Monday Morning Dash: Portillo’s (PTLO)

We picked Portillo’s for our first tenant because it shows a trend we’re seeing across restaurants: tenants that are doing fine overall are still closing or repositioning locations.

Portillo’s grew Q3 revenue 7% to $194 million, posted positive same-restaurant sales and adjusted EBITDA growth.

On November 4, though, its board approved closing a mid-to-high single-digit number of underperforming restaurants outside Chicagoland, most of them this quarter. The company expects material charges, including lease-related costs. That came after a reduction of about 17% of its corporate support staff and a new CFO in September.

Our Dash gives Portillo’s an Entity Rating of 2, which means adequate capacity to meet its financial commitments but some vulnerability to a weaker economy.

The company has strong liquidity, supported primarily by its revolver, along with manageable interest coverage of 4.0x. On the other side, its cash covers only about half of a year’s rent, and tangible net worth is negative.

For landlords, the message is that a healthy tenant could still let go of locations that aren’t performing well enough. It also may be a signal of shifting consumer preferences and behavior around fast casual dining habits.

If you have a Portillo’s outside its home market, now is a good time to look at how that store is doing, the guaranty on the lease, assignment and sublease language, and your re-leasing options for the site.

If you have Portillo’s exposure, or another tenant you would like us to run through Dash, please do not hesitate to reach out.

Download the report below.