Potbelly Corporation
Aug 4, 2017

Potbelly Corporation Reports Results for Second Fiscal Quarter 2017

CHICAGO, Aug. 04, 2017 (GLOBE NEWSWIRE) -- Potbelly Corporation (NASDAQ:PBPB) today reported financial results for the second fiscal quarter ended June 25, 2017.

Key highlights for the thirteen weeks ended June 25, 2017 compared to the thirteen weeks ended June 26, 2016 include:

Key highlights for the twenty-six weeks ended June 25, 2017 compared to the twenty-six weeks ended June 26, 2016 include:

Mike Coyne, Chief Financial Officer and interim Chief Executive Officer of Potbelly Corporation, commented, "During the second quarter, we generated revenue of $108 million, an increase of 3%, driven by our new unit growth, offset by the impact of our comparable store sales, which decreased 4.9%. While disappointed with our top-line performance, we are encouraged by our ability to manage costs, drive solid flow-through delivering shop-level profit margin of 19.2%, and generate adjusted EBITDA of $11.8 million."

Coyne continued, "While the overall restaurant operating environment remains challenging and we do not contemplate an improvement in industry trends in our outlook for 2017, we remain confident in the strength of our brand. We are testing a number of targeted initiatives to further build our brand and improve our traffic trends. In addition, to build a stronger Potbelly for the long-term, we are undertaking a comprehensive review of our business strategy. Over the next few months we will analyze every aspect of our business including, but not limited to, our capital structure and allocation, returns on invested capital, operational productivity, our marketing strategy, the pace of our company-owned unit growth, capital expenditures, and potential ways to accelerate franchising. In addition, we have engaged J.P. Morgan Securities, LLC as our financial advisor to assist with this review and development of strategic business alternatives. Potbelly remains open to all strategic options that would potentially significantly enhance shareholder value over the long-term."

2017 Outlook

For the full fiscal year of 2017, management currently expects:

Projected 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 8:00 a.m. Eastern Time today to discuss these results. Details of the conference call are as follows:

Date:       Friday, August 4, 2017
Time: 8:00 a.m. Eastern Time
Dial-In #: 877-407-0784 U.S. & Canada
  201-689-8560 International
Confirmation code: 13666741

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 11:00 a.m. Eastern Time on Friday, August 4, 2017 through midnight Friday, August 11, 2017. To access the replay, please call 844-512-2921 (U.S. & Canada) or 412-317-6671 (International) and enter confirmation code 13666741. 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:

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 and in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. Adjusted EBITDA and adjusted net income exclude the impact of certain non-cash charges and other special items that affect the comparability of results in past quarters. 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  For the 26 Weeks Ended 
  June 25,  % of  June 26,  % of  June 25, % of  June 26, % of 
  2017  Revenue  2016    Revenue    2017 Revenue  2016 Revenue 
Revenues                             
Sandwich shop sales, net $107,382   99.3% $104,466  99.5% $208,241 99.2% $199,892 99.5%
Franchise royalties and fees  754   0.7   570  0.5   1,594 0.8   1,099 0.5 
Total revenues  108,136   100.0   105,036  100.0   209,835 100.0   200,991 100.0 
                            
Expenses                           
Sandwich shop operating expenses                           
Cost of goods sold, excluding depreciation  28,635   26.5   28,500  27.1   55,298 26.4   54,746 27.2 
Labor and related expenses  31,564   29.2   29,935  28.5   62,026 29.6   58,097 28.9 
Occupancy expenses  14,269   13.2   13,174  12.5   28,438 13.6   25,931 12.9 
Other operating expenses  12,252   11.2   10,687  10.2   23,885 11.3   21,232 10.6 
General and administrative expenses  10,919   10.1   10,305  9.8   21,271 10.1   20,828 10.4 
Depreciation expense  6,446   6.0   5,676  5.4   12,645 6.0   11,340 5.6 
Pre-opening costs  546   0.5   239  0.2   619 0.3   391 0.2 
Impairment and loss on disposal of property and equipment  3,341   3.1   1,008  1.0   4,226 2.0   1,025 0.5 
Total expenses  107,972   99.8   99,524  94.8   208,408 99.3   193,590 96.3 
Income from operations  164   0.2   5,512  5.2   1,427 0.7   7,401 3.7 
                            
Interest expense  41  *   41  *   69 *   69 * 
Income before income taxes  123   0.1   5,471  5.2   1,358 0.6   7,332 3.6 
Income tax expense    186   0.2   2,039  1.9   739 0.4   2,772 1.4 
Net income (loss)  (63) *   3,432  3.3   619 0.3   4,560 2.3 
Net income attributable to non-controlling interest  75  *   59  *   74 *   99 * 
Net income (loss) attributable to Potbelly Corporation $(138)  (0.1)% $3,373  3.2% $545 0.3% $4,461 2.2%
                              
                            
Net income (loss) per common share attributable to common shareholders:                           
Basic $(0.01)     $0.13     $0.02    $0.17   
Diluted $(0.01)     $0.13     $0.02    $0.17   
Weighted average common shares outstanding:                           
Basic  25,033,868       25,818,571      25,066,374     26,039,082   
Diluted  25,033,868       26,459,087      25,981,051     26,597,012   
                            
*  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  For the 26 Weeks Ended 
      June 25,  June 26,  June 25,  June 26, 
      2017  2016    2017    2016 
Net income (loss) attributable to Potbelly Corporation, as reported       $(138) $3,373  $545  $4,461 
Impairment, loss on disposal of property and equipment, and closures(1)      3,440   1,011   4,376   1,028 
CEO transition costs(2)      974      974    
Tax impact(3)      (1,540)  (382)  (1,867)  (389)
Adjusted net income attributable to Potbelly Corporation     $2,736  $4,002  $4,028  $5,100 
                     
Net income (loss) attributable to Potbelly Corporation per share, basic     $(0.01) $0.13  $0.02  $0.17 
Net income (loss) attributable to Potbelly Corporation per share, diluted     $(0.01) $0.13  $0.02  $0.17 
                     
Adjusted net income attributable to Potbelly Corporation per share, basic     $0.11  $0.16  $0.16  $0.20 
Adjusted net income attributable to Potbelly Corporation per share, diluted     $0.11    $0.15  $0.16  $0.19 
                     
Shares used in computing adjusted net income attributable to Potbelly Corporation:                                              
Basic      25,033,868   25,818,571   25,066,374   26,039,082 
Diluted      25,880,705   26,459,087   25,981,051   26,597,012 


         For the 13 Weeks Ended For the 26 Weeks Ended
         June 25,  June 26, June 25, June 26,
         2017  2016   2017 2016
Net income (loss) attributable to Potbelly Corporation, as reported        $(138) $3,373 $545 $4,461
Depreciation expense                                   6,446   5,676  12,645  11,340
Interest expense         41   41  69  69
Income tax expense         186   2,039  739  2,772
EBITDA        $6,535  $11,129 $13,998 $18,642
Impairment, loss on disposal of property and equipment, and closures(1)              3,440   1,011  4,376  1,028
Stock-based compensation         856   789  1,676  1,466
CEO transition costs(2)         974     974  
Adjusted EBITDA        $11,805  $12,929 $21,024 $21,136


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 25,  June 26,  June 25,  June 26, 
        2017    2016    2017  2016 
Income from operations       $164  $5,512  $1,427  $7,401 
Less: Franchise royalties and fees        754   570   1,594   1,099 
General and administrative expenses        10,919   10,305   21,271   20,828 
Depreciation expense        6,446   5,676   12,645   11,340 
Pre-opening costs        546   239   619   391 
Impairment and loss on disposal of property and equipment         3,341   1,008   4,226   1,025 
Shop-level profit [Y]                     $20,662  $22,170  $38,594  $39,886 
Total revenues       $108,136  $105,036  $209,835  $200,991 
Less: Franchise royalties and fees        754   570   1,594   1,099 
Sandwich shop sales, net [X]       $107,382  $104,466  $208,241    $199,892 
Shop-level profit margin [Y÷X]        19.2%  21.2%  18.5%  20.0%


       For the 13 Weeks Ended  For the 26 Weeks Ended
       June 25, June 26,  June 25, June 26,
       2017  2016   2017  2016 
Selected Operating Data              
Shop Activity:                                                                                                                        
Company-operated shops, end of period      424  382   424  382 
Franchise shops, end of period      54  39   54  39 
Revenue Data:              
Company-operated comparable store sales        (4.9%) 1.7%  (4.0%) 2.6%


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, 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) As a result of the departure of the former CEO, the Company incurred certain costs related to the transition. Transition costs were included in general and administrative expenses in the condensed consolidated statements of operations and were related to the accelerated vesting of share-based compensation awards, as well as salary related charges in accordance with the former CEO's employment agreement.
(3) For the thirteen and twenty-six weeks ended June 25, 2017 and June 26, 2016, the tax impact associated with the adjustments above is based on effective tax rates of 34.9% and 37.8%, respectively.

 

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