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Potbelly Corporation (NASDAQ:PBPB), a Chicago, Illinois-based neighborhood sandwich shop concept, plans to raise $75 million in its upcoming IPO on Friday, October 4, 2013. The firm plans to offer 7.5 million shares at an expected price range of $9.00-11.00. If the offering hits the midpoint of that range at $10.00 per share, PBPB would command a market value of $285 million. PBPB is an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, and is therefore subjected to reduced reporting requirements.

PBPB filed confidentially on November 13, 2012
Joint Managers: BofA Merrill Lynch, Goldman Sachs
Co-Managers: Baird, William Blair, Piper Jaffray

SUMMARY
Potbelly Corporation operates and franchises sandwich shops that strive to be "The Best Place For Lunch." Potbelly shops offer toasted sandwiches, salads, milkshakes and other items; decor is determined on a shop-by-shop basis and is meant to reflect local culture. Potbelly opened its first shop in 1977 in Chicago; after its 1996 acquisition by entrepreneur Bryant Keil, the company began to aggressively open new shops, reaching 100 shops in 2005, 200 shops in 2008, and 300 shops in 2013. As of June 30, 2013, the firm operated 280 shops and had franchised six shops across 18 states and the District of Columbia. An additional twelve franchised locations are in operation in the Middle East.

VALUATION
PBPB offers the following figures in its S-1 balance sheet for the fiscal year ending December 30, 2012:

Total Revenues: $274,914,000
Net Income: $7,100,000, excluding a $16.9 million non-cash tax benefit as a result of releasing a valuation allowance against deferred tax assets
Total Assets: $126,699,000
Total Debt: $15,169,000
Total Equity: ($168,728,000)

PBPB has shown impressive improvement in its shop-level profit margin in recent years; from 2008 to 2012, shop-level profit margin increased by 520 basis points to 20.7%. From 2011 to 2012, Potbelly increased total revenue by 15.5% to $274.9 million and increased adjusted EBITDA by 17.6% to $31.5 million.

CONCLUSION
PBPB looks to be a promising buy in the quickly-growing "fast-casual" restaurant sector. We are recommending this IPO if it prices in the range of $9 to $11 or even slightly above $11. This IPO will benefit from the very successful IPO of Noodles (NASDAQ:NDLS) and should have a lot of retail interests.

The firm has turned decidedly profitable and, barring another economic downturn, is likely to continue to grow its revenue and income. Its increasing shop-level profit margin bodes well for future franchising opportunities in particular and for the company in general.

BUSINESS
PBPB faces direct competition from other fast-casual restaurants and from fast food restaurants - not everyone agrees that Potbelly's is "The Best Place for Lunch." Critical fast-casual competitors include Chipotle Mexican Grill (NYSE:CMG), Jimmy John's, Panera Bread (NASDAQ:PNRA) and Subway; fast food competitors include McDonald's (NYSE:MCD), Burger King (NYSE:BKW), and many others. Several of these competitors are much better capitalized than PBPB and may be better equipped to secure new locations and take advantage of marketing opportunities.

Restaurants depend upon discretionary consumer spending in order to generate revenue. While the current recovering economy should encourage increased discretionary spending, any downturn will cause immediate negative impacts on PBPB.

MANAGEMENT
Potbelly's senior executive team has extensive operating experience, with an average of over 17 years in the restaurant industry. Since the hiring of President and CEO Aylwin Lewis in 2008, the core senior executive team has remained completely intact. Aylwin worked with Yum! Brands, Inc. from 1991 to 2004, most recently as President and Chief Multibranding and Operating Officer. Aylwin also has had experience as the President and CEO of Sears Holdings.

Source: Potbelly IPO Is Delicious

Additional disclosure: Investors should review any investments with their financial advisers before making any decisions and should also read the S-1.