Potbelly sandwich chain posts tastier bottom line

Potbelly’s lunch rush begins in the Loop on Wednesday.

By Brittany Magee

Potbelly Corp. shares moved higher Wednesday after the “fast casual” restaurant chain, citing improved customer traffic, turned in stronger-than-expected third quarter results.

For the quarter ended Sept. 28, Potbelly had net income of $1.95 million, or 6 cents per diluted share, compared with a net loss in the year-ago quarter of $52.5 million, or $12.29 per diluted share.

Both quarters were skewed by onetime items, Potbelly noted: excluding such factors, the company said, adjusted earnings in the latest quarter were $2.8 million, or 9 cents a diluted share, down from $3.2 million, or 15 cents a share, in the same quarter a year earlier. These latest results outdid analyst expectations by 2 pennies.

Revenue increased 8.5 percent, to $84.7 million from $78 million a year earlier.

Potbelly went public just over a year ago at a price of $14 a share.  Shares soon reached as high as $33.78, but then began a sharp decline and came under heavy pressure this past July, when the stock fell below $11.00.

In Nasdaq trading Wednesday morning, Potbelly shares were up 65 cents, or 4.9 percent, at $13.90.

“We feel good about the progress we made in the third quarter,” Chairman and Chief Executive Officer Aylwin Lewis said in the company’s release Tuesday evening.

“While we are encouraged by the improvement in our underlying trends, we know we have plenty of work to do to sustain our stated long-term target of low single-digit comparable store sales growth,” he said.

With the company’s Tuesday reiteration of its guidance for 2014 earnings, along with “improved sales, easier upcoming comparisons, and a high short interest, we view Potbelly as a compelling investment from current levels, with the third quarter’s results likely to provide some support to shares,” said William Blair analyst, Sharon Zackfia, in a note to clients.

The Chicago-based company opened eight new shops in the third quarter, keeping them on track to open 40-48 new stores in the fiscal year, Lewis noted in a conference call on Tuesday. He spoke of Potbelly’s continued progress since the company’s 27 percent profit decline in the second quarter.

Comparable-store sales – those at stores open at least 12 months – rose by 0.5 percent in the latest quarter, the company said, adding that comp-store sales, improved each month due in large part to “higher traffic trends,” after declines in two consecutive quarters.

The restaurant chain specializing in toasted sandwiches said it plans to improve productivity rate with changes in technology and staffing, by increasing the company’s digital, social media and mobile presence and creating a more stable management system, respectively.

Menu innovation, such as Potbelly’s Flats and more stores selling breakfast, will be implemented in the fourth quarter and into 2015 to further drive traffic trends, officials said.

“We have a very straightforward business model,” Lewis said. The company wants to grow its cash flow in order to invest in new store expansion and items closest to customers, including management.

The first Potbelly opened in an antique shop in 1977, and now has nearly 300 locations nationwide.