Mobile Community Five Reasons Not To Bite Into Potbelly's IPO

Article Information

  • Posted By : Xeni L
  • Posted On : Feb 13, 2014
  • Views : 1144
  • Average User Rating :
  • Category : Business » Tips » To Do
  • Description : Potbelly Corporation set the terms for its IPO September 23. If you include the underwriters over-allotment, the Chicago-based sandwich shop is selling 8.49 million shares to the public at between $9 and $11. While it's tempting to take a bite out of this IPO, there are five reasons why you shouldn't.

Profile Information

  • Inspired By Will Ashworth
  • Courtesy Sinters
  • Informative Yes, very much.

Overview

  • Pre-IPO Dividend

    As of June 30, Potbelly had $21.7 million in cash and $15.1 million in long-term debt. It plans to pay out $50 million in dividends to existing shareholders from its net IPO proceeds of $77.5 million, which will leave it with $49.2 million in cash. 

    On a pro forma basis it will end up with $24.9 million in cash on its balance sheet. The net result—it will raise just $24.3 million to improve its business. IPOs that don't use 100% of the net proceeds for the betterment of the business aren't worth considering.

     

    Especially when you realize that Potbelly's dividend payment to existing shareholders is an instant 33% boost on its $154 million investment.

    Limited Profitability

    Over the past five years Potbelly's achieved a compound annual revenue growth rate of 7.6%. Its first operating profit came in 2010, when it earned $771,000 before interest and taxes.  In terms of comparable store sales growth, it's averaged 2.3% over the last three years.

    Eighty-five of Potbelly's 280 company-owned shops are located in Illinois where its headquarters are based. Another 41 are in Texas with 22 in the District of Columbia. Over half its shops are operating in just three states with another 132 spread out over 16 more.