[[Image Removed: banner.jpg]]
The following discussion contains, in addition to historical information,
forward-looking statements that include risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under the
heading "Cautionary Statements Concerning Forward-Looking Statements" in this
report and under the heading "Risk Factors" in Part I, Item IA of our Annual
Report on Form 10-K for the fiscal year ended December 25, 2022 and Part II,
Item 1A of this Form 10-Q. The following discussion should be read in
conjunction with our Annual Report on Form 10-K for the fiscal year ended
December 25, 2022 and the condensed consolidated financial statements and notes
thereto included in Part I, Item 1 of this Form 10-Q. All information presented
herein is based on our fiscal calendar. Unless otherwise stated, references to
particular years, quarters, months or periods refer to our fiscal years and the
associated quarters, months and periods of those fiscal years.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable based on our current knowledge of our business and
operations, we cannot guarantee future results, levels of activity, performance
or achievements. We assume no obligation to provide revisions to any
forward-looking statements should circumstances change.
The following discussion summarizes the significant factors affecting the
condensed consolidated operating results, financial condition, liquidity and
cash flows of our company as of and for the periods presented below.
We have prepared the unaudited condensed consolidated financial statements in
accordance with accounting principles generally accepted in the United States of
America ("GAAP") for interim financial statements and pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC").
Overview
Portillo's serves iconic Chicago street food through high-energy, multichannel
restaurants designed to ignite the senses and create a memorable dining
experience. Since our founding in 1963 in a small trailer which Dick Portillo
called "The Dog House," we have grown to become a treasured brand with a
passionate (some might say obsessed) nationwide following. We create a consumer
experience like no other by combining the best attributes of fast casual and
quick service concepts with an exciting energy-filled atmosphere and restaurant
model capable of generating tremendous volumes. Nearly all of our restaurants
were built with double lane drive-thrus and have been thoughtfully designed with
a layout that accommodates a variety of access modes including dine-in,
carryout, delivery, and catering in order to quickly and efficiently serve our
guests. No matter how our guests order from us, our highly productive kitchens
and team members consistently serve high quality food and deliver a memorable
guest experience. We believe the combination of our craveable food, multichannel
sales model, dedication to operational excellence, and a distinctive culture
driven by our team members gives us a competitive advantage.
As of March 26, 2023, we owned and operated 75 Portillo's restaurants across ten
states, including a restaurant owned by C&O Chicago, L.L.C. ("C&O") of which
Portillo's owns 50% of the equity.
2023 Credit Agreement
On February 2, 2023, PHD Intermediate LLC ("Holdings"), Portillo's Holdings LLC
(the "Borrower"), the other Guarantors party thereto from time to time, each
lender party thereto from time to time and Fifth Third Bank, National
Association, as Administrative Agent, L/C Issuer and Swing Line Lender, entered
into a credit agreement ("2023 Credit Agreement") which provides for a term A
loan ("2023 Term Loan") in an initial aggregate principal amount of
$300.0 million and initial revolving credit commitments in an initial aggregate
principal amount of $100.0 million (the "2023 Revolver Facility"). The proceeds
under the 2023 Term Loan and 2023 Revolver Facility, along with cash on hand,
were used to repay outstanding indebtedness under the 2014 Credit Agreement and
to pay related transaction expenses. The 2023 Term Loan and 2023 Revolver
Facility are scheduled to mature on February 2, 2028.
Secondary Offering
In the first quarter of 2023, the Company completed a secondary offering of
8,000,000 shares of the Company's Class A common stock at an offering price of
$21.05 per share ("Q1 Secondary Offering"). The Company granted Morgan Stanley &
Co. LLC, the underwriter (the
Portillo's Inc. [[Image Removed: circle.jpg]] Form 10-Q | 22
--------------------------------------------------------------------------------
"Underwriter"), a 30-day option to purchase up to an additional 1,200,000 shares
of Class A common stock. On April 5, 2023, the Underwriter exercised its
overallotment option in part, to purchase an additional 620,493 shares of the
Company's Class A common stock (see Note 16. Subsequent Events for additional
details). We used all of the net proceeds from the Q1 Secondary Offering to
purchase LLC Units and corresponding shares of Class B common stock from certain
pre-IPO LLC Members and to repurchase shares of Class A common stock from the
shareholders of the Blocker Companies at a price per LLC Unit or share of Class
A common stock, as applicable equal to the public offering price per share of
Class A common stock, less the underwriting discounts and commissions. As a
result, Portillo's did not receive any proceeds from the offering, and the total
number of shares of Class A common stock and Class B common stock did not
change; however, the number of outstanding shares of Class A common stock
increased by the same number of the canceled shares of Class B common stock.
Financial Highlights for the Quarter Ended March 26, 2023 vs. Quarter Ended
March 27, 2022:
•Total revenue increased 16.0% or $21.6 million to $156.1 million;
•Same restaurant sales increased 9.1%;
•Operating income increased $1.7 million to $8.5 million;
•Net income decreased $1.8 million to a net loss of $1.3 million;
•Restaurant-Level Adjusted EBITDA* increased $6.8 million to $34.8 million; and
•Adjusted EBITDA* increased $2.0 million to $19.6 million.
* Adjusted EBITDA and Restaurant-Level Adjusted EBITDA are non-GAAP measures.
Definitions and reconciliations of Adjusted EBITDA to net (loss) income and
Restaurant-Level Adjusted EBITDA to operating income the most directly
comparable financial measures presented in accordance with GAAP, are set forth
under the section "Key Performance Indicators and Non-GAAP Financial Measures".
Recent Developments and Trends
We continue to see revenue growth due to our new restaurant openings, as well as
same-restaurant sales growth. Total revenue grew 16.0% for the quarter ended
March 26, 2023. Same-restaurant sales grew 9.1% during the quarter ended March
26, 2023.
During and subsequent to the quarter ended March 26, 2023, we opened the
remaining four restaurants that were planned for 2022, completing our seven
restaurants in the "Class of 2022". Our six new restaurants opened in 2022 and
2023, positively impacted revenues by approximately $10.6 million in the quarter
ended March 26, 2023. We plan to open nine more new restaurants in 2023 ("Class
of 2023").
In the quarter ended March 26, 2023, we continued to experience commodity
inflation, but to a lesser extent than we saw in 2022. Commodity inflation was
8.9% for the quarter ended March 26, 2023 compared to 15.7% for the quarter
ended March 27, 2022. We expect our overall commodity inflation to ease over the
course of the year and are currently estimating commodity inflation in the mid
single digits for the full fiscal year. Labor expenses, as a percentage of
revenue, declined during the quarter ended March 26, 2023, primarily due to
increases in our average check and transactions and operational efficiencies.
This decrease was partially offset by additional wage investments, primarily
wage investments to support our team members made in July 2022. We do anticipate
additional wage investments in 2023. During mid-January 2023 and at the
beginning of May 2023, we increased certain menu prices to reflect a net
approximate 2.0% and 3.0% price increase, respectively, to continue to combat
inflationary cost pressures and progress towards our goal to improve
Restaurant-Level Adjusted EBITDA margins for fiscal 2023.
In the quarter ended March 26, 2023, operating income margin and
Restaurant-Level Adjusted EBITDA Margin sequentially improved compared to the
quarter ended December 26, 2022 and to the prior year quarter ended March 27,
2022. We believe this improvement was the result of our continued efforts to
elevate guest experiences, deploy strategic pricing actions and implement
operational efficiencies.
We also recently celebrated our 60th anniversary on April 5, 2023. Since our
founding at the "The Dog House," we have grown to become a treasured brand with
a passionate nationwide following. We will continue to create decades worth of
memories for new fans as we expand across the nation. Even after 60 years, we
have so much opportunity to develop and grow our team members, enhance the
Portillo's experience for our guests, and to create enduring value for our
investors.
Portillo's Inc. [[Image Removed: circle.jpg]] Form 10-Q | 23
--------------------------------------------------------------------------------
Development Highlights
We opened three new restaurants during the quarter ended March 26, 2023.
Subsequent to March 26, 2023, we opened one additional restaurant, bringing our
total restaurant count to 76, including a restaurant owned by C&O of which
Portillo's owns 50% of the equity.
Location Opening Date
Kissimmee, Florida December 2022
The Colony, Texas January 2023
Tucson, Arizona February 2023
Gilbert, Arizona March 2023
Portillo's Inc. [[Image Removed: circle.jpg]] Form 10-Q | 24
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source Glimpses
PORTILLO'S INC. 
