The Greenlight Capital funds (the “Partnerships”) returned (4.0)%,1 net of fees and expenses, in the second quarter of 2017, bringing the year-to-date net return to (2.8)%. During the second quarter, the S&P 500 index returned 3.1%, bringing its year-to-date return to 9.3%. The second quarter was a bit of a head-scratcher. Our five biggest longs reported earnings that met or exceeded expectations, while our shorts announced earnings that mostly disappointed. Nonetheless, we lost money in the quarter.
In recent years the company has fared well. Revenues have grown by approximately 50% since 2012, profits more than doubled and earnings per share increased by roughly 80%. However, shareholders of GURE – the owners of the company – have not benefited accordingly.
Since the beginning of 2012 the Company’s shares have mostly seesawed between $1-$2.5/share and delivered a negative return of approximately -6%. At the time of writing the shares trade at $1.61/share, which is also 83% below the IPO price in 2009. Since the company does not pay dividends or engage in share repurchases the shareholders have not reaped the rewards of the business’ success.
Ancora Advisors LLC is a significant shareholder of Potbelly Corporation ("Potbelly" or "Company"), owning approximately 4% of the outstanding shares. We believe Potbelly has the potential to be a very attractive investment at the current valuation, underpinned by robust store level return on invested capital ("ROIC"), a strong balance sheet, a quality brand and product, and significant growth runway. However, while the Company targets 25%+ shop level ROIC, it has been unable to translate strong unit level returns to acceptable shareholder returns.