Artko Capital - Potbelly: Thesis Playing Out Just As Hoped

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The pursuing conception was excerpted from this money letter.

Potbelly (NASDAQ:PBPB)

Potbelly was level successful 2022 staying astir nan $5.60 value for astir of nan year, however, arsenic nan institution pre-announced its 4th 4th 2022 results up of guidance successful early January, nan banal has surged adjacent to 40% successful 2023.

Our finance successful PBPB was primitively a post-Covid betterment typical business pinch a important opportunity to alteration its business exemplary from 1 of managing 400 specialty sandwich shop locations to 1 managing 2000+ franchises arsenic nan institution hired a erstwhile Wendy’s COO, Robert Wright, to execute connected nan strategy.

We are beautiful excited to study that our thesis truthful acold is playing retired conscionable arsenic we had hoped. For 2022 nan company’s same-store income are expected to travel successful astatine 18.5%, up of the 16-18% scope provided by nan institution a twelvemonth ago. Additionally, shop-level margins are expected to beryllium 10.4%, up of nan 10% forecasted range. The wide 2022 revenues should beryllium supra $450mm aliases 54% higher than year-end 2020 showing a important rebound from nan uncertain times during nan pandemic.

While 20% maturation rates will beryllium harder to travel by going guardant we judge pinch nan franchising strategy discussed successful nan adjacent paragraph, ostentation sticking astir for longer than expected and maturation successful measurement should consequence successful precocious single-digit/low double-digit gross maturation for nan adjacent fewer years, arsenic good arsenic hitting nan 16% shop level margins goal, resulting successful $50mm successful EBITDA by year-end 2024/mid-2025 and utilizing comparable teens multiples tin consequence successful a $20+ value target. This does not return into relationship nan important optionality connected nan occurrence of nan re-franchising strategy.

The institution presently has 429 locations including 45 franchises aliases astir 10%. The near-term extremity is for nan existent guidelines to beryllium astatine 25% franchised meaning location are astir 60 presently owned locations that tin beryllium sold to franchisees astatine what we judge tin beryllium $500k to $1.5mm per location resulting $30mm to $90mm successful rate inflow to this $215mm marketplace headdress company. Additionally, nan institution has a extremity to turn to 2,000 shops, increasing franchised locations astatine astir 10% per year. To that end, nan institution has signed Shop Development Area Agreements for 51 early locations (which whitethorn return up to 7 years to open) successful 2022.

We judge this pillar of nan company’s strategy to beryllium nan astir important one, and nan cardinal to our thesis arsenic we judge it whitethorn adhd $10 to $50 much per stock to nan worth of nan institution successful summation to its ongoing business valuation. So acold nan strategy continues to beryllium connected way and we’re excited to beryllium on for nan ride.

Legal Disclosure

The Partnership’s capacity is based connected operations during a play of wide marketplace maturation and bonzer marketplace volatility during portion of nan period, and is not needfully suggestive of results nan Partnership whitethorn execute successful nan future. In addition, nan results are based connected nan periods arsenic a whole, but results for individual months aliases quarters wrong each play person been much favorable aliases little favorable than nan average, arsenic nan lawsuit whitethorn be. The foregoing information person been prepared by nan General Partner and person not been compiled, reviewed aliases audited by an independent accountant and non-year extremity results are taxable to adjustment.

The results portrayed are for an investor since inception successful nan Partnership and nan results bespeak nan reinvestment of dividends and different net and nan conclusion of costs, nan guidance fees charged to nan Partnership and a pro forma simplification of nan General Partner’s typical profit allocation, if applicable. The General Partner believes that nan comparison of Partnership capacity to immoderate azygous marketplace scale is inappropriate. The Partnership’s portfolio whitethorn incorporate options and different derivative securities, fixed income investments, whitethorn see short income of securities and separator trading and is not arsenic diversified arsenic nan indices, shown. The Standard & Poor's 500 Index contains 500 industrial, transportation, inferior and financial companies and is mostly typical of nan ample capitalization US banal market. The Russell 2000 Index is comprised of nan smallest 2000 companies successful nan Russell 3000 Index and is mostly typical of nan mini capitalization U.S. banal market. The Russell Microcap Index is comprised of nan smallest 1,000 securities successful nan Russell 2000 Index positive nan adjacent 1,000 securities (traded connected nationalist exchanges). The Russell Microcap is mostly typical of nan microcap conception of nan U.S. banal market. All of nan indices are unmanaged, marketplace weighted and bespeak nan reinvestment of dividends. Due to nan differences among nan Partnership’s portfolio and nan capacity of nan equity marketplace indices shown above, however, nan General Partner cautions imaginable investors that nary specified scale is straight comparable to nan finance strategy of nan Partnership.

While nan General Partner believes that to day nan Partnership has been managed pinch an finance accuracy and methodology akin to that described successful nan Partnership’s Offering Circular and to that which will beryllium utilized to negociate nan Partnership successful nan future, early investments will beryllium made nether different economical conditions and successful different securities. Further, nan capacity discussed herein does not bespeak nan General Partner’s capacity successful each different economical cycles. It should not beryllium assumed that investors will acquisition returns successful nan future, if any, comparable to those discussed above. The accusation fixed supra is historical and should not beryllium taken arsenic immoderate denotation of early performance. It should not beryllium assumed that recommendations made successful nan early will beryllium profitable, aliases will equal, nan capacity of nan securities discussed successful this material. Upon request, nan General Partner will supply to you a database of each nan recommendations made by it wrong nan past year.

This archive is not intended arsenic and does not represent an connection to waste immoderate securities to immoderate personification aliases a inducement of immoderate personification of immoderate connection to acquisition immoderate securities. Such an connection aliases inducement tin only beryllium made by nan confidential Offering Circular of nan Partnership. This accusation omits astir of nan accusation worldly to a determination whether to put successful nan Partnership. No personification should trust connected immoderate accusation successful this document, but should trust exclusively connected nan Offering Circular successful considering whether to put successful nan Partnership.

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