Potbelly (PBPB) Q2 Revenue Rises 3%

Potbelly (PBPB 3.79%), the fast-casual sandwich shop operator, released its results for the second quarter on August 6, 2025, covering the period ended June 29. GAAP revenue was $123.7 million for the quarter ended June 29, 2025, exceeding analyst expectations of $122.65 million by $1.05 million. Adjusted earnings per share of $0.09 exceeded analyst estimates, with adjusted EBITDA was $9.6 million. Revenue (GAAP) and adjusted net income (non-GAAP) figures showed moderate growth compared to the prior year, backed by same-store sales gains and significant progress in franchise expansion. The quarter was generally positive, with stronger shop-level profit margins (non-GAAP) and strong commitment momentum among franchisees, though certain cost categories trended upward.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Potbelly: Business Model, Focus, and Success Factors

Potbelly operates a network of company-owned and franchised sandwich shops in the United States. Its restaurants are known for toasted sandwiches, salads, hand-dipped shakes, and a brand centered on delivering a friendly, local shop experience.

Recently, the company’s focus has been on scaling its franchise network and executing a strategy it calls “Traffic-Driven Profitability.” This strategy emphasizes enhancing guest experience, innovating the menu, strengthening digital sales channels, and prudent cost controls. The combination of customer loyalty, menu quality, and operational efficiency are viewed by management as essential to driving long-term, profitable growth.

Second Quarter in Detail: Revenue, Franchising, and Margin Trends

Revenue (GAAP) rose by 3.4%. Same-store sales for company-operated locations grew 3.2%, a notable improvement over the modest 0.4% gain seen in Q2 FY2024. Potbelly’s average weekly sales per company-operated shop was $27,040, up 3.6%.

Systemwide sales, which combine both company and franchised shop revenues, were $154.2 million, an increase of 6.7% in system-wide sales. Franchise shop sales grew 23.6% year over year for the second quarter, with franchise royalties, fees, and rent income increased 27.7% to $5.3 million. This demonstrates that the company’s strategy to drive growth through franchising is gaining traction and outpacing company-operated growth.

On the franchise expansion front, the company opened eight new shops, two of which were company-operated and six franchised. Potbelly signed 54 new franchise shop commitments. The number of open and committed shops rose to 816, compared to 766 the previous quarter.

Profitability improved, with adjusted EBITDA (non-GAAP) up 13.0% to $9.6 million. Shop-level profit margin (non-GAAP) reached 16.7%, up from 15.7% in Q2 FY2024. Lower food, beverage, and packaging costs as a percent of shop sales (26.3%, down from 27.1% for Q2 FY2024) and Labor costs as a percent of shop sales were flat compared to the prior year, helping support margin expansion. However, general and administrative expenses (GAAP) increased to 10.8% of revenue from 9.9%, reflecting ongoing investments in technology and employee incentives.

GAAP net income dropped sharply to $2.5 million from $34.7 million versus the prior year, but the prior year included a non-recurring $31.3 million deferred tax asset release. Adjusted net income rose to $2.9 million. Operating income (GAAP) saw a modest decline from $4.1 million to $3.7 million, with a lower operating margin of 3.0% compared to 3.4% for Q2 FY2024.

The company continued to invest in restaurant technology and digital platforms. A phased rollout of new kitchen technology and upgraded point-of-sale systems aims to improve labor efficiency and throughput in company shops. These implementations are expected to drive further operational gains, with management reporting initial labor savings at newly equipped locations.

No dividend was declared or changed during the period. PBPB does not currently pay a dividend.

Brand, Menu, and Product Initiatives

Potbelly’s menu strategy centers on toasted sandwiches, fresh salads, cookies, and shakes. The company pairs its food offerings with an emphasis on hospitality and a local shop atmosphere. New product launches, such as signature sandwiches and the Banana Pudding Shake, are used to create guest excitement and attract a wider range of customers.

The company applies a process known as “stage-gate development” to test new menu items, balancing the goal of menu excitement with the operational need to avoid line slowdowns. Potbelly also promoted digital platforms like its app and Perks loyalty program, which accounted for a significant portion of sales and provided targeted promotions to encourage repeat visits.

Looking Ahead: Guidance and Investor Watchpoints

Management raised its full-year outlook, now expecting same-store sales growth of 2.0% to 3.0% (up from 1.5% to 2.5%). and adjusted EBITDA (non-GAAP) between $34 million and $35 million (previously $33 million to $34 million). For Q3 FY2025, same-store sales are guided to 3.25% to 4.25% growth, with adjusted EBITDA (non-GAAP) of $9 million to $10 million. At least 38 new shop openings are targeted, reflecting ongoing optimism around franchise deals already signed.

Investors should monitor potential cost pressures in the back half of the year, including rising commodity and wage costs. The company also noted that general and administrative expenses have risen due to technology and incentive investments, and management advised that ongoing cost control will be key. While franchise expansion has accelerated, maintaining brand standards and shop-level profitability as the network grows will be important for long-term health. No further updates were issued on capital returns beyond a continuing share buyback authorization.

PBPB does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.