An activist shareholder wants sandwich company Potbelly to either change its strategy or explore selling.

Ancora Advisors, which owns 4 percent of Potbelly shares, is urging the company to franchise more restaurants, curtail store expansion, and appoint a new board member to improve performance as investors have experienced “nothing but losses” following Potbelly’s IPO in 2013.

“Over every measurable period, Potbelly has underperformed the market, dramatically for the most part,” Fred DiSanto, chairman and CEO of Ancora, says in the letter. “We believe management and the board’s focus on growth at the expense of returns is the primary driver of the underperformance.”

Ancora says Potbelly could more than double its share price by adopting its strategies, which include shrinking new location sizes in favor of kiosk models with higher margins. Potbelly franchises around 40 locations internationally, though it has more than 400 shops in the U.S. alone. According to Ancora’s projections, more franchised stores would improve cash generation that could be returned to shareholders or used for growth.

“We believe the board and management need to address the deteriorating return profile immediately and drastically slow the build out of locations, particularly in light of the Shop 2020 review, which will hopefully explore the smaller [kiosk] model in depth, and ahead of a new CEO being hired,” DiSanto says in the letter. “Given that the company’s sales per square foot has stagnated over the last few years, reducing square feet is the easiest path to improving returns.”

Last month, Potbelly announced that longtime CEO and chairman Aylwin Lewis will leave in August after nine years leading the company. Potbelly has not responded to the letter, which was issued June 22. The full letter can be found here.


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