Portillo's Inc. PTLO is likely to benefit from technology adoption, real estate optimization and advertising campaigns. However, soft comps and elevated expenses are a concern.
Growth Catalysts for PTLO Stock
Portillo's has effectively leveraged technology to enhance the customer experience. The rollout of kiosks across all its restaurants has shown early signs of success, with increased ticket sizes driven by higher attach rates for add ons. This frictionless ordering process is expected to yield measurable benefits in 2025, further solidifying the brand's operational efficiency.
The company’s expansion strategy remains robust, with the opening of its first Houston restaurant receiving strong customer reception. PTLO plans to increase its restaurant count by 12-15% in 2025, supported by a refined prototype that reduces construction costs while maintaining customer appeal.
Portillo's has resisted engaging in industry-wide price wars, focusing instead on delivering consistent value. This strategic decision, coupled with targeted advertising campaigns, positions the company to benefit in the medium and long term.
The company emphasizes advertising efforts in new markets like Dallas-Fort Worth to boost traffic and brand recognition, reinforcing Portillo’s foothold in emerging regions.
Concerns for Portillo's Stock
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Shares of Portillo's have declined 25.7% in the past three months compared with the industry’s 1.2% fall. The downside can be attributed to weak comparable sales and rising costs.
Portillo’s reported a 0.9% decline in same-restaurant sales in the third quarter of 2024, driven by a 3.5% drop in transactions. The dip reflects increasing difficulty in attracting customers amid fierce competition in the fast-casual and quick-service restaurant sectors. The company’s decision to avoid aggressive discounting strategies, while prudent in the long term, has made it vulnerable in the short run as rivals attract budget-conscious diners with promotions. For the full year, Portillo’s expects negative comparable sales of approximately 1%, further highlighting its near-term struggles.
The company has been bearing the brunt of high expenses for some time. During the third quarter, the company’s food, beverage and packaging costs (as a percentage of revenues) increased to 33.7% compared with 33.3% in the prior year period. This increase was primarily due to a 3.6% increase in commodity prices. Labor costs (as a percentage of revenues) increased 30 basis points year over year to 25.8%. For 2024, the company expects labor inflation at 3% and commodity inflation in the mid-single digits.
Our Thoughts
While Portillo's faces short-term headwinds, its technology-driven initiatives, expansion strategy and focus on brand value position the company for sustained growth in the long term. Investors with a focus on steady, value-oriented strategies may find PTLO stock worth retaining, as its operational improvements and market penetration efforts could unlock significant upside in the future.
PTLO’s Zacks Rank & Key Picks
Portillo's currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Zacks Retail-Wholesale sector have been discussed below.
Chipotle Mexican Grill, Inc. CMG presently carries a Zacks Rank #2 (Buy). CMG has a trailing four-quarter earnings surprise of 9.8%, on average. The stock has surged 34.8% in the past year. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.
The consensus estimate for CMG’s 2025 sales and earnings per share (EPS) indicates growth of 12.8% and 17.9%, respectively, from the year-ago period’s levels.
Brinker International, Inc. EAT presently carries a Zacks Rank #2. EAT has a trailing four-quarter earnings surprise of 12.1%, on average. The stock has surged 222.5% in the past year.
The consensus estimate for EAT’s fiscal 2025 sales and EPS indicates growth of 9.3% and 44.2%, respectively, from the year-ago period’s levels.
Shake Shack Inc. SHAK currently carries a Zacks Rank of 2. SHAK has a trailing four-quarter earnings surprise of 18.3%, on average. The stock has gained 89.6% in the past year.
The Zacks Consensus Estimate for SHAK’s 2025 sales and EPS indicates a rise of 14.7% and 42%, respectively, from the year-ago period’s levels.
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Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
Brinker International, Inc. (EAT) : Free Stock Analysis Report
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Portillo's Inc. (PTLO) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
