Potbelly Launches Strategic Review Amid Slump

The "restaurant operating environment remains challenging," CFO Mike Coyne says as the company posts a 4.9% drop in same-store sales.
Matthew HellerAugust 4, 2017

Sandwich maker Potbelly said Friday it was reviewing its “strategic options” as it reported a sharp decline in earnings and same-store sales amid continuing restaurant industry doldrums.

Mike Coyne, the company’s CFO and interim chief executive, said Potbelly was “undertaking a comprehensive review of our business strategy” and has engaged JP Morgan Securities to assist with the “review and development of strategic business alternatives.”

“Potbelly remains open to all strategic options that would potentially significantly enhance shareholder value over the long term,” he said in a news release.

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According to The Wall Street Journal, those options could include a sale. In June, hedge fund Ancora Advisers, which holds a 4% stake in Potbelly, called for a change in strategy or a sale, citing the company’s declining share price.

In trading Friday, Potbelly shares rose 4.1% to $11.35 but they are down about 12% so far this year.

For the second quarter, Potbelly posted a quarterly loss of 1 cent a share, compared with earnings of 13 cents per share a year ago. Same-store sales at company-operated outlets fell 4.9%, though total revenue rose 3% to $108.1 million.

“While disappointed with our top-line performance, we are encouraged by our ability to manage costs, drive solid flow-through delivering shop-level profit margin of 19.2%, and generate adjusted EBITDA of $11.8 million,” Coyne said.

He added, however, that the “overall restaurant operating environment remains challenging and we do not contemplate an improvement in industry trends in our outlook for 2017.”

As the WSJ reports, restaurant chains have reported slowing or falling traffic in recent quarters as consumers increasingly eat at home or the office to save money and time, particularly at lunch.

Nearly 60% of Potbelly’s business comes at lunch and it competes in a crowded market with such sandwich chains as Jersey Mike’s, Firehouse Subs, and Jimmy John’s. It recently launched a customer engagement program called Potbelly Perks.

For the full fiscal year, the company now expects a mid-single-digit decrease in same-store sales, compared to previous guidance of a low-single-digit drop.