Portillo's Inc.

Hello, and thank you for standing by. Welcome to the Fiscal Fourth Quarter 2021 Conference Call and Webcast for Portillo's Incorporated. I would now like to turn the call over to Mr. Fitzhugh Taylor, Managing Director at ICR, to begin.

Thank you, Rob. Good morning and welcome, everyone. With me on today's call is Michael Osanlu, Portillo's President and Chief Executive Officer, and Michelle Hook, the company's Chief Financial Officer. Before we begin our formal remarks, let me remind you that our Part of our discussions today will include forward-looking statements. These statements do not guarantee the future performance and should not be unduly relied upon. We do not undertake to update these forward-looking statements unless required by law and refer you to today's earnings release and our SEC filings for a more detailed discussion of the risks that could impact Portillo's future operating results and financial condition. Our remarks also include non-GAAP financial measures such as adjusted EBITDA and restaurant level adjusted EBITDA. We direct you to our earnings release issued this morning, which is available on our website, for the reconciliations of these non-GAAP measures to their most comparable GAAP measures. Any non-GAAP financial measures should not be considered as an alternative to GAAP measures, such as net income or operating income, or any other GAAP measure of our liquidity or financial performance. Finally, after we deliver our prepared remarks, we will open the line for your questions. Let me now turn the call over to Michael Sanlu, President and Chief Executive Officer of Portillo's. Michael.

Thank you, Fitzhugh, and good morning, everyone. We appreciate you taking the time to join us on our year-end earnings call. 2021 was a milestone year for Portillo's. We're thrilled with the completion of our IPO and the investor reception that we received, and we're very proud of how we ended the year. I'm happy to share that Portillo's posted strong top and bottom line growth in the fourth quarter of resulting in a successful fiscal year for us. We grew total sales 17.5% or $79.5 million, and we grew restaurant level EBITDA 16.5% or $20.1 million. Michelle will give you a lot more detail on the numbers, but I wanted to highlight our great results for the year. We added five new restaurants in 2021, all of which opened well staffed and have performed at or above our expectations. This included our first entry into Michigan, as well as our first restaurant in the Orlando market, both places that we're going to continue to fill out in the near term as we expand. Portillo's recognized this success despite the volatility the restaurant industry faced all through 21. Our multi-channel model proved, yet again, to be a competitive strength. Even in the face of the great resignation, continuing COVID restrictions, and ever-changing commodities costs, we continued to perform. This is reflective of our dedication to delivering an unrivaled experience to our guests through our unbelievable team members. We regularly say that people are the heart of Portillo's and I'm so grateful to our team members who through all these challenges have embraced our purpose and lived our values of family, greatness, energy, and fun. Now the fourth quarter is always big for Portillo's and it was again this year. We have so many loyal fans that make Portillo's part of their holiday celebrations and their gatherings. This remained true and we saw heavy catering sales over the holidays. Still, Omicron did impact us, both from a sales and staffing perspective. We saw a greater number of cancellations and an increased number of team members out because of COVID. Despite that, we had a very strong fourth quarter and closed the year out well. We delivered against all of our growth commitments. We're very happy with our recent performance, but what's even more exciting is our future. We have one of the best teams in the restaurant industry, all of whom are dedicated to delivering greatness on every front. We're committed to our Portillo's family. Staffing continues to be a challenge for the industry, but we believe in taking care of our team members, who in turn take great care of our guests. Not only do we offer competitive pay, we invested another $12 million last year to have a total rewards package that includes shift meals, extra pay on key holidays, flexible scheduling, and a more affordable healthcare program. We offer an experience unlike any other, and our team members clearly agree. About a quarter of our new Portillo team members come to us through internal referrals. We provide a full spectrum of training and leadership development opportunities for those team members. First, we've implemented new training materials offering a blended approach to learning that includes both hands-on activities as well as e-learning modules. This is the way people want to learn today. Second, we've launched a leadership development program we call Ignite. It emphasizes leadership training for our team members who want to take the next step in their career with Portillo's. This includes skills like leading change, having difficult conversations, building relationships, things that our team is going to use throughout their entire career. What we found is that this dedication to their growth keeps team members with us. And we've seen an internal management promotion rate of over 80%, a metric that we're extremely proud to share. While many restaurant brands have had to close doors or rope off tables because of staffing, our doors have remained open. We've also invested in making technological improvements, but they have to be real changes and upgrades that positively impact the guest or team member experience. For example, we rolled out a new version of our POS system that's easier for our team members to use. It increases throughput and reduces training time for new hires. Traditionally, we had three different systems for order taking. One inside, one in the drive-through, and then a handwritten process for line busting when the lines get long. Our new system is the same throughout the restaurant. So we only need to train a team member once to be able to take orders anywhere. When it comes to our food, our culinary approach is to have an ownable, veto-proof menu. And that means we scrutinize anything we add to the menu. It needs to be a significant improvement over existing items. It has to add meaningful traffic, and it has to reduce operational complexity. Now, that's a very high bar. But one of our most successful new items ever was the spicy chicken sandwich that we launched last year. It was a massive win that met all of our criteria. First, it tested off the chart with our consumers. Our guests simply love it. Second, it's been incremental to our business. And third, it's operationally very simple to execute. On top of being a delicious sandwich, we've gotten a lot of buzz for it with our guests. We use world-class digital marketing that was clever and witty and cost-effective. And if you haven't seen any of our spicy chicken marketing, please check it out. Just Google Portillo's spicy chicken. Innovation also extends within our restaurants themselves. Not only have we identified ways to reduce the size of our back of house without impacting operations, but we've also implemented a third drive-through lane as a way to offer increased convenience to the growing number of guests who choose a digital ordering experience. Our drive-thru is already one of the most efficient in the business. Now this dedicated third lane draws consumers to our direct ordering channels, our website, and our app, by offering a rapid pickup option for guests who use those channels. We first launched it in West Madison, Wisconsin, and it's also in place in Joliet, Illinois, at our first off-premise only restaurant, which we call Portillo's Pickup. We're super excited by the early results of this Portillo's Pickup prototype. It opened on February 1st. It's a fraction of the size of our typical restaurant, and it's still serving an unbelievable amount of food for drive-through, takeout, third-party delivery, and catering. Due to the smaller size and format, this new model has the potential to unlock whole new real estate options for us and help infill existing markets to better serve our guests however and whenever they want to get their portillos. Importantly, we're confident in our ability to deliver sustainable and profitable growth. With new restaurants opened successfully in Indiana and Wisconsin in the fourth quarter and the recent opening of Joliet in February, we are now at 70 restaurants and we're not slowing down. Our second restaurant for 2022 is scheduled to open in St. Petersburg, Florida in early April. And then next, we look forward to opening an additional five restaurants in the third and fourth quarters, We'll continue to build scale in existing markets as well as the growing Sunbelt. Now, I'm sure you saw our recent announcement around our first Texas restaurant. It's located in the Grandscape Complex in the colony on the north side of Dallas. This restaurant's going to be a showstopper. It is our garage-style theme with a Texas twist, and importantly, it's going to be a place where our Texas guests will get the true Portillo's experience. I'm confident this restaurant will be a home run for us and paved the way for future growth in Texas. For each one of our new restaurant openings, we have a very prescriptive hiring strategy that allows us to find values-driven team members who then in turn deliver the Portillo's experience for our guests. The hiring environment we create and the great frontline leadership we develop enable us to hire over 100 team members for our Joliet restaurants And we're currently at over 120 hires for St. Petersburg already. This gives us tremendous confidence that we can find staff for all of our new restaurants with amazing values-based team members. We're also really conscious of the cost environment right now, including labor costs, food costs, distribution, energy, and build costs. We don't have a set date that we take price, but we stay flexible. We look at cost and pricing daily to evaluate our menu and our competitive position. Yet our strategy is to be a price laggard. We intentionally price below inflation, and we haven't priced as aggressively as many other restaurant brands. And that's because we believe in offering strong value to our guests. In times of economic uncertainty, we know people are seeing prices increase all around them. We want to be a respite from that. a comforting place where people don't have to think about that. We want them to come, have a beef sandwich, and a great experience leaving those stressors at the door. That's our priority. As we continue on the path of a new public company, we're excited about the future. There's a lot happening for Portillo's in 2022, and we're only just getting started. So with that, I'm going to hand it off to Michelle to share more details of the quarter and our expectations moving forward.