Q1 2024 Potbelly Corporation Earnings Call

Operator: Good afternoon everyone, and welcome to Potbelly Corporation's first quarter 2024 earnings conference call. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode, and the lines will be open for your questions following the prepared remarks on today's call. We have Bob Wright, President and Chief Executive Officer. Steve Cirulis, Senior Vice President and Chief Financial Officer, and Adiya Dixon, Senior Vice President, Chief Legal Officer, and Secretary of Potbelly Corporation. At this time, I'll turn the call over to Adiya Dixon. Please go ahead.

Good afternoon, everyone and welcome to Potbelly corporations first quarter 'twenty 'twenty four earnings conference call.

Adiya Dixon: Today's call is being recorded at this time all participants have been placed in a listen only mode and the lines will be open for your questions. Following the prepared remarks.

Adiya Dixon: On today's call.

Adiya Dixon: We have Bob Wright, President and Chief Executive Officer.

Steven W. Cirulis: Steve <unk>, Senior Vice President and Chief Financial Officer.

Adiya Dixon: And a D addiction, as senior Vice President Chief Legal Officer, and Secretary of Potbelly Corporation.

Adiya Dixon: At this time I'll turn the call over to a D. It Dixon. Please go ahead.

Adiya Dixon: Good afternoon, everyone, and welcome to our first quarter 2024 earnings call. By now, everyone should have access to our earnings release and accompanying investor presentation. If not, they can be found in the Investors tab of our website.

Adiya Dixon: Good afternoon, everyone and welcome to our first quarter 'twenty 'twenty four earnings call.

Speaker Change: By now everyone should have access to our earnings release and accompanying investor presentation.

Adiya Dixon: If not it can be found in the investors tab of our website.

Adiya Dixon: Before we begin our formal remarks, I need to remind everyone that certain comments made on this call will contain forward-looking statements regarding future events or the future financial performance of the company. Any such statements, including our outlook for 2024 or any other future periods, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date.

Adiya Dixon: Before we begin our formal remarks I need to remind everyone that certain comments made on this call will contain forward looking statements regarding future events or the future financial performance of the company.

Adiya Dixon: Any such statements, including our outlook for 'twenty 'twenty, four or any other future periods should be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Adiya Dixon: These forward looking statements are not guarantees of future performance, nor should they be relied upon as representing management's views as of any subsequent date.

Adiya Dixon: Forward-looking statements involve significant risks and uncertainties, and 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 factors that could cause actual results to differ materially from the forward-looking statements and other information that will be given today can be found under the risk factors heading in our filings with the Securities and Exchange Commission, which are available at sec.gov.

Adiya Dixon: Forward looking statements involve significant risks and uncertainties and events or results could differ materially from those presented due to a number of risks and uncertainties.

Adiya Dixon: Additional detailed information concerning these risks regarding our business and 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 under the risk factors heading in our filings with the Securities and Exchange Commission, which are available at SEC Doc up.

Adiya Dixon: During the call, there will also be a discussion of some items that do not conform to U.S. generally accepted accounting principles or GAAP. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the appendix to the press release and investor presentation issued this afternoon, both of which are available under the Investors tab on our website. And now, I'll turn the call over to Potbelly's president and CEO, Bob Wright.

Adiya Dixon: During the call. There will also be a discussion of some items that do not conform to U S generally accepted accounting principles or GAAP.

Robert D. Wright: Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the appendix of the press release and Investor presentation issued this afternoon, both of which are available in the investors tab on our website.

Robert D. Wright: And now I'll turn the call over to populist President and CEO Bob right.

Robert D. Wright: Thank you, Adiya. Good afternoon, and thank you for joining us on our call today. We are proud of our solid start to the year across multiple fronts. In terms of profitability, we successfully managed both restaurant-level and corporate costs, driving a 150 basis point expansion to shop-level margins year over year to 13.5%, as well as strong corporate profitability with adjusted EBITDA of $5.7 million. This was made possible through the disciplined execution of our team members as we work to achieve our long-term sustainable growth.

Robert D. Wright: Thank you good afternoon, and thank you for joining our call today, we are proud of our solid start to the year across multiple fronts in terms of profitability. We successfully managed both restaurant level and corporate costs, driving 150 basis point expansion to shop level margins year over year to $13 five.

Robert D. Wright: Per cent.

Robert D. Wright: As well as strong corporate profitability with adjusted EBITDA of $5 $7 million.

Robert D. Wright: This was made possible through the disciplined execution of our team members as we work to achieve our long term sustainable growth.

Robert D. Wright: On the development front, our franchise sales team added 32 additional franchise commitments to our pipeline during the quarter, while our franchise development team helped open three new shops. Importantly, our momentum on both fronts continues into the second quarter. On the top line, we continue to outpace the fast-casual segment and once again took traffic share for the quarter. That said, industry trends were marginally softer than we were anticipating, leading our results to be below our expectations and slightly below Q1 2023 COPS by 0.2%. As with industry trends, we saw some slight declines in transactions from our more infrequent customers.

Robert D. Wright: On the development front, our franchise sales team added 32 additional franchise commitments to our pipeline during the quarter.

Robert D. Wright: While our franchise development team helped to open three new shops importantly, our momentum on both fronts continues into the second quarter.

Robert D. Wright: On the topline we continue to outpace the fast casual segment and once again took traffic share for the quarter.

Robert D. Wright: That said industry trends were marginally softer than we were anticipating leading our results to be below our expectations and slightly below Q1, 'twenty twenty-three comps by 0.2%.

Robert D. Wright: As with industry trends, we saw some slight declines in transactions from our more infrequent customers. These customers tend to skew to more in shop visits and slightly less digital.

Robert D. Wright: These customers tend to skew towards more in-shop visits and slightly less digital. Importantly, though, as I'll share shortly, our digital marketing and promotional efforts, as well as our new Perks loyalty program, drove growth. Those elements of our plan that we drive continue to build top-line sales, traffic growth, and profitability. We believe our less frequent customers will benefit from some additional value support over the coming months. As we look into the second quarter, we're back into positive, low single digits, and we plan to further accelerate traffic-driven top-line growth, leveraging our five-pillar strategy, with particular emphasis on tactics that build on our past success while expanding our appeal. Our focus is heightened in three areas.

Robert D. Wright: Importantly, though as I will share shortly our digital marketing and promotional efforts as well as our new perks loyalty program drove growth.

Robert D. Wright: Those elements of our plan that we drive continued to build top line sales traffic growth and profitability.

Robert D. Wright: We believe our less frequent customers will benefit from some additional value support over the coming months.

Robert D. Wright: As we look into the second quarter or back into positive low single digits, and we plan to further accelerate traffic driven topline growth leveraging our five pillar strategy with particular emphasis on tactics that build on our past success, while expanding our appeal.

Robert D. Wright: Our focus is heightened in three areas first and foremost potbellies great food is the reason our brand is the favorite in so many neighborhoods. We plan to continue to enhance our innovation pipeline of hot toasted sandwiches hand, dipped ice cream shakes and our best in class baked fresh daily cookies.

Robert D. Wright: First and foremost, Potbelly's great food is the reason our brand is a favorite in so many neighborhoods. We plan to continue to enhance our innovation pipeline of hot toasted sandwiches, hand-dipped ice cream shakes, and our best-in-class baked fresh daily cookies. Next, recognizing that the very best Potbelly experience includes access to and the use of our digital assets, we plan to continue to push growth in Perks member acquisition as a way to expose our newer customers to the best experience and value Potbelly has to offer and Everyday Value. It's clear to us that consumers of all income brackets can use our help managing their budget pressures.

Robert D. Wright: Next recognizing that the very best Potbelly experience includes access to and the use of our digital assets. We plan to continue to push growth in perks member acquisition.

Robert D. Wright: As a way to expose our newer customers to the best experience and value Potbelly has to offer.

Robert D. Wright: And everyday value it's.

Robert D. Wright: It's clear to us that consumers of all income brackets and use our help managing their budget pressures.

Robert D. Wright: Our customers give us significant credit for our everyday value today, including our picture pair combinations and skinny-sized sandwiches. We've been developing additional ways to deliver value to both in-shop customers and those that engage more often with our digital platforms. Our intent with these expanded everyday value options is to provide an additional access point to the brand and build increased frequency.

Robert D. Wright: Our customers give us significant credit for our everyday value today, including our picture pair combinations and skinny sized sandwiches.

Robert D. Wright: We've been developing additional ways to deliver value to both in shop customers and those that engage more often with our digital platforms. Our intent with these expanded everyday value options is to provide an additional access point to the brand and build increased frequency.

Robert D. Wright: Now turning to the drivers of our business, let's start with the Potbelly Digital Experience. For the quarter, our digital business represented approximately 41% of our total shop sales, an increase of approximately 200 basis points versus last year, driven in large part by ongoing progress in our Perks Loyalty Program. In January, as we spoke about last quarter, we further strengthened our digital platform with the launch of our enhanced Potbelly Perks loyalty program.

Robert D. Wright: Now turning to the drivers of our business, let's start with the Potbelly digital experience for the quarter. Our digital business represented approximately 41% of our total shop sales an increase of approximately 200 basis points versus last year driven in large part by ongoing progress in our perks loyalty program.

Robert D. Wright: In January as we spoke to last quarter, we further strengthened our digital platform with the launch of our enhanced potbelly perks loyalty program.

Robert D. Wright: The Upgraded Perks Program celebrates what our customers love the most about Potbelly, great food. Perks members can earn rewards faster than ever before and have more of our menu items available for reward redemptions by using a broader range of coins to do so.

Robert D. Wright: Great Perks program celebrates what our customers love the most about potbelly great food.

Robert D. Wright: Perks members can earn rewards faster than ever before.

Robert D. Wright: And have more of our menu items available for reward redemptions by using a broader range of coins to do so we're so proud to say that we're seeing the expected customer behavior under the new program and we consider the transition to be a big success.

Robert D. Wright: We're so proud to say that we're seeing the expected customer behavior under the new program, and we consider the transition to be a big success. As we've said in recent quarters, we continue to see a shift in our digital business away from third-party channels and towards Potbelly's owned app, web, and Perks-originated orders. We continue to view this as a positive shift. We saw strong growth in our Perks sales, orders, and active users during the quarter. In fact, Perks' active members were up 36% year-over-year.

Robert D. Wright: As we've said in recent quarters, we continue to see a shift in our digital business away from third party channels and towards Potbellies own App web and perks originated orders. We continue to view this as a positive shift we saw strong growth in our perks sales orders and active users during the quarter in fact perks active member.

Robert D. Wright: We're up 36% year over year.

Robert D. Wright: While the Potbelly digital experience has been a significant area of growth for us in recent quarters and years, we are not standing still. When customers utilize our digital platforms, it not only ensures a better experience but also allows us to more effectively communicate with and market to them. We maintain an extensive roadmap of digital enhancements aimed at continually improving our Potbelly digital experience to best suit customers' needs, expectations, and reduce friction while driving Potbelly brand awareness, customer engagement, and business results.

Robert D. Wright: While the Potbelly digital experience has been a significant area of growth for us in recent quarters and years, we are not standing still.

Robert D. Wright: Customers, who utilize our digital platforms that not only ensures a better experience, but also allows us to more effectively communicate with and market to them.

Robert D. Wright: We maintain an extensive roadmap of digital enhancements aimed at continually improving our potbelly digital experience the best food customers needs expectations, and reduce friction, while driving potbelly brand awareness customer engagement and business results.

Robert D. Wright: Now, delighting customers with great food and good vibes is always the foundation for sales growth, and I'm pleased with our strong shop operations and the continued progress of our marketing initiatives in fueling our traffic-driven sales growth strategy. Beginning in the second quarter, we introduced the jalapeno popper chicken along with the dulce de leche cookie and the cinnamon churro shake.

Robert D. Wright: Now the lighting customers with great food and goodbyes, there's always the foundation for sales growth and I'm pleased with our strong shop operations and the continued progress of our marketing initiatives and fueling our traffic driven sales growth strategy.

Robert D. Wright: Beginning in the second quarter, we introduced the hull opinion proper chicken, along with adult say DLH, a cookie and the cinnamon churros shake.

Robert D. Wright: While the success of each of these promotions to date is encouraging, we're not stopping there. As we move through the remainder of the year, you should expect to see additional limited-time offers of our hot oven-toasted sandwiches, fresh-baked daily cookies, and hand-dipped shakes. In addition, we expect to bring back more underground menu items this year as well.

Robert D. Wright: While the success of each of these promotions to date is encouraging we're not stopping there.

Robert D. Wright: As we move through the remainder of the year you should expect to see additional limited time offers of our hot oven toasted sandwiches.

Robert D. Wright: Fresh baked daily cookies and hand dipped shakes. In addition, we expect to bring back more underground menu items this year as well.

Robert D. Wright: Importantly, we know that today's consumers are more than ever looking for value when they choose to eat out. The first pillar of our five-pillar strategy has always been great food at a good value, and we've taken great care to protect our value position. We enjoy strong value ratings overall as well as from our digital and perks loyalty members, who are among our most frequent customers. But we believe we can do more. It's clear that less frequent customers are looking for everyday value options to support their pressured wallets.

Robert D. Wright: Partly we know that today's consumers more than ever are looking for value when they choose to eat out.

Robert D. Wright: The first pillar of our five pillar strategy has always been great food at a good value and we've taken great care to protect our value position.

Robert D. Wright: We enjoy strong value ratings overall as well as from our digital and perks loyalty members, who are among our most frequent customers.

Robert D. Wright: We believe we can do more.

Robert D. Wright: It's clear that less frequent customers are looking for everyday value options to support their pressured wallets.

Robert D. Wright: We have the tools and strategies to support this customer group by building on everyday value already in our core menu, such as the Meal Deal and Pick Your Pair options, and look forward to expanding on these offerings throughout the year. Now let me update you on our Franchise Growth Acceleration Initiative. Our franchising team continues to make great progress building towards our goal of 2,000 units in the U.S. And, as I mentioned earlier, we are pleased to add 32 franchise shops to the pipeline during the first quarter, bringing our total to 642 open and committed shops.

Robert D. Wright: We have the tools and strategies to support this customer group by building on everyday value already in our core menu meal.

Robert D. Wright: Meal deal and pick your pair options and look forward to expanding on these offerings throughout the year.

Robert D. Wright: To put that in perspective, that equates to 26 percent growth versus the 508 open and committed shops in the first quarter of 2023. We believe our ability to consistently attract high-quality franchisees has been driven by three major factors. One, Potbelly is an incredibly strong brand with 47 years of success with our customers in markets all across the country, and yet we still have significant multi-unit market development potential in areas like the South, the Southeast, and the West.

Robert D. Wright: Now, let me update you on our franchise growth acceleration initiatives are.

Robert D. Wright: Our franchising team continues to make great progress building towards our goal of 2000 units in the U S and as I mentioned earlier, we are pleased to add 32 franchise shops to the pipeline during the first quarter, bringing our total to 642 open and committed shops to put that in perspective that equates to 26.

Robert D. Wright: <unk> percent growth versus the 508 open uncommitted shops in the first quarter of 2023.

Robert D. Wright: Number two, we've invested heavily in our systems and tools that support franchising and franchisees, particularly in the areas of operations, marketing, and development. You see, franchisees see us as a franchise company through and through. And, number three, last but certainly not least, franchisees are attracted to our strong unit-level operating and investment economics, led by a two-to-one sales-to-investment ratio with our system AUVs of approximately $1.3 million and an investment cost as low as approximately $650,000. However, despite our investment costs already being compelling when compared to the industry, we are never satisfied.

Robert D. Wright: We believe our ability to consistently attract high quality franchisees has been driven by three major factors.

Robert D. Wright: One potbelly has an incredibly strong brand with 47 years of success with our customers in markets all across the country. Yet we still have significant multi unit market development potential in areas like the south the southeast and the west.

Robert D. Wright: Number two we've invested heavily in our systems and tools that support franchising and franchisees.

Robert D. Wright: Generally in the areas of operations marketing and development.

Robert D. Wright: See franchisees see us as a franchise company through and through.

Robert D. Wright: And number three last but certainly not least franchisees are attracted to our strong unit level operating and investment economics led by two to one sales to investment ratio with our system, a raise of approximately $1.3 million and an investment cost as low as approximately $650000.

Robert D. Wright: Despite our investment costs already being compelling when compared to the industry. We are never satisfied.

Robert D. Wright: Our shops currently average approximately 2,300 square feet, and we're excited to announce the introduction of our new prototype shop that is now only approximately 1,800 square feet, an average reduction of 500 square feet, positively impacting leasing and construction costs for new shops. This new prototype is designed to be more digitally centric, along with improved customer flows. Bottom line, we believe the new design simultaneously enhances the historic, traditional in-shop experience and improves the digital experience for our customers and associates alike.

Robert D. Wright: Our shops currently average approximately 2300 square feet.

Robert D. Wright: And we're excited to announce the introduction of our new prototype shop that is now only approximately 1800 square feet, an average reduction of 500 square feet positively impacting leasing and construction costs of new shops.

Robert D. Wright: This new prototype is designed to be more digitally centric along with improved customer flows bottom line. We believe the new designs simultaneously enhances the historic traditional in shop experience.

Robert D. Wright: And improves the digital experience for our customers and associates alike.

Robert D. Wright: Importantly, the prototype is flexible to support our growth in the varied lease spaces our franchisees are developing. In partnership with our design and engineering team, our franchisees will be able to fit the new prototype into each location they lease. And as a reminder, PDK, or Potbelly Digital Kitchen, is standard equipment in all new Potbelly locations as well.

Robert D. Wright: Importantly, as well the prototype is flexible to support our growth in the very least spaces, our franchisees are developing.

Robert D. Wright: In partnership with our design and engineering team, our franchisees will be able to fit the new prototype into each location they lease.

Robert D. Wright: And as a reminder, PTK or potbelly digital kitchen is standard equipment, and all new potbelly locations as well.

Robert D. Wright: We believe this new prototype will bring additional flexibility and cost savings to our franchisees as they search for the optimal site to build Potbelly shops. Our brand design team and engineering teams have been working on the new prototype since last year, and we began shifting all our planning and permitting to the new design several months ago. In fact, our first franchise shop with a new design is expected to open this month in Arkansas.

Robert D. Wright: We believe this new prototype will bring additional flexibility and cost savings to our franchisees as they search for the optimal site to build potbelly shops.

Robert D. Wright: Our brand design team and engineering teams have been working on the new prototypes since last year, and we began shifting all our planning and permitting to the new design several months ago.

Robert D. Wright: In fact, our first franchise shop with the new design is expected to open this month in Arkansas.

Robert D. Wright: As we look at our development pipeline, the first quarter saw the opening of three new franchise shops. Importantly, our momentum is building, as we expected, into the second quarter. As we look to the full year, we have 30 units in various stages of the 2024 development cycle. We also have another 10 units in early stages of development that are expected to open in the latter months of 2024 or in 2025, with the work of Adam Noyes and his development team.

Robert D. Wright: As we look at our development pipeline in the first quarter saw the opening of three new franchise shops importantly, our momentum is building as we expected into the second quarter as we looked at the full year. We have 30 units in various stages of the 'twenty 'twenty four development cycle. We also have another 10 units in early stages of development that are expected to open in the later.

Robert D. Wright: That's a 'twenty 'twenty four or in 2025.

Robert D. Wright: With the work of Adam noise and his development team.

Robert D. Wright: We expect our annualized fourth-quarter run rate to put us in a solid position to achieve our long-term growth range of low double-digit unit growth annually over the coming years. With that, I'll now turn the call over to Steve to detail our financial performance for the quarter.

Robert D. Wright: We expect our annualized fourth quarter run rate to put us in a solid position to achieve our long term growth range of low double digit unit growth annually over the coming years.

Robert D. Wright: With that I'll now turn the call over to Steve to detail, our financial performance for the quarter.

Steven W. Cirulis: Thank you, Bob. Good afternoon, everyone.

Steve: Thank you Bob good afternoon, everyone.

Steven W. Cirulis: Revenues in the first quarter decreased approximately 6.0% to $111.2 million, mainly driven by the short-term revenue impact of last year's re-franchising transaction. Average weekly sales were approximately $24,250, up approximately 1.6%, and system-wide sales of $134.2 million grew by approximately 1.9%. Same store sales were down 20 basis points in the quarter. Despite this, we continued to take sales and traffic share from both the broader restaurant industry and the fast casual industry during the quarter.

Steve: Revenues in the first quarter decreased approximately 6.0% to $111 $2 million majority driven by the short term revenue impact of last year's Refranchising transactions.

Steven W. Cirulis: Average weekly sales were approximately $24250 up approximately one 6% and system wide sales of $134 $2 million grew by approximately one 9%.

Steven W. Cirulis: Store sales were down 20 basis points in the quarter.

Steven W. Cirulis: Despite this we continued to take sales and traffic share from both the broader restaurant industry as well as the fast casual industry during the quarter.

Steven W. Cirulis: Turning to expenses, food, beverage, and packaging costs were 27.2% of shop sales, a 70 basis point improvement versus the prior year period. Overall Q1 Commodity Inflation was greatly improved at negative 170 basis points versus last year. Meat, primarily turkey, retreated the most year over year, and we saw some relief in our grocery category, which includes produce, soup, condiments, and cookies. Labor expenses were 30.0% of sales, a 120 basis point improvement versus the prior year period. This improvement is primarily attributed to ongoing optimization of our hours-based labor guide.

Steven W. Cirulis: Turning to expenses food beverage and packaging costs were 27, 2% of shop sales, a 70 basis point improvement versus the prior year period.

Steven W. Cirulis: Overall Q1 commodity inflation was greatly improved at negative 170 basis points versus last year.

Steven W. Cirulis: Meet primarily Turkey retreated the most year over year and we saw some relief in our grocery category, which includes Proteus, Duke condiments and cookies.

Steven W. Cirulis: Labor expenses were 30.0% of sales, a 120 basis point improvement versus the prior year period.

Steven W. Cirulis: This improvement is primarily attributed to ongoing optimization of our hours face Labor guide.

Steven W. Cirulis: Occupancy was 10.9% of sales, a 50 basis point improvement versus the prior year period. The improvement was driven by the re-franchising of our New York City market in Q1 last year, which carried higher-than-average occupancy costs. Other operating expenses were 18.4% of sales, a 90 basis point increase versus the prior year period. This was predominantly due to increased brand fund spend. Overall, shop-level margins in the fourth quarter were 13.5 percent, an increase of 150 basis points year-over-year, inclusive of a one-time legal settlement gain that we mentioned last quarter. General and administrative expenses were 8.6% of system-wide sales.

Steven W. Cirulis: Occupancy was 10, 9% of sales.

Steven W. Cirulis: 50 basis point improvement versus the prior year period.

Steven W. Cirulis: Improvement was driven by the Refranchising of our New York City market in Q1 last year, which carried higher than average occupancy costs.

Steven W. Cirulis: Other operating expenses were 18, 4% of sales a 90 basis point increase versus the prior year period.

Steven W. Cirulis: This was predominantly due to increased brand fund spend.

Steven W. Cirulis: Overall shop level margins in the fourth quarter were 13, 5% an increase of 150 basis points year over year inclusive of a one time legal settlement gain and we mentioned last quarter.

Steven W. Cirulis: General and administrative expenses were eight 6% of system wide sales a.

Steven W. Cirulis: The year over year increase in G&A was different primarily by stock compensation and increased payroll costs to fuel our development efforts.

Steven W. Cirulis: The year-over-year increase in G&A was driven primarily by stock compensation and increased payroll costs to fuel our development efforts. First quarter adjusted EBITDA was $5.7 million, or 5.1% of total revenue. This was approximately flat year over year, driven by the impact of refranchising and investments in development G&A, mostly offset by a 150 basis point improvement in shop level margin. Importantly, we saw a 40 basis point improvement in adjusted EBITDA margin as we continue our transition to a higher margin franchise business model. We reported a net loss of $2.8 million for the quarter, the majority driven by the accounting treatment of our debt refinance.

Steven W. Cirulis: First quarter, adjusted EBITDA was $5 $7 million or five 1% of total revenue.

Steven W. Cirulis: This was approximately flat year over year, driven by the impact of Refranchising and investments and development G&A, mostly offset by a 150 basis point improvement in shop level margin.

Steven W. Cirulis: Importantly, we saw 40 basis point improvement in adjusted EBITDA margin as we continue our transition to a higher margin franchise business model.

Steven W. Cirulis: We reported a net loss of $2 $8 million for the quarter majority driven by the accounting treatment of our debt refinancing.

Steven W. Cirulis: We replaced our $25 million term loan with a $30 million revolving credit facility that provides us with ongoing financial flexibility. Adjusted net income was $0.2 million, a $0.4 million decrease versus the prior year period. This decrease was primarily due to similar drivers affecting adjusted EBITDA, as well as higher stock comp expense compared to 2023, partially offset by lower interest expense from our refinanced debt. Also, I'm pleased to announce that our Board of Directors has authorized a $20 million share repurchase program.

Steven W. Cirulis: We replaced our $25 million term loan with a $30 million revolving credit facility.

Steven W. Cirulis: Provides us with ongoing financial flexibility.

Steven W. Cirulis: Adjusted net income was $22 million $8 $4 million decrease versus the prior year period.

Steven W. Cirulis: This decrease was primarily due to similar drivers affecting adjusted EBITDA as well as higher stock comp expense compared to 2023, partially offset by lower interest expense from our refinanced debt.

Steven W. Cirulis: Also I'm pleased to announce that our board of directors has authorized a $20 million share repurchase program.

Steven W. Cirulis: This is driven by their confidence in the sustainability of the momentum in our business, our strong balance sheet, and the increased predictability of our cash flows as a franchise business model. Given our flexible capital structure, this is an additional tool that management now has to continue to create shareholder value. Finally, I would now like to provide you with the following guidance items.

Steven W. Cirulis: This is driven by their confidence in the sustainability of the momentum in our business, our strong balance sheet and the increased predictability of our cash flows as a franchise business model.

Steven W. Cirulis: Given our flexible capital structure. This as an additional tool that management now has to continue to create shareholder value.

Steven W. Cirulis: Finally, I would now like to provide you with the following guidance items.

Steven W. Cirulis: For the full year 2024, we anticipate the following: Same-store sales growth in the low single digits, unit growth of approximately 10%, and adjusted EBITDA growth in the mid to high single digits. The adjusted EBITDA growth expectations for 2024 incorporate our slower Q1 performance and overcome the effects of refranchising 33 shops and a 53rd week in 2023. The impact of refranchising on our adjusted EBITDA growth rate is most pronounced in the first three quarters of 2024, as the majority of our refranchised sales occurred in the second half of 2023, with the Strength of Our Operating Model and Management Team.

Steven W. Cirulis: For the full year 2024, we anticipate the following.

Steven W. Cirulis: Same store sales growth in the low single digits.

Steven W. Cirulis: Unit growth of approximately 10%.

Steven W. Cirulis: And adjusted EBITDA growth in the mid to high single digits.

Steven W. Cirulis: The adjusted EBITDA growth expectations for 2024 incorporate a slower Q1 performance and overcome the effect of Refranchising thirty-three shops, and the 50 <unk> week in 2023.

Steven W. Cirulis: The impact of Refranchising on our adjusted EBITDA growth rate is most pronounced in the first three quarters of 2024.

Steven W. Cirulis: The majority of our re franchise sales occurred in the second half of 2023.

Steven W. Cirulis: With the strength of our operating model and management team.

Steven W. Cirulis: We expect to be able to achieve mid to high single-digit adjusted EBITDA growth for the year. For the second quarter of 2024, we anticipate the following: same store sales growth of between 0% and 2% and adjusted EBITDA of between $7,008,500,000. With that, I'll turn the call back over to Bob.

Steven W. Cirulis: We expect to be able to achieve mid to high single digit adjusted EBITDA growth for the year.

Steven W. Cirulis: For the second quarter of 2024, we anticipate the following.

Steven W. Cirulis: Same store sales growth of between zero.

Bob: And 2%.

Bob: And adjusted EBITDA of between 7 million and eight and a half million dollars.

Steven W. Cirulis: With that I'll turn the call back over to Bob.

Bob: Thanks, Steve.

Robert D. Wright: Despite the macro headwinds during the first quarter, we are thrilled with what 2024 has in store for us. First, we have an extensive roadmap of digital enhancements that we believe will further strengthen our Potbelly digital experience. Second, our marketing initiatives continue to support our traffic-driven sales growth strategy. And finally, our franchise growth initiative is progressing very well as we build toward our goal of 2,000 units in the U.S., putting us in a position to achieve our long-term growth range of low double-digit unit growth annually over the coming years.

Steven W. Cirulis: Despite the macro headwinds during the first quarter, we are thrilled with what 2024 has in store for US first we have an extensive road map of digital enhancements that we believe will further strengthen our potbelly digital experience.

Robert D. Wright: Our marketing initiatives continue to support our traffic driven sales growth strategy and finally, our franchise growth initiative is progressing very well as we build toward our goal of 2000 units in the U S. Putting us in a position to achieve our long term growth range of low double digit unit growth annually over the coming years.

Robert D. Wright: The work our teams have done for the past two years has positioned us to capitalize on the opportunities ahead, and we look forward to sharing additional updates in the coming quarters. In closing, I would like to thank all of our Potbelly team members, from our frontline associates to our support center employees, and, of course, our franchisees and their teams, for their hard work and commitment to making Potbelly the most loved sandwich brand in every neighborhood. With that said, we're happy to answer any questions. Operator, please open the line for questions. We will now begin the test.

Robert D. Wright: The work our teams have done for the past two years have positioned us to capitalize on the opportunities ahead, and we look forward to sharing additional updates in the coming quarters.

Robert D. Wright: In closing I would like to thank all of our Potbelly team members from our frontline associates to our support center employees and of course, our franchisees and their teams for their hard work and commitment to making potbelly. The most loved sandwich brand in every neighborhood.

Robert D. Wright: With that we're happy to answer any questions. Operator, please open the line for questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question is from Mark Smith with Lake Street Capital Markets. Please go ahead.

Robert D. Wright: We will now begin the question and answer session.

Mark Eric Smith: To ask a question you May press Star then one on your telephone keypad.

Mark Eric Smith: If youre using a speakerphone please pick up your handset before pressing the keys.

Operator: To withdraw your question. Please press Star then two.

Operator: At this time, we will pause momentarily to assemble our roster.

Operator: Our first question is from Mark Smith with Lake Street Capital markets. Please go ahead.

Alex Sturnieks: Hey guys, this is Alex Sturnieks on the line today for Mark Smith. Thanks for taking my questions. First one for me, as we look at consumer behavior throughout the quarter, did you guys see any trends with comps sequentially? And then, to add on to that, are you seeing any consumer shifts in different locations, maybe anything from a CBD location to a suburban store standpoint?

Operator: Hey, guys. This is Alex attorneys on the line today for Mark Smith, Thanks for taking my questions.

Alex Sturnieks: First one for me as we look at consumer behavior throughout the quarter did you guys see any trends with comps sequentially and then to add onto that have you seen any consumer shifts with different locations, maybe anything from a CBD location to a suburban stores standpoint.

Alex Sturnieks: Yeah.

Robert D. Wright: Yeah, Alex, thanks for the question. I think that what we saw, first of all, is probably similar to what you're hearing about the industry, that January was certainly the softer month of the quarter, some of that's weather and, you know, could just be more seasonality returning to those consumer behaviors, but February and March certainly started to strengthen. And as we mentioned, even into the second quarter, we're seeing those positive sales return to us. I think both the internal data that we have with all of our digital business and then the syndicated data that we have access to.

Speaker Change: Yeah, Alex Thanks for the question.

Robert D. Wright: You know I think that what we saw first of all is probably similar to what you're hearing about the industry that our January was certainly the softer months of the quarter. Some that's a weather and you know it could just be more seasonality returning to those consumer behaviors, but.

Robert D. Wright: February and March are certainly started to strengthen and as we mentioned even into the second quarter. We're seeing those positive sales returned to US I think our both our internal data that we have with all of our digital business and then the syndicated data that we we have access to.

Robert D. Wright: Our indication is that there's a slight pullback in the more infrequent customer and the infrequent consumer. To be clear, these are our customers. They're coming to Potbelly, but they're clearly managing their wallets a little bit more, maybe than even a year ago.

Robert D. Wright: Our our indication is that there's just a there's a slight pullback in the more infrequent customer and the infrequent consumer to be clear. These are our customers, they're they're coming to potbelly, but there.

Robert D. Wright: Clearly managing their wallet a little bit.

Robert D. Wright: And that's why you heard some of my remarks about how we've got this great everyday value platform we've had at Potbelly all these years, really going back to 2021 when we rebuilt the menu. That was a big part of the work we did to work on the menu. But we think we can do more.

Robert D. Wright: More maybe than even a year ago.

Robert D. Wright: And that's that's why you heard some of my remarks about how we we've got this great everyday value platform. We've had a potbelly all this all these years really going back to 2021, when we rebuilt the menu that was a big part of the work we did to work on the menu.

Robert D. Wright: And we think that that's going to be an area of focus for us. When you hear all of the numbers that we shared on the digital growth that we had in the quarter, those are our most frequent consumers. Those are the ones that we can see the data most clearly. It's the reason that we continue to bring people into that frequency funnel, starting off as a customer that begins to visit the shop.

Robert D. Wright: But we think we can do more and and we think that that's that's going to be an area of focus for us. When you. When you hear all of the numbers that we shared on the digital growth that we had in the quarter.

Robert D. Wright: Those are our most frequent consumers those are the ones that we can see the data. Most clearly it's the reason that we continue to bring people into that frequency funnel I'm starting off as a as a customer that begins to visit the shop and they they start becoming a little more frequent little a little more affinity for the brand we draw them into our digital app.

Robert D. Wright: And then they start becoming a little more frequent, a little more affinity for the brand. We draw them into our digital assets and eventually get them into the perks membership. And so we think we've analyzed it more as a frequency, a slight shift in frequency that we think we can address.

Robert D. Wright: And eventually get them into the perks membership and so we think we've analyzed it more as a frequency a slight shift in frequency that we think we can address.

Robert D. Wright: Yeah, no, that's helpful. And then last one for me... Could you give any updates on your desire to sell company units or the demand from others to purchase existing company locations? I know you previously mentioned being more selective about where and when, but just curious if that has changed at all.

Speaker Change: Got it yeah no. That's helpful and then last one for me.

Robert D. Wright: Would you give any updates on your desire to sell company units or the demand from others to purchase existing company locations I know, you've previously mentioned being more selective about where and when but just curious if that has changed at all.

Robert D. Wright: Yeah, look, I think the strategy is still the same. What you see in the numbers is that we're deploying the strategy a little, you know, a little more judiciously than we have in the past. It has always been that we would re-franchise to catalyze growth. And what you see with our continuing growing number of open and committed shops, and the new commitments that we got in Q1, and what we can see that we obviously haven't announced until each quarter comes along, what we can see in the pipeline, we're really pleased with our development efforts.

Robert D. Wright: Yeah look I think the strategy is still the same what you see in the numbers is that a we're deploying the strategy with a little you know a little more judiciously than we have in the past. It has always been that we would re franchise to catalyze growth.

Robert D. Wright: And what you'll see with our continuing growing number of open and committed shops and the new commitments that we got in Q1, and what we can see that we obviously haven't announced until each quarter comes along where we can see in the pipeline. We're really pleased with our development efforts and even if you take the the Washington D. C market as an example.

Robert D. Wright: And even if you take the Washington, D.C., market as an example, we did re-franchise some locations there, but we're still operating in that market with company units and franchise units. And, you know, brands are very comfortable doing that.

Robert D. Wright: We did re franchised locations there, but we're still operating in that market with company units and franchise units and brands were very comfortable doing that so I think that continues to be something that we'll do will be a little more careful about it we shared with you last quarter, we thought there'd be a lot fewer of those this year out of that hundred.

Robert D. Wright: So I think that continues to be something that we'll do, but we'll be a little more careful about it. As we shared with you last quarter, we thought there'd be a lot fewer of those this year. Out of that hundred, roughly a third of them have been sold, and again, we're still willing to go with the rest, but we're in no rush to do that if it isn't a significant part of our growth.

Robert D. Wright: Roughly a third of them.

Robert D. Wright: They have been sold and again were still willing to go with the rest, but we're in no rush to do that if it isn't a significant part of our growth.

Alex Sturnieks: Thank you for taking my questions today.

Speaker Change: Thank you for taking my questions today.

Robert D. Wright: You're welcome.

Alex Sturnieks: You're right excuse me. The next question is from Jeremy Hamblin with Craig Hallum. Please go ahead.

Jeremy Scott Hamblin: Thanks and congratulations on the strong results. I wanted to start with the franchise unit development. I think this is kind of a milestone here, if I'm not mistaken, the first time that the ending unit count is up on a year-over-year basis in like six years. So kudos on that.

Speaker Change: Thanks, and congrats on the strong results I wanted to start with the franchise.

Jeremy Scott Hamblin: Unit development I think this is kind of a milestone here if I'm not mistaken. The first time that are the ending unit count is up on a year over year basis in like six years or.

Jeremy Scott Hamblin: So kudos on that and I wanted to make sure that I heard the details behind you know the the shovels in the ground so to speak.

Jeremy Scott Hamblin: And I wanted to make sure that I heard the details behind, you know, the shovels in the ground, so to speak, in units in progress. Did you say you had 30 that were in progress today, and then 10 that were in the early stages? I wanted to get a sense if you could help us think about the pace of franchise unit openings this year, and then, as a back part of that question, how long does it take once you start in on a unit, you know, kind of from getting the first work done to completing the unit and getting it open?

Jeremy Scott Hamblin: And units in progress did you say you had 30 that were in progress today and then <unk>.

Jeremy Scott Hamblin: Ken that we're in the early stages I wanted to get a sense. If you could help us think about the cadence of franchise unit openings. This year and then as the back part of that question you know how long does it take once you start a even on a unit you don't kind of from getting the <unk>.

Jeremy Scott Hamblin: First work done to complete and the unit and getting it open.

Robert D. Wright: Yeah, Jeremy, thank you. And you're right; we're celebrating that milestone as well. It's really good to be growing again, and obviously, we're in the very, very early innings of delivering those new units. We're really pleased. I'll start with the back end because I think it informs the pipeline a little bit. There was a time when it took much longer to develop a potbelly, but today we've got it down to between 11 and 12 months.

Speaker Change: Yeah, Jeremy Thank you and you're right, we're celebrating that milestone as well. It's it's a it's really good to be growing again and obviously, we're in the very very early innings of delivering those new units. So we're really pleased.

Robert D. Wright: I'll I'll start with the back end, because I think it informs the pipeline a little bit there was a time when it took much longer to develop a potbelly, but today, we've got it down to between 11 and 12 months we mentioned.

Robert D. Wright: Oh gosh more than a year ago, how we reorganize the development function split that between our franchising efforts all focused on franchise sales and then everything from the the real estate all the way to opening in the construction and engineering and between those reports in two different leaders on the S. L T.

Robert D. Wright: We mentioned... Gosh, more than a year ago, how we reorganized the development function, split that between our franchising efforts, all focused on franchise sales, and then everything from the real estate all the way to opening and the construction and engineering in between, those reports to two different leaders on the SLT. As a result, that re-engineered timeline means we can, from the time we sign a deal, open a unit in less than a year.

Robert D. Wright: As a result Ah that that Reengineered timeline means weekend from the time, we sign a deal.

Robert D. Wright: We can open a unit in less than a year.

Robert D. Wright: So you can imagine the fact that we just get deeper and deeper into these deals we have the ability to to open units are at an ever accelerating rate.

Robert D. Wright: So you can imagine the fact that we just get deeper and deeper into these deals. We have the ability to open units at an ever-accelerating rate. There, you know, that does vary a little bit by unit and by location, but that's why our franchisees are working their entire market at one time and not simply looking for one site at a time. You asked about the pace of openings.

Robert D. Wright: There you know that does vary a little bit by unit by location, but that's why our franchisees are working their entire market at one time and not simply looking for one site at that time.

Robert D. Wright: You asked about the cadence of opening a that's going to reflect the deal timing that we went through last year. So that's why a lot of our our openings are a little more back loaded. This year, that's not unusual in the restaurant space anyway, I know you know that but we're going to continue to see some acceleration.

Robert D. Wright: That's gonna reflect the deal timing that we went through last year. So that's why a lot of our openings are a little more backloaded this year. That's not unusual in the restaurant space anyway.

Robert D. Wright: I know you know that, but we're gonna continue to see some acceleration and really some quickening, if you will, in Q2. But we're still very much a back-loaded opening schedule for the 2023 year. And that's why, you know, frankly, that's the reason we wanted to give you that exposure to the 30 and the 10.

Robert D. Wright: <unk> and and really some quickening if you will in Q2.

Robert D. Wright: But we're still very much a back loaded opening a schedule for the 2023 year.

Robert D. Wright: And that's why you know frankly, that's the reason we wanted to give you that exposure to the 30 and the 10, those 30 or our units. We can see in every stage of development. That's why we're counting them as you know in that in that <unk>.

Robert D. Wright: Those 30 are units we can see in every stage of development. That's why we're counting them as, you know, in that pipeline for 2024. And then you get a little deeper into that development cadence, and you can certainly get them open by the end of the year, but we all know that sometimes something might slip, and we wanted to start to separate those into categories. But I will also tell you that that isn't a full list. There is still time this year to add units to that pipeline, and we're working like crazy to do that as well.

Robert D. Wright: <unk> for 2024, and then you get a little deeper into that development cadence and you can certainly get them open by the end of the year, but we all know that sometimes something might slip and we wanted to start to separate those into categories. I will also tell you that that isn't a full list. There is still time this year to add units to them.

Robert D. Wright: That pipeline and we're working like crazy to do that as well.

Jeremy Scott Hamblin: Great, thanks for that color. I want to come back to the sales trends for a second and, you know, get a sense for what I think a lot of restaurants have called out that, you know, Easter had a bit of a negative impact on the March quarter. I wanted to get a sense for whether or not you saw that impact, particularly given your exposure in CBD areas. And then if we think about the customer spend. Are you seeing any change in terms of the average ticket? Are you seeing any check management from your customers?

Speaker Change: Great. Thanks for that color I wanted to come back to the sales trends for a second and you know like get a sense for I think a lot of our restaurants have called out that Easter you know had a bit of a negative impact on the March quarter, I wanted to get a sense for whether or not.

Jeremy Scott Hamblin: That if you saw that impact, particularly given your exposure in the CBD areas.

Jeremy Scott Hamblin:

Jeremy Scott Hamblin: And and then as we think about.

Jeremy Scott Hamblin: The customer spend are you seeing any change in terms of the average ticket are you seeing any check management from your customers.

Robert D. Wright: Yeah, look, the Easter flip from one quarter to the other is always going to affect us a little bit. And we're still more focused on the trends that we see through the quarter, what happened in January and then how we saw February and March start to blend together. And, you know, there's no question that there was probably a little bit of extra pressure on March because of that shift, but that's not really what we're pointing to because those holidays swing back the other way, too. Over the period of a quarter, it has an impact, but it's not one of the biggest ones we wanted to call out.

Speaker Change: Yeah look the Easter Easter flip from one quarter to the other is always going to affect us a little bit and yeah. We we still are more focused on the trends that we see through the quarter what happened in January and then how we saw the February and March start to blend together and.

Robert D. Wright: You know Theres no question that there was probably a little bit of extra pressure on march because of that shift but.

Robert D. Wright: That's that's not really what we're pointing to cause those holidays swing back the other way too and they over the period of a quarter. It. It's a it's an impact but it's not one of the biggest ones where you wanted to call out.

Robert D. Wright: And, you know, when it comes to customer spend, we've shared this in past quarters. We're watching those mixed numbers as indicators that customers are using our menu in a way that fits their budget. One of the great things about our three sizes is that you can move up and down those sizes. And there is some evidence with a little bit of a shift from bigs to originals or maybe originals to skinnies that there's some wallet management going on.

Robert D. Wright: And you know when it comes to customer spend we've shared this in past quarters, we're watching those mix numbers as indicators that customers, who are using our menu in a way that fits their budget.

Robert D. Wright: One of the great things about our three sizes is you can move up and down those sizes and they're there. There is some evidence are with a little bit of shift from bigs to originals or maybe originals to skinny that theres. Some wallet management going on the Great News is we have all of those sizes and people don't have to pull there their occasion completely from us if they can move around.

Robert D. Wright: The great news is we have all of those sizes, and people don't have to pull their occasion completely from us if they can move around the menu. But they're not dramatic or significant shifts, but I think they're indicators of where, you know, people are feeling some pressure.

Robert D. Wright: Many of you.

Robert D. Wright: But theyre not a they're not dramatic or significant shifts, but I think they are indicators of where you know people are feeling some pressure.

Jeremy Scott Hamblin: Got it. And then you guys made great progress on the restaurant level margins this quarter, particularly in light of a, you know, a flat comp, you know, 150 basis points. That's pretty impressive. One line item that you saw some deleverage in was your other operating expenses, I think, were down about 90 basis points, year over year. And, you know, wanted to see if you could provide a bit more color on that.

Speaker Change: Got it and then you guys made great progress on the restaurant level margins are this quarter, particularly good particularly in light of a you know a flat comp hum.

Jeremy Scott Hamblin: 150 basis points, that's pretty impressive.

Jeremy Scott Hamblin: Why not why an item that you saw some deleverage in <unk> was your other operating expenses I think was was down about 90 basis points.

Jeremy Scott Hamblin: Year over year and wanted to see if you could provide a bit more color on that I know that you are making progress on our you know, bringing more of the digital orders on you know through through your App. So I would think that maybe you would see your exposure to <unk>.

Jeremy Scott Hamblin: I know that you're making progress on, you know, bringing more digital orders on, you know, through your app. So I would think that maybe you would see your exposure to third-party delivery down. But, you know, any color that you could provide on what was the culprit there for the deleverage on other operating expenses and how we should think about that particular line item the remainder of the year. Yeah, sure.

Jeremy Scott Hamblin: Party delivery down, but you know any color you could provide on and what was the culprit. There on the on the deleverage on other operating expenses and how we should think about that particular line item are the remainder of the year.

Jeremy Scott Hamblin: Hi Jeremy, Yeah, I think we're really proud of the margin expansion that we experienced in the quarter, despite some of the consumer changes that we saw. But you'll have to remember, within that other operating expenses line for us is our brand fund. And in our conversations over the last several quarters, we've talked about how we took last year to ladder up our spend to that 3% of sales. And we didn't achieve that until the second half of the year.

Speaker Change: Yeah sure Hi, Jeremy.

Jeremy Scott Hamblin: Yeah, I think we're really proud of the margin expansion that we experienced in the quarter. Despite.

Jeremy Scott Hamblin: Some of the consumer.

Jeremy Scott Hamblin: Changes that we saw but you'll have to remember within that other operating expenses line for US is our brand fund.

Jeremy Scott Hamblin: And our conversations over the last several quarters, we've talked about how we took last year to ladder up our spend to that that 3% of sales and we didn't achieve that until the second half of the year. So lapping Q1 this year.

Steven W. Cirulis: So lapping Q1 this year, you can see the difference. We have more brand fund expense that sat in that other OPEX line Q1 this year versus what sat in that line last year. So that's really where a lot of it sits. We also have in there, obviously, our digital fees and so forth. And Q1 is interesting because there's always a little bit of a shift around the delivery piece because of the weather and so forth, but nothing that I think would outstrip the brand fund expense.

Steven W. Cirulis: See the the difference we have more brand fund expense that sat in that other opex line in Q1 this year.

Steven W. Cirulis: Versus what sat in that in that line last year, so that that's really where a lot of it a lot of it sits.

Steven W. Cirulis: We also we also have.

Steven W. Cirulis: In there obviously, our digital our digital fees and so forth and in the Q1 is interesting because you know there's always a little bit of a shift around the delivery piece because of the weather and so forth, but not nothing that I think would outstrip the brands on expense in and even though you know we've got restaurant March.

Steven W. Cirulis: And even though we've got restaurant margins where they are with some expansion, we're ultimately focused on our overall profitability at the corporate level and our ability to offset anything that we see on the restaurant margin line. We work to offset that with some savings at the corporate level, whether that be through corporate costs like G&A or otherwise. The other thing to mention, I think, which is important, particularly as we think about next year, some of our shop margin benefited from the third-party settlement that we had as well, as that is reflected in this quarter. But as we head into Q1 next year, we'll just have to just remember that that was there.

Steven W. Cirulis: <unk>, you know where they are with some expansion.

Steven W. Cirulis: We are ultimately focused on our on our overall profitability at the corporate level.

Steven W. Cirulis: And our ability to offset any any thing that we see on the on the restaurant margin line. You know we work to offset that with some some savings at the corporate level, whether that'd be through corporate costs like G&A or.

Steven W. Cirulis: Or otherwise so the other thing you mentioned I think which is important as particularly as we think about next year you know some of our our shop margin benefited from you know that the third party settlement that we that we had as well as as that is reflected in this quarter, but as we head into quarter. One next year, let's just remember that that was there but even.

Steven W. Cirulis: But even with the benefit of that settlement sitting in our shop margin, it was still an expansion, still an expanding quarter. Got it. And then just to clarify, of the 90 basis points, how much of it was due to the brand fund, was that, you know, 50 basis points or more like 75? It was a little more than half. It was more than half of the head.

Steven W. Cirulis: Even with that even with the benefit of that settlement sitting in our shop margin. It was still in an expansion a stone expanding quarter for us.

Steven W. Cirulis: Okay.

Steven W. Cirulis: Got it and then just to clarify of the 90 basis points, how much of it was.

Steven W. Cirulis: Was due to the brand fund was that you know 50 basis points or more like 75.

Steven W. Cirulis: It was little more than half of it was more than half of the.

Steven W. Cirulis: Of the hit.

Jeremy Scott Hamblin: Got it. And then, and then just the third-party settlement that the line item that that falls under. It got spread across a couple of line items within CHCOT margin. It sat within our F&P – sorry, it sat within our labor, and it sat within our other OPEX. It sat within labor because it affected our ability to schedule properly and so forth. And on the other OPEX line, it affected our ability to really kind of manage some of the details around how we report and some of those fees that come in from third parties, et cetera. So, kind of evenly split between those two items. Got it. Thanks for taking the questions and good luck this year.

Steven W. Cirulis: Got it and then and then just the third party settlement that the line item that that falls under.

Jeremy Scott Hamblin: It got spread across a couple of line items within Scott margin in fact within our.

Jeremy Scott Hamblin: Our F N P.

Jeremy Scott Hamblin: I'm, sorry, I sat within our our labor and it and is that within our other opex that sat within labor because it affected our ability.

Jeremy Scott Hamblin: <unk> scheduled properly.

Jeremy Scott Hamblin: And so forth and then on the other Opex line it affected our ability to really kind of manage some of that.

Jeremy Scott Hamblin: You know the details around how we report.

Jeremy Scott Hamblin: Those fees that come in from third parties et cetera, So I kind of evenly split among those too.

Jeremy Scott Hamblin: Those two items.

Speaker Change: Got it thanks for taking the questions and good luck this year.

Speaker Change: Thanks, Jeremy.

Todd Morrison Brooks: The next question is from Todd Brooks with the Benchmark Company. Please go ahead.

Jeremy Scott Hamblin: The next question is from Todd Brooks with the Benchmark company. Please go ahead.

Todd Morrison Brooks: Hey, thanks for taking my questions. I would like to lead off, Bob, I was excited to hear about the new work, Cementing the New Prototype. The 1800 square feet. I don't think, did you share a new build cost relative to the prior 650 that you're looking at for the new box?

Todd Morrison Brooks: Hey, Thanks for taking my questions, we'd like to lead off Bob I was excited to hear about the new work cementing the new prototype.

Todd Morrison Brooks: The 1800 square feet I don't think could you share a newbuild costs relative to the prior 650 that youre looking at for the new the new box.

Robert D. Wright: We didn't, not in the remarks, but we're happy to discuss it, Todd. I tell you, we're really excited about this. We've been working on it, as I mentioned, since last year, and it's not like we've been keeping a secret. We like to talk about things when we're really proud of the work, and not before that. You know, that's an average of 500 feet. First of all, let's make that clear. It's an average of 500 feet.

Speaker Change: We we didnt not not in the remarks, but happy to discuss it a time to tell you. We're really excited about this we've been working on it as I mentioned since last year and it's not like we've been keeping a secret we like to talk about things when we're really proud of the work and not not at before that but.

Robert D. Wright: You know that's an average to an average first of all let's make that clearer, but an average of 500 feet. If you look at today's average lease cost triple net charges. Those are those are hundreds of basis of points of of leasing a margin expansion for franchisees that are able to take advantage of that.

Robert D. Wright: If you look at today's average lease cost, triple net charges, those are hundreds of basis points of leasing margin expansion for franchisees that are able to take advantage of that. And so that's where the big win is, on the OPEX side of things. The other thing is, you know, I'm sure you've talked to many restaurant companies, but the inflation that hit every bit of the economy hit construction and durable goods pretty hard. And a lot of our 650 is rooted in some historical costs that go back even before a lot of that inflation hit.

Robert D. Wright: And so that's where the big win is the Opex side of things. The other thing as you know I'm sure you've talked to many restaurant companies, but the inflation that hit every bit of the economy hit construction.

Robert D. Wright: And durable goods pretty hard and a lot of our 650 is rooted in some historical costs that that go back even before a lot of that inflation hit. So we will keep you posted as we build more of them and you know the same team that's been extracting costs out of our operating model, but these last three years is the one that.

Robert D. Wright: So we will keep you posted as we build more of them. And, you know, the same team that's been extracting costs out of our operating model for these last three years is the one that oversees this work. So we're just getting started on building it as efficiently as possible. I will tell you this, while we don't publish their numbers, the more recent franchise openings, While not formally the prototype, we've been, you know, we've been bringing some of the elements of that design into some of these more recent openings.

Robert D. Wright: Overseas. This work. So we're just getting started on building it as efficiently as possible I will tell you. This while we don't publish their numbers the more recent franchise openings, while not formally the prototype we've been you know we've been bringing some of the elements of that design into some of these more recent.

Robert D. Wright: We didn't want to go all the way and have to re-permit and do redone drawings, but you can get some of the aesthetic elements of those things in there. But our more recent franchise builds have been less than our published average of $650. So one of the greatest things about the franchise business is that they're gonna help us find ways to improve the investment economics on these builds. And then, because we've got the engineering teams and the more contractors we get involved, I think our best days are ahead on costs.

Robert D. Wright: <unk>, we didn't want to go all the way and have to re permit and do redone drawings, but you can get some of the aesthetic elements and those things in there, but our more recent franchise builds have been less than our published average of 650. So it's the one of the greatest things about the franchise businesses that theyre going to help us find ways to.

Robert D. Wright: To improve the the investment economics on these bills and then because we've got the engineering teams and you know the more contractors when we get involved I think I think our best days are ahead, all the costs.

Todd Morrison Brooks: That's great. Two follow-ups, if I may, in the discussion with potential franchising partners. Now that you can point to this prototype, their excitement is just kind of accelerating the whole effort. If you can build the box at 1,800 square feet, make the same AUVs and do it at a lower cost, how much easier is that making it to sell new units? And then

Speaker Change: That's great two follow ups, if I may one.

Todd Morrison Brooks: In the discussion with potential franchise partners now that you can point to this prototype.

Todd Morrison Brooks: Their excitement.

Todd Morrison Brooks: Accelerating the whole lot forgive if you can build the box at 1800 square feet to the same au vs and do it at a lower cost how much easier or is that making it to sell new units and then.

Robert D. Wright: If I think about the work that you do for the franchisees as far as site identification within a market, how much does the 1800 square foot footprint open up the number of sites that some of these franchisees have to choose from in the market as well?

Todd Morrison Brooks: If I think about the work that you do for the franchisees as far as site identification within the market.

Robert D. Wright: How much does the 1800 square foot footprint opened up the number of sites that some of these franchisees have to choose from in the market as well.

Robert D. Wright: Yeah, both of those are advantages. We've been putting this prototype work in our Discovery Day materials for a couple of quarters now, so we have been seeing the benefit of those franchisees that are interested in signing development deals with us. They've had some exposure to what we've been working on while we've been getting everything engineered and finalized, and they're very excited about it.

Robert D. Wright: Yeah. Both of those are advantages we have we've been putting this prototype work in our discovery day materials for a couple of quarters now. So we have been seeing the benefit of those those franchisees that are interested in <unk>.

Robert D. Wright: In signing development deals with us they've had some exposure to what we've been working on while we've been getting everything engineered and finalized and they're very excited about it.

Robert D. Wright: And, you know, I tried to be careful with what I said in the remarks that, you know, our ability to fit their real estate is one of the big things. In the world I come from in QSR, a prototype was a fixed, specific box. It was exactly the same size every time you built it. I mean, down to the inches the counter was from the front door, and so on and so forth.

Robert D. Wright: And you know.

Robert D. Wright: I tried to be careful with what I've said in the in the remarks that you know our ability to fit their real estate is one of the big things you know the world I come from in Q S. R. A prototype was a was a fixed.

Robert D. Wright: Specific box it was exactly the same size every time you built it I mean down to the inches. The counter was from the front door and so on and so forth.

Robert D. Wright: Our prototype is a standard build from which you then fit it into a shop. Some of these are a little more square, some are a little more rectangle. We've built and designed some recently that are, they look a little more triangular than they do.

Robert D. Wright: Our prototype as a standard build from which you then fit it into a shop. Some of these are a little more square some are a little more rectangle, we built and designed some recently there.

Robert D. Wright: They look a little more triangular than they do and you know if if it needs to be 1500 feet because that's the best location. Well then we can we can work with that.

Robert D. Wright: And, you know, if it needs to be 1500 feet because that's the best location, well, then we can, we can work with that. And I think that's what franchisees are most excited about. We've got this wonderful starting place that's smaller than we used to build. Deal keeps all of the best aesthetic elements of this classic Potbelly in-shop experience. We've got plenty of seating for today's mix of digital and dine-in.

Robert D. Wright: And I think that's what franchisees are the most excited about we've got this wonderful starting place that's smaller than we used to build.

Robert D. Wright: It keeps all of the best aesthetic elements of this classic potbelly in shop experience, we've got plenty of seating for today's mix of digital and dine in.

Robert D. Wright: We've reoriented the pickup shelf and some of the other elements of the digital experience, highlighted some things that we thought were flow issues for our customers and for our associates, and even made the line a little more efficient. So those are the things that excite franchisees. And you're exactly right. When you're attacking the market with a master broker and a set of local brokers. Knowing that you've got flexibility, but your flexibility begins at $1,800 and not $2,300-$2,500, really opens up the potential for some earlier real estate development. So I think it's one of those that's a win all the way around. And I firmly believe we've not only not compromised the brand experience, but we've improved it.

Robert D. Wright: We've we've reoriented the pick up shelf and some of the other elements of the digital experience highlighted some things that we thought were flow issues for our customers and for our associates and even made the line are.

Robert D. Wright: A little more efficient so.

Robert D. Wright: Those are the those are the things that excite franchisees.

Robert D. Wright: And you're exactly right when you're attacking the market with a master broker and a set of local brokers knowing that you've got flexibility, but your flexibility begins at 1800 and not 'twenty three 'twenty 500, it really opens up the potential for some some earlier real estate development. So I think it's a.

Robert D. Wright: It's one of those that's a win all the way around and I firmly believe we've not only not compromise the brand experience we've improved it.

Todd Morrison Brooks: That's great. Shifting gears, Bob, you talked about maybe the need for in-shop customers, maybe non-digital channel customers, to try to deliver some more value to them over the course of this year. Can you, I'm sure you're not gonna walk through specific tactics about how to do that, but can you at least point us in the direction of how you deliver and how you communicate value to that customer so that it's fairly obvious once they walk into the show.

Robert D. Wright: That's great shifting gears, Bob you talked about.

Todd Morrison Brooks: Maybe the need to for in shop customers, maybe mom digital channel customers.

Todd Morrison Brooks: Try to deliver some more value to them over the course of this year can you.

Todd Morrison Brooks: I'm sure you're not going to walk through specific tactics about how to do that but do you at least point us in the direction of.

Todd Morrison Brooks: How you deliver in how you communicate value to that customer, where it's fairly overt once they walk into their shop.

Robert D. Wright: Yes, it is an additional layer for us because if you accept the conclusion we've come to, which we certainly do, is that this infrequent customer who is familiar with and has affinity for the brand is managing their personal financial situation, and they're just, you know, they're pulling back ever so slightly and probably from a lot of places. You know, we're competing with all other restaurants, and we're competing with the refrigerator, and when people's entire food budget is under pressure, what they don't want to do is start compromising on their meal choices, you know, and at the same time, they'd love to see some everyday options that can work into their mix over the month or over the quarter that they trade with certain restaurants.

Bob: Yes. It is a it is an additional layer for us because if you are you know if you accept that the conclusion, we've come to and we certainly do is that this infrequent customer who is familiar with and has affinity for the brand is managing their their personal financial situation and they're just.

Robert D. Wright: You know, they're pulling back ever so slightly and probably from a lot of places you know, we're competing with all other restaurants, and we're competing with the refrigerator.

Robert D. Wright: And when People's entire food budget is under pressure.

Robert D. Wright: They don't want to do is start compromising on their meal choices, you know and at the same time they'd love to see some everyday options that can can work into their mix over the month or over the quarter that they trade with with certain restaurants. So.

Robert D. Wright: So Because the more infrequent consumer for us overlaps with our non-digital consumer, our digital consumers, we've talked very openly about the meaningfully higher frequency rate with Perks members, for example. So it's a little harder to reach those customers. But for us, we still use digital advertising in addition. In fact, that's where a large majority of our effort goes through their digital advertising efforts. So we wanna make sure that we're using that to spread the word to those people who are still picking up our digital ads, even if they're not yet part of our Perks program.

Robert D. Wright: Because theyre more infrequent consumer for us overlaps with our non digital consumer.

Robert D. Wright: Digital consumers, we've talked very openly about the meaningfully higher frequency rate with perks members for example.

Robert D. Wright: So it's a little harder to reach those customers, but for US we still to use digital advertising. In addition in fact, that's where you know the large majority of our our effort goes through their digital advertising efforts. So we want to make sure that where.

Robert D. Wright: We're using that to spread the word to those people are still picking up our digital labs, even if theyre not yet part of our perks program.

Robert D. Wright: And then I think you have to do some things in the shop too, so that when they do come in and visit, because they do skew slightly more towards the shop, they're seeing those messages, and they're remembering those messages, which brings them back and keeps that frequency just a little bit higher than where maybe they would naturally go as they're trying to manage their wallet.

Robert D. Wright: And then I think you have to you have to do some things in shop to so that when they do come in and visit because they do skew slightly more in shop that they're seeing those messages and the remembering those messages, which brings them back in and keeps that that frequency just a little bit higher than where they were.

Robert D. Wright: Maybe they would naturally go what they're trying to manage their wallet.

Todd Morrison Brooks: Is that a long-term effort, or can that be delivered at the shop level pretty quickly? We can deliver.

Robert D. Wright: Is that a long tailed effort or can that be delivered at the shop level pretty quickly.

Robert D. Wright: We can deliver it pretty quick. Yeah.

Todd Morrison Brooks: We can deliver it pretty quickly.

Robert D. Wright: No.

Todd Morrison Brooks: And then just one quick follow-up for Steve and I'll jump back in queue. Within the guidance for second quarter same-store sales at flat to up to, and I think, Bob, you commented that we're positive in a low single-digit quarter to date. What's the assumption on price mix that's baked into the flat to up to assumption?

Speaker Change: Yeah and then.

Speaker Change: Just one quick follow up for Steve and I'll jump back in queue.

Todd Morrison Brooks: Within the guidance for our second quarter same.

Todd Morrison Brooks: Same store sales yet.

Todd Morrison Brooks: Two.

Todd Morrison Brooks: And I think Bob you commented that where were positive low single digits quarter to date, what's the assumption on price mix, that's baked into the assumption.

Steven W. Cirulis: Thanks for the question. I'll just start with the way we've discussed pricing for the last couple of years, which is we'll manage price in order to outrun some of the, you know, the cost for our inputs, our food and paper, and our labor. And the good news is, you know, for this. For this quarter, we saw commodity costs actually deflate a little bit. Labor costs kind of stayed in the same zone, you know, that low kind of mid-lows in the single digits area. So that's good for us.

Todd Morrison Brooks: Sure.

Speaker Change: Thanks for the question.

Steven W. Cirulis: But I'll just start with kind of the way we've discussed pricing for the last couple of years, which is well well managed price and.

Steven W. Cirulis: In order to outrun some of the you know the.

Steven W. Cirulis: The costs for our inputs our food.

Steven W. Cirulis: Food and paper and on our labor and the.

Steven W. Cirulis: The good news is for this.

Steven W. Cirulis: For this quarter, we saw commodity cost actually deflate, a little bit labor costs kind of stayed in the same zone.

Steven W. Cirulis: Low kind.

Steven W. Cirulis: Kind of mid lows in the single digits area. So that's good for us and we've we had a price increase.

Steven W. Cirulis: And we've had a modest price increase, you know, for this quarter, modest, like we said, and kind of the low, the mid ones. We carried about 3.3% of price into the quarter, and we netted about 4%, right? And so that's a way of me saying, like, 4% price, kind of gross, is what you'll see through the year. We'll probably end the year in that same range, carrying forward for the year about, you know, 2%.

Steven W. Cirulis: This or this quarter modest like we said in kind of in the low the mid ones.

Steven W. Cirulis: We carried about 3.3% of price into the corner and we netted about four right and so that's a way of me, saying like four 4% price kind of growth is what youll see through.

Steven W. Cirulis: Through the year I will probably end the year in that in that same range carrying forward for the year about 2%. So when you see our R. R.

Steven W. Cirulis: So when you see our comps, right, at 0% to 2%, you can understand that we'll bring in some of that price increase to offset, perhaps, some traffic challenges. But as Bob was describing all of the efforts on the digital marketing side and the efforts with some of these new value offers that we're going to start to push, our expectations that we'll strengthen traffic and, you know, we'll continue to get the benefits from that, and that should show up in our, ultimately, same-store sales.

Steven W. Cirulis: Our comps right at a zero to 2%.

Steven W. Cirulis: You can you can understand you know that we will bring in.

Steven W. Cirulis: You know some of that price increase to offset perhaps some some traffic challenges but.

Steven W. Cirulis: As Bob was describing with all of the efforts on the digital marketing side and the efforts with some of these new these new value offers that where we're going to start to push that you know our expectation is that well well well strengthen traffic and and you know we'll continue to get the benefits from that.

Steven W. Cirulis: And that should show up in our ultimately in our same store sales.

Speaker Change: Okay perfect. Thanks, Dave.

Matthew James Curtis: The next question is from Matt Curtis with William Blair. Please go ahead.

Steven W. Cirulis: The next question is from Matt Curtis with William Blair. Please go ahead.

Matthew James Curtis: Thanks, good afternoon. Bob, I think last quarter you said you had the opportunity to get to a 16% restaurant level margin this year. Is that still in play at this point given the narrowing in four-year comp guidance?

Matthew James Curtis: Oh, Hey, thanks, good afternoon.

Matthew James Curtis: Bob I think last quarter, you said you have the opportunity to get to a 16% restaurant level margin this year.

Matthew James Curtis: That's still in play at this point given the narrowing in full year comp guidance.

Robert D. Wright: Yeah, I think if you take the comments that Steve shared about what we saw in Q1, and you kind of project where that would put us with margin expansion through the year, of course, I think it's going to be tougher for us to get to 16 if we maintain some of this softer sales against what our, you know, what our original plan was, especially with where we were in Q1. But I think the emphasis there is that it's still expanding margins, and there are still other ways for us to keep expanding those margins.

Bob: Yeah, I think if you take if you'd take the comments that Steve shared about what we saw in Q1 and you you kind of project, where that would put us with margin expansion through the year of course I think.

Robert D. Wright: You know, it's going to be tougher for us to get to 16, if we if we maintained some of this softer sales against what are you know what our original plan was especially with where we were in in Q1.

Robert D. Wright: And, you know, one of the great things we're talking about with new development, which is where the franchisees care the most about how quickly they can get to those margins, is this, this prototype. That's the kind of margin expansion that just keeps delivering after you build those shops. So, I think you're right to point that out.

Robert D. Wright: But I think the emphasis there is it still expanding margins and there's still other ways for us to keep expanding those margins.

Robert D. Wright: And you know one of the one of the great things, we're talking about with new development, which is where the franchisees care. The most about how quickly can they get to those margins as this this prototype.

Robert D. Wright: That's the kind of margin expansion that just keeps delivering after you build those shops. So.

Robert D. Wright: I I think I think you're right to point that out what I would tell you is that we recognize with with our you know still significantly majority company owned portfolio that our shop profitability driven by those margins and top line of course is such an important part of our overall adjusted EBITDA for the company for the year.

Robert D. Wright: What I would tell you is that we recognize with our, you know, still significantly majority company-owned portfolio that our shop profitability, driven by those margins and top line, of course, is such an important part of our overall adjusted EBITDA for the company for the year. Steve mentioned this already, but we look at our other measures and other opportunities that we have to manage our costs as a corporation and still continue to deliver what we've guided to on that adjusted EBITDA growth for the year in the mid to high single digits.

Robert D. Wright: Steve mentioned this already but.

Robert D. Wright: We look at our or other measures in other opportunities that we have to manage our cost as a corporation and still continue to deliver what we guided to on the adjusted EBITDA growth for the year in the mid to high single digits.

Robert D. Wright: Well, that clearly means you see some, you know, some savings elsewhere. We're a growth company, though, Matt, so we can meter some of those investments in things like GNA and still serve the growth, but be the most responsible on our way to building that earnings growth that goes with it while we're also continuing to expand those shop level margins. So I think that's how those two are working together.

Robert D. Wright: Well that that clearly means you see some you know some savings elsewhere, we're a growth company, though that's a weekend.

Robert D. Wright: We can meet or some of those investments in things like G&A.

Robert D. Wright: And still serve the growth, but what would be the most responsible on our way to building that earnings growth that goes with it while we're also.

Robert D. Wright: Continuing to expand those those shop level margin. So I think that's how those two are working together.

Matthew James Curtis: Okay, got it. Thanks for that. And then, I guess the full year comp guidance implies that traffic will be sort of flattish for the full year. So, assuming that's the case, would you expect that the unit level margin expansion this year would be more driven by levers like supply chain efficiency and labor optimization, as opposed to sales leverage?

Speaker Change: Okay got it thanks for that.

Matthew James Curtis: And then I guess, a full year comp guidance implies the profit.

Robert D. Wright: Yeah, I mean the sales labor. Oh, sorry, Steve. Go ahead.

Matthew James Curtis: So sort of flattish I guess for the full year, so assuming that's the case.

Robert D. Wright: Do you expect.

Robert D. Wright: Margin expansion this year would be more driven by levers like supply chain efficiency and labor optimization as opposed to sales leverage.

Steve: Yeah, I mean, the sales, yes, I think that's it.

Steven W. Cirulis: Sorry, Bob. Yeah, sorry, Matt.

Robert D. Wright: Oh, sorry, Steve go ahead.

Steven W. Cirulis: As we have the plan laid out, right, we're still, you know, expecting to expand the margins throughout the year. We expect sales to help play a role there, perhaps a less of a role than we had thought the last time we spoke. But nevertheless, that's going to be a component of it.

Speaker Change: Sorry about that yeah. It was.

Speaker Change: Sorry, Matt.

Steven W. Cirulis: Well as we have the plan laid out right we're still.

Steven W. Cirulis: Expecting to expand the margins throughout the year, but we expect the sale to help play a role there are perhaps less of a role than we had thought the last time, we spoke but nevertheless, that's gonna be a component of it but as we've as we go down kind of the middle of that a little middle of the P&L. We continue to see some gains at least will.

Steven W. Cirulis: But as we go down kind of the middle of that, the middle of the P&L, you know, we continue to see some gains, at least we'll see them in the first quarter or, sorry, the second quarter on some of our commodities. That'll settle down a bit in the second half, as we see some commodity inflation and some areas come back a little bit. But labor is one area where we continue to make strides.

Steven W. Cirulis: See them in the first quarter I started the second quarter on some of our commodities that'll settle down a bit in the second half as we see some some commodity inflation and some in some areas come back a little bit but labor is one area, where we continue to make strides are our labor guide, we continue to find ways to pull some out.

Steven W. Cirulis: Our labor guide, we continue to find ways to, you know, pull some hours out of that, which is fantastic. We'll, we'll continue to expand our Potbelly Digital Kitchen, through which we see some, some labor benefits there. And also, we'll, we continue to kind of marginally tweak our hours of operation, which ends up being, you know, a benefit to some of that labor as well. So leverage in that labor line, for sure.

Steven W. Cirulis: Out of that which is fantastic wheel will continue to expand our potbelly digital kitchen through which we see some some labor.

Steven W. Cirulis: Benefits there and also will we continue to kind of marginally tweak our hours of operation, which ends up being a benefit to some of that labor as well so leverage leverage on that labor line.

Steven W. Cirulis: We also, I think, see some continued leverage in our occupancy, that there are opportunities for us with new leases and so forth, to continue to push that, even though the sales leverage is not as intense as it would otherwise be. I think we, on the other OPEX side, as we just talked about a little earlier, we'll still get a little bit of drag from the brand fund lapping in that line until we get to the back half of the year.

Steven W. Cirulis: For sure. We also I think see some continued leverage in our occupancy.

Steven W. Cirulis: That theres opportunities for us with new leases and so forth to continue to push that even though the sales leverages not is.

Steven W. Cirulis: Not as intense as it as it would otherwise be a I think we on the other opex side, we just talked about a little earlier, we'll still get a little bit of drag from from the brand fun lapping in that line until we get to the back half of the year.

Steven W. Cirulis: So, you know, that nets out to us, you know, we think we can, we think we can continue to expand margin, just the shop level margin. And as Bob said, having the ability to then work the lower elements of the P&L and do our favor too, in terms of corporate costs. That's why we're confident guiding what we did, as it relates to the EBITDA line for the full year.

Steven W. Cirulis: So that nets out to US you know we think we can and we think we can continue to expand margin just the the shop level margin and as Bob said, having the ability to then.

Matthew James Curtis: Okay, great. That helps a lot. Thanks very much.

Matthew James Curtis: Work the the the lower elements of the P&L into our favor too in terms of corporate costs. That's why we're confident guiding what we did a as it relates to the EBITDA line for the full year.

Speaker Change: Okay. Good that helps.

Matthew James Curtis: Thanks very much.

Matthew James Curtis: Okay.

Robert D. Wright: Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn the call back over to Mr. Bob Wright for his closing remarks.

Matthew James Curtis: Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn the call back over to Mr. Bob Wright for closing remarks.

Robert D. Wright: Thank you. And thank you all for joining us today, and especially thank you for the questions. As you heard, we're proud of our quarter and proud of the team, especially grateful to all of our associates and our franchisees, our growing body of franchisees and their employees as well.

Robert D. Wright: Thank you and thank you all for joining us today are and especially thank you for the questions are as you heard we're we're proud of our quarter and proud of the team, especially grateful to all of our associates and our franchisees are growing our body of franchisees and their employees as well.

Operator: So thanks again for your time. We look forward to talking to you again soon. Have a great night. The conference is now concluded. Thank you for attending today.

Speaker Change: So thanks again for your time, we look forward to talking to you again soon have a great night.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: Okay.

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