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Potbelly Considers Selling the Firm as Q2 Shop Comps Drop

Potbelly shop front windowPotbelly Corporation [NASDAQ:PBPB) reported a poor showing on Friday in its second quarter financial results of 2017, which ended June 25. Amidst the earnings miss, it also reported that it is looking for a strategic sale of the company.

"While the overall restaurant operating environment remains challenging,” said Mike Coyne, Potbelly’s chief financial officer and interim chief executive officer, “we do not contemplate an improvement in industry trends in our outlook for 2017.”

Company-operated same-restaurant sales decreased by 4.9 percent during the quarter. For the half-year, company same-restaurant sales dropped by 4 percent. However, company-owned restaurants delivered store-level EBITDA profit margins of 19.2 percent.

The result of the weakness at the sandwich shops was that Potbelly’s EBITDA decreased by 41.3 percent from the $11.1 million of 2016’s second quarter.

The company managed to grow revenue by growing the number of its stores. Chicago-based Potbelly operates over 400 sandwich shops in the United States and franchises 40 domestic shops. Although sagging in traffic and sales, those company-owned sandwich shops could pay off for Potbelly shareholders by selling the company shops to franchise owners who are willing to try their luck.

"We are undertaking a comprehensive review of our business strategy,” said interim CEO Coyne. “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.”

For the full year, Potbelly plans to open 45 to 50 new sandwich shops, of which 30 to 35 will be company owned. It expects a drop for the year in store sales comps.

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