If you want a sandwich, Potbelly (PBPB 11.30, -2.55, -18.4%) is certainly a worthwhile go-to option if it has a shop in your neighborhood. Based on the company's latest earnings results and outlook, though, it sounds as if hungry consumers aren't satisfying their sandwich/salad cravings at Potbelly as much as the company would like them to, the evidence of which is in declining comparable store sales.
Potbelly shared its first quarter operating results after Tuesday's close. They included a 6.0% increase in total revenues of $101.7 million, which was shy of analysts' average expectation, and a 25% increase in adjusted diluted earnings per share of $0.05, which was in-line with expectations.
Those results were respectable, yet a 3.1% decrease in company-operated comparable store sales was less than delectable for investors in this fast-growing sandwich concept when matched against the 3.7% increase registered in the same period a year ago. Furthermore, the shop-level adjusted profit margin dropped 80 basis points to 17.8%.
Potbelly characterized the operating environment as being "highly challenging for restaurants," and said it was not immune from the negative traffic trends that have hurt most of the industry. The sting of that summation lingered with the acknowledgment that Potbelly's traffic at the end of 2016 continued to decline into 2017.
A quick turnaround isn't expected either.
Potbelly revised its full-year outlook to account for its belief that the challenging industry conditions will persist; moreover, Potbelly has its own specific issue in the closure of its Chicago Midway Airport Shop this May, which accounted for just less than 2.0% of its fiscal 2016 revenue and provided approximately $2.0 million in income before income taxes. That closure is the result of Potbelly being left out of a new development project for dining concessions at the airport, which meant its lease was not extended.
With these factors in mind, Potbelly is projecting full-year adjusted diluted earnings per share to range from $0.35 to $0.38 versus its prior guidance of $0.45 to $0.47. Company-operated comparable store sales, meanwhile, are anticipated to decrease by a low single digit versus a prior view that they would be flat. Potbelly maintained an expansion plan for 45-60 total new shop openings, including 30-40 company-operated shop openings.
That guidance was wholly disappointing and it has created an opening for many investors to sell the stock, which is now down 19% from the company's October 2013 IPO price and down 63% from where it closed on its first day of trading.