Q1 2020 Earnings Call

Thank you for standing by.

The conference operator, welcome to the Potbelly corporations first quarter 2020, <unk> earnings call.

The remainder all participants are in listen only mode and the conference is being recorded.

After the presentation, there will be an opportunity to ask questions.

He joined the question to you May Press Star then one.

She pad.

So do you need assistance during the conference call you may signal, an operator by pressing star and zero.

I would now like to turn the conference over to Matt Revord. Please go ahead.

Good afternoon, everyone and welcome to our first quarter earnings call.

We get started the like note that certain comments made in this call <unk> forward looking statements regarding future events that future financial performance of the company.

Any such statements.

<unk> for any other future periods.

We considered forward looking statements within the meaning of the private Securities Litigation Reform Act.

These forward looking statements are not guarantees of future performance, nor should they be relied upon dragon views isn't any subsequent date.

Forward looking statements involve significant risks and uncertainties events or results could differ materially I was presented to the number of risks and uncertainties.

Additional detailed information concerning these risks regarding our business the factors that could cause actual results could differ materially <unk> forward looking statements and other information they get into that.

Can be found her most recent report form 10-K under the headings risk factors and Mdna and in or subsequent filings with Securities Exchange Commission, which are available at MCC dotcom.

Presenters their Alan Johnson, our Chief Executive Officer, Steve Scherlis, Senior VP, Chief Financial Officer.

After our prepared remarks, well open the call for your questions.

I'll now turn the call over them.

Thank you Matt.

Good afternoon, everyone and thank you for joining us today.

Before we begin I would first like chocolate my sincere thanks to the first responders watching this crisis on the front lines.

Secondly, I want to express my gratitude and thanks to all of what barely employees.

Their unwavering dedication and commitment during this ever changing endemic is inspiring.

As the cousins situation or both.

Our number one.

Building on our turnaround momentum to ensuring the health and safety, our employees serving customers and communities.

Just endemic forced us to make very difficult decisions across all our shops and you know corporate office.

Changed all business.

While we close dining options in line with like minded the vast majority of our shops remain open with premise option.

It does shops, we continue to its yet to all stringent safety and quality project called.

I'm, making necessary adjustments to align with the mid you best practices.

This includes the use of gloves and mosques for our employees.

[laughter] each shop to check the temperature of all employees before they stop they shift.

Adequate spacing tables and off premise pick up areas.

In home TV procedure, and the future additional liquidity areas at the cash registers and very high traffic parts of the shop.

We want to our employees and customers to know that they can trust.

Beauty brand.

After them, both now and as we move into recovery.

Our second priority focused on taking the necessary steps to support and fortified our business.

Hi, this simple we're running the business with the conditions, we have not the conditions we had.

Weve taken an urgent impressive posture and that's crosses focused solely on the things we can control and the intent is to preserve cash.

We significantly streamlined cost structure, and then stop business to the luck realities of each market.

We adjusted our G., a night shop level labor and Cogs to these new realities.

All of these decisions where necessary and painful.

We temporarily closed 36 about shops.

Contemplating closing up to 100 shops Goodman.

We reduced unreasonable all executive some corporate office employees like 25% and all board the food compensation for the first walk between between.

We still are over one third of corporate employees, we suspended merit increases promotions bonuses and not for a one time match.

We pulled back on advertising and marketing spend.

We limited capital expenditure to maintenance and safety.

And had an immediate conversations with all landlords adopt April rent and continue to have active discussions adopt all leases.

We continue to work through scale inefficient laced and increased delivery cost brought on by the pandemic.

Oh this is different now.

Did you see in Naples premise channels pretty dominant.

The investments we made last year. She grew about digital type abilities approving crucial in this environment and will position us well during the recovery.

Customers can did your order book value through all happened websites as well as through all delivery partners go dash hub and the.

Digital what the strong growth area for us the full cobot 19 crisis.

And that growth amplified no.

Digital sales across all done that and pick up channels increased from 10.5% of shop revenue in general They agreed in 2019.

To 14.8% and the same period in Twentytwenty.

Since the second week of April of this year digital revenue is now 51.6 cents a shop so.

Accessibility is key to remaining competitive.

Customers can have sued delivered to their dual pick up they food show.

We'll have one of our employees, bringing the order so the call with on you could upside pickup.

The upside is a complement to our existing 65 drugs.

And is another say some contactless way to enjoy.

It is emblematic of our nimbleness.

The ability and continued focus on it on evolving customer needs.

We are excited Hubspot provides the same convenience in excess of the traditional drives me, but without you associated capital expense.

Well I read the safe, who shopped configuration limits, our ability to deploy drive throughs more broadly.

Another example of all another example of already customer focused innovation during the crisis is the launch of pop that country.

He took the team only 15 days from ideation to National launch this concept.

[noise] once daily Pantry started school.

As we saw demand in this environment for essential such as breed deli meat and cheese.

As stated orders continue you identified them on for additional options such as cookie dough to make a famous cookies hum.

Cookie, Doug now makes up 26% of golf and country mix.

Customers had baked over 73000 cookies.

In just two weeks.

Most of these innovations are not reflected in our Q1 numbers.

We are driving demand in other ways, meaning abuse.

I'd also like you see some of our new fund creates a social media campaigns, which received national attention.

He is a low cost wise to keep all brand relevance and top of mind at a time, where there's not much to smart about.

Well the pandemic 'cause change maybe things for US we remain confident that the strategic foundation, we were building prior to cope with 19 is as applicable in a recovery.

And beyond.

We ended Q4 2019 with nearly flat comparable same store sales.

We built accelerating momentum into 2020, as we posted a generally comps.

Positive to know hall consent.

Sebree comps or closer to 4.1%.

Those comps were ahead of budget injections.

We might make a habit of breaking out monthly comps, but we felt on this occasion is important to show we were on pace to record fourth straight quarter, a sequential same store sales improvement.

And all those positive quarterly comp.

The fourth quarter of 2016.

As we discussed last quarter.

We launched our gross orientation initiative project drawer test in early March you 52 shops across multiple markets.

We saw encouraging initial results from these tests, but unfortunately encountered the first positive cases of code that 19 needs test markets within only a few days of mortgage.

[laughter], coupled with the closure of dining rooms triggered our decision to formally pools. These tests as they were originally designed to be all encompassing across the customer experience.

Enhanced marketing and some in shopping experience elements Entrepreneurially co in the current environment.

They're all system components of these test however, there will still in place touches on you consolidated menu design that makes it easier for customers to find what they want.

We also continue to build on what works for us in Q4 in Q1.

Such as the move away from promotional messaging towards highlighting a delicious toasted sandwiches and fresh ingredients.

While sales in aggregate I'll still materially love that they're not free cousins 19 trajectory.

Recent week to week improvements are encouraging examples of the resiliency of all brand and all people.

And now I'm excited to announce pizza delivery.

Sure Office and Chief strategy Officer.

This is the plastic tonka, Steve just seen this role.

As he has extensive been proven track record of developing and executing growth strategies in the restaurant and retail spaces.

This includes senior positions with the Neera Mcdonald's and to get.

Either being with Potbelly for five months now previously sitting in a strategic planning financial and analytical consulting role.

His insights we instrumental in the design implementation about project or a test.

And he's leadership will be invaluable as we begin to navigate the realities of the coast Cobot 19 will.

I would also like to think.

Oh, VP and controller, who did an excellent job in the interim period and during such a crucial time for our business.

With that I would like to turn the call over to Steve who will walk us through a financial performance in the first quarter.

Steve.

Thanks, Alan and good afternoon, everyone before and again I want to express that I'm honored and excited to be appointed as CFO and Chief strategy Officer Potbelly.

Al mentioned I'm, no stranger to business turnarounds and transformation and look forward to helping potbelly navigate this critical time than the company's history.

Well the impact of this pandemic have certainly overshadowed our progress.

Believe this strategic framework put in place prior to covert 19, well continue to positively impact the business that's customers gradually return to our shops from stay at home circumstances.

I'll provide details on the quarter as a whole with additional context on how the pandemic changed our business and provide a look at what we are currently said.

As Alan mentioned prior to the Cobot 19 outbreak our business was unquestionably gaining strength in January and February.

State mandated dining room closures and instituted stay at home waters, a top sales decreased over 67.7% by the end of March.

We immediately went from a majority dine in business to one that was almost completely off premise.

Prior investments in digital and delivery partnerships, coupled with the dedication and innovation of our employees have resulted in consistent improvement in same store sales each week sense hitting negative 45.3% for the first week of late.

We are encouraged by the recent momentum, but still expect depressed sales for some time before we once again growth.

This abrupt impact of Cobot 19, clearly affected our Q1 results.

We finished the quarter with total revenues decreasing from 10.7% to $87.6 million.

The company operated same store sales declined by 10.1% when the first quarter.

Breaking down the same store sales our average check grew by 5.1%.

Offset by a traffic decline of 14.4%.

Our shop level profit margin for the first quarter was 5.3% of sandwich shop sales as compared to 13.1% in the prior year.

Our general and administrative expenses were approximately 10.7 million.

In the first quarter or 12.3% of total revenue.

Decrease of 70 basis points.

The decrease was the result of shop closures and lease exit payments in the first quarter last year.

Adjusted DNA, which excludes store closure costs restructuring costs and proxy related cost and which we believe the best indication of the core GNS expenses in our business was $9.4 million into first quarter or 10.7% of total revenue.

Which was flat on absolute dollar terms relative to last year.

We will continue to tightly manage and control our GNS expenses in light of the current environment.

Adjusted EBITDA was negative $4.2 million for the first quarter compared to a positive $3.9 million last year.

The decline was driven by lower sales from Cobot 19.

Cost of goods sold as a percentage of sandwich shop sales was 27.8% in the first quarter, an increase of 110 basis points, driven primarily by a shift in mix toward our biggs sized sandwiches combined with the shift away from fountain drinks and this is an example of customer behavior changes were so.

Thanks, that's mid March.

Further other operating expenses were 14.7% in the quarter, an increase of 220 basis points due primarily to third party delivery fees.

The quarter Labor was 35.0% an increase of roughly 210 basis points also driven by cobot 19 sales de leverage.

Challenges will persist over the next several months.

We will continue to control what we can control and we will continue to focus on protecting our balance sheet.

As we discussed our team moved immediately to radically just costs and preserve capital, but the spread of cobot 19.

We have been operating under an extremely conservative cash preservation position and don't see that changing for the foreseeable future.

As a cautionary measure we drew down our $40 million credit facility and are working toward a number of modifications to our credit agreement to reflect our operating reality is under cobot 19.

Cash management is paramount for us evaluating our cash position under multiple recovery scenarios enables us to appropriately balanced proactive and reactive action.

We feel comfortable with where things are moving and we'll continue to advance all opportunities available to us to further protect our balance sheet.

As we announced on our fourth quarter call. We opened three company operated shops in the first two months of 2020.

Which were carryover for my 2019 shop plant.

We temporarily closed 36 shops in the first quarter due to a lack of profitability under the crisis.

We are continuing to evaluate the profitability of our shops and are contemplating up to 100 permanent shop closures.

We will not build any new company operated shops in 2020.

We also continue to work through various new tax regulatory changes.

One that impacted our business in Q1 is an income tax benefit of $3.7 million driven by an anticipated tax refund associated with provisions of the cares Act.

It's also worth noting that we are closely working their supply chain partners and have not where do we currently foresee any significant or disruptions in our supply chain at this point.

Before I turn the call back over to Alan I'd like to discuss our guidance position.

As many of you know we went through our fiscal 2020 guidance in late March.

And until we have a better line of sight into what they recover it looks like we will continue to refrain from providing forward looking quantitative guidance.

Yeah, I'll pass things back over to Alan for his closing remarks.

Thanks, Steve.

As we prepare for the post kind of the 19 will.

There will still then to you about nuns.

We have hobby Golden girls on the things, we can control within all business.

We are acting with urgency to preserve cash protect all franchise and people to the best availabilities and finding innovative ways to grow present day opportunities.

We are constantly evaluating multiple scenarios of what the recovery will look like so can I said, she will be ready for success as the crosses wanes.

We will acknowledge that the consumer behavior will be different coming out of this endemic.

And we need to be prepaid to align all operations with the new realities.

We are shaping up has cobot 19 future by the means we are making right now.

And we will not allow this virus to determine all success.

I wish everyone health and safety.

As we continue to flatness vars and the nation.

That concludes our prepared remarks, and I'll now turn the call over to the operator, we'll keep an eye.

Thank you.

Well now begin the question answer session.

During the question to you May Press Star, then one or your telephone keypad you wash your tone acknowledging your request. If you are you have speakerphone. Please pick up your handset before pricing any Q.

But try your question. Please press Star then too well pause for a moment as colors join the queue.

Our first question comes from Josh along with Piper Sandler. Please go ahead.

Great. Thank you for taking my question I. Appreciate the time today wanted to see if we might be able to dig into some of that improvement you've seen from the lows.

You mentioned being down 45% now and then also the context or in the first week of May Oh.

Also in the context of a lot of the cost management you'd be able to do trying to get a sense of just what you think store level margins could look like at some of these depressed levels I imagine you have gone through and tried to.

Removal out of the cost or at least the just goes down but similar to peers I imagine those changes were occurring faster than you could probably make them. So now that we have a little bit of breathing room, perhaps and identified some different cost elements curious if you could provide some context and how we should be thinking about store level margins.

Here in the next quarter to just on a so that is depressed sales levels.

Hey, Josh Thanks for that Christian along so the.

As parts and all the the called stuff to Steve.

I mean, I think across the board in the first couple of weeks the impact was the same across almost all stores.

And as we mentioned in the comments yeah, you, so anyway from 60% to 70% dropped.

The board as you would imagine the the shops that really.

Got impacted the most would anything relating to an airport stool catering stool.

We have.

Three of those but nonetheless and CBD.

Locations.

A lot of which we have in Washington in Chicago, They were the ones that with the hardest hit.

And then as the sort of a number of this.

Incident started to be reported in other closed on got more serious.

But there was probably sort of three you'll see weeks with.

Oh, good around sort of the 60 to 70 naked the good news is that as.

The state requirements have been relaxed.

We can instantly see improvement. So for an example is in a state of Texas. We've got a lot of stores. They are the very sick and they start to true next we saw at least attentive steam quench improvement.

By contrast, what your company was experiencing it minus 40 thought they were at modest any thoughts.

It seems like piece so that's good news for.

The future trends when the daughter himself conduct.

Obviously stores lock that where we have university.

They all still struggling and actually two struggling until such time. This students return.

Hi, Steve would you like to maybe address the second quarter Drillships Christian please.

[noise] to shop level margin I mean, obviously.

As we.

Paul as Alan described there we immediately moved on on some of the big things that we could control right.

Normal thing Labor I think was a big for us.

Did we moved that pretty quickly although it didn't happen immediately as we are adjusting to this falling sales.

And there remains a little bit of inefficiency in the system right you have to have two people in the shop.

At all times, which may not be effective.

From from an analytical standpoint, but needs to be there from a practical standpoint as sales start to recover we would expect obviously to get more leverage and that cost or I should say that that Chuck level margin to increase we've got some things that are different now.

In that cost base that were not not as present before so for example, with the increase in the delivery business. Obviously, there's more delivery fees that that impact the shot margin and we will continue to keep an eye obviously.

Our our Cogs.

I think as we mentioned earlier in the call. We don't have Oh, we don't have a large concerned over those kinds of things as we had pretty good visibility into our supply chain for it for some time, but well continue to watch those those would cost as we continue to can move through the crisis.

And then just what the third part of your Christian.

Revolved around so those would the trends if you like on assisted by some of the initiatives that we took there's two ways to solve this problem would go to do both.

[noise] focus on the costs, but also focus on driving the topline and so.

With that.

Moving at the speed of across US, we launched two with you, but <unk>, which was mid April we launched curbside <unk> shops, we launched pantry in all of us shops and on the.

DSP.

And this week nationally we launched family meal deal.

Great. Thank for that a follow up or two in there. When you saw those improvements coming back do you attribute that to a lot of the work you've already done in terms of getting that branding and messaging in connection with the consumer and you did you mentioned in your comments Youve lean back or are pulled off some of the marketing which makes sense.

Because there's a lot of noise in the environment, but have you started to see those guests come back into that restaurant you anticipate does with the guest that you'd already built that relationship with is there a little bit of a new guests coming in there just any any sort of sense you have there and then I had a a follow up.

Yeah for sure I mean, I cannot imagine what the business with two o'clock had we not convinced it like we did in Q3 Q4 of last year I mean, as you pointed out the momentum that we had gaming leaving.

2019, with flat comp and yet you don't deliver in all but all case, a positive 4.1 in p. too.

By accident or I can point to specific initiatives that we started in the second hall from 2009 team. So I would say for the most called we it was a combination of customers that maybe we hadn't seen for a while the tend to its adjusted Q4, but certainly pitched up in Q.

Q1, and yeah, there were three parts to kind of what drives that the rock digital strategy with the way, but not yet, making those investments adding that functionality.

Having the right partnerships. If you recall in 2019, what are the southern people could find to put the December John Grubhub and outdoor dish.

Now on the eat.

And.

We also changed how we operated.

Yeah, I did pickup shelves in.

Every single one the both shops and we also made some improvements to how we operate CIT and executed inside the shop with more consistency. So I think a lot of that brought back.

Existing customers and for sure and new customers.

Great. Thank you for that in the last one for me with wanting to see if we could dig into some of the cash management scenarios or even after just at a high level I'm sure you're you're looking through in testing every aspect of the business, but having dropped drawn down the revolver and having had some time now to work with the cost if you could provide some sort of visibility.

The cash burn.

At the store level and or a levels at which you think you kind of breakeven at both the store level. The enterprise level that would be helpful from a modeling perspective.

Sure sure Hey, I appreciate the question I think what's what's probably most important here is yeah. We as soon as they saw the business falling as rapidly as we did we took those immediate actions that outlined and that helped us drop our cash burn rate by 60%.

And that's from.

A mid March burden rate, you know, where where things were heading south quickly to now so I think that's important I understand now we obviously.

Don't have a perfectly clear crystal ball, so it's really difficult for us to say ultimately what the recovery will look like and then yeah. What the cash position will be a week. We you know we're working under scenarios you know a V shaped recovery or w. shaped recovery and l. shaped recovery.

And we continue to learn more about our business everyday which helps us get more visibility those things I will say I will say that's you know you know we're comfortable with where we are but we're cautious right as we as we think about how things might have all.

Pulling down the revolver, obviously helps helps us <unk> as we get through you know 2020, and and yeah, we expect to be able to do that with adequate liquidity, but again, it's it's hard to tell given.

Given the way this this virus while the ball.

Understood. Thank you.

Once again to join the question Q You May Press Star then one on your telephone keypad you most your tone and knowledge in Europe Quest.

To withdraw your question. Please press Star then too.

Our next question comes from Gregory Francfort with Bank of America. Please go ahead.

Hey, Thanks, Thanks for the question, but the first I had was just on states that have opened up Oh are starting to open up are you seeing any any change or any inflection in those markets more so than in other areas of the country. Thanks.

Yeah, Hey, Gregory Alan Thanks for the Christian I put short so.

I'll give you two or two examples the Houston Dallas, Yeah, most of the Texas markets. They were one of the supposed to start relaxing.

The requirements and we saw an immediate tend to 15 point improvement on the <unk> already improving.

Result, so for sure you can you is that.

Does that change isn't but suffice it to today did I think.

I see that in Phoenix same thing.

So the good news is that.

The Don in businesses not did.

People still want to come top heart failure and enjoy the environment, albeit that.

Even in those markets, we still have restricted as to the occupancy and only using 50% of the 25% to 50% off the documents capacity, which is like type for the moment.

For two being at full capacity at some stage.

Got it that's helpful perspective, and then just in terms of I think one of the questions that that that's been asked of a lot of companies is.

Pulling labor back into the stores and I guess you guys have most of your stores have been open.

But I'm guessing were hours had been reduced than if you have people who have been I guess are laid off in this environment as you try to hire them back is any indication in terms of like what portion of them are willing to come back and.

Anything on that probably would be helpful. Thanks.

Yeah sure. Thanks for question and a very practical one to.

It's interesting I had a long discussion with Julie who heads up operations yesterday to make sure that I had the most current read on things and ER as a headline we're not having difficulty.

Bringing people back in fact, a visible people that want to come back then we actually can provide.

And that's important because otherwise we have to retrain people in today's environment that.

Wouldn't be difficult to do it based.

And but overall she or they have been some austin agent situations with I mean, so far we've only had I think as what this morning, 21 cases, and 100% recovery and so when people are concerned about did somebody heavily tied to shop, obviously, we go through and a dual the deep cleaning and.

Oh, the precautions that we need to and yes, we have to build trust with our employees and that's why.

We mandated that all of our employees way clouds.

Oh, that's part of the Unifill until such time is meant to sought to change that I think that brings the confidence that I thought that he is creating an environment that is safe.

What I need for customers, but also for all our employees.

Oh helpful perspective, then maybe just just one last last one from me you're talking about evaluating up to 100 stores I'm thinking maybe talk about that for a possible closure he talked about that process.

How you're thinking about those stores, if there's any common themes that I guess, if they're in urban markets versus super or anything like that and.

I guess the <unk> as we look out maybe 12 months or 24 month, but I would hope that things start to return to normal and I guess I'm curious, but thought on closing them is that just because of cash needs in the near term or what's the rationale. Thanks.

Sure Good question Yeah.

So so we're contemplating closing.

The shops, frankly, as a way to strengthen the business coming out of the crisis.

[noise] shops that were not profitable brief <unk>, which of course, you know during this crisis or even though you get more challenge you know and in fact, no around 90% of shops that we prioritized.

In this effort for closure I have been previously impaired.

So.

You know important for us for from a long term perspective, and even if you. If you look at the shops that we.

Fairly close thus far there's a high overlap.

Between those and those that were contemplating a closing permanently.

So obviously, if it helps us Uh huh.

No question about it but it's also I think as we as we expect.

Hope to be a highly competitive coming out of this it gives us some support that way as well.

Do you think they get for thoughts.

Our next question comes from Josh for long. Please go ahead.

Great. Thanks for taking my follow up I wanted to see if we maybe able to talk about some of the new sales channels that you got into in particular Potbelly Pantry, then leaning into say that curbside at another piece as well.

Pretty exciting and nice to see the brand be able to pivot so and that's one that was a lot of heavy lifting and hard work, but a team that isn't it now paying off in this current environment curious on what you've seen to date there in terms of just Brent reception from consumers or maybe how it aligns with the brand and if you think that this is maybe a a short term or temporary sales.

Channel or something that has some legs that as you go into this new normal are redefining what the bright the brand might be able to come out on the other side of it. It. If you think these are some channels that we might continue or continue to invest in going forward.

Yeah.

Thank you Josh I'm, sorry, let me deal with Penn Tree first.

It was amazing, we're sitting down and said listen as a cheap.

We're going to work hard at a cost control and all that sort of stuff, but we're not gonna take a defensive posture, yeah, we got to aggressively opportunities to grow the topline that generates just as much cash and then 15 days in the team came up with the pantry idea in fact, if you had looked at the timing.

<unk> PD was one of the stood just a national chains to launch pantry and what stalled hurdle quite literally small.

Where we just off at a few daily meet some cheeses and kind of be done.

And ER and access to all bread.

Then quickly in sort of two weeks, we got a lot of feedback, saying I can we buy the pickles can be by the.

Cookies, and who would have thought that in just over two weeks. We would have sold over 73000 baking cookies. So you talk about I'd love to see where the brand if you're willing to.

But it didn't they haven't in coconut as a parent.

You're running out of things to do Ross and activity that Sun for the family. It's also speaks to the warm took the brand I put that is it's always been warm brand with a relaxed atmosphere and so being able to do calling visit to bring to fund.

So.

Yeah cookies is nearly 30% the mix I would never have.

I mentioned that and then we had a little bit of fund with it.

So the five gallon drama Pickles [laughter].

Costs, just like a 55 of $99 like longer than that but I'm still people, who but and yet at a time not this week, so stressful heading a little bit fun. It's important to sought I'm really excited about this is an incremental occasion in customer it's not capital in it.

So I you can get 80% of the upside with very little capital and they're very few.

[noise] things I can think of you know business, where you can get 80% of the benefit or just still done, but a cash it leverages the rental delay, but we've got great locations can lead to consume a.

Desperate for more and more contactless a ways to engage with brands like bought Betty and yeah. We've got experience in this area. We have 65 drive through so it's not like we don't know that business. It's not that we don't have the systems. We just never have committed to draw.

Yes.

That's a long term upon close to the popular expense you know what do they say yet.

No crosses should gone wasted Kelly the consumer wants to send ever since we've launched it can be seen some healthy or helping not but so I'm really excited <unk> sought to all premise offerings.

Yeah, Let me just had one thing to that you know as this.

Has evolved you know our department has shifted a little bit think so alternative.

Operating staff, we are putting out there I think that's wrong a different parts that you know well see <unk> business.

As we we had yes, obviously strong strong business with office workers.

But we're seeing dinner uptick.

And that's that's encouraging for us we think about Oh, there's probably another country or something that maybe experimenting with future helping out with.

Potbelly relevant.

Beyond just that lunch lunch period, so that those are encouraging things for us.

I'm not sure if you could create I'll just repeat them, though the most important <unk>, which was [laughter], where we're seeing the most growth is it a day parts in times of the week that are the most important Dona Ana weekend, where yeah post the sparse we had a lot of a room for improvement in those type halt.

Great. Thank thank you for that.

Description and though clarification, when we think about.

Your commentary around pulling off some of the marketing, but obviously it makes sense, but ER as we think about going forward can you talk about <unk> engaging guests with the brand either through menu innovation marketing branding digital I imagine it leans heavily digital but just curious at a high level, what you're thinking about and how things.

Be shifting at a high level going forward versus maybe how we were talking to the guest pre crisis.

No I don't see I don't see digital becoming less important becoming more important in fact, a lot of the digital activity that you have seen during the crisis was actually harnessed from some of the work that we did on project Aurora, We actually produced some commercials that were four did.

Digital distribution on the news social platforms and rather than waste those we use them in already existing non Aurora.

Markets and the played very well and had little bit of fun, but the <unk> at the same time, you'll note that all of that branding was inside the PUC finish up which is one of the most distinct.

Just want to make sure that that's clear, but the great News is we did leave elements in does test markets that I think are proving to be a very successful decisions like to consolidated menu as you know or menus spread throughout the shopping three or four different locations and you menu design it's either.

Easy to navigate interestingly enough they all they skews a significant reduction in skews and the shop.

Signage is is different and speaks to some of the brand elements of the delicious ingredients. In fact, you could almost eat the <unk> the photography. So so good.

Fair enough, but when we think about some of the mix bones, you mentioned there Steve I want to see if we could break down that average check one of your comments with after that we saw a ship towards the bags and away from the beverages and I imagine that that a higher level comment but wanted to then juxtaposed that.

And fill out of the work you've done on that then you consolidation in some of the work you've done with your your beverage partners I think in some of the test units you've seen a nice up tick in terms of beverage attached or at least selling the meal deal. So curious if that was still the case here and maybe just that gets you know overshadowed by just.

Larger trends that everything moved back as the consumers pulled back there in the in March.

Yeah, I think you know the the the test markets are still pretty small percentage of of all of our our fleet. So you don't see any of that really show up in any meaningful way I think in general we do see lower attachment beverages.

And chips given the the I think the the way that people order now and where where the product is consumed right.

And to partially offset some of that we we have seen it increase in other elements of the menu like cookies and upgrades like avocado and you know even some increase in our in our shakes Ah. It's Moody sales. So I think it's it's something that will will continue to watch.

Right as we as the consumer behaviors tend to the ball than you know, we're gonna continue to try to understand how those things happen as it relates to the test shops, you know the the the menu boards were completely consolidated there and we got rid of some some menu items and so forth. So the mixed shift I think related to those market.

Will be different than we will see with our <unk> kind of standard menu boards that we've got in place, but you know obviously, we if we see good ideas, we try to spread them as quickly as we can't across the system.

[noise] muddle <unk>. Thank you.

I think we all know this but that didn't accustomed missed things <unk> said as the premise customer so.

Sort of coming to us through this channel spend you know more than two ethics <unk> dining eating customer we typically spend instruct you Audrey put <unk> ordering for the weekend, you typically well sitting too much bigger Paul T. size.

[noise] understood. Thank you.

Our next question comes from sharing Yeah with William Blair. Please go ahead.

Hi, good afternoon.

Helping you could talk in baby breakdown that comes from last week, the down 45, a little bit mark around here lately I know you mentioned.

Yeah. It was underperforming suburban could you kind of put some numbers around that and then regionally I mean, you gave us some extra rounds like Texas looks like maybe you can that'd be other big markets and and how they're lucky and and then pantry, which you you touched on.

Is it really interesting initially that I'm, just really not sure, though kind of how much of the mix. It now has grown to and how we think about that as it relates to see the car.

Okay. So wasn't a drive to stuffed into pieces the <unk> talk performance.

The.

<unk> that's doing the best.

Oh, the other than the than.

Shops.

But news is we have a lot of them.

Ah the shops, that's all.

Struggling the most indices I'm talking about the most recent numbers or at the airports as I mentioned the good news as <unk>.

Universities.

We've got about 15 it does.

The reasons for the performance is obvious.

And the C.B.D. I'm doing better than.

The airports and better than the universities.

As the Donny room stuff I've been up in terms of them walk, it's really the only discernible.

Changes in the restrictions or in the ball could sit I mentioned to Texas.

Kansas City.

Phoenix.

And all of those are doing 10% to 15% beta.

No <unk>.

Points Betta, <unk> 11 negative comp about 10 to 15 points lower but then the train they were operating it before those relaxation.

Climate was came into play so we can point to to this.

Yeah <unk> on pantry.

Painter is an opportunistic thing who knows along to just people want to buy the daily meets from <unk> probably <unk>.

But rock now when caches King we've got the product we not we didn't have to add anything to do is upload the pictures offered on the website and yep I spent the money doing debt and <unk> customers to to order straight off the website.

It's.

It's at its peak was.

Ranges between three to five pissing football styles, which I think is pretty amazing for not having to do anything and now in today's environment.

Does pissing to just make a difference.

Yeah, I think I remember that.

But the regional question was.

Yeah. There are other companies that are talking about that centered around the country.

Farming better than like Heaven sent a independent of the reopening Ben I'm taxes in another state you had a huge presence obviously in Chicago I was just wondering if Chicago or somebody other center a country markets are just holding up better for you. Then then say the east coast or other places yeah.

Yeah, well, there's you know we don't have any on the West coast done you once we have really.

It's New York, New York has been bad impacted by always <unk> into the the bars for the U.S.

So the New York has improved I don't really <unk> provide you walk by market to have their friend it'd be just it's not that instructional I can tell you Chicago, where we had the lawn share of Oh concentration has improved nasty and what's driven that is the off premise.

Additional <unk> the grub out the door dashes could decide Penn tree and we also tested family meal numbers shops. So.

<unk> geographically I I don't see distinct pet.

Okay.

And and then given the labor you've taken out of his stores could you help us think about.

Kind of the average weekly sales you need at this point to break even at the restaurant.

Yeah. This is Steve you know I think it it's it's depends on the you know that they shop, obviously, but you know we need to see we need to see comps.

Improve.

You know I think in a into you know in the low double digit range in order to get us to kind of at that point.

Thank you very much.

[noise] [noise] conclude the question and answer session I would like to turn in a conference back over to Alan Johnson for any closing remarks.

Thank you Anastasia. Thank you again for your Tom today, and your continued support.

<unk> updating you on all progress in the next year news cool have a great evening and stay safe <unk> bye-bye.

[noise] [noise] that's concludes today's conference call.

Disconnect. Your line. Thank you for participating and have a pleasant thing.

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