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3 Reasons Not To Worry About Potbelly Today


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Potbelly just can't seem to catch a break lately. However, long-term investors could use this as an opportunity to take a bite out of a delicious business in the early stages of its growth plan.

Published in: Food, Business, Economy & Finance
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3 Reasons Not To Worry About Potbelly Today

  1. 1. 3 Reasons Not to Worry About Potbelly
  2. 2. 1. Top line growth remains intact • Despite declining comps, Potbelly expects an increase in revenue to $83.6 million, up from $78.2 million a year ago. Revenue slated to grow 7% in Q2.
  3. 3. Looking beyond the numbers • Potbelly warned investors that same-store-sales for the second quarter are expected to fall 1.6%. Yet this is an improvement on the 2.2% decline in the prior quarter. • Potbelly went public less than a year ago and therefore must combat increased costs related to stock-based compensation. • These things will pressure the stock in the near term, but the longer-term picture looks bright because the company’s fundamentals are intact.
  4. 4. 2. A sustainable long-term growth plan • The company opened 42 new stores last year and currently owns and operates 300 locations in the U.S. • For comparison, rival fast- casual chain Noodles & Company added 53 new stores in fiscal 2013. Potbelly is on track to grow its store count by at least 10% in fiscal 2014.
  5. 5. Why this approach is important • By not opening too many new stores at once, it should help Potbelly sidestep the risk of overextending itself. • Often when companies grow their store count too quickly they are later forced to close underperforming locations. • Potbelly only has 300 stores in the U.S. today, leaving ample room for growth. • Potbelly plans to have at least 1,000 U.S. stores in the future.
  6. 6. 3. International growth • Potbelly currently has more than a dozen units in the Middle East, which are operated by franchisees. Potbelly is uniquely positioned to expand overseas.
  7. 7. Franchising key to outsize growth? • All of Potbelly’s company-owned stores are within the U.S. today. • Yet Potbelly already has franchisees operating 12 stores in the Middle East. • The company began offering franchise opportunities in 2010, and is now well positioned to grow through franchising going forward. • Potbelly’s “neighborhood marketing approach” helps it connect with local markets.
  8. 8. Food for thought Shares of Potbelly are currently trading near the stock’s 52-week low at around $11 a share today. However, I believe selling here would be shortsighted. Potbelly is a well-run company with delicious food and a long runway of growth ahead. Most of Potbelly’s growth up to this point has come from new company- owned stores. But there’s a clear opportunity for Potbelly to unlock even more growth by franchising stores in the future.
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