Potbelly Corp. Q2 FY2025 earnings call

Menu Innovation

• Launched the all-new Prime Rib Steak sandwich, Tractor Beverages, Potbelly branded Hot Pepper potato chips, and upgraded salad dressings in partnership with Marzetti. Continues testing additional menu innovations through stage-gate development.

Digital Performance

• Digital business represents over 41% of total shop sales, an increase from last year. Launched new website and mobile app in late-June to enhance customer experience, focusing on faster ordering and personalization.

Franchise Growth

• Opened 8 shops in Q2, expects at least 8 more in Q3, aims for 38 total shop openings in 2025. Added 54 new franchise shop commitments in Q2, total open and committed shops at 816.

Remodels

• 5 remodels completed in Q2, with testing ongoing. Pleased with early results and looking forward to sharing more details in future quarters.

Community Service

• Participated in Potbelly Summer of Service initiative, partnering with food banks and supporting causes like Down Syndrome awareness through events.

System-wide sales for the second quarter of 2025 increased approximately 6.7% year-over-year to $154.2 million, with total revenue increasing approximately 3.4% year-over-year to $123.7 million. Second quarter adjusted EBITDA was $9.6 million or 7.8% of total revenue. Company-operated shop revenue increased approximately 2.5% year-over-year to $118.4 million, while franchise revenue improved approximately 27.7% year-over-year to $5.3 million. Company-operated same-store sales were up 3.2% in the quarter, attributable to a 1.1% increase in transactions and a 2.1% increase in average check. Food, beverage and packaging costs were 26.3% of shop sales, an 80-basis point improvement versus the prior year period. Labor expenses remained flat year-over-year at 28% of sales. Occupancy was 10.6% of sales, a 30-basis point improvement versus the prior year period. Other operating expenses held steady year-over-year at 18.4% of sales. Shop level margins were 16.7%, an increase of 100 basis points versus last year.

Full-Year 2025

• Same-store sales growth revised to 2.0%-3.0% (up from 1.5%-2.5%).
• Unit growth target of at least 38 openings.
• Adjusted EBITDA revised to approximately $34.0 million to $35.0 million (up from ~$33.0 million to $34.0 million).

Q3 2025

• Same-store sales growth anticipated to be 3.25%-4.25%.
• Unit growth target of at least 8 units.
• Adjusted EBITDA expected to be $9.0 million to $10.0 million.

Forward-looking statements involve significant risks and uncertainties, detailed in SEC filings. Risks include those related to business operations, market conditions, and factors that could cause actual results to differ materially from forward-looking statements.

Q: Todd Brooks asked about the timeline to realize the franchisee pipeline, including how long it takes with different franchisee sizes and incentives.

A: Bob Wright explained that the maximum timeline for shop development with a franchisee is 8 years. Larger multiunit developers can open multiple shops a year, while smaller developers have shorter timelines. There's a 50-50 incentive for faster openings, benefiting both franchisees and Potbelly.

Q: Jeremy Hamblin inquired about the breakdown of same-store sales growth and confidence in Q3.

A: Steven Cirulis stated same-store sales growth was 3.2% from 1.1% transaction increase and 2.1% average check increase. Bob Wright mentioned confidence due to growth across multiple channels like menu innovation, digital efforts, and operations.

Q: Mark Smith asked about food costs and visibility for the back half.

A: Steven Cirulis said food costs benefited from commodity deflation, with forecasted food costs in the back half being around 2% for Q3 and a bit higher for Q4, but manageable.

Q: Matthew Curtis asked about digital sales trends and July uptick after the new app/web launch.

A: Robert Wright mentioned being pleased with early data from the new web and app, but no significant shift in digital pickup vs delivery behavior was seen, with focus on driving customers back to first-party digital channels.