Q4 2020 Potbelly Corp Earnings Call
[music].
Good afternoon, everyone and welcome to Potbelly corporations fourth quarter and full year 2020 earnings conference call if.
If anyone should require operator assistance. Please press star zero on your telephone keypad of question and answer session will follow the formal presentation.
As a reminder of this conference is being recorded at.
It is now my pleasure to turn the call over to MS. At the addiction, Potbelly Chief legal officer.
Mr. <unk>. Please go ahead.
Good afternoon, everyone and welcome to our fourth quarter and full year 2020 earnings call.
Our presenters today are Bob Wright, our President and Chief Executive Officer, and Steve <unk>, Our senior Vice President and Chief Financial Officer.
Please note that we have provided a set of Powerpoint slides that will accompany our prepared remarks you.
You may access the slides on the Investor Relations section of our website.
After our prepared remarks, well open the call for your questions.
I like the call your attention to our cautionary statements on slide two.
Note that certain comments made in this call will contain forward looking statements.
Regarding future events or the future of financial performance of the company.
Any such statements, including our outlook for 2021 or any other future period should be considered forward looking statements within the meaning of the private Securities Litigation Act of 1995.
These forward looking statements are not guarantees of future performance, nor should they be relied upon as representing management views as of any subsequent date.
Forward looking statements involve significant risks and uncertainties on the events or results could differ materially from those presented due to a number of risks and uncertainties.
Additional detailed information concerning these risks regarding our business and the.
The factors that could cause actual results to differ materially from the forward looking statements and other information that will be giving today can be found in our most recent annual report on form 10-K under the headings risk factors and MD&A and in our subsequent filings with the Securities and Exchange Commission.
Which are available at SEC dotcom.
I'll now turn the call over to Bob.
Thank you Lydia good afternoon, everyone and thank you for joining US today I Hope you and your families have remained safe and healthy since our last update let's.
Let's start on slide three and I'll provide a quick overview of last year 2020 tested everyone around the world at the restaurant industry was obviously significantly impacted.
I joined Potbelly in the midst of the pandemic just a few months ago and I can tell you that great teams and great people rise to the challenge in the face of adversity and I'm extremely proud of every team member of this organization for what we have collectively accomplished last year.
Together, we demonstrated the resiliency persistence dedication and creativity that made potbelly truly unique.
As we begin to pivot from being reactive and protecting our brand to being proactive and more deliberate in our efforts to drive profitable growth at.
Those exact attributes and team work that will help us thrive.
Clearly our financial performance suffered in 2020, but we prioritize the things that were within our control, enabling us to respond and rightsize the business throughout the crisis.
This included aggressively controlling our costs protecting our cash position and prioritizing safety for both of our employees at our customers.
It also involved a significant pivot in the way that we service those customers as we focused on our digitally driven off premise options like delivery pick up as well as drive through.
As the year progressed, we continued to invest further in our digital offerings with tremendous success like our improved Potbelly Perks program.
You hear about a number of new investments we plan to make later in today's call.
Most of those initiatives were focused on the immediate needs of the business, but I think it's critical that our investors understand we also executed with strategic intent in 2020.
This included numerous efforts to build a stronger foundation that will support more profitable growth as we exit this pandemic.
It also included the rebuilding of our management team, which is almost complete and it included the development of a new strategic plan at the components of which we'll share in full detail with you today.
Let's discuss a few more specific outcomes of those strategic actions and where we stand as of today on slide four.
There are really four critical takeaways from the actions we took to reposition the business in 2021st we built solid recovery momentum throughout the year and barring of small hiccup from the extreme weather. We had in February have seen a continuation of those trends that Steve will talk you through in a few minutes.
Our suburban locations have continued to trend positively and we've seen positive comps with our drive through and digital channels.
We've opened nearly all of our closed non CBD and airport shops, now and have expanded our hours of operations in most shops to pre COVID-19 levels.
Next we fortified and enhanced Potbelly foundation throughout the year. This included strengthening our shop base by closing 28 shops permanently and renegotiating 321 leases. This was a huge lift and I think it's critical that I recognize at not only the hard work that was done here, but also the partner.
Our ship, we have with our landlords who are willing to work with us through the pandemic end are clearly investing in our future.
As a part of building a stronger potbelly team. We also took a fresh look at our general and administrative and other cost of better aligned to our smaller footprint and to the industry norms.
As a result, we completed our G&A restructuring in the fourth quarter and have moved forward with over $3 $5 million in annual corporate expense savings.
Lastly in terms of strengthening the organization.
We welcomed a completely new leadership team in 2020.
We have a handful of executive positions still to fill but this team is energized and coming together quickly as we prepare to pivot to growth.
With this new leadership team in place our third strategic success exiting 2021 of our new traffic driven profitability strategic plan, we outlined the foundation of this plan for you last quarter, we began executing against it in earnest in the fourth quarter.
Our fourth strategic success was more recently, but extremely critical last month, we fortify our balance sheet through the completion of a $16 million private placement and we subsequently amended our credit facility to extend it forward an additional year.
This was a critical need for the organization as it will support our business throughout the last steps of the pandemic related recovery, that's clearly still in progress.
But more importantly, it will allow us to be front footed and invest growth capital and our new strategic plan to accelerate our path forward and moved quickly to achieving profitable growth.
I'll conclude my opening remarks on slide five as I frame up how we expect this year to progress overall, we expect to see two very different halves of.
Of the year in fiscal 2021.
The first half will hopefully see the virus Wayne and vaccines become more widely distributed at.
As the weather improves.
We've recently seen at least one state, where we do business eliminate dining room restrictions altogether and we'd expect most states to do this more gradually through the first half of the year end.
As this occurs our team will continue the test develop and refine the multiple traffic focused initiatives that we've been working on.
We will finalize the rebuilding of our leadership team as well and we'll continue to prioritize cash preservation and operating efficiencies.
As Steve will outline we have some legacy cash obligations to fulfill this year, but we still expect to be breakeven at the shop level through the first half of 2021 and have ample liquidity to manage these cash expenses.
As we proceed into the second half of the year, we like you hope to start seeing the impact of developing herd immunity.
This should accelerate the lifting of dine in restrictions and hopefully even eliminate them at most of our locations.
At this occurs we believe that many people will look to return to work at some fashion and begin to explore travel at.
And as a result, we would expect to see our lagging locations in central business districts and airports catch up to the recoveries we've seen in our other shop types.
Moreover, we will be ready to capitalize on these trends as we will have achieved scale in our traffic driven profitability of strategic initiatives.
And we'll have a fully developed and functioning team across the organization.
There will likely still be a few shop type gaps in the platform as no one expects life to go back to exactly how it was.
But our shop level economics will be significantly strengthened in the second half. This is where the leverage of our primarily of company owned shop platform begins to benefit at the company's economic model.
Overall, there is an element of the optimism that as president of across the country and that's certainly translating to our team here at Potbelly the sub.
Number is we have the right team the right strategy and.
And at recently strengthening the balance sheet that will support our strategic initiatives and help potbelly emerge with a stronger platform that can grow more profitable than ever before.
With that I'd like to turn the call over to Steve to talk more specifically about our financial performance during the fourth quarter and full year, we'll close with an update on our traffic driven profitability strategic focus and importantly, the progress we have on these initiatives before we take your questions Steve.
Thanks, Bob and good afternoon, everyone.
Please turn to slide six of the presentation, where you can see the progression of our same store sales and average weekly sales for 2020 end year to date through at the beginning of March 2021 store.
Starting with Q4 company operated same store sales declined by 19, 7%.
This was the 130 basis point improvement as compared to Q3.
Clearly positive momentum despite the nationwide resurgence, we saw in Covid, 19, which particularly impacted the month of November results.
Breaking down same store sales our average check fell by seven tenths of 1% on of sales per entree basis, and traffic improved quarter over quarter by three percentage points.
We've experienced steady improvement in comparable sales since may and December was particularly strong with solid holiday traffic.
Excluding November slight step back we saw sequential improvement over seven of the last eight months of 2020, which is a clear demonstration of the resiliency of the business and our ability to pivot to rapidly changing market conditions.
In terms of volumes and average weekly sales per unit, we saw of consistency throughout the second half of 2020, despite a strong surge in COVID-19 cases in Q4.
Okay.
Turning to performance so far in 2020 one.
As you can see from the chart, we saw improvement in January the same store sales down just 15% followed.
Followed by softer than expected performance in February which was down $22 four per cent, mainly due to severe weather impacts throughout the U S and at our markets in particular.
The data for March so far is encouraging and true.
This meaningful improvement from February tracking down 10, 7% through March 7th.
Importantly.
Our shop average weekly sales volume, while lower in January compared to the second half trend in 2020 due to seasonality is now accelerating and.
In fact March to date volumes are trending ahead of the Q1 2020 previous high point on this chart.
Overall, we expect to continue to see sequential improvement throughout each quarter of 2021, driven not only by the rate of vaccinations and increased dining room reopening as pandemic conditions recede, but also by the traction from our strategic initiatives.
Turning to slide seven I'll walk you through our income statement and specific financial performance for Q4.
Like we did last quarter, we're going to highlight our performance this quarter against the sequential quarter or Q3 of 2020.
This should provide you with the better update on the recovery trajectory.
During the fourth quarter total revenues increased 3% sequentially to $74 9 million due to the reopening of temporary closures increased shop hours and sequential improvement in same store traffic.
Our general and administrative expenses were approximately $6 9 million in the fourth quarter or nine 2% of total revenue compared to $9 8 million in the third quarter were $13 five per cent of total revenue.
The decrease in G&A expenses reflects the impact of the company's focus on cost discipline. The partial impact of the G&A restructuring that was in process in the fourth quarter and some one time expenses from the third quarter that did not carry forward into the fourth quarter.
That G&A restructuring and other cost reduction efforts were largely completed by the end of 2020, yielding an annual savings of approximately $3 5 million.
Adjusted EBITDA loss was negative $6 9 million for the fourth quarter at.
Slight improvement compared to negative $7 3 million last quarter. The fourth quarter improvement was driven primarily by increased sales and shop level of cost controls.
Cost of goods sold expenses were $21 2 million or 28, five per cent of shop sales compared to $20 7 million in the third quarter were $28 seven of shop sales the <unk>.
The ability of Cogs as a percentage of revenue was primarily the result of higher sales during the quarter.
Labor expenses were $27 2 million or 36, 5% of shop sales in the fourth quarter compared to $25 8 million or 35, 8% of shop sales in the previous quarter. This increase was primarily driven by higher costs associated with holiday P. P O schedules and compensation.
Occupancy expenses were $13 3 million in the fourth quarter were 17, 9% of shop sales compared to $13 9 million or $19 three per cent of shop sales in the third quarter.
The decrease is primarily attributable to renegotiated rent and shop closures.
Other expenses were $13 2 million in the fourth quarter or 17, 7% of shop sales compared to $12 1 million or 16, 8% of shop sales in the prior quarter. The increase was due to COVID-19 related costs.
At the temporary COVID-19 closures as well as PPE and cleaning costs and higher third party delivery expenses.
On slide eight I'll provide an overview of the full year 2020 as compared to 2019.
Clearly potbelly was significantly impacted by the COVID-19 pandemic.
Given the business disruptions that resulted from government imposed quarantines in Q2 of 2020, limiting our ability to fully operate at.
I'm not going to walk through all of the numbers in detail.
But rather we'll provide the high level figures.
Full year 2020 sales decreased the $291 3 million from $409 7 million in 2019.
GAAP net loss was negative $65 4 million compared to negative 24.0 million in the prior period and adjusted EBITDA was negative $32 7 million compared to $25 5 million in 2019.
Turning to our balance sheet end liquidity position as you know, we took swift action to reduce costs and preserve cash at the onset of the pandemic.
Our second half of 2020 weekly cash burn rate improved from the 0.50 million projection that we outlined in the second quarter of last year to <unk> four 4 million.
This improvement is primarily due to the timing of rent settlements and rent back payments that moved from Q4 2020 into Q1 2021. The back half of 2020 weekly cash burn rate is inclusive of the restructuring costs associated with our G&A work and salary repayments from Q2 and Q3.
Our liquidity position at the end of 2020 was $44 6 million, which consisted of $11 1 million of cash on hand at $33 5 million available on our credit facility. This compares to $58 6 million a year ago.
More importantly, however is the progress we made last month, when we successfully completed of $16 million private placement and amended our senior secured revolving credit facility of $25 million, which included extending the maturity to January 31 2023.
These actions have significantly strengthened our balance sheet, providing potbelly with the necessary flexibility to support our post pandemic recovery as well as to ensure that we have the appropriate growth capital to continue to execute against our various strategic initiatives.
Turning to slide nine.
Here, we show shop performance by type.
Here again, we've tried to offer some recent transparency and of shown you. The first three periods of 2021 as well as information throughout fiscal 2020.
Overall drive thru in suburban shops continue to outperform the other shop types with drive thru above pre COVID-19 levels and suburban shops, running very close to normalized run rates.
Urban and University shops, while improving remain below pre COVID-19 levels, not surprisingly our airport and CBD locations continue to lag behind the other location types.
The other item I want to point out on the slide is the clear impact of the extreme weather that our country of experienced recently.
December has positive momentum carried into January however, february's extreme cold in winter conditions temporarily interrupted our recovery progress in many of our larger markets.
The good news is as those winter conditions have subsided.
We've seen a snap back and the continuation of the prior positive trends as represented by the partial month of March we've shown in the slide.
Slide 10 is at excellent illustration of how our business has shifted over the past year.
As you can see prior to the onset of the pandemic. The majority of our revenues of approximately 70 per cent were generated by diners enjoying potbelly offerings in our shops.
As restaurant restrictions were put in place we quickly shifted our business towards more digital offerings, which includes delivery and pickup options.
We also leverage the approximately 60 shops that have drive throughs as.
As a result of that quick pivot nearly 40% of our business. It's now digitally driven.
This successful pivot was aided not only by our digital assets.
But by the sharp design that supports multiple customer experience channels.
We believe over the longer term, we will see a blending of digital and in shop service modes, as we exit the pandemic.
All of these digital investments are flexible shop design that includes two production lines and consumer excitement to returns of dining rooms sets us up to expand all of these sales channels.
Moving to slide 11.
We will discuss our outlook for 2021, and our observations so far during the first two and a half months.
As Bob mentioned earlier, we anticipate 2021 to be a story of two halves driven by external or business environment factors as well as our potbelly specific actions.
Well, we are not providing.
Quantitative financial guidance, we want to communicate the framework of expectations for the cadence of the recovery.
Overall, we believe that our strategic initiatives combined with the anticipated economic recovery will support improvement in our sequential same store sales and top line quarterly performance through 2021.
We also expect to return to positive cash flow of an enterprise profitability of the second half of 2021.
Broadly speaking, we expect our first half 2021 performance and improvement trajectory to track slightly above the second half of 2020 with the expectation that the recovery should accelerate starting mid year.
This goes hand in hand, with improving consumer mobility trends and demand as COVID-19 cases decrease in vaccinations increase.
As a result of the cash preservation measures, we put in place during the pandemic. We entered 2021 with approximately 11% to $12 million in deferred cash expenses, the bulk of which are related to deferred rent that would need to be paid throughout the year, most of which will be weighted towards the first quarter.
Summing up all of these moving parts, we are projecting shack level profitability in the first half of 2021 again with the anticipated momentum of the recovery starting mid year. The majority of the company's operating earnings and adjusted EBITDA will be delivered during the second half of 2021, and we expect both shop level.
And enterprise level of profitability as well as positive cash flow in the second half of 2021.
With that I'll pass things back over to Bob.
Thanks, Steve Please turn to slide 12, four you'll see our brand position again I share. This with you last quarter and I think it's important that you understand what a great deal of work has gone into this one of the best ways to summarize our brand position is by recounting the numerous conversations I've had with many of you are investors.
Those of you that aren't fortunate enough to live in an area, where the potbelly shop have often said to me Potbelly is on my list of must stops every time I visit Chicago.
It's how many of you found our story as an investment too.
And that sentiment is really embodied in our brand positioning great Craveable high quality food served to you in a location you enjoy going to in other words in a place with the good vibes of of first class at I've.
We're excited about this brand position and we believe it will resonate both with our loyal and perspective customers as we move forward.
Next on Slide 13, I'll review, our traffic driven profitability strategic focus which has its foundation in our brand position.
Our strategy quite simply is to bring to life. The very best attributes of the Potbelly brand represented by our five pillars with of unifying objective of traffic driven profitability.
We've shared this with you last quarter as well and implementation has already begun for most of the initiatives with acceleration over the course of the year.
There are five core pillars to our strategy as you can see on the slide, but what I'd like to share with you today our house some of the more detailed initiatives that we're executing are coming to life under each pillar.
So please turn to slide 14.
Before I get into the details I'd like to note that while there are investments associated with many of these initiatives. We built our plan with a focus on the lower cost and higher profit impact of ideas. This year.
For competitive reasons, we won't be able to go into a lot of detail on the locations and or the timing of the various testing, but we expect the leverage nearly all of these initiatives in the second half of 2021.
Our first pillar is craveable quality food at a great value, we have great food, but to be successful in this highly competitive environment, we're in innovation and adaptability to consumer trends and feedback will remain critical.
One of the first things we're doing here is continuing to simplify our menu through this work we will continue to enhance our brand perception.
The better throughput and make for an easier customer experience all of which should lead to improved traffic retention.
This will include consolidating menu boards and fixing value with the wider price later.
It will also include other product enhancements like offering smaller sandwiches and half salads outside of the pick your pair of promotion with.
We're testing the larger sized auctions with more meat cheese and toppings as well.
Well there are a number of new ideas. We also expect fewer skus, making for a more efficient system and faster customer experiences.
These ideas are already in the beta market testing phase and with continued success.
We have a plan to be live in the second half of the year.
Moving to our second pillar.
People, creating good vibes.
As I said last quarter people are the heart of this business and create the unique experience our customers expect of potbelly.
We must continue to embrace our higher for attitude and trained for skills mantra to bring in people, who offer goodbyes and love great food.
But we also need to manage our labor more optimally and incentivize our people to align personal and team success with that of our own.
To do so will be shifting to a modern labor model with hours base management to improve deployment planning for real time performance monitoring and management of this platform is already through the testing phase and we expect it to be fully live across all shops by the end of the first quarter.
Our goal in this labor optimization effort is to deliver better customer and employee experiences while also reducing costs.
On the incentive front, we have a number of new ideas, including the transformation of our bonus program to motivate top talent and drive performance.
We're also creating ways to identify and develop instant win recognition to both motivate our shop level of associates and to share of new ideas across the organization.
We've implemented a balanced scorecard at the shop level that aligns our incentives around driving traffic and profitable growth, including a share of the wealth component to the play at.
We believe we can significantly enhance our field leaders and their employees careers with the organization while at the same time better tying the successes with that of the organization and its goals.
Both of the field and the support center of bonus programs incentivize traffic.
Topline growth and profitability and ensure our teams win when we win.
Moving to our third pillar customer experiences that drive traffic growth.
With our new C O O Adam noise, leading the effort we are improving the customer experience, while also building stronger unit level economics and shop margins.
First we've created cross functional teams to identify a pipeline of savings ideas with an objective to improve shop level margins by 50 basis points without any negative effect on the employee or the customer experience.
Importantly, the balanced scorecard, I mentioned measures operation standards and customer satisfaction drivers across each service channel along with employee engagement metrics at every shop driving of focus on our repeat customer traffic.
Yeah.
This brings us to our fourth pillar, which is directly connected to the third and is focused on digitally driven awareness connection and traffic.
Our relaunched and simplified perks program was a huge success in the second half of 2020.
But there remains significant opportunity to better leverage this data and better understand our customers increase their awareness of the potbelly offerings and ultimately drive traffic to our shops through targeted promotional activity.
Therefore, we are currently redeveloped, our app and our web interface to improve the customer experience allow for easier reordering and better tie in our perks loyalty program.
This new experience is easier and more flexible for our customers and supports frictionless operations execution as we fulfill the customer's order regardless of how they order or where they might choose to enjoy their meal.
This is a huge step for potbelly is only at the beginning of the journey as we more fully leverage technology to drive traffic create efficiencies enhanced rewards and grow our loyal customer base.
We look forward to unveiling, our new web and app to customers across the system.
In Q3.
Lastly, our fifth pillar is focused on the next leg of our journey and that's franchise focused of element, 90% of our shops are owned by Potbelly today and as I said last quarter that has a tremendous advantage when you're turning around the business and position for strong profitable growth.
But we are significantly underpenetrated across most of the United States. Despite having such a recognized at high quality brand, we can leverage what works to generate growth across both company and franchise platforms.
Our recent slate of franchisees remain active and committed to developing.
Over the next few years as originally planned.
As the pandemic continues to wane, we expect the next wave of growth to come from leveraging Potbellies operations marketing and shop level economic model to create a competitive advantage against the other franchising options.
We will welcome three to five new franchise shops in 2021 and.
I would expect to see significant annual growth in that number as we work through 2022 and beyond.
So as you can see the strategic initiatives that support our five pillars show a thoughtful plan that will leverage our core capabilities and enhance our future performance by focusing on proven traffic driven profitability strategies.
We're excited to share our journey with all of you and see our momentum build throughout 2021.
With that I'll now turn the call back over to the operator, so we can address your questions operator.
Thank you and other conducting a question and answer session if at all.
The place of the question queue. Please press star one on your telephone keypad.
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First question today is coming from Joshua long from Piper Sandler Your line is now live.
Great. Thank you for taking the question and for the update today.
Had a couple of questions.
Particularly you want to start with the momentum that you've seen through the back half of 'twenty and here into the first part of 'twenty one.
Sighting to see that and then also when you pair that up against what you've been able to do in terms of steady cost management.
The management there at the at the at the shop level I was curious if you might be able to.
[noise] calibrate that as we've seen improvement from four Q a level of that kind of debt just under down 20% to something now and the down mid teens percent on the same store sales basis, what does that look like at the shop level. I know you talked about getting to profitability in the first half of the year within some upside.
In the second half, but just from a modeling perspective, just trying to see kind of where maybe some of those pivot points are as sales start to improve.
[noise].
Sure. Thanks for the question Josh Yes the.
The momentum we're seeing is very exciting.
And despite the slight step back there in and of our second period seeing the way the business is moving in in the third period here is and it was great for all of us.
As it relates to the shop level kinds of things that drive profitability I mean, what we're what we're obviously taking advantage of here as the top line improves and some some of the occupancy.
The leverage from some of that work that we did.
And in the end of 2020.
We still.
We'll have some work to do on Cogs I think Bob mentioned that Adam is working hard on continuing to find efficiencies.
Everywhere, we look and so at some of those things are are in place and those things are still to be built.
We also however understand as we as we look at the the shop.
We've got labor efficiencies that we're building too we are of a new labor model that's in place and were already seeing a.
We're seeing some benefit from that.
As an example.
We saw some weeks in period one.
Where we had significantly lower volume, but we're using basically the same amount of labor that we're now using in Q3 as a result of that model being deployed because it wasn't deployed in the first period. So we're seeing some benefit from that and we should see some benefit from that on.
On the other operating expense area that that one is going to move.
Move I think as it relates to Covid as a part of it right. So we still have COVID-19 costs that are in there we had a lot of additional costs on things like PPE gloves, and so forth that.
Got really expensive there towards the back half of the year.
Of 2020, and obviously one of the things of that also hits that line is third party delivery fees for us so.
We are we we expect to get some leverage from sales through some of the things that we still have some some additional work to do.
Yeah.
Yeah, Josh I'll I'll add to that I think that you know the the the first part of your comment about the sales trajectory as the one that continues to excite us and so we mentioned during the call. We really do kind of see this is the story of two halves.
So we've got the underlying.
Recovery that we think is obviously going to drive some of the business for the industry as a whole end than some of those initiatives. Obviously, we started working on towards the end of last year.
There is a balance of top line driving initiatives and where we're seeing some success with those are those are included in the operational draw.
Drivers as well as some of the marketing end.
And.
The reopening of our shops that have been temporarily closed, but we see the lion's share of the activity, especially against the strategy really come to life in the second half and so.
So when you look at this kind of a head start coming out of winter and into March.
Definitely definitely feels like things are headed in the right direction and something we can be very excited about for some of the numbers. We've been share I would probably think of the year shapes up.
Thank you for that and then thinking about the cost management side, particularly the G&A savings that you called out.
Would be thinking about you reinvesting against some of those I think you called three and a half million dollars on a run rate basis are you going to reinvest again some of those so that we end up with something you know in lines at slightly higher on the 2021 dollar basis, when we get to the end of the year or do we look at that is really pulling costs out of the business. That's that we've created a new base.
The new lower dollar base.
From which we can think about modeling 2021, and then out into 2020 two.
No. Thanks for the chance to clarify yeah. The that is what we intended to restructure to create of G&A burden on the business that was lower than it was traditionally.
Had been end.
That's a net savings of one of the things. We're excited about is as you heard us discuss some of the incentives that we've put in place things that are that go into taking care of an exciting the team that we have fully funded bonus programs at the shop level at the support center level.
Those those are some of the things that had been reloaded into our plan.
Still achieving that annual savings so you know.
The short answer your question as you know we were looking for reset we wanted to get the the G&A on our business more in line with the.
First or second best quartile of performers in the space versus down at the bottom end of third or fourth quartile, where we were maybe even back as late as 2019.
Great. Thank you I'll pass along and then hop back into queue.
Great. Thanks.
Thanks, Josh for you as a reminder, that star one to be placed in the question Hugh.
And today is coming from Matt Curtis from William Blair. Your line is now live.
Yes, hi, good afternoon.
Just I'm getting back to Josh the first question.
You know given the.
You'll have the inflection in two of profitability.
Most of the end of second half of the year can you talk about maybe what levels average weekly sales of comps, but you need to actually get back into profitability.
Okay.
Yeah, Oh, Yeah, you get rid of some of the more detailed numbers, but.
Yeah. We've we think that are you know, we think that our average sales volume of.
Down around.
All of it.
The $25, 35% range or sorry up 25% to 35 per cent gets us into that at target range of where we're looking for that shop level of profitability.
The build on and then get to the.
The earnings for the company as a whole.
And then you know I.
If you look at what it takes to be up over 2020 of course. Some of these numbers are numbers, we've not seen in the industry ever.
But at the mid double digit range gets us to that are at that inflection point the debt.
At the company breakeven adjusted EBITDA breakeven level.
Okay.
Okay. So you have to be clearer.
You said the average weekly sales up 20.
Five to <unk> 30 per cent or so that's year over year and then in the double digit range positive on comps.
Okay.
Yeah.
Yeah, so so at the op level.
Yeah at the shop level, we would need to see comps.
In the in the low double digits to you know.
Twenties AR would be in that in that zone, we would net.
Huh.
Revenue range puts us.
Between let's say $1 25, and $1 75.
Revenue and this is for the first half numbers by the way because as Bob described we're looking at the year that way right. We still have some of the pandemic the run out.
And the strategic initiatives really start to layer in in the back half as well so.
That's how we tend to view these kinds of thing.
Oh, Okay got you and then.
Just turning to the lease renegotiations of it seems like you've.
<unk> made some more progress on that front I mean in the release. It says you have about 320 totally total leases renegotiated now that's up from I think of it was something like 280 last time, we heard from him.
And so could you maybe give us an update on the total amount of annual savings going forward are you going to get some of this.
Yes.
Yeah sure.
I think we are we are.
Almost done with all of that work Theres still a few of the handful I think there's about seven or so on the leases that of all of the 300, some odd that we touched here.
So it was the big effort and we are we're excited for the results.
On a on a on.
On a basis related to the the closures right.
We will save about $4 million in annual occupancy costs from closing those.
28.
The 28 shops.
The the the lease savings kind of varies because some of those negotiations right we've extended term and.
We did some other things we did some other things in there.
But it also helps us.
In terms of abating or.
I should say avoiding some lost shop losses, it's about $15 million in shop losses that we will but we will avoid as the result of going through all of those those lease actions.
Okay got it thanks very much of your time.
Okay.
Thank you we reached end of our question and answer session I'd like to turn the floor back where the Bob pretty further of closing comments.
Well thanks, everyone for your time today, we really appreciate you joining the call. We're excited about the future here at Potbelly and hopefully.
Hopefully you can hear that we believe we're just at the beginning of what the company can do to reach its full potential.
Our team is motivated we're committed.
And we will achieve success and we're confident that we've got the right team at the right strategy to make that of reality.
Look forward to providing you with more regular updates of especially on the various initiatives as we move forward and most of all we appreciate your interest and your support for the brands have a great day everyone.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.