Potbelly Corp reported a 28percent decline in net income due to labor costs although samestore sales and revenue both rose during the third quarter ended Sept 27 Andrew Burton/Getty Images

Under pressure, Potbelly adds new director to board

Chain agrees to appoint investor critical of the company

Potbelly Corp. on Thursday said that it has appointed Ancora Advisors Portfolio Manager Joseph Boehm to its board of directors — four months after the shareholder sent a scathing letter critical of the company.

The appointment was part of a “settlement agreement” with Ancora, an investment advisor based in Cleveland. Potbelly has agreed to appoint Boehm to its board and nominate him when his term on the board is up in 2018.

In exchange, Ancora said it would not acquire more than 9.9 percent of Potbelly stock and would not participate in any effort to change control of the company. Ancora also agreed not to sue the company or present a stockholder proposal at any upcoming meetings.

Ancora owns 4.3 percent of Potbelly stock, making it the company’s fourth-largest shareholder.

The appointment comes amid a challenging time for the Chicago-based sandwich chain. Same-store sales have been weak, including a 4.9-percent decline in the second quarter ended June 25.

The chain’s longtime CEO Aylwin Lewis resigned in May and was replaced by CFO Michael Coyne on an interim basis.

Potbelly in August hired J.P. Morgan Securities as a financial adviser to look at strategic business alternatives to improve the business and reverse sales trends. Among other things the adviser is studying: ways to increase franchising.

In June, Ancora sent a 10-page letter to the board describing a plan to improve shareholder returns. “Since going public in October 2013, investors have experienced nothing but losses as owners of Potbelly,” Ancora CEO Fred DiSanto wrote in the letter.

The letter suggested changes in Potbelly’s corporate governance structure and its capital spending. It also suggested the chain look at franchising more of its 400 locations — the vast majority of which are company operated.

“We believe the strong shop level returns at Potbelly, high quality product and brand, and relatively straightforward concept make it an attractive candidate for franchisees,” DiSanto wrote.

None of Potbelly’s three-largest shareholders with 5 percent or more of company stock has registered as an activist investor with the Securities and Exchange Commission.

Potbelly stock skyrocketed to more than $30 a share in 2013 when it went public, but the stock quickly retreated and has been languishing in the low double digits since 2014. The stock is down about 5 percent so far in 2017.

Stephen Anderson, an analyst with Maxim Group, suggested that Boehm’s appointment to the board could accelerate refranchising, which he believes will keep Potbelly stock from falling further.

“On the other hand, we believe continued near-term sales softness … is likely to limit near-term upside potential,” he wrote. 

Contact Jonathan Maze at [email protected]

Follow him on Twitter at @jonathanmaze

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