Portillo’s Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 25, 2022 (52 weeks), compared with the 52-week fiscal year ended December 26, 2021. Portillo’s operates fast-casual restaurants and two Illinois commissaries; it had 72 restaurants across nine states at year-end, including one 50%-owned equity-method location.
Key financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $587.1 million | $535.0 million |
| Operating income / margin | $41.3 million / 7.0% | $30.0 million / 5.6% |
| Net income (loss) | $17.2 million | $(13.4) million |
| Net income (loss) attributable to Portillo’s Inc. | $10.9 million | $(15.2) million |
| Adjusted EBITDA / margin | $85.0 million / 14.5% | $98.5 million / 18.4% |
| Restaurant-Level Adjusted EBITDA / margin | $132.5 million / 22.6% | $142.1 million / 26.6% |
| Cash from operations | $56.9 million | $42.9 million |
| Cash used in investing | $47.0 million | $36.3 million |
| Cash and restricted cash at year-end | $44.4 million | $39.3 million |
At December 25, 2022, principal debt was $322.4 million; there were no revolver borrowings and $45.8 million of revolver availability after letters of credit. Interest expense was $27.6 million, down from $39.7 million. A 100-basis-point rate change was estimated to affect annual interest expense by about $3.3 million. The company reported $65.3 million of current assets and $77.3 million of current liabilities. Operating lease liabilities were $205.0 million, and the estimated Tax Receivable Agreement (TRA) liability was $252.8 million.
Material changes versus FY2021
- Revenue increased 9.7%, driven by new restaurants and 5.4% same-restaurant sales growth. Same-restaurant sales reflected a 6.1% increase in average check and a 3.4% decline in transactions.
- Operating income rose $11.3 million and GAAP net income improved by $30.6 million, moving from a loss to profit. Lower interest and general and administrative expense, including lower IPO-related equity compensation, contributed to the improvement.
- Restaurant-Level Adjusted EBITDA fell $9.6 million and its margin declined 4.0 percentage points. Commodity inflation was 15.2%; cost of goods sold rose to 34.8% of revenue from 31.2%, and labor rose to 26.3% from 25.9%.
- Operating cash flow increased $14.0 million, while capital spending increased to $47.1 million, primarily for restaurant openings and construction. The resulting operating cash flow less capital expenditures was approximately $9.8 million.
- Two 2022 secondary offerings generated no proceeds for Portillo’s; proceeds were used to acquire LLC units and shares from pre-IPO holders. Portillo’s ownership of Portillo’s OpCo increased to 67.0% from 50.1% at year-end 2021.
Comparability note: Portillo’s changed its accounting for third-party delivery menu-price premiums at the end of 2021, recording the premiums in revenue rather than reducing cost of goods sold. Management said this added approximately 2.0–3.0 percentage points to reported 2022 same-restaurant sales growth, with no effect on operating or net income.
Outlook, commentary, risks, and unusual items
- For the first quarter of 2023, management anticipated same-restaurant sales growth of 8%–10% and total revenue growth of 16%–18%. It reported same-restaurant sales growth of 12.3% in the first fiscal period of 2023 and estimated 7.9% for the second fiscal period.
- Management targeted nine restaurant openings in fiscal 2023 and stated a long-term goal of growing the restaurant count by approximately 10% annually. Four planned 2022 openings were delayed into 2023, including the company’s first Texas location.
- Management expected fiscal 2023 commodity inflation in the mid-single digits, anticipated further wage investments, and said it would use pricing and operating efficiencies to offset costs. Certain menu prices rose approximately 2.0% in mid-January 2023.
- Winter Storm Elliott reduced fourth-quarter 2022 same-restaurant sales growth by at least an estimated 0.7%. The business remains concentrated in the Midwest: about 86% of restaurants were there and 54% were in Chicagoland.
- Key risks include food and labor inflation, labor availability and wage pressure, execution and site availability for expansion, supply-chain and commissary disruption, food safety and brand reputation, competition, technology and cybersecurity, and floating-rate debt. The filing discusses a 2021 E. coli report associated with one restaurant and one lawsuit; management said the health department found no current public-health risk. No loss contingency was recorded at year-end, and management believed any liability from ordinary-course claims would not be material.
- After year-end, on February 2, 2023, the company refinanced its prior facility with a $300 million term loan and $100 million revolver, scheduled to mature in 2028. Borrowings totaled $315 million on February 2; after a $5 million revolver payment, availability was $85.6 million on February 28. The new facility has financial covenants and floating-rate exposure.
- The company estimated total future TRA payments of $252.8 million, contingent on tax benefits and sufficient taxable income; approximately $0.8 million was expected within 12 months. No dividends had been declared, and the company did not anticipate cash dividends in the foreseeable future.
Important facts for investors to verify
- Whether pricing, traffic, and reported same-restaurant sales trends remain sustainable, considering the delivery-pricing accounting change.
- Whether easing commodity inflation and further menu pricing can stabilize restaurant-level and Adjusted EBITDA margins amid ongoing wage investment.
- The pace, cost, and performance of planned openings, including execution in newer markets and the 2023 development target.
- Debt service, covenant headroom, and sensitivity to floating interest rates under the new credit agreement; also assess lease commitments and TRA cash requirements together.
- The status and potential financial or reputational consequences of legal and food-safety matters; the filing reports no recorded loss contingency at year-end.