Portillo's (PTLO) Q4 2025 Earnings Call Transcript

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DATE

Tuesday, Feb. 24, 2026, at 10 a.m. ET

Call participants

• Interim Chief Executive Officer — Michael Miles
• Chief Financial Officer — Michelle Greig Hook

Takeaways

• Total revenue -- $185.7 million, up $1.1 million or 0.6%, with non-comparable restaurants contributing $7.8 million in incremental growth.
• Same restaurant sales -- Decreased 3.3%, with transaction counts down 3.3%, and average check remaining flat as a 2.3% increase in menu prices was offset by a 2.3% decrease in mix.
• Kennesaw restaurant (Atlanta) -- Generated over $2 million in first eight weeks and $3.8 million in its first 100 days; utilizes the new Restaurant of the Future 1.0 prototype, which is 20% smaller than recent builds.
• Texas market impact -- Dragged consolidated restaurant-level margins by 180 basis points in the quarter; targeted labor and profitability actions led to "slightly positive results" in the final period.
• Restaurant-level adjusted EBITDA -- Fell to $40.6 million from $45.3 million, and margin dropped approximately 270 basis points to 21.8% from 24.5%.
• Guidance for restaurant-level adjusted EBITDA margin -- Forecast for 2026 is 20.5% to 21.0%, including a $4.5 million expected bonus headwind and continued Texas pressures.
• Adjusted EBITDA -- $24.7 million, down 2.1% from $25.2 million, with management expecting flat performance year over year.
• Pricing -- Net effective menu price up 3.2% for the year, 2.3% in the quarter; sub-2% expected Q1 2026 because of roll-off and Perks-driven discounting.
• Commodity costs -- Food, beverage, and packaging costs rose to 34.6% of revenue from 34.1%, driven by a 4% commodity inflation rate, especially beef and pork.
• Labor costs -- Increased to 26% of revenue from 24.6%, with hourly labor rates up 3% in 2025, and 2026 inflation estimated at 3%-3.5%.
• Occupancy expense -- Increased by $1.2 million or 13.6%, now 0.6% higher as a percentage of revenue, reflecting new restaurant openings.
• General & administrative costs -- Decreased to $19.4 million from $20.3 million, or 10.5% of revenue, with $1.5 million in "dead site" costs for the development reset.
• Preopening expense -- Fell by $600,000 to $3.3 million, due to a strategic slowdown of new store development and deferred 2026 openings.
• Net debt -- Closed at $334 million, with $90 million drawn on the revolver and $56 million of available capacity.
• Cash from operations -- Decreased by 26.7% to $71.9 million year-to-date; quarter-end cash was $20 million.
• 2026 development plans -- Eight new restaurants targeted, $55 million-$60 million in capital expenditures planned for new and existing sites.
• Perks loyalty program -- Now exceeds 2 million members; cited as a primary lever for traffic improvement in 2026, with promotions showing "strong results."
• Operational metrics -- Hourly turnover under 80% for 2025; GM turnover at historic lows; average ticket at $23.60; off-premise pickup identified as the fastest-growing channel.
• Leadership transition -- Brett Patterson appointed CEO, following recent announcement; search emphasized operational expertise and strategic leadership.

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Risks

• Texas market underperformance reduced consolidated restaurant-level margins by 180 basis points in the quarter and remains a headwind for 2026, as stated by management.
• Management expects mid-single-digit commodity inflation in 2026, with main pressure from beef, and does not expect pricing to fully offset these increased costs.
• Labor costs are expected to rise 3%-3.5% in 2026, according to management's estimates.
• Management confirmed that cash from operations declined 26.7% year over year, and cited no top-line guidance due to macro and visibility challenges.

Summary

Portillo's (NASDAQ:PTLO) reported revenue growth driven solely by non-comparable units, as same restaurant sales and traffic declined. The company outlined a strategic shift to slower, regionally spaced expansion using smaller-format restaurants, starting with Atlanta’s Kennesaw location, which delivered over $3,800,000 in sales for its first 100 days. Elevated commodity, labor, and occupancy costs pressured margins, while targeted actions in Texas delivered only minimal profitability improvement by quarter end. The company guided flat adjusted EBITDA for the coming year and expects continued margin pressure due to persistent cost inflation, incremental bonus expense, and unresolved Texas underperformance.

• The 2026 capital allocation plan prioritizes positive free cash flow and debt reduction, with excess cash intended for revolver paydown.
• Management rejected a points-based Perks loyalty structure in favor of experiential “surprise and delight” offers, emphasizing brand differentiation.
• CFO Michelle Greig Hook said, “our focus will be on growth via transactions versus pricing,” citing Perks promotions as a key lever for 2026.
• The company saw value perception scores rise in 2025 after a series of aggressive loyalty-based promotions, and cited operational improvements, including a 40-second decrease in drive-thru service time, as essential to maintaining traffic.
• Guidance assumes a small increase in marketing spend, with a larger emphasis on digital, social, and field marketing for “always-on” brand presence in new markets.
• Company leadership indicated no concrete top-line (revenue) guidance due to a lack of visibility in the current macroeconomic and development environment.
• Mix headwinds are expected to continue, but were less severe for the year due to increased kiosk adoption.
• Management highlighted that Chicago has 30% more restaurants and 60% higher revenue than a decade ago, with margins up 80% since 2014 following Berkshire Partners’ acquisition.

Industry glossary

• AUV (Average unit volume): Annual sales generated per store location, used to assess individual unit performance.
• Comp (Comparable restaurant): A restaurant that has been open for a full period and is included in “same restaurant sales” metrics.
• Four-wall profit: Restaurant-level profit before corporate overhead and interest, measuring direct, location-specific operational performance.
• “Dead site” cost: Expenses associated with sites acquired for development but subsequently abandoned due to a change in expansion plans.

Full Conference Call Transcript

Michael Miles: Thanks, Chris, and good morning. The fourth quarter reflected the strengths and challenges facing Portillo's Inc. in 2025. While our core markets continue to have outstanding AUVs and profitability, our Texas market expansion continued to be a headwind for our business. As we announced last fall, we have reset our development strategy. Slowing new store openings and focusing on healthy unit economics. While it will take time for our new approach to bear fruit, and a number of restaurants opening in 2026 reflect prior strategy, our entry into the Atlanta market in the fourth quarter confirms the potential in our future growth strategy.

Our restaurant in Kennesaw opened in November and through its first eight weeks registered over $2,000,000 in sales. Portillo's fans drove from all over Metro Atlanta, indeed, from all over the Southeast, to get a taste of their Portillo's favorites. In addition to the outstanding top line, Kennesaw is the latest example of our reduced cost Restaurant of the Future 1.0 format, a 6,200 square foot building that is about 20% smaller than most of the restaurants opened over the prior five years. For our new philosophy of separating new unit openings with more time and distance, the next restaurant in Atlanta will not open until 2027, and will be about 50 miles from Kennesaw.

We are gratified and, frankly, not really surprised by the results at Kennesaw. Each time we have entered a new market over the last ten years, we have seen a similar response, with seven of those restaurants also exceeding $2,000,000 over their first eight weeks. Our approach over the next several years will consist of more of these types of entries, tapping into the pent-up demand from Portillo's fans to support our first-in-market openings, then letting awareness and demand build before opening subsequent restaurants. We will continue to iterate on our prototypes as we look to develop the best possible offering for customers and shareholders with four-wall profit potential driving each decision. Our Perks program continues to show promise.

We now have more than 2,000,000 members enrolled and have seen strong results for promotions delivered through the program. We are just scratching the surface and have a lot of opportunity to more precisely target offers. I am confident that Perks will play a valuable role in driving traffic improvement in 2026. And while traffic and sales continue to be our primary focus, we also took steps to improve labor management and profitability of the lower volume restaurants in Texas during the fourth quarter. I am also pleased to report, as you likely saw in our announcement two weeks ago, that Brett Patterson has joined Portillo's Inc. as our new Chief Executive Officer.

Brett has had a stellar career in the restaurant industry working his way up from the front lines. He has all the qualities that the board was looking for to lead Portillo's next phase of growth, operations experience, a strategic mindset, and a people-first leadership style. Most importantly, he is a great cultural fit with Portillo's. The board and I look forward to working with Brett to provide our customers with the best restaurant experience, our people with a great place to work, and our shareholders with a profitable growing business.

Before I hand it to Michelle, I would like to take a moment here to personally thank the board, our executive team, and all of the people at Portillo's Inc. for their support and commitment over these last several months. My time as interim CEO has only strengthened my conviction that this brand has a very bright future.

Michelle Greig Hook: Thanks, Michael, and good morning, everyone. During the fourth quarter, revenues were $185,700,000 reflecting an increase of $1,100,000 or 0.6% compared to last year. Our revenue growth in the quarter was driven by non-comp restaurants. Restaurants not in our comp base contributed $7,800,000 of the total year-over-year increase in revenue during the quarter. Same restaurant sales declined 3.3%, which decreased revenues approximately $5,400,000 in the quarter. The same restaurant sales decline was attributable to a 3.3% decrease in transactions. Average check in the quarter was flat due to an approximate 2.3% increase in net effective menu prices offset by a 2.3% decrease in product mix.

We did not take any additional pricing actions during the fourth quarter, and our net effective price increase was approximately 3.2% for the full year. We will continue to evaluate pricing options in 2026, but our focus will be on growth via transactions versus pricing. We do anticipate that Perks and other offers will continue to pressure our price benefit. Moving on to our costs, food, beverage, and packaging costs as a percentage of revenues increased to 34.6% in the quarter from 34.1% in the prior year. This increase was primarily the result of a 4% increase in our commodity prices, partially offset by an increase in price.

In the quarter, we experienced increases in several categories including our primary proteins of beef and pork. As we stated in January, we are forecasting mid-single-digit commodity inflation with primary pressures coming from the beef category. Labor as a percentage of revenues increased to 26.0% in the quarter from 24.6% in the prior year. The increase was primarily due to lower transactions, incremental wage increases, and deleverage from our newer restaurant openings, partially offset by labor efficiencies and an increase in price. Hourly labor rates were up 3% in 2025. In 2026, we are estimating labor inflation up 3% to 3.5%.

Other operating expenses increased $400,000 or 1.9% in the quarter compared to the prior year, which was primarily driven by the opening of new restaurants. As a percentage of revenues, other operating expenses increased to 12.2% from 12.0% in the prior year. Occupancy expenses increased $1,200,000 or 13.6% in the quarter compared to the prior year, primarily driven by the opening of new restaurants. As a percentage of revenues, occupancy expenses increased 0.6% compared to the prior year. Restaurant level adjusted EBITDA decreased $4,700,000 to $40,600,000 in the quarter from $45,300,000 in the prior year. Restaurant level adjusted EBITDA margins decreased approximately 270 basis points to 21.8% in the quarter versus 24.5% in the prior year.

As Michael noted, our Texas market expansion created a headwind. We incurred losses during the year and the impact on consolidated restaurant level margins were 180 basis points in the fourth quarter and 170 basis points for the full fiscal year. We have taken targeted actions to improve performance in this market, and while we still have a long way to go, we delivered slightly positive results in the final period of the quarter. In 2026, we estimate our restaurant level adjusted EBITDA margins to be in the range of 20.5% to 21.0%. This estimate is inclusive of continued headwinds in our Texas restaurants and $4,500,000 of additional bonus expense, assuming targets are met.

Our general and administrative expenses decreased by $900,000 to $19,400,000 or 10.5% of revenue in the quarter from $20,300,000 or 11.0% of revenue in the prior year. This decrease was primarily driven by lower variable-based compensation, partially offset by dead site costs of $1,500,000 related to our strategic development reset. These costs reflect our deliberate decision to move to a more measured pace of new restaurant growth, reemphasizing unit economics and return on investment. Dead site costs for the full year were $5,100,000. In 2026, we expect G&A expense to be $80,000,000 to $82,000,000, which includes a $4,500,000 headwind from bonus expense assuming targets are met.

Preopening expenses decreased by $600,000 to $3,300,000 in 2025 compared to $4,000,000, primarily reflecting a strategic reset of development activities and the deferral of planned openings into 2026. Adjusted EBITDA was $24,700,000 in the quarter, versus $25,200,000 in the prior year, a decrease of 2.1%. For 2026, we anticipate adjusted EBITDA to be flat versus 2025. I want to emphasize that our 2026 estimate includes an expected $9,000,000 headwind from a fully earned bonus at both the restaurant level and support functions. Below the EBITDA line, interest expense was $5,700,000 in the quarter, a decrease of $400,000 from the prior year. This decrease was driven by a lower effective interest rate of 6.7% versus 7.5% for 2024.

At the end of the quarter, we had $90,000,000 drawn on our revolving credit facility. Our total net debt at the end of the quarter was $334,000,000. We have approximately $56,000,000 of available capacity on the revolver. For 2026, we expect to open eight new restaurants and anticipate total capital expenditures in the range of $55,000,000 to $60,000,000, including investments in our existing restaurants, our commissaries, and other corporate initiatives. Income tax benefit was $800,000 in the quarter, compared to expense of $1,900,000 in the prior year. Our effective tax rate for the year was 12.4%, versus 16.2% in 2024. This decrease was primarily driven by changes in Class A equity ownership, our valuation allowance, and effective state tax rates.

Cash from operations decreased by 26.7% year over year to $71,900,000 year to date. We ended the quarter with $20,000,000 in cash. In 2026, we expect to generate positive free cash flow and intend to use any excess cash to pay down our revolving credit facility. Also in 2026, we will focus on executing strategies that strengthen transaction growth across our restaurants, while optimizing returns on our new restaurants. We will leverage our Perks platform along with other marketing efforts to drive trial and frequency. We will prioritize operational excellence and invest in our team members. These priorities support our commitment to positive free cash flow and delivering long-term value. Thanks for your time today.

And operator, please open the line for questions.

Operator: Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that analysts limit themselves to one question and a follow-up so that others may have the opportunity to do so as well. One moment, please, while we poll for questions. Our first question comes from Sara Harkavy Senatore with Bank of America. Please proceed with your question.

Sara Harkavy Senatore: Thank you. Maybe I do have a question, a quick clarification. The question is on Kennesaw. The restaurant opened, you know, impressive $2,000,000 in sales, I think, through the first eight weeks. That is, I think, kind of an annualized run rate of maybe close to $13,000,000, which is not that different from, I think, some of what you have seen in some of your Texas stores, for example. So I guess, I know in one case, you have lowered the footprint, you know, it can accommodate lower AUVs.

But as you think through the maturity curve, you know, next year, would you expect less of a falloff than perhaps you have seen, you know, just because to your point, you are not opening another Atlanta restaurant until 2027, and it will be farther away. Or just, you know, that has been something that I think we have struggled to kind of forecast is year two. So any thoughts you have on what that looks like? And then like I said, just a quick clarification, Michelle, on one of your comments.

Michael Miles: Good morning, Sara. Thanks for your question. And I think you answered it pretty well too. Kennesaw, yes, Kennesaw through its first 100 days did $3,800,000 in sales, so we are pretty happy with it. But you are right. We do not expect it to be a $14,000,000 restaurant. I think, you know, and it is kind of settling in around $200,000 a week right now. And, you know, over time, it will level off, you know, somewhere below that. But that is, I think, the main difference between that and what we saw in Dallas, for instance, is that we are not planning on opening a bunch of more restaurants in the, you know, immediate vicinity of Kennesaw.

The Colony, which, you know, got a lot of attention on this call over the years, was surrounded by other restaurants within the first three years of it being open. We will not open our next restaurant in Atlanta until 2027. And, you know, we have plans to separate the other restaurants that we open in Atlanta with a lot more time and distance than what you saw in Dallas.

Sara Harkavy Senatore: Okay. So kind of TBD on maybe what the curve looks like, but less cannibalization. And then just, Michelle, you mentioned that you had EBITDA, I guess, final period of the quarter, slightly positive results. I guess, was that margin expansion? Or EBITDA growth? Or maybe you could just clarify that comment that you made. Thank you.

Michelle Greig Hook: Yes, Sara. No problem. So we saw both. We saw margin expansion when you compile all the Texas restaurants. And when you compile them all, we saw profitability amongst all the restaurants that we had. So it was both. And it primarily comes back to the work we are doing around labor and labor deployment within that market as we are adjusting to the lower volumes.

Sara Harkavy Senatore: Thank you.

Michelle Greig Hook: No problem.

Operator: Our next question comes from Gregory Ryan Francfort with Guggenheim Partners. Please proceed with your question.

Gregory Ryan Francfort: Hey, had two questions. The first is just the new growth strategy. Can you just talk about what it means from manager and employee hiring perspective? I guess, with things a little bit more spread out, do you pull from restaurants in other regions more? Does that have any impact on preopening or G&A? Just any thought on that would be great.

Michael Miles: Yes, Greg, I think the price that we will pay for having more new markets with single stores in it for longer is around new openings, which will be a little less efficient. And it is also a little more difficult from a distribution and oversight standpoint. But, you know, those are probably tens of basis points in the scheme of things as opposed to, you know, having to deal with restaurants that are doing, you know, sub-$5,000,000 AUVs for a period of time. So that is the trade-off that we are willing to make. We have not fully quantified it yet, but it certainly is something that we will have to work through.

Gregory Ryan Francfort: Got it. And then just thanks for that. And my second question is just maybe within the comps, anything stand out regionally or by income cohort as kind of, I mean, places of strength or strength or weakness? Thanks.

Michelle Greig Hook: Yes, Greg. When you decompose the comp, it is pretty consistent when you look at Chicagoland versus the outer markets. I think I have mentioned, you know, we have seen a little bit more pressure recently in a market like Arizona, but we did open a restaurant there in 2025 that did have some cannibalization. So you do get some of that impact in that market in particular, but largely speaking, it is not something where we see a wide gap between Chicagoland versus our other markets.

Gregory Ryan Francfort: Thank you. Appreciate it.

Michael Miles: Yep.

Operator: Our next question comes from Brian Hugh Mullan with Piper Sandler. Please proceed with your question.

Brian Hugh Mullan: Thank you. Just sticking with Chicagoland, can you give an assessment of the consumer value proposition or the value scores and what has happened with those versus maybe where those were historically and just talk about a path to recovery to where you want to be there for Portillo's Inc. And I know some of it is dependent on the environment, which is tough, but I am sure you do not want to wait around for the environment to get better. So just your perspective on that would be great.

Michael Miles: Yeah, Brian. We have seen improvement in 2025 in our value perception scores. And when you look at some of the catalysts behind that, I think it goes back to when we launched our Perks program in March and the offers that we have run over the course of 2025, one of the more aggressive ones being our May BOGO beef offer. We also ran a hot dog offer in July, and then we did a cheeseburger offer in September. So when you look at all of those combined and you look at the sort of peaks within the value scores, that is where you see that coming up as well. So we continue to see good movement on that.

And that is based on and driven by things that we are being, in my opinion, front-footed on to make sure that we are giving that value to our guests, not only in the form of price points, but also operationally. And we have talked about Tony and the ops team's focus on hospitality and giving a good guest experience and focusing on accuracy, speed of service. We can bring them in with those offers, but I think the key is giving them a good experience to also improve their perception of value. So those are the things that we saw in 2025, and we feel good about the upward movement in the perception scores.

Michael Miles: And, Brian, just to give you a little historical perspective on Chicago, you know, I went back, having, you know, been here ten years ago and now coming back. I went back and looked at what the Chicago market looked like when Dick Portillo sold the business back in 2014 to Berkshire Partners and compared to today. Back in 2014, there were 34 restaurants in the Chicago market for Portillo's Inc. Since then, and going into 2025, the number of restaurants have grown by 30% in Chicago. The revenue in Chicago has grown by 60%. And the restaurant level margin in Chicago has grown by 80%.

So it is a very healthy business here, and continues to absolutely deliver for us.

Brian Hugh Mullan: Okay. Thank you. Then as a follow-up, I just want to come back to Texas, maybe in the context of at ICR, you shared an Arizona example. It was very interesting. So you have acknowledged going too fast in Texas. You have got the stores open now. It sounds like you have just made some tweaks to labor. Maybe can you just talk about the order of priorities from here, how marketing can play a role and maybe what you can or cannot take from Arizona just to make sure you grow Texas from here the way you want.

Michael Miles: Yes. It is a great question. And for sure, building sales is the number one job to getting the Texas market to where it ultimately needs to be. The labor efforts are the thing that we were able to execute on first. And, you know, we have got restaurants in Chicago that do $4,000,000 and $5,000,000 and have for a long time and make money. And I think we need to get that mentality into the market in Texas as well. But, ultimately, it is about building sales. We are pulling a lot of short-term levers that are available, whether it is Perks offers or third-party affinity offers.

We have had a bundled meal deal going there since the fourth quarter. And we have ultimately got to find a way to better explain Portillo's Inc. to consumers who are not yet familiar with us. You know, people who know Portillo's love it, and people who do not know Portillo's have no idea what it is. And we are still trying to crack the code for how to market to the group of folks who have not yet figured it out. And our new CMO, Denise Lauer, has got that on her priority list for 2026.

Brian Hugh Mullan: Thank you.

Operator: Our next question comes from Andrew Marc Barish with Jefferies. Please proceed with your question.

Andrew Marc Barish: Hey, guys. Yes, wanted to just double click on kind of—you know, there are different strategies in Chicagoland and the outer markets—and then yes, on the Perks, as you approach a year, any kind of info you are willing to share on, you know, sort of frequency or usage patterns or anything like that. But yes, just some broader questions around, you know, kind of Denise's plans for 2026.

Michael Miles: Yes. Denise has got a lot on her plate. And she is about to have a new boss. So she is going to get some, undoubtedly, some additional direction there. I would say her priorities are to drive traffic, obviously, first and foremost, and the Perks program does feel like our near-in, best weapon for doing that outside of, obviously, great operations, which has always been our number one traffic driver. I do not think we have shared some data on Perks in terms of the number of people in the program and the activation. We have got a couple million people in the Perks program, well over that now at this point.

And I think the engagement level has been terrific with the offers that we have made through Perks. But equally, I think, Denise is focused on the Texas turnaround that we talked about just a moment ago. And finding additional levers to pull to drive trial in Texas because we have seen, you know, in Phoenix for sure, and I think we are seeing in Texas that when we do get people in the door, our conversion to long-term customers is pretty high.

Andrew Marc Barish: Great. Do you expect that at this point, kind of the marketing pulses in some of those outer markets that you have done over the past year or two?

Michelle Greig Hook: So when we look at the marketing spend, Andy, I think, you know, that is one of the things that Denise has been determining. And, you know, there is a theory of pulsing versus always-on type marketing. And so I think in the newer markets, where we are at right now is we need to be always talking about the brand. And whether that is in the form of, you know, traditional advertising with, as Michael mentioned, we have a bundled meal right now, which is probably on more traditional advertising across all of our markets, versus digital marketing and those things, versus field marketing.

And so regardless of what marketing tactic we use, we need to always be front and center and relevant, particularly in these newer markets—Dallas, Houston—where our awareness is fairly low. And so that is how we are thinking about it today versus, hey, we are going to pulse, come out, pulse back in a couple quarters. We have to be front and center right now on a fairly regular basis.

Andrew Marc Barish: Okay. Makes sense. Thank you.

Operator: Our next question comes from James Ronald Salera with Stephens Inc. Please proceed with your question.

James Ronald Salera: Michelle, you had some commentary around favoring transaction growth versus leaning on price. Can you just give us some color on carryover pricing into 2026, assuming no incremental price?

Michelle Greig Hook: Yes. Absolutely, Jim. So the pricing actions that are going to start to roll off, we had roughly a point and a half of pricing that rolled off in January. We will have another point that rolls off in April. So 2.5. And then we will have another, call it, a half a point or 70 basis points that rolls off in June. And so that is the pricing cadence that rolls off from 2025. But as I mentioned in the commentary, we are seeing impacts from Perks and other offers to that pricing through the discounts that we are offering through that platform.

And so even when you look at the fourth quarter, Jim, you will see that our pricing impact was 2.3%. It was 3.2% for the full year. So as we sit here in the first quarter, we are definitely sub-2% pricing. But depending on the offers that we run in Q1, that could go below even a point of pricing in the first quarter depending on those impacts. But that is the cadence that rolls off in 2025.

James Ronald Salera: Great. And then as a follow-up, could you offer any thoughts on attachment and mix as it pertains particularly to some of the Perks program? I know industry wide, it sounds like kind of down low single digit transactions. So maybe mix can be kind of a swing factor to the positive or the negative depending on, you know, how things progress. Any commentary there would be helpful.

Michelle Greig Hook: Yes. And for the Perks offers that we have run, Jim, we are not seeing significant ticket degradation. When you look at our average ticket today, it is about $23.60 for the total company. And so, you know, as we run those offers, they have not been, again, significant degradation to the ticket. So we like what we are seeing with those that we are running, and we continue to measure those impacts, not just on that, but, obviously, in total for the offer. But that is generally what we have been seeing.

James Ronald Salera: Great. Thank you.

Michael Miles: Yep.

Operator: Our next question comes from Sharon Zackfia with William Blair. Please proceed with your question.

Sharon Zackfia: Hi. Thanks for taking the question. Kind of going back to Perks, and it being kind of a more of a surprise and delight program. Is there any thought of maybe needing to convert that to more of a typical point accrual program.

Michael Miles: It is certainly a question that gets asked of us a lot and that we have asked ourselves. I think to this point, we are really pleased with the way the Perks program has performed so far. And so, you know, turning it into a punch card program with all of the attendant costs that go along with the rewards in that kind of a format is not something that we are planning on proceeding with right this instant. But, obviously, it would always be an option.

But I have to say that, you know, relative to—you saw Subway the other day had to pull back on its, you know, four-for-four footlong thing—we are not looking to get into a situation where we are doing that kind of a punch card deal at this point.

Michelle Greig Hook: And, Sharon, the one thing I would add on that is the difference between, and I know you understand this, between us and others is we are an experiential brand. And part of this surprise and delight program is we can give experiences, whether it is tastings for new menu items, whether it is merchandise. You know, we do not view it as, to Michael's point, a traditional punch card program where if you buy X, you are going to get X, because the nature and the DNA of Portillo's Inc. is we are an experiential brand. So I think that goes with who we are and aligns with that thought process as well.

Sharon Zackfia: And then on the restaurant-level margin guidance, Michelle, does that actually assume you have no price in the back half of the year? And, you know, with that kind of mid-single-digit COGS inflation, is that more first-half weighted because you will lap some of the beef inflation in the back half? Thanks.

Michelle Greig Hook: No problem. So the margin does not assume zero price. As we move towards the year, we do expect the mid-single-digit commodity inflation, but we do not expect that we are going to be able to pull the pricing lever, Sharon, to fully offset that. Having said that, though, you know, we continue to do our pricing analytics to see where we have opportunities to take price. And we do expect that in the front half of the year in particular, we are going to see heavier inflation. So the first two quarters of the year. Right now, we are projecting higher commodity inflation versus back half of the year.

But at the same time, we have not made any decisions on pricing. And we need to be mindful of, again, growing the business through transactions versus price taking. But the guide assumes a little bit of price actions over the course of 2026.

Sharon Zackfia: Okay. Thank you.

Michelle Greig Hook: No problem.

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

Dennis Geiger: Great. Thanks, guys. First, I want to ask a little bit more on the operational side of things and then maybe where you are with sort of drive-thru speed, overall ops and overall speed/customer experience, if there is any latest updates on that front?

Michael Miles: Yeah. Sure. I think we are feeling good about where we are operationally. You know, staffing is terrific. Hourly turnover is down under 80% for the year. So a really great cultural story. GM turnover at sort of historic lows for us. And, you know, we had as a priority last year to get better in the drive-thru. And those of you who are old enough to remember Joe Pesci's line about what happens to you at the drive-thru know it is hard to get both speed and accuracy better at the same time.

We were able to do that last year with nearly 40-second improvement in our speed of service and a significant improvement in the accuracy measures as well. So I think that sets us up for a good year in 2026. As I said earlier, marketing is important, but the most important driver for Portillo's Inc. of traffic and frequency is great operations and great experiences.

Dennis Geiger: Terrific. And then sort of following up on that, just kind of looking at performance by channel or sort of anything to highlight around customer behavior changes, you know, whether it is daypart, day of the week, off-premise, on-premise, delivery? Any callouts or observations on pattern behavior changes that you are seeing across channels and dayparts, etcetera?

Michelle Greig Hook: Yes, Dennis. I will take that one. So we are seeing more of an uptick in our off-premise channels, particularly our pickup channel has been our fastest growing channel in 2025, and our delivery channel did see some growth as well. And so that is where we have seen a little bit more of our growth coming from. And so we have to obviously make sure that those channels are equally as important to our guests and their satisfaction. And so that continues to remain a focus of ours because we know those channels are ones that continue to grow for us.

Dennis Geiger: Great. Thanks, Michelle. Appreciate it.

Michelle Greig Hook: No problem.

Operator: Our next question comes from David E. Tarantino with Baird. Please proceed with your question.

David E. Tarantino: Hi. Good morning. Michelle, I was hoping—or I was going to ask a question about the guidance and specifically, you know, what type of comp framework are you assuming in the guidance outlook for EBITDA? And I guess second part of the question is, how are you running in Q1 so far relative to that plan?

Michelle Greig Hook: Yes, David. We are not giving any top-line guidance purposefully. And I think I mentioned this at ICR in terms of the visibility around that is, you know, not as clear to us in terms of, you know, not just where the macro is. Obviously, our new restaurants play a role in the non-comp performance. And so we are purposefully not guiding anything on the top line. We do feel we have more visibility to that middle of the P&L and feel comfortable with where we are sitting from an adjusted EBITDA guide standpoint and then all the categories that make that up in between. So that is why we are not guiding to the top line.

In terms of Q1, we have had some puts and takes on weather. That has been well documented and talked about. So specifically in January. So those are known headwinds for everyone in the industry. But what I would say is, weather aside, our sales fundamentals are solid. And we feel good about them as we sit here today.

David E. Tarantino: Great. Thank you for that. And then I guess a follow-up to the guidance question. I guess are there ways to deliver the EBITDA guidance with a wide range of revenue outcomes? I guess, you know, I am not clear on that point given, you know, the lack of guidance. There must be an underlying assumption on the revenue growth. I appreciate you not wanting to give it. But I guess the question is, you know, do you have the ability to pull levers throughout the P&L to deliver it, you know, at a wide range of revenue outcomes.

Michelle Greig Hook: Yes. Absolutely, David. And so we talked about pricing. We do not want growth to come through pricing, but that is a lever. There are obviously cost headwinds that we are facing, so we have to think about that as a lever. We have talked about the Texas turnaround. We have talked about that we need to be able to grow the top line in those markets in particular. That is a lever to continue to see growth in the top line. Now that is mostly going to come in the form of non-comp versus comp, but obviously, still top-line growth. So, and then continuing to talk to our guests in our core market as well is another opportunity.

We have talked about the value perception scores going up. The use of Perks as a lever. Other menu innovation items could be a lever. We recently launched new sauces as part of our portfolio. So there are other things, absolutely, that we can do and levers we can pull to drive that top line up.

David E. Tarantino: Great. Thank you.

Michael Miles: No problem.

Operator: Our next question comes from Brian James Harbour with Morgan Stanley. Please proceed with your question.

Brian James Harbour: Yes. Thanks. Good morning, guys. Michelle, do you expect marketing spending, you know, up substantially this year within that guidance or is it largely similar? And I guess you kind of talk about more of an always-on approach. Is that how efficient, you know, is that right now, or how do you think about the efficiency of that?

Michelle Greig Hook: Yes, Brian, we do expect to see a slight uptick in marketing spend this year, but nothing material. It is within the guide that you see specifically within the G&A guide, which is where you would see that incremental marketing spend.

Brian James Harbour: And in terms of the approach of always-on, as I mentioned, there are multiple approaches you can take, whether it is traditional—which is going to be more expensive—being on TV and doing commercials and things of that nature. And we frankly do not have a lot of scale in those markets to view that as an extremely efficient use of our advertising dollars. And so we have to make sure that we are investing in other areas, the digital, social. I mentioned field marketing as well. So all those things are going to play a role in the, quote-unquote, always-on approach, versus the prior approach of pulsing that more involved traditional forms of marketing and advertising spend.

Brian James Harbour: Okay. Understood. And the mix component of same store sales, can you—I know that has been a sort of a drag for a while—but how are you thinking about that as you go into this year?

Michelle Greig Hook: Yes. I think, you know, to your point, we have seen mix headwinds over the course of the past several years. Now we have seen that moderate. We even saw that for this year. Our mix was only down 1.2% for the full year, which I think was the lowest it has been in several years. And kiosks played a big role in that. And so it is helping to mitigate some of those natural headwinds that we see in mix, which is lower items per transaction and then trade-downs. So those are the two things that are negatively impacting mix, and we are seeing that today.

We see continued lower items per transaction across all channels, and then some trade-downs going on. So we have to be able to mitigate against that. We continue to look at kiosks and how we can increase adoption there, how we can continue to lean into those digital channels, which we know comes with a higher ticket. So I continue to see that, Brian, to answer your question, as a headwind in 2026. But there are things that we need to do to continue to moderate those headwinds within mix, like I mentioned.

Brian James Harbour: Okay. Thanks.

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

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