Q2 2025 Potbelly Corp Earnings Call

When placed in a listen only mode and the lines will be opened for your questions. Following the prepared remarks.

On today's call, we have Bob Wright, President and Chief Executive Officer, Steve Surrealists, Senior Vice President and Chief Financial Officer, and idea Dixon Senior Vice President Chief Legal Officer, and Secretary of Potbelly Corporation.

At this time ill turn the call over to a Dia Dixon. Please go ahead.

Good afternoon, everyone and welcome to our second quarter 2025 earnings call.

By now everyone should have access to our earnings release and accompanying investor presentation. If not it can be found in the investors section of our website.

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 2025 or any other future periods should be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

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.

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 in the investors tab of our website and at SEC Dot com.

No.

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 their 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 will turn the call over to Potbelly, President and CEO Bob right.

Thank you good afternoon, and thank you for joining our call today, our second quarter results continue to showcase the strength of the Potbelly brand as our growth engine further accelerates.

At a high level our top line sales momentum continued as we grew same store sales by three 2% including positive traffic.

And our shop expansion plans remain on track with eight successful shop openings in the quarter ahead of our Q2 expectations. Our team's disciplined approach to managing both shop level and corporate costs also led to year over year shop level margin expansion to 16, 7%.

And helped us deliver an adjusted EBITDA of $9 6 million, reaching the high end of our guidance range.

These strong results truly reflect the growth engine, we've been building for the past five years, leveraging our five pillar operating strategy across menu innovation value operations digital and shop growth. However, at the heart of our continued success is our team's unparalleled dedication.

And hard work.

I would like to thank every member of the Potbelly family from our frontline staff to our support center employees as well as our franchisees and their teams whose commitment to excellence makes these achievements possible.

Speaker #1: Good afternoon, everyone, and welcome Potbelly Corporation's second quarter 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.

As we look forward to the second half of the year. Our focus will remain on actions that continue to support accelerated growth both now and into the future. This includes driving comp sales growth through menu innovation and investments in our consumer facing digital assets as well as data and analytics are.

Speaker #1: 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.

Growing and modernizing our shop footprint through accelerated unit openings.

Speaker #1: At this time, I'll turn the call over to Adiya Dixon. Please go ahead. 2025 earnings conference

Franchisee growth market penetration and Remodels of our company owned units.

Speaker #3: Good afternoon, everyone, and welcome to our second quarter 2025 earnings call. By now, everyone should have access to our earnings release and accompanying investor presentations.

And lastly, exercising prudent cost controls to achieve balanced growth, while also pushing incremental flow through to our corporate earnings.

Speaker #3: If not, they can be found in the investor section of our website. 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 .

Let me walk through some of these actions starting with innovation the menu innovation that we've introduced over the past year continued to be a driver of our topline performance in the second quarter. As we previously mentioned, we launched an exciting addition to our iconic core menu in mid April with the all new Prime rib steak sandwich, our first EB.

Speaker #3: Any such statements, including our outlook for 2025, or any other future periods, should be considered forward-looking statements within the meaning of the private securities litigation reform act of 1995.

<unk> steak sandwich added to the permanent menu.

Importantly, customer reception continues to be tremendously positive our consumer insights and customer feedback work. We did last year helped us understand where we could focus our core menu efforts and we learned about the menu enhancements and additions that would be most appealing.

Speaker #3: These forward-looking statements are not guaranteed the future performance, nor should they be relied upon as representing management's views as of any subsequent date. 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.

Recall, the introduction of our prime rib steak sandwich was on the heels of our new slow cooked pulled pork sandwiches introduced at the end of 2024.

Speaker #3: 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 in the investor's tab of our website and at sec.gov.

In addition, the launch of tractor beverages last year underscored our commitment to innovation across the menu not just in our legendary sandwiches.

Following the end of the quarter in early July we continue to elevate the potbelly menu through the introduction of Potbelly branded hot Pepper potato chips as part of our partnership with Zacks. These new chips feature of the flavor of Potbelly signature Hot peppers in our available exclusively in potbelly shops nationwide.

Speaker #3: During the call, there will also be a discussion of some items that do not conform to US 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.

We've also upgraded our salad dressings in partnership with <unk> to enhance quality and flavor on our salad line.

As we look ahead, we carry on testing additional areas of menu innovation through our stage gate development process and we look forward to sharing information about the new menu innovation efforts that are currently in test in future calls.

Speaker #3: Both of which are available in the investor's tab on our site. And now, I'll turn the call over to Potbelly's President and CEO, Bob Wright.

Speaker #4: Thank you, Adiya. Good afternoon, and thank you for joining our call today. Our second quarter results continue to showcase the strength of the Potbelly brand, as our growth engine further accelerates.

Importantly, our approach to menu innovations remain integral to our three part value delivery the intrinsic value of our core menu is all the better with these exciting new menu items quality upgrades and flavor enhancements.

Speaker #4: At a high level, our top-line sales momentum continued as we grew same-store sales by 3.2%, including positive traffic. And our shop expansion plans remain on track, with eight successful shop openings in the quarter, ahead of our Q2 expectations.

We also maintain support for everyday value layers with our pick your pair option 799, skinny value combos and meal deals and we continue to use our digital channels as our primary method to drive promotional value, especially with our most loyal customers again, a balanced use of these three layers.

Speaker #4: Our team's disciplined approach to managing both shop-level and corporate costs also led to year-over-year shop-level margin expansion to 16.7%. And helped us deliver an adjusted EBITDA of 9.6 million dollars, reaching the high end of our guidance range.

Value helps us meet customers' needs and all the ways they use potbelly, while simultaneously driving profitable traffic growth.

Speaker #4: These strong results truly reflect the growth engine we've been building for the past five years, leveraging our five-pillar operating strategy across menu innovation, value, operations, digital, and shop growth.

Moving to digital our performance during the quarter remained strong and a long term driver of our topline momentum.

The seamless integration of our digital advertising consumer facing digital assets and Potbelly perks loyalty program combined with our menu innovations work cohesively to provide potbelly with multiple sales layers to drive long term sustainable growth.

Speaker #4: However, at the heart of our continued success is our team's unparalleled dedication and hard work. I would like to thank every member of the Potbelly family from our front-line staff to our support center employees, as well as our franchisees and their teams, whose commitment to excellence makes these achievements possible.

During the quarter, our digital business represented over 41% of our total shop sales an increase of approximately 140 basis points versus last year.

Speaker #4: As we look forward to the second half of the year, our focus will remain on actions that continue to support accelerated growth, both now and into the future.

Building on our strong digital platform I am excited to share that in late June we launched our new website and mobile app rebuilding our digital platform from the ground up to deliver meaningful improvements to the customer experience. These enhancements, which were developed based on extensive user insights and customer feedback represent a key milestone.

Speaker #4: This includes driving comp sales growth through menu innovation and investments in our consumer-facing digital assets, as well as data and analytics. Growing and modernizing our shop footprint through accelerated unit openings, franchisee growth, market penetration, and remodels of our company-owned units.

And our ongoing digital transformation strategy.

Through these updates we made ordering faster and easier than ever we've introduced one click ordering from the home screen, allowing our fans to instantly reorder their favorites redeem rewards and explore new menu items with these are refreshed menu layout now showcases more items, while incorporating a quick add feature that.

Speaker #4: And lastly, exercising prudent cost controls to achieve balanced growth while also pushing incremental flow-through to our corporate earnings. Let me walk through some of these actions, starting innovation.

Speaker #4: The menu innovation that we've introduced over the past year continued to be a driver of our top-line performance in the second quarter. As we previously mentioned, we launched an exciting addition to our iconic core menu in mid-April with the all-new Prime Rib Steak Sandwich, our first-ever steak sandwich added to the permanent menu.

Difficultly speeds up the checkout process.

We've also streamlined navigation with infinite scroll functionality that encourages digital exploration and makes browsing, our full menu more intuitive than ever before.

We've simplified the personalization process with visual cues that guide guests through their choices in a consolidated interface that puts all options on a single page checkout.

Speaker #4: Importantly, customer reception continues to be tremendously positive. Our consumer insights and customer feedback work we did last year helped us understand where we could focus our core menu efforts, and we learned about the menu enhancements and additions that would be most appealing.

Check out experience has been enhanced with tap friendly tools that make it effortless to update repeat and remove items.

Finally, we've made significant changes to our perks loyalty members to effortlessly convert their coins for value added menu items.

Speaker #4: Recall, the introduction of our Prime Rib Steak Sandwich was on the heels of our new slow-cooked pulled pork sandwiches introduced at the end of 2024.

They are in the experience with simple and intuitive visualizations.

Speaker #4: In addition, the launch of Tractor Beverages last year underscored our commitment to innovation across the menu, not just in our legendary sandwiches. Following the end of the quarter, in early July, we continued to elevate Potbelly menu through the introduction of Potbelly branded hot pepper potato chips, as part of our partnership with Zaps.

As we've mentioned, we're making incremental investments in both consumer facing digital assets and data and analytics capabilities that we believe will not only make us more competitive but also more efficient and effective in our digital marketing efforts.

While I'm very pleased with what we've accomplished with these recent updates. This represents just another step in our digital journey.

Speaker #4: These new chips feature the flavor of Potbelly's signature hot peppers and are available exclusively in Potbelly shops nationwide. We've also upgraded our salad dressings in partnership with Marzetti to enhance quality and flavor, on our salad line.

We have additional enhancements in our development pipeline that will further personalize and streamline the customer experience and we look forward to sharing more details on these exciting developments in future calls.

Speaker #4: As we look ahead, we carry on testing additional areas menu innovation through our Stagegate development process. And we look forward to sharing information about the new menu innovation efforts that are currently in test in future calls.

Now let me give you an update on our franchise growth acceleration initiative. Our team once again made meaningful progress across all phases of our unit growth funnel.

Starting with unit openings, we're pleased to have opened eight new shops across our system during the second quarter.

Speaker #4: Importantly, our approach to menu innovations remains integral to our three-part value delivery. The intrinsic value of our core menu is all the better with these exciting new menu items, quality upgrades, and flavor enhancements.

But our original expectation of six new shops.

As we look ahead, we expect to open at least another eight new shops during the third quarter more importantly, our future opening plans remain on track and we believe we continue to have a clear line of sight to open at least 38, new shops in 2025 with all of the remaining locations currently under development.

Speaker #4: We also maintain support for everyday value layers with our Pick Your Pair options, $7.99 skinny value combos, and meal deals. And we continue to use our digital channels as our primary method to drive promotional value, especially with our most loyal customers.

And driving our confidence in our development expectations for the third and fourth quarter.

Speaker #4: Again, a balanced use of these three layers of value helps us meet customers' needs in all the ways they use Potbelly, while simultaneously driving profitable traffic growth.

As a franchise focused company, we continue to expand through franchise partners, who share our passion for the brand.

And thanks to the great work of our franchise team and converting high quality franchise candidates to franchisees through deal signings. We added 54, new franchise shop commitments during the second quarter, our strongest quarter ever.

Speaker #4: Moving to digital, our performance during the quarter remains strong in a long-term driver of our top-line momentum. The seamless integration of our digital advertising, consumer-facing digital assets, and Potbelly Perks loyalty program, combined with our menu innovations work cohesively to provide Potbelly with multiple sales layers to drive long-term sustainable growth.

This brings our total open and committed shop count to 816 shops, surpassing 40% of our long term potential for at least 2000 shops.

Speaker #4: During the quarter, our digital business represented over 41% of our total shop sales, an increase of approximately 140 basis points versus last year. Building on the strong digital platform, I'm excited to share that in late June, we launched our new website and mobile app, Rebuilding Our Digital Platform from the Ground Up, to deliver meaningful improvements to the customer experience.

The combination of new shop openings emerging franchisees and new development agreements and expanded commitments from existing partners continue to reinforce our confidence and accelerated franchise growth for 2025 and beyond.

In addition, our remodel tests remain on track with five Remodels completed through Q2, and several more nearly completed to date across all three tiers.

Speaker #4: These enhancements, which were developed based on extensive user insights and customer feedback, represent a key milestone in our ongoing digital transformation strategy. Through these updates, we made ordering faster and easier than ever.

With our various combinations of updated signage exterior enhancements interior updates in furniture upgrades I couldnt be more pleased with how we're able to update the overall potbelly image to our customers benefit while still maintaining that special potbelly environment that remains a competitive advantage for us.

Speaker #4: We've introduced one-click ordering from the home screen, allowing our fans to instantly reorder their favorites, redeem rewards, and explore new menu items with ease.

While it's still too early to share details on traffic lifts and ROI. We are very pleased with the early test results and look forward to sharing more of those details in future quarters.

Speaker #4: Our refreshed menu layout now showcases more items while incorporating a quick add feature that significantly speeds up the checkout process. We've also streamlined navigation with infinite scroll functionality that encourages digital exploration and makes browsing our full menu more intuitive than ever before.

In summary, we're very proud of what we've accomplished thus far and excited for what the future holds for potbelly. We've accomplished so much over the past five years, but we know that potbelly is just getting started and believe we are well positioned to capitalize on the immense opportunity ahead of us with that I'll now turn the call over to Steve to detail our finance.

Speaker #4: We've simplified the personalization process with visual cues that guide guests through their choices and a consolidated interface that puts all options on a single page.

Performance for the second quarter.

Speaker #4: The checkout experience has been enhanced with tap-friendly tools that make it effortless to update,

Thank you Bob and good afternoon, everyone.

Speaker #4: repeat, and remove That

System wide sales for the second quarter of 2025 increased approximately six 7% year over year to $154 $2 million with total revenue increasing approximately three 4% year over year to $123 7 million.

Speaker #4: items. Finally, we've made

Speaker #4: significant changes to allow checkout experience has

Speaker #4: our Perks loyalty members been enhanced with

Speaker #4: to effortlessly tap-friendly tools that make it

Speaker #4: convert their coins for effortless to update,

Second quarter, adjusted EBITDA was $9 6 million or seven 8% of total revenue.

This 13% growth year over year was driven by improvement in shop level margin continued strong performance of our franchise shops and ongoing disciplined management of G&A.

Diving in further company operated shop revenue increased approximately two 5% year over year to $118 4 million.

While franchise revenue improved approximately 27, 7% year over year to $5 3 million in the second quarter.

This performance was primarily driven by an increase in franchise units.

Average weekly sales were approximately $27040.

And as Bob mentioned company operated same store sales were up three 2% in the quarter above the high end of our expectations.

The same store sales growth was attributable to a one 1% increase in transactions and a two 1% increase in average check.

The higher average check included an approximate increase of two 7% and gross price.

Turning to expenses food beverage and packaging costs were 26, 3% of shop sales.

Speaker #1: And we believe we continue to have a clear line of sight to open at least 38 new shops in 2025. With all the remaining locations currently under development and driving our confidence in our development expectations for the third and fourth quarter.

An 80 basis point improvement versus the prior year period.

This was largely driven by slight commodity deflation of 40 basis points in the quarter.

Labor expenses remained flat year over year at 28% of sales.

Speaker #1: As a franchise-focused company, we continue to expand through franchise partners who share our passion for brand. And thanks to the great work of our franchise team in converting high-quality franchise candidates to franchisees through deal signings, we added 54 new franchise shop commitments during the second quarter.

Occupancy was 10, 6% of sales a 30 basis point improvement versus the prior year period, mostly the result of sales leverage.

Other operating expenses held steady year over year at 18, 4% of sales.

Shop level margins were 16, 7% an increase of 100 basis points versus last year.

Speaker #1: Our strongest quarter ever. This brings our total open and committed shop count to 816 shops, surpassing 40% of our long-term potential for at ast 2000 shops.

General and administrative expenses were eight 7% of system wide sales, an increase of 50 basis points year over year, primarily due to payroll costs, including an increased bonus accrual aligned with our year to date performance.

Speaker #1: The combination of new shop openings, emerging franchisees, and new development agreements and expanded commitments from existing partners continue to reinforce our confidence in accelerated franchise growth for 2025 and beyond.

And nonrecurring consulting and legal settlement costs.

We reported a net income of $2 5 million for the quarter <unk>.

Adjusted net income was $2 9 million, a $400000 increase versus the prior year period.

Speaker #1: In addition, our remodel tests remain on track with five remodels completed through Q2 and several more nearly completed to date across all three tiers.

We believe the strength of our balance sheet provides us flexibility to fund our growth strategic initiatives participate in our share repurchase program and align with our broader capital allocation strategy.

Speaker #1: With our various combinations of updated signage, exterior, enhancements, interior updates, and furniture upgrades, I uldn't be more pleased with how we're able to update the overall Potbelly image to our customers' benefit while still maintaining that special Potbelly environment that remains a competitive advantage for us.

During the second quarter, we purchased approximately 113000 shares of our common stock for a total of approximately $1 million, we anticipate repurchases throughout our three year program approved in 2024.

Speaker #1: While still too early to are details on traffic lifts and ROI, we are very pleased with the early test results and ok forward to sharing more of those details in future quarters.

Finally, let's turn to guidance for.

For the full year 2025, we are increasing our guidance in key areas and anticipate the following.

Same store sales growth of 2.0% to 3.0% up from the previous range of one 5% to two 5%.

Speaker #1: In summary, we're very proud of what we've accomplished thus far and excited for what the future holds for Potbelly. We've accomplished so much over the past five years, but we know that Potbelly is just getting started and believe we are well-positioned to capitalize on the immense opportunity ahead of us.

<unk> growth of at least 38 openings and.

And adjusted EBITDA of approximately $34.0 million to $35.0 million, an increase from the previous range of $33.0 million to $34.0 million.

Speaker #1: With that, I'll now turn the call over to Steve to detail our financial performance for the second quarter.

Speaker #2: Thank you, Bob, and good afternoon, everyone. System-wide sales for the second quarter of 2025 increased approximately 6.7% year-over-year to $154.2 million, with total revenue increasing approximately 3.4% year-over-year to $123.7 million.

Incorporating our quarter to date results for the third quarter of 2025, we anticipate the following.

Same store sales growth of three 5% to four 5%.

Growth of at least eight units.

And adjusted EBITDA of 9.0 to 10.0 million with that I will turn the call back over to Bob.

Speaker #2: Second quarter adjusted EBITDA was $9.6 million, or $7.8% of total revenue. This 13% growth year-over-year was driven by improvement in shop-level margin, continued strong performance of our franchise shops, and ongoing disciplined management of G&A.

Thanks, So much Steve as we wrap up today's prepared remarks, I want to end by highlighting an underappreciated driver of our success is our deep commitment to the communities. We serve I'm, particularly proud of our Potbelly summer of service initiative, where our teams across the country have demonstrated extraordinary commitment to making a difference in their neighbor.

Speaker #2: Diving in further, company-operated shop revenue increased approximately 2.5% year-over-year, to $118.4 million. While franchise revenue improved approximately 27.7% year-over-year to $5.3 million, in the second quarter.

<unk> from partnering with major food banks nationwide, helping provide meals to families in need to supporting important causes like down syndrome awareness through annual fund raising events like Gigi fit acceptance challenge in Chicago.

Speaker #2: This performance was primarily driven by an increase in franchise units. Average weekly sales were approximately $27,040 and, as Bob mentioned, company-operated same-store sales were up 3.2% in the quarter, above the high end of our expectations.

Our impact has been both broad and meaningful touching lives in communities large and small across the country.

These efforts reflect our core belief that potbelly is more than just a sandwich shop, we are a vital part in the neighborhoods we serve.

I want to extend my heartfelt gratitude to our dedicated team members and franchisees who have embraced our mission of community service your commitment to showing up giving back and making a difference is truly brought our values to life together. We're building not just a successful business, but a company that makes a lasting impact.

Speaker #2: The same-store sales growth was attributable to a $1.1% increase in transactions and a $2.1% increase in average check. The higher average check included an approximate increase of $2.7% in gross price.

Speaker #2: Turning to expenses, food, beverage, and packaging costs were $26.3% of shop sales, an 80 basis point improvement versus the prior year period. This was largely driven by slight commodity deflation, of 40 basis points in the quarter.

<unk> in the communities that we call home.

As we look ahead, we remain committed to growing our business, while deepening our community connections one neighborhood at a time.

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

Speaker #2: Labor expenses remained flat year-over-year at 28% of sales. Occupancy was 10.6% of sales, a 30 basis point improvement versus the prior year period, mostly the result of sales leverage.

Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone for using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Speaker #2: Other operating expenses held steady year-over-year at $18.4% of sales. Shop-level margins were $16.7%, an increase of 100 basis points versus last year. General and administrative expenses were $8.7% of system-wide sales, an increase of 50 basis points year-over-year.

And our first question comes from Todd Brooks from the Benchmark Company. Please go ahead.

Hi, Thanks, and congratulations on the continued momentum of the business folks that's great.

Speaker #2: Primarily due to payroll costs, including an increased bonus accrual aligned with our year-to-date performance, and non-recurring consulting and legal settlement costs. We reported a net income of $2.5 million for the quarter.

Thanks, Tom.

First question I have and.

Just doing the math it looks like about 3300 64 signed.

Deals in the pipeline on top of units that you have opened now I think in the past you've talked about an eight year type of.

Speaker #2: Adjusted net income was $2.9 million, a $400,000 increase versus the prior year period. We believe the strength of our balance sheet provides us with lexibility to fund our growth, strategic initiatives, participate in our share repurchase program, and align with our broader capital allocation strategy.

Realization that franchisees have to open their commitment within but I know theres some.

Kind of incentives in place and some of the bigger franchisees are better versed open more quickly how long do you think it takes to realize that pipeline because we are starting to get to.

Speaker #2: During the second quarter, we purchased approximately $113,000 shares of ur common stocks for a total of approximately $1 million. We anticipate repurchases throughout our three-year program approved in 2024.

Meaningful numbers here in that 50 unit range just from.

The known pipeline right now for franchisee openings going forward.

Yes, it's a great question, Todd and it ties to what we've been talking about as our long term algorithm for growth rates in the double digits. When it comes to unit count.

Speaker #2: Finally, let's turn to guidance. For the full year 2025, we are increasing ur guidance in key areas and anticipate the following. Same-store sales growth of $2.0% to $3.0%, up from the previous range of $1.5% to $2.5%.

And you're right you're.

Your eight year horizon, what we see is the maximum timeline for shop development area agreement, where the franchisee.

Do you think about one of those large area developers at let's say they've signed for 2016 shops, they're going to deliver to a year.

Speaker #2: Unit growth of at ast 38 openings, and adjusted EBITDA of approximately $34.0 to $35.0 million, an increase from the previous range of $33.0 to $34.0 million.

But at the same time, if a franchisee signs any less than eight units to a development agreement and then they get a year per unit. So.

We don't necessarily spread all of those shops over eight year period of time because of its smaller development agreement were still going to get a unit a year and they get a little bit shorter time. So.

Speaker #2: Incorporating our quarter-to-date ults for the third quarter 2025, we anticipate the following. Same-store sales growth of $3.25% to $4.25%, unit growth of at least eight units, and adjusted EBITDA of $9.0 to $10.0 million.

Yes, as you start to digest all of these commitments that have come into the system and especially as those those multi unit developers.

Find their footing that work in the real estate market like we've talked about many times and they get those approvals in place. They they can see multiple openings a year.

Speaker #2: With that, I'll turn the call back over to Bob.

Speaker #1: Thanks so much, Steve. As we wrap up today's prepared remarks, I want to end by highlighting an underappreciated driver of our success. It's our deep commitment to the communities we serve.

Both larger and smaller franchisees have a small incentive on the table. If they can open ahead of schedule.

Speaker #1: I'm particularly proud of our Potbelly Summer of Service initiative, where our teams across the country have demonstrated extraordinary commitment to making a difference in their neighborhoods.

And it's mutually beneficial we call it $50 50 and settled because they can they can get a discount on their royalties during the weeks that they werent expected to be open for them. That's that's additional money puts towards their deal and for us.

Speaker #1: From partnering with major food banks nationwide helping provide meals to families in need to supporting important causes like Down syndrome awareness through annual fundraising events like Gigi Fit, Acceptance Challenge, in Chicago.

We still got half of the royalties that we hadn't baked into our plan. So it's a win win for both of us.

That's great Bob and just a quick follow up and I'll jump back in queue.

Speaker #1: Our impact has been both broad and meaningful, touching lives and communities large and small across the country. These efforts reflect our core belief that Potbelly is more than just a sandwich shop.

And I'm not I'm not sure how exactly to frame up what we just discussed there, but it sounds like to me is we have visibility into.

Speaker #1: We're a vital part of the neighborhoods we serve. I want to extend my heartfelt gratitude to our dedicated team members and franchisees who've embraced our mission of community service.

50, plus franchise openings next year, but you've also talked about.

An element of accelerated corporate openings to try to identify a few of the key company store markets I think you've talked about 10.

Speaker #1: Your commitment to showing up, giving back, and making a difference has truly brought our values to life. Together, we're building not just a successful business, but a company that makes a lasting impact in the communities that we call home.

10% to 28 year thoughts on that as we're looking out to 'twenty six is that corporate store pipeline shaping up at all and do you temper that back at all given the momentum that you're seeing just from our franchisees signing standpoint no.

Speaker #1: As we look ahead, we remain committed to growing our business while deepening our community connections one neighborhood at a time. With that, we're happy to answer any questions operator, please open the line for questions.

No. Thanks for the chance to clarify that Todd I appreciate it.

Youre right, while not guiding to two.

<unk> 2026 opening right, we've got really nice visibility into that pipeline.

And because we've been building the pipeline for this period of time, we frankly, what we can see more of as a little more front half loaded than back half because the back half is going to fill up as we go through the back half of this year right. So.

Speaker #2: Thank ou. We'll now begin the question and answer session. To ask a question, you may press star then one on your touchstone phone. For using a speaker phone, please pick up your handset before pressing the keys.

Speaker #2: To withdraw your question, please press star then two. At this time, we'll pause momentarily to assemble our roster. And our question comes from Todd Brooks from the benchmark company.

That continues to build with our franchisees. We have said that we would build up to 20 company units a year.

We're not making commitments for the number to be that high because.

We're looking for the intersection of a few key variables, where we would build a company site densify a market that we're already in markets that have really nice margins for us and lower than nationwide average construction cost and markets that we don't already have franchisees growing in so.

Speaker #2: Please go ahead.

Speaker #3: Hey, thanks and congratulations on the continued momentum in the business. Folks, that's great.

Speaker #4: Thanks, Todd.

Speaker #3: first question I have and, and, just doing the math, it looks ike about 30, 364 signed deals in the pipeline on top of units that you have open now.

We think thats, an important earnings builder for our brand and for our company while at the same time.

Speaker #3: I think in the past you've talked about an eight-year type of realization that franchisees have to open their commitment within, but I know there's some kind of incentives in place and some of the bigger franchisees are better versed to open more quickly.

It's true to our unit growth story without getting in the way of what's really the biggest part of unit growth as those franchise unit development.

So yes, we'll be guiding to those 26 number soon enough, but we were very pleased with how those two elements are shaping up to make the year looks strong.

Speaker #3: How long do you think it takes to realize that pipeline? ecause we're starting to get to meaningful numbers here in that 50-unit range just from, the known pipeline right now for franchisee openings going forward.

That's great. Thanks, Bob.

Yes. Thank you.

And the next question comes from Jeremy Hamblin from Craig Hallum Capital Group. Please go ahead.

Speaker #4: Yeah, it's a great estion, Todd. And it ties to, you know, what we've been talking as our long-term algorithm for growth rates in the double digits when it comes to unit count.

Thanks for taking the questions and I'll add my congratulations on the.

The strong results.

I wanted to dive into the same store sales in a bit more detail and see if you can share a bit more on.

Speaker #4: and ou're right. You're, you're, your eight-year horizon is what we see as the maximum timeline for, shop development area agreement with a franchisee. So if you think about one of ose large area developers, let's say they've signed for 16 shops, they're gonna deliver two a year.

You noted positive traffic, which is fantastic.

In Q2, but wanted to see.

From that three 2% growth what was transaction what was check and then how youre looking at menu pricing and potential mix here as we are in Q3.

Speaker #4: at the same time, if, if a franchisee signs any less than eight units to a development agreement, then they get a year per unit.

Speaker #4: So we don't necessarily spread all of those shops over eight-year period of time because if it's a smaller development agreement, we're still gonna get a unit a year, and they get a ittle bit shorter time.

Sure. Thanks, Jeremy let Steven I would tag team that he can give you the pricing and the mix piece and then we'll talk a little bit about why we have the confidence and what happened could continue to happen too.

Speaker #4: So, yeah, as you start to digest all these commitments that have come into the system and especially as those multi-unit developers find their footing, they're ing the real estate market like we've talked about many times, and they, they get those approvals in place, they, they can see multiple openings a year.

Sure.

So Jeremy the breakdown of the three two same store sales growth for us on the corporate side.

One 1% growth in traffic that's the transaction number and then two 1%.

Speaker #4: Both larger and smaller franchisees have a small incentive on the table if they can open ahead of schedule. and it's mutually beneficial. We call it our 50/50 incentive because they can, they can get a discount on their royalties during the weeks that they weren't expected to be open.

Average check increase our gross price was $2 seven and now give ya.

Six.

Slight drop in mix.

Okay, great that decomposition plan.

Speaker #4: For them, that's, that's additional money that puts towards their deal. And for us, you know, we still get half of the royalties that we hadn't baked into our plan.

Perfect and just a little bit of color maybe on the cadence throughout the quarter April May June.

Speaker #4: So it's a win-win for both of us.

And obviously it sounds like Bob is excited to share a bit of.

Speaker #3: That's great, Bob. And just a quick follow-up, and then I'll ump back into and, and 'm not, I'm not sure how exactly to frame up what we just discussed there, but what it, it sounds like to me is we have visibility into 50-plus franchise openings next year.

Why you have confidence in a really.

Strong same store sales.

Guidance for Q3.

Sure.

As Jim mentioned in his room in his remarks that we accelerated through the quarter in terms of our same store sales so business continued to to.

Speaker #3: you've also talked an element of accelerated corporate openings to try to densify a few of the key company store markets. I think you've talked 10 to 20 a year.

To strengthen and Thats in the face of.

And Easter shift that didn't didn't fall our way.

And Thats also taken into account.

Speaker #3: Thoughts on that as we're looking out to '26? Is that corporate store pipeline shaping up at all? And do you temper that back at all given the momentum that you're seeing just from a franchisee signing standpoint?

Yes.

Fourth of July component that sometimes creeps in at the bottom of the quarter.

But we're in June <unk> was another element so all of those factors.

Speaker #3: Thanks.

Speaker #4: No, thanks for the chance to clarify that, Todd. I appreciate it. look, you're, you're, you're right. While we're not guiding to, our 2026 opening rate, we've got really nice visibility into that pipeline.

<unk>.

Resulted in us continuing to build our same store sales through through the quarter.

Yes, Jeremy I think the thing that.

Speaker #4: And because we've been building the pipeline for this period of time, we, ou know, frankly, what we can see more of is, is a little more front half loaded than back half because the back half is gonna fill up as we go through the back half of this year, right?

We're excited about is that we're seeing growth across multiple channels, we talked again about the 41% digital business.

And we're seeing growth across multiple strategic initiatives. That's all been part of this plan that we've been building so the menu innovation.

Speaker #4: So, that, that continues to build with our franchisees. We have said that we would build up to 20 company units a year. we're making commitments for the number to be that high, because, the we're looking for the intersection of a few key variables where we would build a company site, densifying a market that we're already in, markets that have really nice margins for us and lower than nationwide average construction costs, and markets that we don't already have franchisees growing in.

Those three layers of value of the digital efforts that we've had in place the consistent attention to detail with operations and the staffing that we have.

The stability in the turnover levels that we have in our shops.

And I think as you hear us talk about things like.

The rollout of our new web and the App in June and that platform that that allows us to lean even further into into some of these areas that you heard my comments mentioning that we have.

Speaker #4: So, you know, we, we think that's an important earnings builder for our brand and for our company while at the same time, you know, it's, it's true to our unit growth story without getting in the way of what's really the biggest part of unit growth is those franchise unit developments.

But we still have additional testing related to the menu and sometimes it's as big as the steak sandwich like it has been and of course, the <unk> dressings. We think those are very important moves that it may not be as flashy as it add to the sandwich line, but just really continuing to focus aggressively on the core menu itself.

Speaker #4: so, yeah, we'll, we'll be guiding to those 26 numbers soon enough, but we, we're very pleased with how those two elements are shaping up to make the year look strong.

That is the base of that value structure that we have and I think what you're hearing is that the.

Speaker #3: That's great. Thanks, Bob.

The success and the traffic driving capability is the same thing that where we're drawing our confidence in for the future.

Speaker #4: Yeah, thank ou.

Speaker #2: And the next question comes from Jeremy Hamblin from Craig Hallam Capital Group. Please go head.

Speaker #5: Thanks for taking the questions, and I'll add my congratulations on the, the strong results. I wanted to dive into the same-store sales in a bit more detail and see if you can share a bit more on, you, you noted positive traffic, which is fantastic.

Obviously wouldn't raise sales guidance, if we thought we could see that continuation of that.

The accelerated momentum that we've seen this year.

Got it and can you elaborate a little bit on on that menu innovation I mean, I know you may not talk about specific things, but can you talk a little bit about the timeline it sounds like there's potential for either.

Speaker #5: in Q2, but wanted to see from of that $3.2% growth, you know, what was transaction, what was check, and then how you're looking at menu pricing and potential mix here as we are in Q3.

Other launches in the back half of the year or.

Testing of.

Items.

Yes, we have and you're right. We don't want to we don't want to over promise here, we always prefer to talk to you all about what we've done and why we're confident about what we're working on but we do have additional menu innovation work in test now.

Speaker #4: Sure. Thanks again, Jeremy. Let's, let's Steve and I tag team that. He can give you the pricing and the mix piece, and then we'll k a little bit about why we have the confidence in what happened can continue to happen too.

It's a little too early to talk about exactly where that's going but.

Speaker #2: Sure. So, Jeremy, the, the breakdown of the, the $3.2 same-store sales growth for us on the corporate side was $1.1% growth in traffic. That's a transaction number.

We have we have that in some of our shops in some of our markets and we certainly have a view to what else is in that stage gate process in that stage gate pipeline on what could come next after that.

Speaker #2: And then $2.1 percent average check increase. Our growth price was, was $2.7 and that'll give you a, a, a 0.6 slight drop in mix.

And it is it's a blend of products and product.

Products that we can put on the menu and the ingredients that make those products. So.

We want to just keep elevating our quality game and giving our customers more reasons to come in I.

Speaker #2: To br to create that decomposition for you.

I think for US we get ask questions, sometimes about specific product items and I think you've seen the pattern is what you should expect to see in the future. It's it's adjacencies to the current menu, it's what our customers and our research has told US they would reward us for if we would invest in those things in the menu.

Speaker #5: Perfect. And, and just a little bit of, of color, maybe on the cadence throughout the quarter, April, May, June, and obviously it, it sounds like Bob is excited to share a bit of, of, of why you, you have confidence on a really you ow, strong same-store sales guidance for Q3.

It is what is accepted by the court fast casual and potbelly consumers. So.

Speaker #4: Sure. yeah, you as you know.

Speaker #2: I mentioned in this, in this room, in this remarks that we accelerated through the quarter in terms of our same-store sales. so the business continued to, to strengthen.

We.

Our research was pretty clear for us that we knew steak sandwich or what's going to hit if we got the right product and so we spent the time developing that there are other things like that that our customers have told us that they would reward us for.

Speaker #2: And that's in the face of an Easter shift that didn't, didn't fall our way and that's also taken into count of, you know, the, the, the 4th of July component that sometimes creeps in at the, the bottom of the quarter.

And what we're working on is finding the right solution for that reward.

Got it last one for me real quick.

Speaker #2: but we're and Juneteenth was another element. So all of ose factors still resulted in us continuing to build our same-store sales through, through the quarter.

I wanted to see if you could make some comments around cost of goods.

Tariff noise is kind of still out there and creating a bit of confusion, but wanted to see if you could share.

Visibility that you feel like you have here on food costs in the back half of the year.

Speaker #4: Yeah, Jeremy, I ink the thing that, that you know, we're, we're excited about is that we're, we're seeing growth across multiple channels, you know, we talked again about the 41% digital business and we're seeing growth across multiple strategic initiatives.

Sure sure.

Perhaps.

A nice benefit that we're not a manufacturing company here in this sense, because we don't really have a lot of exposure.

Those kinds of items that would fall under at least as of today the.

Speaker #4: You know, it's all been part of this plan that we've been building. So the menu innovation, those three layers of value, the digital efforts that we've had in place, the consistent attention to detail with operations and, and the staffing that we have.

Proposed tariffs.

There was some some.

Earlier that with with avocados that we get from Mexico, and so forth that we might have some exposure and we probably do if those things fully come to fruition, but as we look at the year. So far we benefited from.

Speaker #4: And the stability and the turnover levels that we have in our shops and I, I think as you hear us talk about things like the rollout of the new web and the app in June, and the platform that that allows us to lean even further into into some of these areas, the, you ow, you heard my ments mentioning that we have we still have additional testing related to the menu and, you know, sometimes it's as big as a, a steak sandwich like it has been and of course the Marzetti dressings.

From a really favorable commodity year, some some deflation rate.

And some some cases, but as we look to the back half at least from what we can see we've got food cost inflation here as we're looking at the third quarter just shy of 2%.

Is there are forecasts and then something.

Speaker #4: We think those are very important moves. They may not be as flashy as an add to the sandwich line, but just really continuing to focus aggressively on the core menu itself.

As we head into as we head into the fourth quarter, we have a bit of a step up for us anyway.

A different distributor relationship.

And it steps up a little higher than that but it's just a little north of two so.

Speaker #4: That is the base of that, that value structure that we have and I, I think what you're aring is that, that, that the success and the traffic driving capability is the same thing that we're we're drawing our confidence in for the future.

It's fairly benign.

And so we're we're we're locked in on our basket, 99% for <unk>.

For this quarter and.

And about 85% for for the year, so barring any wild changes.

Speaker #4: And we obviously wouldn't raise sales guidance if we, we thought we could see the continuation of the, the accelerated momentum that we've seen this year.

From the administration.

I think our food costs.

Our.

Manageable state that's at least.

Speaker #3: Got it. And, and, and can you elaborate a little bit on, on that menu innovation? I mean, I know you may not talk about specific things, but can you talk a little bit about the timeline?

Great. Thanks, so much guys for taking the questions.

Thanks Chairman.

Thanks, Jeremy.

The next question comes from Mark Smith from Lake Street Capital. Please go ahead.

Speaker #3: It sounds like there's potential for either other launches in the back half the year or testing of, of items.

Hi, guys I.

Wanted to ask first just about the balance sheet a little bit the debt is now gone just curious your thoughts around capital deployment.

Speaker #4: Yeah, we have and you're right. We don't want to we don't want to over-promise here. We, we always prefer to talk to you all about what we've done and, and why we're confident about what 're working on.

There's more interest in buybacks or other places, where you see putting capital to work.

Speaker #4: But we do have additional menu innovation work in test now. it's a little too early to talk about exactly where that's going, but we have, we have that in some of our shops and in some of our markets.

Sure sure I think we've mentioned in the past that we we think about our capital.

Our capital strategy and this way we want to continue to invest in our assets right. So those are going to be our existing shops, and Bob discussed I can give a little more color to the remodel program that that he mentioned in his in his opening remarks.

Speaker #4: And we certainly have a view to what else is in that stage gate process and that stage gate pipeline and what could come next after that.

Speaker #4: and it is a it's a blend of products and product and products that we've put on the menu and the ingredients that make those products.

And those new units that we're going to continue.

To build that.

That's kind of on the growth side for us So those things that will drive some additional same store sales, we believe and certainly more revenue and then we.

Speaker #4: So we want to just keep, keep elevating our quality game and giving our customers more reasons to come in. I think for us, we get asked estions sometimes about specific product items and, yeah, I think you've seen the pattern is what ou should expect to see in the future.

Want to invest in our technology as well and there's a lot of evidence of that showing up already.

New web and App that recently launched is one manifestation of that but then.

Speaker #4: It's, it's adjacencies to the current menu. It's what our ustomers and our research has told us they would reward us for if we would invest in those things in the menu.

Rebuilding our tech stack and allowing for even greater marketing capabilities.

And more sophisticated ways to reach our customers.

It's something that we'll continue to invest in <unk>.

Speaker #4: It, it is what is accepted by the current, the current fast casual and Potbelly consumer. So, you know, we, our research was pretty clear for us that we knew steak sandwich was gonna hit if we got the right product.

Over 40% of our business is digital.

That's something that we're going to continue to spend our capital on because we believe it's high return high return capital.

We also spent a fair amount of money on maintaining our fleet right Theres always.

Speaker #4: And so we spent the time developing that. There are other things like that that our customers have told us that they would reward us for.

Routine maintenance that creeps into our to our capital spend but that goes back to kind of reinvesting in our assets and we have as you know a share buyback program in place.

Speaker #4: And what we're working on is finding the right solution for that reward.

We were in the market.

Speaker #3: Got it. Last one for me real quick. I wanted to see if you could make comments around cost of goods? You know, tariff noise is kind of still out there in, in, in creating a, a bit of confusion, but wanted to see if you could share you know visibility that ou feel like you have here on, on food costs in the back half of the year.

Last quarter, and we will continue to put capital there, but I would say that for us. The first best use of capital is.

Are those high return strategic initiatives.

Push us far beyond our cost of capital and lay the groundwork.

For continued growth in the future and whats.

What youre seeing right now is <unk>.

Speaker #4: Sure. Sure. You know, it's, it's, perhaps a, a, a nice benefit that we're not a manufacturing company here in this sense because we don't really have a lot of exposure to those kinds of items that would fall under at ast as of today, the, the, the proposed tariffs.

Multiple layers of growth kind of all hitting.

At the same time, which which are pushing our same store sales and driving some of that traffic. So that's the plan and a model and a strategy that's working for US and we will continue to play it played out like that.

Perfect.

I did want to ask about the remodels, a little bit as well as prototypes.

Speaker #4: there was some some thought earlier that with, with avocados that we get from Mexico and so forth that we might have some exposure. we, we probably do if those things fully come to fruition.

What kind of returns are.

How pleased are you as you look at.

Speaker #4: But as we look the year, so far we've benefited from from a really favorable commodity year. Some, some deflation, right? in, in some, some cases.

<unk> from remodeled restaurants, or even kind of new prototypes any updates there would be great.

Yes happy to.

Speaker #4: But as we look to the back half, at least from what we can see, we've got food cost inflation here as we're looking at the third quarter.

I'll hit the prototype first of all because that really relates to.

How pleased we are with new shop openings.

And.

Suffice it to say we are very pleased with the performance of our new shop openings, but I would add to that that we're never satisfied.

Speaker #4: Just shy of 2%. as, within our forecast and then something you know as we head into as we head into the fourth quarter, we have a bit of a step up for us anyway in, in a a different distributor relationship.

With the build costs in the sales returns that we get our franchisees are enjoying when they are building big shops the.

Speaker #4: and it steps up a little higher than that, but it's just a little north of two. So it, it's fairly benign. and so we're, we're we're locked in on our baskets 99% for for this quarter.

The areas that we've been working on are as you can imagine in restaurant development are there things that we can do to pull costs out of our new shop builds we do have the prototypical design, we're very very happy with that that design, but we think that we could we continue to economize some of the construction costs.

Speaker #4: and about 85% for, for the year. So, barring any wild changes, from the administration, I think our food costs are in a, in a, in a manageable state.

Correct.

We have a recent build where we tested some of those design.

Adjustments.

Speaker #4: to say the least.

And things that we hope we have we don't think we have tens of thousands of dollars out of the construction costs and I think we did a marvelous job preserving the potbelly experience potbelly feel we're very quick about incorporating any of those proven enhancements that can bring costs down in the very next iteration because.

Speaker #3: Great. Thanks so much, guys, for taking the questions.

Speaker #4: Thanks, Jeremy.

Speaker #2: Thanks, Jeremy. The next question comes from Lark Smith from Lake Street Capital. Please go head.

Speaker #6: Hi, guys. wanted to ask first just about the balance sheet a little bit. The debt is, is now all gone. just curious your, your thoughts around capital deployment.

As we've talked before the prototype is a design standard it isn't a cookie cutter one size fits all box that has to be exactly the same we're going into lease spaces, sometimes they are rectangular sometimes theyre square.

Speaker #6: if there's more interest in buybacks or, you ow, other places where you, you see putting capital to .

Speaker #4: Sure. Sure. I ink, we've, we've mentioned in the past that we, we think about our capital our, our capital strategy in this way. We want to continue to invest in our assets, right?

So because it's a design standard.

We can incorporate these changes whether it's materials construction style, there's some stuff even the intricacies of how some of the wall framing is being done we pulled cost out and the customer would never see that and it saves.

Speaker #4: So those are gonna be our existing shops and, and Bob discussed I can give a little more color to the remodel program that, that he mentioned in his, in his opening remarks.

Thousands of dollars. So there is there is that the.

The construction side of things that we think is really important then on the on the revenue side again, we're pleased but not satisfied there are some things we've started to learn now that we've opened several shops. This year and continue to open them, but we think we can do even better so even though we're happy with the opening.

Speaker #4: And and those new units that we're, we're going to continue to build. that's, that's kind of on the growth side for us. So those things that will drive, you know, some additional same-store sales, we believe, and certainly more revenue.

Speaker #4: And then we want to invest in our technology as well. And there's a lot of evidence of that showing up already. You know, the, the new web and app that recently launched is one manifestation of that.

Sales growth because we're partnering with our franchisees.

There's some things we're learning about how we can kick start catering a little bit faster. Some things we're learning about how we can train a little more aggressively for those first few days with our dream teams that are in place.

Speaker #4: But then, you ow, rebuilding our tech stack and allowing for even greater marketing capabilities and, and more sophisticated ways to reach our ustomers is something that will continue to invest in.

And these are all things that we're not problems Theyre just once you get rolling and find there are more and more better ways to do this well.

Speaker #4: You know, when you know over 40% of our business is digital, that's something that we're gonna continue to spend our, our capital on because we believe it's high return.

And those are the things obviously that franchisees will continue to invest in we get a very high marks with our franchisees because very open about these enhancements and when they have feedback we incorporate it and we make the next opening even better I think it is important to note to mark that we're opening on time.

Speaker #4: high return capital. and also spend a fair ount of, of money on maintaining our fleet, right? There's always you know, routine maintenance that, that creeps into our to our capital spend, but that goes back to kind reinvesting in our assets.

Speaker #4: And we have, as you know, a, a share buyback program in place. you know, mentioned we, we were in the market last quarter. And we'll continue to put capital there.

The process is getting sharper and better too.

Speaker #4: But I would say that for us, the, the first best use of capital is, is are those high return strategic initiatives that push us far beyond our cost of capital and lay the groundwork for continued growth in the future.

This is all this is all infrastructure team's skills and functions that were built we've been building them over the last five years and so I'm really pleased and it's broad based I mean gosh this quarter.

We have open shops in seven different states.

Speaker #4: And what's what you're seeing right is, is the, you ow, those multiple layers of growth kind of all hitting at the same time, which, which are pushing our same-store sales and, and driving some of that traffic.

So.

It's not highly concentrated in that way.

Now what's neat about the prototype work is it lends itself really well to the Remodels you asked about and I know in my prepared remarks.

Speaker #4: So, that's a plan and a, and a model and strategy that's working for us. And, and we'll continue to play it, play it out like that.

We talk about these three levels of Remodels and we have fund here. So we named him after our sandwich sizes Skinny original and big.

Speaker #6: Perfect. And, and I, I did want to k about the, the remodels a little bit as, as well as prototypes. You know, what, what kind of returns or any, you know, how pleased are you, you know, as you look at, you ow, results from remodeled restaurants or even kind of new prototypes?

And.

That essentially matches the price banding that it takes to what are we looking at in the various scale a remodel but it is some combination of signage.

Speaker #6: Any updates there would be great.

Exterior work interior work and you get into furniture and fixtures to if you're into that big sized remodel we have one of our shops thats its been with us. So long its got a single digit shop number so top top 10 original shops, it's going to get a big remodel.

Speaker #4: Yeah, happy to. you know, I'll the prototype first of all because that, that really relates to, you know, how, how pleased we are with new shop openings.

Speaker #4: and, you know, suffice it to say, we are very pleased with the performance of our new shop openings, but I'd add to that that we're never satisfied.

We won't we won't stay exactly where that is but it's going to really I think be boosted by a full blown retouch on the exterior and the interior.

Speaker #4: you know, with the build costs and the, and the, sales returns that we get our franchisees are enjoying when they're building new shops. the areas that we've been working on are as you can imagine in restaurant development, are there things that we can do to pull costs out of our, our new shop builds?

And we've had some recently of the five that I mentioned that we've already done that were just signage.

And in our new logo or new branding that.

We rolled out a couple of years ago, It really pops.

Speaker #4: we do have that prototypical design. We're very, very happy with that, that design, but we think that we could, we continue to economize some of the construction costs.

And in some cases, we see people from the neighborhood that are glad we finally opened.

Just by replacing the signage.

No.

Speaker #4: In fact, we have a recent build where we, we tested some of those design, adjustments and things that we pulled, we have, we don't think we have pulled tens of thousands of dollars out of the construction costs.

Really pleased with the Remodels. So far we've got a lot of testing to do we need our pp knock our pre post net of control assessment that Steve holds us.

Very closely accountable for before we can start sharing some of the details, but we're watching you heard me mentioned, we're watching lift in return on those remodels because.

Speaker #4: And I think we did a marvelous job preserving the Potbelly experience and the Potbelly feel. We're very quick about incorporating any those proven, enhancements that can bring costs down in the very next iteration because you know, as talked before, the prototype is a design standard.

We have experience with other brands you get this right and it can drive top line growth that adds profit to the bottom line that we really like.

Not to go on and on I do want to mention one last thing that kind of crosses both of those and that's our PDC X investments, Steve talked about technology and assets and this is the in shop technology.

Speaker #4: It isn't a cookie-cutter one-size-fits-all box that has to be exactly the same. We're going into lease spaces, sometimes they're rectangular, sometimes they're square. And so because it's a design standard, we can incorporate these changes whether it's materials, construction style, there's some stuff even the intricacies of how some of the wall framing is being done.

The new Pos with a new kitchen display system and when we even added this handheld ordering system that.

We think has upside to help drive the busiest day parts and help us handle that big demand during the busiest day parts and so when we do when we open every shop. It gets the new PTC X system and of course as we're doing Remodels, we're going to do that too, but all of our shops will get the new Pos by the end of next year.

Speaker #4: We pulled costs out. The customer would never see that. And it saves, you know, thousands of dollars. So there's, there's the, the, construction side of things that we think is really important.

Speaker #4: Then on the, on the revenue side, again, we're pleased, but not satisfied. There's some things that we started to learn now that we've ed several shops this year and continue to open them that we think we can do even better.

Perfect if I can squeeze in one more.

Kind of a twofold wed love to hear if you saw any change in consumer behavior, whether it was cutting out chips or drinks or anything as consumers who are a little squeezed here in the quarter and with that I would love to hear if you can discuss it at all competitively.

Speaker #4: So even though we're, we're happy with the, the opening sales growth because we're partnering with our franchisees, there's some things we're learning about how we can kickstart catering a little bit faster.

Speaker #4: Some things we're learning about how we can train a little more aggressively for those first few days with our dream teams that are in place.

There is any real differences between the digital customer and.

Counter order customer on.

Speaker #4: And, you know, these are all things that we're not problems. They're just, once you get rolling, you find there are more and more better ways to do this well.

Check size or up selling them digitally.

Yes, I mean, I think when it comes to consumer you've heard a lot of other brands talk about that low income consumer we do watch our spending by income bracket. Among another a number of other variables in there there definitely seems to be some pressure on the.

Speaker #4: and those are the things obviously that franchisees will continue to invest in. We get a very high marks with our franchisees because we're very open about these enhancements.

Speaker #4: And when they have feedback, we incorporate it and we ake the next opening even better. I think it's important to note too, Mark, that, that we're opening on time.

The low income consumer that 40% and $50000 and below that makes up a pretty small percentage of our traffic.

Speaker #4: you know, that the, the process is getting sharper and better too. you know, this is all, this is all infrastructure team skills and, and functions that were built.

And so we're able to grow the business in spite of that pressure on the lower end that youre hearing about from especially from from some other brands.

And at the end of the day.

Speaker #4: we've been building them over the last five years. And so I'm, I'm really pleased. And it's broad-based. I mean, gosh, this quarter, we've opened shops in seven different states.

We're watching that.

People are still employed they're still we're still seeing wage inflation that's outpacing there.

Speaker #4: so you know, it's not, it's not highly concentrated in that way. now what's neat about the prototype work is it lends itself really well to the remodels you asked about.

There are consumer inflation and.

When it comes to lunch fast casual still sits in a great place I mean, you can come either potbelly for $8 for $9 get a whole meal and that's the threshold that our research tells us there's really importantly, even if someone is watching their dollars in their wallet.

Speaker #4: And I know in my prepared remarks, you ow, we talk about these three levels of remodels and we have fun here. So we named them after our sandwich sizes: skinny, original, and big.

And at the same time, if you want to spend a couple of extra dollars on the premium prime rib steak sandwich, and maybe even get it in a big size, we've got that for you too.

Speaker #4: And they, they, that, that essentially matches the, the price banding that it takes to, you know, to what, what are we looking at in, in the various scale of remodel.

Clearly in the digital space one of the advantages as people spend a little more time for <unk> the menu cruising through the menu, maybe adding a cookie.

Speaker #4: But it is some combination of signage, exterior work, interior work, and, you know, you get into furniture and some fixtures too if you're into that big-size remodel.

Maybe adding an.

An additional drink for there to put on their shelf or something and you can see the check growth with that can be party size to that influences check growth.

Speaker #4: We have one of our shops that's that's been with us so long. It's got a single-digit shop number. So, you know, top, top 10 original shops.

Speaker #4: It's gonna get a big remodel. we won't, we won't state exactly where that is, but it, it, it's gonna really, I ink, be boosted by a, a full-blown retouch of the exterior and the interior.

And the other side of that is that we also have an ever ever more successful relationship with our perks loyalty consumer.

And they love the fact that they can use those coins that they earn and turnaround in cash those in so even though they may be adding things their menu. They can use 300 corners to get a free cookie too.

Speaker #4: And we've had some recently of the five that I mentioned that we've already done that were just signage. and, you know, our new logo, our new branding that we, that, that we rolled out a couple of years ago, it really pops.

Speaker #4: And, and in some cases, we see people from the neighborhood that are glad we quote finally opened. just by replacing the signage. So, really pleased with the remodel so far.

Excellent. Thank you very much.

Thanks Mark.

Thanks Martin.

And the next question comes from Matt Curtis from William Blair. Please go ahead.

Speaker #4: We got a lot of testing to do. We need our PP knock, our pre-post-net-a-control assessment that Steve holds us, you know, very closely, accountable for before we can start sharing some of the details.

Hi, good afternoon, and ill add my congratulations on the quarter.

On the digital side guys have you seen any meaningful difference in sales trends between <unk>.

<unk> order and pickup versus delivery and then.

Speaker #4: But we're watching, you, you heard me mention it. We're ching lift and return. On those remodels because, we, we have experience with other brands.

Then.

Following the digital enhancements that you've rolled out in late June.

Yes.

Speaker #4: You get this right and it can drive top-line growth that, that adds profit to the bottom line that we really like. Not to go on and on.

Mostly designed to make ordering faster and easier.

Have you seen any meaningful uptick in digital sales in the month of July.

Speaker #4: I do want to ion one last thing that kind of crosses both of those, and that's our PDCX investments. Steve talked about technology and assets.

Speaker #4: And this is the in-shop technology that new POS with the new kitchen display system, and we've even added this handheld ordering system that, we think has upside to, to help drive the busiest day parts and help us handle that big demand during the busiest day parts.

Yes, so Matt.

Matt first of all thanks, Thanks for the comments and the question when you when you talk about.

The last question first.

We just rolled this out in June.

And we're certainly not going to talk about the components of that that momentum continuation of momentum in July but we are really pleased with what we're seeing on the early data with the web and App, particularly with the behaviors that we had hoped to see reflected in the orders that are related to the enhancements that we particularly designed into it.

Speaker #4: And so, when we do, when we open every shop, it gets the new PDCX system and, of course, as we're doing remodels, we're gonna do that too.

Speaker #4: But all of our shops will get the new POS, by the end of next year.

Speaker #6: Perfect. It, it, if I can squeeze in one more, kind of twofold. Would love to hear from you, you saw any change in consumer behavior, whether it was cutting out chips or drinks or anything as, as consumers were a little squeezier in quarter.

And we'll talk more about this in the future, but it's not just the app and the web but it's the tech stack that sits underneath that gets unlocked because of that code that we think is very exciting for us into the future.

Speaker #6: And, and, and with that, I would love to hear if you can discuss it at all, competitively, you know, if you, there, if there's any real differences between the digital customer and, counter order customer on, you know, check size or upselling them, you ow, digitally.

In terms of the movement.

Within the digital space.

And the traffic movement between.

Inside digital pickup versus digital delivery versus third party digital livery, we haven't seen a significant shift in those behaviors here in this last quarter, that's kind of similar to the behavior that we have been enjoying in the past, we keep finding ways to make our first party.

Speaker #4: Yeah, I mean, I think when comes to consumer, you've heard a lot of other brands talk about that low-income consumer. We do watch the spending by income bracket among, among another a number of other variables.

Speaker #4: And they're, they're itely seems to be some pressure on the, the low-income consumer that, you ow, 40 and $50,000 and below. It makes up a pretty small percentage of our traffic.

The most attractive place for people to go in and.

And we like where we sit in terms of the overall mix we.

<unk> said all along we're in those third party channels, because that's where a lot of our customers are certainly not going to turn our backs on that business, but we were successful in finding more and more ways to get people pivoted back to the first party digital channels, whether they are using it for delivery or pickup and.

Speaker #4: and so we're able to grow the business in spite of that pressure on the lower end that you're hearing about from especially from, some other brands.

Speaker #4: And, you know, at the end of the day, we're watching the fact that people are still employed. They're still seeing wage inflation that is outpacing their consumer inflation.

And in fact, they get smarter and smarter, they often order for pick up but still come in and grab it off the shelf and sit down and done.

Speaker #4: And when it comes to lunch, fast casual still sits in a great place. I mean, you can come eat at Potbelly for $8 for $9.

Okay, great. Thanks very much.

Thank you.

Speaker #4: Get a whole meal. And that's the threshold that our research tells us is really important even if someone is watching their dollars in their wallet.

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.

Speaker #4: And at the same time, you know, if you want to end a couple of extra dollars on a premium prime rib steak sandwich and maybe even get it in a big size, you know, we've, we've got that for you too.

Thank you operator, we really appreciate everyone being on the call with US today, we have reached the end of our call, but I think what you're hearing from US Tonight is that where we're very excited about where potbelly sits today. The growth story continues and we certainly look forward to talking to you again soon have a great night.

Speaker #4: clearly in digital space, one of the advantages is people spend a little more time perusing the menu, cruising through the menu, maybe adding a cookie, maybe adding a, an additional drink for their, you know, to put on their shelf or something.

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

Speaker #4: And, and ou can see the check growth with that, that can be party-sized too that influences check growth. and the side of that is that we, we also have an ever, you know, ever more successful relationship with our perks loyalty consumer.

Speaker #4: And they love the fact that they can use those coins that they earn and turn around and, and cash those in. So even though they may be adding things to their menu, they can use the 300 coins to get a free cookie too.

Speaker #6: Excellent. Thank you very much.

Speaker #4: Thanks, Mark.

Speaker #6: Thanks, Mark.

Speaker #2: And the next question comes from Matt Curtis from William Blair. Please go head.

Speaker #7: Hi, good afternoon and all, at my congratulations on the quarter. on the digital side, guys, have you en any meaningful difference in sales trends between, mobile order and pickup versus delivery?

Speaker #7: and then, you know, following the digital enhancements, that you rolled out in late June, which I guess, mostly designed to make ordering faster and easier, ha-have you seen any, meaningful uptick in digital sales, in the month of July?

Speaker #4: Yeah, so what, Matt, first of all, thanks. Thanks for the comments and the, the question. When you, when you talk , the, the, the last question first, it, you know, we just rolled this out in June.

Speaker #4: and we're certainly not gonna talk about the components of, of that, that momentum continuation of momentum in July. But we are really pleased with what we're seeing in the early data with the web and app.

Speaker #4: particularly with the behaviors that we'd hoped see reflected in the orders, that are related to the enhancements that we particularly designed into it. And we'll talk more about this in the future, but it's not just the app and the web, but it's the tech stack that sits underneath it that gets unlocked because of that code that we think is, you know, very exciting for us into the future.

Speaker #4: in terms of the movement, in within the digital space and, you know, in, in the traffic movement between, inside digital pickup versus digital delivery versus, third-party digital delivery, you haven't seen a significant, shift in those behaviors here in this last quarter.

Speaker #4: it's kind of similar to the behavior that we, we have, have been enjoying in the past. We're, we keep finding ways to make our first-party digital the most attractive place for people to go.

Speaker #4: And, and, and, you know, we, we like where we sit in terms of the overall mix. We set all along, we're in those third-party channels because that's where a lot of our customers are.

Speaker #4: And 're certainly not gonna turn our backs on that business. But, we, we're, we're successful in finding more and more ways to get people pivoted back to their first-party digital channels, whether they're ing it for delivery or pickup.

Speaker #4: And in t, they get smarter and smarter. They often order for pickup but still come in and grab it off the shelf and sit down and dine.

Speaker #7: Okay, great. Thanks very much.

Speaker #4: Thank ou.

Speaker #2: Ladies and gentlemen, we have reached end of today's question and answer session. I'd like turn the call back over to Mr. Bob Wright for closing remarks.

Speaker #4: Thank ou, operator. We really appreciate everyone being on the call with us today. we've reached the, the end of our call, but I ink what you're hearing from us tonight is that we're, we're very excited about where Potbelly sits today.

Speaker #4: the growth story continues. And we certainly look forward to talking to you in soon. Have a great night.