Portillo’s Inc. — Fiscal 2021 Form 10-K
Reporting period: Fiscal year ended December 26, 2021 (52 weeks), compared with fiscal 2020 ended December 27, 2020. The company completed its IPO in October 2021; Portillo’s Inc. became the managing member of Portillo’s OpCo and reports its results on a consolidated basis, with a non-controlling interest for the 49.9% of OpCo retained by pre-IPO members.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $535.0 million | $455.5 million |
| Same-restaurant sales | +10.5% | -7.7% |
| Operating income / margin | $30.0 million / 5.6% | $57.3 million / 12.6% |
| Net income (loss) | $(13.4) million | $12.3 million |
| Net loss attributable to Portillo’s Inc. | $(15.2) million | $(8.3) million |
| Adjusted EBITDA / margin | $98.5 million / 18.4% | $87.8 million / 19.3% |
| Restaurant-Level Adjusted EBITDA / margin | $142.1 million / 26.6% | $121.9 million / 26.8% |
| Cash from operations | $42.9 million | $58.3 million |
Revenue grew 17.5%, reflecting higher average check, transactions and new restaurant contributions. Same-restaurant sales rose 10.5%, comprising a 7.8% increase in average check and a 2.7% increase in transactions. AUV was $8.2 million versus $7.7 million. The company operated 69 restaurants across nine states at year-end; five opened during fiscal 2021.
Operating income fell $27.3 million despite revenue growth. General and administrative expense rose to $87.1 million from $39.9 million, including a $29.2 million increase in equity-based compensation, much of it associated with IPO-related award modifications. Other notable IPO-related items included a $7.3 million debt-extinguishment loss. Interest expense decreased to $39.7 million from $45.0 million.
Operating cash flow declined 26.4% to $42.9 million; capital expenditures were $36.2 million, primarily reflecting new restaurant development. Year-end cash and restricted cash were $39.3 million, versus $41.4 million. Current assets were $59.0 million and current liabilities $66.9 million.
Debt principal outstanding under credit facilities was $325.8 million at year-end, down from $484.1 million a year earlier; the balance sheet reported $319.2 million net of debt discounts and issuance costs. The IPO generated approximately $430 million in net proceeds, used with cash on hand to repay $221.7 million of redeemable preferred units, repay $158.1 million of second-lien debt, and purchase $57.0 million of LLC units or Class A shares from certain pre-IPO members. No revolver borrowings were outstanding; $45.0 million was available under the $50.0 million facility. The company reported compliance with debt covenants.
Changes, outlook and key risks
- Profitability and margins: Restaurant-level Adjusted EBITDA rose, but its margin edged down to 26.6%; Adjusted EBITDA margin and GAAP operating margin also declined. Labor expense increased 19.7%, with labor as a share of revenue rising 0.5 percentage points, reflecting wage increases, training and bonuses.
- Management outlook: Portillo’s targeted seven restaurant openings in fiscal 2022, including at least one in Chicagoland and its first Texas location, and stated a longer-term goal of approximately 10% annual unit growth. Management expected wage investments, supply-chain expenses and commodity costs to pressure restaurant-level margins in 2022, with menu price increases and operational efficiencies expected to partly offset them. Certain menu prices rose approximately 3% in Q4 2021 and approximately 1.5% in Q1 2022.
- Trading and presentation: Beginning at the end of 2021, third-party delivery menu-price premiums are presented in revenue rather than as a reduction in cost of goods sold. Management expected this to increase reported same-restaurant sales growth by 2–3 percentage points in 2022, with no effect on operating income.
- COVID-19 and operations: Omicron disrupted sales, particularly seasonal catering, during the final weeks of Q4 2021 and contributed to staffing shortages into early 2022. Management reported improving sales and staffing trends beginning in mid-January. Supply shortages and transportation delays were expected to continue into fiscal 2022, though management viewed them as temporary.
- Structural obligations: A $156.6 million Tax Receivable Agreement liability was recorded; Portillo’s generally owes pre-IPO members 85% of specified realized or deemed tax benefits. Management estimated the associated tax savings at $184.2 million if the relevant assumptions hold and sufficient taxable income is generated. No payment was expected within the next 12 months. The company also disclosed $612.6 million of future minimum operating lease payments.
- Contingencies: Portillo’s disclosed a 2021 report of possible E. coli cases associated with its Glendale Heights restaurant and one lawsuit; the county health department reported no current public-health risk based on information then gathered. The company said ordinary-course legal matters were not expected to have a material financial-statement effect. A $0.8 million unclaimed-gift-card contingency was resolved in 2021.
- Other risks: Key exposures include food and commodity inflation, labor availability and cost, geographic concentration in the Midwest (87% of restaurants; 54% in Chicagoland), dependence on suppliers and two Illinois commissaries, restaurant expansion execution, variable-rate debt, and cyber/privacy risks. A 100-basis-point interest-rate change was estimated to affect annual interest expense by approximately $3.3 million.
Most important facts for investors to verify
- Whether same-restaurant sales and traffic remain resilient after the 2021 recovery, including the impact of price increases and the delivery revenue-presentation change.
- Whether commodity, wage and staffing pressures reduce restaurant-level margins, and whether pricing and productivity actions adequately offset them.
- Whether planned openings achieve targeted timing, costs and unit economics, particularly in new markets such as Texas.
- Debt service, interest-rate exposure, covenant headroom, available revolver capacity, and the cash requirements of leases and the Tax Receivable Agreement.
- Developments in the Glendale Heights food-safety matter and any related claims or costs.