Potbelly Corporation

Good morning, everyone, and welcome to Potbelly Corporation's fourth quarter and full year 2021 earnings conference call. All lines have been placed on mute to prevent any background noise. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the call over to Ms. Adia Dixon, Potbelly's Chief Legal Officer. Please go ahead.

Good morning, everyone, and welcome to our fourth quarter and full year 2021 earnings call. Our presenters today are Bob Wright, our President and Chief Executive Officer, and Steve Cirilis, our Senior Vice President and Chief Financial Officer. Please note that we have prepared a set of PowerPoint slides that will accompany our prepared remarks. You may access these slides on the investor relations section of our website. After our prepared remarks, we'll open the call for your questions. I'd like to call your attention to our cautionary statements on slide two and note that certain comments made in this call will contain forward-looking statements regarding future events or the future financial performance of the company. Any such statements, including our outlook and targets for 2022 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 future performance, nor should they be relied upon as representing management's 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 and the factors that could cause actual results to differ materially from the forward-looking statements and other information that will be given today can be found in our Form 10-K, which will be filed later today, under the headings Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations, and in our subsequent filings with the Securities and Exchange Commission, which are available at sec.gov. During the call, there will also be a discussion of financial metrics that do not conform to U.S. generally accepted accounting principles or GAAP. Definitions and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the appendix to the investor presentation and press release issued after the market closed yesterday, both of which are available in the investor's tab of our website. I'll now turn the call over to Bob.

Thank you, Adia. Good morning, everyone, and thank you for joining us today. I hope you and your families have remained safe and healthy since our last update. I'd like to begin today's call by thanking our Potbelly family for their continued dedication to our brand and their strong work ethic throughout 2021 and to date in 2022. It remains our top priority to ensure our guests enjoy safe and fun dining experience in our shops, and your loyalty makes that possible. 2021 exceeded our expectations on a number of levels, including the most recent quarter. and we're very excited about the future for our brand and company. Before we get into the future, let's first review the highlights from the fourth quarter and full year 2021. Beginning on slide three, starting with the top line, fourth quarter revenues totaled $102.8 million, an increase of 37% compared to the same period in 2020, with same-store sales increasing by roughly 34% as compared to Q4 2020. For fiscal 2021, revenues of $380 million were up 30% compared to 2020, with same-store sales up over 30%. Our top-line strength was driven by positive demand coming off the pandemic-impacted 2020, as well as execution against our five-pillar strategy that included numerous initiatives to drive traffic both in our shops and via digital channels. While we still incurred a net loss, it was significantly better than a year ago, both for the quarter and the year. We reported positive adjusted EBITDA for the third consecutive quarter as well as positive shop-level profitability in each of the four quarters last year. Also, fiscal 2021 shop-level margins expanded by 990 basis points compared to 2020. Despite macroeconomic challenges related to labor and ongoing uncertainty regarding COVID, In addition to the inflationary headwinds, our business has once again proven its resilience and ability to deliver growth and improve performance. In fact, quarter over quarter, we expanded shop-level margins by 140 basis points to 11.2% for the quarter. The recent margin momentum is extremely encouraging for us as we look forward to our next phase of growth, which I will detail later in our call today. Our shop portfolio continues its path to recovery, accelerating its pace in the fourth quarter, demonstrated by the increase in same store sales. This was driven by robust demand levels combined with the successful implementation of our strategy. We achieved an annualized AUV of $1.05 million in the fourth quarter, our second sequential quarter achieving this level. I'm also pleased to report that we experienced improvement across all our shop types versus the fourth quarter of 2020. with notable increases in airport, CBD, and university locations, which had previously been lagging in their recovery, a particularly encouraging sign as we look to build further momentum. Additionally, we saw improved volumes across each of our shop channels, which was once again led by in-shop sales and supported by continued strength in digital channels. Digital accounted for approximately 36% of our total sales for the full year, In dollar terms, digital sales grew by approximately 11% year over year. The durability of Potbelly's digital channel is clear, and we expect further success and growth in this important service mode in the future. Turning to slide four, I'd like to highlight a few significant achievements in 2021 from a strategic perspective. We had a very busy and purposeful year, which included rolling out a new menu, increased digital marketing success, improvements to our tech stack, and completing the build-out of our senior leadership team. Beginning with our newly updated menu, we are incredibly pleased with the positive response we've received from our customers. The new menu has both enhanced value for our guests as well as improved traffic and average check size. We also saw tremendous benefit from our improved tech stack as the revamp of our digital channels has delivered meaningful improvement to the customer experience, making for a much more streamlined and user-friendly ordering system. With the appointment of our CMO, David Daniels, we have sharpened our focus on investments in digital marketing to strengthen our presence with a balance of awareness, traffic, and sales to accelerate our current growth, while at the same time nurturing our relationships with Perks Rewards customers and advancing our customer acquisition program. As always, we were continuously looking at ways to improve Potbelly's already iconic and highly relatable brand to better reach our target audience. and achieve higher engagement levels with our already loyal customer base. Lastly, I'd like to congratulate the Potbelly team for their efforts in combating the broader macro headwinds of 2021, some of which we're still facing today. Throughout 2021, the labor market was extremely tight. This is true of the market broadly and more notably within our industry. In fact, it's probably the tightest I've seen in my over 30-year history in the industry. As a result, we implemented multiple programs to attract and retain employees, such as competitive wages, referral bonuses, retention bonuses, and programs to promote upward career potential, which have been an integral part of our success this year. G&A discipline remains a key focus for Potbelly, in addition to multiple actions across cost and operational efficiencies to offset food and other cost pressures in the wake of this high inflationary environment. We're extremely proud of our accomplishments in 2021, and we're ready for the next phase of opportunity and growth. With that introduction, I'll now turn the call over to Steve to provide more details on the fourth quarter and full year financials, recent sales trends, and a quick preview of our expectations for 2022. Steve?