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Portillo's fans become owners as company goes public Thursday

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For about $29 — a little more than the cost of four Italian beef sandwiches — Portillo's customers can get a piece of the iconic local restaurant chain.

Shares in Oak Brook-based Portillo's were up 45.5% at the close of the company's first day on the public market Thursday. Portillo's offered nearly 20.3 million shares of its stock at $20 per share in its initial public offering, the company said in a news release Wednesday evening.

Shares are trading on the Nasdaq Global Select Market under the symbol PTLO.

Portillo's announced plans to go public earlier this summer and said it believes it could eventually grow from 67 restaurants to more than 600 over the next 25 years, according to a filing with the U.S. Securities and Exchange Commission.

It will be counting on a customer base it touted as "passionate (some might say obsessed)" in those documents, which included a selection of their tweets about the brand, including "I'm gonna baptize my first born child in Portillo's melted cheese."

The beloved chain ships food to customers in all 50 states and recently began putting its brand on a wide range of new merchandise, including Portillo's-themed swimsuits, pool floats and a "G is for Giardiniera" alphabet book.

Couples who share a love of its food can book professional engagement photography sessions at its restaurants that come with crew neck sweatshirts reading "I only have fries for you" and "the cake to my shake." The "Newlywed Spread" late-night wedding catering package includes a cheese sauce fountain for those who prefer its cheese fries to chocolate fondue.

Even Chicago Sky star Candace Parker's a fan, giving her preferred order at a news conference earlier this year: fish sandwich with cheese, jumbo chili cheese dog with no onions, fries and a cake shake with a slice of chocolate cake to go for later.

Private equity firm Berkshire Partners, which bought Portillo's in 2014, still owns the bulk of the company, which had a market capitalization of about $2.1 billion at the close Thursday. The newly-issued shares are equivalent to about 28% of the company's outstanding stock, though that could rise to 33% if underwriters choose to purchase about 3 million additional shares.

Some of those shares went to customers who decided they wanted to buy a piece of the company, not just its sandwiches.

Kamil Krawczyk, 35, of Arlington Heights, said he bought a couple shares shortly after they began trading Thursday morning. He started day trading while staying home to take care of his son during the pandemic and is a fan of Portillo's hot dogs and Maxwell Street Polish sausage.

"I looked into the prospectus, and there's good growth. . I think it's a brand that could take off, selling that Chicago taste all over the country," Krawczyk said.

Others just want a piece of a favorite chain. Kathy Trojak said she plans to give her son Jesse shares as a Christmas gift, just like she'd once given her Green Bay Packers-loving father shares in the team.

Jesse, 23, loves Portillo's fries. He's on the autism spectrum, and when he was younger, the family made a project of visiting every Portillo's restaurant in Illinois — about 30 at the time, said Trojak, who lives in Chicago's Fulton Market neighborhood.

"We could use a few dividends back from Portillo's," she joked.

The average customer probably couldn't buy in at the initial offering price. In an IPO, most shares are allocated to large institutional investors such as mutual funds and money management firms and deep-pocketed clients of some of the banks taking the company public, said Bankrate chief financial analyst Greg McBride.

Some fintech apps such as Robinhood give users access to IPOs, but they would likely have a lot more interested buyers than shares and might award the option to purchase them at random, he said.

Once a company goes public and its shares begin trading, anyone can purchase them through a brokerage account as they would any other stock, McBride said.

When Portillo's got its start in 1963, founder Dick Portillo was selling hot dogs from a trailer, then called The Dog House, in a parking lot in Villa Park.

Today the company has 67 restaurants across nine states, up from 40 locations in 2015.

Cindy Waidanz, 64, of Lombard, grew up about three blocks from the original location, when you could get a meal for $1.50. She remembers going there to get lunch with her mom and her mom's friends as a kid. Now, she brings hot dogs and cheese fries when going to visit her daughter in Kentucky "for a taste of home."

"It's not the little company it used to be, but it's really a success story for someone who came from this area, and I think people like that," she said.

Portillo's revenues were an estimated $138 million during the quarter that ended Sept. 26, up about 15.3% compared with the same period last year, due to an increase in the average order size and five new restaurant openings, according to regulatory filings.

The chain aims to grow its number of restaurants by about 10% a year and said it believes it could eventually grow to more than 600 over the next 25 years.

Portillo's plans to keep adding a restaurant or so a year in the Midwest while expanding into Sun Belt states like Florida, Texas and Arizona, said chief operating officer Derrick Pratt. Texas is the company's top state for ship-to-home sales, and Portillo's plans to open its first restaurant in the state in a town near Frisco next year.

Fast casual restaurants like Portillo's haven't suffered as much as the overall restaurant industry during the pandemic and have been bouncing back, said David Henkes, senior principal at Technomic, a Chicago-based food service research and consulting firm.

The $62.1 billion fast casual industry is expected to be about 4% larger than it was in 2019 by the end of the year, according to Technomic, which predicted 9% growth next year.

A lot of that growth is expected to come from drive-thru and other takeout orders, which surged during the pandemic, Henkes said.

At Portillo's, the average restaurant's dine-in sales dropped from $4.4 million in 2019 to $1.9 million during the year that ended June 27, according to the filing. Drive-thru sales, however, rose from $3.4 million to $4.9 million and delivery sales jumped from $500,000 to $850,000.

Dine-in sales, which used to account for a little more than half of Portillo's sales, now make up just 30%, Chief Financial Officer Michelle Hook said.

While Portillo's expects dine-in sales to grow, the company doesn't expect them to return to pre-pandemic levels. Pratt said the company is "uniquely positioned to handle that shift," thanks to its online ordering options and drive-thru operations, though it's working on a more efficient system for handling pickup and delivery orders. That includes setting up permanent spaces in restaurants where customers or third-party drivers can retrieve orders.

"We're going to be set up to meet guests wherever they want to be," Hook said.

Each Portillo's averaged $7.9 million in revenue during the year that ended June 27, which is "out of this world" and more than double the sales of a typical McDonald's or Chipotle, said Sean Dunlop, an equity analyst at Morningstar who covers the restaurant industry.

Chicago-area Portillo's fared better, averaging $9.1 million.

That's in part because Portillo's restaurants are bigger than other chains, and nearly all locations have double-lane drive-thrus. Henkes also attributed it to "craveable foods" and efficient operations.

"They're a well-oiled machine, when you look at the amount of business that goes through the drive-thru," he said.

The challenge will be whether they can maintain those strong sales and margins as they expand to areas without a natural fondness for Chicago-style dogs and base of loyal customers, Dunlop said.

The company will also face industrywide challenges, including labor shortages, supply chain disruptions and cost increases.

The labor market has been a challenge, prompting Portillo's to raise hourly wages 18% to 20% compared with last year, Hook said. But the chain hasn't reduced or closed dining rooms due to being short-staffed, he said.

Fans in Portillo's-less cities are eager to see the company expand. On a recent Facebook post announcing a new Portillo's in Madison commenters put in requests for cities across 17 states.

Dallas has a 743-person Facebook group campaigning for a restaurant called "Portillo's wanted in DFW." Founder Nancy Boyce, 65, grew up going to the hot dog stand in Villa Park but now lives in Grapevine, Texas.

"We all miss our foods, and we want to bring Chicago food here in Texas," she said.

Some local customers, meanwhile, worried too much growth could change a local favorite, saying they thought they'd tasted changes after Dick Portillo sold the company in 2014.

"That's my fear, because they're such an iconic Chicago restaurant. If it gets too big too quick, it could hurt the brand," said Barb Arrate, 50.

Arrate first visited Portillo's about 30 years ago on one of her first dates with her now-husband Tony in Villa Park.

"It was the best hot dog I've had, hands down," she said.

They don't eat there as often now that they live in Spring Valley, about an hour away from Peoria and the nearest Portillo's. Despite her concerns, she's considering investing.

"If I can't have a piece of chocolate cake, at least I'll have a piece of the building," she said.

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