Potbelly Corp. has expanded breakfast to 95 of its 334 corporate restaurants as part of a broad effort to build sales through new dayparts, as well as catering and digital marketing.
The fast-casual operator will continue to roll out breakfast “opportunistically,” based on neighborhood and site characteristics, executives said during a call Tuesday discussing fourth-quarter earnings.
Potbelly will also test snack items this year to improve sales during the mid-afternoon, from 2 p.m. to 5 p.m. Additionally, it is working to boost “backline” sales, which include online ordering, catering and delivery.
Backline sales increased 6 percent in 2014, and now represent 14 percent of Potbelly’s sales, officials said. The company wants to double those sales over the next three to four years. It recently hired a national backline leader to lead the company’s national strategy, and is beefing up sales staff and catering managers at the local level.
“We have a tremendous capacity to grow this business,” Potbelly CEO Aylwin Lewis said during the call. “We have the goal of doubling this business over the next three to four years. We have done many things to get to this level, but even more is needed to achieve the size and scale of this business that we believe we can achieve.”
Potbelly’s same-store sales increased 3.7 percent in the fourth quarter ended Dec. 28. The chain struggled to gain traffic and sales in the first half of the year. Same-store sales in the first quarter of 2014 fell 2.2 percent.
The fourth-quarter performance also helped the chain’s same-store sales finish the year slightly positive, with a 0.1-percent same-store sales increase.
“Despite the challenge of the first half of the year, we ended up with positive comps,” Lewis said. “That represented a nice comeback in the latter half of the year.”
Executives said sales have been improving into January and early February. Potbelly forecast sales improvement in the first half of 2015 in part because of an improving economy, but also because of easier comparisons, given the difficulty of the previous year. The chain estimates that same-store sales will increase “a minimum” of 3 percent this year.
Investors appear to be buying it. The company’s stock had struggled since the chain went public in 2013, and traded as low as $11 a share, well below its $14 IPO price. The stock has rallied more recently, including a surge of 14 percent on Wednesday, and is now trading at $16 a share.
“Management seemed upbeat about trends to date (in the first quarter),” Baird analyst David Tarantino said in a note Wednesday morning. He noted that favorable weather comparisons and an improving economy are likely helping trends so far this year. “We are cautiously optimistic that full-year (sales) can exceed 3 percent,” given the potential of some of the company’s efforts to drive sales
While the company is working to add dayparts, it also plans to improve sales by increasing its digital advertising.
The company is increasing its advertising and will spend the bulk of it on digital, social and mobile platforms, Lewis said Wednesday. “Very little” of the increase will be spent on traditional media, executives said.
The company introduced a mobile app in the fourth quarter, which it hopes will drive sales. “We still believe in word of mouth,” Lewis said. “But we said all along that if we could find a way to message outside the four walls that it would really help us. So this is a big year to test some things.”
Lewis noted that Many of Potbelly’s locations average between 120 and 150 transactions during their peak half hour. But the average throughout the system is well below that. “There is a tremendous opportunity to grow our business during the busiest timeframe across our system,” Lewis said. “We are committed to investing in technology, equipment and staffing to support higher levels of throughput as we move forward.”
Potbelly reported $700,000 in net income for the fourth quarter, an improvement over a net loss of $3.7 million during the same period in 2013. Revenue increased 13.4 percent during the quarter, to $84.8 million, from $74.8 million the previous year.
Adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, increased 4.4 percent, to $9.4 million, from $9 million a year ago.
The company reported $4.4 million in net income for the year, compared with $1.3 million in 2013. Fiscal 2014 revenue rose 9.1 percent, to $327 million, from $299.7 million the previous year.
In addition to its 334 corporate locations, Potbelly has 29 franchised units. Potbelly opened 46 new restaurants in 2014.
Contact Jonathan Maze at [email protected].
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