PBPB - Earnings call transcript Q1 2018

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Operator

Welcome to the Potbelly Corporation First Quarter 2018 Earnings Conference Call.

As a reminder, all participants are in listen-only mode and the conference is being recorded. I would now like to turn the conference over to Matt Revord, Chief Legal Officer. Please go ahead, sir.

Matthew J. Revord

Good afternoon, everyone, and welcome to our first quarter 2018 earnings call.

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

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

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

call our and are a presenters on ongoing the outlook over Executive Coyne, strategic results I'll to Mike up the call will before our and his Officer. our quarter we begin Chief Johnson, Financial the turn first performance Our Officer; our Alan of and perspective Chief review Alan. discussion in will financial initiatives. Mike then Alan today future with open detail, questions. more for now provide your

Alan Johnson

and Matt. thank for call. Good you Thanks, afternoon, joining everyone, the

and adjusted $X.XX. share we line our as million revenue results generated of of in quarter $XXX per were with first Our earnings expectations

last was discrete New weather, Holiday and company-operated shift and store Year X.X% events negatively by impacted unfavorable decrease the Our same sales Easter certain year. of

are the quarter these encouraged improved the trends and these comp our through saw second and trends first quarter. into by impacts, results continued we we Excluding

the year. the later early and like XXXX provides confidence financial our reiterate Mike which first for results by our update us initiatives. greater few But progress I traffic will our an outlook a encouraged in you to with to strategic detail are our call. with the minutes would the review provide guidance We on spend of for building initiatives, to in

in the the strategic growth. get and back and leveraged have the we I we to analysis basics, concluded company to efforts to mentioned our earnings profitable reposition review last refocus call, to to return business As resulting the and learnings of our to have

Clearly, establish to around growth Our turn Potbelly main sales priority to and this be take will same a we transition for for year store be over will this time. position the to foundation that traffic time will and year sustained business. it recognize the Potbelly

initiatives However, we strategic we are improve substantially focused right to on performance. operating believe the the

which existing as organization. item to become First, and OneMore, we sales-focused such customers initiatives to to a spend must one to dollar. visit build Through more get our incremental sales opportunities believe one drive there more more and We are one time, traffic. to more aims buy

have matter to selling. suggestive increased on time from We only have are And less previously. few XX% percentage increased we months, of in selling the focus a a XX% suggestive than associates our our of over

are increase We traction and we early are measurable transaction seeing. the by have per units the in seen a we encouraged

keep During as these including the tested proven and first are quarter, engaged. marketing bundling the initiatives customers offers promotions, to we segmented several methods

through sales to drive incremental menu and innovation. aim product engineering we Second,

a want but on menu with in what focused are enhancing and simpler and our through innovation intuitive engineering experience We transaction manner, provide while traffic more the they and the maximizing to product average customers in-shop profitability.

and with design. analysis strategic and menu outside firm review an hired the help have menu we pricing effort, this of our part of As to assortment

this with sandwich. for premium the first positive and we attachment quarter, performed quarter. our delicious the our sandwich above Gyro We mix which Flat as featured the our saw introduced contributed rates During expectations solid to

finish we but ham, features a pulled a Cuban Cheesecake as Cookie our your melted to sandwich, indulgence. We pickle, lunch, yesterday, Potbelly launched And smoked Lemon can slow-roasted also premium as Swiss pork, also new and which mustard. introduced satisfying cheese, an be afternoon enjoyed

innovation We also Meal or feedback of sandwich includes driver continue and which of a engineering square, to very and ciabatta has introduced kid-sized important on and our positive The apple been cookie, your initiatives mini oatmeal will choice incremental believe early product on sauce and we these an Kids be water a choc-chip product menu milk. sales.

Culinary Chef addition, LaRoche and XX of Innovation, Ryan Vice Michelin-starred LaRoche is where we to head as are in Chef product culinary years will chef success production. a of introduce he President up innovation In pleased design. menu with

and craveable. As more innovations offers with menu skilled to a that the the now, Gyro help our LaRoche will will Chef provide Cuban, Flat Chief the Fresco, even of recent Potbelly's like Potbelly. perspective growth channels and build sales for make and foodie, success tremendous Turkey's He on

increase and Third, focus in technology. we will marketing investment and

will brand We to in through expect this have and need gap. devote brand marketing, storytelling more And and improved of has strategically our inhibited customer bridge drive underinvested voice to this We to to ability our engagement. great targeted awareness. unaided share resources connect be we our which greater maintain customers deployed that with

connects the something to Potbelly tell We our way in new passionate to our innovative are that and a testing customers. in with reinforcing order story commitment

Cuba music XX product, produced celebration of Potbelly experience social quirky takes programmatic not place a the support way of XX and shop included. a and As an Potbelly launch Libre, second to example, spot we the in in for captures Cuban sandwich. but and premium rum TV second featuring latest a media, have really designed fun, The our the done ad specifically a and dance, unique with

addition, program. our for It and through wasn't XXX,XXX that In the excited customer-facing were we we to our increase technologies. customer long member plan focus investment that to Perks ago in break Potbelly mark engagement

doubled to that figure have reach we over months, members. few past the XXX,XXX Over

in and continue that pickup. most growth in And potential we customer for productivity our of off-premise what the brand. growing Potbelly and off-premise Fourth, investments in and we are and expect early optionality With and critical the delivery app well build to business pleased and occasions, we our the features, these Perks see and customer are to our vastly further to will on recognize we and mobile product engagement the greater opportunities While functions possible program, much of very still invest convenience. curbside perfect we we points is are with across grab-and-go delivery, business. the to is a harness craveable catering adoption make that catering, we innings to feedback for early in drive underpenetrated of our for travels

on We off-premise have marketing soon business. experience, who'll and recently be hired a seasoned executive onboard focus with exclusively coming to substantial driving sales

shops addition, In catering we strategically growth. as continue underpenetrated to expect plan Therefore, to underpenetrated a growth, incremental to markets shop gain to the for see are our decelerate new Many lack profitable Fifth, as the our quarter, invest infilling Chicago, the opened first kitchen in as efficiencies. market Dallas shop we drive future growth. leverage growth. increase off-premise of growth franchise scale during in we to and of and company-owned markets where markets mature our well up and growth we support such focus in mix opportunities company-owned on

Jeff and the we have initiatives have of cost re-evaluate the focus foundation our a growth on the the execute pace solid to as of as decelerated vision, shop for a support to Krispy Franchise to franchise we strategy brings As Taco and to build growth. growth am Pizza our traffic-building will has the Welch such and Vice pivotal accelerate turn future Hut, we XXXX years tactical in and we our estate opportunity franchise look the business. which growth. of joined leadership we to invest our of and domestic organizations pleased his I company-owned to announce capital experience will real development business the discussed, to previously Potbelly ahead. franchise franchise international as that our KFC. has provide platform team be capture year market and And to for tremendous box, Senior our our and and forward share develop across the accelerate Potbelly franchise to Bell as many Jeff President, Development, operations plan Kreme,

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

we of expect to strategic our in have addition, an company-owned our cash In pace flow from the increase to decelerate growth. decision

also We this to repurchase our capital, expect building and our return in part, but to initiatives, to capital shareholders technology share to program. reallocate through brand invest in

build turn execute business. review, comprehensive opportunity our As business our the have right the are we part to and the talent taking needs of around to required to team assessed strategy our

to our experienced and talent franchise We great our the have addition business, and drive of progress innovation off-premise next development our the with level. to made leaders menu

we you our can our business maximize strategy to shareholder As goal with value. have to ultimate see, every business of a review undertaken analyze aspect thorough the of

this earlier, outlined concluded had of As and that earlier. I we mentioned business valuable into our review turnaround strategy and to much analysis the have have learnings I incorporated the

As and Potbelly potential advisors the of explored the and our did with assistance the or a sales best our effort be wide formed in JPMorgan determined that the board part ranging in Strategic and financial process, we of a the thorough of board to sale Potbelly our After result shareholders. the transaction the this company ultimately strategic company. not of review, viable a Committee interest Review

to We value. our are on the shareholder plan best is confident way that strategic maximize executing

passion the excited affect turnaround work our XXXX. we to I our energy, have for and a first successful I team including change results. are of We that the our be full we shops celebration for of strides opportunity plan who to will or the of early, as shape of which our their commitment Mike quarter optimistic achieve expectations us. well will their Potbelly over already in to we effort, and am days the implementation forthcoming and the entire turn the P&L positively building proud our strategies XXXth essential for of thank potential. as the yielding required shop. remainder and team it still I successful our do, While our now to through Mike. I'm believe we and taking will by embrace implement can the of which plan. in them but ahead I'm by for making to our opening the are best much I progress will turnaround. that and willingness details are of milestone am our ahead encouraged significant confident go leadership

Michael W. Coyne

Thanks, everyone. Alan, and afternoon, good

revenue total with summary a XXXX. company-operated of the provide X.X% will mentioned our $XXX P&L you the our franchised. with quarter. Alan two also for and the opened top first Starting the quarter line, remainder first four highlights associated of We give and including outlook I'll new increased of As some results. I the to in million review shops two

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

to year increases was prior which points by sales Occupancy in and and to XX partially as largely an related first costs sales to an the sales. expenses prior the improvement first goods compared first an prior points maintenance. Our of increase XX.X% by renewals, items inflation in expense operating wage price was period. quarter primarily basis about was year, XX XX.X% quarter, basis Labor and as period. to shop-level XX.X% year, in other first and was compared the prior productivity. the certain margin points estate inflation expenses real was occupancy company-operated in from to prior sold taxes directly lease an Operating expense sales due XX.X% variable of increase maintenance, points were of quarter, XX.X% of of for increase area and including and driven the utilities the the such improved year not the Cost the compared XX XX.X% to deleverage quarter, in repairs, common deleverage XX year with of basis basis offset due

proxy $XX.X approximately G&A our in that and or were related total approximately would in of of costs Our note XX.X% first costs, transition general quarter revenue. $XXX,XXX CEO costs. I and $XXX,XXX first quarter expenses store the million from administrative of $XXX,XXX closure included the expense

or would of $XX.X a Excluding these been million expense G&A XX.X% our revenue. items, discrete total have

from our quarter, Our decrease XX.X% period, prior other same-store was the in sales from labor, of adjusted was million for year occupancy operating a driven in $X.X and expenses. inflationary pressures the EBITDA mostly which decline and

During of the tax first had quarter, an we income $XXX,XXX. benefit

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

have with the of our expenditures the cash balance at approximately in of debt. at we first very $XX.X strong million, $X.X balance a quarter sheet remains million zero capital came Our end and

the mentioned, expect and to As company-owned pace growth reallocate we share our Alan we have capital program. strategically that our towards decelerated of repurchase shop

release, today's of under As press million share that $XX million previously in approved authorization the board we replaces authorized highlighted repurchase has a $XX.X which approximately remained. program program a

to We drive repurchase share with will shareholders. and value program opportunistic return be for our continue our to capital

the sales Now turning the the year half in positive our with for flat negative reiterate improving to fiscal same of comps we to outlook comps growth our year. the year half store full for XXXX, of guidance first company-operated second the in

for XX.X% to around as anticipate We XXXX range sold cost a the labor sales of and to XX% continue XX%. of goods trend to percentage in of

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

Our related G&A on not our cost portfolios. outlook opportunistically company-owned may to remain store the closure which costs expenses optimizing or occur does focused we as proxy existing contemplate

net range the diluted adjusted $X.XX to of in income share our $X.XX. expect We per

range We have which on Accounting in tax impact effective expect the Update could for our effective a impact an Standard excluding material tax XXXX-XX, of XXXX XX% rate XX% rate. of to the

XX of open and shops be to to XXXX new weighted. XX in expect will We XX company-operated franchise to shops backend new all which XX

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

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

Alan Johnson

am growth Potbelly over appropriate brand and position closing, initiatives implementing that long-term. Thanks, traffic confident and for right the the Mike. we I investments In are the building making to sustainable strategic

In team making turnaround addition, strides a we building required the to strategy. are significant affect leadership successful in

our call Thank thinking look ahead. call. the on act time We short-term that truly potential are believe to days will right I and urgency execution. of best on you and on providing earnings Potbelly's bold with appreciate excited opportunity for fulfill an be with all brands striking will long-term our next by and while the the I balance you our am today. the We update with of to I progress business. support your forward you being our do

the for turn we'll and to over Now, it operator open up it questions.

Operator

you. Thank

session. question-and-answer the begin now will We

Piper go comes Jaffray. ahead. The first Miller from Nicole of question Please

Nicole Miller Regan

in in terms Can you the Thank you, good weather store what holiday and was the same from in current of less afternoon. negative? you you are negative either, talk actually or sales, shifts of either being better positive trends, impact terms or mentioned Thanks. can talk about they

Michael W. Coyne

start Mike. Nicole. I'll, Yeah, I'll It's in,

calendar last the and what various we that challenging well say on call, the I when a half very perspective had was yeah, and during talked would in think we weather of a is as third the from month quarter, I as of last holiday week So, our call, as that trend year both and first the we shifts. February were

about quarter. at digit point were – in then, that as we down at basically at being talked the mid-single we So,

our X.X% so, the quarter the for And moving quarter minus we've went to full the had that improvement shows way on. as

March our into than that was looks so, and much say and our And actually say I flattish. January April lot that would and like world got better were February, March. March was would And a a I April

at the hit March. that minus rate average trends saw and we X.X%, you are out, you So a the definitely improved Okay? in continue but that

Nicole Miller Regan

certain have maybe lunch Thank engineering just a new? core something taking strategy? stay into Are targeting that you you the product about are or else? have and to targeting What and transitioning items within be picture the do that innovation core part And to When you Or those is bigger you. talk a platforms? day innovation, question. you things menu the

Alan Johnson

Thanks for This Nicole. Alan. the question, is Yeah.

maximize both menu our It's So since the and we've been a number one and long strategy to current is time profitability. menu. engineered traffic redesigned

over time points. very I unique complicated. XXX mean we've very, think that the shared last that's you got at XX with items I I price

to do sort drivers at understand this wanting assortment, have easy of make year understand traffic them not we critically are. items understanding set, what set just ordering and in Potbelly, the the also the our all drive we what we way but then consumer, So, consider and is, a when it look often. those organize really to should is, If are, what whether we're that they And more we competitive if active do as a our decisions don't we then, traffic, need And on we people traffic simplify I and something, frame they're think check than basket. treat that to pricing that maybe of to who drivers differently particular we the grow what more we encourages our spend reference We includes understood should make ignore average to in come they're and intelligent build the important need doing. and do. menu we we right the do competitive might right

is, most menu which by menu, very are, is is were right to calories, inch organized, lowest. of XX% dedicated order, sheer price, they're deciding, by menu highest the price. a our they salads alphabetical point price which good the case. is of they're would not the dedicated price, which the now, if important that The not imply from look price be square to clearly element you And to is not the when and example the sandwiches, by our at So to might our

of to were and that let's then to the we greater if something critically and maximizing offer important then, that into assorted under what were we is, build is profitability would be that it, And one know menu. that category the a depth, to was trying provides there both last So, we're achieve, it and a to important. traffic sense gives aspect say, anyway, you that is

question look, chef single right the to other be lead part, asked the that, in critically is why that it absolutely you the convinced reasons that every dinner, way, assorted and we've menu loyalists that lunch the And way. engaged. along one that's around breakfast, driving is LaRoche way, Michelin-star to keeping with innovation day interest of whether Chef right The I'm a right presented important sure innovation, our making hired and priced

Nicole Miller Regan

That's extremely helpful.

and question. you, quick just the thank last So

do taking In around terms authorization, share repurchase discussion of or did debt on to to about board you leverage, leave more? the talking the Thank the where conversation you. even

Michael W. Coyne

Nicole, it's Sure. Mike. Yeah.

calls, in our we've certainly advantages, We've we structure. as capital changes on considered associated So talked costs the about it. possible the have previous talked debt, with

As and we that. cash review all kind the million with repurchase to need of debt a of the on flows take over years, looked execute at authorizing completed at our the position our couple right. of the and the felt next – strategic without we could any cash We to time, $XX that board resulting comfortable

nearly million with So cash. in $XX we here sit

have operations our – in And have availability We to our operating we change more owned than especially has ample credit our stores. of up do our our fund our to approach flows with which line to needs cash from access investing, million. in $XX

time So that without the we but board point, can of do to on at as we with revisit shares a continue whole goes this on. back of debt will buying lot taking

Nicole Miller Regan

Thank you.

Operator

go from comes David of The Baird. next ahead. question Tarantino Please

David E. Tarantino

afternoon. couple QX A Hi. on of trends. questions Good the

you specifically. out I year-over-year the or you events last think mentioned year hurt don't called think, discrete I Alan, comparison. that anything some items

an that So been? have impact can what and big might about talk you how of was that

Alan Johnson

Yeah. I'm Mike. to defer to going

Michael W. Coyne

well the on ago on Yeah, Day little New I Year's call year comparisons it's what year, calendar bit were Year's as mentioned in there we one Day. year really alluding not different was we to changes, some being last and had including other XX-week with New early from to that XX-week move just the the and as I the a there,

a New hurts marches. actually to the shifted There Year's the Day and from Monday inauguration was us. Sunday a which then resultant

of down with obviously early on that about have – digit mid-single on. on. months we impactful and the being So they ones Easter couple first those were But very to mid-single were of that contributed the in were later year. contend that talked the that We ones those, early to

David E. Tarantino

Understood.

maybe on those the making are and there And March flattish you you in any and trends, might for thought something adjustments it recent Easter was I on numbers? then in you March Okay. April, have I else. commentary the think helped hurt said April? were

Michael W. Coyne

That's Yeah. exactly right.

really basis. actually a comments And I'll about reported adjusted call basis it well as as so work on my – flattish an

– yes, that So every numbers then your former to happened. and analyze look we what okay, say, colleague reported our me really at helps

the April significant – other yes, even so, at the was obvious we one adjust impacts, and And fairly trends, we doing we looking April adjust to from and Feb significant an weather there's have March, the a March extent to period. and for have any Easter both this that Jan, period underlying improvement to

works my on both So an reported comment a flattish basis. underlying and of really a

David E. Tarantino

guidance, G&A Great. CEO Thank then the And you. the you the outlook gave is did I hear on transition correctly cost? that inclusive of

Michael W. Coyne

the Yes. we at had at there that time would the gave beginning over would that in when yes range. million noted transition embedded costs year, the a mentioned, that's CEO we million, approximately be, noted And we of range $X little $X and in a be we the there even

David E. Tarantino

then, the And that EPS, exclude on costs? $X.XX $X.XX does those but to

Michael W. Coyne

that that No well. excludes as

David E. Tarantino

transition CEO the costs. Includes

on initiatives, helpful. the mentioned I guess you That's then that you I senior... Alan, hired think, great. Okay, And a

Michael W. Coyne

Mike. Hey, it's David, David, Mike. it's

to both you So transition adjusted adjustments – and correct. we the when CEO just on G&A. – included hand, transition our But costs. Yes, of clarify to we want range, we cost net at look and that one the to I gave to income, adjusted CEO when and to the back adjusted we, the do sorry, EBITDA get EBITDA EBITDA to get off okay,

needed I Sorry, clarify. to

David E. Tarantino

great. Oh,

case what openings to a expect progress not of franchise how in great. okay, prospective for kind a know senior we see sort curious the when long should of and franchising, build just of you time of out terms know I'm you. takes costs, the of playing those I excludes and And to a then, VP $X.XX on pipeline franchisees. hiring see Thank and Alan, that to and build $X.XX the So to it

to XX that should we what over next on the wondering just X, So expect months front? see XX,

Alan Johnson

them, mean cluster to And sure sense, in job moves Jeff's if place. the with stocked refranchising Yeah. accelerated that growth. that about franchisees openly we the being it we company feet, as – that the in of franchisee. whether back, between we want pendulum times making the have in box critically sure they that well-qualified lastly, right. – important that articulating one sure single that we call in serve And that that is I and an execution want many makes get sense, cost shifts we XX,XXX as pipeline very and that is And I run that team team and considers lay of last to master franchise is I've do certain is the is so organization we're this it's just franchise. nicely covered the develop and that they what maybe it it, that, a as one executive don't obviously made are at franchise makes to looking markets, for across and right organization are detailed earnings we also execution doesn't put when every can the handle knows, that it get shouldn't, community and making coming if I should shops, fully because understand made, growth. XXXX And we can flexible plan that a we that both you'll important stores that is see I as pods one that leveraged XXXX, is plan company us knowledgeable can sort where those the of from in friendly whether we never of support foundation to at the how that what of only in then

career, we to for fundamentals which working who you work the think accelerated up this and Kreme's. to there, our all as really his kind what Krispy practice lined to the out achieved I in did was Krispy nicely. somewhat I XXXX, growth he has of franchisees, what Kreme's in – figuring comps, with years. are what with and it coming blown sharing best where from franchisees business, had times the in he things company nicely, When is But we done Jeff, comps XXX I want mean stores on for it the took had just So getting in multiple was to almost I of units getting together similar five know XXX in with away growing he the these charged improving was give works X over negative business internationally our challenge

update So I plan, part – give an to give to we'll I growth we'll going this because to want to him quarter it's time but is you strategy. a think the develop able that be each mission critical of my

David E. Tarantino

much. very you Thank

Alan Johnson

for you the Thank worries. No question.

Operator

Please America. from question comes Gregory ahead. Francfort Bank of go The of next

Gregory R. Francfort

the give give price mix traffic maybe breakdown question, you or the missed it, but again I and did that if I you Maybe first did? guys. Hey of could

Michael W. Coyne

said it We yet. No. I – hadn't Yeah.

the X.X% roughly of and And mix of is a check, what difference X% in plus grew the an – we comp or X.X% the so. So said the within the the a minus then impact average X.X%. roughly check price that was was plus is inclusive

Gregory R. Francfort

And of out. quarter most mix rolled the that was with guys with this the to you sort – that the LPOs due have of

Michael W. Coyne

That's exactly right.

Gregory R. Francfort

I improvement sense. greater And have your improvement you What has sort business do sounds But terms it change of sort is that in that just it you sort you're probably attribute March of of the trend you sort in sounds think is of to? the gotten guess confidence going that you your what seen. and like it, improvement on the seeing, makes just seen what April. of in sustainable, environment do also and in gives what then the is Okay. that in the industry like industry than better the has Got the

Alan Johnson

offers, six Yeah. mean think mean, major things about year over it happening it one literally Look, offers. all it occasion less item us. to of a board. opposed so that good this I segmented as six and difference, doesn't out of more you're seven the the right. a one test week are more the or there's in one over in going offering see one different to when whether work across and around we I'm what quite But dollar a this adjusted environment worked, of literally doing works, to that the offers dollar the where we're What sort weeks, is battery quite or XXX XXX weather we a The different and or impact deployed we about item segmented actually I I talk made last things there one would been less stuff. all less just

you we test So, whether produced seven would Traditionally, days we the redemption give example. very and I'll ran in incrementality. run if actually BOGO, a BOGO practical a period a

okay, even test, on let's let's a lot As and days learn, three our for heck role That gives we important then on a it day. said, soon somebody And we a less of lot read from hijack a on get understand, back that we that, someone one as could else five customer. change got to days, and Tuesday. a it in got time two what's them Monday, we we process. if now to change learnt days to to Because

resonating. through things the expanded to markets, stopped doing seven XX, we So different into we're didn't week the and worked, that smarter as got week whatever is, various what current about what then the it

better we bold fantastic we when things. was we So, slow to critical to when in act had byproduct to and the stopped I first we we can we new we've react that to of of weren't organization of we need demonstrated is position can. learn to understand all and the that fast, run, much a are move I think And I business trying and that joined the this were

think a I I that I'm absolutely are the we improvement to So, pleased to lot industry, performance the gap. compare stuff we that is of ourselves. against say, when did our closing And do

Gregory R. Francfort

how of you that's carried beforehand? marketing able because sort offer out were you from, mobile specifically to something that it guess, change sort or I is way the And that of is change, tailored else different make that the app or that of

Alan Johnson

most we question, surprised members. so joined, Yeah, were I I our good customers. X% X%, was Maybe customers almost of know about our that loyalty because first of nothing when

we we choice only many XX the times was that our year, already when but so, speak but to a there's no know opportunities. to And coming more customer many, shop, had in

we and – were previously I work, just using deployed all the system receipt changes, bottom simply test. capital what a trying cash what an receipt didn't no we receipt, to that tailored these of at deployed customer the every offer offers towards simply or no So, mentioned, giving investment, we worked, the

I more So we spend one support you fact to shared buy evidence very item customers one more more actually strong come the we with have strategy or dollar. OneMore. that – time, to got on We one my

receipt. We'd technology use technology So no simply or delay was investment. the there cash

Gregory R. Francfort

you of sort would that No, flat flat having just that's of shake kind from hold really other helpful. And up of in put kind of any be one Mike, of to be? would or material maybe last what comp guys sort operating Like, out if question. comps, costs de-leverage on then would just to? a able you where that help terms

Michael W. Coyne

and Yeah. on that No, negative call said traffic, on to right, question. occupancy due these impact biggest in single line. The deleverage good top lines, lot of lose the the overall is a couple a on We other. we

So points that deleverage. our basis significantly many what of which can guidance, will that that in is if hundreds by said help implied remove here, we improve we

specifically to try smarter not don't We as line. state want about here the we But line. Will I that top to things get is much as So cure here, specific can on number. anything to is the a what we operating? to other which Alan's is do traffic improving will, single and do But we we how help thing comps. driving the improving Sure, within right. biggest buy guide

Gregory R. Francfort

Great. Thank I thoughts. the you, guys. appreciate

Alan Johnson

Thank you, Greg.

Operator

Stephen Group. question The from Maxim comes go next ahead. Please of Anderson

Stephen Anderson

questions Anderson Stephen from Maxim. ask. to A It's of wanted I couple

franchising better understand might to So Alan, work than company-owned correctly be model? a to then, markets if I re-franchising, is driven I with where Mike, regard have by mostly follow-up. this going particular And

Alan Johnson

Yeah.

up for. the substance number what out single that we to whole and that signed they performing, the have don't, live franchisee to of concentration, to Let behind the lay how can whether grow, one mean, priority contractual is state is what look they up the question. I at the is, where appetite quality where franchisee, the me address Jeff's refranchising map appetite that is we every obligations the have

it it's obviously, progress. now, work if in right a So, But, considered. a and create bit shareholder of for us makes sense value, absolutely

Stephen Anderson

restaurant Okay. sandwich major your announced base than in closures. My the of one follow-up say is, question XXX competitors more

from you're wanted to with to any improvements? I regard traffic closures those if impact seeing ask any positive so And

Michael W. Coyne

line Yeah, been, those it on to to I've we two we've these aren't and couple at in Yes. left risk it. calls, maybe of least a terrific out our a say, a talked shops couple XX-year Mike. from close you so years know they under the six Steven, profitable us that well. handful and Hey, in substantial, leases, or to out is, I credit lead has described landlords manage shop our where mentioned do get just I of months, it as to on that right, and able have let margin or it's challenging the improvement even fortunate last of as What eager expectations enough down sense they five be of have obligation substantial to is of before or before to I'll somewhat some prior

engaged, an that behalf, be an So, them on shop that as so continue improvement one line. our I to still the of mentioned continues to have had before, and do we every work outside we and work firm them will hired profit

Stephen Anderson

from closing standpoint Are Okay. impact magnitude those this is, to the thing And closures? hundreds. of the I from certainly competitor you restaurants major though in wanted increased seeing ask any traffic the

Michael W. Coyne

I just would XXX think competitor, were Oh, right that. Well, don't to we're I And discern for the difficult around I about be it so thought our if are. nearly I'm us very sorry. exactly these very, as that talking and where major to think know you world. I of the XX,XXX I one apologize. talking same about a pickup related

Steve, question sorry, time around. misunderstood the So, your I first

Alan Johnson

echo would I that. Yeah.

Stephen Anderson

you. Thank Yeah.

Operator

Francfort from of have a of Please Bank We ahead. up go America. follow question Gregory

Gregory R. Francfort

Maybe back sneak could in. just more I one

of of or where thinking that sort we is growth? for further right the of kind XXXX, What down are longer-term your thoughts if the about down this going XXXX you've any come of be level kind taken As for sort do total to year. in terms right you somewhat look openings. – that's the the know directionally unit of early if this kind XX of should and Is to I out you guys XX to growth level have

Alan Johnson

I forever, to reason my mean, look Alan. to this expectation why is that down that speed Yeah, have slow growth. and to I down about slowing discipline can is strategic slow it's much we up No, we not that accelerate that the thoughtful will we're mean, more and accelerator. on critical that that step we as be down that is and growth so is

Gregory R. Francfort

Okay, great. Thank helpful. That's you.

Alan Johnson

you. Thank Yeah.

Alan Johnson

Yeah.

I listen, questions. So we're the think end our at of

working very strategy store looking the shortly. shifting make the just to I around about and like I'm questioning I'm really by and team we're couple focused addressing One, talking desperately sales get to was that to more the at the the of I So sort my they're that a know excited and that we be from glad trends. to fact gears that that's executing the much most same very sausage of exciting, strategic points. of about encouraged strategy our taste by I'm because stay hard comps.

to commitments we a in got getting first place and is were on have I food my team company, If on is got I chef. off-premise, we're we've call we've that a priorities chef, should to if Our the lead made executive very right certain we in thinking got important, to that. a we've a executive franchise that. said, an we're going lean senior lead

moving being bold both to want everybody team a pushing fast, strategy. steady results transition And proud can and that turnaround is getting as the the to around and we're we're lastly, So it is that us and this I journey a in but remind as year, be it's I and the a much results of. team execute right predictable think progress and hard

And forward I again we just you talking next want on to their thank our So look to for everybody interest. earnings call. to

Operator

call. This conference concludes today's

day. participating. for lines. disconnect you Thank your may Have a pleasant You

Potbelly (PBPB) 8 May 182018 Q1 Earnings call transcript