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Potbelly to slow development, close underperforming units

Company plans to increase franchising amid weakening sales

Potbelly Corp. plans to reduce development and close underperforming locations amid persistently weak same-store sales, the company said on Friday.

The company is working on “portfolio optimization” to determine the future of its underperforming restaurants, interim CEO Mike Coyne said during a third-quarter earnings call.

The Chicago-based sandwich chain has already closed three underperforming locations, and Coyne said efforts to exit the least profitable locations would continue. He did not say how many locations would close.

In addition, Potbelly plans to moderate development of company-owned locations next year, while concentrating more heavily on franchising.

Next year, Potbelly expects to open about half the number of company units it will open this year. The company expects to finish 2017 with 30 to 35 new units, meaning that next year it expects to open 15 to 18 new locations. A year ago, Potbelly opened 40 locations, and originally expected to open 50 new units.  

The company also plans to hire a franchise executive in the coming months and will make more investments in that part of the business.

“Historically, we’ve taken a more measured approach to franchising,” Coyne said, noting that Potbelly traditionally sold franchises to single-unit operators in smaller markets. “We’re recommitting ourselves to the franchise business and reallocating more investment.”

Potbelly operates 426 locations and franchises 56 units.  

The chain has struggled with weak sales in recent quarters amid an overall difficult market for restaurants. Same-store sales in the third quarter ended Sept. 24 declined 4.8 percent, and traffic fell 8.8 percent. Revenue rose 2.3 percent, to $106.1 million in the quarter. Adjusted net income fell 37.5 percent, to $1.9 million, or 7 cents per share.

Earlier this year, CEO Aylwin Lewis resigned. Coyne, who was chief financial officer, was named interim CEO. During the summer, Potbelly said it had undertaken a strategic review of its business to increase shareholder value.

The company’s stock declined in early Friday morning trading and is down about 14 percent this year.

Potbelly has been making investments to generate sales. It launched a new mobile app and a redesigned website, and it has worked to drive more downloads and increase online ordering. It’s also working to increase business outside the lunch daypart.

Additionally, Potbelly ran television ads in its home Chicago market and was “encouraged by the initial results,” Coyne said.

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

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