Document and Entity Information
Document and Entity Information | 6 Months Ended |
Jun. 25, 2017shares | |
Document And Entity Information [Abstract] | |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | Jun. 25, 2017 |
Document Fiscal Year Focus | 2,017 |
Document Fiscal Period Focus | Q2 |
Trading Symbol | PBPB |
Entity Registrant Name | Potbelly Corporation |
Entity Central Index Key | 1,195,734 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Accelerated Filer |
Entity Common Stock, Shares Outstanding | 25,125,482 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands | Jun. 25, 2017 | Dec. 25, 2016 |
Current assets | ||
Cash and cash equivalents | $ 21,182 | $ 23,379 |
Accounts receivable, net of allowances of $159 and $78 as of June 25, 2017 and December 25, 2016, respectively | 5,576 | 3,787 |
Inventories | 3,321 | 3,365 |
Prepaid expenses and other current assets | 9,198 | 8,020 |
Total current assets | 39,277 | 38,551 |
Property and equipment, net | 105,270 | 107,074 |
Indefinite-lived intangible assets | 3,404 | 3,404 |
Goodwill | 2,222 | 2,222 |
Deferred income taxes, non-current | 18,436 | 19,410 |
Deferred expenses, net and other assets | 4,856 | 4,784 |
Total assets | 173,465 | 175,445 |
Current liabilities | ||
Accounts payable | 4,159 | 3,111 |
Accrued expenses | 19,721 | 23,082 |
Accrued income taxes | 68 | 1,622 |
Total current liabilities | 23,948 | 27,815 |
Deferred rent and landlord allowances | 22,174 | 21,076 |
Other long-term liabilities | 2,574 | 2,318 |
Total liabilities | 48,696 | 51,209 |
Stockholders’ equity | ||
Common stock, $0.01 par value—authorized 200,000,000 shares; outstanding 25,125,482 and 25,139,127 shares as of June 25, 2017 and December 25, 2016, respectively | 313 | 309 |
Warrants | 909 | |
Additional paid-in-capital | 413,539 | 407,622 |
Treasury stock, held at cost, 6,166,996 and 5,753,412 shares as of June 25, 2017, and December 25, 2016, respectively | (77,317) | (72,321) |
Accumulated deficit | (212,489) | (213,034) |
Total stockholders’ equity | 124,046 | 123,485 |
Non-controlling interest | 723 | 751 |
Total stockholders' equity | 124,769 | 124,236 |
Total liabilities and equity | $ 173,465 | $ 175,445 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands | Jun. 25, 2017 | Dec. 25, 2016 |
Statement Of Financial Position [Abstract] | ||
Allowances on accounts receivable | $ 159 | $ 78 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, authorized | 200,000,000 | 200,000,000 |
Common stock, outstanding | 25,125,482 | 25,139,127 |
Treasury stock, shares | 6,166,996 | 5,753,412 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 25, 2017 | Jun. 26, 2016 | Jun. 25, 2017 | Jun. 26, 2016 | |
Revenues | ||||
Sandwich shop sales, net | $ 107,382 | $ 104,466 | $ 208,241 | $ 199,892 |
Franchise royalties and fees | 754 | 570 | 1,594 | 1,099 |
Total revenues | 108,136 | 105,036 | 209,835 | 200,991 |
Sandwich shop operating expenses | ||||
Cost of goods sold, excluding depreciation | 28,635 | 28,500 | 55,298 | 54,746 |
Labor and related expenses | 31,564 | 29,935 | 62,026 | 58,097 |
Occupancy expenses | 14,269 | 13,174 | 28,438 | 25,931 |
Other operating expenses | 12,252 | 10,687 | 23,885 | 21,232 |
General and administrative expenses | 10,919 | 10,305 | 21,271 | 20,828 |
Depreciation expense | 6,446 | 5,676 | 12,645 | 11,340 |
Pre-opening costs | 546 | 239 | 619 | 391 |
Impairment and loss on disposal of property and equipment | 3,341 | 1,008 | 4,226 | 1,025 |
Total expenses | 107,972 | 99,524 | 208,408 | 193,590 |
Income from operations | 164 | 5,512 | 1,427 | 7,401 |
Interest expense | 41 | 41 | 69 | 69 |
Income before income taxes | 123 | 5,471 | 1,358 | 7,332 |
Income tax expense | 186 | 2,039 | 739 | 2,772 |
Net income (loss) | (63) | 3,432 | 619 | 4,560 |
Net income attributable to non-controlling interest | 75 | 59 | 74 | 99 |
Net income (loss) attributable to Potbelly Corporation | $ (138) | $ 3,373 | $ 545 | $ 4,461 |
Net income (loss) per common share attributable to common stockholders: | ||||
Basic | $ (0.01) | $ 0.13 | $ 0.02 | $ 0.17 |
Diluted | $ (0.01) | $ 0.13 | $ 0.02 | $ 0.17 |
Weighted average shares outstanding: | ||||
Basic | 25,033,868 | 25,818,571 | 25,066,374 | 26,039,082 |
Diluted | 25,033,868 | 26,459,087 | 25,981,051 | 26,597,012 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Equity (Unaudited) - USD ($) $ in Thousands | Total | Common Stock [Member] | Treasury Stock [Member] | Warrants [Member] | Additional Paid-in-Capital [Member] | Accumulated Deficit [Member] | Non-Controlling Interest [Member] |
Beginning Balance at Dec. 27, 2015 | $ 130,213 | $ 303 | $ (50,000) | $ 909 | $ 399,458 | $ (221,246) | $ 789 |
Beginning Balance, Common Shares at Dec. 27, 2015 | 26,304,261 | ||||||
Net income (loss) | 4,560 | 4,461 | 99 | ||||
Stock-based compensation plans | 3,648 | $ 3 | 3,645 | ||||
Stock-based compensation plans, Shares | 322,125 | ||||||
Excess tax benefits associated with exercise of stock options | 16 | 16 | |||||
Repurchases of common stock | (16,622) | (16,622) | |||||
Repurchases of common stock, Shares | (1,268,844) | ||||||
Distributions to non-controlling interest | (159) | (159) | |||||
Amortization of stock-based compensation | 1,466 | 1,466 | |||||
Ending Balance at Jun. 26, 2016 | 123,122 | $ 306 | (66,622) | 909 | 404,585 | (216,785) | 729 |
Ending Balance, Common Shares at Jun. 26, 2016 | 25,357,542 | ||||||
Beginning Balance at Dec. 25, 2016 | $ 124,236 | $ 309 | (72,321) | 909 | 407,622 | (213,034) | 751 |
Beginning Balance, Common Shares at Dec. 25, 2016 | 25,139,127 | 25,139,127 | |||||
Net income (loss) | $ 619 | 545 | 74 | ||||
Stock-based compensation plans | 1,115 | $ 2 | 1,113 | ||||
Stock-based compensation plans, Shares | 158,235 | ||||||
Exercise of stock warrants | $ 1,972 | $ 2 | $ (909) | 2,879 | |||
Exercise of stock warrants, Shares | 117,000 | 241,704 | |||||
Repurchases of common stock | $ (4,996) | (4,996) | |||||
Repurchases of common stock, Shares | (413,584) | (413,584) | |||||
Distributions to non-controlling interest | $ (113) | (113) | |||||
Contributions from non-controlling interest | 11 | 11 | |||||
Amortization of stock-based compensation | 1,925 | 1,925 | |||||
Ending Balance at Jun. 25, 2017 | $ 124,769 | $ 313 | $ (77,317) | $ 413,539 | $ (212,489) | $ 723 | |
Ending Balance, Common Shares at Jun. 25, 2017 | 25,125,482 | 25,125,482 |
Condensed Consolidated Stateme6
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 6 Months Ended | |
Jun. 25, 2017 | Jun. 26, 2016 | |
Cash flows from operating activities: | ||
Net income | $ 619 | $ 4,560 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation | 12,645 | 11,340 |
Deferred income tax | 974 | 293 |
Deferred rent and landlord allowances | 1,097 | 579 |
Amortization of stock compensation expense | 1,925 | 1,466 |
Excess tax deficiency (benefit) from stock-based compensation | 89 | (16) |
Asset impairment, store closure and disposal of property and equipment | 4,262 | 1,028 |
Amortization of debt issuance costs | 18 | 16 |
Changes in operating assets and liabilities: | ||
Accounts receivable, net | (1,789) | (93) |
Inventories | 43 | 138 |
Prepaid expenses and other assets | (1,376) | 4,616 |
Accounts payable | 554 | (1,511) |
Accrued and other liabilities | (3,921) | 1,737 |
Net cash provided by operating activities | 15,140 | 24,153 |
Cash flows from investing activities: | ||
Acquisition of franchise shop | (1,108) | |
Purchases of property and equipment | (15,326) | (12,178) |
Net cash used in investing activities | (15,326) | (13,286) |
Cash flows from financing activities: | ||
Proceeds from exercise of stock options | 1,115 | 3,813 |
Proceeds from exercise of stock warrants | 1,972 | |
Treasury stock repurchases | (4,996) | (16,622) |
Excess tax benefit from stock-based compensation | 16 | |
Contributions from non-controlling interest | 11 | |
Distribution to non-controlling interest | (113) | (159) |
Net cash used in financing activities | (2,011) | (12,952) |
Net decrease in cash and cash equivalents | (2,197) | (2,085) |
Cash and cash equivalents at beginning of period | 23,379 | 32,006 |
Cash and cash equivalents at end of period | 21,182 | 29,921 |
Supplemental cash flow information: | ||
Income taxes paid | 3,253 | 714 |
Interest paid | 53 | 57 |
Supplemental non-cash investing and financing activities: | ||
Unpaid liability for purchases of property and equipment | $ 2,397 | $ 1,580 |
Organization and Other Matters
Organization and Other Matters | 6 Months Ended |
Jun. 25, 2017 | |
Organization Consolidation And Presentation Of Financial Statements [Abstract] | |
Organization and Other Matters | (1) Organization and Other Matters Business Potbelly Corporation (the “Company” or “Potbelly”), through its wholly-owned subsidiaries, operates or franchises Potbelly Sandwich Shops in 31 states and the District of Columbia. The Company also sells and administers franchises of Potbelly Sandwich Shops. The first domestic franchise location administered by the Company opened during February 2011. Additionally, in February 2011, the Company opened its first international franchise in the Middle East. In July 2015, the Company opened its first franchise shop in the United Kingdom and in October 2016, the Company opened its first franchise shop in Canada. Additionally, during April 2016, the Company transitioned a franchise shop to a company-operated shop for a purchase price of $1.1 million. The Company recorded $0.8 million of goodwill related to the transaction. The Company believes this acquisition is immaterial. Basis of Presentation The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Potbelly Corporation and its subsidiaries and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 25, 2016. The unaudited condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission’s (the “SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC rules and regulations. In the opinion of management, all adjustments, which are of a normal and recurring nature (except as otherwise noted), that are necessary to present fairly the Company’s financial position as of June 25, 2017 and December 25, 2016, its statement of operations for the 13 and 26 weeks ended June 25, 2017 and June 26, 2016 and its statement of cash flows for the 26 weeks ended June 25, 2017 and June 26, 2016 have been included. The consolidated statements of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year. The Company does not have any components of other comprehensive income recorded within its consolidated financial statements and therefore, does not separately present a statement of comprehensive income in its condensed consolidated financial statements. Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of Potbelly Corporation; its wholly owned subsidiary, Potbelly Illinois, Inc. (“PII”); PII’s wholly owned subsidiaries, Potbelly Franchising, LLC and Potbelly Sandwich Works, LLC (“LLC”); eight of LLC’s wholly owned subsidiaries and LLC’s five joint ventures, collectively, the “Company.” All significant intercompany balances and transactions have been eliminated in consolidation. For consolidated joint ventures, non-controlling interest represents a non-controlling partner’s share of the assets, liabilities and operations related to the five joint venture investments. The Company has ownership interests ranging from 51-80% in these consolidated joint ventures. Fiscal Year The Company uses a 52/53-week fiscal year that ends on the last Sunday of the calendar period. Approximately every five or six years a 53rd week is added. Fiscal year 2017 consists of 53 weeks and 2016 consisted of 52 weeks. The fiscal quarters ended June 25, 2017 and June 26, 2016 each consisted of 13 weeks. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Significant estimates include amounts for long-lived assets and income taxes. Actual results could differ from those estimates. New and Revised Financial Accounting Standards In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers.” The pronouncement was issued to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and International Financial Reporting Standards (IFRS). The FASB approved a one-year deferral of the effective date of ASU 2014-09, such that it will become effective for the annual period beginning after December 15, 2017. In addition, the FASB issued ASU 2016-08, ASU 2016-10 and ASU 2016-12 in March 2016, April 2016 and May 2016, respectively, to help provide interpretive clarifications on the new guidance in Accounting Standards Codification (ASC) Topic 606. Potbelly will adopt the standard effective the first quarter of 2018 and apply the amendments using the modified retrospective method. Based on a preliminary assessment, the Company has determined that the adoption will not have a material impact on sandwich shop sales, but may impact franchise revenue and gift card breakage. The Company is continuing its assessment, which may identify additional impacts this standard will have on its consolidated financial statements and related disclosures. In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which will replace the existing guidance in ASC 840, “Leases.” The pronouncement requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset and for operating leases, the lessee would recognize a straight-line total lease expense. The pronouncement is effective for fiscal years beginning after December 15, 2018, including annual and interim periods thereafter. In addition, the pronouncement requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. The Company is currently evaluating the impact ASU 2016-02 will have on its financial position, results of operations and cash flows but expects that it will result in a material increase in its long-term assets and liabilities given the Company has a significant number of leases. In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718).” The pronouncement simplifies the accounting for the taxes related to stock-based compensation, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification within the statement of cash flows. The pronouncement is effective for annual periods beginning after December 15, 2016, including annual and interim periods thereafter. Potbelly adopted ASU 2016-09 in the first quarter of 2017. The primary impact of adoption was the recognition of excess tax benefits and deficiencies that arise upon vesting or exercise of share-based payments in the Income Statement as income tax expense instead of a component of equity recorded to paid-in capital. This aspect of the new guidance, which was required to be adopted prospectively, resulted in In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350).” The new standard eliminates step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess. Under current U.S. GAAP, to perform step 2 an entity must determine its implied fair value, which is determined in the same manner as the amount of goodwill recognized in a business combination. In addition to eliminating step 2, the new standard eliminates the requirement for a reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test. Instead, all reporting units, even those with a zero or negative amount will apply the same impairment test. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The standard will be effective for Potbelly in the fiscal year beginning after December 15, 2019. Early adoption for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017 is permitted. This amendment is required to be applied on a prospective basis. Potbelly is currently assessing the impact and timing of adopting this guidance on its consolidated financial statements. |
Fair Value Measurement
Fair Value Measurement | 6 Months Ended |
Jun. 25, 2017 | |
Fair Value Disclosures [Abstract] | |
Fair Value Measurement | (2) Fair Value Measurement The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities approximate fair values due to the short maturities of these balances. The Company assesses potential impairments to its long-lived assets, which includes property and equipment, on a quarterly basis or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Shop-level assets are grouped at the individual shop-level for the purpose of the impairment assessment. Recoverability of an asset is measured by a comparison of the carrying amount of an asset to its estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset. The fair value of the shop assets was determined using the discounted future cash flow method of anticipated cash flows through the shop’s lease-end date using fair value measurement inputs classified as Level 3. Level 3 inputs are derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. After performing a periodic review of the Company’s shops during the 13 weeks and 26 weeks ended June 25, 2017, it was determined that indicators of impairment were present for certain shops as a result of continued underperformance. The Company performed an impairment analysis related to these shops and recorded an impairment charge of $3.3 million and $4.2 million for the 13 and 26 weeks ended June 25, 2017, respectively. The company recorded an impairment charge of $1.0 million for the 13 and 26 weeks ended June 26, 2016. |
Earnings (Loss) Per Share
Earnings (Loss) Per Share | 6 Months Ended |
Jun. 25, 2017 | |
Earnings Per Share [Abstract] | |
Earnings (Loss) Per Share | (3) Earnings (Loss) Per Share Basic and diluted income per common share attributable to common stockholders was calculated using the weighted average number of common shares outstanding for the period. Diluted income per common share attributable to common stockholders is computed by dividing the income allocated to common stockholders by the weighted average number of fully diluted common shares outstanding. In periods of a net loss, no potential common shares are included in diluted shares outstanding as the effect is anti-dilutive. For the 13 weeks ended June 25, 2017, the Company had a loss per share, therefore, shares were excluded for potential stock option exercises and warrant exercises. The following table summarizes the earnings per share calculation: For the 13 Weeks Ended For the 26 Weeks Ended June 25, June 26, June 25, June 26, 2017 2016 2017 2016 Net income (loss) attributable to Potbelly Corporation $ (138 ) $ 3,373 $ 545 $ 4,461 Weighted average common shares outstanding-basic 25,033,868 25,818,571 25,066,374 26,039,082 Plus: Effect of potential stock options exercise — 581,971 831,927 504,761 Plus: Effect of potential warrant exercise — 58,545 82,750 53,169 Weighted average common shares outstanding-diluted 25,033,868 26,459,087 25,981,051 26,597,012 Income (loss) per share available to common stockholders-basic $ (0.01 ) $ 0.13 $ 0.02 $ 0.17 Income (loss) per share available to common stockholders-diluted $ (0.01 ) $ 0.13 $ 0.02 $ 0.17 Potentially dilutive shares that are considered anti-dilutive: Common share options 4,030,128 1,003,718 1,109,681 1,238,252 |
Income Taxes
Income Taxes | 6 Months Ended |
Jun. 25, 2017 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | (4) Income Taxes The Company recognized income tax expense of $0.2 million on pre-tax income of $0.1 million, or an effective tax rate of 151.2%, for the 13 weeks ended June 25, 2017, compared to income tax expense of $2.0 million on pre-tax income of $5.5 million, or an effective tax rate of 37.3%, for the 13 weeks ended June 26, 2016. The Company recognized income tax expense of $0.7 million on pre-tax income of $1.4 million, or an effective tax rate of 54.4%, for the 26 weeks ended June 25, 2017, compared to income tax expense of $2.8 million on pre-tax income of $7.3 million, or an effective tax rate of 37.8%, for the 26 weeks ended June 26, 2016. The effective tax rate was above the federal statutory rate primarily due to the adoption of ASU 2016-09, which increased the Company’s tax rate by 129.5% for the 13 weeks ended June 26, 2017 and 18.2% for the 26 weeks ended June 26, 2017 and See Note 1 for additional information regarding the adoption of ASU 2016-09. |
Capital Stock
Capital Stock | 6 Months Ended |
Jun. 25, 2017 | |
Equity [Abstract] | |
Capital Stock | (5) Capital Stock On September 8, 2016, the Company announced that its Board of Directors authorized a share repurchase program of up to $30.0 million of the Company’s common stock. The Company’s previous $35.0 million share repurchase program, authorized in September 2015, was completed in July 2016. The current program permits the Company, from time to time, to purchase shares in the open market (including in pre-arranged stock trading plans in accordance with the guidelines specified in Rule 10b5-1 under the Securities Exchange Act of 1934, as amended) or in privately negotiated transactions. During the 26 weeks ended June 25, 2017, the Company repurchased 413,584 shares of its common stock for approximately $5.0 million, including cost and commission, in open market transactions. As of June 25, 2017, the remaining dollar value of authorization under the share repurchase program was $22.7 million, which does not include commission. Repurchased shares are included as treasury stock in the condensed consolidated balance sheets and the condensed consolidated statements of equity. |
Stock-Based Compensation
Stock-Based Compensation | 6 Months Ended |
Jun. 25, 2017 | |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |
Stock-Based Compensation | (6) Stock-Based Compensation Stock options are awarded under the 2013 Long-Term Incentive Plan to eligible employees. The fair value of stock options is determined using the Black-Scholes option pricing model. The weighted average fair value of options granted during the 26 weeks ended June 25, 2017 was $4.58 per share, as estimated using the following weighted average assumptions: expected life of options – 6.25 years; volatility – 36.37%; risk-free interest rate – 2.23%; and dividend yield – 0.0%. The Company used the simplified method for determining the expected life of the options. The expected volatility of the options was calculated using the Company’s historical data. A summary of activity for the 26 weeks ended June 25, 2017 is as follows: Options Shares (Thousands) Weighted Average Exercise Price Aggregate Intrinsic Value (Thousands) Weighted Average Remaining Term (Years) Outstanding—December 25, 2016 4,013 $ 10.61 $ 13,455 4.78 Granted 263 11.55 Exercised (117 ) 9.57 Canceled (54 ) 14.98 Outstanding—June 25, 2017 4,105 $ 10.64 $ 7,425 4.69 Exercisable—June 25, 2017 3,124 $ 9.94 $ 7,140 3.56 Stock-based compensation is measured at the grant date, based on the calculated fair value of the award and is recognized as expense over the requisite employee service period, which is generally the vesting period of the grant, with a corresponding increase to additional paid-in-capital. For the 13 and 26 weeks ended June 25, 2017, the Company recognized stock-based compensation expense of $1.1 million and $1.9 million, respectively. $0.2 million of the stock-based compensation expense was related to Chief Executive Officer (CEO) transition costs. For the 13 and 26 weeks ended June 26, 2016, the Company recognized stock-based compensation of $0.8 million and $1.5 million, respectively. In May 2017, the Company issued 153,369 shares of restricted stock units (“RSUs”) to certain non-employee members of its Board of Directors and the senior leadership team. The RSUs had a grant-date fair value of $11.05 upon issuance. The Board of Director grants have a vesting schedule of 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date. The senior leadership team grants vest in one-third increments over a three-year period beginning in March 2018. In May 2016, the Company issued 52,558 shares of RSUs to certain non-employee members of its Board of Directors. The RSUs had a grant-date fair value of $13.27 upon issuance and have a vesting schedule of 50% on the first anniversary of the grant date and 50% on the second anniversary of the grant date. |
Commitments and Contingencies
Commitments and Contingencies | 6 Months Ended |
Jun. 25, 2017 | |
Commitments And Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | (7) Commitments and Contingencies In 2016, the Company received notice of a potential claim alleging that it violated the Fair Labor Standards Act by not paying overtime to its assistant managers, whom the Company had classified as exempt employees. Although the Company believes that its assistant managers were properly classified as exempt under both federal and state laws, the Company agreed to mediate the matter. On February 20, 2017, the parties entered into a Settlement Agreement and Release whereby participating assistant managers agreed to release the Company from all federal and/or state wage and hour claims in exchange for a gross settlement amount of $1.3 million. As part of the settlement process, a complaint was filed on February 17, 2017 in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida. A motion seeking the Court’s approval of the settlement was filed on February 21, 2017, which was subsequently approved. In March 2017, the Company paid out the settlement, which was booked against the previously recorded liability. |
Organization and Other Matters
Organization and Other Matters (Policies) | 6 Months Ended |
Jun. 25, 2017 | |
Accounting Policies [Abstract] | |
Business | Business Potbelly Corporation (the “Company” or “Potbelly”), through its wholly-owned subsidiaries, operates or franchises Potbelly Sandwich Shops in 31 states and the District of Columbia. The Company also sells and administers franchises of Potbelly Sandwich Shops. The first domestic franchise location administered by the Company opened during February 2011. Additionally, in February 2011, the Company opened its first international franchise in the Middle East. In July 2015, the Company opened its first franchise shop in the United Kingdom and in October 2016, the Company opened its first franchise shop in Canada. Additionally, during April 2016, the Company transitioned a franchise shop to a company-operated shop for a purchase price of $1.1 million. The Company recorded $0.8 million of goodwill related to the transaction. The Company believes this acquisition is immaterial. |
Basis of Presentation | Basis of Presentation The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Potbelly Corporation and its subsidiaries and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 25, 2016. The unaudited condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission’s (the “SEC”) regarding interim financial reporting. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to the SEC rules and regulations. In the opinion of management, all adjustments, which are of a normal and recurring nature (except as otherwise noted), that are necessary to present fairly the Company’s financial position as of June 25, 2017 and December 25, 2016, its statement of operations for the 13 and 26 weeks ended June 25, 2017 and June 26, 2016 and its statement of cash flows for the 26 weeks ended June 25, 2017 and June 26, 2016 have been included. The consolidated statements of operations for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year. The Company does not have any components of other comprehensive income recorded within its consolidated financial statements and therefore, does not separately present a statement of comprehensive income in its condensed consolidated financial statements. |
Principles of Consolidation | Principles of Consolidation The unaudited condensed consolidated financial statements include the accounts of Potbelly Corporation; its wholly owned subsidiary, Potbelly Illinois, Inc. (“PII”); PII’s wholly owned subsidiaries, Potbelly Franchising, LLC and Potbelly Sandwich Works, LLC (“LLC”); eight of LLC’s wholly owned subsidiaries and LLC’s five joint ventures, collectively, the “Company.” All significant intercompany balances and transactions have been eliminated in consolidation. For consolidated joint ventures, non-controlling interest represents a non-controlling partner’s share of the assets, liabilities and operations related to the five joint venture investments. The Company has ownership interests ranging from 51-80% in these consolidated joint ventures. |
Fiscal Year | Fiscal Year The Company uses a 52/53-week fiscal year that ends on the last Sunday of the calendar period. Approximately every five or six years a 53rd week is added. Fiscal year 2017 consists of 53 weeks and 2016 consisted of 52 weeks. The fiscal quarters ended June 25, 2017 and June 26, 2016 each consisted of 13 weeks. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Significant estimates include amounts for long-lived assets and income taxes. Actual results could differ from those estimates. |
New and Revised Financial Accounting Standards | New and Revised Financial Accounting Standards In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, “Revenue from Contracts with Customers.” The pronouncement was issued to clarify the principles for recognizing revenue and to develop a common revenue standard and disclosure requirements for U.S. GAAP and International Financial Reporting Standards (IFRS). The FASB approved a one-year deferral of the effective date of ASU 2014-09, such that it will become effective for the annual period beginning after December 15, 2017. In addition, the FASB issued ASU 2016-08, ASU 2016-10 and ASU 2016-12 in March 2016, April 2016 and May 2016, respectively, to help provide interpretive clarifications on the new guidance in Accounting Standards Codification (ASC) Topic 606. Potbelly will adopt the standard effective the first quarter of 2018 and apply the amendments using the modified retrospective method. Based on a preliminary assessment, the Company has determined that the adoption will not have a material impact on sandwich shop sales, but may impact franchise revenue and gift card breakage. The Company is continuing its assessment, which may identify additional impacts this standard will have on its consolidated financial statements and related disclosures. In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which will replace the existing guidance in ASC 840, “Leases.” The pronouncement requires a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability. For finance leases, the lessee would recognize interest expense and amortization of the right-of-use asset and for operating leases, the lessee would recognize a straight-line total lease expense. The pronouncement is effective for fiscal years beginning after December 15, 2018, including annual and interim periods thereafter. In addition, the pronouncement requires the use of the modified retrospective method, which will require adjustment to all comparative periods presented in the consolidated financial statements. The Company is currently evaluating the impact ASU 2016-02 will have on its financial position, results of operations and cash flows but expects that it will result in a material increase in its long-term assets and liabilities given the Company has a significant number of leases. In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718).” The pronouncement simplifies the accounting for the taxes related to stock-based compensation, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification within the statement of cash flows. The pronouncement is effective for annual periods beginning after December 15, 2016, including annual and interim periods thereafter. Potbelly adopted ASU 2016-09 in the first quarter of 2017. The primary impact of adoption was the recognition of excess tax benefits and deficiencies that arise upon vesting or exercise of share-based payments in the Income Statement as income tax expense instead of a component of equity recorded to paid-in capital. This aspect of the new guidance, which was required to be adopted prospectively, resulted in In January 2017, the FASB issued ASU No. 2017-04, “Intangibles – Goodwill and Other (Topic 350).” The new standard eliminates step 2 from the goodwill impairment test. Instead, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to that excess. Under current U.S. GAAP, to perform step 2 an entity must determine its implied fair value, which is determined in the same manner as the amount of goodwill recognized in a business combination. In addition to eliminating step 2, the new standard eliminates the requirement for a reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform step 2 of the goodwill impairment test. Instead, all reporting units, even those with a zero or negative amount will apply the same impairment test. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The standard will be effective for Potbelly in the fiscal year beginning after December 15, 2019. Early adoption for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017 is permitted. This amendment is required to be applied on a prospective basis. Potbelly is currently assessing the impact and timing of adopting this guidance on its consolidated financial statements. |
Earnings (Loss) Per Share (Tabl
Earnings (Loss) Per Share (Tables) | 6 Months Ended |
Jun. 25, 2017 | |
Earnings Per Share [Abstract] | |
Summary of Earnings Per Share Calculation | The following table summarizes the earnings per share calculation: For the 13 Weeks Ended For the 26 Weeks Ended June 25, June 26, June 25, June 26, 2017 2016 2017 2016 Net income (loss) attributable to Potbelly Corporation $ (138 ) $ 3,373 $ 545 $ 4,461 Weighted average common shares outstanding-basic 25,033,868 25,818,571 25,066,374 26,039,082 Plus: Effect of potential stock options exercise — 581,971 831,927 504,761 Plus: Effect of potential warrant exercise — 58,545 82,750 53,169 Weighted average common shares outstanding-diluted 25,033,868 26,459,087 25,981,051 26,597,012 Income (loss) per share available to common stockholders-basic $ (0.01 ) $ 0.13 $ 0.02 $ 0.17 Income (loss) per share available to common stockholders-diluted $ (0.01 ) $ 0.13 $ 0.02 $ 0.17 Potentially dilutive shares that are considered anti-dilutive: Common share options 4,030,128 1,003,718 1,109,681 1,238,252 |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 6 Months Ended |
Jun. 25, 2017 | |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |
Summary of Stock Options Activity | A summary of activity for the 26 weeks ended June 25, 2017 is as follows: Options Shares (Thousands) Weighted Average Exercise Price Aggregate Intrinsic Value (Thousands) Weighted Average Remaining Term (Years) Outstanding—December 25, 2016 4,013 $ 10.61 $ 13,455 4.78 Granted 263 11.55 Exercised (117 ) 9.57 Canceled (54 ) 14.98 Outstanding—June 25, 2017 4,105 $ 10.64 $ 7,425 4.69 Exercisable—June 25, 2017 3,124 $ 9.94 $ 7,140 3.56 |
Organization and Other Matter17
Organization and Other Matters - Additional Information (Detail) $ in Thousands | 1 Months Ended | 3 Months Ended | 6 Months Ended | ||
Apr. 30, 2016USD ($) | Jun. 25, 2017USD ($)StateJointVenture | Jun. 25, 2017USD ($)StateSubsidiaryJointVenture | Jun. 26, 2016USD ($) | Dec. 25, 2016USD ($) | |
Nature Of Business And Basis Of Presentation [Line Items] | |||||
Number of states with operations | State | 31 | 31 | |||
Purchase price of transitioned franchise shop | $ 1,100 | $ 1,108 | |||
Goodwill | $ 2,222 | $ 2,222 | $ 2,222 | ||
Number of wholly owned subsidiaries | Subsidiary | 8 | ||||
Number of joint ventures | JointVenture | 5 | 5 | |||
Additional income tax expense | $ 89 | $ (16) | |||
ASU No. 2016-09 [Member] | |||||
Nature Of Business And Basis Of Presentation [Line Items] | |||||
Additional income tax expense | $ 158 | $ 247 | |||
Minimum [Member] | |||||
Nature Of Business And Basis Of Presentation [Line Items] | |||||
Ownership interest rate | 51.00% | ||||
Maximum [Member] | |||||
Nature Of Business And Basis Of Presentation [Line Items] | |||||
Ownership interest rate | 80.00% | ||||
Franchise-Operated Shops [Member] | |||||
Nature Of Business And Basis Of Presentation [Line Items] | |||||
Goodwill | $ 800 |
Fair Value Measurement - Additi
Fair Value Measurement - Additional Information (Detail) - USD ($) $ in Millions | 3 Months Ended | 6 Months Ended | ||
Jun. 25, 2017 | Jun. 26, 2016 | Jun. 25, 2017 | Jun. 26, 2016 | |
Fair Value Disclosures [Abstract] | ||||
Impairment charge | $ 3.3 | $ 1 | $ 4.2 | $ 1 |
Earnings (Loss) Per Share - Add
Earnings (Loss) Per Share - Additional Information (Detail) | 3 Months Ended |
Jun. 25, 2017shares | |
Common Share Options [Member] | |
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items] | |
Potentially dilutive shares that are considered anti-dilutive | 0 |
Earnings (Loss) Per Share - Sum
Earnings (Loss) Per Share - Summary of Earnings Per Share Calculation (Detail) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 25, 2017 | Jun. 26, 2016 | Jun. 25, 2017 | Jun. 26, 2016 | |
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items] | ||||
Net income (loss) attributable to Potbelly Corporation | $ (138) | $ 3,373 | $ 545 | $ 4,461 |
Weighted average common shares outstanding-basic | 25,033,868 | 25,818,571 | 25,066,374 | 26,039,082 |
Plus: Effect of potential stock options exercise | 581,971 | 831,927 | 504,761 | |
Plus: Effect of potential warrant exercise | 58,545 | 82,750 | 53,169 | |
Weighted average common shares outstanding-diluted | 25,033,868 | 26,459,087 | 25,981,051 | 26,597,012 |
Income (loss) per share available to common stockholders-basic | $ (0.01) | $ 0.13 | $ 0.02 | $ 0.17 |
Income (loss) per share available to common stockholders-diluted | $ (0.01) | $ 0.13 | $ 0.02 | $ 0.17 |
Common Share Options [Member] | ||||
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items] | ||||
Potentially dilutive shares that are considered anti-dilutive | 4,030,128 | 1,003,718 | 1,109,681 | 1,238,252 |
Income Taxes - Additional Infor
Income Taxes - Additional Information (Detail) - USD ($) $ in Thousands | 3 Months Ended | 6 Months Ended | ||
Jun. 25, 2017 | Jun. 26, 2016 | Jun. 25, 2017 | Jun. 26, 2016 | |
Income Tax [Line Items] | ||||
Income tax expense | $ 186 | $ 2,039 | $ 739 | $ 2,772 |
Income before income taxes | $ 123 | $ 5,471 | $ 1,358 | $ 7,332 |
Effective tax rate | 151.20% | 37.30% | 54.40% | 37.80% |
ASU No. 2016-09 [Member] | ||||
Income Tax [Line Items] | ||||
Effective tax rate increased | 129.50% | 18.20% |
Capital Stock - Additional Info
Capital Stock - Additional Information (Detail) - USD ($) | 6 Months Ended | |||
Jun. 25, 2017 | Jun. 26, 2016 | Sep. 08, 2016 | Sep. 08, 2015 | |
Equity [Abstract] | ||||
Stock repurchase program, authorized amount | $ 30,000,000 | $ 35,000,000 | ||
Common stock shares repurchased | 413,584 | |||
Common stock repurchased value | $ 4,996,000 | $ 16,622,000 | ||
Remaining dollar value of authorization under the share repurchase program | $ 22,700,000 |
Stock-Based Compensation - Addi
Stock-Based Compensation - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Thousands | 1 Months Ended | 3 Months Ended | 6 Months Ended | |||
May 31, 2017 | May 31, 2016 | Jun. 25, 2017 | Jun. 26, 2016 | Jun. 25, 2017 | Jun. 26, 2016 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Weighted average common stock fair value | $ 11.55 | |||||
Recognized stock-based compensation expense | $ 1,100 | $ 800 | $ 1,925 | $ 1,466 | ||
Unrecognized stock compensation expense | 6,400 | $ 6,400 | ||||
Unrecognized stock compensation expense, recognition period | 2,021 | |||||
Restricted Stock Units (RSUs) [Member] | Non-Employee Board Of Directors [Member] | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Restricted stock units issued | 153,369 | 52,558 | ||||
Restricted stock units issued, grant-date fair value | $ 11.05 | $ 13.27 | ||||
Vesting description | The senior leadership team grants vest in one-third increments over a three-year period beginning in March 2018. | |||||
Vesting period | 3 years | |||||
Restricted Stock Units (RSUs) [Member] | Non-Employee Board Of Directors [Member] | First Anniversary [Member] | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Vesting percentage | 50.00% | 50.00% | ||||
Restricted Stock Units (RSUs) [Member] | Non-Employee Board Of Directors [Member] | Second Anniversary [Member] | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Vesting percentage | 50.00% | 50.00% | ||||
Chief Executive Officer (CEO) Transition Costs [Member] | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Recognized stock-based compensation expense | $ 200 | $ 200 | ||||
2013 Long Term Incentive Plan [Member] | ||||||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||||||
Weighted average common stock fair value | $ 4.58 | |||||
Expected life of options | 6 years 3 months | |||||
Volatility | 36.37% | |||||
Risk-free interest rate | 2.23% | |||||
Dividend yield | 0.00% | |||||
Method used to determine fair value of the options | Black-Scholes option pricing model |
Stock-Based Compensation - Summ
Stock-Based Compensation - Summary of Stock Options Activity (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 6 Months Ended | 12 Months Ended |
Jun. 25, 2017 | Dec. 25, 2016 | |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | ||
Options Outstanding shares, Beginning balance | 4,013 | |
Options, Granted | 263 | |
Options, Exercised | (117) | |
Options, Canceled | (54) | |
Options Outstanding shares, Ending balance | 4,105 | 4,013 |
Options Outstanding shares, Exercisable | 3,124 | |
Options outstanding weighted average exercise price, Beginning balance | $ 10.61 | |
Options, Weighted Average Exercise Price, Granted | 11.55 | |
Options, Weighted Average Exercise Price, Exercised | 9.57 | |
Options, Weighted Average Exercise Price, Canceled | 14.98 | |
Options outstanding weighted average exercise price, Ending balance | 10.64 | $ 10.61 |
Options outstanding weighted average exercise price, Exercisable | $ 9.94 | |
Options Outstanding Aggregate Intrinsic value | $ 7,425 | $ 13,455 |
Options Exercisable Aggregate Intrinsic Value | $ 7,140 | |
Option Outstanding Weighted Average Remaining Term | 4 years 8 months 9 days | 4 years 9 months 11 days |
Options Exercisable Weighted Average Remaining Term | 3 years 6 months 21 days |
Commitment and Contingencies -
Commitment and Contingencies - Additional Information (Detail) $ in Millions | Feb. 21, 2017USD ($) |
Commitments And Contingencies Disclosure [Abstract] | |
Gross settlement amount | $ 1.3 |