Release Date: November 07, 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 70 basis points year-over-year improvement in shop profit margins.
- The company opened eight new shops in the third quarter, further accelerating new shop development.
- Digital business represented over 38% of total shop sales, with Potbelly-owned channels driving the entire 100 basis points year-over-year improvement in digital mix.
- The Potbelly Perks loyalty program continues to drive increased customer frequency across all cohorts.
- Franchise shop commitments increased to 86 year-to-date, with a total of 695 shops across 33 franchise groups.
Negative Points
- Company-operated same-store sales were down 1.8% in the third quarter.
- Labor expenses increased by 20 basis points due to higher employee group insurance costs.
- Other operating expenses rose by 30 basis points, primarily due to increased brand fund spending.
- The company faced short-term delays in shop openings due to external factors like hurricanes.
- Potbelly Corp (PBPB) provided a cautious outlook for Q4, with expected same-store sales growth ranging from negative 2.5% to negative 0.5%.
Q & A Highlights
Q: Can you provide more detail on the same-store sales trends and the factors affecting them in Q3?
A: Steven Cirulis, CFO, explained that Q3 saw improvement despite challenges like the July 4 holiday, Hurricane Beryl, and the DNC in Chicago. The quarter ended with a 1.8% decline in same-store sales, driven by a 3.8% decrease in traffic and a 2% increase in average check. The average check increase included a 4.4% price rise, with some mix decline.
Q: What is the outlook for unit development in Q4 and 2025, considering recent disruptions?
A: Robert Wright, CEO, noted that despite disruptions like hurricanes, Potbelly plans to open 9 to 11 shops in Q4, totaling 24 to 26 for the year. For 2025, they have more leases signed than the total openings for 2024, indicating strong momentum and confidence in achieving long-term growth targets.
Q: How is Potbelly approaching refranchising, and what can be expected in the future?
A: Robert Wright stated that while refranchising was a catalyst for growth last year, it is not a necessity now. They may pursue opportunistic refranchising but are focused on accelerating development through new franchise agreements rather than refranchising existing units.
Q: Can you update us on the industry discounting trends and Potbelly's promotional strategies?
A: Robert Wright highlighted that Potbelly is focusing on everyday value offerings like the $7.99 combo and leveraging digital channels and the Perks loyalty program to drive traffic. They avoid deep discounts on core menu items to protect brand integrity and margins.
Q: How is the new store prototype performing, and are there any updates?
A: Robert Wright reported satisfaction with the new store prototype, which averages 1,800 square feet. The design enhances margin through reduced occupancy costs and integrates digital elements effectively. New openings are performing well against system-wide and forecasted sales metrics.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
