- Earnings call transcript Q3 2022

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Operator

Good afternoon, everyone, and welcome to the Potbelly Corporation Third 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 note this event is being recorded. I'd now like to turn the call over to Ms. Adiya Dixon, Potbelly's Senior Vice President and Chief Legal Officer. ahead. go Please

Adiya Dixon

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

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

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

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

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

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

Bob Wright

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

by I'd discuss continued hard we the to quarter, employees begin their like the work. dedication for Potbelly thanking and Before

people the team has with extremely leadership welcoming enjoyable along good provide die grateful to Our continue to entire and brand efforts. for years. XX a deliver for a experience of customers, I'm the warm for vibes our Potbelly allowed which over first-class I the their

to we shops. been evolve, our it. but adapting prioritize At experience our have food, vibes good service not delivering of with our only As the and we environment through customers our continues the along Potbelly, macro continue and to value

Sandwich I all, today. National think it we are with you it's Additionally, discussing After business is our fitting Day.

today our Our today center shops the to begin employees will support with I in Potbelly discuss entire as on X in key strategic the Nation our customers. quarter. third achievements celebrates are our Slide

expansion our headwinds due within particularly shop conditions level a challenging AUVs for has excited meaningful record second in and report our Our a despite costs. This year-over-year margin record margins framework continues improvement significantly macroeconomic and persistent serve commodity expanded growth as to X-pillar yielded we to row results. on for quarter basis, a top-line I'm to leverage. inflationary and increased achieved was operating and strategy

which improve and additive of accuracy, increase is quality. and look our for service, to margins catering the of efficiencies, we operational better throughput, proving allow experiences strengthen customer in implementation the PDK testing remain order company-owned PDK better and shops, digital improvements in-shop business will experience. customer speed increased franchise in we and kitchen food Potbelly digital our dedicated operations, to both and further increased As to our or

feedback. So far, we are with initial very the pleased

the and benefits this markets. enjoy These marketing Also our development Florida to closing promotional activities Steve to top-line Florida. programs, quarter for agreements deals including excited contributed XX all and offerings quarter, results loyalty the we our included Perks for key financial between continue for a to the initiative. from of details by program. in another providing record and record which six quarter. we Overall, successes all-time in and extremely total our the one. our These milestones quarter, LTOs shops achieved the through shops later our enhanced of as in completed Tampa our third SDAAs special Additionally, signing uncertain with strong area current metrics X revenue Central during the $XXX.X outlines despite new a deal economic on was Since We're call. bring growth conditions. greater briefly acceleration we or business touch two Orlando, mark shop signed third improvements franchise million. we've franchising will Illinois QX, momentum I announced Performance Slide deals

for another of million digital ago accounting of level AUV And quarter. lastly, the $X.X of in from points margins, an for again $X XXX weekly expansion sales same-store million record net XX% EBITDA shop leading of up the our strength growth XX.X% $XX,XXX, once to Continued period. XX% year an million, business we basis $X of reported adjusted revenue, year-over-year, income

through X, quarter. our and successes during recent like to the Slide you Turning marketing to I'd take initiatives

advertising continue which meaningful and select We to top-line expansion. to contributed our members campaigns, marketing loyalty engagement targeted and digital prioritize initiatives increased from to Perks led customer

and gain added program continued sign expand programs. members XXX,XXX an quarter, to with Our encouraging as Perks loyalty digital to new the we continue during traction our assets

are quarter. support initiatives providing an marketing fund as of Euro this only percentage as last approximate social our I Shake continued the quarter, retaining unrivaled remain digital strong With and patrons. we across quarter. and committed critical positively innovation in impacted all refreshed expand professional our driving types which as business Cookie revenue, growth attracting top-line sales now as uniqueness to financial well. brand drove a growth. turn third assets the customers, and Smales menu in in Spice traffic, detail and Additionally, advertising our will to LTOs optimistic our With to revenue better Sandwich, with our performance Pumpkin Potbelly branding discuss that, and continued of remain in including shop expansion Ultimately, core success launched investments over marketing Steve of rich and X% for during branding the to Potbelly our and delivering in We settings a driver value system-wide popularity the all ability across to Steve? we call to we with contribution and Also works. sales our began catering reflect Sandwich heritage our

Steve Cirulis

of and slide Good and the joining Thank six afternoon for the I detail Please quarters you, presentation, today. Bob. you three previous us in the over thank month progression turn will of the of same-store-sales AUVs to October. where

primarily AUVs cost general, types We to growth as increase impact two in and previously quarters. airport lagging a price was performance X.X% demand are extremely in momentum record-breaking inflation. the sequential by as and well shop the CBD of input mitigate with with AUV quarter, driven sustained pleased in continued improving from the

from AUVs under our marketing the mentioned, progress and As strategy. to our Bob five-pillar effectiveness the of continue benefit initiatives

period AUVs of October. the the initial We record of encouraging part and sales metrics another XX.X% respectively same-store of quarter, and month signs very for $XX,XXX are for the with fourth seeing for

and compared quarter slide financial specific Turning seven. income our I'll XXXX XXXX. of the the of third through you to statement for performance third to walk quarter

factors, compared third strong program a loyalty was same-store This campaigns the record same-store by revenues During $XXX.X in XX.X% driven increases million, in XX% LTOs, total Perks including increase strategic an quarter, prior of sales. number million an were the of successful $XXX.X to marketing sales, price and digital approximately engagement, year catering increase quarter. including

a expansion period, healthy types. CBD of of performance We net the forgiveness in of adjusted loss the recovery $X.X income in compared positive with supported shops quarter million. $X.X of of million a loss $XX.X million the $X.X an net third for of year million, top-line net income the continued of and XXXX. net alongside impact reported shop PPP our was loan Additionally, airport compared million the in quarter, Adjusted inclusive $X.X positive of prior our other to

Third This to year $X.X in meaningful primarily disciplined growth, quarter adjusted corporate was top-line EBITDA million, $X.X million step up along and occupancy adjusted spending. period. significant improved in the a labor addition in increase EBITDA representing by was ago with notable driven from the leverage,

higher F&P, sales in versus million ago basis quarter a absolute shop accrual shop input the beverage to of basis of of on have $XX.X were the X.X% in the of bread. higher and or $X.X an were percentage remain we part particularly or cost $X.X meaningfully timing costs challenges inflationary team's and pleased total challenging, with bonus of for in impact were third top input a to volumes, Inflationary diligent X.X% increase forward. were attributable costs, year higher or and was payroll to total quarter ability XXXX. G&A were million as Potbelly. and period. compared Although of will Food on revenue $XX.X and XX.X% managing That due priority or percentage dollar going million to mitigate pressures the as increase well costs, and or lower. than expected and specifically higher packaging expense. The remains both F&P trended in quarter sales of the proteins the the third earlier efforts since quarter costs in revenues XX.X% our during said million the

and customers. We to well workers were our or continued delivering labor-related $XX.X in and by in-shop which increased our and we ago initiatives, through absolute points, top-line and loyal attract our of continue quality XXX leverage, digital to reduce training basis, tipping, sales positive On year and us price higher as costs an were shop basis helps decreased proactively XX.X% $XX.X XX.X% the the Labor promise sales, percentage as higher due On labor vendors, of through million expenses volumes as due and increases period. partnership a the such a retain labor compared to impact or recruiting costs. these basis, wages. of expenses to value with headwinds million strategic while to mitigate

business guide, we proper from our hours-based labor optimal matching of the to level peak ensures utilization staffing which the in-shop demand. Additionally, our staff continue the with of timing of benefit

XX.X% million allows of efficiencies or operating Our price capture $XX.X and we ensure million were us to to with other initiatives. labor-saving or sales, guide Other $XX.X increases compared expenses associated XX.X% of third-party card On credit variable sales as period. that increased marketing delivery the increased basis, expenses and an sales with due to in fees, cost costs are advertising well expenses. ago such some expansion. absolute and a year operating and inflation as percentage disciplined slightly Shop other in controls and compared from utilities driven including leverage recovery by year-ago were X.X% largely the due previously basis on expenses XX.X%, shop Other improvement to top-line spend, continued period, to growth, related primarily margins the to a locations, efficiencies. as of operational meaningful lagging top-line decreased also level

as most margins Our improved strengthening September began the we and as a X.X% progressed, ease notably substantially with price pressures to combined significant inflationary benefited increase quarter from demand. in

We quarter. so are happy far in trends margin fourth these the see continue to

quarter $X.X business we the will walk end million, hand, the channels. credit facility. at plus of revenues million the On existing cash our total position of consisting liquidity you of on through Our respective to on million the was available eight, each contribution of from $XX.X $XX.X slide

of the sequential dining, interest passing the This of Our revenue, accounting evidence in absolute saw in back to earlier the revenues, call on XXXX. also sustained percentage basis, discussing a provide total tick the AUVs. fourth which on-premise shops. vital channel quarters second impact quarter, unique as the outlined up ongoing Bob on from of growing attesting to in to we given higher prepared with digital consistent for serve higher Bob, initiatives customers' primary the business I'll nine XX% our prior today's of strength our an areas to remarks. component serves but for before as Notably, conclude continues environment balance marketing by basis, our on digital in a of enjoying performance of slide confidence our for the a focus

loyalty continue digital of applying learnings and deal remainder LTOs by and campaign. members, and expanding we supported such catering successful year, BOGO the look higher engagement our leveraging momentum, sales business, our offerings strong accretive marketing the to advertising Perks For AUV as promotions, from initiatives, targeted from our our

and in-shop to employees. expansion potential enjoy margin top-line are labor Also, to Potbelly and customers through management our digital strength, costs. locations, we it excited the operational As new labor into of and input better are for as our optimization for we and of even continuing increased experience our committed efficiencies has we an expand shown kitchen

are believe the pleased continue more the greater quarter. fourth to quarter our and initiative, QX. we the during so far We will shortly. performance Bob Lastly, speak strong by with two third our initial growth franchise during one acceleration closing in of progress detail into this will deals

to fiscal additional specificity regarding With that, XX.X% to of XX.X% With pass over earlier and XX%. us comments expect $XXX of the share September we We sales Bob. I $XXX of expectations about to year trajectory our my expansion allows achieving We're approximately building momentum million million expect sales on between during the believe we margins now quarter QX and and record revenue $X.XX will shop of margins XXXX goals. to for shop-level of October the between XX.X%. performance our XX% AUVs to back happy communicate million same-store and, this of call margin X.XX

Bob Wright

Steve. you, Thank

on on Now initiative. acceleration franchise provide our update XX, growth an slide I'll

we earlier, shift SDAAs to Florida our I Shop franchising a These XX great combined of Agreements operating the our or the two Tampa Illinois as have transactions during beginning As the of franchise-focused mentioned Central organization. Development the bringing first to push. our total announced regions. earmarked Area signing A start and a quarter to shops

we've more are additional announcing look already SDAA We another announced to agreements, they earlier finalized. the in as Florida. six fourth Orlando, for during mentioned, As quarter, forward franchise shops

encouraged the growth provide prospective of hosting look we total their events of to present candidates discovery brand. They meet events prioritize understanding plans, and with to franchisees, initial opportunity upon deal fill hosted launching XX, of where candidates. we're look connections unveiled we as Potbelly relationships the remind future. announcements more detailed business I'm conclude and relationship which the me sharing at since with forward of qualified the and gain of XXXX building benefits beginning which targets pipeline strong pace having at I'll slide for our this vision growth to four enthused our with of achieved the days, their the signed. more are the to on progressing and goal AUVs, to $X.X After we would We're begin our the of deals our franchisee we will our on I'll today million annualized are a this These million $X.X with progress translate the now towards we've management our Starting weekly As already continue goal. all our during initiative. in October. with by We our build month a working an momentum, that with year. towards building basis. and AUVs team you business our

and to revenue and remain we and marketing our shop across continue loyalty success initiatives, program ability achieve we trends to As our portfolio, our goal. digital confident diverse benefit from operations improvements highly Perks from this in throughput improving

inflationary to generation. leverage, margins vendor demand margins in and and management mitigating strong -- ability shop-level supply approach attributable greater improved pressures, we demonstrate to again, shop-level a Second, chain of operating to and maintain than XX% in continue conditions, largely here all proactive our labor

our is goal of end third of the re approximately franchise shops company-owned to The by XXXX. XX%

we highly As And even encouraged signed. franchise pipeline of we I are pressured look interest and qualified macroeconomic forward from to deals by time. candidates the announcing in as this they are mentioned, activity

shifting on Finally, a or least Shop we're unit our Agreements a franchise-owned system. SDAAs with rate XX%, primarily Area to focus growth achieve through franchise Development at working of to a

deals, we're fundamental turn announcing give aiming call unit-level XX% We and With the signed that, X,XXX owned of Over for us your Operator? our the strength the eight with economics as these franchisees. to the goals. a at to next XX questions, business back look years, address those as by of are operator to least view underlying shops total to they now achieving forward competitive meaningful I'll to over SDAA well. We advantage, towards brand,

Operator

the begin this Thank assemble roster. now will you. momentarily We'll [Operator At pause to time session. Instructions] our question-and-answer we

Our go Matt first ahead. Curtis from question from William Please Blair. comes

Matt Curtis

a the with sales I comp. to relatively, from accelerate want just weekly I afternoon. third to Good quarter. average pretty which seem on Hi. the October start guess question And significantly

typical the to that of summer. where would in I see in the against you go volumes business as Now drop-off a characterize after seasonality what seems kind

be about, be a So mean, office learning helpful. at role thoughts on might would just that curious more college stronger return maybe what playing it I'm in-class any your something be I that. occupancy to like, Just camps? would of drove or a thoughts

Bob Wright

quarter becoming it record-level it to Yeah. Matt, and the CBD saw markets, be a to levels question wouldn't in that We to you back October. and the we're CBD first the attribute expect a overall you're been We growth where to of continue shared continues headwind. AUVs hear contribution of with health for would all, great pre-pandemic business. recover last their business they quarters it to had that We're There's to things. Seasonally not from right. that that contributor a combination for you to us. still believe in we several tailwind pleased the traffic of but an just no

the as You are there's Airport university well shops too. mentioned some shops really There's strength no well. there. doing question,

our I keep of to capacity finding throughput continue efforts we made a back more digital the think manage be ability to in our very how about handle many of to ways channels. those more our our we especially to continued into quarter, efforts remarks business activation general in of a believe those So more we've done in the our and business efficiently. Perks marketing addition operations And the field line difference enthusiastic put portfolio. the the with LTOs. productive on that LTOs and promotions and all do done team of about that the then, strengthening big the way. prepared had staffing handle and the to our talking success really in to promotion we've efforts in of a strength And We bring throughout the of the And just the though Life that digital the the digital linkage that the Perks LTOs with place

to are we've a momentum think of that got sales leading those, on volumes. we fronts So of number kind

Matt Curtis

sounds something latter think XX% Okay, quarter looking in the I quarter November, full the the comped I XX%, mistaken. the December. then fourth last good. not if year guess quarter so period October, was know the I and And in you part fourth of like year-ago towards in comp, then, I'm

just more wondering if do that difficult implies speak could two more was which So, you get how And difficult. tougher I months get. comparison the the December, think of you? for November, the is I they comparisons those math to much out month

Steve Cirulis

Sure. I Matt. can take that

comps QX. the we tougher some within had in start all as to our think I right business we saw get -- acceleration

it that's think I we of of and year. last But then as thing relates got as had quarter our the at pretty a Omicron think actually really we a the to within strong I fourth period strong That's right year. the hit last beginning quarter. a PXX we had welcome by the business trajectory this really,

comps have year think I at finish that year-over-year. think we provided the to looking all challenging as But fourth across I the implied guidance a think most we fairly the the be robust expect our So, fronts. business to there within for do we're the might quarter, it's and I

Matt Curtis

Okay, put through. then X.X% comments I you it. that the on got heard And on increase pricing your

further increases for price quarter? expect bring benefit did kind So, that full fourth assuming then of what no price the the price you benefit would of for cumulative quarter? third what to And kind you

Steve Cirulis

Sure.

You the margin? mean impact of terms on the in

Matt Curtis

the benefit part mean growth? a growth? just ticket the as is No, price same-store sales terms of average I component What comp as in of of

Steve Cirulis

Sure.

Matt-- think I

Bob Wright

Go ahead Steve.

Steve Cirulis

finish okay. that's no No, Bob,

Bob Wright

blended impact we we've obviously year think I a carry the year of to would back those and we've next the this is little And what of taken we've just the in would see over pricing terms X%. PX. that as over I say taken announced throughout going year

continues continued to year. -- we've XX to previous it but saw year we single-digits, this see to in in inflation inflation average at wage XX% has calls XXXX roll through over food that has high And watch in So pass really got And to back next system. how inflation. more you starts XXXX. -- XXXX single-digits some of the Steve the cost much to high. of still shared That's been go of off

watching -- some manage the and inflation XXXX into So, turn carryover a lot decisions we really the labor a next corner of and do of make food we to need as the as kind we'll to then about be what year. baseline

Steve Cirulis

just would add to Yes. And that. I

far around think front on however even that We that's to food Bob I as I that. food operations We home prices certainly was us just rate. continue in the of delta And benefit front. and the our as fast-casual home well. face affordable. still average X% the testament strong from the of sort makes have having And think in a think increased terms has demand about outpacing The get I inflation marketing to on remained check the of said away of still activities Bob our at talking that pretty

even in some facing support a the that's is demand consumer to the of that pressures the face everywhere. So, of

Matt Curtis

that guess also topic obviously. levels catering that I I business. what versus had last if to in in that sounds occupancy drive I since in into year you wondering catering office we've great. business that quarter little was the just XX% first But related another like be up be do relatively a holiday as normal better comp heard bit guess period, Okay, correctly. to you holiday place was have might a last I might period this while. the It more to shifting the the order go

Bob Wright

we're the thing is locations back pleased things of in into CBD we it -- office. of catering the on our lot few still think business coming to of it you be more all mention number return. couple first isn't The Yes, continues just it out we business as the catering a super heard one people a us Matt to expecting that are times continue as a that with -- are pleased I

But more some all our year on. tech our time business catering way of our new are out for of occasions our we we've promoted of We successful catering the do and sure. social and calling goes rolled types. traditional this catering been when shop that in office we'll more stack how catering We've what couple in times of we we're as that presentation celebration a for shifted and seeing

digital We some also driving small, the once invested even field the is be relationships in are in source we're our of areas bit our program putting are relationship doing had top-of-mind in forth as coordinators business suburban big see very, reestablishing The can And regional support catering loyalty to and companies our and locations a started additional have Perks good the that catering last in surrounding some We business. more and a awareness occasions. in year our to well sector with fourth we had return push in that for in We're the catering a our brand with did for and us. back in catering the retail shops quarter. that frankly that retailers digital bringing these that us catering are efforts advertising little with that very that.

that the of our go on so that last preparation what's handling of the thing hear details the them, follow-up, And those and back significantly leaders how to repeat retrained of this expect that's and kind all planning our feedback including you The training apart. seen basics. And from coming that are our and we with that. involved basically how refreshed into as groups throughout successes shop We our set catering our kind success customer would training that. we better more managers And breeding we've And many is franchise then orders. business this year the add that all back. all of catering and for great support catering be of team all operations of goes the and the program. of and menus a those orders and in, of Potbelly theme I operational materials come catering and they all back And in of the materials the solicit all going we catering tips when that of the to including will we

So, already even we success big think our the part future seeing recent in a the the brand benefits we are quarter. of but in it's most

Matt Curtis

large first But on if Okay, couple working deals any great. belt. on a whether we've going signings of have all, what also recently XX-unit forward. or should the the I that those in we potential announcements on first announced, under the to sort flow very five expect franchising of was your wondering just of you're congratulations of kind you of Then recently consistent range getting heard

Bob Wright

on I think we believe it's right with anything, goes And our it are a target great to no right have to strategy. but our we question and strategy. reason that

areas. broken is SDAs, these these development we've As shared and it before country the what we've done shop taken every DMA into in

four midsized markets, markets be we're XX, is are or may broken throughout those SDAs. XX, very one the There some into their be three you SDA market. country, in XX and entire think developed we've DMAs, in large that that to cities other some it Now, present DMA not cities shops

the is us range, so XX signed for on that the for that deal SDA is that every starts got development. we've development for to the because size to And XX shop an that ticking in we X-year targeted clock key

relationship reach signed the other conclusion, past in you in brands the a has large -- enough time seen not than penetration deals in come to developers to now. And those more are can XX larger that units. or we XX more and right with types development or sophisticated There of when handle are market. franchise experienced those XX having really see development done we've never those our we reasonable this candidates very brand entertain and So

meet We to financially it's people hurdle high years frame a and them goals to those for absolutely but development estate of and the to abbreviated time sign deals. the find deal, real their will XX ability the a that develop the tolerate eight in for larger operationally, completing will is most

one approximately every hear may you but can one you while expect may deliver about the deal, to -- announcement not a than of like So these or more one the big unit year. one deals you to like the

the that comes be that growth the every going is it year real to continues when So to of pacing size we with much growth, signed. more deals them accelerated this get

So on yes, double-digit average. low this to be in them you should expect size

Matt Curtis

a Understood. forward. going to Okay. think actually helps about it That lot

there. Happy very Okay. a National Well to stop you Thanks Sandwich have much and both, I'll Day.

Bob Wright

great really a day closely. We has day It been us. watch sales on the for this

So talking Great to you. for thanks Matt. that

Matt Curtis

Okay.

Steve Cirulis

Matt. Thanks

Operator

follow-up ahead, call Go over I'd Matt that, Blair. you, to Thank With Lisa. like hand the to Lisa put questions. from to some William Fortuna

Lisa Fortuna

Thank Similar you, And question. the Potbelly out our offering these to thoughtful to of opportunity questions we'll complement we're moving questions, reached team investors William operator. any in shareholders To the Relations the forward, this Investor our future. several very last week. welcome collect quarter, Blair's to

and market question and casual past than food is Bob space. supermarket as with you prices gaining restaurant even prices the share than turning back Do inflating faster to First Steve result? any QSR, think you're faster a

Steve Cirulis

single share. ability of it we But those at share a same-store a Lisa. the that we And was in ways share consistently in look how look seen happen see gains We as And to an traffic have it the market throughout period expanded to are some track look basis. that on kind Thanks Yes. seen at look certainly weekly for pleased our we Yes, more us of pricing I We our is were QX even it We deeply. the quarter impact we we've the -- look traffic we good at share news think sales a Certainly gains. it improves. is strong in the traffic, sales. quarter, traffic. year of well. at as of areas. that every has terms way same-store terms in terms And in sales, both of on for with we've of us at to

And competitors. casual so more what going they goes that get I our than and enjoy terms their see to think what they're their get they're going do they consumer think the can a to facing that's rate to afford -- in what they a value this And choosing for who's inflation where they pleased they're increasingly money. and to back us to fast own at want calculus of so we're most and

Lisa Fortuna

topic. questions two already announcement the has Florida in are One The that two next Potbelly on shops. the recent really Great. franchising franchisee

in question side. on that terms So those revenue? the performing the and construction part how refranchising second then of costs are is of And

We add? haven't any yet seen you and there's just deals there, can color if wondered any

Bob Wright

Delighted. I'll of just take -- that, our Lisa. Yes, first we the on are them. in franchisee delighted the Tampa, with Asmar all, family,

of for average They're is in to on They're I great our with is not spending They're won't In the that. XXX a face below FDD. in was our building theirs both sites who on fact brand at on is units can searching volume it not question than construction the units XXX national published through Development, around but wonderful we they catering, extend But sales business. we've they -- a putting which have the efficient And what And those They're that's President built which today. a for answer develop next range. for as to the continue specific franchisees their They're day the love our I the brand. with their brand operators. straightforward and of way all both amount their their than they with numbers and yesterday But better that phone to the built only and less the because the here decent be engaged. the to build share less with economics, very new great them Vice I their in surprising published to build Potbelly. share. is units. FDD, than them answer

trade SDA will right of those literally location areas that from targeted to circles. green predictive circle their closely significantly most In We earlier business the mapping one of that franchisee, would of every really buys is a but make middle board. does of thing us. area development our correlate And I second the do at well a balanced is note trade together which above we That's expense the a strategy. across that the green location success for national layer Matt second in an And franchisee There's Potbelly. giving asked average. work of drive-thru a the map second put one kind fact them location, for about our of

thing areas franchise deals match I we're them, so the to expect be say of franchise And other and think to see experiencing. Last about is important that is what which trade the that I'd success, is excited getting correlation we really they're franchising what tend deals.

We more become have our they more had about develop and more at talking candidates Potbelly. interested as ability questions, as we here we franchise that to similar And other franchisees franchisees. confident expect should and their haven't announcements are made existing to asked about

pleased very So, them. with

our we with of get even the prepared that refranchising development refranchising our locations especially XXXX. focused believe, the units of refranchising still is, said announced those strategy the end okay of plan we've the franchisee that. catalyze growth. is number we way to putting of of our we to do But on remarks, and now assets, we we developing in us Now candidly, though part about part I markets. And announced about deal In to that our a optimization three deals. in side, talked we're XXX It's markets the on of best these would number our between under focused still refranchise to right haven't the a And hands more you're reason that. of penetrated limited one my expect

So refranchising. goal in growth haven't growth the refranchised always has through we markets our yet. with been getting SDAs We're where the

scale come. offering. with and different There impacted other what's ongoing different, it buying interest we're what has rates has going that's franchises, It of a that large unlike for size significant on look the I a franchisees, so, know to businesses. the an economy, environment I especially acquisition deals very And mean, to is impact is definitely been

market to we're Our assure amount of some their of that. a that be is require can sharing a of consider clear a every I is be but a is maybe I there. just success because the leverage they pace benefiting deals cautious, story. Development you different benefit brand. about extra interest. little the that In don't require, franchisees really bit that of large causing of slowing No re-franchising little from to the market size, from deals our about QSR slowing But want of when there is we the very meantime, all they're making these acquisitions.

more when to get And in for the they're sold, that benefiting successful company. the margin sales a So them. much be that profitability contributing our they from They're and as they buys franchisee will the and growth. meantime, sales

one of may a versus two already we that in bad them it's So or near done. the here not those deals future having do thing

Lisa Fortuna

your mix digital to invested last over levels? and of the current to What's we've how And customer-facing digital plan you on at goal? Potbelly seen sit Turning the past drive two XX% do has sales. years, long-term digital digital heavily front it around

Bob Wright

very them, out is quarters last quarters, we're at four Yes. those of volumes. XX% in of average and it's Actually, pleased four it our growing the XX% while In the one XX%. that unit been all three

growth And in so we're incremental rest the it future. at that believe do in even we the the are growing incremental mix growing there's growth business. with digital, We the pace of and

digital it but to a assets up we Perks larger our under of especially the program, believe David's so goal when engaged think fact of it larger far a learned of and phone, mix. be our would digital. that to our that with growth, catering that innovation, there's in more catering and placement, not expect at digital and what product paid how we've our we definitely to digital in There's there's our occasionally. comes show through or a there. But of and A a certain stated comes routine portion our bit continues still our portion over you quite loyalty haven't do Perks with -- be customers, We what with advertising, leadership that on externally, look we've

in that the think line the digital of continues again that's the to three lever system-wide in top-line is there's get digital in emphasize And think single to show our this -- really is least we to here for of on now. still was low X% we've sales to last grow. return up will sustained as a is thing assets. ourselves this of invested Listen we given of think to marketing we one as pleased. that investment a And well, as sure. just while One top there being that expand period growth in there in south And that The too expand the and a all only exclusively some going we compared marketing marketing digital come. so there's five at on only We growth. relatively continued investment. industry, our but more we I'd I that are of for invested to our believe there's Almost driving challenged right spend I'm XX% pre-pandemic. digits So sure should time, of

Lisa Fortuna

impacts back related the as actions but to the are taken another, comment broadly of maybe to you're so mitigating kind could well you've as questions take on speaking I'll two on Last offset continuing inflation. of kind inflationary just touched food, put together to We and seeing? you one on them labor if

Steve Cirulis

Sure. Sure, we've think the high calls, still we've our labor started year, back kind this I the really one down And while this over with time. around inflation. as prior the I'll take year year through And of about what has quarter inflation, terms right? last of talked that Lisa. the the it's We Yes, single-digits. seen probably got down, double-digits look, for I year, labor were persistent to been inflation think mid of in in seen in come in the we've coming course labor

earlier is the tipping that extra expecting in in the the provides about labor I and that And dollars for two think shops. year, per not we're workers front, we which for have which of least of on the put that terms advantages our in place quarter hour we four labor. some

attract inflation, And the also is us so -- in well some to manage tool our employees as retain but of labor as that a that is great tool shops. a helps

year. rate well to ability start continue inflation manage our so forward we terms as mentioned match we expect. job, the into make that's I kind year. growth inflation Bob at that in overall to as the four labor next spot And we of those will look maintain kind -- attempt through think demand next of think managing we've the why the is hitting quarter and and mid also And And I watch of expectation We component that try try of we've we before price to that still to single in to of kind digits nice move year it tougher at as And the maintained stay of few to has with price look our that use to of come demand. in -- pressures. and saw over as periods a really And further see was down of come some started it even which frankly And we on which done XX% last mitigate inflation, to inflation sure it come the north of QX, value side quarter. pace down reached and into traffic COGS as we to a to That in the the way frankly which with seen we customer. to we're equation the we've the costs, expect at in pace sweet and well down. as managing as a that the

don't do don't expect to aggressive as be as next We we we're going budgeting as we through year. of into high because that process. to suspect And year. don't as our a as next this have aggressive I increases have so with profile we'll continue inflation price year,

Lisa Fortuna

the concludes that think questions. And

the I closing So Bob to back will over for comments. hand call now

Bob Wright

institutional And on appreciate for very you conversations investors that Lisa. like support quarterly to I'd interest you, much have to Thank our and delighted you brand We for questions thank your Yes. submitting the with and the basis. a these do.

confident third highly of for tell, extremely thanks direction with performance brand. We all especially for can quarter the time. ongoing as the the -- thanks you in the are your we're Today and positive happy strength you Lisa, we in of doing that. for So

to our operational of next to we're coming things prioritize initiatives to talked back. continue we've our going phase customers our and them our growth, we progress value As marketing, through for keep franchising excellence, strengthen about and

upcoming you I conferences We Small Have Cap thank forward will Wolf up. Thank to NASH interest said, coming a in you Potbelly. time our Stephens be that many your Conference with with Sidoti Investments to look for the you great in and for night. So today. the all Conference want engaging again Conference, just your of Consumer at the

Operator

That presentation. you attending conference. today's does for conclude today's Thank

disconnect. now may You

Potbelly (PBPB) 6 Nov 222022 Q3 Earnings call transcript