PBPB - Earnings call transcript Q3 2019

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Operator

Good afternoon, everyone, and welcome to Potbelly Corporation's Third Quarter Fiscal 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the call over to Mr. Legal Chief Potbelly's Revord, Officer. Matt sir. Please go ahead,

Matt Revord

third Good call. our afternoon and welcome everyone quarter earnings to

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

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

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

for Johnson, questions. Tom Chief Officer. call and we'll Our Financial presenters there are Alan our your Fitzgerald, remarks, the our open Chief Executive Officer; After prepared our

turn now Alan. the I'll call over to

Alan Johnson

more joining our you and discussing you, performing reposition today. Thank will company how to everyone on efforts third for going Tom us strategic the to then details results. afternoon thank and some provide our Matt. I'm quarter spend time Good specific are

throughout sales as trends for with weaker started get Same-store high-level persisted results down X% quarter. quarter. a were traffic I'll the the few

through row are initiatives trend and sequential improvement, continuation first a the fourth are of second Our few this in quarter. of of results seeing the that a the weeks showing we as quarter is strategic positive

of turnaround impact our so are offset have our enough we today initiatives been not weaker However, going progress. traffic to to the accelerate these about to talk and plan

update to place sales drive pillars. want DoorDash results July. Two, helped many XX% early in the our points basis digital strategic channel year-over-year. our took I on and to in that XXX have as off-premise continue grow optimization quarter, by they for you average four positive the our driven check national were our First, up rollout One, efforts by

We brand digital as last And you we expand see QX as sales nationwide and for recently saw important as is our an awareness. XX.X% a Grubhub. Off-premise partnership represent of which digital Potbelly. announced and reach week, all-time new we our step with this delivery high an sales,

that call, program to our committed Three, we Perks last building creating and our a to we success are out roll retention simpler plan shared as in XXXX. Potbelly we brand critical to on and awareness remain is

we Four, grow to the and right of continue message, the market. to creative our evaluate mix media of share

can reach As of efforts impact. in we as need fixed pared their our our components spend last full that there are to down before our be still we have our call, marketing business communicated marketing

strategic we Switching gears, that a have I'd through like few to walk decisions made.

will to or effectively spend The on CapEx have flow to our of and a by First, XXXX. lower trends. CapEx opportunistic where our for exceptions positive see will locations traffic would have cash reducing impact in like traction Shop we highly lead new our in and need we company-owned Future concept until shops see more we the shop growth positive halted sites be refine we further profitable This or airports.

growth. We continuing $X turning need XXXX focus XXX% in business, and around franchise improving million XXXX. we new For in million and on specifically in our shop of $X traffic context, spending spent keep CapEx to store anticipate to our accelerate

the strategy franchising first win than signed years. half have been us the of deals in in units has eight year big the we year. for for this a last more We Our

We momentum have of candidates, have a robust business. pipeline the we excited highly this in are qualified and franchise we about

clear core we Lastly, are want that markets opportunities. shorter to refranchising is make open are we list we the also but to that likely are There markets a refranchise than to list that we that not willing much would certain refranchise. of

opportunities make in talk our majority of aren't to we clear to open a markets, to position want Potbelly it we markets. specifics refranchising those about in is that While the

step back have made progress encouraged. the months, over feel last I've and we As I look the at XX

far. these have been learning constantly thus have results testing initiatives informed our We and and

leadership We corporate have do our business. significantly we culture, changed and way the

a of clear helping position It's for and Therefore, consumer top-tier track further looking a further need been final we other formula. that our in exact insights the turn we has made, has to in right bring order in in consulting progress into lot needs gain that While are sharpen that trends decided to our to us corner. to brand of a proven and competitiveness. companies we space June record firm still

develop working profitable how we over going needed topline consumer XX to weeks, past the going create about this perspective project a insights have we with where win. of are This are we that to the all the we play fundamentally question winning is firm to felt outside-in We strategic been an growth. fact-based and addressing strategy. In

of consulting in this method larger and the had these that research not casual did quantitative concepts. they QSR fast restaurant work. disclose proven of the catalyst space and was of consulting to companies management restaurant turnaround Typically, is engaged a The several do companies' successful type the firm

on impact on is communicate call. However, we to P&L this important million, was given felt $X it approximately this year its our

project any ongoing for QX. consulting significant costs for work we not beyond forward, Looking this do anticipate

in year front company-operated elements the launch base. successful say, This XXXX in expanding of our has out of collaborative us. large-scale been a couple excited of half We and needless franchisee plan about second tests the the very to first to roll of and effort, in we a the opportunity and half the are to

are and initiative This life, designed consistent strategy growth. the to is our on same-store off-premise already XXX% what's to focused working optimization. and tests in bring well menu profitable building on delivering and sales sustainable business like These digital

There share it are with that am as project. to you today to relates things two willing I this

core as of it this leverage Potbelly represents. a that what strategy the it our but as will It clear strength the departure, not is brand First, to is needs brand not is radical be. differentiated

some significant benchmarking. opportunities includes to we project experience. competitive improve this to say Second, that customer in-shop identified Suffice

operators experience. We on focusing address by improve the to these have rallied customer our gaps the to fundamentals

satisfaction, pillars. the This and our follow we XXXX. in the foundation strategic accomplished four will with improve traffic changes already We customer retention, for the results will lay believe positively impact this and have that complement

any strategy the two Beyond those things, going are to of elaborate today. further initiatives the not we on or

on updates tight to will to focus We G&A we in management, gear have operate the provide fundamentals In meantime, planned up results the from XXXX. continue various once have tests for with tests. and are going we the the we

to will quarter. that, who in the financial through call our us walk over now With will Tom, I third turn performance the

Tom Fitzgerald

Great. the are then unless outlook period, for All year discuss I'll closing Thanks Alan briefly afternoon, back versus through handing call stated. otherwise comparisons and financial our performance walk remarks. his Alan to before our comparative XXXX everyone. the and prior good

back Now, to for the bigger the QX. to get all into picture of before financial for the information quarter, I step I want

quarter QX strongest the we QX in growth, virtually of same-store of past, in since we've terms memory the of of recent QX traffic quarters traffic flat time XXXX where XXXX. a That in flat As was experienced was was to the one traffic XXXX. communicated of first

with The high discounting traffic going the the based of spend very last coupled on level in to on of advertising very of compared level pull result this discounting, advertising. we've of advertising the improvement QX, to typical year. of first we conscious was on our and This made level the levels what year, decision half year learned of spend back the into both spend high

As gross That QX important resulted on first That versus the the reported seek points XX% and in business half we promotional as in year-over-year result XXXX. we EBITDA in of comps result, negative QX, in than results. XX% that last the with and the an sustainable in an the year's better half driving XXX decline of coupled a advertising EBITDA were less improvement levels the year. spending adjusted that's basis adjusted more more focused X.X% to for the become in drop margin of compared test to was in first reduction profitable

X.X%. Starting $XXX.X million Now, let average price our grew the same-store Breaking decrease third mix, company-operated a me total by quarter, by declined decreased a driven and in turn of the by traffic back to X% topline, X.X% and check the our sales, X.X%, driven financial to revenues predominantly our for down it combination review. shops. with

comp basis and comps quarter's XXX two-year quarter compared this quarter two-year of third second Our increased the the stack also XXX to points basis points year, stack. increased second compared to our

sales same-store to Our XXX year. best basis to points, Box gap narrowed result this the Black

As clearly are strategic Alan pillars said, having positive a four our impact.

to points expected, for stack increased of we this quarter's traffic As second XXX compared our traffic. traffic the basis points basis but stack by two-year XX same-store quarter year, second two-year fell versus by the

new was shop. one U.S. And a our XX We also total a was international franchise which opened franchise shop, closed. two shops we shops of for quarter, last the closed In year-to-date. company-owned

sales of to company-operated for in XX.X% was shop was Cost the basis quarter, XX.X% decrease margin Our of of level goods as a the compared quarter of percentage sold third points. sales XX a as third XX%.

to points, labor and For due -- points. the expenses quarter expenses deleverage. in related roughly increase Other delivery. Occupancy inflation increase and XX.X% XX XX an XX.X%, the third-party expense basis was of driven basis of was points increase an XX of in sales wage or third XX.X% basis quarter, the to quarter, by an operating were

administrative $XX.X was total million increase in an primarily The or and fees. of revenue, by of general XXX the in consulting basis third Our quarter XX.X% an were driven increase points. expenses increase approximately

believe the CEO store closure fees mentioned, was and consulting total X.X% proxy-related million and expenses restructuring of best indication and the Adjusted the G&A, the core of third which the G&A Alan we transition costs, project in quarter for in costs, which revenue. costs, costs, $X.X business, is our excludes

Adjusted relative down last G&A year, to was to in dollars advertising. in absolute million $X.X due the pullback primarily

for million. EBITDA compared was quarter adjusted to third $X.X million the $X.X Our

we quarter, $X.XX tax expense million. income the During of had

to compared net per share was million share. adjusted $X.X Our or per $X.X income quarter net $X.XX of the $X.XX income adjusted or million diluted diluted for

stock board quarter, market for repurchased $XXX,XXX. third roughly quarter, shares of program open authorized for million In from the end available the of third the the our of At $XX.X total XXX,XXX Potbelly approximately we repurchases. common had a in we

remained at million zero the came $XX.X Our million end balance at capital quarter sheet the in debt. strong balance quarter our with in and of of cash and $X.X approximately the expenditures third a

ample maintaining and fund the on are comfortable liquidity focused cash with sheet We balance and are turnover. to

Now, for how ranges guidance. at have are moving the to sales we of our XXXX adjusted based reiterating same-store the outlook, the results coming come low on in in and our anticipate both EBITDA nine year. first months of We end

currently For sales. flat in expect company-operated comparable we low XXXX, single-digit store to decrease

Adjusted impact XX%. the XXX; to $XX.X and of be XX.X% and including goods sales EBITDA and of be XX.X%, a million, sold of labor $XX.X ASC percentage between XX% between as million to cost between and

In -- are million. adjusted dollars to forecasted we that lowering $XX.X $XX.X forecasted rain to expense, to million a of terms in be of and now the by range couple of G&A million

shop XX expecting still total to shops, openings we slightly lowering shops, including XX to While XX XX company-operated outlook nine to we're from XX. XX eight our to to are total to for close

reduction two our from to expect three also four the communicated year, a shop from company-operated We openings this previously -- to five.

what from million to now million $XX a guidance CapEx we shop is of $XX reducing openings, are to As to million million. $XX $XX our lower result

to I his call back closing will turn now the remarks. over Alan for

Alan Johnson

Tom. Thanks

our the turn Future. to on a Elston the Chicago the corner call Future of Shop our update questions, on just I I opened of Shop for the in ago. and first provide Before a brief few Logan of want over We weeks

bottom-up been ordering Future the and the help a customer and reminder, of our the redesigned has improve from completely As the overall will process experience. Shop

by investment franchisee or the shop. capital by to for the company reduce shop XX% stop and payback by We invite and everyone will reduce new one a new design year. approximately new the addition, approximately see In period the

steps where additional sharpen we to that aggressive to we the growth that XX quarter return a last to we the how helping will want reposition in this taken business focus is months win. play us brand we've and closing, to know In last ensure we support our believe over brought and for we

positive us Supported and to on with overall menu a to now with our consumer We traffic put you benchmarking, in our comp can sustainable progress insights forward additional sharpen on adjust delivering XXXX. path competitive and brand we offering to and look experience and sharing details growth. position,

turn like Q&A. our With over remarks prepared conclude to that, I and for call to would operator the the

Operator

conducting [Operator Thank you. be this will At session. question-and-answer time, a we Instructions]

the Your Jaffray. first Joshua question Please comes proceed with Long line your Piper from with question. of

Joshua Long

Thanks for to mentioned your progressed into able taking that I you be through Alan, my great. you how if customer question. Wanted XQ. trends might been has Hi, think, carried And comments, talk to the momentum quarter. see during about

of thinking advertising, So, momentum to I spending of year-over-year be of maybe parse we're be QX. down as appreciate I discounting, exciting. not how for is you of that as we're out terms the and But kind hoping which in more still comps we think core much context about profitable able not on are but underlying was we're the might should some

Tom Fitzgerald

it's break the Josh, in but quarter, got final in -- directionally, Tom. the the comps quarter. out, Thanks for typically the question. particularly period it of We the don't through Hey, better PX, Yes.

Alan continuing trend see as the And similar into we're QX. going to said,

The PX first was. slightly was -- month where than of better, in QX fact, similar

we we'll range. be in on to guided that's full although clear the lower that where that that we a got had basis, at comfortable the being end about So, range year of staying

Alan Johnson

full rollout. in Yes. think the a both And I'll release, Grubhub Josh, press our impacted about quarter. just you QX have Obviously, Grubhub as small impact and and the national add of we'll something part full just on to of DoorDash the that fourth saw

Joshua Long

behavior? from off-premise And about then about you sales coming that -- learned consumers growth talk for through either some purchase category, nice data through really digital thinking pattern you've Can that. as there. channel, the Thanks that you've what Great. or

that you seems And really utilizing forward? like think going lends channel. product It this and then to how itself travels your about well

there's that about lot while that on So, longer and thinking upside term to done. and how you're a of still work opportunity a curious as acknowledging opportunity be

Alan Johnson

thanks. Yes, Sure.

that. address me Let

three business. recall, business, right? desperate then There's and consumer and parts If all delivery and there's that those a Interestingly there's are of of three go. more The play, there's more business, convenience. you for the the convenience pickup the is enough, catering

it business, The that off-premise is that positive around towards XX%. catering, all that contributing long ago component of three all and of bear great parts and news being that business. delivery, And wasn't in our are XX.X% that, pickup, that was mind

positive had of we've off-premise, with quarters So, XX consecutive comp growth.

flash in So, it's pan. not a the

of you And now part component catering we ago. said It year I'll was different single making investment this year it were back one spends spends. vastly we a off-premise in ago. a and Remember, website. of investment has take area business we're those bearing dedicated is the the Every than fruit

our one entire last pickup every case that using single then system. shops hour offer time on delivery order now can was across single every we in every the at this we of every in open, our that are website single you shop, We not the day, single year. app that have And lastly, shelves the

Joshua Long

piece of a maybe that Great, a driving -- obfuscated And though even gets members the know built and lot of in the put associated team work, you processes piece their some large I and had really what's and all by team a out of helpful. executive teams. of your -- of that's numbers, investment it

to XXXX and we that of vision and more needed gain have is that? you through able that realize investments see beyond? we a really guys capital might that consulting perspective? have What be there from need there this terms to here if in we of, human Do wanted now really through the are in needed So, as everybody have go to Are update traction you us project? else creative rest there we the to

Alan Johnson

we'll a shift. how doing we're we done, be change quantum a Yes. also but And needed make we change, From done. leadership, From cultural to we never business. a to were needed

critical was that position If perspective and very was it were consulting us point from help track proven firm the That's with inside you We market. were outside space behind turnarounds we with this our in take outside to understand correctly, our why insulated. company remember catalyst a perspective. successful absolutely no top-tier one that an we inside record the an a in looking of at also

I'm to got insights and fact-based strategy. consumer first for as that driving that And benchmarking time, we've an the say delighted organization our is competitive

us this heck we the on to now a the our allows the be menu aligned now needs So, to more a of consumer. of offering. focused brand is position, And that offer lot our experience

successes that examples, to on strength. enjoyed but around sort the build successes, those our optimization, things off-premise of the that I menu So, good also us think are build we've working allows two core on and

yes, So, for sustainable, positive look years comp put has excited forward us come. with to direction that this on we I'm and the very to shop delivering the

Joshua Long

you. Great. Thank

Operator

line Your Please Francfort next the Bank of of Gregory your comes with proceed question America. with from question.

JonMichael Shekian

on This is broader portfolio, stands given And review? it ask to considering if where a wanted today. on JonMichael asset for sales you're actually the Greg. are, where just store I

on been more stand refranchising, Where in franchising bit the or stand color terms If I a you partner? more can right deals that? maybe do then of timeline. think valuations finding on about then you determining just where give now. you you've a And And terms of in doing talking the while for little

Alan Johnson

Yes.

second don't why and your address part I of refranchising So, then the can the question. Tom address

our odd location we'll think made we've exception, suffice development, One, all very the available, to itself a Other company that. makes if we've that great I clear. limits. airport but say, consider deepened halted than the certainly

pipeline we six that. line of as last months, sight front, with in on fixing I'm the traffic, And in eight very that labor focused of the encouraged example better the deals the on But we've done we've of years, see we're fruits shop focused franchise the had no on and quality growth. is that our of to last and the I more done

markets. to On In strategic are very it's we're in approach not in it. In that's to front, a the refranchising but absolutely much markets, small We're very we all taking the to the refranchising. likely of it's our we longer list. markets, refranchise a list, refranchising will and open those markets, that open majority core non-core the a

all to new its virgin have it's the think I deals that four in all the done, that deals six months, deals last for up, also that make important we you are the in shops Yes, XX market territories. remember

So didn't there just that those markets. existing opportunity there. an refranchise, wasn't there of we want in refranchising That's to was not no portfolio sites

sure, not we're for be just And business better so me deal done clear, let we its than can and opportunity say the But we'll refranchising a no to a bad deal. going away on every merits. is evaluate deal, give we've

address think far, so and on the Jeff want do turned Tom, corner to I are that now franchisees. throttle making you really team sure attract And the--? have and quality we full his

Tom Fitzgerald

I those it. you a being just of which -- asked Alan the build out just I Yes, way based transaction, not aggressively the we further valuations another as do point we're on it obviously. also to think what really initial saying valuation, take on We the somebody that. And just better who But our lack covered, adjust of think market. and for put expectations about realistic, market JonMichael. And will is want and on

external we -- our money use of saw well get shops a are don't team that we've terms as losing said, out the to reversal of that position. assets shop, see have, their -- to resource in try another economic you continue that we we closed internal and In we to we and an that that the we as as

majority them sense of of that, about said them bottom the cost makes all vast them, have just in occupancy exit we loss it and Having of is the we think run so our than to don't sort and the the dark. them, less go when ability to of XX, all

not -- the this year of so, And sense to when discussions and we've be makes when makes them. we'll it deal to doesn't. but pretty the So, and sense get out continue negotiations but to active the in checks also so written it large to do to very some and run do them

JonMichael Shekian

you. G&A the expectation? I of to then Got just was it. on much ask And the on Thank lower going guidance, advertising how is that updated reduction

Tom Fitzgerald

make piece business of the a tighten also, big our we said, and where given here we But it. managing continue business, That's to sure that belts the frugally are. Alan appropriately we're as managing

some And spend. strategy the can the and costs we reallocating of make that we the an resources I say our to of test without work goes spool being it that to the mentioned, in Alan sure up that want half and would the incremental first year,

JonMichael Shekian

Thank very much. you Got it.

Tom Fitzgerald

bet. You

Alan Johnson

Thanks JonMichael.

Operator

other this to At back there queue. I closing Alan like call for in questions turn time, remarks. are to no would Johnson the

Alan Johnson

time evening. Thank on look Have Thank forward our for again you support. progress. updating your you, your Hector. today you continued a and to I great

Operator

This conference. concludes today's

at You may Thank your your lines time. disconnect participation. for you this

Potbelly (PBPB) 4 Nov 192019 Q3 Earnings call transcript