Can Potbelly Corp (NASDAQ:PBPB) Extend Its Gains?


Potbelly Corp (NASDAQ:PBPB) recorded a strong green session on Tuesday and is trading marginally in red in today’s morning session. The company will release its unaudited financial report for 3Q2014 on November 3, 2015 after market hours.

The momentum

Shares of Potbelly plunged more than 20% in August following a dismal earnings report earlier in the month. Later it continued to decline with the broader market and ended the month deep in red. Apparently, the company delivered robust results in its 2Q report, reporting comparable sales growth of nearly 5% and overall revenue jump of 14.7%. But, earnings of $0.10 per share failed to meet market projections by a penny, and the revenue missed the forecast of $96 million.

The major issue noted was the rising food costs, as Potbelly had trouble recording substantial gains despite steady revenue growth. For 1H2015, overall operating margin jumped to 2.8% from 1.9% a year ago, but investors need to wait to see margin growth in 3Q2015.

The expectations

As of now, it is evident that Potbelly is facing tough times to meet the projections of the market. The stock price has plunged to just $11 from $32 per share, and the shares could extend decline as the winter months are believed to be weaker. The company reported a share repurchase plan worth $35 million in an attempt to lure investors.

However, for a firm only recording for $6 million earnings this year, the share repurchase plan appears like a less supported move. Even if Potbelly succeeds to report substantial profits, it should have adequate capital to reinvest the profits back into new outlets rather than buy back of shares.

In 2Q2015, G&A expenses came higher and accounted for over 10% of revenue. Potbelly Corp (NASDAQ:PBPB) would try to bring G&A costs in control and at par with its peers which would result in increased profits.

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