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Potbelly Jumps in Trading Debut After $105 Million IPO

Potbelly Doubles in Trading Debut After $105 Million IPO
Customers walk out of a Potbelly Corp. sandwich shop in Washington, D.C., on Oct. 4, 2013. Photographer: Andrew Harrer/Bloomberg

Oct. 4 (Bloomberg) -- Potbelly Corp., the Chicago-based purveyor of made-to-order toasted sandwiches, more than doubled in trading after pricing its IPO above an increased range, highlighting investors’ appetite for growing restaurant chains.

The shares surged 120 percent to $30.77 at the close in New York, the second-best trading debut on a U.S. exchange this year, according to data compiled by Bloomberg. The company and existing stockholders sold 7.5 million shares for $14 each, according to data compiled by Bloomberg, after offering them for $12 to $13. The company raised the range Oct. 2 after initially setting it at $9 to $11.

Potbelly has been expanding in cities from Portland, Oregon, to New York and expects to open as many as 35 new shops this year, according to its prospectus. The company plans to use proceeds from the offering to support this growth, in addition to funding a dividend and paying back loans.

“It’s probably a scarcity kind of thing,” Peter Saleh, a New York-based analyst at Telsey Advisory Group, said in an interview. “This is a fast-casual operator, and there aren’t many of them” that are publicly traded.

The company, which operates more than 90 percent of its stores, has a lot of opportunity to grow by franchising more and opening additional locations overseas, he said.

Noodles & Co., the first U.S. restaurant IPO this year, also more than doubled in its June trading debut. The shares advanced 139 percent from the offering through yesterday.

The Bloomberg U.S. Quick Service Restaurant Index, which includes companies such as McDonald’s Corp. and Yum! Brands Inc., advanced 35 percent this year through yesterday, almost double the 18 percent gain in the Standard & Poor’s 500 Index.

Antiques Store

Potbelly began in 1977 as an antiques store that provided sandwiches and desserts to customers to boost sales. Revenue was $146.9 million in the first six months of 2013, an increase of 12 percent from a year ago, the filing shows. It had 280 company-operated shops as of June 30 and plans to increase its store count by about 10 percent each year, Chief Executive Officer Aylwin Lewis said in a telephone interview.

“The vast part of our growth will be with company capital,” he said. “We do have a nascent franchise program that we’ve started, and that will grow, but the bulk of the growth will come from company units.”

The company sold 7.35 million shares, according to the original terms of the prospectus, while existing stockholders including affiliates of William Blair & Co. sold the rest. The shares sold are equivalent to about a 27 percent stake in the company. The company’s market capitalization was $861.8 million at the close today.

Paying Dividend

Potbelly plans to use the funds from the offering to pay a $49.9 million dividend on shares of common and preferred stock outstanding on the day before the offering closes, according to the filing. Executive officers, directors and owners will receive about 86 percent of the dividend.

Bank of America Corp. and Goldman Sachs Group Inc. led the IPO. The shares are listed on the Nasdaq Stock Market under PBPB.

To contact the reporters on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net; Leslie Picker in New York at lpicker2@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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