Texas popped the balloon on Portillo’s plan to bring an iconic Chicagoland brand to the rest of the country.
The fast-casual chain began expanding into the Sun Belt states of Texas, Florida and Arizona after going public in 2021. The brand was initially embraced in those markets, and the first unit in Dallas, in particular, became a top performer in 2023, fanning flames on the chain’s national growth plans.
But on Tuesday, Portillo’s reported “flattish” results from Texas units in the second quarter, particularly in Houston and in-fill units in Dallas, raising questions about whether the 95-unit chain is growing too fast.
President and CEO Michael Osanloo said Portillo’s was lulled into a false sense of security with the big opening at The Colony in Dallas, and the chain has learned a lot about how to open in new markets from that experience.
“We put a lot into pre-marketing at that restaurant, and it was just an enormous opening that almost broke the restaurant. So we quickly then tamped down all marketing, and Houston was a result of that,” he said. “We started off slow in Houston and the fill-ins in Dallas were slow because we didn’t really have a lot of active marketing going on.”
The company still plans to open 12 more restaurants this year, primarily in the Sun Belt, but revenue projections were downgraded significantly to between 5% to 7% for the year, from earlier estimates of revenue growth between 10% to 12%.
The less-than-expected results disappointed Wall Street and sent Portillo’s stock tumbling. Portillo’s shares closed at $7.28 on Tuesday, down more than 23% and near the chain’s 52-week low of $7.21.
Same-store sales increased 0.7% during the June 29-ended quarter, but that was largely attributed to a 2.1% increase in average check, offset by a 1.4% decline in traffic.
The average check increase was in part the result of a 3.4% increase in menu prices and a 1.3% decrease from product mix on the menu as guests traded down to smaller portions of beef sandwiches and fries.
The company also said they now expect same-store sales for the year to be on the low end of their previous estimate of between 1% and 3%.
Still, Osanloo noted that the 1.4% decline in traffic during the second quarter was an improvement over the 3.1% decline in the first quarter this year.
Two marketing initiatives drove traffic in May: a buy-one, get-one offer for loyalty members during Italian Beef Month, and the naming of a Chicago native as pope, which inspired the renaming of a sandwich as Pope Leo the XIV in a clever marketing move.
But that performance leveled off in June and Osanloo said the chain is focused on overcoming near-term industry traffic pressures with the right balance of marketing and advertising.
About 33% of guests are now using the digital kiosks in stores, which boosts the number of items per transaction, Osanloo said. But guests have been trading down, buying a smaller beef sandwich or fries, instead of large, muting the typical check-boosting benefit the chain would otherwise see from kiosk ordering.
Portillo’s is expanding its test of AI drive-thru technology, which has helped boost drive-thru speed time, Osanloo said. The technology uses cameras that translate to monitors in the restaurant, helping team members know guests are there.
That’s particularly important because drive-thru speed quickly converts to frequency and drives traffic, Osanloo said. And drive-thru diners tend to be the most economically pressured and therefore a challenge for Portillo’s.
“So we have to get faster and that’s a way of mitigating some of that pressure for the guest,” he said. “We’re not going to go to value menus or dollar menus or any of that stuff. And that guest will choose those other options if they have to.”
Beef costs are expected to be a challenge in the second half of the year, but Osanloo said the chain is focused on providing value.
“We’re not playing any games with shrinkflation. We’re not gouging people,” he said. “Our burgers are still one-third of a pound. Our beef sandwiches are huge and indulgent. So we’re making sure the guest gets all the value that we want. And we have managed that behind the scenes, like a prudent company should.”
A version of Portillo’s smaller “Restaurant of the Future” design, with lower build-out costs and operational efficiencies, opened during the quarter with two more expected to open next week, including the first in-line unit, which will be in Florida.
Another iteration is scheduled to debut next year, which is designed to further reduce build costs, streamline labor and unlock site opportunities. In 2026, the first airport Portillo’s is scheduled to open at Dallas-Fort Worth Airport.
“I’m really excited about our class of 2026 pipeline,” said Osanloo. “It’s the most diverse lineup of formats in Portillo’s history, including multiple 2.0 and a great mix of new prototypes.”
Osanloo said the chain will continue to test the addition of breakfast through the end of the year.
The daypart was launched in a handful of Chicago stores, and was later expanded to a few more. Osanloo said guests love it, and sales appear to be incremental, but the company is still looking at whether it could be just a Chicago thing, or a daypart that would work nationally.
“If we decide the test is a distraction, we’ll kill it,” he said.
Members help make our journalism possible. Become a Restaurant Business member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.