Potbelly Corporation Reports Revenue Decline but Significant Net Income Increase for Fiscal Year Ending December 29, 2024

Potbelly Corporation reported a decrease in total revenues for the fiscal year ending December 29, 2024, amounting to $462.6 million, down from $491.4 million in the previous year. This decline was primarily attributed to a $36.1 million drop in sandwich shop sales, which fell to $446.2 million, largely due to the refranchising of 34 company-operated shops and the absence of an additional week of sales that had contributed to the previous year's figures. However, franchise royalties, fees, and rental income saw a significant increase of 79.3%, reaching $16.4 million, driven by the opening of 18 new franchise locations and additional franchise fees.

In terms of profitability, Potbelly reported a net income of $41.3 million, a substantial increase from $5.6 million in the prior year. This improvement was bolstered by a $33.5 million income tax benefit resulting from the release of a valuation allowance on deferred tax assets, indicating a more favorable outlook for future profitability. The company also achieved a shop-level profit margin of 15.1%, up from 14.2% in the previous year, reflecting improved operational efficiency despite the overall revenue decline.

Operationally, Potbelly maintained a total of 442 shops as of December 29, 2024, with 346 company-operated and 96 franchise-operated locations. The company opened five new company-operated shops and 18 franchise locations during the year, while closing three company-operated and two franchise shops. The strategic focus on franchising is evident, as the company aims to limit the growth of company-operated shops in favor of expanding its franchise network, which is expected to drive future revenue growth.

The filing also highlighted Potbelly's ongoing efforts to enhance its digital engagement and customer experience, including improvements to its Potbelly Perks rewards program and the introduction of new menu items. The company reported that over 40% of its orders were made digitally, indicating a strong shift towards online and app-based sales channels. Looking ahead, Potbelly expressed optimism about its growth strategy, particularly through franchising, and aims to continue improving shop-level margins while navigating the challenges of rising labor and commodity costs.

In terms of financial health, Potbelly ended the fiscal year with a cash balance of $12.5 million and total liquidity of $37.7 million, compared to $34.5 million and $33.8 million, respectively, at the end of the previous fiscal year. The company has entered into a new revolving credit facility with a commitment of $30 million, which is expected to support its operational and growth initiatives. Overall, Potbelly's strategic focus on franchising, digital engagement, and operational efficiency positions it for potential growth in the competitive fast-casual dining market.