What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-25 compared with 2024-02-27 · 199 added, 161 removed, 267 unchanged (57% of the section changed)

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If we do update one or more forward-looking statements, no inference should be made that we will make additional updates with respect to those or other forward-looking statements.

For a comparison of results of operations and financial condition for fiscal years 2022 and 2021, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended December 25, 2022, filed March 2, 2023.

For a comparison of results of operations and financial condition for fiscal years 2023 and 2022, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended December 31, 2023, filed February 27, 2024.

We use a 52- or 53-week fiscal year ending on the Sunday on or prior to December 31.

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The additional week (the "53rd week") in a 53-week fiscal year is added to the fourth quarter.

Fiscal 2023 consisted of 53 weeks and fiscal 2022 consisted of 52 weeks.

The 53rd week in fiscal 2023 included Christmas day, resulting in six operating days.

The f iscal year ended December 29, 2024 ("fiscal 2024") consisted of 52 weeks and the fiscal year ended December 31, 2023 ("fiscal 2023") consisted of 53 weeks.

The 53rd week in fiscal 2023 included Christmas day, resulting in six additional operating days.

Portillo’s serves iconic Chicago street food through high-energy, multichannel restaurants designed to ignite the senses and create a memorable dining experience.

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• Total revenue increased 4.5% or $30.6 million to $710.6 million;

this increase is inclusive of the favorable impact of the 53rd week, which resulted in incremental revenue of approximately $13.9 million.

• Same-restaurant sales* increased 5.7%.

this increase is inclusive of the impact of the 53rd week in fiscal 2023, which resulted in incremental revenue of approximately $13.9 million in fiscal 2023.

• Same-restaurant sales* decreased 0.6%.

• Operating income increased $2.6 million to $58.0 million;

this increase is inclusive of the favorable impact of the 53rd week, which resulted in incremental operating income of approximately $1.6 million.

this increase is inclusive of the impact of the 53rd week in fiscal 2023, which resulted in incremental operating income of approximately $1.6 million in fiscal 2023.

• Net income increased $10.3 million to $35.1 million;

this increase is inclusive of the favorable impact of the 53rd week, which resulted in incremental net income of approximately $1.2 million.

this increase is inclusive of the impact of the 53rd week in fiscal 2023, which resulted in incremental net income of approximately $1.2 million in fiscal 2023.

• Restaurant-Level Adjusted EBITDA** increased $2.9 million to $168.1 million.

• Adjusted EBITDA** increased $2.5 million to $104.8 million.

* For fiscal 2023, same-restaurant sales compares the 53 weeks from December 26, 2022 through December 31, 2023 to the 53 weeks from December 27, 2021 through January 1, 2023.

In order to compare like-for-like periods for fiscal 2024, same-restaurant sales will compare the 52 weeks from January 1, 2024 through December 29, 2024 to the 52 weeks from January 2, 2023 through December 31, 2023.

* For fiscal 2024, same-restaurant sales compares the 52 weeks from January 1, 2024 through December 29, 2024 to the 52 weeks from January 2, 2023 through December 31, 2023.

** Adjusted EBITDA and Restaurant-Level Adjusted EBITDA are non-GAAP measures.

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Form 10-K | 22

In the year ended December 31, 2023, we saw continued revenue growth and same-restaurant sales growth.

Total revenue grew 15.8% during the year ended December 31, 2023.

Same-restaurant sales grew 5.7% during the year ended December 31, 2023, compared to 5.4% during the year ended December 25, 2022.

During the fourth quarter of 2023, total revenue grew 24.5% and same-restaurant sales increased 4.4% compared to same-restaurant sales growth of 6.0% for the fourth quarter ended December 25, 2022.

We believe unit growth is a key driver of shareholder value creation.

During the year ended December 31, 2023, we opened 12 new restaurants in the Arizona, Florida, Illinois, and Texas markets for a total of 84 restaurants, including a restaurant owned by C&O.

In 2023, we made significant strides in Texas with the opening of four new restaurants in the Dallas-Fort Worth market.

The three restaurants opened in fiscal 2022 and 12 restaurants opened in fiscal 2023 positively impacted revenues by approximately $48.4 million in the year ended December 31, 2023.

In the year ended December 31, 2023, we continued to see commodity inflation stabilize versus 2022 levels.

Commodity inflation was 5.5% for the year ended December 31, 2023 compared to 15.2% for year ended December 25, 2022.

For the year ended December 31, 2023, we experienced a decrease of 0.7% in labor expenses, as a percentage of revenue, compared to the year ended December 25, 2022 primarily due to increases in revenue, partially offset by higher labor utilization and additional wage investments.

We strategically offset these expenses through menu price increases and operational efficiencies.

In the year ended December 31, 2023, same-restaurant sales, operating income, net income, Restaurant-Level Adjusted EBITDA, and Adjusted EBITDA all improved versus the prior year.

We believe this improvement was the result of our ongoing efforts to deploy strategic pricing actions, elevate guest experiences, implement operational efficiencies, and grow our restaurant base.

In fiscal 2024, we expect our overall commodity inflation to stay consistent with recent trends and are currently estimating commodity inflation in the mid-single digits.

Additionally, we do anticipate additional wage investments and are currently estimating mid-single digit wage inflation.

We will continue to strategically offset these expense increases through menu price increases and operational efficiencies.

In fiscal 2024, total revenue, operating income, net income, Restaurant-Level Adjusted EBITDA, and Adjusted EBITDA all improved versus the prior year.

We believe this improvement stemmed from maintaining concentration on our four strategic pillars, which guide our short-term objectives and form the basis for long-term growth as discussed in Part I.

In fiscal 2024, total revenue grew 4.5%, primarily due to new restaurant openings in 2024 and 2023.

Same-restaurant sales declined 0.6% during fiscal 2024, compared to an increase of 5.7% during fiscal 2023.

Fiscal 2023 includes the positive impact of the 53rd week.

In fiscal 2024, we continued to see commodity inflation stabilize versus 2023 levels.

Commodity inflation was 4.2% in fiscal 2024 compared to 5.5% in fiscal 2023.

In fiscal 2024, we experienced a decrease of 0.1% in labor expenses, as a percentage of revenue, compared to fiscal 2023 primarily due to an increase in average check and lower variable-based compensation, partially offset by lower transactions and additional wage investments.

In fiscal 2025, we are targeting 11% to 12% revenue growth and flat to 2% growth in same-restaurant sales.

We expect our overall commodity inflation to stay consistent with recent trends and are currently estimating commodity inflation to be 3% to 5%.

Additionally, we anticipate additional wage investments and are currently estimating 3% to 4% hourly wage inflation.

We will continue to strategically offset these expense increases through menu price increases and operational efficiencies, while monitoring the competitive landscape as well as consumer sentiment to inform our pricing decisions.

During January of 2025, we increased certain menu prices by approximately 1.5%.

We will continue to monitor our cost pressures, the competitive landscape as well as consumer sentiment to inform our pricing decisions in the coming quarters.

We believe the strength of our brand, the consistency of our operations, and the ongoing execution of a disciplined development strategy all support our business model.

Further, we intend to continue to develop shareholder value through self-funded restaurant development and an ongoing focus on operational excellence.

We will continue to prioritize strategies to drive higher traffic and mix at our restaurants while optimizing returns and retaining our top talent.

Development Highlights

In fiscal 2023, we opened a total of 12 new restaurants in the Arizona, Florida, Illinois, and Texas markets.

Below are the 12 restaurants opened since the beginning of fiscal 2023 along with their opening dates:

Location Opening Date Fiscal Quarter Opened

Kissimmee, Florida December 2022 Q1 2023

The Colony, Texas January 2023 Q1 2023

Tucson, Arizona February 2023 Q1 2023

Gilbert, Arizona March 2023 Q2 2023

Queen Creek, Arizona

August 2023 Q3 2023

During fiscal 2024, we opened 10 new restaurants in the Arizona, Florida, Illinois, Michigan, and Texas markets, for a total of 94 restaurants, including a restaurant owned by C&O.

Two restaurants in the Texas market were our Restaurant of the Future (“ROTF”) concept, a 6,250 square foot prototype restaurant.

We also opened our seventh restaurant in the Dallas-Fort Worth market to meet our goal of achieving minimum scale (6-8 restaurants) within 24 months of our first opening.

We also made significant strides in the Houston, Texas market with the opening of three new restaurants in the fourth quarter of 2024.

Below are the 10 restaurants opened since the beginning of fiscal 2024:

Location Opening Month

Fiscal Quarter Opened

Denton, Texas

March 2024 Q1 2024

Surprise, Arizona

May 2024 Q2 2024

Livonia, Michigan

July 2024 Q3 2024

Mansfield, Texas

August 2024 Q3 2024

Cicero, Illinois

Richmond, Texas

October 2024 Q4 2024

Arlington, Texas

November 2023 Q4 2023

Algonquin, Illinois

November 2023 Q4 2023

Rosemont, Illinois

December 2024 Q4 2024

Fort Worth, Texas

Orlando, Florida

December 2024 Q4 2024

Clermont, Florida

Houston, Texas (ROTF)

December 2024 Q4 2024

In fiscal 2024, we are planning to open at least nine new restaurants.

In 2025, we are targeting at least 12% new restaurant growth, and our long-term outlook is approximately 12% to 15% annual new restaurant growth.

Our near-term restaurant growth strategy is focused on leveraging our proven unit economic model primarily in markets outside Chicagoland with favorable macro-economic tailwinds where we

Grapevine, Texas (ROTF)

December 2024 Q4 2024

Orland Park, Illinois

December 2024 Q4 2024

In fiscal 2025, we plan to open 12 new restaurants.

Our near-term restaurant growth strategy is focused on leveraging our proven unit economic model primarily in markets outside Chicagoland with favorable macro-economic tailwinds where we already have a presence.

Particularly, our current focus continues to be in the Sunbelt, primarily in Texas, with plans to enter the Atlanta, Georgia market.

Simultaneously, we will continue to fill-in existing markets, including Chicagoland and adjacent markets as opportunities come available.

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already have a presence.

Particularly, our short-term focus continues to be in the Sunbelt, with growth across markets in Arizona, Texas, and Florida.

Simultaneously, we will continue to fill-in Chicagoland and adjacent markets as opportunities come available.

Consolidated Results of Operations

The following table summarizes our results of operations for the fiscal years ended December 31, 2023 and December 25, 2022 (in thousands).

The following table summarizes our results of operations for fiscal 2024 and fiscal 2023 (in thousands).

Fiscal Years Ended

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41,875 5.9 % 28,066 4.1 %

Income tax expense (benefit) 3,248 0.5 % 1,823 0.3 %

Income tax expense

6,799 1.0 % 3,248 0.5 %

35,076 4.9 % 24,818 3.7 %

Net income attributable to non-controlling interests

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Fiscal 2024 consisted of 52 weeks and fiscal 2023 consisted of 53 weeks.

The 53rd week in fiscal 2023 included Christmas day, resulting in six operating days.

Except as noted below, the Company’s consolidated results of operations includes the 53rd week in 2023.

The 53rd week in fiscal 2023 included Christmas day, resulting in six additional operating days.

Except as noted below, the Company’s consolidated results of operations includes the 53rd week in fiscal 2023.

Revenues, Net

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Sales taxes collected from customers are excluded from revenues.

Revenues in any period are directly influenced by the number of operating weeks in the period, the number of open restaurants, restaurant traffic, our menu prices, third-party delivery platform prices and product mix.

Revenues for the year ended December 31, 2023 were $679.9 million compared to $587.1 million for the year ended December 25, 2022, an increase of $92.8 million or 15.8%.

The increase is inclusive of the favorable impact of the 53rd week, which resulted in incremental revenue of $13.9 million.

The increase in revenues was primarily attributed to the opening of new restaurants, combined with an increase in our same-restaurant sales.

Twelve new restaurants opened in the year ended December 31, 2023 and three restaurants opened in 2022, positively impacting revenues in the year ended December 31, 2023 by approximately $48.4 million.

Same-restaurant sales increased 5.7% during the year ended December 31, 2023, which was attributable to an increase in average check of 6.1%, partially offset by a 0.4% decline in

Revenues in any period are directly influenced by, among other factors, the number of operating weeks in the period, the number of open restaurants, restaurant traffic, our menu prices, third-party delivery platform prices and product mix.

Revenues for fiscal 2024 were $710.6 million compared to $679.9 million for fiscal 2023, an increase of $30.6 million or 4.5%.

The increase in total revenue was primarily attributed to the opening of ten restaurants during fiscal 2024 and twelve restaurants in fiscal 2023, partially offset by a negative impact of $13.9 million due to the additional operating week in fiscal 2023 and a decrease in our same-restaurant sales.

This increase in revenues was partially offset by a same-restaurant sales decrease of 0.6%, or $3.4 million.

The same-restaurant sales decline was attributable to a 3.2% decrease in transactions, partially offset by an increase in average check of 2.6%.

The higher average check was primarily driven by an approximate 4.6% increase in menu prices partially offset by product mix.

To mitigate inflationary cost pressures, we implemented targeted menu price adjustments in 2024, including a 1.5% increase in January, another 1.5% increase at the end of March, and a 1.0% increase in June.

Restaurants not in our Comparable Restaurant Base contributed $48.8 million of the total year-over-year increase.

For the purpose of calculating same-restaurant sales as of December 29, 2024, sales for 71 restaurants were included in the Comparable

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transactions.

The higher average check was driven by an approximate 8.5% increase in menu prices partially offset by product mix.

For the purpose of calculating same-restaurant sales as of December 31, 2023, sales for 68 restaurants were included in the Comparable Restaurant Base (as defined in "Key Performance Indicators and Non-GAAP Financial Measures" below) as of the end of fiscal 2023.

Restaurant Base (as defined in "Key Performance Indicators and Non-GAAP Financial Measures" below) as of the end of fiscal 2024.

The following table summarizes the Company's revenue for fiscal 2024 and fiscal 2023 (in thousands):

Fiscal Years Ended

December 29, 2024 December 31, 2023 $ Change

Same-restaurant sales (71 restaurants) (1) (3)

$ 598,222 $ 601,575 $ (3,353) (0.6) %

Same-restaurant sales comparable week shift Impact (2)

— 13,362 (13,362) nm

Restaurants not yet in comparable base opened in fiscal 2024 (10 restaurants) (3)

16,565 — 16,565 nm

Restaurants not yet in comparable base opened in fiscal 2023 (12 restaurants) (3)

73,521 40,696 32,825 80.7 %

Restaurants not yet in comparable base opened in fiscal 2022 (0 restaurant) (3)

9,779 10,411 (632) (6.1) %

12,467 13,861 (1,394) (10.1) %

Revenues, net $ 710,554 $ 679,905 $ 30,649 4.5 %

(1) We use a 52- or 53-week fiscal year ending on the Sunday on or prior to December 31.

Fiscal 2024 consists of 52 weeks and fiscal 2023 consisted of 53 weeks.

In order to compare like-for-like periods for fiscal 2024, same-restaurant sales compares the 52 weeks from January 1, 2024 through December 29, 2024 to the 52 weeks from January 2, 2023 through December 31, 2023.

(2) Represents the impact from shifting comparable weeks for all periods in fiscal 2023 to compare like-for-like periods.

For fiscal 2023, same-restaurant sales includes sales from the 52 weeks from January 2, 2023 through December 31, 2023 rather than the 53 weeks from December 26, 2022 through December 31, 2023.

(3) Total restaurants indicated are as of December 29, 2024.

Revenue from fiscal 2022 reflects contributions from restaurants before they were added to the comparable store base.

Excludes a restaurant that is owned by C&O of which Portillo’s owns 50% of the equity.

(4) Includes revenue from direct shipping sales and non-traditional locations.

*nm - not meaningful

Food, Beverage and Packaging Costs

Food, beverage and packaging costs include the direct costs associated with food and beverages, including paper products and third-party delivery commissions.

The components of food, beverage and packaging costs, are variable by nature, change with sales volume, are impacted by product mix and are subject to increases or decreases in commodity costs .

Food, beverage and packaging costs for the year ended December 31, 2023 was $230.9 million compared to $204.2 million for the year ended December 25, 2022, an increase of $26.6 million or 13.0%.

This increase was primarily driven by the opening of twelve restaurants in the year ended December 31, 2023 and the opening of three restaurants in 2022 and a 5.5% increase in commodity prices, partially offset by lower third-party delivery commissions.

As a percentage of revenues, net, food, beverage and packaging costs, decreased 0.8% during the year ended December 31, 2023.

This decrease was primarily due to an increase in average check and lower third-party delivery commissions, partially offset by an increase in certain commodity prices.

Food, beverage and packaging costs include the direct costs associated with food, beverage and packaging of our menu items and third-party delivery commissions.

The components of food, beverage and packaging costs are variable by nature, change with sales volume, are impacted by product and channel mix and are subject to increases or decreases in commodity costs, as well as geographic scale and proximity.

Food, beverage and packaging costs for fiscal 2024 was $241.7 million compared to $230.9 million for fiscal 2023, an increase of $10.8 million or 4.7%.

This increase was primarily driven by the opening of ten restaurants in fiscal 2024 and the opening of twelve restaurants in fiscal 2023 and a 4.2% increase in commodity prices, partially offset by lower third-party delivery commissions.

As a percentage of revenues, net, food, beverage and packaging costs remained flat during fiscal 2024 as the increase in average check and lower third-party delivery commissions were offset by an increase in certain commodity prices.

Labor Expenses

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Factors that influence labor costs include wage inflation and payroll tax legislation, health care costs and the staffing needs of our restaurants.

Labor expenses for the year ended December 31, 2023 were $173.9 million compared to $154.4 million for the year ended December 25, 2022, an increase of $19.5 million or 12.6%.

This increase was primarily driven by the opening of twelve restaurants in the year ended December 31, 2023 and the opening of three restaurants in 2022, and incremental investments to support our team members, including annual rate increases, and higher variable-based compensation.

As a percentage of revenues, net, labor decreased 0.7% during the year ended December 31, 2023 primarily due to an increase in our average check, partially offset by the aforementioned incremental hourly rate increases to support our team members, lower transactions, and higher labor utilization.

Labor expenses for fiscal 2024 were $181.1 million compared to $173.9 million for fiscal 2023, an increase of $7.2 million or 4.2%.

This increase was primarily driven by the opening of ten restaurants in fiscal 2024 and the opening of twelve restaurants in fiscal 2023, and incremental investments to support our team members, including annual rate increases, partially offset by lower variable-based compensation.

As a percentage of revenues, net, labor decreased 0.1% during fiscal 2024 primarily due to an increase in our average check and lower variable-based compensation, partially offset by the lower transactions and the aforementioned wage rate increases.

Occupancy Expenses

Occupancy expenses primarily consist of rent, property insurance and property taxes.

Occupancy expenses for the year ended December 31, 2023 were $33.4 million compared to $30.7 million for the year ended December 25, 2022, an increase of $2.7 million or 8.8%, primarily driven by the opening of twelve new restaurants in the year ended December 31, 2023 and the opening of three restaurants in 2022.

As a percentage of revenues, occupancy expenses decreased 0.3% during the year ended December 31, 2023 primarily due to an increase in our average check.

Other Operating Expenses

Other operating expenses consist of direct marketing expenses, utilities and other expenses incidental to operating our restaurants, such as credit card fees and repairs and maintenance.

Other operating expenses for the year ended December 31, 2023 were $76.6 million compared to $65.3 million for the year ended December 25, 2022, an increase of $11.3 million or 17.3%, primarily due to the opening of twelve restaurants in the year ended December 31, 2023 and the opening of three restaurants in 2022 and an increase in credit card fees, utilities, repair and maintenance expenses, and insurance, partially offset by a decrease in professional fees.

As a percentage of revenues, net, operating expenses increased 0.1% due primarily due to the aforementioned increases in expenses, partially offset by an increase in our average check.

Occupancy expenses primarily consist of rent, property insurance and property taxes, and exclude occupancy expenses associated with unopened restaurants, which are recorded separately in pre-opening expenses.

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Occupancy expenses for fiscal 2024 were $36.6 million compared to $33.4 million for fiscal 2023, an increase of $3.3 million or 9.8%, primarily driven by the opening of ten restaurants in fiscal 2024 and the opening of twelve restaurants in 2023.

As a percentage of revenues, occupancy expenses increased 0.2% during fiscal 2024.

Other Operating Expenses

Other operating expenses consist of direct marketing expenses, utilities and other expenses incidental to operating our restaurants, such as credit card fees and repairs and maintenance.

Other operating expenses for fiscal 2024 were $83.0 million compared to $76.6 million for fiscal 2023, an increase of $6.4 million or 8.3%, primarily due to the opening of ten restaurants in fiscal 2024 and the opening of twelve restaurants in 2023 and an increase in repair and maintenance expenses, IT expenses, and utilities, partially offset by a decrease in operating supplies and advertising expenses.

As a percentage of revenues, net, operating expenses increased 0.4%.

General and Administrative Expenses

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General and administrative expenses are impacted by changes in our team member count and costs related to strategic and growth initiatives.

General and administrative expenses for the year ended December 31, 2023 were $78.8 million compared to $66.9 million for the year ended December 25, 2022, an increase of $11.9 million or 17.9%.

This increase was primarily driven by higher variable-based compensation, increases in salaries, wages and benefits attributable to annual rate increases and the filling of open positions, higher advertising and software licensing fees, partially offset by decreases in insurance expenses and equity-based compensation expense.

General and administrative expenses for fiscal 2024 were $75.1 million compared to $78.8 million for fiscal 2023, a decrease of $3.7 million or 4.8%.

This decrease was primarily driven by lower equity and variable-based compensation and insurance expenses, partially offset by an increase in advertising expenses driven by the Chicagoland ad campaign, and professional fees and software license fees related to our ERP and human capital management ("HCM") system implementations.

Pre-Opening Expenses

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Additionally, restaurant openings in new geographic market areas will experience higher pre-opening expenses than our established geographic market areas, such as the Chicagoland area, where we have greater economies of scale and incur lower travel and lodging costs for our training team.

Pre-opening expenses for the year ended December 31, 2023 were $9.0 million compared to $4.7 million for the year ended December 25, 2022, an increase of $4.3 million or 91.3%.

This increase was due to the number and timing of executed and planned new restaurant openings for the year ended December 31, 2023 as compared to the year ended December 25, 2022.

Pre-opening expenses for fiscal 2024 were $9.2 million compared to $9.0 million for fiscal 2023, an increase of $0.2 million or 2.4%.

This increase was due to the number, timing and location of executed and planned new restaurant openings for fiscal 2024 as compared to fiscal 2023.

Depreciation and Amortization

Depreciation and amortization expenses consist of the depreciation of fixed assets, including leasehold improvements, fixtures and equipment and the amortization of definite-lived intangible assets, which are primarily comprised of recipes.

Depreciation and amortization expense for the year ended December 31, 2023 was $24.3 million compared to $20.9 million for the year ended December 25, 2022, an increase of $3.4 million or 16.3%.

This increase was primarily attributable to incremental depreciation of capital expenditures related to the twelve restaurants opened in 2023 and three restaurants opened in 2022.

Depreciation and amortization expense for fiscal 2024 was $27.3 million compared to $24.3 million for fiscal 2023, an increase of $3.0 million or 12.3%.

This increase was primarily attributable to incremental depreciation of capital expenditures related to the opening of ten restaurants in fiscal 2024 and the opening of twelve restaurants in fiscal 2023.

Net Income Attributable to Equity Method Investment

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We account for the investment and financial results in the consolidated financial statements under the equity method of accounting as we have significant influence but do not have control.

Net income attributable to equity method investment for the year ended December 31, 2023 was $1.4 million compared to $1.1 million for the year ended December 25, 2022, an increase of $0.3 million or 29.4%.

This increase was primarily driven by increased revenue, which is attributable to an increase in average check, partially offset by a decrease in transactions.

Other Income, Net

Other income, net includes among other items, income resulting from discounts received for timely filing of sales tax returns, management fee income associated with our investment in C&O, trading gains or losses on our deferred compensation plan and gains or losses on asset disposals.

Other income, net for the year ended December 31, 2023 was $1.0 million compared to $0.2 million for the year ended December 25, 2022, an increase of $0.8 million or 407.4%.

Other income, net increased primarily due to an increase in trading gains in the rabbi trust used to fund our deferred compensation plan, partially offset by an increase in loss on sale of assets.

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Net income attributable to equity method investment for fiscal 2024 was $1.2 million compared to $1.4 million for fiscal 2023, a decrease of $0.2 million or 12.3%.

This decrease was primarily driven by an increase in restaurant-level operating expenses, partially offset by an increase in sales.

Other Income, Net

Other income, net includes, among other items, income resulting from discounts received for timely filing of sales tax returns, management fee income associated with our investment in C&O, trading gains or losses on our deferred compensation plan and gains, losses on asset disposals, and asset impairment charges.

Other income, net for fiscal 2024 was $0.3 million compared to $1.0 million for fiscal 2023, a decrease of $0.7 million or 69.9%.

Other income, net decreased primarily due to a technology asset impairment charge.

Interest Expense

Interest expense primarily consists of interest and fees on our credit facilities and the amortization expense for debt discount and deferred issuance costs.

Interest expense for the year ended December 31, 2023 was $27.5 million compared to $27.6 million for the year ended December 25, 2022, a decrease of $0.2 million or 0.6%.

This decrease was primarily driven by the improved lending terms associated with our 2023 Term Loan and 2023 Revolver Facility.

Interest expense for fiscal 2024 was $25.6 million compared to $27.5 million for fiscal 2023, a decrease of $1.9 million or 6.7%.

This decrease was primarily driven by a lower effective interest rate due to improved lending terms associated with our 2023 Term Loan and 2023 Revolver Facility.

Our effective interest rate was 7.53% and 8.36% as of December 29, 2024 and December 31, 2023, respectively.

1 unchanged sentence

Interest income primarily consists of interest earned on our cash, cash equivalents and restricted cash.

Interest income for the year ended December 31, 2023 was $0.2 million.

There was no interest income for the year ended December 25, 2022.

Interest income for fiscal 2024 was $0.3 million compared to $0.2 million for fiscal 2023, an increase of $0.1 million or 45.8%.

This increase was primarily driven by converting our bank accounts to interest bearing during fiscal 2023.

Tax Receivable Agreement Liability Adjustment

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actually realizes or in some cases is deemed to realize as a result of certain transactions.

The Tax Receivable Agreement liability adjustment was $3.3 million for the year ended December 31, 2023 related to a remeasurement primarily due to activity under equity-based compensation plans.

The Tax Receivable Agreement liability adjustment was $5.3 million for the year ended December 25, 2022.

The Tax Receivable Agreement liability adjustment was $9.1 million for the fiscal year ended December 29, 2024 related to a remeasurement primarily due to activity under equity-based compensation plans and effective state tax rate changes.

The Tax Receivable Agreement liability adjustment was $3.3 million for the fiscal year ended December 31, 2023.

Loss on Debt Extinguishment

Loss on debt extinguishment for the year ended December 31, 2023 was $3.5 million due to the write-off of debt discount and deferred issuance costs associated with the payoff of the 2014 Credit Agreement as described in Note 9.

There was no such loss for the year ended December 25, 2022.

Income Tax Expense (Benefit)

There was no loss on debt extinguishment for fiscal 2024.

Loss on debt extinguishment for fiscal 2023 was $3.5 million due to the write-off of debt discount and deferred issuance costs associated with the payoff of the 2014 Credit Agreement as described in Note 9.

Income Tax Expense

Portillo's OpCo is treated as a partnership for U.S.

3 unchanged sentences

federal, state and local income taxes with respect to our allocable share of any taxable income or loss of Portillo's OpCo, as well as any stand-alone income or loss generated by Portillo's Inc.

Income tax expense for the year ended December 31, 2023 was $3.2 million compared to $1.8 million for the year ended December 25, 2022, an increase of $1.4 million.

Our effective income tax rate for year ended December 31, 2023 was 11.5%, compared to 9.6% for year ended December 25, 2022.

The increase in our effective income tax rate for the year ended December 31, 2023 compared to the year ended December 25, 2022 was primarily driven by an increase in the Company's ownership interest in Portillo's OpCo, which increases its share of taxable income (loss) of Portillo's OpCo, partially offset by the decrease in the valuation allowance and the recording of net operating loss carryforwards.

Income tax expense for fiscal 2024 was $6.8 million compared to $3.2 million for fiscal 2023, an increase of $3.6 million or 109.3%.

Our effective income tax rate for fiscal 2024 was 16.2%, compared to 11.5% for fiscal 2023.

The increase in our effective income tax rate for fiscal 2024 compared to fiscal 2023 was primarily driven by an increase in the Company's ownership interest in Portillo's OpCo, which increases its

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share of taxable income of Portillo's OpCo, remeasurement of deferred tax assets due to effective state tax rate changes and recording of net operating losses in the prior year.

This was partially offset by the decrease in the valuation allowance and the exercise and vesting of equity-based awards.

Net Income Attributable to Non-controlling Interests

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Accordingly, we consolidate the financial results of Portillo’s OpCo, and a portion of our net income is allocated to non-controlling interests to reflect the entitlement of the pre-IPO LLC Members who retained their equity ownership in Portillo's OpCo (the "pre-IPO LLC Members").

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income (loss) to Portillo's Inc.

The weighted average ownership percentages for the applicable reporting periods are used to attribute net income to Portillo's Inc.

and the non-controlling interest holders.

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Net income attributable to non-controlling interests for the year ended December 31, 2023 was $6.4 million, compared to $6.3 million for the year ended December 25, 2022.

The increase in net income attributable to non-controlling interests for the year ended December 31, 2023 was primarily due to an increase in net income, compared to the year ended December 25, 2022, partially offset by a decrease in the non-controlling interest holders' weighted average ownership, from 45.8% for the year ended December 25, 2022 to 25.9% for the year ended December 31, 2023.

The weighted average ownership percentage decreased due to the Secondary Offering as discussed in Item 8.

"Financial Statements & Supplementary Data."

Key Performance Indicators and Non-GAAP Financial Measures

Net income attributable to non-controlling interests for fiscal 2024 was $5.6 million, compared to $6.4 million for fiscal 2023.

The decrease in net income attributable to non-controlling interests for fiscal 2024 was primarily due to a decrease in the non-controlling interest holders' weighted average ownership from 25.9% for fiscal 2023 to 17.0% for fiscal 2024, partially offset by an increase in net income for fiscal 2024 compared to fiscal 2023.

The weighted average ownership percentage decreased due to the Secondary Offering and Redemption of LLC units as discussed in Note 1.

Description Of Business of our consolidated financial statements.

Key Performance Indicators and Non-GAAP Financial Measures Overview

In addition to the GAAP measures presented in our financial statements, we use the following key performance indicators and non-GAAP financial measures to evaluate our business, measure our performance, develop financial forecasts and make strategic decisions.

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Change in same-restaurant sales (b)(c)

(0.6) % 5.7 %

Adjusted EBITDA (in thousands) (b) $ 104,760 $ 102,282

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Fiscal 2024 consisted of 52 weeks and fiscal 2023 consisted of 53 weeks.

The 53rd week in fiscal 2023 included Christmas day, resulting in six operating days.

The 53rd week in fiscal 2023 included Christmas day, resulting in six additional operating days.

(a) Includes C&O, as described in Note 2.

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(b) Excludes C&O.

(c) For fiscal 2023, same-restaurant sales compares the 53 weeks from December 26, 2022 through December 31, 2023 to the 53 weeks from December 27, 2021 through January 1, 2023.

(c) For fiscal 2024 , same-restaurant sales compares the 52 weeks from January 1, 2024 through December 29, 2024 to the 52 weeks from January 2, 2023 through December 31, 2023.

For fiscal 2023, same-restaurant sales compares the 53 weeks from December 26, 2022 through December 31, 2023 to the 53 weeks from December 27, 2021 through January 1, 2023.

Key Performance Indicators

Change in Same-Restaurant Sales

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The Comparable Restaurant Base excludes C&O, as described in Note 2.

Summary Of Significant Accounting Policies in our consolidated financial statements.

A change in same-restaurant sales growth is the result of a change in restaurant transactions, average guest check, or a combination of the two.

Summary Of Significant Accounting Policies of our consolidated financial

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A change in same-restaurant sales is the result of a change in restaurant transactions, average guest check, or a combination of the two.

We gather daily sales data and regularly analyze the guest transaction counts and the mix of menu items sold to strategically evaluate menu pricing and demand.

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AUV is the total revenue (excluding gift card breakage) recognized in the Comparable Restaurant Base, including C&O, divided by the number of restaurants in the Comparable Restaurant Base, including C&O, by period.

Portillo's Inc.

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This key performance indicator allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base.

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We believe that Adjusted EBITDA and Adjusted EBITDA Margin are important measures of operating performance because they eliminate the impact of expenses that do not relate to our core operating performance.

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The following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA margin (in thousands):

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$ 35,076 $ 24,818

Net income margin

Depreciation and amortization 27,297 24,313

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Equity-based compensation 11,151 15,542

ERP implementation costs (2) 401 —

Other income (3) 590 397

Transaction-related fees & expenses (4) 900 2,237

Cloud-based software implementation costs (2) 679 401

Amortization of cloud-based software implementation costs (3) 586 —

Other loss (4) 1,184 590

Transaction-related fees and expenses (5) 575 900

Tax Receivable Agreement liability adjustment (6) (9,149) (3,349)

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Adjusted EBITDA Margin (7) 14.7 % 15.0 %

15.0 % 14.5 %

We use a 52- or 53-week fiscal year ending on the Sunday on or prior to December 31.

Fiscal 2024 consisted of 52 weeks and fiscal 2023 consisted of 53 weeks.

The 53rd week in fiscal 2023 included Christmas day, resulting in six operating days.

The 53rd week in fiscal 2023 included Christmas day, resulting in six additional operating days.

(1) Represents the difference between cash rent payments and the recognition of straight-line rent expense recognized over the lease term.

(2) Represents non-capitalized third-party consulting and software licensing costs incurred in connection with the implementation of a new ERP system.

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(3) Represents loss on disposal of property and equipment.

(4) Represents the exclusion of certain expenses that management believes are not indicative of ongoing operations, consisting primarily of certain professional fees.

(5) Represents the Tax Receivable Agreement liability remeasurement primarily due to activity under equity-based compensation plans.

(2) Represents non-capitalized third-party consulting and software licensing costs incurred in connection with the implementation of new enterprise resource planning ("ERP") and human capital management ("HCM") systems which are included within general and administrative expenses.

(3) Represents amortization of capitalized cloud-based ERP system implementation costs that are included within general and administrative expenses.

(4) Represents loss on disposal of property and equipment and a technology asset impairment charge included within other income, net.

(5) Represents certain expenses that management believes are not indicative of ongoing operations, consisting primarily of certain professional fees included within general and administrative expenses.

(6) Represents remeasurement of the Tax Receivable Agreement liability.

(7) Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Revenues, net.

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We believe that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin are important measures to evaluate the performance and profitability of our restaurants, individually and in the aggregate.

The following table reconciles operating income to Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin (in thousands):

The following table reconciles operating income to Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin (in

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Fiscal Years Ended

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Operating income $ 58,033 $ 55,440

Operating income margin

General and administrative expenses 75,089 78,835

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Fiscal 2024 consisted of 52 weeks and fiscal 2023 consisted of 53 weeks.

The 53rd week in fiscal 2023 included Christmas day, resulting in six operating days.

The 53rd week in fiscal 2023 included Christmas day, resulting in six additional operating days.

(1) Restaurant-Level Adjusted EBITDA Margin is defined as Restaurant-Level Adjusted EBITDA divided by Revenues, net.

Liquidity and Capital Resources

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Our ongoing capital expenditures are principally related to opening of new restaurants, existing capital investments (both for remodels and maintenance), as well as investments in our Restaurant Support Center infrastructure.

Additionally, we continue to invest in technology, including the deployment of self-service kiosks and upgrades to our IT infrastructure, to improve operational efficiency and the guest experience.

Based upon current levels of operations and anticipated growth, we expect that cash flows from operations will be sufficient to meet our needs for at least the next twelve months and the foreseeable future.

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In connection with the IPO, we entered into a Tax Receivable Agreement ("TRA") with certain of our pre-IPO LLC Members, pursuant to which we will generally be required to pay 85% of the amount of cash savings, if any, in U.S.

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losses and the Blocker Companies' allocable share of existing tax basis), (iii) increases in our allocable share of then existing tax basis in depreciable or amortizable assets, and adjustments to the tax basis of the tangible and intangible assets, of Portillo’s OpCo and its subsidiaries, as a result of (x) sales or exchanges of interests in Portillo’s OpCo (including the repayment of the redeemable preferred units) in connection with the IPO and (y) future redemptions or exchanges of LLC Units by pre-IPO LLC Members for Class A common stock and (iv) certain other tax benefits related to entering into the TRA, including payments made under the TRA.

federal, state, and local income tax that we actually realize or are deemed to realize, as a result of (i) our allocable share of existing tax basis in depreciable or amortizable assets relating to LLC Units acquired in the IPO, (ii) certain favorable tax attributes acquired by the Company from the Blocker Companies (including net operating losses and the Blocker Companies' allocable share of existing tax basis), (iii) increases in our allocable share of then existing tax basis in depreciable or amortizable assets, and adjustments to the tax basis of the tangible and intangible assets, of Portillo’s OpCo and its subsidiaries, as a result of (x) sales or exchanges of interests in Portillo’s OpCo (including the repayment of the redeemable preferred units) in connection with the IPO and (y) future redemptions or exchanges of LLC Units by pre-IPO LLC Members for Class A common stock and (iv) certain other tax benefits related to entering into the TRA, including payments made under the TRA.

Subsequent Events for information about a recent amendment to the TRA.

As of December 29, 2024, we estimate that our obligation for future payments under the TRA totaled $324.6 million.

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The payments that we are required to make will generally reduce the amount of overall cash flow that might have otherwise been available to us, but we expect the cash tax savings we will realize to fund the required payments.

Assuming no material changes in relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we estimate that the tax savings associated with all tax attributes described above would aggregate to approximately $352.7 million as of December 31, 2023.

Under this scenario, we would be required to pay the TRA Parties approximately 85% of such amount, or $299.8 million, primarily over the next 15 years, substantially declining in year 16 through year 47.

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material changes in relevant tax law and that we earn sufficient taxable income to realize all tax benefits that are subject to the TRA, we estimate that the tax savings associated with all tax attributes described above would aggregate to approximately $381.9 million as of December 29, 2024.

Under this scenario, we would be required to pay the TRA Parties approximately 85% of such amount, or $324.6 million, primarily over the next 15 years, declining in year 16 through year 47.

During the year ended December 29, 2024, we made a TRA payment of $4.4 million relating to tax year 2022.

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Net cash used in investing activities (88,114) (87,837)

Net cash used in financing activities (16,933) (4,708)

Net (decrease) increase in cash and cash equivalents and restricted cash

Net cash provided by (used in) financing activities

2,512 (16,933)

Net increase (decrease) in cash and cash equivalents and restricted cash

12,438 (33,989)

Cash and cash equivalents and restricted cash at beginning of period 10,438 44,427

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Fiscal 2024 consisted of 52 weeks and fiscal 2023 consisted of 53 weeks.

The 53rd week in fiscal 2023 included Christmas day, resulting in six operating days.

The 53rd week in fiscal 2023 included Christmas day, resulting in six additional operating days.

Operating Activities

Net cash provided by operating activities for the year ended December 31, 2023 was $70.8 million compared to net cash provided by operating activities of $56.9 million for the year ended December 25, 2022, an increase of $13.9 million or 24.4%.

This increase was primarily driven by the change in non-cash items of $8.0 million and higher net income of $7.7 million, partially offset by the change in operating assets and liabilities of $1.8 million.

The $8.0 million change from the year ended December 25, 2022 in non-cash charges is primarily attributable to the loss on debt extinguishment, an increase in depreciation and amortization, the TRA liability adjustment, and an increase in our deferred income tax provision, partially offset by a decrease in amortization of debt issuance costs and discount and equity-based compensation expense.

The increase in net income for the year ended December 31, 2023 was primarily due to higher revenue partially offset by the factors driving the aforementioned expenses as described in the consolidated results of operations for the year ended December 31, 2023 compared to the year ended December 25, 2022.

The $1.8 million change in our operating asset and liability balances was primarily driven by operating assets and liabilities being a source of net cash of $2.1 million in year ended December 31, 2023, compared to a source of net cash of $3.9 million in the year ended December 25, 2022 driven by the change in other current assets due to increased cash outflows for insurance premiums and occupancy and change in other assets and liabilities due to the implementation of a new ERP system.

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Net cash provided by operating activities for fiscal 2024 was $98.0 million compared to net cash provided by operating activities of $70.8 million for fiscal 2023, an increase of $27.3 million or 38.5%.

This increase was primarily driven by the change in operating assets and liabilities of $23.6 million and higher net income of $10.3 million, partially offset by the change in non-cash items of $6.6 million.

The $23.6 million change in our operating asset and liability balances was primarily driven by operating assets and liabilities being a source of net cash of $25.7 million in fiscal 2024, compared to a source of net cash of $2.1 million in the fiscal 2023 driven by the change in accounts payable, deferred lease incentives, other current assets, and inventories.

The increase in net income for the fiscal 2024 was primarily due to higher revenue partially offset by the factors driving the aforementioned expenses as described in the consolidated results of operations for fiscal 2024 compared to fiscal 2023.

The $6.6 million change from fiscal 2023 in non-cash charges was primarily driven by lower equity-based compensation expense and the loss on debt extinguishment in the prior year, partially offset by higher depreciation and amortization and an increase in income tax expense in the current year.

Investing Activities

Net cash used in investing activities was $87.8 million for the year ended December 31, 2023 compared to net cash used in investing activities of $47.0 million for the year ended December 25, 2022, an increase of $40.8 million or 86.8%.

This increase was primarily due to the number of restaurant openings and builds in process during 2023 and the planned restaurant openings for 2024.

Net cash used in investing activities was $88.1 million for fiscal 2024 compared to net cash used in investing activities of $87.8 million for fiscal 2023, an increase of $0.3 million or 0.3%.

This increase was primarily due to the number of restaurant openings and builds in process during 2024 and the planned restaurant openings for 2025, partially offset by adopting a more cost effective restaurant format.

Financing Activities

Net cash used in financing activities was $16.9 million for the year ended December 31, 2023 compared to net cash used in financing activities of $4.7 million for the year ended December 25, 2022, an increase of $12.2 million or 259.7%.

This increase is primarily due to the refinancing of our long-term debt as described in Note 9.

Debt, the payment of deferred financing costs of $3.6 million and payments made under the TRA of $0.8 million.

Net cash provided by financing activities was $2.5 million for fiscal 2024 compared to net cash used in financing activities of $16.9 million for fiscal 2023, an increase of $19.4 million or 114.8%.

This increase is primarily due to the payment and borrowing of long-term debt in connection with our refinancing in fiscal 2023 as described in Note 9.

Debt and higher proceeds from stock option exercises.

The increase was partially offset by an increase in payments made under the TRA of $3.6 million.

2023 Revolver Facility and Liens

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Refer to Note 9.

Debt for additional information.

Debt for additional information and Note 19.

Subsequent Events for information

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about further amendments to the 2023 Term Loan and 2023 Revolver Facility.

Material Cash Requirements

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Debt to the consolidated financial statements for further information of our obligations and the timing of expected payments.

Also, see Note 19.

Subsequent Events for information about further amendments to the 2023 Term Loan and 2023 Revolver Facility.

Lease obligations .

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Liabilities Under Tax Receivable Agreement

As described in "Liquidity Upon IPO", we are a party to the TRA under which we are contractually committed to pay certain of our pre-IPO LLC Members 85% of the amount of any tax savings that we actually realize, or in some cases are deemed to realize, as a result of certain transactions.

We are a party to the TRA under which we are contractually committed to pay certain of our pre-IPO LLC Members 85% of the amount of any tax savings that we actually realize, or in some cases are deemed to realize, as a result of certain transactions.

Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws.

If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related TRA payments.

Therefore, we would only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax

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As of December 29, 2024, we recognized $324.6 million of liabilities relating to our obligations under the TRA, after concluding that it was probable that we would have sufficient future taxable income to utilize the related tax benefits.

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We expect a payment of $7.7 million to be made within the next 12 months.

Subsequent Events for information about a recent amendment to the TRA.

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We are subject to U.S.

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We anticipate that we will account for the income tax effects and corresponding TRA’s effects resulting from future taxable exchanges or redemptions of LLC Units of pre-IPO LLC Members by us or Portillo’s OpCo by recognizing an increase in our deferred tax assets, based on enacted tax rates at the date of the purchase or redemption.

The amounts recorded for both the deferred tax assets and the liability for our obligations under the TRA were estimated at the time of the IPO and secondary offerings as a reduction to shareholders’ equity, and the effects of changes in any of our estimates after this date will be included in net income (loss).

The amounts recorded for both the deferred tax assets and the liability for our obligations under the TRA were estimated at the time of the IPO and secondary offerings as a reduction to stockholders’ equity, and the effects of changes in any of our estimates after this date will be included in net income (loss).

Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income (loss).

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis