Potbelly Corp. Q4 FY2024 earnings call

• Menu Innovation: Added new signature sandwiches (e.g., slow-cooked pulled pork-based sandwiches), proprietary sauces (hot pepper ranch, sweet heat barbecue, etc.), updated and expanded sandwich toppings, and rolled out Potbelly craft refreshers in partnership with Tractor Beverage Company.
• Digital: Potbelly Perks loyalty program drives over 40% of total shop sales, up 100 basis points year-over-year. Investing in consumer-facing digital assets and data and analytics to enhance customer experience and drive top line.
• Unit Growth: Opened 23 shops in 2024, added 115 units to open and committed total. Guidance for 2025 includes at least 38 unit openings. Announced franchisee incentive program to accelerate development, and plan to open company shops in certain markets (e.g., Midwest and Texas) to densify underpenetrated areas.
• Cost Controls: Focus on prudent cost management through menu innovation, digital investments, and unit growth strategies to achieve balanced growth and improve corporate earnings.

System-wide sales for the fourth quarter of 2024 were approximately $142.6 million, a decrease of 3.3%. Excluding the impact of the 53rd operating week in 2023, 2024 system-wide sales increased 1.9% from the prior year. Total revenue in the fourth quarter was $116.6 million, 7.3% lower year-over-year, but excluding the impact of the 53rd week and refranchising, total revenue was flat. Company-operated shop revenue was $112.3 million, 8% lower year-over-year, but excluding the impact of the 53rd week and refranchising, it decreased only 0.9%. Franchise revenue was $4.3 million in the fourth quarter, up 24% relative to the prior year. Food, beverage, and packaging costs were 26.7% of shop sales, a 50 basis point improvement. Labor expenses were 28.9% of sales, a 5 basis point increase. Occupancy was 10.8% of sales, a 25 basis point increase. Other operating expenses were 17.6% of sales, a 10 basis point decrease. Top-level margins were 16.0%, an increase of 30 basis points. General and administrative expenses were 9.1% of system-wide sales, a decrease of 100 basis points.

• Full Year 2025: Same-store sales growth 1.5%–2.5%, unit growth at least 38 openings, adjusted EBITDA approximately $33–$34 million.
• Q1 2025: Same-store sales growth -1.5% to -0.5% (includes ~150 basis points weather impact), unit growth at least 4 units (3 already open), adjusted EBITDA $3.5–$4.5 million (includes ~$600,000 weather impact).

• Weather Impacts: Unusual winter weather in certain regions (e.g., Chicago, Midwest, Texas) affected Q1 performance, though underlying demand remains strong.
• Competitive Landscape: Dense competition in the sandwich space could impact Potbelly's market positioning.
• Cost Fluctuations: Commodity deflation, labor expenses, and potential tariffs could affect margins, though efforts are in place to manage costs.

Q: About Q1 comp trends and weather impact.

A: Steve Cirulis mentioned severe winter weather in regions like Chicago, Midwest, and Texas affected Q1, but momentum is improving with stronger performance in weeks with more typical weather.

Q: Unit growth and new unit performance.

A: Bob Wright stated 2024 new units are performing in line with average portfolio, guidance for 38+ units in 2025 with a cadence similar to 2024, and unit openings expected to build in Q2, Q3, and Q4.

Q: Menu innovation pipeline and customer-facing platforms.

A: Bob Wright said there's a menu innovation pipeline with more to come, and investments in digital and data analytics are expected to benefit 2025 performance.

Q: Franchisee incentive plan and G&A.

A: Bob Wright explained the franchisee incentive plan could drive long-term development, and Steve Cirulis noted G&A will have a slight increase in dollar terms in 2025 but better leverage with sales growth.