Portillo's Inc. (PTLO) Earnings

Management highlights

### Strategic Reset & Organizational Changes - Completed a broad strategic reset to strengthen operational foundation, improve discipline, and support long-term profitable growth, aligned with three core pillars: operational excellence, integrated targeted marketing, and disciplined development - Implemented a post-quarter corporate headquarters reduction in force with no impact to restaurant-level teams, to align resources and decision-making with core guest and operator priorities; this action is expected to contribute to annualized run-rate savings - Announced Kevin Kalicak as incoming permanent CFO, thanked interim CFO Pamela Smith for her leadership during the transition; hired Chris Hanson as new Executive Chef to advance menu innovation, quality, and consistency - Opened the brand's first airport location at Dallas Fort Worth International Airport, featuring a 3.1 thousand square foot footprint with a 25% smaller kitchen than prior prototypes, plus equipment upgrades to improve operational efficiency in smaller spaces ### Operational & Cost Saving Initiatives - Simplified corporate G&A structure, launched a supply chain and indirect spending efficiency initiative expected to generate savings starting in 26 and scale over time; reviewed the entire development function to simplify processes, reduce costs, and improve capital discipline - Built a more robust real estate forecasting model to improve site selection, predict new restaurant performance, and guide capital deployment; early learnings have already improved decision-making for recent and future restaurant classes - All completed organizational, cost, and process changes are expected to generate total annualized run-rate savings of $10 million to $15 million ### Brand & Consumer Insights - Commissioned three formal third-party studies covering customer segmentation, brand positioning/perception, and menu satisfaction to inform strategy - Key initial insights confirm Portillo's has exceptional brand affinity and strong differentiated positioning that travels well to new markets outside of Chicago; clear brand strengths and growth opportunities have been identified to guide future strategy - Portillo's Perks loyalty program achieved its highest ever sales penetration in Q2 at 15.1%, and will continue to be used for targeted offers to reward loyal customers ### Restaurant Development Update - Confirmed 8 total new restaurant openings for full-year 26, in line with original guidance; one additional opening is planned for Q4 26 in Downtown Chicago, the brand's second in-line format location

Guidance

- Full-year 26 adjusted EBITDA guidance is revised downward to $92 million to $96 million, from prior guidance, reflecting deliberate choices to avoid low-margin aggressive promotional activity, protect guest value by underpricing inflation, and reset performance expectations for recently opened non-comparable restaurants - Full-year 26 commodity inflation is still expected to land in the mid-single digits, in line with original guidance - 85% of beef costs are hedged for the second half of 26, and 63% of the remaining commodity basket is locked in, with management comfortable meeting full-year cost guidance - The 2027 new restaurant opening pipeline is still targeted at 4 to 6 units, which is being finalized; a new lower-cost, more efficient prototype is scheduled to launch in Q1 2028, with site selection already underway for 2028 openings

Segment performance

Portillo's does not break out performance across multiple product segments in this call. All results are aggregated: total Q2 26 revenues were $199 million, a 5.6% increase year-over-year. Same restaurant sales declined 1.2% YoY, driven by a 3.4% decrease in transactions (partially offset by a 2.2% increase in average check). Restaurant level adjusted EBITDA was $43.2 million, down $1.2 million YoY, with a 21.7% margin (a 190 bps decline YoY). Adjusted EBITDA totaled $29.8 million (15% of revenue), slightly below last year's $30.1 million (16% of revenue). G&A expenses were $19.6 million (9.8% of revenue), up from $18.8 million (10% of revenue) YoY. Preopening expenses were $900 thousand, down from $1.7 million YoY. Food, beverage, and packaging costs were 35% of revenue, up 120 bps YoY. Labor expense held flat at 25.7% of revenue YoY. Other operating expenses were 11.7% of revenue, up 10 bps YoY. Occupancy expenses were up 60 bps YoY as a percentage of revenue.

Risks & headwinds

- Same-store sales face ongoing near-term headwinds from lapping deep discount promotions from the prior year, residual cannibalization from new restaurant openings, and lapsing of the 2025 breakfast initiative; over 200 bps of same-store sales headwind is expected in the second half of 26 - Prior overdevelopment of new locations, particularly in the Texas and Arizona markets, led to heavier-than-expected cannibalization, lower-than-forecast performance for many sites, and prohibitive build costs that pressured restaurant-level margins - Commodity inflation, particularly for beef and produce, raised food costs in Q2 26, creating margin pressure that was not fully offset by current pricing - Older real estate forecasting models failed to accurately predict site performance and cannibalization impacts in newer expansion markets, leading to underperformance of recent new unit classes

Analyst Q&A

• Q: What initial insights came out of the completed brand research, and what are the CEO's broad observations after five months in the role?

  A: Three studies (customer segmentation, brand positioning, menu satisfaction) provided clear clarity on target customer segments, locked in a strong differentiated brand positioning, and identified menu strengths and innovation opportunities. The research confirmed Portillo's has extremely high guest loyalty and brand affinity even outside of Chicago; the main priority now is to build stronger business disciplines around a clear focused growth strategy that will be rolled out in full soon.

• Q: What drove the downward revision to full-year margin guidance—weaker sales leverage, commodity pressure, or a reset near-term baseline?

  A: The main driver of the guidance revision was a realistic performance reset for non-comparable new restaurants, particularly in the Texas and Arizona markets. While there was slightly higher commodity inflation in Q2, management expects that to moderate in the second half and still meet full-year commodity guidance. The reset gives operating headroom to adjust performance of newer locations differently than in prior plans.

• Q: What is the outlook for beef costs next year, and how much of Q2's transaction decline comes from lapping BOGO promotions versus structural softness?

  A: 85% of beef costs are hedged for the second half of 2026, and 63% of the rest of the commodity basket is locked, so management is comfortable meeting full-year cost guidance. Q2's 1.2% same-store sales decline is almost entirely driven by three expected headwinds: lapping last year's deep discount BOGO promotion, lapping the 2025 breakfast pilot, and higher-than-expected cannibalization from new openings. Q3 to date is seeing slightly positive same-store sales after these headwinds fade.

• Q: What are the key factors behind underperformance of non-Chicago expansion locations, and what is the update to the 2027 development pipeline?

  A: Three key factors drove underperformance in Texas/Arizona: locations were built too quickly (12 in 3.5 years in Dallas, 6 in 16 months in Houston), many individual sites had poor sales projections that did not account for cannibalization, and build costs were too high to generate reasonable returns. The 2027 pipeline still stands at 4 to 6 openings, which is being finalized; the new lower-cost smaller-footprint prototype will launch in Q1 2028, with sites already identified for 2028.