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Potbelly Recruits New CEO, Anticipates Franchisee Changes

PotbellyPotbelly Corporation [NASDAQ: PBPB] announced last Friday that it has appointed Alan Johnson to be its president, chief executive officer and member of its board of directors. Johnson replaces interim CEO Michael Coyne, who will continue to serve as the company’s chief financial officer.

Anticipates type of franchisees at Potbelly to change

The Chicago-based company, which has 426 of its own sandwich shops and has franchised 56 locations, has been down on its luck. After another bad quarter, Potbelly announced in May that CEO Aylwin Lewis would leave the company in August. In his place, Michael Coyne took the helm as interim CEO. After a poor showing in its second quarter, the firm announced that it would consider various strategic alternatives, which included finding a buyer to acquire the chain of sandwich shops.

In October activist Joseph Boehm of Ancora Advisors LLC was added to Potbelly’s board of directors to accelerate refranchising. That is to say, to push Potbelly to sell the chain’s many company-owned stores to franchise owners, getting cash to buy back stock, driving up share prices.

In its third quarter that ended September 24, 2017, Potbelly had a net loss and company-operated comparable store sales decreased 4.8 percent.

There seems to be change in the air on the nature of owners in the small but increasing number of franchises in the Potbelly system. One analyst, observing that Potbelly is now “shifting into more franchise-driven development,” wanted to know how existing franchisees are accepting the new store prototype that Potbelly is developing. Interim CEO Michael Coyne indicated that there were two franchisees who wanted to be the ones to pioneer the prototype when it was done. He added that he expects a change in the type of franchise owner at Potbelly. He and others at Potbelly had been speaking with franchisee groups, franchise brokers and lenders in hopes of finding franchise buyers for their company stores. The franchisor wants to do larger deals, presumably speaking of larger multiunit franchisees. “We have talked to our existing franchisees, which may be a different profile of those that we talk to in the future," said Potbelly's Coyne.

Johnson has led BevMo, Pizza Hut and other firms

Now comes the firm's newest CEO, Alan Johnson. He has experience leading restaurant operations, finance and international expansion. Johnson served as CEO of BevMo, a specialty retailer of alcoholic beverages. He was chief operating officer and chief financial officer for PepsiCo’s eastern Europe restaurant division and international strategic planning director for Pizza Hut International. He was also the COO of Regal Theaters (formerly known as Hoyts Cinemas) and senior vice president and general manager for Walt Disney Parks & Resorts.

The incoming chief executive indicated that he wanted to hear from franchisees about the franchisor’s future. “I am enthusiastic about supporting the board’s evaluation of strategic options to maximize shareholder value and look forward to engaging with our shareholders, employees, franchisees, and customers as we chart the optimal future course for Potbelly,” said Johnson.

The chairman reassured shareholders and employees that Johnson is the right person for the job ahead. “I am confident Alan’s exceptional analytical and leadership skills make him an ideal choice for Potbelly, its shareholders, and employees,” said Pete Bassi, chairman of the board of Potbelly Corporation. “He is a great cultural fit for our company and the Potbelly brand. Mike Coyne’s material contributions as interim CEO have been invaluable and we look forward to having Alan partner with Mike to build value for our shareholders.”

Potbelly expects its stores to continue to decrease in same-restaurant sales in the “mid-single digit” range for the entire year. However, it expects to increase in net number of restaurant units.

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