3 Reasons Not to Worry About Potbelly

1. Top line growth remains intact Despite declining comps, Potbelly expects an increase in revenue to $83.6 million, up from $78.2 million a year ago. Revenue slated to grow 7% in Q2.

Looking beyond the numbers Potbelly warned investors that same-store-sales for the second quarter are expected to fall 1.6%. Yet this is an improvement on the 2.2% decline in the prior quarter. Potbelly went public less than a year ago and therefore must combat increased costs related to stock-based compensation. These things will pressure the stock in the near term, but the longer-term picture looks bright because the companys fundamentals are intact.

2. A sustainable long-term growth plan The company opened 42 new stores last year and currently owns and operates 300 locations in the U.S. For comparison, rival fast- casual chain Noodles & Company added 53 new stores in fiscal 2013. Potbelly is on track to grow its store count by at least 10% in fiscal 2014.

Why this approach is important By not opening too many new stores at once, it should help Potbelly sidestep the risk of overextending itself. Often when companies grow their store count too quickly they are later forced to close underperforming locations. Potbelly only has 300 stores in the U.S. today, leaving ample room for growth. Potbelly plans to have at least 1,000 U.S. stores in the future.

3. International growth Potbelly currently has more than a dozen units in the Middle East, which are operated by franchisees. Potbelly is uniquely positioned to expand overseas.

Franchising key to outsize growth? All of Potbellys company-owned stores are within the U.S. today. Yet Potbelly already has franchisees operating 12 stores in the Middle East. The company began offering franchise opportunities in 2010, and is now well positioned to grow through franchising going forward. Potbellys neighborhood marketing approach helps it connect with local markets.

Food for thought Shares of Potbelly are currently trading near the stocks 52-week low at around $11 a share today. However, I believe selling here would be shortsighted. Potbelly is a well-run company with delicious food and a long runway of growth ahead. Most of Potbellys growth up to this point has come from new company- owned stores. But theres a clear opportunity for Potbelly to unlock even more growth by franchising stores in the future.

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