Casual sandwich chain Potbelly (NASDAQ:PBPB) fell short of analysts' expectations in Q3 FY2023, with revenue up 2.65% year on year to $120.8 million. Turning to EPS, Potbelly made a non-GAAP profit of $0.04 per share, down from its profit of $0.31 per share in the same quarter last year.
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Potbelly (PBPB) Q3 FY2023 Highlights:
- Revenue: $120.8 million vs analyst estimates of $121.6 million (0.68% miss)
- Gross Margin (GAAP): 34%, up from 28.3% in the same quarter last year
- Same-Store Sales were up 8% year on year
- Store Locations: 430 at quarter end, increasing by 30 over the last 12 months
With a unique origin story where the company actually started as an antique shop, Potbelly (NASDAQ:PBPB) today is a chain known for its toasty sandwiches.
Modern Fast FoodModern fast food is a relatively newer category representing a middle ground between traditional fast food and sit-down restaurants. These establishments feature an expanded menu selection priced above traditional fast food options, often incorporating fresher and cleaner ingredients to serve customers prioritizing quality. These eateries are capitalizing on the perception that your drive-through burger and fries joint is detrimental to your health because of inferior ingredients.
Sales GrowthPotbelly is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale.
As you can see below, the company's annualized revenue growth rate of 4.31% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was mediocre, but to its credit, it opened new restaurants and grew sales at existing, established dining locations.
This quarter, Potbelly's revenue grew 2.65% year on year to $120.8 million, falling short of Wall Street's estimates. Looking ahead, the Wall Street analysts covering the company expect revenue to remain flat over the next 12 months.
Number of StoresA restaurant chain's total number of dining locations often determines how much revenue it can generate.
When a chain like Potbelly is opening new restaurants, it usually means it's investing for growth because there's healthy demand for its meals and there are markets where the concept has few or no locations. Potbelly's restaurant count increased by 30, or 7.5%, over the last 12 months to 430 locations in the most recently reported quarter.
Over the last two years, Potbelly has rapidly opened new restaurants, averaging 3.5% annual increases in new locations. This growth is among the fastest in the restaurant sector and gives Potbelly a chance to scale towards a mid-sized company over time. Analyzing a restaurant's location growth is important because expansion means Potbelly has more opportunities to feed customers and generate sales.
Same-Store SalesSame-store sales growth is a key performance indicator used to measure organic growth and demand for restaurants.
Potbelly has been one of the most successful restaurants over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 19.1%. This performance suggests its steady rollout of new restaurants is beneficial for shareholders. When a chain has strong demand, more locations should help it reach more customers seeking its meals.
In the latest quarter, Potbelly's same-store sales rose 8% year on year. This growth was a deceleration from the 15% year-on-year increase it posted 12 months ago, showing the business is still performing well but lost a bit of steam.
Key Takeaways from Potbelly's Q3 Results With a market capitalization of $258.0 million and more than $31.7 million in cash on hand, Potbelly can continue prioritizing growth.
We were impressed by how significantly Potbelly blew past analysts' adjusted EBITDA and EPS expectations this quarter. That shows management has been disciplined with its expenses and really stood out as a positive in these results. On the other hand, its revenue missed Wall Street's estimates, driven by its underperformance in same-store sales. Overall, this was a mixed quarter for Potbelly, but the market is likely rewarding it for its profitability. The stock is up 5.69% after reporting and currently trades at $9.28 per share.
The author has no position in any of the stocks mentioned in this report.
