Can Potbelly and BJ's Bounce Back?

It was a rough week for Potbelly (NASDAQ: PBPB  ) and BJ's Restaurant Group (NASDAQ: BJRI  ) investors. Shares of the sandwich shop and casual dining chain tumbled 11% and 10%, respectively, last week after posting uninspiring quarterly results.

Revenue growth at BJ's decelerated to 8%, and that was solely the handiwork of the 17 new locations it opened last year. Comps fell for the second quarter in a row, dragging all of 2013 into negative territory. BJ's thought it had a unique niche, combining deep-dish pizzas with signature brews, but folks just aren't coming the way they used to. BJ's is introducing a new menu this week, but analysts are hosing down their profit targets for the balance of the year on cautious words about near-term margin constraints.  

Potbelly fared relatively better, but sales still fell short of expectations. The rapidly expanding chain specializing in baked sandwiches posted positive comps of 0.7%. Potbelly has been a disappointment since peaking the day after going public four months ago. It hit a fresh post-IPO low on the ho-hum report.

Potbelly and BJ's are just the latest restaurant chains to stumble this earnings season, and this new week offers opportunities for more eateries to fall short. 

Noodles & Co. (NASDAQ: NDLS  ) , Wendy's (NASDAQ: WEN  ) , and Cracker Barrel (NASDAQ: CBRL  ) are just some of the restaurants reporting this week. These three companies will provide snapshots of all three niches of the restaurant industry, which has been under fire after contracting margins, escalating costs, and crummy December weather started to weigh down on the eateries that have already reported.

Wendy's, naturally, is a fast-food chain, flipping square burger patties as it hopes to upsell hurried diners into premium items beyond its value menu. Cracker Barrel is a representative of the casual dining niche, providing table service for its comfort food staples in a throwback country environment. Noodles & Co. is in the fast-casual niche that straddles the fast-food and casual dining categories. Investors have been hungry for fast-growing fast-casual chains, to the point where Noodles & Co. and Potbelly were big winners the day they went public last year.

The reports may not necessarily impress the market. Wendy's is expected to post flat earnings growth on a slight dip in sales. Analysts see Cracker Barrel posting a modest uptick in earnings per share on flat sales growth. Noodles & Co. is expected to post more convincing growth than Wendy's or Cracker Barrel, but it merely met expectations last time out.

The restaurant industry failed two tests last week. It's going to have to hold up better this time around, but it's not going to be easy.

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  • Report this Comment On February 25, 2014, at 1:02 PM, TheCommonTulip wrote:

    Potbelly has the best sandwiches and salads on earth. Period. Don't know about the stock or anything.

  • Report this Comment On March 11, 2014, at 5:24 PM, sandiegoman wrote:

    if you think potbelly has good food, you've never had good food. come to california and try farm to table sandwich places. they make $pbpb look as appealing as frozen tofu burger patties

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Rick Munarriz

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he now lives a block from his alma mater.

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