Potbelly performs belly flop, stock sinks to 6-year low

Potbelly Corp. (PBPB) stock plunged to a 6-year low of $5.51 on Thursday as investors were unsatisfied with the latest quarterly earnings results despite delicious food. The sandwich-chain operator has been struggling due to falling sales at Potbelly restaurants, and traders remained concerned about the company’s future. The outlook for the restaurants’ industry might have a material impact on the company’s stock performance and results.

Investors were concerned about the rising costs and expenses arising from the closure of more locations as the company faced losses in those locations. After the stock touching a 6-year low, market analysts suggested investors remain on the sidelines instead of selling the stock as the company could turn out to a good investment opportunity.

However, the analysts remained uncertain about the time until investors should stick to the sidelines. This depended on the management’s ability to stabilize the numbers and show the concept could generate positive results.

The company has underperformed when compared to the analysts’ expectations as Potbelly has posted a wider than expected adjusted loss for the first quarter of 2019. The company cited by the government shutdown and the unseasonably cold temperatures across key markets as the reason behind the weak performance.

For the first quarter, Potbelly reported a wider loss due to an increase in charge related to the valuation allowance on deferred tax assets and impairment charge. Total revenues decreased by 4.7% year-over-year and company-operated comparable store sales dropped by 4.7%.

The company maintained its relentless focus on executing strategic initiatives to turn around the business. Those include menu optimization initiative, consistent growth in off-premise business, growth in Potbelly Perks registrants and greater customer engagement and loyalty, and the significant progress in the development of Shop of the Future concept.

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Potbelly is taking a step back to assess its marketing effort as the incremental advertising investment that was launched in the second quarter has not generated the expected returns. The company expects to take its learnings and apply them with a fresh approach to drive a more productive outcome.

Looking ahead into the full year 2019, the company expects 12-18 total shop openings, including 6-8 company-operated shop openings, and 15-22 total shop closures, including 9-12 company-operated shop closures. The company-operated comparable store sales are anticipated to decline in the range of flat to the low-single digit. Adjusted EBITDA is predicted to be $25 million to $30 million, excluding the impact of ASC 842.

In addition, the company intends to more than double its franchise locations by 2024 as part of its global expansion plans. The company is specifically looking at new markets such as California, Alabama, Georgia, Florida, Colorado, Arizona and Washington State for increasing its franchise locations.

Shares of Potbelly ended Thursday’s regular session down 4.94% at $5.58 on the Nasdaq. The stock has fallen over 57% in the past year and over 33% in the past three months.

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