Portillo's Inc.

02/24/2026 | Press release | Distributed by Public on 02/24/2026 07:08

Annual Report for Fiscal Year Ending December 28, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section and other parts of this Annual Report on Form 10-K ("Form 10-K") contain forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 ("PSLRA"), which are subject to known and unknown risks, uncertainties and other important factors that may cause actual results to be materially different from the statements made herein. All statements other than statements of historical fact are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial position, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as "aim," "anticipate," "believe," "estimate," "expect," "forecast," "future," "intend," "outlook," "potential," "project," "projection," "plan," "seek," "may," "could," "would," "will," "should," "can," "can have," "likely," the negatives thereof and other similar expressions.
All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this Form 10-K in the context of the risks and uncertainties disclosed in Part I, Item 1A "Risk Factors" and in this Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The forward-looking statements included in this Form 10-K are made only as of the date hereof. We undertake no obligation to publicly update any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law. 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 2024 and 2023, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K for the fiscal year ended December 29, 2024, filed February 25, 2025.
We use a 52- or 53-week fiscal year ending on the Sunday on or prior to December 31. In a 52-week fiscal year, each quarterly period is comprised of 13 weeks. The additional week (the "53rd week") in a 53-week fiscal year is added to the fourth quarter. The fiscal years ended December 28, 2025 ("fiscal 2025")and December 29, 2024 ("fiscal 2024") both consisted of 52 weeks.
Overview
Portillo's serves iconic Chicago street food through high-energy, multichannel restaurants designed to ignite the senses and create a memorable dining experience. Refer to Part I, Item 1, "Business" of this document for additional information about our business.
Recent Developments and Trends
Financial Highlights for Fiscal 2025 vs. Fiscal 2024:
•Total revenueincreased 3.0% or $21.5 million to $732.1 million
•Same-restaurant salesdecreased -0.5%
•Operating incomedecreased $14.4 million to $43.7 million
•Net incomedecreased $14.0 million to $21.1 million
•Restaurant-Level Adjusted EBITDA*decreased $9.7 million to $158.4 million
•Adjusted EBITDA*decreased $7.4 million to $97.3 million
* Adjusted EBITDA and Restaurant-Level Adjusted EBITDA are non-GAAP measures. Definitions and reconciliations of Adjusted EBITDA to net income (loss) and Restaurant-Level Adjusted EBITDA to operating income, the most directly comparable financial measures presented in accordance with GAAP, are set forth under the section "Key Performance Indicators and Non-GAAP Financial Measures".
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In fiscal 2025, we continued to make progress against our long-term strategic priorities while managing significant operational and leadership transitions. As further discussed in Part I, Item 1. Business, we launched our loyalty program, Portillo's Perks™ ("Perks"), and opened eight new restaurants, including our first location in Georgia and our first in-line restaurant.
In September 2025, the Company announced a strategic reset to its development strategy, following disappointing results from new market expansion, particularly in Texas. Going forward, we plan to enter new markets more gradually, tapping into the pent up demand from Portillo's fans across the country, but recognizing that it takes time to build awareness and adoption among consumers who are not yet familiar with the brand. Instead of rapidly building out markets, as we did in Dallas-Ft. Worth and Houston, we will take a more measured approach with new restaurants separated by more time and distance. We have implemented this roadmap to our entry into the Atlanta, Georgia market. The first Portillo's opened in Kennesaw, Georgia in November of 2025 and the next restaurant will not open until 2027.
We also continue to refine our prototype to improve the unit economics while also maximizing the guest and team member experience. In 2025, with the exception of one in-line restaurant and one Portillo's pickup restaurant, all new restaurant openings were our Restaurant of the Future ("RoTF 1.0") design, a 6,250 square foot restaurant. All of the free standing restaurants scheduled to open in 2026 will follow that prototype. In 2027, we plan to debut our Restaurant of the Future 2.0 design.
In fiscal 2025, total revenue grew 3.0%, primarily due to new restaurant openings in 2025 and 2024. Same-restaurant sales declined 0.5% during fiscal 2025, compared to a decline of 0.6% during fiscal 2024.
Commodity inflation was 3.9% in fiscal 2025 compared to 4.2% in fiscal 2024. In fiscal 2025, we experienced an increase of 0.7% in labor expenses, as a percentage of revenue, compared to fiscal 2024 primarily due to lower transactions, incremental wage rate increases, deleverage from our newer restaurant openings, and higher benefit costs, partially offset by labor efficiencies and a higher average check.
In 2026, we will focus on executing strategies that strengthen transaction growth across our restaurants while optimizing returns on our new restaurants. We will leverage our Perks platform to drive trial and frequency, prioritize operational excellence, and invest in our team members. These priorities support our commitment to positive free cash flow and delivering long-term value.
Development Highlights
During fiscal 2025, we opened eight new restaurants in five markets, for a total of 102restaurants, including a restaurant owned by C&O. With the exception of one in-line restaurant and one Portillo's pickup restaurant, all new restaurant openings in 2025 were our RoTF 1.0 design, which is a smaller square footage prototype featuring a shorter, more efficient production line designed to reduce costs and provide excellent service to our guests.
Below are the restaurants opened in fiscal 2025:
Location
Opening Month
Fiscal Quarter Opened
Tomball, Texas
July 2025
Q3 2025
Stafford, Texas
August 2025
Q3 2025
Grand Prairie, Texas
August 2025
Q3 2025
Middleton, Florida (In-Line)
August 2025
Q3 2025
Chandler, Arizona
November 2025
Q4 2025
Plainfield, Illinois (Pickup) November 2025
Q4 2025
Kennesaw, Georgia
November 2025
Q4 2025
Lubbock, Texas
December 2025
Q4 2025
In fiscal 2026, we plan to open eight new restaurants. These openings will include our first airport location at Dallas-Fort Worth International Airport and our second in-line location. Subsequent to December 28, 2025, we opened two of the eight planned restaurants for fiscal 2026, bringing our total restaurant count to 104, as of the filing of this Form 10-K, including a restaurant owned by C&O of which Portillo's owns 50% of the equity.
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Consolidated Results of Operations
The following table summarizes our results of operations for fiscal 2025 and fiscal 2024 (in thousands).
Fiscal Years Ended
December 28, 2025 December 29, 2024
REVENUES, NET $ 732,066 100.0 % $ 710,554 100.0 %
COST AND EXPENSES:
Restaurant operating expenses:
Food, beverage and packaging costs
251,705 34.4 % 241,679 34.0 %
Labor 191,691 26.2 % 181,091 25.5 %
Occupancy 40,631 5.6 % 36,632 5.2 %
Other operating expenses 89,637 12.2 % 83,038 11.7 %
Total restaurant operating expenses 573,664 78.4 % 542,440 76.3 %
General and administrative expenses 77,140 10.5 % 75,089 10.6 %
Pre-opening expenses 8,802 1.2 % 9,236 1.3 %
Depreciation and amortization 29,112 4.0 % 27,297 3.8 %
Net income attributable to equity method investment (1,275) (0.2) % (1,229) (0.2) %
Other loss (income), net
946 0.1 % (312) - %
OPERATING INCOME 43,677 6.0 % 58,033 8.2 %
Interest expense 22,808 3.1 % 25,616 3.6 %
Interest income
(275) - % (309) - %
Tax Receivable Agreement liability adjustment (2,945) (0.4) % (9,149) (1.3) %
INCOME BEFORE INCOME TAXES
24,089 3.3 % 41,875 5.9 %
Income tax expense
2,997 0.4 % 6,799 1.0 %
NET INCOME
21,092 2.9 % 35,076 4.9 %
Net income attributable to non-controlling interests
1,747 0.2 % 5,559 0.8 %
NET INCOME ATTRIBUTABLE TO PORTILLO'S INC.
$ 19,345 2.6 % $ 29,517 4.2 %
Revenues, Net
Revenues primarily represent the aggregate sales of food and beverages, net of discounts. Sales taxes collected from customers are excluded from revenues. 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 2025 were $732.1 million compared to $710.6 million for fiscal 2024, an increase of $21.5 million or 3.0%. The increase in total revenue was primarily attributed to the opening of eight restaurants during fiscal 2025 and ten restaurants in fiscal 2024. This increase in revenues was partially offset by a same-restaurant sales decrease of 0.5%, or $2.9 million. The same-restaurant sales decline was attributable to a 2.5% decrease in transactions, partially offset by an increase in average check of 2.0%. The higher average check was primarily driven by an approximate 3.2% increase in menu prices, partially offset by a 1.2% decrease in product mix. To mitigate inflationary cost pressures, we implemented targeted menu price adjustments in 2025, including a 1.5% increase in January 2025, a 1.0% increase in April 2025, and a 0.7% increase in June 2025. Restaurants not in our Comparable Restaurant Base contributed $27.4 million of the total year-over-year increase. For the purpose of calculating same-restaurant sales for the year ended December 28, 2025, sales for 80 restaurants were included in the Comparable Restaurant Base (as defined in "Key Performance Indicators and Non-GAAP Financial Measures" below).
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The following table summarizes the Company's revenue for fiscal 2025 and fiscal 2024 (in thousands):
Fiscal Years Ended
December 28, 2025 December 29, 2024 $ Change % Change
Same-restaurant sales (80 restaurants) (1)
$ 628,759 $ 631,705 $ (2,946) (0.5) %
Restaurants not yet in comparable base opened in fiscal 2025 (8 restaurants) (1)
9,726 - 9,726 nm
Restaurants not yet in comparable base opened in fiscal 2024 (10 restaurants) (1)
40,532 16,565 23,967 144.7 %
Restaurants not yet in comparable base opened in fiscal 2023 (3 restaurants) (1)
43,550 49,817 (6,267) (12.6) %
Other (2)
9,499 12,467 (2,968) (23.8) %
Revenues, net $ 732,066 $ 710,554 $ 21,512 3.0 %
(1)Total restaurants indicated are as of December 28, 2025. Excludes a restaurant that is owned by C&O of which Portillo's owns 50% of the equity.
(2)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, 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 2025 were $251.7 million compared to $241.7 million for fiscal 2024, an increase of $10.0 million or 4.1%. This increase was primarily driven by a 3.9% increase in commodity prices and the opening of eight restaurants in fiscal 2025 and the opening of ten restaurants in fiscal 2024. As a percentage of revenues, net, food, beverage and packaging costs increased 0.4% during fiscal 2025. The increase was primarily due to an increase in certain commodity prices, partially offset by an increase in average check.
Labor Expenses
Labor expenses include hourly and management wages, bonuses and equity-based compensation, payroll taxes, workers' compensation expense, and team member benefits. 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 fiscal 2025 were $191.7 million compared to $181.1 million for fiscal 2024, an increase of $10.6 million or 5.9%. This increase was primarily driven by the opening of eight restaurants in fiscal 2025 and the opening of ten restaurants in fiscal 2024, incremental investments to support our team members, and an increase in benefit expenses. As a percentage of revenues, net, labor increased 0.7% during fiscal 2025 primarily due to lower transactions, incremental wage increases, and higher benefit costs, partially offset by labor efficiencies and an increase in our average check.
Occupancy Expenses
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.
Occupancy expenses for fiscal 2025 were $40.6 million compared to $36.6 million for fiscal 2024, an increase of $4.0 million or 10.9%, primarily driven by the opening of eight restaurants in fiscal 2025 and the opening of ten restaurants in fiscal 2024. As a percentage of revenues, occupancy expenses increased 0.4% during fiscal 2025 primarily due to lower transactions.
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 2025 were $89.6 million compared to $83.0 million for fiscal 2024, an increase of $6.6 million or 7.9%,
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primarily due to the opening of eight restaurants in fiscal 2025 and the opening of ten restaurants in fiscal 2024 and an increase in utilities, repair and maintenance expenses, and advertising expense, partially offset by a decrease in cleaning expenses due to vendor renegotiation. As a percentage of revenues, net, operating expenses increased 0.6% primarily due to the aforementioned increases in expenses and lower transactions, partially offset by an increase in our average check.
General and Administrative Expenses
General and administrative expenses primarily consist of costs associated with our corporate and administrative functions that support restaurant development and operations, including marketing and advertising costs incurred as well as legal and professional fees. General and administrative expenses also include equity-based compensation expense. 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 fiscal 2025 were $77.1 million compared to $75.1 million for fiscal 2024, an increase of $2.1 million or 2.7%. This was primarily driven by $5.1 million of dead site costs, an increase in wages and benefits, higher professional fees, higher software licensing fees related to our enterprise resource planning ("ERP") and human capital management ("HCM") system implementations, and higher advertising expenses, partially offset by lower equity- and variable-based compensation.
Pre-Opening Expenses
Pre-opening expenses consist primarily of wages, occupancy expenses, which represent rent expense recognized during the period between the date of possession and the restaurant opening date, travel for the opening team and other supporting team members, food, beverage, the initial stocking of operating supplies and legal fees. All such costs incurred prior to the opening are expensed in the period in which the expense was incurred. Pre-opening expenses can fluctuate significantly from period to period, based on the number and timing of openings and the specific pre-opening expenses incurred for each restaurant. 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 fiscal 2025 were $8.8 million compared to $9.2 million for fiscal 2024, a decrease of $0.4 million or 4.7%. This decrease was due to the number, timing and location of executed and planned new restaurant openings for fiscal 2025 as compared to fiscal 2024.
Depreciation and Amortization
Depreciation and amortization expenses consist of the depreciation of fixed assets, including land improvements, buildings and improvements, fixtures and equipment, leasehold improvements, and the amortization of definite-lived intangible assets, which are primarily comprised of recipes.
Depreciation and amortization expense for fiscal 2025 was $29.1 million compared to $27.3 million for fiscal 2024, an increase of $1.8 million or 6.6%. This increase was primarily attributable to incremental depreciation of capital expenditures related to the opening of eight restaurants in fiscal 2025 and the opening of ten restaurants in fiscal 2024, partially offset by a reduction in depreciation expense due to fully depreciated assets and disposals compared to the prior year period.
Net Income Attributable to Equity Method Investment
Net income attributable to equity method investment consists of a 50% interest in C&O, which runs a single restaurant located within the Chicagoland market. 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 fiscal 2025 was $1.3 million compared to $1.2 million for fiscal 2024, an increase of $0.05 million or 3.7%. This increase was primarily driven by improved leverage of labor and operating expenses.
Other Loss (Income), Net
Other loss (income), net includes, among other items, 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, and income resulting from discounts
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received for timely filing of sales tax returns.
Other loss (income), net for fiscal 2025 was a loss of $0.9 million compared to income of $0.3 million for fiscal 2024, a decrease of $1.3 million or 403.2%. This decrease was primarily attributable to a legacy Barnelli's trade name impairment charge of $2.2 million, partially offset by an increase in trading gains in the rabbi trust used to fund our deferred compensation plan and a technology asset impairment charge in fiscal 2024.
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 fiscal 2025 was $22.8 million compared to $25.6 million for fiscal 2024, a decrease of $2.8 million or 11.0%. This decrease was primarily driven by a lower effective interest rate attributable to the improved lending terms associated with our 2025 Credit Agreement amendment, partially offset by additional interest expense in connection with increased borrowings under our 2025 Revolver Facility.
Our effective interest rate was 6.73% and 7.53% as of December 28, 2025 and December 29, 2024, respectively.
Interest Income
Interest income primarily consists of interest earned on our cash, cash equivalents and restricted cash.
Interest income for both fiscal 2025 and fiscal 2024 was $0.3 million.
Tax Receivable Agreement Liability Adjustment
We are party to a Tax Receivable Agreement liability with certain members of Portillo's OpCo that provides for the payment by us of 85% of the amount of tax benefits, if any, that Portillo's Inc. actually realizes or in some cases is deemed to realize as a result of certain transactions.
The Tax Receivable Agreement liability adjustment was $2.9 million for fiscal 2025 related primarily to a remeasurement due to activity under equity-based compensation plans and effective state tax rate changes. The Tax Receivable Agreement liability adjustment was $9.1 million for fiscal 2024.
Income Tax Expense
Portillo's OpCo is treated as a partnership for U.S. federal, state and local income tax purposes and is generally not subject to income taxes. Rather, any taxable income or loss generated by Portillo's OpCo is allocated to its members in relation to their respective ownership percentage of Portillo's OpCo. As of the IPO, we are subject to U.S. 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 fiscal 2025 was $3.0 million compared to $6.8 million for fiscal 2024, a decrease of $3.8 million or 55.9%. Our effective income tax rate for fiscal 2025 was 12.4%, compared to 16.2% for fiscal 2024. The decrease in our effective income tax rate for fiscal 2025 compared to fiscal 2024 was primarily driven by a decrease in the valuation allowance related to the separation of Mr. Osanloo and year-over-year impact of deferred tax asset remeasurement due to effective state tax rate changes, partially offset 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.
Net Income Attributable to Non-controlling Interests
We are the sole managing member of Portillo's OpCo. We manage and operate the business and control the strategic decisions and day-to-day operations of Portillo's OpCo and we also have a substantial financial interest in Portillo's OpCo. 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 to Portillo's Inc. and the non-controlling interest holders.
Net income attributable to non-controlling interests for fiscal 2025 was $1.7 million, compared to $5.6 million for fiscal 2024. The decrease in net
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income attributable to non-controlling interests for fiscal 2025 was primarily due to a decrease in net income and a decrease in the pre-IPO LLC Members' weighted average ownership to 8.3% for fiscal 2025 from 17.0% for fiscal 2024.
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. These key measures include same-restaurant sales, average unit volume ("AUV"), Adjusted EBITDA, Adjusted EBITDA Margin, Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin. The Company includes these measures because management believes that they are important to day-to-day operations and overall strategy and are useful to investors in that they provide for greater transparency with respect to supplemental information used by management in its financial and operational decision-making.
Fiscal Years Ended
December 28, 2025 December 29, 2024
Total Restaurants (a) 102 94
AUV (in millions) (a) $ 8.5 $ 8.7
Change in same-restaurant sales (b)(c)
(0.5) % (0.6) %
Adjusted EBITDA (in thousands) (b) $ 97,331 $ 104,760
Adjusted EBITDA Margin (b) 13.3 % 14.7 %
Restaurant-Level Adjusted EBITDA (in thousands) (b) $ 158,402 $ 168,114
Restaurant-Level Adjusted EBITDA Margin (b) 21.6 % 23.7 %
(a) Includes C&O, as described in Note 2. Summary Of Significant Accounting Policies in our consolidated financial statements. Total restaurants indicated are as of a point in time.
(b) Excludes C&O.
(c) Due to the 53rd week in fiscal 2023, same-restaurant sales for fiscal 2024 compares the 52 weeks from January 1, 2024 through December 29, 2024 to the 52 weeks from January 2, 2023 through December 31, 2023.
Key Performance Indicators
Change in Same-Restaurant Sales
The change in same-restaurant sales is the percentage change in year-over-year revenue (excluding gift card and Perks breakage) for the comparable restaurant base, which is defined as the number of restaurants open for at least 24 full fiscal periods (the "Comparable Restaurant Base"). As of December 28, 2025 and December 29, 2024, there were 80 and 71 restaurants in our Comparable Restaurant Base, respectively. The Comparable Restaurant Base excludes C&O, as described in Note 2. Summary Of Significant Accounting Policies of our consolidated financial statements.
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. Measuring our change in same-restaurant sales allows management to evaluate the performance of our existing restaurant base. We believe this measure provides a consistent comparison of restaurant sales results and trends across periods within our core, established restaurant base, unaffected by results of restaurant openings and enables investors to better understand and evaluate the Company's historical and prospective operating performance.
Average Unit Volume
AUV is the total revenue (excluding gift card and Perks 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.
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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Non-GAAP Financial Measures
To supplement the consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: Adjusted EBITDA and Adjusted EBITDA Margin, and Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin. Accordingly, these measures are not required by, nor presented in accordance with GAAP, but rather are supplemental measures of operating performance of our restaurants. You should be aware that these measures are not indicative of overall results for the Company and that Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin do not accrue directly to the benefit of shareholders because of corporate-level expenses excluded from such measures. These measures and our calculations may not be comparable to similar measures reported by other companies. These measures are important measures to evaluate the performance and profitability of our restaurants, individually and in the aggregate, but also have important limitations as analytical tools and should not be considered in isolation as substitutes for analysis of our results as reported under GAAP.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA represents net income (loss) before depreciation and amortization, interest expense, interest income, and income taxes, adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing core operating performance as identified in the reconciliation of net income (loss), the most directly comparable GAAP measure to Adjusted EBITDA. Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of revenues, net.
We use Adjusted EBITDA and Adjusted EBITDA Margin (i) to evaluate our operating results and the effectiveness of our business strategies, (ii) internally as benchmarks to compare our performance to that of our competitors and (iii) as factors in evaluating management's performance when determining incentive compensation.
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.
The following table reconciles net income to Adjusted EBITDA and Adjusted EBITDA margin (in thousands):
Fiscal Years Ended
December 28, 2025 December 29, 2024
Net income
$ 21,092 $ 35,076
Net income margin
2.9 % 4.9 %
Depreciation and amortization 29,112 27,297
Interest expense 22,808 25,616
Interest income
(275) (309)
Income tax expense
2,997 6,799
EBITDA 75,734 94,479
Deferred rent (1) 6,840 5,255
Equity-based compensation 6,493 11,151
Cloud-based software implementation costs (2) 267 679
Amortization of cloud-based software implementation costs (3) 1,091 586
Other loss (4) 2,635 1,184
Transaction-related fees and expenses (5) 742 575
Strategic realignment costs (6) 6,474 -
Tax Receivable Agreement liability adjustment (7) (2,945) (9,149)
Adjusted EBITDA $ 97,331 $ 104,760
Adjusted EBITDA Margin (8)
13.3 % 14.7 %
(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 and HCM systems which are included within general and administrative expenses.
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(3) Represents amortization of capitalized cloud-based ERP and HCM system implementation costs that are included within general and administrative expenses.
(4) Represents loss on disposal of property and equipment, a legacy Barnelli's trade name impairment charge in fiscal 2025, and a technology asset impairment charge in fiscal 2024 included within other loss (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 $4.4 million of costs related to the Company's strategic reset of its development and growth plans, $1.7 million in connection with the departure of our CEO, and $0.4 million in connection with the departure of our Chief Development Officer, which are included within general and administrative expenses.
(7) Represents remeasurement of the Tax Receivable Agreement liability.
(8) Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by Revenues, net.
Restaurant-Level Adjusted EBITDA and Restaurant-Level Adjusted EBITDA Margin
Restaurant-Level Adjusted EBITDA is defined as revenue, less restaurant operating expenses, which include food, beverage and packaging costs, labor expenses, occupancy expenses and other operating expenses. Restaurant-Level Adjusted EBITDA excludes corporate level expenses and depreciation and amortization on restaurant property and equipment. Restaurant-Level Adjusted EBITDA Margin represents Restaurant-Level Adjusted EBITDA as a percentage of revenues, net.
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):
Fiscal Years Ended
December 28, 2025 December 29, 2024
Operating income $ 43,677 $ 58,033
Operating income margin
6.0 % 8.2 %
Plus:
General and administrative expenses 77,140 75,089
Pre-opening expenses 8,802 9,236
Depreciation and amortization 29,112 27,297
Net income attributable to equity method investment (1,275) (1,229)
Other loss (income), net
946 (312)
Restaurant-Level Adjusted EBITDA $ 158,402 $ 168,114
Restaurant-Level Adjusted EBITDA Margin (1) 21.6 % 23.7 %
(1) Restaurant-Level Adjusted EBITDA Margin is defined as Restaurant-Level Adjusted EBITDA divided by Revenues, net.
Liquidity and Capital Resources
Our primary sources of liquidity are cash from operations, cash and cash equivalents on hand, and availability under our 2025 Revolver Facility. As of December 28, 2025, we maintained cash and cash equivalents and restricted cash balance of $20.0 million and had $55.6 million of availability under our 2025 Revolver Facility, after giving effect to $4.4 million in outstanding letters of credit.
Our primary requirements for liquidity are to fund our working capital needs, operating lease obligations, capital expenditures, and general Restaurant Support Center needs. Our requirements for working capital are not significant because our guests pay for their food and beverage purchases in cash or on debit or credit cards at the time of the sale and we are able to sell many of our inventory items before payment is due to the supplier of such items. 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 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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Tax Receivable Agreement
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. 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.
As of December 28, 2025, we estimate that our obligation for future payments under the TRA totaled $352.4 million. 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. 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 $414.6 million as of December 28, 2025. Under this scenario, we would be required to pay the TRA Parties approximately 85% of such amount, or $352.4 million, primarily over the next 15 years, declining in year 16 through year 47. During fiscal 2025, we made a TRA payment of $7.7 million relating to tax year 2023. We expect a payment of $7.9 million relating to tax year 2024 to be made within the next 12 months.
Summary of Cash Flows
The following table presents a summary of our cash flows from operating, investing and financing activities (in thousands):
Fiscal Years Ended
December 28, 2025 December 29, 2024
Net cash provided by operating activities $ 71,911 $ 98,040
Net cash used in investing activities (90,193) (88,114)
Net cash provided by financing activities
15,369 2,512
Net (decrease) increase in cash and cash equivalents and restricted cash
(2,913) 12,438
Cash and cash equivalents and restricted cash at beginning of period 22,876 10,438
Cash and cash equivalents and restricted cash at end of period $ 19,963 $ 22,876
Operating Activities
Net cash provided by operating activities for fiscal 2025 was $71.9 million compared to net cash provided by operating activities of $98.0 million for fiscal 2024, a decrease of $26.1 million or 26.7%. This decrease was primarily driven by a decrease in net income of $14.0 million and the change in operating assets and liabilities of $13.0 million, partially offset by the change in non-cash items of $0.9 million.
The decrease in net income for fiscal 2025 was primarily due to the benefits of higher revenue were more than offset by the expense factors described in the consolidated results of operations for fiscal 2025 compared to fiscal 2024. The $13.0 million change in our operating asset and liability balances was primarily driven by operating assets and liabilities being a source of net cash of $12.7 million in fiscal 2025, compared to a source of net cash of $25.7 million in the fiscal 2024 driven by the change in accounts payable and trade receivables. The $0.9 million change from fiscal 2024 in non-cash charges was primarily driven by a lower Tax Receivable Agreement liability adjustments and an asset impairment charge related to the legacy's Barnelli's tradename, partially offset by lower equity-based compensation expense.
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Investing Activities
Net cash used in investing activities was $90.2 million for fiscal 2025 compared to net cash used in investing activities of $88.1 million for fiscal 2024, an increase of $2.1 million or 2.4%. This increase was primarily due to the number of restaurant openings and builds in process during 2025 and the planned restaurant openings for 2026.
Financing Activities
Net cash provided by financing activities was $15.4 million for fiscal 2025 compared to net cash provided by financing activities of $2.5 million for fiscal 2024, an increase of $12.9 million or 511.8%. This increase is due to an increase in proceeds from short-term debt, partially offset by payments of long-term debt in connection with our refinancing in the first quarter of 2025, as described in Note 9. Debt, and an increase in payments made under the TRA of $3.3 million.
2025 Revolver Facility and Liens
On January 27, 2025, PHD Intermediate LLC, Portillo's Holdings LLC, the other Guarantors party thereto, the Lenders from time to time party thereto and Fifth Third Bank, National Association, as Administrative Agent, the L/C Issuer and the Swing Line Lender entered into an amendment (the "Amendment") to the 2023 Credit Agreement (as amended by the Amendment and as may be amended, restated, supplemented or otherwise modified from time to time thereafter, the "2025 Credit Agreement").
The Amendment provides for, among other things, (i) a $250 million term loan A facility (the "2025 Term Loan") and (ii) revolving credit commitments in an initial aggregate principal amount of $150 million (the "2025 Revolver Facility" and, together with the Term Loan Facility, the "2025 Facilities"), the proceeds of which were used to refinance indebtedness under the 2023 Credit Agreement, for general corporate purposes and working capital needs and for other activities permitted under the 2025 Credit Agreement. The loans under each of the 2025 Facilities mature on January 27, 2030.
As of December 28, 2025, we had $90.0 million of borrowings under the 2025 Revolver Facility, and letters of credit issued under the 2025 Revolver Facility totaled $4.4 million. As a result, as of December 28, 2025, the Company had $55.6 million available under the 2025 Revolver Facility.
The 2025 Credit Agreement contains customary representations and warranties, events of default, reporting and other affirmative covenants and negative covenants, including limitations on indebtedness, liens, investments, negative pledges, dividends, junior financings and other fundamental changes. As of December 28, 2025, the Company was in compliance with financial covenants in the 2025 Credit Agreement.
Material Cash Requirements
Our material cash requirements greater than twelve months include:
Debt. Refer to Note 9. Debt to the consolidated financial statements for further information of our obligations and the timing of expected payments.
Lease obligations.Refer to Note 10. Leases to the consolidated financial statements for further information of our obligations and the timing of expected payments.
Liabilities under the tax receivable agreement. Refer to Note 14. Income Taxes to the consolidated financial statements for further information of our obligations.
We may enter into purchase commitments relating to supply chain, construction, marketing and other service-related arrangements that occur in the normal course of business. Such commitments are typically short-term in nature and are not material as of December 28, 2025.
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Critical Accounting Estimates
This discussion and analysis of financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates, judgments, and assumptions that can have a meaningful effect on the reporting of consolidated financial statements. We describe our significant accounting policies in Note 2. Summary Of Significant Accounting Policies to the consolidated financial statements.
Critical accounting estimates are defined as those reflective of significant judgments, estimates and uncertainties, which may result in materially different results under different assumptions and conditions. Due to their inherent uncertainty, these judgments and estimates may be subject to change, which could materially impact future periods.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill and indefinite-lived intangible assets are assessed for impairment annually or more frequently if events and circumstances indicate that it is more likely than not that the fair value of a reporting unit or an intangible asset is less than its carrying value.
The Company has one reporting unit and during fiscal 2025, the Company refined its methodology for estimating the fair value of its reporting unit. In prior periods, the Company primarily utilized a market capitalization approach. Beginning in fiscal 2025, the Company incorporated a weighted combination of the income and market approaches to estimate fair value. Management believes this change provides a more comprehensive and representative valuation of the reporting unit by considering both the Company's projected future cash flows and observable market data for comparable companies.
Under the income approach, the Company uses a discounted cash flow methodology, which requires management to make significant estimates and assumptions related to forecasted revenues, EBITDA margins, capital expenditures, perpetual growth rates, and long-term discount rates, among others. The market approach incorporated both the guideline public company method and the guideline transaction method. The guideline public company method involves analyzing valuation multiples of comparable publicly traded companies with similar operating and investment characteristics, while the guideline transaction method considers transaction multiples observed for comparable businesses. The Company also reconciles the fair value of its reporting unit to its current market capitalization to assess reasonableness. If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded for the difference between the fair value of the reporting unit and the carrying value of the reporting unit.
The Company's indefinite-lived intangible assets consist of trade names and trademarks (collectively "trade names"). The Company estimates the fair value of its trade names using a relief-from-royalty income approach. If the fair value of the trade name is less than its carrying value, an impairment loss is recorded for the difference between the estimated fair value and carrying value of the intangible assets.
In the third quarter of 2025, management identified impairment indicators that required a quantitative assessment of goodwill and trade names outside of the Company's annual impairment test. Refer to Note 2. Summary Of Significant Accounting Policies for a discussion of the impairment indicators identified during the period.
Significant changes in economic and market conditions could result in changes to expectations of future financial results and key valuation assumptions. Such changes could result in revisions of our estimates of the fair value of our reporting unit and could result in an impairment of goodwill or intangibles in a future interim period or as of September 28, 2026, our next annual measurement date. As of December 28, 2025, we had approximately $394.3 million of goodwill and $221.7 million of indefinite-lived intangible assets.
Liabilities Under Tax Receivable Agreement
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 benefits. As of December 28, 2025, we recognized $352.4 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. If we determine in the future that we will not be able to fully utilize all or part of the related tax benefits, we would de-recognize the portion of the liability related to the benefits not expected to be utilized.
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Additionally, we estimate the amount of TRA payments expected to be paid within the next 12 months and classify this amount as current on our consolidated balance sheet. This determination is based on our estimate of taxable income for the previous fiscal year and the timing of the anticipated payments. To the extent our estimate differs from actual results, we may be required to reclassify portions of our liabilities under the TRA between current and non-current. We expect a payment of $7.9 million to be made within the next 12 months.
Income Taxes
We are subject to U.S. federal, state and local income taxes with respect to our allocable share of any taxable income of Portillo's OpCo and will be taxed at the prevailing corporate tax rates. In addition to tax liabilities, we also will incur expenses related to our operations, plus payments under the TRA, which are expected to be significant. We intend to cause Portillo's OpCo to make cash distributions to us in an amount sufficient to allow us to pay our tax obligations and operating expenses, including distributions to fund any ordinary course payments due under the TRA. 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 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).
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. We will record a valuation allowance when necessary to reduce the carrying value of certain deferred tax assets to their respective net realizable value (if any). As of December 28, 2025, we had $211.3 million of deferred tax assets, net of the recorded valuation allowance.
Under the provisions of ASC 740-Income Taxes, as it relates to accounting for uncertainties in tax positions, we recognize the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. For the tax year ended December 28, 2025, we did not record any unrecognized tax benefits.
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