Portillo's Inc.

Greetings and welcome to the Portillo's first quarter 2024 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 Novarini, Portillo's Head of Investor Relations. Thank you. You may begin.

Thank you, Operator. Good morning, everyone, and welcome to our first quarter 2024 earnings call. Our 10Q earnings press release and supplemental presentation are posted at investors.portillos.com. With me on the call today is Michael Asanlu, 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. R10Q 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 GAAP measures. Reconciliations of these non-GAAP measures to their most comparable GAAP 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 Osanlou, President and Chief Executive Officer of Portillo's.

Thank you, Barb, and good morning, everyone. Thank you for joining us for our first quarter 2024 earnings call. It's an exciting time at Portillo's. During the first quarter, we opened our fifth restaurant in the Dallas market, and then just a few days ago, we opened our seventh restaurant in the Phoenix, Scottsdale area. We're happy with how quickly we're building scale in the Sun Belt, where there continues to be plenty of room for us to grow. Now, in the first quarter, we grew total sales 6.3% and achieved restaurant-level margins of 21.9%. Our comp was negative 1.2%, as we got off to a slow start due to some miserable weather across the Midwest. And please recall, we have 69 restaurants in the CompBase, and 60 of them are still in the Midwest. This means the majority of our CompBase felt the impact of that cold snap. That said, we've seen top line trends improve going into the second quarter. So far, in April, our efforts have mitigated transaction declines and comp has settled back into the positive low single digits. For the full year of 2024, we're still confident in our ability to deliver low single digit comp, 23 to 24% restaurant level margins, and open at least nine new restaurants. Before Michelle reviews our Q1 performance, I'd like to take a moment to share with you our strategy. Our strategy is predicated on four pillars that provide guideposts for near-term goals and serve as the foundation for quality long-term growth. You can see a graphic of our strategy in the earning supplemental. The four pillars are first, running world-class operations. Second, innovating and amplifying the Portillo's experience. Third, building restaurants with industry-leading returns. And fourth, taking great care of our teams. And of course, our pillars sit on the foundation of a winning culture. In 2024, we've committed to prioritizing sales and transaction growth. So let's dive into some of the specifics on how each pillar will support our goals in 2024. First, running world-class operations is the single most important tool we have to drive sales. It is the core element of our business that's totally under our control, and it gives us the right to grow. Guests who enjoy the taste of our food and have a great experience see the value in our brand and come back time and time again. Those visits may not look the same each time. Whether they want to dine in with their kids, zip through our drive-thrus, enjoy Portillo's at home, or cater for a big event, our strong multi-channel muscle remains a competitive advantage that drives guest engagement and traffic. In 2024, we're specifically focused on improving the drive-through experience. We're already known for our double-lane drive-throughs and friendly order takers, but speed really matters. Throughput matters. Our overall satisfaction scores in the drive-through have been good, but our service has slowed down a bit, and we know we can do better. A 30-second improvement in our drive-through speed equates to a point of calm. So we continue to double down on speed of service by empowering our restaurant leaders with tools and coaching to give real-time feedback based on those key metrics at critical time points during the day. Our second pillar is centered on innovating and amplifying the Portillo's experience through menu innovation, marketing efforts, and digital engagement. Each of these avenues raises brand awareness and reaches guests through the consumer landscape. At the end of Q1, we tested a spicy chicken chopped salad and a chicken pecan salad. We were so pleased with the initial feedback from the test of these fresh, new salads that we accelerated their launch by a month, a testament to our nimbleness as an organization. And already, sales of these new salads are the highest of any of our new menu launches over the last five years, and that's without the full marketing campaign behind it. Starting this month, you'll see our Mix It Up marketing campaign on digital channels highlighting the freshness of all of our house-made ready-to-order salads. They've also had a positive impact on mix by displacing lower margin items. Simply put, these salads are a win. They are clearly delicious, they add menu variety that appeals to a range of demographics, and they make Portillo's even more veto-proof. At the end of Q1, we also made a small investment in some traditional advertising to amplify brand awareness in Arizona, really the only other market outside of Chicago where we have some scale. We've seen early signs of transaction improvement in this region in conjunction with that campaign. Given that success and the success in general of our advertising, we're planning on another round of advertising in Chicagoland in the third quarter. We'll also continue to innovate our digital advertising approach. In Q2, we increased our advertising on third-party delivery sites outside of Chicagoland to generate trial and raise brand awareness. This is a proven tactic and we'll be doing more of it as we assimilate in new markets. Technology will also continue to play a role in amplifying the Portillo's brand. I'm excited to share that Keith Correa has joined Portillo's as our new Chief Information Officer. A longtime restaurant industry executive, Keith will continue to advance the Portillo's team member and the guest experiences. Under Keith's leadership, we're embracing technology as a business driver in ways that create impact and value at Portillo's. Our IT team is actively partnering with stakeholders throughout the business to identify opportunities for optimization and innovation And in particular, we're looking at how to improve our digital ordering experience through our app, and we're planning our first testing of kiosks in California that will enhance our signature guest experience. Our third strategic pillar is building restaurants with industry-leading returns. We're focused on maintaining our industry-leading AUVs while optimizing our footprint and lowering our build costs. We're also looking to scale in new markets quickly as we lean on replicable development processes. We're on track to open our first Restaurant of the Future in Texas in Q4. And as a reminder, the Restaurant of the Future is a smaller format prototype with some built-in efficiencies. The early contractor bids suggest that we're well within the estimated build cost range of 5.2 to 5.5 million. And remember, this saves at least $1 million on each new restaurant of the future build. Puts us in a very enviable position when it comes to cash on cash returns. Now importantly, even with a 1,500 square foot reduction, these restaurants will still look and feel like a Portillo's. They will have local personality. They will be led by an experienced GM, And most importantly, we expect them to still produce the same industry-leading AUVs of all our other restaurants. We have a few restaurants of the future coming online this year, and we're really excited to see what they do. We've built a tremendous development pipeline, and we feel confident in our ability to continue to expand at a faster pace than we have in previous years. We know Portillo's has a long runway for continued growth. Our final strategic pillar, and maybe our most important one, is taking great care of our teams. It wouldn't be possible to serve our fresh, amazing food or create memorable guest experiences without our team members. We're proud of our industry-leading team member retention, which averaged about 20 percentage points better than the rest. We're focused on providing a meaningful work environment, pay and benefits that matter to the team member, and a clear pathway for professional development. We're especially proud of our Ignite development program that's been totally built in-house. As you know, a critical component of new restaurant success is having an experienced general manager. I'm proud to share that because of Ignite, we have a deep leadership bench. We have identified experienced GMs for all of our 2024 pipeline, as well as most of the 2025 pipeline already. Nearly all of those GMs are Ignite graduates. confident than ever in the talent pipeline we have built to support our growth. And beyond the general manager level, we have team members across this organization who see the potential for long-term careers with Portillo's. In the first quarter of 2024, we promoted 64 team members who went through the Ignite program, continuing to develop that in-house talent. We're thrilled with how many folks raised their hands and want to be a part of Portillo's growth. They can envision the exciting future for us, and they want to be part of it. It's our team members who create the Portillo's experience that keeps our guests coming back, and we're focused on making sure that's what we deliver. With that, let me hand it over to Michelle.