Hello, and thank you for standing by. Welcome to Portillo's Third Quarter 2025 Conference Call and Webcast. I would now like to turn the call over to Chris Brandon, Vice President of Investor Relations at Portillo's to begin.

Thank you, Operator. Good morning, everyone, and welcome to the Portillo's Third Quarter 2025 Earnings Call. With me today are Mike Miles, Chairman of the Board and Interim Chief Executive Officer; and Michelle Hook, Chief Financial Officer. You can find our 10-Q, earnings press release and supplemental presentation on investors.portillos.com. Any commentary made here about our future results and business conditions are forward-looking statements, which are based on management's current expectations and are not guarantees of future performance. We do not update these forward-looking statements unless required by law. Our 10-K identifies risk factors that may cause our actual results to vary materially from these forward-looking statements. Today's earnings call will make reference to non-GAAP financial measures, which are not an alternative to GAAP measures. Reconciliations of these non-GAAP measures to their most comparable GAAP counterparts are included in this morning's posted materials. Finally, after we deliver our prepared remarks, we will be happy to take questions from our covering sell-side analysts. And with that, I'll turn the call over to Mike.

Thanks, Chris, and good morning. Although I've had the opportunity to meet many of you over the years at different venues, this is my first time speaking with you as Interim CEO of Portillo's. I was also in this role back in 2014 and '15 after our founder, Dick Portillo, retired. So, it's not my first time. And as most of you know, I have been Chairman of the Board for the past 10 years. I have been back in the seat for a little over a month, and everything I have seen only reinforces my confidence that Portillo's has a long runway for growth ahead. Each time we enter a new market; our first restaurant is overrun with passionate fans who have been waiting for years for Portillo's to come to town. And the first restaurants opened outside Chicago in California and Arizona, have matured well over the years. We'll do over $10 million in our Buena Park location this year. I'm also impressed with the capability of the company today compared to 10 years ago from the talent and training we have in our restaurants to the energy and commitment at the restaurant support center to the experience and perspective we have on the Board of Directors. Although I've had the privilege of seeing all that develop gradually from the Board level over the past decade, it's that much more pronounced being back in the RSC in Oak Brook every day after a 10-year gap. What hasn't changed is the Portillo's experience. Our unique craveable menu, outstanding value, genuine hospitality and lines that move quickly. Those were the ingredients for the success of Portillo's a decade ago, and they are the foundation of our success today. And the reason that our 98 restaurants averaged $8.6 million in annual…

Great. Thank you, Mike, and good morning. During the third quarter, revenues were $181.4 million, reflecting an increase of $3.2 million or 1.8% compared to last year. Our revenue growth in the quarter was driven by non-comp restaurants. Restaurants not in our comp base contributed $5.6 million of the total year-over-year increase in revenue during the quarter. Same-restaurant sales declined 0.8%, which decreased revenues approximately $1.2 million in the quarter. The same-restaurant sales decline was attributable to a 2.2% decrease in transactions, partially offset by an increase in average check of 1.4%. The higher average check was driven by an approximate 3.2% increase in certain menu prices, partially offset by a 1.8% decrease in product mix. We do not foresee taking any additional pricing actions in the remainder of this year. As such, our effective price increase for the fourth quarter is estimated to be in the range of 2.5% to 3%, pending the impact of our fourth quarter Portillo's Perks offers. Moving on to our costs. Food, Beverage and Packaging costs as a percentage of revenues increased to 34.5% in the quarter from 33.7% in the prior year. This increase was primarily the result of a 6.3% increase in our commodity prices, partially offset by an increase in our average check. In the quarter, we experienced increases in several categories, including our primary proteins of beef, chicken and pork. We continue to forecast commodity inflation of 3% to 5% in 2025 with the most significant pressures coming from beef. Labor as a percentage of revenues increased to 26.6% in the quarter from 25.8% in the prior year. The increase was primarily due to lower transactions, incremental wage increases, higher benefit costs and deleverage from our newer restaurant openings. This was partially offset by an increase in our average check…

[Operator Instructions] Our first question comes from Sara Senatore with Bank of America. 

Isiah on for Sara. Just seeing that other restaurant OpEx saw pressure just due to advertising expense, but the traffic decline seems to have accelerated quarter-on-quarter. Could you guys speak to marketing efficacy in the quarter and just how you think about marketing strategy going forward, especially in the light of Denise joining back in September? 

Yes, Isiah, keep in mind that our marketing, it's in two spots. One, as you mentioned, is in OpEx, but then in G&A as well, we do have marketing spend in there, just more geography for you on the P&L. Yes, absolutely, we continue to believe that we need to drive trial and awareness, specifically in our newer markets. And so as we look at campaigns we have ongoing in Dallas, we're making investments in Houston as well, where we have five restaurants today. And we continue to believe that that's a good investment to make as we drive that trial and awareness.  Now having said that, here in our core market of Chicagoland, that still is extremely important to us. We need to make sure that we continue to message the brand and look at our value proposition here. And so we make investments here as well. We have a campaign going on in Chicagoland as we speak right now to continue to message the brand here in our core markets. So we continue to believe in that investment and that that's a good payback for us now and as we look into the future. 

I appreciate the clarification. And just as a follow-up, appreciating that you guys aren't taking price or planning to in 4Q, pricing does seem to be running towards the high end of the industry range. How do you guys view your value perception among guests and just your broader value proposition? 

Yes. In terms of pricing, so when we look at where we were at this quarter and then when you look at where the September inflation data was, food away from home was at 3.7%. So we're definitely indexing under that. As I mentioned, we're not planning to take price this quarter. As we go into next year, we'll look at that in relation to our inflationary cost pressures. But as Mike mentioned, we continue to believe that we need to drive traffic into our restaurants. And so we have to be mindful of when and where we take price.

Our next question comes from Brian Mullan with Piper Sandler.

Just a question on development. I guess, one, is there anything you can say around the openings you expect in '26 as you sit here today? Presumably, what will open next year is already underway in some form or fashion has been planned. And then just related to that, if you were going to make any kind of pivot on development beyond next year, I would think it wouldn't be until 2027. So maybe just talk about what scenarios you're contemplating? Is there a world in which you don't build for a while, and you focus on the existing assets? Are there a lot of things just open-ended beyond next year?

Yes, Brian, as we said, we're going to plan to open 8 restaurants next year, and you're spot on that a number of those were already in flight. And so, you'll see some additional restaurants in Dallas and Houston, which if we could do it all over again and wave a magic wand, we might not open in 2026. We've probably pushed them out. But we, we've got some other great sites in the pipeline. And as we look ahead to 2027, it's our intention to continue to grow and to grow gradually, as I discussed. So, you won't see us open a bunch of more restaurants in '27 in either the Dallas or the Houston market, but you'll see us expanding in other markets that are growth opportunities for us. We'll probably have our second opening in the Atlanta market in 2027 and look to other locations for growth beyond that.

Our next question comes from Gregory Francfort with Guggenheim.

This is Arian Razai on for Greg. I wanted to ask about the beef cost. And I know it's early, but can you help frame the early thoughts in commodity into the next year? And also maybe like touch on labor inflation guidance. It seems like a lot of companies like are seeing like below 3% wage like year-over-year, but I'm seeing you guys are still like above that. I don't know if it's regional or any outlook on that or any commentary would be super helpful.

Yes. So in terms of beef cost, obviously, we saw, we've seen pressures on beef all this year. As we go into next year, we don't see any easing on beef costs. We're still putting together plans. I think you've seen other companies who have a more concentrated basket on beef signaled more mid-single digits. We're again putting together that plan. We'll have more information on what we think '26 is going to look like in January for you all. But I imagine what you're hearing today, we're not in any different boat than those folks are. But just for context, about 30% of our basket is beef. So we, that is more heavily weighted for us, but there's still a broader basket for us and with some offsets as we look into next year as well that we think can help mitigate some of those pressures. On the labor front, year-to-date, we're at about 3%. We came into the year forecasting 3% to 4%. So we're at the lower end of the range. I wouldn't say that there's necessarily more geographical concentration for us. We continue to give increases to our team members within each year. We don't pay minimum wage anywhere. When you look at our average hourly rate, we're above $17 an hour. So we feel really good about where we sit today, but we still need to make investments in markets and existing team members, but nothing I'd call out in terms of concentration of where those increases are.

Our next question comes from Chris O'Cull with Stifel.

This is Ella on for Chris. Mike, I appreciate your prepared remarks on the quarter, but can you elaborate on what enabled the company to deliver a bit better comp performance than what you guided to in the business update?

The comp performance in the third quarter was helped out some by our Perks program, which we're beginning to scale and are beginning to learn more about how to use. It's great that we have such an engaged customer base, and they, so when we use the Perks program to stimulate visits, we get an immediate response to it. And we did a little bit of that in the third quarter, and it's helpful both with respect to lapsed guest activation, also getting folks to try new things that are on the menu. And then we've also sent a couple of offers to the entire base that have had a really nice response. And that was a bit of an upside for us in the third quarter.

Great. Just a follow-up on the fourth quarter comp. So the full year comp guidance of down 1% to down 1.5% imply a pretty big decrease in the fourth quarter, both on a 1-year and 2-year basis. Curious, how is the quarter-to-date comp look like and any color on that?

Yes. We're not going to comment on any Q4 comp information other than what you just said, Ella. I will say, though, when you look at what we're lapping in Q4 of last year, we did have a positive comp . So we have a little bit tougher lap coming into Q4, and there's still a lot of unknowns. I mean you all see what's going on in the industry. So it's very fluid right now. We do have a large seasonal catering business here in our core as well. So that can be impactful to us in Q4. So still some unknowns for us, but we feel comfortable about the guide that we put out there.

Thank you so much.

Our next question comes from Dennis Geiger with UBS. Please proceed with your question.

Hi. This is Paul Hao on for Dennis. Thank you so much for the question. I guess my first question is more of a clarification. I understand you don't want to talk about anything about 4Q trends. But just curious if you could provide some color on the comp cadence through third quarter and how did sales and traffic trend exiting like towards the end of the quarter? And then just a follow-up, I'm wondering if you could elaborate a little bit more on what you have seen in terms of consumer behavior and if there's any notable shifts that you'd like to highlight by either age or income cohorts? Thank you.

Yes. When you look at intra-quarter trends, Mike mentioned we pulled some Portillo's Perks levers. So when you look at, in July, we ran $1 hotdog week offer. In September, we ran a 50% cheeseburger week offer. And so those were more impactful versus, say, a August comp performance, but that was obviously driven by levers that we pulled with the Portillo's Perks program. And so that's just a little bit of intra-quarter color. There's always, in September, you have more pressures, but I think we did a nice job of pulling some of those levers with the Perks program to help mitigate some of those pressures, which is why our comp performance came in a little bit better than what we were projecting. In terms of the consumer, I think you all see what we see. It continues to be a very fluid situation. It continues to be pressured, but it's something that we've been facing all year, and we continue, like the rest of the industry to do what we can to mitigate some of those headwinds.

Our next question comes from Jim Salera with Stephens Inc. Please proceed with your question.

Good morning, This is Tyler Prause on for Jim. Thanks for taking our questions. Just kind of a follow-up to the last question to get started. Several of your QSR competitors have called out an outsized impact from the Hispanic and younger consumer cohorts. Just curious if you saw any noticeable step change during those cohorts during the quarter.

Yes, Tyler, we did not see anything that I would call out as noticeable. We've continued to call out just some pressures that we've had, specifically in our drive-thru channel. I'd say that was a little bit more pronounced in Q3 versus some of the other channels, but nothing specifically with like a Hispanic or other consumer cohort that I would call out.

Great. That's helpful. And just kind of shifting gears here. You previously called out more of a focused marketing effort in Texas. Can you talk a little bit how that's going? And additionally, with Portillo's now in several unique markets such as Arizona, Texas, Florida and soon to be Georgia, which are effectively at different stages of awareness building, how are you developing a cohesive marketing message to communicate to these different markets effectively?

Yes. It's a great question, Tyler. And I think at a couple of levels. First, tactically, we're pulling just about every lever that we know how in Texas to try and get people to try more Portillo's. It's really the kind of thing where we build our brand by people experiencing it. So everything that we can do to get folks to give us a try from sampling events to offers that we make through the Perks program to some market-wide offers that we're trying in Dallas and we'll be shortly employing in Houston. All those things help to get us our first visit, and I think that's important to get the ball rolling. And that's really the way that Portillo's has built the brand in every market going back to Chicago for the last 40 or 50 or 60 now years. I do think there's a germ of a big idea that you also referenced in your question about how we have a cohesive program for new markets. We really have not ever sort of cracked the code on communicating what Portillo's is all about to people who have never heard of us before. We really rely on the Chicago expatriate community to drive our sales in new markets. And they do a great job. The first couple of restaurants we opened in a market just, we can't keep up with all the demand. People drive for hours to get to those restaurants. But we need to have a clearer way to communicate to folks who have never heard of Portillo's before and don't know somebody from Chicago, what's so great about it. And you heard somebody mention Denise, who's our new CMO. She's working on that. And it's not the kind of thing that's going to happen overnight, but it is something that we'll be developing over the course of 2026 so that as we go to new markets like Atlanta and beyond, we've got another way to get people to try Portillo's and experience it.

Very helpful. That's all from us now.

We have reached the end of our question-and-answer session, which concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.