Portillo's (PTLO)

Casual restaurant chain Portillo’s (NASDAQ:PTLO) missed Wall Street’s revenue expectations in Q3 CY2025 as sales only rose 1.8% year on year to $181.4 million. Its GAAP profit of $0.02 per share was $0.02 below analysts’ consensus estimates.

Company Overview

Begun as a Chicago hot dog stand in 1963, Portillo’s (NASDAQ:PTLO) is a casual restaurant chain that serves Chicago-style hot dogs and beef sandwiches as well as fries and shakes.

Modern fast food is a relatively newer category representing a middle ground between traditional fast food and sit-down restaurants. These establishments feature an expanded menu selection priced above traditional fast food options, often incorporating fresher and cleaner ingredients to serve customers prioritizing quality. These eateries are capitalizing on the perception that your drive-through burger and fries joint is detrimental to your health because of inferior ingredients.

Competitors offering convenient comfort food that can sometimes conjure nostalgia include Potbelly (NASDAQ:PBPB), Shake Shack (NYSE:SHAK), Brinker International (NYSE:EAT), and The Cheesecake Factory (NASDAQ:CAKE).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $730.9 million in revenue over the past 12 months, Portillo's is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the bright side, it can grow faster because it has more white space to build new restaurants.

As you can see below, Portillo's grew its sales at a decent 7.5% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as it opened new restaurants and expanded its reach.

This quarter, Portillo’s revenue grew by 1.8% year on year to $181.4 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 7.2% over the next 12 months, similar to its six-year rate. This projection is above average for the sector and indicates its newer menu offerings will help maintain its historical top-line performance.

Number of Restaurants

A restaurant chain’s total number of dining locations often determines how much revenue it can generate.

Portillo's operated 98 locations in the latest quarter. It has opened new restaurants at a rapid clip over the last two years, averaging 12.4% annual growth, much faster than the broader restaurant sector. This gives it a chance to scale into a mid-sized business over time.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.

Same-Store Sales

The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth at restaurants open for at least a year.

Portillo’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat. Portillo's should consider improving its foot traffic and efficiency before expanding its restaurant base.

In the latest quarter, Portillo’s year on year same-store sales were flat. This performance was more or less in line with its historical levels.

Gross profit margins tell us how much money a restaurant gets to keep after paying for the direct costs of the meals it sells, like ingredients, and indicate its level of pricing power.

Portillo's has bad unit economics for a restaurant company, giving it less room to reinvest and grow its presence. As you can see below, it averaged a 23% gross margin over the last two years. That means Portillo's paid its suppliers a lot of money ($77.04 for every $100 in revenue) to run its business.

Portillo’s gross profit margin came in at 20.2% this quarter, down 3.3 percentage points year on year. Portillo’s full-year margin has also been trending down over the past 12 months, decreasing by 1.3 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as ingredients and transportation expenses).

Portillo's was profitable over the last two years but held back by its large cost base. Its average operating margin of 7.3% was weak for a restaurant business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Portillo’s operating margin decreased by 1.8 percentage points over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Portillo’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Portillo's generated an operating margin profit margin of 3%, down 6 percentage points year on year. Since Portillo’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Portillo’s EPS grew at a remarkable 34.8% compounded annual growth rate over the last six years, higher than its 7.5% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

In Q3, Portillo's reported EPS of $0.02, down from $0.11 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Portillo’s full-year EPS of $0.36 to shrink by 10.6%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Portillo's broke even from a free cash flow perspective over the last two years, giving the company limited opportunities to return capital to shareholders.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Portillo's historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.7%, lower than the typical cost of capital (how much it costs to raise money) for restaurant companies.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Portillo’s $572.1 million of debt exceeds the $17.23 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $97.87 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Portillo's could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Portillo's can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

It was good to see Portillo's narrowly top analysts’ same-store sales expectations this quarter. On the other hand, its EPS was in line and its EBITDA fell slightly short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 1.5% to $5.17 immediately following the results.

Updated: December 4, 2025 at 9:42 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Portillo's, you should also grasp the company’s longer-term business quality and valuation.

Portillo's doesn’t pass our quality test. Although its revenue growth was decent over the last six years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s new restaurant openings have increased its brand equity, the downside is its cash burn raises the question of whether it can sustainably maintain growth.

Portillo’s P/E ratio based on the next 12 months is 25.8x. This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $8.15 on the company (compared to the current share price of $4.94).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.