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(Corrects paragraph 18 to show that Aaron Ryou buys lunch every day in Potbelly's hometown)
By Lisa Baertlein
LOS ANGELES, July 15 (Reuters) - Early investors in Potbelly Corp have seen their shares in the toasted sandwich chain go cold.
Expectations were high ahead of Potbelly's initial public offering in October. The roughly 300-unit Chicago-based sandwich chain was poised to grow, announcing plans to increase its restaurant count by at least 10 percent per year. And it had signed on Starbucks Corp Chief Executive Officer Howard Schultz's Maveron venture capital firm as its biggest investor.
Shares more than doubled in their first trading session from $14 to almost $31.
About nine months later, though, Potbelly's shares have shed those gains, and then some. Shares tumbled 25 percent, to $10.97, on July 10 after it warned of weak second-quarter sales, causing some analysts to blame company-specific problems rather than broader economic malaise. (The stock traded at $11.53 on July 15.)
For growth-hungry investors seeking to replicate the success of Chipotle Mexican Grill Inc and Starbucks, it's a cautionary tale.
"Companies like Starbucks and Chipotle come around once in a decade," William Blair restaurant analyst Sharon Zackfia said.
Such long odds have not deterred investor appetite for restaurant IPOs, particularly those in the fast-casual category Chipotle popularized. Results have been mixed.
Shares in Noodles & Co doubled in their June 2013 debut, to $36.75, almost 20 percent above their current price of about $29.
Mediterranean-inspired Zoe's Kitchen Inc's jumped 65 percent, to $24.72, in its first trading day in April. Its shares also trade at around $29.
Even before Potbelly went public there were signs the chain, which got its start as a food counter in an antique store in Chicago's tony Lincoln Park neighborhood, might not be the breakout hit investors hoped.
Sales at established restaurants, a benchmark of industry performance, fell slightly in the first quarter of 2013, before the IPO, and have been down in the last two quarters.
Returns on Potbelly restaurants are lower than at Chipotle and Panera Bread Co, and the chain had "inconsistent performance" in the critical New York City market, where it built 16 units in 18 months, Baird Equity Research analyst David Tarantino wrote in his first report on Potbelly in October 2013.
Chipotle and Starbucks are known among investors for their ability to get more and more sales out of their shops, a skill that underpins their enviable same-restaurant sales growth.
Panera was a top performer until late last year, when its CEO said "operational friction" limited the ability of its bakery-cafes to squeeze out higher sales.
(For graphic on restaurant IPOs: link.reuters.com/suq42w)
Potbelly boasts a "neighborhood feel" with homey decor, fresh-baked cookies and live music.
Maveron remains Potbelly's largest shareholder, with 4.3 million shares as of May 15, according to the company. On Feb. 14, Maveron and related funds held 5.8 million shares, or a stake of nearly 20 percent, according to the company's proxy.
Chicago software engineer Aaron Ryou, 33, buys lunch every day in Potbelly's hometown and says its expansion has hurt its novelty.
"Now they're everywhere. It lost its luster," he said.
Potbelly also lags bigger rivals such as Firehouse Subs, Jersey Mike's Subs and Jimmy John's Gourmet Sandwiches when it comes to having the best-tasting sandwiches, according to Consumer Reports surveys from 2011 and 2014. Privately held Subway, the biggest U.S. sandwich chain with a market share of roughly 60 percent, ranked lower than all of those chains.
The proliferation of Potbelly and its rivals has only intensified what has long been a highly competitive business.
The fast-food sandwich category Subway dominates grew 10.5 percent from the fall of 2012 to the fall of 2013. Adding to the pressure, fast-casual restaurant counts grew 5.9 percent during the same period, according to a restaurant census conducted by the NPD Group.
"It's a crowded space," said Bob Goldin, executive vice president of Technomic.
Neither the disappointing results from Potbelly nor the closure last week of cupcake purveyor Crumbs Bake Shop appear to have cooled interest in restaurant IPOs.
Chicken chain El Pollo Loco on Monday announced plans to go public. Other chains planning floats this year include The Habit Burger Grill, a popular upscale burger joint, fast-food chain Checkers Drive-In Restaurants Inc and arcade-eateries Dave & Buster's Inc. (Editing by Douglas Royalty)