Sandwich restaurant operators are having a great time as consumers are becoming more health conscious by shifting their preferences towards healthy foods. A great player in this industry is Potbelly Corporation (PBPB, Financial).
The company has posted excellent quarterly results, including a 12.1% increase in total revenue. The company has increased its total expenses by 11.07% in the reported quarter compared to the prior-year period. Further, in fiscal 2015, Potbelly’s net unit count grew approximately 12%.
Founded in 1977, Potbelly Corporation is a fast-growing neighborhood sandwich concept offering toasty warm sandwiches, signature salads and other fresh menu items served by engaging people in an environment that reflects the Potbelly brand. It serves customers throughout the U.S. The company owns and operates over 350 shops in the U.S. and its franchisees operate over 30 shops domestically, in the Middle East and in the United Kingdom.
Strong fourth-quarter results
On Feb. 16, the Chicago-based company reported financial results for its fourth quarter and full fiscal year ended Dec. 27, 2015. Potbelly’s total revenue increased 12.1% to $95.1 million compared to $84.8 million for the prior-year period. Compared to Q4 2014, company-operated comparable store sales increased 3.7%. Adjusted EBITDA for the reported quarter increased 14.8% to $10.8 million compared to $9.4 million for the comparable prior-year period.
Adjusted net income increased to $2.3 million, or 8 cents per diluted share, compared to $1.7 million, or 6 cents per diluted share in the year-ago quarter. Further, GAAP net income for the reported quarter was $1.2 million, or 5 cents per diluted share, compared to $700,000, or 2 cents per diluted share for the comparable prior-year period. Total expenses increased by 11.07% to $93.07 million compared to $83.8 million in the year ago quarter. During the quarter, Potbelly has opened 21 new shops, including 15 company-operated shops and six franchised shops.
Fiscal 2015 results
For fiscal 2015, Potbelly’s company-operated comparable store sales increased 4.4%. The company has opened 53 new shops, including 43 company-operated shops and 10 franchised shops. Additionally, Potbelly opened its first franchise shop in the United Kingdom. Further, a chart has been provided to show Potbelly’s fiscal 2015 metrics compared to fiscal 2014.
Projections for fiscal 2016
For the fiscal 2016, Potbelly expects company-operated comparable store sales growth in the range of 3.5% to 4.5%, and effective tax rate in the range of 39% to 40%. Fiscal 2015 was a great year for Potbelly, and the company expects to open 55 to 65 total new shops, including 45 to 50 company-operated stores.
Further, Potbelly expects its adjusted net income for fiscal 2016 will grow at least 20%. Full-year adjusted diluted earnings per share are expected to be in the range of 36 cents to 38 cents.
Long-term financial goals
Potbelly’s long-term financial goals are as follows:
- Annual new unit growth will be more than 10%.
- Annual adjusted net income growth and shop-level profit margin will be more than 20%.
- Return on shop investments after two years will be more than 25%.
- Comparable store sales growth will be in low single digits.
Growth
Potbelly’s drivers of sustainable same store sales growth are as follows:
- Throughput.
- Backline.
- Marketing.
- Menu innovation.
To attract more and more customers in its arena, Potbelly is continuously driving neighborhood approach and is expanding digital, mobile and social tactics. Additionally, the company has a robust pipeline of new, relevant and high-quality products.
Potbelly is well-positioned to expand its footprints. It has a strong track record of opening shops in new and legacy markets. Further, over the last three years, the company has successfully entered key markets. From 2009 to 2015, Potbelly’s company-operated store count grew at a CAGR of 46.28%.
Management
On Aug. 6, 2015, Potbelly appointed Harvey Kanter to its board of directors. Kanter has extensive expertise and experience with digital media that will help Potbelly to develop new ways to connect with Potbelly fans.
(Source: Company website)
On a concluding note
Overall, Potbelly is a rock-solid company with strong shop economics through attractive returns, strong balance sheet, successful development model with significant whitespace opportunity, proven management team and high-quality food at a fair price.
Potbelly has strong historical comparable store sales trends; out of 15 quarters, it has provided 12 quarters with positive results. Sandwich store stocks are booming as people are shifting their preferences towards healthier options and with the recent quarterly release, the company is aiming for a better future and is all set to deliver a healthy menu to its investors. It is expected to create greater shareholder returns.
Disclosure: I do not hold any position in the company.
