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Edited Transcript of PBPB earnings conference call or presentation 12-May-20 9:00pm GMT

Q1 2020 Potbelly Corp Earnings Call

Chicago May 14, 2020 (Thomson StreetEvents) -- Edited Transcript of Potbelly Corp earnings conference call or presentation Tuesday, May 12, 2020 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Alan L Johnson

Potbelly Corporation - President, CEO & Director

* Matthew J. Revord

Potbelly Corporation - Senior VP, Chief Legal Officer, Chief People Officer & Secretary

* Steven W. Cirulis

Potbelly Corporation - Senior VP, CFO, Principal Accounting Officer & Chief Strategy Officer,

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Conference Call Participants

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* Gregory Ryan Francfort

BofA Merrill Lynch, Research Division - Associate

* Joshua C. Long

Piper Sandler & Co., Research Division - Assistant VP & Research Analyst

* Sharon Zackfia

William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer

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Presentation

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Operator [1]

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This is the conference operator. Welcome to the Potbelly Corporation First Quarter 2020 Earnings Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Matt Revord, please go ahead.

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Matthew J. Revord, Potbelly Corporation - Senior VP, Chief Legal Officer, Chief People Officer & Secretary [2]

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Good afternoon, everyone, and welcome to our first quarter earnings call. Before we get started, I'd like to note that certain comments made in this call will contain forward-looking statements regarding future events for the future financial performance of the company. Any such statements, including our outlook for 2020 or any other future periods, should be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not guarantees of the future performance nor should they be relied upon delivering new management 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, the factors that could cause actual results to differ materially from the forward-looking statements and other information we've given today can be found in our most recent report on Form 10-K, under the headings Risk Factors and MD&A and in our subsequent filings with the Securities and Exchange Commission, which are available at sec.gov.

Our presenters today are Alan Johnson, our Chief Executive Officer; and Steve Cirulis, Senior VP and Chief Financial Officer. After our prepared remarks, we'll open the call for your questions.

I'll now turn the call over to Alan.

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [3]

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Thank you, Matt. And good afternoon, everyone, and thank you for joining us today. Before we begin, I would first like to offer my sincere thanks to the first responders fighting this crisis on the frontline. Secondly, I want to express my gratitude and thanks to all our Potbelly employees. Their unwavering dedication and commitment during this ever-changing pandemic is inspiring.

As the COVID situation evolved, our #1 curve shifted from building on our turnaround momentum to ensuring the health and safety of our employees, serving our customers and communities. This pandemic forced us to make very difficult decisions across all our shops and in our corporate office and changed our business.

While we closed dine-in options in line with state mandates, the vast majority of our shops remain open with off-premise options. In those shops, we continue to adhere to our stringent food safety and quality protocol and are making necessary adjustments to align with emerging best practices. This includes the use of gloves and masks for our employees. Thermometers in each shop to check the temperature of our employees before they start their shift, adequate spacing for tables and off-premise pickup areas, enhanced cleaning procedures and the future addition of acrylic barriers at the cash registers and various high-traffic parts of the shop. We want our employees and customers to know that they can trust that the Potbelly brand is looking out for them both now and as we move into recovery.

Our second priority focused on taking the necessary steps to support and fortify our business. Plain and simple. We are running the business with the conditions we have, not the conditions we had. We've taken an urgent and proactive posture in this crisis, focused solely on the things we can control, and the intent is to preserve cash.

We've significantly streamlined our cost structure and balanced our business to the local realities of each market. We adjusted our G&A, shop level labor and COGS to these new realities. All of these decisions were necessary and painful. We temporarily closed 36 of our shops and are contemplating closing up to 100 shops permanently. We reduced salaries for all executives and corporate office employees by 25%, and our Board deferred compensation for the first half of 2020. We furloughed over 1/3 of corporate employees, we suspended merit increases, promotions, bonuses, and our 401(k) match. We pulled back on advertising and marketing spend. We limited capital expenditure to maintenance and safety only, and had an immediate conversations with our landlords about April rent and continue to have active discussions about our leases. We continue to work through scale inefficiencies, waste and increased delivery costs brought on by the pandemic.

Our business is different now with digitally-enabled off-premise channel predominant. The investments we made last year to improve our digital capability are proving crucial in this environment and will position us well during the recovery. Customers can digitally order profitability through our app and website as well as through our delivery partners, DoorDash, Grubhub and Uber Eats. Digital was a strong growth area for us before COVID-19 crisis, and that growth is amplified now. Digital sales across all delivery and pickup channels increased from 10.5% of shop revenue in January, February in 2019 to 14.8% in the same period in 2020. Since the second week of April of this year, digital revenue is now 51.6% of shop sales.

Accessibility is key to remaining competitive. Our customers can have their food delivered to their door, pick up their food at the shop or have one of our employees bring their order to the car with our new curbside pickup. Curbside is a complement to our existing 65 drive-through and is another safe and contactless way to enjoy Potbelly. It is emblematic of our nimbleness, adaptability and continued focus on evolving customer needs. We are excited curbside provides the same convenience and access of a traditional drive through, but without the associated capital expense. Our real estate portfolio and shop configuration limit our ability to deploy drive-throughs more broadly.

Another example of our rapid customer-focused innovation during the crisis is the launch of Potbelly Pantry. It took the team only 15 days from ideation to national launch for this concept. Potbelly Pantry started small as we saw a demand in this environment for essentials such as bread, deli meat and cheese. As stay-at-home orders continued, we identified demand for additional items such as cookie dough to make our famous cookies at home. Cookie dough now makes up 26% of the pantry mix, and customers have baked over 73,000 cookies at home in just 2 weeks. Most of these innovations are not reflected in our Q1 numbers.

We are driving demand in other ways. Many of you have also likely seen some of our new fun creative social media campaigns, which received national attention. These are low-cost ways to keep our brand relevant and top of mind at a time where there is not much to smile about.

While the pandemic has changed many things for us, we remain confident that the strategic foundation we were building prior to COVID-19 is as applicable in our recovery and beyond. We ended Q4 2019 with nearly flat comparable same-store sales. We built accelerating momentum into 2020 as we posted January comp of positive 2.5%, and February comp of positive 4.1%. Both comps were ahead of our budgeted projections. We won't make a habit of breaking out monthly comps, but we felt on this occasion, it is important to show we were on pace to record our fourth straight quarter of sequential same-store sales improvement and our first positive quarterly comp since the fourth quarter of 2016.

As we discussed last quarter, we launched our growth orientated initiative Project Aurora test, in early March in 52 shops across multiple markets. We saw encouraging initial results from these tests, but unfortunately, encountered the first positive cases of COVID-19 in these test markets within only a few days of launch. This, coupled with the closure of dining room, triggered our decision to formally pause these tests as they were originally designed to be all-encompassing across the customer experience. Enhanced marketing and some in-shop experience elements aren't practical in the current environment. There are certain components of these tests, however, that are still in place. Such as our new consolidated menu design that makes it easier for customers to find what they want. We're also continuing to build on what worked for us in Q4 and Q1, such as the move away from promotional messaging towards highlighting our delicious toasted sandwiches and fresh ingredients.

While our sales in aggregate are still materially lower than our pre-COVID-19 trajectory, our recent week-to-week improvements are encouraging examples of the resiliency of our brand and our people.

And now I'm excited to announce Steve Cirulis as our Chief Financial Officer and Chief Strategy Officer. This is the perfect time for Steve to assume this role as he has extensive and proven track record of developing and executing growth strategy in the restaurant and retail spaces. This includes senior positions with Panera, McDonald's and The Gap. Steve has been with Potbelly for 5 months now, previously serving in a strategic planning, financial and analytical consulting role. His insights were instrumental in the design and implementation of our Project Aurora test, and his leadership will be invaluable as we begin to navigate the new reality of the post-COVID-19 world. I would also like to thank Will Atkins, our VP and Controller, who did an excellent job in the interim period, enduring such a crucial time for our business.

With that, I would like to turn the call over to Steve who will walk us through our financial performance in the first quarter. Steve?

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Steven W. Cirulis, Potbelly Corporation - Senior VP, CFO, Principal Accounting Officer & Chief Strategy Officer, [4]

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Thanks, Alan, and good afternoon, everyone. And before I begin, I want to express that I'm honored and excited to be appointed as CFO and Chief Strategy Officer of Potbelly. As Alan mentioned, I'm no stranger to business turnarounds and transformation and look forward to helping Potbelly navigate this critical time in the company's history. While the impact of this pandemic has certainly overshadowed our progress, I believe this strategic framework put in place prior to COVID-19 will continue to positively impact the business, as customers gradually return to our shops from stay-at-home circumstances.

I'll provide details on the quarter as a whole, with additional context on how the pandemic changed our business and provide a look at what we are currently seeing. As Alan mentioned, prior to the COVID-19 outbreak, our business was unquestionably gaining strength in January and February.

As states mandated dining room closures and instituted stay-at-home orders, our comp sales decreased over 67.7% by the end of March. We immediately went from a majority dine-in business to one that was almost completely off-premise. Our prior investments in digital and delivery partnerships, coupled with the dedication and innovation of our employees, have resulted in consistent improvement in same-store sales each week since hitting negative 45.3% for the first week of May.

We are encouraged by the recent momentum, but still expect depressed sales for some time before we once again grow. This abrupt impact of COVID-19 clearly affected our Q1 results. We finished the quarter with total revenues decreasing from 10.7% to $87.6 million. The company-operated same-store sales declined by 10.1% in the first quarter. Breaking down same-store sales, our average check grew by 5.1%, offset by a traffic decline of 14.4%. Our shop level profit margin for the first quarter was 5.3% of sandwich shop sales as compared to 13.1% in the prior year.

Our general and administrative expenses were approximately $10.7 million in the first quarter or 12.3% of total revenue, a decrease of 70 basis points. The decrease was a result of shop closures and lease exit payment in the first quarter of last year. Adjusted G&A, which excludes store closure costs, restructuring costs and proxy related costs, and which we believe is the best indication of the core G&A expenses in our business, was $9.4 million in the first quarter or 10.7% of total revenue, which was flat on absolute dollar terms relative to last year. We will continue to tightly manage and control our G&A expenses in light of the current environment.

Adjusted EBITDA was negative $4.2 million for the first quarter compared to a positive $3.9 million last year. The decline was driven by lower sales from COVID-19. Cost of goods sold as a percentage of sandwich shop sales was 27.8% in the first quarter, an increase of 110 basis points, driven primarily by a shift in mix toward our big-sized sandwiches, combined with a shift away from fountain drinks. And this is an example of customer behavior changes we are seeing since mid-March.

Further, other operating expenses were 14.7% in the quarter, an increase of 220 basis points due primarily to third-party delivery fees. For the quarter, labor was 35.0%, an increase of roughly 210 basis points, also driven by COVID-19 sales deleverage.

Challenges will persist over the next several months. We will continue to control what we can control, and we will continue to focus on protecting our balance sheet. As we discussed, our team moved immediately to radically adjust costs and preserve capital with the spread of COVID-19. We have been operating under an extremely conservative cash preservation position and don't see that changing for the foreseeable future.

As a precautionary measure, we drew down our $40 million credit facility and are working toward a number of modifications to our credit agreement to reflect our operating realities under COVID-19. Cash management is paramount for us. Evaluating our cash position under multiple recovery scenarios, enables us to appropriately balance proactive and reactive actions. We feel comfortable with where things are moving, and we'll continue to advance all opportunities available to us to further protect our balance sheet.

As we announced on our fourth quarter call, we opened the 3 company-operated shops in the first 2 months of 2020, which were carryover from our 2019 shop plan. We temporarily closed 36 shops in the first quarter due to a lack of profitability under the crisis. We are continuing to evaluate the profitability of our shops and are contemplating up to 100 permanent shop closures. We will not build any new company-operated shops in 2020.

We also continue to work through various new tax regulatory changes. One that impacted our business in Q1 is an income tax benefit of $3.7 million, driven by an anticipated tax refund associated with provisions of the CARES Act. It's also worth noting that we are closely working with our supply chain partners and have not, nor do we currently foresee, any significant disruptions in our supply chain at this point.

And before I turn the call back over to Alan, I'd like to discuss our guidance position. As many of you know, we withdrew our fiscal 2020 guidance in late March. And until we have a better line of sight into what the recovery looks like, we will continue to refrain from providing forward-looking quantitative guidance.

And with that, I'll pass things back over to Alan for his closing remarks.

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [5]

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Thanks, Steve. As we prepare for the post-COVID-19 world, there are still plenty of unknown. We have, however, a firm grasp on the things we can control within our business. We are acting with urgency to preserve cash, protect our franchise and people to the best of our ability and find innovative ways to grow our present data opportunities. We are constantly evaluating multiple scenarios of what the recovery will look like. So our organization will be ready for success as this crisis wane. We fully acknowledge that the consumer behavior will be different coming out of this pandemic. And we need to be prepared to align our operations with the new reality. We are shaping our post-COVID-19 future by the moves we are making right now. And we will not allow this virus to determine our success. I wish everyone health and safety as we continue to fight this virus as a nation. That concludes our prepared remarks.

And I will now turn the call over to the operator for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Joshua Long with Piper Sandler.

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Joshua C. Long, Piper Sandler & Co., Research Division - Assistant VP & Research Analyst [2]

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Great. I appreciate the time today. I wanted to see if we might be able to dig into some of that improvement you've seen from the lows. You mentioned being down 45% now. And then also in the context -- or in the first week of May. Also in the context of a lot of the cost management you've been able to do, trying to get a sense of just what you think store level margins could look like at some of these depressed levels? I imagine you've gone through and tried to remove a lot of the costs or at least, adjust those down. But similar to peers, I imagine, those changes were occurring faster than you could probably make them. So now that we have a little bit of breathing room, perhaps, and identified some of the different cost elements, curious if you could provide some context on how we should be thinking about store level margins here in the next quarter or 2, just on some of these depressed sales levels.

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [3]

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Josh, I'll answer the first part, and I'll leave the cost up to Steve. So I mean, I think across the board, in the first couple of weeks, the impact was the same across almost all stores. And as we mentioned in the comments, you saw anywhere from a 60% to 70% drop across the board.

As you would imagine, the shops that really got impacted the most were anything relating to an airport store, a catering store, we have only 3 of those, but nonetheless, and the CBD locations, a lot of which we have in Washington and Chicago. They were the ones that were the hardest hit. And then as the sort of number of tests and incidents started to be reported, the closedown got more serious, but there was probably sort of 3 or so weeks where it hovered around sort of the 60 to 70 negative. The good news is that as the stay at home requirements have been relaxed, we can instantly see improvement. So for an example is in the state of Texas. We've got a lot of stores there. The very second they started to relax, we saw at least a 10 to 15 points improvement. So that contrast what the company was experiencing at minus 45, they were at minus 35 and almost instantly. So it's good news for the future trends when the diners opened up. Obviously, stores like where we have university, they are still struggling, and I expect to struggle until such time as the students return.

Steve, would you like to maybe address the second part of Josh's question, please?

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Steven W. Cirulis, Potbelly Corporation - Senior VP, CFO, Principal Accounting Officer & Chief Strategy Officer, [4]

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To shop level margin. I mean obviously, as we [recall], as Alan described, we immediately moved on some of the big things that we could control, right? Normalizing labor, I think, was a big thing for us. We moved on that pretty quickly, although it didn't happen immediately as we're adjusting to this falling sales. And there remains a little bit of inefficiency in the system, right? You have to have 2 people in the shop at all times, which may not be effective from an analytical standpoint, but needs to be there from a practical standpoint.

And as sales start to recover, we would expect, obviously, to get more leverage and that cost -- or I should say, that shock level margin to increase. We've got some things that are different now in that cost base that were not as present before. So for example, with the increase in the delivery business, obviously, there's more delivery fees that impact the shop margin. And we will continue to keep an eye, obviously, on our COGS. I think as we mentioned earlier in the call, we don't have a large concern over those kinds of things because we have pretty good visibility into our supply chain for some time, but we'll continue to watch those [good] costs as we continue to move through the crisis.

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [5]

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And then, Josh, there was a third part of your question, which revolved around -- so those were the trends, if you like, unassisted by some of the initiatives that we took. There's 2 ways to solve this problem. We've got to do both. Focus on the costs but also focused on driving the top line. And so with the -- moving at the speed of a crisis, we launched with Uber Eats, which was mid-April, we launched curbside in all of our shops. We launched Pantry in all of our shops and on the DSPs. And this week, nationally, we launched Family Meal Deal.

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Joshua C. Long, Piper Sandler & Co., Research Division - Assistant VP & Research Analyst [6]

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Great. A follow-up or 2 in there. When you saw those improvements coming back, do you attribute that to a lot of the work you've already done in terms of getting that branding and messaging and connection with the consumer in? Because you mentioned in your comments, you've leaned back or pulled off some of the marketing, which makes sense because there's a lot of noise in the environment. But as you started to see those guests come back into the restaurant, do you anticipate those with the guests that you'd already built that relationship with? Is there a little bit of new guests coming in there? Just any sort of sense you have there? And then I had a follow-up.

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [7]

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Yes, for sure. I mean I cannot imagine what the business would look like had we not invested like we did in Q3, Q4 of last year. I mean as you point out, the momentum that we had going -- leaving 2019 with a flat comp. And you don't deliver, in our case, a positive 4.1% in P2 by accident. I can point to specific initiatives that we started in the second half of 2019. I would say, for the most part, we -- it was a combination of customers that maybe we haven't seen for a while that came to with the dust in Q4, but certainly pitched up in Q1. And there were 3 parts to kind of what drove that. The right digital strategy with the web and the app, making those investments, adding those functionality, having the right partnerships. If you recall, in 2019, all of a sudden, people could find a Potbelly Sandwich on Grubhub and on DoorDash, and now on Uber Eat. And we also changed how we operated. We added pickup shelves in every single one of our shops. And we also made some improvements to how we operated and executed inside the shop with more consistency. So I think a lot of that brought back existing customers. And for sure, new customers.

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Joshua C. Long, Piper Sandler & Co., Research Division - Assistant VP & Research Analyst [8]

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Great. And the last one for me was I wanted to see if we could dig into some of the cash management scenarios or even at just at a high level, I'm sure you're looking through and testing every aspect of the business. But having drawn down the revolver and having had some time now to work with the cost, if you could provide some sort of visibility into the cash burn at the store level and/or levels at which you think you kind of breakeven at both the store level and the enterprise level, that would be helpful from a modeling perspective.

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Steven W. Cirulis, Potbelly Corporation - Senior VP, CFO, Principal Accounting Officer & Chief Strategy Officer, [9]

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Sure. Sure. I appreciate the question. I think what's probably most important here is as soon as we saw the business falling as rapidly as we did, we took those immediate actions that Alan outlined. And that helped us drop our cash burn rate by 60%. That's from a mid-March burn rate where things were heading south quickly to now. So I think that's important to understand. Now we obviously don't have a perfectly clear crystal ball. So it's really difficult for us to say ultimately what the recovery will look like and then what the cash position will be. But we're working under scenarios, a V-shaped recovery, a W-shaped recovery, an L-shaped recovery. And we continue to learn more about our business every day, which helps us get more visibility to those things. I will say this, we're comfortable with where we are but we're cautious, right, as we think about how things might evolve. Pulling down the revolver, obviously, helps us as we get through of 2020, and we expect to be able to do that with adequate liquidity. But again, it's hard to tell given the way this virus will evolve.

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Operator [10]

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(Operator Instructions) Our next question comes from Gregory Francfort with Bank of America.

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Gregory Ryan Francfort, BofA Merrill Lynch, Research Division - Associate [11]

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The first I had was just on dates that have opened up or starting to open up. Are you seeing any change or any inflection in those markets more so than in other areas of the country?

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [12]

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Yes, Gregory, Alan. For sure. So I'll give you 2 examples. The Houston, Dallas, most of the Texas markets, they were one of the first to start relaxing the requirements, and we saw an immediate 10- to 15-point improvement on the already-improving result. So for sure, you can -- as that changes, and the fact that it's a day-to-day thing, [we have] I think, I see that in Phoenix, same thing. So the good news is that the dine-in business is not dead. People still want to come to our Potbelly and enjoy the environment, albeit that even in those markets, we still are restricted as to the occupancy and only using 50% of the -- 25% to 50% of the dining room's capacity, which is okay for the moment, but I look forward to being at full capacity at some stage.

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Gregory Ryan Francfort, BofA Merrill Lynch, Research Division - Associate [13]

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Got it. That's helpful perspective. And then just in terms of -- I think one of the questions that's been asked of a lot of companies is pulling labor back into the stores. And I guess, you guys -- most of your stores have been open, but I'm guessing hours have been reduced. And if you have people who have been, I guess, laid off in this environment, you kind of hire them back. Any indication in terms of like what portion of them are willing to come back? Anything on that front would be helpful.

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [14]

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Yes, sure. A thoughtful question and a very practical one, too. Well, it's interesting. I had a long discussion with Julie, who heads up our operations yesterday to make sure that I had the most current read on things. And as a headline, we are not having difficulty bringing people back. In fact, there's more people that want to come back than we actually can provide. And that's important because otherwise, we have to retrain people. And in today's environment, that would be difficult to do it best. And -- but overall, she -- there have been some isolated situations where -- I mean so far, we've only had, I think, as of this morning, 21 cases and 100% recovery. And so when people are concerned about, did somebody have it at the shop, obviously, we go through and do all the deep cleaning and all the precautions that we need to. And we have to build trust with our employees, and that's why we have mandated that all of our employees wear gloves, wear masks, that's part of the uniform, until such time as we decide to change that. And I think that brings the confidence that Potbelly is creating an environment that is safe, not only for our customers but also for our employees.

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Gregory Ryan Francfort, BofA Merrill Lynch, Research Division - Associate [15]

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Got it. Helpful perspective. And maybe just one last one for me. You're talking about evaluating up to 100 stores. Can you maybe talk a little bit about that for a possible closure? Can you talk about that process? How you're thinking about those stores? If there's any common themes, I guess, if they're in urban markets versus suburban or anything like that? I guess, as we look out maybe 12 months or 24 months, I would hope that things start to return to normal. And I guess I'm curious the thought on closing them. Is that just because of cash needs in the near term? Or what's the rationale?

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Steven W. Cirulis, Potbelly Corporation - Senior VP, CFO, Principal Accounting Officer & Chief Strategy Officer, [16]

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Sure. Greg. Good question. Yes. So we're contemplating closing the shops, frankly, as a way to strengthen the business coming out of the crisis, shops that were not profitable pre-COVID, which, of course, during this crisis, they're even more challenged. And in fact, around 90% of the shops that we prioritized in this effort for closure have been previously impaired. So important for us from a long-term perspective. And even if you look at the shops that we've rarely closed thus far, there's a high overlap between those and those that we're contemplating closing permanently. So obviously, it helps us long term, no question, but it's also, I think as we expect and hope to be highly competitive coming out of this, it gives us some support that way as well.

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Operator [17]

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Our next question comes from Joshua Long.

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Joshua C. Long, Piper Sandler & Co., Research Division - Assistant VP & Research Analyst [18]

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Great. I wanted to see if we might be able to talk about some of the new sales channels that you got into, in particular, Potbelly Pantry, and then leaning into, say, the Curbside and other pieces as well, pretty exciting and nice to see the brand be able to pivot. So I mentioned that was a lot of heavy lifting and hard work for the team, that is now paying off in this current environment.

Curious on what you've seen to date there in terms of just brand -- reception from consumers or maybe how it aligns with the brand? And if you think that this is maybe a short-term or temporary sales channel or something that has some legs that as you go into this new normal or redefining what the brand might be when we come out on the other side of it, if you think these are some channels that we might continue or continue to invest in going forward?

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [19]

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Yes. Thank you, Josh. So let me deal with Pantry first. It was amazing. We were sitting down and said, listen, as a team, we're going to work hard at cost control and all that sort of stuff. But we're not going to take a defensive posture here. We're going to aggressively look for opportunities to grow the top line that generates just as much cash. And in 15 days, the team came up with the Pantry idea. In fact, if you had a look at the timing, Potbelly was one of the first national chains to launch Pantry. And what started off quite literally small, where we just offered a few daily meats, some cheeses and kind of be done and access to our bread. Then quickly in sort of 2 weeks, we got a lot of feedback saying, "Hey, can we buy the pickles, can we buy the cookies?" And who would have thought that in just over 2 weeks, we would have sold over 73,000 bake-at-home cookies?

So you talk about a love affair with the brand, if you're willing to put it in the oven and cook, and as a parent, you're running out of things to do, right, an activity that's fun for the family. It also speaks to the warmth of the brand. Potbelly has always been a warm brand with a relaxed atmosphere. And so being able to, if you can't visit it, bring the fun home. So this -- yes. Cookies is nearly 30% of the mix. I would never have imagined that. And then we had a little bit of fun with it. We sell a 5-gallon drum of pickle for the purposes -- the cost, I think $55 or $99, I can't remember, but there's still people who buy that. And at a time like this where so stressful, having a little bit of fun is important.

Curbside, I'm really excited about. This is an incremental occasion customer. It's not capital intensive. A, you can get 80% of the upside with very little capital, and there are very few things I can think of in our business where you can get 80% of the benefit off just a little bit of cash. It leverages the rent and the labor. We've got great locations. Clearly, the consumer is desperate for more and more contactless ways to engage with a brand like Potbelly. And we've got experience in this area. We have 65 drive-throughs. It's not like we don't know that business. It's not that we don't have the systems. We just never have committed to drive-through as a long-term part of the Potbelly experience. Whether they say, no crisis should go unwasted. Clearly, the consumer wants this and ever since we've launched it, we've seen some healthy numbers. So I'm really excited to add curbside to our off-premise offerings.

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Steven W. Cirulis, Potbelly Corporation - Senior VP, CFO, Principal Accounting Officer & Chief Strategy Officer, [20]

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Let me just add one thing to that. As this has evolved, our daypart mix has shifted a little bit. I think the alternative offerings that we are putting out there, I think, makes us run in the different parts of [this]. We're seeing the business as we had, obviously, strong business with office workers, but we're seeing dinner uptick, and that's encouraging for us as we think about whether it's Potbelly Pantry or some of the things we may be experimenting with in the future, helping out with making Potbelly relevant beyond just that lunch period. So those are encouraging things for us.

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [21]

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I'm not sure if you caught that, I'll just repeat the most important part which was, where we're seeing the most growth is at dayparts and times of the week that are the most important, dinner and weekend, where post this virus, we had a lot of room for improvement in those dayparts.

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Joshua C. Long, Piper Sandler & Co., Research Division - Assistant VP & Research Analyst [22]

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Great. Thanks for that description and also clarification. When we think about your commentary around pulling off some of the marketing, that obviously makes sense. But as we think about going forward, can you talk about engaging guests with the brand, either through menu innovation, marketing, branding, digital. I imagine it leans heavily digital, but just curious at a high level, what you're thinking about and how things might be shifting at a high level going forward versus maybe how we were talking to the guest pre-crisis?

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [23]

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Yes. I don't see digital becoming less important to becoming more important. In fact, a lot of the digital activity that you have seen during the crisis was actually harnessed from some of the work that we did on Project Aurora. We actually produced some commercials that were for digital distribution on the various social platforms. And rather than waste those, we use them in our existing non-Aurora markets. And they played very well and had a little bit of fun with us at the same time. You'll note that all of that branding was inside the Potbelly shop, which is one of the most distinctive differentiators. When you tee us up against all the other sandwich providers, there's no one that looks like a Potbelly. And for brand recognition, I think that's very important to celebrate that strength.

Apart from that, most of my comments regarding slowing down on the marketing with in relation to Project Aurora. I just want to make sure that, that's clear. But the great news is we did leave elements in those test markets that I think are proving to be very successful decisions, like the consolidated menu. As you know, our menu spread throughout the shop in 3 or 4 different locations. A new menu design, it's easier to navigate. Interestingly enough, they are less SKUs, a significant reduction in SKUs. And the in-shop signage is different, and speaks to some of the brand elements of the delicious ingredients. In fact, you could almost eat the signage, that part of photography is so good.

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Joshua C. Long, Piper Sandler & Co., Research Division - Assistant VP & Research Analyst [24]

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Fair enough. When we think about some of the mix components you mentioned there, Steve, I want to see if we could break down that average check. One of your comments was also that we saw a shift towards the Bigs and away from the beverages. And I imagine that a higher level comment, but wanted to then juxtapose that against a lot of the work you've done on that menu consolidation and some of the work you've done with your beverage partners. I think in some of the test units, you've seen a nice uptick in terms of beverage attached or at least selling the meal deal. So curious if that was still the case here. And maybe just that gets overshadowed by just some of the larger trends as everything moves back as the consumers pulled back there in March.

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Steven W. Cirulis, Potbelly Corporation - Senior VP, CFO, Principal Accounting Officer & Chief Strategy Officer, [25]

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Yes. I think the test markets are still pretty small percentage of all of our fleet. So you don't see any of that really show up in any meaningful way. I think in general, we do see lower attachment of beverages and chips given that, I think, the way that people order now and where the product is consumed, right? And to partially offset some of that, though, we have seen an increase in other elements of the menu like cookies and upgrades like avocado and even some increase in our shakes and smoothie sales. So I think it's something that we'll continue to watch, right? As we -- as the consumer behaviors tend to evolve, and we're going to continue to try to understand how those things happen. As it relates to the test shops, the menu boards were completely consolidated there, and we got rid of some menu items and so forth. So the mix shift, I think, related to those markets will be different than we will see with our kind of standard menu boards that we've got in place. But obviously, if we see good ideas, we try to spread them as quickly as we can across the system.

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [26]

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I'll also point out. I think we all know this, but the dinner customer spends more, so does the off-premise customer. So the folks that are coming to us through this channel spend more than 2x what the typical dine-in, eat-in customer would typically spend. It makes sense, right? You're ordering for dinner and you're ordering for the weekend you typically, while serving to a much bigger party size.

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Operator [27]

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Our next question comes from Sharon Zackfia with William Blair.

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Sharon Zackfia, William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer [28]

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I was hoping if you could talk and maybe break down that comp from last week, the down 45% a little bit more granularly. I know you mentioned CBD is underperforming suburban. Could you kind of put some numbers around that?

And then regionally, I mean, you gave us some texture around what Texas looks like, maybe some of your other big markets and how they're looking?

And then Pantry, which you touched on, it is a really interesting initiative. I'm just really not sure though, kind of how much of the mix it now has grown to and how we think about that as it relates to food cost?

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [29]

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Okay. So why don't we break this up in 2 pieces. The -- by asset type performance. The shops that's doing the best are the urban and suburban shops. Good news is we have a lot of them. The shops that are struggling the most, and this is I'm talking about the most recent numbers, are the airports, as I mentioned, the good news is we only got 7. The universities, we've got about 13 of those. The reasons for their performance is obvious. And the CBD is doing better than the airports and better than the universities. As the dining room start to open up, in terms of the market, really the only discernible changes in the restrictions are in the markets that I mentioned, Texas, Kansas City, Phoenix and all of those that are doing 10% to 15% better -- sorry, not percent -- points better. So lower comp, lower negative comp by 10 to 15 points lower than the trend they were operating at before those relaxation requirements came into play. So we can point to that.

You had a question on Pantry. Look, Pantry is an opportunistic thing. Who knows, a long-term these people want to buy their daily meats from Potbelly probably doubt it. But right now, when cash is king, we've got the product. We're not -- we didn't have to add anything, all we had to do is upload the pictures offered on the website and the app. Spent no money doing that, and allowing customers to order straight off the website. It's -- at its peak, it was -- it ranges between 3% to 5% of our sales, which I think is pretty amazing for not having to do anything. And in today's environment, those percentages make a difference.

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Sharon Zackfia, William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer [30]

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Yes. I think I was trying to go with the regional question. Was there are other companies that are talking about the center of the country performing better than the coast. And so independent of the reopenings of Texas and some other states, you have a huge presence, obviously, in Chicago. I was just wondering if Chicago or some of the other center country markets are just holding up better for you than, say, the East Coast or other places?

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [31]

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Yes. Yes. Well, as you know, we don't have any on the West Coast. So the only ones we have really is New York. New York has been badly impacted by, obviously, they're the epicenter of the virus for the U.S. So New York has improved. I don't really -- I don't -- can't really sort of provide you market-by-market. I have it in front of me, just it's not that instructional. I can tell you, Chicago, where we have the lion share of our concentration has improved nicely. And what's driven that is the off-premise addition of Uber Eats, the Grubhub, the DoorDashes, curbside, Pantry, and we also tested Family Meal deal in a number of shops. So geographically, I don't see a distinct pattern.

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Sharon Zackfia, William Blair & Company L.L.C., Research Division - Partner & Group Head of Consumer [32]

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Okay. And then given the labor you've taken out of the stores, could you help us think about what kind of average weekly sales you need at this point to break even at the restaurant?

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Steven W. Cirulis, Potbelly Corporation - Senior VP, CFO, Principal Accounting Officer & Chief Strategy Officer, [33]

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Yes. This is Steve. I think it depends on the shop, obviously, but we need to see comps improve, I think, in the low double-digit range in order to get us to kind of that point.

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Operator [34]

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This concludes the question-and-answer session. I would like to turn the conference back over to Alan Johnson for any closing remarks.

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Alan L Johnson, Potbelly Corporation - President, CEO & Director [35]

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Thank you, Anastasia. Thank you again for your time today and your continued support. I look forward to updating you on our progress in the next earnings call. Have a great evening, and stay safe. All the best. Bye-bye.

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Operator [36]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.