Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Potbelly Corp (PBPB, Financial) achieved a 0.4% growth in same-store sales despite a challenging macro environment.
- The company expanded shop margins for the 13th consecutive quarter, indicating strong operational efficiency.
- Potbelly Corp (PBPB) added four new shops in the quarter and has franchise commitments to open 22 additional shops.
- Digital sales represented approximately 40% of total shop sales, with a shift towards Potbelly-owned channels.
- The $7.99 everyday value combo meal has been well-received, driving incremental sales and profitability.
Negative Points
- Potbelly Corp (PBPB) experienced a slowdown in traffic, with less frequent consumers visiting less often.
- The company reported a decrease in company revenue due to the short-term impact of last year's refranchising.
- Q3 started softer than expected, influenced by factors like the Fourth of July holiday and Hurricane Barrel.
- The company adjusted its full-year same-store sales guidance to a range of negative 1.5% to positive 0.5%.
- There is increased competition in the value meal space, with competitors offering aggressive pricing strategies.
Q & A Highlights
Q: Did the trend of less frequent visitors visiting less continue this quarter, and how did the everyday value combo meals impact this?
A: Robert Wright, President and CEO, explained that the trend of less frequent visitors visiting less did continue, primarily among less digital and less loyal customers. The introduction of the $7.99 skinny combo meal, which includes a sandwich, chips, and a drink, was successful in providing value and retaining these customers. The combo meal helped maintain sales growth and offered a full meal option that customers could afford, preventing them from switching to grocery options.
Q: What are the learnings from the new 1,800 square foot store prototype, and is there an ideal mix of this to the traditional store size?
A: Robert Wright stated that the new prototype is the template for all new builds, targeting 1,800 square feet, though some locations may vary. The prototype preserves Potbelly's atmosphere while being more efficient, with fewer seats and a focus on digital business. The smaller size offers significant occupancy cost savings, benefiting franchisees.
Q: Can you decompose the 0.4% same-store sales growth in terms of traffic versus price versus mix?
A: Steven Cirulis, CFO, noted that the company had about 4.3% gross price increase, with around 2% reflected in average check. Traffic was down slightly, but Potbelly outperformed the fast-casual segment in traffic. There was also a mix shift, with some customers opting for smaller menu sizes and the $7.99 combo.
Q: How does the competitive pricing environment impact Potbelly, and how confident are you in the $7.99 combo's value?
A: Robert Wright acknowledged the competitive pricing environment but emphasized that Potbelly's $7.99 combo provides value without compromising profitability. The combo has received positive feedback, with significant lifts in value scores and return intent. Potbelly avoids overly aggressive pricing that could harm profitability and franchisee adoption.
Q: What is the outlook for franchise unit growth in 2025, and can Potbelly achieve double-digit growth?
A: Robert Wright expressed confidence in achieving double-digit franchise unit growth in 2025. The company is on track with its development schedule, and new shops are performing well, exceeding forecasts and system averages. Potbelly aims for a low double-digit CAGR unit growth rate.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
