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POTBELLY CORP (PBPB)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered profitable growth despite a 7.3% revenue decline from the 53rd week in 2023 and refranchising; GAAP EPS was $0.15 (+67% y/y) and adjusted EPS was $0.13 (+550% y/y), with adjusted EBITDA up 30% y/y to $9.7M .
  • The company beat prior Q4 guidance on comps (+0.3% actual vs -2.5% to -0.5% guided) and adjusted EBITDA ($9.7M actual vs $7.0M–$8.0M guided), aided by menu innovation, digital strength, and disciplined G&A; unit openings (8) came in below the guided 9–11 .
  • 2025 guidance introduced: same-store sales +1.5% to +2.5%, at least 38 new shops, and adjusted EBITDA $33M–$34M; Q1’25 comps guided to -1.5% to -0.5% with ~150bps adverse weather impact and adjusted EBITDA $3.5M–$4.5M .
  • Catalysts: continued menu innovation (pulled pork platform, proprietary sauces), 40% digital mix, and an incentive program to accelerate large-area franchise development; one-off legal accrual ($1.8M) and weather commentary were noted by management .

What Went Well and What Went Wrong

What Went Well

  • Adjusted EBITDA +30% y/y to $9.7M, with shop-level margin expansion to 16.0% (+30bps y/y) and G&A leverage; CFO noted adjusted EBITDA margin of 8.3% of revenue for Q4 .
  • Digital remained a core growth lever: ~40% of shop sales in Q4 (up ~100bps y/y), with investments in consumer-facing digital assets and data/analytics planned for 2025; CEO: “we believe continued investment in data and analytics…can make us more efficient and effective” .
  • Menu innovation resonated (slow-cooked pulled pork platform, sauces) with positive customer feedback; CEO: “customers have commented on the new pork sandwiches…specific reason to order from Potbelly” .

What Went Wrong

  • Total revenues fell 7.3% y/y to $116.6M, primarily from the non-recurring 53rd week in 2023 and refranchising; excluding those, total revenue was flat y/y .
  • Unit openings missed prior Q4 guidance (8 actual vs 9–11 guided), partly due to timing and development cadence .
  • One-time legal accrual of ~$1.8M for a Washington state class action increased G&A; CFO highlighted it as a unique item in the quarter .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Total Revenues ($USD Millions)$119.7 $115.1 $116.6
Company-Operated Shop Sales ($USD Millions)$115.5 $110.8 $112.3
Franchise Royalties, Fees & Rent ($USD Millions)$4.2 $4.4 $4.3
Adjusted EBITDA ($USD Millions)$8.5 $8.7 $9.7
Adjusted EBITDA Margin %7.1% 7.5% 8.3%
GAAP Diluted EPS ($)$1.13 $0.12 $0.15
Adjusted Diluted EPS ($)$0.08 $0.08 $0.13
Income from Operations Margin %3.4% 3.7% 2.1%
Shop-Level Profit Margin %15.7% 15.3% 16.0%

Segment breakdown:

SegmentQ2 2024Q3 2024Q4 2024
Company-Operated Shop Sales ($USD Millions)$115.5 $110.8 $112.3
Franchise Royalties, Fees & Rent ($USD Millions)$4.2 $4.4 $4.3

KPIs:

KPIQ2 2024Q3 2024Q4 2024
Average Weekly Sales (AWS) ($)$26,110 $24,870 $25,230
Company-Operated Same-Store Sales (%)+0.4% -1.8% +0.3%
System-Wide Sales ($USD Millions)$142.3 $139.2 $142.6
System-Wide Shops (End of Period)429 435 442

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/ActualChange
Same-Store Sales %Q4 2024-2.5% to -0.5% +0.3% actual Raised vs guidance (beat)
Adjusted EBITDA ($)Q4 2024$7.0M to $8.0M $9.7M actual Raised vs guidance (beat)
New Unit Openings (#)Q4 20249–11 8 actual Lower than guidance (miss)
Same-Store Sales %Q1 2025N/A-1.5% to -0.5% (incl. ~150bps weather) Introduced
Adjusted EBITDA ($)Q1 2025N/A$3.5M to $4.5M Introduced
Same-Store Sales %FY 2025N/A+1.5% to +2.5% Introduced
New Unit Growth (#)FY 2025N/A≥38 shops Introduced
Adjusted EBITDA ($)FY 2025N/A$33M to $34M Introduced

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Digital & LoyaltyDigital ~40% in Q2; mix shift to owned channels; Perks tiering and frequency lift Digital ~40% of sales; ongoing investment in consumer-facing digital and data/analytics Stable to improving
Menu Innovation$7.99 combo test and LTOs in Q2; pulled pork platform and proprietary sauces introduced in Q3 Continued traction with pork & sauces; beverage “Craft Refreshers” rollout benefits Expanding
Commodity/Labor/InflationCommodity deflation and labor optimization in Q2 2025 food inflation 2–3% expected; tariffs a watch; 60% commodities locked for year; labor ~2%–2.2% Manageable
Legal/Regulatory—~$1.8M legal accrual in Washington state class action One-off headwind
Unit Growth & StrategyFY24 openings momentum; pipeline visibility; refranchising deemphasized FY25 ≥38 openings baseline; addition of mid/high single-digit company shops in 2025; potential up to 20 company units annually starting 2026 Accelerating in FY25
Weather/MacroHurricanes impacted Q3; softer early Q3 comps ~150bps adverse weather impact in Q1’25; sequential comp improvement into March Transitory drag

Management Commentary

  • CEO: “We will drive comp sales growth through menu innovation and investments in our consumer-facing digital assets as well as data and analytics…accelerate unit growth…and exercise prudent cost controls” .
  • CEO: “Customers have commented on the new pork sandwiches…and the new sauces have delivered another level of flavor and customization” .
  • CFO: “Fourth quarter adjusted EBITDA was $9.7 million or 8.3% of total revenue…driven by improvement in shop level margin, strong franchise performance and disciplined G&A” .
  • CFO: “Same-store sales growth of negative 1.5% to negative 0.5% [Q1’25], which includes approximately 150 basis points impact due to weather…Adjusted EBITDA of $3.5 million to $4.5 million” .
  • CEO on development: “We already have 38 new shops in various stages of development for the year…we were excited to announce a program designed to incentivize [larger franchisees] to build more shops and to build them faster” .

Q&A Highlights

  • Weather impact: Management quantified ~150bps drag on Q1 comps across Midwest, Chicago, parts of Texas; underlying momentum positive excluding weather .
  • Unit opening cadence: Expect builds through Q2 and Q3, level in Q4; new units performing in line with system averages; costs mainly pressured by contractor rates regionally .
  • Menu pipeline: Additional innovations to be tested; aim to drive traffic without operational complexity; timing not disclosed for competitive reasons .
  • Inflation/tariffs: 2025 overall inflation ~2.2%; food 2–3%; 60% of commodity needs locked; labor ~2–2.2% .
  • Company shops: Mid-to-high single-digit company openings in 2025 (mostly backloaded), with potential up to 20 annually starting 2026 in strong Midwest/Texas markets .
  • G&A: Dollar G&A to rise modestly with growth investments but lever down on system-wide sales in 2025 .

Estimates Context

  • Attempted to retrieve S&P Global consensus for Q4 2024; data was unavailable due to API rate limits. As a result, formal comparisons to Wall Street consensus could not be provided (will update when accessible) [GetEstimates error].
  • Based on actuals and 2025 guidance, sell-side models may need to reflect: (1) stronger adjusted EBITDA trajectory (Q4 beat; FY25 $33M–$34M guide), (2) unit growth acceleration (≥38 shops in FY25), and (3) comp path including early-2025 weather normalization .

Key Takeaways for Investors

  • Profitability is improving: Q4 adjusted EBITDA +30% y/y to $9.7M with 16.0% shop-level margin; G&A leverage continues despite one-time legal accrual .
  • The top line is stabilizing when normalized: Excluding the 53rd week and refranchising, Q4 total revenue was flat y/y, highlighting underlying demand and franchise growth .
  • Growth engine is accelerating: FY25 guide of ≥38 openings, plus the 50/50 large-area developer program and selective company store development should drive scale and EBITDA .
  • Digital/loyalty remain structural drivers: 40% digital sales, with continued investments expected to increase frequency and reduce friction, supporting comps in 2025 .
  • Menu innovation is resonating: Pulled pork platform and proprietary sauces drive mix and customer relevance without adding ops complexity .
  • Near-term comp noise from weather should abate: Q1’25 guidance embeds ~150bps drag; sequential comp improvement into March noted by management .
  • Watch for one-offs vs underlying trends: Legal accrual and refranchising effects are largely behind; focus on normalized revenue and margin trajectory to gauge earnings power .