Potbelly's Upside Potential Limited, Says Analyst Despite Business Momentum And Digital Kitchen Success - Potbelly (NASDAQ:PBPB)

William Blair analyst Sharon Zackfia reiterated a Market Perform rating on the shares of Potbelly Corporation PBPB.
With restaurant industry penetration now back to 2002 levels, Potbelly is focused on gaining market share as quickly as possible, said the analyst.
The analyst added that the company should receive help from the rising tide of multiple franchisees accelerating growth in multiple markets in the coming years.
The analyst noted Potbelly benefits from its 2021 menu revamp, advertising spend and improved engagement of Potbelly Perks loyalty members.
Potbelly Digital Kitchen (PDK), which includes automated digital order sequencing and other features designed to bolster speed of service and operational efficiency, has produced encouraging results in test, said the analyst.
The platform has already helped unlock additional production capacity in some of its most capacity constrained locations along with increases in on-time orders, customer satisfaction, and food quality scores.
The analyst said that improving sales trends continue to bolster margins, with wage and food inflation more than offset by operating leverage and menu pricing.
The newly downscaled store model that comes in at roughly 1,800 square feet (versus 3,000 square feet previously), is likely to maintain a modest net build-out cost of $650,000 or less, translating to a payback period of 3 to 4 years, said the analyst.
Potbelly plans to refranchise about 25% of company-owned shops by 2024, while also growing franchised units 10% annually by 2024.
While the analyst is encouraged by Potbelly’s sales trends, the list of risks includes geographic concentration in the Midwest, volatile comparable sales trends, and wage inflation.
Price Action: PBPB shares are trading higher by 0.22% at $9.30 on the last check Wednesday.
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