Please ensure Javascript is enabled for purposes of website accessibility

Potbelly Corporation’s Stock Fell 13% in June

By Demitri Kalogeropoulos – Jul 2, 2015 at 12:06PM

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

No specific news drove the June swoon. In fact, communication from the lunch shop chain showed healthy business trends.

What: Sandwich shop Potbelly's (PBPB 3.09%) stock dropped by 13% in June, according to S&P Capital IQ data. That dip pushed shares to roughly even for the year, and down a whopping 60% since its initial pubic offering in October 2013.

PBPB Chart

PBPB data by YCharts.

So what: No specific news drove the June swoon. In fact, the last communication from the lunch shop chain showed healthy business trends. Potbelly announced in May that the addition of seven sandwich locations, along with a 5% sales increase at existing stores, pushed total first-quarter revenue higher by 16%. 

Those comps beat struggling fast-food and fast-casual giants including McDonald's and Panera Bread, but they were still far from what investors would want from a fast-growing food business. Shake Shack, for example, booked a 12% comps gain, and Chipotle boosted burrito sales by 10% in the first quarter.

Meanwhile, Potbelly managed a slight profit gain last quarter, compared to a net loss in the year-ago period, which should help it steadily add new locations. "We will continue to grow using our strong balance sheet and self-funded model and we remain confident in the long-term fundamentals of our business," CEO Aylwin Lewis said in a press release.

Now what:  Lewis and his executive team plan to add as many as 55 stores to Potbelly's 300-location footprint this year while improving earnings by 20%. That helps explain why Wall Street analysts see sales rising by 14% in 2015, to $372 million.

However, management only expects a "low single-digit" comps gain for the year. That's essentially the same as the disappointing flat comps it booked last year and the meager 1.5% improvement it managed in 2013. For the stock to break out of its funk and rise toward the valuation of rivals, the business will need to show bigger sales gains at existing locations. That's the only way investors can be confident that Potbelly's sandwich shop concept can stand out from the sea of competitors in the fast-casual dining space.

Demitrios Kalogeropoulos owns shares of Apple and McDonald's. The Motley Fool recommends Apple, Chipotle Mexican Grill, and Panera Bread. The Motley Fool owns shares of Apple, Chipotle Mexican Grill, and Panera Bread. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

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