Potbelly Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 4, 2023

There are 6 speakers on the call.

Operator

Good afternoon, everyone, and welcome to Potbelly Corporation's First Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Ms.

Operator

Adia Dixon, Potbelly's Senior Vice President and Chief Legal Officer. Please go ahead.

Speaker 1

Good afternoon, everyone, and welcome to our Q1 2023 earnings call. Our presenters today are Bob Wright, our President and Chief Executive Officer and Steve Sirilis, our Senior Vice President and Chief Financial Officer. Please note that we have provided a set of PowerPoint slides that will accompany our prepared remarks. You may access these slides on the Investor Relations section of our website. After our prepared remarks, we'll open the call for your questions.

Speaker 1

I'd like to call your attention to our cautionary statements on Slide 2 And note that certain comments made in this call will contain forward looking statements regarding future events or the future financial performance of the company. Any such statements, Including our outlook for 2023 or any other future periods should be considered forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward looking statements are not guarantees of future performance nor should they be relied upon as representing management's views as of any subsequent date. Forward looking statements involve significant risks and uncertainties, and events or results could differ materially from those presented due to a number of risks and uncertainties. Additional detailed information concerning these risks regarding our business And the factors that could cause actual results to differ materially from the forward looking statements and other information that will be given today can be found in our Form 10 ks under the headings Risk Factors and MD and A and in our subsequent filings with the Securities and Exchange Commission, which are available at sec.gov.

Speaker 1

During the call, there will also be a discussion of some items that do not Conform to U. S. Generally Accepted Accounting Principles or GAAP. Reconciliations of these non GAAP measures to their most directly comparable GAAP measures are included in the appendix to the investor presentation and press release issued this afternoon, both of which are available in the Investors tab of our website. I'll now turn the call over to Bob.

Speaker 2

Thank you, Adia. Good afternoon and thank you for joining our call today. Before we get into this quarter's results, I would like to begin by thanking our Potbelly team for their hard work and commitment to our unique brand. Potbelly employees are instrumental in providing a differentiated and welcoming environment for each of our customers. I'm so proud of our team.

Speaker 2

From our frontline associates To our support center employees, it is the continued efforts of our people that drove our success in the period. I will begin on Slide 3 with a high level overview of the Q1. I'm particularly proud of our results despite continued economic We enjoyed strength in traffic across our portfolio, notably exceeding pre pandemic traffic levels Traffic was supported by further recovery in our CBD shops, which continue to serve as a tailwind for our business. Strength in airport shops as well as strong engagement with our digital marketing promotions. Marketing was a major contributor to our traffic and sales Notably, the implementation of targeted digital advertising, special offerings and growth in our Perks loyalty program.

Speaker 2

We also enjoyed success with our limited time only menu items, digital only promotions this quarter, which I will speak to in greater detail shortly. We continue to make progress and achieve important milestones towards our franchise focused development goals in the quarter with agreements for 30 new shops. We also signed our first refranchising deal for 8 shops in New York City. In line with our previously stated refranchising Our New York City agreement was accompanied by a 13 shop SDAA or shop development area agreement to further establish our brand in the market. We're very excited by our franchise momentum to date as well as the health of our pipeline.

Speaker 2

We also continue to see the benefits of an ever sharper operational focus on the fundamentals, which resulted in notable improvement in associate and manager staffing and turnover, leading to increased throughput and customer satisfaction scores. Finally, we expanded PDK or Easily handle the growing digital business coming through our 2nd production line and improvements in our customer experiences driven by orders ready on time, accuracy and food quality scores. Additionally, we were able to capture labor efficiency with these improvements. And finally, I'd like to turn to Slide 4 to provide a high level overview of our financial successes in the quarter. Performance metrics included quarterly revenue was $118,300,000 and AUVs were 23 $1,881 driven by robust customer traffic in the period.

Speaker 2

Shop level margins for the quarter grew to 12 percent, a 700 basis point improvement year over year. Same store sales grew by 22.2%, driven by aforementioned exceptional strength in traffic. And lastly, we reported adjusted EBITDA for the quarter of $5,600,000 an increase of $7,800,000 year over year. Turning to Slide 5, I'll walk you through our digital marketing successes for the Q1. We enjoyed another outstanding quarter of performance with our digital efforts.

Speaker 2

39% of sales were attributed to digital channels, meaningfully contributing to our AUV and revenue expansion in the period. Additionally, our strategic marketing focus continued to support traffic driven sales growth. In the period, we launched our digital only Meatball Madness campaign, as well as fan favorite LTOs, including the Cubano sandwich and our Red Velvet Cookie. We were excited to announce the return of the Potbelly underground menu And promoted 3 unique meatball sandwiches you can't find on a regular menu. The promotion drove customer excitement and Perks engagement supported traffic growth.

Speaker 2

Overall, our marketing and LTOs continue to drive traffic, value and excitement for our customers. And we remain keenly focused on

Speaker 3

Thank you, Bob. Good afternoon, everyone. Please turn to Slide 6 of the presentation, where I highlight our AUVs and same store sales momentum over the trailing 4 quarters. Our AUVs of 23 $1,881 and same store sales of 22.2 percent improved significantly compared to the Q1 of 2022. While the industry enjoyed the benefits of favorable weather in Q1, our performance was primarily the result of strong customer demand, continued recovery across our shop portfolio, particularly within CBD and airport locations, operations execution and the success of our enhanced marketing programs.

Speaker 3

The majority of our same store sales was attributable to traffic expansion versus average check increases. Our performance improved Each period of quarter 1 and continue to build through April. Preliminarily, our period 4 performance registered weekly AUVs of around 25 $900 and same store sales were approximately 15%, reinforcing our customers' continued demand for our brand. Turning to Slide 7, I'll walk you through our income statement and specific financial metrics for the Q1 compared to the prior year period. Our results met or surpassed Key previously stated guidance metrics for the quarter.

Speaker 3

During the Q1, we reached total revenues of $118,300,000 a 20% increase We reported a net loss of $1,300,000 for the quarter, a $6,600,000 improvement versus the prior year period. Adjusted net income was $600,000 compared to an adjusted net loss of $4,400,000 in the Q1 of 2022. 1st quarter adjusted EBITDA was 5,600,000 dollars, a significant increase over the prior year by $7,800,000 with a margin that was 700 basis points higher. The increase in adjusted EBITDA resulted from top line leverage, continued improvement in labor and input costs and disciplined G and A spending. G and A remained below our target of approximately 9% of total revenues at 8.4% on $10,000,000 of This is a 30 basis point improvement over last year as we thoughtfully invest in supporting our growth, while also benefiting From top line leverage.

Speaker 3

Food, beverage and packaging costs or F and P were $32,600,000 or 27.9 percent of shop A 10 basis point improvement versus a year ago in a highly inflationary environment. Proteins, bread and paper plastic product We saw the largest input cost increases. Labor expenses were $36,500,000 or 31.2 percent of sales, a 290 basis point benefit compared to the year ago period. This improvement is attributed to top line leverage along with normalize as we move through the year. Other operating expenses were $20,500,000 or 17.5 Percent of sales, a 110 basis point improvement versus last year.

Speaker 3

The year over year dollar increases due to expenses that are variable with sales, such as 3rd party delivery and credit card fees were offset by sales leverage. Top level margins were 12.0%, an increase of 700 basis points versus the year ago period, driven by top line leverage as previously mentioned, cost discipline and abating inflationary pressures. This continued margin expansion is encouraging. As you recall, our previously implemented price increases were designed to help mitigate the impact of outsized inflation last year. We have seen further signs of inflation improvement as the Q1 was slightly favorable to our expectations.

Speaker 3

As a result, we are maintaining our stance on implementing only modest price increases enough to just offset any rise in input costs, which we still see in the mid single digits. This discipline is in service to our focus on keeping traffic by providing a superior price to quality value relationship to our customers. Now turning to Slide I'd like to discuss the breakdown of sales by the various channels, in shop, digital and drive thru. Our digital business increased its Contribution to total AUVs now accounting for 39%. Continued strength in our digital channels is a direct result of our improved app interface dedicated efforts to increase FERC's loyalty program member acquisition and engagement through targeted offerings and Additionally, we saw an uptick in delivery sales this quarter, which also contributed to the digital channel step up.

Speaker 3

While we are pleased with digital's performance and view it to be a key part of our growth, we remain focused on keeping a high quality differentiated in shop dining experience for our customers. I'll conclude on Slide 9 with our outlook for the Q2 and the full year 2023. For the Q2, we are expecting average unit volumes between $25,250 $25,750 to reflect 2nd quarter seasonal tailwinds, same store sales Between 10.0 percent 12.0 percent, shop level margin between 12.7% and 14.2 percent and adjusted EBITDA between $6,000,000 $7,000,000

Speaker 2

on our franchise growth acceleration initiative. New shop development continues to escalate as we further emphasize our franchise focus And build the organization's capability to support growth. We have a highly active and fluid pipeline of qualified Potbelly franchisee candidates From initial leads all the way to our regularly scheduled discovery days. We continue to invest in our franchise lead generation, Sales team and franchising systems. We've made great progress with our franchising efforts, Signing agreements for an additional 30 shops in the Q1 with 81 new shop commitments signed since the first franchising announcement finalized in 2022.

Speaker 2

In addition to these 81 new shop commitments, we were excited to announce our first refranchising deal of 8 shops in New York City. Further, we have deepened our presence in Florida and subsequent quarter end announced an agreement for 16 new shops in Broward County and Gainesville. This increased penetration in Florida serves as another proof point to the substantial white space for additional growth that is still available to potential franchisees across the U. S. I'm highly encouraged by our progress and look forward to sharing more updates This year as more SDAA's or shop development area agreements are finalized.

Speaker 2

I'll conclude today on Slide 11, I'd like to remind you of our 2024 growth targets. Our strong brand value, marketing expansion And have at times paced above our goal of $1,300,000 in AUVs. Our shop level margin target remains 16%, which will be driven by portfolio wide AUV growth leverage, operational efficiencies and cost discipline actions, some of which are already in motion. And lastly, we are working to achieve a franchise unit growth rate of at least 10% through our shop development area agreements. As we accelerate towards our long term target of 2,000 shops and our shift to a primarily franchise owned system, I remain excited by and confident in our progress and pipeline thus far.

Speaker 2

Hot Belly's unique brand and shop experience With proven business fundamentals and an experienced team is the foundation of our ability to achieve these goals, and our pipeline of franchisees Accurately reflects just that. We also have plans to refranchise approximately 25% of our company owned units in conjunction with certain SDAA's in those refranchise markets. As I mentioned earlier, we look forward to announcing new re Franchise deals and new development deals as they are finalized. To summarize, the Q1 was an excellent kickoff to 2023 with strong momentum, notable traffic growth, healthy return on investment in our marketing programs, continued operational improvements and development success. We look forward to sharing our journey with all of you as we progress further into 2023.

Speaker 2

With that, I'll now turn the call back over to the operator to address your questions. Operator?

Operator

We will now begin the question and answer Our first question comes from Matt Curtis with William Blair. Please go ahead.

Speaker 4

Hi, good afternoon. Guys, I'd like to start off with maybe a bigger picture question. I was wondering if you could talk about the competitive landscape right now. I mean, we've just got out of that period where there have been a lot of closures across the restaurant industry. And specifically, I guess, I'm wondering how your menu revamp and other things you've done like the new tech stack has maybe helped you reposition yourselves

Speaker 2

Yes. Thanks, Matt. It is a I think depending on the data that you look at, there's been a phrase I've been using is a bit of a generational reset in the number of restaurants. The pandemic was very hard on a lot of restaurant operators and unfortunately, even a lot of the independents. So the share gains that we talk about and the emphasis that you heard us put on traffic It's something that we see as really important in an environment like this for us to be able to not only do that in Q1 as well as we have, but continue to do that throughout The coming future.

Speaker 2

So some things that we believe are working really hard for us, as you mentioned 2 of them, the menu Reset the value relationship that we had with the customer ahead of the hyperinflation over the last couple of years. And it allowed us To be very judicious with the price increases that we took to try to offset that inflation, but not try to use those price increases We also implemented a lot of the innovation that we've talked about in the last two quarters, whether it's the new products that we've rolled out, the LTOs. We're very excited about The return of the underground menu

Speaker 3

and then of

Speaker 2

course the promotional activity that supports it. The tech stack has been working well for us on a number of fronts, The app and the web, with 39% of our business coming through those digital channels, clearly our customers are voting with their wallets And using those channels to access the brand in ways that they never did before to see that kind of growth in mix even while growing the top line the way we have been over the last 4, 5 quarters, we're very excited about it. In addition to that digital access in the e commerce solutions, The digital advertising efforts and the promotional activity through our Perks loyalty program and direct promotional activity through our broader digital channels Working really hard for us. So we think it's important that we have high expectations for maintaining traffic growth for Potbelly and doing so at a rate that's faster than fast casual competition. And we think because we've still got room to Invest in similar channels again through the digital channels as well as the menu innovation that's ahead of us, the sharpening of our operations that we talked about in our prepared remarks, And then finally, the unit growth that gives us broader penetration in the marketplace, there's reason for us to be optimistic about the future.

Speaker 4

Okay, great. Maybe sticking with that theme, I mean, now that you're getting a little bit more time under your belt after having made The bulk of those investments in the digital channels. Do you believe But this has really increased your visibility on sales going forward? Or is this something you're still Basically getting comfortable with and still a work in progress.

Speaker 2

Well, I mean, I think we're comfortable with the guidance We provided on sales going forward. And I think as we continue to get more clear on where we'll The remainder of this year, we'll continue to sharpen that guidance. You saw us tighten our guidance range on our sales volume this quarter versus last quarter, for example. So I do believe we're getting But we've talked about these investments in the past where we are Frankly, we're real sticklers for what the returns are on the investments that we make. The methodology We use whether it's the digital channels that we're investing in or PDK that we invest in or other investments that we're making in the shops So our people, we're looking for that pre post net of control lift in volume or profitability That ensures that we're getting a return on that investment.

Speaker 2

So an example, if you look at our less than 3% Of our top line sales, it's invested in digital advertising. We've been moving that very steadily, but very slowly over the We believe that if you get to the industry standard of 4% or 5% And we can continue to prove the returns that we've been proving to ourselves as we've taken those steps in digital advertising investments, well We think there's some sure, there's some predictability in how much more sales we can drive with these assets that we have in place. And I want you to know, we're not resting on our laurels when it comes to the digital channels either. This is a perpetual development pipeline Under Jeff Douglas, our CIO and David Daniels, our CMO partnering together on the digital development path in what comes next In those digital channels, so that they can work harder for us too. So, I do think that that diligence around testing gives us Some pretty clear insight at least what our internal expectations are on growth.

Speaker 4

Okay, great. Glad to hear that. I guess shifting gears and looking at the labor environment for a little while, it seems like you're seeing additional improvement there. I mean, Dave, you mentioned some moderating wage pressures that you expect to continue for the rest of the year. But are you actually seeing better application flow?

Speaker 4

I mean, is it easier is it getting easier for you to actually source new employees?

Speaker 2

Yes. I think Steve and I can tag team on that, Matt, I'll start with the quality and the quantity of staffing. We're really enjoying much, much better days than we were Certainly through the pandemic and even last year. So our applicant flow is stronger. Our turnover is still below the industry standard.

Speaker 2

We've been able to fully staff our shops and we as we've told you before, we staff for So we're staffing against what we believe summer sales will be and making sure that we're prepared to handle that. I'm very pleased with Adam Noyes' work in this area at the management level, the associate level, And again, with the quality of our associates, there's also investments being made in their training. We've shared many times now, I think about 2 or 3 quarters about the digital tipping and its benefit to our associates and our shift leads. So on a number of fronts, we're just really pleased with that. This is a very important part of the Potbelly experience.

Speaker 2

Whether you're talking about value friendliness, the brand differentiation that comes to life, we love to talk about our digital channels, but the reality is more than half of our customers still experiencing Potbelly in shop. And so how we bring that to life with our associates is critical to us. We're really happy with where we I think it's stable going forward.

Speaker 4

Okay.

Speaker 3

Yes. I'll just add, Matt, To kind of sharpen the point of what we're seeing and what we expect to see, yes, for us, it looks like labor really kind of peaked early last year. And while the rates are still high relative to history, the increases in our labor rates have really moderated. And we came in better than we thought we would for the quarter. That certainly helped us in terms of margins.

Speaker 3

And As we look ahead, for the full year, we still expect to be kind of in the mid single digits on labor inflation, but it's kind of trending toward the lower side Of that, as we look ahead into part of the way through Q2 and as we can see down into the back half of the year. So For all the reasons Bob described, we have some pretty good line of sight into things and it's certainly a different world than it was about a year ago for us.

Speaker 4

Okay, great. So with turnover, I guess, trending down and staffing also ramping up as you get In advance of the seasonally higher volumes you typically see during the summer, I mean, what improvement do you expect to see perhaps on throughput and how much boost can that give to your top line?

Speaker 2

Yes. We haven't quantified that and we won't offer that publicly, but I can tell you we are very pleased with the efforts And the results that we're getting in throughput. We measure that the way we measure it anyway is entrees per half hour. And we're measuring that daily. We know where the records are in each of our shops.

Speaker 2

We know where we can unlock more. In fact, the ops team with Both company and franchise operators all the way to the GM level were doing throughput workshops earlier this week to Sharpen our focus on throughput. It's a big part of getting the most labor leverage that we can. And the more business that we have, the more we can Stretch those lines and get the throughput that we're looking for back to some record levels in many shops. We did indicate and this is a small Because we only have about 40 PDKs that have been installed of what we discussed previously would be about 100 by the end of this year.

Speaker 2

But in those capacity constrained shops, we're seeing another gear of throughput unlock With PDK, because PDK includes a digital ordering tablet that allows us to go deeper into line with our traditional customers. We've got lines back to the doors the way they were with Potbelly before the pandemic. And that really creates a lot of efficiency and throughput. And We're very, very pleased with what that means for those PDK shops especially. I won't say high volume.

Speaker 2

It's capacity constrained. You can have a mid volume shop that's got Significant amount of lunch business or certain days of the week where dinner is very, very strong. And that In line order taker solution is helping us a great deal.

Speaker 3

Yes. And Matt, Bob mentioned earlier In their prepared remarks about our traffic versus 2019, right? We look at traffic a couple of ways, but let's we often think about it on an entree basis. I mean, this is the In a row where we've seen higher average unit entrees than we had in 2019. So the capacity for us to kind of handle that volume is in place and as Bob described with things like With PDK, we get better and better at it.

Speaker 3

And as we expect to drive even more traffic, that's part of our strategy. We want to make sure that we've got the productivity foundation in place to handle that throughput.

Speaker 4

Okay. And it does sound like you're A wide variety of benefits at the locations that have PDK, but am I correct in saying that you're not prepared to share Any quantitative metrics around it just yet?

Speaker 2

Not quite yet. The areas that I spoke about in the prepared remarks are all quantitatively, again, pre post meta control, Better than the control group and with a measure of Difference that we're really comfortable that PDK is the variable that's making the difference and that is in orders ready on time, order accuracy, it's actually affecting Quality of food scores because of those things, we're not only ready on time, but we're not ready too early. It's The associate experience in those PBK shops is significantly different and improved. Not only are they enjoying a much easier Time of managing all that digital business, the system feeds those orders to our associates in the proper order. And it's Smart enough to know that a very large order needs to get fed to them sooner than a small order even if they both need to be delivered at the same time.

Speaker 2

So it's doing all of that sorting and all of that calculation. It has also given us the chance to give our customers a little more clarity if there's a Massive amount of digital business going through the back line and it's happening in a lot of shops, it will give the customer variable Response to their estimated order ready on time and how long that will take. So the customer has a very good sense of where they are. It is because of the efficiency on the back line. We have successfully removed some labor out of those PDK It makes the return on investment very solid for us.

Speaker 2

We haven't released that number yet, but we will in the future. And then as I said, those Capacity constrained shops are seeing provable lift in overall traffic coming through the frontline, which is very exciting for us.

Speaker 4

Okay. Sounds great. And then lastly from me, I guess, could we talk about pricing for a moment? It sounds based on I think Steve you said that or indicated essentially that you're open to taking pricing if necessary Through the balance of the year, so A, do you have any concrete plans to take price later this year? If so, how much?

Speaker 4

And basically, could you just walk us through what your price benefit by quarter is going to look like for the remainder of 2023?

Speaker 3

Yes, sure. Look, I think again, like I mentioned in my prior comment, it's a different year this year than it was last year as we've seen inflation come We still want to make sure that we stick to our strategy of only taking price as necessary to outrun costs. And so as we've seen the cost Take price overall and have the flexibility to take it in the low single digits. And I would argue we'd be sort of on the low end of that As we've kind of seen inflation come in the way it has been. We did take one pricing action already this year At about 1.5%, and that's about how we see the year going, maybe even lower than that for us.

Speaker 3

And in terms of the price benefit, like I said, for the full year, we aim to be about where we see inflation going. So want to be close to 0 in terms of pricing benefit to offset inflation. We may be a little higher than that in first Quarter, because we have some carry forward from last year in terms of the price increases, but that Benefit will step down through the year as we then get, like I said, closer to kind

Speaker 4

of net neutral, maybe slightly positive overall. Okay. So basically, you would be all else equal, you would expect to exit the year with a very Low single digit number amount of price or effectively 0?

Speaker 3

Yes. Yes. In terms of benefit on the margin side, like I said, we just want to basically outrun the inflation. So pricings benefit To margin would be barely 0 to barely positive for the year.

Speaker 4

Okay, understood. Well, great. Thanks a lot guys and congratulations on

Operator

With that, I'd like to hand the call over to Lisa Fortuna of Alpha IR for a few additional questions. Lisa?

Speaker 5

Thank you, operator. As we have done in previous earnings calls, We have offered our investors the opportunity to complement William Blair's very thoughtful questions. First question, Do you expect to be readmitted to the Russell 2,000 Index?

Speaker 3

I'll take this. Yes. Listen, the performance that we've seen in the stock price in the last quarter, even in

Speaker 4

the prior two quarters, has

Speaker 3

really pushed up the market cap to a point where we from all indications, We expect to be readmitted into the Russell 2 ks. It's a welcome kind of event for us as we've been out of During COVID and our situation now in terms of what we've been able to understand the cutoff might be, Our market cap puts us well beyond that. So we're looking forward to kind of getting formal word on it, But it's a nice milestone for us as we continue to recover and grow out of COVID.

Speaker 5

Next question. Can you describe any efforts to gain access to non traditional locations such as airports?

Speaker 2

Yes. Thanks, Lisa. I think one of my prepared remarks was that we've been making investments Lead generation in our sales team and in the franchising systems that have been driving that. We've mentioned before that we really enjoy Some very high volumes in some of the airport locations that we're in. And we think that not just Airports, but nontraditionals in general hold a lot of promise.

Speaker 2

One of the great things about the Potbelly brand is we already Have great success in suburban locations, drive through locations, urban airports, in our CBDs of course. And so we feel that we've got the flexibility to go into a lot of these locations and non traditionals that we don't currently have presence And so, we have put some of our G and A where our mouth is here. I mentioned the sales team just in the last quarter. We've added A Director of Non traditional Sales who does this type of work, we've got another leader on our team who has Expanded their responsibilities and will be personally responsible for airports and other types of non traditionals that require RFPs. These are very sharp leaders experienced in the space and know how to put the Potbelly best foot forward.

Speaker 2

We've also added a traditional sales leader as well as some franchise recruitment support and sales specialist support. That's where that lead generation Vetting and Generation comes from. So nothing to announce today on non trad, but In addition to all of the traditional development work that we're doing, we actually think this is a very ripe area for additional unit growth for the brand.

Speaker 5

Thanks. And next question, can you provide more color on how you

Speaker 2

Yes, I'll kick that off and then we can kind of break it out for you a little bit. Look, I think this is similar to the question that Matt asked is, in a macro sense, in this space, Fast casual and restaurants in general, there are some macro tailwinds. There's been a lot of share donated with closed restaurants and our expectation internally It's to take advantage of that restaurant demand and drive the business. Ops is always essential. It's the middle pillar of our 5 pillar strategy To create experiences that bring customers back and that includes the speed, the throughput, taking advantage of those lines, whether we have our customers back in our shops.

Speaker 2

We're not at all unclear about how much leverage we see in the future in marketing. It's an investment in digital marketing. It's in the channels themselves. It's an investment in the e commerce of the web and the app And the frictionless experience we can keep expanding on for the customers and of course focus on value with our promotions and digital promotions. So Those are the drivers.

Speaker 2

I mean, we've been transparent about our strategy and what our strategy can do to drive that. We've offered guidance on where we think same store sales will be this quarter. We think we're still going to be in record territory for AUVs. And As we mentioned in the remarks, I know we said our 2024 goal would be $1,300,000 and there have been many times already we've been pacing at that number. So we look, top line growth and traffic driven growth is always the healthiest way to grow the And so rest assured we're focused on it.

Speaker 3

Yes, I would just add to that. We've been careful, right, with pricing. We just had the conversation with Matt about what we have for this year. We know that. We want to protect demand, so we think about that very carefully, which is why our price increases will be fairly modest this year.

Speaker 3

And secondly, we continue to increase not just our marketing activities, but our spend on marketing as we know our peers spend up to 4% As we know our peers spend up to 4% or 5% of their sales on marketing, we're not there yet, which is great because we're driving Record sales and continuing to drive traffic growth and taking share and still have More marketing dollars that we could spend as long as we continue to prove out their effectiveness. So that gives us a lot of confidence, Even in a bit of uncertainty as it relates to the economy, which we always have to be mindful of, but we feel like we've got some control over our destiny as it relates to being able to Help support traffic throughout the year.

Speaker 5

If you look at the Q1 EBITDA, adjusted EBITDA and second quarter guidance, should we double first half to get to the second half And therefore, kind of extrapolate on that for the full year expectations?

Speaker 3

Yes, I don't think it's quite that simple. Ultimately, as we Look at our performance throughout the year, quarter 1 typically is a lower volume quarter in So, we expect to be kind of following that seasonality curve a little more closely this year than we have in past years. So, We would expect our volumes to build throughout the year. As well, To remind folks, this quarter is also carrying a little bit more cost in terms of an additional payroll cycle, Bonus and those kinds of things, which are accrued for obviously, but kind of hit us harder in this quarter. And then As we think about some of the initiatives that we have in place to help improve shop margin even further And we work to expand shop margin.

Speaker 3

We expect the EBITDA profile to also change. So it's not quite as simple as just doing

Speaker 5

Thank you. That was the last submitted question. So I'll now turn the call back to Bob for closing comments.

Speaker 2

Yes. Thank you, Lisa, and thank you to Matt and our investors that submitted those questions. We appreciate it. Thank you all again for your time this afternoon. Hopefully, you hear from us.

Speaker 2

We remain very excited by the direction and the growth of our company this year, and we're highly confident in our ability to further execute against our goals and ultimately drive shareholder returns. We look forward to sharing our progress with you when we talk again soon. Thank you.

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Potbelly Q1 2023
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