Casual sandwich chain Potbelly (NASDAQ: PBPB) announced better-than-expected revenue in Q1 CY2025, with sales up 2.3% year on year to $113.7 million. Its non-GAAP loss of $0 per share was $0.02 above analysts’ consensus estimates.
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Potbelly (PBPB) Q1 CY2025 Highlights:
- Revenue: $113.7 million vs analyst estimates of $111.7 million (2.3% year-on-year growth, 1.7% beat)
- Adjusted EPS: $0 vs analyst estimates of -$0.02 ($0.02 beat)
- Adjusted EBITDA: $5.52 million vs analyst estimates of $4.10 million (4.9% margin, 34.6% beat)
- EBITDA guidance for the full year is $33.5 million at the midpoint, in line with analyst expectations
- Operating Margin: 0.2%, in line with the same quarter last year
- Free Cash Flow was $3.64 million, up from -$3.27 million in the same quarter last year
- Locations: 440 at quarter end, up from 425 in the same quarter last year
- Same-Store Sales were flat year on year (-0.2% in the same quarter last year)
- Market Capitalization: $254.7 million
Bob Wright, President and Chief Executive Officer of Potbelly Corporation, commented, “We are pleased with the great start to 2025 and our strong finish to the first quarter which showcased the strength of the Potbelly brand. Not only did we deliver strong system-wide sales growth including positive same-store sales growth that exceeded our expectations, but we also posted another quarter of strong profitability. Moreover, we made significant progress in our franchise development efforts by delivering on our promise to open four new franchise shops during the first quarter, which included new shops from three different franchise groups across two different states.”
Company Overview
With a unique origin story where the company actually started as an antique shop, Potbelly (NASDAQ: PBPB) today is a chain known for its toasty sandwiches.
Sales Growth
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
With $465.1 million in revenue over the past 12 months, Potbelly is a small restaurant chain, which sometimes brings disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.
As you can see below, Potbelly’s 1.8% annualized revenue growth over the last six years (we compare to 2019 to normalize for COVID-19 impacts) was weak, but to its credit, it opened new restaurants and increased sales at existing, established dining locations.
This quarter, Potbelly reported modest year-on-year revenue growth of 2.3% but beat Wall Street’s estimates by 1.7%.
We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates.
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Restaurant Performance
Number of Restaurants
A restaurant chain’s total number of dining locations often determines how much revenue it can generate.
Potbelly sported 440 locations in the latest quarter. Over the last two years, it has opened new restaurants quickly, averaging 2.3% annual growth. This was faster than the broader restaurant sector.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
Same-Store Sales
The change in a company's restaurant base only tells one side of the story. The other is the performance of its existing locations, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth at restaurants open for at least a year.
Potbelly’s demand has been spectacular for a restaurant chain over the last two years. On average, the company has increased its same-store sales by an impressive 3.8% per year. This performance suggests its rollout of new restaurants is beneficial for shareholders. We like this backdrop because it gives Potbelly multiple ways to win: revenue growth can come from new restaurants or increased foot traffic and higher sales per customer at existing locations.
In the latest quarter, Potbelly’s year on year same-store sales were flat. This was a meaningful deceleration from its historical levels. We’ll be watching closely to see if Potbelly can reaccelerate growth.
Key Takeaways from Potbelly’s Q1 Results
We were impressed by how significantly Potbelly blew past analysts’ EPS and EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 5.7% to $9.02 immediately after reporting.
Potbelly put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
