Company Performance - Potbelly (PBPB) has returned approximately 38.6% since the beginning of the calendar year, significantly outperforming the average gain of 8.3% in the Retail-Wholesale sector [4] - The Zacks Consensus Estimate for Potbelly's full-year earnings has increased by 13% over the past quarter, indicating improved analyst sentiment and a stronger earnings outlook [3] Industry Context - Potbelly is part of the Retail - Restaurants industry, which includes 39 companies and currently ranks 197 in the Zacks Industry Rank. This industry has experienced an average loss of 3.5% so far this year, highlighting Potbelly's relative strength [5] - Another company in the same sector, Red Robin (RRGB), has also outperformed the sector with a year-to-date increase of 18% and a consensus EPS estimate increase of 40.5% over the past three months [4][5] Sector Ranking - The Retail-Wholesale group, which includes 202 companies, currently ranks 10 in the Zacks Sector Rank, reflecting the strength of the sector based on the average Zacks Rank of individual stocks [2]

Core Viewpoint - Momentum investing focuses on "buying high and selling higher," contrasting with traditional strategies of "buying low and selling high" [1] Group 1: Momentum Investing Strategy - Momentum investing can be risky as stocks may lose momentum when their valuations exceed future growth potential [1] - A safer approach involves investing in bargain stocks that exhibit recent price momentum, identified through the Zacks Momentum Style Score [2] Group 2: Potbelly (PBPB) Stock Analysis - Potbelly (PBPB) has shown a four-week price change of 0.9%, indicating growing investor interest [3] - PBPB gained 26.7% over the past 12 weeks, demonstrating its ability to deliver positive returns over a longer timeframe [4] - The stock has a beta of 1.55, suggesting it moves 55% more than the market in either direction, indicating fast-paced momentum [4] - PBPB has a Momentum Score of B, suggesting it is an opportune time to invest in the stock [5] - The stock has a Zacks Rank 2 (Buy) due to upward revisions in earnings estimates, which typically attract more investors [6] - PBPB is trading at a Price-to-Sales ratio of 0.81, indicating it is reasonably valued at 81 cents for each dollar of sales [6] Group 3: Additional Investment Opportunities - Besides PBPB, there are other stocks that meet the criteria of the 'Fast-Paced Momentum at a Bargain' screen, presenting further investment opportunities [7] - Zacks offers over 45 Premium Screens tailored to different investing styles, aiding in identifying potential winning stocks [8]

Group 1 - Potbelly (PBPB) shares have increased by 1.2% over the past four weeks, closing at $12.85, with a mean price target of $17.33 indicating a potential upside of 34.9% [1] - The mean estimate includes three short-term price targets with a standard deviation of $3.06, where the lowest estimate of $14.00 suggests a 9% increase, and the highest estimate of $20.00 indicates a 55.6% surge [2] - Analysts show strong agreement on PBPB's ability to report better earnings, with a positive trend in earnings estimate revisions correlating with potential stock price increases [4][11] Group 2 - The Zacks Consensus Estimate for PBPB has risen by 13% over the past month, with no negative revisions, indicating positive earnings prospects [12] - PBPB holds a Zacks Rank 2 (Buy), placing it in the top 20% of over 4,000 ranked stocks based on earnings estimates, suggesting a strong potential upside [13] - While consensus price targets may not be entirely reliable, the direction they imply appears to be a good guide for potential price movement [14]

Group 1 - Potbelly (PBPB) is a strong performer in the Retail-Wholesale sector, with a year-to-date return of 33.8%, significantly outperforming the sector average of 6.2% [4] - The Zacks Rank for Potbelly is 2 (Buy), indicating positive analyst sentiment and a favorable earnings outlook, with a 13% increase in the consensus estimate for full-year earnings over the past quarter [3] - Potbelly belongs to the Retail - Restaurants industry, which has seen a decline of about 4.1% year-to-date, further highlighting Potbelly's strong performance relative to its industry [5] Group 2 - Casey's General Stores (CASY) is another Retail-Wholesale stock that has outperformed the sector, with a year-to-date return of 30.2% [4] - The Retail - Convenience Stores industry, to which Casey's belongs, has a year-to-date increase of 8.2%, ranking 100 in the Zacks Industry Rank [6] - Both Potbelly and Casey's General Stores are recommended for investors interested in Retail-Wholesale stocks due to their solid performance [6]

Core Insights - Potbelly (NASDAQ: PBPB) continues to demonstrate strong performance, reinforcing its position as a top pick in the fast-casual restaurant sector [1] Company Performance - The latest quarterly results indicate that Potbelly is effectively competing in the fast-casual market, showcasing its operational strengths and growth potential [1]

Core Viewpoint - Potbelly (PBPB) has shown strong stock performance, with a 2.9% increase over the past month and a 38.2% gain since the start of the year, outperforming both the Zacks Retail-Wholesale sector and the Zacks Retail - Restaurants industry [1][2]. Financial Performance - Potbelly has consistently beaten earnings estimates, reporting an EPS of $0.09 against a consensus estimate of $0.08 in its last earnings report [2]. - For the current fiscal year, Potbelly is expected to post earnings of $0.23 per share on revenues of $476 million, reflecting a -23.33% change in EPS and a 2.9% change in revenues. For the next fiscal year, earnings are projected to be $0.30 per share on revenues of $498.2 million, indicating a year-over-year change of 30.43% in EPS and 4.66% in revenues [3]. Valuation Metrics - Potbelly's current valuation metrics indicate a premium, trading at 56.6X current fiscal year EPS estimates compared to the peer industry average of 19.4X. On a trailing cash flow basis, it trades at 17.7X versus an average of 11.7X for its peers [6]. - The stock has a Value Score of C, a Growth Score of A, and a Momentum Score of F, resulting in a VGM Score of B [6]. Zacks Rank - Potbelly holds a Zacks Rank of 2 (Buy), supported by a solid earnings estimate revision trend. This ranking suggests that the stock may have further upside potential in the near term [7].

Group 1: Earnings Performance - Potbelly reported quarterly earnings of $0.09 per share, exceeding the Zacks Consensus Estimate of $0.08 per share, and showing an increase from $0.08 per share a year ago, representing an earnings surprise of +12.50% [1] - The company posted revenues of $123.71 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 0.99%, and an increase from year-ago revenues of $119.7 million [2] Group 2: Stock Performance and Outlook - Potbelly shares have increased approximately 17.7% since the beginning of the year, outperforming the S&P 500's gain of 7.1% [3] - The current consensus EPS estimate for the upcoming quarter is $0.09 on revenues of $119.1 million, and for the current fiscal year, it is $0.23 on revenues of $476 million [7] Group 3: Industry Context - The Retail - Restaurants industry, to which Potbelly belongs, is currently ranked in the bottom 32% of over 250 Zacks industries, indicating potential challenges for stock performance [8] - The performance of Potbelly's stock may be influenced by the overall outlook for the industry, as research indicates that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [8]

Financial Data and Key Metrics Changes - System-wide sales increased approximately 6.7% year over year to $154.2 million, with total revenue rising approximately 3.4% year over year to $123.7 million [20] - Adjusted EBITDA for the second quarter was $9.6 million, representing 7.8% of total revenue, reflecting a 13% year-over-year growth driven by improved shop level margin and disciplined management of G&A [20][22] - Net income for the quarter was $2.5 million, with adjusted net income increasing by $400,000 year over year to $2.9 million [23] Business Line Data and Key Metrics Changes - Company-operated shop revenue increased approximately 2.5% year over year to $118.4 million, while franchise revenue improved approximately 27.7% year over year to $5.3 million, primarily driven by an increase in franchise units [20] - Same store sales grew by 3.2%, attributed to a 1.1% increase in transactions and a 2.1% increase in average check, with gross price increasing by approximately 2.7% [21][50] Market Data and Key Metrics Changes - Digital business represented over 41% of total shop sales, an increase of approximately 140 basis points compared to the previous year [13] - The company opened eight new shops during the second quarter, exceeding the original expectation of six, and plans to open at least another eight in the third quarter [17] Company Strategy and Development Direction - The company focuses on menu innovation, digital investments, and shop growth to drive same store sales growth and enhance customer experience [8][12] - The franchise growth acceleration initiative is on track, with 54 new franchise shop commitments in the second quarter, bringing the total to 816 shops, which is over 40% of the long-term potential for at least 2,000 shops [18] - The company is committed to community service through initiatives like the Potbelly Summer of Service, reinforcing its brand identity as a community-focused business [26][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in continued growth, citing strong performance in same store sales and digital channels, despite external pressures on lower-income consumers [85] - The company raised its full-year guidance for same store sales growth to 2% - 3% and adjusted EBITDA to approximately $34 million - $35 million [24][25] Other Important Information - The company has implemented a new website and mobile app to enhance the customer experience, which is expected to drive further digital sales growth [14][92] - Food cost inflation is forecasted to be just shy of 2% for the third quarter, with the company locked in on its food cost baskets for the year [62] Q&A Session Summary Question: Insights on franchise openings and pipeline realization - Management indicated that the timeline for realizing franchise openings varies, with larger developers expected to deliver more units per year, while smaller agreements may take longer [33][36] Question: Corporate store openings and densification strategy - Management confirmed visibility into the corporate store pipeline, with plans to open up to 20 company units a year, focusing on markets with strong margins and lower construction costs [40][41] Question: Breakdown of same store sales growth - The 3.2% same store sales growth comprised a 1.1% increase in traffic and a 2.1% increase in average check, with a slight drop in mix [49] Question: Menu innovation timeline and testing - Management confirmed ongoing menu innovation testing, with plans to introduce new items based on customer feedback and research [56][59] Question: Visibility on food costs and tariffs - Management noted manageable food cost inflation, with a forecast of just over 2% for the back half of the year, and limited exposure to proposed tariffs [62] Question: Capital deployment strategy post-debt - Management emphasized a focus on investing in growth initiatives, technology, and share buybacks as part of their capital strategy [67][70] Question: Consumer behavior changes and competitive dynamics - Management observed pressure on lower-income consumers but noted that the majority of their traffic comes from higher income brackets, allowing for continued growth [84] Question: Differences in sales trends between mobile order and pickup versus delivery - Management reported no significant shift in sales trends between digital pickup and delivery, maintaining a focus on enhancing first-party digital channels [92][93]

Q2 2025 Financial Performance - Systemwide sales increased by 6.7% to $154.2 million[8] - Sandwich shop sales, net, increased by 2.5% to $118.4 million[8] - Franchise royalties, fees, and rent income increased by 27.7% to $5.3 million[8] - Same-store sales increased by 3.2%[8] - Adjusted EBITDA increased by 13.0% to $9.6 million[8] - Shop-level margin increased by 10 basis points to 16.7%[24, 43] Strategic Growth Initiatives - The company is executing against a five-pillar strategic plan focused on traffic-driven profitability and unit growth[5, 6] - The Franchise Growth Acceleration (FGA) Initiative aims to drive unit growth through franchise development agreements and new openings[30] - The company has 816 open and committed shops, marking progress toward a 2,000 shop target, a 23% year-over-year increase[33, 34] Financial Outlook - The company expects Q3 2025 same-store sales to grow between 3.25% and 4.25% and adjusted EBITDA to be between $9.0 million and $10.0 million[38] - The company projects 2025 same-store sales growth between 2.0% and 3.0%, and adjusted EBITDA between $34 million and $35 million[39]

[Cover Page and Filing Information](index=1&type=section&id=Cover%20Page) Provides essential filing details for Potbelly Corporation's Form 10-Q, including registrant information and common stock outstanding [Registrant Information](index=1&type=section&id=Registrant%20Information) Potbelly Corporation, an accelerated filer, reported 30,260,672 shares of common stock outstanding as of July 27, 2025 - Potbelly Corporation is an accelerated filer[3](index=3&type=chunk) Common Stock Outstanding | As of Date | Shares Outstanding | | :----------- | :----------------- | | July 27, 2025 | 30,260,672 | [Table of Contents](index=3&type=section&id=Table%20of%20Contents) This section provides an organized overview of the report's structure and content for easy navigation [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents unaudited condensed consolidated financial statements and detailed notes on accounting policies [Condensed Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased slightly, driven by cash and property, while liabilities decreased and equity rose Condensed Consolidated Balance Sheets (Amounts in thousands) | Item | June 29, 2025 | December 29, 2024 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $16,187 | $11,663 | | Total current assets | $36,994 | $33,201 | | Property and equipment, net | $54,391 | $50,533 | | Total assets | $265,241 | $263,146 | | Total current liabilities | $73,392 | $65,233 | | Long-term debt, net of current portion | $— | $4,000 | | Total liabilities | $204,144 | $205,198 | | Total equity | $61,097 | $57,948 | [Condensed Consolidated Statements of Operations (Unaudited)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Total revenues increased, but net income significantly decreased due to a prior year income tax benefit Condensed Consolidated Statements of Operations (Amounts in thousands, except per share data) | Item | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------------------------ | :------ | :------ | :------- | :------- | | Total revenues | $123,709 | $119,697 | $237,390 | $230,850 | | Income from operations | $3,702 | $4,119 | $3,952 | $4,237 | | Net income attributable to Potbelly Corporation | $2,488 | $34,712 | $2,426 | $31,945 | | Basic EPS | $0.08 | $1.16 | $0.08 | $1.07 | | Diluted EPS | $0.08 | $1.13 | $0.08 | $1.04 | - Net income attributable to Potbelly Corporation decreased by **92.8%** for the quarter ended June 29, 2025, compared to June 30, 2024, primarily due to a **$31.3 million** valuation allowance release in June 2024[10](index=10&type=chunk)[102](index=102&type=chunk) [Condensed Consolidated Statements of Equity (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) Total equity increased due to net income and stock-based compensation, offset by share repurchases Key Equity Changes (Amounts in thousands) | Item | Balance at Dec 29, 2024 | Balance at June 29, 2025 | | :-------------------------- | :---------------------- | :----------------------- | | Total Equity | $57,948 | $61,097 | | Net income | N/A | $2,914 | | Stock-based compensation expense | N/A | $1,827 | | Repurchases of common stock | N/A | $(989) | [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly increased, while investing cash outflow rose and financing cash outflow decreased Condensed Consolidated Statements of Cash Flows (Amounts in thousands) | Cash Flow Activity | YTD June 29, 2025 | YTD June 30, 2024 | | :-------------------------------- | :---------------- | :---------------- | | Net cash provided by operating activities | $22,366 | $3,850 | | Net cash used in investing activities | $(10,755) | $(8,460) | | Net cash used in financing activities | $(7,087) | $(20,856) | | Net change in cash and cash equivalents and restricted cash | $4,524 | $(25,466) | | Cash and cash equivalents and restricted cash at end of period | $17,002 | $9,071 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed information on the company's business, accounting policies, and financial items [(1) Organization and Other Matters](index=8&type=section&id=Note%201%20Organization%20and%20Other%20Matters) Potbelly operates 340 company-owned and 107 franchised shops, with new accounting pronouncements impacting future disclosures - As of June 29, 2025, Potbelly operates **340** Company-operated shops and **107** franchised shops in the United States[16](index=16&type=chunk) - The company will adopt ASU 2023-09 (Income Taxes) in its 2025 10-K, impacting disclosures but not financial condition. ASU 2024-03 (Disaggregation of Incomes Statement Expenses) will be adopted in the 2027 10-K, with impact currently being evaluated[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk) [(2) Restricted Cash](index=9&type=section&id=Note%202%20Restricted%20Cash) Restricted cash, held as collateral for lease agreements, remained stable at $815 thousand Restricted Cash Reconciliation (Amounts in thousands) | Item | June 29, 2025 | December 29, 2024 | | :-------------------------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $16,187 | $11,663 | | Restricted cash, noncurrent | $815 | $815 | | Total cash, cash equivalents and restricted cash | $17,002 | $12,478 | [(3) Revenue](index=9&type=section&id=Note%203%20Revenue) Revenue from sandwich shop sales increased, while total contract liabilities saw a slight decrease Revenue Recognition (Amounts in millions) | Revenue Source | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--------------- | :------ | :------ | :------- | :------- | | Point in time | $122.0 | $119.1 | $233.6 | $229.7 | | Over time | $1.7 | $0.6 | $3.8 | $1.1 | Contract Liabilities (Amounts in thousands) | Item | June 29, 2025 | December 29, 2024 | Change | | :-------------------------- | :------------ | :---------------- | :----- | | Franchise fee liabilities | $8,184 | $7,163 | $1,021 | | Unredeemed gift card liabilities | $2,569 | $3,954 | $(1,385) | | Customer loyalty program obligations | $5,534 | $6,181 | $(647) | | Total contract liabilities | $16,287 | $17,298 | $(1,011) | [(4) Fair Value Measurement](index=10&type=section&id=Note%204%20Fair%20Value%20Measurement) Impairment charges of $0.2 million for Q2 2025 were recognized due to underperforming shops - Impairment charges for underperforming shops were **$0.2 million** for the quarter ended June 29, 2025, and **$0.5 million** for the year-to-date period[36](index=36&type=chunk) [(5) Earnings Per Share](index=11&type=section&id=Note%205%20Earnings%20Per%20Share) Basic and diluted EPS were $0.08 for Q2 and YTD 2025, a significant decrease from the prior year Earnings Per Share Calculation | Item | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :------------------------------------ | :------ | :------ | :------- | :------- | | Net income attributable to Potbelly Corporation | $2,488 | $34,712 | $2,426 | $31,945 | | Basic EPS | $0.08 | $1.16 | $0.08 | $1.07 | | Diluted EPS | $0.08 | $1.13 | $0.08 | $1.04 | | Weighted average common stock outstanding-basic | 30,192 | 29,926 | 30,041 | 29,903 | | Weighted average common shares outstanding-diluted | 30,811 | 30,714 | 30,785 | 30,842 | [(6) Income Taxes](index=11&type=section&id=Note%206%20Income%20Taxes) The company recorded an income tax expense of $0.7 million for Q2 2025, a change from prior year's benefit - Income tax expense was **$0.7 million** for Q2 2025, compared to a **$31.0 million** benefit in Q2 2024, due to the prior year's valuation allowance release on deferred tax assets[102](index=102&type=chunk)[119](index=119&type=chunk) Income Tax Expense (Benefit) (Amounts in thousands) | Period | Income Tax Expense (Benefit) | | :----- | :--------------------------- | | Q2 2025 | $665 | | Q2 2024 | $(30,982) | | YTD 2025 | $663 | | YTD 2024 | $(30,931) | - The valuation allowance against deferred tax assets was **$0.2 million** as of June 29, 2025, compared to **$0.1 million** as of June 30, 2024[40](index=40&type=chunk) [(7) Leases](index=12&type=section&id=Note%207%20Leases) The company terminated 3 leases YTD 2025, recognizing a gain, and operating lease income increased Lease Termination and Income (Amounts in thousands) | Item | YTD June 29, 2025 | YTD June 30, 2024 | | :------------------------------------ | :---------------- | :---------------- | | Leases terminated | 3 | 1 | | (Gain) loss recognized upon lease termination | $(595) | $110 | | Operating lease income | $2,094 | $1,960 | | Franchise rent income | $3,047 | $2,774 | [(8) Debt and Credit Facilities](index=12&type=section&id=Note%208%20Debt%20and%20Credit%20Facilities) Long-term debt decreased to zero due to Term Loan repayment, with a $30 million Revolving Facility now primary Long-Term Debt (Amounts in thousands) | Item | June 29, 2025 | December 29, 2024 | | :--------------- | :------------ | :---------------- | | Revolving Facility | $— | $4,000 | | Total long-term debt | $— | $4,000 | - The company repaid and terminated its Term Loan in February 2024, resulting in a **$2.4 million** loss on extinguishment of debt for fiscal year 2024[56](index=56&type=chunk) - A **$30 million** Revolving Facility, expiring February 7, 2027, is now the primary credit facility, used for general corporate and working capital purposes. The company is in compliance with all covenants[47](index=47&type=chunk)[52](index=52&type=chunk) [(9) Capital Stock](index=14&type=section&id=Note%209%20Capital%20Stock) The company repurchased 112,850 shares for $1.0 million in Q2 2025, with 727,891 warrants remaining outstanding Stock Repurchase Program (Amounts in thousands, except shares) | Period | Shares Repurchased | Aggregate Cost | | :-------------------------- | :----------------- | :------------- | | Q2 2025 | 112,850 | $1.0 | | YTD June 29, 2025 | 230,326 | $2.1 | - The **2024 Repurchase Program** authorizes up to **$20.0 million** in common stock repurchases over three years, replacing the 2018 program[58](index=58&type=chunk) - Year-to-date June 29, 2025, **155,511** warrants were exercised at **$5.45** per warrant, leaving **727,891** warrants outstanding, exercisable through August 12, 2026[59](index=59&type=chunk) [(10) Stock-Based Compensation](index=14&type=section&id=Note%2010%20Stock-Based%20Compensation) The company recognized $1.2 million in RSU and $0.6 million in PSU compensation expense for Q2 2025 Stock-Based Compensation Expense (Amounts in millions) | Item | Q2 2025 | YTD 2025 | Q2 2024 | YTD 2024 | | :-------------------------- | :------ | :------- | :------ | :------- | | Restricted Stock Units (RSUs) | $1.2 | $2.0 | $1.1 | $1.9 | | Performance Stock Units (PSUs) | $0.6 | $1.3 | $0.4 | $1.3 | | Stock Options | $0.0 | $0.0 | $0.0 | $0.0 | - Unrecognized stock-based compensation expense for RSUs is **$6.2 million** and for PSUs is **$4.6 million**, both to be recognized through the second quarter of 2028[64](index=64&type=chunk)[67](index=67&type=chunk) [(11) Commitments and Contingencies](index=16&type=section&id=Note%2011%20Commitments%20and%20Contingencies) A class action lawsuit settlement is pending court approval, and the company manages food commodity price risks - A class action lawsuit in Washington state, related to the Equal Pay and Opportunities Act, has a probable material loss exposure of **$1.8 million**, recorded in 2024. A settlement agreement was executed on March 27, 2025, pending court approval[69](index=69&type=chunk) - The company uses a mix of forward pricing and formula pricing protocols for food commodities to manage price and availability risks[70](index=70&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, operational strategies, and liquidity for the quarter and year-to-date periods [Forward-Looking Statements](index=17&type=section&id=Forward-Looking%20Statements) This section highlights future financial position, operational goals, and growth strategies, subject to various risks - Forward-looking statements cover future financial position, operational goals, brand growth, shop development, liquidity, and strategic initiatives like the 'Traffic-Driven Profitability' Five-Pillar plan[71](index=71&type=chunk) - Risks and uncertainties include competition, marketing effectiveness, economic conditions (inflation), business strategy implementation, franchisee success, commodity/labor costs, credit facility compliance, employee retention, public health issues, growth management, and reputational issues[71](index=71&type=chunk) [Business](index=17&type=section&id=Business) Potbelly focuses on profitable growth through its 'Traffic-Driven Profitability' Five-Pillar plan and franchise development - Potbelly's 'Traffic-Driven Profitability' Five-Pillar strategic plan focuses on: Craveable-Quality Food, People Creating Good Vibes, Customer Experiences, Digitally-Driven Awareness, and Franchise-Focused Development[73](index=73&type=chunk)[74](index=74&type=chunk) - The company aims to generate average shop-level profit margins ranging from the **mid to high teens**[73](index=73&type=chunk) Shop Roll-Forward (Number of Shops) | Item | Company Operated | Franchise Operated | Total | | :-------------------------- | :--------------- | :----------------- | :---- | | Shops as of Dec 31, 2023 | 345 | 79 | 424 | | Shops as of June 30, 2024 | 345 | 84 | 429 | | Shops as of Dec 29, 2024 | 346 | 96 | 442 | | Shops as of June 29, 2025 | 340 | 107 | 447 | [Key Performance Indicators](index=18&type=section&id=Key%20Performance%20Indicators) Key metrics like same store sales, shop-level profit margin, and Adjusted EBITDA assess business performance and growth - Key performance indicators include: same store sales, number of shop openings, shop-level profit margins, system-wide sales, average unit volume, and adjusted EBITDA[78](index=78&type=chunk) - Shop-level profit margin is a non-GAAP measure defined as net Company-operated sandwich shop sales less operating expenses (excluding depreciation) as a percentage of net Company-operated sandwich shop sales[83](index=83&type=chunk) - Adjusted EBITDA is a non-GAAP measure that adjusts net income for non-operating and non-recurring items to provide a clearer picture of underlying business performance[86](index=86&type=chunk) [Quarter Ended June 29, 2025 Compared to Quarter Ended June 30, 2024](index=20&type=section&id=Quarter%20Ended%20June%2029,%202025%20Compared%20to%20Quarter%20Ended%20June%2030,%202024) Q2 2025 revenues increased by 3.4%, but net income decreased significantly due to a prior year tax benefit Q2 Financial Performance (Amounts in thousands, except percentages) | Item | Q2 2025 | Q2 2024 | Change ($) | Change (%) | | :------------------------------------ | :------ | :------ | :--------- | :--------- | | Total revenues | $123,709 | $119,697 | $4,012 | 3.4% | | Net income attributable to Potbelly Corporation | $2,488 | $34,712 | $(32,224) | (92.8)% | | Same store sales | 3.2% | 0.4% | 2.8% | | | Shop-level profit margin | 16.7% | 15.7% | 1.0% | | | System-wide sales | $154,170 | $144,470 | $9,699 | | | Adjusted EBITDA | $9,632 | $8,521 | $1,111 | | - Sandwich shop sales, net increased by **2.5%** to **$118.4 million**, driven by existing shops and new openings, partially offset by refranchised and closed shops[89](index=89&type=chunk) - Franchise royalties, fees and rental income increased by **27.6%** to **$5.3 million**, primarily due to new franchise-operated shop openings[90](index=90&type=chunk) - Food, beverage, and packaging costs decreased as a percentage of sandwich shop sales to **26.3%** (from 27.1%), driven by lower inflation and reduced supplies/packaging costs[91](index=91&type=chunk) - General and administrative expenses increased by **12.6%** to **$13.4 million**, mainly due to higher payroll, incentive compensation, consulting, and technology costs[96](index=96&type=chunk) - Depreciation expense increased by **30.3%** to **$3.9 million**, primarily due to additional leasehold improvements from remodeling existing Company-operated shops[97](index=97&type=chunk) - Income tax expense was **$0.7 million** in Q2 2025, a significant change from the **$31.0 million** benefit in Q2 2024, which was due to a valuation allowance release[102](index=102&type=chunk) [Year to Date Ended June 29, 2025 Compared to Year to Date Ended June 30, 2024](index=23&type=section&id=Year%20to%20Date%20Ended%20June%2029,%202025%20Compared%20to%20Year%20to%20Date%20Ended%20June%2030,%202024) YTD 2025 revenues increased by 2.8%, but net income decreased by 92.4% due to the prior year's tax benefit YTD Financial Performance (Amounts in thousands, except percentages) | Item | YTD 2025 | YTD 2024 | Change ($) | Change (%) | | :------------------------------------ | :------- | :------- | :--------- | :--------- | | Total revenues | $237,390 | $230,850 | $6,540 | 2.8% | | Net income attributable to Potbelly Corporation | $2,426 | $31,945 | $(29,519) | (92.4)% | | Same store sales | 2.1% | 0.1% | 2.0% | | | Shop-level profit margin | 15.3% | 14.6% | 0.6% | | | System-wide sales | $294,831 | $278,659 | $16,172 | | | Adjusted EBITDA | $15,154 | $14,201 | $953 | | - Sandwich shop sales, net increased by **1.9%** to **$227.4 million**, driven by existing shops and new openings, partially offset by refranchised and closed shops[105](index=105&type=chunk) - Franchise royalties, fees and rental income increased by **29.1%** to **$10.0 million**, primarily due to new franchise-operated shop openings[106](index=106&type=chunk) - Food, beverage, and packaging costs decreased as a percentage of sandwich shop sales to **26.2%** (from 27.2%), mainly due to lower protein costs and inflation[107](index=107&type=chunk) - Labor and related expenses increased by **2.7%** to **$66.3 million**, primarily due to higher incentive compensation, partially offset by sales leverage[108](index=108&type=chunk) - Loss on extinguishment of debt was **$0** for YTD 2025, compared to **$2.4 million** for YTD 2024, due to the Term Loan extinguishment in Q1 2024[117](index=117&type=chunk) - Net interest expense decreased by **46.8%** to **$0.3 million**, attributed to debt refinancing in February 2024, resulting in lower average borrowings and interest rates[118](index=118&type=chunk) [Non-GAAP Financial Measures](index=26&type=section&id=Non-GAAP%20Financial%20Measures) The company reports improved Shop-Level Profit Margin and Adjusted EBITDA, providing additional operational insights Shop-Level Profit Margin (Non-GAAP) | Period | Shop-Level Profit Margin | | :----- | :----------------------- | | Q2 2025 | 16.7% | | Q2 2024 | 15.7% | | YTD 2025 | 15.3% | | YTD 2024 | 14.6% | Adjusted EBITDA (Non-GAAP, Amounts in thousands) | Period | Adjusted EBITDA | | :----- | :-------------- | | Q2 2025 | $9,632 | | Q2 2024 | $8,521 | | YTD 2025 | $15,154 | | YTD 2024 | $14,201 | [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity increased to $46.2 million, supported by operating cash flow and the Revolving Facility - Primary liquidity sources are cash from operating activities, existing cash and cash equivalents, and the **$30 million** Revolving Facility[129](index=129&type=chunk)[135](index=135&type=chunk) Liquidity Overview (Amounts in millions) | Item | June 29, 2025 | June 30, 2024 | | :---------------------------------------------------------------- | :------------ | :------------ | | Cash balance | $17.0 | $9.1 | | Total liquidity (cash less restricted cash, plus available Revolving Facility) | $46.2 | $34.3 | - Net cash provided by operating activities increased by **$18.5 million** to **$22.4 million** for YTD June 29, 2025, driven by higher incentive payments in 2024 and working capital changes[132](index=132&type=chunk) - Net cash used in financing activities decreased by **$13.8 million** to **$7.1 million** for YTD June 29, 2025, primarily due to the repayment of the Term Loan in 2024, partially offset by lower borrowings under the Revolving Facility in 2025[134](index=134&type=chunk) - The company repurchased **230,326** shares of common stock for **$2.1 million** YTD June 29, 2025, under the 2024 Repurchase Program[146](index=146&type=chunk) [Critical Accounting Estimates](index=30&type=section&id=Critical%20Accounting%20Estimates) Management's estimates for long-lived assets and income taxes remain unchanged since the last annual report - Significant estimates are used in accounting for long-lived assets and income taxes[149](index=149&type=chunk) - No significant changes in critical accounting estimates have been made since the last annual report[149](index=149&type=chunk) [New and Revised Financial Accounting Standards](index=30&type=section&id=New%20and%20Revised%20Financial%20Accounting%20Standards) Refer to Note 1 for details on new accounting standards, ASU 2023-09 and ASU 2024-03, impacting future disclosures - Refer to Note 1 for details on ASU 2023-09 (Income Taxes) and ASU 2024-03 (Disaggregation of Incomes Statement Expenses), which will affect future financial statement disclosures[150](index=150&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's market risk exposures have not materially changed since the last annual report - Market risk exposures have not materially changed since December 29, 2024[151](index=151&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective, with no material changes in internal control over financial reporting - Disclosure controls and procedures were effective as of June 29, 2025[152](index=152&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 29, 2025[153](index=153&type=chunk) [PART II. OTHER INFORMATION](index=31&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers legal proceedings, risk factors, equity sales, and other miscellaneous disclosures [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 11 to the financial statements - Legal proceedings information is detailed in Note 11 of the financial statements[155](index=155&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the company's risk factors have occurred since the last annual report - No material changes to risk factors since the December 29, 2024, Annual Report on Form 10-K[156](index=156&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company repurchased 140 thousand shares in Q2 2025 under its 2024 Repurchase Program Issuer Purchases of Equity Securities (Amounts in thousands, except per share data) | Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program (2) | Maximum Value of Shares that May Yet be Purchased Under the Program (2) | | :-------------------------- | :----------------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :---------------------------------------------------------------------- | | March 31, 2025 - April 27, 2025 | 134 | $9.51 | 54 | $17,026 | | April 28, 2025 - May 25, 2025 | 3 | $8.17 | 59 | $16,525 | | May 26, 2025 - June 29, 2025 | 3 | $10.70 | — | $16,525 | | Total number of shares purchased: | 140 | | 113 | | - The **2024 Repurchase Program**, authorized for up to **$20.0 million**, replaced the 2018 program. Repurchases can occur in the open market or privately negotiated transactions[158](index=158&type=chunk) [Item 3. Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company's current financial reporting [Item 4. Mine Safety Disclosures](index=32&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations or reporting requirements [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) No director or officer adopted or terminated trading agreements during the quarter ended June 29, 2025 - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading agreement during the quarter ended June 29, 2025[161](index=161&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - Exhibits include certifications (Sections 302 and 906 of Sarbanes-Oxley Act) and Inline XBRL documents[163](index=163&type=chunk) [Signature](index=34&type=section&id=Signature) This section formally concludes the report with the required signature and filing date [Signature Block](index=34&type=section&id=Signature%20Block) The report was signed on August 6, 2025, by Steven W. Cirulis, the company's Chief Financial Officer - The report was signed by Steven W. Cirulis, Senior Vice President, Chief Financial Officer and Chief Strategy Officer, on August 6, 2025[166](index=166&type=chunk)