PBPB - Earnings call transcript Q1 2022

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Operator

Good afternoon, everyone, and welcome to Potbelly Corporation’s First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note this event is being recorded. And I would now like to turn the conference over to Ms. Vice Chief Senior Officer. Potbelly’s Dixon, President Legal and Adiya Please go ahead.

Adiya Dixon

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

Our President remarks. and PowerPoint slides Cirulis, Bob we have Wright, Officer; note will set Officer. are President Steve of a Financial Vice our presenters and Senior accompany that Chief Please that provided Chief today Executive and our our prepared

such performance questions. After the on X, access Investor our performance comments of subsequent Relations of meaning XXXX. statements your Act upon as website. these call future will our or as company. call date. open should we’ll These including slides representing cautionary the in are periods, future management’s forward-looking like made your our forward-looking views may and the call remarks, Reform for events statements guarantees You of they other Private prepared our considered financial certain to outlook forward-looking attention any regarding I’d for future the within of of be section statements of or nor contain relied Securities this note should Litigation any to Any that be Slide on statements XXXX the future the statements, not

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

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

this to U.S. be a measures During the the over items of afternoon, release both most investor to measures Investors that Principles of discussion appendix our turn do directly available included Accepted in the there these GAAP Bob. presentation of Accounting of to tab or call the and are non-GAAP conform reconciliations to their comparable the not will GAAP now in which issued press are Generally some call, I’ll also website.

Bob Wright

and Thank afternoon you today. Adiya, good for all. us joining you, Thank

call would continuous for employees like hard energy. to work positive As our begin today’s always, by and thanking I their

the quality that Our we place people food to are is our our customers. and heartbeat choose proud associates, know deliver loyal brand, a of vibe craveable good their I’m continue it and to do and our with In the to so we our dedication our as word, their Potbelly of as careers. grow we they grateful I’m trust well. them, customers and service

same-store provide XX.X% And begin overview brief on increased Slide XXXX. the Revenues the I’ll first $XX.X first million QX to XXXX. as X, quarter quarter let’s of increased Now to compared by a XXXX. compared XX.X% where of by of of sales

our Following in their the in in our as and pandemic. gained shops shop momentum of since Omicron channels by and accelerated achieved and well recovery and momentum performance record have significant In performance month airport of delivered the quarter, same-store sales onset CBD March, notable AUV success the was we’re March. extremely weather-related headwinds to early an the supported This AUV excited in pace, at digital volume CBD as types. strongest

We’re these encouraged of particularly the by types. shop recovery

as serve growth. will Our we supporting to path along a they as portfolio that is expectation tailwind our continue our broader

for $X.X a XXXX. which of still EBITDA quarter loss a loss $X.X improvement the although for of a was million significant adjusted compared quarter first the to negative, represents Our million,

to quarter. successes Slide would X, the Turning strategic like to in I highlight our

strong celebrating rollout promotional Day of for including red and one promotion one on the innovation focus food-focused initiatives, food seen the During improvements Madness. Anniversary get Valentine’s buy promotional XXth velvet free also Bowl for Super the and such period, including we catering catering focus and in Day. business social occasions seasonal renewed following activity, as on our successful our our and cookie our Meatball March a National We’ve

in campaigns, to digital sales have which marketing paid our sizable further daily social increases yielded advertising and have Additionally, dollars transactions. invested we and

Following but of various check, digital customer enjoyed through to traffic have Not our well investments, we top Perks our from engagement continued increased customers value, positive platform the response also rollout stack, performance loyalty as the service upgraded increased our that needs. shops program. meet channels tech and as our our order and enrollment only driven enhanced accessibility line and also they’ve customers’ with in our

aware business and on diligently We’ve the retention, of in are brand. continue have improvements continued satisfaction. associates, employee talent our implemented growing to a headwinds which environmental the in driving macro in new stronger cost, overall of workplace focused for to availability and quality of We initiatives satisfaction number the our environment strengthen dedicated thus our and especially customer today, resulted necessary

shops. out our rolled digital in tipping successfully all we’ve example, For our of

have to to now their appreciation for our ability Our better results our associates. this and seen service. associates customers from including good initiative, for pay extremely better service directly special our delivering customers encouraging the for We’ve demonstrate vibe our

customer continue will balanced positive satisfaction. environment a make workplace in employee We of and to with enhancements goals our driving enhanced

been announced Franchise very in quarter. Initiative our Growth Acceleration last we’ve active Lastly, against executing

market multi-unit marketing candidates. and of sales franchising and We’re well We’ve refranchising our tactics. as as building planning our franchise enhanced pipeline

also as systems, potential relationships to a presentation franchisees Steve forward and detailed further expenses level We goal a Later and level choice. to first carried continue quarter. with us look building sign P&Ls we provide area next I’d highlight more that of model. as processes Steve? implement as will shift see We and shop that digital of shop development financial to the are to like shop company’s a briefly turn franchise-focused business will three I units will our the move franchise shop now franchisor with in to Steve expenses Potbelly also develop strengthen company agreements. the presentation, we our refranchising control have aligned toward internal this tools of organization. internal certain controls happy in we deals and marketing XX% approximately our reflect call years detail and discuss and the Franchisees of new for more now to to performance the their as over at explanation today’s we margins, candidates change. align our over to

Steve Cirulis

AUV the Thank of you, to volume, as the April. presentation, Please where well good XXXX everyone. sales month throughout the of as unit we first turn of Bob, X average and progression quarter afternoon, or Slide the same-store and of outline

period More important continue our Omicron growth year. We is steady see, from AUVs we report in evolution experienced seasonality, levels of in and impact. January the As you quarter can to due each weather drop AUVs. to fourth in same-store a sales this in

in starting record business the resulting February, month of However, in in AUVs in accelerated, March. momentum the

So second far, we into are sustaining quarter. the this momentum

performance I’ll you quarter the specific statement income the of financial for X, walk XXXX Slide our of compared to and through to Turning first first quarter XXXX.

quarter, price successful improved first increase customer revenues to year the compared staffing the million, and last promotions, $XX.X strategic XX.X% increases. $XX.X increased prior combination driven menu in total service, launched of and an our marketing new quarter. of and traffic, million were by was During year a This

compared The showed CBD While all reported million EBITDA our sales ago in which to pressure seasonality lagging period. loss previously are year in with adjusted heightened locations quarter, the encouraged of early airport on performed That $X.X $X.X mentioned our along placed previously headwinds said, impacted by recovery. recent and margins. trends. inflation, we a and loss an notable We types million of well, shop of the

year. total were revenues G&A was largely Our X.X% of compensation multiple total vacant dollar costs $X.X senior in $X.X our increase XXXX. leadership primarily driven the a of X.X% XXXX, $X by in CEO salary quarter The first to is revenues basis due top on as The QX were team percentage decrease or million compared line was of his to leverage. in a receiving and or on million a positions basis first

turn we to shop of the to components Bob discussion mentioned accounting highlight reclassification As the earlier. I margin, the want

best better costs or the adjusted the in statement undertaking easier million the a were consistent comparison. Shops our with support business changes basis these advertising The and carry level XX.X% volumes shop and As organization, expenses, a input realignment will align to shop reclassification our a adjustment, and the based to only to have on in reflect of margins we F&P, shift. margin costs, practice. clear, this ago voluntary this media we and they with was the up more be line. a website year are being sales geography continue and primarily we industry absolute allocates shop show other or higher or Food, and beverage we be shop support past costs. of level an four versus to for now fees quarters packaging shop here pivot $XX.X This reflected of margins of To proteins expenses to in higher increase sales. million Relations basis, the $XX.X due of To spend The on reclassification level period. sales our on packaging. primarily income providing towards including percentage be involve to F&P shop scaled operating on XX.X% marketing franchise-focused components Investor our certain incorporate

the optimized working increased As to impact have and we’ve are to mitigate customers. actions we greatest discussed for drive the our of value costs previously, input cost-saving our

is environment to persist, to line. to expected efforts protect we inflationary continue our margins While our the bottom and prioritize

on those help $XX.X industry. sales or to enacted the XX.X% absolute as Our were service in February sales well pricing continued expenses staffing support or ago the Labor wage volumes an shop increase broader period. increase million XX.X% in in basis X.X% compared due with to line increases year higher shop objectives. increase of of to million in The as $XX.X is an

over referral our in additional Other as to our we an shop as labor Despite of to XX.X% our basis the retain period. has ago XXX a improvement compensation that Bob we alluded quarter, During of discipline. ago sales have built as compared It’s the points year-over-year well. these in a strongest period, employees, also to compared increased employees. performance just through driven implemented period and a lower in program. saw mainly and directly recruiting million percentage new as noting ago programs negative year million strong we’re performance by expenses well or to March top of wage was as of effort XX.X% and X.X%, or aforementioned tipping level in X.X% franchise-focused headwinds, align In program than were meaningful the line the were operating This due $XX.X cost year under with worth to our sales. marketing presentation XX% to of third-party our more average new the measures, the a shift hourly in business $XX.X advertising Shop expenses increase to reallocation to quarter, year and sales an the fees. million provided increase and compared shop as delivery proud certain recruit margins drove to to $X sales margin

overall While CBD sales remains a was recovery margin headwind. their impact significant, slight on

quarter of million, of the available hand our cash at end $X.X position the liquidity Our on consisted first in $XX.X million million credit was facility. on $XX.X and which

back metrics sales types, Turning sales and basis. each and year on except our office. saw return period. growth same-store in delivered to of Slide our coming X, versus I ago in travel locations substantial the types CBD with our to We will recovery same-store year-over-year employees the a a shop airport Each of talk shop you our to a through for drive-thrus,

that CBD locations We to our and strength. are returning are excited airport

as a expect to recovery a continued We Potbelly. for meaningful tailwind serve

X, Slide to XXXX. we quarter of first Moving mix our since evolved channel has illustrate how the

to response XXX by to tech including our Perks app-only functionality We enabled digital the to the our promotions channels in This our are our sales customers had quarter and basis increased upgraded to pleased the by positive XX%. loyalty have program. attributed percentage see reinforces points the stack, of

in Additionally, by catering a we both occasions. our and driven saw uptick office catering performance positive in increases social

come to weather at step quarter early pleased contribution of to and attributable in slightly our AUVs challenges, our primarily customers an see below down to in-shop in sequentially, the saw the While we due is for a dining the parts quarter. are into dedicated Omicron-related year-over-year. shops elevated $XX,XXX, the aforementioned rate which were to continue slight challenges

advanced. saw rebound the However, quarter we as in a meaningful AUVs

as continues We work towards are long-term thrilled build momentum targets. to that our we

Bob, back XXXX to turn Before I to and like call guidance. Slide discuss to the X to our pass I’d priorities

reiterate with to like our XXXX would you shared to priorities we our First, our we on earnings last commitment call. that

progress are the in We making few the months good first of year.

disciplined strengthening initiatives, growth to making continuing Strategy against investments operations. presence are Five-Pillar strategic, We and driving in marketing, execute our and and our market long-term development

and to the growth in guidance sales low we record shop margins track Additionally, double-digit XXXX AUVs, double-digit same-store on range. remain deliver level our in of

are we XX.X%, million as that, increase between of quarter, a second pass shop-level between $XXX With over margins and X.X% and basis. the Bob. well For $XXX revenue to expecting million sequential things I notable will as on a back

Bob Wright

I’d enjoyed Slide Five-Pillar our establishing strategic last path our the great training ongoing and XX, with and of our to Five-Pillar and Most strong to we continues us three-year Thanks, unveiled staffing Strategy, to quarter. Steve. well Since growth engagement to like promotions, to remind food on On we which recently improvements have success receptivity growth. our briefly digital Strategy, marketing innovation programs. serve our foundation for objectives, as which everyone

targets last and significant recovery, growth agreements efforts growth AUVs $X.X pillars quarter. is five least wrap Slide of my a development marketing company as as program. franchise of through a will XX%, You’ve through supporting our XX, I’d towards management. ladder unveiled our continue our XX% franchise to and achieving our leverage on number greater well shops continued of and remind and comments one, area three, initiatives achievement of four, service of the Number To customer million line Number pace goals. like supported top supply you growth of the Perks these company. targeted to seen achieved prepared SDAAs. our approximately move to two, aggressive including refranchising labor cost XXXX leveraging cost by shop shop see up satisfaction we and XX% at food margins growth our or discipline, strategic we up And Number loyalty chain than digital and level at as unit shop

to progress and forward have the We our momentum great the multi-unit our look well and to potential tools franchise towards the franchise pipeline of We tactics X,XXX franchise reach first in develop goals. upon achieved we see as We U.S. as work to units quarter XX% least and to to continue our we diligently our sales expand candidates. at marketing building long-term as system.

With the brand said team, have operator to we address quarter, I we can your back the have we over deliver. that, the we to Operator? strategy turn will last so have and As the call I the now questions.

Operator

first from with question Question-and-Answer the Please Matt [Operator Instructions] Thank go you. Blair. We’ll Session. And now begin the Curtis comes William ahead.

Matt Curtis

for question. Thanks Hi, good afternoon. taking the

price and on First you a from in pricing, menu I the tell us X.X% in for you the understand your the your release, first increase took comments one from was quarter the cumulative quarter? during could February. benefit But what full

Steve Cirulis

we price Sure, through about as we you the it we increase customers, put way. as a sure price closer flow-through pretty to like It’s have some about not consistent make put value offset our that quite in that kind just price we with to to but outrun increases that of pricing we’ve right. completely at well. coming for the continue accomplish well-balanced not of a this look increase, with close. we to right you XX% can when One most our equation of our past didn’t a came imagine, price inflationary place. had seen flowing at also price XXX%. is as but prior And we price time, headwinds spent we’ve increase, We increases terms in And to thinking to of couple place way some the of Matt, things, in been

Matt Curtis

Okay.

basically, increases So how expect forward? menu right the going much you benefit additional now? price price are you any the And in planning

Steve Cirulis

We we as the we as that price thoughtfulness – behavior we determining are prices. that this increase evolve. into emphasize, would at price see the want well we certain planning discretionary inflationary environment consumer sure a flexible similar increases but past those are through the to year, environment to want the evolve in adjust in two Yes, to right, put to I extent, make all what more they’re so level we as

price net we the margin that I about of inflation increases on and pretty think the to terms evolving should we way thought even impact. considered net side, both close F&P wage the the in on based out us side on

inflation versus looking we’re that’s at. So what price That’s increase.

Matt Curtis

And… Okay.

Bob Wright

I cycle, Steve’s think and you’ll this very a a hear I add lot of the needle. if one a the first this, on Matt, on Yes, openly can it in necessary talked – inflation just kind lot of about pricing hand of and demand comments hand, consumer pricing see the the We to to other earnings sensitivity as and that do quarter. on We threading move.

calendar price two for said, year. later discretionary our As Steve got increases on those we’ve this

to be We’re going about value. maintaining careful really

activity. at customers’ like for reacting and how you of very size things our So point promotion perception offers, lot Perks that gives customers, – ensuring saw they Skinny price loyal our sizes frankly, do use. especially loyalty the three those they’re people menu some those our of to and excited to our us continue that were price of the looking even see a value and to measure And internally we’re as pick-your-pair that we’re we’re can things the increases BOGO lower value

governed to ability of to got But demand. to to noticed we’ve this So And balance hydraulics still been reaction our that’s price out the rest flow-through our the demand. some that really and price have it, has what’s right think but really pleased persistent out the of customer sure consumer increases place the while with year. holding we inflation all the consumer – on we’re kind the of that in

Matt Curtis

Okay, understood.

to of the discussion, on pricing the close just loop kind So guess. I

I quarter not of the the increases guess, as, margin that include the restaurant price second year planning guidance two provided, does full impact yet? well you’re or you’ve guidance as the Your level for

Bob Wright

but it of and what time. metered measured those. contemplation does, again, we Yes, appropriate the includes at the think is based on It

the I Steve now reiterate, are in think shop margin. about. it’s marketing good funds to the talked also includes that as also It

So that’s fully P&Ls of are burdened burdened franchise the way now. that a lot

Matt Curtis

Okay, basic wage in so And the quarter at any staffing understood. wage guess was question. first Shifting and year? additional this much inflation guess, a for I you I there. wages. planning are full do gears What just your wage increases the inflation point, start and expect we’ll how to you

Bob Wright

Yes.

– Steve. I think ahead, go our

Steve Cirulis

we – are we’ve into in doing the program, quarter relates And not to and of competitive us. as that hourly to We retainment Sorry, seen I numbers recruitment in about employees. prepared some just versus for things the heard the last of the that last wage, so remarks, think, this in associate we’re of XX%, that some of really it And instituted a beneficial didn’t to those the at wage – helpful year a kind been just store-level our think mentioned increases marketplace year. you and of – cater I remarks we wage the to prepared increases acceleration mentioned to quickly. prior saw end flattening year of that’s that’s saw We somewhat we’ve, our remain which the has as but recruiting. I tipping

Matt Curtis

Okay. And then…

Bob Wright

about Yes, budgeted have increases, we Matt, specifically in the inflation wages your throughout year. to question planned relative

with year But those. wages last well us in where finding to than of thought mitigate markets, of mentioned the those would We anyway of in Obviously, in higher. most we’ll candidly, there are in those course, market be year tips and we are many numbers because wage those we are legislative fewer cases, And increases. what inflation. help there’ll we’re need cases, natural we comply the ahead those drove this had of that legislative wage terms that able

Matt Curtis

generally, what right us tell trends XXXXor Okay. how, be environment. about either your like been hourly this and to could turnover levels guess would are relative talking optimal just levels now of you in staffing to sort more recently? consider employee And I staffing what shop manager have you

Bob Wright

for and that are to turnover that level numbers, at numbers shop below we trends, fast manager share our Yes, the tell you excited we an are both the get as those we don’t well casual level at internal associate industry. the but

a runs Of course, lot fast than QSR. lower casual

with talked in think I’ve worst And quarters So turnover numbers. we’re environments seen our staffing, I gotten over of in has where very XX one probably pleased the of years us. overall a the better business. couple was ago, It for we it

to back net are We hiring.

and we’re managers more hiring and than So retaining losing. we’re and more associates

much, we’re busiest and season. into So head than high-quality our position not always six in a We mode more were staffing we months people, use we better crisis as much ago. growing but can even the we’re certainly in

Our as said, bear that all staffing labor more the only workplace for and expectation turnover and It’s is more training I working been in of and very the many things the good. done, proving to not positioning that is we’ve guidelines, fruit that of as that management guidelines staffing on we’ve us. our up to be beginning are employee showing numbers and those,

in going. customer seeing always a is satisfaction the scores direction a how also We’re that’s staffing of environment positive reflection And accelerating as well.

So we’re not very yet where but pleased with are we satisfied.

Matt Curtis

process hear about your or to I outreach I know days, it. new guess just later mean you bit signed relatively where early to mean, working we on the expect a talk got franchising specifically to what is namely soon early next still could the just year you as further now along but it’s are about system? in for or year? attract to a initial franchisees right are this ADAs little I moment. being I potentially it initiatives efforts as Okay, some

Bob Wright

are for much that outreach campaigns bear fruit got digital us. that we are than marketing along We’ve initial underway outreach. begun got have We’ve campaigns. Yes, further campaigns, marketing to

mobile them, sign look for partnership that that have issued kitchen As last Reef. forward our like making we’ll ghost our we suspect, partnership we and we week that news sign, we when when press with – release to do our any did much for we deals on you we that Reef

the in make candidates territory well. say, active with we’ll have not have it SDAAs know real some only we SDAA multiple of though, As or deals, that time. you for to we new they’re for sure whether and we dialogue guys deals, refranchising refranchising them Suffice that but are new markets about refranchising that new deals as

three-year goal the across three getting XX% interest believe that fairly including and we’re those year. response So years, very from we’re very franchisees. of of a still comfortable reiterating that, that will come even And shops. this the our with pace we’re We at pleased our

Matt Curtis

Glad hearing Look to around guess, million of the on the mainly hear. It reach for with could your future your like digital I customers sounds question focused marketing, about components younger is wondering to more so is efforts demographic final to on my digital and I to outreach Perks, time. thinking Potbelly core current engagement really base, driving I forward thoughts then. if system to hear was like on? which understanding, marketing broaden customer the other using things maybe loyalty about of more to to your $X.X are me based on core one that in you’re the today primarily getting over groups, leveraging here.

Bob Wright

that. thanks Yes, for

that program You’re because scale loyal right are awareness FERCs and But us. so investing of we in talk customers valuable in a spend building. about fact, the to those so is, that much media lot we’re in our important

the to limited or people have in its who digital for an create have advertising arenas, lapsed of awareness that social building the campaign, awareness allows outreach So placed brand brand. us either

is purchases, that that much of lift investments. That’s us the a sales online for expected recognize three a investments. the overall we What look shared manner. our continue traffic unlike to think – I the foot to we media. it sales it a on hold the And of we in lot control those one about why overall And net scaled talk lift pre-post actually ourselves of for the e-commerce to very a into to allows of we as additional we where and to make continue click-throughs high that where tracking shops group that simply we measuring incrementally return before, in in you’re drives we’re sales scale is because returns advertising shops. standard we’ve lift

we it. test As us. it prove take step, we works We that each for

then further. is delivering we next it We’re comfortable that little a the and expand the to investment returns, step take

very bit of advertising, quite with in we’re how us. for fact, So and a pleased awareness building it’s is working it

Matt Curtis

sounds Okay, much of guys. the rest time luck very for good to listen good quarter. the and with the Thanks

Bob Wright

Thanks, Matt.

Steve Cirulis

Thanks, Matt.

Operator

questions. Instructions] We We no still have time have further [Operator for questions.

management session. So conference And this any question-and-answer closing concludes over I for turn will the remarks. to our back

Bob Wright

Thank want lot today, reporting I and call crossing any today. the tomorrow. forward looking plan over follow-up know do that your is those I evening our say – lot today please you, for and calls for with But operator, a so and are time to throughout thank Thank a of to of know we to just you. you

of to We’re we We And Blair in has company’s about William will potential. upcoming and Steve unlocking begun year. XXXX meeting attending. fullest how and Potbelly. for look conferences investors is excited for remainder Riley the the what look support forward and is of many the be We in believe at of forward of Potbelly and that you store to our many interest your in and the I forefront the growth, and appreciate we B.

Thanks everyone. great dialing in. a for have night, So

Operator

The now for and you today’s now presentation Thank disconnect. attending concluded. you may conference is

Potbelly (PBPB) 8 May 222022 Q1 Earnings call transcript