Date post: | 21-Apr-2017 |
Category: |
Food |
Upload: | the-motley-fool |
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3 Reasons Not to Worry About Potbelly
1. Top line growth remains intact
• Despite declining comps, Potbelly expects an increase in revenue to $83.6 million, up from $78.2 million a year ago.
Revenue slated to grow 7% in Q2.
Looking beyond the numbers • Potbelly warned investors that same-store-sales
for the second quarter are expected to fall 1.6%. Yet this is an improvement on the 2.2% decline in the prior quarter.
• Potbelly went public less than a year ago and therefore must combat increased costs related to stock-based compensation.
• These things will pressure the stock in the near term, but the longer-term picture looks bright because the company’s fundamentals are intact.
2. A sustainable long-term growth plan
• The company opened 42 new stores last year and currently owns and operates 300 locations in the U.S.
• For comparison, rival fast-casual chain Noodles & Company added 53 new stores in fiscal 2013.
Potbelly is on track to grow its store count by at least 10% in fiscal 2014.
Why this approach is important• By not opening too many new stores at once, it should
help Potbelly sidestep the risk of overextending itself. • Often when companies grow their store count too
quickly they are later forced to close underperforming locations.
• Potbelly only has 300 stores in the U.S. today, leaving ample room for growth.
• Potbelly plans to have at least 1,000 U.S. stores in the future.
3. International growth
• Potbelly currently has more than a dozen units in the Middle East, which are operated by franchisees.
Potbelly is uniquely positioned to expand overseas.
Franchising key to outsize growth?• All of Potbelly’s company-owned stores are within
the U.S. today. • Yet Potbelly already has franchisees operating 12
stores in the Middle East. • The company began offering franchise opportunities
in 2010, and is now well positioned to grow through franchising going forward.
• Potbelly’s “neighborhood marketing approach” helps it connect with local markets.
Food for thought
Shares of Potbelly are currently trading near the stock’s 52-week low at around $11 a share today.
However, I believe selling here would be shortsighted. Potbelly is a well-run company with
delicious food and a long runway of growth ahead. Most of Potbelly’s growth up to this point has come
from new company-owned stores. But there’s a clear opportunity for Potbelly to unlock even more growth
by franchising stores in the future.