Portillo's Inc.

Greetings and welcome to the Portillo's fourth quarter and year-end 2023 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Barbara Novrini, Portillo's Director of Investor Relations. Thank you. You may begin.

Thank you, Operator. Good morning, everyone, and welcome to our fourth quarter and full year 2023 earnings call. Our 10K earnings press release and supplemental presentation are posted at investors.portillos.com. With me on the call today is Michael Osanlu, President and Chief Executive Officer, and Michelle Hook, Chief Financial Officer. Any commentary made here about our future results and business conditions are forward-looking statements, which are based on management's current expectations and are not guarantees of future performance. We do not update these forward-looking statements unless required by law. Our 10-K identifies risk factors that may cause our actual results to vary materially from these forward-looking statements. Today's earnings call will make reference to non-GAAP financial measures which are not an alternative to gap measures. Reconciliations of these non-gap measures to their most comparable gap counterparts are included in this morning's posted materials. Finally, after we deliver our prepared remarks, we will open the lines for your questions. Now let me turn the call over to Michael Sonlu, President and Chief Executive Officer of Portillo's.

Thank you, Barb. Good morning, everyone. Thanks for joining us for our fourth quarter and full year 2023 earnings call. I'm happy to share that we had a great fourth quarter and ended the year on a high note. In the fourth quarter, total sales increased 24.5% to approximately $188 million. Same restaurant sales grew 4.4% on the back of transactions increasing 1.3%. Restaurant level adjusted EBITDA grew 42.7% to 46 million and restaurant level adjusted EBITDA margins expanded by 310 basis points to 24.3%. For fiscal year 2023, total sales increased 15.8% to approximately 680 million. Same restaurant sales grew 5.7% and we ended the year with average unit volumes of $9.1 million per restaurant. Restaurant level adjusted EBITDA grew 24.7% to $165 million. And for the full year, we expanded restaurant-level margins by 170 basis points to 24.3%. And importantly, we grew operating cash flow by 24.4% to a record level for Portillo's. Let's dive into the factors that drove the success. First, we were operationally on point. We believe the best way to drive revenue and traffic in a sustainable fashion is to give our guests the outstanding experience we're known for and they've come to expect. In the fourth quarter, we did just that. The result was strong revenue and margin performance, multi-year highs in overall guest satisfaction, and a current net promoter score of nearly 70, outperforming most of our peers. We know the play. We serve abundant delicious food at a fantastic price in an engaging environment. This is the number one way we create value for our guests and keep them coming back. In Q4, we flexed our multi-channel muscle extremely well. We excelled in dine-in, our drive-throughs were humming, pickup and delivery orders were flying off the shelves, and we did a great job growing our catering business. For example, in 2023, we invested in dedicated catering resources, such as a new concierge service to provide our guests with a high touch ordering experience. We also strengthened our ability to handle large scale catering events. For example, we served holiday meals to the frontline workers of a major airline in both Chicago and Arizona. The overarching theme there is that these investments are driving strong catering sales and will help us to continue to grow this channel. Today, catering represents only about 5% of our overall revenue. We know it can be more. We're excited about the opportunities to grow this channel by marketing additional catering occasions and expanding this channel across our new markets. So speaking of marketing, in the lead up to the holiday season, we ran an advertising campaign in Chicago that brought the sights, smells, and sounds of Portillo's to the forefront. Instead of using discounting to drive traffic, we simply reminded fans in our largest market why they love Portillo's. If you haven't seen our ads, we have one linked on our investor relations website, and you can see for yourself how a simple message like this can work as a traffic driver. And as we move forward in the new year, we're going to continue to leverage traffic driving tools and initiatives. One that I'm excited to share is that we'll be adding two new salads to our permanent menu soon. As you know, we take menu innovation very seriously at Portillo's. We don't just add items to add. They have to fill a gap in the menu, make sense operationally, and most importantly, be utterly craveable. Portillo's already generates more than $650,000 in salad sales per restaurant per year, with our beloved chopped salad as the best seller. Based on consumer and competitive data, we know we've got space to add more variety to this already craveable menu category. So we created a spicy chicken version of our signature chopped salad. We've also tested a chicken pecan salad with a new honey peppercorn dressing. Like all of our salads, these are also made fresh to order, and you can customize all the ingredients however you want. Both test salads are selling really well, and we look forward to rolling them out system-wide soon. Now let's pivot to development. In 2023, we opened 12 restaurants, including six in the fourth quarter. That 12 includes eight planned 2023 restaurants, as well as the four carryovers from the prior year. This is the most we've opened in a single year, and I'm excited for what this means and what we can do in the future. We've already got a lot of momentum heading into 2024, and you can expect it to be another strong year of growth for us. We've committed to at least nine new restaurants in 2024 pipeline, five of which are already under construction. And by the way, we self-fund all of this growth. Our new restaurants generate cash flow immediately, and we put all that cash right back into the business to fund further expansion. Now, as for unit economics, I've been told that everyone is sick of me bragging about the Colony Restaurant in Texas. So let's talk about some of the other stars of the Class of 2023. I'm extremely happy with the results coming out of our growth markets in particular. Fort Worth, Texas and Claremont, Florida have both opened strong out of the gate and especially impressive with our new efficient kitchen layout. We also opened our second pickup location in Rosemont, Illinois. We continue to learn a lot from this model, and we're excited about its potential for Portillo's as we continue to grow. Remember that this model has everything except a dine-in capability, so it's essentially a drive-through. We delivered a strong finish for the class of 2023, and we're looking forward to entering the Houston market in 2024. All told, we're really happy with the quarter and how the year ended. we executed on the fundamentals of our business and invested incrementally to drive brand awareness. In 2024, we will continue to flex traffic driving tools, driving success first and foremost by being operationally sound and protecting our value proposition. We're just building on the factors that have made Portillo's great for 60 years. We continue to execute against our playbook, providing a great experience and great food at a great price point, is our not-so-secret sauce. It's how we drive the kind of financial results you saw from us in 2023. With that, let me hand it over to Michelle.