Portillo’s is headed for a proxy fight from an activist investor that described the fast casual as outdated and ineffective, but fixable.
Engaged Capital—which owns 8.6 percent of stock, making it one of Portillo’s largest stockholders—has nominated two executives for the board of directors. The first is Charlie Morrison, the previous CEO of Wingstop, Pizza Inn, and Salad and Go. The other is Nicole Portwood, who most recently served as CMO of Salad and Go. She also previously worked as VP of marketing for Mountain Dew, Energy & Flavors at PepsiCo.
The hedge fund acknowledged that the brand has industry-leading AUV, a differentiated menu with value, and success in new markets. It also praised the chain’s move to name Chipotle CFO Jack Hartung to the board of directors. But it added that these tailwinds haven’t been enough to push the company in the right direction. Engaged Capital said Portillo’s needs to change its unit development strategy, modernize its restaurant operations and technology, and implement targeted marketing investments to boost awareness and traffic.
“The Company’s performance appears to be suffering due to outdated restaurant operations, ineffective marketing and lower than justified restaurant-level cash-on-cash returns,” the hedge fund said in a news release. “Although these issues have led to a depressed valuation for the Company, they are all readily fixable.”
However, Engaged Capital remains optimistic about Portillo’s potential. The hedge fund said that through its own analysis and talks with the fast casual’s leadership team, it believes the restaurant has a “significant runway” to grow same-store sales and profitably open new units. The hedge fund said, “the magnitude of value creation at Portillo’s will depend on leadership’s ability to execute key initiatives with precision and urgency.”
“It is important to stress that we were forced to resort to this public nomination after months of unsuccessful private discussions focused on adding Mr. Morrison to the Board. Much like we have in other engagements with our portfolio companies, we remain ready and willing to reach a constructive resolution that spares all stakeholders an election contest. We believe the anchor for this type of resolution is further incremental change to the Board. A strengthened boardroom with collaborative and experienced restaurant executives, like Mr. Morrison and Ms. Portwood, is a win-win for all of Portillo’s stockholders and stakeholders.”
Portillo’s confirmed Monday night that it received notice from Engaged Capital about the activist’s intentions to nominate two board members. The chain said it will present its formal recommendation regarding board director nominations in a future SEC filing that will also be mailed to all shareholders.
“Portillo’s values the perspectives of all of its shareholders, and has held numerous meetings with representatives of Engaged Capital to better understand their views and recommendations on the business,” the company said in a statement. “The Company takes action on constructive feedback and great ideas from any source, such as adding Jack Hartung to its Board after Engaged Capital facilitated an introduction.”
Portillo’s is currently working on improving in-restaurant technology and throughput. The chain has deployed kiosks to all locations, which have lifted sales by over 1 percent. Additionally, the brand wants to improve drive-thru time by 45 seconds using AI-powered, drive-thru cameras; each 30-second improvement potentially increases comps by 1 percent. It has also implemented processes to enhance off-premises order accuracy, especially in the third-party delivery channels.
To save on build costs, Portillo’s introduced a restaurant of the future that’s smaller (6,250 square feet vs. 7,700 square feet) and cuts expenses by over $1 million. All 12 of the fast casual’s openings this year will use this new prototype. The company is developing an even smaller restaurant of the future 2.0 for 2026, in addition to inline and airport locations.
Other strategies include increased advertising outside of the Chicagoland market to introduce new customers to the brand, the launch of a new loyalty program accessible via digital wallets, and a menu simplification test.
Same-store sales lifted 0.4 percent in Q4, boosted by a 4.1 percent rise in average check, offset by a 3.7 percent decline in transactions. The higher average check was driven by a 4.7 percent increase in menu prices, partially offset by product mix. Comp on a two-year stack basis was 4.8 percent. The chain implemented a 1.5 percent menu price increase in January.
Comps decreased 0.6 percent in 2024. The decline was attributable to a 3.2 percent decrease in transactions, partially offset by an increase in average check of 2.6 percent. The higher average check was primarily driven by an approximate 4.6 percent increase in menu prices partially offset by product mix.
