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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period Ended September 27, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from                      to                     

Commission File Number: 001-36104

 

Potbelly Corporation

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

36-4466837

(State or Other Jurisdiction of

Incorporation)

 

(IRS Employer

Identification Number)

111 N. Canal Street, Suite 850

Chicago, Illinois

 

60606

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: (312) 951-0600

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 par value

 

PBPB

 

The NASDAQ Stock Market LLC

 

 

 

 

(Nasdaq Global Select Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.     Yes      No  

As of October 25, 2020, the registrant had 24,212,000 shares of common stock, $0.01 par value per share, outstanding.

 

 


 

Potbelly Corporation and Subsidiaries

Table of Contents

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

4

 

 

 

 

 

 

Condensed Consolidated Statements of Equity

 

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

 

 

 

Item 4.

 

Controls and Procedures

 

28

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

29

 

 

 

 

Item 1A.

 

Risk Factors

 

29

 

 

 

 

Item 2.

 

Unregistered Sale of Equity Securities and Use of Proceeds

 

29

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

29

 

 

 

 

Item 4.

  

Mine Safety Disclosures

 

29

 

 

 

 

Item 5.

  

Other Information

 

29

 

 

 

 

Item 6.

 

Exhibits

 

30

 

 

 

 

 

 

Signature

 

31

 

2


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Potbelly Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(amounts in thousands, except par value data, unaudited)

 

 

 

September 27,

 

 

December 29,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

23,407

 

 

$

18,806

 

Accounts receivable, net of allowances of $65 and $202 as of September 27, 2020

   and December 29, 2019, respectively

 

 

4,575

 

 

 

4,257

 

Inventories

 

 

2,724

 

 

 

3,473

 

Prepaid expenses and other current assets

 

 

5,372

 

 

 

5,687

 

Total current assets

 

 

36,078

 

 

 

32,223

 

Property and equipment, net

 

 

64,852

 

 

 

79,032

 

Right-of-use assets for operating leases

 

 

196,070

 

 

 

211,988

 

Indefinite-lived intangible assets

 

 

3,404

 

 

 

3,404

 

Goodwill

 

 

2,222

 

 

 

2,222

 

Deferred expenses, net and other assets

 

 

4,178

 

 

 

4,010

 

Total assets

 

$

306,804

 

 

$

332,879

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,429

 

 

$

3,886

 

Accrued expenses

 

 

20,008

 

 

 

20,569

 

Short-term operating lease liabilities

 

 

35,434

 

 

 

29,319

 

Total current liabilities

 

 

60,871

 

 

 

53,774

 

Long-term debt

 

 

22,386

 

 

 

 

Long-term operating lease liabilities

 

 

195,681

 

 

 

206,726

 

Other long-term liabilities

 

 

5,775

 

 

 

3,210

 

Total liabilities

 

 

284,713

 

 

 

263,710

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Common stock, $0.01 par value—authorized 200,000 shares; outstanding

   24,212 and 23,638 shares as of September 27, 2020 and December 29,

   2019, respectively

 

 

338

 

 

 

331

 

Additional paid-in-capital

 

 

438,140

 

 

 

435,278

 

Treasury stock, held at cost, 9,612 and 9,465 shares as of September 27, 2020, and

   December 29, 2019, respectively

 

 

(113,266

)

 

 

(112,680

)

Accumulated deficit

 

 

(303,050

)

 

 

(254,081

)

Total stockholders’ equity

 

 

22,162

 

 

 

68,848

 

Non-controlling interest

 

 

(71

)

 

 

321

 

Total equity

 

 

22,091

 

 

 

69,169

 

Total liabilities and equity

 

$

306,804

 

 

$

332,879

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

3


 

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(amounts in thousands, except per share data, unaudited)

 

 

 

For the 13 Weeks Ended

 

 

For the 39 Weeks Ended

 

 

 

September 27,

 

 

September 29,

 

 

September 27,

 

 

September 29,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sandwich shop sales, net

 

$

72,189

 

 

$

103,560

 

 

$

215,013

 

 

$

305,619

 

Franchise royalties and fees

 

 

474

 

 

 

678

 

 

 

1,402

 

 

$

2,336

 

Total revenues

 

 

72,663

 

 

 

104,238

 

 

 

216,415

 

 

 

307,955

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sandwich shop operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold, excluding depreciation

 

 

20,721

 

 

 

27,540

 

 

 

61,003

 

 

 

81,782

 

Labor and related expenses

 

 

25,809

 

 

 

32,430

 

 

 

78,090

 

 

 

96,517

 

Occupancy expenses

 

 

13,904

 

 

 

14,850

 

 

 

43,581

 

 

 

44,457

 

Other operating expenses

 

 

12,126

 

 

 

13,274

 

 

 

35,881

 

 

 

37,235

 

General and administrative expenses

 

 

9,821

 

 

 

11,192

 

 

 

28,094

 

 

 

34,709

 

Depreciation expense

 

 

4,699

 

 

 

5,365

 

 

 

15,110

 

 

 

16,486

 

Pre-opening costs

 

 

 

 

 

16

 

 

 

64

 

 

 

26

 

Impairment, loss on disposal of property and equipment and shop closures

 

 

1,721

 

 

 

1,714

 

 

 

9,602

 

 

 

5,077

 

Total expenses

 

 

88,801

 

 

 

106,381

 

 

 

271,425

 

 

 

316,289

 

Loss from operations

 

 

(16,138

)

 

 

(2,143

)

 

 

(55,010

)

 

 

(8,334

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

268

 

 

 

28

 

 

 

730

 

 

 

95

 

Loss before income taxes

 

 

(16,406

)

 

 

(2,171

)

 

 

(55,740

)

 

 

(8,429

)

Income tax expense (benefit)

 

 

(2,917

)

 

 

66

 

 

 

(6,585

)

 

 

13,931

 

Net loss

 

 

(13,489

)

 

 

(2,237

)

 

 

(49,155

)

 

 

(22,360

)

Net income (loss) attributable to non-controlling interest

 

 

(77

)

 

 

118

 

 

 

(191

)

 

 

300

 

Net loss attributable to Potbelly Corporation

 

$

(13,412

)

 

$

(2,355

)

 

$

(48,964

)

 

$

(22,660

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share attributable to common

   stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.56

)

 

$

(0.10

)

 

$

(2.06

)

 

$

(0.95

)

Diluted

 

$

(0.56

)

 

$

(0.10

)

 

$

(2.06

)

 

$

(0.95

)

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

23,957

 

 

 

23,740

 

 

 

23,792

 

 

 

23,927

 

Diluted

 

 

23,957

 

 

 

23,740

 

 

 

23,792

 

 

 

23,927

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

4


 

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(amounts and shares in thousands, unaudited)

 

For the 13 weeks ended:

 

Common Stock

 

 

Treasury

 

 

Additional

Paid-In-

 

 

Accumulated

 

 

Non-

Controlling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Total Equity

 

Balance at June 30, 2019

 

 

23,768

 

 

 

331

 

 

 

(111,874

)

 

 

434,407

 

 

 

(250,394

)

 

 

406

 

 

$

72,876

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,355

)

 

 

118

 

 

 

(2,237

)

Stock-based compensation plans

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchases of common stock

 

 

(162

)

 

 

 

 

 

(750

)

 

 

 

 

 

 

 

 

 

 

 

(750

)

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(159

)

 

 

(159

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

446

 

 

 

 

 

 

 

 

 

446

 

Balance at September 29, 2019

 

 

23,608

 

 

$

331

 

 

$

(112,624

)

 

$

434,853

 

 

$

(252,749

)

 

$

365

 

 

$

70,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at June 28, 2020

 

 

23,898

 

 

$

334

 

 

$

(112,757

)

 

$

436,536

 

 

$

(289,638

)

 

$

178

 

 

$

34,653

 

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,412

)

 

 

(77

)

 

 

(13,489

)

Stock-based compensation plans

 

 

437

 

 

 

4

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Treasury shares used for

   stock-based plans

 

 

(123

)

 

 

 

 

 

(509

)

 

 

 

 

 

 

 

 

 

 

 

(509

)

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(172

)

 

 

(172

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

1,608

 

 

 

 

 

 

 

 

 

1,608

 

Balance at September 27, 2020

 

 

24,212

 

 

$

338

 

 

$

(113,266

)

 

$

438,140

 

 

$

(303,050

)

 

$

(71

)

 

$

22,091

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5


 

Potbelly Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(amounts and shares in thousands, unaudited)

 

For the 39 weeks ended:

 

Common Stock

 

 

Treasury

 

 

Additional

Paid-In-

 

 

Accumulated

 

 

Non-

Controlling

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Stock

 

 

Capital

 

 

Deficit

 

 

Interest

 

 

Total Equity

 

Balance at December 30, 2018

 

 

24,143

 

 

 

330

 

 

 

(108,372

)

 

 

432,771

 

 

 

(229,558

)

 

 

362

 

 

$

95,533

 

Cumulative impact of Topic

   842, net of tax of $196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(531

)

 

 

 

 

 

(531

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,660

)

 

 

300

 

 

 

(22,360

)

Stock-based compensation plans

 

 

118

 

 

 

1

 

 

 

 

 

 

172

 

 

 

 

 

 

 

 

 

173

 

Repurchases of common stock

 

 

(648

)

 

 

 

 

 

(4,217

)

 

 

 

 

 

 

 

 

 

 

 

(4,217

)

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(336

)

 

 

(336

)

Contributions from non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39

 

 

 

39

 

Treasury shares used for stock-based

   plans

 

 

(5

)

 

 

 

 

 

(35

)

 

 

 

 

 

 

 

 

 

 

 

(35

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

1,910

 

 

 

 

 

 

 

 

 

1,910

 

Balance at September 29, 2019

 

 

23,608

 

 

$

331

 

 

$

(112,624

)

 

$

434,853

 

 

$

(252,749

)

 

$

365

 

 

$

70,176

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 29, 2019

 

 

23,638

 

 

$

331

 

 

$

(112,680

)

 

$

435,278

 

 

$

(254,081

)

 

$

321

 

 

$

69,169

 

Cumulative impact of Topic 326, net

   of tax of $2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5

)

 

 

 

 

$

(5

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(48,964

)

 

 

(191

)

 

 

(49,155

)

Stock-based compensation plans

 

 

591

 

 

 

6

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

Shares issued for proxy-related

   expenses

 

 

130

 

 

 

1

 

 

 

 

 

 

388

 

 

 

 

 

 

 

 

 

389

 

Distributions to non-controlling

   interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(344

)

 

 

(344

)

Contributions from non-controlling

   interest