PBPB - Earnings call transcript Q4 2017

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Operator

Good morning, everyone, and welcome to Potbelly Corporation's Fourth Quarter Fiscal 2017 Earnings Conference Call. [Operator Instructions] Today's call is being recorded. I would now turn the call over to Mr. Matt Revord, Potbelly's Chief Legal Officer. Please go ahead.

Matthew Revord

welcome fourth and earnings everyone, morning, to quarter our call. Good

guarantees future to get will certain regarding statements, future including started, or Any we for nor other XXXX. the note performance periods, Securities contain or of Litigation financial Private they I'd should of These statements statements upon our management's meaning forward-looking call Before the such this future as like be that performance considered company. any views the the forward-looking of in are relied be as comments not forward-looking XXXX Act outlook events should subsequent statements any made of future within representing Reform date. of

from those due number significant uncertainties. risks a involve presented and and of statements events risks materially or and to Forward-looking differ uncertainties results could

most be our other concerning detailed that forward-looking cause recent actual and information Additional from in in MD&A XX-K we're to risks information, statements and the giving could filings these the with sec.gov. and factors available materially can headings subsequent Exchange differ found and results and the annual Securities business the regarding today at Form our which Factors our are Risk report on Commission, under

new full year up our then provide his questions. Coyne, prepared as your will Executive our on our the the well and quarter financial begin at Mike will as Our update thoughts for business and our days Potbelly. for call an open XXXX. outlook results are provide Alan by we'll on Financial Officer. remarks, presenters today Johnson, After Officer; for Mike sharing Chief and Chief our Alan his early fourth

Potbelly's introduce Officer. to Executive pleasure my Chief it's Alan you, Johnson, Now

Alan Johnson

It's privilege thank Good the joining join Potbelly Chief Executive a morning, everybody, the you for Thanks, as team, Matt. real Officer. to and call.

this few my our would a on I lead company, to as Potbelly. experience, jump and and a But what of minutes of to food, customer. and that, to powerful who plan. Along great because with outlook brand to is I spend me having foundation love and A year is to quarter us, full words provide the the the our attracted is was foremost, supportive. as millions be lives. a our part like love to and to into passionate, XXXX. growth. before attracted on, XXXX opportunity opportunities expressed The you of the know, on to to at in thoughts with view we first initial results and the of discuss return strong sharing culture turnaround everyday brand fourth to implementing my authentic our product objective passionate This we embark Potbelly build what I profitable our call with Potbelly, As as fans, loyal for X

of every Our differentiated culture our and organization and the associates caliber reflected level at customer is in our the nurtured of experience.

much of hard-working cows. no to to a franchisees, We with As a often stakeholders of talking looking partners view you executing Potbelly, eyes I'm their do and Since I think In build associates, my of to benefit group our supported our the get committed and time to have sacred Potbelly. set assumptions, have on. I who spent customers, are company, fresh so you you to from mandate Board partners, challenge that of short, we have a change? turnaround. what seen they far, be the by strong asked, franchise had a existing dedicated, what will to this newcomer ought I've at the of foundation joined with associates and a business

work to for observations with will year be business. Potbelly. be To is to far. done around clear, very I'm of share what a be some significant me turn so transition Let you XXXX high-level And the seeing there

Our key reverse traffic will focus be our trends. to

X quarters a external. factors internal negative of myriad and had both consecutive driven have by traffic, of We

substantially must within headwinds, improve we to well adapt our significantly While to macro and I significant are there performance. control our believe opportunities,

a examples. few more be little and specific share me Let a

new need to strategic we First, be with shop our growth.

of and scale drive our many and efficiencies. gain to As leverage markets underpenetrated are lack

underinvested has Second, and in awareness. we have maintain inhibited unaided marketing, of to our ability share brand drive voice which our

and We catch-up are and playing customer behind in are we loyalty. engagement targeted customer-facing on technology,

have surface have with good news strides what made with is ways of Potbelly possible. area the barely customers, and have those for your engage significant we mobile locations much more opened get to is, when and craveable have satisfy. recent the fix existing While new convenient our we new both Potbelly and only app future up in have planned and this unplanned relevant Perks, Potbelly The scratched can investments that making to our and you

same more, growth our initiatives franchise our our traffic business. We drive and to in platform craveable need to with and Third, have reflects portable need catering our franchising re-examine to and the our that coupled own will provide vastly a we a of could solid well, be and from a delivery are resources, product for is around the brand in underpenetrated accelerating built We said category, performance This cost our date. made with the and the limited box. we that business. investments backline commitments travels capital business. Fourth, the to of invest

find and for fund initiatives Along Finally, reinvest productivity we to to savings our these structure. initiatives. with building opportunities need traffic and to cost our investment in continue to

Our have front is my the made made adapt this have were rather possible not we of us. to and to conservative progress in things of In culture months, is that tried on risk-averse significant too we required first on work, capitalize front, support of hungry but we pace a the two previously change. opportunities our not for because lot that too of challenge that that did

and ourselves To must We over urgency need act there, I shops challenge As mentioned, thoughtful willing XXXX traffic our execute take to is quickly we and in flawlessly. time. had get with primary risks. to positive to move innovate, be focus drive our to to

ourselves Finally, We we with executing identifying back towards harvest effort, will progress making for get and balance daily fruit. key drive the we recognized are short-term meaningful But well accountable turnaround our holding traffic-building that basics of time. take our right the our to to execution initiatives this thinking need execution. to to and the low-hanging considerable long-term with

power that share me our a we which a how the one Let tomorrow's performance. existing This This perfect one that have today with affect to provide we specific the one more get spend one more, to a comps. item customers a path is, is need to and institutionalize can of implement more clear buy and $X. do time to you We examples. more can impact will couple to essentially of visit a positive on of profound example something business

to We and profitability. to transaction but the what intuitive have other through simple they the every enhance manner, a mainly in opportunities simplification want, maximize traffic in-shop give and also, to customer but engineering average drive sales and experience,

and to should We platform our these and We are positive for as benefits the Craft-Your-Own also innovation growth. focus XXXX. We our also Mac to menu keep & saw continue Club innovation. engaged. on We in offers use to as bundling Cheese Turkey proven product must a need segmented mix premium promotions, and methods explore avocado, of customers

pricing value traffic to make profits. and decisions to framework enhance develop to our We proposition both maximize and also intelligent need a

technology invest to brand. need and and we addition, harness plus potential delivery In marketing of catering in the the

our most sense our to that build that and foundation early despite It us. urgency what to a Potbelly is we a with resources and for have biggest relevance. are of My And Potbelly, our is and and improve of days significant opportunities also of and be There see we are. but me I appropriate greater return days to complementary for confirmed challenges done, at providing me continued to opportunity need growth. convenience business. our still at is to profitable best need action. work our key what bias I'm culture a Finally, a execute we initial the a franchise and to to still is experience a sustainable amount support encouraging the challenges, has invest learning innovation, is through customer it, to accelerate on, with to support way strong The and experience understanding ahead very

announced with over and to the returns, previously focus with and relentless next value. with is maximize the ultimate ongoing you on providing our weeks. and look the aligned our conclude call. forward review driving I business My profitability Our objective shareholder an review of strategic on will coming the to earnings to improve traffic update positive assessment strategic

fourth the expectations but details well and go to Mike? to introductory in later time as you of for Mike, let these have around XXXX. We plan will the now address or have the any year full through comments, P&L our me the turn in over questions who as call quarter

Michael Coyne

good Thanks, Alan, morning, and everyone.

X.X% company-operated top new XXXX. shops, in the XX revenue $XXX Total the As then a P&L increased our give of We year I to quarter you outlook Alan results. for new summary quarter. highlights the will fourth full mentioned, associated with Starting opened with and XX of and review million the provide our franchise. fourth line. I and including will briefly some X

the of quarter, approximately sales, grew same-store same-store price down combination driven mix. fourth average X.X%. by and Breaking During our company-operated a our check decreased X.X%, sales

We to growth our $XXX as sales year, new full by by by the X.X%. shops, and For same-store unit opened XX franchised. new increased X.X% XX decreased total XX including company-operated revenue million, new driven

XX.X% driven as the quarter XX an level XX.X% Cost year period. XX.X% by the for period, in the of Our as XX.X% year prior year the improvement fourth was compared was level company-operated prior in sales, was for to pricing as company-operated prior to inflation. percent points margin in a basis XX.X%, shop period. and year quarter, of of margin sales goods the of commodity fourth modest full Shop to compared the sold,

of sold XX.X%, the year XX the year, the at basis our points was goods cost of an prior end of guidance. to improvement low and For prior also

points For prior which the XX from XX.X%, an year. quarter, about was of the basis increase was labor

labor were costs, year to deleverage quarter, and and was was driven taxes wage an including primarily real productivity. occupancy-related increase increase by was and also points, Occupancy the XXX guidance. points which XX.X%, compared period, and inflation price prior favorable as in lease year, year estate basis in full the XX XX.X% inflation maintenance. the offset an fourth common sales improved renewals, basis by partially of to Increases For prior certain increases due to compared and area expense to of last

year, points XX year. compared the expenses of to to was compared the quarter, expense Operating which prior XX.X% of an points For of increase were occupancy year. XX basis fourth prior basis sales, was an in the XX.X% increase

deleverage sales were such in operating operating to of year basis an XX.X%, other year, sales. and not due expenses due full prior increase XX compared utilities the maintenance, the expenses to items, period, repairs, expense directly with For as largely, points variable

of fourth and expenses Our year million to XX% is in of approximately general increase were quarter the total prior XX basis an which points, revenue, as administrative the $XX.X period. compared or

increase For an or to points the by year, XX.X% of driven $XX.X of CEO were prior revenue, expenses XX total year, primarily basis G&A our transition million our cost. the compared

our Excluding was year G&A at our $XX.X range. previously guided costs, full these of million the midpoint

for EBITDA adjusted million $XX.X of a year the quarter, decrease Our prior the which X.X% was period. from was

from adjusted driven year, labor as was inflation. sales our and the from was occupancy which X.X% same-store a of as the EBITDA mostly in prior period, $XX.X year decline well decrease For million,

income $X.X for million, an the year. $X.X During quarter, of resulted which had fourth expense full expense million in we tax the tax income of

quarter, adjustment result the previously ASU of as of the discussed $X.X our of Act liabilities, the deferred write-down tax Jobs standard, million related Tax XXXX impact accounting During of to of we Cuts the and assets and an a recorded fourth income XXXX-XX. and

or fourth adjusted of or diluted year diluted compared quarter income share income per to as net period. $X.X $X.XX in million adjusted for Our $X.XX the share, was net the per prior million $X.X

or $X.XX of adjusted the or per the compared income $X share income per $XX.X period. For adjusted $X.XX year, prior diluted full year our diluted was to net net in million as million share,

fourth the a for of market shares quarter, common the our repurchased open of approximately share XXX,XXX stock in Regarding $X.X million. we In program. repurchase Potbelly approximately total

the as During repurchased from we for move fourth had repurchases, of end million $XX.X fiscal which X.X available we'll $XX.X approximately year board-authorized shares quarter, continue million program for million. we forward. our we 'XX, At the

for Our which within guidance the capital million was our $XX.X the approximately expenditures for full in came lower year, year. at

strong, with very quarter million end Our balance the remains the X sheet debt. at we cash fourth and $XX.X balance of a have of

Turning XXXX. now year to for our the outlook full fiscal

make Potbelly trends investments make our the over XXXX initiatives strategic to As to positioned traffic Alan top sustainable well mentioned, priority it positive and in is time. to implement drive

you to to provide negative this deliver to turnaround it comps. from time company-operated the XXXX. comps growth flat second year. guidance And the comps first we as quarters, progresses, recognized, sales affect negative expect half in improvement of in detailed the in the positive year, same-store comps comp in Consequently, while the should don't of we However, expect year half improving take of the positive we with will

relatively the cost progress as and of through locked. is for expect levels XX% accelerating basket XX% We range of slightly, we also modest XX.X% We in anticipate goods of approximately goods cost XXXX year. sold the to our food inflation

expect of percent around We XX%. a sales labor as trend to

taken. the offset minimum expected increases continued wage well minimum pressures inflationary that this wage we in wage by have pressures part assumes implemented as guidance from and Our as increases year price last year,

ongoing manage productivity. to will also to continue through labor our improve expense labor We our efforts our

expense For $XX.X technology as the in CEO to investments which as in million our of well million be range the $X $XX.X year, includes we costs. marketing G&A of million, to remaining transition increased approximately expect and

the XX%, Given in could of growth net investments The of of XX% our of in federal material excluding accounting our from optimize to portfolio, XXXX. in unit growth tax range corporate coupled drive our tax effective the XX% $X.XX range diluted traffic, adjusted which on range new of impact impact we strategic rate XX% shop closures, the includes Tax from rate pressures to rate. a as Act an which in a for This standards year, Tax share inflationary to reduced to to effective next income pace Act, and and approximately we continue tax the XXXX-XX, ongoing positive the update company-owned $X.XX anticipated with the expect $X.XX. impact resulted income per slowing have our

XXXX, of company-owned backend stated new be we shops growth, previously, weighted. company-operated we to unit which we the pace As are and expect in open XX our to slowing XX will

also expect open XX shops. to to We new XX franchise

portfolio we focused In opportunities and company-owned as will remain we less addition, on shops. exit profitable existing to explore our optimizing continue to such,

expect million Finally, XXXX. $XX spend CapEx and between in in we million $XX to

over it that, I'll with summary to back So for turn Alan Alan? remarks.

Alan Johnson

implement very really the Potbelly, opportunity appropriate There's I'm closing, foundation at In I place will make Mike. right excited strong we investments the about Thanks, a and in and ahead. the believe a be for our significant clear, our year is to to Potbelly, very as as we full initiatives strategic realize done potential. work there turnaround To be be XXXX will transition implement plan.

and is the priority bold traffic. will with positive drive with striking Our top of to And we execution. balance while be thinking short-term right urgency act long-term

mentioned warm and with and embrace time with current welcome As to fresh forward evaluate change. our Thank the for their next strategy We our on entire the our sharing listen my all it your the and In to I of initiatives. ongoing on team look being execute learn focus detailed business. call eyes I support a is call. willingness today. our earlier, to had earnings traffic-driving our you perspective on to you more and appreciate strategy for set and of the me, remiss you be not thank meantime, Potbelly would of to to

Now, I turn it and the questions. over for will to open operator

Operator

Thank Please Miller Instructions] question Jaffray. is coming ahead. of Our Piper first go you. Nicole from [Operator

Nicole Miller

for thanks ultimately Meaning couple store heard the the do I a stores things, more And appropriate How franchise reconsider Appreciate forward? prepared Good quickly? welcome not the base? balance? model also what's you franchise as about this going of would And you company and sure I'm refranchising that you grow would you. update. company the morning. the and feel and all comments. color Thank A on

Alan Johnson

Nicole, And much me address Thank the very that. you let yes, for this Alan. is -- question.

almost, at person certainly, develop in to we're is any really, drive there full We're out As looking to franchise And time want I good think execution get markets devoting senior the earnings the play. that been, stage, that department. up we confirmed executive far refranchise? there, the we the and who exclusively out well specifics do We're to be my looking figuring that senior are to until as will will not plan. how last progress. into to underway strategy call, head executive Mike it I've which the traffic making for in

For year to the sure, will franchise and be growth for a end year be 'XX the XXXX of for sort the XXXX. lay accelerated of around back foundation the probably

Nicole Miller

situation. for be and/or into balance repurchase walked coming imagine also And you've pristine And leverage sheet potentially, that would less, you the under anytime share investments you. balance Thank or the dividend? sheet or Do soon? more

Michael Coyne

start. I'll Nicole, its Mike.

I on in Tax shares. with expenditures note substantial excess the substantial CapEx to Act, reduction last from tax certainly, capital the will that referenced, First, benefit coupled to reduced benefits, flows have would majority the with call we're repurchase be related to that going now, I the substantially And the us. more available cash our cash the to used the that of new

there. So what we do that's

dollars. for still of into and introducing deciding that. to in of would anticipate, a when structure. of, is debt do terms we would capital we're that, term, Certainly, the capital that some the debt, be a evaluating, But not we need near likewise, go investment quite of might repurchases. to As At there there that. kind wouldn't if were I in least, when benefits if share for there do yet those

Nicole Miller

help performance you the to prioritization. also or or we you. great us turnaround? Essentially, momentum the existing most can so on you're focused And kind they the on comp what they that helps. be Alan. combination? work fresh focused looking That X There's Could or and want are context of for, stay turning comp. X, will how Last about of what lot things first, in us the you What X question, in Thank ideas a understand draw?

Alan Johnson

Yes. Absolutely.

As I've is our mentioned, this #X priority.

people could so of focus have in filter, to is that move a but a sure so actually there get did that initiatives will the put bit on we I focused the we going that impact. if right sure greatest one get that we implement, develop of I'm pretty we together because a right, ones we're on myriad that make And you're But that I -- X,XXX thing, direction.

First example. on of lean in are a all, strengths, it's important lunch to and I sandwiches think, our good

have that the example come appeal, have. things every Secondly, would transaction, more power they look can be that more, little would a of Very more they a affect be or buy broader that the single very one important. bit appeal. The biggest will If for of broad impact spend that bit good the whether often more. they little we they

we and with for example investment, The categories, need third need you probably really it, are us the wants of don't we implement recommend hire it best brand. a personal do reward If more, the a next to values we capital, to is can our not be one and will customer-centric need affect point surgical to today part to tomorrow. tailwind changes, it. ought of that you that things spend thing also but behind make tools is of those only things view. is sort look that of what I've for quite don't just right point very avocado. people, to it, but take been quite are commitment, honest, is doing, need in you need I to provided the also system And for mean, to so the from them complementary that customer haven't of view, then can that X to do looking for that we to delivery. And the enough just differentiation do we already you the greater but I catering there The

execution. vision, like up the conscious process impactful but long-term And on simple, menu that of so, the the making we our I'm think, need nonetheless, ordering but be things fact catch innovation, We've we to need I term then technology. a in played more simple. short And

And that I website to yes, the delivery functionality certain feature make applied. app the and the going that to catering both will filter You're and see that's almost added seamless.

Nicole Miller

you. Thank Appreciate color. the

Alan Johnson

Pleasure.

Operator

you. Thank

from go Our ahead. of coming next Blair. question is Please Zackfia Sharon William

Sharon Zackfia

marketing Is Hi, is about what And think, context more, one good secondarily, marketing then, morning. incentivizing you talk same-store outside there the drive of you're Chicago. Potbelly about I how guess, side, could -- you sales? inefficient those in I to unit relatively of on levels mentioned, there? any within in most change the regions the

or as How you about program? being So given appropriately. scattered do you talk that, about allocated that go the up ramping under

Alan Johnson

Thank Yes. question. the you for

when during noticed, that that item. deal look diligence inside And associates the things be start at the shops, with my actually pretty confirmed Whether since, be it we'll more that is first. I that an do Let drink, few just one and I've of you order the is, due much process me that cookie. on be a occasions additional chips, a very recommend our whether whether one

So place what in we sure expect. inspect certain we to we put make methods that

our how we speak revamping common managers collect going that's we are sure plan, incentive check, what district So language. through a one, we daughter, that our that making and

So is. made the of everybody their that understands the you that. at time. to some What behind units retraining recommendations the right average drive get do counter, also the and metrics How thoughtful We've they make on per so the What basic transaction embarked transaction. traffic folks is. access we've sure around that

critically people rewards We're important. and reward making our that going for So sure thing. the doing that's back system, right

associates do I've the on I And traction occasions, already when to organization And used is be that So that terrific found. an the suggest And sell. quite that X word, seen not percentage me. has that been in probably is change. I've biggest surprise is a surprised months the using that honest, it of the we're selling. to our It's to here been what

there you of your was So of I regarding I think missed a question. which part marketing. please? Could that part part, was second part one repeat it, just And that

Sharon Zackfia

it is relates the really and how it scattered. to Yes. spread I or out partly mean, portfolio

given of inefficient, particularly, you're scattered store pretty is, perspective, base marketing how Chicago. outside a from So the

wondering, attacking just of you the kind So step you're up marketing as that. how expenses, I'm

Alan Johnson

There's customers, Yes. we know shop. things combination vast a of Unfortunately, majority don't that we're our the in of doing. the who's

to so change that. we need And

very much we're app. on So use to customers incentivize making that the sure we focused the

the where you So in you double what it's currently, can digits we the who customers convert we if buy. live, that that low know are, from you of

news so are there to there's this here because going very the year, we're you already last that a time that. that XXX things I but a market checked, can lunch At the And certain coming of below shop. is choice in visits year. number we the if to And happens test to average at we vastly is it consumer, But XXX the see if customer no days who the in have days year. a point, accelerate look to is good

plenty good of visit example. more very that is So one for room

We we are the down that and and really organization, typically, fast be bundles of casual an as don't one concepts few must specs. coupons and offers offer

items. to way customers can new them get be think, almost don't to want attract But a we that Now, only the buy yes, is miss. that I or have more that to I activity, no

testing number next one visit. as offers on something and So free get one bundles, process we're and in of of a actually second as the by sandwich your simple a

We that. haven't of lot done a

for then, a the use So we're lastly, we're And we our markets, those X do social afford local. is metric we the where marketing has to that to customer-facing do right, to afford marketing, scale Right and the anything think, different change, of don't be more approach campaign like And get have every to this Midwest, can in Washington, to drives we where really that and at traffic. which it lot a now, XX I have states. But we radio trying media. cannot stage, innovative you're there. a the national going like quite

for So big that's focus going to us. be

Sharon Zackfia

you. Thank

Looking next the week. year, forward as to

Operator

Holthouse is Sachs. Goldman coming Please ahead. go Our from question next Karen of

Karen Holthouse

Hi.

give Did did, traffic quick and one question apologies if it? missed And housekeeping remarks? Just to and price you prepared mix in I start. you

Michael Coyne

Yes.

and down a we was and quarter check of to X, the X.X% is set point. that when said comp for of check we X.X So makeup the the price plus mix

Karen Holthouse

you effect, from -- seeing the investment in work the you're need higher brand, was that about of some hearing suggest other little would is price a you And anything today those around your is you quality didn't your On either folks. guess, there really just around on value what bit obviously thinking I I or areas? an within we're that, -- base than

Michael Coyne

Karen, you beginning that. just me? the please that of Could broke up at repeat you for

Karen Holthouse

Yes. prices sort what you do had to have of How And radar? investment, then in price, the broader, your are mentioned traffic? balance areas You you drive also quality, you're investing in through you to about you something the thinking the need of you're within year? of but on that's investing

Alan Johnson

more the Alan. like the of science this question. art is Karen, Yes, area, for Thanks is this pricing. an little bit where I would to to a bring

the who consultants, companies pricing of group specialize a in to develop talking strategic helping framework. busy we're So

also maximizes menu. play that proposition we the when helps and one make value So the articulates decisions, role us and that clearly it different on our traffic comes helps on something to pricing. level have that but products That, understand us intelligent profitability,

the good and bananas treat fully the example we the are what are, drivers In and understand in maybe eggs, are those traffic need then to items bread. business, the grocery traffic they their the those very a simply builders. the really to our drivers that So business, basket differently understand is what milk,

it? alphabetically? them menu the there a mean, look I'm seen at price? on group work on much the we to often take everywhere techniques daunting. first-time else at very to price menu? points. certain menu XX the if pretty things then that science we XXX side, it's Do -- basic take? some are do by shopper, complicated on anywhere. we adopt. close that pretty items And a are off How group that How -- That's are have we're So I've exercise. How if Do I that that there need we there's much individual getting we do our you you're And as kick board, do we them group as

say, as ticks shortly. and I science off bringing So very, together that very that alternate

Karen Holthouse

And some have marketing outlook the call? final does talk incremental sort did you it spending been one. as to, areas give in areas, cushion we potential as Or something or the in that bake year, Thinking could about next for already our then that underinvested about broader with for quarter's change, is Two the in technology. one those of, areas? get update that and

Michael Coyne

by that incremental some already by the in and cost in factors things impacted to saying of we start G&A spend. given, our some goods particular, the the I'll do, guidance of plan in degree is to

think, as his allocate Alan Alan said, find structure, we what savings out advantage our technology look to I initiatives, more finding opportunities, also and out to and initiatives. so take which dollars we was framework in building continues can marketing of laying the will

Alan Johnson

Yes. Absolutely.

been convert thoughtful don't -- and remarks, for opening of in smarter in work think into where There there we've ever funds. this I opportunities is costs I we've look not to the sort on see sales-generating area, to are looking as at I no embarked cows. day, to going sacred everything. very And as mentioned we're the

of the to stores are out repurpose and model, there. those the business dollars. much hire progress few automate so in that of sales-generating way some to things opportunities to laid examples to And of technology Good So initiatives fund process, can automate people, as that. the quite out going manual paperwork as the say, we have we But already manually G&A we're labor we area. as dollars take simple take I made converting that do how also, the that there that some we've and to a use

Karen Holthouse

Thank Great. you.

Operator

you. Thank

Please McNellis Mary ahead. Our Baird. next from question of is W. coming go Robert

Mary McNellis

the Good morning. question. for Thanks taking

sales guidance how trend into year just your comps have First, can about could you context. if I same-store year, they started for put flat your the wondering, so talk the was

Michael Coyne

that's, prudent do what traffic Sure. the sales leave that, example, in year, there mid-single-digit soft we bit back and that a Happy couple said, to more is, expected, the to from is, repeat, talk And the and to trends 'XX as XX-week-year we've reflected, on industry as in XX-week this would as this significant Day. as was but Also, have negative impact flat. noted I Mary. just line as trends the shift, has there's incorporated Year's What at that. is give given. shift. using we as other to actually will we've add not were the we the about more as One, the That early ourselves year early I to say calendar planned to that said get And a what range, moving see I in way for of you impact in as think though the us, you pretty that are reasons call is for an this as part a fourth And and planned but down first holiday for quickly I year. these we trends. to let calendars companies a think, generally, again, you the seen trends. and that New year, much quarter as had from strong benchmarks up have guidance me can about like, a we period. an of But already the

a Sunday we week this planned comparing planned for. compound events New Year's fact not, a have was big Year's this last Sundays to so fairly marches first Then for New had not. significant inauguration reflecting has that move Day weather many, a Monday, And shops a did 'XX many we that and had And also January last. that, soft that we year places us. and year What from much where worse this Year's than wasn't Day year like of in the was it. planned substantially of Day have Mondays to New which and is to against are We in that are in

that weather January February for last good very year, months us, noted we year. the and and last on So call

particularly in So we your list it top of we're way the you fairly X challenging impacted of that want or your even-handed impacts. in regional of couple for that analysis. on to that markets this, kind some Unfortunately, noted estimating, first, were this folks most we are there in were of made terms the of were wouldn't and your think are to based of particular, guys, kind concentrated. very weeks in actually X weeks bad in that but within us, we I that

set year-to-date so the into absolutely we So that basis roughly and part said, a the I'd say we it's we guidance on far, didn't incorporated plan on that out, for, that's gave. but that plan that we're the

Mary McNellis

Okay. Are And any additions or thinking that areas? guys other possibly trough turnaround this you talent make to ones. in other quick few maybe key just execute a any there you need year technology to the

Alan Johnson

business, senior hire And making a so and heads couple technology there. Yes. up there. the We're of underway is investments adding franchising a before, to executive mentioned one in head we'd which

couple there our customer-facing Another folks and adding opportunities area, an also focus And area. marketing. driving identify area mostly, using rollout further underinvested that this certain we repurpose stage, But of a catering investment going sure is way I'm strategy, traffic. on to of the headcount. will in to the that we're we at where as We're initiatives, are

I but look you not they're and driving you substantial that add on individually, they're think, focused So they up when it of all are them kind at huge you investments, when more prism. then through all realize that traffic

Mary McNellis

in that plan just past? Thank you what marketing just on that what the you've And look lastly, relative done you about perspective. increase like increase to of the magnitude the spend, the specifically for could to talk can then

Alan Johnson

Yes.

You million need $X I And... think on increase about XXXX.

Mary McNellis

much… very you Thank Okay.

Michael Coyne

cetera, there's has do in like dollars sales. that And we've the a of Obviously, BOGOs, terrific that percentage of activity and to the of that goods. cost as addition big tight some impact et of we weren't in cost is of a very there cost on got goods as when an -- goods promotional

additional the do So has spend there. it absorbed will already

Mary McNellis

Mike. Got it. Thanks,

Operator

you. Thank

Francfort from of Our go next of ahead. Gregory coming Bank America. is question Please

Gregory Francfort

couple. a have I

hear Just the me? first Hello, one. you do

Michael Coyne

Yes. now. can We

Gregory Francfort

-- my was think, of I I Can questions. wasn't just working. I a I presume -- couple headset had Sorry.

into the versus the if like that maybe or try newer. are first break What's that The stores is XX% years I break down? current than sort X mature are new on current, margins more to the down What dynamic stores. stores is, stores restaurant versus the the open margins of that kind of

Michael Coyne

we the have that before. I'd XX%-plus. general maybe and talked newer And about qualitatively be shops tell as directionally think, this shops, more just I are margins Well, the rule, a you seasoned

work on then some out start circumstances do unfortunately, and to up facts into and peak as individual they it markets know XX%. get will in shops into that they off and where into get peak some can that the out. at their well themselves of shops as Is them, way they it right? -- that double really first And And margins, New year, digits. single-digit depends level

Gregory Francfort

question going I if I'm range? think the slow versus to then, X% we have sort expect What to that to roughly basically the unit it margins your kind up guys to is, growth you unit current guess, I where XX% you do other So level Mike, of kind with were X, will CapEx would down be, growth restaurant into tied growth at is. of sort of rates? And of levels move

Michael Coyne

Sure.

need shop close there part a losing shops actually, think, So couple again, substantial optimize back, what that that directionally, again, down. was amount. to rid need that we we the which on weeks right, of just you means did of said, that first X-figure individual one to a our mentioned I've a are I you're before dependent shops. portfolio, We of, get

the that. in do a shop-margin what And new certainly, will by to less benefit up we right, is shops, percent. near you're then term you get the opening So

that on the we're million. here as CapEx get that XX drag We XXXX, of you range sure. end $XX million. incorporates don't shops And that gave in a that at You for the the is CapEx lower that side, about. then roughly And you're doesn't, we talking $XX XX, saw have referring too

shops say, to is you that's math did easy at XX another $XXX,XXX $X the if less So million.

Gregory Francfort

cash you you challenges units foreseeable the And closing underperforming back maybe versus many stores. now? couple cash of flow do the of that ones get turnaround And how do positive future? it. some can negative have have expect Got may Understood. you you those, a and mentioned flow How to many for

Michael Coyne

Yes.

I shops, pieces do XX an to And think, want but call, our on very handfuls. that kind is And I'd right? to mentioned we focused us of take while where a see and actually XX-year Because on a ours, to landlords going couple first help taking on, those really, next. this firm worst-performing of of is, focused then a we're the our what's remaining that's us with first in lease, we aren't this. it's time, we'll -- of on initial just on hired let it's on we're we're focused in And what lot risk XX, the those way it's last So outside credit looking focus work, of aren't hard willing with out like because a to is right? some shops.

Gregory Francfort

then from either changes sense coming side year. next And line the recognition Any dollar, line revenue Understood. accounting top the Mike, or just for on are on that those? impact rough bottom

Michael Coyne

we for haven't from that Yes. or and in franchise jab. But of is cash so we my of Selling impact. so it in an a bigger revenue make. credit business, do the are and accounts Obviously, revenue, And course, room, on we impacted. a those more No, get have likes would -- to a thanks an the a have complicated. he business, controller's bulk asking. product and fees, of way both we have, impact of franchise had of been for sandwich But card much our The don't recognition. figured

I rather to it's bottom more XXXX. that should you think rules little that accounting think XXXX or than It's of on probably the so impact -- old bring $XXX,XXX if of you through or or about kind had you maybe in new, line. the $X.XX of impact a the $XXX,XXX bit

I'm of So $X.XX. standards. the new franchise that we're the the of to the sorry, revenue in you, That absorbs -- $X.XX $X.XX range given down recognition roughly the fact we've guidance because that

Gregory Francfort

one And maybe I'll Understood. in. one sneak last

sales, approach is of expected the And into of month business? move as that of recovery your How first the into I Are to cycle. pay factoring see next the cycle March? people the with that a lot you accounts, on bank kind up pay in levels of basically staffing are about into that new their tax thinking factoring how this even going we the in think are show you year? in or you're throughout factoring changes the how sort you

Michael Coyne

Can you're repeat trying that what to me? I understand sure make I'm just you specifically asking. for

Gregory Francfort

basically, changing in Just now, start will impact withholding their bank so now. pay account to their checks, people are their, basically banking see taxes I like in terms of payments on on think, on and -- the

And so are going forward? you how changing you're staffing levels, sort of approaching

Michael Coyne

the customer we've know meant perspective started heavily the thought the corporate to Tax will would haven't that realigning clarification don't be. not Act, But much the through perspective. employee in staffing to ask perspective, levels it of how our really -- you what with say or No, we I is, so if anything for changes going -- I question. the levels. reason from I out specific staffing our Yes. there's The your

Gregory Francfort

Understood. Thank you.

Operator

from Instructions] Stephen Anderson next Maxim ahead. of Our go coming question [Operator is Group. Please

Stephen Anderson

morning. Yes, good I have two just questions.

calls, some about a First of some coming that base have part I And might want your last ask not few to toward you of I in customer more the pursue, from just industry. be the lower customer? follow-up. of part swayed stick then the there all, maybe that And the noticing customer the Potbelly offers talked higher-spending if maybe to the may of quick want you've more service end conference towards what aggressive being of customer, the

Alan Johnson

Stephen, Alan. for money stage, No. At from take we'll Thank this question. this the anybody. you is

sandwich is I average at the think very we're option dinner. lunch a around affordable and mean, for breakfast, I $X.XX.

is much things you'll next then question small start different the of couple think, the leverage that on we the we into work and of I learning’s apply our things and stores. groups over can months, many sort that if thing in your group, linking a test may X that experiment see how we be going customer. And to more is and circuit group you learn, menu, of as insights of the result? in shops, we're our of to to as change, to see to I nearly great through -- XX our learn, of our like course does strategy, a will test, to think, technique produce the about value-proposition things and see, The with roll. sort with about adjust filter particularly, more those XXX learning certainly us, So we So

Stephen Anderson

Okay.

like the of peers safe most into would or at reinvesting of looking back it your about to going line whole talking question be you're another my from at are seeing the of it Lot change model what XX%. be to about to proceeds other of mid-XXs down Just the internal $X.XX than to it would XX%, base going paying reform. tax into you're realize the you're but employees going sort say peers? the a looks realize the that we're -- more where business, initiatives, to more By

Michael Coyne

would that $X.XX. rate $X.XX I is -- to accounts from is effective Yes. blended to $X.XX tax and of is and the When your say What math 'XX effective right. 'XX the you contemplated the $X.XX and take in range

spending that's where right? structure. going savings savings be to mentioned fungible, we're investments Alan finding in in of part and making found technology, marketing bit because I a gets our we're and cost and elements in we're incremental already that versus other the more think more So we

it, So $X.XX - exactly get when premise rate. but basic your you've think is calculated you I the the tax is effective lower get what way you The right.

Stephen Anderson

you. Thank

Operator

would the closing turn any to over I like time, this Johnson for call At Instructions] Mr. [Operator to comments.

Alan Johnson

earnings on concludes you. to our you their I that giving update Thank Yes. call. just call. business. you everybody And for Thank forward on much. our thank like today's And this to interest in very call we an look next

Operator

your and today's participation. concludes you thank for conference. Ladies gentlemen, This

time, have disconnect a your this and lines at day. wonderful may You

Potbelly (PBPB) 23 Feb 182017 Q4 Earnings call transcript