Portillo's opens big in Texas

Sales at the first Lone Star state location are averaging a "crazy" $48,000 per day since opening in January, fueling optimism about growth across the Sun Belt.
Portillo's is planning to open three to five Texas locations this year./Photograph: Shutterstock.

Texas is loving Portillo’s.

In fact, CEO Michael Osanloo said Thursday he expects the iconic Chicago-based chain will do well across the Sun Belt, if strong openings in Texas, Florida and Arizona are any indication.

The first Texas unit for the chain opened in The Colony on Jan. 18 and has been the No. 1 restaurant across the entire system, matching volumes of restaurants in Chicago that have been open for decades, Osanloo said in an earnings call.

Though it’s only been about eight weeks, results have reassured anyone who questioned whether the chain’s beloved Italian beef sandwiches would be embraced outside the Midwest.

 “No surprise: Apparently beef and bread works well in the state of Texas,” he said.

The unit in The Colony has averaged $48,000 in sales per day since the grand opening—and that’s only with dine in, pickup and drive-thru business. The unit has not started doing delivery or catering yet, to ensure staff is not overwhelmed, though those channels will come.

“That annualizes to $17 million per year, and that’s a crazy number so please don’t model that, it’s definitely coming down,” Osanloo told Wall Street analysts on the call. “But we feel really good that this restaurant will significantly exceed our underwriting expectations and sets us up for further success in Texas as we continue to expand.”

Osanloo noted that The Colony location is a flagship, with vibrant retail and office parks nearby. But he also said the company did a lot of things right, overinvesting in the management team and training and ignoring the cost impact on margins for the first few weeks to ensure both guests and team members have a great experience.

Nationally, nine new restaurants are expected to open in 2023, with most in the Sun Belt. In Texas, units in Allen and Arlington have begun construction and a total of three to five will open there. New units are coming to central Florida, Arizona and Michigan, as well as the hometown of Chicago. Portillo’s ended the year with more than 70 locations across 10 states.

But Osanloo said new openings for 2023 will come in the second half of the year because of ongoing challenges with construction and permitting. He said the company expects to see a more balanced pace of openings in 2024 and beyond.

Same-store sales systemwide were up 6% in the Dec. 25-ended fourth quarter, though that was attributed entirely to menu price increases and benefits from a change in third-party delivery price recording. Transactions declined 2.3% during the quarter.

Osanloo said sales took a hit during the last week of the year, when the winter storm Elliott froze most of the Midwest and Northeast. The storm had a 70-basis point impact, but sales bounced right back and have been strong ever since.

For the first period of fiscal 2023, same-store sales were up 12.3% and the company projected comp sales growth between 8% to 10% for the first quarter.

That comp projection, however, will include another 2% increase in menu prices in January, though Osanloo reiterated Portillo’s value positioning, saying the chain has lagged in raising menu prices, compared with competitors.

In fiscal 2022, Portillo’s menu prices increased a total of about 7.5%, including a 3.4% increase during the fourth quarter, to offset inflationary pressures. The price increases helped lift the average check for the year by 6.1%, but transactions were down by 3.4% for the year as guests bought fewer items per transaction, which Osanloo blamed on inflation more broadly.

Still, Osanloo reiterated Portillo’s “untapped pricing power” and did not rule out more price increases to “catch up to the pack.”

Commodity costs are easing, the company said, but labor cost pressures are expected to continue as Portillo’s continues to invest in raising wages, which Osanloo said has paid off in productivity and lower turnover.

The company is also looking for restaurant efficiencies. Coming in the second half of the year is a new program called Step Up that will allow team members to get additional pay to cross train to learn new stations, which gives restaurants more flexibility with staffing and helps keep workers happy.

“It’s undeniable that when people are learning new things, they’re happier,” he said.

Portillo’s has also tested a new lower-cost kitchen design that will be retrofitted into 15 to 20 units this year.

For the fourth quarter, total revenue grew 8.6% to $150.9 million. Net income increased to $2.7 million, or 8 cents per share, compared with a loss of $34 million, or a loss of 52 cents per share, a year ago.

For the year, revenues increased 9.7% to $587.1 million. Net income was $17.2 million, or 25 cents per share, compared with a loss of $13.4 million, or 42 cents per share, a year ago.


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