be lower in the second half of the year. - Mike Osanloo(COO)

Contradiction Point 3

Restaurant Development and Expansion Strategy

It highlights differing views on the approach to restaurant development and expansion, which are essential for future growth and market penetration.

Can you provide details on expected openings in 2026 and discuss scenarios beyond next year? - Brian Mullan (Piper Sandler & Co., Research Division)

2025Q3: We plan to open 8 restaurants next year, with some already in progress. - Michael Miles(Chairman of the Board & Interim CEO)

How much is Texas' performance driven by the state's opening numbers? What are your thoughts on Florida and Arizona? - Gregory Ryan Francfort (Guggenheim Securities, LLC)

2025Q2: We expect Texas to mature like Arizona and Florida as supply catches up to demand. We're confident that as demand catches up, our business will perform well. - Michael Osanloo(President, CEO & Director)

Contradiction Point 4

Labour Inflation and Cost Management

It involves differing perspectives on labour inflation trends and cost management strategies, which are critical for operational efficiency and financial performance.

Can you provide early thoughts on commodity costs for next year and labor inflation guidance? - Gregory Francfort (Guggenheim Securities, LLC, Research Division)

2025Q3: Year-to-date labor inflation is at 3%, aligning with our 3% to 4% forecast. - Michelle Hook(CFO & Treasurer)

Where are the pressures in terms of mix? - Michelle Greig Hook (CFO & Treasurer)

2025Q2: We expect our effective overall rate to be effectively flat at 3%. If we're within a few tenths of that, we'll have done a great job. - Michelle Greig Hook(CFO & Treasurer)

Contradiction Point 5

Portillo's Perks Program Performance

It shows differing perspectives on the performance and impact of the Portillo's Perks program, which is a key strategy for customer engagement and retention.

Mike, can you elaborate on what factors contributed to the company's better comp performance compared to your guidance in the business update? - Christopher O'Cull (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q3: Our Portillo's Perks program helped with lapsed guest activation and trying new menu items. It's been successful in driving visits, contributing to better-than-expected comp performance in Q3. - Michael Miles(Chairman of the Board & Interim CEO)

Can you share initial metrics on the Portillo's Perks program? - David Tarantino (Baird)

2025Q1: The Perks program is meeting expectations, with signups exceeding internal targets. We are testing offers and expect to shift to data-driven, targeted offers later in the year. - Michael Osanloo(President and CEO)