By Svea Herbst-Bayliss

NEW YORK (Reuters) - Activist investor Engaged Capital is ready to run a boardroom fight at restaurant chain Portillo's and has nominated two director candidates to the company's eight-member board, three people familiar with the matter said.

Engaged, which owns roughly 7.3% of the company, has been pushing for months for improvements, such as boosting restaurant-level performance, modernizing outdated locations and strengthening national marketing, said the sources who requested anonymity to speak about the private discussions.

The nominees, restaurant operator Charlie Morrison and marketing executive Nicole Portwood, will be on the ballot at the company's annual shareholders meeting later this year unless the two sides reach a settlement beforehand.

Portillo's, known for its Chicago-style hot dogs, crinkle-cut fries and chocolate cakes, is valued at roughly $1 billion after its shares closed at $13.97 on Friday. While the stock has jumped 51% this year on measures to boost sales, it remains down about 63% since being listed publicly in 2021.

A Portillo's representative was not immediately available for comment.

More companies are preparing for costly and potentially noisy fights as investors push for changes, including operational improvements and putting them up for sale, to increase their stock price.

Engaged, run by former Relational Investors executive Glenn Welling, has a strong track record in the food and consumer sectors, having spurred a turnaround at casual restaurant chain Shake Shack and sale of fine dining chain Del Frisco's. Engaged has succeeded in adding more than a dozen directors to boards over the past five years, industry data show.

For months, Engaged held private talks with Portillo's about adding Morrison, a former CEO of restaurant chain Wingstop, to the board, the sources said, noting that he had profitably expanded restaurant chains and overseen shareholder returns of more than 700% at Wingstop.

In January, Portillo's named Chipotle Mexican Grill Chief Financial Officer Jack Hartung, who was introduced to the company by Engaged, to its board.

But Engaged believes Portillo's needs even more operational and marketing expertise to help push for faster changes and therefore nominated Morrison and Portwood, a former chief marketing officer at Tito's Handmade Vodka, the sources said.

Engaged in 2023 nominated three director candidates at Shake Shack before entering into a settlement that added two new members to the chain's board. Shake Shack's share price has doubled since Engaged built its stake in early 2023.

(Reporting by Svea Herbst-Bayliss; Editing by Richard Chang)