Sluggish Potbelly May Serve Up Self -- WSJ

By Julie Jargon and Austen Hufford Features Dow Jones Newswires

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 5, 2017).

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Sandwich maker Potbelly Corp. is considering putting itself up for sale, making it the latest restaurant chain to run into trouble as Americans dine out less.

Potbelly on Friday reported a steep decline in earnings and same-store sales in the second quarter, and said it would undertake a comprehensive review of its business.

"The overall restaurant operating environment remains challenging and we do not contemplate an improvement in industry trends in our outlook for 2017," said Mike Coyne, the Chicago-based company's finance chief and interim chief executive.

In June, Ancora Advisors LLC, which holds a 4% stake in the company, sent a letter the board, calling for a change in strategy or a sale, citing Potbelly's declining share price. Potbelly shares fell 0.2% to $10.88 in Friday trading and are down 16% so far this year.

Restaurant chains from Starbucks Corp. to Shake Shack Inc. have reported slowing or falling traffic in recent quarters, as changing consumer behaviors catch up with them. Consumers are increasingly eating at home or the office to save money and time, particularly at lunch. People are also shopping more online, and making fewer trips to restaurants near malls.

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McDonald's Corp. is one of the few restaurant chains that had a strong second quarter. The burger giant said a $1 drinks promotion had helped attract more customers.

Potbelly said nearly 60% of its business comes at lunch, and that it is looking at ways to attract more customers at other times. Potbelly competes in a crowded market. Numerous sandwich chains have opened and expanded in recent years, including Jersey Mike's, Firehouse Subs and Jimmy John's.

Potbelly, which went public in 2013, has retained J.P. Morgan Securities as its financial adviser. The business review will include everything from its advertising strategy to ways to accelerate franchising, Potbelly said. About 11% of the company's restaurants are franchise locations, but the company has said it wants to boost that number to 25%.

Same-store sales at company-operated outlets fell 4.9% in the second quarter. Potbelly posted a quarterly loss of 1 cent a share, compared with earnings of 13 cents per share a year ago. Total revenue rose 3% to $108.1 million in the quarter.

For the year, the company now expects comparable sales to fall in the mid-single digits, compared with prior guidance of a low-single-digit decline.

Potbelly got its start in 1977 in Chicago as an antique store, but it eventually became known for its sandwiches, which it added to boost sales. Potbelly opened its second shop in 1997, its 100th site in 2005, and reached the 300 mark in 2013. As of June 25, the company had 424 owned stores and 54 franchised locations.

Write to Julie Jargon at julie.jargon@wsj.com and Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

August 05, 2017 02:47 ET (06:47 GMT)