Portillo’s (NASDAQ:PTLO) reported second-quarter revenue growth of 5.6% to $199 million, supported by new restaurant openings, while same-restaurant sales declined 1.2% amid comparisons with prior-year promotions, a breakfast pilot and cannibalization from newer locations.
President and Chief Executive Officer Brett Patterson said the company has undertaken a broader strategic reset centered on operational excellence, integrated marketing and disciplined development. The company is seeking to improve restaurant-level performance, sharpen its marketing efforts and build a more capital-efficient development model.
Sales Trends and Updated Outlook
Same-restaurant sales fell 1.2% during the quarter, as a 3.4% decline in transactions was partly offset by a 2.2% increase in average check. Menu pricing increased about 2.6%, while product mix reduced average check by 0.4%, according to Interim Chief Financial Officer Pamela Smith.
Management said promotions, the prior-year breakfast initiative and restaurant cannibalization combined to create approximately 250 basis points of traffic headwinds in the quarter. The company did not repeat last year’s buy-one-get-one-free beef promotion and said it intends to avoid aggressive, low-margin discounting as it laps additional prior-year promotions.
Smith said same-restaurant sales were running slightly positive entering the third quarter, though Portillo’s expects continued promotional and cannibalization headwinds in August and September. The company implemented a 2% price increase across selected menu categories in mid-April and expects roughly a 2% menu-pricing benefit in the third quarter absent further pricing actions.
Portillo’s now expects full-year adjusted EBITDA of $92 million to $96 million. Patterson said the revised outlook reflects a reassessment of newer, non-comparable restaurants based on recent performance, particularly in Texas and Arizona, as well as the company’s decision to protect customer value by pricing below inflation and avoiding deep discounts.
“We just 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,” Patterson said.
Margins and Costs
Restaurant-level adjusted EBITDA declined $1.2 million to $43.2 million, while restaurant-level adjusted EBITDA margin fell about 190 basis points to 21.7%. Smith attributed the decline primarily to food-cost inflation that was not fully offset by pricing and underperformance at non-comparable restaurants.
Food, beverage and packaging costs rose to 35% of revenue from 33.8% a year earlier. The increase reflected new restaurant openings and 7% commodity inflation led by beef and produce. Smith said the company still expects commodity inflation to be in the mid-single digits for the full year.
The company said it is 85% hedged on beef costs for the third and fourth quarters, while approximately 63% of the rest of its commodity basket is locked. Management said it is comfortable with expected costs for the remainder of the year.
Labor expense was flat year over year at 25.7% of revenue, as wage inflation and the impact of newer restaurant openings were offset by labor efficiencies. Adjusted EBITDA was $29.8 million, or 15% of revenue, compared with $30.1 million, or 16% of revenue, in the prior-year quarter.
Strategic Reset and Development Changes
Following the quarter, Portillo’s reduced its corporate headquarters workforce, with no direct impact on restaurant-level team members. Patterson said the action was designed primarily to simplify decision-making and better align resources with restaurant and guest priorities.
The company also launched initiatives targeting supply-chain and indirect-spending efficiencies and restructured its development function. Collectively, the actions are expected to generate annualized run-rate savings of approximately $10 million to $15 million. Patterson said some benefits are expected to be recognized in the third quarter, with a fuller annualized run rate expected by the fourth quarter.
Portillo’s is redesigning its restaurant prototype for 2028 and beyond, with goals of reducing footprint and build costs while improving returns. Its first airport location, at Dallas Fort Worth International Airport, is less than 3,100 square feet and has a kitchen 25% smaller than previous prototypes. Management said equipment and layout enhancements at the location may inform future operating-efficiency efforts.
Patterson said the company’s updated real estate forecasting model has reinforced that site selection and development pacing were important contributors to weaker performance in some newer markets. He said Portillo’s opened 12 Dallas locations in about three and a half years and six Houston locations in 16 months, a pace the company would not repeat based on current findings.
- Portillo’s expects to open one additional restaurant in the fourth quarter, a downtown Chicago in-line location.
- The opening would bring total 2026 openings to eight, in line with prior guidance.
- The company continues to finalize its 2027 pipeline, previously discussed as four to six openings.
- Management expects to launch its new prototype in the first quarter of 2028.
Brand, Marketing and Financial Position
Management said research on customer segmentation, brand positioning and menu satisfaction found strong brand affinity in Chicago and beyond. Patterson said the company sees opportunities to improve customer activation in newer markets, where brand loyalty is strong after consumers try the concept.
Portillo’s added Christopher Hansen as executive chef to support menu innovation, culinary quality and consistency. Patterson said the company sees beverage innovation as an opportunity, citing the recently introduced Dr Pepper shake and the brand’s existing equity in shakes and Cake Shakes.
The company’s Perks loyalty program reached its highest sales penetration to date at 15.1% during the quarter. Smith said the platform will continue to be used for offers intended to reward loyal customers.
Year-to-date cash provided by operating activities increased 22.4% to $35.1 million. Portillo’s ended the quarter with $21.3 million in cash, $97 million outstanding on its revolver, total net debt of $338 million and approximately $49 million of remaining revolver capacity. Smith said the company plans to use cash generated through its shift toward free-cash-flow positivity to reduce debt and revolver borrowings.
Portillo’s also announced that Kevin Kalicak will join the company as chief financial officer. Patterson thanked Smith for serving as interim CFO during the transition.
About Portillo’s (NASDAQ:PTLO)
Portillo’s, Inc operates a fast‐casual restaurant chain best known for its Chicago‐style menu, featuring Italian beef sandwiches, Chicago‐style hot dogs, char‐grilled burgers, salads, crinkle‐cut fries and hand‐spun milkshakes. In addition to its signature sandwiches and dogs, the company offers a selection of desserts—including its famous chocolate cake and frozen custard—as well as catering services designed to bring its Midwestern flavors to corporate and social events.
The company was founded in 1963 by Dick Portillo, who opened the first Portillo’s in Villa Park, Illinois.
