UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 4, 2015
Potbelly Corporation
(Exact name of registrant as specified in its charter)
Commission File Number: 001-36104
| Delaware | 36-4466837 | |
| (State or other jurisdiction of incorporation) |
(IRS Employer Identification No.) |
111 N. Canal Street, Suite 850
Chicago, Illinois 60606
(Address of principal executive offices, including zip code)
(312) 951-0600
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 2.02. | Results of Operations and Financial Condition. |
On August 4, 2015, Potbelly Corporation issued a press release disclosing earnings and other financial results for its second fiscal quarter ended June 28, 2015, and that as previously announced, its management would review these results in a conference call at 5:00 p.m. Eastern time on August 4, 2015. The full text of the press release is furnished hereto as Exhibit 99.1.
The information furnished with this report, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any other filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such a filing.
| Item 9.01. | Financial Statements and Exhibits. |
| (d) | Exhibits. |
| Exhibit |
Description | |
| 99.1 | Potbelly Corporation Press Release dated August 4, 2015 | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: August 4, 2015 | Potbelly Corporation | |||||
| By: | /s/ Michael Coyne | |||||
| Name: | Michael Coyne | |||||
| Title: | Senior Vice President and Chief Financial Officer | |||||
EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1 | Potbelly Corporation Press Release dated August 4, 2015 | |
Exhibit 99.1
POTBELLY CORPORATION
REPORTS RESULTS FOR SECOND FISCAL QUARTER 2015;
TOTAL REVENUES INCREASED 14.7%;
ADJUSTED DILUTED EPS OF $0.10 AND DILUTED EPS OF $0.08
FOR THE THIRTEEN WEEKS ENDED JUNE 28, 2015
Chicago, IL, August 4, 2015 – Potbelly Corporation (NASDAQ: PBPB) today reported financial results for the second fiscal quarter ended June 28, 2015.
Key highlights for the thirteen weeks ended June 28, 2015 compared to the thirteen weeks ended June 29, 2014 include:
| • | Total revenues increased 14.7% to $95.9 million from $83.6 million. |
| • | Company-operated comparable store sales increased 4.9%. |
| • | Eleven new shops opened, including ten company-operated shops and one franchised shop. |
| • | Adjusted EBITDA increased 17.5% to $11.8 million from $10.1 million. |
| • | Adjusted net income attributable to Potbelly Corporation increased to $3.0 million, or $0.10 per diluted share, from adjusted net income of $2.0 million, or $0.07 per diluted share. |
| • | GAAP net income attributable to Potbelly Corporation was $2.5 million, or $0.08 per diluted share, compared to net income of $2.0 million, or $0.07 per diluted share. |
Key highlights for the twenty-six weeks ended June 28, 2015 compared to the twenty-six weeks ended June 29, 2014 include:
| • | Total revenues increased 15.4% to $181.7 million from $157.5 million. |
| • | Company-operated comparable store sales increased 5.1%. |
| • | Eighteen new shops opened, including seventeen company-operated shops and one franchised shop. |
| • | Adjusted EBITDA increased 22.4% to $20.1 million from $16.4 million. |
| • | Adjusted net income attributable to Potbelly Corporation increased to $3.8 million, or $0.13 per diluted share, from adjusted net income of $2.2 million, or $0.07 per diluted share. |
| • | GAAP net income attributable to Potbelly Corporation was $3.0 million, or $0.10 per diluted share, compared to net income of $1.7 million, or $0.06 per diluted share. |
Aylwin Lewis, Chairman and Chief Executive Officer of Potbelly Corporation, commented, “We’ve achieved three consecutive quarters of solid sales growth and strong profitability. Our total revenue increased 14.7% to $95.9 million, our adjusted EBITDA increased 17.5% to $11.8 million and adjusted net income increased 45.6% to $3.0 million, or $0.10 per diluted share.” He continued, “The Potbelly teams continue doing great work and we are pleased with the first half of the year. We remain confident in the fundamentals of our business and our ability to achieve our previously disclosed guidance for the full year.”
2015 Outlook
For the full fiscal year of 2015, management currently expects at least 20% annual adjusted net income growth. This guidance is based, in part, on the following assumptions for fiscal year 2015:
| • | 48 – 55 total new shop openings, including 40 – 45 company-operated shop openings; |
| • | Low single-digit company-operated comparable store sales growth; |
| • | An effective tax rate that is not expected to exceed approximately 40.0%; and |
| • | Comparable adjustments to net income as discussed in the “Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures.” |
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 4, 2015 | |
| Time: | 5:00 p.m. Eastern time | |
| Dial-In #: | 877-407-0784 U.S. & Canada | |
| 201-689-8560 International | ||
| Confirmation code: | 13613945 |
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 4, 2015 through midnight Tuesday, August 11, 2015. To access the replay, please call 877-870-5176 (U.S. & Canada) or 858-384-5517 (International) and enter confirmation code 13613945. 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 300 shops in the United States and our franchisees operate over twenty shops domestically and in the Middle East. For more information, please visit our website at www.potbelly.com.
2
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 (loss) 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 (loss), 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 (loss) 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.”
3
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.
# # #
| Contact: | Investor Relations | |
| Investors@Potbelly.com | ||
| 312-428-2950 | ||
4
Potbelly Corporation
Consolidated Statements of Operations and Margin Analysis – Unaudited
(Amounts in thousands, except share and per share data)
| For the 13 Weeks Ended | For the 26 Weeks Ended | |||||||||||||||||||||||||||||||
| June 28, 2015 |
June 29, 2014 |
June 28, 2015 |
June 29, 2014 |
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| Revenues |
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| Sandwich shop sales, net |
$ | 95,566 | 99.6 | % | $ | 83,268 | 99.6 | % | $ | 180,963 | 99.6 | % | $ | 156,791 | 99.5 | % | ||||||||||||||||
| Franchise royalties and fees |
383 | 0.4 | 352 | 0.4 | 754 | 0.4 | 710 | 0.5 | ||||||||||||||||||||||||
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| Total revenues |
95,949 | 100.0 | 83,620 | 100.0 | 181,717 | 100.0 | 157,501 | 100.0 | ||||||||||||||||||||||||
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| Expenses |
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| Sandwich shop operating expenses |
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| Cost of goods sold, excluding depreciation |
27,253 | 28.4 | 23,936 | 28.6 | 51,598 | 28.4 | 45,022 | 28.6 | ||||||||||||||||||||||||
| Labor and related expenses |
27,152 | 28.3 | 23,405 | 28.0 | 51,752 | 28.5 | 44,865 | 28.5 | ||||||||||||||||||||||||
| Occupancy expenses |
11,539 | 12.0 | 10,183 | 12.2 | 22,886 | 12.6 | 20,162 | 12.8 | ||||||||||||||||||||||||
| Other operating expenses |
9,970 | 10.4 | 8,691 | 10.4 | 19,627 | 10.8 | 16,849 | 10.7 | ||||||||||||||||||||||||
| General and administrative expenses |
9,643 | 10.1 | 8,865 | 10.6 | 18,474 | 10.2 | 16,687 | 10.6 | ||||||||||||||||||||||||
| Depreciation expense |
5,288 | 5.5 | 4,784 | 5.7 | 10,439 | 5.7 | 9,501 | 6.0 | ||||||||||||||||||||||||
| Pre-opening costs |
536 | 0.6 | 273 | 0.3 | 1,077 | 0.6 | 525 | 0.3 | ||||||||||||||||||||||||
| Impairment and loss on disposal of property and equipment |
484 | 0.5 | 29 | 0.0 | 832 | 0.5 | 877 | 0.6 | ||||||||||||||||||||||||
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| Total expenses |
91,865 | 95.7 | 80,166 | 95.9 | 176,685 | 97.2 | 154,488 | 98.1 | ||||||||||||||||||||||||
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| Income from operations |
4,084 | 4.3 | 3,454 | 4.1 | 5,032 | 2.8 | 3,013 | 1.9 | ||||||||||||||||||||||||
| Interest expense, net |
63 | 0.1 | 40 | 0.0 | 124 | 0.1 | 82 | 0.1 | ||||||||||||||||||||||||
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| Income before income taxes |
4,021 | 4.2 | 3,414 | 4.1 | 4,908 | 2.7 | 2,931 | 1.9 | ||||||||||||||||||||||||
| Income tax expense |
1,563 | 1.6 | 1,407 | 1.7 | 1,914 | 1.1 | 1,216 | 0.8 | ||||||||||||||||||||||||
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| Net income |
2,458 | 2.6 | 2,007 | 2.4 | 2,994 | 1.6 | 1,715 | 1.1 | ||||||||||||||||||||||||
| Net (loss) income attributable to non-controlling interests |
(3 | ) | 0.0 | (3 | ) | 0.0 | 2 | 0.0 | 6 | 0.0 | ||||||||||||||||||||||
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| Net income attributable to Potbelly Corporation |
$ | 2,461 | 2.6 | % | $ | 2,010 | 2.4 | % | $ | 2,992 | 1.6 | % | $ | 1,709 | 1.1 | % | ||||||||||||||||
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| Net income per common share attributable to common shareholders: |
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| Basic |
$ | 0.09 | $ | 0.07 | $ | 0.10 | $ | 0.06 | ||||||||||||||||||||||||
| Diluted |
$ | 0.08 | $ | 0.07 | $ | 0.10 | $ | 0.06 | ||||||||||||||||||||||||
| Weighted average common shares outstanding: |
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| Basic |
28,594,712 | 29,342,528 | 28,749,898 | 29,246,676 | ||||||||||||||||||||||||||||
| Diluted |
29,364,689 | 30,509,553 | 29,520,163 | 30,642,892 | ||||||||||||||||||||||||||||
5
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 28, 2015 |
June 29, 2014 |
June 28, 2015 |
June 29, 2014 |
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| Net income attributable to Potbelly Corporation, as reported |
$ | 2,461 | $ | 2,010 | $ | 2,992 | $ | 1,709 | ||||||||
| Impairment and closures(1) |
806 | 30 | 1,286 | 863 | ||||||||||||
| Tax benefit of impairment and closures(2) |
(314 | ) | (12 | ) | (502 | ) | (352 | ) | ||||||||
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| Adjusted net income attributable to Potbelly Corporation |
$ | 2,953 | $ | 2,028 | $ | 3,776 | $ | 2,220 | ||||||||
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| Net income attributable to Potbelly Corporation per share, basic |
$ | 0.09 | $ | 0.07 | $ | 0.10 | $ | 0.06 | ||||||||
| Net income attributable to Potbelly Corporation per share, diluted |
$ | 0.08 | $ | 0.07 | $ | 0.10 | $ | 0.06 | ||||||||
| Adjusted net income attributable to Potbelly Corporation per share, basic |
$ | 0.10 | $ | 0.07 | $ | 0.13 | $ | 0.08 | ||||||||
| Adjusted net income attributable to Potbelly Corporation per share, diluted |
$ | 0.10 | $ | 0.07 | $ | 0.13 | $ | 0.07 | ||||||||
| Shares used in computing adjusted net income attributable to Potbelly Corporation: |
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| Basic |
28,594,712 | 29,342,528 | 28,749,898 | 29,246,676 | ||||||||||||
| Diluted |
29,364,689 | 30,509,553 | 29,520,163 | 30,642,892 | ||||||||||||
| For the 13 Weeks Ended | For the 26 Weeks Ended | |||||||||||||||
| June 28, 2015 |
June 29, 2014 |
June 28, 2015 |
June 29, 2014 |
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| Net income attributable to Potbelly Corporation, as reported |
$ | 2,461 | $ | 2,010 | $ | 2,992 | $ | 1,709 | ||||||||
| Depreciation expense |
5,288 | 4,784 | 10,439 | 9,501 | ||||||||||||
| Interest expense, net |
63 | 40 | 124 | 82 | ||||||||||||
| Income tax expense |
1,563 | 1,407 | 1,914 | 1,216 | ||||||||||||
| Impairment and closures(3) |
716 | 30 | 1,116 | 863 | ||||||||||||
| Pre-opening costs(4) |
536 | 273 | 1,077 | 525 | ||||||||||||
| Stock-based compensation |
590 | 953 | 1,128 | 1,441 | ||||||||||||
| Public company costs(5) |
602 | 565 | 1,263 | 1,045 | ||||||||||||
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| Adjusted EBITDA |
$ | 11,819 | $ | 10,062 | $ | 20,053 | $ | 16,382 | ||||||||
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6
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 28, 2015 |
June 29, 2014 |
June 28, 2015 |
June 29, 2014 |
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| Income from operations |
$ | 4,084 | $ | 3,454 | $ | 5,032 | $ | 3,013 | ||||||||
| Less: Franchise royalties and fees |
383 | 352 | 754 | 710 | ||||||||||||
| General and administrative expenses |
9,643 | 8,865 | 18,474 | 16,687 | ||||||||||||
| Depreciation expense |
5,288 | 4,784 | 10,439 | 9,501 | ||||||||||||
| Pre-opening costs |
536 | 273 | 1,077 | 525 | ||||||||||||
| Impairment and loss on disposal of property and equipment |
484 | 29 | 832 | 877 | ||||||||||||
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| Shop-level profit [Y] |
$ | 19,652 | $ | 17,053 | $ | 35,100 | $ | 29,893 | ||||||||
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| Total revenues |
$ | 95,949 | 83,620 | 181,717 | 157,501 | |||||||||||
| Less: Franchise royalties and fees |
383 | 352 | 754 | 710 | ||||||||||||
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| Sandwich shop sales, net [X] |
$ | 95,566 | $ | 83,268 | $ | 180,963 | $ | 156,791 | ||||||||
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| Shop-level profit margin [Y÷X] |
20.6 | % | 20.5 | % | 19.4 | % | 19.1 | % | ||||||||
| For the 13 Weeks Ended | For the 26 Weeks Ended | |||||||||||||||
| June 28, 2015 |
June 29, 2014 |
June 28, 2015 |
June 29, 2014 |
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| Selected Operating Data |
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| Shop Activity: |
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| Company-operated shops, end of period |
349 | 312 | 349 | 312 | ||||||||||||
| Franchise shops, end of period |
29 | 26 | 29 | 26 | ||||||||||||
| Revenue Data: |
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| Company-operated comparable store sales |
4.9 | % | -1.6 | % | 5.1 | % | -1.9 | % | ||||||||
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. 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) | The tax benefit associated with impairment and closures is based on the Company’s annual pro-forma effective tax rate of 39.0% for the thirteen and twenty-six weeks ended June 28, 2015 and an annual pro-forma effective tax rate of 40.8% for the thirteen and twenty-six weeks ended June 29, 2014. |
| (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. |
8