Potbelly Corporation
Nov 3, 2015

Potbelly Corporation Reports Results for Third Fiscal Quarter 2015; Total Revenues Increased 13.4%; Company-Operated Same Store Sales Increased 3.7%; Company Expected to Enter California Market Under Franchise Model

CHICAGO, Nov. 03, 2015 (GLOBE NEWSWIRE) -- Potbelly Corporation (NASDAQ:PBPB) today reported financial results for the third fiscal quarter ended September 27, 2015.

Key highlights for the thirteen weeks ended September 27, 2015 compared to the thirteen weeks ended September 28, 2014 include:



Key highlights for the thirty-nine weeks ended September 27, 2015 compared to the thirty-nine weeks ended September 28, 2014 include:


Aylwin Lewis, Chairman and Chief Executive Officer of Potbelly Corporation, commented, "We made solid progress executing our priorities during the third quarter and this is reflected in our top-line performance. We generated revenue of $96.0 million, an increase of 13.4%, and company-operated same store sales growth of 3.7%. This was our fourth consecutive quarter of solid sales growth. We are pleased with our strong revenue and same store sales growth trends, and are focused on driving flow-through of our positive top-line growth to the bottom line. Our strong culture and values provide us with the foundation to effectively execute our growth strategies. We remain committed to our long-term goals and confident in the fundamentals of the business."

Lewis continued, "We are executing our new unit development plan and bringing Potbelly to new neighborhoods. During the third quarter, we opened 11 new company-operated shops and opened two domestic franchise shops. I am thrilled to announce that our board of directors has approved for Potbelly to expand into the state of California as a franchise-only strategy over time. We expect our franchisees to be strong multi-unit brand ambassadors."

2015 Outlook

For the full fiscal year of 2015, management currently expects:


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, November 3, 2015
Time: 5:00 p.m. Eastern time
Dial-In #: 877-407-0784 U.S. & Canada
  201-689-8560 International
Confirmation code: 13622373
   

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, November 3, 2015 through midnight Tuesday, November 10, 2015. To access the replay, please call 877-870-5176 (U.S. & Canada) or 858-384-5517 (International) and enter confirmation code 13622373. 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 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:


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."

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 39 Weeks Ended 
  September 27,  September 28,  September 27,  September 28, 
  2015  2014  2015  2014 
Revenues                                
Sandwich shop sales, net $95,564   99.5% $84,340   99.6% $276,527   99.6% $241,131   99.6%
Franchise royalties and fees  475   0.5   335   0.4   1,229   0.4   1,045   0.4 
Total revenues  96,039   100.0   84,675   100.0   277,756   100.0   242,176   100.0 
Expenses                                
Sandwich shop operating expenses                                
Cost of goods sold, excluding depreciation  27,256   28.4   24,044   28.4   78,854   28.4   69,066   28.5 
Labor and related expenses  27,663   28.8   23,772   28.1   79,415   28.6   68,637   28.3 
Occupancy expenses  11,855   12.3   10,467   12.4   34,741   12.5   30,629   12.6 
Other operating expenses  10,501   10.9   8,847   10.4   30,128   10.8   25,696   10.6 
General and administrative expenses  9,232   9.6   7,623   9.0   27,706   10.0   24,310   10.0 
Depreciation expense  5,510   5.7   5,039   6.0   15,949   5.7   14,540   6.0 
Pre-opening costs  510   0.5   314   0.4   1,587   0.6   839   0.3 
Impairment and loss on disposal of property and equipment  1,133   1.2   1,315   1.6   1,965   0.7   2,192   0.9 
Total expenses  93,660   97.5   81,421   96.2   270,345   97.3   235,909   97.4 
Income from operations  2,379   2.5   3,254   3.8   7,411   2.7   6,267   2.6 
Interest expense, net  56   0.1   42   0.0   180   0.1   124   0.1 
Income before income taxes  2,323   2.4   3,212   3.8   7,231   2.6   6,143   2.5 
Income tax expense  866   0.9   1,260   1.5   2,780   1.0   2,476   1.0 
Net income  1,457   1.5   1,952   2.3   4,451   1.6   3,667   1.5 
Net income attributable to non-controlling interests  56   0.1   5   0.0   58   0.0   11   0.0 
Net income attributable to Potbelly Corporation $1,401   1.5% $1,947   2.3% $4,393   1.6% $3,656   1.5%
                                 
                                 
Net income per common share attributable to common shareholders:                                
Basic $0.05      $0.07      $0.15      $0.12     
Diluted $0.05      $0.06      $0.15      $0.12     
Weighted average common shares outstanding:                                
Basic  27,850,394       29,358,822       28,450,063       29,284,058     
Diluted  28,369,775       30,044,456       29,137,537       30,463,093     


             
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 39 Weeks Ended 
  September 27,  September 28,  September 27,  September 28, 
   2015    2014    2015    2014  
Net income attributable to Potbelly Corporation, as reported $1,401   $1,947   $4,393   $3,656  
Impairment and closures(1)  1,231    1,421    2,517    2,284  
Tax benefit of impairment and closures(2)  (465)   (584)   (967)   (939) 
Adjusted net income attributable to Potbelly Corporation 2,167   $2,784   $5,943   $5,001  
                     
Net income attributable to Potbelly Corporation per share, basic 0.05   $0.07   $0.15   $0.12  
Net income attributable to Potbelly Corporation per share, diluted 0.05   $0.06   $0.15   $0.12  
                     
Adjusted net income attributable to Potbelly Corporation per share, basic 0.08   $0.09   $0.21   $0.17  
Adjusted net income attributable to Potbelly Corporation per share, diluted 0.08   $0.09   $0.2   $0.16  
             
Shares used in computing adjusted net income attributable to Potbelly Corporation:            
Basic  27,850,394    29,358,822    28,450,063    29,284,058  
Diluted  28,369,775    30,044,456    29,137,537    30,463,093  
             
             
  For the 13 Weeks Ended  For the 39 Weeks Ended 
  September 27,  September 28,  September 27,  September 28, 
   2015    2014    2015    2014  
Net income attributable to Potbelly Corporation, as reported $1,401   $1,947   $4,393   $3,656  
Depreciation expense  5,510    5,039    15,949    14,540  
Interest expense, net  56    42    180    124  
Income tax expense  866    1,260    2,780    2,476  
Impairment and closures(3)  1,231    1,421    2,347    2,284  
Pre-opening costs(4)  510    314    1,587    839  
Stock-based compensation  667    581    1,795    2,022  
Public company costs(5)  529    442    1,792    1,487  
Adjusted EBITDA $10,770   $11,046   $30,823   $27,428  
             
             
             
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 39 Weeks Ended 
  September 27,  September 28,  September 27,  September 28, 
   2015    2014    2015    2014  
Income from operations $2,379   $3,254   $7,411   $6,267  
Less: Franchise royalties and fees  475    335    1,229    1,045  
General and administrative expenses  9,232    7,623    27,706    24,310  
Depreciation expense  5,510    5,039    15,949    14,540  
Pre-opening costs  510    314    1,587    839  
Impairment and loss on disposal of property and equipment  1,133    1,315    1,965    2,192  
Shop-level profit [Y] $18,289   $17,210   $53,389   $47,103  
Total revenues $96,039   $84,675   $277,756   $242,176  
Less: Franchise royalties and fees  475    335    1,229    1,045  
Sandwich shop sales, net [X] $95,564   $84,340   $276,527   $241,131  
Shop-level profit margin [Y÷X]  19.1%   20.4%   19.3%   19.5% 
             
             
  For the 13 Weeks Ended  For the 39 Weeks Ended 
  September 27,  September 28,  September 27,  September 28, 
   2015    2014    2015    2014  
Selected Operating Data            
Shop Activity:            
Company-operated shops, end of period  358    319    358    319  
Franchise shops, end of period  31    26    31    26  
Revenue Data:            
Company-operated comparable store sales  3.7%   0.5%   4.6%   -1.1% 
             


 
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 thirty-nine weeks ended September 27, 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 weeks ended September 27, 2015 and September 28, 2014, the tax benefit associated with impairment and closures is based on effective tax rates of 37.8% and 41.1%, respectively. For the thirty-nine weeks ended September 27, 2015 and September 28, 2014, the tax benefit associated with impairment and closures is based on the Company's annual pro-forma effective tax rates of 38.4% and 41.1%, respectively.
(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 thirty-nine weeks ended September 27, 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 thirty-nine weeks ended September 27, 2015 includes pre-opening rent for the new corporate office location of $0.2 million.
(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