Q3 2024 Potbelly Corp Earnings Call
Speaker Change: Good afternoon, everyone, and welcome to Potbelly Corporation's third quarter 2024 earnings conference call.
Speaker Change: Stephen Centralists, Senior Vice President and Chief Financial Officer, and a D. Edicson Senior Vice President Chief Legal Officer, and Secretary of Potbelly Corporation.
Speaker Change: At this time I'll turn the call over to a D. A Dixon. Please go ahead.
Speaker Change: Good afternoon, everyone and welcome to our third quarter 2024 earnings call.
Speaker Change: By now everyone should have access to our earnings release and accompanying investor presentation.
Speaker Change: If not they can be found on the investors tab on our website.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: 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 giving today can be found under the risk factors heading in our filings with the Securities and Exchange Commission, which are available at SEC Gov.
Speaker Change: 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.
Speaker Change: 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 and now I'll turn the call over to a populist president and CEO Bob right.
Bob Wright: Thank you Lydia good afternoon, and thank you for joining our call today, our third quarter results are a showcase of our five pillar strategic plan working and our emphasis on driving potbelly as a growth brand during the quarter, we utilized our app potbelly perks to drive a positive shift in our comp trajectory in fact, we've.
Bob Wright: Driven improvement in our comp momentum through the end of the third quarter and into the fourth quarter.
Bob Wright: We also delivered a 70 basis point year over year improvement in our shop profit margins metered, our G&A spend to aid EBITDA growth and open eight new shops, as we further accelerate new shop development.
Bob Wright: Despite what continues to be a challenging consumer environment, we remain focused on emphasizing what we control and positioning potbelly for long term sustainable growth.
Bob Wright: The entire potbelly team is committed to our mission to delight customers with great food and goodbyes on our journey to be the most loved sandwich brand in every neighborhood we serve.
Bob Wright: Our strong customer satisfaction scores and operations metrics continue to bear that out.
Bob Wright: So our over 5000 team members and franchise groups without whom none of our accomplishments to date would be possible I want to say thank you for your hard work and dedication every day to making potbelly truly special.
Bob Wright: As I stated our success is rooted in our five pillar strategy. So all structure most of my comments this afternoon around that framework.
Bob Wright: Turning to the drivers of our business. The first pillar of our five pillar strategy has always been craveable quality food at a great value.
Bob Wright: And I'm proud to say that during the third quarter, we improved every facet of this pillar.
Let's start with great value.
Bob Wright: As we spoke to previously in late July we expanded our 799 everyday value combo, which includes a Turkey ham or chicken skinny sandwich wood chips and a drink across nearly all of our system.
Bob Wright: Importantly, the introduction of the combo has done exactly what we intended with low frequency less digital primarily in shop customers driving value perception.
Bob Wright: David likelihood to return and increase frequency with these important customers. Additionally, as I'll share in a few minutes, we continue to drive brand awareness customer value options through digital promotions and our perks loyalty program.
Bob Wright: Next we'll discuss the craveable portion of this pillar the third quarter featured several new and distinct innovations for our customers as well as the return of a fan favorite cookie.
Bob Wright: We start with our new farmhouse chicken sandwich with all the ingredients of our classic farmhouse salad, including all natural chicken breasts, new skis, applewood smoked bacon hard boiled egg cucumbers, and Tomatoes, Swiss cheese, and top with our new custom Hot Pepper ranch dressing.
Bob Wright: Of course, no meal is complete without one of our signature cookies or hand dipped ice cream shakes.
So we introduced our new blueberry Muffin Cookie American Apple pie shape, and toasted marshmallows shake along with the return of our fan favorites Morris Cookie.
Bob Wright: The new and returning menu items were a hit with our customers and importantly, they gave us credit for innovation and keeping our menu fresh with unique items we.
We haven't stopped already in the fourth quarter, we introduced the smokestack pork and Mac sandwich, featuring slow cooked pulled pork smoky barbecue sauce, and our signature Mac N cheese I'm proud to say that it's receiving rave reviews from customers and it's mixing ahead of our expectations.
Speaker Change: And now I'll turn to the core menu quality.
Speaker Change: Potbelly is built on quality since 1977 and has quality embedded throughout our menu from our freshly prepared ingredients to our handmade to order hot toasted sandwiches.
Speaker Change: Also our one of a kind recipes made by our expert team members means that we take care to deliver a great meal every time we're.
Speaker Change: But we're never satisfied we did research with our customers and it indicated that we had some gaps in our menu and trending areas like flavorful sauces, and spicy offerings as well as additional everyday heart of your proteins to address these areas of opportunity next week on Monday November 11, we're adding some new innovations to.
Speaker Change: Our core menu aimed at giving customers, even more reasons to choose potbelly as well as more ways to customize their experience.
Speaker Change: I'm excited to share that we're introducing two new signature sandwiches, both made with our new slow cooked pulled pork the new sandwich additions to our core menu or the coupon O, which is a fan favorite L. T O that earned its place onto the everyday menu and the sweet heat Bbq pork.
Speaker Change: We're very excited to have this new protein added to the menu broadening the appeal of our trademark sandwiches we.
Speaker Change: We also have two new proprietary signature sauces that address craveable, spicy flavors, including Hot Pepper Ranch and Sweet heat barbecue, both custom made with our signature award winning Potbelly Hot Peppers, and we also have two additional sources that customers have asked for on the potbelly menu.
Speaker Change: Including roasted garlic, a ollie and red wine vinegar.
Speaker Change: Finally, we've updated and expanded our available sandwich toppings to include cucumbers, and roasted Red Peppers, our operations team and franchisees had been training our associates for the last week on these changes and they are genuinely enthusiastic about the rollout next week. We believe this focus on our core menu will expand our customer.
Speaker Change: <unk> options with even more flavor and customization and expand our appeal to an even broader customer base.
Speaker Change: We're not done yet consumption of non carbonated cold beverages have increased substantially in the industry to capitalize on this we recently completed the system wide rollout of Potbelly craft refreshes at the end of September in partnership with tractor beverage company.
Speaker Change: In keeping with our brand these beverages add more interesting and flavorful options for our customers beyond traditional fountain drinks and have a better for your profile is they are organic and non GMO importantly, the rollout is meeting our expectations for customer satisfaction and is driving additional beverage incidence rates.
Speaker Change: In addition to craveable quality food at a great value the fourth pillar of our strategic plan calls for digitally driven awareness connection and traffic.
Speaker Change: During the quarter, our digital business represented over 38% of our total shop sales an increase of approximately 100 basis points versus last year.
Speaker Change: As we mentioned in recent quarters, we continue to see a shift within our digital mix to potbelly own channels and again during the third quarter expansion of Potbelly owned channels represented the entire 100 basis points of year over year improvement in our digital mix.
Speaker Change: Our potbelly perks loyalty program continues to be a significant driver of our business and is central to our digital strategy. Once again this quarter every frequency cohort of customers in our perks loyalty program saw increased frequency proving that our digital and perks promotional activity as well as our base program.
Speaker Change: M where members redeem their coins for perks is driving value for these important customers.
Speaker Change: And our focus on executing our winning digital strategy is a cornerstone of growth at potbelly.
Speaker Change: Let me now update you on our fifth pillar franchise focused development and in particular, our franchise growth acceleration initiatives.
Speaker Change: During the third quarter, we continue to make significant progress across all phases of our unit growth funnel importantly, and.
Speaker Change: And I've spoken about this before the infrastructure. We've built is showing advancing progress and gives me increased confidence in our growth for the coming quarters and years.
Speaker Change: Franchise recruitment and lead generation continues to build especially with our in market and in person recruiting efforts.
Speaker Change: We're also having great success converting those franchise candidates to franchisees through deal signings. We're pleased to increase our total year to date franchise shop commitments to 86, an increase of 32 relative to last quarter, bringing our total open and committed jobs to 695 shops across 33 franchise.
Speaker Change: Groups.
Speaker Change: And I'm proud to say that our franchisees are meeting their development commitments, which strengthens our expectations of continued growth through the remainder of 'twenty 'twenty four and into 2025.
Speaker Change: Lastly, during the third quarter, we opened an additional eight shops for a total of 15 openings year to date through the third quarter.
Speaker Change: We've already opened two additional units in the fourth quarter as well with our current development pipeline. We expect to open nine to 11 total shops in Q4, resulting in another quarter of accelerated development and a total of 24 to 26 shops for the year.
As we close in on the last few weeks of 2024 development. There are some shops that have experienced short term impact to their development timelines and I want to be clear.
Speaker Change: These are small delays in these shops will be opening soon 'twenty 'twenty four is shaping up to be our best unit growth year since 2017.
Speaker Change: And we'll end the year with a record number of franchise shops, representing approximately 22% of the system.
Speaker Change: We anticipate our unit growth to further accelerate from here.
Speaker Change: Finally, our new 2024 shops continue to perform well in this evolving consumer environment. We believe the success of these shops as a sign that our market planning and real estate systems are working and you're seeing the early tangible results of the growth engine, we've been building on our path to 2000.
Speaker Change: That's in the United States.
I assure you that we are just getting started.
Speaker Change: With that I'll now turn the call over to Steve to detail, our financial performance for the third quarter.
Steve: Thank you Bob and good afternoon, everyone.
Steve: System wide sales were approximately $139 2 million, an increase of 1% driven by system wide unit growth.
Steve: Revenues in the third quarter were $115 $1 million with company operated shop revenue of $110 8 million.
Lower year over year, driven by the short term impact of last year's Refranchising efforts.
Steve: The fact that with our franchise revenue of $4 $4 million.
Steve: Up 79% relative to the third quarter last year, driven by a 30% increase in franchised units.
Steve: Last year, we successfully used refranchising as a catalyst to drive new franchise unit commitments.
Steve: We have de emphasized refranchising our company shops in 2024 due to our strong pipeline of franchise unit sales in new markets.
Steve: Also the negative impact on revenue growth from last year's Refranchising transactions is largely behind us.
Steve: We will likely end the year with only one re franchise shop in 2024 versus 33 in 2023.
Steve: Average weekly sales were approximately $24870 and company operated same store sales were down one 8% in the quarter near the high end of our expectations.
Steve: Our shop level margin expansion of 70 basis points annually to 15, 3% against the backdrop of slower sales as a result of some external tailwind and more importantly diligent execution.
Steve: Turning to expenses food beverage and packaging costs were 26, 6% of shop sales, a 120 basis point improvement versus the prior year period.
Steve: This was driven by a combination of commodity deflation and a modest pricing action in the quarter.
Steve: Labor expenses were 29, 1% sales a 20 basis point increase versus the prior year period. This was predominantly due to increases in employee group insurance that more than offset favorability from ongoing optimization of our hours basically for guidance.
Steve: Occupancy was 10, 7% of sales in line with the prior year period.
Steve: This was predominantly due to leverage on our fixed rent being offset by increases in common area maintenance and in variable rent charges as many shops with those types of lease arrangements like airports continue to outperform prior year.
Steve: Other operating expenses were 18, 3% of sales a 30 basis point increase versus the prior year period.
Steve: This was predominantly due to increased brand spend.
Steve: General and administrative expenses, which are best viewed as a percentage of system wide sales as they are used to support every one of our shops were seven 6% a decrease of 100 basis points versus the prior year period, driven by our focus on corporate expense management and a lower bonus accrual.
Steve: Third quarter, adjusted EBITDA was $8 7 million or seven 5% of total revenue.
Steve: This 19% growth year over year was driven by the improvement in shop level margin.
Steve: <unk> strong performance of our franchise shops, and ongoing disciplined management of G&A.
Steve: We reported net income of $3 $7 million for the quarter.
Steve: Adjusted net income was $2 $5 million or a $1 4 million increase versus the prior year period.
Steve: During the third quarter, we purchased approximately 29000 shares of our common stock for a total of approximately $230000.
Steve: Our share repurchase program is one component of our long term capital allocation strategy, we anticipate repurchases throughout our three year program.
Steve: Incorporating our year to date results our category outlook for the remainder of the year and our momentum into Q4.
Steve: Now expect our Q4 performance to land in the following ranges.
Steve: Same store sales growth of negative two 5% to negative one half of 1%.
Steve: Adjusted EBITDA of between 7 million and $8 million.
Steve: For the full year 2024, we have updated our same store sales guidance to negative one 2% to negative one half of 1%.
Steve: And our adjusted EBITDA to between $29 $5 million and $35 million.
Steve: With that.
Speaker Change: I'll turn the call back over to Bob.
Bob Wright: Thank you Steve in closing, let me reiterate the tremendous job our team has done in executing on our five pillar strategic plan and how pleased I am with what we've accomplished together to date.
But I believe the future for potbelly is even brighter.
Bob Wright: Our craveable quality food at a great value a winning digital strategy that continues to drive awareness connection and traffic and a strong franchise led growth pipeline with a clear path to 2000 units in the U S.
Bob Wright: We're ready to capitalize on the opportunities ahead to take potbelly to the next level of growth in 2025 and beyond.
Bob Wright: With that we're happy to answer any questions. Operator, please open the line for questions.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you are using a speaker phone please pick up your handset before pressing the keys.
Speaker Change: To withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Our first question is from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.
Speaker Change: Congrats on the solid results in the quarter I wanted to first come to the.
Speaker Change: Same store sales trends I think what you said was that you saw some acceleration throughout Q3 and and have seen a little bit of improvement here in Q4 wanted to just see if you could provide us with a little bit more detail behind the cadence of that.
Speaker Change: And then also within the Q3 comps you know if you could give us a sense on what you saw on traffic you know menu pricing and average check.
Speaker Change: Sure Hi, Hi, Jeremy This is Steve.
Speaker Change: Yes.
Speaker Change: The quarter did.
Speaker Change: It improved for us.
Speaker Change: At the beginning of the quarter was impacted a little bit by a few things July 4th holiday and the timing of that to start the quarter.
Speaker Change: Hurricane barrel in.
Speaker Change: In July was also.
Speaker Change: Yeah.
Speaker Change: Had some impact on our business in and flowing into then August where we had some impact from from the DNC in our Chicago market.
Speaker Change: And that that was.
Speaker Change: Working and are working against this consumer backdrop, what we started to see things stabilize which was great.
Speaker Change: <unk> for US was when we started to really see some acceleration.
Speaker Change: And our performance and that momentum has carried into the beginning parts of Q4.
Speaker Change: But but for things like hurricane.
Hurricane barrel and the DNC.
Speaker Change: Thank the earlier part of the quarter would have actually been better better than we thought but.
Speaker Change: We're proud of proud of the result.
Speaker Change: Coming out of coming out of Q3 and entering into Q4.
And then as it relates.
Speaker Change: As it relates to how we are thinking.
About the rest of the.
Speaker Change: Elements of Q3 in terms of the mix of price and traffic we had negative one 8%.
Speaker Change: Same store sales.
That's a combination of a three 8% step back in traffic and then.
A 2% gain on the average check line.
Speaker Change: And then the average checks.
Speaker Change: We had an increase of about four 4% price in the quarter and the rest is a bit of a step back in and mix.
Speaker Change: Great.
Speaker Change: And then can we assume you're still carrying about 4% or so on the menu pricing.
Speaker Change: Well, we didn't we didn't increase our price as we were.
Speaker Change: We were thinking.
Speaker Change: Thinking about our longer term kind of view on pricing and inflation, we had a really good inflationary commodity.
Speaker Change: Quarter for us she sauce I've seen some deflation throughout the year. So we didn't see the need to take price.
Speaker Change: And what that did for us is allowed.
Allowed us to kind of sit at around a four 4% gross space like I said for the quarter, but as we head into Q4.
Speaker Change: You know, we're not we're not going to carry forward anything from from this quarter, okay for a little bit from our previous pricing actions. So we will have about a three 5%.
Speaker Change: Most price for for Q4.
Speaker Change: Got it that's helpful.
Speaker Change: And then I wanted to come back to the to the unit development. So understandable some disruption here in in some key markets like Florida.
Speaker Change: Obviously, a devastating hurricanes.
Speaker Change: As you think about the unit development here Q4, nine to 11 shops.
Speaker Change: As we look ahead to kind of the cadence of expectation in 2025.
Speaker Change: Are you still thinking that.
Speaker Change: You're close to that 10% and then how will that build throughout the year do you expect a relatively even.
Speaker Change: Development cycle in 2025.
Speaker Change: Yes, Jeremy Thanks, you know, obviously, we'd prefer to share even more development here for this year and having two hurricanes hit your your number one development territory at the peak of construction season can can be a little bit of a setback but.
Speaker Change: You know one of the things that we're especially as we talk to our internal teams. Our franchisees. We you know we take a small step back and you think about a year ago. We built two locations. This year it'll be in that 24 to 26 range total.
Speaker Change: And to your point about cadence and acceleration every quarter. This year, we have and will open more than the previous quarter.
Speaker Change: I think there'll be a little bit of seasonality next year that just comes with restaurant construction and typically you see Q3 and Q2.
Speaker Change: Your you know your top development quarters, where we're bucking that trend because we're building that momentum.
Speaker Change: But.
Speaker Change: Until we are ready to guide 2025, which you know will just be in a few months, what what I'm comfortable sharing is that we already have in 2025 lease.
Speaker Change: Leases signed and shops that are in the construction process.
Speaker Change: Four more locations then we will open all of this year.
Speaker Change: So when you think about that acceleration.
Speaker Change: That to me is really promising sign and it suggests that that that momentum we've been trying to build is truly coming our way once you've got the lease signed of course, we've got the remainder of this quarter and first quarter next year or two to continue to work our real estate model and help franchisees that are out there working on their next round of leases and.
Speaker Change: And then.
Speaker Change: The additional deals that we're still working on this quarter and early next quarter or two those usually we got locations within that 11 to 12 month range to so the fact that we've got such a great head start on the year gives us a lot of a lot of confidence in the momentum that's to come.
Got it and then.
Speaker Change: Just a comment quick on the Refranchising. So it you know it sounds like.
Speaker Change: There's not a not going to be a whole lot of that this year is that kind of the expectation that we should have next year as well you know could you see you know 20 locations re franchised or at this point do you feel content.
Speaker Change: With the the licenses that you're selling a new franchises that that you don't need to do that.
Speaker Change: Yeah, I think if you just use Jeremy need is probably the right word we really don't need to do that there may be a few opportunistic opportunities where it just makes sense, especially for the right shop development area agreement with the REIT franchisee, but I I expect it'll be more muted than what you.
Speaker Change: You've just suggested.
Speaker Change: This year is one where we're pleased with the development agreements that we're getting and we haven't wanted to really use a lot of refranchising to get that was always part of the catalysts to get things rolling last year.
Speaker Change: And you know, we we still I think in the long term, we would be willing to re franchise more units to be sure. But we were go our goal is to get the accelerated development first.
Speaker Change: And I think that'll continue into next year.
Speaker Change: Great. Thanks for taking the questions and good luck the rest of the year.
Jeremy: Thanks, Jeremy.
Jeremy: Sure.
Speaker Change: The next question is from Mark Smith with Lake Street Capital markets. Please go ahead.
Speaker Change: Hey, guys you got a Alex turning down the line from Mark Smith today, Thanks for taking my questions.
First one for me.
Could you just give us an update on the industry kind of what kind of discounting are you seeing out there and what levels of promotion do you think you need to get to in order to drive traffic.
Speaker Change: Last quarter, you mentioned screening for more value.
Speaker Change: The offering so I'm kind of curious if you have anything else rolling out like the 70 799 combo to enhance these promotional offerings. There's this kind of more so done through deals the perks members.
Speaker Change: Yeah, Great question.
Speaker Change: Alex and a great two great to speak to you again, I think you got to start with.
Speaker Change: The consumer situation, we think that largely their consumer.
Speaker Change: Is gonna be a continuation of what we've seen in the past quarters.
Speaker Change: And so you know our posture on what we're doing with value what we're doing with our marketing efforts is you shouldnt expect to see that shift very much and I think I think I'd steer you back to some of my prepared remarks, when you think about what we're doing to drive value. We've you know we've had.
Speaker Change: I think exactly what we hoped for with this everyday value work that we've done remember that 799 combos on those three skinny combos, where in addition to the meal deals that we we already had where you could order chips and a drink at a discount and that's just about anything on the menu and then of course, our pick your pair is an everyday value.
Speaker Change: Labor Force, that's really really important so you put that together and I feel really good about the everyday value layer and recall in previous the previous quarter. We shared that one of the main things we were trying to do with the 799 combos is create value appeal for our customers who tended to be less frequent less.
Speaker Change: Digital and more in shop types of customers.
Speaker Change: And our research and our mix on that suggests that we are enjoying the success that we designed and that we test it and we're really really pleased with that.
Speaker Change: I do think and you asked about the digital and the perks component too I think that it's important to understand how that everyday value effort works in conjunction with what we're doing with digital.
Speaker Change: Because as we bring those customers in you know what I shared last quarter and did again this quarter those 799 customers after they've ordered that meal.
Speaker Change: Give us some much higher scores on overall value and much higher scores on their likelihood to return that was how it was designed to protect that traffic on that low end, where those customers were just cutting back and trying to make there make their wallets are spread across the entire month.
Well once we have you in and we get you into the digital channels. The other thing you've heard me say in the prepared remarks is that those those perks loyalty customers in every frequency cohort is seeing growth.
Speaker Change: In in numbers as well as growth in frequency, so bringing them in through the everyday program and up through the digital frequency channels is how we want to keep building the business and the last thing I'd say is that you know we were not doing and you see others doing quite a bit of that.
Speaker Change: Very very aggressive deep discounts on core menu items at.
Speaker Change: It kind of repricing the core menu.
Speaker Change: First of all that that's a that's a dangerous thing to do because it really can damage the brand.
Speaker Change: And it's it's very expensive from a margins perspective, and we just haven't been interested in doing that that's why you heard us talk a lot about our profitability. This quarter was protecting both of those and managing through this it's a little bit of a bumpy time, but where we're really pleased with the balance.
Speaker Change: Got it no that makes sense and then just kind of switching over to more of the shop size in terms of the new store prototype is there any updates here from last quarter. Just curious how the integration has gone and how they've been performing so far.
Speaker Change: Yeah as I said, we continue to be really pleased with our new shop openings. The two metrics that we're always watching is how are they performing against the system wide average weekly sales and how are they performing against their forecasted average weekly sales at the franchisee puts on that forecast and as I said those are those are the key out of there.
Speaker Change: <unk> measures of whether we're pleased with those new openings and we are.
Speaker Change: To your point about the prototype.
Speaker Change: I mentioned those those numbers of leases that we already have franchisees have already signed for development goes into next year.
Speaker Change: Every one of those that's going through the design process is starting with that standard 1800 square foot prototypical built.
Speaker Change: We do have some that are floating a little smaller than that because that's how the space is laid out and that's what they've leased some of those are you know a little bit larger because again, that's how the spaces, but we start with that <unk> thousand 800 square foot prototypes and the advantage for the franchisee on that average of 500 fewer square feet.
Speaker Change: There is a lot of margin enhancement on the occupancy line. So.
Speaker Change: Those that have been built this year that reflect the elements of design. The lay out of the shop are there various decor and furniture and fixtures that are part of that prototypical design I'll. Just tell you we're super pleased with it.
Speaker Change: The look and feel the prominence of the digital pickup shelf the integration of PDK with the pick up digital monitor.
Speaker Change: And everything about the flow the access to the grab and go drinks all of the things that are part of that prototype continue to work really well for us we're very pleased.
Speaker Change: Yeah.
Speaker Change: Excellent thanks for taking my questions.
Speaker Change: Youre welcome.
Speaker Change: The next question is from Todd Brooks with the Benchmark company. Please go ahead.
Todd Brooks: Hey, Thanks for taking my questions and congrats on a nice quarter in a really choppy macro environment, so well done.
Speaker Change: Thanks, Tom.
Speaker Change: If I could jump on just kind of looking at the fourth quarter same store sales guidance down 50 basis points down 250 basis points.
Speaker Change: You can characterize the momentum that we've seen kind of end of Q3.
Speaker Change: He has continued or maybe accelerated a little bit into Q4.
Speaker Change: Well, let's see if we get a sense of it.
Speaker Change: Well be coming in towards the higher end of that and that guidance is basically giving us a cushion at the consumer side is as we get towards the holidays and things may be a little choppy or with him or her.
Speaker Change: Is there any way to kind of characterize what drives tail outcomes within the guidance.
Speaker Change: Yeah.
Speaker Change: Yes sure Todd Thanks for the thanks for the question I think as you know we tend to bet.
Speaker Change: That that guidance range in the in the in an area that we feel like we can see right now without betting on those things that we think are either improbable are impossible to see and the range that we set at least for the full year ends up being narrowed because we can see more the Q4 numbers themselves I think it's important to note.
Speaker Change: They still show sequential growth.
Speaker Change: Order.
Speaker Change: Corner right as we're coming out of Q3 and into Q4.
Speaker Change: And as it relates to kind of where we feel things will land.
Speaker Change: If we're if we're looking at a if we're looking at the bottom.
Speaker Change: The range I think that would that would probably portend. Some just some different dynamics.
Speaker Change: Dynamics in the consumer environment than we've seen.
Speaker Change: To date, and if we think about what might look like.
Speaker Change: The top end of the range for Us Bob.
Speaker Change: Planed in the prepared remarks, all of the great and exciting things that we've got coming forward in the quarter with the.
The new menu and the sources.
Yeah.
Speaker Change: The pulled pork platform that's.
Speaker Change: That's about to launch.
So that the high end of the range would win.
Speaker Change: That would mean that we're hitting on all cylinders with with those with those initiatives as well so.
We tend to like to be.
Speaker Change: Thoughtful about what we set those things without without betting too much on things that are.
Speaker Change: Not within our control.
Steve: That's helpful. Thanks, Steve and then.
Speaker Change: We talk to and I know, where we've got an element of.
Steve: Weather impacted delays going into.
Steve: Fiscal 'twenty five and I know, there's been a there was a goal to get there.
Steve: Model to a double digit.
Steve: Unit grew our AUM.
Steve: Over time and kind.
Steve: The implied background assigned locations gives you five years plus.
Steve: Disability so.
Steve: The backdrop is there but.
Steve: Really we haven't talked about the opening.
Steve: Outlook for number of units in 'twenty five.
Steve: Is 10% in the realm of possibility within this type of environment that we're into the delayed units get added to whatever you had been planning on for the year or do you see.
Speaker Change: I don't want to manage to a specific target you would delay some out of Q4 next year.
Speaker Change: Yeah, you know I think that's the one of the things we have to we have to really think through before we provide that 25 guidance, but I think youre thinking about it the right way. There. There is once you get the momentum moving which we are excited to see now.
Speaker Change: I was gonna be leakage at the end of any year into the next year. So those units that they were talking about leasing this year of course, there theyre going to be 25 units.
Speaker Change: And that's why I wanted to share a little more specifically about where we stood on on signed leases that is the I mean that is the trigger once you sign that lease that design work begins the engineering construction work in fact and a lot of cases.
Speaker Change: We start some of that knowing that it's gonna sign even though the franchisee hasn't quite signed it yet.
Speaker Change: The fact that we've already got that many more than more than we're gonna. Even open this year gives us confidence in that trajectory, we'd like to see how the remainder of the year develops in the early part of next year before we really put a pinpoint on what next year looks like but we are well on our way to that long term growth range when it comes to unit.
Speaker Change: And.
Speaker Change: And think that the you know the acceleration quarter to quarter as well as the activity in the pipeline that we can see forward and that we're sharing today.
Speaker Change: It gives us confidence that the momentum will just keep building.
Speaker Change: Okay, Great and then one final one for me.
Speaker Change: And I don't think we've addressed this in a couple of calls, but when the perks program was reconfigured into a tiered reward structure.
Speaker Change: Onto the theoretical benefit of that was.
Speaker Change: Opting into war.
Speaker Change: Hum.
Speaker Change: Oh wait now your rewards and would you be more frequently and I'm wondering now that we have enough time with the revamped program.
Speaker Change: Maybe you could talk to with the frequency has been from that structure relative to the prior program construct.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: It was a really important move for us with those 12 different menu options that you can choose and redeem your coins to bank those perks.
Speaker Change: All I'll say, what we've said and like you say, we didn't talk a lot about it in detail last quarter, but there is no no news here. It's all still good news it continues to perform the way it was designed.
Speaker Change: We've got a really nice spread of redemption across the across the various items that people can return I've mentioned that in each of the when we break down those perks consumers. We have four different frequency cohorts that we look at them in and in every one of those cohorts were growing perks membership and we're growing frequency.
Speaker Change: <unk>.
Speaker Change: Now there are more than one one lever to pull with this group that you. If you think about the Koreans redemption for the various food items. That's the foundational program and the fact that it's performing as designed and as expected is really comforting to us. It tells us that that base level of the the.
Speaker Change: The design is working for our customers and they love and including the moving up various levels from for murky to pro to boss level.
Speaker Change: But then the other things that that you know really don't get gain in the program, but they get seen by the users of the program are the segmented campaigns that we've put out.
Speaker Change: Examples are we've done some broad based promotional activity and we've been able to go back to our perks members, who either participated or didn't participate in that broad based promotional activity and speak to them directly about their behavior. There have been times, where we've just reached out to them and said hey, because you're a perks member it looks like you missed the Chan.
Speaker Change: To take advantage of.
Speaker Change: This promotion that we just did for you we've just loaded that into your purchase account.
Speaker Change: Well you know you can imagine there are many many many segmentation channels that we're doing in within segmentation channels. We're doing the a b testing on which of those outreach has worked for us and those are the ones that we continue to lean into and repeat.
Speaker Change: We still feel like we're early innings on that level of segmentation work, we think that ultimately you get to a level, where you've got not just cohorts and not just groups not just archetypes of perks members, but almost a one to one in the future and you can really dial it in but.
Speaker Change: For the base program as well as all the other work that we do.
Speaker Change: Through those other those other marketing opportunities yeah, we're really really pleased with the perks program and its impact on frequency.
Speaker Change: That's great to hear thanks, Bob.
Bob Wright: Youre welcome.
Speaker Change: The next question is from Matt Curtis with William Blair. Please go ahead.
Matt Curtis: Hi, good afternoon.
Speaker Change: Just wanted to circle back on value for a moment if I could.
Matt Curtis: Okay.
Matt Curtis: Value ideas that juice and we're screening earlier this year.
Speaker Change: Could you provide perhaps an update on your evaluation of these.
Speaker Change: Where I'm going is whether we can expect to see some of these come in the fourth quarter or is this more of a 2025 initiative at this point.
Speaker Change: Yeah. Thanks for the question I think you saw a couple of them in the deck I didn't speak about them specifically in my prepared remarks, Matt, but if you look at we've got one of the one of the slides in the deck on value you'll see an image in there on kids eat free on the weekends. For example that was one of those things that we screen.
Speaker Change: <unk>.
Speaker Change: And we went ahead and implemented it we again, we were pleased with what that did for that consumer.
Speaker Change: We know we know the mix of our customers who have children at home and we know the strain on the pocket book of of managing a household with you know more than more than one more than two people and.
Speaker Change: While kids meals aren't a huge part of our business. It was a great way for us to bring some incremental value with some really high satisfaction with that customer and another one we did was around not so much that that customer experience, but more around the product experience for us with our half price shakes on the weekends.
Speaker Change: And again pleased very pleased with that so those are the those are the types of things some of them that were screen. You know you can imagine we're like the 799 and the other two combo offers that we that we tested that you see as kind of a permanent attachments everyday value layer some of those value elements where promotions.
All types of things, but promotions that can last for a long period of time.
Speaker Change: We still got a very long list.
Speaker Change: We've got opinions and thoughts about how to test and develop against what else we see in that screening.
Speaker Change: Well, we'll continue to bring that forward. If we think it makes sense I think the thing I'd emphasize is.
Speaker Change: Our testing methodology is is not something we'll let go of.
Even the 799.
Speaker Change: There were two other versions of those types of combos and we wanted to make sure we knew which one really rang the bell in the minds of the customer it could deliver that that enticement to hold onto that visit and Thats why that one one.
Speaker Change: But that's.
Speaker Change: That's you know that's that's some examples of what we've got going there.
Speaker Change: Okay got it thanks.
Speaker Change: And then it was encouraging to see obviously the comp acceleration in September.
Speaker Change: I guess, so far in the fourth quarter.
Speaker Change: Did you accelerate your marketing spend.
Speaker Change: The latter part of the third quarter and maybe you could tell us what we can expect on marketing.
Speaker Change: Marketing spend heading into 2025, if you have any preliminary thoughts on that.
Speaker Change: Yeah.
Yes. The good news is as real momentum because we did not increase our marketing spend we still are spending at about 3%, sometimes it's $3 one depending on just how the balance of the of the execution of that marketing plan comes through.
Speaker Change: But we do anticipate continuing to escalate that it's for us much like what I, just said about the 799 testing that pre post net of controlled testing, but we are really diligent about is exactly how we take the next step with marketing you might recall on our way to 3% we made those moves in the quarter half point increments.
Speaker Change: We did it in markets, where we could test the impact of what we were adding to the to the marketing budget and once we're pleased with the returns then we'll go ahead and expand that level of spend across the system, including our franchisees.
Speaker Change: And I think we'll we'll continue to do that so we still see that as dry powder, but we have not we're not.
Speaker Change: Put any of that to work yet this year.
Speaker Change: Okay got it thanks very much.
Speaker Change: Well thank you.
Speaker Change: 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.
Bob Wright: Thank you and thank you all again for your time. This evening, we really look forward to what comes next year in Q4 and look forward to speaking to you. All again soon have a great night.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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