Potbelly reported Q4 earnings Thursday, including a same-store sales increase of 18.9% on the quarter and 18.5% on the year, driven by traffic, marketing and operational improvements, and recovery in its suburban, airport and business district locations.
During the company’s earnings call, CEO Bob Wright said weekly average unit volumes achieved a record $24,144 during Q4, as well as all-time quarterly and annual revenues of $120.2 million and $452 million, respectively. These sustained positive results come about two years after the company implemented a five-pillar strategy that includes re-establishing brand equity. It is worth noting that AUVs benefited from 13% pricing increases in 2022, however traffic for the chain also remains positive which has helped garner market share in the category.
“We use third-party information to understand how we’re performing on traffic versus other competitors and what we’ve seen is consistent separation in our traffic comps versus our competition’s traffic comps. So that means we’re taking share,” CFO Steve Cirulis said during the call.
Further, unit-level margins grew to 14.2% in Q4, from 11.2% in Q4 2021. Also, the fourth quarter performance marked the company’s third consecutive quarter of profitability, with net income of $2.7 million.
“We drove strong performance across our portfolio of shop types,” CEO Bob Wright said during the call. “The strong recovery of [Central Business District] and airport shops, with CBDs nearing pre-pandemic levels, has served as a traffic tailwind for the business and we expect to enjoy continued growth portfolio-wide in 2023.”
In addition to market-specific recovery, Potbelly has gained a tailwind from continued operational improvements, including a “multiunit management training” program aimed at reducing management turnover. The company has also added a scorecard program to measure general manager performance and has instituted an annual incentive to celebrate the best performers each year.
Additionally, the company continues to expand its Potbelly Digital Kitchen, which is now in 38 locations. The PDK was introduced last year to streamline all orders regardless of where they originate and is expected to be deployed to 100 locations by the end of this year. Wright said these units have generated better accuracy, speed and throughput and “very, very nice returns on the customer experience.”
“And here's the thing we're really enjoying; is it definitely is helping us with those more capacity-constrained shops,” he said. Because the PDK has created more efficiency, Potbelly estimates a labor savings of seven hours.
“So, we’ve got happier customers, more throughput, better customer experience and happier employees, as well as labor savings. We like this thing on pretty much all fronts,” Wright said.
The PDK supports Potbelly’s digital sales, which now represent a record 38% of the total sales mix, driven by continued investments in the company’s loyalty program, app and website, as well as targeted promotions through each of those channels. Wright said the company has been leveraging its loyalty program to better understand “check-level data," for instance.
“We ingest that every single day. We understand that relationship and how unique it is. We have different things that any one group of consumers would not see because it’s unique to those consumers that are part of our perks program,” Wright said. “We feed different frequency users different types of communication, different types of engagement and those on the higher end of the scale differently. And all of this is just getting started … We believe there remains tremendous potential to exploit additional marketing opportunities, and we expect these efforts to support traffic, further enhance engagement with our customers, and advance our unique brand position.”
Potbelly’s recent performance, Wright adds, has led to a “material growth” in potential franchisee leads. In late 2022, the company signed 51 new commitments and remains on track to achieve its 2024 growth targets – first introduced in 2021 – that include a franchise unit annual growth rate of at least 10% and a long-term target of 2,000 units systemwide. Potbelly currently includes approximately 384 locations in the U.S. and approximately 45 franchised shops.
Contact Alicia Kelso at [email protected]