Q1 2025 Portillo's Inc Earnings Call

Speaker Change: [music].

Operator: Hello and thank you for standing by. Welcome to the fiscal first quarter 2025 Portillo's conference call and webcast.

Hello, and thank you for standing by and welcome to the fiscal first quarter 2025 for today's conference call and webcast I would now like to turn the call over to Kyle Nelson Vice President Investor Relations at Portola is to begin. Please go ahead.

Kyle Nelson: I would now like to turn the call over to Kyle Nelson, Vice President Investor Relations at Portillo's to begin. Please go ahead. Thank you, operator. Good morning, everyone, and welcome to our fiscal first quarter 2025 earnings call. You can find our 10-Q earnings press release and supplemental presentation on investors.portillos.com.

Speaker Change: Thank you operator, good morning, everyone and welcome to our fiscal first quarter 2025 earnings call. You can find our 10-Q earnings press release and supplemental presentation on investors stopped Portillo Dot com with me on the call today is Michael assignment, President and Chief Executive Officer, and Michelle Hook Chief Financial Officer.

Kyle Nelson: With me on the call today is Michael Osanloo, 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.

Speaker Change: 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.

Speaker Change: We do not update these forward looking statements unless required by law or 10-K identifies risk factors that may cause our actual results to vary materially from these forward looking statements.

Kyle Nelson: 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.

Speaker Change: 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.

Kyle Nelson: Finally, after we deliver our prepared remarks, we will open the lines for your questions.

Speaker Change: Finally, after we deliver our prepared remarks, we will open the lines for your questions now, let me turn the call over to Mike Goldstein, Lu President and Chief Executive Officer of Port tell us.

Michael Osanloo: Now let me turn the call over to Michael Osanloo, President and Chief Executive Officer of Portillo's. Thank you, Kyle. Good morning, everyone. Thank you for joining us today. Before we get into the results, I want to first thank our dedicated team members. Their hard work and commitment to the Portillo's experience is what keeps us moving forward, no matter the challenge.

Thank you Kyle good morning, everyone. Thank you for joining us today.

Speaker Change: Before we get into the results I want to first thank our dedicated team members and their hard work and commitment to the port Chillers experience is what keeps us moving forward no matter the challenges.

Michael Osanloo: Our first quarter was similar to most others in the restaurant industry. We started strong in January, then we faced some weather challenges in February. In March, we rebounded. Same restaurant sales increased 1.8% with total revenue reaching $176.4 million for the quarter. Restaurant-level adjusted EBITDA for Q1 was $36.7 million, with a margin of 20.8%. Despite declining consumer confidence, bad weather, and on-again, off-again tariffs, we performed well. Guests are still choosing Portillo's, and we've supported our restaurants with initiatives like the launch of our loyalty program, called Portillo's Perks, and our Dallas-Fort Worth advertising campaign.

Speaker Change: Our first quarter was similar to most others in the restaurant industry. We started strong in January and we face some weather challenges in February and March we rebounded.

Speaker Change: Same restaurant sales increased one 8% with total revenue, reaching $176 4 million for the quarter.

Speaker Change: Restaurant level adjusted EBITDA for Q1 was $36 7 million with a margin of 28%.

Speaker Change: Despite declining consumer confidence bad weather and on again off again tariffs, we performed well guess are still choosing port till those and we've supported our restaurants with initiatives like the launch of our loyalty program called the poor till those parks and our Dallas Fort worth advertising campaign.

Michael Osanloo: that said we're not immune to the macro pressure.

Speaker Change: That said, we're not immune to the macro pressures.

Michael Osanloo: Our newest restaurants that opened in Q4 2024 experienced a slower start. In markets where we have strong brand awareness, we're more insulated against these types of macro pressure. But newer markets remain a little more vulnerable until they find their footing.

Speaker Change: Our newest restaurants that opened in Q4 2024 experienced a slower start.

Speaker Change: In markets, where we have strong brand awareness, we're more insulated against these types of macro pressures.

Speaker Change: But newer markets remain a little more vulnerable until they find their footing.

Michael Osanloo: As we move into Q2, we have carried good momentum from March into April, and our traffic driving strategies are intended to keep us on that path. Our four tactics are, first, advertising beyond Chicagoland to increase brand awareness. Second, the launch of our Portillo's Perks Loyalty Program. Third, continuous improvement in operations, and fourth, further optimizing our kiosks. Advertising in Dallas-Fort Worth has proven effective. Our Q1 campaign there combined traditional and digital media using crowdsourced content and a social media inspired approach to showcase why Portillo's is, quote, iconic every time. This campaign increased brand awareness by about 10% and drove high single-digit increase in sales for Dallas Fort Worth restaurants.

Speaker Change: As we move into Q2, we have carried good momentum from March into April and our traffic driving strategies are intended to keep us on that path.

Speaker Change: Our four tactics, our first advertising beyond Chicago land to increase brand awareness.

Speaker Change: Second the launch of our Portillo perks loyalty program.

Speaker Change: Third continuous improvement in operations and fourth further optimizing our kiosks.

Speaker Change: Advertising in Dallas Fort worth has proven effective.

Speaker Change: Our Q1 campaign, there combined traditional and digital media using crowd sourced content and a social media inspired approach to showcase why port till those is quote iconic every time.

Speaker Change: This campaign increased brand awareness by about 10% and drove high single digit increase in sales for Dallas Fort worth restaurants.

Michael Osanloo: We're running a similar campaign right now in FEMA. Second, our Portillo's Purse Loyalty Program launched near the end of Q1. Perks aims for a personalized, data-driven approach to loyalty based on guest behavior. In its first few weeks, we focused on driving enrollment with a free fry sign-up offer. We've also tested our first surprise and delight offers in Chicagoland and Dallas, offering either a free Italian beef sandwich or a free burger. We saw solid redemption and we're excited to build on this momentum. In Q2, we're continuing to test broader offers to all PIRCS members. In new markets, these offers are designed to drive trial and awareness.

Speaker Change: We're running a similar campaign right now in Phoenix.

Speaker Change: Second.

Speaker Change: Our portfolio is personal loyalty program launched near the end of Q1.

Speaker Change: First aims for personalized data driven approach to loyalty based on guests behavior. It.

Speaker Change: In its first few weeks, we focused on driving enrollment with a free Fry sign up offer. We've also tested our first surprise and delight offers in Chicago land and Dallas offering either a free Italian beef sandwich or a free burger.

Speaker Change: We saw solid redemption and we're excited to build on this momentum.

Speaker Change: In Q2, we're continuing to test broader offers to all perks members in new markets. These offers are designed to drive trial and awareness in existing markets, we're testing, which offered types can drive incremental visits.

Michael Osanloo: In existing markets, we're testing which offer types can drive incremental visibility. As we build a data set around our most loyal fans, we will shift to more targeted offers in the back half of the year. To recap on PIRCS, we rolled it out in early March with a focus on enrollment. In Q2, we'll continue driving enrollment while also testing broad offers to drive traffic. Then in Q3 and Q4, we'll leverage insights to deliver more targeted offers.

Speaker Change: As we build a dataset around our most loyal fans, we will shift to more targeted offers in the back half of the year.

Speaker Change: To recap on perks, we rolled it out in early March with a focus on the enrollment.

Speaker Change: In Q2 will continue driving enrollment while also testing broad offers to drive traffic than in Q3, and Q4 will leverage insights to deliver more targeted offers we're excited about the future of our loyalty program and learning what it can do for us.

Michael Osanloo: We're excited about the future of our loyalty program and learning what it can do for us.

Michael Osanloo: Shifting out operations, we've renewed our commitment to delivering an exceptional experience for every guest, every time. For every great restaurant brand, operations are the hallmark of success and the key to driving sustainable long-term traffic. So we're focused on hospitality, speed, and accuracy at every touch point. We continue to test camera vision technology to enhance drive-through speed and we're evaluating its long-term potential. Our kiosks are performing well and we've been working to further optimize their benefits. We've studied the top quartile of our restaurants with the highest kiosk performance and applied those insights across the other restaurants in our portfolio.

Speaker Change: Shifting now to operations, we've renewed our commitment to delivering an exceptional experience for every guest every time.

Speaker Change: For every great restaurant brand operations are the hallmark of success and the key to driving sustainable long term traffic.

Speaker Change: So we're focused on hospitality speed and accuracy at every touch point.

Speaker Change: We continue to test camera vision technology to enhanced drive thru speed and we're evaluating its long term potential.

Speaker Change: Our kiosks are performing well and we've been working to further optimize their benefits. We've studied the top quartile of our restaurants with the highest chios performance and applied those insights across the other restaurants in our portfolio.

Michael Osanloo: This data-driven approach ensures that we continue to enhance the guest experience while maximizing the impact of our kiosks. will continue to monitor and refine their performance.

Speaker Change: This data driven approach ensures that we continue to enhance the guest experience while maximizing the impact of our kiosks will continue to monitor and refine their performance.

Michael Osanloo: We've also recently launched a small test of breakfast at five Chicagoland restaurants. While still in its first few weeks, early feedback has been positive. Guests are excited about freshly scrambled eggs, made to order breakfast sandwiches, and our rich chocolate cake donut, inspired, of course, by our famous chocolate cake. We'll continue to monitor the progress of this test throughout the summer and then provide updates as we move forward.

Speaker Change: We've also recently launched a small test of breakfast at five Chicago land restaurants.

Speaker Change: While still in its first few weeks early feedback has been positive.

Speaker Change: Guests are excited about freshly scrambled eggs made to order breakfast sandwiches, and our rich chocolate cake Donuts inspired of course by our famous chocolate cake.

Speaker Change: We'll continue to monitor the progress of this test throughout the summer and then provide updates as we move forward.

Michael Osanloo: Moving on to new restaurants, we still plan to open 12 this year, 10 of the 12 will be our new restaurant of the future 1.0 format, which is our 6200 square foot concept. We'll also open one Portillo's pick-up location in Plainfield, Illinois. That's the fourth of that format.

Speaker Change: Moving onto new restaurants, we still plan to open 12. This year 10 of the 12 will be our new restaurant of the future 1.0 format, which is our 6200 square foot concept.

Speaker Change: We will also open one porcello pick up location in Plainfield, Illinois, that's the fourth of that format.

Michael Osanloo: And I'm excited to open our first in-line walk-up restaurant in Central Florida. It's a smaller box with no drive-thru, and it's intended for dense locations with lots of foot traffic. We're excited to see the unit economics of this new format and share the potential that that provides. We're confident in the foundations we've laid and the strategies we have in place. While economic uncertainty makes it hard to predict the rest of the year, we're a resilient brand, and we believe we have the right tools to survive.

Speaker Change: And I am excited to open our first in line walk up restaurant in Central Florida. It's.

Speaker Change: It's a smaller box with no drive through and it's intended for dense locations with lots of foot traffic.

Speaker Change: We're excited to see the unit economics of this new format and share the potential that that provides for us.

Speaker Change: We're confident in the foundations, we've laid and the strategies we have in place while economic uncertainty makes it hard to predict the rest of the year were resilient brand and we believe we have the right tools to succeed.

Michelle Hook: With that, I'll hand it over to Michelle. Great. Thank you, Michael, and good morning, everyone. During the first quarter, revenues were $176.4 million, reflecting an increase of $10.6 million, or 6.4% compared to last year. A revenue growth in the first quarter was driven by growth from non-comparable restaurants and same-restaurant sales growth. Restaurants not in our comparable restaurant base contributed $7.9 million in revenue growth during the quarter. Same restaurant sales increased 1.8% which drove revenues up approximately $2.6 million in the quarter. The same restaurant sales were attributable to an increase in average check of 4.9%, partially offset by a 3.1% decrease in transactions.

Speaker Change: With that I'll hand, it over to Michelle.

Michelle Hook: Great. Thank you Michael and good morning, everyone during.

Michelle Hook: During the first quarter revenues were $176 4 million, reflecting an increase of $10 6 million or six 4% compared to last year. Our revenue growth in the first quarter was driven by growth from non comparable restaurants and same restaurant sales growth rests.

Michelle Hook: Restaurants, not in our comparable restaurant base contributed $7 9 million in revenue growth during the quarter same.

Michelle Hook: Same restaurant sales increased one, 8%, which drove revenues up approximately $2 6 million in the quarter.

Michelle Hook: The same restaurant sales were attributable to an increase in average check a four 9% partially offset by a three 1% decrease in transactions.

Michelle Hook: The higher average check was driven by an approximate 4.4% increase in certain menu prices and a 0.5% increase in product cost. Same restaurant sales on a two-year stack basis were 0.7%. To address inflationary cost pressures, we increased select menu prices by approximately 1.5% in January and by approximately 1% in April. Our effective price increase for the second quarter is estimated to be approximately 3.5%, which includes the estimated impact of our Portillo's Perks loyalty program. We'll see 1% of pricing roll off in mid-June as we lap last year's pricing action. We will continue to assess pricing in relation to our costs, the competitive environment, and our value proposition to our guests.

Michelle Hook: The higher average check was driven by an approximate 4.4% increase in certain menu prices and a 0.5% increase and product mix.

Michelle Hook: Same restaurant sales on a two year stack basis, where 0.7%.

Michelle Hook: To address the inflationary cost pressures, we increased select menu prices by approximately one 5% in January and by approximately 1% in April.

Michelle Hook: Our effective price increase for the second quarter is estimated to be approximately three 5%, which includes the estimated impact of our portela perks loyalty program.

Michelle Hook: Well see 1% of pricing roll off in mid June as we lap last year's pricing action.

Michelle Hook: We will continue to assess pricing in relation to our costs, the competitive environment and our value proposition to our guests.

Michelle Hook: When diving into comp trends during the first quarter, we experienced improved trends in January versus the fourth quarter of 2024. We saw significant decline in February, primarily attributable to the impact of weather. In March, we saw our comp performance bounce back as we had benefits from the launch of our Portillo's Perks program, as well as the timing of ESA. In April, when excluding the headwind from Easter, we continued to see positive momentum.

Michelle Hook: When diving into comp trends during the first quarter, we experienced improved trends in January versus the fourth quarter of 2024, we saw a significant decline in February primarily attributable to the impact of weather.

Michelle Hook: In March we saw a cat performance bounce back as we had benefits from the launch of our Portela Perks program as well as the timing of Easter.

Michelle Hook: In April when excluding the headwind from Easter we continued to see positive momentum.

Michelle Hook: Turning to our financial outlook for 2025, we have updated certain metrics to reflect our first quarter results and the expectations for the remainder of the year. We now expect cap sales growth in the range of 1 to 3 percent versus our previous range of flat to up 2 percent. We expect our total revenue growth to be in the range of 10% to 12% versus our previous range of 11% to 12%.

Michelle Hook: Turning to our financial outlook for 2025, we have updated certain metrics to reflect our first quarter results and the expectations for the remainder of the year. We now expect cap sales growth in the range of 1% to 3% versus our previous range of flat to up 2%.

Michelle Hook: We expect our total revenue growth to be in the range of 10% to 12% versus our previous range of 11% to 12%.

Michelle Hook: As Michael mentioned, our newer restaurants experienced a slower start, which is driving the change in our total revenue growth outlook. During the second quarter, we plan to open one of our 12 targeted new restaurants, with the remainder opening in the third and fourth quarters.

Michelle Hook: As Michael mentioned, our newer restaurants experienced a slower start which is driving the change in our total revenue growth outlook.

Michelle Hook: During the second quarter, we plan to open one of our 12 targeted new restaurants with the remainder opening in the third and fourth quarters.

Michelle Hook: On the cost side, we are now estimating general and administrative expenses in the range of $80 million to $82 million versus our previous range of $82 million to $84 million. Given the change in our revenue and G&A outlooks, we now estimate adjusted EBITDA growth to be 5 to 8 percent versus our previous range of 6 to 8 percent.

On the cost side, we are now estimating general and administrative expenses in the range of 80 million to $82 million versus our previous range of 82 million to $84 million.

Michelle Hook: Given the change in our revenue and G&A outlooks, we now estimate adjusted EBITDA growth to be 5% to 8% versus our previous range of 6% to 8%.

Michelle Hook: Moving on to our cost. Food, beverage and packaging costs as a percentage of revenues increased to 34.6% in the first quarter of 2025 from 34.3% in the first quarter of 2024. This increase was the result of a 3.4% increase in our commodity prices, partially offset by the increase in our average In the quarter, we experienced increases in beef, dairy, and chicken products. We continue to forecast commodity inflation of 3 to 5% in 2025, with the most significant pressures coming from B. Included in our commodity forecast are the estimated direct impacts from tariffs, which are forecasted to be minimal to our business.

Michelle Hook: Moving on to our costs food.

Michelle Hook: Food beverage and packaging costs as a percentage of revenues increased to 34, 6% in the first quarter of 2025 from 34, 3% in the first quarter of 2024.

Michelle Hook: This increase was the result of a three 4% increase in our commodity prices, partially offset by the increase in our average check.

Michelle Hook: In the quarter, we experienced increases in beef dairy and chicken products.

Michelle Hook: We continue to forecast commodity inflation of 3% to 5% in 2025 with the most significant pressures coming from beef.

Michelle Hook: Included in our commodity forecast or the estimate of direct impact from tariffs, which are forecasted to be minimal to our business.

Michelle Hook: Labor as a percentage of revenues increased to 26.6% in the first quarter of 2025 from 26.1% in the first quarter of 2024. This increase was due to lower transactions, increase in benefit expenses, and incremental wage rate investments, partially offset by an increase in our average check and labor efficiency. hourly labor rates were up 2.7% in the first quarter of 2025. We continue to estimate labor inflation of 3 to 4% for the full year 2020.

Michelle Hook: Labor as a percentage of revenues increased to 26, 6% in the first quarter of 2025 from 26, 1% in the first quarter of 2024.

Michelle Hook: This increase was due to lower transactions.

Michelle Hook: Increase in benefit expenses and incremental wage rate investments, partially offset by an increase in our average check and labor efficiencies.

Michelle Hook: Hourly labor rates were up two 7% in the first quarter of 2025.

Michelle Hook: We continue to estimate labor inflation of 3% to 4% for the full year 2025.

Michelle Hook: Other operating expenses increased $1.9 million or 9.7% in the first quarter of 2025 compared to the first quarter of 2024, which was primarily driven by the opening of new restaurants and an increase in repair and maintenance and utilities expenses. This was partially offset by lower cleaning spend due to vendor renegotiation. As a percentage of revenues, other operating expenses increased to 12.4% from 12% in the prior year.

Michelle Hook: Other operating expenses increased $1 9 million or nine 7% in the first quarter of 2025 compared to the first quarter of 2024, which was primarily driven by the opening of new restaurants, and an increase in repair and maintenance and utilities expense.

Michelle Hook: This was partially offset by lower cleaning spend due to vendor renegotiation.

Michelle Hook: As a percentage of revenues other operating expenses increased to 12, 4% from 12% in the prior year.

Michelle Hook: Occupancy expenses increased 0.7 million or 7.3% in the first quarter of 2025, compared to the first quarter of 2024, primarily driven by the opening of new rest. As a percentage of revenues, occupancy expenses increased 0.1% compared to the prior year. Restaurant Level Adjusted EBITDA increased $0.3 million to $36.7 million in the first quarter of 2025 from $36.4 million. Restaurant Level Adjusted EBITDA margins decreased 110 basis points to 20.8% in the first quarter of 2025 versus 21.9% in the first quarter of 2024. We continue to estimate our restaurant level adjusted EBITDA margins to be in the range of 22.5 to 23% in 2025.

Michelle Hook: Occupancy expenses increased <unk> 7 million or seven 3% in the first quarter of 2025 compared to the first quarter of 2024, primarily driven by the opening of new restaurants.

As a percentage of revenues occupancy expenses increased <unk>, 1% compared to the prior year.

Michelle Hook: Restaurant level adjusted EBITDA increased 0.3 million to $36 7 million in the first quarter of 2025 from $36 4 million.

Michelle Hook: Restaurant level, adjusted EBITDA margins decreased 110 basis points to 28% in the first quarter of 2025 versus 21, 9% in the first quarter of 2024.

Michelle Hook: We continue to estimate a restaurant level adjusted EBITDA margins to be in the range of 22.5% to 23% in 2025.

Michelle Hook: Our general and administrative expenses increased by $0.4 million to $18.9 million or 10.7% of revenue in the first quarter of 2025 from $18.5 million or 11.2% of revenue in the first quarter of 2024. The increase was primarily driven by higher software license fees related to our recent system implementations and advertising expenses driven by ad campaigns in the Dallas-Fort Worth and Phoenix markets.

Michelle Hook: Our general and administrative expenses increased by 0.4 million to $18 9 million or 10, 7% of revenue in the first quarter of 2025 from $18 5 million or 11, 2% of revenue in the first quarter of 2024.

Michelle Hook: The increase was primarily driven by higher software license fees related to our recent system implementations and advertising expenses driven by AD campaigns in the Dallas Fort worth and Phoenix markets.

Michelle Hook: Pre-opening expenses decreased by $0.9 million to $0.5 million in the first quarter of 2025, compared to $1.4 million in the first quarter of 2024, primarily due to the number and timing of activities related to our planned restaurant opening. All this led to adjusted EBITDA of $21.2 million in the first quarter of 2025 versus $21.8 million in the first quarter of 2024, a decrease of 2.6%.

Michelle Hook: Preopening expenses decreased by <unk> 9 million to 0.5 million in the first quarter of 2025 compared to $1 4 million in the first quarter of 2024, primarily due to the number and timing of activities related to our planned restaurant openings.

Michelle Hook: I'll have a slide your adjusted EBITDA of $21 2 million in the first quarter of 2025 versus $21 8 million in the first quarter of 2024, a decrease of two 6%.

Michelle Hook: Below the EBITDA line, interest expense was $5.7 million in the first quarter of 2025, a decrease of $0.8 million from the first quarter of 2024. This decrease was driven by a lower effective interest rate, partially offset by additional borrowings on the revolver facility. At the end of Q1, we had $73 million drawn on our revolving credit facility. This includes amounts we moved over from our term loan as part of the debt refinancing we completed in January. Our total net debt as of Q1 was $320 million, compared to $312 million at the end of last We have approximately 72 million of available capacity on the revolver.

Michelle Hook: Below the EBITDA line interest expense was $5 7 million in the first quarter of 2025, a decrease of <unk> 8 million from the first quarter of 2020 for this decrease was driven by a lower effective interest rate, partially offset by additional borrowings on the revolver facility.

Michelle Hook: At the end of Q1, we had $73 million drawn on our revolving credit facility. This includes amounts we moved over from our term loan as part of the debt refinancing we completed in January.

Michelle Hook: Our total net debt as of Q1 was $320 million compared to 312 million at the end of last year we.

Michelle Hook: We have approximately 72 million of available capacity on the revolver.

Michelle Hook: are effective interest rate was 7% versus 8.4% for 2020.

Michelle Hook: Our effective interest rate was 7% versus eight 4% for 2024.

Michelle Hook: Income tax expense was $1.4 million in the first quarter of 2025, an increase of $2.5 million from the first quarter of 2024. Our effective tax rate for the first quarter was 25.4%. We expect the full year tax rate to be approximately 25 to 27%.

Michelle Hook: Income tax expense was $1 4 million in the first quarter of 2025, an increase of $2 5 million from the first quarter of 2024, our effective tax rate for the first quarter was 25, 4%.

Michelle Hook: We expect our full year tax rate to be approximately 25% to 27%.

Michelle Hook: Cash from operations increased by 4.1% year-over-year to $9.5 million year-to-date. We ended the quarter with $12.9 million in cash. We will continue to use our cash generated from operations to fund new restaurant growth this year and beyond.

Michelle Hook: Cash from operations increased by four 1% year over year to $9 5 million year to date.

Michael Assignment: We ended the quarter with $12 9 million in cash we will continue to use our cash generated from operations to fund new restaurant growth this year and beyond Thank you for your time and with that I'll turn it back to Michael.

Michelle Hook: Thank you for your time.

Michael Osanloo: And with that, I'll turn it back to Mike. Thanks, Michelle. Despite the uncertainty in the macro environment, we're proud of the progress we've made. Our focus remains on accelerating revenue. expanding margins, and ensuring strong returns on every dollar we spend. We're leveraging our durable traffic driving initiatives to deliver these results. And we're doing this while taking great care of our... Because we know that when we take great care of our teams, they take care of our guests, who in turn take great care of our investors. This is a virtuous cycle that drives our long-term success.

Michael Assignment: Thanks Michelle.

Speaker Change: Despite the uncertainty in the macro environment, we're proud of the progress we've made.

Michael Assignment: Our focus remains on accelerating revenue <unk>.

Speaker Change: Expanding margins and ensuring strong returns on every dollar we spend.

Speaker Change: We're leveraging our durable traffic driving initiatives to deliver these results and we're doing this while taking great care of our teams because we know that when we take great care of our teams they take care of our guests who in turn take great care of our investors. This is a virtuous cycle that drives our long term success.

Michael Osanloo: Thank you.

Speaker Change: Thank you.

Operator: And with that, let me turn it back over to the operator for Q&A. Thank you.

Speaker Change: And with that let me turn it back over to the operator for Q&A.

Speaker Change: Thank you we will now be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove yourself from the queue for participants using speaker equipment may be necessary.

Operator: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key.

Speaker Change: To pick up the handset before pressing the star. He is one moment, while we poll for questions.

Operator: One moment while we pull for questions.

Sharon Zackfia: Our first question is from Sharon Zackfia with William Blair. Please proceed. Hi, good morning. Thanks for taking the question.

Speaker Change: Our first question is from Sharon Zackfia with William Blair. Please proceed.

Sharon Zackfia: Hi, good morning, and thanks for taking the question I guess, when I think about the fourth quarter openings I know about half of those were in Houston. So how do you kind of get comfortable that it's an economic kind of slower to adopt kind of new concepts issue because of the economy versus some sort of portability issue in <unk>.

Michael Osanloo: I guess when I think about the fourth quarter openings, I know about half of those were in Houston. So how do you kind of get comfortable that it's an economic kind of slower to adopt kind of new concepts issue because of the economy versus some sort of portability issue in Houston, assuming that that's, you know, part of the issue with the fourth quarter openings and then do you have any kind of action plans to help jumpstart the Houston market? Morning, Sharon. Thanks. Thanks for your question. It's a good question. And it's not it's not just Houston, it really is.

Sharon Zackfia: Houston I'm, assuming that that's you know part of the issue with the fourth quarter openings and then do you have any kind of action plans to help jumpstart the he.

Sharon Zackfia: Houston market.

Speaker Change: Good morning, Sharon Thanks, Thanks for your question.

Speaker Change: It's a good question and it's not it's not just Houston it really is.

Michael Osanloo: New restaurants and newer markets just that we're just not as well known. And so you can almost see a perfect correlation between awareness and the performance of these restaurants. So when I compare the start of the Dallas restaurants versus the Houston restaurants, that just totally plays out. The guest satisfaction scores all the guest metrics with the food, are eerily consistent with our best markets. So when I look at it, it really does signal that we're just the relative unknown in a market like Houston still, and we're building our awareness.

Speaker Change: New restaurants in newer markets just where.

Speaker Change: Just not as well known and so you can almost see a perfect correlation between awareness and the performance of these restaurants, so when I compare the start of the Dallas restaurants versus the Houston restaurants, such as totally plays out.

Speaker Change: Guests satisfaction scores all the guest metrics with the food are really consistent with our best market. So.

Speaker Change: When I look at it it really does signal that we're just a relative unknown in a market like Houston still and we're building our awareness so what how do you fix that well.

Michael Osanloo: So how do you fix that? Well, we're doubling down on all of our field marketing activities. We're going to be very aggressive in using our beef bus in Texas, make sure that we're continuing to do field marketing. But it really is just a pick and shovel effort to build awareness over time in these markets, and really not to panic. Everything that we see in Houston suggests that these businesses are going to be fine. They just came out of the gate a little bit slower than than maybe we hoped.

Speaker Change: We're doubling down on all of our field marketing activities, we're going to be very aggressive in using our beef plus in Texas.

Speaker Change: Make sure that we're continuing to do field marketing, but it really is just a pick and shovel effort to build awareness over time in these markets and really not to panic everything that we see in Houston suggests that this these businesses are going to be fine. They just came out of the gate a little bit slower than than maybe we.

Speaker Change: Hoped.

Michelle Hook: And then, Michelle, can I ask a follow-up question? So when you think about that widening of the revenue range for this year, I assume part of that is handicapping those recent openings, but are you also handicapping kind of new units in new markets for the class of 25 as well? Like, how are you thinking about those AUVs just given kind of the uncertainty we're facing right now? Yeah, good morning, Sharon, I think primarily that change in the range is more related, I would say to the class of 24. And what Michael just talked about, then necessarily what we're projecting for the class of 25.

Speaker Change: And then Michelle can I ask a follow up question. So when you think about that why didn't end of the revenue range for this year I assume part of that is handicapping. Those recent openings, but are you also handicap in kind of new units in new markets for the class of <unk> 25, as well like how are you thinking about those aedes just given.

Speaker Change: I don't know the uncertainty we're facing right now.

Sharon Zackfia: Yeah. Good morning, Sharon I think primarily that change in the range is more related I would say to the class of 24, and what Michael just talked about than necessarily what we're projecting for the class of 25 and to Michael's point, when we look at those restaurants you man.

Michelle Hook: And to Michael's point, when we look at those restaurants, you mentioned the three in Houston, remember, one of the restaurants was a drive through only in Chicagoland. So that obviously comes, you know, with a little bit lower volumes. But to answer your question directly, it's primarily related to the class of 24, then then it is our expectations for 25.

Speaker Change: And the three in Houston.

Speaker Change: Remember one of the restaurants was a drive through only and Chicago land. So that obviously comes with a little bit lower volumes, but to answer your question directly it's primarily related to the class of 24, then than it is our expectations for 'twenty five.

Sharon Zackfia: Okay, thank you. Yep.

Speaker Change: Okay. Thank you.

Speaker Change: Yes.

Speaker Change: Okay.

Brian Harbour: Our next question is from Brian Harbour with Morgan Stanley. Please proceed. Yeah, good morning, guys. Michelle, maybe just to follow up on that question, I think... Timing of openings this year is also slightly different. expected prior, so I think it's going to be one of the more back-half-weighted years. Recent History. Could you comment? that as well. Yeah, we obviously, Brian, this has changed on us.

Brian Harper: Our next question is from Brian Harper with Morgan Stanley. Please proceed.

Brian Harper: Hey, good morning, guys, Michelle maybe just to follow up on that question I think.

Brian Harper: The timing of openings. This year is also slightly different at least than we had expected. Prior so I think it's going to be one of the more back half weighted years.

Speaker Change: Your recent history could you comment on.

Speaker Change: That as well and if there was any kind of location specific issues that drove that.

Speaker Change: Yeah, We obviously, Brian this is changed on us and it's been very fluid for our one opening in Stafford that we had estimated to come in the first quarter. So that's been delayed until Q2 due to some local permitting challenges within that market outside of that we are still at.

Michelle Hook: And it's been very fluid for our one opening in Stafford that we had estimated to come in the first quarter. So that's been delayed until Q2 due to some local permitting challenges within that market. Outside of that, we are still at five to six for Q3 and Q4. There's nothing right now that we see that is causing concern of those openings coming in Q3 and Q4. And remember, those are all primarily going to be in Texas as well with several openings in Houston, within Dallas as well. And as Michael mentioned, one of the drive thru onlys and then a walk up format.

Speaker Change: Five to six for Q3 and Q4 are there is nothing right now that we see that is causing concern of those openings coming in Q3, and Q4 and remember those are all primarily going to be in Texas as well with several openings in Houston.

Michael Assignment: And Dallas as well and as Michael mentioned, one of the drive through only isn't that a walkout format. So I'm a little bit of shift in the timing.

Michelle Hook: So a little bit of shift in the timing, mainly because of the one that I mentioned, but the back half, we always knew coming into this year, Brian, that we were going to be back on loaded. And as we get into 26, you're going to see a more smoother cadence in the process next year. And you're going to see several restaurants are going to be under construction in the back half of this year as we look to open more in the front half of the year in 2026. Okay, thanks.

Michael Assignment: Mainly because of the one that I mentioned, but the back half we always knew coming into this year, Brian that we were going to be backend loaded and as we get into 'twenty six youre going to see a more smoother cadence.

Michael Assignment: And the process next year and you're going to see several restaurants are going to be under construction in the back half of this year as we look to open up more in the front half of the year in 2026.

Brian Harper: Okay. Thanks.

Michael Assignment: Yeah.

Michael Osanloo: What drove the decision to test Braxton? Chicago. Could you talk Yeah, you know, there's, there's always been a lot of consumer demand for breakfast. We do, Chicagoans know that we do a pepper and egg sandwich during the Lenten season, it gets incredible pickup, people really love it. And they asked for that for breakfast. So we decided to do a test, you know, we've got a big asset sitting there empty for four hours in the morning. Obviously, the incrementality of breakfast can be fantastic if it works. So we're conducting a five restaurant test, we want to make sure that the food works, that the operational execution is flawless.

Michael Assignment: What drove the decision to to test breakfast in Chicago can you talk more about that.

Michael Assignment: Yeah.

Michael Assignment: There's always been a lot of consumer demand for breakfast.

We do.

Michael Assignment: Chicago and as you know that we do are peppered egg sandwich during the lenten season. It gets incredible pick up people really love it and they asked for that for breakfast. So.

Michael Assignment: We decided to do a test you know you've got a big asset sitting there empty for four hours in the morning, obviously, the incrementally of breakfast can be fantastic. If it works. So we're conducting a five restaurant tests, we want to make sure that the food works at the operational execution is flawless. We also want to make sure that we're not.

Michael Osanloo: We also want to make sure that we're not negatively affecting lunch and the prep for lunch. And so far, it's a test, it's there's a lot of positive feedback, there's some constructive feedback. We're gonna, we're gonna keep testing, see how it works throughout the course of the summer. And then we'll, we'll make a decision on whether to expand or not by the end of the summer.

Michael Assignment: <unk> affecting our lunch and the prep for lunch and so far it's a test. It's there's a lot of positive feedback there some constructive feedback we're going to we're going to keep.

Michael Assignment: Testing see how it works throughout the course of the summer and then we'll we'll make a decision on whether to expand or not by the end of the summer.

Michael Assignment: Thank you.

Michael Assignment: Yeah.

David Tarantino: Our next question is from David Tarantino with Baird. Please proceed. Hi, good morning. I had a couple of questions about the new unit performance for the Q4 openings. I think you had a couple of Restaurant of the Future prototypes in that quarter, and you also went in with a streamlined menu, I believe, in Houston. So I was wondering if you diagnosed some of the sales softness, if you thought it was related to either of those two factors.

Speaker Change: Our next question is from David Tarantino with Baird. Please proceed.

David Tarantino: Hi, Hi, good morning, I had a couple of questions about.

David Tarantino: The new unit performance for the Q4 openings.

David Tarantino: You had a couple of restaurant of the future prototypes and in that quarter.

Sharon Zackfia: And you also went in with a streamlined menu I believe and in Houston. So I was wondering as you diagnose some of the sales softness if you thought it was related to either of those two factors.

Sharon Zackfia: So David Good morning, I would tell you I don't think it has anything to do with that I I could get into the specifics of each site. There's one of those sites has massive construction in front of it. The road is torn up it took me 15 minutes ago, a block it's affecting everybody in that area, it's going to be fun.

Michael Osanloo: So, David, good morning. I would tell you, I don't think it has anything to do with that. I mean, I could get into the specifics of each site. One of those sites has massive construction in front of it. The road is torn up. It took me 15 minutes to go a block. It's affecting everybody in that area. It's going to be. There's like little idiosyncrasies. You open restaurant in a tumultuous macro environment and then you have odd idiosyncrasies happen. I'm not alarmed by this. Our food has worked very well in Texas. I have no reason to believe that the Houston palate is different than the Dallas palate.

Sharon Zackfia: Fine.

Sharon Zackfia: There's there's like little idiosyncrasies.

Sharon Zackfia: You opened restaurants in a tumultuous macro environment.

Sharon Zackfia: And then you have odd idiosyncrasies happen.

Sharon Zackfia: We're not alarmed I'm not alarmed by this our food has worked very well in Texas I have no reason to believe that the Houston pallet is different than the Dallas pallet. So we're.

Michael Osanloo: So we're confident that these restaurants will pick up as our picks up and as we begin really to turn on field marketing. We didn't do a lot of field marketing in Houston going into that market unlike what we did in Dallas. And so you know we had extraordinary openings in in in Dallas that really tested our operational abilities and we wanted to have a more stable opening to build momentum and maybe maybe we under marketed it. So but we're going to fix that quickly and really not worried about it.

Sharon Zackfia: Confident that these restaurants will pick up as our awareness picks up.

Speaker Change: And as we begin really did turn on field marketing, we didn't do a lot of field marketing in Houston going into that market. Unlike what we did in Dallas and so we had extraordinary openings and in.

Speaker Change: In Dallas, It really tested our operational abilities and we wanted to have a more stable opening to build momentum and maybe maybe we under marketed it so but we're going to fix that quickly and really not worried about Houston.

Michael Osanloo: Great, thank you. And then my my other questions on Portillo's, the perks program, I was wondering, if you would be willing to share any initial metrics on how you're, you're measuring the success of that program, just in terms of whether it's signups, or yeah, frequency or senior around the people that are in the program or anything you could offer. Yeah, when we talked about this, I think I said that our public goal was to get to 1.6 million signups by end of June, early July.

Great. Thank you and then my my other question is on portal the Perks program.

Speaker Change: Wondering.

Speaker Change: If you would be willing to share any initial metrics on how you're measuring the success of that program just in terms of whether it's sign ups or the frequency.

Speaker Change: Frequency youre seeing or around the people that are in the program or anything you could offer.

Speaker Change: Yeah.

Speaker Change: When we talked about this I think I said that our public goal was to get to $1 6 million sign ups by end of June early July.

Michael Osanloo: I don't want to get into the habit of reporting every month on this. Let's just say that I'm really confident that that will not be a problem and that right now we've only been enrolling people for a little over a month. We feel great about the performance of this. I love it. It's like a new toy almost.

Speaker Change: Don't want to get into the habit of reporting every month on this let's just let's just say that I'm really confident that that will not be a problem and that right. Now we're still we've only been enrolling people for a little over a month we.

Speaker Change: We feel great about the performance of this I love its like a new toy almost we get to test how people respond to different offers how would people respond to batching how sign ups are working and we're testing all of that and we'll continue to test. It through Q2, and then I think we have an opportunity to do some really.

Michael Osanloo: We get to test how people respond to different offers, how would people respond to badging, how signups are working, and we're testing all that and we'll continue to test it through Q2 and then I think we have an opportunity to do some really interesting, innovative, one-to-one marketing in the back half of this year. Really, it's probably the most exciting thing that we're doing as an organization and it is certainly meeting all of our expectations. Great. Thank you.

Speaker Change: Interesting innovative one to one marketing in the back half of this year really it's probably the most exciting thing that we're doing as an organization and it is certainly.

Speaker Change: Meeting all of our expectations internally.

Speaker Change: Great. Thank you.

Jim Salera: You bet. Our next question is from Jim Salera with Stevens Inc. Please proceed.

Speaker Change: You bet.

Speaker Change: Our next question is from Jim Solera with Stephens Inc. Please proceed.

Jim Salera: Michael and Michelle, in the morning in case you're taking our questions. I want to drill down a little bit on the new same store sales guidance. If I think through, you know, 1Q was in terms of the year-over-year lap, you know, the easiest lap for the year, and then it kind of gets a little bit progressively harder as the year goes on. Can you just give us some of the components that give you confidence in raising that, given the consumer backdrop, and particularly any color you can offer on the kiosk lift to 1Q, and then how you kind of expect that to phase in through the year?

Michael Assignment: Michael Hi, Michele good morning, Thanks for taking my question.

Speaker Change: To drill down a little bit on the <unk>.

Speaker Change: The new same store sales guidance, if I think through <unk> was in terms of the year over year lap.

Speaker Change: The easiest lots of the year and then it kind of gets a little bit progressively harder as the year goes on can you just give us some of the components that give you confidence in raising that given the consumer backdrop, and particularly any color you can offer on the kiosk lift to <unk> and then how you kind of expect that to phase in through the year.

Michelle Hook: Yeah, Jim, I'll take that one. So as we look at The remaining three quarters, and you kind of decompose how we're comfortable with 1-3%. I think we've been pretty transparent on pricing. We're going to be around 3.5% in Q2, and we haven't made any decisions further out into the year into Q3 and Q4, but Michael and I have been very much aligned that we're going to keep pricing in place to offset those inflationary cost pressures, and so that's how we view pricing. You saw the benefit of kiosks come through in the mix line this quarter, where you saw the positive 0.5% in the mix.

Speaker Change: Yeah, Jim I'll I'll take that one so as we look at that.

Speaker Change: The remaining three quarters end and you're kind of decompose, how we're comfortable at 1% to 3% I think we've been pretty transparent on pricing, we're going to be around three 5% in Q2, and and we haven't made any decisions further out into the year into Q3, and Q4, but Mike and I have been very much aligned that we're gonna.

Speaker Change: Pricing in place to offset those inflationary cost pressures and so that's how we view pricing.

Speaker Change: You saw the benefit of kiosks come through in the mess MX line. This quarter, where you saw the positive <unk>, 5% of the mix our expectations is that we're going to continue to drive kiosk adoption.

Michelle Hook: Our expectations is that we're going to continue to drive kiosk adoption. We were at adoption of 25% that we reported on earlier in the year. We're now getting closer to 30% adoption rates, and so those benefits are still in place as we go into the back half of the year and continue to drive that kiosk adoption. Then you saw, despite some of the headwinds we mentioned in Q1 with weather, that we still improved our transactions versus Q4, and so our expectation is, as we continue to look to utilize the advertising in the outer markets, as well as particularly the PERCS program, driving that transaction towards further improving that to something that can be improved on in the back half of the year.

Speaker Change: We're at a adoption of 25% that we reported on earlier in the year, we're now getting closer to 30% adoption rates and so those benefits are still in place as we go into the back half of the year and continue to drive that kiosk adoption and then you saw despite some of the headwinds we mentioned in Q1 with wider weather.

Speaker Change: That we still improved our transactions versus Q4, and so our expectation is as we continue to look to utilize the advertising in the outer markets as well as particularly the perks program driving that transactions towards a further.

Speaker Change: Improving that too to something that can be improved.

Speaker Change: Improved on in the back half of the year, not saying necessarily that we expect to get fully to positive. That's ultimately our goal is to continue to drive positive traffic, but that's the live her Jim is that primarily that perks program and some of that advertising, we're doing to drive the transactions are in a favorable direction versus what we saw in Q1 and so when you.

Michelle Hook: Not saying necessarily that we expect to get fully to positive, that's ultimately our goal is to continue to drive positive traffic, but that's the lever, Jim, is that primarily that PERCS program and some of that advertising we're doing to drive the transactions in a favorable direction versus what we saw in Q1, and so when you put all of that together, you can see a world where we can definitely play within the 1% to 3% range for the remaining three quarters this year.

Speaker Change: Put all of that together.

Speaker Change: You can see a world, where we can definitely play within the 1% to 3% range for the remaining three quarters. This year.

Jim Salera: Great, that's helpful.

Speaker Change: Great. That's helpful. And then maybe just a follow up to continue the discussion on breakfast.

Jim Salera: And then maybe just a follow up to continue the discussion on breakfast. If we think about, you know, like what you'd mentioned, kind of testing it through the summer and seeing where that goes and go forward. What would you view as kind of a successful test there? I mean, is there a certain comp hurdle rate or a certain guess count? Or just help us think through some of the metrics that we should be thinking about that would lead you to expand that broader across the football.

Speaker Change: If we think about like when you had mentioned kind of testing out through the summer.

Speaker Change: Where that goes on a go forward.

Speaker Change: What would you view as kind of a.

Speaker Change: A successful tests there I mean is there a certain comp hurdle rate or certain desk cow or just help us think through some of the metrics that we should be thinking about that would lead you to expand that broader across the footprint.

Michael Osanloo: Yeah, Jim, it's a great question. We absolutely have internal metrics, which we believe would define success. And it's, it's the things that you can imagine. It's what's the comp impact? What's the average price? What's the guest satisfaction score? What's the likelihood to return? But also, just as importantly, what's the impact to lunch? What's the guest satisfaction score at lunch? We don't want to screw up our business, right? There's plenty of restaurant companies out there that have tried to expand to breakfast, and it hasn't worked. So we have a number of internal metrics that we will define success.

Jim: Yes, Jim.

Speaker Change: Great question, we absolutely have internal metrics, which we believe would define success and if it's the things that you can imagine it's what's the comp impact was the average price what's the guest satisfaction score whats the likelihood to return, but also just as importantly, what's the impact to lunch, what's the guest satisfaction score at lunch, we don't want to.

Speaker Change: Screw up our business right, there's plenty of restaurant companies out there that have tried to expand to breakfast and it hasn't work. So we have a number of internal metrics that we will define success and and I think we want to make it as clean and clear as possible for us and just to be super transparent and precise.

Michael Osanloo: And, and I think, you know, we want to make it as clean and clear as possible for us.

Michael Osanloo: And just to be super transparent and precise, a successful test doesn't mean it's a nationwide thing for us. A successful test would mean that we feel we have the legs to do breakfast in Chicagoland, we would probably want to do a test outside Chicagoland if we were to expand.

Speaker Change: Our successful tests doesn't mean, it's a nationwide thing for US a successful test would mean that we feel we have the legs to do breakfast in Chicago land, we would probably want to do a test outside Chicago land, if we were to expand there.

Michael Osanloo: Great, thank you all.

Speaker Change: Great. Thank you I'll hop back in queue.

Speaker Change: Okay.

Andy Barish: Our next question is from Andy Barish with Jefferies, please proceed. Hey guys, can you kind of give us an update on You know, the efforts in the drive-thru and, you know, with that channel. Still a little bit more, you know, pressured, I guess, just given the, you know, the price point advertising that continues, you know, pretty aggressively in the broader QSR category. Yeah, that's a great question, Andy. And I appreciate that. It's, I'm actually, it's actually one of the sneaky things that are going really well for us. So I think, I think our operations team has picked up momentum in, in everything that we're doing in operations, we're seeing continued improvement in speed of service.

Speaker Change: Our next question is from Andy Barish with Jefferies. Please proceed.

Andy Barish: Hey, guys.

Speaker Change: Can you kind of give us an update on.

Speaker Change: The efforts in the drive through in that channel.

Speaker Change: Still a little bit more.

Speaker Change: You know pressured I guess, just given the price point advertising that continues.

Speaker Change: Pretty aggressively in the broader <unk> category.

Andy Barish: Yeah, that's a great question, Andy and I appreciate that.

Andy Barish: I'm actually it's actually one of the sneaky things that are going really well for us. So I think I think our operations team has picked up momentum in in everything that we're doing in operations. We're seeing continued improvement in speed of service, but I'm seeing huge improvements.

Michael Osanloo: But I'm seeing huge improvements in problem resolution. So you know, one of the bugaboos in our businesses, you've got, you know, 10s of 1000s of people interacting with guests every day, you are going to screw up occasionally. But what's important is that you resolve that very quickly and make the guests happy. And I and I'm seeing great improvement in guest satisfaction in problem resolution. And so it does excite me more to be marketing a little bit more heavily to use perks to bring guests to the business. Because I think we all feel that they're going to get a great experience.

Andy Barish: In.

Andy Barish: Problem resolution. So you know one of the bugger boos in our businesses.

Andy Barish: <unk> got tens of.

Andy Barish: <unk> of people interacting with guests everyday you are going to screw up occasionally but what's important is that you resolve that very quickly and make the guests happy and I and I'm seeing great improvement in guest satisfaction and problem resolution and so it does excite me more to be marketing a little bit more heavily to use perks to bring guests.

Andy Barish: To the business.

Andy Barish: Because I think we all feel that theyre going to get a great experience and I think that's something that kind of positive energy and momentum.

Michael Osanloo: And I think that's something that kind of positive energy and momentum will will be very, very helpful for us in Q2, three and four. got it. Okay, and then just You know, the thoughts on on on pricing and replacing some price, you know, is there Something in your basket, it seems like the inflation expectations remain relatively constant. I assume you're locked on, you know, your beef items, although inflationary, is there something? You know, in the tariff side of things or something like that, that we should be aware of. So Michelle and the supply chain team has done a great job of dissecting all of the impact that we could potentially have on tariffs.

Andy Barish: <unk> will be very very helpful for us in Q2, three and four.

Speaker Change: Got it Okay and then just.

Speaker Change: The thoughts on on on pricing and replacing some price.

Speaker Change: You know is there.

Speaker Change: Something in your basket it seems like the inflation expectations remain relatively constant.

Speaker Change: I assume they're locked on.

Speaker Change: Your beef items, although inflationary is there something.

Speaker Change: You know in the tariff side of things or something like that.

Speaker Change: We should be aware of.

Speaker Change: So.

Speaker Change: Michel the supply chain team has done a great job of dissecting all of the impact that we could potentially have on tariffs and I would say that it's for US. We believe that it's largely manageable right. There is a couple of areas that were.

Michael Osanloo: And I would say that it's for us, we believe that it's largely manageable, right? There's a couple areas that we're, let's say, a little vulnerable, you know, but we have those under control. But I don't know what I don't know, right? I think three, four months ago, if we were having this conversation, we would have given you a different perspective on commodity inflation and where we see things happening. So part of the reason that we expanded some of our ranges is just that we're in a very volatile and uncertain environment. And it's hard for us to commit to something not knowing how some of the tariff situation will play out, not knowing whether consumer confidence will bounce back, etc.

Speaker Change: Let's say a little vulnerable.

Speaker Change: But we have those under control.

Speaker Change: But I don't know what I don't know right I think three or four months ago. If we were having this conversation we would have given you a very different perspective on commodity inflation, where we see things happening so.

Speaker Change: Part of the reason that we expanded some of our ranges is just that we're in a very volatile and uncertain environment and it's hard for us to commit to something not knowing how some of the tariffs situation will play out.

Speaker Change: Not knowing whether consumer confidence will bounce back et cetera, and so.

Michael Osanloo: And so when it comes to pricing, I think Michelle said it well, where our intent is to be modest, but price away any idiosyncratic inflation, but not more than that. Okay, thanks.

Speaker Change: When it comes to pricing I think Michel said, it well, where our intent is to be modest but price away any idiosyncratic inflation, but no not more than that.

Speaker Change: Okay. Thank you.

Andy Barish: Thanks, Andy.

Andy Barish: Thanks, Andy.

Speaker Change: Yeah.

Chris Ocol: Our next question is from Chris Ocol with CFO. Please proceed. Yeah, good morning, guys. Michael, what's the company doing to sustain the sales lift in Dallas? And maybe how are you thinking about future marketing or advertising in these non-core markets?

Speaker Change: Our next question is from Chris <unk> with Stifel. Please proceed.

Chris: Yeah, Good morning, guys.

Speaker Change: Michael What's the company doing to sustain the sales lift in Dallas and maybe how are you thinking about future marketing or advertising.

Chris: And these noncore markets.

Michael Osanloo: a great question. So what I love about the last marketing campaign we just did in Dallas is we tapped into something that's really, I think, relevant today's consumer. We used a lot of social media clips to influence our advertising campaign. So, you know, if you're on Insta, TikTok, whatever your social media feed is, you would look at our advertising and say, man, this really, this is relevant to me. And so we sourced it that way. It worked really well. We're very happy with the results of it. And we will continue to pulse advertising like that in new markets.

Chris: It's a great question, so what I love about the last marketing campaign. We just did in Dallas is we tapped into something that's really I think relevant in today's consumer we use a lot of social media clips to influence our advertising campaigns. So if you're if you're on <unk>.

Chris: Tictoc whatever your social media feed as you would look at our advertising and say man. This is really this is relevant to me and so we sourced it that way it worked really well, we're very happy with the results of it.

Chris: And we will continue to pulse advertising like that in new markets.

Michael Osanloo: You know, when we go into, well, we're starting it up in Phoenix right now, but we're going to be smart. We're going to put a QR code in some of the TV and billboard advertising that links back to the very contemporary in the way we market and talk about ourselves. We're linking it to our Portillo's Perks program and trying to make sure that we've got people like really working in a beautiful, virtuous cycle. They hear about us. They try us. They have a great experience. They sign up for loyalty. They have multiple ways of seeing us and signing up for loyalty.

Chris: When we go into well, we're starting it up in Phoenix right now, but we're going to be smart, we're going to put a QR code and some of the TV and Billboard advertising that links back to the Port <unk> Perks program. So I think we've gotten.

Chris: Very contemporary and the way, we market and talk about ourselves, we're linking it to our portfolio Perks program and trying to make sure that we've got people like.

Chris: Really working at a beautiful virtuous cycle, they hear about us they try us they have a great experience they sign up for loyalty they have multiple ways of seeing us and signing up for loyalty and it creates that a frequency that we want.

Michael Osanloo: And it creates that frequency that we want. And we've, I don't know if I've, I don't know if we shared this earlier, but look, we advertise in Dallas in Q1. We're in Phoenix in Q2. We're going back to Dallas in Q3. And so there will be a steady pulse of advertising in our newer markets to drive trial in a way.

Chris: And I don't I don't know if I've.

Chris: I don't know if we said this earlier, but look were advertised we advertise in Dallas in Q1 were in Phoenix in Q2, we're going back to Dallas in Q3, and so there will be a steady pulse of advertising in our newer markets to drive trial and awareness.

Chris Ocol: Okay, and then I had a couple questions around the new units.

Speaker Change: Okay, and then I had a couple of questions around the new units. Michelle is there any way you can help us understand the magnitude of the underperformance compared to your all's expectations for the units you mentioned and then Michael I noticed some of the new locations seem to be opening before the retail area around them open such as Katy, Texas do you see that.

Michelle Hook: Michelle, is there any way you can help us understand the magnitude of the underperformance compared to your all's expectations for the units you mentioned? And then Michael, I've noticed some of the new locations seem to be opening before the retail area around them open, such as KD Tech. Do you see that strategy as an issue opening up early?

Chris: A strategy that strategy is an issue opening up early.

Speaker Change: [laughter] Kt's.

Michael Osanloo: Katie was not a strategy, that was a, I would say that the developer is way behind on some of the other sites. And so we had an option of do I sit there with a built restaurant waiting for everything else to open, or do we go ahead and open and start building roots in Katie. So we chose to go ahead and open anyway and keep our roots planted and start developing awareness, trial generation, et cetera. And so it is certainly not a strategy to be that far in advance of the development. In fact, if anything, we like to be contemporaneous with other high-quality retailers or even a little bit late to the party.

Speaker Change: <unk> was.

Speaker Change: It was not a strategy that was a.

Speaker Change: That was I would say that the developer is way behind on some of the other sites and so we had an option of do I sit there with a built restaurant waiting for everything else to open or do we go ahead and open and start building routes and Katy. So we chose to go ahead and open anyway.

Speaker Change: Keep our roots planted and start developing.

Speaker Change: <unk> trial generation et cetera, and so it is certainly not our strategy to be that far in advance of the development. In fact, if anything we like to be contemporary contemporaneous with other high quality retailers or even a little bit late to the party.

Michelle Hook: Yeah, and Chris answer your question on the on the new units. So I would guide you to our revenue tables that we put out there. You can see them in our earnings supplement. But you'll see that the class of 24, which is a clean quarter, right? Because you there were they were all fully opened in Q1. So you can see the performance of the 10 restaurants on average within the quarter. And you'll see that they're tracking annualized. Again, this is just straight math. If you annualize them, they'd be doing around 4.8 million, which is clearly under what our expectations are.

Speaker Change: Yeah, and Chris to answer your question on the on the new units. So I would guide you to our revenue tables that we put out there you can see them in our earnings supplement, but youll see that the class of <unk> 24, which is a clean quarter right. Because there were they were all fully opened in Q1. So you.

Speaker Change: Can see the performance of the 10 restaurants on average within the quarter and Youll see that Theyre tracking annualized again. This is just straight math, if you annualize them they'd be doing around $4 8 million, which is clearly under what our expectations are and as you know what what we guide to is a year three expectation that we want.

Michelle Hook: And as you know, what what we guide to is a year three expectation that we want our restaurants to do 5.9 to 6.3 million with 22% margins. So to Michael's point, do we think that the class will not be able to perform at that level? The answer to that is no. We're four months into these restaurants. To Michael's point, yes, there are some nuances around specific restaurants and in the class, but nothing that gives us pause or an indication that this brand is not resonating in these markets. But that's what I would direct you to to see where the numbers are for the current class.

Speaker Change: Restaurants to do five 9% to $6 3 million with 22% margin. So to Michael's point do we think that the class will not be able to perform at that level. The answer to that is no. We're four months into these restaurants.

Speaker Change: Michael's point, yes, there are some nuances around specific restaurants in the class, but nothing that gives us pause or an indication that that brand is not resonating in these markets, but that's what I would direct you to to see where the numbers are for the current classes.

Chris Ocol: Great. Thanks, guys.

Speaker Change: Great. Thanks, guys.

Brian Mullan: Our next question is from Brian Mullan with Paper Sandler. Please proceed. Thanks. Just a follow-up on breakfast. Can you talk about how you're communicating awareness during the test? And I'm just wondering if this is something where you would really need to advertise it for quite a while before you really know what the true demand is likely to be in Chicagoland over the long term. So just any thoughts on how you'll be thinking about that as you evaluate the results of the test? That would be helpful to understand.

Brian Mullan: Our next question is from Brian Mullan with Piper Sandler. Please proceed.

Brian Mullan: Thanks, just a follow up on breakfast could you talk about how you're communicating awareness during the test I'm. Just wondering if this is something where you would really need to advertise it for quite a while before you really know what the true demand is likely to be in Chicago land over the long term. So just any thoughts on how you'd be thinking about that as you evaluate the results of the tests that would be helped.

Brian Mullan: To understand.

Michael Osanloo: Yeah, it's a great question, Brian. We're not, we're not right now being super aggressive on advertising it, because really, we want to make sure that it's an operational test, first and foremost, so that we can execute it. So any marketing that we have done has been in restaurant collateral, you know, our digital menu boards will show breakfast, we've got some table tents that show breakfast and signs that show breakfast. It did pick up a lot of PR in Chicagoland. So the news media picked it up. And, you know, we had a number of camera crews in our restaurants that first week.

Brian Mullan: Yes, it's a great question, Brian we're not we're not right now being super aggressive on advertising, yet because really we want to make sure that it's an operational test first and foremost so that we can execute it so any marketing that we have done has been in restaurant collateral.

Brian Mullan: Our digital menu boards will show breakfasts, we've got some tape.

Brian Mullan: Table tends to show breakfast some signs that show breakfast. It did pick up a lot of PR in Chicago land. So the news media picked it up and we had a number of camera crews at our restaurants that first week, but it's it's it's almost been a stealth mode rollout of breakfast.

Michael Osanloo: But it's, it's, it's almost been a stealth mode rollout of breakfast. And, you know, as we keep going, for sure, if we expanded this to the entire Chicagoland area, we would have, we would want to market it. So and then all the metrics that we have, take that into account that it's a stealth mode, we're not going to, you know, I don't expect XYZ massive lift because we haven't marketed it as well. Does that make sense? It does.

Brian Mullan: And as we keep going for sure if we expanded this to.

Brian Mullan: The entire Chicago land area, we would have we would want to marketed.

Brian Mullan: So and then all of the metrics that we have take that into account that it's a stealth mode. We're not going to I don't expect.

Brian Mullan: X y and Z massive lift because we haven't marketed it as well.

Brian Mullan: Does that makes sense.

Brian Mullan: Thank you.

Brian Mullan: It does thank you.

Michael Osanloo: And then just second question, just come back to the limited menu in Houston. It got asked about earlier, but yeah, are you happy with the menu overall? And I'm just asking, trying to understand if you still might want to take this approach with new restaurant openings going forward, or even potentially put it in existing restaurants outside of Chicago at some point, if you're still contemplating that. We definitely see some improvements. We see some improvements in the P&L and how we operate that restaurant. We see some improvements in labor. We see some improvements in OPEX. So I think there's a lot to like about it, and we're continuing to evaluate it.

Speaker Change: And then just second question just come back to the limited menu in Houston. It got asked earlier, but are.

Speaker Change: Are you happy with the menu overall and I'm, just asking I'm trying to understand if you still might want to take this approach with new restaurant openings going forward or even potentially.

Speaker Change: Put it in existing restaurants outside of Charlotte at some point, if you're still contemplating that.

Speaker Change: Yes.

Speaker Change: We definitely see some improvements we see some improvements in the P&L and how we operate that restaurant, we see some improvements in labor, we see some improvements in opex. So I think theres a lot to like about it and we're continuing to evaluate it as I think you know we added back a couple of things.

Michael Osanloo: You know, as I think you know, we added back a couple things. You know, we added back the Italian sausage people, you know, and the Maxwell Street people. That was something clearly guests were missing, and so there was a nice little reaction to that. But I think it's something that we will very seriously consider as we open new restaurants, having a little bit of a leaner menu that still satisfies people's cravings for, you know, the amazing food that we serve.

Speaker Change: We added back the Italian sausage.

Speaker Change: People and the Maxwell Street people that that was something clearly guests were missing and so there was a nice little reaction to that.

Speaker Change: But I think it's something that we will very seriously consider as we open new restaurants.

Speaker Change: Adding a little bit of a leaner menu that still satisfies people's cravings for the amazing food that we serve.

Michael Osanloo: Thank you.

Speaker Change: Thank you.

Dennis Geiger: Our next question is from Dennis Geiger with UBS. Please proceed. Great morning, guys. Thank you. Michael, just to beat a dead horse, one quick follow up on the newer stores. Sounds like no overreaction, you know, from you there, which makes sense. Just curious, if any, as it relates to the observations, you talked about maybe that the marketing could, I think, could be something that could be tweaked.

Dennis Geiger: Our next question is from Dennis Geiger with UBS. Please proceed.

Dennis Geiger: Great. Good morning, guys. Thank you Michael just to beat the dead horse one quick follow up on the newer stores.

Dennis Geiger: It sounds like no overreaction from you there, which makes sense just curious if any as it relates to the observations you talked about maybe that the marketing I think could be something that could be tweaked.

Dennis Geiger: Anything as it relates to operations staffing et cetera, learnings and some of those newer stores or or or is that not something that.

Michael Osanloo: Anything as it relates to operations, staffing, etc., learnings in some of those newer stores, or, or, or is that not something that, you know, that needs to be tweaked or anything? No, you know, look, I would tell you, Dennis, I've visited those stores. I look at all the guest metrics in those stores. They're very well run. The staffing is, if anything, it's generous. We have plenty of people there to help take care of guests. We're really cognizant that the first visit to a Portillo's will set a tone for people. And we want that first visit to be as good as humanly possible.

Dennis Geiger: That needs to be tweaked or anything.

Dennis Geiger: No look I would tell you Dennis I visited those stores I look at all the guest metrics in those stores, they're very well run the staffing is.

Dennis Geiger: If anything its generous we have plenty of people there to help take care of guests, we're really cognizant that the first visit to a port till those will set a tone for people and we want that first visit to be as good as humanly possible. So we definitely invest in labor food cost to generate loyalty on first visit in so.

Michael Osanloo: So we definitely invest in labor, food costs to generate loyalty on first visit in. So I think that we nailed. I really think it's as simple as we're still a relative unknown, and we didn't market as aggressively pre-opening as we did in Dallas. And you compound that with a uncertain economic environment, and you get off to a slower start. I think it would be very easy to overreact to this, and we're not going.

Dennis Geiger: I think we that we nailed I really think it's as simple as we're still a relative unknown and we didn't market as aggressively preopening as we did in Dallas and you compound that with a uncertain economic environment and you get off to a slower start.

Dennis Geiger: I think I don't I think it would be very easy to overreact to this and we're not going to.

Dennis Geiger: Great, makes good sense.

Speaker Change: Great makes good sense, then just anything else to highlight as it relates to sort of observed.

Michael Osanloo: Then just anything else to highlight as it relates to sort of observed customer behavior changes, be it day part, day of the week, you know, the on premise, off premise, anything across channel, particularly as it relates to some of the strength you're starting to see now in in March and into April. I think there was a question someone asked a little bit earlier, which is a truism. I think our drive-throughs have picked up some momentum across the board. And so I think that the efforts we've put in place around improving speed, improving guest satisfaction and problem resolution would imply that, you know, we're we're getting really back to where we should be in the drive-throughs.

Speaker Change: Or behavior changes be it day part day of the week the on premise off premise.

Speaker Change: Anything across channel, particularly as it relates to some of the strength youre starting to see now in in March and into April.

Speaker Change: I think there was a question someone asked a little bit earlier, which is a true wisdom I think our drive throughs have picked up some momentum across the board and so I think that the efforts we've put in place around improving speed improving guest satisfaction of problem resolution would imply that we're.

Speaker Change: We're getting really back.

Speaker Change: Back to where we should be in the drive throughs, but I think there's still momentum ahead of us with improved performance in the drive throughs.

Michael Osanloo: But I think there's still momentum ahead of us with improved performance in the drive-through. Great. Thanks, Michael. You bet.

Speaker Change: Great. Thanks, Michael.

Speaker Change: You bet.

Operator: As a reminder, just star one on your telephone keypad if you would like to ask a question.

Speaker Change: As a reminder, the star one on your telephone keypad, if he would like to ask your question. Our next question is from Gregory Frankfurt with Guggenheim Securities. Please proceed.

Gregory Francfort: Our next question is from Gregory Francfort with Guggenheim Securities. Please proceed.

Arien Rezae: Hi, this is Arien Rezae for Gregory Francfort. Thanks for taking our questions and thanks for the caller on the new store performance. Michael, could you quantify the brand awareness in your markets? That would be super helpful.

Gregory Frankfurt: Hi, This is all in the XI for Gregory Frankfurt, Thanks for taking our questions and thanks for all the color on new store performance.

Speaker Change: Michael.

Speaker Change: Could you quantify the brand awareness in newer markets that will be super helpful and a quick follow up for Michelle.

Michelle Hook: And a quick follow-up for Michelle. So, it seems like Mixed earned positive for almost three years. Anything to unpack there?

Speaker Change: So it seems like mix turned positive in almost three years anything to unpack there and I had one more follow up thank you.

Michael Osanloo: I had one more follow-up. Thank you. You know. I don't know if our brand awareness, as you can imagine, is exceedingly high in Chicagoland. It's actually relatively good in Arizona. What I would tell you is it grows very quickly when we're investing in a market and when we are trying to develop a market, generate trial, generate awareness. The best example is in Dallas, with three months of marketing, our brand awareness grew 10%.

Speaker Change: No.

Speaker Change: I don't know if.

Speaker Change: Our brand awareness as you can imagine is exceedingly high.

Speaker Change: In in Chicago land, it's actually relatively good in.

Speaker Change: Arizona, what I would tell you is.

Speaker Change: It grows very quickly when we're investing in a market where we are.

Speaker Change: Trying to develop a market generate trial generate awareness and so the best.

Speaker Change: Best example is in Dallas with three months of marketing our brand awareness grew 10 percentage points.

Michael Osanloo: and you know that's that's that was material we see a positive impact on sales and we actually see a direct correlation between brand awareness and sales and so you know we think that there's something to this that we will continue to And to answer your question on the mix side, I have mentioned kiosks before that continues to drive at least a 15% increase in our average check from that kiosk adoption. And so we're seeing a lift there. We're also seeing some additional attachments specifically on drinks within all of our channels. So it's not specific to a channel.

Speaker Change: And.

Speaker Change: That was material, we see a positive impact on sales, we actually see a direct correlation between brand awareness and sales.

So we think that there is something to this that we will continue to push.

Speaker Change: Yeah and to answer your question on the next side I have mentioned key asks before.

Speaker Change: That continues to drive at least a 15% increase in our average check from that kiosk adoption and so we're seeing a lift there. We're also seeing some additional attachment specifically on drinks within all of our channels. So it's not specific to a channel. So those are the two key.

Michael Osanloo: So those are the two call outs I would put out there on that.

Speaker Change: <unk> put out there on mix.

Michael Osanloo: For more information visit www.FEMA.gov got it super helpful and a quick follow-up on loyalty it seems like there's a lot of data collection and testing any surprises you can you can call out That's an interesting question. I don't think there's, I think. The responsiveness to guests, I guess here's what, I'm very pleasantly surprised by how quickly guests respond to some of our offers. And so I think there's something to that, that guests really does. love us, but they're highly motivated when we put an offer to them. So it's exceeding my expectations on how well they respond when we offer them something.

Speaker Change: Got it Super helpful and a quick follow up on the loyalty it seems like Theres a lot of data collection and testing any surprises you can you can call out.

Speaker Change: That's a interesting question.

Speaker Change: Sure.

Speaker Change: I don't think there is.

Speaker Change: I think.

Speaker Change: The responsiveness to guess I guess here.

Speaker Change: I am very pleasantly surprised by how quickly guests respond to some of our offers and so I think there is there is something to that.

Speaker Change: Guests really does.

Speaker Change: US, but they are highly motivated when we put an offer to them. So.

Speaker Change: It's it's exceed.

Speaker Change: Exceeding my expectations on how well they respond when we offer them something.

Michael Osanloo: at it.

Speaker Change: Got it thank you so much.

Michael Osanloo: Thank you so much. You bet.

Speaker Change: You bet.

Operator: With no further questions in the queue, this will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation. and 12 others, in the whole building. ALL AROUND US.

Speaker Change: With no further questions in the queue. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Oh.

Speaker Change: [music].

Dorothy Moore.