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

Good morning, everyone. I'm Brian Harbour, I cover restaurants and food distributors here at Morgan Stanley. Thanks again for joining us. And now we are going to talk Portillo's, with Michelle Hook, who's the CFO. Michelle, thanks for being with us.

Thanks, Brian. Great to be here.

So I think we should probably start with just on the development side because certainly, since you guys have gone public a couple of years ago, store expansion has really been key to your story and will continue to be -- and maybe just start by talking about some of the openings for this year, how you think that went, your takeaways from kind of the recent cohorts of restaurants, Arizona, Texas, Florida, have been focus areas. You're, of course, born in Chicago, but those have been newer markets for you?

Yes. No, absolutely. As you look at our journey, right, as we IPO-ed in October of '21, we've put out there that Portillo's is going to grow at 10% a year, which is I think when you think about that, as much outrageous right growth. But where we're focused on is primarily in the Sunbelt markets of Florida, Texas, Arizona, as we look at where we've been growing. So when you look at how those restaurants are performing and you -- I'm sure your follow-up is why are you picking those markets to grow, which we can talk about. But we've been extremely happy with the performance of those restaurants. And so we actually entered the Dallas-Fort Worth market for the first time this year. That was a new market entry. We opened our first restaurant in a town called the Colony, which was near Frisco. And we've been very, I'll say, non-humble about bragging about that restaurant. And initially, when it opened, it was projected to do $17 million annually. Now it's come down since then. But it's performing like a Chicagoland restaurant, which those average nearly $11 million in -- and so we're now at 3 restaurants in the Dallas-Fort Worth market, having opened 2 since the Colony and then we continue to build out Arizona and Florida. And when you look at the pipeline, so we started this year with 72 restaurants. We will be at 84 by the end of this year. So we will have opened 12 new restaurants in fiscal '23, which is the most Portillo's ever opened. And -- when you look at the performance of the restaurants, which was your question, one of the things that we provided at our development day in September, so anyone can go access these slides on our website was we looked at the 2022 class of restaurants, which is 7 restaurants in that class. And when you look at what we're targeting, by year 3, we're targeting 25% cash on cash returns. And so we snapshot of that class of '22 and how they're performing in that first year, and they're above expectations for that class of '22. So we feel really good about the performance of those restaurants. And then as we go into the class of '23, we have 8 restaurants -- we have 2 left to open this year. Our most recent opening was actually this weekend in Rosemont, which is a city right outside of hair. And so we feel it's super early innings on the class of '23, but similar to the Class of '22, we like the profile of those restaurants and as a class performing above expectations.

Yes. And what do you think has made them so strong? Is there anything you kind of learned over the last few years, especially opening outside of your home market where there's as much brand awareness, what defines the top-performing one.

Yes. I think, obviously, where you build the real estate site selection. We've gotten a lot more refined on that over the course of the last few years. And so when you look at Portillo's as a whole, we could build a restaurant in Chicago really anywhere, and it would do well. And so that's not the case in outer markets outside of our core market. And so what we found is we can't be the only draw to an area. So we need to be building our restaurants where people are gathering, or they're congregating. and so we have to have that aspect of the site selection. We need to have good visibility, right? You don't want to be buried in the corner of a mall or in another area. And then because our restaurants average as a system, almost $9 million in AUVs, clearly, these are busy restaurants. You have to have good access, so good ingress egress. Those are all characteristics as we've built the class of '22 and as we're in the class of '23 now that we've needed. And so I think once you start to do that, you see the benefits of that site selection come to fruition with what we're seeing in the performance of the class of restaurants. And I think that's part of it, Brian. And then I think the question is, well, why are you building in those markets, that's where people are moving. When you look at population growth here in the U.S., the fastest-growing states are Texas, Florida, Arizona. And so of course, we're going to build there because that's where the population is growing. We still absolutely have opportunities in our core market of Chicagoland, and we are going to continue building there. But the vast majority of our growth for the next couple of years is going to be concentrated in the Sunbelt. And then we recently said we're going to start scouting sites in Atlanta, Denver and Vegas. Those are the next 3 markets that we'll look to enter. But as we build, we don't believe in just flag planting in new markets. Our goal is to get to scale as quickly as possible because of the scale advantages. And so we believe minimum scale in the market is at least 6 restaurants. And so when you look at the proof points there, the one I'd point to is what we just talked about, Dallas. So we opened our first restaurant there in January of this year. We'll be at 5 restaurants in the Dallas-Fort Worth market by Q1 of '24. So the goal is within, call it, '24 to 36 months of going into a market, you get to scale.

Yes. Are there other markets in '24 that we'll be hitting that point where you kind of see that improved scale?

Dallas is the one I'd call out. So we'll be at 5% in Q1. We just announced Mansfield. So we're continuing to build out sale of Fort Worth, we're going to enter Houston. And by the end of '25, we'll be at scale in Houston. Arizona, so the Phoenix/Scottsdale area is one that we recently opened our sixth restaurant. We have a restaurant under construction in a town called Surprise, Arizona. So we'll be at 7% in that market. And so those are the couple of markets I'd call out, Brian, where we'll be -- we'll get to scale.

Is it fair to say those other entries you just mentioned would be 25% if you're scouting real estate now.

Yes. At the earliest when you talk about Atlanta, Denver and Vegas '25 at the early more into '26.

Okay. Okay. Makes sense. At that investor event, you did also talk about flattening the honeymoon curve. Have you seen that yet? Or what are you doing to try to do that?

Yes. We're actually seeing -- so those that don't know Portillo's we have big bang openings. And so that first year, you have higher AUVs that dip in year 2. We put the restaurants in the comp base after 24 months for that reason. And so we're seeing the "flattening'' of that curve because we're trying purposefully to do that. And we gave examples of that for our restaurant in Orlando. And then as you look at the class of ''22, some of the early reads on that class and what we're seeing there. But what we're trying to do is basically, when we look at our NRO capabilities, our new restaurant opening capabilities. As we go into these markets, we are making sure that we do, I'll call it, a soft opening for these restaurants. So it relieves some of that demand pressure. We don't tell people that the restaurant is open, but we basically open the doors and people figure out that we're open -- but it's not the “ribbon cutting” grand opening ceremony that -- that we announced. And so that lessens some of the demand. The other things that we're doing that I will say is benefiting the restaurant is we won't open a Portillo without an experienced general manager. So we need to make sure that we're de-risking these openings and putting seasoned general managers into the restaurant to make sure we're giving the guest a good experience. And so as you do that and as we look at the guest satisfaction scores. And again, we gave these slides during our development that you see improvement in the 30-, 60-, 90-day scores, which says, okay, because we're giving the guest a better experience, they're more likely to continue to come back and have frequency versus if you have all these people at your restaurant on the opening and you're trying to get them through and they don't have a good experience, they're less obviously likely to come back. And so some of that is helping to flatten the curve by just performing better operationally and taking care of the guest.

Makes sense. In conscious of the Sunbelt is sort of the focus, you've opened sort of recently outside of Illinois in the Midwest, maybe how are those doing? And also you've opened some alternative format ones in Chicago. How are those going?

Yes. So yes, if we throw Chicago out, when you look at the other Midwest restaurants, they're just under 6 million AUVs and probably 18% margin. When you look at those outside the Midwest, 7 million AUVs and closer to 20% -- just under 20% margins. So that goes back to what we talked about just a few minutes ago about why are you targeting the Sunbelt? Because a lot of times, people will say, well, I would think that naturally you would do better in the Midwest because you're spilling outside of your core and you would have better brand awareness. But what we're actually seeing is better performance in those Sunbelt markets, excluding Chicago. Do you want to talk about the alternative formats?

Sure.

Because you mentioned that right. Okay. So we just opened on Saturday, our second pickup-only location, which has all the channels except dine-in. Our first was opened in Joliet in 2022, and we're using that format as an infill strategy in markets we have scale, which the only market we have scale in today is Chicagoland as we've talked about. And so it does roughly 2/3 of the AUVs of the Chicago land restaurant with a lower build cost. So it clearly bolsters the return profile. It's a format will -- that's doing very well. Again, our second just opened. We'll use it today as just an infill strategy in that market. But as we get scale in other markets, it's definitely an opportunity that we're going to continue to look at.

Makes sense. You've also talked about this push to standardize design. There's been a lot of build cost inflation everywhere. But you've tried to standardize design -- there's also been some operational changes that you've made. Could you explain to the group how that's worked? How much you've kind of been able to realize so far?

Yes. Yes. We've been on a journey to look at what "box” that we're building for our restaurants. So if you go into Chicago land, you will see our traditional portfolios is probably anywhere from 10,000 to 11,000 square feet. If you go into the kitchen, you'll see a production line that's very linear. That's about 100 feet of production line. So what we're building today, which is on the journey to what I'll talk about in a minute is what we're calling Kitchen 23. So Kitchen 23 is about 7,700 square feet that we're building today. The production line is about 65 feet. And obviously, with that shrinkage in the line, you get less conveyance, more adjacencies as you're working. And so we've seen the labor -- the benefit of the labor efficiencies with this new kitchen. As we move into what we're calling restaurant of the future, that prototype today is 5,500 to 6,000 square feet, and the production line is about 47 feet. And so we will start to build those late in '24 at the earliest, but all of the class of '25 will be in that new prototype. These restaurants have all the channels. They will still be able to do 10-plus million AUVs. The kitchens are still built to handle high AUVs, and we'll still look and feel like a portals.

What kind of drives that? For those of us that don't spend much time in the back of your restaurants, why can they do the same AUVs despite being considerably different and layout in size?

Yes. If you look at the -- like I'll give you a quick example. Like if you look at the line, now we've moved the line in the middle of the kitchen. And so if you go into a traditional Portillo’s, there's generally been 2 lines. One has been for the drive-thru part of the business. One has been for the dine-in part and, call it, other off-prem channels part of the business. And so you can move the line in the middle, and you can work both sides of one line, and you and I can steer at each other and still make beef sandwiches hats, et cetera, from one line that doesn't require as much space as 2 separate lines. And so when you look at the actual equipment in the restaurants, we're able to reduce some of that footprint and actually work more efficiency -- efficiently because you and I can talk to each other. If drive-thru gets busy, we call it racking in the drive. If you're racking in the drive and the dine-in is a little slower. I can look at you and say, okay, do you got this order, and you can switch it over to on the kitchen video system to that side. So it's things like that, Brian, that when you look at the actual physical layout, it makes a lot of sense to go and move to where we're moving because it creates those adjacencies and that communication is a lot more efficient.

Okay. Makes sense. You also increased kind of the unit potential of that event, right? It was 600 at the time of the IPO. Now you're saying 800. Could you talk about where are those kind of additional 200 do you make I think you do, but maybe if you could tell us more about it, the same assumption about volumes and store margins as you look for that far out.

Yes. I think as we looked, we tweak some of the assumptions, right? And we call it the MAM, the minimum achievable market for Portillo's. So we really got more surgical with the analysis in terms of looking at where it makes sense to build a Portillo. And the criteria was I need the restaurant to do at least $7 million. And I don't want to build within a certain radius of another Portillo's because I want very minimal -- minimum cannibalization of the existing restaurants because we're at the stage right now that within our growth trajectory that we're not building a lot of restaurants that are cannibalizing. But -- so when you put that criteria in and said, okay, where should we be? That's where we get to the 800. And the 800 are full-sized Portillo's that have all the channels. And the other number that we gave we believe is $120 million at least what we're calling the pickup only or walk-up locations. So we have the 2 pickup locations that we talked about. And we don't have any walk-up formats yet, but you can think about a scenario where in the example that we gave at our Development Day is when you look at Time Square and you see there's a raising cadence and there's a Chick-fil-A concepts that traditionally have drive-through businesses like ours, they have walk-up locations. Yes, we can do that format as well. We don't have those today, but it's absolutely an opportunity.

Yes. How about licensing? I mean you could put them in airports. You can put them in the Middle East.

We can do all of that. The criteria for us, particularly when you talk about licensing is we want to run the restaurants. We don't want someone else running the Portillo's. And so that's the criteria we've set for ourselves. And in some locations, it's fine and others, it's a little more challenging to get folks to agree to do that. But those are absolutely opportunities. And then we've talked about international franchising at some point is absolutely an opportunity for Portillo's. But that's years down the line. That's we're focused on U.S. development and growth right now.

Okay. Makes sense. Maybe just a couple of questions on your sales trends. You did -- you were one of several that kind of noted some improvement into early 4Q relative to late 3Q. I mean what do you think was behind -- I guess maybe if everyone saw the same thing, it was across the industry, but what do you think was behind that in your case?

Yes. I think for us, I can't speak for the rest of the industry, but for us, September, which was the tail end of Q3 is always a slower time frame. And you see that because people are going back to school. Families are getting their lives back in order of getting back to normalcy after the summer season. And so it's traditionally a slower month. And so we saw what I would call a more normal bounce back from that. Outside of that, we were very specific that we have and are making investments in advertising in our home market of Chicago land in the fourth quarter because of the headwinds that we've been seeing on traffic. And so it's one of the tools we have in our toolkit to use. We don't pull it out often. We only spend about 60 basis points on marketing and advertising at Portillo's. But I think part of that, too, Brian, contributed to some of the improvements that we saw coming out of Q3.

Yes, makes sense. Maybe just elaborate on that. It's not usually a big thing for you, but what sort of marketing was that? Does it make sense to do more next year, and it does show up in your G&A. I don't know what kind of the overall impact of that is.

Yes. And we've been very transparent. It's about a $1.2 million investment in G&A. That's why we're going to see -- we said yes, we're going to invest a little bit more in G&A in Q4 for these ads. And so I give our marketing team a ton of credit. They developed all the creative. We didn't go out and hire an ad agency to develop the creative. We did all that in-house. They just did a fantastic job. And so you'll see advertisements commercials on live TV, whether it's Bayer's games or if you look at live news outlets, we found that, that's the best approach on the TV ads in particular. And then you'll see us on billboards on the major freeways in Chicagoland. We've done other partnerships with social media influencers, Barstool Sports, they're fun to follow on Instagram and social media, if you have a chance to do some fun things with us. And so that's the type of advertising that we're talking about. And that will run through the end of this year. And we've seen good results from that as we've indicated. And so the question that we get is, well, would you do that again? Yes, absolutely, it's a tool in the toolbox again, that we could use if we think we need to use it. We don't pull it out very often. But it's definitely helping to buffer some of what we saw in Q3.

Yes. Is there any decision on pricing in the fourth quarter? Or maybe just how do you think about that into next year?

Yes. We've said that we're pausing on pricing in Q4. So as we sit here today, we're -- we had some pricing that fell off in October. So we're at about 5.5% pricing today. And when you look at what starts to fall off next year, we have about 2% in January that we took this year that will come off and then another 3% in May that will come off. So those are the 2 pricing actions we took this year. We're going to take price next year. We haven't made that decision and when and how much yet.

Yes. You don't really play with the menu, I don't think. Would you ever do that? Or I guess is there anything you might do to shift like mix, for example, I don't -- I haven't seen your ads. I don't know if those were focused on a particular product, but curious about that.

Yes. So I'll talk about the ads and then we can talk about the menu. So the ads were just focused on showing Portillo's food. It wasn't specific to price points or look at this value, et cetera, et cetera. It was just reminding people how great our food is. And with the tagline, portals, it always sounds good. And so again, just reminding people of the core menu items when you look at our beef fan which are how dogs are fries or onion rings, why people come to Portillo's. So that's the core. When you look at the menu, you're right. We don't -- we're not an LTO concept. We do some seasonal shakes and cakes. But outside of that, we don't do LTOs. And our menu is pretty expansive today when you look at it. And so to put something new on the menu, it has to have certain criteria. One, we want to make sure that it has sort of a unique spin on it for Portillo. But then 2, it doesn't add any additional complexity in our kitchens for our operators. And so we've done some things over the years, like if you look at adding a spicy chicken sandwich that was on trend and we got rid of another sandwich on the menu that wasn't performing as well. When you look at -- we introduced a Garden adage vegan option for our guests, which we have been getting a lot of feedback on that. So I think we'll continue to look at, Brian, things that what -- how they're mixing on the menu, how they're performing. And if we can make it better, we will. This year, we launched what we call our Rodeo Burger, which was, again, didn't add any additional SKUs into the kitchen, but highlighted an improved bacon that we had in the restaurant and put it just next to other ingredients that we had to create a very good product for us, and so we'll do things like that.

Okay. Yes. The mix component of your same-store sales has been a bit negative. Do you think that will continue into next year? Do you think this is just sort of a behavioral test that takes some time to play out?

Yes. I think at some point, it has to turn positive, right? And when you look at the trends, we started seeing negative trends in that in going back to Q2 of 2022. So the question we get a lot of times is Okay. Well, you're now starting to lap that this year. And my response is yes, and we continue to see a very similar trend right in terms of negative mix. And so -- which is, for us, less items per transaction. Generally, that's what we've been seeing over the course of time. And so at some point, you still get people that are coming to Portillo's that are still buying something. And so I obviously don't have a crystal ball and can't say when I know this is going to stop. But what I do know is I don't believe 2024 things are going to get drastically better for the consumer. I think there's still going to be pressures and restaurants are an area where people cut back on discretionary spend. And for us, I think the focus is just continue to give the guest a good experience. And that is generally what drives frequency back into restaurants. Is you had a good experience, whether it's the quality of food, the service, et cetera, right? We don't discount. And so other concepts in the type of environment can prop up a value menu or bundle or do discounting, and we don't do that. So we got to focus on the fundamentals.

Great. Maybe also just talk about digital that you have it as does everyone these days. So it's sort of just table stakes. But are you actively incentivizing people to use that more readily? Do they come more often? You can maybe talk about delivery, too, and what you've seen the...

Yes. So our digital mix today is around 22%. And which some of you might say, wow, that sounds really low because I know other concepts and restaurants are like 70%, 80% digital. But you have to understand that 40% of our business is through the drive-through. 40% of our business is dine-in. And then 20% are the other channels. Deliveries about 13%, 14% of that. And then we have catering and pickup. And so people that have 70%, 80% digital mix generally don't have drive-throughs, right, generally speaking, or generally don't want you dining in their restaurants. They want you to pick up your food and go. And Portillo's is more of an experiential brand. And so the digital channel, we continue to see pretty steady at that level -- at those levels. But when you talk about delivery, that channel has been very resilient. It's actually surprised me, and we've seen it at that 13%, 14%, pretty much hold steady. And you would think that logically, in this type of environment, people would migrate towards the other channels, but we're just not seeing that. We're seeing it hold pretty steady. And we offer -- we work with all the third parties to offer that. We also do our own delivery on what I would call large catering orders in order over $100. And so we do a little bit of self-delivery as well.

Yes, makes sense. Maybe let's just talk about operations and margins on that side of it. You obviously run very high-volume restaurants with live employees. Do you think that there's -- and you very much focused on retention, pay, et cetera, do you think there will be above normal wage investments next year? Anything that we should think about on kind of the staffing side?

I think next year, we're going to see mid-single-digit labor inflation. So since 2020, we've seen our hourly rates increase 30%. So we've made significant investments and labor and part of that is that the market moved, right? And we had to do that. And we take pride in taking great care of our team members who take great care of our guests. And so we've had significant investments. And I think as we move into next year, Brian, we'll see what I'll call, more normalized investments, but we'll continue to see our markets move. We only -- when you look at statutory increases, et cetera, that's not a massive impact for Portillo. We only have 2 restaurants in California. And then when you look at wage increases in other markets, we're again, already above minimum wage. So we'll continue to move as markets move, but no, I don't expect significant headwinds on labor next year.

Okay. What -- you've also done just kind of some process changes and such, and you alluded to some of it. But what's working best there? And I guess also what do you think could be impactful as we look to next year?

Yes. I think we have done a really great job on efficiencies from the labor side within our restaurants. I think part of that goes back to what I mentioned on the Kitchen 23 format that we've been building and some of the other retrofits we're doing in our home market that have created those labor efficiencies. And we're very surgical in how we schedule labor. And when we look at demand within our restaurants, and the labor needed to service that demand and how you schedule that labor for us, again, is a very surgical process by restaurants. So I feel really good about operationally and kudos to our apps team for being very focused on that. So I think as we go into next year, there's still opportunities as we look at the labor that we spend on prep before a restaurants open. We've talked about some opportunities there, and we'll continue to look at those. So yes, I think we still have opportunities. And as we build the restaurant of the future, I think we'll see more of those opportunities.

And how fast will we see kind of the new kitchen design, you'll put it in new stores, but I think you are going to do some retrofit..

We are, and we've done -- there's 40 restaurants that had retrofit opportunities. We've done 18 of those. Mostly all of them this year. And as we move into next year, we'll do the remaining 20-plus next year. And those will obviously create the labor opportunities for efficiencies that we talked about in those restaurants. So we'll see the benefit of that come through for some of the restaurants, not only next year, but as we move into '25, when you get a full year run rate for all those restaurants once they get retrofitted.

Yes. Can this drive -- would you expect to see labor leverage? I mean a lot of restaurants don't or they've seen deleverage over time, just given how persistent inflation. This is true before COVID, too, right?

Yes.

Inflation was so persistent. I mean do you think that you can avoid that based on some of those initiatives? I think we've proven that we can do that, right?

I think it's easy to sit here and talk about, it's super hard to execute. And I think it comes down to the point of us being surgical and execution on how we schedule that labor and where we see those opportunities. But do I think that those exist in the future? Yes. I think those exist in the future. But we got to, again, grind that out and do the work to get those done. But yes, I think we've proven we can do that.

And typically, you've said the expectation too that new units will be somewhat margin dilutive. Of course, they are out of the gate, right, as with any concept, but even just relative to your Chicago base. But do you think there may be less dilutive. Can you kind of avoid some of that over time?

Yes. That's why we want to get to scale quickly in markets because we see margin improvement sooner rather than later when you have scale because you're leveraging distribution, right, you're leveraging that local marketing across multiple restaurants at multiunit manager. So yes, that's the goal is to try and buffer that as much as possible. Our restaurants cash flow immediately. But when you look at Chicago land, 11 million AUVs, 30-plus percent margins. Obviously, they don't profile like that. We're a 60-year-old brand in Chicago. And so year 1 of a restaurant is high teens, right? And then by year 3, you get to that low 20% margin. So the quicker we can get to scale, the more that the sooner I think we can accomplish that, Brian. But absolutely, when you look at the margin profile, so today, as we sit here, the portfolio of our restaurants, we're at 24% margin. So it's a healthy margin profile, right, for restaurant concept. And so as we continue to add these new units, they're naturally margin dilutive. But the quicker we get to scale again, the more we can buffer that.

Yes. In the near term, you have a lot of opening about right now Will we see that to a significant degree as we look at like 1Q, '24, for example.

Yes, obviously, when we talk about opening 12 new restaurants, right, in '23 and having the full effect of that in '24 on top of new 10% growth in '24. Yes, those are naturally going to be overall margin dilutive. And when you look at the profile of us next year and you say, okay, if I think commodities and labor are going to be mid-single digits, which is what we believe sitting here today. And we say to ourselves, okay, we have pricing power to largely offset with that. Then you say naturally with all the new restaurants, you would have margin degradation for the portfolio. if we have flat margins next year, that would be a win for Portillo. That's going to be hard to do. But again, getting to scale quickly is the goal, so we can help offer some of that.

Okay. Okay. Makes sense. And on the food side, I mean, you said mid-single digits largely be driven at the...

That's largely beef driven. The other commodities, I think, will behave. And beef for those that don't know, for our overall basket is about 35%. When you mix in the other proteins of chicken and pork. It's about 50% of those 3 proteins of our overall commodity basket. But yes, we'll see a little bit more pressure on the beef line next year. We're doing our best to mitigate that, taking some positions into Q2 of next year. So I feel good about where we sit in terms of keeping it at that level.

Great. You still have some leverage from being private, right? Do you have any specific targets to reduce that over time?

We're at just over 3x levered. I feel good about where we sit, Brian. We're able to service the debt. We just refinanced in February of this year. So I feel good about where we sit today. We can service the interest and principal payments and still have enough cash to invest back in the business. And so I don't have a specific target in mind. We're naturally going to deleverage with our EBITDA growth as well as the principal payments, the amortization payments we're making. And so I feel good as we sit here today.

Okay. Maybe I'll conclude with my standard lightning round questions. Just demand backdrop we've asked everyone, of course, demand backdrop for the year ahead relative to recent trends, accelerate, holds, decelerate in your view?

I would say hold, I think I don't see it getting -- I think, as I mentioned, I think we'll still have headwinds next year. But I think when you look at potentially a little bit of bounce maybe in the back half of the year as you pause in no more interest rate increases and maybe even some decreases there. I think maybe you have a little better outlook in the back half of the year. But I think in our business, in particular, we mentioned some of the improvements that we were seeing in Q4. So I think at a minimum hold, but I think potential to be even better next year.

Okay. And how about the margin side up, down, neutral?

I would say neutral, as I mentioned before, is a win. But given the new restaurants coming into the Portillo, I could see some slight degradation.

Okay. Makes sense. You capital allocation, you don't do all of these things, but CapEx, buybacks, dividends, debt paydown, I mean, presumably for you, it's just investing in the business.

It's investing in the business at this point. That's where all the cash is going, is right back into the business.

Yes. Okay. I'll end it there. Thank Michelle.

Great. Thanks, Brian.

Thank you.

Right.