Potbelly CEO explains the 'five pillar strategy' fostering growth

Sandwich chain Potbelly (PBPB) posted fourth-quarter revenue results ahead of estimates while falling short of adjusted EPS (earnings per share) projections. Potbelly CEO and President Bob Wright dives into the restaurant's latest earnings report to explain which areas of Potbelly's business are being prioritized.

"Digital was a big success for us in the fourth quarter. Over 40% of our business came through our digital channels, that's 150 basis points better than a year ago," Wright tells Yahoo Finance. "For the second quarter in a row — we're very excited about this — more than half of our digital business is coming through our own channels. Our perks loyalty program, our app, our web, and that's what's really driving the business, we rolled out a new enhanced perks loyalty program in January."

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Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

[AUDIO LOGO]

BRAD SMITH: Shares of Potbelly moving to the downside on the heels of its quarterly results. Revenue surpassing the Street's expectations, but adjusted EPS coming in weaker than expected. For a deeper dive into the company's quarterly results, we're joined by Bob Wright, who is the CEO and President of Potbelly.

Thanks so much for taking the time here. We were just talking about Potbelly in the break. I was going down memory lane. I used to visit you guys once a week. I'm sorry, clearly, I need to do more here, so I'll do my part next quarter. I promise you. But first and foremost, walk us through this quarter. What are some of the catalysts that are jumping out to you that the company can lean further into? And what are some of the weak spots that you feel like might need some course correcting?

BOB WRIGHT: Yeah, thanks. It's good to be with you. It was a great quarter for us. We had another quarter of same store sales growth driven primarily by traffic growth. Second quarter in a row we've been able to say that. We had strong profitability and beat our guidance both for the quarter and for the year.

So I'm thrilled with the performance of our team. Very, very proud of the work that we've achieved and accomplished, really not just in Q4 but throughout 2023. What's driving it? The five-pillar strategy that we've been operating under since 2021 is really at the root of our efforts. And it's the root of our success.

Digital was a big success for us in the fourth quarter. Over 40% of our business came through our digital channels. That's 150 basis points better than a year ago. And for the second quarter in a row-- we're very excited about this-- more than half of our digital business is coming through our own channels, our perks loyalty program, our app, our web. And that's what's really driving the business.

We rolled out a new, enhanced perks loyalty program in January. But even before we did that, one of the other numbers we shared was an 87% increase in our perks loyalty membership growth in the quarter versus a year ago. So a very strong quarter for us. We're really pleased.

SEANA SMITH: Bob, when we talk about inflation, obviously it's had a real impact on you, on your competitors out there. How have you navigated your pricing strategy? And what does that look like here as we're starting to see some of those pressures ease?

BOB WRIGHT: Yeah, it's a great question. In fact, part of that five-pillar strategy was the rollout of our new menu back in 2021. And it became the foundation for re-establishing a much more value-centric relationship with our customers. We introduced a third size. We brought down the entry point pricing on our Skinny sandwiches.

We enhanced the Original and Bigs with more meat and more cheese, and made the sandwiches bigger and meatier. And did that without raising the cost to the consumer by the same amount of investment we put in the food cost. So we intentionally took our food cost up as a translation of value for the customer.

Since then, in the last three years of inflation, we've been very intentional with our pricing only to take enough pricing to offset the pressure on food and labor costs. There have been pressures elsewhere in our P&L, but we believe it's our responsibility to our customers to find efficiency in those other areas and not ask them to shoulder all of that burden. And we certainly haven't been taking price to drive margin like some other brands have done.

Last year, that meant three price increases in the low, low, low single digits individually. And the net benefit to us was just barely offsetting that inflation. We expect similar inflationary pressure to carry through our business this year. And again, we'll see some very small price increases just to offset that.

We watch average eater check as well as average check as a barometer for our value proposition for our customers. And we watch it not only compared to fast casual but compared to QSR and to casual dining as well. And the data that we see suggests we're in a really good spot in terms of price per eater.

You put that on top of the great experience, Brad, that you talked about, I mean these 500-degree toasted sandwiches, fresh baked cookies every day, soups that are made every day. These are things that people evaluate as they look at their total experience. So yeah, we think it's important, and we try to protect it.

BRAD SMITH: Yeah, those strawberry milkshakes are family, Bob. At the end of the day, though, a lot of people might be asking themselves, why do bigger sandwiches make sense at a time where increasingly, weight loss drugs, GLP-1s, Ozempic getting tossed around at household level at this point and impacting appetites?

BOB WRIGHT: We weren't creating a size barrier for our customers by making those sandwiches bigger. We were right sizing them to what their expectations were. And as I said, at the same time, we introduced a Skinny sandwich, which was a smaller sandwich that we'd never had before.

And I think naming it Skinny was part of our way of being on brand. But frankly, it's really hit the consumer in the way that they want. We have consumers that are-- our customers that buy up and down through all three sizes. And a lot of it depends on what that meal occasion is for them that day.

Skinny is also an option you can pair it with a soup, you can pair that with a salad. And it's a great lower calorie meal for the customer that fits their needs. Those are available in every single flavor. So I think we're in a great spot in terms of variety, sizing, and caloric content for really all parts of the menu.

SEANA SMITH: All right, Bob, we got to leave it there. But Bob Wright, Potbelly's CEO and President. Thanks so much for joining us here at Yahoo Finance this morning. Have a great weekend.

BOB WRIGHT: You too. Thank you.