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May 02, 2017

Potbelly Corporation Reports Results for First Fiscal Quarter 2017

CHICAGO, May 02, 2017 (GLOBE NEWSWIRE) -- Potbelly Corporation (NASDAQ:PBPB) today reported financial results for the first fiscal quarter ended March 26, 2017.

Key highlights for the thirteen weeks ended March 26, 2017 compared to the thirteen weeks ended March 27, 2016 include:

  • Total revenues increased 6.0% to $101.7 million from $96.0 million.
  • Company-operated comparable store sales decreased 3.1%.
  • Eleven new shops opened, including eight franchised shops and three company-operated shops.
  • GAAP net income attributable to Potbelly Corporation decreased 37.2% to $0.7 million from net income of $1.1 million. GAAP diluted EPS decreased 25.0% to $0.03 from $0.04.
  • Adjusted net income1 attributable to Potbelly Corporation increased 16.7% to $1.3 million from adjusted net income of $1.1 million. Adjusted diluted EPS increased 25.0% to $0.05 from $0.04.
  • EBITDA1 was $7.5 million for the thirteen weeks ended March 26, 2017 and $7.5 million for the thirteen weeks ended March 27, 2016.
  • Adjusted EBITDA1 increased 12.3% to $9.2 million from $8.2 million.

Aylwin Lewis, Chairman and Chief Executive Officer of Potbelly Corporation, commented, "During the first quarter, we delivered revenue growth of 6% and adjusted net income growth of approximately 17%. The operating environment remained highly challenging for restaurants, and our business performance was reflective of these negative traffic trends experienced throughout most of the industry.  Our comparable store sales decline of 3.1% fell short of our expectations, as traffic at the end of 2016 continued to decline into 2017."

Lewis continued, "As we look out to the balance of 2017, our revised full year outlook contemplates a continuation of challenging industry trends, as well as the impact of the closure of our Chicago Midway Airport shop in May.  Against these setbacks, we recognize that we need to continue exploring opportunities to drive growth and engage with our customers, while managing costs and optimizing investments. The fundamentals of the Potbelly brand remain strong, and we will navigate these headwinds on the strength of our execution, innovation, and culture."

As previously disclosed in our Annual Report on Form 10-K for the year ended December 25, 2016, in February 2017 the City of Chicago's Department of Aviation approved the award of the Midway International Airport dining concessions to a development group whose proposal did not include an extension of our lease at the airport. We also disclosed in that filing that, for the year ended December 25, 2016, our Midway shop represented approximately $7.8 million in revenue and approximately $2.0 million in income before income taxes. Subsequent to that filing, we were notified by the City that the new development group will take over the space of our shop at Midway by the middle of May 2017. Our forecast for the remainder of 2017 has been revised to reflect the May 2017 closing of our Midway shop.

2017 Outlook

Management's outlook for 2017 has been revised to reflect the closure of our Chicago Midway Airport shop in May of 2017, and to reflect the results and traffic trends through the first quarter of 2017. For the full fiscal year of 2017, management currently expects:

  • 45-60 total new shop openings, including 30-40 company-operated shop openings;
  • A low single digit decrease in company-operated comparable store sales;
  • An effective tax rate to range from 36% to 38%, excluding the discrete tax benefit or detriment of FASB Accounting Standard, ASU 2016-09, which could significantly impact our tax rate for 2017;
  • Adjusted net income in the range of $9.0 million to $10.0 million, and full year adjusted diluted earnings per share in the range of $0.35 to $0.38; and
  • Comparable categories of adjustments to net income as discussed in the "Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures."

Projected adjusted net income growth and adjusted diluted earnings per share set forth above are measures not recognized under GAAP. Please see "Non-GAAP Financial Measures" below.

Conference Call

A conference call and audio webcast has been scheduled for 5:00 p.m. Eastern time today to discuss these results. Details of the conference call are as follows:

Date: Tuesday, May 2, 2017
Time: 5:00 p.m. Eastern time
Dial-In #: 877-407-0784 U.S. & Canada
  201-689-8560 International
Confirmation code:     13659832
   

Alternatively, the conference call will be webcast at www.potbelly.com on the "Investor Relations" webpage. For those unable to participate, an audio replay will be available from 8:00 p.m. Eastern time on Tuesday, May 2, 2017 through midnight Tuesday, May 9, 2017. To access the replay, please call 844-512-2921 (U.S. & Canada) or 412-317-6671 (International) and enter confirmation code 13659832. A web-based archive of the conference call will also be available at the above website.

About Potbelly

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. Our Vision is for our customers to feel that we are their "Neighborhood Sandwich Shop" and to tell others about their great experience. Our Mission is to make people really happy and to improve every day. Our Passion is to be "The Best Place for Lunch." The Company owns and operates over 400 shops in the United States and our franchisees operate over 40 shops domestically, in the Middle East, the United Kingdom and Canada. For more information, please visit our website at www.potbelly.com

Definitions

The following definitions apply to these terms as used throughout this press release:

  • Revenues — represent net company-operated sandwich shop sales and our franchise operations. Net company-operated shop sales consist of food and beverage sales, net of promotional allowances and employee meals. Franchise royalties and fees consist of an initial franchise fee, a franchise development agreement fee and royalty income from the franchisee.
  • Company-operated comparable store sales — represents the change in year-over-year sales for the comparable company-operated store base open for 15 months or longer.
  • EBITDA — represents net income before depreciation and amortization expense, interest expense and provision for income taxes.
  • Adjusted EBITDA — represents net income before depreciation and amortization expense, interest expense and provision for income taxes, adjusted to eliminate the impact of other items, including certain non-cash as well as other items that we do not consider representative of our ongoing operating performance.
  • Adjusted net income — represents net income, excluding impairment, gain or loss on disposal of property and equipment and store closure expense.
  • Shop-level profit — represents income from operations less franchise royalties and fees, general and administrative expenses, depreciation expense, pre-opening costs and impairment and loss on disposal of property and equipment.
  • Shop-level profit margin — represents shop-level profit expressed as a percentage of net company-operated sandwich shop sales.
  • Adjusted diluted earnings per share — represents net income, excluding impairment, gain or loss on disposal of property and equipment and store closure expense on a fully diluted per share basis.

1Non-GAAP Financial Measures

We prepare our financial statements in accordance with Generally Accepted Accounting Principles ("GAAP"). Within this press release, we make reference to EBITDA, adjusted EBITDA, adjusted net income, shop-level profit and shop-level profit margin, which are non-GAAP financial measures. The Company includes these non-GAAP financial measures because management believes they are useful to investors in that they provide for greater transparency with respect to supplemental information used by management in its financial and operational decision making. Beginning in the first quarter of 2017, the Company modified its definition of adjusted EBITDA to eliminate the adjustments of pre-opening and public company costs from its definition.  The Company believes these refinements improve the usefulness and comparability of adjusted EBITDA. Prior period adjusted EBITDA financial measures have been restated to reflect this change within this press release.  

Management uses adjusted EBITDA and adjusted net income to evaluate the Company's performance excluding the impact of certain non-cash charges and other special items that affect the comparability of results in past quarters, are expected in future quarters and in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. Management uses shop-level profit and shop-level profit margin as key metrics to evaluate the profitability of incremental sales at our shops, to evaluate our shop performance across periods and to evaluate our shop financial performance against our competitors.

Accordingly, the Company believes the presentation of these non-GAAP financial measures, when used in conjunction with GAAP financial measures, is a useful financial analysis tool that can assist investors in assessing the Company's operating performance and underlying prospects. This analysis should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. This analysis, as well as the other information in this press release, should be read in conjunction with the Company's financial statements and footnotes contained in the documents that the Company files with the U.S. Securities and Exchange Commission. The non-GAAP financial measures used by the Company in this press release may be different from the methods used by other companies. For more information on the non-GAAP financial measures, please refer to the table, "Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures."

This press release includes certain non-GAAP forward-looking information (including but not limited to under the heading "2017 Outlook"), namely adjusted net income and adjusted diluted earnings per share.  The Company believes that a quantitative reconciliation of such forward-looking information to the most comparable financial measure calculated and presented in accordance with GAAP cannot be made available without unreasonable efforts. A reconciliation of these non-GAAP financial measures would require the Company to predict the timing and likelihood of outcomes that determine future impairments and the tax benefit of any such future impairments. Neither of these measures, nor their probable significance, can be reliably quantified due to the inability to forecast future impairments.

Forward-Looking Statements

Except for the historical information contained in this press release, the matters addressed are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements, written, oral or otherwise made, represent the Company's expectation or belief concerning future events. Without limiting the foregoing, the words "believes," "expects," "may," "will," "should," "seeks," "intends," "plans," "strives," "goal," "estimates," "forecasts," "projects" or "anticipates" and similar expressions are intended to identify forward-looking statements. By nature, forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statement. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. See "Risk Factors" and "Cautionary Statement on Forward-Looking Statements" included in our most recent annual report on Form 10-K and other risk factors described from time to time in subsequent quarterly reports on Form 10-Q, all of which are available on our website at www.potbelly.com

 
Potbelly Corporation
Consolidated Statements of Operations and Margin Analysis — Unaudited
(Amounts in thousands, except share and per share data)
 
  For the 13 Weeks Ended 
  March 26,  March 27, 
  2017  2016 
Revenues                
Sandwich shop sales, net $100,859   99.2% $95,426   99.4%
Franchise royalties and fees  840   0.8   529   0.6 
Total revenues  101,699       100.0   95,955       100.0 
Expenses                
Sandwich shop operating expenses                
Cost of goods sold, excluding depreciation  26,663   26.2   26,246   27.4 
Labor and related expenses  30,462   30.0   28,162   29.3 
Occupancy expenses  14,169   13.9   12,757   13.3 
Other operating expenses  11,633   11.4   10,545   11.0 
General and administrative expenses  10,352   10.2   10,523   11.0 
Depreciation expense  6,199   6.1   5,664   5.9 
Pre-opening costs  73  *   152   0.2 
Impairment and loss on disposal of property and equipment  885   0.9   17  * 
Total expenses  100,436   98.8   94,066   98.0 
Income from operations  1,263   1.2   1,889   2.0 
Interest expense, net  28   *   28  * 
Income before income taxes  1,235   1.2   1,861   1.9 
Income tax expense  553   0.5   733   0.8 
Net income  682   0.7   1,128   1.2 
Net (loss) income attributable to non-controlling interests  (1) *   40  * 
Net income attributable to Potbelly Corporation $683   0.7% $1,088   1.1%
                 
                 
Net income per common share attributable to common shareholders:                  
Basic $0.03      $0.04     
Diluted $0.03      $0.04     
Weighted average common shares outstanding:                
Basic  25,099,962       26,259,593     
Diluted  26,082,478       26,733,055     

_________________
* Amount is less than 0.1%

 
Potbelly Corporation
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures — Unaudited
(Amounts in thousands, except share and per share data)
 
  For the 13 Weeks Ended  
  March 26,  March 27,  
  2017  2016  
Net income attributable to Potbelly Corporation, as reported $683  $1,088  
Impairment, loss on disposal of property and equipment, and closures(1)    936   17  
Tax benefit of impairment and closures(2)  (338)  (7) 
Adjusted net income attributable to Potbelly Corporation $1,281  $1,098  
          
Net income attributable to Potbelly Corporation per share, basic $0.03  $0.04  
Net income attributable to Potbelly Corporation per share, diluted $0.03  $0.04  
          
Adjusted net income attributable to Potbelly Corporation per share, basic $0.05  $0.04  
Adjusted net income attributable to Potbelly Corporation per share, diluted $0.05  $0.04  
          
Shares used in computing adjusted net income attributable to Potbelly Corporation:           
Basic  25,099,962   26,259,593  
Diluted  26,082,478   26,733,055  
          


  For the 13 Weeks Ended  
      March 26,       March 27,    
  2017  2016  
Net income attributable to Potbelly Corporation, as reported $683  $1,088  
Depreciation expense  6,199   5,664  
Interest expense, net  28   28  
Income tax expense  553   733  
EBITDA $7,463  $7,513  
Impairment, loss on disposal of property and equipment, and closures(1)              936   17  
Stock-based compensation  820   677  
Adjusted EBITDA $9,219  $8,207  
          


  
Potbelly Corporation 
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures — Unaudited 
(Amounts in thousands, except selected operating data) 
  
  For the 13 Weeks Ended  
  March 26,  March 27,  
  2017  2016  
Income from operations $1,263  $1,889  
Less: Franchise royalties and fees  840   529  
General and administrative expenses  10,352   10,523  
Depreciation expense  6,199   5,664  
Pre-opening costs  73   152  
Impairment and loss on disposal of property and equipment    885   17  
Shop-level profit [Y] $17,932  $17,716  
Total revenues $101,699  $95,955  
Less: Franchise royalties and fees  840   529  
Sandwich shop sales, net [X] $100,859  $95,426  
Shop-level profit margin [Y÷X]  17.8%  18.6% 


  For the 13 Weeks Ended  
  March 26, March 27,  
  2017 2016
  
Selected Operating Data       
Shop Activity:       
Company-operated shops, end of period 413 377  
Franchise shops, end of period 51 38  
Revenue Data:       
Company-operated comparable store sales                               (3.1%)  3.7%  
        

Footnotes to the Press Release, Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
& Selected Operating Data

(1) This adjustment includes costs related to impairment of long-lived assets, gain or loss on disposal of property and equipment and shop closure expenses. Shop closure expenses are recorded in general and administrative expenses in the consolidated statement of operations.
(2) For the thirteen weeks ended March 26, 2017 and March 27, 2016, the tax benefit associated with impairment and closures is based on effective tax rates of 36.1% and 39.4%, respectively.

Contact:
Investor Relations	
Investors@Potbelly.com	
312-428-2950