Portillo's Inc.

Hello and thank you for standing by. Welcome to Portillo's fiscal first quarter 2022 conference call and webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there'll be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and zero. I would now like to turn the conference over to Barbara Malverini, Director of Investor Relations at Portillo's, to begin.

Thank you, Operator. Good morning, everyone, and welcome to our fiscal first quarter 2022 earnings call, which is also my first call as Portillo's new Director of Investor Relations. I'm looking forward to working with our analysts and shareholders, both current and future, and learning more about what resonates with you. With me on the call today is Michael Asanlu, President and Chief Executive Officer, and Michelle Hook, the company's Chief Financial Officer. And before we begin our formal remarks, let me remind everyone that part of today's discussion will include forward-looking statements. These statements are not guarantees of 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 press release and our SEC filings for more detailed discussions 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 the most comparable GAAP measures. Any non-GAAP financial measure 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 lines for your questions. Let me now turn the call over to Michael Osanlu, President and Chief Executive Officer.

Thank you, Barb, and welcome to the Portillos family. Barb joins us after spending over 10 years in equity research and investor relations at Morningstar. Barb's also a lifelong Chicagoan, so she's going to be a great resource to help our analysts and our shareholders better understand Portillo's and our growth journey. And what a journey it continues to be. I'm pleased with Portillo's strong top-line performance in the quarter. We grew total sales 14.6% to $134.5 million. Same restaurant sales grew 8.2%. which reflects strong demand for Portillo's, demand that comes from our continued focus on delivering a great experience and amazing food at an unbelievable value. We continue to produce healthy profitability, generating almost 21% restaurant-level EBITDA margins, which puts us in a unique class in the restaurant industry. Michelle will provide a lot more detail on our most recent quarterly results in a moment, but I'd first like to remind everyone where we're headed as a company. We're on track to grow same restaurant sales. We've got the runway to sustain long-term adjusted EBITDA growth. And more importantly, we're a growth company. We're on track for 10% annual unit growth and we're excited about it. While we may be new to the public markets, we're a 59-year-old brand with a long history of success and a solid foundation upon which we'll continue to build. Let's talk a little bit about that growth pipeline. We're proud of the in-restaurant Portillo's experience and are thrilled to see guests returning to our dining rooms this year. But we're also really excited about the direction of our off-premise business. Our first Portillo's pickup location in Joliet, Illinois, just celebrated its three-month anniversary and continues to perform above our expectations. That's despite opening in the dead of winter in Chicago. This small box footprint has managed to impress us and continues to impress. We also recently celebrated the opening of a beautiful restaurant in St. Petersburg, Florida. It's absolutely gorgeous. We used our retro diner style design, but it fits into the local environment. It's early, but we're thrilled about how this restaurant is performing and how guests in St. Pete have responded to us. Similar to Joliet, it's also performing above our underwriting expectations. We now have four restaurants in Central Florida, and will continue to build that market in 22 and beyond. We're also on track to continue growing in the Sun Belt. We're scaling operations in Arizona with another restaurant in the Phoenix suburb of Gilbert and our first entry into Tucson, both slated to open later this year. And of course, we can't wait to open in Texas at Grandscape in The Colony. That's the name of the town, The Colony. We opened that restaurant in the fourth quarter and will continue to grow in Dallas-Fort Worth in 2023. We've already identified some of our next sites, and even more importantly, we've identified the operators who will grow and build that market for us. And you may have noticed recently that we've announced openings in the Orlando suburb of Kissimmee and Sherrillville, Indiana. That will take us to seven restaurants this year, meeting our 10% commitment. I can't talk about our exciting development pipeline without sending my thanks to Sherry Abrascato, our inspiring chief development and supply chain officer who's retiring this summer after 44 years of service. Sherry started with Portillo's as a teenager and her hard work, dedication, ambition led her to the C-suite. We want all of our team members to realize that kind of success is possible here. To fill her shoes, we're actively searching for a chief development officer who will execute our rapid growth pipeline with the same unwavering commitment to our values. It's those values, family, greatness, energy, and fun, that allow us to be this confident about our growth trajectory. People are the heart of Portillo's, and we know they're the linchpin to our success. So we prioritize our team members' experience. We know that our teams are more engaged when in a fun, supportive, and efficient work environment. And you can see the proof of this in our retention statistics. Our hourly turnover rate is 20 to 30 percentage points below the current industry average. This is a reflection of the work we put into being an employer of choice. We're creating unrivaled team member experiences, treating them like family, and it's working. So how do we win in the long term beyond having beautiful, well-staffed restaurants? Today I want to highlight three main points about our resilience, both as a company and as a high-growth restaurant concept. First, we have very attractive profitability predicated on great revenue. We generated 8.3 million in AUV in the 12 months ended Q1 22. That revenue drives plus size profitability, which gives us the financial flexibility we need to continue investing for growth. Second, we focus on what we can control. As experienced restaurant operators, we're able to categorize cost pressures into those we see as transient versus those that are likely more permanent. We see commodity market volatility as a transient pressure brought on by external market shocks. Our response is to continue to limit the magnitude, duration, and timing of input cost increases through fixed price contracts. We're now covered for over half our spend throughout the rest of the year. Michelle will talk more about this. Occasionally, we do see a stair-step change in cost that signals a more permanent change. And as you know, wages in the restaurant industry are resetting to reflect the more demanding, competitive labor environment, and that's not changing anytime soon. So again, focusing on what we can control, we ensure that as a company, one, we offer our team members a compelling opportunity they can only get at Portillo's, and two, our team members are as productive as possible. In fact, we've implemented some operational efficiencies this year that have had a measurable impact. Third, we don't wait until times are tough to look for efficiencies across our business. We're an operations company, and it's our operators who oftentimes help us come up with and implement great ideas. One of the more recent developments comes from streamlining our digital ordering experience. By upgrading the user interface, guests who order through our app or website can can now customize their orders in just a few clicks. The early results show a significant upward trend in order completion, with our cart conversion rates already improved by 50%. What that means is we now have more guests who complete their orders instead of abandoning their carts. Bottom line, this translates into more digital sales, and this improvement is holding. We see this as early evidence that we've successfully reduced friction in that experience for our digital guests. And finally, as I mentioned in the past, the commitment to our Portillo's family is why our turnover continues to trend better than the industry average. At the start of the first quarter, we were still understaffed at a few locations. Now, we're very proud to say that we're back to pre-COVID staffing levels. The importance of that is that well-staffed restaurants, on average, produce higher guest satisfaction scores. We see better order accuracy speed of service, and overall satisfaction. And we know guest satisfaction scores act as a leading indicator of same restaurant sales. When you have a good experience, you'll be back. It's that simple. In March, we achieved the highest order accuracy and the highest customer satisfaction scores that we've seen in the past 24 months. This is not an accident. This has everything to do with the attention our managers and team members have been giving the overall guest experience. On last quarter's call, we talked about being an oasis for our guests. We want to be that respite, even in the face of high inflation, high gas prices, and increased concern over global volatility. We will remain that fun, welcoming place that our guests can take their family for a convenient, delicious, high-quality meal at a great price point. But I want to be clear about something. This doesn't mean we're not taking pricing. It means we're being very thoughtful and methodical about how we take pricing. While we've raised prices to counteract some of the input cost pressures we've seen, we're still mindful of preserving value for our guests. As I said earlier, we have healthy margins. We don't have to overshoot inflation to shore up our profitability. That said, when we have taken price, There's been little to no resistance or elasticity effect. We are very confident in our pricing power. At the end of the day, we're on track. We're executing the playbook we shared with you during our IPO. We're confident in our long-term growth algorithm. The restaurant industry is cyclical. It's going to have its ups and downs, but we know how to manage our business for that. With that, I'll hand it off to Michelle to share more details of the quarter.