Activist investor Engaged Capital is pushing for change at Oak Brook-based Portillo’s as the hot dog giant continues to pursue an ambitious long-term expansion plan.
In an SEC filing Thursday, Engaged, which disclosed a nearly 10% stake in the company, said it had been in conversation with Portillo’s about “potential steps to unlock the intrinsic value” of its business.
Those conversations have included discussions about how to optimize restaurant performance and improve restaurant-level cash-on-cash returns, the filing said.
Changes to the company’s board of directors have been discussed as has the potential sale of the business, Engaged reported in the filing. People familiar with the matter said conversations between Engaged and Portillo’s management, including CEO Michael Osanloo, had been constructive, and that a leadership change was not on the table.
In a statement Friday, a Portillo’s spokesperson confirmed the company had talked with Engaged, which previously undertook an activist campaign at Shake Shack.
“Our Board and management team will continue to take actions and make decisions that are in the best interests of our shareholders,” the Portillo’s spokesperson said.
The activist push comes as Portillo’s continues to pursue aggressive expansion plans. At an investor meeting last year, the company — which was founded in a Villa Park parking lot in 1963 and went public just three years ago — said it planned to grow from the approximately 80 locations it had at the time to more than 900 stores over the next two decades.
At a second quarter earnings call earlier this month, Portillo’s said it anticipated opening a total of at least 10 new stores this fiscal year. The company reported revenues of $181.9 million during the quarter, a 7.5% increase over the year.
But that revenue growth was driven by new restaurant openings, Chief Financial Officer Michelle Hook said during the earnings call. Same-store restaurant sales were down 0.6% — a decrease driven by a 2.3% decline in transactions, Hook said.
Engaged has suggested Portillo’s boost efficiencies by opening smaller restaurants that require lower overhead costs as it continues to expand, people familiar with the matter said.
Portillo’s shares are down nearly 25% year-to-date.
Locally, the hot dog giant has also faced labor activity and allegations of law-breaking by the National Labor Relations Board.
Workers at two suburban food preparation facilities voted to unionize in separate elections held by the NLRB, but Portillo’s has appealed both elections — one of them several times — maintaining that union organizers made immigration promises to workers in exchange for “yes” votes.
In July, NLRB officials alleged Portillo’s committed multiple labor law violations before and after one of the elections; the company denies violating the law. In a filing in response to the allegations, Portillo’s argued that the NLRB, which enforces labor law in the U.S., is unconstitutional, joining a growing list of companies that have made similar arguments in recent months.