On August 8, 2024, Potbelly Corp (PBPB, Financial) released its 8-K filing for the second fiscal quarter ended June 30, 2024. Potbelly Corp, known for its neighborhood sandwich shops, reported mixed financial results, reflecting the impact of its ongoing refranchising strategy.
Company Overview
Potbelly Corp owns and franchises hundreds of limited-service restaurants specializing in sandwiches, salads, and shakes. The majority of its locations are company-owned and situated in the United States, with Illinois and Texas having the highest concentration of shops. The company also has franchise partners in the Middle East.
Performance and Challenges
Potbelly Corp reported a 5.5% decrease in total revenues to $119.7 million, missing the analyst estimate of $119.93 million. This decline was primarily driven by a 7.4% drop in company-operated sandwich shop sales, attributed to the refranchising of 26 company locations since Q1 2023. Despite this, franchise royalties, fees, and rent income surged by 117.4%, reflecting a 53% increase in franchised units.
Same-store sales saw a modest increase of 0.4%, while Average Weekly Sales (AWS) rose by 0.6% to $26,110. These metrics are crucial as they indicate the company's ability to maintain customer traffic and sales volume amidst strategic changes.
Financial Achievements
Potbelly Corp's GAAP net income attributable to the company was $34.7 million, a significant increase from $2.2 million in the same period last year. This includes a $31.3 million income tax benefit from the release of the company's tax valuation allowance. GAAP diluted earnings per share (EPS) was $1.13, surpassing the analyst estimate of $0.07.
Adjusted net income attributable to Potbelly Corp was $2.5 million, up from $2.0 million, with adjusted diluted EPS at $0.08, matching the analyst estimate of $0.08. Adjusted EBITDA increased by 5.9% to $8.5 million.
Income Statement Highlights
| Metric | Q2 2024 | Q2 2023 |
|---|---|---|
| Total Revenues | $119.7 million | $126.6 million |
| Net Income | $34.7 million | $2.2 million |
| Adjusted EBITDA | $8.5 million | $8.0 million |
| Adjusted Diluted EPS | $0.08 | $0.07 |
Balance Sheet and Cash Flow
As of June 30, 2024, Potbelly Corp reported total assets of $254.6 million, slightly up from $252.5 million at the end of 2023. The company had $8.3 million in cash and cash equivalents, down from $33.8 million. Total liabilities stood at $206.9 million, a decrease from $238.4 million, reflecting reduced long-term debt and operating lease liabilities.
Net cash provided by operating activities was $3.9 million, while net cash used in investing activities was $8.5 million, primarily due to purchases of property and equipment. Financing activities resulted in a net cash outflow of $20.9 million, driven by debt repayments and share repurchases.
Development and Share Repurchase Program
During the second quarter, Potbelly Corp opened four new shops, bringing the total to nine year-to-date. The company also signed commitments for 22 additional franchise shops, totaling 54 new commitments in 2024. As of June 30, 2024, Potbelly had 663 open and committed shops, a 25% increase from the previous year.
The company repurchased approximately 86,000 shares of its common stock for $0.7 million, with $19.3 million remaining under its share repurchase program.
Analysis and Outlook
Potbelly Corp's mixed financial results highlight the challenges and opportunities of its refranchising strategy. While total revenues declined, the significant increase in franchise income and net income demonstrates the potential long-term benefits of this approach. The company's ability to maintain same-store sales growth and AWS amidst these changes is a positive indicator of its operational resilience.
Looking ahead, Potbelly Corp's focus on expanding its franchise network and enhancing customer satisfaction through digital channels and loyalty programs will be crucial for sustaining growth. The company's updated guidance for Q3 2024 and the full year reflects cautious optimism, with expectations of modest same-store sales growth and continued EBITDA improvement.
Investors and stakeholders will be keenly watching Potbelly Corp's execution of its Five-Pillar Strategy and its impact on financial performance in the coming quarters.
Explore the complete 8-K earnings release (here) from Potbelly Corp for further details.
