Portillo’s Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. FY2023 comprised 53 weeks, including six operating days in the additional week; FY2022 comprised 52 weeks. The extra week contributed approximately $13.9 million of revenue and $1.6 million of operating income. Portillo’s operated 84 restaurants across 10 states at year-end, including one 50%-owned restaurant accounted for under the equity method.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $679.9 million | $587.1 million |
| Operating income / margin | $55.4 million / 8.2% | $41.3 million / 7.0% |
| Net income | $24.8 million | $17.2 million |
| Net income attributable to Portillo’s Inc. | $18.4 million; diluted EPS $0.32 | $10.9 million; diluted EPS $0.25 |
| Operating cash flow | $70.8 million | $56.9 million |
| Capital expenditures | $87.9 million | $47.1 million |
| Adjusted EBITDA and margin | $102.3 million / 15.0% | $85.0 million / 14.5% |
| Restaurant-Level Adjusted EBITDA and margin | $165.2 million / 24.3% | $132.5 million / 22.6% |
Adjusted EBITDA and Restaurant-Level Adjusted EBITDA are non-GAAP measures; restaurant-level results exclude corporate expenses and should not be treated as earnings available to shareholders.
Revenue grew 15.8%; same-restaurant sales increased 5.7%, driven by a 6.1% increase in average check, partly offset by a 0.4% decline in transactions. Menu pricing increased approximately 8.5%. Average unit volume rose to $9.1 million from $8.5 million. The 12 restaurants opened in FY2023, together with three opened in FY2022, contributed approximately $48.4 million of FY2023 revenue.
Restaurant operating expenses were 75.7% of revenue versus 77.4% in FY2022. Food, beverage and packaging costs declined to 34.0% of revenue from 34.8%; labor declined to 25.6% from 26.3%. Commodity inflation eased to 5.5% from 15.2%. Pre-opening costs increased to $9.0 million from $4.7 million. A $3.5 million loss on debt extinguishment was recorded in FY2023.
Cash and restricted cash totaled $10.4 million at year-end, down from $44.4 million. The company used $87.8 million in investing activities and $16.9 million in financing activities, leaving a $34.0 million decrease in cash. Debt totaled $309.4 million before unamortized costs, including $294.4 million on the term loan and $15.0 million drawn on the revolver. Revolver availability was $80.7 million after letters of credit. The effective interest rate was 8.36%; a 100-basis-point rate change was estimated to affect annual interest expense by approximately $3.9 million.
Current assets were $41.9 million and current liabilities were $104.9 million. Long-term operating lease liabilities were $238.4 million. Portillo’s reported a $299.8 million Tax Receivable Agreement liability, representing estimated future payments of 85% of specified tax benefits; $4.4 million was expected to be paid within 12 months. Management expects operating cash flows to fund needs for at least the next 12 months. The company has not paid dividends and does not anticipate cash dividends in the foreseeable future.
Changes, outlook and notable items
- Fourth-quarter revenue grew 24.5% year over year; same-restaurant sales increased 4.4%, compared with 6.0% in the prior-year quarter. The filing does not provide a clear absolute fourth-quarter revenue value in the supplied text.
- FY2023 net income attributable to Portillo’s Inc. increased to $18.4 million from $10.9 million; reported net income increased to $24.8 million from $17.2 million. Results include an additional fiscal week, new-store contributions and higher pricing.
- The company refinanced its prior credit agreement in February 2023 with a $300 million term loan and a $100 million revolving facility, both scheduled to mature in February 2028. It was in compliance with credit covenants at year-end.
- Management plans to open at least nine restaurants in FY2024 and targets at least 12% restaurant growth in 2025; its long-term annual growth aim is approximately 12% to 15%. The strategy emphasizes Sunbelt markets, particularly Arizona, Texas and Florida, while continuing selective Chicagoland growth.
- For FY2024, management estimated mid-single-digit commodity inflation and mid-single-digit wage inflation. It increased certain menu prices by approximately 1.5% in January 2024 and plans to use pricing and operating efficiencies to offset costs.
- Growth and margin risks include inflation and wage pressure, execution and profitability of new locations, competition, dependence on third-party delivery and technology providers, food safety and supply-chain disruptions, and geographic concentration: approximately 77% of restaurants were in the Midwest and 49% in Chicagoland.
- Some commissary employees voted for union representation; the company challenged the election with the NLRB and appealed to set aside the result. Management reported no other union petitions. Ordinary-course legal matters were disclosed, but no loss contingencies were recorded at year-end; management did not expect resulting liabilities to materially affect the financial statements.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective as of December 31, 2023.
Important facts for investors to verify
- How much of revenue and earnings growth reflects the extra fiscal week, menu pricing, and new restaurant openings, versus underlying traffic and comparable-store demand.
- Whether transaction trends improve, given the FY2023 0.4% comparable-store transaction decline and the fourth-quarter comparable-sales slowdown.
- Whether FY2024 openings meet the at-least-nine target and achieve expected returns as the company expands into newer markets and smaller restaurant formats.
- Actual commodity and wage inflation, the impact of further pricing, and whether operating efficiencies can sustain or improve restaurant margins.
- Cash generation relative to elevated capital spending, the low year-end cash balance, variable-rate debt, revolver use, and scheduled debt repayments.
- Assumptions behind the $299.8 million Tax Receivable Agreement liability, including taxable-income forecasts, payment timing and potential acceleration or changes in tax benefits.
- Outcome of the NLRB challenge and any material developments in litigation, labor relations, food safety, cybersecurity or supply-chain risks.