Potbelly Corp. Q3 FY2023 earnings call

Key Points - Bob Wright highlighted strong third quarter results with 8% same-store sales growth, traffic growth driving demand, and 400 basis point improvement in shop level margins. - Digital business continued to grow, representing ~37% of revenue, with shift towards owned channels. - Potbelly Digital Kitchen rollout progressing, benefiting operations and customer experience. - Franchise growth acceleration with signed multiple development agreements, totaling 150 shops to date. ### Steve Cirulis discussed revenues up 3% to $120.8M, system wide sales growth, digital business growth, expense improvements, and provided full year and fourth quarter guidance.

Revenues in the third quarter increased approximately 3% to $120.8 million, driven by 8% same-store sales growth. Digital business represented approximately 37% of revenue, an increase of 150 basis points versus the prior year. Food, beverage, and packaging costs were 27.8% of shop sales, a 210 basis point improvement. Labor expenses were 28.9% of sales, a 200 basis point improvement. Occupancy was 10.7% of sales, a 90 basis point improvement. Other operating expenses were 18% of sales, a 100 basis point increase. Shop level margins in the third quarter were 14.6%, an increase of 400 basis points year-over-year.

Full Year 2023 - AUV of $1.29 million, same-store sales growth between 11.5% and 12%, shop level margins between 13.4% and 13.9%, adjusted EBITDA between $25.9 million and $27.9 million. ### Fourth Quarter 2023 - Average weekly sales between $24,250 and $24,750, same-store sales growth between 4% and 6%, shop level margin between 12.5% and 14.5%, adjusted EBITDA between $5 million and $7 million.

Forward-looking statements involve significant risks and uncertainties, including events or results that could differ materially from those presented due to various risks and uncertainties. Additional detailed information concerning these risks can be found in the company's Form 10-K under Risk Factors and MD&A.

Q: Could you disaggregate the 4% to 6% same-store sales guidance for the fourth quarter into pricing, traffic, and mix assumptions?

A: Steve Cirulis said there's a 4% price increase, with the rest being a blend of traffic and mix shift.

Q: What's your view on the consumer and check building behavior?

A: Bob Wright noted a size shift from bigs/originals to skinnies, channel shift away from third-party delivery affecting check slightly, but consumer behavior remains strong with a healthy jobs market and income.

Q: How do you expect to achieve the 16% shop level margin target for 2024?

A: Steve Cirulis said it'll be from labor efficiency, sales leverage, food input cost benefits, catering growth, CBD portfolio growth, strategic pricing, and channel shift benefits.

Q: Any signs of consumer resistance to recent price increases?

A: Steve Cirulis said relative to fast casual, traffic continues to grow and take share, with no significant consumer resistance observed so far.