Potbelly Corp. (PBPB, Financial), the recognized quality leader in the sandwich category, posted excellent quarterly results including a 7.64% increase in total revenues. During the quarter, the company opened 28 new shops including 25 company-operated shops and three franchised shops.
Potbelly Corp. offers toasty warm sandwiches, signature salads, and other fresh menu items to its customers. As of Dec. 25, the company operated 441 shops in 29 states and the District of Columbia. Potbelly’s motto is to deliver fresh foods with great ingredients followed by fast delivery.
Strong fourth-quarter results
On Feb. 14, the Chicago-based company reported financial results for its fourth quarter and full fiscal year ended Dec. 25. The company’s total revenues increased 7.64% to $102.36 million, compared to $95.09 million for the comparable prior-year period. Franchise royalties and fees decreased 10.45% to $0.6 million.
Potbelly’s shop-level profit increased 5.99% to $19.81 million, compared to $18.69 million for the same period last year. On the other hand, shop-level profit margin decreased to 19.5%, compared to 19.8%. Gross profit for the reported quarter increased 9.12% to $74.56 million, which was $68.33 million in the prior-year period. The gross profit margin increased 72.84% from 71.86% in the same period last year.
Potbelly’s operating income was $2.77 million, a 37.13% increase from $2.02 million in the same period last year. Operating income as a percentage of net sales increased 2.71% from 2.12% in the same period last year.
Net income attributable to Potbelly increased 59.35% to $1.96 million, or 8 cents per diluted share, compared to $1.23 million, or 5 cents per diluted share, for the comparable prior-year period. Net income as a percentage of net sales increased 19.15% from 1.29% in the prior-year period. Adjusted net income attributable to Potbelly increased 64.63% to $3.77 million, which was $2.29 million in the prior-year period.
The company’s EBITDA increased 12.68% to $8.44 million, compared to $7.49 million for the comparable prior-year period. Adjusted EBITDA increased 23.96% to $13.4 million compared to $10.81 million in the year-ago quarter.
Potbelly’s cost of sales, excluding depreciation increased 6.2% to $27.8 million. On the other hand, cost of sales as a percentage of net sales decreased to 27.16% from 28.14% in the prior-year period. General and administrative expenses and net interest expense decreased 0.41% to $9.58 million and 21.95% to $.032 million, compared to $9.62 million and $0.041 million in the same period last year.
Fiscal 2016 results overview
The following chart shows Potbelly’s financial results for fiscal 2016.
| Metrics | Fiscal 2016 | Fiscal 2015 | % change |
| Total revenue | $407.13 million | $372.85 million | 9.19% |
| Shop-level profit | $79.83 million | $72.08 million | 10.75% |
| Gross profit | $296.1 million | $267.23 million | 10.8% |
| Operating income | $13.01 million | $9.43 million | 37.96% |
| Net income attributable to Potbelly | $8.21 million | $5.63 million | 45.82% |
| Adjusted net income attributable to Potbelly | $11.86 million | $8.23 million | 44.11% |
| EBITDA | $35.52 million | $30.79 million | 15.36% |
| Adjusted EBITDA | $48.0 million | $41.64 million | 15.27% |
| Cost of sales, excluding depreciation | $111.03 million | $105.61 million | 5.13% |
| General and administrative expenses | $40.41 million | $37.32 million | 8.28% |
| Net interest expense | $0.134 million | $0.221 million | (39.37)% |
Projections
For fiscal 2017, Potbelly expects to open total 45-60 new stores, including 30-40 company operated and 15-20 franchise stores. Comparable store sales growth will remain flat and adjusted net income growth will be in the range of flat to 5%. Further, the company expects its capital expenditures in the range of $37 million to $39 million.
Long-term financial plans
For long-term, Potbelly expects its annual new unit growth and annual adjusted net income growth of more than 10% and 20%. The company anticipates its shop-level profit margin is to be more than 20% and comparable store sales growth of low single digits.
Growth
To attract more and more customers in its arena, Potbelly is creating value in its business and is driving sustainable same store sales growth by menu innovation, investment in social, mobile, and digital media and by making investments in catering sales managers and catering kitchens.
On a concluding note
Overall, Potbelly is a rock-solid company with strong balance sheet, remarkable white space opportunities, strong shop economics with attractive returns, experienced management team, growing franchise opportunity, and proven and flexible new shop model.
Potbelly has strong historical comparable store sales trends; out of 16 quarters, it has provided 13 quarters with positive results. From 2008 to 2016, Potbelly’s total revenues and adjusted EBITDA grew at a CAGR of 7.74% and 31.8%. With its recent quarterly report, the company is headed toward a bright future and is set to deliver greater shareholder returns.
Disclosure: I do not hold any position in the company.
