3 Reasons Not to Worry

About Potbelly
1. Top line growth remains intact
Revenue slated to
grow 7% in Q2.
• Despite declining
comps, Potbelly
expects an increase
in revenue to $83.6
million, up from
$78.2 million a year
ago.
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
company’s fundamentals are intact.
2. A sustainable long-term growth plan
Potbelly is on track to
grow its store count by at
least 10% in fiscal 2014.
• 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.
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 is uniquely
positioned to expand
overseas.

• Potbelly currently
has more than
a dozen units in
the Middle East,
which are operated
by franchisees.
Franchising key to outsize growth?
• All of Potbelly’s 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.
• Potbelly’s “neighborhood marketing approach” helps
it connect with local markets.
Food for thought
Shares of Potbelly are currently trading near the
stock’s 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 Potbelly’s growth up to this point has come
from new company-owned stores. But there’s a clear
opportunity for Potbelly to unlock even more growth
by franchising stores in the future.
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