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Portillo’s stock rises nearly 50% in its public debut

The Oak Brook-based restaurant chain raised more than $405 million with an offering of 20.27 million shares.

The Portillo’s Hot Dogs located at 7308 W. Lawrence Ave.
Portillo’s Hot Dogs raised over $405 million in a stock offering.
Brian Rich/Sun-Times file

Investors feasted on the shares of Portillo’s, bidding up the value of the company’s stock Thursday by almost 50% after its initial public offering.

After launching at $20 per share, the stock rose steadily in the first trading session, ending Thursday at $29.10 after spending much of the afternoon higher than $30. Underwriters brought to market 20.27 million shares of the restaurant chain, long a Chicago favorite.

At the Oak Brook-based company, the investor reception prompted “a lot of pride and excitement for the hard work our team has done to get us to the point,” said Derrick Pratt, the chief operating officer. “We’re pinching ourselves because we get to bring a higher awareness to who we are and what we do and why we do it.”

Known for its hot dogs, burgers, Italian beef sandwiches and chocolate cake, Portillo’s went public after withstanding the pandemic well. The company moved business volume to deliveries and drive-thru sales and has reported improving results as people have returned to in-restaurant dining.

The company said it will use proceeds to redeem the interests of some investors and to reduce debt. With 67 restaurants in nine states, the company also plans to expand locations by about 10% per year. Pratt said most of the growth will be in the Sun Belt — particularly Texas, Florida and Arizona.

Its biggest market is the Chicago area. Pratt said it is targeting one or two new restaurants locally each year, depending on the real estate market.

Derrick Pratt, chief operating officer at Portillo’s.
Provided

The initial $20-a-share valuation was at the high end of a proposed $17-to-$20 range and gives Portillo’s a market value of about $1.4 billion. Thursday’s trading pushed that to more than $2 billion.

The company continues under the control of private equity firm Berkshire Partners, with owners of the newly issued Class A shares getting a 28% stake. The stake would grow to 33% if the underwriters exercise a 30-day option to acquire an additional 3 million shares.

Shares trade on the Nasdaq Global Select Market under the symbol PTLO.

Portillo’s reported that since its 1963 founding by Dick Portillo in Villa Park, it has never closed a restaurant. Analysts like the business metrics, with average drive-thru sales per restaurant that exceed McDonald’s and dine-in volumes that top the typical Chipotle Mexican Grill.

With its multiple modes of operating, Pratt said Portillo’s has adopted a diverse model that intrigues investors. “We’re almost a restaurant enigma, if you will,” he said.

Pratt noted that Portillo’s has piloted an in-house delivery system to insulate itself from “price fights in the third-party delivery market.” He added, “I think we’ve kind of future-proofed and de-risked our business going forward. I think our shareholders are going to love the way we bring that to fruition.”

Citing data from The NPD Group, Portillo’s said its locations have higher sales than other fast-casual restaurant chains. It said the average store generated $7.9 million in sales for the 12 months ended June 27, 2021.

The company estimated its third quarter revenue will be $138 million, up 15% from the same period a year ago. It said its net income would be about $6 million, compared with $8.1 million for the third quarter of 2020. Portillo’s attributed the decline to higher costs for labor and ingredients, especially beef, and expenses for the opening of five new restaurants.

Pratt said some proceeds from the stock offering will allow the company to “continue to invest in people.” Last July, 18 workers at a Portillo’s centralized food preparation center in Addison walked off the job for several days, complaining that their hours were increased with no overtime pay.

Portillo’s did not lay off anyone during the worst of the pandemic, Pratt said. He also cited several efforts by the company to help workers facing hardships, such as providing unearned bonuses and free food and gift cards.

Pratt said Portillo’s locations were having their own worker-focused celebrations of the company’s initial success at going public.