The past 18 months have been a wild ride for Portillo's CEO Michael Osanloo and his team. Between pandemic-induced restaurant closures and social unrest in Chicago and Minneapolis following the death of George Floyd, business has been up and down.
On Thursday, with the debut of its IPO on Nasdaq, the company will be ending the year on top. Its stock price, which started at $20, closed at $29. The company offered more than 20 million shares leading to a $405 million IPO, but along with a 30-day option to purchase an additional 3 million shares, Portillo's proposed maximum aggregate offering price could reach $466 million.
Portillo's joins a growing list of restaurant brands that have gone public this year, including Dutch Bros Coffee, Krispy Kreme and First Watch. Sweetgreen filed its initial paperwork, but hasn't yet submitted a public S-1 indicating its IPO price.
While many restaurants struggled with growth in 2020, Portillo's ended a disruptive year in a strong position. During the pandemic, the company adapted to off-premise channels and cross-trained its team members and ended up increasing its drive-thru sales from $3.4 million per restaurant in 2019 to $4.6 million per restaurant in 2020, according to the company's S-1 filing. Its restaurants benefited from having double drive-thru lanes and sizable parking lots that allowed it to handle large volumes.
Portillo's also increased its revenue to an estimated $138 million during the third quarter ending Sept. 26 versus $119.7 million for the third quarter ending Sept. 27, 2020. For the 12 months ending June 27, the company's restaurant-level average unit volumes reached $7.9 million with EBITDA margin of 28.6%.
Given its strong financial position and the popularity of its value-focused food — the average customer spends about $9.60 — the company felt it was time to think about its ownership and capital structure and how it would benefit by going public, Osanloo said.
As a public company, Portillo's will significantly reduce its debt, retire some preferred equity, retire a second lien and refinance its first lien, Osanloo said. This will free up more cash to invest in the growth of the business, he said.
"We're excited about the investor base we have, and I think that our stock has been well received on day one," Osanloo said. "It's day one, but you've got to start somewhere and it's been a good start."
Going forward, the company has ambitious growth plans. It currently has 67 units with plans to reach 600 in the U.S. over the next decade through two paths of expansion. The first is to continue to grow in the Midwest and expand in states near Illinois. The company has a strong brand in Chicago so it's natural for it to further expand into Wisconsin, Indiana and Michigan, where it currently has a handful of locations each. In 2023, the company will enter Ohio.
The second growth plan will target the Sunbelt region, including Texas, Arizona and Florida. It already has four locations in Arizona and three in Florida, but currently doesn't have any in the Lone Star State. A lot of Chicagoans get tired of the city's winters and retire to places in these states, which has created a lot of natural demand for Portillo's. Texas is also already the top state Portillo's ships its food to, Osanloo said. Its popularity has spawned Facebook pages dedicated to asking the hot dog chain to expand to Texas.
"Our goal is to make everybody in those states really happy over the course of the next decades," Osanloo said.
While most of Portillo's new units will be traditional locations, the company is experimenting with nontraditional stores as well. The restaurant has a ghost kitchen in Chicago to help alleviate some of the pressure of its dense urban locations and is opening a drive-thru only concept in Joliet, Illinois, Osanloo said. Portillo's will track how that concept performs and see if it could apply to other markets.
The company's ambitious growth plan will also benefit new and existing team members. Every time a restaurant opens, that unit creates jobs and career advancements since Portillo's locations don't open unless there is an experienced general manager at the helm, Osanloo said. Every salaried person at Portillo's will also receive an IPO grant, making them partial owners of the company as well. Hourly employees who have been with the company for 10 years or more will also receive a bonus.
"An IPO in my mind is not a destination for us, it's just a start of what we're trying to accomplish," he said. "We will be measured by how we perform as a company over the next 10 to 12 quarters. … We will celebrate today and then tomorrow get back to work."