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Start Salivating Over the Potbelly IPO

The sandwich-maker has a great brand and strong growth potential


Start the feeding frenzy: According to a recent filing, we’re going to get a Potbelly IPO, and the sandwich chain’s offering should tantalize most IPO investors.

Potbelly — which operates 286 shops in 18 states — isn’t one for bashfulness, boasting that it’s “The Best Place for Lunch!” in its S-1.

But customers seem to agree, and in 2012, they helped drive Potbelly’s revenues 15.5% higher year-over-year to $274.9 million. Meanwhile, adjusted EBITDA clocked in 17.6% better at $31.5 million.

The store economics are attractive, too. Potbelly locations have proven to be profitable in diverse environments, such as in terms of geography and population densities. Within two years of launch, a typical location reaches profit margins of 25%-plus.

Potbelly’s dishes are fairly standard — sandwiches, salads, hand-dipped milkshakes and cookies — but instead, the focus has been on high-quality ingredients and fresh, made-to-order products. Also, each location has a locally themed décor, which allows for a more lively environment and is designed to build customer loyalty.

All in all, the Potbelly IPO should get a warm reception from investors. In addition to its own merits, investors tend to be hungry for growthy food offerings. Restaurant chain Noodles & Company (NDLS) has soared more than 150% since its offering in late June, and on a longer-term basis, other operators in the fast-casual space — such as Chipotle Mexican Grill (CMG) and Panera Bread (PNRA) — have performed well.

Potbelly plans to issue a $49.9 million dividend to its private-equity backers. But in light of the strength of the IPO market, Potbelly will probably not have too much trouble raising much more than this amount for its own offering, leaving available cash to continue its growth ramp.

The Potbelly IPO is slated to list on the Nasdaq under the ticker symbol of “PBPB,” and the lead underwriters include BofA Merrill Lynch (BAC) and Goldman Sachs (GS).

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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