Portillo’s is preparing to say goodbye to several restaurants as it rethinks what successful expansion should look like.
The Chicago-based chain plans to close a mid-to-high single-digit number of underperforming locations outside its home market, with most closures expected during the fourth quarter. The decision comes after an extensive review of restaurant sales, profitability, and future operating potential, and signals a significant change in how the company plans to grow.
CEO Brett Patterson, who took over earlier this year, is making it clear that expansion will no longer be measured simply by the number of restaurants opened.
“A site will not advance simply because we want another restaurant. The economics have to work,” Patterson told investors during the company’s third-quarter earnings call.
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The closures are part of a larger effort to repair Portillo’s financial performance after years of aggressive development produced disappointing returns. The company expects material cash and noncash charges associated with the closures, primarily during Q4. Specific locations and costs have not been disclosed as Portillo’s evaluates its lease obligations.
Patterson identified several problems with the company’s previous expansion strategy, including poor real estate decisions, excessive restaurant concentration in certain markets, and insufficient brand awareness.
Some newer restaurants were built in locations where customers had to travel considerable distances. Others opened too close to existing Portillo’s restaurants, redistributing sales instead of attracting additional customers. The company also discovered that some locations outside Chicago lacked signage explaining what Portillo’s actually served.
Those mistakes have prompted a fundamental reassessment of the company’s development ambitions.
“We ramped up so quickly in those markets and plugged in a lot of infills as all we did is redistributed sales from those geographic areas,” Patterson said. “And so that put a lot of pressure on the business models.”
The changes arrive as Portillo’s reported encouraging third-quarter results. Same-restaurant sales increased 1.4 percent, improving 260 basis points sequentially from Q2. Revenue climbed 7 percent to $194.1 million, supported by $10.3 million from newer restaurants.
Transactions declined 0.7 percent, although that represented a 270-basis-point sequential improvement. Average check increased 2.1 percent, driven by menu pricing.
Restaurant-level adjusted EBITDA increased to $40.1 million, with margins expanding 50 basis points to 20.7 percent. Adjusted EBITDA rose to $26.5 million, compared with $21.4 million a year earlier.
The improvement came despite elevated beef costs and difficult comparisons against last year’s breakfast testing and promotional discounts. Limited-time offerings, including the Char’diniera Dog and Dr Pepper Shake, helped stimulate transactions without aggressive discounting.
Patterson believes menu innovation can play a larger role in restoring customer frequency.
“When you give them good news and you give them news that resonates with the brand, they’ll come visit,” he said. “It doesn’t have to be at a discount. Actually, it shouldn’t be at a discount.”
The company recently introduced OREO desserts, which CFO Kevin Kalicak said were performing well early in Q4. Same-restaurant sales during the opening weeks of the quarter were running ahead of Q3 trends.
Portillo’s is also developing a more targeted marketing strategy after conducting consumer research across its markets. The studies identified two distinct millennial audiences with significant potential to increase visits.
Research revealed that customers outside Chicagoland often share the enthusiasm of longtime Chicago fans, but restaurant accessibility creates challenges. A customer living 15 miles from the nearest Portillo’s is less likely to visit frequently than someone living a few miles away.
That distinction will influence future restaurant placement and marketing investments.
Portillo’s is also evaluating its Perks loyalty program, including opportunities to simplify the experience and increase engagement. Membership and participation have been growing, particularly outside Chicagoland.
The company’s renewed attention to its core menu includes hiring a new executive chef to oversee food quality and product development. Operational investments will focus on restaurant training, order accuracy, service speed, and equipment.
Patterson acknowledged that inconsistent execution across the system has created opportunities for improvement. Portillo’s is restructuring regional support so field operators oversee fewer restaurants, allowing them to spend more time coaching individual teams.
The company is also updating hourly and restaurant manager training programs, supported by certified trainers.
“We are going to over-index on having well-trained team members and managers leading our restaurants,” Patterson said.
Financial discipline extends to labor and supply chain expenses. Third-quarter labor costs improved 60 basis points to 26 percent of revenue, helped by adjustments to staffing models in lower-volume restaurants. Food, beverage, and packaging costs declined 10 basis points to 34.4 percent of revenue, despite commodity inflation of 2.2 percent.
Portillo’s expects to achieve $10 million to $15 million in annualized cost efficiencies, with additional details planned when it releases its 2027 outlook in January.
Development will slow considerably during the transition. Portillo’s opened seven restaurants through the first three quarters of 2026, including six in Texas and one at Dallas-Fort Worth International Airport. An additional in-line restaurant on Chicago’s North Michigan Avenue is scheduled to open during Q4.
Only four to six openings are planned for 2027, giving the company time to improve operations and evaluate its real estate pipeline.
The longer-term plan calls for annual restaurant growth to reach a high-single-digit percentage within three years, accompanied by expanding margins and annual same-restaurant sales growth of 2–3 percent.
A smaller restaurant prototype is an important component of those ambitions.
Scheduled for 2028, the approximately 4,600-square-foot building will be more than 40 percent smaller than Portillo’s previous average restaurant. It will require approximately 1.5 acres, compared with three acres historically, potentially opening additional real estate opportunities and reducing construction expenses.
Patterson believes smaller restaurants can still achieve substantial sales volumes. Nearly 15 percent of existing locations produce more than $1,500 in annual sales per square foot, with some surpassing $2,000.
Future development will target cash-on-cash returns exceeding 20 percent, supported by more rigorous sales forecasting and market evaluations.
Portillo’s is prioritizing opportunities in existing markets and strategically adjacent territories. Florida represents one potential growth market, with a restaurant planned in Lutz next year. Georgia also offers opportunities, including an upcoming Buford location.
The company has not established a revised long-term restaurant count target, stepping away from its previous ambitions of more than 900 locations until additional market analysis is completed.
Financially, Portillo’s raised its full-year adjusted EBITDA outlook to $98 million–$101 million, up from $92 million–$96 million. Revenue is expected to reach $768 million–$773 million, accounting for planned closures. Restaurant-level adjusted EBITDA margins are projected at 20–20.5 percent.
Patterson sees the coming year as an opportunity to demonstrate that Portillo’s can deliver more consistent restaurant performance before accelerating expansion again. The company’s long-term success will depend on selecting better locations, improving profitability, and making its existing restaurants more productive.
“We’re in the early innings because we need to provide better resources and tools for our operators to do their job,” Patterson said. “But I can say with confidence is, we execute very well compared to the industry. I’d say we just have more inconsistency across the fleet, and that’s what we really need to tighten up.”
