Portillo's Inc.

Greetings and welcome to Portillo's second quarter 2025 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, Chris Brannan, Vice President of Investor Relations. Thank you, sir. You may begin.

Thanks, Operator, and good morning, everyone, and welcome to our second quarter 2025 earnings call, my first since joining this outstanding team and exciting investor story. With me on this call today is Michael Osanlu, President and Chief Executive Officer, and Michelle Hook, Chief Financial Officer. You can find our 10Q earnings press release and supplemental presentation on investors.portillos.com. 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 be happy to take questions from our covering Southside analysts. And with that, I will turn the call over to our President and Chief Executive Officer, Michael Osamu. Thanks, Chris, and good morning, everyone.

Before we begin today's call, I want to take a moment to address what has been a very difficult few days for the Portillo's family. As you may have seen in the news, the front entrance of our restaurant in Oswego, Illinois was the site of a tragic car accident. We pride ourselves in being a special part of the local communities we serve. And right now, we are deeply hurting for the entire Oswego community and the families affected. We stand with them during this difficult time and will continue to offer our support in any way we can. With that, I'll now turn today's call to our second quarter results. I'd first like to thank our dedicated restaurant team members, managers, and company leaders. Their hard work in a still challenging economic environment continues to allow us to bring the Portillo's experience to life for our guests every day. This is the foundation for our future growth. We continue to manage the flow-through elements of our business effectively in the second quarter, delivering restaurant-level adjusted EBITDA of $44.5 million with a margin of 23.6%. While there are bright spots, we know we have areas to improve within our overall performance. Specifically, our non-comp restaurants in Texas have gotten off to a slower start and continue to pressure overall top-line revenue performance. We remain focused on building awareness and driving transactions while staying true to what makes Portillo special, our craveable, high-quality food and one-of-a-kind guest experience. At the same time, we're playing offense. We're testing new ideas, growing our loyalty in tech platforms, and reducing build costs, all in pursuit of industry-leading unit economics. I'm proud of the progress we're making and confident these actions will drive sustained growth, and long-term shareholder value. We had an active start to the second quarter with two strong initiatives. First, we celebrated Italian Beef Month in May with a buy one, get one offer for our Portillo's Perks loyalty members. Then in a moment of perfect timing, the Vatican named a Chicago native as the new Pope. Our team acted quickly, launching the Leo, a nod to the new Pope Leo the 14th, with a version of our Signature Italian beef sandwich. It was a great example of our company's agility and nimbleness to jump on a cultural moment creatively and with speed. We're proud of that ability, and that's a competitive advantage for Portillo's versus the rest. Both initiatives drove meaningful engagement and positive transactions in May, giving us valuable insights on how we use perks as a promotional and customer acquisition tool. As anticipated, we saw performance level off some in June. While transactions were negative 1.4% for the quarter, we did deliver 170 basis point sequential improvement in transactions over Q1. It's a step forward. And we're encouraged by the early traction from actions designed to strengthen traffic, as well as our favorable management of margins in Q2. We remain committed to overcoming near-term industry traffic pressures and are focused on our four key initiatives. First, multichannel marketing. Our ongoing campaigns in key markets like Phoenix and Dallas led to sales lifts in both markets. Second, continuous operational improvement, especially within speed and hospitality. For example, our AI-powered drive-through technology is getting strong feedback from operators for real-time execution and training benefits. We're actively expanding that test now. Third, kiosk adoption. In-restaurant usage now exceeds 33% with clear benefits to average check and mix. And fourth, evolving Portillo's perks. Now with over 1.9 million members and counting. our May performance highlighted its growing power as a nimble, scalable platform for guest engagement, acquisition, and retention. These four initiatives are building a stronger foundation for transaction growth now and in the future. Shifting to restaurant development, we remain on track to open 12 restaurants in the back half of 2025, and our build cost reduction plan is delivering results. tracking in the range of our projected net cost average of 5.2 to 5.5 million per restaurant. This represents well over $1 million in per restaurant build cost savings versus our class of 2024 openings. We just opened our third Restaurant of the Future 1.0 with two more to follow next week and are encouraged by what we're seeing. The combination of build cost reduction and operational efficiencies gives us even more confidence in our 2.0 restaurant design. This next iteration, which will debut in the back half of 2026, will reduce build costs further, streamline labor, and unlock incremental site opportunities due to a more consolidated design. I'm really excited about our Class of 2026 pipeline. It's the most diverse lineup of formats in Portillo's history, including multiple 2.0s, and a great mix of new prototypes. Progress on new formats is equally encouraging. Later this week, we'll open our first in-line restaurant in the villages in Florida, followed by our debut airport restaurant at Dallas-Fort Worth Airport in 2026. We believe these in-line and non-traditional format restaurants could play a meaningful part of our development future. As we grow, we're continuing to refine our new market playbook. We saw early traction in Dallas, and Houston has been a little bit slower to ramp up. In hindsight, we probably overcorrected at times in Texas to manage volumes and maintain service. We've since learned the importance of sustained marketing investment and have beefed up our efforts to accelerate awareness and drive revenue in Texas, which includes multi-channel campaigns and new local field marketers on the ground. to lead grassroots efforts. Every market is different, but we're learning quickly and adapting to build a more scalable, consistent approach for new market entries. Atlanta is our next big opportunity this fall, and we look forward to sharing those updates next quarter. At Portillo's, there are some non-negotiables, craveable, made-to-order food, and fast, friendly service. If we do these two things well, we will drive exceptional value for our guests while building restaurants that deliver industry-leading unit economics. In the restaurant business, growth follows strong four-wall returns. Our AUV strength, coupled with our expedited efforts to reduce build costs, positions us to deliver top-tier cash-on-cash returns across diverse formats, geography, and stages of market maturity. To level set, we know we're a bit of a show-me story within the investment community. It's an opportunity that we actually embrace. We're putting the right energy, investments, and resources into what matters most, improving transactions, driving consistent new market performance, strengthening unit economics that support growth, and continuously evolving our strategy without losing what makes Portillo's one of a kind. I believe in the work we're doing, the strength of our team, and in our ability to create a long-term value for both our guests and our shareholders. With that, I'll hand it over to Michelle.