Summary of Potbelly (PBPB) FY Conference Call - June 04, 2025 Company Overview - Potbelly is a fast casual restaurant chain known for its sandwich-based menu, with a strong brand presence and customer loyalty [11][20][21] - The company has experienced significant growth and transformation since 2020, moving from a turnaround phase to a growth phase [23][72] Key Metrics and Financial Performance - As of Q1 2025, Potbelly had 444 open locations and 766 open and committed locations, including 103 franchise locations [22] - System sales growth of 34% over the past three years, with nearly 700 basis points of margin expansion at the shop level [27] - Digital sales now account for 42% of total business, up from 9% at the beginning of the pandemic [74] - Adjusted EBITDA increased from near zero to approximately $30 million last year [28] - The company aims to reach 2,000 units in the U.S., projecting system sales to exceed $3 billion at that scale [55][72] Strategic Initiatives - Potbelly's growth strategy is built on five pillars: great food, great value, great people, digital growth, and franchise expansion [29][30] - Menu innovation has been a key focus, with recent additions including new sandwiches and beverages that have resonated well with customers [33][35][74] - The company is replatforming its digital customer experience to enhance user engagement and streamline operations [41][43] Franchise Growth - Potbelly has a strong franchise development pipeline, with 322 committed locations not yet open and 70% of franchisees actively developing new units [46][50] - The franchise model is seen as a significant driver of future growth, with attractive unit-level economics and support for new franchisees [50][72] Market Position and Competitive Advantage - Potbelly has outperformed the fast casual industry in same-store sales and traffic over the last three quarters [59] - The company emphasizes a three-layered value approach, focusing on intrinsic value, everyday value, and promotional value to enhance customer experience [38][39] Future Outlook - The company maintains a positive outlook for continued growth, with guidance for low to mid-single-digit same-store sales growth and unit growth in the low double digits [70][72] - Potbelly is committed to leveraging its digital capabilities and franchise model to drive profitability and expand its market presence [72][76] Additional Insights - The management team has a clear focus on maintaining alignment across the organization regarding growth objectives and performance metrics [30] - Potbelly's unique brand cachet and customer loyalty are seen as critical assets for future expansion [20][21]

Financial Data and Key Metrics Changes - System-wide sales for Q1 2025 increased approximately 4.8% year over year to $140.7 million, with total revenue rising approximately 2.3% year over year to $113.7 million [20] - Adjusted EBITDA for Q1 was $5.5 million, representing 4.9% of total revenue, a 2.8% decrease year over year due to a prior year settlement payment [20][24] - Company-operated shop revenue increased approximately 1.3% year over year to $109 million, while franchise revenue surged approximately 30.8% year over year to $4.7 million [21] Business Line Data and Key Metrics Changes - Same store sales growth was 0.9% for the quarter, driven by a 1.1% increase in average check, partially offset by a 0.2% decrease in transactions [21] - Franchise units increased by 26%, contributing to the significant rise in franchise revenue [21] Market Data and Key Metrics Changes - Digital sales represented over 42% of total shop sales during Q1, an increase of approximately 200 basis points compared to the previous year [14] - The company expects to open at least six new shops in Q2 2025, with a total of at least 38 new shops anticipated for the year [16][27] Company Strategy and Development Direction - The company is focused on driving same store sales growth through menu innovation, digital investments, and disciplined cost management [10][19] - Plans include modernizing the shop footprint and accelerating unit openings through franchising efforts, aiming for a total of 2,000 units in the U.S. [16][29] - The introduction of new menu items, such as the prime rib steak sandwich and other innovative offerings, is part of the strategy to enhance customer appeal [11][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth plan despite potential pressures from tariffs and a challenging consumer environment [26] - The company anticipates same store sales growth of 1.5% to 2.5% for the full year 2025, with adjusted EBITDA projected at approximately $33 million to $34 million [27][30] Other Important Information - The company reported a slight net loss of $62,000 for the quarter, an improvement of $2.7 million over the prior year [24] - The company purchased approximately 117,000 shares of common stock for about $1.1 million during the first quarter [25] Q&A Session Summary Question: What is driving the outsized performance in same store sales? - Management attributed the performance to menu innovation, digital marketing efforts, and improved value offerings [32][34] Question: Can you provide insights on franchising initiatives and unit level economics? - Management noted strong interest from franchisees due to positive trends and unit level economics, despite macroeconomic uncertainties [39][40] Question: What are the trends in digital ordering and loyalty penetration? - Digital sales exceeded 42% of total sales, with ongoing investments in technology and consumer-facing digital assets to enhance customer experience [50][51] Question: What are the expectations for inflation and pricing for the rest of the year? - The company anticipates a full-year inflation rate of 2% to 3% for commodities, with pricing increases planned to align with input cost movements [60][63] Question: What is the status of the PDK rollout and its impact on operations? - The company is on track to retrofit half of its company shops with the new PDK system, which is expected to improve labor efficiency and throughput [68][70]