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Potbelly CEO says struggling brand ‘explored’ a sale

Company reports 1Q net loss of $2.2M and hires Michelin-starred chef as part of turnaround

During a strategic review of operations, Potbelly Corp. explored — and then scrapped — a potential sale of the company, CEO Alan Johnson told investors on Tuesday during the company’s first-quarter conference call.

“After a thorough and wide-ranging sales process, ultimately this effort did not result in a transaction that the Potbelly board determined to be viable or in the best interest of the company and our shareholders,” said Johnson, who launched a review of Potbelly’s operations after becoming CEO in December.

Instead, the turnaround plan calls for menu innovation, capitalization of off-premise sales and relevant marketing. Specifically, Johnson said he is relying on a Michelin-starred chef to drive repeat visits to Potbelly.

“Chief foodie” Ryan LaRoche, who was hired in April, is charged with product innovation and menu design. LaRoche, whose official title is vice president of culinary innovation, earned a Michelin star as chef de cuisine at NoMi at the Park Hyatt Chicago.

Johnson said he’s “absolutely convinced” that craveable foods and improved customer relationships will boost sales at the 495-unit fast-casual chain.

For the first quarter ended April 1, same-store sales dropped 3.6 percent at Potbelly’s corporate locations. The decrease was tied partly to unfavorable weather in January and February, and a calendar shift for New Year’s Day and Easter.

Revenue rose 1.2 percent, to $102.9 million, compared with $101.7 million the previous year. A net loss of $2.2 million was a decrease from a profit of nearly $700,000 the previous year.

During the conference call, Johnson told investors that Potbelly remains in transition.

“It will take time to turn around the business,” he said.

The company’s turnaround strategy also includes pursuing off-premise sales and hiring the right leadership team. Johnson didn’t provide details about delivery, only stating that Potbelly is bringing in a marketing executive who will be tasked with building the brand’s delivery, takeout and catering platforms.

Johnson said Jeff Welch was recently appointed senior vice president of franchise development and operations. Welsh, who started in April, previously served as president of the international group for Krispy Kreme. Before that role, he led the international real estate team for Home Depot.

Potbelly also announced board approval of a stock repurchase, or buyback program, for up to $65 million of outstanding common stock.

Contact Nancy Luna at [email protected]

Follow her on Twitter: @FastFoodMaven

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