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

I'm Sara Senatore, Bank of America's restaurants analyst, and I'm very pleased to have with me, Michael Osanloo and Michelle Hook from Portillo's. Portillo's is a fast casual restaurant that specializes in Chicago specialties, like Chicago hotdogs and Italian beach sandwiches also as well as more traditional limited surface menu items. Michael, prior to being President and CEO of Portillo's, he was formerly at P. F Chang's and before that experience at Kraft Heinz and Caesars Entertainment. So a lot of experience in the consumer industry. Michelle, I think probably many of you know as early I did from her role at Domino's where she was the Vice President of Finance for Global FP&A, before joining the Portillo's as CFO in 2020. So again, lots of institutional history and memory up here. I know you are going to show a few minutes of slides just to introduce the concept to people who maybe are less familiar. So we'll turn it over to you.

Thank you, Sara. Yes, I think it's helpful to actually talk a little bit about what Portillo's is. It is, in some ways, a little bit of a unicorn. At a glance, here's what we would say. We think there's something craveable for everyone on our menu. If you haven't experienced us, our menu is relatively diverse. And it's not just there's something good, but there's something that you crave. We are an experiential offering. I'll show you a picture of the inside of our restaurants. It's not like a blank [ solus ] box that you've come to expect in QSR and some fast cash flow. It's an engaging vibrant environment. You see families there; you see people enjoy themselves. We were multichannel before it became a thing. We have fantastic motion in the drive-thru, in dine-in, in third-party delivery, self-delivery. We do catering events. We do a direct ship business and we've been doing this forever. We have obsessed fans. We'll give you a little stat on that. But I think that our fan base is passionate about us as any fan base in the country. And by our fan base, I think there's a misnomer that people in Texas, in Florida, in Arizona and other markets are evangelical about us. We think our value is ridiculously good. I'll show you the numbers, show you the data. Our unit economics they'll speak for themselves when I show it to you. We're growing faster and further than ever. And we're excited. That, by the way, that picture, that's a new spicy chicken chop salad that we're rolling out nationally at the end of this month. We're excited about it. We think it fills a gap in our portfolio. It's a whole lot of flavors. It's a whole lot of spicy deliciousness, but it's part of what makes us an amazing company is the breadth of our menu. When I talk about something craveable for everyone, it's actually a really nice mix. Number one thing in our menu is 21%, Italian beef fries or 17%, hotdogs, burgers. A lot of the traditional stuff, as Sara said, we certainly have our Chicago favorite's, which is a beef sandwich, hotdogs. But we also do a great job with our burgers, shakes and the sneaky thing on our menu are our salads. Most people wouldn't know. We sell on average $650,000 of salad per restaurant. Our salads are not put in a clam shell sitting around their hand-tossed, fresh, they're custom made. You want your chop salad without green onions, we'll make it that way. In another life, we would call ourselves a salad concept, except we have really great margins. But so we have something cravable for everyone. People love our food. I would say this is a not a typical restaurant of ours. This happens to be our restaurant in Orlando, Florida. You can see it's got a lot of cha-cha-cha going on. We have people taking selfies in our restaurants. We have families coming in with their kids. This one happens to be a very successful restaurant because it's a mile away from the front door of Disney. And so after you spent the afternoon at Disney gone crazy, you come here, you get a great meal at a great price and you can have a beer and enjoy yourself. But our restaurants are meant to be experiential. I think of this as balance sheet marketing. This isn't just an empty box, it's a beautiful experience. We're available any way you want it. An average Portillo's does $3.5 million in the drive-thru, the average Portillo's is $4.2 million inside the restaurant. We do $1.2 million per box in delivery. And then we have all these other off-premise channels. We do carry out, we do catering, we do direct shipping. But what's important is that when you're investing in a Portillo's, you're essentially investing in 2 McDonald's in the drive-through, a Chipotle inside, and a Domino's. That's what you get when you do a Portillo's. Our fans love us. This is a Net Promoter Score study. It's done by off of a Qualtrics platform. I'm a little jealous of In-N-Out. I don't like being second, but I think we're in a phenomenal company between In-N-Out and Chick-fil-A, and Raising Cane's. I mean, the truth is these are all largely very, very good concepts with fantastic fandom. Any of you who follow Net Promoter Scores, NPS scores, those are all really good numbers actually. It's a very, very strong benchmark. It's a strong peer group, but we are very much at the top of the list. We have ridiculous levels of fandom. And again, this isn't just a Chicago thing. We have restaurants in Texas, Arizona, Florida, where the fandom is consistent. I'm very proud of our price points. What we believe is a typical restaurant for us. This one happens to be in Elmhurst, Illinois. We look at competitors, which are near us. All these competitors are within a couple of miles from us. We take our most popular item, our most popular order, which happens to be beef, fries and a soft drink, and we compare it to their most popular order. Ambiguously we're the most affordable. I'm not even going to get into the fact that how much beef comes in our beef sandwich, the fact that our fries are huge and cooked in beef tallow and delicious. It's not like I'm saying we're less expensive because we're gut fill. We are exceptionally high quality and less expensive. But wait, there's more. How many of you have gone to a restaurant and the POS machine does that arm twisting make you feel guilty, have to give a tip. If you don't want to give a tip person says, "Oh, you just got to hit a few buttons before you finalize and then you got to go find the button to say no tip, et cetera. We've all done that. America is getting tip fatigue. It's pricing However, whatever cute way you want to discuss it, it's pricing. We don't engage at Portillo's. We're going to be transparent about pricing. We're not doing surge pricing. We're not doing tip pricing. The price is the price. And so when you include the suggested tips for these competitors, the only one that doesn't do a suggested tip is Chipotle. Every one of these others as a suggested tip, we are materially less expensive. I'm making this point because I think value proposition over time wins. Value proposition is why restaurant companies have good or bad traffic time you can tweak numbers in a quarter, but over time, a great value proposition wins. It also suggests to me that we have untapped pricing power if and when we need to exercise it. Our unit economics, I think, speak for themselves. I'll highlight a few things. One is we were founded in 1963, which is an interesting factoid, but we really grew up in 2021 when we became a public company and are now more differently managed versus an entrepreneur. Our average unit volumes are $9.1 million per restaurant. We have restaurant level EBITDA margins of 24.3%. We generated $102 million of adjusted EBITDA. It's not on here, but you can imagine that, that EBITDA, that operating income, those numbers translate to very attractive cash flows. The thing that's not on this is that we finance all of our restaurants with existing cash flow. That's a really good place to be as a growth company. It means we don't have to go and borrow we're not paying user is interest rates right now. We fund out of the bank I joke, the Bank of Michelle Hook. Part of what underpins these great economics is the fact that we are a really good place to work. We fund factory, where do we pay minimum wage? Nowhere. We pay above minimum wage across the country. We do that because we expect superior performance from our team members. In our industry, we are a desired employer. We have 20 points lower turnover than the rest of the fast casual segment, and we're routinely lauded for being a great place to work for our team members. We believe in what I'd like to think of as an enlightened form of capitalism. Our team members are the brand representative and the person who's the ambassador to the guest, you take great care of your frontline team members, your guests are going to have a great experience. If your guests are having a great experience, your investors will have a great experience. It's a perfectly virtuous cycle, but it does take a leap of faith to take great care of your frontline teams. We're growing faster than ever before. People think of us as a Chicago Concept. There's certainly a lot of truth in that. We were founded in Chicago. Our food is Chicago inspired street food. We are growing across the nation. We now have restaurants in 10 states, we're expanding. We've publicly announced that we'll be growing in Atlanta, Georgia, in Denver, Colorado, in Las Vegas, Nevada. We're growing aggressively in the state of Texas. This slide is actually wrong. We just opened our fifth restaurant in Denton, Texas. And we've announced we're going deeper into Dallas-Fort Worth, but also into Houston this year. So we're growing across what I like to consider the Sunbelt, I call it colloquially, the Sunbelt. The reality is it's the growing states in America. This is where population is growing. We would like to make our lives easier by growing in markets that have a tailwind of traffic and comp growth when we get established. And that's places like Florida, Texas, Arizona, Nevada, Denver, Colorado and Atlanta, Georgia. One question people ask is, well, how do these perform? You're a Chicago concept, so we would assume that the Midwest is best for you. Actually, that's not quite factually true. We crush in Chicagoland. That's undeniable. We have $11.4 million AUVs in Chicagoland. But what's interesting is when you look at it is that our AUVs along the Sunbelt are better than our AUVs in the rest of the Midwest. And the rest of the Midwest, states like Indiana, Wisconsin, Minnesota, Iowa, Michigan, they all know Portillo's because people come to Chicago for business trips, for vacations, for weekends, they experience us, our brand awareness is actually very high in the rest of the Midwest. But the economics and the dynamics of competing in the Midwest are just a little different than the economics and dynamics of competing in the growth states in the South. We don't have the same level of brand awareness. But my goodness, we're already doing significantly better. Our AUV in the Midwest, outside Chicago are about $5.8 million. Our AUVs across the Sunbelt are $6.8 million. Our long-term algorithm, we are a long-term growth stock. We have 85 restaurants now on a journey to 900 plus. So we're less than 10% of the way to what full potential looks like for us. So we think the right way to think about us is a long-term algorithm. And the long-term algorithm is really simple. We've committed to 12% to 15% unit growth. Same-restaurant sales growth that's low single digits. You can do the math on what that means in terms of top line revenue. We think that adjusted EBITDA growth in the low teens, the nuance to think about there is we have really matured, really scale restaurants in a scale market in Chicago that generates a ton of EBITDA. The restaurants we built outside of Chicagoland are going to be great restaurants, but they're going to be at a lower margin to come out of the gate. And then they build margin, comp and traffic over time. So that's why you see adjusted EBITDA growth in the low teens as that leverages over time. You can imagine over time, our expectation is that you get closer to margin parity between Chicagoland and everywhere else. But that's our long-term growth algorithm. And I'm going to end with a picture, that's a combo sandwich. It's Italian beef and a sausage with a little bit of chardonnay there. So if you had lunch, great, if you didn't, I'm sorry to force you.

It looks amazing. I assume you brought some. All right. We'll have to make a trip to Chicago. Actually, not so far. Now that we're in Florida. From New York, it's tougher. All right. So thank you for that. That was very helpful. I guess I want to pick up one of the things you said with value. And to your point, value proposition matters. So the taste is really good. There's a lot of it. The price point is right. It always matters. Now as I think about the demand environment, it seems to matter even more. At least that's what some of the commentary has been from companies. Maybe you could then talk a little bit about that. Are you seeing trade down? Are you seeing trade up? What are you seeing in terms of your ability to win especially when values become so salient?

Yes. I think it's funny because value sometimes people conflate value with just pricing. So I think for value there's 4 things that really matter in our business: quality, quantity, the overall experience and pricing. Those all matter. You saw the numbers on pricing. You double check for yourselves. I think our pricing looks really good compared to everybody else. I'm exceptionally proud of the quality of what we do. We're not playing games. We haven't degraded anything, we've actually improved the quality of items. We've actually improved some of the portions of items and the experience is hugely important to me. Like I want everyone who comes to Portillo's have a great experience. So I think if you're really focused on quality, quantity, experience and price, you're going to win over time. The big guys can drive traffic any quarter by just dumping a bunch of things into their low-budget menus. We don't do that. We're more of an EDLP restaurant company. We charge you a really fair price and we never go on sale. When we feel like we need to drive traffic dose Sara, we have a number of tools in our arsenal. We can pulse aggressively. We have a catering business that's continuing to grow. That's a fantastic business for us. And over the course of the last 12-18 months, we've built our own internal sales force who does outbound calling on catering. This doesn't sound like a huge deal, but it's incremental sales. I love catering because I view it as a paid sampling exercise. And we pulse that business in the fourth quarter. It helped drive positive traffic, positive comp plus size performance. We know that when we market Portillo's, it works. And people ask me, well, why don't you market more aggressively? Why don't you constantly do it? Well, because the #1 thing that drives visitation is a good experience, and I'm already paying for management and team members to give guests a great experience. So the most high return activity you can engage in is be excellent operationally to drive traffic. There are times, though, when we won a pulse, and we did that in the fourth quarter, we had some great advertising in Chicagoland, we called it "The sounds of Portillo's." It's not a discount. It's not a call to action. It's just a reminder of what Portillo's looks like. It's food porn with sound. And it was compelling. You can see if you go on to our website, you can see examples of the ads. It worked really well. It works really well with Chicago because we have scale. The cost of the advertising is leveraged over 38 restaurants, and so it makes a ton of sense to do that. We could probably do that in a couple of other markets. And as necessary, we will. Michelle and I are very committed to doing traffic. But I think for us, value execution are the 2 key things that are a healthy way of driving consistent traffic. The Texas Roadhouse, that's what they do.

Right. And to your point, every day value price, visibility consistency and then, as you say, operations and having a good experience. I think about that as a reason that people return, I guess, as I think about advertising, I think about it as bringing people in. As you said, like the Chicagoland advertising was very effective. I think it was probably some combination of new and laps? How do you think about maybe brand awareness more broadly? Because as you were highlighting there, there's brand obsession in Chicagoland and there's brand awareness. So maybe talk a little bit about bringing people who are new to the concept or who are maybe have forgotten about it a little bit.

Well, in Chicago, it's more about frequency. So when we know when we advertise, we pick up a little bit of frequency. If there's a pivot in Chicago that our marketing team is working on is consistently trying to get a little bit more youthful in our approach in marketing. One of the good things about Portillo's is we're a 60-year-old brand. We have a huge installed base. We've been around forever. We've never closed a restaurant. The bad news is when you're a 60-year-old brand, you tend to have a little bit older demographic of customer. And so you've got to be smart about filling that funnel with new customers, particularly in a market like Chicago. So for Chicago, it's all about frequency. Outside Chicago, it's trial and awareness. And so all of our marketing activities outside Chicago are targeting generating trial and awareness. And so we're very aggressive in field marketing. Like in the past, we've done food kiosks at Diamondback Stadium in Arizona. We did it at where the Cubs do spring training. We've done it at ASU in Tempe. We do hundreds of nonprofit charitable events where we donate food. And I like that. It's a powerful form of marketing because you're sampling, you're giving it away, you're not discounting anything, but you're giving people an opportunity to taste your food and you're becoming part of the local culture. In Arizona, I want to be the Arizona Portillo's. I don't want to be a Chicago carbon bagger. And so there's a way of generating trial and awareness through field marketing that really does that for us.

Right. And there's a lot, I think, to talk about there, especially when we think about the honeymoon and the big openings and how you think about sequencing that. But before we get too far field from just sort of the consumer and the operating environment, I did want to ask and you talked about on the conference call whether you talked about the consumer pressure in February as well as in January. But you saw a nice acceleration from 3Q into 4Q. So I guess, has anything fundamentally changed in terms of the consumer from 3Q to 4Q into 1Q?

I'd say, Sara, I wouldn't say anything fundamentally changed as we sit here today versus some of the headwinds we saw in 2023, I think we have talked about the competitive landscape. I think we have seen more recently, and this is coming in the back half of '23 and into Q1 of this year, you see heavier discounting. And Michael mentioned by the QSR players, and you see that more pronounced in that space. And look, we've even seen some fast casual players recently get into some discounting as well. And I think that speaks to the competitive environment that we're in today. But I don't think that the consumer is in any, I'd say, worse shape. I still don't think it's great. I think to your point, what we've seen in Q1 is largely some seasonality in the business, in terms of weather. We're still heavily concentrated in the Chicagoland market and in the Midwest. And so yes, we're going to have some weather impacts. But when we look at Michael put out the long-term growth algorithm, but we're going to have quarters that are going to have those dynamics. But over the long term, we feel comfortable that we can deliver what he showed. But I don't think it's any worse.

Okay. Yes, that's helpful. And this is a volatile business and the best of times so it's always helpful to get your thoughts. So on the question, I guess, of your Chicagoland and then you have these growth markets and obviously, you have the tailwinds, the demographic, the economic tailwinds that you've spoken about and should persist for some time. I know one of the things you get pushed on a lot is if you were to disaggregate Chicagoland from the Sunbelt, would you see dramatically different trends in terms of traffic or same-store sales, just as you point out, this is a growth concept, and that's where your growth will be.

Yes. I think when you look at them as 2 different businesses, which they really are, even as Michael mentioned, the 6-year brand in our core market, that when you think about how the future looks right for the core versus outside of the core, it's very different in the core in terms of when you look at population not growing but actually contracting. And then the ability to grow sales is really going to come through a combination of smart ticket, whether that's pricing or being able to upsell your guests in your core market. And then you're going to have to take share to get that traffic growth. So you're going to have to fight your weight to traffic growth within the core. And I think outside the core, it's definitely only a different dynamic with natural tailwinds with population growth. And there's still the ability to take smart ticket growth, whether that's through price or some incrementality on mix and upselling and things like that. So I think, yes, they are absolutely 2 different dynamics. And we're still very young in terms of the restaurants outside the core that are actually in the cap base. And so I think that story is still to be told, but we feel really good about the performance of the new restaurants, particularly as we look at the class of '22, the 7 restaurants in that class. And then the 8 restaurants in the Class '23 are really newer because they were all open to the back half of '23. So that story is still to be told, but that's at least as Michael and I sit here today what we believe are the dynamics that will exist in the future.

Okay. I guess, the words in your mouth, so as that comp base shifts away, and I think it's 80% Chicagoland, as it shifts away, those tailwinds that you've seen in the other markets will become more evident in the number of comp base.

Yes.

And then maybe we can talk a little bit about the store zone into the comp base until 24 months and talk a little bit about the life cycle of the cadence and what you're doing to maybe smooth it out a little bit or how you think about preopening opening?

Yes. Our restaurants definitely have a honeymoon curve to them, which is why, to your point, they don't enter the comp base until after 24 months. And so they're going to start out. And when you look at the numbers we put out there for a class of restaurants. Again, it's a class, not one individual restaurant. By year 3, we're targeting $7.3 million to $7.5 million AUVs and 22% margins. So if you walk that back into years 1 and 2 in year 1, you'd be looking at like an $8.2 million AUV high teens margins. In year 2, you dipped to about $7.2-ish million call, you do about $1 million, you'd still maintain that high teens margin even though your AUV dip because you're starting to leverage labor a little bit more as you get more efficient in the restaurant. And then by year 3, after you're in the comp base, we see the AUVs growing and then the margin continuing to grow. And it doesn't stop there. So beyond that, as we continue to get to scale, our expectation is we continue to see the top line and the margin continue to grow as we get scale in the markets we're in.

And one of the things that we've worked hard on is we used to have this philosophy of a big bang opening, you want as big of an opening as possible. And the problem is actually it's not good for our business because we had openings that we were doing 450,000 a week. It was actually not a good experience for the team, not a good experience for the guests. Guests would wait an hour in line to get food that wasn't well prepared. You would literally turn over the entire team in that first week. It was a horrible experience. We've very, very purposely metered that down. I don't want a huge big bang opening. There's already going to be excess demand for us. We're still going to have really big openings. But we try to take some of the pressure and the steam of that opening. We have 2 weeks of what we call just soft opening, friends and family, invited guests, people who signed up for our birthday club, our version of a loyalty club. First responders in the community, local politicians. We invite all of those people for the first 2 weeks, take some of the pressure off the restaurants so that when the restaurant opens, it's able to handle the volume. Guests can get through those first few weeks more quickly with better quality experiences and it imprints on them so that they come back again. And so our goal is, as opposed to have this massive roller coaster penetration curve, you want a pretty good first year, a slight dip, it's unavoidable and then start building right back up again by year 3. That's our goal. We've executed that really well in Orlando. That works really well. And part of that was Orlando was going to be a big bang. There's nothing we can do because it's close to Disney, et cetera. but we did not turn on all of our channels right away. We only had on-premise turned on for Orlando when it open. After a year, we then started taking third-party delivery orders, delivery orders and catering orders. Orlando is showing a cycle that makes a lot of sense to me is brand accretive and makes guests happy. That's where we very purposely trying to flatten that curve a little bit.

Right. Okay. And so you have a playbook from Orlando?

We have a playbook. First in market is always going to be hard. We opened in the colony in North Dallas. We had people driving up from Houston, from Austin, San Antonio. It was just a ridiculously desired restaurant with a massive catchment in its first year. So that one is going to have more of a bounce. But the second, third, fourth, fifth openings in Dallas, look to be really good, sustainable openings.

Right. Okay. And I want to talk about that and filling in around in these markets, you talked about over 900 units. But I guess to start with, maybe you could talk a little bit about the idea of scaling up, getting to, I think, you said 6 or 7 and then trade area is efficient. And in particular, put that in the context of your growth algorithm because, as you said, the unit start off at a unit level, lower margin, that's explicitly embedded in your growth algorithm where you have EBITDA growth that's slightly lower than revenue. What though scale help offset that above the restaurant level margin line where you do have more of these markets that are scaled, maybe you see that in the G&A. I mean, I guess talk a little bit about that.

Yes. I mean, we're definitely trying to buffer the impact on when you look at the restaurant level margin as a percent. We're trying to buffer the impact of bringing all these new units by getting to scale as quickly as possible because we know Sara, there's benefits to scale. Michael talked about our local field marketing efforts. Those are going to benefit more restaurants, the more that you get to scale. You're going to be able to leverage your distribution within that market where you're bringing in full truckloads versus partial loads. You're leveraging your multiunit manager who has the ability to manage 6 to 8 restaurants versus if you just have a couple in the market today, you're not really leveraging that across the restaurant base that you can be. So yes, absolutely, that's where scale matters. Our goal is to get to scale as quickly as possible. So minimum scale for us is 6 restaurants, 6 to 8 within a market. And you see that example in Dallas, where we just opened our fifth restaurant in the span of, call it, 13-14 months. And our goal is to get to that 6 within the span of 18 to 24 months because that will help buffer against the margin degradation that you see from the new units coming in. I think when you talk about G&A over time, our expectation is, we will continue to lever that line item. Right now, we're guiding to 75% of the revenue growth number. That's the G&A growth number. I think when you look at the next 5 years, I think, Michael and I both agree that for us getting to that 50% of that revenue growth number over the next 3 to 5 years is our goal. It's not going to happen overnight, but you think about it as a trend where from 70% to 65%, et cetera, and you get to that 50% in the future. That's the goal.

Sara, can I just add one thing to what Michelle was saying. There's clearly cost synergies as you achieve local scale. It's G&A, it's labor, it's our distribution supply chain cost, probably the best example. But there's a revenue synergy that is a little bit more nuanced, but real. In Chicagoland, we have a Portillo's for a big part of Chicagoland. There's a Portillo's within 5 miles of you wherever you are. That changes the usage pattern. So our first restaurant in Texas, great restaurant, crushed it, but it's a special occasion because you might be in a place where in Dallas, it takes you an hour to get to the colony. And now we have 5. Dallas is huge, it's a big driving city. But like if you have a craving for Portillo's, there's probably one now within 20 minutes of you. I'd like to get it to the point where wherever you are in DFW, there's a Portillo's within 12 to 15 minutes. Then people start using you different, then you're not just a special location, then you can become more like QSR-Plus. I have a craving for a sandwich. You're 12 minutes away, I'm going to go to Portillo's as opposed to sell and so or who's it. And so there's a revenue kicker that happens once you have a certain level of penetration of saturation. We see that clearly in Chicago. We're starting to see that in Arizona, and that's why scale matters. It's not just the cost synergies, but it's a revenue kick.

That shows up in frequency?

The most simple way is look at the revenues. I mean there's a reason the revenues in Chicago are what they are, and it's because of frequency.

Right. Okay. So just the sheer volume.

Yes, the transaction, that you're pumping through those restaurants. And I think we just talked about restaurants not entering the comp base in for 24 months. But if we can get to scale within that period of time, then you're not worrying about, is this having an impact on this restaurant and you come in with that game plan. And to Michael's point, the consumer has even more awareness, as you're in that market, which is a Top line benefit.

It's right. So it shows up and down the P&L. The time is down, so I do want to get to the unit growth, think about the dynamics there. So one thing is in terms of CapEx per unit, you've talked about trying to bring that down. I guess there are 2 things. One is, maybe you can remind us again what that looks like. But importantly, are we going to see that in CapEx? Because restaurants spend on so much other than just the 4 walls of the restaurant. So maybe help us as we look at the cash flow statement, will we see build costs coming from, I think they were north of 7% to now in that 5.5%, the goal being 5.5%.

Yes. Our cost to build for the Class of '22 was $7 million and Class of '23 and then what we're building right now in the Class of '24 for our expectation is $6.2 million to $6.5 million build cost for those classes. But to your point, Sara, we have a new prototype restaurant of the future. We're calling it. And we're going to start building those in the fourth quarter of this year that our expectation is that that's going to bring the build cost down by about $1 million to $5.2 million to $5.5 million. So that will start showing up more in CapEx per restaurant in the future, but you are going to see some of that come online in 2024. And that was a question we got, which was, hey, your CapEx seems a little high to us in terms of the guide we put out. Well, part of that was us getting more ahead of timing, more ahead of the '25 pipeline as we start building those restaurants in 2024. But yes, the per build cost in '25 will all be in the new restaurant of the future prototype.

Can I just add something though. What's important is I think some people have misconstrued that, oh, you're going to build smaller restaurants with smaller AUVs, no. Our commitment is that those restaurants, think of it as we're rightsizing it for the way people use our restaurants today. We've worked with outside people. We've done time motion studies. We've done parking lot studies. How many spots in our parking lot are occupied? How many seats in our dining room are full from 11 to 10 p.m. from 5 to 7 p.m.? So that you can rightsized the restaurant, spruce up your off-premise capability because that's a bigger deal for a third party without giving up revenue. So our target is that these restaurants can all do $10-plus million. And we're building them to do $10-plus million, but in a lower cost, slightly smaller footprint.

Got it. Okay. And when you talked about sort of the pull forward from 2025 into 2024, the reason that, that might look different from, for example, pulling forward '24 into '23 is because of the cadence of how you're building.

Correct. We brought in a new Chief Development Officer. It's about like 18 months ago, and he's really worked hard to get the pipeline in the shape that it's in. So getting ahead of that and getting a smoother cadence versus what you saw all back-end loaded in '23, '24 looks better in terms of our opening cadence that we put out there, '25 will look even better. Our goal is we don't want to be building restaurants in November and December. And so yes, getting ahead earlier is part of that process.

And so as we think about, again, the box costs coming down and the cadence more consistent, then we might see this reduced cost per box really materialize in 2025 because you won't have as much of a difference in the pulling forward and the shifting.

Correct.

Okay. That's very helpful. And then just in sort of the last minute, I guess we have. I did want to ask about, you talked about Texas, the opportunity there, the big state. How do you think about the penetration there? How many stores you could have? And maybe also, is it the similar approach as you think about getting to 950 more broadly? Is there something unique about Texas, where maybe you can have a higher density than even you think nationally?

I think Texas is the size of the prize is bigger just because it's geographically a really big state. There's a huge population base. And when you look at the population growth times the population base, there's more people going to Texas than any other state. Texas by itself added more population by a long shot than all of the Midwestern states combined over the last decade. So that's the #1 reason in Texas. There's also a lot of growth in development. It's a lot easier. When we're building in some of the places that we are, it's part of the suburban sprawl. So there's a whole new development. So you get great position on a corner with a light in a beautiful new center backed by like an HEB in Texas, which is a great retailer or some other great anchor tenant, it's just easier. And so with population growth, with comp tailwind with traffic tailwind, easier to get into, and full potential in Texas is a really big number of restaurants. So that's why Texas was a great next state to go to. And the margin profile for us in Texas will be fantastic.

Right. Yes. So growth, good returns. It makes sense that that's where you deploying your capital. I think your shareholders are happy about that.

And I'd like to joke, we're selling beef on bread, that's worked well in Texas.

Surprisingly yes, they like the beef. Well, thank you so much for joining us. This has been very helpful to me, and I appreciate your time.

Thank you very much.

Thanks Sara.