Portillo’s(PTLO) - 2025 Q2 - Quarterly Report

Cautionary Note Regarding Forward-Looking Information This section advises that the Form 10-Q contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially - This Form 10-Q contains forward-looking statements subject to known and unknown risks and uncertainties that may cause actual results to differ materially. These statements discuss current expectations and projections related to financial position, operations, plans, objectives, future performance, and business[9][10] - Important factors that could cause actual results to differ include regional, national, or global political, economic, business, competitive, market, and regulatory conditions, as well as specific risks such as organizational structure, food safety, economic and financial market volatility (inflation, interest rates, recession), unionization activities, reliance on IT systems (including AI), competition, labor market, government regulations, inability to achieve growth strategy, consumer sentiment, and increased operating costs[10][13] - The Company undertakes no obligation to publicly update or revise any forward-looking statement, except as required by law[12] Part I. Financial Information This part presents the Company's unaudited condensed consolidated financial statements and management's discussion and analysis for the reported periods Item 1. Financial Statements (Unaudited) This section presents Portillo's Inc.'s unaudited condensed consolidated financial statements for Q2 2025 and 2024, including balance sheets, statements of operations, stockholders' equity, cash flows, and detailed accounting notes Condensed Consolidated Balance Sheets This section provides a snapshot of the Company's assets, liabilities, and stockholders' equity as of June 29, 2025, and December 29, 2024 | ASSETS (in thousands) | June 29, 2025 | December 29, 2024 | | :-------------------------------- | :------------ | :------------------ | | CURRENT ASSETS: | | | | Cash and cash equivalents and restricted cash | $16,621 | $22,876 | | Accounts and tenant improvement receivables | $17,669 | $14,794 | | Inventories | $10,098 | $7,915 | | Prepaid expenses | $5,905 | $7,066 | | Total current assets | $50,293 | $52,651 | | Property and equipment, net | $384,883 | $358,975 | | Operating lease assets | $243,220 | $222,390 | | Goodwill | $394,298 | $394,298 | | Trade names | $223,925 | $223,925 | | Other intangible assets, net | $24,745 | $26,098 | | Equity method investment | $15,538 | $16,056 | | Deferred tax assets | $209,051 | $197,409 | | Other assets | $7,777 | $8,284 | | Total other assets | $875,334 | $866,070 | | TOTAL ASSETS | $1,553,730| $1,500,086 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | CURRENT LIABILITIES: | | | | Accounts payable | $43,683 | $45,516 | | Current portion of long-term debt | $6,250 | $11,250 | | Current portion of Tax Receivable Agreement liability | $9,177 | $7,686 | | Short-term debt | $70,000 | $25,000 | | Deferred revenue | $4,970 | $7,032 | | Short-term operating lease liabilities | $6,458 | $6,013 | | Accrued expenses | $30,730 | $33,072 | | Total current liabilities | $171,268 | $135,569 | | LONG-TERM LIABILITIES: | | | | Long-term debt, net of current portion | $240,758 | $275,422 | | Tax Receivable Agreement liability | $343,717 | $316,893 | | Long-term operating lease liabilities | $306,692 | $278,540 | | Other long-term liabilities | $3,498 | $3,559 | | Total long-term liabilities | $894,665 | $874,414 | | Total liabilities | $1,065,933| $1,009,983 | | STOCKHOLDERS' EQUITY: | | | | Class A common stock | $719 | $637 | | Class B common stock | — | — | | Additional paid-in-capital | $403,068 | $357,295 | | Retained earnings | $55,146 | $43,129 | | Total stockholders' equity attributable to Portillo's Inc. | $458,933 | $401,061 | | Non-controlling interest | $28,864 | $89,042 | | Total stockholders' equity | $487,797 | $490,103 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $1,553,730| $1,500,086 | - Total assets increased by $53.6 million (3.6%) from December 29, 2024, to June 29, 2025, primarily driven by increases in property and equipment, net, and operating lease assets[16] - Total liabilities increased by $55.9 million (5.5%) over the same period, mainly due to increases in short-term debt, Tax Receivable Agreement liability, and long-term operating lease liabilities[16] Condensed Consolidated Statements of Operations This section details the Company's revenues, operating income, and net income for the quarter and two quarters ended June 29, 2025, and June 30, 2024 | (In thousands, except share and per share data) | Quarter Ended June 29, 2025 | Quarter Ended June 30, 2024 | Two Quarters Ended June 29, 2025 | Two Quarters Ended June 30, 2024 | | :---------------------------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | REVENUES, NET | $188,456 | $181,862 | $364,893 | $347,693 | | OPERATING INCOME | $17,531 | $18,115 | $27,912 | $28,212 | | INCOME BEFORE INCOME TAXES | $13,722 | $12,026 | $19,072 | $16,233 | | NET INCOME | $10,043 | $8,530 | $14,033 | $13,874 | | NET INCOME ATTRIBUTABLE TO PORTILLO'S INC. | $8,704 | $6,470 | $12,017 | $11,032 | | Basic Net income per common share | $0.13 | $0.10 | $0.18 | $0.19 | | Diluted Net income per common share | $0.12 | $0.10 | $0.18 | $0.18 | - Net revenues increased by 3.6% for the quarter and 4.9% for the two quarters ended June 29, 2025, compared to the prior year periods[17] - Operating income decreased by $0.6 million (3.2%) for the quarter and $0.3 million (1.1%) for the two quarters ended June 29, 2025, compared to the prior year periods[17] - Net income attributable to Portillo's Inc. increased by $2.2 million (34.5%) for the quarter and $1.0 million (9.0%) for the two quarters ended June 29, 2025, compared to the prior year periods[17] Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in stockholders' equity, including net income, equity-based compensation, and non-controlling interests, for the period ended June 29, 2025 | (In thousands, except share data) | Balance at Dec 29, 2024 | Net Income | Equity-based Compensation | Activity under Equity-based Compensation Plans | Redemption of LLC Units | Non-controlling Interest Adjustment | Distributions Paid to Non-controlling Interest Holders | Establishment of TRA Liabilities | Balance at June 29, 2025 | | :-------------------------------- | :---------------------- | :--------- | :------------------------ | :--------------------------------------------- | :---------------------- | :---------------------------------- | :--------------------------------------------- | :------------------------------- | :----------------------- | | Class A Common Stock (Amount) | $637 | — | — | $9 | $73 | — | — | — | $719 | | Additional Paid-in Capital | $357,295 | — | $4,048 | $2,140 | $(73) | $61,463 | — | $(21,805) | $403,068 | | Retained Earnings | $43,129 | $12,017 | — | — | — | — | — | — | $55,146 | | Non-Controlling Interest | $89,042 | $2,016 | $560 | — | — | $(61,463) | $(1,291) | — | $28,864 | | Total Stockholders' Equity | $490,103 | $14,033 | $4,608 | $2,149 | — | — | $(1,291) | $(21,805) | $487,797 | - Total stockholders' equity decreased from $490.1 million at December 29, 2024, to $487.8 million at June 29, 2025, primarily due to the establishment of Tax Receivable Agreement liabilities and distributions to non-controlling interest holders, partially offset by net income and equity-based compensation[19][21] - Non-controlling interest significantly decreased from $89.0 million to $28.9 million, largely due to a non-controlling interest adjustment of $(61.5) million and distributions paid[19][21] Condensed Consolidated Statements of Cash Flows This section summarizes cash flows from operating, investing, and financing activities for the two quarters ended June 29, 2025, and June 30, 2024 | (In thousands) | Two Quarters Ended June 29, 2025 | Two Quarters Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $28,693 | $41,628 | | Net cash used in investing activities | $(33,076) | $(33,828) | | Net cash used in financing activities | $(1,872) | $(5,881) | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(6,255) | $1,919 | | Cash and cash equivalents and restricted cash at end of period | $16,621 | $12,357 | - Net cash provided by operating activities decreased by $12.9 million (31.1%) for the two quarters ended June 29, 2025, primarily due to changes in operating assets and liabilities[22][194] - Net cash used in investing activities decreased by $0.8 million (2.2%), mainly due to the number and timing of builds in process and adopting a more cost-effective restaurant format[22][196] - Net cash used in financing activities decreased by $4.0 million (68.2%), driven by increased proceeds from short-term debt, partially offset by long-term debt payments and higher Tax Receivable Agreement liability payments[22][197] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of significant accounting policies, revenue recognition, inventory, property, debt, equity, and other financial statement items Note 1. Description Of Business Portillo's Inc. operates 93 restaurants across 10 states, serving Chicago-style food, and holds a 50% interest in one restaurant - Portillo's Inc. was formed in 2021 for an IPO and related reorganization, operating as the sole managing member of Portillo's OpCo. The Company operates 93 restaurants across 10 states, serving Chicago-style food, and also has a 50% interest in one restaurant owned by C&O Chicago, L.L.C[25][26] - A ghost kitchen was closed during the second quarter ended June 29, 2025[26] Note 2. Summary Of Significant Accounting Policies This note outlines the basis of preparation for the unaudited financial statements, fiscal year details, and the evaluation of new accounting pronouncements - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial statements and SEC rules, reflecting all necessary normal recurring adjustments[27] - The Company uses a 52- or 53-week fiscal year ending on the Sunday prior to or on December 31. Fiscal years 2025 and 2024 consist of 52 weeks[29] - The Company is evaluating the effect of adopting ASU 2023-09 (Income Taxes) effective for fiscal years beginning after December 15, 2024, and ASU 2024-03 (Expense Disaggregation Disclosures) effective for annual reporting periods beginning after December 15, 2026[31][32] - ASU 2023-07 (Segment Reporting) was adopted for the year ended December 29, 2024, requiring disclosure of reportable segments' significant expenses[33] Note 3. Revenue Recognition This note details the Company's policies for recognizing revenue from retail sales, delivery, gift cards, and the new Portillo's Perks™ loyalty program - Revenue from retail restaurants is recognized net of discounts when food and beverage products are sold. Delivery sales are recognized when food is delivered, with Dispatch Sales including delivery/service fees and Marketplace Sales excluding them[35][36] - Gift card sales are recorded as a contract liability, with revenue recognized upon redemption or as breakage (11% of sales not expected to be redeemed). Gift card breakage recognized was $0.2 million for the quarter and $0.5 million for the two quarters ended June 29, 2025[37] Gift Card Liability and Revenue Recognized (in thousands) | Item | June 29, 2025 | December 29, 2024 | | :-------------------------------------------------------------------------------- | :------------ | :------------------ | | Gift card liability | $4,450 | $6,875 | | Revenue recognized from gift card liability balance at the beginning of the year (Q) | $961 | $912 | | Revenue recognized from gift card liability balance at the beginning of the year (2Q) | $2,982 | $2,982 | - The Company launched Portillo's Perks™, an app-less loyalty program, on March 3, 2025. Revenue is deferred for earned rewards and recognized upon redemption. As of June 29, 2025, the Perks liability was $0.1 million, with no breakage recorded due to short expiration periods[39][40] Note 4. Inventories This note provides a breakdown of inventory components and highlights a significant increase in total inventories from December 2024 to June 2025 Inventories (in thousands) | Item | June 29, 2025 | December 29, 2024 | | :-------------- | :------------ | :---------------- | | Raw materials | $7,584 | $5,756 | | Work in progress| $134 | $168 | | Finished goods | $1,732 | $1,216 | | Consigned inventory| $648 | $775 | | Total | $10,098 | $7,915 | - Total inventories increased by $2.2 million (27.6%) from December 29, 2024, to June 29, 2025, primarily driven by an increase in raw materials and finished goods[41] Note 5. Property & Equipment, Net This note details the composition of property and equipment, net, and explains the increase primarily due to construction-in-progress Property and Equipment, Net (in thousands) | Item | June 29, 2025 | December 29, 2024 | | :-------------------------- | :------------ | :---------------- | | Land and land improvements | $24,274 | $24,100 | | Buildings and improvements | $5,516 | $5,084 | | Furniture, fixtures, and equipment | $182,248 | $177,443 | | Leasehold improvements | $287,985 | $286,003 | | Transportation equipment | $2,026 | $2,042 | | Construction-in-progress | $43,427 | $12,348 | | Less accumulated depreciation | $(160,593) | $(148,045) | | Total | $384,883 | $358,975 | - Property and equipment, net, increased by $25.9 million (7.2%) from December 29, 2024, to June 29, 2025, largely due to a significant increase in construction-in-progress[42] - Depreciation expense was $6.4 million for both the quarter ended June 29, 2025, and June 30, 2024. For the two quarters, it was $12.8 million (June 29, 2025) and $12.6 million (June 30, 2024)[42] Note 6. Goodwill & Intangible Assets This note describes the Company's goodwill and intangible assets, including trade names and recipes, and reports on amortization expense and impairment assessments - The Company has one reporting unit for goodwill, evaluated annually for impairment in the fourth quarter. No impairment charges were recognized for goodwill or indefinite-lived intangible assets during the reported periods[43] Intangible Assets, Net (in thousands) | Item | June 29, 2025 Net Carrying Amount | December 29, 2024 Net Carrying Amount | | :--------------------------------- | :-------------------------------- | :------------------------------------ | | Indefinite-lived intangible assets: | | | | Trade names | $223,925 | $223,925 | | Intangible subject to amortization: | | | | Recipes | $24,745 | $26,098 | | Total | $248,670 | $250,023 | - Amortization expense for intangible assets was $0.7 million for the quarter and $1.4 million for the two quarters ended June 29, 2025, consistent with the prior year[43] Estimated Aggregate Amortization Expense (in thousands) | Year | Estimated Amortization | | :------------------ | :--------------------- | | 2025 (remainder) | $1,354 | | 2026 | $2,707 | | 2027 | $2,707 | | 2028 | $2,707 | | 2029 | $2,150 | | 2030 | $1,369 | | 2031 and thereafter | $11,751 | | Total | $24,745 | Note 7. Fair Value of Financial Instruments This note discusses the fair value measurement of financial instruments, including deferred compensation plan investments, and confirms no impairment charges - The carrying values of current assets and liabilities approximate fair values due to their short-term nature. Long-term prepaid expenses and other long-term liabilities also approximate fair values[45][46] - The Company maintains a rabbi trust for a deferred compensation plan, with investments in mutual funds measured at fair value (Level 1 hierarchy) using quoted market prices[47] Fair Value of Deferred Compensation Plan Investments (in thousands) | Item | June 29, 2025 (Level 1) | December 29, 2024 (Level 1) | | :-------------------------------------------- | :---------------------- | :-------------------------- | | Cash accounts | $867 | $988 | | Mutual funds | $1,989 | $2,208 | | Total assets | $2,856 | $3,196 | - No impairment charges were recognized for assets measured at fair value on a non-recurring basis (property and equipment, operating lease assets, equity-method investment, goodwill, and indefinite-lived intangible assets) during the reported periods[51] Note 8. Debt This note details the Company's debt structure, including the Term Loan and Revolver Facility, and the impact of the 2025 credit agreement amendment on interest rates Debt (in thousands) | Item | June 29, 2025 | December 29, 2024 | | :------------------------------------ | :------------ | :---------------- | | Term Loan | $250,000 | $288,750 | | Revolver Facility | $70,000 | $25,000 | | Unamortized discount and debt issuance costs | $(2,992) | $(2,078) | | Total debt, net | $317,008 | $311,672 | | Less: Short-term debt | $(70,000) | $(25,000) | | Less: Current portion of long-term debt | $(6,250) | $(11,250) | | Long-term debt, net | $240,758 | $275,422 | - On January 27, 2025, the Company amended its credit agreement, establishing a new $250 million Term Loan A facility and $150 million Revolving Credit Facility, both maturing on January 27, 2030. This arrangement was accounted for as a debt modification[53][54] - The interest rate on the 2025 Term Loan and Revolver Facility was 6.55% and 6.58%, respectively, as of June 29, 2025, a decrease from 7.98% and 7.94% on the prior facilities as of June 30, 2024. The effective interest rate decreased from 8.31% to 6.90%[56][57][155] - As of June 29, 2025, outstanding borrowings totaled $320.0 million ($250.0 million Term Loan, $70.0 million Revolver Facility), with $74.7 million available under the Revolver Facility[60] - Total interest expense decreased by $0.9 million (13.3%) for the quarter and $1.7 million (12.6%) for the two quarters ended June 29, 2025, primarily due to the lower effective interest rate from the 2025 Credit Agreement amendment[64][153][154] Note 9. Non-Controlling Interests This note explains the accounting for non-controlling interests, including LLC unit redemptions and their impact on ownership percentages - Portillo's Inc. consolidates Portillo's OpCo's financial results and reports a non-controlling interest for pre-IPO LLC Members' economic interest[68] - In Q2 2025, certain pre-IPO Members redeemed 7,290,465 LLC units for newly-issued Class A common stock on a one-for-one basis[70] LLC Interest Ownership | Item | June 29, 2025 LLC Units | June 29, 2025 Ownership % | December 29, 2024 LLC Units | December 29, 2024 Ownership % | | :-------------------- | :---------------------- | :------------------------ | :-------------------------- | :---------------------------- | | Portillo's Inc. | 71,890,168 | 95.4 % | 63,674,579 | 85.6 % | | pre-IPO LLC Members | 3,442,335 | 4.6 % | 10,732,800 | 14.4 % | | Total | 75,332,503 | 100.0 % | 74,407,379 | 100.0 % | - The pre-IPO LLC Members' weighted average ownership percentage decreased to 9.9% for the quarter and 12.2% for the two quarters ended June 29, 2025, from 15.9% and 18.7% respectively, in the prior year periods[70] Note 10. Equity-Based Compensation This note details equity-based compensation expense, including grants of RSUs, stock options, and PSUs, and their impact on financial results Equity-Based Compensation Expense (in thousands) | Item | Quarter Ended June 29, 2025 | Quarter Ended June 30, 2024 | Two Quarters Ended June 29, 2025 | Two Quarters Ended June 30, 2024 | | :--------------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Labor | $505 | $546 | $858 | $954 | | General and administrative expenses | $2,153 | $2,344 | $3,750 | $4,763 | | Total | $2,658 | $2,890 | $4,608 | $5,717 | - Total equity-based compensation expense decreased by $0.2 million (8.0%) for the quarter and $1.1 million (19.4%) for the two quarters ended June 29, 2025, compared to the prior year periods[72] - During the two quarters ended June 29, 2025, the Company granted 589,745 RSUs to employees and 93,725 RSUs to non-employee directors, with a weighted average fair value of $12.08[73] - The Company granted 307,692 stock options to its CEO in Q2 2025, valued at $6.50 per option using the Black-Scholes model[74] - 301,118 Performance Stock Units (PSUs) were granted to executive officers, vesting after fiscal year 2027 based on service and achievement of revenue and Adjusted EBITDA growth targets[75] Note 11. Income Taxes This note explains the Company's tax structure, effective income tax rates, and the impact of LLC unit redemptions and the Tax Receivable Agreement liability - Portillo's OpCo is treated as a partnership for tax purposes, with taxable income/loss passed through to its members. Portillo's Inc. is subject to federal, state, and local income taxes on its allocable share[76] Effective Income Tax Rate | Period | June 29, 2025 | June 30, 2024 | | :----------------------------------- | :------------ | :------------ | | Quarter Ended Effective Income Tax Rate | 26.8% | 29.1% | | Two Quarters Ended Effective Income Tax Rate | 26.4% | 14.5% | - The decrease in the effective tax rate for the quarter ended June 29, 2025, was due to a decrease in the valuation allowance against deferred tax assets from LLC unit redemptions. The increase for the two quarters was driven by Portillo's Inc.'s increased ownership interest in Portillo's OpCo[77][78][163][164] - In Q2 2025, an increase in tax basis from LLC unit redemptions resulted in a $16.7 million deferred tax asset and a $38.5 million additional Tax Receivable Agreement (TRA) liability[80] - The estimated TRA liability totaled $352.9 million as of June 29, 2025. Payments of $7.7 million (tax year 2023) and $4.4 million (tax year 2022) were made in the two quarters ended June 29, 2025, and June 30, 2024, respectively. A $9.2 million payment for tax year 2024 is expected within 12 months[81][94] Note 12. Earnings Per Share This note presents basic and diluted earnings per share calculations and details the shares excluded from diluted EPS for the reported periods Earnings Per Share (in thousands, except per share data) | Item | Quarter Ended June 29, 2025 | Quarter Ended June 30, 2024 | Two Quarters Ended June 29, 2025 | Two Quarters Ended June 30, 2024 | | :-------------------------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Net income attributable to Portillo's Inc. | $8,704 | $6,470 | $12,017 | $11,032 | | Weighted-average common shares outstanding-basic | 67,595 | 61,650 | 65,717 | 59,544 | | Weighted-average common shares outstanding-diluted | 69,868 | 64,609 | 68,175 | 62,578 | | Basic net income per share | $0.13 | $0.10 | $0.18 | $0.19 | | Diluted net income per share | $0.12 | $0.10 | $0.18 | $0.18 | - Basic EPS increased to $0.13 from $0.10 for the quarter ended June 29, 2025, and remained stable at $0.18 for the two quarters ended June 29, 2025, compared to $0.19 in the prior year[83] - Diluted EPS increased to $0.12 from $0.10 for the quarter ended June 29, 2025, and remained stable at $0.18 for the two quarters ended June 29, 2025, compared to the prior year[83] Shares Excluded from Diluted EPS (in thousands) | Item | Quarter Ended June 29, 2025 | Quarter Ended June 30, 2024 | Two Quarters Ended June 29, 2025 | Two Quarters Ended June 30, 2024 | | :------------------------ | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Performance Stock Options | 1,377 | 2,109 | 1,377 | 2,109 | | Performance Stock Units | 592 | 296 | 592 | — | | Restricted Stock Units | 606 | 714 | — | 159 | | Stock Options | 619 | 321 | 619 | 321 | | Total shares excluded | 3,194 | 3,440 | 2,588 | 2,589 | Note 13. Contingencies This note addresses the Company's involvement in legal proceedings and potential claims, asserting no material impact on financial statements - The Company is involved in legal proceedings and potential claims arising from normal business operations, including employment matters, contractual disputes, customer injuries, and property damage. Management believes that any resulting liability will not materially affect the condensed consolidated financial statements[86] Note 14. Segment Information This note clarifies that the Company operates as a single reportable segment, with performance assessed at a consolidated level by the CEO - The Company operates as one operating segment and one reportable segment, as the Chief Executive Officer (CODM) reviews financial performance and allocates resources at a consolidated level[87] - The CODM assesses performance based on net income (loss), which was $10.0 million for the quarter and $14.0 million for the two quarters ended June 29, 2025, and $8.5 million and $13.9 million for the respective prior year periods[88] - No single guest accounts for 10% or more of the Company's revenues[91] Note 15. Related Party Transactions This note discloses transactions with related parties, including receivables from C&O, Olo-related costs, and distributions to non-controlling interest holders - Receivables from related parties, specifically C&O, amounted to $0.3 million as of June 29, 2025, and December 29, 2024[92] Olo-Related Costs (in thousands) | Item | Quarter Ended June 29, 2025 | Quarter Ended June 30, 2024 | Two Quarters Ended June 29, 2025 | Two Quarters Ended June 30, 2024 | | :------------------------ | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Food, beverage and packaging costs | $497 | $512 | $984 | $1,014 | | Other operating expenses | $142 | $138 | $293 | $240 | | Total Olo-related costs | $639 | $650 | $1,277 | $1,254 | - The Company incurred $0.6 million in Olo-related costs for the quarter and $1.3 million for the two quarters ended June 29, 2025, for its mobile ordering and delivery platform[93] - In Q2 2025, pre-IPO Members affiliated with Berkshire Partners LLC redeemed 7,290,465 LLC units for Class A common stock. Berkshire Partners LLC and its affiliates beneficially own approximately 5.2% of the Company as of June 29, 2025[96] Distributions Paid to Non-Controlling Interest Holders (in thousands) | Period | Two Quarters Ended June 29, 2025 | Two Quarters Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | | Distributions paid to non-controlling interest holders | $1,291 | $838 | Note 16. Subsequent Events This note reports on the 'One Big Beautiful Bill Act' signed into law on July 4, 2025, and its expected non-material impact on financial statements - On July 4, 2025, the 'One Big Beautiful Bill Act' was signed into law, permanently extending certain Tax Cuts and Jobs Act provisions and modifying international tax frameworks. The Company is assessing its impact but does not expect a significant financial statement impact[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Portillo's Inc.'s financial performance, liquidity, and cash flows for the reported periods, highlighting revenue growth, cost pressures, and strategic initiatives Overview Portillo's operates 94 restaurants across ten states, offering Chicago street food with a hybrid fast-casual and quick-service model - Portillo's operates 94 restaurants across ten states, serving Chicago street food with a diverse menu. The business model combines fast-casual and quick-service attributes, featuring double-lane drive-thrus and multiple access modes (dine-in, carryout, delivery, catering)[104][105] Financial Highlights This section summarizes key financial metrics, including revenue, operating income, net income, and Adjusted EBITDA, for the quarter and two quarters ended June 29, 2025 Financial Highlights (Quarter Ended June 29, 2025 vs. June 30, 2024) | Metric | June 29, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------ | :--------- | :--------- | | Total revenue | $188.5 million| $181.9 million| $6.6 million| 3.6% | | Same-restaurant sales increase | +0.7% | -0.6% | N/A | N/A | | Operating income | $17.5 million | $18.1 million | $(0.6) million| -3.3% | | Net income | $10.0 million | $8.5 million | $1.5 million| 17.6% | | Restaurant-Level Adjusted EBITDA | $44.5 million | $44.6 million | $(0.1) million| -0.2% | | Adjusted EBITDA | $30.1 million | $29.9 million | $0.2 million| 0.7% | Financial Highlights (Two Quarters Ended June 29, 2025 vs. June 30, 2024) | Metric | June 29, 2025 | June 30, 2024 | Change ($) | Change (%) | | :-------------------------- | :------------ | :------------ | :--------- | :--------- | | Total revenue | $364.9 million| $347.7 million| $17.2 million| 4.9% | | Same-restaurant sales increase | +1.2% | -0.9% | N/A | N/A | | Operating income | $27.9 million | $28.2 million | $(0.3) million| -1.1% | | Net income | $14.0 million | $13.9 million | $0.2 million| 1.4% | | Restaurant-Level Adjusted EBITDA | $81.1 million | $80.9 million | $0.2 million| 0.2% | | Adjusted EBITDA | $51.3 million | $51.6 million | $(0.4) million| -0.8% | Recent Developments and Trends This section discusses revenue growth drivers, same-restaurant sales trends, commodity inflation, labor costs, menu pricing strategies, and the launch of the loyalty program - Total revenue grew 3.6% for the quarter and 4.9% for the two quarters ended June 29, 2025, driven by new restaurant openings in 2024 and increased same-restaurant sales[109] - Same-restaurant sales increased by 0.7% for the quarter and 1.2% for the two quarters ended June 29, 2025, reversing declines from the prior year periods[109] - Commodity inflation was 1.9% for the quarter and 2.6% for the two quarters ended June 29, 2025, significantly lower than the prior year. Labor costs as a percentage of revenue increased due to lower transactions, wage increases, and benefit costs, partially offset by higher average check[110] - Menu prices were increased by approximately 1.5% in January, 1.0% in April, and 0.7% in June 2025 to address inflationary pressures[110] - The Portillo's Perks™ loyalty program, launched in March 2025, aims to drive trial, build brand awareness, and encourage incremental traffic[111] Development Highlights This section outlines new restaurant openings, future expansion plans focusing on the Sunbelt and existing markets, and details on new restaurant prototypes - No new restaurants were opened during the two quarters ended June 29, 2025. Subsequent to this period, one restaurant opened in Tomball, Texas, bringing the total count to 95[113] - The Company plans to open 12 new restaurants in the second half of 2025, focusing on expansion in the Sunbelt (Texas, Atlanta) and filling in existing markets like Chicagoland[114] - Most new openings in 2025 will be the 'RoTF 1.0' prototype (6,250 sq ft, 47-foot production line), with one pick-up only and one in-line walk-up restaurant also planned[114][117] Consolidated Results of Operations This section provides a detailed analysis of the Company's revenues and various operating expenses for the quarter and two quarters ended June 29, 2025 Revenues, Net Net revenues increased due to new restaurant openings and same-restaurant sales growth, driven by higher average check despite transaction decreases - Revenues for the quarter ended June 29, 2025, increased by $6.6 million (3.6%) to $188.5 million, primarily due to nine new restaurant openings in 2024 and a 0.7% increase in same-restaurant sales[120] - Same-restaurant sales growth was driven by a 2.1% increase in average check, partially offset by a 1.4% decrease in transactions. Menu prices increased by approximately 3.4%[120] - Revenues for the two quarters ended June 29, 2025, increased by $17.2 million (4.9%) to $364.9 million, attributed to ten new restaurant openings in 2024 and a 1.2% increase in same-restaurant sales[123] - For the two quarters, same-restaurant sales growth was due to a 3.4% increase in average check, partially offset by a 2.2% decrease in transactions. Menu prices increased by approximately 3.9%[123] Food, Beverage and Packaging Costs These costs increased due to commodity price inflation and new restaurant openings, with a slight percentage change relative to revenues - Food, beverage, and packaging costs increased by $2.0 million (3.3%) to $63.8 million for the quarter and $6.2 million (5.2%) to $124.9 million for the two quarters ended June 29, 2025[126][127] - The increases were primarily due to a 1.9% (quarter) and 2.6% (two quarters) rise in commodity prices and new restaurant openings[126][127] - As a percentage of revenues, these costs decreased by 0.1% for the quarter but increased by 0.1% for the two quarters, reflecting the balance between average check increases and commodity price inflation[126][127] Labor Expenses Labor expenses rose due to new restaurant openings, team member investments, and increased benefit and variable compensation costs - Labor expenses increased by $1.9 million (4.2%) to $48.3 million for the quarter and $5.5 million (6.1%) to $95.2 million for the two quarters ended June 29, 2025[130][131] - The increases were driven by new restaurant openings, incremental investments in team members, increased benefit costs, and higher variable-based compensation[130][131] - As a percentage of revenues, labor expenses increased by 0.2% for the quarter and 0.3% for the two quarters, mainly due to lower transactions, increased benefit costs, and wage increases, partially offset by labor efficiencies and higher average check[130][131] Occupancy Expenses Occupancy expenses increased due to new restaurant openings, resulting in a slight rise as a percentage of revenues - Occupancy expenses increased by $0.8 million (8.2%) to $10.0 million for the quarter and $1.4 million (7.7%) to $20.0 million for the two quarters ended June 29, 2025[133][134] - These increases were primarily due to the opening of new restaurants in 2024[133][134] - As a percentage of revenues, occupancy expenses increased by 0.2% for the quarter and 0.1% for the two quarters[133][134] Other Operating Expenses Other operating expenses increased due to new restaurant openings, higher repairs, maintenance, utilities, and insurance, partially offset by lower cleaning costs - Other operating expenses increased by $2.0 million (9.8%) to $21.9 million for the quarter and $3.9 million (9.8%) to $43.7 million for the two quarters ended June 29, 2025[136][137] - The increases were mainly due to new restaurant openings, higher repairs and maintenance, utilities, and insurance expenses, partially offset by lower cleaning costs due to vendor renegotiation[136][137] - As a percentage of revenues, other operating expenses increased by 0.6% for the quarter and 0.5% for the two quarters[136][137] General and Administrative Expenses General and administrative expenses increased due to higher professional fees, advertising, and software licenses, partially offset by lower equity-based compensation - General and administrative expenses increased by $0.9 million (4.8%) to $18.8 million for the quarter and $1.2 million (3.3%) to $37.7 million for the two quarters ended June 29, 2025[140][141] - The increases were primarily driven by higher professional fees, advertising expenses, and software license fees for ERP and HCM system implementations, partially offset by lower equity-based compensation[140][141] Pre-Opening Expenses Pre-opening expenses decreased due to the timing and number of activities related to planned restaurant openings compared to the prior year - Pre-opening expenses decreased by $0.4 million (19.2%) to $1.7 million for the quarter and $1.3 million (37.4%) to $2.2 million for the two quarters ended June 29, 2025[143][144] - The decrease was due to the number and timing of activities related to planned restaurant openings compared to the prior year periods[143][144] Depreciation and Amortization Depreciation and amortization remained stable for the quarter and slightly increased for the two quarters due to new restaurant capital expenditures - Depreciation and amortization expense remained stable at $7.1 million for the quarter ended June 29, 2025, and increased by $0.1 million (0.9%) to $14.2 million for the two quarters[146][147] - The increase for the two quarters was primarily due to incremental depreciation from capital expenditures for new restaurants, partially offset by a reduction from fully depreciated assets and disposals[147] Net Income Attributable to Equity Method Investment Net income from equity method investment increased for the quarter due to higher sales from the C&O restaurant, remaining stable for two quarters - Net income attributable to equity method investment increased by $0.05 million (14.0%) to $0.4 million for the quarter ended June 29, 2025, driven by increased sales from the C&O restaurant[149] - For the two quarters ended June 29, 2025, net income attributable to equity method investment remained stable at $0.5 million[149] Other Income, Net Other income, net, decreased due to reduced sales tax filing discounts, increased loss on asset sales, and lower trading gains from the rabbi trust - Other income, net, decreased by $0.1 million (16.2%) to $0.3 million for the quarter and $0.5 million (60.3%) to $0.3 million for the two quarters ended June 29, 2025[151][152] - The decrease was primarily due to reduced sales tax filing discounts (new Illinois statutory cap), increased loss on asset sales, and a decrease in trading gains from the rabbi trust[151][152] Interest Expense Interest expense decreased due to a lower effective interest rate resulting from the 2025 Credit Agreement amendment and improved lending terms - Interest expense decreased by $0.9 million (13.3%) to $5.7 million for the quarter and $1.7 million (12.6%) to $11.5 million for the two quarters ended June 29, 2025[153][154] - This decrease was primarily driven by a lower effective interest rate (6.90% vs. 8.31%) due to improved lending terms from the 2025 Credit Agreement amendment[153][154][155] Interest Income Interest income remained stable for both the quarter and two quarters ended June 29, 2025, consistent with prior year periods - Interest income remained stable at $0.1 million for the quarter and $0.2 million for the two quarters ended June 29, 2025, consistent with prior year periods[157][158] Tax Receivable Agreement Liability Adjustment The TRA liability adjustment increased due to remeasurement from equity-based compensation plan activity and an amendment to the TRA interest rate - The Tax Receivable Agreement (TRA) liability adjustment increased to $1.8 million for the quarter and $2.5 million for the two quarters ended June 29, 2025, compared to $0.4 million and $1.0 million respectively in the prior year periods[160][161] - This change was primarily related to a remeasurement due to activity under equity-based compensation plans[160][161] - An amendment to the TRA on January 24, 2025, replaced the LIBOR-based interest rate with a Term Secured Overnight Financing Rate (SOFR) based rate[159] Income Tax Expense Income tax expense increased for the two quarters due to Portillo's Inc.'s increased ownership in Portillo's OpCo, while the quarterly rate decreased from LLC unit redemptions - Income tax expense increased by $0.2 million (5.2%) to $3.7 million for the quarter and $2.7 million (113.6%) to $5.0 million for the two quarters ended June 29, 2025[163][164] - The effective income tax rate for the quarter decreased to 26.8% from 29.1% due to a lower valuation allowance from LLC unit redemptions. For the two quarters, it increased to 26.4% from 14.5% due to Portillo's Inc.'s increased ownership in Portillo's OpCo[163][164] Net Income Attributable to Non-controlling Interests Net income attributable to non-controlling interests decreased due to a reduction in their weighted average ownership percentage - Net income attributable to non-controlling interests decreased by $0.7 million (35.0%) to $1.3 million for the quarter and $0.8 million (29.1%) to $2.0 million for the two quarters ended June 29, 2025[166][167] - This decrease was primarily due to a reduction in the non-controlling interest holders' weighted average ownership percentage (from 15.9% to 9.9% for the quarter, and from 18.7% to 12.2% for the two quarters)[166][167] Selected Operating Data and Non-GAAP Financial Measures This section presents key operating metrics and non-GAAP financial measures, including same-restaurant sales, AUV, Adjusted EBITDA, and Restaurant-Level Adjusted EBITDA Change in Same-Restaurant Sales Same-restaurant sales increased for both the quarter and two quarters ended June 29, 2025, reversing prior year declines - Same-restaurant sales increased by 0.7% for the quarter and 1.2% for the two quarters ended June 29, 2025, compared to declines of 0.6% and 0.9% in the prior year periods, respectively[170] - The Comparable Restaurant Base included 75 restaurants for the two quarters ended June 29, 2025, and 70 for the prior year period, excluding the C&O restaurant[171] Average Unit Volume ("AUV") AUV for the twelve months ended June 29, 2025, decreased compared to the prior year period Average Unit Volume (AUV) (in millions) | Period | June 29, 2025 | June 30, 2024 | | :----------------------------------- | :------------ | :------------ | | AUV (for twelve months ended) | $8.7 | $9.0 | - AUV for the twelve months ended June 29, 2025, was $8.7 million, a decrease from $9.0 million for the twelve months ended June 30, 2024[170] Non-GAAP Financial Measures The Company utilizes non-GAAP measures like Adjusted EBITDA and Restaurant-Level Adjusted EBITDA to assess performance and guide strategic decisions - The Company uses non-GAAP financial measures like Adjusted EBITDA, Adjusted EBITDA Margin, Restaurant-Level Adjusted EBITDA, and Restaurant-Level Adjusted EBITDA Margin to evaluate business performance, develop forecasts, and make strategic decisions[169][174] - These measures are supplemental and may not be comparable to other companies' metrics, and should not be considered in isolation from GAAP results[174] Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA increased for the quarter but decreased for the two quarters ended June 29, 2025, with margins declining for both periods - Adjusted EBITDA represents net income adjusted for depreciation, amortization, interest, income taxes, and certain non-cash/non-core items. Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of net revenues[175] Adjusted EBITDA and Margin (in thousands) | Metric | Quarter Ended June 29, 2025 | Quarter Ended June 30, 2024 | Two Quarters Ended June 29, 2025 | Two Quarters Ended June 30, 2024 | | :---------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Adjusted EBITDA | $30,064 | $29,866 | $51,274 | $51,643 | | Adjusted EBITDA Margin | 16.0% | 16.4% | 14.1% | 14.9% | - Adjusted EBITDA increased by $0.2 million (0.7%) for the quarter but decreased by $0.4 million (0.8%) for the two quarters ended June 29, 2025. Adjusted EBITDA Margin decreased for both periods[179] Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin Restaurant-Level Adjusted EBITDA slightly decreased for the quarter but increased for the two quarters ended June 29, 2025, with margins declining for both periods - Restaurant-Level Adjusted EBITDA is revenue less restaurant operating expenses, excluding corporate-level expenses and depreciation/amortization. Restaurant-Level Adjusted EBITDA Margin is this metric as a percentage of net revenues[182] Restaurant-Level Adjusted EBITDA and Margin (in thousands) | Metric | Quarter Ended June 29, 2025 | Quarter Ended June 30, 2024 | Two Quarters Ended June 29, 2025 | Two Quarters Ended June 30, 2024 | | :-------------------------------- | :-------------------------- | :-------------------------- | :------------------------------- | :------------------------------- | | Restaurant-Level Adjusted EBITDA | $44,481 | $44,569 | $81,137 | $80,940 | | Restaurant-Level Adjusted EBITDA Margin | 23.6% | 24.5% | 22.2% | 23.3% | - Restaurant-Level Adjusted EBITDA slightly decreased by $0.1 million (0.2%) for the quarter but increased by $0.2 million (0.2%) for the two quarters ended June 29, 2025. The margin decreased for both periods[185] Liquidity and Capital Resources This section discusses the Company's liquidity, capital resources, Tax Receivable Agreement obligations, and cash flow activities from operations, investing, and financing Tax Receivable Agreement The Company is obligated under a TRA to pay 85% of realized tax benefits, with an estimated future obligation of $352.9 million as of June 29, 2025 - The Company is obligated under a Tax Receivable Agreement (TRA) to pay 85% of realized tax benefits from certain transactions, including tax basis increases from LLC Unit acquisitions and redemptions[189] - As of June 29, 2025, the estimated TRA obligation for future payments totaled $352.9 million. Assuming sufficient taxable income, estimated tax savings would aggregate to $415.2 million, with $352.9 million payable to TRA Parties primarily over the next 15 years[190][191] - TRA payments of $7.7 million (tax year 2023) and $4.4 million (tax year 2022) were made in the two quarters ended June 29, 2025, and June 30, 2024, respectively. A $9.2 million payment for tax year 2024 is expected within 12 months[192] Summary of Cash Flows This section provides a summary of net cash flows from operating, investing, and financing activities for the two quarters ended June 29, 2025 Summary of Cash Flows (in thousands) | Item | Two Quarters Ended June 29, 2025 | Two Quarters Ended June 30, 2024 | | :------------------------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $28,693 | $41,628 | | Net cash used in investing activities | $(33,076) | $(33,828) | | Net cash used in financing activities | $(1,872) | $(5,881) | | Net (decrease) increase in cash and cash equivalents and restricted cash | $(6,255) | $1,919 | | Cash and cash equivalents and restricted cash at end of period | $16,621 | $12,357 | Operating Activities Net cash provided by operating activities decreased due to changes in operating assets and liabilities, partially offset by a slight increase in net income - Net cash provided by operating activities decreased by $12.9 million (31.1%) to $28.7 million for the two quarters ended June 29, 2025[194] - This decrease was primarily driven by a $13.4 million change in operating assets and liabilities (from a source of cash to a use of cash) and a $0.3 million change in non-cash items, partially offset by a $0.2 million increase in net income[194][195] Investing Activities Net cash used in investing activities decreased due to the timing of construction projects and the adoption of a more cost-effective restaurant format - Net cash used in investing activities decreased by $0.8 million (2.2%) to $33.1 million for the two quarters ended June 29, 2025[196] - This decrease was primarily due to the number and timing of construction projects and the adoption of a more cost-effective restaurant format[196] Financing Activities Net cash used in financing activities decreased due to increased short-term debt proceeds, partially offset by long-term debt and TRA liability payments - Net cash used in financing activities decreased by $4.0 million (68.2%) to $1.9 million for the two quarters ended June 29, 2025[197] - This decrease was mainly due to an increase in proceeds from short-term debt, partially offset by payments of long-term debt related to refinancing and a $3.3 million increase in TRA liability payments[197] 2025 Revolver Facility and Liens This section details the new $150 million 2025 Revolver Facility, outstanding borrowings, available capacity, and compliance with financial covenants - On January 27, 2025, the Company amended its credit agreement, establishing a $150 million 2025 Revolver Facility, maturing on January 27, 2030[198][199] - As of June 29, 2025, $70.0 million was borrowed under the Revolver Facility, with $5.3 million in outstanding letters of credit, leaving $74.7 million available[200] - The Company was in compliance with all financial covenants in the 2025 Credit Agreement as of June 29, 2025[201] Material Cash Requirements No material changes to the Company's cash requirements have occurred since the 2024 Annual Report on Form 10-K, beyond ordinary course payments - There have been no material changes to the Company's material cash requirements as disclosed in its Annual Report on Form 10-K for fiscal year 2024, other than ordinary course payments[202] Critical Accounting Estimates No significant changes to critical accounting estimates or policies have occurred since the 2024 Annual Report on Form 10-K - There have been no significant changes to the Company's critical accounting estimates or significant accounting policies as disclosed in its Annual Report on Form 10-K for the fiscal year ended December 29, 2024[204] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes to the Company's market risk exposure have occurred since the disclosures in its 2024 Annual Report on Form 10-K - No material changes to market risk exposure have occurred since the Annual Report on Form 10-K for fiscal year 2024[207] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures and reports on changes in internal control over financial reporting EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES Management concluded that the Company's disclosure controls and procedures were effective as of June 29, 2025 - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 29, 2025[208] CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING Implementation of a new HCM system led to control modifications, but no material adverse changes to internal control over financial reporting were identified - During the quarter ended June 29, 2025, the Company implemented a new human capital management (HCM) system, resulting in modifications and new internal controls[209] - No changes in internal control over financial reporting were identified that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[210] Part II. Other Information This part includes information on legal proceedings, risk factors, equity sales, defaults, mine safety, other disclosures, and a list of exhibits Item 1. Legal Proceedings Information on legal proceedings is incorporated by reference from Note 13. Contingencies in the financial statements - Information on legal proceedings is incorporated by reference from Note 13. Contingencies in the unaudited condensed consolidated financial statements[212] Item 1A. Risk Factors No material changes to risk factors have occurred since the disclosures in the Company's 2024 Annual Report on Form 10-K - No material changes to risk factors have occurred since the Annual Report on Form 10-K for fiscal year 2024[213] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the redemption of LLC units by certain pre-IPO Members for newly-issued Class A common stock during Q2 2025 - In Q2 2025, certain pre-IPO Members affiliated with Berkshire Partners LLC redeemed 7,290,465 LLC units for newly-issued Class A common stock on a one-for-one basis[214] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - None[215] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Not applicable[217] Item 5. Other Information No director or officer adopted, amended, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2025 - No director or officer adopted, amended, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended June 29, 2025[218] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, agreements, and certifications - Exhibits include Amended and Restated Certificate of Incorporation and Bylaws, Cooperation Agreement, Certifications of Principal Executive and Financial Officers, and XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[220] Signatures The report was signed on August 5, 2025, by the President, CEO, Director, CFO, and Treasurer - The report was signed on August 5, 2025, by Michael Osanloo, President, Chief Executive Officer and Director, and Michelle Hook, Chief Financial Officer and Treasurer[224]