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Potbelly Corp.

Potbelly Corp. Q4 FY2023 earnings call

March 7, 2024 · fiscal period ended 2023-12

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Summary

Generated 2024-03-07

Management highlights

  • Bob Wright highlighted the success in 2023 with 12% same-store sales growth and 370 basis point improvement in shop margins to 14.2%. The franchise growth acceleration led to 612 open and committed shops. Introduced new long-term growth ranges: same-store sales in low to mid-single digits, unit growth in low double-digits, adjusted EBITDA in low to mid-double digits. - Steven Cirulis discussed Q4 financials, including revenues, same-store sales, expense improvements, and system-wide sales. Emphasized the Digital business's contribution and the franchise growth pipeline with 202 shops committed, aiming for 10% unit growth in 2024.
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Segment performance

In the fourth quarter, revenues increased approximately 4.7% to $125.7 million. System-wide sales grew by approximately 11.4% to $147.5 million. Same-store sales growth was 6.3%. Food, beverage, and packaging costs were 27.2% of shop sales, a 150 basis point improvement year-over-year. Labor expenses were 28.8% of sales, a 200 basis point improvement. Occupancy was 10.5% of sales, a 70 basis point improvement. Other operating expenses were 17.7% of sales, a 260 basis point increase. Shop level margins in the fourth quarter were 15.7%, a 150 basis point increase year-over-year. The Digital business represented approximately 40% of total shop sales, an increase of approximately 150 basis points versus the prior year, driven by the Perks loyalty program.

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Guidance

  • Full year 2024 guidance: same-store sales growth in the low to mid-single digits, unit growth of approximately 10%, and adjusted EBITDA growth in the high-single to low double-digits. - First quarter 2024 guidance: same-store sales growth between negative 25 basis points and positive 50 basis points (including weather impact), and adjusted EBITDA between $4.4 million and $5.2 million. - Long-term growth ranges: same-store sales in the low to mid-single digits, unit growth in the low double-digits, and adjusted EBITDA in the low to mid-double digits.
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Risks

Forward-looking statements involve significant risks and uncertainties. Additional detailed information concerning risks, including factors that could cause actual results to differ materially from forward-looking statements, can be found in Potbelly Corporation's filings with the Securities and Exchange Commission.

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Q&A highlights

Q: Jeremy Hamblin asked about FY 2024 adjusted EBITDA guidance and restaurant level margins.

A: Steven Cirulis explained that the adjusted EBITDA guidance is high single-digit to low double-digit growth rate on dollars, and restaurant level margins will benefit from sales leverage, labor efficiencies, PDK shops, and catering.

Q: Alex Sturnieks asked about commodity prices, labor costs, and Perks program.

A: Steven Cirulis said commodity costs are expected to have low single-digit increases, and labor costs have stabilized in the low to mid-single digits. Bob Wright discussed the Perks program's backend improvements and behavioral shifts among Perks consumers.

Q: Matt Curtis asked about price increases, weather impact, and Perks program backend.

A: Steven Cirulis talked about price increases and weather impact being difficult to precisely peg. Bob Wright discussed the Perks program's backend nurturing flows that come into play with the changes made to the loyalty program.

Q: Todd Brooks asked about brand fund investment, G&A, and 53rd week impact.

A: Bob Wright discussed the distribution of brand fund investment across media and the funnel. Steven Cirulis explained G&A as 10.1% of system-wide sales and the impact of the 53rd week on sales and margins

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Key numbers

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Transcript

March 7, 2024

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