Potbelly Corporation Reports Results for Fourth Fiscal Quarter and Full Year 2019
Best comparable quarterly same-store sales (“SSS”) in over three years
Third consecutive quarter of sequential SSS improvement
Provides positive SSS outlook for 2020
2019 Strategic Successes
- Fourth quarter represented the best comparable same-store sales in over three years; third consecutive quarter of sequential same-store sales improvement.
- Off-Premise & Digital channel produced record growth, resulting in a mix of 21.7%; pick-up, catering, and delivery all grew in 2019.
- Menu optimization efforts grew average check by 410 basis points from full-year 2018 to full-year 2019; introduced Pick Your Pair and Meal Deal options in
February 2019 , which now account for approximately 1 in 4 orders. - Executed four new franchise deals, for 42 shops over the next 5-7 years, doubling the Company’s current franchise footprint.
Key highlights for the thirteen weeks ended
- Total revenues of
$101.8 million compared to$102.4 million . - Company-operated comparable store sales nearly flat at (0.1%), a 290-basis point improvement over the sequential quarter.
- GAAP net loss attributable to
Potbelly Corporation was$1.3 million , compared to a net loss of$4.4 million . GAAP diluted loss per share was$0.06 compared to a GAAP diluted loss per share of$0.17 . - EBITDA1 increased to
$4.6 million from$0.2 million . - Adjusted EBITDA1 was
$7.0 million compared to$7.2 million . - Menu optimization efforts led to a 670-basis point improvement in check versus the fourth quarter of 2018, driven by a combination of price and mix.
Key highlights for the fifty-two weeks ended
- Total revenues of
$409.7 million compared to$422.6 million , driven predominantly by shop closures in 2019. - Company-operated comparable store sales decreased 3.0%, but improved sequentially each quarter of fiscal 2019.
- GAAP net loss attributable to
Potbelly Corporation was$24.0 million , inclusive of a$13.6 million tax valuation allowance charge and a$2.9 million impairment charge, compared to a net loss of$8.9 million , inclusive of a$13.6 million impairment charge and$1.1 million of discrete tax expense. GAAP diluted loss per share decreased to$1.01 from$0.35 . - EBITDA1 increased to
$12.5 million from$12.2 million . - Adjusted EBITDA1 was
$25.5 million compared to$35.0 million , within the Company’s stated fiscal year 2019 guidance range.
2020 Outlook
For the full fiscal year 2020, management currently expects:
- 0.5% to 2.0% increase in company-operated comparable store sales
- Adjusted EBITDA to be between
$20.5 million and$25.5 million - Cost of goods sold to be between 26.7% and 27.3%
- Labor as a percentage of sales to be between 31.0% and 32.0%
- Adjusted G&A expense to be between
$44.0 million and$46.0 million - 8-10 total shop closures, all of which are company-operated shops
- 12-13 total shop openings, including 4 company-operated shop openings, which were delayed in 2019
Projected adjusted EBITDA set forth above is a measure not recognized under GAAP. Please see “Non-GAAP Financial Measures” below.
Conference Call
A conference call and audio webcast has been scheduled for
| Date: | ||
| Time: | ||
| Dial-In #: | 877-407-0784 |
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| 201-689-8560 International | ||
| Confirmation Code: | 13698638 |
Alternatively, the conference call will be webcast at www.potbelly.com on the “Investor Relations” webpage. For those unable to participate, an audio replay will be available from
About
Definitions
The following definitions apply to these terms as used throughout this press release:
- Revenues – represents net company-operated sandwich shop sales and our franchise operations. Net company-operated shop sales consist of food and beverage sales, net of promotional allowances and employee meals. Franchise royalties and fees consist of an initial franchise fee, a franchise development agreement fee and royalty income from the franchisee.
- Company-operated comparable store sales – represents the change in year-over-year sales for the comparable company-operated store base open for 15 months or longer.
- EBITDA – represents income before depreciation and amortization expense, interest expense and the provision for income taxes.
- Adjusted EBITDA – represents income before depreciation and amortization expense, interest expense and the provision for income taxes, adjusted to eliminate the impact of other items, including certain non-cash as well as other items that we do not consider representative of our ongoing operating performance.
- Shop-level profit – represents income (loss) from operations less franchise royalties and fees, general and administrative expenses, depreciation expense, pre-opening costs and impairment and loss on the disposal of property and equipment.
- Shop-level profit margin – represents shop-level profit expressed as a percentage of net company-operated sandwich shop sales.
1Non-GAAP Financial Measures
We prepare our financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”). Within this press release, we make reference to EBITDA, adjusted EBITDA, shop-level profit, and shop-level profit margin, which are non-GAAP financial measures. The Company includes these non-GAAP financial measures because management believes they are useful to investors in that they provide for greater transparency with respect to supplemental information used by management in its financial and operational decision making.
Management uses adjusted EBITDA to evaluate the Company’s performance and in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter. Adjusted EBITDA excludes the impact of certain non-cash charges and other special items that affect the comparability of results in past quarters. Management uses shop-level profit and shop-level profit margin as key metrics to evaluate the profitability of incremental sales at our shops, to evaluate our shop performance across periods and to evaluate our shop financial performance against our competitors.
Accordingly, the Company believes the presentation of these non-GAAP financial measures, when used in conjunction with GAAP financial measures, is a useful financial analysis tool that can assist investors in assessing the Company’s operating performance and underlying prospects. This analysis should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. This analysis, as well as the other information in this press release, should be read in conjunction with the Company’s financial statements and footnotes contained in the documents that the Company files with the
This press release includes certain non-GAAP forward-looking information (including, but not limited to under the heading “2020 Outlook”), namely adjusted EBITDA. The Company believes that a quantitative reconciliation of such forward-looking information to the most comparable financial measure calculated and presented in accordance with GAAP cannot be made available without unreasonable efforts. A reconciliation of these non-GAAP financial measures would require the Company to predict the timing and likelihood of outcomes that determine future impairments and the tax benefit of any such future impairments. Neither of these measures, nor their probable significance, can be reliably quantified due to the inability to forecast future impairments.
Forward-Looking Statements
In addition to historical information, this press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended and the Private Securities Litigation Reform Act of 1995. Forward-looking statements, written, oral or otherwise made, represent the Company’s expectation or belief concerning future events. Without limiting the foregoing, the words “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “strives,” “goal,” “estimates,” “forecasts,” “projects” or “anticipates” or the negative of these terms and similar expressions are intended to identify forward-looking statements. Forward-looking statements may include, among others, statements relating to: our future financial position and results of operations, business strategy, budgets, projected costs and plans and objectives of management for future operations. By nature, forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected or implied by the forward-looking statement, due to reasons including, but not limited to, competition; general economic conditions; our ability to successfully implement our business strategy; the success of our initiatives to increase sales and traffic; changes in commodity, energy and other costs; our ability to attract and retain management and employees; consumer reaction to industry-related public health issues and perceptions of food safety; our ability to manage our growth; reputational and brand issues; price and availability of commodities; consumer confidence and spending patterns; and weather conditions. In addition, there may be other factors of which we are presently unaware or that we currently deem immaterial that could cause our actual results to be materially different from the results referenced in the forward-looking statements. All forward-looking statements contained in this press release are qualified in their entirety by this cautionary statement. Although we believe that our plans, intentions and expectations are reasonable, we may not achieve our plans, intentions or expectations. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. See “Risk Factors” and “Cautionary Statement on Forward-Looking Statements” included in our most recent annual report on Form 10-K and other risk factors described from time to time in subsequent quarterly reports on Form 10-Q, all of which are available on our website at www.potbelly.com. The Company undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
| Contact: | |
| Investor Relations | |
| 312-445-2870 | |
| PBPB@alpha-ir.com |
Consolidated Statements of Operations and Margin Analysis – Unaudited
(Amounts and shares in thousands, except per share data)
| For the 13 Weeks Ended | For the 52 Weeks Ended | |||||||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||
| Sandwich shop sales, net | $ | 101,069 | 99.3 | % | $ | 101,560 | 99.2 | % | $ | 406,688 | 99.3 | % | $ | 419,426 | 99.2 | % | ||||||||||||
| Franchise royalties and fees | 683 | 0.7 | 818 | 0.8 | 3,019 | 0.7 | 3,212 | 0.8 | ||||||||||||||||||||
| Total revenues | 101,752 | 100.0 | 102,378 | 100.0 | 409,707 | 100.0 | 422,638 | 100.0 | ||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||||
| (Percentages stated as a percent of sandwich shop sales, net) | ||||||||||||||||||||||||||||
| Sandwich shop operating expenses | ||||||||||||||||||||||||||||
| Cost of goods sold, excluding depreciation |
26,544 | 26.3 | 27,353 | 26.9 | 108,326 | 26.6 | 111,083 | 26.5 | ||||||||||||||||||||
| Labor and related expenses | 31,886 | 31.5 | 31,595 | 31.1 | 128,403 | 31.6 | 127,962 | 30.5 | ||||||||||||||||||||
| Occupancy expenses | 14,520 | 14.4 | 15,002 | 14.8 | 58,977 | 14.5 | 59,789 | 14.3 | ||||||||||||||||||||
| Other operating expenses | 12,943 | 12.8 | 11,713 | 11.5 | 50,178 | 12.3 | 50,363 | 12.0 | ||||||||||||||||||||
| (Percentages stated as a percent of total revenues) | ||||||||||||||||||||||||||||
| General and administrative expenses |
10,141 | 10.0 | 11,147 | 10.9 | 47,949 | 11.7 | 46,862 | 11.1 | ||||||||||||||||||||
| Depreciation expense | 5,617 | 5.5 | 5,611 | 5.5 | 22,103 | 5.4 | 23,142 | 5.5 | ||||||||||||||||||||
| Pre-opening costs | 9 | * | 227 | 0.2 | 35 | * | 472 | 0.1 | ||||||||||||||||||||
| Impairment and loss on disposal of property and equipment |
954 | 0.9 | 5,100 | 5.0 | 2,932 | 0.7 | 13,567 | 3.2 | ||||||||||||||||||||
| Total expenses | 102,614 | 100.8 | 107,748 | 105.2 | 418,903 | 102.2 | 433,240 | 102.5 | ||||||||||||||||||||
| Loss from operations | (862 | ) | (0.8 | ) | (5,370 | ) | (5.2 | ) | (9,196 | ) | (2.2 | ) | (10,602 | ) | (2.5 | ) | ||||||||||||
| Interest expense | 104 | 0.1 | 33 | * | 199 | * | 142 | * | ||||||||||||||||||||
| Loss before income taxes | (966 | ) | (0.9 | ) | (5,403 | ) | (5.3 | ) | (9,395 | ) | (2.3 | ) | (10,744 | ) | (2.5 | ) | ||||||||||||
| Income tax expense (benefit) | 259 | 0.3 | (1,084 | ) | (1.1 | ) | 14,190 | 3.5 | (2,195 | ) | (0.5 | ) | ||||||||||||||||
| Net loss | (1,225 | ) | (1.2 | ) | (4,319 | ) | (4.2 | ) | (23,585 | ) | (5.8 | ) | (8,549 | ) | (2.0 | ) | ||||||||||||
| Net income attributable to non-controlling interests |
107 | 0.1 | 44 | * | 407 | 0.1 | 329 | * | ||||||||||||||||||||
| Net loss attributable to |
$ | (1,332 | ) | (1.3 | )% | $ | (4,363 | ) | (4.3 | )% | $ | (23,992 | ) | (5.9 | )% | $ | (8,878 | ) | (2.1 | )% | ||||||||
| Net loss per common share attributable to common shareholders: | ||||||||||||||||||||||||||||
| Basic | $ | (0.06 | ) | $ | (0.17 | ) | $ | (1.01 | ) | $ | (0.35 | ) | ||||||||||||||||
| Diluted | $ | (0.06 | ) | $ | (0.17 | ) | $ | (1.01 | ) | $ | (0.35 | ) | ||||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||||||||
| Basic | 23,617 | 24,627 | 23,850 | 25,173 | ||||||||||||||||||||||||
| Diluted | 23,617 | 24,627 | 23,850 | 25,173 | ||||||||||||||||||||||||
* Amount is less than 0.1%
Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures – Unaudited
(Amounts in thousands, except selected operating data)
| For the 13 Weeks Ended | For the 52 Weeks Ended | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Net loss attributable to |
$ | (1,332 | ) | $ | (4,363 | ) | $ | (23,992 | ) | $ | (8,878 | ) | ||||
| Depreciation expense | 5,617 | 5,611 | 22,103 | 23,142 | ||||||||||||
| Interest expense | 104 | 33 | 199 | 142 | ||||||||||||
| Income tax expense (benefit) | 259 | (1,084 | ) | 14,190 | (2,195 | ) | ||||||||||
| EBITDA | $ | 4,648 | $ | 197 | $ | 12,500 | $ | 12,211 | ||||||||
| Impairment, loss on disposal of property and equipment and shop closures(1) | 973 | 5,950 | 6,050 | 15,603 | ||||||||||||
| Stock-based compensation | 426 | 366 | 2,335 | 2,882 | ||||||||||||
| Nonrecurring professional services(2) | 805 | — | 3,070 | — | ||||||||||||
| CEO transition costs(3) | — | 296 | — | 1,564 | ||||||||||||
| Proxy related costs(4) | — | — | (127 | ) | 810 | |||||||||||
| Restructuring and other costs(5) | 194 | 363 | 1,673 | 1,920 | ||||||||||||
| Adjusted EBITDA | $ | 7,046 | $ | 7,172 | $ | 25,501 | $ | 34,990 | ||||||||
| For the 13 Weeks Ended | For the 52 Weeks Ended | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Loss from operations | $ | (862 | ) | $ | (5,370 | ) | $ | (9,196 | ) | $ | (10,602 | ) | ||||
| Less: Franchise royalties and fees | 683 | 818 | 3,019 | 3,212 | ||||||||||||
| General and administrative expenses | 10,141 | 11,147 | 47,949 | 46,862 | ||||||||||||
| Depreciation expense | 5,617 | 5,611 | 22,103 | 23,142 | ||||||||||||
| Pre-opening costs | 9 | 227 | 35 | 472 | ||||||||||||
| Impairment and loss on disposal of property and equipment |
954 | 5,100 | 2,932 | 13,567 | ||||||||||||
| Shop-level profit [Y] | $ | 15,176 | $ | 15,897 | $ | 60,804 | $ | 70,229 | ||||||||
| Total revenues | $ | 101,752 | $ | 102,378 | $ | 409,707 | $ | 422,638 | ||||||||
| Less: Franchise royalties and fees | 683 | 818 | 3,019 | 3,212 | ||||||||||||
| Sandwich shop sales, net [X] | $ | 101,069 | $ | 101,560 | $ | 406,688 | $ | 419,426 | ||||||||
| Shop-level profit margin [Y÷X] | 15.0 | % | 15.7 | % | 15.0 | % | 16.7 | % | ||||||||
| For the 13 Weeks Ended | For the 52 Weeks Ended | |||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Selected Operating Data | ||||||||||||
| Shop Activity: | ||||||||||||
| Company-operated shops, end of period | 428 | 437 | 428 | 437 | ||||||||
| Franchise shops, end of period | 46 | 49 | 46 | 49 | ||||||||
| Revenue Data: | ||||||||||||
| Company-operated comparable store sales | (0.1)% | (1.7)% | (3.0)% | (1.4)% | ||||||||
Footnotes to the Press Release, Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures
& Selected Operating Data
(1) This adjustment includes costs related to impairment of long-lived assets, loss on disposal of property and equipment and shop closure expenses. Shop closure expenses are recorded in general and administrative expenses in the consolidated statement of operations.
(2) The Company incurred certain costs beginning in the third quarter of 2019 for nonrecurring professional services, which ended in the fourth quarter.
(3) The Company incurred certain costs related to the transition between the current and former CEO in 2018. Transition costs were included in general and administrative expenses in the consolidated statements of operations and were related to the accelerated vesting of share-based compensation awards, salary related charges in accordance with the former CEO’s employment agreement, relocation related charges, and various other transition costs.
(4) The Company incurred certain professional and other costs and associated benefits related to the shareholder proxy matter. These costs and benefits were included in general and administrative expenses in the consolidated statements of operations.
(5) The Company incurred certain restructuring costs related to severance and other costs that were included in general and administrative expenses in the consolidated statements of operations.
Source: Potbelly Sandwich Works, LLC