Portillo’s officially went public on Thursday. The price for its initial public offering was $20 a share, which was the high end of the range the fast-food chain expected. The stock closed up nearly 46% at $29 per share.
It was a strong debut for the Oak Brook, Ill.-based chain, and joined similarly strong first-day performances for other restaurant chains this year. Dutch Bros rose 58% on its first day and both First Watch and Krispy Kreme rose 23%.
Yet as a group, the companies’ first-day performances were more muted than the previous rush of restaurant IPOs. Recall that in 2013 both Noodles & Co. and Potbelly, riding “next Chipotle” vibes on the public markets, each doubled on their first day of trading. Habit in late 2014 and then Shake Shack in 2015 both more than doubled on their first days of trading—with each of the chains besting the first day performance of Chipotle back in 2006.
But this is a good thing, both for the companies themselves, and for the market for restaurant IPOs in general.
The IPOs between 2013 and 2015 took place during a fast-casual bubble in the investment world. Private equity investors, and public stock investors, all hoped to find some other chain that would match the ultimate return that Chipotle yielded.
It’s certainly easy to see why. If you bought $1,000 of shares at the IPO price you’d have more than $80,000 right now, a return that is quite rare among consumer companies. Many people thought that other menu items could replicate the Chipotle model and offer similar returns.
That didn’t happen, of course. Most of the companies that yielded such comparisons haven’t come close to equaling those returns. Early Shake Shack investors have done fine (up about 260%). Habit was sold to Yum and both Noodles and Potbelly have struggled.
The best IPO during that era was Wingstop, which closed up 61% on its first day, only somewhat better than the Portillo’s and Dutch Bros IPOs. If you had invested $1,000 at the IPO you’d have more than $9,000 today.
Yet, in general, most of the companies struggled to meet their outsized expectations and their stocks suffered as a result. That, in turn, sapped all the energy out of the IPO market for restaurants, turning off an important source of fundraising.
There has been only one traditional public offering, Kura Sushi in 2019, in the years since then. Meanwhile, private equity firms and strategic buyers were taking companies' private and buying chains at ridiculous valuations.
Early IPO trading is carefully crafted to generate strong results, of course, because the better the performance the more likely the stocks will have a good valuation when the sponsors ultimately exit.
And each of these companies will have challenges down the road to earn their valuations—as will the fast-casual salad chain Sweetgreen that filed its IPO documents on Monday. Portillo’s will need to prove that it can generate its strong unit volumes and demand in places where there aren’t Chicago transplants.
Dutch Bros will need to find drive-thru sites at a time when just about every coffee chain on the planet wants them. First Watch is a full-service chain at a time when takeout appears to be dominating. Krispy Kreme sells doughnuts—and its stock has fallen 40% from its 52-week high.
Yet this year’s IPOs will go public without the burden of having to meet another company’s established performance. Nor will they have to meet the expectations of artificially inflated valuations.