Portillo’s activist investor is preparing for a proxy fight.
Engaged Capital LLC, which took a nearly 10% stake in the Chicago-based fast-casual chain last year, on Monday nominated two independent candidates to Portillo’s board of directors.
One of them is Charlie Morrison, the former CEO of Wingstop, who the hedge fund credits with delivering about 760% in total shareholder returns during his tenure there. Morrison guided Wingstop through an initial public offering in 2014, and then the pandemic. He left Wingstop in 2022 and became CEO of the drive-thru salad chain Salad and Go, but he retired from that position at the end of 2024.
The second nominee is Nicole Portwood, the former chief marketing officer of Salad and Go, where she was also a previous board member. As a marketing executive, Portwood has worked with brands like Tito’s, Mountain Dew and Live Nation.
In January, Portillo’s announced that Chipotle President Jack Hartung had joined the Chicago-based chain’s board. Hartung, who is also Chipotle’s chief strategy officer, previously served as CFO for the Newport Beach, California-based chain for almost two decades.
In its announcement on Monday, Engaged Capital said it was encouraged by the Hartung addition and other initiatives to address challenges.
However, the investor group said, “We contend the magnitude of value creation at Portillo’s will depend on leadership’s ability to execute key initiatives with precision and urgency.”
Engaged Capital noted Portillo’s tailwinds, including its industry-leading average unit volume of $8.7 million, the chain’s quality food offerings, and the fact that the Chicagoland brand is performing well as it moves across the sunbelt states of Texas, Florida and Arizona and into new markets, which this year will include Atlanta.
However, Engaged Capital said Portillo’s performance appears to be suffering due to outdated restaurant operations, ineffective marketing and lower-than-justified restaurant-level cash-on-cash returns.
“Although these issues have led to a depressed valuation for the company, they are all readily fixable,” Engaged Capital said in a statement.
Last week, the 94-unit Portillo’s reported same-store sales were down .06% in fiscal 2024, which included a 3.2% decline in transactions. For the fourth quarter, same-store sales were up 0.4%, but that was largely based on an increase in average check of 4.1%. Transactions declined 3.7% for the quarter.
Last year, the chain began testing the use of self-service kiosks, and Portillo’s is working on improving speed through its drive-thrus. The chain is shifting to smaller-format restaurants, which has helped to trim building costs.
And on Monday, Portillo’s rolled out its first-ever loyalty program, which lives in guest digital wallets, rather than on an app. Members earn “badges,” from “First Bite” to “Top Dog,” to use toward free food, merchandise and personalized offers.
Still, Engaged Capital is pushing for Portillo’s to refine its approach to new unit development, modernize restaurant operations and related technology, and deploy targeted marketing investments to increase awareness and drive traffic.
“We are confident that electing new directors, who possess recent restaurant operations and marketing experience, will dramatically improve Portillo’s ability to execute and close the gap with industry peers,” Engaged Capital said.
But Engaged also noted that it is ready and willing to reach a constructive resolution that spares all stakeholders an election contest.
Portillo’s officials did not immediately respond to requests for comment.
Led by Glenn Welling, Engaged Capital has also put pressure on chains like Shake Shack, which last year agreed to hire an operational consultant and appointed former Domino’s CFO Jeff Lawrence to its board. Shake Shack’s CEO Randy Garutti later announced his retirement and was replaced by former Papa Johns CEO Rob Lynch.
Engaged Capital isn’t the only hedge fund to pressure restaurant chains in 2024. Investors are also pushing for change at The Cheesecake Factory, Starbucks, Noodles & Company, BJ’s Restaurants, and Potbelly.
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