管理層發言
Good afternoon. Welcome to Portillo's Second Quarter 26 Earnings Conference Call. All participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please note that this event is being recorded. I will now hand you over to the Vice President of Investor Relations, Chris Brandon. Please go ahead.
Thank you, operator. Good afternoon, everyone, and welcome to the Portillo's Second Quarter 26 Earnings Call. With me today are Brett A. Patterson, President and Chief Executive Officer, and Pamela Smith, interim Chief Financial Officer. You will find our 10-Q and earnings press release at investors.portillos.com. Any commentary made here about our future results and business condition 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-Q 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 sell-side analysts. And with that, I will turn the call over to Brett.
Thanks, Chris, and good afternoon, everyone. Quarter 2 demonstrated the strength and resilience of the Portillo's brand. While we lapped significant prior-year promotional and one-time activities that we chose not to repeat, underlying sales remain resilient, reinforcing the enduring appeal of our brand and the strength of our restaurant teams. Over the past several months, we have taken meaningful steps to strengthen operations, improve our business model and unit economics, and build a more sustainable platform for profitable new unit growth. This work is grounded in three strategic pillars we introduced last quarter: operational excellence, integrated marketing, and disciplined development. I will cover the progress we have made, how we are approaching the next six months, and the key takeaways from the second quarter before Pamela Smith walks through our results in more detail. Before we get into that, I am excited to provide an update on our finance leadership transition. As you may have seen yesterday, we announced that Kevin Kalicak will join Portillo's as Chief Financial Officer. We are thrilled to welcome such an accomplished leader to the team. His leadership will be essential as we continue strengthening our financial rigor and executing our growth strategy. I also want to thank Pamela for stepping in to lead our finance function over the last quarter. She has been a great stabilizing force throughout this transition, and I am grateful for her steady hand and partnership. Turning to the business, the work we completed in recent months was part of a broader strategic reset designed to strengthen our foundation, improve operating discipline, and support long-term profitable growth all while running great restaurants. The actions we took across our cost structure, development model, and operating approach are connected by a common objective: building a more focused and scalable platform for the future. First, we made the purposeful decision to simplify our G&A structure so we can operate with greater focus, move more nimbly, and better support our restaurant teams. After the quarter, we implemented a reduction in force that reduced our corporate headquarters with no direct impact on restaurant-level team members. While this action will create G&A savings, the primary objective was to align our teams, resources, and decision-making more directly with the priorities that matter most to our operators and guests. Pamela will discuss the financial impact in more detail. Second, we launched an initiative to capture meaningful efficiencies across our supply chain and indirect spending categories. We expect those savings to begin contributing this year and build over time, supporting improved profitability as we scale the business. Third, we reviewed our development function end to end and identified opportunities to simplify processes, reduce cost, and improve capital discipline. These changes will begin benefiting the class of 27 restaurants, while our future prototype design work will support a significantly more efficient model for 2028 and beyond. We also built a stronger and more robust real estate forecast model to improve site selection, better understand new restaurant performance, and guide future capital deployment. Early learning is already helping us understand actual performance against prior expectations for recent restaurant classes and will also sharpen future development decisions. Taken together, these actions are expected to generate annualized run-rate savings of approximately $10 million to $15 million while creating a more rigorous platform for future unit growth. As we discussed last quarter, our strategy is anchored in three pillars: operational excellence, integrated and targeted marketing, and disciplined development. Together, these pillars are designed to improve restaurant-level performance, engage guests by leveraging sharper insights, and create value through better site selection, right-sized prototypes, and lower build cost. To support these pillars, we commissioned formal studies in three areas: customer segmentation, brand perception and positioning, and menu satisfaction. Those insights, combined with feedback from our operators, are sharpening our approach to operations, targeted customer engagement, and future restaurant design. One key takeaway is clear: Portillo's has exceptional brand affinity in Chicago and beyond, along with differentiated brand positioning that we believe can travel well across existing and new markets. I would also like to highlight a few other actions from the quarter that support this broader strategy. We strengthened our culinary function by adding Chris Hanson as Executive Chef. Chris brings deep restaurant experience in culinary strategy and development, and his leadership will help us advance menu innovation as well as culinary creativity, quality, and consistency. We also restructured our development team and processes and engaged a design firm to advance our next prototype. That work is guided by our brand research and focused on three priorities: lowering build cost, improving returns, and amplifying the elements that matter most to the Portillo's experience. Lastly, we opened our first airport location at Dallas Fort Worth International Airport. At under 3,100 square feet, and a kitchen 25% smaller than our former prototypes, this location incorporates equipment enhancements that will allow us to operate more efficiently within a smaller footprint. Before I turn it over to Pamela, I want to briefly touch on our second-quarter results and how we are thinking about the business as we move through the back half of the year. Regarding sales performance, several items created meaningful same-restaurant sales headwinds in the quarter. Our decision to not repeat last year's buy-one-get-one beef promotion, the discontinuation of the prior-year breakfast initiative, and cannibalization represented approximately 250 basis points of headwind. As we move through the back half of the year, we will remain focused on profitable transactions growth and avoid aggressive discounted activity as we lap significant prior-year promotions including 50% off burgers and buy-one-get-one-free sandwiches. With that backdrop, we now expect adjusted EBITDA of $92 million to $96 million for the year. This updated outlook reflects deliberate choices to protect guest value by underpricing inflation, avoiding aggressive low-margin promotional activity, and reforecasting our non-comp restaurants based on recent performance and realistic expectations. In summary, over the last quarter, we aligned the organization to better support our restaurants, took meaningful actions to strengthen the business and sharpen our focus on profitable growth. We captured savings with immediate impact, completed brand research that is shaping our future roadmap, improved capital discipline for the 2027 pipeline and beyond, and advanced prototype redesign work to support stronger cash-on-cash returns. I am confident that our sharper focus and more deliberate execution will position Portillo's for more durable, profitable growth over time. We look forward to sharing more detail on our strategy soon. Lastly, I want to thank our operators and team members who bring Portillo's energy, hospitality, and culture to life every day. Their focus and execution are what make this progress possible. With that, I will turn it over to Pamela to walk through our second-quarter results in more detail. Pamela?
Thanks, Brett. As Brett noted, second-quarter sales were resilient even with the lap of breakfast, buy-one-get-one beef, and cannibalization while the team executed meaningful work to position the company for a strategic reset. Perks continued to perform well, with Q2 delivering the highest sales penetration in Perks history at 15.1%. This platform will continue to be used for surprise and delight offers to reward our most loyal customers. Now on to our Q2 results. Revenues were $199 million, reflecting a 5.6% increase versus last year. Revenue growth was driven by the addition of non-comp restaurants, which contributed $13.3 million of the year-over-year increase. Same-restaurant sales declined 1.2%, reflecting a 3.4% decrease in transactions partially offset by a 2.2% increase in average check. Higher average check was driven by an approximate 2.6% increase in menu prices, partially offset by a 0.4% decrease in product mix. As previously mentioned, Q2 had combined traffic headwinds of approximately 250 basis points from promotional activity, the breakfast pilot in the prior year, and cannibalization from new restaurants. Thus far into the third quarter, we are running slightly positive same-restaurant sales. And we are mindful of expected headwinds from promotional activity and cannibalization throughout August and September. We entered the second quarter with approximately 1.7% of carryover pricing from 2025. Approximately 1% of this carryover pricing rolled off in early April, and the remaining 0.7% lapsed in June. In mid-April, we implemented a 2% price increase across select menu categories. Absent further pricing actions, we expect approximately a 2% menu pricing benefit in the third quarter and anticipate that offers within Perks could have a modest impact on realized pricing. Turning to costs, food, beverage, and packaging cost increased to 35% of revenue in the quarter from 33.8% last year. This increase was driven primarily by the addition of new restaurants and higher commodity costs of 7%, led by beef and produce, partially offset by an increase in average check. We still expect commodity inflation to be consistent with our original guidance for the fiscal year of mid-single digits. Labor expense was flat versus prior year at 25.7%, primarily due to wage inflation and deleverage from our newer restaurant openings, partially offset by labor efficiencies. Other operating expenses increased $1.4 million, or 6.5%, primarily driven by the opening of new restaurants, partially offset by lower utilities and insurance costs. As a percentage of revenue, other operating expenses were 11.7%, slightly up from 11.6% last year. Occupancy expenses increased 60 basis points, or $1.7 million versus last year. This was driven by the opening of new restaurants, higher occupancy costs, and deleverage from new restaurant openings. Restaurant-level adjusted EBITDA decreased $1.2 million to $43.2 million with margins declining approximately 190 basis points to 21.7%. This was mainly driven by food cost inflation not being fully offset by pricing and non-comp restaurant underperformance in the second quarter. G&A expenses increased to $19.6 million, or 9.8% of revenue in the quarter, up from $18.8 million, or 10% of revenue in the prior year. This increase was driven by higher professional fees, including $900 thousand of dead-site costs. Preopening expenses were $900 thousand in the quarter compared to $1.7 million last year. This reflects the timing and scale of activities related to our planned restaurant openings including expansion into new markets. Adjusted EBITDA of $29.8 million, or 15% of revenue, is slightly below last year's result of $30.1 million, or 16% of revenue. Interest expense was $5.7 million in the quarter, flat to prior year. Q2 income tax expense was $1.8 million, a decrease of $1.9 million from last year. Our effective tax rate for the quarter was 19.8% versus 26.8% in the prior year, reflecting changes in our valuation allowance related to equity-based compensation expense. We expect to open one additional location in the fourth quarter of 26, which will be in Downtown Chicago and is our second in-line format restaurant. This will bring our total restaurant openings in 2026 to eight, in line with our original guidance for the fiscal year. Cash provided by operating activities increased 22.4% year over year to $35.1 million year to date, primarily reflecting favorable timing of operating assets and liabilities. We ended the quarter with $21.3 million in cash. We had $97 million outstanding on our revolver, total net debt of $338 million and approximately $49 million of remaining revolver capacity. We are pleased to see the balance sheet in a much healthier position and will utilize our cash available from the recent shift toward free cash flow positivity to pay down debt and reduce our revolver. Thank you for your time today. Operator, please open the line for questions.
分析師問答
Thank you. Ladies and gentlemen, we will now be conducting the question and answer session. Please note, for participants making use of speaker equipment, it may be necessary to pick up your handset before pressing the star keys. If you would like to ask a question, please key in star and then 1. A confirmation tone will indicate that your line is in the question queue. First question comes from Margaret-May Binshtok of Wolfe Research. Please go ahead.
Hey, guys. Thanks for taking my question. I just want to ask, on the last call, you talked a little bit about the brand work as the input that is needed before the strategy starts to take shape. Now that you have done some of that, can you tell us a little bit about the initial learnings coming out of it? And then I also wanted to ask: you are five months into the job now. Are there any broader observations on the brand and the business from the time that you have spent now in the restaurants and with the team? Thank you.
Hey, Margaret-May. Thank you for the question. As it relates to the research, going back to what we talked about last time, we had three really landmark studies for the brand that we had not done. The first was on guest segmentation to really identify who our target customer is and who we need to activate against. We did a quantitative brand perception study that led to our brand positioning work. And the third piece of work was our menu satisfaction study that we had not done. I will tell you, without giving away the full strategy because our plan in the very near future is to have a full rollout, that one, we have clearly identified who our target segments are for our customers. We believe there is real growth opportunity in a couple of different target areas. Second, I am very excited because we got very clear brand positioning. It was very clear to us after this research and what we know from talking to our operators and teams what our brand strengths really are and those competitive advantages. So we have now really locked in on what we believe is a solid brand positioning. The third piece is still coming in as we speak: looking at our food to make sure that we honor what matters most to the Portillo's guest and our legacy items, and that innovation of the future is grounded in quality and abundance. So we have a clear line of sight now to where we are really winning and where we have opportunities. Bringing on Chris as our culinary lead will be imperative as we move forward to pursue some of that work. To sum it up, we have strong clarity around the brand and that will take shape, and our growth strategy work will roll out soon. As far as after my first five months, I would say, similar to what I mentioned last time, there were very few surprises. Seeing the brand research reinforced that we have a special brand. Guest loyalty—brand love and net promoter-type scores—are as high as anybody in the industry once guests get to know the brand. Outside of Chicago, it is strong; the question is how we get guests in the door the first time to hook them. That was additional clarity, and it was good to see that outside of Chicago we have resonance as well. Where the work really has to be is continuing to build better business disciplines and ensure we have a clear, focused strategy and resilient disciplines toward achieving it. That will position the brand for a very bright future. Thanks.
The next question comes from Sara Senatore of Bank of America. Please go ahead.
Hi. Good afternoon. This is Ashling on for Sara. My question is just on the guidance. You lowered restaurant-level margin guidance roughly 75 basis points to the midpoint. I wanted to get your thoughts on what changed versus the prior view. Is this lower-margin outlook more a function of weaker-than-expected sales leverage or commodity pressure? Or is this just a lower near-term margin baseline as you work through the reset? Any color here would be helpful. Thanks.
Thank you for the question. What I would say is that with the guidance tonight, on my first earnings call the question was asked and we reaffirmed at that point with an understanding that I had not had much time to get under the hood of the brand and look at it. Over the last 13 weeks, we had that opportunity. The guidance adjustment was really in a couple of areas. One is the non-comp restaurants. We had to reset and adjust the non-comp locations based on what was in the original guidance versus where we see them today from a performance standpoint and be more realistic. So there was an adjustment, particularly in our Texas and Arizona markets. The other piece was that there was a little bit more commodity inflation in the second quarter. However, we do think that will moderate in Q3 and Q4 and be consistent with our guidance. So I would say it had more to do with resetting that non-comp base and what we have seen thus far, and giving ourselves some room there to make sure we have time to operate them differently than maybe we have in the past. That will come to light more later this year and early next year.
Next question comes from Gregory Francfort of Guggenheim. Please go ahead.
Hi. This is Arian Razai on for Gregory. I wanted to ask your thoughts on the beef market and the outlook into next year. Also, how much of the miss is the buy-one-get-one beef versus structural traffic softness? I am trying to gauge the underlying trend versus promotional distortions. Thank you.
I just want to clarify: are those two separate questions—one on beef commodity and the other on underlying trends—or together?
Yes. Correct. Two separate.
With regard to beef commodity costs: we did see a higher impact in the second quarter, but we are 85% hedged in Q3 and Q4. The rest of our basket is about 63% locked. We are feeling very comfortable about where costs will be for the rest of the year and expect to hit guidance by the end of this year.
I will take the underlying trends question. For quarter two, we had three significant headwinds we were lapping. One was the buy-one-get-one beef promotion in May, which was a significant headwind at a deep discount that we chose not to repeat and is not part of our strategy going forward. The second was lapping the breakfast initiative from last year, which is anywhere between 70 to 100 basis points depending on the period. The third was cannibalization from new restaurants. We implemented a new real estate forecast model and learned a lot about our newer markets and the cannibalization impact. One strength of this brand is guests will travel a long way to Portillo's, which is great for some openings. The downside is that placing another location fairly close by can cause significant cannibalization, and that is what we have observed in a couple of markets. Those three things had a profound headwind in quarter two, but to give some perspective: as we mentioned, in July, with less noise from last year, we are positive quarter to date. Some markets continue to perform really well.
The next question comes from the line of Brian Mullan of Piper Sandler. Please go ahead.
Kelly. This is Alison Armstrong on for Brian. Thanks for the question. Wanted to ask about the ongoing operational improvements around throughput and labor. What have you seen working so far in the first half? Has anything surprised you, and how did these learnings inform the second half and beyond plans? Thank you.
Thanks, Allison. The focus has been on productivity initiatives, particularly in our Texas market and some lower-volume restaurants. We have seen those initiatives come to fruition: our labor percent of total sales stayed flat to last year even with wage inflation and with non-comp restaurants included. We have seen productivity improvements in those markets. We are now getting learnings from our Dallas Fort Worth airport location, where we have a much smaller kitchen designed differently with new equipment that will generate future efficiencies in back-of-house productivity. We will take the next step with that model and continue to deploy it into some Texas locations and the current prototype to see the benefits. Overall, we have good productivity in most locations; where we have certain volume bands, we have opportunities to tighten up, and we will apply learnings from earlier in the year and the Dallas Fort Worth airport.
The next question comes from the line of Dennis Geiger of UBS. Please go ahead.
Hey. Good afternoon. This is Nick on for Dennis. Thanks for taking my question. We saw the limited-time Dr Pepper shake starting yesterday. Curious about the appetite to expand the beverage offering to include refreshers, dirty sodas, or other drinks. Has that been tested before? Is it in test? And is that something within the plan?
Thanks for the question. One of the reasons we brought on Chef Chris was to lead menu and beverage innovation. Beverages are popular across the industry and are performing well with many guest cohorts. We have equity in beverages with our shakes and cake shakes. Coming off our recent menu set, those score well on satisfaction, which is why we leaned in on the Dr Pepper shake innovation, which has been trending. Over time, you will see further innovation around the beverage platform, and I think it will link well to the customer segments we are targeting.
The next question comes from the line of Jim Salera of Stephens Inc. Please go ahead.
Hi. This is Tyler Prause on for Jim. Thanks for taking our question. With transaction softness, is it broad-based across your entire footprint, or are there areas of outperformance? To what extent are elevated gas prices driving demand headwinds across your market? If so, are there any ways to offset that impact?
I'll speak to transactions. As Brett mentioned, we were lapping a buy-one-get-one beef promotion last year. We chose not to chase that deep discount this year, so transactions are down, which was expected given our decision not to pursue a deep discount. Regarding broader consumer pressures, I believe it is difficult for consumers these days, but that is part of why we are focused on delivering the proper value equation and a consistent guest experience every time they enter one of our restaurants.
I would add that we did see markets that were stronger. Our Chicagoland market performed very well in quarter two and continues to perform well at the beginning of quarter three. There are markets outside Chicago performing well too. The markets that have been challenged faced heavier cannibalization than some of our core markets.
Jim, does that conclude your questions?
Yes. Thank you.
Thank you. Next question comes from the line of J.P. Wollam of ROTH Capital Partners. Please go ahead.
Brett. Thanks for taking my question. I want to focus on non-Chicagoland. You mentioned rightsizing the non-comp base units. Can you quantify where more tenured Texas and Arizona unit economics sit today relative to the Chicago base? I'm trying to understand expectations and whether that shifted from the former team's expectations for new markets. I have one follow-up. Thank you.
Let me talk about the non-comp base more broadly. In Texas and parts of Arizona, there are three factors contributing to underperformance. One, candidly, we built too many restaurants too quickly: in Dallas we built 12 in 3.5 years and in Houston we built six in 16 months. With this brand, now that we have a more accurate model, we would not repeat that pace. Two, meaningful cannibalization: several of the locations and sites we opened in those markets do not model appropriately for sales and returns based on what we know today. Three, build cost: the build costs we incurred in those markets are prohibitive to generating a reasonable return based on those sales. Going forward, we will look at Dallas and Houston very differently. To address this, we are doing a full assessment of all real estate locations and will make the strategic decisions that best support shareholders and the company.
And maybe that leads into a quick follow-up. Last quarter you mentioned pruning some leases you had signed. Any update as you think about 2027? Have you cut further in that pipeline, or are you and your development team beginning to add to the pipeline?
We feel good about where we are. For 2027 we previously said four to six openings and we are still finalizing that number. We should have it locked before our next update. We are starting to actively look into 2028 and already have some sites identified for 2028. Our plan is to launch the new prototype in Q1 of 2028. That prototype is being designed to further reduce footprint, improve kitchen layout, and use new equipment to be more efficient and execute high volumes at a much smaller and more cost-efficient unit.
The next question comes from the line of Matt Curtis of D.A. Davidson. Please go ahead.
Hi. This is Andrew. I was just wondering with the number of additional openings in Texas this year, what have you learned from this year's Texas class regarding site quality, product, productivity, and awareness?
Most of our growth this year was in Texas. We brought Jennifer in as Chief Development Officer and completed an end-to-end scrub of processes. Our forecasting model has been reinforced: it aligns with the performance we're seeing in Texas. The model is now much more sophisticated with many attributes plugged in. We know much more about why sites work well—Kennesaw, Georgia continues to perform very well from its opening in May, and San Antonio is doing very well. This confirms the issue is not portability of the brand; research supports that. It comes down to a real estate strategy. If we could do things differently, we would not have made some of the prior decisions, but we were committed and will determine the best way forward for those locations shortly.
The next question comes from the line of Patrick Johnson of Baird. Please go ahead.
Thanks for the question, guys. This is Patrick on for David Tarantino at Baird. Brett, I was encouraged to hear that you are in positive territory to start the quarter. Could you delve deeper into the levers you think you have to drive transaction recovery or sustain a transaction recovery in the second half? How are you thinking about the most impactful initiatives to deploy? You mentioned continued headwinds in September and October—can you quantify that relative to what you lapped in the second quarter as well?
We will combat headwinds through three strategic pillars. First, operational excellence: Tony Darden and his team have identified specific KPIs to help drive traffic in the restaurants. They have narrowed in on a few areas where experiences were creating low satisfaction or low intent to return, and we are addressing those with intense focus. Second, targeted marketing: historically we've been relatively underspent on marketing because of high awareness in our core markets, but high-ROI marketing remains an avenue to drive visitation. Third, food innovation: the Chardonnay Dog we launched in Q2 performed well and generated additional visitation from core consumers. Bringing on Chris accelerates our innovation pipeline; we have ideas for the rest of the year. We are not going to chase deep-discount promos. Regarding lapping: we haven't disclosed exact guidance around the sales lap, but the headwind from lapping buy-one-get-one beef and breakfast will be significant—it could be more than 200 basis points as we lap those discounts.
That is helpful. I know you mentioned supply chain savings—could you delve into that a bit more in terms of what specific opportunities exist, the timeline for execution, and whether the $10 million to $15 million savings estimate includes supply chain savings or is incremental to that figure?
The $10 million to $15 million annualized run-rate savings estimate is the combination of G&A reductions as well as indirect spend and supply chain savings. It's a wide range because we are in the early stages of the indirect spend and supply chain initiatives, but we expect clarity before our next call on the total. Some savings will be realized immediately and may be recognized in Q3, with more contributing in Q4, and the annual run rate will fall in that $10 million to $15 million range. When companies grow quickly, sometimes opportunities in procurement and indirect spend are left behind; by reintroducing disciplined priorities and processes, we expect to capture meaningful savings that will be largely flow-through.
Ladies and gentlemen, with no further entries in the question queue, we have reached the end of the question and answer session. That concludes this event. Thank you for attending, and you may now disconnect your lines.