Unit sales in central business districts rose nearly 40% in the third quarter. /Photo courtesy of Shutterstock.
Potbelly Inc. on Thursday reported a second straight quarter of record unit averages and said its businesses in central business districts and airports are coming back and all catering units are building strength.
President and CEO Bob Wright said Potbelly’s average unit volume for the third quarter ended Sept. 25 hit $23,383, an uptrend that continued in the fourth quarter with AUVs of $25,244 in October alone.
Wright, whose CEO contract was recently extended through 2025, has set a goal of achieving AUVs of $1.3 million by 2024. With the expectation of achieving AUVs of $1.14 million to $1.16 million for the year, the company is on track, he said.
In the third quarter, Potbelly same-store sales rose 15% and restaurant-level margins rose to 10.6% from 8.7% a year earlier. This improvement was somewhat amplified by a 3.6% increase in menu prices during the quarter, which will add about 9% to prices for the year.
But despite higher prices, Potbelly is seeing greater demand from guests and stealing traffic from its competitors, said Steve Cirulis, Potbelly’s CFO.
“You have a consumerwho are confronted with inflation and they calculate for themselves what they want to enjoy and what they can afford and where they think they can get the best bang for their buck. And we’re pleased to see that they’re choosing us, increasingly so than our peers for quick bargains,” Cirulis said during an earnings call with analysts.
Revenue of $117.6 million, up 15.7% year over year, also set records, and the company returned earnings with net income of $9 million, or 31 cents a share, compared to a loss of $2.9 million. or a loss of 10 cents a share a year ago. Adjusted for the benefit of a $10 million federal paycheck protection program loan last year, net income was $0.03 million.
Revenue rose nearly 40% at units in central business districts and more than 23% at airport locations, the company said. These locations have been particularly hard hit by the pandemic and have been slower to recover.
During the quarter, Potbelly promoted a Gyro Sandwich LTO, as well as a S’mores Cookie and Pumpkin Shake. Targeted promotions through the chain’s 2.3 million member loyalty program, which added 115,000 new members in the quarter alone, also helped.
Wright said the company is pleased with the new Potbelly Digital Kitchen program, which launched earlier this year as a trial and is expanding to more stores. The system, which digitizes both production lines, is designed to improve speed, accuracy and throughput and increase efficiency.
Potbelly has held digital sales steady at about 36% of sales while growing in-store sales, and Wright said, “We’re still expecting a lot more from our catering business as it continues to come back.”
Not only is office catering making a comeback as workers return to inner cities, Wright said they’ve had success marketing potbelly sandwiches for “social and celebratory occasions” across the system.
Potbelly also announced its first two expansion deals since the company launched a renewed franchising push earlier this year. The company signed two franchise development agreements that will add approximately 25 new locations to Tampa and Orlando, Florida, and central Illinois over the next seven to eight years.
With approximately 400 company-owned and 40 franchised units currently, Wright has set a goal of expanding the chain to 2,000 units by 2024, 85% of which will be franchise-owned. Potbelly plans to return 100 units as part of this process.
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