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Revenue: Decreased by approximately 6.0% to $111.2 million.
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Net Income: Reported a net loss of $2.8 million for the quarter.
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Adjusted Net Income: $0.2 million, a decrease of $0.4 million from the previous year.
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Adjusted EBITDA: $5.7 million, roughly flat year-over-year.
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Same-Store Sales: Down by 0.2% compared to Q1 2023.
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Shop Level Margins: Increased by 150 basis points year-over-year to 13.5%.
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System-Wide Sales: Grew by approximately 1.9% to $134.2 million.
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Franchise Growth: Added 32 new franchise commitments, bringing total to 642 open and committed shops.
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Store Locations: Opened three new franchise shops in Q1, with 30 more in various stages of development for 2024.
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Digital Sales: Represented about 41% of total shop sales, up approximately 200 basis points from the previous year.
Release Date: May 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
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Potbelly Corp reported a 150 basis point expansion in shop level margins year over year to 13.5%, indicating improved profitability.
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Digital sales comprised approximately 41% of total shop sales, showing a significant increase and highlighting successful digital engagement.
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The introduction of an enhanced Potbelly Perks loyalty program has led to a 36% increase in active members year over year, enhancing customer loyalty and engagement.
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Franchise growth remains strong with 32 new franchise commitments added, expanding the pipeline to 642 open and committed shops, a 26% growth from the previous year.
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Introduction of a new shop prototype that reduces square footage by an average of 500 square feet, potentially lowering leasing and construction costs and improving operational efficiency.
Negative Points
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First quarter revenues decreased by approximately 6.0% to $111.2 million, primarily due to the short-term revenue impact of last year’s refranchising transactions.
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Same-store sales were slightly down by 0.2% compared to Q1 2023, indicating a marginal decline in store performance.
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The company reported a net loss of $2.8 million for the quarter, mainly driven by the accounting treatment of debt refinancing.
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Other operating expenses increased by 90 basis points compared to the previous year, largely due to increased brand fund spend.
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Despite efforts to improve margins, the company faces challenges in achieving significant same-store sales growth, with guidance suggesting low single-digit growth.
Q & A Highlights
Q: As we look at consumer behavior throughout the quarter, did you guys see any trends with comps sequentially? And then to add on to that, do you see any consumer shifts, different locations may be anything from a CBD location to a suburban store standpoint? A: (Bob Wright, CEO) – In January, we observed softer consumer behavior, likely due to weather and seasonality. February and March showed strengthening trends. We noticed a slight pullback in more infrequent customers, who are managing their budgets more tightly than before. This has led us to focus on enhancing our value offerings to maintain frequency among these customers.
: Could you give any updates on your desire to sell company units or the demand from others to purchase existing co-locations? A: (Bob Wright, CEO) – Our strategy remains consistent. We are refranchising selectively to catalyze growth. We’re pleased with our development efforts and continue to operate both company and franchise units in markets like Washington DC. We’re cautious but open to refranchising more locations.
Q: Regarding the franchise unit development, can you clarify the details behind the units in progress and the expected cadence of franchise unit openings this year? A: (Bob Wright, CEO) – We’re celebrating growth with new units and have streamlined our development process to less than a year from deal signing to opening. We expect a back-loaded opening schedule for 2023, with 30 units in various development stages for 2024 and an additional 10 units in early stages for 2024 or 2025.
Q: Can you discuss the impact of Easter on sales trends, especially given your exposure in CBD areas, and any changes in customer spend or average ticket? A: (Bob Wright, CEO) – The shift of Easter from one quarter to another had a minor impact. We focus more on broader quarterly trends. There’s some evidence of customers managing budgets by choosing different menu sizes, but these shifts are not significant.
Q: Could you provide more details on the new 1800 square foot prototype and its impact on franchising efforts and site selection for new units? A: (Bob Wright, CEO) – The new prototype, which reduces square footage and potentially costs, is exciting for franchisees. It offers flexibility in fitting into various real estate options, enhancing our ability to expand and adapt to different market needs. This flexibility is proving to be a significant advantage in our franchising efforts.
Q: How are you planning to deliver and communicate value to in-shop customers, particularly those who are not digital channel customers? A: (Bob Wright, CEO) – We aim to enhance value for infrequent customers who may be managing tighter budgets. This involves both digital advertising and in-shop promotions to ensure that when these customers visit, they see value options that encourage return visits and maintain frequency.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
