Portillo's (PTLO) Stock Trades Down, Here Is Why

What Happened:

Shares of casual restaurant chain Portillo’s (NASDAQ:PTLO) fell 13% in the pre-market session after the company reported first-quarter results with revenue and adjusted EBITDA missing analysts' expectations. The top line benefited from opening new restaurants, partially offset by a decline in same-restaurant sales. The company experienced commodity price inflation, which likely impacted input costs. To offset some of these inflationary pressures, PTLO increased somemenu prices by approximately 1.5% in January, 2024 and at the end of March 2024. Overall, it was a challenging quarter for the company.

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What is the market telling us:

Portillo's's shares are somewhat volatile and over the last year have had 11 moves greater than 5%. But moves this big are very rare even for Portillo's and that is indicating to us that this news had a significant impact on the market's perception of the business.

The biggest move we wrote about over the last year was 2 months ago, when the stock gained 17.3% on the news that the company reported fourth-quarter results, which blew past analysts' EPS expectations. Its revenue, gross margin, and EBITDA also outperformed Wall Street's estimates during the quarter. The main driver behind the company's outperformance was better-than-expected same-store sales growth (4.4% vs estimates of 3.5%). It also opened 6 new restaurants during the quarter (12 for all of 2023) in Illinois, Texas, and Florida. Earlier in the year, the company opened some locations in Arizona. For 2024, the company estimates commodity and wage inflation to be in the mid-single digits. It will seek to offset these headwinds by raising the price of certain menu items by 1.5%. Furthermore, it plans to open at least 9 new restaurants in 2024 and stated its long-term goal of 12-15% annual increases in restaurant locations. Its near-term focus will be on the Sunbelt region and areas near its hometown of Chicago. Zooming out, this was an impressive quarter that should delight shareholders.

Portillo's is down 29.8% since the beginning of the year, and at $10.98 per share it is trading 53.8% below its 52-week high of $23.77 from July 2023. Investors who bought $1,000 worth of Portillo's's shares at the IPO in October 2021 would now be looking at an investment worth $376.98.

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