Portillo's Inc.

Hello, and thank you for standing by. Welcome to the Fiscal Second Quarter 2024 Conference Call and Webcast. I would now like to turn the call over to Barbara Noverini, Director of Investor Relations at Portolos, to begin.

Thank you, Operator. Good morning, everyone, and welcome to our Fiscal Second Quarter 2024 Earnings Call. You can find our 10Q earnings press release and supplemental presentation on 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. 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 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 Asanlu, President and Chief Executive Officer of Portillo's.

Thank you, Barb. And good morning, everyone. Thanks for joining us on our second quarter 2024 earnings call. Let me start by saying that second quarter results fell short of my expectations. Although we did see some top and bottom line improvement compared to Q1, we definitely have room for improvement. There's still work to be done. In the second quarter, we grew total sales 7.5% with a comp of negative 0.6%. We did manage restaurant level margins to a healthy 24.5%. It was encouraging to see sequential improvement in all three of these metrics in Q2. But in this macroeconomic environment, it's an undeniable headwind on traffic and mix. And that is why we must maintain sharp focus on the factors within our control. Based on the first half of the year, we now expect to deliver flat to slightly positive comp versus our low single digit projection earlier in the year. We will still generate 23 to 24% restaurant level margins. And I am excited to announce that we now expect to open at least 10 restaurants in fiscal 2024. This 10th restaurant will boost our unit growth percentage close to 12% for 2024, ahead of the 10 plus percent we communicated at development day in September. And more importantly, we'll open this restaurant while reducing total cap backs for the year. Michelle will talk more about this in her section. Before I hand things over to her, let me benchmark our recent progress against the four strategic pillars we revealed last quarter. These pillars are one, running world-class operations. Two, innovating and amplifying the Portillo's experience. Three, building restaurants with industry-leading returns. And four, taking great care of our teams. These pillars sit on a foundation of strong culture and help us deliver on our commitments. So let's dive into some of the specifics. First, I'll reiterate that running world-class operations is the single most important tool we have to drive sales and transactions. When guests taste our food and have a great experience, they recognize the value in our brand and they return over and over again. In Q2, we took a hard look at our drive-through experience. Portillo's drive-through channel is the heartbeat of our operation and a key element of our value proposition. A team member comes to your car, they curate your order, and they ensure you're served quickly. We know that convenience and consistency in the drive-through leads to industry-leading AUVs. Since our recent leadership change, I've been closely observing and participating in our operations across our system. I've concluded that our processes for measuring success relied on too many metrics that took our GM's focus away from the guest experience. We've realigned our GMs to focus on the factors that matter to drive transactions and sales. We need to refocus on training our team members for the speed and sense of urgency that we're known for, especially in our drive-throughs. We're already seeing signs of progress. I'm happy to share that year to date, our drive-through speed has actually improved by 15 seconds versus the same time period last year. We're still working to get back to 2019 levels, but with the right focus, we're seeing improvement. Our second pillar is centered on innovating and amplifying the Portillo's experience through digital engagement, marketing efforts, and menu innovation. I'm pleased to announce that last week we launched our first kiosk prototype in one of our suburban Chicago locations. We studied best practices across the restaurant industry, to pinpoint how kiosks can enhance the Portillo's guest experience. We're especially excited about helping guests visually explore our menu. Love the idea of using images to suggest entrees and add-ons that appeal to various consumer types. And in Q3, we plan to install kiosks in our flagship downtown Chicago location, followed by two more restaurants in California. We look forward to updating you on this initiative in future quarters. If you've been in the Chicago area recently, you may have seen some of our TV commercials or billboards. This is ramping up to a full relaunch of our advertising efforts in Chicagoland. Our comprehensive advertising campaign kicks off later this month to coincide with the start of the NFL season. The focus is simple and straightforward, just highlighting what we're known for, delicious, craveable food. It's hard not to feel hungry, when you see Portillo's in the campaign, and we're confident this will drive guests in, much like it did in the fourth quarter of 2023. Our third strategic pillar is building restaurants with industry-leading returns. I'm really excited about the progress we've made on this front. It took us less than two years to conceptualize, test, and build a 6,300 square foot prototype. The 1,500 square foot reduction significantly reduces our build costs. To be clear, that's a 20% reduction in our square footage without constraining our capacity to deliver industry-leading AUVs. We will have three restaurants in Texas with this footprint by the end of the year. Our final strategic pillar is taking great care of our teams. We continue to invest in our training programs and our leadership development program, IGNITE, to prepare our teams for accelerated growth. We maintain very high retention rates by treating our people well. This past quarter, for example, we made a concerted effort to launch and highlight some programs available to team members across the company. We launched the Strive for Greatness scholarship program to increase access to higher education. We also implemented a comprehensive employee assistance program that provides a wide range of support benefits including mental health, financial planning resources, and legal services. This holistic approach ensures we meet the needs of more than 8,000 dedicated team members. When we take care of them, they take care of our guests, ultimately creating value for our shareholders.