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Aug 02, 2016

Potbelly Corporation Reports Results for Second Fiscal Quarter 2016

CHICAGO, Aug. 02, 2016 (GLOBE NEWSWIRE) -- Potbelly Corporation (NASDAQ:PBPB) today reported financial results for the second fiscal quarter ended June 26, 2016.

Key highlights for the thirteen weeks ended June 26, 2016 compared to the thirteen weeks ended June 28, 2015 include:

  • Total revenues increased 9.5% to $105.0 million from $95.9 million.
  • Company-operated comparable store sales increased 1.7%.
  • Seven new shops opened, including four company-operated shops and three franchised shops.
  • GAAP net income attributable to Potbelly Corporation increased 37.1% to $3.4 million from net income of $2.5 million. GAAP diluted EPS increased 62.5% to $0.13 from $0.08.
  • Adjusted net income attributable to Potbelly Corporation increased 35.5% to $4.0 million from adjusted net income of $3.0 million. Adjusted diluted EPS increased 50.0% to $0.15 from $0.10.
  • EBITDA increased 18.7% to $11.1 million from $9.4 million.
  • Adjusted EBITDA increased 15.4% to $13.6 million from $11.8 million.

Key highlights for the twenty-six weeks ended June 26, 2016 compared to the twenty-six weeks ended June 28, 2015 include:

  • Total revenues increased 10.6% to $201.0 million from $181.7 million.
  • Company-operated comparable store sales increased 2.6%.
  • Fourteen new shops opened, including nine company-operated shops and five franchised shops.
  • GAAP net income attributable to Potbelly Corporation increased 49.1% to $4.5 million from net income of $3.0 million. GAAP diluted EPS increased 70.0% to $0.17 from $0.10.
  • Adjusted net income attributable to Potbelly Corporation increased 35.1% to $5.1 million from adjusted net income of $3.8 million. Adjusted diluted EPS increased 46.2% to $0.19 from $0.13.
  • EBITDA increased 20.5% to $18.6 million from $15.5 million.
  • Adjusted EBITDA increased 12.9% to $22.6 million from $20.1 million.

Aylwin Lewis, Chairman and Chief Executive Officer of Potbelly Corporation, commented, "We are pleased with our strong profit results for the second quarter. The team delivered solid margin expansion versus prior year, with adjusted net income growth of 36% and adjusted diluted EPS growth of 50%."

Lewis continued, "Our comparable store sales growth of 1.7% is reflective of customer trends that have impacted the industry. Our full year sales target now reflects our current trends. We remain confident we can achieve our forecast for adjusted net income growth of at least 20% and adjusted diluted EPS of between $0.36 and $0.38."

2016 Outlook

For the full fiscal year of 2016, management currently expects:

  • Company-operated comparable store sales growth of approximately 1% to 2%;
  • 50 — 60 total new shop openings, including 40 — 45 company-operated shop openings;
  • An effective tax rate that is expected to range from 37% to 39%;
  • Adjusted net income of at least 20% growth;
  • Full year adjusted diluted earnings per share to range from $0.36 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, August 2, 2016
Time: 5:00 p.m. Eastern time
Dial-In #: 877-407-0784 U.S. & Canada
  201-689-8560 International
Confirmation code: 13637986



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, August 2, 2016 through midnight Tuesday, August 9, 2016. To access the replay, please call 877-870-5176 (U.S. & Canada) or 858-384-5517 (International) and enter confirmation code 13637986. 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 350 shops in the United States and our franchisees operate over 30 shops domestically, in the Middle East and in the United Kingdom. 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.
  • Adjusted EBITDA — represents net income before depreciation and amortization expense, interest expense, provision for income taxes and pre-opening costs, adjusted to eliminate the impact of other items, including certain non-cash as well as certain other items that we do not consider representative of our on-going operating performance.
  • Adjusted net income — represents net income, excluding impairment, gain or loss on disposal of property and equipment and store closure expense as well as costs associated with moving our corporate headquarters.
  • 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.

Non-GAAP Financial Measures

We prepare our financial statements in accordance with Generally Accepted Accounting Principles ("GAAP"). Within this press release, we make reference to 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.

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 ("SEC"). 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 release includes certain non-GAAP forward-looking information (including but not limited to under the heading "—2016 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 & Margin Analysis — Unaudited
(Amounts in thousands, except share and per share data)
             
  For the 13 Weeks Ended For the 26 Weeks Ended 
  June 26, June 28, June 26, June 28, 
   2016   2015   2016   2015  
Revenues                 
Sandwich shop sales, net $  104,466   99.5% $  95,566   99.6% $  199,892   99.5% $  180,963   99.6% 
Franchise royalties and fees    570     0.5     383     0.4     1,099     0.5     754     0.4  
Total revenues    105,036     100.0     95,949     100.0     200,991     100.0     181,717     100.0  
Expenses                 
Sandwich shop operating expenses                 
Cost of goods sold, excluding
  depreciation
    28,500     27.1     27,253     28.4     54,746     27.2     51,598     28.4  
Labor and related expenses    29,935     28.5     27,152     28.3     58,097     28.9     51,752     28.5  
Occupancy expenses    13,174     12.5     11,539     12.0     25,931     12.9     22,886     12.6  
Other operating expenses    10,687     10.2     9,970     10.4     21,232     10.6     19,627     10.8  
General and administrative
  expenses
    10,305     9.8     9,643     10.1     20,828     10.4     18,474     10.2  
Depreciation expense    5,676     5.4     5,288     5.5     11,340     5.6     10,439     5.7  
Pre-opening costs    239     0.2     536     0.6     391     0.2     1,077     0.6  
Impairment and loss on disposal of
  property and equipment
    1,008     1.0     484     0.5     1,025     0.5     832     0.5  
Total expenses    99,524     94.8     91,865     95.7     193,590     96.3     176,685     97.2  
Income from operations    5,512     5.2     4,084     4.3     7,401     3.7     5,032     2.8  
Interest expense, net    41     0.0     63     0.1     69     0.0     124     0.1  
Income before income taxes    5,471     5.2     4,021     4.2     7,332     3.6     4,908     2.7  
Income tax expense    2,039     1.9     1,563     1.6     2,772     1.4     1,914     1.1  
Net income    3,432     3.3     2,458     2.6     4,560     2.3     2,994     1.6  
Net income attributable to non-
  controlling interests
    59     0.1     (3)    (0.0)    99     0.0     2     0.0  
Net income attributable to
  Potbelly Corporation
 $  3,373   3.2% $  2,461   2.6% $  4,461   2.2% $  2,992   1.6% 
                  
                  
Net income per common share
attributable to common shareholders:
                 
Basic $  0.13    $  0.09    $  0.17    $  0.10    
Diluted $  0.13    $  0.08    $  0.17    $  0.10    
Weighted average common shares
outstanding:
                 
Basic    25,818,571       28,594,712       26,039,082       28,749,898    
Diluted    26,459,087       29,364,689       26,597,012       29,520,163    
                  

 



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 For the 26 Weeks Ended 
  June 26, June 28, June 26, June 28, 
   2016   2015   2016   2015  
Net income attributable to Potbelly Corporation, as
  reported
 $  3,373  $  2,461  $  4,461  $  2,992  
Impairment and closures(1)    1,011     806     1,028     1,286  
Tax benefit of impairment and closures(2)    (382)    (314)    (389)    (502) 
Adjusted net income attributable to Potbelly
  Corporation
 $  4,002  $  2,953  $  5,100  $  3,776  
          
Net income attributable to Potbelly Corporation per
  share, basic
 $  0.13  $  0.09  $  0.17  $  0.10  
Net income attributable to Potbelly Corporation per
  share, diluted
 $  0.13  $  0.08  $  0.17  $  0.10  
          
Adjusted net income attributable to Potbelly
  Corporation per share, basic
 $  0.16  $  0.10  $  0.20  $  0.13  
Adjusted net income attributable to Potbelly
  Corporation per share, diluted
 $  0.15  $  0.10  $  0.19  $  0.13  
          
Shares used in computing adjusted net income
  attributable to Potbelly Corporation:
         
Basic    25,818,571     28,594,712     26,039,082     28,749,898  
Diluted    26,459,087     29,364,689     26,597,012     29,520,163  
          
         
  For the 13 Weeks Ended For the 26 Weeks Ended 
  June 26, June 28, June 26, June 28, 
   2016   2015   2016   2015  
Net income attributable to Potbelly Corporation, as
  reported
 $  3,373  $  2,461  $  4,461  $  2,992  
Depreciation expense    5,676     5,288     11,340     10,439  
Interest expense, net    41     63     69     124  
Income tax expense    2,039     1,563     2,772     1,914  
EBITDA $  11,129  $  9,375  $  18,642  $  15,469  
Impairment and closures(3)    1,011     716     1,028     1,116  
Pre-opening costs(4)    239     536     391     1,077  
Stock-based compensation    789     590     1,466     1,128  
Public company costs(5)    472     602     1,107     1,263  
Adjusted EBITDA $  13,640  $  11,819  $  22,634  $  20,053  
         
         
         
         
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 For the 26 Weeks Ended 
  June 26, June 28, June 26, June 28, 
   2016   2015   2016   2015  
Income from operations $  5,512  $  4,084  $  7,401  $  5,032  
Less: Franchise royalties and fees    570     383     1,099     754  
General and administrative expenses    10,305     9,643     20,828     18,474  
Depreciation expense    5,676     5,288     11,340     10,439  
Pre-opening costs    239     536     391     1,077  
Impairment and loss on disposal of property and
  equipment
    1,008     484     1,025     832  
Shop-level profit [Y] $  22,170  $  19,652  $  39,886  $  35,100  
Total revenues $  105,036  $  95,949  $  200,991  $  181,717  
Less: Franchise royalties and fees    570     383     1,099     754  
Sandwich shop sales, net [X] $  104,466  $  95,566  $  199,892  $  180,963  
Shop-level profit margin [Y÷X]  21.2%  20.6%  20.0%  19.4% 
         
         
  For the 13 Weeks Ended For the 26 Weeks Ended 
  June 26, June 28, June 26, June 28, 
   2016   2015   2016   2015  
Selected Operating Data         
Shop Activity:         
Company-operated shops, end of period  382   349   382   349  
Franchise shops, end of period  39   29   39   29  
Revenue Data:         
Company-operated comparable store sales  1.7%  4.9%  2.6%  5.1% 
                  

 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. Additionally, the thirteen and twenty-six weeks ended June 28, 2015 include costs associated with the Company moving its corporate headquarters, which are recorded in the consolidated statement of operations in general and administrative expenses, as well as pre-opening for the occupancy-related costs.
(2) For the thirteen and twenty-six weeks ended June 26, 2016, the tax benefit associated with impairment and closures is based on an effective tax rate of 37.8%. For the thirteen and twenty-six weeks ended June 28, 2015, the tax benefit associated with impairment and closures is based on an effective tax rate of 39.0%.  
(3) 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. Additionally, the thirteen and twenty-six weeks ended June 28, 2015 include costs associated with the Company moving its corporate headquarters, which are recorded in the consolidated statement of operations in general and administrative expenses.
(4) Pre-opening costs are expensed as incurred and primarily consist of travel, employee payroll and training costs incurred prior to the opening of a shop, as well as occupancy costs incurred from the date the Company takes site possession to shop opening. Additionally, the thirteen and twenty-six weeks ended June 28, 2015 includes pre-opening rent for the new corporate office location of $0.1 million and $0.2 million, respectively.
(5) This adjustment includes on-going public company costs, which primarily consist of legal and accounting fees.

 

Contact:

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