Sign in

You're signed outSign in or to get full access.

PC

POTBELLY CORP (PBPB)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 delivered increased profitability despite softer sales: GAAP EPS $0.12 (+140% y/y), adjusted EPS $0.08 (+100% y/y), adjusted EBITDA $8.7M (+19% y/y), and shop-level margin expansion to 15.3% (+70 bps y/y) .
  • Revenue declined 4.7% y/y to $115.1M, primarily due to last year’s refranchising (26 shops sold since Q2 2023); franchise revenue rose 79% y/y on a 30% increase in franchised units .
  • Management raised FY2024 adjusted EBITDA guidance to $29.5–$30.5M (from $27.0–$30.0M) and introduced Q4 guidance (same-store sales -2.5% to -0.5%, adjusted EBITDA $7.0–$8.0M); new unit growth revised to 24–26 shops (from “at least 30”) due to hurricane-related delays .
  • Stock-relevant catalysts: a clear beat vs prior Q3 EBITDA guidance upper bound ($8.664M vs $8.0M), margin resilience amid value promotions, and tangible acceleration in franchise-led development toward the long-term path to 2,000 units .

What Went Well and What Went Wrong

What Went Well

  • Adjusted EBITDA grew 19% y/y to $8.7M on 70 bps shop margin expansion (15.3%), supported by commodity deflation and disciplined G&A; management emphasized execution of the five-pillar plan .
  • Digital strategy momentum: digital sales reached over 38% of shop sales, with mix shifting to Potbelly-owned channels and Perks cohorts showing higher frequency .
  • Development pipeline: 8 openings in Q3 and 32 additional franchise shop commitments signed (86 YTD), with confidence in accelerating growth into 2025; clear path to 2,000 units .

What Went Wrong

  • Total revenues fell 4.7% y/y to $115.1M, with company-operated shop sales down 6.4% due to the short-term impact of 2023 refranchising; same-store sales decreased 1.8% and traffic fell 3.8% .
  • AWS softened to $24,870 (-1.3% y/y), and other operating expenses rose 30 bps (18.3% of shop sales) reflecting brand fund spend; labor costs +20 bps y/y (29.1% of sales) due to higher employee group insurance .
  • FY2024 new unit growth lowered to 24–26 (from “at least 30”) after hurricanes in Florida delayed openings; guidance for Q4 comp growth remains negative to flat .

Financial Results

Quarterly Performance (Q1–Q3 2024)

MetricQ1 2024Q2 2024Q3 2024
Total Revenues ($USD Millions)$111.2 $119.7 $115.1
GAAP Diluted EPS ($)-$0.09 $1.13 $0.12
Adjusted Diluted EPS ($)$0.01 $0.08 $0.08
Adjusted EBITDA ($USD Millions)$5.68 $8.52 $8.66
Shop-Level Profit Margin (%)13.5% 15.7% 15.3%
Company-Operated Same-Store Sales (%)-0.2% +0.4% -1.8%
Average Weekly Sales (AWS) ($)$24,250 $26,110 $24,870
System-Wide Sales ($USD Millions)$134.2 $142.3 $139.2

Revenue Breakdown

Metric ($USD Millions)Q1 2024Q2 2024Q3 2024
Company-Operated Sandwich Shop Sales, net$107.6 $115.5 $110.8
Franchise Royalties, Fees & Rent Income$3.6 $4.2 $4.4
Total Revenues$111.2 $119.7 $115.1

Q3 Year-over-Year Comparison

MetricQ3 2023Q3 2024
Total Revenues ($USD Millions)$120.8 $115.1
GAAP Diluted EPS ($)$0.05 $0.12
Adjusted Diluted EPS ($)$0.04 $0.08
Adjusted EBITDA ($USD Millions)$7.28 $8.66
Shop-Level Profit Margin (%)14.6% 15.3%
Company-Operated Same-Store Sales (%)8.0% -1.8%
AWS ($)$25,190 $24,870

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Same Store Sales % GrowthFY 2024-1.5% to +0.5% -1.2% to -0.5% Lowered
Adjusted EBITDA ($)FY 2024$27.0M to $30.0M $29.5M to $30.5M Raised
New Unit Growth (shops)FY 2024At least 30 24–26 Lowered
Same Store Sales % GrowthQ4 2024N/A-2.5% to -0.5% Introduced
Adjusted EBITDA ($)Q4 2024N/A$7.0M to $8.0M Introduced

Q3 Actual vs Prior Q2 Guidance

MetricPrior Q3 Guidance (from Q2)Q3 ActualResult
Same Store Sales % Growth-3.5% to -1.5% -1.8% In-line
Adjusted EBITDA ($)$6.5M to $8.0M $8.66M Beat (above upper bound)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Digital/PerksDigital channels key driver; strong customer satisfaction (Q2 PR) Digital >38% of sales; mix shift to owned channels; all Perks cohorts increased frequency Improving digital mix and engagement
Value Platform ($7.99)Screening value offerings; building everyday value (Q2 PR) $7.99 Everyday Value Combo rolled out; higher value perception and likelihood to return Scaled value, balanced with margins
Menu Innovation & BeveragesOngoing menu innovation (Q2 PR) New pulled pork core menu items, sauces/toppings; Craft Refreshers rolled out systemwide Expanded menu breadth
Costs & Margins13th consecutive y/y shop margin expansion (Q2 PR) Food/packaging 26.6% (-120 bps y/y); shop margin +70 bps y/y to 15.3% Margin resilience on deflation and execution
Refranchising & Franchise GrowthRefranchising used as a catalyst in 2023; building commitments (Q2 PR) Minimal refranchising in 2024 (likely one shop); focus on new-market franchise sales Transition to capital-light growth
Unit Development Cadence9 YTD shops through Aug 8; 54 commitments YTD (Q2 PR) 8 openings in Q3; 86 commitments YTD; expect 9–11 in Q4; hurricanes delayed some FL openings Accelerating, with short-term weather impact
Pricing & MixNot detailed in PRQ3 gross price ~4.4%; traffic -3.8%; check +2%; carry ~3.5% gross price into Q4 Pricing steady; traffic softness managed
Marketing SpendPlan-driven increases; testing approach (prior context)~3% of sales; “dry powder” remains; will escalate with measured test-and-learn Measured ramp later

Management Commentary

  • “Our third quarter results are a showcase of our 5-pillar strategic plan working... we achieved a 70-basis point year-over-year improvement in our shop profit margins; metered our G&A spend to deliver EBITDA growth; and opened eight new shops... a clear path to 2,000 units in the US.” — Bob Wright, CEO .
  • “During the quarter, our digital business represented over 38% of our total shop sales... every frequency cohort of customers in our Perks loyalty program saw increased frequency.” — Bob Wright .
  • “Revenues in the third quarter were $115.1 million... franchise revenue of $4.4 million, up 79%... shop level margin expansion of 70 basis points to 15.3%... adjusted EBITDA was $8.7 million, up 19% y/y.” — Steve Cirulis, CFO .
  • “We expect to open 9 to 11 total shops in Q4, resulting in... 24 to 26 shops for the year... record number of franchise shops representing ~22% of the system.” — Bob Wright .

Q&A Highlights

  • Comps cadence and drivers: early quarter impacted by July 4, Hurricane Beryl, DNC; momentum improved in P9 and carried into Q4. Q3 same-store sales -1.8% driven by traffic -3.8%, offset by +2% average check and ~4.4% pricing; ~3.5% gross price expected in Q4 .
  • Development outlook: despite hurricane delays, 2024 openings accelerate quarter-over-quarter; leases already signed for more 2025 locations than total 2024 openings, reinforcing confidence in double-digit unit growth trajectory over time (specific 2025 guidance forthcoming) .
  • Refranchising stance: no “need” to refranchise; expect muted activity versus 2023 as pipeline focuses on new-market franchise development .
  • Value strategy vs industry discounting: Potbelly avoids deep discounting of core menu to protect brand and margins; leverages everyday value (Pick-Your-Pair, meal deals, $7.99 combos) and targeted Perks promotions .
  • Prototype evolution: standard ~1,800 sq ft build improves occupancy leverage and operational flow (digital pickup, layout, fixtures), performing well out of the gate .
  • Marketing: spend ~3%, with measured escalation via pre-post testing; segmentation and A/B testing underpin Perks-driven frequency lift .

Estimates Context

  • Wall Street consensus (S&P Global) EPS, revenue, and EBITDA estimates were unavailable at the time of this analysis due to SPGI request limits; therefore, direct comparisons to street expectations cannot be provided. Values retrieved from S&P Global were unavailable at time of request.
  • As a proxy for performance vs expectations, Q3 adjusted EBITDA of $8.66M exceeded the company’s prior Q3 guidance upper bound of $8.0M, while same-store sales landed within the guided range (-1.8% vs -3.5% to -1.5%) .

Key Takeaways for Investors

  • Potbelly delivered margin expansion and an EBITDA beat vs guidance even as comps softened, highlighting disciplined cost control and pricing power in a value-oriented environment .
  • The digital mix (>38%) and Perks-driven frequency gains provide a structural tailwind to engagement and traffic recovery into 2025 .
  • Franchise-led growth is accelerating (86 commitments YTD; 9–11 Q4 openings), with weather delays viewed as timing rather than thesis-breaking; refranchising activity remains muted in 2024 .
  • Menu and beverage innovations (pulled pork platform, sauces/toppings, Craft Refreshers) should support mix and visit frequency, with limited reliance on margin-dilutive deep discounts .
  • Watch traffic softness and consumer headwinds; management’s Q4 comp and EBITDA ranges embed caution while still implying sequential performance improvement .
  • Capital allocation: ongoing buybacks (29k shares in Q3; $0.9M cumulative repurchases YTD) and deleveraging (LT debt reduced) support equity value over time .
  • Near-term trading lens: a guidance raise for FY EBITDA and Q3 beat vs prior guidance can catalyze positive revisions; monitor Q4 execution on menu launches and comp trajectory as key sentiment drivers .

KPIs and Operating Metrics

KPIQ1 2024Q2 2024Q3 2024
Company-Operated Shops (end of period)345 345 345
Franchise Shops (end of period)82 84 90
System-Wide Shops (end of period)427 429 435
System-Wide Sales ($USD Millions)$134.2 $142.3 $139.2
Share Repurchases (quarter)N/A~86k shares; ~$0.7M (Q2 cumulative) ~29k shares; ~$0.23M (Q3)
Share Repurchases (YTD through Q3)N/A$19.3M authorization remaining 116k shares; ~$0.9M; $19.1M remaining

Segment/Revenue Composition Commentary

  • Company-operated sales decreased $7.6M (-6.4% y/y) due to the timing effects of 2023 refranchising, while franchise revenue rose $1.9M (+79.2% y/y) on a 30% increase in franchised units .
  • Franchise support, rent and marketing expenses increased to 2.4% of revenues in Q3 (from 1.3% y/y) as the system mix shifts toward franchised operations and brand fund spend increased .

Additional Relevant Press Releases (Q3 Window)

  • Pentagon shop opening (June 28 opening; July 16 ribbon cutting with proceeds to Tunnel to Towers): strengthens presence on DoD/military installations and aligns with franchise growth strategy .
All document-based facts and numbers are cited from SEC 8-Ks and the Q3 2024 earnings call transcript as indicated.