Portillo's Inc. (PTLO) Earnings Call Transcript & Summary

All right. Good afternoon, everyone. John Glass from Morgan Stanley here. Before introducing our next restaurant fireside chat, let me do the obligatory. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/research disclosures. It's my pleasure to introduce and have with us on stage Portillo's. Michael Osanloo, who's the Chief Executive Officer; and Michelle Hook, the Chief Financial Officer of Portillo's.

I thought, Michael, it would be good since we are in New York, and this is a Chicago brand, and you are a relatively recent public company is to talk about what is, from an investor's lens, what is Portillo's? What is it different for Portillo's? And then we can talk about the growth and all those things that we care about.

Excellent. First, let me dicker with your characterization of a Chicago brand. We're a national brand that happens to be based in Chicago, but that's a great question. Here's -- we are -- we like to think of ourselves as the finest of Chicago street food. So we are Italian Beef Sandwiches, which you never had and sounds like an exotic dish. It's basically a roast beef sandwich with au jus. It's amazing. We have Chicago-style hot dogs, fries, onion rings. We have -- we sell $600,000 worth of salad per unit. All freshly made hand tossed salads. So we are iconic Chicago food. We -- our average unit volumes are $8.4 million, right? With mid-20 level restaurant-level EBITDA margins. Our average person spends $9.75 at Portillo's. We have double lane drive-thrus. We have -- we're a multichannel before it became a concept. So we have a robust dine-in business. We have phenomenal drive-throughs. And then we do all of the off-premise stuff, right? So we have our own delivery. We have third-party delivery. We have a robust catering business. And we have the sneaky little shipping business. People gift Portillo's all the time. So we ship to all 50 states in the country. So that's sort of my synopsis of what Portillo's is.

Got you. I think it's important and even as you described it, it might -- it's still hard for one to imagine. I mean these boxes are -- the average square footage of Portillo's.

It's probably 8,000 square feet.

8,000 square feet. So doing close to, in some cases, $10 million of box in Chicagoland. You're right. It's a national brand, but it is Chicago roots and therefore best known there. So I think you have to sort of see one to really understand the size, volume, the energy, the artistic elements of the box.

Just think about it, John, right? Like we have -- our average unit volume in Chicagoland is $10 million. So at $10 million and $9.75, that's over -- that's a lot of transactions. That's a lot of people going through our restaurant, right? We're not a high-end steakhouse where the average ticket is $150, $9.75.

And so just describe that further, just -- sorry, you got me going in this now. But your -- your kitchen staff? How many people alone in the kitchen?

So look, a typical Portillo's might have anywhere from 80 to 120 full-time staff hired. And at any one time, you could have 20 to 30 people working in our restaurants, right? The vast majority are in the kitchen. We have a couple of people out in the dining room, cleaning, maintaining et cetera. But in a busy restaurant, at lunchtime or dinner time, there's probably 20 to 25 people working in the kitchen.

Yes. So -- I want to ask before talking about development, which I think is sort of the underpinnings of the story as we think about this and growth. I want to just pause though, and think about technology for a moment. We do a lot of brands talking about technology I think, an increasing level of relevance in their business. How is it relevant to Portillo's? How important is it to your business? And if you compare it to maybe some of the other companies you've worked with in the past, I think it's technology-led, is it technology enabled. How do you think about the role of technology?

I think you need to be very thoughtful and somewhat cautious about the role technology plays in your business. I think in a restaurant -- in the restaurant concept, if technology is enhancing the guest experience, it's generally a good thing. If the technology is, in general, easing the effort of your team members, it can be a good thing. But look, I don't want to become a glorified vending machine, right? So there's a point where you put kiosks in, you've automated everything, you're a glorified vending machine, and you can't justify your price points. So we believe in technology that eases the guest interaction which means what? It means I want to make payment as simple as possible, right? So we're being smart. We're catching up. We're making it so that you can basically use any payment technology that you want to pay. I want to make the ordering process as streamlined and easy as possible. I still believe that we are beneficiaries of having human beings take the order because we can curate that order. So you've experienced us. If you go into a Portillo's and you want an Italian Beef Sandwich, a human being will say, what kind of peppers would you like on that? Because from a culinary experience, the peppers make it a better sandwich. It's better eating. It's also good for my investors because the peppers are an add on, an additional ring. If you order and you don't order a dessert, our order takers will say, would you like a slice of chocolate cake? And if you look confused, they'll tell you, we make fresh chocolate cake every day. So that's really important to us. But if the technology is eliminating needless work, so we like automating a lot of prep, like chopping onions in the morning, chopping tomatoes in the morning. We get Polish sausages, we cut them up. We're getting out of that. We're using automation and our suppliers to buy onions that are presliced and vacuum sealed. They're beautiful, they're fresh, they taste good. You only open a bag when you need it, you eliminate waste. You don't have people putting on cut gloves, sharpening knives, doing low value-added labor. But the human interaction is still really important. And so we're being -- I think we're being appropriately thoughtful on that. Michelle, like what is that story you say about the kiosks?

I always tell, Michael, I point to this. I said this is a kiosk. We all have a kiosk in our hand, right? So if you want to do -- you want to think about line busting, so to speak, you can do things like that. You all see it in restaurants where you use QR codes, excited, right? To do things like that. I think there's opportunities, John, as we move forward to look at things like that and how technology plays into the world that we live in. I think that does play a role as we move forward. But we have all the bells and whistles on digital ordering. We smart partner, right? We're not going to be a shop that's going to all of a sudden create that experience for you. We're going to smart partner with those that do it best. And so we have all the digital capabilities right to online order. You want to order from your phone, you want to pick it up at Portillo's, have at it, right? Third-party delivery companies we're partnering with from that standpoint. So the technology even for our team members, to Michael's point, that we use in the restaurant, it has to make it seamless for our team members to fulfill the order as well because, as Michael said, we got a lot of value in pumping through our restaurants. So we have to make sure that we're built for speed and using the technology even for our team members, I think, is equally as important as to Michael's point, the guest experience is super important as well.

Yes. And you raised -- just one other on technology, what do you think about third-party delivery? How important is that to your business? How operationally complex is it to your -- is it additive?

You're putting me in a bad place.

I know. But you know...

It's a thing, right? People -- and especially during COVID, I think people really got comfortable and acclimated to having food delivered, right? But so -- and that's clearly a valuable service that some people really value. The dark side is that in some cases, you might be paying almost double what it would have cost you to go get it yourself. So it's a mixed blessing. So the third-party delivery companies we work with, there's a markup on the food. We remain margin neutral. So we price it so that my investors are not taking a hit because of the third-party guys. So we're margin-neutral. The food can take 45 minutes to an hour. You guys know like food dies very quickly. French fries in the restaurant are amazing. You order French fries in the drive-through, I guarantee you, you're going to eat them on the way home. You're not going to wait. French fries delivered, different story. So I think we participate. It's still on a growth trajectory. But I would encourage guests, you want to get the best experience possible and you want to get the greatest value possible, go through our drive-throughs. Our drive-throughs are double lane drive-throughs. They're built for volume and for speed. And so when a guest goes through the drive-thru, you're getting your food within 6 to 8 minutes. It's the lowest possible price. It's the highest food integrity. And you get the best experience. But we partner with the third-party delivery guys. We do our own delivery. For orders over $100, we deliver ourselves because I can get a team member to go do that. They -- it's -- the economics work at that price point for us because the team member gets a great tip, they love it. The guest gets a great experience because you get a little bit more of a white glove experience when Portillo's is coming, and we're bringing like all the napkins and the forks and the knives and the sides and the condiments and we kind of help a little bit. So -- and I worry about what happens with the third-party delivery in a recessionary environment.

I would as well. I'm going to turn to development which is the big story for Portillo's. I first want to just paint us this picture of where you are on the map right now, right? And when you arrived, kind of what the development plan is and how you've changed it philosophically, how you should think about development versus a few years ago? What's the Portillo's map look like today?

Well, I think the original Portillo's map was what I would call as a -- we like to be food honey, but it was like a cheese sauce spill, right? We start in Chicago. If you pour a big tub of cheese sauce, it just kind of emanates. So it was very much just a Midwest. And there's merit to that, right? The brand has resonance, people know it. There's not as much of a psychological barrier to understanding the food. People from Michigan, Wisconsin, Minnesota, Iowa, they visit Chicago and they've experienced us. So that's a great dynamic. And there's still merit to continuing to expand from a core. The vector that we have added, and I think very thoughtfully is a strategy to grow along the Sunbelt, right? So you will see that of our 7 restaurants this year, 5 are between Florida, Texas and Arizona. We're committed to the bulk of our growth going forward coming across the Sunbelt. And it's a really simple reason why. Florida, Arizona and Texas are the 3 fastest-growing states in terms of just total population, right? We're building a restaurant in Gilbert, Arizona, that is forecasted for population growth of 10% to 12% a year for the next 5 years. Being inherently lazy, I like rolling out of bed and knowing I've got a 10% comp in Gilbert without having to do anything. So we're focusing on that. Those states tend -- they have growth. They tend to be a little less expensive to develop and build. They tend to be a little bit easier. The labor markets in those states tend to be a little bit more robust. And so we're building. I'm cheating. I also know that our brand has residence there. We have done studies on aided and unaided brand awareness. And we're building outside Dallas, Texas in the Metroplex, we know that Texas is the #1 place we ship our food to. There's a Facebook page for DFW with thousands and thousands of people saying, please bring a Portillo's to North Texas, North Dallas. So yes, we're going to be very thoughtful about that and go where the demand is and where the -- there's macroeconomic factors in our favor.

And just remind us again, either Michael or Michelle, the difference between volumes, the Chicagoland versus non-Chicago, what has your experience been versus that pro forma, right? So we all understand kind of what you've done.

Yes. When you cut the number of search, Chicagoland restaurants are generally 10 million AUVs and 30% margins. Outside of Chicagoland, you're doing about 6 million AUVs and about 20-ish percent margins. When you even cut that data further, John, and this was one of the cuts we gave at our Investor Day about a month or so ago was, a lot of folks say, well, okay, like Michael said that cheese sauce spill, right? You have brand awareness in the Midwest markets. And so when you cut the Chicago side, right, when you cut the non-Chicagoland markets even further and you look at our restaurants in California, Arizona and Florida. They outperformed those restaurants in the Midwest. So those restaurants are trending at 6.4 million AUVs in a higher margin than those that are within the Midwest outside of Chicago. So to Michael's point, we know this brand travels. And it resonates with folks outside the Midwest because a lot of times people say, well, of course, you have Chicago expats pass in those markets, right? Well, we have examples where we have very high performing restaurants that are not in areas that have Chicago transplants. Tempe, Arizona is a college town that we talk about. That restaurant performs extremely well, and that's not full of Chicago expats. So I think there's good data points out there that tells us and should tell everyone here that this brand travels and resonates outside to Chicagoland.

And is there anything you've learned along the way though, or maybe examples of markets you've gone into prior to your arrival? I'm thinking of California, I'm thinking about maybe some Midwest, where it didn't maybe work out, we never closed restaurants, but maybe not as well as you thought what you learned from that? What's your observation?

Yes, yes, I think that, I try to be a student of history because I don't like repeating mistakes. I make mistakes all the time, I just like learn and then make new ones. So I went to school on my predecessors. And I would tell you, in the development pipeline, the biggest mistakes that the company made was, there was a certain level of arrogance in building outside Chicagoland. Here's the truth. We go build anywhere in Chicagoland and go build on a parking lot behind a defunct mall, and it's going to do $8 million to $10 million, okay? Don't kid yourself and think that makes you really smart about where real estate locations. And so we had to approach real estate decisions outside our core with a level of humility that we were not doing before. And so got a whole new team on development. We use analytic tool kits to identify locations. We have brought in a world-class Chief Development Officer, deal makers. And we're super selective. Like I'd say no, more than I say yes, on sites outside Chicagoland. And there's -- and there should be at this stage in our development, no compromise, right? We want [indiscernible] locations only. So what does that mean for Portillo's? It means we need to have 2-plus acres because we need to have big double lane drive-through. We need 100-plus parking spots. We need some co-tenancy. We're a destination in most places. I don't want to rely on being a destination as we're expanding outside our core. I would love to be near a Costco, Whole Foods, be near Meijer, in Michigan, be near -- pick your great retailer. But co-tenancy is important. We don't want to rely on being a destination to be successful. You need great visibility. You need great ingress and egress. And so we have gotten really disciplined about site location, site characteristics and about saying no. And I think we're seeing that. Like we have -- we built a restaurant about 18 months ago in Orlando, Florida that is approaching Chicago level performance. It's just a killer location, right? It's not like there's a ton of Chicago ex-pats outside Orlando, of course, we're getting the tourist benefit, but we planned on that, right? We're on the right side of the road as you're heading into Disney. We aggressively market the fact that we have this beautiful outdoor terrace with a beer garden. So if you've been to Disney, you're tired of paying $10 for a bottle of water, you're exhausted. You go get a great value-driven meal with abundance. And as an adult, you can have a beer and relax. And so we're being very thoughtful about that.

It sounds good to me. I went to Disney when my kids were younger and you weren't there. Can you talk about -- so before leaving development, let's talk a couple of things. One is you do have a new development, Chief Development Officer, right? And he's coming up with, look, we're in inflationary environment? And so 2 questions really is, one, is how are you're mitigating the cost inflation of your box of your building. And two, how has this new executive sort of reshaped how you think about design, location, what new insights have you gained in the process of development from this?

Yes. Both great questions. So -- we -- his name is Mike Ellis. He's got storied background. He's been Chief Development Officer multiple times at multiple restaurant concepts. So we're thrilled to have Mike on board. And he presented at our Analyst Day. The first part of your question, like think about the restaurant and I actually have Michelle and my Chief Marketing Officer, leading an initiative we call restaurant of the future, right? Because restaurants are evolving. There's these secular shifts in how people want to use a restaurant, the off-premise business is growing. And so you just want to make your restaurant as frictionless as possible for how guests want to use it. So we're putting parking spots right outside an entrance for the third-party delivery guys and anybody who wants to do pick up. We're making the pickup shelves right there with the back to the kitchen, so you can stuff the food. We're adding third lanes in drive-thrus to see if that helps with stacking and mobility. We're being thoughtful and shrinking the kitchen footprint not -- I don't want to give up the capacity. I still want to be able to do ridiculously high volumes. But like -- we have equipment that's duplicative, et cetera. So they're leading a team on what the restaurant of the future looks like, which is streamlined and we'll start deploying elements of that in the '23 build. We think that takes costs out of the restaurant. I want to be careful about terms like value engineering. I don't want to take anything away from the guest experience. I want our restaurants to still be engaging and inviting. We compete with casual dining because we build beautiful restaurants, right? Its balance sheet marketing. We don't discount, don't spend, we spend like less than 0.5% on marketing because we don't need to. So that's a part of it. And then what Mike is bringing, which I love, is he's bringing a discipline on how to use general contractors versus self-contracting. Here's how to think about when the stage of the buy. He's being a lot more pragmatic on the timing of our builds and there are some things that are just like the permitting process, the approval process with municipalities, it's kind of out of our control. And I think we were being a little optimistic in how we budgeted time and he's like, I can't commit to this, Michael. We need to just be pragmatic. Here's what's going to happen. He's also gotten us really focused on and disciplined on growing our development pipeline further out. So like this time last year, I was hopeful we'd get our 7 in, but I wasn't certain. I'm rock solid about the '23 pipeline, and that team is now aggressively developing the '24 pipeline and beyond. We were not as farsighted before.

What happened, I'm sorry, let me just be clear on that. So first of all, let's rewind we're in 2022. You had a big fourth quarter. You had big fourth quarter, the 5 openings?

5 openings, yes.

How are you dealing with -- I know the world has gotten difficult. How do you feel about those 5. And then when you talked about '23 feeling really good about '23, what really changed? Is it the pacing, hopefully, you're going to get them all opened, but is it the piecing of which you're going to get them opened, you feel better about?

No, I'm still -- I'm not thrilled with the pacing of the [ twilight ] upgrade on '22. Every one of the -- we have like -- we have 2 restaurants that are built. We're training in them. We have 2 restaurants that are just waiting for final inspections. And the fifth restaurant might leak a couple of weeks into January, but it's fine. So I feel good about that, but it was a bit of a stressful fourth quarter to get there. And I really -- your fourth quarter in this business, you really want to focus in on operations. You don't want to be -- because we make a lot of money in the fourth quarter. And so I'd rather be focused on that. The '23 what might basically said is, look, these permitting dynamic in municipalities has just fallen off a cliff. And so we are budgeting significantly more time to get approvals, permitting, et cetera. So unfortunately, '23 is still back half loaded. Not as far back half as '22, but still back half. And I would like, when we put capital into the dirt, I'd like it as early in the year as possible so that we can get some return in period, right? And so '24, my pipeline already looks better because it's more front half loaded.

So that's -- and then just on development, Michelle, costs. Remind us what costs were or what capital was to build and where it sort of stands today. And do you think you can go backwards in those cost stories? Is it what about you're doing avoiding sort of future cost increases so that we've all stepped up in the world to cost base, but maybe you can mitigate further inflation.

Yes, we were at this point last year, looking at $4.5 million to $5 million of build costs for our restaurants. For the '22 builds, John, we're looking at $5.5 million to $6 million. I think as we look at the '23 builds, I do expect cost to mitigate somewhat, but they're not going to come back to the 4.5, 5 levels that I saw a year plus ago. So we know that, that's going to be the case, right? To your point, it will come down some, but it's not going to come all the way down to levels that like I saw over a year ago. So to Michael's point, we're doing some things. Restaurant of the future is more '24 and beyond. But we're doing some things that we're calling it within our Kitchen '23 project. That is going to reduce some equipment costs within the restaurant builds in addition to help out with labor, et cetera. So we're trying to control some of the things we can control, knowing that you're still going to have slightly elevated costs within '23. And then who knows beyond that. But at least that's what I'm seeing today, and we're going to do our best to mitigate against those. But at the end of the day, right, we -- it's not going to prevent us from building those restaurants. The return profile for Portillo's still remains the same. We're still committed to by year 3, that 25% cash-on-cash return. At this point last year, I didn't think I was going to have to take pricing the way that we had to do this year, more -- not as much as others, but for us on 8% price range. So the equation changes a little bit between build costs and the top line and the flow through, but we're still committed to the return profile.

I want to talk about operations, right? By going to this business, probably more than others just given I think we talked about these 25 to 50 people per shift. Managing that size of a crew is difficult. Can you just talk about, one is labor productivity? How you measure it? I think you have your own metrics and how you look at labor productivity. Secondly, during 2022, I think you made some pretty important changes that have improved labor productivity. So firstly, talk about how you measure it, an importance? And then maybe we could talk about how you're improving that labor productivity.

Yes. I think the cleanest measure of labor productivity is items per labor hour, right? It's just how much stuff are you producing per labor hour. There's always a little bit of noise because this restaurant sells more of this or this. But once you establish a baseline, it's really easy to look at. I don't like sales per labor hour because you inflate that away, you think you're doing good, but you're really not. And it's -- it gets your operators focused on the wrong stuff. It's how much stuff are you producing per labor hour. So we look at that. We look at that very carefully. Our labor productivity and no secret, everybody knows this, but happy people are more productive. And so we actually worked really hard on taking care of our team members, right? I believe in what I'd like to call enlightened capitalism, frontline people at Portillo's are our most important asset. And so we take care of them. We've raised wages significantly over the course of the last 2 years. We have the benefits package that is super competitive. We are a values driven organization. We believe in our values. Culture is really important to me. And we train and develop the heck out of our people. If you see a manager in a Portillo's walking in the morning, they're greeting everyone. "hi John, how are you? " At the end of a shift, they're thanking people for their performance. And I'm saying all this because, this actually drives productivity, right? Our productivity is we had very, very good productivity during COVID, but our productivity now is higher than any time in 2019 and before. People just work a little harder because they're happier. They're trained. They're well developed. We also spend a lot of our time on training and cross-training folks. So if you know, if you work the beef station and you're great at making beef, it's awesome. We have training programs so that you can learn to slide over, what we call table, which is where you make hotdogs. And by the way, I'll pay you more once you get cross-trained and you are certified that you can work at hotdogs. You want to get paid more, then learn how to go work fries and drinks. Even more, go learn how to fund cash, take orders inside and outside, but there's an element of pay for performance that we think makes our team members more productive. They get paid more and it allows us to be much more nimble in staffing and how we do that. And so that's been a huge, huge unlock for us.

There was some talk about sort of -- this goes back maybe a little bit to development, too, but just reorganizing the kitchen too, right? Historically, there were some built-in inefficiencies the way we made salads or the way different items. Can you just describe kind of what it was and what this goal to improve kitchen efficiency is?

Yes. I'm going to humble-brag about our COO here, right? He's a deeply experienced guy. Came from Starbucks. And I just ask for crazy things. So I say, I need you to get me labor productivity. It's like I can't just squeeze hours out, Michael. I got to do something to change the operating model so that it requires less hours, like I do whatever you want, just get me my productivity. And so -- but what he did, which is brilliant, is we have places where typical Portillo's is a real quirky dynamic in the old school restaurants, which is, you come here and place your order. And if you're ordering an Italian Beef Sandwich and a salad, you walk down here to pick up your Italian Beef. But somebody's got to walk over here to this side to pick up the salad. And there's what we call the salad bowl and you can see they're making your salad and tossing it. Well, that's unpleasant from a guest experience because if you're going with somebody else, you kind of lose each other, if you're with kids, it's a disaster. It's also a ton of like conveyance and capital and so on. So our COO said, look, I'm going to move the salad area. I'm going to put it in line with the main kitchen. There's some space in the back that we don't really fully utilize. And so we can make salads along the same kitchen line. We're testing it. It's part of the Kitchen '23 that she talked about. And, oh my gosh, first, it dramatically reduces conveyance. It allows us to take the equivalent of 2 FTEs out of our kitchen at peak times. And it's faster. The food is made just as fresh, just as quickly but it's a home run. It's a capital savings, it's a space savings and its labor arbitrage. And it's things like that. Kitchen '23, here's -- it's going to sound goofy, but this is an unlock. Our kitchen line is very vertical. And at the end of it is the -- everything that we fry, onion rings and French fries, and it's a vertical thing. So there's 5 to 7 steps person's got to take from the French fries place to take the French fries to outside expo to send the food to the drive-through. So we're pivoting the fry station. It's going to be perpendicular to the line. So that the person standing here can go this way or for outside Expo, this say for inside Expo. Again, it sounds silly to say this, but those 5 to 7 steps that they don't have to take is huge at our volumes. We put freezers underneath the fry station, so that you don't have to walk down to the freezer to get the next bag of fries or a next bag of onion rings rigs. They're literally right here. And so you just pull them out and dump them in and keep going. So little things like that, that's technically a change for operating model, but it's a massive unlock.

And just to be clear, I think these are new restaurants that are going to deploy the fleet itself?

Right. We can -- we are retrofitting the salad bowl thing I talked about. We retrofitted one of our restaurants in Chicago to see if that works, and it's been really successful. And we're negotiating with Michelle to get capital to do it for more.

I see a payback, Michael.

You heard it here. Pricing and inflation, right? It's those questions that just don't go away. I want to first ask you about pricing just philosophically right? So there are brands that are taking more pricing as inflation has crept up and they're fully covering their inflation. Here's the benefit theoretically, right? They got their margins back to where they wanted them to, and they don't have to really price as much going forward. Other brands, and this is probably the majority, have delayed thinking it better be a follower. And I think you fall into that camp. But then your dilemma is, at some point, you have to price above inflation. If your goal is to get margins back to pre-inflationary levels, and if there's no other tools. How do you react to that? Is there a better place to be. You obviously have a view because you did it, but I can see the other point, too, right?

Yes. I mean I think there's certainly. No, I don't actually think there's merit to both sides. I think we're right. So I believe that a price laggard strategy is actually the right way to behave right now. And here's what I mean by price laggard. We take our pricing. We protect our margins, but what we do is, we let everybody else create air cover and price as much as they want. And then we follow on. It does -- I think some people conflate that with, you don't take your price -- we get our pricing. It's just I believe in elasticity and the cross elasticity impact. And so when you've got competitor A, taking 15% pricing and competitor B, taking 12% pricing, like all applause go for it. I'm taking 8% and here's what it means. Our value scores, our value perception scores are the highest they've been in 3 years. Our guest satisfaction scores are the highest they've been in 3 years. We look assiduously at guest counts. And don't be confused by what people say by traffic. Traffic is check and there's noise in that, right? People coming into the restaurant is 1 person per check. And the drive-thru, it's more than 1 person per check. And in delivery, it's way more than 1 person. So there's a lot of noise in check count. Our guest counts are entree sandwiches sold and entree salad sold. Our guest counts are up this year. And we've had, in the last 2 quarters sequentially better performance. So our value proposition is at a peak, our satisfaction is at its peak. We're growing guest count. We're still supporting what, 23% restaurant level EBITDA margins and have a very attractive comp. I feel good about where we are. And if the country behaves even remotely in a recessionary way in '23, then we're in a great position, right? Because value is important to consumers and I think that the elasticity impact of some of the more aggressive pricing has not been fully felt yet.

Interesting. Interesting. Well, thank you for that answer. Michelle I want to end with you, maybe just thinking a little bit about framework. One is long-term outgo what kind of how you think about the growth of the business? And then I want to bring it down to '23 just for final thoughts. But first of all, long term out go in terms of top line EBITDA, how should investors think about it?

Yes. So we think about growing our comp in the low single digits. We're committed to growing new units at 10%. So that adds to low -- high single, low double-digit revenue growth, John. And then low teens adjusted EBITDA growth. So that's what we are committed to doing over the long term. Obviously, this year, in particular, we've seen what inflationary costs have done. But Michael and I are committed to that. And so as we think about, we've talked a lot about development I think there's a reason why, we're focusing on building that local scale, right? You can -- Portillo's is a brand that's going to travel. You can plant flags, right, anywhere. But I think really getting scale within markets, which we think is 6 to 8 restaurants in the market. Really gives you opportunity then to see that expansion, John, on the bottom line, right? And so you do see and I gave this example during our Investor Day, where we saw 370 basis points of margin expansion within Arizona when we went from 2 restaurants to 4, which, by the way, we don't even consider to be at scale, right? But we scale 6 to 8. So that's how I think about like long term, the question could be, well, great, how do you expect to continue to grow that bottom line. As we get that scale, right, we definitely see the benefits of scale advance.

And is that where scale always shows up in your business is just densification of markets? Or is there skills in -- the other obvious areas, is it really just infilling markets, where other markets are like Arizona, where you're going to get to 4, 5 whatever it is 5, 6, 7, 8 soon to get that scale?

Yes. No. Look, we said we're planning our first [ flag ] in Texas as the Class of '22. So here in a couple of weeks. We've said 3 to 5 next year in the Dallas market alone. And Arizona, 2 more in the Class of '22. Opening will be at 6 in Arizona. We're committed to another 2 to 3 in Arizona next year. Central Florida, Orlando is our first restaurant. We're going to open West Kissimmee here in Class for '22, and we're going to scale another 2 to 3, I'd say, in Central Florida next year. So our goal is to scale quickly in markets then versus what you've seen in the past?

Yes. Thank you. So now we're out of time. We're going to hear from you next at ICR, and that's when you'll talk a little bit about 2023. Is that right?

And for those of you who go to ICR who've never had our food on BEEF BUS will be there. So you can try it firsthand.

Right. Or just drive over into the big one in Disney World, right?

That's right.

Great calling you Michelle. Thank you so much [indiscernible] on your trips, and thank you all for listening.

Thank you.

Thank you. Thank you, John.