Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Potbelly Shares Fell 20% to a Record Low Today

By Jason Hall - May 8, 2019 at 2:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Management blamed everything from the weather to the federal government shutdown for its bad first quarter.

What happened

Shares of struggling sandwich chain Potbelly (PBPB 0.90%) fell more than 20% in early trading on May 8 and are still down 19.3% at 1:42 p.m. EDT. Today's big drop puts shares down 43% over the past year and down 77% since going public in 2013.

Today's huge sell-off is a response to the company's first-quarter earnings report, which it released after hours yesterday. In short, the company posted $98.1 million in revenue, a 5% decline, an $18 million GAAP loss, and a $3 million loss even after adjusting for nonrecurring items.

Man forcing line on a chart that's fallen to go up.

Potbelly's turnaround hasn't happened yet. Image source: Getty Images.

So what

Getting into the particulars, Potbelly's sales decline was particularly troubling, since its comparable sales, which measures sales at restaurants open for more than one year, fell 4.7% in the quarter. Total sales were well below expectations; analysts were looking for $101 million on average, while the market expected a loss, albeit a much smaller loss of $0.03 per share versus the $0.12 adjusted loss per share the company actually reported.

In the earnings release, CEO Alan Johnson passed the blame around for the weak quarter, saying, "Our company-operated same store sales were negatively impacted by the government shutdown and the unseasonably cold temperatures across our key markets during the first half of the first quarter."

Now what

In fairness, investors may want to give Johnson and Potbelly the benefit of the doubt in Q1. The company operates a significant number of its restaurants in the D.C. metro area and the northeast, so those two things likely did have an outsize impact on the early part of the year.

But there's a difference between giving them the benefit of the doubt and investing in the company's turnaround. Just because Potbelly shares will likely close at an all-time low today doesn't mean they'll just start going up from here.

That's particularly true considering that the company has a lot of work still ahead of it in its turnaround. Over the next year, the company is saying it will close more locations than it will open, and those expenses -- not to mention the continued drag from still open but unprofitable restaurants -- will weigh on the bottom line.

Potbelly's food is delicious, and I expect eventually there could be a good opportunity to invest in this company. But until management stabilizes the numbers and shows the concept can generate positive results, investors should probably stay on the sidelines.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Potbelly Corporation Stock Quote
Potbelly Corporation
PBPB
$5.58 (0.90%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
349%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/18/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.